What Are the Implications of Gallus?
It is too early to assess the long-term significance of the Eighth Circuit’s decision in Gallus. One immediate issue is whether certiorari will be sought or granted. The Supreme Court may well agree to hear the case because of the substantial overlap with the issues raised in Harris Associates. Joinder of the two cases, if it occurs, may delay oral argument beyond October 2009. Certainly Gallus, with its allegations of non-disclosure, presents additional facts to round out the discussion of fiduciary duty in Harris Associates, and those facts may influence the Court’s view of the need to articulate a standard that emphasizes not just the economic reasonableness of the fees, but the adviser’s conduct in negotiating a result. Both Gallus and Harris Associates emphasize the amplitude and candor of the adviser’s disclosure. The need for such an inquiry, in evaluating the conduct of a fiduciary, however, is hardly news; a duty of candor is implicit in the adviser’s role in the mutual fund f
