Lawyer: Chase should be responsible for $300M in losses to WaMu retirement accounts

Judge in Seattle hears arguments over WaMu 401(k)s

SEATTLE — Lawyers for JPMorgan Chase & Co. and for Washington Mutual Inc. fund managers, directors and a former chief executive asked a federal judge Thursday to dismiss a lawsuit by WaMu employees whose retirement accounts have vaporized.

Steve W. Berman, a lawyer for former employees of what was once the nation’s largest savings bank amount argued that his clients should have been warned to dump WaMu stock from their 401(k) plans and that the liability should pass to JPMorgan, which bought the bank after it was closed by federal regulators.

Washington Mutual Inc. has practically no assets, although it is seeking more than $4 billion worth of deposits in bankruptcy proceedings, and the actual fiduciaries — individuals who were responsible for overseeing the retirement plans — have limited resources, Berman said.

“We want somebody who can pay the bills,” he said.

U.S. District Judge Marsha J. Pechman suggested that making a new owner liable for a failed bank’s lack of fiduciary responsibility in managing 401(k) accounts could make it harder for the Federal Deposit Insurance Corp. to arrange future takeovers of teetering banks.

She also questioned how liability could transfer from Washington Mutual Inc. to its subsidiary, Washington Mutual Bank, which JPMorgan bought from FDIC for $1.9 billion last September.

“How do I jump from one corporate entity to another?” she asked. “You basically have to ignore most corporate liability laws, don’t you?”

The holding company and the bank “are really one and the same,” Berman replied.

As of the end of 2005, WaMu’s 401(k) plans had more than 70,000 participants, and as of Dec. 1, 2006, the plan held about 8 million shares of WaMu stock worth about $341.4 million.

Eric Mattson, a lawyer for JPMorgan, argued that under federal law, only a fiduciary, such as a member of a fund management council, can be held liable for mismanagement of a retirement fund.

“This case is about fiduciary responsibility,” Mattson said. “There is no claim that Chase is a fiduciary.”

Kerry K. Killinger, chief executive of Washington Mutual from its explosive growth until shortly before it failed, also was not a fiduciary, and his statements to employees about the company’s health had nothing to do with them as 401(k) participants, argued his lawyer, Barry M. Kaplan.

Similarly, Ronald L. Berenstain, representing WaMu directors, said his clients should not be considered fiduciaries because they only chose the members of the committees that managed the funds.

“They had no discretionary authority whatsoever over the plans,” Berenstain said.

Robert J. Pfister, representing WaMu’s Human Resources Committee, Plan Administration Committee and Plan Investment Committee, said the law exempts fiduciaries from lawsuits in plans that allow participants to manage their own investments — especially in 401(k) programs like the one at WaMu, which allowed participants to choose any stock for their portfolios.

Moreover, investment committee members could have been sued had they made WaMu stock unavailable for participants because the plan required that the stock be included among the options, Pfister maintained.

Pechman, presiding over a welter of WaMu-related litigation filed in federal courts around the country, indicated she would likely rule on the dismissal motions in about the third week in September. She also has yet to decide whether to grant class-action certification in the consolidated retirement plan cases or in another group of lawsuits involving WaMu securities.