The Jones v. Harris decision

The Supreme Court unanimously reversed and remanded Judge Easterbrook's decision in the Jones v. Harris mutual fund case, holding that the Gartenberg fiduciary standard applied to investment advisors.

The Court applied an under-all-the-circumstances substance-plus-procedure test, the implications of which will be keeping mutual funds and their lawyers busy for some time. The Court thereby sided with Judge Posner's dissent and rejected Judge Easterbrook's emphasis on disclosure, market competition and easy exit by investors which, as I have argued, support analogizing mutual funds to the sale of products rather than fiduciary relationships.

Although I'm dubious about the result on principle, my analysis of Jones acknowledged that

in this day and age the Supreme Court will side with Posner. Such a decision would be a symptom and signal of our sharp turn toward paternalism in everything from complex finance to corporate governance to the simplest products.

Justice Alito's opinion noted another important consideration that undoubtedly motivated the Court:

The debate between the Seventh Circuit panel and the dissent from the denial of rehearing regarding today's mutual fund market is a matter for Congress, not the courts.

Perhaps, but unfortunate given where Congress is headed these days.

Comments

[Lawrence Cunningham]

The Court did not reverse the lower court opinion. It vacated it as erroneous. The Court's opinion also contains a misleading error about which I blogged over at Concurring Opinions.