11/04/09 DC Hearing (astock/danbb) (corrected)
THJC - The Honorable Judge Collyer
THJMW - The Honorable Judge Mary Walrath
I've tried to keep my opinions in []'s.
I arrived at the courthouse around 1:40PM. I was behind our attorneys while going through security; it was just them and me.. very quiet day at the courthouse. Attorney's are permitted laptops and blackberry's. I didn't even try bringing my phone.
I entered the court room around 1:50PM to find attorneys on both sides ready to go. I sat on the left side, the WMI side. From 1:50PM-2:10PM the main Quin attorney, Carlinsky, paced near their table seemingly going over arguments in his head. The FDIC and JPM counsel seemed very relaxed and smiled a lot towards each other.
The principal WMI attorney's were Mr. Carlinsky from Quin and Mr. Swarshek(sp?) from Weil. JPM's speaker was a Ms. Friedman. FDIC Receivership's speaker from Piper was Mr. John Clark.
THJC entered around 2:20PM and asked the attorney's to identify themselves. WMI had 5 attorney's at the table (a mix of Quin and Weil) and 5 attorney's on the bench. FDIC/JPM had 6 attorney's at the their table (1 Fed from FDIC for FDIC Corporation, 2 FDIC from Piper for FDIC Receiver, and 3 from JPM) and about another 5 on the bench. There was also an attorney for the WMB Bond Holders on the FDIC side.
As opposed to a THJMW hearing where they methodically step through the agenda, THJC did not worry about the agenda. On multiple occasions THJC stated she had read all the briefs and was familiar with the arguments from both sides. It was apparent from nearly the start that THJC had a pretty good idea as to what questions she wanted answered and what she wanted the attorney's to argue. THJC directed both sides limit re-stating their arguments from their briefings. THJC wanted to hear, from both sides, the recent happenings from the BK court.
[WMI's goal was to stay as many counts/issues as possible. FDIC/JPM wanted all counts to proceed or even removed arguing the counts by WMI were not pleaded correctly according to rule 11; this didn't go very far in the hearing.]
Discussion proceeded on all the counts as the attorney's jumped among the different counts. Discussion ensued on the $1.88B sale of the bank. WMI pointed out the huge disparity between the $1.88B sale price and the liquidation value. THJC asked WMI if it matters if it matters if the FDIC undersold, hypothetically, by $500k or by $20B. WMI stated it matters when comparing it to the size of the assets and whether the FDIC comparatively undersold by a little or by a lot (i.e. small mistake or big mistake). FDIC argued that Congress gave them the right to take action without oversight from any court. THJC gave a very questioning look towards the FDIC and asked if the FDIC can undersell something for $20B and not be answerable for it. FDIC said he would give an indirect answer; he went on to explain that Lehman had fallen 10 days prior to WMB and that in the 2 weeks before WMB being seized it had a run of $16B; WMB had ~ $160B deposits and the FDIC only had $31B at the time, hence the justification for urgent action. THJC stated she was very interested in how Wachovia was handled by the FDIC, with the FDIC ready to sell Wachovia only to have the deal fall through because a buyer bypassed the FDIC with a much higher offer.
THJC then seemed very set on the attorney's arguing one principal thing.. what they thought should be heard in her court and what should be stayed. WMI and JPM all agreed that any stay should have a time limit. WMI argued for all 6 counts to be stayed. FDIC/JPM argued for all 6 to proceed; and JPM specifically argued all 6 proceed -but- if a stay was to happen JPM thought only 4 should stay and stay only short-term.
THJC then set the stage for everyone by stating, "let me give a shot across the bow" and stated that Judge THJMW has already been moving along and had made rulings that made it clear THJMW felt her court had jurisdiction over certain things; particularly "what assets belong to the estate". JPM kept arguing that Congress gave only the DC court jurisdiction over the FDIC. THJC agreed that DC has the jurisdiction over the FDIC but that THJMW has already made rulings regarding the estate assets and that she (THJC) would not go against the BK court asserting jurisdiction over estate assets. THJC stated that if FDIC/JPM wants those items argued in DC then they need to get THJMW's decisions overturned. Otherwise it remains in BK court.
THJC continued to state many times to JPM that she (THJC) will not take jurisdiction away from the BK court where the BK court has decided it has jurisdiction. THJC said she does not want two courts deciding the same issues. THJC stated all claims arising out of receivership would be decided in DC.
The question then arose whether the FDIC Corp. needs to remain a defendant. FDIC Corp. wants out but WMI argued that they want FDIC Corp. in because both the FDIC Corp, and FDIC Receivership sign the P&A. WMI stated they want to ensure someone can pay in the end. THJC questioned the FDIC regarding this point as to who would pay if the FDIC were found to have done wrong. (This got into a discussion about the role of each FDIC entity. FDIC Rec. said they would only pay out what the Receivership held; THJC asked "$1.8B?" FDIC Rec. said yes. [I think THJC will probably keep the FDIC Corp. in the suit; it was my opinion THJC didn't like that answer.])
THJC said she would not rule and take it all under advisement. Court adjourned.
MY PERSONAL OPINION
Like THJMW, THJC is a -very- fair and good judge. These are not traffic court judges and I do believe they want what is both right and just.
It looks clear to me that THJC will probably stay 4 counts and will watch what happens in the BK court. It is also clear to me from THJC's statements that THJC will defer to THJMW on anything that THJMW feels is the BK court's jurisdiction.
I think the $4B is of -huge- importance to the WMI attorney's (I may have overheard something regarding this. ok. I know I did) And appeals are expected with it but WMI just needs the initial ruling as a huge win.
It also seems clear to me that non-WMB assets will be decided in DE, while WMB related receivership issues will be decided in DC. DC will eventually proceed since it has jurisdiction over the FDIC. Questions about the $1.88B fire sale to JPM will be decided in DC. I also don't think the FDIC will ever pay a penny until they have exhausted the court system. However, I think JPM on the other hand would be more willing to negotiate as the chips fall against them. Only JPM can make this entire thing go away.. WMI is looking to pile up the wins and build pressure for JPM to deal. IMHO.
In all, I think this hearing went very much in WMI's favor.
note: JPM attorney stated she will be in the same courthouse for the Insurance Company vs. JPM on Friday. I'm thinking of attending.
