11621 1 UNITED STATES OF AMERICA Before the 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 In the Matter of: ) 4 ) UNITED SAVINGS ASSOCIATION OF ) 5 TEXAS, Houston, Texas, and ) ) 6 UNITED FINANCIAL GROUP, INC., ) Houston, Texas, a Savings ) 7 and Loan Holding Company ) ) OTS Order 8 MAXXAM, INC., Houston, Texas, ) No. AP 95-40 a Diversified Savings and ) Date: 9 Loan Holding Company ) Dec. 26, 1995 ) 10 FEDERATED DEVELOPMENT CO., ) a New York Business Trust, ) 11 ) CHARLES E. HURWITZ, ) 12 Institution-Affiliated Party ) and Present and Former Director ) 13 of United Savings Association ) of Texas, United Financial Group,) 14 and/or MAXXAM, Inc.; and ) ) 15 BARRY A. MUNITZ, JENARD M. GROSS,) ARTHUR S. BERNER, RONALD HUEBSCH,) 16 and MICHAEL CROW, Present and ) Former Directors and/or Officers ) 17 of United Savings Association of ) Texas, United Financial Group, ) 18 and/or MAXXAM, Inc., ) ) 19 Respondents. ) 20 21 TRIAL PROCEEDINGS FOR 12-19-97 22 11622 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire (Not present) Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire (Not present) 6 and BRYAN VEIS, Esquire (Not Present) of: Office of Thrift Supervision 7 Department of the Treasury 1700 G Street, N.W. 8 Washington, D.C. 20552 (202) 906-7395 9 ON BEHALF OF RESPONDENT MAXXAM, INC.: 10 FRANK J. EISENHART, Esquire 11 of: Dechert, Price & Rhoads 1500 K Street, N.W. 12 Washington, D.C. 20005-1208 (202) 626-3306 16 13 DALE A. HEAD (in-house) 14 Managing Counsel MAXXAM, Inc. 15 5847 San Felipe, Suite 2600 Houston, Texas 77057 16 (713) 267-3668 17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND CHARLES HURWITZ: 18 RICHARD P. KEETON, Esquire (Not present) 19 DAVID GRIFFITH, Esquire KATHLEEN KOPP, Esquire 20 of: Mayor, Day, Caldwell & Keeton 1900 NationsBank Center, 700 Louisiana 21 Houston, Texas 77002 (713) 225-7013 22 11623 1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO., 2 CHARLES HURWITZ, AND MAXXAM, INC.: 3 JACKS C. NICKENS, Esquire of: Clements, O'Neill, Pierce & Nickens 4 1000 Louisiana Street, Suite 1800 Houston, Texas 77002 5 (713) 654-7608 6 ON BEHALF OF JENARD M. GROSS: 7 PAUL BLANKENSTEIN, Esquire MARK A. PERRY, Esquire (Not present) 8 of: Gibson, Dunn & Crutcher 1050 Connecticut Avenue, N.W. 9 Washington, D.C. 20036-5303 (202) 955-8500 10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH: 11 JOHN K. VILLA, Esquire (Not present) 12 MARY CLARK, Esquire PAUL DUEFFERT, Esquire 13 of: Williams & Connolly 725 Twelfth Street, N.W. 14 Washington, D.C. 20005 (202) 434-5000 15 OTS COURT: 16 HONORABLE ARTHUR L. SHIPE 17 Administrative Law Judge Office of Financial Institutions Adjudication 18 1700 G Street, N.W., 6th Floor Washington, D.C. 20552 19 Jerry Langan, Judge Shipe's Clerk 20 REPORTED BY: 21 Ms. Marcy Clark, CSR Ms. Shauna Foreman, CSR 22 11624 1 2 EXAMINATION INDEX 3 Page 4 JEFFREY SEIDMAN 5 Continued Examination by Mr. Schwartz...11628 6 Cross-Examination by Mr. Dueffert.......11644 7 Redirect-Examination by Mr. Schwartz....11721 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 11625 1 P-R-O-C-E-E-D-I-N-G-S 2 (8:35 a.m.) 3 MR. RINALDI: Your Honor, before we 4 begin -- 5 THE COURT: Do you want this on the 6 record? 7 MR. RINALDI: Yes, please. 8 THE COURT: We'll be on the record. 9 MR. RINALDI: We have a number of 10 original documents that we've been showing the 11 witness for the last, whatever it is, three and a 12 half months of trial. And the question is: How 13 would the Court like us to retain those documents 14 during the hiatus in the proceeding. 15 THE COURT: Well, the usual way is for 16 the reporting company to retain custody of 17 received documents. 18 MR. RINALDI: Is that going to be a 19 workable alternative? Do you know? You can take 20 responsibility for this original set? 21 COURT REPORTER: Yes. 22 MR. RINALDI: Okay. That would be fine 11626 1 with us, then. 2 Is there any problem with that? 3 MR. NICKENS: The only problem I have 4 is that I understood this was discussed and agreed 5 upon last night and now you propose something a 6 little different this morning. 7 MR. RINALDI: No. The issue was 8 discussed last night where the documents would go 9 and the question was would the respondents retain 10 them, and I think Terri had indicated that Terri 11 felt she wanted to go through and substitute some 12 copies, but I know it's always been the Court's 13 practice when we substitute to put that on the 14 record. My suggestion is that if there are copies 15 that are going to be substituted, all the parties 16 can agree upon those copies and then when we 17 reconvene, they can be presented to the Court. 18 MR. NICKENS: Well, in any event, the 19 solution proposed is acceptable to us, the court 20 reporter's retain possession of those and we can 21 do whatever is necessary about informing the Court 22 about cleaning up some of those things. We've had 11627 1 various items where a document was suggested to be 2 substituted or a better copy, and we'll just need 3 to keep a record of that, which we will do. 4 THE COURT: There should be a record. 5 It would seem a little odd for one party or other 6 to have custody of the documents with the 7 understanding they are going to be working on it. 8 MR. NICKENS: I understand. 9 MR. RINALDI: Thank you, Your Honor. 10 THE COURT: I indicated last evening I 11 would rule on Exhibit 74 -- T7473 and T7409. The 12 objection was raised that these documents are not 13 receivable because of the compromise in 14 negotiation exception and it seems to me on 15 reflection that that rule would not preclude these 16 documents. It seems to me it only goes to the 17 parties to the negotiation itself and does not 18 extend to other persons. So, I'm receiving those 19 documents. 20 MR. SCHWARTZ: Thank you, Your Honor. 21 Yesterday, also, we offered Exhibit T7803. 22 Mr. Dueffert was kind enough to provide us with a 11628 1 complete document. I now offer Exhibit T7803. 2 MR. DUEFFERT: No objections as 3 substituted. 4 THE COURT: All right. Received. 5 6 CONTINUED EXAMINATION 7 8 9 Q. (BY MR. SCHWARTZ) Good morning, 10 Mr. Seidman. 11 A. Good morning. 12 Q. Would you pull out Exhibit 7409 and 13 7473, please? Do you have those? 14 A. Yes. 15 Q. Okay. Attached to Exhibit 7409 is a 16 November 30, 1990 memo from Park 410 West Joint 17 Venture to USAT FSB. 18 Did you receive that? 19 A. I would have to assume so. 20 Q. Was the purpose of that memo to convey 21 the borrower's proposals to settle any disputes 22 between the parties? 11629 1 A. Yes. 2 Q. Exhibit 7473 is a July 24, 1991 memo 3 from you to the RTC? 4 A. Correct. 5 Q. Okay. What was the purpose of that? 6 A. To respond to questions that were 7 raised by the RTC with regard to the settlement. 8 Q. And starting on Page 2 at the bottom is 9 a discussion of potential claims raised by the 10 obligors. 11 Do you see that? 12 A. Yes. 13 Q. And you describe Category 1 and 14 Category 2 defenses. Right? 15 A. Yes. 16 Q. And then in your -- Paragraph A on 17 Page 3, it says, "Prior to April 4, 1986, the old 18 association owned a one-fourth interest in the 19 Park 410 West property through a joint venture 20 arrangement with Mr. Stanley D. Rosenberg and Gulf 21 Management Resources, Inc. That arrangement 22 required the old association to provide one half 11630 1 of all capital required to maintain and develop 2 the property. At the same time, the old 3 association was entitled to only one-fourth of the 4 properties, if any." 5 Can you explain what you meant when you 6 wrote that paragraph? 7 A. It's a recitation of the arrangement 8 that existed at that point in time. 9 Q. And what was the source of the 10 information you used to write that? 11 A. Research and a document, a joint 12 venture agreement, between the association and 13 Mr. Rosenberg. 14 Q. Moving to Paragraphs D and E on the 15 next page, it says, "It appears that the old 16 association, apparently on its own, retained an 17 appraiser (Mr. Edward Schulz, an MAI), who 18 prepared a valuation study of the property. The 19 obligors claim that the old association used this 20 appraisal to obtain the obligors' agreement to 21 convert the old association's joint venture 22 interest into a net profits interest in the 11631 1 property in exchange for funding an acquisition 2 and development loan. The obligors claim that the 3 old association's appraiser assigned values that 4 were calculated to convince the obligors that a 5 restructuring of the transaction was not only 6 feasible but, in fact, was to the obligors' 7 advantage. Whatever the final evidence regarding 8 who said what to whom may show, what is certain is 9 that the values established in the 1986 appraisal 10 have not been matched by any subsequent 11 appraisal". 12 And then E goes on, "There may be some 13 evidence to support the obligors' claim that the 14 1986 Schulz appraisal was submitted to the old 15 association's co-venturers in a manner that was 16 either calculated to, or perhaps did, influence 17 the other venture members' decision to release the 18 old association from its undertakings in the joint 19 venture and to enter into the loan transaction." 20 Do you see that? 21 A. Yes. 22 Q. What were the defenses that you were 11632 1 describing in those paragraphs? 2 A. We were trying to present to the 3 government, with the assistance of counsel on my 4 part, the kinds of issues that might be raised in 5 the event litigation was proposed or pursued by 6 the obligor group to determine, in effect, if it 7 was a viable alternative that the borrowers and 8 obligors had. And it assisted us in evaluating 9 whether it was in our best interest to settle the 10 matters or to proceed and perhaps run the risk of 11 ending up in court. 12 Q. And throughout all of this time, while 13 these discussions were taking place, did United 14 collect on the letters of credit? 15 A. Yes. 16 Q. At what point in time? 17 A. The fundings under the letters of 18 credit occurred at different times during the 19 course of the events. 20 Q. Okay. Would you pull out, please, 21 Exhibits T7327, 7305 -- 22 A. Scott, it might be easier for you to 11633 1 find them here. I don't know what they look like. 2 (Discussion off the record.) 3 4 MR. DUEFFERT: Your Honor, may we go 5 off the record for a moment? 6 THE COURT: All right. We'll be off 7 the record. 8 9 (Discussion off the record.) 10 11 THE COURT: All right. We'll be back 12 on the record. 13 Q. (BY MR. SCHWARTZ) Okay. Looking at 14 Exhibit 7327, which is the letter from Cynthia 15 Bauckman? 16 A. Yes. 17 Q. Now, that letter lists at the -- in the 18 top number the principal at maturity as -- and the 19 maturity date is April 8th, 1991; is that right? 20 A. According to this document. I have not 21 reviewed the note. 22 Q. Okay. Is that the total amount of 11634 1 funds that USAT advanced against the loan, 2 $72,652,646.57 against -- 3 A. No. In addition to that, we advanced 4 the second line item representing $2,261,508.94. 5 Q. Okay. Would you turn to the Akin, Gump 6 memo which is 7305? And would you look at Page 6? 7 And in the second full paragraph, it says at the 8 top, "With the exception of real estate tax, no 9 funds have been advanced against this loan since 10 December 28th, 1988." 11 Okay? Is the 2-million-dollar figure 12 that you were talking about, is that the real 13 estate taxes? 14 A. It's real estate taxes, maintenance, 15 repairs of the property. The borrower did not 16 advance funds to cover those expenses, and we 17 needed to in order to ensure the project's 18 continuing marketability. 19 Q. Okay. It goes on in that paragraph to 20 say that "Funding any further requests after 21 December 28th, 1988, would have placed the loan 22 over the 73-million-dollar ceiling and, 11635 1 consequently, the request was not honored." 