*1 provide the Agreement does not exclusive kind
remedy for a breach asserted case, reasonably mitigated plaintiffs
in this
damages, properly the trial court consid- expert testimony on the plaintiffs’
ered plaintiffs and are not damages,
amount damages. Accord- profit
entitled lost of the trial
ingly, judgment court
affirmed.
AFFIRMED
SOUTHERN FEDERAL CALIFORNIA LOAN
SAVINGS & ASSOCIATION Holdings, Inc.,
and SoCal Plaintiffs-
Appellees,
Arbur, Inc., Simon, Jr., E. J. William Simon, George Gillespie,
Peter J. (Executors
III Estate of Wil Simon, Sr.), Plaintiffs-Appel
liam E.
lees,
Roy Doumani, Martin, Preston Bev (Successor
erly W. Thrall Larry Thrall),
Claims of B. Plaintiffs- Appellants,
Cross STATES,
UNITED Defendant-
Appellant. 04-5036,
Nos. 04-5038. Appeals,
United States Court of
Federal Circuit.
Aug. 2005. Aug.
Corrected *4 Stewart,
Rosemary Spriggs Hollings- & worth, DC, Washington, argued for *5 plaintiffs-appellees Southern California Federal Savings & Loan Association and Holdings, Inc. With her on the was A. brief Monica Freas. Cohen, Tweed, Milbank,
David S. Had- ley LLP, McCloy DC, & Washington, of Arbur, argued Inc., for plaintiffs-appellees Simon, Jr., Simon, William E. J. Peter and George Gillespie, J. Of III. counsel Lesley brief were Richard C. Tufaro and A. Benn. Porter, Bergman,
David B. Arnold & LLP, DC, Washington, argued plain- appellants. tiffs-cross Of counsel on the Garbow, brief were Melvin C. N. Howard Cayne, Johnson, Michael A. Ida L. and Bostian. Davidson, Director, Deputy
Jeanne E. Branch, Litigation Commercial Divi- Civil sion, Justice, Department United States DC, Washington, argued for defendant- appellant. With her on brief were Schiffer, Deputy Stuart E. Assistant At- General, Cohen, torney and M. Di- David rector. Of counsel on the brief Ken- were Dintzer, Counsel, neth M. Trial Senior Hoffman, Conry, A. C. Colleen David John Kane, Tomatore, Tonia At- N. and J. Trial torneys. NEWMAN, part the court’s award and and reverse MAYER
Before Plaintiffs and damages to Institutional GAJARSA, Judges. Circuit proceedings. remand for further filed Circuit for the court Opinion Dissenting I. BACKGROUND opinion Judge GAJARSA. Judge MAYER.
filed Circuit
Litigation
A. Overview of Winstar
GAJARSA,
Judge.
Circuit
involving
This
case
is Winstar-related
government stemming
against
claims
decisions
appeals
two
United States
Financial
Congress’
enactment
of Federal Claims
made
the Court
Reform, Recovery, and En-
Institutions
First,
it chal
ease.
this Winstar-related
(“FIRREA”),
forcement Act
summary judg
lenges
grant
court’s
passed
FIRREA
Pub.L. 101-73.
finding
government
liable
ment
government’s response
part
Arbur, Inc.,
the Es
of contract
breach
crisis
savings and loan
1980s. Cas-
Simon,
(collectively,
E.
Sr.
tate of William
v. United
tle
Plaintiffs”)
Doumani,
Roy
the “Simon
(Fed.Cir.2002). The circumstances sur-
Martin,
Beverly
Thrall
Preston
W.
rounding
savings
the crisis
loan
Plaintiffs”).
(collectively,
“DMT
elsewhere,
industry are well-documented
Savings
As
Fed.
& Loan
Southern Calif.
