## United States Court of Appeals for the Federal Circuit

04-5137, -5138 FRANKLIN FEDERAL SAVINGS BANK, and FR ANKLIN FINANCIAL GROUP, INC., Plaintiffs-Cross Appellants, and GEORGE O. HAGGARD, JR., BEN B. JARNAGIN, RICHARD C. JESSEE, A. EUGENE JOLLEY, JEAN S. KEENER, GEORGE R. McGUFFIN, and CHARLES G. ROBINETTE, Plaintiffs-Cross Appellants,

v.

UNITED STATES, Defendant-Appellant.

Eric W. Bloom , Winston & Strawn LLP, of Washi ngton, DC, argued for plaintiffscross appellants. With him on the brie f for George O. Haggard, Jr., et al. were Thomas M. Buchanan and Charles B. Klein . Of counsel on the brief for Franklin Federal Savings Bank, et al. was Thomas R. Dyer , Wyatt, Tarrant & Combs, LLP, of Memphis, Tennessee. William F. Ryan , Assistant Director, Commercial Li tigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendantappellant. With him on the brief were Stuart E. Schiffer , Deputy Assistant Attorney General, David M. Cohen , Director, Jeanne E. Davidson , Deputy Director, Elizabeth A. Holt and John H. Roberson , Trial Attorneys. Of counsel were Delisa M. Sanchez and Marc S. Sacks

. Appealed from: United States Court of Federal Claims Judge Nancy B. Firestone

## United States Court of Appeals for the Federal Circuit

04-5137, -5138 FRANKLIN FEDERAL SAVINGS BANK, and FR ANKLIN FINANCIAL GROUP, INC., Plaintiffs-Cross Appellants, and GEORGE O. HAGGARD, JR., BEN B. JARNAGIN, RICHARD C. JESSEE, A. EUGENE JOLLEY, JEAN S. KEENER, GEORGE R. McGUFFIN, AND CHARLES G. ROBINETTE, Plaintiffs-Cross Appellants,

v.

UNITED STATES, Defendant-Appellant.

___________________________ DECIDED: December 14, 2005

___________________________ Before CLEVENGER, RADER, DYK, Circuit Judges

. Opinion for the court filed by Circuit Judge DYK. Dissenting opi nion filed by Circuit Judge RADER. DYK, Circuit Judge

. This is a Winstar breach of contract case. See United States v. Winstar Corp. , 518 U.S. 839 (1996). The primary question on appeal is whether, under our decision in Admiral Financial Corp. v. United States , 378 F.3d 1336 (Fed. Cir. 2004), the thrift entities, Franklin Federal Savings Bank (“Franklin Federal”) and Franklin FinancialGroup, Inc. (“Franklin Financial”) assumed t he risk of regulatory change resulting from the enactment of the Financial Institutions Reform, Recove ry and Enforcement Act of 1989 (“FIRREA”), Pub. L. No. 101-73, 103 Stat. 183. (We refer to Franklin Federal and Franklin Financial together as “Franklin.”) A subsidiary question is whether there was a contractual or third party beneficiary relati onship with the government that would confer standing on the shareholders of the thri ft holding company, Franklin Financial (hereinafter the “Seven Shareholders ”). We conclude that Admiral governs, and that the thrift entities assumed t he risk of regulatory change. Thus we do not reach the subsidiary question of shareholder standing. We accordingly reverse the judgment of the Court of Federal Claims. BACKGROUND
I Morristown Federal Savings and Loan Asso ciation (“Morristown”) was a federal mutual savings association, or “thrift.” Franklin Fed. Sav. Ba nk v. United States , 53 Fed. Cl. 690, 693 (2002) (“Franklin I ”). Morristown was one of many thrifts that became undercapitalized when “the combination of high in terest rates and inflation in the late 1970’s and early 1980’s brought about a . . . cris is in the thrift industry.” Winstar , 518 U.S. at 845. By the end of 1987 Morristown had a negativ e net worth of $3.536 million.
Franklin I , 53 Fed. Cl. at 694. The Federal Savings and Loan Insurance Co rporation (“FSLIC”) was responsible for insuring thrift deposits and regulating federa lly insured thrifts. Rather than allowing thrifts like Morristown to fail, FSLIC encour aged ailing thrifts and healthy thrifts to merge in a series of “supervisory mergers.” The th rifts desired to use the “purchase” method of

04-5137, -5138 2accounting, under which the newly created thrift could designate the excess of the purchase price over the fair value of all acquired assets as an intangible asset called “supervisory goodwill,” and claim it as an asse t for purposes of computing regulatory capital. The purchase me thod of accounting “permit[t ed] the acquiring entity to designate the excess of the purc hase price over the fair val ue of all identifiable assets acquired as an intangible asset called ‘goodwill’ . . . . Goodwill recognized under the purchase method as the result of an FS LIC-sponsored supervisory merger was generally referred to as ‘supervisory goodwill.’” Winstar , 518 U.S. at 848-49. The thrifts were often permitted to amortize this goodwill over an extended period of time. Id. at 851. Under then-current regulations, it was unc ertain whether regulators would permit the use of this method for computat ion of regulatory capital. Id. at 855 (“[I]t was not obvious that regulators would accept pur chase accounting in determining compliance with regulatory criteria, and it was clearly prudent to get agr eement on the matter.”). To assure that these acquisitions would comp ly with existing regul atory requirements, FSLIC often gave the newly created thrift express permission to use the purchase method of accounting and to count the supervi sory goodwill toward its reserve capital requirements. Id. at 847-48. In some cases the government’s regulatory forbearance was not reflected in a contra ct with the thrift and did not cr eate government liability for a change in accounting treatment. See, e.g. , D & N Bank v. United States , 331 F.3d 1374, 1382 (Fed. Cir. 2003). In ot hers, the special accounti ng treatment was part of a contract between the thrift and the government. See, e.g. , Winstar , 518 U.S. 839; Fifth Third Bank of W. Ohio v. United States , 402 F.3d 1221 (Fed. Cir. 2005). In such cases,

