Blawgletter®

Supremes Listen to Fee Fight

The U.S. Supreme Court today heard what "fiduciary" means for an investment adviser when it charges mutual funds more than institutional investors pay for similar services.  See Transcript, Jones v. Harris Assocs. L.P. , No 08-586 (U.S. Nov. 2, 2009).  Briefs here.

Blawgletter predicts a close decision -- probably by one vote -- in favor of mutual fund investors, who claim the adviser breached its fiduciary duty under section 36(b) of the Investment Company Act.

The system for setting fees looks odd to us.  Mutual funds come into the world through the will of a Fidelity, a Templeton, a Vanguard, or some other outfit that aims to make money by selling its investment advice.  The money-making part comes in the form of adviser fees, which the creator/sponsor more or less negotiates with mutual fund offspring.  An independent board must okay the pay. 

But can the board, however independent, guard against too-high fees ex post facto?  In 1970, Congress feared not.  It said "the investment adviser . . . shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services".  15 U.S.C. 80a-35(b).  Congress also created a cause of action to recover excessive fees.  And it provided that the board's clearing of the fees didn't end the inquiry but that the okay “shall be given such consideration by the court as is deemed appropriate under all the circumstances".  `15 U.S.C. 80a-35(b)(2).

The Justices grappled with the idea of a "fiduciary" duty that an independent board mediates but that a court may then review afresh.  Two of them -- Chief Justice Roberts and Justice Scalia -- vocally doubted the practicability of having judges second-guess board decisions.

Five others spoke more charitably about the excessive fee claim.  The petitioners, who lost in the district court and the Seventh Circuit, pointed out that the fees at issue far exceeded the fees that the same adviser charged its more savvy institutional investors for the same kinds of services.  Justices Breyer, GInsburg, Kennedy, Sotomayor, and Stevens seemed to want to give "fiduciary" more meaning than the courts below did.

Supremes Will Hear Big Civil Cases Next Monday

The U.S. Supreme Court will hear arguments in a pair of key civil cases on November 2.  One involves a claim to recover "excessive" fees under the Investment Company Act of 1940, Jones v. Harris Assocs., No. 08-586; and the other concerns states' ability to bar class actions asserting state law claims in federal court, Shady Grove Orthopedic Assoc. v. Allstate Ins. Co., No. 08-1008.  The cases strike Blawgletter as leading indicators of how far the Court will go this Term in cutting back civil claims.  We'll listen with interest on Monday.

MDL Panel Heads to Harvard for Nov. 19 Session

The Judicial Panel on Multidistrict Litigation ordered today that its seven members will gather for the next argument session on November 19 in Cambridge, Massachusetts.  Their Honors will hear from lawyers in, by Blawgletter's count, 16 potential MDL matters.

By the way, we confess to error in guessing the Panel would head south for this gathering.  You can't get a whole lot farther north in the lower 48 than the Ames Courtroom at Harvard Law School.

Further by the way, the numbers have come in for the last set of MDL cases.  By circuit and district court:

First Circuit

None

Second Circuit

Southern District of New York (2)
Western District of New York

Third Circuit

District of New Jersey

Fourth Circuit

District of Maryland

Fifth Circuit

Northern District of Texas (2)

Sixth Circuit

None

Seventh Circuit

Southern District of Illinois

Eighth Circuit

District of Minnesota
Western District of Missouri

Ninth Circuit

District of Arizona
Central District of California
Southern District of California

Tenth Circuit

None

Eleventh Circuit

Northern District of Alabama
Northern District of Georgia (2)

D.C. Circuit

None

Ice Maker Pleads to Customer-Allocation Charge, Agrees to Pay $9 Million

Arctic Glacier, the U.S. unit of a Manitoban outfit, pleaded guilty to violating section 1 of the Sherman Act.  It confessed to conspiring with rival ice-makers not to vie for customers in Detroit and southeastern Michigan.  The Antitrust Division of the U.S. Department of Justice said:

