In re JPMorgan Chase Derivative Litigation

Filing 162

OPINION & ORDER re: 153 MOTION to Dismiss the Consolidated Amended Shareholder Derivative Complaint filed by Laban P. Jackson, Jr., James S. Crown, David C. Novak, James Dimon, William C. Weldon, Robert I. Lipp, Timothy P Flynn, James Bell, Stephen B. Burke, William B. Harrison, Jr., Ellen V. Futter, JPMorgan Chase & Co., Lee R. Raymond, Crandall C. Bowles. For the reasons stated above, Defendants' motion to dismiss the amended complaint is GRANTED and Plaintiffs ' claims are dismissed with prejudice. The Clerk of Court is respectfully directed to terminate the motion docketed at ECF No. 153 and to close this case and remove it from the docket of this Court. SO ORDERED. (Signed by Judge John F. Keenan on 5/21/2018) (anc)

Case 1:09-md-02013-PAC Document 57 05/21/18 Page 1 of 1
Case 1:17-cv-05066-JFK Document 162 Filed Filed 09/30/10 Page18 of 45
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 5/21/2018

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------ X
IN UNITED STATES DISTRICT COURT :
RE JPMORGAN CHASE
DERIVATIVE LITIGATION NEW YORK :
SOUTHERN DISTRICT OF
:
-----------------------------------------------------------x
No. 17 Civ. 5066 (JFK)
In re FANNIE MAE 2008 SECURITIES :
:
08 Civ. & ORDER
OPINION 7831 (PAC)
:
LITIGATION
:
09 MD 2013 (PAC)
------------------------------ X
:
APPEARANCES
:
OPINION & ORDER
-----------------------------------------------------------x
FOR PLAINTIFFS RONALD A. HARRIS, RICHARD RATCLIFF, and JEFFREY
SHLOSBERG:
Alexander E. Barnett
Mark C. Molumphy
HONORABLE PAUL A. CROTTY, United States District Judge:
Joseph W. Cotchett
Alexandra P. Summer
Toriana S. Holmes
BACKGROUND1
COTCHETT, PITRE & McCARTHY, LLP
George early years of this decade saw a boom in home financing which was fueled, among
The Donaldson
LAW OFFICES OF GEORGE DONALDSON
Peter E. low interest rates and lax credit conditions. New lending instruments, such as
other things, byBorkon
Steve W. Berman
HAGENS BERMAN SOBOL risk loans) and
subprime mortgages (high creditSHAPIRO LLPAlt-A mortgages (low-documentation loans)
Francis A. Bottini, Jr.
Yury A. going. Borrowers played a role too; they took on unmanageable risks on the
kept the boomKolesnikov
BOTTINI & BOTTINI, INC.
Roger that the market
assumptionA. Dreyer would continue to rise and that refinancing options would always be
Stacey L. Roberts
Stephen F. Davids
available in the future. Lending discipline was lacking in the system. Mortgage originators did
Stanley P. Fleshman
DREYER BABICH BUCCOLA WOOD CAMPORA, LLP
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
Brian S. Kabateck
Joshua H. Haffner
originators sold their loans into the secondary mortgage market, often as securitized packages
KABATECK BROWN KELLNER LLP
Gerald Maltz
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
Peter T. Limperis
HARALSON, MILLER PITT, FELDMAN & McNALLY, PLC
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
FOR DEFENDANTS JAMES A. BELL, CRANDALL C. BOWLES, STEPHEN B.
and JAMES S. CROWN, TIMOTHY the changing ELLEN V. FUTTER, LABAN
BURKE, home prices began to fall. In light ofP. FLYNN, housing market, banks modified their
P. JACKSON, JR., DAVID C. NOVAK, LEE R. RAYMOND, and WILLIAM C.
lending
WELDON: practices and became unwilling to refinance home mortgages without refinancing.
Stuart J. Baskin
Jaculin Aaron
1 SHEARMAN & STERLING LLP
Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.