2 A. I'm not quite sure what your question 3 is. That's a fact. 4 Q. Is that consistent with your 5 recollection, or is it not consistent with your 6 recollection? 7 A. I wasn't concerned about whether or not 8 it had exceeded $73 million or $50 million. We 9 needed to do what we had to do to protect our 10 position in the collateral by advancing the money 11 to cover the taxes. 12 Q. And that was that -- and maintenance 13 and other things that needed to be done? 14 A. Right. Taxes were very expensive. 15 Q. And that was that 2-million-dollar 16 figure? 17 A. Yes. 18 Q. Okay. Was the 72 -- was the 19 $72 million plus the 2-million-dollar figure 20 amounts that were out-of-pocket expenses for 21 either USAT or the FDIC after receivership? 22 A. Yes. The only thing that those numbers 11636 1 would not include would be payments to outside 2 counsel related to their work on the loan or the 3 credit. 4 Q. Okay. So, are the total out-of-pocket 5 expenses the 72-million-dollar figure plus the 6 2-million-dollar figure for a total of what I come 7 to as $74,920,155.21? 8 A. Correct. 9 Q. Okay. The next line down, "unpaid 10 interest to maturity," is a 12-million-dollar 11 figure? 12 A. Yes. 13 Q. Okay. Is that the interest that the 14 loan would have earned had it been kept current 15 and earned the interest specified in the loan 16 agreement through the date the loan matured on 17 April 8th, 1991? Forgetting about accounting 18 rules and how it was accounted for, is that -- 19 A. Yes, based on the original term and 20 requirements of the note. 21 Q. Okay. So, adding that figure in, that 22 interest that would have been paid, we add the 11637 1 $12 million. That comes to 87 million -- by my 2 calculations -- 295,178.70. 3 Now, would that be the total loss on 4 the loan through the date the loan matured on 5 April 8th, 1991? 6 A. Not according to my definition. 7 Q. Okay. We're talking about -- we're not 8 talking about accounting rules. We're talking 9 about just from the loan itself. 10 MR. DUEFFERT: Your Honor, I'm just -- 11 this man is not an expert witness and he does not 12 have access to all of the files in the case. What 13 Mr. Schwartz is doing is showing him one piece of 14 paper and asking him to reach answers to 15 hypothetical questions. 16 I object on the grounds of foundation. 17 THE COURT: Well, I don't think they 18 are hypothetical but we'll just exhaust his 19 knowledge. If you ask him something he doesn't 20 know, well, he'll tell us. 21 A. What I mentioned yesterday -- and I'll 22 mention it again -- was that this letter written 11638 1 to Sarah Wolfe was in response to a request that 2 we received from them. I am not sure without 3 looking at additional paperwork what that request 4 was. It would appear that they asked "What is the 5 amount of interest that has accrued and due and 6 payable on the loan," and this was the response 7 based on the contractual terms of the note in the 8 loan agreement. 9 Q. (BY MR. SCHWARTZ) Okay. The next -- 10 THE COURT: Were you finished? 11 THE WITNESS: Well, I was going to say 12 you used the term "loss." I used the term "loss" 13 to represent the dollars that were advanced on the 14 loan that were not collected. 15 Q. (BY MR. SCHWARTZ) Okay. 16 A. The interest that's shown here was not 17 accrued. Therefore, was not an asset of the 18 association, not collected, not taken into income. 19 Q. You're talking about accounting entries 20 now? 21 A. Yes. 22 Q. Okay. Were you finished with your 11639 1 answer? 2 A. Yes. 3 Q. All right. The last number there, the 4 16,978,000-dollar number, okay, now, does that 5 represent the post-maturity interest after the 6 maturity date of the loan through what's indicated 7 on this letter, November 15th, 1993, as you 8 understand it? 9 A. Yes. As I recall, the note had a 10 different interest rate for that period of time 11 once the loan was in default, too. 12 Q. Okay. So, the total amount that's 13 listed at the bottom, the "total amount due" line, 14 $104,268,171.42, is that the total amount of 15 principal and interest due on the loan through 16 maturity plus the interest upon maturity through 17 November 15th, 1993? 18 THE COURT: The date of the letter is 19 November 10, Mr. Schwartz. 20 MR. SCHWARTZ: Yes, Your Honor. But if 21 you look at the second line of the letter -- 22 THE COURT: All right. 11640 1 Q. (BY MR. SCHWARTZ) Do you have my 2 question in mind? 3 A. Yes. I mean, it's clear that that was 4 the case through that point in time. And then as 5 the judge has pointed out, there is a per diem 6 noted for subsequent days. 7 Q. Okay. And then in order to compute -- 8 to back out the letters of credit, you would 9 subtract those -- that from whatever number it is 10 that you start with, the amount expended or due, 11 back out the letters of credit, which was 12 $10 million, and then back out from that the 13 $5,950,000 that was from the foreclosure; is that 14 right? 15 A. Right. 16 Q. And then the proceeds from the post 17 office -- 18 A. Correct. 19 Q. -- sale? Okay. Exhibit T7311. Now, 20 if you look at Exhibit -- back at Exhibit 7324, 21 which is your memorandum for this specific request 22 for approval and if you look at page 2 under 11641 1 "marketing" -- 2 A. Yes. 3 Q. -- it refers to a 5.04 acres to the 4 U.S. Postal Service has been the only sale that 5 has occurred? 6 A. Correct. 7 Q. Okay. So, the document that I just 8 gave you, Exhibit 7311, does that refresh your 9 recollection as to how much the postal service 10 parcel sold for? 11 A. It was an estimate. The closing 12 statement would actually reflect what it sold 13 for -- 14 Q. Okay. 15 A. -- and what the net proceeds were from 16 that sale. 17 Q. Was that the only sale of any of the 18 Park 410 parcels from 1986 through 1993? 19 A. Yes. My recollection might be we 20 received, or the borrower received, proceeds from 21 the widening of Potranco Road. Other than that, I 22 don't believe that there were any portions of the 11642 1 collateral that are not accurately represented 2 by -- 3 Q. Do you know what that amount was for 4 the -- that the borrowers received? 5 A. No. 6 Q. You said the borrowers received; is 7 that right? 8 A. Well, that was my recollection. 9 Q. Okay. And the parcel that was sold to 10 the U.S. Postal Service, who sold that? Was that 11 old USAT or the FDIC? 12 A. The borrowers owned the property. So, 13 therefore, they would have sold it. 14 Q. Okay. 15 A. USAT never owned this property. 16 Q. Okay. The parcel that was sold to the 17 U.S. Postal Service, that was post-receivership; 18 is that right? 19 A. Yes. 20 Q. Okay. 21 MR. SCHWARTZ: I have no further 22 questions, Your Honor. 11643 1 THE COURT: Are you going to move -- 2 MR. SCHWARTZ: Yes, I'm sorry. I do. 3 I move the admission of Exhibit T7311. 4 MR. DUEFFERT: Your Honor, if we make 5 off the record for two minutes perhaps to 6 rearrange -- I have no objection. I'm sorry. 7 THE COURT: All right. I don't have -- 8 show T7327 as having been received. 9 MR. SCHWARTZ: I'm sorry? 10 THE COURT: I do not show T7327 as 11 having been received. Are you offering that? 12 MR. SCHWARTZ: Yes, Your Honor. We 13 move admission of 7327, as well. That's the 14 November 10th, 1993 letter. 15 MR. DUEFFERT: No objections. 16 THE COURT: Received. 17 THE COURT: Mr. Dueffert, you're going 18 to cross-examine? 19 MR. DUEFFERT: Yes, Your Honor. 20 THE COURT: Proceed. 21 22 11644 1 2 3 CROSS-EXAMINATION 4 5 (8:59 a.m.) 6 Q. (BY MR. DUEFFERT) Good morning, 7 Mr. Seidman. For the record, my name is Paul 8 Dueffert. 9 Mr. Schwartz went through your resume 10 some, but it was in reverse chronological order 11 and it didn't have dates. So, just to clear up 12 the record some, do I understand that you earned a 13 BS in real estate from the University of Arizona? 14 A. Yes. A BS degree with a major in real 15 estate. 16 Q. And what year did you receive that 17 degree? 18 A. 1969. 19 Q. You also have a law degree from Tulane, 20 correct? 21 A. Correct. Juris doctorate, 1972. 22 Q. When did you join the First National 11645 1 Bank of Commerce in New Orleans? 2 A. Immediately after graduating from law 3 school. 4 Q. So, you didn't ever practice law? 5 A. No. 6 Q. Your title at the First National Bank 7 of Commerce was vice president? 8 A. Yes, and of other subsidiary real 9 estate related entities. 10 Q. At the First National Bank of Commerce, 11 were you responsible for direct real estate 12 lending? 13 A. Yes. 14 Q. And when you talk about "other 15 subsidiary entities," are you referring to a 16 publicly-owned or REIT named First Commerce Realty 17 Investors? 18 A. Yes. 19 Q. You were an officer in that REIT? 20 A. I was the assistant secretary of the 21 REIT and an officer of its advisory company, First 22 Investment Advisors. 11646 1 Q. In that capacity, were you involved in 2 handling approximately $60 million worth of asset 3 swaps? 4 A. Yes. 5 Q. During that time, did you also serve on 6 the board of the Bellaire Corporation? 7 A. Yes, I did. 8 Q. And what was the business of the 9 Bellaire Corporation? 10 A. It was a real estate holding company 11 located in Mobile, Alabama. It owned a regional 12 shopping center and about a million square feet of 13 office space. 14 Q. And was the shopping center you 15 referred to a 1.5 million square foot mall named 16 the Bellaire Mall? 17 A. Correct. 18 Q. When did you join the board of the 19 Bellaire Corporation? 20 A. Let's see. Approximately 1978. 21 Q. Around that time, did you also become a 22 director of Colonial Bank Group? 11647 1 A. Yes. And its -- yes. That was the 2 name of the bank holding company, still in 3 existence, located in Montgomery, Alabama. 4 Q. And at the time, was that an 5 approximately 800-million-dollar bank holding 6 company? 7 A. Yes. 8 Q. Did you thereafter become an executive 9 vice president with Herman, Maisel & Company in 10 Mobile, Alabama? 11 A. Yes. 12 Q. All right. When did you join that 13 firm? 14 A. Actually, I joined that firm when I 15 left New Orleans, and that became the focus of my 16 day-to-day employment in Mobile. 17 Q. So, approximately what year? 18 A. 1978. 19 Q. And were you involved in development 20 work at that time? 21 A. Yes. Office buildings, hotels, 22 single-family subdivisions, multi-family projects. 11648 1 Q. Did that work include working on a 2 300-room Hilton Hotel? 3 A. Yes. 4 Q. All right. As well as 150,000 square 5 foot office building? 6 A. Correct. 7 Q. You thereafter became a project and 8 asset manager for Century Corporation, correct? 9 A. Right. Century Development 10 Corporation. 11 Q. Okay. What year did that take place? 12 A. Approximately 1981. 13 Q. And in connection with that work, were 14 you the asset manager for a 4.5 million square 15 foot development known as the Greenway Plaza 16 development in Houston? 17 A. Yes. 18 Q. When did you move to Texas to become a 19 real estate consultant? 20 A. I'm not quite sure. When I gained 21 employment with Century Development Corporation in 22 1981. 11649 1 Q. Did you eventually come to be based in 2 Dallas? 3 A. No. I've never lived in Dallas. 4 Q. Oh, I'm sorry. Where were you based 5 when you were -- 6 A. Here. I lived in Houston when I moved 7 from Alabama. 8 Q. Okay. And among your clients, was 9 there the Lincoln Property Company in Dallas and 10 the Century Real Estate Advisors Company in 11 Houston? 12 A. Yes. 13 Q. Just so the record is abundantly clear, 14 you first joined United Savings Association of 15 Texas in, I believe, August of 1987? 16 A. Correct. 17 Q. All right. And that was more than a 18 year after both the Park 410 and Norwood loans 19 were made. Right? 20 A. Correct. 21 Q. By August of 1987, would it be fair to 22 say that the real estate markets in Texas were 11650 1 suffering badly? 2 A. Yes. And if they were your properties, 3 they were suffering very badly. 4 Q. Could you explain further? 