Case MFW Doc Filed 09/24/18 Page 1 of 25 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

Transcription

1 Case MFW Doc Filed 09/24/18 Page 1 of 25 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 WASHINGTON MUTUAL, INC., et al. 1, ) ) Case No (MFW) ) ) Jointly Administered Debtors. ) ) Re: Docket No ) ) Hearing Date: Oct. 16, 2018 at ) 11:30 a.m. (EST) ) OPPOSITION OF ROBERT BJORKLUND, DARYL DAVID, KIMBERLY CANNON, JOHN MURPHY, MICHAEL REYNOLDSON, AND CHANDAN SHARMA TO MOTION OF WMI LIQUIDATING TRUST FOR AN ORDER (I) GRANTING WMI LIQUIDATING TRUST S OMNIBUS OBJECTIONS, (II) DEEMING THE CLAIMANTS CLAIMS DISALLOWED, (III) AUTHORIZING THE DISTRIBUTION OF FUNDS IN DISPUTED CLAIMS RESERVE AND (IV) DISMISSING WMI LIQUIDATING TRUST S ADVERSARY PROCEEDINGS Robert Bjorklund, Daryl David, Kimberly Cannon, John Murphy, Michael Reynoldson and Chandan Sharma ( Bjorklund Claimants ), by and through their undersigned counsel, submit this opposition (the Opposition ) to Motion Of WMI Liquidating Trust s Omnibus Objections, (II) Deeming The Claimants Claims Disallowed, (III) Authorizing The Distribution Of Funds In Disputed Claims Reserve And (IV) Dismissing WMI Liquidating Trust s Adversary Proceedings [D.I ] ( Motion ). In support of this Opposition, the Bjorklund Claimants respectfully represent as follows: 1 The Debtors in these cases are: (i) Washington Mutual, Inc. and WMI Investment Corp

2 Case MFW Doc Filed 09/24/18 Page 2 of 25 PRELIMINARY STATEMENT 1. WMI Liquidating Trust ( WMILT ) by and through the Motion seeks to disallow the Claims 2 in their entirety based on WMILT s erroneous position that litigation in this Court will not yield any relief for the Claimants. 2. The Motion should be denied in its entirety for, inter alia, the following reasons: (a) The relief sought, disallowing the Claims in their entirety on the grounds that no private right of action exists and that the District Court declined to rule on whether WMILT is a covered company, is misguided because this Court has jurisdiction and authority to interpret and enforce its own orders the Plan and Confirmation Order. Plan 38.1, 11 U.S.C. 105 and 1142(b), 28 U.S.C. 157 and The Plan specifically provides that this Court is to determine the applicable law to be applied to WMILT and retain jurisdiction to enforce the Plan. Plan , 27.2, 27.6 and The Plan further provides that [t]he Liquidating Trust shall be established for the sole purpose of liquidating and distributing its assets, in accordance with Treasury Regulation section (d), with no objective to continue or engage in the conduct of a trade or business. Plan (emphasis added). Furthermore, 11 U.S.C. 1142(a) provides that the debtor and any entity organized or to be organized for the purpose of carrying out the plan shall carry out the plan and shall comply with any orders of the court ; (b) By the Motion, WMILT improperly seeks to substitute the judgment of the FDIC for that of this Court even though the Plan provides otherwise (and even though the Debtors and/ or the FDIC could have sought through the Plan confirmation process for the Federal Regulations which do not regulate liquidating trusts or the liquidation of claims to apply to WMILT); 2 All initial capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Motion. 3 Plan section 38.1 Retention of Jurisdiction provides, inter alia, that The Bankruptcy Court shall retain and have exclusive jurisdiction over any matter arising under the Bankruptcy code, arising in or related to the Chapter 11 Cases or the Plan, or that relates to the following

3 Case MFW Doc Filed 09/24/18 Page 3 of 25 (c) Despite WMILT s attempts to convince this Court otherwise, the Federal Regulations do not apply to post-petition WMI or WMILT. On the Commencement Date, WMI was no longer a savings and loan holding company and was no longer subject to regulation by the OTS or the FDIC. WMILT was never subject to regulation by the OTS or the FDIC as it is a Delaware trust. See Liquidating Trust Agreement, 6.3 and Plan 27. Thus, 12 U.S.C. 1828(k) and its supporting regulations are inapplicable to post-petition WMI and WMILT; (d) The August 23 Order precludes WMILT from seeking to disallow Claims based upon the Federal Regulations. Yet, this is exactly what WMILT attempts to do through the Motion disallow the Claims in their entirety based on the determination by the FDIC and WMILT that the Federal Regulations apply to WMILT. This Court has already ruled that the Federal Regulations cannot be used as objections or defenses to disallow the Claims, and the terms of the Plan and Confirmation Order do not provide that the Federal Regulations apply to a Delaware Trust; (e) WMILT argues without any authority that the APA Orders are binding on the Claimants. Had WMILT wanted the APA Orders to be binding on the Claimants, WMILT should have named the Claimants in the APA Actions. It did not! The fact that the Claimants elected not to intervene in the APA Actions does not eviscerate the Claimants due process rights; and, (f) The issue of whether the Federal Regulations apply to WMILT or postpetition WMI has never been determined. Contrary to the contentions of WMILT, Judge Walton never addressed the issue of whether the Golden Parachute Regulations applied to WMILT, a Delaware trust. This issue was never addressed by the Court because WMILT and the FDIC both stipulated that WMILT is a covered company under 12 U.S.C

