for the district of columbia deutsche bank national trust...

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee for the Trusts listed in Exhibits 1-A and 1-B,

Plaintiff,

v.

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Washington Mutual Bank; JPMORGAN CHASE BANK, National Association; and WASHINGTON MUTUAL MORTGAGE SECURITIES CORPORATION,

Defendants.

Case No. 1:09-cv-1656 (RMC) [REDACTED VERSION] ORAL HEARING REQUESTED

JPMORGAN CHASE BANK, N.A. AND WASHINGTON MUTUAL MORTGAGE SECURITIES CORPORATION’S

MOTION FOR SUMMARY JUDGMENT

Defendants JPMorgan Chase Bank, N.A. and Washington Mutual Mortgage

Securities Corporation (together, “JPMC”) hereby move this Court, pursuant to Federal Rule of

Civil Procedure 56(a) and Local Civil Rules 7(h), to enter summary judgment in their favor.

There is no genuine issue of material fact, and Defendants are entitled to judgment as a matter of

law. In support of their Motion, Defendants rely upon: (i) their Memorandum of Points and

Authorities in Support of Their Motion for Summary Judgment; (ii) their Statement of Material

Facts as to Which There is No Genuine Issue in Support of Their Motion for Summary

Judgment; and (iii) Exhibits thereto.

Case 1:09-cv-01656-RMC Document 170 Filed 10/03/14 of 76

-2-

Defendants respectfully request an oral hearing on this Motion. A proposed order

is attached.

Dated: June 20, 2014 Washington, D.C.

Respectfully submitted,

/s/ Brent J. McIntosh Robert A. Sacks (D.D.C. Bar No. MI0069) Ian D. McDonald (admitted pro hac vice) SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004 Telephone: (212) 558-4000 Facsimile: (212) 558-3588

Brent J. McIntosh (D.C. Bar No. 991470) Mia Whang Spiker (D.C. Bar No. 1004939) SULLIVAN & CROMWELL LLP 1700 New York Avenue, N.W. Suite 700 Washington, D.C. 20006 Telephone: (202) 956-7500 Facsimile: (202) 293-6330 Email: [email protected] Counsel for Defendants JPMorgan Chase Bank, N.A. and Washington Mutual Mortgage Securities Corporation




Plaintiff,

v.


Defendants.

Case No. 1:09-cv-1656 (RMC)

ORAL HEARING REQUESTED

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF JPMORGAN CHASE BANK, N.A. AND

WASHINGTON MUTUAL MORTGAGE SECURITIES CORPORATION’S MOTION FOR SUMMARY JUDGMENT

Robert A. Sacks (D.D.C. Bar No. MI0069) Ian D. McDonald (admitted pro hac vice) SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004 Telephone: (212) 558-4000 Facsimile: (212) 558-3588

Brent J. McIntosh (D.C. Bar No. 991470) Mia Whang Spiker (D.C. Bar No. 1004939) SULLIVAN & CROMWELL LLP 1700 New York Avenue, N.W., Suite 700 Washington, D.C. 20006 Telephone: (202) 956-7500 Facsimile: (202) 293-6330 Email: [email protected] Counsel for Defendants JPMorgan Chase Bank, N.A. and Washington Mutual Mortgage Securities Corporation

June 20, 2014


TABLE OF CONTENTS Page

PRELIMINARY STATEMENT .....................................................................................................1

FACTS .............................................................................................................................................6

A. The FDIC Approaches JPMC About a Potential WMB Transaction. ..................................................................................................6

B. The FDIC Drafts the P&A Agreement. .......................................................6

C. The FDIC Provides Bidders the Draft P&A Agreement. ..........................10

D. JPMC and the FDIC Discuss the Proposed P&A Agreement’s Terms. ........................................................................................................11

E. JPMC Bids, and Regulators Close WMB. .................................................13

F. During the Closing Process, the FDIC Asserts That JPMC Did Not Assume Liabilities Not Reflected on WMB’s Books. ...............................13

G. JPMC and the GSEs Resolve a Dispute About Mortgage Servicing Rights. ........................................................................................................15

H. Following This Action’s Filing, the FDIC Begins to Assert That “Books and Records” in Section 2.1 Refers to the Defined Term “Record.” ...................................................................................................17

PROCEDURAL BACKGROUND ................................................................................................20

LEGAL STANDARD ....................................................................................................................22

A. Summary Judgment ...................................................................................22

B. Contract Interpretation ...............................................................................23

ARGUMENT .................................................................................................................................25

I. JPMC ASSUMED WMB’S OBLIGATIONS—INCLUDING THE REPURCHASE OBLIGATIONS AT ISSUE HERE—ONLY TO THE EXTENT THEY WERE BOOKED AS LIABILITIES ON WMB’S BOOKS AND RECORDS. ....................................................................................25

A. The P&A Agreement is Not Reasonably Susceptible to the FDIC’s Excessively Broad Proposed Interpretation. ..............................................25


TABLE OF CONTENTS

(continued) Page

ii

1. JPMC’s Understanding Is Consistent with Section 2.1’s Plain Meaning; the FDIC’s Proposed Interpretation Is Not...........25

2. The Use of “Books and Records” in Other Provisions of the P&A Agreement Confirms JPMC’s Understanding of Section 2.1......................................................................................29

3. JPMC’s Understanding Accords with the Prevailing Meaning of “Books and Records” in the Context of Identifying Liabilities.....................................................................31

4. JPMC’s Understanding Comports with Judicial Precedent on the Use of “Books and Records” in Purchase and Assumption Transactions. ..............................................................33

5. JPMC’s Understanding Honors the Rule Against Surplusage; the FDIC’s Proposed Interpretation Offends It. .........34

B. The Undisputed Extrinsic Evidence Uniformly Supports JPMC’s Understanding and Contravenes the FDIC’s Proposed Interpretation. .............................................................................................35

1. The Negotiation History Supports JPMC’s Understanding. ..........35

2. Even If the FDIC Had the Subjective Intent It Now Claims, That Unexpressed Intention Is Irrelevant as a Matter of Law. ...............................................................................................38

3. The Drafting History Supports JPMC’s Understanding and Undermines the FDIC’s Contention That It Had Formed Its Proposed Interpretation On or Before September 25, 2008. ..........38

4. The Parties’ Conduct Comports with JPMC’s Understanding. ...............................................................................40

II. WMB’S SELLER REPURCHASE OBLIGATIONS ARE NOT “MORTGAGE SERVICING RIGHTS AND OBLIGATIONS.” .........................43

CONCLUSION ..............................................................................................................................45


iii

TABLE OF AUTHORITIES

Page(s)

CASES

*Air Line Pilots Ass’n Int’l v. Pension Benefit Guar. Corp., 193 F. Supp. 2d 209 (D.D.C. 2002) ...................................................................................34, 35

Am. Nat’l Co. v. United States, 274 U.S. 99 (1927) ...................................................................................................................32

Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) .................................................................................................................23

Bowden v. United States, 106 F.3d 433 (D.C. Cir. 1997) .................................................................................................24

Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ...........................................................................................................22, 23

Comm’r v. Indianapolis Power & Light Co., 493 U.S. 203 (1990) .................................................................................................................32

Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997) ...............................................................................................24

Colo. Interstate Gas Co. v. FERC, 599 F.3d 698 (D.C. Cir. 2010) .................................................................................................24

Dauphin v. Crownbrook, 2013 WL 1498363 (E.D.N.Y. Apr. 11, 2013) .........................................................................30

*Deutsche Bank Nat’l Trust Co. v. FDIC, 784 F. Supp. 2d 1142 (C.D. Cal. 2011) ..................................................................................43

Duffy v. Mut. Benefit Life Ins. Co., 272 U.S. 613 (1926) .................................................................................................................32

Farmland Indus., Inc. v. Grain Bd. of Iraq, 904 F.2d 732 (D.C. Cir. 1990) ...........................................................................................23, 35

Fox v. Office of Pers. Mgmt., 100 F.3d 141(Fed. Cir. 1996)...................................................................................................38

GECCMC 2005-C1 Plummer St. Office Ltd. P’ship v. JPMorgan Chase Bank, N.A., 671 F.3d 1027 (9th Cir. 2012) ...........................................................................................23, 24



(continued) Page(s)

iv

*Green v. Obergfell, 121 F.2d 46 (D.C. Cir. 1941) .............................................................................................40, 42

Harbor Ins. Co. v. Schnabel Found. Co., 946 F.2d 930 (D.C. Cir. 1991) .................................................................................................23

Hillside Metro Assocs., LLC v. JPMorgan Chase Bank, N.A., 747 F.3d 44 (2d Cir. 2014).......................................................................................................23

Hood v. D.C., 211 F. Supp. 2d 176 (D.D.C. 2002) .........................................................................................38

Horn & Hardart Co. v. Nat’l R.R. Passenger Corp., Civ. A. No. 85-0820, 1985 WL 9426 (D.D.C. May 30, 1985) ................................................38

In re Collins Sec. Corp., 998 F.2d 551 (8th Cir. 1993) ...................................................................................................33

Intel Corp. v. VIA Tech., Inc., 319 F.3d 1357 (Fed. Cir. 2003)................................................................................................24

Interface Kanner, LLC v. JPMorgan Chase Bank, N.A., 704 F.3d 927 (11th Cir. 2013) .................................................................................................24

Maryland Cas. Co. v. W.R. Grace & Co., 128 F.3d 794 (2d Cir. 1997).....................................................................................................30

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) .................................................................................................................22

McLane & McLane v. Prudential Ins. Co. of Am., 735 F.2d 1194 (9th Cir. 1984) .................................................................................................30

Nat’l Austl. Bank v. United States, 452 F.3d 1321 (Fed. Cir. 2006)................................................................................................38

NRM Corp. v. Hercules, Inc., 758 F.2d 676 (D.C. Cir. 1985) .....................................................................................23, 24, 36

*NTA Nat’l, Inc. v. DNC Servs. Corp., 511 F. Supp. 210 (D.D.C. 1981) ..........................................................................................5, 38

Ohio Power Co. v. F.E.R.C., 744 F.2d 162 (D.C. Cir. 1984) .................................................................................................25



(continued) Page(s)

v

PCH Mut. Ins. Co., Inc. v. Cas. & Sur., Inc., 750 F. Supp. 2d 125 (D.D.C. 2010) .........................................................................................25

*Santopadre v. Pelican Homestead & Sav. Ass’n, 937 F.2d 268 (5th Cir. 1991) ...................................................................................................33

Schultz v. Metro. Life Ins. Co., 872 F.2d 676 (5th Cir. 1989) ...................................................................................................40

Segar v. Mukasey, 508 F.3d 16 (D.C. Cir. 2007) ...................................................................................................24

Serv. Emps. Int’l Union Local 32BJ v. Diversified Servs. Grp., 958 F. Supp. 2d 166 (D.D.C. 2013) .........................................................................................38

Tax Analysts v. I.R.S., 217 F. Supp. 2d 23 (D.D.C. 2002) ...........................................................................................34

*Tymshare, Inc. v. Covell, 727 F.2d 1145 (D.C. Cir. 1984) ..............................................................................................40

United Mine Workers of Am. 1974 Pension v. Pittston Co., 984 F.2d 469 (D.C. Cir. 1993) ...............................................................................23, 24, 38, 39

Valley Realty Co. v. United States, 96 Fed. Cl. 16 (Fed. Cl. 2010) ...........................................................................................24, 25

*Vernon v. RTC, 907 F.2d 1101 (11th Cir. 1990) ...............................................................................................33

*Village of Oakwood v. State Bank & Trust Co., 519 F. Supp. 2d 730 (N.D. Ohio 2007) ....................................................................................33

*Viola v. Fleet Bank of Maine, 1996 WL 498390 (D. Me. Feb. 27, 1996) ....................................................................... passim

Watts v. Carlson, 854 F.2d 528 (D.C. Cir. 1988) .................................................................................................38



(continued) Page(s)

vi

STATUTES

12 U.S.C. § 1813 ............................................................................................................................31

12 U.S.C. § 1821 ......................................................................................................................16, 17

12 U.S.C. § 1831g ..........................................................................................................................32

OTHER AUTHORITIES

12 C.F.R. § 330.3 ...........................................................................................................................32

FDIC Resolutions Handbook (2003) ...................................................................................7, 11, 32

FDIC Statement of Policy: Applications for Deposit Insurance, 63 Fed. Reg. 44752 (Aug. 20, 1998)........................................................................................32

Fed. R. Civ. P. 1 .............................................................................................................................22

Fed. R. Civ. P. 56 .....................................................................................................................22, 23

Processing of Deposit Accounts in the Event of an Insured Depository Institution Failure, 74 Fed. Reg. 5797 (Feb. 2, 2009) ............................................................................................32

*Restatement (Second) of Contracts (1981) .......................................................................... passim


Defendants JPMorgan Chase Bank, N.A. (“JPMC”) and Washington Mutual

Mortgage Securities Corporation (“WMMSC”) respectfully submit this Memorandum of Points

and Authorities in support of their Motion for Summary Judgment.

PRELIMINARY STATEMENT

On September 25, 2008, at the apex of the global financial crisis, federal

regulators closed Washington Mutual Bank (“WMB”), and the Federal Deposit Insurance

Corporation (the “FDIC”) became its receiver. WMB was the largest bank failure in U.S.

history, and its collapse came at a time of historic uncertainty in America’s financial markets.

The same day, JPMC agreed—at the FDIC Chairman’s request—to undertake a transaction that

allowed WMB’s branches to continue serving the public. Under the Purchase and Assumption

Agreement that effected that transaction—the “P&A Agreement”—JPMC took on all of WMB’s

deposit liabilities, saving the FDIC an estimated $41 billion. (Ex. 1 (P&A Agr.) § 2.1.)1

JPMC also agreed to purchase all of WMB’s assets and to assume certain of

WMB’s other liabilities. JPMC acquired WMB’s assets “whether or not reflected on the books”

of WMB. (Id. § 3.1.) But as to WMB’s liabilities, Section 2.1 of the P&A Agreement provides

that JPMC “expressly assumes at Book Value . . . and agrees to pay, perform, and discharge, all

of the liabilities of the Failed Bank which are reflected on the Books and Records of the Failed

Bank as of Bank Closing.” (Id. § 2.1.) The highlighted language occasions this dispute.2

As detailed below, the FDIC has offered at least six different interpretations of

Section 2.1. Fortunately, this Court need not sort out which of the FDIC’s various competing

interpretations is correct, as facts sufficient to grant summary judgment to JPMC are undisputed:

1 Citations to “Ex.” refer to exhibits to the joint appendix to be submitted following the close of briefing. 2 Except where indicated, all emphasis in quotations is added.


2

The FDIC drafted the P&A Agreement, including Section 2.1, and as such any ambiguity in it is construed against the FDIC.

During discussions of the P&A Agreement’s terms, FDIC attorneys assured JPMC personnel—in writing—that the disputed language meant only “booked liabilities.”

Though the FDIC now asserts that Section 2.1’s reference to liabilities “reflected on the Books and Records” of WMB is intended to reach as broadly as the P&A Agreement’s definition of “Record”—essentially all WMB documents and data anywhere—no one involved in drafting that language recalls having that intention.

On the contrary, when the relevant language was proposed inside the FDIC, its purpose was to “limit liabilities assumed” and to provide bidders “comfort,” modifying a prior draft that would have conveyed “all of the liabilities of the Failed Bank.”

Following the transaction, the FDIC repeatedly assured JPMC and informed other parties that JPMC did not assume—rather, the FDIC retained—any liabilities other than or in excess of the liabilities shown on WMB’s books.

In short, this was both JPMC’s understanding and the contemporaneously expressed

understanding of the FDIC at the time of the P&A Agreement.

Only when Deutsche Bank National Trust Company (“Deutsche Bank”)

commenced this litigation against the FDIC nearly a year later—alleging mortgage repurchase

obligations exceeding their September 25, 2008 book value by several billion dollars—did the

FDIC reverse course. The FDIC now says that Section 2.1’s phrase “reflected on the Books and

Records” reaches as broadly as the defined term “Record,” which means “any document,

microfiche, microfilm and computer records (including but not limited to magnetic tape, disc

storage, card forms and printed copy) of” WMB. (Ex. 901 (FDIC Resp. to JPMC Interrog.

(“FDIC Resp.”)) No. 4.) The FDIC thus asserts that rather than limiting JPMC’s assumption of

WMB liabilities to those that JPMC could have identified on WMB’s books, Section 2.1’s

“language excluded only those liabilities that the acquiring institution could not have possibly

imagined.” (Id. No. 3.) Similarly, although the P&A Agreement says JPMC “assumes at Book

Value” WMB’s liabilities, the FDIC says that “at Book Value” is meaningless, and Section 2.1


3

would mean the same if that phrase were omitted: The FDIC says “[t]he words ‘assumes at

Book Value’ in Section 2.1 of the P&A Agreement do not limit or define the scope of liabilities

transferred to and assumed by JPMC.” (Id. No. 12.)

The FDIC’s proposed interpretation is incorrect as a matter of law:

First, it cannot be reconciled with the plain language of the contract. The FDIC

reads the word “Books” out of the phrase “Books and Records,” because any WMB book is also

a WMB “Record.” The FDIC also insists that “Records” in “Books and Records” is correctly

capitalized—even though the agreement’s drafters at the FDIC disavowed any intention to

capitalize it, and it immediately follows the capitalized but undefined term “Books,” the

capitalization of which the FDIC concedes is scrivener’s error. The FDIC also demands an

interpretation of “Books and Records” in Section 2.1 that is patently inconsistent with other uses

of the phrase in the very same agreement and in the FDIC’s own governing laws and usage.

The FDIC’s position also renders “assumes at Book Value” surplusage. A court

has already considered the meaning of this phrase in Section 2.1 of a prior FDIC purchase and

assumption agreement and granted summary judgment in favor of JPMC’s understanding:

In section 2.1 of the Agreement the defendant assumed liability for the outstanding [liabilities] measured at book value, which is defined as the dollar amount stated on [the failed bank’s] accounting records at the close of business . . . . [T]here is nothing ambiguous about this language[, which] cannot reasonably be read to encompass liability beyond the book value . . . .

Viola v. Fleet Bank of Maine, 1996 WL 498390, at *3 (D. Me. Feb. 27, 1996), aff’d, 94 F.3d 640

(1st Cir. 1996). The FDIC was on notice of the judicially determined meaning of this phrase and

included it anyway. It cannot evade responsibility for its drafting choice.

Second, extrinsic evidence developed in discovery requires rejection of the

FDIC’s position. Undisputed evidence shows that at the time of the WMB transaction, the FDIC

interpreted the disputed term far differently than it does now. When JPMC expressed concern


4

that Section 2.1 might be misconstrued by potential WMB creditors and sought to broaden the

indemnity coverage in Article XII of the P&A Agreement, FDIC attorney David Gearin

explicitly assured JPMC, in writing, that “[t]he liabilities assumed are described as booked

liabilities.” (Ex. 66.) This assurance is consistent with the contractual language and JPMC’s

understanding, but contradicts the FDIC’s litigation-inspired interpretation. And when JPMC

attorneys then suggested broadening the P&A Agreement’s indemnification provisions because

third parties might read Section 2.1 to reach beyond “booked liabilities” and sue JPMC over

unbooked WMB liabilities—exactly what Deutsche Bank is doing here—the FDIC agreed to take

another look and ultimately accepted JPMC’s broadened indemnification language. (See id.; Ex.

902 (JPMC_DBNTC_0000006549-51); P&A Agr. § 12.1.)

Internal FDIC documents also demonstrate that FDIC attorneys shared JPMC’s

understanding while drafting the P&A Agreement. Mr. Gearin and fellow FDIC attorney Lee

Van Fleet drafted the agreement “based on instructions” from FDIC senior managers James

Wigand and Herbert Held and the late FDIC counsel Richard Aboussie. (Ex. 901 (FDIC Resp.)

