UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE Inve Chapter 11 WASHINGTON MUTUAL, INC, et al! : Case No, 08412229 (MFW) Debtors Jointly Administered IPMORGAN CHASE BANK, NATIONAL "ASSOCIATION, Adversary Proceeding No, Plain, WASHINGTON MUTUAL, INC, AND WMI INVESTMENT CORP, Defendants forall claims, ae FEDERAL DEPOSIT INSURANCE CORPORATION, Additional Defendant for Interpleader claim. 1 The Debtors in these Chapter 11 cases and the last four digits of each Debtor's federal tax identification numbers are: (?) Washington Mutual, Ine. (3725) and (ii) WMI Investment Corp. (5395). The Debtors continue to share their prineipal offices with the employees of JPMorgan Chase located at 130] Second Avenue, Seattle, Washington 98101COMPLAINT IPMorgan Chase Bank, National Associaton (“JPMorgan Chase” and, together ‘with its subsidiaries and afiiates,“JPMC), by and through its attomeys, Sullivan & Cromwell LLP and Landis Rath & Cobb LLP, fo its Complaint, alleges upon knowledge as to itself snd its conduct and upon information and belief as to all other matters, as follows: NATURE OF ACTION 1. IPMorgan Chase brings this action in order to ensure that JPMorgan Case and its subsidiaries are not divested of ther asets and interests purchased in good ath from the Federal Deposit Insurance Corporation (“FDIC") as receiver (the “Receiver for ‘Washington Mutual Bank, Henderson Nevada (“WM”) under Tile 12 ofthe United States CCode pursuant to that certain Purchase and Assumption Agresment (Whole Bank) dated as of September 25, 2008, a true and correct copy of whichis tached as Exhibit hereto (he “P&A"), JPMC also brings tis ation for indemnification and recovery agaist the Debtors for certain abilities that may be asserted against JPMorgan Chase asthe successor by merger to ‘Washington Mutual Bank, £3, Utah (*WMB 66") former subsidiary of WMB, oF against other former subsidiaries of WME that curently are subsidiaries of JPMorgan Chase. 2, Under the PA, JPMorgan Chase acquired the business and related assets of WMB, including ownership of all of WMB's direct and indirect subsidiaries and all ight, title and interest ofthe Receiver in those asses, As provide for in the PALA, JPMorgan Chase purchased “all ofthe Receivers ight, tle and interest to these assets, pursuant to and in sevordance wit the Federal Deposit Insurance Act, as amended (the “FDI Act"). Among the assets acquired by JPMorgan Chase under the P&A were certain asses that have been claimed bby Washington Mutual, In. (*WMI", and colletively with WMI Investment Corp. (*WMI x30002598 2Tavestment”, the “Debtor”, 3. Many ofthe assets the Debtors now impropery claim belong to them (but that JPMorgan Chase in fat acquired from the FDIC) have already been determined not tobe the Debtors property pursuant to the resolution procedures under Title 12. On December 30,2008, ‘the Debtors submited claims in the Receivership for, among other things, ownership ofthese assets, On January 23, 2009, the FDIC, as Resever, disallowed the Debtors" claims. The Debtors elected not to appeal the disallowance of thei lai te ownership ofthese ase Rather, on March 20,2008, the Debtors filed an action agaist the FDIC inthe United States Distit Court forthe District of Columbia, Washington Mutua, Ine. etal. v. Federal Deposit [Insurance Corporation, Case No1:08-c¥-00533 (he “District Court Action”), challenging othe disallowance oftheir claims and also claiming ownership of those assets, The Debtors have exercised their purported right o demane a tal by jury in the Distet Court Action 4, Theassets that are the subject ofthe Debtors’ disallowed claims are also among the assets set forth inthe Debtors’ Schedules and Statements of Financial Afr fled ‘with this Court on December 19,2008, January 27,2009 and February 24,2009 (collectively, he “Schedules"), Notwithstanding the assersions inthe Schedules and the Distriet Court Action, the assets put atte by the Debtors are not property of the Debtors’ estates under 11 U.S.C. §541, nor ar they property ofthe Receiver any longer, but rather the assets are property of JPMC, ‘which sequird them in good faith and for value from the FDIC pursuant tothe FDI Act. 5. Inresponse to the Debtor actions and in onder to protect its evonomic interests in the asses the Debtors chose o pu at issue inthe District Court Action, JPMorgan ‘Chase has filed this Complint. oon 3asserted rights or has refused