U.S. court set to rule on first S&L goodwill suit
By Andrew Clark
WASHINGTON, April 7 (Reuters) - U.S. taxpayers who think the savings and loan crisis is dead and buried along with the 1980s could be in for a surprise on Friday.
A decade after Congress committed nearly $150 billion to bail out the teetering thrift industry, a court is expected to rule on the first of a series of damages claims that could eventually add billions more to the cost of the clean-up.
Glendale Federal Bank, a unit of Golden State Bancorp (NYSE:GSB - news), is seeking up to $2 billion from the government at the U.S. Court of Federal Claims in a case being closely watched by about 120 other thrifts that have filed similar lawsuits.
The cases grew out of efforts in the 1980s by federal bank regulators to encourage investors and healthy thrifts to take over failing S&Ls by allowing them to circumvent normal capital requirements.
When Congress eliminated this so-called ''regulatory goodwill'' in 1989, a number of merged thrifts found themselves technically insolvent, some failed and many sued.
In 1996, the Supreme Court ruled in a suit brought by Glendale and two other thrifts that the government had, in effect, breached its contracts with them, sending the cases to the claims court to determine damages.
The Supreme Court decision, which has come to be known as the Winstar ruling after one of the original plaintiffs, has had an impact far outside the savings and loan arena.
Firms in the nuclear power industry, electric utilities, telecommunications companies and public housing developers have subsequently threatened or launched lawsuits for damages they claim to have suffered from changes in government policies.
''I think the Supreme Court decision does establish a fundamental premise which is that the government, if it is going to enter into contracts with private parties, cannot simply by changing the law effect a breach of those contracts with impunity,'' said Ronald Stevens, the lead trial attorney for Glendale Federal.
''It's going to be treated, as it should be, the same as any other party that breaches a contract,'' said Stevens, a partner at the law firm of Kirkpatrick and Lockhart.
While the total liability from all potential Winstar cases is impossible to quantify and the wider precedent remains largely untested, the Justice Department has estimated that damages in the savings and loan suits alone could be over $30 billion.
Reflecting the sums at stake, the department has fought the thrift claims tooth and nail, spending over $60 million -- a substantial portion of its civil division's total budget -- on the suits in the last year.
And the battle is unlikely to end at the claims court, whatever the ruling in the Glendale matter. Justice Department officials would not comment directly on the case, but say it is a ''fair assumption'' that any damages will be appealed.
The Federal Circuit Court of Appeals could then have the last word on the most contentious area of the lawsuits, whether the thrifts are entitled to reclaim all the profits they calculate they would have made but for the change in the law.
Claims court judges have so far taken different positions, with the judge in the Glendale case allowing evidence in support of a ''lost profits'' award, while the judge in a separate case barred another savings and loan from pursuing such a claim.
''Until the Federal Circuit addresses the issue, you really don't have a resolution of it,'' Stevens said.
The claims court is expected to issue its ruling in the Glendale suit around 6 p.m. EDT (2200 GMT) on Friday, after U.S. financial markets closed. |
