Sunday, June 07, 2009 8:38:11 PM
The FDIC's motion to stay the two bankruptcy court adversary proceedings makes two arguments: (1) the two actions are barred by 12 USC 1821(d)(13)(D)(i), which gives the District Court exclusive jurisdiction to determine rights of WMB assets ('asset' means anything WMB owned that the FDIC as receiver might liquidate for the receiver ship (citing the District of Columbia District Court in Washington Bancorp. v. FDIC) and (2) the First-to-File Doctrine prohibits Judge Walrath from determining the adversary proceedings because it says that where two courts both have jurisdiction over a matter, the court in which an action in the matter is first filed shall determine the matter.
The first argument fails because the deposits are not assets of WMB. As deposits, that money was NEVER property of WMB, so it cannot be considered an 'asset'. The FDIC attempts a red herring by saying that per Art. 9.5 of the P&A it has the power to order JPM not to release the $3.7 billion, but concedes it has not exercised the 'power'. (This argument is ludicrous because a clause in an agreement cannot convey property rights unless one of the parties OWNS the property and expressly agrees to the grant of an interest in the property.) The FDIC knows the money is no more WMB/JPM's (hence the FDIC has no jurisdiction over it) than it would over a retail depositor's money that passed to JPM. The FDIC does raise the issue that the money on deposit with JPM may be commingled with "tax refunds and other commingled funds" it contends belong to WMB. Even if some WMB funds were commingled the amounts that were not (the lion's share) are WMI's property.
Point (2) is likewise silly because the deposits were never assets of WMB, the District Court never had jurisdiction over them, so First to File doesn't apply. In any case, WMI was actually the 'first to file' (i.e., the money became an issue in legal proceedings) as upon the Chapter 11 filing any bank accounts WMI owned became property of the estate under the jurisdiction of the bankruptcy court, i.e., on 9/26/08 by operation of law as opposed to the 12/30/08 filing of the administrative claim.
Accordingly, there is no 'concurrent' jurisdiction so the First to File rule is inapplicable. Moreover, the fact that WMI asserts a claim for the $3.7B in its administrative claim is irrelevant. That assertion was a duplicative precaution for the reasons discussed.
Long time board followers may recall I said WMI would seek removal of its bankruptcy avoidance claims to the District Court because though the bankruptcy court has jurisdiction over them under 12 USC 1821(d) they must be brought in the district court. Judge Walrath now has an opportunity to transfer those claims to the District Court.
The turnover action, is quite another matter. The District Court does not have jurisdiction over the deposits, and the FDIC knows it, which undermines its entire motion. It would have been in a stronger position if it had limited its motion to the disputed "tax refunds and other commingled funds" it describes in the motion, assuming it had iron-clad evidence to support its argument.
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