IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

.........................................................x
: Chapter 11
In re
: Case No. 08-12229 (MFW)
WASHINGTON MUTUAL, INC. et al.,

Debtors. : Jointly Administered

------------------------------------- x

Black Horse Capital LP et al.,

Plaintiffs, : Adversary Proceeding

: No. 10-51387 (MFW)
v.

JPMorgan Chase Bank, N.A. et al.,

Defendants.
x
MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
DEFENDANT JPMORGAN CHASE BANK, N.A.'S
MOTION FOR PARTIAL SUMMARY JUDGMENT

Adam G. Landis (I.D. 3407) Robert A. Sacks

Matthew B. McGuire (I.D. 4366) Stacey R. Friedman Brian D.
LANDIS RATH & COBB LLP Glueckstein SULLIVAN &
919 Market Street, Suite 1800 CROMWELL LLP
Wilmington, Delaware 19899 125 Broad Street
Tel: (302) 467-4400 New York, New York 10004
Fax: (302) 467-4450 Tel: (212) 558-4000
Fax: (212) 558-3588

Brent J. McIntosh
SULLIVAN & CROMWELL LLP
1701 Pennsylvania Avenue, NW
Washington, DC 20006
Tel: (202) 956-7500
Fax: (202) 293-6330

Attorrzeys for JPMorgan Chase Bank, N.A.

November 2, 2010
 TABLE OF CONTENTS
Page

PRELIMINARY STATEMENT............................................................................................ 1
SUMMARY OF THE ARGUMENT...................................................................................... 2
STATEMENT OF FACTS....................................................................................................... 5
The Trust Preferred Securities....................................................................................... 5
A. Tier 1 Capital Absorbs Banks' Losses in Times of
Financial Distress............................................................................................... 6
B. The Trust Preferred Securities Included the Conditional
Exchange Feature to Qualify as Tier 1 Capital............................................... 7
WMB's Receivership and the Conditional Exchange................................................. 9
III. Litigation over the Trust Preferred Securities and the Global
Settlement Agreement.................................................................................................. 11

IV. The Plaintiffs and This Action ........................................................................ 12

ARGUMENT........................................................................................................................... 14
Plaintiffs Are Holders of WMI Preferred Stock Seeking a $1.1
Billion Preference by Erasing a Two-Year-Old Transaction................................... 15
A. The Trust Agreements Provide that a Conditional
Exchange Occurs When the OTS Declares an Exchange
Event and Directs the Exchange..................................................................... 15
B. The OTS Declared an Exchange Event and Directed the
Conditional Exchange..................................................................................... 16
C. The Conditional Exchange Automatically Converted
All Trust Preferred Securities Certificates into
Certificates Representing WMI Preferred Stock.......................................... 17
D. Plaintiffs Purchased their Interests in Full Awareness
that that They Were Buying Interests in WMI Preferred
Stock, not Trust Preferred Securities.............................................................. 18

Plaintiffs' Objections Are Wrong and Irrelevant to the

Effectiveness of the Conditional Exchange................................................................20
 A. The OTS Directive Was the Only Condition Precedent
to the Conditional Exchange (Count I). ....................................................... 21

B. The Conditional Exchange was Effective under

Delaware Law (Count II) ........................................................................... 24

C. The Conditional Exchange Was Not Subject to

Qualified Institutional Buyer Transfer Restrictions
(Count III)................................................................................................... 27

D. The OTS Directive Was Authorized and Fully Effective

(Count IV).................................................................................................. 29

1. Plaintiffs Lack Standing to Allege a Fraud that

Did Not Defraud Them................................................................... 29

2. Plaintiffs Cannot Nullify an Act of the OTS

Without Suing the OTS................................................................... 30

3. The OTS Directive Is Not Ultra Vires Because

the OTS Acted Pursuant to Statutory Authority
under HOLA................................................................................... 32

4. The Alleged Fraud Had Nothing to Do with the

Conditional Exchange..................................................................... 33

E. Counts V and VI Are Legally Irrelevant to the

Conditional Exchange.................................................................................. 34
CONCLUSION................................................................................................................... 38
 TABLE OF AUTHORITIES

Page(s)
Cases

A-1 Amusement Co. v. United States,

48 Fed. Cl. 63 (2000)...................................................................................... 32

AES Puerto Rico, L.P. v. Alstom Power, Inc.,

429 F. Supp. 2d 713 (D. Del. 2006).................................................................. 22

In re American Home Mortgage Holdings, Inc.,

No. 09-3568, 2010 WL 2676383 (3d Cir. Jul. 7, 2010)........................................ 17

In re APF Co.,
274 B.R. 408 (Bankr. D. Del. 2001).................................................................. 20

Axis Reinsurance Co. v. HLTH Corp.,

993 A.2d 1057 (Del. 2010).............................................................................. 27

Barber v. VistaRMS, Inc.,

272 Va. 319 (2006)...................................................................................... 25

Bernstein v. Canet,
Civ. A. No. 13924, 1996 WL 342096 (Del. Ch. Jun. 11, 1996)............................ 25

Bernstein v. Goldsmith,
Civ. A. No. 05-4702 (HAA), 2006 WL 1644849
(D.N.J. Jun. 6, 2006)..................................................................................... 20

In re Broadstripe, LLC,
B.R. ---, 2010 WL 3768003 (Bankr. D. Del. Sept. 2, 2010)....................... 14, 27

Castle v. Cohen,
840 F.3d 173 (3d Cir. 1988)...................................................................... 22, 23

Centennial Associates L.P. v. FDIC,

927 F. Supp. 806 (D.N.J. 1996)........................................................................ 32

Concord Real Estate CDO 2006-1, Ltd. v. Bank of America N.A.,

996 A.2d 324 (Del. Ch. 2010).......................................................................... 27

Cost Control Marketing & Management, Inc. v. Pierce,

848 F.2d 47 (3d Cir. 1988)............................................................................... 31
Crosslink Orthopaedics, LLC v. Synthes Spine Co., Ltd.,
Civ. A. No. 7:07-cv-59 (HL), 2007 WL 3333342
(M.D. Ga. Nov. 9, 2007)................................................................................. 34

Del-Rio Drilling Programs Inc. v. United States,

146 F.3d 1358 (Fed. Cir. 1998)........................................................................ 32

Eccles v. Peoples Bank of Lakewood Village,

333 U.S. 426 (1948)...................................................................................... 34
Elk Grove Unified School District v. Newdow,
542 U.S. 1 (2004) 30

Fields v. Pennsylvania Department of Corrections,

30
Civ. A. No. 05-05897, 2006 WL 1285030 (E.D. Pa. May 5, 2006)
29
Helman v. Murry's Steaks, Inc.,
742 F. Supp. 860 (D. Del. 1990)

JAS Securities, LLP v. American International Group, Inc., 24

No. CIV.A. 99C-01-126 WTQ, 1999 WL 1441991
(Del. Super. Dec. 13, 1999)
26
Kallop v. McAllister,
678 A.2d 526 (Del. 1996) 24, 25, 34

Karpenko v. Leendertz,
619 F.3d 259 (3d Cir. 2010) 32
Larson v. Domestic & Foreign Commerce Corp.,
337 U.S. 682 (1949) 26

Loretto Literary & Benevolent Institution v. Blue Diamond Coal Co., 31

444 A.2d 256 (Del. Ch. 1982)
27
Lujan v. Defenders of Wildlife,
504 U.S. 555 (1992) 30,
18
Osborn ex reL Osborn v. Kemp,
991 A.2d 1153 (Del. 2010) 22

Mangano v. Pericor Therapeutics, Ins.,

C.A. No. 3777-VCN, 2009 WL 4345149 (Del. Ch. Dec. 2009)
Morgan Stanley High Yield Securities, Inc. v. Seven Circle Gaming Corp.,
269 F. Supp. 2d 206 (S.D.N.Y. 2003)

-iv-
National Association of Home Builders v. Defenders of Wildlife,
551 U.S. 644 (2007)....................................................................................... 16

Newport Associates Development Co. v. Travelers Indemnity Co. of Illinois,

162 F.3d 789 (3d Cir. 1998)............................................................................ 15

Paccom Leasing Corp. v. E.I. Du Pont de Nemours & Co.,

Nos. 89-225-CMW, 90-311-CMW, 1991 WL 226775
(D. Del. Oct. 30, 1991)................................................................................... 22

Salomon Smith Barney, I.nc. v. Vockel,

137 F. Supp. 2d 599 (E.D. Pa. 2000)................................................................. 34

In re Schaefer Salt Recovery, Inc.,

542 F.3d 90 (3d Cir. 2008).............................................................................. 20

Shields v. Shields,
498 A.2d 161 (Del. Ch. 1985).......................................................................... 26

Solar Turbines Inc. v. Seif,

879 F.2d 1073 (3d Cir. 1989)........................................................................... 31

St. Matthew's Slovak Roman Catholic Congregation v. Most Reverend Wuerl,

106 F. App'x. 761 (3d Cir. 2004)..................................................................... 30

Transohio Savings Bank v. Director, Office of Thrift Supervision,

967 F.2d 598 (D.C. Cir. 1993)......................................................................... 32

Travelers Insurance Co. v. Obusek,

72 F.3d 1148 (3d Cir. 1995)............................................................................. 30

United Liberty Life Ins. Co. v. Ryan,

985 F.2d 1320 (6th Cir. 1993).................................................................... 31, 33

United States v. City of Loveland, Ohio,

F.3d ----, 2010 WL 3565186 (6th Cir. 2010).................................................. 36

In re Worldwide Direct, Inc.,

Nos. 99-00108-116 MFW, Adv. No. 09-52841,
2010 WL 3435380 (Bankr. D. Del. Aug. 27, 2010)....................................... passim

Federal Statutes and Regulations

5 U.S.C. § 706.................................................................................................. 31
11 U.S.C. § 101................................................................................................. 25

-v-
Home Owners Loan Act, 12 U.S.C. § 1462a
32
15 U.S.C. § 77d
27
15 U.S.C. § 77e
27
12 C.F.R. § 567
6
17 C.F.R. § 230.144A
26
Financial Institutions Reform, Recovery, and Enforcement Act of 1989,
Pub. L. 101-73, 103 Stat. 183 (1989)

Fed. R. Civ. Pro. 56 31

Fed. R. Bankr. Pro. 7056 15

15
Delaware Statutes

6 Del. C. § 1-201
25
6 Del. C. § 8-104
25
6 Del. C. § 8-307
26
6 Del. C. § 8-401
26

Other

Uniform Commercial Code Commentary (2007) 23,24

 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF
DEFENDANT JPMORGAN CHASE BANK, N.A.'S
MOTION FOR PARTIAL SUMMARY JUDGMENT
Defendant JPMorgan Chase Bank, N.A. ("JPMC") submits this

memorandum of points and authorities in support of its Motion for Partial Summary

Judgment dismissing all claims against JPMC that have not been stayed (Counts I-IV and

VI) on the ground that, as a matter of law, Plaintiffs do not own Trust Preferred Securities

as they allege in this proceeding.

