Doral Financial (DRL) is painting a dark picture of its future if it is denied a $230 million refund from the Puerto Rican government.

Doral filed a lawsuit Thursday against the territory, claiming the government unlawfully voided an agreement to return taxes the $7.8 billion-asset company claims it overpaid. The lawsuit also lists Puerto Rico's Treasury Department and Melba Acosta Febo, the territory's Treasury Secretary, as defendants.

Doral, while stopping short of warning of its potential failure, used strong language to depict the future if it is denied the refund, warning that there could be "an immediate loss of more than 1,000 jobs" and "the loss of a major lender in the Puerto Rico housing market." Doral had 1,089 employees in Puerto Rico at Dec. 31, according to its annual filing.

The lawsuit, filed in Puerto Rico's Civil Court of First Instance, is an aggressive move that is unlikely to resolve the company's immediate capital concerns, industry experts say. Doral could be angling to reach a settlement rather than engage in prolonged litigation.

"It is part of their fiduciary duty to shareholders to push forward to try and collect it," says Bert Ely at the consulting firm Ely & Co. "They almost had no choice but to sue for that money."

Doral and the Puerto Rican government reached an accord in 2012 to reclassify money the San Juan company claims it over paid in taxes as a prepaid tax asset. Doral pushed for a refund, but the territory's Treasury Department rejected the refund request, stating that the agreement was null for several reasons, including a determination that the refund was barred by a statute of limitations.

The lawsuit claims Doral's constitutional rights were violated and that the defendants "acknowledged that Doral was entitled to a refund" in previous agreements.

Doral needs the capital after the Federal Deposit Insurance Corp. determined earlier this year that the company could not count Puerto Rican tax receivables as part of its Tier 1 capital, putting it in violation of a consent order. The Federal Reserve Board also ruled that Doral must classify the tax receivable agreement as a loss and write off the asset on its balance sheet.

Puerto Rico's Treasury Department defended its decision to deny the refund.

"The Treasury Department believes this lawsuit and the allegations contained within are without merit," Acosta said in a prepared statement. "Doral's request for a tax refund is not valid and its alleged overpayment of taxes never took place. The Department of Justice of Puerto Rico will vigorously defend the Commonwealth against this lawsuit."

The lawsuit won't change the opinion of regulators, industry experts say, adding that the company still needs capital. "Claims in lawsuits are never recognized as capital and Doral's big concern is income and capital," says a banking expert who asked not to be named.

It is unclear how long it could take for Doral to recover the funds through legal channels, says Craig Miller, a partner at Manatt, Phelps & Phillips. Doral could look to settle for less than what it thinks it is entitled, Miller says, which could still help if management tries to raise capital elsewhere.

"It is a hard-hitting strategy, but litigation can be an effective strategy," Miller says. "Clearly they have taken a position that they are owed this money in its entirety and they are willing to take all steps to get it."

Doral has tried to resolve the dispute outside of litigation and continues to be open to those efforts, Matthew McGill, a partner at Gibson, Dunn & Crutcher who represents Doral, said during a conference call Thursday to discuss the lawsuit.

Doral has also waged a public relations campaign over the issue, likely in hopes of swaying public opinion and putting pressure on Puerto Rico to reach a resolution. The company created a website to outline its position and it hired a former Clinton administration official to discuss how the issue could influence mainland and foreign investors.

These efforts could also serve to quell any concerns customers may have about Doral's soundness, Miller says.

That hasn't stopped the company from using dire language in the actual lawsuit, including a claim that it is "already suffering a significant impairment of its capital and losses to its bondholders and shareholders." The filing adds that Doral's reputation and image have also been damaged, weakening its ability to compete.

Doral says in its lawsuit that it continues to seek "strategic transactions aimed at strengthening its capital base, including the sale of certain assets and businesses." The FDIC has given Doral a limited time to shore up capital or provide a plan for its sale or liquidation.

Doral has asked for the court to declare that its 2012 agreement was valid and for reimbursement of attorneys' fees and legal costs. Doral also filed a Writ for Certification asking the Puerto Rican Supreme Court to immediately take up the case, though it could take up to two weeks for a decision on that request.

"This case is about the rule of law and whether the Commonwealth will abide by its agreements," McGill said during Thursday's conference call.

"It has implications not just for Puerto Rican taxpayers who are owed a refund and there are many more than just Doral," McGill added. "It has implications for all investors who are depending upon the Commonwealth's good faith and credit."

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