JPMorgan Dodges ERISA Liability Tied to ‘London Whale' Trades

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By Jacklyn Wille

Jan. 11 — JPMorgan Chase & Co. once again defeated a lawsuit challenging losses in its 401(k) and employee stock ownership plans, despite an intervening U.S. Supreme Court decision changing the standard for these types of claims.

The proposed class action accuses JPMorgan of knowingly exposing its workers' retirement savings to company stock losses caused by risky investments made by a trader, Bruno Iksil, nicknamed “the London Whale,” whose large derivatives market bets resulted in a $6.2 billion trading loss for the company in 2012. A federal judge in New York dismissed the suit for the second time on Jan. 8, finding that the workers failed to state a valid claim for Employee Retirement Income Security Act violations, despite the Supreme Court's recent decision reworking the pleading standard for ERISA-based stock-drop actions (Fifth Third Bancorp v. Dudenhoeffer, 134 S.Ct. 2459, 58 EBC 1405 (U.S. 2014) (123 PBD, 6/26/14)).

According to the judge, the workers challenging JPMorgan's decision to keep declining company stock in the 401(k) plan failed to allege any viable action the company could have taken instead of continuing to offer the stock. In the judge's view, halting investments in JPMorgan stock would have required public disclosures, and the company could have reasonably concluded that those disclosures would have harmed stock price—and thus the workers' retirement savings—even more than keeping the stock in the plan.

In so ruling, the judge applied the Supreme Court's recent decision In Dudenhoeffer, which invalidated the defendant-friendly presumption of prudence that many federal courts had used to dismiss ERISA lawsuits challenging drops in company stock price. Since Dudenhoeffer came down, district judges have been trying to determine whether the decision—which also articulates new pleading requirements in ERISA stock-drop suits—makes things easier or harder for workers challenging drops in company stock price.

This decision by Judge George B. Daniels of the U.S. District Court for the Southern District of New York interprets Dudenhoeffer as setting a high hurdle for workers to clear, possibly higher than the one in place before the decision was released. Daniels's decision is in line with other post-Dudenhoeffer rulings rejecting stock-drop claims against State Street Bank & Trust Co., BP PLC, Lehman Brothers and Hewlett-Packard Co.

Other judges have read Dudenhoeffer as being more protective of workers, giving the green light to stock-drop suits against Eastman Kodak Co., Bank of New York Mellon Corp. and Invacare Corp.

Fiduciary Status

In granting JPMorgan's motion to dismiss, Daniels first found that the workers failed to demonstrate that two of the defendants—JPMorgan Case Bank NA and the parent company—qualified as ERISA fiduciaries for purposes of the stock-drop lawsuit.

According to Daniels, JPMorgan Chase Bank's status as the plan's sponsor didn't render it an ERISA fiduciary for purposes of this lawsuit, because actions taken as a plan sponsor don't trigger fiduciary liability under ERISA. JPMorgan Chase Bank's role as the plan trustee was similarly insufficient, Daniels said, because it operated as a directed trustee that lacked discretion to halt investments in company stock.

Daniels dismissed the workers' fiduciary breach claims against the parent company on similar grounds, explaining that they had raised only “bare legal conclusions” as to the firm's fiduciary status.

Applying Dudenhoeffer

With respect to the other defendants—which included the company's 401(k) plan, its investment committee and various corporate officers, including Chief Executive Officer Jamie Dimon—the court said that the workers' claims of fiduciary breach failed to satisfy the pleading requirements set forth in Dudenhoeffer.

According to the court, Dudenhoeffer requires plan participants who challenge a plan's decision to continue investing in declining company stock to point to an alternative course of action that plan fiduciaries could have taken that wouldn't have been more likely to harm the plan.

Although the JPMorgan workers alleged that plan fiduciaries could have halted new purchases of JPMorgan stock or informed the public about the purported misconduct, the court said that both of these actions would have required public disclosures that arguably could have caused the value of JPMorgan stock to drop even further.

According to the court, Dudenhoeffer requires stock-drop plaintiffs to “plead enough facts to plausibly allege that a prudent fiduciary in Defendants' circumstances would not have believed that public disclosures of JPMorgan's purported misconduct were more likely to harm than help the fund.”

Because the assertions raised by the workers here were “not particular to the facts of this case” and “could be made by plaintiffs in any case asserting a breach of ERISA's duty of prudence,” the court granted JPMorgan's motion to dismiss.

This Jan. 8 ruling was the second time Daniels dismissed the workers' claims against JPMorgan. In March 2014, he granted the company's motion to dismiss while applying pre-Dudenhoeffer precedent (63 PBD, 4/2/14).

The workers were represented by Brower Piven and Gilman Law. The JPMorgan defendants were represented by Sullivan & Cromwell.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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