Lucyle Kalish and Sol Joseph Kamen v. Franklin Advisers, Inc. Franklin Distributors, Inc. Franklin Administrative Services, Inc. Franklin Resources, Inc. Franklin Custodian Funds, Inc. (u.s. Government Securities Series), 928 F.2d 590, 2d Cir. (

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Filed: 1991-03-21 Precedential Status: Precedential Citations: 928 F.2d 590 Docket: 829
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  928 F.2d 59059 USLW 2600, Fed. Sec. L. Rep. P 95,861 Lucyle KALISH and Sol Joseph Kamen, Plaintiffs-Appellants,v.FRANKLIN ADVISERS, INC.; Franklin Distributors, Inc.;Franklin Administrative Services, Inc.; Franklin Resources,Inc.; Franklin Custodian Funds, Inc. (U.S. GovernmentSecurities Series), Defendants-Appellees.  No. 829, Docket 90-7774. United States Court of Appeals,Second Circuit.  Argued Jan. 29, 1991. Decided March 21, 1991. Richard M. Meyer (George A. Bauer III, Milberg Weiss BershadSpecthrie & Lerach, New York City, of counsel), for plaintiffs-appellants.Daniel A. Pollack (Martin I. Kaminsky, W. Hans Kobelt, Pollack &Kaminsky, New York City, of counsel), for defendants-appellees FranklinAdvisers, Inc., Franklin Distributors, Inc., Franklin Resources, Inc. andFranklin Administrative Services, Inc.Brian E. Lorenz, White Plains, N.Y., for defendant-appellee FranklinCustodian Funds, Inc. (U.S. Government Securities Series).Before TIMBERS, MESKILL and CARDAMONE, Circuit Judges.PER CURIAM:1This is an appeal from an order and a final judgment of the United StatesDistrict Court for the Southern District of New York, Haight, J. Plaintiffsappeal from (1) the Memorandum Opinion and Order dated February 29, 1988striking plaintiffs' jury demand, and (2) the final judgment entered by thedistrict court dismissing the complaint brought pursuant to section 36(b) of theInvestment Company Act. 742 F.Supp. 1222 (S.D.N.Y.1990). Plaintiffs  claimed that Franklin Advisers breached its fiduciary duty by exacting anexorbitant fee. In its final judgment the district court found that plaintiffs failedto prove several necessary elements of their claim, including management's breach of its fiduciary duty, the excessiveness of fees, the existence of economies of scale and the intentional misallocation of expenses.2We affirm the judgments of the district court. Judge Haight's decision striking plaintiffs' jury demand is explained in a separate unpublished memorandumfrom his final decision. In light of the recent Supreme Court decision,Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558, 110S.Ct. 1339, 108 L.Ed.2d 519 (1990), we think a separate published opinion onthe jury demand issue is in order.3Plaintiffs contend the district court erred in striking their jury demand.Plaintiffs claim that because they were seeking money damages only, Terryindicates that plaintiffs were entitled to a jury trial. A jury trial is notguaranteed to those seeking relief in equity. 5 Moore's Federal Practice p38.08[5.-4], at 38-52 (1991). We have held that claims arising under section36(b) of the Investment Company Act of 1940, 15 U.S.C. Sec. 80a-35, for  breach of fiduciary duty to recover excessive fees, are equitable in nature.Krinsk v. Fund Asset Management, Inc., 875 F.2d 404, 414 (2d Cir.), cert.denied, --- U.S. ----, 110 S.Ct. 281, 107 L.Ed.2d 261 (1989); Schuyt v. RowePrice Prime Reserve Fund, Inc., 835 F.2d 45, 46 (2d Cir.1987), cert. denied,485 U.S. 1034, 108 S.Ct. 1594, 99 L.Ed.2d 908 (1988); In re Gartenberg, 636F.2d 16, 17-18 (2d Cir.1980), cert. denied, 451 U.S. 910, 101 S.Ct. 1979, 68L.Ed.2d 298 (1981). Thus, a party seeking relief under section 36(b) ordinarilyis not entitled to a jury trial. Krinsk, 875 F.2d at 414; Schuyt, 835 F.2d at 46;Gartenberg, 636 F.2d at 18.4A recent Supreme Court decision arguably has cast some doubt on theseSecond Circuit precedents. In Terry, a dispute arising out of a union's refusal torefer plaintiffs' complaints to the grievance committee, plaintiffs sued their union for breach of the duty of fair representation. Id. 110 S.Ct. at 1343.Plaintiffs sought relief from the union in the form of injunctive relief andcompensatory damages for back pay and lost wages. The claim required proof that the employer breached the collective bargaining agreement and that theunion breached the duty of fair representation. Id. at 1344. While the duty of fair representation, viewed alone, is equitable in nature, the breach of acollective bargaining agreement is contractual and therefore is a legal issue. Id.at 1347. The back pay sought was not money wrongfully held by the union;rather, it was money that would have been paid to the plaintiffs had their grievances been properly processed. This relief was not restitutionary in nature,  nor was it incidental to a request for injunctive relief; the back pay soughtconstituted legal damages. Id. at 1348. As a result, the Supreme Court held thatthe Seventh Amendment entitled plaintiffs to a jury trial on all issues. Id. at1349.5The Seventh Circuit has construed section 36(b) with respect to a plaintiff's jurydemand in light of Terry. See Kamen v. Kemper Financial Services, Inc., 908F.2d 1338 (7th Cir.), cert. granted in part on other grounds, --- U.S. ----, 111S.Ct. 554, 112 L.Ed.2d 561, cert. denied, --- U.S. ----, 111 S.Ct. 558, 112L.Ed.2d 565 (1990). While the Kamen Court recognized that Terry may castdoubt on the foundation of earlier section 36(b) decisions, the Kamen Courtheld that section 36(b) relief was purely equitable, even under a Terry analysis.See Kamen, 908 F.2d at 1351.6The instant action presents a situation no different from that involved in Krinsk,Schuyt, Gartenberg and Kamen and one plainly distinguishable from Terry. Thecentral issue in this action is whether the fund adviser violated its fiduciary dutyto the fund by exacting an exorbitant fee. Any unreasonable portion of the feemust be returned to the fund. This restitutionary relief is clearly equitable innature regardless of whether it is called damages. As a result, plaintiffs are notentitled to a jury trial.7Accordingly, the Memorandum Opinion and Order dated February 29, 1988,1988 WL 30396, striking plaintiffs' jury demand is affirmed.8We have also considered plaintiffs' contentions arising out of the final judgmentand find them to be without merit. As to these, we affirm substantially for thereasons set forth by Judge Haight in his Memorandum Opinion and Order. 742F.Supp. 1222 (S.D.N.Y.1990).
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