so we will begin with a day calendar with proper d d versus j p morgan good morning my name is sandra mcneil and i'm the attorney for the plaintiff appellant the district court's dismissal order respectfully should be reversed because the court misapplied the garden work factors and demanded a level of detail that is not required at the pleading phase in section thirty six b comparable funds in fact a district court found that two of the three benchmarks which were other funds advised by the defendant were in fact apt comparisons nonetheless the district court rejected plaintiff's allegations because they purportedly did not suggest that the fence fee necessarily and i'm quoting this is sara lee was outside the range of arm's length bargaining but at the pleading phase plaintiff allegations need not show that the fenice advisory fees were necessarily excessive  they did only raise a plausible inference that they were excessive and here plaintive allege that the defendant charged the fund a fee that was substantially higher and in one case roughly double the fee charged two of its other clients for similar advisory what it is well that's correct it's if it's the top if it's in the first quintile then it means it's it's the best value for money relative to others according to the specific benchmark that's being proffered what your honor i think is driving at us you have two competing benchmarks that are issue here in this case right we provided three bases for showing that the fee was high compared to other funds that the defendants themselves advise defendants come back and say no no no don't don't look at those look at the company that we specifically hired to pick a particular group of comparatives and focus on that one now that is a factual dispute that can't be resolved at the motion to dismiss phase and in fact we cite numerous courts that summary of what the lipper report reported we're not claiming that that is an accurate representation of the fees as it compares to what we believe or more accurate benchmarks right so it's a difference between quoting what someone said versus asserting that that is in fact the case what we allege in our complaint at length is that there are three benchmarks against which to judge the fees here and in fact one of those benchmarks is the only benchmark it's actually arm's length that would be the p s f some advice found right and i think it's good to take a step back and remember the supreme court's admonition that comparing yourself to other mutual funds when you're doing the sort of analysis is not the best bet to assess whether fees are excessive because the whole point of the i c a and the need for this analysis is that there are structural conflicts which render a competitive forces not as robust in the mutual fund industry as they are in other segments of the economy so you look you know by comparing to or how can you proceed but we're prepared for sitting by three when you buy sardines i mean you have to compare it with other sardines you can't compare it with bananas well absolutely and that's why we're saying in this case where they were three sortings were comparing it to they are saying don't pay attention to their sorting focus on the one that live her through the three are two funds that the defense themselves provided advisory services to that's the p s f sub advice fun that's the j p equity fund and then there's an index of other bloomberg funds which are similarly categorized by a bloomberg buy asset class equity type strategy objective those sorts of things now what i wanted to get back to was touching upon the point i raised at the supreme court recognized they said looking at other mutual funds is not necessarily the best gauge because if there are structural conflicts you can't tell whether those are all means length deals there's only one benchmark here that's arm's length that was the p s f sub advice fund that was where you have another fund it was shopping around advisor and the fee that would they charge for identical advisory services was just contractually on the face of the contracts twenty basis points less the same exact advisory fees but and the only basis the only reason why that's the case is because one was a an entity that was free to go around and shop around for the best price versus the fund here which is a captive entity now as a complaint makes clear that i mean it is an independent board the who is captured it will by definition their captive entities that's why the i c exists and requires them to have sort that may be a term of art and surely it matters that the board is independent and that's one of the factors that is considered by statute there and regulation i mean to even get to these gardens are factors to assess the fees the first and foremost the board has to be independent if it's not independent there's a statutory violation in and of itself but with respect to the p s of some advice fund i do want to make the point that this twenty basis point difference which is can only be attributable to the fact that one is a captive entity and one isn't actually understates the fee difference because to be clear we're only suing on advisory fees here are only suing on the advisory fees provided under the investment advisory agreement contractually those trees are eighty basis points the p s f agreement is for the same advisory fees but also for a host of other services including administrative regulatory compliance so those fees obviously have value so when you strip out the fees for those services and just look at what they have the same advisory services are it has to be less than sixty you know it's probably somewhere around forty basis points compared to the eighty basis points contract surely that's being in charge of the fund before  same sure you're on if i if i understand the question i think that's that's probably the most troubling aspect if i understand the question relates to the economies of scale of one hundred million to six right and yours right scale works is that these fees are linked to the assets under management it's a percentage write a daily average of the so the question becomes in economies of scale analysis is that you know if you go from six hundred million to six billion is a really ten times more expensive to manage each additional dollar of income that's coming into the fund and what defendants say is in order to satisfy or to plead that this element you need to talk about actual transaction costs and they economies of scale factor is to show that as a un ballooned right the assets under management balloons and the feeble loon proportional to a un the amount of work required to manage the fine did not have a proportional growth and that's what we've done here we've shown that while you have anyone ballooning six hundred percent the amount of dedicated personnel remained relatively constant while the amount of i believe holdings in the portfolio only doubled so the idea being that the amount of work did not keep pace as the size of the fund grew extravagantly claimed that they increased the number of people working on this