RTC suit against ex-directors is dismissed.

WASHINGTON -- In a case likely to reverberate in other courtrooms where the government is suing managers of failed thrifts, a federal district court dismissed a suit against nine former directors of McLean, Va.-based Trustbank Savings.

The U.S. District Court for the Eastern District of Virginia announced Thursday that it had dismissed a government case against former chairman William L. Walde and other Trustbank directors. The case, Resolution Trust Corp. v. Walde, was filed Jan. 24 in the Alexandria, Va., court, and the decision was dated May 4.

"Holy cow," said Thomas P. Vartanian, a partner at the Washington-based law firm Fried, Frank, Harris, Shriver & Jacobson, when told of the decision.

"The court's decision demonstrates that the courts are loath to allow the RTC to bring claims against directors and officers that theoretically could date back to the inception of the republic," Mr. Vartanian said.

RTC spokesman Steve Katsanos said the court's decision shows that "you can run your institution into the ground through negligence and then cover up your activities and escape through a narrow state statute of limitations that expired five years before the RTC assumed control of the institution."

"This continues a trend of court decisions relying on state statutes of limitations that expired before the RTC even came into existence," Mr. Katsanos said.

Thomas M. Buchanan, the partner at Winston & Strawn who represented Mr. Walde said the court's dismissal will, "make it more difficult for the RTC and the [Federal Deposit Insurance Corp.] to get around the statute of limitations" in similar cases.

"It establishes that where the regulators were aware of the alleged misconduct and the stockholders were on inquiry notice of the alleged misconduct, the statute of limitations will run," Mr. Buchanan said.

Mr. Buchanan said dozens of cases with hundreds of millions of dollars in claims would likely be affected by the Alexandria court's decision.

A lawyer for five other directors in the Walde case, J. Jonathan Schraub, said, "This case sends the government a $1.8 billion message."

That amount represents "similar stale claims that the FDIC and the RTC are pursuing nationwide," said Mr. Schraub, a lawyer with Robins, Kaplan, Miller & Ciresi.

"The more times judges in other jurisdictions see fellow judges take a tough stance against the RTC, it will encourage them to do it," Winston & Strawn's Mr. Buchanan said.

Charges of Negligence

The RTC was seeking $20 million in damages against the Trustbank directors.

The agency charged them with negligence, gross negligence, breaching their fiduciary duty, and violating federal statutes and regulations.

Each count charges that the defendants did not observe careful lending practices or comply with thrift regulations during a series of credit transactions with related entities that are collectively called "EPIC."

The last loan made with EPIC was in August 1985. A month later, EPIC filed for bankruptcy protection and allegedly defaulted on $88 million in principal and interest owed to Dominion Federal Savings and Loan, Trustbank's predecessor.

The $20 million the RTC sought allegedly represents the uncollected amount remaining.

Judge Claude Hilton wrote in his opinion that the thrift disclosed the EPIC losses beginning less than two months after the EPIC collapse and stretching through to Trustbank's receivership.

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