deutsche bank _ fdic memo in support of jpmorgan chase's motion to dismiss filed 22nov2010

7/29/2019 Deutsche Bank _ FDIC Memo in Support of JPMorgan Chase's Motion To Dismiss filed 22nov2010

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UNITED STATES DISTRICT COURTFOR THE DISTRICT OF COLUMBIA

DEUTSCHE BANK NATIONAL TRUSTCOMPANY,

Plaintiff,

v.

FEDERAL DEPOSIT INSURANCECORPORATION (as receiver ofWASHINGTON MUTUAL BANK);JPMORGAN CHASE BANK, NationalAssociation; and WASHINGTONMUTUAL MORTGAGE SECURITIESCORPORATION,

Defendants.

Case No. 09-CV-1656-RMC

Hon. Rosemary M. Collyer

MEMORANDUM OF POINTS AND AUTHORITIES INSUPPORT OF FDIC RECEIVERS MOTION TO DISMISS

Of Counsel:

Kathryn R. Norcross (D.C. Bar No. 398120)Senior Counsel, Commercial Litigation Unit

Anne M. DevensCounsel, Commercial Litigation Unit

Kaye A. AllisonCounsel, Commercial Litigation Unit

FEDERAL DEPOSIT INSURANCECORPORATION

3501 Fairfax Drive, Room VS-D-7062Arlington, Virginia 22226Telephone: (703) 562-2204Facsimile: (703) 562-2475Email: [email protected]: [email protected]: [email protected]

William R. Stein (D.C. Bar No. 304048)Scott H. Christensen (D.C. Bar No. 476439)Jason S. Cohen (D.C. Bar No. 501834)HUGHES HUBBARD & REED LLP1775 I Street, N.W.Washington, D.C. 20006-2401Telephone: (202) 721-4600Facsimile: (202) 721-4646Email: [email protected]: [email protected]: [email protected]

Attorneys for Federal Deposit InsuranceCorporation in its capacity as Receiver forWashington Mutual Bank

November 22, 2010

Case 1:09-cv-01656-RMC Document 54-1 Filed 11/22/10 Page 1 of 51


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TABLE OF CONTENTS

Page

Table of Authorities ....................................................................................................................... iii

INTRODUCTION ...........................................................................................................................1

BACKGROUND AND SUMMARY OF ALLEGATIONS ...........................................................4

A. The WaMu Receivership And The P&A Agreement ..............................................6

B. WaMus Mortgage-Backed Securities Business ....................................................10

1. The Securitization Process .........................................................................10

2. The Trusts and the Governing Agreements ...............................................12

C. WaMus Disclosure Of Liabilities And Obligations Under The GoverningAgreements ............................................................................................................16

D. JPMCs Acknowledgment Of Liabilities And Obligations Under TheGoverning Agreements ..........................................................................................19

E. DBNTCs Amended Complaint .............................................................................22

ARGUMENT .................................................................................................................................23

I. FDIC RECEIVER HAS NO LIABILITY TO DBNTC UNDER THE

GOVERNING AGREEMENTS. .......................................................................................23

A. The P&A Agreement Transferred The Governing Agreements And All OfWaMus Rights, Obligations, And Liabilities Thereunder To JPMC. ..................24

1. The Governing Agreements are Assets that transferred to JPMCunder Section 3.1 of the P&A Agreement. ................................................25

2. All of WaMus obligations and liabilities under the GoverningAgreements transferred to JPMC under Section 2.1 of the P&AAgreement. .................................................................................................29

B. The Transfer Of The Governing Agreements To JPMC ExtinguishedFDIC Receivers Potential Liability. .....................................................................38

II. CLAIMS AGAINST FDIC RECEIVER BASED ON ALLEGED POST-RECEIVERSHIP BREACHES SHOULD BE DISMISSED. ...........................................40

A. DBNTC Failed To Exhaust The Administrative Claims Process WithRespect To Its Claims Of Post-Receivership Breach. ...........................................40



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TABLE OF CONTENTS(continued)

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B. The Amended Complaint Fails to State A Claim Of Post-ReceivershipBreach Against FDIC Receiver. ............................................................................42

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



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TABLE OF AUTHORITIES

Page(s)CASES

Acevedo v. First Union Natl Bank, 357 F.3d 1244 (11th Cir. 2004) ............................................39

Aljaf Assocs. Ltd. Pship v. FDIC, 879 F. Supp. 515 (E.D. Pa. 1995)...........................................42

Ameren Servs. Co. v. FERC, 330 F.3d 494 (D.C. Cir. 2003) ........................................................24

Bank of N.Y. v. FDIC, 453 F. Supp. 2d 82 (D.D.C. 2006) .............................................................26

Beal Bank, SSB v. Pittorino, 177 F.3d 65 (1st Cir. 1999) ..............................................................30

Brady Dev. Co., Inc. v. RTC, 14 F.3d 998 (4th Cir. 1994) ............................................................40

Brown Leasing Co. v. FDIC, 833 F. Supp. 672 (N.D. Ill. 1993) ...................................................42

In re Chicago, Milwaukee, St. Paul, & Pac. R. Co., 789 F.2d 1281 (7th Cir. 1986).....................38

Coleman v. FDIC, 826 F. Supp. 31 (D. Mass. 1993) .....................................................................42

Conseil Alain Aboudaram, S.A. v. de Groote, 460 F.3d 46 (D.C. Cir. 2006) ................................24

Courtney v. Halleran, 485 F.3d 942 (7th Cir. 2007) .....................................................................39

E.I. du Pont de Nemours & Co. v. FDIC, 32 F.3d 592 (D.C. Cir. 1994).......................................30

FDIC v. Condit, 861 F.2d 853 (5th Cir. 1988) ..............................................................................39

FDIC v. Great Am. Ins. Co., 607 F.3d 288 (2d Cir. 2010) ............................................................30

Flynn v. Dick Corp., 481 F.3d 824 (D.C. Cir. 2007) .....................................................................33

Flynn v. So. Seamless Floors, Inc., 460 F. Supp. 2d 46 (D.D.C. 2006) ........................................34

Forest Mktg. v. State Dept. Natural Res., 104 P.3d 40 (Wash. Ct. App. 2005) ............................35

Freeman v. FDIC, 56 F.3d 1394 (D.C. Cir. 1995) ..................................................................40, 41

Goodman v. Challenger Intl, Ltd., No. 94-1262, 1995 WL 402510 (E.D. Pa. July 5,1995) ........................................................................................................................................38

Hatco Corp. v. W.R. Grace & Co., 59 F.3d 400 (3d Cir. 1995) ....................................................38

Henderson v. Bank of New England, 986 F.2d 319 (9th Cir. 1993) ..............................................41

Hennessy v. FDIC, 58 F.3d 908 (3d Cir. 1995) .............................................................................39



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Home Capital Collateral, Inc. v. FDIC, 96 F.3d 760 (5th Cir. 1996) ...........................................41

India Breweries, Inc. v. Miller Brewing Co., 612 F. 3d 651 (7th Cir. 2010) .................................30

Langley v. FDIC, 484 U.S. 86 (1987) ............................................................................................30

Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383 (5th Cir. 2010) ...................26

In re MBIA, Inc. Sec. Litig., 700 F. Supp. 2d 566 (S.D.N.Y. 2010) ................................................5

McCarthy v. FDIC, 348 F.3d 1075 (9th Cir. 2003) .......................................................................41

McGlothlin v. RTC, 913 F. Supp. 15 (D.D.C. 1996) .....................................................................42

Mintz v. FDIC, ___ F. Supp. 2d ____, No. 09-1894, 2010 WL 3064373 (D.D.C. Aug. 6,2010) ..........................................................................................................................................5

Paylor v. Winter, 600 F. Supp. 2d 117 (D.D.C. 2009) ....................................................................4

Payne v. Sec. Sav. & Loan Assn, F.A., 924 F.2d 109 (7th Cir. 1991) ..........................................39

Pfeiffer v. Duncan, 659 F. Supp. 2d 160 (D.D.C. 2009)................................................................33

Rothman v. Gregor, 220 F.3d 81 (2d Cir. 2000)..............................................................................5

Segar v. Mukasey, 508 F.3d 16 (D.C. Cir. 2007) .....................................................................24, 33

Simon v. FDIC, 48 F.3d 53 (1st Cir. 1995) ....................................................................................41

SR Intl Bus. Ins. Co. v. World Trade Ctr. Props., 467 F.3d 107 (2d Cir. 2006) ..........................35

Staehr v. Hartford Fin. Servs. Group, 547 F.3d 406 (2d Cir. 2008) ...............................................5

Tri-State Hotels, Inc. v. FDIC, 79 F.3d 707 (8th Cir. 1996)..........................................................44

United States v. First N. Dakota Natl Bank, 137 F.3d 1077 (8th Cir. 1998)................................38

United States v. Sunoco, Inc., 637 F. Supp. 2d 282 (E.D. Pa. 2009) .............................................38

Village of Oakwood v. State Bank and Trust Co., 539 F.3d 373 (6th Cir. 2008) ..........................41

Wilson Court Ltd. Pship v. Tony Maronis, Inc, 952 P.2d 590 (Wa. 1998) .................................35

STATUTES AND RULES

12 U.S.C. 1821 ....................................................................................................................passim

12 U.S.C. 1823 ........................................................................................................................6, 30



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Fed. R. Civ. P. 12(b)(1)..................................................................................................................42

Fed. R. Civ. P. 12(b)(6)....................................................................................................3, 4, 40, 44

Financial Institutions Reform Recovery and Enforcement Act of 1989,Pub. L. No. 101-73 .................................................................................................22, 38, 40, 41

LEGISLATIVE AND ADMINISTRATIVE MATERIALS

H.R. Conf. Rep. No. 103-213, 1993 U.S.C.C.A.N. 1088 (Aug. 4, 1993)......................................44

TREATISES AND PERIODICAL MATERIALS

RESTATEMENT

(SECOND

)OF

CONTRACTS

202(1),CMT

.C

(1993) ................................................35



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Defendant Federal Deposit Insurance Corporation in its capacity as Receiver for

Washington Mutual Bank (FDIC Receiver) submits this memorandum in support of its motion

to dismiss the First Amended Complaint (the Amended Complaint).

