$909-Million Award From S&L; Crisis Case Ruled Excessive

A federal appeals court struck down Friday a $909-million award won by Golden State Bancorp Inc. in a breach-of-contract suit against the federal government, saying the award overcompensated the San Francisco-based thrift for a 1989 accounting rule change.

The 3-0 opinion sends the case back to a trial judge for a new damage calculation that still could mean hundreds of millions of dollars. Further appeals are likely.

The so-called Glendale suit--named after Glendale Federal Bank, which originally filed the action--was a test case designed to set the rules for dozens of other S&L; lawsuits and as much as $30 billion in claims against the U.S. government.

After filing the claim, Glendale Federal was acquired by California Federal Bank, which is owned by Golden State Bancorp.

The suits, part of the fallout from the S&L; crisis of the 1980s, contend that thrifts, by acquiring struggling rivals, spared regulators from having to seize the weaker thrifts and pay off depositors.

In exchange, the S&Ls; say, the government let thrifts create “supervisory goodwill,” a special asset that would count as cash for regulatory capital requirements. Congress later banned supervisory goodwill.

Writing for the U.S. Court of Appeals Federal Circuit in Washington, Judge S. Jay Plager said that promise “had substantial value” to Golden State, which put supervisory goodwill on its books when it acquired struggling First Federal Savings & Loan of Broward County, Fla., in 1981.

But Plager said the $909-million award issued by U.S. Claims Court Judge Loren A. Smith was “based on a speculative assessment.”

Smith awarded Golden State that sum largely as restitution for benefits received by the government in the Broward takeover.

The appeals court said the final award should be based on a different legal theory known as “reliance,” which is designed to compensate a party to a contract for the money it spent in reliance on a promise that was later breached.

Golden State originally sought $863 million in reliance damages. Smith awarded about $400 million, although he excluded other sums that he said were covered under the restitution theory.

The U.S. Supreme Court has already said the government is liable in the Glendale case. Lower courts are deciding whether the U.S. is liable in other disputes and, if so, how much the government owes in damages.

The appeals court didn’t rule in a related Golden State appeal, known as CalFed. In that case, a different trial judge awarded the thrift $23 million, saying CalFed wasn’t entitled to either restitution or reliance damages.

The fight is drawing close attention from litigants in other cases, including those involving Meritor Savings Bank, Ambase Corp., Coast Federal Bank and Dime Bancorp Inc.