# Federal Deposit Insurance v. Hurwitz

> District Court, S.D. Texas · August 23, 2005 · 384 F. Supp. 2d 1039

URL: https://www.frixlaw.com/law-library/cases/2414874

## Case

- **Full name:** FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. Charles E. HURWITZ, Et Al., Defendants
- **Court:** District Court, S.D. Texas
- **Decided:** August 23, 2005
- **Citations:** 384 F. Supp. 2d 1039; 2005 U.S. Dist. LEXIS 17907; 2005 WL 2044560
- **Precedential status:** Published
- **Opinion:** Opinion by Hughes
- **Judges:** Hughes
- **Cited by:** 9 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/2414874

## How later opinions describe it (automated extraction)

- finding that a memo from FDIC’s attorney Williams stating "OTS’ case broader bec/not constrained by [Texas's statute of limitations], [business judgment] ... may be in our [interest] to stay” indicated that the FDIC lied about its motives for the stay

## Opinion text

Opinion on Sanctions
HUGHES, District Judge.
1.
Introduction.
This is a cautionary tale where the emperor has new clothes — a bandit’s mask. The Federal Deposit Insurance Corporation sought to hold Charles Hurwitz individually responsible for all losses at United Savings, even though he had no obligation to the thrift or the government. Unable to focus its claims and unwilling to disclose its records in this suit — one that it brought — the FDIC surreptitiously paid another agency to bring a parallel administrative claim against Hurwitz, several companies, and other people. Later — much later — the FDIC dismissed its claims here. Hurwitz and two companies have asked that they recover their costs of defending the suit. They will recover their costs because the record reveals corrupt individuals within a corrupt agency with corrupt influences on it, bringing this litigation.
2.
Background.
This is the final stage in a suit that should have never happened. Ten years ago, the Federal Deposit Insurance Corporation sued Charles Hurwitz, a Texas businessman. In essence, it blamed him for the failure of a Texas thrift — United Savings Association of Texas. The case oc
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curred on two fronts. The FDIC sued Hurwitz in this court. The Office of Thrift Supervision brought an administrative action. Together, the agencies claimed over one billion dollars from Hurwitz. Recovery in either action would go to the FDIC because the FDIC had procured the Thrift Office’s proceeding against Hurwitz, paying it to bring that action.
A.Companies.
The FDIC sued Hurwitz because of his involvement in two companies that owned stock in the thrift’s holding company. They owned no stock in the thrift. In the 1980s, Hurwitz was chairman and chief executive officer of Maxxam, Inc., a publicly held corporation with subsidiaries in aluminum, timber, and land. He was also chairman and chief executive officer of Federated Development Company, a New York business trust with a portfolio of real estate and mortgages. Until February 1988 — ten months before the United Savings failed — Hurwitz had been chairman of United Financial Group, its holding company.
Hurwitz owned about 52% of Federated, and Federated owned 63% of Maxxam. In 1988, Federated and Maxxam jointly owned less than one-quarter of United Financial. United Financial owned 100% of United Savings of Texas.
1
United Savings was a thrift; that is a bank that operated under a set of regulations slightly distinct from ordinary commercial banks. Thrifts are the current incarnation of the savings part of the old federal system of full-service banks and savings-and-loans. Along with credit unions — banks and thrifts are depository institutions. What each is permitted by the several regulatory agencies varies slightly.
B.
Climate.
Despite the expensive and pervasive regulation by governmental agencies, in the decade 1986-1995, approximately 1,043 thrifts failed, leading to the insolvency of the agency that insured their deposits and supervised them — Federal Savings and Loan Insurance Corporation.
2
FSLIC’s responsibilities were eventually passed to the FDIC, which is how it became interested in United Savings and Hurwitz. During 1980-1994, the FDIC itself lost 1,617 banks under its responsibility.
3
In 1997 dollars, the direct cost of the thrifts to the public treasury was about $200 billion.
The FDIC may manage failures by simply honoring its insurance commitment and paying the depositors to the policy limits. It can also arrange for another bank or investor to buy the failed bank and assume its obligation to the depositors. Its third technique is to run the insolvent bank itself, supplying capital and management, until it can be sold or returned to independence. This is called a bridge bank. The FDIC prefers to sell with an assumption because it relieves it of having to collect the assets of the bank — the funds due it on loans mostly — and of having to pay the full depositor claims directly. Of 169 banks that failed in 1990, 20 were insurance payments, one was a bridge bank, and 148 were sales to other banks.
C.
United Savings.
A thrift, Houston First American Savings Association, was insolvent in 1983,
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when it was owned by people wholly unrelated to Hurwitz and Maxxam. The FDIC allowed United Financial to take First American off its hands. After extensive negotiations, United Financial bought First American and merged it into its thrift, United Savings of Texas. The FDIC sought a personal guaranty from Hurwitz as part of the deal, but he declined. It asked for guaranties from Maxxam and Federated, but they declined. The final arrangement was simply that United Financial acquired the failed thrift and reconstituted it with its thrift as United Savings of Texas. United Financial committed the capital that it had agreed to invest.
Unfortunately, United Savings did not succeed. In 1989, the FDIC declared it insolvent. United Financial’s investment was eroded completely. The FDIC met its insurance obligation by selling United Savings to Ranieri/Hyperion — a joint venture.
The cause of United’s failure was indistinct from what caused most of the other insolvencies. The original plan for thrifts was that (a) they could pay slightly higher rates on savings accounts than banks, (b) their lending was essentially limited to home mortgages, and (c) deposit insurance was at a low level, reflecting the safety-net role it played. Prolonged, government-induced inflation eroded the assets of the whole system. The government’s response was to release the interest rate restrictions, expand the lending authority to nearly everything, and raise the insurance coverage from $20,000 to $100,000. This allowed the industry as a whole to attempt to earn its way out of its general insolvency — an insolvency that was not publicly acknowledged.
The collapse of oil and real-estate prices in the middle 1980s made many of the high-rate, business loans unrecoverable. Other forces affected thrifts, like the rise of money market funds and corporate— non-deposit based — lending. Although actively dishonest people were in charge of some thrifts that failed, the bureaucratic response to the mess was generally to accuse officers and directors of malfeasance when misfeasance was the worst that the facts would support.
D.
FDIC.
Soon after the collapse of United Savings in 1988, the FDIC approached Hur-witz about his contributing to paying its losses. Hurwitz agreed to extensions of the time limit for the FDIC to sue him. Having found no focus of their claims against him by 1995, Hurwitz declined to extend the deadline again, but the actual directors and officers of the thrift continued to sign tolling agreements. The FDIC sued Hurwitz right before the last extension expired.
After an adverse ruling or two from this court, the FDIC illegally paid the Office of Thrift Supervision to bring an administrative action. The Thrift Office sued Hur-witz, Barry Munitz, Jenard Gross, Arthur Berner, Ronald Huebsch, Michael Crow, Federated, and Maxxam. Munitz, Gross, Berner, Huebsch, and Crow were former directors and officers of United Financial and United Savings. While the claims by the Thrift Office had a technical regulatory basis, they were the same as the FDIC’s contention that somehow the accused were responsible for the thrift’s failure — responsible legally.
E.
Hurwitz Responds.
The FDIC abandoned its claims here in November 2002. Hurwitz, however, had counterclaimed in this court that the suit was a ruse — political extortion. Its true purpose, he said, had nothing to do with the management of thrifts and everything to do with the politics of trees.
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In the late 1980s, Maxxam had acquired Pacific Lumber, a timber company. Pacific Lumber owned 44,000 acres of redwoods in Northern California, including the Headwaters Forest, a 4,400-acre tract of ancient redwoods.
Environmentalist activists accused Hur-witz of plans to raze the forest. They lobbied the Clinton Administration, California officials, and members of Congress, urging the government to gain control of the forest. The Forest Service studied the redwoods, but it decided that acquiring them would require an appropriation that was not politically practical.
In the early 1990s, one environmental group proposed that the government make claims against Maxxam-related companies and people and then trade those claims for the trees — the “debt-for-nature” swap. The group insisted that the FDIC sue Hurwitz for so much money — creating the “debt” — that he would be compelled to settle by surrendering the redwoods — the “nature.”
Hurwitz says that the FDIC joined the effort to appease the green lobby, congressional pressure, and Administration political preferences. Despite a learned opinion from its private counsel that it had ■ no viable claim against Hurwitz and the others, the FDIC sued here and later illegally hired the Office of Thrift Supervision to bring identical, baseless claims.
F. FDIC
Posture & Harsh Reality.
The FDIC swears that it gave no “serious consideration” to the exhortations of green groups or legislators; that it spent no time evaluating the written or oral proposals of outsiders; that it never discussed a debt-for-nature swap; and that no employee of the agency ever analyzed a proposed swap.
4
The FDIC maintains that it had a solid case; that it exercised only its independent regulatory judgment; that it did not participate in extra-agency proposals or deals; and that it was promptly and thoroughly candid in this and the regulatory action.
The facts are otherwise. An extensive record — produced at substantial expense and by repeated court compulsion — reveals a regulatory scheme that slipped into self-absorbed, extra-legal, politically motivated trampling of citizens and the law.
The record includes (a) memoranda sent to as well as received from environmental groups; (b) notes of telephone calls between the FDIC and these groups; (c) minutes of conferences among FDIC staff, its counsel, and greens; (d) e-mails discussing a debt-for-nature swap, including adjustments to the dollar amount of the United Savings’s claims to reflect the value of the timber; (e) letters from Congress; (f) minutes of regular meetings of green groups, congressional staff, and other executive-branch staff; (g) recalcitrance in disclosure; (h) its squelching its inspector-general investigation; and (i) behavior at depositions that ranged from manipulative evasiveness to plain perjury.
The record reveals that the FDIC attacked Hurwitz in a perverse combination of personal and political hostility. The personal part was political, too, since it was derived from the bureaucrats’ and their like-thinking co-conspirators’ appreciation of a successful entrepreneur as the personification of what they opposed in America. As individuals they are free to think and act as they wish, but as agents of the government they are constrained by their particular bureau’s statutory mandate and the Constitution’s restriction on personal, partial, and irregular government.
When the government invokes the authority of the judiciary, it is obliged to
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follow the rules. This is called equal justice under law.
The FDIC’s documents contradict its protestations of independence, the merit of its suit, and the legality of the arrangement with OTS. The FDIC was refractory about disclosing its internal documents because they demonstrate, beyond question, that it became a tool in a political guerrilla war at the behest of interest groups and the administration. These outsiders, in fact, shaped this case, including the damage “calculation.” The FDIC knew that it had no authority to pay the OTS for the other action. Despite these realities, the FDIC persisted in its expensive, abusive litigation for a decade.
The public, through this court, has devoted substantial resources to this case. On sanctions alone, the court held a two-day hearing and has scrutinized the pleadings and exhibits totaling approximately 10,000 pages. It has also reviewed the rest of the record. The court concludes that the FDIC has lied to Charles Hur-witz, the public, and this court. Over the past ten years, the suit — here and in Washington — has cost the taxpayers in whose name these people acted tens of millions of dollars. Naturally, the agencies cost the defendants millions, too. Hurwitz is not content with the torture stopping. He has sought compensation.
3.
Chronology: 1980-84..
United Savings Association of Texas was a thrift: it held savings accounts and lent or otherwise invested them.
5
It acquired deposits by agreeing to pay interest and to repay the principal in the short term. Like other institutions that borrow on a short term and lend on a longer term, United Savings’s long-term receivables like home mortgages would drop in value when interest rates rose. Rates on the loan would remain where they were fixed when the money was lent, but the rates that United Savings paid for its deposits would rise with the market. Basically, as long as the average return on loans and other investments equaled or exceeded its deposit expense — its cost of capital — the thrift would be solvent. After a brief respite from the high rates of the late 1970s, rates rose steeply in the early 1980s. United Savings was paying more for deposits than it was recovering from loans and other investments. The thrift and its holding company were losing millions.
6
In 1982, for example, United Financial suffered almost $19 million in losses. Its return on capital was a negative thirty-four percent.
7
The government would later remark that United Savings was “hopelessly insolvent.”
8
In 1982, Federated Reinsurance — a company of which Hurwitz was the chief executive officer and president — began investing in United Financial Group, the thrift’s holding company.
9
Federated Reinsurance was a wholly owned subsidiary of Federated Development Company. Both Federateds are related to Maxxam only by Federated Development’s owning a majority of Maxxam.
In 1983, Federated and Maxxam bought just under 25% of United Financial’s stock.