5 A. I'm being a little facetious. If they 6 were somebody else's properties, they were 7 suffering. If they were your properties, they 8 were suffering badly. 9 Q. Houston was hit very hard? 10 A. Yes, as was the southwest and then 11 ultimately the nation, through a recession. 12 Q. In 1987 and 1988, was it part of your 13 portfolio at United to maximize the value of the 14 assets you were overseeing? 15 A. That's a very good way to characterize 16 it. Our role was to -- in the cases of foreclosed 17 properties that we ended up owning -- to achieve 18 as great a return as possible during the holding 19 period and then ultimately receive as great a 20 principal return as possible based on the existing 21 book values. 22 Q. I think -- is that what you described 11651 1 yesterday as a delicate process? 2 A. Extremely. As you are very cognizant 3 of the liabilities that flow back to the lender 4 through lender liability issues that were very 5 popular at the time and very commonly raised by 6 borrowers to protect themselves from liabilities 7 that they may hold under notes and guaranties. 8 Q. Do I understand that part of your job 9 with regard to the Norwood and Park 410 projects 10 was to make sure that the projects were completed? 11 A. Oh, ultimately, yes. They were -- they 12 were tremendously much more marketable in a 13 completed state. People that are users of 14 property want to be associated with successful 15 developments. Those that are completed, that are 16 well positioned, well maintained, have a good 17 physical appearance enhance their decisions to, 18 first of all, buy the property in the first place 19 and then ultimately attract other users behind 20 them. 21 Q. So, your focus on bringing these 22 projects to completion wasn't just a United issue 11652 1 or wasn't just a Park 410 and Norwood issue. 2 Right? 3 A. No. Whether we owned those properties 4 or whether we held them through a note, we still 5 had the same objectives. 6 Q. Now, you said that -- I think you were 7 intimately familiar with the Norwood property. 8 Right? 9 A. Yes. 10 Q. Were you also intimately familiar with 11 the Park 410 property? 12 A. Yes. 13 Q. Okay. Let's start with Norwood for 14 just a moment. First off, what was the attitude 15 of developers in the mid-1980s towards Austin? 16 A. A very, very -- 17 MR. SCHWARTZ: Excuse me. When you say 18 "mid-1980s," what are you referring to? Which 19 time frame? 20 MR. DUEFFERT: I think that is a time 21 frame. 22 MR. SCHWARTZ: 1984 to 1986, 11653 1 Mr. Dueffert? 2 MR. DUEFFERT: I'll take that as a 3 range. 4 MR. SCHWARTZ: Thank you. 5 A. The answer would be the same regardless 6 of what years are described. Austin has a 7 reputation as being a very environmentally 8 sensitive area of the state. It is a very 9 difficult process to get a property planned and 10 approved within their planning commission 11 departments. 12 Q. (BY MR. DUEFFERT) And was Austin also 13 somewhat viewed as more protected from some of the 14 problems that cities like Houston had with the 15 changes in oil prices? 16 A. Yes, to a certain extent, but it was 17 not immune from overbuilding that occurred by 18 investors, real estate investors. 19 Q. Within Austin, did you view the Norwood 20 property as being well located for development? 21 A. Extremely well located. 22 Q. Why was that? 11654 1 A. Because it was at the confluence of 2 Interstate 35 and 183, which is known as Research 3 Boulevard, two of the principal -- one of many 4 principal intersections in the community that were 5 in the corridor of growth for the community. 6 Q. And was it your view that the site had 7 good ingress and egress? 8 A. Yes. 9 Q. Do I understand correctly that Norwood 10 was one of the only approved regional retail sites 11 in Austin as of 1986? 12 A. I don't know that for a fact. I know 13 it was one of a few that had been approved. It 14 was originally going to be the location for 15 Deauville Mall, which conceptually was going to 16 anchor the rear of the property. 17 Q. Was it your view that the zoning and 18 other approvals that had been obtained on the 19 property were valuable? 20 A. Very valuable. 21 Q. And why was that? 22 A. Because in the current climate, there 11655 1 was some question about whether or not those 2 approvals could be obtained in the current 3 environment. So, to be grandfathered in with an 4 approved plan was extremely valuable. 5 Q. And when you say "current climate," 6 what time period are you referring to? 7 A. This would be after I came on board. 8 This would be 1987, 1988. 9 Q. Okay. Yet because of the zoning 10 issues, in order to do business in Austin, was it 11 often necessary to have the assistance of local 12 developers? 13 A. Yes. 14 Q. And as you came to the asset in 1987 15 and '88, was it your view that the property was 16 being developed in a first-class manner? 17 A. Yes. 18 Q. Did you think that the location of 19 Park 410 was also favorable? 20 A. Yes. Perhaps not as favorable as 21 Norwood, but that was because Norwood appeared to 22 be more of an in-fill property whereas Park 410 11656 1 was a larger tract whose success was predicated on 2 the continued growth of the community within the 3 1604 loop. 4 Q. And was that community growing as of 5 the mid-1980s? 6 A. Yes. 7 Q. And there were residential subdivisions 8 being built in that neighborhood, as well as the 9 Sea World development? 10 A. Yes. And more importantly, the 11 infrastructure for the road systems was being put 12 in place. 13 Q. Okay. Now, Mr. Schwartz asked you 14 about -- a little bit about the Park 410 loan file 15 when you first arrived at United. 16 A. Right. 17 Q. First off, do I understand correctly 18 that when you joined United, you found the 19 accounting records of the institution to be in 20 good shape? 21 A. Yes. As far as I could tell, every 22 dime was accounted for. The paperwork related to 11657 1 each advance was accounted for. And because of 2 the size of the transactions, both in relation to 3 Park 410 and Norwood, it was a very often asked 4 question by not only our management, by the 5 examiners, to document and audit and make sure 6 that everything was appropriate and there was 7 really no issue because it was all right there. 8 Q. Do I understand that you were unable to 9 locate what might be called an account officer's 10 desk file on the Park 410 loan? 11 A. That's true, but that's also true for 12 all the loans that I handled. 13 Q. That would include correspondence and 14 memoranda. Right? 15 A. Yes. Narrative text that -- 16 Q. Okay. Now, Mr. Graham left United 17 before you started. Right? 18 A. Correct. 19 Q. And there was a gap of several months 20 between the two of you? 21 A. As I understand it, yes. 22 Q. Okay. Mr. Childress left the 11658 1 association at the same time as Mr. Graham? 2 A. That was my understanding. 3 Q. All right. And one of the prices of 4 having gaps in continuity is sometimes desk files 5 get lost or misplaced. Right? 6 A. It can be, yes. 7 Q. Apart from the working files of 8 Mr. Graham, do I understand that Karen Wynans also 9 maintained kind of central files on real estate 10 loans? 11 A. Correct. She ruled over that territory 12 with an iron hand, and that's a compliment. 13 Q. And when you needed things like the 14 closing binder on the Park 410 loan, you were able 15 to go to her and get what you needed? 16 A. Yes, after giving your driver's license 17 to her or something. I'm not trying to make fun 18 of it. It was -- she took her position very 19 seriously, particularly as it relates to original 20 notes and deeds of trust that were maintained in a 21 fireproof vault that the association had 22 photocopied again in those closing files that she 11659 1 maintained. 2 So, during the course of the assets 3 that I maintained, we always were able to put our 4 hands on original letters of credit, original 5 guaranties, original notes. We had very few cases 6 of lost documents. 7 Q. Moving on to the loans, can you explain 8 to the Court the role of Noel Simpson in the 9 Park 410 Joint Venture? 10 A. To the best of my knowledge, Noel 11 represented a group of Arab investors who had 12 determined that it was in their best interest to 13 make real estate investments in the United States. 14 They did that through IPIC, which Noel headed up, 15 and they acquired real estate developments in the 16 United States. The only ones that I knew of were 17 promise in Connecticut, Dallas, and San Antonio. 18 And this was not the only asset in San Antonio 19 that they maintained. 20 Q. Did you find Mr. Simpson and his 21 company to be sophisticated and experienced? 22 A. Very. 11660 1 Q. Could you explain? 2 A. He was a very polished gentleman, a 3 very neat -- the only thing I found interesting 4 was it was the first time I was exposed to a 5 gentleman who liked to smoke cigars during the 6 course of a meeting. I believe he was from Paris. 7 He appeared to be very well educated, very 8 knowledgeable, and very prepared for what he was 9 doing. 10 Q. Did you also find Mr. Stanley Rosenberg 11 to be a sophisticated and experienced businessman? 12 A. Yes, but with more of a focus on the 13 San Antonio activities rather than national 14 through, as I described, for Noel Simpson whose -- 15 I think whose headquarters were in London and in 16 Paris. 17 Q. Now, do you recall that Mr. Schwartz 18 on, I think, numerous occasions asked you about 19 times in which you suspended monthly development 20 fees that were going to be paid to GMR? 21 A. Correct. 22 Q. Do you recall that? 11661 1 A. Yes. 2 Q. Did you suspend those payments because 3 you felt that GMR was acting in a way that was 4 unprofessional or incompetent? 5 A. No. They were withheld because it 6 was -- it created leverage for us to get other 7 non-monetary items received by us in due course. 8 Q. Such as current financial statements? 9 A. Financial statements, particularly 10 information relating to the renewal of letters of 11 credit. 12 Q. So, would it be fair to say that you 13 used what leverage you had to cure non-monetary 14 defaults as you saw them coming up? 15 A. Yes. 16 Q. Could we have Exhibit B2570, please? 17 Do you recall that Mr. Schwartz asked 18 you about some projections that United made 19 internally in the spring of 1988 pointing towards 20 the date on which a monetary default might happen 21 on the Park 410 loan? Do you remember there was 22 an issue about 13 months? 11662 1 A. Oh, yeah. The remaining life of the 2 interest reserve? 3 Q. Yes. 4 A. Okay. 5 Q. Could you explain to the Court the 6 significance of a monetary default as you saw that 7 from your perspective? 8 A. As a general policy, we would not 9 pursue -- proceed to demand a note and post an 10 asset for foreclosure without a very serious 11 default. And we considered a serious default to 12 be a monetary default. A non-monetary default, 13 while actionable and while creating an event of 14 default in the loan agreement, was not something 15 on which that we would proceed to foreclosure. 16 Q. And why was that? 17 A. Prudence. We were always quite 18 concerned in this case, as in every other, that 19 the borrower might avail themselves of bankruptcy 20 protection, that a suit might be instigated by the 21 borrowing group that would, in effect, put a lis 22 pendens on the property and make the asset 11663 1 unsaleable and recognition that the only one that 2 would benefit from litigation are the attorneys 3 involved. 4 THE WITNESS: Excuse me, Your Honor. 