The justices sent Jones v. Harris Associates back to the 7th U.S. Circuit Court of Appeals in Chicago for the judicial do-over, according to a Wall Street Journal news report. The 7th Circuit said market forces could do a better job than judges of keeping fees in check (see High Court Takes on Investment Adviser Fee Dispute).
In sending the case back, justices asserted that the correct legal standard in excessive fund fee cases was actually that the fees did not run afoul of the law unless they were “so disproportionately large” that they could not have been the product of arm’s-length bargaining. That is the standard currently used by most federal courts, according to the Journal.
Justice Samuel Alito, who wrote the opinion, rejected the 7th Circuit’s use of the proof of fraud standard.
A group of investors alleged Harris Associates LP charged excessive fees for managing a family of Oakmark funds. The fees were twice as much as Harris imposed on its independent clients for similar investment services, according to the charges.
Harris insisted its fees were unremarkable, priced at or slightly above medians for comparable mutual funds.
The opinion is available here.