FOR IMMEDIATE RELEASE TUESDAY, OCTOBER 13, 2009 WWW.USDOJ.GOV

AT (202) 514-2007 TDD (202) 514-1888

MINNEAPOLIS PACKAGED-ICE COMPANY AGREES TO PLEAD GUILTY AND THREE FORMER EXECUTIVES PLEAD GUILTY TO CUSTOMER ALLOCATION CONSPIRACY Company Agrees To Pay $9 Million Criminal Fine WASHINGTON — A packaged-ice company, headquartered in St. Paul, Minn., has agreed to plead guilty and to pay a $9 million criminal fine for allocating customers, the Department of Justice announced today. In addition, three of the company’s former executives pleaded guilty for their roles in the conspiracy to allocate customers. According to a one-count felony charge filed under seal on Sept. 10, 2009, and unsealed today in the U.S. District Court in Cincinnati, Arctic Glacier International Inc. engaged in a conspiracy to suppress and eliminate competition by allocating packaged-ice customers in the Detroit metropolitan area and southeastern Michigan, beginning Jan. 1, 2001, and continuing until at least July 17, 2007. Under the plea agreement, which must be approved by the court, Arctic Glacier has agreed to cooperate with the Department’s ongoing investigation. According to separate one-count felony charges, also filed under seal on Sept. 10, 2009, and unsealed today in the U.S. District Court in Cincinnati, Frank Larson, Arctic Glacier’s former senior vice president of operations, and Keith Corbin, the company’s former vice president of sales and marketing, participated in the same conspiracy beginning at least as early as March 1, 2005, and continuing at least until July 17, 2007. According to an additional one-count felony charge filed under seal on Sept. 10, 2009, in the U.S. District Court in Cincinnati and unsealed today, Gary Cooley, the company’s former vice president of sales and marketing, also participated in the conspiracy from at least as early as June 1, 2006, until July 17, 2007. Under the three separate plea agreements, which must be approved by the court, the former executives have agreed to cooperate with the Department’s ongoing investigation. In court documents, the Department said that the three former executives and Arctic Glacier, conspired with another packaged-ice competitor to allocate packaged-ice customers in southeastern Michigan and the Detroit metropolitan areas. As a part of the conspiracy, Arctic Glacier, its former executives and other co-conspirators exchanged information for the purpose of monitoring and enforcing adherence to the agreed customer allocations and refrained from competing for the allocated customers. Arctic Glacier, Larson, Corbin and Cooley are each charged with allocating packaged-ice customers in violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine for individuals and a $100 million fine for corporations. The maximum fines may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either of those amounts is greater than the Sherman Act maximum fines. These charges stem from an ongoing antitrust investigation into the packaged-ice industry. As a part of the same investigation, Home City Ice Company pleaded guilty on June 17, 2008, for its participation in a conspiracy to allocate customers and territories in the packaged-ice industry. The investigation is being conducted by the Antitrust Division’s Cleveland Field Office and by FBI offices in Ann Arbor, Mich.; Indianapolis, Ind.; Dallas, Texas; and Cincinnati and Toledo, Ohio. Anyone with information concerning customer or territorial allocation agreements, or other anticompetitive conduct in the packaged-ice industry, should contact the Cleveland Field Office of the Antitrust Division at 216-687-8400.

Blawgletter notes that the Antitrust Division raided the other major ice-maker in the U.S., Reddy Ice of Dallas, earlier this year.  The Judicial Panel on Multidistrict Litigation centralized civil antitrust cases against Arctice Glacier, Home City Ice, and Reddy Ice in Detroit federal court.

 Our feed never chills competition. 

JPML Adds Judge, Sprinkles Cases Across U.S.; Heading South?

The Judicial Panel on Multidistrict Litigation met in Richmond on September 24.  It has so far issued 19 orders -- 14 granting transfer and centralization of multidistrict cases and five not.

Blawgletter couldn't help noting that the Panel has lately added a seventh member -- bringing it (at last) back to full strength.  U.S. District Judge David G. Trager has sat in the Eastern District of New York since 1993.  He took senior status in 2006.

Judge Trager joins JPML Chairman John G. Heyburn, II (W.D. Ky.) and members Robert L. Miller, Jr. (N.D. Ind.), David R. Hansen (8th Cir.), Frank C. Damrell, Jr. (E.D. Cal.), Kathryn H. Vratil (D. Kan.), and W. Royal Furgeson, Jr. (N.D. Tex.).

The MDL Panel hasn't posted notice of its next hearing session, but Blawgletter expects the venue to wander southward (and likely palm tree-ward) as autumn marches towards winter.

