Federal Court Issues Trial Ruling in Section 36(b) Lawsuit: Great-West Advisory Fees Held Not a Breach of Fiduciary Duty

August 17, 2020

The U.S. District Court for the District of Colorado on August 7, 2020 issued its post-trial findings of fact and conclusions of law in Obeslo v. Great-West Capital Management, LLC et al.1 The ruling comes at the tail end of a wave of Section 36(b) litigation filed following the Supreme Court’s 2010 opinion in Jones v. Harris Associates.2  The court held a bench trial from January 13-28, 2020, and ultimately issued an 18-page opinion in favor of the adviser, concluding that Plaintiffs failed to meet their burden of proof that the adviser breached its fiduciary duty under Section 36(b). The court separately held that Plaintiffs failed to prove they suffered actual damage due to the allegedly excessive fees.


Section 36(b) of the Investment Company Act of 1940 imposes a fiduciary duty on an investment adviser to an investment company “with respect to the receipt of compensation,” and gives investment company shareholders a private right of action to enforce that duty. The statute expressly assigns to any such plaintiff the burden of proof, and subsequent case law makes clear that a breach may be shown only where the fee charged 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."3

Plaintiffs filed a complaint on January 29, 2016, alleging that the advisory and administrative fees charged by Great-West Capital Management, LLC and Great-West Life & Annuity Insurance Co. (collectively, Great-West) violated Section 36(b).

The court granted in part Great-West’s motion to dismiss. The court dismissed the claims of various shareholder Plaintiffs whom it found to lack standing because they could not demonstrate that they continuously owned shares throughout the pendency of the case. The court subsequently denied Great-West’s motion for summary judgment after a hearing on September 27, 2018, concluding (largely on the basis of opinions offered by Plaintiffs’ expert J. Chris Meyers) that there was a genuine dispute of material fact as to whether Great-West’s fees were so high that they could not have been the product of arm’s length bargaining.

Post-Trial Ruling

During the two-week bench trial, 13 fact witnesses and three expert witnesses testified, as well as four plaintiffs. Following the filing of proposed findings of fact and conclusions of law, the court held that Plaintiffs had “failed to meet their burden of proof with respect to all of the Gartenberg factors (emphasis in original).” Moreover, the court held that “even though they did not have the burden to do so, Defendants presented persuasive and credible evidence that overwhelmingly proved that their fees were reasonable and that they did not breach their fiduciary duties.” The court concluded that the Plaintiffs’ testimony had limited probative value, and determined that the Defendants’ witnesses were credible.

The court ultimately adopted and incorporated by reference Great-West’s proposed findings of fact and conclusions of law, calling such findings of fact “well-supported by the record” and the conclusions of law “proper with respect to each [Gartenberg] factor.” Specifically, the court found:

  • The Board was independent, qualified and engaged in a robust process in approving Defendants’ fees. As a result, the court granted substantial deference to the Board’s decision to approve the fees at issue.
  • The advisory and administrative fees challenged by Plaintiffs were within the range of fees paid by comparable funds.
  • Plaintiffs failed to quantify any alleged economies of scale or show that those economies were not adequately shared with shareholders.
  • Defendants’ profits were within the range of their competitors.
  • Defendants provided extensive, high-quality services in exchange for their fees.
  • Plaintiffs failed to identify any significant fall-out benefits that Defendants acquired.

A large portion of the court’s opinion focused on damages, concluding that Plaintiffs had failed to meet their burden to show damages. The court found that the only witness who attempted to calculate damages on behalf of Plaintiffs was “thoroughly discredited” on cross examination. Among other things, the court rejected Plaintiffs’ expert’s assertions that Plaintiffs were entitled to recover alleged “overcharges” (calculated as differences between the average or median fees charged), that Plaintiffs should be entitled to recover the entire top-level fee charged to certain funds-of-funds and that Plaintiffs should be able to recover “lost gains” from lost investment returns. The court held that these theories regarding Plaintiffs’ alleged damages “are legally flawed,” and thus “when those flaws are juxtaposed with the inadequacy of [the expert’s] testimony overall, the court concludes that his opinions are entitled to no weight.”

Thus, the court held that Great-West was entitled to judgment in its favor. 


This ruling is yet another entry in a recent line of Section 36(b) opinions culminating in a victory for the defendant-adviser. At the same time, however, the decision also highlights the perverse difficulty in prevailing on a motion for summary judgment in Section 36(b) cases; while the court ultimately found that Plaintiffs failed to meet their burden on all of the Gartenberg factors, the case nonetheless had survived until the trial stage. The opinion therefore reinforces the importance of developing a strong record in discovery to rebut Plaintiffs’ claims at the summary judgment stage, and in the process avoiding a costly and perhaps ultimately unnecessary trial.


1) Dkt. 384, No. 16-cv-00230-CMA-SKC (D. Colo. Aug. 7, 2020).

2) 559 U.S. 335, 346 (2010).

3) Jones v. Harris, supra note 2.

Subscribe to Dechert Updates