to acknowledge JPMC ‘s ownership, include (i) approximately $4 billion in the aggregate face amount of Trust Securities (as defined below) contributed by WMI to WMB, the amount of which constitutes regulatory core capital of WMB; (i) the right to tax ‘refunds arising from overpayments attributable to operations of WMB and its subsidiaries forthe 2008 tax year and prior tax years and net operating los, net capital los, and excess tax ereit carzybacks from 2008 to prior tx years; (ii) approximately $37 billion credited by book entry shortly prior tothe receivership of WMB so as to create a purported deposit account st WMB fsb in the name of WMI without any apparent deposit of funds; (iv) atleast $234 million in tax refunds that belonged to WMB and/or WMB subsidiaries and were acquired by JPMorgan Chase under the PA&A but were deposited tothe credit of WMI in the days following the Receivership; (¥) goodwill judgments that arise from pending end prior litigation; (vi) assets of certain trusts supporting deferred compensation arrangements covering the former and current employees oF WMB and its subsidiaries; and (vi) other assets of WMB, including Visa shares, intellectual property and contractual rights, as deseribed below. The Debtors are also refusing to recognize the Receiver’s ability to transfer to JPMorgan Chase certain tax qualified pension and 401(&) plans pursuant to which the trust assets are eld forthe exclusive benefit of participants, most of svhom were WMB's employees. 7. The lisbiltes ot issue in this adversary proceeding are liabilities that did not transfer tothe Receiver or to JPMorgan Chase, but rather are liabilities ofthe Debtors that relate to ets, conduct or omissions of WML in connection with events prior to the ‘commencement ofthe receivership proceedings for WM and for which WMB and/or its former ‘subsidiaries would be entitled to indemnification and contribution from the Debtors as primary actors, These lihilities relate principally to (i) the issuance of “Trust Securities” with thegregate face amount of approximately $4 billion; (ji) so-called “deposit account," which in ‘the aggregate were recorded as having book balance of approximately $4.3 billion as ofthe commencement of these Chapter 11 cases; and (i the restructuring and transfer of assets and liabiites among the Debtors and thee former subsiivis 8. Inthis action, JPMorgan Chase seoks, pursuant o Title 12 andthe P&A, (a declaration that, as the successor of the Receiver, it has ors entitle to fll legal ile to and the beneficial intrest inthe ase at issue i) a declaration that it has en rights agains, andor is entitle to sto, recoupment andr impsition ofa constructive trst with respect o ny amounts fo which the Debtors may otherwise clam to be entitled, (i) declaration ofthe rights of JPMC to indemnifiestion, contribution andlor reimbursement fo amounts paid or advanced by JPMC or WMB with espct to any ofthe asses a issue that are not transfered to JPM, and (iv) adjudication of any and all confictng claims tothe so-called “deposit accounts and any funds in them, JPMorgan Chase intends ofl its proof of claim forthe amounts, if any, that this Court may determine inthis adversary proceeding constitu claims against the Debtors and theirestates. PARTIES AND BACKGROUND RELATIONSHI 9. Plaintiff 1PMorgan Chase is a national banking association organized under the las ofthe United States oF America with its principal place of business in Columbus, Cio, JPMorgan Chase i wholly-owned subsidiary of JPMorgan Chase & Co, a corporation organized under the laws of the State of Delaware. JPMorgen Chase isthe “Assuming Bank" as that term is defined in the P&A and isthe successor to and good faith purchaser for value from the Receiver under the P&A and under Title 12 ofthe United States Code 10. Defendant WML a holding company incorporated in Washington with ‘rseno2am 5its principal place of business in Seattle, Washington and is one of the debtors and debtorsin- possession in these cases, having filed its voluntary petition for reorganization under chapter 11 of Title 11 ofthe United States Code on September 26, 208 (the “Petition Date”) before the United States Bankruptey Court for the Distriet of Delaware (the “Bankruptey Cour”). 