10
This enabled United Financial to buy First American Financial of Texas, a holding company of a Houston savings and loan. United Financial then merged United Savings with Houston First American Savings Association, forming United Sav
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ings Association of Texas. Despite First American’s precarious financial condition at the time, regulators approved the merger on the condition that United Financial maintain the regulatory net worth of United Savings; that means that it was committing its capital to support the thrift’s solvency. United Financial agreed.
11
Although the FDIC asked for guaranties from Hurwitz, Maxxam, and Federated, they all refused.
After the merger, banks and thrifts across the nation began failing at an average of one each day.
12
Over the next fifteen years, nearly 3,000 depository institutions — banks and thrifts — failed. The savings-and-loan crisis hit Texas especially hard: its thrifts lost $19 billion.
13
Approximately one-third of the banks and thrifts that failed in the nation were in Texas.
14
4.
Late 1985.
In December 1985, Maxxam and Drexel Burnham Lambert, Inc., agreed that, between July 1 and 30, 1988, Maxxam would have the option to buy 300,000 shares of United Financial stock from Drexel for $2,577,000 — a call. If Maxxam did not exercise it, Drexel could sell the shares to Maxxam for $2,577,000 from August 1 to 31, 1988 — a put. Since Maxxam was a “controlling shareholder” of United Financial, under securities and banking law, United Financial disclosed the agreement as the law required.
15
Banking regulators were also told about the deal.
16
Regulators confirmed that, so long as neither company exercised the option, Drexel owned the shares and had sole right to them.
17
This is important because, at the time, Maxxam and Federated owned just under 25% of United Financial. If Maxxam were deemed to own the 300,-000 shares, then it and Federated might have owned at least twenty-five percent of the holding company, obliging it to maintain United Savings’s regulatory net worth. Since Drexel owned the shares, Maxxam had no net-worth obligation.
In the 1980s, Drexel Burnham was highly successful in using bonds to finance companies that had historically been unable to borrow in that market. It became notorious when its star trader, Michael Milken, was convicted in 1989 for stock manipulation. Milken became a political symbol for dishonest greed on Wall Street. “Junk bonds” was used to denigrate transactions without an understanding of corporate finance generally or credit markets particularly. It was an opaque slogan rather than a analytical tool.
18
The government would later imagine that (a) Hurwitz’s companies invested in Drexel bonds in exchange for Drexel’s financing his takeover activities and (b) he concealed this arrangement. The FDIC, after a decade of litigiousness, has offered nothing — nothing—to support this charge. This is an illustration of the FDIC’s trial by press release. Keep mentioning Hur-witz and related companies in connection with Drexel Burnham and impugn them in the eyes of the court, public, other regulators, and credit. That is slander as legal leverage.
19
That is wrong.
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5.
1986.
In mid-1986, Federated and Maxxam asked to modify the Federal Home Loan Bank Board’s conditional approval of their acquiring control of United Financial, the holding company.
20
Regulators defined control as owning more than 25% of the holding company’s stock; Federated and Maxxam wanted to increase their aggregate ownership of United Financial to 35%.
21
In December 1984, the Bank Board had approved their application so long as the companies maintained United Savings’s net worth — guaranteed its solvency. If they owned more than 25% but less than 50% of the holding company, they would have to contribute funds in proportion to their ownership to maintain the thrift’s net worth. If they owned more than 50% of United Financial, they would each be 100% liable for maintaining United Saving’s net worth.
Federated and Maxxam proposed a modified condition. They offered no guaranty so long as they owned less than 50% of United Financial’s stock. If they acquired more than 50%, they wanted a cap on how much they would have to contribute. In exchange for this concession, they proposed to raise $40 million for United Savings within eighteen months after they acquired control. As part of the deal, United Savings also asked that it be allowed to count proceeds from bond sales in its net worth. The thrift had fallen below its net-worth requirement and was trying to stay solvent.
One of Federated and Maxxam’s concerns was that, even if they acquired less than 50% of the holding company, they would be the only companies who would have to infuse capital into the thrift. This was a serious obligation, especially since they did not have “control of the operations of [United Financial] or [United Savings’s] as minority stockholders.”
22
In addition, investment banks and rating agencies would not be able to evaluate their own financial condition easily based on an open-ended net-worth agreement for United Savings. This would impair their stock prices and credit ratings.
23
Last, Federated’s and Maxxam’s businesses — oil and gas, timber, real estate — frequently required them to raise capital. They were reluctant to enter agreements that would limit their ability to enter capital markets.
24
Regulators said that, “in light of the depressed economy in Texas,” United Savings’s situation was “not surprising.”
25
Still, the thrift was “one of the stronger financial institutions” in their district.
26
United Savings consistently maintained a higher net worth than other Texas thrifts. Unlike other thrifts whose problems were caused by high-risk, commercial real-estate loans, United Savings still lent money primarily for residential mortgages.
The regulators praised the thrift’s efforts to minimize the effects of the crisis. United Savings was diversifying from home loans to mortgage-backed securities and high-yield bonds. It was generating equal or greater profits than it had been making from mortgages.
27
The proposed bond issuance would also give the thrift “an additional capital buffer” that would shift risk away from the FSLIC.
28
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They cited the thrift’s many strengths, including its strong capital base, diversification, profitability, and access to capital markets. They also noted that troubled banks regularly asked United Savings’s managers for help and that United Savings’s and United Financial’s managers were also the managers of Federated and Maxxam. That Federated and Maxxam were controlling shareholders of United Financial would offer “a source of strength” to the thrift.
29
The regional regulators recommended approval of the Federated-Maxxam proposal and the thrift’s request about the bond proceeds.
6.
1986-1987.
In early 1986, Maxxam bought Pacific Lumber. It owned 44,000 acres of redwoods. Dissident shareholders said that because Maxxam had no cash for the deal, it had had to finance it with Drexel bonds. They said that this would force Maxxam to accelerate logging to pay the debt. They also feared that the value of the standing timber would be eroded by the increased supply to the market. Greens began to protest. Soon the government’s scrutiny of Hurwitz increased, and the regulators’ earlier enthusiasm for United Savings and Charles Hurwitz cooled.
Congressman John Dingell, for example, requested all information on United Savings from January 1, 1987, to the present that the Federal Home Loan Bank of Dallas had. Dingell refused to say why he needed it.
30
It later surfaced that he assumed that Hurwitz was using United Savings to finance acquisitions. Neither Dingell nor the FDIC found a shred of evidence to support this accusation.
In mid-December 1986, the executive committee of United Financial unanimously approved the holding company’s infusion of capital into United Savings to comply with the regulatory net-worth requirement.
31
In late October 1987, it again unanimously approved another infusion.
32
In 1987, the Texas economy crashed: crude-oil prices plummeted and mortgage defaults surged. Losses at Texas savings- and-loans accounted for more than one-half of the losses nationwide.
33
Of the 20 largest failures, fourteen were in Texas.
In November 1987, Arthur Berner, United Savings’s general counsel, met with Neil Twomey, a regulator from the Federal Home Loan Bank of Dallas. That agency was part of the regulatory machinery. Twomey told Berner about the Dallas bank’s plan to combine failed thrifts and sell them as a package to the highest bidder.
34
The goal was to resolve insolvencies quickly and preserve the government’s funds by not having to liquidate failed banks, paying depositors now and collecting assets eventually. Twomey assured Berner that United Savings would be “a major factor” in the process and would be either asked or told to take on at least one failing institution. The two men also discussed the likelihood of the thrift’s going below its net-worth requirement and its need for forbearance. Twomey suggested how to apply for assistance in a way that would not hamper their planned activities.
Most important, Twomey assured Ber-ner that there was “no question” that United Savings would survive, saying that the thrift was “too big to fail” and that regulators would not let it fail.
35
Twomey
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praised United Savings’s management, including Charles Hurwitz. He added, however, that “it would have made (and would continue to make) his life easier if Charles Hurwitz had never heard of Redwood trees” but that it was important to have smart business people running Texas thrifts. In a later meeting, Twomey observed that Hurwitz had a “high profile” in Washington.
36
During this same period, the Dallas bank published several articles about the usefulness of risk-controlled arbitrage and investment in mortgage-backed securities
37
— strategies that United Savings had been using for over a year.
7.
1988.
In January 1988, the FSLIC — the FDIC’s predecessor — began investigating United Savings.
38
Its lawyers were developing a strategy. This was almost a year before United Savings would be placed into receivership.
In February, Hurwitz resigned from the board of United Financial; he had never been an officer or director of United Savings itself. That month, after examining the thrift’s mortgage-backed securities portfolio, regulators concluded that “it appears no speculation is involved” and that “the generated benefits from these type of transactions outweighs the inherent risk associated.”
39
Months later, United Savings was among the 100 thrifts in the nation with the largest mortgage-backed securities holdings.
40
Also in February, the Bank Board introduced the Southwest Plan — the consolidation plan that Twomey and Berner had discussed.
In March 1988, regulators reviewed United Savings’s capital-forbearance application. It recommended that United Savings be allowed to operate below its net worth because (a) its failure to meet its net worth was due to the poor economy; (b) it was well managed; (c) it had a detailed and reasonable plan for rebuilding its capital; and (d) it would furnish regular progress reports.
41
In May 1988, regulators assessed United Saving’s participating in the Southwest Plan. Two years earlier they had praised Hurwitz as a “smart business man;”
42
they now labeled him a “corporate raider.”
43
They criticized the thrift for investing in mortgage-backed securities and high-yield bonds and decreasing its home-loan activity. Still, the regulators recommended that the thrift participate in the Southwest Plan, pending results of the thrift’s final examination. They expressed internally reservations because Congress was investigating Hurwitz’s dealings with Drexel Burnham. They, however, wanted United Savings to succeed.
In early June, Twomey reported optimistically to Berner that “for the first time, the people in Washington and Dallas were talking about United’s role in the Southwest Plan.”
44
He was extremely optimistic that United Savings would either participate in the plan or receive open assistance from the government.
Twomey and Berner also discussed United Financial’s net-worth obligation.
45
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Twomey had written the holding company’s board of directors, reminding them of the company’s net-worth obligation and directing them to make United Financial ensue capital into the thrift.
46
Berner told Twomey that it was impossible for United Financial to do this. Twomey said that he would “as a matter of course” make an official demand on United Financial to infuse capital but that, since he knew that United Financial had no money, this would be a “pro forma requirement.” Twomey told Berner that “if UFG didn’t, what could I do.”
47
On July 19, Arthur Berner and United Savings president and chief executive officer Larry Connell met with the regulators^ — Neil Twomey, Robert Brick, Ginger Baugh, and Dave Freimuth — to discuss the thrift and the Southwest Plan. The regulators had apparently received criticism from Congressman Dingell for contemplating giving the thrift capital forbearance in light of what he perceived was Hurwitz’s involvement with United Savings. When discussing the thrift’s forthcoming results from its November 1987 examination, Twomey assured Connell and Berner that “once again ... there were no surprises.”
48
Two days later, regulator Ginger Baugh suggested that United Savings be placed under increased supervision for its “unsafe and unsound practices.”
49
One continued concern was “the adverse national attention given to Charles Hurwitz.”
50
Another concern was “the
appearance
of conflict” by other officers based on their involvement with other companies, (emphasis added)
51
Baugh did not say that a conflict actually existed, only that one appeared to exist. In the course of her report, Baugh took the opportunity to remind regulators that the thrift had applied to buy 20 institutions through the Southwest Plan.
52
Eight days after Twomey said that there would be no surprises in the thrift’s examination, he forwarded the results of it to the thrift’s board.
53
The examiners had raised the concerns that Baugh raised in her recommendation. One of their criticisms was the lack of S & L operations — home-loan activity. This, however, was no surprise to Twomey or the examiners. They had long known that the thrift — like other thrifts — was making few home loans: consumers could not afford them, and Congress had intentionally expanded thrifts’ lending authority into non-traditional areas. Regulators had, in fact, praised United Savings for its steering the thrift away from the home-loan market and diversifying its sources of income.
In addition, examiners criticized the thrift for falling below its net worth. Twomey knew, however, that United Financial had no money and that United Savings needed capital forbearance. In late July, he denied its forbearance, despite previously recommending it.
54
He said that the thrift could reapply, if it wanted.
In August, regulators wanted United Savings to consent to be merged, citing all its recent concerns.
55
Also, in August, they expanded the thrift’s examination, de
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spite having reported the last examination’s results only a month earlier.
56
By September, the FSLIC’s lawyers had created a United Savings’s “takedown checklist.”
57
Also in September, an outside auditor examined United Savings’s books. They had “vastly improved” since a May 1986 examination and were “in most respects, adequate.”