1

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FOR NOMINAL DEFENDANT JPMORGAN CHASE & CO. and DEFENDANTS JAMES
DIMON, WILLIAM B. HARRISON, JR., and ROBERT I. LIPP:
Gary W. Kubek
Jennifer R. Cowan
DEBEVOISE & PLIMPTON LLP
JOHN F. KEENAN, United States District Judge:
Before the Court is a motion by Defendants JPMorgan Chase &
Co. (“JPMorgan”), Jamie Dimon, James A. Bell, Crandall C.
Bowles, Stephen B. Burke, James Schine Crown, Ellen Futter,
William B. Harrison, Jr., Laban P. Jackson, Jr., Robert I. Lipp,
David C. Novak, Lee R. Raymond, William C. Weldson, and Timothy
P. Flynn (together “Defendants”) to dismiss the consolidated
amended shareholder derivative complaint (the “amended
complaint”).

For the reasons stated below, Defendants’ motion

is GRANTED and the Clerk of Court is respectfully directed to
close this case.
I.
A.

Background

Factual Background

Unless otherwise noted, the following facts and allegations
are drawn from the amended complaint.

For the purposes of this

motion, the Court accepts the factual allegations in the
complaint as true and draws reasonable inferences in the
plaintiff’s favor. See Tsirelman v. Daines, 794 F.3d 310, 313
(2d Cir. 2015).

Plaintiffs Ronald A. Harris and Richard

Ratcliff, from California, and Jeffrey Shlosberg, from New
Jersey (together, “Plaintiffs”), are shareholders of JPMorgan
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stock. (Am. Compl. ¶¶ 23-25, ECF No. 122 (filed Apr. 28, 2016).)
Defendant JPMorgan is a financial holding company incorporated
in Delaware with its principal place of business located in New
York. (Id. ¶ 26.)

Defendant Jamie Dimon (“Dimon”) is the

current CEO, President, and Chairman of the Board of JPMorgan.
(Id. ¶ 28.)

Defendants James A. Bell, Crandall C. Bowles,

Stephen B. Burke, James Schine Crown, Ellen Futter, William B.
Harrison, Jr., Laban P. Jackson, Jr., Robert I. Lipp, David C.
Novak, Lee R. Raymond, William C. Weldon, and Timothy P. Flynn
(together, with Dimon, the “Director Defendants”) are current
and former directors of JPMorgan. (Id. ¶¶ 29-40.)
Plaintiffs allege that in 2005, Defendants decided to
establish a greater presence in the residential mortgage-backed
securities (“RMBS”) market to improve JPMorgan’s “mediocre”
financial performance. (Id. ¶ 119.)

From 2006 to 2007, JPMorgan

nearly doubled its securitizations of residential mortgage
loans. (Id. ¶ 141.)

To generate this amount of securities,

JPMorgan incentivized its mortgage loan origination arm to pump
out subprime mortgage loans to high risk borrowers, loosened
underwriting standards, and pressured appraisers to generate a
large volume of subprime mortgage loans with inflated dollar
figures. (Id.)

These poor-quality mortgages were then included

in JPMorgan securitizations which were fraudulently marketed to
investors as high quality investments. (Id.)
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Plaintiffs allege that internal documents and statements
from executives, including Dimon, confirm JPMorgan’s deficient
underwriting practices. (Id. ¶¶ 142, 157.)

JPMorgan’s drive to

securitize large volumes of mortgage loans contributed to the
absence of internal controls, which, in turn, caused JPMorgan to
issue registration statements and prospectuses that included
untrue statements of material facts and omitted material facts,
specifically regarding JPMorgan’s deteriorating underwriting
standards and use of fraudulent marketing to sell subprime RMBS.
(Id. ¶ 163.)

Plaintiffs allege that the Director Defendants

knew that the company was securitizing defective loans and
selling the resulting high-risk securities to investors. (Id. ¶
169.)

