742 Fed.Appx. 604 (3rd Cir. 2018), 16-4241, Sivolella v. AXA Equitable Life Insurance Co.

Docket Nº:16-4241
Citation:742 Fed.Appx. 604
Opinion Judge:FUENTES, Circuit Judge.
Party Name:Mary Ann SIVOLELLA, FOR the USE AND BENEFIT OF the EQ/COMMON STOCK INDEX PORTFOLIO, the EQ/Equity Growth PLUS Portfolio, the EQ/Equity 500 Index Portfolio, the EQ/Large Cap Value PLUS Portfolio, the EQ/Global Multi-Sector Equity Portfolio, the EQ/Mid Cap Value PLUS Portfolio, the EQ/GAMCO Small Company Value, and the EQ/Intermediate Government ...
Attorney:Mark A. Fisher, Esq., Christopher S. Kwelty, Esq., Arnold C. Lakind, Esq., Robert L. Lakind, Esq., Robert E. Lytle, Esq., Christopher Myles, Esq., Stephen Skillman, Esq., Robert G. Stevens, Jr., Esq., Daniel S. Sweetser, Esq., Szaferman Lakind Blumstein & Blader, Lawrenceville, NJ, Moshe Maimon, ...
Judge Panel:Before: AMBRO, RESTREPO, FUENTES, Circuit Judges
Case Date:July 10, 2018
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

Page 604

742 Fed.Appx. 604 (3rd Cir. 2018)

Mary Ann SIVOLELLA, FOR the USE AND BENEFIT OF the EQ/COMMON STOCK INDEX PORTFOLIO, the EQ/Equity Growth PLUS Portfolio, the EQ/Equity 500 Index Portfolio, the EQ/Large Cap Value PLUS Portfolio, the EQ/Global Multi-Sector Equity Portfolio, the EQ/Mid Cap Value PLUS Portfolio, the EQ/GAMCO Small Company Value, and the EQ/Intermediate Government Bond Index Portfolio

v.

AXA EQUITABLE LIFE INSURANCE COMPANY and AXA Equitable Funds Management Group, LLC Glenn D. Sanford, for the use and benefit of the EQ/Large Cap Value PLUS Portfolio, the EQ/Global Multi-Sector Equity Portfolio, the EQ/T. Rowe Price Growth Stock Portfolio and the EQ/GAMCO Small Company Value Portfolio; William R. Tucker, for the use and benefit of the EQ/GAMCO Small Company Value Portfolio and the EQ/T. Rowe Price Growth Portfolio; Brian A. Sanchez, for the use and benefit of the EQ/Global Multi-Sector Equity Portfolio and the EQ/PIMCO Ultra Short Bond Portfolio; Mary T. Cusack, for the use and benefit of the EQ/Large Cap Value PLUS Portfolio, the EQ/Core Bond Index Portfolio and the EQ/Mid Cap Value PLUS Portfolio; Robert Cusack, for the use and benefit of the EQ/Large Cap Value PLUS Portfolio, the EQ/Core Bond Index Portfolio and the EQ/Mid Cap Value PLUS Portfolio; Patricia F. Lynn, for the use and benefit of the EQ/Global Bond PLUS Portfolio, the EQ/Mid Cap Value PLUS Portfolio, the EQ/GAMCO Small Company Value Portfolio and the EQ/PIMCO Ultra Short Bond Portfolio

v.

AXA Equitable Funds Management Group, LLC Mary Ann Sivolella, Glenn D. Sanford, Brian Sanchez, Mary Cusack, Patricia Lynn and William Tucker, on behalf of the EQ/Core Bond Index Fund, the EQ/GAMCO Small Company Value Fund, the EQ/Global Bond Plus Fund, the EQ/Global Multi-Sector Equity Fund, the EQ/Intermediate Government Bond Index Fund, the EQ/Equity 500 Index Fund, the EQ/Common Stock Index Fund, the EQ/Equity Growth PLUS Fund, the EQ/Large Cap Value PLUS Fund, the EQ/Mid Cap Value PLUS Fund, the EQ/T. Rowe Price Growth Stock Fund, and the EQ/PIMCO Ultra Short Bond Fund, Appellants

No. 16-4241

United States Court of Appeals, Third Circuit

July 10, 2018

NOT PRECEDENTIAL

Submitted Under Third Circuit L.A.R. 34.1(a) January 17, 2018

Editorial Note:

This opinion is not regarded as Precedents which bind the court under Third Circuit Internal Operating Procedure Rule 5.7. (See Federal Rule of Appellate Procedure Rule 32.1)

Page 605

On Appeal from the United States District Court for the District of New Jersey (D.C. No. 3-11-cv-4194 and No. 3-13-cv-312) (D.N.J. No. 3-11-cv-04194) (D.N.J. No. 3-13-cv-00312), District Judge: Hon. Peter G. Sheridan

