N O T FO R PUB L ICAT IO N UNITED STATES C OUR T OF APPEALS FOR THE NINTH C IR C UIT
DONALD TUR

NER , on B e ha lf of the Davis Ne w York Ve nture Fund, Plaintiff-Appe lla n t,
v. DAVIS SELEC TED ADVISER S, LP an d DAVIS DISTR IB UTOR S, LLC , De fe nda

nts-Appe lle e s. No. 13-15742 4:08-c v-00421-AW T M EM O R ANDUM *

On Appe a l from

the Unite d State s Distric t C ourt for the Distric t of Ariz o na A. W a l la c e Ta shim a , Se nior C irc uit Judge , Pre s iding Argue d a nd Subm i tte d June 10, 2015 San Fran c isc o , C a lifornia B e fore : HAW KINS and WA TFORD, C irc uit Judge s , a n d R AKOFF, Se nior Distric t Judge
. ** 

# FIL ED SEP 29 2015 M OLLY C. DW Y ER, CLERK U
. S
. CO URT O F APPEALS

* This disposition is not a ppropria te for public at ion a

nd is not pre c e de nt e xc e pt a s provide d

by Ninth C irc uit R

ule 36-3.

** The Honora

ble Je d S. R akoff, Se n ior Distric t Judge for the U.S. Distric t C ourt for the Southe rn Distric t of Ne w York, sitting by de signa tion.Pla intiff-a ppe lla nt Dona ld Turne r a

ppe a ls the judgm e n t of the distric t c ourt dism issing his a

m e nde d c om

pla int brought unde

r the Inve stm e nt C om

p any Ac t of 1940 (the “ IC A” ), and its de nia l of his m otion to alte r or am e nd the judgm e nt. W e
a ffirm
. Turne r holds C la ss A sha re s in theDavis Ne w York Ve nture Fund (the

“ Davis Fund” or the “ Fund” ), an ope n-e nd dive rsifie d m utua l fund re giste re d unde r the IC A. De fe nda

nt-a ppe lle e Davis Se le c te d Advise rs, LP (“ D SA” ) is the Fund’ s inve stm e nt a dvise r, an d de fe nda nt-a ppe lle e Davis Distributors, LLC (“ DD” ) is a broke r-de a l e r and the “ princ ipa l unde rwrite r of the sha re s of the Fund.” Ac c ording to the

Am e nde d C om

pla int, DSA a

n d DD c ha

rge sha re holde rs in the Fund a

num be r of diffe re nt fe e s, thre e of whic h a re the subje c t of Turne r’ s
am e nde d c o m

pla int. First, a ll sha

re holde rs pa

y an a dvisory

fe e ba se d on a pe rc e nta ge of ne t a sse ts (whic h de c re a se s a s the Fund grows in siz e ) to c om pe nsate DSA “ for m ana ging the portfolio of se c uritie s a nd for providing som

e of the ba c koffic e support ope ra tions.” Se c ond, DD c o lle c ts from a ll sha re holde rs a

“ se rvic e fe e ” of .25% of theDavis Fund’ s ne t a sse ts unde r m ana ge m e nt to support “ both pre -sa le a nd post-sa le sha

re holde r se rvic e s.” Third, DD c ha rge s C l a ss B , C and R sha re s a “ distribution fe e ” that va rie s from .5% to .75% of the

