United States Court of Appeals for the Federal Circuit 

04-5137, -5138 

FRANKLIN FEDERAL SAVINGS BANK, and FRANKLIN 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 Washington, DC, argued for plaintiffscross appellants. With him on the brief 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 Litigation 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 FRANKLIN 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 opinion 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 Financial 
Group, Inc. (“Franklin Financial”) assumed the risk of regulatory change resulting from 

the enactment of the Financial Institutions Reform, Recovery 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 relationship with the government that would confer 

standing on the shareholders of the thrift holding company, Franklin Financial 

(hereinafter the “Seven Shareholders”). We conclude that Admiral governs, and that 

the thrift entities assumed the 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 Association (“Morristown”) was a federal 

mutual savings association, or “thrift.” Franklin Fed. Sav. Bank 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 interest rates and inflation in the late 

1970’s and early 1980’s brought about a . . . crisis in the thrift industry.” Winstar, 518 

U.S. at 845. By the end of 1987 Morristown had a negative net worth of $3.536 million. 

Franklin I, 53 Fed. Cl. at 694. 

The Federal Savings and Loan Insurance Corporation (“FSLIC”) was responsible 

for insuring thrift deposits and regulating federally insured thrifts. Rather than allowing 

thrifts like Morristown to fail, FSLIC encouraged ailing thrifts and healthy thrifts to merge 

in a series of “supervisory mergers.” The thrifts desired to use the “purchase” method of 

04-5137, -5138 2 
accounting, 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 asset for purposes of computing regulatory 

capital. The purchase method of accounting “permit[ted] the acquiring entity to 

designate the excess of the purchase price over the fair value of all identifiable assets 

acquired as an intangible asset called ‘goodwill’ . . . . Goodwill recognized under the 

purchase method as the result of an FSLIC-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 uncertain whether regulators would permit 

the use of this method for computation of regulatory capital. Id. at 855 (“[I]t was not 

obvious that regulators would accept purchase accounting in determining compliance 

with regulatory criteria, and it was clearly prudent to get agreement on the matter.”). To 

assure that these acquisitions would comply with existing regulatory requirements, 

FSLIC often gave the newly created thrift express permission to use the purchase 

method of accounting and to count the supervisory goodwill toward its reserve capital 

requirements. Id. at 847-48. In some cases the government’s regulatory forbearance 

was not reflected in a contract with the thrift and did not create 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 others, the special accounting 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 3 
the 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 board of directors seek to merge with another 

thrift in a supervisory merger. Morristown prepared a business plan in May 1988, under 

which Morristown would be acquired by Franklin Financial, a holding company formed 

by Morristown’s board of directors. Under the plan, FSLIC would permit the new thrift to 

count Morristown’s supervisory goodwill as an intangible asset. On June 7, 1988, 

Morristown submitted this plan 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 agreement, called the Dividend Agreement,1

 and on the Seven 

Shareholders’ personally guaranteeing 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 Institution, provided that . . . . [p]rior 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 Disposition Rights/ Dividend Agreement’ . . . .” 

(J.A. at A200441.) 

04-5137, -5138 4 
Forbearance Letter, which would become effective upon approval of the transaction, 

was issued on the same date as the Approval Letter. 

On January 12, 1989, Franklin Financial and the Bank Board executed the 

Dividend Agreement. The signatories of the Dividend Agreement were Franklin 

Financial and FSLIC. The premise of the Dividend Agreement was that the government 

would take favorable action approving the acquisition. It stated that Franklin Financial’s 

agreement was “in consideration of the FSLIC acting favorably on the Application [for 

approval of the transaction].” (J.A. at A200467.) The FSLIC’s favorable action with 

respect to the application included 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 Federal to treat the supervisory goodwill of 

Morristown as an intangible asset, amortizable over 25 years. 

The Dividend Agreement also included section VIII(D), which provided that “[a]ll 

references to regulations . . . shall include any successor regulation thereto, it being 

expressly 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.” The key question on appeal is whether the “successor regulation” 

language in section VIII(D) placed the risk of regulatory change on Franklin. 

