U.S. Judge Halts Washington Mutual Fraud Lawsuit

April 7, 2009

A federal judge on Monday halted a consumer class-action fraud lawsuit against Washington Mutual Inc, saying it may be more appropriate for the Federal Deposit Insurance Corp to handle claims against the failed savings and loan.

Judge Arthur Spatt of the U.S. district court in Brooklyn, New York, accepted the FDIC’s argument that the lawsuit should be halted, with the plaintiffs seeking recovery through an administrative review process governing claims against failed lenders. The delay could last through mid-September, he wrote.

The FDIC is acting as Washington Mutual’s receiver, having arranged a $1.9 billion sale of much of the Seattle-based thrift’s banking operations to JPMorgan Chase & Co last Sept. 25. Washington Mutual, the surviving holding company, filed for Chapter 11 bankruptcy protection a day later. The thrift is by far the largest U.S. lender to fail.

In the federal lawsuit, filed in 2005, Washington Mutual was accused of assessing a variety of small, but allegedly improper fees in connection with mortgage loans, including charges for faxes, recording documents and payoff statements.

Spatt ordered the FDIC to retain all payoff statements in the manner previously handled by Washington Mutual.

Last month, Washington Mutual sued the FDIC for more than $13 billion, arguing that JPMorgan paid too little for its bank business and that more money should be available for creditors.

JPMorgan then sued Washington Mutual in an effort to preserve its interests in the thrift’s banking operations, which it said it bought in good faith.

The case is Cassese v. Washington Mutual Inc, U.S. District Court, Eastern District of New York (Brooklyn), No. 05-2724. (Reporting by Jonathan Stempel)

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