4 Case MFW Doc Filed 09/24/18 Page 4 of (k) and 12 C.F.R See First APA Action, Complaint 4, 5, 6, Second APA Action, 6, For these reasons and those set forth below, the Motion should be denied in its entirety. 5 JURISDICTION AND VENUE The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. 158 and This is a core proceeding pursuant to 18 U.S.C. 157(b). Venue is proper before the Court pursuant to 28 U.S.C and RELEVANT FACTS A. Neither Post-petition WMI Nor WMILT Are Subject To The Federal Regulations 4. On the date that each of the Debtors commenced their voluntary cases pursuant to chapter 11 of title 11 of the United States Code ( Commencement Date ), WMI was no longer a savings and loan holding company and was no longer subject to regulation by the OTS or the FDIC. Exhibit A to the Voluntary Petition [D.I. 0001] states that Prior to the commencement of this chapter 11 case, Washington Mutual, Inc. had numerous direct and indirect subsidiaries, including Washington Mutual Bank and Washington Mutual Bank fsb. [D.I. 0001] (emphasis added). This is an admission that on the Commencement Date WMI was not a depository institution holding company. 5. In numerous pleadings filed by WMI and/or WMILT the following judicial admission is made: Prior to the Commencement Date, WMI operated as a savings and loan holding company that owned Washington Mutual Bank ( WMB ) and, indirectly, such bank s subsidiaries, including 4 For the convenience of the Court a copy of the Second APA Action, WMI Liquidating Trust v. Fed. Deposit Ins. Corp., No. 1:15-cv-00731, D.I. 1, is attached hereto without exhibits as Exhibit 1. 5 Bjorklund, David, Reynoldson and Sharma do not oppose the dismissal of the adversary proceedings requested in the Motion but recognize that if this Court does not deny the Claims in their entirety, it is unlikely that WMILT will proceed with its request to dismiss the adversary proceedings

5 Case MFW Doc Filed 09/24/18 Page 5 of 25 Washington Mutual Bank fsb ( WMBfsb ). Like all savings and loan holding companies, WMI was subject to regulation by the Office of Thrift Supervision (the OTS ). WMB and WMBfsb, in turn, like all depository institutions with federal thrift charters, were subject to regulation and examination by the OTS. In addition, WMI s banking and nonbanking subsidiaries were overseen by various federal and state authorities, including the Federal Deposit Insurance Corporation ( FDIC ). See, WMI Liquidating Trust s Motion to Amend The Fifth, Sixth, Seventy-Ninth, Eightieth, Eighty-First, Eighty-Second, Eighty-Fourth, Eighty-Fifth, and Eighty-Eighth Omnibus Objections To Claims [D.I ]( Motion to Amend ), p. 2, 3 (emphasis added). This is a judicial admission that on and after the Commencement Date WMI was not a savings and loan holding company and was not subject to regulation by the OTS. A similar admission is contained in the Court approved Disclosure Statement for the Seventh Amended Joint Plan of Affiliated Debtors Pursuant To Chapter 11 of the United States Bankruptcy Code [D.I. 9179] ( Disclosure Statement ) which provides in pertinent part: Prior to the Petition Date, WMI was a multiple savings and loan holding company that owned Washington Mutual Bank ( WMB ) and, indirectly, WMB s subsidiaries, including Washington Mutual Bank fsb ( FSB ). As of the Petition Date, WMI also had several non-banking, non-debtor subsidiaries. Like all savings and loan holding companies, prior to the Petition Date, WMI was subject to regulation by the Office of Thrift Supervision (the OTS ). WMB and FSB, in turn, like all depository institutions with federal thrift charters, were subject to regulation and examination by the OTS. In addition, WMI s banking and non-banking subsidiaries were overseen by various federal and state authorities, including the Federal Deposit Insurance Corporation ( FDIC ). Disclosure Statement [D.I. 9179], pp B. Plan and Confirmation Order 6. The WMILT Chapter11 plan (the Plan ) was approved by the Confirmation Order entered on February 24, WMILT was established pursuant to the Plan. WMILT was and is precluded by the Plan from engaging in any banking or investment business

6 Case MFW Doc Filed 09/24/18 Page 6 of 25 authority, and is expressly limited to liquidating the assets transferred to it and resolving claims in accordance with applicable law under Section 27 of the Plan as follows: 27.2 Purpose of the Liquidating Trust: The Liquidating Trust shall be established for the sole purpose of liquidating and distributing its assets,... with no objective to continue or engage in the conduct of a trade or business Administration of the Liquidating Trust: The Liquidating Trust shall be administered by the Liquidating Trustee according to the Liquidating Trust Agreement and the Plan Role of the Liquidating Trustee: In furtherance of and consistent with the purpose of the Liquidating Trust and Plan and subject to the terms of the Confirmation Order, the Plan and the Liquidating Trust Agreement,..., the Liquidating Trustee shall, among other things, have the following rights, powers and duties... (i)... (vi)... and manage, control, prosecute, and/or settle on behalf of the Liquidating Trust objections to Claims on account of which the Liquidating Trustee (as Disbursing Agent) will be responsible, if Allowed) for making distributions under the Plan,.... In all circumstances, the Liquidating Trustee shall comply with all of the Debtors obligations... in accordance with applicable law, and otherwise shall act in the best interests of the Liquidating Trust Beneficiaries and in furtherance of the purpose of the Liquidating Trust. Plan 27(emphasis added). 7. The Plan also provides at Section 38.1 that, inter alia, The Bankruptcy Court shall retain and have exclusive jurisdiction over any matter arising under the Bankruptcy Code, arising in or related to the Chapter 11 Cases or the Plan, or that relates to the following Plan 38. Thus, this Court retained exclusive jurisdiction over any matter arising in or related to the Plan. 8. The Plan further distinguishes between WMILT and the reorganized debtor by providing the following definition: Reorganized WMI: WMI, on and after the Effective Date, which shall include One Hundred Percent (100%) of the equity interests of WMI Investment, WMMRC and, subject to the abandonment of the equity interests of WMB, WMB