Fund’ s ne t a sse ts

- 2-and tha

t is “ m a inly

use d to fina

nc e pa ym e nts to de a le rs prim arily a s c om m issions to c o m pe nsate the individual stoc kbroke rs for the ir sa le s a c tivitie s.” 1 On July 28, 2008, Turner initia

te d this a c tion in the

Unite d State s Distric t C ourt for the Distric t of Ariz ona , a lle ging tha t DSA a n d DD we re in bre a c h

of the

“ fiduc ia ry duty with re spe c t to there c e i pt of c o m pe nsation for se rvic e s ” im pose d by § 36(b) of theIC A with re spe c t to e a c h of the se thre e fe e s , se e 15 U.S.C . § 80a
35(b), a nd tha t a ppe lle e s a lso viola

te d § 47(b) a

nd § 48(a ) of the IC A, se e id. §§ 80a -46, 47. 2 On M ay 31, 2011, the distric t c ourt dismisse d the Am e nde d C om pla int with pre

judic e , a n d on M arc h 19, 2013, the distric t c ourt de nie d Turne r’ s m otion to a

m e nd the judgm e nt a

nd to a llow Turne r to file a se c ond
am e nde d c o m

pla int. T his a

ppe a l followe d. W e re vie w de novo a distric t c ourt’ s orde r gra nting a m otion to dism

i ss for fa ilure to sta

t e c la im
. Se e Re id v . J

ohnson & J ohnson , 780 F.3d 952, 958 (9th C ir. 2015). “ [T] o fa c e lia

bility unde r § 36(b), a

n inve stm e nt a dvise r m

ust c ha rge a fe e that is so disproportiona

te ly la rge tha t it be ars no re a sona

ble re l ationship to the

1 Inste a d of pa

y ing a n a nnua l distribution fe e , C la s s A sha re holde rs pa

y “ an initia l sa le s c h arge into the p urc ha se pric e (a pproxim ate ly

4.75% of theoffe ring pric e ).” 2 Se c tions 47(b) a

nd 48(a ) of the IC A re spe c tive ly a ddre ss the m aking of unla wful c ontra c ts a

nd c ontrol pe rson lia

bility
. Turne r e ffe c tive ly

wa ive d the se c la im s whe n he opte d to c ha lle nge only the dism issa l of his a lle gations under § 36(b).

- 3-se rvic e s re nde re d a nd c ould not ha

ve be e n the produc t

of a rm ’ s le ngth ba

rga ining.” J one s v . Harris Assoc iate

s L.P. , 559 U.S. 335, 346 (2010). “ [A] c ourt’ s e v a luation of an inve stm e nt a dvise r’ s fiduc ia ry duty m ust ta ke into a c c ount both proc e dure
and substa

nc e .” Id. at 351. W ith re spe c t to proc e dure , the le ve l of de fe re nc e a c ourt
a ffords to the de c i sion of a m utua l fund’ s boa

rd of dire c tors to a

p prove a c e rta in fe e d e pe nds on therobustne ss of the boa rd’ s proc e ss for re vie w ing tha t c ontra c t. Whe re the proc e ss is de fic ie nt, a c ourt m ust ta ke a m ore rigorous look a

t the substa nc e of the fe e s e xtra c t e d from the fund’ s sha

re holde rs, a

nd vic e ve rsa . Se e id. As for substa

nc e , c ourts c onside r a

num be r of fa c tors to de te rm ine whe the r the fe e c ha rge d is e xc e ssive in light of the se rvic e s re nde re d, inc luding, but not lim ite d to,

“ (a ) the nature and qua lity of se rvic e s provide d to fund sha re h olde rs; (b) the profita bility of the fund to thea dvise r-m ana g e r; (c ) fa ll-out be ne fits; (d) e c onom ie s of sc a le ; [a

nd] (e ) c om

p ara tive fe e struc ture s.” K rinsk v . Fund Asse t Mgmt., Inc
. , 875 F.2d 404, 409 (2d C ir. 1989). At the outse t, we note tha t the Am e nde d C om

pla i nt a ffirm ative ly

a lle ge s tha

t the Fund’ s boa

rd of dire c tors ha d ava i la

ble to it the “ dat a

ne c e s sa ry to de te rm ine whe the r” the a dvisory

fe e s a nd 12b-1 fe e s c h arge d we re a ppropria te . Ac c ordingly , we “ a fford c o m

m e n surate de fe re nc e to the outc om e of the [Davis Fund’ s boa rd’ s]