11, Defendant WMI Investment is a Delaware comporation with its principal place of business in Seattle, Washington and isthe other debtor and debtor-in-possession in these 12, Defendant FDIC is federal corpor jon with its principal place of business in the District of Columbia, The FDIC is named asa defendant solely in connection with the interpleader clam, 13, tall times relevant hereto, WMI was savings and loan holding company, WMI directly owned WMI Investment and directly or indirectly owned WMB end ‘WMB's subsidiaries, including WMB fib (WMB and WMB fa in existence prior othe Receivership ae sometimes collectively referred to herein as the “Adiiated Banks”). 14, Atall mes relevant hereto, the Debtors, WMB and WMB's direct and indirect subsidiaries, including WMB fb, were subject to regulation by the Office of Tritt Supervision (“OTS”) and various otber state and federal depository nstitions regulatory agencies and banking authorities, including the FDIC, which insured the banks’ deposits, 15, On September 25,2008, the Director ofthe OTS by onder number 2008- 26, appointed the FDIC as Receiver for WMB andthe Ressver took possession of WMB in & receivership proceeding under section 1821 of Title 12 ofthe United States Code the “Receivership’). 16. On September 25, 2008, the FDIC, as Receiver and in its corporate snowanee 6capacity, also entered into a Purchase and Assumption transaction with JPMorgan Chase under the P&A, whereby JPMorgan Chase acquired substantially allo the asses and assumed the posit Habilites (as defined in the PAA and under 12 U.S.C. § 1813(1) and certain other liabilities of WMB's banking operations under the authority vested in the FDIC by Tite 12. 17, On September 26, 2008, at approximately 10:16 pm., WMI and WMI Investment filed thee voluntary petition for relie under Chapter 11 of Title 11 of the United Stes Code (as amended, the “Bankrupt Code" in the Bankruptey Coun, thereby commencing the Chapter 11 cases in which this adversary proceeding is led. 18, On January 30, 2009, the Bankruptey Court entered its onder setting “March 31,2009 as the date by which all proofs of claim against the Debtors and ther estates must be filed 19, On February 24,2008, the Debtors filed amended schedules in these 20, On March 20,2009, the Debtors commenced the Distt Court Action JURISDICTION AND VENUE 21, Since the Petition Date, the Debtors have been and continue tobe authorized to operate ther businesses and manage their properties as dcbtrs-in-possession ‘pursuant to sections 1107() and 1108 ofthe Bankruptey Code 22. On October 3, 2008, this Cour entered an order pursuant to Federal Rule ‘of Bankeuptey Procedure 1015(b (collectively, the “Bankruptey Rules") authorizing the joint administration ofthe Debtors’ Chapter II cases 23, This Cour has jurisdiction over this adversary proceeding pursuant 0 28 U.S.C. §§ 2201 and 2202, 28 U.S.C. § 1334, 28 U.S.C. § 157, and Bankruptey Rule 7001 xsnoo2sae 724. Venue ofthis adversary proceeding in this Court is proper pursuant t0 28 USC. § 1409(0), STATEMENT OF FACTS A. The Bank Failure and Acquisition. 25, On September 18, 2008, the OTS designated WMB as a “problem institution,” thus subjecting it to closer control and scrutiny by the federal regulatory authorities and on September 25, 2008, the OTS placed WMB in receivership because of significant cconcems over the safety and soundness of the institution, To ensure continuity of operations, ‘maximize public confidence and minimize cost tothe public treasury, the FDIC ran an accelerated bidding process in accordance with statutorily mandated procedures under Tile 12 ‘that, subject to certain limited exceptions, resulted inthe sale of all of the Reveiver’s right, tile ‘and interest to or in WMB's assets whether of not reflected on the books and records of WMB, to JPMorgan Chase pursuant to the terms of the P&A. 26. Atte time of the Receivership, WMB was the sixth largest bank in the United States, with 2207 branches, more than 43,000 employees, and more that 13 million depositors with more than $140 billion of deposit liabilities insured by the FDIC. 27, WMB also indirectly owned 100% of WMB fsb, WMB {8b or “the little ‘bank" (as it has sometimes been called) had 26 offices to WMB’s 2,207 and less than $5 billion in customer deposits insured by the FDIC to WMB's more than $140 billion 28. The FDIC's ability to promptly find a suitable acquirer of WB's, ‘banking operations had significant economic and policy ramifications. This was a bank failure ‘of unprecedented magnitude that occurred