Espinoza v. Dimon, et al.

The United States Court of Appeals for the Second Circuit certified a question of Delaware law to the Delaware Supreme Court: "If a shareholder demands that a board of directors investigate both an underlying wrongdoing and subsequent misstatements by corporate officers about that wrongdoing, what factors should a court consider in deciding whether the board acted in a grossly negligent fashion by focusing its investigation solely on the underlying wrongdoing?" The plaintiffs in this case made a demand that the board of JPMorgan Chase & Co. investigate two related issues regarding a high-profile situation, what the Second Circuit has called the "London Whale debacle." According to the Second Circuit, these issues were: (1) the failure of JPMorgan‘s risk management policies to prevent the trading that resulted in corporate losses; and (2) supposed false and misleading statements made by JPMorgan management in the wake of the emergence of the problem. According to the plaintiffs, the board investigative committee only made findings as to the former issue by arguing that what management knew when it made disclosures was the subject of several pages of the report. In the Delaware Supreme Court's view, Delaware law on the relevant topic required that the decision of an independent committee to refuse a demand should only be set aside if particularized facts were pled supporting an inference that the committee, despite being comprised solely of independent directors, breached its duty of loyalty, or breached its duty of care, in the sense of having committed gross negligence. The Court concluded that the determination of what constituted gross negligence in the circumstances by definition required a review of the relevant circumstances facing the directors charged with acting. The Court requested more information from the Second Circuit prior to answering the certified question. View "Espinoza v. Dimon, et al." on Justia Law