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Zoidis v. T. Rowe Price Associates, Inc.

United States District Court, D. Maryland

March 31, 2017

CHRISTOPHER ZOIDIS, et al. Plaintiffs
v.
T. ROWE PRICE ASSOCIATES, INC. Defendant

          MEMORANDUM & ORDER DENYING MOTION TO DISMISS

          Marvin J. Garbis United States District Judge

         The Court has before it Defendant T. Rowe Price Associates, Inc.'s Motion to Dismiss for Failure to State a Claim [ECF No. 34] and the materials relating thereto submitted by the parties. The Court has held a hearing and has had the benefit of the arguments of counsel.

         I. BACKGROUND

         At all times relevant hereto, Defendant, T. Rowe Price Associates, Inc. (“TRP”) has been an investment manager and adviser to various mutual funds.[1] Some 90 or so of these can be referred to as “affiliated” mutual funds that TRP created, and distributes and sells to the public. Also, it advises funds created by others, e.g., John Hancock, and is compensated for services rendered to them.

         Plaintiffs are seven individuals who, at times pertinent hereto, have owned shares in eight[2] of the affiliated mutual funds[3] advised and managed by TRP (“the Eight Funds”).

         Plaintiffs, on behalf of the Eight Funds, filed this case against TRP in the Northern District of California asserting claims under Section 36(b) of the Investment Company Act[4](“ICA”), 15 U.S.C. § 80a-35(b). Pursuant to 28 U.S.C. § 1404(a), the case has been transferred to the District of Maryland, the location of TRP's principal place of business. Order, ECF No. 48.

         By the instant motion, TRP seeks dismissal of all claims pursuant to Rule 12(b)(6)of the Federal Rules of Civil Procedure.[5]

         II. DISMISSAL STANDARD

         A motion to dismiss filed pursuant to Rule 12(b)(6) tests the legal sufficiency of a complaint. A complaint need only contain “‘a short and plain statement of the claim showing that the pleader is entitled to relief, ' in order to ‘give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original) (citations omitted). When evaluating a 12(b)(6) motion to dismiss, a plaintiff's well-pleaded allegations are accepted as true and the complaint is viewed in the light most favorable to the plaintiff. However, conclusory statements or “a formulaic recitation of the elements of a cause of action will not [suffice].” Id. A complaint must allege sufficient facts “to cross ‘the line between possibility and plausibility of entitlement to relief.'” Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Twombly, 550 U.S. at 557)).

         Inquiry into whether a complaint states a plausible claim is “‘a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). Thus, if “the well-pleaded facts [contained within a complaint] do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]' - ‘that the pleader is entitled to relief.'” Id. (quoting Iqbal, 556 U.S. at 679 (alteration in original)).

         III. JUDICIAL NOTICE

         TRP requests the Court to take judicial notice of various documents [ECF No. 35].

         In considering a Rule 12(b)(6) motion, the court may take judicial notice of public records, including statutes, and “may also ‘consider documents incorporated into the complaint by reference, ' ‘as well as those attached to the motion to dismiss, so long as they are integral to the complaint and authentic.'” United States ex rel. Oberg v. Pennsylvania Higher Educ. Assistance Agency, 745 F.3d 131, 136 (4th Cir. 2014) (citations omitted).

         Accordingly, the Court will take judicial notice of those documents incorporated into the complaint by reference (ECF No. 34, Exs. A, B, D, and F). The Court will also take judicial notice of public documents filed with the Securities and Exchange Commission (“S.E.C.”)[6] (ECF No. 34, Exs. E, C, G, and H) and publicly filed court documents in unrelated 36(b) actions (ECF No. 34, Exs. I and K).

         However, the Court will not take judicial notice of the Morningstar documents (ECF No. 34, Exs. J1-J8). These documents are not referenced in the Complaint. Moreover, they are not warranted[7] to be accurate. Opp'n 1-2, ECF No. 36.

         IV. DISCUSSION

         A. Investment Company Act Liability

         Section 36(b) of the ICA provides that an investment adviser, such as TRP, has a fiduciary duty with regard to registered investment companies, such as the Eight Funds, regarding compensation for services.

[T]he investment adviser of a registered investment company shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services . . . paid by such registered investment company . . . to such investment adviser.

15 U.S.C. § 80a-35(b).

         Moreover, § 36(b) provides that security holders, such as plaintiffs, may sue the investment advisor for breach of that fiduciary duty:

An action may be brought under this subsection by . . . a security holder of such registered investment company on behalf of such company, against such investment adviser . . . for breach of fiduciary duty in respect of such compensation . . . paid by such registered investment company . . . to such investment adviser . . . .

Id.

         “[T]o face liability under § 36(b), an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm's length bargaining.” Jones v. Harris Assocs. L.P., 559 U.S. 335, 346 (2010); Migdal v. Rowe Price-Fleming Int'l, Inc., 248 F.3d 321, 326 (4th Cir. 2001). “That is, a breach [of fiduciary duty] occurs when the fees charged are excessive or disproportionate to the services rendered.” Migdal, 248 F.3d at 328-29.

         To determine if fees are excessive or disproportionate to the services rendered, it is necessary to consider all pertinent facts and circumstances. Jones, 559 U.S. at 344. In Jones, the Supreme Court noted the approach of the Second Circuit utilized in Gartenberg v. Merrill Lynch Asset Mgmt., ...


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