Washington Mutual (WMI) - Transcript of Omnibus Hearing of 9/20/2011

8/4/2019 Washington Mutual (WMI) - Transcript of Omnibus Hearing of 9/20/2011

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2 UNITED STATES BANKRUPTCY COURT

3 DISTRICT OF DELAWARE

4 - - - - - - - - - - - - - - - - - - - - -x

5 In the Matter of:

6

7 WASHINGTON MUTUAL, INC., ET AL., Case No.

8 Debtors. 08-12229 (MFW)

9

10 - - - - - - - - - - - - - - - - - - - - -x

11 NANTAHALA CAPITAL PARTNERS, LP, ET AL.,

12 Plaintiffs, Adv. Proc. No.

13 - against - 10-50911 (MFW)

14 WASHINGTON MUTUAL, INC., ET AL.,

15 Defendants.

16 - - - - - - - - - - - - - - - - - - - - -x

17 MICHAEL WILLINGHAM and ESOPUS CREEK VALUE, LP,


19 - against - 10-51297 (MFW)

20 WASHINGTON MUTUAL, INC.,

21 Defendant.

22 - - - - - - - - - - - - - - - - - - - - -x

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2 - - - - - - - - - - - - - - - - - - - - -x

3 WASHINGTON MUTUAL, INC., and WMI INVESTMENT CORP.,


5 - against - 10-53420 (MFW)

6 PETER J. and CANDACE R. ZAK LIVING TRUST

7 OF 2001 U/D/O AUGUST 31, 2001, ET AL.,

8 Defendants.

9 - - - - - - - - - - - - - - - - - - - - -x

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11 U.S. Bankruptcy Court

12 824 North Market Street

13 Wilmington, Delaware

14

15 September 20, 2011

16 10:39 AM

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19

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21 B E F O R E:

22 HON. MARY F. WALRATH

23 U.S. BANKRUPTCY JUDGE

24

25 ECR OPERATOR: BRANDON MCCARTHY

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2 Application for an Order Pursuant to 11 U.S.C. Sections 328 and

3 1103 and Federal Rule of Bankruptcy Procedure 2014 Authorizing

4 the Retention and Employment of Frank Partnoy as Securities

5 Litigation Consultant to the Official Committee of Equity

6 Security Holders of Washington Mutual, Inc., et al. Nunc Pro

7 Tunc to June 29, 2011

8

9 Plaintiffs Third Amended Class Complaint (Adversary Proceeding

10 No. 10-50911)

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25 Transcribed by: Dena Page

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2 A P P E A R A N C E S :

3 WEIL, GOTSHAL & MANGES

4 Attorneys for Debtors

5 BY: BRIAN ROSEN, ESQ.

6 ADAM STROCHAK, ESQ.

7 JENNIFER WINE, ESQ.

8 RACHEL SWARTZ, ESQ.

9

10

11 AKIN GUMP STRAUSS HAUER & FELD

12 Attorneys for Official Committee of Unsecured Creditors

13 BY: ROBERT JOHNSON, ESQ.

14 ROBERT BOLLER, ESQ.

15 FRED S. HODARA, ESQ. (TELEPHONICALLY)

16 BRIAN M. ROTHSCHILD, ESQ. (TELEPHONICALLY)

17 DAVID SIMONDS, ESQ. (TELEPHONICALLY)

18

19

20 ARENT FOX LLP

21 Attorneys for Wilmington Trust Company

22 BY: RONNI ARNOLD, ESQ. (TELEPHONICALLY)

23 LEAH M. EISENBERG, ESQ. (TELEPHONICALLY)

24 JEFFREY ROTHLEDER, ESQ. (TELEPHONICALLY)

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2 ARKIN KAPLAN RICE LLP

3 At tor ne ys for T rus t P re fer red H old ers

4 BY: JO SEP H MAT TEO , ESQ . ( TE LEP HON IC ALL Y)

5

6

7 ASHBY & GEDDES

8 Attorneys for Equity Committee

9 BY: GREG TAYLOR, ESQ.

10

11

12 BROWN RUDNICK LLP

13 Attorneys for Trust Preferred Holders

14 BY: JEREMY COFFEY, ESQ. (TELEPHONICALLY)

15

16

17 KING & SPALDING

18 Attorneys for LTW

19 BY: ARTHUR J. STEINBERG, ESQ.

20

21

22 SCHINDLER COHEN & HOCHMAN LLP

23 Attorneys for LTW

24 BY: JONATHAN L. HOCHMAN, ESQ.

25 KARA STEEL, ESQ.

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2 FOX ROTHSCHILD LLP

3 Attorneys for WMI Noteholders

4 BY: JEFFREY SCHLERF, ESQ.

5

6

7 FOX ROTHSCHILD LLP

8 Attorneys for Wells Fargo

9 BY: SETH NIEDERMAN, ESQ.

10

11

12 LANDIS RATH & COBB

13 Attorneys for JPMorgan Chase

14 BY: MATTHEW MCGUIRE, ESQ.

15

16

17 LOEB AND LOEB

18 Attorneys for Wells Fargo

19 BY: WALTER CURCHACK, ESQ.

20 VADIM J. RUBENSTEIN, ESQ. (TELEPHONICALLY)

21

22

23 PATTERSON, BELKNAP, WEBB & TYLER

24 Attorneys for Law Debenture Trust Company of New York

25 BY: BRIAN GUINEY, ESQ. (TELEPHONICALLY)

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2 PACHULSKI STANG ZIEHL & JONES

3 Attorneys for Bond Holders Bank

4 BY: JEREMY RICHARDS, ESQ. (TELEPHONICALLY)

5 DEAN A. ZIEHL, ESQ. (TELEPHONICALLY)

6

7

8 PAUL, HASTINGS LLP

9 Attorneys for Appaloosa Management

10 BY: LAURA K. ISENBERG, ESQ. (TELEPHONICALLY)

11

12

13 PILLSBURY WINTHROP SHAW PITTMAN LLP

14 Attorneys for Bank of New York Mellon

15 BY: LEO T. CROWLEY, ESQ. (TELEPHONICALLY)

16 MARGOT P. ERLICH, ESQ. (TELEPHONICALLY)

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19 PEPPER HAMILTON

20 Attorneys for Official Committee of Unsecured Creditors

21 BY: DAVID STRATTON, ESQ.

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2 SULLIVAN & CROMWELL LLP

3 Attorneys for JPMorgan Chase Bank

4 BY: BRUCE CLARK, ESQ. (TELEPHONICALLY)

5 HYDEE R. FELDSTEIN, ESQ. (TELEPHONICALLY)

6 JOSHUA FRITSCH, ESQ. (TELEPHONICALLY)

7 BRIAN GLUECKSTEIN, ESQ. (TELEPHONICALLY)

8 BRENT J. MCINTOSH, ESQ. (TELEPHONICALLY)

9 DAVID POSSICK, ESQ. (TELEPHONICALLY)

10 ROBERT A. SACKS, ESQ. (TELEPHONICALLY)

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13 UNITED STATES DEPARTMENT OF JUSTICE

14 Attorneys for Office of the United States Trustee

15 BY: JANE LEAMY, ESQ.

16

17

18 WHITE & CASE

19 Attorneys for WMI Noteholders

20 BY: GREGORY STARNER, ESQ.

21

22

23 YOUNG CONAWAY STARGATT & TAYLOR

24 Attorneys for FDIC(R)

25 BY: BLAKE CLEARY, ESQ.

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2 ALSO PRESENT:

3 ELEANOR CHAN, Aurelius Capital

4 LAWRENCE N. CHANEN, JPMorgan Chase & Co.

5 BRYCE FRASER, Fortress Investment Group

6 HAL F. GOLTZ, Anchorage Advisors

7 JOEL HAWKINS, Carval Investors

8 JASON C. KLEIN, JPMorgan Chase Bank, N.A.

9 DANIEL PINE, Marathon Asset Management

10 MICHAEL C. SCOTT, Venor Capital

11 MITCHELL E. SUSSMAN, Stone Lion Capital

12 WILLIAM VRATTOS, York Capital Management

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WASHINGTON MUTUAL, INC., ET AL.