04-5137, -5138 3the contract typically, but not always, imposed liability on the government if it subsequently adopted more restrictive regulations. See Winstar , 518 U.S. 839; Fifth Third , 402 F.3d 1221; Admiral , 378 F.3d 1336. In response to Morristown’s financial problems, the Federal Home Loan Bank Board (“Bank Board”), which had authority to act on behalf of FSLIC, recommended by letter in December 1987 that Morristown’s boar d of directors seek to merge with another thrift in a supervisory merger. Morristow n prepared a business plan in May 1988, under which Morristown would be acquired by Frank lin Financial, a holding company formed by Morristown’s board of directors. Under t he plan, FSLIC would pe rmit the new thrift to count Morristown’s supervisory goodwill as an intangible asset. On June 7, 1988, Morristown submitted this pl an with its application for supervisory conversion to the Bank Board. On November 21, 1988, the Bank Board formally issued a conditional “Approval Letter” to the board of directors of Morristown and Franklin Financial. The Approval Letter conditioned the Bank Board’s approval of the transaction on Franklin Financial’s executing an agreemen t, called the Dividend Agreement, 1 and on the Seven Shareholders’ personally guarant eeing the $4.5 million loan. In a section entitled “Supervisory Forbearances,” the Approval Letter provided that “the Secretary or an Assistant Secretary of the Board is hereby directed and authorized to issue to the Institution a letter concerning supervisory forbearances.” (J.A. at A200443.) A

1 The Approval Letter stated that “the Acquiror is hereby authorized to acquire control of the Institut ion, provided that . . . . [p]r ior to the consummation of the transaction, the Acquiror shall enter into an agreement with the FSLIC, substantially in the form attached hereto as ‘Voting and Disposit ion Rights/ Dividend Agreement’ . . . .” (J.A. at A200441.)
04-5137, -5138 4Forbearance Letter, which would become e ffective upon approval of the transaction, was issued on the same date as the Approval Letter. On January 12, 1989, Franklin Financia l and the Bank Board executed the Dividend Agreement. The signatories of the Dividend Agreement were Franklin Financial and FSLIC. The prem ise of the Dividend Agreement was that the government would take favorable action approving the acqui sition. It stated that Franklin Financial’s agreement was “in consideration of the FSLI C acting favorably on the Application [for approval of the transaction].” (J.A. at A200467.) The FSLIC’s favorable action with respect to the application in cluded the FSLIC’s approval of Franklin Financial’s request for regulatory forbearance, as reflected in the Forbearance Letter. In the Forbearance Letter the Bank Board allowed Franklin F ederal to treat the supervisory goodwill of Morristown as an intangible asset, amortizable over 25 years. The Dividend Agreement also included secti on VIII(D), which prov ided that “[a]ll references to regulations . . . shall incl ude any successor regulation thereto, it being expressly understood that s ubsequent amendments to such regulations may be made and that such amendments may increase or decrease the Acquiror’s obligation under this Agreement.” The key question on appeal is whether the “successor regulation” language in section VIII(D) placed the ri sk of regulatory change on Franklin. The Dividend Agreement also prohibited Fr anklin Financial from accepting from Franklin Federal any dividend t hat would cause Franklin Federal’s regulatory capital to fall below the regulatory capital trigger, and prov ided that if Franklin Federal’s capital fell below the trigger for more t han 30 days, it would be subject to immediate seizure. The Dividend Agreement had an integration claus e that stated that “[t]his agreement,

04-5137, -5138 5together with any understanding agr eed to in writing by the parties, constitutes the entire agreement between the parties . . . .” (J.A. at A200475.) The Seven Shareholders were not parties to the Dividend Agreement but were parties to two separate agreem ents with the Bank Board re lating to the supervisory transaction. First, the shareholders and the Bank Board signed a “Shareholder Agreement to Service Holding Company D ebt,” which obligated the shareholders to service the $4.5 million debt in the event dividends paid from Franklin Federal to Franklin Financial, were insufficient. Se cond, the shareholders, Franklin Financial and the Bank Board signed a “Capital Infusion Ag reement,” requiring the shareholders to provide additional capital if Franklin’s capita l fell below regulatory requirements within 30 days after the conversion. Pursuant to the plan, on J anuary 12, 1989, Morristown c onverted from a mutual association to a stock company, changed its name to Franklin Federal, and issued $5 million of common stock to Franklin Fi nancial. In exchange for the stock, Morristown/Franklin Federal received a $5 million cash infusion from Franklin Financial. To finance the purchase of Franklin Federal’s stock, Franklin Financial issued stock to its shareholders (the Seven S hareholders) for a total price of $500,000 in cash. Franklin Financial borrowed the remaining $4. 5 million from a local commercial bank. This loan was secured personally by the Seven Shareholders, who planned to service the debt using dividends paid from Franklin Federal to Franklin Financial, and then from Franklin Financial to the Seven Shareholder s. According to an independent auditor’s report issued on March 10, 1989, after t he transaction Franklin Federal’s goodwill totaled $9,391,291.