INTRODUCTION

Plaintiff Deutsche Bank National Trust Company (DBNTC) asserts claims for

monetary damages and declaratory relief against FDIC Receiver and, in the alternative,

Defendant JPMorgan Chase Bank, N.A. (JPMC) as purported successors-in-interest to

Washington Mutual Bank (WaMu). DBNTCs claims arise from alleged breaches by WaMu

of contractual obligations reflected in the Governing Agreements of 127 separate trusts created

for the securitization of residential mortgage loans between 1992 and 2007. Am. Compl. 2-3.

As Trustee for these 99 Primary Trusts and 28 Secondary Trusts (which DBNTC refers to

collectively as the Trusts), DBNTC seeks damages of more than $10 billion on behalf of the

Trusts and investors in securities issued by the Trusts. See id. 3, 5-6, 85.

DBNTCs claims against FDIC Receiver should be dismissed in their entirety, because

FDIC Receiver transferred all of WaMus liabilities and obligations under the Governing

Agreements to JPMC. Under the Purchase and Assumption (P&A) Agreement1

1. The P&A Agreement is Exhibit 2 to the Amended Complaint. The P&A Agreement ismaintained in the publicly-available files of the FDIC and can be accessed athttp://www.fdic.gov/about/freedom/Washington_Mutual_P_and_A.pdf.

that JPMC

and FDIC Receiver entered into when the Office of Thrift Supervision (OTS) closed WaMu on

September 25, 2008, JPMC acquired WaMus ongoing banking operations in a whole bank

transaction, purchas[ing] substantially all of the assets and assum[ing] all deposit and

substantially all other liabilities of WaMu, for a purchase price of $1.9 billion. P&A Agreement



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at 1, Art. VI. JPMC expressly agreed to pay, perform, and discharge all liabilities reflected on

WaMus books and records as of September 25, 2008, including specifically all mortgage

servicing rights and obligations. Id. 2.1. JPMC purchased all the assets of WaMu,

including specifically all the mortgage servicing rights and obligations, id. 3.1, and all

rights of [WaMu] to provide mortgage servicing for others . . . and related contracts, id.

Schedule 3.2. Further, the assets were purchased subject to all liabilities affecting those assets,

as provided in Section 2.1. Without question, JPMC succeeded to all of WaMus interests,

rights, obligations, and liabilities under the Governing Agreements, which, according to

DBNTC, are for each Trust an integrated set of agreements governing the transfer of loans into

the Trust, the securitization of the loans in the Trust, the servicing of the loans, and the rights and

obligations of all the parties to the transaction.

As a result of the P&A Agreement, JPMC acquired from FDIC Receiver assets with a net

fair value of nearly $12 billion, including WaMus nationwide mortgage banking operations and

its valuable mortgage servicing rights. Despite its extraordinary gain and continuing profits,

JPMC now seeks to walk away from the associated obligations and liabilities, by denying the

plain meaning of the P&A Agreement and asserting that FDIC Receiver should bear the cost of

WaMus liabilities and obligations under the Governing Agreements. Yet as DBNTC alleges,

these liabilities and obligations such as the obligation to repurchase defective mortgage loans

and to indemnify the Trusts for certain expenses are express provisions in the Governing

Agreements, which constituted official books and records of [WaMu] at the time of [its] closing

on September 25, 2008. Am. Compl. 42(e); seealsoid. 40, 43. As illustrated by WaMus

public filings in 2007 and 2008, WaMu disclosed its liabilities and obligations under the

Governing Agreements long before OTS had closed, and JPMC had acquired, WaMu. In fact, in



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its own public filings following the WaMu transaction, JPMC acknowledged its assumption of

WaMus liabilities and obligations under the Governing Agreements.

Now, JPMC is attempting to rewrite history. The unambiguous terms of the P&A

Agreement, which the Court may construe as a matter of law, demonstrate that any and all of

WaMus rights, obligations, and liabilities under the Governing Agreements were transferred to

and assumed by JPMC. Accordingly, FDIC Receiver can have no liability to DBNTC for any

obligation owed under the Governing Agreements, whether arising before or after WaMus

closure, and all claims against FDIC Receiver should be dismissed under Rule 12(b)(6).

DBNTC also appears to allege that either JPMC or FDIC Receiver, as successor to

WaMu, committed post-receivership breaches of servicing or repurchase obligations under the

Governing Agreements. Any claims against FDIC Receiver based on post-receivership breaches

should be dismissed for two additional reasons.2

2. In its Amended Complaint, DBNTC refers to WaMu, JPMC, and FDIC Receiverindiscriminately under the blanket term WaMu. Am. Compl. 13. By conflating WaMu,JPMC and FDIC Receiver in this fashion, DBNTC adds unnecessary confusion to theCourts task, particularly when DBNTC ascribes post-receivership actions to WaMu.SeeinfraSection II.

First, this Court lacks subject matter

jurisdiction to consider such claims because DBNTC did not include in its administrative Proof

of Claim to FDIC Receiver any claim or allegation based on post-receivership breaches by FDIC

Receiver or anyone else, but instead limited its claims to alleged pre-receivership breaches by

WaMu. See12 U.S.C. 1821(d)(13)(D). Second, the post-receivership breach claims against

FDIC Receiver should be dismissed under Rule 12(b)(6), because the Amended Complaint does

not establish a basis for those claims against FDIC Receiver. As to post-receivership servicing

obligations, the P&A Agreement unambiguously provides that JPMC would assume all



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mortgage servicing rights and obligations and that FDIC Receiver would transfer all loan and

mortgage files to JPMC; accordingly, FDIC Receiver indisputably had no post-receivership

obligations to service loans in any Trust or provide DBNTC with access to loan files, and could

not possibly have breached obligations it did not have. As to post-receivership repurchase

obligations, DBNTC acknowledges that it has not provided FDIC Receiver with the required

notice and opportunity to cure with respect to any specific mortgage loan in any Trust pools,

which is DBNTCs sole remedy under the Governing Agreements; accordingly, even if FDIC

Receiver had retained any repurchase obligations under those Agreements (which it did not),

those obligations have never been triggered and thus could not have been breached.

BACKGROUND AND SUMMARY OF ALLEGATIONS3

Before its closure, WaMu was the nations largest savings and loan association. Its

business was heavily focused on residential mortgage lending. During the years preceding the

current financial crisis, WaMu, along with a number of other mortgage lenders, began using a

variety of high-risk mortgage products that enabled it to increase revenue and market share.

4

3. In evaluating a motion under Rule 12(b)(6), the Court may consider facts alleged in thecomplaint, any documents attached to or incorporated in the complaint, matters of which thecourt may take judicial notice, and matters of judicial record. Paylor v. Winter, 600 F.Supp. 2d 117, 123 (D.D.C. 2009). The documents cited herein in support of FDIC

Receivers motion to dismiss are attached as exhibits to the Declaration of Jason S. Cohen,received on November 22, 2010, and submitted herewith. When citing these materials, thenotation Ex. ___ refers to the corresponding exhibit attached to Mr. Cohens Declaration.

Borrowers ability to repay or refinance these mortgages often depended upon home prices

continuing to increase. WaMu also was a major participant in the residential mortgage-backed

4. Dan Margolies,US Senate Panel: High-Risk Loans Brought Down WaMu, REUTERS, Apr.12, 2010, available athttp://www.reuters.com/article/idUSN1220708420100412.



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securitization market.5 Securitization of the loans it originated was an important source of

liquidity for WaMu.6

When home prices began to plateau and fall, and when the credit markets began to lose

their appetite for mortgage-backed securities, WaMus business model could not withstand the

resulting stresses. In 2008, WaMu was having increasingly large mortgage loan losses. It

suffered three straight quarters of losses totaling $6.1 billion, and was encountering increasingly

difficult market conditions.

