The government is expected to continue fighting the more than 120 so-called regulatory goodwill cases despite a judge's plea to settle.
"The government isn't even close to talking or thinking settlement," one lawyer involved in the dispute said. "That won't happen until a thrift wins a big damages award which is upheld by the Supreme Court."
"I would expect the government to continue to try to take advantage of every procedural option and obstacle available to them," said Jerry Stouck, a partner at the Washington law firm Spriggs & Hollingsworth.
Justice Department officials have steadfastly refused to comment on the cases or the judge's admonitions.
The disputes stem from Congress' decision in 1989 to eliminate regulatory goodwill, a favorable accounting treatment that a nearly bankrupt Federal Savings and Loan Insurance Corp. used to entice healthy thrifts to acquire their ailing peers. Removing of goodwill prompted the thrifts to sue for breach of contract.
Late last month Chief Judge Loren A. Smith of the Court of Federal Claims accused the government of stonewalling the lawsuits by raising "arguments that have little or no basis in law, fact, or logic."
He then said the government has a "moral obligation" to compensate the plaintiffs, most of which are investors of thrifts that failed after they lost goodwill.
The judge tried to expedite a settlement by rejecting 11 of the arguments that the Justice Department has used to claim the agreements between the thrifts and the government are not valid contracts. His ruling means that the 120 plaintiffs will not have to separately litigate these 11 defenses, a process that could have taken a decade or more.
"The worry wasn't that you would lose," Mr. Stouck said. "It was that you would have to take each case to trial."
In nearly half the cases, the government had argued that the contracts were void because the thrifts never received an assistance agreement, which is a legal promise by the government to pay for part of the costs of a merger between healthy and ailing thrifts.
Judge Smith ruled that assistance agreements have no bearing on whether a valid contract exists. Instead, he said, the court will look at whether the government used goodwill to entice the healthy thrift to acquire the ailing institution.
The judge also rejected the government's contention that only contracts approved by regulators in Washington were valid. This issue was raised in about a third of the cases, all of which involved goodwill contracts worked out between thrifts and regional Federal Home Loan Bank Board officials. Judge Smith said the Supreme Court already has ruled that the bank board was authorized to let regional administrators enter into regulatory goodwill deals.
The judge also ruled that regulatory goodwill contracts are valid even if the government entered into a forbearance agreement preventing regulators from shutting down the thrift for up to five years. The government had claimed that the terms of forbearance contracts superseded the terms of goodwill contracts. This would have permitted the government to eliminate goodwill after five years.
Judge Smith said the government's interpretation was illogical, noting that it would have been "irrational" for a thrift to give up 35 years of amortized goodwill.
If the government cannot raise new arguments in 60 days, the judge said, he will rule in favor of the 120 thrifts. Even if that happens, the thrifts still must prove that the loss of goodwill caused them to lose money. That process could take years. Glendale Federal Bank has been arguing its damages case before Judge Smith for a year and a decision is not expected until summer.
