T hi s di s pos i t i on i s notappr opr i a t e f orpubl i c a t i on a nd i s notpr e c e de nt * e xc e pta s pr ovi de d by N i nth C i r c ui tR ul e 36- 3.

T he H onor abl e R udi M . B r e w s t e r , S e ni orU ni t e d S t a t e s D i s tr i c tJ udge ** f orthe S outhe rn D i s tr i c tof C a l i f orni a , s i tt i ng by de s i gna t i on. NOT F OR P UB L I CAT I ON UN I TE D STATE S C OU RT OF APPE ALS FOR T HE NI NTH CI RC UI T R O D N E Y T . J E L I N E K , a s trus t e e of the D a v id L . C ap la n R e v o c ab le T ru s t; e t a l., P l ai n t i ffs - A p p el l an t s, v. C AP I T AL R E S E AR C H A ND MANA GE ME NT C O. ; AME R I C AN F U N D S D I S T R I B U T O R S , I N C ., D efen d an t s - A p p el l ees. N o. 10- 55221 D . C. N o . 2 : 0 4 - c v - 0 5 5 9 3 - G A FRNB ME MOR AN DU M *

A pp ea l fr om the U ni t ed S t at es D i stri ctC ou rt f o rth e C e n tr a l D is tr ic t o f C a lif o rn ia G a ry A . F e e s s , D i s tr i c tJ udge , P r e s i di ng A r gue d a nd S ubm i tt e d J une 10, 2011 P a s a d e n a , C a lif

o rn ia Be f o r e : B. FLETCH ER, a n d N . R. SM I TH , Ci r c u i tJ u d g e s , a n d BREW STER, D i stri ctJudg e. ** 

# FI LED AU G 24 2011 M OLLY C. DW Y ER, CLERK U . S. C O U R T OF APPE ALST he di stri ctcourti ss ued a 24 -page m i nu t e order se tt i ng forth i t s gener al 1 concl usi on s i n a “ S t at em entof Int ended D ec i si on . ” A pp el l ee s then p re pare d prop osed fi nd i ng s of f

ac tand con cl usi on s of l aw , w i th ci t at i on s t o exh i bi t s a nd tri al t es t i m on y; A pp el l ant s f i l ed obj ec t i on s; and, fi nal l y, the di stri ctcourti ss ued a fi nal or de r . T hus , A ppe l l a nt s a r e m i s t a ke n w he n the y c l a i m the A ppe l l e e s w r ot e the or de rw i th the e xc e pt i on of the pr e a m bl e . T hi s i s notac a s e i n w hi c h atr i a l j udge “m e c h a n ic a lly a d o p te d ” v e rb a tim f in d in g s th a t h a d b e e n w r itte n b y th e v ic to r . C f. I ndus . B ldg. M

ate r i al s , I nc . v . I nte r c he m . C or

p. , 43 7 F . 2d 13 36 , 13 39 -40 (9th C i r. 1 9 7 0 ) .

- 2- A p p e lla n ts ap p e a l th e d is tr ic t c o u r t’s ju d g m e n t, f o llo w in g ab e n c h tr ia l, hol di ng tha tthe m utua l f und i nve s t or s f

a i l e d t o pr ove the A ppe l l e e s br e a c he d the f i duc i a ry duty i m pos e d by § 36( b) of the I nve s tm e ntC om pa ny A c tof 1940. 15 U . S . C . § 80a - 35( b) ( he r e i na f t e r“ the A c t ” ) . W e a f

f i rm i n l a r ge pa r tf

orthe r e a s ons st at ed i n the di stri ctcourt ’ s c om prehensi ve order. 1 A . Is sues of L aw T h e d is tr ic t c o u r t c a r e f

u lly ap p lie d th e a u th o r ita tiv e le g a l s ta n d a r d to d e te rm in e if

A p p e lle e s v io la te d th e irf id u c ia ry d u ty . T h e d is tr ic t c o u r t c o rr e c tly appl i e d the f

a c t or s s e tf

or th i n G artenberg v. Merri l l L ynch A ss et

M gm t . , Inc. , 694 F . 2d 923 ( 2d C i r . 1982) . T hr e e m onths a f t e rthe di s tr i c tc our tf

i l e d i t s or de r , the U ni t ed S t at es S up re m e C ou rtadop t ed the G a rten b ergle g a l s ta n d a r d . Jones v . Ha r r is As s o c s . L. P. , 1 3 0 S . C t. 1 4 1 8 , 1 4 3 0 ( 2 0 1 0 ) . T h u s , w e d o n o t n e e d to r e m a n d th e a c tio n f

o rf u r th e rp r o c e e d in g s in lig h t o f th e r e c e n t Jones d e c is io n .- 3-

