In re Inc.

• Decision Date: 07 January 2011
• Docket Number: Adversary No. 10–50911 (MFW).,Bankruptcy No. 08–12229 (MFW).
• Citation: 442 B.R. 308
• Parties: In re WASHINGTON MUTUAL, INC., et al., Debtors.Broadbill Investment Corp. et al., Plaintiffs,v.Washington Mutual, Inc., Defendant.
• Court: U.S. Bankruptcy Court — District of Delaware

442 B.R. 308

In re WASHINGTON MUTUAL, INC., et al., Debtors.Broadbill Investment Corp. et al., Plaintiffs,

v.Washington Mutual, Inc., Defendant.

Bankruptcy No. 08–12229 (MFW).

Adversary No. 10–50911 (MFW).

United States Bankruptcy Court, D. Delaware.

Jan. 7, 2011.

Mark E. Felger, Esquire, Cozen O' Connor, Wilmington, DE, Paul N. Silverstein, Esquire, Jeremy B. Reckmeyer, Esquire, Andrews Kurth LLP, New York, NY, Co–Counsel for Broadbill Investment Corp.Scott J. Leonhardt, Esquire, Frederick B. Rosner, Esquire, The Rosner Law Group LLC, Wilmington, DE, Arthur Steinberg, Esquire, King & Spalding, New York, NY, Co–Counsel for Nantahala Capital Partners LP and Blackwell Capital Partners LLC.Marc D. Collins, Esquire, Chun Jang, Esquire, Travis A. McRoberts, Richards, Layton & Finger, P.A., Wilmington, DE, Brian S. Rosen, Esquire, Weil, Gotshal & Manges LLP, New York, NY, Co–Counsel for Debtors.David B. Stratton, Esquire, Evelyn J. Meltzer, Esquire, Pepper Hamilton LLP, Wilmington, DE, Counsel for the Official Committee of Unsecured Creditors.

OPINION ¹

MARY F. WALRATH, Bankruptcy Judge.

Before the Court is the Motion for Summary Judgment filed by Washington Mutual, Inc. (“WMI”) in the above-captioned adversary. For the reasons stated below, the Court will deny the motion for summary judgment, finding that there are genuine issues of material fact in dispute.

I. BACKGROUND

On July 6, 1994, Anchor Savings Bank, FSB (“Anchor”) and Dime Bancorp, Inc. (“DBI”) entered into an agreement to merge. ( See A.D.I. # 70 at Ex. I.) ² In early 1995, Anchor commenced a lawsuit against the federal government alleging breach of contract and taking of property without compensation as a result of the statutory change in treatment of supervisory goodwill that Anchor had previously realized when it acquired certain failing savings and loan associations (the “Anchor Litigation”). (Id. at Ex. G.) As a result of the merger with Anchor, DBI became entitled to the proceeds, if any, from the Anchor Litigation. On December 22, 2000, DBI issued to its shareholders litigation tracking warrants (“LTWs”) tied to the Anchor Litigation pursuant to a Warrant Agreement and Registration Statement filed on October 20, 2000. ( Id. at Exs. H & P.)

On January 4, 2002, DBI merged with WMI. ( Id. at Exs. I & Q.) WMI was a savings and loan holding company, which held, inter alia, all of the stock of Washington Mutual Bank (“WMB”). The Warrant Agreement was subsequently modified in an Amended Warrant Agreement dated March 11, 2003, between WMI and the agent for the LTW Holders. ( Id. at Ex. R.) Pursuant to the Amended Warrant Agreement, WMB was to prosecute and control the Anchor Litigation and, upon a trigger, the LTW Holders were entitled to common stock of WMI. ( Id. at Ex. R, §§ 3.5 & 6.3.)

The Court of Federal Claims ultimately entered judgment in favor of the plaintiffs in the Anchor Litigation in the amount of $356 million on July 17, 2008. ( Id. at Ex. S.) Cross appeals were filed. ( Id. at Exs. T & U.) On March 10, 2010, the Court of Appeals for the Federal Circuit affirmed the ruling of the Court of Federal Claims in part and remanded for further determination of damages, suggesting that the damages award be increased by $63 million. ( See A.D.I. # 87 at Ex. K.) The Court of Federal Claims has not ruled yet on the remand (or on the government's recent motion to dismiss).

In the interim, on September 25, 2008, the Office of Thrift Supervision (“OTS”) seized WMB and appointed the Federal Deposit Insurance Corporation (the “FDIC”) as receiver. Immediately after its appointment as receiver, the FDIC sold substantially all of the assets of WMB to JPMorgan Chase Bank, N.A. (“JPMC”) for approximately $1.8 billion and assumption of certain of WMB's liabilities. ( Id. at Ex. V.) On September 26, 2008, WMI filed a voluntary petition under chapter 11 of the Bankruptcy Code, together with its affiliate WMI Investment Corp.

On April 12, 2010, Broadbill Investment Corp. filed an adversary complaint seeking a declaratory judgment relating to the rights of the LTW Holders. (A.D.I. # 1.) On June 30, 2010, the Court approved a stipulation allowing Nantahala Capital Partners LP and Blackwell Capital Partners, LLC to intervene as plaintiffs. (A.D.I. # 27.)

