IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

Transcription

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ) In re: ) Chapter 11 Cases ) Case No (MFW) WASHINGTON MUTUAL, INC., et al., 1 ) Jointly Administered ) Debtors. ) Re: Docket No. 549, 578 ) Hearing Date: January 29, 2009 at 10:30 a.m. ) REPLY OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF WASHINGTON MUTUAL, INC., ET AL. TO JPMORGAN CHASE BANK, NATIONAL ASSOCIATION S RESPONSE AND LIMITED OBJECTION TO MOTION OF THE DEBTORS FOR AN ORDER, PURSUANT TO SECTION 502(b)(9) OF THE BANKRUPTCY CODE, BANKRUPTCY RULES 2002(a)(7), (f), (I) and 3003(c)(3), AND LOCAL RULE (e), ESTABLISHING THE DEADLINE FOR FILING PROOFS OF CLAIM AND APPROVING THE FORM AND MANNER OF NOTICE THEREOF The Official Committee of Unsecured Creditors (the Committee ) of Washington Mutual, Inc., et al. (collectively, the Debtors ), by and through its undersigned co-counsel, submits this reply (the Reply ) to JPMorgan Chase Bank, National Association s ( JPMorgan ) Response and Limited Objection (the Objection ) [Docket No. 578] to Motion of the Debtors for an Order, Pursuant to Section 502(b)(9) of the Bankruptcy Code, Bankruptcy Rules 2002(a)(7), (f), (I) and 3003(c)(3), and Local Rule (e), Establishing the Deadline for Filing Proofs of Claim and Approving the Form and Manner of Notice Thereof (the Motion ) [Docket No. 549]. In support of this Reply, the Committee respectfully submits as follows: 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: Washington Mutual, Inc. (3725) and WMI Investment Corporation (5395). The Debtors principal offices are located at 1301 Second Avenue, Seattle, Washington

2 RELEVANT BACKGROUND 2 1. On January 9, 2009, the Debtors filed the Motion. By the Motion, the Debtors seek, among other things, entry of an order (the Bar Order ) establishing March 31, 2009 at 5:00 p.m. (ET) as the deadline (the Bar Date ) for all persons or entities to file proofs of claim based on prepetition claims against the Debtors. See Motion, On January 22, 2009, JPMorgan filed the Objection. By the Objection, JPMorgan requests that the Court either deny the Motion or exempt JPMorgan from the Bar Date and, instead, set a status conference after March 31, 2009 to determine whether a bar date applicable to JPMorgan is appropriate and, if so, when that bar date should be. See Objection, 20. THE COMMITTEE S REPLY I. Extending The Bar Date For JPMorgan Or Exempting JPMorgan From The Bar Order Would Be Disruptive To These Cases And Contravene Bankruptcy Policy 3. As the Third Circuit has recognized, a principal purpose of bankruptcy law is to secure the efficient administration and settlement of a debtor s estate within a reasonably limited period of time. See Chemetron Corp. v. Jones, 72 F.2d 341, 346 (3d Cir. 1995). The fixing of a bar date serves this purpose by providing the debtor and creditors with finality. See In re MK Lombard Group I, Ltd., 301 B.R. 812, (Bankr. M.D. Pa. 2003) (citing In re Enron Corp., 298 B.R. 513 (Bankr. S.D.N.Y. 2003). Further, setting a bar date forces creditors to disclose their claims and, thus, allows all parties in interest to evaluate the debtor s assets and liabilities. See Hooker Investments, 122 B.R. 659, 664 (S.D.N.Y. 1991) ( The setting of a bar date is an important event in Chapter 11 cases. A bar order, by forcing creditors to make known their 2 Capitalized terms not otherwise defined herein shall have the meanings given to them in the Objection. 2