7 On September 15, 2008, an outflow of deposits began that reached

$16.7 billion in only eight business days.8 As a result, on September 25, 2008, OTS closed

WaMu, finding the bank to have insufficient liquidity to meet its obligations and thus to be in

an unsafe and unsound condition to conduct business.9

FDIC Receiver was thus called upon to help resolve the problems with one of the

nations most troubled mortgage lenders at the low point of the financial crisis only ten days

OTS appointed FDIC as Receiver on

the same day. SeeAm. Compl. 10; OTS Order 2008-36.

5. See, e.g., Ex. 1, Washington Mutual, Inc. (WMI) 2007 Form 10-K (2/29/08) at 132-133.The Court may take judicial notice of documents required by law to be, and that havebeen, filed with the SEC. In re MBIA, Inc. Sec. Litig., 700 F. Supp. 2d 566, 574 n.5(S.D.N.Y. 2010) (quotingRothman v. Gregor, 220 F.3d 81, 88 (2d Cir. 2000)); accord, e.g.,Staehr v. Hartford Fin. Servs. Group, 547 F.3d 406, 425 (2d Cir. 2008); Mintz v. FDIC, ___F. Supp. 2d ____, No. 09-1894, 2010 WL 3064373, at *2 n.2 (D.D.C. Aug. 6, 2010).References to WMI filings are relevant because WaMu was wholly-owned by WMI, apublicly traded bank holding company. SeeEx. 1, WMI 2007 Form 10-K (2/29/08) at 2.

6. See, e.g., Ex. 1, WMI 2007 Form 10-K (2/29/08) at 87.

7. Office of Thrift Supervision, OTS Fact Sheet on Washington Mutual Bank, 3 (Sept. 25,2008) (available at http://www.ots.treas.gov/_files/730021.pdf).

8. Id.

9. Office of Thrift Supervision, Press Release, Washington Mutual Acquired by JPMorganChase (No. OTS 08-046) (Sept. 25, 2008).



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after Lehman Brothers filed for bankruptcy protection. Since the beginning of 2008, 314 banks

have been closed and placed in FDIC receiverships,10 but WaMus closure remains the largest

bank failure in United States history.11

A. The WaMu Receivership And The P&A Agreement

In order to resolve the failed bank quickly at the least

cost to the FDICs Deposit Insurance Fund during a period of great financial stress, FDIC

Receiver conducted a competitive bidding process and, immediately upon being appointed

Receiver, sold WaMus banking operations substantially all assets and all deposits and

substantially all other liabilities to JPMC. FDIC Receiver thus was able to resolve WaMu

without disruption for depositors and other bank customers, without cost to the Deposit

Insurance Fund, and without posing additional systemic risk to the U.S. financial system.

Upon its appointment, FDIC Receiver succeeded to all the rights, titles, powers,

privileges, and operations of WaMu with respect to the bank, its assets, and its valid obligations.

12 U.S.C. 1821(d)(2). The powers and duties of FDIC Receiver include the ability to transfer

any asset or liability of the institution in default . . . without any approval, assignment, or consent

with respect to such transfer, id. 1821(d)(2)(G)(i)(II), and to otherwise act in the best

interests of the [failed] depository institution, its depositors, or the [FDIC], id. 1821(d)(2)(J ).

FDIC Receiver has a statutory duty to resolve a failed financial institution in the manner least

costly to the Deposit Insurance Fund with respect to the total amount of the expenditures . . .

and obligations incurred by the [FDIC] (including any immediate and long-term obligation of the

10. SeeFailed Bank List, available at http://www.fdic.gov/bank/individual/failed/banklist.html.

11. Elinor Complay and Jonathan Stempel, WaMu Is Largest U.S. Bank Failure, REUTERS, Sept.26, 2008, available athttp://www.reuters.com/article/idUSTRE48P08920080926.



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[FDIC] and any direct or contingent liability for future payment by the [FDIC]). 12 U.S.C.

1823(c)(4)(A)(ii).

Immediately following FDIC Receivers appointment on September 25, 2008, FDIC

Receiver accepted JPMCs bid to purchase substantially all of the assets and assume all deposit

and substantially all other liabilities of [WaMu] in a P&A Agreement designed to transfer the

whole bank. P&A Agreement at 1; id. 2.1, 3.1; seeid. at 20. As a result of this transaction,

JPMC acquired the ongoing banking operations of WaMu, which consisted of a retail bank

network of 2,244 branches, a nationwide credit card lending business, a multi-family and

commercial real estate lending business, and nationwide mortgage banking activities,

specifically including WaMus valuable mortgage servicing rights with respect to hundreds of

billions of dollars of residential mortgage loans.12

In exchange for WaMus ongoing banking operations i.e., for purchas[ing]

substantially all the assets and assum[ing] all deposit and substantially all other liabilities of

WaMu JPMC paid $1.9 billion in cash. P&A Agreement, Art. VII; seeAm. Compl. 86.

Ex. 9, JPMC 2009 Form 10-K (2/24/10) at 58;

see, e.g., Ex. 7, J PMC Form 8-K (1/15/09), Ex. 99.1 Earnings Release at 6 (Total third-party

mortgage loans serviced [in 2008] were $1.2 trillion, an increase of $557.9 billion, or 91%,

predominantly due to the Washington Mutual transaction.); Am. Compl. 38-39. According

to JPMC, the Washington Mutual transaction . . . contributed to increases in net interest income,

lending- and deposit-related fees, and mortgage fees and related income. Ex. 9, JPMC 2009

Form 10-K (2/24/10) at 45.

12. SeeEx. 9, JPMC 2009 Form 10-K (2/24/10) at 58 (The [WaMu] transaction expanded[JPMCs] U.S. consumer branch network in California, Florida, Washington, Georgia,Nevada and Oregon and created the nations third-largest branch network.).



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According to JPMC, however, the fair value of thenetassets it acquired from FDIC Receiver in

the WaMu transaction (i.e., WaMus assets net of its liabilities) was $11.99 billion at the time of

sale. SeeEx. 9, J PMC 2009 Form 10-K (2/24/10) at 144.13 Thus, by JPMCs own reckoning,

the total fair value of the assets and liabilities it assumed under the P&A Agreement, even after

[a]djustments to reflect liabilities assumed at fair value, was more thansix times greater than

JPMCs $1.9 billion purchase price.14

Section 3.1 of the P&A Agreement provided that JPMC purchases from the Receiver,

and the Receiver hereby sells, assigns, transfers, conveys, and delivers to [JPMC], all right, title,

and interest of the Receiver in and to all of the assets of WaMu, whether or not reflected in the

books of [WaMu] as of Bank Closing, and subject to all liabilities . . . affecting such Assets to

the extent provided in Section 2.1.

Id. The projected future cash flow for WaMus mortgage

servicing rights alone was valued as an asset worth $5.87 billion on JPMCs balance sheets

immediately after the purchase. Id.

15

13. Such a transaction, in which the acquisition-date fair value of the net assets acquiredexceeds the purchase price, is literally considered a bargain purchase by GAAP standards.SeeFASB Statement (SFAS) No. 141R (Business Combinations) at iv-v (Fin. AccountingStandards Bd. 2007).

Section 2.1 of the P&A Agreement, which governs

JPMCs assumption of WaMus liabilities, provided that:

14. Concluding that [t]he fair value of the net assets of Washington Mutuals bankingoperations exceeded the $1.9 billion purchase price, by over $10 billion, JPMC ultimatelyrecorded a $2 billion extraordinary gain in 2008 and 2009. Ex. 9, JPMC 2009 Form 10-K

(2/24/10) at 143-44; seeEx. 8, JPMC 2008 Form 10-K (3/2/09) at 123-24.

15. The P&A Agreement also stated that [t]he conveyance of all assets purchased by JPMCshall be made . . . without any warranties whatsoever with respect to such assets, express orimplied, with respect to . . . freedom from liens or encumbrances (in whole or in part), orany other matters. P&A Agreement 3.3.



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Subject to Sections 2.5 and 4.8, [JPMC] expressly assumes atBook Value . . . and agrees to pay, perform, and discharge all ofthe liabilities of [WaMu] which are reflected on the Books andRecords of [WaMu] as of Bank Closing, . . . except as listed on theattached Schedule 2.1, and as otherwise provided in this

Agreement.

(Emphasis added.)16

Schedule 3.2 specifically identified the rights of [WaMu] to provide mortgage servicing

for others . . . and related contracts as assets purchased by JPMC. P&A Agreement at 36. The

P&A Agreement also provided that notwithstanding Section 4.8, JPMC specifically assumes

(under Section 2.1) and purchases (under Section 3.1) all mortgage servicing rights and

obligations of [WaMu]. Id. 2.1, 3.1. Thus, while JPMC generally had the right under

Section 4.8 of the P&A Agreement to elect not to assume existing agreements which provide

for the rendering of services by or to [WaMu], JPMC couldnot reject any agreements providing

for WaMus mortgage servicing rights and obligations.