in the midst of the most severe financial crisis in decades. Had the FDIC been unable to sell the assets of WMB, 13 million depositors would exsenasan 8have los their bank and the confidence of consumers inthe banking system general would likely ave been futher undermined, The protection ofthe tle conveyed by the FDIC institutions ike JPMorgan Chase, who are encouraged to step into the breach and provide the stability and continuity necessery to aver run on fling bank and disruption ofits services to the publi, serial othe abil of the regulators to manage bank failures under Tide 12 and the government to administer an insurance fund that ean maintain pubic confidence inthe bar system. 29, ‘That WMB stands asthe angst bank flue in United States history stems in large pst from the financial ersis and esis of confidence that sil grips the nation. In the ten days immediately prior othe Receivership, WMB experienced depasit outflows of more than $16.7 billion, amounting to more than $2 billion per hankng business day, a its customers and even WMI itself were apparently moving thee assets So as to avoid the effets of what was increasingly perceived to be an inevitable bank failure 30, JPMorgan Chase had only two days after being briefed by the FDIC submit a bid and then only twenty-four hours rom the time that its bid was aovepted by the FDIC unt he time the acquisition closed to complete the single largest acquisition of filed institution in United States history. ‘The ctcumstanes which led to execution of the P&A meant that JPMorgan Chase had limited opportunity to prepare for this unprecedented transaction. 31, ‘The acquisition included, among other thing, a nationwide credit ard lending business, a multi-family and commercial real esate lending busines, and nationwide ‘mortgage banking activites, JPMorgan Chase's acquisition avoided an interruption in banking services, It assuted that the 2207 branches operated by WMB, os well asthe 26 additonal branches operated by WMB fsb, opened for business on September 26, 2008, protecting the eanaoe 9interests of employees, customers, vendors and communities who were dependent on WMB's ‘banking operations. JPMorgen Chase paid S188 billion dollars to dhe FDIC for these and other assets, and assumed all deposits. This transaction involved no financial assistance from, oF cost to, the FDIC's Deposit Insurance Fu, This stands in contrast to other recent bank failures such ‘asthe FDIC's sale of IndyMac Federal Bank FSB, which cost the FDIC approximately $10.7 bili, despite IndyMac beings much smaller bank than WMB. 32, The task of stbtiin, integrating and creating as smooth a transition as possible as boon time-consuming and arduous. But its sueess hasbeen vital to the banking system, the communities served by WMB and the general public interest. B. Combined Operations of Washington Mutual 33. Asa federal savings association commited to serving consumers and small businesses, WMB accepted deposits fom the general publi, originated, purchased, serviced and sold home loans, made credit ear, home equity, multi-family and other commercial realestate loans, and 0 lesser degre, engaged in certain commercial banking activities, |WMR's substantial morgage business was hit expecially hard by inereasing home and commercial morgage delinquencies in late 2007 and 2008. 34, As the financial criss took root toward the end of 2007, WME focused its efforts onsising capital for WM, In ate 2007, WME raised approximately $3 billion in new capital through the issuance ofa series of debt securities. In early 2008, WMI sought out merger partners and equity investors, A numberof companies participated in the process including ‘IPMorgan Chase which submited a bid to acquire WMI, but whose bid was rejected by WMD. In April 2008, in iw ofan acquisition ora merger, WMI negotiated a capital infsion of ‘approximately $7.2 billion ftom a group of investment funds led by Texas Pacific Group, a ensoonason 10private equity fim, through an issuance of prefered stock, which included ant-iltion provisions that severely constricted the ability of WMI to raise additional capital 35. WM formally contibuted to WMB at least $6.5 billion ofthe approximately $10.2 billion in capital it had mised. As discussed below, certin book entries made between September 19 and September 24, 2008 reflect an aditional contribution of $3.7 billion foo» WMI to WMB fb, accountng fr much ofthe remaining debt and equity capital raised by WMI during 2007 and 2008, While book entries were made, neither WMI nor WMB transferred cash or other good funds to WME. fsb corresponding tothe book entes, whether as a contibution or otherwise. 