CalFed Wins Partial Reprieve on ‘Goodwill’ Suit Ruling

Golden State Bancorp Inc.’s California Federal Bank has won a partial reprieve from a ruling limiting the damages it can recover in its $1.6-billion “supervisory goodwill” lawsuit against the U.S.

U.S. Claims Court Judge Robert H. Hodges in Washington said this week that the Glendale-based company can press its claim for the replacement cost of the capital it lost because of a 1989 federal accounting rule change.

That marks a shift from the judge’s Nov. 12 order in which he said CalFed could not proceed under its claim for “expectancy damages”--the largest of the three main damage theories being pushed by the thrift. Replacement cost of capital is one way to prove expectancy damages.

Responding to a CalFed request for clarification, Hodges said he didn’t mean to rule out a line of argument focused on replacement costs, said David Cohen, the Justice Department’s lead litigator in the 120 supervisory goodwill cases.

Hodges’ earlier ruling focused almost entirely on an alternative method for proving expectancy damages.

Golden State had no comment on the latest decision. The ruling could give a boost to special securities, known by their stock tickers CALGL and CALGZ, that are tied to the success of the thrift’s case against the government. Those certificates fell by as much as 22% after Hodges issued his earlier ruling.

In Nasdaq trading Tuesday, CALGZ certificates rose 25 cents to close at $13.50. CALGL certificates fell 13 cents to close at $13.88.

Golden State shares rose 13 cents to close at $20.13 on the New York Stock Exchange.

CalFed and other litigants charge the government breached contracts it made with savings and loans and their owners during the 1980s to induce purchases of failing thrifts. The government said buyers could create a paper asset called supervisory goodwill and count it toward regulatory capital requirements. In 1989, Congress barred the use of supervisory goodwill, spurring a flood of lawsuits.

The Supreme Court already has said the government breached contracts in at least some cases. CalFed and others now are trying to prove the U.S. owes them more than $30 billion in damages.