Incorporating Legal Claims

3. Loose Incorporation in the Dime/Anchor Savings Litigation: Litigation Tracking Warrants Anchor Savings' claim was based on eight acquisitions of failing S&Ls from 1982 to 1985, four of which were facilitated by regulators. (125) When FIRREA was enacted in 1989, Anchor's books still carried over $500 million of related capital, including the goodwill. As a result, Anchor claimed it faced severe limitations on its activities and was forced to liquidate valuable assets at fire-sale prices. (126) In 1994, Anchor and Dime Savings Bank agreed to merge. In January of 1995 Anchor filed the suit against the government. Shortly thereafter the merger closed, and, as a result of the merger, Dime became entitled to the proceeds. (127) Because filing the claim did not disrupt the merger pricing previously negotiated by Anchor and Dime, Anchor had no motivation to issue litigation securities at that point. However, a later deal did face the pricing problem. In early 2000, North Fork Bank attempted a hostile takeover of Dime. Dime found a white knight in Warburg Pincus. As Dime and Warburg did not agree on the value of the litigation, that major equity investment faced the hidden cost issue. As a result, Dime issued LTWs on December 29, 2000. (128) Again, because these were issued directly by Dime they represent a "loose" incorporation. Dime retained control of the litigation. The Anchor/ Dime LTWs were conceptually similar to the Golden State LTWs and were similarly worth stock representing 85% of the net recovery. Also like the Golden State LTWs, the Dime LTWs traded on the NASDAQ and, because of the merger, were ultimately redeemable for shares in a different company than Dime. In 2001 Dime announced its intention to merge with Washington Mutual (WaMu), and that deal closed in 20 02. (129) Not much happened until 2008, when the trial court awarded $356 million in damages. (130) The decision was appealed. (131) Later in 2008, regulators seized WaMu and sold most of its assets to JPMorgan Chase. (132) The hollowed-out parent company filed for bankruptcy the next day. (133) In 2010 the appeals court remanded for further damage calculations, suggesting the damages should be $63 million more. (134) Shortly thereafter LTW holders began negotiating with the WaMu estate. One group decided to settle and received some cash, some stock in a reorganized WaMu, and some "Run-off Notes." (135) Other LTW holders sued, seeking a declaration of their rights and creditor status above equity holders. In 2012, the court ruled the LTWs were equity, and the litigating LTW holders were assigned such status and their related claims subordinated. (136) As a result of that decision, $337 million in proceeds were released into the estate. (137) 4. Strict Incorporation in the Coast Savings litigation: Trust Certificates Coast Savings Financial took over the failed Central Savings and Loan Association from regulators in 1987, in a deal that involved a $298 million "capital credit" that was wiped out by FIRREA in 1989. (138) Coast filed its goodwill claim in July 1992. (139) The litigation was stayed (while the Glendale/ Winstar litigation worked its way to the Supreme Court), and the case was not scheduled to be tried until 1999 at the earliest. (140) However, in 1997 Coast began negotiating merger terms with H. F. Ahmanson & Co. Again, the litigation's valuation difficulty created hidden costs. As part of the merger agreement executed in October 1997, Coast Savings announced it would spin off the value of its claim immediately pre-merger. Coast effectuated its claim spinoff via a "strict" incorporation approach: it created a trust to receive the value of the claim, the trustees of which controlled the litigation, and then the trust issued contingent payment right certificates to Coast's pre-merger shareholders. The basic structure of the deal was as follows. A trust was formed with certain powers, approximately $20 million (earmarked for litigation expenses), and an asset called "the Commitment. …