Failed S&L; Runs Up Huge Legal Fees : $8.1-Million Bill One of Highest Incurred, FHLBB Official Says
An outside law firm handling litigation and corporate affairs for American Diversified Savings Bank has run up at least $8.1 million in billings in the 18 months since the Costa Mesa S&L; was seized by regulators.
The huge legal bills from the San Francisco law firm of Pettit & Martin are among the highest ever run up by a failed S&L;, a top Federal Home loan Bank Board official said late last week.
And the size of the fees paid to Pettit & Martin and other law firms involved in handling legal affairs for failed S&Ls; have prompted regulators to look into billings by the private lawyers they hire to augment their own legal staffs.
“A review is in process to check on the fees,” Jack D. Smith, the bank board’s deputy general counsel, said last week. “We’re taking steps to improve our supervision and control of outside counsel.”
$500,000 a Month Billed
Thomas Haupert, the S&L;’s president, confirmed that Pettit & Martin has been billing American Diversified an average of $500,000 a month.
It was unclear late last week if the firm has billed an additional $2.8 million directly to the Federal Savings and Loan Insurance Corp., which acts as conservator or receiver for almost all failed S&Ls.;
A Pettit & Martin spokesman referred inquiries to Haupert.
FSLIC, an arm of the bank board, previously estimated that current litigation involving failed S&Ls; across the country could cost the agency a total of $79 million.
Smith, the agency’s litigation chief, acknowledged that Pettit & Martin’s fees are among the highest paid to any single law firm for work on an institution that has been placed in the bank board’s controversial management consignment program.
He acknowledged that the agency probably pays a premium for legal advice because it usually hires law firms that do not represent S&Ls; or anyone affiliated with a failed S&L.;
Haupert’s disclosure of Pettit & Martin’s legal fees came in response to charges that American Diversified’s founder and ousted chairman, Ranbir S. Sahni, made in an administrative petition to the bank board, seeking removal of FSLIC as conservator of American Diversified.
In the petition, Sahni accused the agency of mismanaging his institution and running up a legal bill as high as $13.5 million. Sahni still owns 96% of the S&L;’s stock.
The S&L; had $1.2 billion in liabilities, $742 million in assets and a negative net worth of nearly $500 million at the end of July.
Haupert denied Sahni’s charge that American Diversified’s assets are being squandered and said the FSLIC seized the S&L; and installed new management to save the institution and its depositors, borrowers and investment partners from haphazard and inadequate management under Sahni.
“This was a very complex and messed-up company that needed a lot of untangling,” he said. “It is fraught with legal problems. Many, many deals had to be restructured and corrected.”
Handles Most of Legal Work
Pettit & Martin had at least a dozen lawyers working full time at the S&L; in the first few months after the takeover. Altogether, 46 of the firm’s 206 lawyers have billed the S&L; for work, Haupert said.
The law firm also is handling all the litigation filed against Sahni and others, as well as defending the lawsuits Sahni has filed against the savings bank and regulators. And the firm hired bankruptcy law experts to represent American Diversified in bankruptcy proceedings involving one of Sahni’s firms.
Haupert said Pettit & Martin’s bill is expected to drop to below $100,000 a month unless Sahni continues filing new lawsuits and new motions in existing litigation.
