Dime Bancorp Inc (fka DIMEQ)

[Madclown]

The tax issue has definitely been subject to much debate. The Debtors contemplate a 45.5% tax rate in their calculation. However, according to Pleadings by JPM in the Federal Claims Court, their applicable tax rate is 38.757%. It should be noted that the 8-k issued by WMI on March 12, 2003 defines “Taxes” as set forth below:

"Taxes" equal, regardless of the actual amount of taxes imposed with respect to the damages recovery, the product of (i) the amount of damages recovered less the expenses in the litigation and LTW issuance described in the preceding clauses and (ii) the combined highest federal, New York State and New York City income tax rates applicable to financial institutions in the year (or years) in which the amount of the damages (in whole or in part) is fixed or determinable (after taking into account the effect of the deductibility of such taxes for federal and state income tax purposes); for 2003, this combined rate is 46.05%.

This definition of “Tax” may need to be viewed “outside the four corners” to divine the intent of the drafting parties. To be certain, this is one of many portions of the agreement that fail the “clear and unambiguous” test. If taken strictly, the 8-k would seem to imply that even if WMI were not taxed on the proceeds of the Anchor litigation (or if WMI were to have no tax liability at all for the tax year) it would nonetheless extract an amount equal to the highest applicable local, Federal and NY state tax rates applicable to financial institutions before making a distribution to LTW holders. Surely this was not the intent of the drafting parties and certainly no rational person would think it equitable for the agreement to provide (in the absence of any tax liability on the part of WMI) for WMI to receive 46% right off the top as an extraction for tax that isn’t even due and payable and then another 15% of the remaining award as administration fees. The notion strains credulity.

Also, when looking at Footnote 17 on page 58 (PDF page 97) at http://www.kccllc.net/documents/0812229/0812229101021000000000008.pdf
the Debtors, in their plan and disclosure statement, use the term “effective tax rate” in connection with their estimated 45.5% rate which is conflicting if one were to assume that tax would be extracted regardless of whether tax was owed. The term “effective tax rate” would only be used in connection with taxes actually owed or payable.

When we are talking about taxing over half a billion dollars, the difference in the tax rates is quite material. The award should be taxed in the hands of JPM because that is the rate at which the gross up is to be calculated at the fed claims court level. Since JPM is the entity that is now recognized by the fed claims court as the entity to which the award will be remanded, the gross up must be calculated “in their hands”. As such, it makes no sense to tax the award at WMI's tax rate as they are now irrelevant to the taxation discussion.

We are suing WMI for failing to fulfill their fiduciary duty to represent our interests. Our claims arise because WMI transferred our 85% interest in the Anchor litigation, free and clear of any obligations, to JPM. Remember that this is the only transfer (out of tens of billions in transfers) in the Global Settlement that separates the asset from the underlying obligation. Also, bear in mind that this transfer was not one made under duress at the time of the seizure in 2008, it was a calculated move by the Debtors and JPM made in March 2010 as a “backdated” § 363 sale. As such, the claim we have must be viewed in terms of what we would have received if the transfer or “sale” were done properly. The convoluted manner in which the fraudulent transfer was concocted would result in a windfall for WMI and for JPM because JPM would receive a $550 million pre-tax asset with no related liability and WMI is effectively receiving (through other consideration received in the Global Settlement) the value of the 85% portion that it never owned to begin with. Their windfall occurs if they are successful in expunging the entire obligation that should have been transferred (along with the related asset) to JPM. It would be a “win-win” for both of the settling parties.

The Debtors have argued, ad nauseum, that this transfer was “in the best interests of the estate”. The folly of this argument is that anyone could contemplate any number of scenarios in which a party takes something that doesn’t belong to them and then illegally transfers it to someone else for valuable consideration. Outside of the bankruptcy court this concept is called “theft” or “larceny” and is punishable by fines and/or imprisonment. The Debtors have posited that these actions are merely “in the best interests of the estate”. The concept of “best interests” cannot be raised as a defense for theft otherwise theft would never be a punishable offense. These settling parties enjoy a lot of advantages inside the bankruptcy court but if the bankruptcy court fails to reverse this inequity, a District court will do so on appeal.