Certain plaintiff shareholders, on behalf of a class, charged Nuveen Advisory with breach of fiduciary duty.
Retained by Jenner & Block
Nuveen Advisory Corporation (Nuveen Advisory) served as advisor to six closed-end, leveraged, tax-exempt municipal bond funds. Certain plaintiff shareholders of these funds, on behalf of a class, charged Nuveen Advisory with breach of fiduciary duty, alleging a conflict of interest arising out of Nuveen’s fee agreements because the agreements allegedly created an incentive to maintain leverage in the funds during periods when leverage resulted in larger net asset value declines.
This court holds that any conflict of interest between the interests of the funds and shareholders and Nuveen’s interest arising out of the compensation agreement at issue is minimal at best and fails to establish a breach of the fiduciary duty.
Counsel for Nuveen Advisory retained Cornerstone Research and Professor Mark Grinblatt of UCLA’s Anderson School of Management. Professor Grinblatt reviewed Nuveen Advisory’s compensation arrangement and the funds’ leverage decisions. Based on a review of relevant documents and thorough empirical analyses, Professor Grinblatt concluded that the funds’ leverage decisions were consistent with the funds’ investment objectives and were not driven by any alleged conflict of interest.
In granting Nuveen Advisory’s Motion for Summary Judgment, U.S. District Judge Ronald A. Guzman wrote “[t]his court holds that any conflict of interest between the interests of the funds and shareholders and Nuveen’s interest arising out of the compensation agreement at issue is minimal at best and fails to establish a breach of the fiduciary duty imposed under Section 36(b) of the ICA.”
The U.S. Court of Appeals for the Seventh Circuit affirmed the decision of the district court.