In 2006 and 2007, Washington Mutual, Inc. ("wmr) caused the issuance

of the Trust Preferred Securities in dispute here. WMI wanted the OTS to consider the

resulting capital to be core capital of its primary thrift subsidiary, Washington Mutual

Bank ("WMB"). Accordingly, the terms of the controlling Trust Agreements provided

that the Trust Preferred Securities would be returned to Washington Mutual in exchange

for preferred stock in WMI if the Office of Thrift Supervision ("OTS") so directed. The

OTS did so on September 25, 2008, when it declared an "Exchange Event" and directed

that all outstanding Trust Preferred Securities be automatically exchanged for WMI

preferred stock (the "Conditional Exchange"). Based upon the governing legal

documents, all outstanding Trust Preferred Securities were thus automatically converted

into preferred stock of WMI. The Conditional Exchange was automatic, involuntary, and

deemed to have occurred as matter of law on September 26, 2010.

Plaintiffs here are thirty hedge funds,

Rather, these hedge funds have opportunistically spent 2010 buying up—of pennies on

the dollar—what they claim to be interests in Trust Preferred Securities. Plaintiffs do not
have any interest in WMI Trust Preferred Securities. Instead, by law Plaintiffs actually

hold WMI preferred equity. It does not matter that physical certificates for the Trust

Preferred Securities apparently were not exchanged for physical certificates for the WMI

preferred stock, or that the records of the Depository Trust Company ("DTC") or the

Wilmington Trust Company may not have been updated. Upon the Conditional

Exchange, all outstanding Trust Preferred Securities were deemed as a matter of law to

represent interests in WMI preferred equity without any further action by anyone.

Through this action, the plaintiff hedge funds are asserting that the

two-year-old, automatic, and permanent exchange should be unwound. The result would

give them a $1.1 billion preference over creditors and other equity. They are not

entitled to that preference. The Court should firmly and swiftly reject the ownership

claims of these hedge fund Plaintiffs, which are untenable as a matter of law.

SUMMARY OF THE ARGUMENT

1. Trust Agreements control the terms of the Trust Preferred Securities.

Those Agreements unambiguously provide that the Trust Preferred Securities are to be

automatically exchanged for interests in WMI preferred equity when the OTS, in its sole

discretion, declares the occurrence of an Exchange Event and directs the Conditional

Exchange. There is no dispute that on September 25, 2008, the OTS did exactly this.

2. Under the terms of the governing Trust Agreements, an OTS declaration

was the sole condition precedent to the Conditional Exchange. Once the Conditional

Exchange was directed, it occurred automatically and completely extinguished all

ownership interest of any outside investor in the Trust Preferred Securities. (See infra

Part I.A-C.) Under the Trust Agreements' terms, any litigation delay, or delay of any

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sort, has no effect on ownership: Until WMI issues new certificates representing
preferred stock, the certificates previously representing Trust Preferred Securities are
deemed to represent WMI preferred stock. (See infra Part LA-C.) Based on these
undisputed facts alone, Plaintiffs' claims to ownership of Trust Preferred Securities fail
as a matter of law. For this reason, Plaintiffs were correct when they previously
represented to this Court that they hold WMI preferred equity. (See infra Part I.D.)

3. In seeking to avoid the unavoidable, Plaintiffs make two arguments. First,

in Claims I-III, they seize on apparently outstanding ministerial steps to reflect
ownership of the Trust Preferred Securities—steps that will be taken upon resolution of
the separate dispute between JPMC and WMI—and argue that these steps actually
determine ownership. Second, in Claims IV-VI, Plaintiffs assert that various allegedly

fraudulent or inequitable conduct undermines the automatic effects of the Conditional

Exchange. These arguments either fail on the plain terms of the governing Trust
Agreements or are legally irrelevant.

4. In Count I, Plaintiffs argue that three ministerial steps were conditions

precedent to the Conditional Exchange. But these steps only record and reflect the
Conditional Exchange following the Conditional Exchange. The Trust Agreements could
not be clearer on cause and effect: These record-keeping events are to happen "upon
occurrence of the Conditional Exchange"—that is, at the time of or after the effectiveness
of the Conditional Exchange itself—not before the Conditional Exchange has occurred.
Plaintiffs' interpretation of the governing documents is wrong as a matter of law. (See
infra Part II.A.)
 5. In Count II, Plaintiffs argue that the Conditional Exchange failed because
the Uniform Commercial Code's rules goveming delivery of purchased securities have
not been met. But these delivery rules apply non-exclusively to voluntary purchases and
sales, not mandatorily to automatic exchanges like the Conditional Exchange. Delaware
and federal securities law clearly distinguish between brokered commercial sales and
automatic exchanges or conversions, and Plaintiffs' attempts to confuse the two are, again,
wrong as a matter of law. (See infra Part II.B.)

6. In Count III, Plaintiffs argue that the Conditional Exchange failed because
the Trust Preferred Securities could be transferred only to "Qualified Institutional Buyers";
Plaintiffs claim WMI was not such a buyer. This argument is especially off-base, as the
very agreements that contained the transfer restriction expressly provide for the exchange
that Plaintiffs claim violated the transfer restriction, and such a restriction would be
unnecessary under the securities laws in any event. (See infra Part H.C.)

7. In Count IV, Plaintiffs propose a conspiracy theory in which the OTS acted
outside its authority in directing the Conditional Exchange, arguing that the Court should
therefore void the exchange that resulted from OTS' s directive. These arguments also fail
as a matter of law:

• Almost all of the Plaintiffs lack standin to alle e the fraud. The

cannot claim to have been the

investors who were allegedly defrauded. (See infra Part II.D.1.)
• Plaintiffs seek impermissibly to overturn a decision of a federal regulatory
agency that is not before the court, without suing that agency. (See infra
Part II.D.2.)
• Even if the Plaintiffs could bring their fraud claim and prove it—which
they cannot—it would make no difference to ownership of the Trust

-4-
 Preferred Securities because even tortious actions of federal agencies are
not ultra vires and void. (See infra Part II.D.3.)
• The alleged omission of WMI's commitment to contribute the TruPS to
WMB in a Conditional Exchange does not affect Plaintiffs' ownership
claims, since the Plaintiffs lost all right to the TruPS regardless of whether
or not WMI contributed the TruPS to WMB. (See infra Part II.D.4.)
8. In Counts V and VI, Plaintiffs seek declarations as to WMI' s unclean
hands and JPMC' s status as a bona fide purchaser. These theories do not affect the
Conditional Exchange' s validity and are therefore irrelevant to Plaintiffs' claims to
ownership of Trust Preferred Securities. (See infra Part II.E.)

9. Counts VII through IX have been stayed pending confirmation hearings.

If the Global Settlement Agreement and Chapter 11 plan are approved, these claims will
also be extinguished.

10. Plaintiffs' claims are all dependent upon ownership of the Trust Preferred
Securities. Because the Court can and should determine as a matter of law that Plaintiffs
do not own Trust Preferred Securities, based solely on (i) the terms of the governing
Trust Agreements and (ii) the undisputed fact that on September 25, 2008, the OTS
declared an Exchange Event and directed a Conditional Exchange, summary judgment
should be entered to dispose of Plaintiffs' claims.

STATEMENT OF FACTS
The Trust Preferred Securities

In 2006 and 2007, Washington Mutual affiliates issued five series of Real
Estate Investment Trust ("REIT") preferred securities, the terms of which were governed
by the Trust Agreements. (See Declaration of Brent J. McIntosh, dated Nov. 2, 2010
("McIntosh Decl."), Exs. 1A-1E; id., Ex. 1E, pp. 1-21; id., Exs. 3A-3E.) These

REIT-preferred securities (usually called the "Trust Preferred Securities" or "TruPS")

drew value from their indirect interest in $13 billion of mortgages held by a subsidiary of

WMB called Washington Mutual Preferred Funding ("WMPF").2 One purpose of the

TruPS issuance was to create core capital, also called Tier 1 capital, for WMB—that is,

capital available to absorb WMB's losses before those losses compromised WMB's

ability to meet its financial obligations. In order to qualify the TruPS as Tier 1 capital of

WMB, the agreements creating the TruPS included a mechanism whereby they would be

mandatorily and automatically exchanged for WMI preferred shares upon the occurrence

of certain specified events, to provide WMB with needed capital.

A. Tier 1 Capital Absorbs Banks' Losses in Times of Financial Distress.

Tier 1 capital is critical to a bank's fmancial strength. It includes common

stock and other equity interests that fulfill the same at-risk role as common stock. See 12

C.F.R. § 567(a)(1) (OTS definition of core capital). Tier 1 capital provides a bank with a

fmancial cushion to absorb losses in times of distress—occupying the "first loss"

position to protect more senior positions.3 According to the OTS, other federal

regulators, and
1 For economy and ease of reference, this memorandum will refer to the
Washington Mutual Preferred Funding Trust IV offering circular (McIntosh Decl., Ex.
1E) as representative of the four other offering circulars (id., Exs. 1A-1D). Appendix C
lists corresponding provisions in the five offering circulars by page number.
2 The structure of the Trust Preferred Securities is described in detail in
Appendix A. Briefly, WMB contributed $13 billion in mortgage assets to WMPF, which
issued preferred securities (the "WMPF Preferred Securities") to four Delaware trusts
that qualified as REITs and one Cayman Islands limited corporation (with the REITs, the "
Issuer Trusts"). The Issuer Trusts then issued preferred securities (the TruPS) to third-
party investors. (McIntosh Decl., Ex. 1E, pp. 1-2.)
3
See McIntosh Decl., Ex. 10A, p. 4 ("In a distressed situation, equity provides the
first layer of loss absorption."); id., Ex. 10F, p. 2 ("Tier 1 capital is supposed to have
absolute loss absorption capacity during times of fmancial difficulties . . . .").
-6-
international banking accords, certain "hybrid" securities such as the TruPS at issue here
can qualify as Tier 1 capital so long as they are available to absorb bank losses should the
bank fall into financial distress.4

This qualifier means that REIT-preferred securities qualify as Tier 1

capital only if they include a mandatory exchange provision, so that in a financial
emergency the securities revert to the bank to absorb its losses. (McIntosh Decl., Ex.
9E,

p. 30.5) Without such a provision, "REIT preferred securities would provide little support
to a deteriorating or failing [] bank or to the FDIC, despite possibly comprising a
substantial amount of the [] bank's tier 1 capital." (Id., Ex. 9C, p. 11,828.) Since
REIT-preferred securities are backed by mortgage assets, the exchange feature "unlocks"
those assets to cushion the bank's losses. (See id., Ex. 9E, p. 30 (OTS's Tier 1 capital
guidelines stating, "If the thrift faces operating difficulties, all assets of the consolidated
entity should be available for the thrift' s use").)

