GOVERNMENT MUST PAY GLENFED $909 MILLION.

Byline: Stephen Laboton The New York Times

A federal judge on Friday night ordered the government to pay nearly $909 million to a California savings association that nearly went bankrupt after Congress and the Bush administration imposed tougher accounting changes on the industry a decade ago.

The decision, awarded to Glendale Federal Bank by Chief Judge Loren A. Smith of the U.S. Court of Claims, is one of the largest judgments ever assessed against the federal government. But it is more significant for the legal precedent it may set for the more than 120 other similar cases filed by existing and moribund savings associations and their shareholders, as well as other industries that have also filed large claims against the government last year after regulations were changed, costing them money.

If the reasoning of Smith is upheld on appeal, experts say it could, in effect, reopen the huge bailout of the savings and loan industry, adding an additional $30 billion to $50 billion to the costs of the most expensive financial debacle in American history. It has already cost taxpayers $165 billion.

The winners who stand to profit the most from the precedent set by Friday's decision are other prominent businessmen who hold big stakes in savings associations that have filed similar claims. They include Robert M. Bass, the Texas financier; the Pritzker family of Chicago; New York investor Lewis Ranieri; and Ronald O. Perelman of the Revlon Group.

Perelman is a controlling shareholder in Golden State Bancorp, which owns both Glendale and California Federal, which has recently concluded its trial seeking more than $1 billion.

While thousands of smaller investors stand to gain from the decision, it could also help the claims of some of the more notorious figures in the savings and loan debacle. One of the most corrupt savings operators, David L. Paul, has filed a claim similar to Glendale's from a prison camp in South Carolina. Paul, the former chairman of Florida's Centrust Savings, is serving an 11-year sentence for racketeering and fraud. Centrust's gold-plated toilet pipes and $29 million art collection were ultimately financed by taxpayers in a $1.7 billion bailout.

Last fall, Congress and the Clinton administration quietly took steps that assured that the tab from the savings and loan cases would be picked up by taxpayers. With no hearings or open debate, congressional lawmakers tucked into appropriations legislation a two-paragraph provision supported by the Clinton Administration and urged by industry lobbyists. The provision requires taxpayers to pay such sums as necessary to satisfy all final court judgments. The lobbyists had feared that either the Treasury would not pay or that the industry might end up being saddled with the costs through a special assessment.

Nearly three years ago, a highly splintered Supreme Court ruled that the 1989 savings and loan bailout law that toughened the accounting rules breached the contracts that regulators had made with investors who had come to rescue many institutions. But the high court never addressed the issue of how to calculate the industry's damages, and the Glendale lawsuit presented the first test case of the issue.

Agency in opposition

Lawyers from the Justice Department have maintained in the lawsuits that have begun to be tried that the savings associations are entitled to little or nothing because the government's action was not the major cause of any injury and, in fact, the regulators had actually helped the industry by changing the rules. In the Glendale case, for instance, the Justice Department maintained that, at most, the company was entitled to about $28 million, the costs it incurred when it was forced to restructure following the 1989 law.

But the savings association asserted that it was entitled to recover what profits it may have earned had the government not intervened, or at the very least, restitution of about $2 billion.

Smith said Friday that Glendale's calculation of its lost profits was ``too remote and speculative to be granted.'' But he also took a thinly veiled slap at the Justice Department, saying that he ``understands the frustration of the plaintiff, who fought for six years on the question of liability against the government, only to have the government tell it, at the end of this laborious process, that Glendale had suffered no damages.''

Feds `not immunized'

The judge said that he recognized the difficulty of calculating damages involving a savings association that entered into a 40-year contract 18 years ago that was then breached nearly 10 years ago.

``But this should not and cannot defeat the plaintiff's claim for damages,'' he said. ``Put simply, the government should not be immunized from paying contract damages because the extent of both the contract and breach, and the time that has elapsed between the breach and today, makes it more difficult to calculate or conceptualize damages.''

The Justice Department on Friday night issued a statement saying that it was reviewing the decision.

``We remain confident in our position and look forward to a fair and expeditious final resolution'' of the savings and loan cases, the statement said.