IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IMG HOLDING LLC, derivatively on 

behalf of JPMORGAN CHASE & 

CO.,

Plaintiff,

v. 

JAMES DIMON, STEPHEN B. 

BURKE, LINDA B. BAMMANN, 

TODD A. COMBS, JAMES S. 

CROWN, ALICIA B. DAVIS, 

TIMOTHY P. FLYNN, ALEX 

GORSKY, MELLODY HOBSON, 

MICHAEL A. NEAL, PHEBE N. 

NOVAKOVIC, and VIRGINIA 

M. ROMETTY,

Defendants,

and

JPMORGAN CHASE & CO.,

Nominal Defendant.

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C.A. No. 2023-0522-KSJM

ORDER RESOLVING DEFENDANTS’ MOTION TO DISMISS1

1. Plaintiff IMG Holding LLC (“Plaintiff”) owns stock in JPMorgan Chase 

& Co. (“JPM”), a multinational financial services company. 

2. Along with several other large banks, JPM owns Zelle, a digital banking 

platform that allows customers to electronically transfer money with relative ease to 

other consumers. Zelle is regulated by the federal Electronic Fund Transfer Act (the 

1 The facts are drawn from the Verified Complaint and documents it incorporates by 

reference. C.A. No. 2023-0522-KSJM, Docket (“Dkt.”) 1 (“Compl.”). 
2

“EFTA”) and Regulation E, which clarifies responsibilities under the EFTA.2 Under 

the EFTA and Regulation E, a bank must reimburse customers for unauthorized 

electronic transfers within certain time frames or face civil and criminal penalties for 

noncompliance. 

3. Zelle is susceptible to fraud. Hackers have found a way to send

themselves funds from someone else’s Zelle account to their own. Once money is sent

through Zelle, it is generally not recoverable by the sender. National media outlets 

reported on instances of Zelle fraud. The Complaint cites to five news articles

published between May 2021 and June 2022 that reported on Zelle fraud and four

specific customer experiences. 

4. In 2022, the United States Senate Committee on Banking, Housing, and 

Urban Affairs (the “Senate Committee”) opened an investigation into unauthorized 

electronic transfers on Zelle and industry-wide non-compliance with the EFTA and 

Regulation E. The Senate Committee sent a letter to Zelle leadership on April 25, 

2022, regarding the news articles. 

5. The Senate Committee then sent a letter to JPM’s CEO James Dimon 

on July 7, 2022, requesting details and statistics on Zelle fraud claims. The Senate 

Committee asked questions regarding JPM’s compliance with the EFTA and 

Regulation E. On September 22, 2022, JPM provided responses to the Senate 

Committee. Plaintiff describes these responses as “incomplete.”3 That same day, 

2 15 U.S.C. § 1693 et seq.; 12 C.F.R. § 1005.1 et seq.

3 Compl. ¶ 69.
3

Dimon testified before the Senate Committee, which included Senator Elizabeth 

Warren. Dimon promised to provide the Senate Committee with additional details 

unaddressed in JPM’s September 22, 2022 written response. Plaintiff alleged that 

after the hearing, JPM chose not to provide those details.

6. Senator Warren issued a report on Zelle fraud and industry noncompliance with the EFTA and Regulation E on October 3, 2022 (the “Warren 

Report”). The Warren Report stated that “fraud and theft are rampant on Zelle[,]” 

“[b]anks are not repaying customers who contest ‘unauthorized’ Zelle payments –

potentially violating federal law,” and PNC Bank, U.S. Bank, Truist, and Bank of 

America “reimbursed customers for only 47% of the dollar amount of cases in which 

customers reported unauthorized payments on Zelle[.]”4 The Warren Report did not 

include JPM in the last statistic.

7. The Warren Report stated that JPM failed to respond adequately to the 

Senator’s July 7, 2022 letter request. National media outlets covered the report. On 

October 26, 2022, Senator Warren asked the Consumer Financial Protection Bureau 

(the “CFPB”) to take action on Zelle fraud and cited JPM’s failure to furnish the 

