June 20, 1989
TO: SEC RULES MEMBERS NO. 30-89
RE: COURT DISMISSES EXCESSIVE FEE CLAIM IN MEYER CASE
__________________________________________________________
The United States District Court for the Southern District
of New York has dismissed the complaint of the plaintiff in Meyer
v. Oppenheimer Management Corp., in which the plaintiff, a fund
shareholder, had alleged a breach of fiduciary duty due to
excessive fees under Section 36(b) of the 1940 Act. The court
previously had held that both the advisory fees charged the fund
and 12b-1 payments made by the fund were fair. The remaining
issue to be decided by the court was whether the aggregate of the
advisory fees and 12b-1 payments was nevertheless excessive.
The court stated that where both payments had been found to
be fair separately, "aggregation is not a necessary or
appropriate consideration", especially where the 12b-1 payments
had been found to be less than the services rendered. However,
the court noted that there have been decisions to the contrary.
Accordingly, it applied the Gartenberg test to the combined
payments and found that the plaintiff had failed to show that
such payments could not have been the result of arms-length
bargaining. The court also noted that the profitability of the
advisory and distribution services for the years in question was
less that that approved in the Schuyt and Gartenberg cases. A
copy of the court's opinion is attached.
The decision in Meyer represents the second case in recent
weeks to apply the Gartenberg standard is rejecting a
shareholder's claim under Section 36(b). As we previously
informed you, the Court of Appeals for the Second Circuit applied
the same test in affirming the dismissal of the plaintiff's
claims in Krinsk v. Fund Asset Management, Inc. (See Memorandum
to SEC Rules Members No. 29-89, dated June 12, 1989).
Craig S. Tyle
Assistant General Counsel