Westar suit clears hurdle

Bankruptcy court approves use of cash to pursue lawsuit

CHRIS CLOUGH, THE OLYMPIAN

TUMWATER -- Westar Financial Services has scored an early legal victory in its more than $1 billion lawsuit against Bank One Corp.

The Tumwater-based company announced Monday that Judge Phillip Brandt will allow the business to use as much as $300,000 of its cash to proceed with the suit filed Jan. 2.

Westar filed for Chapter 11 bankruptcy protection Dec. 20 in federal court in Tacoma; it needed court approval to use any of its remaining cash.

"That's a step in the right direction toward the jury trial we've requested," Westar Chief Executive Office Bob Christensen said. "The ruling came in our favor despite nearly three hours of arguments from lawyers from Bank One trying to attempt to choke off the funding."

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

The judge's ruling clears the way for Westar to spend up to $300,000 on legal fees for the Seattle law firm of Bucknell Stehlik Sato & Stubner to represent Westar in the suit.

"Basically when you're in bankruptcy, you need court approval to use your cash," said Jay Kornfeld of Seattle's Bush Strout & Kornfeld, which represents Westar in its bankruptcy proceedings.

"You have a specific budget of how you will spend your money, but when a company is no longer active, such as Westar, there's often a fight."

Christensen said Westar 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 is taking legal action against Bank One.

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.

Westar's day-to-day business activities have ceased, and a work force that was nearly 100 strong three months ago now consists of about 15 employees working on the Chapter 11 proceedings and the Bank One lawsuit.

Along those lines, Kornfeld said the court approved Westar expenditures for two basic endeavors: exploring ways to sell the remaining assets of the company and funding its litigation against Bank One.

"Without those funds, it's unlikely that Westar would have been successful in retaining a competent law firm to pursue its suit," he said.

Kornfeld said the $300,000 will cover a portion of Bucknell Stehlik Sato & Stubner's fees. If the Westar case is successful, the firm also will receive a contingency fee based on the amount of the award.

The 13-page lawsuit, 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 Bank One's chief executive officer scuttled the deal because of "personal animosity he held toward First Boston."

Founded in 1996, Westar used 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 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 Monday at 87 cents a share, up 7 cents.

With the green light to proceed with the Bank One suit, Christensen said he expects the case to be before a jury in King County in about 16 months.

"The next step is to embark on a fairly aggressive phase of discovery," said Jerry Stehlik of Bucknell Stehlik Sato & Stubner. "We're hoping for as early a trial date as possible."

Stehlik declined to comment on the specifics of Westar's case but said his firm has "extensive experience and expertise representing plaintiffs against banks and other financial institutions."

Christensen said the crux of the case is showing the damage Bank One did to Westar and why.

He said he was happy with Brandt's ruling to continue and took some solace in the initial courtroom victory.

"I think the merits of the case are strong enough to see this through," Christensen said. "Apparently a federal judge thinks so, too."

The Olympian Copyright 2001

back to main Taking Stock in South Sound index