- 4-ba

rga i ning proc e ss.” Se e J

one s , 559 U.S. a

t 351. Although Turne

r a lso a lle g e s tha

t the b oa rd m e t only infre que ntly

an d tha t DSA c ontrolle d wha

t inform ation the boa rd posse sse d, t

he form e r a sse rtion is insuffic ie nt, on its own, to e sta blish tha t the b oa rd’ s “proc e ss wa s de fic ie nt” and the latte r is irre le va nt in light of Turne

r’ s c onc e ssion tha

t DSA provide d the boa

rd with the re le va

nt inform ation. Turne r’ s a lle g ations with re spe c t to thesubsta nc e of the a dvisory

fe e the Davis Fund pa i d to DSA a lso fa il. The m a j ority of Turne r’ s a lle gations a

re grounde d in ina

p t c om p a risons. Turne r a lle ge s tha t the Davis Fund underpe rform e d the S& P 500 Tota l R e turn Inde x, but unlike an inde x fund, theDavis Fund is a n
a c tive ly m ana ge d fund tha

t, a c c ording to the

Am e nde d C om

pla int, pursue d a

n inve stm e nt stra

te gy foc use d on inve sting in “ la rge c om pa nie s with m arke t
c a pita liz ations of a

t le a st $10 billion.”

To support a

§ 36(b) c la im , a lle gations pe rta ining to a

fund’ s pe rform anc e m

ust use m utua l funds pursuing sim

ila r inve stm e nt stra

te gie s a s c om

pa ra tors. C f. Amron v
. Morgan Stanle y Inv . Adv isors Inc
. , 464 F.3d 338, 344 (2d C ir. 2006) (“ In c o m pa ring AO Fund sha

re re turns to ga ins a nd losse s of the S & P 500 Inde x, the Yam polsky C om pla int de m onstra

te s little , if a nything, a b o ut the nature or qua lity of the spe c ific se rvic e s offe re d to AO Fund c ustom e rs.” ). Like wise , Turne r c om p are s the siz e of DSA’ s a dvisory fe e to

- 5-that

of the fe e e xtra c te d from othe r m utua l funds, but he fa ils to a lle ge tha t the se othe r funds’ a dvise rs provide d the sa m e se rvic e s or pursue d a

sim ila r inve stm e nt strate gy . As a

re s ult, the se juxta

positions le

n d no support to Turne

r’ s c l a im
. Turne r ne xt a lle g e s tha

t DSA fa ile d

to pa ss a long e c onom ie s of sc a le to the Fund’ s sha

re holde rs. Ye t othe r tha

n a c o nc lusory

sta t e m e nt tha

t “ [a ] s the Fund grows la rge r, e c onom ie s of sc a le oc c ur for m a ny Fund a c tivitie s” and ge ne ra l
a lle gations a

bout c ost sa

v i ngs re sulting from

te c hnology

a dva nc e s a nd de re gula

tion (ne i the r of whic h m ay

a c c urate ly

be de s c ribe d

a s “ e c onom i e s of sc a le ” ), the Am e nde d C om

pla int’ s only

a lle gation pe rta ining to this issue is tha t the tim e and
c ost of re se arc h de vote d to whe the r to m ake a “ pa rtic ula r inve stm e nt in a

pa rtic ula r stoc k . . . re m a ins the sa

m e re ga rdle s s of whe the r the siz e of the inve stm e nt would be for m illions of dolla

rs or hundre ds of m illions of dolla rs.” This is fa

r from
e nough to sa

ve Turne r’ s c la im

from dism issa l. The c are fully

worde d a lle g ation doe s not a c tua lly

a sse rt tha t the am ount of tim e and m one y tha t DSA spe nt pe rform i ng re s e arc h

re m a i ne d the sa

m e a s the fund inc re a se d in siz e , but only tha t the c ost of re s e arc hing a