1 P R O C E E D I N G S

2 THE COURT: Good morning.

3 MR. ROSEN: Good morning, Your Honor. Brian Rosen --

4 THE COURT: Sorry for the delay.

5 MR. ROSEN: Oh, no problem. Brian Rosen, Weil,

6 Gotshal & Manges on behalf of the debtors. We have a few

7 matters on for the regular agenda and then we go over to the

8 adversary proceeding.

9 I believe the first item on the calendar is a motion

10 by the equity committee, so I'll hand the podium over to Mr.

11 Taylor.

12 MR. TAYLOR: Good morning, Your Honor. Greg Taylor

13 from Ashby & Geddes on behalf of the equity committee.

14 Our application is an application seeking to retain

15 Professor Partnoy as a securities litigation consultant. The

16 creditors' committee filed an objection and we received some

17 informal comments from the Office of the United States Trustee.

18 We have had a number of conversations with both of those

19 parties, and I think we've reached a resolution which I'll

20 recite into the record, and then if anybody has anything to

21 add, they can certainly do so.

22 What we would propose to do is to submit a revised

23 proposed form of order to Your Honor under certification of

24 counsel that will clarify that his compensation will be

25 reviewed under Section 330 of the Bankruptcy Code and not 328;

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1 there was some confusion with the application on that issue.

2 Also, in connection with the retainer that is

3 requested as part of the application, Professor Partnoy will be

4 deferring sinking any interim compensation of that amount and

5 will include that amount as part of any final fee application

6 he files in this case.

7 With those two modifications, I believe the

8 application -- or, the objections to the application and other

9 concerns are resolved. And as I said, we would prepare a

10 revised proposed form of order, circulate it among the parties,

11 and submit it to Your Honor.

12 THE COURT: All right, does anybody else have any

13 comments on it?

14 MR. JOHNSON: Your Honor, Robert Johnson for Akin Gump

15 on behalf of the creditors' committee. And Mr. Taylor's

16 accurately described the agreement that we've reached.

17 THE COURT: Okay. All right, well, submit it under

18 certification, then.

19 MR. TAYLOR: Thank you, Your Honor. And may I be

20 excused for the remainder of the calendar?

21 THE COURT: You may.

22 MR. TAYLOR: Thank you.

23 MR. ROSEN: Your Honor, although not on the agenda, I

24 just wanted to address a point emanating out of the Court's

25 decision of last Tuesday. First, thank you very much for the

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1 opinion. It clarified a few points, and certainly clarified

2 the Court's perspective with respect to interest rates to be

3 used in cases.

4 One of the things that the Court suggested at the end

5 of the opinion was a status conference on October 7th to

6 discuss potential mediation for the claims disallowance as well

7 as, I think the Court referred to it as any other issues that

8 may present an impediment to confirmation of a plan in the

9 case. And the debtors are reviewing that and deciding -- or,

10 looking and discussing with parties as to whether any issues

11 remain after the opinion. But as far as October 7th itself,

12 Your Honor, that is currently scheduled as an omnibus hearing

13 date. Unfortunately, Your Honor, at the conclusion of that day

14 is the beginning of Yom Kippur.

15 THE COURT: All right.

16 MR. ROSEN: And several of the parties have asked us

17 if we could move up that status conference to something between

18 now and October 6th so that there isn't an issue about how long

19 it would run that day and getting home for the holiday.

20 THE COURT: Yeah.

21 MR. ROSEN: So I told everyone I would ask the Court

22 today if we could have an earlier date.

23 THE COURT: Do we have any other hearings between now

24 and the 7th, though? No?

25 MR. ROSEN: We don't, Your Honor. And I don't mind

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1 keeping the 7th as an omnibus but just move this piece up

2 earlier.

3 THE COURT: Well, I am out from the 29th until the 5th

4 at an Inns of Court thing. I have availability the 27th or the

5 28th.

6 MR. ROSEN: The 28th is no good because it's Rosh

7 Hashanah.

8 THE COURT: Yeah.

9 MR. ROSEN: So I would say -- if you're back on the

10 5th, Your Honor --

11 THE COURT: I'm back on the 6th.

12 MR. ROSEN: Even that would work, Your Honor. It just

13 avoids the issue on the 7th. The 27th, I think, if it's --

14 people might have the same concern about getting home in time.

15 THE COURT: Yeah.

16 MR. ROSEN: Oh, I'm sorry. The 27th, you said, Your

17 Honor?

18 THE COURT: It's a Tuesday. You think that's a

19 problem.

20 MR. ROSEN: Oh, that would be okay. It's the 28th

21 that would be a problem.

22 THE COURT: Right.

23 MR. ROSEN: So the 27th would be fine. Early in the

24 day would be even better.

25 THE COURT: Well, let's see. Well, why don't I take a

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1 chance and put you on at 11 o'clock on the 27th.

2 MR. ROSEN: That'd be fine, Your Honor.

3 THE COURT: I think the 10:30 and the 11:30 are going

4 to be short, so that would be Tuesday the 27th.

5 MR. ROSEN: Your Honor, would you like us to send a

6 notice out?

7 THE COURT: Yes.

8 MR. ROSEN: Okay.

9 THE COURT: And my thoughts on mediation was for the

10 Court to pick a mediator from -- a judge from another district

11 in the circuit. But if the parties have a suggestion, I'll

12 hear that as well.

13 MR. ROSEN: All I can say is that people have been

14 calling, but we have -- the debtors have not come to any

15 conclusions about that, Your Honor, and a judge in the circuit,

16 I think from the debtors' perspective, would be fine.

17 THE COURT: Okay.

18 MR. ROSEN: I guess the question that we'll have, Your

19 Honor, is -- when we get to the 27th is the subject of the

20 mediation itself.

21 THE COURT: Exactly.

22 MR. ROSEN: Yes.

23 THE COURT: The scope of it, if you will. Okay.

24 MR. ROSEN: Thank you, Your Honor. With that, I'll

25 turn the podium and the adversary proceeding back over to Mr.

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1 Strochak.

2 MR. STROCHAK: Good morning, Your Honor. Adam

3 Strochak, Weil, Gotshal & Manges for the debtors and the

4 defendants.

5 Our last witness is Jonathon Goulding, and we call him

6 at this time.

7 THE COURT: All right, thank you.

8 Remain standing so you can be sworn.

9 (Witness sworn)

10 THE CLERK: Please state your name and spell your last

11 name.

12 THE WITNESS: Jonathan Goulding, G-O-U-L-D-I-N-G.

13 MR. STROCHAK: Your Honor, I have two exhibits we're

14 going to use with Mr. Goulding on the direct. Rather than

15 bring the binders out, I just brought separate copies. Can I

16 hand copies up?

17 THE COURT: You may.

18 MR. STROCHAK: Would you like an extra set for the law

19 clerk?

20 THE COURT: Yes, please. Thank you.

21 Thank you.

22 MR. STROCHAK: All right, thank you. What I've handed

23 up, Your Honor, just for the record, is a demonstrative

24 exhibit. We've just labeled it for identification purposes as

25 LTW-DX, for defendants, Exhibit 1, and then a copy of Exhibit

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1 305, which is a new exhibit that the parties had agreed to, and

2 it is a copy of the 10-K for the -- Washington Mutual, Inc. 10-

3 K for the year ending 12/31/2007.

4 DIRECT EXAMINATION

5 BY MR. STROCHAK:

6 Q. All right. Mr. Goulding, if I could just ask you -- I

7 know you've testified previously in this court, but -- in this

8 case, but could you just very briefly describe your education

9 for the Court.

10 A. Sure, I have a bachelor's degree in chemical engineering

11 from University of Michigan.

12 Q. And where are you employed?

13 A. I work for Alvarez & Marsal.

14 Q. And do you hold a position with the debtors?

15 A. Yes, I'm the treasurer of Washington Mutual, Inc., as well

16 as WMI Investment Corp.

17 Q. And how long have you held that position?

18 A. Since about October of '08.

19 Q. During the course of your employment with the debtors,

20 have you become familiar with Washington Mutual's accounting

21 practices?

22 A. Yeah, generally.

23 Q. And have you become familiar with the accounting treatment

24 of obligations to the LTW holders?