i don't believe they claim that there was an increase believe the facts in the complaint were that there was a team of twenty seven dedicated research personnel the find originally had two portfolio managers it that increased to three which was still less than one of the funds we compare them to the equity funds which had a fee that was half the price of what the fund was charged here by the same defendant so it but even if there was some growth in personnel the question is not whether there is some growth the question is whether the growth is commensurate with the explosion in a way and the explosion in the fees that are proportional to  may please the court mark holland for j p morgan investment management i think that when you parse the actual facts alleged in this complaint from the conclusory allegations they seek to draw from those facts you'll agree with judge daniels that the facts do not plausibly show that the fee j p morgan charges is so disproportionately large that it violates section thirty six b the thrust of their complaint is the core recognized the comparison between the fee that the core plus pays or to j p morgan and fees that other funds pay including two other fees advised by j p morgan but section thirty six b does not require parity as a supreme court said in jones against terrorists or that the  the best deal possible as this court said in krinsky and i think that which is the most relevant decision to the motion here because it was also affirming a dismissal of a section thirty six b complaint on a twelve b six motion also recognizes that simply alleging that one fee is higher than another doesn't get where you need to be on section thirty six b and but would multiplying the amount of assets under investment by ten times result in very to plead facts showing either that the cost of the performing trip fund transactions or the relationship between such costs and the number of transactions performed you have to allege facts about costs of transactions there's no allegation here but to go to your when they have to creep inside your your your internal workings in order to know that and you're not going to offer that to them voluntarily because you're not crazy so you have to have discovery well i think the fact that they don't have a fact that necessary to a legit garten berg factor doesn't mean they get the benefit of that gartenberg factor there was no data in amran to that effect in the court said well the need just don't have the facts to show that it doesn't claim that something can be plausible and  without you know with fewer facts than would be needed if you had discovery but let me go to what you're really concerned about which is the essence of the fund went up over a ten year period before the period issue in this complaint remember section thirty six b has fifteen and to share economies of scale you want to lower fees that's a significant lowering further since they lowered the fee in two thousand and fifteen they continue to waive over ten million dollars a year in advisory fees over ten percent of the advisory fee that they're entitled to look under the contract they waive that so i don't think the complaint shows that the j p morgan is actually realizing economies of scale but even if you accept that they do they're certainly sharing those economies both by having lowered the  me or others there's no requirement under section thirty six b that you have to intend to share economies of scale about the fact is they are a sharing country scale for whatever reason they lowered the fee and the fact is it means that they are sharing whatever commies may be realized and i don't think there's anything in the complaint to show that they are but if they are they're certainly sharing them through those few reductions and through those few waivers which continue to this day and there is there anything about the profit they make no that they have access to in this case they admit that they have nothing about profitability and they had nothing about profitability and the they complained that it wasn't publicly available in the court said that doesn't matter again just because most of these people sort of for ever from what i can tell in the public record at substantial it's money that they get they do judge karma but i think under section thirty six b what the supreme court said in jones that the board process the board's decision whether or not to approve a fee is not necessarily relevant for determining whether or not that fee is excessive you can't bring a claim simply because under thirty six b simply because you don't think the board  the a circuit in dallas against america price said that you would has to do its job and yes making a determination about the reasonableness of yes but that has nothing to do with whether or not they stated a plausible claim under thirty six b they have to show that the claim they have to show that the fee is somehow so disproportionately large that has no reasonable ration ship to the services rendered and couldn't fall within the range of arm's length in terms of falling within the range of arm's length all they have is the pacific life fund the that's the one data point they have where j p morgan charges sixty basis points to an institutional client and seventy two to the core plus fund that hardly shows a range of arm's length bargaining and another in critical factor in terms of evaluating the relationship between the services and the fee is performance and in this court said that you have to allege under performance order for that factor to weigh in favor of plaintiffs here the complaint can feed we have average performance over the short term of one three and five years and actually the longer term the same data they point to the which is the shareholder some annual report which is that the joint appendix page three thirty eight shows that the long term performance of this fund over the ten year period has beat both the s and p five hundred and it flipper  comparable funds and to the liberal mean there's any more work involved were just of course the point is not the work involved that goes to the profitability the point is that you're getting value for money the the relationship between the services in the fee is such that you are getting average performance over the shorter term i mean it's the bureau would charge but you're getting above average performance and going to the point of the lip or doubt of the plaintiff use that lippard data to criticize the funds prefer but then when you turn around and look at the comparison to other fees you see they don't want to use that labor data because it's in convened to them but they can't have it both ways they can't use the lipper data for performance and then not use it for a comparison to other fees and what really happened here is when they filed this complaint they misread the way lipper presented data they thought that if you were in the top twenty percent you were in the worst twenty percent but in fact if you're in the top twenty percent you're in the best twenty percent what that means is sorry is that measuring the