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Supreme Court hears arguments in bankruptcy, federal jurisdiction cases

[JURIST] The US Supreme Court [official website; JURIST news archive] heard oral arguments [day call, PDF; merit briefs] Monday in three cases. In Jones v. Harris Associates [oral arguments transcript, PDF; JURIST report], the Court heard arguments on whether a shareholder must show that a fund's investment adviser misled the fund's directors in order to have a cognizable claim of an excessive fee under section 36(b) of the Investment Company Act of 1940 [text]. The case was brought by several plaintiffs who own shares in funds advised by Harris Associates [corporate website]. The plaintiffs claim that the fees are too high and are in violation of section 36(b). The US Court of Appeals for the Seventh Circuit held [opinion, PDF] that the claim is not cognizable unless the shareholder can show that the adviser misled the fund's directors who approved the fee. Counsel for the plaintiff-petitioners argued:

For three reasons, the Seventh Circuit's judgment should be reversed. First, under the Court's longstanding precedent, in this context a fiduciary duty requires a fair fee, achieved through full disclosure and good-faith negotiation. Second, the best gauge of a fair fee is what the investment adviser charges at arm's-length in other transactions for similar services. And, third, applying that standard here, Harris charged twice as much in percentage terms for providing virtually identical advisory services in arm's-length transactions with institutional investors.
The US argued as amicus curiae in support of petitioners. Counsel for respondent Harris Associates argued that this "is not a record upon which a reasonable person could conclude that the adviser has over-reached. That is at the heart of fiduciary duty."

In Shady Grove Orthopedic Association v. Allstate Insurance Co. [oral arguments transcript, PDF; JURIST report], the Court will consider whether a state legislature can properly prohibit the federal courts from using the class action device for state law claims. The issue is whether a New York state law, which prohibits a lawsuit seeking a statutory penalty from being brought as a class action, is substantive or procedural under the Erie doctrine [backgrounder]. The US Court of Appeals for the Second Circuit ruled [opinion, PDF] that the law is substantive and can be applied in federal court, upholding a lower court's dismissal of the suit. Counsel for the petitioners argued that "the state law does not govern." Counsel for the respondent argued:
allowing plaintiffs to recover State law penalties in Federal court that they can't recover in State court on a State law cause of action would powerfully distort ex ante forum choices, which is precisely what the Erie doctrine seeks to avoid.
In Beard v. Kindler [oral arguments transcript, PDF; JURIST report], the Court heard arguments on whether a state procedural rule is adequate to bar a federal court from hearing a habeas petition. The adequate state grounds doctrine bars federal court jurisdiction in cases decided by a state court based on both federal and non-federal law if the state ground for the decision is adequate to support the judgment and is independent of federal law. The Pennsylvania courts applied the state's fugitive forfeiture rule and concluded that Kindler waived his right to seek appellate review, dismissing his appeal without reaching the merits of his claims. The US Court of Appeals for the Third Circuit affirmed [opinion, PDF] the district court's grant of federal habeas relief, rejecting the argument that Pennsylvania's fugitive waiver rule was an adequate and independent state ground for precluding such relief. Counsel for the petitioners argued that:
This Court should clarify that the purpose of the adequate State grounds doctrine isn't to strip State courts of their equitable power to excuse procedural defaults, but simply to ensure that they don't discriminate against Federal claims under the guise of procedural ruling.
Counsel for the defendant-respondent argued that "what is really at stake here" is that "[t]he Commonwealth wants this Court to change the adequate State ground doctrine so that Mr. Kindler may be executed with no review by any court of his meritorious claims that his death sentence was unconstitutional."

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