Senate Committee with more information. The CFPB had separately released a 

report on Zelle fraud in May 2022 (the “CFPB Report”). The CFPB Report referred 

to “some financial institutions,” but did not mention JPM specifically.5 

4 Id. ¶ 80.

5 Id. ¶ 45.
4

8. On November 9, 2022, Plaintiff sent JPM a demand to inspect books and 

records pursuant to 8 Del. C. § 220 (the “Demand”). Plaintiff’s stated purpose was to 

investigate possible breaches of fiduciary duty in connection with potential EFTA 

violations. JPM did not respond initially due to an internal misrouting. Plaintiff

filed an enforcement action on December 6, 2022. JPM then produced certain 

documents responsive to the Demand. In this litigation, Plaintiff alleges that JPM 

did not respond to the Demand in full, but Plaintiff voluntarily dismissed its 

enforcement action on May 12, 2023, after receiving JPM’s production.6

9. Plaintiff filed this action on May 12, 2023, asserting a single count for

breach of fiduciary duty under Caremark7 against the JPM Board of Directors (the 

“Board”): Dimon, Stephen B. Burke, Linda B. Bammann, Todd A. Combs, James S. 

Crown, Alicia B. Davis, Timothy P. Flynn, Alex Gorsky, Mellody Hobson, Michael A. 

Neal, Phebe N. Novakovic, and Virginia M. Rometty (“Defendants”).8 Defendants 

moved to dismiss the Complaint on August 1, 2023, pursuant to Court of Chancery 

Rules 23.1 and 12(b)(6).9 The parties fully briefed the motion, and the court held oral 

argument on January 31, 2024.10

6 Id. ¶¶ 40, 99; C.A. No. 2022-1123-KSJM, Dkt. 12, Notice of Voluntary Dismissal. 

7 In re Caremark Int’l Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996).

8 Compl. ¶¶ 50–54.

9 Dkt. 13 (“Defs.’ Opening Br.”).

10 Dkt. 20 (“Pl.’s Answering Br.”); Dkt. 25 (“Defs.’ Reply Br.”). 
5

10. “A cardinal precept of [Delaware law] is that directors, rather than 

shareholders, manage the business and affairs of the corporation.”11 “In a derivative 

suit, a stockholder seeks to displace the board’s authority over a litigation asset and 

assert the corporation’s claim.”12 Because derivative litigation impinges on the 

managerial freedom of directors in this way, a stockholder only can pursue a cause of 

action belonging to the corporation if (i) the stockholder demanded that the directors 

pursue the corporate claim and they wrongfully refused to do so or (ii) demand is 

excused because the directors are incapable of making an impartial decision 

regarding the litigation.”13 The demand requirement is a substantive principle under 

Delaware law.14 

11 Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984) (citing 8 Del. C. § 141(a)), overruled 

on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). In Brehm, 746 A.2d 

at 253–54, the Delaware Supreme Court overruled seven precedents, including 

Aronson, to the extent those precedents reviewed a Rule 23.1 decision by the Court of 

Chancery under an abuse of discretion standard or otherwise suggested a deferential 

appellate review. See id. at 253 & n.13 (overruling in part on this issue Scattered 

Corp. v. Chi. Stock Exch., Inc., 701 A.2d 70, 72–73 (Del. 1997); Grimes v. Donald, 673 

A.2d 1207, 1217 n.15 (Del. 1996); Heineman v. Datapoint Corp., 611 A.2d 950, 952 

(Del. 1992); Levine v. Smith, 591 A.2d 194, 207 (Del. 1991); Grobow v. Perot, 539 A.2d 

180, 186 (Del. 1988); Pogostin v. Rice, 480 A.2d 619, 624–25 (Del. 1984); and Aronson, 

473 A.2d at 814). The Brehm Court held that going forward, appellate review of a 

Rule 23.1 determination would be de novo and plenary. 746 A.2d at 253–54. The 

seven partially overruled precedents otherwise remain good law.

12 United Food & Com. Workers Union & Participating Food Indus. Empls. Tri-State 

Pension Fund v. Zuckerberg, 250 A.3d 862, 876 (Del. Ch. 2020), aff’d, 262 A.3d 1034 

(Del. 2021).

13 Id.

14 Id.; see Ct. Ch. R. 23.1(a).
6

11. Rule 23.1 is the “procedural embodiment of this substantive principle.”15 

It provides that a stockholder plaintiff must “state with particularity: . . . any effort 

by the derivative plaintiff to obtain the desired action from the entity; and . . . the 

reasons for not obtaining the action or not making the effort.”16 A stockholder 

choosing to allege demand futility must meet the “heightened pleading 

requirements,”17 alleging “particularized factual statements that are essential to the 

claim.”18 A plaintiff is “entitled to all reasonable factual inferences that logically flow 

from the particularized facts alleged, but conclusory allegations are not considered as 

expressly pleaded facts or factual inferences.”19 

12. In Zuckerberg, the Delaware Supreme Court adopted the “universal 

test” for demand futility that blends elements of the two precursor tests: Aronson20

and Rales.21 When conducting a demand futility analysis under Zuckerberg, 

Delaware courts ask, on a director-by-director basis: 

(i) whether the director received a material personal 

benefit from the alleged misconduct that is the subject of 

the litigation demand;

(ii) whether the director faces a substantial likelihood of 

liability on any of the claims that would be the subject of 

the litigation demand; and

15 Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993).

