## United States Court of Appeals for the Federal Circuit

05-5141, -5179

CAROLINE HUNT TRUST ESTATE, Plaintiff-Cross Appellant,

v.

UNITED STATES, Defendant-Appellant.

Rosemary Stewart , Spriggs & Hollingsworth, of Washington, DC, argued for plaintiff-cross appellant. Kenneth M. Dintzer , Senior Trial Counsel, Commerc ial Litigation Branch, Civil Division, United States D epartment of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were Stuart E. Schiffer , Deputy Assistant Attorney General, David M. Cohen , Director, Jeanne E. Davidson , Deputy Director, and Arlene Pianko Groner , Trial Attorney. Of counsel were Scott Austin and Elizabeth M. Hosford , Trial Attorneys. Appealed from: United States Court of Federal Claims Senior Judge James F. Merow

## United States Court of Appeals for the Federal Circuit
05-5141, -5179

CAROLINE HUNT TRUST ESTATE, Plaintiff-Cross Appellant,

v. UNITED STATES, Defendant-Appellant.

______ ____________________ DECIDED: November 16, 2006

______ ____________________ Before NEWMAN, GAJARSA and LINN, Circuit Judges

. Opinion for the court filed by Circuit Judge LINN. Circuit Judge GAJARSA dissents. LINN, Circuit Judge

. The United States appeals fr om the judgment of the C ourt of Federal Claims, holding that the government breached its contract with Ca roline Hunt Trust Estate (“CHTE”) and awarding $14,847, 100 in damages to CHTE. Caroline Hunt Trust Estate v. United States , 65 Fed. Cl. 271 (2005) (“ CHTE ”) (Case No. 95-CV-531). The breach was the elimination of the regulatory capital by t he enactment of the Financial Institutions Reform, Recovery, and Enforcem ent Act of 1989 (“FIRREA”), Pub. L. No. 101-73, 103 Stat. 183. CHTE cross-appeals from calculat ion of the damage award. Because the trial court properly determined t he existence of a contract between CHTE and the government and properly computed the offset to damages arising from CHTE’srelease from its obligations under its net worth maintenance (“NWM”) letters, we affirm as to these issues. CHTE’s r e covery of the value of its $2,279,700 in equity in Southwest Savings As sociation (“ SSA”), howev er, is foreclosed by our recent decision
in American Capital Corp. v. United States , Nos. 05-5150, -5152, -5159 (Fed. Cir. Oct. 30, 2006), and we reverse as to that issue. Accordingly, the award of damages to CHTE must be reduced to $12,567,400, and we re mand to the Court of Federal Claim s with instructions to enter judgm ent for CHTE in that amount. I. BACKGROUND CHTE is a n irrevocab l e trust, with Caroline H unt as the sole beneficiary. In 1972, CHTE ac q u ired majority ownership of SSA, a Texas-chartered, federally regulate d savings and loan ass o ciation. Donald Cris p (“Crisp”) was the trustee who administered CHTE with a three-person advis ory Board of which he wa s a m e mber. From 1986 to June 1990, Todd Miller (“Miller”) was president, chief executiv e o fficer, and a director of SSA. Bet w een 19 8 0 and 199 0, CHTE held more than 90% of SSA’s stock and controlled its Board of Directors. In 1983 and 1986, CHTE executed NWM letters, committing it to ensure that SSA met its minimum statutory re serve and net worth obligations. Further, prior to the 1988 acquisit ions that are the subj ect of this appeal, CHTE infused capital into SSA, and acquir ed subordinated debt, which, as of May 18, 1988, had an outstanding balanc e of $23,780,462.06 owed to CHTE. Prior to the enactment of the FIRREA, t he Federal Home Loan Bank Board (“FHLBB”) was responsible for regulating all sav i ngs and loan associations. Thrift savings ac counts wer e insured by the Feder al Sav i ngs and Loan I n surance Corporation (“FSLIC”). These entities we re independent agencies of the United States, though the

05-5141,-5179 2FHLBB served as the operati ng head of the FSLIC. 1. The Acquisition Transaction In response to the savings and loan crisis 1 of the 1980s, FHLBB and F S LIC sought priv ate investors and healthy thrifts to take over ailing thrifts. As an incentive to engage in such mergers, FSLI C and FHLBB routi nely agreed to afford the acquiring thrifts particular r egulatory treatment. See S. Cal. Fed. Sav. & Loan Assoc. v. United States , 422 F.3d 1319, 1324 (Fed. Cir. 2005). On October 16, 1987, Miller prop osed tha t, with federa l assistanc e, SSA acq u ire three 2 troubled Texas t h rifts, and proceeded to negotiat e the terms of the acquisitio n. In the midst of these negotiations, FHLBB formu lated the “Southwest Plan,” under which a cluster of thrifts were proposed for acquisition. The goal of the Southwest Plan was to consolidate troubled Texas thrifts under we ll-qualified management. FHLBB/F S LIC solic itation material for the Southwest Plan outlined available gove rnment assistanc e , including c apital loss coverage, yield main t enance, and a FSLIC note in the amount of the negativ e net worth of an acqu ired institution. Reg u latory forbearances and spec ific accounting treatments could be requested, but were not automatically granted, and FSLIC could require an equity share in the resulting thrift. On March 1, 1988, a Request for Proposals was disseminated by the
governmen t, to which SSA respo nded with a proposal dated March 30, 1988. SSA was subsequently determi ned suitable. FHLBB resolutions of May 18, 1988 contain the terms of the acquis i tions as finally negot iat ed and approved. T he FHLBB resolutions

1 These bac kground facts are di scussed in considerab ly more detail in United States v. Winstar Corp. , 518 U.S. 839, 848-49 (1996).

