Examiner:
The Appointment of the Examiner and the Examiner’s Report
On April 26, 2010, the Equity Committee filed a motion [D.I. 3579] for the appointment of an examiner pursuant to section 1104(c) of the Bankruptcy Code (the “Examiner Motion”) to investigate (i) the extent to which there are potential claims and causes of action held by the Debtors’ estates against any person or entity, and the merit and value of those claims, arising from circumstances leading to the OTS’s closure of WMB and appointment of the FDIC Receiver and the FDIC’s sale of WMB’s assets to JPMC, (ii) the extent to which there are potential claims and causes of action held by the Debtors’ estates arising from breach of fiduciary duty or other legal duties by WMI’s officers, directors, and employees, (iii) the disputes at issue in the Turnover Action, (iv) the existence and valuation of WMI tax attributes, principally its NOLs, and the meaning and impact of the Tax Sharing Agreement on the disputes, (v) the proper ownership, valuation and asset affiliation of the Trust Preferred Securities, (v) the communications and negotiations that led to the Global Settlement Agreement, (vi) the Debtors’ potential claims for fraudulent conveyance or for the recovery of preferential transfers, including those related to WMI’s capital contributions to WMB, and (vii) the merits and valuation of any other claims of the Debtors that would be released pursuant to the Global Settlement Agreement and the nature and valuation of any other assets that would be transferred to JPMC pursuant or the FDIC Receiver pursuant thereto.
On May 4, 2010, the Debtors filed an objection [D.I. 3626] to the Examiner Motion and objections were also filed by JPMC, the Creditors’ Committee and the WMI Noteholders Group. Responsive papers were also filed by the U.S. Trustee, the FDIC, and the WMB Notes Holders, among others [D.I. 3625, 3627, 3626, 3629, & 3633]. At a hearing, held on May 5, 2010, the Bankruptcy Court denied the Examiner Motion and entered an order to this effect [D.I. 3633]. The Equity Committee moved [D.I. 3929] for permission to appeal the Bankruptcy Court’s decision directly to the United States Court of Appeals for the Third Circuit (the “Third Circuit”), which motion was opposed by the Debtors and the Creditors’ Committee [D.I. 4386 & 4397]. On June 7, 2010, the Bankruptcy Court entered an order certifying the Equity Committee’s appeal directly to the Third Circuit [D.I. 4639]. On July 7, 2010, the Equity Committee filed a petition with the Third Circuit requesting that the Third Circuit hear the appeal and, on July 19, 2010, the Debtors filed an opposition to such petition. Notwithstanding its pending appeal, on June 8, 2010, the Equity Committee filed a renewed motion for the appointment of an examiner pursuant to section 1104(c) of the Bankruptcy Code (the “Renewed Examiner Motion”) [D.I. 4644]. The Debtors and other parties in interest filed objections to the Renewed Examiner Motion. [D.I. 4680, 4681, 4682, 4683, 4685, 4686, & 4728] Notwithstanding the Debtors’ objection to the Renewed Examiner Motion, in the interest of cooperation and of providing guidance to the Bankruptcy Court and parties in interest with respect to their assessment of the Sixth Amended Plan and the Global Settlement Agreement, the Debtors consented to, and the Bankruptcy Court directed, the appointment of an examiner to investigate (i) the claims and assets that may be property of the Debtors’ estates that are proposed to be conveyed, released or otherwise compromised and settled pursuant to the Global Settlement Agreement, and (ii) such other claims, assets and causes of action that will be retained by the Debtors and/or the
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proceeds thereof, if any, distributed to Creditors and/or equity interest holders pursuant to the Sixth Amended Plan, and the claims and defenses of third parties thereto [D.I. 5120]. The U.S. Trustee chose, and the Bankruptcy Court approved of, Joshua R. Hochberg (the “Examiner”). Based upon the appointment of the Examiner, the pending appeal filed by the Equity Committee was dismissed.
Pursuant to the order directing his appointment, the Examiner investigated and prepared a report, filed on November 2, 2010 [D.I. 5735] and made publicly available by the Debtors on the same day at www.kccllc.net/wamu (with the exception of certain confidential information contained therein) [D.I. 5791], in which the Examiner concluded that the Global Settlement Agreement is fair, reasonable, and in the best interests of the Debtors’ estates. Certain of the Examiner’s findings are set forth below.
a.
Certain Claims and Assets Settled Pursuant to the Global Settlement Agreement
With respect to the $4 billion on deposit in the Disputed Accounts, the Debtors had made a substantial showing they were entitled to the entire Deposits. Nevertheless, the Examiner concluded that, even if the Debtors prevailed in recovering the Deposits, “there still is a maze of legal issues that remain to be litigated and that could prevent an expeditious recovery of the Deposits.” With respect to the disputed Tax Refunds, the Examiner concluded that “WMB has meritorious claims to all or most of these refunds” and “WMI ultimately will not be entitled to retain most of the refunds.” With respect to the Trust Preferred Securities, the Examiner concluded that (a) significant arguments supported the conclusion that the Trust Preferred Securities were automatically conveyed to WMI, (b) it was unlikely that WMI could avoid the prepetition down streaming of the Trust Preferred Securities to WMB by WMI, and (c) even if such transfer was avoided, there would be no material improvement for the estates’ other Creditors and equity interest holders, because such avoidance would lead to an equivalent corresponding claim. With respect to the BOLI/COLI Policies, the Examiner concluded that the vast majority of such policies belonged to WMB and were conveyed to JPMC when it purchased WMB’s assets. Finally, the Examiner concluded that potential avoidance and fraudulent conveyance actions, which could result in the return of as much as $6.5 billion to the Debtors, would likely fail or would lead to an equivalent corresponding claims and, hence, be of no material benefit to the estates’ other Creditors and equity interest holders.
b.