7 Case MFW Doc Filed 09/24/18 Page 7 of 25 Plan WMILT is distinct from the reorganized debtor, Reorganized WMI, and its sole purpose is to liquidate and disburse assets. 9. The Confirmation Order provides that: Confirmation Order 83. Retention of Jurisdiction. Notwithstanding the entry of this Order or the occurrence of the Effective Date, subject to Article XXXVIII of the Plan and except as otherwise provided in the Plan or herein, pursuant to sections I 05 and 1142 of the Bankruptcy Code, this Court shall retain exclusive jurisdiction over all matters arising out of, and related to, the Chapter 11 Cases to the fullest extent as is legally permissible, including, but not limited to, jurisdiction over the matters set forth in Article XXXVIII of the Plan. The FDIC was an active participant in the Debtors bankruptcy cases and in the Plan confirmation process. If the FDIC believed for any reason that WMILT was to be subject to ongoing oversight by the FDIC and that WMILT was to operate pursuant to the Federal Regulations, then the FDIC had the ability to request that the Plan be amended to include such terms. To the best of the Bjorklund Claimants knowledge, the FDIC never requested such relief which makes sense since WMILT was to solely be a liquidating trust administering assets and liquidating claims (tasks not usually subject to the Federal Regulations when they are not done by a bank under the FDIC s control)

8 Case MFW Doc Filed 09/24/18 Page 8 of 25 C. Motion to Amend and August 23 Order 10. On February 19, 2013, more than one hundred eighty (180) days after the Effective Date of the Plan and after its own self-imposed deadline, WMILT filed its Motion to Amend with this Court seeking permission from the Court to amend its prior-filed claims objections to assert, for the first time, federal banking regulations as additional defenses to the employee claims. 6 See Motion to Amend [D.I ]. 11. At the hearing on the Motion to Amend, WMILT claimed that it was prohibited from making any payments on account of employee claims without first applying to and obtaining approval from the FDIC and FRB. See Transcript of August 22, 2013 Hearing at 23 [D.I ] A number of the Claimants, including the Bjorklund Claimants, filed objections to WMILT s Motion to Amend. See generally, Joint Objection to WMI Liquidating Trust s Motion to Amend the Fifth, Sixth, Seventy-Ninth, Eightieth, Eighty-First, Eighty-Second, Eighty- Fourth, Eighty-Fifth, and Eighty-Eighth Omnibus Objections to Claims [D.I ]. In objecting to the Motion to Amend Objections, the Bjorlund Claimants argued, inter alia, that WMILT was not subject to the Golden Parachute Regulations because WMILT is not and never has been a covered company pursuant to the Golden Parachute Regulations. The Bjorklund Claimants also argued that post-petition WMI was not subject to the Golden Parachute Regulations. Id. 13. After rendering an oral order during the Bankruptcy Court hearing on August 22, 2013, the Court entered the August 23 Order denying WMILT s Motion to Amend. See, 6 Specifically, the Motion to Amend Objections sought to add defenses based on 12 U.S.C. 1828(k) and 12 C.F.R. 359, the Golden Parachute Regulations as well as 12 C.F.R , the Automatic Termination Regulation. 7 This statement appears inconsistent with the Plan. See Plan, 41.3 Injunction on Claims

9 Case MFW Doc Filed 09/24/18 Page 9 of 25 August 23 Order [Bankr. D.I ]. 8 As stated in the August 23 Order, the Court found (i) that there has been undue delay by WMILT in seeking to amend the Omnibus Objections, (ii) that the claimants (particularly those who have already settled their claims) would be unduly prejudiced by the amendments, and (iii) that the amendment would be futile because any decision on the legal issue would not be binding on the FDIC and FRB because they are not parties to the Omnibus Objections. Id. at The Court directed WMILT, by way of the August 23 Order, to file a declaratory judgment action (the Declaratory Judgment Action ), naming the FDIC, FRB, and all employee claimants as defendants, seeking a determination of whether WMILT is precluded by the Federal Regulations from paying any of the employee claimants, including the Claimants, on their claims. Id. D. The FDIC Payment Applications Submitted by WMILT 15. On August 14, 2013 (before this Court had the opportunity to hear and rule upon WMILT s then-pending Motion to Amend), WMILT submitted a formal application to the FDIC in which WMILT purportedly sought authorization to pay certain employee claimants in amounts allegedly agreed upon during settlement negotiations through the First Payment Application. First APA D.I. 1 at 1, 2, 3, 7. The Bjorklund Claimants were not a party to this proceeding. 16. WMILT waited until the Delaware District Court issued its order withdrawing the reference with respect to the Declaratory Judgment Action on March 19, 2015 and then 8 A true and correct copy of the August 23 Order is attached hereto as Exhibit A

10 Case MFW Doc Filed 09/24/18 Page 10 of 25 immediately submitted the Second Payment Application on March 23, The Second Payment Application allegedly sought authorization to pay other employee claimants, including many of the Claimants, in any amount on their claims. 10 Notably, and on information and belief, none of those employee claimants had executed settlement agreements with WMILT. Rather, as the record bears out, the submission of the Second Payment Application was the next step in WMILT s strategy to circumvent the August 23 Order by obtaining final agency determinations as to the Claimants, and then to seek judicial enforcement of those determinations without the participation of the Claimants, as it had been ordered to do by this Court. 17. In submitting the Second Payment Application, WMILT elected to follow the regulatory procedures governing covered companies and the approval of golden parachute payments rather than seek a determination of whether the Federal Regulations applied at all with regard to payments to Claimants by WMILT. WMILT s pursuit of an agency determination from the FDIC through the submission of the Payment Applications evaded this Court s express directive for the threshold legal questions regarding the Federal Regulations to be answered in federal court with all interested parties involved. See August 23 Order, attached hereto as Exhibit A. 9 See, e.g. Memorandum of Law In Support of Plaintiff WMI Liquidating Trust s Motion For Judgment on the Pleadings on Count I of Certain Employee Defendants Counterclaims at 7 [D. Del. D.I. 51]. 10 The Payment Applications were submitted to the FDIC over the objection of many Claimants. It has been, and continues to be, the Claimants position that the FDIC does not have jurisdiction to approve or disapprove payments by WMILT on their claims. Further, to date, WMILT has refused to provide a copy of the Payment Applications submitted to the FDIC to the Claimants despite repeated requests. FOIA requests for the Payment Applications were made by Bjorklund Claimants and denied