17

16. As DBNTC alleges, [t]he list [in Schedule 2.1] of liabilities not assumed by JPMCpursuant to the [P&A Agreement] does not include or reference any liabilities or obligationsarising under the Governing [Agreements]. Am. Compl. 87;seeP&A Agreement at 34.Section 2.5, which is entitled Borrower Claims, excludes from the scope of liabilitiesassumed by JPMC any liability associated with borrower claims for payment of or liability

to any borrower, and thus is not relevant.

Id. 4.8. Consistent with JPMCs

irrevocable purchase and assumption of WaMus mortgage servicing activities, the P&A

Agreement required FDIC Receiver to deliver to JPMC as soon as practicable all [l]oan and

collateral records and Credit Files and other documents, title records pertaining to real

17. Section 4.8 permitted JPMC to elect not to assume existing service agreements if J PMCprovided written notice of its decision with respect to each such agreement within 120days of WaMus closing. P&A Agreement 4.8. Section 4.8 provided that JPMC shall bedeemed to have assumed agreements for which no notification is timely given. Id.



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estate mortgages, and other Records pertaining to the Assets purchased by JPMC.18

B. WaMus Mortgage-Backed Securities BusinessId. 6.1.

Prior to WaMus closure, the sale and servicing of securitized mortgage loans through

large-scale, multi-billion dollar financial transactions was a central aspect of WaMus residential

mortgage banking operations. SeeEx. 1, Washington Mutual, Inc. (WMI) 2007 Form 10-K

(2/29/08) at 133 (reflecting $113.5 billion and $82.6 billion in proceeds from new residential

mortgage loan securitizations in 2006 and 2007, respectively).

1. The Securitization ProcessThe securitization transactions at issue involve the creation and sale of securities backed

by underlying pools of thousands of residential mortgage loans, typically held in trusts formed

for that purpose.19

18. Records is defined in the P&A Agreement as any document, microfiche, microfilm andcomputer records . . . of [WaMu] generated or maintained by [WaMu] that is owned by or in

the possession of the Receiver at Bank Closing. P&A Agreement at 6;seealsoid. at 4(defining Credit File), 5 (defining Loan).

SeeAm. Compl. 25-30;seealsoEx. 2, WMI Form 10-Q (8/11/08) at 60

(describing securitization process). Broadly speaking, the securitization process occurs as

19. FDIC Receiver assumes (as it must) only for purposes of this motion the specific factualallegations contained in the Amended Complaint, but does not necessarily concede theiraccuracy, particularly the allegations relating to the scope and extent of breaches of theGoverning Agreements and the amount of damages caused by any alleged breaches. If thiscase proceeds, DBNTC will, of course, be required to prove each and every breach forwhich it seeks to recover, and for each such breach, that it caused a material loss to therelevant Trust. DBNTC also must establish, for each Trust, that it has standing to assert thebreach claims and that each Defendant is contractually liable under the agreement allegedly

breached. For example, Governing Agreements provided as exhibits to the AmendedComplaint indicate on their face that any breach claims with respect to forty-two of thePrimary Trusts (seeAm. Compl. Ex. 1-A, Trust Nos. 46 through 87) can only be assertedagainst Washington Mutual Mortgage Securities Corp. (WMMSC), a co-defendant in thisaction and a wholly-owned subsidiary of JPMC. SeeEx. 8, JPMC 2008 Form 10-K (3/2/09)at 245 (Ex. 21.1 List of Subsidiaries of J PMorgan Chase & Co.); Am. Compl. 9.



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follows: The entity sponsoring the securitization (the seller) typically a bank or bank

subsidiary originates or acquires a pool of mortgage loans and sells those loans to an

intermediate entity (the depositor), which in turn places the pooled loans into a trust as

collateral for mortgage-backed securities.20

The sponsoring entity often retains the right to service the pooled loans after they have

been sold, because those rights are a valuable source of revenue that can be worth billions of

dollars annually. SeeEx. 1, WMI 2007 Form 10-K (2/29/08) at 48, 133; Am. Compl. 28(d).

The servicer acts as the day-to-day administrator of the mortgage loan assets held by the trust,

responsible for collecting payments due from the borrowers [and] remitting those payments to

the trust for ultimate payment to the investors. Am. Compl. 28(d). In exchange, the servicer

receives servicing fees equal to a percentage of the outstanding principal balance of mortgage

loans . . . being serviced. Ex. 3, WaMu 2007 Form 10-K (3/21/08) at 91. In 2006 and 2007, the

SeeAm. Compl. 28(a); Ex. 3, WaMu 2007 Form

10-K (3/21/08) at 76-77. The trust then issues different classes of securities, each of which

entitles investors to specific interests in periodic disbursements from the cash flows available to

the trust from borrower payments of principal, interest, and fees made over the life of the

underlying mortgages. SeeAm. Compl. 28(c); Ex. 1, WMI 2007 Form 10-K (2/29/08) at 48.

A trustee ensures the proper distribution of trust funds to investors in accordance with the terms

of the trust agreements. SeeAm. Compl. 28(b).

20. The depositor is typically a wholly-owned subsidiary of the sponsoring entity or its holdingcompany. See, e.g., Am. Compl. Ex. 1-A (identifying WaMu as both seller and depositorfor 95 of 99 Primary Trusts); Ex. 1, WMI 2007 Form 10-K (2/29/08), Ex. 21 (listingdepositor entities Long Beach Securities Corporation, WaMu Asset AcceptanceCorporation, and Washington Mutual Mortgage Securities Corporation, inter alia, amongWMI subsidiaries).



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mortgage servicing rights retained by WaMu in connection with its sale of securitized mortgage

loans generated revenue streams of $2.1 billion and $1.9 billion, respectively. Seeid. These

mortgage servicing rights are so lucrative that the expected future cash flow from such rights is

often recorded as an asset on the banks income statements because the expected future cash

flows from servicing are projected to be more than adequate compensation for such services.

Ex. 1, WMI 2007 Form 10-K (2/29/08) at 116.21

Along with mortgage servicing rights, the sponsoring entity typically retains certain

residual or other continuing interests in the securitized loans. SeeEx. 3, WaMu 2007 Form 10-K

(3/21/08) at 76-77. Such retained interests commonly include the right to cash flows remaining

after the investors in the securitization trusts have received their contractual payments. Id.

at 91; seeAm. Compl. 26.

2. The Trusts and the Governing AgreementsDBNTC purports to assert breach claims with respect to 127 separate Trusts created

between 1992 and 2007, for which DBNTC allegedly served in the capacity of Trustee or

Indenture Trustee, and for which WaMu (or subsidiaries, affiliates, or predecessors-in-interest of

WaMu) allegedly served as seller, depositor, and servicer. Am. Compl. 3, 28;seealsoid., Ex.

1 (listing 99 Primary Trusts and 28 Secondary Trusts). According to DBNTC, the original

outstanding balance of the 99 Primary Trusts was approximately $165 billion, while the

21. According to the Notes to Consolidated Financial Statements in WMIs 2007 annual report,[a]dequate compensation is where the benefits of servicing would fairly compensate asubstitute servicer should one be required, including a profit margin that would bedemanded in the market place. Ex. 1, WMI 2007 Form 10-K (2/29/08) at 116. As ofDecember 31, 2007, WaMus financial statements reflected $6.3 billion in recorded assetsfor the projected excess cash flow of the banks mortgage servicing rights. Id. at 104.



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outstanding principal balance of the Primary Trusts at the time of WaMus closure on September

25, 2008 was approximately $45 billion. Id. 4. DBNTC alleges that the 28 Secondary Trusts

are trusts through which WaMu issued mortgage-backed or derivative securities whose

performance is dependent, in whole or in part, on the performance of the Primary Trusts or of

other residential mortgage-backed securities issued by [WaMu]. Id. 3.

Each Trust is governed by a complex web of interrelated transaction documents (the

Governing Agreements), each set of which comprises hundreds of pages of executory

contracts memorializing the rights, interests, liabilities, and continuing obligations of the

contracting parties in exhaustive detail. SeeAm. Compl. 29-33. Among other things, the

Governing Agreements set forth the terms by which mortgage loans are to be contributed to the

Trusts, securitized, insured, and serviced; how the resulting securities are to be sold to investors;

and how cash flows from payments of principal, interest and fees on the loans are to be allocated

and distributed. Seeid. 29. As DBNTC alleges, the Governing Agreements for each Trust

represent a unitary and integrated set of contractual undertakings . . . that involve obligations

that are ongoing, mutual, and interrelated. Id. 31-33. As DBNTC also alleges consistent

with the importance of the Governing Agreements to WaMus mortgage banking business and

with the amount of money at risk the Governing Agreements constituted official books and

records of [WaMu] at the time of [WaMus] closing on September 25, 2008, maintained in the

banks formal files and executed on behalf of WaMu by individuals duly authorized by the

applicable WaMu entitys Board of Directors. Seeid. 42(c), (e).