16 Ct. Ch. R. 23.1(a)(1).

17 Zuckerberg, 250 A.3d at 876.

18 Brehm, 746 A.2d at 254.

19 Id. at 255.

20 473 A.2d 805 (Del. 1984).

21 634 A.2d 927 (Del. 1993).
7

(iii) whether the director lacks independence from someone 

who received a material personal benefit from the alleged 

misconduct that would be the subject of the litigation 

demand or who would face a substantial likelihood of 

liability on any of the claims that are the subject of the 

litigation demand.22

13. “If the answer to any of the questions is ‘yes’ for at least half of the 

members of the demand board, then demand is excused as futile.”23 While the 

Zuckerberg test displaced the prior tests from Aronson and Rales, cases properly 

applying Aronson and Rales remain good law.24

14. When Plaintiff filed this action, Defendants comprised the entirety of 

the Board. To adequately allege demand futility, Plaintiff must plead particularized 

facts creating reason to doubt that at least six of the twelve Defendants were incapable 

of impartially considering a demand. 

15. To meet its burden, Plaintiff advances arguments under the second 

Zuckerberg test, contending that all members of the demand board face a substantial 

likelihood of liability from Plaintiff’s Caremark claim.25 Where, as here, a plaintiff’s 

basis for arguing demand futility centers on a substantial likelihood of liability 

resulting from the derivative claims at issue, the demand analysis effectively folds 

22 United Food & Com. Workers Union & Participating Food Indus. Empls. Tri-State 

Pension Fund v. Zuckerberg, 262 A.3d 1034, 1059 (Del. 2021) (quoting Zuckerberg, 

250 A.3d at 890); accord Ct. Ch. R. 23.1.

23 Zuckerberg, 262 A.3d at 1041 (“The Court of Chancery’s refined articulation of the 

Aronson standard helps to address these issues. Nonetheless, this refined standard 

is consistent with Aronson, Rales, and their progeny. Thus, cases properly applying 

those holdings remain good law.”).

24 Id.

25 Compl. ¶¶ 113–14.
8

into an analysis of the strength of the underlying claims. In this case, therefore, the 

Zuckerberg analysis hinges on whether Plaintiff has adequately alleged its Caremark 

claim. 

16. A Caremark claim “seeks to hold directors accountable for the 

consequences of a corporate trauma.”26 To adequately allege such a claim, a plaintiff 

must allege that the board had some level of involvement in the trauma.27 Caremark

describes the test as requiring that the directors “knew or . . . should have known” 

about the risk leading to the trauma.28 Stone clarified that liability under Caremark

requires a showing of bad faith—“that the directors knew that they were not 

discharging their fiduciary obligations.”29 At the pleading stage, the plaintiff must 

allege facts from which the court can reasonably infer that a fiduciary acted in bad 

faith.30

17. Stone identified two subspecies of Caremark claims. To state a 

Caremark claim, a plaintiff must allege particularized facts that establish either 

(1) “the directors utterly failed to implement any reporting or information system or 

26 La. Mun. Police Empls.’ Ret. Sys. v. Pyott, 46 A.3d 313, 340 (Del. Ch. 2012), rev’d 

on other grounds, 74 A.3d 612 (Del. 2013); see also Horman v. Abney, 2017 WL 

242571, at *5 (Del. Ch. Jan. 19, 2017) (“Caremark claims inevitably arise in the midst 

of or directly following ‘corporate trauma’ of some sort or another.”).

27 Pyott, 46 A.3d at 340.

28 Caremark, 698 A.2d at 971.

29 Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006); see also Pyott, 46 A.3d at 340–41 

(discussing the “actual knowledge” requirement of Caremark as clarified by Stone).

30 Marchand v. Barnhill, 212 A.3d 805, 820–21 (Del. 2019) (quoting Desimone v. 

Barrows, 924 A.2d 908, 935 (Del. Ch. 2007)).
9

controls, or [(2)] having implemented such a system or controls, consciously failed to 

monitor or oversee its operations thus disabling themselves from being informed of 

risks or problems requiring their attention.”31 These two subspecies are colloquially 

referred to as information-systems claims and red-flags claims.32

18. Plaintiff asserts a red-flags claim, alleging that the Board ignored red 

flags concerning JPM’s failure to comply with the EFTA and Regulation E.

