File suit, fail and repeat as needed in Hurwitz case

Houston Chronicle

By Loren Steffy

IF at first you don't succeed, spend more taxpayer money.

That seems to be the attitude of the Federal Deposit Insurance Corp. in its relentless pursuit of Houston financier Charles Hurwitz.

Two weeks ago, the FDIC filed an appeal in its long-running battle with Hurwitz. The 90-page "brief" basically rehashes the same allegations that the FDIC has made for years. Two judges have ruled that those claims lack merit.

It's as if the FDIC believes that repetition is a substitute for proof.

"It really sounds like they're out on the street corner saying, 'Please believe us,' " says J.C. Nickens, Hurwitz's attorney.

It's unusual for an appeals motion to reargue the facts of a case, and such tactics rarely succeed. Nickens describes the FDIC's filing as having "very little law, lots of complaints about the factual findings."

That's not surprising. More than a year ago, U.S. District Judge Lynn Hughes issued a scathing rebuke of the FDIC's case and awarded Hurwitz $72 million in sanctions, probably the biggest fine a federal agency has ever been ordered to pay an individual.

Hughes likened the agency's tactics to those of the Mafia and accused several FDIC attorneys of perjury.

FDIC spokesman David Barr says the agency disagrees with the size of the sanctions and Hughes' findings, adding that the FDIC concluded that Hurwitz's motion for sanctions "was frivolous."

In its motion, the FDIC basically claims that Hughes is a dunderhead who got
all the facts of the case confused.

The FDIC's lawsuit stems from the failure in 1988 of United Savings Association of Texas, a Houston thrift indirectly controlled by Hurwitz's Maxxam Corp. The federal bailout cost taxpayers $1.6 billion.

The FDIC sued Hurwitz in 1995, claiming he should have done more to prevent the collapse.

The case became mired in a scheme to settle the FDIC's claims by getting Hurwitz to surrender 7,500 acres of old-growth redwoods in California owned by another Maxxam subsidiary, Pacific Lumber Co.

Hurwitz long has contended — and documents unearthed in a congressional investigation support him — that the FDIC was a pawn in a Clinton administration ploy to appease environmentalists by grabbing the redwoods without paying for them.

The FDIC vehemently denies that it was involved in any plan to get the trees and in its brief says that the plan was Hurwitz's idea.

A congressional investigation in 2000, though, found that the so-called debt-for-nature swap was first proposed by environmentalists in California, and that the FDIC pressed its saving and loan case against Hurwitz even though its own lawyers thought the agency was likely to lose.

Time has come and gone

What the FDIC doesn't seem to get, and what it hasn't gotten for many years now, is that it's way past time to argue the facts of this case.

In 2001, an administrative law judge issued a ruling in which he said the case was so flimsy it never should have been filed.

The FDIC, like some legal equivalent of Emily Litella, essentially said "never mind" and withdrew a parallel case that it had pressed in federal court for seven years.

By that point, Hurwitz was so outraged by the government's conduct that he asked Hughes to sanction the FDIC, which Hughes did.

"There's been two judges that have found against them," Nickens says of the FDIC.

Nearly 20 years later

So now the case could be headed back to court yet again, though it would probably be next spring — almost 20 years after United Savings' failure — if the appeals court hears the arguments. The burning question is why.

If its original savings and loan case had any merit, the FDIC had two chances to prove it. It came up empty twice.

Now, it hopes the third time will be a charm. It's easy to hope with other people's money.

The Hurwitz case has become a legal sinkhole, one from which the FDIC cannot hope to emerge. Even if it persuades the appeals court to throw out or lessen the sanctions, the FDIC's shoddy handling of the case remains.

It botched the thing that matters most in court: proving its claims.

While it's asking for a review of the facts, there's one the FDIC has overlooked: It has failed and failed again. The third time is no charm, just more money wasted on a case the FDIC has known for a long time it can't win.