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A Delaware judge has set November 1, 2010 for the trial date regarding Washington Mutual’s Chapter 11 bankruptcy.  A. Harrison Barnes, lawyer and president, says Judge Mary Walrath is expecting a report from the examiner appointed to investigate the events leading up to the 2008 bankruptcy filing no later than September 7.

On Tuesday, August 25, 2010, Judge Walrath heard from lawyers associated with the case and at that time, announced a confirmation hearing regarding WaMu’s plan for reorganization would also occur on November 1.  Some folks who are in the know say the initial hearing could potentially change the course for the remainder of the hearing.

A near-100 page complaint was filed against WaMu and JPMorgan Chase earlier this year.  Now the defendants, which include the merged companies, were said to have “colluded to deceive and then deprive” the plaintiffs, Brown Rudnick, of nearly $1 billion in investments.  The federal government has also been named as a collective defendant as well.   As A. Harrison Barnes explains, the securities were purchased with the understanding that if Washington Mutual became one of the failed financial institutions, the preferred trust shares would be converted into what’s called WMI preferred stock.  When the bank failed, the plaintiffs allege attempts were made by the defendants to transfer all of these securities, worth around $4 billion, to JPMorgan, which was in the process of acquiring the defunct WaMu.

As the founder continues, the only certainty is that these claims must be addressed and decided before any other issues are dealt with in the courtroom.  Jeremy Coffee, who represents Brown Rudnick, is quoted as having said, “It’s a $4 billion issue.  If we’re right, there’s $4 billion less in the estate and I don’t think the plan goes forward”.  Indeed not.  This will potentially affect the bankruptcy hearing in its entirety and has the potential to, in essence, eliminate the need for any future hearings.

The WMI lead counsel, Brian Rosen, of Weil, Gotshal & Manges, has offered no comment up to this point.  Barnes says this has the potential to become a historical case that will be used in law classrooms for years to come.  It has the potential to shape every future lawyer’s chosen specialty.  There’s no denying that all eyes will be on Delaware in the coming months as this case unfolds and unravels – likely at warp speed.  Judge Walrath has a reputation for a “no nonsense” approach when it comes to the law and she likely will levy these proceedings with as little disruption and unnecessary “baggage” as possible.

So was the $4 billion wrongly appropriated?  It’s a toss up – many legal minds say these monies were most certainly misappropriated, while others disagree and take the stance of, “Well, maybe…but maybe not”.  Time will tell.

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