UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

___________________________________

JENNIFER L. KASILAG, LOUIS )

MELLINGER, JUDITH )

M. MENENDEZ, JACQUELINE M. )

ROBINSON, and ) Civil Action No. 11-cv-1083 (RMB) (AMD)

LINDA A. RUSSELL, et al., )

) Motion Date: May 7, 2012

Plaintiffs, ) Oral Argument Requested

) Document Filed Electronically

v. )

)

HARTFORD INVESTMENT )

FINANCIAL SERVICES, LLC, )

)

Defendant. )

___________________________________ )

MEMORANDUM OF LAW IN SUPPORT OF 

RIKER DANZIG SCHERER HYLAND 

PERETTI LLP

DEFENDANT’S MOTION TO DISMISS

By: Anthony J. Sylvester

Headquarters Plaza

One Speedwell Avenue

Morristown, NJ 07962-1981

(973) 538-0800 (tel)

(973) 538-1984 (fax)

asylvester@RIKER.com

ROPES & GRAY LLP

By: Harvey J. Wolkoff

Robert A. Skinner

Allison M. Boscarine

Prudential Tower

800 Boylston Street

Boston, MA 02199-3600

(617) 951-7000
i

TABLE OF CONTENTS

PRELIMINARY STATEMENT .....................................................................................................1

BACKGROUND .............................................................................................................................5

1. Investment Management Agreement and Sub-Advisory Agreements.................................6

2. Distribution Plans and 12b-1 Fees.......................................................................................8

ARGUMENT...................................................................................................................................9

I. MOST OF COUNT I FAILS TO STATE A CLAIM FOR EXCESSIVE 

INVESTMENT MANAGEMENT FEES UNDER § 36(B) OF THE ICA.........................9

A. The SAC’s Comparison of Sub-Advisory Fees and Services Fails to Plead Facts 

Specific to HIFSCO that Plausibly Allege that HIFSCO’s Fees Were “So 

Disproportionately Large” Under Jones............................................................... 10

B. The SAC’s Allegations that HIFSCO Charges Higher Fees than Vanguard Does 

Not Plausibly Support a Claim that HIFSCO’s Fees Were “So Disproportionately 

Large” Under Jones .............................................................................................. 16

C. Plaintiffs’ Theory of Liability Based on Comparison to Institutional Fees Should 

Be Limited to the Single Fund as to which the SAC Alleges Facts ..................... 17

II. COUNT II FAILS TO STATE A CLAIM FOR EXCESSIVE DISTRIBUTION 

AND SERVICE FEES UNDER § 36(B) OF THE ICA....................................................19

A. The SAC Does Not Allege a Plausible Claim for Excessive Distribution and 

Service Fees under § 36(b), But Merely Quarrels with the Policies Behind Rule 

12b-1 Fees............................................................................................................. 19

B. Plaintiffs’ Contention that 12b-1 Fees Cannot Be Charged on Class A Shares if 

Sales Loads Are also Charged Is Baseless............................................................ 20

C. Plaintiffs’ Allegations that Ongoing Distribution and Servicing Fees Cannot Be 

Charged to Share Classes that are Closed Has No Support and Is Legally Incorrect

............................................................................................................................... 23

1. Plaintiffs lack Article III standing to pursue Count II with respect to Class 

B shares..................................................................................................... 23

2. Plaintiffs’ Class B allegations cannot meet the plausibility standard of 

Iqbal and Twombly.................................................................................... 25

CONCLUSION............................................................................................................................288
TABLE OF AUTHORITIES

CASES

Allen v. Wright,

468 U.S. 737 (1984).................................................................................................................23

Amron v. Morgan Stanley Inv. Advisors, Inc.,

464 F.3d 338 (2d Cir. 2006)...............................................................................................16, 17

Ashcroft v. Iqbal,

129 S. Ct. 1937 (2009)..................................................................................................... passim

Bell Atlantic Corp. v. Twombly,

550 U.S. 544 (2007)......................................................................................................... passim

DaimlerChrysler Corp. v. Cuno,

126 S. Ct. 1854 (2006).............................................................................................................23

DeMarco v. Depotech Corp.,

149 F. Supp. 2d 1212 (S.D. Cal. 2001)....................................................................................14

Domino’s Pizza LLC v. Deak,

No. 09-3772, 383 Fed. App’x 155 (3d Cir. 2010) ...................................................................14

Fowler v. UPMC Shadyside,

578 F.3d 203 (3d Cir. 2009).................................................................................................9, 20

Gollust v. Mendell,

501 U.S. 115 (1991).................................................................................................................24

In re American Mutual Funds Fee Litigation,

No. 04-civ-5593, 2009 WL 5215755 (C.D. Cal. Dec. 28, 2009).............................................24

In re Goldman Sachs Mut. Funds Fee Litig.,

No. 04 Civ. 2567, 2006 WL 126772 (S.D.N.Y. Jan. 17, 2006)...............................................26

In re Mut. Funds Inv. Litig.,

519 F. Supp. 2d 580 (D. Md. 2007).........................................................................................24

In re Viropharma, Inc., Sec. Litig.,

No. 02-civ-1627, 2003 WL 1824914 (E.D. Pa. Apr. 7, 2003).................................................14

ING Principal Protection Funds Deriv. Litig., 

369 F. Supp. 2d 163 (D. Mass. 2005)................................................................................19, 26

Kalish v. Franklin Advisers, Inc.,

742 F. Supp. 1222 (S.D.N.Y. 1990).........................................................................................16
iii

Migdal v. Rowe Price-Fleming Int’l, Inc.,

248 F.3d 321 (4th Cir. 2001) ...................................................................................................18

Pension Ben. Guar. Corp. v. White Consol. Indus., Inc.,

998 F.2d 1192 (3d Cir. 1993).....................................................................................................6

Plumbers’ Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp.,

632 F.3d 762 (1st Cir. 2011)....................................................................................................24

Rose v. Bartle,

871 F.2d 331 (3d Cir. 1989).....................................................................................................13

Santiago v. Warminster Township,

629 F.3d 121 (3d Cir. 2010).............................................................................................5, 9, 28

Schuyt v. Rowe Price Prime Reserve Fund Inc.,

663 F. Supp. 962 (S.D.N.Y. 1987), aff’d, 835 F.2d 45 (2d Cir. 1987)....................................16

Turner v. Davis Select Advisers LP,

No. 08-civ-421 (D. Ariz. Jun. 1, 2011)........................................................................16, 24, 25

Warth v. Seldin,

422 U.S. 490 (1975).................................................................................................................23

Yameen v. Eaton Vance Distribs., Inc.,

394 F. Supp. 2d 350 (D. Mass. 2005)................................................................................26, 27

STATUTES

15 U.S.C. § 80a-35(b)............................................................................................................ passim

OTHER AUTHORITIES

75 Fed. Reg. 47064 ........................................................................................................................21

Fed. R. Civ. P. 8(a) ..........................................................................................................................9

Fed. R. Civ. P. 12(b)(6)....................................................................................................................1

Office of Investor Education and Advocacy, U.S. Securities and Exchange Commission, 

Mutual Funds: A Guide for Investors, http://www.sec.gov/investor/pubs/sec-guideto-mutual-funds.pdf .................................................................................................................21

Division of Investment Management, U.S. Securities and Exchange Commission, Report 

on Mutual Fund Fees and Expenses, http://www.sec.gov/news/studies/feestudy.htm............20

Mutual Fund Classes, U.S. Securities and Exchange Commission, 

http://www.sec.gov/answers/mfclass.htm................................................................................27
iv

U.S. Securities and Exchange Commission, Mutual Fund Fees and Expenses, 

http://www.sec.gov/answers/ mffees.htm................................................................................13
Plaintiffs bring this action purportedly on behalf of the Hartford Global Health Fund, the 

Hartford Conservative Allocation Fund, the Hartford Growth Opportunities Fund, the Hartford 

Inflation Plus Fund, the Hartford Advisers Fund, and the Hartford Capital Appreciation Fund 

(collectively, “the Funds” or “the Hartford Funds”), against the Funds’ investment manager and 

distributor, defendant Hartford Investment Financial Services, LLC (“HIFSCO”), alleging that 

fees paid by the Funds to HIFSCO violated § 36(b) of the Investment Company Act of 1940 (the 

“ICA”). HIFSCO moves to dismiss the Second Amended Complaint (the “SAC”) pursuant to 

Fed. R. Civ. P. 12(b)(6) because, as was the case with the Amended Complaint (the “AC”), the 

SAC fails to state a claim upon which relief can be granted under the stringent pleading 

requirements established by the Supreme Court in Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) and 

Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).

