Court Curbs FSLIC Power in S&L; Creditor Disputes

SAN FRANCISCO — The Federal Savings and Loan Insurance Corp.’s power was sharply curtailed Wednesday by a federal appeals court decision that it cannot act in place of courts in disputed receivership claims.

The unanimous ruling by the 9th U.S. Circuit Court of Appeals came in a multimillion-dollar Westside Federal Savings & Loan Assn. case in Seattle.

Lawyers representing creditors hailed the decision as an important one affecting the savings and loan industry.

The ruling essentially says creditors must be allowed their day in court when there is a dispute over assets of an insolvent thrift association under control of FSLIC.

Creditors cannot be forced to go through administrative claims procedures under the administration of FSLIC, the court held.

Seattle attorney Martin Crowder, representing CHG International’s Creditors’ Committee in a $15-million to $16-million claim, called the Westside decision a landmark ruling that will affect dozens of similar cases.

“When a claim is disputed and agreement cannot be reached, FSLIC is obligated to attend court just as the institutions it represents would have to do,” wrote Judge Joseph L. Sneed for the three-judge panel.

Sneed noted that in 1980 FSLIC began asserting, for the first time in its 50-year history, that Congress had vested it with exclusive adjudicatory powers over cases involving claims against FSLIC. He suggested that it was due to the increased failures of thrift institutions in recent years.

FSLIC was created by Congress in 1934 to guard against bank failures and monitor savings and loans.

In the event of insolvency, FSLIC can oust bank officers, take control and run the thrift association. It promptly reimburses individual depositors, up to $100,000. The handling of disputed claims from third-party creditors for the remaining funds was the issue in this case.