March 9, 2009 / 2:46 PM / 11 years ago

UPDATE 1-U.S. top court to decide case on mutual fund fees

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By James Vicini

WASHINGTON, March 9 (Reuters) - The U.S. Supreme Court said on Monday that it would decide whether a shareholder who claims that a mutual fund’s investment adviser charged an excessive fee must also show that the adviser misled the fund’s directors who approved the fee.

The justices agreed to review a U.S. appeals court ruling that held that mutual fund fees should not be capped. The high court will hear arguments in the case, which has been closely watched by the nation’s mutual fund industry, in its upcoming term that begins in October.

The Chicago-based appeals court said in its opinion last year: “A fiduciary must make full disclosure and play no tricks but is not subject to a cap on compensation. The trustees (and in the end investors, who vote with their feet and dollars), rather than a judge or jury, determine how much advisory services are worth.”

The investment advisers who worked for the Oakmark funds, which also are based in Chicago, were sued by three shareholders for charging overly high fees, in violation of the 1940 Investment Company Act and a 1970 provision added to it.

A federal judge and then the appeals court ruled against the shareholders. The appeals court said the lawsuit could not go forward under the federal securities law at issue unless a shareholder can show the adviser misled the fund’s directors who approved the fee.

Attorneys for the shareholders appealed to the Supreme Court. They said the appeals court ruling was in conflict with decisions by three other appeals courts.

“This case presents a recurring question of exceptional importance warranting the court’s immediate resolution,” they said, adding that the standard for claims of breach of fiduciary duty under the law affects “millions of shareholders who have trillions of dollars invested in mutual funds.”

A number of lawsuits have been brought around the country against companies over mutual fund fees. (Editing by Gerald E. McCormick and Lisa Von Ahn)

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