11 Case MFW Doc Filed 09/24/18 Page 11 of 25 E. Litigation Between The FDIC And WMILT Under The Administrative Procedures Act Did Not Resolve The Issue Of Whether The Federal Regulations Apply To WMILT Or Post-petition WMI. 18. While the parties were waiting for the Delaware District Court to take action with respect to the withdrawal of the reference of the Declaratory Judgment Action, WMILT filed a complaint against the FDIC under the Administrative Procedures Act in the District Court for the District of Columbia on October 29, 2014, thereby commencing the First APA Action. WMILT stated that it brought the First APA Action to seek judicial review of the FDIC s final agency action denying the First Payment Application based on the agency s application of the Golden Parachute Regulations. See Complaint [First APA Action D.I. 1]. The First Payment Application was submitted without the consent of many Claimants, has still not been shared with any of the Claimants despite their requests, and Claimants have no knowledge of its contents. Neither the Claimants nor the FRB were parties to the First APA Action. 19. Subsequently, on May 13, 2015, WMILT filed a second action against the FDIC under the APA in the District Court for the District of Columbia. Complaint [Second APA Action D.I. 1] Exhibit B, hereto. WMILT stated that it brought the Second APA Action to seek judicial review of the FDIC s final agency determination denying the Second Payment Application based on the agency s application of the Golden Parachute Regulations. Id. The Second Payment Application was submitted over the objection of many Claimants, including the Bjorklund Claimants, has not been shared with Claimants, and Claimants have no knowledge of its contents. As with the First APA Action, neither the Claimants nor the FRB were parties to the Second APA Action. 20. The APA Actions were resolved by the District Court for the District of Columbia while an informal stay requested by WMILT and the FDIC (over the objection of the Bjorklund Claimants) in the Declaratory Judgment Action was in place. In the First APA Action, the District Court, inter alia, remanded the case to the FDIC to clarify why WMILT s

12 Case MFW Doc Filed 09/24/18 Page 12 of 25 failure to comply with certain regulatory certification requirements is insufficient alone to deny the First Payment Application. Memorandum Opinion [First APA Action D.I. 38-1]. 11 Upon remand, the FDIC issued a remand decision on WMILT s payment application. WMILT then stipulated to entry of final judgment in favor of the FDIC and the case was closed. See Final Order and Judgment [First APA Action D.I. 42]. 21. In the Second APA Action, the District Court upheld the FDIC s denial of the Second Payment Application and ordered the case closed. See, Order [Second APA Action D.I. 25]. 22. In both complaints filed by WMILT in the APA Actions, WMILT declared that it was subject to the FDIC s jurisdiction and stipulated to the applicability of the Federal Regulations to WMILT. Accordingly, in the APA Actions, WMILT did not seek a determination of whether the Federal Regulations precluded it from paying the Claimants if their Claims were allowed, but instead admitted to the applicability of the Federal Regulations and requested an order confirming that admission! As the threshold issue of covered company was consented to by WMILT (even though the law is clear that entities other than banks are not covered by the Federal Regulations), the court in the APA Actions was never asked to resolve a dispute regarding whether WMILT was subject to the FDIC s jurisdiction or whether the Federal Regulations applied to WMILT. 24. The Complaint in the Second APA Action at 6 states that: WMILT does not dispute that it is subject to the Golden Parachute Regulations. 11 The court s opinion has also been published at WMI Liquidating Trust v. FDIC, 110 F. Supp. 3d 44 (D.D.C. 2015) (Walton, J.). 12 The complaints filed in the APA Actions seek orders finding, inter alia, that WMILT is a covered company and is subject to the Golden Parachute Regulations. [First APA Action D.I. 1; Second APA Action D.I. 1]

13 Case MFW Doc Filed 09/24/18 Page 13 of Paragraph 8 of the Second APA Action provides that: WMILT, as a successor in interest to WMI, is subject to the Golden Parachute Regulations 26. The Complaint in the First APA Action at 5 states that: WMILT does not dispute that it is subject to the Golden Parachute Regulations. 27. The Second APA Action also states that the FDIC has repeatedly determined that WMILT is subject to the Golden Parachute Regulations. Id. at WMILT has never contested this position and no court has addressed the issue of whether WMILT is subject to the Golden Parachute Regulations or ATR. 28. Furthermore, the Plan provides at section 41.3 that the FDIC is enjoined from pursuing claims against the Claimants, the Debtor, the Reorganized Debtor or any assets and property of the estates (including the funds in the distribution trust). This section of the Plan should apply to the WMILT as well. F. WMILT Did Not Obtain A Declaratory Judgment That It Is Precluded From Making Payments To The Claimants 29. The Delaware District Court successively granted motions determining that it did not have jurisdiction to grant the Declaratory Judgment requested by WMILT. It similarly determined that it did not have jurisdiction to grant the Declaratory Judgment requested by the Claimants. Ultimately, on June 18, 2018, the Delaware District Court entered its final Order determining that it did not have jurisdiction to grant the relief requested by any of the parties. See Motion, Exhibit A. 30. WMILT has not obtained, and cannot obtain, a Declaratory Judgment that WMILT is precluded by 12 U.S.C. 1828(k), or any other similar provision from making any payments to Claimants herein if their Claims are allowed by this Court (whether after trial or approval of a settlement)