According to DBNTC, while the related ancillary documents and agreements may vary

from Trust to Trust, each set of Governing Agreements generally includes a Mortgage Loan

Purchase Agreement (MLPA), which governs the transfer of the mortgage loans from the



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sponsoring entity (the seller) to the depositor, and a Pooling and Servicing Agreement

(PSA), which governs the administration of the Trust, the transfer of the loans into the Trust,

the securitization process, the servicing of the underlying mortgage loans, and the management

of the Trust cash flow. Seeid. 29-30. DBNTC alleges that all of WaMus liabilities and

obligations under the Governing Agreements that DBNTC seeks to enforce are contained within

these MLPAs and PSAs. Id. 30, 47, 52, 57, 62, 64; seealsoid., Ex. 7 (purporting to identify

the contractual provisions giving rise to WaMus obligations with respect to each Primary

Trust).22

a. Repurchase and Indemnification Obligations

DBNTC also alleges that the MLPAs and PSAs also contain provisions describing

WaMus continuing rights and interests in the Trusts as seller, depositor, and servicer. See, e.g.,

Am. Compl. Ex. 4, WaMu Series 2007-HE1 Trust (Issue ID No. WA07H1), MLPA 3; id., PSA

2.01, 3.01, 6.01et seq. More specifically, DBNTC alleges WaMu undertook certain

continuing obligations under the Governing Agreements (seeAm. Compl. 43) that have been

breached and continue to be breached:

According to DBNTC, the Governing Agreements contain a number of representations

and warranties made by WaMu in connection with its securitization activities regarding, inter

alia, the underwriting of the mortgage loans, the loan to value ratios for the mortgage loans, and

22. DBNTC uses the term WaMu indiscriminately in its Amended Complaint, although infact (as the charts and exhibits to the Amended Complaint show), the sponsoring entity,

seller, depositor, and servicer for many of the Trusts were entities other than WashingtonMutual Bank. If this case proceeds against FDIC Receiver, DBNTC will be required toprove not simply that these entities were affiliates or subsidiaries of Washington MutualBank, but that Washington Mutual Bank was legally obligated for the other entitiesliabilities as of September 25, 2008. For ease of reference, we will continue to use the termWaMu throughout this memorandum, subject to the issue noted in this footnote.



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compliance of the loans with local, state and federal laws. Am. Compl. 45. DBNTC alleges

that WaMu breached representations and warranties regarding the loans. Id. 93. DBNTC

asserts that the Governing Agreements impose upon WaMu: (1) the obligation to cure,

repurchase, or substitute any mortgage loans with respect to which any material breach of such

representations and warranties or other material defect exists, within a specified period of days

following discovery or written notice (Repurchase Obligations), id. 53; and (2) the duty to

indemnify the Trustee for certain losses or expenses resulting from WaMus breach of its

representations, warranties, and obligations under the Governing Agreements (Indemnification

Obligations), id. 60. DBNTC acknowledges that, under the Governing Agreements, the sole

remedy available to the Trustee or the Trust investors for any such breach or defect is to invoke

the Repurchase Obligations. Id. 54-55; see, e.g., Am. Compl. Ex. 4, WaMu Series 2007-HE1

Trust (Issue ID No. WA07H1), PSA 2.03(a).

b. Notice ObligationsDBNTC alleges that the Governing Agreements impose upon WaMu, in its capacities as

Seller and Servicer, the duty to give prompt written notice to the Trustee and other parties upon

discovery of any material breach of its representations and warranties with respect to the

underlying mortgage loans (Notice Obligations). Am. Compl. 49. DBNTC acknowledges

that, as Trustee, it has a reciprocal obligation under the Governing Agreements to provide

prompt written notice to WaMu, as the Seller, regarding material breaches or defects in the

underlying mortgage loans. See id. 50-51. The sole remedy provisions of the Governing

Agreements uniformly require that, upon discovery or receipt of notice from the Trustee, WaMu

must be given the opportunity to cure the alleged breach or defect, or to substitute or repurchase

the affected loans, within a specific period of time typically 60 to 90 days before DBNTC as

Trustee is entitled to enforce the Repurchase Obligations. See, e.g., Am. Compl. Ex. 4, WaMu



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Series 2007-HE1 Trust (Issue ID No. WA07H1), PSA 2.03(a); id., GSAMP Series 2005-S2

Trust (Issue ID No. GS05X2), PSA 2.08. DBNTC concedes that it hasnotprovid[ed] WaMu

with notice of a breach with respect to, and demand[ed] cure, substitution or repurchase of,

specific mortgage loans included in the Trusts. Am. Compl. 99.

c. Servicing Obligations and Access RightsDBNTC alleges that the Governing Agreements impose upon WaMu, solely in its

capacity as Servicer, the duty to service and administer the mortgage loans in the Trusts on

behalf of the Trustee, in accordance with the terms of each specific Governing Agreement

(Servicing Obligations). Am. Compl. 63. Among these alleged Servicing Obligations is the

duty to provide the Trustee, upon request, with access to all records maintained by WaMu in

respect of WaMus rights and obligations under the Governing [Agreements], including

information about the mortgage loans and the mortgage loan files (Access Rights).23

C. WaMus Disclosure Of Liabilities And Obligations Under TheGoverning Agreements

Id. 58.

DBNTC also alleges that WaMu as the Seller, Depositor and/or Servicer has exclusive

possession of the loan origination and servicing records, id. 48, and has denied the Trustee

access to the loan-level books and records[] and information concerning the mortgage loans in

the Trusts, id. 81.

Public disclosures made by WaMu and its holding company, Washington Mutual Inc.

(WMI), in 2007 and 2008 repeatedly made it clear that the Governing Agreements imposed

23. According to DBNTC, [s]uch documents and other information includes origination andunderwriting files, servicing records, borrower statements both recorded on tape andtranscribed into servicing notes, borrower statements made during the origination of theloan, payment histories, and borrower correspondence. Am. Compl. 44.



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liabilities and continuing obligations on WaMu as the seller and servicer of securitized loans.

See, e.g., Ex. 2, WMI Form 10-Q (8/11/08) at 10-11.24

In the ordinary course of business, the Bank sells loans to thirdparties and . . . [may] be required to repurchase sold loans whenrepresentations and warranties made by the Bank in connectionwith those sales are breached. . . . [I]f the breach had a materialadverse effect on the value of the loan, the Bank will be required toeither repurchase the loan or indemnify the investor for lossessustained. In addition, the Bank is a party to . . . agreements thatcontain general indemnification provisions, primarily in

connection with agreements to sell and service loans or other assetsor the sales of mortgage servicing rights. These provisionstypically require the Bank to make payments to the purchasers orother third parties to indemnify them against losses they may incurdue to actions taken by the Bank prior to entering into theagreement or due to a breach of representations, warranties, andcovenants made in connection with the agreement.

For example, in the Commitments,

Guarantees and Contingencies section of the Notes to Consolidated Financial Statements in

WaMus 2007 annual report, WaMu stated:

Ex. 3, WaMu 2007 Form 10-K (3/21/08) at 107. Elsewhere in this same document, WaMu

stated that [i]n the event of a breach of the representations and warranties . . . the Bank bears

the risk of any loss on the loans. Id. at 77 (emphasis added); seealso, e.g., Ex. 1, WMI 2007

Form 10-K (2/29/08) at 117, 152.

WaMu established reserves on its balance sheets based on estimates of its probable

exposure to the potential repurchase or indemnification liabilities, but cautioned that the

24. WaMus separate financial statements are presented within the Consolidated FinancialStatements and other information provided in WMIs SEC filings. SeeEx. 1, WMI 2007Form 10-K (2/29/08) at 16 (Overview); Ex. 2, WMI Form 10-Q (8/11/08) at 6 (Basis ofPresentation). WaMus separate filings of periodic reports with the Office of ThriftSupervision e.g., Ex. 3, WaMu 2007 Form 10-K (3/21/08) reflect the same informationand are cited as appropriate throughout.



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estimated reserves were subject to adjustment and did not represent the maximum risk exposure

[t]hroughout the life of these repurchase or indemnification liabilities. Ex. 3, WaMu 2007

Form 10-K (3/21/08) at 15-16; seealso, e.g., Ex. 2, WMI Form 10-Q (8/11/08) at 10-11; Ex. 1,

WMI 2007 Form 10-K (2/29/08) at 22. In March 2008, WaMu offered a candid assessment of

its continuing exposure to repurchase liability under the Governing Agreements based on the

principal outstanding balance of securitized loans:

The Banks liquidity could also be adversely affected byunanticipated demands on its cash, such as having to repurchasesecuritized loans if it were found to have violated representationsand warranties contained in the securitization agreements. In such

event, the Bank generally would be required to repurchase theseloans or indemnify the investor for losses sustained. Since in mostinstances the repurchased loans would be in default, it is unlikelythat the Bank would be able to resell these loans in the secondarymarket. If the Bank were required to repurchase a substantialamount of these loans, its liquidity and capital would beadversely affected as the amount of nonperforming assets on itsbalance sheet would increase.

