JPMorgan Gets OK To Intervene In WaMu's FDIC Suit

By Ben James

Law360, New York (October 07, 2009) -- The court overseeing Washington Mutual Inc.'s suit against the Federal Deposit Insurance Corp. over the $1.9 billion sale of WMI's banking operations to JPMorgan Chase & Co. has allowed JPMorgan to intervene as a defendant in the case, rejecting the argument that the automatic stay from WMI's bankruptcy case barred JPMorgan from getting involved in the suit.

On Monday, Judge Rosemary M. Collyer of the U.S. District Court for the District of Columbia signed off on an order granting the motion to intervene JPMorgan Chase Bank NA filed on March 30.

Plaintiffs WMI and WMI Investment Corp. claim that the FDIC, as receiver for Washington Mutual Bank, sold assets that belonged to the plaintiffs to JPMC, and thus, they are owed billions, Judge Collyer explained in a memorandum opinion, also from Monday.

On Sept. 25, 2008, the Office of Thrift Supervision shuttered WMB and tapped the FDIC as WMB’s receiver, after the withdrawal of $16.7 billion in deposits in the span of a fortnight left the bank insolvent.

The FDIC then sold substantially all WMB’s assets to JPMC for $1.9 billion.

On Sept. 26, 2008, WMI filed for Chapter 11 protection, citing approximately $33 billion in total assets and $8.2 billion in debts, including $5.2 billion in unsecured debt.

WMI submitted claims against the FDIC asserting that it owned or held interests in assets sold to JPMC, but the receiver disallowed WMI’s claims in January. In March JPMC launched an adversary proceeding against WMI in the bankruptcy court, and filed the motion to intervene in the instant suit, looking to protect its ownership interests in the disputed assets.

The Bankruptcy Code prohibits commencing or continuing an action with respect to a claim against a debtor if the claim arose prior to the bankruptcy filing, Judge Collyer noted.

“However, JPMC is not attempting to bring a claim against the debtor — rather, the debtor has brought claims that implicate JPMC’s interests. Thus, WMI’s claim that the automatic stay applies to JPMC’s proposed intervention must fail,” Judge Collyer wrote.

JPMC’s filed its motion to intervene with an answer and counterclaim attached. The counterclaim asked the court for a declaratory judgment upholding the FDIC’s disallowance of the plaintiffs’ claims and rejecting their challenge to that disallowance.

Attorneys for WMI in this suit did not immediately respond to calls seeking comment on Wednesday. A J.P. Morgan spokesman declined to comment.

An FDIC spokesman could not be immediately reached.

WMI is represented by Weil Gotshal & Manges LLP and Quinn Emanuel Urquhart & Hedges LLP.

JPMC is represented by Sullivan & Cromwell LLP.

The FDIC is represented in its capacity as WMB receiver by DLA Piper LLP and in its corporate capacity by in-house counsel.

The case is Washington Mutual Inc. et al. v. FDIC, case number 09-533, in the U.S. District Court for the District of Columbia.