25 A. Yes, I'm aware of how it was accounted for historically.

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1 Q. All right, take a look with me, if you could, at the

2 Exhibit 305, and let's start in the back at page 236 of 252.

3 It's numbered in the lower right-hand corner.

4 A. Okay.

5 Q. Okay, and could you describe for the Court what this is?

6 A. It's the Washington Mutual, Inc. balance sheet.

7 Q. All right, and does the balance sheet for year-end 2007

8 provide any indication about accounting treatment of the LTW

9 obligations?

10 A. I believe the way that it was handled at the end of 2007,

11 in terms of the accounting treatment, is that the LTWs were not

12 an asset or a liability in terms of the good will litigation

13 and the obligation. There is a footnote -- there is a

14 disclosure that's in this 10-K with respect to that obligation.

15 Q. All right, and do you know if the LTW obligations were

16 included in the other liabilities line on the balance sheet?

17 A. Based on our review of documents, it was not.

18 Q. What documents did you review?

19 A. We went back through the documents that we have access to

20 in terms of the company's books and records looking for

21 accounting policy memos or any other items that would have been

22 reflected, and we then found anything that was recorded within

23 the other liabilities section.

24 Q. Okay, now, the disclosure you referenced, is that the

25 disclosure on page 99 of 252 of Exhibit 305?

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1 A. Yes, that's correct.

2 Q. And what does the disclosure tell you about the treatment

3 of the LTWs?

4 A. It summarizes the obligation to issue additional shares of

5 common stock to those whose ability was to use it for

6 litigation. I mean, if there's a dividend awarded and paid out

7 to the company.

8 Q. All right, and to your knowledge, were the company's 2007

9 financial statements audited?

10 A. Yes, they were.

11 Q. And has that audit ever been withdrawn?

12 A. Not to my knowledge.

13 Q. Let's turn, if we could, to the demonstrative, Defendant's

14 Exhibit 1, and we'll just use that for reference. Now, let me

15 start by asking generally about the global settlement

16 agreement. Did the debtors approach the negotiations with

17 JPMorgan as a sale of assets -- an asset transaction?

18 A. No, we looked at is as resolving ownership with respect to

19 disputed assets. I think it's worth thinking about the context

20 of the situation at the time we started the negotiations. You

21 had JPMorgan who had all of the employees, we had one employee,

22 no access to books and records. Essentially, what we were

23 trying to do was grab hold of the assets that were ours before

24 JPMorgan took them all.

25 Q. And did the global settlement agreement, as finally

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1 concluded, increase or decrease the value of the debtors'

2 assets?

3 A. It substantially increased the assets that the debtors

4 have by about six and a half billion.

5 Q. All right, now, are you aware that the plan of

6 reorganization and the global settlement include a deemed 363

7 language?

8 A. I know that there's a mech -- 363 was used as a mechanism

9 to effectuate the settlement agreement.

10 Q. And that was my question is what was the purpose of the

11 deemed 363 mechanism in the global settlement agreement and the

12 plan?

13 A. You know, it's just a mechanism to effectuate the

14 settlement agreement with respect to all of the assets that

15 were disputed assets.

16 Q. And why -- do you know why the 363 mechanism was chosen to

17 effectuate the settlement?

18 A. It was something that the lawyers discussed as an

19 appropriate mechanism. I wasn't involved in all the details,

20 but both parties seemed to think that that was a reasonable

21 approach.

22 Q. Now, turning to the demonstrative, I'd like to focus on

23 the left side of the demonstrative, and could you explain to

24 the Court what that illustrates?

25 A. Sure. On the left side of the demonstrative, you have the

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1 debtors' nondisputed assets. Principally, what we're talking

2 about here are the nondisputed cash accounts. There are some

3 very small other assets, you know, a little bit of cash at some

4 of the other subsidiaries, and then the value of reorganized

5 WMI.

6 Q. And what was the approximate value of the debtors'

7 nondisputed assets before giving effect to the global

8 settlement agreement?

9 A. Just over a billion dollars.

10 Q. Now, looking at the right-hand column, what does that

11 illustrate?

12 A. It illustrates all of the assets that WMI has once the

13 settlement agreement becomes effective. And so you can see

14 that it starts with the three main categories of nondisputed

15 assets at the bottom and adds to it the disputed cash accounts,

16 also called the deposits, the tax refunds, and payment on the

17 intercompany notes, BOLI-COLI assets, the American Savings Bank

18 goodwill litigation, ownership of the Ahmanson Rabbi Trust, and

19 then twenty-five million for the Visa (ph.) shares.

20 Q. And what's the total -- the approximate total value of

21 assets that the debtors will have after giving effect to the

22 global settlement agreement?

23 A. It's approximately seven and a half billion.

24 Q. Mr. Goulding, did the global settlement agreement affect

25 any of the approximately one billion dollars in nondisputed

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1 assets that WMI owned as of the petition date?

2 A. No, it did not.

3 Q. And based on the comparison of the before and after, what

4 is the net value of the global settlement agreement to the

5 debtors' estate?

6 A. It brings in approximately six and a half billion of

7 assets to the estate.

8 Q. Okay, let's talk a little bit about liabilities. Did the

9 global settlement agreement transfer liabilities?

10 A. Yeah, there were certain liabilities that JPMorgan assumed

11 in connection with the global settlement agreement.

12 Principally, deferred comp liabilities, and those would have

13 been liabilities associated with assets like a rabbi trust or

14 something. Although not precisely linked, they were --

15 generally, those assets were used to fund those liabilities,

16 and therefore, throughout the negotiation, generally the way

17 that it worked was if there was an asset like a rabbi trust or

18 some other BOLI-COLI assets that were used to fund those

19 liabilities, then those went together.

20 Q. And on a net basis, what's the effect of the GSA on

21 liabilities of Washington Mutual, Inc.?

22 A. There's an enormous reduction in overall liabilities as a

23 result of the GSA.

24 Q. How was the determination made as to which liabilities

25 JPMorgan would assume responsibility for under the global

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1 settlement agreement?

2 A. We tried to sort of link things where it made sense in

3 terms of an asset and a liability. If they were taking a rabbi

4 trust, for example, then they should take the deferred comp

5 plan that's associated with that rabbi trust.

6 Q. Mr. Goulding, under the global settlement agreement, how

7 are the proceeds of the Anchor goodwill litigation allocated?

8 A. They're deemed to be transferred to JPMorgan. WMI

9 relinquishes its right, title and interest to those proceeds.

10 Q. And why was that result reached?

11 A. Well, in the context of the negotiation of, you know, back

12 and forth with respect to who owned it, who should get it, it

13 was obviously a disputed asset. And at the end of the day, in

14 order to close the deal, it ended up on their side of the

15 ledger.

16 Q. Let's go back to the time when you first joined Washington

17 Mutual, Inc. in the fall of 2008. To the best of your

18 knowledge, at that time, what was the status of the Anchor

19 litigation, as you understood it?

20 A. Well, I think, you know, as it was going forward, the

21 litigation was being controlled, you know, pre-seizure by the

22 litigation group within Washington Mutual, and then immediately

23 post-seizure, all of those lawyers went to work for JPMorgan

24 Chase. And so what ended up happening as a result of that is

25 those litigators assumed control of that litigation and began

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1 to take -- attempt to get JPMorgan to continue to direct that

2 litigation.

3 Q. Now, did Washington Mutual, Inc. ever claim ownership of

4 the Anchor litigation?

5 A. We asserted a counterclaim for the Anchor litigation in

6 our response to JPMorgan's complaint.

7 Q. And what was the basis for the assertion of the

8 counterclaim?

9 A. The main basis, as I recall, was a filing that listed the

10 real party-in-interest as Washington Mutual, Inc.

11 Q. And that was a filing in what court, do you know?

12 A. I think it was the Court of Claims, but I don't remember

13 exactly.

14 Q. Now, how did the parties eventually come to the conclusion

15 that JPMorgan would take the Anchor goodwill litigation?

16 A. There was a lot of back and forth on a lot of assets to

17 attempt to resolve it. At the end of the day, in order to

18 bridge the gap between the parties, we agreed to transfer it to

19 JPMorgan, or, you know, they ended up with it at the end of the

20 day.