518 U.S.
Corp.,
United States v. Winstar
(2002)
A for REA and the commonly contracted benefit of related reg- “supervisory good ulations, volved the treatment many thrifts that previously were Supervisory goodwill generated was will.” compliance in full regulations with the ailing the excess between an thrift’s capital requirements satisfy failed to acquirer liabilities assumed capital new immediately standards and be- value assets. fair identifiable Wins subject Thus, came to seizure. Id. Corp. v. 64 F.3d tar litigation spawned Winstar whereby (Fed.Cir.1995) (en banc). acquirers failing alleged thrifts permitted acquiring FHLBB thrifts to the government’s enactment and imple- supervisory goodwill count toward the mentation of FIRREA constituted a regulatory capital requirements, thrift’s promising breach the contracts thrifts despite contrary teachings generally under particular regulatory Castle, treatment. (“GAAP”). accepted accounting principles at 1333. Castle, at 1333. This treatment goodwill supervisory facilitated satisfac B. The SoCal Transaction regulatory capital requirements tion the Individual Plaintiffs1 re- or by minimizing eliminating the need sponded solicitation of acquiring thrifts to obtain additional purchasers failing for the Southern Cali- Id. capital infusions. (“Old Savings fornia and Loan Association The FHLBB and the a FSLIC also used Southern”). I, Fed.Cl. capital encourage credits incentive proposed Plaintiffs to form mergers failing thrifts. The and personally capitalize holding compa- a credits making incentive involved FSLIC ny be Holdings, named SoCal Inc. thrift, merged cash contribution to the (“SCH”). purchase Id. SCH would in turn which contribution could be accounted then savings Old Southern and form a new in partial merged satisfaction loan Upon government association. regulatory capital requirements. thrift’s association, approval, the a wholly- new *7 Corp., Winstar F.3d at 1536. subsidiary owned of SCH named Southern 1989, FIRREA, which was enacted Savings California Federal and Loan Asso- required, among things, other that thrifts (“SoCal”), all acquire ciation would the as- capital maintain core least per- at three sets and liabilities Old Southern. Id. at assets, prohibited cent their total and government approved acqui- 546. The assets, counting intangible unidentifiable and, 30, 1987, proposal April sition a goodwill, as supervisory such toward this agreements series of were entered into to capital requirement. maintenance Al- Id. complete the transaction. though directly the statute did not address agreements/documents Three of credits, those capital the treatment of concomi- litigation. are most relevant to the current regulations required tant capital cred- Agreement be in the The Assistance the pri- its treated same manner as su- was Winstar, goodwill. pervisory mary governing 64 F.3d at document the transaction SCH, passage 1538. As a result of the of FIR- and it was entered into as the Plaintiffs, In party complaints 1. addition to the Ger- filed in this action. Parsky significant ald L. was also a investor Parsley’s attempts separate Id. a file claim purchase in SCH and the of Old Southern. were dismissed as time-barred. Id. at 448. Savings Southern Fed. & Loan Ass'n Parsky Calif. The absence of is not material to this 444, (2002). Fed.Cl. action. reasons, unexplained Parsky For was a SoCal, require- Southern, changes capital and With acquirer of Old FIRREA, wrought by SoCal be- the execution ments conjunction with FSLIC. a at FHLBB came troubled institution. Id. 608. Agreement, the of the Assistance effect, capital to After FIRREA took SoCal’s Letter addressed issued a Forbearance 1.45%,substantially below dropped the Board ratio Preston Martin as Chairman of regulatory capital requirement, and its Officer of its and Chief Executive SCH. a rating dropped was Letter included Forbearance MACRO/CAMEL at Claims 4. Id. 609. The Court of Federal promise depart that SoCal could FHLBB’s drop regulatory accounting capital for its found that SoCal’s from GAAP in goodwill. capital negatively affected SoCal’s retail supervisory its Fi- credits and base, long-term Regulatory and wholesale customer nally, Capital Maintenance (“RCMA”) acquiring strategic plans, and its cost of Agreement was entered into SoCal, SCH, Plaintiffs, capital. Id. at 610. operation the Individual 1 of the RCMA re- the FSLIC. Section FIRREA, comply In an effort regulatory quired to maintain the SCH assets, disposed of which meant SoCal level capital specified of SoCal at the a required capital percentage it less as applicable regulations stated that at Id. 612. The thrift could not assets. capital credit includa- the FSLIC would be however, enough, shrink fast so was re- capital in order to meet that ble to raise additional to become forced obligated RCMA also quirement. The Id. In compliant. SCH issued $48 “guarantee per- Individual Plaintiffs Arbur, Inc. million in senior debt to 1,§ under [SHC] [SoCal] formance new Id. at 614. In addition two investors. personal obligations ... provided receiving payments, interest Arbur and under Plaintiffs] said [Individual the new investors received shares of a $5,000,000 in guarantees shall not exceed newly-created A common stock and Class aggregate.” Execution of the RCMA stock, original previous- common which express condition to obli- was FSLIC’s designation, had class converted ly no was gations Agreement. under the Assistance B common The effect to Class stock. Id. By recapitalization had to dilute financial situation SoCal’s II, ownership improved greatly. Individual Plaintiffs Fed.Cl. rating2 had of the common stock before the Its 100% MACRO/CAMEL Despite a to 51.36%after the transaction. moved from 4 a 3. transaction *8 market, recapitalization brought The tightening of the a decline Id. So- FIRREA originations, compliance and increased com- into under the mortgage Cal thrifts, capital standards and raised its MA- petition from other California So- at rating from to a 3. Id. 615. grown approximately Cal had $900 CRO/CAMEL by the the consummation of this trans- acquisition Following million at time of the action, by government terminated the approximately billion 1989. the SCH $2.3 RCMA. Id. Id. FIRREA, regulators according anagram
