In re Inc.

• Decision Date: 07 January 2011
• Docket Number: No. 08–12229 (MFW).,08–12229 (MFW).
• Citation: In re Inc., 442 B.R. 314 (Bankr. Del. 2011)
• Parties: In re WASHINGTON MUTUAL, INC., et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

442 B.R. 314

In re WASHINGTON MUTUAL, INC., et al., Debtors.

No. 08–12229 (MFW).

United States Bankruptcy Court, D. Delaware.

Jan. 7, 2011.

Mark D. Collins, Esquire, Chun I. Jang, Esquire, Lee E. Kaufman, Esquire, Richards, Layton & Finger, P.A., Rafael X. Zahralddin–Aravena, Esquire, Neil R. Lapinski, Esquire, Shelley A. Kinsella, Esquire, Elliott Greenleaf, Wilmington, DE, Brian S. Rosen, Esquire, Marcia L. Goldstein, Esquire, Michael F. Walsh, Esquire, Weil Gotshal & Manges, LLP, Peter E. Calamari, Esquire, Michael B. Carlinsky, Esquire, Susheel Kirpalani, Esquire, David Elsberg, Esquire, Quinn Emanuel Urquhart & Sullivan, LLP, New York, NY, for the Debtors.Robert S. Brady, Esquire, M. Blake Cleary, Esquire, Jaime N. Luton, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, DE, Thomas R. Califano, Esquire, John J. Clark, Jr., Esquire, DLA Piper LLP, New York, NY, for FDIC–Receiver.Jeffrey M. Schlerf, Esquire, Eric M. Sutty, Esquire, Fox Rothschild LLP, Wilmington, DE, David S. Rosner, Esquire, Adam L. Shiff, Esquire, Paul M. O'Connor, Esquire, Seth A. Moskowitz, Esquire, Kasowitz, Benson, Torres & Friedman LLP, New York, NY, for Washington Mutual, Inc. Noteholders Group.David B. Stratton, Esquire, Evelyn J. Meltzer, Esquire, Pepper Hamilton LLP, Wilmington, DE, Fred S. Hodara, Esquire, Robert A. Johnson, Esquire, Akin Gump Strauss Hauer & Feld LLP, New York, NY, for Official Committee of Unsecured Creditors.Jane M. Leamy, Esquire, Office of the United States Trustee, Wilmington, DE.Adam G. Landis, Esquire, Matthew B. McGuire, Esquire, Landis, Rath & Cobb, LLP, Wilmington, DE, Robert A. Sacks, Esquire, Stacey R. Friedman, Esquire, Brian D. Glueckstein, Esquire, Sullivan & Cromwell LLP, New York, NY, Brent J. McIntosh, Esquire, Sullivan & Cromwell LLP, Washington, DC, for JP Morgan Chase Bank, N.A.Bernard G. Conoway, Esquire, Marla Rosoff Eskin, Esquire, Kathleen Campbell Davis, Esquire, Campbell & Levine LLC, Wilmington, DE, Sigmund S. Wissner–Gross, Esquire, Robert J. Stark, Esquire, Katherine S. Bromberg, Esquire, Brown Rudnick LLP, New York, NY, James W. Stoll, Esquire, Jeremy B. Coffey, Esquire, Jennifer M. Recht, Esquire, Ryan S. Moore, Esquire, Daniel J. Brown Esquire, Brown Rudnick LLP, Boston, MA, for TPS Holders.Mark E. Felger, Esquire, Cozen O'Connor, Wilmington, DE, Paul N. Silverstein, Esquire, Jeremy B. Reckmeyer, Esquire, Andrews Kurth LLP, New York, NY, 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, Jonathan Hochman, Esquire, Schindler Cohen & Hochman LLP, New York, NY, for Nantahala Capital Partners LP and Blackwell Capital Partners LLC.David P. Primack, Esquire, Drinker Biddle & Reath LLP, Jay W. Eisenhofer, Esquire, Geoffrey C. Jarvis, Esquire, Christine M. Mackintosh, Grant & Eisenhofer P.A., Wilmington, DE, Jeffrey M. Schwartz, Esquire, Chicago, IL, for WMB Noteholders.Michael P. Migliore, Esquire, Smith, Katzenstein & Jenkins LLP, Wilmington, DE, Andrew J. Mytelka, Esquire, Frederick E. Black, Esquire, Tara B. Annweiler, Esquire, James M. Roquemore, Esquire, Galveston, TX, for North America National Insurance Company, American National Property and Casualty Company, Farm Family Life Insurance Company, Farm Family Casualty Insurance Company, and, National Western Life Insurance Company.Philip Schnabel, Germany, Objector to Confirmation, pro se.Ronald S. Gellert, Esquire, Byra M. Keilson, Esquire, Eckert Seamans Cherin & Mellott, LLC, Wilmington, DE, Matthew Feldman, Esquire, Robin Spigel, Esquire, Willkie Farr & Gallagher LLP, New York, NY, for Truck Insurance Company and Fire Insurance Company.Edward W. Ciolko, Esquire, Joshua C. Schumacher, Esquire, Barroway Topaz Kessler Meltzer & Check, LLP, Radnor, PA, for Objectors to Confirmation, Robert Alexander & James Lee Reed.William P. Bowden, Esquire, Gregory A. Taylor, Esquire, Stacy L. Newman, Esquire, Ashby & Geddes, P.A., Wilmington, DE, Stephen D. Susman, Esquire, Seth D. Ard, Esquire, Susman Godfrey, L.L.P., New York, NY, Parker C. Foise, Esquire, Edgar Sargent, Esquire, Justin A. Nelson, Esquire, Susman Godfrey, L.L.P., Seattle, WA, for the Official Committee of Equity Security Holders of Washington Mutual, Inc. et al.Jeffrey S. Schultz, Wichita Falls, TX, Objector to Confirmation, pro se.Nate Thoma, Wenonah, NJ, Objector to Confirmation, pro se.Donna L. Harris, Esquire, Pinckney, Harris & Weidinger, LLC, Wilmington, DE, Robert T. Scott, Esquire, Axicon Partners, LLC, New York, NY, for Sonterra Capital Partners and Sonterra Capital LLC.

