The United States District Court for the District of New Jersey ruled for
the defendant, AXA Equitable Life, in a decision that followed a lengthy
bench trial. In the case of
Sivolella v. AXA Equitable Life Ins. Co., plaintiffs alleged they were charged excessive fees for investment in
12 mutual funds managed by AXA. In a 125-page ruling, Judge Peter G. Sheridan
rejected the excessive fee claims and cleared the company of all allegations,
while commending AXA’s transparency and cooperation during the trial.
Sivolella represented a group of eight investors who entered into annuity
contracts with the defendant, AXA Equitable Life Insurance (“AXA”),
and Equitable Funds Management Group LLC. Plaintiffs accused AXA of giving
the bulk of management responsibilities to affiliate advisers while charging
high fees for advisory services. AXA claimed its “manager of managers”
strategy of board oversight provided an executive-level review of the
investments at no cost, while procuring direct third-party adviser services
for clients’ investment consultation.
According to plaintiffs, such an act violated Section 36(b) of the Investment
Company Act, which imposes a legal obligation on mutual fund advisers
to behave in an ethically acceptable manner relating to compensation received
for services rendered. Plaintiffs further alleged that AXA advisers did
not exhibit moral integrity by passing off the majority of their duties
to sub-advisers while charging clients for advisory services and, therefore,
violating Section 36(b). Essentially, plaintiffs alleged AXA was illegally
charging excessive and unearned fees.
The trial ran from January 6 to February 25, with closing arguments being
heard on June 1. After hearing lengthy arguments from both sides, Judge
Sheridan issued his findings on August 25, rejecting the plaintiff’s
theory and ruling in favor of AXA.
How AXA Won
Outside Experts Were Key
AXA was proactive and did not allow the Court to rely solely on the testimony
of plaintiffs’ witnesses. Instead, AXA hired its own experts to
analyze the intimate details of the lawsuit, and Judge Sheridan found
that their testimony was “credible.”
Going Above and Beyond was Essential
Judge Sheridan deemed the plaintiffs’ observations of the services
outlined in the adviser agreement as “essentially” correct,
and being similar to those described in the sub-adviser contract. He recognized
however, that AXA’s executive advisers went beyond the call of duty.
AXA presented evidence and testimony of its employees going the extra
mile to satisfy clients and maintain well-managed accounts. The evidence
submitted by AXA’s counsel ultimately swayed the Court towards a
decision for the defense.
Wording is Everything
During the 25-day trial, AXA discovered that its agreement form was not
efficient. The company, at its sole discretion, revised its written structure
to reflect present times, and Judge Sheridan gave credit to the business
for its willingness to revamp documents and practices as necessary.
Tips for Others
Hire Outside Consultants
Outside consultants have a way of exhibiting transparency and credibility
to both clients and the courts. Hiring an independent auditor or lawyer
also presents a different perspective. An outside professional can shed
light on unfair practices that internal employees may consider justified.
From this approach, hiring independent consultants has more to do with
improving an overall business structure and less to do with impressing
Always Look for Ways to Correct Deficiencies
It is in a corporation’s best interest to correct flaws when discovered.
AXA did not wait for the plaintiff to point out flaws and suggest changes
to their business practices. Instead, the company was proactive in correcting
deficiencies that its independent contractors uncovered. Such action impressed
Judge Sheridan, who based much on his ruling on AXA’s enterprising
ideas and solutions to issues that could pose potential problems in the future.
Revisit Contract Agreements for Accuracy and Clarity
AXA reviewed and updated its contract during trial proceedings to make
their client agreement more comprehensive and accurate. Such transparency
convinced the courts that the indemnity company was not attempting to
conceal facts or use deceptive practices to increase earnings.
Choose Independent Directors Whenever Possible
The diversity of the executive team impressed Judge Sheridan to the extent
of commenting on such a dynamic. Hiring independent directors who do not
have ulterior motives can improve a corporation’s image during an
investigation, and help in their defense of a potential lengthy lawsuit.
Contact Geraci Law Firm at (949) 298-8050 today, or contact
Amy Martinez directly
for more information.