21 Q. And was that decision, from the debtors' perspective,

22 based at all on any of the history of the Anchor litigation?

23 A. Well, I think, you know, in the case of the settlement

24 agreement, there are always two things at play. One was, you

25 know, who had the sort of better case on the underlying merits,

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1 looking at the underlying merits of the case, and therefore,

2 how much were you giving up based on whether or not you thought

3 it was a WMI or a JPMorgan asset, and then you had to balance

4 that against the overall settlement and working in that context

5 of the overall settlement, how much value was getting

6 distributed to each party.

7 Q. And did the debtors ever make a decision either to ask or

8 not ask JPMorgan to assume the obligations for the litigation

9 tracking warrants?

10 A. We never asked JPMorgan to take it. We always viewed the

11 litigation tracking warrant obligations as equity interests,

12 and as a result of that, if we had asked JPMorgan to take it,

13 they would have a corresponding reduction in value associated

14 with assuming that liability. And what that would, in effect,

15 do is catapult the LTW obligation from an equity interest to

16 essentially a priority claim where JPMorgan would pay them a

17 hundred cents, and that reduction would be a reduction in the

18 value that would then get transferred back to WMI and,

19 therefore, be value available for distribution to creditors.

20 And so you would have a reduction in the overall value of the

21 estate, and so you would be sort of elevating them above.

22 Q. Now, you talked earlier about JPMorgan taking

23 responsibility for certain liabilities that were related to

24 assets that JPMorgan was getting. And why was that paradigm

25 not used in connection with the litigation tracking warrants?

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1 A. Yeah, again, in the case of taking deferred comp plan

2 liabilities where we believed those were liabilities of the

3 estate, you're reducing the amount of claims against the assets

4 that are being brought in and giving where we thought the

5 settlement was going to get us to, we thought we'd be

6 relatively close to paying a hundred cents on those claims.

7 And therefore, those claims -- a reduction in those claims

8 represented a corresponding increase in the value of the

9 estate.

10 Again, with the LTWs being equity interests, you don't

11 have the same effect. A reduction in the overall value by

12 them, assuming an equity interest, isn't going to inure to the

13 benefit of the creditors.

14 Q. Thank you.

15 MR. STROCHAK: Your Honor, we pass the witness at this

16 time for cross-examination.

17 THE COURT: Thank you.

18 CROSS-EXAMINATION

19 BY MR. STEINBERG:

20 Q. Good morning, Mr. Goulding. I'm Arthur Steinberg, and I

21 represent the LTW holders. You had testified on your direct

22 that the LTW obligation was not listed as a liability on the

23 WMI balance sheet, correct?

24 A. I believe that's correct, yes.

25 Q. It was also not listed in the equity column either, isn't

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1 that correct?

2 A. That's right.

3 Q. Okay, so it's not listed on the equity and it's not listed

4 on the liability, and it was also not listed on the assets,

5 right?

6 A. That's right.

7 Q. Okay, what about the Anchor litigation. Was the Anchor

8 litigation listed on the books and records of the company?

9 A. No.

10 Q. Okay, so we have the LTW obligation and the Washington

11 Mutual books doesn't have the Anchor litigation or the LTW

12 obligation, right?

13 A. That's correct.

14 Q. Okay. Now, I think you also said on your direct that at

15 the beginning of bankruptcy, the lawyers, the in-house lawyers

16 that were involved in the Anchor litigation moved to JPMorgan,

17 is that correct?

18 A. That's right.

19 Q. And the outside counsel who was pursuing the Anchor

20 litigation was Jones Day, correct?

21 A. That's right.

22 Q. All right, and Jones Day was the one who filed the

23 certificate of interest just prior to the bankruptcy filing

24 indicating that Washington Mutual, Inc. was the real party-in-

25 interest in connection with the appeal of the Court of Claims

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1 judgment to the Court of Appeals, correct?

2 A. Correct.

3 Q. And that's what you cited in your declaration as one of

4 the bases for why you believe it was appropriate to say that

5 Washington Mutual, Inc. owned the Anchor litigation as compared

6 to Washington Mutual Savings and Loan, correct?

7 A. That's right.

8 Q. All right, and I think in prior examination, I had asked

9 various people on behalf of the debtor whether they believed

10 that claim was asserted in good faith, that Washington Mutual,

11 Inc. owned the litigation. And you believe it was asserted in

12 good faith, correct?

13 A. I do. We asserted all curable claims that we had at the

14 time when we filed our counterclaim.

15 Q. And the creditors' committee also was involved in that JPM

16 adversary proceeding where this counterclaim was asserted,

17 correct?

18 A. I believe they intervened, but I don't recall exactly.

19 Q. Did the creditors' committee take a different position

20 than you did as to who owned the Anchor litigation?

21 A. Not to my knowledge.

22 Q. Okay. Now, the Anchor litigation was primarily pursued by

23 Jones Day, correct?

24 A. Yeah, principally, they were the ones who were handling

25 most of the work. They're the outside counsel.

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1 Q. And the in-house lawyers don't really do very much in

2 connection with the Anchor litigation, correct?

3 A. I'm not familiar with how much time they spend on the

4 Anchor litigation.

5 Q. Okay, and I think you said in your direct that as a result

6 of the global settlement, the debtors will have around 7.5

7 billion dollars in assets, is that correct?

8 A. Approximately, that's right.

9 Q. Is that the correct number now, or that was the number as

10 of the bankruptcy filing date?

11 A. Im not following your question. Will you --

12 Q. Has there been a burn rate in this case, and has that

13 number gone down?

14 A. Oh, if you look at I think the most recent filing, for

15 example, in the liquidation analysis, I think it's a little bit

16 lower in terms of the total pro -- the total available

17 proceeds. It's probably just under 7.4 if memory serves. 7.3-

18 something.

19 Q. 7.1 billion dollars?

20 A. No, if you're looking at 7.1, you may be looking at net

21 proceeds after reducing for priority claims and some others.

22 But if you're looking at the total assets, if memory serves, I

23 believe it's between 7.3 and 7.4

24 Q. Now, I think you said in approaching the global

25 settlement, you tried to get JPMorgan to assume liabilities,

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1 and you tried to link the assets that were going over to

2 JPMorgan with the liabilities, correct?

3 A. Right, I think we worked in a framework where they took

4 certain liabilities because they were taking assets, and I

5 think we agreed on that sort of premise when we were in

6 negotiations.

7 Q. So if you had thought that the LTW obligations were

8 liabilities, as compared to equities, you would have been

9 trying to get JPMorgan to assume the liabilities associated

10 with the Anchor litigation, correct?

11 A. I think we would have been looking at it differently than

12 that manner. I mean, we may have considered different options

13 there; I don't know what the outcome would have been.

14 Q. But the reality was that you never even asked JPMorgan to

15 take on the LTW obligations, is that correct?

16 A. Again, we always thought of them as equity interests, so

17 we didn't view that as a --

18 Q. Okay, but my question --

19 A. -- reasonable ask.

20 Q. -- my question is you didn't even ask, right?

21 A. We never discussed it with them, to my recollection. I

22 wasn't involved with all the conversations with JPMorgan, so I

23 don't know if somebody else did, but --

24 Q. But you're not aware --

25 A. -- not aware of any.

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1 Q. -- you're not aware of anybody ever asking JPMorgan to

2 take on the LTW obligations in connection with its taking on

3 the Anchor litigation?

4 A. No, it didn't seem consistent with our fiduciary

5 responsibility to the estate.

6 Q. Okay, and you attend board meetings as well, too?

7 A. I attended some of the board meetings.

8 Q. All right, and this issue never came up at the board

9 meeting, as well, prior to the signing of the global

10 settlement, correct?

11 A. I'm sorry, which issue?

12 Q. The issue about whether the LTW obligations should be

13 assumed by JPMorgan as part of getting the Anchor litigation.

14 A. Nobody discussed with the board whether JPMorgan should

15 take the obligation, no.

16 Q. It was never raised for their consideration at all?

17 A. I was not involved in a board meeting where that took

18 place.

19 Q. All right, was the LTW characterization as equity ever

20 discussed with the board prior to the entering into the global

21 settlement?