5 Q. (BY MR. DUEFFERT) Was it also your 6 view that even apart from legal considerations, 7 that you as a lender would generally work hard to 8 keep the borrowers in control of the property 9 because they would have the greatest motivation 10 and expertise to market and sell it? 11 A. A borrower that has equity in a 12 property, real equity, a borrower who has letters 13 of credit up are 1000 percent more motivated to 14 perform and to see to it that the project that 15 they are associated with is successful as compared 16 to those with no equity. The same philosophy was 17 maybe a poor analogy, but a homeowner who at this 18 same period of time might have owned a home and 19 determined that it was not worth the debt on the 20 property would walk that property. Equity was the 21 determining factor in the motivation. 22 As the association proceeded on all its 11664 1 foreclosed properties, as long as the borrowing 2 entity continued to work toward the success of the 3 development, we wanted to keep the borrower in 4 place. A lender does not lend money with the 5 hopes that it will own the property. That was not 6 our role in this practice. 7 In the case of Norwood, as time went 8 on, we concluded -- I concluded that Jeff Minch 9 and Frank Krasovec did not add or enhance the 10 asset's saleability or marketability. Now, on the 11 other hand, we felt in the case of Park 410 that 12 we had in place a motivated borrower. We had John 13 Grieshaber, who was recognized as the leading 14 authority on commercial sales as a broker in the 15 community. We had Mr. Rosenberg, who was a very 16 recognized successful businessman in the community 17 as well as being an attorney in the community. We 18 had the Oppenheimer law firm, which was a very 19 substantial firm and had very recognized clients. 20 And it was our motivation to try to get them to 21 perform under the loan agreements as best we 22 could, and they were motivated to do so. 11665 1 Q. Let's take a look at Exhibit B2570. Do 2 you recognize this as a memo from you to Larry 3 Connell and others dated November 29, 1988? 4 A. Yes. 5 MR. DUEFFERT: Move the admission of 6 Exhibit B2570. 7 MR. SCHWARTZ: No objection, Your 8 Honor. 9 THE COURT: Received. 10 Q. (BY MR. DUEFFERT) Who was Mr. Connell 11 as of November 29, 1988? 12 A. After Jenard Gross left the 13 institution, my understanding is that Mr. Connell 14 was appointed by the regulatory agency to come in 15 and assist the institution as it proceeded toward 16 what I would call a receivership. 17 Q. And -- 18 A. He had a reputation, having come from 19 San Jacinto Savings -- maybe I've got that 20 backward. I've got that backward because he 21 left -- excuse me. He left United Savings, went 22 to San Jacinto to do the same exact thing that he 11666 1 did at United Savings. He acted as kind of a 2 transition head during a very difficult time in 3 the institution's history. 4 Q. His title as of November and 5 December 1988 was what? 6 A. I would say president. 7 Q. Did you understand that he had 8 operational control of USAT at that time? 9 A. Yes. 10 Q. And in November and December 1988, is 11 it accurate that United was operating under a 12 consent agreement with the regulators? 13 A. That was the understanding. It was 14 never discussed amongst the employees as to what 15 the current state of affairs were with the 16 regulating agencies. 17 Q. You never saw a copy of that consent 18 agreement? 19 A. No, and I never would have asked for 20 one. 21 Q. But it was your understanding at that 22 time that USAT was under what I think you 11667 1 characterized as intense scrutiny? 2 A. Yeah. Best evidenced by the fact that 3 they put somebody on board there to make sure that 4 they were kept informed on the institution's 5 activities. 6 Q. Okay. And did you keep Mr. Connell 7 informed as to the status of the Park 410 loan? 8 A. Never directly. Perhaps through a 9 memorandum like this. 10 Q. Does the statement in the, I guess, 11 second block of text on the first page of 12 Exhibit B2570 -- and I'll read it out loud. 13 "Assuming the interest to United is advanced as 14 previously requested, there is $725,748 left to 15 advance from the loan's interest category. We 16 estimate December's interest to be $709,615, 17 leaving only $16,133 or less than one day's 18 interest available." 19 And then the next paragraph goes on, 20 "Therefore, in January, the loan would be in 21 default, leaving United with several 22 alternatives." 11668 1 Do you see that language? 2 A. Yes. 3 Q. Okay. Does that language point to the 4 first triggering of a monetary default? 5 A. Yes, it could or would at some point in 6 time. 7 Q. Now, on the second page of this 8 memorandum, you propose several courses of action. 9 And I think under Point No. 1 or Point No. 2, you 10 are proposing suing on the guaranties and drawing 11 on the letters of credit. Right? 12 A. Right. 13 Q. And you contemplated in Point 2 a suit 14 on the guaranty even if you took what is described 15 as just limited action. Right? 16 A. Uh-huh. Focusing on the value of the 17 collateral and guaranty -- excuse me. Focusing on 18 the value of the letters of credit and the 19 guaranties and actually walking the debt -- I mean 20 walking the collateral. 21 Q. Then Paragraphs 3 and 4 of the memo set 22 forth options that don't entail litigation. 11669 1 Right? 2 A. Correct. And this is what we were 3 motivated to do. 4 Q. What is the "this" that you're 5 referring to? 6 A. Oh, to avoid litigation if possible, 7 tying the asset up. 8 Q. Are you familiar with something called 9 non-judicial foreclosure in Texas? 10 A. Generally. 11 Q. It's been described in this courtroom 12 as a very easy way by which, in 21 days, a lender 13 can take control of a property. 14 Is that your experience with it as a 15 mechanism for foreclosure? 16 A. Perhaps for residential properties, but 17 I don't think it was appropriate for a commercial 18 property. 19 Q. Why would that be? 20 A. Just the complexity of the asset, the 21 potential for litigation on the borrowers' part to 22 protect themselves, to protect any equity they may 11670 1 have in the property. 2 Q. Now, again, on this November 29 memo, 3 Points No. 1 and 2, the litigation alternatives, 4 are not alternatives you would take in the absence 5 of a monetary default. Right? 6 A. Correct. 7 Q. And was it your view that there were 8 sound business reasons to pursue the proposals 9 numbered 3 and 4 which involved restructuring the 10 loan rather than immediate foreclosure and 11 litigation? 12 A. Yes. 13 Q. Could we have Exhibit B4021, please? 14 Mr. Seidman, I'd ask you to identify Exhibit B4021 15 for the record. 16 A. Yes, I recognize it. 17 Q. Is it a March 17, 1988 memo from Ellen 18 Lain to you and to Mr. Art Berner? 19 A. Yes. 20 MR. DUEFFERT: Move the introduction of 21 Exhibit B4021. 22 MR. SCHWARTZ: Your Honor, I object. 11671 1 It refers to an attachment that doesn't seem to be 2 attached to the exhibit. 3 MR. DUEFFERT: I actually have looked 4 for the attachment. I can't find it. I still 5 believe this is an admissible exhibit under the 6 operating under the rules we're now using. 7 MR. SCHWARTZ: Mr. Dueffert just 8 acknowledged it's an incomplete document, Your 9 Honor. 10 THE COURT: It's all we have. We have 11 to take what we have. Received. 12 Q. (BY MR. DUEFFERT) What was the 13 subject matter of this March 17, 1988 memorandum 14 principally? 15 A. Principally, the counsel was assisting 16 the association in its providing of advice with 17 regard to how we might proceed legally under the 18 documents. 19 Q. And that's with regard to the posting 20 of letters of credit by the Park 410 borrowers, 21 correct? 22 A. Correct. 11672 1 Q. Did United devote considerable effort 2 in 1988 making sure that the letters of credit 3 posted by the Park 410 borrowers were properly 4 maintained? 5 A. The letters of credit received my 6 personal attention that went well beyond the 7 normal scope of maintenance of letters of credit. 8 I was more concerned that the institutions that 9 had issued the letters of credit were financially 10 sound. And in some cases, that was not the case. 11 And that is what occurred in one set of 12 circumstances with First State Savings where we 13 took the proceeds of a 3-million-dollar letter of 14 credit and maintained it in an escrow account. 15 Q. As cash collateral? 16 A. As cash collateral. 17 Q. And that was part of the group of 18 letters of credit that Mr. Rosenberg had put up. 19 Right? 20 A. It was a portion of the group. 21 Q. If it appeared that one of the letters 22 of credit was in danger of not being renewed in a 11673 1 timely manner, you would take steps to collect on 2 it or at least to make sure it would be renewed 3 properly? 4 A. They would be present and the issuing 5 institution would be given three days to fund the 6 letter of credit. And if it was not funded, we 7 would have been on their doorstep with a suit. 8 Q. In your work on Park 410, you weren't 9 giving a special break to Mr. Rosenberg or any of 10 the other Park 410 borrowers? 11 A. Not at all. No special breaks. 12 Q. Do you recall yesterday that 13 Mr. Schwartz asked you, I think, about rumors and 14 speculation floating around United in 15 December 1988? 16 A. Uh-huh. (Witness nods head 17 affirmatively.) 18 Q. Could we have Exhibit B4186, please. 19 Do you recognize Exhibit B4186 as being a 20 December 20, 1988 letter from Kenneth Gindy to 21 you? 22 A. Yes. 11674 1 MR. DUEFFERT: Move the introduction of 2 Exhibit B4186. 3 MR. SCHWARTZ: Just a moment, Your 4 Honor. No objection. 5 THE COURT: Received. 6 Q. (BY MR. DUEFFERT) I'd like you -- 7 just to point you for a second to the newspaper 8 article that's attached on the last page. The top 9 of that page is captioned "December 18, 1988 10 San Antonio Express News." Below that is a 11 photocopy of a newspaper article entitled "Report: 12 Firm to buy United Savings." I just want to read 13 a few paragraphs from the letter or from the 14 article. I'm sorry. 15 The second paragraph of the article, 16 "The Houston Chronicle, citing unidentified 17 industry sources, reported Friday that investor 18 Lewis Ranieri has the winning bid to take over 19 United Savings Association of Texas." 20 In the second column of the first full 21 paragraph, "According to the sources, the Bank 22 Board hopes to complete the transactions before 11675 1 the end of the year when certain tax breaks for 2 thrift buyers expire." 3 Finally, towards the end of that 4 column, second paragraph from the end, "Ranieri is 5 a former banker with Salomon Brothers." 6 Does that article refresh your memory 7 that as of December 18, 1988, at least some people 8 recognized that there was another bidder for 9 United? 10 A. Another bidder other than Ranieri? 11 Q. Other than, I believe, Charles Hurwitz' 12 name was mentioned yesterday? 13 A. Oh, absolutely. Yes. We don't know 14 how many there were. 15 Q. Thank you. Could we have 16 Exhibit B2822, please? I think you may have told 17 Mr. Schwartz yesterday that Love & Dugger did 18 another appraisal on the Park 410 property in 19 early 1990; is that correct? 20 A. Yes. 21 Q. And is this a January 4th, 1990 22 memorandum from you to Jerry Billings regarding 11676 1 that appraisal? 2 A. Yes. It was a attempt to try to 3 explain the reasons why the value declined in a 4 one-year period from the prior value. 5 MR. DUEFFERT: Move the admission of 6 Exhibit B2822. 7 MR. SCHWARTZ: No objection. 8 THE COURT: Received. 9 Q. (BY MR. DUEFFERT) I just want to 10 point your attention to the last of the bullet 11 points in the middle of the page. It states, 12 "Inflation factors decreased, impacting the rate 13 of the appreciation on future years." He 14 referred -- and I take it "he" is Charles Schulz 15 of the Love & Dugger firm. "He referred to a 16 large hangover of RTC properties," close quote. 17 What is the meaning of that reference? 18 A. He's referring to the inventory of 19 vacant land, of assets that were foreclosed on by 20 failed institutions that were being held by the 21 RTC that were for sale in the San Antonio market. 22 Q. I said Charles Schulz. That's what 11677 1 this memo says. Is the actual name perhaps 2 Gerald Schulz of the Love & Dugger firm? 3 Do you recall? 