After oral argument on September 8, 2011, this Court granted HIFSCO’s motion to 

dismiss Plaintiffs’ allegations that HIFSCO’s investment fees are excessive because HIFSCO 

purportedly delegated “all the work” to sub-advisers for a lower fee than HIFSCO’s; however, 

the Court gave Plaintiffs an opportunity to re-plead. The Court also invited additional briefing 

on Plaintiffs’ allegation that HIFSCO’s investment fees are excessive because the fees of one 

other fund family, Vanguard, are lower than HIFSCO’s. Similarly, the Court also dismissed –

but with leave to re-plead – Plaintiffs’ allegations about HIFSCO’s 12(b)(1) fees, except for the 

Class B shares, as to which the Court again invited additional briefing. See Oral Argument Tr. 

(“Tr.”) 69:25-73:1

PRELIMINARY STATEMENT

1

 1 The Court let stand Plaintiffs’ investment fee allegations about institutional investors. Id.

 The Court also reached the same decision in a similar case involving six 

other HIFSCO funds, Southworth v. HIFSCO, No. 1:10-cv-00878-RMB (D. Del.). In apparent 
2

recognition of the futility of any amendment, the plaintiff in Southworth voluntarily dismissed 

her case with prejudice following the Court’s decision. Although the Court afforded Plaintiffs 

here the opportunity to re-plead, the SAC continues to suffer from the same fatal flaws as the 

AC, and these allegations should be dismissed, this time with prejudice.

The SAC’s Count I on investment management fees continues to make the same 

allegations as the AC, except to scale back the claim that the sub-adviser performs “virtually all” 

the services to an allegation that the sub-advisers perform “substantially all” the services. 

Compare AC ¶ 68 with SAC ¶¶ 51, 53, 79. But this semantic change cannot and does not mask 

the lack of factual underpinning that is fatal to Plaintiffs’ claim. The Investment Management 

Agreement (“IMA”) referenced in the SAC states clearly that HIFSCO provides both investment 

management services and administrative services to the Funds. Nonetheless, the SAC 

conclusorily assumes that “substantially all” of the investment management services are 

delegated to the sub-adviser, and then states that the delegated portion of the services are 

“generally the most expensive” based on supposed general industry experience. See SAC ¶ 52. 

With respect to the administrative services also set forth in the IMA, the SAC asserts without 

support that these services might actually be paid for with other fees charged to the Funds –

ignoring the IMA’s provisions to the contrary – and contends that any such services that 

HIFSCO actually does provide under the IMA “should not be” very expensive. See SAC ¶¶ 57-

73. In support of these allegations, Plaintiffs have submitted a declaration from a purported 

industry expert as a substitute for the law review article they unsuccessfully relied on before this 

Court in support of their AC. However, while Plaintiffs fail to mention it, the declarant is the 

same person who authored the law review article and, in fact, the declaration is no more than a 

regurgitation of the law review article’s general points about the industry – with nothing to say 
3

about HIFSCO in particular, as the Court recognized at oral argument. Moreover, it is wellestablished that reliance on an expert declaration is improper at the pleading stage.

At bottom, Plaintiffs’ sub-advisory allegations remain as flawed as in the AC and provide 

no plausible basis to conclude that HIFSCO’s investment management fees were “so 

disproportionately large” that they “could not have been the product of arm’s length bargaining.” 

This is particularly true where, as here, the Funds have an independent board of directors who 

negotiate and approve the fees annually as part of the IMA. Indeed, it is conspicuous that 

Plaintiffs still fail to bring to the Court’s attention a single piece of information that the board 

allegedly did not possess or consider in making its decision to approve the IMA. See infra at 10-

16.

Similarly, Plaintiffs’ comparison of HIFSCO’s investment management fees in Count I to 

the fees charged by Vanguard – a not-for-profit entity specifically organized and marketed as a 

low-cost provider – does not plausibly support a conclusion that HIFSCO’s fees violate the “so 

disproportionately large” standard. Courts have repeatedly rejected similar attempts by plaintiffs 

in § 36(b) cases to use Vanguard as a bellwether standard, when in fact Vanguard is nothing 

more than a single data point at the very bottom end of the range. More significant than the 

SAC’s mention of Vanguard is what the SAC omits: it says nothing about where the Hartford 

Funds’ fees fall within the range of those charged by comparable peer funds, notwithstanding 

that this information is readily available from the same source as Plaintiffs’ information about 

Hartford and Vanguard, i.e., the public fee disclosures required of every mutual fund. See infra

at 16-17.

With respect to Count II on distribution and service fees (commonly known as “12b-1 

fees”), the SAC continues to substitute general attacks on 12b-1 fees for specific facts as to why 
4

HIFSCO’s 12b-1 fees are allegedly excessive in light of the services provided. Accordingly, the 

SAC does not even attempt to address the Court’s invitation to re-plead the complaint with 

specific facts. Indeed, Plaintiffs still allege nothing at all about the quantity or quality of the 

distribution and servicing provided in exchange for the fee, or whether the size of the fee bears a 

reasonable relationship to those services. Instead, the SAC recounts general commentary 

criticizing 12b-1 fees, and then relies on this criticism to conclusorily assert that the Hartford 

Funds’ shareholders obtained “minimal, if any, benefits” from them, SAC ¶ 256, and that the 

fees are “substantially a waste of fund assets.” SAC ¶ 98. But as this Court previously 

recognized at oral argument, this policy debate (in which the SEC, among others, is on the other 

side) has no place in a lawsuit, and does not form a plausible factual basis for an excessive fee 

claim under Jones. See Tr. 110:5-7; infra at 19-20.

Plaintiffs then contend that the 12b-1 fees charged to Class A shareholders are per se

excessive because this class of shareholders pay 12b-1 fees in addition to a front-end sales 

commission, or “load.” SAC ¶¶ 92-93. At oral argument and again in the SAC, Plaintiffs 

suggest that HIFSCO falsely represented in public filings with the SEC that the 12b-1 fees 

charged to fund shareholders would be an “alternative” to paying front-end sales loads. Id.; Tr. 

95:11-25, 100:19-20 (“[HIFSCO] said it’s an alternative, one excludes the other.”). But this 

argument is flatly contradicted by the very document relied on by Plaintiffs for their contention. 

This disclosure, as well as others filed with the SEC, clearly explains that certain classes of 

shareholders pay only sales loads, others pay only 12b-1 fees, and Class A shareholders pay a 

combination of both. See infra at 20-23.

Plaintiffs also challenge the 12b-1 fees on the Funds’ Class B shares because this class 

was closed to new investors. As an initial matter, the named Plaintiffs have no standing under 
5

Article III of the U.S. Constitution to assert this theory given that none of them owns any Class B 

shares. Since no Plaintiff pays the Class B share 12b-1 fee, none has any personal stake in the 

outcome of a challenge to that fee. See infra at 23-25. Even if they had standing, however, 

Plaintiffs fail to state a claim. There is simply nothing per se inappropriate about charging a 

distribution and service fee for a closed share class. To the contrary, as set forth in the 

disclosures and recognized by the SEC, the bulk of a Class B 12b-1 fee is charged in lieu of the 

up-front sales load that the Class B shareholders do not pay. See infra at 25-28.

Like its predecessors, the SAC is at bottom grounded on Plaintiffs’ hope that they can 

embark on discovery and find evidence to prove there was something wrong with the Hartford 

Fund fees. But such a hope, supported only by conclusory assertions, does not allege a plausible 

basis for relief under the Supreme Court precedent, and the Third Circuit has been clear that 

supposed “asymmetries” in information at the pleading stage do not justify subjecting defendants 

to burdensome discovery so that plaintiffs can search further for a plausible case. See, e.g., 

Santiago v. Warminster Township, 629 F.3d 121, 134 n.10 (3d Cir. 2010). Indeed, if the SAC 

passes muster, the same general pleading could be asserted against virtually any fund complex 

by merely switching the names and fee schedules.

