Dow Jones Newswires
WASHINGTON -- A federal court ordered the U.S. government Friday
to pay $908.9 million in restitution and damages to a California thrift
in a
case with broad implications for similar lawsuits arising out of the 1980s
savings and loan rescue.
The case, brought by Glendale Federal Bank, was sent to the claims court
after a 1996 Supreme Court decision that found the government could be
held liable for the equivalent of breach of contract. The Supreme Court
found the government violated contracts with Glendale and others when it
changed regulations that effectively revoked accounting advantages it had
used in the 1980s to induce healthy thrifts to take over failing savings
and
loans.
The ruling by the U.S. Court of Federal Claims could add billions to the
federal government's price tag for cleaning up the nation's battered thrifts
a
decade after Congress allocated more than $100 billion for it. A number
of
related suits have arisen over a 1989 accounting-rule change that brought
financial harm to thrifts that acquired weak S&Ls before the regulations
were altered. The rule change was part of the law that provided funds to
close insolvent thrifts.
Friday's case brightens the prospects for another 120 thrifts to go forward
and press their claims for billions of dollars in damages.
The U.S. Court of Federal Claims judge in the
case also urged litigants with those similar
claims to try to settle instead of continuing to
fight it out in court.
"The court strongly believes that settlements, where fair compromise
occurs, are in everyone's interest. The court calls upon all parties involved
in pending cases to consider what alternatives, short of continuing litigation
over the coming years, may resolve these cases fairly," said Chief Judge
Loren Smith in a 25-page opinion issued late Friday.
The thrifts claim the government broke promises made to them when they
agreed to acquire a number of insolvent institutions in the 1980s. At the
time, the government didn't have the money to liquidate the sick thrifts
and
pay off insured depositors. It offered prospective buyers a profusion of
tax
breaks and accounting gimmicks that enabled them to keep the ailing
institutions afloat. In essence, the government enabled the thrifts to
pretend
to have capital they didn't have.
However, in 1989, Congress took away that leeway, called "supervisory
goodwill," which resulted in many of the merged thrifts becoming
technically insolvent.
The issue took several years to wind through the court system until the
1996 Supreme Court decision. The Glendale was the first case to reach
the damages phase and saw extensive concentration on how to calculate
damages to the thrifts.
Glendale, which merged with San Francisco-based California Federal
Bank in September 1998, said it suffered damages of up to $2 billion from
the policy change. It claimed the change caused it to incur heavy losses
on
asset sales that it was forced into to raise new capital.
The Justice Department issued a brief statement after the decision's
release. "We are currently reviewing the decision. We remain confident
in
our position and look forward to a fair and expeditious resolution of all
the
... cases. The Glendale case is one part of this process," it said.