04-5137, -5138 6II Eight months after the acquisition and t he execution of the Dividend Agreement, Congress enacted FIRREA, whic h limited the ability of thri ft institutions to count supervisory goodwill towards their regulatory capital requirements. 2 W i n s t a r , 518 U.S. at 856-60. Under these new capital standards, Franklin Feder al’s regulatory capital fell below the minimum capital requirement, and it became an insolvent thrift, subject to immediate seizure. Because the Dividend Ag reement prevented Fr anklin Federal from issuing dividends when its regulatory capita l fell below minimum requirements, the Seven Shareholders allege that they were forced to service Franklin Financial’s $4.5 million debt from their personal assets. In order to meet the new capital standards, Franklin Financial raised money through stock offerings to new shareholders. These offerings to outsiders diminished the Sev en Shareholders’ ownership in Franklin Financial from 100% to 62.3%. Franklin I , 53 Fed. Cl. at 703. As a consequence, when the Seven Shareholders later exchanged their st ock in Franklin Financial for stock of another company in a merger, they claimed that they re ceived less than 100% of the value of Franklin Financial. In 1992, Franklin Federal, Franklin Financ ial, and the Seven Shareholders filed suit in the Court of Federal Claims, allegi ng that the passage of FIRREA resulted in the breach by the government of a contract incorporating a Forbearance Letter, which “promis[ed] that Franklin F ederal Savings Bank could treat supervisory goodwill as an

2 FIRREA recognized two forms of regul atory capital requirements, “tangible capital” and “core capital.” It prevented th rifts from counting any supervisory goodwill towards their “tangible capital” requirement, and allowed thrifts to count goodwill toward their “core capital” requirement only acco rding to a phase-out schedule. Franklin I , 53 Fed. Cl. at 700.
04-5137, -5138 7asset, amortizable over 25 years, for the purposes of satisfying regulatory capital requirements.” Franklin I , 53 Fed. Cl. at 690, 692. Pertinent to this appeal, the government argued, first, that there was no contractual agreement with respect to goodwill and that the Bank Board lacked aut hority to enter into a binding goodwill contract as part of an “unassi sted” acquisition (i.e., an acquisition that did not involve financial assistance from the government). Id. at 708-09. Second, the government argued that, even if there was a contract, it was not breached by the enactment of FIRREA because section VIII(D) of the Dividend Agreement assigned the risk of regulatory change to the thrift entities. Id. at 711-12. Third, t he government argued that the Seven Shareholders lacked st anding because they were not direct parties to any of the core contractual documents and were not third party beneficiaries. On summary judgment, the Court of F ederal Claims rejected the government’s argument that there was no c ontractual agreement and that the Bank Board officials lacked authority to enter into a goodwill contract in connection with an “unassisted” acquisition. It found that t he Dividend Agreement was a binding contract, and, contrary to the government’s argument s, that the Dividend Agreem ent’s integration clause, section VIII(K), incorporated the Forbearanc e Letter and Approval Letter into that contract. Franklin I , 53 Fed. Cl. at 705-06. The court rejected the government’s argument that the Div idend Agreement assigned the risk of regulatory change to the thrift entities, finding that “the specific language in the Forbearance Letter . . . takes precedence over the more general ‘successor r egulation’ provision (Sec.VIII.D.) of the Dividend Agreement.” Id. at 715. In the court’s vi ew, the “successor regulation” language in section VIII(D) permitted the government to change the level of regulatory

04-5137, -5138 8capital, but not the method by which it was calculated. Id. at 716. It found that the contract had been breached by the enactment of FIRREA, because FIRREA altered the method of calculation of regulatory capital. Id. The Court of Federal Claims’ decision was rendered before our recent decision in Admiral Financial Corp. v. United States , 378 F.3d 1336 (Fed. Cir. 2004), in wh ich we held that a provision identical to section VIII(D) assigned the risk of regulatory change to the thrift. The Court of Federal Claims found that the Seven Shareholders had standing to sue the government because they were parties to the “goodwill contract.” Franklin I , 53 Fed. Cl. at 717-18. Alt hough the Seven Shareholders were not signatories of the Dividend Agreement and were not recipients of the Forbearance Letter, they were nonetheless parties to the goodwill contract because the core documents imposed duties on them. In particular, the Approval Letter conditioned approval of the merger on the Seven Shareholders’ personally guaranteei ng Franklin Financial’s $5 million debt. Hence, the government was li able not only to Franklin Federal and Franklin Financial but also to the individual shareholders. Id. Following its liability decision, the trial court issued two opinions with respect to damages, the first on summary judgment before tr ial and the second after trial. Franklin Fed. Sav. Bank v. United States , 55 Fed. Cl. 108 ( 2003) (“Franklin II ”); Franklin Fed. Sav. Bank v. United States , 60 Fed. Cl. 55 (2004) (“Franklin III ”). Final judgment was entered on April 22, 2004, and awarded damages of $217,630.79 to Franklin Financial, $109,016.83 to Franklin Federal , and $470,060 to the Seven Shareholders. Franklin III , 60 Fed. Cl. at 61, 73.

