Wednesday, September 1, 2010

Bankruptcy and Disclosure

The bankruptcy case concerning WMI, the former holding company of WaMu, continues its slow-paced way through the pertinent court in Delaware, under the guidance of Judge Mary Walrath.

On August 30, the consortium of trust preferred security holders (the TPS consortium) filed a motion that the debtors be deemed to have made certain admissions.

The WMI litigation was at one time chiefly a dispute between the debtor estate itself, on the one hand, and JPMorgan on the other., Back in the chaotic autumn of 2008, the FDIC seized WaMu, ran a quick min-auction, and sold it to JPMorgan. Everything was done so quickly that there was no real sorting out of the assets -- what belonged to the holding company, which thereafter declared bankruptcy, and what belonged to the operating company, which was now part of JPM.

So those two sides fought out the allocation of assets in bankruptcy court. They have more recently kissed and made up. Their making up is known as the "global settlement." But ... not so fast! says the TPS Consortium. "We're not sure we want you guys to make up."

Go here and then go to page 12 of that PDF. That was a letter written July of this year.

In the money quote, TPS says that in the pre-settlement litigation, "Debtors made numerous claims of value purportedly owned by, or owed to, the Debtors, which claims, if successful, could have resulted in significant distribution to creditors in these cases, including members of Class 19. But, prior to entering into the 'global settlement' to compromise substantially all of those claims (including claims as to the ownership of the Trust Preferred Securities), the Debtors had conducted, in the view of the TPS Consortium, minimal (and in some cases, perhaps, no) discovery or analysis of such claims. Moreover, it appears the Debtors’ attorneys responsible for negotiating the 'global settlement' had potentially disabling conflicts of interest with certain parties who, under the settlement, would receive significant additional benefits, including, without limitation, JPMC."

Bottom line? TPS wants to derail the settlement.

Enough background. Now we're back up to this week. On Monday, TPS filed its "motion to deem all requests admitted." Why should the court "deem" this? Because the debtors have been evading requests for admissions where TPS is, according to its attorneys, entitled to a yes or no answer.

"Debtors’ response is wholly inadequate because it is riddled with boilerplate
objections that cannot be sustained. In particular, Debtors make fourteen general objections (the “General Objections”) to every request and further object to every request as “vague, ambiguous, overbroad and unduly burdensome.”

"Debtors further improperly assert the attorney-client
privilege and work-product doctrine claiming that general facts are privileged."

The requests are, for example, that: "Counsel for the Debtors, Weil, Gotshal & Manges LLP, et al., were the sole negotiators of the Proposed Global Settlement Agreement for the Debtors."

Presumably they are asking this because they want to argue that Weil Gotshal was conflicted, and its conflict of interests should void the settlement. If they were the "sole" negotiators, the route from point A to point B is straighter and narrower.

I'll keep an eye on this.

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