Believe it or not: MAXXAM Sues the FDIC


©2000 San Francisco Examiner Page B3
June 02, 2000
Maxxam fights FDIC's lawsuit
Firm countersues, says FDIC financed Office of Thrift Supervisioncharges


HOUSTON - Maxxam Inc., the conglomerate that owns Humboldt County's
Headwaters forest, has countersued the Federal Deposit Insurance
Corp., which is seeking restitution for Maxxam's role in the failure
of a Texas savings and loan.

In a complaint filed in U.S. District Court in Houston, Maxxam
contends that the FDIC improperly financed charges filed by the
federal Office of Thrift Supervision in 1995. The FDIC lawsuit, filed
in August 1995, alleges that Maxxam Chairman Charles Hurwitz
artificially maintained the net worth of Houston-based United Savings
so that it could continue to buy junk bonds from the now-defunct
Drexel Burnham Lambert firm.

The Office of Thrift Supervision filed charges against Hurwitz in
December 1995. It seeks $820 million in restitution and penalties in
the United Savings case. Hurwitz controlled United Savings, which
failed in 1988 at a cost to the taxpayers of $1.6 billion.

Maxxam's complaint alleges that FDIC financed the Office of Thrift
Supervision's charges to bolster its own case.

Jill Ratner, president of the Oakland-based Rose Foundation for
Communities and the Environment, said that the Maxxam suit seemed
"based on through-the-looking-glass logic."

The timing of the complaint "makes it clear that Maxxam is scared
that it is going to lose," Ratner said.

The Rose Foundation advocates a debt-for-nature swap to resolve the
federal claims related to United Savings. Under its proposal, FDIC
and the Office of Thrift Supervision would accept 10,000 to 20,000
acres of redwood forest from Maxxam in settlement of its claims.
Spokane Spokesman-Review
June 1, 2000
Maxxam files suit in S&L case Parent company of Kaiser takes action
against FDIC
Bert Caldwell - Staff writer

Maxxam Inc. sued the Federal Deposit Insurance Corp. Wednesday for
underwriting another agency's pursuit of an $821 million claim
against the Houston company based on the collapse of a savings and

Maxxam is the parent of Kaiser Aluminum Corp.

The lawsuit filed in U.S. District Court in Houston says the FDIC
subsidized litigation brought in 1995 by the U.S. Office of Thrift

The support, more than $3 million, violates a federal law barring one
federal agency from contracting with another to bring litigation it
could not bring itself, the Maxxam complaint says.

OTS spokesman Bill Fulwider acknowledged the funding from the FDIC,
but added similar agreements have never been challenged.

"We think it's appropriate," he said.

OTS was not named in the new Maxxam lawsuit.

Fulwider noted that other defendants named in the 1995 OTS case
settled for $1.1 million. They did not admit any guilt.

Another $9 million-plus was recovered from United Financial Group as
part of a bankruptcy settlement after its primary asset, United
Savings Association of Texas, closed in 1988 and left OTS with a $1.6
billion cleanup.

Maxxam Chairman Charles Hurwitz was chairman of United Financial. He
is also named in the OTS lawsuit.

Union members locked in a protracted dispute with Kaiser have tried
to use the OTS action to undermine investor and customer confidence
in the company.

Joli Pecht, assistant general counsel for Maxxam, said previous
letter agreements like that between OTS and FDIC were not questioned
until she and representatives of other parties aggrieved by the FDIC
asked U.S. Rep. Pete King, R-N.Y., to investigate.

King chairs the General Oversight and Investigations Subcommittee of
the House Committee on Banking and Financial Institutions.

In November, King wrote to the directors of OTS and FDIC seeking a
response to the group's questions.

FDIC Chairman Donna Tanoue replied, conceding there is no specific
provision in federal law for letter agreements. But other chapters
sanction the litigation naming Maxxam, she said.

An FDIC spokesman could not be reached for comment Wednesday.

Pecht and Maxxam spokesman Josh Reiss said the company has spent the
past few months substantiating its position before filing its lawsuit.

"It's tough to sue the government," Reiss said.

Pecht said the OTS lawsuit has always been part of a federal
government strategy to force Maxxam to surrender thousands of acres
of redwoods owned by another subsidiary, Pacific Lumber Co., in a
"debt for nature" swap. "That pressure continues," she said.

Jill Ratner, an attorney and president of the Rose Foundation for
Communities and the Environment, said the proposal would be a
legitimate trade of acreage Pacific could not cut economically in
return for resolution of the OTS claim.

The timing of the Maxxam lawsuit, she added, indicates the company
fears an adverse ruling when the administrative law judge who heard
the case releases his decision within the next few months.

Maxxam asks the District Court to cut off any further FDIC support
for OTS, for damages, and for costs -- more than $30 million.