04-5137, -5138 9The government appeals, challenging the C ourt of Federal Claims’ liability and standing determinations. The plaintiffs cross- appeal certain aspects of the trial court’s damages determinations. DISCUSSION
I In order to prevail in a Winstar case a plaintiff with standi ng must establish that a contract existed with the gov ernment whereby the governm ent was “contractually bound to recognize the supervisory goodwill and [parti cular] amortization periods.” Winstar Corp. v. United States , 64 F.3d 1531, 1541-42 (F ed. Cir. 1995), aff’d , 518 U.S. 839 (1996). On appeal, the government is prepared to assume that a cont ract existed, and argues that, if there was a contract, it plac ed the risk of regulatory change on the thrift entities rather than the government. Despit e the government’s co ncession, we must nonetheless determine the nature of the c ontract before determining its effect. The mere issuance of the Approval Letter and the Forbearance Letter by the government did not, of course, create a c ontract between Franklin and the government. In D & N Bank , the plaintiff similarly relied on a Bank Board Resolution conditioning approval of the merger on submission of an analysis of the effect of the special accounting method. 331 F.3d at 1378-79. We rejected the argument that such regulatory approval created a contract. Id. at 1379; see also First Commerce Corp. v. United States , 335 F.3d 1373 (Fed. Cir. 2003) (refusi ng to find a contract based on regulatory approval alone); Anderson v. United States , 344 F.3d 1343 (Fed. Cir. 2003) (same). More recently we recognized that “mere approval of a merger by FHLBB,

04-5137, -5138 10acting solely in its regulatory capacity, [does] not create contra ctual obligations . . . .” Fifth Third , 402 F.3d at 1234. Here it is particularly plain that t he regulatory approvals did not themselves constitute a contract. Throughout the period of negotiation it was clear that the parties contemplated that there w ould not be agreement absent t he Dividend Agreement. The Approval Letter specifically was conditi oned on execution of t he Dividend Agreement. Nor did the integration claus e of the Dividend Agreement incorporate the regulatory approvals. The integration clause of the Dividend Agreement itself provided that the Dividend Agreement would “supersede[ ] all prior agreements and understandings of the parties in connection with the subject matter hereof” save “any understanding in writing by the parties.” 3 The Approval Letter and Forbear ance Letter were not “written” agreements signed by the parties , and were not characterized as such in the Dividend Agreement. 4 They were not agreem ents in and of themselves but merely regulatory

3 The integration clause provided: This Agreement, together with any underst anding agreed to in writing by the parties, constitutes the entir e agreement between the parties and supersedes all prior agreements and understandings of the parties in connection with the subject matter hereof. (J.A. at 200475.) 4 Our prior cases holding integration clauses incorporated Forbearance Letters and Approval Letters invoked different language that explicitly incorporated the Letters. In Winstar , for example, a Supervisory Assi stance Agreement (“SAA”) for the Glendale transaction provided: This Agreement . . . constitutes t he entire agreement between the parties thereto and supersedes all prior agreements and understandings of the parties in connection herewith, except ing only the Agreement of Merger and any resolutions or letters issued contemporaneously herewith

. . . .

04-5137, -5138 11approvals that could only become enforc eable by the mechanism of the Dividend Agreement. Whatever oral agreements that might have been reached were expressly superseded by the Dividend Agreement. Thus , while the Dividend Agreement created a contract between Franklin and t he government, contrary to the decision of the Court of Federal Claims, the integrat ion clause of the Dividend Agr eement did not incorporate the Approval and Forbearance Letters into the Dividend Agreement. Nonetheless we agree that the Dividend Agreement created a goodwill contract that obligated the government to comply wit h the Forbearance Letter’ s authorization to “[amortize] the value of any unidentifiable int angible assets resulting from accounting for the acquisition in accordance with the purchase method . . . over a period not to exceed 25 years by the straight line method [for purposes of reporting to the Board].” (J.A. at 200445.) There was a contract here between the government and Franklin with respect to goodwill because the governm ent in the Dividend Agreem ent clearly promised to issue the Approval Letter and Forbear ance Letter (and indeed had already done so conditionally) in exchange for Franklin’s under takings in the Dividend Agreement. The Dividend Agreement identifi ed itself as a “contract made under and governed by Federal law,” stated that “the Acquiror [was] willing to enter into [the] Agreement in order that the FSLIC [would] act favorably upon the [Application for approval of the acquisition],” and provided that Franklin Financ ial’s agreement to maintain Franklin

Winstar , 64 F.3d at 1540 (emphasis in original); see also Winstar , 518 U.S. at 862 (plurality opinion). Other cases involve substantially simila r language. See, e.g. , S. Cal. Fed. Sav. & Loan Ass’ n. v. United States , 422 F.3d 1319, 1329 (Fed. Cir. 2005); Barron Bancshares, Inc. v. United States , 366 F.3d 1360, 1375 n.11 (Fed. Cir. 2004) (see Barron Bancshares, Inc. v. United States , 53 Fed. Cl. 310, 316 n. 10 (2002), for the full integration clause); Cienega Gardens v. United States , 194 F.3d 1231, 1246 n.12 (Fed. Cir. 1998).
04-5137, -5138 12Federal’s regulatory capital was “in consider ation of the FSLIC acting favorably on the Application [for approval].” (J.A. at A200467, A200474.) In the language of basic contract law, the Dividend Agreement reflected a bargained-for exchange between the government and Franklin Financial. Restatement (Second) Contracts § 17 (1981) (“Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestati on of mutual assent to the exchange and a consideration.”); see also id. at § 3 (“A bargain is an agreement to exchange promises or to exchange a promis e for a performance or to exchange performances.”). Franklin Financial promised to maintain the regulatory capital of Franklin Federal. In return, the government promised to “act favorably upon [Franklin’s] Application.” (J.A. at A200467.) “Favorable action” required the government to permit the acquisition to occur, and pursuant to t he Forbearance Letter, to waive regulatory requirements. We therefore conclude that the Dividend Agreem ent created a binding agreement with respect to the r egulatory treatment of goodwill.
II We turn then to the central question--whet her that contract placed the risk of regulatory change on the government. The Supreme Court addressed this question in Winstar itself. In Winstar , a primary focus of the various Supreme Court opinions was on the unmistakability doctrine--that is, whether the contracts s hould be presumed to pr omise only temporary forbearance (until regulatory c hange occurred) or long-term fo rbearance. The plurality held that the unmistakability doctrine did not apply in actions seeking to recover