In its Order of September 13, 2011, this Court ruled upon HIFSCO’s previous motions to 

dismiss the AC in this action and the very similar complaint in Southworth. In its oral ruling at 

the September 8, 2011 hearing, the Court addressed whether each of Plaintiffs’ primary theories 

or “sub-allegations” set forth a plausible claim for § 36(b) liability under the Twombly/Iqbal

pleading standard. In light of the Court’s Order, the Southworth plaintiffs elected not to pursue 

their claims, voluntarily dismissing that action with prejudice on November 7, 2011. Plaintiffs in 

BACKGROUND
6

this action are proceeding, however, and filed the SAC on November 14, 2011.2

1.

 Following are 

salient background facts relevant to Plaintiffs’ sub-allegations addressed in this Motion. For the 

sake of brevity, HIFSCO has not repeated the general background facts set forth in the prior 

motions, which are incorporated here by reference.

The IMA entered into annually between the Funds and HIFSCO – following approval by 

the Funds’ Board of Directors – sets forth both investment management services and 

administrative services that HIFSCO agrees to provide to the Funds. Ex. 1 at 716; Ex. 2 at 

738.

Investment Management Agreement and Sub-Advisory Agreements

3

 2 The SAC has dropped without explanation one of the six Funds at issue in the prior complaints, 

the Hartford Money Market Fund. The SAC also asserts claims with respect to an additional 

Fund, the Hartford Capital Appreciation Fund, which was not included in the prior Kasilag

complaints.

Each of the Funds is sub-advised by either Wellington Management Company LLP 

(“Wellington”) or Hartford Investment Management Company (“HIMCO”), pursuant to a subadvisory agreement that delegates some of HIFSCO’s investment management duties. Exs. 22, 

23. The rest of the investment management services and all the administrative services remain 

the responsibility of HIFSCO – including oversight and responsibility for any termination or 

replacement of the sub-advisers, oversight of other third-party service providers (who provide 

services such as transfer agency and fund accounting pursuant to separate agreements), provision 

of personnel to serve as Fund officers, provision of office space for Fund operations, support of 

3 Unless otherwise noted, all Exhibits referenced in this Memorandum refer to Exhibits to the 

Certification of Robert A. Skinner, dated January 17, 2012, filed contemporaneously herewith. 

Although the prior complaints attached the contracts at issue in this case, the SAC does not. 

Nonetheless, these documents are properly considered on a motion to dismiss because Plaintiffs’ 

claims are based upon them, and, in some cases, explicitly refer to them. See Pension Ben. 

Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993) (“Otherwise, a 

plaintiff with a legally deficient claim could survive a motion to dismiss simply by failing to 

attach a dispositive document on which it relied.”).
7

the Fund Board of Directors’ oversight function and contract negotiations, and regulatory and

legal support. Ex. 1 at 716; Ex. 2 at 738.

The IMA and the sub-advisory agreements are reviewed and approved annually by the 

Board of Directors. This process consists of multiple meetings of the Board with independent 

legal counsel, with an independent financial services consulting firm, with fund industry 

consultant Lipper Inc., and with HIFSCO representatives. See Ex. 5 (Advisers Fund Annual 

Report dated October 31, 2010, at 36). As described in the Funds’ Annual Reports, the Board 

undertakes a robust process involving multiple rounds of requests for information made to the 

investment managers, independent consultants, and counsel about each of the Funds, followed by 

at least two separate meetings to review and approve the contracts and fee schedules.

As the very documents relied upon and cited by Plaintiffs in the SAC show, the annual 

contract renewal process has in recent years resulted in reductions to the Funds’ fee schedules for 

every Fund at issue in the SAC. For example, in 2010, HIFSCO agreed to reduce management 

fees by 10 basis points (or 0.10%) on the first $100 million of assets of one of the Funds at issue, 

and agreed to reduce management fees by 5 basis points on all levels of assets for another Fund 

at issue. See Ex. 6 (Growth Opportunities Fund Annual Report at 17); Ex. 7 (Inflation Plus Fund 

Annual Report at 20). In 2008, HIFSCO agreed to implement breakpoints to reduce 

management fees by .25 basis points on assets over $5 billion and an additional .25 basis points 

on assets over $10 billion in three of the Funds at issue, and agreed to breakpoints to reduce 

management fees by 2 basis points on assets over $5 billion and an additional 1 basis point on 

assets over $10 billion in a fourth Fund at issue. See Ex. 8 (Certified Shareholders Report dated 

October 31, 2008 at 441). This was preceded by a permanent reduction of management fees by 5 
8

basis points in two of the Funds and by 10 basis points in one of the Funds. See Ex. 9 (Certified 

Shareholders Report for all Hartford Funds, Oct. 31, 2007, at 402).

2.

Pursuant to the SEC’s Rule 12b-1, the Funds’ Board of Directors adopted distribution 

plans that authorize the payment of 12b-1 fees. See Ex. 10 (2011 SAI at 148-51). In adopting 

the distribution plans, the Funds’ Board of Directors determined that there was a reasonable 

likelihood the distribution plans would benefit the Funds’ current and future shareholders. Id. at

150.

Distribution Plans and 12b-1 Fees

The plans authorize that these distribution and shareholder servicing activities are funded 

by a fee paid to HIFSCO, serving as the Funds’ distributor under a separate agreement. See id. at 

148-51; Ex. 11. Each fee is based on a percentage of a Fund’s net assets and varies by share 

class, allowing investors to select the manner in which they pay sales charges. In the SAC, 

Plaintiffs challenge only the Class A and Class B shares. Currently, although the distribution 

plan for Class A shares allows for payment of 35 basis points to the distributor, the Board 

authorizes only 25 basis points to HIFSCO for 12b-1 fees. See Ex. 10 (2011 SAI) at 148-49. 

Class A shares pay front-end sales loads of up to 5.5% of the purchase price, depending on the 

Fund and the amount invested. See id. at 147. Investors purchasing Class B shares do so 

without paying an initial sales charge, so that the full purchase payment is invested in the Fund. 

See id. at 153. Class B shares pay a 12b-1 fee of 100 basis points, and a contingent deferred 

sales charge (“CDSC”) on any shares redeemed during the first 6 years after initial investment, 

after which time Class B shares are automatically converted to Class A shares (with their lower 

12b-1 fee). See id. at 149. Each quarter, HIFSCO provides to the Funds’ Board of Directors a 
9

written report of the amounts expended under the distribution plans and the purposes for which 

the expenditures were made. Id. at 150.4

The Supreme Court’s decisions in Iqbal and Twombly have “shifted” pleading standards 

under Rule 8(a) “from simple notice pleading to a more heightened form of pleading, requiring a 

plaintiff to plead more than the possibility of relief to survive a motion to dismiss.” Fowler v. 

UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). “After Iqbal, it is clear that conclusory or 

‘bare-bones’ allegations will no longer survive a motion to dismiss: ‘threadbare recitals of the 

elements of a cause of action, supported by mere conclusory statements, do not suffice.’” Id.

(quoting Iqbal, 129 S. Ct. at 1949). Thus, “a complaint must do more than allege the plaintiff’s 

entitlement to relief. A complaint has to ‘show’ such an entitlement with its facts.” Id. at 211 

(citing Phillips v. County of Allegheny, 515 F.3d 224 (3d Cir. 2008)). “[W]here the well-pleaded 

facts do not permit the court to infer more than the mere possibility of misconduct, the complaint 

has alleged – but it has not ‘show[n]’ – ‘that the pleader is entitled to relief.’” Iqbal, 129 S. Ct. 

at 1949; accord Santiago v. Warminster Township, 629 F.3d 121, 133 (3d Cir. 2010).

ARGUMENT

I. MOST OF COUNT I FAILS TO STATE A CLAIM FOR EXCESSIVE 

INVESTMENT MANAGEMENT FEES UNDER § 36(B) OF THE ICA

The re-pled sub-allegations in Count I should be dismissed, and this time with prejudice. 

