Central Laborers Pension Fund et al v. Dimon et al

Filing 33

OPINION & ORDER re: 29 MOTION for Reconsideration re; 27 Memorandum & Opinion, . MOTION to Alter Judgment re: 28 Clerk's Judgment, filed by Steamfitters Local 449 Pension Fund, Central Laborers Pension F und. For the reasons set forth in this Opinion & Order, Plaintiffs' motion for reconsideration and their request to alter and amend the judgment is denied. The Clerk of the Court is directed to terminate the motion at Docket 29. (Signed by Judge Paul A. Crotty on 11/6/2014) (tro)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

------------------------------------------------------------)(
CENTRAL LABORERS ' PENSION FUND
and STEAMFITTERS LOCAL 449
PENSION FUND, derivatively on behalf of
JPMorgan Chase & Co.,
14 Civ. 1041 (PAC)

Plaintiffs,
v.

OPINION & ORDER
JAMES DIMON, LINDA B. BAMMANN,
JAMES A. BELL, CRANDALL C.
BOWLES, STEPHEN B. BURKE, JAMES S.
CROWN, TIMOTHY P. FLYNN, LABAN P.
JACKSON, MICHAEL A. NEAL, LEER.
RAYMOND, WILLIAM C. WELDON,
WALTER V. SHIPLEY, and ROBERT I.
LIPP,
Defendants.
-andJPMORGAN CHASE & CO., a Delaware
corporation,
Nominal Defendant.

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HONORABLE PAUL A. CROTTY, United States District Judge:
Plaintiffs move for reconsideration of the Court's Opinion and Order, Central Laborers'

Pension Fund v. Dimon, 2014 WL 3639185 (S.D.N.Y. July 23, 2014) ("MTD Order"),
dismissing their derivative action alleging, inter alia, breach of fiduciary duty with respect to
JPMorgan's banking relationship with Bernard Madoff. The Court dismissed due to Plaintiffs'
failure to make demand upon the Board prior to filing their derivative action. For the following
reasons, the motion is denied.

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BACKGROUND
As explained more fully in the Court's prior decision, Plaintiffs have filed this derivative
action for alleged breach of fiduciary duty, violations of Section 14(a) of the Securities Exchange
Act, abuse of control, corporate waste, and unjust enrichment arising out of JPMorgan's banking
relationship with Bernard Madoff, the ensuing Deferred Prosecution Agreement ("DP A" ) with
the U.S. Attorney's Office ("USAO"), and the payment of$2.6 billion to federal authorities and
civil plaintiffs. See Compl. Plaintiffs allege that JPMorgan, despite being in a position to notice
the criminal activity, instead "turn[ed] a blind eye to Madoffs thievery." Id.

~

16. Plaintiffs

claim that Defendants' actions were motivated by a fear oflosing the lucrative accounts of
Madoff and one of his longtime customers. !d.

~~

10-12. Prior to filing their complaint,

Plaintiffs did not make a pre-litigation demand on the Board, alleging demand futility. Id.

~~

354-81.
In January 2014, JPMorgan entered into a DPA with the USAO in which it stipulated to
the DPA's Statement of Facts regarding JPMorgan's tools for identifying suspicious activity by
broker-dealer clients. Declaration ofDavid A. Rosenfeld in Opposition to Defendants' Motion
to Dismiss the Complaint for Failure to Make a Pre-Litigation Demand ("Rosenfeld Decl."), Ex.
1, ~ 2. JPMorgan also consented to the filing of a criminal information which charged it with,
inter alia, the failure to maintain an effective anti-money laundering program ("AML") and to

file a suspicious activity report; JPMorgan also agreed to pay $1.7 billion in penalties. Id. at Ex.
1, ~ 1 ,~ 3.

In April2014, Defendants moved to dismiss Plaintiffs' Complaint for failure to make a
pre-litigation demand on the board. (Dkt. 18). The Court granted this motion, finding that
Plaintiffs had failed to plead particularized facts that create a reasonable doubt that a majority of

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the Board could have exercised disinterested and independent business judgment in considering
demand. Motion to Dismiss Order at 11.

DISCUSSION
I.

Standard for Motion for Reconsideration
Reconsideration of a Court's prior decision is "limited" by the doctrine of the law of the

case: "where litigants have once battled for the court's decision, they should neither be required,
nor without good reason permitted, to battle for it again." Official Comm. of Unsecured

Creditors ofColor Tile, Inc. v. Coopers & Lybrand, L.L.P., 322 F.3d 147, 167 (2d Cir. 2003)
(internal quotation marks omitted). Accordingly, decisions should "not usually be changed
unless there is an intervening change of controlling law, the availability of new evidence, or the
need to correct a clear error or prevent a manifest injustice." !d. (internal quotation marks
omitted).
"It is not enough .. . that defendants could now make a more persuasive argument . ...

