Anchor Sav. Bank v. United States

• Decision Date: 18 May 2015
• Docket Number: No. 95-39 C,95-39 C
• Parties: ANCHOR SAVINGS BANK, FSB, Plaintiff, v. THE UNITED STATES OF AMERICA, Defendant.
• Court: U.S. Claims Court

ANCHOR SAVINGS BANK, FSB, Plaintiff, v. THE UNITED STATES OF AMERICA, Defendant.

No. 95-39 C

United States Court of Federal Claims

May 18, 2015

Winstar; Breach of Contract; RCFC 12(b)(1); Standing; Successor in Interest; Assignment of Claims Act; Mitigation Costs; Tax Gross-Up

Edwin L. Fountain, Jones Day, Washington, DC, attorney of record for plaintiff, with whom were George T. Manning, Adrian Wager-Zito and Debra S. Clayman.

Jacob A. Schunk and Amanda L. Tantum, United States Department of Justice, Commercial Litigation Branch, Civil Division, Washington, DC, for defendant, with whom were Scott D. Austin, Sameer Yerawadekar and Vincent D. Phillips.

OPINION and ORDER

Block, Judge.

This Winstar case is before the court on remand to clarify the court's calculation of mitigation costs. This court previously awarded plaintiff Anchor Savings Bank, FSB ("Anchor")¹ $356,454,910.91 in damages, including net lost profits, damages from reduced stock proceeds, mitigation costs, damages from branch sales, and "wounded bank" damages. Anchor Savings Bank, FSB v. United States, 81 Fed. Cl. 1 (2008) ("Anchor III"). Defendant appealed that judgment and plaintiff filed a cross-appeal, arguing that it is entitled to mitigation costs of $249,091,000.00 rather than $185,900,000.00.

On May 10, 2010, the United States Court of Appeals for the Federal Circuit ("Federal Circuit") denied defendant's appeal and affirmed, in part, this court's judgment. Anchor Sav. Bank v. United States, 597 F.3d 1356 (Fed. Cir. 2010) ("Anchor IV"). The Federal Circuit, unsure ofthe basis for this court's calculation of mitigation costs, remanded the case for clarification of this issue. Id. at 1373-74.

Consideration of this issue has been delayed by defendant's motion to dismiss, which is predicated on complications arising out of the closure of Washington Mutual Bank ("WMB"), the successor in interest to Anchor's claim, while this case was still on appeal before the Federal Circuit. During the height of the global financial crisis, WMB was seized by its regulator, the Office of Thrift Supervision ("OTS"), in what has been described as "the largest bank failure in U.S. history."² On September 25, 2008, the very day on which OTS seized WMB and placed it into a receivership with the Federal Deposit Insurance Corporation ("FDIC"), the FDIC sold substantially all of WMB's assets to JPMorgan Chase Bank, N.A. ("JPMC") for $1.8 billion, pursuant to a purchase and assumption agreement. Although both the FDIC and JPMC agree that the Anchor litigation had been conveyed to JPMC under the terms of this agreement, defendant claims, in its motion to dismiss, that the terms of the agreement did not encompass the Anchor litigation, and that the FDIC is still the real party in interest. Defendant, accordingly, asserts that JPMC was not injured by the government's conduct and hence lacks standing to litigate this matter. In the alternative, defendant argues that the Assignment of Claims Act, 31 U.S.C. §§ 3727(a)(1), (b), prohibits any attempted transfer of the Anchor claim, despite the fact that the assignment at issue was made by the government rather than a third party.

Several weeks after filing its motion to dismiss, defendant filed a motion for judicial notice, appending an avalanche of attachments from other cases that purportedly support its motion to dismiss. Apparently unsatisfied by these extraneous submissions, defendant requests the court to further delay proceedings by allowing additional discovery to determine who the real party in interest is. Also before the court are plaintiff's motion for correction of the award of mitigation costs, plaintiff's motion for award of a tax gross-up, and defendant's motion to dismiss plaintiff's bill of costs.

These motions are finally ripe for judgment. For the reasons set forth below, the court denies defendant's motion to dismiss and denies defendant's request for additional discovery. The court grants defendant's unopposed motion for judicial notice but finds these documents only tangentially relevant. The court grants plaintiff's motion for correction of mitigation costs, and holds that plaintiff is entitled to a tax gross-up of these additional damages. But the court stays plaintiff's motion to calculate the tax gross-up until plaintiff provides further accounting information. Finally, the court finds that plaintiff's bill of costs is premature and, accordingly, grants defendant's motion to dismiss plaintiff's bill of costs.

I. RELEVANT FACTS

A. Anchor Expanded During the 1980s by Contracting with the Government To Acquire Failing Thrifts, in Exchange for "Supervisory Goodwill"

The particular facts of this case have been set forth exhaustively in Anchor, 81 Fed. Cl. at 6-51 ("Anchor III"). The following is a brief account of those facts that are pertinent to the motions before the court.

