Magazine article American Banker

Plaintiffs' Lawyers Cheer $909M Goodwill Award

Magazine article American Banker

Plaintiffs' Lawyers Cheer $909M Goodwill Award

Article excerpt


Though Glendale Federal Bank won less money than expected in its regulatory goodwill case, the federal judge opened the door to hefty awards for dozens of thrifts pressing similar complaints.

"This ruling raises the stakes for the government significantly," said Richard Macary, an analyst at Collectibles LLC, an investment consulting firm in New York.

Mitchell R. Berger, a plaintiff's attorney and partner in the Washington office of the Patton, Boggs law firm, said it will be tough for the government to continue arguing in other cases that thrifts were not harmed by the loss of goodwill.

"This is the second-largest damages award against the government in claims court history," he said. "It has to be a wake-up call to the government that they could not have breached 120 contracts without causing any damages at all."

The Glendale decision Friday was the first damages award in the more than 100 pending regulatory goodwill suits, which stem from the government's 1989 decision to eliminate a favorable accounting treatment granted to acquirers of ailing thrifts. The suits collectively seek more than $20 billion.

Glendale had requested $2 billion in damages, but Judge Loren A. Smith of the U.S. Court of Federal Claims cut that roughly in half by rejecting the thrift's bid for "lost profits," which is the amount it could have made if the government had kept its word.

Though Judge Smith endorsed the lost-profits argument in concept, he said that conflicting statements by Glendale's witnesses and weaknesses in its model of future earnings made its claim "too speculative."

Lawyers involved with goodwill cases were elated because the judge said other thrifts may have valid lost-profit claims.

"Friday was a good day for the good guys," said Charles J. Cooper, a partner in the Washington law firm of Cooper, Carvin & Rosenthal. "The judge was quite clear that lost profits is not only a legitimate theory of damages but the preferable theory of damages."

"This leaves lost-profits damages wide open," said Don S. Willner, a partner in the Portland, Ore., law firm Willner, Keaney & U'Ren.

Only five other cases have progressed very far, including one by California Federal Bank, San Francisco. It is awaiting a ruling in its $1.6 billion goodwill suit, about half of which is for lost profits.

Even assuming thrifts are not compensated for lost profits, the eventual court rulings could result in a significant jump in per-share earnings, said Salomon Smith Barney analyst Thomas O'Donnell.

Using Judge Smith's reasoning to estimate the after-tax per-share value of goodwill claims, Mr. O'Donnell said the two big winners are Astoria Financial Corp. and Dime Bancorp., which are expected to earn an extra $11 and $5 a share, respectively.

The ruling also will benefit the scores of failed thrifts without lostprofits claims, said Rosemary Stewart, a partner in the Washington office of the Spriggs & Hollingsworth law firm. These thrifts are seeking the same type of compensation the judge granted Glendale, she said.

The judge said the government must pay Glendale what the Federal Savings and Loan Insurance Corp. would have spent if it had been forced to rescue First Federal Savings and Loan of Broward County, Fla. The judge also granted Glendale "reliance" damages, which is reimbursement for costs such as higher deposit insurance premiums. …

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