WaMu Contests Shareholders' Appeal Of Ch. 11 Deal
By Lance Duroni
Law360, New York (February 2, 2011) -- Washington Mutual Inc. has objected to a shareholder group’s bid to appeal a bankruptcy court order sanctioning the $10 billion global settlement central to the defunct bank’s reorganization plan, saying any appeal must wait until the plan is confirmed.
Judge Mary F. Walrath’s order may have approved the settlement — among the debtors, the Federal Deposit Insurance Corp. and JPMorgan Chase & Co. — but it also denied confirmation of the plan, delaying the settlement from taking effect and resulting in no harm to the shareholders that opposed it, WMI said in an objection filed Tuesday in the U.S. Bankruptcy Court for the District of Delaware.
“The global settlement agreement and the plan are inextricably linked, and the denial of confirmation makes appellate review of the subsidiary findings regarding the global settlement agreement improper at this time,” the debtors said.
The official committee of equity security holders filed its notice of appeal in January, along with a petition to appeal directly to the U.S. Court of Appeals for the Third Circuit, in the hopes of bypassing the U.S. District Court for the District of Delaware.
The equity committee’s appeal suffers from “jurisdictional defects,” according to the objection — including that it does not appeal the order itself, but, rather, a finding within it.
“An appeal of a finding is not the proper subject of an appeal under settled Third Circuit law,” WMI said.
On Jan. 7, Judge Walrath denied confirmation of the bank's Chapter 11 reorganization plan, demanding changes to release provisions and other secondary aspects of the proposed resolution to the largest bank collapse in U.S. history.
In a 109-page opinion, the judge did, however, find that the global settlement was fair and reasonable, as were the releases granted to the settling parties.
This fairness finding, however, cannot satisfy the finality requirement for appellate jurisdiction until the plan is confirmed, according to the motion.
Moreover, even if jurisdiction could be established, the equity committee does not satisfy any of the statutory guidelines for a direct appeal to the Third Circuit — such as an issue involving the resolution of conflicting decisions or an issue that would “materially advance” the Chapter 11 case, WMI said.
In its petition, the equity committee argued that if it is forced to wait for an order confirming the reorganization plan before appealing the approval of the global settlement, the plan's supporters will probably assert that any appeal of the settlement is either time-barred or moot.
Instead of drawing on evidence in the record, the court wrongly determined the settlement was reasonable based on its own legal analysis of the claims as presented in the pleadings in the underlying litigation, the equity committee said.
The global settlement resolves a complex web of claims and counterclaims among WMI, the FDIC, which was appointed as Washington Mutual Bank NA’s receiver after it failed in 2008, and JPMorgan, which bought all of WaMu’s assets for nearly $1.9 billion.
WMI shareholders object to the settlement’s release of billions of dollars in claims against JPMorgan and the FDIC and contend that the pursuit of those claims would result in substantial gains for the estate.
The settlement also splits $10 billion in assets between the debtors and JPMorgan, including a $5.8 billion tax refund, which will provide for $7.5 billion in distributions to WMI’s creditors.
WaMu is represented in the bankruptcy by Richards Layton & Finger PA and Weil Gotshal & Manges LLP.
JPMorgan is represented by Sullivan & Cromwell LLP and Landis Rath & Cobb LLP.
The equity committee is represented by Ashby & Geddes PA and Susman Godfrey LLP.
The bankruptcy case is In re: Washington Mutual Inc. et al., case number 08-12229-MFW, in the U.S. Bankruptcy Court for the District of Delaware.
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