US Appeals Crt Vacates $908M Award In
Glendale S&L Case
Dow Jones Newswires
WASHINGTON -- A U.S. federal court has vacated a $908.9 million award
to a California thrift, arguing that the legal reasoning for the award was too
speculative.
In a ruling published late Friday afternoon, the U.S. Court of Appeals for the
Federal Circuit said it was sending the award to Glendale Federal Bank,
FSB, back to its trial court, the U.S. Court of Federal Claims, for
reconsideration. Glendale merged with California Federal Bank, the nation's
second-largest thrift, in 1998. The parent company of the thrift is Golden
State Bancorp (GSB).
The case stems from the savings-and-loan bailout of the late '80s. When the
government decided in 1989 to step in to aid the ailing thrift industry, it
withdrew an accounting gimmick called "supervisory goodwill." Previously,
federal regulators had given thrifts some leeway on their required capital levels
through "goodwill" as an incentive for strong S&Ls to buy weaker ones.
But in 1989, as part of the bailout, the government did away with "goodwill,"
hurting the balance sheets of some thrifts, who later sued the government. One
of those thrifts affected by the change was Glendale Federal Bank, FSB,
based in Glendale, Calif., whose award was vacated Friday.
In 1996, the U.S. Supreme Court said the thrifts had the right to sue the
government. The Glendale case had been looked to as a possible precedent
for how damages could be determined in those cases.
In its 20-page opinion, the three-judge panel expressed reservations about the
way the $908.9 million award against the government had been determined
by Senior Judge Loren A. Smith of the Court of Federal Claims.
Smith heard more than 150 days of testimony over a damages trial that lasted
14 months. His decision, however, was criticized by both the government and
the plaintiffs. The government argued it owed Glendale nothing, while
Glendale's lawyers had argued it was due a larger amount than the $908.9
million, already one of the largest awards ever made against the government.
The dispute over damages was essentially over which legal theory should
decide the amounts. But the complex history of Glendale and the disputed
extent to which its business decisions were affected by the withdrawal of
"goodwill" were not cleared up by Smith to the appeals court panel's
satisfaction.
"This case...presents an illustration of the problem in granting restitution based
on an assumption that the non-breaching party is entitled to the supposed
gains received by the breaching party, when those gains are both speculative
and indeterminate," the court said.
"We do not see how the restitution award granted by the trial court, measured
in terms of a liability that never came to pass, and based on a speculative
assessment of what might have been, can be upheld; accordingly we vacate
the trial court's damage award on this theory."
Instead, the Court of Appeals favored so-called "reliance" damages, instead
of restitution. Under that theory, Glendale would be able to collect for losses
actually sustained as a result of its reliance on the government's "goodwill"
policy.
"Reliance damages will permit a more finely tuned calculation of the actual
losses sustained by plaintiff as a result of the Government's breach," the court
said.
Jerry Stouck, a lawyer with the firms Spriggs & Hollingsworth who had
represented Glendale in the damages trial in 1999, said the Court of Appeals
decision was "somewhat disappointing."
However, he said there were "glimmers of real hope" in the court's favoring
reliance damages over Judge Smith's damage formula. He said Glendale could
still recover an award of the same size as the vacated one under the "reliance"
reasoning.
"The fact that the Court of Appeals is pointing the litigants and the lower court
clearly in the direction of reliance is very important," Stouck said.
Stouck is part of plaintiffs' committee overseeing a group more than 100
similar court cases brought by other thrifts.
-Jonathan Nicholson, Dow Jones Newswires; 202-862-9255;
Jonathan.Nicholson@dowjones.com |