2. rate thrifts CRO and after the CAMEL assets, management (capital, management, earnings, the liabili- the effectiveness of their and 1-5, Directors, Using ty) quality, capital Board their asset was used. Id. a scale of with 1 being highest being adequacy, asseVliability manage- rating the and risk the and low- ment, est, II, rating earnings (operations). considered SoCal the MACRO/CAMEL FIRREA, rating description the of a Fed.Cl. at 605. Prior to the an accurate condition given system by anagram point was the MA- thrift at a in time. Id. 607. denominated By again was they November SoCal Federal Claims to recover damages failure, by incurred the enactment of having assigned the brink been FIRREA. I, In the SoCal court addressed a of 5. Id. at issues rating 616. MACRO/CAMEL government’s liability. the response of Federal The Court Claims found that summary a judgment motion on behalf principally SoCal’s troubles were caused all the plaintiffs, government the admitted FIRREA, in- part because of the it had an express contract the with creasingly stringent capital requirements Plaintiffs, argued Institutional but that the fully imposed as the act went into effect. lacked standing Plaintiffs be- A recapitalization Id. at 615. second cause did privity not have of contract. capi- executed in June the 1992 with I, 52 SoCal at 541. court Fed.Cl. The providers tal as the participating sole enti- found that the execution of ties. 617. Id. at The senior notes issued Agreement, Assistance RCMA in 1992were returned to and contrib- SCH implementing FHLBB resolutions all uted to the Id. Addition- SoCal. day on the same evidenced its intent ally, the outside two investors with all plaintiffs. contract at 542. Id. debt, purchased million in new an $10 Interpreting the merger clause of the As- increasing interest Id. is- rate. SCH also Agreement sistance support conclu- this Arbur, a million sued senior note Inc. $2 sion, court found that the transactional Id. In for equity, SCH cancelled no consid- documents created one overall contract to original eration the issued shares Plaintiffs, which the Individual as well Individual Plaintiffs exchanged Plaintiffs, party. Institutional were preferred issued in 1992 for stock common Id. Accordingly, at 543. the court held Finally, stock. Id. issued new SCH three that the Individual Plaintiffs standing had preferred series of stock the 1992 inves- granted plaintiffs’ to sue and summary tors, of all required which three series judgment finding motion quarterly payments. dividend Id. For the liable for breach of the overall contract. equity, SCH received million. As Id. $48.5 Id. at 549. transaction, ownership result of this trial, a two After month Court interest originally bargained opinion awarding Federal Claims issued extinguished. Individual Plaintiffs was damages to court plaintiffs. recapitalization, After the 1995 awarded the a total Institutional Plaintiffs gradually improved. health of $65,397,821.41 for “wounded bank” dam- Court of Federal Claims found that as ages replacement capital” and “cost of 31, 1996, December effects of the “[t]he II, damages. SoCal Fed.Cl. at Government’s breach had thus been miti- damages, Wounded bank which court gated by the considerable efforts of the type damages, classified as a of reliance and, Institutional Individual Plaintiffs compensate the costs incurred course, by the infusion of approximately thrift because of its status as a “troubled” tangible million in capital. SoCal was $100 *9 under-capitalized or institution. at Id. finally very deep out the hole had of 624. higher Such costs include costs of in years.” been Id. at 618. funds, higher and regulatory insurance assessments, premiums and and extra at- Proceedings C. Before the of Court torney fees and consultant to interface Federal Claims regulators. Damages with Id. cost the The Institutional Plaintiffs and the Indi- of which court replacement capital, vidual in of Plaintiffs filed suit the Court also classified as a form of reliance dam-
1328
law,
Questions
novo.
Id.
money spent by
of
reviewed de
compensate for
ages,
a breach of contract
regarding whether
goodwill lost as a
replace the
the thrift to
of
damages
questions
are
caused certain
breach.
result
error stan-
reviewed under
clear
Plaintiffs,
fact
regards to
Bank,
Savings
v.
Bluebonnet
F.S.B.
dard.
a total
of
awarded
Court
Federal Claims
(Fed.
States,
1348,
F.3d
1356
266
United
damages”.
$22,448,293.75 in “dilution
of
Cir.2001).
clearly
finding
A
is
erroneous
theory,
dilution
Under the
Id. at 601.
evidence,
when,
supporting
despite some
a form of
the court classified as
which
reviewing court on the entire evidence
“the
623,
at
the Indi-
damages, id.
restitution
and firm conviction
left with the definite
is
either the
Plaintiffs were awarded
vidual
that a mistake has been committed.”
at a given
of
breached thrift
value
Co.,
Gypsum
States v.
333
United
U.S.
amount corre-
point in time or a dollar
364, 395,
525,
746
68
92 L.Ed.
U.S.
S.Ct.
their
replacing
the cost
sponding with
(1948).
thrift,
in
breached
id. at 634.
equity
in the
was entered
judgment
Final
case
Standing of the Individual Plaintiffs
A.