2 While the initial prop o s al was to acquire three, the number evolved to twelve and then fifteen; four thrift s were ultimately acquir ed. CHT E , 65 Fed. Cl. at 277.
05-5141,-5179 3recited that (1) FSLIC would be appointed as receiver for each respective thrift; ( 2 ) CHTE was the hold e r of 90% of the common stock of SSA, the “ A ssuming Associatio n ; ” and (3) CHTE and SSA, defined as “the Applicants,” had app lied for approval to acqu ire control of the respective thrifts. CHTE , 65 Fed. Cl. at 283. FH LBB resolutions further included c onsideration of proposed FSLI C agreements, in cluding the Assistanc e Agreement, “pursuant to which t he FSLIC in its corpor ate c apacit y will provide financ i al assistance and certain ind e mnifications to the Assum i ng Association to fa cilitate the Acquis i tion. ” Id. The FHLBB resolutions authoriz ed the execution of appropriate documents and granted the regulat ors the authority to decide which applic ant, CHTE or SSA, wou l d sign nece ssary documentation. The FHLBB resolutions preappr oved certai n future debts of CHT E, preapproved certain CHTE affiliated transactions, autho rized FSLIC to exec ute the Assistanc e Agreement, and granted a $307.5 millio n capita l credit to be used to determine postmerger SSA’s regulatory complia nce u n der both existing a nd future regulations

. Further, the resolutions released CHTE from its obligations under its NW M letters . In particular, the resolutions recited that SSA r equired as a conditio n to enteri ng into the various agreements that CHTE be released fr om any obligation to maintain SSA’s ne t worth. It was likewise a condition of FSLI C entering into the Assistance Agreement “that the $25 million of subordi nat ed debt of the Assuming Assoc i ation to the Hunt Trust be converted into equity capital.” Id. at 284. Pursuant to the FHLBB resolutions, a my riad of agreements were signed. FSLI C was appointed receiv er for the four insolvent thrifts and tr ansferred ownership interests in the four thrifts to SSA. FSL I C and SS A signe d the Assista n ce Agree m ent, which

05-5141,-5179 4conditioned FSLIC’s obligati ons t hereunder in part on (1) the subdebt contribution and addition to SSA’s equity capital; (2) SSA’s is suance of preferred sto ck to FSLIC; and (3) issuance o f warrants to FSLIC to acquire 38 2,247 shares of SSA’s common stock. Id. The subor dinated de bt was con t ributed by CHT E to SSA’s equ ity capital. SSA issue d preferred stock certifi c ates , which granted FSLIC the then- vested right to 90% of the first $60 million of the post-me rger SSA’s ea rnings. Un der a warr ant agree ment, SSA also granted FSLIC the right to purchase 382, 247 shares of common stock—the right to acquire 50 % of the stock of the post-merger SSA in te n years. As a result, CHTE’s 94 % interest in SSA cou l d be literally cut in half. In sum, CHTE’s s u bsidiary SSA acquired four deeply insolvent Texas thrifts. Subsequent to approval of CH TE’s May 18, 1988 H-(e)3 applic ation, the four thrifts were plac ed into federal receivership and their assets and certain liabilities wer e conveyed to SSA. FSLIC’s financia l as sist ance a nd incentiv e for the transaction included, inter alia , a $307.5 million capital credit. Le ss than two years later, FIRREA caused the eliminatio n of this credit, which led to the liquidation o f SSA. Id. at 276. 2. Proceedings Before t he Court of Federal Claims CHTE filed suit in the Court of Federal Claims, alleging that the pass a ge of FIRREA and elimination of the $307.5 million capital credit was a material br each of its contract with the government. After extensive pre-tri a l pr oceedings, a four -week trial, and supple m ental filin gs, the court concluded that a contract ex isted between CHT E and the government, and that t he enactment of FIRREA resulted in a breach of the contract. Specifically , the court found that CHTE’s H-(e)3 applic ation was a contractua l offer to use its subsidiary thrift, SSA, to acqui re four failing thrifts, in return for various

05-5141,-5179 5incentives, includ ing a $307. 5 million capital credit. CHTE , 65 Fed. Cl. at 294. The court further found that there was acceptan ce by the government, as evidenced from FHLBB resolutions containing the terms of the acquisitions as finally negotiated and approved, the release of the NWM letters, ex tension of the $307.5 millio n cap i tal credit, and other forbearances negot iated and agreed upon; toget her, this amounted to “something more” than boilerplate regul atory approval by the gov e rnment. Id. at 295- 96. Finally , the court found t hat c onsideration was e x changed in this mutual agreement between a hold i ng co mpany that contributed SSA and the government that sought t o rescue the failin g thrifts and pres erve FSLIC insurance funds. Id. at 296. In computing damages, CHTE s ought to reco ver the value of the hard assets it contributed to the transaction, includ ing th e contribution of it s subdebt to SSA an d its equity interest in SSA. The government argued that CHTE’s cont ributions were no t required by the contract because they we re merely conditions precedent to the acquis i tions, and the net va lue of the CHT E’s subdebt c ontribution was zero becaus e CHTE traded its subdebt for the release of the NWM letters. T he court rejected the government’s arguments, finding that CHTE’s contribution was required by the contract, the value of its subdebt cont ribution was $21,700,000, and the va lue of its equity in SSA was $2,279,700. The court discounted this damage award by the value to CHTE from the release of the obligations under t he NWM letters—$9,132,600—for a total damag e award of $14,847,100. CHTE , 65 Fed. Cl. at 330. The government appeals the judgment of the Court of Federal Cla ims, alleging that CHTE lacks standing a nd c hallenging the damage aw ard based on SSA’s equit y and CHTE’s release from its NWM letters. CHTE cros s-appeals t he offsetting damages

