The Flawed Mechanics of Mutual Fund Fee Litigation

46 Pages Posted: 7 Mar 2014 Last revised: 24 Apr 2014

See all articles by Quinn Curtis

Quinn Curtis

University of Virginia School of Law

John Morley

Yale Law School; European Corporate Governance Institute (ECGI)

Date Written: March 1, 2014


We identify a number of serious mechanical flaws in the statutes and judicial doctrines that organize fee liability for mutual fund managers. Originating in section 36(b) of the Investment Company Act, this form of liability allows investors to sue managers for charging fees above a judicially created standard. Commentators have extensively debated whether this form of liability should exist, but in this paper we focus instead on improving the mechanics of how it actually works. We identify a number of problems. Among other things, statutes and case law give recoveries to investors who did not actually pay the relevant fees. Statutes and case law also impose no penalties to provide deterrence; they treat similar categories of fees differently; they create an unusual settlement process that prevents litigants from settling their full claims; they expose low-cost advisers to serious litigation risk; they exhibit deep confusion about what makes fees excessive; and they provide unduly small incentives for plaintiffs’ lawyers that are only adequate in cases of low merit. Most of these problems appear to be the unintended results of accidents and confusion, rather than deliberate policy choices. We conclude by offering specific ideas for reform.

Keywords: Mutual Funds, Fee Litigation, 36(b), Securities Litigation

Suggested Citation

Curtis, Quinn and Morley, John D., The Flawed Mechanics of Mutual Fund Fee Litigation (March 1, 2014). Yale Journal on Regulation, Forthcoming, Virginia Law and Economics Research Paper No. 2014-09, Yale Law & Economics Research Paper No. 495, Available at SSRN: or

Quinn Curtis (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

HOME PAGE: http://

John D. Morley

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
(203) 436-3527 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
(203) 436-3527 (Phone)

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