American Continental to Drop Suit

Under pressure to cut its legal expenses, the bankrupt parent firm of Irvine-based Lincoln Savings & Loan said Wednesday that it will dismiss one of three lawsuits it has been pursuing against federal regulators.

American Continental Corp. in Phoenix said it will dismiss its $200-million claim against five current and former federal thrift regulators, including Edwin J. Gray, over alleged unauthorized leaks of confidential information that hurt Lincoln’s operations.

Regulators seized Lincoln last April, a day after American Continental filed for bankruptcy protection. The bailout of the insolvent thrift is expected to cost taxpayers $2 billion.

U.S. District Judge Richard Bilby, who recently took over the bankruptcy case, had urged American Continental to give up its suit on the alleged leaks to preserve its assets.

In January, the last month for which it has figures, American Continental spent $1.6 million on attorney fees, $1 million of it on corporate matters and the rest on fees for the creditors committee and the court-appointed examiner.

The company’s portion of the fees was unusually high because lawyers spent a week in Washington in an evidentiary hearing on American Continental’s suit against regulators challenging the seizure of Lincoln, said James J. Feder, a Los Angeles lawyer for American Continental.

The company’s third suit against the government is pending in the U.S. Claims Court in Washington and seeks $500 million for the alleged wrongful taking of private property.

Feder said the company will ask Bilby to dismiss the suit concerning the alleged leaks without prejudice, which means the company could refile the suit later if it has the resources.

One defendant in the case was Gray, the former head of the Federal Home Loan Bank Board whose allegations of political pressure wielded on behalf of Lincoln sparked investigations by the Senate Ethics Committee and the House Banking Committee. Other defendants named were bank board officials Darrel Dochow and William K. Black and Federal Deposit Insurance Corp. officials Wayne Powers and David McDougall. The decision to dismiss the suit comes as Bilby was to rule on whether the five regulators were immune from litigation because they were acting within the scope of their duties. Regardless of which way the judge would have ruled, Feder said, the losing side would have appealed, and no trial was in sight for some time.

“We’ve got admissions that they did it,” he said. “We just can’t pin down who did it and with malice they did it.”

Regulators have admitted publicly that staff members leaked confidential information and that the leaks hurt Lincoln financially.