Ex. 3, WaMu 2007 Form 10-K (3/21/08) at 50 (emphasis added). The extent to which WaMus

Repurchase and Indemnification Obligations mature into current cash demands is driven

primarily by the performance of the underlying loans in providing cash flow to the Trust,

because WaMu is required to repurchase defective loans only if the breach had a material

adverse effect on the value of the loan. Id. at 107; seealsoid. at 25 (The degree of credit risk

and level of credit losses is highly dependent on the economic environment that unfolds

subsequent to originating or acquiring assets.); Ex. 1, WMI 2007 Form 10-K (2/29/08) at 133

(recording $1.8 billion in repurchased mortgage loans in 2006 and $431 million in repurchased

mortgage loans in 2007).

Indeed, WaMus filings in the months prior to its closing demonstrated WaMus

increasing risk of exposure to liabilities arising from its Repurchase and Indemnification



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Obligations, as [h]igher delinquencies drove increased repurchase requests from investors

resulting in an increase in the provision for repurchase reserves. Ex. 2, WMI Form 10-Q

(8/11/08) at 58; see, e.g., Ex. 1, WMI 2007 Form 10-K (2/29/08) at 85 (noting significant

increases in loan delinquencies and credit losses); Ex. 5, WMI Form 8-K (7/22/08), Ex. 99.1

(Press Release) at 6 (noting an increase in repurchase demands); Ex. 4, WaMu Form 10-Q

(8/14/08) at 21-22 (noting sharply higher delinquency rates and an increase in the volume of

investor requests to repurchase loans the Bank had previously sold).

D. J PMCs Acknowledgment Of L iabilities And ObligationsUnder The Governing Agreements

Notwithstanding the plain terms of the P&A Agreement and the many benefits that JPMC

has received from the acquisition of WaMus assets, JPMC has denied assuminganyof WaMus

liabilities under the Governing Agreements.25

In connection with its own loan securitization activities, JPMC has consistently

demonstrated its familiarity with the liabilities and obligations assumed by seller and servicer

SeeAm. Compl. 91 (J PMC further contends

that all other liabilities of [WaMu], including the DBNTC liabilities, remain with [FDIC

Receiver].) (quoting 8/25/10 letter from JPMC counsel to DBNTC counsel) (emphasis in

original). JPMCs public statements both before and after the WaMu transaction, however, belie

this denial, and instead evince a clear awareness that those liabilities were reflected on WaMus

books and records prior to its closure and transferred to JPMC along withall of WaMus rights,

interests, and obligations under the Governing Agreements.

25. According to DBNTC, JPMC has taken the position that the P&A Agreement transferredliabilities reflected on WaMus pre-closure books and records onlyif and to the extent theyhad a Book Value. Am. Compl. 90 (emphasis in original). As we demonstrate below,this is incorrect.



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banks in residential mortgage loan securitizations, including the sellers repurchase and

indemnification obligations. SeeEx. 6, JPMC 2007 Form 10-K (2/29/08) at 172 (acknowledging

that the maximum amount of future payments the [bank] would be required to make under such

repurchase and/or indemnification provisions would be equal to the current amount of assets

held in the trust).26

JPMCs public filings after the P&A Agreement make repeated reference to its

assumption of WaMus rights and responsibilities under the Governing Agreements. When

discussing its accounting for the WaMu transaction in its 2008 Form 10-K, for example, JPMC

noted that the liabilities it had assumed include WaMus executory contracts and other

commitments. Ex. 8, JPMC 2008 Form 10-K (3/2/09) at 124. Elsewhere in that Form 10-K, in

presenting data about its residential mortgage securitization activities, JPMC included the

principal balances of the loans in securitizations sponsored by WaMu in a table displaying the

total unpaid principal amount of assets held in JPMorgan Chase-sponsored securitization entities

. . . to which the Firm has continuing involvement such as ongoing repurchase or

indemnification obligations. Id. at 168 (emphasis added) (defining continuing involvement);

seealso id. at 169 (noting that the overview of securitized assets held in QSPEs as of December

31, 2008 [i]ncludes securitization-related QSPEs sponsored by . . . Washington Mutual), 171-

172 (JPMCs securitization activities include securitizations sponsored by . . . Washington

Mutual). Thus, JPMC expressly acknowledged that it had stepped into WaMus shoes with

26. Seealso, e.g., Ex. 9, JPMC 2009 Form 10-K (2/24/10) at 233 (stating that the seller banksmaximum liability for breaches under [its] representations and warranties . . . [is] equal tothe unpaid principal balance of such loans held by purchasers . . . that are deemed to havedefects).



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respect to WaMu-sponsored securitizations. Indeed, in the Risk Factors section of a December

2009 prospectus supplement, JPMC forthrightly discussed its potential exposure resulting from

its assumption of WaMus repurchase and indemnification obligations. Under the heading

Defective and repurchased loans may harm our business and financial condition, JPMC stated:

In connection with the sale and securitization of loans (whetherwith or without recourse), the originator is generally required tomake a variety of customary representations and warrantiesregarding both the originator and the loans being sold orsecuritized. We and certain of our subsidiaries, as well as entitiesacquired by us as part of the Bear Stearns, Washington Mutualand other transactions, have made such representations andwarranties in connection with the sale and securitization of loans

(whether with or without recourse), and we will continue to do soas part of our normal Consumer Lending business. Our obligationswith respect to these representations and warranties are generallyoutstanding for the life of the loan, and relate to, among otherthings, compliance with laws and regulations; underwritingstandards; the accuracy of information in the loan documents andloan file; and the characteristics and enforceability of the loan. . . .Accordingly, such repurchase and/or indemnity obligationsarising in connection with the sale and securitization of loans(whether with or without recourse) by us and certain of oursubsidiaries, as well as entities acquired by us as part of the BearStearns, Washington Mutual and other transactions, couldmaterially increase our costs and lower our profitability, andcould materially and adversely impact our results of operationsand financial condition.

Ex. 11, 424B7 Prospectus Supplement (12/8/09) at S-7 (emphases added); see also, e.g., Ex. 9,

JPMC 2009 Form 10-K (2/24/10) at 58 (stating that the positive impact of the Washington

Mutual transaction on its 2009 net revenue was partially offset by $1.6 billion in estimated

losses related to the repurchase of previously sold loans). These disclosures make clear that



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JPMC understood what the P&A Agreement unambiguously provides: that WaMus rights,

interests, obligations, and liabilities under the Governing Agreements transferred to JPMC.27

E. DBNTCs Amended ComplaintDBNTC initially submitted some of the claims asserted in the Amended Complaint to

FDIC Receiver through its administrative process, as required by the Financial Institutions

Reform Recovery and Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73. SeeAm.

Compl. 14; Proof of Claim (Am. Compl. Ex. 3); 12 U.S.C. 1821(d)(13)(D). In its Proof of

Claim, DBNTC asserted only that WaMu had breached its contractual obligations; DBNTC did

not assert any separate claim or make any allegation that FDIC Receiver itself had assumed

WaMus obligations under the Governing Agreements, had breached those Agreements post-

receivership, or otherwise had engaged in wrongful post-receivership conduct regarding these

Agreements. DBNTCs Proof of Claim was deemed disallowed by operation of law on June 28,

2009 (180 days after it was submitted). Pursuant to 12 U.S.C. 1821(d)(6)(A), DBNTC

commenced this action on August 26, 2009. Am. Compl. 19. On September 8, 2010, DBNTC

filed its Amended Complaint and added JPMC as a defendant.

In Count I (Breach of Contract), DBNTC alleges that FDIC Receiver or JPMC, or both, is

or are liable, as WaMus successor-in-interest, for alleged breaches of WaMus

(1) Representations and Warranties as seller, depositor, and servicer, Am. Compl. 93;

(2) Notice, Repurchase and Indemnification Obligations as seller, depositor, and servicer, id.;

and (3) obligations as servicer with respect to DBNTCs Access Rights,id. 98. DBNTC also

27. Since being named in this lawsuit, JPMC has tried to walk away from its previousacknowledgements, to the point of publicly disclaiming responsibility for WaMusrepurchase obligations. SeeEx. 10, JPMC Form 10-Q (11/9/10) at 58.



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alleges that FDIC Receiver or JPMC continues to breach WaMus Servicer Obligations with

respect to DBNTCs Access Rights, which has made it impossible for the Trustee . . . to enforce

WaMus Repurchase Obligations, including the enforcement mechanism of providing WaMu

with notice of a breach with respect to . . . specific mortgage loans included in the Trusts. Id.

99; seealsoid. 82. Without access to this information, DBNTC alleges that it is unable to

specifically identify particular mortgage loans that breached particular Representations and

Warranties or for which the Notice and/or Repurchase Obligations have been triggered and

breached. Id. 81; see id. 44, 98. DBNTC estimates that the Trusts have incurred losses due

to the alleged breaches rang[ing] from approximately $6 billion to $10 billion, with such losses

continuing to accrue. Am. Compl. 85. DBNTC contends, without specifying any basis for

such a claim, that [t]he Trusts and the Trustees claims against the FDIC for breaches of these

assumed contracts are entitled at least to administrative expense priority in the [WaMu]

receivership estate. Id. 97. In other words, DBNTC seeks to be paid ahead of any depositor

claims and any other creditors of WaMu.

