So it’s downright mystifying that the Justice Department keeps pressing a losing case against a financial institution that was seized in — are you ready? — 1992.

The institution in question, Carteret Savings Bank of New Jersey, was a pipsqueak next to Countrywide Financial and Washington Mutual, the giant wrecks once presided over by Mr. Mozilo and Mr. Killinger, respectively. For the last 20 years, Carteret Savings’ parent company has argued that the government caused the bank to fail and has tried to recover some money for its shareholders. In late August, Loren A. Smith, a senior judge in the Court of Federal Claims, sided with the parent company, ruling that the government should pay it $205 million in damages.

But rather than accept that ruling, the Justice Department asked Judge Smith last week to reconsider, “to prevent a manifest injustice.” And so the case drags on.

Richard A. Bianco is the chief executive of the Ambase Corporation, which bought Carteret way back in 1987. He estimates that this battle has cost the company’s shareholders $10 million in legal fees.

“For 20 years our stockholders have been suffering through this mess,” Mr. Bianco said. “We think it is a wrongful action by the government.”

Asked why the Justice Department refused to accept the ruling, Charles Miller, a spokesman, said, “We are continuing to litigate because the case has not yet been resolved.”

Here are the details of this amazing tale: In the 1980s, as a number of savings institutions ran into trouble, regulators encouraged stronger banks to absorb imperiled ones. Part of that encouragement involved something called supervisory goodwill. The government let strong banks include in their regulatory capital intangible assets associated with acquisitions of troubled thrifts. This supervisory goodwill was to be written down over at least 25 years, giving the acquirers a good, long-term cushion.

Regulators came up with this accounting treatment to reduce the cost to taxpayers. If healthy banks absorbed teetering ones, taxpayers wouldn’t have to pick up the bill.

Carteret, founded in 1888, bought several beleaguered banks in the 1980s at the suggestion of regulators. By 1988, it was the nation’s 19th-largest savings and loan. After it absorbed the troubled institutions, its supervisory capital reached $182 million, more than half its regulatory capital of $322 million.

Then, in August 1989, Congress, in its wisdom, eliminated the goodwill accounting treatment. As a result, scores of banks fell short of capital requirements. Carteret’s regulatory capital fell by more than half.

Carteret scrambled, selling branches and increasing its reserves against bad loans. It lost money on its commercial real estate and corporate loan portfolios in 1989 and 1990, but returned to profitability in late 1991. By the end of November 1992, Carteret recorded net income of $11 million. But it still didn’t have enough capital. It tried to raise money from investors but failed.

So, on Dec. 4, 1992, the Office of Thrift Supervision seized Carteret, even though regional regulators recommended against a takeover.

Carteret’s parent sued, arguing that the government had breached its contract by eliminating the goodwill benefit and that that decision had caused the collapse. The government countered that bad commercial real estate and corporate loans would have sunk Carteret anyway.

The case inched through the courts. Finally, on Aug. 31 this year, Judge Smith sided with Carteret’s parent, finding that the government had caused the collapse. Carteret’s financial standing had stabilized in 1992 and its profitability was sustainable, the court said, citing testimony from regulators. One regulator testified that Carteret could have survived had the government waited one more month.

Judge Smith also concluded that the government impeded Carteret’s attempts to raise capital from investors in 1992, saying the bank “was unable to find a match as the government imposed harsh and unrealistic requirements making it impossible for any investors to invest.”

The $205 million award was based on a calculation of Carteret’s market value before Congress changed the rules. The judge also awarded Carteret’s parent an unspecified sum to offset any tax liabilities it would have to pay on the damages.

Judge Smith, in his ruling, expressed frustration at not being allowed to add interest or legal fees, because of the government’s sovereign immunity. “In dollar terms, plaintiffs will receive about one-third of the value of what they have lost by the breach,” he wrote. “This is unfair and unjust, but the Congress, not the court, must address this injustice.”

With the Justice Department still pressing the case, Mr. Bianco said: “It’s tough to fight City Hall. The stockholders realize it has been one very tough road. If the government would have left Carteret alone, the taxpayers would have saved all these legal expenses and would not have to pay this award.”

The Justice Department probably won’t get far in trying to get Judge Smith to reconsider — his opinion is pretty scathing. But the government could appeal to the Third Circuit Appellate Court, according to David H. Thompson, the lawyer at Cooper Kirk who represents Carteret and its parent. It could also try its luck with the United States Supreme Court, he said.

It’s unclear who would have to pay the award if Carteret prevails. Mr. Thompson said it could be the United States Treasury — that is, taxpayers — or the Federal Deposit Insurance Corporation’s fund, which is paid for by financial institutions.

Whatever the outcome, Mr. Thompson said: “This case stands as a monument to bureaucratic folly.”

You bet.  

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