FULL TEXT Espinoza v. Dimon London Whale Shareholder Derivative Suit

June 17, 2015

On May 23, 2012, Ernesto Espinoza, a JPMorgan Chase shareholder, sent a letter to the Board demanding an investigation of the "London Whale" debacle and pointedly asked for an investigation of the:

  • failure of JPMorgan's risk‐management policies,
  • dissemination of false or misleading information about the scandal, and 
  • extent to which JPMorgan had repurchased stock at inflated prices due to the failure to disclose the losses.
Following the requested investigation, Espinoza further demanded that the company sue the responsible individuals and claw back previously-awarded salary and bonuses. Finally, he sought to have JPMorgan improve corporate governance and implement better risk controls. 

Upon the refusal of the Board to comply with his demands, Espinoza filed a shareholder derivative suit in the Southern District of New York ("SDNY") seeking to compel JPMorgan Chase to take action against the corporate officers allegedly responsible for over $6 billion in losses sustained by the firm during the "London Whale" debacle - and also against several executives who disseminated misleading statements about those losses. 

On March 31, 2014, SDNY dismissed the Complaint for failure to state a claim because the pleading did not show that the Board had failed to exercise appropriate business judgment in rejecting the demand. Espinoza had asked for leave to amend if his Complaint were dismissed but SDNY declined that option and entered judgment for the Defendants.

On appeal, the United States Court of Appeals for the Second Circuit ("2Cir") noted (with much disapproval) that it was constrained to review the SDNY's dismissal only for abuse of discretion and not via the more expansive de novo review. Pursuant to that more restrictive review, the 2Cir concluded that SDNY did not abuse its discretion by dismissing the complaint; and,accordingly, affirmed the grant of the motion to dismiss. Because Espinoza failed to identify new allegations that fix the problem with his original Complaint, 2Cir affirmed SDNY's decision to implicitly deny leave to amend.


Ernesto Espinoza, Derivatively on Behalf of JPMorgan Chase & Co., Plaintiff/Appellant v. Jamie Dimon, et. al Defendants/Appellees (Opinion, United States Court of Appeals for the Second Circuit, 14-1754, June 16, 2015)