OPINION ¹

MARY F. WALRATH, Bankruptcy Judge.

Before the Court is the request of Washington Mutual, Inc. (“WMI”) and WMI Investment Corp. (collectively the “Debtors”) for confirmation of their Sixth Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code, filed on October 6, 2010, as modified on October 29 and November 24, 2010 (the “Plan”). The Plan incorporates a Global Settlement among the Debtors, JPMorgan Chase Bank, N.A. (“JPMC”), the Federal Deposit Insurance Corporation (“FDIC”) in its corporate capacity and as receiver for Washington Mutual Bank (“WMB”), certain settling creditors (the “Settlement Noteholders”),² certain WMB Senior Noteholders, and the Creditors' Committee (collectively, the “Plan Supporters”). The Plan is opposed by the Equity Committee, alleged holders of Trust Preferred Securities (the “TPS Holders”), holders of Litigation Tracking Warrants (the “LTW Holders”), the United States Trustee (the “UST”), certain WMB Noteholders, and several individual shareholders and creditors ³ (collectively, the “Plan Objectors”). Although concluding that the Global Settlement is fair and reasonable, the Court finds that the Debtors' Plan is not confirmable unless the deficiencies explained herein are corrected.

I. BACKGROUND

WMI is a bank holding company, that formerly owned WMB. WMB was the nation's largest savings and loan association, having over 2,200 branches and holding $188.3 billion in deposits. Beginning in 2007, revenues and earnings decreased at WMB, causing WMI's asset portfolio to decline in value. By September 2008, in the midst of a global credit crisis, the ratings agencies had significantly downgraded WMI's and WMB's credit ratings. A bank run ensued; over $16 billion in deposits were withdrawn from WMB in a ten-day period beginning September 15, 2008.

On September 25, 2008, WMB's primary regulator, the Office of Thrift Supervision (the “OTS”), seized WMB and appointed the FDIC as receiver. The FDIC's takeover of WMB marked the largest bank failure in the nation's history. On the same day, the FDIC sold substantially all of WMB's assets, including the stock of WMB's subsidiary WMB fsb, to JPMC through a Purchase & Assumption Agreement (the “P & A Agreement”). Under the P & A Agreement, JPMC obtained substantially all of the assets of WMB for $1.88 billion plus the assumption of more than $145 billion in deposit and other liabilities of WMB. The FDIC, as the receiver of WMB, retained claims that WMB held against others.

On September 26, 2008, the Debtors filed petitions under chapter 11 of the Bankruptcy Code. Early in the bankruptcy case disputes arose among the Debtors, the FDIC and JPMC regarding ownership of certain assets. On December 30, 2008, the Debtors asserted various claims in the WMB Receivership by filing proofs of claim with the FDIC. The FDIC denied all of the Debtors' claims in a letter dated January 23, 2009. On March 20, 2009, the Debtors filed suit in the United States District Court for the District of Columbia (the “DC Court”) against the FDIC (the “DC Action”) ⁴ asserting the following five counts: (1) review of the FDIC's denial of the Debtors' proofs of claim; (2) wrongful dissipation of WMB's assets; (3) taking of the Debtors' property (stock interest in WMB) without just compensation; (4) conversion of the Debtors' property; and (5) a declaration that the FDIC's disallowance of the Debtors' claims was void. JPMC and certain WMB debt security holders (the “WMB Noteholders”) were permitted to intervene in the DC Action. The DC Court has stayed the DC Action pending the outcome of the bankruptcy proceeding.⁵

On March 24, 2009, JPMC filed a complaint in the Bankruptcy Court against the Debtors (the “JPMC Adversary”) ⁶ seeking a declaratory judgment that it owned various assets as a result of its purchase of WMB, including the funds on deposit at WMB in the name of the Debtors with a value of approximately $3.8 billion (the “Deposit Accounts”), tax refunds in the approximate amount of $5.5 to $5.8 billion, the Trust Preferred Securities (“TPS”) with a value of $4 billion, intellectual property, assets in certain employee deferred compensation plans, shares in Visa, Inc., certain judgments awarded in the Goodwill Litigation,⁷ and contract rights. (Ex. D–41.) On May 29, 2009, the Debtors filed an answer and counterclaims in the JPMC Adversary asserting ownership of the disputed assets and seeking to avoid as preferences and fraudulent conveyances certain pre-petition capital contributions and other payments they had made to WMB. (Ex. D–42.) JPMC filed a motion to dismiss the Debtors' counterclaims, which was denied by the Court on September 14, 2009. (Ex. D–45.) JPMC sought leave to appeal that ruling, which was opposed by the Debtors.

In addition, the Debtors filed a complaint in the Bankruptcy Court against JPMC (the “Turnover Action”) ⁸ on April 27, 2009, seeking the turnover of the $3.8 billion held in Deposit Accounts in the Debtors' names at WMB. (Ex. D–48.) JPMC filed a motion to dismiss the Turnover Action, which was denied on June 24, 2009. (Ex. D–49.) JPMC filed an answer, counterclaim and a crossclaim against the FDIC as Receiver. (Ex. D–53.) On May 19, 2009, the Debtors filed a Motion for Summary Judgment in the Turnover Action...