out of control judges

[michael perelman <michael@xxxxxxxxxxxxxxxxx>]

Charles E. Hurwitz was one of the most notorious S&L figures; he then
went on to fame in using his ill-gotten gains to take of Pacific Lumber,
on of the most notorious environmental problems in the corporate sector.

http://www.sojo.net/index.cfm?action=news.display_article&mode=C&NewsID=4925

*FDIC Ordered to Pay Financier $72 Million*
Judge Denounces Debt-for-Trees Deal

By Terence O'Hara
Washington Post Staff Writer
Thursday, August 25, 2005; D01

A federal judge in Texas, calling the Federal Deposit Insurance Corp. a
"corrupt agency with corrupt influences on it," awarded a Houston
financier $72 million to cover his legal fees in a decade-long suit
involving a failed savings and loan and the government's efforts to take
control of a stand of endangered California redwood trees in the 1990s.

The FDIC, a regulatory agency that insures deposits at banks and savings
and loans, filed suit against Charles E. Hurwitz in 1995, seeking to
collect more than $800 million because Hurwitz indirectly controlled a
Texas S&L that failed in 1988. The FDIC, after a series of legal
setbacks, dropped its suit against Hurwitz in 2002. Hurwitz then asked
the U.S. District Court judge overseeing the case, Lynn N. Hughes, to
order the FDIC to pay his legal expenses, arguing that the FDIC should
never have brought the case in the first place.

On Tuesday evening, Hughes issued a scathing, 131-page ruling. In it, he
cited evidence that the FDIC brought the case largely because of
pressure from environmental groups, members of Congress and the Clinton
administration. The reason: Hurwitz's Pacific Lumber Co. owned 3,500
acres of endangered redwoods in Northern California. Hughes found that
the FDIC, in close concert with environmental groups, sued Hurwitz to
pressure him into a "debt-for-nature" swap, in effect giving the
government his trees in exchange for his supposed liability in the
failure of the United Savings Association of Texas.

Judge Hughes, in his ruling, found that FDIC officials lied about the
reasons for bringing the 1995 suit against Hurwitz.

Hughes said FDIC officials and lawyers, in depositions, "ranged from
manipulative evasiveness to plain perjury." He cited records of two
years of communications, including extensive discussions of legal
strategy and political matters, between the FDIC and environmentalists
over the proposal to use a banking-practices lawsuit as pressure on
Hurwitz to give up the redwoods.

Hughes said FDIC officials "discarded the mantle of the American
Republic for the cloak of a secret society of extortionists. If the vice
president called, they responded. If a congressman called, they
responded. If a lobbyist called, they responded. They heeded every call
but that of duty and honor."

David Barran, an FDIC spokesman, said the agency will appeal the ruling.

"This is certainly one of the most imaginative and colorful opinions in
banking law," Barr said. "Judge Hughes has been overturned twice by the
5th Circuit in this case, and we're confident that history will repeat
itself."

Hughes was appointed to the U.S. District Court for the Southern
District of Texas in 1985 by President Ronald Reagan. In 20 years, he
has gained a reputation for issuing strongly worded opinions, several of
them accusing the government of overreaching in criminal and civil
cases. In 1998, the U.S. Court of Appeals for the 5th Circuit twice
overruled Hughes's decision to unseal internal FDIC legal memoranda in
the Hurwitz case.

In an interview yesterday, Hurwitz said he felt vindicated. "It's an
enormous burden to be sued by the government for a billion dollars," he
said. "It's different than when you're sued by another corporation or an
individual. There's a higher standard to overcome. I've thought about it
every day for 10 years . . . You have to ask, what was this case for?
Why did they bring the biggest case ever against me? It was for some trees."

The federal government and California bought the trees from Hurwitz in
1999 for $480 million.

The case is one of the longest-running and most political lawsuits
arising out of the S&L crisis of the late 1980s and early 1990s, in
which more than 1,000 S&Ls failed at a cost to taxpayers of about $200
billion. Several former thrift owners have won legal settlements against
the government for breach of contract after Congress passed a 1989 law
that rendered many thrifts insolvent.

But this is the only case won by a former thrift owner alleging a
political vendetta against him by regulatory authorities, according to
James J. Butera, a District banking lawyer who has represented several
thrifts in cases against the government.

"A lot of banking lawyers representing these thrift owners will be
looking at this ruling very carefully," Butera said. "For an individual
plaintiff to prevail against the government in the banking area, it's
highly unusual. The power of the regulators is almost plenary."


--

Michael Perelman
Economics Department
California State University
michael at ecst.csuchico.edu
Chico, CA 95929
530-898-5321
fax 530-898-5901