New Documents Underscore Political Intentions and Factual Misrepresentations of Banking Agencies in Litigation Against MAXXAM
HOUSTON--(BUSINESS WIRE)--April 6, 2001--A series of new documents recently made available to MAXXAM (AMEX:MXM) through a court order and the Freedom of Information Act provide further evidence that the Federal Deposit Insurance Corporation (FDIC) and Office of Thrift Supervision (OTS) initiated banking litigation against the company and its Chairman Charles Hurwitz in an effort to land grab redwood trees owned by a MAXXAM subsidiary.
The new documents also further demonstrate that the FDIC proceeded with litigation against Hurwitz despite having concluded that its claim lacked merit.
"What is particularly disturbing about these new materials is that they directly contradict numerous public statements made by the FDIC and OTS in the press as well as in sworn testimony before Congress," said J. Kent Friedman, MAXXAM's General Counsel. "With every piece of new information it is more evident that the litigation brought by these agencies is illegally financed and politically motivated."
"Champerty is not a joint interest"
On May 30, 2001 U.S. District Court Judge Lynn M. Hughes entered an order unsealing an exchange of letters between FDIC and OTS attorneys concerning a rarely used litigation funding arrangement.
Under this arrangement, the FDIC is shifting appropriations it receives from Congress to finance duplicative OTS litigation against MAXXAM. The FDIC has never received permission from Congress to fund OTS' litigation and therefore has violated laws governing how federal agencies can spend their appropriations. MAXXAM has filed a counterclaim against the FDIC regarding this misappropriation, which seeks an award of significant damages and attorney's fees. As part of this counterclaim, MAXXAM sought access to the documents unsealed by Judge Hughes.
In his order Judge Hughes wrote, "The documents do not reveal the deliberative process or requests for legal advice. The letters do not show a joint interest in a claim or defense; they show a client with no claim subsidizing a client that may have a claim. Champerty is not a joint interest." (Webster's Dictionary defines "champerty" as "an illegal sharing in the proceeds of a lawsuit by an outside party that has promoted the litigation.")
A review of the documents reveals why the FDIC was concerned that they remain under seal. They demonstrate that FDIC concluded it had "no viable claim" regarding Net Worth Maintenance (NWM). Nonetheless, the FDIC ultimately made such a claim in its litigation. In addition, the documents show that the OTS would not have filed its lawsuit against MAXXAM had it not been for FDIC paying OTS' legal fees and expenses. For instance:
-- On February 4, 1994, FDIC Associate General Counsel Jack Smith
wrote to OTS Chief Counsel Carolyn Buck that concerning Net
Worth Maintenance, the FDIC "staff has concluded that the FDIC
has no viable claim. . . However, the OTS may be able to
pursue a NWM claim. . ." He notes that the matter has
"attracted public attention" from environmental groups and the
Chairman of the House Banking Committee and forwards
information for Buck's review. Smith asks that Buck, "provide
me with your view and any proposals for further action."
-- On March 22, 1994, Buck responds to Smith, "given our present
budgetary constraints, if the OTS were to commence an
enforcement proceeding . . .to recover assets for the benefit
of FDIC, the FDIC would have to make some arrangement with the
OTS to offset the agency's costs for pursuing such a
proceeding."
-- On May 6, 1994 Smith replies, "We understand that OTS faces
severe budgetary constraints and that, as a result of these
limitations, OTS cannot consider issues which implicate a
failed financial institution to be its first priority. The
FDIC is willing to advance to the OTS its costs for attorney
time and out-of-pocket costs . . ."
New Debt for Nature Documents
Days prior to Judge Hughes' order, MAXXAM received under a Freedom of Information Act request previously undisclosed documents from the federal Office of Management and Budget (OMB). These documents detail a series of meetings among a multitude of federal and executive branch agencies during 1995 and 1996 in which the FDIC's and OTS' litigation was discussed.
These documents contradict sworn testimony made by the FDIC and OTS before a recent House of Representatives Resources Committee Task Force that investigated the activities of the agencies in seeking to force a so-called debt-for-nature swap. Under such a swap, MAXXAM would exchange redwood trees owned by a company subsidiary in exchange for relief of alleged debt owed to the banking agencies as part of their litigation. MAXXAM has long contended that it was the federal government's desire for a debt-for-nature swap that instigated the FDIC's and OTS' litigation.
During the Task Force hearing, FDIC General Counsel William Kroener stated, "The facts simply do not support the allegation that the FDIC was part of some government conspiracy to break the Headwaters Agreement or force Mr. Hurwitz to relinquish these properties." OTS Chief Counsel Carolyn Buck added, "The only time that a debt-for-nature exchange has been a topic of discussion in the OTS' proceeding is when Mr. Hurwitz and MAXXAM have offered to convey forestland belonging to the Pacific Lumber Company in settlement of OTS' claims." OTS Director Ellen Seidman further testified that the OTS' litigation "is entirely separate from the FDIC's litigation."
The new OMB documents suggest a very different picture. Coordinating with other federal agencies, the FDIC and OTS developed a strategy that called for the filing of duplicative litigation. This two litigation front strategy would strengthen the government's leverage in debt-for-nature negotiations with MAXXAM, which would commence after OTS filed its litigation. The timing of the meetings is also striking as they mostly occur between the filing of the FDIC's lawsuit in August 1995 and the filing of OTS' lawsuit in December 1995. For instance:
-- On October 20, 1995 an interagency group comprised of
representatives from the FDIC, the White House Council on
Environmental Quality, OMB, Department of Interior, United
States Forest Service, and Department of Justice met to
discuss debt-for-nature. The FDIC's attendees included Mr.
Kroener.
According to the notes of an OMB official present at the
meeting "OTS may file a claim -- potential claims slightly
larger -- $500m (include interest)? Some overlap with FDIC
claim (almost fully overlap)." In addition, the notes reflect
that Assistant Secretary of the Interior George Frampton
stated "the reason we want to exchange the claims in the first
place is we don't have the cash." These notes also record
"risk of litigation is what's driving the issue now -- if FDIC
loses then pressure is off."
-- On October 26, 1995 the debt-for-nature interagency group met
at the FDIC's offices. The Treasury Department, of which the
OTS is a part, also sent a representative to attend the
meeting. OMB's notes reflect that the group believed there was
a "need to open dialogue w/ Hurwitz soon."
-- On November 28, 1995 the interagency group met with Mr.
Kroener again in attendance. An OMB document indicates that
the banking agencies had established a coordinated litigation
strategy to advance debt-for-nature. "OTS claims would go
first (before FDIC's). Administrative proceeding v. Federal
District Court proceeding. FDIC/OTS to open discussion (after
OTS files)."
-- On December 1, 1995, an OMB memo entitled "FDIC - debt for
nature swap" summarized the events of the November 28 meeting:
"The consensus at the meeting is that negotiations with
Hurwitz could probably start after the OTS suit is filed. The
next interagency group will be after the filing of the OTS
suit."
-- On January 16, 1996 Julie Sonier of the OMB sent an e-mail to
Elisabeth Blaug of the White House Council on Environmental
Quality inquiring about the "progress" of a debt-for-nature
swap and if "the idea is still alive?" Blaug replies,
"Definitely. OTC (sic) filed its lawsuit against
Hurwitz/Maxxam about a week and a half ago, so OTC (sic) and
FDIC are hopefully meeting today to discuss the next step of
opening exploratory discussions with Hurwitz."
Bureaucraticshellgame.com
Copies of all of the documents referenced can be viewed on MAXXAM's website dedicated to information about the politically motivated and illegal litigation of the FDIC and OTS -- www.bureaucraticshellgame.com. |
