A Citigroup savings and loan unit failed to persuade the U.S. Supreme Court to increase a $381 million award against the federal government...
A Citigroup savings and loan unit failed to persuade the U.S. Supreme Court to increase a $381 million award against the federal government for breaking promises made during the thrift crisis of the 1980s.
The justices made no comment yesterday in refusing to review the award, marking the end of a lawsuit filed 15 years ago by Glendale Federal Bank, now part of Citigroup. The company sought to reinstate a trial judge’s award of $909 million, saying an appeals court created “special pro-government rules” in slashing the amount.
The $381 million award, nonetheless, will be the largest payment in 120 related lawsuits filed against the U.S. government. The high court ruled in 1996 that the government breached contracts with Glendale and other S&Ls.
Glendale once owned Seattle-based University Savings Bank. That 25-branch unit was sold to First Interstate Bank in 1995, and First Interstate was sold to Wells Fargo in 1996.
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“All of us are happy that the case has been brought to closure, and at least the plaintiffs will get a significant amount,” said Carter Phillips, who represented Glendale at the high court in Washington, D.C. “It’s been a very long litigation.”
Separately, a federal appeals court yesterday upheld a $134 million award to a unit of Washington Mutual in a fight with the government over takeovers of several thrifts between 1981 and 1985.
The cases all stem from acquisitions of struggling thrifts during the 1980s. The lawsuits say acquirers spared regulators from having to seize the failing institutions and pay off depositors.
The lawsuits originally sought as much as $50 billion before lower-court rulings and years of delay forced investors and lawyers to scale back expectations of a large recovery. As of Feb. 10, the government had paid $132 million in judgments and settlements, with 44 cases still pending, according to Justice Department spokesman Charles Miller.
Judges have awarded more than $1.4 billion, most of it still being contested. More than 50 cases were either dismissed or dropped.
Glendale “was the only one where technicalities were not used to completely annihilate the value” of the lawsuit, said Lars Bader, a portfolio manager at QVT Financial, which in December held almost 25 percent of the special securities that track the litigation.
The Glendale case concerned the bank’s 1981 acquisition of Florida’s First Federal Savings and Loan Association of Broward County. At the time, Broward’s debts exceeded its assets by almost $800 million.
To encourage the takeover, regulators let Glendale create an equal amount of “supervisory goodwill,” a paper asset that would count as cash for regulatory capital requirement purposes.
Congress wiped out supervisory goodwill as part of a 1989 bill that overhauled the industry. The ban sent many thrifts into instant insolvency and forced others, including Glendale, to sell assets.
The 1996 Supreme Court ruling resolved only the question of the government’s liability, leaving the two sides to wage a nine-year fight over damages. Glendale originally sought $2 billion, while the government contended the company deserved only $28 million.
In 1999, U.S. Claims Court Judge Loren Smith awarded $909 million to Glendale, then part of Golden State Bancorp. The U.S. Court of Appeals for the Federal Circuit struck down that award in 2001, telling Smith to recalculate it.
The following year Smith awarded $381 million, saying he believed the amount was too low but that he was bound by the appeals-court decision. “This is not justice,” Smith wrote.
The Federal Circuit then upheld that award, rejecting appeals from both Citigroup, which bought Golden State in 2002, and the Justice Department.
At the Supreme Court, Citigroup argued that the Federal Circuit restricted the legal remedy of restitution, a traditional tool for determining damages in breach-of-contract cases. Citigroup said the appeals court improperly limited restitution to what the Broward County deal cost the company, rather than what it saved the government.
The Justice Department urged the high court to reject the appeal without a hearing. The government pointed to the appeals court’s conclusion that any benefit the government received when Glendale acquired Broward was too “speculative and indeterminate” to form the basis of a restitution award.
Information about Glendale’s ownership of University Savings Bank comes from Seattle Times archives.