Current Year Case Updates
|Case Updates for 2003|
Prior Case Updates for: 2012—2011—2010—2009—2008—2007—2006—2005—2004—2003—2002—2001
Friend and Colleague Passes Away
Regrettably, we must inform you of the passing of Mike Foster – a lead plaintiff and staunch supporter of the BENJ case. Mike had been involved with the suit against the government since 1989 and has been especially generous with his financial contributions over these past 14 years.
His family is aware of Mike’s enthusiasm and determination to see this case through to its proper conclusion. For Mike’s family and friends, his passing was a tragic loss and we would like to extend our deepest sympathies.
For the remaining plaintiffs and the rest of the BENJ Shareholder family, it is a sad reminder of just how slow justice has been. However, our efforts do not appear to be in vain. Progress is being made and each week that passes brings us closer to a settlement. Don Willner, even after these many years, still maintains his optimism for a favorable outcome.
Progress Report from Don Willner
A Message from the Lead Plaintiffs
Another Judge of the United States Court of Federal Claims has recently decided the Home Savings case which holds that additional taxes which are caused by wrongful seizure of a savings and loan should be added to the restitution damages of the savings and loan.
In our case, we are arguing that the tax IRS assessed against the Benj. Franklin receiver for the loan of Federal Financial Assistance money should not be paid. In the Claims Court, we argued that since there would have been no Federal Financial Assistance money if Benj. Franklin had not been wrongfully seized that no tax should be owed. In the current tax negotiations, we are arguing that Federal Financial Assistance was a loan which was fully repaid with interest and therefore could not possibly be taxed as income.
The Home Savings case will undoubtedly be appealed so its final precedent value is not yet known, but it is certainly helpful.
The Claims Court case has been stayed by Judge Smith pending the results of the tax negotiations.
Therefore, the action is in the tax negotiation. The IRS has now completed a full audit of the many years of tax returns submitted by the Benj. Franklin receiver, and the West Coast area counsel of IRS has recently submitted a report on the matter. This material is now being considered at a high level in IRS and we are told that they will soon have determined their position on the tax and then there will be a meeting between the Department of Justice representing IRS, the Federal Deposit Insurance Corporation (the receiver of Benj. Franklin), and us. Although numbers remain confidential, everyone continues to talk about working towards a settlement. The only possible settlement for us would have to be a small tax so that most of the $90 million in the receivership is distributed to the shareholders. If that does not occur, we will reactivate our motion to intervene in the tax case and motion to transfer it to the Federal Court in Oregon. This money is in addition to the approximately $35 million money judgment in the Claims Court which has been stayed pending the results of the tax negotiation.
There is much work ahead for your attorneys, but now I believe there is light at the end of the tunnel.
A Message from the Lead Plaintiffs
The BENJI Shareholders Litigation Fund is entering its fourteenth year. It is a bitter reminder of the difficulties inherent in seeking justice against governmental bureaucracies. We share the frustration felt by all the BENJI shareholders and are doing everything in our power to bring this case to a close.
A Brief History of the BENJ Lawsuit
Benj. Franklin was seized on February 21, 1990, and I
filed this lawsuit in September 1990 in the United States Court of Federal
Claims. In 1995 we were granted
Shareholder Derivative Standing allowing the plaintiffs to proceed on behalf of
all sixty-five hundred shareholders. In 1997 we won summary judgment on
liability. This means that Claims Court Judge Smith found that the government
had breached its contract with Benj. by retroactively taking away the capital
asset of good will which Benj. acquired when it took over Equitable Savings
Trial on the issue of the proper amount of money
damages started in January 1999 and finished in September 1999.
Then followed a thirty-month wait until March 2002 when Judge Smith
granted us approximately $35 million in damages which Judge Smith calculated by
the market value of our stock on the day before the passage of FIRREA. That was
the law that retroactively took away the capital asset of good will and resulted
in the seizure of Benj. and many other savings and loans throughout the country.
Meanwhile, in 1999 the Internal Revenue Service
surprisingly decided that the Benj. Franklin Receivership owed over $1 billion
of taxes, all of which took place after the seizure of Benj.
In September 1990 Bank of America bought most of the
assets and liabilities of Benj., paying $177 million. Bank of America also
received a ‘put’ option to resell the assets, which were mostly loans, to
the receiver (RTC). The RTC receiver borrowed this money from RTC Corporate
which called it federal financial assistance. RTC received and then sold these
assets for more than the cost of reacquiring them and used the money to repay
the loan in full, plus $258 million in interest. The RTC-receiver, under IRS
direction, reported the loan as taxable income! Although the original tax was
under $100 million, interest and penalties on the interest have brought the
amount to over $1 billion. After Judge Smith’s $35 million Claims Court
judgment, the FDIC receiver told us that they intended to turn the money in the
receivership over to IRS. At that point we filed a suit against FDIC in Federal
Court in Portland to prevent FDIC from turning over the money.
Oregon Federal Judge Haggerty granted a temporary restraining order to
prevent this turnover from occurring. Then
FDIC told Judge Haggerty that it would not turn the money over to IRS and a
preliminary injunction was denied.