05-5141,-5179 6calculation, arguing its release from the NWM letters had no monetary value. We have jurisdiction under 28 U.S.C. § 1295(a)(3). II. ANALYSIS We review the Court of Federal Claims’ c onclus i ons of law without deference. Comtrol, Inc. v. United States , 294 F.3d 1357, 1362 ( F ed. Cir. 2002). We review the court’s findings of fact following tria l under the clearly erroneous st andard. Home Savs. of Am. v. United States , 399 F. 3d 1341, 1347 (Fed. Cir. 2005). The exis tence of a contract is a mixed ques tion of law and fact. La Van v. United States , 382 F.3d 1340, 1345 (Fed. Cir. 2004). The general type of damages to be awarded, their appropriateness, and r a tes used t o calculate damages are reviewed for clear error. Id. “A finding is ‘clearly erroneous’ when alth ough there is evidence to support it, the reviewing c ourt on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” United St ates v. U.S. Gypsum , 333 U.S. 364, 395 (1948). 1. Standing The gover nment asserts that CHTE does not have standing to s ue, arguing that the Court of Federal Cla ims erred in concludi ng that there is an overarching contract between CHTE and t he government. The gov ernment argues that there can be no overarching contract because it merely duplicates the terms of the Assistance Agreement. The government further asserts that our decision in Southern Californ i a Federal Savings & Loan Ass ’ n v. United States , 422 F.3d 1319 (Fed. Cir. 2005) (“ SoCa l ”), precludes finding an overarching contra ct in this case. Finally, the

05-5141,-5179 7government argues that there is no evidenc e supporting the formation or existence of an overarching contract betw een CHTE and the government. CHTE res ponds that the court correct ly concluded t hat CHTE and the government entered into a contract. Specific ally, CHTE argues that the court properly determined that the require ments for contract forma tion—offer, acceptance, consideration, and government authority to bind the government—were satisfied. Finally, CHTE asserts that our decision in Home Savings is dispo s itive to this issue. We affirm the Court of Feder al Claims’ conclu sion that CHT E was in priv ity of contract with the government and could therefore recover da mages as a result of the government’s breach. The exchanges betw een the go vernment and CHTE “ c onstitute a contract only if three elements are met: mutual intent to cont ract including a n offer and acceptance, consideration, and a governmen t representative wh o had actual a u thority to bind the government.” 3 La Van , 383 F.3d at 1346. The government argues that the trial c our t erred in conclud i ng that there wa s mutual intent to contract. We disagree. T he trial court, taking into consideration the

3 We emphasize that the inquiry is whether a cont ract existed between the government and CHT E. Becaus e we conclude that there was, CHTE has s t anding to sue for breaches of that c ontract, without regard to the co rporate relationship between CHTE a n d SSA or to the contractual relationship b e tween SSA and the government. The dissent’s criticism that we “deny the existence of a legal differentiation between a corporation and its shareholder,” Dissenting Op. at 10, is th erefore misplaced. CHT E does not have standing to sue as a shar eholder for a breach of the Assistanc e Agreement, but it does have standing to sue in its own right as a party to its own separate contract. For the same reason, the dis s ent errs when it concludes that the Entire Agreement and Sole Benefit clau ses of the Assistance Agr eement preclude a suit by CHTE for breach of its ow n separate contract. See Dissenting Op. at 7-8. The Assistance Agreement is the entire agreem ent between SSA and the gover nment, and SSA is the sole beneficiary of that agreemen t, but these facts have no bearing on th e independent contractual relationsh ip between CHTE and the government.

05-5141,-5179 8testimony presented at trial, all the relevant resolutions, agreements, and im plementing documents, properly found that “in its H-(e)3 Application, CHTE made an offer to the government to acquire troubled thrifts through t he vehicle of its subsidiary SSA, and that offer included the $307.5 million capital credi t that was subsequently eliminated b y FIRREA.” CHTE , 65 Fed. Cl. at 294. The H-(e)3 application identifies CHTE as the “applicant” and SSA as its subsidiary. The applic ation further references SSA’s proposal dated March 7, 1988, requesting forbearances and waivers noted to have been previously filed. Moreover, the trial court’s conclus i on that the H-(e)3 applicatio n was the requisite offer by C H TE is further supported by t he analyses and recommendation packages that were presented to FHLBB from s ubagenc ies

. In particular, a legal opinion by FHLBB’s Corporate and Security Divis i on described t he transaction sequence as an applic ation by CHT E to acquire control, with FSLIC assistance, of the four insolvent thrifts. The acquis i tion was described as a merger of the insolv ent thrifts into CHTE’s wholly-owned subsid iary, SSA. The legal opini o n states in relevant pa rt that “[t]he Caro line Hunt Trus t Estate (the ‘Acquiror’ and ‘Trust’), proposes to acquire control of substantially all the assets and certain liabilities of [the four insolv ent thrifts ] (collectiv ely the ‘Target Institutions’) through the followin g steps.” Finally, the offer in cluded the $3 07.5 millio n capital cre d it as evinc ed by Mille r’s request for the capital credit in each prop osal sent to FHLBB beginning in October, 1987, including the March 7, 1988 proposal referenced i n the H-(e)3 application. See Home Savs. , 399 F.3d at 1348-49 (“The Resolutions recognized that the ‘offer’ that led to the contract was [the holding c o mpany’s ] application for regulatory appr oval of [the subsidiary’s] purchases . . . .”).

