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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
In re
WASHINGTON MUTUAL, INC., eta/.,
Debtors.
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POLICEMAN'S ANNUITY AND
BENEFIT FUND OF THE CITY OF
CHICAGO, BOILERMAKERS
NATIONAL ANNUITY TRUST AND
DORAL BANK PUERTO RICO,
Appellants,
v.
WASHINGTON MUTUAL, INC.
LIQUIDATING TRUST,
Appellee.
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ORDER
C.A. No. 12-665-GMS
WHEREAS the MBS Plaintiffs are purchasers of residential mortgage backed securities
issued by non-debtor former subsidiaries of Washington Mutual Bank ("WMB"), the former
banking subsidiary of Washington Mutual, Inc. ("WMI" or "Debtor") that was placed into
receivership in September 2008;
Case 1:12-cv-00665-UNA Document 11 Filed 06/05/12 Page 1 of 5 PageID #: 1879
WHEREAS the MBS Plaintiffs' claims stem from a series of securities actions that were
consolidated in the United States District Court for the Western District of Washington1
;
WHEREAS WMI is not a party to the Washington litigation, but the MBS Plaintiffs filed
proofs of claim in the bankruptcy asserting the same liability against WMI on a control person
theory (the "Original Claims");
WHEREAS on May 18,2010, WMI filed an objection to the Original Claims, which was
resolved consensually and resulted in the voluntary withdrawal of the Original Claims pursuant
to a stipulation, without prejudice tore-filing "in the event there is a recovery for holders of
Allowed Subordinated Claims";2
WHEREAS on November 23,2010, the bankruptcy court entered an agreed order
approving the Stipulation [Bankr. D.l. 6068];
WHEREAS notwithstanding the express terms ofthe Stipulation, on January 10, 2012,
the MBS Plaintiffs re-filed the Amended MBS Claim, first in the amount of $273 million and
later amended to increase the amount to $435 million;
WHEREAS the MBS Plaintiffs additionally filed a motion under Bankruptcy Rule 3013
(the "Classification Motion") seeking a determination that the Amended MBS Claim is not
subject to subordination and should be classified in Class 12 (general unsecured claims) rather
than Class 18 (subordinated claims);
WHEREAS after briefing and argument, the bankruptcy court issued an order denying
the Classification Motion and concluding that the MBS Plaintiffs had re-filed the Amended MBS
1 The action is entitled Boilermakers National Annuity Trust Fundv. WaMu Mortgage Pass Through Certificates,
Case No. C09-037 (MJP).
2 Stipulation Resolving Debtors' Amended Thirty-Second Omnibus Objection (Substantive) with Respect to Claim
Nos. 3812 and 2689, ~1, [Bankr. D.I. 6068] (the "Stipulation").
Case 1:12-cv-00665-UNA Document 11 Filed 06/05/12 Page 2 of 5 PageID #: 1880
Claim prematurely in contravention of the terms and provisions of the Stipulation [Bankr. D.I.
10182] (the "Order");3
WHEREAS on May 21, 2012, the MBS Plaintiffs filed an emergency motion in the
bankruptcy court seeking a stay ofthe Order pending appeal [Bankr. D.I. 10193];
WHEREAS the bankruptcy court denied this motion by order dated May 23,2012,
concluding that the MBS Plaintiffs "failed to establish a prima facie case" on any of the four
elements required for a stay [Bankr. D.I. 10209 at 2];
WHEREAS thereafter the MBS Plaintiffs filed an Emergency Motion For Stay Pending
Appeal of Order Denying MBS Plaintiffs' Motion to Classify Asserted Class Claim as a Class 12
Claim with the court (D.I. 1) (the "Emergency Motion");
WHEREAS the MBS Plaintiffs filed an opening brief in support thereof (D.I. 2);
WHEREAS WMI Liquidating Trust filed an answering brief in opposition to the MBS
Plaintiffs' emergency motion (D.I. 8);
WHEREAS the court has considered the parties' briefs, the record below, as well as the
applicable law;
IT IS HEREBY ORDERED that:
1. The MBS Plaintiffs' Emergency Motion (D.I. 1) is DENIED;4 and
3 The Order is without prejudice to the rights of the MB S Plaintiffs to re-file a proof of claim if and when there is a
recovery for holders of Allowed Subordinated Class 18.
4 The court agrees with the Bankruptcy Court that the "movant has failed to establish a prima facie case that: (a) it is
likely to prevail on the merits of the appeal; (b) it will suffer irreparable injury absent a stay; (c) a stay will not cause
substantial harm to other parties; and (d) a stay will not harm the public interest." [Bankr. D.l. 10209 at 2]; See
Republic of Philippines v. Westinghouse Elec. Corp., 949 F.2d 653, 658 (3d Cir. 1991).
The MBS Plaintiffs are unable to meet their burden of"ma[king] a strong showing that [they are] likely to
succeed on the merits" on appeal. Republic of the Phil. 949 F.2d at 662. Unlike the cases cited by the MBS
Plaintiffs, in which stays were granted pending appeals involving serious questions or issues offrrst impression, the
MBS Plaintiffs here merely dispute the bankruptcy court's interpretation of its own prior orders and the Stipulation.
