Opinion ID: 779269
Heading Depth: 1
Heading Rank: 1

Heading: Allegations and Standard of Review

Text: 2 Section 36(b) of the ICA provides that an investment adviser has a fiduciary duty with respect to the receipt of compensation. 15 U.S.C. § 80a-35(b). Section 36(b) also provides for a private cause of action by a shareholder against the investment adviser and principal underwriter for breach of fiduciary duty in respect of... compensation paid by a fund. Id. Section 10(a) of the ICA, 15 U.S.C. § 80a-10(a), mandates that at least 40% of the members of the governing board of every registered investment company not be interested persons, i.e., they must be independent of the investment adviser. Such directors are generally referred to as independent directors. Section 15(c) of the ICA, 15 U.S.C. § 80a-15(c), mandates that every agreement with an investment adviser or distributor be approved by a majority of independent directors. The Amended Complaint seeks to recover the fees paid by the Fund to its investment adviser and distributor, pursuant to management and distribution agreements which were allegedly entered into in violation of §§ 10(a) and 15(c) of the ICA. 18 U.S.C. §§ 80a-10(a), 80a-15(c). The Amended Complaint also contends that the fees authorized were excessive. 3 Plaintiff's Amended Complaint alleges that none of the members of the Fund's board are independent, as required by § 10(a), because they serve on numerous other boards for various Prudential funds and receive a large aggregate compensation for their combined services. Plaintiff contends that under such a scenario the independent directors are actually controlled by Prudential. Thus, Plaintiff submits that the management and distribution agreements, which establish the fees paid by the Fund to the investment adviser and distributor, were not properly approved as required under § 15(c). Accordingly, Plaintiff argues that the receipt of funds from invalid agreements is a breach of the Defendants' fiduciary duty to negotiate at arm's length under § 36(b). Finally, Plaintiff contends that in addition to violating the independence requirement of § 36(b), the Defendants also violated § 36(b) because their adviser-manager's fees agreement were so disproportionately large that fees amounted to a breach of their fiduciary duty. 4 Defendants urge that the only facts pleaded were that directors served on multiple boards and were well-compensated. They contend that this was inadequate support either for the claim that the fees were excessive or for the claim that these directors were controlled by the financial adviser. The District Court adopted the Defendants' view, and dismissed the amended complaint. 5 Our review of a dismissal pursuant to Fed.R.Civ.P. 12(b)(6) is plenary. Langford v. City of Atlantic City, 235 F.3d 845, 847 (3d Cir.2000). We must determine whether, under any reasonable reading of the pleadings, the plaintiffs may be entitled to relief, and we must accept as true the factual allegations in the complaint and all reasonable inferences that can be drawn therefrom. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir.1996). While Fed.R.Civ.P. 8(a)(2) requires only a short and plain statement of the claim showing that the pleader is entitled to relief, Rule 12(b)(6) is not without meaning. Although the pleading requirements ... are very liberal, more detail is often required than the bald statement by plaintiff that he has a valid claim of some type against defendant. 5A Charles A. Wright and Arthur R. Miller, Federal Practice and Procedure § 1357 at 318 (2d ed.1990).