Plaintiffs also allege that a majority of the loans in

JPMorgan’s RMBS portfolio came from California originators and
that JPMorgan’s subprime mortgage business was primarily
targeted at risky California mortgages. (Id. ¶¶ 222, 239.)
Plaintiffs contend that the Director Defendants caused
JPMorgan to issue its 2011 and 2012 Proxy Statements (the “Proxy
Statements”), which contained false statements regarding the
Board’s role in oversight of management, including its review of
internal controls and risk management. (Id. ¶¶ 263, 266, 270,
273.)

The falsity of the statements in the Proxy Statements is

evidenced by the fact that the Director Defendants had received
internal reports beginning in 2011 indicating that the Board’s
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oversight of risk management was materially deficient with
respect to JPMorgan’s RMBS business. (Id. ¶ 280.)

The Proxy

Statements also urged shareholders to re-elect the directors
because they were allegedly independent, competent, and had
provided diligent and effective oversight of management and the
risks facing JPMorgan. (Id. ¶¶ 264, 271.)

Although shareholders

included proposals for an independent director in both Proxy
Statements, Defendants encouraged shareholders to vote against
the proposal because they claimed that the Board’s leadership
structure already provided the independent leadership and
oversight of management sought by the proposals. (Id. ¶¶ 267268, 275-276.)

Based on the false statements in the Proxy

Statements, the directors were re-elected and the shareholder
proposals were defeated. (Id. ¶¶ 265, 279.)
On August 7, 2013, JPMorgan issued a Form 10-Q in which it
acknowledged that the U.S. Attorney’s Office for the Eastern
District of California had concluded that JPMorgan violated
federal securities laws in connection with its securitization
and sale of subprime RMBS offerings issued during 2005 to 2007.
(Id. ¶ 3.)

On November 15, 2013, JPMorgan announced a $4.5

billion settlement with twenty-one major institutional
investors, and four days later announced a $13 billion
settlement with the DOJ and other government agencies. (Id. ¶
5.)

Approximately $300 million of the settlement funds were
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allocated to investors from California. (Id.)

As part of the

settlement, JPMorgan admitted that between 2005 and 2007, it
falsely marketed and sold compromised RMBS to investors without
warning them that the RMBS did not meet the corporation’s
internal securitization standards. (Id. ¶¶ 6, 300, 332.)
Plaintiffs allege that Defendants exposed JPMorgan to
financial risk through the corporation’s RMBS business by
destabilizing internal underwriting standards, fraudulently
marketing RMBS, and concealing material information from
investors. (Id. ¶¶ 141, 290.)

According to the amended

complaint, Director Defendants breached their fiduciary duties
to JPMorgan and its shareholders by failing to implement any
meaningful reporting or controls regarding mortgage loan
origination and securitization, and abdicating their
responsibilities to properly supervise and adequately oversee
JPMorgan’s subprime mortgage business. (Id. ¶¶ 356-364.)
Defendants’ decision to push forward into the subprime mortgage
loan origination and securitization business without adequate
safeguards, policies, and procedures was made because it
increased Defendants’ personal profits, while exposing JPMorgan
to substantial civil penalties, fines and settlements, and
potential criminal exposure. (Id. ¶ 288.)
Plaintiffs allege that at the time this action was
initially filed, demand on the Board of Directors would have
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been futile since at least five of the ten members of the Board
were not disinterested and could not have fairly and impartially
evaluated any demand made on the Board. (Id. ¶ 293.)

The

Director Defendants were not disinterested because they had the
largest financial incentive for engaging in the misconduct
alleged, had final supervision and oversight over JPMorgan’s
business operations, and they face a substantial likelihood of
liability for their individual misconduct. (Id. ¶¶ 294, 305,
308, 317, 320, 325, 333, 341, 345, 348.)
Plaintiffs allege against Defendants three California state
claims:

breach of fiduciary duty, corporate waste, and unjust

enrichment; and one federal claim under Section 14(a) of the
Securities Exchange Act, 15 U.S.C. § 78n(a), which, as discussed
below, has been dismissed. (Id. ¶¶ 356-395.)
B.

