It was originally expected to last four to six weeks. But the damages trial pitting Glendale Federal Bank and the U.S. government is turning out to be a months-long marathon that could last well into the fall.
The trial has huge implications for the savings and loan industry; at stake is the precedent for similar cases involving 120 other thrifts and an estimated $20 billion in federal government liability.
But instead of a relatively swift procedure which began amid much fanfare in late February, following a landmark U.S. Supreme Court decision in Glenfed’s favor late last year attorneys are finding the process to be agonizingly slow.
After three months, the Washington, D.C. trial has lapsed into a series of lengthy testimonies, some lasting weeks, as witnesses and lawyers belabor their points to exhaustion.
Court watchers note that Glenfed has yet to even finish presenting its case, and government lawyers have said they reserve the right to use as much time as Glenfed to present their case.
The trial also has been peppered with numerous breaks lasting several days or even a week at a time, as presiding Federal Court of Claims Judge Loren Smith deals with administrative matters and personal issues, such as heart problems and the death of his son.
The future looks no more expeditious. Judge Smith has already mandated shortened days and four-day weeks, and has scheduled a multi-week summer recess for August.
“I think everyone from the outset thought (Glenfed’s four- to six-week estimate) was unrealistic, though no one thought it would be this long,” said one trial watcher who asked not to be named.
The case that has much of the thrift industry watching impatiently involves the issue of goodwill, an intangible asset which the federal government awarded to healthy savings and loans that were willing to acquire sick thrifts at the height of the S & L; crisis in the 1980s.
Healthy thrifts used that goodwill to offset the liabilities of their sickly acquisitions and still meet their capital requirements, as mandated by federal law.
However, the U.S. government passed legislation in 1989 that led to the eventual negation of goodwill, which in turn, sent thrifts scrambling to sell off assets to meet their capital requirements.
More than 120 thrifts nationwide sued the government for breach of contract and won, with Glenfed serving as the lead case. The last remaining issue is for the courts to determine the extent of Glenfed’s damages, after which the other 120 cases could begin.
At the current rate, court watchers say the case will likely last at least until September.
The delays are creating frustration among the other thrifts. One of those waiting in the wings is California Federal Bank, formerly of L.A. but which was acquired earlier this year by First Nationwide Holdings of San Francisco. California Federal is the name First Nationwide has adopted for its entire thrift operating subsidiary.
“We would prefer that it not take this long because then our case could get to trial quicker,” said Christie Flanagan, general counsel to CalFed.
Most trial watchers, who would only talk about the case on the condition of anonymity, said the bulk of delays so far has been caused by concern from all parties that the case be tried properly, considering the large number of parties and huge amount of liability it involves.
As an example of the slow progress, the testimony of Glenfed CEO Stephen Trafton lasted two full weeks. More recently, one of Glenfed’s main witnesses testified for nearly a full week and is expected to continue his testimony when the trial resumes this week after a one-week hiatus.
“This is an important case, so I think there’s a feeling in court that they have to get it right,” said Vince Colatriano, an associate at Cooper & Carvin PLLC, which is representing a dozen thrifts in their goodwill cases, including Irwindale-based Home Savings of America. “They’re being very cautious because it’s a lot of money at stake and also because of the precedential effect.”
Several sources also blamed the slow progress on an unusually large number of trial breaks so far. Many of those are directly related to Judge Smith, who suffered the death of his son just prior to the trial’s start and who also suffers from heart problems.
They also pointed out that the judge must attend to other business, such as his administrative duties as chief judge of the Federal Court of Claims.
One source estimated that delays caused by the judge for personal and work reasons have probably accounted for between 20 percent and 30 percent of the delays so far.
Still, another source pointed out that most thrifts with pending cases will probably be more than happy to wait if the final award is a substantial one for Glenfed.
“To the degree that Glendale Federal is able to hit a home run on in this case, I don’t think any other bank manager will have a problem with (these delays),” he said.