JPMorgan Chase & Co. board members, including CEO Jamie Dimon, will ask the Delaware Court of Chancery this week to dismiss claims that they ignored red flags about the bank’s response to alleged fraud involving the Zelle money-transfer app.
Relevant Facts
Holdco’s operating agreement made Jonathan Teller and Sanjiv Mehra managers on Holdco’s two-person board. Unanimity was required to effect board action. Teller was a founder of Holdco and Mehra was responsible for day-to-day operations.
Holdco’s operating agreement also provided that if Teller and Mehra deadlocked, Holdco would be automatically dissolved. The operating agreement did not define deadlock.
Teller and Mehra held equal distribution rights in Holdco. In the event of a deadlock-triggered dissolution, Holdco would distribute its shares in Holdco’s subsidiary to members in proportion to their equity and the members would then replicate Mehra’s equal-distribution rights as to Holdco in the subsidiary.
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In business, as in marriage, financial problems put stress on a relationship and are a common cause of divorce. No business divorce is easy, but partners who have ahead of time vetted governance, dispute resolution, termination and exit provisions stand a better chance of an easier, less expensive separation. But regardless of how extensively partners consider issues before entering into a business relationship, unforeseeable circumstances like the current COVID-19 pandemic can present scenarios that even the smartest, most prescient minds may not have anticipated. Even still, a thoroughly negotiated and well-drafted agreement can help parties to avoid or simplify litigation and make the outcome more predictable.