High Court Refuses to Review Car Magnate Lawsuit
A 13-year-old lawsuit by car dealership magnate Bruton Smith has been brought to a close by the U.S. Supreme Court, which affirmed a lower court ruling that Smith had no standing to sue the federal government over losing millions in the 1990 failure of North Carolina Federal Savings and Loan.
Smith, who is CEO of Speedway Motorsports Inc., which owns six NASCAR tracks, was seeking $28 million in damages and $3 million in restitution, the Associated Press reported.
Smith lost his 49.9 percent investment in NCF Financial Corp., a holding company for N.C. Federal, which collapsed. N.C. Federal had acquired the assets of North Carolina Federal Savings and Loan Association in 1982.
The case is connected to the savings and loan crisis of the early 1980s, which brought down 400 S&Ls. High interest rates paid on deregulated savings accounts overtook the low returns earned on fixed-rate mortgages, leading to collapses, the AP reported.
In turn, the federal government encouraged thrifts to take over the bankrupt, or nearly bankrupt, thrifts. The buyers were allowed to count the difference between the bankrupt S&Ls' liabilities and assets toward their own capital reserve requirements in an arrangement called “supervisory goodwill.” That maneuver made the thrifts look to be in better financial health than they actually were. That accounting move was later banned by Congress in 1989, leading to another series of S&L collapses. N.C. Federal was among them.
Smith sued, saying in part that “the government dangled the prospect of supervisory goodwill in front of the Smith” and other shareholders “to induce their approval” of the 1982 merger.
U.S. Court of Federal Claims Judge Lawrence Block ruled in October 2003, however, ruled that the Smiths were not part of the negotiations that resulted in the merger and had no standing to sue the government.
"There is simply no contractual relationship between the Smiths and the government" with regard to supervisory goodwill, Block wrote.
The CPA Journal wrote that the regulatory incentives explain the willingness of buyers to acquire thrifts that had a negative market value. “It also provides some insight into the nature of the 'goodwill' itself. These incentives were, in substance, regulatory "breaks" delivered under the banner of additional forbearance.”
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.