58
The regulators still had concerns about the thrifts’ participation in the Southwest Plan based on its employment contracts for management — an issue that United Savings was resolving; United Financial’s selling its bond portfolios — something that the regulators had wanted it to do; and Dingell’s hostility to Hurwitz. The regulators said that Hurwitz “indirectly controls a significant percentage” of United Financial.
59
Hurwitz himself actually owned 0.006% of the holding company’s stock.
60
He owned a slight majority of stock in Federated, which owned a majority of Maxxam.
61
Based on his involvement in Federated and Maxxam, Hurwitz’s indirect, tertiary personal interest in United Financial was less than 10%. Whether looking at his personal interest in United Financial or Federated and Maxxam’s ownership of less than 25% in the company, Hurwitz did not control a “significant percentage” of it.
Regardless of their concerns, the regulators recommended United Savings’s participation in the Southwest Plan as the best way to recapitalize it.
62
The government invited Maxxam to bid on United Savings in the Southwest Plan. Maxxam did, and in December, the government rejected the bid.
Maxxam’s bid would have cost the Treasury — the taxpayers — $100 million less than the bid that the government accepted. This loss occurred, despite the government’s seeking a better bid from the ultimate “winner” of United Savings — Rani-eri/Hyperion. The government never asked Maxxam to rebid.
Compounding the rejection’s waste, it was illegal. Once the government invites a person to bid on a failed institution and determines that the bid is adequate, that bidder must be awarded the deal.
63
Knowing this, the regulators discussed their need to doctor the records, saying that they “needed more in the record” for rejecting Maxxam’s bid and that “this was the weakest Getty record of any Southwest Plan case.”
64
A draft report on the Southwest Plan shows the government’s reasons for rejecting Maxxam’s bid — Hurwitz. It would not include his company because of the junk-bond investigation.
65
The lead negotiator for the plan, however, concluded that he had no lawful reason for rejecting Maxx-am’s bid. He was told he could continue working with Hurwitz because “he had capital.”
66
Two lawyers for the regulators
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said that FSLIC had pressured them to find that Maxxam was an unqualified bidder.
67
As the regulators fiddled, thrifts lost ground. Without its being included in the package sale or sold to Maxxam, on December 30, 1988, United Savings was placed into receivership. It cost the public $1.6 billion — the fifth costliest thrift failure.
8.
Investigation: 1989-1991.
In 1989, Congress abolished the Bank Board and the Federal Savings Loan Insurance Corporation.
68
The FDIC was assigned the duties of the FSLIC. The 1989 act also created the Office of Thrift Supervision to regulate thrifts in the new system. It created the Resolution Trust Corporation to manage the assets and La-bilities of insolvent thrifts.
In 1991, two law firms hired by the FSLIC completed an exhaustive, three-year investigation on possible claims against Hurwitz and other officers and directors for United Savings’s failure. The lawyers concluded that the thrift was not a perfect operation but that “the most serious criticism of the officer and directors, in general, was that they exercised poor business judgment....”
69
They found that:
In view of the consultation and reliance on outside auditors, it will be hard to prove gross negligence or breach of duty unless there was actual fraud and we have been unable to find such evidence.
The proof indicates more than anything else that the directors and senior management found themselves trying to keep the institution afloat....
the directors’ motivation was maintenance of the institution in compliance with the capitalization requirements and not self gain or violation of their duty of loyalty. It will be difficult to show gross negligence on the part of the directors, and the efforts at control undertaken by the officers may not be far from that which would have been undertaken by reasonably prudent person faced with the same volatile market.
70
They predicted a 35 to 50% success rate on the gross-negligence and breach-of-fiduciary-duty claims against the officers and directors. They said that the agency had less than a 50% chance of success on the claims stemming from Hurwitz’s supposed indirect control of the thrift. Because of his securities expertise, it was not unreasonable for the officers to rely on him from time to time.
71
The case, they said, was rife with uncertainties. They recommended settlement of the gross-negligence and fiduciary-duty claims for $2-3 million. These were versions of claims that the FDIC would later bring, seeking exponentially larger damages.
9.
Investigation: 1992-1993.
The government hired another law firm to investigate the thrift’s failure.
72
As limitations approached, the FDIC got its targets to sign tolling agreements.
73
It spent the next two years interviewing — and coercing — former officers and directors. In Arthur Berner’s interview, for example, the government’s lawyer suggested that he “may want to rethink his position” on what
*1057
the regulators were told about United Savings’s investment portfolio.
74
Berner was an un-indemnified, former employee of the thrift with no “deep pocket.”
75
In the end, the government got the result that it paid for: the firm found that the thrift’s officers and directors had been grossly negligent.
76
Meanwhile, the FDIC and OTS shared information about the investigation of United Savings’s failure.
77
They agreed to maintain the “privileged and confidential” nature of their materials. In February 1992, the FDIC sent OTS a document entitled, “Possible Enforcement Claims.”
78
The OTS did not act on the document.
In January 1993, OTS revised its procedures for handling thrift failures. Because of budgetary constraints and a large case load, the agency’s chief counsel, Carolyn Lieberman, had to approve new investigations.
79
Regional directors needed to show what goals an enforcement would achieve and when.
10.
Debt for Nature: 1993.
In August 1993, Congressman Dan Hamburg of California introduced a bill that would authorize the federal government to buy Pacific Lumber’s redwoods.
80
It authorized California to contribute funds to the purchase and the federal government to exchange for the redwoods other land that it owned.
In November, Congressman Henry Gonzalez — chair of the House Banking Committee — wrote the FDIC and expressed his frustration that the agency had not yet sued.
81
Hamburg’s bill had magnified his concern. Aping Dingell, Gonzalez suggested that the “principals” of Pacific Lumber — presumably Hurwitz — had bought the company with Drexel bonds and caused United Saving’s failure. He even offered the FDIC a valuation of its claim— $548 million — based on a filing by United Financial with the Securities and Exchange Commission.
Three days after Gonzalez’s letter, FDIC officials faxed among themselves handouts from environmental groups. The circular of one anonymous group — whose telephone happens to be at the Mendocino Environmental Center — told the FDIC, “Go get Hurwitz.”
82
The group urged the FDIC to sue Hurwitz for $548 million — an interesting figure — so that he would have to surrender the redwoods to settle. A flyer from the National Audubon Society prodded people to tell their representatives to support the Headwaters bill. Earth First! wanted “Debt for nature and jail for Hurwitz.”
83
Like Dingell and Gonzalez, Earth First! said that Hurwitz had raided Pacific Lumber and caused the thrift’s failure. It wanted the government to sue him for $548 million to force a surrender of the trees.
The same month as Gonzalez’s letter, an FDIC officer sent the Headwaters bill to Jack Smith, the agency’s deputy general counsel. She complained, “Passage would put millions more in Hurwitz’s pocket.”
84
On the net-worth maintenance claim, she wrote, “If it’s not viable, we need to have a
*1058
reliable analysis that will withstand substantial scrutiny.” Years into the agency’s investigation, it had no factual basis for a claim within its authority.
85
To paraphrase her: we are going to attack him without a legitimate reason, so paper the file.
In December, the FDIC director, Alan Whitney, told Skip Hove, the board’s chairman, that “even if Hurwitz satisfied our claim by giving us the redwoods, it wouldn’t result in what Earth First! (the folks who demonstrated in front of the main building last month) apparently is proposing, i.e., that we then deed the redwoods property to the Interior Department.”
86
Wrapping up 1993, later that month Counsel Smith wrote Chairman Skip Hove about the investigation of claims against the thrift’s officers and directors and Hur-witz.
87
He relayed, “We are also reviewing a suggestion by ‘ “Earth First” ’ that the FDIC trade its claims against Hurwitz for 3000 acres of redwood forests owned by Pacific Lumber....”
11.
Investigation: 199k-
In January, Hove responded to a letter from Congressman Ronald Dellums of California. He said that the FDIC was following debt for nature closely and that it would pursue the redwoods if Maxxam could be held liable for United Savings’s failure.
88
On February 3, FDIC lawyers met with Congressman Hamburg to discuss the case. Hamburg had an “immediate interest” in a suit against Hurwitz and did not want “this possible avenue” to be lost.
89
The FDIC said that it wanted to enforce net-worth obligations. John Thomas — the lawyer overseeing the investigation — had to concede that the agency could not find a signed agreement between (a) Maxxam or Federated and (b) FSLIC, the agency at the time of the purchase by Federated. Nevertheless, the FDIC’s Smith reassured Hamburg that it was examining the claims of its “most optimistic dreams.” He suggested that if it could “convince other side that we have claim worth $400m, they want to settle. Could be a hook into the holding co.”
A calendar entry from around the same time shows a meeting among Alice Goodman of the FDIC’s Office of Legislative Affairs, Gonzalez, and Hamburg to discuss the redwoods.
90
On February 4, the FDIC contacted OTS about bringing a net-worth claim against United Financial and Maxxam.
91
The FDIC said that it had “no viable claim” against the holding company and pressed OTS to sue “UFG and perhaps others” by the end of the year because of limitations. It specifically noted:
‘You should be aware that this case has attracted public attention because of the involvement of Charles Hurwitz, and environmental groups have suggested that possible claims against Mr. Hurwitz should be traded for 44,000 acres of North West timber land owned by Pacific Lumber, a subsidiary of Maxxam. Chairman Gonzalez has inquired about the matter and we have advised him we would make a decision by this May.... After you have reviewed these papers, please call me or Pat Bak ... to discuss the next step and
to arrange coordinar
*1059
tion with our 'professional liability claims.”
(emphasis added)
92
The FDIC says that its contacting OTS the day after the meeting with Hamburg was coincidence.
93
It lies. The FDIC’s last contact with OTS was eighteen months earlier when it urged the OTS to sue Hur-witz, Maxxam, and Federated. OTS did not respond. The only development in the year and one-half was the lobbying by the green groups, Headwaters bill, correspondence from members of Congress, and the meeting with Hamburg the day before.
Also on February 4, Eric Spitler from the Office of Legislative Affairs and Jack Smith discussed what law firm to hire. In the world of the FDIC, the professional-liability section needed advice from legislative affairs on hiring lawyers. Spitler’s email titled “Redwoods” explains why:
I thought about our conversation yesterday. My advice from a
political
perspective is that the “C” firm is still politically risky. We would catch less political heat for another firm, perhaps one with some
environmental
connections. (emphasis added)
94
The agency hired Hopkins & Sutter, where Steve Lambert was a partner in its environmental-law section. Handwritten notes of Robert DeHenzel, an FDIC lawyer, show that the FDIC was assembling an “issue driven” staff for the case. Lambert’s duties were to be “environmen
tal¡trees.”
(emphasis original)
95
During the initial interview of Hopkins & Sutter, De-Henzel noted that Lambert had “Lumber experience in Washington, D.C.”
96
He also noted that the firm had “Connections on the
Hill
and w/other agencies,
particularly Interior (Debt for Nature).”
(emphasis original)
97
The professional-liability section is the staff who handle claims against officers, directors, auditors, and other professionals. During his deposition, Jeffrey Williams, the head of professional-liability, swore that “it was completely fortuitous” that Lambert was at Hopkins & Sutter. Williams swore that Lambert’s presence in no way influenced the decision to hire the firm.
98
Incredibly, Williams added that, when the FDIC hired the firm, the agency did not anticipate raising an environmental issue in the case and, therefore, needed no environmental lawyer.
99
Perjury by a lawyer is especially ugly.
At Vice President Gore’s request, Hur-witz met with him that month while “senior members of Congress kept up pressure on the FDIC.”
100
Gore and Hurwitz talked about the government’s buying the redwoods.
In late February, OTS met with the FDIC. Lieberman said that OTS could sue United Financial for not maintaining the thrift’s net worth, but it would need (a) more time to examine claims against Maxxam and Federated and (b) documents from the FDIC.
101
Lieberman also noted a significant limitation on OTS’s ability to bring the case: money. If OTS sued for the FDIC’s benefit, she said “the FDIC would have to make some arrangement with the OTS to offset the agency’s costs for pursuing such a proceeding.”
*1060
The FDIC became the target of an “intense lobbying effort by certain environmental activists led by the Rose Foundation.”
102
The Rose Foundation is an environmental interest group. Like similar groups, the Rose wanted a debt-for-nature swap. The Sierra Club also wanted the swap. In April, backed by “its more than 500,000 members,” it wrote the FDIC, urging suit.
103
Around this time, the
Wall Street Journal
reported that “the long-dormant federal investigation into the collapse of’ United Savings was “heating up” because of debt for nature.
104
A Hamburg aide said, “The more pressure the government puts on” Hurwitz, “the better our hopes of saving those forests become.” ’
105
Though the government has objected to this article’s relevance, the FDIC found it important enough at the time to file and comment on it internally.
106
The day after the article, OTS announced its new enforcement policy.