22 A. Yeah, I think in the context of the plan and the board's

23 review of the plan, I imagine they would understand the

24 treatment that the LTW holders were getting pursuant to the

25 plan and drafts of that and what the settlement agreement

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1 looked like, so I would assume that they understood how the

2 treatment worked.

3 Q. Okay, did you remember any discussion about it?

4 A. About?

5 Q. About the LTW obligation at the board level?

6 A. Not that I was involved in.

7 Q. Okay, let's turn to --

8 MR. STEINBERG: Do we have the cross-examination books

9 that you can give to the judge, the judge's clerk, and to the

10 witness, and to Mr. Strochak?

11 THE COURT: Yes, thank you.

12 Q. Mr. Goulding, I'm going to ask you to turn to LTW Exhibit

13 242, which is a declaration that Mr. Kosturos filed in

14 connection with the December confirmation hearings, and

15 attached to that was the global settlement agreement. So I

16 would like you to focus in on this version of the global

17 settlement agreement.

18 THE COURT: What number are you on?

19 MR. STEINBERG: It's Exhibit 242.

20 THE COURT: 242. Thank you.

21 Q. And if you could turn to page 15 of the global settlement

22 agreement and focus your attention on the definition of Section

23 363 sale and settlement. When you're there, let me know.

24 A. Okay.

25 Q. All right, does this definition as part of the global

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1 settlement define the assets that are being transferred to

2 JPMorgan as part of the global settlement?

3 A. Yeah, I think it covers most of it. I think there's also

4 an exhibit that shows the -- what assets each party is

5 receiving.

6 Q. Right, so the demonstrative that Mr. Strochak showed you

7 does not have the assets that JPMorgan was getting under the

8 global settlement, isn't that correct?

9 A. It does not list all of the disputed assets that were

10 resolved. Um-hum.

11 Q. If you looked at the definition of Section 363 sale and

12 settlement, it sets forth at the beginning the assets that are

13 being sold, transferred, and assigned to JPMorgan, and it

14 gives, I think, eleven subdivisions of those assets that are

15 transferring, correct?

16 A. Yeah, I think where it's --

17 Q. Correct? Am I right? Am I understanding that? I'll tell

18 you the question I want you to answer.

19 MR. STROCHAK: Objection, Your Honor.

20 THE COURT: Yeah, a little argumentative.

21 But do answer his question first.

22 A. Okay, sorry, can you repeat the question?

23 Q. Are the eleven subdivisions in that definition the assets

24 that were being transferred to JPMorgan under the global

25 settlement?

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1 A. They're the assets that JPMorgan will be deemed to have

2 had, and so we're relinquishing -- WMI is relinquishing its --

3 whatever right, title, and interest it may have to those

4 assets.

5 Q. Right, and none of those assets are on your demonstrative,

6 right?

7 A. That's right. The purpose -- or --

8 Q. Right? Yes or no. Right?

9 A. They're not on the demonstrative.

10 Q. Okay. Now, the lead-in to the definition of 363 sale and

11 settlement says that "The definition shall mean the compromise

12 and settlement set forth herein pursuant to Bankruptcy Rule

13 9019 and the plan regarding, among other things, and including

14 without limitation, agreements with respect to the ownership of

15 the plan contribution assets". And what are the plan

16 contribution assets?

17 A. There's a -- it's a defined term; there's a list in the

18 back.

19 Q. All right, but those are not the items 1 through 11,

20 correct?

21 A. Similar, they're covered, I believe, here and there.

22 Q. All right, and then it goes on, "and the sale transfer and

23 assignment pursuant to the plan and Sections 363 and 365 of the

24 Bankruptcy Code," and then it lists the eleven items, correct?

25 A. Yeah, it says "of any and all right, title, or interest

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1 any of the WMI entities may have in", and so I just think -- I

2 don't want to be misleading with what's happening pursuant to

3 the settlement agreement. You have to look at these assets.

4 They're not clear assets of WMI that are being transferred to

5 JPMorgan. All of these assets that are being disputed are on a

6 spectrum in terms of ownership. Right? So WMI may have some

7 arguments to ownership of some of these assets, and it may be a

8 very good argument or it may be a very bad argument. But each

9 of these follow along the entire spectrum. And therefore, what

10 we're giving up is whatever -- whatever rights we may have,

11 whatever arguments we may have as to whether or not those are

12 actually assets of WMI.

13 Q. But the construct that was selected in order to resolve

14 this dispute for these eleven particular assets was a Section

15 363 sale, isn't that correct?

16 A. We're using a Section 363 -- we're using Section 363 of

17 the Bankruptcy Code in order to effectuate the mechanism of

18 transferring assets to effectuate the settlement.

19 Q. But you're using Section 363, and if you look at the back

20 end of the definition, you're also using Section 1146 of the

21 Bankruptcy Code to provide that there'll be no transfer taxes

22 relating to the sale of these assets. Isn't that correct?

23 A. That's right.

24 Q. And you're also asking for this sale to be free and clear

25 of all liens, claims, and encumbrances, which is a section -- a

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1 Q. Did you review his deposition in this case?

2 A. No, I did not.

3 Q. Okay, but Mitch Eitel was also involved in the global

4 settlement discussions, correct?

5 A. I believe I met Mr. Eitel once.

6 Q. Okay, but he was -- but you're aware that he was on the

7 CCs of the Sullivan & Cromwell team in connection with the

8 global settlements?

9 A. I think he was involved at some point.

10 Q. And even prior to the confirmation hearing, you actually

11 met with Mr. Eitel to try to understand better certain aspects

12 of the warrant agreement, isn't that correct?

13 A. I did not, no.

14 Q. Did someone from the Washington Mutual team meet with

15 Sullivan & Cromwell lawyers prior to the December confirmation

16 hearing?

17 A. I don't know. I'm not aware of a meeting.

18 Q. You're not aware?

19 A. No.

20 Q. Okay. We'll get to it. All right, let's go through the

21 eleven subdivisions of the definition. Number little i is the

22 trust preferred securities. Tell me what they are and what

23 they were.

24 A. The trust preferred securities, it represents the

25 ownership interest in a trust that held a number of mortgage-

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1 backed securities. I think it's generally viewed to be around

2 a four billion dollar number.

3 Q. Okay, and number ii are checks made out to or funds

4 received by WMI for the benefit of the medical plan or the

5 flexible benefit plan, et cetera. Could you tell me what the

6 value is as represented by ii?

7 A. I believe that it's fairly small. I don't recall the

8 exact number off the top of my head; it's probably around a

9 couple million dollars of rebate checks at this point.

10 Q. And if you could look at iii, which is the rabbi trust and

11 the JPM policies, and what is the value of that item?

12 A. Im not certain. I'd have to review the trust and

13 policies that are covered.

14 Q. Approximately.

15 A. It would be hard for me to do without reviewing the trust

16 and policies.

17 Q. You've never seen a number that's associated with iii?

18 Was it more than fifty million, less than fifty million?

19 A. I just don't recall what's covered by the definition. I

20 think in terms of the overall BOLI-COLI assets that were

21 involved, the overall number was a little over five billion.

22 But I don't know what's covered in this number.

23 Q. Okay, so you just don't know.

24 A. I'm not certain.

25 Q. All right, number iv, the pension plan for WaMu and the

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1 Lakeview plan and the sponsors. What's the value of that

2 asset?

3 A. It's a very difficult question, actually. There are a

4 couple of different values, depending on how you look at the

5 pension plan. WMI has very few employees, and as a result

6 would likely have to terminate the plan if it maintains

7 sponsorship over the plan. A termination of the plan is not

8 likely to yield any value to the estate, and so on one hand,

9 you can look at it as a zero value. On an ongoing basis, given

10 the way that pension accounting works and how you would record

11 it, probably, and I don't know where the funding stands today,

12 but something in the neighborhood of 300 or 400 million

13 overfunded on an accounting basis.

14 Q. So that's the benefit that JPMorgan got for getting the

15 asset without having to terminate it?

16 A. Well, they'll end up satisfying the liabilities of the

17 trust. They'll have whatever residual there is. In terms of

18 what they get to put on their books, it's about a 3- or 400

19 million dollar asset to put on their books. That's not

20 necessarily indicative of the fair value of the asset.

