JPMorgan Must Produce More Docs In WaMu Bondholder Suit
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Law360, Washington (July 15, 2013, 2:38 PM ET) --
A Washington district judge on Monday blasted JPMorgan Chase & Co. and a group of insurance company bondholders of Washington Mutual NA for dragging out a suit alleging JPMorgan engineered WaMu's downfall to purchase it cheaply, and ordered the bank to hand over information on large trading transactions that could have affected WaMu's solvency.
U.S. District Judge Rosemary M. Collyer directed JPMorgan to hand over additional documents that detail its and its institutional investors' WaMu stock sales and large transactions stemming from their WaMu bank accounts that could have affected WaMu's solvency when it purchased its banking operations in 2008.
Although the insurers requested documents illustrating transactions through June 2009 that were greater than $200,000, Judge Collyer further limited the discovery request to cover transactions by JPMorgan and its institutional investors between March and September of 2008 that were greater than $500,000. The parties also set discovery deadlines during Monday's hearing after Judge Collyer criticized the glacial pace of discovery.
"Don't hide behind foolish formalities which could add time and money to these proceedings," she told both sides. "I can't bless that kind of conduct. We have been dragging this out and dragging this out and dragging this out."
The plaintiffs — American National Insurance Co., American National Property & Casualty Co., Farm Family Casualty Insurance Co., Farm Family Life Insurance Co. and National Western Life Insurance Co. — claim JPMorgan and the FDIC had engaged in a covert scheme to engineer WaMu's downfall, enabling JPMorgan to cherry-pick its best assets. As part of that scheme, the insurers allege JPMorgan and its institutional investors sold large amounts of WaMu stock to undermine the bank's solvency.
Their 2009 complaint, filed in Texas state court, claims JPMorgan obtained an unlawful profit of at least $1.9 billion through a scheme to acquire WaMu without any obligations to bondholders.
"They sucked assets out of WaMu that could have been used to pay the bonds," Gregory S. Smith, the insurers' counsel, said during Monday's hearing.
But JPMorgan counsel M. David Possick alleged the insurers were "cobbling together" a set of allegations against other parties with the discovery disputes and maintained the plaintiffs couldn't prove JPMorgan had any direct investment in WaMu prior to the acquisition.
"[The discovery requests] are not geared to any discoverable evidence," Possick said. "They're trying to place a burden on JPMorgan to settle."
However, Judge Collyer noted that Possick didn't know whether JPMorgan or its institutional investors had direct investments in WaMu at the time, saying he couldn't prove the transaction and stock sale search would be a heavy burden on the bank without that basic knowledge.
Judge Collyer also directed the bank to produce documents that may be primarily related to dismissed claims in the case, as they could shed light on the remaining issues and blasted both sides for seeking broad production exemptions that could "hide a multitude of sins."
The insurers will be required to produce metadata from electronic discovery records that will show where the electronic files originated, information JPMorgan said was missing from previous production.
JPMorgan allegedly pressured the federal government to seize WaMu and then sell off the bank's most valuable assets to JPMorgan, without any accompanying liabilities, for a drastically undervalued price.
After the FDIC intervened and had the case removed to federal court, Judge Collyer initially dismissed it in April 2010. The bondholders' allegations were subject to the claims process set by the Financial Institutions Reform Recovery and Enforcement Act of 1989, which governs the FDIC's procedures for winding down failed institutions in its receivership. Therefore, the plaintiffs should have been confronting the FDIC, not JPMorgan, the judge said.
In June 2011, the D.C. Circuit reversed that decision and remanded the case, finding the allegations fell outside the scope of the claims process because they concerned actions taken by JPMorgan, not the FDIC.
JPMorgan continued to contend the bondholders' claims belonged to the FDIC, which had chosen to settle the dispute, and that the insurers' claims derived entirely from damages done to WaMu.
Judge Collyer pared the suit again in October by throwing out unjust enrichment and breach of confidentiality claims, noting that Washington law does not allow derivative suits that are contractual in nature. She left intact a claim for tortious interference over JPMorgan's alleged pressure on the federal government to sell WaMu, ruling that because the claim alleges a direct injury to the bondholders — a decrease in the value of the plaintiffs' WaMu bonds — it could stand.
The bondholders are represented by the Law Offices of Gregory S. Smith and Andrew J. Mytelka, Joseph R. Russo Jr., Steve Windsor and James M. Roquemore of Greer Herz & Adams LLP.
JPMorgan is represented by Brent J. McIntosh, Susan N. Goldis, Robert A. Sacks and M. David Possick of Sullivan & Cromwell LLP.
The FDIC is represented by David Clarke Jr. and John J. Clarke Jr. of DLA Piper and in-house counsel.
The case is American National Insurance Co. et al. v. JPMorgan Chase & Co. et al., case number 1:09-cv-01743, in the U.S. District Court for the District of Columbia.
--Additional reporting by Daniel Wilson and Kaitlin Ugolik. Editing by Katherine Rautenberg.
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