366 F.3d 1360 (Fed. Cir. 2004), 03-5048, Barron Bancshares, Inc. v. United States

Docket Nº:03-5048, 03-5049.
Citation:366 F.3d 1360
Party Name:BARRON BANCSHARES, INC., William J. Oestreicher, Michael V. Masterson, Scott J. Teigen, Henry C. Martinsen and Donald P. Zietlow, Plaintiffs-Appellants, and Federal Deposit Insurance Corporation, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
Case Date:May 11, 2004
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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366 F.3d 1360 (Fed. Cir. 2004)

BARRON BANCSHARES, INC., William J. Oestreicher, Michael V. Masterson, Scott J. Teigen, Henry C. Martinsen and Donald P. Zietlow, Plaintiffs-Appellants,

and

Federal Deposit Insurance Corporation, Plaintiff-Appellant,

v.

UNITED STATES, Defendant-Appellee.

Nos. 03-5048, 03-5049.

United States Court of Appeals, Federal Circuit

May 11, 2004

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Susan E. Barnes, Lindquist & Vennum PLLP, of Minneapolis, Minnesota, argued for plaintiffs-appellants Barron Bancshares, Inc., et al. Of counsel on the brief were Mark J. Briol and William G. Carpenter, Briol & Associates, PLLC, of Minneapolis, Minnesota.

Ellis Merritt, Jr., Federal Deposit Insurance Corporation, of Dallas, Texas, argued for plaintiff-appellant Federal Deposit Insurance Corporation. On the brief were John V. Thomas, Mary Ann McNamar, John M. Dorsey III, and Richard M. Schwartz, FDIC Legal Division, of Washington, DC.

Tarek Sawi, Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief were Stuart E. Schiffer, Deputy Assistant Attorney General; David M. Cohen, Director; Jeanne E. Davidson, Deputy Director; and Richard B. Evans and Joanne E. Johnson, Trial Attorneys.

Before NEWMAN, LOURIE, and SCHALL, Circuit Judges.

SCHALL, Circuit Judge.

In this Winstar-related case, Barron Bancshares, Inc. ("Barron Bancshares"), and Mssrs. Oestreicher, Masterson, Teigen, Martinsen, and Zietlow ("Investors") (collectively, "Barron") and the Federal Deposit Insurance Corporation ("FDIC") 1 appeal from the decision of the United States Court of Federal Claims (i) granting partial summary judgment in favor of the United States and (ii) granting the United States' motion to dismiss counts one through eight and eleven of Barron's first amended complaint and count three of the FDIC's complaint. Barron Bancshares, Inc. v. United States, 53 Fed.Cl. 310 (2002). The court determined that the capital credit and goodwill provisions in Barron's Winstar-type contract with the United States were not contractual obligations, but merely statements of then-applicable regulatory accounting principles. Id. at 315-20. The court further determined that the United States was

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not liable for its breach of the five-year forbearance provision of the contract by reason of the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. No. 101-73, 103 Stat. 183 (codified in scattered sections of 12 U.S.C. and 26 U.S.C.) ("FIRREA"), and its implementing regulations. Id. at 323-25. The court concluded that although the United States breached the forbearance provision of the contract, that breach was not the cause of the seizure of Monycor, the thrift institution acquired by Barron pursuant to its contract with the United States. Id.

We conclude that the supervisory goodwill and capital credit provisions of Barron's contract with the United States were contractual obligations, and that the United States breached those obligations. In addition, while we agree with the Court of Federal Claims that the United States breached the contract's five-year forbearance provision, we conclude that there are genuine issues of material fact as to whether that breach caused the seizure of Monycor. The decision of the Court of Federal Claims is therefore affirmed-in-part and reversed-in-part. The case is remanded for further proceedings consistent with this opinion.

BACKGROUND

I.

The circumstances surrounding the thrift crisis of the early 1980s and the resulting enactment of FIRREA have been extensively set forth in opinions of the Supreme Court, this court, and the Court of Federal Claims. See United States v. Winstar Corp., 518 U.S. 839, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996) (" Winstar IV "); Winstar Corp. v. United States, 64 F.3d 1531 (Fed.Cir. 1995) (en banc) (" Winstar III "); Winstar Corp. v. United States, 25 Cl.Ct. 541 (1992) (" Winstar II "); Winstar Corp. v. United States, 21 Cl.Ct. 112, 113-14 (1990) (" Winstar I "). A brief summary of these circumstances may provide context for this particular Winstar-related dispute.

Rising interest rates during the 1980s led to the insolvency of many savings and loan institutions ("thrifts"). To attract new deposits, thrifts had to offer interest rates that far exceeded the income the thrifts were receiving from mortgage agreements previously entered into at lower rates. Castle v. United States, 301 F.3d 1328, 1332 (Fed.Cir. 2002). Between 1981 and 1983, more than four hundred thrifts declared bankruptcy. This threatened to exhaust the insurance fund of the Federal Savings and Loan Insurance Corporation ("FSLIC"), the agency charged with regulating the federally insured thrift industry and insuring consumer deposits in thrifts. Winstar IV, 518 U.S. at 846-47, 116 S.Ct. 2432.

