In Re: Washington Mutual Inc. et al
Filing
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MEMORANDUM. Signed by Judge Gregory M. Sleet on 2/2/2015. (mdb)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
INRE:
WASHINGTON MUTUAL, INC., et al.,
Debtors.
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Chapter 11
Bankruptcy Case No. 08-12229-MFW
Adv. Pro. No. 10-50911-MFW
_______________
BENJAMIN BUSH,
Appellant,
v.
WASHINGTON MUTUAL, INC., et al.,
Appellees.
C.A. No. 12-272 (GMS)
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MEMORANDUM
I.
INTRODUCTION
Appellant Benjamin Bush appeals from a January 3, 2012, Order and Opinion (D.I. 1-2, 1-
3) of the United States Bankruptcy Court for the District of Delaware. Presently before the court
is WMI Liquidating Trust's 1 Motion to Dismiss that appeal (the "Motion") (D.1. 10). For the
reasons that follow, the court will grant Debtors' Motion and dismiss this case.
II.
BACKGROUND
Prior to September 25, 2008, Washington Mutual, Inc. was a savings and loan holding
company that owned Washington Mutual Bank. (D.I. 10, at 5). On September 25, 2008, the Office
of Thrift Supervision closed Washington Mutual Bank and appointed the FDIC as receiver. The
FDIC took immediate control of the bank, and that same day, executed an agreement to sell
1
WMI Liquidating Trust is the successor in interest to Debtors Washington Mutual, Inc.
and WMI Investment Corp. They will collectively be referred to as "Debtors."
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substantially all of the bank's assets to JPMorgan Chase Bank. On September 26, 2008, Debtors
filed for chapter 11 bankruptcy relief in the United States Bankruptcy Court for the District of
Delaware. (Bankr. Case No. 08-12229-MFW, D.I. 1). On February 23, 2012, the Bankruptcy
Court entered an order confirming Debtors' Seventh Amended Joint Plan. (Id., D.I. 9759).
This appeal stems from a lawsuit filed by Anchor Savings Bank in 1995 against the United
States in the U.S. Court of Federal Claims (the "Anchor Litigation"). See Anchor Sav. Bank, FSB
v. United States, 81 Fed. Cl. 1 (2008), afj'd in part, remanded in part, 597 F.3d 1356 (Fed. Cir.
2010). This cause of action then transferred to Dime Bancorp, another savings and loan holding
company, through a merger of the two banks. In December 2000, Dime Bancorp issued Litigation
Tracking Warrants (the "Dime Warrants") to each shareholder of Dime Bancorp. These publicly
traded Dime Warrants entitled the holders (the "LTW Holders") to an amount of Dime Bancorp
common stock worth 85% of any proceeds Dime Bancorp recovered from the Anchor Litigation.
In 2002, Washington Mutual, Inc. acquired Dime Bancorp. Washington Mutual continued to
prosecute the Anchor Litigation and agreed to honor the Dime Warrants with its own stock.
On April 12, 2012, certain institutional LTW Holders (the "Lead Plaintiffs") commenced
an adversary proceeding against Debtors seeking declaratory judgment that the Dime Warrants
represented a debt, and thus a claim to assets of the Debtors' bankruptcy estate, rather than an
equity interest. (Bankr. Adv. No. 10-50911, D.I. 1). On September 6, 2011, the Bankruptcy Court
entered an order that certified all LTW Holders as a class under Fed. R. Civ. P. 23 and appointed
class counsel. (Id., D.I. 275, Ex. 1, at 2). After a trial, on January 3, 2012, the Bankruptcy Court
entered an Opinion (the "Dime Warrants Opinion") and Order (the "January 3 Order") granting
judgment in favor of Debtors, determining that the Dime Warrants represented an equity interest.
(D.1. 1-3, at 23).
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Appellant purports to hold 1.5 million Dime Warrants. On January 26, 2012, Appellant
filed a notice of appeal from the January 3 Order, which he later amended on March 3, 2012. (D.I.
1). Because the Dime Warrants Opinion did not resolve all outstanding questions surrounding the
Dime Warrants issue, the Lead Plaintiffs and Debtors proposed a stipulated settlement agreement
that sought to finalize the treatment of the Dime Warrants (the "LTW Settlement").
Appellant
filed several objections to the proposed class-wide LTW Settlement. On February 13, 2012, the
Bankruptcy Court overruled Appellant's and other individuals' objections and entered an order
(the "LTW Settlement Order") approving the LTW Settlement. (Banla. Adv. No. 10-50911, D.I.
344). Appellant did not appeal from the LTW Settlement Order. On November 16, 2012, Appellee
filed the present Motion to Dismiss. (D.I. 10).
