WASHINGTON - Glendale Federal Bank is still waiting for an answer.
It's been a year since the giant California thrift tried to persuade a federal court here that the government should pay $1.4 billion in damages for reneging on a deal.
Glendale and about 100 other healthy thrifts agreed in the late 1980s to take over failing savings and loans in exchange for the right to count goodwill, an intangible asset, as capital for up to 40 years.
Rather than pump cash into the insolvent institutions, the government adopted the accounting trick. About $25 billion of supervisory goodwill was granted.
But in 1989 Congress forced the acquirers to write off the goodwill much faster.
The U.S. Court of Appeals for the Federal Circuit heard Glendale's supervisory goodwill case on Feb. 10, 1994. While court rulings can take up to two years, most are out within eight months.
As they wait for a decision, Glendale's executives have been trying to hammer out a settlement with the government.
"We continue to hope that the government will recognize the futility of its position and limit the taxpayers' potential liability by accepting our invitation to negotiate a settlement," said Stephen J. Trafton, Glendale's chairman and chief executive officer.
Glendale's case is important because it could set a precedent for at least 40 similar cases against the government. In addition, if Glendale wins, other thrifts - or investors in failed thrifts that had supervisory goodwill - may be prompted to sue the government. The statute of limitations on such cases runs out on Aug. 9 - the sixth anniversary of the thrift-bailout law.
Since Glendale argued its case, there have been two developments that may help the nation's sixth-largest thrift.
First, in June, the U.S. Court of Appeals for the 10th Circuit in Denver ordered the government to pay thrift investors $6 million in damages. The case, which mirrored Glendale's, involved the Resolution Trust Corp. as conservator for the failed Security Federal Savings and Loan Association. The 10th circuit was the first federal appeals court to issue a supervisory goodwill decision on a case where a thrift sought money from the government. The government is not appealing the decision.
Second, in late November, the U.S. Court of Appeals for the District of Columbia Circuit pulled the rug out from under one of the government's key arguments in Glendale.
The government had used a 1991 case in which the appeals court allowed the government to seize a subsidiary of Transcapital Financial Corp., even though the Ohio thrift had a goodwill case pending.
But in November the court clarified that thrifts or their investors have the right to sue the government for damages in a goodwill case, even though they can't force the government to keep insolvent thrifts open.
"The frustration of having to wait so long for a decision has been tempered by the fact that developments in related cases make it increasingly difficult for the government to prevail," Mr. Trafton said.
Even if Glendale wins its case at the federal appeals court, the thrift must return to a lower court for a decision on how much the government must pay.