19. A plaintiff can plead a “red flags” Caremark claim by alleging 

“particularized facts that the board knew of red flags but consciously disregarded them 

in bad faith.”33 The intuitive notion underlying the red-flags theory is that 

“sophisticated and well-advised individuals like corporate directors do not customarily 

concede violations of positive law,” and so a plaintiff must plead facts and 

circumstances sufficient for a court to infer this conduct.34 “[A] Caremark plaintiff can 

plead that ‘the directors were conscious of the fact that they were not doing their jobs,’ 

and that they ignored ‘red flags’ indicating misconduct in defiance of their duties.”35 

31 Stone, 911 A.2d at 370 (emphasis in original).

32 See In re McDonald’s Corp. S’holder Deriv. Litig., 289 A.3d 343, 363–64 (Del. Ch. 

2023) (labeling first species of claims as “information-system” claims and second 

species as “red-flag” claims). 

33 City of Detroit Police & Fire Ret. Sys. on Behalf of NiSource, Inc. v. Hamrock, 2022 

WL 2387653, at *20 (Del. Ch. June 30, 2022) (quoting Teamsters Local 443 Health 

Servs. & Ins. Plan v. Chou, 2020 WL 5028065, at *17 (Del. Ch. Aug. 24, 2020)). 

34 Id. (quoting South v. Baker, 62 A.3d 1, 14–15 (Del. Ch. 2012)); see also In re Gen. 

Motors, Deriv. Litig., 2015 WL 3958724, at *16 (Del. Ch. June 26, 2015) (observing 

that red flags “are a proxy for pleading knowledge”). 

35 Id. (quoting David B. Shaev Profit Sharing Acct. v. Armstrong, 2006 WL 391931, 

at *5 (Del. Ch. Feb. 13, 2006)).
10

A plaintiff must allege that a board “had notice of serious misconduct and simply failed 

to investigate . . . even if the committee or board was well constituted and was 

otherwise functioning.”36 

20. Plaintiff alleges that JPM violated and continues to violate the EFTA 

and Regulation E by failing to resolve unauthorized electronic transfer claims and 

provisionally credit consumer accounts within 10 business days;37 by failing to resolve 

unauthorized electronic transfer claims within 45 days;38 and by failing to reimburse 

victims of unauthorized electronic fund transfers after more than 45 days.39 Plaintiff’s 

red-flags theory is that the Board knew of these violations from the media and the 

Warren and CFPB Reports, and that the Board failed to respond, thus constituting 

bad faith.

21. Plaintiff’s theory is not supported by the allegations in the Complaint. 

The Complaint relies on and repeats statements from the four media reports. The 

anecdotes in the articles do not describe any failures by JPM to investigate or 

reimburse customers properly. Quite the opposite—the media reports reflect that 

JPM investigated and acted on the claims.40 It is hard to tell whether the transfers 

36 Id.

37 Compl. ¶ 36 (alleging a violation of 15 U.S.C. § 1693f(a)). 

38 Id. ¶ 37 (alleging a violation of 15 U.S.C. § 1693f(c)). 

39 Id. ¶ 38 (alleging a violation of 15 U.S.C. § 1693f(c)).

40 See Defs.’ Opening Br., Exs. F–H (full versions of the articles cited by Plaintiff). 

The articles are incorporated into the complaint. See Morrison v. Berry, 191 A.3d 268, 

275, n. 20 (Del. 2018) (“[w]hen a plaintiff expressly refers to and heavily relies upon 

documents in her complaint, these documents are considered to be incorporated by 

reference into the complaint; this is true even where the documents are not expressly 
11

discussed in the media reports were “unauthorized” for purposes of the EFTA and 

Regulation E. And the media reports do not describe any delay that would constitute

non-compliance with the time frames established by the EFTA or Regulation E.

22. The Warren and CFPB Reports similarly fail to demonstrate that JPM 

violated federal regulations. The general allegations of these Reports are directed to 

the banking industry at large. Aspects of the Reports specific to certain banks 

omitted information pertaining to JPM. It is hard to build a case of bad faith against 

the JPM Board based on these documents. Were the court to so infer, then by logical 

extension, Plaintiff’s theory would support a viable Caremark claim against any bank 

implicated by the general allegations made in the Reports. That is not tenable.

