Latest 2 Cases: Campbell Family Trust v. J.P. Morgan Investment Management, Inc. (Business Law), Schulkers v. Kammer (Civil Rights)

Local Control: Massachusetts Law Provides Stronger Protection Against Sexual Harassment than Federal Law

JOANNA L. GROSSMAN

SMU Dedman School of Law professor Joanna L. Grossman comments on a recent decision by a federal district court applying Massachusetts law that demonstrates the power of tough state antidiscrimination laws. Grossman describes the facts of the case and the differences between Massachusetts and federal law and explains why robust state laws have the power to hold institutions liable when they delegate authority to those who abuse it.

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Campbell Family Trust v. J.P. Morgan Investment Management, Inc.

Dockets: 18-3239, 18-3238

Opinion Date: March 30, 2020

Judge: Gibbons

Areas of Law: Business Law, Securities Law

The plaintiffs are shareholders in mutual funds. JPMIM is paid a fee for managing the Funds’ securities portfolio and researching potential investments. The plaintiffs sued under the Investment Company Act (ICA), 15 U.S.C. 80a-1, which allows mutual fund shareholders to bring a derivative suit against their fund’s investment adviser on behalf of their fund. The plaintiffs claimed that JPMIM charged excessive fees in violation of section 36(b), which imposes a fiduciary duty on advisers with respect to compensation for services. The Sixth Circuit affirmed summary judgment in favor of JPMIM. Under section 36(b), a shareholder must prove that the challenged fee “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.” The district court considered the relevant factors in making its determination: the nature, extent, and quality of the services provided by the adviser to the shareholders; the profitability of the mutual fund to the adviser; “fallout” benefits, such as indirect profits to the adviser; economies of scale achieved by the adviser as a result of growth in assets under the fund’s management and whether savings generated from the economies of scale are shared with shareholders; comparative fee structures used by other similar funds; and the level of expertise, conscientiousness, independence, and information with which the board acts.

Schulkers v. Kammer

Docket: 19-5208

Opinion Date: March 30, 2020

Judge: Eric L. Clay

Areas of Law: Civil Rights, Constitutional Law, Family Law

A family of two parents and five children alleged that social workers employed by the Kentucky Cabinet for Health and Family Services violated their Fourth Amendment rights by subjecting the children to warrantless in-school interrogations without reasonable suspicion of child abuse. They also claimed violations of their Fourteenth Amendment rights by requiring adherence to a “Prevention Plan,” which constrained the mother’s ability to be alone with her children for approximately two months without any question as to her parental fitness and without any procedural protections. The Sixth Circuit reversed the denial of qualified immunity on the Fourth Amendment claims. The law governing in-school interviews by social workers was not clearly established at the time of the relevant conduct. The Fourth Amendment does govern a social worker’s in-school interview of a child pursuant to a child abuse investigation; at a minimum, a social worker must have a reasonable suspicion of child abuse before conducting an in-school interview when no other exception to the warrant requirement applies. The court affirmed the denial of qualified immunity on the procedural and substantive due process claims. The complaint alleged that the supervision restrictions were imposed for approximately two months after there was no longer any question as to parental fitness without any procedural protections; they abridged the parents’ clearly established right to the companionship and care of their children without arbitrary government interference.