Magazine article American Banker

U.S. Fighting $909M Award in a Calif. Goodwill Case

Magazine article American Banker

U.S. Fighting $909M Award in a Calif. Goodwill Case

Article excerpt

WASHINGTON -

The Justice Department has appealed a nearly $1 billion award granted to Glendale Federal Bank in a landmark regulatory goodwill case.

The government, which is fighting more than 100 similar cases, called the damages wildly disproportionate to any loss. In a brief filed Monday in the U.S. Court of Appeals for the Federal Circuit, the Justice Department added that the trial court committed fundamental legal errors in calculating Glendale's damages.

Glendale was awarded $909 million in April by the U.S. Court of Federal Claims, which said the government was liable for damages because it changed the rules on how thrifts may account for acquisitions of failing institutions. Until 1989, thrifts could write off over 40 years the negative net worth of acquisitions.

That capital is known as regulatory goodwill. But Congress eliminated that allowance, spurring as many as 120 thrifts to sue the government for breach of contract. Glendale filed its suit in August 1990.

The Justice Department argued that Glendale should get only $24.235 million, enough to cover the cost of replacing the goodwill on its balance sheet.

The government contends that the claims court gave Glendale two mutually exclusive awards -- one that would place its finances where they would have been had goodwill continued to be permitted, and one that would compensate Glendale for costs incurred because of removal of the goodwill.

A court may not confer a windfall on a plaintiff by granting both forms of relief simultaneously, the government's appeal stated. It added that Glendale's claims were based upon wholly speculative expert testimony.

Glendale's parent company, San Francisco-based Golden State Bancorp, has until mid-September to respond.

A spokeswoman for the company declined to comment on the government's filing. …

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