PDF《IN THE》

No.

08-586 IN THE Supreme Court of the United States JERRY N. JONES, MARY F. JONES AND ARLINE WINERMAN, Petitioners, v. HARRIS ASSOCIATES, L.P., Respondent. _______ On Writ of Certiorari To The United States Court of Appeals For The Seventh Circuit BRIEF OF AARP AND CONSUMER FEDERATION OF AMERICA AS AMICI CURIAE IN SUPPORT OF PETITIONERS JAY E. SUSHELSKY* AARP FOUNDATION LITIGATION MICHAEL SCHUSTER AARP

601 E Street, NW Washington, DC

20049 Telephone: (202) 434-2060 Counsel for Amici Curiae *Counsel of Record i TABLE OF CONTENTS Page TABLE OF CONTENTS.i TABLE OF AUTHORITIES v STATEMENT OF INTEREST.1 SUMMARY OF ARGUMENT.3 ARGUMENT

5 I. MUTUAL FUND INVESTMENT FEES SIGNIFICANTLY REDUCE LONG- TERM SAVINGS FOR RETIREMENT AND FUTURE EDUCATION EXPENSES FOR VIRTUALLY ALL SAVERS IN THE NATION.5 A. Mutual Funds Are The Dominant Investment Vehicles For Retirement Savings.6 B. With The Advent Of

529 Savings Plans, Mutual Funds Are Central In Family Saving For Their Children'

s Educational Expenses

8 ii C. Because Investment Fees Are Deducted From Retirement Plan Assets, Even A Seemingly Small Annual Percentage Fee Significantly Reduces The Ultimate Return On Mutual Fund Investments

10 II. THE SEVENTH CIRCUIT'

S RATIONALE FOR A NARROW 36(b) FIDUCIARY DUTY FAILS TO CONSIDER MARKET FAILURES IN THE MUTUAL FUND INDUSTRY THAT PROMOTE RESTRICTIONS ON THE ABILITY OF INVESTORS TO NEGOTIATE AT ARM'

S LENGTH WITH MUTUAL FUND ADVISORS

13 A. Contrary To The Assertion Of The Seventh Circuit, Investment Advisors In The Mutual Fund Industry Do Not Compete On The Basis Of Price

14 B. Mutual Fund Directors Do Not Bargain At Arm'

s Length On Behalf Of Fund Investors.15 C. Investors In Mutual Funds Are Captive Investors Not Freely Able to Reinvest In Competing Mutual Funds

20 iii D. The Magnitude Of The Impact That Fees Have On Mutual Fund Investments Is Less Than Transparent To Investors.22 E. Pervasive Conflicts Of Interest Within The Mutual Fund Industry Cause Investment Advisors To Exploit The Lack Of Price Competition To The Detriment Of Investors.25 III. THE SEVENTH CIRCUIT'

S INTERPRETATION OF THE SCOPE OF THE SECTION 36(b) FIDUCIARY DUTY IS INCONSISTENT WITH THE STATUTORY TEXT, THE COMMON LAW OF TRUSTS, AND THE CONGRESSIONAL INTENT TO PROTECT MUTUAL FUND INVESTORS FROM EXCESSIVE INVESTMENT FEES.27 A. The Seventh Circuit'

s Interpretation Of The 36(b) Fiduciary Duty Is Inconsistent With The Statutory Text

27 B. The Seventh Circuit Applies An Incomplete Interpretation Of The Common Law Of Trusts

29 iv C. The Eighth Circuit'

s Test Is Consistent With The Congressional Intent Behind the ICA.30 1. The Protection Of A Fairness Standard is Necessary Because The Unprecedented Size Of Most Mutual Funds Has Created An Environment In Which Investment Fees Become Unfair To Investors Due To Economies Of Scale.32 2. A Fairness Standard Is Needed To Compensate For The Market Failures That Are Inherent In The Mutual Fund Industry.34 IV. IN LIGHT OF MUTUAL FUND MARKET DEFICIENCIES, THE COURT SHOULD ADOPT AN INTEPRETATION OF FIDUCIARY DUTY THAT RECOGNIZES THE SEVENTH CIRCUIT'

S CONCERN WITH DISCLOSURE OF INFORMATION WHILE CONTINUING TO PROTECT INVESTORS'

INTERESTS IN INVESTMENT FEES NEGOTIATED AT ARM'

S LENGTH

36 CONCLUSION.39 v TABLE OF AUTHORITIES FEDERAL CASES Burks v. Lasker,

441 U.S.

71 (1979)16, 34,

35 Daily Income Fund, Inc. v. Fox,

464 U.S.

523 (1984)passim Dura Pharms., Inc. v. Broudo,

544 U.S.

336 (2005)2 Firestone Tire &