4 A. Yes. 5 Q. Was the inventory of RTC properties 6 having an impact on land values in Texas as of 7 that time? 8 A. Absolutely. The RTC was motivated to 9 liquidate assets as quickly as possible which, in 10 most cases, meant that they were dumping them on 11 the market, not holding out for the highest and 12 best values. They were interested in what would 13 produce the most cash the quickest. And in that 14 sense, they were being put on the market at 15 wholesale prices. Auctions were being 16 completed -- and some occurred -- that allowed 17 assets to be removed from the RTC portfolio at 18 wholesale rather than retail prices. 19 Q. And would that be related to the change 20 in appraisal methodology you referred to 21 yesterday? Do you remember there was a change, I 22 think, perhaps in a Norwood appraisal where they 11678 1 were valuing it in bulk rather than lot by lot? 2 A. Well, that was one of the techniques 3 used by the appraisers in trying to determine what 4 the value was. They would test their value. They 5 would sell it out over a period of time to produce 6 gross retail sales and then discount them back to 7 a present value. 8 The other task was to try to find 300 9 plus acre developments in other communities or in 10 other locations that were, in fact, sold in bulk 11 rather than being sold out over time to individual 12 users. 13 Q. The business plan for Park 410 had not 14 been to sell the 300 plus acres of that property 15 in bulk. Right? 16 A. No, because that does not achieve what 17 I would call our goal of optimizing the return on 18 the book value of the asset. 19 Q. Can we have Exhibit B4090, please? 20 Mr. Seidman, is this a memo to you from Kenneth 21 Leventhal & Company dated May 30, 1990? 22 A. Yes. 11679 1 Q. And it regards, open quote, "FDIC 2 assets impacting Park" -- or "P410, Park 410 3 project," close quote? 4 A. Point 12. 5 Q. Point 12. Again, it's in response to 6 an inquiry to you, correct? 7 A. Correct. And this may have been just 8 one of many inquiries. 9 Q. Okay. 10 MR. DUEFFERT: Move the admission of 11 Exhibit B4090. 12 MR. SCHWARTZ: Your Honor, I'm not sure 13 I understood the witness' reference to Point 12 14 and what that is. 15 Is there another document that's being 16 referred to there, if I may? 17 THE WITNESS: It would have to be 18 because in discussions with Kenneth Leventhal, 19 they represented the -- at this time -- well, I 20 don't know at this time whether it was the FDIC, 21 the RTC, the Federal Home Loan Bank Board, or what 22 government agency. But they reviewed requests 11680 1 that were required under the assistance agreement. 2 If they had questions, they needed to be answered. 3 So, my assumption is that this is in 4 regard to questions they had with regard to 5 something we requested of them relating to the 6 property. 7 MR. SCHWARTZ: Your Honor, I'll object 8 to the document as incomplete. 9 THE COURT: Received. 10 Q. (BY MR. DUEFFERT) I just want to 11 direct your attention to the second to the last 12 sentence. "While sales prices offered by the RTC 13 or FDIC will keep pressures on the market, 14 acquirers are still willing to be more favorably 15 attracted to a well-located, visible development," 16 close quote. 17 First, was that your understanding as 18 of May 30, 1990? 19 A. Yes. 20 Q. And second, was the FDIC also taking 21 actions to, open quote, "keep pressures on the 22 market," close quote? 11681 1 A. I'm not quite sure what you mean by 2 "keep pressures." 3 Q. I'm just curious to the significance to 4 the reference of the FDIC in that sentence. 5 A. There were assets owned by both the 6 FDIC and the RTC. 7 Q. So, the -- I'm sorry. 8 A. They were being exposed to the market. 9 The properties were being listed with brokers. 10 The numbers of assets and the dollar amount of 11 those assets probably changed weekly. The market 12 was in a state of flux. And in the case of the 13 government, initially they were interested in 14 selling all their assets for cash. As time went 15 on, they were willing to accept purchase money 16 mortgages for the purchase. 17 Q. And that impacted the value of 18 properties like Park 410? 19 A. Yes. 20 Q. There has been some discussion as to 21 whether the guaranties in the Park 410 loan were 22 somehow ambiguous. 11682 1 First off, when you first read those 2 guaranties as a loan officer, did they strike you 3 as being ambiguous? 4 A. No. They were pretty typical. The 5 reference to the term "top 25 percent" was very 6 common in loan agreements and loan guaranties. It 7 had never been tested through a legal proceeding. 8 It was always understood that it represented the 9 difference between -- in this case, my mind 10 focused on a 75 percent loan to value, leaving 11 25 percent of a cushion between the appraised 12 value and the loan value, which was being 13 supported in this case by the guarantors equal to 14 25 percent. 15 Q. So, your view would be that that 25 16 percent was the most vulnerable portion of the 17 loan proceeds, correct? 18 A. Yes. It was a cushion that the lender 19 had when the loan was originated; but if the 20 market were to erode, that cushion would also 21 erode. 22 Q. Your understanding of a top 25 percent 11683 1 guaranty is that to the extent there are any 2 proceeds from a foreclosure sale, the proceeds 3 should be applied to the non-guaranteed portion of 4 the debt? 5 A. At the time guarantors were asked for 6 their 25 percent guaranties, I don't think there 7 was any focus on what was applied first in a 8 foreclosure. 9 The only lesson to be learned today is 10 that all lenders, rather than asking for a 11 percentage guaranty on debt, now equate that 12 percentage to a specific dollar amount to avoid 13 questions that come up with regard to what 14 25 percent means. 15 Q. And that's a lesson the industry has 16 learned since -- 17 A. That's a lesson the industry has 18 learned as a result of this experience. 19 Q. Could we just for a moment take a look 20 at the guaranty that's been discussed? Do we have 21 the closing binders? We're going to show you 22 Exhibit B3844, which is already in evidence. I'm 11684 1 not going to ask you to read the entirety of the 2 document? 3 MR. LEIMAN: Could we have a moment, 4 Your Honor? We have to pull our copy out. 5 Q. (BY MR. DUEFFERT) First off, on your 6 copy, Mr. Seidman, is there a document control 7 card towards the front of the document bearing 8 Bates No. US0004771? 9 A. Yes. I would recognize that piece of 10 paper and will until my death. 11 Q. Would you please explain? 12 A. The original of this piece of paper 13 actually is on a color blue and was inserted in 14 every file by Hutcheson & Grundy on behalf of the 15 Federal Home Loan Bank Board on the day that the 16 institution went into receivership. 17 Q. Could you explain more how that process 18 worked? 19 A. Without adding a little humor, they 20 just appeared. Apparently -- I want to surmise 21 that on December 30th, 1988, at 12:01 in the 22 morning, the Hutcheson & Grundy attorneys 11685 1 descended on the institution and stayed there 2 throughout the night to the point that when we 3 showed up for work the next morning, there were 4 federal marshalls at the bottom of the elevator 5 lobbies. We were advised that the institution had 6 gone through receivership, that Mr. Berner and 7 Mr. Crow and any existing -- certain existing 8 management were asked to leave the association, 9 and these pieces of paper appeared in every file 10 of the association. 11 Q. So, the presence of a Hutcheson 12 & Grundy document control card would confirm to 13 you that that copy, the Park 410 closing binder, 14 indeed was in the institution's files as of 15 December 31st, 1988? 16 A. Yes. 17 Q. Would you please turn to Tab 8 in the 18 document? I'm sorry. 18. 19 Do you recognize Tab 18 as containing 20 the guaranty executed by Mr. Stanley D. Rosenberg? 21 A. Yes. 22 Q. Okay. I'd just like to focus your 11686 1 attention on a few passages in the guaranty 2 document itself. First turn to Page 3, paragraph 3 numbered 5 entitled "Liability of guarantors." 4 And the opening sentence of that paragraph begins, 5 open quote, "The liability of guarantors hereunder 6 shall not be in anywise released, diminished, 7 impaired, reduced, or affected by: (A), the 8 taking or accepting of any other security or 9 guaranty for any or all of the indebtedness." 10 Do you see that language? 11 A. Yes. 12 Q. Okay. If you'd turn to the next 13 page -- we're still in paragraph numbered 5. 14 However, we're on Page 4 in the central paragraph 15 which states in part, open quote, "It is expressly 16 agreed and the intention of the parties that" -- 17 and then there is about three lines of -- well, 18 I'll just read it. "It is expressly agreed and 19 the intention of the parties that notwithstanding 20 any limitation of liability or requirement for the 21 application of sales proceeds in any particular 22 order, if any, contained in the note or security 11687 1 documents, in the event of default under the note 2 or security documents and subsequent sale or sales 3 of any property or collateral encumbered by the 4 security documents, the proceeds of such sale or 5 sales shall be applied first to any portion of the 6 loan which is not guaranteed hereby and, if the 7 proceeds of such sale or sales do not completely 8 and fully pay and discharge the indebtedness, this 9 guaranty shall continue in full force and effect 10 until the indebtedness is fully and finally paid." 11 Do you see that language? 12 A. Yes. 13 Q. Would you please jump ahead now to 14 Paragraph 14? On Page 6, about three-fourths of 15 the way down the paragraph is a sentence that 16 begins "It is the intention." 17 Do you see that about three-fourths of 18 the way through the -- 19 A. Yes. 20 Q. Okay. That sentence reads, "It is the 21 intention of the parties that in the event of a 22 default and subsequent sale of the property 11688 1 covered by the deed of trust securing the note (by 2 foreclosure or otherwise), the proceeds of such 3 sale shall be applied first to discharge the 4 indebtedness for which the guarantors are not 5 personally liable pursuant to the terms and 6 conditions of this paragraph," close quote. 7 When you first reviewed the guarantor 8 agreement, did it seem clear to you that the 9 intention of the parties was that the proceeds of 10 any foreclosure would be applied first to the 11 non-guaranteed portion of the debt? 12 A. Yes. 13 Q. And was that consistent with your view 14 of what a top 25 percent guaranty should be? 15 A. Yes. 16 Q. Are you aware that any of the 17 respondents in this case ever offered a contrary 18 interpretation of the guaranty? 19 A. Yes. 20 Q. Could you explain? 21 A. I can't speak to exactly what point in 22 time this occurred, but there were discussions 11689 1 amongst the borrowing group in conversation with 2 us -- and I say "us" meaning meetings that were 3 held on the loan -- to the effect there was a 4 conflict in wording with regard to how the 5 25 percent guaranty was applied. 6 Q. And the source of that ambiguity, is 7 that text located higher in Paragraph 14 where it 8 says that the -- "Notwithstanding anything 9 contained herein in the note or security documents 10 to the contrary, the liability of guarantors 11 hereunder shall be limited to guarantor" -- I'm 12 sorry -- "shall be limited to and guarantors shall 13 be fully liable for an amount equal to 50 percent 14 of (A) 25 percent of the principal balance of the 15 note from time to time outstanding"? 16 A. Yes. It's the wording "from time to 17 time outstanding" that was the subject of a lot of 18 scrutiny by our counsel and their counsel. 19 Q. And when you're saying your counsel, 20 you're referring to -- 21 A. Akin, Gump. 22 Q. Bobby Lee Smith? 