Lawtalkers: Juicy case for bankruptcy buffs

[citizen k]

Motion to Investigate JPMorgan:

http://www.kccllc.net/documents/0812229/0812229090501000000000002.pdf

Judge Walrath's Opinion for 2004 Discovery:

http://kideternal.com/2004Opinion.pdf

[The Minsky Moment]

I have no dog in this hunt, and I don't pretend to know all the underlying dirt.  The fact that the FDIC has come down on JPM's side is a problem for WaMu.  The FDIC carries considerable clout and covers JPM in a patina of public interest.  The FDIC appears to be taking the position that allowing the Debtor to effectively reopen the sale of assets to JPM risks complicating future efforts to resolve bank failures in an expeditious manner.

On the underlying legal issue addressed in these briefs about the FIRREA jurisdictional bar, it seemed to me like the FDIC had a pretty good legal argument based on the statute, and they are usually entitled to some deference.  Their problem here is that there was an old appeals court case in the circuit that includes Delaware that made a different interpretation (albeit in a somewhat different context).  The bankruptcy court is bound by that precedent, which explains by the FDIC and JPM were so hot to get an immediate appeal.

[citizen k]

Thanks for giving your take on this fascinating case.

[citizen k]

Law360, New York (July 28, 2009) -- A bankruptcy judge has refused to reverse an earlier decision allowing Washington Mutual Inc. to go ahead with its investigation of JPMorgan Chase & Co. for evidence that JPMorgan sabotaged WaMu in order to acquire it at a depressed value.

Judge Mary F. Walrath of the U.S. Bankruptcy Court for the District of Delaware on Monday denied JPMorgan's motion to reconsider an earlier order greenlighting the investigation.

The judge ordered the parties to produce witness lists by Saturday, according to Kevin Spittle, principal of Capital Search Group, a WaMu investor familiar with the case. WaMu's witness list will likely include JPMorgan CEO Jaime Dimon, he said.

Attorneys for WaMu and JPMorgan could not immediately be reached for comment on Tuesday.

Judge Walrath originally signed off on WaMu's motion to examine JPMorgan's books on June 24, and JPMorgan filed its reconsideration motion two days later.

WaMu had asked the court on May 1 for access to JPMorgan's books so that it could look for evidence supporting allegations that JPMorgan crafted a plot to undermine the one-time savings and loan giant prior to its 2008 collapse in order to buy up its banking assets cheaply.

JPMorgan objected to the request, stating that WaMu must seek the information it wanted in two separate pending lawsuits.

In one of those suits, WaMu sued the Federal Deposit Insurance Corp., which seized WaMu's assets and sold them to JPMorgan, in the U.S. District Court for the District of Columbia, alleging that the purchase price was too low and that the agency sold assets it had no right to seize. JPMorgan asked to intervene in that suit as a defendant.

JPMorgan also filed its own adversary proceeding against WaMu, seeking declaratory judgments asserting that it acquired the debtor in good faith and that it was the owner of $7.9 billion in disputed assets.

However, Judge Walrath found that the issues in those suits were separate from those involved in WaMu's proposed investigation.

WaMu's request for an investigation was prompted by a lawsuit filed by a group of WaMu investors against JPMorgan in the U.S. District Court for the Southern District of Texas.

The investors allege that JPMorgan deliberately drove down the value of Washington Mutual Bank by abusing confidential information and that JPMorgan engaged in sham negotiations with WaMu throughout 2008 about buying the banking arm in order to obtain confidential information.

JPMorgan then shared that information with WaMu bank customers to persuade them to withdraw their deposits, leaked information to the media to depress the bank's stock value and ultimately used it in its negotiations with the FDIC, allowing JPMorgan to acquire WaMu's bank assets for a "fire sale" price, the investors claim.

WaMu has said it wants to investigate JPMorgan to find out of those allegations are true.

WaMu filed for Chapter 11 protection on Sept. 26, citing approximately $33 billion in total assets and $8.2 billion in debts.

WaMu is represented by Elliott Greenleaf and Quinn Emanuel Urquhart Oliver & Hedges LLP.

JPMorgan is represented by Landis Rath & Cobb LLP and Sullivan & Cromwell LLP.

The case is In re: Washington Mutual Inc., case number 08-12229, in the U.S. Bankruptcy Court for the District of Delaware.

--Additional reporting by Jacqueline Bell and Christine Caulfield

[Admiral Yi]

From that article it sounds like another bullshit shareholder lawsuit.