No. 1.) In an undisclosed September 23, 2008 draft of the agreement, Section 2.1 would have

reached “all of the liabilities of the Failed Bank as of Bank Closing,” without the “Books and

Records” qualifier. (Ex. 253.) An internal FDIC email—which the FDIC initially withheld as

privileged though it included neither lawyers nor legal advice—shows FDIC staffer Sheri Foster

asking Messrs. Wigand and Held whether the FDIC could “limit liabilities assumed to just the

‘liabilities on the books and records.’” (Ex. 903 (FDIC-DB0017573).) Shortly thereafter, Mr.

Van Fleet circulated the “latest draft” of the agreement, which narrowed Section 2.1’s language

from “all of the liabilities of the Failed Bank” to “all of the liabilities of the Failed Bank which

are reflected on the Books and Records of the Failed Bank.” (Ex. 255.)


5

Even if the FDIC’s current interpretation were consistent with its subjective

understanding as of September 25, 2008, there is not a single piece of evidence that the FDIC

expressed such an understanding to JPMC. Not one of the FDIC personnel involved in drafting

and negotiating the P&A Agreement recalled anyone at the FDIC ever expressing to JPMC that

it intended “Books and Records” to reach as broadly as the defined term “Record.” “‘[T]he

subjective unexpressed, uncommunicated thoughts of a party are irrelevant to the material issue

of the parties’ intent.’” NTA Nat’l, Inc. v. DNC Servs. Corp., 511 F. Supp. 210, 223 (D.D.C.

1981) (quoting Union Bank v. Winnebago Indus., Inc., 528 F.2d 95, 99 (9th Cir. 1975)).

Third, the parties’ treatment of analogous WMB liabilities in the immediate

aftermath of WMB’s failure shows the FDIC’s pre-litigation public position was consistent with

JPMC’s understanding. For example, just days after WMB’s closing, FDIC official Richard

Peyster expressly informed JPMC in writing that “[w]ith regard to any tax liability arising out of

an ongoing or future audit, where no assessment had been made prior to the date of closing, such

liability would not pass to [JP]Morgan.” (Ex. 29.) On the same day, Mr. Peyster told other

FDIC senior managers—including those who dictated the terms of the transaction—that for

“public consumption” the FDIC’s position as to Section 2.1 was that “any tax liabilities on the

books of Washington Mutual were transferred, and any unknown liabilities, not reflected on the

books were not transferred.” (Ex. 108.)

Similarly, in 2008 and 2009, FDIC accountant James Thormahlen drafted letters

to taxing authorities that sought to have JPMC pay WMB tax liabilities, informing those

authorities that “[t]he tax period on the attached return occurred prior to [WMB’s] closure and

was not assumed by JP Morgan Chase Bank, NA” and that “[t]he liability reflected on the

attached return is a claim against the receivership.” (Ex. 30; see also Exs. 404, 416.)


6

In short, despite its current litigating position, FDIC employees repeatedly

expressed to JPMC, third parties, and the public precisely the opposite understanding during the

months immediately following the transaction, and the FDIC publicly offered up its current

position only after Deutsche Bank sued it. The FDIC now disavows its contemporaneous

statements—both internal and external—claiming they “do not reflect FDIC-Receiver’s

understanding” and instead are “incorrect.” (Ex. 901 (FDIC Resp.) Nos. 17 & 18.) Yet both the

P&A Agreement’s principal drafters at the FDIC and the FDIC officials who administered the

WMB receivership received these statements as to Section 2.1’s meaning—and never informed

JPMC of the FDIC’s purported contrary understanding.

There is only one viable interpretation of Section 2.1. The undisputed extrinsic

evidence undermines the FDIC’s later-proposed interpretation and confirms JPMC’s

understanding. And any ambiguity must be construed against the agreement’s drafter, the FDIC.

Because there is no genuine issue of fact here, JPMC is entitled to summary judgment.

FACTS

A. The FDIC Approaches JPMC About a Potential WMB Transaction.

In mid-September 2008, with WMB showing signs of distress and suffering a run

on deposits, Sheila Bair, then-Chairman of the FDIC, reached out to Jamie Dimon, JPMorgan

Chase & Co.’s CEO, to pitch JPMC on a WMB transaction. (Ex. 135; Docket Item (“D.I.”) 54-1

at 5.) On September 22, FDIC officials Wigand, Held, and Gearin met with JPMC and

separately with other potential bidders to present a potential WMB receivership transaction. (See

Exs. 142, 441; Wigand Deposition Transcript (“Tr.”) at 109:10-12; Scharf Tr. at 37:3-38:15.)

B. The FDIC Drafts the P&A Agreement.

At the same time, FDIC officials were preparing a purchase and assumption

agreement for a potential WMB receivership transaction based on an FDIC “whole bank”


7

template.3 (Ex. 242; see also Ex. 901 (FDIC Resp.) No. 1; Ex. 904 (April 9, 2013 email from S.

Christensen); Van Fleet Tr. at 21:4-8.) FDIC attorneys Gearin and Van Fleet “principally

drafted” the agreement “based on instructions” from Messrs. Wigand, Held, and Aboussie. (Ex.

901 (FDIC Resp.) No. 1.) In the afternoon of September 23—two days before WMB’s closure—

Mr. Van Fleet sent Mr. Gearin the “current draft” of the agreement for “ORCA Transactions 1 2

3,” the so-called “all deposit version.”4 (Ex. 253.) Section 2.1 of this draft read:

2.1 Liabilities Assumed by Assuming Bank. Subject to Section 2.5, the Assuming Bank expressly assumes at Book Value (subject to adjustment pursuant to Article VIII) and agrees to pay, perform, and discharge, all of the liabilities of the Failed Bank as of Bank Closing, including the Assumed Deposits and all liabilities associated with any and all employee benefit plans, except as otherwise provided in this Agreement (such liabilities referred to as “Liabilities Assumed”).

Schedule 2.1 attached hereto and incorporated herein sets forth certain categories of Liabilities Assumed and the aggregate Book Value of the Liabilities Assumed in such categories. Such schedule is based upon the best information available to the Receiver and may be adjusted as provided in Article VIII.

(Id.) That is, this version of the agreement proposed that the Assuming Bank would assume “all

of the liabilities of the Failed Bank” not explicitly excluded. (Id.)

Later that afternoon, Ms. Foster, the FDIC staffer who “facilitated” the

transaction, emailed Messrs. Wigand and Held about the transaction’s proposed terms, writing:

Lee Van Fleet called with the following questions: Can we limit liabilities assumed to just the “liabilities on the books and records” and then give the options to take out the different categories of liabilities? . . . These are coming from David Gearin.

3 According to the FDIC, “whole bank” denotes a transfer of all of the failed bank’s assets but does not mean the same for its liabilities. (See Ex. 767 (FDIC Resolutions Handbook) at 27-29; Held Tr. at 56:18-57:16; Wigand Tr. at 37:6-39:11; Schoppe Tr. at 49:8-20, 81:9-83:5, 191:9-192:1.) 4 “ORCA” is the code name the FDIC used for the WMB resolution. (Wigand Tr. at 71:13-14.) The FDIC offered bidders five alternate transaction structures. The FDIC prepared a single draft purchase and assumption agreement for ORCA transactions 1, 2, and 3, which differed only by the inclusion in Schedule 2.1 of different categories of liabilities that were categorically excluded from each transaction. (See, e.g., Ex. 255.) In ORCA transactions 4 and 5, Section 2.1 specifically listed the liabilities assumed. (See, e.g., Ex. 276.)


8

(Ex. 903 (FDIC-DB0017573) (line breaks removed); Foster Tr. at 57:16-21.)5

Shortly thereafter, Mr. Van Fleet circulated to Mr. Gearin and other FDIC

attorneys the “latest draft” of the purchase and assumption agreement for “Orca Transactions

1-3.” (Ex. 255.) Section 2.1 had been revised as follows:

2.1 Liabilities Assumed by Assuming Bank. Subject to Section 2.5, the Assuming Bank expressly assumes at Book Value (subject to adjustment pursuant to Article VIII) and agrees to pay, perform, and discharge, all of the liabilities of the Failed Bank which are reflected on the Books and Records of the Failed Bank as of Bank Closing, including the Assumed Deposits and all liabilities associated with any and all employee benefit plans, except as listed on the attached Schedule 2.1, and as otherwise provided in this Agreement (such liabilities referred to as “Liabilities Assumed”).


(Ex. 256 (changes tracked to compare Ex. 255 to Ex. 253).) In this draft, the liabilities to be

“assume[d] at Book Value” were limited to those “reflected on the Books and Records of the

Failed Bank as of Bank Closing.” (Ex. 255.) The FDIC says the “decision to use ‘Books and

Records’ . . . in Section 2.1 of the P&A Agreement was consistent with and based upon the

instructions from Messrs. Wigand, Held, and Aboussie.” (Ex. 901 (FDIC Resp.) No. 1.)

Mr. Gearin explained that this limitation was intended to give “comfort” to

bidders “that there wouldn’t be exposure to liabilities that they couldn’t possibly have discerned

5 The FDIC produced this email to JPMC only after JPMC had already deposed all of the participants in the email communication. JPMC first learned of its existence at Mr. Gearin’s July 11, 2013 deposition, when he testified that he recalled seeing an email from Ms. Foster to Mr. Wigand, seeking Mr. Wigand’s approval to revise Section 2.1 to include the disputed term. (Gearin Tr. at 108:16-109:2, 136:12-22.) JPMC wrote the FDIC on July 29, 2013 and again almost four weeks later to request the email’s immediate production or identification of its corresponding entry on the FDIC’s privilege log. (Ex. 905 (July 29, 2013 letter from B. McIntosh to S. Christensen); Ex. 906 (Aug. 23, 2013 email from B. McIntosh to S. Christensen).) On August 27, 2013, the FDIC withdrew its privilege assertion and produced the email to JPMC. The FDIC claimed that the “email was properly withheld as privileged” but was being produced “because Mr. Gearin testified in his deposition about much of the content of the communication.” (Ex. 907 (Aug. 27, 2013 letter from S. Christensen to B. McIntosh).) Notably, though, the email only requests details as to the proposed terms of the transaction, contains no legal advice or request for legal advice, and features no lawyers as either senders or recipients. (Ex. 903 (FDIC-DB0017573).)


9

from a review of the books and records.” (Gearin Tr. at 92:6-11.) Yet, asked how the “Books

and Records” limitation would provide bidders any “comfort” under the FDIC’s proposed

interpretation, he could not answer, conceding that under that interpretation, a bidder would

“have to actually look at all of the records of the failed bank”—not just those records provided in

due diligence, or WMB’s accounting of its liabilities—“to determine what liabilities they were

assuming.” (Id. at 99:9-21; see also id. at 100:15-101:3.)

Although the FDIC has made much of the capitalization of the phrase “Books and

Records” in Section 2.1 and its supposed reference to the defined term “Record,” there is no

evidence the capitalization was intentional. The phrase “books and records” was in quotes but

uncapitalized in Ms. Foster’s email proposing its use, and neither of the P&A Agreement’s

principal drafters recall intending to capitalize the phrase “Books and Records” or either

“Books” or “Records” in the P&A Agreement. (Ex. 903 (FDIC-DB0017573); Gearin Tr. at

94:7-95:22; Van Fleet Tr. at 132:4-11.) Moreover, both drafters conceded that “Books”—which

is not defined in the P&A Agreement—was erroneously capitalized. (Gearin Tr. at 94:18-21

(“Q. Do you believe it’s an error? A. Yes.”); Van Fleet Tr. at 137:6-13 (“[C]apitalizing it would

have been a scrivener’s error.”).)

Mr. Gearin attributed the disputed capitalization to Mr. Van Fleet:

Q. Who decided to capitalize “books and records” in section 2.1 of the Purchase and Assumption Agreement?

A. Lee [Van Fleet] did the insertion, so it would’ve been Lee.

Q. Did you discuss with him the capitalization of those terms?

A. No.

Q. Did you—you never instructed him to capitalize those terms?

A. I did not.


10

(Gearin Tr. at 94:7-17.) Asked “whether a conscious decision was made to capitalize ‘records,’”

Mr. Gearin replied, “I didn’t make the insertion, so I don’t know.” (Id. at 95:16-19.)

Mr. Van Fleet, who inserted the phrase “Books and Records,” also did not recall

whether the capitalization was intentional or intended to reference the defined term “Record”:

Q. When you inserted the capitalized phrase “books and records” here, were you specifically intending to reference the definition “records”?

A. Again, since I do not remember inserting it, I don’t remember what the intent, my intent was of having a capital “B” on the “books” or a capital “R” on the “records.”

Q. So you don’t have any knowledge as to whether you intentionally capitalized books and records or not?

A. No, I do not.

(Van Fleet Tr. at 131:22-132:11.)

The FDIC says Messrs. Wigand and Held instructed Messrs. Gearin and

Van Fleet “to use ‘Books and Records’” in Section 2.1. (Ex. 901 (FDIC Resp.) Nos. 1 & 2.) Yet

neither Mr. Wigand nor Mr. Held recalls intending the word “Records” to be capitalized.

Mr. Wigand testified, “I don’t believe anybody actually made a decision to capitalize it here,”

suggesting—incorrectly—that “the capitalization is probably the result of a carryover from a

previous agreement.” (Wigand Tr. at 153:3-6.) Mr. Held professed ignorance as to why “Books

and Records” is capitalized in Section 2.1, when it is lower-case in all other uses. (Held Tr. at

72:19-73:2; cf. P&A Agr. Arts. I (def’n of “Deposit”), VIII & §§ 3.4, 9.6 (lower-case uses).)

C. The FDIC Provides Bidders the Draft P&A Agreement.

Over the weekend of September 20, 2008, the FDIC had set up a website to

provide potential bidders transaction-related documents. (Foster Tr. at 22:17-22, 57:19-58:4.)

Yet the FDIC did not provide JPMC access to that site or to the draft agreement until late in the

day on September 23, 2008, the day before bids were due. (Exs. 61, 149, 200.) On that day, the


11

FDIC made available WMB’s “trial balances,” a financial statement listing the book values of

WMB’s asset and liability accounts as of August 2008. (Ex. 157.) The FDIC also provided a

“Transaction Recap,” outlining the “alternative transaction structures”; a “Legal Information

Outline,” which was a “brief outline of the Legal Documents and certain other aspects of the

proposed transactions”; and other transaction-related documents. (Exs. 56, 57, 61, 422.) In

receivership transactions, the FDIC typically provides bidders an “information package” that

reflects “the amounts and types of assets and liabilities that the failing institution holds,” but it

did not do so for WMB “due to the quick nature of the resolution.” (Ex. 767 (FDIC Resolutions

Handbook) at 8; Van Fleet Tr. at 108:17-20; Yore Tr. at 58:8-59:8.)

The FDIC first provided bidders the draft purchase and assumption agreements on

the evening of September 23, 2008. (See Ex. 276; Ex. 908 (JPMC_DBNTC_0000015659).) The

posted version for ORCA transactions 1-3—which, with certain modifications, became the P&A

Agreement—included in Section 2.1 the qualifier “which are reflected on the Books and

Records.” (See Ex. 276.) No draft included a definition of the term “Books and Records.”

On September 24, 2008, the FDIC provided bidders a document titled “FDIC

Institution Sales Frequently Asked Questions,” in which the FDIC asserted that “the Purchase &

Assumption agreement language [was] not negotiable.” (Exs. 71, 129 (the “FAQs”).)

D. JPMC and the FDIC Discuss the Proposed P&A Agreement’s Terms.

Following the proposed agreement’s release, attorneys for JPMC and the FDIC

discussed the breadth of its indemnification provisions. Section 12.1 of the draft for ORCA

transactions 1-3 would have required the FDIC to indemnify JPMC for:

any and all costs, losses, liabilities, expenses (including attorneys’ fees) . . . judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with claims against [JPMC] . . . based on liabilities of [WMB] that are not assumed by [JPMC] pursuant to this Agreement.


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(Ex. 276 § 12.1.) On September 23, 2008, JPMC outside counsel Mitchell Eitel “expressed to

the FDIC”—specifically to Mr. Gearin—“a concern that there was a disconnect . . . between

[Sections] 12.1 and 2.1” of the proposed agreement. (Eitel Tr. at 141:16-18.) JPMC “wanted to

make certain that . . . it was crystal clear . . . that the indemnity . . . didn’t undermine the

limitation, that we were only taking . . . ‘booked liabilities.’” (Id. at 143:13-23.)

In connection with this discussion, Mr. Gearin wrote a September 23, 2008 email

to JPMC in-house attorney Daniel Cooney titled “Indemnity question,” stating, “[t]he liabilities

assumed are described as booked liabilities which should address the concern raised by Mitch

[Eitel].” (Ex. 66.) Mr. Cooney responded by explaining that, notwithstanding Mr. Gearin’s

assurances, JPMC needed a broader indemnification provision to deal with suits by third parties

that might read Section 2.1 to convey more than just “booked liabilities.” (Id.) To this, Mr.

Gearin responded: “Ok I will look at again.” (Id.)

Mr. Eitel then provided the FDIC suggested changes to Section 12.1 on

September 24, 2008, and with revised suggestions the next day. (See Exs. 468, 469; Ex. 902

(JPMC_DBNTC_0000006549-51).) He proposed revising Section 12.1 to provide JPMC

indemnification for both costs “based on liabilities of [WMB] that are not assumed by [JPMC]”

and costs incurred in connection with claims against JPMC as “described in [Section] 12.1(a)”—

which includes, inter alia, “claims based on any action or inaction prior to Bank Closing of the

Failed Bank, its directors, officers, employees, or agents as such.” (Ex. 902 (JPMC_DBNTC_

0000006549-51).) The FDIC accepted Mr. Eitel’s proposed change.6 (See P&A Agr. § 12.1.)

6 Separately, JPMC also proposed to expand Section 2.5 to exclude from liabilities assumed all claims for payment by any “direct or indirect purchaser of securities of any mortgage loan securitization vehicle that was owned or sponsored by the Failed Bank or any of its Subsidiaries or Affiliates.” (Ex. 78.) The FDIC did not accept this change. (See P&A Agr. § 2.5.) If it had, JPMC would not have assumed those liabilities at all, regardless of any Book Value reflected on WMB’s “Books and Records” and even if they were liabilities not of WMB but of its subsidiaries. (Ex. 78; see also Cooney Tr. at 240:13-241:6.)


13

E. JPMC Bids, and Regulators Close WMB.

On the evening of September 24, 2008, JPMC bid $1.888 billion for “ORCA

Transaction 3,” the only conforming bid the FDIC received.7 (Ex. 134 at 9; Ex. 599.) That same

evening, the FDIC accepted JPMC’s bid. (Ex. 910 (JPMC_DBNTC_0000007255).) The next

day, the Office of Thrift Supervision (“OTS”) closed WMB and placed it into receivership—the

largest bank failure in U.S. history. (Ex. 911 (Order No. 2008-36, OTS No. 08551 (Sept. 25,

2008)); D.I. 54-1 at 5-6.) The FDIC Board approved the JPMC transaction that morning, and

later that day the parties executed the P&A Agreement, “the legal, valid and binding obligation

of the Assuming Bank.” (Exs. 163, 274; P&A Agr. § 11(c).) The same day, FDIC staff labeled

JPMC the “sucker buyer.” (Ex. 347.) Absent JPMC’s intervention, WMB’s failure would have

cost the FDIC an estimated $41 billion.8

F. During the Closing Process, the FDIC Asserts That JPMC Did Not Assume

Liabilities Not Reflected on WMB’s Books.

Immediately following the P&A Agreement’s execution, the parties began efforts

to effectuate the transaction. (Fenton Tr. at 22:1-9, 23:9-22; Pruss Tr. at 28:1-11, 28:6-30:18;

Lipsitz Tr. at 206:6-12, 221:2-10.) One issue that arose immediately was the allocation of

liabilities arising from WMB tax audits that were not completed as of WMB’s failure. (See Ex.