The Dividend Agreement also prohibited Franklin Financial from accepting from 

Franklin Federal any dividend that would cause Franklin Federal’s regulatory capital to 

fall below the regulatory capital trigger, and provided that if Franklin Federal’s capital fell 

below the trigger for more than 30 days, it would be subject to immediate seizure. The 

Dividend Agreement had an integration clause that stated that “[t]his agreement, 

04-5137, -5138 5 
together with any understanding agreed 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 agreements with the Bank Board relating to the supervisory 

transaction. First, the shareholders and the Bank Board signed a “Shareholder 

Agreement to Service Holding Company Debt,” which obligated the shareholders to 

service the $4.5 million debt in the event dividends paid from Franklin Federal to 

Franklin Financial, were insufficient. Second, the shareholders, Franklin Financial and 

the Bank Board signed a “Capital Infusion Agreement,” requiring the shareholders to 

provide additional capital if Franklin’s capital fell below regulatory requirements within 30 

days after the conversion. 

Pursuant to the plan, on January 12, 1989, Morristown converted from a mutual 

association to a stock company, changed its name to Franklin Federal, and issued $5 

million of common stock to Franklin Financial. 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 Shareholders) 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 Shareholders. According to an independent auditor’s 

report issued on March 10, 1989, after the transaction Franklin Federal’s goodwill 

totaled $9,391,291. 

04-5137, -5138 6 
II 

Eight months after the acquisition and the execution of the Dividend Agreement, 

Congress enacted FIRREA, which limited the ability of thrift institutions to count 

supervisory goodwill towards their regulatory capital requirements.2 Winstar, 518 U.S. 

at 856-60. Under these new capital standards, Franklin Federal’s regulatory capital fell 

below the minimum capital requirement, and it became an insolvent thrift, subject to 

immediate seizure. Because the Dividend Agreement prevented Franklin Federal from 

issuing dividends when its regulatory capital 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 Seven 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 stock in Franklin Financial for stock of 

another company in a merger, they claimed that they received less than 100% of the 

value of Franklin Financial. 

In 1992, Franklin Federal, Franklin Financial, and the Seven Shareholders filed 

suit in the Court of Federal Claims, alleging that the passage of FIRREA resulted in the 

breach by the government of a contract incorporating a Forbearance Letter, which 

“promis[ed] that Franklin Federal Savings Bank could treat supervisory goodwill as an 

 2

 FIRREA recognized two forms of regulatory capital requirements, “tangible 

capital” and “core capital.” It prevented thrifts from counting any supervisory goodwill 

towards their “tangible capital” requirement, and allowed thrifts to count goodwill toward 

their “core capital” requirement only according to a phase-out schedule. Franklin I, 53 

Fed. Cl. at 700. 

04-5137, -5138 7 
asset, 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 authority to enter into a binding goodwill 

contract as part of an “unassisted” 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, the government argued that 

the Seven Shareholders lacked standing 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 Federal Claims rejected the government’s 

argument that there was no contractual agreement and that the Bank Board officials 

lacked authority to enter into a goodwill contract in connection with an “unassisted” 

acquisition. It found that the Dividend Agreement was a binding contract, and, contrary 

to the government’s arguments, that the Dividend Agreement’s integration clause, 

section VIII(K), incorporated the Forbearance Letter and Approval Letter into that 

contract. Franklin I, 53 Fed. Cl. at 705-06. The court rejected the government’s 

argument that the Dividend 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 regulation’ provision (Sec.VIII.D.) of the 

Dividend Agreement.” Id. at 715. In the court’s view, the “successor regulation” 

language in section VIII(D) permitted the government to change the level of regulatory 

04-5137, -5138 8 
capital, 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 which 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. Although 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 guaranteeing Franklin Financial’s $5 million debt. 

Hence, the government was liable 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 trial 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 9 
The government appeals, challenging the Court 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 standing must establish that a 

contract existed with the government whereby the government was “contractually bound 

to recognize the supervisory goodwill and [particular] amortization periods.” Winstar

Corp. v. United States, 64 F.3d 1531, 1541-42 (Fed. Cir. 1995), aff’d, 518 U.S. 839 

(1996). On appeal, the government is prepared to assume that a contract existed, and 

argues that, if there was a contract, it placed the risk of regulatory change on the thrift 

entities rather than the government. Despite the government’s concession, we must 

nonetheless determine the nature of the contract before determining its effect. 

The mere issuance of the Approval Letter and the Forbearance Letter by the 

government did not, of course, create a contract 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) (refusing 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 10 
acting solely in its regulatory capacity, [does] not create contractual obligations . . . .” 

Fifth Third, 402 F.3d at 1234. 

Here it is particularly plain that the regulatory approvals did not themselves 

constitute a contract. Throughout the period of negotiation it was clear that the parties 

contemplated that there would not be agreement absent the Dividend Agreement. The 

Approval Letter specifically was conditioned on execution of the Dividend Agreement. 