B. The Trust Preferred Securities Included the Conditional

Exchange Feature to Qualify as Tier 1 Capital.
So that the Trust Preferred Securities would qualify as Tier 1 capital, the
goveming Trust Agreements included such an exchange mechanism, called the "
Conditional Exchange." (McIntosh Decl., Ex. 1E, p. 91.) Under the Conditional

4 See McIntosh Decl., Ex. 9A; id., Ex. 9E, p. 30 (OTS requires REIT-preferred
securities to be non-cumulative and perpetual to receive Tier 1 treatment); id., Ex. 10A,
p. 4 ("In a distressed situation, equity provides the first layer of loss absorption [and] . . .
hybrids seek to replicate the above . . . characteristics."); id., Ex. 10C, p. 8 ("Bank Tier 1
instruments have a clearly defined role in acting like risk capital in the event of stress.");
id., Ex. 10D, p. 2-3 (Fitch Ratings will treat hybrid securities like core equity if they are
perpetual, junior, non-cumulative, and loss-absorbing).
5 See also McIntosh Decl., Ex. 9B, p. 2 (REIT-preferred securities "must have an
exchange feature" for Tier 1 capital treatment); id., Ex. 9D, p. 2 (requiring "convertibility
provision," similar to the Conditional Exchange, as prerequisite to Tier 1 treatment); id.,
Ex. 10F, p. 20.

-7-
Exchange provision, WMB's primary regulator, the OTS, could determine that WMB

needed additional capital when one of three conditions is met:

• WMB becomes undercapitalized;

• WMB has been placed into conservatorship or receivership; or
• "the OTS, in its sole discretion, anticipates WMB becoming
undercapitalized in the near term . . . and in connection therewith, directs
an exchange."
(Id.) These conditions constitute Exchange Events. (Id.) When the OTS declared that an

Exchange Event had occurred and directed the Conditional Exchange, the Trust Preferred

Securities would return to WMI to absorb potential WMB losses. (Id.) Whatever entities

were then holding Trust Preferred Securities would, by law, immediately lose their Trust

Preferred Securities and receive WM1 preferred equity in return.6

To ensure that the bank receives the emergency capital promptly, the

Conditional Exchange is automatic: "[O]nce the OTS directs a Conditional Exchange

after the occurrence of an Exchange Event, no action will be required to be taken by

holders of Trust Securities, by WMI, by WMB (other than to inform the OTS), by [

WMPF] or by the Trust[s] in order to effect the automatic exchange as of the time of the

exchange." (Id., p. 92 (emphasis added).) Indeed, the Trust Agreements and offering

circulars make clear that the exchange will occur even in the case of a receivership,

where WMI and its investors (including Plaintiffs here) are left only with receivership

claims and not a direct interest in the former subsidiary. (Id., p. 91.)

6 According to the Examiner in WMI's bankruptcy proceeding, "[t]he OTS' s goal

was to ensure that it had the unilateral supervisory authority to declare when such an
Exchange Event occurred and to direct a Conditional Exchange so as to ensure that the
capital would be available to WMB when needed." (McIntosh Decl., Ex. 14K, pp. 156-
57 (emphasis added).)

-8-
 To ensure the TruPS could absorb WMB's losses—and thus protect
WMB's depositors—WMI committed to contribute the TruPS to WMB in the event of a
Conditional Exchange. (McIntosh Decl., Exs. 5A-5I, die "Capital Commitment Letters.")
The Trust Preferred Securities would not have qualified as WMB core capital without
this commitment, because they would not have provided loss-absorbing support to the
bank. (See McIntosh Decl.,

id., Ex. 9C, p. 11,828; id., Ex. 9E, p. 30; id., Ex. 10F, p.
20; see also id., Ex. 9F, pp. 6-7 (Tier 1 eligibility requires holding company to contribute
exchanged securities to thrift).)7

None of this was a secret. Radier, the TruPS offering circulars contained
extensive disclosures about the Conditional Exchange, including the explicit warning that
TruPS investors could lose "all or part" of their investment if a Conditional Exchange
occurs. (McIntosh Decl., Ex. 1E, p. 29.8) The Circulars specifically state that WMI
would likely file for bankruptcy if WMB went into receivership, in which case investors
would be subordinate equity holders of WMI with no guarantee of reaching the value in
die TruPS. (Id. at pp. 30-31.)

II. WMB's Receivership and the Conditional Exchange

On September 7, 2008, in a Memorandum of Understanding ("MOU"), die
OTS placed limits an WMI' s ability to pay dividends—itself an Exchange Event.

; see Trust Agr., § 1.01 (defining "Exchange Event").) Shortly

7 Although Plaintiffs appear to make much of it, die commitment by WMI to

contribute die Trust Preferred Securities to WMB upon die Conditional Exchange is not
material to the claims of former TruPS holders, who lose all interest in die TruPS upon
die Conditional Exchange without regard to what WMI does or does not do with die
TruPS that have been exchanged.
8 See also Appendix B for a more detailed list of the Offering Circulars disclosures.

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thereafter, on September 25, 2008, due to concerns over the safety and soundness of
WMB, and with explicit reference to the prior MOU, the OTS declared the occurrence
of an Exchange Event and directed the exchange of the Trust Preferred Securities. (
McIntosh Decl., Ex. 6A.) WMI then executed an Assignment Agreement (id., Ex. 7B)
to fulfill its commitment that the TruPS would be transferred to WMB. Later that night,
the OTS appointed the Federal Deposit Insurance Corporation ("FDIC") receiver for

WMB, and the FDIC immediately sold substantially all the assets and certain liabilities of
WMB to JPMC. (Id., Ex. 7C; id., Ex. 7D ("P&A Agreement").)

The Trust Agreements required that, in the event of a Conditional

Exchange, WMI issue a press release reflecting the effective date and time of the
Conditional Exchange, consistent with the OTS directive.9 (McIntosh Decl., Ex. 3E ("
Trust Agr."), § 4.08(c).) And so some time before 8 a.m. (EST) on September 26,
2008, 'VVMI issued a press release announcing the Conditional Exchange. (McIntosh
Decl., Ex. 6C.) The release stated that "[a]s of the time of the Conditional
Exchange,

each outstanding [TruPS] will be exchanged automatically for" WMI preferred stock, and
that until physical Depositary Shares of WMI preferred stock were delivered, "any
certificates previously representing [TruPS] will be deemed for all purposes, effective as
of 8:00 AM New York time on September 26, 2008, to represent [] Depositary Shares."
9 In addition to the Trust Agreements, each TruPS series involved an Exchange
Agreement between the Issuer Trust, WMI, and Mellon Investor Services LLC, which
govems the issuance of Depositary Shares representing interests in WMI preferred stock
following the Conditional Exchange. (See McIntosh Decl., Exs. 4A-4D ("Exchange
Agr.").) The Exchange Agreements also provided that 'WMI was "bound
unconditionally" to effect the exchange of TruPS for WMI preferred equity, and that
unless and until receipts evidencing preferred equity were delivered, the certificates
representing TruPS "shall be deemed for all purposes" to represent preferred equity. (Id.)
Each Exchange Agreement was referenced as binding in the respective Trust Agreement. (
Trust Agr., § 4.08(a)(iii).)

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(Id.) At 8 a.m. that day, then, the Conditional Exchange was complete, the TruPS

reverted to Washington Mutual, and the certificates formerly representing TruPS were

deemed to represent WMI preferred equity. (Id.)

III. Litigation over the Trust Preferred Securities

and the Global Settlement Agreement
In WMI's Chapter 11 proceeding, WMI and JPMC litigated over the

rightful ownership of the Trust Preferred Securities. Both parties acknowledged that the

Conditional Exchange had occurred and that the TruPS had then immediately been

transferred to WMB, but WMI contended that the transfer from WMI to WMB should be

avoided as either a constructive fraudulent conveyance or a preference, leaving WMI as

the TruPS's owner.1° Until earlier this year, though—nearly two years after the OTS

mandated the Conditional Exchange—neither WMI nor JPMC nor any other party

disputed that the Conditional Exchange had occurred. (See, e.g., McIntosh Decl., Ex.

14C,155.) As long as its ownership dispute with WMI remained unresolved, JPMC has

taken no action to reflect its ownership of the TruPS on the books of the depository DTC

or the trustee Wilmington Trust Co.,11 and apparently neither has WMI.12

10 See Debtors' Answer & Counterclaim in Resp. to JPMC' s Complaint, Third,

Fourth, Fifth & Sixth Counterclaims, JPMorgan Chase Bank, N.A. v. Washington
Mutual, Inc., Adv. Proc. No. 09-50551 (MFW) (Bankr. D. Del.) (May 29, 2009), D.I. 23. (
McIntosh Decl., Ex. 14C.)
DTC physically holds the global certificates that formerly represented Trust
Preferred Securities and credits outside investors as "beneficial owners" on its books. (
McIntosh Decl., Ex. 1E, pp. 122-23.) Wilmington Trust Co. is, among other roles, the "
registrar" of the Trust Preferred Securities and keeps certain records of TruPS holders
for various administrative purposes. (See Trust Agr., § 5.03.)
12 According to the Examiner, WMI said these record-keeping steps had not been
taken because "the bankruptcy intervened and prevented [their] performance." (
McIntosh Decl., Ex. 14K, p. 165.)
 The dispute between JPMC and WMI over ownership of the TruPS has
been resolved as part of a larger Global Settlement Agreement between WMI, JPMC, the
FDIC, and numerous creditors of WMI and WMB. (McIntosh Decl., Ex. 8B, § 2.3.)
Under the Global Settlement Agreement, WMI will relinquish its claim to the TruPS,
JPMC will be their owner, and both parties will record and reflect the Conditional
Exchange on the relevant books. (Id.)

