NEW YORK (Reuters) - JPMorgan Chase & Co shareholders cannot pursue a lawsuit to force Chief Executive Jamie Dimon and other officials to pay damages to the largest U.S. bank for their alleged ignorance of red flags signaling Bernard Madoff’s Ponzi scheme, a federal appeals court ruled on Wednesday.
The 2nd U.S. Circuit Court of Appeals in Manhattan upheld a lower court dismissal of claims that Dimon and 12 other executives and directors breached their duties by turning a blind eye to Madoff, an important client for two decades, to maintain the bank’s lucrative relationship with him.
Citing applicable Delaware law, the appeals court said the shareholders did not show that the defendants “utterly failed to implement any reporting or information system or controls” that might have caught Madoff’s fraud.
It acknowledged that this standard is “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.”
The Steamfitters Local 449 Pension Fund in Pittsburgh and the Central Laborers’ Pension Fund in Jacksonville, Illinois, which were JPMorgan shareholders, had argued that they needed to show only the defendants’ utter failure to try to implement “reasonable” controls, rather than “any” controls.
JPMorgan is based in New York but incorporated in Delaware.
Madoff, 77, is serving a 150-year prison term after pleading guilty to fraud in March 2009, three months after his scheme was uncovered.
A lawyer for the shareholders did not immediately respond to requests for comment.
JPMorgan spokesman Brian Marchiony declined to comment. A lawyer for the bank directors did not immediately respond to requests for comment.
Wednesday’s decision upheld a July 2014 dismissal by U.S. District Judge Paul Crotty in Manhattan.
The lawsuit began after JPMorgan agreed to pay $2.6 billion to settle other Madoff-related litigation, and enter a “deferred prosecution agreement” with federal prosecutors under which the bank acknowledged responsibility for failing to stop Madoff.
The case is Central Laborers’ Pension Fund et al v. Dimon et al, 2nd U.S. Circuit Court of Appeals, No. 14-4516.