The SAC still fails to assert facts specific to HIFSCO and the Hartford Funds that state a 

plausible claim under § 36(b). Indeed, as was true of the AC, most of Plaintiffs’ allegations 

purport to address the mutual fund industry as a whole, and fail to state specific facts about 

 4 In addition to the IMAs and distribution and shareholder servicing agreements, HIFSCO also 

entered into an Expense Limitation Agreement with the Funds in which it agreed to reimburse a 

Fund whenever its total operating expenses exceed a specified percentage of the Fund’s average 

daily net assets. See Ex. 12.
10

HIFSCO. The few “facts” alleged that do pertain to HIFSCO fail to make out a claim because 

they are based on nothing more than conclusory assertions that are directly contradicted by the 

very documents that Plaintiffs themselves reference in the SAC, and as such are plainly 

insufficient to make out a “plausible” basis for relief under the pleading requirements of Iqbal

and Twombly.

A. The SAC’s Comparison of Sub-Advisory Fees and Services Fails to Plead 

Facts Specific to HIFSCO that Plausibly Allege that HIFSCO’s Fees Were 

“So Disproportionately Large” Under Jones

The SAC contains the same infirmity that the AC did, alleging that HIFSCO’s investment 

management fees were excessive because of the fees paid to the Funds’ sub-advisers, who are 

alleged to have done “virtually all” of the work. Plaintiffs continue to rely only on conclusions, 

rather than facts specific to HIFSCO. Indeed, their conclusions are not only asserted without 

foundational facts, but also are contradicted by the very documents referenced in the SAC itself.

As detailed in the IMA, HIFSCO provides extensive administrative and investment 

management services that are not delegated to the sub-advisers. HIFSCO has overall 

responsibility for the investment program of the Funds, which includes reviewing investment 

portfolios and securities, monitoring performance, and providing the extensive data and 

information requested by the Board. Ex. 1 at 716-17; Ex. 2 at 738-39.The contracts with the 

Funds’ sub-advisers provide that HIFSCO will consult with the sub-advisers when appropriate in 

making investment decisions, and will supply investment guidelines and other written 

instructions. Ex. 3 at 960-61; Ex. 4 at 988-89.

With respect to administrative services, the IMA provides that HIFSCO bears sole 

responsibility for supervising all aspects of the Funds’ operations, including the coordination of 

the custodian, transfer agent, accountants, and attorneys. Ex. 1 at 716, ¶ 2(a); Ex. 2 at 738, 

¶ 2(a). HIFSCO also contracts to provide the Funds with personnel to serve as officers of the 
11

funds, as well as employees who perform various administrative functions, such as the 

preparation and maintenance of required reports and books and records, and provides the 

required office space and related services necessary to perform all the foregoing services. Ex. 1 

at 716 ¶ 2(b)-(c); Ex. 2 at 738 ¶ 2(b)-(c).

In light of these provisions, the SAC fails to cure the fatal defects in this sub-allegation, 

as ruled on by the Court in its prior decision on the AC. In fact, Plaintiffs’ theory in the SAC has 

not changed from what they conceded at oral argument on the AC, i.e., that HIFSCO did perform 

some services, while alleging that the sub-advisers perform “virtually all” or “substantially all” 

of that work, Tr. at 49:7-8, AC ¶ 63, and that HIFSCO “cannot be performing many 

administrative services,” AC ¶¶ 41, 43. See also Tr. 37:4-7 (acknowledging that plaintiffs were 

not “hid[ing] from the fact that there are some additional provisions to the contract for which 

[HIFSCO] do[es] something . . . .”). Indeed, the Southworth plaintiff conceded that “[i]t’s not a 

matter of [HIFSCO] doing absolutely zero work”; rather, “it’s a matter of can those services 

justify the difference in fees . . . that basically [HIFSCO] keeps versus, versus what they pay 

Wellington.” Tr. 37:7-11.

The Court rejected this argument, noting that the IMA and sub-advisory agreements 

“lay[ ] out a whole list of conduct or services that HIFSCO [was] to perform,” and that “for the 

plaintiffs to allege that HIFSCO virtually did nothing flies in the face of those documents 

themselves.” Tr. 70:12-18; see also id. at 70: 9-12 (“I do agree with the defendants that that 

allegation is conclusory and I find that it is a conclusory allegation that is contradicted by the 

very documents that the plaintiffs rely upon.”). The Court also made clear that the bare 

allegation that HIFSCO retains a purportedly “high” percentage of total fees is conclusory and 

fails to supply the required factual support to make an inference of disproportionality plausible. 
12

Tr. 38:10-13 (“[I]it seems to me what you are saying is . . . that if the percentages are so high, 

that fact alone satisfies Iqbal, and I don’t think so.”).

Yet despite this express guidance from the Court on the AC’s shortcomings, Plaintiffs 

opted merely to repackage their same argument in the SAC, continuing to allege that the subadvisers perform “substantially all” of the services at issue, SAC ¶ 80 – a phrase that is not new, 

but rather was used interchangeably with “virtually all.” See AC ¶ 63 (alleging that “Wellington 

performs substantially all of the Funds’ management/advisory services”); AC ¶ 157 (“[HIFSCO] 

delegate[es] all or substantially all of its investment management duties to sub-advisers and 

perform[s] little, if any additional work.”). Plaintiffs again ask the Court to accept their ipse dixit

that any services actually performed by HIFSCO are “minimal,” valueless, or “should” cost less

than they do. See SAC at ¶¶ 52, 54, 67, 73.5

 In short, Plaintiffs still assert, without any 

reference to the costs actually incurred by HIFSCO, that HIFSCO simply retains “too much” of 

the investment management fees paid by the Funds.6

 5 Plaintiffs claim again on information and belief, and without supporting factual allegations, that 

because transfer agency, custodian, and accounting services are provided pursuant to separate 

contracts, the administrative services provided by HIFSCO were limited to only “minimal 

oversight” that should not cost very much. SAC ¶ 67; compare AC ¶ 44 (“To the extent these 

services are included in the Investment Management Agreements, on information and belief, the 

administrative type services included are a very small percentage of the expenses incurred under 

these agreements . . . .”).

 The Court already has correctly 

determined that this conclusory allegation is insufficient to state a plausible claim under Iqbal 

and Twombly.

6 Whether intentionally or not, Plaintiffs’ calculations of the “Percent By Which HIFSCO’s Fee 

Is Greater Than Sub-Adviser” (see SAC p. 12) consistently overstate the actual percentage by 

100%. Thus, instead of showing the percentage by which HIFSCO’s net fees are greater than 

the fees paid to the sub-advisers, Plaintiffs’ figures represent the percentage of the sub-advisers’ 

fees that HIFSCO is paid (i.e., not just the excess over the sub-advisers’ fees). For example, 

according to the Table, HIFSCO is paid a net fee of approximately $2 million for managing the 

Hartford Global Health Fund. The sub-adviser is paid a net fee of $1.4 million. HIFSCO’s fee is 

only 39% greater than the sub-adviser’s fee, not 139% greater as Plaintiffs’ Table indicates.
13

The SAC also alleges that the administrative services that HIFSCO performs under the 

IMA’s express terms are actually paid for by separate additional fees, SAC at ¶ 65, an allegation 

squarely at odds with the documents referenced in the SAC. See Ex. 1 at 716; Ex. 2 at 738. 

Dismissing these provisions in the IMA to the contrary, Plaintiffs instead invite the Court to 

hypothesize that the administrative services described in the IMA could be financed by other fees 

charged to the Funds. See, e.g., SAC ¶ 63 (alleging that the Other Expense Charge “usually” 

covers expenses for “payments to transfer agents, securities custodians, providers of shareholder 

accounting services, attorneys, auditors, and fund independent directors” (emphasis added));7

Plaintiffs attempt to mask their failure to plead sufficient facts specific to HIFSCO by 

appending to the SAC a declaration of a putative expert, Steve Pomerantz. But this declaration 

cannot save this allegation, for at least three reasons. First, the Third Circuit has held that 

declarations are inappropriate at the pleading stage, and are not properly considered on a motion 

to dismiss. See, e.g., Rose v. Bartle, 871 F.2d 331, 340 n.3 (3d Cir. 1989) (holding that items 

submitted for the purpose of bolstering plaintiffs’ allegations set forth in a complaint are not 

id.

¶ 69 (alleging that the separate “Administrative Services Fee” “presumably covered these 

services” set forth in Section 3(b) of the IMA) (emphasis added). While the Court must make all 

reasonable inferences in favor of plaintiffs when deciding a motion to dismiss, it is beyond cavil 

that inferences cannot be reasonable when they are at war with the documents cited in the 

plaintiffs’ own pleading. Plaintiffs have set forth no actual facts supporting their theory, and this 

allegation should not be credited.

