Winstar Corp. v. U.S.
| Decision Date | 25 May 1993 |
| Docket Number | No. 92-5164,92-5164 |
| Parties | , 62 USLW 2130 WINSTAR CORPORATION, United Federal Savings Bank, Statesman Savings Holding Corp., the Statesman Group, Inc. and American Life and Casualty Insurance Company, and Glendale Federal Bank, FSB, Plaintiffs-Appellees, v. The UNITED STATES, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Federal Circuit |
Charles J. Cooper, Shaw, Pittman, Potts & Trowbridge, Washington, DC, argued for plaintiffs-appellees, Winstar Corp. With him on the brief were Michael A. Carvin, Robert J. Cynkar and Vincent J. Colatriano. Jerry Stouck, Spriggs & Hollingsworth, Washington, DC, argued for plaintiffs-appellees, Glendale Federal Bank, FSB. With him on the brief were Joe G. Hollingsworth, Donald W. Fowler and Charles J. Fromm.
Douglas Letter, Appellate Litigation Counsel, Dept. of Justice, Washington, DC, argued for defendant-appellant. With him on the brief was Stuart M. Gerson, Asst. Atty. Gen.
Billie J. Ellis, Jr., Kelly, Hart & Hallman, Fort Worth, TX, was on the brief for amicus curiae, Keystone Holdings, Inc. and American Sav. Bank, F.A.
William H. Butterfield and Jed L. Babbin, McGuire, Woods, Battle & Boothe, Washington, DC, were on the brief for amicus curiae, The Electronic Industries Ass'n, The Shipbuilders Council of America, Inc. and Litton Industries, Inc.
Melvin C. Garbow, Peter M. Barnett, Peter T. Grossi, Jr., Matthew Frumin and Linda B. Coe, Arnold & Porter, Washington, DC, were on the brief for amicus curiae Amwest Sav. Ass'n and The Adam Corporation/Group; The Globe Sav. Bank, FSB and Phoenix Capital Group, Inc.; and Old Stone Bank, a Federal Sav. Bank and Old Stone Corp.
Timothy K. Irvine, Gen. Counsel, Franklin Federal Bancorp, Austin, TX, was on the brief for amicus curiae, Franklin Federal Bancorp.
Lloyd N. Cutler, William R. Richardson, Jr., Michael S. Helfer and Lydia R. Pulley, Wilmer, Cutler & Pickering, Washington, DC, were on the brief for amicus curiae, The Long Island Sav. Bank, FSA and The Long Island Sav. Bank of Centereach FSB. Also on the brief were Michael J. Chepiga and Eric S. Kobrick, Simpson, Thacher & Bartlett, New York City.
Herbert L. Fenster, Tami Lyn Azorsky, Mark A. Rowland and Hugo Teufel, III, McKenna & Cuneo, Washington, DC, were on the brief for amicus curiae, Chamber of Commerce of the U.S. of America. Also on the brief was Robin S. Conrad, National Chamber Litigation Center, Inc., Washington, DC.
Clarence T. Kipps, Jr. and Kevin C. Dwyer, Miller & Chevalier, Chartered, Washington, DC, were on the brief for amicus curiae, Aerospace Industries Ass'n of America, Inc. Also on the brief were Professor John Cibinic, Jr., The National Law Center, The George Washington University, Washington, DC, Kathleen A. Buck, Kirkland & Ellis, Washington, DC, Mac S. Dunaway and Gary E. Cross, Dunaway & Cross, Washington, DC.
Before NIES, Chief Judge, RICH and NEWMAN, Circuit Judges.
In an opinion dated July 24, 1992, in Cases Nos. 90-773C and 90-772C, the United States Claims Court 1 (Smith, C.J.) granted summary judgment in favor of plaintiffs Statesman Savings Holding Corp. and its affiliates and of plaintiff Glendale Federal Bank (FSB) on their breach of contract claims against the United States. Specifically, the court held that by enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub.L. No. 101-73, 103 Stat. 183 (), the United States breached the contractual obligations of the Federal Home Loan Bank Board to the plaintiffs by changing regulatory capital standards. 2 The court then consolidated these cases with Winstar Corp. v. United States, No. 90-8C, and certified for interlocutory appeal, pursuant to 28 U.S.C. § 1292(b), its opinions granting summary judgment as to liability in the consolidated cases. 3 Having granted the government permission to appeal, 979 F.2d 216 (Fed.Cir.1992), we now reverse the judgment of liability on the breach of contract claims of all plaintiffs and remand for further proceedings consistent herewith.
