Federal Court Denies “Fiduciary Exception” Challenge in Connection with Section 36(b) Excessive Fee Lawsuit

May 02, 2017

The U.S. District Court for the Northern District of Illinois denied a motion to compel production of attorney-client privileged documents on April 25, 2017, in connection with the Section 36(b) lawsuit Chill v. Calamos Advisors LLC pending in the U.S. District Court for the Southern District of New York.

The Court concluded that plaintiffs, shareholders of the Calamos Growth Fund, failed to meet their burden to obtain the privileged communications between the independent trustees of that fund and their independent counsel.2 The ten-page opinion is the second decision to recognize that certain attorney-client privileged communications between mutual fund independent trustees and their counsel are subject to a “fiduciary exception,” but it applied a “good cause” limitation to deny the motion. 

Generally speaking, mutual fund trustees owe a fiduciary duty to fund shareholders in connection with carrying out their trustee-related responsibilities. Prior to last year, no court had ever held that, by virtue of such duty, the independent trustees’ attorney-client privileged communications with their independent counsel lose their protection from disclosure vis-à-vis the fund shareholders. Courts had recognized a “fiduciary exception” in other settings, but until the ruling in November 2016 in Kenny v. Pac. Inv. Mgmt. Co. LLC,3 no court had ever compelled discovery of mutual fund trustees’ privileged communications on that basis. 

Similar to Kenny, the Chill Court held that the “fiduciary exception” also applied to legal advice requested or received by mutual fund independent trustees in connection with their mutual fund oversight. Unlike the Ninth Circuit law applied in Kenny, however, the governing law in the Seventh Circuit provides that the existence of a fiduciary relationship is not enough to obtain disclosure, as the fund shareholder must also show “good cause” for obtaining discovery in the particular case. Applying this “good cause” framework, the Chill Court concluded that plaintiffs failed to meet their burden because they did not demonstrate the necessity of the information sought and that it was unavailable from other sources. 


1) The motion was brought in the Northern District of Illinois, as opposed to the Southern District of New York where the case is pending, because the underlying document subpoenas required compliance in that District.
2) Dechert LLP represents the defendants, Calamos Advisors LLC and Calamos Financial Services LLC. The defendants did not participate in the motion to compel briefing or argument.
3) No. 14 C 1987, 2016 WL 6836886 (W.D. Wash. Nov. 21, 2016).

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