MAXXAM Awarded Over $72 Million In Lawsuit Against FDIC
Largest Sanction Ever Against US Government
On August 24, 2006, Judge Lynn N. Hughes, United States District Court for the Southern District of Texas, ordered that the Federal Deposit Insurance Corporation (FDIC) pay MAXXAM Inc. over $72 million dollars in sanctions as measured by legal and other expenses incurred during its 10-year legal battle against the regulatory agency. The judgment represents the largest sanction against the Federal government and incorporated MAXXAM's requests that MAXXAM be reimbursed its reasonable costs and attorney's fees.
At the time, J. Kent Friedman, General Counsel of MAXXAM, stated "The ruling is appropriate because the FDIC wasted taxpayer dollars by pursuing politically motivated litigation that it knew was meritless. The actions by the FDIC represent illegal and shameful government behavior and this is now the second federal judge who has determined that."
MAXXAM filed a motion to sanction the FDIC for filing a lawsuit that the FDIC's own legal division's internal analysis concluded had "at least a 70 percent" chance of failing on pretrial motions and, if it survived, the chances of prevailing on the merits were "marginal at best." The FDIC's standards call for at least a 50 percent chance of success before initiating legal action. The FDIC ignored that standard and proceeded with a frivolous lawsuit anyway.
Judge Hughes stated in his ruling, "By now, Hurwitz has spent nearly twenty years defending himself against the government. This court cannot restore completely the damage that this case has done to him personally. It can, however, make the government pay for its betrayal of the public trust, its vindictive political assault on a private citizen, and part of the economic loss that it has caused him."
In addition to the FDIC lawsuit, the FDIC paid millions to the Office of Thrift Supervision ("OTS") for the OTS to initiate an administrative action against MAXXAM, Charles Hurwitz and others. The OTS' litigation commenced in December 1995 seeking approximately $821M in restitution and civil money penalties. The OTS action was essentially a second lawsuit by the FDIC. It had the effect of transferring the FDIC's unlimited financial resources to the OTS in order to finance the longest and most expensive trial in the history of the OTS lasting 110 trial days (including 100 for the OTS to present its case) spread over more than two years.
OTS Administrative Law Judge Arthur Shipe issued a 230-page decision in September 2001 in which he recommended that all charges against MAXXAM and Mr. Hurwitz be dismissed. In the wake of Judge Shipe's opinion, the OTS settled with MAXXAM and Mr. Hurwitz in October 2002 for $206,000; the respondents made no admission of wrongdoing. The settlement allowed MAXXAM and Mr. Hurwitz to cease further legal expenditures on their defense in a fashion that represented a clear victory. It also caused the FDIC to drop its related lawsuit against Mr. Hurwitz in November 2002.
"I am pleased by the ruling of the Court and feel redeemed not only for myself but for the company and our employees. This ruling puts to rest a very long process of defending ourselves against a government agency's erroneous claims and the subsequent pursuit to hold them accountable," Charles E. Hurwitz, Chairman and CEO of MAXXAM, said at the time. “This pursuit is something no individual should be subjected to. Fortunately, we had the resources to fight the case and prevail and are now ready to move on."