Opinion ID: 1267906
Heading Depth: 3
Heading Rank: 5

Heading: Cross-Appeal on Restitution

Text: Slattery states by cross-appeal that the Court of Federal Claims improperly denied the alternative request for restitution damages measured by the financial benefits realized when the FDIC induced Meritor to merge with Western and thereby avoided liquidating Western at a cost that the FDIC estimated at $696 million. A restitution award focuses on taking from the breaching party any benefits he received from the contract and returning them to the non-breaching party. Glendale, 239 F.3d at 1380-81 (citing Restatement ง 344(c)); see also 3 E. Allan Farnsworth, Farnsworth on Contracts ง 12.19 (2d ed. 1998) (The objective is not to put the injured party in as good a position as that party would have been in if the contract had been performed, nor even to put the injured party back in the position that party would have been in if the contract had not been made. It is, rather, to put the party in breach back in the position that party would have been in if the contract had not been made.). The Court of Federal Claims denied the request for lack of support in this court's Winstar -related precedents, stating that the parties could brief and argue the matter before this court, as they have done. We have considered the matter, and affirm the denial. The Court of Federal Claims found that Slattery had established a factual predicate for the restitution claim, stating that there does seem to be adequate support, by a preponderance of the evidence, that, but for Meritor's acquisition, the Government (here the [FDIC's insurance fund]) would have had to pay out $696 million. Damages Ruling, 69 Fed.Cl. at 586. Subtracting the cost of the merger to the government of $294 million (as estimated contemporaneously with the merger), the court found that [t]he assumption of Western's liabilities by Meritor clearly produced this $402 million saving. Id. The court observed that the award of such restitution is supported by traditional contract damages theory, but found inadequate support for such an award in the Winstar line of precedents, stating that the Federal Circuit has rejected some in-kind benefits provided to the Government, and affirmed restitution of only direct monetary payments by the plaintiffs as part of contractual performance. Id. Slattery contends that the Court of Federal Claims erred in denying restitution, in that the facts of this case are fundamentally distinguishable from those cases in which this court has denied restitution in the Winstar context. In particular, Slattery points out that there was strong evidence that immediate liquidation of Western was the only avenue open to the FDIC had Meritor not merged with Western, and that the cost of liquidation was established with reasonable certainty using the FDIC's own estimate, whereas such proof was lacking in other cases where restitution was denied. See, e.g., Glendale, 239 F.3d at 1382 (holding that savings realized by the government upon Glendale's acquisition of a failing thrift were too speculative because Glendale was only one of several potential acquirers and because the government had other options, including hiring new and better management); California Fed. Bank, FSB v. United States, 245 F.3d 1342, 1351 (Fed.Cir.2001) (affirming trial court's denial of restitution remedy as too speculative in light of contingent liability the regulator assumed in connection with the merger); LaSalle Talman Bank, 317 F.3d at 1376 (stating that the avoided liquidation costs are at most a paper calculation and are not a usable measure of either cost to the thrift or benefit to the government, and thus not an appropriate threshold for restitution damages); Granite Mgmt. Corp. v. United States, 416 F.3d 1373, 1381 (Fed.Cir.2005) (The trial court determined that the government had other ways to deal with the problem, such as arranging for the sale of the thrifts to another buyer.). Slattery relies especially on the government's response during this litigation to Plaintiffs' Request for Admission No. 6, which asked the government to admit that [i]f the FDIC was unable to find a merger partner for Western in or about the Spring of 1982, the agency recognized that either it or the State of Pennsylvania would have to seize and/or liquidate the institution. The government responded: Admits that the FDIC, in the hypothetical circumstances stated, would have terminated Western's deposit insurance and that the State of Pennsylvania would have appointed a receiver to liquidate the institution. Slattery also points to abundant record evidence that, at the time of the Meritor deal, the FDIC was only days away from taking action to liquidate Western, and that no viable alternative to the Meritor merger was available. Slattery points out that the estimate of $696 million that it would have cost the FDIC to liquidate Western came from the FDIC itself, using the methodology it has consistently applied. Slattery asserts that this direct evidence of the liquidation costs the FDIC would have incurred, and the admitted fact of imminent action but for the Meritor merger, sufficiently distinguish this case from the more speculative restitution claims discussed in other cases. Slattery