In Re Washington Mutual, Inc.
462 B.R. 137
Bankr. D. Del.2011Background
- On September 26, 2008, WMI and WMI Investment Corp. filed Chapter 11 petitions in Delaware.
- WMI directly or indirectly owned WaMu Bank and subsidiaries including WaMu Asset Acceptance and WaMu Capital.
- WaMu Trusts and WMALT Trusts securitized mortgages; WaMu Asset Acceptance sold about $71 million in Trust Certificates to Tranquility (2006–2007).
- Tranquility filed a proof of claim around $49 million on March 30, 2009; Debtors objected.
- An Order on November 12, 2010 allowed an amended claim; issues remaining in objection were briefed and are ripe for decision.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Control person liability sufficiency | Tranquility pleads WMI controlled WaMu Capital/Asset Acceptance. | WMI lacked day-to-day control; entities are separate legal persons. | Tranquility plausibly pled control; sufficient for control person liability. |
| Culpable participation pleading requirement | Culpable participation not required to plead federal/state control claims. | Culpable participation must be pled as part of control claims. | Culpable participation not required to plead; prima facie case suffices. |
| Material assistance liability | WMI aided misrepresentation/omission with intent to deceive/defraud. | Intent element not satisfied; recklessness insufficient for liability. | Plaintiff sufficiently pled material assistance under both California and federal statutes. |
| Subordination under 510(b) | Subordination not appropriate at this stage; plan provides subordination. | WaMu Asset Acceptance as affiliate and 510(b) grounds support subordination. | No basis for subordination; Certificates were not issued by debtor/affiliate; plan provides subordination. |
Key Cases Cited
- Howard v. Everex Sys., Inc., 228 F.3d 1057 (9th Cir. 2000) (prima facie control liability without requiring culpable participation)
- Rochez Bros. Inc. v. Rhoades, 527 F.2d 880 (3d Cir. 1975) (control means power to direct management and policies)
- In re Worldcom, Inc., 377 B.R. 77 (Bankr. S.D.N.Y. 2007) (culpable participation not required for control claims; underlying violation suffices)
- In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256 (3d Cir. 2006) (culpable participation not required for section 15 claim)
- In re SemCrude, L.P., 436 B.R. 317 (Bankr. D. Del. 2010) (operating agreement/affiliate analysis under section 101(2)(C))
- Bar Frazer v. Telegroup, 281 F.3d 133 (3d Cir. 2002) (equitable considerations in subordination under 510(b))