10,
government
September
on
plaintiff
privity
A
must be
and now
timely
Appeal
filed a
Notice
standing
to
States
have
with
United
challenges
holding
the Individual
a
sovereign
on
contract claim.
sue
standing
have
sue and the
Plaintiffs
States,
1343,
344 F.3d
Anderson v. United
damages
amount of
awarded to both
(Fed.Cir.2003);
see also
1351
United
Individual Plaintiffs and the Institutional
Co.,
Algoma
v.
Lumber
305 U.S.
States
jurisdiction pur-
has
Plaintiffs. This court
(1939)
415, 421,
267,
260
59 S.Ct.
83 L.Ed.
1295(a)(3).
§
suant to 28 U.S.C.
govern
(declining
presume
gave
ment’s actions
rise
contractual ob
II. DISCUSSION
was not a
ligations
government
when the
the Court of
This court reviews
suit).
party
named
contract in
Not
summary
grant
judg
Claims’
only
privity
requirement
a
fundamental
ment under a de novo standard
review.
law,
great
but it takes on even
of contract
Winstar,
a
terms of the issue to con Agreement The Entire clause of the As- clude that the Individual Plaintiffs had Agreement pertinent sistance reads standing recover claimed dilution to their part: First, damages. Court Agreement, together This any with in- that Agree Claims found the Assistance terpretation agreed or understanding ment, the and FHLBB imple RCMA in writing by the parties, constitutes the menting properly should be resolutions agreement parties entire between the components considered one overall con supersedes prior all agreements and tract which Individual Plaintiffs understandings parties in connec- I, a party.
were
SoCal
der, respect to, Agreement or in or this reading The Court of Federal Claims’ any of provisions. its Agreement the Entire clause violates one government argued that the of of precepts interpre- effect the basic contract the Sole comport plain Benefit clause was limit the tation —it does not with the Agreement benefits of the meaning Assistance the clause. C. Sanchez and Son, parties 1539, the Institutional v. Plaintiffs as Inc. 6 (“A (Fed.Cir.1993) contract. The Court of Federal Claims contract is read in rejected argument grounds express this on the and the accordance terms thereof.”); Sole reading plain meaning Benefit clause see Lowber also (2 Wall.) effectively nullify manner would Bangs, Entire U.S.
1330
(“The
and the RCMA should be
(1865)
Agreement
tance
construction
be
L.Ed. 768
contract,
plain
one
the
depends
constituting
read as
this sort
contracts
put upon
parties, to be
Benefit clause
the
language
intentions of the
the Sole
upon the
individ-
language of the
the
Agreement
from the
clause evidences
gathered
Entire
(citation omitted)); Foley
scope
ual instrument.”
intent
to limit the
the
parties’
States,
1032, 1034
11 F.3d
specified
Co. United
to its
Agreement
Assistance
(Fed.Cir.1993)
(“Contract
interpretation
Bancshares, Inc. v. United
terms. Barron
language of the
begins
plain
the
(Fed.Cir.2004)
1360,
States, 366 F.3d
1375
Agreement
Entire
agreement.”).
The
integration
that
clause conclu-
(holding
an
a) in-
only
specifically incorporates
clause
sively
integration
that
the
is
establishes
understandings agreed to
terpretations or
evi-
prohibits the use of external
total and
b) resolu-
writing
parties;
the
modify
or
the
a
dence to add to
terms
FHLBB or the
tions
from the
or letters
agreement).
written
not
constitute
RCMA does
FSLIC.
the
of Federal
support of
Court
integrat-
types
the
of documents
either of
expansive interpretation of the
Claims’
It is a
Agreement.
ed into
Assistance
scope
Agreement,
of the
Assistance
that involves additional
separate contract
cite to a number of cases
DMT Plaintiffs
including
promises,
parties and distinct
proper
that
that
purportedly establish
clause. The
Agreement
own Entire
constituting
instruments as
to read related
to either inter-
purport
RCMA does not
non-binding
contract.
case
single
one
Agreement
embody
pret the Assistance
or
law which the DMT Plaintiffs cite does
Agree-
understanding
of the Assistance
claimed,
proposition
not
for the
stand
no
that
question
ment and there is
a
can
namely
party
that
one contract
be
or
RCMA is
a resolution
letter
a
to a related contract sim
party
deemed
government regulators.
ply
separate contracts consti
because the
only
Agreement
the Entire
Not
does
components
tute
of one transaction. To
RCMA, the defini-
clause not reference the
contrary,
apply
cases
a
cited
basic
Agreement
tion
of the
section
Assistance
interpretation
rule
contract
to the effect
separate agree-
as a
identifies
RCMA
instruments,
that “where several
executed
substantially
ment to be
executed
times,
contemporaneously or at different
form
for in Exhibit A to the
provided
transaction, they
will
pertain
same
Agreement. Although the exis-
Assistance
together,
though they
even
do not
be read
acknowledged by
tence
RCMA is
expressly refer to each other.” Kurz v.
Agreement,
it-
Assistance
RCMA
99,
F.Supp.
