WaMu Loses Court Battle, Again: Report

WILMINGTON, Del. (TheStreet) - Failed bank Washington Mutual has failed again to win approval for its plan to settle with creditors for over $7 billion, according to a Bloomberg report.

Washington Mutuals former subsidiary, Washington Mutual Bank, was the largest ever U.S. bank or thrift failure, being seized by the Office of Thrift Supervision in September 2008, and sold by the Federal Deposit Insurance Corp., along with other failed Washington Mutual bank and thrift subsidiaries, to JPMorgan Chase (JPM), for $1.9 billion.

According to the report, U.S. Bankruptcy judge Mary Walrath said in a decision on Tuesday that she was concerned over a "litigation morass" between Washington Mutual, its creditors and opponents of the proposed settlement, which included Washington Mutual's shareholders. The two sides were ordered to submit to mediation.

Washington Mutual's settlement plan was supported by hedge funds, the FDIC and JPMorgan Chase, and included a plan "to split $4 billion in cash and billions more in tax refunds," according to Bloomberg. The settlement would also have resolved various lawsuits against Washington Mutual.

Washington Mutual's shareholders opposed the settlement plan, which would leave them nothing. The shareholders are still pinning hopes on lawsuits against the FDIC and JPMorgan, claiming that Washington Mutual Bank shouldn't have been shuttered by the OTS.

Judge Walrath said that the hedge funds assisting Washington Mutual in negotiating the settlement plan -- including Aurelius Capital Management LP, Centerbridge Partners LP, Appaloosa Management LP and Owl Creek Asset Management LP -- may have used non-public information they gained in settlement talks to buy and sell Washington Mutual Securities. The hedge funds have denied using any material non-public information, according to Bloomberg, but the judge said that there was enough evidence to warrant further investigation.

-- Written by Philip van Doorn in Jupiter, Fla.

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