 7 Plaintiffs overlook the fact that the very SEC document they cite in support of this proposition 

states that “[i]ncluded in this category [Other Expenses] are expenses not included in the 

categories ‘Management Fees’ or ‘Distribution [and/or Service] (12b-1) Fees.’” U.S. Securities 

and Exchange Commission, Mutual Fund Fees and Expenses, http://www.sec.gov/answers/ 

mffees.htm (emphasis added).
14

“written instruments” within the meaning of Fed. R. Civ. P. 10(c), and, accordingly, affidavits 

“constitute[] a matter outside the pleading.”); Domino’s Pizza LLC v. Deak, No. 09-3772, 383 

Fed. App’x 155, 158 (3d Cir. 2010). Courts refuse to consider such documents as part of the 

pleading because, inter alia, “[c]onsidering an expert affidavit on a motion to dismiss, whether 

attached to a motion to dismiss or as an exhibit [to] the plaintiff’s complaint, forces a district 

court to confront a myriad of complex evidentiary issues not generally capable of resolution at 

the pleading stage.” DeMarco v. Depotech Corp., 149 F. Supp. 2d 1212, 1221 (S.D. Cal. 2001).8

Second, even if the declaration were properly considered in connection with the motion, 

Plaintiffs cannot cure unsupported conclusions merely by placing them in the mouth of a putative 

expert. “[A]verments in an expert affidavit carry no additional probative weight merely because 

they appear within an affidavit rather than numbered paragraphs of the complaint.” DeMarco, 

149 F. Supp. 2d at 1222 (citing Rose v. Bartle, 871 F.2d at 340 n.3) (explaining that “[a] 

securities fraud complaint must, regardless of its form and attachments, provide the factual 

specificity required by the Reform Act and Rule 9(b).”). For example, Plaintiffs alleged in the 

AC, “on information and belief,” that any administrative services provided by HIFSCO under the 

IMA “are only a very small percentage of the expenses incurred under these agreements . . . .” 

AC ¶ 44. In the SAC, Plaintiffs attempt to substitute in their expert’s opinion on this point. See

SAC ¶ 77 (“As stated in the Declaration of Steve Pomerantz Ph.D . . . the expenses [HIFSCO] 

should have incurred for providing the [administrative] services listed in Section 3(c) of the 

[IMA] should have been very small.”). It is clear, however, that Plaintiffs cannot save the SAC’s 

 8 See also In re Viropharma, Inc., Sec. Litig., No. 02-civ-1627, 2003 WL 1824914, at *2 (E.D. 

Pa. Apr. 7, 2003) (“The Plaintiffs’ submission of an expert report at this stage is entirely 

improper. Besides being wholly outside of the pleadings, this expert report attempts to 

circumvent the usual procedures for allowing expert testimony.”).
15

“[c]onclusory allegations and speculation” by “plac[ing] them within an affidavit of a retained 

expert.” See DeMarco, 149 F. Supp. 2d at 1222.

Finally, the Pomerantz declaration (like the allegations in the SAC that repeat the 

statements in the declaration) is no more than a regurgitation by the same “expert” of the points 

made in a law review article co-authored by the same individual – an article that the Court 

declined to rely upon because it contained no facts specific to HIFSCO. See Tr. 34:11-17; 

compare SAC Ex. A (Pomerantz Declaration) with AC Ex. 12 (Pomerantz et al., “Mutual Fund 

Advisory Fees: New Evidence and a Fair Fiduciary Duty Test,” 61 Okl. L. Rev. 83, 117-21

(2008)). Here, the SAC and the declaration make frequent assertions about what “should be” the 

most expensive and important service, how much HIFSCO “should have” charged, how the costs 

of performing those services “should have been” very small to HIFSCO, how much office space 

HIFSCO “should require,” and how much that office space “should cost.”9

 9 See SAC ¶ 55 (“[E]ach fund’s portion of that fee, in dollar terms, should be very small.”); id.

¶ 74 (“[T]he investment management services should be the most expensive service that is listed 

in the Investment Management Agreements.”); id. ¶ 75 (“such supervisory role should have

resulted in [lower fees]”); id. ¶ 77 (“[T]he expenses [HIFSCO] should have incurred for 

providing services listed in Section 3(c) of the Investment Management Agreement should have 

been very small.”); id. ¶ 73 (“Thus, even if HIFSCO pays for the minimal office space it requires 

(or should require) for alleged services to the Hartford Funds through the funds’ investment 

management fee, each fund’s portion of that fee, in dollar terms, should be very small.”); id. ¶ 55 

(“If HIFSCO performed all of the alleged investment management services listed in the 

Investment Management Agreements (see Table at ¶ 50), for each Hartford Fund, and if the fees 

charged for these alleged services were the product of arm’s-length bargaining, such fees should 

have been, for each Hartford Fund, a fraction of the investment management fees charged by 

each sub-adviser to each Hartford Fund, in light of the substantial investment management 

services the sub-advisers provide . . . .”) (emphases added throughout).

 These allegations 

provide no more facts specific to HIFSCO than were contained in the AC. As the Court 

previously ruled, ipse dixit assertions cannot carry the day under Iqbal and Twombly. Tr. 37:12-

14 (“[Y]ou’ve got to put more facts in the complaint to make that allegation plausible, because 

just because you say it’s so isn’t enough.”). Indeed, Plaintiffs’ reliance on an “expert” to provide 
16

purported industry-wide data actually does no more than reflect Plaintiffs’ implicit recognition 

that they lack sufficient facts about HIFSCO to allege a plausible claim. See Amron v. Morgan 

Stanley Inv. Advisors, Inc., 464 F.3d 338, 342 (2d Cir. 2006) (affirming dismissal where the 

complaint contained no factual allegations specific to the defendants at issue).

Ultimately, the core of Plaintiffs’ argument – that all of the “important” services are 

provided by the Funds’ sub-advisers and that HIFSCO keeps too much of the fee – is unaffected 

by Plaintiffs’ amendments to the complaint. Again, Plaintiffs have failed to plead sufficient facts 

to make plausible their conclusory assertions, particularly when viewed in the context here, 

where an overwhelmingly independent Board voted in favor of the IMA. Plaintiffs have not 

moved their claims across the line from conceivable to plausible. The Court has already found 

such allegations to be insufficient under Iqbal and Twombly, and it should do so again here.10

B. The SAC’s Allegations that HIFSCO Charges Higher Fees than Vanguard 

Does Not Plausibly Support a Claim that HIFSCO’s Fees Were “So 

Disproportionately Large” Under Jones

Plaintiffs’ sub-allegation that the fees paid to HIFSCO violate § 36(b) because they 

exceed those charged by Vanguard must also fail.11

 10 As the Court previously recognized, the AC failed to identify a single fact that the Board 

overlooked or did not consider. Tr. 79:1-5. Plaintiffs still have not supplied any such facts.

 Courts have recognized that Vanguard is 

simply not an appropriate metric, as it is a not-for-profit entity that specifically markets itself as a 

low-cost mutual fund provider. See, e.g., Amron, 464 F.3d at 345 (“That a mutual fund has an 

expense ratio higher than Vanguard, a firm known for its emphasis on keeping costs low, raises 

little suspicion under this [Gartenberg] factor.”); Turner v. Davis Select Advisers LP, No. 08-civ421 (D. Ariz. Jun. 1, 2011); Schuyt v. Rowe Price Prime Reserve Fund Inc., 663 F. Supp. 962 

(S.D.N.Y. 1987), aff’d, 835 F.2d 45 (2d Cir. 1987); Kalish v. Franklin Advisers, Inc., 742 F. 

11 With respect to the sub-allegation comparing HIFSCO’s fees to Vanguard in the AC, the Court 

denied HIFSCO’s motion to dismiss without prejudice. Tr. at 72:14-20.
17

Supp. 1222, 1250 (S.D.N.Y. 1990) (“The Vanguard comparison is seriously flawed.”). The mere 

existence of a single lower-cost product in the marketplace cannot, by itself, plausibly support an 

inference that the Hartford Funds are being charged disproportionately excessive fees.

