A federal judge has handed down a decision in a case that could have big implications on other repurchase lawsuits.
In September 2008, at the height of the financial crisis, Washington Mutual Bank was seized by the Office of Thrift Supervision and handed over to the Federal Deposit Insurance Corp. as receiver.
The failure of the Seattle-based financial institution, which had suffered more than $6 billion in losses during the three prior quarters, was the biggest bank failure in U.S. history.
Stepping in to take over most of WaMu’s deposits and acquire its assets was JPMorgan Chase & Co. The transaction was governed by a purchase-and-assumption agreement.
Subsequently, Deutsche Bank National Trust Co. filed a proof of claim with the FDIC on 127 faulty private-label residential mortgage-backed securities.
The FDIC failed to respond to Deutsche, so it filed a
federal lawsuit in the nation’s capitol on Aug. 26, 2009.
The FDIC, which was the defendant, filed its answer saying that the claims asserted by Deutsche had been assumed by Chase — prompting Deutsche to add Chase as a defendant.
In initial bid documents from Chase, the FDIC sought to transfer liability to the bank for WaMu’s repurchase obligations. But the final agreement didn’t support that position.
“FDIC appears to think that statements made in the FAQs and bid documents, without similar and specific contract language, are sufficient to show that it passed such liabilities to JPMC,” U.S. District Judge Rosemary M. Collyer wrote in her June 17 decision. “That might have been correct, had the actual language of the P&A agreement not been clear and limited to, as [FDIC attorney] Mr. Gearin told JPMC, ‘booked liabilities.'”
Collyer determined that the FDIC, and not Chase, would be the party responsible for any repurchase liability.
“The answer to this question will likely affect other pending cases,” the decision stated. “Ultimately, the court finds that JPMC did not assume WaMu’s unbooked mortgage repurchase liabilities and will grant summary judgment in part to JPMC, finding that JPMC assumed liability for the disputed mortgage repurchase liabilities only to the extent that such liabilities were reflected at a stated book value on WaMu’s financial accounting records as of Sept. 25, 2008.”
Next, the judge had to determine whether the FDIC was liable for WaMu’s repurchase liabilities.
Collyer decided in favor of the FDIC.
She explained that the regulator isn’t
liable for the mortgage repurchase obligations of Washington Mutual Mortgage Securities Corp., which Chase acquired in its entirety.
“Therefore, for the reasons set forth above, the court will grant in part and deny in part JPMC’s motion for summary judgment [Dkts. 142, 143, 170], finding that JPMC is entitled to judgment that it assumed liability for the disputed mortgage repurchase liabilities only to the extent that WaMu reflected such liabilities at a stated book value on its financial accounting records as of Sept. 25, 2008,” the decision stated. “The court will also grant in part and deny in part FDIC’s motion for summary judgment [Dkt. 144, 173], finding that FDIC is entitled to judgment that it did not assume or retain mortgage repurchase liabilities of WMMSC, the stock of which was acquired by JPMC in its entirety.
“The court leaves to another day and another argument whether plaintiff Deutsche Bank can recover from FDIC.”