In Count II (Declaratory Judgment), DBNTC seeks a determination as to whether, and to

what extent, WaMus liabilities for alleged breaches of the Governing Agreements and ongoing

obligations under those Agreements were transferred by FDIC Receiver and assumed by JPMC

pursuant to the P&A Agreement. SeeAm. Compl. 103-106.

ARGUMENT

I. FDIC RECEIVER HAS NO LIABIL ITY TO DBNTC UNDER THEGOVERNING AGREEMENTS.

DBNTCs claims arise from WaMus alleged pre-closure breach of representations,

warranties and obligations under the Governing Agreements, and from alleged post-closure

continuing breaches by WaMus successor-in-interest. Under the plain terms of the P&A



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Agreement, the Governing Agreements and any of WaMus rights, interests, liabilities, and

obligations thereunder were transferred to JPMC on September 25, 2008. That transfer

extinguished any liability of FDIC Receiver for the claims asserted by DBNTC. This Court can

make these determinations as a matter of law, based on the unambiguous language of the P&A

Agreement. See, e.g.,Conseil Alain Aboudaram, S.A. v. de Groote, 460 F.3d 46, 50 (D.C. Cir.

2006) ([W]here the language and the inferences to be drawn from it are unambiguous, a district

court may construe a contract as a matter of law and grant judgment accordingly.); seealso

Ameren Servs. Co. v. FERC, 330 F.3d 494, 499 (D.C. Cir. 2003) ([Courts] determine the plain

meaning of a contract from the language used by the parties to express their agreement.). [A]

contract provision is not ambiguous merely because the parties later disagree on its meaning.

Segar v. Mukasey, 508 F.3d 16, 22 (D.C. Cir. 2007).28

A. The P&A Agreement Transferred The Governing AgreementsAnd All Of WaMus Rights, Obligations, And LiabilitiesThereunder To J PMC.

Indisputable, judicially-noticeable facts

reflected on the public record confirm and support the plain meaning construction of the P&A

Agreement.

The Governing Agreements, and any and all of WaMus attendant interests, rights,

obligations, and liabilities thereunder transferred to JPMC under the P&A Agreement as part of

JPMCs acquisition of WaMus mortgage banking operations. Section 3.1 of the P&A

Agreement transferred to JPMC all right, title, and interest in and to all of WaMus assets,

28. The P&A Agreement provides this agreement and the rights and obligations hereundershall be governed by and construed in accordance with the federal law of the United Statesof America, and in the absence of controlling federal law, in accordance with the laws of thestate in which the main office of the failed bank is located. P&A Agreement 13.4.



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subject to all liabilities . . . affecting such Assets to the extent provided in Section 2.1. P&A

Agreement 3.1. Under Section 2.1, JPMC agree[d] to pay, perform, and discharge all of the

liabilities of [WaMu] which are reflected on the Books and Records of [WaMu] as of Bank

Closing, . . . except as listed on the attached Schedule 2.1 and as otherwise provided in this

Agreement.29

1. The Governing Agreements are Assets that transferredto JPMC under Section 3.1 of the P&A Agreement.

Id. 2.1. These provisions effect the transfer to JPMC of the Governing

Agreements in their entirety, inclusive of all of WaMus obligations and liabilities thereunder.

The P&A Agreement unambiguously treats the Governing Agreements as Assets that

transferred to JPMC under Section 3.1 and its related provisions. The 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]. P&A Agreement

2.1, 3.1. Schedule 3.2, which lists the notional purchase price of certain types of assets,

identifies as assets transferred to JPMC the rights of [WaMu] to provide mortgage servicing. . .

and related contracts. Id. at 36 (emphasis added). Because [t]he mortgage servicing rights

and obligations of WaMu with respect to the Trusts arose under the Governing [Agreements],

Am. Compl. 40, the Governing Agreements are among the related contracts referred to in

Schedule 3.2 and transferred to WaMu under Section 3.1 of the P&A Agreement.

The Governing Agreements for each Trust comprise several complex, integrated

agreements containing various valuable rights and interests bundled together with certain

29. The list of Certain Liabilities Not Assumed in Schedule 2.1 does not include or referenceany liabilities or obligations arising under the Governing [Agreements]. Am. Compl. 87;seeP&A Agreement at 34 (Schedule 2.1).



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attendant and ongoing duties, obligations, and liabilities. SeeAm. Compl. 31-33. Such

interrelated securitization agreements formed part of a single transaction and were designed to

effectuate the same purpose. Bank of N.Y. v. FDIC, 453 F. Supp. 2d 82, 99-100 (D.D.C. 2006).

As DBNTC alleges, the Governing Agreements here are executory contracts that involve

obligations that are ongoing mutual, and interrelated, Am. Compl. 33, and these obligations

as well as WaMus other rights, interests, and duties reflected therein are part of an integrated

set of contractual undertakings, id. 31. SeeLone Star Fund V (U.S.), L.P. v. Barclays Bank

PLC, 594 F.3d 383, 388 (5th Cir. 2010) ([T]he representations are isolated portions of complex

contractual documents that must be read in their entirety to be given effect.).

WaMus rights and interests under the Governing Agreements include the valuable

mortgage servicing rights, as well as residual interests in the underlying Trust assets. See, e.g.,

Ex. 3, WaMu 2007 Form 10-K (3/21/08) at 77 (describing WaMus retained interests in the

securitized assets), 91 (Generally, [WaMu] . . . receives the right to cash flows remaining after

the investors in the securitization trusts have received their contractual payments.).30

30. See also, e.g., Am. Compl., Ex. 4, WaMu 2007-HE1 MLPA 3 (In consideration for theMortgage Loans to be purchased hereunder, the Purchaser shall . . . deliver to the Seller . . .the Class C Certificates, the Class P Certificates, the Class R Certificates, the Class R-CXCertificates, and the Class R-PX Certificates (the Retained Certificates).); id., WaMu2007-HE1 PSA 10.01 (identifying such certificates as residual interests).

Along

with these rights and interests, WaMu expressly took on a number of related and continuing

obligations under the Governing Agreements with respect to the cash flow of the Trusts, such as

the duty to monitor the Trust assets and notify the Trustee of material breaches of its

representations and warranties or defects in the underlying loans (the Notice Obligations), and

the duty to remedy such material breaches or defects, upon discovery or notice, by curing,



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substituting, or repurchasing the affected loans and indemnifying losses to the Trust (the

Repurchase and Indemnification Obligations). SeeAm. Compl. 49-55, 60-61;seealso, e.g.,

Ex. 3, WaMu 2007 Form 10-K (3/21/08) at 107. DBNTC alleges that, as to many of the loan-

related representations and warranties, the breach takes place at the time the loan is sold into the

Trust.31

These rights and related executory obligations are all part of the related contracts

referred to in Schedule 3.2. Schedule 3.2 makes clear that the Governing Agreements, as

related contracts to WaMus mortgage servicing rights, were among WaMus assets and, as

such, were transferred to JPMC under Section 3.1. Thus, the Governing Agreements under

which WaMu had ongoing rights and obligations, including obligations that had not yet given

rise to specific recorded liabilities at the time of WaMus closure, were also transferred to JPMC

As of that time, therefore, to the extent WaMu had made and breached a loan-related

representation or warranty, WaMu had a contingent liability under its express Repurchase and

Indemnification Obligation; whether and when the contingent liability would mature into a

current payment demand would depend on whether the loan goes into default, whether the

breach or defect was material, whether the breach or defect actually caused the loss, whether

notice is given, and whether the breach or defect cannot be cured. The Repurchase and

Indemnification Obligations, therefore, include the duty to make good on these contingent

liabilities arising from existing breaches and default, if and when they mature.

31. See, e.g., Am. Compl. 46(b) (Each Mortgage Loan at origination complied in allmaterial respects with applicable local, state and federal laws.), (j) (The Loan-to-ValueRatio for each Mortgage Loan was no greater than 100% at the time of origination.), (m)(The Seller did not select the Mortgage Loans with the intent to adversely affect theinterests of the Purchaser.) (quoting Long Beach Mortgage Loan Trust Series 2006-2 (IssueID No. LB0602), MLPA 6).



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under Section 3.1. In fact, JPMC has acknowledged as much: in its 2008 Form 10-K, for

example, JPMC noted that, under the P&A Agreement, it had assumed WaMus executory

contracts and other commitments. Ex. 8, JPMC 2008 Form 10-K (3/2/09) at 124.

Other aspects of the P&A Agreement make it clear that the Governing Agreements in

their entirety transferred to JPMC. Section 4.8 of the P&A Agreement provides a mechanism for

JPMC to elect not to assume individual agreementsexisting as of Bank Closing which provide

for the rendering of services by or to the Failed Bank, by giving written notice to the FDIC

within 120 days of WaMus closure. (Emphasis added.) As noted above, 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 carve-

out in Sections 2.1 and 3.1 necessarily reflects JPMCs 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.