04-5137, -5138 13monetary damages for breach of contract, and t hat there thus was no presumption that the contracts promised temporar y forbearance only. Winstar , 518 U.S. at 887, 910. The particular contracts were construed as promising long-term forbearance. Id. at 861. But, as we shall see, the plurality agreed that clear language in such contracts could limit the promise to tempor ary forbearance and shift the ri sk of regulatory change to the thrift. Justice Scalia’s concurrence urged that the unmistakability doctrine applied to such contracts, but that t he agreements did not shift the ri sk of regulatory change to the thrifts. Id. at 920-21. Justice Scalia indeed be lieved that a promise for temporary forbearance was illusory, and would render the contracts unenforceable. Id. at 921. The dissent urged that the unmistakability doc trine applied and that the contracts should be construed as promising only temporary forbearance even without the clear language demanded by the plurality. Id. at 929-30, 937. Franklin urges that we treat Justice Sc alia’s opinion as binding and hold that a contract for temporary regulator y forbearance is illusory. See Pls.’ Br. at 29-30 (quoting Winstar , 518 U.S. at 921). In our view Justice Scalia’s position, far from representing the majority view, itself is a minor ity view on this particular issue. The plurality and the dissent agreed that the parties could have contracted only for temporary forbearance, but disagreed as to whether a clear statement was necessary. Because the plurality required a clear statement to legitimate a temporary forbearance, its view is narrower than t he dissent, which found binding temporary forbearance without the need for a clear statement. We must treat the narrower view as the holding of the Court. See Commonwealth Edison Co. v. United States , 271 F.3d

04-5137, -5138 141327, 1339 (Fed. Cir. 2001) (en banc); cf. Marks v. United States , 430 U.S. 188, 193 (1977). The Winstar plurality pointed to Guaranty Fi nancial Services, Inc. v. Ryan , 928 F.2d 994, 999 (11th Cir. 1991), as an example of a case in which the presumption in favor of long-term forbearance was rebutted. Winstar , 518 U.S. at 869 n.15. 5 T h e r e , Guaranty Financial Services, Inc. and FSLIC entered into a writt en agreement entitled “Regulatory Capital Maintenance/Dividend Agreem ent,” which incorporated by reference a forbearance letter. Guaranty , 928 F.2d at 996. The Divi dend Agreement contained a risk shifting provision, section VI(D), which stated: All references to regulations of t he Board or the FSLIC used in this Agreement shall include any successo r regulation ther eto, it being expressly understood that subsequent amendments to such regulations may be made and that such amendment s may increase or decrease the Acquiror’s obligation under this Agreement. Id. at 999. The Eleventh Circuit held that section VI(D) of the Dividend Agreement gave Guaranty the right to treat supervisory goodwill as regulatory capital only for so long as

5 The plurality stated in full: To be sure, each side could have elim inated any serious contest about the correctness of their interpretive positi ons by using clearer language. See, e.g. , Guaranty Financial Services, Inc. v. Ryan , 928 F.2d 994, 999-1000 (11th Cir. 1991) (finding, based on very different contract language, that the Government had expressly reserv ed the right to change the capital requirements without any re sponsibility to the acquiring thrift). The failure to be even more explicit is perhaps mo re surprising here, given the size and complexity of these transactions. But few contract cases would be in court if contract language had articulat ed the parties’ postbreach positions as clearly as might have been done, and t he failure to specify remedies in the contract is no reason to find that the parties intended no remedy at all. The Court of Claims and F ederal Circuit were thus left with the familiar task of determining which party’s inte rpretation was more nearly supported by the evidence.

04-5137, -5138 15statutes and regulations governing the area remained as they were when the agreement was signed. Id. The court held that this pr ovision “unmistakably warn[ed] Guaranty that its obligati ons under the contract may be increased by subsequent regulation.” Id. Consistent with and citing the Winstar plurality view, we held in Admiral that the same contract language that was at issue in Guaranty placed the risk of regulatory change on the thrift. Admiral , 378 F.3d at 1342. Admiral is factually identical to Guaranty . In 1988, Admiral Financial Corpor ation acquired a failing thrift, Haven Federal Savings and Loan, pursuant to a Bank Board resolution. Admiral and the Bank Board executed a Dividend Agreem ent that “bound Admiral to ma intain a certain level of capital in Haven,” and subjected Admiral to def ault if Haven’s capital level fell below the trigger for more than 90 days. Id. at 1338. In connection with approval of the transaction, the Bank Board sent a forbear ance letter permitting Ad miral to amortize goodwill over a 25 year period. T he Dividend Agreement in Admiral contained a risk shifting provision identical to the Dividend Agreement here. Id. In Admiral , we held that the Dividend Agreement ’s risk-shifting clause placed the risk of regulatory change on the thrift. In other words, the provision in Admiral , like section VI(D) in Guaranty , overcame the presumption that the promises contained in the forbearance letter were absolute. In Admiral , we explicitly reject ed the Court of Federal Claims’ interpretation of the relev ant language that appeared both in the Dividend Agreement in Admiral and that appears in the Dividend Ag reement here. We found that the risk-shifting provision “[di d] not limit those changes to increasing or decreasing the

