(CN) — JPMorgan Chase sued the state of California on Thursday for $5.9 million in legal fees resulting from the bank’s intervention in a dubious purchase of N95 face masks early in the Covid-19 pandemic.
The suit, filed in a Sacramento state court, claims the bank was targeted by the medical supply company purportedly selling the face masks after JPMorgan Chase raised concerns about the more than $456 million transaction. JPMorgan Chase seeks to recover the legal fees generated defending itself from the medical supplier’s lawsuit.
According to the bank’s complaint, California sought to buy scarce personal protective equipment, particularly face masks, in March 2020 at the beginning of the Covid-19 pandemic. Blue Flame Medical approached the state with an offer to sell 100 million N95 masks for over $609 million.
The California State Treasurer’s Office prepared to wire Blue Flame the bulk of the payment from their account with JPMorgan Chase on March 25, the complaint said. During its “diligence in reviewing the transaction,” the bank alerted the state to concerns stemming from its internal investigation of the wire transfer.
The complaint claims that JPMorgan Chase learned from Blue Flame’s bank that “Blue Flame’s account was new, that the account had been opened by a political lobbyist and that the size of the wire was unusual for this client.”
Made aware of the concerns about Blue Flame, California reversed course on the wire transfer. JPMorgan Chase claims the funds were returned to the state the same day the wire was initially approved.
“JPMorgan Chase is pleased to have been able to help California recover its funds, but for those efforts [the bank] became targeted in a lawsuit brought by the company that claimed it could supply the masks,” the complaint said, asserting that the bank is “compelled to file this action in order to protect its rights” and California should cover the costs for any losses the bank suffers from Blue Flame’s suit.
The complaint cites multiple statements from the involved state officials at a California Assembly oversight hearing in May 2020 in which they credited JPMorgan Chase for helping retrieve the funds and alerting them to some of the concerns regarding Blue Flame.
In September 2021, a federal judge in Virginia granted summary judgment to Blue Flame’s bank, compelling JPMorgan Chase to indemnify the bank for their losses in the transaction between Blue Flame and California. JPMorgan Chase settled with the bank, agreeing to pay $5.9 million in attorneys’ fees and expenses.
Blue Flame has faced multiple probes into its financial dealings, including allegations that it failed to deliver products to state governments who purchased masks and other personal protective equipment. These include a criminal inquiry by the U.S. Department of Justice and a congressional committee investigation.
Blue Flame’s owners, Mike Gula and John Thomas, are better known as political operatives than medical suppliers. Gula worked in Republican fundraising, while Thomas was a political consultant in California.
Representatives for JPMorgan Chase did not immediately respond to requests for comment. The California State Treasurer's Office declined to comment.
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