23. To avoid this outcome, Plaintiff points to the fact that JPM did not 

produce information requested by the Senate Committee. Plaintiff seeks and adverse 

inference from this conduct, arguing that “[o]ne can easily infer that JPM refused to 

provide the documents that Dimon had promised . . . because those documents would 

have demonstrated that JPM was failing to reimburse its customers for unauthorized 

electronic transactions in compliance with the Act[.]”41 Although at the dismissal 

stage all inferences are taken in favor of Plaintiff, this is a stretch too far. JPM’s 

incorporated into or attached to the complaint.” (internal citations omitted)). The 

articles show that JPM reimbursed customers, investigated claims as per their 

policies, and declined to reimburse a customer where the investigation found no 

evidence of fraud. Far from showing an absence of compliance under the EFTA, these 

articles raise an inference that JPM has working EFTA policies and practices. The 

court cannot reasonably infer that JPM was violating federal law on a widespread, 

systematic basis where the documents on which Plaintiff relies show that JPM was

compliant. 

41 Compl. ¶ 78. 
12

September 22, 2022 letter provided detailed information on JPM’s practices and its 

policies.42

24. Plaintiff further argues that the court should infer that JPM violated 

federal law, and that Defendants knew about it and consciously failed to act in bad 

faith, because “the documents [JPM] produced in response to [the Section 220 demand] 

contain no reference whatsoever” to the Regulation E deadlines.43 But the documents 

produced in response to the Demand show that, on October 17, 2022, the Board 

discussed efforts to address fraud on Zelle and reimbursements.44 And the policies 

and procedures themselves show that JPM had processes for dealing with 

unauthorized transfers.45 

25. Moreover, Plaintiff had an opportunity to press for greater scope of 

inspection but failed to do so. Plaintiff tries to spin this in its favor, arguing that JPM 

must have engaged in widespread misconduct because it failed to produce documents 

that Plaintiff requested in the Demand. Alternatively, Plaintiff argues that the bank 

must not have had access to documents necessary to assess its compliance, and so it 

“has not attempted to monitor its compliance with [] statutory deadlines, and . . . has 

hit the snooze button on this wake-up call to begin monitoring its compliance with the

42 Defs.’ Opening Br., Ex. J. 

43 Pl.’s Answering Br. at 13.

44 Defs.’ Opening Br., Ex. O.

45 Defs.’ Opening Br., Exs. L–N. That the Regulation E procedures do not specifically 

refer to the time limits is not enough for the court to infer a red flag. Compl. ¶¶ 111, 

115.
13

deadlines in [EFTA] and Regulation E.”46 JPM, however, took the reasonable position 

that certain of the documents requested were outside the scope of the Section 220 

inspection, and so did not provide what Plaintiff asked for.47 The court did not have a 

chance to resolve that issue at the Section 220 phase because Plaintiff voluntarily 

dismissed its action. In essence, Plaintiff is asking the court to grant an adverse 

inference against Defendants because they did not produce documents that Plaintiff

decided not to pursue. That does not work.

26. Thus, neither the allegations nor any inferences therefrom constitute 

red flags sufficient to support a Caremark claim.

27. For these reasons, Plaintiff has failed to show a substantial likelihood of 

liability under Caremark for any of the defendants. Consequently, demand was not 

futile, and the case is dismissed under Rule 23.1.

28. In its answering brief, Plaintiff requested leave to replead should the 

court dismiss this action.48 Because Plaintiff filed an answering brief, dismissal of the 

complaint is “with prejudice . . . unless the Court, for good cause shown, shall find that 

dismissal with prejudice would not be just under all the circumstances.”49 Plaintiff 

has not shown any good cause, and so the action is dismissed with prejudice.50 

46 Pl.’s Answering Br. at 15. 

47 Compl. ¶ 41. 

48 Pl.’s Answering Br. at 29–33.

49 Ct. Ch. R. 15(aaa). 

50 Plaintiff’s argument is that Defendants might ignore red flags in the future. That 

is not good cause. 
14

29. Plaintiff also moved for leave to file a supplemental brief based on JPM’s

February 16, 2024 annual report.51 The request is based on one paragraph in the 

annual report that makes note of JPM responding to government inquiries regarding 

some Zelle transfers. This admission does not change the court’s analysis. Plaintiff’s 

motion for leave to file a supplemental brief is denied. The defendants’ motion to 

dismiss is granted.

/s/ Kathaleen St. J. McCormick 

Chancellor Kathaleen St. J. McCormick

Dated: April 16, 2024

51 Dkt. 33.