104
156
explicitly incorporated into
self is neither
(S.D.N.Y.1957);
v. Mil
see also Peterson
Agreement
implicitly
nor
Assistance
York,
59,
New
ler Rubber Co.
Agreement
the Entire
incorporated
(8th Cir.1928);
Shipping
Hampton Roads
Constr., Inc. v. United
clause. McAbee
Cf.
v. Int’l
As
Longshoremen’s
soc.
(1996)
(stating
As
(E.D.Va.1984)
soc.,
F.Supp.
parties may
incorporate
expressly
(suggesting
writings
several
con
“will
documentary
into a con-
or other evidence
single
a
contract as
as
clause);
long
stitute
an integration
tract via
see also
861-68,
subject
prove
matter and
Winstar,
involve
same
116 S.Ct.
518 U.S.
transaction;”
parts
to be
of an
de
entire
(giving
integration
effect to contract
used,
un
spite
language
analysis
incorporating specific
doc-
clauses
extrinsic
contract).
only
dertaken
the court focused
on the
part
Further-
uments
agree-
more,
meaning
multiple
Assis-
term used in
indicating
far from
*12
1331
ments).
the
of
The court’s
emphasis
The issue before
Court
the
Individual
in
was not the construction
Plaintiffs
involvement
the
Federal Claims
term, however,
acquisition
conversion and
processes
the
fails
a
but rather
common
acknowledge
to
a corporation
gen
that
the
agreement
an
between
existence of
erally
be a separate legal
considered to
government and the Individual Plaintiffs.
entity from
concept
its shareholder —a
well
are
cited
the DMT Plaintiffs
cases
Estate,
in
grounded
state law. Wenban
for
the
persuasive authority
ignoring
not
Hewlett,
675,
723,
Inc. v.
193 Cal.
P.
227
Agreement
terms of the Assistance
(1924). Here,
it is the law of Califor
the
extending the benefits of
contract
governs
nia that
the construction
the
par-
Individual Plaintiffs who were not
Agreement
Assistance
as specifically pro
ty to that contract.
in
“Governing
vided for
Law” clause.
law,
Under California
the corporate entity
Federal
The Court of
Claims
may
disregarded
be
prevent
order to
premised
finding
its
that
the Individual
fraud,
protect
persons
pre
third
or to
sue
standing
Plaintiffs have
on its deter
injustice,
vent a grave
including
injus
one
mination that there was
overall con
Cooperman
tice to shareholders.
v. Un
tract
to which the Individual Plaintiffs
Bd.,
employment
Appeals
Insur.
49 Cal.
ancillary,
were “not
the Government
(1975).
127,
App.3d
Cal.Rptr.
urges,
but rather central
this transac
In
obligations
order
the acts and
of a
tion. The thrift would have failed—and
corporation
legally
to be
recognized as
acquisition
never have occurred —but
a particular
those of
person,
I,
for the
Plaintiffs.”
following
combination
circum
finding,
Fed.Cl. at 542.4
so
the court
First,
must made to appear:
stances
be
suggesting
focused on evidence
that
corporation
is not
influ
only
Individual Plaintiffs initiated the conver
governed by
enced and
that person, but
sion and
in
acquisition processes prior to
unity
that there is such a
of interest and
corporating
and that at least
SCH
some
ownership that
or
individuality,
sep
them negotiated directly
govern
with the
arateness,
person
corpo
the said
arranging
ment in
the transaction.
ceased; second,
has
ration
that the facts
Furthermore,
533.
the evidence showed
are
that an
such
adherence to the fiction
government
was aware both that
separate
corpora
existence of the
the Individual
supply
Plaintiffs would be
would,
particular
tion
under the
circum
ing
money
used to rehabilitate SoCal
stances, sanction a fraud or
in
promote
and that the Individual Plaintiffs would be
justice.
primary
shareholders
SCH. Con
trary to the conclusion of the
Court
v. Rowley, 187 Cal.
202 P.
Minifie
Claims, however,
(1921).
Here,
these
of 673,
roles
allega-
there is no
negotiator
bring
and shareholder do not
tion that the Individual
Plaintiffs had
privity
necessary
Individual Plaintiffs into
of con
unity of interest with
SCH
tract
regards
with the
subsidiary
rec-
SoCal or
continued
Agreement
Assistance
entered into
ognition
corporate
form would work
injustice.
with SCH
SoCal.
grave
Accordingly,
is no
there
RCMA,
noteworthy
damages.
It is
Court
that the
of Federal
The terms of the
and their
inability
support
Claims did
find that
the status
the Individual Plaintiffs'
signatories
damages,
Individual Plaintiffs as
claims for
are addressed
the fol-
lowing
RCMAwas sufficient to
them to
allow
recover
subsection.
to allow shareholders
of Federal we have refused
justification
the Court
negotia-
in the
corporate
rely
struc
on their
involvement
disregard
Claims’
*13
funding
in
in
a
process
the
Plaintiffs
or their role
invoked
tion
ture
and conversion
facilitating
acquisition
legal
the
to
their chosen
sta-
transaction
alter
(“Nei-
Corp. v.
