Opinion
650079/14, 1097, 1096.
05-10-2016
Sam WIETSCHNER, derivatively on behalf of JPMORGAN CHASE & CO., Plaintiff–Appellant, v. James DIMON, et al., Defendants–Respondents, JPMorgan Chase & Co., Nominal Defendant–Respondent.
Lifshitz & Miller, Garden City (Edward W. Miller of counsel), for appellant. Wachtell, Lipton, Rosen & Katz, New York (John F. Savarese of counsel), for James Dimon and JPMorgan Chase & Co., respondents. Shearman & Sterling LLP, New York (Stuart J. Baskin of counsel), for Laban P. Jackson, Jr., James C. Crown, William C. Weldon, Crandall C. Bowles, James A. Bell, Stephen B. Burke, Lee R. Raymond, Timothy P. Flynn, David M. Cote, Ellen V. Futter, and David C. Novak, respondents.
Lifshitz & Miller, Garden City (Edward W. Miller of counsel), for appellant.
Wachtell, Lipton, Rosen & Katz, New York (John F. Savarese of counsel), for James Dimon and JPMorgan Chase & Co., respondents.
Shearman & Sterling LLP, New York (Stuart J. Baskin of counsel), for Laban P. Jackson, Jr., James C. Crown, William C. Weldon, Crandall C. Bowles, James A. Bell, Stephen B. Burke, Lee R. Raymond, Timothy P. Flynn, David M. Cote, Ellen V. Futter, and David C. Novak, respondents.
MAZZARELLI, J.P., RENWICK, SAXE, GISCHE, KAHN, JJ.
Orders, Supreme Court, New York County (Marcy S. Friedman, J.), entered August 18, 2015, which granted defendants' motion to dismiss the amended complaint, and denied plaintiff's motion for leave to amend, unanimously affirmed, without costs.
The motion court dismissed one cause of action on the ground of res judicata and the other on the ground of collateral estoppel, based on federal rulings that plaintiffs in other shareholder derivative actions had failed to allege particularized facts to support their claims of demand futility (see Steinberg v. Dimon, 2014 WL 3512848, 2014 U.S. Dist. LEXIS 96838 [S.D.N.Y.2014] ; Central Laborers' Pension Fund v. Dimon, 2014 WL 3639185, 2014 U.S. Dist. LEXIS 100874 [S.D.N.Y.2014], affd. 638 Fed.Appx. 34, 2016 WL 66501 [2nd Cir. Jan. 06, 2016] ). The amended complaint should be dismissed in its entirety as precluded under the doctrine of res judicata. The claims in this action and in the federal actions arose from the same series of transactions involving the directors' oversight of a corporate anti-money laundering program (see Landau, P.C. v. LaRossa, Mitchell & Ross, 11 N.Y.3d 8, 12–13, 862 N.Y.S.2d 316, 892 N.E.2d 380 [2008] ), and, aside from the different time periods alleged regarding the directors' lack of oversight, had the same origin and formed a convenient trial unit (see Xiao Yang Chen v. Fischer, 6 N.Y.3d 94, 100–101, 810 N.Y.S.2d 96, 843 N.E.2d 723 [2005] ). That the complaints set forth different theories of recovery and that the claims in the instant action were not actually raised in the federal actions present no impediments to application of the doctrine (see Landau, P.C. v. LaRossa, Mitchell & Ross, 11 N.Y.3d at 12–13, 862 N.Y.S.2d 316, 892 N.E.2d 380 ; Matter of Hunter, 4 N.Y.3d 260, 269, 794 N.Y.S.2d 286, 827 N.E.2d 269 [2005] ). The dismissals for failure to adequately allege demand futility were on the merits and entitled to res judicata effect (see Levin v. Kozlowski, 13 Misc.3d 1236[A], 2006 N.Y. Slip Op. 52142[U], 2006 WL 3317048 [Sup.Ct., N.Y. County 2006] [differentiating derivative demand rule from ordinary standing], affd. 45 A.D.3d 387, 846 N.Y.S.2d 37 [1st Dept.2007] ; Henik v. LaBranche, 433 F.Supp.2d 372, 379 [S.D.N.Y.2006] ; cf. Tap Holdings, LLC v. Orix Fin. Corp., 109 A.D.3d 167, 177, 970 N.Y.S.2d 178 [1st Dept.2013] [dismissal on the ground of demand futility in a limited liability company derivative action is not on the merits for res judicata purposes] ).
In view of the foregoing, it is unnecessary to address whether collateral estoppel precludes any portion of the amended complaint; in any event, because the inadequacy of the demand futility allegations prevents this action from going forward, the effect of both preclusion doctrines is the same (see Asbestos Workers Local 42 Pension Fund v. Bammann, 2015 WL 2455469, *15 [Del.Ch.2015], affd. for reasons assigned 132 A.3d 749, 2016 WL 353210, 2016 Del. LEXIS 40 [Del.2016] ).
In any event, plaintiff failed to allege particularized facts evincing a reasonable doubt as to the board's ability to exercise its independent judgment in responding to a demand, such as a substantial likelihood of personal liability (see Simon v. Becherer, 7 A.D.3d 66, 72, 775 N.Y.S.2d 313 [1st Dept.2004] ). The exculpatory clause in the nominal defendant's certificate of incorporation insulated the directors from liability for breach of fiduciary duty, and plaintiff failed to sufficiently allege bad faith or breach of the duty of loyalty through the “utter” failure to attempt to implement the anti-money laundering compliance program or the “conscious disregard” of “red flags” providing notice of the alleged oversight deficiencies (see Asbestos Workers Phila. Pension Fund v. Bell, 137 A.D.3d 680, 29 N.Y.S.3d 274 (1st Dept.2016) ; Wandel v. Dimon, 135 A.D.3d 515, 516, 518, 23 N.Y.S.3d 200 [1st Dept.2016] ).
Leave to amend was properly denied for lack of merit of the proposed pleading (see 2470 Cadillac Resources, Inc. v. DHL Exp. [USA], Inc., 129 A.D.3d 527, 10 N.Y.S.3d 430 [1st Dept.2015] ).