Judge hears arguments in WaMu bankruptcy
Bankruptcy judge considers WaMu request to examine JP Morgan records
WILMINGTON, Del. (AP) -- A Delaware bankruptcy judge declined Wednesday to rule immediately on a request by Washington Mutual Inc. for authorization to examine records of JPMorgan Chase & Co., which acquired the Seattle-based thrift's seized assets in September.
The two companies are battling over billions of dollars in disputed assets, with both of them claiming ownership.
Washington Mutual wants to conduct the examination to investigate potential claims based on alleged misconduct by JPMorgan that led to a federal lawsuit in Texas.
Washington Mutual stakeholders allege in the Texas lawsuit that JPMorgan engineered a plan to damage Washington Mutual's banking subsidiaries so it could buy them on the cheap.
Among other things, the plaintiffs allege that JPMorgan engaged in sham negotiations to gain confidential information from Washington Mutual, and that it misused and leaked that information to gain an unfair advantage in obtaining Washington Mutual Bank's assets at "fire sale" prices.
Attorneys for WaMu argue that the wide-ranging examination allowed under bankruptcy rules is necessary to explore potential "business destruction" claims, and to determine whether to bring such claims in the bankruptcy proceeding or in another court.
"We seek very limited, targeted tort-related discovery," said Michael Carlinsky, an attorney for WaMu.
Washington Mutual already has sued the Federal Deposit Insurance Corp., which seized the Seattle-based savings and loan in September, then sold it to JPMorgan for $1.9 billion. WaMu was once the nation's largest savings and loan until it was brought down last year by bad bets on home mortgages. It was one of several financial firms to fall.
Stacey Friedman, an attorney for JPMorgan, argued that Washington Mutual's examination request is barred by bankruptcy rules because of the pending FDIC litigation and adversary proceedings filed by WaMU and JPMorgan against each other in the bankruptcy case.
In court papers, JPMorgan suggested that WaMu was trying to circumvent federal procedural rules by using the bankruptcy case to gain discovery in the related lawsuits.
Carlinsky countered that JPMorgan was trying to "muddy the waters," and that it had raced to the courthouse to file its adversary complaint in an effort to head off the requested examination.
"At the end of the day, it's within the court's discretion," he said.
Judge Mary Walrath declined to rule on the request Wednesday and said she would take the matter under advisement.
Walrath also said she would review a motion for summary judgment filed by Washington Mutual late Tuesday, seeking to force JPMorgan to turn over more than $4 billion in deposits that WaMu claims it owns and needs to fund its bankruptcy estate.
Among those on hand for Wednesday's hearings were Washington Mutual shareholders Robert Patelski, 61, and Roderick Houston, 50, both from Annapolis, Md.
Patelski said he has questions about the process that allowed JPMorgan to gain control of Washington Mutual's assets.
"The illegal seizure of property by the FDIC is one correction I'd like to see," he said.
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