Thomas Kennis v. Metro. West Asset Mgmt. ( 2020 )

FILED
NOT FOR PUBLICATION
SEP 17 2020
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
THOMAS J. KENNIS, No. 19-55934
Plaintiff-Appellant, D.C. No.
2:15-cv-08162-GW-FFM
v.
METROPOLITAN WEST ASSET MEMORANDUM*
MANAGEMENT, LLC,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
George H. Wu, District Judge, Presiding
Submitted August 31, 2020**
Pasadena, California
Before: IKUTA and BENNETT, Circuit Judges, and WOODLOCK,*** District
Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable Douglas P. Woodlock, United States District Judge for
the District of Massachusetts, sitting by designation.
Thomas Kennis, a shareholder in the MetWest Total Return Bond Fund (the
Fund), appeals the district court’s ruling that Metropolitan West Asset
Management, LLC (MetWest) did not breach its fiduciary duty under section 36(b)
of the Investment Company Act of 1940 (ICA), 15 U.S.C. § 80a-35(b). We have
jurisdiction under 28 U.S.C. § 1291.
We conclude that the district court did not clearly err in finding that Kennis
failed to carry his burden of showing that MetWest charges the Fund “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). We therefore affirm.
The district court did not clearly err in finding that MetWest provided the
Fund with significantly greater services than it provided the funds for which it
served as a subadvisor (the Subadvised Funds), including maintaining the Fund’s
net asset value and liquidity, ensuring compliance with legal requirements, and
assisting the Board, among other things. Nor did the district court clearly err in
finding that MetWest incurred greater risks for the Fund than for the Subadvised
Funds. Kennis’s argument that the district court credited MetWest with providing
services that were actually provided by BNY Mellon Investment Servicing (US)
Inc. (BNY) is not supported by the record. Because MetWest never charged the
2
Fund for reimbursement under the Supplemental Administration Agreement, the
agreement sheds no light on the question whether MetWest charges
disproportionately large fees. And because the district court found that the “nature
and extent of the services required by [the Fund and the Subadvised Funds] differ
sharply,” the court reasonably rejected any comparison between the fees charged to
the Fund and the Subadvised Funds as “not probative.” Jones, 559 U.S. at 349–50
(citation omitted).
Nor did the district court clearly err in rejecting Kennis’s other arguments.
While the record contains mixed evidence (including conflicting expert reports and
testimony) on Kennis’s argument that MetWest experienced savings resulting from
the Fund’s growth in assets under management, the district court did not clearly err
in concluding that MetWest had not profited from “economies of scale,” Jones,
559 U.S. at 344 (citation omitted). The record also supports the district court’s
findings that the Board’s process was robust and that MetWest did not withhold
material information from the Board.1 Finally, the district court did not err in its
assessment of the Broadridge peer data; the data supported MetWest’s claim that
1
The ICA does not require the Board to negotiate for a lower fee; the Board
need only consider the relevant factors. See Jones v. Harris Assocs. L.P., 559 U.S.
335, 351 (2010).
3
its fees were reasonable, but the court gave the data “no more and no less” weight
“than the weight it deserves.”2
AFFIRMED.
2
The record supports the district court’s determination that Professor John
Coates was qualified to testify as an expert; therefore, the court did not abuse its
discretion in admitting his testimony. See Fed. R. Evid. 702; United States v.
Hankey, 203 F.3d 1160, 1168 (9th Cir. 2000). Moreover, Kennis’s objection to the
testimony was not timely under the district court’s standing order. See Fed. R. Civ.
P. 16(c)(2)(D), 83(b).
4