Winstar , 518 U.S. at 869 n.15.
04-5137, -5138 16level of capital that thrifts must mainta in, as opposed to changing the accounting methods the Bank Board requires.” Admiral , 378 F.3d at 1341 (emphasis added). In our later decision in Hometown Financial Inc. v. United States , 409 F.3d 1360 (Fed. Cir. 2005), we distinguished Admiral and found that a dividend agreement did not shift the risk of regulatory change to the thrift. Hometown , 409 F.3d 1367-68. Although the agreement in Hometown contained a risk shifting provision identical to the Dividend Agreement in Admiral , the Hometown agreement c ontained additional language that “specifically identified how the fo rbearances should be treated.” Id. at 1367-68. 6 Relying on this additional language, the court f ound that the plaintiffs did not assume the risk of regulatory c hange. The Dividend Agreement here lacks the additional language that distinguished Hometown from Admiral

. In fact, both parties here agree the contract language in Admiral is identical in all material respects to the language of the contract before us. Article VIII(D) of the Franklin Dividend Agreement provided: All references to regulations of t he Board or the FSLIC used in this Agreement shall include any successo r regulation ther eto, it being

6 Section I(E) of the regulator y maintenance agreement in Hometown provided: “Regulatory Capital Requirement” m eans the Institution’s regulatory capital requirement at a given time computed in accordance with 12 C.F.R. § 561.13(b), or any successor regul ation thereto, ex cept that during the five-year period following consu mmation of the acquisition of the Institution, the Regulatory Capital Requi rement of the Inst itution shall take into account forbearances grant ed by the FHLBB by letter dated December 22, 1987 and thos e granted by the Princi pal Supervisory Agent of the Federal Home Loan Bank of Indianapolis by letter dated April 1, 1988. Hometown , 409 F.3d at 1367 (emphasis added). The agreements in Admiral and in the present case lack the specific references to forbearances in the “except that” clause.
04-5137, -5138 17expressly understood that subsequent amendments to such regulations may be made and that such amendment s may increase or decrease the Acquiror’s obligation under this Agreement. The risk-shifting clause in the Admiral Dividend Agreement, article VI(D), was identical. Similarly, the language in the Forbearance Letters in the two cases was identical in all material respects. The May 4, 1988, letter in Admiral provided, in pertinent part: For purposes of reporting to the Board, the value of any intangible assets resulting from the application of pus h-down accounting in accounting for the purchase, may be amortized by Ha ven for a period not to exceed 25 years by the straight-line method. Admiral Fin. Corp. v. United States , 54 Fed. Cl. 247, 251 (2002). The Forbearance Letter to Morristown/Franklin Federal provided: For purposes of reporting to the Boar d, the value of any unidentifiable intangible assets resulting from accounting for the acquisition in accordance with the purchase method may be amortized by Franklin Federal Savings Bank over a period not to exceed 25 years by the straight line method. (J.A. at A200445.) 7 Given the virtual identity in language, Admiral would appear to govern. However, Franklin urges that we need not follow Admiral here. We conclude that the arguments for declining to follow Admiral are not persuasive. First, Franklin argues that Admiral is inconsist ent with our en banc decision in Winstar v. United States , 64 F.3d 1531 (Fed. Cir. 1995). In Winstar , we rejected the government’s argument that t he regulatory maintenance agreement in that case shifted the risk of regulatory change to the thrift. Approval of the Winstar merger was

7 The Dividend Agreement in Admiral contained the same language that we rely on today to find a goodwill contract. It st ated that Admiral’s agreement to maintain regulatory capital of Haven was “in cons ideration of the FS LIC approving the acquisition . . . .” Admiral , 378 F.3d 1336 (J.A. at A400034).
04-5137, -5138 18conditioned on Winstar’s filing a “Net Worth Maintenance Stipulation,” which required Winstar to maintain its “net worth . . . at a level consistent with that required by . . . Insurance Regulations, as now or her eafter in effect . . . .” See Winstar , 518 U.S. 839 (J.A. at 78). The government argued that th is agreement “required Winstar to abide by any changes in the law regarding regulatory capital.” Winstar , 64 F.3d at 1544. The court agreed that Winstar was obligated to “mainta in its capital at levels set by the bank regulators,” but found that this agreement did not “eclipse t he government’s . . . promise that Winstar could count supervisory good will [towards maintaining whatever capital level the regulators set].” Id. In other words, the agr eement required the obvious-- adherence to future regulatory requirements-- but did not shift t he risk of regulatory change to Winstar. Admiral was different. Section VI(D) of the Admiral Dividend Agreement made it “expre ssly understood that subsequent amendments to such regulations may be made and that such amendments may increase or decrease the Acquiror’s obligation under this Agreement.” Admiral , 378 F.3d 1339. We held that this quite different language was sufficient to shi ft the risk of regulat ory change. Hence, Admiral was entirely consistent with our en banc decision in Winstar

. Second, Franklin, relying on Justice Scalia’s Winstar concurrence, argues that the contract here must be construed not to place the risk of regulatory change on the thrift entities, because construing the contract to place the risk on the thrift entities would render the contract illusory. Franklin asserts that no simila r problem existed in Admiral because there there was consideration not present in this case. Franklin’s reliance on the Winstar concurrence is misplaced, bec ause as noted above, the plurality and the dissent rejected this view. Under Winstar , a promise for a regulatory waiver