87.) On October 7, 2008, 12 days after that failure, FDIC officials Peyster, Thormahlen, and

James Vordtriede discussed WMB tax matters with JPMC personnel. (See Exs. 29, 88.) The

next day, Mr. Peyster emailed JPMC personnel, copying his FDIC colleagues, stating:

7 Two other banks submitted to the FDIC letters concerning WMB but not conforming bids. (See Ex. 476; Ex. 909 (FDIC-DB0017510-11); Yore Tr. at 82:2-5, 88:12-15; Held Tr. at 108:16-19.) 8 (Ex. 912 (Statement of the FDIC before the Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, of the U.S. Senate (April 16, 2010)), at 24.)


14

With regard to what was and was not transferred to [JP]Morgan under the agreement, I do not think we have any dispute here . . . . With regard to any tax liability arising out of an ongoing or future audit, where no assessment had been made prior to the date of closing, such liability would not pass to [JP]Morgan. Only liabilities on the books as of the date of the agreement pass.

(Ex. 29.)

Mr. Peyster made the same point again the same day in an internal FDIC email

exchange: An outside attorney emailed FDIC public affairs head Andrew Gray to ask whether

WMB “tax claims . . . reside with the receivership or were transferred” to JPMC. (Ex. 108.) Mr.

Gray referred the question to Mr. Wigand, sparking a number of internal email messages among

Messrs. Wigand, Gearin, Aboussie, and Peyster, most of which the FDIC redacted based on a

claim of privilege. (Id.) Ultimately, Mr. Peyster emailed his colleagues the following:

For public consumption I think the following should be adequate:

Tax claims, whether assets or liabilities are treated as any other assets and liabilities under the Purchase and Assumption Agreement. Section 3.1 transfers all assets, whether or not reflected on the books and records of Washington Mutual. Therefore, any tax assets would have transferred to JPMorgan Chase.

Section 2.1 transfers all liabilities reflected on the books and records of Washington Mutual to JPMorgan Chase. Therefore, any tax liabilities on the books of Washington Mutual were transferred, and any unknown liabilities, not reflected on the books were not transferred.

(Id.) Minutes later, Mr. Gray responded to the same participants, “Great, thanks!” (Id.) There is

no evidence that any recipient disagreed with Mr. Peyster’s characterization.

In the months that followed, at the FDIC’s behest, JPMC received tax assessments

directed to WMB by state and local taxing authorities and processed WMB tax returns for tax

periods prior to WMB’s closure. (See, e.g., Exs. 407, 408, 410.) On October 20, 2008, JPMC

employee James Fergus relayed to others a conversation he had had with FDIC officials

Thormahlen and Vordtriede. (Ex. 409.) The FDIC had instructed that, as to WMB tax returns

JPMC would prepare, “Jim T[hormahlen] will sign the returns . . . and send them to [JPMC]


15

along with a letter explaining that the jurisdictions will need to make a claim with the FDIC for

the unpaid portion.” (Id.) Mr. Fergus noted further that the FDIC had informed him that “[f]or

the items . . . which have yet to appear on a return, the information will be provided to the FDIC

and it will be their liability.” (Id.) Finally, Mr. Fergus explained that “based on . . . specific

comments from the FDIC, it would seem that JPMC’s liability would be limited to the reserves

booked at 9/25/08 and once those were exceeded it would be the FDIC’s liability.” (Id.)

That same day, Mr. Thormahlen provided JPMC with two FDIC form letters

addressed to “State Tax Agency” for JPMC to send along with WMB tax returns. (Exs. 30, 404;

Ex. 901 (FDIC Resp.) No. 18.) One letter read, in pertinent part:

Washington Mutual Bank was closed by the Office of Thrift Supervision on 9/25/2008 and the Federal Deposit Insurance Corporation (FDIC) was appointed as Receiver for the failed institution. The tax period on the attached return occurred prior to the banks [sic] closure and was not assumed by JP Morgan Chase Bank, NA. The liability reflected on the attached return is a claim against the receivership.

(Ex. 30.) The other letter was substantially similar, and both noted the December 30, 2008

receivership claims bar date and provided instructions for filing a claim. (See id.; Ex. 404.) On

December 31, 2008, JPMC personnel asked whether Mr. Thormahlen would be “providing a new

letter for [JPMC] to send out with billing notices for liabilities that JPMorgan did not assume,”

as the claims bar date had passed. (Ex. 416.) Two days later, Mr. Thormahlen sent JPMC

another letter with language virtually identical to the October 20, 2008 letters, now explaining

that the bar date had passed. (Id.)

G. JPMC and the GSEs Resolve a Dispute About Mortgage Servicing Rights.

Another issue that arose immediately after WMB’s closure was the assertion by

the government-sponsored entities known as Fannie Mae and Freddie Mac (the “GSEs”) that

they had not consented to the FDIC’s transfer of WMB’s “mortgage servicing rights” for loans


16

the GSEs had purchased from WMB.9 Mortgage servicing rights—the right to collect and

process mortgage payments in return for servicing fees and other compensation—are a valuable

asset, and JPMC valued WMB’s mortgage servicing rights at $5.8 billion,

(Ex. 324 at 94; see also Barren Tr. at 37:16-38:15.) The GSEs’ position as to

this major WMB asset understandably concerned JPMC, which had “specifically purchase[d] all

[WMB] mortgage servicing rights” from the FDIC. (P&A Agr. § 3.1.)

In October and November 2008, each of the GSEs separately wrote to JPMC

asserting that under the terms of its respective standard-form contract:

its approval was required to transfer mortgage servicing to JPMC;

for loans sold to the GSEs, seller repurchase obligations—the obligation to repurchase loans sold to the GSEs that did not meet the seller’s representations and warranties—went along with, and could not be separated from, the servicing rights; and

the GSE would withhold consent to the transfer of servicing for its loans unless JPMC agreed to bear seller repurchase obligations as to those same loans.

(Ex. 388; Ex. 913 (JPMC_DBNTC_0009148532-43).) In short, each of the GSEs threatened to

refuse consent for JPMC’s acquisition of WMB’s mortgage servicing rights for loans sold to it

unless JPMC agreed to bear WMB’s seller repurchase obligations for those loans. Unbeknownst

to JPMC, the FDIC was secretly assisting the GSEs in imposing WMB’s repurchase obligations

on JPMC, even suggesting edits to Freddie Mac’s draft missives to JPMC. (See Exs. 614-617.)

JPMC and the GSEs subsequently resolved these disagreements, with the GSEs

consenting to the servicing rights transfer and releasing their repurchase claims.

(Ex. 914 (JPMC_DBNTC_0005099679- 9 Under 12 U.S.C. § 1821(d)(2)(G)(1)(ii), the FDIC “may . . . transfer any asset or liability . . . without any approval . . . or consent . . . to such transfer.” According to the FDIC, it declined to exercise this statutory right to disregard the GSEs’ objections based on what its attorney called a “business decision.” (Gearin Tr. at 270:4-7.)


17

703).)

(Ex. 915 (JPMC_DBNTC_0008788640-54).)

(Ex. 324 at

94; Barren Tr. at 37:16-38:15.)

H. Following This Action’s Filing, the FDIC Begins to Assert That “Books and

Records” in Section 2.1 Refers to the Defined Term “Record.”

Under the P&A Agreement, JPMC could give the FDIC notice whether it would

assume certain WMB contracts. (P&A Agr. § 4.8.) In turn, the FDIC can, pursuant to 12 U.S.C.

§ 1821(e), “repudiate any contract or lease” of a failed bank. On October 16, 2008, in

connection with the above-described discussions between JPMC and the GSEs, Fannie Mae

contacted the FDIC to discuss “JPMC potentially giving back WaMu-Fannie Mae [loan] Sales

agreements for receivership repudiation pursuant to Section 4.8 of the P&A [Agreement].”

(Ex. 513.) FDIC Receiver-in-Charge Robert Schoppe characterized Fannie Mae’s concerns as

follows: “I’m guessing that Fannie Mae realizes that we are going to be repudiating sales

contracts, i.e., the rights Fannie Mae [sic] to put back loans.” (Id.) Two weeks later, Mr. Gearin

wrote his colleagues that his JPMC contact “no[w] understands that we are of the view that the

repurchase obligations did pass to JPMC and cannot be put back to the receiver for repudiation.”

(Ex. 82.) By all accounts, this is the first time the FDIC had informed JPMC of this position.

Three things about Mr. Gearin’s position are notable:

First, he acknowledged it represented a change from what the FDIC had been

telling JPMC: As Mr. Gearin put it, “Unfortunately, what I said was inconsistent from what

[JPMC] had heard over time from three different FDIC representatives in Seattle.” (Id.)

Second, when Mr. Gearin—a drafter of the P&A Agreement—explained his

reasoning in an internal email the next day, he did not say the disputed obligations were reflected


18

on WMB’s Books and Records and thus assumed under Section 2.1. Rather, he claimed the

“seller repurchase obligations” were “related to the mortgage servicing assets [JPMC] acquired”

and thus assumed “under the terms of [Sections] 2.1 and 3.1.” (Ex. 356 at 3.)

Third, when the time came to reject JPMC’s notice that it would not assume the

repurchase obligations in WMB’s loan-sales contracts—even up to their Book Value on WMB’s

books—the FDIC did not argue that the repurchase obligations had transferred pursuant to

Section 2.1’s provision covering “liabilities . . . reflected on the Books and Records of the Failed

Bank.” Rather, FDIC personnel explained—memorialized in an uncontroverted email from

JPMC to FDIC—that “as a general principle the FDIC can only repudiate a contract in whole

(and not in part) and, therefore, [JPMC’s] elections also must be for a contract in whole.”

(Ex. 28.) As explained below, this rationale is no longer viable, as the FDIC has acknowledged

in other litigation that it can transfer a contract’s mortgage servicing rights without also

transferring seller repurchase obligations imposed by the same contract. (See infra Part II.)

On September 3, 2009—that is, eight months later, and after Deutsche Bank filed

the instant action—the FDIC suddenly changed its rationale. Mr. Schoppe wrote to JPMC’s

Michael Lipsitz that the FDIC was rejecting JPMC’s repudiation notices for residential

mortgage-backed securities (“RMBS”) seller repurchase obligations, but not on the ground the

FDIC had previously expressed, the supposed inseparability of servicing obligations and seller

repurchase obligations. (Ex. 519.) Rather, after “rigorous discussion and vetting,” the FDIC

adopted the position that WMB’s seller repurchase obligations “were directly assumed by Chase

pursuant to Section 2.1 of the P&A as ‘liabilities of the Failed Bank which are reflected on the

Books and Records of the Failed Bank as of Bank Closing.’” (Id.) In support, the FDIC claimed

that “[t]here should be no factual dispute that WaMu’s loan and asset sale transaction documents


19

and files are Records,” as the term “Record” is defined in Article I of the P&A Agreement, so

“[t]o the extent those records reflect contractual Seller Rep liabilities, whether current or

contingent, those Seller Rep liabilities have been assumed by Chase.” (Id.) In short, the FDIC

first publicly adopted its proposed interpretation of Section 2.1 nearly a year after WMB failed.

FDIC attorney Thaddeus Fenton, who said he prepared the September 3 letter,

was asked whether he recalled any discussion as to whether the letter’s position represented “the

correct interpretation of the P&A.” (Fenton Tr. at 238:21-22.) Mr. Fenton said “[t]here may

have been,” then invoked the deliberative process privilege on the ground that interpretation of

“Books and Records” was a “policy decision of the FDIC” made by an FDIC litigator. (Id. at

239:1-240:21, 241:2-18.) Asked whether the FDIC’s new position was informed by the drafters’

intentions, Mr. Fenton said that while “Mr. Gearin’s opinion was taken into consideration,” he

did not “recall what his intention was.” (Id. at 241:19-242:13.) As to whether “anyone involved

in the drafting” of the P&A Agreement said the disputed language was intended to refer to the

defined term “Record,” Mr. Fenton said, in essence, no: “Their intention, I really can’t answer to

what intentions. My recollection doesn’t—I can’t pinpoint anyone who said that was—that was

my intention or our intention at that time.” (Id. at 243:6-244:3.)

Later, in litigation that Deutsche Bank brought over seller repurchase obligations

in IndyMac-issued RMBS, the FDIC explained that in private-label RMBS—like those at issue

here—seller repurchase obligations are not mortgage servicing obligations:

Before its failure in 2008, [IndyMac] had issued and sold mortgage-backed securities. These securities consisted of mortgage pools established by “Pooling and Servicing Agreements” (“PSAs”) . . . . Although each PSA is contained in a single document, the document contains two agreements IndyMac entered into in two different capacities: as “Seller” and as “Master Servicer.” . . . In its capacity as “Seller” IndyMac also made certain “representations and warranties” about the quality of the loans. The PSAs further provide that if any party discovered a breach of any of those representations and warranties, IndyMac in its capacity as “Seller” had to . . . substitute or repurchase the


20

affected mortgage loan or loans. In its capacity as “Master Servicer,” IndyMac agreed to collect and process mortgage payments in return for servicing fees and other compensation. The PSAs do not require IndyMac, in its capacity as Master Servicer, to substitute or repurchase non-performing mortgages. The PSAs further provide that the Master Servicer shall only be liable for obligations imposed “specifically” on it by the PSAs, which means that the Master Servicer shall not be liable for obligations imposed on other contracting parties, such as the Seller.

(Ex. 916 (FDIC Principal Br., Deutsche Bank Nat’l Trust Co. v. FDIC, 744 F.3d 1124 (9th Cir.

2014) (No. 11-56339), ECF No. 8111464 (“FDIC Ninth Circuit Brief”)) at 2-3 (record citations

and quotation marks omitted).)

PROCEDURAL BACKGROUND

On December 30, 2008, Deutsche Bank filed a proof of claim in the WMB

receivership, claiming WMB had breached representations and warranties in pooling and

servicing agreements for private-label RMBS trusts. (D.I. 1 (Complaint) ¶ 10.) The FDIC failed

to respond to the proof of claim, so on August 26, 2009, Deutsche Bank sued the FDIC. (Id.

¶¶ 10, 15-17.) The FDIC moved to dismiss the Complaint, claiming that “all risk of liability to

[Deutsche Bank] is borne by JPMC,” not the FDIC. (D.I. 20-1 at 18-19.) In doing so, the FDIC

relied on its new theory that “liabilities . . . reflected on the Books and Records” of WMB meant

not just “booked liabilities”—as Mr. Gearin had told JPMC—but instead was much broader:

[A]ll Trust-related liabilities and obligations that were originally WaMu’s—including any loan repurchase or indemnification liabilities that may have arisen prior to the receivership as a result of WaMu’s seller obligations—were transferred to, and expressly assumed by, JPMC under Section 2.1 of the P&A Agreement.

(Id. at 20.) In response, Deutsche Bank amended its complaint to add as defendants JPMC and

WMMSC, a former WMB subsidiary that JPMC now owns. (See D.I. 32.)

JPMC and WMMSC moved to dismiss, arguing “that any liabilities from this

litigation that were not on WMB’s general ledger, subsidiary ledgers, and supporting schedules

as of September 25, 2008”—that is, that were not “booked liabilities” as of WMB’s closure—


21

“remained with the FDIC.” (D.I. 55-1 at 27.) As it does here, JPMC explained its understanding

that Section 2.1 means “the FDIC retained all liabilities of the failed bank except those that had a

‘Book Value’ as of September 25, 2008,” defined as the “dollar amount stated on the Accounting

Records of the Failed Bank”—WMB’s general ledger, subsidiary ledgers, and supporting

schedules. (Id. at 28; P&A Agr. Art. I (def’n of “Book Value”).)

The FDIC also moved to dismiss, espousing yet another argument, this time based

on the transfer of WMB’s “mortgage servicing rights and obligations”: The FDIC asserted that

the disputed repurchase obligations arise from “[a]ssets that transferred to JPMC under Section

3.1 and its related provisions.” (D.I. 54-1 at 25.) It claimed that “[t]he P&A Agreement states

that JPMC ‘specifically assume[d]’ (under Section 2.1) and ‘specifically purchase[d]’ (under

Section 3.1) ‘all mortgage servicing rights and obligations of [WaMu].’” (Id.) Thus, the FDIC

claimed, “[b]ecause ‘[t]he mortgage servicing rights and obligations of WaMu with respect to the

Trusts arose under the Governing [Agreements],’ . . . the Governing Agreements . . . transferred

to WaMu [sic] under Section 3.1 of the P&A Agreement.” (Id.) The FDIC explained:

Sections 2.1 and 3.1 provide that “[n]otwithstanding Section 4.8,” JPMC “specifically assume[d]” and “specifically purchase[d]” “all mortgage servicing rights and obligations” of WaMu, thereby exempting these rights and obligations from Section 4.8. Because Section 4.8 applies to “agreements,” this carveout in Sections 2.1 and 3.1 necessarily reflects JPMC’s irrevocable assumption of the entire agreements containing “all the mortgage servicing rights and obligations”—i.e., the Governing Agreements, including all the rights and obligations thereunder.

. . . By expressly excluding “all mortgage servicing rights and obligations” from the scope of Section 4.8, the P&A Agreement ensured that the “agreements” containing these rights and obligations—i.e., the Governing Agreements—would be transferred in their entirety to JPMC.

(Id. at 28-29.) The FDIC now appears to have abandoned this argument. (See infra Part II.) The

FDIC had a fallback argument as well: that “[t]he transfer to JPMC of WaMu’s [repurchase

obligations] also was effected by Section 2.1,” because “[t]he only limitation on JPMC’s


22

assumption of WaMu’s liabilities is that the liability be ‘reflected’ on WaMu’s ‘Books and

Records’ as of September 25, 2008.” (D.I. 54-1 at 29 (emphasis in original).)10

The Court denied the parties’ respective motions to dismiss on April 5 and August

17, 2011. (April 5, 2011 Minute Order Denying JPMC’s Motion; August 17, 2011 Minute Order

Denying FDIC’s Motion.) The Court set a bifurcated schedule: first, on the allocation of liability

under the P&A Agreement as between the FDIC and JPMC; then on the merits of Deutsche

Bank’s repurchase claims. (May 11, 2011 Scheduling Conf. Tr. at 24.) The parties have

completed fact and expert discovery as to the first item, and JPMC now moves for summary

judgment that it bears no liability for Deutsche Bank’s claims as to WMB repurchase obligations

other than any Book Value for repurchase liabilities reflected on WMB’s general ledger,

subsidiary ledger, and supporting schedules as of September 25, 2008.11

LEGAL STANDARD

A. Summary Judgment

Summary judgment is required where “there is no genuine issue as to any material

fact,” so the “moving party is entitled to a judgment as a matter of law.” Celotex Corp. v.

Catrett, 477 U.S. 317, 327 (1986); Fed. R. Civ. P. 1, 56. Once the movant identifies the absence

of a genuine issue of material fact as to a necessary element, the other party must “do more than

simply show that there is some metaphysical doubt as to the material facts”: it “must come

forward with ‘specific facts showing that there is a genuine issue for trial.’” Matsushita Elec.

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (quoting Fed. R. Civ. P. 56(e));

10 Deutsche Bank has no rights under the P&A Agreement and lacks standing to interpret that agreement; its interpretation of Section 2.1 is therefore legally irrelevant. (D.I. 106 at 6-9 (citing, e.g., GECCMC 2005-C1 Plummer St. Office Ltd. P’ship v. JPMorgan Chase Bank, N.A., 671 F.3d 1027, 1035 (9th Cir. 2012)).) 11 Section 2.1’s meaning is also at issue in North Carolina Dep’t of Revenue v. FDIC, No. 10-cv-505-RMC (D.D.C. filed Mar. 26, 2010); JPMorgan Chase Bank, N.A. v. FDIC, No. 12-cv-450 (RMC) (D.D.C. filed March 23, 2012); and JPMorgan Chase Bank, N.A. v. FDIC, No. 13-cv-1997 (RMC) (D.D.C. filed December 17, 2013).


23

Celotex, 477 U.S. at 324. It must do so by admissible evidence, not by supposition, conjecture,

or “[t]he mere existence of a scintilla of evidence” in support of its position. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 252 (1986); see also Fed. R. Civ. P. 56(e); Celotex, 477 U.S. 317.

Neither evidence that is “merely colorable or is not significantly probative” nor disputes

regarding immaterial facts can defeat summary judgment. Anderson, 477 U.S. at 247-50.