21 Q. What do you think the fair value of the asset is?

22 A. I don't know It's very difficult to say. It depends on

23 who's hand it's in and how the assets perform over time.

24 Q. Okay, item v, the WMI medical plan, what's the value of

25 that asset?

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1 A. It's a liability of about fifty million dollars.

2 Q. But they're assuming that as a liability?

3 A. That's right.

4 Q. Okay, and number vi, intellectual property?

5 A. I don't know; that's anybody's guess.

6 Q. More than fifty, less than fifty million dollars?

7 A. It would be difficult for me to speculate.

8 Q. You just don't know.

9 A. There is a report done at the direction of counsel that I

10 wouldn't want to reveal any of the contents of, and it's

11 difficult for me to separate my knowledge of that report from

12 assessing a value in this.

13 Q. Why couldn't you tell me the value?

14 A. It was done -- the report that was prepared at the

15 direction of counsel, it's a privileged document. I wouldn't

16 want to reveal privileged information and --

17 Q. Okay, so did you ever do an assessment or hear anybody

18 other than counsel do an assessment as to what the value of the

19 intellectual property is?

20 A. No.

21 Q. So other than what may be the estimate in the report that

22 you don't want to talk about, you don't really have a feel as

23 to what the value of the intellectual property is?

24 A. No.

25 Q. All right, so let's go to number vii, the Anchor

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1 dollars?

2 A. I think it's around 550, yeah, somewhere around there.

3 Q. Visa shares? What's the value of that asset?

4 A. Again, there's a covered litigation. There are restricted

5 shares. They don't get -- they're not tradable, the Visa

6 shares right now. There's a litigation that needs to be

7 resolved before that value gets determined.

8 Q. What's the estimate of that?

9 A. We give it a range, I think, of probabilities, in terms of

10 looking at it, and I haven't tracked Visa share price recently,

11 so my information's fairly outdated, but I think it's seventy-

12 five to a hundred.

13 Q. Okay, the JPMC Wind Investment portfolio, number ix?

14 A. Yeah, we had some group that settled interest in that, and

15 ended up with a value that we thought was a little bit below

16 what seemed reasonable, and the offers that came in were just

17 under fifteen million.

18 Q. Fifteen, 1-5?

19 A. Um-hum, 1-5.

20 Q. And then something called the bonds, what are they?

21 A. They're the maturity bond program that was put in place,

22 and this is like a 350 million dollar liability that JPMorgan's

23 taking. They wanted the program because it had a lot to do

24 with the ongoing operations of the bank. We don't have any use

25 for it, so we agreed to transfer the program.

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1 Q. And xi is the tax refunds.

2 A. Yes, that's right.

3 Q. JPMorgan's share of the tax refunds is what, two and a

4 half billion?

5 A. Let's see. It's -- yeah, it's about two -- a little over

6 two billion, I think.

7 Q. It's not closer to two and a half billion?

8 A. I'm just trying to recall the numbers and percentages off

9 the top of my head. It's between two and two and a half.

10 Q. Okay, and did you ever see any document which gives the

11 aggregate number for the value of the assets that are being

12 sold to JPMorgan pursuant to the global settlement?

13 A. No.

14 Q. All right, then do you know what that aggregate value of

15 the number is?

16 A. I don't know.

17 Q. All right, but based on what we've done here, if you just

18 look at the trust preferred amount which was four billion, the

19 tax refund which was two to two and a half billion, the Anchor

20 litigation which is 550 million dollars, and then the other

21 assets which had either values that had a wide range or you

22 just didn't know, it'd be at least six and a half to seven

23 billion dollars?

24 A. Well, I think that the way that you're looking at it is

25 very misleading. I mean, the value that we're transferring is

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1 question.

2 Now, let me ask you, going back to the demonstrative which

3 is what the debtor is going to get out of the settlement,

4 didn't JPMorgan claim an interest in this, too?

5 A. Did they claim an interest in the six and a half billion

6 that we're receiving pursuant to -- yes, they do.

7 Q. These are all disputed assets, and JPMorgan is, in effect,

8 paying for that which it's getting by relinquishing its rights

9 to the assets that are on your demonstrative. Isn't that

10 correct?

11 A. Again, I think there are two things to think about in

12 terms of the overall settlement agreement. One is that we're

13 looking at the underlying merits, and therefore, on the merits,

14 what for how much do you think of value WMI has in assets, and

15 then you're looking at gibing up certain claims and causes of

16 action, settling those claims and causes of action, and WMI's

17 looking for compensation for those, and then you're racking

18 that into the overall settlement. So I think that's the way

19 that you sort of want to frame it, so therefore, you're looking

20 at an amount on the left-hand side that's then -- you're

21 getting whatever assets based on the merits that you have and

22 giving up those claims and causes of action.

23 Q. You're getting four billion dollars of disputed bank

24 accounts, correct?

25 A. That's right.

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1 Q. And JPMorgan claimed an interest in those bank accounts

2 and said it was theirs, not yours?

3 A. That's right.

4 Q. And the end result of this resolution is that you're

5 getting these assets unfettered, correct?

6 A. That's right.

7 Q. And if not for the global settlement, you wouldn't have

8 these assets unfettered, correct?

9 A. That's correct.

10 Q. All right. The global settlement that's been presented to

11 the Court is part of a plan of reorganization, correct?

12 A. Right.

13 Q. And the global settlement, including the sale of the

14 assets, is only being considered by the creditors and the Court

15 as part of a plan of reorganization, correct?

16 A. That's my understanding.

17 Q. And under the debtors' plan, around 7.3 billion dollars of

18 assets are being distributed to the creditors on the effective

19 date of the plan, correct?

20 A. That's right.

21 Q. And so --

22 A. Sorry, on the effective date, it'll be a little bit less.

23 The aggregate that we expect at the end is around that number.

24 Q. So that the sale of the debtors' assets to JPM is only

25 coming about in the context of a larger global settlement which

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1 Q. All right, now, prior to the debtors' bankruptcy filing,

2 it was savings and loan holding company, and its predominant

3 asset was the stock interest in Washington Mutual Savings Bank,

4 correct?

5 A. I'm sorry, prior to when?

6 Q. Prior to its bankruptcy filing.

7 A. Yeah, that's right.

8 Q. And the debtor has not abandoned yet its stock interest in

9 Washington Mutual Savings Bank, correct?

10 A. That's right.

11 Q. But the debtor has gotten authority to do so and plans on

12 doing so shortly before the effective date of its plan?

13 A. I think that the debtor has gotten authority. I don't

14 know that we've made the conclusion on whether or not that's

15 the appropriate course of action. Certainly the events of last

16 week may change certain tax ramifications in terms of how long

17 this case is extended and there are certain changes in control

18 provisions and other things that need to be taken into account

19 as to whether or not the appropriate pursuit is to abandon that

20 stock or not.

21 Q. So the debtor may not abandon that asset and may still be

22 a bank holding emerging coming out of bankruptcy?

23 A. I don't know exactly what will happen with the stock if

24 it's not abandoned and it's not really the focus of my efforts,

25 but I know that there's been a number of discussions that I

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1 have been part of that discuss what might be the best course of

2 action with respect to that stock, and I know that it's still

3 being discussed as to whether abandonment represents the

4 appropriate course of action.

5 Q. Okay, so let's ignore the events of earlier this week, and

6 I know that they're important, but just where we were before

7 the judge rendered her decision, the debtors' intention was to

8 abandon the stock of Washington Mutual Savings Bank shortly

9 before it went effective?

10 A. Not necessarily.

11 Q. No? It wasn't going to do that?

12 A. We filed a motion so that we would have the right to do

13 it. There was some significant time and issues that were

14 around the October time frame which would represent about a

15 three-year anniversary from the bankruptcy filing which had

16 some ample implications with respect to change and control.

17 Therefore, we're not sure whether -- and we weren't sure

18 whether under the old plan we would have actually abandoned the

19 stock.

20 Q. At all?

21 A. At all.

22 Q. So you would have kept it throughout?

23 A. Again, I'm not as familiar with the exact way that the

24 transaction would work. All I know is they were either talking

25 about abandonment or not, and I know that the discussion had

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1 centered around if the effective date had occurred in October,

2 particularly as we got later in October, then it may not make

3 sense to abandon the stock.

