On July 21, 2011, plaintiffs filed a multimillion-dollar lawsuit against AXA Equitable Life Insurance Company, et al. (“AXA”) alleging that AXA received excessive fees for its work managing eight subadvised variable annuity funds. This lawsuit goes a step beyond prior excessive-fee lawsuits such as Jones v. Harris, in which only the investment manager was involved and subadvisory fees were not at issue. Further, prior cases such as Jones v. Harris considered whether a management fee, in its totality, was “so disproportionately large that it [bore] no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining.” In contrast, the AXA case, as well as others such as Southworth v. Hartford Investment Financial Services, LLC, represents a new type of excessive-fee case which challenges whether the investment manager has breached its fiduciary duty under Section 36(b) of the 1940 Act with respect to the portion of the management fee charged to a fund that the investment manager retains. Plaintiffs in the AXA case claim that “despite delegating all or substantially all of its investment management duties to subadvisors and performing little, if any additional work, [AXA] retains up to 94% of the investment management fees, resulting in exorbitant profits.” Where a fund does not separately pay a fee to a subadviser (because the investment manager, not the Fund, compensates the subadviser from its management fee), it remains to be seen whether courts will consider an investment manager’s profitability with respect to the portion of the management fee retained, or whether courts will consider only whether the total compensation received by the investment manager is so disproportionately large that it bears no reasonable relationship to the totality of services rendered. The complaint against AXA is available here.