04-5137, -5138 19until regulatory change occurs is plainly suffi cient consideration. Further, both here and in Admiral there is other consideration--the gov ernment’s agreement to approve of the transaction. Here as in Admiral the agreements are not illusory. Finally, Franklin argues that the Admiral court did not consi der the effect of additional language in the Forbearance Letter that appeared after the goodwill forbearance. The Forbearance Letter stated that it “shall not be construed to constitute forbearance . . . with respect to any regulator y or other requirements other than those [specified in the Forbearance Letter] . . . .” (J.A. at A200445). Franklin contends that the “regulatory or other require ments” that were waived s hould be construed to refer to both current and future regulatory requirements. Frank lin achieves this result by treating the Forbearance Letter as part of the Dividend Agreement, and subject to its definitions, and by relying on t he Dividend Agreement’s statement that “all references to regulations . . . in this Agreement sha ll include any successor regulations thereto . . . .” (J.A. at A200474 (emphasis added)). Franklin thus argues that because the Dividend Agreement says “regulations” includes “succe ssor regulations,” we must interpret “regulatory requirements” in the Forbearance Letter to in clude the “future regulatory requirements.” The gist of Franklin’s argum ent here is that Admiral overlooked an argument that would have disposed of the issue of liability in favor of the thrift. Franklin thus candidly asserts that Admiral was wrongly decided and that we should reconsider it. We are skeptical that Admiral can or should be disregarded simply because it failed to discuss Franklin’s new argument. In any event, we conclude that Franklin’s new argument, apparently raised for the first time on appeal, is without merit. As we

04-5137, -5138 20have discussed above, the Dividend Agreement and Forbearance Letter were not part of a single integrated document. While we construe the two together to ascertain the intent of the parties, there is no basis for assuming, as Franklin asks us to do, that the precise definitions of the Dividend Agreement are applicable to the Forbearance Letter. 8 To treat the Dividend Agreement’s definition of the word “regul ation” as applicable to the Forbearance Letter’s different terminology (“regulatory requirement”) is unwarranted, particularly since this would create a conflic t between the two documents. This is not a situation, as in Hometown , where additional language in the Dividend Agreement itself clearly contradicted section VIII(D). Absent such a clear conflict within the Dividend Agreement itself, section VIII(D) must govern. Admiral held that language placed the risk of regulatory change on the thrift. We conclude that here as in Admiral the “successor regulations” clause of the Dividend Agreement placed the risk of regul atory change on the thrift entities. CONCLUSION For the forgoing reasons, we conclude t hat the Dividend Agr eement shifted the risk of regulatory change to t he thrift entities, and Franklin cannot recover for damages resulting from the changes in regulatory c apital requirements wr ought by the enactment of FIRREA. Because we deci de that Franklin may not recover on the contract, we need not reach the issue of shareholder standi ng to enforce the alleged promise. Accordingly, we reverse the judgment of the Court of Federal Claims.

8 “It is important to note that even though several instruments relating to the same subject and executed at the same time should be construed together in order to ascertain the intention of the parties, it does not necessarily follow that those instruments constitute one contract or that one contract was accordingly merged in or

04-5137, -5138 21REVERSED COSTS No costs.

unified with another so that every provision in one becomes a part of every other.” 4 Williston on Contracts § 30:26 (4th ed. 1990).
04-5137, -5138 22

## United States Court of Appeals for the Federal Circuit 04-5137,-5138 FRANKLIN FEDERAL SAVINGS BANK, and FR ANKLIN FINANCIAL GROUP, INC., Plaintiffs-Cross Appellants, and GEORGE O. HAGGARD, JR., BEN B. JARNAGIN, RICHARD C. JESSEE, A. EUGENE JOLLEY, JEAN S. KEENER, GEORGE R. McGUFFIN, and CHARLES G. ROBINETTE, Plaintiffs-Cross Appellants,

v. UNITED STATES, Defendant-Appellant, RADER, Circuit Judge , dissenting. The court today goes t oo far in its reliance on Admiral Financial Corp. v. United States , 378 F.3d 1336 (Fed. Cir. 2004); it relies on silence for authority and fails to consider the importance of the integration clause in this case, which was not present in Admiral . Because the contract between the Gove rnment and Franklin did not shift the risk of regulatory changes to Franklin, and because Admiral does not compel otherwise, I respectfully dissent.
In Admiral , although not necessary for its affirm ance of the United States Court of Federal Claims, the court entertained the Government’s alternative ground for affirmance, i.e., that article VI(D) of t he contract between Admiral and the Government (“the successor regulations clause”) shifted the risk of future regulatory changes to Admiral. Admiral , 378 F.3d at 1339. Admiral does not discuss the Forbearance Letter,or any integration clause in the Dividend Agreement that might have incorporated language from the Forbearance Letter into the Dividend Agreement. In fact, Admiral is silent on the very is sue for which the c our t today finds it dispositive, i.e., whether language in the Forbearance Letter issued to Franklin was sufficient, by virtue of an integration clause in the Div idend Agreement, to prevent the successor regulation s clause from shifting the risk of regulatory c hanges to Franklin. The court summarizes Franklin’s argument: “T he gist of Franklin’s argument here is that Admiral overlooked an argument that would have disposed of the issue of liability in favor of the thrift. Franklin thus candidly asserts that Admiral was wrongly decid ed . . . .” To the contrary, a different decision on the risk-shifting iss ue in Admiral wou l d not have affected the outcome of that case. In Admiral the Court of Federal Claims found that the Government breached its agr eement with Admiral, but that Admiral sustained no damages. Id. This c ourt affirmed, agreeing that Admiral had sustained no damage s, but further holding that the successor r egulations clause of th e Dividend Agreement shifted the risk of future regulatory changes to Admiral. Id. at 1345. The court today places too much emphasis on Admiral ’s silence. An opinion of this court is precedent only for those issues it discusses. See, e.g. , Nat’l Cable Televis i on Assoc., In c. v. Am. Cinema Editors, Inc. , 937 F.2d 1572, 1580 (Fed. Cir. 1991) (“When an issue is not argued or is ignored in a decision, suc h dec ision is not precedent to be followed in a subsequent case in whic h the issue arises.”) (citing Webster v. Fall , 266 U.S. 507, 511 (1925)); Dethmers Mfg. Co. v

