Thursday, November 7, 2013

Gartenberg v. Merrill Lynch Asset Management, Inc. case brief

Gartenberg v. Merrill Lynch Asset Management, Inc. case brief summary
694 F.2d 923 (1982)

CASE SYNOPSIS
Appellants sought review of a judgment of the United States District Court for the Southern District of New York, dismissing their consolidated stockholders' derivative suits against appellees for violation of § 36(b) of the Investment Company Act, 15 U.S.C.S. § 80a-35(b).

CASE FACTS
Appellants, stockholders in a money market fund, filed stockholder derivative suits against appellees--the fund, the fund's manager, and an affiliated brokerage company--for violations of § 36(b) of the Investment Company Act, 15 U.S.C.S §80a-35(b). Appellants claimed the fees paid by the fund to the manager for services were so disproportionately large as to constitute a breach of fiduciary duty in violation of § 36(b).

DISCUSSION
  • In a non-jury trial, the district court reviewed the evidence and concluded that the compensation paid to the manager was fair. 
  • The court found that appellants failed to prove by a preponderance of the evidence a breach of fiduciary duty, taking into consideration: 
  • 1) the high quality of the services rendered by the manager; 
  • 2) the increased costs for the brokerage to process the fund shares; and
  • 3) the fact that the manager did not charge a fee that was disproportionate to the services he rendered.

CONCLUSION

The court affirmed the dismissal of appellants' suit against appellees for breach of fiduciary duty in their administration of a money market fund because appellants failed to prove by a preponderance of the evidence that appellees paid disproportionately large fees to the fund's manager given the quality and quantity of his services.

Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials

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