The interpretation of a contract is a question of law for the court. See NRM Corp.

v. Hercules, Inc., 758 F.2d 676, 682 (D.C. Cir. 1985) (citing Pennsylvania Ave. Dev. Corp. v.

One Parcel of Land in D.C., 670 F.2d 289, 292 (D.C. Cir. 1981)). In “divining the meaning of

contract terms, the court is not limited to the four corners of the agreement: the party moving for

summary judgment may submit . . . extrinsic evidence that gives color to the words of the

agreement or otherwise reveals the intent of the contracting parties at the time of the agreement.”

United Mine Workers of Am. 1974 Pension v. Pittston Co., 984 F.2d 469, 473 (D.C. Cir. 1993).

Thus, “if a contract is facially ambiguous but extrinsic evidence as to the meaning of the

ambiguous term demonstrates only one view is reasonable, a district judge may grant summary

judgment.” Harbor Ins. Co. v. Schnabel Found. Co., 946 F.2d 930, 934 n.1 (D.C. Cir. 1991).

“If [extrinsic] evidence demonstrates that only one view is reasonable—notwithstanding the

facial ambiguity—the court must decide the contract interpretation question as a matter of law.”

Farmland Indus., Inc. v. Grain Bd. of Iraq, 904 F.2d 732, 736 (D.C. Cir. 1990).

B. Contract Interpretation

The P&A Agreement is “governed and construed in accordance with the federal

law of the United States of America.” (P&A Agr. ¶ 13.4.) Accordingly, federal common law

controls here. Hillside Metro Assocs., LLC v. JPMorgan Chase Bank, N.A., 747 F.3d 44, 49 (2d

Cir. 2014) (federal common law governs interpretation of the P&A Agreement); GECCMC

2005-C1 Plummer St. Office Ltd. P’ship v. JPMorgan Chase Bank, N.A., 671 F.3d 1027, 1032-


24

33 (9th Cir. 2012) (same). “Under federal common law, the court looks to general contract

principles in interpreting the P&A Agreement.” Interface Kanner, LLC v. JPMorgan Chase

Bank, N.A., 704 F.3d 927, 932 (11th Cir. 2013); see also NRM Corp., 758 F.2d at 681 (federal

common law “dovetails precisely with general principles of contract law”). Those principles

accord with the Restatement (Second) of Contracts (1981) (the “Restatement”). E.g., Bowden v.

United States, 106 F.3d 433, 439 (D.C. Cir. 1997) (“[W]e look to . . . the principles of the

[Restatement], . . . since those principles represent a ‘prevailing view’ among the states . . . .”).

Under these principles of contract law, courts begin with a contract’s text, using

interpretive canons that give “reasonable, lawful, and effective meaning to all [its] terms.” Colo.

Interstate Gas Co. v. FERC, 599 F.3d 698, 703 (D.C. Cir. 2010) (quoting Restatement § 203(a)).

Such an interpretation is “preferred to an interpretation which leaves a part [of the contract] of no

effect.” Id. If the contract is ambiguous, courts turn to “extrinsic evidence that gives color to the

words of the agreement or otherwise reveals the intent of the contracting parties at the time of the

agreement.” United Mine Workers, 984 F.2d at 473 (affirming grant of summary judgment).

This evidence can include negotiation and drafting history, as well as the parties’ subsequent

conduct. (See infra Section I(B) and cases cited.)

Any ambiguity in a contract “must be construed against the drafter.” Segar v.

Mukasey, 508 F.3d 16, 25 (D.C. Cir. 2007); see also Cole v. Burns Int’l Sec. Servs., 105 F.3d

1465, 1486 (D.C. Cir. 1997). This doctrine—contra proferentum—“places the risk of latent

ambiguity, lack of clarity, or absence of proper warning on the drafting party.” Valley Realty Co.

v. United States, 96 Fed. Cl. 16, 31 (Fed. Cl. 2010). It applies at summary judgment. E.g., id. at

34; Intel Corp. v. VIA Tech., Inc., 319 F.3d 1357, 1363 (Fed. Cir. 2003) (district court “properly

granted summary judgment . . . relying on contra proferentum”).


25

ARGUMENT

I. JPMC ASSUMED WMB’S OBLIGATIONS—INCLUDING THE REPURCHASE

OBLIGATIONS AT ISSUE HERE—ONLY TO THE EXTENT THEY WERE

BOOKED AS LIABILITIES ON WMB’S BOOKS AND RECORDS.

The P&A Agreement’s text, its drafting and negotiation history, and the parties’

course of conduct immediately following its execution all demonstrate that under the relevant

provision of the P&A Agreement, JPMC agreed to assume WMB obligations only to the extent

WMB had booked them as liabilities as of September 25, 2008.

A. The P&A Agreement Is Not Reasonably Susceptible to the FDIC’s

Excessively Broad Proposed Interpretation.

When “construing the terms of a contract, a court should begin with the text of the

agreement itself, giving the language chosen by the parties—which is presumed to be the most

reliable indicator of the parties’ intent—its plain meaning.” PCH Mut. Ins. Co., Inc. v. Cas. &

Sur., Inc., 750 F. Supp. 2d 125, 142 (D.D.C. 2010); see also Ohio Power Co. v. F.E.R.C., 744

F.2d 162, 168 (D.C. Cir. 1984). “Where language has a generally prevailing meaning, it is

interpreted in accordance with that meaning.” Restatement § 202.

By the plain terms of Section 2.1 and the P&A Agreement more broadly, JPMC

assumed only those WMB liabilities that had a Book Value as of September 25, 2008. Insofar as

the obligations alleged by Deutsche Bank were not reflected as liabilities on WMB’s books and

records, or exceeded the Book Value reflected there, JPMC did not assume them. We address

here the most natural reading of the P&A Agreement before explaining how all material extrinsic

evidence confirms that reading of the P&A Agreement.

1. JPMC’s Understanding Is Consistent with Section 2.1’s Plain Meaning; the FDIC’s Proposed Interpretation Is Not.

Section 2.1 of the P&A Agreement provides:


26

2.1 Liabilities Assumed by Assuming Bank. Subject to Sections 2.5 and 4.8, the Assuming Bank expressly assumes at Book Value (subject to adjustment pursuant to Article VIII) and agrees to pay, perform, and discharge, all of the liabilities of the Failed Bank which are reflected on the Books and Records of the Failed Bank as of Bank Closing, including the Assumed Deposits and all liabilities associated with any and all employee benefit plans, except as listed on the attached Schedule 2.1, and as otherwise provided in this Agreement (such liabilities referred to as “Liabilities Assumed”). Notwithstanding Section 4.8, the Assuming Bank specifically assumes all mortgage servicing rights and obligations of the Failed Bank.

(P&A Agr. § 2.1.) Thus, JPMC assumed only WMB liabilities that were “reflected on the

Books and Records” of WMB—a specific source—“as of Bank Closing”—a specific date—and

only “at Book Value”—a specific amount. The P&A Agreement defines “Book Value” to mean

“with respect to . . . any Liability Assumed, the dollar amount thereof stated on the Accounting

Records of the Failed Bank.” (P&A Agr. Art. I.) It defines “Accounting Records” in turn as

“the general ledger and subsidiary ledgers and supporting schedules which support the general

ledger balances.” (Id.)

The most natural reading of these terms, read together and in context, is that what

JPMC agreed to assume—and thus agreed to “pay, perform and discharge”—was the “Book

Value” amounts of WMB liabilities that WMB had “reflected on” its books and records. To find

that list of liabilities and their corresponding “Book Value[s],” one would naturally look to the

defined source for “Book Value,” the place where WMB booked its liabilities: WMB’s general

ledger, subsidiary ledger, and supporting schedules as of its closing. After all, for “any Liability

Assumed,” there is—literally by definition—a “Book Value”: the “dollar amount thereof stated

on” WMB’s “general ledger and subsidiary ledgers and supporting schedules.”

The FDIC has a different—and breathtakingly expansive—view of what it means

for a liability to be “reflected on” WMB’s “Books and Records,” which requires it to ignore the

reference to “Book Value” in the very same sentence: Section 2.1’s reference to “Books and

Records” was not meant to reference official corporate documents identifying WMB’s booked


27

liabilities, but rather “excluded only those liabilities that the acquiring institution could not have

possibly imagined.” (Ex. 901 (FDIC Resp.) No. 3.) To support this capacious reading, the FDIC

claims that “Books and Records” means any document and any data anywhere at WMB, even in

the most obscure corner of WMB’s thousands of locations and petabytes of data: It says that

phrase “refer[s] to ‘any document, microfiche, microfilm and computer records (including but

not limited to magnetic tape, disc storage, card forms and printed copy) of the Failed Bank

generated or maintained by the Failed Bank that is owned by or in the possession of the Receiver

at Bank Closing.’” (Id. Nos. 3 & 4; see also Van Fleet Tr. at 129:5-6, 134:10-13.)

The testimony of the FDIC’s own witnesses demonstrates the remarkable breadth

of its proposed interpretation. Mr. Van Fleet, drafter of the P&A Agreement, testified under oath

that it was his understanding that slip-and-fall incidents would qualify as liabilities “reflected on

the Books and Records” of WMB so long as they were “captured on the security cameras,” even

if no one had “asserted a claim against WaMu or told anyone at WaMu that they have a potential

claim.” (Van Fleet Tr. at 134:19-135:11; see also Fenton Tr. at 103:6-14 (same).) The other

P&A Agreement drafter, Mr. Gearin, testified that even a destroyed Post-It note reflecting an

IOU would qualify as being “reflected on the Books and Records” so long as it was captured on

microfiche squirreled away in an offsite storage facility. (Gearin Tr. at 140:11-22.) These

frivolous assertions do not rise to the level of genuine issues of material fact.

The FDIC also claims that “assumes at Book Value” provides no context for

“Books and Records,” leaving unanswered how a slip-and-fall captured on a security camera or

an IOU on microfiche in offsite storage could possibly have a Book Value “stated on the

Accounting Records” of WMB. More fundamentally, the FDIC maintains that “assumes at Book

Value” does nothing to limit the liabilities JPMC assumed. (Ex. 901 (FDIC Resp.) No. 12.) But


28

that position too runs counter to judicial precedent explaining the plain meaning of the disputed

term. In Viola v. Fleet Bank of Maine, a federal district court confronted that very phrase,

“assumes at Book Value,” in Section 2.1 of a prior FDIC purchase and assumption agreement.

See 1996 WL 498390 (D. Me. Feb. 27, 1996). In a decision affirmed by the First Circuit, the

court there granted summary judgment in favor of the understanding JPMC has here and against

the interpretation the FDIC now tenders. Id. at *3, aff’d, 94 F.3d 640 (1st Cir. 1996).

In Viola, a bank employee embezzled funds from a customer’s account, reducing

its book value on the bank’s accounting records. Id. at *1-4. The bank was placed into an FDIC

receivership, and the assuming bank entered into an FDIC purchase and assumption agreement

under which it “assume[d] at Book Value” the failed bank’s liabilities.12 Id. at *3. The customer

sued, arguing that the assuming bank had assumed liabilities beyond just the book value of his

account. Id. at *3-4. The court rejected this argument, holding that the assuming bank owed

only the amounts reflected on the failed bank’s accounting records: “In section 2.1 of the

Agreement the defendant assumed liability for the outstanding [liabilities] measured at book

value, which is defined as the dollar amount stated on [the failed bank’s] accounting records at

the close of business. . . . There is nothing ambiguous about this language[, which] cannot

reasonably be read to encompass liability beyond the book value of the [liabilities].” Id. at *3.

The language at issue here is equally clear—because it is substantively identical.

As in Viola, JPMC only assumed and is “only obligated to pay” the “Book Value[s]” of WMB

12 Section 2.1 of the purchase and assumption agreement at issue in Viola reads, in pertinent part:

The [Assuming Bank] hereby expressly assumes at Book Value and agrees to pay, perform, and discharge all of the following liabilities of [the Failed Bank] as of Bank Closing, except as otherwise provided in this Agreement (such liabilities hereinafter referred to as “Liabilities Assumed”): (a) demand Deposits, including outstanding cashier’s checks and other official checks, and time and savings Deposits . . . .

Id. at *2.


29

liabilities shown on WMB’s closing-day accounting records. Id. at *3. The FDIC was on notice

of this decision as to the plain meaning of the “assumes at Book Value” language—and put it in

the WMB P&A Agreement anyway. It cannot now claim a different meaning for that phrase.

2. The Use of “Books and Records” in Other Provisions of the P&A Agreement Confirms JPMC’s Understanding of Section 2.1.

Although capitalized in Section 2.1, the term “Books and Records” is not defined

in the P&A Agreement. The FDIC maintains—with no factual support—and relies on the notion

that “Records” in “Books and Records” is correctly capitalized. But this is the sort of

unsupported contention that cannot suffice to prevent summary judgment. Neither the P&A

Agreement’s drafters nor the FDIC principals who set the terms of the transaction recalled

having any intention to capitalize “Records,” and it immediately follows the capitalized but

undefined term “Books,” the capitalization of which the FDIC concedes is a scrivener’s error.

(See supra Facts Section B.) The FDIC has identified no other purchase and assumption

agreement prior to the WMB agreement that used the capitalized term “Books and Records” or

that employed the defined term “Record” as the central touchstone for what liabilities were

assumed. (See Ex. 901 (FDIC Resp.) No. 10.) On the contrary, the term “Record” is used in

every purchase and assumption agreement of which JPMC is aware—but only to define the

assuming institution’s obligations to maintain and preserve the failed bank’s documents and

data for the FDIC’s use in administering the receivership. (E.g., P&A Agr. Art. VI; Ex. 242 Art.

VI.) The only plausible explanation is that the capitalization of “Books and Records” is a

scrivener’s error—albeit one on which the FDIC has hung its hat.

In contrast, the uncapitalized term “books and records” appears in the P&A

Agreement a number of times, and “[t]erms in a document, especially terms of art, normally have

the same meaning throughout the document in the absence of a clear indication that different


30

meanings were intended.” E.g., Maryland Cas. Co. v. W.R. Grace & Co., 128 F.3d 794, 799 (2d

Cir. 1997).13 No such “clear indication” is evident here, so Section 2.1’s “Books and Records”

must be interpreted in light of the P&A Agreement’s other uses of “books and records.” Yet the

FDIC’s proposed interpretation of that phrase in Section 2.1 conflicts with the phrase’s plain

meaning in the two other provisions of the agreement that employ it in the context of identifying

the failed bank’s liabilities. Article VIII, for one, states in pertinent part:

The Assuming Bank, as soon as practical after Bank Closing, in accordance with the best information then available, shall provide to the Receiver a Proforma Statement of Condition indicating all assets and liabilities of the Failed Bank as shown on the Failed Bank’s books and records as of Bank Closing and reflecting which assets and liabilities are passing to the Assuming Bank and which assets and liabilities are to be retained by the Receiver.

The FDIC concedes that it “understands ‘books and records’ in Article VIII to share the same

meaning as in Section 2.1.” (Ex. 901 (FDIC Resp.) No. 7; see also Gearin Tr. at 111:7-11; Held

Tr. at 72:4-73:8.) Yet Article VIII plainly refers to some corporate listing of WMB’s assets and

liabilities; it does not, as the FDIC’s proposed interpretation suggests, require JPMC to search

high and low through all WMB documents and data to locate every contingent asset or liability

WMB had yet to book. (See P&A Agr. Art. VIII.)

The other provision of the P&A Agreement that uses “books and records” in a

similar context is the definition of “Deposit,” which includes “all uncollected items included in

the depositors’ balances and credited on the books and records of the Failed Bank.” (P&A Agr.

Art. I.) The “credit[ing]” of items on “books and records” unambiguously connotes a specific

13 See also McLane & McLane v. Prudential Ins. Co. of Am., 735 F.2d 1194, 1195 (9th Cir. 1984) (“[W]e may presume that words have the same meaning throughout the contract.”); Dauphin v. Crownbrook, 2013 WL 1498363, at *5 (E.D.N.Y. Apr. 11, 2013) (“[g]enerally, a word used by the parties in one sense will be given the same meaning throughout the contract in the absence of countervailing reasons”).


31

subset of documents on which assets and liabilities—including deposit liabilities—are recorded,

not just any “Record” of the bank as that term is defined in the P&A Agreement.

3. JPMC’s Understanding Accords with the Prevailing Meaning of “Books and Records” in the Context of Identifying Liabilities.

The common meaning of the widely used phrase “books and records,” when used

in reference to an institution’s assets and liabilities, also validates JPMC’s understanding. The

FDIC has gone to great lengths to demonstrate that “books and records” means various things in

various contexts. (See, e.g., Ex. 748 (Coffee Report).) But there can be no dispute as to the

context in which that phrase is used here: It identifies liabilities. How federal regulators such as

the FDIC—and the statutes and regulations that govern them—use the phrase “books and

records” in similar contexts illuminates the meaning of that phrase here.

The FDIC’s own governing laws, regulations, and guidance often use the phrase

“books and records” to reference documents reflecting a depository institution’s liabilities, just

as the phrase is used here. When they do, it is perfectly clear that the phrase means not any

“Record” but rather the documents on which the institution records its liabilities.

The Federal Deposit Insurance Act, for example, uses the phrase “books and

records” to define what obligations do and do not qualify as “deposits”:

(A) any obligation of a depository institution which is carried on the books and records of an office [of a bank] located outside any State unless— (i) such obligation would be a deposit if it were carried on the books and records of

the depository institution, and would be payable at, an office located in any State; and

(ii) the contract evidencing the obligation provides by express terms, and not by implication, for payment at an office of the depository institution located in any State.

12 U.S.C. § 1813(l)(5)(A). First, this provision shows that a depository institution and its out-of-

state office have different sets of “books and records” on which obligations are “carried”—an

obvious reference to financial accounting documents. Second, contrary to the FDIC’s position


32

here, this provision of the FDIC’s own organic statute expressly differentiates “books and

records” on which obligations are “carried” from “contract[s] evidencing the obligation[s].”

Similarly, Section 1831g of the law provides that if a bank enters into certain

contracts that adversely impact its financial soundness, the FDIC can require it to “reflect the

transaction on its books and records.” 12 U.S.C. § 1831g. That is, the mere existence of a

transaction or contract does not mean the associated obligations are “reflect[ed]” on the bank’s

“books and records”—that is a separate step the FDIC may mandate.

The FDIC’s own usage is in accord:

The FDIC’s own “Resolutions Handbook” describes how it was once FDIC practice to reveal to bidders “only the book value of the assets, which is the principal amount shown on the failing institution’s books or records.” (Ex. 767 (FDIC Resolutions Handbook) at 9.) This description self-evidently refers to accounting documents.

FDIC regulation 12 C.F.R. § 330.3(e)(2) refers to deposit liabilities being “carried” on a bank’s “books and records.” Deposit liabilities are invariably “carried” on banks’ accounting ledgers. See, e.g., Duffy v. Mut. Benefit Life Ins. Co., 272 U.S. 613, 619 (1926) (for liabilities to be “carried on the books as a liability” is a “form of bookkeeping to balance assets”); see also Comm’r v. Indianapolis Power & Light Co., 493 U.S. 203, 205 (1990) (“deposits were carried on [respondent’s] books as current liabilities”); Am. Nat’l Co. v. United States, 274 U.S. 99, 102 (1927) (“total amount of [a company’s] liability on [] bonus contracts was carried on its general ledger under a control account”).

In providing guidance on FDIC practices for determining liability account balances at a failed insured depository institution—a context directly relevant here—the FDIC has explained that certain values “will be determined as they rest on the books and records of the depository institution as reflected in its end-of-day ledger balances.” Processing of Deposit Accounts in the Event of an Insured Depository Institution Failure, 74 Fed. Reg. 5797, 5799 (Feb. 2, 2009).

More broadly, the FDIC has stated that it “will make its claims determinations based on deposit and other account balances reflected on the books and records of the depository institution after all normal end-of-day processing has been completed.” Id. at 5800.

The FDIC requires certain institutions to “maintain [their] books and records in accordance with the principles of accrual accounting.” FDIC Statement of Policy: Applications for Deposit Insurance, 63 Fed. Reg. 44752, 44758 (Aug. 20, 1998).

