Morgan Lewis Wins Dismissal for Client Wachovia
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date:
05/12/2006 -
news source:
Press Releases
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New York — May 12, 2006 — A Morgan Lewis litigation team lead by partners Christopher P. Hall and Todd D. Brody obtained a dismissal with prejudice of all claims against Wachovia and its related investment advisers, Evergreen Investment Co. and Evergreen Investment Management Co. on March 24, 2006. In In re Evergreen Mutual Funds Fee Litigation, class actions were commenced in the Southern District of New York following the SEC's enforcement action against Morgan Stanley's "shelf-space" program, in which the SEC alleged that the financial services company breached fiduciary obligations to its customers by promoting the mutual funds of its "partners"— like Wachovia's Evergreen Funds—over other funds in exchange for compensation from its partner funds' investment advisers. In these actions, the plaintiffs alleged that Wachovia and Evergreen paid "kickbacks" to Morgan Stanley and several other broker-dealers for increased business in the form of "shelf-space agreements," revenue-sharing agreements, directed brokerage agreements, 12b-1 fees, excessive brokerage commissions, and unnecessary soft-dollar arrangements. Class plaintiffs argued that these agreements were contrary to SEC and NASD rules and asserted claims under the Investment Company Act, the Investment Advisers Act, and state common law.
Dismissing the action, the court held that a) there are no private rights of action under Sections 34(b) and 36(a) of the Investment Company Act; b) Section 349 of the New York General Business law (New York's Deceptive Practices Act) did not apply to securities-related claims; c) Section 36(b) of the Investment Company Act provides only a limited claim for fees that were "so disproportionately large that they bore no relationship to the services rendered," but not for allegations that the fees were used for improper purposes (such as the alleged kickbacks); and d) the state law claims could only be brought derivatively and plaintiffs had failed to make demand on the fund's boards or plead demand futility. Assisting Hall and Brody were Litigation associates Nicole Hunn and Cali Mazzarella, who were instrumental in preparing the briefs and strategy.
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