All eyes in the mutual fund industry may be turned to the U.S. Supreme Court as it takes on the Oakmark Funds suit, but there's another case fundsters should be paying attention to. On March 2, Northstar Financial Advisors filed an amended class action suit against Charles Schwab Investment Management for allegedly substantially deviating a fund, Schwab Total Bond Market, "from its stated investment objective" listed in its prospectus. Previously, courts had blocked suits over investment objectives, but so far the federal judge involved is letting the case play out.

A spokesperson for Schwab could not immediately be reached for comment.

The case dates back to August 23, 2008, when Northstar first filed suit against Schwab, over an alleged lack of fidelity to investment objectives at the Total Bond Market Fund between August 31, 2007 and August 23, 2008. (Northstar managed 239,290.193 shares of the fund for its clients as of August 31, 2007; at that time, the fund held more than $1.5 billion in 150 million shares.) Schwab countered with a number of arguments for dismissal. Yet US District Judge Susan Illston countered by simply allowing the RIA to file an amended complaint, while supporting the contention that fund shareholders can sue fund advisors for not sticking to their objectives.

Robert Finkel, partner at Wolf Popper LLP (one of Northstar's law firms on the case), told Law360 that he's pleased with the Illston's rulings so far.

"We're happy on all scores," Finkel said. "The judge obviously gave it a hard look and she thinks it's significant litigation."

"The court ruled that a shareholder can bring the claim," Domenick Pugliese (of the law firm Paul Hastings) told MFWire, adding that this is definitely a suit that the fund industry should pay attention.

A hearing for a defense appeal is scheduled for April 24.

Berman DeValerio and Greenabum Rowe Smith & Davis LLP also represent Northstar, while Morrison & Foerster LLP represents Schwab. 

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