Anderson v. U.S.

• Decision Date: 25 September 2003
• Docket Number: No. 03-5030.,No. 03-5009.,03-5009.,03-5030.
• Citation: 344 F.3d 1343
• Parties: Donald K. ANDERSON, Angel Cortina, Jr., and Patricia B. Wallace, Plaintiffs, and David Joshua Paul, David L. Paul, and Michael Morgan Paul, Plaintiffs-Appellants, and Federal Deposit Insurance Corporation, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

344 F.3d 1343

Donald K. ANDERSON, Angel Cortina, Jr., and Patricia B. Wallace, Plaintiffs, and David Joshua Paul, David L. Paul, and Michael Morgan Paul, Plaintiffs-Appellants, and Federal Deposit Insurance Corporation, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.

No. 03-5009.

No. 03-5030.

United States Court of Appeals, Federal Circuit.

Decided September 25, 2003.

COPYRIGHT MATERIAL OMITTED

Thomas D. Allen, Wildman, Harrold, Allen & Dixon, of Chicago, Illinois, argued for plaintiffs-appellants David Joshua Paul, et al. With him on the brief were Thomas M. Lynch, Ariel F. Kernis, and Melissa M. Riahei.

Ellis Merritt, Jr., Attorney, Federal Deposit Insurance Corporation, Legal Division, of Dallas, Texas, argued for plaintiff-appellant Federal Deposit Insurance Corporation. On the brief were John V. Thomas, Associate General Counsel; and Jon A. Stewart, Attorney, FDIC, of Washington, DC. Of counsel were Andrew C. Gilbert, John M. Dorsey, III, and Dorothy A. Doherty, Attorney, FDIC, Washington, DC.

Colleen A. Conry, Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for defendant-appellee. With her on the brief were Stuart E. Schiffer, Deputy Assistant Attorney General; David M. Cohen, Director; Jeanne E. Davidson, Deputy Director; Scott D. Austin, Gregory R. Firehock, and John J. Hoffman, Trial Attorneys. Of counsel was William F. Ryan, Assistant Director.

Before LOURIE, CLEVENGER, and RADER, Circuit Judges.

CLEVENGER, Circuit Judge.

In this Winstar-related case, David L. Paul, David Joshua Paul, and Michael Morgan Paul appeal the Court of Federal Claims' grant of summary judgment in favor of the government. Anderson v. United States, 47 Fed. Cl. 438 (2000). The Federal Deposit Insurance Corporation also appeals the dismissal for failure to satisfy the case or controversy requirement. Anderson v. United States, 47 Fed. Cl. 438, 2000 WL 1222168 (Fed.Cl. Aug.14, 2000). For the reasons discussed in this opinion, we affirm.

I

A

The history and circumstances surrounding the thrift crisis of the early 1980s and the resulting enactment of the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183 (1989), have been extensively discussed in opinions of the Supreme Court, see United States v. Winstar Corp., 518 U.S. 839, 843-858, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996), and of this court, see, e.g., Cal. Fed. Bank, F.S.B. v. United States, 245 F.3d 1342 (Fed.Cir.2001); Glendale Fed. Bank, F.S.B. v. United States, 239 F.3d 1374 (Fed.Cir.2001). We provide a brief summary for the sake of completeness and to set the stage for the decision that follows.

In the late 1970s and early 1980s, soaring interest rates and inflation had a devastating effect on the savings and loan industry. To compete for and attract funds in that financial climate, thrifts had to pay high interest rates for short-term deposits. Winstar, 518 U.S. at 845, 116 S.Ct. 2432. However, the cost of these liabilities soon exceeded the thrifts' income from their principal assets, which were long-term fixed-rate home mortgages created when interest rates were low. Id. More than 400 thrifts declared bankruptcy between 1981 and 1983, and many more were on the verge of insolvency. Id. The multitude of failed thrifts was threatening to exhaust the insurance fund of the Federal Savings and Loan Insurance Corporation ("FSLIC"), which insured consumer deposits in thrifts. Id. at 846-47, 116 S.Ct. 2432.

