Sterling says U.S. owes it millions

Sterling Financial Corp. says the United States owes it $63 million for breaching contracts dating back to the savings and loan debacle of the 1980s.

The U.S. Justice Department says the government owes Spokane-based Sterling perhaps $900,000.

Judge Thomas Wheeler, of the U.S. Court of Federal Claims, will have the final say after arguments that began Monday in Spokane.

There’s no doubt Sterling is a Northwest banking success story. Under the leadership of Chairman and Chief Executive Officer Harold Gilkey and co-founder William Zuppe, the firm weathered the fiasco that undermined its peers in the thrift industry 20 years ago.

Undercapitalized savings and loan associations were failing, and the government was on the hook for the cash calamity.

To ease some of the pain, it turned to thrifts that were healthy, offering cash and accounting promises to facilitate takeovers that would ultimately save taxpayers money.

The idea went wrong when Congress passed a law saying Sterling wasn’t allowed to carry the liabilities of taking over three troubled thrifts as a positive on its financial books. Essentially, the government reneged on its deal, Sterling says. That contract breach, according to Sterling, cost the financial firm $63 million in lost profits and other costs.

Fast-forward 16 years, and Sterling and the federal government are still fighting over how much the government should pay.

In what amounts to a damages trial, Sterling and the government will spend the next several weeks arguing to Judge Wheeler about how much money Sterling should have made versus how much it really did make because of the government’s failure to hold up its end of the deal.

The Sterling case is one of approximately 120 federal contract disputes, collectively referred to as the Winstar cases, that involve the collapse of the savings and loan industry in the 1980s and the subsequent legislation enacted by Congress.

The Justice Department, at one point, estimated that those cases involved claims totaling more than $30 billion.

More than a billion pages of documents are part of the evidentiary trail. Many of them are now parked inside the historic courtroom, where dozens upon dozens of oversized three-ring binders are lined up on carts and temporary shelves. Many boxes stuffed with documents line the walls. Conference rooms have turned into temporary storage.

The Court of Federal Claims acts as a clearinghouse where the government must settle up with those it has legally wronged, according to literature posted on its Web sites.

It ensures the application of a lesser known aspect of the First Amendment – the right “to petition the Government for redress of grievances.” The grievances include those of Japanese Americans wrongfully held during World War II and of people who have suffered injuries from federal vaccines.

In testimony Monday, Gilkey recounted how he founded Sterling with Zuppe in 1983. During one light moment, Gilkey said the hardest thing he ever did was go door to door selling the stock of a thrift in the early 1980s.

The trial, scheduled to last weeks, will feature competing expert witnesses offering opinion and financial formulas to determine to cost to Sterling.