Lender Awarded $352 Million in Suit Against Former Bank

A mortgage lender that had accused its bankers of driving it out of business was awarded more than $352 million on Wednesday by a Philadelphia jury, company officials said.

Pioneer Commercial Funding Corp.--which was based in Woodland Hills until it liquidated most of its assets last year--filed suit against Corestates Bank in 1998, claiming that the Philadelphia bank failed to return $1.7 million that belonged to Pioneer.

This month, a Pennsylvania state jury unanimously agreed that Corestates, which was subsequently acquired by Charlotte, N.C.-based First Union Corp., was liable for damages. Wednesday, the jury awarded Pioneer $352.6 million, including $337.5 million in punitive damages, according to Maurice Mitts, an attorney for Pioneer.

Officials at First Union were stunned by the size of the award--which is equal to about one-third of the bank’s first-quarter operating income--and vowed to appeal.

“First Union is very disappointed with the verdict,” spokeswoman Ginny Mackin said. “We believe our predecessor, Corestates Bank, acted lawfully in all respects.”

Shares in First Union, which have been nearly halved over the last year because of separate problems related to the company’s acquisitions of Corestates and lender Money Store, fell $1.06, or about 4%, to close at $26 in New York Stock Exchange trading. The award was announced after the market closed.

Stock in thinly traded Pioneer Commercial hit $1.75 in Nasdaq trading Monday. More than half of the company’s stock is owned by directors and officers.

Executives at Pioneer, now based in New York, said the award would enable the company to resume operations, though it was unclear whether the company would return to its previous mortgage business.

The company specialized in funding small and mid-size mortgage bankers, who in turn lent the money to homeowners and buyers. At its peak, the company made more than $1 billion in loans annually, officials said.

Albert Nissim, president of Pioneer, said the loss of the $1.7 million caused the company to default on its own credit lines, forcing it to eventually shut down. He said the disputed $1.7 million was mistakenly wired to the wrong account at Corestates Bank, but when the error was discovered, the bank refused to return the money.

Mackin declined to comment on the specifics of the suit.