Compton Family Claimed Actions Ruined Furniture Business : Union Bank Agrees to Settle Lender-Liability Lawsuit

Union Bank has agreed to settle a lawsuit involving claims by a Compton family that California’s fifth-largest bank ruined the family’s furniture-manufacturing business, an attorney for the family and court records disclosed Thursday.

The agreement to settle the lender-liability case was reached Wednesday, just before a Los Angeles Superior Court jury was scheduled to consider awarding punitive damages to the family.

The jury already had decided the case in favor of Contempo Metal Furniture and the family of the late Louis Schuster, owners of the defunct company. Last Friday, the jury awarded compensatory damages of $12.5 million to the business and various family members. Schuster died last November.

Compensatory damages are designed to cover actual losses. In the second phase of the trial, the jury was to consider punitive damages, which are supposed to serve as a deterrent.

The family was seeking an additional $20 million in punitive damages. But lawyers for the bank and family reached an agreement to settle out of court before that phase of the trial started.

A. Barry Cappello, a Santa Barbara attorney who represented the Schusters, refused to disclose how much money the family will receive. He said the bank asked that the settlement terms be kept confidential.

“Our clients are delighted with the settlement,” said Cappello, a pioneer in the growing lender-liability field in which borrowers are suing banks when they believe that the lenders contributed to their financial problems.

A spokesman for Union Bank said, “We think it is a good settlement.”

The events that led to the lawsuits occurred before Los Angeles-based Union Bank was acquired last year by California First Bank in San Francisco.

The case stemmed from the closing of Contempo Metal Furniture in Compton in 1985. The bank contended in a lawsuit that the Schusters had mismanaged the company and caused its failure. The family filed a countersuit charging that the bank had forced them to hire two outside consultants who were responsible for the collapse.

The family’s suit said the bank failed to disclose that one of the consultants was a personal friend of the bank loan officer on the account and that the bank misrepresented the qualifications of the consultants.

The consultants, William M. Leider and Jerald C. Murphy, were named in the family’s countersuit but they settled their portion of the case two days after the trial began in late December.

Steven E. Young, the attorney for the consultants, said their settlement did not contain any admission of wrongdoing and they did not pay any money to the Schusters. “They have categorically denied any wrongoing, but they could not afford to continue to defend this case,” said Young, who added that settlement talks had begun before the start of the trial.

According to court documents, Contempo was founded in the early 1960s by Louis and Edythe Schuster. It was a profitable, family-run business until 1979, when a recession in the industry led to its first loss. The losses continued into 1982.

Robert Schuster, who had been running the company for his father, introduced a new line of furniture in mid-1982, which he felt guaranteed a return to profitability. He sought a $200,000 line of credit to finance the manufacture of the new line from Union Bank, where the company had banked for years.

The family’s lawsuit said a bank loan officer, James Goswiller, said the loan would not be approved unless outside consultants were hired and recommended the new investment.

The suit said Goswiller, now a senior vice president at the bank, suggested hiring Leider and Murphy without disclosing that he was a personal friend of Leider’s. The suit also said bank officials inflated the qualifications of the consultants.

Over the next two years, the consultants took control of the company, received stock in Contempo and excluded the Schusters from the decision making process, the family’s suit said.

The company’s debt to Union Bank rose to $3.2 million, and Contempo was closed in late 1985 after Union Bank foreclosed on the loans and sold the company’s assets at auction.