Karnes,
Aladdin Oil
of
Southern. See
at 1319
Old
tus.
342 F.3d
See
Perluss,
603,
Cal.Rptr.
Cal.App.2d
41
230
the
government’s] knowledge,
ther
[the
(1964) (“Parties
239,
determine to
245
who
capital, or
Lee’s
supplying of the new
the
right
the
to do business
avail themselves of
Karnes,
in
made
position as stockholders
corpo
of
a
by means
the establishment of
arrangements.”);
those
parties
them
to
entity must assume the burdens
rate
Cain,
(holding
F.3d at 1315-17
that
350
privileges.
as the
thereof as well
ne-
the
communication and
ineq
ego
applied
doctrine is
avoid
alter
did not estab-
gotiation with shareholders
the conse
results not
eliminate
uitable
parties to
lish that the shareholders were
quences
corporate operations.”)
of
into between
the contracts entered
regularly acknowledged
court
This
has
We
government
corporation).
a corporation
legal
distinction between
a
result
La
v.
reached
different
Van
rejected
(Fed.
and its shareholders
claims
1340,
382 F.3d
1349
United
a breach of con
shareholders
assert
Cir.2004), by focusing on factual distinc-
corporation.
tract claim on behalf
tions
Karnes and Cain and
between
Corp.,
at 1289
First
194 F.3d
Specifically,
case
in La Van.
presented
Hartford
(holding
privity
that a shareholder lacks
so
we
that
the shareholders were
held
government
contract to sue the
for Wins-
that
transaction
critical
conversion
damages
only
corporation
tar
when
they,
corporation,
rather
than the
were
agreement
into an
with the
entered
purchasers
essentially the direct
FDIC);
v.
FDIC
United
States
federally-insured
converted
institution.
(“Karnes
(Fed.Cir.
”),
1313,
1318
342
Van, however,
here,
In
there
La
unlike
2003)
Castle,
(same);
Under ment, equity if in new investors. passage assume that the order to issue even we most, In obligates At a breach of the the RCMA FIRREA constituted RCMA, to contribute addi are not dividual Plaintiffs Individual Plaintiffs they operation tional million to the of SCH damages entitled to recover seek $5 Accordingly, on un any theory of contract and SoCal. based applicable under RCMA, ambiguous of the the Indi damages. There are three forms of dam terms ownership in ages compensate for vidual Plaintiffs’ loss their typically awarded result expectation of a contract: dam terests was neither foreseeable breach nor ages, restitutionary damages, and reliance caused breach dam Bancorp, Inc. v. Unit RCMA and therefore dilution damages. Hansen (Fed.Cir. States, ages be as a form of ex ed 367 F.3d cannot awarded 2004). give pectation damages. Similarly, the non- because the Expectation damages required to breaching party bargain Plaintiffs were not benefit his Individual interests, good position ownership him in as as dilute their but volun putting he so, tarily they been chose do cannot recover would have been had the contract Bank, Further performed. restitution their actions. Savings Bluebonnet more, recapitalizations not F.S.B. v. 266 F.3d because the did (Fed.Cir.2001). it passed, dam occur until after FIRREA was “Expectation ages they is that the dilution the Indi provided are recoverable are axiomatic actually reasonably ownership or foresee vidual Plaintiffs’ interest foreseen able, not on the govern are caused the breach of undertaken reliance regarding accounting for promisor, proved promises and are with reasonable ment’s Restitutionary damages capital supervisory credits and certainty.” goodwill. not Accordingly, they grounds pre- do have to mulated on all outstanding dividends Finally, ferred damages. gov- reliance be- stock issued in 1995. Id. recover The ernment challenge initial oc- does cause the investment SCH $5,932,374.04awarded for transaction costs prior curred execution expenses, but RCMA, contests the cannot remainder Individual Plaintiffs of this award. point undertaking grounds any under the applicable
recover theo- government challenges Court ries. of replacement Claims’ award First, costs of grounds. two Plaintiffs do not have argues that the holding of Fed standing sue under Assistance California Bank, eral FSB United Agreement cannot recover (Fed.Cir.2001) any limits award for damages they seek under the RCMA. The replacement goodwill to the transac decision of the Court Federal Claims tion costs in raising incurred the replace holding liable to the Indi- Second, capital. ment it finds error in the vidual awarding damages Plaintiffs and court’s for any earnings failure account these parties light vacated. of this by having flowed to SoCal and SCH necessary it is not holding, to address the nontransferable, cash on-hand rather than government’s challenge to the amount of amortizing goodwill. damages awarded to the Individual Plain- tiffs or the DMT Plaintiffs’ cross-claim *16 The reads Fed- California damages. additional any eral limit award replacing good- for capital will with real transaction
C. The Award to the Institutional
Fed.,
costs incurred. Cal.
