The judge listed a variety of deficiencies in the proposal that must be corrected before she could approve the document, which will distribute an estimated $7.5 billion in assets to creditors of the failed banking company.
Washington Mutual Inc.’s proposal to pay creditors $7 billion was rejected by the judge overseeing the bankruptcy of the company, the former owner of the biggest U.S. bank to fail.
U.S. Bankruptcy Court Judge Mary F. Walrath in Wilmington, Del., rejected the plan because it guaranteed protection from lawsuits for too many parties. Walrath said she agrees with the central feature of the plan, a settlement that would end bankruptcy-related legal disputes among WaMu, JPMorgan Chase & Co. and the Federal Deposit Insurance Corp. about who was responsible for the failure of WaMu’s former Seattle-based bank.
“Although the court found the global settlement to be reasonable, it did not find the releases to be reasonable,” Walrath wrote in Friday’s ruling.
Walrath said in the decision that provisions in the settlement called releases, which protect the recipient from being sued, were given to some parties that didn’t deserve them.
Most Read Business Stories
- Work-from-home benefits could stir up new battles between workers and their bosses
- Boeing’s turnaround threatened by talent exodus to companies like Amazon, SpaceX
- Breaking up with Venmo: The best payment apps for privacy and low fees
- Bezos offers to waive $2 billion of fees in moon-mission bid
- What’s the price of an uncleaned hotel room?
WaMu filed for bankruptcy Sept. 26, 2008, the day after its banking unit was taken over by regulators and sold to New York-based JPMorgan for $1.9 billion. Washington Mutual Bank was the biggest bank to fail in U.S. history, with more than 2,200 branches and $188 billion in deposits.
Shareholders claim JPMorgan didn’t pay enough for the bank and that federal regulators were too quick to close it. JPMorgan, the second-largest U.S. bank by assets, and federal regulators denied those claims in court papers.