107
It would undertake only those actions that would strengthen struggling thrifts, prevent their failure, and prohibit the leadership of a failed bank from participating in the industry again. The agency would turn cases seeking restitution over to the FDIC. The FDIC’s vision of an OTS suit for United Savings’s failure — an event from six years earlier — contradicted this new policy.
John Thomas’s notes from around May show the FDIC’s contemplating whether to sue and how to coordinate with OTS. The FDIC wanted more time to examine the merit of its suit as well as OTS’s net-worth claim against Maxxam.
108
The reason was because “Tactically, combining FDIC/OTS’ claims — i/they all stand scrutiny — is more likely to produce a large recovery/the trees than is a piecemeal approach.” The government had “pared the case ‘back’ to $200m.” It cannot explain how it calculated this number. On when to sue, the FDIC said,
“If
this wasn’t public, the FDIC would do # 1” — that is, “Defer it all, incl. OTS, until (probably) 4th quarter ’94.” The notes continued, “I think we should do it here — but complaints are likely (whatever we do).” Jeff Williams observed that “OTS’ case broader bec/not constrained by [Texas’s statute of limitations], [business judgment] ... may be in our [interest] to stay.”
109
The FDIC has repeatedly argued that it moved to stay to avoid duplicative litigation. William’s notes reveal that to be false. The FDIC wanted to stay because it preferred the administrative forum. It also knew that its case here would fail. Williams also asked, “What is our
proof
that is more than bad bus. judgmt.?”
110
In May, the FDIC hired OTS. It agreed to cover OTS’s costs because “OTS faces severe budgetary constraints and that, as a result of these limitations, OTS cannot consider issues which implicate a failed institution to be its first priority.”
111
The agencies agreed that recovery would go to the FDIC.
112
OTS promised that it would
*1061
submit its investigative plan to the FDIC. After agreeing to do the FDIC’s bidding, OTS papered the record with an insistence that its investigation and decision would be autonomous.
If the FDIC had not suborned the OTS with its subsidy, OTS would have done nothing.
113
Getting the OTS to participate was critical because the FDIC had no claim for United Savings’s failure. In addition, according to the FDIC, its own “claims alone are not likely to be sufficient to cause Hurwitz to offer the Headwaters Forest.”
114
In the words of the Office of Management and Budget, OTS’s claims were needed to “fill in the gap bet[ween] forest value and FDIC claims.”
115
In May, Chairman Skip Hove promised the executive director of the Sierra Club that he was following the debt for nature issue closely and that “issues involving the redwoods might be brought into play.”
116
Hove received another letter from Congressman Dellums, who advised that he had met with the “team of public interest lawyers” who advocated the debt-for-nature swap. Dellums chastised the FDIC for not having yet sued nor having told him about the debt-for-nature proposal.
117
Dellums forwarded copies of his letter to Gonzalez and Hamburg.
In June, Thomas Hecht, a private lawyer for the FDIC with Hopkins & Sutter, met with Jill Ratner, the founder of the Rose Foundation, for the first of many meetings.
118
Rose’s work would become integral to the government’s case. That same month, Williams noted that there were “2 basic issues surrounding this claim.” These were: the “high level of discomfort on the merits of the claim” and “the subst. political attention focused on this claim.”
119
In July, Hopkins & Sutter’s Steve Lambert — the lumber lawyer — drafted the FDIC’s talking points for a conference.
120
His memorandum was
entirely
about the Headwaters bill, its status, implementation, and supporters, of which “34 are on one of the Committees dealing with FDIC.”
The retained lawyers sent Williams a memorandum in mid-July that shows the FDIC’s thoughts about the suit.
121
Counsel remarked that “time did not permit an
orderly and thorough investigation
of the claims as they now have been delineated.” (emphasis added)
122
By this time, the FDIC had been investigating its claims for over six years.
The FDIC referred to the OTS claims as part of “the case.”
123
Its outside counsel warned that, because of media attention, “there is an overlay of political issues which must be considered.”
124
These considerations included responding to environmentalists and developing “creative” claims against Hurwitz. Again, Williams would later testify that media coverage and pressure from environmentalists did not influence the FDIC.
The memorandum also shows that the agency had no facts to support that the
*1062
thrift was not viable when it was put into receivership.
125
Up to then, the agency had simply told its experts preparing anal-yses to assume that the thrift was not viable. It now acknowledged that differing opinions about viability were possible, so it needed to “develop the facts relating to [United Savings’s] financial condition” to support that the thrift could not have survived.
The FDIC acknowledged that, “as with our other claims,” the claims against directors were difficult to support.
126
It doubted whether the directors had recklessly disregarded the law. In addition, this was apparently the first time that the agency had attempted to hold directors responsible for losses from market fluctuations.
127
In other words, the agency wanted the directors to have guaranteed that adverse business conditions would cause no loss to depositors.
Other excerpts reveal the weakness of the FDIC’s attempts to link Hurwitz to the Drexel Burnham and Michael Milken scandal:
While two sets of events ([United Savings] junk bond investing and Drexel money for Hurwitz take overs) clearly took place, it is not clear that a firm agreement linked the two together.... Given that others who have examined this area have found no express agreement, this does not appear to be a priority area for inquiry.
The Drexel connection with Hurwitz will, however, be of significant use in tainting the independence of [United Savings’s] decision making process,
(emphasis added)
128
The FDIC proposed developing the Drexel link by “meeting with the Rose Foundation attorneys and environmental activists who claim they have useful Drex-el-Pacific Lumber Co. information.”
129
On the OTS, the FDIC said that the administrative venue was more favorable than federal court. With another bureau, there would be no independent judiciary to slow the regulatory state’s seizure of assets and reputations. The FDIC could have joined the OTS in this action; after all, they are both components of the same entity — the national government. It discussed that although a two-agency suit might be viewed as coercive, hiring OTS was necessary because “having the defendants confront two agencies in different venues adds significant pressure.”
130
The memorandum confirms that the OTS’s declarations of autonomy were a sham.
Given OTS’s limited resources, we must be prepared to develop for them the material they need to move forward. In our prior meetings with OTS we volunteered to develop an overview of the claims and issues along with key supporting documentation.... This outline, along with our substantive discussions with its staff, should provide OTS with a context for pursuing three sets of claims: (i) a net worth maintenance claim against UFG, (ii) a net worth maintenance claim against Maxxam and (iii) claims against [United Savings’s] officials for violations of law or regulations which caused injury to [United Savings].
131
Last, the memorandum shows the weakness of the FDIC’s net-worth claim — a
*1063
claim that it eventually brought. The agency admitted that it may have waived the claim because of its dealings with the thrift. Also, it could not explain the contemplated damages of $500 million.
132
The FDIC had simply picked a number — a number large enough to cover Dellums’s suggestion.
In August, Rose’s Ratner faxed Lambert a copy of an article about her from the
San Francisco Daily
Journal.
133
The article describes (a) Ratner as the author of the debt-for-nature idea, (b) her effort to pin United Savings’s failure on Hurwitz because of his connection to Pacific Lumber through Maxxam, and (c) her plan’s political support from Vice President Gore and Senator Barbara Boxer. The fax is significant for another reason: its cover sheet. The FDIC has not explained how an environmental activist to whom it gave “no serious consideration” knew to what lawyer and at what number to fax the article.
A month later, Ratner sent Lambert a 43-page memorandum exploring the history of Maxxam and Maxxam’s acquisition of Pacific Lumber.
134
Ratner concluded that Maxxam’s using bonds to buy land in California caused the Texas thrift to fail. She arrived at this, saying:
• Maxxam was a controlling shareholder of United Financial and, therefore, controlled United Savings.
• Maxxam’s investing in high-yield bonds breached its fiduciary duty to United Financial and, therefore, to United Savings.
• Because the thrift failed, Maxxam owed the government money. A constructive trust should be placed on Pacific Lumber’s assets for the FDIC’s benefit.
Maxxam, however, owned less than a controlling share of the holding company and no stock in the thrift. It owed no duty to the thrift. In addition, at no time does Ratner explain how Maxxam’s use of bonds to buy land caused United Savings to fail. Ratner’s correspondence shows that, contrary to the government’s assertions, the FDIC heeded the Rose Foundation’s suggestions.
135
Each of Ratner’s points could be addressed; her confusion of facts and law is clear to any non-cause lawyer. It is sufficient to list them so that the parallel between them and the FDIC’s confused assault is obvious.
On October 3, the FDIC and its lawyers discussed the Rose materials.
136
The next day, Rose Foundation lawyers, the FDIC’s outside lawyers, and the FDIC legal staff held a conference call that lasted over an hour.
137
They discussed logging. They also talked about whether published criteria existed for the FDIC board to follow in deciding whether to sue. The agency’s only policy guidelines were whatever the staff recommended.
138
Days later, Ratner wrote Hecht “in response to your requests for more specific information on current logging within the Headwaters area....”
139
Two days later, Ratner summarized for Hecht recent and pending cases affecting the Headwaters.
140
Richard DeStefano, a Rose lawyer, wrote
*1064
Hecht a month later about constructive trusts, junk bonds, unjust enrichment, the role of the other United Savings directors, Texas savings-and-loan regulations, and the Endangered Species Act.
141
Ricki Tigert became chairman of the FDIC board around this time. Tigert’s last name would later change to Heifer. Ratner promptly wrote her about debt for nature.
142
She also sent her the 43-page memorandum that she had sent to Lambert.
In late October, OTS began its investigation of United Savings and United Financial.
143
In late November, the FDIC’s outside counsel sent the OTS a draft notice of charges, a chronology on the net-worth claim against Maxxam, a summary of a regulator’s review of a United Savings real-estate portfolio, and another analysis by the Rose Foundation.
144
The lawyer also mentioned that it was looking at a group of loans that OTS might use for its suit.
In December, the FDIC’s Williams sent to “Bob” — presumably DeHenzel at the FDIC — an article from the
Houston Chronicle
about off-track betting in horse racing in Texas.
145
The article quotes Hurwitz. Williams observed that Hurwitz was “pushing for” off-track betting in Texas and that he had signed an agreement to turn a Houston building into a gambling casino. He concluded, “both show he’s looking for large cash flows .... ” First, Williams’s note is another snide personal attack on Hurwitz. Second, his implication that it is somehow sinister for Hurwitz or anyone else to look for cash flows is ridiculous.
12.
Politics: 1995.
In January, the FDIC met with the National Heritage Foundation, “a group closely associated with the Rose Foundation,” to discuss the debt-for-nature issue.
In February, ten well-known environmental groups wrote Chairman Tigert, Senator Boxer, and Leon Panetta, then-chief of staff to President Clinton. They wanted the government to “make protection of the Headwaters Forest one of the bases of ongoing settlement negotiations in the [United Savings] matter.”
146
Ten days later, the Rose Foundation published additional material about the debt-for-nature swap.
147
In March, John Rogers, another Hopkins & Sutter lawyer, sent the OTS the documents that he had mentioned in his comments on the notice of charges.
148
Days later, Ratner wrote Allen McRey-nolds, Special Assistant to the Secretary of Interior, to memorialize a conversation that they had had about intra-agency land transfers, including using the FDIC and OTS to extract the redwoods from Hur-witz.
149
Also, California state senator Tom Hayden asked Clinton to pressure the FDIC to bring suit and get the redwoods as partial settlement of the government’s loss on the thrift.
150
He sent along more Rose material.
The Clinton Administration was promoting the swap. Panetta had told an environmental group that the swap was “worth pursuing,” especially since “budgetary con
*1065
straints” prevented the government from buying the trees “through outright federal purchase.”
151
In June, the National Heritage Institute forwarded to the FDIC Pan-etta’s letter.
152
People from the White House, Forest Service, Interior Department, OTS, FDIC, and the Vice President’s office were now part of the plan to bring actions against Hurwitz and Maxxam to wring the redwoods from them.
During this time, Hecht assessed the Rose Foundation’s proposals and wanted “to memorialize our contacts with these groups and to discuss the options they have urged upon the FDIC and OTS.”
153
Hecht noted the deficiencies of the proposals and said that settlement was the government’s best option.
As the theories have become subject to criticisms, certain of the counsel for the Rose Foundation have shifted (at least in part) from arguments compelling the
seizure
of the redwoods to urging the development of an
aggressive and high profile damages case in which the redwoods become a bargaining chip in negotiating a resolution.
This, indeed, may be the best option available to environmental groups: its greatest strength is that it does not depend on difficult seizure theories. This approach would require that both the FDIC and OTS undertake to make the redwoods part of any settlement package, (emphasis added)
154
An April e-mail by the FDIC’s Williams shows the FDIC mulling “creative options that may induce a settlement involving the sequoia redwoods in the FDIC/OTS case.”