[citizen k]

Most of the bullshit shareholder lawsuits didn't have any legs and were dismissed. This is coming from the top.

[citizen k]

The Texas lawsuit was from the company, American National Insurance.

[citizen k]

http://www.law.com/jsp/tal/digestTAL.jsp?id=1202432921490&JPMorgan_Stirs_the_Pot_in_BillionDollar_WaMu_Litigation

JPMorgan Stirs Pot in Billion-Dollar WaMu Litigation

Alison Frankel
08-10-2009


With $10 billion and its honor at stake, it's no wonder JPMorgan Chase and its lawyers at Sullivan & Cromwell are scratching and clawing in the litigation over JPMorgan's fire sale acquisition of Washington Mutual last fall. (As we've previously reported, WaMu's bankrupt parent company has accused JPMorgan of engineering a scheme to undermine the savings bank's assets in order to buy it on the cheap, as well as alleging that JPMorgan misappropriated $4 billion in WaMu deposits.) But a filing last week in Delaware federal bankruptcy court, in which JPMorgan seeks to compel members of an unofficial group of noteholders to identify themselves, has other folks in the litigation scratching their heads. No one would comment for the record for the Litigation Daily, but it seems that Sullivan & Cromwell may be trying to create a rift in the informal coalition that's trying to recover money from JPMorgan.

S&C referred our calls to JPMorgan; spokesperson Thomas Kelly said the bank would not comment on pending litigation.

The bondholders are cooperating with both the unofficial committee of unsecured creditors (represented by Akin Gump Strauss Hauer & Feld) and WaMu's parent company (represented by special litigation counsel Quinn Emanuel Urquhart Oliver & Hedges) in pursuit of billions of dollars from JPMorgan. Quinn Emanuel is leading the way, via a suit in the bankruptcy court in which Judge Mary Walrath recently granted the firm's motion to conduct discovery on JPMorgan's holdings.

JPMorgan's August 6 filing, which was first reported by The Wall Street Journal, suggests there's dissension among the noteholders. The filing requests a court order compelling each member of the so-called Washington Mutual Noteholders Group to comply with bankruptcy code rules and specify the amount of its claim. The filing notes that the group, which in October 2008 said it held $1.1 billion in WaMu notes, was first represented by White & Case, but more recent filings--in which the group claims to hold $3.3 billion in notes--have been signed by Kasowitz, Benson, Torres & Friedman.

The implication is a split in the bondholder group as it has grown. But Kasowitz partner David Rosner told the Journal there's no such rift. He said his firm and W&C are acting as cocounsel for the noteholders. (W&C may have a conflict that precludes it from litigating against JPMorgan; W&C partner Thomas Lauria didn't return our call and Kasowitz partner Rosner was not available for comment.)

In any case, we've heard that so far, the debtors, the creditors committee, and the noteholders are working together in the case against JPMorgan. Down the road they may fight over spoils from the bank, but they've got to get the spoils first.

[The Minsky Moment]

From that article it sounds like another bullshit shareholder lawsuit.

The fact that Quinn took on the case gives it a little more cred then your usual run-of-the-mill plaintiffs suit.

[Admiral Yi]

The fact that Quinn took on the case gives it a little more cred then your usual run-of-the-mill plaintiffs suit.

Come all within,
Come all without.

[citizen k]

Court Weighs In On Whether Creditor Groups Must Disclose Trading Data

http://bankruptcy.cooley.com/2009/12/articles/business-bankruptcy-issues/the-return-of-the-rule-2019-question-delaware-bankruptcy-court-weighs-in-on-whether-creditor-groups-must-disclose-trading-data/

[citizen k]

http://www.law.com/jsp/tal/PubArticleTAL.jsp?id=1202437094851&Privilege_Law_Firms_Take_Center_Stage_in_Suddenly_Hot_WaMu_Bankruptcy&slreturn=1&hbxlogin=1

Privilege, Law Firms Take Center Stage in Suddenly Hot WaMu Bankruptcy
Zach Lowe

The article below was first published on The Am Law Daily.

Lawyers for Washington Mutual filed papers Friday in the bank's Chapter 11 case claiming Sullivan & Cromwell, on behalf of WaMu's new owners at JPMorgan Chase, have been sending out letters asking WaMu's old law firms to turn over their client files on WaMu--files that include privileged material. The letters, which WaMu's lawyers at Quinn, Emanuel, Urquhart, Oliver & Hedges have attached as exhibits, claim JPMorgan should have access to the privileged documents because JPMorgan and WaMu are essentially the same entity now. Those entities have "joint privilege," the letters claim. Firms that have received the letters include Weil, Gotshal & Manges, Simpson Thacher & Bartlett, Perkins Coie, and others.

