City of Roseville v. JPMorgan Chase, Index No. 651011/2012, 12/16/2014 (Schweitzer, J.)

Motion to Dismiss; Breach of Fiduciary Duty of Loyalty; Shareholder Derivative Claim; Waste of Corporate Assets; Failure to State a Claim.

 By Zachary Nastro | Staff Writer

Plaintiff, a shareholder of JPMorgan Chase & Co. (“JPMorgan”) , brought this shareholder derivative suit against JPMorgan and its Board of Directors (together the “Defendants”) for alleged misconduct of JPMorgan’s Mortgage Loan Servicing Department between 2008 and 2010. Plaintiff claimed the Board of Directors failed to act upon receiving actual knowledge of the allegations. Plaintiff argued that JPMorgan had adequate notice after an investor sent several emails to fraud.prevention.and.investigation@jpmorgan.com, regarding the illegal activity JPMorgan’s Mortgage Loan Servicing Department allegedly committed, which included copies of relevant newspaper articles, and requests for the Board to undertake an investigation., Plaintiff also asserted that the Board of Directors had actual knowledge of the illegal activity through several high-profile lawsuits that JPMorgan’s Mortgage Loan Servicing Department was involved in, which resulted in numerous investigations and $7 billion in damages. Plaintiff requested the director defendants pay damages to JPMorgan, terminate Chairman of the Board, James Dimon, and perform an accounting for all damages sustained by JPMorgan as a result of the illegal acts. Defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(7) for failing to state a cause of action and failing to make a pre-litigation demand under Del. Ch. Ct. R. 231. Under Delaware law, to pursue a derivative claim, a stockholder must first, either: (1) demand the directors pursue a corporate claim and the directors wrongfully refused to do so; or (2) have demand excused because the directors are incapable of making an impartial decision. Demand is excused if the particularized facts alleged create a reasonable doubt that the majority of directors are not disinterested and independent, and the challenged transaction falls outside the business judgment rule. The court held that Plaintiff did not challenge director defendants’ independence or that director defendants were not disinterested because of their failure to act in the face of a known duty and exercise oversight. The court found plaintiff failed to plead particularized facts to establish a breach of fiduciary duty of loyalty. Plaintiff did not show that emails sent to defendants were seen and acknowledged by the individual Board members. The court stated that large companies such as JPMorgan could not be expected to view every email received and held that Plaintiff failed to show that director defendants had knowledge about the particular sanctions raised in the high-profile litigations referenced and plead particularized facts to show defendants had actual knowledge of the alleged wrongdoings. The court held plaintiff did not demonstrate a systematic failure of oversight by defendants, since the claim itself established a system of checks and failed to establish its claim for corporate waste, since none of the facts alleged demonstrated the squandering of corporate assets by defendants. The Court granted defendants’ motion to dismiss.

City of Roseville v. JPMorgan Chase, Index No. 651011/2012, 12/16/2014 (Schweitzer, J.).

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