WASHINGTON -- To reverse a multimillion dollar judgment, the Federal Deposit Insurance Corp. plans to appeal a lawsuit stemming from its resolution of the failed First Republic Bank Corp.

Accusing the FDIC of "highhanded and cavalier conduct," U.S. District Judge Joe Kendall concluded that the FDIC, in conjunction with NationsBank, unlawfully breached a long-term lease signed by First Republic Bank.

NationsBank bought the failed First Republic from the FDIC in 1988. NationsBank was then named NCNB Texas.

Judge Awards Damages

In a stinging 55-page opinion, Judge Kendall awarded the real estate company direct and consequential damages of $43.6 million, punitive damages of another $43.6 million, and interest expenses of about $27 million as well as legal costs.

Of that $114 million total, FDIC and NationsBank are jointly on the hook for $43.6 million while NationsBank alone is responsible for the punitive damages.

NationsBank, with help from the FDIC, first bullied the building's landlord, Burnett Plaza Associates, and eventually illegally broke the lease, according to the May 12 court ruling.

Case Tried in Texas

The case, Burnett Plaza Associates v. NCNB Texas National Bank and the FDIC, was tried in the U.S. District Court for the Northern District of Texas, Dallas division.

"There is a strong likelihood that we'll appeal," FDIC spokesman Alan J. Whitney said Thursday. Mr. Whitney refused to discuss the case any further. NationsBank spokeswoman Martha Larsh would not comment.

In March 1988, the FDIC bolstered First Republic with a $1 billion cash infusion. In July, the agency sold 20% of the bank to NationsBank. By the yearend, NationsBank had bought out the FDIC's ownership.

Assurances of Protection

While First Republic was being bailed out, the FDIC put out press releases and other memos noting that all depositors "and other general creditors of First Republic's banks will be fully protected."

The court found "Burnett was lulled into a false sense of security by the FDIC's actions and very publicized statements," according to the opinion.

Judge Kendall ruled that the FDIC, as part owner, conspired with NationsBank to pressure Burnett Plaza Associates into cutting back the length and cost of the lease on the First Republic building. Burnett refused, and eight months after selling First Republic to NationsBank, the FDIC broke the lease.

Burnett sued FDIC and NationsBank in 1989 for $70 million.

Delay Called Outrageous

"The FDIC's eight-month delay is outrageous," the judge said. "The FDIC may not use the repudiation power, or conspire with, allow, and as here encourage others to intimidate landlords."

NationsBank "intentionally and with reckless disregard to Burnett's rights acted jointly with the FDIC to abuse the otherwise legitimate disaffirmance power," Judge Kendall said.

The FDIC plans to file its appeal in the U.S. Court of Appeals for the Fifth Circuit. No final judgment has been entered in the case. Once that happens, the FDIC will have 30 days to file its appeal.

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