The law of the case will be disregarded only when the court has a clear conviction of error with
respect to a point of law on which its previous decision was predicated." Fogel v. Chestnutt, 668
F .2d 100, 109 (2d Cir. 1981) (internal quotation marks and citation omitted). "Thus generally,
there is a strong presumption against amendment of prior orders." Bergerson v. NY State Office

ofMental Health, 652 F.3d 277, 288 (2d Cir. 2011).

II.

Analysis
Plaintiffs do not allege any "intervening change in controlling law" or "availability of

new evidence." Their assertion of a clear error in support of reconsideration is rejected.
Plaintiffs' motion is the exact danger against which case law warns-a reflexive motion
made "to reargue those issues already considered when a party does not like the way the original

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motion was resolved." In re Optimal US. Litig. , 813 F. Supp. 2d 383, 387 (S .D.N.Y. 2011)
(internal quotation marks omitted). Both holdings of which Plaintiffs seek reconsideration were

fully briefed by the parties and discussed by the Court in its original order, and accordingly there
is no need for reconsideration.

A. The Court applied the appropriate standard for a claim of oversight liability.
Plaintiffs argue that the Court misconstrued the requirements for a claim of director
oversight liability under Delaware law. They posit that the correct standard is set forth in Stone

v. Ritter: was there "an utter failure to attempt to assure a reasonable information and reporting
system"? Plaintiffs' Memorandum of Law in Support ofTheir Motion for Reconsideration of
the Court's Opinion and Order Dismissing the Complaint for Failure to Make a Pre-Litigation
Demand and to Alter and Amend the Court's Judgment ("Pl. Mem."), at 3-6 (emphasis in
original). The Court held that "the necessary condition[] predicate for director oversight
liability" is whether the directors utterly failed "to implement any reporting or information
system or controls." MTD Order at 6 (emphasis added) (quoting Stone v. Ritter, 9 11 A.2d 362,
370 (Del. 2006)). This language, however, comes directly from Stone, which holds "that

Caremark articulates the necessary conditions predicate for director oversight liability: (a) the
directors utterly failed to implement any reporting or information system or controls; or (b)
having implemented such a system or controls, consciously failed to monitor or oversee its
operations thus disabling themselves from being informed of risks or problems requiring their
attention." 911 A.2d at 370.
Plaintiffs contend that "reasonable" controls is the correct standard because Stone
" articulates the standard as 'reasonable' controls eight times but articulates the standard as ' any'
controls only once." Since "reasonable" is used more numerously, it must be controlling. Pl.
Mem. at 4 (emphasis in original). Each of the references to "reasonable" controls, however, has
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its origins in quotes of the Caremark decision in the Stone opinion. While Stone states that it is
adopting a Caremark standard, the Stone Court clearly identifies its interpretation of Caremark's
requirements as the "utter fail[ ure] to implement any reporting or information system or
controls."
Moreover, Plaintiffs cite no case which refuses to follow Stone's holding. Nor do
Plaintiffs explain or distinguish cases which interpret Stone as the Court did in its Order. See,
e.g., In re Goldman Sachs Grp., Inc. Shareholder Litig., 2011 WL 4826104, at *19 (Del. Ch.
Oct. 12, 2011) ("Plaintiffs must plead particularized facts suggesting that the board failed to
implement a monitoring and reporting system or consciously disregarded the information
provided by that system."). In fact, Plaintiffs rely on Rich v. Chong, which specifically states
that"[o ]ne way a plaintiff may successfully plead a Caremark claim is to plead facts showing
that a corporation had no internal controls in place." 66 A.3d 963, 982-83 (Del. Ch. 2013). In
Rich, the Court found that the company had controls which were not meaningful, and so went on
to analyze the facts under the second element of Stone: whether directors consciously failed to
monitor those controls. There is no clear error in the Court's interpretation and application of the
appropriate Stone standard.

B. Even if the standard required "reasonable controls," Plaintiffs have not alleged
that JPMorgan's controls were not reasonable.
But even if the Court were to adopt Plaintiffs' argument about a "reasonable controls"
standard, Plaintiffs have failed to allege that JPMorgan's controls were not reasonable. The
Court's prior order referred to the DPA's Statement ofFacts, which acknowledged that
JPMorgan had "an executive located in New York ... as the head of [the] AML program, ...
individuals based in the United States and other countries responsible for filing suspicious
activity reports, ... and a computerized system to comply with its AML obligations ...

