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Primary Care Providers Win Challenge of CMS Interpretation of Enhanced Payment Law

With the help and support of the Tennessee Medical Association, 21 Tennessee physicians of underserved communities joined together and retained Bass, Berry & Sims to file suit against the Centers for Medicare & Medicaid Services to stop improper collection efforts. Our team, led by David King, was successful in halting efforts to recoup TennCare payments that were used legitimately to expand services in communities that needed them. Read more

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GDPR Top 5 Actions You Should Take Now

The EU's General Data Protection Regulation (GDPR) went into effect on May 25th. As most organizations are aware, the GDPR applies not only to EU businesses but also many companies in the U.S. While the deadline is quickly approaching, most organizations are still grappling with the implications of the regulation on their business. Even if your readiness efforts are behind the curve, the GDPR Top 5 Actions You Should Take NOW will help you begin your efforts towards compliance and help mitigate your organization's risk in the short-term.

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Chris Lazarini Analyzes Court Opinion Allowing Claims of Excessive Advisory Fees to Withstand Motion to Dismiss


March 30, 2015

Bass, Berry & Sims attorney Chris Lazarini analyzed the case of Goodman vs. J.P. Morgan Investment Management, Inc., in which the Court denied Defendant's Rule 12(b)(6) motion to dismiss and allowed Plaintiffs to proceed with claims that an investment adviser breached its fiduciary duties under Section 36(b) of the Investment Company Act of 1940 by charging affiliated mutual fund companies excessive fees. Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.

Goodman vs. J.P. Morgan Investment Management, Inc., No. 2:14-cv-414 (S.D. Ohio, 3/4/15) 

An investment adviser to a mutual fund may be liable for breach of fiduciary duty under §36(b) of the Investment Company Act of 1940 if the advisory fees charged the fund are so disproportionately large that they bear no reasonable relationship to the services rendered and could not have been the product of arm’s length negotiations.

Defendant serves as the investment adviser to three JP Morgan mutual funds (the "Funds") and receives annual fees from each fund based on each fund's assets under management. Plaintiffs, shareholders in one or more of the Funds, brought this action alleging that Defendant breached its fiduciary duties in violation of §36(b) of the Investment Company Act of 1940 ("ICA") by charging the Funds millions of dollars in excessive fees. Plaintiffs' complaint contained three primary allegations. First, Plaintiffs alleged that the rates Defendant charged the Funds were anywhere from 25% to 525% higher than the rates Defendant charged when acting as a subadviser to similar funds not affiliated with Defendant. Second, Plaintiffs alleged that, as the Funds grew in size, Defendant enjoyed economies of scale that reduced its costs and increased its profitability. According to Plaintiffs, Defendant should have lowered its fees as its costs decreased, but failed to do so. Finally, Plaintiffs attacked the decision making process of the Funds' boards, alleging that the boards did not act in the best interest of the Funds or shareholders when approving the Funds' advisory agreements. Instead of engaging in bona fide arms' length negotiations with Defendant regarding the advisory fees, Plaintiffs alleged that the boards merely rubber-stamped information supplied by Defendant. Defendant filed a Rule 12(b)(6) motion to dismiss, and the issues were extensively briefed by the parties.

The Court begins its Twombly analysis by stating that its review of the complaint is informed by the factors set out in Gartenberg v. Merrill Lynch Asset Mgmt. Inc., 694 F.3d 923 (2d Cir. 1982), which the Supreme Court adopted in Jones v. Harris Assocs., L.P., 559 U.S. 335 (2010). Those factors include an examination of (1) the nature and quality of the services provided; (2) the profitability of the fund to the adviser; (3) any collateral benefits enjoyed by the adviser as a result of the relationship with the fund; (4) a comparison of the fees at issue with those paid by similar funds; and (5) the independence, expertise, care and conscientiousness of the fund's board in evaluating adviser compensation. Using these factors as a guide, the Court finds that, taken as a whole, the complaint pleads sufficient facts about the fees paid to Defendant, the notable disparity between those fees and the fees charged to other funds, and the manner in which the fees were approved to present a plausible claim that the fees were disproportionately large. Accordingly, the Court denies the motion to dismiss. The Court is careful to note, however, that it is not expressing any opinions at this time as to whether Plaintiffs will ultimately produce sufficient evidence to meet the high standard for liability under ICA §36(b) or as to the merits of Defendant's explanations and arguments in support of the fees.

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