155
Publicly, the FDIC said that the swap was simply one option that it was considering.
156
In late April, the agency conceded internally that “we have no claim against Koz-metsky that can survive stat. of limitations.”
157
This was a concession from its earlier position that George Kozmetsky needed to be sued because he was a member of the “Hurwitz’ core group.”
158
Yes, sue him because he was close to Hurwitz; hurt his friends, and he will settle, like Soviet threats to denounce one’s colleagues and family if one did not confess to being whatever kind of scapegoat the government needed at the moment. George Koz-metsky was an outside director of Maxx-am.
The FDIC originally decided to sue Koz-metsky because he was a member of the audit committee.
159
It also noted that he was highly respected businessman who was active in numerous charities.
160
When the FDIC decided not to sue him, it said simply that
“although
he was an active member of the Audit Committee, ... he was an outside director and was not a member of the Investment Committee.” (emphasis added)
161
The distinction between Hurwitz and Kozmetsky made no sense. Like Kozmet-sky, Hurwitz is a successful Texas businessman and prominent in charities. Hurwitz was also a director of Maxxam. Hurwitz, however, was not a director of
*1066
the thrift or involved in the details of its operations.
162
No rational explanation exists for why the FDIC would drop its claim against Kozmetsky, who was directly involved in the thrift, but persist against Hurwitz. The only possible inference is Hurwitz’s connections to the redwoods.
Other problems with the case surfaced in June. The FDIC’s Division of Asset Services said that the FDIC could prosecute only those who had depleted the insurance fund by defaulting on loans, not directors and officers.
163
In addition, Maxxam belonged to Maxxam Group Holdings, Inc., a publicly traded company. To sue Maxxam, the FDIC would have to contend with shareholders of the parent, not just Hurwitz.
164
FDIC officials met on July 20 to discuss whether (a) Hurwitz would toll again and (b) OTS would file suit. Deputy General Counsel Jack Smith said that “we will not go forward if OTS files a case” and that “If OTS
does not
file suit, we will have to decide our case on the merits before tolling expires.” (emphasis original)
165
This was fully seven years into the government’s investigation. The agency has been issuing press releases, making accusations, and demanding money without— by its own admission — having fully assessed the merits of its case.
On July 20, the thrift’s officers and directors extended their tolling agreements. Hurwitz did not. After nearly a decade of being investigated, he had had enough.
The next day, the FDIC met with McReynolds of Interior about the swap.
166
Smith observed that the “Calif deleg. is really putting the pressure on.”
167
Notes from John Thomas’s “Headwaters” file say that the FDIC had not yet decided to bring suit but would in a few months. According to McReynolds, “the Admin, wants to do deal” and that he was “told to find way to make it happen.”
168
The FDIC acknowledged, “If we drop suit, will undercut everything.”
169
In the course of the meeting, the FDIC’s Robert DeHenzel noted that “Hur-witz really wants
200 million
for the 8000 acres.
Calif,
will trade 100 million worth of other state forest, but need to come with another 100 million, at least, to
give Hurwitz
(forgiving FDiC/OTS debt.)”(emphasis original)
170
He also wrote that Interior had no money for the deal. Another participant wrote that Interior was under “lots of pressure” from environmentalists and the California delegation.
171
The FDIC had a choice between the “Hit for dismissed suit” and “Hit for walking based on staff analysis of 70% loss.”
172
Yes, a 70% chance of loss.
On July 24, members of Congress wrote the FDIC, wanting an update on the case and urging the debt-for-nature swap.
173
FDIC Chairman Ricki Heifer considered the letter important enough that she circulated it to ten FDIC officials.
13.
Original Recommendation.
On July 24, the staff made its initial recommendation on the suit: it told the
*1067
board
not
to sue.
174
The FDIC’s claims had expired or had little chance on the merits.
The agency wanted to argue that the court should toll limitations, but courts had disagreed with the standard for tolling that the FDIC would have to use. The FDIC could only argue that the thrift’s directors and officers and Hurwitz had been grossly negligent in their actions. Decisions in the Court of Appeals for the Fifth Circuit barred that theory. They had held that only self-dealing and fraud— not gross negligence — would toll limitations.
175
The staff admitted that “there is very little, if any, evidence of fraud or self-dealing. ...”
176
Even if gross negligence had been sufficient to toll, Texas law had a rigorous standard for it. To establish gross negligence, (a) viewed objectively, an act would have to involve an extreme degree of risk, and (b) the defendant would have had to have been subjectively aware of the risk and have continued disregarding the well-being of others.
177
This would make it “very difficult, if not impossible to prove our claims.”
178
The staff predicted the likelihood of dismissal to be greater than 50% and, therefore, did not recommend suit.
The staff knew that the agency would be sharply criticized for not suing but still wanted to pursue the debt-for-nature swap with OTS. It told the board that, if it decided to sue, the agency would have to sue by August 2 — only 9 days later.
Another draft of the original recommendation shows the staff “taking the unusual step” of informing the board of its conclusion “because the FDIC is highly likely to lose on statute of limitations grounds.”
179
On the de-faeto-director claim, the staff wrote, “The law has also moved against us on the merits of the claims. The claims against Hurwitz are more difficult than usual because he was not an officer or director of [United Savings].”
180
It said that this was a “notable hurdle.”
Another draft is more candid about dismissal on limitations grounds: the agency predicted a 70% chance and said:
Under such circumstances, the staff would ordinarily close out the investigation under delegated authority. However, because of the high profile nature of this case (evidenced by numerous letters from Congressmen and environmental groups), we are advising the Board in advance of our action in case there is a contrary view.
181
Limitations were not the only hurdle. The FDIC faced an “increased risk of dismissal
on the merits.”
(emphasis added)
182
Each draft discusses the unlikelihood of success. Each contains a section about the redwoods, refers to Hurwitz as a “corporate raider,” and acknowledges that a decision not to sue would be met with “media coverage and criticism from environmental groups and members of Congress.”
183
*1068
The drafts discuss Interior’s pursuit
of the
swap, and two discuss how the swap would extinguish “the FDIC/OTS claim.”
184
Each notes the Administration’s serious interest in the swap.
185
14.
Heifer Briefing.
Also on July 24, John Thomas met with his boss, William Kroener, general counsel of the FDIC. Although Kroener swore that he did not recall what Thomas had told him, their conversation was important enough for Kroener to ask for an immediate briefing with Chairman Ricki Heifer.
186
Thomas thought that the purpose of the briefing was to tell Heifer about the staffs recommendation so that the FDIC could close the investigation.
187
He told her about the recommendation not to sue, and the meeting ended with no plans for the case.
188
Later that day, Heifer asked to see Kroener in her office. She told him to “take another look at the claims.”
189
She did not specify what needed another look, saying only that she believed that the behavior had been “egregious.” Kroener gave the same instruction to Thomas.
There is no question what Heifer meant. In a binary choice — sue or not — when the result
not
needs to be re-“looked,” the only alternative is
sue.
The FDIC had been investigating Hurwitz for almost a decade. It had found nothing to show that Hurwitz had made the thrift fail. Regardless, Heifer was determined to use him for political points generally and to get some trees, although neither facts nor law supported her. Despite the FDIC’s duty of independence — of disinterested technical service— Heifer both casually accepted the political preferences of her pals in the Administration and cravenly bowed to loud environmentalists and congressmen.
In a day, Thomas rewrote the staffs recommendation. He invented a net-worth claim from the one that the FDIC had concluded that it had no authority to bring. The FDIC said that Hurwitz had breached his fiduciary duty to United Savings by failing to cause Maxxam and Federated to maintain United Savings’s net worth. This theory is specious. By Thomas’s logic, Hurwitz could have been sued for not contributing (a) his personal wealth to the thrift or (b) anything that Hurwitz could influence that was needed to pay the thrift’s bills. If Maxxam and Federated did not contribute, he would be liable for not making them do it.
On July 26, Smith wrote other FDIC lawyers, telling them that “The Chairman and General Counsel have decided to recommend suit in Hurwitz.”
190
FDIC policy required that recommendations to sue come from the staff; this one came down from one member of the board and her legal advisor.
15.
Amended Recommendation.
On July 27, the staff issued an amended recommendation. The only difference between the amended recommendation and the initial one was the omission of the “not” before “sue” — the manipulated result. The staff still warned the board that the claims faced a 70% chance of dismissal on limitations.
191
It said that changes in
*1069
the law would make tolling unlikely and that holding Hurwitz liable for the thrift’s net worth would be difficult.
192
It predicted a 50% likelihood of success on the merits.
193
The staff justified its recommendation by parrotting Heifer: the conduct had been “egregious.”
194
Heifer, however, never articulated how Hurwitz’s conduct had been wrong. After its protracted investigation, the staff could not either. The staffs explanation was a sham. The staff knew it. Heifer knew it. Even the agency’s official memorandum
recommending
suit conceded .that the case was a loser. The motivation was the redwoods.
Like earlier drafts, the memorandum reminded the board of the media coverage of Pacific Lumber’s “harvesting redwoods.” It emphasized that the environmentalists had garnered “considerable publicity” for a debt-for-nature swap and that “the Administration is seriously interested in pursuing such a settlement.”
195
Last, the document conveyed that Interior had been negotiating with Hurwitz for an exchange of federal property and the “FDIC/OTS claim” for the redwoods.
196
Implicit is that, without a suit, the government had no leverage to extract the forests.
Also on July 27, Jeff Williams updated other FDIC officials on the status of the complaint.
197
He said that the complaint would contain “the newly added” net-worth claim, aiding and abetting breaches of loyalty by other directors, and gross negligence in a real-estate portfolio and a mortgage-backed-securities subsidiary. Apparently, the draft would be flexible enough to add new defendants if they did not agree to toll. It would allow the board to “take a run” at limitations if it wanted.
16.
Board Presentation.
On August 1, the board of directors met. The board comprised Ricki Heifer; Andrew C. (Skip) Hove, vice chairman; Stephen R. Steinbrink, acting Comptroller of the Currency; and Jonathan L. Fiechter, acting director of the OTS. Thomas briefed them, and Heifer presided over the meeting. At no point did either of them disclose that the staff had initially recommended no suit or that Heifer had told them to redo the recommendation.
Thomas said that the staff wanted to sue Hurwitz and three other United Savings insiders for grossly negligent management of two mortgage-backed-securities portfolios.
198
It wanted to sue only Hurwitz for his being a control person and
de facto
director of the thrift. It said that he should have made United Financial, Federated, and Maxxam maintain the thrift’s net worth.
Before addressing the recommendation, Thomas reminded the board of the redwoods, saying:
This is, of course, a very visible matter. It is visible for something having no direct relationship to this case, but having some indirect relationship.
Mr. Hurwitz, through Maxxam, purchased Pacific Lumber. Pacific Lumber owns the largest stand of virgin redwoods in private hands in the world, the Headwaters. That has been the subject of considerable environmental interest, including the picketing downstairs of a
*1070
year or so ago. It has been the subject of Congressional inquiry and press inquiry. So, we assume that whatever we do will be visible.
Interior — you should also be aware the Department of Interior is trying to put together a deal to get the Headlands, trade property, and perhaps our claim. They have spoken — we’ve spoken to the staff a few days ago about that, and the staff of the FDIC has indicated that we would be interested in working with them to see whether something’s possible. We believe legislation would ultimately be required to achieve that.
But again, it’s the Board’s pleasure. We would at least try to find out what’s happening and pursue that matter and make sure that nothing goes wrong and we’re not part of it.
199
Thomas said that the agency was in the position where it could “probably spend a lot of money.”
200
On the prospects of success, he said that dismissal of the mortgage-backed-securities claims on limitations grounds was 70% likely and that success on the merits was less than 50%.
201
He also said that the net-worth claim against Hurwitz was “a very difficult claim on the merits,” especially since Federated and Maxxam never agreed to maintain the thrift’s net worth.
202
Thomas warned the board that “we expect if we bring this claim we will see Rule 11 motions.”
203
Heifer — a lawyer and former clerk for the Court of Appeals for the Fifth Circuit — did not know what Rule 11 was.
204
It was explained to her that Rule 11 was designed to allow courts to correct and deter lawsuits unsupported by facts and law. Only two-and-one-half months earlier, the agency discussed whether it faced sanctions under the rule in another case.
205
Apparently, the FDIC contemplates duplicity frequently.
17.
Deliberate Votes on Independent Judgment.
After a dishonest presentation of a doctored recommendation, the board deliberated. The board members failed them public trust. The transcript and recording of the meeting show the board’s vacillation. Not content to rig the staff report, Heifer insisted on her secret decision.
