Appeals court orders U-T San Diego publisher to pay up

A Texas banking start-up owned by U-T San Diego publisher Douglas Manchester has lost another round in federal court in its long legal battle with an irate vendor alleging that the La Jolla real estate magnate stiffed it.

As reported here last July, Manchester rounded up some wealthy friends and in January 2008 filed papers with federal regulators to establish the Manchester Financial Bank.

Frederick J. Mandelbaum, a professional banker and past member of the Housing and Community Development Advisory Committee for the County of San Diego, was designated the bank's C.E.O. A Texas firm called 21st Century Financial Services was retained to provide electronic banking services.

But after the market crash later that year, the voluble megamillionaire changed his mind. On October 8, 2008, Mandelbaum emailed Scott Davis of 21st Century stating that although the bank "had received FDIC approval to move forward," the bank's principal investor, Doug Manchester, "decided not to move forward based on the current financial turmoil."

Then Manchester's proto-bank said it wouldn't pay 21st Century's bill. The vendor took the matter to arbitration, winning $477,070.39 in February 2010, but the U-T publisher's representatives still declined to pay up.

21st Century went to federal court in Austin, where records show Manchester's lawyers argued that since the bank never actually came into existence, it "'never received notice of the arbitration,' and the arbitrator exceeded his powers by not finding that the parties first attempted to negotiate in good faith prior to invoking arbitration."

Federal judge Lee Yeakel shot down those arguments in March of last year, and, with ticking interest costs adding significantly to the prospective tab, Manchester and company took their case to the Fifth Circuit Court of Appeals, which last week also rejected his plea.

In its March 31 ruling, a three-judge panel said, "Because the bank had notice of the proceedings and 21st Century sufficiently engaged in good-faith negotiations, we affirm the judgment confirming the arbitration award."

Will Manchester attempt to take his case to the Supreme Court? We’ve left a call for Manchester Financial president Richard Gibbons.