Much of the history of the savings and loan (or "thrift") industry consists of financial crisis followed by regulatory response. During the Great Depression, 40 percent of the nation's $20 billion in home mortgages went into default, 1700 of approximately 12,000 thrifts failed, and thrift depositors lost roughly $200 million. H.R.Rep. No. 54(I), 101st Cong., 1st Sess. 292 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 88-89 ("House Report "). In response, Congress created the Federal Home Loan Bank Board (Bank Board) and the Federal Savings and Loan Insurance Corporation (FSLIC) to provide deposit insurance and to regulate the previously unregulated thrift industry. See Federal Home Loan Bank Act, Pub.L. No. 72-304, 47 Stat. 725 (1932) (); Home Owners' Loan Act of 1933, Pub.L. No. 73-43, 48 Stat. 128 (1933) (); and Title IV of the National Housing Act, Pub.L. No. 73-479, 48 Stat. 1246 (1934) (). Pursuant to this and to subsequently enacted statutory authority, these agencies have "promulgated regulations governing 'the powers and operations of every Federal savings and loan association from its cradle to its corporate grave.' " Fidelity Fed. Sav. & Loan Ass'n v. De La Cuesta, 458 U.S. 141, 145, 102 S.Ct. 3014, 3017, 73 L.Ed.2d 664 (1982) (citing California v. Coast Fed. Sav. & Loan Ass'n, 98 F.Supp. 311, 316 (S.D.Cal.1951)). During their corporate lifetimes, thrifts are subject to rules that restrict their lending and investment activities, impose reporting and record-keeping requirements, limit (at times) interest paid on deposits, and authorize their termination and burial by government-appointed receivers. In short, the thrift industry has become "one of the longest regulated and most closely supervised of public callings." California Hous. Sec., Inc. v. United States, 959 F.2d 955, 958 (Fed.Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 324, 121 L.Ed.2d 244 (1992) (quoting Fahey v. Mallonee, 332 U.S. 245, 250, 67 S.Ct. 1552, 1554, 91 L.Ed. 2030 (1947)). This regulation and reform has converted the thrift industry into what Congress has described as "a federally-conceived and assisted system to provide citizens with affordable housing funds." House Report at 292; 1989 U.S.C.C.A.N. at 88.
Since their creation, the Bank Board and FSLIC have set minimum capital requirements--the regulatory function that is of interest in this appeal. As the Congress noted in the Committee Report on FIRREA:
A sound tangible capital base is fundamental in promoting the safety and soundness of individual institutions and ultimately the stability of our financial system. Those institutions that operate without real capital are only risking the taxpayers' funds. With solid capital, losses related to risky activities are absorbed by the institutions' owners. Absent real and tangible capital, the first dollar lost is essentially an insurance fund dollar--with the losses ultimately borne by the taxpayer.
House Report at 429, 1989 U.S.C.C.A.N. at 225. These requirements have been the subject of numerous statutory and regulatory changes over the years. See Garn-St. Germain Depository Institutions Act, Pub.L. No. 97-320, 96 Stat. 1469 (1982) (codified throughout 12 U.S.C.); Depository Institutions Deregulation and Monetary Control Act, Pub.L. No. 96-221, 94 Stat. 132 (1980) (); Emergency Home Finance Act, Pub.L. No. 91-351, 84 Stat. 450 (1970) (codified throughout 12 U.S.C.). The regulations governing thrift capital reserve requirements changed three times in 1982 alone. See 47 Fed.Reg. 3543 (codified at 12 C.F.R. § 563.13); id. at 31859 (codified at 12 C.F.R. § 563.13); id. at 52961 (codified at 12 C.F.R. § 563.13).
The Bank Board significantly changed its regulatory capital standards in the early 1980's, in response to what was then the most severe industry crisis since the Great Depression. High inflation, coupled with a shift in Federal Reserve policy from stabilizing interest rates to controlling the money supply, had caused a dramatic increase in interest rates with an equally dramatic increase in the cost of funds to thrifts. House Report at 294-95, 1989 U.S.C.C.A.N. at 90-91. This meant that the thrifts had to pay more money to attract funds than they were earning on their long-term, fixed-rate mortgage portfolios. Id. For example, in August 1981, 53 percent of the thrift industry's interest-bearing liabilities were in short-term certificates of deposit paying high market rates of interest, while 85 percent of its assets were long-term mortgages fixed at below market interest rates. Id. at 296, 1989 U.S.C.C.A.N. at 92. The result of this unfavorable interest rate mismatch is not surprising. Thrifts lost about $4.5 billion in both 1981 and 1982. Eighty-one thrifts failed in 1981, 252 failed in 1982, and 102 failed in 1983. Id. FSLIC faced deposit insurance liability that threatened to exhaust the insurance fund. See Beesley, FSLIC 1981 Annual Report, FHLBB J., April 1982, at 16.
In 1981, the Bank Board and FSLIC decided this problem could be alleviated with greater incentives for the acquisition of failing thrifts by profitable institutions. The Chairman of the Bank Board testified that such acquisitions would result in "lower ultimate costs" to the FSLIC insurance fund than would a program of liquidation and payment of insured deposits. Competition and Conditions in the Financial System: Hearings Before the Senate Comm. on Banking, Housing, and Urban Affairs, 97th Cong., 1st...
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