In response to that crisis, the Federal Home Loan Bank Board (the "Bank Board"), the federal regulatory agency responsible for overseeing federally chartered savings and loans, encouraged healthy thrifts and outside investors to purchase insolvent thrifts in a series of "supervisory mergers." Id. at 847, 116 S.Ct. 2432. To induce those mergers and to allow those acquisitions to proceed without the acquiring thrifts immediately becoming insolvent upon completion of the transaction, the Bank Board offered certain financial incentives. Id. at 848-50, 116 S.Ct. 2432. The most important incentive was the accounting treatment of "supervisory goodwill," a term for the difference between the market value of the acquired entity's liabilities and assets. Id. at 849-50, 116 S.Ct. 2432. This use of supervisory goodwill was attractive to healthy thrifts and outside investors for two main reasons. First, the Bank Board often permitted the acquiring thrifts to count supervisory goodwill toward their reserve capital requirements. Id. at 850, 116 S.Ct. 2432. Second and more pertinent to this case, the regulators would in some instances permit the goodwill to be amortized over a long period of time while the thrift could recognize accretion income over a shorter period through purchase accounting, thus allowing the thrift to appear more profitable than it was in fact. Id. at 850-53, 116 S.Ct. 2432. Given the advantages of these incentives and the inherent risks of substantially deviating from Generally Accepted Accounting Principles ("GAAP"), those arrangements were the subject of express agreements between the regulators and the acquiring institutions. Id. at 853-56, 116 S.Ct. 2432. Despite such arrangements, the savings and loan industry remained in crisis.

In response, Congress enacted FIRREA in 1989 to prevent the collapse of the industry, to attack the causes of the crisis, and to restore public confidence. Id. at 856, 116 S.Ct. 2432. FIRREA abolished the Bank Board and FSLIC, transferred thrift insurance activities to the Federal Deposit Insurance Corporation ("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, the statute required thrifts to maintain a set minimum capital requirement and prohibited the use of supervisory goodwill. Id. at 857, 116 S.Ct. 2432. Based on that statutory mandate, the OTS promptly promulgated regulations enforcing FIRREA and denying the continued use of supervisory goodwill in the thrifts' accounting procedures. Id. The impact of the new statute and regulations was swift and severe. In the wake of FIRREA, many thrifts rapidly fell out of compliance with regulatory capital requirements and were seized by regulators. Id. at 857-58, 116 S.Ct. 2432.

These events spawned hundreds of lawsuits in which the acquirers of ailing thrifts sued the United States, alleging, inter alia, that by enacting FIRREA the government breached contracts with the thrifts promising particular regulatory treatment. Id. at 858-59, 116 S.Ct. 2432. Eventually, in Winstar, the Supreme Court upheld this court's en banc determination that documents executed by government regulators and the acquiring thrifts in connection with the supervisory mergers at issue constituted enforceable agreements. Id. at 859-60, 116 S.Ct. 2432. Since then, we have reviewed a number of other appeals involving the same breach of contract cause of action. See, e.g., D & N Bank v. United States, 331 F.3d 1374 (Fed.Cir.2003); Castle v. United States, 301 F.3d 1328 (Fed. Cir.2002); Bluebonnet Sav. Bank, F.S.B. v. United States, 266 F.3d 1348 (Fed.Cir.2001). This is another such case.

B

Dade County Savings and Loan Association ("Dade S & L"), a Florida-chartered and federally insured mutual savings and loan association, was one of the many ailing thrifts in the early 1980s. In 1982, Dade S & L agreed to be acquired by The Westport Company ("Westport"), and consummated the merger by entering into a Reorganization and Purchase Agreement executed on October 1, 1982. Anderson, 47 Fed. Cl. at 442. As part of this agreement, Dade S & L converted from a mutual to a capital stock association, and then sold all of its shares to Westport in exchange for an infusion of assets and capital. Id. Through this arrangement, Dade S & L fell into the control of David L. Paul, Westport's CEO and majority shareholder, and of a trust set up for the benefit of his sons, David Joshua Paul and Michael M. Paul. Id.

Before the reorganization and conversion could proceed, Westport and Dade S & L had to obtain the approval of the Bank Board. Thus, Westport submitted to the Bank Board an Application for Supervisory Conversion, which stated that supervisory conversion was Dade S & L's only available option and requested "certain supervisory forbearances, waivers, findings and determinations." Id. at 443. After the submission of a series of amendments, including the substitution of David L. Paul and Robert Paul (as trustee for the Paul sons) for Westport, id. at 443 n. 6, the Pauls and Westport continued to request permission to use the purchase method of accounting to amortize goodwill over a period of 40 years. Id. at 443.

The Bank Board staff analyzed the Application over a period of a few months and considered the request to amortize goodwill on a straight-line basis. However, the Bank Board staff recommended against granting the request to amortize goodwill according to non-GAAP procedures, because it "believe[d] that Dade's accounting for GAAP and RAP (regulatory accounting) reporting should be identical except for the amount reported for the equity investment in Westport." Memorandum from Mark Bundle, Regional Director of the Bank Board Office of Examinations and Supervision, to Julie Williams, Director of the Bank Board Security Division of the Office of the Gen. Counsel (Aug. 31, 1983), at 8. The Bank Board staff only recommended one substantive forbearance:

In an August 24, 1983 letter (copy attached) from counsel for Westport and Mr. Paul, a request is made for forbearance, for a five-year period from the FSLIC exercising its authority under Insurance Regulation 563.13(c) with respect to Dade's failure to meet its net worth...