Mark A. Fisher, Esq., Christopher S. Kwelty, Esq., Arnold C. Lakind, Esq., Robert L. Lakind, Esq., Robert E. Lytle, Esq., Christopher Myles, Esq., Stephen Skillman, Esq., Robert G. Stevens, Jr., Esq., Daniel S. Sweetser, Esq., Szaferman Lakind Blumstein & Blader, Lawrenceville, NJ, Moshe Maimon, Esq., Levy Phillips & Konigsberg, Lawrenceville, NJ, for Plaintiff-Appellant Mary Ann Sivolella

Mark A. Fisher, Esq., Christopher S. Kwelty, Esq., Arnold C. Lakind, Esq., Robert L. Lakind, Esq., Christopher Myles, Esq., Stephen Skillman, Esq., Robert G. Stevens, Jr., Esq., Daniel S. Sweetser, Esq., Szaferman Lakind Blumstein & Blader, Lawrenceville, NJ, Moshe Maimon, Esq., Levy Phillips & Konigsberg, Lawrenceville, NJ, for Plaintiffs-Appellants Robert Cusack, Glenn D. Sanford, William R. Tucker, Brian A. Sanchez, Mary T. Cusack, Patricia F. Lynn

James G. Cavoli, Esq., Andrea G. Hood, Esq., Robert C. Hora, Esq., Jonathan M. Korn, Esq., Sean M. Murphy, Esq., Milbank Tweed Hadley & McCloy, New York, NY, for Defendants-Appellees

Before: AMBRO, RESTREPO, FUENTES, Circuit Judges

OPINION[*]

FUENTES, Circuit Judge.

Page 606

The Petitioners appeal the District Court’s dismissal of their claim with prejudice following a 25-day bench trial. For the following reasons, we will affirm.

I.

Because we write primarily for the parties, we discuss only those facts necessary to our decision.

The Petitioners are parties to variable annuity contracts1 with Defendant AXA Equitable Life Insurance Company ("AXA"). They opted to allocate certain annuity contributions to mutual funds[2] ("Funds") offered by AXA. Each of the Funds is a part of the EQ Advisors Trust ("EQAT"), a Delaware statutory trust comprised of numerous mutual funds. One of AXA’s wholly owned subsidiaries, Defendant AXA Equitable Funds Management Group, LLC ("FMG"), served as the investment manager and administrator for the Funds. To facilitate that arrangement, EQAT and FMG negotiated Investment Management Agreements and Mutual Funds Service Agreements, which laid out FMG’s management and fund administration fees. The fees differed for all of the Funds and were set forth as percentages of each of the Fund’s assets. FMG also contracted with a sub-administrator and various sub-advisers to assist it in performing its duties for the Funds.

The Petitioners filed this case as a derivative action on behalf of the Funds.3 Specifically, the Petitioners argued that FMG had breached its fiduciary duty under § 36(b) of the Investment Company Act because the investment management and fund administration fees it collected were excessive given the proportion of its responsibilities it delegated to its sub-administrator and its sub-advisers. The District Court held a 25-day bench trial, at which the Petitioners presented ten witnesses, including four experts. The Defendants called six witnesses, including three experts.

Both sides called Steven M. Joenk as a fact witness. Joenk is the President and Chief Executive Officer of FMG, and he also serves as Chairman of EQAT’s Board of Trustees ("Board"). In assessing Joenk’s credibility, the District Court explained that "[h]is testimony was credible and substantive. However ... because of his position at FMG, his answers may be

Page 607

biased or skewed."4 The District Court also explained that it did not find any of the Petitioners’ four expert witnesses to be credible but that it did find the Defendants’ experts to be credible. The District Court further noted that the testimony of defense witness Gary S. Schpero, the Lead Independent Trustee of the Board, was "generally consistent, thorough, and accurate."5

Ultimately, the District Court decided in favor of the Defendants and issued a 146-page opinion concluding that the Petitioners had failed to meet their burden of proof. The Petitioners moved for reconsideration of the District Court’s decision, but the District Court denied the motion, explaining that, "in essence, the request [wa]s that [it] vacate [its] opinion and rewrite it with a different conclusion."[6] This appeal followed.7

Section 36(b) of the Investment Company Act ("Act") "impose[s] upon investment advisers a ‘fiduciary duty’ with respect to compensation received from a mutual fund, 15 U.S.C. § 80a-35(b), and grant[s] individual investors a private right of action for breach of that duty."8 In its seminal case on § 36(b), Jones v. Harris Assocs. L.P., the Supreme Court, relied upon Gartenberg v. Merrill Lynch Asset Mgmt., Inc. ,9 a Second Circuit decision, in articulating the standard for assessing whether an investment adviser has breached its fiduciary duty. It explained that "to face liability under § 36(b), an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining."10 Plaintiffs bear the burden to prove a breach of a fiduciary duty.11

In order to determine whether a breach of a...

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