Those obligations include the ongoing Service Obligations and Access Obligations upon

which DBNTC bases its breach claims against WaMu as servicer and which undeniably

transferred to JPMC. For each Trust, however, those same Governing Agreements also contain

the Repurchase and Indemnification Obligations and Notice Obligations on which DBNTC bases

its breach claims against WaMu as seller and depositor. SeeAm. Compl. 43. DBNTC alleges

WaMus Repurchase and Indemnification Obligations and Notice Obligations with respect to

each Trust are contained within thesameagreement the Pooling and Servicing Agreement

(PSA) as WaMus mortgage servicing rights and obligations for that Trust. Seeid. 50

(Notice Obligation), 54-55 (Repurchase Obligation), 59-60 (Indemnification Obligation and



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Access Obligation), 63 (Servicing Obligation); seealsoid., Ex. 7 (identifying the contractual

provisions giving rise to WaMus obligations with respect to each Primary Trust). 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.

2. All of WaMus obligations and liabilities under theGoverning Agreements transferred to J PMC underSection 2.1 of the P&A Agreement.

The transfer to JPMC of WaMus obligations and liabilities under the Governing

Agreements also was effected by Section 2.1, which provides that JPMC expressly assumes at

Book Value (subject to adjustment pursuant to Article VIII) and agrees to pay, perform, and

discharge,all of the liabilities of [WaMu] which are reflected on the Books and Records of

[WaMu] as of Bank Closing. P&A Agreement 2.1 (emphasis added). Theonly limitation on

JPMCs assumption of WaMus liabilities is that the liability be reflected on WaMus Books

and Records as of September 25, 2008. While the term Records is defined broadly in the

P&A Agreement to include all of WaMus paper and electronic files, the terms Books is not

defined. Seeid. at 6 (defining Records). Whatever the outside limits of these terms, however,

they include the operative agreements for the large-scale financial transactions at the heart of

WaMus business, involving hundreds of billions of dollars in mortgage loan securitizations.

The Governing Agreements and WaMus obligations and liabilities thereunder

unquestionably were reflected in WaMus pre-closure Books and Records.

DBNTC alleges that the Governing Agreements were executed, in writing, on behalf of

WaMu by individuals duly authorized by the applicable WaMu entitys Board of Directors, and

have been maintained continuously in the banks formal files since the time of execution. Am.

Compl. 42(a)-(d). DBNTC further alleges that the Governing Agreements constituted



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official books and records of [WaMu] at the time of [WaMus] closing on September 25, 2008.

Id. 42(e). Indeed, common sense dictates that these are the kinds of major agreements that, as a

matter of policy and practice, were carefully maintained by the bank in its formal files. See, e.g.,

India Breweries, Inc. v. Miller Brewing Co., 612 F. 3d 651, 658 (7th Cir. 2010) (Common sense

is as much a part of contract interpretation as is the dictionary or arsenal of canons.). If the

allegations in Paragraph 42 of the Amended Complaint arenot true, the Governing Agreements

would be unenforceable against FDIC Receiver as a matter of law. These allegations track the

statutory requirements of 12 U.S.C. 1823(e), which are intended to ensure that the purported

preexisting obligations of a failed bank are sufficiently memorialized in the banks pre-closure

records before claims arising from those obligations can be enforced against the FDIC as

receiver. See12 U.S.C. 1821(d)(9)(A), 1823(e); Beal Bank, SSB v. Pittorino, 177 F.3d 65, 68

(1st Cir. 1999) (claims arising from agreements that are not properly recorded in the records of

the bank are unenforceable against FDIC Receiver).

The purpose of Section 1823(e) is to limit the enforceable obligations of FDIC Receiver

to those liabilities and obligations of the failed bank the existence of which was readily

discernable by bank examiners prior to the banks closure. SeeLangley v. FDIC, 484 U.S. 86,

91 (1987); E.I. du Pont de Nemours & Co. v. FDIC, 32 F.3d 592, 600 (D.C. Cir. 1994) (The key

question is whether [the case concerns] . . . matters that would generally be reflected in the

records of ordinary banking transactions.) (citation omitted). This prevents counterparties and

creditors from alleging the existence of unrecorded agreements imposing obligations upon FDIC

Receiver as the failed banks successor-in-interest, since FDIC Receiver lacks the institutional

history of the bank yet is expected to honor all of its valid obligations. SeeFDIC v. Great Am.

Ins. Co., 607 F.3d 288, 293 (2d Cir. 2010). Whatever the outer contours of the term Books and



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Records for purposes of Section 2.1, any obligation or liability that is reflected on the face of an

agreement that meets the criteria of Section 1823(e) necessarily is reflected on the Books and

Records of the Failed Bank as of Bank Closing, and thus included within the scope of

Section 2.1. Here, DBNTC alleges that the Repurchase and Indemnification Obligations, and the

other contractual obligations upon which DBNTC premises its claims, are clearly stated on the

face of the Governing Agreements. SeeAm. Compl. 50, 54-55, 59-60, 63 (providing

examples of specific provisions); id. Ex. 7 (identifying provisions in each of the Governing

Agreements).32

JPMC asserts, however, that it did not assumeanyof WaMus liabilities under the

Governing Agreements. SeeAm. Compl. 90-91. JPMCs argument is premised entirely on

three words in Section 2.1 at Book Value and the definition of Book Value in the P&A

Agreement as the dollar amount . . . stated on the Accounting Records of the Failed Bank.

33

Section 2.1 does not by its terms limit the Liabilities Assumed to those with a stated

dollar amount on WaMus Accounting Records i.e., its general ledger, subsidiary ledgers, and

JPMC argues that it assumed only liabilities for which there was a specific line item with a stated

dollar amount on WaMus accounting ledgers, which WaMus liabilities under the Governing

Agreements purportedly lack. Seeid. 91. JPMCs position is not consistent with the

contractual language, common sense, or JPMCs own public filings.

32. This does not mean, of course, that DBNTC can prove that WaMu or its successor-interestis liable for the breaches and damages that it claims, or even that DBNTC can establish a

basis for asserting a claim against WaMu or its successor-interest with respect to each andevery Trust.

33. SeeP&A Agreement at 2 (defining Accounting Records as the general ledger, subsidiaryledgers, and any schedules supporting the general ledger balance), 3 (defining BookValue).



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supporting schedules as of September 25, 2008. SeeAm. Compl. 90-91. Nor does

Section 2.1 provide that JPMC assumes all liabilities reflected on WaMusAccounting

Records, which is what JPMCs interpretation amounts to. Rather, Section 2.1 expressly and

unambiguously states that JPMC assumes at Book Value . . . and agrees to pay, perform, and

discharge,all of the liabilitiesof [WaMu] which arereflected on the Books and Recordsof

[WaMu] as of Bank Closing. P&A Agreement 2.1 (emphasis added). Books and Records

necessarily means something other and broader than Accounting Records.

In fact, the reference to Book Value in the liability assumption provision of Section 2.1 is

a parallel to the references to Book Value and Market Value in Section 3.2 and Schedule 3.2,

which address the price of the specific assets transferred under Section 3.1. Of course, JPMC

did not pay specific prices for specific assets. As indicated in Article VII of the P&A

Agreement, JPMC bid and paid a lump sum of approximately $1.9 billion for the Assets

purchased and Liabilities Assumed. Thus, the Book Value and Market Value prices of the

specific assets as reflected in Section 3.2 and Schedule 3.2 were notional prices, useful in

allocating the Bank Closing date purchase price among the acquired assets as required by GAAP

purchase accounting (e.g., for basis purposes).34

34. SeeEx. 8, JPMC 2008 Form 10-K (3/2/09) at 123-24; SFAS No. 141 (BusinessCombinations) 35-41 (Fin. Accounting Standards Bd. 2001).

Likewise, the Book Value reference for the

assumption of liabilities had a similar purpose JPMC assumed the liabilities at Book Value

for accounting purposes as of the Bank Closing Date. CompareP&A Agreement 2.1 (assume

at Book Value) with id. 3.2 (purchases at Book Value). Nothing in that phrase or the rest of



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Section 2.1 suggests that these three words were intended to define or limit the scope of the

Liabilities Assumed by JPMC.35

Moreover, J PMCs construction of the phrase assumes at Book Value gives no

meaning to the portion of Section 2.1 in which JPMC expressly agrees to pay, perform, and

discharge all of the liabilities reflected on WaMus pre-closure Books and Records, because

pay, perform, and discharge is not limited by Book Value. P&A Agreement 2.1. To

interpret Section 2.1 to mean that liabilities are transferred to JPMC onlyif and to the extent

they had a Book Value, Am. Compl. 90 (emphasis in original), would allow the phrase

assumes at Book Value to nullify the remainder of Section 2.1, and it is a cardinal principle of

contract

deutsche bank _ fdic memo in support of jpmorgan chase's motion to dismiss filed 22nov2010

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