Even FDIC personnel less involved in the transaction deviated from the FDIC’s line: FDIC staffer Sharon Yore explained that WMB liabilities “discovered after the bank’s


33

closing”—those liabilities WMB “just didn’t book”—would not qualify as liabilities on WMB’s books and records. (Yore Tr. at 134:2-15.)

FDIC’s own usage of “books and records” directly conflicts with its litigation position here but

confirms that the “books and records” reflecting liabilities are financial accounting documents.

4. JPMC’s Understanding Comports with Judicial Precedent on the Use of “Books and Records” in Purchase and Assumption Transactions.

Courts have consistently ruled that assuming banks in purchase and assumption

transactions do not assume unliquidated or contingent liabilities. See, e.g., Santopadre v.

Pelican Homestead & Sav. Ass’n, 937 F.2d 268, 272 (5th Cir. 1991) (even where “agreement

purports to transfer all the closed bank’s liabilities,” unliquidated litigation liabilities were not

“on the books and records” of the failed bank and thus not transferred).

The reason for this line of precedent is telling: Assuming banks do not assume

unliquidated liabilities precisely so that the parties are “able to rely on the books and records of

the [failed bank] in determining its net worth,” thus allowing a transaction to “take place in [a]

timely fashion.” Id.; cf. In re Collins Sec. Corp., 998 F.2d 551, 554-55 (8th Cir. 1993) (treating

“books and records” and “account records” as synonymous). “Undoubtedly very few, if any,

banks would enter into purchase and assumption agreements with a federal receiver if the

successor banks had to assume [] latent claims of unknown magnitude.” Vernon v. RTC, 907

F.2d 1101, 1109 (11th Cir. 1990); see also Village of Oakwood v. State Bank & Trust Co., 519

F. Supp. 2d 730, 738 (N.D. Ohio 2007) (“[A]n assuming bank would rarely be inclined to enter a

P&A agreement with the FDIC knowing that it could be taking on unidentified liabilities of

undefined dimensions that could arise at some uncertain date in the future.”), aff’d, 539 F.3d 373

(6th Cir. 2008). Here, though, the FDIC claims that contingent and unliquidated liabilities were

on WMB’s books and records, which would render nonsensical these courts’ distinction between

“latent claims of unknown magnitude” and those liabilities “on the books and records.”


34

5. JPMC’s Understanding Honors the Rule Against Surplusage; the FDIC’s Proposed Interpretation Offends It.

It is a fundamental tenet of contract interpretation that “an interpretation which

gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation

which leaves a part unreasonable, unlawful, or of no effect”—courts assume no part is

“superfluous.” Restatement § 203 & cmt. b; see also, e.g., Air Line Pilots Ass’n Int’l v. Pension

Benefit Guar. Corp., 193 F. Supp. 2d 209, 218 n.4 (D.D.C. 2002) (“It is a well-established

principle that when interpreting statutes or contractual provisions, a court should ‘absent a clear

indication to the contrary, . . . read the statute [or provision] so that no word, clause, sentence, or

phrase is rendered surplusage, superfluous, meaningless or nugatory.’”), aff’d, 334 F.3d 93 (D.C.

Cir. 2003); Tax Analysts v. I.R.S., 217 F. Supp. 2d 23, 28 (D.D.C. 2002) (same).

Here, though, the FDIC would read two phrases out of a single sentence:

First, the FDIC reads “Books” right out of the phrase “Books and Records,”

because “Record” is defined to include virtually any information generated or maintained by

WMB. (See Ex. 901 (FDIC Resp.) Nos. 3 & 4.) As conceded by FDIC personnel—including

the P&A Agreement’s two principal drafters and the FDIC’s lead closing attorney—this

interpretation renders “books” a mere “subset of ‘records’” and thus “superfluous” surplusage.

(Van Fleet Tr. at 137:2-3; see also id. at 137:11-13, 140:17-20; Fenton Tr. at 89:7-8 (“‘books’

would be . . . a subset of ‘records’”), 244:19-20 (“‘records’ as a defined term supersedes

whatever ‘books’ might be”); Gearin Tr. at 102:6-7 (“‘records’ is so broad that it includes

‘books’”), 138:4-5 (“Q. So ‘books’ would be surplusage? A. Yes.”).)

Second, the FDIC reads the phrase “at Book Value” out of Section 2.1.

Mr. Gearin, a principal drafter of the P&A Agreement, testified that the phrase, “[i]n this

agreement, probably serves no purpose.” (Gearin Tr. at 134:2-7.) Likewise, Mr. Held testified


35

at his deposition that the phrase “really doesn’t have . . . any meaning” in Section 2.1. (Held Tr.

at 80:13-18.) The FDIC Receiver-in-Charge and the P&A Agreement’s other principal drafter

excused the phrase’s inclusion by claiming that “at Book Value” was a “carryover from using a

standard form . . . off the shelf,” that it was “purely vestigial” and “[s]hould have been stricken.”

(Schoppe Tr. at 248:11-249:19; Van Fleet Tr. at 49:18-22, 154:11-18.) There is no evidence that

anyone at the FDIC ever informed JPMC that the “at Book Value” qualifier—though construed

in Viola as an important limitation on liabilities assumed—was a vestigial mistake that meant

nothing at all here. That suggestion offends fundamental principles of contract interpretation,

which mandate “that no word, clause, sentence, or phrase is rendered . . . meaningless.” Air Line

Pilots Ass’n Int’l, 193 F. Supp. 2d at 218 n.4.

B. The Undisputed Extrinsic Evidence Uniformly Supports JPMC’s

Understanding and Contravenes the FDIC’s Proposed Interpretation.

Like the plain meaning of the P&A Agreement, the undisputed extrinsic evidence

is consistent with JPMC’s understanding and inconsistent with the FDIC’s proposed

interpretation. Where extrinsic evidence “demonstrates that only one view is reasonable . . . the

court must decide [a] contract interpretation question as a matter of law.” Farmland Indus., Inc.,

904 F.2d at 736 (citing three D.C. Court of Appeals decisions in accord). Here, if the Court

deems such an analysis necessary, undisputed extrinsic evidence concerning the P&A

Agreement’s creation and execution, and the parties’ course of conduct immediately after the

transaction, shows that the parties acted according to JPMC’s understanding in drafting, entering

into, and carrying out the P&A Agreement.

1. The Negotiation History Supports JPMC’s Understanding.

“[N]egotiations prior to or contemporaneous with the adoption of a writing are

admissible in evidence to establish . . . the meaning of the writing, whether or not integrated.”


36

Restatement § 214; see, e.g., NRM Corp., 758 F.2d at 682-83 (“Courts construing federal

contracts . . . consistently have examined all the circumstances surrounding the [contract]

negotiations to determine the intent of the parties.”). Here, the FDIC informed bidders that the

“Purchase & Assumption agreement language [was] not negotiable”—a statement largely borne

out during the course of the “negotiations,” which were limited and one-sided. (See Ex. 129

(FAQs); Bessey Tr. at 25:8-11, 179:3-180:7, 312:18-22; Eitel Tr. at 106:5-25.) That said, JPMC

and the FDIC did discuss some of the P&A Agreement’s terms in the two days before its

execution. (See supra Facts Section D.)

Remarkably, attorneys for JPMC predicted the exact problem that gives rise to

this dispute, pointing out that opportunistic third parties might not read Section 2.1 as the FDIC

did—limited to “booked liabilities”—and instead might pursue JPMC for WMB “liabilities”

nowhere reflected in WMB’s financial accounting system. (See Ex. 66.) JPMC’s attorneys even

predicted the very argument the FDIC now adopts and requested broadening of the P&A

Agreement’s proposed indemnification provision to mitigate that risk. (See id.) FDIC attorneys,

for their part, assured JPMC attorneys that Section 2.1 conveyed only “booked liabilities.” (Id.)

In particular, Mr. Gearin, an FDIC attorney and principal drafter of the P&A

Agreement, assured Mr. Cooney, a JPMC attorney, in writing that “[t]he liabilities assumed are

described as booked liabilities”—a position the FDIC now disavows. (Id.) Mr. Cooney stated

during his deposition that he understood Mr. Gearin’s assurance to reflect the shared

understanding of the parties, and there is no evidence that the FDIC ever informed JPMC that

Mr. Gearin’s assurances were incorrect. (See Cooney Tr. at 190:7-12.) Mr. Cooney testified

based on these communications that “David [Gearin] and myself [sic] understood what liabilities

were passing. It was booked liabilities.” (Id. at 190:7-9.) He further testified that he understood


37

that to mean, as one would expect, those items “booked as liabilities on the accounting records.”

(Id. at 191:19-20.) Similarly, Mr. Eitel testified that he interpreted Mr. Gearin’s email, which

Mr. Cooney forwarded to him, to mean “only liabilities that were in fact booked on the financial

statements were being assumed.” (Eitel Tr. at 142:8-10; see also Ex. 466.) Other JPMC

witnesses involved in the transaction uniformly shared that understanding. (See, e.g., Bessey Tr.

at 185:8-187:15; Lipsitz Tr. at 108:21-110:15, 114:5-11; Rivas Tr. at 146:11-15.) No FDIC

witness offered any broader interpretation of Mr. Gearin’s term “booked liabilities” to contradict

JPMC’s understanding of his term.

Though Mr. Gearin had assured him that Section 2.1’s reference to “liabilities

which are reflected on the Books and Records” was describing “booked liabilities,” Mr. Cooney

responded by explaining that a third party might read the provision more broadly and sue JPMC.

(Ex. 66) In doing so, he spelled out exactly the argument Deutsche Bank made here—which the

FDIC has now adopted: that a third party could argue that liabilities “reflected on the Books and

Records” reaches beyond “booked liabilities” to unbooked contractual obligations. (Id.) And he

requested a broadening of the indemnification provision to account for that danger. (See id.)

What Mr. Gearin did next is telling: This principal drafter of the P&A Agreement

did not explain that the Section 2.1 language reached beyond “booked liabilities” or reject the

proposed broadening of the indemnification provisions. On the contrary, Mr. Gearin wrote, “Ok

I will look at again,” and the FDIC eventually broadened the indemnity provision. (Id.; Ex. 902

(JPMC_DBNTC_0000006549-51); P&A Agr. § 12.1.) There is no evidence that at any time

during discussions of the P&A Agreement, the FDIC disavowed Mr. Gearin’s assurances or

otherwise suggested that Section 2.1 reached beyond “booked liabilities.”


38

2. Even If the FDIC Had the Subjective Intent It Now Claims, That Unexpressed Intention Is Irrelevant as a Matter of Law.

Extrinsic evidence contradicts the FDIC’s claim that its intent in September 2008

was that “reflected on the Books and Records” should reach as broadly as the term “Record.”14

But even if that were the FDIC’s subjective intent, there is no evidence that anyone there

communicated that intent to JPMC. Such a “subjective unexpressed, uncommunicated” intent

creates no genuine issue of material fact. See, e.g., NTA Nat’l, Inc., 511 F. Supp. at 223; see

also Horn & Hardart Co. v. Nat’l R.R. Passenger Corp., Civ. A. No. 85-0820, 1985 WL 9426, at

*4 (D.D.C. May 30, 1985). The FDIC gave JPMC “objective manifestations of intent” to the

contrary, so its supposed unexpressed interpretation is of no legal consequence. See Hood v.

District of Columbia, 211 F. Supp. 2d 176, 180 (D.D.C. 2002); see also Serv. Emps. Int’l Union

Local 32BJ v. Diversified Servs. Grp., 958 F. Supp. 2d 166, 172 (D.D.C. 2013).

3. The Drafting History Supports JPMC’s Understanding and Undermines the FDIC’s Contention That It Had Formed Its Proposed Interpretation On or Before September 25, 2008.

A contract’s “meaning” can be “further made clear by other circumstances

surrounding [its] drafting.” Fox v. Office of Pers. Mgmt., 100 F.3d 141, 144 (Fed. Cir. 1996);

see also Watts v. Carlson, 854 F.2d 528, at *2 (D.C. Cir. 1988); Nat’l Austl. Bank v. United

States, 452 F.3d 1321, 1329 (Fed. Cir. 2006); see generally United Mine Workers, 984 F.2d at 14 The FDIC claims its position is supported by a September 24, 2008 internal email from Mr. Aboussie to Mr. Gearin, purportedly expressing Mr. Wigand’s “understanding and intent ‘that all liabilities associated with loan sales (i.e., rep and warrant/repurchase claims) are to be passed to the assuming bank.’” (Ex. 901 (FDIC Resp.) No. 3 (quoting Ex. 79).) Yet this email addressed JPMC’s request to exclude in their entirety all “liabilities for assets in securitizations”—regardless of their Book Value on WMB’s books and records, and even if they were liabilities not of WMB but of a subsidiary. (Ex. 79; see also supra note 6.) It was this proposal to which Mr. Wigand responded; nothing about either the proposal or his response addresses whether future repurchase obligations were to be assumed if not booked as liabilities or beyond their Book Value. Even assuming this were Mr. Wigand’s intent, there is no evidence that it was expressed to JPMC, and thus it has no bearing on the meaning of the P&A Agreement. See, e.g., NTA Nat’l Inc., 511 F. Supp. at 223 (“[T]he subjective unexpressed, uncommunicated thoughts of a party are irrelevant to the material issue of the parties’ intent.” (quoting Union Bank v. Winnebago Indus., Inc., 528 F.2d 95, 99 (9th Cir. 1975))); Restatement § 212, cmt. a (“[T]he relevant intention of a party is that manifested by him rather than any different undisclosed intention.”).


39

473. Here, objective extrinsic evidence concerning the FDIC’s insertion of the disputed phrase

“which are reflected on the Books and Records of the Failed Bank” contravenes the FDIC’s

proposed interpretation of Section 2.1.

As described above, on September 23, 2008, Mr. Van Fleet sent Mr. Gearin a

“current draft” of the agreement, Section 2.1 of which did not include the disputed phrase “which

are reflected on the Books and Records of the Failed Bank.” (Ex. 253.) Instead, it would have

conveyed “all of the liabilities of the Failed Bank as of Bank Closing,” sans qualifier. (Id.)

Soon thereafter, the FDIC’s Ms. Foster emailed Messrs. Wigand and Held about the proposed

terms of the transaction, inquiring, “Can we limit liabilities assumed to just the ‘liabilities on

the books and records’ and then give the options to take out the different categories of

liabilities?” (Ex. 903 (FDIC-DB0017573).) The answer was clearly yes, as the next draft of the

P&A Agreement circulated featured a version of Section 2.1 that had been modified as follows:



(Ex. 256 (changes tracked to compare Ex. 255 to Ex. 253).) This revision—used in the executed

agreement—expressly “limit[ed] liabilities assumed” from the broader “all of the liabilities of the

Failed Bank,” to the narrower “all of the liabilities of the Failed Bank which are reflected on the

Books and Records of the Failed Bank.” (See Ex. 255; Ex. 903 (FDIC-DB0017573); compare

Ex. 253 § 2.1 with P&A Agr. § 2.1.) And why? Mr. Gearin said it was to give “comfort” to


40

bidders. (Gearin Tr. at 92:6-11.) As to how it could provide any comfort under the FDIC’s

proposed interpretation, Mr. Gearin conceded he could not answer. (Id. at 99:18-21.)

4. The Parties’ Conduct Comports with JPMC’s Understanding.

If there were any doubt as to the parties’ shared understanding of the liabilities

JPMC assumed, it is dispelled by the parties’ post-transaction course of dealing. The FDIC’s

actions in regard to analogous liabilities immediately following the transaction conflict directly

with the position it now advances. Although this dispute centers on RMBS repurchase liabilities,

Section 2.1 is not RMBS-specific. Rather, with exceptions irrelevant here, it covers “all of the

liabilities reflected on the Books and Records of the Failed Bank as of Bank Closing.” How the

parties treated liabilities analogous to RMBS repurchase obligations, such as tax liabilities, and

what they said about those liabilities, is clearly probative of the parties’ understanding of the

contract. See, e.g., Tymshare, Inc. v. Covell, 727 F.2d 1145, 1150 (D.C. Cir. 1984) (Scalia, J.)

(“historical interpretation given to a contract” through the parties’ course of dealing “is strong

evidence of its meaning”). The D.C. Circuit and other courts have long held that “the practical

interpretation of a contract by the parties to it for any considerable period of time before it comes

to be the subject of controversy is deemed of great, if not controlling, influence.” Green v.

Obergfell, 121 F.2d 46, 59 n.39 (D.C. Cir. 1941) (quoting Old Colony Trust Co. v. Omaha, 230

U.S. 100, 118 (1913)); see also Schultz v. Metro. Life Ins. Co., 872 F.2d 676, 679 (5th Cir. 1989)

(“[C]onduct of the parties before the advent of a controversy may be relied upon to discover the

parties’ understanding of the contract.”).

Here, just as it did prior to the parties’ entering into the P&A Agreement, the

FDIC gave JPMC explicit assurances immediately after the transaction that comport with

JPMC’s understanding and contravene the interpretation the FDIC now proposes. The FDIC

repeatedly and categorically informed JPMC and third parties that pre-closure WMB tax


41

liabilities asserted for the first time only after WMB’s closure—and thus, not “reflected on the

Books and Records of [WMB] as of Bank Closing”—did not transfer to JPMC but instead

remained with the FDIC.15 Less than two weeks after the P&A Agreement was executed, the

FDIC’s Mr. Peyster expressly informed JPMC that, “[w]ith regard to any tax liability arising out

of an ongoing or future audit, where no assessment had been made prior to the date of closing,

such liability would not pass to [JP]Morgan.” (Ex. 29.) That same day, Mr. Peyster stated this

same understanding in an internal email to FDIC personnel who drafted the P&A Agreement and

dictated its terms, confirming that—at least for “public consumption”—the FDIC’s position was

that “any tax liabilities on the books of Washington Mutual were transferred, and any unknown

liabilities, not reflected on the books were not transferred.” (Ex. 108.) Similarly, as early as

October 2008 and as late as January 2009, the FDIC’s Mr. Thormahlen wrote letters to state

taxing authorities informing them that any pre-closure tax period “was not assumed by JP

Morgan Chase Bank, NA” and that “[t]he liability reflected on the attached return is a claim

against the receivership.” (Ex. 30; see also Exs. 404, 416.)

Only after Deutsche Bank commenced this action—and after the end of the

financial crisis—did the FDIC abruptly change its tune. In January 2010, for example, the FDIC

disallowed a proof of claim from the North Carolina Department of Revenue regarding post-

closure WMB taxes on the ground that liability had “transferred to JPMorgan Chase” under the

P&A Agreement. (D.I. 1-3, No. 10-cv-505 (RMC).) When North Carolina sued the FDIC and

JPMC over that assessment, the FDIC unilaterally settled North Carolina’s claims against both

15 In addition to tax liabilities, JPMC suspects that the FDIC’s course of conduct with respect to other similarly situated liabilities also supports JPMC’s position. In 2012, though, the FDIC sought to limit the scope of discovery, arguing that “the discovery of other specific liabilities that are not at issue in this case will not resolve the issues alleged” by Deutsche Bank. (D.I. 113 at 16.) The Court cabined JPMC’s ability to inquire as to other liabilities to “limited discovery on tax liabilities” under the P&A Agreement. (D.I. 124; see also D.I. 125 at 65-66.)


42

the FDIC and JPMC.16 (See D.I. 57, No. 10-cv-505 (RMC).)

The FDIC’s own words best illustrate its reversal:

Immediately Following WMB Transaction After Deutsche Bank Files Suit FDIC to “State Tax Agency” on October 20, 2008 (Ex. 30):

The tax period on the attached return occurred prior to [WMB’s] closure and was not assumed by JP Morgan Chase Bank, NA. The liability reflected on the attached return is a claim against the receivership.

FDIC to Ohio on July 3, 2012 (Am. Compl. Ex. LL, No. 12-cv-450 (RMC)):

[A]ny tax obligation that WMB owed to Ohio for tax periods prior to WMB’s closure was reflected on WMB’s books and records when WMB was closed and, therefore, was transferred to and assumed by JPMC under Section 2.1 of the P&A Agreement.