36. — Prior othe Receivership, WMA and WMB ha identical and overlapping directors and held joint meetings ofthe Boards of Directors of both entities ona combined basis, resulting in effect in a singe Board of Directors wit identical directors that met on the same topics atthe same time and made decisions for both entities collectively. WMI's officers and ‘employees were also officers and directors of WMB and WMI and WMB shaxed joint general ledger and other books and records, and centralized their decision making, treasury, cash management, finance, governance, egulatory and executive fanetions in the same individuals. The overlap was so extensive that as ofthe time of the Receivership and subsequent Petition Date, WMI claimed it had only a endl of employees remaining as the result ofthe Reseiversip. 37. Likewise, the assets and liabilities ofthe Debtors and thei direct and indiret subsidiaries, including the Afiliated Banks, were connected and in many eases, commingled and intertwined. Prior to the Receivership, the Debtors and theit direct and t subsidiaries operated a centalized and consolidated cash management system pursuant to which enamasn n‘extemal receipts and payments were accounted for on a consolidated basis and internal receipts ‘or payments were done in wiole or in part by book or journal entry as “due tolfrom” accounts on the general ledger or other books of account. 38. _Atvatious times prior to the Receivership, WMI entered into agreements ‘with third parties tha tle assets or contractual rights in WMI’s name although WMB or & subsidiary of WMB paid for the asset or contractual right or was the entity Iiable onthe payment of Hibilty therefore, At various times prior to the Receivership, WMI also entered into intercompany arrangements with the Affiliated Banks with documentation different than the documentation that the Affiliated Banks would have obtained in an arm’s-length transaction with ‘an unaflilated party 39. In2007 and 2008, WMI undertook a series of projects and other acts at least some of which appear to have moved assets away from WMB or its subsidiaries to WMI oF another of WMI's subsidiaries, This included transfers undertaken during August and ‘September 2008 as part of WMI’ self-titled “WMI Cash Optimization Program’, for the apparent benefit of WMI 40. To the extent that that any person has or may assert claims against JPMC that resulted from these transactions, IPMC is entiled to be indemnified and held harmless by WMI since all pre-petition transactions were consummated at the hehest and direction of WMI and for its benefit. ©. Trust Securities 41, Between Match 2006 and October 2007, certain issuer trusts (the “Issuing ‘Trusts") formed by WMI and its then subsidiaries issued securities (the “Trust Securities”) inthe aggregate face amount of approximately $4 billion, exchangeable into depository shares eo mmason 2representing preferred stock of WMI upon the occurrence of cenain evens. A complet list of the Trst Soctties is attached as Exhibit B, The Trust Securities were iasuedin global form registered inthe name of Cede & Co, as nomines and held by Wilmington Trust as depositary forthe Depositary Trust Corporation ("DTC"). The sole assets ofthe Issuing Trusts, in tum, were prefered securities issued by Washington Mutual Preferred Funding LLC (*WMPF") 42, Asset forth below, JPMorgen Chase acquired the Trust Securities under the P&A and al steps required to transfer the Trust Securities as required were completed prior to the Petition Date save and exeept forthe mistrial formality of changing record tile as reflected at DIC and described below. 