Fidelity Investments secured a dismissal of a lawsuit alleging improper fee practices in its $439.1 billion Fidelity Government Money Market Fund. The case, heard in the U.S. District Court for the Southern District of New York, challenged the firm’s decision not to automatically convert retail-class shares into lower-cost premium-class shares when investors met eligibility thresholds.
Plaintiffs argued that this structure resulted in higher fees, with retail-class expenses reaching up to 0.42 percent compared to 0.32 percent for premium shares. The court rejected claims of unjust enrichment and breach of fiduciary duty, finding that Fidelity had disclosed the fee structure and conversion options adequately, and that investors retained the ability to initiate conversions independently.
The court determined that the absence of automatic conversion did not meet the threshold for gross negligence under applicable fiduciary duty principles. Judge Margaret Garnett said that, in this context, the fund’s design without an automatic conversion feature fell within reasonable legal standards and did not meet the threshold required to establish gross negligence. The decision also distinguished the case from prior litigation involving Vanguard, where unexpected structural changes led to investor tax consequences and subsequent settlement.