The FDIC now claims that this body of consistent external communications “does not reflect the

understanding of FDIC-Receiver” and is “incorrect.” (Ex. 901 (FDIC Resp.) Nos. 17 & 18.) Yet

the P&A Agreement’s principal architects at the FDIC and the FDIC officials charged with

administering the receivership were aware of these statements as early as October 8, 2008, and

yet no one at the FDIC informed JPMC of the FDIC’s current interpretation until almost a year

later. (See Exs. 29, 108, 519.) There is no plausible explanation why, if the FDIC’s

understanding in the weeks and months following the transaction were the same as the FDIC’s

current position, the FDIC failed to inform JPMC that the FDIC’s actual understanding of the

contract was the opposite of the FDIC’s prior assurances. The FDIC’s course of dealing

concerning other, similarly situated WMB liabilities prior to Section 2.1’s becoming “the subject

of controversy” merits “great, if not controlling, influence” on the evaluation of the parties’

intentions. See Green, 121 F.2d at 59 n.39. It is yet another reason that the FDIC’s implausible,

made-for-litigation interpretation of Section 2.1 should be rejected.

16 Not only did the FDIC suddenly begin denying responsibility for post-closure assessments for WMB taxes, it also began actively encouraging taxing authorities to pursue JPMC for those assessments even if the claims in question were barred because taxing authorities had not filed a timely claim with the FDIC receivership. (See D.I. 23 at 7-15, No. 12-cv-450 (RMC).) This FDIC tactic the Court called “irresponsible.” (March 21, 2013 Oral Argument Tr. at 39:10, No. 12-cv-450 (RMC).)


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II. WMB’S SELLER REPURCHASE OBLIGATIONS ARE NOT “MORTGAGE

SERVICING RIGHTS AND OBLIGATIONS.”

In its motion to dismiss the Amended Complaint, the FDIC asserted that JPMC

assumed WMB’s repurchase obligations pursuant to the last sentence of Section 2.1 of the P&A

Agreement, saying JPMC “‘specifically assume[d]’ . . . ‘all mortgage servicing rights and

obligations’” of WMB. (D.I. 54-1 at 28; see also Am. Compl. ¶¶ 38.) The FDIC claimed that

Section 2.1 and its asset-purchase analog, Section 3.1, “necessarily reflect[] JPMC’s irrevocable

assumption of the entire agreements containing ‘all the mortgage servicing rights and

obligations’” and that those same agreements imposed seller repurchase obligations on WMB.

(D.I. 54-1 at 28 (citing Am. Compl. ¶ 43).) The FDIC appears to have abandoned this argument,

its own witnesses largely disavowed it, and no evidence was adduced in support of it.

As noted above, the FDIC explained to the Ninth Circuit that an entity may enter

into an RMBS PSA “in two different capacities”: seller and servicer. (Ex. 916 (FDIC Ninth

Circuit Brief) at 2.) The servicer and the seller bear distinct obligations, even if they are the

same party. (Id. at 3.) The FDIC successfully argued in that action that, in such a situation,

seller repurchase obligations are not mortgage servicing obligations. See Deutsche Bank Nat’l

Trust Co. v. FDIC, 784 F. Supp. 2d 1142, 1154 (C.D. Cal. 2011).

The FDIC made the same argument in this very District in another IndyMac

matter. (See Ex. 917 (FDIC-Receiver Reply Mem. in Support of Mot. to Dismiss, MBIA Ins.

Corp. v. IndyMac Fed. Bank, F.S.B., 816 F. Supp. 2d 81 (D.D.C. 2011) (No. 09-cv-1011 (ABJ)),

ECF No. 32 (“FDIC IndyMac Reply”)) at 14.) Section 2.1 of the IndyMac purchase and

assumption agreement transferred to a bridge bank all “duties and obligations under any contract

pursuant to which the Failed Bank provides mortgage servicing for others” and “duties and

obligations under any contract pursuant to which the Failed Bank holds mortgage servicing


44

rights.” (Ex. 918 (IndyMac purchase & assumption agreement) § 2.1.) Section 3.1 there

transferred “mortgage servicing rights and related contracts.” (Id. at § 3.1.) Despite this

language—which is broader than the language here transferring just “mortgage servicing rights

and obligations”—the FDIC argued in IndyMac that the agreement there “did not transfer to [the

bridge bank] any ‘non-servicing obligations and liabilities as a result of [the failed bank’s] acts

or omissions in connection with the origination or sale of [mortgage] loans.’” (Ex. 919

(FDIC-Receiver Mem. in Support of Mot. to Dismiss, IndyMac, ECF No. 26-1) at 9 (emphasis in

original).) Rather, “all seller obligations . . . were not passed on to [the bridge bank], but

remained with the . . . receivership estate.” (Ex. 917 (FDIC IndyMac Reply) at 14.)

WMB was both seller and servicer for certain RMBS at issue, but there is no

disputing that its obligations were bifurcated by capacity—seller vs. servicer—just as IndyMac’s

were. The FDIC’s key personnel conceded that seller repurchase obligations and servicing

obligations can be distinct. (See, e.g., Wigand Tr. at 277:18-278:2; Gearin Tr. at 242:19-243:2.)

JPMC’s expert on RMBS reviewed all the RMBS agreements at issue and concluded that none of

them “require[s] the Servicer to stand behind” seller repurchase obligations. (Ex. 775 (Minier

Report) ¶ 26.) Neither the FDIC nor the person it proffered as an RMBS expert pointed to any

contrary evidence. Indeed, the FDIC’s putative expert did not even review the governing

agreements: Asked if he did so, he said he “scanned maybe one.” (Oldfield Tr. at 53:19-21.)

As such, there is no material fact suggesting that the seller repurchase obligations

at issue here are “mortgage servicing . . . obligations,” so those obligations cannot have been

transferred to JPMC pursuant to the second sentence of Section 2.1 of the P&A Agreement.


45

CONCLUSION

JPMC and WMMSC respectfully request that the Court grant them summary

judgment that JPMC assumed liability for the disputed repurchase obligations only to the extent

that WMB’s liability was reflected at a Book Value on WMB’s financial accounting records and

that any liability exceeding the Book Value reflected there remained with the FDIC.


Respectfully submitted, /s/ Brent J. McIntosh

Robert A. Sacks (D.D.C. Bar No. MI0069) Ian D. McDonald (admitted pro hac vice) SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004 Telephone: (212) 558-4000 Facsimile: (212) 558-3588

Brent J. McIntosh (D.C. Bar No. 991470) Mia Whang Spiker (D.C. Bar No. 1004939) SULLIVAN & CROMWELL LLP 1700 New York Avenue, N.W., Suite 700 Washington, D.C. 20006 Telephone: (202) 956-7500 Facsimile: (202) 293-6330 Email: [email protected] Counsel for Defendants JPMorgan Chase Bank, N.A. and Washington Mutual Mortgage Securities Corporation


CERTIFICATE OF SERVICE

I hereby certify that I caused a true and correct copy of JPMorgan Chase Bank,

N.A. and Washington Mutual Mortgage Securities Corporation’s Motion for Summary Judgment

and Memorandum in Support of Their Motion for Summary Judgment to be served via electronic

mail, with consent, on June 20, 2014 on the following:

Robin A. Henry Motty Shulman BOIES, SCHILLER & FLEXNER LLP 333 Main Street Armonk, New York 10504 Telephone: (914) 749-8200 Facsimile: (914) 749-8300 Counsel for Plaintiff Deutsche Bank National Trust Company, as Trustee for the Trusts listed in Exhibits 1-A and 1-B, for all claims except with respect to paragraph 97 of the Complaint Talcott J. Franklin TALCOTT FRANKLIN P.C. 208 North Market Street, Suite 200 Dallas, Texas 75202 Telephone: (214) 736-8730 Facsimile: (877) 577-1356 Counsel for Plaintiff Deutsche Bank National Trust Company, as Trustee for the Trusts listed in Exs. 1-A and 1-B

Scott H. Christensen William Robert Stein Jason Samuel Cohen HUGHES HUBBARD & REED, LLP 1775 I Street, N.W. Suite 600 Washington, D.C. 20006 Telephone: (202) 721-4644 Facsimile: (202) 721-4646 Anne M. Devens FEDERAL DEPOSIT INSURANCE CORPORATION 3501 Fairfax Drive Room VS-D-7062 Arlington, Virginia 22207 Telephone: (703) 562-2204 Counsel for Defendant Federal Deposit Insurance Corporation as Receiver for Washington Mutual Bank

/s/ Mia Whang Spiker Mia Whang Spiker




Plaintiff,

v.


Defendants.

Case No. 1:09-cv-1656 (RMC)

STATEMENT OF MATERIAL FACTS

AS TO WHICH THERE IS NO GENUINE ISSUE

IN SUPPORT OF JPMORGAN CHASE BANK, N.A. AND

WASHINGTON MUTUAL MORTGAGE SECURITIES CORPORATION’S

MOTION FOR SUMMARY JUDGMENT

Pursuant to Federal Rule of Civil Procedure 56 and Local Civil Rule 7(h),

JPMorgan Chase Bank, N.A. (“JPMC”) and Washington Mutual Mortgage Securities

Corporation set out below their Statement of Material Facts as to Which There Is No Genuine

Issue in support of their Motion for Summary Judgment.

A. The FDIC Approached JPMC About a Potential WMB Transaction.

1. Washington Mutual Bank (“WMB”) was a federally chartered savings and loan institution. (See Ex. 163.)1

2. In September 2008, at the apex of the global financial crisis, WMB showed signs of financial distress, including suffering a run on deposits. (See Docket Item (“D.I.”) 54-1 at 5.)2

1 Citations to “Ex.” refer to exhibits to the joint appendix to be submitted following the close of briefing.


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3. On or about September 16, 2008, Sheila Bair, then-Chairman of the Federal Deposit Insurance Corporation (the “FDIC”), reached out to Jamie Dimon, JPMorgan Chase & Co.’s CEO, to “pitch[] an open bank transaction” for WMB. (Ex. 135.)

4. Open bank transactions are “normally stock sales,” so the acquiring bank “assumes or acquires the business,” not just its assets and liabilities. (See Wigand Deposition Transcript (“Tr.”) at 135:12-16; Ex. 767 (FDIC Resolutions Handbook) at 47.)

5. On September 22, 2008, FDIC officials James Wigand, Herbert Held, and David Gearin met with JPMC personnel to present a potential FDIC receivership transaction related to WMB. (See Ex. 142; Wigand Tr. at 109:12; Scharf Tr. at 37:6-38:15.)

6. Mr. Wigand was then Deputy Director of the FDIC’s Franchise and Asset Marketing Branch. (Wigand Tr. at 17:9-10.)

7. Mr. Held was then Assistant Director of the FDIC’s Division of Resolutions and Receiverships. (Held Tr. at 18:4-5.)

8. Mr. Gearin was then FDIC Senior Counsel. (Gearin Tr. at 21:18-20.)

B. The FDIC Drafted the P&A Agreement.

9. Two FDIC attorneys, Mr. Gearin and Lee Van Fleet, “principally drafted” the purchase and assumption agreement that governed the WMB transaction (the “P&A Agreement”). (Ex. 901 (FDIC Response to JPMC Interrogatory (“FDIC Resp.”)) No. 1.)

10. Messrs. Gearin and Van Fleet drafted the P&A Agreement “based on instructions” from Messrs. Wigand and Held and the late FDIC counsel Richard Aboussie.3 (Id.)

11. FDIC attorneys and managers prepared the P&A Agreement based on an FDIC whole bank purchase and assumption agreement template. (Ex. 242; see also Ex. 901 (FDIC Resp.) No. 1; Ex. 904 (April 9, 2013 email from S. Christensen); Van Fleet Tr. at 21:4-8.)

12. According to the FDIC, “whole bank” denotes a transfer of all of a failed bank’s assets but does not mean the same for its liabilities. (See Ex. 767 (FDIC Resolutions Handbook) at 27-29; Held Tr. at 56:18-57:16; Wigand Tr. at 37:6-39:11; Schoppe Tr. at 49:8-20, 81:9-83:5, 191:9-192:1.)

13. “ORCA” is the code name the FDIC used for the WMB resolution. (Wigand Tr. at 71:13-14.)

14. The FDIC offered bidders five alternative transaction structures. The FDIC prepared a single draft purchase and assumption agreement for ORCA transactions 1, 2, and 3, which differed only by the inclusion in Schedule 2.1 of different categories of liabilities that 2 Unless otherwise indicated, “D.I.” refers to docket items in this action, Deutsche Bank National Trust Co. v. FDIC, No. 09-cv-1656 (RMC) (D.D.C.). 3 Mr. Aboussie passed away in 2012 and was not deposed in this action. (Id.)


-3-

were to be wholly excluded from each transaction variant. (See, e.g., Ex. 255.) In ORCA transactions 4 and 5, Section 2.1 specifically listed the categories of liabilities assumed. (See, e.g., Ex. 276.) Schedule 2.1 for ORCA transaction 1 specifically excluded preferred stock; Schedule 2.1 for ORCA transaction 2 specifically excluded preferred stock and subordinated debt; and Schedule 2.1 for ORCA transaction 3 specifically excluded preferred stock, subordinated debt, and senior debt. (Ex. 255.)

15. On September 23, 2008, Mr. Van Fleet sent Mr. Gearin the “current draft” of the purchase and assumption agreement for “ORCA Transactions 1 2 3,” referred to as the whole bank “all deposit version.” (Ex. 253.) Section 2.1 of this draft read:

2.1 Liabilities Assumed by Assuming Bank. Subject to Section 2.5, the Assuming Bank expressly assumes at Book Value (subject to adjustment pursuant to Article VIII) and agrees to pay, perform, and discharge, all of the liabilities of the Failed Bank as of Bank Closing, including the Assumed Deposits and all liabilities associated with any and all employee benefit plans, except as otherwise provided in this Agreement (such liabilities referred to as “Liabilities Assumed”).


(Id.) This version of the agreement proposed that the Assuming Bank would assume “all of the liabilities of the Failed Bank” unless explicitly excluded. (See id.)

16. Sheri Foster was then an FDIC Marketing Specialist; she testified that she “facilitated” the WMB transaction. (Foster Tr. at 31:18-20, 57:16-21.)

17. Later on September 23, 2008, Ms. Foster emailed Messrs. Wigand and Held. This email, titled “Legal Transaction Terms,” read in part:

Lee Van Fleet called with the following questions: Can we limit liabilities assumed to just the “liabilities on the books and records” and then give the options to take out the different categories of liabilities? . . . These are coming from David Gearin.

(Ex. 903 (FDIC-DB0017573) (line breaks removed).)

18. The FDIC produced this email to JPMC only after JPMC had deposed all of the participants in the email communication. The existence of this email was first revealed to JPMC at Mr. Gearin’s July 11, 2013 deposition, when he testified that he recalled seeing an email from Ms. Foster to Mr. Wigand seeking Mr. Wigand’s approval to revise Section 2.1 to include a reference to WMB’s books and records. (Gearin Tr. at 108:16-109:2, 136:12-22.) JPMC wrote the FDIC on July 29, 2013 and again on August 23, 2013 to request the email’s production or identification of its corresponding entry on the FDIC’s privilege log. (Ex. 905 (July 29, 2013 letter from B. McIntosh to S. Christensen); Ex. 906 (Aug. 23, 2013 email from B. McIntosh to S. Christensen).) On August 27, 2013, the FDIC withdrew its privilege assertion and produced the email to JPMC. The FDIC stated that the “email was properly withheld as privileged” but was


-4-

being produced “because Mr. Gearin testified in his deposition about much of the content of the communication.” (Ex. 907 (Aug. 27, 2013 letter from S. Christensen to B. McIntosh).)

19. Later on September 23, 2008, Mr. Van Fleet circulated to Mr. Gearin and other FDIC attorneys the “latest draft” of the purchase and assumption agreement for “Orca Transactions 1-3.” (Ex. 255.) Section 2.1 of this draft had been revised to read:


(Id.) In this draft, the liabilities to be assumed were for the first time described as the “liabilities of the Failed Bank which are reflected on the Books and Records of the Failed Bank as of Bank Closing.” (Id. (emphasis added).) Schedule 2.1 in this version of the agreement, in contrast to prior versions, sets forth certain categories of liabilities specifically excluded from the transaction, whether or not “reflected on the Books and Records.” (Id.)

20. The FDIC has stated that the “decision to use ‘Books and Records’ . . . in Section 2.1 of the P&A Agreement was consistent with and based upon the instructions from Messrs. Wigand, Held and Aboussie.” (Ex. 901 (FDIC Resp.) No. 1.)

21. Mr. Gearin testified that this limitation was intended to give “comfort” to bidders “that there wouldn’t be exposure to liabilities that they couldn’t possibly have discerned from a review of the books and records.” (Gearin Tr. at 92:6-11.)

22. When they were deposed, neither of the P&A Agreement’s principal drafters—Messrs. Gearin and Van Fleet—recalled intending to capitalize the phrase “Books and Records” or either “Books” or “Records” in the P&A Agreement. (Gearin Tr. at 94:7-95:22; Van Fleet Tr. at 131:22-132:11.)

23. Both Messrs. Gearin and Van Fleet stated that “Books” was erroneously capitalized in Section 2.1. (Gearin Tr. at 94:18-21 (“Q. Do you believe it’s an error? A. Yes.”); Van Fleet Tr. at 137:6-13 (“[C]apitalizing it would have been a scrivener’s error.”).)

24. Mr. Gearin said Mr. Van Fleet decided to capitalize “Books and Records”:

Q. Who decided to capitalize “books and records” in section 2.1 of the Purchase and Assumption Agreement?

A. Lee [Van Fleet] did the insertion, so it would’ve been Lee.

Q. Did you discuss with him the capitalization of those terms?

A. No.


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Q. Did you—you never instructed him to capitalize those terms?

A. I did not.

(Gearin Tr. at 94:7-17.)

25. Asked “whether a conscious decision was made to capitalize ‘records,’” Mr. Gearin replied, “I didn’t make the insertion, so I don’t know.” (Id. at 95:16-19.)

26. Mr. Van Fleet inserted the phrase “Books and Records” into the draft agreement. (Van Fleet Tr. at 127:10-12; Gearin Tr. at 94:7-11.)

27. Mr. Van Fleet also did not recall whether he intended to capitalize “Books and Records” or intended to reference the defined term “Record”:

Q. When you inserted the capitalized phrase “books and records” here, were you specifically intending to reference the definition “records”?

A. Again, since I do not remember inserting it, I don’t remember what the intent, my intent was of having a capital “B” on the “books” or a capital “R” on the “records.”

Q. So you don’t have any knowledge as to whether you intentionally capitalized books and records or not?

A. No, I do not.

(Van Fleet Tr. at 131:22-132:11.)

28. Mr. Wigand does not recall intending the word “Records” to be capitalized or to refer to the defined term “Record.” (See Wigand Tr. at 153:3-6.)

29. Mr. Wigand testified, “I don’t believe anybody actually made a decision to capitalize it here” and that “the capitalization is probably the result of a carryover from a previous agreement.” (Id.)

30. The capitalization of “Books and Records” is not the result of a carryover from a previous agreement. (See Ex. 901 (FDIC Resp.) No. 10.)

31. Mr. Held does not recall intending the word “Records” to be capitalized or to refer to the defined term “Record.” (Held Tr. at 72:19-73:2.)

32. Mr. Held professed ignorance as to why “Books and Records” is capitalized in Section 2.1. (Id.)


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C. The FDIC Provided Bidders the Draft P&A Agreement.

33. Over the weekend of September 20, 2008, Ms. Foster set up the FDIC’s secure IntraLinks website to provide potential bidders transaction-related documents. (Foster Tr. at 22:17-22, 57:19-58:4.)

34. As of the afternoon of September 23, 2008, JPMC did not have access to the FDIC IntraLinks site. (Exs. 149, 200.) Mr. Gearin informed JPMC that the FDIC would post documents to IntraLinks later that afternoon. (Ex. 920 (JPMC_DBNTC_0008637291-92).)

