Landmark Land Co. Inc. v. Federal Deposit Insurance Corp

• Citation: 256 F.3d 1365
• Decision Date: 24 July 2001
• Docket Number: 5073,DEFENDANT-CROSS,Nos. 00-5065,5074,PLAINTIFF-APPELLANT,s. 00-5065
• Parties: (Fed. Cir. 2001) LANDMARK LAND COMPANY, INC.,, v. FEDERAL DEPOSIT INSURANCE CORPORATION,, v. UNITED STATES,APPELLANT. Decided:
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 1365

256 F.3d 1365 (Fed. Cir. 2001)

LANDMARK LAND COMPANY, INC., PLAINTIFF-APPELLANT, v. FEDERAL DEPOSIT INSURANCE CORPORATION, PLAINTIFF-APPELLANT, v. UNITED STATES, DEFENDANT-CROSS APPELLANT.

Nos. 00-5065,-5073,-5074

United States Court of Appeals for the Federal Circuit

Decided: July 24, 2001

Appealed from: United States Court of Federal Claims

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Paul M. Fish, Modrall, Sperling, Roehl Harris & Sisk, P.A., of Albuquerque, New Mexico, argued for plaintiff-appellant. With him on the brief was R.E. Thompson.

John v. Thomas, Associate General Counsel, Federal Deposit Insurance Corporation - Receivership Goodwill, of Washington, DC, argued for plaintiff-appellant. With him on the brief were Richard S. Gill, John M. Dorsey, III, Dorothy A. Doherty, of Washington, DC; and Norman Friedman, Richard S. Falkow, and Richard H. Kamp, of Dallas, Texas.

David M. Cohen, Director, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for defendant-cross appellant. With him on the brief were Jeanne E. Davidson, Deputy Director; Arlene P. Groner, Glenn Chernigoff, Gary Dernelle, Richard B. Evans, Tom Forgue, Elizabeth Frank, Craig Gottlieb, Joanne Johnson, Delisa Sanchez, Tarek Sawi, and Tonya J. Williams, Trial Attorneys.

Jerry Stouck, Spriggs & Hollingsworth, of Washington, DC, for amicus curiae Plaintiffs' Coordinating Committee.

Before Michel, Circuit Judge, Archer, Senior Circuit Judge, and Schall, Circuit Judge.

Michel, Circuit Judge.

Judge Robert H. Hodges, Jr.

This is a Winstar-related case. Landmark Land Company ("Landmark") appeals from the judgment of the Court of Federal Claims, which awarded $21.5 million to Landmark for the government's breach of a 1982 contract and $17.7 million to the Federal Deposit Insurance Corporation ("FDIC") for the government's breach of a 1986 contract. The court granted summary judgment on the issue of liability, holding the government liable as to both Landmark's and the FDIC's claims. The court then conducted a bench trial to establish the amount of damages. Landmark argues that its award was inadequate because it failed to fully compensate Landmark for its performance under the contract. The FDIC has also appealed with respect to its award, for essentially the same reason. The government has cross-appealed, arguing that the trial court erred in making any award to Landmark. The government also argues that the FDIC's claims must be dismissed, as they do not satisfy the case-or-controversy requirement because the FDIC and the government are not adverse as to these claims. We heard oral argument by the three parties on May 8, 2001.

Because the trial court properly awarded restitution to Landmark for the entire amount of its net loss that was either required or foreseeable under the contract, we affirm the judgment as to Landmark in all respects. Because the claims raised by the FDIC fail to satisfy the case-or-controversy requirement of Article III of the Constitution, we reverse the trial court's summary judgment of liability as to the FDIC's claims, and remand for the dismissal of the FDIC from the case.

BACKGROUND

The Winstar-related cases involve claims against the government relating to the savings and loan, or "thrift," crisis of the early 1980s. The events that contributed to this crisis, and the government's breach of its contracts with numerous thrifts through the 1989 enactment of the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA"), Pub. L. No. 101-73, 103 Stat. 183, have been thoroughly discussed in the decisions in the original Winstar cases. See, e.g., United States v. Winstar Corp., 518 U.S. 839, 843-58 (1996). We find it unnecessary to expand that treatment here. Instead, we will limit our discussion to the specific circumstances relevant to this appeal.

There are more than 120 Winstar-related cases currently pending before the Court of Federal Claims. In the interest of efficiency, that court selected five of these Winstar-related cases, including the instant case, for the adjudication of issues common to many of the other cases. We have reviewed the court's decisions in two of the other test cases, Glendale Federal Bank, FSB v. United States, 239 F.3d 1374 (Fed. Cir. 2001), and California Federal Bank, FSB v. United States, 245 F.3d 1342 (Fed. Cir. 2001). This decision is issuing concurrently with our decision in another of the test cases, Glass et. al v. United States, No. 00-5137 (Fed. Cir. 2001).