Replacement
of
Plaintiffs
Cost
interpretation
1350. This
of California
Capital
of
unreasonably
Federal
expands the
of
scope
The Court of Federal Claims awarded
the issue
in
case.
decided
that
The court
$29,436,229.44
the Institutional Plaintiffs
in
Federal
not
all
did
hold that
California
compensation
as
for
replacement
the costs the Institu-
capital
awards for the
costs of
costs,
tional Plaintiffs incurred in replacing the
should be limited to transaction
but
goodwill
by
phased
simply
out
FIRREA.5 SoCal
that the Court of Federal Claims
II,
The
second
government’s
ages
Federal Claims’
lenge to the Court of
more merit. As
damages
has
award
of Federal Claims awarded
Court
Bank,
in LaSalle Talman
this court held
$35,961,591.97in
the Institutional Plaintiffs
F.S.B. v. United
i.e.
expenses,
for
damages
wounded bank
(Fed.Cir.2003), “payment of a return
being
in its
identi-
increases
costs due to
capital.
cost
capital
on
reflects the
II,
fied
a “troubled” institution. SoCal
as
However,
damages
the ben
determining
at 628. The court calculated
57 Fed.Cl.
credited,
be
of that
must
efits
damages as
the amount of wounded bank
good
replacement
to the
mitigation due
$32,320,000 for
cost of
follows:
excess
hand,
In
case at
will with cash.”
funds; $278,258.55
consulting
legal,
expert acknowl
Institutional Plaintiffs’
$64,879.42
fees;
for FHLBB
filing
damage
was a
edged that his
calculation
fees; $2,509,000
delivery
Collateral
accounting of all costs that could
complete
deposit
premiums;
FDIC
insurance
measured, but
definitively
did
be
$789,454
paid
excess assessments
gener
for the
not include
offset
income
Supervision.
Office of Thrift
replacement capital
because
ated
government challenges
the court’s
precisely
measurable.
that income was
damages
award of wounded bank
award,
crafting
damages
the Court
(i)
law,
grounds that:
as matter
granted
the Institution
Federal Claims
are too remote from the breach
damages
al
entire amount
Plaintiffs the
established
(ii)
recoverable;
finding
to be
means that
expert,
their
which
damages
were caused
the breach
*17
the benefit of the
award does not reflect
(iii)
erroneous;
clearly
the measure-
capital
re
that the Institutional Plaintiffs
of
was
on
ment of excess costs
funds
based
II, 57
at 631.
ceived. SoCal
Fed.Cl.
testimony.
expert
flawed
government’s
The
chal
government suggests that
it was
first
The
lenge
to the
claim
grave error
for
Court of Federal
Institutional Plaintiffs’
damages
that
too
fail
offset
for wounded bank
is
it is
damages
Claims to
award
of
The
by
govern
remote as a matter
law.
the amount
benefit
Institutional
owning
argues
cash rath- ment
that
order
reach
Plaintiffs received
damages
ex
goodwill.
gravity
er than
The true
of the
claimed wounded bank
an
be
from the
estab-
tended chain
causation must
followed
error is unclear
record
lished, however,
possible
that
Plain
and it is not
indicates that
Institutional
damages
Plain-
seeking consequential
the Institutional
tiffs are
ascertain whether
beyond
in con
typically permitted
tiffs
evidence from
those
adduced sufficient
Bank,
Fargo
tract
N.A.
which the court could “make a fair and
actions. See Wells
damages”
1021-23
approximation
reasonable
United
(Fed.Cir.1996).