Procedural History

Plaintiffs filed their original complaint in the Eastern
District of California on November 20, 2013 and an amended
complaint on March 3, 2014. (See Compl., ECF No. 1 (filed Nov.
20, 2013); Am. Compl., ECF No. 29 (filed Mar. 3, 2014).)

On May

16, 2014, Defendants moved to dismiss. (See Mot. to Dismiss, ECF
No. 48 (filed May 16, 2014).)

The court granted Defendants’

motion to dismiss on October 24, 2014, holding that the court
did not have sufficient personal jurisdiction over Defendants
under Federal Rule of Civil Procedure 12(b)(2) and that
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Plaintiffs had failed to state a claim for violation of § 14(a)
of the Exchange Act under Federal Rule of Civil Procedure
12(b)(6), and allowed Plaintiffs leave to amend. (See Order, ECF
No. 69 (filed Oct. 24, 2014).)

After extensive jurisdictional

discovery, Plaintiffs filed the amended complaint on April 28,
2016.

On June 10, 2016, Defendants moved to dismiss. (See Mot.

to Dismiss, ECF No. 123 (filed June 10, 2016).)
On June 30, 2017, the court granted in part Defendants’
motion to dismiss (the “June 30 Order”), holding that
Plaintiffs’ derivative federal securities claim was barred by
res judicata based on Judge Crotty’s decision in Steinberg v.
Dimon, No. 14 Civ. 688(PAC), 2014 WL 3512848 (S.D.N.Y. July 16,
2014).

In Steinberg, a shareholder brought a derivative suit

against JPMorgan and fifteen JPMorgan directors for breach of
fiduciary duty, wasting corporate assets, unjust enrichment, and
violation of Section 14(a) of the Exchange Act, in connection
with, among other things, JPMorgan’s involvement in the subprime
RMBS market. See Steinberg, 2014 WL 3512848, at *1.

Judge

Crotty dismissed the complaint for insufficiently pleading
demand futility under Rule 23.1. Id. at *5.

In its June 30

Order, the court found that the demand futility dismissal in
Steinberg was a final judgment on the merits because Judge
Crotty treated the pleading deficiency as a fatal error that
could not be cured. (See Order at 20-21, ECF No. 141 (filed June
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30, 2017) [hereinafter June 30 Order].)

Second, the court found

that the parties in this action and in Steinberg are in privity
because (1) a majority of courts have held that shareholders
asserting derivative suits are in privity, and (2) the
defendants in both actions are in privity because “[a]ltering
the mix of director-defendants does not bar claim preclusion
unless defendants named only in the second suit either were
inadequately represented in the prior suit or were unknown or
unavailable at the time of the prior suit.” (Id. at 22.)

Third,

the court held that the Section 14(a) claims in both this action
and in Steinberg relied on allegations that JPMorgan’s 2011 and
2012 Proxy Statements contained false or misleading statements
regarding effective oversight of risk management, and therefore
arise from the same basic events. (Id. at 25-26.)

Thus, because

Plaintiffs’ federal claim could have been brought in Steinberg,
the district court held that claim preclusion barred Plaintiffs
from bringing their Section 14(a) claim in this action and
dismissed the federal claim with prejudice. (Id. at 26.)
The court also ruled that the Eastern District of
California did not have personal jurisdiction over the
individual Defendants as to the remaining state law fiduciary
claims because Plaintiffs did not sufficiently allege facts
showing Defendants purposefully directed their activities
towards California. (Id. at 31.)

Rather than dismissing
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Plaintiffs’ state law claims, the court transferred the action
to this Court, where personal jurisdiction is not contested.
(Id. at 32-33.)

