Lawyers' tab for cleaning up collapse of thrifts is $1.5 billion -- and rising

June 05, 1995|By Jeff Newsmith | Jeff Newsmith,Cox News Service

WASHINGTON -- The savings and loan debacle of the 1980s will end up costing taxpayers around $100 billion, officials say, but for some large law firms, the tangle of bad debts and bankruptcies has been a money train.

Legal fees and expenses paid to outside lawyers by the government-owned Resolution Trust Corp., or RTC, recently passed the $1.5 billion mark and are still rising, say congressional investigators.

Some members of Congress, led by House Banking Committee Chairman James Leach, are asking if the government has paid for more legal services than it needed.

Specifically, Mr. Leach, an Iowa Republican, has questioned whether the RTC failed to police its hired lawyers well enough to make sure they weren't dragging out cases in order to push up their fees.

Meanwhile, the firm that has sent the largest bills to the RTC has also been accused by other law firms of being too aggressive in its efforts to recover funds for taxpayers.

The RTC was set up by Congress during the national wave of savings and loan collapses in the mid- and late 1980s, when it became clear that paying off federally insured depositors at failed banks and thrifts was going to be a multibillion-dollar undertaking that was too big for the Federal Deposit Insurance Corp., better known as the FDIC.

In addition to paying depositors, the RTC was directed to go after unpaid loans, real estate and any other assets that could be found in the corporate wreckage and sold off.

The most recent government records indicate that the RTC has been able to salvage $464 billion in assets from 747 failed thrifts.

But officials recently testified before the House Banking Committee's oversight subcommittee that the taxpayers' "net loss" will still be around $95 billion, and that does not include funds paid out before the RTC was created.

"Although a staggering and regrettable sum by any measure, the amount is substantially less than many were predicting when the RTC was created," said John Ryan, acting chief executive officer of the Resolution Trust Corp.

Mr. Ryan also said the RTC had collected $2.2 billion from former officers, directors and other officials involved in managing the failed thrifts. The legal fees for collecting this money amounted to about $487 million, he said.

However, Mr. Leach noted that the RTC has paid a total of $1.5 billion in legal fees since its inception in 1989, according to the General Accounting Office. Two-thirds of the money appears to have gone for a myriad of often-routine legal tasks involved in tracking bankruptcy cases and selling real estate and other assets.

The outside law firms have not had a "clear, vested interest in early victory or an early resolution" of the cases they were hired to work on, the congressman charged.

"We seem to have a legal factory and it is not clear to me that there is as great legal oversight as maybe there could be," Mr. Leach told Mr. Ryan and other RTC officials at the hearing.

An RTC spokesman said last week that the 10 largest recipients of RTC legal payments had shared more than $218 million in fees and expenses, as of April. The firm that received the most, Morrison & Hecker of Kansas City, Mo., has collected more than $50 million since 1989, the spokesman said.

Among other cases, the Kansas City firm has attempted to recover assets left in the wake of the collapse of Lincoln Savings and Loan Association, which was headed by now-convicted felon Charles Keating.

Morrison & Hecker has even filed malpractice suits against six of Lincoln Savings' former law firms, as well as firms that represented other failed thrift institutions.

The tactic has prompted grumbling in legal publications that the RTC and Morrison & Hecker are attempting to hold other lawyers to impossible standards.

"We don't sue a law firm ever unless there's a clear case of wrongdoing," Morrison & Hecker litigator Michael Manning told the National Law Journal.

That was in April, shortly after his firm filed a $400 million malpractice suit for the RTC against Streich Lang, a prominent Phoenix law firm, for allegedly aiding in manipulative deals to conceal the financial difficulties of now-defunct Western Savings and Loan Association.

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