T h e A c t, Jones , a nd G a rten b ergal l re qu i re the courtt o cal i brat e the degree of de f e r e nc e a f f or de d the i nde pe nde ntdi r e c t or s ’ e xpe rt i s e ba s e d on the c a r e a nd consci ent i ou snes s w i th w hi ch they per form ed thei r dut i es . 15 U . S . C . § 8 0a35( b) ( 2) ( “ appr ova l by the boa r d of di r e c t or s . . . s ha l l be gi ve n s uc h c ons i de r a t i on b y th e c o u r t a s is d e e m e d ap p r o p r ia te u n d e ra ll th e c ir c u m s ta n c e s ” ) ; Jones , 1 3 0 S. C t. a t 1 4 2 9 ; G a rten b erg , 6 9 4 F .2 d a t 9 3 0 . H e r e , th e d is tr ic t c o u r t m e tic u lo u s ly appl i e d the pr ope rs t a nda r d t o the c a s e . T he di s tr i c tc our tc r i t i c i z e d the i nd ependentdi re ct ors f

or “ paperi ng the fi l e, ” and , as a r es ul t , gave thei r app roval le s s d e f e r e n c e th a n it w o u ld h a v e g iv e n if th e y h a d d ilig e n tly p e r f o rm e d th e ir

“ w a t c hdog” r ol e . T he di s tr i c tc our t ’ s f i ndi ngs a r e noti nt e rna l l y i nc ons i s t e nt , but i n st ead refl ectth e d i stri ctco u rt ’ s co rrectco n cl u si o n th atth e l ack o f d i rect o rs’ c o n s c ie n tio u s n e s s w a s “n o t s u f f ic ie n t to r e b u t th e s u b s ta n tia l e v id e n c e th a t o v e r a ll the cond uctof the di re ct ors m etthe G ar te nbe r g s t a nda r d, ” a nd tha t“ ba s e d on the e nt i r e ty of

the r e c or d be f

or e i t , tha tthe U na f

f i l i a t e d D i r e c t or s c a r e f

ul l y a nd di l i gent l y e xerc i se d thei r r es po nsi bi l i ty i n app rovi ng the fe es ati ss ue. ” T h e d is tr ic t c o u r t a ls o p r o p e r ly e v a lu a te d th e o th e rr e le v a n t f a c to r s to det erm i ne thatA pp el l ee s’ fe es w er e not“ so di spropo rt i on at el y l ar ge” thatthey bo re “ no re as on abl e r el at i on shi p t o servi ce s r endered. ” G a rten b erg , 69 4 F . 2d at 9 2 8 - 3 0 ; a cco rd Jones , 130 S . C t . a t1426- 27 & n. 5.- 4-

W e a g r e e w ith A p p e lla n ts , h o w e v e r , th a t th e A c t e n c o m p a s s e s ac la im th a t a fi d u ci ary m ay b reach i t s d u ty b y i m p ro p erl y u si n g fees. T h e A cti m p o ses a f i duc i a ry duty “ w i th r e s pe c tt o the r e c e i ptof c om pe ns a t i on f

ors e rvi c e s , orof paym ent s of am at er i al nature, ” a nd perm i t s acl ai m “ concerni ng such com pensat i on or paym ent s. ” 15 U . S . C . § 8 0a-35(b). T hi s l angu age i s broad enou gh t o p erm i ta pl ai nt i ff t o sue on a theory thatfe es w er e use d for i m prop er p u rp o s e s . See Forsy the v. Su n L i f e Fi n. , Inc. , 4 1 7 F . S u p p . 2 d 1 0 0 , 1 1 5 - 1 6 ( D. M a s s . 2 0 0 6 ) ; Si e m e rs v . W e l l s Far go & C o. , 20 06 W L 23 55 41 1 (N . D . C al . 20 06 ); bu t se e I n R e E aton V

anc e Mutual

Funds Fe e L i t i

g. , 380 F . S upp. 2d 222, 237 ( S .D .N .Y . 2 0 0 5 ) , af

f’ d s ub nom , B e l l i kof

f v . E aton V

anc e C or p. , 481 F . 3d 110, 11 7-18 (2d C i r. 20 07 ). H er e, ho w ever , A pp el l ant s di d n otatt em ptt o sho w thatA pp el l ee s m i suse d the f e e s ortha tthe m utua l f

unds di d notbe ne f

i tf r om the s e rvi c e s pr ovi de d by th o s e f e e s . I n s te a d , A p p e lla n ts r e lie d o n th e th e o ry th a t f e e s w e r e u s e d to p r o m o te grow th thatw as advers el y a ff ec t i ng the m utual fund s. T he di stri ctcourtre j ec t ed thi s the ory . O n the f

a c t s pr e s e nt e d a ttr i a l , w e a f f i rm the di s tr i c tc our t ’ s c onc l us i on th a t A p p e lla n ts d idn o t p r o v e ab r e a c h o f f id u c ia ry d u ty b y im p r o p e r ly u s in g f e e s . B . Is sues of F ac t- 5-