The September session produced these rulings:

Transferred Litigations (.pdfs)

MDL No. 2084 -- IN RE: AndroGel Antitrust Litigation (No. II)  MDL No. 2085 -- IN RE: Air Crash Near Clarence Center, New York, on February 12, 2009  MDL No. 2086 -- IN RE: Pre-Filled Propane Tank Marketing and Sales Practices Litigation  MDL No. 2087 -- IN RE: Hydroxycut Marketing and Sales Practices Litigation  MDL No. 2088 -- IN RE: Fairfield Greenwich Group Securities Litigation  MDL No. 2089 -- IN RE: Airline Baggage Fee Antitrust Litigation  MDL No. 2092 -- IN RE: Chantix (Varenicline) Products Liability Litigation  MDL No. 2093 -- IN RE: DIRECTV, Inc., Early Cancellation Fee Marketing and Sales Practices Litigation  MDL No. 2094 -- IN RE: Cheerios Marketing and Sales Practices Litigation  MDL No. 2096 -- IN RE: Zicam Cold Remedy Marketing and Sales Practices Litigation  MDL No. 2098 -- IN RE: Kitec Plumbing System Products Liability Litigation  MDL No. 2099 -- IN RE: Stanford Entities Securities Litigation  MDL No. 2100 -- IN RE: Yasmin and Yaz (Drospirenone) Marketing, Sales Practices and Products Liability Litigation  MDL No. 2102 -- IN RE: Sony Corp. SXRD Rear Projection Television Marketing, Sales Practices and Products Liability Litigation

	Litigations Not Transferred (.pdfs)

MDL No. 2091 -- IN RE: Children's Personal Care Products Liability Litigation [Denied]  MDL No. 2095 -- IN RE: Porcine Circovirus (PCV) Vaccine Products Patent Litigation [Denied]  MDL No. 2097 -- IN RE: Listerine Agent Cool Blue Products Liability Litigation [Denied]  MDL No. 2101 -- IN RE: Wells Fargo Checking Account Overdraft Litigation [Denied]  MDL No. 2114 -- IN RE: ProShares Securities Litigation [Motion Withdrawn]

 Our feed limits its remarks to the Panel to fewer than five minutes.

Antitrust Division Objects to Google Books Pact

Last week, the Antitrust Division of the U.S. Department of Justice filed a Statement of Interest of the United States of America Regarding Proposed Class Settlement in the Google Books case, The Authors Guild, Inc. v. Google, Inc., No. 05 Civ. 8136 (DC) (S.D.N.Y. Sept. 18, 2009).  The press release says:

WASHINGTON — The Department of Justice today advised the U.S. District Court for the Southern District of New York that while it should not accept the class action settlement in The Authors Guild Inc. et al. v. Google Inc. as proposed due to concerns of the United States regarding class action, copyright and antitrust law, the parties should be encouraged to continue their productive discussions to address those concerns. In its statement of interest filed with the court, the Department stated:

"Given the parties' express commitment to ongoing discussions to address concerns already raised and the possibility that such discussions could lead to a settlement agreement that could legally be approved by the Court, the public interest would best be served by direction from the Court encouraging the continuation of those discussions between the parties and, if the Court so chooses, by some direction as to those aspects of the Proposed Settlement that need to be improved. Because a properly structured settlement agreement in this case offers the potential for important societal benefits, the United States does not want the opportunity or momentum to be lost."

In its filing, the Department proposed that the parties consider a number of changes to the agreement that may help address the United States' concerns, including imposing limitations on the most open-ended provisions for future licensing, eliminating potential conflicts among class members, providing additional protections for unknown rights holders, addressing the concerns of foreign authors and publishers, eliminating the joint-pricing mechanisms among publishers and authors, and, whatever the settlement's ultimate scope, providing some mechanism by which Google's competitors can gain comparable access.

The settlement agreement between Google and the authors and publishers aims to resolve copyright infringement claims brought against Google by the Authors Guild and five major publishers in 2005 raised by Google's efforts to digitally scan books contained in several libraries and make them searchable on the Internet. The District Court's hearing on the proposed settlement is scheduled to take place on October 7, 2009.

Epson Rejoins Screen Cartel -- by Pleading Guilty

Epson Imaging Devices Corporation yesterday agreed to confess guilt, and pay a $26 million fine, for fixing prices on thin film transistor liquid-crystal display panels.

