WaMu Judge Rewards Shareholders, Susman For Fighting On
Posted by Zach Lowe
June 3, 2010 6:12 PM
We told you Wednesday how Washington Mutual shareholders had alienated almost every other party in the bank's Chapter 11 case by making a request for broad discovery into the bank's collapse. The bank's creditors and those who would have to turn over discovery material protested vehemently, saying the matter had already been investigated, and that it was time to wind up the Chapter 11 case.
Well, guess what? The shareholders and their lawyers at Susman Godfrey scored a nice victory today when the federal judge hearing the case postponed a key proceeding in order to allow the shareholders to talk with WaMu, JPMorgan Chase, and the FDIC about getting access to documents that could shed light on the bank's failure, according to Reuters and lawyers who attended the hearing today in federal court in Delaware. The nominal purpose of the hearing had been for Judge Mary Walrath to rule on objections related to a disclosure statement that describes WaMu's plan to emerge from bankruptcy and pay creditors about $7 billion. Such rulings are the first step toward an eventual vote on that plan, which, by the way, offers shareholders zero recovery.
Any talk about the disclosure statement will now have to wait two weeks, Reuters says. In the interim, lawyers for WaMu (Weil, Gotshal & Manges and Quinn Emanuel Urquhart & Sullivan), JPMorgan (Sullivan & Cromwell), and the FDIC (DLA Piper) will have to meet to hash out shareholder discovery requests, lawyers say. That alone is a huge win for shareholders, who argue that WaMu and its lawyers may be leaving money on the table in a proposed settlement with JPMorgan over WaMu's failure. Critics in the case have argued that JPMorgan may have contributed to WaMu's failure by leaking confidential information about WaMu's finances and discouraging other potential bidders for the bank. The FDIC eventually placed WaMu in a receivership and sold it to JPMorgan for $1.9 billion. The WaMu estate initially investigated WaMu's collapse--and took extensive discovery from JPMorgan and others--but cut that investigation short by striking a deal with JPMorgan. Under the terms of that deal, which requires court approval, JPMorgan will return about $4 billion in deposits to WaMu and split various tax refunds with the estate.
Shareholders argue claims against JPMorgan might be worth as much as $20 billion, and they want to know how WaMu and its litigation team at Quinn made their calculations in deciding to settle for what will amount to about $7 billion, Reuters says. They filed a motion requesting pieces of Quinn's work product, documents Quinn lawyers say are protected by attorney-client privilege. That is one battle WaMu won today; Judge Walrath denied the shareholders' request for Quinn's work product, says David Elsberg, one of the lead Quinn lawyers on the matter. Justin Nelson, one of the Susman lawyers representing shareholders, declined to comment.
One other note: Judge Walrath raised the specter of a court-appointed examiner who might undertake an independent investigation into WaMu's collapse. Walrath denied the shareholders' motion for an examiner last month, but she mentioned such a possibility today when she was informed that WaMu has apparently held out on turning over some documents to the shareholders, Reuters reports. "Why should I not appoint an examiner?" Walrath asked, according to Reuters. Susman Godfrey lawyers perked up at the mention of the examiner--remember, they thought they had already lost this battle--and indicated they would file a new request for the appointment of one, Reuters says.
So it's clear as we approach the two-year mark in this case: It ain't over yet. Not even close.
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