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Hartsel v. Vanguard Group Inc.

United States District Court, D. Delaware

January 26, 2015

MARYLYNN HARTSEL and DEANNA PARKER, derivatively on behalf of Nominal Defendants,
v.
THE VANGUARD GROUP INC., JOHN J. BRENNAN, CHARLES D. ELLIS, RAJIV L. GUPTA, AMY GUTMANN, JOANN HEFFERNAN HEISEN, ANDRE F. PEROLD, ALFRED M. RANKIN, JR., and J. LAWRENCE WILSON; ACADIAN ASSET MANAGEMENT, LLC, and MARATHON ASSET MANAGEMENT, LLP, Defendants, and VANGUARD INTERNATIONAL EQUITY INDEX FUNDS, d/b/a VANGUARD EUROPEAN STOCK INDEX FUND, and VANGUARD HORIZON FUNDS, d/b/a VANGUARD GLOBAL EQUITY FUND, Nominal Defendants. Plaintiffs,

Ian Connor Bifferato, Esquire and Thomas F. Driscoll, III, Esquire of Bifferato LLC, Wilmington, Delaware. Counsel for Plaintiffs. Of Counsel: Thomas I. Sheridan, III, Esquire of Simmons Hanly Conroy.

Donald J. Wolfe, Jr., Esquire and Brian C. Ralston, Esquire of Potter Anderson & Corroon LLP, Wilmington, Delaware. Counsel for Trustee Defendants John J. Brennan, Charles D. Ellis, Rajiv L. Gupta, Amy Gutmann, Joann Heffernan Heisen, Andre F. Perold, Alfred M. Rankin, Jr., and J. Lawrence Wilson.

William M. Lafferty, Esquire and Bradley D. Sorrels Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware. Counsel for Defendant The Vanguard Group, Inc. Lewis H. Lazarus, Esquire, Peter B. Ladig, Esquire, and Katherine J. Neikirk, Esquire of Morris James LLP, Wilmington, Delaware. Counsel for Nominal Defendants Vanguard International Equity Index Funds, d/b/a Vanguard European Stock Index Fund and Vanguard Horizon Funds, d/b/a Vanguard Global Equity Fund.

Samuel A. Nolen, Esquire and Susan M. Hannigan, Esquire of Richards, Layton & Finger, P.A., Wilmington, Delaware, Counsel for Defendants Acadian Asset Management LLC and Marathon Asset Management, LLP.

MEMORANDUM OPINION

SUE L. ROBINSON, District Judge.

I. INTRODUCTION

On June 24, 2013, plaintiffs Marylynn Hartsel ("Hartsel") and Deanna Parker ("Parker") (collectively, "plaintiffs") filed this derivative action against individual defendants John J. Brennan ("Brennan"), Charles D. Ellis ("Ellis"), Rajiv L. Gupta, Amy Gutmann, JoAnn Heffernan Heisen, Andre F. Perold, Alfred M. Rankin, Jr., and J. Lawrence Wilson ("Wilson") (collectively, the "individual defendants"), as well as Acadian Asset Management, LLC ("Acadian"), Marathon Asset Management, LLP ("Marathon") and The Vanguard Group, Inc. ("Vanguard") (collectively, the "investor advisor defendants"). The nominal defendants are Vanguard International Equity Index Funds d/b/a Vanguard European Stock Index Fund, and Vanguard Horizon Funds d/b/a Vanguard Global Equity Fund (respectively, the "European Index Fund" and the "Global Equity Fund;" collectively, the "Funds") (collectively with the individual defendants and the investor advisor defendants, the "defendants"). Plaintiffs allege that defendants invested in illegal gambling companies in violation of fiduciary duties. Presently before the court is defendants' motion to dismiss. (D.I. 12) The court has jurisdiction pursuant to 28 U.S.C. § 1331, 1332, 1337, and 1367(a).

II. BACKGROUND

A. The Parties

Hartsel is a resident of Boca Raton, Florida and purchased shares in the Global Equity Fund on February 13, 2006. Hartsel still holds some of those shares. Parker was a resident of New York City, New York and currently resides in South Carolina. Parker purchased shares in the European Index Fund on or about May 20, 2005 and still holds some of those shares. (D.I. 8 at ¶¶ 20-23, 140-141)

The Global Equity Fund and the European Index Fund are statutory trusts organized under the laws of the State of Delaware, with a principal place of business in Wayne, Pennsylvania. The Funds comprise several mutual fund "series" with each series offering a separate class of stock to investors. Each series represents a different portfolio of securities. Specifically, the Global Equity Fund offers the Global Fund, and the European Index Fund offers the European Fund. (D.I. 8 at ¶¶ 24-28) The Funds serve as "umbrella" entities and are registered as investment companies with the SEC. ( Id. at ¶ 29) A single board of trustees ("the Board") serves all of the Funds. ( Id. at ¶ 30)

Vanguard is an investment management company organized under the laws of the State of Pennsylvania, with a principal place of business in Malvern, Pennsylvania. Vanguard serves as investment advisor to dozens of investment companies, including the Funds. Vanguard provides the Funds with corporate management, administrative, marketing and distribution services. ( Id. at ¶¶ 36-40) The individual defendants[1] were members of the Board (and other registered investment companies owned and controlled by Vanguard), as well as members of the board of directors of Vanguard during all relevant times. ( Id. at ¶ 45) Brennan served as the Chairman of the Board and Chief Executive Officer of each of the Funds since at least 1987 and during all relevant times. (D.I. 8 at ¶ 48)

Acadian is organized under the laws of the State of Delaware and maintains its principal place of business in Boston, Massachusetts. Acadian provides investment advisory services to the Global Fund, and during all relevant times, exercised managerial or operational oversight concerning the Global Fund's investments. (D.I. 8 at ¶ 50) Marathon is organized under the laws of the United Kingdom and maintains an office in Mt. Kisco, New York. Marathon provides investment advisory services to the Global Fund and ...


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