3 claims against the estate, enables the bankruptcy judge to tally up the debtor s assets and liabilities.... ). As explained by one court: Bankruptcy reorganization essentially involves settlement negotiations among a debtor and its creditors, under the watchful eye and benign control of the Bankruptcy Court. For the settlement process to work efficiently, the affected parties must negotiate with complete knowledge of the debtor's financial condition.... Thus, an essential purpose of setting a claims deadline... is to inform participants in the reorganization process as to the debtor s liabilities. Armed with this knowledge, proposals may be evaluated with confidence, and negotiations may proceed without being hindered by undue caution or skepticism caused by ignorance. In re Arrow Air, Inc., 75 B.R. 375, (Bankr. S.D. Fla. 1987). 4. Thus, in setting a bar date, a court forces the parties in interest to promptly identify their claims against the estate and the amount of their claims. Consequently, a bar date serves as an integral part of the bankruptcy process and is more than a mere procedure. See MK Lombard, 301 B.R. at The relief requested in the Objection undermines this purpose by limiting the ability of the Debtors and their creditors to evaluate the Debtors total assets and liabilities and denying parties in interest the finality needed to move forward with the administration of the Debtors estates. 5. Further, a bankruptcy court should not extend a bar date for an individual creditor (or class of creditors) or exempt a creditor from a bar order where doing so would be disruptive to the administration of the debtor s bankruptcy case. See In re Sacred Heart Hospital of Norristown, 177 B.R. 16, 24 (Bankr. E.D. Pa. 1995) (denying a motion to extend the bar date where the granting of th[e] Motion [would] effect very substantial and apparently unwarranted disruption to the administration of the Debtor s bankruptcy case ); Hooker, 122 B.R. at (affirming bankruptcy court s decision to not exempt certain secured creditors from a bar date, in part, because granting an exemption would unduly complicate the reorganization process ). 3

4 6. JPMorgan s own internal and strategic considerations do not warrant the significant delays and prejudice to other creditors that will result from excepting JPMorgan from the Bar Order. Far from a stranger to these proceedings, JPMorgan is a key constituency whose alleged interests in the Debtors estates may present obstacles to moving these cases forward. Extending the Bar Date for JPMorgan or exempting JPMorgan from the Bar Order will severely disrupt the administration of these chapter 11 cases because it will be difficult, if not impossible, for the Debtors and Committee to chart a path out of the chapter 11 cases without knowledge of the claims asserted by JPMorgan and other alleged creditors. The filing of the JPMorgan proof of claim will provide visibility to the Debtors and Committee concerning the scope of disputed assets and liabilities in these cases and enable the Debtors, the Committee and their respective advisers to attempt to formulate the path forward in these cases. Charting this path is critical to hasten distributions to holders of at least $7 billion in claims against these estates. II. The Relief Requested By JPMorgan Is Premature 7. It is premature for the Court to consider extending the bar date for JPMorgan unless and until (i) the Court establishes the Bar Date, and (ii) JPMorgan Chase fails to file a proof of claim by the Bar Date. The establishment of a claims bar date is mandated by Federal Rule of Bankruptcy Procedure 3003(c)(3) and, as indicated above, serves a critical function in all chapter 11 cases. JPMorgan does not challenge the appropriateness of the proposed Bar Order other than to seek preemptive relief based upon its alleged inability to prepare and file a proof of claim by March 31, While Rule 3003(c)(3) provides that a bankruptcy court may extend the time for filing a proof of claim for cause shown, extensions of a bar date are typically sought by creditors who file proof of claims after the court-ordered claims bar date and are reviewed under 4

5 an excusable neglect standard. 3 In such circumstances, a bankruptcy court will have an evidentiary record upon which to evaluate the extension request. Here, the request is based upon speculation by JPMorgan Chase that its lacks the external and internal resources to prepare a proof of claim in the Debtors cases more than six months after its acquisition of Washington Mutual Bank ( WMB ) and vague procedural concerns regarding how an objection to JPMorgan s unknown claims will be resolved. Given the critical function of the Bar Date and inadequate evidentiary record, the Court should deny JPMorgan s request to be carved out of the Bar Order. III. JPMorgan Has Not Established Cause For Extending The Bar Date Or Exempting JPMorgan From The Bar Order 9. Even if the Court is inclined to consider JPMorgan s request for relief on the merits, cause has not been established. JPMorgan raises three principal arguments in its attempt to establish cause. First, it contends that it needs more time to evaluate the claims and assets that it acquired from the Federal Deposit Insurance Corporation ( FDIC ) in its capacity as receiver for WMB. See Objection at 2. Second, it contends that subjecting its alleged claims to the Bar Order raises complex substantive and jurisdictional issues between the chapter 11 and receivership proceedings. See id. at 3. Finally, regardless of any jurisdictional issues, it contends that the claims adjudication process administered by this Court lacks the procedural and 3 Where a party has failed to timely file a proof of claim, courts may extend the deadline if the party s failure to file was due to excusable neglect. See In re Garden Ridge Corp., 348 B.R. 642, 645(Bankr. D. Del. 2006) ( [u]nder the Federal Rules of Bankruptcy Procedure the Court may extend the period in which a proof of claim may be filed if the late filing resulted from excusable neglect ). A finding of excusable neglect requires an equitable determination based on the facts of the case. Id. In making such a determination, courts consider four factors: (i) the danger of prejudice to the debtor, (ii) the length of the delay and its potential impact on the judicial proceedings, (iii) the reason for the delay, including whether it was within the reasonable control of the party seeking an extension of the deadline, and (iv) whether the party acted in good faith. 5