When the receivership money was not turned over to
IRS, the government then sued FDIC-receiver for $1.2 billion in Federal Court in
the District of Columbia.
We then filed a motion to intervene in that District
of Columbia case and move the case to the Federal Court in Oregon.
There are many arguments to make but our basic argument is that the
federal financial assistance was a true loan because at all times there was
ability to repay the loan and in fact the loan was repaid, plus interest.
This argument is consistent with the Congressional history of this
legislation, and also that to tax a true loan as income would be
Although previously the government and FDIC have not
been willing to include us in the discussions, after we filed the motion to
intervene, we are now participating in endless discussions but we believe that
there will be a report produced by the IRS within the next few weeks.
Meanwhile, Claims Court Judge Smith has stayed his
$35 million judgment which prevents us from appealing to the United States Court
of Appeals for the Federal Circuit.
This process so far has taken thirteen years.
The tax discussions are, by tradition and by specific agreement of the
parties, proceeding as a confidential compromise and settlement. I wish I were
at liberty to say more but I am not. Obviously
the tax negotiations cannot result in IRS in getting many millions of dollars
out of the $90 million in the receivership because we would then push the motion
to intervene in the tax case and transfer it to Oregon.
I believe we should achieve a satisfactory settlement, and if that
happens, there should be an interim distribution to the shareholders.
In addition we still can appeal the final Claims
Court decision to the Federal Circuit Court of Appeals.
We believe, among other arguments, that the proper decision on damages
should be at least equal to the $177 million fair market value actually paid by
Bank of America to the receiver, plus the value of the deposits which were
withdrawn after it appeared that Benj. Franklin was about to be seized.
At least we should have a judgment of approximately
$35 million, plus a reasonable chance of getting additional major money from the
receivership once the tax matter is settled. Even without an appeal there is a
good chance that most shareholders will get more than they paid for their stock.
An appeal could bring in much more. All
contributions to the Benj. Franklin shareholders litigation fund will be repaid
first out of proceeds before the distribution to the shareholders.
For the past several months I have not taken any attorney fees but have been paying on debts owing to others in connection with the case. Fighting the government is difficult. The costs of our litigation are still not completed but they are no more than about ten percent of the cost of other similar litigation. We are keeping the faith and know that you, the shareholders, especially new shareholders, will join with us. We will keep you posted on developments.”
Our attorney, Don Willner, and his tax team, have been engaged in confidential compromise and settlement tax discussions with the Department of Justice representing the IRS and the receiver of Benj. Franklin, the Federal Deposit Insurance Corporation. The confidential nature of these discussions has limited the information which could be put on this website. Now a progress report has been made to the District of Columbia Federal Court which is public and is now reproduced here. There is also a similar report to the Oregon Federal Court. Over $90 million is now in the receivership with all bills paid. If the tax matter is successfully resolved, there will be money for the shareholders in addition to money received from the Claims Court suit.
THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA )
Civil Action No. 02-1427
FEDERAL DEPOSIT INSURANCE )
CORPORATION; and FEDERAL DEPOSIT )
INSURANCE CORPORATION, in its capacity )
As receiver for the BENJAMIN FRANKLIN )
FEDERAL SAVINGS & LOAN )
ASSOCIATION, and as successor receiver for )
The RESOLUTION TRUST CORPORATION )
UNOPPOSED MOTION BY PLAINTIFF UNITED STATES
AND DEFENDANT FDIC FOR A STAY OF ALL PROCEEDINGS IN ACTION
RESOLUTION OF INCOME TAX EXAMINATION BY THE INTERNAL
REVENUE SERVICE AND
SETTLEMENT NEGOTIATIONS BY THE PARTIES
This action involves the determination of the federal income tax liabilities of
Since this action was filed, the FDIC has advised the IRS that it believes the tax
Although the IRS has almost completed its review of the requested interest
Accordingly, rather than request another extension, the parties believe it is more
The Court should stay this matter in order to provide the parties
time to examine the disputed tax issues and to process any
Sometime before the end of 1995, the RTC ceased operation and was replaced by the FDIC, as receiver of Benj. Franklin.
The Internal Revenue Service has made corporate income tax assessments
Although the United States and the FDIC are, and have been, attempting to settle
The amounts of the subject income tax assessments and the amounts reflected on
After the filing of this action, the FDIC sought to determine whether the income
As a result of the request by the FDIC that Benj. Franklin's tax liability be
In order to adequately complete her examination process, Revenue Agent Weiss
Following the commencement of this suit, in September 2002, six shareholders of Robert Suess, et at v. United States (Case No. 90-cv-981).