14 Case MFW Doc Filed 09/24/18 Page 14 of 25 THE CLAIMS SHOULD NOT BE DISALLOWED IN THEIR ENTIRETY AS REQUESTED BY THE MOTION A. This Court Has Statutory Authority And Jurisdiction To Compel WMILT To Act In Accordance With Applicable Law To Fulfill WMILT s Sole Purpose Under The Plan 31. WMILT s sole purpose is clearly restricted under the confirmed Plan, and the Liquidating Trust Agreement. Specifically, [t]he Liquidating Trust shall be established for the sole purpose of liquidating and distributing its assets, in accordance with Treasury Regulation section (d), with no objective to continue or engage in the conduct of a trade or business. Plan The Confirmation Order similarly restricts the scope of WMILT s powers, duties and authorities to act, as follows: The Liquidating Trust Agreement may provide powers, duties and authorities in addition to those explicitly stated in the Plan, but only to the extent that such powers, duties and authorities do not affect the status of the Liquidating Trust as a liquidating trust for federal income tax purposes. Confirmation Order, For WMILT to retain its liquidating trust status for purposes of the Internal Revenue Code, the following applies: An organization will be considered a liquidating trust if it is organized for the primary purpose of liquidating and distributing the assets transferred to it, and if its activities are all reasonably necessary to, and consistent with, the accomplishment of that purpose. A liquidating trust is treated as a trust for purposes of the Internal Revenue Code because it is formed with the objective of liquidating particular assets and not as an organization having as its purpose the carrying on of a profit-making business which normally would be conducted through business organizations classified as corporations or partnerships. Treasury Reg (d). 34. The Plan also requires that, [i]n all circumstances, the Liquidating Trustee shall comply with all of the Debtors obligations under the Global Settlement Agreement and in

15 Case MFW Doc Filed 09/24/18 Page 15 of 25 accordance with applicable law, and otherwise shall act in the best interests of all Liquidating Trust Beneficiaries and in furtherance of the purpose of the Liquidating Trust. Plan 27.6 (emphasis added). 35. The Liquidating Trust Agreement 6.3(a) likewise expressly requires the Liquidating Trustee to hold out WMILT as a trust in the process of liquidating and not as an investment company. That provision states, The Liquidating Trustee shall be restricted to the liquidation of the Liquidating Trust Assets on behalf, and for the benefit of the Liquidating Trust Beneficiaries and the distribution and application of Liquidating Trust Assets for the purposes set forth in... this Trust Agreement, the Plan and the Confirmation Order. Liquidating Trust Agreement, 6.3(a). This expressly restricts the Liquidating Trustee to operate only for the express purposes laid out for WMILT (which are defined in the Plan and the Liquidating Trust Agreement). 36. The Plan makes clear that WMILT was and is limited, from its creation through fulfillment of its sole purpose, to being and acting only as a Liquidating Trust that cannot engage in the conduct of a business. Plan, Further, this Bankruptcy Court has authority to make orders binding WMILT as necessary to implement the Plan. That statutory authority is provided by 28 U.S.C. 157 and 1334, and 11 U.S.C. 105 and 1142(b). The authority of this Court under 11 U.S.C. 105 expressly includes taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules. The authority of this Court to direct the debtor and any other necessary party... to perform any other act... that is necessary for the consummation of the plan is expressly provided by 11 U.S.C. 1142(b). 38. WMILT also has a statutory obligation to comply with orders of this Court issued to consummate the Plan as follows: Notwithstanding any otherwise applicable nonbankruptcy law, rule, or regulation relating to financial condition, the debtor and any entity organized or to be organized for the purpose of carrying out the plan shall carry out the plan and shall comply with any

16 Case MFW Doc Filed 09/24/18 Page 16 of U.S.C. 1142(a). orders of the court. 39. Accordingly, this Court has the statutory authority to compel WMILT to act in accordance with applicable law to fulfill WMILT s sole purpose under the Plan. With respect to the Plan and enforcement of the Plan and the Confirmation Order, this Court s judgment should not be substituted for that of the FDIC. B. No Payment By WMILT Could Meet The Statutory Definition Of A Golden Parachute Payment, As Only A Payment By An Insured Depository Institution Or By A Covered Company Is Prohibited Under 12 U.S.C. 1828(k)(4)(A) 40. The question of whether the Federal Regulations apply to an entity that is not an FDIC insured bank or bank holding company subject to FDIC regulation and jurisdiction is a resounding NO. See 11 U.S.C 1828(k), 12 C.F.R , Faigin v Signature Group Holdings, Inc. ( Faigin ), 211 Cal.App.4 th 726, 150 Cal.Rptr.3d 123 (Cal. Ct. Appeal 2012) The Federal Regulations including the Golden Parachute Regulations and ATR do not apply to post-petition WMI or to WMILT. On the Commencement Date, WMI was no longer a savings and loan holding company and was no longer subject to regulation by the OTS or the FDIC. WMILT was never subject to regulation by the OTS or the FDIC as it is a Delaware trust created by the Plan and Confirmation Order. See Liquidating Trust Agreement, 1.1, 1.2, 6.3 and Plan 1.138, Section 12 U.S.C. 1828(k)(4)(A) limits the application of the prohibition on golden parachute payments to payments by only two kinds of entities: (1) an insured depository institution or (2) a covered company. Specifically, subsection 12 U.S.C. 1828(k)(4)(A) expressly states this limitation as follows: (k) Authority to regulate or prohibit certain forms of benefits to institution-affiliated parties 13 Although this appears to be a rather obvious legal proposition, prior to Faigin, there was no case law on this issue

