March 27, 1991
TO: SEC RULES MEMBERS NO. 22-91
RE: COURT OF APPEALS AFFIRMS JUDGMENT IN KALISH v.
FRANKLIN ADVISERS, INC.
__________________________________________________________
The U.S. Court of Appeals for the Second Circuit has
affirmed the decision of the District Court in the case Kalish v.
Franklin Advisers, Inc., which had dismissed a shareholders suit
under Section 36(b) of the Investment Company Act alleging
excessive advisory fees. (See Memorandum to SEC Rules Members
No. 55-90, dated July 27, 1990.)
In its ruling, the Court of Appeals discussed the lower
court's decision striking the plaintiffs' demand for a jury trial
(which was the subject of a separate unpublished memorandum).
The court ruled that a recent U.S. Supreme Court decision that
held that plaintiffs were entitled to a jury trial in a case
involving a claim for back pay as a result of an alleged breach
of a collective bargaining agreement was "plainly distiguishable"
from a claim involving excessive fees under Section 36(b). The
court noted that the relief sought in a Section 36(b) case is
restitutionary and, therefore, "clearly equitable in nature", as
opposed to the claim in the collective bargaining case, which
involved an alleged breach of contract, resulting in legal
damages. The Second Circuit cited the Seventh Circuit's recent
decision in Kamen v. Kemper Financial Services, Inc., which also
held that there is no right to a jury trial under Section 36(b),
notwithstanding the Supreme Court's ruling in the collective
bargaining case. (See Memorandum to SEC Rules Members No. 60-90
dated August 16, 1990.)
A copy of the Second Circuit's decision is attached.
Craig S. Tyle
Associate General Counsel
Attachment