“ p artic ula

r inve stm e nt in a

pa rtic ula r stoc k ” sta

y e d flat. Furthe r, the Am e nde d C om pla int offe rs no e xpla

nat ion of wha

t pe rc e nta ge of DSA’ s work wa s spe n t

re se arc hing spe c ific inve stm e nts. As a re sult, Turne r’ s

- 6-a lle gations re ga rding e c onom ie s of sc a le a lso fa i l to support a n infe re nc e tha

t the
a dvisory fe e DSA c ha

rge d bore no re a sona

ble re lat ionship to the se rvic e s re nde re d. Se e J one s , 559 U.S. a

t 346. W e the re fore a ffirm the distric t c o urt’ s dism issa l of Turne r’ s § 36(b) c la im ba s e d on DSA’ s a dvisory fe e . Turne r’ s atta c k on the 12b-1 se rvic e fe e tha t DD c ha rge s , whic h c an e sse ntia lly

be distille d to thre e a lle gations, is eve n le ss c om pe lling. First, Turne

r
a lle ge s tha

t , be c a use the se rvic e fe e is use d, in pa rt, to grow the fund, the re late d inc re a se in the siz e of the a dvisory fe e and tra

nsfe r a ge nt fe e s tha

t DSA a nd DD
c olle c t–fe e s pa id for se rvic e s suc h a s “ the proc e ssing of thesa le an d re de m ption of Fund sha re s [a n d ] m a inte na

nc e of re c ords” –c onstitute fa ll-out be ne fits. 3 B ut a

n inc re a se in a d

visory and tra n sfe r fe e s will a lwa

y s be a by produc t of fe e s use d to grow a m utua l fund, unle ss the e fforts to grow thefund a re unsuc c e ssful. Them e re la be ling of suc h fe e s a s “ fa ll-out be ne fits” the re fore sa y s nothing a

bout whe the r the
se rvic e fe e he re fa ils to re se m ble what would be the produc t of a rm ’ s-le ngth ba rga i ning. Se c ond, Turne r a lle ge s tha t som e of the 12b-1 se rvic e fe e wa s use d to pa y for se rvic e s tha

t “ [t] he broke r-de a le r is le g a lly obliga te d to provide. . . unde r

3 “ Fa ll-out be ne fits” are “ those c olla te ra l be ne fits tha

t a c c rue to the a dvise r be c a use of its re lationship with the m utua l fund.” J

o ne s , 559 U.S. a

t 344 n.5.

- 7-the a

pplic a b le sta tute s a nd Ne w York Stoc k

Exc ha nge an d NASD/FINR

A
re gula tory re gim e s.” A le ga l o b liga

tion to pe rform

c e rta in se rvic e s, howe ve r, is not
an obliga tion to pe rform those se rvic e s for fre e , a nd so we de c line Turne r’ s invita t ion to vie wa fe e pa id for suc h se rvic e s a s pe r se e xc e ssive . Third, Turne r c om pa re s the tota l 12b-1 fe e s DD c ha rge s to thefe e s c ha

rge d to othe r funds. B e c a use the Am e n d e d C om

pla i nt doe s not e xpla in wha t 12b-1 se rvic e s we re provide d to theothe r funds, the se c om pa risons a ga in fa il to show tha t a ny fe e is
e xc e ssive . Thus, we a ffirm the distric t c o urt’ s c onc lusion tha t Turne r fa ile d to
a de quate ly

a lle ge tha

t the 12b-1 se rvic e fe e wa s so disproportiona te ly la rge that it bore no re a sona

ble re lation to the

se rvic e s re nde re d. Turne r furthe r argue s tha

t the se rvic e fe e s we re unla wfully use d for post-sa le sha re holde r se rvic e s whe n 12b-1 fe e s m ust, a c c ording to Turner, be use d to fina nc e
a c tivity prim arily

