JURIST Guest Columnist William A. Birdthistle of the Chicago-Kent School of Law says that the Supreme Court’s modest decision in Jones v. Harris Associates continues the Court’s trend of neglecting to take strong positions on important issues in corporate law…

With the announcement of several important business decisions at the close of its latest Term, the Supreme Court of the United States appears to have made clear that the leading arbiter of corporate law in this country remains the Supreme Court of Delaware. This year’s docket at the nation’s highest court promised the possibility of great federal ascendancy in this field: the Court had granted certiorari in a remarkably high number of business cases, this Term was the first occasion on which the judiciary could address the financial crisis of 2008 that has so occupied the executive and legislative branches, and such juridical interpretations might have influenced impending and compendious new financial legislation. Instead, the Court abdicated its corporate authority by repeatedly minimizing the judicial role in such cases, most prominently in Free Enterprise Fund v. PCAOB and Morrison v. National Australia Bank. Another exemplar of the Court’s anticlimactic tendency in business disputes is Jones v. Harris.

In Jones, the Court handed down a remarkably short, unanimous, and inscrutable opinion in a case critical to the way 90 million Americans save more than $10 trillion for retirement. Each year – even in the bad ones – investors pay approximately $100 billion to investment advisers for managing these investments in mutual funds. Notably, though, individual investors in these funds pay, on average, double the price that institutional clients pay for similar investments. In the wake of the nation’s greatest financial crisis in seventy-five years, the Court found itself with an ideal opportunity to decide what an investor must prove in order to show that an adviser has charged excessive fees in violation of its fiduciary duty under Section 36(b) of the Investment Company Act of 1940 [PDF].

But depending on whose reporting you believe, the Court’s ruling either made it impossible for investors to prove such a claim (Reuters), made it woefully easy for investors to bring such a claim (Forbes), or failed to decide the matter at all (New York Times). On an issue with such enormous potential impact upon the future fiscal health of this nation and its growing population of retirees, clarity on this question would have greatly helped the planning and policing of retirement savings.

Observers who believe the ruling was a victory for the industry point to the Court’s endorsement of the Gartenberg decision, a standard that no plaintiff has ever satisfied in more than twenty-five years of trials. Those who argue that the plaintiffs won point out that the Court liberalized the Gartenberg standard with a new emphasis on disparate institutional and retail fees. And those who believe the ruling was essentially an abdication of the judicial role maintain that the Court punted on the central issue of competition within the mutual fund industry.

Perhaps the lone source of agreement was in deciding who lost: Chief Judge Easterbrook and the Seventh Circuit’s imaginative economic reinterpretation of Section 36(b) was rejected 9-0 by the Supreme Court.

Because the Court’s ruling was so modest, one must use careful metrics to determine whether either side prevailed. And there are two ways of measuring success – in mutual fund litigation and in life: how far one has come and where one now stands.

On the first scale, the Court’s opinion appears clearly to have improved the lot of investors and made life less comfortable for the industry. Immediately prior to the ruling, the law throughout the United States had been a Gartenberg standard under which no plaintiff had ever won a verdict – except in the Seventh Circuit, where the law had been Easterbrook’s new standard, under which no plaintiff could ever win a verdict. The Supreme Court’s ruling eliminated the Seventh Circuit’s standard and applied everywhere a new rule whose principal deviation from Gartenberg is its emphasis on a central fact that favors plaintiffs, to the extent it favors either side. Interestingly, Easterbrook’s dramatically pro-defendant opinion appears in retrospect to have served only to unsettle, to the industry’s detriment, what had been an uninterrupted quarter-century of trial victories.

But a second scale addresses the more important issue of where the parties stand today. On this point, the industry’s claims of victory appear more persuasive. Even if the Supreme Court has marginally improved the circumstances of future plaintiffs, these cases will still be very difficult to win. Courts may have one more factor to balance in an already-crowded juggling contest, but defendants will undoubtedly adduce plenty of data and experts to support their rates.

What is most notable about this decision, however, is its collection of unwritten pages. The Court declined to address a sumptuous buffet of topics that would have greatly informed U.S. corporate law, extending far beyond the idiosyncrasies of mutual fund investors. First, on this particular topic, the justices abstained completely and explicitly from the robust academic debate regarding the competitiveness of the mutual fund industry, stating that “The debate between the Seventh Circuit panel [Easterbrook, C.J.] and the dissent from the denial of rehearing en banc [Posner, J.] regarding today’s mutual fund market is a matter for Congress, not the courts.”

The Court also refrained from advancing its discussion of the conception of the corporation (or, in this case, the business trust) that made Citizens United so fascinating to corporate scholars. In addition, the Court gave little hint of its disposition on the broader executive compensation debate, which it might easily have done given the ready analogy of adviser fees to CEO salaries. In sum, the justices revealed little about their general reaction to the massive financial crisis.

After having granted certiorari in so many prominent corporate cases, it seems the Court has delivered little new illumination on the most important economic issues. Indeed, for true new insight into the Court’s thinking on those topics, one must read a primarily constitutional law case, Citizens United. One might reasonably assume that if the United States Supreme Court is unwilling to delve deeper into corporate topics during this era of such economic consequence, the judges of Delaware may long retain their judicial supremacy in this field.

William A. Birdthistle has a background in mutual and hedge fund law and is an Assistant Professor of Law at the Chicago-Kent School of Law where he researches legal issues connected to investment funds, executive compensation and corporate governance.