Christ Church Cathedral in August thrashed JPMorgan Chase, asserting in a sharply worded lawsuit that the banking giant caused $13 million in losses in trust accounts endowed decades ago by Eli Lilly Jr. via “intentional mismanagement” and “self-dealing.”
Now, in a new court filing, the bank is pushing back, asserting, essentially, that it deserves a pat on the back for savvy investing, rather than the broad legal assault the Monument Circle church has unleashed.
“We are compelled to note at the outset that the Church has painted a grossly inaccurate picture of how the Bank managed the Trusts,” JPMorgan Chase wrote. “Contrary to the Church’s allegations of fraud and mismanagement, the Bank achieved positive returns for the Trusts through one of the worst financial crises in United States history.”
The bank asserts that, even though the church withdrew more than $13 million between 2006 and 2013, the trusts nonetheless increased in value by more than $10 million in that span.
“By omitting these critical facts and cherry-picking a few investments that had sub-par performance, the Church has tried to suggest that the Trustee’s choice of investments for the Trusts was somehow inappropriate. The Church ignores the vast majority of investments that produced solid—and in some cases stellar—returns for the Trusts, and ultimately for the Church’s benefit.”
This is just the bank’s opening salvo in what’s likely to be a drawn-out battle waged by high-powered attorneys on both sides. JPMorgan’s initial tack is to seek dismissal of four of the five claims against its banking subsidiary and all claims against it, on various legal and procedural grounds unrelated to the validity of the allegations.
“The merits are for another day,” JPMorgan Chase’s attorneys wrote. Yet they devoted most of the first page of their 30-page motion to a full-throated assertion that the lawsuit’s allegations are bogus.
The two trust funds at issue date to the 1977 death of Eli Lilly Jr., grandson of the pharmaceutical firm’s founder, whose will divvied out 10 percent of his remaining estate to the church, where he was baptized and attended his entire life.
Each of the big three Indianapolis banks at the time became trustee over one-third of the bequest, which initially was worth $13 million. A succession of mergers left JPMorgan Chase as trustee of two of the three trust accounts, which were worth $31.6 million at the end of 2013.
But the value would have been far greater, Christ Church asserted, had JPMorgan Chase not repeatedly favored its own proprietary products, including hedge funds, “structured notes” and other high-fee, opaque investments. By 2009, the suit says, three quarters of church assets were invested in proprietary products.
“On many of the financial products purchased by JPMorgan from itself on behalf of the church using church funds, JPMorgan made substantially more money than the church, even though the church trusts bore all the risks of the speculative investments,” the suit says.
Representing the church is Pence Hensel LLC. Partners Linda Pence and David Hensel have represented businesses in numerous legal tangles, while also handling criminal defense work. In one of her highest-profile cases, Pence represented independent Shell dealers that accused the oil giant of raising rents, overcharging for gas and unfairly competing against them with company-owned stores. Under a 2000 settlement, the oil giant agreed to buy out the dealers.
Leading the charge for JPMorgan Chase is Faegre Baker Daniels partner David Herzog, who heads the firm’s business litigation practice group. Among many high-profile cases, he represented Marsh Supermarkets Inc. in its years-long battle to recover compensation and questionable expense reimbursements from former CEO Don Marsh.
A jury in February 2013 found Don Marsh guilty of breach of contract and fraud and ordered him to pay $2.2 million. But last summer, Judge Sarah Evans Barker dealt Marsh Supermarkets a setback, ruling that Don Marsh was entitled to keep nearly $2.2 million in severance the company contended must be repaid.
In the motion to dismiss submitted by Herzog, the bank attempts to pick apart the legal underpinnings of the suit, arguing, for instance, that because the church is merely a beneficiary and lacked authority to make investment decisions, it has no standing to pursue its claim of securities fraud.
Herzog notes that the bequest to the church in Lilly’s will stipulated that the banks serving as trustee would have the unfettered authority to “deal with any and all of the securities … with the same freedom that an absolute owner … would have … without the consent of the beneficiary of the trust.”•