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American National Insurance Company, et al v. Jpmorgan Chase & Co.

September 28, 2012

AMERICAN NATIONAL INSURANCE COMPANY, ET AL., PLAINTIFFS,
v.
JPMORGAN CHASE & CO., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge

OPINION

Bondholders of Washington Mutual Bank ("WaMu" or the "Bank") sue JP Morgan Chase Bank and JP Morgan Chase Co. (together "JPMC") for allegedly spreading misinformation about WaMu that caused credit raters and federal regulators to doubt the Bank's ability to weather the financial storm of 2008. As a result of these alleged nefarious activities, JPMC was able to acquire WaMu at a fire-sale price and the bonds were rendered worthless. Plaintiffs sue JPMC for tortious interference with their bond contracts, unjust enrichment, and breach of a confidentiality agreement between JPMC and WaMu's parent company, Washington Mutual, Inc. Before the Court is a motion to dismiss the First Amended Complaint. The motion will be granted in part and denied in part.

I. FACTS

The First Amended Complaint ("Complaint") makes the following allegations. The Court assumes the truth of the Complaint's allegations of fact in ruling on a motion to dismiss. Bell Atl. v. Twombly, 550 U.S. 544, 555 (2007). Plaintiff Bondholders were investors in WaMu, a subsidiary of Washington Mutual, Inc., who received bonds in return for their investments in WaMu. The bonds "evidence the contractual obligation of [WaMu] to pay to each Plaintiff a stream of future cash payments consisting of coupon payments and a payment of the principal value of the bond." Am. Compl. [Dkt. 131] ¶ 105. However, the Office of Thrift Supervision ("OTS") put the Bank into receivership with the Federal Deposit Insurance Corporation on September 25, 2008, and the FDIC-Receiver sold the Bank's assets and limited liabilities to JPMC on the very same day. As a result, the bonds were rendered worthless and the Bondholders are unable to collect. The Amended Complaint makes the following allegations regarding the events leading up to the sale of WaMu's assets and certain WaMu liabilities to JPMC.

On March 11, 2008, JP Morgan Chase Co. ("JPMC Co.") executed a confidentiality agreement with Washington Mutual, Inc. ("WMI") regarding a possible acquisition of either WMI or WaMu. Id. ¶ 23. Pursuant to the agreement, JPMC Co. received internal financial information about the Bank but was restricted to using the information solely for the purpose of evaluating the transaction . JPMC expressly agreed to keep such information "strictly confidential." Id. ¶ 25. The confidentiality agreement specified that it was for the benefit of WMI and its subsidiaries, their representatives, and their respective successors and assignees. Id. ¶ 31. JPMC Co. violated the confidentiality agreement by disclosing confidential WaMu information to third parties and regulators and did not destroy all confidential documents after its bid to purchase WaMu was rejected on April 8, 2008. Id. ¶ 37.

The Amended Complaint alleges that JPMC Co. then embarked on a scheme to "to acquire the assets of [WaMu], stripped of the liability to bondholders and other stakeholders," id., through regulatory intervention by using financial misrepresentations to create a bid scenario for WaMu that would be profitable for JPMC. JPMC Co.'s conduct in this regard is described by the D.C. Circuit in American National Insurance Co. v. Federal Deposit Insurance Company, 642 F.3d 1137 (D.C. Cir. 2011), and need not be fully repeated here. In short, the Bondholders allege that JPMC Co. used WaMu's confidential financial information in presentations to credit rating agencies, in which JPMC Co. overestimated WaMu's loan losses and underestimated its liquidity and financial health, which led to a reduction in WaMu's credit ratings and a "loss of 25 percent or more of the value of Plaintiffs' [WaMu] bonds" in the months before September 2008. Am. Compl. ¶¶ 47- 48. In its quest for "government intervention in its plan to acquire [WaMu]," id. ¶ 34, JPMC "knowingly overestimated [WaMu] loan losses and otherwise disparaged [WaMu's] financial health," id various third parties . ¶ 55, and disclosed to that JPMC Co. was discussing a potential acquisition of WaMu with the FDIC in order to incite a "bank run" and "drive down [WaMu]'s credit ratings." Id. ¶ 56.