17 Case MFW Doc Filed 09/24/18 Page 17 of 25 (1) Golden parachutes and indemnification payments The Corporation 14 may prohibit or limit, by regulation or order, any golden parachute payment or indemnification payment.... (4) Golden parachute payment defined for purposes of this subsection-- 12 U.S.C. 1828(k)(4)(A) (emphasis added). (A) In general The term golden parachute payment means any payment (or any agreement to make any payment) in the nature of compensation by any insured depository institution or covered company WMILT cannot qualify as an insured depository institution. Instead, both WMILT s sole purpose under the Plan and its limited authority to implement that purpose are restricted against engaging in any business. These restrictions cannot possibly allow WMILT to be considered an insured depository institution or depository institution holding company. And no party even suggests that WMILT is an insured depository institution. Post-petition WMI was not an insured depository institution or depository institution holding company. [Bankr. D.I. 0001, 9179, 11032]. 44. WMILT also cannot meet the statutory definition of a covered company. The definition of a covered company is expressly stated in subsection 12 U.S.C. 1828(k)(5)(D) as meaning only two kinds of entities: (1) a depository institution holding company, or (2) a company that controls an insured depository institution, as follows: (D) Covered company The term covered company means any depository institution holding company (including any company required to file a report 14 Under 12 C.F.R , Corporation means the Federal Deposit Insurance Corporation, in its corporate capacity

18 Case MFW Doc Filed 09/24/18 Page 18 of U.S.C. 1828(k)(5)(D). under section 1843(f)(6) of this title), or any other company that controls an insured depository institution. 45. WMILT could never be a depository institution holding company. WMILT never had any ownership of any insured depository institution. Indeed, WMILT s sole purpose of liquidating and distributing its assets,... with no objective to continue or engage in the conduct of a trade or business could never allow WMILT to acquire an ownership interest in an insured depository institution. The limited scope of WMILT s authority only to implement that sole purpose would never allow WMILT to obtain any ownership interest in any insured depository institution. WMILT could thus never be a depository institution holding company. Post-petition WMI was not a depository institution holding company. [Bankr. D.I. 0001, 9179, 11032]. 46. WMILT likewise could not possibly ever control any insured depository institution. WMILT never had any authority or ability to manage, direct, or even influence, any insured depository institution. The restrictions imposed upon WMILT since its creation pursuant to the confirmed Plan could never allow it to control any insured depository institution. Section 27.2 of that Plan specifically precludes WMILT from engaging in any business. See Plan The jurisdiction of the FDIC under Section 359 of the Federal Regulations is based upon the entity's status as an insured institution. The structure of the Golden Parachute limitation of Section 359 of the Federal Regulations is specifically predicated upon the entity making the payment being an insured institution. The term Golden Parachute Payment is defined in Section 359.1(f) as follows: (1) The term golden parachute payment means any payment (or any agreement to make any payment) in the nature of

19 Case MFW Doc Filed 09/24/18 Page 19 of 25 compensation by an insured depository institution or an affiliated depository institution holding company for the benefit of any current or former IAP pursuant to an obligation of such institution or holding company that C.F.R (f) (emphasis added). 48. Section 359.1(g) defines Insured Depository Institution as follows: Insured depository institution means any bank or savings association the deposits of which are insured by the [FDIC] pursuant to the [FDI] Act, or any subsidiary thereof. 12 C.F.R (g). 49. By its very definition, a payment cannot be considered a Golden Parachute payment if the entity making the payment is not an insured depository institution. A literal reading of these definitions indicates that if the entity making a payment is not an insured institution, which WMI has not been since the Commencement Date and WMILT never was, the payment cannot be a Golden Parachute subject to Section The policy and purpose of the Federal Regulations regarding Golden Parachute payments confirm that the regulations are not intended to apply to payments made from an entity which is not an insured depository institution such as WMI post-petition and WMILT. The preamble in 61 Fed. Register states: The FDIC is adopting a rule limiting golden parachute and indemnification payments to institution-affiliated parties by insured depository institutions and depository institution holding companies. The purpose of this rule is to prevent the improper disposition of institution assets and to protect the financial soundness of insured depository institutions, depository institution holding companies, and the federal deposit insurance funds. Federal Register Volume 61, Issue 32 (February 15, 1996)(emphasis added). 51. As the stated purpose of Part 359 is to protect the financial soundness of funds insured by the FDIC and to prevent improper disposition of the institution's assets by limiting payments made by insured depository institutions, Part 359 is only intended to apply to

20 Case MFW Doc Filed 09/24/18 Page 20 of 25 payments made by an insured depository institution or depository institution holding companies out of institution assets. 52. Thus, this rule and public policy behind the limitation of Golden Parachute Payments do not apply to restrict payments made by an entity that is no longer regulated by the FDIC. See 12 U.S.C. 1828(k)(1); 12 C.F.R (f)(1); Faigin, 211 Cal.App.4 th at 745. That is exactly the case here. Neither post-petition WMI nor WMILT were ever regulated by the FDIC nor were they insured depository institutions or depository institution holding companies. Moreover, the funds in the distribution account are not from the assets of any insured depository institution. 53. The statutorily defined prohibition on golden parachute payments should not, and cannot, be extended beyond the definition of a golden parachute payment as specifically stated in 12 U.S.C. 1828(k)(4)(A). See, Faigin v Signature Group Holdings, Inc., 211 Cal.App.4 th In Faigin, the plaintiff was the former general counsel of a Depository Insured Holding Company ( DIHC ) and CEO of a subsidiary Insured Depository Institution ( IDI ). Id. at 731, 150 Cal. Rptr. at 128. In March 2007, the IDI received an FDIC cease and desist order, deeming it a troubled institution, and on December 20, 2007, the plaintiff was terminated. Id at , 150 Cal.Rptr at In June 2008, the DIHC filed a chapter 11 bankruptcy petition. In July 2008, the IDI ceased doing business as a bank. Id at 732, 150 Cal.Rptr. at 129. Subsequently, the plaintiff was awarded damages after a jury trial for breach of his employment contract. Id at 734, 150 Cal.Rptr. at 131. The court found that, at the time of the damages award, the IDI "had ceased its banking business and was no longer an insured depository institution subject to regulation by the FDIC." Id. at 745, 150 Cal.Rptr. at 139. Therefore, the court found that the payment to the former executive did not constitute a golden parachute