11690 1 A. Correct. 2 Q. When did Mr. Bobby Lee Smith become 3 your outside counsel? 4 A. Well, the firm of Akin, Gump appeared 5 as swiftly as Hutcheson & Grundy appeared at 6 receivership. 7 Q. So, Mr. Bobby Lee Smith was not your 8 counsel before receivership? 9 A. Correct. 10 Q. All right. And I asked you a question 11 earlier that I think you may have misheard. I 12 asked you: Do you know if any of the respondents 13 in this case subscribed to Mr. Smith's 14 interpretation of the guaranty? 15 A. Mr. Smith's interpretation? 16 Q. Let me try it a different way if you 17 don't understand. Was the first -- was Mr. Smith 18 the first person from whom you heard that 19 interpretation of this guaranty keying on the 20 language "from time to time outstanding"? 21 A. No. I heard it from the borrowing 22 entity. 11691 1 Q. At meetings? 2 A. At meetings. 3 Q. Okay. And when did that take place? 4 A. Well, that was -- I prefaced my remark 5 by saying I can't tell you exactly when that 6 occurred. 7 Q. Okay. 8 A. As time went on and the negotiations 9 pursued and the pressure on the borrowing and 10 obligor group got to be greater and greater, they 11 spent more and more time trying to determine how 12 they might protect themselves from the guaranty. 13 And in the normal course of that, they read and 14 reread and read again the documents to see if 15 there was anything in them that might be 16 interpreted in their benefit. 17 Q. And there was an argument to be made, 18 in your view, that the specific language we've 19 just discussed about the application of the loan 20 proceeds on foreclosure trumped the general 21 language of "from time to time outstanding"? 22 A. No. That was not the point. It wasn't 11692 1 a question of what the final determination would 2 be in a courtroom. The point was that it gave the 3 borrowing group at least the ability to tie the 4 asset up and to litigate. It didn't mean that it 5 was going to be a successful litigation, but it 6 went to evidence the fact that the asset could be 7 tied up and they had ground to protest our 8 enforcement of the guaranty provision. 9 Q. And -- 10 A. Significant to me because our goal was 11 to be able to sell the asset if we obtained it 12 through foreclosure or, alternatively, to create 13 an environment where the borrower could sell the 14 asset while it held the note. 15 Q. You came down to a business decision 16 that Bank United shouldn't try to collect on the 17 guaranties. Right? 18 A. Yes, but that was not -- 19 MR. SCHWARTZ: Objection, Your Honor. 20 "Bank United," are you talking post-receivership? 21 MR. DUEFFERT: (Nods head 22 affirmatively.) 11693 1 A. But that was not solely based on the 2 wording of the guaranty agreement. That was after 3 evaluating individual financial statements, 4 attempting to determine whether or not each of the 5 guarantors might avail themselves of bankruptcy 6 protection, whether or not litigation would be 7 pursued in tying up the asset with a lis pendens, 8 like I mentioned earlier. 9 Q. (BY MR. DUEFFERT) There were a lot of 10 factors involved? 11 A. There were a lot of factors. This was 12 just one of them. 13 Q. You mentioned receiving financial 14 statements. Do you recall receiving financial 15 statements from Stanley D. Rosenberg? 16 A. Oh, yes. 17 Q. Did they strike you as being better 18 than the ordinary? 19 A. The ordinary was not to provide 20 financial statements. 21 Q. Could you explain? 22 A. Most of our borrowers, when asked to 11694 1 present financial statements, were reluctant to do 2 so. And by the time the asset was in default and 3 foreclosure proceedings were instigated, they had 4 not been provided. 5 In the case of Mr. Rosenberg, his 6 statements were very unique at the time as well, 7 albeit they may not have been audited, but they 8 were definitely prepared by a third-party 9 accounting firm. He was one of the first 10 individuals to represent, through a list of 11 contingent liabilities, his potential financial 12 exposure related to all assets that he owned. 13 Q. And that was unusual at the time? 14 A. Based on the loans that we were 15 servicing, yes. 16 MR. DUEFFERT: Your Honor, I think I 17 have probably about 20 more minutes. Perhaps it 18 would be a good time for a break. 19 THE COURT: All right. We'll recess. 20 21 (A short break was taken 22 at 9:58 a.m.) 11695 1 THE COURT: Be seated, please. We'll 2 be back on the record. 3 Mr. Dueffert. 4 MR. DUEFFERT: Yes, Your Honor. 5 (10:24 a.m.) 6 Q. (BY MR. DUEFFERT) Mr. Seidman, do you 7 have before you an exhibit numbered T7143? It is 8 a July 24, 1991 memorandum from you to Gene 9 Sullivan of the RTC. I believe you discussed it 10 with Mr. Schwartz this morning. 11 A. 471 or 413? 12 Q. T7143 is the number I think it is. 13 MR. SCHWARTZ: In connection with which 14 property? 15 MR. DUEFFERT: It is regarding Park 410 16 West. 17 A. Maybe you can help me find it. 18 Q. (BY MR. DUEFFERT) 7473. I apologize. 19 T7473. I believe you told Mr. Schwartz that this 20 was a response to something. Right? 21 A. Correct. 22 Q. Okay. Could we have Exhibit B4178, 11696 1 please? Is Exhibit B4178 the memorandum to which 2 your own July 24, 1991 memorandum responds? 3 A. I would not think so. I don't think I 4 would have seen a copy of this. 5 Q. Well, if you could look through the 6 bullet points -- 7 A. Yes. 8 Q. -- on your letter, on your memorandum, 9 I think at tracks -- 10 A. Okay. But I would not necessarily have 11 seen this. Gene might have see this and then 12 written me a memo requesting information relating 13 to the bullets. 14 Q. Does this appear to you to be the RTC's 15 memorandum of July 17, 1991 that is referenced in 16 your own memorandum dated July 24, 1991? 17 A. Yes. 18 MR. DUEFFERT: I move the admission of 19 Exhibit B4178. 20 MR. SCHWARTZ: No objection, Your 21 Honor. 22 THE COURT: Received. 11697 1 MR. DUEFFERT: Thank you. I have no 2 further questions on that exhibit. 3 Q. (BY MR. DUEFFERT) By 1990, you were 4 negotiating settlement proposals with the Park 410 5 borrowers, correct? 6 A. Correct. 7 Q. Could we have Exhibit B4038, please? 8 Mr. Seidman, is this a memorandum from 9 you to Mr. Jonathan Heffron dated August 7, 1990? 10 A. Yes. 11 Q. All right. Did you send this memo? 12 A. Yes. 13 MR. DUEFFERT: Move the introduction of 14 Exhibit B4038. 15 MR. SCHWARTZ: No objection. 16 THE COURT: Received. 17 Q. (BY MR. DUEFFERT) Who was 18 Mr. Heffron? 19 A. He was the in-house general counsel for 20 Bank United. 21 Q. I -- if you take a look at the second 22 paragraph, there is a reference to bringing the 11698 1 matter closer to a final resolution. 2 Do you see that? 3 A. Yes. 4 Q. In August of 1990, you were seeking a 5 final resolution to the Park 410 project and your 6 involvement in it? 7 A. Right. 8 Q. By that time, United had determined not 9 to foreclose and collect on the guaranties and 10 letters of credit? 11 A. There was never a decision not to 12 foreclose. Our decision was to pursue alternative 13 methods of resolving the situation with the 14 borrower. We never precluded the ability to 15 foreclose. 16 Q. Do you recall that yesterday, 17 Mr. Schwartz showed you what I believe was a 18 specific request for approval regarding a -- 19 actually, could we have B4142, please? 20 MR. DUEFFERT: Your Honor, our office 21 is something of a mess this morning and I couldn't 22 find the "T" document that was referred to 11699 1 yesterday. 2 Mr. Schwartz, wasn't this a document -- 3 i apologize, Your Honor. 4 Wasn't this a document that was -- you 5 had as a "T" exhibit yesterday? Perhaps I'm 6 wrong. 7 MR. SCHWARTZ: Is this the "T" document 8 that you're referring to? 9 Q. (BY MR. DUEFFERT) Let's take a look 10 at this document then. Could you identify Exhibit 11 B4142 for the record? 12 A. Yes. It appears to be a specific 13 request for approval. 14 Q. And were you involved in the 15 preparation of this document? 16 A. Yes. 17 MR. DUEFFERT: I move the introduction 18 of Exhibit B4142. 19 MR. SCHWARTZ: No objection, Your 20 Honor. 21 THE COURT: Received. 22 Q. (BY MR. DUEFFERT) I think I may have 11700 1 misspoke a moment ago. I think I asked you if you 2 had ever reached a point at which Bank United 3 decided to not pursue on the guaranties and 4 letters of credit. 5 In fact, Bank United did pursue on the 6 letters of credit, correct? 7 A. Correct. 8 Q. And indeed, the entire $10 million in 9 letters of credit were collected on? 10 A. Correct. 11 Q. Thank you. Taking a look at 12 Exhibit B4142, whose approvals were necessary to 13 dispose of the Park 410 property or reach 14 settlement with the borrowers? 15 A. The normal procedure would be to submit 16 a request such as the one you've presented. That 17 would go to our case manager. In the case of 18 Park 410, because of the size of the asset, our 19 understanding was that he would report directly to 20 Washington D.C. with regard to approvals that he 21 might need from their corporate office, head 22 office, including confirmation from their legal 11701 1 counsel, who we did have discussions with relating 2 to any legal matters or clarifications that they 3 needed to suffice. 4 So, in short, the lawyers would review 5 the requests for legal implications. The business 6 implications were analyzed by the local case 7 manager, and then we were advised whether they 8 were approved, accepted, modified, or rejected. 9 Q. The specific request for approval that 10 is set forth in Exhibit B4142, if you look to 11 Bates No. OW203530, it's the sixth page of the 12 request for approval -- 13 MR. SCHWARTZ: I'm sorry, Mr. Dueffert. 14 What page? 15 MR. DUEFFERT: It's Page 6 of the 16 request. 17 Q. (BY MR. DUEFFERT) Do you see that is 18 a signature page? 19 A. Yes. 20 Q. All right. I see that it's 21 countersigned by a Mr. Sullivan for the 22 corporation. 11702 1 Who was he? 2 A. That was Mr. Gene Sullivan, the case 3 manager for the RTC/FDIC, whatever the appropriate 4 entity was at that time. 5 Q. And he indicated his approval on this 6 document effective September 21st, 1992? 7 A. Correct, subject to that limitation 8 noted by the asterisk. 9 Q. Thank you. Could we have 10 Exhibit B4040, please? Mr. Seidman, is 11 Exhibit B4040 a January 17, 1991 memorandum from 12 you to Mr. Max -- I'm sorry. Strike that. 13 Is this document a memorandum dated 14 January 17, 1991 from Gene Sullivan to you and 15 Max Epperson? 16 A. Yes. 17 MR. DUEFFERT: Move the introduction of 18 Exhibit B4040. 19 MR. SCHWARTZ: No objection, Your 20 Honor. 21 THE COURT: Received. 22 Q. (BY MR. DUEFFERT) Could you explain 11703 1 the role of the FDIC committee in Washington 2 that's referenced in the first line of your 3 memorandum? 4 A. Well, they would be the entity that the 5 local case manager or regional manager would 6 report to for approvals within the hierarchy of 7 the government regulating group. 8 Q. Could we have Exhibit B4041, please? 9 Mr. Seidman, Exhibit B4041 is a letter 10 from Robert Lee Smith to Mr. Gary L. Wood of the 11 Federal Deposit Insurance Corporation. It is 12 dated June 12th, 1991, and it shows a copy being 13 sent to you. 14 Does this appear to be a copy of the 15 letter you received? 16 A. Yes. 17 MR. DUEFFERT: Move the introduction of 18 Exhibit B4041. 19 MR. SCHWARTZ: I'll just note my 20 objection to the incomplete -- the CCs on the last 21 page indicate that there are relevant enclosures 22 that are not part of this exhibit. 11704 1 MR. DUEFFERT: Once again, we don't 2 have them. 3 THE COURT: Received. 4 Q. (BY MR. DUEFFERT) One question. Who 5 is Mr. Gary Wood? 6 A. My understanding was that he was the 7 local counsel for the FDIC that we were advised to 8 respond to by Gene Sullivan, the case manager. 9 Q. And who is Sondra Jenkins that's copied 10 at the bottom? 11 A. She was one of the in-house legal 12 attorneys that worked under John Heffron. 