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T. Rowe Price Wins in Fee, Directors' Suit

A federal district court judge has dismissed a lawsuit against T. Rowe Price Associates of Baltimore in which shareholders in the Rowe Price-Fleming International Stock Fund claimed they paid excessive fees. Fund lawyers said the decision provides new clarity about the minimum allegations a shareholder must make for an excessive fee case to be heard.

The shareholders' allegations were so broad that they failed to show even a remote link between the allegedly high fees shareholders paid and the services T. Rowe Price provided the fund, Judge Andre M. Davis of Baltimore wrote in a decision March 20. The fact that other fund advisers charged less to run funds similar to the International Stock Fund was not sufficient to prove that the fund's fees were so high that they violated federal law, Davis wrote.

In addition, shareholders must prove that payments directors receive for serving on multiple fund boards in the same mutual fund complex are so high that the payments "shock the conscience of a reasonable person" before shareholders can claim that directors have lost their independence, Davis wrote. The plaintiffs also alleged that there was no check on the fund fees because the compensation the directors received undermined their independence.

The directors in the T. Rowe Price case received less than $100,000 in compensation, according to allegations in the case.

"Proof that the [independent] directors had even a significant [sic] financial incentive to curry favor with the funds and their investment advisers would not sustain a claim" under federal law, Davis wrote.

A lawyer for the shareholders, Joel Feffer of Wechsler Harwood Halebian & Feffer LLP of New York, declined to comment. The shareholders have approximately one month to decide whether they will appeal Davis' decision.

Lawyers for T. Rowe Price welcomed the decision, which they said clearly articulates the standard of what it takes for shareholders to file suit alleging that fund advisors violated section 36(b) of the Investment Company Act, the key federal law that governs mutual funds.

Section "36(b) was not intended to be open season on advisers," said Daniel A. Pollack, a partner with Pollack & Kaminsky of New York who represented T. Rowe Price in the case.

Henry Hopkins, chief counsel for T. Rowe Price, said the firm was very pleased by the decision.