Heifer: Are there any other comments or question? May I have a motion to accept the staffs recommendation to authorize the institution of a professional liability suit against certain former directors and officers of United Savings Association of Houston, Texas? Anyone want to make the motion?
[Nervous laughter
]
Fiechter: I take it this is up or down if tomorrow—
Heifer: Yeah, it’s up or down.
Fiechter: — if it runs.
Heifer: I think you’re saying that there is a high probability that on one of the claims the claim will not go forward on the statute of limitation grounds. There is a lower probability — there is a high probability that the other claim will go forward despite statute of limitation claims; that the chances of recovery on the merits on the first claim are
very high,
the chances of recover on the merits of the second claim are a bit lower, the probability of a
high recovery
should the case go forward on the merits is
*1071
significant,
but that has to be offset against the difficulties with respect to one of the claims on statute of limitations grounds. Have I summarized? (emphasis added)
206
Heifer was inventing recovery probabilities, contradicting even the manipulated report from the staff. If the FDIC had a 30% chance of surviving limitations and a 50% of succeeding substantively, then its chance of success was 15%. That is better than seven to one against winning, as Damon Runyon would say. Heifer claims to be a lawyer; she should have known this. She took the initial vote.
Heifer: ... Is there a motion to accept-accept the staffs recommendation to proceed with suit in this case? No from you? No? No? Can the Chair make a motion?
Board member: Yes.
Langley: Bill says yes, the Chair can make a motion.
Heifer: Okay. I’m going to make a motion to pursue this suit in the case. Is there a second to the motion?
[Seconds pass with no one seconding the Chair’s motion.]
Steinbrink: I’ve never seen this before.
[Laughter
]
Heifer: I never have either. We can still vote on the merits of this, you all. I think that we should have a recorded vote. So I ask for second to my motion so we can have a recorded vote on whether to institute suit.
Vice Chairman Hove: Can a motion be seconded and then voted against the motion?
Heifer: Can the person who seconds the motion vote against it?
Langley: Sure. Yes.
Heifer: Yes.
Hove: I will second.
Heifer: All right. All in favor of insti— of the staffs recommendation to authorize suit in this case. Please record that the Chair votes yes. All opposed to instituting in this case.
Hove: Aye.
Fiechter: Aye.
[Seven seconds of silence followed by nervous laughter.]
Steinbrink: I think I would defer to the Chair in this case and in the first request vote with the Chair.
Heifer: Okay. So that would be a two-to-two vote, and I assume that would not authorize suit in the case; is that correct?
Langley: Right, that’s correct.
207
Hove and Fiechter said, “Aye,” in response to a question for “No” votes. This would be similar to a middle school student’s yelling “Yo” to his teacher’s question. It is confusing, but the board had voted not to sue Hurwitz. Without explanation, Fiechter moved to reconsider the vote. Heifer and Steinbrink seconded the motion so that the board could discuss the suit. For the remaining fifty minutes of the meeting, the board discussed only:
• Whether this court would allow the FDIC to stay or dismiss its case if OTS sued;
• Whether dismissal with prejudice in this court would preclude the FDIC’s recovery in the OTS action;
• Whether the FDIC would harm the OTS action by not pursuing the case; and
• How much the FDIC and OTS claims overlapped and the costs for the overlapping claims;
*1072
The directors never discussed the merits of the FDIC’s claims or why Hove and Fiechter had voted against the suit. The only reference to the merits came when a director clarified the perceived acts of the thrift’s insiders, who did not include Hur-witz. That lasted about a minute.
The board knew that the FDIC was covering OTS’s costs.
208
It was concerned about paying for duplicate litigation. Heifer pointed out that the issue would be resolved if this court stayed the action. Even if stayed here, the FDIC would be bringing two bad claims. She did not know whether this court and the court of appeals would stay the case, based on her experience clerking in the Fifth Circuit “with one of the sounder judges of the Circuit
[laughter
] which are not, unfortunately, ones that we seem to come before
[laughter
].”
209
Steinbrink still could not understand why the staff recommended suit. Heifer still did not tell him why the staff had done it — that the staff was doing her bidding. He reasoned that the agency must have wanted to sue on “the principle of it, but the economics of the thing still doesn’t make sense.” In the end, Steinbrink relinquished, adding, “in the sense of collegiality, if — if the Chairman is interested in having this go forward, I am willing to let it go forward.”
210
The board discussed the law briefly. Heifer asked for a motion supporting the staffs recommendation. Fiechter moved, and Steinbrink seconded. Hove, Fiechter, and Heifer voted to sue.
18.
Fiechter.
Another problem with the decision — aside from Heifer’s dishonesty and the others’ weakness — was its illegality. Fiechter was participating with no lawful authority. His credentials had long ago expired.
Although the FDIC is called a corporation, it is simply a bureau, a creature of the government of the United States of America. The FDIC is managed by a board of directors. For the FDIC to sue in these circumstances, the board must authorize the suit by a specific vote.
211
The FDIC board has five members, three of them appointed by the president directly with Senate confirmation. The other two members are the Comptroller of the Currency and the Director of the Office of Thrift Supervision; their seats are derived from presidential appointment with Senate confirmation to their primary offices.
212
When the Board voted to sue Hurwitz, it had one vacant seat and two direct appointments — Heifer and Hove. The other two were there ex officio. Steinbrink was acting comptroller of the currency. Fiechter was the acting director of Thrift Supervision.
Although without Fiechter’s participation, the board would have had a quorum of three members. Since a quorum was present, the FDIC says that Fiechter’s vote was not necessary and that his presence at the meeting was harmless. The facts are the opposite. Fiechter was not a face in the crowd as the board did its business; he moved to reconsider the initial “No” vote. In the end, he moved to bring the suit. He may have been unnecessary for a quorum or majority, but he was a principal actor in the business conducted.
*1073
Also, Fiechter was acting as the leader of the OTS. That means that he was on both sides of the process of one agency suborning and another being suborned.
19.
Appointment.
The Office of Thrift Supervision was created to regulate the savings-and-loan business in the wake of its collapse in the 1980s. It is a subdivision of the Department of the Treasury.
213
The statute creating OTS requires the director to be appointed after nomination by the president and confirmation by the Senate.
214
Even if this requirement were not in the law, the Constitution would oblige the director to suffer the nomination process. Unless Congress has by law vested an appointment in the courts, the head of a department, or the president alone, an officer who exercises authority under the laws of the United States must be appointed through nomination and confirmation.
215
On April 4, 1990, after Senate confirmation, President Bush appointed Timothy Ryan as director of OTS. He resigned on December 4, 1992, and his authority devolved to Fiechter, the deputy director. As acting OTS director, Fiechter also acted as a board member of the FDIC. He voted to authorize this suit on August 1, 1995, and it was filed the next day. Fiechter resigned on October 9, 1996, and the following day President Clinton directed Nicolas P. Retsinas to act as director. Fiechter, however, was not an officer who could be replaced by presidential directive. For a temporary succession to be lawful, the resigning person must have been constitutionally appointed to the actual office. Fiechter was not “duly appointed” so he could not be succeeded by another acting director.
216
Fiechter’s authority expired on July 2, 1998 — 210 days after Ryan’s resignation.
217
On October 28, 1997, the president appointed Ellen Seidman as director of OTS after she was confirmed by the Senate. From July 2, 1993, until October 28, 1997, then, OTS was without a lawfully appointed head. Running a sub-cabinet office with unappointed officers for almost five years mocks the rule of law and the Constitution. A constitution followed only when convenient is not constitutive.
20.
Appointments.
The Constitution requires that the president “nominate, and by and with the Advice and Consent of the Senate” appoint “Officers of the United States.”
218
Congress may make exceptions by law for “inferior Officers” to be appointed by “the President alone.” The director of the Office of Thrift Supervision, who exercises significant authority of the United States, is an officer of the United States.
219
As the deputy director of OTS, Fiechter did not need to be confirmed; the law excepts that job. To execute the powers of the director beyond the statutory period for an interim as acting officer, however, Fiechter, needed to be appointed by the president following nomination and confirmation. Because he was not properly appointed, Fiechter’s participation in
*1074
the authorization of this suit was unconstitutional.
The wisdom and necessity of the Constitution’s restrictions on presidential authority over executive branch personnel are not points to be debated; they are in the text, binding us all. Nomination and confirmation may be awkward, but they were meant to be inefficient. These processes are barriers to the aggrandizement and abuse of power, whether deliberate or casual or negligent.
The FDIC argues that Fiechter was a
de facto
officer of the United States. The Constitution does not say that one can become an officer who must be nominated and confirmed by assuming the office. If an administration wants to send someone from the mail room at the State Department to sit as a director of Nuclear Regulatory Commission, it may, but it violates the law. Unlawful government — to belabor the obvious — is unconstitutional. One can be used by the government so that one becomes its agent; that is possible. This was no battlefield promotion, no last man surviving. This was years of neglecting essential functions of an administration and years of arrogating public authority.
21.
The Vacancies Act.
In 1868, Congress first “by Law” vested the president with authority to appoint an officer to act temporarily in the case of an officer’s death or resignation. The temporary replacement may act until a successor is nominated, confirmed, and appointed. This allows continuous operation of the government during the transition from resigned or dead officers to their successors.
In the 1980s and 1990s, the first assistant could perform a resigned officer’s duties for up to 120 days. In October 1998, the law extended the lawful acting period to 210 days.
220
The president and Senate may use this time to complete the appointment process. The 210-day limitation may be extended if someone has been nominated to fill the vacancy or if the vacancy occurs while Congress is adjourned indefinitely.
221
If the Senate is in recess, the president may make an appointment that operates immediately.
222
None of these exceptions applied to the vacancy at OTS in 1992-1997.
Fiechter assumed — succeeded to — the duties of director of OTS on December 4, 1992, the day Ryan left office. Fiechter voted to authorize this suit on August 1, 1995, 850 days over the 1998 limit on his authority. He would have been 761 days past the 210-day limit.
• The president did not nominate anyone to fill the vacancy between December 4, 1992, and August 1, 1995, ruling out an extension for pending nominations.
• The 102d Congress adjourned indefinitely on October 9, 1992, and was still in adjournment on December 4, 1992. The 103d Congress convened on January 5, 1993. Theoretically, Fiechter’s window of authority could have been extended to 120 days after January 5, 1993, making the last day of his authority May 5, 1993. This would have still been over 800 days short of August 1, 1995, when Fiechter voted to authorize this suit.
• The president made no recess appointment of Fiechter.
22.
Vacancy or Absence.
The OTS director may designate a representative to act on his behalf during his absence.
223
Ryan resigned on December 4,
*1075
1992. He was not absent. He could not come back the following Tuesday to continue as director. He was not vacationing; he had vacated. A director has no authority under any law to designate his successor — acting, honorary, or otherwise.
When there is a vacancy, the directorship is filled by presidential appointment. Even if the law allowed the departing director to appoint his successor, it would conflict with the Constitution. Congress could “by Law” allow “Heads of Departments” to appoint “inferior Officers,” but this does not suggest that any officers, inferior or not, may appoint their successors; as long as the incumbent is there, he has no vacancy to fill, and when he is gone, he cannot fill anything.
23.
Board’s Decision & Fiechter’s Vote.
Quorums.
The FDIC board may adopt bylaws to regulate its operations as long as they are consistent with the law.
224
Under its bylaws, a majority of board members
in office
constitutes a quorum to transact business.
225
One member could be a quorum, but this bylaw would plainly conflict with the statutory requirement that the corporation be managed by a board. A collective, deliberative “body” with only one member is as contrary to the regularity of process as an officer without an appointment. Ordinarily, a majority of the membership is the minimum for institutional authority.
226
On August 1, 1995, four of five directors were present: the chairman, vice chairman, acting Comptroller of the Currency, and Fiechter. Because Fiechter was not properly appointed, only three were members in office. The FDIC points out that three is a quorum of the board; two of those three voted for the suit. It argues that Fiechter’s vote, therefore, was unnecessary. It is wrong.
Prejudice.
This suit is about a thrift. Fiechter’s agency, the Office of Thrift Supervision, regulated thrifts. Fiechter investigated Hurwitz and United Savings. Under his guidance, the OTS eventually decided to pursue the very claims that he secretly agreed with the FDIC to bring for it. The FDIC’s Jeff Williams noted that Fiechter would, in fact, sign the OTS’s Notice of Charges in the administrative proceeding against Hurwitz.
