| After a bitter 13-year legal battle, Maxxam Inc. has finally put down its arms and agreed to accept a $10 million settlement to end a bitter dispute with the Federal Deposit Insurance Corp., which at one time was ordered to pay $72.3 million in sanctions to Maxxam.
Charles Hurwitz, chairman, chief executive officer and president of Houston-based Maxxam, says one of his lawyers told him it's the largest-ever settlement with a government agency. The settlement certainly was a long time coming, he says, because it has been 20 years since the savings-and-loan failure that was the subject of the litigation.
Hurwitz says he fought the government so long because "we did nothing wrong."
"You get caught up in these things, and I was determined that I never wanted this to happen to anybody ever again. . . . I wouldn't believe things like this could happen, and then it happened to me," he says.
David Barr, a spokesman for the FDIC, says the settlement "avoids the uncertainty and expense of continued litigation and allows the FDIC to focus on the challenges of today, which are the credit crisis, bank failures and the foreclosure issue."
David Beck, a partner in Beck, Redden & Secrest in Houston who represented Maxxam in settlement negotiations, did not return a telephone call seeking comment before presstime on Dec. 18.
Hurwitz says he agreed to accept the FDIC payment to end the long-running litigation because "I'm kind of tired of paying lawyers. It kind of got to a price where we just said OK."
Maxxam spent at least $40 million on the litigation, says Joli Pecht, an assistant general counsel at Maxxam who adds "we've all gotten old and gray" over the course of the legal battle that began in 1995 with Federal Deposit Insurance Corp. v. Charles E. Hurwitz, et al.
In that suit, filed in U.S. District Court for the Southern District of Texas, the FDIC attempted to force Hurwitz to reimburse the federal government for money lost in the $1.6 billion bailout of United Savings Association of Texas, which failed in 1988.
The FDIC alleged that Hurwitz was a de facto controlling shareholder of United Savings, but his lawyers said he had no day-to-day oversight of the thrift. In 1988 when the thrift failed, Hurwitz, Maxxam and Federated Development Inc. (two companies controlled by Hurwitz) were minority investors in United Financial Group, and United Savings was a subsidiary of United Financial Group. [ See "A Thrift Stiffed," Texas Lawyer, Jan. 3, 2000, page 1. ]
A few months after the FDIC filed its suit, the Office of Thrift Supervision filed a related administrative action at the FDIC's request against Hurwitz, Maxxam, Federated Development and others.
In 2002, Hurwitz, Maxxam and Federated Development settled the OTS suit. The deal called for Hurwitz and his companies to pay the Savings Association Insurance Fund $206,000, far less than the $821 million in restitution and $4.6 million in civil penalties the OTS sought in the action.
The FDIC ultimately filed a motion to dismiss its suit against Hurwitz, but he filed a counterclaim seeking sanctions. In a Supplemental Motion for Sanctions filed in 2000, Hurwitz alleged that documents made public prove the FDIC sued him to create a "debt" that could be paid for with redwood trees that Pacific Lumber, then a Maxxam subsidiary, owned in California.
In a 2005 opinion, U.S. District Judge Lynn Hughes ordered the FDIC to pay $72.3 million in sanctions to Maxxam. The sanctions were to reimburse Maxxam for money it spent on legal fees, plus interest, to defend Hurwitz and other officers at the company from the long-running enforcement actions. [ See "Judge Orders FDIC to Pay $72.3 Million in Sanctions to FDIC," Texas Lawyer, Aug. 29, 2005, page 1. ]
In his opinion, Hughes wrote that the money would not restore completely the damage the litigation had done to Hurwitz, but that he could "make the government pay for its betrayal of the public trust, its invective political assault on a private citizen, and part of the economic loss that it caused him."
The FDIC appealed the sanctions order. In April, a 5th U.S. Circuit Court of Appeals opinion affirmed the sanction Hughes imposed but vacated the $14,142,067 sanction award for costs of litigation and remanded it to Hughes, along with a $1.2 million award for "ancillary matters." However, the 5th Circuit reversed a $56.9 million sanction stemming from the related OTS proceeding. The 5th Circuit panel, which included Judges Patrick Higginbotham, Emilio Garza and Fortunato P. Benavides, found Hughes did not have power to sanction the FDIC in connection with the administrative proceeding because it was not in his court. [See "5th Circuit Issues Mixed Decision on Sanctions in Maxxam," Texas Lawyer, April 14, 2008, page 1. ]
Hurwitz says the settlement stemmed from a mediation that took place three or four months ago. The FDIC paid the money to Maxxam on Dec. 17, which is the same day the company filed a copy of the settlement agreement with the U.S. Securities and Exchange Commission in an 8-k filing.
"I'm very proud that we stood up to the government, and I never want it to happen again. This is a regulatory case study in many law schools today, and I hope it will make a difference," he says.