IV. The Plaintiffs and This Action

The Plaintiffs are thirty hedge funds that, bought
WMI preferred equity (the "REIT Series") that had been automatically exchanged for the
Trust Preferred Securities. These funds are apparently grouped into ten "families":

Plaintiff Group Ptirchases Before Purchases After Avg. Discount

Sept. 26, 2008 January 1, 2010 (from liquidation
(liquidatiotivalue) (liquidation value) value)
Black Horse
Greywolf
Lonestar
Paige
Pine River
Riva Ridge
Scoggin
Visium
VR Global
Whitebox
Total:

(McIntosh Decl., Ex. 13C.) linportantly, Plaintiffs did not pay anything near liquidation

value for their interests, instead exploiting discounts of up to 99%.

In short, acquired their purported

interests in 2010, fifteen months or more after the Conditional Exchange had occurred

-12-
and after WMI had publicly disclosed that any certificates formerly representing TruPS
would be deemed interests in WMI preferred equity.

Only of Plaintiffs'
interests were purchased before the September 26, 2008, Conditional Exchange. (Id.,
Exs. 13A, 13C.) Plaintiffs purchased for pennies on the dollar, at
discounts of up to 99%. (See id., Ex. 13A.) During this buying spree, seven Plaintiff

families represented themselves to the Court as WMI equity

holders. (

, id., Ex. 14D, pp. 45, 56.)

Two months after the parties announced the Global Settlement Agreement,
and almost two years after the Conditional Exchange, these hedge funds commenced the
present adversary proceeding. (See Complaint ("Compl."), D.I. 1.) Some funds
continued to buy up their interests even after the filing of the Complaint (McIntosh Decl.,
Ex. 13B), but still portray themselves as fraud victims and demand a declaration that their
penny stocks represent $1.1 billion worth of TruPS, not WMI equity—i.e., that the
Conditional Exchange never happened at all.

The Complaint pleads nine claims for relief. Counts I-VI demand
declaratory relief that the Conditional Exchange never happened and cannot happen now:

• Count I asserts that the Conditional Exchange failed under the terms of the
Trust Agreements. (Compl.B 201-210.)
• Count II asserts that the Conditional Exchange failed under the delivery
rules of the Uniform Commercial Code. (Compl. 9191211-218.)
• Count III asserts that the Conditional Exchange is void because it violated
transfer restrictions on the TruPS requiring transferees to be Qualified
Institutional Buyers ("QIBs"). (Comp1.11 219-228.)
 • Count IV asserts that the Conditional Exchange is void because the OTS
directive declaring it was ultra vires, "tainted" by the OTS' s aiding and
abetting WMI' s supposed fraud upon investors. (Compl. IN 229-243.)
• Count V seeks a declaration that WMI has unclean hands because of the
alleged fraud. (Comp1.911 244-249.)
Count VI seeks a declaration that JPMC is not a bona fide purchaser of the
Trust Preferred Securities. (Compl. 250-258.)
Counts plead damages claims against WMPF and the related entities for fraud,
negligent misrepresentation, and aiding and abetting fraud. (Compl. 259-293.) By the
Court' s order of September 7, 2010, Counts VII-IX have been stayed until after the
confirmation hearing. (D.I. 53.)

ARGUMENT

Plaintiffs' claims to ownership of Trust Preferred Securities fail as a

matter of law based upon the terms of the governing Trust Agreements and the
undisputed OTS declaration of the Conditional Exchange. Plaintiffs do not hold Trust
Preferred Securities but rather WMI preferred stock. To
justify the unjustifiable, Plaintiffs deliberately misread the governing documents, doing
special violence to the word "automatic," and offer a conspiracy theory that the U.S.
government colluded with WMI to defraud investors who are not Plaintiffs here and are
not before the Court. These hedge fund Plaintiffs' calculated efforts to maintain their

claims border on bad faith and defy the governing documents and undisputed facts. They
should be summarily rejected.

Summary judgment is "designed to avoid trial if [the] facts are settled

and dispute turns on [an] issue of law." In re Broadstripe, LLC, B.R. ---, 2010 WL
3768003, *16 (Bankr. D. Del. Sept. 2, 2010).13 Summary judgment is especially

appropriate where, as here, the parties' dispute turns on the interpretation of an

unambiguous contract. See In re Worldwide Direct, Inc., Nos. 99-00108-116 MFW,

Adv. No. 09-52841, 2010 WL 3435380, *4 (Bankr. D. Del. Aug. 27, 2010) (quoting

Newport Assocs. Dev. Co. v. Travelers Indemnity Co. of Ill., 162 F.3d 789, 791 (3d Cir.

1998)). Here, the Trust Agreements' unambiguous terms establish that the Conditional

Exchange occurred and effectively transferred the Trust Preferred Securities. As a result,

Plaintiffs' claims, which require a fmding to the contrary, fail as a matter of law.

Plaintiffs Are Holders of WM1 Preferred Stock Seeking a

$1.1 Billion Preference by Erasing a Two-Year-Old Transaction.
The Conditional Exchange occurred because its sole condition was that the

OTS declares an Exchange Event and direct the Conditional Exchange, and it is

undisputed that the OTS did so. The Conditional Exchange automatically converted any

outstanding Trust Preferred Securities holdings into interests in WMI preferred stock.

A. The Trust Agreements Provide that a Conditional

Exchange Occurs When the OTS Declares an
Exchange Event and Directs the Exchange.
The Trust Agreements provide for an automatic exchange of securities

once the OTS declares an Exchange Event and issues a directive. The Trust Agreements

provide a single condition for the Conditional Exchange:

13 See also Fed. R. Civ. Pro. 56(c) (Summary judgment should be granted "if the
pleadings, the discovery and disclosure materials on file, and any affidavits show that
there is no genuine issue as to any material fact and that the movant is entitled to
judgment as a matter of law."); Fed. R. Bankr. Pro. 7056 (applying Rule 56 to adversary
proceedings). Although the Court must draw reasonable inferences in favor of the non-
movant, "the non-movant must set out specific facts showing a genuine issue for trial"
with admissible evidence. Worldwide Direct, 2010 WL 3435380, at *3.
-15-
 If the OTS so directs upon the occurrence of an Exchange
Event, each Trust Security then outstanding shall be
exchanged automatically for a Like Amount of newly
issued Depositary Shares (the "Conditional Exchange").
(Trust Agr., § 4.08(a) (emphasis added)). Once the OTS directs the Conditional

Exchange, the Conditional Exchange "shall occur" at 8:00 a.m. on the next business day,

which is to be specified in a WMI press release. (ld., § 4.08(b).) This language is

mandatory, see Nat'l Ass'n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 661 (

2007) ("shall' generally . . . admits of no discretion"), and unambiguous: the only event

that must occur to trigger the mandatory Conditional Exchange is the OTS directive.

B. The OTS Declared an Exchange Event

and Directed the Conditional Exchange.
The OTS satisfied the sole condition precedent of the Conditional

Exchange when, on September 25, 2008, it declared an Exchange Event and directed the

Conditional Exchange.14 (See McIntosh Decl., Ex. 5A.) The OTS directed the exchange

in unambiguous terms:

The OTS concludes an Exchange Event has occurred and

therefore directs an exchange of WaMu REIT Preferred
Securities to a like amount of preferred stock in
Washington Mutual Incorporated.
(Id.) Under the Trust Agreements, nothing more was required to trigger the Conditional

Exchange, which as a matter of law happened "automatically." (See Trust Agr.,

§§ 4.08(a)-(b).)

14 The OTS enjoys broad authority under the Home Owners Loan Act ("HOLA") to
issue any order or directive appropriate to maintain adequate capital at thrifts like WMB.
See 12 U.S.C. § 1464(s)(1)(B); United Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320, 1326 (
6th Cir. 1993). The OTS acted pursuant to this authority when it found that WMB faced
significant deposit outflows and directed the Conditional Exchange in order to provide
WMB with an additional capital cushion. (See McIntosh Decl., Ex. 6A.)

-16-
 C. TE
C
hoen
oxian
clh
td
an
iA
C
geyo
um
ed
tn
lcvearliat
All Trust Preferred Securities Certificates into
Certificates Representing WMI Preferred Stock.
Consistent with the term "automatic"—which the governing Trust

Agreements, as well as the Offering Circulars, Exchange Agreements, and global

certificates, all use to describe the Conditional Exchange15—the Conditional Exchange

had an immediate effect an the rights of WMI and third-party investors. According to the

governing Trust Agreements, previous TruPS holders immediately became holders of

Depositar v Shares (representing fractional interests in WMI preferred stock), and WMI
to- _
immediately became the holder of the Trust Preferred Securities:

As of the Conditional Exchange, . . . all rights of the

exchanging Holders of Trust Securities as beneficiaries of
the Trust shall cease, and such Persons shall be, for all
purposes, solely holders of Depositary Shares, and WMI
shall be the holder of all outstanding Trust Securities.
(Trust Agr., § 4.08(b) (emphasis added).) All rights of the former TruPS holders in the

TruPS immediately ceased. (Id.) Additionally, as of the Conditional Exchange, the "

global certificates" that to date had represented the TruPS ceased to represent these

securities:

Until certificates representing the Depositary Shares are

delivered or in the event such replacement certificates are
not delivered for any reason . . . any Certificates previously
representing Trust Securities shall be deemed for all
purposes to represent Depositary Shares.
(Trust Agr., § 4.08(c).)16

15 See Trust Agr. § 4.08(a); McIntosh Decl., Ex. 1E, cover page; id., Ex. 21, p. 3.
16 Because the trust certificates evidence beneficial interest in a trust, the Trust
Agreements control what rights these certificates represent and can change those rights,
as a matter of contract law. See In re Amer. Home Mortg. Holdings, Inc., No. 09-3568,
2010 WL 2676383, *3 (3d Cir. Jul. 7, 2010) (trust documents controlled trust certificate-
-17-
 These legally controlling provisions comport with the Offering Circulars'
description of the Conditional Exchange: "[O]nce the OTS directs a Conditional
Exchange after the occurrence of an Exchange Event, no action will be required to be
taken by holders of Trust Securities, by WMI, by WMB (other than to inform the OTS),

by [WMPF] or by the [Issuer] Trust in order to effect the automatic exchange as of the
time of the exchange." (McIntosh Decl., Ex. 1E, p. 92 (emphasis added).17)

Thus, under the governing Trust Agreements, and as reflected in the

Offering Circulars, the only fact that matters to the Conditional Exchange is the
undisputed fact (see Comp1.1 72) that the OTS declared an Exchange Event and directed
the exchange. Upon the Conditional Exchange, all rights of the former TruPS holders in
the TruPS immediately ceased without further action by anyone, and they were deemed
to hold WMI preferred shares pending issuance of new certificates. Therefore, summary
judgment is appropriate: the Conditional Exchange occurred and, as a matter of law,
Plaintiffs do not hold Trust Preferred Securities.

