Delaware bankruptcy judge rejects request from WaMu for document subpoenas

Bankruptcy judge rejects WaMu subpoena request

WILMINGTON, Del. — A Delaware bankruptcy judge on Thursday denied Washington Mutual Inc.’s request to force government regulators and others to turn over documents related to the 2008 collapse of Washington Mutual Bank.

In a court filing last month, the bank holding company asked the court to direct the handing over of documents and the examination of witnesses from a host of regulatory bodies, ratings agencies, banks and other entities.

Some, including the Federal Reserve and Treasury Department, agreed to turn over at least some records, but the Federal Deposit Insurance Corp. objected to WaMu’s request.

The FDIC seized Washington Mutual bank, a Seattle-based savings and loan with about $307 billion in assets, in September 2008. It then sold it to JPMorgan Chase & Co. for $1.9 billion, a price that Washington Mutual claims was much too low.

Washington Mutual sought the records as part of an effort to investigate potential business tort claims based on alleged misconduct by JPMorgan Chase. Washington Mutual stakeholders allege in a Texas lawsuit that JPMorgan engineered a plan to damage Washington Mutual’s banking subsidiaries so it could buy them on the cheap.

Washington Mutual and JPMorgan now are battling over billions of dollars in disputed deposit assets, with both of them claiming ownership. A separate lawsuit filed by Washington Mutual against the FDIC is on hold in federal court in Washington, D.C.

Last year, Delaware bankruptcy judge Mary Walrath allowed Washington Mutual to examine records of JPMorgan, but she ruled Thursday that the company had not met its burden of showing that subpoenas for third-party records and witnesses were warranted.

“Quite frankly, I think issuing subpoenas against dozens of third parties just goes too far,” Walrath said.

The judge also suggested that Washington Mutual was trying “an end run” around discovery rules to get documents from the FDIC that might bolster its claims in the Washington, D.C. lawsuit. That lawsuit argues among other things that if WaMu’s assets had been liquidated properly by the FDIC in receivership, they would have been worth more than $1.9 billion.

In another ruling Thursday, Walrath denied Washington Mutual’s request to disband a committee of equity security holders that was appointed by the U.S. trustee in the case.

Attorneys for Washington Mutual and its committee of unsecured creditors argued that they were adequately representing the interests of the equity holders. They said the equity committee was unnecessary and would add nothing to litigation efforts aimed at maximizing the value of the bankruptcy estate.

But Walrath said there was no evidence to suggest that the trustee abused her discretion or acted improperly in appointing the equity holders committee, which consists mostly of holders of preferred stock.

Walrath also said the fact that Washington Mutual’s debt and equity is still being traded suggests that the market does not believe WaMu is “hopelessly insolvent.”

“I think that at this point, it is appropriate to have the equity represented in this case,” she said.