6 substantive safeguards necessary to resolve anticipated disputes between JPMorgan and the Debtors. See id. As explained below, each of these objections lacks merit. A. JPMorgan Has Had Sufficient Time to Identify Alleged Claims Against the Debtors Estates 10. The Committee agrees with JPMorgan and the Debtors that the cases are large and complex and that the liquidation of the Debtors estates has been complicated by the interplay between the WMB receivership, the sale of WMB to JPMorgan by the receiver, and these chapter 11 cases. That said, JPMorgan s concerns about insufficient time ring hollow given the internal and external resources at JPMorgan s command and the six month period in which JPMorgan will have had to identify what alleged claims, if any, it may possess against the Debtors estates. 4 In contrast, the Debtors, with the assistance of the Committee, were able to marshal their resources to timely prepare and file a comprehensive and detailed proof of claim in the WMB receivership by the December 30, 2008 claims bar date established in such proceeding. JPMorgan, with tens of thousands of former WMB employees at their disposal and capable advisers, should be able to marshal its resources as well to comply with the Bar Date in these cases. If it fails to do so, it has the right to seek relief from this Court to explain the basis for its failure under an excusable neglect standard. 11. JPMorgan asserts that it needs to complete an investigation of an indefinite time period spanning an unprecedented range and volume of factual questions in order to prepare its proof of claim. Objection, 19. JPMorgan offers no suggestion of how much additional time, beyond the proposed Bar Date, it will allegedly need to assess its potential claims nor does it 4 On September 26, 2008, each of the Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Motion seeks to establish March 31, 2009 as the Bar Date. Thus, by the expiration of the Bar Date, JPMorgan will have had over six months to evaluate the claims, if any, that it holds against the Debtors estates. 6

7 indicate what actions need to be taken to complete this investigation. Moreover, JPMorgan s own allegations in the Objection suggest that claims diligence is fairly advanced. JPMorgan indicates that it has had an opportunity to review the schedules of assets and liabilities filed by the Debtors and has identified, by example, several areas (i.e. the Legacy Rabbi Trusts and the Visa Class B shares) where JPMorgan may allege claims. See id., Furthermore, JPMorgan makes reference to dozens of analogous situations which have arisen since its acquisition of WMB intimating a broader understanding of the scope of potential JPMorgan claims. Id.,. Complexities aside, JPMorgan should be required to marshal its vast resources and identify for the benefit of the Debtors and all other stakeholders the factual and legal basis for any alleged claims. B. Preservation of JPMorgan s Ability to Forum Shop Is No Basis for Relief from the Bar Order 12. Delaying the filing of JPMorgan s proof of claim in order to determine the appropriate method and forum for resolving JPMorgan s unknown claims is a recipe for more delay. The time for addressing the appropriate forum for resolving anticipated disputes to JPMorgan s alleged claims is after the proof of claim is filed, not before. Once the proof of claim is filed, the Court and other parties in interest can evaluate the procedural and jurisdictional issues raised by the alleged claims and evaluate the appropriate forum and methodology for resolving disputes. 5 Debating such issues without the benefit of the proof of claim on file accomplishes little, if anything at all, to hasten distributions to creditors. 5 The Committee submits that JPMorgan has waived any right to contest the jurisdiction of this Court through its notice of appearance and active participation in these cases. See, e.g., In re Deak & Co., Inc., 63 B.R. 422, 433 (Bankr. S.D.N.Y. 1986) (finding that a party's notice of appearance and regular presence at all key junctures in the case along with the party's long failure to object to jurisdiction led to the conclusion that such party had waived a jurisdictional challenge); In re Pacques, Inc., 277 B.R. 615, 636 (Bankr. E.D. Pa. 2000) (recognizing that entry of appearance may be sufficient to justify the assertion of personal jurisdiction). 7