Rather, Vanguard represents just one data point at the lowest end of the range of possible 

fees. Indeed, while Plaintiffs repeatedly decry their inability to obtain facts, the information 

about where HIFSCO’s fees fall within the range of similar funds is eminently available to 

Plaintiffs, by simply looking at the public filings of other funds. Plaintiffs, however, have not 

made any such allegation – and, without alleging where HIFSCO’s fees fall within the range of 

fees paid by shareholders of comparable funds, Plaintiffs have provided no basis for the Court to 

infer that HIFSCO’s fees are “so disproportionately large” that they fall “outside of the range of 

arm’s-length bargaining.” Cf. Amron, 464 F.3d at 345 (“The Yampolsky Complaint . . . 

conveniently omit[s] where the AO Fund ratio falls on the distribution of fees.”). If Plaintiffs’ 

contention were correct, then every fund in the United States except Vanguard would be 

charging excessive fees, because Vanguard’s fees are consistently the lowest in the industry. 

This is not the case, and Courts have recognized the fallacy of this argument. This sub-allegation 

simply cannot pass muster under Jones, Iqbal, and Twombly.

C. Plaintiffs’ Theory of Liability Based on Comparison to Institutional Fees 

Should Be Limited to the Single Fund as to which the SAC Alleges Facts

In its prior ruling, the Court held that Plaintiffs may proceed on their theory of liability 

based on a comparison of Fund fees to the fees charged to institutional accounts. Tr. at 71:23-

72:2 (noting that “plaintiffs have barely crossed that line”). HIFSCO does not seek to reargue 

this point, but respectfully requests that litigation over this sub-allegation be limited in scope to 

the single Fund as to which Plaintiffs have made any factual allegation in this regard, the 

Hartford Inflation Plus Fund. See SAC ¶¶ 180-81. This Fund is sub-advised by HIFSCO 
18

affiliate HIMCO, which also manages certain fixed-income strategies for institutional account 

clients. The SAC sets forth no similar comparison to any other Fund. Indeed, four of the 

remaining five Funds at issue in this action are sub-advised by third party Wellington (Hartford 

Advisers Fund, Hartford Growth Opportunities Fund, Hartford Global Health Fund, Hartford 

Capital Appreciation Fund), and thus an analogous institutional fee comparison simply does not 

exist. Accordingly, Plaintiffs’ pursuit of this sub-allegation, including discovery, should be 

limited to the Hartford Inflation Plus Fund, as the SAC sets forth no plausible basis for liability 

based on this theory regarding any other Fund.12

* * *

Taken as a whole, the allegations in Count I do not state a plausible claim that HIFSCO 

charged excessive investment management fees under § 36(b). The allegations that are specific 

to HIFSCO are an assembly of speculation and conclusion that could be alleged against any fund 

adviser (with minimal tweaks as to the particular fee arrangements at issue). The SAC’s 

allegations fall well short of the high bar of showing a disproportionate fee that “could not” have 

been the product of arm’s length bargaining, particularly given that the Board (a majority of 

whom are disinterested directors) has repeatedly reduced the investment management fees in 

recent years. HIFSCO respectfully submits that these allegations do not state a plausible claim 

 12 The remaining “facts” in support of Count I consist of Plaintiffs invoking the so-called 

“Gartenberg factors” and making “information and belief” allegations about them. As before, 

however, the SAC contains no factual support for these allegations. Because these allegations 

repeat those made in the AC, HIFSCO incorporates by reference the arguments made in its 

motion to dismiss the AC, at pp. _. Plaintiffs will undoubtedly again claim that they cannot 

plead additional facts until discovery commences. But as the Court noted at oral argument, such 

“information asymmetries” cannot obstruct the pleading standards required by Iqbal and 

Twombly. A complaint cannot survive a motion to dismiss on the mere hope that discovery will 

unearth evidence to support a claim. Migdal v. Rowe Price-Fleming Int’l, Inc., 248 F.3d 321, 

328 (4th Cir. 2001) (“[P]laintiffs cannot simply promise the court that once they have completed 

discovery, something will turn up.”).
19

of excessive advisory fees under Iqbal, Twombly, and Jones, and Count I must be dismissed in 

part.

II. COUNT II FAILS TO STATE A CLAIM FOR EXCESSIVE DISTRIBUTION 

AND SERVICE FEES UNDER § 36(B) OF THE ICA

A. The SAC Does Not Allege a Plausible Claim for Excessive Distribution and 

Service Fees under § 36(b), But Merely Quarrels with the Policies Behind 

Rule 12b-1 Fees

The SAC fails to allege sufficient facts to avoid dismissal of the 12b-1 claim. Plaintiffs 

allege nothing as to the quantity or quality of distribution and servicing activities, thus leaving 

them unable to claim that fees are excessive in relation to those services, as required by Jones. 

Instead, Plaintiffs contend that 12b-1 fees simply do not benefit shareholders, based on their 

presentation of only one side of the industry commentary, and their own say-so. The Court has 

already rejected such policy arguments, and it should do so again here.

In the AC, Plaintiffs alleged that 12b-1 fees “produced few, if any benefits” to Fund 

shareholders, AC ¶¶ 10, 50, that “the payment of such fees benefits only Defendant HIFSCO,” 

id. ¶ 85, and that “12b-1 fees are entirely a waste of fund assets,” id. ¶ 89. At oral argument, 

Plaintiffs maintained that “[i]t makes much more sense for [distribution] fees to be paid by those 

who are the beneficiaries, which are the people that come into the investments later.” Tr. 96:25-

97-3. Plaintiffs were forced to concede that, “[f]rankly, that’s an argument that is a challenge to 

the industry as a whole and is frankly [a] more difficult argument for plaintiffs.” Tr. 97:3-5.

The Court rejected Plaintiffs’ industry-wide attack on 12b-1 fees, noting that such policy 

arguments were inappropriate in a complaint. Tr. 110:5-7. The Court also dismissed Plaintiffs’ 

conclusory allegation that HIFSCO provided only “modest” services in exchange for the 

distribution fees and that shareholders received “no benefit” from HIFSCO’s distribution 

services. Tr. 97:8-11; id. at 111: 13-15 (“But just to say that the defendant is charging excessive 
20

12b-1 fees and the plaintiffs are getting nothing for it is very conclusory.”); id. at 112:6-7 (“But 

to say they’re absolutely getting no benefit I think is conclusory and you are going to have to 

back it up with facts.”).

Despite this, Plaintiffs continue to make the same argument in the SAC, namely that the 

12b-1 fees charged must be excessive because shareholders purportedly derive “minimal, if any, 

benefits” from them. SAC ¶ 256. Again, Plaintiffs engage in a weak attempt to change the 

phrasing of their allegations – the 12b-1 fees that were “entirely a waste of fund assets” in the 

AC are now “substantially a waste of fund assets” in the SAC13

B. Plaintiffs’ Contention that 12b-1 Fees Cannot Be Charged on Class A Shares 

if Sales Loads Are also Charged Is Baseless

– but the SAC fails to discuss 

the actual distribution and shareholder services provided, and never attempts to compare the 

nature and quality of those services to the fees charged. See ING Principal Protection Funds 

Deriv. Litig., 369 F. Supp. 2d 163, 166 (D. Mass. 2005) (dismissing complaint where plaintiffs 

failed to allege the “fundamental claim” that “the distribution fees are disproportionate and 

unrelated to the sales-related services actually provided”). These sorts of “threadbare recitals . . . 

supported by mere conclusory statements” simply cannot survive a motion to dismiss. See 

Fowler, 578 F.3d at 210 (quoting Iqbal, 129 S. Ct. at 1949).

The SEC has explained that “many funds offer their shares in multiple classes – an 

organizational structure that permits investors to choose whether to pay for fund distribution and 

marketing costs up-front (via front-end sales charge), over time from their fund investment (via 

12b-1 fees), when they redeem (via deferred sales charge), or in some combination of the above.” 

Division of Investment Management, U.S. Securities and Exchange Commission, Report on 

Mutual Fund Fees and Expenses, http://www.sec.gov/news/studies/feestudy.htm (cited in SAC 

 13 Compare AC ¶ 89 with SAC ¶ 98 (emphases added).
21

¶ 63) (emphasis added). The SEC also implicitly recognizes the structure of the Hartford Funds’ 

12b-1 fees/sales loads as fully consistent with the industry norm:

Class “A” shares generally are sold with a front-end sales load, and also 

often have a 12b-1 fee of about 25 basis points. Class “B” shares typically 

are sold without a front-end load but charge a spread load consisting of a 

12b-1 fee of 100 basis points . . . and a declining [contingent deferred 

sales load]. Class B shares usually convert automatically to class A shares 

after a fixed period of time has elapsed (commonly six to eight years from 

the date of purchase).