On June 16, 2010, WMI filed the Forty–Third and Forty–Fourth Omnibus Objections to claims contending that proofs of claims filed by some of the LTW Holders were really equity interests not claims and/or should be subordinated pursuant to section 510(b). WMI sought to stay the adversary proceeding pending determination of the omnibus objections to the LTW Holders' claims. This was opposed because some LTW Holders had not filed claims or intervened in the adversary.

Because the issues raised in the Broadbill adversary were similar to those raised in the omnibus objection to claims and because the resolution of the omnibus objection would not decide the issue for all LTW Holders, the Court suggested that the Complaint be amended to serve as a class action on behalf of all LTW Holders. As a result, the Broadbill Complaint was amended on September 3, 2010, as a class action on behalf of all the LTW Holders. (A.D.I. # 52.)

On September 24, 2010, WMI filed an amended answer and counterclaim (asserting that, if the Court determines that the LTW Holders have any claims, they should be subordinated pursuant to section 510(b)). (A.D.I. # 57.) A response to the counterclaim was filed by the LTW Holders on October 15, 2010. (A.D.I. # 61.) On October 29, 2010, WMI filed a motion for summary judgment on the Amended Complaint. (A.D.I. # 68.) A notice of completion of briefing on WMI's Motion for Summary Judgment was filed on November 22, 2010. (A.D.I. # 90.) Oral argument on the Motion was heard on December 1, 2010,³ and the matter is ripe for decision.

II. JURISDICTION

This Court has jurisdiction over this adversary, which is a core proceeding pursuant to 28 U.S.C. §§ 1334 & 157(b)(2)(A), (B), (C), (M) & (O).

III. DISCUSSIONA. Standards for Summary Judgment

Rule 7056 of the Federal Rules of Bankruptcy Procedure incorporates Rule 56 of the Federal Rules of Civil Procedure in adversary proceedings.

In considering a motion for summary judgment under Rule 56, the court must view the inferences from the record in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Hollinger v. Wagner Mining Equip. Co., 667 F.2d 402, 405 (3d Cir.1981). If there does not appear to be a genuine issue as to any material fact and on such facts the movant is entitled to judgment as a matter of law, then the court shall enter judgment in the movant's favor. See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322–24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Carlson v. Arnot–Ogden Mem'l Hosp., 918 F.2d 411, 413 (3d Cir.1990).

The movant bears the burden of establishing that no genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585 n. 10, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Integrated Water Res., Inc. v. Shaw Envtl., Inc. (In re IT Group, Inc.), 377 B.R. 471, 475 (Bankr.D.Del.2007). A fact is material when it could “affect the outcome of the suit.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

Once the moving party has established a prima facie case in its favor, the non-moving party must go beyond the pleadings and point to specific facts showing more than a scintilla of evidence that there is a genuine issue of fact for trial. See, e.g., Anderson, 477 U.S. at 252, 106 S.Ct. 2505; Matsushita, 475 U.S. at 585–86, 106 S.Ct. 1348; Michaels v. New Jersey, 222 F.3d 118, 121 (3d Cir.2000); Robeson Indus. Corp. v. Hartford Accident & Indem. Co., 178 F.3d 160, 164 (3d Cir.1999). If the moving party offers only speculation and conclusory allegations in support of its motion, the burden is not met. See Ridgewood Bd. of Educ. v. N.E. ex rel. M.E., 172 F.3d 238, 252 (3d Cir.1999). Therefore, when the court determines that the non-moving party has presented no genuine issue of disputed fact, summary judgment may be granted. See Matsushita, 475 U.S. at 587, 106 S.Ct. 1348.

In breach of contract cases under New York law,⁴ summary judgment is appropriate when the moving party establishes that the plain and unambiguous language of the contract supports its interpretation of the agreement. See, e.g., Bristol Inv. Fund, Inc. v. Carnegie Int'l Corp., 310 F.Supp.2d 556, 568 (S.D.N.Y.2003); Abramo v. HealthNow New York, Inc., 23 A.D.3d 986, 987, 803 N.Y.S.2d 842 (N.Y.App.Div.2005).

B. Issues Raised by the LTW Adversary

In Count 1 of the Complaint the LTW Holders contend that WMI breached section 6.3 of the Amended Warrant Agreement by permitting the transfer of control of (and any recovery from) the Anchor Litigation to JPMC.⁵ Count 2 of the Amended Complaint seeks a declaratory judgment that under Section 4.4 of the Amended Warrant Agreement, WMI must assure that the LTW Holders receive the value of the Anchor Litigation.⁶

The LTW Holders also contend in their response to the summary judgment motion that WMI has breached Sections 4.2 and 4.3 of the Amended Warrant Agreement which provide that in certain circumstances the LTW Holders were entitled to receive property instead of simply stock. (A.D.I. # 70 at Ex. R, §§ 4.2 & 4.3.) They contend that such circumstances occurred when WMI merged with DBI and the DBI shareholders were given the option of receiving cash or stock in WMI.

The LTW Holders also argue that WMI has breached Section 4.2(d) because it has not assured that JPMC as a Successor Company “will enter into ... an agreement with the Warrant Agent confirming the [LTW] Holders' rights pursuant to this Section 4.2 and providing for adjustments, which will be as nearly equivalent as may be practicable to the adjustments provided for in this Article.” ( Id. at § 4.2(d).)

C. Need to Consider External Evidence

WMI...