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commonly used by large financial institutions to monitor account activity." Rosenfeld Decl., Ex.
1, Ex. C, ~~ 6, 13-63. Both parties recognize that there is a "vast difference between an
inadequate or flawed effort to carry out fiduciary duties and a conscious disregard for those
duties." Lyondell Chern. Co. v. Ryan, 970 A.2d 235, 243 (Del. 2009). The Court's Order stated
that Plaintiffs had alleged that these systems were inadequate, not that they were unreasonable.
In light of the controls that JPMorgan had in place, Plaintiffs' Complaint simply fails to allege

that Defendants "utterly failed to attempt" to discharge their fiduciary duties. 1
Plaintiffs' selective quotations from the DPA does not show that the Court committed
clear error in determining that Plaintiffs failed to sufficiently allege their Caremark claim. The
DPA discusses deficiencies in JPMorgan' s AML controls, but does not provide sufficient
allegations that these deficiencies rendered JPMorgan 's controls unreasonable. Nor have the
Plaintiffs sufficiently demonstrated how the information discussed in the DPA provides evidence
of Defendants' conscious disregard of their duties. Accordingly, even under a "reasonable
controls" standard, Plaintiffs have failed to allege the necessary predicates for a claim of director
oversight liability.

C. The Court did not misinterpret Rich.
Plaintiffs assert error in the Court' s requirement that Plaintiffs allege with particularity
that the Board '" consciously failed to monitor or oversee its operations thus disabling themselves
from being informed of risks or problems requiring their attention."' MTD Order at 7 (quoting

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Plaintiffs also assert that the Court erred because it "did not reach the issue of whether the Director Defendants
'utterly failed to attempt to assure' AML controls- reasonable or otherwise." Reply Memorandum of Law in
Further Support of Plaintiffs' Motion for Reconsideration of the Court' s Opinion and Order Dismissing the
Complaint for Failure to Make a Pre-Litigation Demand and to Alter and Amend the Court's Judgment ("Pl.
Reply"), at 2. This is incorrect. As discussed above, the Court held that Plaintiffs alleged only that JPMorgan' s
controls were inadequate. MTD Order at 6-7.

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Stone, 911 A.2d at 370). This is said to be a misinterpretation of Rich v. Chong and improperly
requires Plaintiffs to plead scienter. Plaintiffs point to language in Rich which states, "Where
directors fail to act in the face of a known duty to act, thereby demonstrating a conscious
disregard for their responsibilities, they breach their duty of loyalty by failing to discharge their
fiduciary obligation in good faith. " Pl. Mem. at 8-9 (quoting Rich, 66 A.3d at 981). Plaintiffs
fail to explain, however, how the Court's characterization of Rich, that '" a finding of liability is
conditioned on a plaintiffs showing that the directors knew they were not fulfilling their
fiduciary duties,"' misconstrues this language. Order at 6-7 n.4 (quoting Rich, 66 A. 3d at 981 ).

Rich mandates that Plaintiffs plead facts demonstrating directors' conscious disregard for their
responsibilities. Rich, however, considered a motion to dismiss under the Rule 12(b)(6)
standard, rather than the heightened pleading requirement of Rule 23.1 present here. In its prior
Order, the Court assessed whether Plaintiffs had pled directors' knowledge, as mandated by

Rich, with particularity, as mandated by Rule 23.1. This is not clear error.
Plaintiffs also argue that "[i]n attempting to distinguish Rich, the Court incorrectly
focused on the second standard for pleading director oversight liability under Delaware law,
which Plaintiffs were not pursuing." Pl. Mem. at 8. The Court referred to this standard after
finding that Plaintiffs had failed Stone's first requirement: that directors utterly failed to
implement any reporting or information system or controls. But the Court's discussion of this
standard was additional to its analysis under the first element of Stone, following the
determination that Plaintiffs had not met Stone's first requirement.
Finally, Plaintiffs allege that the Court erred " by deciding a disputed fact on a motion to
dismiss: whether simply having certain AML employees constituted an attempt at reasonable
AML controls in light of the size and complexity of JPMorgan versus the U.S. Attorney's

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conclusion that JPMorgan, through the Director Defendants, willfully failed to maintain any of
the elements of an adequate AML program as required by the BSA." Pl. Reply at 9-10. 2 This is
incorrect and a mischaracterization of the findings ofthe DP A and Statement of Facts. 3 The
Court determined that, for the reasons discussed above, Plaintiffs failed to plead with
particularity that the controls in place were unreasonable. This is not a resolution of a factual
dispute and in any event Plaintiffs have failed to demonstrate that this finding was clear error.
CONCLUSION
For the foregoing reasons, Plaintiffs' motion for reconsideration and their request to alter
and amend the judgment is denied. The Clerk of the Court is directed to terminate the motion at
Docket 29.

SO ORDERED

Dated: New York, New York
November 6, 2014

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PAUL A. CROTTY
United States District Judge

2

Plaintiffs raise this argument for the first time in their reply papers. The practice of raising an issue for the first
time in reply papers is disfavored. See S.E.C. v. Yorkville Advisors, LLC, 300 F.R.D. 152, 168 (S.D.N.Y. 2014).
3 The DPA does not determine that JPMorgan failed to maintain any of the elements of an adequate AML program,
as demonstrated by the Statement of Facts' lengthy discussion of JPMorgan's AML systems and controls.
Rosenfeld Decl., Ex. 1, Ex. C, ~~ 13-63.

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