Harris Associates is now facing a heavyweight adversary in the fee case involving its Oakmark Funds. The WSJ Fund Track reports that Solicitor General Elana Kagan has filed a brief with the Supreme Court on behalf of the SEC in the Jerry N. Jones et al. v. Harris Associates LP case. So far, Harris has won at every level of the case. However, Kagan contends that the lower court overstepped in its restrictions of fund shareholders to bring suits claiming fund firms are charging excessive fees and that the Supreme Court should send the case back to lower courts to review whether the shareholder "presented sufficient evidence about the comparability of services [Harris] provides to mutual-fund clients and unaffiliated clients."

Others filing briefs in support of the shareholder side are a group of law professors; industry legend John Bogle; the AARP and Consumer Federation of America. The AARP/CFA brief argues that the Gallus Standard set by the Eight Circuit court in April (Gallus et al. v. Ameriprise Financial Inc.) should be used.

For her part, Kagan argued in her brief that institutional fees may better represent arms-length fees because they are subject to competitive pressures. "Because negotiations [with institutional investors] for such fees typically occur between independent parties, each of which is subject to competitive pressures," wrote Kagan. In essence, her argument supported the Gartenburg Standard over the Easterbrook Standard.

"An evaluation under [the law] of 'all the circumstances' should include consideration of any fees the [manager] receives for providing comparable services to unaffiliated clients, such as pension funds and other institutional investors," Kagan wrote. "Boards are encouraged to consider such information by industry best practices and SEC regulations, and courts appropriately may consider the same information."

The Supreme Court is expected to hear oral arguments in the case in the fall. The plaintiffs lost their last hearing in Federal court in May. The basis of their claim was that Harris charged retail shareholders twice what it charged institutional shareholders. 

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