III.
LEGAL STANDARD
The court has jurisdiction over this matter pursuant to 28 U.S.C. § 158(a)(l). When
reviewing a case on appeal, the court reviews the bankruptcy court's legal determinations de nova,
its factual findings for clear error, and its exercise of discretion for abuse thereof. In re United
Healthcare Systems, Inc., 396 F.3d 247, 249 (3d Cir. 2005).
DISCUSSION2
IV.
Appellant raises three issues on appeal: (I) whether the Bankruptcy Court erred by entering
judgment in favor of Appellee in the Dime Warrants Opinion; (II) whether the Bankruptcy Court
erred by overruling his objections to the LTW Settlement Agreement; and (III) whether the
Bankruptcy Court erred by overruling his objection that class counsel had a disabling conflict of
interest. (D.I. 4, at 2). Appellee's Motion to Dismiss argues that Appellant's appeal from the
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Pursuant to Fed. R. Banla. P. 8019(b), the court finds that oral argument is unnecessary
because the facts and legal arguments are adequately presented in the briefs and record, and the
decisional process would not be significantly aided by oral argument.
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Dime Warrants Opinion is moot because it was superseded by the LTW Settlement Agreement, or
alternatively, is equitably moot because the Debtors' confirmed plan has been substantially
consummated. (D.I. 10, at 4). Appellee also maintains that issues II and III on appeal are not
properly before this court because they were not decided in the January 3 Order. (Id.). In response,
Appellant asserts that the Bankruptcy Court lacked subject matter jurisdiction over the LTW
Claims dispute. (D.I. 11, at 14).
1.
Lack of Subject Matter Jurisdiction
Appellant contends that the right to recover the proceeds of the Anchor Litigation was
transferred from the FDIC to JPMorgan prior to Debtors' bankruptcy filing. (D.1. 11, at 6). He
argues that this asset never became property of the Debtors' estate, and therefore, the Dime
Warrants issue was not subject to the Bankruptcy Court'sjurisdiction. (Id.). The court must reject
this argument. As an initial matter, the fact that Debtors claimed an interest in the Anchor
Litigation was sufficient to confer jurisdiction in the Bankruptcy Court.
See 11 U.S.C. §
157(b)(2)(0); In re Cont'/ Airlines, 138 B.R. 442, 445 (D. Del. 1992) ("The determination of the
property of the estate is one of the core proceedings arising under title 11. "). Furthermore, this
argument ignores the Bankruptcy Court's conclusion that the Dime Warrants did not provide the
LTW holders with any interest in the Anchor Litigation itself, but rather an interest in Debtors'
common stock that merely tracked the value of the Anchor Litigation proceeds. (D.1. 1-3, at 31).
Regardless of which entity held the rights to the proceeds of the Anchor Litigation, the Dime
Warrants were independent claims against the Debtors' property, and thus squarely within the
jurisdiction of the Bankruptcy Court. See 11 U.S.C. § 157(b)(2)(B).
2.
Appellant's Issues II and III
The court agrees with Appellee that Appellant's second and third issues on appeal are not
properly before this court. The Bankruptcy Court disposed of Appellant's objections to the
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proposed LTW settlement and the alleged class counsel conflict in its LTW Settlement Order, not
in its January 3 Order. (See Bankr. Adv. No. 10-50911, DJ. 344, at 3). The record indicates that
Appellant neither appealed from the LTW Settlement Order nor sought a stay of that Order pending
appeal. Appellant argues that because Appellee had constructive or actual notice that he would
raise these issues on appeal, the court should consider these arguments based on a theory of
excusable neglect. (DJ. 11, at 9-11). Excusable neglect, however, only allows a court to extend
the appellate filing deadline an additional 21 days; it is not a basis for implying jurisdiction when
the appropriate appeal was never filed. See Fed. R. Bankr. P. 8002(d)(l)(B). "Failure to file a
timely notice of appeal thus deprives the district court of jurisdiction to review the bankruptcy
court's order or judgment." In re Universal Minerals, Inc., 755 F.2d 309, 312 (3d Cir. 1985).
Since Appellant did not file a timely appeal from the LTW Settlement Order, the court does not
have jurisdiction to review Appellant's second and third issues.
3.
Review of the Bankruptcy Court's January 3 Order
Appellee finally argues that appellate review of the Dime Warrants Opinion is moot for
two reasons: (1) the Bankruptcy Court's approval of the LTW Settlement supersedes that opinion,
and (2) the Debtors' confirmed plan is substantially consummated, which renders the appeal
equitably moot. (DJ. 10, at 11-12). The court agrees that because Appellant is bound by the LTW
Settlement, the court cannot provide meaningful relief on this issue and it is therefore moot.
