Hometown Financial, Inc. v. U.S.

• Citation: 409 F.3d 1360
• Decision Date: 27 May 2005
• Docket Number: No. 04-5116.,04-5116.
• Parties: HOMETOWN FINANCIAL, INC., and Continental Financial Holdings, Inc., Plaintiffs-Appellees, v. UNITED STATES, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

409 F.3d 1360

HOMETOWN FINANCIAL, INC., and Continental Financial Holdings, Inc., Plaintiffs-Appellees, v. UNITED STATES, Defendant-Appellant.

No. 04-5116.

United States Court of Appeals, Federal Circuit.

May 27, 2005.

COPYRIGHT MATERIAL OMITTED

James H. Falk, Jr., Epstein Becker & Green, P.C., of Washington, DC, argued for claimants-appellees. With him on the brief was James H. Falk, Sr.

Jeffrey T. Infelise, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were Stuart E. Schiffer, Deputy Assistant Attorney General, and David M. Cohen, Director, Jeanne E. Davidson, Deputy Director, and Richard B. Evans, Attorney.

Before LOURIE, CLEVENGER, and LINN, Circuit Judges.

CLEVENGER, Circuit Judge.

The United States appeals from the decision of the Court of Federal Claims awarding Hometown Financial, Inc., and Continental Financial Holdings, Inc., (collectively "Hometown") $2,050,000 for breach of contract. Because there is a contract between the plaintiffs and the government, because the contract does not shift the risk of regulatory change to the plaintiffs, and because the government cannot demonstrate clear error in the trial court's conclusion that there was no prior material breach on the part of the plaintiffs, we affirm.

I

This is a Winstar-type case. See United States v. Winstar Corp., 518 U.S. 839, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996). The judgment and underlying findings and decisions from which the United States appeals can be found in three Court of Federal Claims opinions. See Hometown Fin., Inc. v. United States, 60 Fed. Cl. 513 (2004) ("Hometown III"); Hometown Fin., Inc. v. United States, 56 Fed. Cl. 477 (2003) ("Hometown II"); Hometown Fin., Inc. v. United States, 53 Fed. Cl. 326 (2002) ("Hometown I"). As set forth in more detail in Hometown I, the transaction at issue involved the voluntary supervisory conversion of Hometown Federal Savings and Loan into Hometown Federal Savings Bank. See 53 Fed. Cl. at 328-33. The conversion was based on two business plans, which generally called for the formation of a holding company and interim thrift, which would merge with the Savings and Loan to leave a single surviving institution controlled by the investors. Id. The plans contained a list of regulatory forbearances, which the investors requested from regulators before agreeing to provide the required capital. In particular, the investors sought to use the goodwill created by the conversion to meet regulatory capital requirements. Id.

The Federal Home Loan Bank Board ("FHLBB") approved the conversion on June 28, 1988. See FHLBB Resolution No. 88-513. Approval was made contingent on the execution by the holding company of a Regulatory Capital Maintenance Agreement ("RCMA") and the execution by the holding company's major shareholder (Continental Financial) of a Regulatory Capital Maintenance/Dividend Agreement ("RCMDA"). Id. The documents were executed, and the conversion completed.

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. No. 101-73, 103 Stat. 183 ("FIRREA"), was passed on August 9, 1989. Consequently, as reflected in an Office of Thrift Supervision Report of Examination: "As a result of the new FIRREA legislation all forbearances have been eliminated, and the Institution now fails all three capital requirements." See Hometown FSB OTS Report of Examination, January 16, 1990 (emphasis added). Thus, due to the passage of FIRREA, the Office of Thrift Supervision deemed Hometown Federal Savings Bank "insolvent." Id. When Hometown (the plaintiffs) refused to infuse more capital to meet the post-FIRREA capital requirements, Hometown Federal Savings Bank was placed in receivership. 53 Fed. Cl. at 331-32.

Hometown sued and, relevant to this appeal, asserted that by the passage of FIRREA, the elimination of forbearances, and the seizure of Hometown Federal Savings Bank, the government was liable for damages under a theory of breach of contract.

In Hometown I, addressing cross-motions for partial summary judgment on liability, the Court of Federal Claims held that a contract was formed between the plaintiffs and the government. Id. at 335-36. The court determined that the plaintiffs' fulfilled promise to infuse $2,050,000 into the converted institution was made in exchange for the forbearances and the treatment of goodwill offered by the FHLBB. Id. The court found that Hometown had not, like the plaintiffs in Guaranty Financial Services, Inc. v. Ryan, 928 F.2d 994 (11th Cir.1991), contractually assumed the risk of the effect of regulatory change. 53 Fed. Cl. at 336-37. Rather, the court held that by contract the parties had for a five-year period reserved to the government the risk of regulatory change affecting goodwill and forbearances. Id. Observing that FIRREA was passed within the five-year period and "unquestionably took away those forbearances and the promised use of goodwill," the court concluded that the government had breached the agreement. Id. at 337.

