Washington Mutual Inc., former owner of the biggest U.S. bank to fail, didn’t rely on advice it got from its lawyers when settling legal claims against JPMorgan Chase & Co. worth billions of dollars, two executives testified.
Company officials depended on their own reading of the strengths and weaknesses of the claims WaMu and JPMorgan asserted against each other, Seattle-based WaMu’s chief restructuring officer, William Kosturos, told the judge overseeing the company’s bankruptcy at a hearing yesterday.
“A person who is confident in certain financial matters could come to a reasonable conclusion” about whether to settle the disputes, Jonathan Goulding, WaMu’s treasurer, testified today in U.S. Bankruptcy Court in Wilmington, Delaware.
WaMu is trying to win approval of a settlement with New York-based JPMorgan and federal regulators that splits almost $10 billion in cash and tax refunds. The company’s plan to end its bankruptcy and pay $7.5 billion to creditors is built on the proposed settlement.
The bankruptcy plan and the settlement both need the approval of U.S. Bankruptcy Judge Mary F. Walrath. She barred WaMu from citing a court-ordered report that found the settlements were reasonable. She excluded the Nov. 1 report by Joshua R. Hochberg after creditors and shareholders said its conclusions are based on facts that aren’t public and can’t be challenged.
The hearing will continue Dec. 6.
Making a Case
WaMu is trying to make its case without referring to that report or to any confidential legal advice company officials received from their attorneys. Under court rules, the lawyers would have to testify if WaMu cited their advice.
Company attorney David Elsberg said yesterday at the beginning of the hearing that WaMu wouldn’t use any “privileged” legal advice to support its case that the settlements meet the legal standard of fair and reasonable.
Last year, the chief bankruptcy judge in Delaware, Kevin Carey, rejected a $70 million settlement between computer chipmaker Spansion Inc. and Samsung Electronics Co. Inc. in part because company officials testified that they didn’t rely on advice of their attorneys.
Spansion, which has since exited bankruptcy, was opposed by creditors in that case, just as shareholders and creditors of WaMu are fighting its settlement. WaMu attorney Brian Rosen declined to comment on the Spansion case.
WaMu filed for bankruptcy on Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to JPMorgan. Before it failed, Washington Mutual Bank had more than 2,200 branches and $188 billion in deposits.
WaMu’s 8.25 percent bonds that were due in April rose as much as 2.8 percent to 117 cents on the dollar before closing at 115 cents, according to TRACE, the bond-price reporting system of the Financial Industry Regulatory Authority.
The case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).