Mola Development Corporation v. U.S.

Decision Date25 February 2008
Docket NumberNo. 2007-5080.,No. 2007-5058.,2007-5058.,2007-5080.
PartiesMOLA DEVELOPMENT CORPORATION, Plaintiff-Appellant, v. UNITED STATES, Defendant-Cross Appellant.
CourtU.S. Court of Appeals — Federal Circuit

Paul R. Franke, III, Franke Greenhouse List & Lippitt LLP, of Denver, CO, argued for plaintiff-appellant.

Sameer P. Yerawadekar, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-cross appellant. With him on the brief were Michael F. Hertz, Deputy Assistant Attorney General, Jeanne E. Davidson, Director, and Kenneth M. Dintzer, Assistant Director.

Before NEWMAN, Circuit Judge, CLEVENGER, Senior Circuit Judge, and DYK, Circuit Judges.

Opinion for the court filed by Circuit Judge DYK. Circuit Judge NEWMAN concurs in part and dissents in part.

DYK, Circuit Judge.

This is a Winstar breach of contract case. See United States v. Winstar Corp., 518 U.S. 839, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996). Appellant Mola Development Corporation ("Mola") owned a controlling interest in Charter Savings Bank ("Charter"). Merit Savings Bank ("Merit") merged into Charter in 1988. After the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. No. 101-73, 103 Stat. 183 (1989) ("FIRREA"), the merged institution was seized and liquidated' for failure to comply with FIRREA's regulatory capital requirements. Mola urges on appeal that a contract existed between Mola and the government with respect to the treatment of regulatory goodwill and that there was a taking. The government's cross-appeal asserts a statute of limitations defense. Because we reject the government's limitations defense and conclude that there was no contract concerning the treatment of regulatory goodwill and no taking, we affirm the judgment of the Court of Federal Claims.

BACKGROUND

Mola entered the financial services business in 1984 by acquiring a controlling stake in a financially troubled savings and loan, Orange Coast Savings and Loan Association, which it renamed as Charter after the acquisition. After this successful merger, in 1987, Mola hired consultants to identify another troubled financial institution that could serve as a suitable merger partner for Charter. In 1986, the government expressed concern about the financial condition of Merit, and, on December 15, 1987, it proposed that Merit be placed on a bidding schedule for sale in June 1988. In November 1987, Mola's consultants selected Merit as the best merger partner for Charter, and in December 1987 Mola and Charter advised Merit's board of directors of Mola's interest in having Merit merge into Charter. Mola notified the government of the proposed transaction the next day. Mola and Merit entered into a formal agreement regarding the terms of a merger between Merit and Charter on January 15, 1988.

Thereafter, in early 1988, representatives of Mola and the government discussed the terms for regulatory approval of the proposed merger, which required authorization by the Federal Home Loan Bank Board ("FHLBB"). At these meetings, Mola requested that the government classify the merger as supervisory and that it allow Mola to make a non-cash contribution, rather than contributing cash, to bring the merged entity into compliance with capital requirements. Neither request was granted at that time, and the government representatives indicated opposition to allowing Mola to fund the merged entity through a non-cash contribution.

Mola and Charter filed a formal application with the FHLBB seeking approval of the proposed merger between Charter and Merit on April 19, 1988. Among other provisions, the application provided for use of the purchase method of accounting and amortization of any resulting goodwill over a period not to exceed twenty-five years, provisions which were consistent with Generally Accepted Accounting Principles ("GAAP") and standard FHLBB policy at the time, and that required no regulatory forbearances. The merger application also included a list of six regulatory forbearances requested by Mola and Charter, none of which concerned the regulatory treatment of goodwill.

The government and Mola continued to disagree as to the level of cash contribution that would be required from Mola to complete the merger. On May 20, 1988 the government indicated that the merger would be approved only with a cash contribution sufficient to meet regulatory minimum capital levels. The government indicated that it would not accept any of Mola's six requested forbearances, and explicitly indicated that "Charter' will maintain capital at minimum required levels without the non-cash contribution." J.A. at 200404. The government denied Mola's request for a new forbearance to exclude operating and capital losses and other liabilities assumed due to the acquisition of Merit from the calculation of the amount of cash required to bring the merged entity into regulatory compliance. Mola also requested that the merger be officially designated as supervisory, which as Mola indicated in a telephone call to the FHLBB on May 24, 1988, it was seeking in order to facilitate "use of net operating losses for tax purposes." Id. at 200404-05.

