Opinion ID: 211711
Heading Depth: 2
Heading Rank: 3

Heading: The Award to the Institutional Plaintiffs of the Replacement Cost of Capital

Text: 43 The Court of Federal Claims awarded the Institutional Plaintiffs $29,436,229.44 as compensation for the costs the Institutional Plaintiffs incurred in replacing the goodwill phased out by FIRREA. 5 SoCal II, 57 Fed.Cl. at 631. In association with the 1992 recapitalization, the court awarded the Institutional Plaintiffs $5,218,000 in transaction costs and expenses and $556,000 for the payment of dividends required by the issuance of the senior preferred stock in 1992. Id. In association with the 1995 recapitalization, the court awarded $714,374.04 in transaction costs and expenses, $3,508,000 in interest costs mandated by the recapitalization, and $19,439,855.40 for the payment of the accumulated dividends on all outstanding preferred stock issued in 1995. Id. The government does not challenge the $5,932,374.04 awarded for transaction costs and expenses, but contests the remainder of this award. 44 The government challenges the Court of Federal Claims' award of replacement costs of capital on two grounds. First, it argues that the holding of California Federal Bank, FSB v. United States, 245 F.3d 1342 (Fed.Cir.2001) limits any award for the replacement of goodwill to the transaction costs incurred in raising the replacement capital. Second, it finds error in the court's failure to account for any earnings that flowed to SoCal and SCH by having cash on-hand rather than nontransferable, amortizing goodwill. 45 The government reads California Federal to limit any award for replacing goodwill with real capital to the transaction costs incurred. Cal. Fed., 245 F.3d at 1350. This interpretation of California Federal unreasonably expands the scope of the issue decided in that case. The court in California Federal did not hold that all awards for the replacement costs of capital should be limited to transaction costs, but simply that the Court of Federal Claims had not erred in rejecting the testimony of California Federal's expert, which would have established California Federal's right to damages in excess of its transaction costs. Id. The expert testimony that the court had found incredible was a claim that it cost the thrift nearly a billion dollars to replace $390 million of goodwill. Id. The decision in California Federal to limit the award of replacement costs of capital to the transaction costs incurred does not mandate a similar result in this case where the Institutional Plaintiffs presented very different, carefully itemized evidence in support of their claim. 46 The government's second challenge to the Court of Federal Claims' award of damages has more merit. As this court held in LaSalle Talman Bank, F.S.B. v. United States, 317 F.3d 1363, 1376 (Fed.Cir.2003), payment of a return on capital reflects the cost of capital. However, in determining damages the benefits of that capital must be credited, as mitigation due to the replacement of goodwill with cash. In the case at hand, the Institutional Plaintiffs' expert acknowledged that his damage calculation was a complete accounting of all costs that could be definitively measured, but that it did not include an offset for the income generated by the replacement capital because that income was not precisely measurable. In crafting its damages award, the Court of Federal Claims granted the Institutional Plaintiffs the entire amount established by their expert, which means that the award does not reflect the benefit of the capital that the Institutional Plaintiffs received. SoCal II, 57 Fed.Cl. at 631. 47 The government suggests that it was grave error for the Court of Federal Claims to fail to offset the damages award by the amount of benefit the Institutional Plaintiffs received from owning cash rather than goodwill. The true gravity of the error is unclear from the record established, however, and it is not possible to ascertain whether the Institutional Plaintiffs adduced sufficient evidence from which the court could make a fair and reasonable approximation of the damages properly accounting for the benefits obtained. See Bluebonnet, 266 F.3d at 1357. Accordingly, this issue is reversed and remanded to the Court of Federal Claims for further fact-finding in order to determine if a complete determination of damages can be reached. 48