Home Savings of America v. U.S.

• Decision Date: 07 March 2005
• Docket Number: No. 04-5020.,No. 04-5032.,04-5020.,04-5032.
• Citation: 399 F.3d 1341
• Parties: HOME SAVINGS OF AMERICA, FSB, and H.F. Ahmanson & Company, Plaintiffs-Cross Appellants, v. UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

399 F.3d 1341

HOME SAVINGS OF AMERICA, FSB, and H.F. Ahmanson & Company, Plaintiffs-Cross Appellants, v. UNITED STATES, Defendant-Appellant.

No. 04-5020.

No. 04-5032.

United States Court of Appeals, Federal Circuit.

March 7, 2005.

COPYRIGHT MATERIAL OMITTED

Michael Carvin, Jones Day, of Washington, DC, argued for plaintiffs-cross appellants. With on the brief was Debra L. Satinoff. Of counsel on the brief were Steven S. Rosenthal, Jeffery A. Tomasevich, and Douglas A. Tucker, Kaye Scholer LLP, of Washington, DC.

David M. Cohen, Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief was Stuart E. Schiffer, Deputy Assistant Attorney General. Of counsel on the brief were Jeanne E Davidson, Deputy Director, Lee M. Straus, Attorney, and John N. Kane, Jr., Attorney.

Before MICHEL, Chief Judge,^* NEWMAN and PROST, Circuit Judges.

PROST, Circuit Judge.

Home Savings of America, FSB ("Home") is a wholly-owned subsidiary of H.F. Ahmanson & Co. ("Ahmanson"). Home was engaged in the savings and loan business at the time of the transactions involved in this appeal. In these transactions, Home purchased a number of failing thrifts between 1981 and 1985. The parties and the United States Court of Federal Claims refer to these transactions as the Florida/Missouri transaction, the Illinois/Texas transaction, the Century transaction, and the Ohio transaction, and we adopt this terminology as well. In the Ohio transaction, Home acquired one federally insured thrift, as well as several thrifts that were insured by the state of Ohio (the "Ohio-insured thrifts"). In the other transactions, all acquired thrifts were federally insured.

Home and Ahmanson sued the government for breach of a contractual agreement to accord them favorable accounting treatment with respect to all of these acquisitions. Specifically, Home and Ahmanson claimed that the government had promised to allow Home to count supervisory goodwill from those acquisitions toward its federally mandated minimum level of capitalization. The government denied that it had made a binding promise and that Ahmanson had standing to seek damages for breach of an alleged promise made solely to Home.

The Court of Federal Claims issued three published opinions in this matter. In the first decision, the court granted summary judgment to the plaintiffs that the government breached its promise to count supervisory goodwill. Home Sav. of Am., F.S.B. v. United States, 50 Fed. Cl. 427, 439, 442 (2001) ("Home I"). At the same time, the court also granted summary judgment to the government regarding the Ohio-insured thrifts, reasoning that the Federal Home Loan Bank Board ("FHLBB") did not have statutory authority to promise that Home could count supervisory goodwill from its purchase of the Ohio-insured thrifts. Id. at 441-42. In the second opinion, the Court of Federal Claims denied the government's motion for summary judgment based on Ahmanson's alleged lack of standing. Home Sav. of Am., F.S.B. v. United States, 51 Fed. Cl. 487, 497-500 (2002) ("Home II"). Finally, the Court of Federal Claims conducted a bench trial on damages and awarded $134,045,000 to the plaintiffs. Home Sav. of Am., F.S.B. v. United States, 57 Fed. Cl. 694 (2003) ("Home III").

The government appeals the rulings on standing, breach, and damages. Home and Ahmanson cross-appeal the court's grant of summary judgment relating to the government's authority to promise supervisory goodwill for the Ohio-insured thrifts. We affirm each of the directly appealed rulings. With respect to the cross-appeal, we vacate the summary judgment and remand to the Court of Federal Claims for further proceedings regarding the Ohio-insured thrifts.