Nor did the integration clause 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 Forbearance Letter were not “written” 

agreements signed by the parties, and were not characterized as such in the Dividend 

Agreement.4

 They were not agreements in and of themselves but merely regulatory 

 3

 The integration clause provided: 

This Agreement, together with any understanding agreed to in writing by 

the parties, constitutes the entire 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 Assistance Agreement (“SAA”) for the 

Glendale transaction provided: 

This Agreement . . . constitutes the entire agreement between the parties 

thereto and supersedes all prior agreements and understandings of the 

parties in connection herewith, excepting only the Agreement of Merger 

and any resolutions or letters issued contemporaneously herewith . . . . 

04-5137, -5138 11 
approvals that could only become enforceable 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 the government, contrary to the decision of the Court of 

Federal Claims, the integration clause of the Dividend Agreement 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 with the Forbearance Letter’s authorization to 

“[amortize] the value of any unidentifiable intangible 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 government in the Dividend Agreement clearly promised to 

issue the Approval Letter and Forbearance Letter (and indeed had already done so 

conditionally) in exchange for Franklin’s undertakings in the Dividend Agreement. The 

Dividend Agreement identified 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 Financial’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 similar 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 12 
Federal’s regulatory capital was “in consideration 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 manifestation 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 promise 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 the Forbearance Letter, to waive regulatory 

requirements. 

We therefore conclude that the Dividend Agreement created a binding 

agreement with respect to the regulatory treatment of goodwill. 

II 

We turn then to the central question--whether 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 should be presumed to promise only temporary 

forbearance (until regulatory change occurred) or long-term forbearance. The plurality 

held that the unmistakability doctrine did not apply in actions seeking to recover 

04-5137, -5138 13 
monetary damages for breach of contract, and that there thus was no presumption that 

the contracts promised temporary 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 temporary forbearance and shift the risk of regulatory change to the 

thrift. Justice Scalia’s concurrence urged that the unmistakability doctrine applied to 

such contracts, but that the agreements did not shift the risk of regulatory change to the 

thrifts. Id. at 920-21. Justice Scalia indeed believed that a promise for temporary 

forbearance was illusory, and would render the contracts unenforceable. Id. at 921. 

The dissent urged that the unmistakability doctrine 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 Scalia’s opinion as binding and hold that a 

contract for temporary regulatory 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 minority 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 the 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 14 
1327, 1339 (Fed. Cir. 2001) (en banc); cf. Marks v. United States, 430 U.S. 188, 193 

(1977). 

The Winstar plurality pointed to Guaranty Financial 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 There,

Guaranty Financial Services, Inc. and FSLIC entered into a written agreement entitled 

“Regulatory Capital Maintenance/Dividend Agreement,” which incorporated by reference 

a forbearance letter. Guaranty, 928 F.2d at 996. The Dividend Agreement contained a 

risk shifting provision, section VI(D), which stated: 

All references to regulations of the Board or the FSLIC used in this 

Agreement shall include any successor regulation thereto, it being 

expressly 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. 

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 eliminated any serious contest about the 

correctness of their interpretive positions 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 reserved the right to change the capital 

requirements without any responsibility to the acquiring thrift). The failure 

to be even more explicit is perhaps more surprising here, given the size 

and complexity of these transactions. But few contract cases would be in 

court if contract language had articulated the parties’ postbreach positions 

as clearly as might have been done, and the 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 Federal Circuit were thus left with the familiar 

task of determining which party’s interpretation was more nearly supported 

by the evidence. 

04-5137, -5138 15 
statutes and regulations governing the area remained as they were when the 

agreement was signed. Id. The court held that this provision “unmistakably warn[ed] 

Guaranty that its obligations 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 Corporation acquired a failing thrift, Haven 

Federal Savings and Loan, pursuant to a Bank Board resolution. Admiral and the Bank 

Board executed a Dividend Agreement that “bound Admiral to maintain a certain level of 

capital in Haven,” and subjected Admiral to default 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 forbearance letter permitting Admiral to amortize 

goodwill over a 25 year period. The 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 rejected the Court of Federal 

Claims’ interpretation of the relevant language that appeared both in the Dividend 

Agreement in Admiral and that appears in the Dividend Agreement here. We found that 

the risk-shifting provision “[did] not limit those changes to increasing or decreasing the 

 

Winstar, 518 U.S. at 869 n.15. 