inte nde d to re sult in the

sa le of sha

re s. A c la im c ha lle n ging the
use , a s oppose d to thesiz e , of a fe e is not c ogniz a

ble unde r § 36(b). “ In orde r to sta te a c la im unde r § 36(b), one m

ust a lle ge e xc e ssive fe e s, rat he r tha n fe e s tha t
m ight sim ply be de sc ribe d a s ‘ im

prope r.’ ” Be l lik

off v . Eaton Vanc e C

orp. , 481 F.3d 110, 118 (2d C ir. 2007) (c iting Garte nbe rg , 694 F.2d a t 928); Gallus v
. Ame riprise

Fin., Inc
. , 675 F.3d 1173, 1181-82 (8th C i r. 2012).

- 8-W e a lso a ffirm the distric t c ourt’ s dismi ssa l of Turne r’ s c h a lle n ge to the 12b-1 distribution fe e s, though for a diffe re nt re a son. As sta

t e d a bove , the Am e nde d C om

pla int a lle ge s tha

t only C la ss B , C , a

nd R sha re holde rs a

re c ha rge d a distribution fe e . Thus, re ga rdle ss of whe the r that distribution fe e is e xc e s sive , Turne r ha s not suffe re d

any injury from it, a n d he the re fore la c ks sta

nding to
c ha lle nge it. Se e Ore

gon Adv oc ac

y C tr. v . Mink

, 322 F.3d 1101, 1108 (9th C ir. 2003); s e e also Gollust v

. Me nde ll, 501 U.S. 115, 125 (1991). The distric t c ourt de te rm i ne d tha

t Turne r ha d sta

n ding be c a

use “ e a c h sha

re c la ss pa

rtic ipate s in the
sam e portfolio of a s se ts” suc h tha t “ e xc e ssive fe e s c h a

rge d to one c la ss will de tra c t from the ove ra ll pool a

nd a ffe c t the va lue of othe r sha re c la sse s.” This c onc lusion, howe v e r, c onflic ts with Turner’ s a lle gation tha t C la ss A sha

re holde rs a

re not
c ha rge d the distribution fe e and with SEC re gula tions re quiring tha

t e a c h sha re c la ss be ar its own fe e s, se e 17 C .F.R . § 270.18f-3(a)(1)(i), whic h Turne r doe s not
a lle ge a ppe lle e s viola

te d. Te llingly , though the Am e nde d C om

pla int a sse rts tha

t the d istribution fe e is “ in e ffe c t ” pa id out of the Fund’ s a sse ts, it ne ve r a l le ge s tha t,

- 9-a s the distric t c ourt sugge s te d, the distribution fe e itse lf lowe re d the va lue of C la ss A sha re s or tha t it deprive d C la ss A sha

re s of growth from a

m i sse d inve stm e nt. 4 As for Turne r’ s re m a ining c a use s of a c t ion, Turne r ha s not offe re d a ny
argum e nt with re s pe c t to thedistric t c ourt’ s dismissa l of the § 47(b) c la im and he
c onc e de s tha

t the surviva l of the § 48(a ) c la i m de pe nds on his § 36(b) c la im . W e the re fore a ffirm

the distric t c ourt’ s dismissa l of the se c la im s a s we ll. Fina lly , we a ffirm

the distric t c ourt’ s de nia l of Turne r’ s m otion to a m e nd the judgm e nt a

nd to a m e n d his c om

pla int, whic h we re vie w for a buse of disc re tion. Se e A llstate

Ins. C o. v . He r ron , 634 F.3d 1101, 1111 (9th C ir. 2011). “ [O] nc e judgm e nt ha s be e n e nte re d in a c a se , a m otion to a

m e nd the c om

p la int c an only

be
e nte rta ine d if the judgm e nt is first re ope ne d unde r a m o tion brought unde

r R ule 59 or 60.” Lindaue r v . Roge rs , 91 F.3d 1355, 1357 (9th C i r. 1996), as ame nde d (Se pt. 4, 1996). “ [A] R

