In re JPMorgan Chase Derivative Litigation
263 F. Supp. 3d 920
E.D. Cal.2017Background
- Shareholders brought a derivative action (California plaintiffs; nominal defendant JPMorgan) alleging directors mismanaged JPMorgan’s RMBS business (2005–2007), breached fiduciary duties, were unjustly enriched, and issued misleading 2011–2012 proxy statements (Section 14(a)).
- DOJ and institutional settlements (2013) acknowledged JPMorgan sold RMBS that failed internal standards; parallel investigations and large settlements informed plaintiffs’ allegations.
- Plaintiffs did not make a pre-suit demand on JPMorgan’s board and asserted demand would be futile; prior related derivative suits against many of the same directors (notably Steinberg in S.D.N.Y.) were dismissed for failure to plead demand futility.
- The court retained federal-question jurisdiction over the Section 14(a) claim but had to resolve (1) whether the Steinberg dismissal precluded plaintiffs’ federal claim (preclusion), and (2) whether the court has personal jurisdiction over individual directors for plaintiffs’ state-law derivative claims.
- Court held Steinberg’s Rule 23.1 dismissal precluded plaintiffs’ Section 14(a) claim under federal claim-preclusion (res judicata) and dismissed that federal claim with prejudice; because no federal hook remained, the court found it lacked pendent personal jurisdiction over the state claims and concluded defendants lacked sufficient purposeful contacts with California.
- Instead of dismissal, the court transferred the remaining state-law derivative claims to the Southern District of New York under 28 U.S.C. § 1406(a).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Steinberg’s prior dismissal precludes plaintiffs’ Section 14(a) claim (preclusion) | plaintiffs: their federal claim differs materially from Steinberg’s (different misstatements, focus on director independence and Dimon divestment proposal, different relief), so preclusion shouldn’t apply | defendants: same transactional nucleus and same proxy-based Section 14(a) theory; Steinberg judgment bars relitigation | Held: Claim preclusion (res judicata) applies — Steinberg was a final judgment on the merits for these issues, parties/privity exist, and the federal claims arise from the same transactions; Section 14(a) claim dismissed with prejudice |
| Whether Steinberg’s demand-futility ruling bars relitigation of demand futility by issue preclusion (collateral estoppel) | plaintiffs: factual differences and supplemental allegations make the demand-futility inquiry different here | defendants: same board and substantially same futility issue; prior adjudication controls | Held: Issue preclusion rejected — the court found plaintiffs’ federal claim had a stronger likelihood of success than Steinberg’s on the merits, so the demand-futility issue was not identical; but claim preclusion nonetheless barred the federal claim |
| Whether the court may exercise pendent personal jurisdiction over directors for state-law derivative claims | plaintiffs: federal claim would supply the personal-jurisdiction hook; state claims arise from same nucleus of facts, so pendent jurisdiction is appropriate | defendants: no minimum contacts with California; JPMorgan is not a California corporation; directors did not purposefully direct conduct at California | Held: Because the federal claim was dismissed, pendent personal jurisdiction vanished; plaintiffs failed to plead specific purposeful contacts by each director with California, so specific jurisdiction over state claims was not established |
| Whether transfer to S.D.N.Y. is appropriate rather than dismissal for lack of jurisdiction | plaintiffs preferred transfer; S.D.N.Y. is proper forum with jurisdiction and venue | defendants sought transfer or dismissal; argued New York is appropriate | Held: In the interest of justice, court transferred the remaining state-law derivative claims to the Southern District of New York under 28 U.S.C. § 1406(a) |
Key Cases Cited
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (sets the two-pronged demand-futility test when a board decision is challenged)
- Rales v. Blasband, 634 A.2d 927 (Del. Ch. 1993) (establishes demand-futility test when no specific board decision is challenged)
- Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001) (federal dismissal claim-preclusion principles and effect of dismissal)
- Costello v. United States, 365 U.S. 265 (1961) (dismissal for failure to satisfy precondition to suit may be curable and not trigger claim preclusion)
- Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991) (state law of incorporation governs demand-futility test in derivative suits)
- Woman’s Health v. Hellerstedt, 136 S. Ct. 2292 (2016) (res judicata bars claims arising from the same transactional nucleus of facts)
- International Shoe Co. v. Washington, 326 U.S. 310 (1945) (minimum contacts due process standard for personal jurisdiction)
- World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980) (forum contacts must make it reasonable to anticipate being haled into court)
- Calder v. Jones, 465 U.S. 783 (1984) (intentional acts expressly aimed at forum for Calder effects test)
- Potter v. Hughes, 546 F.3d 1051 (9th Cir. 2008) (derivative-suit demand pleading requirements under Rule 23.1)
- Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797 (9th Cir. 2004) (California-specific personal jurisdiction analysis)