Settlements Urged in American Continental Suits
An Orange County judge on Tuesday threatened to halt all pretrial proceedings in lawsuits brought by small investors in Lincoln Savings & Loan’s parent company unless the parties begin talking about settling the cases.
Superior Court Judge David G. Sills told lawyers assembled in his courtroom for pretrial motions that attorney fees alone could reach $100 million if the squabbling over procedural matters continues at a snail’s pace. He ordered lawyers to work up a schedule of settlement talks by April 12.
“I urge everyone to start thinking about settling instead of what I see, which is everyone getting ready for the next motion,” he said.
His comments came as plaintiffs’ lawyers reached a $14.3-million settlement with one of the defendants, a Los Angeles law firm that includes Gov. Deukmejian’s chief fund-raiser, Karl M. Samuelian.
Seven lawsuits filed by investors in American Continental Corp. debt securities have been consolidated for pretrial purposes before Sills. An additional 10 lawsuits are in federal courts in Los Angeles and Phoenix.
The bulk of the investors, about 22,000, bought nearly $200 million in American Continental subordinated debentures--essentially corporate IOUs--at Lincoln’s 29 Southern California branches. Most investors were elderly and many thought that they were moving their money from insured certificates of deposits to similarly insured accounts.
But the investments were not insured, and the debentures became worthless when American Continental filed for bankruptcy last April 13 and federal regulators seized Lincoln the next day. The Lincoln bailout is expected to cost taxpayers $2 billion, making it one of the nation’s costliest thrift failures.
The litigation before Sills has not gone beyond arguments over whether the pleadings are proper. Lawyers have appealed several of his rulings, some to the state Supreme Court.
“At the rate we are going, I think that easily $100 million could be spent in the defense of all these matters,” the judge said. “What is budgeted for attorney fees . . . might well settle all the cases.”
He said he was “seriously thinking” of halting all pretrial activities for two months while the parties sit down with a mediator to discuss settlements.
The fees are being run up by defense lawyers for American Continental executives and for the accountants and lawyers who advised them. Plaintiffs’ lawyers in the class action litigation are paid only out of any settlements or judgments they might win.
Defense lawyers, some of whom shifted in their seats or moaned during the judge’s lecture, contend that they have a duty to raise serious objections to the suit and that rulings favorable to them would end the case quickly.
But Ronald Rus of Orange, one of the plaintiffs’ lawyers, said after Tuesday’s hearing that defense attorneys were simply engaged in stalling tactics to run up their fees and strain the pocketbooks of plaintiffs’ lawyers.
In court, Rus told Sills that the best way to force settlement talks is to set an early trial date because defendants typically don’t settle until they face “judgment day.”
