In Kenny v. Pacific Inv. Mgm't Co. LLC (W.D.
Wash.), a federal judge recently ruled that a mutual fund's
independent trustees must produce certain documents that the
trustees had redacted or withheld based on attorney-client
privilege. A plaintiff shareholder had subpoenaed the documents in
an "excessive fee" case brought under Section 36(b) of
the Investment Company Act.
Calling the issue one of first impression, the district court
based its ruling on the so-called "fiduciary exception"
to the attorney-client privilege. The court accepted the
plaintiff's position that this exception should apply when a
beneficiary of a trust seeks information regarding a trustee's
acquisition of legal advice to "guide the administration of
the trust," as opposed to personal legal advice or advice
sought in anticipation of litigation. As the district court noted,
the Ninth Circuit has recognized the fiduciary exception in the
The court observed that the mutual fund in question is organized
as a "Massachusetts business trust" and that, pursuant to
the trust's administration agreement, the trust paid the fees
for the independent trustees' legal counsel. As such, the court
concluded that the fiduciary exception should apply,
notwithstanding the independent trustees' and investment
adviser's protests that the exception was never previously
applied in the mutual fund governance context, and that doing so
would discourage important communications between independent fund
trustees and their retained counsel which, in turn, "would
actually destabilize the mutual fund industry to the detriment of
The independent trustees have not sought interlocutory appellate
review of this ruling. The industry should all keep an eye on other
36(b) cases still in the discovery phase to see if the decision
emboldens other plaintiffs.
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In December 2016, it came to light that the Chicago-based law firm of Johnson & Bell had been sued in a purported class action lawsuit brought in the U.S. District Court for the Northern District of Illinois.
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