LOS ANGELES — A Superior Court judge Wednesday overturned the state's unprecedented June 16 seizure of financially sound Universal Savings Bank of Orange, a decision representing a major defeat for California's top savings and loan regulator.
Judge Christian E. Markey Jr. ordered the state to return control of Universal to its suspended chairman and its Australian parent company. He said there was "no substantial evidence" to support the state's claim that the S&L was about to lend $10 million to the chairman of its ailing parent, Unity Corp. Ltd.
"Universal was (not) and is not engaging in practices that threaten to impair its (financial) condition," said Markey, ruling from the bench after 2 1/2 days of testimony.
"I now regard this unfortunate episode as over," Universal Chairman Christopher Blaxland said. "Unity's commitment to investment in the savings and loan industry and to Universal remains undiminished."
William J. Crawford, commissioner of the state Department of Savings and Loan, last month obtained authorization from Markey to place Universal in a conservatorship, using allegations from two officers of the S&L who had been suspended by Blaxland.
They said certain pending real estate transactions would damage Universal's finances by diverting funds to Unity's chairman and depleting the S&L's capital.
The two officers--Universal President Serge Woodruff and Vice Chairman Christopher Gadsby--were under investigation by Universal's chairman regarding allegations of improper conduct and had been relieved of their duties the day before they complained to regulators.
Commenting on Wednesday's ruling, Crawford said his department "tried to prevent . . . (any transfer of funds to Unity's chairman) from taking place. . . . This (decision) doesn't mean we'll quit watching this outfit."
Crawford also said he believes the decision means that "judges will probably be a lot more careful in ratifying (conservatorships), and maybe I'll be a lot more hesitant about what we do in the future."
The court's decision may have broader ramifications, including the possibility that industry pressure could result in Crawford losing his job, said several industry consultants who did not want to be identified because of their relationships with the commissioner's office.
Crawford's office has been more aggressive in the last year in trying to halt what it sees as unsafe, unsound and illegal activities in the savings and loan industry.
One S&L industry consultant called Crawford's action "Gestapo-like" and warned that any court approval of the action would have set a "terrible precedent" that would allow regulators to seize healthy institutions without warning.
"Crawford, I think, has seen so many fraudulent acts in the last two years--he's been toughened by so many deceits and lies--that in frustration, he overreacted in this case," the consultant said.
Another consultant said, "What the commissioner has done is (to try) to put another weapon in his arsenal. If it serves as a deterrent, it'll serve its purpose."
Michael Kadish, an attorney representing Universal Vice Chairman Gadsby and President Woodruff, said the two men would be reinstated under provisions of a cease-and-desist order issued June 18 by the Federal Home Loan Bank Board.
That order states that all suspended managers "shall be restored to their duties" if the state's conservatorship were removed. The order also limits Universal's ability to make loans and conduct business.
However, Universal Chairman Blaxland said he plans to contact federal bank board officials about rescinding most of the order because it was based on the allegations that Markey has rejected.
Meanwhile, Unity Corp. Ltd. Chairman Garry Carter said he plans to move quickly to terminate Gadsby and Woodruff because "they have lost the confidence of the major shareholder and the staff at Universal."
Carter, whose company recently reported a $20-million loss stemming from an unsuccessful takeover bid for another Australian company, said Markey's order will "go a long way" in restoring confidence in Unity at home.
"The total vindication of Unity is very important to us," said Carter from Sydney.
He said Unity plans to continue doing business in the United States.
"The investment (in Universal) is a quality investment," Carter said. "We see it as one of the bright areas in our group's future."
Gadsby said he was "disappointed" in the judge's ruling because "we clearly acted in our capacity as directors to exercise our fiduciary duty."
Woodruff said he plans to be back at the Universal office Thursday morning.