On January 17, 2018, Defendants moved to

dismiss the amended complaint, arguing that Plaintiffs’ state
law claims are precluded by res judicata and collateral estoppel
based on demand futility dismissals in three prior shareholder
derivative actions, including Steinberg,1 and, in the
alternative, Plaintiffs have failed to adequately allege that
demand on the Board is excused. (See Defs.’ Mem of L. in Supp.
of Mot. to Dismiss, ECF No. 154 (filed Jan. 17, 2018).)
II.
A.
1.

Discussion
Res Judicata
Legal Standard

“[W]hen determining the claim-preclusive effect of a
dismissal by a federal court sitting in diversity, courts apply
federal common law, which is ‘the law that would be applied by
state courts in the State in which the federal diversity court
sits.’” In re Mirena IUD Prod. Liab. Litig., No. 13-MC-2434 CS,
2015 WL 5037100, at *3 (S.D.N.Y. Aug. 26, 2015) (quoting Semtek
Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001));
see also NAS Elecs., Inc. v. Transtech Elecs. PTE Ltd., 262 F.

1

Defendants argue that Plaintiffs’ state law claims are also precluded
by the demand futility dismissals in Siegel v. J.P. Morgan Chase &
Co., 2012 WL 8161652 (N.Y. Sup. Ct. Aug. 16, 2012), and Asbestos
Workers Philadelphia Pension Fund v. Bell, 43 Misc.3d 1204(A) (N.Y.
Sup. Ct. 2014).

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Supp. 2d 134, 143 (S.D.N.Y. 2003) (“[W]hen a federal court
sitting in diversity applies state substantive law as the rule
of decision in a case, the preclusive effect of any decision by
the federal court in that case is to be determined by the state
preclusion law of the state in which the district court sits.”).
Steinberg was decided by a Court in this district, thus, New
York res judicata law applies.2
Under New York law, res judicata, or claim preclusion,
“bars successive litigation based on the same transaction or
series of connected transactions” if there is a “judgment on the
merits” and “the party against whom the doctrine is invoked was
a party to the previous action, or in privity with a party who
was.” People ex rel. Spitzer v. Applied Card Sys., Inc., 11
N.Y.3d 105, 122 (2008) (internal quotation marks omitted).

The

doctrine of res judicata prevents parties to the prior action or
those in privity with them “from raising in a subsequent
proceeding any claim they could have raised in the prior one,
where all of the claims arise from the same underlying
transaction.” Schulz v. Williams, 44 F.3d 48, 53 (2d Cir. 1994).

2

Both parties concede that even if federal preclusion law applied to
Steinberg’s demand futility dismissal, the result is the same because
there is no material difference between federal and New York law
considering res judicata. (See Defs.’ Mem. of L. in Supp. of Mot. to
Dismiss at 5 n.2; Pls.’ Mem. of L. in Opp’n to Defs.’ Mot. to Dismiss
at 9 n.5.)

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2.

Analysis

The Court agrees that Plaintiffs’ claims are barred by res
judicata based on the demand futility dismissal in Steinberg.
First, the dismissal in Steinberg was a final judgment on the
merits.

The court in Henik ex rel. LaBranche & Co. v. LaBranche

held that dismissal of a derivative complaint for failure to
plead demand futility is a “decision on the merits” for purposes
of res judicata, because the demand requirement “is clearly a
matter of ‘substance’ and not ‘procedure.’” 433 F. Supp. 2d 372,
379 (S.D.N.Y. 2006) (quoting Kamen v. Kemper Fin Servs., Inc.,
500 U.S. 90, 96-97 (1991).

Further, Plaintiffs concede that the

demand futility dismissal in Steinberg was a final judgment on
the merits for purposes of res judicata. (See Oral Arg. Tr.
20:19-21:3.)
Second, the parties in Steinberg are in privity with the
parties in this action.

As to the shareholder plaintiffs, “the

prevailing rule [is] that the shareholder in a derivative suit
represents the corporation,” and “if the shareholder can sue on
the corporation’s behalf, it follows that the corporation is
bound by the results of the suit in subsequent litigation, even
if different shareholders prosecute the suits.” In re Sonus
Networks, Inc., 499 F.3d 47, 64 (1st Cir. 2007).