35. Later on during September 23, 2008, the FDIC officially invited JPMC to bid on WMB. (Ex. 55.)

36. Also on September 23, 2008, the FDIC made available to potential bidders WMB’s “trial balances,” a financial statement listing the book values of WMB’s asset and liability accounts as of August 2008. (Ex. 157.)

37. Also on September 23, 2008, the FDIC provided bidders a “Transaction Recap,” outlining the five “alternative transaction structures” offered; a document titled “Instructions for Potential Acquirers”; a “Bid Form”; a “Legal Information Outline,” which provided a “brief outline of the Legal Documents and certain other aspects of the proposed transactions”; and other documents ancillary to the transaction. (Exs. 56, 57, 61, 422.)

38. In receivership transactions, the FDIC typically provides bidders an “information package” that reflects “the amounts and types of assets and liabilities that the failing institution holds.” (Ex. 767 (FDIC Resolutions Handbook) at 8.)

39. The FDIC did not provide potential bidders for WMB an “information package . . . . due to the quick nature of the resolution.” (Van Fleet Tr. at 107:16-108-20; see also Yore Tr. at 58:8-59:8.)

40. The FDIC first provided bidders drafts of the purchase and assumption agreement on the evening of September 23, 2008. (See Exs. 257, 276; Ex. 908 (JPMC_DBNTC_0000015659).)

41. The posted version of the agreement for ORCA transactions 1-3—which, with certain modifications, eventually became the P&A Agreement—included in Section 2.1 the qualifier “which are reflected on the Books and Records.” (See Ex. 276.)

42. No draft of the agreement included a definition of the terms “Books and Records” or “Books.” (See Ex. 8 (Sept. 24, 2008 draft); Ex. 270 (Sept. 25, 2008 final pre-execution copy).)

43. No draft of the agreement included a definition of the plural term “Records.” (See Ex. 8 (Sept. 24, 2008 draft); Ex. 270 (Sept. 25, 2008 final pre-execution copy).)


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44. On September 24, 2008, the FDIC posted to IntraLinks a document titled “FDIC Institution Sales Frequently Asked Questions,” in which the FDIC asserted that “the Purchase & Assumption agreement language [was] not negotiable.” (Exs. 71, 129 (the “FAQs”).)

D. JPMC and the FDIC Discussed the P&A Agreement’s Terms.

45. Section 12.1 of the draft ORCA transactions 1-3 agreement would have required the FDIC to indemnify JPMC for:

any and all costs, losses, liabilities, expenses (including attorneys’ fees) . . . judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with claims against [JPMC] . . . based on liabilities of [WMB] that are not assumed by [JPMC] pursuant to this Agreement.

(Ex. 276 § 12.1.)

46. On September 23, 2008, JPMC outside counsel Mitchell Eitel “expressed to the FDIC”—specifically to Mr. Gearin—“a concern that there was a disconnect . . . between [Sections] 12.1 and 2.1” of the proposed agreement. (Eitel Tr. at 141:16-18.) Mr. Eitel testified that JPMC “wanted to make certain that . . . it was crystal clear . . . that the indemnity . . . didn’t undermine the limitation, that we [JPMC] were only taking . . . ‘booked liabilities.’” (Id. at 143:13-23.)

47. Mr. Gearin wrote a September 23, 2008 email to JPMC in-house attorney Daniel Cooney titled “Indemnity question,” stating, “[t]he liabilities assumed are described as booked liabilities which should address the concern raised by Mitch” Eitel. (Ex. 66.)

48. Later on during September 23, 2008, Mr. Cooney responded to Mr. Gearin’s email as follows:

David – Thanks for the note; unfortunately, however, I don’t think your suggestion solves the problem. Let’s say there is a contract between the thrift and the Parent and that is included in the Books and Records (not something like “accrued for on the books of the Failed Bank,” which probably would fix the problem) of the thrift at the time of closing. Any liability under that contract is then arguably a liability reflected in the Books and Records. Therefore one would most likely conclude that liabilities under that contract are assumed under 2.1.

So the way that 12.1 reads is we are indemnified for a claim by Wamu (shareholder of Failed Bank) with respect to that contract only to the extent the liability was not assumed—indeed they are free to sue us for a breach by the Failed Bank that occurred before the closing.

In a normal P&A between commercial parties this is not something a buyer would ever assume and it really doesn’t make sense (nor frankly is it fair) here.

(Id.)


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49. Later on September 23, 2008, Mr. Gearin responded: “Ok I will look at again.” (Id.)

50. Mr. Cooney testified that:

while the FDIC and [JPMC] had a pretty clear understanding of what liabilities we were assuming, we were assuming booked liabilities, which in [Section] 2.1 talks about liabilities reflected on the books and records, I . . . was concerned that . . . while that was clear to us after our two days of discussion, that that wouldn’t necessarily be clear to the rest of the world, and that we were likely to get sued on the question of whether or not something was a liability we assumed or not. . . . [I]n a lawyer’s role representing a buyer, a buyer is going to want both the clear statement as to what they are assuming and a very good indemnities [sic] for what they are not assuming.

(Cooney Tr. at 183:19-184:12.)

51. On September 24, 2008, JPMC proposed to expand Section 2.5 to exclude from liabilities assumed all claims for payment by any “direct or indirect purchaser of securities of any mortgage loan securitization vehicle that was owned or sponsored by the Failed Bank or any of its Subsidiaries or Affiliates prior to the Bank Closing.” (Ex. 78.) The FDIC did not accept this change. (See Ex. 1 (P&A Agr.) § 2.5.) If it had, JPMC would not have assumed those liabilities at all, regardless of any “Book Value” reflected on WMB’s “Books and Records” and even as to WMB’s subsidiaries. (See Ex. 78; see also Cooney Tr. at 240:9-241:6.)

52. Mr. Eitel provided the FDIC with suggested changes to Section 12.1 on September 24, 2008, and with revised suggestions on September 25, 2008. (See Exs. 468, 469; Ex. 902 (JPMC_DBNTC_0000006549-51).)

53. On September 25, 2008, Mr. Eitel proposed revising Section 12.1 to provide JPMC indemnification for both costs “based on liabilities of [WMB] that are not assumed by [JPMC]” and costs incurred in connection with claims against JPMC as “described in [Section] 12.1(a)”—which included, inter alia, “claims based on any action or inaction prior to Bank Closing of the Failed Bank, its directors, officers, employees, or agents as such.” (Ex. 902 (JPMC_DBNTC_0000006549-51).)

54. The FDIC incorporated this proposed change into the P&A Agreement. (See P&A Agr. § 12.1.)

E. JPMC Submitted a Bid, and Regulators Closed WMB.

55. On the evening of September 24, 2008, JPMC submitted a bid for “ORCA Transaction 3” in the amount of $1.888 billion. (See Ex. 58.)

56. JPMC’s bid was the only conforming bid the FDIC received. (See Ex. 134 at 9; Ex. 599.)


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57. At least two other banks submitted letters to the FDIC concerning WMB but not conforming bids. (See Ex. 476; Ex. 909 (FDIC-DB0017510-11); Yore Tr. at 82:2-5, 88:12-15; Held Tr. at 108:18-19.)

58. Later on September 24, 2008, the FDIC accepted JPMC’s bid. (Ex. 910 (JPMC_DBNTC_0000007255).)

59. The Office of Thrift Supervision (“OTS”) was WMB’s primary regulator. (Ex. 912 (Statement of the FDIC before the Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, of the U.S. Senate (April 16, 2010)), at 1.)

60. On September 25, 2008, the OTS closed WMB and placed it into an FDIC receivership. (Ex. 911 (Order No. 2008-26, OTS No. 08551 (Sept. 25, 2008)).)

61. WMB’s failure was the largest bank failure in U.S. history. (D.I. 54-1 at 6.)

62. The FDIC Board approved the JPMC transaction during the morning of September 25, 2008. (Ex. 163.)

63. Later on during September 25, 2008, the FDIC and JPMC executed the purchase and assumption agreement. (Ex. 274.)

64. If the FDIC had been forced to liquidate WMB, the FDIC estimates it would have suffered approximately $41 billion in losses to the FDIC-administered Deposit Insurance Fund. (Ex. 912 (Statement of the FDIC before the Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, of the U.S. Senate (April 16, 2010)), at 24.)

65. On September 25, 2008, FDIC staff referred to the assuming bank as the “sucker buyer.” (Ex. 347.)

66. The FDIC and JPMC revised the purchase and assumption agreement on Friday, September 26, 2008 and over the ensuing weekend. (See, e.g., Ex. 277.) None of these changes related to Section 2.1 or are at issue in this litigation.

67. On Monday, September 29, 2008, the parties executed the final agreement, marked “Execution Copy,” which was “effective . . . as of 6pm Pacific Time, September 25, 2008.” (Ex. 277.) This is the document referred to herein as the P&A Agreement. (See Ex. 279; P&A Agr.)

F. The Terms of the P&A Agreement.

68. The P&A Agreement provides that it “will constitute the legal, valid and binding obligation of the Assuming Bank.” (P&A Agr. § 11(c).)

69. There is no definition of “Books and Records” in the P&A Agreement. (See P&A Agr. Art. I.)


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70. There is no definition of “Books” in the P&A Agreement. (See id.)

71. There is a definition of “Book Value” in the P&A Agreement. (See id. (def’n of “Book Value”).)

72. There is a definition of “Accounting Records” in the P&A Agreement. (See id. (def’n of “Accounting Records”).)

73. There is a definition of “Record” in the P&A Agreement. (See id. (def’n of “Record”).)

74. The defined term “Record” is typically used in FDIC purchase and assumption agreements. (See Ex. 756 (Hartheimer Expert Report (“Report”)) ¶ 52 & n.45; see also Ex. 763 (Hartheimer Rebuttal Report (“Rebuttal”)) ¶ 27.)

75. FDIC purchase and assumption agreements typically have a set of provisions under the heading “Records,” typically Article VI. (See Ex. 756 (Hartheimer Report) ¶ 52 & n.45; see also Ex. 763 (Hartheimer Rebuttal) ¶ 27.)

76. The set of provisions under the heading “Records” that typically appears in FDIC purchase and assumption agreements generally governs the transfer, delivery, and preservation of, and access to, a failed bank’s documents and data. (See Ex. 756 (Hartheimer Report) ¶ 52 & n.45; see also Ex. 763 (Hartheimer Rebuttal) ¶ 27.)

77. The primary function of the defined term “Record” that is typically used in FDIC purchase and assumption agreements is to set forth the set of documents and data that are covered by the set of provisions that appear under the heading “Records.” (See Ex. 756 (Hartheimer Report) ¶ 52 & n.45; see also Ex. 763 (Hartheimer Rebuttal) ¶ 27.)

78. Section 2.1 of the P&A Agreement provides that:

Subject to Sections 2.5 and 4.8, the Assuming Bank expressly assumes at Book Value (subject to adjustment pursuant to Article VIII) and agrees to pay, perform, and discharge, all of the liabilities of the Failed Bank which are reflected on the Books and Records of the Failed Bank as of Bank Closing, including the Assumed Deposits and all liabilities associated with any and all employee benefit plans, except as listed on the attached Schedule 2.1, and as otherwise provided in this Agreement (such liabilities referred to as “Liabilities Assumed”). Notwithstanding Section 4.8, the Assuming Bank specifically assumes all mortgage servicing rights and obligations of the Failed Bank.

(P&A Agr. § 2.1.)

79. Section 3.1 of the P&A Agreement governs the purchase of assets by JPMC. (See P&A Agr. § 3.1.)

80. Under Section 3.1 of the P&A Agreement, JPMC purchased WMB assets “whether or not reflected on the books of the Failed Bank as of Bank Closing.” (Id.)


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81. Pursuant to the last clause of Section 3.1 of the P&A Agreement, JPMC “specifically purchase[d] all mortgage servicing rights and obligations” of WMB. (Id.)

82. Section 4.8 of the P&A Agreement provides, in part, that “[w]ith respect to agreements existing as of Bank Closing which provide for the rendering of services by or to the Failed Bank . . . the Assuming Bank shall give the Receiver written notice specifying whether it elects to assume or not to assume each such agreement.” (See P&A Agr. § 4.8.)

83. Article VIII of the P&A Agreement provides that JPMC:

in accordance with the best information then available, shall provide to the Receiver a Proforma Statement of Condition indicating all assets and liabilities of the Failed Bank as shown on the Failed Bank’s books and records as of Bank Closing and reflecting which assets and liabilities are passing to the Assuming Bank and which assets and liabilities are to be retained by the Receiver.

(P&A Agr. Art. VIII.)

84. The P&A Agreement is the only FDIC purchase and assumption agreement that provides that the assuming bank, and not the FDIC, will prepare a pro forma. (See, e.g., Schoppe Tr. at 55:1-4, 121:17-122:9; Van Fleet Tr. at 119:16-21; Glassman Tr. at 188:17-20.)

85. No FDIC witness identified another FDIC purchase and assumption agreement that defines the general set of liabilities assumed by an assuming institution by reference to the failed bank’s “books and records” or “Books and Records.” (See, e.g., Held Tr. at 67:11-68:16; Fenton Tr. at 90:4-18; Pruss Tr. at 46:2-15.)

86. The FDIC has identified no other purchase and assumption agreement prior to September 25, 2008 in which the general set of liabilities to be transferred to an assuming bank was defined, established or delimited with reference to the failed institution’s “Books and Records,” “Records” or “books and records.” (See Ex. 901 (FDIC Resp.) No. 10.)

87. Other than in Section 2.1, the term “books and records” lacks initial capitals—that is, is lower-case—in all other uses in the P&A Agreement. (See P&A Agr. Arts. I (def’n of “Deposit”), VIII & §§ 3.4, 9.6 (lower-case uses).)

88. The FDIC “understands ‘books and records’ in Article VIII to share the same meaning as in Section 2.1.” (Ex. 901 (FDIC Resp.) No. 7; see also Gearin Tr. at 111:7-11; Held Tr. at 72:4-73:8.)

89. According to FDIC witnesses, in Section 2.1 the word “books” is a “subset of ‘records’” and “superfluous.” (Van Fleet Tr. at 137:2-3; see also id. at 137:11-13, 140:17-20; Fenton Tr. at 89:7-8 (“‘books’ would be . . . a subset of ‘records’”), 244:19-20 (“‘records’ as a defined term supersedes whatever ‘books’ might be”); Gearin Tr. at 102:6-7 (“‘records’ is so broad that it includes ‘books’”), 138:4-5 (“Q. So ‘books’ would be surplusage? A. Yes.”).)

90. FDIC witnesses involved in drafting and formulating the terms of the P&A Agreement testified that the phrase “at Book Value” has no function in the P&A Agreement.


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(See, e.g., Held Tr. at 80:13-18 (the phrase “really doesn’t have . . . any meaning” in Section 2.1).)

91. One FDIC witness, a principal drafter of the P&A Agreement—when asked what “purpose” the phrase “at Book Value” serves as to liabilities “not reflected on the accounting records”—testified that, “[i]n this agreement, [it] probably serves no purpose.” (Gearin Tr. at 134:2-7.)

92. The FDIC Receiver-in-Charge and the P&A Agreement’s other principal drafter testified that “at Book Value” was a “carryover from using a standard form . . . off the shelf,” that it was “purely vestigial” and “[s]hould have been stricken.” (Schoppe Tr. at 248:11-249:19; Van Fleet Tr. at 49:18-22, 154:11-18.)

G. During the Closing Process, the FDIC Asserted That JPMC Did Not Assume Liabilities Not Reflected on WMB’s Books.

93. Thaddeus Fenton served as the “lead closing attorney,” and Stephen Pruss, the “lead litigation closing attorney,” for the WMB transaction. (Fenton Tr. at 23:14-15; Pruss Tr. at 27:19-21.)

94. JPMC made Michael Lipsitz its settlement designee. (Fenton Tr. at 158:8-159:1.)

95. On October 7, 2008, FDIC officials discussed WMB tax matters with JPMC personnel. (See Exs. 29, 88.)

96. On October 8, 2008, FDIC official Richard Peyster sent an email to JPMC’s Allen Friedman and Benjamin Lopata, copying FDIC officials Wayne Green, James Vordtriede, and James Thormahlen, stating:

With regard to what was and was not transferred to [JP]Morgan under the agreement, I do not think we have any dispute here. . . . With regard to any tax liability arising out of an ongoing or future audit, where no assessment had been made prior to the date of closing, such liability would not pass to [JP]Morgan. Only liabilities on the books as of the date of the agreement pass.

(Ex. 29.)

97. On October 8, 2008, an outside attorney emailed FDIC public affairs head Andrew Gray, asking whether WMB “tax claims . . . reside with the receivership or were transferred” to JPMC. (Ex. 108.)

98. On October 8, 2008, Mr. Gray referred the question to Mr. Wigand, followed by a number of internal email messages among Messrs. Wigand, Gearin, Aboussie, and Peyster, most of which the FDIC redacted based on a claim of privilege. (See id.)

99. On October 8, 2008, Mr. Peyster responded to his colleagues as follows:

For public consumption I think the following should be adequate:


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Tax claims, whether assets or liabilities are treated as any other assets and liabilities under the Purchase and Assumption Agreement. Section 3.1 transfers all assets, whether or not reflected on the books and records of Washington Mutual. Therefore, any tax assets would have transferred to JPMorgan Chase.

Section 2.1 transfers all liabilities reflected on the books and records of Washington Mutual to JPMorgan Chase. Therefore, any tax liabilities on the books of Washington Mutual were transferred, and any unknown liabilities, not reflected on the books were not transferred.

(Id.)

100. Minutes later on October 8, 2008, Mr. Gray responded to the same participants, “Great, thanks!” (Id.) There is no evidence that any recipient of the above-referenced communications expressed disagreement with Mr. Peyster’s characterization.

101. In the months that followed, JPMC received tax assessments directed to WMB by state and local taxing authorities and processed WMB tax returns for tax periods prior to WMB’s closure pursuant to FDIC-granted powers of attorney. (See, e.g., Exs. 407, 408, 410.)

102. On October 20, 2008, JPMC employee James Fergus relayed to others a conversation he had had with Messrs. Thormahlen and Vordtriede of the FDIC. (Ex. 409.) Mr. Fergus wrote that the FDIC had instructed that, as to WMB tax returns JPMC would prepare, “Jim T[hormahlen] will sign the returns . . . and send them to [JPMC] along with a letter explaining that the jurisdictions will need to make a claim with the FDIC for the unpaid portion.” (Id.) Mr. Fergus noted further that the FDIC had informed him that “[f]or the items . . . which have yet to appear on a return, the information will be provided to the FDIC and it will be their liability.” (Id.) Finally, Mr. Fergus said that “based on . . . specific comments from the FDIC, it would seem that JPMC’s liability would be limited to the reserves booked at 9/25/08 and once those were exceeded it would be the FDIC’s liability.” (Id.)

103. On October 20, 2008, Mr. Thormahlen provided FDIC letters addressed to “State Tax Agency” for JPMC to send along with WMB tax returns. (Exs. 30, 404; Ex. 901 (FDIC Resp.) No. 18.) One such letter read, in part:

Washington Mutual Bank was closed by the Office of Thrift Supervision on 9/25/2008 and the Federal Deposit Insurance Corporation (FDIC) was appointed as Receiver for the failed institution. The tax period on the attached return occurred prior to the banks [sic] closure and was not assumed by JP Morgan Chase Bank, NA. The liability reflected on the attached return is a claim against the receivership.

(Ex. 30.) The other letter read, in part:

Washington Mutual Bank was closed by the Office of Thrift Supervision on 9/25/2008 and the Federal Deposit Insurance Corporation (FDIC) was appointed as Receiver for the failed institution. The tax liability reflected on the attached return occurred prior to the banks [sic] closure and part of this liability was not assumed by JP Morgan Chase Bank,


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NA. The unpaid portion of the liability reflected on the attached return is a claim against the receivership.

(Ex. 404.) The letters also noted the December 30, 2008 receivership claims bar date and provided instructions for filing a claim. (Id.; Ex. 30.)