Certain Potential Claims and Causes of Action Against Non-Debtors
With respect to JPMC, the Examiner investigated potential claims that JPMC (a) breached contractual obligations to WMI, (b) tortiously interfered with WMI’s or WMB’s business, and (c) conspired with others in violation of antitrust laws. The Examiner “did not uncover facts likely to support viable claims against JPMC that would generate significant benefits for the Debtors” and concluded that “it would be difficult to establish that JPMC’s actions caused the demise of WMB or resulted in damages to WMB and WMI.”
With respect to the FDIC, the Examiner investigated potential claims that the FDIC (a) breached statutory or fiduciary duties as receiver by selling WMB for less than possible, (b) breached statutory or fiduciary duties by conducting an unfair bidding process in conjunction with the seizure and sale of WMB, and (c) tortiously interfered with WMI’s business expectancy by prematurely disclosing to JPMC and other third parties the intended seizure of WMB. The Examiner concluded that it was highly unlikely that any claims against the FDIC would succeed. Specifically, the Examiner found that the bidding process for WMB was reasonably fair and that JPMC was the only potential bidder willing to pay anything for WMB’s assets without substantial government guarantees.
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Finally, the Examiner investigated whether WMI was insolvent throughout 2008, including an evaluation of WMB’s liquidity. The Examiner concluded that WMB’s liquidity on September 25, 2008 was questionable and whether it would have survived if it had not been seized is open to debate; as such, the OTS reached reasonable conclusions that WMB was unlikely to meet its depositors’ demands and was operating in an unsafe and unsound condition. Additionally, there were no viable claims that could be made against OTS based on the theory that they improvidently closed WMB.
5.
Certain Significant Litigations
a.
The Equity Committee’s Actions to Compel a Shareholders’ Meeting
On March 3, 2010, the Equity Committee commenced an action in the Bankruptcy Court, styled Official Committee of Equity Security Holders v. WMI, et al., Adv. Pro. No. 10-50731 (MFW), seeking to compel WMI to convene and hold an annual shareholders’ meeting for the nomination and election of its board of directors under Washington law (the “Action to Compel a Shareholders’ Meeting”). On March 11, 2010, the Equity Committee filed a motion for summary judgment, seeking an order requiring WMI to convene and hold such a meeting [Adv. Proc. No. 10-50731, D.I. 3]. In the alternative, the Equity Committee sought relief from the automatic stay to seek such relief in Washington state court. The Debtors opposed the Equity Committee’s motion [Adv. Proc. No. 10-50731, D.I. 9]. At a hearing before the Bankruptcy Court on April 21, 2010, the Bankruptcy Court determined that the automatic stay was not applicable, but did not consider the Equity Committee’s summary judgment motion.
On April 26, 2010, plaintiffs Michael Willingham and Esopus Creek Value L.P., each of whom were then members of the Equity Committee, filed an action against WMI in the Superior Court of the State of Washington, for the County of Thurston. On May 13, 2010, WMI removed this action to the United States District Court for the Western District of Washington (the “Washington District Court”), from which it was automatically referred to the United States Bankruptcy Court for the Western District of Washington and assigned to Bankruptcy Judge Paul B. Snyder. On May 14, 2010, WMI filed a motion to transfer venue to the United States District Court for the District of Delaware for referral to the United States Bankruptcy Court for the District of Delaware. On May 21, 2010, plaintiffs filed a motion to remand the action to Washington state court. A hearing on the motions to transfer and remand was held on June 11, 2010. By order, dated June 21, 2010, Judge Snyder of the United States Bankruptcy Court for the Western District of Washington granted WMI’s motion to transfer the case and preserved the issue of remand for determination by this Bankruptcy Court. On June 28, 2010, plaintiffs withdrew their remand motion. From July through September 2010, the members of the Equity Committee produced various documents requested by the Debtors, and were also deposed by the Debtors. On August 23, 2010, by order of the court, this adversary proceeding was consolidated with the Action to Compel a Shareholders’ Meeting [Adv. Proc. No. 10-50731, D.I. 58]
The Bankruptcy Court’s approval of the Examiner (discussed in Section V.B.4. above) and subsequent approval of the Global Settlement Agreement pursuant to the January Opinion (as reaffirmed in the September Opinion) as fair, reasonable and in the best interests of the Debtors’ estates has mooted the relief sought by the Equity Committee in its Action to Compel a Shareholders’ Meeting.
https://www.sec.gov/Archives/edgar/data/933136/000090951812000087/jg02-2712_8ke22.htm?utm_source=chatgpt.com
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