The six shareholders seek to become party-defendants to this action because they contend that as shareholders, they will be entitled to any funds which remain in the receivership account following the payment of all claims, including the federal tax claim. The proposed intervenor-defendants have asserted that they are concerned that the FDIC will not vigorously oppose the United States in defending this case and may take positions which conflict with those taken by the shareholders. The six shareholders have asked the IRS to consider whether Benj. Franklin should be taxed on Federal Financial Assistance loans which have been repaid with interest and whether Benj. Franklin should be permitted to recharacterize for tax purposes the acquisition of another savings and loan association in 1982 by Benj. Franklin both of which, if allowed, might substantially reduce the amount of the tax liability in this case. The six shareholders have also moved to transfer this case to the District Court for the District of Oregon as a more convenient forum under 28 U.S.C. §1404(a). The responses by the United States and FDIC to both motions are currently due by May 5, 2003. While the
If necessary, the
United States intends to oppose the motion to intervene because, Columbia is the appropriate forum for this case. The FDIC is still
considering its response to both the motion
to intervene and the motion to transfer venue.
In the interest of judicial economy and efficiency I a trial court has broad discretion to stay all proceedings in an action. See generally Landis v. North America Co., 299 U.S. 248,254 (1936). The power to stay a proceeding is incidental to the power inherent in every court to control the disposition of cases on its docket. Air Line Pilots Assn v: Miller, 523 U.S. 866 (1998). Also see National Shopmen Pension Fund v: Folger Adam Security. Inc, 274 B.R. 1 (D. D.C. 2002). When circumstances warrant, a trial court may find it efficient for its own docket and in the interests of the parties to stay an action. Leyva v; Certified Grocers of California, Ltd, 593 F .2d 857 (9th Cir. 1979).
In this case, a stay order is justified because the parties have not had sufficient
In accordance with LcvR 7.1(m), on April 10, 2003, the attorneys for the FDIC met in
Apri1 21, 2003
C. D ARMST ADTER
Attorneys, Tax Division
Department of Justice
Office Box 683
April 21, 2003
ZIA, Attorney for Defendant
Deposit Insurance, as receiver
Benj. Franklin Savings Association
Anniversary of BENJ Seizure
The Battle for Justice Continues
Here is the latest report from our attorney, Don Willner:
“On February 21, 1990, 13 years ago, Dale Weight, President and CEO of Benj. Franklin was sitting at his desk when a small army of federal employees seized the institution without prior notice.
Later that year, on September 14, 1990, I filed suit in the United States Claims Court seeking either a shareholders’ derivative suit or a class action on behalf of the 6,500 shareholders for the breach of contract by the government which resulted in the seizure of this 65-year-old institution.
In 1995, Chief Judge Smith allowed shareholder derivative standing and dismissed the class action. Then in 1997, he found that the government had breached its contract with Benj. Franklin when it passed a law retroactively revoking its agreement which gave Benj. 40 years to amortize the capital asset of goodwill resulting from the acquisition of the Equitable Savings & Loan. This resulted in a summary judgment in our favor on liability (the breach of contract).
We had a long trial in 1999 to measure damages. In April 2002, Judge Smith awarded us approximately $35 million in damages, based on the value of the Benj. stock the day before the passage of the law which breached the contract. Both sides moved for reconsideration, and the government’s motion has not yet been decided.
Meanwhile, the Internal Revenue Service decided that a large loan to the Benj. receiver (The Resolution Trust Corporation) was taxable income. We never heard of the theory that a loan which was actually repaid in full, with interest, could be taxable income. In 2002, we filed first a lawsuit against the receiver for threatening to pay the tax and then, when the IRS sued the receiver, we filed a motion to intervene in that case on behalf of the shareholders.
There is over $90 million still in the receivership with all bills paid except the possible tax claim. If we can reach a reasonable settlement of the tax claim, the balance of the over $90 million will be distributed to the shareholders.
There are now active confidential compromise and settlement negotiations between the Department of Justice, representing the Internal Revenue Service, the Federal Deposit Insurance Corporation (now the receiver), and us representing the shareholders. We hope to reach a resolution by May 3, 2003. Any money we receive from the receivership is in addition to the final award from the Claims Court, or the Court of Appeals for the Federal Circuit.
My hair was brown when we started, and now it is mostly white. We have had an excellent team of attorneys, paralegals, and economists, 4,000 dedicated shareholders who have contributed to the costs of the suit; and leadership and generosity from the plaintiffs. Our total fees and costs have been a small fraction of the amount spent in other similar cases. The 13-year delay in achieving justice is incredible, but we fight on .”
Judge Smith Denies Motion for Reconsideration:
Final Order Delayed Until Tax Issue Settled
Here is the latest report from our attorney, Don Willner:
Judge Smith has denied our motion for reconsideration but will not enter a final order until the completion of the negotiations over the Internal Revenue Service’s tax claim. This means that we cannot yet appeal. The confidential compromise and settlement negotiations with the Department of Justice and the Federal Deposit Insurance Corporation continues. We are doing additional research and preparing additional briefs in support of our legal position. There remains over $90 million in the Benj. Franklin receivership and this amount is slowly increasing. We hope the ultimate tax will only be a small portion of this amount. The balance, plus the approximately $35 million awarded by Judge Smith, and maybe more awarded by the Court of Appeals, will then belong to the shareholders. There remain no guarantees, but I continue to be optimistic as the negotiations continue with the Department of Justice and the Federal Deposit Insurance Corporation. I am prohibited by the confidentiality agreement from giving you more information at this time.
Don S. Willner
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