Northstar Financial Advisors Inc. v. Schwab Investments

dissenting:

When Northstar Financial Advisors, Inc. (“Northstar”) commenced this action by filing its complaint, it did not own, nor had it ever owned any Schwab Total Bond Market fund (“Fund”) shares. Likewise, at the commencement of this action, Northstar did not own any claims of anyone who had owned any of such shares during the period when the defendants are alleged improperly to have lowered the share value of the Fund.

*1066 Hence, when Northstar sued for damages on its own behalf and for those of the class of share owners Northstar sought to represent in this class action, Northstar itself had not suffered any losses, nor did Northstar own any claims of others who had suffered losses the defendants had allegedly caused. Last, no other person who claimed to have been injured by defendants joined Northstar as plaintiff.

Defendants moved to dismiss North-star’s complaint for lack of standing, because Northstar failed to allege it had suffered an injury in fact. 1 Northstar had no “case or controversy” within the meaning of Article III of the Constitution.

The district court quite properly granted defendants’ motion and dismissed the complaint without prejudice, 3 but…

The. Investment Company Act (“ICA”) establishes a comprehensive federal regulatory framework applicable to mutual funds. See 15 U.S.C. § 80a-l et seq. More specifically, it provides that a mutual fund’s registration statement must recite all investment policies that can be changed only by shareholder vote. 15 U.S.C. § 80a-8(b). Deviation from policies so designated violates § 13(a) of the ICA. 15 U.S.C. § 80a-13(a)(3). This appeal arises out of a class action on behalf of investors who allege that the managers of the Schwab Total Bond Market Fund (“Fund”) failed to adhere to two of the Fund’s fundamental investment objectives; namely, that it seek to track a particular index and that it not over-concentrate its investments in any one industry. These objectives, which could only be changed by a vote of the shareholders, were adopted by a shareholder vote and subsequently incorporated in the Fund’s registration statement and prospectuses.

On a previous interlocutory appeal, we rejected the argument that this conduct gave rise to an implied private right to enforce § 13(a) of the ICA. Northstar Fin. Advisors, Inc. v. Schwab Invs., 615 F.3d 1106 (9th Cir.2010). On this…

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

NORTHSTAR FINANCIAL ADVISORS No. 11-17187 INC., on behalf of itself and all others similarly situated, D.C. No. Plaintiff-Appellant, 5:08-cv-4119-

LHK

v.

SCHWAB INVESTMENTS; MARIANN OPINION

BYERWALTER, DONALD F.

DORWARD, WILLIAM A. HASLER,

ROBERT G. HOLMES, GERALD B.

SMITH, DONALD R. STEPHENS,

MICHAEL W. WILSEY, CHARLES R.

SCHWAB, RANDALL W. MERK,

JOSEPH H. WENDER and JOHN F. COGAN, as Trustees of Schwab Investments; and Charles Schwab Investment Management, Inc., Defendants-Appellees.

Appeal from the United States District Court for the Northern District of California Lucy H. Koh, District Judge, Presiding

Argued and Submitted May 17, 2013—San Francisco, California

Filed March 9, 2015 Before: Richard R. Clifton and Carlos T. Bea, Circuit Judges, and Edward R. Korman, Senior District Judge.*

Opinion by Judge Korman; Dissent by Judge Bea

SUMMARY**

Mutual Funds

The panel reversed in part and vacated in part the district court’s dismissal of a shareholder class action on behalf of investors who alleged that the managers of the Schwab…