13 Q. For Bank United? 14 A. For Bank United. 15 Q. Could we have Exhibit B4042, please? 16 MR. SCHWARTZ: Mr. Dueffert, if I could 17 inquire into this Exhibit B4041, the handwriting 18 that says "copy letter only, not attachments" -- 19 MR. DUEFFERT: That is on the original. 20 I have no -- it has no evidentiary value. 21 Do you have a question? I'm sorry. 22 MR. SCHWARTZ: I was just wondering if 11705 1 anyone recognizes the handwriting. 2 Q. (BY MR. DUEFFERT) Mr. Seidman, do you 3 recognize the handwriting at the top of 4 Exhibit B4041? 5 A. No, I don't. That's my handwriting at 6 the top. 7 Q. Oh, your -- 8 A. That's my "shoot a copy to Sondra 9 Jenkins." 10 Q. I see. Thank you. 11 Looking at Exhibit B4042, is this a 12 letter from Jonathan Heffron to Mr. Terry May of 13 the FDIC dated February 18, 1992, and copied to 14 you and certain other individuals? 15 A. Yes. 16 MR. DUEFFERT: Move of the introduction 17 of Exhibit B4042. 18 MR. SCHWARTZ: No objection. 19 THE COURT: Received. 20 Q. (BY MR. DUEFFERT) Who is 21 Mr. Terry May? 22 A. Terry May is who Gene Sullivan, our 11706 1 case manager, reported to. 2 Q. Was he a lawyer or an asset manager? 3 A. He was a regional manager for the FDIC. 4 He had several case managers reporting to him, 5 "case managers" being those that were assigned to 6 failed institutions that reported to him. 7 Q. Exhibit B4043, please. 8 Mr. Seidman, could you identify Exhibit 9 B4043 for the record? 10 A. It's a memorandum from Janet Groue to 11 myself. 12 Q. And the date is March 25, 1992? 13 A. Correct. 14 MR. DUEFFERT: Move the introduction of 15 Exhibit B4043. 16 MR. SCHWARTZ: No objection. 17 THE COURT: Received. 18 Q. (BY MR. DUEFFERT) Who was the 19 Tracey Whitaker referenced in the first line of 20 this document? 21 A. Tracey Whitaker -- I don't know her 22 exact title. She was the in-house attorney for 11707 1 the FDIC who was assigned responsibility for 2 overseeing the legal review of the documents 3 relating to the Park 410 matter. 4 Q. And this memorandum indicates that she 5 approved the Park 410 settlement to her superiors 6 at the FDIC? 7 A. Right. 8 Q. That suggests that the final approval 9 from the FDIC was not yet received by Bank United. 10 Right? 11 A. That's correct. 12 Q. Could we have Exhibit B4044, please? 13 Could you identify Exhibit B4044 for 14 the record? 15 A. Yes. 16 Q. What is this? 17 A. It's a letter from our outside counsel 18 to the FDIC attorney Robert DeHanzel, responding 19 to questions that existed on the loan. 20 Q. And what was Mr. DeHanzel's role in the 21 process? 22 A. My understanding is that he reported to 11708 1 Tracey Whitaker. 2 Q. Do you know why he was receiving this 3 memorandum? 4 A. Because Tracey Whitaker probably asked 5 him to do some research for her. 6 Q. You are shown as receiving a copy of 7 this memorandum? 8 A. Yes. 9 MR. DUEFFERT: Move the introduction of 10 Exhibit B4044. 11 MR. SCHWARTZ: No objection. 12 THE COURT: Received. 13 Q. (BY MR. DUEFFERT) Could we have 14 B4045, please? 15 Could you identify Exhibit B4045 for 16 the record? 17 A. Correspondence between Bobby Smith and 18 Mr. DeHanzel dated February 18th, 1993, copied to 19 myself and received by myself as stamped in the 20 corner. I was getting very efficient by this 21 time, as you can see. 22 MR. DUEFFERT: Move the introduction of 11709 1 Exhibit B4045. 2 MR. SCHWARTZ: No objection. 3 THE COURT: Received. 4 Q. (BY MR. DUEFFERT) Do you understand 5 the significance of the reference in the last 6 paragraph of this document to Mr. Rosenberg's, 7 open quote, "director liability," close quote? 8 A. Yes. I can interpret for you what I 9 thought was happening at the time. 10 Q. Please do. 11 A. The government attorneys were quite 12 insistent that they approve all documentation that 13 related to a settlement because they wanted to 14 assure themselves that their consent to the 15 settlement would not impact any potential 16 litigation that might pursue against Mr. Hurwitz 17 or Mr. Rosenberg at some subsequent date. 18 Q. And so, some of the correspondence we 19 are now seeing in these exhibits reflects that 20 fact? 21 A. Yes. And ultimately, they approved the 22 transaction after extensive investigation of the 11710 1 people, the parties, the collateral, the beginning 2 transaction, the ending transaction. And they 3 received enough information to make an informed 4 decision that there was nothing wrong with 5 proceeding as it was proposed. 6 Q. Exhibit B2911, please. Why do you 7 chuckle at Exhibit B2911? 8 A. Because I had pretty much had it by 9 this time. 10 Q. Could you explain? 11 A. I was tired of working on Park 410. I 12 wanted it resolved and immediately. We had gone 13 through an extensive period of time -- and I think 14 it was quite fortunate -- waiting for approvals 15 from the FDIC to do something that we -- from a 16 business perspective should have been done many 17 months earlier. And we needed to either take 18 control of the asset and move forward and sell it 19 and list it and market it or we were going to 20 enter into a proposal with the obligor group or 21 the related proposal and move forward in that 22 direction. 11711 1 And so, this memo to our counsel from 2 myself suggests that it's time to put up or shut 3 up. 4 Q. And this memorandum, Exhibit B2911, is 5 dated May 14, 1993? 6 A. Right. 7 Q. And when you say "put up or shut up," 8 are you referring in part to the portion of the 9 first sentence that states, open quote, "I hereby 10 proceed claim June 30, 1993, as the drop dead date 11 for this asset," close quote? 12 A. Yes. 13 MR. DUEFFERT: Move the introduction of 14 Exhibit B2911. 15 MR. SCHWARTZ: No objection. 16 THE COURT: Received. 17 Q. (BY MR. DUEFFERT) Did the settlement 18 with the borrower group, was it finalized by 19 June 30, 1993? 20 A. It was finalized. The best I 21 understood, we had reached all the business 22 decisions and gotten the legal approvals we needed 11712 1 to proceed with the closing. It may not have 2 actually occurred until all the legal documents 3 were signed off on, but the business elements of 4 the proposal were agreed upon. 5 Q. B4048, please. Mr. Seidman, will you 6 please identify for the record Exhibit B4048? 7 A. Correspondence between our counsel, 8 Bobby Smith, and Mr. DeHanzel with regard to loan 9 documents that were -- or releases that were 10 anticipated to be executed in connection with the 11 sale of the note. 12 Q. Did you receive a copy of this 13 document? 14 A. Yes. 15 MR. DUEFFERT: Move the introduction of 16 Exhibit B4048. 17 MR. SCHWARTZ: No objection. 18 THE COURT: Received. 19 Q. (BY MR. DUEFFERT) And I believe the 20 releases you just referred to was, again, the 21 release to Mr. Stanley D. Rosenberg, correct? 22 A. Correct. 11713 1 Q. And that release was still pending 2 legal review by Mr. DeHanzel as of September 8, 3 1993? 4 A. Well, just as to the wording that was 5 appropriate in the document. Yes, it was still 6 subject to his review. 7 Q. Exhibit B4049, please. 8 Could you identify this document for 9 the record? 10 A. Correspondence from Bobby Smith to 11 Tom Manick, an attorney in Miami, Florida. 12 Q. And who was Mr. Manick? 13 A. As I understand it, he was an attorney 14 who was retained early on to study the 15 government's position with regard to potential 16 litigation against Mr. Hurwitz. 17 Q. Do you understand that he was outside 18 counsel to the FDIC? 19 A. I didn't have an understanding -- I 20 knew he was an attorney working with the FDIC. I 21 didn't know what capacity he was -- 22 Q. Does it appear from this document that 11714 1 he also was involved, as of October 1993, in 2 negotiating the language of Mr. Rosenberg's 3 release? 4 A. Oh, absolutely. 5 Q. One question. You mentioned 6 Mr. Heffron a few moments back. 7 Do you recall that? 8 A. Yes. 9 Q. By whom was Mr. Heffron employed just 10 prior to his employment with Bank United? 11 A. I think he worked for a small thrift. 12 He may have worked either for the Federal Home 13 Loan Bank Board in Dallas, or he may have been 14 employed by a small thrift in New Hampshire or 15 somewhere in New England, as I recall. 16 Q. Do you know if he had any role in 17 choosing Bank United as the successful bidder for 18 USAT? 19 MR. SCHWARTZ: Objection, Your Honor. 20 This is going well outside the scope of the direct 21 examination. 22 THE COURT: Denied. 11715 1 A. No, I don't. 2 Q. (BY MR. DUEFFERT) I'd like to talk 3 about Norwood for about three minutes, and I think 4 we'll be done. 5 THE COURT: Did you offer B -- 6 MR. DUEFFERT: I apologize. I offer 7 Exhibit B4049. 8 MR. SCHWARTZ: Your Honor, I'm not sure 9 if I heard if Mr. Seidman said that he received a 10 copy of this letter. And secondly, it refers to 11 enclosures that are not attached. 12 THE WITNESS: Yes, I received the 13 letter. 14 MR. SCHWARTZ: And the other part of my 15 objection is that the enclosures are not attached. 16 THE COURT: Received. 17 Q. (BY MR. DUEFFERT) I'd like the record 18 to be clear as to the reasons why, in the Norwood 19 transaction, you did not pursue against the 20 guaranties of Mr. Krasovec and Mr. Minch. 21 Do I understand correctly that that was 22 a business decision reached by United? 11716 1 A. It was absolutely a business decision 2 reached by United and not just myself. Actually, 3 it was a conclusion after reviewing their 4 individual financial statements, studying the 5 potential for litigation, the potential for 6 bankruptcy as it related to the individual 7 guaranties. Here again, we were not being 8 intimidated by the threat of litigation but we 9 recognized the practicality of the fact that the 10 asset could be tied up for an extended period of 11 time to the detriment of the association. 12 Q. Would you view Mr. Krasovec and 13 Mr. Minch as being potentially litigious? 14 A. Without a question. 15 Q. And did you also find them to be prone 16 to posturing? 17 A. Undoubtedly. 18 Q. Mr. Krasovec and Mr. Minch couldn't 19 ultimately meet their $10 million in sales. 20 Right? 21 A. That's correct. And I never thought 22 they would when we entered into the agreement. 11717 1 Q. United removed them from the joint 2 venture? 3 A. Well, they removed themselves and were 4 ultimately removed and United Financial 5 Corporation became the 100 percent owner of the 6 venture. 7 Q. So, United gained their equity stake in 8 the joint venture as a result of the settlement? 9 A. Or their lack of equity stake. 10 Q. And United also gained a full release 11 of all claims against it? 12 A. Yes. 13 Q. Finally, Mr. Schwartz asked you some 14 hypothetical and other kinds of questions, I 15 think, regarding damages. I think regarding 16 damages, regarding losses. 17 A. Are we speaking about Norwood? 18 Q. No. I think we're done with that now. 19 I just wanted to clarify that one thing for the 20 record. 21 You're not an expert witness in this 22 case. Right? 11718 1 A. That's correct. 2 Q. And you've not reviewed the full 3 documentary record, correct? 4 A. That's correct. 5 Q. And you are not an expert in 6 accounting? 7 A. Most assuredly not an expert in 8 accounting. 9 Q. And so, when you were talking, say, 10 this morning about out of pockets, were you 11 talking about interest reserves sometimes? 12 A. No. I was talking about advances that 13 were made on the loan against the note. 14 Q. Which would include interest reserves? 15 A. Oh, yes, to the extent that they were a 16 loan category within the original loan budget. 17 Q. And you weren't meaning to offer any 18 kind of expert opinion or other opinion as to what 19 the damages are in relation to these two projects? 