Wagley v. JPMorgan Chase Bank, N.A.

Background

Mary Frances Wagley, James Wagley, Anne Wagley, and Mary Copp sued as beneficiaries of the Mary Penney Wagley Irrevocable Trust. Chase administered the Trust as trustee. The Amended Complaint alleged that Chase and related JPMorgan entities directed Trust assets into unsuitable or self-interested investments, including proprietary funds and other investments that generated fees or other benefits for JPMorgan affiliates. Plaintiffs also alleged that the Trust’s performance lagged behind comparable trusts and market benchmarks, and that Chase failed to disclose conflicts, fees, and other information or provide a requested accounting.

The Amended Complaint asserted three types of claims: breach of fiduciary duty against Chase; aiding and abetting breach of fiduciary duty against JPMorgan Chase & Co.; and unjust enrichment against JPMorgan Investment Management, JPMorgan Distribution Services, and JPMorgan Securities. Plaintiffs sought damages, an accounting, forfeiture of fees, and disgorgement of gains and other benefits.

Motion to Dismiss

The defendants moved under the federal pleading standard to dismiss all claims as barred by statutes of limitations. They also argued that the unjust-enrichment claims failed because the complaint did not adequately allege that the relevant affiliates received fees at the plaintiffs’ expense.

Fiduciary-Duty Claims

The court held that the fiduciary-duty claims sought monetary relief, so New York’s three-year limitations period applied. The court rejected plaintiffs’ arguments that the claims were governed by a six-year period for equitable relief or by a special discovery rule for fraud. The complaint’s allegations of concealment were incidental to the fiduciary-duty claims rather than a separate fraud claim.

The court nevertheless held that the plaintiffs adequately alleged equitable estoppel. Equitable estoppel can prevent a defendant from relying on a limitations defense when the defendant’s conduct concealed the claim or induced the plaintiff to delay filing suit. The court found that the alleged refusals to provide a full accounting, denials of wrongdoing, and later admission that Chase had incorrectly charged the Trust $188,245.72 were sufficient at the pleading stage. The court also found that the plaintiffs adequately alleged diligence beginning January 16, 2015.

The court further concluded that the claims accrued when damages were sustained, not necessarily when each investment was made. Because the complaint alleged, among other things, a loss on a 2013 trade and because equitable estoppel applied as of January 16, 2015, the defendants had not shown that the fiduciary-duty claims accrued more than three years before that date. The motion to dismiss those claims as time-barred was denied.

Unjust-Enrichment Claims

The court held that the plaintiffs adequately pleaded unjust enrichment. The complaint alleged that JPMorgan Investment Management received fees for investment-advisory and administrative services, JPMorgan Securities received fees, commissions, and retrocessions, and JPMorgan Distribution Services received fees and retrocessions. The complaint also alleged that these benefits came at the plaintiffs’ expense because Trust assets were placed in high-fee investments in which defendants had interests.

The court rejected the defendants’ argument that the plaintiffs had to allege that the Trust paid the affiliates directly. The court treated the complaint as alleging that the plaintiffs, as Trust beneficiaries, paid fees to Chase that Chase transmitted to the JPMorgan affiliates. At the motion-to-dismiss stage, the court also declined to consider a factual assertion about how Chase offset or paid affiliate fees because that assertion was not drawn from the complaint.

For timeliness, the court applied New York’s borrowing statute because the plaintiffs were Trust beneficiaries located outside New York and the alleged injury was economic. The court determined that the relevant states generally had three-year limitations periods, while Texas had a two-year period. The defendants had not addressed the effect of Texas’s shorter period, and equitable estoppel applied for the same reasons it applied to the fiduciary-duty claims.

Disposition

The court granted in part and denied in part the defendants’ motion to dismiss. The motion was granted only as to unjust-enrichment payments received by defendants before January 17, 2012, and was otherwise denied. The opinion did not state that the motion or any claim was dismissed with or without prejudice.