For the first time in the nine-year battle over regulatory goodwill, the government has opened the door to a settlement.
Writing to Coast Savings Financial Inc. and several other thrifts last week, the Justice Department floated a deal to resolve claims arising from so-called capital credits.
The Federal Savings and Loan Insurance Corp. issued capital credits in the 1980s to entice healthy thrifts to acquire ailing peers. The agency said thrifts could permanently count these notes as capital.
Capital credits differ from traditional regulatory goodwill claims, which are based on the government's promise to allow acquiring thrifts to count the difference between the ailing institution's assets and liabilities as capital for up to 40 years.
However, the government has treated capital credit and goodwill claims identically. Lawyers estimated that capital credits comprise less than a quarter of the $20 billion in damages being sought in the 120 breach of contract suits against the government.
In its offer to Coast Savings, Justice said "it may be productive" for the parties to discuss a settlement or send the dispute to an arbitrator. But Justice said it would first need details on the thrift's claim and its damages theory.
A Justice Department spokesman declined to comment on the letters or identify the thrifts that received them.
Lawyers involved in the goodwill litigation questioned the government's motives. Rosemary Stewart, a partner in the Washington office of the Spriggs & Hollingsworth law firm, said Justice is merely trying to get these thrifts to reveal how they are calculating potential damages.
"I don't believe this is serious," Ms. Stewart said. "If it really wanted to settle, it would make an overture with its view of how much they want to pay."
"I can't understand why they selected those cases," said Ronald Stevens, a partner in the Washington office of the Kirkpatrick & Lockhart law firm. "The damage issue is no different whether it is capital credits or goodwill."
The goodwill cases date back to the 1980s. A nearly bankrupt FSLIC used regulatory goodwill and capital credits to encourage mergers between healthy and weak institutions. Congress voided those deals in 1989, saying they were nothing more than accounting gimmicks.
The decision caused hundreds of thrifts to fail, and dozens more suffered enormous losses. More than a 120 current and former thrifts sued the government for breaking its word. The Supreme Court ruled in 1996 that the contracts were legally binding. It ordered the federal claims court to decide how much these thrifts were owed. The trial in the first of those cases, involving Glendale Federal Bank, is expected to conclude in April, with a decision likely this summer.
The judge in that case, Loren A. Smith, has repeatedly urged the government to settle, saying its case has "little or no basis in law, fact, or logic."