February 22, 1991
TO: BOARD OF GOVERNORS NO. 14-91
SEC RULES COMMITTEE NO. 12-91
RE: INSTITUTE SUBMITS AMICUS BRIEF IN FUND PROXY CASE
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The Institute has submitted an amicus curiae brief to the
Supreme Court in the case Kamen v. Kemper Financial Services,
Inc. The Kamen case involved a money market fund shareholder’s
claims for excessive fees under Section 36(b) and that the fund’s
proxy statement was misleading. The U.S. Court of Appeals for
the Seventh Circuit had affirmed the dismissal of the proxy claim
on the grounds that the plaintiff was required, but failed, to
make a demand on the fund’s board of directors. (See Memorandum
to SEC Rules Members, No. 60-90, dated August 16, 1990.) The
court’s decision abolished the "futility" exception to the demand
requirement in the Seventh Circuit. (The futility exception
excuses demand in a derivative suit where it can be shown that a
demand on the board would be futile because the board, for
reasons of bias or otherwise, would be unwilling to proceed with
the suit directly.) The Supreme Court granted certiorari on this
claim.
The Institute’s brief, a copy of which is attached, argues
that the plaintiff failed to establish that demand in this case
would have been futile. In addition, the Institute argues that
the futility exception is generally inappropriate in cases
involving investment companies given the statutory role of
independent directors.
The Institute’s brief also responds to an argument raised
by the Securities and Exchange Commission in its amicus brief.
The Commission argued that proxy claims were necessarily direct
claims, as opposed to derivative claims (which require demand).
The Institute notes that since the alleged proxy misstatements
relate only to the advisory fees charged, the claim is barred
since Section 36(b) provides an exclusive remedy. If, however,
the plaintiff was seeking a separate remedy, the Institute argues
that the claim would be derivative in nature.
Craig S. Tyle
Associate General Counsel
Attachment