Milbank, Tweed, Hadley & McCloy LLP prevailed on behalf of clients AXA Equitable Life Insurance Company (“AXA”) and AXA Equitable Funds Management Group LLC (“FMG”) in a precedent-setting “excessive mutual fund fee” lawsuit. This high-profile dispute, closely watched by the mutual fund industry and broader financial community, is the first case of the pending “manager of managers” cases to proceed to trial. As one of many “manager of managers” lawsuits brought against mutual fund investment advisers, the plaintiffs, who sought more than $550 million in damages, alleged that AXA had delegated substantially all of its management and administrative services to sub-advisers and a sub-administrator while retaining most of the fees.
The long-awaited decision was issued on August 25 by Judge Sheridan of the United States District Court of New Jersey and was the first case under Section 36(b) of the Investment Company Act of 1940 to go to trial since the Supreme Court’s 2010 decision in Jones v. Harris. In an extensive, 159-page opinion, the Court found for AXA and FMG, dismissing the action with prejudice. In reaching its decision, the Court, questioned the credibility of Plaintiffs’ expert witnesses, found that Plaintiffs had not satisfied their burden of proof on any factor and endorsed the mutual funds’ board’s review of Defendants’ fees as “robust.”
“A significant victory for AXA and FMG, it also sets important precedent for other advisers facing similar Section 36(b) claims, and for the mutual fund industry as a whole,” said Milbank Litigation partner Sean Murphy.
The trial, which lasted 25 days, was tried by Milbank partners Sean Murphy, James Cavoli, and Robert Hora, as well as by James Benedict, with assistance from local counsel Jon Korn of Blank Rome. The team also included associates Andrea Hood, James Whooley, Benjamin Reed, Nikki Nielson, Jillian Trezza, Michael Mirdamadi and Rita Ganguli.
Milbank attorneys have tried five of the eight Section 36(b) cases to proceed to trial, including the seminal 1981 Gartenberg case.
A copy of the decision can be found here.
