Claiming that federal regulators had no legal right to seize Irvine-based Lincoln Savings & Loan, the thrift and its parent company Friday filed suit to regain possession and control of Lincoln’s operations.
In suits filed separately by Lincoln and American Continental Corp., attorneys claim that the Federal Home Loan Bank Board exceeded its authority by putting the S&L; in a conservatorship April 14.
The suits ask the U.S. District Court in Washington to remove the conservator--the bank board’s Federal Savings and Loan Insurance Corp. unit.
“The conduct by the government in this case was outrageous,” said Donald B. Craven, one of American Continental’s Washington lawyers.
The takeover of Lincoln came a day after Phoenix-based American Continental filed a U.S. Bankruptcy Court petition for protection from creditors while it reorganized under Chapter 11 of federal bankruptcy laws.
The bank board said it seized Lincoln because the parent firm was dissipating the S&L;'s $5.3 billion in assets and operating it in an “unsafe and unsound” manner.
But American Continental and Lincoln claim in their lawsuits that the statutory conditions for appointing a conservator did not exist at the time of the takeover. The primary requirements permitting a regulatory seizure are the insolvency of the institution or a finding that it is being operated in an “unsafe and unsound” manner.
Delays Weakened S&L;
They also accuse the bank board of acting in bad faith in examining Lincoln’s financial condition for the last few years and in unreasonably stalling the proposed sale of the S&L; to a group headed by former U.S. Rep. John H. Rousselot.
Delays in reviewing the Rousselot sale, along with public disclosures of the S&L;'s condition, financially weakened the S&L; and American Continental, according to the suit. The delays also made the S&L; and its parent suspicious that the board was trying to force the company “to take some action, such as filing for bankruptcy, that could serve as a pretext for placing Lincoln in conservatorship,” the suit said.
A bank board executive denied the general allegations contained in Friday’s lawsuits.
“We believe the facts will support the actions we’ve taken,” said Karl T. Hoyle, a bank board spokesman.
Hoyle said the board was “more than fair” because it threw out a critical report on a two-year examination of Lincoln’s financial condition so a new team of examiners could take “an independent look.”
He also said the bank board met “up to the 11th hour” with Rousselot but that the former congressman’s group was “short on one simple item without which we can’t do a deal, and that’s called cash.”
The lawsuits, though, claim that the bank board was not an impartial decision maker in the last examination.
‘Shocked’ by Comments
Persistent leaks by regulators of confidential information about the S&L;'s financial condition, the suits say, injured the S&L; and demonstrated the bank board’s bad faith.
At a breakfast meeting on March 17, the suit states, Rousselot and “an ACC representative” were “shocked” to hear comments made by Roger Martin, one of the three bank board members.
Martin said the application to buy Lincoln had to be “as attractive as possible” because the bank board’s staff was pushing the board to put Lincoln into conservatorship, according to the suits.
Though Martin said he hoped a sale could be approved, “he acknowledged that it would be politically expedient for the board to bow to staff pressure and to establish a conservatorship,” the suits say.
Martin, who is not named individually as a defendant, could not be reached Friday for comment.