By Tom Hals
WILMINGTON, Del., Nov 5 (Reuters) - The Federal Deposit Insurance Corp asked a court for control over $3.7 billion claimed by both bankrupt holding company Washington Mutual Inc and JPMorgan Chase & Co (JPM.N), according to court documents.
The government agency was appointed receiver last year for Washington Mutual's lending operations, which were seized by regulators at the height of the financial panic. The FDIC sold the bank business to JPMorgan Chase Bank for $1.9 billion.
Washington Mutual [WMPDC.UL] has asked a bankruptcy court to force JPMorgan to return $4 billion, which is the amount it had on deposit with one of its banks plus accrued interest. JPMorgan has argued the money was actually a capital contribution made to meet regulatory requirements, not a deposit.
Judge Mary Walrath has yet to rule in that dispute.
In a court filing on Wednesday, the agency asked Walrath to lift the automatic stay of legal proceedings that accompanies a Chapter 11 filing to allow the FDIC to invoke a clause in the sale contract to take control of the disputed funds.
"The FDIC-receiver seeks modification of the stay, to the extent required, to enable it to demand JPMC to return the disputed deposit balances," said the agency's court filing.
The agency said once returned, the funds would be held in a non-interest bearing account at a Federal Home Loan Bank until pending lawsuits over the funds were resolved.
Washington Mutual's attorney said the company would challenge the request. He also noted that by invoking the contract clause, the government agency is acknowledging the funds are not a capital contribution.
"By filing their papers the FDIC has effectively admitted the $4 billion are the debtor's deposit and do not belong to anybody else," said David Elsberg of Quinn Emanuel Urquhart Oliver & Hedges.
In addition to the ownership of the funds, the bankruptcy court must also determine if claims by JPMorgan and the FDIC against Washington Mutual exceed the value of the disputed deposits.
The main bankruptcy case is In re Washington Mutual Inc, U.S. Bankruptcy Court, District of Delaware (Wilmington), No. 08-12229.
The adversarial suit over the deposits is Washington Mutual Inc and WMI Investment Corp v JPMorgan Chase Bank National Association, U.S. Bankruptcy Court for the District of Delaware, No. 09-50934
