An investor bringing direct claims against "a number of defendants acting as mutual fund directors, advisors and affiliates of the Nuveen Family of Funds," for failing "to ensure that the funds participated in dozens of securities class action settlements for which they were eligible" has been handed a loss (at least on his federal claims) by Judge Milton I. Shadur (N.D. Ill.). You may recall the Nugget covered another case that reached a similar result last month, although James V. Selna (C.D. Cal.) took a slightly different approach in getting there.
In evaluating Plaintiff’s 1940 Act claims under § 36(a) (alleging "personal misconduct") Judge Shadur found that only the SEC could assert this claim, not private plaintiffs, because the Supreme Court’s recent decision in Exxon Mobil Corp. v. Allapattah Servs., Inc., 125 S.Ct. 2611 (2005) "forecloses any possibility of using Section 36(a)'s clear legislative history to create a private right of action where the unambiguous statutory language creates none." The court also held that "Congress plainly did not create Section 36(a) as a catchall for any fiduciary breach."
As for the Plaintiff’s 1940 Act claims under § 36(b) (for breach of fiduciary duty), Judge Shadur held that Plaintiff’s "’real complaint’ is that defendants made a poor management decision by failing to participate in dozens of settlement agreements for which some fund was eligible, and he has not alleged any inherent improprieties in the compensation agreement itself." In addition, "the textual and legislative history arguments previously addressed as to Jacobs' unsuccessful Section 36(a) claim have equal force as to Section 36(b)." Nailing the coffin, Judge Shadur ruled that "because the flaws identified here would not be resolved if Jacobs were to attempt to replead a derivative action, his Section 36(b) claim is dismissed without leave to replead."
As for Plaintiff’s "state law claims of negligence and breach of fiduciary duty," the court dismissed those "without prejudice" "so that those claims can be pursued in state court."
Bet we haven't seen the last of these Plaintiffs.
You can read the decision, issued July 20, 2005, at 2005 U.S. Dist. LEXIS 14762.
Nugget: "The prevailing caselaw has read ‘personal misconduct’ to require some showing of self-dealing. [Plaintiff] has advanced no such allegations, instead setting out a garden-variety fiduciary claim, which remains the domain of state law."