## Facts

- Washington Mutual, Inc. and WMI Investment Corp. filed Chapter 11 after Washington Mutual Bank was placed into FDIC receivership and its operations were sold to JPMorgan Chase Bank, N.A.
- The estates, JPMorgan, and the FDIC disputed ownership of significant assets and claims, including tax refunds, deposit/escrow accounts, and potential litigation claims.
- The debtors proposed a Sixth Amended Joint Plan that incorporated a negotiated global settlement allocating these assets and providing for multi-billion-dollar distributions, with many unsecured creditors projected to be paid in full.
- Multiple creditor and equity constituencies objected, challenging (i) the breadth of third-party releases and exculpations benefiting nondebtors and (ii) the allocation and treatment of various claim and interest holders.
- The plan included a rights offering limited to holders with at least $2 million face amount of PIERS, excluding smaller PIERS holders.
- After extensive confirmation proceedings, the court evaluated both the settlement terms and whether the plan satisfied Chapter 11 confirmation requirements.

## Issues

1. Whether the global settlement embedded in the plan was a fair and reasonable compromise of disputed, high-stakes litigation and asset-ownership controversies.
2. Whether the plan’s nondebtor third-party releases and exculpations were permissible in scope and supported by adequate justification and consent.
3. Whether limiting the PIERS rights offering to larger holders violated 11 U.S.C. § 1123(a)(4)’s requirement of the same treatment for each claim or interest within a class.
4. Whether the plan, as drafted, met the confirmation requirements of 11 U.S.C. § 1129, including other applicable statutory constraints.

## Decision

- The court determined the global settlement fell within the range of reasonableness and could be approved as a compromise given litigation risk, complexity, expense, and delay.
- The court denied confirmation of the Sixth Amended Plan as unconfirmable in its current form.
- The court found the plan’s third-party releases and exculpations were overly broad and not adequately justified under applicable standards.
- The court held the PIERS rights offering conferred a benefit on some class members but not others, resulting in unequal treatment within the same class in violation of § 1123(a)(4).
- The debtors were required to revise the plan to address these defects before confirmation could be considered.

## Legal Principles

- A bankruptcy settlement may be approved when, considering litigation risk, cost, delay, and creditor interests, it is fair and reasonable and within the range of acceptable outcomes.
- Plan confirmation requires compliance with the Bankruptcy Code even where key stakeholders have negotiated a comprehensive settlement.
- Nondebtor third-party releases and exculpations must be narrowly justified; broad, non-consensual provisions lacking sufficient consideration, consent mechanisms, or a close connection to the reorganization may render a plan unconfirmable.
- 11 U.S.C. § 1123(a)(4) requires the same treatment for each claim or interest within a class; granting some class members a distinct opportunity or economic benefit (such as access to a rights offering) while excluding others generally constitutes unequal treatment.

## Conclusion

The court accepted the negotiated global settlement as a reasonable compromise of complex disputes but refused to confirm the plan because its nondebtor releases were overbroad and its PIERS rights offering created unequal treatment within a class, requiring further plan modifications to comply with the Bankruptcy Code.


In re Washington Mutual, Inc., 442 B.R. 314 (Bankr. D. Del. 2011)