stake in the goodwill claims now pending before the federal courts. Megabanks, shareholders, and venture capitalists also have vital interests at play. Large banks, including First Union Corp., NationsBank Corp., and Shawmut National Corp., expanded by acquiring thrifts. They managed to retain their goodwill claims despite the Assignment of Claims Act, which generally prohibits an institution from selling its stake in a lawsuit against the government. How did they do it? They used a loophole that allows a company to keep a claim against the government provided it purchases the entire company. For example, Shawmut gets its goodwill claim because it bought Northeast Savings. "There is nothing really complex about it," said Vince Colatriano, a lawyer at Shaw, Pittman, Potts & Trowbridge in Washington. When a bank acquires a thrift, it acquires all its assets and liabilities, Mr. Colatriano added, and those assets include any claims against third parties. The situation would have been different if the banks waited for the thrifts to fail, Mr. Colatriano said. The act does not cover piecemeal sales of an institution. Joseph Blalock, an economist who follows goodwill issues for the thrift trade group America's Community Bankers, said banks that bought the assets and liabilities of a failed thrift from the Resolution Trust Corp. can't assert a goodwill claim. "You didn't buy their charter," Mr. Blalock said. "You just bought their assets and liabilities." The shareholders of failed thrifts hold these goodwill claims. Several groups of shareholders are taking advantage of this, filing what is called a shareholders' derivative actions. These investors are acting on the failed company's behalf because the RTC, which was appointed receiver, never filed a claim. The shareholders would be eligible to receive part of any damages awarded. Finally, several venture capitalists are looking for ways to buy goodwill claims, according to people following the cases. These investors hope to get the claims on the cheap, and then profit handsomely if the courts issue large damage awards. "There are people out there looking at this," one lawyer said. "Legally, it is complicated. But I wouldn't rule it out. It is theoretically possible." The complication arises from the Assignment of Claims Act, but the lawyer said investors could get around the law if the government agrees to the purchases. Justice Department spokesman Carl Stern did not return a call seeking comment. The lawyer expressed confidence that even if the government were to object, the investors could find another loophole. "Generally if there are people interested and enough money out there, it can be done," he said. The goodwill dispute began when Congress, reacting to the thrift crisis, passed the Federal Deposit Insurance Corporation Improvement Act of 1991. The law eliminated the accounting gimmick, causing scores of thrifts to fall below minimum capital requirements, and leading to dozens of failures. The thrifts fought back, filing nearly 100 breach-of-contract claims against the federal government. The suits contend the government promised to allow thrifts bailing out their failing peers to keep goodwill on their books for 40 years. The claims languished for years, until the U.S. Court of Appeals for the Federal Circuit ruled Aug. 30 in the thrifts' favor. The court found the government liable, and ordered the U.S. Court of Federal Claims to hold a trial to determine how much the government must pay the institutions in damages. The claims court last Thursday put the case on a fast track, saying it hopes to start the trial within four months. Of course that four-month clock doesn't start until the government exhausts its appellate options. The Justice Department has vowed to take the case to the Supreme Court; it's expected to appeal the case this month. The justices usually accept cases in which the government is on the hook for lots of money. This case - which could cost the government $15 billion - appears to fit that bill. If the justices agree to hear the case, oral arguments would occur in either late spring or early fall.
Access to authoritative analysis and perspective and our data-driven report series.
No credit card required. Complete access to articles, breaking news and industry data.
Have an account? Sign In