Quinn Emanuel disagrees with the "joint privilege" notion, and it is not thrilled about how S&C and JPMorgan have been conducting themselves, court records show. The motion Quinn filed Friday asks a judge to require JPMorgan and its lawyers to give WaMu's estate advance notice if they are going to be sending these "joint privilege" letters to law firms and requesting client files. The Quinn motion says the WaMu team has requested advance notice in the last week, but says that JPMorgan's side has "declined to provide" it. (WaMu and Quinn claim they only heard about the letters because the firms that received them contacted WaMu and its lawyers).

Why do JPMorgan and its lawyers want these documents so badly? As we reported earlier this week, JPMorgan and WaMu's estate are engaged in a major spat in which WaMu's estate has accused JPMorgan of improperly using confidential information in 2008 to artificially lower WaMu's asking price and buy the distressed bank on the cheap. (JPMorgan eventually purchased WaMu's assets for $1.9 billion in Sept. 2008 after the FDIC placed WaMu in receivership.)

The letters JPMorgan and S&C sent to the various law firms request piles of documents related to the JPMorgan-WaMu transaction.

We reached out to some of the lead lawyers on both sides (Peter Calamari and Michael Carlinsky at Quinn, and Bruce Clark at S&C) but we have not heard back yet. We'll let you know if and when we do.

In any case, the WaMu bankruptcy is getting very interesting for lots and lots of Am Law 100 firms.

[DontSayBanana]

I can't see that standing up.  WaMu's counsel is basically saying they should be able to pick and choose what documentation they want to show their owners.  That's a lot of autonomy for an insolvent company under another's ownership.

[citizen k]

I can't see that standing up.  WaMu's counsel is basically saying they should be able to pick and choose what documentation they want to show their owners.  That's a lot of autonomy for an insolvent company under another's ownership.

http://www.portfolio.com/industry-news/banking-finance/2009/12/07/why-federal-regulators-closed-washington-mutual/

EDITOR'S NOTE: In September, on the first anniversary of Washington Mutual's closure, the Puget Sound Business Journal reported that as executives fought to sell the bank during its final days, regulators undercut those efforts by signaling to bidders that the bank would soon be seized and sold at a much lower price. Now, further investigation reveals that, contrary to regulators' assertions at the time of the seizure, WaMu had sufficient liquidity and capital to meet regulatory standards and survive. Why, then, was it shuttered?

On a sunny Sunday afternoon in late September, a year and two days after regulators closed Washington Mutual, the bank's former leaders gathered for an improbable, and tragic, reunion at a Seattle restaurant.

Among those present: Lou Pepper, the CEO who guided WaMu through the 1980s, and Kerry Killinger, the CEO who presided over both its vast expansion in the 1990s and its later deep dive into risky mortgage lending.

They came to honor a widely respected WaMu veteran who had been let go this year after decades at the bank. Just 10 days earlier, wracked in part by his family's growing financial pressures, he took his own life at his Seattle home, according to a police report. He left behind a family and scores of colleagues who revered him. (Out of respect for the family, the Puget Sound Business Journal is not publishing his name.)

For nearly two hours at the memorial, speakers shared memories of the man's many accomplishments.

The speakers didn't address the looming questions, however. These were broached in hushed tones among some WaMu employees: Why exactly did the government seize our bank? Was all this financial pain and personal hardship necessary?

WaMu's regulators said they based their decision to close the bank and sell it to JPMorgan Chase on lack of liquidity—its access to ready cash—and the mounting pile of failed mortgage loans that were expected to cripple the bank's earnings for months to come.

But new information—gathered from internal documents and interviews with scores of former WaMu executives, regulators, and other experts—shows that WaMu had plenty of cash on the day it was seized, and a regulator-vetted plan to operate with even less money if necessary.

WaMu also had ample capital—more than the regulatory levels for a "well-capitalized" bank.

[citizen k]

I can't see that standing up.  WaMu's counsel is basically saying they should be able to pick and choose what documentation they want to show their owners.  That's a lot of autonomy for an insolvent company under another's ownership.

There's some pretty damning accusations against JP Morgan in this motion to expand the discovery:

Link to Full 2004 New Motion
http://www.kccllc.net/documents/0812229/0812229091214000000000008.pdf