This litigation, like other Winstar cases, arose out of the shifting responses of the United States to the savings and loan crisis of the late 1970s and early 1980s, which were chronicled at length by the Supreme Court in United States v. Winstar Corp., 518 U.S. 839 (1996) and by this court in Anchor III. During that period, the profitability of thrifts was threatened by a rising "interest rate gap," in which the amount of interest the thrifts had to pay on short term deposits exceeded the revenue they could generate from long-term, fixed-rate mortgage assets, which had been acquired during times of lower inflation. Federal regulations limiting the amount of interest thrifts could offer for customer deposits also undermined thrifts. As inflation rose rapidly in the mid-1970s, customers began to shift their money from thrifts to alternative investment vehicles that were not restricted by federal regulations and could offer higher interest rates. These developments threatened to collapse the savings and loan industry and to place a heavy financial burden on the federal government, which insured most of the thrifts' depositors. See Anchor III, 81 Fed. Cl. at 8-12; William K. Black, Ending Our Forebearers' Forbearances: FIRREA and Supervisory Goodwill, 2 STAN. L. & POL'Y REV. 102, 103 (1990).

To help avert this crisis, the Federal Savings and Loan Insurance Corporation ("FSLIC"), with the cooperation of the Federal Home Loan Bank Board ("FHLBB"), the principal regulator of the thrifts, sought to "buy time" by rolling back capital reserve requirements³ and by adopting "regulatory accounting principles," which were considerably more lenient than the generally accepted accounting principles ("GAAP"). See Anchor III, 81 Fed. Cl. at 13-14, 28-29.

FSLIC and FHLBB also sought to induce healthy financial institutions like Anchor to acquire failing thrifts by offering both cash and "supervisory goodwill," an intangible accounting credit that was equal to the negative net worth of the failing thrift and could be applied toward the acquiring institution's capital reserve requirement. See Anchor III, 81 Fed. Cl. at 13-14, 28-29; Black, Ending Our Forebearers' Forbearances, 2 STAN. L. & POL'Y REV. at 103-04. This amelioration policy became controversial, especially as the thrift crisis persisted.⁴

Between 1982 and 1985, Anchor absorbed eight such failing thrifts, consequently acquiring over $550 million in net liabilities. Id. at 27. The terms of these "supervisory mergers" were set forth in a series of "forbearance agreements," in which the FHLBB and FSLIC agreed, amongother things, to allow Anchor to "count the target institution's excess liabilities as a capital asset for regulatory purposes until the supervisory goodwill had fully amortized." Id. This favorable accounting treatment was essential to the bargain, as Anchor would not otherwise have been able to acquire these thrifts. Id. at 28. Moreover, it is worth emphasizing that at the outset, many of these acquisitions were made at the specific request of the FSLIC. See Winstar, 518 U.S. at 847 n.3; Anchor III, 81 Fed. Cl. at 12-15.

In order to address the liabilities that it had assumed with these acquisitions, Anchor adopted a long term asset restructuring program, with an emphasis on reducing its exposure to interest rate risk by "expanding into diverse streams of revenue that were less interest-rate sensitive." Anchor III, 81 Fed. Cl. at 32. An essential part of this effort was the acquisition of Residential Funding Corporation ("RFC") in 1988, which was the largest issuer of private mortgage-backed securities ("MBS") at the time. Id. at 34. This acquisition allowed Anchor to greatly expand its mortgage-banking business. Id. Since much of the income from the issuance of MBS stemmed from origination and servicing fees, the acquisition of RFC provided Anchor with a means to greatly reduce its exposure to interest rate risk. Id. at 32.

By 1989, RFC was already exceeding profitability expectations, generating between $12 and $15 million in net annual profits, and was poised to continue realizing Anchor's risk diversification strategy. Id. at 61. But Anchor's long-term plan for RFC never had a chance to come to fruition due to the passage of the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA"), Pub. L. 101-73, 103 Stat. 183 (1989). Id.

B. The Passage of FIRREA Breached the Terms of Anchor's Forbearance Agreements by Rescinding Favorable Accounting Treatment, Preventing Anchor from Meeting Its Capital Reserve Requirements

Despite the regulators' efforts to save the thrift industry by relaxing regulatory standards and encouraging supervisory mergers, the savings and loan crisis continued unabated. Anchor III, 81 Fed. Cl. at 20. The persistence of this crisis sparked a concern in Congress that looser capital requirements had encouraged excessive risk taking and that inadequate capitalization had exposed the deposit insurance fund to huge potential losses. H. Conf. Rep. No. 222, 101^st Cong., 1^st Sess. 310, 1989 432, 443; see also Winstar, 518 U.S. at 846 ("The use of various...