A pp el l ant s f

ai l t o sho w thatany of the di stri ctcourt ’ s f ac tfi nd i ng s a re “c le a r ly e rr o n e o u s .” F e d . R . C iv . P . 5 2 ( a ) ( 6 ) ; A n de rs o n v . B e s s e m e rC ity , 4 7 0 U . S. 5 6 4 , 5 7 3 - 7 5 ( 1 9 8 5 ) ; U

ni te d State s v . Hi nk

s on , 585 F . 3d 1247, 1262 ( 9th C i r . 2009) ( e n ba nc ) . T he di s tr i c tc our tthor oughl y di s c us s e d the r e l e va ntf a c t or s a nd c a r e f ul l y e xa m i ne d the vol um i nous doc um e nt s , e xt e ns i ve t e s t i m ony , a nd c o n f lic tin g e x p e r t o p in io n s b e f o r e m a k in g d e ta ile d a n d e m in e n tly p lau s ib le f i ndi ngs of

f a c t . T he di s tr i c tc our ts t a t e d c l e a ra nd c ohe r e ntr e a s ons f orr e l y i ng on th e te s tim o n y o f

A p p e lle e s ’ e x p e r t w itn e s s e s a s c r e d ib le a n d p e r s u a s iv e . B ee ch A i rc raf t C orp. v. U

ni ted Stat es , 5 1 F .3 d 8 3 4 , 8 3 8 ( 9 th C ir . 1 9 9 5 ) . C . D i sc ov ery I ss ues A pp el l ant s c hal l enge tw o d i sc ov ery order s – the fi rs tby the di stri ctcourt a n d th e s e c o n d b y th e m a g is tr a te ju d g e –d e n y in g th e irm o tio n s to c o m p e l.

“ ‘ [B ] ro ad d i scret i o n i s v est ed i n th e tri al co u rtt o p erm i to r d en y d i sco v ery, an d i t s d eci si o n t o d en y d i sco v ery w i l l n o tb e d i stu rb ed ex cep tu p o n th e cl earest s how i ng tha tde ni a l of

di s c ove ry r e s ul t s i n a c tua l a nd s ubs t a nt i a l pr e j udi c e t o the com pl ai ni ng l i t i gant . ’ ” H al le t t v . Mor gan , 296 F . 3d 732, 751 ( 9th C i r . 2002) ( c ita tio n s o m itte d ) . W hi l e w e m i ghtha ve ha ndl e d the di s c ove ry r e que s tf ori nf orm a t i on r e ga r di ng e m pl oy e e - l e ve l c om pe ns a t i on a nd pr of i ts ha r i ng da t adi f

f e r e nt l y , the- 6-

di s tr i c tc our tdi d notabus e i t s br oa d di s c r e t i on. M or e ove r , A ppe l l a nt s ha ve not es t abl i shed prej ud i ce fr om the deni al of thei r m ot i on t o com pel because they s oughte vi de nc e tha tw oul d notha ve a l t e r e d the out c om e . A ppe l l a nt s ha d the i nf orm a t i on on am a c r o- l e ve l , i nc l udi ng the t ot a l s um of the f e e s c ol l e c t e d, the am ou ntthe i nv es tm entadvi sor r et ai ned, and the am ou nt s pas se d t o the subsi di ar i es a n d b r o k e r s . T h e r e s u lt o f th e b e n c h tr ia l w o u ld h a v e b e e n th e s a m e if A p p e lla n ts h a d p r e s e n te d th a t s a m e b a s ic in f o rm a tio n in ad if

f e r e n t f o rm , i.e ., on the m i c r ol e ve l of e a c h i ndi vi dua l ’ s c om pe ns a t i on. A s to th e s e c o n d d is c o v e ry o r d e r , A p p e lla n ts “f o r f e ite d [ th e ir ] r ig h t to appe l l a t e r e vi e w of

tha tor de r ” be c a us e the y di d notf i l e a n obj e c t i on t o the m agi stra t e j ud ge’ s di sc ov ery rul i ng w i th the di stri ctj ud ge as re qu i re d b y F eder al R u le o f C iv il P r o c e d u r e 7 2 ( a ) . Si m ps on v . L e arA s tr oni c s C or p. , 77 F . 3d 1170, 1174 ( 9th C i r . 1996) ( f

ootnot e om i tt e d) . I n a ny e ve nt , the m a gi s tr a t e j udge di d not abus e hi s br oa d di s c r e t i on i n de ny i ng the m ot i on t o c om pe l A ppe l l e e s ’ out s i de a c c o u n ta n t, an o n - p a r ty , to p r o d u c e its w o rkp ap e r s . A p p e lla n ts h a d th e r a w d a ta f r o m th e A p p e lle e s a n d th e y d id n o t a lle g e th e a u d it w a s im p r o p e r . A F F I R M E D .