Meanwhile, JPMC Co. resumed its own acquisition negotiations with WaMu on false pretenses, as it merely sought access to more confidential information for use in JPMC's bid to FDIC. JPMC Co. acted on the knowledge that the FDIC-Receiver would be more likely to sell WaMu to JPMC Co. if the FDIC-Receiver perceived that JPMC Co. were better positioned than other bidders to operate WaMu because of its advanced due diligence. Id. ¶¶ 68-70. Throughout September 2008, JPMC Co. continued to meet with credit agencies, disclosing confidential information regarding the Bank and insinuating that JPMC was considering an acquisition of WaMu from an FDIC receivership, which again caused credit rating agencies to downgrade WaMu's rating. These actions also caused the intended run on WaMu, and depositors withdrew $16.7 billion from the Bank between September 15 and September 25, 2008 causing an alleged "liquidity crisis" for WaMu. Id. ¶ 76.

As a consequence, the FDIC began seeking bids for the sale of WaMu on September 23, 2008, before the OTS seized the Bank. The Director of OTS is authorized to issue charters for federal savings associations. See 12 U.S.C. § 1464. The Director is also authorized to appoint a conservator or receiver for any insured savings association, if the Director determines that any ground under 12 U.S.C. § 1821(c)(5) exists, i.e., the institution has insufficient assets to fulfill its obligations or has suffered a substantial dissipation of its assets. Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 83 (1989) ("FIRREA"), the FDIC may accept an appointment for to act as a receiver. See 12 U.S.C. § 1821(c)(1). Congress enacted FIRREA to enable the FDIC and the Resolution Trust Corporation to expeditiously wind-up the affairs of failed financial institutions throughout the country. Freeman v. FDIC, 56 F.3d 1394, 1398 (D.C. Cir. 1995). Under the FIRREA, the FDIC-Receiver may merge or transfer any asset or liability of the institution under receivership. 12 U.S.C. § 1821(d)(G). In addition, under this statutory scheme, the FDIC-Receiver succeeds "to all rights, titles, powers, and privileges of the insured depository institution, and of any stockholder, member, accountholder, depositor, officer, or director of such institution with respect to the institution and the assets of the institution." 12 U.S.C. § 1821(d)(2)(A)(i).

The Amended Complaint alleges that JPMC Co. "manipulated the FDIC bidding process by exerting pressure upon potential competitors to not submit conforming bids, by constraining the time frame available to competitors to conduct due diligence, by constraining information available to potential bidders regarding [WaMu], and by encouraging and causing the FDIC to set bid parameters that would favor JPMC [] Co. and lead other bids to be rejected as 'non-conforming.'" Am. Compl. ¶ 92. For example, the FDIC received a bid from Wells Fargo & Company, which stated that it could not conform to the FDIC's bid structure because of "limited due diligence" and "severe time constraints." Id. ¶ 88. On September 24, 2008, FDIC's board of directors approved JPMC Co.'s bid for WaMu and on September 25, 2008 OTS seized WaMu and placed it into receivership with the FDIC. That very same day JP Morgan Chase Bank ("JPMC Bank") and FDIC-Receiver signed a Purchase and Assumption Agreement "whereby the FDIC, as receiver, sold [WaMu] assets, including [WaMu]'s branches, deposit liabilities, loan portfolio, and covered bonds and secured debts, to JPMC Bank for $1.9 billion." Id. ¶ 94.

Consequently, the bonds in question in this suit became worthless; FDIC-Receiver circulated a contemporaneous information sheet warning that it did not anticipate that subordinated debt holders of WaMu would receive any recovery of the debt. The Bondholders allege that JPMC Co. "caused the Plaintiffs injury by preventing other purchasers, such as Wells Fargo, from having adequate time or information to negotiate with the FDIC-Receiver in order to submit a bid under which Plaintiff's . . . bond contracts would be honored." Id. ¶ 136.