On June 24, 1988, the FHLBB, by letter, gave preliminary approval for the merger between Charter and Merit, and the merger closed on July 29, 1988, although no formal resolution was adopted by the FHLBB to approve the merger. The government classified the merger as supervisory, as Mola had requested. An internal FHLBB memorandum noted that "in order for Mola to utilize the benefits of a tax free reorganization and the net operating loss carryforwards of Merit, the Bank Board has deemed Merit a Supervisory Case for the purposes of this acquisition, in a certificate dated June 24, 1988." Id. at 200411. The FHLBB's approval letter did not mention regulatory treatment of goodwill. The only regulatory forbearance mentioned in the approval letter stated that "Mlle calculation for the cash contribution shall exclude scheduled items of Merit as of September 30, 1987," id. at 200389, which allowed Mola to avoid counting certain of Merit's problem loans in calculating the cash contribution, allegedly for a two-year period. No document purports to be a written agreement between the FHLBB and either Mola or Charter. In particular, the government did not enter into any assistance agreement with Charter.

In the year after the merger, as a result of an FHLBB examination, Charter was designated as a "troubled institution" in a letter dated July 31, 1989. The FHLBB imposed restrictions on Charter's. ability to increase its assets or liabilities. The letter also noted, in criticizing Charter's business plan, the probability that Charter would not be in compliance with stricter tangible capital requirements that would soon be imposed by legislation (that is, FIRREA).

FIRREA was enacted into law on August 9, 1989, and required the new Office of Thrift Supervision ("OTS") to promulgate implementing regulations within ninety days. OTS promulgated regulations that became effective on December 7, 1989. See Regulatory Capital, 54 Fed. Reg. 46,845 (Nov. 8, 1989). Charter was not in capital compliance under the new regulations when they became effective and, as a result, was seized by OTS on June 15, 1990, and subsequently liquidated.

Mola initiated this action in the Court of Federal Claims on December 5, 1995, urging that the implementation of FIRREA breached a contract between Mola and the government and that the government had also taken Mola's property when it retained a "surplus" resulting from the liquidation of Charter. The Court of Federal Claims denied a motion by the government to dismiss based on statute of limitation grounds, but granted summary judgment in favor of the government on the merits, finding that there was no contract relating to the treatment of goodwill and that there had been no taking. Mola Dev. Corp. v. United States, 74 Fed.Cl. 528, 541-42, 545-46 (2006). Mola appeals the judgment on the merits, and the government cross-appeals, challenging the denial of its motion to dismiss on statute of limitation grounds. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3), and review the decisions of the Court of Federal Claims on the motion to dismiss and summary judgment motion without deference. Guardian Indus. Corp. v. United States, 477 F.3d 1368, 1370 (Fed. Cir.2007).

DISCUSSION
I

Claims against the government under the Tucker Act are subject to a six-year statute of limitations.1 28 U.S.C. § 2501. The government argues that the statute of limitations began to run when FIRREA was enacted, on August 9, 1989, and that the claims here were untimely because they were filed more than six years later, on December 5, 1995. This position was rejected in our recent decision in Bank of America, FSB v. Doumani, 495 F.3d 1366 (Fed.Cir.2007). There we approved the reasoning of the Court of Federal Claims in Bank of America, FSB v. United States, 51 Fed.Cl. 500, 506 (2002), that the mere passage of FIRREA on August 9, 1989, did not trigger the limitations period for Winstar claims. Bank of Am.., 495 F.3d at 1372.2 We are bound by this holding in Bank of America, and we therefore reject the government's argument. Mola's cause of action did not accrue on the date of the passage of FIREA.

Alternatively, the government urges that the Court of Federal Claims erred in holding that the limitations period did not begin to run until after FIRREA's implementing regulations became effective, on December 7, 1989.3 The government urges that the statute of limitations can begin to run before FIRREA's implementing regulations were adopted, and that the statute of limitations in this case did begin to run before the regulations were adopted.

The government is correct that the statute of limitations can begin to run before the adoption of FIRREA's implementing...

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