A federal judge on Friday delayed for probably the rest of the year the effort by American Continental Corp. to recoup $24.5 million from creditors--mostly Southern California bondholders--who were paid just before the company entered bankruptcy two years ago.
U.S. District Judge Richard M. Bilby in Tucson, Ariz., ruled that proceedings in 2,100 separate lawsuits the company filed to recover so-called preference payments will be halted until the U.S. Supreme Court decides a similar case. The high court may rule early next year.
The Phoenix-based former parent of failed Lincoln Savings & Loan, through its bankruptcy trustee, had demanded that creditors who received more than $1,000 in the three months before the bankruptcy filing return the money within 30 days after being served with the suits. Such preference payments are commonly sought in bankruptcy cases.
But Bilby's order buys more time for several thousand small investors who were paid a total of nearly $23 million in principal and interest before the company and its main subsidiary, Lincoln Savings & Loan in Irvine, collapsed in April, 1989. Lincoln is the nation's biggest thrift failure to date, costing taxpayers an estimated $2.6 billion.
"I think it's a very wise and fair determination by the court, and hopefully it will provide a little peace of mind to people who have had enough grief lately," said lawyer Ronald Rus of Orange.
Rus is part of a group of lawyers who filed nearly two dozen lawsuits against the company's owners, operators and professional advisers, charging that they defrauded thousands of bondholders out of more than $250 million.
But in the company's preference lawsuits, nearly 90% of the small investors targeted had been paid in full before the firm's bankruptcy filing and were never part of the general bondholder litigation.
William Rose, court-appointed attorney for American Continental, told Bilby that creditors had returned about $200,000 in preference payments already. The judge ordered him to hold the money in escrow in an interest-bearing savings account until further notice.
The judge also ordered a committee overseeing the liquidation to try to come up with a smaller amount by Sept. 9 that it would like to settle the preference litigation.