Court Approves $695 Million RMBS Settlement for Compass Lexecon Client Deutsche Bank National Trust

Compass Lexecon was retained by counsel for Deutsche Bank National Trust Company as Trustee to evaluate a proposed $695 million settlement between 99 Trusts, JP Morgan and the FDIC. The Trusts had purchased mortgage loans from Washington Mutual. After Washington Mutual was shut down, the FDIC was appointed receiver and sold certain assets of Washington Mutual to JP Morgan. The Trustee subsequently filed a complaint against the FDIC and JP Morgan as successors to Washington Mutual. The complaint alleged breaches of representations and warranties related to the mortgage loans that were sold to the Trusts by Washington Mutual. In 2016, the Trustee, the FDIC and JP Morgan reached a settlement under which the 99 Trusts would receive a $3 billion claim against the receivership estate for Washington Mutual; the estimated value of the claim is approximately $695 million. The Superior Court of California was then asked to approve the settlement and a method to allocate the $695 million between the 99 Trusts that was developed by the Trustee.

Compass Lexecon’s President Professor Daniel R. Fischel was retained by Robin A. Henry of Boies, Schiller & Flexner LLP and John M. Rosenthal of Morgan, Lewis & Bockius LLP to form an independent opinion of whether the settlement was a reasonable resolution of the Trustee’s action and whether basing the allocation methodology on losses, suffered by the trusts, was reasonable. Professor Fischel filed an expert report explaining his conclusion that the settlement was reasonable and that it was reasonable to base the allocation methodology on losses.

Judge William D. Claster approved the settlement and the allocation method and ruled that the Trustee acted reasonably and in good faith within the bounds of its discretion. He barred all Certificateholders from asserting claims against the Trustee with respect to its prosecution of the litigation against the FDIC and JP Morgan and its negotiation of, and entry into, the settlement. Professor Fischel was supported by a team in Compass Lexecon’s Chicago office that included Jerry Lumer, Kevin Hartt, Donnie Hong, and many others.