The scope of appellate review is limited in these circumstances, diminishing any likelihood of success, because the
bankruptcy court's interpretation and enforcement of its prior orders is given substantial deference. "[A] bankruptcy
Case 1:12-cv-00665-UNA Document 11 Filed 06/05/12 Page 3 of 5 PageID #: 1881
2. the bankruptcy court's order dated May 23,2012 [Bankr. D.I. 10209] is AFFIRMED.
court's interpretation of its own order [is] subject to review for an abuse of discretion .... [This] accords great
weight to the [b ]ankruptcy [ c ]ourt' s construction of an order with which it is familiar by virtue of its direct
involvement in the proceedings." In re Shenango Grp. Inc., 501 F.3d 338, 346 (3d Cir. 2007). Here, the MBS
Plaintiffs challenge the bankruptcy court's interpretation ofthe Stipulation, its Confirmation Order, and the Seventh
Amended Plan. The only error alleged is the bankruptcy court's interpretation of the word "recovery" in the
Stipulation to require the MBS Plaintiffs to wait tore-file their claim until holders of subordinated claims actually
receive a distribution under the Seventh Amended Plan. The bankruptcy court considered lengthy briefing and
heard argument on this issue before deciding it. The bankruptcy court explained its interpretation of the term
"recovery" when it stated that "[t]here has been no recovery on Class 18 simply by confirmation of the plan or by
the fact that the debtor allowed that class to vote. The reality is there has been no distribution of any property, cash,
liquidating trust, certificates, or anything to Class 18." Transcript of Hearing dated May 7, 2012, 124:15-22. The
MBS Plaintiffs have not demonstrated that the bankruptcy court's reading of the term is "unreasonable"-which is
the only basis on which the ruling could be reversed. Shenango, 501 F.3d at 346. They have therefore failed to
show they are likely to succeed on the merits.
The MBS Plaintiffs have also failed to establish that they would suffer irreparable harm if they do not
receive a stay. To do so, the MBS Plaintiffs must establish a resulting injury "that cannot be redressed by a legal or
equitable remedy." DCNC NC. I, LLC. v. Wachovia Bank, NA., Nos. 09-3775-76, 2009 WL 3209728, at *8 (E.D.
Pa. Oct. 5, 2009) (internal quotations omitted). It is well established that the possibility that an appeal may become
moot does not constitute irreparable harm for purposes of obtaining a stay. See e.g., Regal Ware, Inc. v. Global
Home Prods., LLC, Nos. 06-10340-KG, Civ. A. 06-508-UNA, 2006 WL 2381918, at *I (D. Del. Aug. 17, 2006)
("[T]he fact that [the movant's] appeal could be rendered moot ... does not in and of itself constitute irreparable
harm"). Furthermore, if successful on appeal, the MBS Plaintiffs would not lose their appellate rights with the
release of the reserve and could continue to make their arguments regarding the Stipulation. If successful on appeal,
the MBS Plaintiffs could pursue the Amended MBS Claim before the bankruptcy court, and if allowed, could
receive distributions alongside similarly classified creditors pursuant to the terms of the Seventh Amended Plan.
The MBS Plaintiffs have not shown any irreparable harm they would suffer absent a stay.
WMI Liquidating Trust, however, has shown the harm it would suffer if a stay were granted. The harm to
WMI, as well as to holders of allowed claims would be substantial. The unwarranted continuation of the reserve
would be highly prejudicial to holders of allowed claims, forcing the further delay of significant distributions and
the continuing incurrence of interest. The Debtors claim that the effect of keeping reserves for the Amended MBS
Claim as if it were an allowed general unsecured claim of$435 million would push subordinated creditors and
common and preferred equity further from recovery by approximately $700,000 per month. (D.I. 8 at 14.) The
Debtors have also shown such a reserve to have an even more dramatic impact on the recovery to the Preferred
Income Equity Redeemable Securities class, reducing its recovery by approximately $2 million per month. (!d.)
This "material adverse harm to [the Debtor's] diverse creditor constituencies" merits denial of the stay. In re Trans
World Airlines, Inc., No. 01-00056-PJW, 2001 WL 1820326, at *14 (Bankr. D. Del. Apr. 2, 2001). Furthermore, the
harm caused to other creditors from interest costs associated with the reserve shows that the public interest does not
favor a stay.
Lastly, the MBS Plaintiffs have not offered to post any bond to protect WMI Liquidating Trust and its
creditor and shareholder constituencies from the harm that retaining a reserve for the full amount of the Amended
MBS Claim would cause. The failure to post a supersedeas bond further compels denial of a stay. See Order dated
February 6, 2012, Black Horse Capital, Nos. 12-1263, 12-1264 (3d Cir. 2012).
Case 1:12-cv-00665-UNA Document 11 Filed 06/05/12 Page 4 of 5 PageID #: 1882
Dated: June _l__, 2012
Case 1:12-cv-00665-UNA Document 11 Filed 06/05/12 Page 5 of 5 PageID #: 1883 |
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