4 Q. Until January of the following year?

5 A. Or at all, I don't know. We just talked about it and

6 whether or not the abandonment would occur prior to or after

7 the effective date and whether or not it was going to be

8 necessary to effectuate it in terms of generating the maximum

9 net operating loss. I don't know what would have happened to

10 it down the line.

11 Q. In the context of seeking permission to abandon the stock,

12 did the debtor ever give an explanation that while it was

13 getting permission to do so, it may very well never do so?

14 A. I thought that that was discussed at some point, but I

15 haven't been following all of those filings.

16 Q. Okay, and under the debtors' construct, after it's

17 distributing out all this value to creditors, there are some

18 values that have not been liquidated yet that have been going

19 to a liquidating trust and the other values that will go into a

20 reorganized debtor, right?

21 A. Right.

22 Q. And the liquidating trust is going to essentially get

23 litigation claims and other assets that are flowing to the

24 debtor as part of the global settlement that just weren't

25 liquidated as of the contemplated effective date of a plan,

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1 correct?

2 A. Yeah, principally, it's future tax refunds that have yet

3 to be received. There's a few other assets that are actually

4 WMI nondisputed assets with respect to some BOLI-COLI that may

5 or may not be retained.

6 Q. And the reorganized debtor essentially is going to have an

7 NOL and it's interest in WMMRC, right?

8 A. In WMI Investment Corp., that's right.

9 Q. And WMI Investment Corp. has a value of what?

10 A. Zero. There won't be any assets in there. It's just a

11 shell.

12 Q. In WMMRC --

13 A. I don't know whether it has value for somebody going

14 forward.

15 Q. And without regard to the NOLs, WMMRC has a value of what?

16 A. Well, they -- based on the Court's ruling, I believe, last

17 week, it would be 210 million or so.

18 Q. Okay, so WMMRC is a liquidating entity, no employees,

19 correct?

20 A. There will be employees in reorg WMI post-effective date.

21 There aren't any employees in WMMRC currently; it's managed by

22 those of us that are officers of WMI, so there's a few folks

23 that focus on it currently, but there's nobody employed by

24 WMMRC.

25 Q. All right, now, the global settlement calls for a sale

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1 nunc pro tunc for the bankruptcy filing date, correct?

2 A. That's right.

3 Q. And that now will be a retroactive sale for approximately

4 three years or more for whenever this plan -- new plan will go

5 effective, right?

6 A. Right.

7 Q. And that was something that JPMorgan wanted, correct?

8 A. I'm not sure who asked for it. I think the history on

9 that is that people viewed having a time period for which there

10 was a dispute with respect to certain assets and pre-carved

11 problems down the line. So let me give you an example. The

12 pension plan, in order for JPMorgan to approve benefits for its

13 employees post-bankruptcy filing procedure, they would have had

14 to be a participating employer in a pension plan or have

15 ownership of the pension plan. And so for that asset, having a

16 time period where there might be disputed ownership with

17 respect to the pension plan, could cause a problem down the

18 line if there was a problem with the pension plan or an audit

19 or something that was not covered by then, so it made sense to

20 have a clear link of ownership throughout, so it made sense to

21 use the bankruptcy date as that date.

22 Q. Why did it make sense to use the bankruptcy date as

23 compared to whatever date you're going to close this

24 transaction? We've always -- I mean --

25 A. Because if I leave that period open, right, with the

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1 pension plan, for example, I'm not going to make the settlement

2 agreement close until the effective date, I'm going to have a

3 three-year gap or more where there's a dispute as to ownership.

4 So let's say that the PBGC comes back or the IRS comes back and

5 says there's something wrong with your audit, you did something

6 wrong with the pension plan, then there's going to be a fight

7 between JPMorgan and us, probably taking their gross positions

8 as to who's on the hook for that liability. So in all of these

9 cases, what made sense was to have a clear stream of ownership

10 and not leave a three-year, whatever time period of disputed

11 ownership of asset.

12 Q. So was the three-year or the nunc pro tunc issue was

13 something that the debtor wanted?

14 A. I don't really know that it was something that either

15 party specifically said I want this. That's how it was --

16 that's how people thought it was best to handle it.

17 Q. It had nothing to do with JPMorgan's accounting treatment

18 for the assets that it wanted -- that the debtor was acquiring

19 and it wanted to get it as of the date that it was assuming the

20 other bank assets?

21 A. I wasn't involved in that conversation with JPMorgan. If

22 they would have said that, I don't know whether they felt that

23 way or not.

24 Q. All right, now, the global settlement calls for a sale

25 free and clear of all liens, claims, and interests. That was

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1 something else that JPMorgan wanted?

2 A. Again, I'm not the lawyer who's doing the drafting of this

3 document, so I wasn't involved in the economics of the

4 settlement agreement, and generally, those types of issues; I

5 don't know who drafted that. I don't know who asked for that

6 provision. I don't have the back and forth of those drafts, so

7 I don't know who inserted it and whether or not it was at

8 somebody else's direction.

9 Q. All right, if you can turn to Exhibit 242 which is still

10 the global settlement, and turn to page 41, which is Section

11 213(b).

12 THE COURT: Mr. Steinberg, how much longer do you

13 think you'll be? I have a hearing that'll only be five

14 minutes, and I'm trying to decide when to --

15 MR. STEINBERG: Well, I'm pretty sure that if you have

16 a hearing for five minutes, I have considerably more.

17 THE COURT: Well, is this a good time to break, or do

18 you want to finish up with it?

19 MR. STEINBERG: This is good -- why don't I just ask

20 him the questions about 213(b) --

21 THE COURT: Okay, okay.

22 MR. STEINBERG: -- and then we'll take the break, if

23 that's okay.

24 THE COURT: Okay.

25 Q. If you look at the language, this is the section in the

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1 Q. Do you have any idea what the claims that the LTW holders

2 would have in and through the Anchor litigation?

3 A. I don't.

4 Q. Do you have any idea what the interest that the LTW

5 holders would have in the Anchor litigation?

6 A. I don't.

7 Q. Was this superfluous language that was added to the

8 agreement or did it have a significance that there was someone

9 concerned about a lien, a claim, or an interest that an LTW

10 holder would have in and through the Anchor litigation?

11 A. I don't know. I didn't draft this section and Im not an

12 attorney. I don't know whether they -- it got in and people

13 didn't think about it. I don't know if somebody's going to

14 spend time arguing a certain point. I'm not familiar with it.

15 Q. Do you remember any discussion about this section and this

16 specific language?

17 A. No.

18 MR. STEINBERG: I'm ready to take a break.

19 THE COURT: All right, let's take a short break and

20 then we'll come back. And you're still under oath, so you

21 should not discuss your testimony with counsel.

22 THE WITNESS: Thank you.

23 THE COURT: All right, we'll stand in recess.

24 (Recess from 11:41 a.m. until 11:55 a.m.)

25 THE COURT: Good morning. You may continue with

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1 cross.

2 MR. STEINBERG: Thank you.

3 RESUME CROSS-EXAMINATION

4 BY MR. STEINBERG:

5 Q. Mr. Goulding, if you could go back to the global

6 settlement on LTW Exhibit 242 and turn to page 18, which is

7 Section 2.1 of the agreement. And let me know when you are

8 there.

9 A. Okay.

10 Q. All right. And you see the language -- this is the

11 section that talks about the disputed accounts which is the

12 four billion dollar number on your demonstrative.

13 A. That's right.

14 Q. Right. And do you see the language that says "in partial

15 consideration for the assets sold pursuant to the 363 sale and

16 settlement agreement." And then it goes on "the JPMC entities

17 and the FDIC parties shall waive any and all claims, rights and

18 liabilities with respect to the accounts and the disputed

19 accounts." See that language?

20 A. Yes.

21 Q. All right. So who asked to insert the language "in

22 partial consideration of the assets sold pursuant to the 363

23 sale and settlement"?

24 A. I don't know.

25 Q. Does looking at this language mean to you that the

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1 to you that the relinquishment of the lien by JPMorgan into the

2 disputed account was part of the consideration that it paid in

3 the context of the global settlement for the assets that it was

4 purchasing?