05-5141,-5179 9We are not persuaded by the gov e rnment’s argument that the H-(e)3 applica t ion could not have been an offer to enter int o a contract because it inc l uded a footnot e stating that the application was solely fo r the purpose of obtaini ng ap proval of the transaction. As the trial court ex plained, “[t]he footnote warned that the Application should not be construed as an admission that [ CHTE] was a sav i ngs and loan compan y, a premise that was then, but no longer, in dispute.” CHTE , 65 Fed. Cl. at 294. This court’s precedent on contract formation in the context of Winstar litigation requires that “the offeree must give in re turn for the offeror’ s promise exactly the consideration which t he offeror requests an d acceptance must be made abs olutely and unqualifiedly.” La Van , 382 F.3d at 1347 (quoting Anderson v. U n ited States , 344 F.3d 1343, 1357 (Fed. Cir. 2003)). In this case, t he FHLBB resolutions, the release of the NWM letters, the extension o f the $307.5 million capital c r edit, and the other forbearances negotiated and agreed upon, collectively evidence t he requis i te acceptance of CHTE’s offer. The trial court pr operly analogized the fa cts of this case to those in La V a n in stating that the document s and the facts and circumstances surrounding the transaction ev idenced “‘somethi ng more’, that is, the recognition that the government was engaged in negotiations about the terms of the [acquisit i on] as well as the subsequent manifest assent to abide by the Resolution[s] required under [this court’s precedent].” CHTE , 65 Fed. Cl. at 295 (quoting La Van , 382 F.3d at 1357). The trial c ourt supported its conclusion that CHTE and the government entered into an ov erarching c ontract wit h a number of factual findings. In particular, the trial court found that “FHLBB knew [ CHTE] held over 90% of SSA’s stock and controlled the Board of Directors.” Id. at 287. The court further found that “the government was

05-5141,-5179 10informed that CHTE was a party pr incipal and that negotiations , as well as the ultimate agreement, included terms that only CHTE could prov ide.” Id. at 291. The trial court further explained that “only the FHLBB coul d release [CHTE from the NWM letters].” Id. at 279. T hus, while FSLIC and SSA si gned the Assistance Agreement, F H LBB and CHTE made all the decisions. We disc ern no clear error in the trial c o urt’s factual findings. These factual findings, predi cated upon the volu minous documents, testimony, and facts and c i rcumstances surr ounding the acquisitions, lead to the conclus i on that a bargained-for exchange occurred between the government and CHTE. Se e Hometown Fin., Inc. v. United States , 409 F.3d 1360, 1365 (Fed. Cir. 2005) (“Whether a bargained-for exchange occu rred depends on the surrounding factual circumstances.”). Taking into consider ation the overall nat ure of the transaction, we reach the same conclusion as the trial court—a ten year partnership be tween CHTE and the government was formed; CHT E a llowed SSA to acquir e four troubled thrifts, contributed over $23 million in s ubdebt, an d relinqu is hed a si gn ificant interest in the profits and equity of p o st-merger SSA, all for the opp ort unity to be a 50% sharehold e r of a much larger merged institution. In return, the government extended financial assistance including a $307.5 million capital credit, and av oided the cost of liquidating these four thrifts. At the end of t he ten years, the governm ent would be a 50% owner of a hopefully successful financial ent erprise and have a preferentia l right to its profits. This court ’ s dec ision in SoCal , deny ing standing to a s h areholder, is distinguishable from this case. In SoCa l , we held that individual shareholders who owned stock in the acquiring ho lding company, SoCal Holdi ngs, Inc. (“SCH”), did not

05-5141,-5179 11have standing. SoC a l , 422 F.3d at 1333. I n the pres ent case, however, the status of CHTE is more akin to SCH than to the individual s hareholders in SoCa l . Unlike the indiv i dual s hareholders in SoCal , here CHT E was critical to the acquisition of the failing thrifts because “it was a condition of FSLIC entering into the Assi stance Agr eement that the $25 million of sub o rdinated d ebt of [SSA] be convert ed into equity capital.” CHT E , 65 Fed. Cl. at 284; see also id. a t 288 (“[CHTE’s] owne rship interest in SSA could n o t have been diluted without [ CHTE’s] agreement.”); id. (“CHTE provided materia l consideration for the acquisitions, subordi nat ed notes and the stock warrants.”). The trial c ourt correctly analogiz ed the facts of this case to those in this c o urt’s decision in Home Savings . In Home Savings , the holding company, like CHTE in the present case, did not sign the Assistanc e Agreement, but initiated the negotiation process by seeking F H LBB appr oval for the transactions. See 399 F.3d at 1346. I n Home Savings , the holding company agreed to mainta in the net worth of the resulting institution. 4 Here, CHT E agreed to and did contribut e subdebt and stock warrants in t he newly expanded SSA. In exc hange, the government extended, inter alia , $30 7.5 millio n in capital c r edit. Thus , there was an exchange of reciprocal promises that were part of the overall bargains between CHT E and the government. Id. at 1349 (“[T]he

