The Justice Department has appealed a nearly $1 billion award granted to Glendale Federal Bank in a landmark regulatory goodwill case.
The government, which is fighting more than 100 similar cases, called the damages wildly disproportionate to any loss. In a brief filed Monday in the U.S. Court of Appeals for the Federal Circuit, the Justice Department added that the trial court committed fundamental legal errors in calculating Glendale's damages.
Glendale was awarded $909 million in April by the U.S. Court of Federal Claims, which said the government was liable for damages because it changed the rules on how thrifts may account for acquisitions of failing institutions. Until 1989, thrifts could write off over 40 years the negative net worth of acquisitions.
That capital is known as regulatory goodwill. But Congress eliminated that allowance, spurring as many as 120 thrifts to sue the government for breach of contract. Glendale filed its suit in August 1990.
The Justice Department argued that Glendale should get only $24.235 million, enough to cover the cost of replacing the goodwill on its balance sheet.
The government contends that the claims court gave Glendale two mutually exclusive awards -- one that would place its finances where they would have been had goodwill continued to be permitted, and one that would compensate Glendale for costs incurred because of removal of the goodwill.
A court may not confer a windfall on a plaintiff by granting both forms of relief simultaneously, the government's appeal stated. It added that Glendale's claims were based upon wholly speculative expert testimony.
Glendale's parent company, San Francisco-based Golden State Bancorp, has until mid-September to respond.
A spokeswoman for the company declined to comment on the government's filing.
The government is also expected on Tuesday to appeal a $23.3 million award in a similar case involving Golden State's lead subsidiary, California Federal Bank.
The Glendale case stems from its 1981 agreement with the Federal Savings and Loan Insurance Corp. to buy a failing thrift, First Federal of Broward County in Florida. Broward's liabilities exceeded its assets by $734 million.
Glendale claims the government's reversal regarding regulatory goodwill caused it to become undercapitalized.
As a result, it sold profitable businesses to get its capital ratio back into compliance. Glendale also argues that it saved the government the cost of liquidating Broward.
The claims court awarded Glendale more than $500 million to restore the pre-contract status quo, coupled with nearly $400 million to compensate the thrift for costs supposedly incurred because of the breach.
In its appeal, the Justice Department said the court could award one or the other type of damages, but not both. Under basic contract principles, Glendale could seek either to be placed in the position it would have occupied had the contract been fully performed or to be returned to the position that it would have occupied if the contract had not been entered, the government brief states.
The government argued that the claims court should have calculated restitution in accordance with Glendale's losses.
Had it done so, no restitution would be due, for the court found that Glendale did not prove that it paid any of Broward's excess liabilities and, in fact, realized a multimillion-dollar net gain from its ownership and operation of Broward, according to the brief.
Glendale sold Broward in 1994 and made $288.3 million from the sale.?