In Hometown II, the Court of Federal Claims addressed the government's summary judgment motion with respect to Hometown's damages claims. The court denied the government's motion as it related to restitution damages, determining that restitution in the amount of $2,050,000 was appropriate because that amount reflected the benefit conferred by Hometown on the government. 56 Fed. Cl. at 484-85. The court granted the government's motion as it related to expectancy damages, or lost profits, because such damages arose from an injury to the corporation and not to the shareholders directly. Id. at 486-87.

After conducting a trial, the Court of Federal Claims held in Hometown III that Hometown had not materially breached its contract with the government, and accordingly, the government was not absolved from liability for its breach. 60 Fed. Cl. at 517-22.

The government appeals, and we review a decision of the Court of Federal Claims pursuant to 28 U.S.C. § 1295(a)(3) (2000).

II

We review the grant of summary judgment de novo, viewing all factual inferences in favor of the nonmovant. See Anderson v. United States, 344 F.3d 1343, 1349 (Fed.Cir.2003). We otherwise review conclusions of law of the Court of Federal Claims de novo, while reviewing findings of fact made by the Court of Federal Claims for clear error. See Glendale Fed. Bank, FSB v. United States, 239 F.3d 1374, 1379 (Fed.Cir.2001).

III

The first issue we must decide is whether a contract came into existence between the government and the plaintiffs. The existence of a contract is a mixed question of law and fact. See Anderson, 344 F.3d at 1349. To prove the existence of a contract with the government, a plaintiff must prove four basic elements: (1) mutuality of intent to contract; (2) offer and acceptance; (3) consideration; and (4) a government representative having actual authority to bind the United States. See Cal. Fed. Bank, FSB v. United States, 245 F.3d 1342, 1346 (Fed.Cir.2001).

In this case, the government challenges the findings of the Court of Federal Claims concerning elements (1) and (4). In particular, the government contends that no contract was formed because government regulators had no authority to make a promise to Hometown concerning the treatment of goodwill, and, alternatively, because the parties did not have the shared intent to contract for the treatment of goodwill. Hometown disagrees, asserting that authority existed for the government to make a promise concerning the treatment of goodwill, and that there is ample objective evidence that the parties did have a shared intent concerning the treatment of goodwill. We discern no reversible error in the decision of the Court of Federal Claims, and therefore agree with Hometown.

A

As we previously set forth in California Federal, government regulators, and in terms of this case, particularly the FHLBB and Federal Savings and Loan Insurance Corporation ("FSLIC"), have authority to bargain for and enter into contracts in which the government promises the favorable regulatory treatment of goodwill in exchange for the assumption of the net liabilities of a failing thrift:

We have already answered the question of whether the FHLBB and the FSLIC have the authority to enter into contracts like these in the affirmative. [Winstar Corp. v. United States, 64 F.3d 1531, 1548 (Fed.Cir.1995) (Winstar II)] Since its inception, the FSLIC has had the authority under 12 U.S.C. § 1725(c)(3) to make contracts. Id. Further, both the FSLIC and its supervisory agency, the FHLBB, have had the authority both to extend assistance to acquirers of insolvent FSLIC-insured thrifts, 12 U.S.C. § 1729(f)(2)(A) (repealed), and to set minimum capital limits on a case-by-case basis, 12 U.S.C. § 1730(t)(2) (repealed).

Cal. Fed., 245 F.3d at 1347 (internal quotes omitted).

This holding was recently reaffirmed following a government challenge that it was erroneous in light of our decision in Schism v. United States, 316 F.3d 1259 (Fed.Cir.2002) (en banc). See Cal. Fed. Bank v. United States, 395 F.3d 1263, 1274-75 (Fed.Cir.2005). In reevaluating and rejecting for a second time the government's argument that the FHLBB did not have authority to enter contracts regarding treatment of goodwill that were binding on the government, we relied on the Supreme Court's analysis in Winstar, which, as set forth at 395 F.3d at 1274, states:

There is no question . . . that the Bank Board and FSLIC had ample statutory authority to do what the Court of Federal Claims and the Federal Circuit found they did do, that is, promise to permit respondents to count supervisory goodwill and capital credits toward regulatory capital and to pay respondents' damages if that performance became impossible.

The remainder of our analysis of the Winstar opinion makes unequivocally clear that we are bound by the...