04-5137, -5138 16 
level of capital that thrifts must maintain, 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 contained additional language that 

“specifically identified how the forbearances should be treated.” Id. at 1367-68.6

 

Relying on this additional language, the court found that the plaintiffs did not assume 

the risk of regulatory change. 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 the Board or the FSLIC used in this 

Agreement shall include any successor regulation thereto, it being 

 6

 Section I(E) of the regulatory maintenance agreement in Hometown

provided: 

“Regulatory Capital Requirement” means the Institution’s regulatory 

capital requirement at a given time computed in accordance with 12 

C.F.R. § 561.13(b), or any successor regulation thereto, except that during 

the five-year period following consummation of the acquisition of the 

Institution, the Regulatory Capital Requirement of the Institution shall take 

into account forbearances granted by the FHLBB by letter dated 

December 22, 1987 and those granted by the Principal 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 17 
expressly 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. 

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 push-down accounting in accounting for 

the purchase, may be amortized by Haven 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 Board, 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 inconsistent 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 the 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 stated that Admiral’s agreement to maintain 

regulatory capital of Haven was “in consideration of the FSLIC approving the 

acquisition . . . .” Admiral, 378 F.3d 1336 (J.A. at A400034). 

04-5137, -5138 18 
conditioned 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 hereafter in effect . . . .” See Winstar, 518 U.S. 839 

(J.A. at 78). The government argued that this 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 “maintain its capital at levels set by the bank 

regulators,” but found that this agreement did not “eclipse the government’s . . . promise 

that Winstar could count supervisory goodwill [towards maintaining whatever capital 

level the regulators set].” Id. In other words, the agreement required the obvious--

adherence to future regulatory requirements--but did not shift the risk of regulatory 

change to Winstar. Admiral was different. Section VI(D) of the Admiral Dividend 

Agreement made it “expressly 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 shift the risk of regulatory 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 similar problem existed in 

Admiral because there there was consideration not present in this case. Franklin’s 

reliance on the Winstar concurrence is misplaced, because as noted above, the plurality 

and the dissent rejected this view. Under Winstar, a promise for a regulatory waiver 

04-5137, -5138 19 
until regulatory change occurs is plainly sufficient consideration. Further, both here and 

in Admiral there is other consideration--the government’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 consider 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 regulatory or other requirements other than those 

[specified in the Forbearance Letter] . . . .” (J.A. at A200445). Franklin contends that 

the “regulatory or other requirements” that were waived should be construed to refer to 

both current and future regulatory requirements. Franklin achieves this result by 

treating the Forbearance Letter as part of the Dividend Agreement, and subject to its 

definitions, and by relying on the Dividend Agreement’s statement that “all references to 

regulations . . . in this Agreement shall include any successor regulations thereto . . . .” 

(J.A. at A200474 (emphasis added)). Franklin thus argues that because the Dividend 

Agreement says “regulations” includes “successor regulations,” we must interpret 

“regulatory requirements” in the Forbearance Letter to include the “future regulatory 

requirements.” 

The 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 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 20 
have 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 “regulation” as applicable to the 

Forbearance Letter’s different terminology (“regulatory requirement”) is unwarranted, 

particularly since this would create a conflict 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 regulatory change on the thrift entities. 

CONCLUSION 

For the forgoing reasons, we conclude that the Dividend Agreement shifted the 

risk of regulatory change to the thrift entities, and Franklin cannot recover for damages 

resulting from the changes in regulatory capital requirements wrought by the enactment 

of FIRREA. Because we decide that Franklin may not recover on the contract, we need 

not reach the issue of shareholder standing 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 21 
REVERSED

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 FRANKLIN 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 too 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 Government 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 affirmance 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 the 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 issue for which the court 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 Dividend Agreement, to prevent the successor regulations

clause from shifting the risk of regulatory changes to Franklin. The court summarizes 

Franklin’s argument: “The 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 decided . . . .” To the contrary, 

a different decision on the risk-shifting issue in Admiral would not have affected the

outcome of that case. In Admiral the Court of Federal Claims found that the 

Government breached its agreement with Admiral, but that Admiral sustained no 

damages. Id. This court affirmed, agreeing that Admiral had sustained no damages,

but further holding that the successor regulations clause of the 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 Television Assoc., Inc. 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, such decision 

is not precedent to be followed in a subsequent case in which 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 applying a particular rule is not binding

04-5137,-5138 2
precedent if the issue was not discussed by the court.”) (citing Special Devices, Inc. v. 