104. On December 31, 2008, the claims bar date had passed, and JPMC personnel asked whether Mr. Thormahlen would be “providing a new letter for [JPMC] to send out with billing notices for liabilities that JPMorgan did not assume.” (Ex. 416.)

105. On January 2, 2008, Mr. Thormahlen sent JPMC another letter, which explained that the bar date had passed but otherwise made substantially the same points about the allocation of liabilities as between JPMC and the FDIC as in Mr. Thormahlen’s prior letters. (See id.)

H. JPMC and the GSEs Resolved a Dispute About Mortgage Servicing Rights.

106. WMB had established a reserve for its estimated residential mortgage-backed securities (“RMBS”) repurchase exposure in account number 51994 of its general ledger. (Ex. 685; Ex. 769 (Blake Report) at 10.)

107. On the actual date September 25, 2008, the balance of account number 51994 was recorded as approximately $259.1 million. (Ex. 682; Ex. 769 (Blake Report) at 19; Ex. 921 (JPMC_DBNTC_0009282253).)

108. The definition of “Book Value” in the P&A Agreement contemplates that there will be “adjustments made by the Assuming Bank for normal operational and timing differences.” (P&A Agr. Art. I (def’n of “Book Value”).)

109. As Assuming Bank, JPMC made “adjustments for normal operational and timing differences” in account number 51994. (See Ex. 769 (Blake Report) at 10-13, 19-20; Barren Tr. at 45-46.)

110. Following these “adjustments made by the Assuming Bank for normal operational and timing differences,” the book value of the WMB repurchase reserve was approximately

as of September 25, 2008. (See Ex. 753 (Kothari Report) ¶ 24; Ex. 769 (Blake Report) at 10-13, 19-20; Blake Tr. at 11:13-12:3; Arnold Tr. at 131:4-5.)

111. As of September 25, 2008, JPMC valued WMB’s mortgage servicing rights at $5.8 billion, most of which related to loans sold to the government-sponsored entities Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mae”) (together, the “GSEs”). (Ex. 324 at 94; see also Barren Tr. at 37:16-38:15.)

112. On October 8, 2008, Fannie Mae wrote JPMC asserting that under the terms of its standard-form contracts, Fannie Mae’s approval was required to transfer mortgage servicing from WMB to JPMC. (Ex. 913 (JPMC_DBNTC_0009148532-43).) Fannie Mae asserted further that JPMC had not “sought” its consent and noted that “given that the [contracts] are fully


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integrated selling and servicing contracts, [Fannie Mae] cannot separate the sale of the loans from the servicing of the loans.” (Id.)

113. On November 6, 2008, Freddie Mac informed JPMC that under the contracts governing servicing of its loans, mortgage seller and servicer obligations were “indivisible” and that it could “withhold [its] approval [of the transfer of WMB’s mortgage servicing rights] in the event [JPMC] maintains that it has purchased only the obligation to service our mortgages” without agreeing to take on WMB’s seller repurchase obligations. (Ex. 388.)

114. Under 12 U.S.C. 1821(d)(2)(G)(1)(ii), the FDIC “may . . . transfer any asset or liability . . . without any approval . . . or consent . . . to such transfer.”

115. The FDIC declined to exercise this statutory right to transfer WMB’s mortgage servicing contracts without the consent of the GSEs. (Gearin Tr. at 269:18-270:7.) Mr. Gearin called this a “business decision.” (Id.)

116. In November 2008, FDIC personnel corresponded with Freddie Mac concerning a draft letter from Freddie Mac to JPMC, suggesting certain changes to the draft letter that were ultimately incorporated therein. (See Exs. 614-617.)

117.

(Ex. 914 (JPMC_DBNTC_0005099679-703).)

118. (Ex. 915 (JPMC_DBNTC_0008788640-54).)

119.

(See Ex. 922 (JPMC_DBNTC_0009217687); Ex. 769 (Blake Rebuttal) at 8 n.37.)

120. In the third quarter of 2010,

(Ex. 702.)

121. JPMC also entered into institutional settlements of multi-party claims regarding RMBS repurchase obligations during the 2009-2010 time period. (See Ex. 770 (Blake Rebuttal) at 12-13.) These settlements involved claims and counterclaims among various entities (not solely relating to WMB) and the other parties, including

JPMC added to the WMB repurchase reserve to account for these settlements. (See Shankar Tr. at 242-46; Ex. 770 (Blake Rebuttal) at 12-14.)

122. Aside from these adjustments, JPMC did not make any additional adjustments to the WMB repurchase reserve to account for adjusted repurchase expectations due to changed market conditions, including factors such as repurchase demand level, repurchase rate, and average severity, as it did its own reserves. (See, e.g., Ex. 685 (repurchase reserve roll-forward


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reflecting additional provisions to heritage JPMC reserve in, inter alia, first quarter 2010 and first quarter 2011 with no additional provisions for WMB reserve).)

123. One person the FDIC proffered as an accounting expert in this action claimed JPMC made such methodological adjustments, but upon being deposed he was unable to identify any such adjustments. (See Arnold Tr. at 169:13-171:4.)

124. Within weeks of the transaction, JPMC instructed personnel responsible for repurchasing loans based on violations of seller representations and warranties in RMBS not to repurchase loans in WMB RMBS transactions. (See Betz Tr. at 54:4-19; Shankar Tr. at 154:6-155:11.)

I. Following This Action’s Filing, the FDIC Asserted That “Books and Records” in Section 2.1 Refers to the Defined Term “Record.”

125. Section 4.8 of the P&A Agreement provides that, within 120 days of Bank Closing, JPMC must give the FDIC notice whether it will assume certain WMB contracts. (P&A Agr. § 4.8.)

126. Pursuant to 12 U.S.C. § 1821(e), the FDIC as “conservator or receiver for any insured depository institution may repudiate any contract or lease” of a failed bank.

127. On October 16, 2008, Fannie Mae contacted the FDIC to discuss “JPMC potentially

giving back WaMu-Fannie Mae [loan] Sales agreements for receivership repudiation pursuant to Section 4.8 of the P&A [Agreement].” (Ex. 513.)

128. On October 16, 2008, FDIC Receiver-in-Charge Robert Schoppe described Fannie Mae’s concerns as follows:

I’m guessing that Fannie Mae realizes that we are going to be repudiating sales contracts, i.e., the rights Fannie Mae [sic] to put back loans. I have no problem talking Fannie Mae [sic], but thought you should know. Unless I heard [sic] differently, either Andy or I will handle it. (Dan Cooney is our counterpart at JPMC.)

(Id.)

129. On October 16, 2008, Ronald Bieker, Deputy Director of the FDIC’s Division of Resolutions and Receiverships, told Mr. Schoppe to “[g]o ahead and handle [and] just let me know the outcome of the call/meeting.” (Id.)

130. On October 28, 2008, Mr. Gearin wrote his colleagues that his JPMC contact “no[w] understands that we are of the view that the repurchase obligations did pass to JPMC and cannot be put back to the receiver for repudiation.” (Ex. 82.) There is no evidence that the FDIC had previously informed JPMC of this position.


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131. The next day, Mr. Gearin wrote in an internal FDIC email that “under the terms of [Sections] 2.1 and 3.1 JPMC acquired the seller repurchase obligations related to the mortgage servicing assets [JPMC] acquired.” (Ex. 356 at 3.)

132. On December 30, 2008, Deutsche Bank filed a proof of claim in the WMB receivership, claiming WMB had breached representations and warranties in Pooling and Servicing Agreements for private-label RMBS trusts (the “Governing Agreements”). (D.I. 1 ¶ 10.)

133. On January 21 and January 22, 2009, JPMC elected not to assume certain pooling and servicing agreements (“PSAs”) that set forth WMB’s obligations as seller. (Exs. 28, 436.)

134. The FDIC failed to respond to Deutsche Bank’s proof of claim within 180 days of its filing. On August 26, 2009, Deutsche Bank commenced this action against the FDIC alone. (D.I. 1 ¶¶ 10, 15-17.)

135. On September 3, 2009, Mr. Schoppe wrote Mr. Lipsitz that the FDIC was rejecting JPMC’s notices as to RMBS repurchase obligations. (Ex. 519.)

136. In the September 3, 2009 letter, the FDIC stated to JPMC the position that WMB’s seller repurchase obligations “were directly assumed by Chase pursuant to Section 2.1 of the P&A as ‘liabilities of the Failed Bank which are reflected on the Books and Records of the Failed Bank as of Bank Closing.’” (Id.)

137. The September 3, 2009 letter claimed that “[t]here should be no factual dispute that WaMu’s loan and asset sale transaction documents and files are Records,” as the term “Record” is defined in Article I of the P&A Agreement, and that “[t]o the extent those records reflect contractual Seller Rep liabilities, whether current or contingent, those Seller Rep liabilities have been assumed by Chase.” (Id.)

138. FDIC attorney Mr. Fenton said he believes he prepared the September 3 letter. (Fenton Tr. at 235:5-16.)

139. Mr. Fenton was asked whether he recalled any discussion as to whether the letter’s position represented “the correct interpretation of the P&A.” (Id. at 238:21-22.) Mr. Fenton said “[t]here may have been,” then invoked the deliberative process privilege on the ground that interpretation of “Books and Records” was a “policy decision of the FDIC” made by an FDIC litigator, Richard Osterman. (Id. at 239:1-241:18.)

140. Asked whether the FDIC’s September 3, 2008 position was informed by the drafters’ intentions, Mr. Fenton said that while “Mr. Gearin’s opinion was taken into consideration,” he did not “recall what his intention was.” (Id. at 241:19-242:13.)

141. As to whether “anyone involved in the drafting” of the P&A Agreement said the disputed language was intended to refer to the defined term “Record,” Mr. Fenton said: “Their intention, I really can’t answer to what intentions. My recollection doesn’t—I can’t pinpoint anyone who said that was—that was my intention or our intention at that time.” (Id. at 243:6-244:3.)


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142. In January 2010, the FDIC disallowed a proof of claim from the North Carolina Department of Revenue (“North Carolina”) seeking pre-receivership WMB taxes on the ground that its “claim and liability for that claim transferred to JPMorgan Chase” under the P&A Agreement. (D.I. 1-3, No. 10-cv-505 (RMC).)

143. When North Carolina sued the FDIC and JPMC over that assessment, the FDIC unilaterally settled North Carolina’s claims against both the FDIC and JPMC, without JPMC’s involvement or, prior to the settlement’s announcement, awareness. (See D.I. 57, No. 10-cv-505 (RMC).)

144. Taxing authorities continued to submit to JPMC assessments for WMB tax liability, often seeking payment from JPMC. (See, e.g., D.I. 18 Exs. E, O, S, U, AA, No. 12-cv-450 (RMC).)

145. The FDIC encouraged taxing authorities to pursue JPMC for those assessments even if the claims in question were barred because taxing authorities had not filed a timely claim with the FDIC receivership. (See D.I. 23 at 7-15, No. 12-cv-450 (RMC).)

146. This Court called this FDIC tactic “irresponsible.” (March 21, 2013 Oral Argument Tr. at 39:10, No. 12-cv-450 (RMC).)

J. Characteristics of RMBS.

147. The parties to a private-label RMBS transaction (an “RMBS Trust”), although not identical across all RMBS Trusts, are fairly standard and generally perform similar roles and responsibilities from RMBS Trust to RMBS Trust. (Ex. 775 (Minier Report) ¶ 13.)

148. RMBS Trusts are typically governed by documents such as Mortgage Loan Purchase Agreements (“MLPAs”), Sales and Servicing Agreements (“SSAs”), PSAs, Prospectus Supplements and other ancillary documents and agreements (collectively, “Governing Documents”). (See Ex. 775 (Minier Report) ¶¶ 2, 13; D.I. 32 ¶ 29.)

149. The key Governing Documents for an RMBS Trust identify the duties and responsibilities of each of the parties, including the duties and responsibilities specific to each capacity in which a party serves. The Governing Documents typically reflect that the responsibilities and associated representations and warranties for each party are separate and distinct, and as such, the remedies for a breach of a representation and warranty that materially and adversely affects the interests of the RMBS certificateholders (“Certificateholders”) in the loan differ depending upon the maker and nature of the promise or obligation. (Ex. 775 (Minier Report) ¶ 13; see also D.I. 32 ¶ 29.)

150. The Seller is the party that originates the mortgage loans or purchases them from the originator and sells them to the purchaser. (Ex. 775 (Minier Report) at ¶ 14(a); see Ex. 778 (Oldfield Rebuttal) at ¶ 14.)

151. Under the Governing Documents, Sellers typically make certain representations and warranties about the loans and the origination of the loans, which may vary from RMBS Trust to RMBS Trust. (Ex. 775 (Minier Report) ¶ 14(a); see Ex. 778 (Oldfield Rebuttal) ¶ 26.)


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152. Upon discovery of a breach of a representation and warranty that materially and adversely affects the interests of the Certificateholders in the loan, the Seller is typically required to cure the defect, repurchase the defective mortgage loan, or remove the defective mortgage loan and substitute in its place a similar mortgage loan. (Ex. 775 (Minier Report) ¶ 14(b); see Ex. 778 (Oldfield Rebuttal) ¶ 26.)

153. The Servicer is responsible for the collection and application of mortgage loan payments and related functions such as accurate record keeping, ensuring tax and insurance payments are made timely, protecting the priority of the lien, and appropriately managing delinquent mortgages including collections, bankruptcies, foreclosures, short-sales, and the management and liquidation of REO properties. (Ex. 775 (Minier Report) ¶ 18(a); see Ex. 778 (Oldfield Rebuttal) ¶ 14; D.I. 32 ¶ 28(d).)

154. The Servicer typically makes representations and warranties in the PSA, which may vary from RMBS Trust to RMBS Trust. Unlike the representations and warranties made by the Seller, which generally will relate to the loans, the representations and warranties made by the Servicer generally will relate to the Servicer itself and to servicing practices. (Ex. 775 (Minier Report) ¶ 18(b).)

155. While the Seller of a mortgage loan typically makes certain representations and warranties that, if breached, may result in the obligation to repurchase the loan (Ex. 775 (Minier Report) ¶ 14; Ex. 778 (Oldfield Rebuttal) ¶ 26), the Servicer is responsible for collecting and applying mortgage loan payments and is not typically obliged to repurchase loans. (Ex. 775 (Minier Report) ¶ 18.)

156. Mortgage seller and servicer obligations can be distinct in private-label securitizations—that is, a mortgage seller may make representations and warranties that may obligate it to repurchase loans, while not obligating the mortgage servicer to do so. (See, e.g., Wigand Tr. at 277:18-78:2 (“depending on the terms of those agreements” seller obligations and servicer obligations can be separated in private-label RMBS); Gearin Tr. at 242:19-43:2 (“[T]here are some private labels that do [allow seller and servicer obligations to be severed].”).)

157. Both sides proffered experts on mortgage securitizations, and neither expert characterized seller repurchase obligations as “mortgage servicing obligations.” JPMC’s expert explained that “[p]rivate label RMBS transactions typically do not impose repurchase obligations on the Servicer based upon . . . seller representations and warranties about the loans.” (Ex. 775 (Minier Report) ¶ 12; see also id. ¶¶ 1, 11.) George Oldfield, whom the FDIC proffered as a mortgage securitization expert, similarly described the obligation to repurchase loans not as a servicer obligation but as an obligation that “usually would be noted by the servicer and communicated to the seller” for repurchase. (Oldfield Tr. at 61:9-10; see also Ex. 778 (Oldfield Rebuttal) ¶ 7.)

158. No evidence was adduced that a seller’s repurchase obligations become “mortgage servicing obligations” merely because the seller and servicer are the same entity. (Cf. Ex. 775 (Minier Report) ¶ 10 (“[A]n original party to an RMBS transaction might be both seller and servicer for that transaction and incur separate and distinct obligations in each capacity.”);


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Ex. 778 (Oldfield Rebuttal) ¶ 21 (“An originator, seller, servicer[,] depositor, and underwriter are often the same entity or subsidiaries of the same institution.”); see also Oldfield Tr. at 61:6-15.)

159. Dr. Oldfield averred that the seller’s and servicer’s respective obligations are determined by the contracts governing a transaction. (See Oldfield Tr. at 62:5-21.)

160. There is no evidence that in the transactions at issue here, the governing contracts impose on the servicer any seller repurchase obligations.

161. In a purchase and assumption transaction between the FDIC and IndyMac Federal Bank, FSB, Section 2.1 of the applicable purchase and assumption agreement transferred “duties and obligations under any contract pursuant to which the Failed Bank provides mortgage servicing for others, or mortgage servicing is provided to the Failed Bank by others” and “duties and obligations under any contract pursuant to which the Failed Bank holds mortgage servicing rights.” (Ex. 918 (IndyMac purchase & assumption agreement) § 2.1.) Section 3.1 thereof transferred “mortgage servicing rights and related contracts.” (Id. at § 3.1.)

162. The FDIC argued in MBIA Insurance Corp. v. IndyMac Federal Bank, F.S.B., 816 F. Supp. 2d 81 (D.D.C. 2011), that the IndyMac purchase and assumption agreement “did not transfer to [the bridge bank] any ‘non-servicing obligations and liabilities as a result of [the failed bank’s] acts or omissions in connection with the origination or sale of [mortgage] loans.’” (Ex. 919 (FDIC-Receiver Mem. in Support of Mot. to Dismiss, IndyMac, 816 F. Supp. 2d 81 (D.D.C. 2011) (No. 09-cv-1011 (ABJ)), ECF No. 26-1) at 9.) The FDIC argued that “all seller obligations . . . were not passed on to [the bridge bank], but remained with the . . . receivership estate.” (Ex. 917 (FDIC-Receiver Reply Mem. in Support of Mot. to Dismiss, IndyMac, 816 F. Supp. 2d 81 (D.D.C. 2011) (No. 09-cv-1011 (ABJ)), ECF No. 32) at 14.)

163. In litigation that Deutsche Bank brought over seller repurchase obligations in IndyMac-issued RMBS, the FDIC wrote in a brief submitted to the U.S. Court of Appeals for the Ninth Circuit the following:

Before its failure in 2008, [IndyMac] had issued and sold mortgage-backed securities. These securities consisted of mortgage pools established by “Pooling and Servicing Agreements” (“PSAs”) . . . . Although each PSA is contained in a single document, the document contains two agreements IndyMac entered into in two different capacities: as “Seller” and as “Master Servicer.” . . . In its capacity as “Seller” IndyMac also made certain “representations and warranties” about the quality of the loans. The PSAs further provide that if any party discovered a breach of any of those representations and warranties, IndyMac in its capacity as “Seller” had to . . . substitute or repurchase the affected mortgage loan or loans. In its capacity as “Master Servicer,” IndyMac agreed to collect and process mortgage payments in return for servicing fees and other compensation. The PSAs do not require IndyMac, in its capacity as Master Servicer, to substitute or repurchase non-performing mortgages. The PSAs further provide that the Master Servicer shall only be liable for obligations imposed “specifically” on it by the PSAs, which means that the Master Servicer shall not be liable for obligations imposed on other contracting parties, such as the Seller.


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(Ex. 916 (FDIC Principal Br., Deutsche Bank Nat’l Trust Co. v. FDIC, 744 F.3d 1124 (9th Cir. 2014) (No. 11-56339), ECF No. 8111464) at 2-3 (record citations and quotation marks omitted).)


Respectfully submitted,

/s/ Brent J. McIntosh Robert A. Sacks (D.D.C. Bar No. MI0069) Ian D. McDonald (admitted pro hac vice) SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004 Telephone: (212) 558-4000 Facsimile: (212) 558-3588

Brent J. McIntosh (D.C. Bar No. 991470) Mia Whang Spiker (D.C. Bar No. 1004939) SULLIVAN & CROMWELL LLP 1700 New York Avenue, N.W. Suite 700 Washington, D.C. 20006-5215 Telephone: (202) 956-7500 Facsimile: (202) 293-6330 Email: [email protected] Counsel for Defendants JPMorgan Chase Bank, N.A. and Washington Mutual Mortgage Securities Corporation