D. Plaintiffs Purchased their Interests in Full Awareness

that They Were Buying Interests in WMI Preferred
Stock, not Trust Preferred Securities.
More than of Plaintiffs' interests at issue here were purchased after
the Conditional Exchange and after WMI announced that these interests were deemed to
represent WMI equity, and decided to purchase interests despite this

holder's right to cash distributions); Mangano v. PeriCor Therap'cs., Inc., C.A. No.
3777-VCN, 2009 WL 4345149, *7 (Del. Ch. Dec. 1, 2009) (surrender of trust certificates
held irrelevant where the trust instrument automatically terminated voting trust, and
ownership of the underlying shares reverted to plaintiff).
17

-18-
announcement.18 (See McIntosh Decl., Ex. 13C.) Thus, it is not surprising that, before

filing this action, some Plaintiffs held themselves out to the Court as WMI equity

holders. At the January 28, 2010 hearing before this Court, counsel for Black Horse

stated that the $4 billion of "hybrid preferred," subject to the JPMC adversary

proceeding, was part of the $7.5 billion in WMI preferred equity, and requested that the

WMI Equity Committee be reconstituted to better represent these preferred equity

interests. (McIntosh Decl., Ex. 14D, pp. 45, 56; see also id., Ex. 14E, p. 1 ("Black

Horse is the holder of certain preferred 'hybrid' equity securities of the above-

captioned debtor [WMI] . . . denominated the 'REIT Series.'" (emphasis added)).19)

18

19

-19-
 Having bought equity, paid for equity, and represented themselves to the

Court as equity, Plaintiffs now seek to improve their position over other equity holders

with a $1.1 billion preference. Their attempted preferential arbitrage should be rejected.

II. Plaintiffs' Objections Are Wrong and Irrelevant

to the Effectiveness of the Conditional Exchange.
Although the unambiguous terms of the Trust Agreements establish that

the Conditional Exchange occurred on and was effective as of 8:00 a.m. on

September 26, 2008, Plaintiffs now insist, two years later, that the Conditional Exchange

failed because three ministerial acts, meant to reflect the Conditional Exchange on certain

parties' records, were postponed during litigation. 2° Although these record-keeping acts

will be completed as soon as the settlement is approved, they are legally irrelevant to the

effectiveness of the Conditional Exchange, as the Trust Agreements make clear. Perhaps

realizing this, Plaintiffs' Complaint also includes over a hundred paragraphs of fraud

allegations that have nothing to do with the Conditional Exchange or its effect on their

interests. Plaintiffs' Counts fail on the unambiguous terms of the Trust Agreements,

and their Counts IV-VI are legally irrelevant to the occurrence of the Conditional

Exchange. Plaintiffs do not hold Trust Preferred Securities.

20 The automatic stay prohibits parties from unilaterally altering the status quo as of
the petition date. See In re Schaefer Salt Recov., Inc., 542 F.3d 90, 100 (3d Cir. 2008) (
automatic stay prevents creditors from "acting unilaterally to obtain payment from a
debtor"); In re APF Co., 274 B.R. 408, 417 (Bankr. D. Del. 2001) (automatic stay
designed to "maintain the status quo that exists at the time of the debtor's bankruptcy
filing"). Even without the automatic stay, unilateral self-help is inappropriate in pending
litigation. See Bernstein v. Goldsmith, Civ. A. No. 05-4702 (HAA), 2006 WL 1644849,
at *7 (D.N.J. Jun. 6, 2006).

-20-
 A. The OTS Directive Was the Only Condition
Precedent to the Conditional Exchange (Count I).
In Count I, Plaintiffs attempt to transform the three ministerial obligations
meant to record and reflect the Conditional Exchange into conditions precedent to the
Conditional Exchange. But the governing Trust Agreements and other offering
documents unambiguously preclude this argument. They describe the Conditional
Exchange as "automatic" and subject to a single condition precedent: the Conditional
Exchange "shall occur" if the OTS directs a Conditional Exchange upon the
occurrence of an Exchange Event.21 (Trust Agr., § 4.08(a)-(b).) They further make
clear that certificates previously representing Trust Preferred Securities shall be deemed
for all purposes to represent shares of WMI equity until new certificates are issued. (Id.,

§ 4.08(c).) If there were any room for ambiguity in these provisions, the Offering
Circulars eliminate it: "[O]nce the OTS directs a Conditional Exchange after the
occurrence of an Exchange Event, no action will be required to be taken . . . in order to
effect the automatic exchange as of the time of the exchange." (McIntosh Decl., Ex.
1E, p. 92 (emphasis added).) In an audacious misreading of these terms, the Plaintiffs
claim that, in fact, three actions were required to be taken to effect the Exchange:
surrender of the global certificates, registration of the Conditional Exchange on the
Trustee' s books, and issuance of depositary receipts by WMI. (Compl. Mt 203-206.)

These three actions are not "conditions precedent," as Plaintiffs urge, but
rather ministerial details meant to reflect the Conditional Exchange after the fact. "A

21 The Exchange Agreements likewise defme the Conditional Exchange according

to this single condition precedent. (See Exchange Agr., § 1 ("Conditional Exchange'
means if the OTS so directs upon the occurrence of an Exchange Event, each Trust
Security then outstanding shall be automatically exchanged for a like amount of []
Depositary Shares.").)

-21-
condition precedent is an act or event, other than a lapse of time, that must exist or occur
before a duty to perform something promised arises." AES Puerto Rico, L.P. v. Alstom
Power, Inc., 429 F. Supp. 2d 713, 717 (D. Del. 2006).22 "Conditions precedent are not

favored in contract interpretation because of their tendency to work a forfeiture," id. at

717, and must be stated unambiguously, or they will be construed as promises, Castle v .
Cohen, 840 F.2d 173, 177 (3d Cir. 1988).

Here, the Trust Agreements unambiguously state that the three record-
keeping acts Plaintiffs point to are not conditions precedent. First, the Trust Agreements
describe all three acts as "unconditional obligations" that follow the occurrence of the
Conditional Exchange. (Trust Agr., § 4.08(a)(i)-(iii).) Logically, an obligation that
follows from the occurrence of the Conditional Exchange cannot be a prerequisite to the
Conditional Exchange. Second, the Trust Agreements describe the Conditional Exchange
as "automatic." (Id., § 4.08(a).) The description of the exchange as "automatic" is
patently inconsistent with the presence of implied, additional conditions precedent. Cf

Morgan Stanley High Yield Sec'ys., Inc. v. Seven Circle Gaming Corp., 269 F. Supp. 2d

206, 219 (S.D.N.Y. 2003) (When a contract explicitly states that a party's obligations are "
unconditional," "courts have generally found that any condition precedent is inherently
in conflict with such a provision.") (citing cases). Third, the Trust Agreements expressly
state that the former TruPS certificates are deemed to represent an interest in WMI

22 Because the Trust Agreements state that they are governed by Delaware law,
Delaware corporate law and contract law govern the interpretation of these Agreements
and the Conditional Exchange provided for therein. (Trust Agr., § 7.07) See Paccom
Leasing Corp. v. E.I. Du Pont de Nemours & Co., Nos. 89-225-CMVV, 90-311-CMW,
1991 WL 226775, at *5 (D. Del. Oct. 30, 1991) (when contract contains Delaware choice
of law provision "and there is an obvious connection to Delaware," Delaware law
controls).

-22-
preferred equity even before the actual issuance of new certificates--or even "in the
event . . . replacement certificates are not delivered." (Trust Agr., § 4.08(c).) And fourth,

even if the Trust Agreements left any room for ambiguity, the Plaintiffs' claim would still
fail, since conditions precedent must be unambiguously and explicitly stated.23 See
Castle, 840 F.2d at 177.

The Exarniner identified the major flaws in Plaintiffs' argument that the
incomplete record-keeping steps—what the Examiner termed the "Unperformed
Obligations"—were conditions precedent to the Conditional Exchange:

The "automatic" language in the TRUPS documents

suggests that the Unperformed Obligations are not
conditions precedent. . . . [N]one of the Unperformed
Obligations are designated as conditions precedent in the
Trust Agreements. Moreover, [Plaintiffs] ignore the "[u]
pon the occurrence of a Conditional Exchange"
language in the TRUPS documents . . .
(Ex. 14K, p. 170 (emphasis in original).) He also explained why Plaintiffs' theory is
fundamentally inconsistent with the purpose of the Conditional Exchange:

The TRUPS were considered to be Tier 1 or "core" capital

of WMB. In an "emergency," the TRUPS would be
immediately available to WMB—thus, the need for the
"automatic" provisions of the TRUPS documents. Indeed,
the Examiner notes that if [Plaintiffs'l position is correct, it
would mean that the party required to issue stock pursuant
to a Conditional Exchange (here, WMI) could block a
Conditional Exchange, despite OTS' s declaration of an
Exchange Event, by simply not taking the steps necessary
to complete the transaction. Such a result is entirely
inconsistent with the idea that the OTS could require that
these assets be available in a time of distress.

23 In any event, interposing additional conditions precedent between the OTS

declaration and the Conditional Exchange would undermine the purpose of the
Conditional Exchange, as it would threaten substantial delay before the ailing bank would
receive the emergency capital infusion that the TnIPS were designed to provide.
-23-
(Id., p. 171 (emphasis added).)

Delaware courts hold specifically that the failure of a ministerial act or

logistical term that is not a condition precedent does not affect the validity of an

automatic exchange. See JAS Sec'ys., LLP v. Amer. Int'l Group, Inc., No. Civ. A.

99C-01-126 WTQ, 1999 WL 1441991, at *5 (Del. Super. Dec. 13, 1999) (faxing notice

of automatic conversion instead of mailing notice did not affect conversion' s validity).

Plaintiffs raise no genuine factual dispute that alters the meaning of the Trust

Agreements. As a result, Defendants are entitled to judgment dismissing Count I as a

matter of law. See Worldwide Direct, 2010 WL 3435380, at *4.

