Regulators immune to suit by thrifts

March 27, 1991|By Lyle Denniston | Lyle Denniston,Washington Bureau of The Sun

WASHINGTON -- Federal regulators are immune to damage lawsuits when they intervene in the day-to-day management of a regulated thrift institution, even if their actions push the firm deeper into financial trouble, the Supreme Court ruled unanimously yesterday.

The ruling ended the threat of a multimillion lawsuit against a group of thrift regulators who made many of the operating decisions for a troubled Dallas savings and loan association before that S&L was ordered into formal receivership by the government.

Although the ruling came in a case involving government oversight of a thrift institution, the language of the ruling appeared to assure broad legal immunity for many regulators who move in to direct the operational activity of companies under their supervision.

The Dallas case involved Thomas A. Gaubert, who had been forced out by federal regulators as board chairman of the Independent American Savings Association, an expansionist -- and now failed -- thrift in Dallas.

After the new management reported that the S&L was in deepening financial woe, Mr. Gaubert sued the federal regulators because, he said, their operating decisions had caused him to lose $25 million in pledged assets and the S&L to lose another $75 million before it went into receivership.

A federal appeals court ruled in 1989 that he could go ahead with the part of the lawsuit involving his own $25 million in lost assets.

That court concluded that the law gives government officials carrying out their official powers immunity from damage lawsuits only when officials are making policy decisions, not "operational" decisions of the kind made almost daily by the regulators supervising the Dallas thrift.

There was no doubt that those officials had immunity for actions they took after the S&L was in receivership. Mr. Gaubert's lawsuit was based on the officials' management decisions prior to that.

Justice Byron R. White, who wrote the Supreme Court's main opinion in the case, declared that official regulators do not lose their immunity to lawsuit simply because they have acted operationally with a firm that is under their authority.

The law, the White opinion said, applies to all "discretionary" acts bTC of federal officials, and such an act always involves "choice or judgment."

Thus, the court added, there is nothing in federal law that limits that immunity to "policy-making or planning functions."

Even though federal regulators had not started a formal enforcement case against the Dallas thrift while they were making decisions for its daily management, they did not lose their legal immunity for the informal choices they did make involving the thrift's affairs, the court unanimously concluded.

The case was U.S. vs. Gaubert (No. 89-1793).

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