GlenFed Decries U.S. Rejection of Suit Settlement : Litigation: The S&L; is seeking $1.5 billion over alleged bad-faith action. U.S. vows to fight.

Frustrated by its inability to settle its $1.5-billion bad-faith lawsuit against the U.S. government, Glendale Federal Bank on Wednesday took its case public, saying the Justice Department rejected GlenFed’s offer to put the proceeds of a settlement into low-income housing or other public benefit programs.

Stephen J. Trafton, chairman of the big savings and loan, asserted that the government stands to incur hundreds of millions of dollars in additional liability by dragging out a case that it is almost certain to lose.

“We’re headed toward $2 billion in damages here if they continue to delay,” Trafton said in an interview Wednesday.

Frank Hunger, the assistant attorney general overseeing the case, said Wednesday that he was unable to respond to GlenFed’s comments, citing a Justice Department “policy of not commenting on matters in litigation.”

GlenFed won a resounding victory last August when the U.S. Court of Appeals voted 9 to 2 to uphold its claim that federal officials had illegally reneged on promises made to GlenFed and other thrifts to enlist their help in solving the savings and loan crisis of the 1980s. About 90 similar cases are pending in federal courts, so the potential cost to taxpayers is massive.

Ever since the decision, GlenFed has been trying to persuade the Justice Department to accept a settlement under which the bank would funnel the cash proceeds into housing, education, health or small-business programs of the government’s own choosing, Trafton said. It would not be charity--GlenFed would earn interest on the investments--but it would help the public derive some good from what would otherwise be a straight cash payment to GlenFed, he said.

Justice Department officials rejected the idea, however, and told GlenFed that they would file an appeal to the U.S. Supreme Court on Nov. 28. Trafton said the government’s chances of success are minimal, considering the solid majority that supported GlenFed at the appeals court.

GlenFed, in the timing of its announcement Wednesday, is evidently trying to pressure the government to reconsider and reopen settlement talks.

Without a settlement, the case will proceed to a trial to determine the amount of damages GlenFed is owed. Trafton said the bank can prove damages of at least $1.5 billion.

The closer the case gets to a final decision, the less ability Trafton will have to settle for anything less than cash, he said.