Westar files lawsuit

Tumwater-based company cites failed partnership

CHRIS CLOUGH, THE OLYMPIAN

TUMWATER -- Eleven days after filing for Chapter 11 bankruptcy protection, Westar Financial Corp. was back in court Wednesday to begin legal proceedings in a $1 billion lawsuit against Bank One.

Westar Chief Executive Officer Bob Christensen said the Tumwater-based company and Bank One had a seven-year partnership under which Westar used its technology to originate and service automobile leases with capital backing from Bank One.

The partnership generated more than $600 million in assets during those years.

In the wake of the Sept. 11 attacks, Bank One pulled out of the partnership, leaving Westar in the lurch and ending five straight fiscal quarters of profitability.

Westar has since stopped originating leases, announced it was seeking a buyer, filed for Chapter 11 protection and now is taking legal action against Bank One.

"Bank One's abrupt termination of our long-standing, and for them very profitable, relationship created enormous damage for Westar, its creditors and shareholders, and car dealers, partners and customers," Christensen said Wednesday.

"And the way it has been handled by Bank One has, if anything, magnified that damage."

Bank One doesn't comment on customer relationships or litigation as a matter of policy, spokesman Thomas Kelly said Wednesday from Chicago.

Westar had called itself "the leading publicly traded automobile-oriented e-commerce financial portal" and was the first to complete an entirely electronic auto purchase on the Internet.

Westar has seen its fortunes dwindle since Oct. 1, when its stock hit an all-time high of $22.75 a share days after the company announced expected revenue of $137 million and profits of $1.8 million for its second fiscal quarter, which ended Sept. 30.

A work force that was nearly 100 strong three months ago now consists of about 15 employees.

Christensen said Westar's day-to-day business activities have ceased and that the remaining employees are working on the Chapter 11 reorganization and prosecuting the suit against Bank One.

The 13-page suit, filed in federal court in Seattle, alleges that the Chicago-based bank "destroyed (Westar's) business and damaged them in an amount to be proven at trial but believed to exceed $1 billion."

The lawsuit says Bank One and Westar had entered into a variety of business relationships since 1995. They included:

- A revolving "warehouse" line of credit under which Bank One provided Westar as much as $25 million to fund lease contracts.

- A series of 49 transactions in which Westar transferred interests in pooled securities to Bank One.

- Access to Westar's LASIRpro software for all aspects of the lease process.

After Bank One notified Westar it was pulling out of the partnership, the lawsuit states that the two parties began negotiation with Credit Suisse First Boston to purchase Westar's lease portfolio.

The lawsuit claims the agreement was scuttled by Bank One's chief executive officer because of "personal animosity he held toward First Boston."

Christensen said he expects the suit to be before a jury in King County in about 15 months.

The Seattle law firm of Bucknell Stehlik Sato & Stubner LLP will represent Westar.

As for the merits of the suit, Christensen said people should "take a look at Westar and its history and ask if Westar is serious, then look at the law firm and the cases they have worked on and ask if they are serious."

Christensen said the answer to both is a resounding yes.

What Westar did

Founded in 1996, Westar used a system called LASIRpro to handle all aspects of lease transactions.

Westar made lease decisions through direct contact with auto dealers in 44 states. Agreements with USAA Federal Savings, Mellon Bank and AmSouth Bancorporation -- three of the nation's 25 largest financial institutions -- gave them access to Westar's lease-approval technology.

Once approved, Westar gathered the leases in bundles and auctioned them off to larger financial institutions, a practice widely used with mortgages and credit card accounts. That process is called securitization.

The bundles were sold for less than what Westar would likely make over the full life of the leases, but by auctioning them off at a discount, Westar got an earlier infusion of money to finance more leases.

Christensen said Bank One had been the primary investor in the securitizations and had partnered with Westar in 49 such transactions.

When one of those securitization sales fell through in November, Westar was left short of cash to pay short-term debt, which brought its new loan activity to a halt.

Without the securitization sale in early November, Bank One refused to make further loans to Westar -- prompting the halt of lease originations and eventually the Chapter 11 filing, Christensen said.

Bank One has since ordered Westar to stop servicing 25,000 lease accounts, Christensen said.

The order last week prompted the latest round of layoffs, with about 25 people losing their jobs New Year's Eve.

Westar's stock, which trades over the counter under the symbol WEST.OB, closed Wednesday at 25 cents a share, up 6 cents. Christensen, Westar's largest shareholder, has not sold any of his stock since May.

Christensen said the company "is in the very early stages of conversation with a handful of firms that have interest in Westar for its intellectual capital."

Tumwater Mayor Ralph Osgood said Westar's misfortune is a blow to the city's economic well-being.

"Private companies are extremely important for the city by providing an economic mix to the area," Osgood said. "It's quite devastating for a community to possibly lose an employer with 100 workers and see how that would erode the employment base."

The Olympian Copyright 2001

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