iLitigation and Enforcement Actions and Initiatives
SECTION 36(B) LITIGATION
In February 2017, following a four-day non-jury trial, the U.S. District Court for the District of New Jersey issued an opinion under the caption Kasilag v. Hartford Investment Financial Services, LLC dismissing with prejudice claims brought under Section 36(b) of the Investment Company Act of 1940 against Hartford Investment Financial Services, LLC and Hartford Funds Management Company, LLP (together, Hartford) by shareholders of six mutual funds managed by Hartford. The plaintiffs alleged that Hartford had charged excessive fees for advisory and administrative services while delegating substantially all advisory and administrative duties to sub-advisers and sub-administrators for modest compensation. After reviewing testimony and evidence in accordance with the framework outlined in Gartenberg v. Merrill Lynch Asset Management, Inc. , the District Court concluded that the plaintiffs had failed to meet their burden to demonstrate that the defendants had charged excessive fees in violation of their Section 36(b) fiduciary duties. Following this decision, the plaintiffs appealed to the U.S. Court of Appeals for the Third Circuit.
On August 15, 2018, the Third Circuit issued a non-precedential opinion affirming the District Court decision to dismiss the claims brought by the plaintiffs (i.e., the appellants in the Third Circuit appeal). The appellants made three arguments, claiming that the District Court had erred (1) by not bifurcating the investment management fees paid to Hartford and to its sub-administrator to evaluate whether compensation was excessive; (2) by granting partial summary judgment with respect to the sixth Gartenberg factor, i.e., that the board overseeing the Hartford funds was careful and conscientious; and (3) by not performing a separate analysis of Hartford’s liability “for each [f]und for each year” given the disparity in compensation received from each of the funds involved in the litigation. The Third Circuit rejected each of the appellants’ arguments, concluding that the District Court had not committed error and that the decision of the District Court should be upheld. The Third Circuit’s opinion was issued under the caption Kasilag v. Hartford Investment Financial Services, LLC, Case No. 17-1653.