ule 59(e ) m otion m ay

be grante d: (1) if suc h

m otion is ne c e ssa

ry to c o rre c t m anife st e rrors of la w or fa c t upon whic h

the judgm e nt re sts; (2) if suc h
m otion is ne c e ssa

ry to pre se nt ne wly

disc o ve re d or pre viously una va ila ble
4 Turne r a dditiona lly

argue s tha

t the distribution fe e wa s use d to grow theFund to suc h a la rge siz e tha

t the sha re holde rs a c t

ua lly e xpe rie nc e d

“ d ise c onom i e s of sc a l e .” As we he ld a

b ove , § 36(b) doe s not provide sha re holde rs with a c a

use of a c tion to c ha lle nge an

a d vise r’ s busine ss de c isions sim ply be c a use the a dvise r c olle c ts a fe e to support the

a c tivitie s c a

rry i ng out those

de c isions. He nc e , this a spe c t of Turne r’ s a

m e nde d c om

pla i nt, e ve n if he ha d

sta nding to a sse rt it, would fa il a s we ll. -10-e vide nc e ; (3) if suc h m otion is ne c e ssa ry to pre ve nt m anife st injustic e ; or (4) if the
am e ndm e nt is justifie d by an inte rve ning c ha

n ge in c ontrolling la

w.” Allstate , 634 F.3d at 1111. W e first re

je c t Turne r’ s sugge stion tha t the Supre m e C ourt’ s de c ision in J one s v . Harris an d our non-pre c e de ntia l de c ision in J e line k v . C apital Re se arc h & Mgmt. C o. , 448 F. App’ x 716 (9th C ir. 2011) c onstitute d c ha nge s in “ c ontrolling la w” tha t wa rrante d re ope ning thejudgm e nt be l ow. The Supre m e C ourt ha nde d down J o ne s ove r a y e ar be fore the distric t c o urt issue d its de c ision, a nd the pa rtie s we re re quire d to brie f the de c ision be fore the distric t c ourt de c ide d a ppe lle e s’
m otion. Thus, eve n if J

one s c h ange d the la

w, the tim e for Turne r to m ove to a m e nd the c om pla i nt wa s during theinte rve ning fourte e n m onths be fore the distric t c ourt rule d on a ppe lle e s’ m otion. Although J e line k wa s not de c ide d until a fte r the distric t
c ourt rule d, it is plai n tha

t a m e m oran dum

disposition is not “

c ontrolling la

w” for the s e purpose s. Se e Ninth C irc uit R ule 36-3(a ). W e a lso c onc lude that the distric t c ourt did not a buse its disc re tion in de te rm i ning tha

t re ope n ing the judgm e nt to a llow Turne r to a m e nd the c om

p la int
wa s not ne c e ssa

ry to pre ve nt a m anife st injustic e . Turne r ha d a lre a dy am e nde d his initia l c om

p la int onc e in re sponse to a ppe lle e s’ first m otion to dism i ss, a nd the

-11-se c o nd m otion to dism iss ha d be e n pe nding for a lm ost two y e ars by the tim e the distric t c o urt de c ide d it. He thus “ha d am ple opportunity

to file an am e nde d
c om pla i nt with ne w a lle gations be fore the c ourt issue d its fina l judgm e nt,” and now ha s no e x c use for fa iling to do so. Pre mo v . Martin , 119 F.3d 764, 772 (9th C ir. 1997). This is e spe c ia l ly true sinc e the ne w a lle gations in the propose d se c ond
am e nde d c o m

pla int a re ba se d not on ne w e vide n c e , but on information to whic h Turne r ha s ha d a c c e ss from the inc e ption of this suit. Roy al Ins. C o . of Am. v . Sw
. Marine , 194 F.3d 1009, 1017 (9th C ir. 1999). AFFIRM E D.

-12-