4 There is therefore nothing “conflicting” about SoCal and Home Savings

. See Diss e nting Op. at 7. They simp ly present different facts. In So Cal , a group of investors jointly formed a holding company that entered into a number of agreements with the government to acquire a failing thrift. SoCal , 4 22 F.3d 1325-26. The investors themselves had no separ ate negotiations with the gov er nment and lack ed standing t o sue on behalf of the co rporation they owned. Id. at 1333. In contrast, the Hom e Savings holding company—lik e CHTE her e—made an offer that was accepted by the government, which in turn entered into “mutual, reciprocal obligations” with t he ho lding company. Home Savings , 399 F.3d at 1349. The two c a ses that cannot readily be di st inguished from one another on their facts are Home Savings and the instant case.
05-5141,-5179 12Resolutions contain reciprocal promises that were part of the overall bargains betwee n the plaintiffs and the government.”). For these reasons, we uphold the trial court’s determination that CHTE was in privity of contract with the government and therefore has st anding to assert claims for breach. 5
2. NWM R e lease Offset Both parties appeal from the damage offset award based on t he value of CHTE’s release from its obligations under the NWM l e tters. The government argues that the trial court erred in imposing the burden of proving t he value of the NWM release upon the government. The gov e rnment challenges the court’s determination of the v a lue of the NWM release, arguing that the court underva lued the release. CHTE, on the other hand, challenges the NMW release offset, argui ng th at the release had no monetary value because the enforcement pr oceedings would not have succeeded. The government’s argument t hat CHTE bore the burden of proving the offset to the damage award is wit hout m e rit. This court has prev iously held that “it [is] the government’s burden to prove wit h reasonable certainty the quantum of benefit retained by the [aggrieved party] despite the government’s breach.” WestFed Holdings, Inc. v. United Stat es , 407 F.3d 1352, 1370 (Fed. Cir. 2005); see also Lis bon Contractors, Inc. v. United States , 828 F.2d 759, 769 (Fed. Cir. 1987) (“W e do reject the government’s argument that [the plaintiff] had t he burden t o disprove the go vernment’s claimed offset.

5 On appeal, the government does not challenge the tr ial court’s finding that the enactment of FIRREA was a material br each of the government ’s contract with CHTE. See CHT E , 65 Fed. Cl. at 298. Accordingl y, having resolved the question of standing in CHTE’s favor, we proceed to c onsider the government’s arguments as to damages.
05-5141,-5179 13The burden was on the gov ernment to prove t hat am ount.”). Thus, the trial court did n o t err in concluding that the government bore t he burden of proving the offset from CHTE’s release from its NWM letters. Citing testimony of government official s and SSA representatives, govern ment documents, and enforcement proc eedings, the trial court corre ctly found that there was uncertainty as to whether CHTE’s NWM letters were enforceable. See CHTE , 65 Fed. Cl. at 318- 20. Notwit hstanding, Miller neg o t iated for their re leas e in 19 87 and 198 8 at the direction of CHTE. The government contends, as it did before the trial court, that the parties agreed that the release of t he NWM letters was an even exchange for CHTE’s contribution of subdebt. Recognizing t hat when parties enter into a contract, each and every term and condition is in cons ideration of all the others unless otherwis e stated, the trial court properly re jected the government’s argument. See Stone Forest Indus., Inc. v. United States , 973 F.2d 1548, 1552 (F ed. Cir. 1992). As the trial cour t explained, and we agree, “[t]he ‘exchange’ of deal points, ev en if agreed to at the same time, does not necessarily establis h the values exchanged are equal.” CHT E , 65 Fed. Cl. at 321. In determi ning the v a lue of the release of CHTE ’ s NMW letters, the trial court considered the testimony of the governmen t’s expert, Dr. Charles Cox, who testified that SSA’s insolv ency could h a v e a maximum value of $204 million. The trial court, however, found the efficacy of these calculations o f SSA’s in solvency q uestionab le because the NWM letters triggered CHT E ’s ob ligations bas ed on SSA ’s net worth. Thus, the trial court determined that CHTE’s maximum expos ure had a value of $60,884,000, the value of SSA’s regulatory capital defici ency as of March 31, 1988. Dr.

05-5141,-5179 14Co x also t e stified tha t shortly before t he acquis i tion transactions closed, SSA ha d a $60.9 million regulatory capital deficiency. T he trial c o urt further found that there was a 15% lik elihood of enforcement of the NW M letters, and the government does not challenge this finding. In sum, the court determined that monetary risk to C H TE under the NWM letters approached no more than 15% of its maximu m exposure of $60,884,000, or $9,132,600. We find no clear error in t he trial court’s determi nation and accordingly uphold its determination of th e value of CHTE’s release from its NWM letters. 3. SSA’s Equity The gov ernment argues that t he trial court erred in awar ding CHTE its equity in SSA at the time of acquisition. Specifica lly , the government asserts that C H TE’s stoc k ownership was not diluted and t herefore not hing was contributed. The government’s argument is correct in light of our recent holding in American Capital , Nos

. 05-5150, -5152, -5159, slip op. at 7-10. In American Capital , we held that a co rporate parent of a subsidiary whose value was wiped out by FIR R EA’s elim ination of t he subsidiary’s regulatory capital could not recover the value of t he subsidiary’s equit y

. Id. Although the parent, TFC, effectively “put on the table” its subs idiary Transohio’s ongoing busine ss, the transaction did not result in any formal change in Transohio’s ownership. Id. , slip op. at 7-8. Unlike th e shareholders in Hansen Bancorp, Inc. v. United States , 367 F.3d 1297 (Fed. Cir. 2004), TFC was not contractually obligated to cont ribute or exchange its sh ares of Transohio in reliance on the government’s promises; accordi ngly, it never acquir ed a “direct personal interest” in the effects of the breach on Tr ansohio other than any s hareholder’s interest