the services provided or the and the nature of the fund or is that measuring the performance no it's measuring deliberate actually measures both it takes a universe of comparable funds and it looks at what the fees charged by those comparable funds are and their this fund pays less than eighty percent of the comparable funds and then it looks also with the performance of those comparable funds and you see that our performance was average over the one three and five year periods and as i mentioned above average for longer periods so you are getting value for money here both in terms of performance and in terms of comparable fees and they reach for this arm's length bargaining point what we charge a sub advisor but that's just one data point it doesn't show the range of arm's length bargaining it just shows ok one fund has a slightly better fee under  character yes yes well it's significant but it only shows sixty basis points for the for the institutional client fund versus seventy two basis points for the core plus fund that's the a lot of money well but i should point out judge korman that the shareholders in the pacific select fund can actually pay sixty basis points they have to pay the pacific life advisor ninety eight basis points which is significantly higher than what the shareholders in the core plus fund pay so the complaint i could find on that is in their bloomberg funds are they have some like two hundred eighty seven there is one fund the pimco fundamental return fund and i don't i don't see that highlighted it's not highlighted where i who picks them they hope is now self selected judge korman years ago you're right the you know the chairman of the advisor would pick his golf buddies to be on the board but that was a long time ago the f c c has changed the way that selected and that they are two different checks on the feeds one is the board process and one is the amount of the fee and whether or not it's excessive you can throw everything out about the board you're still not going to get a claim under thirty six b unless you complete facts to some plausibility to their claim that's right judge but in in emraan the same situation prevailed they didn't have access to certain facts and amaranth said that doesn't mean you get a bye on that you have to either plead the facts or you argue with  ultimate ultimate where you discover they would get that information but in enron it was a world will be six motion to dismiss they didn't even get beyond that and i would submit respectfully that this complaint is weaker than the complaining amaranth and that since am on the supreme court has tightened the pleading standards for you've got a weaker complaint on a twelve b fix motion it can't possibly meet the plausibility of stating a fifo disproportionate larger violates thirty six b thank you you thank  representations weaker in am or on the court went to pains to note that the played no facts whatsoever regarding the vet all of the factors with one sole exception before means that was it just show that there was some other funds that performed better and what the court said was you know that performance alone is insufficient it was just stating the obvious which is no one gartenberg factor will make or break a case that's it but if you go back and read the decision it said there were no facts for example with respect economies of scale no facts with respect to the costs or the relationship between the services and cos well as i recounted in my opening we played plenty of facts about the relationship between the services and the cos we talk about how a  grew right and it far outstripped the amount of growth in personnel or the amount of holdings in the in the portfolio so that plausible inference is that you're having a explosion in fees while the amount of work necessary to vow to invest and advise each additional dollar is not proportionate and that's all i am almost talking about every single factor we have stated plausibly based on specific facts the specific garten now one point i also want to make about this idea of pleading a range of fees there is no such requirement the that is the ultimate burden that is the sort of umbrella burden you know whether or not these fees are outside the range of what arm's length bargaining would that it was implausible that an arm's length negotiation would result in that and that seems to be your your pleading for what exactly are on it but it's how do you do that you do that via the gartenber factors the gardener factors it was a recognition of the difficulty of showing what a true arm's length bargain would yield given the state of the market and said here is factors that serve as a proxy for showing what a competitive price would be and that's  have to show a range you have to satisfy plausibly allegedly gartenberg factors and that's what we've done here with respect to the issue of short sales i'll just note that the piece of sub advice fun engages in the same long short strategy but with the few seconds i have left i also want to know that's a distinction without a difference this short strategy it's nothing exotic it's something that is done quite commonly and it requires it's more dangerous and requires you to stay on top of it almost hour  hour that is not in the record you're on i'm glad you brought that up because defense counsel admitted below that they were not claiming judge danielson or squash they were not relying on increased risk associated with short sales in seeking dismissal and then when pressed as to whether or not it requires more work they admitted there is absolutely nothing in the record that managing the find because of its short sales required more work and in fact the complaint notes that the equity fund which pays half the fees of the fund has more investment managers than the subject fund so if anything the facts of the case show that it's more work for fun the cost half as much there is no evidence in the record whatsoever at this stage that the inclusion is a meaningful difference strategy which is only a partial strategy as a basis for holding the other competitors in apps the a rhetorical question is well so what why does it matter well they claim it would matter because well there's more risk and it requires more work they admit that there are no facts in the record to that point so you can't just say it's an it's addictive by definition that right you have to be able to show that this is a difference that actually amounts to a hill of beans and they have to in fact we've shown that the only difference is that the equity fund again which pays half forty basis points has four dedicated investment portfolio managers while the fund which contractually pays eighty basis points has three so to the extent that we're looking at the factual record here the factual record is that this short strategy again which is only partial only covers thirty percent of the assets under management for the fund it is not exotic in the slightest doesn't entail any appreciable amount of work and it doesn't come close to justifying this massive fee differential between the equity