WaMu, JPMorgan Still Fighting Discovery Battle
By Christine Caulfield
Law360, New York (July 02, 2009) -- Despite a bankruptcy judge's order greenlighting the request, Washington Mutual Inc.'s bid to get its hands on JPMorgan Chase & Co. records for evidence of sabotage continues, with WaMu now fighting the bank's request to have the order overturned.
WaMu fired off an objection to JPMorgan's motion for reconsideration of the discovery order in the U.S. Bankruptcy Court for the District of Delaware on Wednesday, saying the bank's request amounted to a “desperate effort to foreclose discovery concerning its own allegedly tortious conduct.”
Judge Mary F. Walrath signed off on WaMu's motion to examine JPMorgan's books on June 24; JPMorgan filed its reconsideration motion two days later, according to court documents.
WaMu told the court it wanted access to JPMorgan's books to find evidence supporting allegations that it crafted a plot to undermine the one-time savings and loan giant prior to its 2008 collapse in order to buy up its banking assets cheaply.
WaMu said in its filing this week that it had advised JPMorgan on June 29 of its intent to limit the scope of its examination to documents supporting business tort claims, but this compromise offer was “rebuffed,” it said.
“JPMorgan insists on pressing ahead with their wasteful and meritless motion for reconsideration of this court's order,” WaMu said. “JPMorgan asks this court to throw out the baby with the bathwater, when the debtors have already taken steps to drain the bath.”
WaMu's discovery request on May 1 sought production of documents and depositions connected to potential business tort claims, potential fraudulent transfer claims, potential turnover claims and potential preferential transfer claims against JPMorgan.
JPMorgan objected to the request, stating that WaMu must seek the information it wanted in already pending litigation. JPMorgan contended in its objection filed May 13 that WaMu could not use Rule 2004 of the U.S. Bankruptcy Code to pursue discovery on issues that were involved in two separate lawsuits.
WaMu filed an adversary proceeding in the Delaware bankruptcy court on April 27, seeking $4 billion in cash that was held in the deposit accounts of subsidiary Washington Mutual Bank at the time WMB was seized and sold by the Federal Deposit Insurance Corp. to JPMorgan for $1.9 billion.
WaMu also sued the FDIC in the U.S. District Court for the District of Columbia, alleging that the purchase price was too low and that the agency sold assets it had no right to seize.
JPMorgan, which intervened in that suit, also filed its own adversary proceeding against WaMu, seeking declaratory judgments asserting that it acquired the debtor in good faith and that it was the owner of the $7.9 billion in disputed assets.
It was the last two suits that JPMorgan referred to as the operative pending proceedings.
In granting WaMu's request over the bank's objections, Judge Walrath said JPMorgan had misapplied the pending proceeding rule, since WaMu's motion did not seek evidence related to the bank's adversary proceeding.
“Simply because JPMorgan chose to include background information regarding the relationship of the parties involved in the JPMorgan adversary action in its complaint does not mean that any Rule 2004 examination request dealing with those background facts is related to the JPM adversary action,” the judge said.
“The court concludes that the debtors' motion does not seek the discovery of evidence related to the JPMorgan adversary action,” the judge added.
Judge Walrath said JPMorgan's suit sought the court's declaration that it owned certain assets from the sale of WaMu, which occurred after WaMu's closure, while WaMu sought to investigate conduct that occurred before the closure.
Further, the judge ruled, JPMorgan was not a party to WaMu's action against the FDIC, and the mere possibility that it could be permitted to intervene was insufficient to deny WaMu's motion.
WaMu asked to conduct a Rule 2004 investigation into JPMorgan after a group of WaMu investors sued JPMorgan in the U.S. District Court for the Southern District of Texas. WaMu wants to investigate whether the allegations in the shareholder complaint are true, it said.
The investors allege that JPMorgan deliberately drove down the value of WMB by abusing confidential information and that JPMorgan engaged in sham negotiations with WaMu throughout 2008 about buying the banking arm in order to obtain confidential information.
JPMorgan then shared that information with WaMu bank customers to persuade them to withdraw their deposits, leaked information to the media to depress the bank's stock value and ultimately used it in its negotiations with the FDIC, allowing JPMorgan to acquire WaMu's bank assets for a "fire sale" price, the investors claim.
WaMu filed for Chapter 11 protection on Sept. 26, citing approximately $33 billion in total assets and $8.2 billion in debts.
WaMu is represented by Elliott Greenleaf and Quinn Emanuel Urquhart Oliver & Hedges LLP.
JPMorgan is represented by Landis Rath & Cobb LLP and Sullivan & Cromwell LLP.
The case is In re: Washington Mutual Inc., case number 08-12229, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Jacqueline Bell and Brendan Pierson
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