WASHINGTON - Thrift executives with goodwill claims should keep on smiling.
The consensus among banking attorneys familiar with the issue is that the recent federal appeals court decision opening the door for thrifts to collect up to $15 billion on their goodwill claims should survive an expected Supreme Court review unscathed.
The lawyers said a myriad of factors - ranging from the content of the opinion, court politics, to public policy imperatives - all lean heavily in the industry's favor.
Nearly 100 thrifts or investors in failed thrifts have sued the government, charging it reneged on its promise to allow them to count supervisory goodwill toward their capital requirements for 40 years.
The Federal Savings and Loan Insurance Corp., fearing it would run out of money, made those promises when it enticed healthy thrifts to acquire their failing peers in the mid-1980s.
Congress, wanting to eliminate the accounting gimmick, in 1989 ordered all thrifts to eliminate supervisory goodwill from their books within five years. The decision caused scores of thrifts to fail, prompting stockholders to charge that the government breached a contractual obligation.
In the lead case, the U.S. Court of Federal Claims found in the thrift industry's favor in 1992. A three-judge panel of the U.S. Court of Appeals for the Federal Circuit, however, overturned the decision, ruling 2 to 1 that the government could cancel its contract.
The industry appealed, and the entire 11-judge court then agreed to rehear the case, leading to the victory on Aug. 30.
"It is an extremely strong opinion," said Thomas Buchanan, a partner at Winston & Strawn in Washington. "That fact that it was 9-2 carries a great deal of weight."
"It is a very solid decision," agreed Charles J. Cooper, a partner with Shaw, Pittman, Potts & Trowbridge in Washington who represents Winstar Corp. and several other current and former thrifts in the case. "One of its strengths is that it relies so heavily on Chief Judge Lawrence Smith's extremely lengthy examination of these issues" at the trial court level.
That works in the thrift's favor because the Supreme Court examines the entire procedural history of a case, he said. The justice, then, first would examine Chief Judge Smith's 1992 opinion before reviewing the decision from the U.S. Court of Appeals for the Federal Circuit.
The decisions track each other so closely and leave so few questions unanswered, that the justice would have a hard time ordering a lower court to rethink its decision, he said.
Mr. Cooper added that the Supreme Court does not like to second-guess courts that are experts in various legal issues unless the decisions are clearly unconstitutional.
In this case, the federal claims court and the federal appeals court for the federal circuit are the only courts that resolve contractual disputes between the government and private parties. That makes them experts, he said.
Practical considerations also come into play, said Jerry Stouck, who represents Glendale Federal Savings Bank in the dispute.
"To the extent they want to overturn this decision, the government must make the argument that it need not honor its contracts," said Mr. Stouck, a partner at Spriggs & Hollingsworth in Washington. "That argument is going to be very disquieting to people who enter into conventional government contracts."
Mr. Buchanan also said the government's position appears fundamentally unfair, a point the justices would note. He said that under the government's reasoning, a town could seize a house for a new road without compensating the owner.
"This smacks of the same type of government action and position that really causes people to distrust and hold the government" in disfavor, he said.
Despite the opinion's strength, thrift executives should not start spending their award money yet. Mr. Buchanan said Congress could attempt to draft a bill that addresses the court's concerns without requiring the government to pay out a penny.
"I haven't seen it take any form yet," he said. "But I know it is being batted around there on the Hill."
