* Several insurers objected to JPMorgan sweetheart deal
* DC Circuit says lower court erred in dismissing case
* JPMorgan, FDIC decline to comment (Adds comment from lawyer for insurers, updated stock price)
By Jonathan Stempel
NEW YORK, June 24 (Reuters) – A U.S. appeals court revived a lawsuit by bondholders of the failed Washington Mutual Bank who accused JPMorgan Chase & Co (JPM.N) of causing them losses when it bought the thrift’s assets at a “fire sale” price.
Friday’s ruling by the D.C. Circuit Court of Appeals lets five insurers renew claims accusing JPMorgan of having pressured the U.S. Federal Deposit Insurance Corp to force a $1.9 billion sale of what was once the largest U.S. savings and loan.
These insurers said the terms “drastically undervalued” the banking unit of Washington Mutual Inc (WAMUQ.PK) and let JPMorgan cherry-pick its best assets at their expense, causing their bond investments to become worthless.
Writing for a three-judge appeals court panel, Chief Judge David Sentelle reversed the April 2010 dismissal of the case by a federal district judge, who concluded the bondholders should have pursued all administrative remedies before suing.
The panel returned the case to the lower court for further proceedings. The FDIC agreed with JPMorgan, the nation’s second-largest bank, that the case was properly dismissed.
JPMorgan spokeswoman Christine Holevas and FDIC spokesman David Barr declined to comment.
James Roquemore, a lawyer for the insurers, said he was pleased with the ruling, and his clients plan to proceed with discovery in anticipation of an eventual trial.
The lawsuit is among those arising from the FDIC’s Sept. 25, 2008 seizure of Seattle-based WaMu, as the company is known.
WaMu’s holding company filed for bankruptcy protection the next day. It is still seeking permission from a Delaware bankruptcy judge to distribute $7 billion to creditors. [ID:nN1E75L1U6]
WaMu remains the largest U.S. bank or savings and loan to fail, with $307 billion of assets.
AVOIDING POINTLESS BUREAUCRACY
The five plaintiff insurers are American National Insurance Co, American National Property and Casualty Insurance Co, Farm Family Life Insurance Co, Farm Family Casualty Insurance Co and National Western Life Insurance Co.
They argued that the lower court erred in requiring them to first pursue administrative remedies and in finding that they did not properly allege that JPMorgan’s actions were a “substantial” cause of their losses.
But Sentelle found that “the plain language” of the federal Financial Institutions Reform, Recovery and Enforcement Act, a 1989 law passed following that decade’s savings-and-loan crisis, meant the insurers’ case should go forward.
“Where, as here, neither the failed depository institution nor the FDIC-as-receiver bears any legal responsibility for claimant’s injuries, the claims process offers only a pointless bureaucratic exercise,” he said.
“And we doubt Congress intended to force claimants into a process incapable of resolving their claims.”
In afternoon trading, JPMorgan shares were down 49 cents at $39.58 on the New York Stock Exchange.
The case is American National Insurance Co et al v. FDIC et al, D.C. Circuit Court of Appeals, No. 09-01743. (Reporting by Jonathan Stempel; editing by Gerald E. McCormick and Andre Grenon)
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