In re Washington Mutual, Inc.
| Decision Date | 13 September 2011 |
| Docket Number | Case No. 08-12229 (MFW) |
| Parties | In re: WASHINGTON MUTUAL, INC., et al., Debtors. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Jointly Administered
Before the Court is the request of Washington Mutual, Inc. ("WMI") and WMI Investment Corp. (collectively the "Debtors") for confirmation of the Modified Sixth Amended Joint Plan of Affiliated Debtors (the "Modified Plan"). For the reasons stated below, the Court will deny confirmation of the Modified Plan.
WMI is a bank holding company that formerly owned Washington Mutual Bank ("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 A bank run ensued; over $16 billion indeposits were withdrawn from WMB in a ten-day period beginning September 15, 2008.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 Federal Deposit Insurance Corporation (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 JPMorgan Chase Bank, N.A. ("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 and various claims that the parties asserted against each other. Those disputes (and disputes between the Debtors and other claimants) were the subject of litigation in this Court,2 as well as in the United StatesDistrict Court for the District of Columbia (the "DC Court"),3 and in the Federal Court of Claims.4
On March 12, 2010, the parties announced that they had reached a global settlement agreement (the "GSA"). The GSA resolved issues among the Debtors, JPMC, the FDIC in its corporate capacity and as receiver for WMB, certain large creditors (the "Settlement Noteholders"),5 certain WMB Senior Noteholders, and the Creditors' Committee. The GSA was incorporated into the Sixth Amended Plan which was originally filed on March 26, 2010, and modified on May 21 and October 6, 2010.
Hearings on confirmation of the Sixth Amended Plan, as well as argument on summary judgment motions in the related LTW and TPS Adversaries, were held on December 1-3 and 6-7, 2010. Thematter was taken under advisement. In an Opinion and Order dated January 7, 2011, the Court concluded that the GSA was fair and reasonable, but declined to confirm the Debtors' Sixth Amended Plan because of certain deficiencies. In re Wash. Mut., Inc., 442 B.R. 314, 344-45, 365 (Bankr. D. Del. 2011) (the "January 7 Opinion"). By separate Opinion and Order, the Court found that certain purported holders of the Trust Preferred Securities (the "TPS") no longer had any interest in the TPS because their interests had been converted to interests in preferred stock of WMI. In re Wash. Mut., Inc., 442 B.R. 297, 304 (Bankr. D. Del. 2011). In another Opinion and Order issued that day, the Court held that it was unable to grant WMI's motion for summary judgment in the LTW Adversary, because there are genuine issues of material fact in dispute. In re Wash. Mut., Inc., 442 B.R. 308, 313-14 (Bankr. D. Del. 2011). Trial on the LTW Adversary has been scheduled for September 12-14, 2011.
The Sixth Amended Plan and the GSA were modified on March 16 and 25, 2011, in an attempt to address the Court's concerns expressed in the January 7 Opinion. (D 255; D 253.)6 The Modified Plan is supported by the Debtors, JPMC, the FDIC, theCreditors' Committee, the WMI Senior Noteholders' Group, the Plaintiffs in the ANICO Litigation, and the Indenture Trustees of the Senior, the Senior Subordinated, and the PIERS7 (collectively, the "Plan Supporters").8 The Modified Plan is still opposed by the Equity Committee, the putative holders of the TPS,9 holders of Litigation Tracking Warrants (the "LTW Holders"), certain WMB Noteholders, Normandy Hill Capital L.P., and several individual shareholders and creditors10 (collectively, the "Plan Objectors"). Hearings were held on July 13-15 and 18-21, 2011, to consider confirmation of the Modified Plan. Post-hearing briefs were filed by interested parties on August 10, 2011, and oral argument was heard on August 24, 2011. The matter is now ripe for decision.
Congress has legislated that the Bankruptcy Court has core subject matter jurisdiction over approval of settlements of claims and counterclaims and confirmation of plans of reorganization. 28 U.S.C. §§ 1334 & 157(b)(2)(A), (B), (C), (K), (L), (M), (N), & (O).
The TPS Consortium contends, however, that the Court cannot enter a final order on confirmation for two reasons. First, the TPS Consortium argues that the Bankruptcy Court lacks jurisdiction to confirm the Modified Plan because to do so the Court must decide the estate's claims against JPMC and the FDIC, over which only an Article III court has jurisdiction. Stern v. Marshall, 131 S. Ct. 2594, 2609 (2011). At the commencement of the confirmation hearings, the TPS holders acknowledged that the Bankruptcy Court had authority to conduct the confirmation hearing but asserted that the Court could not enter a final order. Instead, the TPS Consortium contended that the Bankruptcy Court must present proposed findings of fact and conclusions of law to the District Court, for consideration de novo. 28 U.S.C. § 157(c)(1).
Second, the TPS Consortium argues that the Bankruptcy Court has been divested of jurisdiction over the disputed TPS because the TPS Consortium has appealed the Court's ruling in the TPS Adversary that they no longer have any interest in the TPS butonly have an interest in WMI preferred stock. Wash. Mut., 442 B.R. at 304. It contends that, as a result, the Court must order that the TPS be escrowed (and not transferred to JPMC pursuant to the GSA and the Modified Plan) until the District Court rules on the pending appeal.
The TPS Consortium argues that under the Supreme Court's recent decision in Stern v. Marshall, the Bankruptcy Court does not have jurisdiction over the claims the estate has against JPMC or the FDIC (and does not have jurisdiction to approve any settlement of those claims) because the underlying claims are "the stuff of the traditional actions at common law tried by the courts at Westminster" and must be decided by an Article III court. 131 S. Ct. at 2609 (quoting N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 90 (1982)). The TPS Consortium argues that Stern v. Marshall is directly applicable in this case because the underlying disputes with JPMC and the FDIC are typical of causes of action which only Article III courts can adjudicate, involving state corporate law, tort law, fraudulent conveyance law, as well as federal intellectual property and tort claims. The TPS Consortium argues that this is not a matter within the "particularized area of law" with which bankruptcy courts typically deal and are considered experts at resolving. Id. at 2615. It contends that this is so even thoughCongress has expressly granted core jurisdiction to this Court pursuant to section 157(b)(2). Id. at 2608 ().
The Plan Supporters disagree with the TPS Consortium's reading of the Stern v. Marshall decision. They note that the Supreme Court itself recognized the narrowness of its ruling. 131 S. Ct. at 2620 (). See also Salander O'Reilly Galleries, No. 07-30005, 2011 WL 2837494, at *6 (Bankr. S.D.N.Y. July 18, 2011) ().
In Stern v. Marshall, the Supreme Court held that to find bankruptcy court jurisdiction the court must consider "whether the action at issue stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process." 131 S. Ct. at 2618. The concurring opinion also suggested that in instances where there is "a firmly established historicalpractice" allowing non-Article III judges to make a determination, they should be permitted to continue doing so. Id. at 2621 (concurring opinion).
The Court concludes that the Stern v. Marshall decision does not support the TPS Consortium's contention that the Court lacks jurisdiction over the GSA or confirmation of the Modified Plan for several reasons.
Approval of settlements by bankruptcy courts is "a firmly established historical practice" that stretches back before the enactment of the Bankruptcy Code to the Bankruptcy Act and, therefore, the bankruptcy court may continue to exercise that jurisdiction. Id.
Currently, Rule 9019 provides the court with the authority to "approve a compromise or settlement." Fed. R. Bankr. P. 9019(...
To continue reading
Request your trial