On August 7, Judge Lawrence M. Baskir of the U.S. Court of Federal Claims in Washington awarded nearly $29 million to a group of investors, including Arnold & Porter client, former Federal Reserve Board Vice Chairman Preston Martin, in a breach of contract lawsuit against the federal government. Arnold & Porter attorneys Howard Cayne, Melvin Garbow and David Bergman, partners in the firm’s financial services group, represented Mr. Martin and two other prominent California bankers and real estate investors, Roy Doumani and Larry Thrall, in the litigation.
This ruling settled more than a decade of litigation and came after a six-week trial on damages and extensive motions practice. The court held that the government owes millions of dollars to the former Fed Vice Chairman and other investors who contracted with the government to purchase a failing California thrift in the late 1980s. According to American Banker on August 11, 2003, “It was the latest in a series of multimillion-dollar victories by investors who purchased failing thrifts and later accused the government of reneging on its promise to count excess liabilities toward regulatory capital requirements. The accounting break, called ‘regulatory goodwill,’ was used as a deal sweetener.”
Though these accounting treatments were used in the late 1980s to encourage stronger S&Ls to buy weaker ones, the 1989 banking law called the Financial Institutions Reform, Recovery and Enforcement Act, barred the use of goodwill. Last year Judge Baskir ruled that the ban was a breach of contract. In his latest ruling he also awarded $65.4 million to Southern California, the thrift that was later renamed People’s Bank of California and merged with California National Bank in 2001.