05-5141,-5179 15in the v a lue of the sh ares that it owns. Id. , slip op. at 9-10. Al though T F C was indirec t ly injured by the diminution in T r ansohio’s value, the loss in value caused by the government’s breach was first and foremost an injury to Transohio, and t he fact that Transohio was a separate corporation prev ented TF C from recovering t hat loss on Transohio’s behalf. Id. , slip op. at 8-9. In the instant case, CHTE is s i tuated sim ilar l y to TFC. Althoug h CHTE effectively contributed SSA to a j o int and ris ky vent ure with the government under the expectation that CHTE would indirectly reap the profits of the venture, American Capital compels a conclus i on that any claim for the loss of SSA’s equity must be asserted only by SSA. Accordingly, the $2,279,700 that the tr ial court determined was the value of CHTE’s equity in SSA, and thus included in CHTE’s damages, cannot be rec o vered by CHTE and must be deducted from the award of damages. Its recovery of $14,847,100 must therefore be reduced to $12,567,400, or t he value of it s subdebt contributio n ($21,700,000) less the discount fo r the release of obligati ons under the NWM letter s ($9,132,600). CONCLUS ION For the foregoing reasons, the judgment of the Court of Federal Claims is affirmed in part and reversed in part, and t he case is remanded with instructions to enter judgment in favor of CHT E in the amount of $12,567,400.
AFFIRMED-IN-PART , R E VER SED -IN

- PAR T , and REM A NDED

.

COSTS No costs.

05-5141,-5179 16

## United States Court of Appeals for the Federal Circuit

05-5141, -5179

CAROLINE HUNT TRUST ESTATE, Plaintiff-Cross Appellant,

v. UNITED STATES, Defendant-Appellant.

GAJARSA, Circuit Judge , dissenting. In this, another case in the series of Winstar -related cases, the issue before the court is a simple one—whether a corporat e holding company, which is a shareholder with no direct injury and no privity of cont ract, has standing to bring an action for damages incurred by one of its s ubsidiaries. In other words, does a shareholder in its legal capacity as a shareholder have standing to sue? For the reasons stated below, I dissent because the majority fails to re cognize the corporate form and attendant corporate law limiting the liability and thereby the st anding of shareholders. CHTE was a savings and loan diversified holding company and as such was the principal shareholder of Southwest Savings Association (“SSA”), a FSLIC insured savings and loan. The majority premises its holding on the basis that “CHTE [the shareholder] was critical to the acquisition of the failing thrifts because it was a condition of FSLIC entering into the A ssistance Agreement [not executed by CHTE] that the $25 million of subordinated debt of [SSA] be converted to equity capital.” Slip op. at 11.Moreover, it states that “[CHTE’s] owner ship interest in SSA could not have been diluted without [CHTE’s] agreement ” to be diluted, citing to the Court of Federal Claims (“CFC”). 65 Fed. Cl. at 288. The CFC found that CHTE prov ided material consideration for the acquisition, namely converting cert ain subordinated notes and the issuance of stock warrants. Slip op. at 12. However, this is faulty factual and legal analysis. A proper inquiry reveals that CHTE did not issue the warrant s— they were issued by SSA and for SSA stock, not for any in terest in CHTE. Furthermore, the contribution by CHTE of the SSA subordinated debt was exchanged at the request of CHTE and for the release of CHTE from a prior Net Worth Ma intenance (NWM) obligation that was issued by CHTE. This subordinated debt of SSA was held by CHTE to obtain the government’s approval for several non-assi sted and unrelated prior acquisitions by CHTE in 1983 and 1986. All of these acti ons by CHTE were undertaken not as a principal party to the transaction at issue but as a stockholder in SSA, which was the acquiring corporate entity used to acquire the four failing thrifts. Contra ry to the majority finding that there was a separ ate contract existing between the government and CHTE, there is no contract. There is no c ontract that creates a “mut ual reciprocal obligation” between CHTE and the government. This is the reason why the majority and the CFC need to find the presence of an “overarching” agreement. By the mere use of the term, the majority is admitting that the contract is an epistemological illusion. CHTE did not sign any agreements and was not obligated to perform any contractual action or assume any debt in the transaction. Theref ore, the finding of a contract is illusory. The SSA and FSLIC entered in to four Acquisition Agreements for each of the failed thrifts. Each of the agreements cont ained a “sole benefit” clause that stated the

2005-5141,-5179 2agreements were for the benefit only of SSA and FSLIC. Moreover, SSA and FSLIC also signed an Assistance Agr eement that identified SSA as the acquiring corporation and contained a similar sole benefit claus e recognizing only SSA and FSLIC. Among other matters, the agreement contained the following relevant terms:
1. SSA performance was conditi oned on the release of CHTE from its NWM commitments. 2. FSLIC conditioned performanc e on conversion of SSA’s debt to stock and issuance of warrants by SSA. 3. FSLIC then provided financial assistance to the SSA in the form of $307.5 million in capital credit to remain on SSA’s books for ten years without amortization. 4. An Integration clause stating that the writing constituted the entire agreement and the ac quisition agreements and resolutions or letters by the par ties, but that where there was any conflict the Assistance Agreement would govern. Here the shareholder CHTE was provided an opportunity to limit its liability by eliminating the NWM obligation and expanding t he capital of its subsidiary SSA. It essentially was the principal shareholder in SSA without any contractual obligations to contribute any further capital. Its perc entage ownership in SSA was reduced by the acquisition but SSA was a vastly larger post-merger subsidiary. In its capacity as a shareholder, CHTE may only bring an action der ivatively for a corporate injury, but typically, “shareholders do not have direct st anding to bring the cause of action” for damages incurred by the corporation. Franchise Tax Bd. v. Alcan Aluminium , 493 U.S. 331, 336 (1990). The cause of action, if any, belongs to the corporation. 1 The government correctly argues that CHTE is a classic shareholder with no standing to assert a breach of contract becaus e the contract was bet ween its subsidiary

1 Hypothetically, if SSA were bankrupt, the cause of action belongs to the bankruptcy estate, and the recovery by the trustee would be for the benefit of all creditors and residually to all the shareholders.
2005-5141,-5179 3SSA and the United States. CHTE contends that it has standing because even though it is not a signatory on the Assistance Agreement or any other document, it was a party to the “overarching” or “overall” contract created by its prior application to merge a subsidiary and the FHLBB’s resolutions. The problem we as a court are confr onting is the conflicting precedential cases from this court that seem on first blush, to support the respective position of each party regarding standing. 2 The government argues that Southern California Federal Savings & Loan Assoc. v. United States , 422 F.3d 1319 (Fed. Cir. 2005) (“ SoCal ”) is applicable.