5 A. I guess what it means to me is that the value that

6 JPMorgan is giving up is whatever rights they would have to the

7 lien.

8 Q. And it's -- and whatever that value was --

9 A. Um-hum.

10 Q. -- it was in partial consideration for the assets sold to

11 JPMorgan pursuant to the Section 363 sale and settlement.

12 Isn't that what the language says?

13 MR. STROCHAK: Objection, Your Honor.

14 THE COURT: Sustained.

15 Q. All right. Let's move on. Under the global settlement,

16 JPMorgan is assuming liabilities. I'm not -- I don't think I

17 asked you, what is the magnitude of liabilities that were

18 assumed by JPMorgan as part of this settlement?

19 A. I don't recall all of them off the top of my head. I

20 think it's maybe a few hundred million.

21 Q. It's not north of a half a billion dollars?

22 A. You know, I don't -- I don't really recall the sum total

23 of all of those liabilities at this point.

24 Q. Do you -- were you in court when Mr. Kosturos testified at

25 the December confirmation hearing?

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1 A. No.

2 Q. No. You ever review the transcripts of Mr. Kosturos'

3 testimony in connection with the December confirmation hearing?

4 A. I may have reviewed some of it but I don't recall

5 specifically.

6 Q. All right. I'm going to -- on page 201 of the transcript,

7 I'm going to read to you a Q&A that I had with Mr. --

8 THE COURT: Which day of the transcript?

9 MR. STEINBERG: This is the December 2 and it's

10 Exhibit 245.

11 Q. And so I'm going to read you a Q&A and see whether this

12 would trigger your memory as to what the magnitude of the

13 liabilities that were assumed. My question that:

14 "They're taking on liabilities that Washington Mutual,

15 Inc. otherwise had as part of the consideration, the global

16 settlement, they're assuming liabilities and Washington Mutual,

17 Inc. is being relieved of those liabilities and that number is

18 north of 500 million dollars, correct?"

19 "A. I think it's substantially north of that number."

20 Does that refresh your recollection in any way as to what

21 the amount would be?

22 A. It doesn't really. I haven't gone back through so look at

23 the, you know, obligations that they're taking -- the -- you

24 know, there's a bunch of them that are difficult to quantify

25 like the BKK liability would be hard for me to put a specific

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1 number on that. So, you know, when I was thinking about it, I

2 was thinking mostly about the deferred compensation liabilities

3 but obviously the BKK liability is a fairly large liability.

4 Q. But Mr. Kosturos did, apparently, have a difficult time,

5 at least, prognosticating that it was substantially north of

6 500 million dollars of liabilities, did he?

7 A. Well, it sounds like, based on what you read, that that's

8 what he said.

9 Q. All right. So, I think you may have testified that the

10 debtor advocated for JPMorgan to assume as much liabilities as

11 they could. Is that generally the attitude that the debtor had

12 in the negotiations?

13 A. Well, we heard that before but around the time that the

14 settlement was getting close, I think, we were generally

15 thinking of it as probably getting about a hundred cents for

16 creditors at the end of the day if things resolve themselves

17 favorably. And, therefore, a reduction in liabilities, to us,

18 would be very similar to getting more assets. So to the extent

19 that there were ways to get JPMorgan to take liabilities, that

20 seemed to be a worthwhile cause as well.

21 Q. Okay. When I cross-examined you in connection with the

22 first confirmation hearing in December 2010, you indicated that

23 you had not fully read the warrant agreement, the 2003 warrant

24 agreement, you had only read certain sections.

25 A. That's right.

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1 Q. Have you become more familiar with that warrant agreement

2 since that time?

3 A. I've looked at it but I haven't read it -- haven't

4 reviewed it in detail or dissected sections of it.

5 Q. And I think you testified that you had never really looked

6 at the adjustment section with is Article 4. Have you had a

7 chance to look closer at the adjustment section now?

8 A. I've read them.

9 Q. Okay. Do you think you understand now better now than you

10 did before?

11 A. I don't know. I think that article is likely a legal

12 determination and so, really not being a lawyer, I would really

13 on counsel for interpretation of those sections.

14 Q. Okay. Why don't you turn to Exhibit 4 at the beginning of

15 your book and I'm going to ask you about Section 6.3 of the

16 warrant agreement which is on page 19. Let me know when you're

17 there.

18 A. All right.

19 Q. And the sentence -- I want you to focus in on the first

20 sentence which says "The bank will retain sole and exclusive

21 control of the litigation and will retain a hundred percent of

22 any recovery from the litigation." Do you remember ever seeing

23 that sentence before?

24 A. You mean other than in this document?

25 Q. Well, no. Just in -- did you ever review this document

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1 before and this particular section, before I just read it to

2 you today?

3 A. Yeah, I've read -- I've read this section before.

4 Q. Okay. And "bank" refers to, under this agreement, to

5 Washington Mutual Savings Bank, right?

6 A. Right.

7 Q. And Bank does not include JPMorgan, correct?

8 A. No.

9 MR. STROCHAK: Objection, Your Honor; calls for legal

10 conclusions.

11 THE COURT: Well, sustained.

12 Q. Do you know what the definition of "bank" is under this

13 agreement?

14 A. I'm sure I could look it up.

15 Q. If it says Washington Mutual Saving Bank and any

16 successor, which is -- thereto -- which is on page 2 of the

17 agreement.

18 A. It means Washington Mutual Bank --

19 Q. FA.

20 A. -- FA, a federal association or a successor thereto.

21 Q. Thereto.

22 A. Um-hum.

23 Q. Do you have any understanding as to whether JPMorgan as a

24 successor to Washington Mutual Bank, FA?

25 A. I don't.

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1 THE COURT: Objection; also legal conclusion.

2 THE COURT: Sustained.

3 Q. Okay. Now, when you see this section that says that the

4 bank is going to retain exclusive control over the litigation

5 and a hundred percent of any recovery from the litigation, did

6 you think that that sentence was at odds with the position that

7 you took in the JPM adversary proceeding that Washington

8 Mutual, Inc. owned the Anchor litigation?

9 A. I did review this section contemporaneously with the

10 counterclaims that were filed. I think that we filed whatever

11 claims that we thought we might have at the time that we filed

12 out counterclaims. And so, certainly, there are documents that

13 may be at odds with each other in any number of situations in

14 the disputed assets of this case.

15 Q. And did you review Mr. Kosturos' deposition testimony in

16 connection with this case?

17 A. I have read section of, I think, his deposition. You

18 mean, in connection with the confirmation hearing or --

19 Q. No. In connection with this adversary proceeding.

20 A. I don't know whether I've read all of his deposition.

21 Q. Do you remember the question-answer I had with Mr.

22 Kosturos about this provision where I asked him why they took a

23 position in the JPM adversary proceeding, in view of this

24 sentence and his answer was that this was a data point but not

25 the full data points for purposes of how they analyze the

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1 issue?

2 A. I don't recall that section.

3 Q. Okay. Now, I think you -- I connection with the prior

4 cross-examination of you with regard to who owns the Anchor

5 litigation, in addition to the JPM -- the certificate of

6 interest filed by Jones Day, you actually referred to the fact

7 that Washington Mutual, Inc. signed the litigation tracking

8 warrant and that, to you, had a significance as to why maybe

9 Washington Mutual, Inc. owned the Anchor litigation. Do you

10 remember that back and forth?

11 A. Yeah. I think that, again, as was the case in a lot of the

12 disputed assets, there were things that were less than one

13 hundred percent clear so certainly having, you know, different

14 signatories may have -- you know, may have been an indication

15 as to who owned different assets.

16 Q. And why would the fact that Washington Mutual, Inc. signed

17 the warrant agreement, as compared to Washington Mutual Savings

18 Bank, why would that be an indication to you that the Anchor

19 litigation belonged to Washington Mutual, Inc. as compared to

20 Washington Mutual Savings Bank?

21 A. Well, I was just saying that it would indicate and

22 obligation of WMI which would seem like they would get --

23 should be getting the benefit as well. But, again, it's just

24 one piece of information.

25 Q. One data point.

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Documents

Washington Mutual (WMI) - Transcript of Omnibus Hearing of 9/20/2011