## Facts

- J.P. Morgan Chase & Co. (JPMC) agreed to acquire Bank One Corporation in a stock-for-stock merger announced in January 2004.
- Stockholders alleged the merger exchange ratio reflected an approximate $7 billion “overpayment” by JPMC for Bank One.
- Plaintiffs alleged Bank One would have accepted a lower price if JPMC had agreed that Bank One’s CEO (James Dimon) would become president of the combined company at closing.
- Plaintiffs alleged JPMC instead paid a higher price to allow JPMC’s CEO (William B. Harrison, Jr.) to remain as president/CEO during a transition period, constituting a loyalty-based conflict.
- The merger required a stockholder vote; JPMC issued a joint proxy statement/prospectus describing the transaction.
- Plaintiffs alleged the proxy was materially misleading or incomplete for not disclosing negotiations and alleged management interests affecting the final exchange ratio.
- Plaintiffs sued as a putative class seeking money damages only, measured by the alleged overpayment.
- Defendants moved to dismiss: the overpayment claim under Court of Chancery Rule 23.1 (demand/demand futility) and the disclosure claim under Rule 12(b)(6).

## Issues

1. Whether the alleged merger “overpayment” stated a direct stockholder claim or a derivative claim belonging to the corporation requiring demand or demand-futility pleading under Rule 23.1.
2. Whether a post-closing proxy-disclosure claim seeking only monetary damages stated a cognizable claim under Delaware law.

## Decision

- The Court of Chancery dismissed the overpayment/loyalty claim under Rule 23.1 as derivative and not supported by demand or demand-futility allegations.
- The court dismissed the proxy-disclosure claim under Rule 12(b)(6) for failure to state a cognizable damages claim where plaintiffs sought only compensatory damages tied to the alleged overpayment.
- The complaint was dismissed in its entirety.

## Legal Principles

- Under Delaware’s direct-versus-derivative framework (including the Tooley inquiry), an alleged excessive price paid by the corporation in an acquisition is ordinarily a corporate injury; any stockholder harm through dilution typically follows from that entity-level harm and is derivative.
- A plaintiff cannot convert a derivative overpayment theory into a direct claim by labeling it “dilution” or by framing the suit as a class action for damages.
- Post-closing disclosure claims tied to a stockholder vote do not support a freestanding “benefit-of-the-bargain” damages remedy when the asserted monetary harm is substantively the same corporate overpayment alleged in a derivative claim.
- Rule 23.1’s demand requirements apply to derivative merger challenges; failure to make demand or plead demand futility warrants dismissal.

## Conclusion

The Court of Chancery treated the alleged $7 billion merger overpayment as a derivative claim requiring compliance with Rule 23.1 and rejected an attempt to obtain post-closing monetary relief by recasting the same economic grievance as a direct proxy-disclosure damages theory, resulting in dismissal of the action.


In re J.P. Morgan Chase & Co. S’holder Litig., 2005 WL 1076069 (Del. Ch. Apr. 29, 2005)