American Savings Bank v. United States

Keystone Holdings Partners, LP

The firm's commercial litigation team earned a major victory on behalf of Keystone Holdings Partners, LP and its principal investor, Robert M. Bass, when the US Court of Federal Claims awarded Keystone's former subsidiary American Savings Bank US$401.5 million in restitution and damages in a breach of contract action against the United States.

At the depth of the 1980s S&L crisis, the government offered favorable regulatory treatment to the Bass group to entice it to acquire American Savings Bank of Stockton, California, then the country's largest insolvent thrift. With the valuable government promises, the Bass group acquired American Savings, invested US$350 million of capital, and nursed the institution back to health and profitability. The government soon breached the contract, withdrew the favorable regulatory treatment, and threatened the institution's survival.

In summary judgment proceedings, our attorneys persuaded the Court to address two elements of the contract separately from the remainder of the transaction, and to award damages in each instance.

First, our attorneys successfully argued that the government received warrants (a form of equity) in exchange for (1) the government's promise to allow plaintiffs to treat the warrants' value as regulatory capital, and (2) the American Savings deposit franchise. The team persuaded the Court to unwind that exchange, and established the value of each component with sufficient certainty to enable the Court to award restitution. The Court granted American Savings restitution equal to the value the government received from its exercise of the warrants less the benefit to plaintiffs of maintaining the American Savings deposit franchise-a net award of US$346.5 million.

Second, our attorneys persuaded the Court that the government's breach of its promise to exempt certain assets from the computation of American Savings' required level of regulatory capital forced the institution to post costly tangible capital to support the contractually exempt assets. That capital should have been available for other, more profitable purposes, and would have been had the government not breached. By netting the cost American Savings paid for that tangible capital against the benefits of holding the capital, our attorneys demonstrated that the government's breach of the capital exemption cost American Savings an additional US$55 million.

The Court issued two decisions on damages: the first is reported as American Savings Bank v. United States, 62 Fed. Cl. 6 (2004), the second is reported at 74 Fed. Cl. 756 (2006).

The team was led by Melvin Garbow, who chaired the Plaintiffs Coordinating Committee in the Winstar-related litigations (of which American Savings is one) and who currently sits on the Court of Federal Claims Advisory Council. Our commercial litigation group is currently at the forefront of litigation involving a wide variety of complex commercial and financial issues, and has developed significant experience in the development and presentation of complex damages claims.

Email Disclaimer