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To: Amy Feller who wrote (37)	11/25/1998 12:06:00 AM
From: Amy Feller	Respond to of 43

Golden State's Cal Fed Goodwill Case Gets Boost From Judge Washington, Nov. 24 (Bloomberg) -- Golden State Bancorp Inc.'s California Federal Bank won a partial reprieve from a ruling limiting the damages it can recover in its $1.6 billion ''supervisory goodwill'' lawsuit against the U.S. U.S. Claims Court Judge Robert H. Hodges yesterday said the company can press its claim for the replacement cost of the capital it lost because of a 1989 federal accounting rule change, a Justice Department lawyer said. That marks a shift from the judge's Nov. 12 order in which Hodges said Cal Fed couldn't proceed under its claim for ''expectancy damages'' -- the largest of the three main damage theories being pressed by the California thrift. Replacement cost of capital is one way to prove expectancy damages. Responding to a Cal Fed request for clarification, Hodges said yesterday that he didn't mean to rule out a line of argument focused on replacement costs, said David Cohen, the Justice Department's lead litigator in the 120 supervisory goodwill cases. Hodges' Nov. 12 ruling focused almost entirely on an alternative method for proving expectancy damages, involving proof that the accounting rule change reduced the company's profits. The Washington-based judge said those lost profits claims were too ''speculative'' to warrant consideration. ''His key is speculation,'' Cohen said. ''He wants them to show their out-of-pocket costs.'' Golden State didn't have any comment on the latest decision by Hodges. The ruling could give a boost to special securities, known by their stock tickers CALGL and CALGZ, that are tied to the success of the thrifts case against the government. Those certificates fell by as much as 22 percent after Hodges issued his Nov. 12 ruling. CALGZ certificates rose 1/4 today to close at 13 1/2. CALGL certificates fell 1/8 to 13 7/8. Trial Pushed Back Separately, Hodges pushed back the date of the Cal Fed damage trial more than a month to Jan. 11. That likely will mean the trial won't start until after the claims court's chief judge, Loren Smith, issues a decision in a $2 billion case filed by Golden State's Glendale Federal Bank unit. The Glendale lawsuit is designed to serve as a test case and could influence the direction of the Cal Fed case. Smith has said he hopes to rule by the end of the year. Cal Fed and other litigants charge the government breached contracts it made with S&Ls and their owners during the 1980s to induce purchases of other, failing thrifts. The government said buyers could create a paper asset called supervisory goodwill and count it toward regulatory capital requirements. In 1989, Congress barred the use of supervisory goodwill and spurred a flood of lawsuits. The Supreme Court already has said the government breached contracts, at least in some cases. Cal Fed and others now are trying to prove the U.S. owes them more than $30 billion in damages. Lost profits are a key element in many of those cases. The thrifts say the availability of supervisory goodwill would have freed up capital they could have sunk into money-making investments. Hodges doused Cal Fed's hope of recovering lost profits when he issued a two-page order calling those claims ''particularly speculative.'' That order put him at odds with another judge who had said thrifts could recover profits they can prove they would have earned. Hodges now says Cal Fed might still be able to claim replacement costs, as well as claims that the cancellation of the supervisory goodwill made it a ''wounded bank'' that had to pay more to attract depositors. New Life With those rulings, Hodges breathed new life into Cal Fed's claim for expectancy damages. Cal Fed originally asked for $1.642 billion in expectancy damages, including lost profits. Court documents indicate that a case centered on replacement cost and wounded bank damages could garner Cal Fed about $1.25 billion. The company also is seeking $1.595 billion in ''restitution'' damages and $725 million in ''reliance'' damages. If a judge ultimately awards the company damages under more than one theory, Cal Fed can claim the largest amount. The multiple damages theories also could help Cal Fed on appeal, giving it more ammunition to secure a large judgment if the appeals court strikes down one line of reasoning.