8 13. Furthermore, the prospect that JPMorgan faces an alleged Hobson s Choice if subjected to the Bar Date does not entitle JPMorgan to the relief it requests. Faced with a similar issue, at least one court held that the possibility that a creditor may be prejudiced in some way through the filing of a proof of claim does not constitute cause for purposes of exempting creditors from a bar date. See Hooker, 122 B.R. at 663 (affirming the bankruptcy court s decision not to exempt certain secured creditors from the bar order despite their argument that the bar order would force them to make a choice between filing proofs of claim and preserving their right to a jury trial in a related adversary proceeding because, in part, granting such an exemption sets a very dangerous precedent, as it would require [the court] to draft bar orders in such a way that [it] preserve[s] the rights for anybody who felt that they might have a problem, that they might be prejudicing themselves by filing a Proof of Claim and [the court is] simply unwilling to do that. [The secured creditors] will have to make whatever decisions [they] need to make as to litigation strategy on [their] own. ). Affirming the decision below, the district court explained, [i]n essence, then... if the [secured creditors] did have a jury trial right and risked losing it, that would not constitute cause for exempting them from the Bar Order.... [and] [t]he bankruptcy judge was not required to defer to the [secured creditors ] strategic considerations in entering the Bar Order. Id. Like the bankruptcy court in Hooker, in the instant case, the Court should not give consideration to JPMorgan s strategic or tactical reasons for seeking relief from the Bar Order. Filing the proof of claim is an important first step to advancing these chapter 11 cases and there is no justification for delaying the administration of these cases to serve JPMorgan s tactics or litigation strategy. 8

9 C. Procedural Safeguards Exist for Resolution of JPMorgan s Proof of Claim 14. JPMorgan s position that the claim adjudication process in this Court is lacking in important procedural safeguards is untenable given the potential complexity and magnitude of the disputes and experience of the Court in resolving complex factual and legal disputes. Leaving aside the fact that the objection is mere conjecture as neither a proof of claim is on file nor an objection asserted, the Committee notes that many of the rules applicable in adversary proceedings are automatically applicable in contested matters through Bankruptcy Rule 9014(c) and that the Court may at any stage in a particular matter direct that one or more of the other rules in Part VII shall apply. FED R. BANKR. P. 9014(c). Accordingly, the procedural protections of an adversary proceeding likely will be available to JPMorgan should a claim objection occur. 15. Furthermore, to the extent that the Debtors seek a determination of the extent of the Debtors interest in property in connection with an objection to JPMorgan s proof of claim, they are obligated under Bankruptcy Rule 3007(b) to commence an adversary proceeding. FED R. BANKR. P. 3007(b); see, also, In re Lexington Healthcare Group, Inc., 339 B.R. 570, 578 (Bankr. D. Del. 2006) ( [i]f an objection to a proof of claim is joined with a demand for relief specified in Rule 7001, the objection to the proof of claim becomes an adversary proceeding ). Consequently, to the extent objections to the JPMorgan claims are adjudicated before this Court, appropriate procedural safeguards will exist. 9

10 CONCLUSION WHEREFORE, for the reasons set forth herein and at the hearing on the Motion, the Committee respectfully requests that the Court (a) deny the relief requested in the Objection, and (b) approve the Motion. Dated: January 27, 2009 Respectfully Submitted, PEPPER HAMILTON LLP By: /s/ Evelyn J. Meltzer David B. Stratton (DE No. 960) David M. Fournier (DE No. 2812) Evelyn J. Meltzer (DE No. 4581) Hercules Plaza, Suite Market Street P.O. Box 1709 Wilmington, DE (302) and AKIN GUMP STRAUSS HAUER & FELD LLP Fred S. Hodara, Esq. (admitted pro hac vice) One Bryant Park New York, NY Telephone: Facsimile: Peter J. Gurfein, Esq. (admitted pro hac vice) David P. Simonds, Esq. (admitted pro hac vice) 2029 Century Park East, Suite 2400 Los Angeles, CA Telephone: Facsimile: Scott F. Alberino, Esq. (admitted pro hac vice) 1333 New Hampshire Avenue, N.W. Washington, DC Telephone: Facsimile: Attorneys for the Official Committee of Unsecured Creditors of Washington Mutual, Inc., et al. 10