227
The OTS director is the FDIC’s link to the thrifts. United Savings’s failure was a regulatory blunder by OTS. Fiechter’s presence and participation were critical to the board’s decision to sue Hurwitz. While it is impossible to know what the board would have done without Fiechter, the process as actually conducted was corrupt under the Constitution. If the unconstitutional presence of non-voting,
ex offi-cio
members on a commission is sufficient to invalidate its actions, then Fiechter’s unconstitutional participation on the FDIC’s board is sufficient to say that the authorization to sue Hurwitz was invalid. His commitment to use the OTS against Hurwitz is equally void; he had no authority to act for the OTS, FDIC, or the American public in any capacity. He was a usurper.
228
Fiechter is simply another instance of the wholesale abandonment of regular, lawful government.
*1076
24.
Suit.
On August 2, 1995, the FDIC sued only Hurwitz. It sought damages exceeding $250 million. The agency vilified him. It said that Hurwitz had: manipulated his positions in United Financial, Maxxam, and Federated to control the thrift; used United Savings funds to buy Drexel bonds in exchange for Drexel’s financing Hur-witz’s other business ventures; plunged the thrift into debt with indifference; gambled on real-estate portfolios; and recklessly invested the thrift’s assets. It said that he concealed all this from regulators.
These were the predicate for two claims. One was the net-worth claim against Hur-witz for his relationship to Maxxam and Federated. The other was a claim for gross negligence in the management of an investment portfolio. Their success rested on the FDIC’s being able to prove that Hurwitz was a
de facto
director of United Savings and that he had breached his fiduciary duty to the thrift by (a) failing to make Maxxam and Federated maintain the thrift’s net worth and (b) allowing United Savings to mismanage its mortgage-backed-securities portfolios.
25. De Facto
Director.
The
de facto
director doctrine was not merely “a notable hurdle” as the FDIC said.
229
It was wholly inapplicable. The doctrine applies only to those who:
• Hold positions like corporate director in a non-corporate entity. The doctrine prevents heads of entities from escaping fiduciary requirements in the enterprise simply because of the enterprise’s structure.
230
• Are substantively — but not technically- — directors. The doctrine prevents the corporation from evading the consequences of acts of those knowingly held out as directors to third parties.
231
For United Savings, the doctrine would have applied only to third parties who dealt with the thrift and were unaware of an official’s true role there.
232
The FDIC was neither a third party nor unaware of Hurwitz’s role. As receiver, the FDIC was United Savings itself.
233
The FDIC knew that Hurwitz had never been elected or served- — or held out — as a director of the thrift. It also knew that the thrift’s board comprised properly elected directors, in whom, according to the regulators, control of the thrift was really vested.
234
The day before the board meeting, Thomas Manick, FDIC outside counsel, warned Robert DeHenzel that the doctrine did not apply.
235
The FDIC ignored him, continuing its practice of retaining lawyers and not listening to them.
26.Net Worth.
For nearly eight years, the staff never suggested that Hurwitz was obliged to have compelled Maxxam or Federated to pour money into United Savings.
236
This
*1077
claim did not arise until July 27, 1995 — the date of the meretricious final authority-to-sue memorandum.
237
Net-worth obligations are regulatory. Only OTS, not the FDIC, can assert the claim.
238
The FDIC acknowledged that it had no claim against United Financial.
239
If it had no claim against the United Financial directly, it had no claim against companies who jointly owned less than one-quarter of the holding company much less against a director-shareholder of them.
Maxxam and Federated never agreed to maintain the thrift’s net worth. They had refused to agree to be a guarantor. When regulators made net-worth maintenance a condition of their acquiring more than 25% of United Financial, they rejected the condition and bought no more United Financial stock. The FDIC knew this.
240
Despite the bad facts and adverse law, the agency dismissed the absence of a signed net-worth agreement as a “complication,” not an “impediment.”
241
The FDIC distorted the 1985 Drexel option to make its claim. The parties agree that Maxxam had an option to buy United Financial stock from Drexel. Only if the
option to buy
stock were the same as
having bought
stock would Maxxam — and therefore indirectly Federated — have owned more than 25% of United Financial’s stock. The FDIC said that (1) having the option was the same as owning the stock and (2) the option gave Maxxam— and therefore Federated — more than 25% of United Financial, triggering the net-worth obligation — the one that they had rejected.
Drexel possessed and retained sole rights to the shares, unless either company exercised their option.
242
Drexel exercised the option almost two years after United Savings failed.
243
No thrift existed into which Maxxam or Federated — under Hur-witz’s mandate — could have poured money. The Drexel option was fully disclosed, United Savings’s federal regulators knew of it, and the Texas regulators approved it.
244
The government never asserted that Maxxam or Federated had a net-worth obligation and raised the issue only when debt-for-nature lobbying occurred ten years later.
The legal premise of the net-worth claim was also confused. The FDIC said that Hurwitz had a fiduciary duty as a director of Maxxam to make Maxxam — unsolicited — pour money into a failing Texas thrift during 1988 for no increase in equity.
245
The FDIC has never explained how this infusion would not have violated Hurwitz’s duty to Maxxam. After all, directors must spend shareholders’ money responsibly.
246
In addition, Hurwitz was not a director of the thrift. The supposed breach of fiduciary duty rested on the irrational premise that Hurwitz’s duty to a company for whom he was not a director was greater
*1078
than his duty to a company for whom he was.
Contrasting United Financial’s net-worth obligation and Maxxam’s presumed one shows the weakness of the claim. Unlike Maxxam, United Financial had agreed to maintain United Savings’s net worth.
247
Hurwitz, as a United Financial director,
twice
authorized
United Financial
to infuse capital into the thrift.
248
Next, the regulators requested a plan from United Financial for maintaining the thrift’s net worth.
249
They never requested a plan from Maxxam. On the eve of United Savings’s receivership, the regulators twice requested an infusion from United Financial, but never from Maxxam.
250
After the receivership, the regulators sent a demand letter to United Financial to maintain the thrift’s net worth.
251
They sent no similar letter to Maxxam. United Financial had an obligation to support United Savings, and it contributed additional capital until it, too, was impoverished.
27.
Mortgage-Backed Securities.
The FDIC argued that United Savings’s portfolios were the product of Hurwitz’s gross, negligence. Those portfolios were managed, however, not by
“de facto
” directors, but by experts whom United Savings employed. Those experts consulted outside experts.
252
The thrift hired Peat Marwick to audit its books.
253
The audits revealed no material irregularities.
254
Federal regulators encouraged thrifts like United Savings to have these types of portfolios.
255
Numerous thrifts had much larger ones than United Savings did.
256
The regulators praised the thrift for its portfolios, saying that they were well managed and successful. The portfolios would have made — not lost — millions of dollars, if the government had not precipitously liquidated them.
257
Even if they were not profitable, it is not gross negligence for United Savings to invest in highly marketable securities based on the fundamental business of the thrift — mortgages.
The FDIC knew that Hurwitz had no role in the actual management of the portfolios.
258
The investment committee made the decisions. Consistent with his limited role at the thrift, when OTS called Hurwitz to testify, it never asked him about the portfolios.
259
Finally, the thrift expanded its portfolios into mortgage-backed securities in 1985 and 1986.
260
A two-year statute of limitations governs these claims.
261
Limitations begin running from the moment of the supposed breach — when the thrift made decisions affecting the portfolio.
262
*1079
Because United Savings failed on December 30, 1988, the breach had to have occurred on or after January 1, 1987, for the FDIC to be able to sue on this claim.
263
No breach occurred on or after January 1, 1987, because United Savings expanded its portfolio only in 1985 and 1986.
Though federal law extends the limitations period of viable claims when the FDIC takes over a thrift, no law revives claims that are stale when the FDIC acquires them.
264
The FDIC took over the FSLIC’s duties on August 10, 1989.
265
A claim based on the mortgage-backed portfolios had expired by then.
266
The mortgage-backed-securities claims were, therefore, time barred.
28.
Leverage: 1995.
On August 1 — the day that the FDIC sued — the Special Assistant to the Secretary of Interior, Allen McReynolds, wrote George Frampton, who was Assistant Secretary of Fish and Wildlife and Parks. McReynolds proposed swapping the banking claims for the redwoods. He noted that “FDIC and OTS are amenable to this strategy if the Administration supports it.”
267
He suggested that Justice, Interi- or, FDIC, and OTS meet to discuss Justice’s view on the debt-for-nature idea. He also wanted an Interior team to represent the agency in negotiations, if the FDIC and OTS wanted Interior’s participation.
268
In mid-September, Heifer responded to a letter from Ratner about the suit. She assured Ratner that the FDIC was “coordinating” with OTS.
269
Heifer did concede that neither Maxxam nor Pacific Lumber were defendants in the suit. She admitted that there was no direct relationship between the redwoods and United Savings’s insolvency; that Pacific Lumber owned no interest in United Financial or United Savings; and that neither United Financial nor United Savings ever owned an interest in ■ Pacific Lumber. She also said that while the FDIC could not compel Maxxam or Pacific Lumber to relinquish the forests, she was open to the idea of forcing Hurwitz to influence that result.
The purpose of the suit was exactly what Heifer publicly disclaimed: to bring the forces of the national government to bear on a citizen in order to achieve a result that the agency had no authority to accomplish: extorting the redwoods.
In late September, Fish and Wildlife’s Frampton wrote Katie McGinty from the Council on Environmental Quality — part of the executive branch — and T.J. Glauthier from the Office of Management and Budget about California Governor Wilson’s inability to put together a deal to buy the Headwaters. McGinty had been Vice President Gore’s chief of staff and campaign aide. She now ran the CEQ.
Frampton suggested that McGinty and Glauthier use the FDIC’s suit as “legal leverage” to get the forests, especially “in light of increased calls for a ‘debt for nature swap.’ ”
270
He further suggested convening officials from government agen
*1080
cies to analyze options, especially in light of “the crescendo of public attention that is ahead of us.”
271
Frampton also relayed that the leaders of Pacific Lumber were “working closely” with his agency
“at their request
” to ensure that the logging did not endanger animals living in the forests, (emphasis added)
272
This illustrates that the FDIC’s public motivation — saving the redwoods and species who lived there — was false. Despite this, it caved to environmental factions to placate them.
In October, Congress asked to see the original tolling agreements between the FDIC and potential defendants. United Financial had already disclosed its agreement to the Securities and Exchange Commission, so its agreement was public information. The names of other potential defendants were not. The FDIC decided that it would give Congress a copy of United Financial’s agreement but not those of the individual directors. It did not tell the defendants about Congress’s interest in the case for fear that they would suspect the FDIC’s having bowed to congressional pressure in suing.
273
On October 20, FDIC General Counsel Kroener met with the Vice President to discuss the debt-for-nature swap. The Forest Service, OTS, Interior, Treasury, Justice, and OMB had people in Gore’s office, too. Kroener briefed Gore on the history of the case, the status of the litigation and investigations, obstacles to the swap, and settlement discussions. On settlement, Kroener said that “Hurwitz has never, however, indicated
directly
to the FDIC a desire to negotiate a settlement of the FDIC’s claims.” (emphasis original)
274
This contradicts the FDIC’s representations that it was Hurwitz — and not the FDIC — who initially proposed the debt-for-nature exchange.
275
Kroener also explained the obstacles to the swap. Like Heifer had earlier, Kroener noted that the FDIC had no direct claim against Pacific Lumber to compel it to surrender of the trees; that neither Maxxam nor Pacific Lumber were defendants in the case; that there was no link between the redwoods and the insolvency of United Savings; that Pacific Lumber had no interest in United Savings or United Financial; and that neither the thrift or United Financial had an interest in Pacific Lumber. Kroener explained the shortcomings of the FDIC suit. These were that:
“FDIC’s claims alone are not likely to be
sufficient to cause Hurwitz
to offer the Headwaters Forest, because of their size relative to a recent Forest Service appraisal of the value of the Headwaters Forest ($600 million); because of very substantial litigation risks including statute of limitations, Texas negligence-gross negligence business judgment law, and Hurwitz’s role as a de facto director; and the indirect connection noted above, including the risk of Hurwitz facing suit from Pacific Lumber securities holders if its assets were disposed of without Pacific Lumber being compensated by either outsiders or Hurwitz or entities he controls.” (emphasis added)
276
This is confirmed that the suit was about the redwoods — not compensating the taxpayers for United Savings’s failure through Hurwitz’s legal obligations.
At the meeting, Frampton said that “the reason we want to exchange the claims in
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the first place is we don’t have the cash.”
277
Another participant noted that the “risk of litigation is what’s driving the issue now — if FDIC loses, then pressure is off.”
278
In late October, Elizabeth Blaug, associate general counsel for the CEQ, asked the participants at the meeting with Gore to assess the legal issues that their agencies would have to confront for the swap. She also asked them to look at whether the FDIC could pass title to the redwoods to Treasury and whether Treasury could pass title to a land-management agency.