OEA, Inc., 269 F.3d 1340, 1346 (Fed. Cir. 2001)). Thus, the court’s observation that the 

Admiral record included a Forbearance Letter does not resolve this case because 

Admiral does not discuss the effect of that letter on the overall agreement. Moreover,

while the Forbearance Letter in the Admiral record is essentially the same as that in this 

case, the Admiral Dividend Agreement lacked an integration clause like the one in the 

Dividend Agreement between Franklin 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 Federal Claims found that “[t]he Approval Letter and the 

Forbearance Letter were both written understandings between the parties within the 

meaning of Sec. VIII.K. [i.e., the integration clause] of the Dividend Agreement, and 

therefore integrated into the contract.” Franklin I, 53 Fed. Cl. at 707. The court today

apparently disagrees: “[W]hile the Dividend Agreement created a contract between 

Franklin and the government, contrary to the decision of the Court of Federal Claims, 

the integration clause of the Dividend Agreement did not incorporate the Approval and 

Forbearance Letters into the Dividend Agreement.” Nevertheless, the court goes on to 

explain: “[W]e agree that the Dividend Agreement created a goodwill contract that

obligated the government to comply with 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 that “basic” law. 

The integration clause in the Dividend Agreement states: 

04-5137,-5138 3
This Agreement, together with any understanding agreed to 

in writing by the parties, constitutes the entire agreement

between the parties and supersedes all prior agreements 

and understandings of the parties in connection with the 

subject matter hereof. 

Joint Appendix at A200475. The Dividend Agreement does not mention any regulatory 

forbearance. Instead, the Bank Board adopted that forbearance in the earlier 

Forbearance Letter. Joint Appendix at A200445. Thus, the Dividend Agreement either

integrates the Forbearance Letter, or supersedes it, by virtue of the integration clause.

If the Forbearance Letter was integrated, as the Court of Federal Claims concluded, 

then all of its language was integrated, including the sentence upon which Franklin 

relies when arguing that the regulatory forbearance applies to future regulations. On 

the other hand, if the Forbearance Letter was not integrated, then the contract between 

the Government and Franklin does not include any regulatory forbearance at all 

because the Dividend Agreement mentions none. Somehow the court today concludes 

that part of the Forbearance Letter became part of the contract, while another part of

that same letter did not. 

In my view this case is closer to Hometown Financial, Inc. v. United States, 409 

F.3d 1360 (Fed. Cir. 2005), than to Admiral. As in Hometown, the contract in this case

contained additional language, not considered in Admiral, that required the regulatory

forbearance to apply to future regulations. Specifically, the Forbearance Letter refers to 

“the regulatory requirements waived in accordance with paragraph 1 and the statutory 

provisions authorizing imposition of the waived requirement.” Joint Appendix, at 

A200445. For the reasons discussed above, that language is a part of the overall 

contract between Franklin and the Government. Because that contract clearly

establishes the parties’ intent, i.e., that references to regulations include successor 

04-5137,-5138 4
regulations, the Government’s promised forbearance of regulatory capital requirements

applies to successor requirements. The court seems to dismiss this construction of the 

contract, at least in part, because the Dividend Agreement refers to “regulations” while 

the Forbearance Letter refers to “regulatory requirements.” 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 Federal Claims’ reasoning that the Seven 

Shareholders had standing to sue the Government, I would affirm. 

Aside from the particular contract analysis vagaries in today’s opinion, this court’s 

Winstar jurisprudence in general is more confusing with every opinion. Admittedly, this

court’s task is not an easy one. It must decide the appeals before it on some basis, and 

unfortunately, that basis is frequently the slight variations in the wording of the various

documents in each Winstar case. But as a result, this court’s opinions are putting 

tremendous weight and emphasis on terms and distinctions among those terms that, in 

my view, were not on the “radar” of the drafters. As a result, it is now impossible to 

draw a straight line connecting the reasoning of this court’s Winstar opinions. Today’s

analysis is a perfect example of that problem. Admiral decided an issue that, by its own 

admission, was unnecessary to resolve the appeal. Perhaps because of the non-critical 

nature of that issue, Admiral did not consider 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 since the Supreme Court issued its Winstar

decision. In that time, the issues have only become murkier and the decisions less

predictable. Our jurisprudence is not well served when, after so many years of litigation,

04-5137,-5138 5
so many appellate decisions, and so much evidence of the parties’ intent at the time 

these thrifts were failing, our decisions rest on a distinction between “regulations” and 

“regulatory requirements.” 

04-5137,-5138 6