Court Won't Bar WaMu Parent Suits Vs JPMorgan Over $4.4B
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As of 2:09 PM ET 6/24/09
By Peg Brickley
Of DOW JONES DAILY BANKRUPTCY REVIEW
A bankruptcy judge Wednesday refused to walk away from a three-way fight over $4.4 billion held in deposit accounts of the former Washington Mutual Bank, or WaMu.
JPMorgan Chase & Co. (JPM) and the Federal Deposit Insurance Corp., which sold WaMu to JPMorgan, claim a right to the cash, as does WaMu's former parent, Washington Mutual Inc.
At a court hearing Wednesday, Judge Mary F. Walrath rejected a bid to stay lawsuits filed in the U.S. Bankruptcy Court in Wilmington, Del., legal actions that will determine who gets the cash.
"I have to decide," Walrath said, rejecting arguments from the FDIC and JPMorgan, which said the matter should be decided exclusively by a federal court in Washington, D.C.
"I do have jurisdiction to determine what is property of the estate," the judge said, referring to the Chapter 11 proceeding of WaMu's former parent, Washington Mutual Inc.
The ruling was a victory for creditors of the parent company, who are owed billions. They feared that moving the dispute from the Delaware bankruptcy court to federal court would mean years of delay and uncertainty.
"We'll have tons of litigation in the district court," said David Stratton, an attorney for the creditors, warning about what would happen if the dispute moved out of bankruptcy court and into the federal courts.
"Money's going out the door like crazy to the professionals," said Stratton, who's with Pepper Hamilton.
The FDIC said it would move immediately to appeal the ruling from Walrath on the grounds the decision sets up a clash between the bankruptcy court and the federal courts, which have exclusive jurisdiction over failed financial institutions.
Thomas Califano of DLA Piper, an attorney for the FDIC, cited "serious policy concerns" at stake in the dispute over the money.
The cash at issue was in deposit accounts under the name of the former parent, Washington Mutual Inc., in September 2008 when WaMu went under in the biggest banking collapse in U.S. history.
Regulators marched in, seized WaMu and sold it to JPMorgan for $1.9 billion, sparking a bankruptcy filing for Washington Mutual Inc. and a cluster of lawsuits.
Operating under the protection of the Delaware bankruptcy court, WaMu's former parent moved to claim the cash, invoking its rights as a depositor.
JPMorgan and the FDIC say the fate of the money will hang on a law that falls outside the jurisdiction of the bankruptcy court, the Financial Institutions Reform Recovery and Enforcement Act of 1989, FIRREA.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)
- By Peg Brickley, Dow Jones Daily Bankruptcy Review; 302-521-2266; peg.brickley@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/nae/al?rnd=iroWVn2ql0zCzhe22hBLeg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
06-24-09 1407ET
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