On Eve of Trial, Plaintiffs Drop Billion Dollar Securities Action Setting the Stage For Numerous Other Cases Plaguing the Mutual Fund Industry
NEW YORK, August, 2006 – LAWFUEL – Legal News Network -In a case that is certain to have widespread industry impact, one of the largest mutual fund excessive fee securities actions ever filed was voluntarily dismissed by the plaintiffs in their case against American Century Investment Management, Inc., the international law firm Milbank, Tweed, Hadley & McCloy, LLP announced today.
Milbank represented American Century in the suit and has represented the company for more than 15 years. The Milbank litigation team included New York-based partners James N. Benedict, Sean M. Murphy and Andrew E. Tomback, and New York-based associates Michael A. Berg, Ryan Miller, Mia Korot, Andrew W. Robertson and Eric Fishman.
Following the dismissal, Mr. Benedict stated, “The result here is nothing short of a complete vindication for American Century and its mutual fund board. The case was the first legal test of plaintiffs’ new legal theories challenging the level of mutual fund fees.” Mr. Benedict added, “The plaintiffs failed miserably. Hopefully, the result here will send a loud and clear message to the plaintiffs bar.”
Mr. Murphy added, “The dismissal could have far reaching effects on other pending mutual fund law suits because the American Century case was one of 12 copy-cat cases filed against different mutual fund advisors, and the first to be resolved. We are currently defending some of the largest investment advisors in the United States in similar actions challenging investment advisory fees.”
The case, Baker v. American Century Investment Mgmt., Inc., No. 04-4039-CV-S-ODS (W.D. Mo.), alleged that American Century Investment Management charged excessive management fees to three of its largest mutual funds in violation of Section 36(b) of the Investment Company Act of 1940. The action challenged over $1 billion in fees paid by the funds from March 2003 through July 2006, and was scheduled to go to trial on Monday, August 7, 2006 before United States District Court Judge Ortrie D. Smith in the United States District Court for the Western District of Missouri.
One of the plaintiffs’ main allegations in the case was that American Century charged lower prices to institutional clients than to its retail mutual funds. Significantly, Milbank won a key pre-trial ruling that any evidence relating to institutional accounts was irrelevant and therefore inadmissible at trial.
On July 31, 2006, one week before trial, plaintiffs stipulated to the dismissal of the action with prejudice. The Stipulation, signed by plaintiffs’ counsel, states that after prosecuting the action, “it is likely that the Defendant will prevail on most of [the relevant] issues,” and that “if the case were tried, the Court would likely determine that the compensation Defendant received for managing the Funds was fair and reasonable.”
Consequently, the Stipulation states, “Plaintiffs have concluded that the Defendant has not violated its fiduciary duties under Section 36(b) of the Investment Company Act of 1940.” The court ordered the case dismissed with prejudice.
The team of Milbank litigators represented American Century through two-and-a-half years of intense litigation, including a large-scale document production, depositions of dozens of senior American Century personnel and the independent directors of the mutual funds, expert discovery involving eleven industry and economic experts, and extensive briefing on evidentiary and procedural issues.