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PSFS investors win appeal for $276 million

After 20 years, will PSFS investors finally get some money back?

It's not over yet, but: After a nearly 20-year legal fight, federal appeals court voted 6-4 today that the Court of Federal Claims properly awarded investors, led by Frank Slattery, in the failed Meritor Savings Bank/Philadelphia Savings Fund Society (PSFS), some $276 million in damages and compensation from the government's 1992 takeover of the troubled Philadelphia bank and its forced sale to Mellon.

Lawyers for the Federal Deposit Insurance Corp. had challenged the claims court's award. The case now goes back to the claims court for final orders, pending a possible Supreme Court appeal.

Slattery and other investors argued the government wrongly forced the bank out of business, wiping out investors' shares, after changing the rules for how PSFS should measure its capital reserves. FDIC officials said the bank made so many bad business loans, it would have failed anyway.

Gary Hindes, a Delaware investor in Meritor who has tracked the appeal closely, says the government has 90 days to appeal the case to the U.S. Supreme Court, which might not decide to hear what he called an "arcane" case before its term ends in June. Investors once talked of organizing a new PSFS with some of the proceeds from the lawsuit, but Hindes told me such discussion died out as the case dragged on.

Hindes said the judgement is worth about $4.50 a share in thinly-traded Meritor stock, after paying fees to lawyer Tom Buchanan of Washington's Winston & Strawn, and other costs. Investors had seen the value of the shares fall toward zero after the takeover, then recover to the $2 to $4 range as the lawsuit won a string of cases, only to fall again in the face renewed Washington delays.

"It seems like it has taken forever," Meritor shareholder Brad Christensen told me.