DALLAS -- Government officials refused Monday to comment on a $3 billion lawsuit filed by First City Bancorporation of Texas, the banking company that was seized by regulators in 1992 after a long struggle to survive.
The bankrupt holding company argued in the lawsuit, filed Friday, that the seizure was illegal. It presented a broad claim that legal experts say may become more common.
The suit seeks up to $2 billion in punitive damages and about $1 billion in ordinary damages from the Federal Deposit Insurance Corp., the Comptroller of the Currency, and the Texas Banking Commissioner.
Broad Claim Seen as Rare
Officials from each agency declined to comment on the lawsuit. Alan Whitney, a spokesman for the FDIC, said broad claims like those filed by First City are relatively rare.
The suit, filed U.S. district court and as part of First City's Chapter 11 bankruptcy proceedings in Dallas, argued that the company was denied due process when regulators seized its 20 subsidiary banks last Oct. 30. Bondholders forced the holding company into involuntary bankruptcy a few days later.
The suit also claimed that the FDIC profited from the sale of First City's subsidiary banks rather than, as was first argued, spending taxpayers' money. The agency is not permitted to profit from bank failures.
When the FDIC seized First City, it estimated the cost of the bailout at $434.4 million. The bank company, however, claimed that spirited bidding for its assets yielded a surplus of up to $480 million that should be returned to it.
Return of |Surplus' Demanded
The suit asks the court to order the return of surplus immediately, to pay damages, and to order the FDIC to account for the assets of the former First City banks.
First City also alleged that federal regulators improperly forced uninsured depositors to accept only an 80% repayment on balances over the federally insured $100,000 limit. The suit asks that the court order payment in full to any depositor subjected to the so-called "haircut."
Bank lawyers said Monday that failed institutions increasingly raise broad legal claims when they fight regulators.
"This is a big deal in a bunch of cases," said Richard K. Kneipper, a partner at Jones, Day, Reavis & Pogue in Dallas. "It's not a claim that's filed lightly. But the government has, in the view of some people, played fast and loose with the rules."
Precedents Hard to Find
He and other lawyers cautioned, however, that because each seizure is unique it is hard to look to one case as setting precedent for another.
Although litigation against regulators is becoming more common, lawyers said the broad sweep of the First City claim -- essentially accusing the government of failing to follow its own rules -- is unique.
The strategy contrasts with that of the defunct Southeast Bank in Florida, for example, which sued the FDIC over several specific points, such as ownership of assets, employee benefits issues, and control of bank documents seized during the government takeover Sept. 19, 1990.
Mark Bloom, a partner at Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel in Miami, the bank's chief bankruptcy lawyer, said a broad claim had not been contemplated. But he said he is watching the First City case carefully. "The process is not complete," he noted.