B. The Conditional Exchange was Effective

under Delaware Law (Count II).
In Count II, Plaintiffs attempt to characterize the involuntary, automatic

exchange built into the Trust Preferred Securities and required by the governing Trust

Agreements as a voluntary commercial purchase of securities subject to delivery rules of

the Uniform Commercial Code ("UCC"), Article 8. (Compl. 1 77.) This effort, too, fails

as a matter of law. UCC Article 8 provides a non-exclusive default mechanism to transfer

securities. See UCC § 8-302, cmt. n.2 (2007) ("Article 8 is not a comprehensive

codification of all of the law governing the creation or transfer of interest in securities.");

Kallop v. McAllister, 678 A.2d 526, 529 (Del. 1996) ("Article 8 of the UCC . . . did not

preclude the validity of a stock transfer accomplished by methods that are not listed.").

The Trust Agreements, by contrast, provide for a different mechanism—automatic

exchange—authorized by Delaware law. See UCC § 1-302, cmt. 1 (2007) (allowing

parties to change the legal consequences of a transaction by agreement). The Conditional

Exchange was effective as a matter of law independent of the Article 8 formalities.

-24-
 UCC Article 8 provides a standard mechanism for the transfer of securities
by voluntary purchase, but not by automatic exchange. UCC Section 8-104 states that a
person "acquires a security or an interest therein, under this Article, if . . . [, inter alia,]
the person is a purchaser to whom a security is delivered pursuant to Section 8-301."

6 Del. C. § 8-104(a)(1) (emphasis added). "Purchase" and "purchaser" refer to voluntary

transactions only. 6 Del. C. § 1-201(b)(29) ("`Purchase' means taking by sale, lease,
discount, negotiation, mortgage, pledge, lien, security interest, issue or reissue, gift, or
any other voluntary transaction creating an interest in property." (emphasis added)); id.
at § 1-201(b)(30) ("Purchaser" means one who "takes by purchase."); cf. 11U .S.C.

§ 101(43) (In the B ankruptcy Code, "[t]he term `purchaser' means transferee of a
voluntary transfer." (emphasis added)). Article 8 is explicitly non-exclusive: It states

that the delivery rules of § 8-301 apply to securities transfers "unless the context shows
that a different meaning is intended." 6 Del. C. § 8-104(d); Kallop, 678 A.2d at 529; see
also Barber v. VistaRMS, Inc., 272 Va. 319, 331 (2006) (UCC § 8-301 did not govem

automatic divestiture of stock as "[n[o sale or purchase of stock occurred in this case").

Here, where the Trust Agreements provide not for a voluntary purchase,
but for an involuntary exchange, a different meaning is not only intended, but required.
The Trust Agreements describe what happens upon a Conditional Exchange and the Mies
for voluntary transfers in different Articles. (Trust Agr., §§ 3.03, 4.08.) Section 3.03
imposes registration requirements and restrictions on voluntary transfers that differ
from or do not appear at all in Section 4.08's description of the Conditional Exchange. (
Id., §§ 3.03, 3.05, 4.08.) Delaware corporate law similarly distinguishes between

voluntary transfers and automatic exchanges. Bernstein v. Canet, Civ. A. No. 13924,
1996 WL

-25-
342096, *6 (Del. Ch. Jun. 11, 1996) ("exchange" or "conversion" was not a "sale"
triggering anti-dilution rights); Shields v. Shields, 498 A.2d 161, 167 (Del. Ch. 1985) (
"The statutory conversion of stock in . . . a stock for stock merger ought not be construed
to constitute a sale, transfer or exchange of that stock."). These distinctions reflect the
obvious: The Conditional Exchange is not the same as a commercial securities sale and
should not be treated as though it were one.

Even if one accepts Plaintiffs' argument in Count II that UCC Article 8

governs the Conditional Exchange—which it does not—nothing in the UCC gives
Plaintiffs rights to a security that someone else has purchased. Even before a security is "
delivered" under Article 8, a purchaser has certain equitable rights to the security. See
Kallop, 678 A.2d at 530-32 (UCC did not abrogate common-law "constructive delivery"

of stock even without recordation of transfer). The Delaware Supreme Court has said
that constructive delivery suffices "when actual transfer of physical possession is
impractical," id. at 531—as it was here, where the urgency of the Conditional Exchange
could not await transfer of physical possession. In such instances, a purchaser enjoys the
right to demand that the issuer register transfer of a security. See 6 Del. C. §§ 8-307, 401;
Loretto Literary & Benev. Inst. v. Blue Diamond Coal Co., 444 A.2d 256, 259 (Del. Ch.

1982). Regardless of delivery, Plaintiffs have no right to the Trust Preferred Securities,
and JPMC and/or WMI may demand that the Trustee register JPMC as the owner.

Under the plain terms of the Trust Agreements and Delaware law, the
Trust Preferred Securities were effectively exchanged for WMI preferred equity. As the
Examiner said, this is a purely legal question (McIntosh Decl., Ex. 14K, p. 152), and
Defendants are entitled to summary judgment dismissing Count II. See Broadstripe,
2010 WL 3768003, at *16.

C. The Conditional Exchange Was Not Subject to Qualified

Institutional Buyer Transfer Restrictions (Count III).

Because the Conditional Exchange was not a voluntary commercial

purchase and sale of securities, the transfer restrictions in the Trust Agreements and
global certificates—which the Plaintiffs claim in Count III void the Conditional
Exchange—do not apply to the Conditional Exchange. These transfer restrictions
prohibit the offer and sale of the TruPS to persons other than Qualified Institutional
Buyers ("QIBs"), in order to comply with Rule 144A's "safe harbor" for the resale of
unregistered securities in a private, secondary market.24 (Trust Agr., § 3.05.) See 17
C.F.R. §§ 230.144A(b), (d)(1); Concord Real Estate CDO 2006-1, Ltd. v. Bank of
America N.A., 996 A.2d 324, 326-27 (Del. Ch. 2010) (QB3s are "highly sophisticated

investors" that can purchase unregistered securities). It would lead to an impermissible "
absurd result" to apply this provision to an involuntary exchange back to WMI, but this
is precisely the absurdity Plaintiffs urge upon the Court. See Osbom ex reL Osborrt v.
Kemp, 991 A.2d 1153, 1160 (Del. 2010).

Count III reads disharmony into the Trust Agreements where there is
none. "Where a contract provision lends itself to two interpretations, a court will . . .
adopt the construction that . . . harmonizes the affected contract provisions." Axis Reins.
Co. v. HLTH Corp., 993 A.2d 1057, 1063 (Del. 2010). Plaintiffs read the QB3

24 Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e, prohibits selling

unregistered securities, unless the sale is exempted under Section 4. See 15 U.S.C. § 77d.
Rule 144A establishes that one of those Section 4 exemptions is a third-party investor' s
resale of an unregistered, privately placed security to a QIB. See 17 C.F.R.
§§ 230.144A(b), (d).

-27-
restrictions (Trust Agr., § 3.05) to conflict with the Conditional Exchange provisions (
Trust Agr., § 4.08), because there could be times when WMI—the provided transferee in
§ 4.08—did not qualify as a QIB. (Comp1.91222.) But the Trust Agreements do not in
any way qualify the Conditional Exchange by reference to WMI' s status as a QIB at the
time the OTS declares an Exchange Event. Moreover, under Plaintiffs' construction, it is
when the Conditional Exchange was is likely to occur—in times of fmancial distress-
that a transfer to WMI would most likely violate § 3.05; it is difficult to see how the
TruPS would qualify as core capital if their availability to absorb losses at the bank was
constrained as Plaintiffs suggest. (See McIntosh Decl., Ex. 1E, p. 22 ("If a Conditional
Exchange occurs, it is likely to occur at a time when . . . WMI' s fmancial condition has
deteriorated.").) This supposed conflict is wholly artificial, and its result would be
absurd. Cf. Osborn, 991 A.2d at 1160. The Conditional Exchange is not a voluntary
commercial transfer, as explained supra, and so does not conflict with § 3.05's
restrictions an voluntary commercial transfers.25 Plaintiffs claim ambiguity where there
is none, and so Count III fails as a matter of law. See Worldwide Direct, 2010 WL
3435380, at *4.

Additionally, applying the QIB restrictions to the Conditional Exchange

cannot be what the Trust Agreements intended because it would make no sense as a
matter of the very securities law that § 3.05 was designed to effectuate: The QIB
restrictions were explicitly imposed to comply with SEC Rule 144A. (Trust Agr.,

§ 3.05.) But because the Conditional Exchange was as a matter of law an involuntary

25 For this reason, the fact that transfers to WMI are not expressly exempted from
the QIB provision is unsurprising, notwithstanding the Examiner's puzzlement (see
McIntosh Decl., Ex. 14K, p. 171): Because the QIB provision does not govern the
Conditional Exchange, there was no need for such an exception.

-28-
exchange, not a new sale of securities, it was not required to comply with Rule 144A' s
safe harbor.26 As such, Rule 144A's QIB rules governed private resale in the
secondary market, but not involuntary exchanges such as the Conditional Exchange.

D. The OTS Directive Was Authorized and Fully Effective (Count IV).
Plaintiffs' oddest theory—that the Conditional Exchange never occurred
because the OTS willingly assisted WMI in defrauding investors (Compl. 243)—also
fails as a matter of law. For one, Count IV is pleaded wrong from both ends: Plaintiffs
have no standing to bring it, and Plaintiffs have brought it against the wrong parties.

Plaintiffs have essentially conceded that they were not the investors whom WMI
allegedly defrauded, so this fraud claim is not theirs to pursue. And while Count IV aims
to invalidate the act of a federal agency by proving the OTS aided and abetted fraud,
Plaintiffs have not actually sued the OTS or properly sought to challenge the OTS' s
regulatory action. But even if Plaintiffs could somehow prove that the OTS had aided
and abetted a fi-aud (which they cannot), that would not affect the validity of the
Conditional Exchange at all.

1. Plaintiffs Lack Standing to Allege

a Fraud that Did Not Defraud Them.
Plaintiffs have no standing to bring Count IV. In that claim, Plaintiffs
claim that "the OTS aided and abetted a fraud upon investors" (Compl. 1242), but
they do not claim to be those investors. (See Plaintiffs' Opp. to Mot. to Compel, pp. 3-4,
D.I.

