On June 16, 2016, the U.S. District Court for the Central District of California issued an order denying the defendant’s motion to dismiss an excessive fee case brought under Section 36(b) of the 1940 Act against Metropolitan West Asset Management, LLC (MetWest). In the complaint submitted in October 2015, the plaintiff alleged that MetWest, in managing the Metropolitan West Total Return Bond Fund, breached its fiduciary duties by charging fees “so disproportionately large that they bear no reasonable relationship to the value of the services provided by [MetWest] and could not have been the product of arm’s-length bargaining.” The complaint alleges that the fees charged to the Fund were as much as 497% higher than the rates MetWest negotiated at arm’s length with other clients for the same or substantially the same services, allowing MetWest to retain the benefits of economies of scale resulting from the Fund’s significant asset growth in recent years.

In moving to dismiss the plaintiff’s complaint, MetWest argued that the plaintiff improperly compared the management fee rate MetWest charges as investment adviser to the Fund to the sub-advisory fees MetWest charges to funds outside the MetWest complex to which it provides sub-advisory services. MetWest noted that in each case the management fee MetWest charges to the Fund is less than the total management fee paid by each sub-advised fund. To counter these arguments, the plaintiff contended that there was no indication the non-advisory services MetWest provides to the Fund are comparable to the non-advisory services the sub-advised funds’ investment advisers provide, and that in any event the comparison of the Fund’s management fee to the management fees of the sub-advised funds may not be appropriate as there is no indication the sub-advised funds’ fee rates were negotiated at arm’s length. The District Court denied MetWest’s motion to dismiss, concluding that the plaintiff alleged sufficient questions of fact relating to three of the Gartenberg factors—comparative fees, economies of scale and the independence and conscientiousness of the board.

The litigation was filed in the U.S. District Court for the Central District of California under the name Kennis v. Metro. West Asset Mgmt., LLC, Case No. 15-cv-8162.