. Automatic Equip. Mfg. Co. , 272 F.3d 1365, 1378 (Fed. Cir. 2001) (Dyk, J., concurring-in -part and dissenting-inpart) (“We have recognized that a decision apply i ng a particular rule is not binding

04-5137,-5138 2precedent if the issue was not di scussed by the court.”) (citing Special Devices, Inc. v. OEA, Inc. , 269 F.3d 1340, 1346 ( F ed. Cir. 2001)). Thus , the court’s observation that the Admiral record included a Forbearance Letter does not resolve this case becaus e Admiral does not discuss the effect of that letter on the over all agreement. Moreover, while the F o rbearance Letter in the Admiral r e cord is es sentially the same as that in this case, the Admiral Dividend Agr eement la c k ed an integration clau se lik e th e one in the Dividend Agreement between Fr ank lin and the Government. Compare Joint Appendix at A400034-041, Admiral , (No. 03-5168), with Joint Appendix , Vol. II, at A200475. That distinction is significant. The Court of Feder al Claims found th at “[t]he Approval Letter and the Forbearanc e Letter were both written unders tandings between the parties within the meaning of Sec. VIII.K. [i.e., th e integrat ion clause] of the Div idend Agreement, and therefore integrated in to the contract.” Franklin I , 53 Fed. Cl. at 707. The court today apparently disagrees : “[W]hile t he Dividend Agreem ent created a c ontract between Franklin and the gov ernment, contrary to the decis ion of the Court of Federal Claims, the integration clause of t he Dividend Agreement did not in corporate the Approval and Forbearanc e Letters into the Div idend Agreement.” Neverthel ess , the court goes on to explain: “[W]e agree that the Dividend Agreement created a goodwill contract that obligated the government to comply wit h the Forbearance Letter’s authorization [regarding intangible assets].” The court’s reasoning supporting that logical about-face is nothing short of baffling. Despite its purported reliance on “basic contract law,” the court today distorts t hat “basic” l a w. The integration clause in the Dividend Agreement states:

04-5137,-5138 3This Agreement, together wit h any understandi ng agreed to in writing by the parties, c onstitutes the entire agreement between t he parties and supers edes all prior agreements and understandings of the parties in c o nnection with the subject matter hereof. Joint Appendix at A2 00475. T h e Div idend Agreement does not m ention any regulator y forbearance. Instead, the Bank Board adopted that forbearanc e in the earlier Forbearanc e Letter. Joint Ap pendix at A200 445. Thus, the Dividend Agreem ent either integrates the Forbear ance Letter, or supersedes it, by virtue of the integration clause. If the Forbearance Letter was i n tegrated, as the Court of Federal Claims concluded, then all of its language was int egrated, in cluding the sentence upon whic h Franklin relies when arguing t hat the regulatory for bearance applies to future regulations. On the other hand, if the Forbearanc e Letter was not integrat ed, then the contract between the Government and Franklin does not in clude any regulatory forbearance at all because the Div idend Agreement mentions none. Somehow the court today conclu des that part of the Forbearance Letter became par t of the contract, while another part of that same l e tter did no t. In my view this case is closer to Hometown Financ ial, In c. v. United States , 409 F.3d 1360 (Fed. Cir. 2005), than to Admiral . As in Ho metown , the contract in this case contained additional languag e, not considered in Admiral , that required the regulatory forbearance to apply to future regulations. S pecifically , the Forbearance Letter refers to “the regulatory requirements waived in acc o rdance with paragraph 1 and t he statutory provisions authorizing imposit ion of the waived requiremen t

. ” Joint Appen dix, at A200445. For the reasons dis c ussed above, that language is a part of the overall contract between Fr anklin and the Governm ent. Because that contract clearly establishes the parties’ intent, i. e., that references to regulations include successor

04-5137,-5138 4regulations , the Government’s promised for bearance of regulatory capital requirements applies to successor requirements. The court s eems to dismiss this construction of the contract, at least in part, because the Divi dend Agreem ent refers to “regulations” while the Forbearance Letter refers to “regulatory r equirement s.” That is a distinction without a difference that simply cannot carry the weight placed on it by this court. Thus, because I also agree with the Court of F ederal Claims’ reas oning that the Seve n Shareholders had standing to sue the Government, I would affirm. Aside from the particular contract analys is vagaries in today’s opin ion, this court’s Winstar jurisprudence in general is more confusi ng with every opinion. Admitt edly, this court’s task is not an easy one. It must dec ide the appeals before it on some basis, and unfortunately, that bas is is fr equently the slight variations in the wording of t he various documents in eac h Winstar case. But as a result, this court’s opinions are putting tremendous weight and emphas is on terms and distinctions among those terms that, in my view, were not on the “radar” of the drafte rs. As a result, it is now impossible to draw a straight line connecting th e reasoning of this court’s Winstar opinions . Today’s analys is is a perfect exam ple of that problem. Admiral decided an issue that, by its ow n admission, was unnec essary to resolve the appeal. Perhaps because of the non-critical nature of that issue, Admiral did not cons ider arguments that either may have been made, or could have been made. The court is now left to deal with the difficult task of divining meaning from that opinion. Nearly a decade has passed sinc e the Supreme Court issued its Winstar decision. In that time, the issues have only become murkier and the decisions les s predictable. Our jurisprudence is not well s e rved when, after so many years of litigation,

04-5137,-5138 5so many appellate decisions, and so much ev idenc e of the parties’ intent at the time these thri fts w e re fai l i ng, our deci si ons re st on a di stincti on betw een “regul ati ons” and “regulatory requirements.”

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