Ruling in a case of first impression, the Sixth Circuit rejected an implied cause of action under Section 36(a) of the Investment Company Act of 1940, 15 U.S.C. § 80a-1 et seq. Although the Circuits remain split, recent decisions (after 2001) agree on the point.

Two pension funds sued an exchange-traded fund (ETF), its investment advisor (IA) and its trust-company-affiliate (BTC), claiming BTC’s Lending Agent fee ‒ 35% of all net revenue on the ETF’s securities-lending activity – was excessive.

The Court affirmed dismissal of the express Section 36(b) claim for breach of fiduciary duty by excessive fees for two reasons. First, it rejected an “aggregation argument” trying to combine the BTC’s lending fee with the IA’s unrelated advisory fee as (a) not raised in the Complaint and (b) rejected byMeyer v. Oppenheimer Mgt. Corp., 895 F. 2d 861 (2d Cir. 1990). Second, the Court held the fee was shielded by an earlier SEC exemption order issued to predecessor firm, under the “carve-out provision” of Section 36(b)(4).

The Court then affirmed dismissal of claim under Section 36(a) – which grants the SEC an injunctive bar action against fund fiduciaries. The addition of a private right of action under Section 36(b) in the 1970 amendments, invokes the Supreme Court’s admonition that the “express provision of one method of enforcing a substantive rule suggests that Congress intended to preclude others.” Alexander v. Sandoval, 532 U.S. 275, 290 (2001). The Sixth Circuit joins other decisions since Alexander in holding there is no implied private right of action under ’40 Act § 36(a).

Laborers’ Local 265 Pension Fund v. iShares Trust, No. 13-6486 (6th Cir. Sept. 30, 2014), here.