See Mutual Fund Distribution Fees; Confirmations, Securities Act Release No. 9128, Exchange 

Act Release No. 62544, Investment Company Act Release No. 29367, 75 Fed. Reg. 47064, 

47070 (proposed Aug. 4, 2010) (hereinafter, “SEC 2010 Release”); see also Office of Investor 

Education and Advocacy, U.S. Securities and Exchange Commission, Mutual Funds: A Guide 

for Investors, http://www.sec.gov/investor/pubs/sec-guide-to-mutual-funds.pdf (“Class A shares 

typically impose a front-end sales load. They also tend to have a lower 12b-1 fee . . . .”).

Nonetheless, Plaintiffs complain that the 25 basis point distribution and servicing fee 

charged to the Hartford Funds’ Class A shareholders is “excessive because shareholders of this 

class pay 12b-1 fees in addition to significant front-end sales loads.” SAC ¶ 93. Plaintiffs made 

the same allegation in the AC and at oral argument, accusing HIFSCO of falsely representing in 

SEC filings that the 12b-1 fees charged to Class A shareholders would be an “alternative” to 

paying front-end sales loads. Tr. 95:11-25, 100:19-24 (“[HIFSCO] said it’s an alternative, one 

excludes the other.”). Plaintiffs continued, contending that “when they tell the SEC that you get 

one or the other, that is not a fair charge to the plaintiffs – or it’s a disproportionate charge 

because we’re paying both.” Tr. 95:18-25.

This allegation is patently incorrect, as the Hartford Funds’ public filings set forth 

precisely what each share class pays in terms of sales loads and 12b-1 fees, including the fact 

that Class A shareholders pay both a front-end sales load and a small 12b-1 fee that is largely 
22

used for providing ongoing account services to existing shareholders.14

Potential benefits which the [Distribution] Plans may provide to the Funds 

include shareholder servicing, the potential to increase assets and possibly 

benefit from economies of scale, the potential to avoid a decrease in assets 

and portfolio liquidations through redemption activity, the ability to sell 

shares of the Funds through adviser and broker distribution channels, and 

the ability to provide investors with an alternative to paying front end sales 

loads.

 In response to the 

Court’s request that Plaintiffs submit the allegedly misleading document for the Court’s review, 

Plaintiffs have now attached the document to the SAC. See SAC Ex. C. The full passage at 

issue – which discusses the distribution plans for all share classes, not just Class A – states as 

follows:

SAC Ex. C at 182 of 235 (emphasis added). This statement in no way suggests that Class A 

shareholders pay no up-front sales load. And just a few pages earlier in the same document, the 

SAI details the front-end sales load charged to Class A shareholders, followed by a class-byclass description of the ongoing 12b-1 fees paid by shareholders thereafter. See SAC Ex. C at 

178, 181 of 234. Furthermore, each Hartford Fund Prospectus, under the section heading 

“Choosing a Share Class,” also expressly details both the sales charges and 12b-1 distribution 

and servicing fees paid by each share class. See Ex. 13 (Advisers Fund Prospectus at 17-18); id.

at 25 (disclosing that “Class A shares are subject to a front-end sales charge and distribution fee 

unless an investor qualifies for the waiver of the Class A front-end sales charge.”). Each of these 

disclosures explains clearly that Class A shareholders pay front-end sales charges of up to 5.5% 

of the purchase price (depending on the amount of initial investment) and pay distribution and 

servicing fees of .25%.

 14 The Class A Distribution Plan provides that “[t]he entire amount of the fee may be used for 

shareholder servicing expenses with the remainder, if any, used for distribution expenses.” SAC 

Ex. C at 182 of 235.
23

Accordingly, the SAI’s language describing 12b-1 fees as a possible “alternative to 

paying front-end sales loads” can plausibly be read to apply only to Class B and Class C 

shareholders, who in fact do not pay front-end sales loads – and the SAC’s allegation that the 

Funds’ public filings misrepresent the sales loads and 12b-1 fees paid by Class A shareholders is 

flatly contradicted by the very documents Plaintiffs claim were misleading. Because the Court 

only allowed this allegation to move forward on the express condition that Plaintiffs were not 

taking the document out of context, Tr. 111:8-12, this allegation should now be dismissed.

C. Plaintiffs’ Allegations that Ongoing Distribution and Servicing Fees Cannot 

Be Charged to Share Classes that are Closed Has No Support and Is Legally 

Incorrect

1. Plaintiffs lack Article III standing to pursue Count II with respect to 

Class B shares.

As a threshold matter, Plaintiffs lack standing to attack the 12b-1 fees charged on Class B 

shares, since none of them actually owns class B shares, and thus none has a personal stake in the 

outcome of their claim. It is settled law that, in determining whether a plaintiff has standing 

under Article III of the U.S. Constitution, the central question is whether the plaintiff has a 

“personal stake” in establishing liability.15

 15 The plaintiff bears the burden of establishing standing. See DaimlerChrysler Corp. v. Cuno, 

126 S. Ct. 1854, 1861 (2006). To satisfy the threshold standing requirement, the plaintiff must 

allege (1) personal injury suffered by him (2) that is fairly traceable to a defendant’s allegedly 

unlawful conduct, and (3) that is likely to be redressed by the relief requested. See Allen v. 

Wright, 468 U.S. 737, 751 (1984).

 See Warth v. Seldin, 422 U.S. 490, 498-99 (1975) 

(“[T]he standing question is whether the plaintiff has ‘alleged such a personal stake in the 

outcome of the controversy’ as to warrant his invocation of federal court jurisdiction and to 

justify exercise of the court’s remedial powers on his behalf.” (citation omitted)). Although 

§ 36(b) authorizes a suit “by a security holder of such registered investment company on behalf 

of such company,” 15 U.S.C. § 80a-35(b), the Supreme Court has made clear that federal statutes 
24

cannot be construed in a manner that is inconsistent with the fundamental requirements of 

Article III:

Although Congress may grant an express right of action to persons who 

otherwise would be barred by prudential standing rules, Art. III’s 

requirement remains: the plaintiff still must allege a distinct and palpable 

injury to himself. Moreover, the plaintiff must maintain a personal stake 

in the outcome of the litigation throughout its course.

Gollust v. Mendell, 501 U.S. 115, 126 (1991) (citations and internal quotation marks omitted). 

See also Plumbers’ Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp., 632 

F.3d 762, 770 (1st Cir. 2011) (noting that Article III creates an “outer limit based on the 

incentives of the named plaintiffs to adequately litigate issues of importance to them”); In re 

Mut. Funds Inv. Litig., 519 F. Supp. 2d 580, 588-90 (D. Md. 2007) (holding that shareholder of 

multi-series fund could only sue under § 36(b) for excessive advisory fees charged to his series, 

and not for the fees charged to other series, although both series were part of the same corporate 

entity).

Here, the SAC does not allege that Plaintiffs own Class B shares in any of the Funds at 

issue. SAC ¶¶ 17-22. Neither does the SAC allege that these Plaintiffs personally suffered any 

injury as a result of any allegedly excessive 12b-1 fees charged to Class B shareholders. 

Plaintiffs have no financial stake in litigation concerning 12b-1 fees charged to owners of Class 

B shares, since they would not stand to receive any benefit from a recovery under this claim. 

Therefore, with respect to the SAC’s Class B 12b-1 fee claim, because the Court is not presented 

with a concrete case or controversy as required under Article III, Plaintiffs’ claim regarding 

those fees must be dismissed for lack of Article III standing.16

 16 The contrary holdings in In re American Mutual Funds Fee Litigation, No. 04-civ-5593, 2009 

WL 5215755 (C.D. Cal. Dec. 28, 2009), and Turner v. Davis Select Advisers LP, No. 08-civ-421 

(D. Ariz. Jun. 1, 2011), were both premised on an incorrect assumption that 12b-1 fees for a 

given class affect shareholders of all classes equally. For example, the Turner court reasoned 
25

Because Plaintiffs have not alleged – and cannot allege – that they suffered personal 

injury as a result of Class B 12b-1 fees, Plaintiffs have no personal stake in the outcome of the 

litigation of this claim. Accordingly, Plaintiffs’ claim regarding 12b-1 fees paid by Class B 

shareholders should be dismissed for lack of Article III standing.