26 The Conditional Exchange, as an involuntary transfer deemed agreed to at the

time of the original purchase of the TruPS, was not a sale because there was no new
investment decision. See Helman v. Murry's Steaks, Inc., 742 F. Supp. 860, 870-71 (D.
Del. 1990) (transfer of securities was not a "sale" where made pursuant to prior binding
contract; the contract requiring the transfer was the "sale" of those securities, since it
constituted the voluntary investment decision).

-29-
77 ("[T]he reliance of the Plaintiffs[[ is not relevant to this count [Count IV].").) Nor
could they, given that purchased their purported interests long after the
public armouncement of the Conditional Exchange, when the events underlying their
fraud claim were well known. (

.111) As a matter of standing, "a plaintiff may not normally enforce the rights of a
third party." St. Matthew's Slovak Rom. Cath. Congreg. v. Most Rev. Wuerl, 106 F.
App'x. 761, 765 (3d Cir. 2004) (citing Elk Grove Unif. Sch. Distr. v. Newdow, 542

U.S. 1, 12 (2004)); Fields v. Penn. Dept. of Corrections, Civ. A. No. 05-05897, 2006 WL
1285030, at *3 (E.D. Pa. May 5, 2006) (no standing where plaintiff based claim of relief
on violation of third party' s legal rights). Even looked at most generously, Count IV
attempts to enforce the rights of third-party investors who are not Plaintiffs, and thus fails
for lack of standing. And even if Plaintiffs could enforce the rights of those third-party
investors, their claims would be mere securities claims that would be subordinated if they
had been filed before the bar date and would be rejected here because they were not.

2. Plaintiffs Carmot Nullify an Act

of the OTS Without Suing the OTS.
The absence of the OTS in this action is also fatal to Count IV because an
act of the OTS may only be set aside through a suit against the OTS. Plaintiffs concede
that Court IV "focuses solely on the conduct of the OTS" and seek a declaration that
OTS' s declaration of the Conditional Exchange was outside OTS' s authority and thus
ineffective. (See Plaintiffs' Opp. to Mot. to Compel, p. 7 (emphasis in original).) As a
matter of standing, Plaintiffs must establish that the court has power to redress their
injury. See Lujan v. Defenders of Wildge, 504 U.S. 555, 561 (1992); cf, Travelers Ins.
Co. v. Obusek, 72 F.3d 1148, 1155 (3d Cir. 1995) (declaratory relief only available if

-30-
useful to parties in resolving conflict). In challenging the acts of federal agencies, "[d]

eclaratory relief is not available where Congress had explicitly provided a statutory

review scheme," Cost Control Mktg. & Mgmt., Inc. v. Pierce, 848 F.2d 47, 50 (3d Cir.

1988), including when Plaintiffs seek to set aside agency acts as ultra vires. See Solar

Turbines Inc. v. Seif, 879 F.2d 1073, 1077-78 (3d Cir. 1989). Congress has provided

such a review scheme in 12 U.S.C. § 1464(d)(1)(A), which allows federal thrifts—but

only federal thrifts—to challenge OTS capital directives, see United Liberty Life Ins. Co.

v. Ryan, 985 F.2d 1320, 1328 (6th Cir. 1993), and this scheme precludes declaratory

relief. Nor have Plaintiffs attempted to comply with the Administrative Procedure Act, 5

U.S.C. § 706(2), which provides cause of action to set aside unlawful agency acts. Cf.

United Liberty Life Ins., 985 F.2d at 1327 (OTS capital directive was committed to

agency discretion and unreviewable even under the APA).27

Here, Plaintiffs have not sued the OTS to set aside its directive, but sought

to void its acts through an "incidental legal determination" without the OTS's

participation. See Lujan, 504 U.S. at 569. Plaintiffs cannot obtain declaratory relief in

such a manner, and so they cannot invalidate the OTS's declaration of the Conditional

Exchange or the effects that necessarily flow from it.

27 JPMC also believes that other grounds for dismissal of Plaintiffs' claims exist,
including that Plaintiffs' claims are barred by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, Pub. L. 101-73, 103 Stat. 183 (1989) ("
FIRREA"), and that FIRREA bars any court in this district from exercising jurisdiction
over Plaintiffs' claims. JPMC does not waive any such additional arguments.
-31-
 3. The OTS Directive Is Not Ultra Vires
Because the OTS Acted Pursuant
to Statutory Authority under HOLA.
The Court need not decide the fraud elements to reject Count IV, because
even if Plaintiffs could somehow prove that the OTS had aided and abetted a fraud (
which they cannot), it would not affect the Conditional Exchange in the least. When the
OTS issued its directive, triggering the Conditional Exchange, it was exercising its
statutory authority under the Home Owners Loan Act, 12 U.S.C. § 1461 et seq. ("
HOLA"), and therefore was not acting ultra vires.

Ultra vires agency actions are those taken without, or contrary to,

statutory authority. See Transohio Savings Bank v. Director of OTS, 967 F.2d 598, 621
(D.C. Cir. 1993) ("Agency actions beyond delegated authority are ultra vires.'"); A-1
Amusement Co. v. United States, 48 Fed. Cl. 63, 67 (2000) (ultra vires means "either

explicitly prohibited or . . . outside the normal scope of the government officials' duties"

(quoting Del-Rio Drilling Programs Inc. v. United States, 146 F.3d 1358, 1363 (Fed. Cir.
1998))). Even tortious acts of a govemment agency are not ultra vires if the agency acts
pursuant to its delegated authority. See Larson v . Domestic & Foreign Commerce Corp.,
337 U.S. 682, 695 (1949); Centennial Assoc. L.P. v. FDIC, 927 F. Supp. 806, 812 (D.N.J.
1996) (finding, where FDIC exercised function assigned to it by statute, "it is irrelevant
whether the receiver exercised its statutory authority unwisely or even illegally").28

28 In Larson, the Supreme Court found that a federal officer' s breach of contract was
not ultra vires, because he acted pursuant to his authority to administer an assets sales
program, stating: "Ulf the actions of an officer do not conflict with the terms of his valid
statutory authority, then tlney are the actions of the sovereign, whether or not they are
tortious under general law," 337 U.S. at 695 (emphasis added); see also Del-Rio
Drilling, 146 F.3d at 1362 ("Merely because a government agent's conduct is unlawful
does not mean that it is unauthorized; a govemment official may act within his authority
even if his conduct is later determined to have been contrary to law.").
-32-
 Here, the OTS directive was authorized under HOLA because it was part
of an arrangement to maintain capital levels at WMB. The OTS Director has broad
authority to issue any order that she deems "necessary for carrying out" HOLA. 12
U.S.C. § 1462a(b)(2). HOLA specifies capital standards for savings and loan
associations and defines core capital. 12 U.S.C. § 1464(t)(9). HOLA further authorizes
OTS to ensure adequate capital maintenance by establishing minimum capital
requirements and "other such methods as the [OTS] Director determines to be
appropriate." 12 U.S.C. § 1464(s)(1)(B); see United Liberty Life Ins., 985 F.2d at 1326 ("[
Section 1464(s)] grants OTS the power to require savings associations to maintain
adequate capital, using any methods OTS determines to be appropriate."). The OTS
acted within the powers granted it by §§ 1462a and 1464(s) in directing the Conditional
Exchange because it determined the Conditional Exchange to be a necessary and
appropriate method for ensuring adequate capital maintenance. As such, the OTS's
declaration of the Conditional Exchange was valid and effective, Plaintiffs' fraud
claims

are irrelevant to the Conditional Exchange, and any factual disputes raised with respect to
these fraud claims are immaterial. See Worldwide Direct, 2010 WL 3435380, at *3 ("
Issues of fact are only considered material if their resolution potentially impacts the
outcome of the suit under governing law.").

4. The Alleged Fraud Had Nothing to

Do with the Conditional Exchange.

The fraud alleged by the Plaintiffs—even if proven—would not affect the

validity of the OTS's declaration of the Conditional Exchange: The Conditional
Exchange dictated that the Trust Preferred Securities would revert to Washington
Mutual in certain instances, as was clear an the face of the governing documents, and it
is the
-33-
occurrence of the Conditional Exchange that resulted in termination of outside investors'
interest in the Trust Preferred Securities. (Trust Agr., § 4.08(b).) The "fraud" that the
Plaintiffs complain of, though, had nothing to do with the Conditional Exchange but

instead dealt entirely with the disposition of the Trust Preferred Securities after outside
investors' interests in them had been terminated. As such, it can have no effect on the
validity of the Conditional Exchange. Defendants are entitled to summary judgment on
Count IV.

E. Counts V and VI Are Legally Irrelevant to the Conditional Exchange.

Count V, which seeks a declaration that WMI acted inequitably and has
unclean hands, and Count VI, which seeks a declaration that JPMC is not a bona fide

purchaser of the Trust Preferred Securities, have nothing to do with Plaintiffs' baseless
claim to own the Trust Preferred Securities. The Conditional Exchange is complete and
effective, and neither WMI's alleged unclean hands nor JPMC's status as a bona fide
purchaser affects the Conditional Exchange in the least.

Because Plaintiffs, not Defendants, are the ones seeking affirmative

equitable relief from the Court in this action, it is Plaintiffs, not Defendants, who
are

subject to equitable defenses. Counts I-VI seek a declaratory judgment, an equitable

remedy subject to the imclean hands defense. See Eccles v. Peoples Bank of Lakewood
Village, 333 U.S. 426, 431 (1948); Crosslink Orthopcs., LLC v. Synthes Spine Co., Ltd.,

Civ. A. No. 7:07-cv-59 (HL), 2007 WL 3333342, at *4 (M.D. Ga. Nov. 9, 2007). "Mn
determining the issue of clean hands, we look solely at the conduct of the plaintiff—the
one who seeks the aid of the chancellor—and not the conduct of the defendant."
Salomon Smith Barney Inc. v. Vockel, 137 F. Supp. 2d 599, 603 (E.D. Pa. 2000);

accord

Karpenko v. Leendertz, 619 F.3d 259, 265 (3d Cir. 2010) (Unclean hands "closes the

-34-
doors of a court of equity to one tainted with inequitableness or bad faith . . . however

improper may have been the behavior of the defendant." (emphasis added)). Thus

Plaintiffs' allegations of "urclean hands" directed at WMI do not themselves state a

cognizable claim and are legally irrelevant to Plaintiffs' contention that they somehow

own Trust Preferred Securities, which, as a matter of law, they do not.