In Henik, the

court held that different shareholders in separate derivative
suits are in privity because “the true plaintiff in [derivative
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suits] is the [] corporation.” Henik, 433 F. Supp. 2d at 380;
see also City of Providence v. Dimon, No. CV 9692-VCP, 2015 WL
4594150, at *7 (Del. Ch. July 29, 2015) (“Under New York law, a
later stockholder asserting derivative claims on behalf of a
corporation is considered to be the ‘same plaintiff’ as a
different stockholder asserting those claims on behalf of the
corporation in a separate action.”).

Accordingly, Plaintiffs

and the plaintiff in Steinberg, Chaile Steinberg (“Steinberg”),
are in privity for res judicata purposes.
As to the Director Defendants, Plaintiffs contend that
Steinberg did not involve the same parties because “the
Steinberg complaint named defendants that the Amended Complaint
does not . . . and did not name three Director Defendants—
Timothy Flynn, William Harrison, Jr., and Robert Lipp—named in
the Amended Complaint.” (Pls.’ Mem. of L. in Opp’n to Defs.’
Mot. to Dismiss at 12, ECF No. 156 (filed Jan. 17, 2018).)
However, the doctrine of res judicata “bar[s] claims against
parties not named in [a] prior suit.” In re Bear Stearns
Companies, Inc. Sec., Derivative, & ERISA Litig., 763 F. Supp.
2d 423, 545 (S.D.N.Y. 2011); see also Cameron v. Church, 253 F.
Supp. 2d 611, 623 (S.D.N.Y. 2003) (“Res judicata operates to
preclude claims, rather than particular configurations of
parties; Plaintiff’s addition of new defendants . . . does not
entitle him to revive the previously-dismissed claims.”).
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Indeed, as the court noted in its June 30 Order, “[a]ltering the
mix of director-defendants does not bar claim preclusion unless
defendants named only in the second suit either were
inadequately represented in the prior suit or were unknown or
unavailable at the time of the prior suit.” (June 30 Order at
22)3; see also Taylor v. Sturgell, 553 U.S. 880, 894 (2008)
(nonparty may be bound by a judgment in another lawsuit in
certain limited circumstances because she was adequately
represented by someone with the same interests who was a party
to that suit).

Plaintiffs do not argue that the Director

Defendants named only in this action were unavailable when the
plaintiff in Steinberg filed suit, nor that the Director
Defendants named in the prior suit were inadequately
represented.

As the court noted in its June 30 Order, the two

suits were filed within one month of each other, which
reinforces the conclusion that each Director Defendant named
here was known and available at the time Steinberg was filed.
(See June 30 Order at 22.)

Thus, the parties here are in

privity with the parties in Steinberg.
Third and finally, the state law claims in this action
arise from the same transaction or series of transactions as the
claims in Steinberg.

Res judicata “applies not only to claims

3

Cited at In re JPMorgan Chase Derivative Litig., 263 F. Supp. 3d 920
(E.D. Cal. 2017).

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actually litigated but also to claims that could have been
raised in the prior litigation.” In re Hunter, 4 N.Y.3d 260, 269
(2005).

Plaintiffs argue that res judicata does not bar their

claims in this action because “the focus and factual allegations
herein are distinct from those present in” Steinberg. (Pls.’
Mem. of L. in Opp’n to Defs.’ Mot to Dismiss at 13.)

However,

“[u]nder New York's ‘transactional analysis’ approach to res
judicata, ‘once a claim is brought to a final conclusion, all
other claims arising out of the same transaction or series of
transactions are barred, even if based upon different theories
or if seeking a different remedy.’” City of Providence, 2015 WL
4594150, at *7 (quoting In re Hunter, 4 N.Y.3d at 269).

