Frank P. Slattery (top photo), former chief executive officer of LFC Financial Corporation, joined Meritor's board in 1986 and was instrumental in bringing in Roger S. Hillas, then chairman of PNC, to turn around PSFS. Although certain other shareholders have made contributions from time to time, Meritor's nearly 12-year-old lawsuit against the government has largely been financed by Mr. Slattery personally.
Mr. Slattery currently serves as president of Quintus Corporation, Radnor, PA. He is a graduate of Princeton University and serves on the board of directors of Main Line Health Systems and is also a trustee of The Franklin Institute.
Hon. Loren A. Smith (bottom photo) recently completed his 15-year term as Chief Judge of the United States Court of Federal Claims. He now serves as a Senior Judge and retains jurisdiction over the Meritor and other goodwill litigation.
Judge Smith is a noted expert on contract law and, in addition to his duties at the Court of Federal Claims, also serves as an adjunct professor George Mason University School of Law where he has taught a course in Remedies (for contract breach) for the past several years.
SLATTERY V. THE UNITED STATES
NOTE: Legal briefs for both the liability and damages phases of the case can be found at the bottom of this page. EFFECTIVE JANUARY 1, 2006, COURT FILINGS WILL NO LONGER BE POSTED ON THIS WEB SITE. THEY WILL NOW BE AVAILABLE THROUGH PACER. If you do not have a PACER login, contact the PACER Service Center to establish an account. You may register online at https://pacer.login.uscourts.gov/cgi-bin/login.pl?court_id=cafc or call the PACER Service Center at (800) 676-6856 or (210) 301-6440. When logging in at the Court of Appeals website, NOTE THAT THE CASE NUMBER IS 2007-5063.
Frank P. Slattery is a former member of the board of directors of Meritor/PSFS and was its largest shareholder. A few months after Meritor was seized, Mr. Slattery asked the FDIC, as Receiver of the bank's estate, to bring suit for breach of contract against the United States for its refusal to honor the terms of a contract it had entered into with PSFS in 1982 pursuant to which PSFS agreed to assume $800 million in debt owed to the depositors of Western Savings Bank, which was insolvent and which the government was on the verge of closing. In exchange for its being relieved of its obligation to pay off Western's depositors itself (as insurer, it was required to make the deposits good), and since it did not have sufficient cash and did not wish to seek an appropriation from Congress, the FDIC compensated PSFS in the form of an intangible asset called "supervisory goodwill". As William M. Isaac (chairman of the FDIC at the time) later testified, PSFS was to be allowed to count the goodwill as a "fully-qualifying" asset for "all regulatory purposes" for the next 15 years. Indeed, as Mr. Isaac testified at his deposition, "we made a judgment (that the goodwill) was as good as cash"
. (Deposition of William M. Isaac
, Sept. 14, 1999, Page 92, lines 21-22). In the meantime, PSFS paid off every penny of the $800
million owed to Western's depositors -- with interest.
Over 10 years later, the FDIC notified Meritor/PSFS officials that it was abrogating the 1982 contract. With the goodwill counting, the bank's primary capital ratio stood at over 11%, well above the 8.5% required of Meritor by the FDIC. (See expert witness report of Price Waterhouse/Coopers & Lybrand at page 21)
. Banks without supervisory goodwill, on the other hand were held to much lower capital ratios in the 5.5 to 6.5 percent range. However, once the FDIC decided that the supervisory goodwill would no longer be counted, Meritor's capital ratios plummeted and were well below FDIC minimums. Less than two hours after announcing its decision that goodwill no longer counted as a fully qualifying asset for "all regulatory purposes", Meritor was seized. Having never received a response to his subsequent request that the FDIC, in its capacity as Receiver of the Meritor/PSFS estate, bring suit to recover the $800 million, in April of 1993 Mr. Slattery brought his own lawsuit on behalf of the estate in the United States Court of Federal Claims. Captioned Frank P. Slattery et al., v. the United States
(93-280C Fed. Cl.), the case was assigned to Chief Judge Loren A. Smith. Six years of delays and government-requested "stays" then ensued. In the meantime, the FDIC, which, as a fiduciary, is charged with the responsibility of protecting the interests of Meritor's shareholders, did everything it could to wipe them out instead.
Among other things, the FDIC attempted, unsuccessfully, to have Mr. Slattery's lawsuit thrown out on three separate occasions. Indeed, as recently as 1999, after Mr. Slattery had spent seven years fighting on behalf of his fellow shareholders and had spent over $1 million of his own money doing so, the FDIC took the position that only it, as Receiver, could adequately represent the shareholders and that Mr. Slattery should not be allowed to do so. (This is, of course, the same FDIC which refused to bring the lawsuit in the first place). Finally, seven years after Meritor was seized, the long-awaited trial of Slattery v. the United States began on October 14, 1999. Throughout the next four and a half months, FDIC legal staff attended the trial every day, openly passing notes to the attorneys representing the government, coaching their witnesses, and otherwise assisting them in every way possible. Closing arguments before Judge Smith were held in Washington on June 14, 2000. On August 14, 2002, Judge Smith ruled in favor of Meritor, finding liability against the government, and set the case down for a second trial to determine the amount of damages.
Only July 7, 2003, the trial on damages commenced in Washington, ending with closing arguments on February 4, 2004. In February of 2006, the Court of Claims awarded $371.7 million in damages. An appeal is expected by both sides..
The best way to learn more about what happened at the two trials is by reading the post-trial briefs directly. Accordingly, we urge members of the Association and other interested parties to read the briefs filed by both sides and draw your own conclusions. (In fairness to the government, you should make sure that you read their briefs as well as Meritor's). Copies of both sides' briefs are readily available by clicking on the links below. (You must have Adobe Acrobat Reader installed on your computer.) Please note that in the interest of conserving memory, we offer only the briefs themselves; supplemental data, such as Proposed Findings of Facts, appendices, exhibits, transcripts of the closing arguments, etc., may be obtained by contacting the Clerk of the United States Court of Federal Claims, 717 Madison Place, Washington, DC 20005. Phone (202) 219-9657.
In addition to the post-trial briefs, we are also making available legal briefs filed by Meritor when, with just a couple of days left in the trial, Mr. Slattery's attorneys discovered that key evidence had been withheld by the FDIC. For further information on that subject, click here
PHASE ONE - LIABILITY
PHASE TWO - DAMAGES