I. BACKGROUND

A. The Savings and Loan Crisis

The series of events generally known as the "Savings and Loan Crisis" began to unfold in the late 1970s and early 1980s. Squeezed by the dual pressures of inflation and high interest rates, many savings and loan institutions, or thrifts, failed during that period of time. The Federal Savings and Loan Insurance Corporation ("FSLIC"), although legally committed to compensating depositors whose savings were lost, lacked sufficient funds to bail out all of the failing thrifts. To mitigate FSLIC's insurance liability, FHLBB began to encourage healthy thrifts to take over troubled ones by offering them special accounting treatment, according to which they would be permitted to count supervisory goodwill¹ toward meeting their reserve capital requirements. Allowing the acquiring thrifts to count supervisory goodwill functioned as a substitute for a cash inducement from FSLIC to acquire a failing thrift and assume its liabilities.²

B. Relevant Transactions

Home acquired a total of seventeen thrifts in the four transactions at issue in this appeal. An "Assistance Agreement" signed by FSLIC and Home accompanied each transaction. Home I, 50 Fed. Cl. at 430-33. The Florida/Missouri and Illinois/Texas Assistance Agreements contained clauses that integrated FHLBB resolutions and letters issued contemporaneously with the agreements. Id. at 430-32. The Century and Ohio Assistance Agreements also integrated specific FHLBB resolutions addressed to the respective transactions.³ Id. at 432-33.

For each transaction, Ahmanson sought federal assistance to mitigate the liabilities its subsidiary, Home, was assuming by taking over these thrifts. In response, FHLBB stated in the Florida/Missouri and Illinois/Texas Resolutions that Home could count supervisory goodwill from each transaction toward its reserve capital requirement. Id. at 431-32. FHLBB also issued net worth deficiency forbearances contemporaneously with the Century and Ohio transactions stating that FSLIC would not take action against Home for failing to meet reserve capital requirements as a result of Home's assumption of liabilities in those transactions. Id. at 432-34. Later the government enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), which breached various agreements by the government to allow thrifts to count supervisory goodwill. See Winstar, 518 U.S. at 856-68, 116 S.Ct. 2432.

Alleging such a breach, Home and Ahmanson brought suit in the Court of Federal Claims. The court found the government liable with respect to all the transactions except the acquisition of four state-insured thrifts that were included in the Ohio transaction. For those acquisitions, the Court of Federal Claims held that FHLBB was not authorized to promise to allow Home and Ahmanson to count supervisory goodwill because these institutions were not insured by FSLIC. In particular, the Court of Federal Claims held, 12 U.S.C. § 1725(c)'s general authorization to make contracts does not apply to contracts regarding supervisory goodwill because such contracts are specifically covered under 12 U.S.C. § 1729(f). Home I, 50 Fed. Cl. at 441-42.

In ruling on the government's motion for summary judgment on the standing issue, the Court of Federal Claims rejected the government's contention that Ahmanson did not have standing to sue because it was not in privity of contract. The government had argued that only Home was a party to the contract, and that Home did not suffer any damages because only Ahmanson had to raise capital as a result of the breach. The court acknowledged that only Home, and not Ahmanson, signed the Assistance Agreements, which had a "sole benefit" clause limiting their applicability to third parties. The court concluded, however, that in each merger the Assistance Agreement was a part of a larger transaction to which Ahmanson was a party. It based this conclusion on Ahmanson's initiation of the negotiation process by seeking FHLBB approval of Home's acquisitions and its promise to maintain the net worth of Home above regulatory minimums. Home II, 51 Fed. Cl. at 497-99. Thus, according to the Court of Federal Claims, Ahmanson and the government had made a mutual agreement to support Home in its takeover of failing thrifts. Id. at 499.

At the damages stage, the government argued that Generally Accepted Accounting Principles ("GAAP"), requiring a shortened amortization period, applied with respect to the Century and Ohio transactions,⁴ but the Court of Federal Claims found that FHLBB promised to allow a forty-year supervisory goodwill amortization period. Home III, 57 Fed. Cl. at 702-06. In calculating damages, the Court of Federal Claims awarded Ahmanson the costs of replacing the lost supervisory goodwill with cash through various financings and retention of earnings. Id. at 709-28. However, to offset the incidental benefit the plaintiffs derived from obtaining "tangible capital" to replace intangible supervisory goodwill, the court discounted the damages by the rate paid on an intermediate-term Treasury bond. Id. at 722-24. The resulting award of $80,936,000 was "grossed up" to $134,045,000 to compensate for the taxes Ahmanson's present parent company, Washington Mutual, would pay on the award. Id. at 730-31.

II. DISCUSSION

A. Standard Of Review

We review a trial court's decisions on summary judgment and conclusions of law without deference. Comtrol, Inc. v. United States, 294 F.3d 1357, 1362 (Fed.Cir.2002); Alger v. United States, 741 F.2d 391, 393 (Fed.Cir.1984). Summary judgment is appropriate when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). We review the court's findings of fact under the deferential clearly erroneous standard. Anderson v. City of Bessemer City, 470 U.S. 564, 573-76, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985); Landmark Land Co. v. FDIC, 256 F.3d 1365, 1373 (Fed.Cir.2001).

Different standards of review are applicable to different aspects of a damages award. This court has held that "the amount of a prevailing party's damages is a finding...