*Bert Caldwell can be reached at (509) 459-5450 or by e-mail at
MAXXAM's Press release: May 31, 2000
MAXXAM Sues FDIC Concerning the Agency's Letter Agreement With the
Office of Thrift Supervision
Misappropriation Violates the Economy Act and the "Purpose Clause"

HOUSTON (BUSINESS WIRE) - MAXXAM Inc. today filed a counterclaim in
United States District Court for the Southern District of Texas
against the Federal Deposit Insurance Corporation (FDIC) regarding
the agency's litigation against the Company and its Chairman and
Chief Executive Officer Charles Hurwitz.

The lawsuit challenges the legality of a Letter Agreement the FDIC
has entered into with its sister agency, the Office of Thrift
Supervision (OTS). Under the terms of this Letter Agreement, the FDIC
has used its own funds to finance an OTS administrative proceeding
against MAXXAM, Mr. Hurwitz and others over the same set of facts
presented by the FDIC in separate federal court litigation. The OTS
has agreed to pass on to the FDIC the monies it may recover from
these defendants.

MAXXAM's lawsuit requests that the court enter a judgment that: all
payments by the FDIC to the OTS are unlawful; the FDIC be enjoined
from paying any more monies to the OTS; and MAXXAM be reimbursed its
reasonable costs, attorney's fees, and unspecified damages.

"It is clear that the FDIC engaged in jurisprudential gymnastics in
order to pursue politically motivated litigation that it knew it
would lose in federal court," said J. Kent Friedman, General Counsel
of MAXXAM. "The FDIC/OTS Letter Agreement represents illegal and
abusive venue shopping, bad public policy, and shameful government

The FDIC's Politically Motivated Litigation

In August 1995 the FDIC sued Charles Hurwitz for the failure of
United Savings Association of Texas (USAT), a savings and loan that
went into receivership in December 1988 during the S&L crisis that
bankrupted most Texas thrifts.

Prior to filing its lawsuit, the FDIC recognized that its lawsuit
lacked merit. A May 1994 FDIC internal analysis concluded that the
agency stood "at least a 70%" chance of failing on pretrial motion
and, if it survived, that the chances of prevailing on the merits
were "marginal at best." Based on the FDIC's own standards that it
will not file a lawsuit unless it concludes that it has at least a 50
% chance of success, the agency should never have sued.

Although the FDIC had concluded it had a weak case, it faced
extraordinary pressure from politicians and environmental groups to
sue MAXXAM and Mr. Hurwitz in order to help other government agencies
gain leverage in negotiations with the Company over purchasing
old-growth redwood trees owned by one of MAXXAM's subsidiaries. The
goal was to create the threat of a "debt" regarding USAT that could
be "swapped for nature" owned by the Company. Indeed, prior to the
filing of the FDIC's lawsuit, former White House Chief of Staff Leon
Panetta told the National Audubon Society that a swap was "worth
pursuing" due to "budgetary constraints."

The OTS Shovel Pass

Succumbing to the political pressure and recognizing the inherent
weakness of its own litigation, the FDIC entered into the Letter
Agreement with the OTS in order to support and finance duplicative

The OTS' administrative action (filed December 1995) is in effect a
suit by the FDIC. It has had the purpose and effect of transferring
the FDIC's unlimited resources to the OTS in order to fund the
prosecution of civil claims that the FDIC has recognized would likely
be barred in federal court. The Letter Agreement has also allowed the
FDIC to avoid the substantive and procedural requirements imposed on
the agency by Congress and has deprived MAXXAM and Charles Hurwitz of
the right to due process and to a jury trial. Indeed, among the
reasons cited by the FDIC to justify its arrangement with the OTS is
the acknowledgement that "the OTS has a longer statute of

The financial cost of the Letter Agreement to the United States
government is significant. Despite the fact that the OTS claims on
its website that "Its expenses are funded entirely through
assessments and fees on the institutions it regulates," it has
invoiced the FDIC approximately $4 million to date and continues to
bill the agency for its work. MAXXAM has spent in excess of $30
million to defend itself against these politically motivated claims

"No Specific Statutory" Authorization for Letter Agreements

Federal laws governing inter agency transfer of funds prohibit the
FDIC/OTS agreement and the FDIC has recently acknowledged that
Congress has written "no specific statutory" authorization to enter
into a Letter Agreement with the OTS.

As a result, the FDIC has violated the Economy Act by, among other
things, entering into a contract to obtain the services of OTS to
bring an administrative proceeding against MAXXAM and Charles Hurwitz
that the FDIC could not have brought itself.

In addition, the Letter Agreement violates the "Purpose Clause" which
mandates that appropriations must be applied only to objects for
which the appropriations were made. The agency has never been granted
the authority by Congress to spend its appropriations on an OTS
administrative law proceeding.

Contact: MAXXAM, Houston Josh Reiss, 713/267-3740

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