To deal with this crisis, the Federal Home Loan Bank Board ("FHLBB" or "Bank Board"), the agency authorized to charter and regulate federal savings and loan associations, encouraged healthy thrifts and outside investors to purchase insolvent thrifts in supervisory mergers. Id. at 847, 116 S.Ct. 2432. In such a transaction, the FHLBB would permit the acquiring investors to allocate any shortfall between liabilities and real assets to an intangible asset known as "supervisory goodwill." See Landmark Land Co., Inc. v. FDIC, 256 F.3d 1365, 1370 (Fed.Cir. 2001). The Bank Board would then allow the new or restructured thrift to count supervisory goodwill toward its reserve capital requirements, and to amortize the goodwill over a long period of time. Winstar IV, 518 U.S. at 849-50, 116 S.Ct. 2432. In addition, the FSLIC offered cash contributions in the form of capital credits that acquiring thrifts were permitted to count as permanent credits to regulatory

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capital. Id. at 853, 116 S.Ct. 2432. Finally, banking authorities granted regulatory forbearances whereby they would forbear from enforcing a thrift's regulatory capital requirements for a specified period of time. See, e.g., Cal. Fed. Bank, FSB v. United States, 245 F.3d 1342, 1345 (Fed.Cir. 2001) (" Cal Fed ") (the Brentwood and Family transactions).

Despite these various measures, the crisis in the savings and loan industry continued. As a result, on August 9, 1989, Congress enacted FIRREA, in order to prevent the collapse of the industry, to attack the causes of the crisis, and to restore public confidence. Winstar IV, 518 U.S. at 856, 116 S.Ct. 2432. FIRREA abolished the FHLBB and the FSLIC, transferred thrift insurance activities to the FDIC, established the Office of Thrift Supervision ("OTS") as the new thrift regulatory agency, created the Resolution Trust Corporation ("RTC") to liquidate or otherwise dispose of certain closed thrifts and their assets, and made substantial changes in the regulation of the savings and loan industry. Id. In particular, FIRREA mandated a minimum capital requirement for thrifts and prohibited the use of supervisory goodwill. In its wake, many thrifts rapidly fell out of compliance with regulatory capital requirements and were seized by regulators. Id. at 856-58, 116 S.Ct. 2432.

II.

Barron County Federal Savings & Loan ("Barron County"), an ailing thrift located in Barron, Wisconsin, reported insolvency on May 31, 1985. Barron Bancshares, 53 Fed.Cl. at 311. In response, the Chicago office of the FHLBB decided to recapitalize Barron County by converting it from a mutual association to a stock association and by selling its stock. Id. at 311-12. After soliciting bids, the Bank Board selected the Investors to acquire the stock of the reformed thrift, renamed Monycor. Id. at 312. The transaction was recorded in five documents: three Bank Board Resolutions, an Assistance Agreement, and a Forbearance Letter. Id.

In Bank Board Resolution Nos. 86-1215, 86-1215A, and 86-1215B, the FHLBB authorized the conversion of the thrift, the purchase of stock by the Investors, the execution of the Assistance Agreement, and the issuance of the Forbearance Letter. Id. Resolution No. 86-1215 contained the various accounting principles applicable to the recapitalized thrift, including the capital credit and supervisory goodwill provisions at issue in this case. Id. It directed the thrift to use the "push-down" accounting method to record the value of the acquisition on its books. Id. Under that method, the thrift's assets were to be "marked to market," or valued as of the date of the transaction. Id. Application of this accounting method resulted in an excess of liabilities over assets, creating $5,907,708 in supervisory goodwill that Monycor was to record as an intangible asset. Id. Of this sum, $4,908,000 constituted unallocated goodwill that Monycor could count toward its regulatory capital requirements. Id. The supervisory goodwill provision contained in the Resolution provided for any intangible assets created by the acquisition to be amortized by the straight-line method over a period not to exceed twenty-five years. Id. Resolution No. 86-1215 further established that the Investors were entitled to record a capital credit equal to the ultimate contribution by the FSLIC. Id. at 318 n. 12.

Pursuant to section 6(A)(1) of the Assistance Agreement, the FSLIC contributed cash to Monycor to assist the Investors in making it a viable institution. Id. The Investors were to contribute $4.25 million, see id., while the FSLIC was to contribute $6.675 million, subject to adjustment based on the Initial Audit mandated by section 5

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of the agreement. Assistance Agreement § 6(A)(1). The FSLIC ultimately contributed approximately $9.7 million to Monycor. See Barron...

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