Under

New York law, courts use a “pragmatic test” to determine whether
particular claims are part of the same transaction for res
judicata purposes, analyzing “whether the facts are related in
time, space, origin, or motivation, whether they form a
convenient trial unit, and whether their treatment as a unit
conforms to the parties’ expectations or business understanding
or usage[.]” Xiao Yang Chen v. Fischer, 6 N.Y.3d 94, 100-01
(2005) (internal quotation marks and citation omitted).

Thus,

the final inquiry of the res judicata analysis is not whether
the claims in Steinberg are factually identical, but whether
they arise from the same basic series of events.

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In Steinberg, the plaintiff alleged that the Defendants
breached their fiduciary duties by “abdicating their
responsibilities to properly supervise and adequately oversee”
JPMorgan’s RMBS business and “allow[ing] JPMorgan to commit
multiple fraudulent and deceptive acts in promoting and selling
subprime RMBS.” (Steinberg Compl. ¶ 99, Baskin Decl. Ex. D, ECF
No. 155-4 (filed Jan. 17, 2018).)

Steinberg alleged that

Defendants led investors to believe that JPMorgan had carefully
evaluated the quality of the loans in their RMBS. (Id. ¶¶ 99,
162.)

However, in reality “JPMorgan systematically failed to

fully evaluate the loans, largely ignored the defects that its
limited review did uncover, and concealed from investors both
the inadequacy of the company’s review procedures and the
defects in the underlying mortgage loans.” (Id. ¶¶ 99, 108,
162.)

Steinberg alleged that JPMorgan’s 2011, 2012, and 2013

Proxy Statements included materially false and misleading
statements regarding the Board’s role in risk oversight—
including that “[r]obust risk management and compensation
recovery policies deter excessive risk-taking and improper risk
management”—because they did not disclose the true nature of
JPMorgan’s risk management structure. (Id. ¶¶ 174, 176, 183.)
Both Steinberg’s claims and the state law claims in this
action allege breach of fiduciary duties in connection with the
issuance and sale of RMBS from 2005 to 2007, including
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Defendants’ failure to implement internal controls and
appropriate underwriting practices, failure to exercise
sufficient oversight and risk management, and participation in
the issuance of fraudulent and misleading representations and
omissions of material fact regarding JPMorgan’s origination,
securitization, and sale of RMBS. (Compare Am. Compl. ¶¶ 118291, with Steinberg Compl. ¶¶ 96-201.)

Thus, Plaintiffs’ state

law claims could have been brought in Steinberg.
Plaintiffs argue that the demand futility dismissal in
Steinberg does not bar Plaintiffs’ state law claims because the
complaint in Steinberg did not include allegations regarding
“the focus on the Defendants’ conduct targeting California in
their RMBS strategy” including “seeking out loan pools that
originated in or were acquired by dubious California-based
originators.” (Pls.’ Mem. of L. in Opp’n to Defs.’ Mot. to
Dismiss at 12-13.)

However, the California-specific allegations

in the amended complaint do not bar the application of res
judicata.

The allegations in Steinberg related to JPMorgan’s

RMBS activities throughout the United States. (See Steinberg
Compl. ¶¶ 96, 157.)

Thus, any California-specific allegations

arise from the same transaction or series of transactions as
those in Steinberg—namely JPMorgan’s nationwide RMBS activities,
and the Board’s oversight of those activities.

Indeed, the

court held in its June 30 Order that “Plaintiffs’ new
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allegations do not show [D]efendants consciously decided to
package more mortgage loans [in California] than in other
states, or that any defendant specifically discussed, proposed
qr approved a California-focused policy." (June 30 Order at 31.)
Accordingly, Plaintiffs' claims are barred by res judicata.
CONCLUSION

For the reasons stated above, Defendants' motion to dismiss
the amended complaint is GRANTED and Plaintiffs' claims are
dismissed with prejudice.

The Clerk of Court is respectfully

directed to terminate the motion docketed at ECF No. 153 and to
close this case and remove it from the docket of this Court.
SO ORDERED.

Dated:

New York, New York
May 2. J , 2018

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