WASHINGTON — In two significant decisions on the last day of its term, the US Supreme Court yesterday made the US government liable for perhaps billions of dollars in damages in a dispute over the savings-and-loan debacle of the 1980s - and, surprised observers by refusing to review one of the most controversial affirmative-action cases in decades.
Earlier this year, the Fifth Circuit Court in New Orleans ruled that a University of Texas Law School racial admissions policy in 1992 infringed on the rights of a white female applicant who was denied a place at the school.
In a ruling that affects state-run colleges in Texas, Louisiana, and Mississippi, the circuit court said the law school's racial quota system was unconstitutional.
By letting stand the lower court ruling, legal scholars say, the high court has effectively voided, in those three states, the famous 1978 Bakke decision which said that race may play a role in the college admissions process.
In that case, the high court ordered the University of California at Davis to admit Allan Bakke, a white medical student. Mr. Bakke was refused admission to make room for minority students who had lower test scores.
It was widely expected the Supreme Court would hear the Texas petition in October - in order to clarify the law of the land on a much-contested area. In recent years, the high court rulings on race have adopted a "color blind" approach, reversing affirmative action.
Justice Ruth Bader Ginsburg, joined by Justice David Souter, agreed that racial and ethnic admissions policy is an "issue of great national importance." But she said the case itself, Texas v. Hopwood, was not the appropriate one for such a far-reaching ruling.
For one thing, the Texas law school policy had been changed since 1992. Instead of relying on a "two-track" policy - one standard for whites, and one standard for persons of color - the school has instituted a new admissions policy that makes race only one factor out of many (the Bakke standard) taken into consideration.
The US Circuit court, in March, ruled against the law school's 1992 quota policy, and in addition said that the new policy of considering race as a factor was inadequate. However, the case of Cheryl Hopwood, the white applicant, covered only the 1992 policy.
In not agreeing to take the Hopwood case, the court essentially said it needed to rule on a case where an applicant is being disadvantaged by the current policy. "We must await a final judgment on a program genuinely in controversy before addressing the important question," Ginsburg wrote.
In the other major decision of the day, the high court found the US government in breach of contract with three failed savings and loans. The 7 to 2 ruling, which opens the federal government up to as many as 100 claims from other savings and loans, in effect said the US government could not change the rules or spirit of its contract agreements in mid-course - by enacting a congressional statute.
Legal scholars immediately hailed the decision as one of broad significance since it applies not just to banks but to any party entering a contract with the government. "This sends a message to Congress that government will be held to its promises," says one long-time court observer.
The case arose out of a decision in the early 1980s by the Federal Home Loan Bank Board, and the now-defunct Federal Savings and Loan Insurance Corporation (FSLIC).
That decision allowed banks and other businesses that took over insolvent savings and loans to treat the difference between the fair market value of an S&L and its liabilities - as "goodwill" or cash value - by the company taking them over.
"In other words, what wasn't cash or other tangible asset was treated as if it were," by the federal government, says law professor Anita Richardson of the John Marshall Law School in Chicago.
In 1989, in the $100 billion S&L bailout by Congress, the government enacted a rule that severely restricted "goodwill" as an asset.
The ruling put many S&Ls into the red. Several companies, including Winstar Corp. of Minnesota, Statesman Savings Holding Group of Iowa, and Glendale Federal Bank of California, filed suit against the government.
Had the court not found for three S&Ls, legal scholars say, it would jeopardize the future of any kind of trust between government and businesses and contractors.