The plea deal follows ones by LG Display, Sharp, Chungwa Picture Tubes, and Hitachi Displays.

Section 1 wins again.

Antitrust Division Will Check Seeds, Dairy, and Livestock

Deputy Assistant Attorney General Philip Weiser went to the home last week of the world's biggest, baddest high tech seed seller to serve notice that it and other Big Ag firms will soon get a well baby check up.  A not very friendly one.

Mr. Weiser spoke at the 11th annual conference of the Organization for Competitive Markets -- a farmers group -- in St. Louis, MO.  He titled his remarks "Toward a Competitive Policy Agenda for Agriculture Markets". 

Did DAAG Weiser hint at which Particular Market Segments the Antitrust Division would look?  Yes, yes, he did:

For many farmers and consumer advocates, we understand that there are concerns regarding the levels of concentration in the seed industry--particularly for corn and soybeans. In studying this market, we will evaluate the emerging industry structure, explore whether new entrants are able to introduce innovations, and examine any practices that potentially threaten competition.

Let me mention two other industry segments that will receive attention. First, we recognize that the dairy market has experienced considerable consolidation over the past decade and there are questions about the state of competition in that market. Second, as I noted above, livestock markets, such as the beef market evaluated in the JBS/National merger, are ones where the Division is keeping a close watch. In analyzing developments in these markets, we are cognizant of the fact that competition is frequently local or regional in nature, meaning that the nature and extent of competition-related concerns will differ across different parts of the country and that broad national statistics can be misleading.

Fifteen miles west of the podium, at its Creve Coeur world headquarters, Monsanto may have scowled.  Glowered.  Struck a moue.

 Creve means the past participle of break.  You know what coeur means, Frenchy.

CalPERS Sues Rating Agencies

 
The Nile River runs through Egypt.

The California Public Employees' Retirement System last week sued the big three credit rating outfits for giving AAAs to three "structured investment vehicles" in which CalPERS invested $1.3 billion.  California Public Employees' Retirement System v. Moody's Corp., No. CGC-09-490241 (Cal. Superior Ct. July 9, 2009).  WSJ Law Blog post -- with handy links to articles and the complaint -- here.

CalPERS alleges that Moody's, Standard & Poors, and Fitch negligently misrepresented the soundness of the SIVs, which "collapsed in 2007 and 2008, defaulting on their payment obligations to CalPERS and resulting in hundreds of millions, and perhaps more than $1 billion, of investment losses for CalPERS."

The raters say they applied their usual standards and -- hiyah! -- gave their honest opinions about stuff that would happen in the future.

The latter point invokes a first amendment right to do that which Ralph Waldo Emerson proposed:

Speak what you think today in hard words and tomorrow speak what tomorrow thinks in hard words again, though it contradict every thing you said today.

Blawgletter has tried to get our mind around how the law should deal with widespread but willful suspension of disbelief.  Yes, the credit raters won huge fees from turning thumbs up to debt issues that proved, with slight jiggling, toxic.  Bad.  But -- astonishingly -- those who knew and said the Emperor had nothing on but his birthday suit couldn't break out of minority status. 

Should the raters get off scot free?  CalPERS doesn't think so.  What do you say?

WSJ on Antitrust (Update)

Something, plainly, has roused the worry of dominant firms.  Witness today's WSJ -- that stalwart of bigness and friend of the status quo -- which featured these headlines:

Section 2 of the Sherman Act: Back from the Nearly Dead

Deals of the Day: Obama's Aggressive Antitrust Stance

Video: Day Ahead: Telecoms Under Antitrust Scrutiny

Tech Today: Teen iPhone Hackers, Antitrust Threat for Telecoms, More

Telecoms Face Antitrust Threat

U.S. Revives Section 2 of Antitrust Act

Sports Monopolies Raise Prices for Fans, Limit Opportunities

Blawgletter can't recall a friendly word for the Sherman Act in the pages of the WSJ.  Ever.  Indeed, one of its columnists rails against the criminality of price-fixing, urging that conspiracies that aim to thwart competition more often than not promote it.

But still -- look at all that WSJ ink.  Do the facts justify the dread?

 

UPDATE:  Oops, he -- the columnist -- did it again.

 

 Our feed got lost in the game.