Maxxam Wins Big Victory |In Litigation With FDIC

     NEW ORLEANS (CN) – The 5th Circuit has set aside an order that the government pay Houston businessman Charles Hurwitz $72 million for his involvement in the 1988 failure of a savings and loan, ruling that the government had not prosecuted him solely to extort 3,800 acres of California redwoods.

     A three-judge panel ruled that U.S. District Judge Lynn Hughes abused his discretion in imposing the largest-ever sanction against the Federal Deposit Insurance Co. for pursuing claims against Hurwitz, chairman of Maxxam Inc. The FDIC claimed that Hurwitz could have prevented the failure of United Savings of Texas, a defunct thrift that cost taxpayers an estimated $1.6 billion.
     Hurwitz never controlled United Savings, but he owned about a quarter of its parent company, United Financial Group, through MCO Holdings – which later became Maxxam. The appeals court ruled that the FDIC and the Office of Thrift Supervision had reasons to sue Hurwitz aside from the “debt-for-nature” angle, a concept environmentalists devised to get the government to accept redwood timberlands as payment for debt. Hurwitz had claimed that the agencies’ desire to acquire the California Headwaters forests – owned by a Maxxam subsidiary – motivated their lawsuit against him.
     “We must conclude that a finding that the FDIC would not have brought suit absent the redwoods issue is against the great weight of evidence,” Judge Patrick Higginbotham wrote.
     The FDIC was under intense Congressional pressure to go after failed savings-and-loan executives, and the government decided to sue Hurwitz before it was aware of the redwood swap, the court ruled.
     But it found evidence that the FDIC “improperly used the court to delay the case and harass Hurwitz.” It vacated and remanded about $15 million in other sanctions to sort out the cost of the delays.

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