Landmark was a real estate development company with no prior involvement in the savings and loan industry. In 1982, Landmark entered into a contract with the Federal Savings and Loan Insurance Corporation ("FSLIC") to acquire two failing thrifts: Dixie Federal Savings and Loan Association ("Dixie") and Heritage Federal Savings and Loan Association ("Heritage"). This contract is referred to as the Assistance Agreement, and according to its terms, Heritage was merged into Dixie upon Landmark's acquisition of the thrifts.

During the 1980s, the FSLIC encouraged private investors such as Landmark to purchase struggling thrifts so that it would not be necessary to liquidate the thrifts using FSLIC funds to reimburse depositors. The primary inducement that the FSLIC offered potential purchasers was a partial forebearance from regulatory capital requirements. The FSLIC accomplished this by allowing the purchaser to treat the thrift's asset shortfall itself as a fictional asset, so that the thrift's assets and liabilities were placed in equipoise at the time of acquisition--at least on paper. For instance, if a thrift had $80 in assets and $100 in liabilities, the FSLIC would allow the thrift's purchaser to allocate the $20 shortfall in real assets to a fictional asset called "supervisory goodwill." The FSLIC would then allow the thrift to include this supervisory goodwill among the assets used to meet regulatory capital maintenance requirements. Because the regulatory goodwill was amortized over a long period, typically forty years as in this case, the thrift's purchaser would have to contribute much less in actual capital to the thrift. This made the thrift far more attractive to potential purchasers, at no cost to the FSLIC.

The Assistance Agreement required Landmark to make an initial contribution to Dixie of "not less than $20,000,000." Landmark did this by contributing real estate and cash valued at $21.5 million. In exchange, the FSLIC agreed to allow Dixie to treat its shortfall in actual assets as supervisory goodwill, which could be applied to Dixie's regulatory capital maintenance requirements. In order to maintain Dixie's financial strength as the value of the goodwill was reduced through amortization, the Assistance Agreement also required Landmark to make additional capital contributions to Dixie as necessary to maintain Dixie's net worth at no less than 3% of its liabilities.

After acquiring Dixie in 1982, Landmark conveyed the balance of its assets to Dixie in 1983. It did so in order to obtain more advantageous tax treatment of the profits that were expected to be made upon the later sale of those assets. In 1986, the government and Dixie entered into an agreement under which Dixie acquired another thrift, St. Bernard Federal Savings and Loan Association ("St. Bernard"). To accomplish this acquisition, Dixie transferred substantially all of its real estate assets to St. Bernard in 1986 in exchange for stock in St. Bernard. Dixie then merged with St. Bernard in 1989. The merged thrift went bankrupt and was seized by federal regulators and placed into receivership in 1991, with the Resolution Trust Corporation ("RTC") acting as receiver.¹

Congress enacted FIRREA in August 1989. FIRREA required thrifts to maintain "tangible capital" in an amount not less than 1.5% of the thrift's total assets. 12 U.S.C. §§ 1464(t)(9)(C) (1994). Tangible capital was defined to exclude supervisory goodwill. Id.; see also Winstar, 518 U.S. at 856-57 (discussing the changes instituted through FIRREA). FIRREA also required thrifts to maintain "core capital" in an amount not less than 3% of the thift's total assets. FIRREA defined "core capital" to include a limited amount of "qualifying supervisory goodwill." 12 U.S.C. §§ 1464(t)(1), (2), & (3)(A) (1994). However, even this limited use of supervisory goodwill was subject to an accelerated phase-out schedule under FIRREA. Ultimately, the Supreme Court held that the government breached its contracts with several financial institutions, and their investors, by enacting FIRREA. Winstar, 518 U.S. at 843.

Landmark brought the instant action against the government seeking compensation for the assets that it contributed to Dixie in 1982 and 1983, and "use value" as compensation for Landmark's loss caused by its inability to use those assets after contributing them to Dixie. The Court of Federal Claims granted the FDIC's motion to intervene, as Dixie's successor in interest, with claims to recover Dixie's 1986 contribution to St. Bernard, and the unamortized portion of Dixie's goodwill that had been created by the 1982 Assistance Agreement and subsequently eliminated by FIRREA. See Plaintiffs in All Winstar-Related Cases At the Court v. United States, 44 Fed. Cl. 3, 8 (May 20, 1999). The court granted Landmark's and the FDIC's motions for summary judgment against the government on the issues of liability for breach of the 1982 Assistance Agreement and the 1986 contract under which Dixie acquired St. Bernard. See Landmark Land Co., Inc. v. United States, 44 Fed. Cl. 16, 18 (June 17, 1999). The court then conducted a bench trial to determine damages. The court awarded Landmark $21.5 million for its 1982 contribution under the Assistance Agreement, but denied recovery for lost "use value," concluding that Landmark had failed to adequately prove it. The court also...