Constitutional mootness is a threshold question for determining whether this court has
proper appellate jurisdiction. Rendell v. Rumsfeld, 484 F.3d 236, 240 (3d Cir. 2007). This
jurisdictional prerequisite arises from the "case or controversy" requirement of Article III of the
United States Constitution. Id.; see U.S. Const. art. III, § 2, cl. 1. If there is no live case or
controversy, then the court lacks jurisdiction and must dismiss the appeal as moot. See Sec. &
Exch. Comm'n v. Med. Comm.for Human Rights, 404 U.S. 403, 407 (1972). Mootness can arise
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at any stage of judicial review. Id "The central question of all mootness problems is whether
changes in circumstances that prevailed at the beginning of the litigation have forestalled any
occasion for meaningful relief." Id. (quoting In re Surrick, 338 F.3d 224, 230 (3d Cir. 2003)).
"[A]n appeal is moot in the constitutional sense only if events have taken place during the
pendency of the appeal that make it 'impossible for the court to grant any effectual relief
whatever."' In re Cont'! Airlines, 91F.3d553, 558 (3d Cir. 1996) (quoting Church ofScientology
v. United States, 506 U.S. 9, 12 (1992)).
Appellant was a member of the certified class of LTW Holders. (Bankr. Adv. No. 1050911, D.I. 275, Ex. 1, at 2) ("A Class consisting of all holders of Litigation Tracking Warrants
issued by Dime Bancorp., Inc. (the "Class") shall be certified for the purposes of this Adversary
Proceeding, pursuant to Federal Rule of Civil Procedure 23"). Since the LTW Holders sought
declaratory reliefrespecting the class as a whole, Fed. R. Civ. P. 23(b)(2) did not require all class
members to receive notice or the right to opt-out. (Bankr. Adv. No. 10-50911, D.I. 275, Ex. 1, at
2); see Kyriazi v. W. Elec. Co., 647 F.2d 388, 393 (3d Cir. 1981) ("if the case falls within Rule
23(b)(2), class members are not entitled to notice of the pendency of the action and may not opt
out"). The subsequent class-wide LTW Settlement Order bound the entire class of LTW Holders:
This Stipulation shall be binding upon the and inure to the
benefit of the Debtors, their chapter 11 estates, the LTW Holders,
and their respective successors and assigns, including, without
limitation, any liquidating trustee, or any other successor in interest
to the Debtors or their chapter 11 estates.
(Bankr. Adv. No. 10-50911, D.I. 344, Ex. 1, at 14). Further, this Order completely disposed of all
claims raised against Debtors relating to the Dime Warrants:
Upon the Effective Date, on account of the claims and causes
of actions asserted by (a) the Named Plaintiffs in the Dime Warrants
Action, on behalf of themselves and all LTW Holders, and (b) the
LTW Holders in the LTW Proofs of Claim, the LTW Holders shall
receive in the aggregate, the following:
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i. An Allowed General Unsecured Claim ....
ii. Subject to the provisions of decretal paragraph 3(iii)
hereof, an Allowed Subordinated Claim ....
iii. 8.77% of the Reorganized Common Stock ....
*
*
*
Upon the Effective Date, (i) pursuant to Rule 7041 of the Federal
Rules of Bankruptcy Procedure and Rule 41(a) of the Federal Rules
of Civil Procedure, any and all claims and causes ofaction asserted
by the LTW Holders in the Dime Warrants Action shall be deemed
dismissed, with prejudice ....
(Id, D.I. 344, Ex. 1, at 9-11) (emphasis added).
Appellant did not appeal from that Order. His rights regarding the Dime Warrants are now
defined and controlled by the LTW Settlement. Consequently, this appeal lacks any justiciable
controversy. See US. Bancorp Mortgage Co. v. Bonner Mall P'ship, 513 U.S. 18, 26 (1994)
(recognizing mootness by reason of settlement); see also Carlough v. Amchem Products, Inc., 834
F. Supp. 1437, 1466 (E.D. Pa. 1993) ("Generally, ifthe parties reach a settlement, the case is no
longer justiciable as an Article III controversy."). Regardless of whether this court reverses the
Bankruptcy Court's declarative judgment in the Dime Warrants Opinion, the treatment of the Dime
Warrants in Debtors' confirmed plan will remain independently governed by the LTW Settlement.
Issuing an opinion on this point would be merely advisory. The court finds that this appeal is
constitutionally moot. The court need not address the equitable mootness argument.
V.
CONCLUSION
For the foregoing reasons, the court will grant Appellee's Motion (D.I. 10) and DISMISS
the appeal from the Bankruptcy Court's January 3 Order.
Dated: February
1_, 2015
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