Developments of Note
Court Holds That Section 36(b) of the Investment Company Act Preempts State Law Claims of Breach of Fiduciary Duty and Deceit
The United States District Court for the District of New Jersey held that Section 36(b) of the Investment Company Act of 1940 (the "1940 Act") preempts state law claims for breach of fiduciary duty and deceit. Section 36(b) of the 1940 Act provides shareholders of registered investment companies a right of action to address breaches of an investment advisor’s fiduciary duty "with respect to the receipt of compensation for services, or of payments of a material nature." The court concluded that federal preemption is appropriate because the broader rights and remedies of state law stand as an obstacle to accomplishing the full purposes of Congress in enacting Section 36(b). Noting that Congress had enacted Section 36(b) because of the ineffectiveness of prior remedies for excessive management fees and the struggle of state courts to apply