20 A. No. I say just trying to clarify the 21 distinction between accruing interest on a loan 22 that you may or may not receive in the future and 11719 1 interest that's been calculated on a note that you 2 may or may not receive in the future. The comment 3 about if the -- if all had been well and the 4 borrowers had paid interest out of pocket, would 5 this have been the amount they would have paid, to 6 me, is not reflective of the reality of the 7 situation. That seems somewhat artificial to me. 8 I deal more in terms of moneys advanced 9 and moneys received. There are a lot of what-if 10 scenarios that you could portray with regard to 11 every loan that every bank or every thrift ever 12 made with regard to interest that it received or 13 did not receive. I was trying to point out the 14 fact that the loan was on non-accrual, which is 15 the prudent policy when you have a situation where 16 you do not know whether you're going to get a 17 return of your original principal or not. 18 Recovering principal is the primary 19 objective. Recovering interest that may have 20 accrued on the debt is a secondary objective. 21 Particularly if it's not accrued, that means it's 22 not an asset on the books and, therefore, if you 11720 1 don't receive it, you don't have to reverse that 2 entry later because of subsequent events that 3 might occur. 4 So, to the extent I'm not an 5 accountant, I'm just trying to clarify the fact 6 that my focus was on moneys advanced versus moneys 7 received, not moneys accrued or not accrued. 8 MR. DUEFFERT: Thank you, Mr. Seidman. 9 I have no further questions. 10 THE COURT: Do the other respondents 11 have questions? 12 MR. BLANKENSTEIN: No questions, Your 13 Honor. 14 MR. EISENHART: I have none, Your 15 Honor. 16 MR. GRIFFITH: None, Your Honor. 17 THE COURT: Do you have some redirect, 18 Mr. Schwartz? 19 MR. SCHWARTZ: Yes, Your Honor. Could 20 I have about ten minutes and -- say, five minutes 21 to just pull my things together? We had a lot of 22 things brought in under Mr. Dueffert's 11721 1 examination, just to pull them together, and I 2 probably will have ten minutes of questions, five 3 minutes maybe. But if I can organize it, then 4 it'll make it that much quicker. 5 THE COURT: All right. We'll take a 6 short recess. 7 MR. SCHWARTZ: Thank you, Your Honor. 8 9 (A short break was taken 10 at 10:56 a.m.) 11 12 THE COURT: Be seated, please. 13 THE COURT: We'll be back on the 14 record. 15 Mr. Schwartz, you have some redirect? 16 MR. SCHWARTZ: Yes, Your Honor. 17 18 REDIRECT-EXAMINATION 19 20 (11:04 a.m.) 21 Q. (BY MR. SCHWARTZ) Mr. Seidman, 22 Mr. Dueffert asked you some questions regarding 11722 1 the employees of United at or around the time just 2 preceding the receivership. And you mentioned 3 that there were certain categories of employees 4 and you mentioned certain individuals -- 5 Mr. Berner, Mr. Crow, I believe you mentioned -- 6 and there were some other members of senior 7 management that were asked to leave. 8 Do you recall that? Do you recall that 9 testimony? 10 A. I don't think you've stated that 11 accurately. 12 Q. Oh, then please correct me. 13 A. I announced that on the date -- the 14 first day after receivership, that they were gone. 15 I never stated that they were asked to leave prior 16 to receivership. 17 Q. Oh, okay. On the day after the 18 receivership -- 19 A. On the day after receivership, I was 20 talking about Hutcheson & Grundy and the 21 management changes that had occurred. 22 Q. And who were you referring to when you 11723 1 talked about management changes? 2 A. Mr. Crow, Mr. Berner, and Gem -- he 3 worked for Mr. Crow. I can't remember 4 specifically. 5 Q. So, was it basically a handful, maybe 6 half a dozen at the most? 7 A. I would say five or six, no more. 8 Q. Everyone at the institution did not get 9 fired; is that right? 10 A. Correct, at that date. 11 Q. Okay. And following that, did the 12 place -- did USAT, after the receivership, 13 continue to operate after the FDIC came in and did 14 it continue to operate without Mr. Berner and 15 Mr. Crow and those other senior members of 16 management that were terminated? 17 A. Obviously, it did. I could give 18 opinions as to how I thought it was being managed, 19 but that's not perhaps relevant to your question. 20 Q. But it did continue to operate 21 without -- 22 A. Yes. The institution still exists 11724 1 today. 2 Q. Okay. You were also asked some 3 questions concerning when you arrived and the 4 continue of the accounting books and records. 5 A. Right. 6 Q. From the -- at least from the time that 7 you arrived in 1987. 8 Do you recall that? 9 A. Yes. 10 Q. Okay. Do you have any idea as to the 11 condition of the books and records of the 12 institution in 1986 -- in the summer of 1986 and 13 before then as -- and the condition of the 14 books -- strike that. 15 Do you have any knowledge of the 16 condition of the books and records of the 17 institution from the period a year earlier before 18 you arrived -- and I'm talking about the period 19 1986 and before that? 20 A. Yes, to the extent that what I was 21 looking at in August of 1987 was originally 22 prepared in August or April of '96 -- I mean '86. 11725 1 Q. Okay. With regard to the books and 2 records of -- that you saw, do you know when 3 between April of 1986 or leading up to -- actually 4 January of '84, which we've talked about, through 5 the date that you came in in August of 1987 as to 6 when those records were compiled? 7 MR. DUEFFERT: Your Honor, objection. 8 I don't understand the question. I don't 9 understand what books and records we're talking 10 about. I don't know what time line we're on. I 11 think it's an incomprehensible question. 12 THE COURT: Do you understand the 13 question? 14 THE WITNESS: I think I do, but I may 15 not understand it as it's being presented to me. 16 A. When I say "books and records," I'm 17 thinking now of accounting records, advances 18 relating to advances made under the loan. Those 19 were all accounted for and in place and maintained 20 by the accounting -- real estate accounting group. 21 I did not -- and let's clarify this -- 22 have access to or want to see any of the records 11726 1 of the association that related to anything but 2 the real estate assets. 3 Q. (BY MR. SCHWARTZ) So, do you then not 4 know anything about the condition of those books 5 and records? 6 A. I can only speak to the records that 7 were maintained in the real estate department, and 8 I cannot speak to how they were maintained in any 9 other division of the association. 10 Q. And can you speak to how they were 11 maintained prior to your arrival in August of 12 1987? 13 A. Well, I took them as I found them. The 14 accounting records seemed proper. There was a 15 period prior to the loan being made when the 16 association was in a joint venture on the 17 property, and we had financial records that showed 18 the advances and receipts of funds during that 19 period of time. And we had a copy of a joint 20 venture agreement. That's pretty much the extent 21 of the records that I was aware of. 22 Q. You were questioned during the 11727 1 discussion of non-accrual and accrual -- do you 2 recall that -- 3 A. Yes. 4 Q. -- of the interest? Both of these 5 loans, I understand, went into a non-accrual basis 6 sometime prior to the receivership? 7 A. Yes, I would assume so subject to 8 verification of the accounting records. 9 Q. Does that mean that from the point that 10 the loans went into a non-accrual basis, that the 11 institution had determined that the loan was not 12 going to be repaid? 13 A. No. It meant that the interest would 14 not be recorded as a receivable. 15 Q. Why? 16 A. Because it might not be received. 17 Q. What action did the institution do on 18 its books? Did it mark the loans to market at 19 that point when they made the determination to put 20 it into non-accrual? 21 A. No. The existence of non-accrual is an 22 accounting policy that relates to -- 11728 1 traditionally, if a loan is past due 30 days, for 2 example, it would on the 31st day be past due. It 3 would not be past due for the first 30 days. On 4 the 31st day, it would be past due. 5 Accounting policies generally reflect 6 that if a loan is past due for over 90 days, the 7 loan then automatically goes on a non-accrual 8 status. Also, if there is any question about 9 whether the interest is going to be received, it 10 would be placed on a non-accrual status. 11 Q. I'm asking you about the value of the 12 asset itself on the institution's books. Was the 13 value of the asset on the institution's books then 14 automatically marked to market? 15 A. No. That was not an accounting policy. 16 MR. SCHWARTZ: Nothing further. 17 MR. DUEFFERT: No questions, Your 18 Honor. 19 THE COURT: All right. Thank you, 20 Mr. Seidman. You may step down. 21 Are there any matters we have to 22 consider before we adjourn? 11729 1 MR. RINALDI: It might be helpful if 2 all parties -- or at least helpful for me, none of 3 the others in the room -- if we all understood the 4 process by which the ultimate determination will 5 be made as to when the hearing will resume. I 6 just didn't want to walk away and not have in 7 place at least some agreed-upon process. 8 THE COURT: Well, I'm going to await 9 Mr. Villa's response as to his request to delay 10 the June hearing, his June hearing. And if that 11 is delayed, we will resume shortly thereafter. If 12 he has to go through that trial, we will resume as 13 shortly thereafter as possible. 14 MR. RINALDI: Would it be appropriate 15 to have a formal date by which Mr. Villa should 16 report back to all parties as to the status of 17 things? 18 THE COURT: Well, I'm giving him 19 credit. I can't impose a deadline on the Court 20 that he is before. So, I'll just have to wait 21 until he receives -- I'm assuming the Court will 22 act responsively. 11730 1 MR. RINALDI: Okay. As I understand 2 it, we're just going to wait until we hear from 3 Mr. Villa and I will certainly contact him myself 4 if I feel the need for an update before then. 5 THE COURT: All right. Are there other 6 matters? 7 MR. NICKENS: No, Your Honor. Happy 8 holidays. 9 THE COURT: We'll adjourn until a date 10 to be set. 11 12 (Whereupon at 11:13 a.m. 13 the proceedings were recessed.) 14 15 16 17 18 19 20 21 22 11731 1 STATE OF TEXAS COUNTY OF HARRIS 2 REPORTER'S CERTIFICATION 3 TO THE TRIAL PROCEEDINGS 4 I, Marcy Clark, the undersigned Certified 5 Shorthand Reporter in and for the State of Texas, 6 certify that the facts stated in the foregoing 7 pages are true and correct to the best of my ability. 8 I further certify that I am neither 9 attorney nor counsel for, related to nor employed 10 by, any of the parties to the action in which this 11 testimony was taken and, further, I am not a 12 relative or employee of any counsel employed by 13 the parties hereto, or financially interested in 14 the action. 15 SUBSCRIBED AND SWORN TO under my hand 16 and seal of office on this the 19th day of 17 December, 1997. 18 ____________________________ MARCY CLARK, CSR 19 Certified Shorthand Reporter In and for the State of Texas 20 Certification No. 4935 Expiration Date: 12-31-97 21 22 11732 1 STATE OF TEXAS COUNTY OF HARRIS 2 REPORTER'S CERTIFICATION 3 TO THE TRIAL PROCEEDINGS 4 I, Shauna Foreman, the undersigned 5 Certified Shorthand Reporter in and for the 6 State of Texas, certify that the facts stated 7 in the foregoing pages are true and correct 8 to the best of my ability. 9 I further certify that I am neither 10 attorney nor counsel for, related to nor employed 11 by, any of the parties to the action in which this 12 testimony was taken and, further, I am not a 13 relative or employee of any counsel employed by 14 the parties hereto, or financially interested in 15 the action. 16 SUBSCRIBED AND SWORN TO under my hand 17 and seal of office on this the 19th day of 18 December, 1997. 19 _____________________________ SHAUNA FOREMAN, CSR 20 Certified Shorthand Reporter In and for the State of Texas 21 Certification No. 3786 Expiration Date: 12-31-98 22