Wietschner Ex Rel. JPMorgan Chase & Co. v. Dimon
139 A.D.3d 461
N.Y. App. Div.2016Background
- Derivative suit by shareholder Sam Wietschner against JPMorgan Chase & Co. directors, alleging deficient oversight of the bank’s anti-money-laundering (AML) program.
- Plaintiff sought to excuse pre-suit demand on the board by alleging demand futility based on oversight failures and “red flags.”
- Defendants moved to dismiss the amended complaint; the motion court dismissed on res judicata and collateral estoppel grounds relying on prior federal dismissals for failure to plead demand futility.
- The Appellate Division reviewed whether the federal dismissals precluded this state derivative action and whether plaintiff pleaded particularized facts raising a reasonable doubt about board independence.
- Court also considered that JPMorgan’s certificate of incorporation contained an exculpatory clause insulating directors from monetary liability for breach of fiduciary duty.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal dismissals preclude this state derivative action (res judicata/collateral estoppel) | Federal dismissals did not preclude because this action alleges different theories/time periods | Prior federal rulings dismissed similar demand-futility claims on the merits, so claim preclusion applies | Res judicata bars the amended complaint; dismissal affirmed |
| Whether plaintiff pleaded demand futility with particularized facts | Alleged board oversight failures, “utter” failure to implement AML program, conscious disregard of red flags suffice | Allegations are conclusory and mirror dismissed federal complaints; demand futility not pleaded | Demand futility not sufficiently alleged; action cannot proceed |
| Effect of corporate exculpatory clause on pleading personal liability of directors | Exculpation should not defeat demand futility where bad faith or loyalty breaches alleged | Exculpatory clause insulates directors from monetary breach-of-duty claims absent well-pled bad faith or loyalty breach | Exculpation undermined plaintiff’s ability to show substantial likelihood of personal liability; plaintiff failed to plead bad faith/loyalty breach |
| Whether leave to amend should be granted | Leave to amend would cure pleading defects | Proposed amendment lacked merit and would not cure deficiencies | Leave to amend denied as futile |
Key Cases Cited
- Landau, P.C. v. LaRossa, Mitchell & Ross, 11 N.Y.3d 8 (N.Y. 2008) (res judicata applies where claims arise from same series of transactions).
- Xiao Yang Chen v. Fischer, 6 N.Y.3d 94 (N.Y. 2005) (claims sharing same origin and forming a convenient trial unit support preclusion).
- Asbestos Workers Philadelphia Pension Fund v. Bammann, 137 A.D.3d 680 (1st Dep’t 2016) (discussing demand futility and standards for pleading bad faith).
- Wandel v. Dimon, 135 A.D.3d 515 (1st Dep’t 2016) (affirming dismissal where demand futility allegations insufficient).
- Simon v. Becherer, 7 A.D.3d 66 (1st Dep’t 2004) (standard for showing reasonable doubt as to board independence).