(CN) - About two dozen hedge funds that hold Washington Mutual senior notes, and four investment advisers, cannot intervene in Deutsche Bank's $10 billion securities suit.
Deutsche Bank National Trust filed suit in 2009 against the Federal Deposit Insurance Corp., as the receiver for Washington Mutual Bank, which collapsed after securitizing bad home loans that cost investors billions.
An amended complaint added JPMorgan Chase & Co. as a defendant since the bank bought Washington Mutual's assets and certain liabilities for $1.9 billion.
About two dozen senior note holders and four advisers for such note holders then moved to intervene in the case, claiming that "any judgment in Deutsche Bank's favor against the FDIC could exhaust the funds in the estate and eliminate possibility of their recovery," according to the court's summary
Although the FDIC acknowledged the senior notes as legitimate liabilities of the WaMu receivership, it urged the Washington, D.C., court to reject proposed intervenors.
The FDIC argues that no claimant has the right to intervene in a litigation regarding another claimant's entitlement to receivership funds and that the proposed intervenors have no direct interest in this suit," U.S. District Judge Rosemary Collyer wrote. "It points out that the proposed intervenors do not have an interest in the mortgage-backed securities or the underlying transaction documents on which Deutsche Bank seeks relief or an interest in the PAA [purchase and assumption agreement] that is the subject of dispute between the FDIC and JP Morgan. Likewise, Deutsche Bank and JP Morgan argue that the proposed intervenors' interests are not related to the subject of this litigation."
Collyer rejected the motion to intervene, despite its similarity to the more successful maneuver of another group of credit holders in a related case, Washington Mutual v. FDIC (WMI II).
"The proposed intervenors in this suit may have interests similar to those of the bank bondholders in WMI II," Collyer wrote. "However, those alleged interests have yet to crystallize as this case remains one of contract interpretation, specifically interpretation of the PAA. Once that issue is determined, the proposed intervenors' interests may become cognizable. Their interests are contingent on the resolution of other legal issues and intervention is not proper at this point."
The judge added that the proposed intervenors do not have a question of law in common with Deutsche Bank, and that the investment advisers lack standing since they have no claim to receivership funds.