Loeza v. Doe et al.: Second Circuit Dismisses ERISA Complaint for Failure to Allege Preventing Harm Would Not Cause "More Harm Than Good."

In Loeza v. Doe et al., No. 16-222-cv, 2016 BL 292694 (2d Cir. Sept. 08, 2016), the United States Court of Appeals for the Second District dismissed the putative class action of current and former employees (“Plaintiffs”) of JPMorgan Chase & Co. ("JPMorgan"). The court found that the Complaint failed to plausibly allege that the named fiduciaries (“Defendants”) of the JPMorgan 401(k) Savings Plan (the "Plan") breached the duty of prudence owed to Plan participants under the Employee Retirement Income Security Act ("ERISA").

According to the allegations, Plaintiffs participated in the Plan and invested portions of their retirement in the JPMorgan Common Stock Fund (the "Fund").  The Fund primarily invested in JP Morgan Stock and, as a result, fell under ERISA. Plaintiffs alleged that defendants-appellees Douglas Braunstein and James Wilmot should have prevented the Fund from purchasing JPMorgan stock at an inflated price because they knew the firm's Chief Investment Officer (the "CIO") had taken risky trading positions and helped circumvent JPMorgan's internal risk controls. Braunstein and Wilmot allegedly could have discharged their duty of prudence and prevented harm to the Fund by either freezing its purchases of JPMorgan stock or through public disclosure as required under federal securities laws. According to Plaintiffs, by allowing the fraud to continue, Braunstein and Wilmot created a “more painful” stock price correction, and therefore increased the amount of harm to Plan participants, allegedly causing JPMorgan's stock price to fall by approximately 16% in one day. The Plaintiffs argue that the remedial measures would not have caused the Fund “more harm than good.”

ERISA requires the fiduciaries of a pension plan to act prudently in managing the plan's assets. Fifth Third Bancorp establishes new pleading standards regarding ERISA fiduciaries breaching their duty of prudence.  134 S. Ct. 2459 (2015).  To state a claim for breach of the duty of prudence, a complaint must plausibly allege a legal alternative action that the defendant could have taken that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than benefit it.

The district court granted Defendants' motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failing to allege that the challenged actions would cause the Fund “more harm than good.” The court reviewed the district court's decision de novo to determine whether the Complaint satisfied the "more harm than good" prong of Fifth Third Bancorp.

The U.S. Court of Appeals for the Second District affirmed the district court's judgment, finding the allegations “wholly conclusory and materially indistinguishable from the allegations that the Supreme Court found insufficient” in Amgen Inc. v. Harris, 136 S.Ct. 758 (2016). 

The primary material for this case can be found on the DU Corporate Governance Website.

Sophie Fritz