21 Case MFW Doc Filed 09/24/18 Page 21 of 25 payment because it was not being made by an institution subject to regulation by the FDIC. Id. 55. The Faigin court went on to address an argument advanced by the IDI based on 61 Fed. Reg Id. at n.6. The IDI argued that the FDIC intended to prohibit golden parachute payments "forever" if such payments were prohibited at the time of termination because the institution was in a troubled condition. Id. However, the court specifically considered, and rejected, this argument and held that the comments in 61 Fed. Reg referred only to a situation where the financial institution recovers after a period of being troubled, not a situation, such as here, where the financial institution that has gone bankrupt and has ceased doing business. Id. C. The APA Actions And Rulings Do Not Impact The Claims 56. Through the Motion, WMILT attempts to disallow the Claims in their entirety based on the Delaware District Court s determination that it does not have jurisdiction to rule on whether WMILT is a covered company and the orders of Judge Walton in the APA Actions. As noted in the Motion, the Claimants were never a party to either of the APA Actions, despite the August 23 Order. Additionally, as discussed above, neither of the APA Actions addressed the issue of whether the Federal Regulations apply to WMILT. Rather, WMILT declared in both of the APA Actions that it was a covered company and the Federal Regulations applied to it. First APA Action, 4, 5 Second APA Action, 6, 8, Exhibit B. 57. Not only did WMILT fail to contest the FDIC s findings that WMILT is a covered company and/or is subject to the Golden Parachute Regulations, WMILT actually sought orders from the D.C. District Court finding that WMILT is a covered company and/or is subject to the Golden Parachute Regulations [D.I. 13, at 9], Complaint, First APA Action, prayer for relief, D.I. 0001, p.2, Complaint, Second APA Action, D.I. 0001, p. 28, Exhibit B

22 Case MFW Doc Filed 09/24/18 Page 22 of Through the Motion, WMILT is attempting an end-run around this Court s August 23 Order and the Confirmation Order by seeking to subject the Claimants to the FDIC s jurisdiction and to the Federal Regulations based upon WMILT s unfounded and inaccurate admissions made in the APA Actions

23 Case MFW Doc Filed 09/24/18 Page 23 of 25 D. The Plan and Confirmation Order Provide That WMILT Cannot Be Subjected To Fines By The FDIC 59. WMILT asserts that the FDIC has threatened to impose monetary fines if it makes payments to the Claimants without regulatory approval. Motion at 24. Specifically, WMILT claims that if it makes such payments without the approval of the FDIC, it would result in a violation of [the Golden Parachute Regulations] and potential civil money penalties. Id. 60. Contrary to WMILT s assertion, the Plan specifically enjoins the FDIC from pursuing any type of fines or penalties against WMILT. Section 41.3 of the Plan provides in its pertinent part: Injunction on Claims: Except as otherwise expressly provided in Sections 41.6 and of the Plan, the Confirmation Order all Entities who have held, hold or may hold Claims or any other debt or liability that is discharged or Equity Interests or other right of equity interest that is terminated or cancelled pursuant to the Plan or the Global Settlement Agreement, or who have held, hold or may hold Claims or any other debt or liability that is discharged or released pursuant to Section 41.2 hereof, are permanently enjoined, from and after the Effective Date, from (a) commencing or continuing, directly or indirectly, in any manner, any action or other proceeding (including, without limitation, any judicial, arbitral, administrative or other proceeding) of any kind on any such Claim or other debt or liability that is discharged or Equity Interest that is terminated, cancelled, assumed or transferred pursuant to the Plan against any of the Released Parties or any of their respective assets, property or estates, provided, however, that such injunction shall not preclude the United States of America, any state or any of their respective police or regulatory agencies from enforcing their police or regulatory powers; and, provided, further, that, except in connection with a properly filed proof of Claim, the foregoing proviso does not permit the United States of America, any State or any of their respective police or regulatory agencies from obtaining any monetary recovery, including fines, restitution or forfeiture, from any of the Released Parties, including, without limitation, the Debtors, the Debtors in Possession or the Reorganized Debtors,

24 Case MFW Doc Filed 09/24/18 Page 24 of 25 or any of their respective assets, property or estates, with respect to any such Claim or other debt or liability that is discharged or Equity Interest or other right of equity interest that is terminated or cancelled pursuant to the Plan, including, without limitation, any monetary claim or penalty in furtherance of a police or regulatory power; Plan 41.3 (emphasis added). 61. For these reasons, even if the FDIC somehow maintained regulatory jurisdiction over WMILT, it is specifically enjoined under the Plan from issuing potential civil money penalties against WMILT if payments are made to the Claimants. 62. The terms of the Plan and the Confirmation Order vest this Court with jurisdiction over claims and claim objections, and neither WMI nor the FDIC contested that jurisdiction in connection with Plan confirmation. 63. The FDIC was an active participant in the Debtors bankruptcy cases and in the Plan confirmation process. The FDIC had ample opportunity to object to the Plan and the Disclosure Statement and request that the terms of the Plan provide that the claim and claim objection process was also subject to the Federal Regulations and the FDIC. Neither the FDIC nor the Debtors ensured that the Plan provided that the FDIC and its regulations applied to WMILT, and that the FDIC retained jurisdiction over any claims. 64. By the Motion, WMILT is acting against its beneficiaries and attempting to apply the Federal Regulations to disallow the Claims something this Court has already ruled WMILT cannot do. See August 23 Order. This Court and not the FDIC or WMILT has the authority and jurisdiction to interpret the Plan and Confirmation Order and ascertain whether WMILT as created under the Plan is a covered company. CONCLUSION