also takes issue with the Court of Federal Claims' finding that the $294 million that the government incurred in assisting the merger should be subtracted from the saving of $696 million. Slattery states that the shareholders are entitled to the full amount it would have cost the FDIC to liquidate Western, citing Dr. Finnerty's analysis that the support the FDIC provided in connection with the merger actually resulted in a net gain to the government in the amount of $67.341 million (the amount awarded as non-overlapping restitution), rather than a cost of $294 million as originally estimated by the FDIC. Slattery also requests that, in awarding restitution damages, the award should include the investment gains the government realized on the monies it avoided expending when Meritor agreed to merge with Western, on the theory that if you take my money and make money with it, your profit belongs to me. Nickel v. Bank of Am. Nat'l Trust & Savings, 290 F.3d 1134, 1138 (9th Cir.2002). [8] The government responds that such a disgorgement award would constitute an award of prejudgment interest, in violation of 28 U.S.C. ง 2516(a) (Interest on a claim against the United States shall be allowed in a judgment of the United States Court of Federal Claims only under a contract or Act of Congress expressly providing for payment thereof.). See also Int'l Bus. Machines Corp. v. United States, 201 F.3d 1367, 1370 (Fed. Cir.2000) ([T]he United States is immune to claims for interest unless Congress has waived immunity by expressly consenting to an award of interest.). The government disputes the trial court's finding that but for the Meritor deal, liquidation would have immediately followed, minimizing its own Admission to this effect. The government cites the FDIC's policy to avoid liquidating mutual savings banks, and states that despite Slattery's evidence to the contrary, other options remained available to the FDIC. However, the government has not shown clear error in the trial court's finding that but for the Meritor merger, liquidation would have resulted, for this finding was supported by abundant evidence at trial. The government argues that this case is not meaningfully different from Glendale and other cases in which this court rejected restitution theories based on liquidation savings in various factual situations. The government stresses that the FDIC remained contingently liable for insuring the merged bank's deposits even after the merger. The government contends that a simple calculation of foregone costs at the moment of the merger, based on contemporaneous estimates, does not accurately reflect an actual benefit conferred on the breaching party by the nonbreaching party; rather it represents a mere speculative assessment of what might have been, Glendale, 239 F.3d at 1382. The government argues that restitution is only appropriate where a transaction can be unwound, whereas here both parties performed the contract for several years before the first alleged breach in 1988. The government argues that various financial incentives of the Merger Agreement were fully performed before any asserted breach, and that the transaction simply cannot be unwound to return the parties to their ex ante positions. The government states that since it is impossible to return the parties to the position they would have occupied absent the contract, as discussed in LaSalle Talman Bank, FSB v. United States, 45 Fed.Cl. 64 (1999), aff'd in relevant part, 317 F.3d 1363 (Fed.Cir.2003), awarding as restitution the government's purported immediate savings would be an inappropriate attempt to unscramble the egg, id. at 77. Slattery responds that the amount of the liquidation costs the FDIC avoided by enticing Meritor to merge with Western was established with far more certainty than in the cited Winstar -related cases. On reviewing the arguments in light of precedent and the undisputed and found facts, we agree with the government that restitution measured by the government's saved liquidation cost is not appropriate in this case. The benefits to the FDIC, in avoiding liquidation and saving the cost of liquidation, reflect the motivation of the FDIC to encourage and facilitate the merger. However, these savings were not obtained at expense to Meritor, and the FDIC continued to bear risk against its insurance fund after the merger, for it continued to insure deposits in the merged bank. Moreover, the positions of both parties changed during the six years of performance without allegation of breach, with Meritor experiencing profits and growth as well as losses and retrenchment. By analogy to the various cases that have discussed this question in the context of savings and loan institutions, the subsequent breach of the agreement to recognize goodwill as regulatory capital was too far removed, in damages theory, from the initial savings to the government in entering into the salvage arrangement. In the judicial search for just remedy for economic situations sought by neither party, the damages awards have generally been based on reliance and lost value. We affirm the denial of the requested award of damages measured by the savings achieved by the FDIC upon averting liquidation of Western by the 1982 merger with Meritor.