In Re Washington Mutual, Inc.
442 B.R. 314
| Bankr. D. Del. | 2011Background
- WMI and WMB and related entities filed for chapter 11; a Global Settlement with JPMC and the FDIC was reached and incorporated into a Sixth Amended Plan.
- The Plan would resolve disputes over Deposit Accounts, tax refunds, TPS, LTW, and various other assets through a global settlement and plan releases.
- Objectors (Equity Committee, TPS/LTW holders, UST, certain WMB Noteholders) argued the Global Settlement and releases were unfair or tainted by conflicts.
- A court-appointed Examiner investigated the merits; confirmation hearings occurred in December 2010.
- The Court analyzed the reasonableness of the Global Settlement under Rule 9019, and connections between the Plan, the Global Settlement, and releases.
- The Court ultimately denied confirmation due to identified deficiencies in the Plan and related releases.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Reasonableness of the Global Settlement | Plan supporters claim holistic value; settlement within reasonable litigation range. | Objectors argue release of substantial claims for little value and conflicts taint process. | Settlement found reasonable overall; however, flaws in releases prevent confirmation. |
| Validity of third-party releases | Releases are essential to the Plan and supported by contributions of JPMC/FDIC. | Releases of non-debtors require strict scrutiny and consent; broad releases improper. | Third-party releases not approved as drafted; modifications required to meet standards. |
| Post-petition interest rate under 726(a)(5) | Interest should be at the federal judgment rate. | Arguments about rate depend on equities; no definitive ruling on rate in this order. | Court did not definitively require the federal judgment rate here; not resolved at this stage. |
| Disparate treatment within classes (PIERS/LTW) | Certain creditors (PIERS/LTW) are not provided equivalent options to participate in stock rights. | Plan allows some variation for administrative reasons; treatment acceptable if within class. | Disparate treatment requires modification to provide equal options within affected class. |
| Value and ownership disputes affecting confirmability | Settlements should reflect potential recoveries from Deposit Accounts, tax refunds, and TPS. | Global Settlement locks in allocations and waivers that hinder litigation. | unresolved issues on value/ownership matter; Confirmation denied pending fixes. |
Key Cases Cited
- In re Martin, 91 F.3d 389 (3d Cir. 1996) (settlement approval requires best interests/probability range of litigation outcomes)
- In re Louise's Inc., 211 B.R. 798 (D.Del. 1997) (factors for determining compromise under Rule 9019)
- In re Coram Healthcare Corp., 315 B.R. 321 (Bankr. D. Del. 2004) (conflict/approach to evaluating compromises; best interests test)
- In re Dow Corning Corp., 244 B.R. 678 (Bankr. E.D. Mich. 1999) (context of equitable treatment and rates in settlements)
- Continental Airlines, 203 F.3d 203 (3d Cir. 2000) (non-debtor releases analyzed under Master Mortgage framework)
- In re Spansion, Inc., 426 B.R. 114 (Bankr. D. Del. 2010) (discrete issues in large plans; evidentiary standards for support)