The Amended Complaint alleges the same three causes of action as its original: Count I, tortious interference with existing contract against JPMC collectively; Count II, breach of confidentiality agreement against JPMC Co.; and Count III, unjust enrichment against JPMC collectively. It alleges that JPMC "willfully and intentionally interfered" with the bond contracts and procured WaMu's breach of the contracts "without justification, and in order to benefit themselves." Id. ¶ 122. The Bondholders further allege they suffered injury through JPMC Co.'s breach of the confidentiality agreement because the release of confidential financial information caused the seizure and sale of WaMu, which led to a breach of the bond contracts. The Bondholders specifically allege that JPMC Co.'s breach caused the seizure and sale of WaMu assets under terms by which WaMu's bond contracts would not be honored. Id. ¶ 133-34. Finally, the Bondholders advance a claim for unjust enrichment, asserting that JPMC was unjustly enriched because it failed to pay Bondholders for the benefits it received from stripping Bondholders of "their rights and benefits under their bond contracts and substantially impairing [their] bond values." Id. ¶ 140.

The Bondholders' original complaint was brought in Texas State Court, removed to the U.S. District Court for the Southern District of Texas, and then transferred to the U.S. District Court for the District of Columbia. Their first complaint was dismissed because this Court determined that the Bondholders' injuries depended on FDIC-Receiver's sale of WaMu's assets to JPMC, such that the Bondholders were required to pursue their claims administratively. Am. Nat'l Ins. Co. v. JPMorgan Chase & Co.,705 F. Supp. 2d 17, 21 (D.D.C. 2010) (citing FIRREA, 12 U.S.C § 1821(d)(13)(D)(ii), which provides for court review of disallowed claims after exhaustion of administrative remedies). This holding was reversed on appeal when the D.C. Circuit found that the Bondholders' suit is against JPMC, a third party, for its own wrongdoing, and not against the depository institution for which the FDIC is receiver and thereby the suit is not covered by FIRREA's administrative claims process. Am. Nat'l Ins. Co., 642 F.3d at 1142. The D.C. Circuit remanded the case to this Court, at which time the Bondholders amended their complaint.

JPMC and the FDIC-Receiver (the "Defendants") again move to dismiss, alleging that FIRREA still blocks the Bondholders' claims because their claims are derivative of harm to WaMu and now belong to the FDIC-Receiver. The Court agrees that the claims alleged in Counts II and III of the Amended Complaint, breach of the confidentiality agreement and unjust enrichment, belong to the FDIC-Receiver and that the Bondholders have failed to state a claim in either count. These two counts will be dismissed. However, Count I, alleging tortious interference with the existing contract by JPMC, is a cause of action that belongs to the Bondholders for which they have sufficiently stated a claim. Defendants' motions will be denied with respect to Count I.

II. LEGAL STANDARD

A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the adequacy of a complaint on its face, testing whether a plaintiff has properly stated a claim. Fed. R. Civ. P. 12(b)(6). Federal Rule of Civil Procedure 8(a) requires that a complaint contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(1). A complaint must be sufficient "to give a defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted). Although a complaint does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. The facts alleged "must be enough to raise a right to relief above the speculative level." Id. Rule 8(a) requires an actual showing and not just a blanket assertion of a right to relief. Id. at 555 n.3. "[A] complaint needs some information about the circumstances giving rise to the claims." Aktieselskabet Af 21. Nov. 2001 v. Fame Jeans, Inc., 525 F.3d 8, 16 n.4 (D.C. Cir. 2008) (emphasis in original).

In deciding a motion under Rule 12(b)(6), a court may consider the facts alleged in the complaint, documents attached to the complaint as exhibits or incorporated by reference, and matters about which the court may take judicial notice. Abhe & Svoboda, Inc. v. Chao, 508 F.3d 1052, 1059 (D.C. Cir. 2007) (internal quotation marks and citation omitted). To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is "plausible on its face." Twombly, 550 U.S. at 570. When a plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged, then the claim has facial plausibility. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.

A court must treat the complaint's factual allegations as true, "even if doubtful in fact." Twombly, 550 U.S. at 555. But a court need not accept as true legal conclusions set forth in a complaint. Iqbal, 129 S. Ct. at 1949. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. "While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual ...


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