Institutional vs Retail Investor Fees

Leggio: The United States government filed a brief in this case, and it sounds like you, Professor Birdthistle, you, Professor Coates, and the government all kind of agree that the Gartenberg Factors should be used. Is that right, Professor Coates?

Coates: Yes. As I said before, as long as the court also makes clear that considering other competitive forces affecting the advisors should be part of the calculus. And I'd be interested to hear whether Professor Birdthistle thinks that that also ought to be part of the mix of information before the court.

Leggio: Professor?

Birdthistle: Sure, absolutely. As Professor Coates mentioned earlier, and he's exactly correct about it, the comparison of institutional and retail fees is something that was contemplated in the original Gartenberg decision. It was in a footnote and they declined to do it in that particular case.

But one of the problems when we talk about what standard should be applied in this case, is that to many people, to different people, Gartenberg means different things. So Gartenberg as it was originally written does contemplate for this comparison, and I would be delighted, and I think the petitioners would be, too, for that possibility to be actually done in practice.

<TRANSCRIPT>

But there's a difference between Gartenberg as it was originally written and Gartenberg as it has been applied over the last quarter century, in the Second Circuit and other courts where it's been used. And that factor has disappeared altogether as a matter of application of that case. I would be very happy to see it resurrected by the Supreme Court.

And I think it's true that where there are a lot of areas of agreement, particularly legally, on the fiduciary standard in this case that Professor Coates and I have, and the U.S. Department of Justice have, it's also worth noting and pointing out that the Solicitor General of the United States of America filed on behalf of the petitioners. In that oral argument they'll be using time from the petitioners. They agree with the petitioners' interpretation of things.

So while we have a lot of areas in common, the fact that they came down on that side versus the industry side, I think is extremely telling, particularly in a case that involves private parties.

Coates: I can't help but follow that one up. The reason the Solicitor General is coming in on the side of the petitioners here is not because they agree with the plaintiffs on the facts. They're coming in because the lower court, not the trial court, but the appellate court below, wrote a new standard, which neither I nor Professor Birdthistle, nor as far as I know most of the industry agree with.

And so the Solicitor General is completely consistent in their approach here on the law with the vast bulk of the fund advisors out there. So in this there is agreement, and the fact that they're on one side or the other is simply a matter of--frankly, it's a legal technicality.