2. Plaintiffs’ Class B allegations cannot meet the plausibility standard of 

Iqbal and Twombly.

Even if Plaintiffs owned Class B shares and thus did have standing, Plaintiffs’ allegations 

nonetheless fail to make out a claim under § 36(b). Both regulatory authorities and courts have 

consistently affirmed that mutual funds that are closed to new investors may still continue to pay 

ongoing 12b-1 fees in order to compensate distributors for past marketing and distribution 

services – yet Plaintiffs claim that the B Classes of the Hartford Funds should not be allowed to 

do so.

The SEC has expressly stated that distribution fees may be paid after a fund is closed, as 

long as payments do not exceed certain limits set by the Financial Industry Regulatory Authority 

(“FINRA”) (formerly the National Association of Securities Dealers (“NASD”)). Indeed, in 

 

that “[b]ecause each share class participates in the same portfolio of assets, excessive fees 

charged to one class will detract from the overall pool and affect the value of other share 

classes,” citing American Funds and an SEC release in support. Id. (citing Mutual Fund Classes, 

http://www.sec.gov/answers/ mfclass.htm) (“Mutual Fund Classes Release”). But this SEC 

statement actually militates the opposite conclusion, that different share classes will experience 

different performance results due to differing 12b-1 fees charged: “Each class will invest in the 

same ‘pool’ (or investment portfolio) of securities and will have the same investment objectives 

and policies. But each class will have different shareholder services and/or distribution 

arrangements with different fees and expenses and, therefore, different performance results.” 

Mutual Fund Classes Release (emphases added); see also Ex. 13 (Advisers Fund Prospectus at 9) 

(displaying different performance results for different share classes). Thus, a shareholder will 

suffer injury due to excessive 12b-1 fees only when those fees are charged to his or her own 

share class. Without the required personal stake in the Class B 12b-1 fees, Plaintiffs would have 

little or no incentive to pursue zealously a recovery for the absent Class B shareholders.
26

responding to a Congressional inquiry on this precise issue, the SEC explicitly rejected 

Plaintiffs’ interpretation of Rule 12b-1:

Rule 12b-1 permits a fund to spread its distribution expenses over several 

years and allows payment of fees for past distribution services. Therefore, 

even if a fund closes to new investors, it may continue to pay rule 12b-1 

fees in order to compensate the distributor for its past distribution efforts.

See Ex. 14, Letter dated August 19, 1993 to Congressman John D. Dingell from Acting 

Chairman Arthur Levitt enclosing Memorandum dated August 16, 1993 of Division of 

Investment Management (hereinafter, “1993 SEC Memorandum”).17

Accordingly, courts have held that funds closed to new investors may continue to pay 

Rule 12b-1 expenses to fulfill obligations for past sales and marketing efforts. See, e.g., Yameen 

v. Eaton Vance Distribs., Inc., 394 F. Supp. 2d 350, 358 (D. Mass. 2005) (noting that “SEC Rule 

12b-1 has for some time been authoritatively interpreted by officials of the SEC . . . to allow 

mutual funds to compensate companies for past distribution services” and that “Rule 12b-1 and 

NASD Rule 2830 are specifically designed to allow mutual funds to continue paying sales 

charges after a fund has closed to new investors”); see also ING Principal Prot. Funds 

Derivative Litig., 369 F. Supp. 2d 163, 169 (D. Mass. 2005) (same); In re Goldman Sachs Mut. 

Funds Fee Litig., No. 04 Civ. 2567, 2006 WL 126772, at *9 (S.D.N.Y. Jan. 17, 2006) (finding 

 The NASD agreed with the 

SEC’s interpretation. See NASD Notice 93-12, Questions and Answers About New NASD 

Rules Governing Investment Company Sales Charges (Feb. 1993), Question No. 6, available at 

1993 WL 1434082 (explaining that even if a fund stops selling its shares, it may still pay assetbased sales charges).

 17 The 1993 SEC Memorandum goes on to address ongoing distribution expenses referred to as 

“trail commissions,” which are used to compensate broker-dealers for services such as 

responding to shareholder inquiries and maintaining their accounts; to spread sales commissions 

over time; and to incentivize brokers to continue promoting a fund in order to minimize 

shareholder redemptions, which may have a negative effect on existing shareholders. Id.
27

that “by merely asserting that Rule 12b-1 fees were charged while the funds at issue were closed 

to new investors, plaintiffs have not alleged that the fees charged were disproportionate to the 

services rendered” because “[p]laintiffs have not claimed that the Rule 12b-1 fees for the Closed 

Funds ever exceeded this cap [imposed by NASD]”).

Notwithstanding this adverse precedent from regulatory bodies and the courts, Plaintiffs 

still cry foul that Class B shareholders should not pay 12b-1 fees once the class was closed to 

new investors. Yet Class B shareholders chose this option of paying certain ongoing 12b-1 fees 

rather than pay a front-end sales charge. The SEC has approved multi-class fund structures 

precisely because they “offer[ ] investors the ability to select a fee and expense structure that is 

most appropriate for their investment goals (including the time that they expect to remain 

invested in the fund).” See Mutual Fund Classes, U.S. Securities and Exchange Commission, 

http://www.sec.gov/answers/mfclass.htm. And the SEC has recently reaffirmed that 

shareholders benefit from being able to choose how to finance sales charges. See SEC 2010 

Release at 47074 (“We do not believe that it would benefit fund investors to return to the era in 

which they paid a substantial front-end sales load and did not have access to various alternative 

forms of distribution payment arrangements.”).

Here, Plaintiffs allege neither that the ongoing 12b-1 fees charged to the closed class 

were greater than the amount of the up-front distribution costs or the continued financing of 

those costs, nor that the total 12b-1 fees exceed the limits imposed by FINRA. As was the case 

in Yameen, the SAC fails to allege that “the distribution fees are disproportionate and unrelated 

to the sales-related services actually provided when shares of the funds were marketed and sold 

to the general public.” Yameen, 394 F. Supp. at 358. Instead, the SAC “relies upon the 

categorical contention, rejected by the regulatory bodies charged with supervising this activity, 
28

that such fees are per se disproportionately large and hence unreasonable when paid out while 

the fund is closed. The Plaintiff[s] must allege more than an erroneous construction of an SEC 

rule to state a claim under Section 36(b).” Id.

Given the “obvious alternative explanation” of the Class B 12b-1 fees as compensation to 

the distributor and broker-dealers for past distribution efforts, the inference Plaintiffs ask the 

Court to make that the fees were excessive is not a plausible one. See Santiago, 629 F.3d at 133 

(discussing the “obvious alternative explanation” of lawful conduct, noting that “‘[p]ossibility’ is 

no longer the touchstone for pleading sufficiency after Twombly and Iqbal. Plausibility is what 

matters. Allegations that are ‘merely consistent with a defendant’s liability’ or show the ‘mere 

possibility of misconduct’ are not enough.”). Accordingly, this allegation should be dismissed.

For all the foregoing reasons, HIFSCO respectfully requests that the Court enter an order 

dismissing with prejudice the allegations of the Second Amended Complaint discussed above for 

failure to state a claim.

CONCLUSION

Dated: January 17, 2012 Respectfully submitted,

RIKER DANZIG SCHERER HYLAND PERETTI LLP

/s/ Anthony J. Sylvester

Anthony J. Sylvester

Headquarters Plaza

One Speedwell Avenue

Morristown, NJ 07962-1981

(973) 538-0800 (tel)

(973) 538-1984 (fax)

asylvester@RIKER.com
29

Of Counsel:

ROPES & GRAY LLP

Harvey J. Wolkoff

Robert A. Skinner

Allison M. Boscarine

Prudential Tower

800 Boylston Street

Boston, MA 02199

harvey.wolkoff@ropesgray.com

robert.skinner@ropesgray.com

allison.boscarine@ropesgray.com

Attorneys for Defendant Hartford

Investment Financial Services, LLC