3 There we held the CFC’s grant of standing in a similar contract to be error and reversed. CHTE cites our decision in Home Savings of Amer ica v. United States , 399 F.3d 1341 (Fed. Cir. 2005). There we upheld the CFC’s grant of standing.
In SoCal , Individual Plaintiffs proposed to the government their plan to form and personally capitalize a holding company, k nown as SoCal Holdings (“SCH”), which would purchase a failing thrift, Old Sout hern, and form a new savings and loan association. 422 F.3d at 1325. Upon government approval, the new savings and loan, named Southern California Savi ngs & Loan (“SoCal”), would acquire the assets and liabilities of Old Southern. Id. The government approved the acquisiti on and entered into a series of agreements. Among these was the Assistance Agreement, which was entered into by

2 It should be noted that t he CFC did not reconcile the conflicting cases nor discuss why it relied on one and not the other. 3 See also Cain v. United States , 350 F.3d 1309 (Fed. Cir. 2003); FDIC v. United States , 342 F.3d 1313 (Fed. Cir. 2003); Bailey v. United States , 341 F.3d 1342 (Fed. Cir. 2003); Maker v. United States , 314 F.3d 600 (Fed. Cir. 2002); and Glass v. United States , 258 F.3d 1349 (Fed. Cir. 2001), all of which have concluded that shareholders have no standing to sue.
2005-5141,-5179 4SCH. It contained a “Sole Benefit” provision describing the parties to the agreement as the sole beneficiaries entitled to rights. Id. at 1329. Moreover , the agreement had an “Entire Agreement” clause ident ifying the Assistance Agreem ent as the sole agreement excepting only resolutions or letters concerning the conversions. Id. After FIRREA, SoCal had some financial difficulties, and wa s forced to dispose of assets and raise additional capital from its investors. Id. at 1326. The effect was to dilute the ownership of the Individual Plaintiffs in SCH. Gradua lly, SoCal improved after the infusion of new capital. Id. at 1327. The Individual Plaintiffs sued the United States in the CFC. The CFC held that the Individual Plaintiffs were in privity of contract and therefor e had standing to sue. Id. Similar to our case now, the CFC in SoCal determined that the Individual Plaintiffs were parties to an “overall” contract with t he government because t hey had negotiated with the government before the cr eation of SCH and the governm ent knew the Individual Plaintiffs would be supplying the m oney used to rehabilitate SoCal. Id. at 1331. Furthermore, the court found t hat the Assistance Agreement was part of the overall contract and that its sole benefit provision was unenfor ceable because the Entire Agreement Clause would have allowed inclus ion of the Regulatory Capital Maintenance Agreement (“RCMA”) to which the Individual Plaintiffs were a party. Id. at 1329. In SoCal , we reversed the CFC. First, we re jected the court’s interpretation of the Entire Agreement clause to r ead out the Sole Benefit clause. Id. at 1329-30. We noted that the Entire Agreem ent clause only included resolutions or letters and not the RCMA. Id. at 1330. Further, we interpreted the RCMA to be a completely separate contract with its own Enti re Agreement clause. Id. Next, we rejected the importance

2005-5141,-5179 5the CFC gave to the Individual Plaintiffs’ participation in the negotiation and contracting process because there was no unity of intere st with SCH and SoCal that would work an injustice if the corporate form were obser ved. Our conclusion was based on the recognition of the corporate form the Individual Plaintiffs established. Id. at 1331-32. We did, however, note that the Individual Plai ntiffs were in priv ity with the government on the RCMA but could not recover the damages sought under the RCMA. Id. at 1334. In Home Savings , Home Savings (“Home”), a wholly-owned subsidiary of H.F. Ahmanson & Co. (“Ahmanson”), acquired 17 thrifts in four transactions at issue in the appeal. 399 F.3d at 1344-45. Each transacti on was memorialized in an assistance agreement. Id. at 1345. The “Florida/Missouri” and “Illinois/Texas” Assistance Agreements contained integration clauses t hat included FHLBB resolutions and letters issued with the agreements. The “Century” and “Ohio” agr eements also integrated certain resolutions addressed to the transactions. Id. In each transaction, “Ahmanson sought federal assistance to mitigate the liab ilities its subsidiary, Home, was assuming.” Id. In resolutions and forbearances for eac h transaction, FHLBB agreed that Home could count supervisory goodwill toward reserve capital and that it would not take action against Home for failing to meet reserve capital. Id. Even though Ahmanson was not a signator y of the assistance agreements and the agreements contained sole benefit clauses, this court affirmed the CFC’s conclusion that Ahmanson was in priv ity with the government. Id. at 1348-50. In Home Savings , we approved the CFC’s determination that Ah manson was a party to a much larger “overall” transaction because the resolutions contained reciprocal promises between the government and Ahmanson. Namely, Ahmanson promised it would maintain Home’s