But beyond that, Plaintiffs' action is riddled with bad faith that would

preclude them from obtaining equitable relief on this or any other count. The entire

lawsuit is, in essence, a lottery ticket bought for pennies on the dollar in the remote hope

that Plaintiffs can persuade the Court to reverse the Conditional Exchange that occurred

long before they ever had an interest in what were, prior to that Conditional Exchange,

Trust Preferred Securities. (McIntosh Decl., Ex. 12A, pp. 4-5.) The extent of Plaintiffs'

insincerity is astonishing:

• Althou Plaintiffs previously represented their interests to the Court

as WMI equity, they now deny it. (McIntosh Decl.,
Ex. 14D, pp. 45, 56; Compl. 9[ 78.)
• Plaintiffs complain that "the allure of investing in [the TruPS] was the fact
that Washington Mutual outwardly appeared to be a safe, and soundly-run
enterprise" (Compl. 9[ 102)—even though purchased
after WMI's bankruptcy.

• Plaintiffs complain that the Offering Circulars "impliedly represented a

Conditional Exchange was highly unlikely" (Compl. 1 103)—even though
purchased long after the Conditional Exchange.
• Plaintiffs complain of WMI's "hidden intent to downstream the Trust
Preferred Securities" (Compl. 1 70)—but this intent was not at all hidden
from the majority of Plaintiffs, who purchased after the Assignment
Agreement became public. Nor would it be relevant in any event to the
circumstances of when a Conditional Exchange might occur and the
Conditional Exchange' s effect of converting ownership of Trust Preferred
Securities into WMI equity, both of which were indisputably disclosed.
• Plaintiffs complain that the Offering Circulars misrepresented the "
adequacy of the collateral underlying WMB's loan portfolios" and the
-35-
 soundness of WMB's underwriting practices for certain types of loans (
Compl. 104-105)—but Plaintiffs are desperately trying to reach the
value of these very same loans.29
• Plaintiffs have continued to purchase post-Conditional Exchange WMI
preferred shares, even after the filing of their Complaint detailing how
unfairly they were deceived as to the nature of the Conditional Exchange
and the value of these shares. (McIntosh Decl., Ex. 13B.)
• Plaintiffs have asserted to this Court that they seek a declaration that they "
still hold" TruPS after the Conditional Exchange (McIntosh Decl., Ex.
14G, p. 42)—but never owned those securities before the
Conditional Exchange.
Plaintiffs' demand for declaratory relief is inequitable and should be barred.

Plaintiffs have also inexcusably delayed this action, to the prejudice of

Defendants and Debtors' creditors, and their claims should be barred by laches. See

United States v. City of Loveland, Ohio, --- F.3d ----, 2010 WL 3565186, *7 (6th Cir.

2010) (declaratory action barred by laches).

have been on notice that the Conditional Exchange

converted their TruPS into WMI preferred equity since September 26, 2008. (McIntosh

Decl., Ex. 6C.) They could have intervened and asserted their claims in the adversary

proceeding between JPMC and WMI involving the TruPS, which commenced in March

2009. Instead, Plaintiffs sat on their claims as the parties crafted a delicate compromise

unaware that any party questioned the validity of the Conditional Exchange. (See id., Ex.

8A, p. 50.) Only after Debtors announced a Chapter 11 plan did Plaintiffs file their suit,

figuring the parties would pay them more rather than derail a settlement worth over $6

29 The Complaint cites, as examples of misleading representations, the Trust II, III
and IV Offering Circulars' favorable descriptions of the WMB loan portfolios. (Compl.
11 104-105, n.52-n.53 (citing McIntosh Decl., Ex. 1C, p. 60; id., Ex. 1D, pp. 49, 60; id.,
Ex. lE, p. 65).) But what these passages describe are the assets that Plaintiffs want to
reach through the TruPS. (See App'x. C.)

-36-
billion to Debtors' estate. (See id., Ex. 14F, p. 5;

) Plaintiffs' calculated two-year delay in

bringing this action is highly prejudicial to Defendants, and laches should bar all
Plaintiffs' claims.

With respect to Count VI, the question of whether JPMC is a bona fide

purchaser is a dispute regarding where the Trust Preferred Securities end up alter the

Conditional Exchange—with WMI or with JPMC. It has no legal or logical connection

to the validity of the Conditional Exchange itself. See Worldwide Direct, 2010 WL

3435380, at *3 ("Issues of fact are only considered material if their resolution potentially

impacts the outcome of the suit under governing law.").

 CONCLUSION
For the foregoing reasons, JPMC respectfully requests the Court to enter

the Proposed Order attached to JPMC's Motion, granting summary judgment in JPMC's

favor on Counts I-IV and VI on the gound that Plaintiffs are not owners of the TruPS.

Dated: Wilmington, Delaware

November 2, 2010

Adam G. Landis (I.D. 3407)

Matthew B. McGuire (I.D. 4366)
LANDIS RATH & COBB LLP
919 Market Street, Suite 1800
Wilmington, Delaware 19899
Tel: (302) 467-4400
Fax: (302) 467-4450
— and —
Robert A. Sacks
Stacey R. Friedman
Brian D. Glueckstein
SULLIVAN & CROMWELL LLP
125 Broad Street
New York, New York 10004
Tel: (212) 558-4000
Fax: (212) 558-3588
— and —
Brent J. McIntosh
SULLIVAN & CROMWELL LLP
1701 Pennsylvania Avenue, NW
Washington, DC 20006
Tel: (202) 956-7500
Fax: (202) 293-6330

Attorneys for JPMorgan Chase Bank, N.A.

Appendix A
STRUCTURE OF THE TRUST PREFERRED SECURITIES

The following description of the Trust Preferred

Securities is a simplified version of information reflected
in the Washington Mutual Preferred Funding Trust IV
Offering Circular and other Exhibits:
1. WMB created a new subsidiary, Washington
Mutual Preferred Funding LLC ("WMPF" or "
Company"), to control three Delaware statutory
trusts (the "Asset Trusts").
2. WMB then contributed over $13 billion of real
estate assets, originally held at WMB or at WMB
subsidiaries, to the three Asset Trusts. (McIntosh
Decl., Ex. 1E, pp. 1-2.)
3. WMPF issued five series of perpetual, non-
cumulative preferred stock (the "Company
Preferred Securities").
• Each Company Preferred share carried a right to
dividends on the Asset Trusts' income, if WMPF,
in its discretion, declared a dividend, and a
liquidation value of $1,000, to be paid out
of the Asset Trusts if WMPF, again in its discretion, redeemed the Company Preferred Securities or if WMPF liquidated. (Id., pp. 96-102.)
4. The Office of Thrift Supervision ("OTS") confirmed that the Company Preferred Securities count as Tier 1 capital of WMB. (Id., p. 2.)
5. Four Delaware statutory trusts and one Cayman Islands limited corporation (each, a "Trust") each issued preferred securities (the "Trust
Preferred Securities," "TruPS" or "Trust Securities") to third-party investors and used the proceeds to buy Company Preferred
Securities.
• Under the Trust Agreements, the Trusts' sole assets are Company Preferred Securities. Each share of TruPS carried a right to 100% of
any dividend on the Company Preferred Securities and a face liquidation value of $100,000, which would be paid only if the Trust, at its
sole option, redeemed the Trust Preferred Securities. (Id., pp. 18, 87-91.)
Appendix B

OFFERING CIRCULAR DISCLOSURES

The offering documents available to Investors extensively disclose the nature of

the Conditional Exchange and the risks associated with the Exchange. First and foremost, each
series describes the Trust Preferred Securities in their title as:

Automatically Exchangeable in Specified Circumstances into

Depositary Shares representing Preferred Stock of Washington Mutual, Inc.
(McIntosh Decl., Ex. 1E, cover page.) The certificates initially representing the Trust Preferred
Securities bear a legend that describes the Conditional Exchange and § 4.08 of the Trust
Agreements, which govems the Conditional Exchange. (See id., Exs. 2A-2I.) The offering
circulars describe the Conditional Exchange in several places (see, e.g., id., Ex. 1E, pp. 2, 15, 22,
91-92) and contain specific risk disclosures relating to the Conditional Exchange. These risk
disclosures warn that:

• WMI' s fmancial condition would "quite deteriorate or have

deteriorated in the event of a Conditional Exchange, and the holders of
Depositary Shares could lose "all or part" of their investment. (Id., p. 29.
)
• A Conditional Exchange might be based on WMB's receivership, in which
case WMI would likely file for bankruptcy. In such a case, the holders of
Depositary Shares would be subordinate to creditors and "would receive, if
anything, substantially less than they would have received had the Conditional
Exchange not occurred." (Id., p. 30 (emphasis added).)
• WMI preferred stock would be "structurally subordinate" to WMB's
obligations, because WMI relies on its subsidiaries for cash to pay its equity
obligations. Thus, Depositary Share holders "should look only to the assets of
WMI, and not any of its subsidiaries, for payments with respect to the
Depositary Shares. If WMI is unable to obtain cash from its subsidiaries it
may be unable to fund dividend payments in respect of the . . . WMI Preferred
Stock." (Id., p. 31.)
• 'WMPF holds the sole option to declare dividends or redeem or liquidate the
Trust Preferred Securities. (Id., pp. 20, 21.)
• The mortgage lending downturn will be significantly worse and longer lasting
than expected, and "a substantial portion" of Washington Mutual's Option
Adjustable Rate Mortgage ("Option ARM") loans may experience negative
amortization. (Id., p. 29, 33-34.)
Appendix C

(»FERING CIRCULAR CONCORDANCE

The following chart provides, for each section or topic listed below, corresponding page
numbers for each of the offering memoranda.

Trust I Cayman Trust II Trust III Trust IV

(Ex IA) (Ex. 1s) (Lx 1C) (Ex. 1D) (Ex 1E)
Introduction 1-3 1-3 1-3 1-3 1-4
Risk Factors 17-29 18-31 18-31 18-31 20-35
Risk Factors related to the Conditional Exchange 27-29 29-31 27-29 27-29 29-31
Description of WMB core capital 30-33 32-35 32-36 32-36 36-39
Description of Asset Trust I and collateral 44-56 50-62 47-56 47-56 52-61
Description of Asset Trust II and collateral - - 57-67 57-67 62-72
Description of Asset Trust III and collateral - - - - 73-83
Description of the Trust Preferred Securities 59-66 65-74 70-76 70-76 87-94
Description of the Conditional Exchange 63-65 70-72 73-75 73-75 91-92
Wilmington Trust Co. as Registrar 65-66 73 75-76 75-76 93
Book-Entry Issuance and the DTC System 89-92 96-102 102-105 101-104 121-124