accounting
argument
ob-
This
raises
properly
for
benefits
Bluebonnet,
question
were caused FIRREA. “Causation Finally, challenges the ... a question of fact reviewed under the evidentiary support court’s award *18 Bluebonnet, clear error standard.” damages. of wounded bank Specifically, F.3d at 1356. The Court of Federal government argues testimony the that the that Claims concluded FIRREA was the Hartzog, of Dr. the Institutional Plaintiffs’ principal SoCal’s recapitalization cause of expert damages, on wounded bank was and was the factor in substantial SoCal’s procedurally flawed that it and lacked incurring higher costs funds the after credibility. The government also asserts II, 57 breach. SoCal Fed.Cl. at In penalized by that it was court for the holding, so the court considered dis and an presenting damages alternative model. regarding counted evidence the on impact government’s arguments the Neither of operations of the SoCal’s recession in Cali government presented have The merit. its fornia, the massive decline real estate challenges to the of Dr. credibility Hart- values, stemming losses An the Los zog’s testimony and, despite at trial those geles Rodney riots trial following King challenges, the Court of Federal Claims and the Northridge earthquake. The Hartzog’s testimony Id. found Dr. to be “en- government does not attack find- tirely sup- this fact accurate and and credible” resolutions, (“FHLBB”) all implementing witnesses. experts other
ported by II, day, proves on that govern- signed 630. The the same 57 Fed.Cl. * into an over Individual Plaintiffs entered overturn the court’s ment’s invitation to government. with the is not well-found- all contract credibility determination Inc., doc obligations within these Apotex, LLC promises Syntex ed. (Fed.Cir.2005) personally bene (“Credibility de- uments were intended them, their independent of deter- fit and burden type are the of factual terminations left to the fact status as shareholders. that are best minations court.”). finder, trial Nor is there In stage, At the contract formation argument government’s merit to the Plaintiffs were the dividual failing to penalized present was negoti only purposes counterparties theory, because the damage alternative gave acquisition ation. Before govern- indicated simply court case, California Sav rise to this Southern such a model present failure ment’s (“Old Loan South ings and Association challenge undermined efforts ern”) Sav insolvent and Federal Institutional Plain- presented by model Company ings Loan Insurance tiffs. The Court Federal Claims’ award (“FSLIC”) responsibility full for its bore damages is affirmed. of wounded bank gov liquidation, To avoid liabilities. actively prospective pur solicited ernment III. CONCLUSION might merger partners chasers or who reasons, foregoing For we vacate Cal. rescue the troubled institution. S. both determination of the Court L Fed. S & Ass’n v. United holding Federal that the Individual Claims (2002) (“SoCal /”). Fed.Cl. standing to Plaintiffs had sue response, the Plaintiffs submit damages on that suit. We award of based expressly upon ted a conditioned bid of replacement award reverse court’s capi government’s promise of substantial further costs of and remand for end, at 535. this tal forbearances. To opinion. proceedings consistent this negotiated govern with the alone affirm the award of Finally, we court’s ment, and Southern California damages. bank wounded (“SoCal”) Savings and Loan Association performance PART, through was later created IN
AFFIRMED REVERSED contract, supervisory via a conver PART, IN VACATED AND REMAND- closing occurred at the sion that ED. 30, 1987. April transaction IV. COSTS “government is whether the issue No costs. any promises, made contractual or other- wise, expressly that were intended to ben- *19 MAYER, in Judge, dissenting Circuit indepen- personally, efit the shareholders part. dently their status as shareholders.” 1328, Castle v. United Regulatory The content of the combined (Fed.Cir.2002). con- government Capital Agreement Maintenance (“RCMA”), Agreement, Plaintiffs were and tends that Assistance Holdings, Inc Home Loan Bank mere investors SoCal Federal Board * Arbur, Doumani, Martin, Inc., Beverly W. include: Preston Individual Plaintiffs Sr., Simon, Roy Thrall. E. Estate William (“SCH”). Castle, characterization, (referring at 1339 This narrow however, ignores personal individ- RCMA at as the “main issue document contract”). obligations ual contractual as- comprising alleged Ac- sumed As the trial pursuant RCMA. cordingly, the combined documents consti- found, specifically court Government “[t]he tute an overall contract giving the Individ- required sign Individual Plaintiffs to standing ual Plaintiffs to enforce both the gov- [the and execute the RCMA before supervisory goodwill credit and the ‘provide would financial as- ernment] [the] promises I and would set forth in sistance and indemnification[s] affirm Court Federal Claims on this ” Agreement.’ the Assistance S. Cal. Fed. point. S & L United Ass’n v. Fed.Cl. II”) (2003) (“SoCal (quoting 2).
RCMA, “E,” Moreover, p. Recital personal guarantees represented by
“[t]he signatures
their extra provided individual
security to the Government that the Indi-
vidual away Plaintiffs would not walk ailing imposed thrift. [The RCMA] CORPORATION, THE FALCONWOOD
obligations private on the signatories Plaintiff-Appellant, up years.” to 12 Id. En-
While this court is correct that the Agreement tire clause contained STATES, Defendant-Appellee. UNITED Assistance Agreement expressly does No. 04-5111. RCMA, incorporate the it fails accord weight appropriate to the fact that “the Court of Appeals, States very validity Agreement of the Assistance Circuit. upon was conditioned the Individual Plain- tiffs’ execution of ‘The Sept. RCMA: obligations pursuant [FSLIC]’s to this
Agreement upon also are conditioned
following: delivery ... The execution and [SCH], [SoCal], and the Investors ], appro-
[each Individual Plaintiff ...
priate, Regulatory Capital Mainte- I, Agreement....’”
nance Fed. (quoting Agree-
Cl. at 542 the Assistance
ment, 2(b)). sec. The Individual Plaintiffs
were essential to the formation of the capaci-
overall contract their individual FHLBB “explicitly
ties because the condi- approval
tioned its of the transaction on execution the RCMA
FSLIC, SCH, SoCal, and the Individual (citing
Plaintiffs.” FHLBB Res. 87- 7).
511, p. The RCMA is basic con-
tract document transaction agreements depend.
which all other See