In a decision yesterday, Judge Forrest denied a motion to dismiss a proposed class action challenging JP Morgan’s decision to hold onto certain notes from Lehman Brothers as the firm was collapsing. Judge Jones, before leaving the bench, had dismissed an earlier version of the complaint as based on conclusory “hindsight” (see our prior post on Judge Jones’ decision). Judge Forrest came to the opposite conclusion, based on the updated allegations:
According to the allegations in the TAC [Third Amended Complaint], [JP Morgan] was intended to follow a conservative investment strategy, that preservation of principal was primary. The law requires that prudence be based on whether the objectives of the investment strategy at issue were followed. That is more than simply whether the initial investment Guidelines were followed (a point which plaintiff does not contest except as to the Lehman Note acquired in 2007), it goes to what “prudence” means with respect to the Plan at issue. Plaintiff alleges that this conservative investment strategy meant that acting prudently required reducing risk as the chances of a Lehman default grew; that prudence meant that taking a gamble that Lehman would survive its then apparent crisis was not an appropriate strategy . . . . The TAC also contains detailed factual allegations that, despite these investment objectives, when individuals within JPM . . . were exposed to information regarding increased risk exposure for Lehman investments, they failed to take appropriate action with respect to the Plan’s investments. The TAC alleges that a variety of information should have made it clear to defendant that sale or mitigation of risk with respect to the Lehman Notes was appropriate – but that neither was done. Further, the TAC alleges that there were a number of specific analyses that defendant could have performed, and as to which plaintiff proposes to have an expert testify, that would have revealed that defendant should take action with respect to the Lehman Notes, but that, again, it did not.
Judge Forrest’s opinion is notable because she indicates at the outset that she will move this case along swiftly (a topic we have covered before, see here, here and here):
There are still those times when an action can be filed, three years tick by, and parties find themselves at the pleading stage, at the starting gate as it were, with horses that may or may not be pawing at the ground. Such a passage of time while remaining at the starting gate may signal its own form of success for one side or the other – or not. In any event, three years is simply too long for a case to be at the pleading stage. However, in this case, that is precisely where the parties and this Court find themselves. This Opinion and Order, however, ends that long process. It is accompanied by a commitment from this Court, to whom this matter has been transferred, to proceed without additional delay to resolution of this action.