MAXXAM Sues FDIC Concerning the Agency's Letter Agreement With the Office of Thrift Supervision; Misappropriation Violates the Economy Act and the ``Purpose Clause
HOUSTON--(BUSINESS WIRE)--May 31, 2000--MAXXAM Inc. today filed a counterclaim in United States District Court for the Southern District of Texas against the Federal Deposit Insurance Corporation (FDIC) regarding the agency's litigation against the Company and its Chairman and Chief Executive Officer Charles Hurwitz.
The lawsuit challenges the legality of a Letter Agreement the FDIC has entered into with its sister agency, the Office of Thrift Supervision (OTS). Under the terms of this Letter Agreement, the FDIC has used its own funds to finance an OTS administrative proceeding against MAXXAM, Mr. Hurwitz and others over the same set of facts presented by the FDIC in separate federal court litigation. The OTS has agreed to pass on to the FDIC the monies it may recover from these defendants.
MAXXAM's lawsuit requests that the court enter a judgment that: all payments by the FDIC to the OTS are unlawful; the FDIC be enjoined from paying any more monies to the OTS; and MAXXAM be reimbursed its reasonable costs, attorney's fees, and unspecified damages.
"It is clear that the FDIC engaged in jurisprudential gymnastics in order to pursue politically motivated litigation that it knew it would lose in federal court," said J. Kent Friedman, General Counsel of MAXXAM. "The FDIC/OTS Letter Agreement represents illegal and abusive venue shopping, bad public policy, and shameful government behavior."
The FDIC's Politically Motivated Litigation
In August 1995 the FDIC sued Charles Hurwitz for the failure of United Savings Association of Texas (USAT), a savings and loan that went into receivership in December 1988 during the S&L crisis that bankrupted most Texas thrifts.
Prior to filing its lawsuit, the FDIC recognized that its lawsuit lacked merit. A May 1994 FDIC internal analysis concluded that the agency stood "at least a 70%" chance of failing on pretrial motion and, if it survived, that the chances of prevailing on the merits were "marginal at best." Based on the FDIC's own standards that it will not file a lawsuit unless it concludes that it has at least a 50 % chance of success, the agency should never have sued.
Although the FDIC had concluded it had a weak case, it faced extraordinary pressure from politicians and environmental groups to sue MAXXAM and Mr. Hurwitz in order to help other government agencies gain leverage in negotiations with the Company over purchasing old-growth redwood trees owned by one of MAXXAM's subsidiaries. The goal was to create the threat of a "debt" regarding USAT that could be "swapped for nature" owned by the Company. Indeed, prior to the filing of the FDIC's lawsuit, former White House Chief of Staff Leon Panetta told the National Audubon Society that a swap was "worth pursuing" due to "budgetary constraints."
The OTS Shovel Pass
Succumbing to the political pressure and recognizing the inherent weakness of its own litigation, the FDIC entered into the Letter Agreement with the OTS in order to support and finance duplicative litigation.
The OTS' administrative action (filed December 1995) is in effect a suit by the FDIC. It has had the purpose and effect of transferring the FDIC's unlimited resources to the OTS in order to fund the prosecution of civil claims that the FDIC has recognized would likely be barred in federal court. The Letter Agreement has also allowed the FDIC to avoid the substantive and procedural requirements imposed on the agency by Congress and has deprived MAXXAM and Charles Hurwitz of the right to due process and to a jury trial. Indeed, among the reasons cited by the FDIC to justify its arrangement with the OTS is the acknowledgement that "the OTS has a longer statute of limitations."
The financial cost of the Letter Agreement to the United States government is significant. Despite the fact that the OTS claims on its website that "Its expenses are funded entirely through assessments and fees on the institutions it regulates," it has invoiced the FDIC approximately $4 million to date and continues to bill the agency for its work. MAXXAM has spent in excess of $30 million to defend itself against these politically motivated claims
"No Specific Statutory" Authorization for Letter Agreements
Federal laws governing inter agency transfer of funds prohibit the FDIC/OTS agreement and the FDIC has recently acknowledged that Congress has written "no specific statutory" authorization to enter into a Letter Agreement with the OTS.
As a result, the FDIC has violated the Economy Act by, among other things, entering into a contract to obtain the services of OTS to bring an administrative proceeding against MAXXAM and Charles Hurwitz that the FDIC could not have brought itself.
In addition, the Letter Agreement violates the "Purpose Clause" which mandates that appropriations must be applied only to objects for which the appropriations were made. The agency has never been granted the authority by Congress to spend its appropriations on an OTS administrative law proceeding. |
