US SUPREME COURT DECISIONS

Respondent, a shareholder of petitioner Daily Income Fund, Inc. (Fund), an open-end diversified management investment company regulated by the Investment Company Act of 1940 (Act), filed suit in Federal District Court against both the Fund and petitioner Reich & Tang, Inc. (R&T), which provides the Fund with investment advice and management services. Respondent alleged that fees paid to R&T by the Fund were unreasonable, in violation of § 36(b) of the Act, which imposes a fiduciary duty on an investment company's adviser "with respect to the receipt of compensation for services" paid by the company and provides that

"[a]n action may be brought under this subsection by the [Securities and Exchange] Commission, or by a security holder of such registered investment company on behalf of such company"

against the adviser and other affiliated parties. The complaint sought damages in favor of the Fund as well as payment of respondent's costs, expenses, and attorney's fees. The District Court dismissed the suit, finding that § 36(b) actions are subject to the "demand requirement" of Federal Rule of Civil Procedure 23.1 -- which governs

"a derivative action brought by one or more shareholders . . . to enforce a right of a corporation [when] the corporation [has] failed to enforce a right which may properly be asserted by it"

and requires a shareholder bringing such a suit to allege his efforts, if any, to obtain the desired action from the directors and the reasons for his failure to obtain or request such action -- and that respondent had not complied with the Rule. The Court of Appeals reversed.

Held: Rule 23.1 does not apply to an action brought by an investment company shareholder under § 36(b), and thus the plaintiff in such a case need not first make a demand upon the company's directors before bringing suit. Pp. 464 U. S. 527-542.

(a) The term "derivative action," which defines the scope of Rule 23.1, applies only to those actions in which the right claimed by the shareholder is one the corporation itself could have enforced in court. This interpretation of the Rule is consistent with earlier decisions (e.g., Hawes v. Oakland, 104 U. S. 450, from which the Rule's provisions were derived), and is supported by its purpose of preventing shareholders from improperly suing in place of a corporation. Pp. 464 U. S. 527-534. chanrobles.com-red

Page 464 U. S. 524

(b) The right asserted by a shareholder suing under § 36(b) cannot be judicially enforced by the investment company. Instead of establishing a corporate action from which a shareholder's right to sue derivatively may be inferred, § 36(b) expressly provides only that the new corporate right it creates may be enforced by the Securities and Exchange Commission and security holders of the company. Moreover, an investment company does not have an implied right of action under § 36(b). Consideration of pertinent factors -- the statute's legislative history and purposes, the identity of the class for whose particular benefit the statute was passed, the existence of express statutory remedies adequate to serve the legislative purpose, and the traditional role of the States in affording the relief claimed -- plainly demonstrates that Congress intended the unique right created by § 36(b) to be enforced solely by the Commission and security holders of the investment company. Pp. 464 U. S. 534-541.

692 F.2d 250, affirmed.

BRENNAN, J., delivered the opinion of the Court, in which BURGER, C.J.,and WHITE, MARSHALL, BLACKMUN, POWELL, REHNQUIST, and O'CONNOR, JJ., joined. STEVENS, J., filed an opinion concurring in the judgment, post, p. 464 U. S. 542.