109 F. Supp. 3d 179
D.D.C.2015Background
- WaMu failed and on Sept. 25, 2008 OTS closed it; FDIC as receiver sold WaMu’s assets and substantially all liabilities to JPMC under a FDIC-drafted Purchase & Assumption Agreement (P&A Agreement).
- Section 2.1 of the P&A Agreement states JPMC "assumes at Book Value" all liabilities "which are reflected on the Books and Records" of WaMu as of closing; other defined terms include "Book Value" (amounts on Accounting Records) and "Accounting Records" (general ledger and subsidiary ledgers).
- Deutsche Bank (trustee for many RMBS trusts) sued to enforce repurchase obligations allegedly owed by WaMu; central dispute between FDIC and JPMC is whether unbooked RMBS repurchase liabilities transferred to JPMC.
- FDIC contends "Books and Records" and other transaction materials show intent to transfer unbooked repurchase liabilities; JPMC argues liabilities were limited to amounts with a Book Value on WaMu’s accounting records.
- Court examined contract language, drafting history, communications (drafts, emails, FAQs), and post-closing conduct and concluded Section 2.1 is unambiguous: JPMC assumed liabilities only to the extent reflected at Book Value on WaMu’s accounting records as of Sept. 25, 2008. The Court also held FDIC is not liable for obligations of WMMSC (a subsidiary whose stock JPMC purchased).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether JPMC assumed WaMu’s unbooked RMBS repurchase liabilities | Deutsche Bank: WaMu’s seller repurchase obligations were transferred to the assuming bank under the P&A (FDIC had intended transfer) | JPMC: Section 2.1 limits assumption to liabilities reflected at Book Value on WaMu’s accounting records; unbooked liabilities stayed with FDIC | JPMC assumed only liabilities reflected at Book Value on WaMu’s accounting records as of closing; unbooked liabilities remained with FDIC |
| Whether the phrase "Books and Records" in §2.1 incorporates FDIC’s defined broad term "Record" (thus capturing all documents) | FDIC: "Records" definition and transaction materials show "Books and Records" was meant broadly to include Governing Agreements and off-balance-sheet obligations | JPMC: Context and other definitions show §2.1 must be read to limit liabilities to quantifiable Book Value on Accounting Records | Court: "Books and Records" in §2.1 is limited by surrounding definitions and context to booked/accounting entries; FDIC’s broad reading is unreasonable |
| Whether extrinsic evidence (drafts, FAQs, emails, internal FDIC intent) can override plain contract text | FDIC: FAQs, internal instructions, and executives’ intent show FDIC intended to transfer unbooked liabilities | JPMC: Extrinsic materials cannot override unambiguous contract language; some FDIC contemporaneous communications actually supported JPMC’s reading | Court: Because §2.1 is unambiguous, extrinsic evidence does not change the result; many contemporaneous communications reinforced the booked-liabilities interpretation |
| Application of contra proferentum (ambiguity construed against drafter) | Deutsche Bank/FDIC: not applicable because FDIC was drafter but believed intent favored transfer | JPMC: If any ambiguity exists, interpret against drafter (FDIC) | Court: Doctrine unnecessary because contract clear; but if applied, it supports JPMC because FDIC drafted the Agreement |
Key Cases Cited
- Santopadre v. Pelican Homestead & Sav. Ass’n, 937 F.2d 268 (5th Cir. 1991) (unliquidated/contingent liabilities not "on the books and records" do not transfer in P&A transactions)
- Vernon v. RTC, 907 F.2d 1101 (11th Cir. 1990) (successor banks would not assume latent claims of unknown magnitude absent clear agreement)
- In re Collins Sec. Corp., 998 F.2d 551 (8th Cir. 1993) (treating "books and records" and "account records" as synonymous for P&A purposes)
- NRM Corp. v. Hercules, Inc., 758 F.2d 676 (D.C. Cir. 1985) (federal common law of contracts aligns with general contract principles)
- Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995) (contracts should be read to give effect to all provisions)