ERISA-Second Circuit Affirms That Plaintiff’s Complaint, Alleging Breach Of Fiduciary Duty Under ERISA, Was Wholly Conclusory And Must Be Dismissed

In Loeza v. JPMorgan Chase & Co., No. 16-222-cv (2nd Cir. 2016) (Unpublished), the plaintiffs were appealing a judgment of the district court dismissing their complaint (the “Complaint”). The plaintiffs had alleged that certain fiduciaries of the JPMorgan Chase & Co. 401(k) Savings Plan (the “Plan”) breached the duty of prudence owed to Plan participants under ERISA. They stated, in their Complaint, that the defendants, who are JPMorgan corporate insiders and named fiduciaries of the Plan, were imprudent in failing to prevent the Plan from purchasing JPMorgan stock at a price inflated by alleged securities fraud related to certain trading activities undertaken by the firm’s Chief Investment Office (the “CIO”). The district court’s dismissal was based on the conclusion that the plaintiff’s Complaint failed to satisfy the applicable pleading requirements articulated by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer and Amgen Inc. v. Harris.  

More specifically, the plaintiffs alleged in their Complaint that defendants Douglas Braunstein and James Wilmot knew that the CIO had taken risky trading positions and helped circumvent JP Morgan’s internal risk controls. Such facts allegedly should have been publicly disclosed under the federal securities laws. Their belated disclosure allegedly caused JPMorgan’s stock price to fall by approximately 16% in one day. Further, the plaintiffs alleged in their Complaint that Braunstein and Wilmot could have discharged their duty of prudence and prevented harm to the Plan either by freezing its purchases of JPMorgan stock or publicly disclosing the CIO-related securities fraud. The Complaint further alleges that these remedial measures would not have caused the Plan more harm than good because the longer a fraud goes on, the more painful the stock price correction would be, as experienced finance executives like Wilmot and Braunstein reasonably should have known, and the longer Wilmot and Braunstein allowed Plan participants to be harmed by JPMorgan’s fraud, the greater the harm to Plan participants they permitted.

The district court concluded that the Complaint failed to plausibly allege that a prudent fiduciary could not conclude that freezing purchases or disclosing the alleged securities fraud would cause the Plan “more harm than good,” as is required to be alleged by Fifth Third Bancorp and Amgen. It dismissed the Complaint on that ground. The plaintiffs appealed, arguing that the Complaint satisfies the “more harm than good” prong of Fifth Third Bancorp. Upon reviewing the case, the Second Circuit Court of Appeals (the “Court”) stated that it reviewed the Complaint’s allegations in the foregoing regard and concluded that they are wholly conclusory and materially indistinguishable from the allegations that the Supreme Court found insufficient in Amgen. Therefore, the Court ruled that the district court had properly dismissed the plaintiff’s complaint.

 

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