43, ‘The Trust Securities, ike other trust securities issue by financial instttions, qualified a regulatory core capital of WM under applicable banking laws and regulations with speifie approvals and requirements governing thei issuance and teatment ‘They were, by their express tems, mandatorily and automatically exchangeable for ike amount of newly issued depository shares representing WMI prefered stock upon the occurence of an exchange event, In dition, forthe Trust Securities tobe tested as core capital of WMB ‘or any other regulated institution when issue, the Trust Securities would have tobe structured in ‘manner that assured they would become property othe regulated institution upon exchange 44. On January 30,2006, WMB submitted a Notice for Establishment ofan Operating Subsidiary (the ‘otce”) o the OTS and the FDIC regarding the establishment of \WMPP, WMPP's assets consisted of indirect interest in various residential mortgage and home csquity loans and other permited investments, WMPF in tur issued preferred securities tothe Issuing Trass that entitled the Issuing Trusts oa iguiation preference against the sssts of WMPF. In the Notice to the OTS and the FDIC, WMB sought confirmation from the OTS that ‘xos00258 B‘the Trust Securities would qualify for inclusion inthe core capital of WMB. 45. On February 23, 2006, WMI committed to contribute the Trust Securities fo WMB and stated that WMI “hereby undertakes that if, as a result ofa Supervisory Event,” WMI exchanges its preferred stock forthe Trust Securities, “WMI will contsibute to WMB the [Trust Securities}” A true and correct copy ofthat commitment is attached as Exhibit C 46, WMI’s written commitment to contibute the Trust Securities to WMB in ‘exchange for including the Trust Securities inthe core capital of WMB constituted a capital ‘commitment to a federal depository institutions regulatory agency ori predecessor which was ‘deemed assumed as ofthe Petition Date under 11 U.S.C. Section 365(0). That commitment also constituted a binding agreement (the “Contribution Agreement”), the breach of which would ive rise to post petition administrative claims against WML 47. Atall imes relevant hereto solely by virtue of the Cont Agreement, WMB was permitted to include the Trt Securities ints core capital and counted the amount ofthe Trust Seeurities as regulatory core capita ‘The Trust Securities have never ben beneficially owned by WMI and have always heen subject to concomitant obligation to contibute the Trust Securities to WMB as a necessary corollary to the tweatment ofthe Trust, Securities as core capital of WMB. 48, Theissuance ofthe Trust Securities and the Contribution Agreement were duly authorized by all requisite corporate action on the part of WMI and WM. ‘True and correct copies ofthe minutes ofthe Board of Directors authorizing the eansaction are attached as Exhibit . 49, On September 25, 2008, in letter to WMI, the OTS declared an Exchange Event had occurred and directed an immediate exchange ofthe Trust Securities for xsnoo2s8 4\WMI prefered stock. WMI responded to the OTS letter later on September 25,2008, confirming the exchange and contibution. 50, Oa September 25, 2008, WMI contributed the Trust Secures to WMB pursuant to an Assignment Agreement a tru and correc copy of which i tached as Exhibit E, pursuant to which, among other things, effective as of September 25,2008, WMI wansfemed “all of (WMTs igh, tle and interest, whether now owned or hereafter acquired in and othe [Trust] Securities"to WMB, Furthermore, upon execution, WMI assigned to WMB all present and future “rights and benefits arising out of the [Trust] Securities which come ino the possession of (WMI. 51. Under the express terms ofthe PAA, JPMorgan Chase purchased “all rip, ile, and intrest ofthe Receiver in and tall ofthe assets... of [WM] whether or not ‘reflected on the books of [WMB] as of Bank Closing,” which includes WMB's and the Receivers rights o receive the Trust Securities, tansfer that was effected on September 25, 2008, The Receiver sold the Tust Securities to JPMorgan Chase under the P&A and, therefore, JPMorgan Chase isthe sole owner of ll equitable and beneficial right, ile and interest in he “Trust Securities, leaving only the ministerial act of comesting the record at DTC (or withthe Issuing Trust and their trustees) undone before the fing ofthese Chapter 11 eases. 52, Although the Debtors didnot inialy dispute JPMorgan Chase's ‘onnership ofthe Trust Securities andthe parties drafted and agreed toa stipulation to wanfer the Trust Securities to JPMorgan Chase to accompany the account stipulation, the Debtors amended their schedules on January 27,2009 toad a Footnote 4 to Schedule B regarding the Trust Secutites which had not been mentioned inthe Schedules originally filed on December 19, 2008. In that footnote, which is repeated verbatim in the Debtors’ Second Amended Schedules exsmasae 1s