FDIC, JPMorgan seek ouster of WaMu stakeholder suit

NEW YORK Tue May 12, 2009 8:10pm EDT

NEW YORK May 12 (Reuters) - U.S. bank regulators filed court papers this week seeking dismissal of a Texas lawsuit that claims JPMorgan Chase & Co (JPM.N) tried to gain an unfair advantage in its $1.9 billion purchase of Washington Mutual Inc's WAMUQ.PK bank last year.

In documents filed on Monday in federal court in Galveston, Texas, the Federal Deposit Insurance Corp said the WaMu stakeholders who brought the lawsuit are trying to circumvent the FDIC claims process, and that the suit should be dismissed or moved to a court in Washington D.C.

WaMu collapsed last year, in the largest U.S. bank failure in history. The bank was seized by U.S. bank regulators on Sept. 25 and the FDIC immediately sold its deposits to JPMorgan. The surviving holding company filed for bankruptcy protection a day later.

However, the stakeholders' lawsuit filed in February claims that Washington Mutual's crown jewels were sold to JPMorgan at a fire-sale price that did not properly compensate WaMu's investors. They also claim that JPMorgan acted improperly ahead of the sale by leaking false and harmful information from WaMu's financial records, in an attempt to deflate its value and purchase WaMu's assets on the cheap, according to court papers.

The bankrupt holding company filed a request last week, asking for permission to investigate JPMorgan over the claims in the Texas lawsuit.

JPMorgan also filed court papers on Monday, saying it supported the FDIC's request, and that the stakeholders' claims in the Texas suit "lack merit."

The FDIC, which was not originally named in the investors' complaint, said it has sought to intervene in the case because it could be held liable for JPMorgan's costs in the litigation and that it needed to protect the FDIC receivership process used to take control of failed banks.

While the stakeholders have said their lawsuit is independent of the receivership process, the FDIC said in its court filing this week that the suit should be dismissed because it is "especially important here to prevent the chilling effect that impermissible suits such as this one could have in deterring potential buyers of failed bank assets in the future."

When the FDIC became the receiver for Washington Mutual Bank it said it agreed to protect JPMorgan Chase Bank from costs, losses, liabilities and expenses brought by WaMu's pre-receivership creditors.

The FDIC also said that JPMorgan Chase Bank sent a letter in March notifying the FDIC-Receiver "of its intention to seek indemnification" in this case.

The case is American National Insurance Co v. JP Morgan Chase & Co, U.S. District Court, Southern District of Texas (Galveston), No. 09-00044. (Reporting by Emily Chasan; Editing by Richard Chang)

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