Washington Mutual files suit against FDIC, alleges deal with Chase violated its rights

The WaMu saga isn't over yet, folks:

Washington Mutual Inc, the failed U.S. savings and loan, has sued the Federal Deposit Insurance Corp for well over $13 billion in connection with the loss of its banking operations, which was acquired by JPMorgan Chase & Co.

In a complaint filed with the U.S. District Court for the District of Columbia, the thrift's former parent accused the FDIC of having on January 23 made a "cryptic disallowance" of its claims, prompting the lawsuit.

It also accused the FDIC of agreeing to an unreasonably low price in arranging the a $1.9 billion sale of the banking business to JPMorgan on September 25, when regulators seized Washington Mutual and appointed the FDIC as receiver.

We've always thought that the WaMu seizure and sale to JPMorgan Chase seemed unusual, especially considering the ridiculously low price that Chase paid.

The people running what's left of Washington Mutual (the holding company) clearly feel that they've been ripped off. They're demanding a jury trial to weigh their allegations against the Federal Deposit Insurance Corporation.

The complaint's Prayer for Relief (in other words, what Washington Mutual is asking the District Court to do) is as follows:

WHEREFORE, Plaintiffs respectfully request the Court to grant the following relief:

1. An order declaring Plaintiffs' Claims to be valid and proven against the Receivership;
2. An order directing FDIC-Receiver to pay the Claims from the assets of the Receivership in accordance with 12 U.S.C. 1821(d)11);
3. An order directing FDIC-Receiver to provide Plaintiffs with an accounting of all property transferred from Plaintiffs in connection with the Receivership,
4. An order directing FDIC-Receiver to provide Plaintiffs with an accounting of the disposition of the assets of the Receivership if any Claim is not satisfied in full;
5. Enter a judgment against FDIC-Corporate and FDIC-Receiver for damages, in an amount to be determined, equal to the amount of money Plaintiffs would have received in a straight liquidation of WMB's [Washington Mutual Bank's] assets and liabilities less any amounts actually received from the Receivership;
6. Enter a judgment against FDIC-Corporate and FDIC-Receiver for damages, in an amount to be determined, equal to the values of Plaintiffs' property converted by the FDIC;
7. An order declaring that the FDIC's January 23, 2009 disallowance to be void, and that the parties should proceed as if such disallowance never occured;
8. Award Plaintiffs costs and attorneys fees as may be permitted by law; and
9. Award Plaintiffs such other relief as may be just.

The entire complaint is available from our document vault.

My favorite part of the complaint is Count III: Taking of Plaintiffs' Property Without Just Compensation, which reads:

91. Plaintiffs incorporate the allegations and averments contained in paragraphs 5 through 90 as if set forth fully herein.

92. The FDIC's wasting of WMB's [Washington Mutual Bank's] assets and failure to compensate Plaintiffs for their claims against WMB equivalent to what Plaintiffs would have received for such claims in a straight liquidation of WMB's assets constitutes a taking of Plaintiffs' property without just compensation in violation of the Fifth Amendment to the United States Constitution.

It'll be interesting to see what happens to this lawsuit. We'll try to keep you posted on any further developments. The case is Washington Mutual Inc v. Federal Deposit Insurance Corp, No. 09-00533, District Court for the District of Columbia.