25 Case MFW Doc Filed 09/24/18 Page 25 of 25 Based on the foregoing, the Bjorklund Claimants respectfully request that this Court deny the Motion in its entirety. Dated: September 24, 2018 Wilmington, Delaware O KELLY ERNST & JOYCE, LLC By: /s/ Michael Joyce Michael J. Joyce (No. 4563) 901 N. Market Street, Suite 1000 Wilmington, DE (302) mjoyce@oelegal.com Counsel to Daryl David, Kimberly Cannon, John Murphy, Michael Reynoldson, Chandan Sharma and Robert Bjorklund and BRUTZKUS GUBNER ROZANSKY SEROR WEBER LLP Robyn B. Sokol, Esquire Oxnard Street, Suite 500 Woodland Hills, CA Telephone: (818) Facsimile: (818) rsokol@bg.law Counsel to Daryl David, Kimberly Cannon, Michael Reynoldson, Chandan Sharma and Robert Bjorklund

26 Case MFW Doc Filed 09/24/18 Page 1 of 3

27 Case MFW Doc Filed 09/24/18 Page 2 of 3

28 Case MFW Doc Filed 09/24/18 Page 3 of 3

29 Case MFW Doc Filed 09/24/18 Page 1 of 29

30 Case MFW Doc Filed 09/24/18 Page 2 of 29

31 Case MFW Doc Filed 09/24/18 Page 3 of 29

32 Case MFW Doc Filed 09/24/18 Page 4 of 29

33 Case MFW Doc Filed 09/24/18 Page 5 of 29

34 Case MFW Doc Filed 09/24/18 Page 6 of 29

35 Case MFW Doc Filed 09/24/18 Page 7 of 29

36 Case MFW Doc Filed 09/24/18 Page 8 of 29

37 Case MFW Doc Filed 09/24/18 Page 9 of 29

38 Case MFW Doc Filed 09/24/18 Page 10 of 29

39 Case MFW Doc Filed 09/24/18 Page 11 of 29

40 Case MFW Doc Filed 09/24/18 Page 12 of 29

41 Case MFW Doc Filed 09/24/18 Page 13 of 29

42 Case MFW Doc Filed 09/24/18 Page 14 of 29

43 Case MFW Doc Filed 09/24/18 Page 15 of 29

44 Case MFW Doc Filed 09/24/18 Page 16 of 29

45 Case MFW Doc Filed 09/24/18 Page 17 of 29

46 Case MFW Doc Filed 09/24/18 Page 18 of 29

47 Case MFW Doc Filed 09/24/18 Page 19 of 29

48 Case MFW Doc Filed 09/24/18 Page 20 of 29

49 Case MFW Doc Filed 09/24/18 Page 21 of 29

50 Case MFW Doc Filed 09/24/18 Page 22 of 29

51 Case MFW Doc Filed 09/24/18 Page 23 of 29

52 Case MFW Doc Filed 09/24/18 Page 24 of 29

53 Case MFW Doc Filed 09/24/18 Page 25 of 29

54 Case MFW Doc Filed 09/24/18 Page 26 of 29

55 Case MFW Doc Filed 09/24/18 Page 27 of 29

56 Case MFW Doc Filed 09/24/18 Page 28 of 29

57 Case MFW Doc Filed 09/24/18 Page 29 of 29

58 Case MFW Doc Filed 09/24/18 Page 1 of 2 CERTIFICATE OF SERVICE I, Michael J. Joyce, hereby certify that on September 24, 2018, I caused a true and correct copy of the Opposition of Robert Bjorklund, Daryl D. David, Kimberly Cannon, John Murphy, Michael Reynoldson, and Chandan Sharma to Motion of WMI Liquidating Trust for an Order (I) Granting WMI Liquidating Trust s Omnibus Objections, (II) Deeming the Claimants Claims Disallowed, (III) Authorizing the Distribution of Funds in Disputed Claims Reserve and (IV) Dismissing WMI Liquidating Trust s Adversary Proceedings to be served on the parties listed on the attached service list via CM/ECF and/or by first class mail: /s/ Michael J. Joyce Michael J. Joyce (No. 4563)

59 Case MFW Doc Filed 09/24/18 Page 2 of 2 SERVICE LIST Mark D. Collins, Esq. Paul N. Heath, Esq. Amanda R. Steele, Esq. Richards, Layton and Finger PA 920 N. King Street Wilmington, DE Michael Busenkell, Esq. Gellert Scali Busenkell & Brown, LLC 1201 N. Orange Street Suite 300 Wilmington, DE Kenneth E. Aaron, Esq. Jeffrey S. Cianciulli, Esq. Weir & Partners LLP 824 Market Street Mall, Suite 1001 P.O. Box 708 Wilmington, DE Brian S. Rosen, Esq. Proskauer Rose LLP Eleven Times Square (Eighth Avenue & 41st Street) New York, New York Joseph J. McMahon, Jr., Esq. Ciardi Ciardi & Astin 1204 N. King Street Wilmington, DE Katherine H. Wheatley, Esq. Joshua P. Chadwick, Esq. Christopher J. Becker, Esq. Board of Governors of the Federal Reserve System 20th & C Streets, N.W. MS #9 Washington, D.C Erik B. Bond, Esq. Federal Deposit Insurance Corporation Legal Division 3501 N. Fairfax Drive Arlington, VA 22226