That day, FDIC’s Jeff Williams e-mailed Jack Smith about the Department of Defense’s offering Hurwitz a closed military base in the swap. Williams’s exchanges with Defense made “the key point even more clear that it will take more than FDIC’s claims to get the trees and that FDIC remains an important part of exploring creative solutions to the issue.”
279
Also that day, Williams received from the National Heritage Institute a twelve-page memorandum about how the FDIC could transfer the redwoods to a government or private entity instead of selling the trees.
280
The Institute had prepared the memorandum at Ratner’s request.
The administration people met again. They said that they would “need to open dialogue w/Hurwitz soon” and that Blaug should “have McGinty (Gore?) call him.”
281
As part of its practice of disinformation, the FDIC represented to the court and others that Hurwitz initiated the debt-for-nature swap. The meeting notes — like numerous documents — show its predilection for making up facts as well as directors.
Heifer continued to correspond with members of Congress in late October and early November.
282
She assured them that the FDIC was open to the swap.
Around this time, Hurwitz alerted this court that OTS was going to sue him based on claims identical to the FDIC’s claims.
283
This was despite the court’s warning days earlier that:
3. The FDIC shall confer with the OTS to stop the OTS from duplicating the discovery needed in this case; the OTS’s sudden administrative activity that parallels the FDIC’s suit is manifestly suspect.
284
The FDIC had to confess its secret deal with OTS.
285
It downplayed the arrangement, saying that it was forced to sue Hurwitz when — “To the FDIC’s surprise’^ — he did not extend his tolling agreement, as if not extending limitations is itself grounds for suing after six years or at all. It condescendingly advised the court that the OTS and FDIC had collaborated before and that their arrangement was lawful under their broad powers. It dishonestly advised the court that the OTS was acting independently from the FDIC. The court warned:
The use of overlapping authority to harass individuals or to manipulate a lawsuit, especially one brought by the government itself, conflicts with the constitutional requirement that the government not act arbitrarily and irrationally.
*1082
The F.D.I.C. will appear to disclose the
government’s
whole position in its choice of remedies for the collapse of United Savings of Texas, whether judicial, administrative, or military.
286
On November 7, Williams circulated to other FDIC officials a memorandum that the FDIC had worked on with other agencies at the request of the CEQ. The memorandum addressed whether Hurwitz could compel Pacific Lumber to transfer the Headwaters to the agency, whether the FDIC could transfer them to Treasury, what legislation was necessary to allow the transfer, how the transfer would affect the budget, and what indemnity obligations Maxxam owed Hurwitz.
287
At the time, the Headwaters were appraised at $499 million. This number excludes the rest of the redwoods. The FDIC said that its claims and OTS’s claims alone were not sufficient to force the swap.
288
They were necessary, however, as the “core of a global settlement offer.”
289
The FDIC said that it did not know how much OTS would sue for, but it did say that its claim and OTS claims were “overlapping.” It perhaps reasoned, therefore, that OTS would sue for a similar amount as the FDIC had: $250 million.
The FDIC said that banking claims usually settled for one-half of the damages sought.
290
In other words, if the FDIC and OTS jointly sought $500 million, those claims would settle for about $250 million' — not enough to persuade Hurwitz to hand over the Headwaters. Since “it is clear that the FDIC and OTS claims combined would not have enough value to swing a trade for the redwoods,” the FDIC wanted the government to add property whose value exceeded $200 million to its settlement offer.
291
The FDIC suggested that Gore work on including other government property in the deal.
Williams also circulated a photocopy of a 1995 article from
The Press Democrat.
It was an interview of Hurwitz discussing Pacific Lumber’s ownership of the redwoods, contributions that Pacific Lumber had made to rebuilding the California town where it was located, regulatory and environmental battles over the Headwaters, and discussions to trade the redwoods for other land of comparable value. The FDIC says that the article was Hurwitz’s signal to the government that he was open to debt for nature. Actually, Hurwitz explicitly rejected debt for nature in the article, saying that the lawsuit against him was a personal one and that the assets of Maxxam or Pacific Lumber could not be used in a settlement.
292
On November 15, Hurwitz told the court about the debt-for-nature conspiracy.
293
He detailed the campaign, the coercive efforts by environmentalists, congressmen, and administration officials, the pressure on former directors of the thrift to testify against him, and the FDIC’s tactics to shut Maxxam out of business opportunities.
On November 28, the federal conspirators met again. They wanted the “OTS claims” to “go first” because they preferred an “Admin, proceeding” to a “Federal Dist. Ct. proceeding.”
294
The agencies discussed “how to fill the gap bet.
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forest value and the FDIC claims.” At the time, they said that OTS would sue for around $500 million. They also decided that the FDIC and OTS would open settlement discussions after OTS sued.
Also on November 28, the FDIC moved to stay this suit, saying that it wanted to avoid “duplicative concurrent litigation.”
295
This was a lie. It wanted to keep up the “pressure” without the “risk of litigation.” The court denied the request.
296
In late December, OTS sued Maxxam, Federated, Hurwitz, and five United Savings directors. OTS’s claims were identical to the FDIC’s, but it sought nearly $1 billion in damages. This is a change from the $500 million that, only a month earlier, it said that it would seek. It accused the respondents of failing to maintain United Savings’s net worth; illegally purchasing Drexel bonds; gambling with the mortgage-backed securities portfolios; lying about how those portfolios were hedged; inflating the thrift’s net worth; and overall managing the thrift recklessly.
297
The FDIC again moved to stay.
298
The court again denied it.
299
29.
A New Front: 1996-1997.
Until Hurwitz’s letter to the court, the FDIC had said that it welcomed the debt-for-nature swap. After the letter, the agency reversed course. A note from Smith in March 1996 urges, “Tell Mcwe need exit strategy from Redwoods. NO collusion.”
300
When asked about a possible swap, an Interior official said that the discussions with Interior, Hurwitz, and Pacific Lumber “have nothing whatsoever to do with the FDIC or the Office of Thrift Supervision, and cannot at this point.”
301
He also said that he was “forbidden by law from discussing any possible arrangements with the FDIC or the Office of Thrift Supervision to drop their claims against Hurwitz as part of a Headwaters deal.”
302
Privately, the FDIC was undeterred. Williams suggested accelerating the case:
As I suggested many months ago, it may be advantageous for us to tie him up in lengthy depositions and commence a moderately aggressive discovery plan of our own that
inconveniences
him and strengthens our case, (emphasis added)
303
This exchange — like the rest of the agency’s internal communications— screams abusive use of civil litigation— beyond vexatious — and betrayal of the public trust.
In November 1996, the court joined OTS as an involuntary plaintiff based on the duplicative nature of the claims here and in the administrative proceeding.
304
OTS resisted. The FDIC knew that it would not be able to stay the case here, but it could not risk dismissal of either action because it needed the pressure of both suits. In January 1997, the FDIC amended its complaint, abandoning the claims that it — through OTS — had brought administratively.
305
This court dismissed OTS but reiterated its suspicion of the FDIC’s deception.
306
*1084
In amending its complaint, the FDIC dropped the mortgage-backed-securities claims and made the net-worth claim contingent on the OTS proceeding.
307
The remaining claim was that Hurwitz should pay the FDIC the difference between what OTS could collect from Maxxam and Federated and what OTS claimed they could have contributed if they had complied with net-worth obligations.
The FDIC’s amended claim rested on these contingencies: (a) Maxxam and Federated owed a net-worth obligation to United Savings; (b) the administrative judge makes this determination, and this is upheld on appeal; (c) the thrift’s net worth declined to a point that required Maxxam to make capital infusions; (d) the administrative judge makes this determination, and this is upheld on appeal; (e) Maxxam owes more than it can pay; and (f) OTS does not recover the difference from Hur-witz.
To reach this point, these contingencies would had to have occurred:
• Hurwitz had a fiduciary duty to the thrift to cause Maxxam to infuse this capital, and Hurwitz was in a position to cause Maxxam to infuse that capital between January 1, 1987, and the thrift’s failure on December 30,1988;
• Maxxam’s obligation to infuse capital occurred after January 1,1987; and
• Maxxam would have been able to satisfy the obligations after January 1, 1987.
The amended complaint did not improve the government’s position. The FDIC converted its suit here into a claim against Hurwitz for whatever amounts that the defendants in the OTS action owed and were unable to pay. It became an indemnity action derived from an administrative reassertion of the claims abandoned here. The nature of Hurwitz’s obligation to indemnify is mystical — somehow Hurwitz should have and could have made all these people and companies do whatever the government after the fact decided they should have done. Peculiar.
30.
Candor.
Throughout 1996 and 1997, the government continued resisting Hurwitz’s efforts to uncover evidence about the debt-for-nature machinations. It was working to get something — at least one-half billion dollars in forests — for the comparatively little cost of the taxpayer-funded investigations and litigation.
If the FDIC could get its and OTS’s claims included in a land swap with Hur-witz, the FDIC would accomplish its “ ‘political’ goal of having this be a debt-for-nature swap.”
308
It also wanted to help the CEQ and Interior make Hurwitz “
‘feel some pain
’ ” by his relinquishing the forests “so that it is in fact a ‘debt for nature’ transaction and can be publically characterized as such.” (emphasis added)
309
The Council on Environmental Quality is purely an advisory body. Its statute allows it to study and recommend to the president about trends in the environment.
310
It has no operating authority over anything — not the Forest Service, FDIC, or EPA. It has no lawful authority to broker deals within the executive branch or between it and citizens. Its actions, including receiving FDIC legal disclosures, was illegal.
31.
It Just Continues: 1998-1999.
In April 1998, the FDIC’s outside counsel observed that, in the course of giving testimony to OTS, “The Respondents claim
*1085
they are being pressured to make untruthful statements which they will not do.”
311
He said that settling with everyone but Hurwitz would not interfere with the government’s claims against Hurwitz, Maxx-am, and Federated. Counsel said that the remaining claims were “substantial and,
whatever proof problems they present,
represent a significant threat to the remaining defendants.” (emphasis added)
312
Last, he noted that, if Hurwitz were dismissed in either forum, it would be difficult for OTS to convince the administrative judge that Maxxam and Federated were involved in United Savings’s operations. Of this, counsel said simply, “Since this causal link was pleaded by OTS, one must presume it can present adequate proof.”
313
The FDIC, including its outside counsel, had prepared the OTS case. It knew that no evidence — much less proof — existed.
In August 1998, the FDIC published its self-congratulatory account of how it handled the S & L crisis. It discussed its test for deciding whether to sue. First, the suit had to be meritorious and likely to succeed. Second, the case had to be cost-effective.
314
The government abandoned these pretended criteria when it sued Hur-witz. Its own documents — whose disclosure it has fought for years — reveal the agency’s knowledge that the case was worthless. In addition, it knew that its valuation of the case was speculative. The government has never presented evidence showing how it could calculate its damages. It simply picked a number to force Hurwitz to hand over the trees.
Others began asking questions about the propriety of the suit. In February 1999, Congressman Tom DeLay wanted answers from the new FDIC chairman, Donna Ta-noue, and the FDIC Inspector General Gaston Gianni. DeLay demanded an investigation to determine:
• How environmentalists were able to influence the FDIC;
• Why the FDIC was involved in political meetings with the White House and Interior about the suit;
• Why the White House had injected itself into a dispute between Hurwitz and the FDIC;
• How no inspector general in the FDIC, OTS, and Treasury was alarmed by the collusion between the FDIC and OTS;
• How the government had the audacity to entice Hurwitz to bid for United Savings, reject his offer, and then stiff the taxpayers for the $100 million difference between Hurwitz’s bid and the accepted bid.
315
Tanoue promised DeLay that Gianni was investigating DeLay’s concerns.
316
The Legal Division also responded. It said that it did not sue for political reasons. Legal also said that the FDIC had consistently said that it preferred to settle the claims for cash, although it would consider a debt-for-nature proposal.
The Legal Division through Chairman Tanoue told the congressman other lies. These were:
• The FDIC’s investigation found that Hurwitz was directly responsible for United Saving’s failure.
The FDIC’s second counsel concluded this only after two outside firms determined that he was not. The FDIC still had no evidence.
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• The board of directors formally authorized the suit.
This ignores the staff’s conclusion only two days before the board’s vote that the FDIC should not sue. It also ignores Chairman Heifer’s forcing the result on the staff and board.
• The case was meritorious and cost-effective.
Overwhelming evidence shows that the FDIC knew that the case was an 85% loser and a waste of money.
• There was no government conspiracy against Hurwitz. Hurwitz first approached Interior about a debt-for-nature swap, and at no time did the Administration interfere with the FDIC’s lawsuit.
Garbage.
• The FDI

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/2414874. Public record. Not legal advice.