Fifteen months ago, after the federal government accused Governor Fife Symington of "gross negligence" in his role as a director of the failed Southwest Savings and Loan, Symington denounced the Resolution Trust Corporation's lawsuit as nothing more than a baseless, political smear campaign.
He predicted that the RTC's suit--which focuses on Southwest Savings' multimillion-dollar investment in Symington's Camelback Esplanade project--would be quickly dismissed.
"The RTC is going to lose," Symington boldly asserted at the end of a 90-minute press conference.
"It is a fiction to say the taxpayers lost money on the Camelback Esplanade," Symington added, promising to do battle with government regulators.
The government is accusing Symington and other directors of failing to obtain permission from federal regulators before the thrift invested $30 million in director Symington's Esplanade project in September 1983. The government also claims Southwest failed to obtain an appraisal of the property before making the investment.
The investment, according to the RTC, resulted in Southwest Savings' single largest loss, at more than $40 million. Symington denies any wrongdoing in the case and claims no money has been lost, and that the project will become profitable when it is completed.
Despite the governor's assertions, the case has not been quickly dismissed. His resources have dried up. The governor now claims he has lost his real estate fortune, once valued at $12 million.
Symington's jihad against the RTC has waned. His legal camp has toned down its blustery rhetoric. Rather than attacking the merits of the government's case, Symington is once again trying to have the case dismissed on an arcane technicality.
In January 1992, Symington's former attorney, Jim Vieh, asked U.S. District Court Judge Earl Carroll to dismiss the Symington case because the statute of limitations had expired. Carroll rejected the motion.
More than a year later, Symington's new attorney, Phoenix lawyer Gary Stuart, is presenting a variation on the same theme. Instead of blowing the RTC's claims out of the water, as promised, Symington is staking his legal fate--and possibly his political and financial future--on a premise that cannot easily be answered: What did the dead billionaire know?
Symington's defense now hinges on whether Southwest Savings' former owner and sole shareholder, late billionaire Daniel K. Ludwig, was fully informed of the condition of his Phoenix thrift in the years immediately following Symington's 1984 resignation from the board of directors.
Stuart is arguing that Ludwig knew the financial condition of Southwest Savings during and after the time Symington served on the board. Stuart contends that since Ludwig knew the condition of the thrift, but failed to take legal action against its board of directors, including Symington, it is now too late to sue the governor for damages stemming from the collapse of the thrift.
"As long as there existed an informed shareholder, our argument was the statute of limitations has run," Stuart says.
Stuart buttresses his position by pointing out that one of Ludwig's closest advisers, James Kerr--who held power of attorney for Ludwig--was named to the Southwest Savings board shortly after Symington ended his 12-year tenure. Consequently, Stuart argues, Ludwig or his representative, Kerr, must have known the financial condition of the thrift.
The defense strategy is unique in several ways, according to Stuart. Only two thrifts sued by the Resolution Trust Corporation were owned by a single shareholder--Southwest Savings and Salt Lake City's American Savings and Loan. Both were part of Ludwig's $5 billion financial and shipping empire.
And this defense plan applies only to Symington, who left the Southwest board seven years before the RTC filed suit against him and other directors in December 1991. The 12 board members who were named as defendants--including Kerr--remained on the board well into the late 1980s or up until the time the thrift was seized in February 1989.
The RTC claims in the lawsuit that between March 1982 and February 1989, the Southwest defendants "exercised full, complete and exclusive control" over the operations of the thrift. The government alleges those operations were improperly conducted and that directors "fraudulently concealed their wrongdoing" from federal regulators. Although not named as a defendant when the suit was filed in December 1991, Ludwig was added to the case in February 1992.
Because of the board's effort to conceal the true condition of the thrift, the government claims it didn't learn of the full extent of the trouble at Southwest until after the RTC seized the thrift in February 1989. That's when the meter started ticking on the three-year statute of limitations, the agency contends. The RTC estimates the thrift's failure will cost taxpayers $941 million. The agency is seeking $197 million in damages from Southwest officers.
RTC attorney Charles Patterson declined to comment on the case, but those familiar with such defense tactics give them little chance of succeeding.
"Sounds like a bunch of legal bullshit to me," says Paul Muolo, co-author of Inside Job: The Looting of America's Thrifts.
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Muolo, a reporter for National Mortgage News, a Washington, D.C.-based trade publication, says he is not aware of any RTC-related case in which a defendant has been dismissed on the grounds that the statute of limitations had expired.
"I can't remember anyone pulling this off," he says.
Stuart's motion evokes a laugh from a defendant in an unrelated RTC case against MeraBank. But the former MeraBank officer quickly adds that Stuart shouldn't be blamed for trying--and that his tactic just might work.
If the ploy doesn't succeed, Symington faces the prospect of going to trial without director's liability insurance. The other Southwest defendants have insurance coverage provided by Ludwig in 1985 after a private carrier canceled its liability coverage. Since Symington left the board in 1984, he's not covered by either the private carrier or by Ludwig's indemnification.
"He catches it from both ends," Stuart says.