Great Western Liable for Nearly $3 Million
In a major civil judgment against Great Western Bank, a jury has awarded a well-known Santa Monica real estate developer nearly $3 million, finding the Chatsworth-based lender liable for fraud and breach of contract.
A Santa Monica jury awarded longtime developer Ernest Auerbach $2.6 million in punitive damages and $207,155 in compensatory damages in a case that centered on a piece of commercial property that had gotten into financial trouble several years ago--a common occurrence in Southern California in the early 1990s.
A spokesman for Great Western said the company was “disappointed with the verdict because we don’t believe it comports with the facts.” He added that Great Western may appeal the decision, which was handed down Friday.
“The message here to this bank and other banks is you already have a license to make money--you don’t have a license to steal,” said Jerry Mandel, a Santa Monica attorney for Auerbach. “They did not negotiate in good faith.”
Auerbach, 80, is known for such buildings as the Auerbach Plaza at 20th Street and Wilshire Boulevard in Santa Monica. He also breeds racehorses on his ranch in Ramona, Calif. Considered by some to be one of the more influential people in the development of Santa Monica, Auerbach is also a high-profile Los Angeles arts patron.
The suit, filed in Los Angeles County Superior Court, involved a commercial property in San Diego that Auerbach bought from Great Western in 1988 for $2.2 million when the California property market was still booming.
Auerbach paid about $200,000 in cash, and the rest was a promissory note that included an agreement stating Auerbach had no personal liability if there was a default, the suit claims.
By 1992, the value of the property had fallen to less than what was owed on it and Auerbach, in an attempt to avoid foreclosure, asked the bank to renegotiate the deal, according to the suit.
The thrift then entered into a “pre-workout agreement,” and Auerbach kept current on payments to further negotiations. But the thrift had no intention of renegotiating the deal and was only giving the appearance of working with him so he would continue making payments, the jury found.
“Back in the early 1990s when so many properties were underwater, banks were looking for any way to generate payments on these things. We heard of a lot of incidents like this,” said Gary S. Findley, editor of the Findley Reports, a banking newsletter. “Still, this is real small in the scheme of things for Great Western.”
In June, shareholders overwhelmingly approved the merger of Great Western Financial Corp., the holding company of Great Western, with friendly suitor Washington Mutual Inc. of Seattle.
