By Simon, Vic
American Banker , Vol. 158, No. 5
Tom Hindes may well be right.
The head of professional-liability cases for the Resolution Trust Corp. says his agency and the Federal Deposit Insurance Corp. have struck about the right balance in choosing whom to sue and whom not to. And the record seems to bear him out.
Mr. Hindes notes persuasively that the two agencies are under criticism both for suing too many people and suing too few.
On one side are Senate Banking Committee Chairman Donald Riegle, D-Mich., other congressional Democrats, and several former RTC professional-liability lawyers, who say the agencies are letting off a lot of people whose incompetence or wrongdoing contributed to the thrift debacle.
View of the Critics
On the other side are Sen. Phil Gramm, R-tex., and Sen. Pete Domenici, R-N.M., other congressional Republicans, and many defense lawyers, who contend that quite a few cases are based largely on hindsight, and that the blurry line between what's legal and what's not is a major reason for the credit crunch. The issue is of considerable interest to the banking industry and the general public.
It has been widely assumed that millions of people want those who are responsible for the S&L crisis punished. But whether the public wants a lot of gray-area wrongdoers punished, when that may affect the willingness of banks to lend and consequently slow the economic recovery, is another question.
How have the courts responded? From the August 1989 enactment of FIRREA, which toughened banking regulation and created the RTC, until quite recently, the story was largely a victory train for the government.
But with last year's flood of newly filed RTC cases, and the many older FDIC and RTC cases in the pipeline, federal judges are taking a closer look, trying to sift the cases against real bad guys from those that are regulatory overkill.
Some Hope for Defendants
Though the government still wins most decisions, there are enough victories for the defense -- or partial victories -- to tell defendants to keep fighting if they believe they are wrongly charged or the government is asking for more than they can pay.
There is tremendous ferment in this field, with an important decision almost every week.
Like Congress and the public, the courts are searching for perspective on FDIC and RTC professional-liability suits.
What follows is a review of how the courts are ruling on specific, contentious issues and the problems the courts will face regardless of how they rule on these issues.
This review is limited to FDIC and RTC cases in court. It does not examine administrative enforcement actions.
The Older Cases
The statutes of limitations are a recurring problem in older cases. One limitation is that the FDIC and RTC have three years to file a suit after an institution fails. They are generally able to meet these deadlines, though by just a few hours in some cases.
But the trouble arises from a second tier of limitations: the period for filing, under state statutes, must not have expired before the thrift's failure.
The typical pattern in RTC complaints goes like this: questionable loans were made in from 1982 to 1985; the thrift failed in 1989; and the state statute of limitations is two years. Under such rules, the case would appear too old to file.
But under a court-made doctrine known as "adverse domiNation," the state statute is deemed never to have begun running, on the ground that the group that controlled the institution would not have sued itself or its lawyers or accountants.
Victories by the Agencies
The FDIC and RTC have won well over a dozen adverse-domination decisions in the past three years in federal district courts. They have appealed all three cases they lost.
In a September decision by Chief Judge Patrick Kelly of the U. …