2005-5141,-5179 6net worth, and the government promised it would provide financial assistance in the form of special accounting treatment. Id. at 1349. Furthermore, the court approved the CFC’s recognition that Ahmanson was the offe ror that initiated negotiations that eventually led to the agreement. Id. at 1349-50. It is difficult to reconcile these conflicting cases. In Home Savings , we considered the shareholder’s par ticipation in the negotiation very important, whereas in SoCal , the participation did not ov ercome the fact that the subsidiary was the actual party to the contract. Furthermore, in Home Savings , we recognized that the negotiations, offers, agreements, and resoluti ons made an overall contract, whereas SoCal did not recognize the existence of an overall contract. The key feature in both cases is the sole benefit and entire agreement clauses. In Home Savings , the sole benefit clause was virtua lly ignored because the integration clause included resolutions that contained reci procal promises bet ween the shareholder and the government. In SoCal , however, the court gave significant weight to the clauses because the Entire Agreement claus e had not integrated t he RCMA, which was the only document signifying an agr eement with the shareholders. In the present case, the Entire Agr eement clause (“EA clause”) and the Sole Benefit clause (“SB clause”) serve to prevent CHTE from benefiting under the contract. The SB Clause states that t he Assistance Agreement, which includes a condition for release of CHTE, is for the So le Benefit of the parties and not CHTE. Thus, to this extent, the Assistance Agreem ent is the entire agreement and where there is a conflict, it is the controlling document. Therefore, the only parties to the enforceable agreement are the FHLBB and SSA, not CHTE. Any ot her documents that CHT E relies on to be

2005-5141,-5179 7considered a contracting party are precluded by the EA and SB clauses. It is not in privity with any of the agreements. As in SoCal , CHTE may have negotiated the cont racts as the CFC found, but they did not structure their co mmitments in any way that makes them liable. Instead, all the legal obligations are issued by the subs idiary making the subsidiary liable. CHTE places great weight on the resolutions, re leases, and forbearances suggesting that CHTE was a party and negotiated a release of its NWM commitments in exchange for the subordinated debt. These facts, howev er, support the proposit ion that CHTE was acting solely as the shareholder parent and not as a party in privity of contract. By releasing itself from the liability of maintain ing SSA’s net worth, it distanced itself from SSA’s failure and agreement to acquire insolvent institutions. Unlike Home Savings there are no “mutual, reciprocal obligations” where the shareholder fu rther increased its liability for maintenance of the net wort h; here, CHTE had no su ch liability as a shareholder of SSA. Moreover, CHTE places great weight on the H-(e)3 application and its implications as an overall contract. But, t here is no indication that the application is separate from the Assistance Agreement that included a sole benefit clause and removes any conflict among the parties. Mo reover, the resolution authorizes and approves the execution by FHLBB of the agreements. The release obtained by CHTE was for its benefit, and as a s hareholder, it negotiated that re lease as a condition of SSA’s participation in the Assistance Agreem ent. CHTE thereby had no financial or legal obligation under any agr eement, and it was not a signat ory to any agreement that would provide the required Article III standing.

2005-5141,-5179 8At most, we could consider the gover nment’s release of CHTE from the NWM commitments as a contract between the government and CHTE. Though the Release references the Assistance Agreement, it does so only to note that it is a condition of SSA’s performance. The Release itself states that the government releases CHTE from the commitments in return for the conversi on of $25 million in s ubordinated debt to equity in SSA. CHTE was not exposed to any liability as a shareholder under the SSA contracts. There is no indication t hat CHTE retained any benefits from the contract/condition and no evidence that the government intended it. The only party in interest here is SSA and not the s hareholder CHTE. Similarly, in Domino’s Pizza Inc. v. McDonald , 126 S.Ct. 1246 (2006) where a contra ct right was created between the company and the franchisee, t he shareholder had no contract ri ghts. Specifically, the Court held that: [I]t is fundamental corporation and agen cy law—indeed, it can be said to be the whole purpose of corpor ation and agency law—that the shareholder and contracting officer of a corporation has no rights and is exposed to no liability under the corporation’s contracts. Id. at 1250-51. Here we have the classic case where t here is only a mist of evidence that the majority endeavors to make into a cloud of ev idence. But as we have stated previously “there needs to be something more than a cl oud of evidence that could be consistent with a contract to prove a c ontract and enforceable rights.” D&N Bank v. United States , 331 F.3d 1374, 1377 (Fed. Cir. 2003).
This action fails to meet Article III standing requirements. However, the majority
has allowed a shareholder to recover on a caus e of action premised upon “privity” of an “overarching” contract between a shareholder and the government. We once again find

2005-5141,-5179 9privity of contract where no contractual obligation or cons ideration on the part of the shareholder exists. 4 There is no “overarching” agreem ent which is enforceable by the shareholder. The “overarching” is as illusory as a rainbow, and in this particular case the shareholder has indeed found a pot of gold at the end. To allow CHTE standing not only violates Article III but also the corporate form, as well as the intent of t he parties in negotiating the Entire Agreement-type clauses. Thus, CHTE has no standing, and the CFC judgm ent should be reversed. The majority continues to deny the exist ence of a legal differentiation between a corporation and its shareholder. Here, the shareholder’s use of a corporate structure to limit its liability should be respected. We should not, however , permit what in essence is a reverse corporate veil piercing by the shareholder allowing it to recover damages under an “overarching” agreement. The majority gr ants standing to a non-c ontracting party. Moreover, we fail to enforce classic corpor ate contract clauses that are negotiated and accepted by the contractual parties. For these reasons, I dissent. 5

4 The majority states that the gov ernment does not c hallenge the trial court’s finding that the enac tment of FIRREA was not a material breach of the government’s contract with CHTE; however, the government challenges the existence of the contract with CHTE. The majori ty cannot grant CHTE standing without the existence of the illusory “overarching” contract. 5 The majority does not allow the recovery of CHTE’s equity. I agree; however, I dissent to the basic principl e that standing is allowed premised on an “overarching” agreement.
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