Opinion ID: 211711
Heading Depth: 2
Heading Rank: 1

Heading: Standing of the Individual Plaintiffs

Text: 19 A plaintiff must be in privity with the United States to have standing to sue the sovereign on a contract claim. Anderson v. United States, 344 F.3d 1343, 1351 (Fed.Cir.2003); see also United States v. Algoma Lumber Co., 305 U.S. 415, 421, 59 S.Ct. 267, 83 L.Ed. 260 (1939) (declining to presume that the government's actions gave rise to contractual obligations when the government was not a named party to the contract in suit). Not only is privity a fundamental requirement of contract law, but it takes on even greater significance in cases such as this, because the government consents to be sued only by those with whom it has privity of contract. Erickson Air Crane Co. of Wash. v. United States, 731 F.2d 810, 813 (Fed.Cir.1984). Limited exceptions to that general rule have been recognized when a party standing outside of privity stands in the shoes of a party within privity. First Hartford Corp. Pension Plan & Trust v. United States, 194 F.3d 1279, 1289 (Fed. Cir.1999). Here, the Court of Federal Claims applied an expansive reading to the terms of the agreements at issue to conclude that the Individual Plaintiffs had standing to recover their claimed dilution damages. First, the Court of Federal Claims found that the Assistance Agreement, the RCMA and the FHLBB implementing resolutions should properly be considered components of one overall contract to which the Individual Plaintiffs were a party. SoCal I, 52 Fed.Cl. at 542. Accordingly, the court treated the government's promises regarding the treatment of supervisory goodwill and capital credits as running to all parties to the overall contract and determined that the Individual Plaintiffs had standing to recover. Id. In finding one overall contract, the court relied primarily on its interpretation of two clauses of the Assistance Agreement: the Sole Benefit clause and the Entire Agreement clause. 20 The Sole Benefit clause of the Assistance Agreement reads: 21 It is the intention of the parties that this Agreement, the assumption of obligations and statements of responsibilities under it, and all of its conditions and provisions are for the sole benefit of the parties hereto and for the benefit of no other person. Nothing expressed or referred to in this Agreement is intended or shall be construed to give any person other than the parties hereto any legal or equitable right, remedy, or claim under, or in respect to, this Agreement or any of its provisions. 22 The government argued that the effect of the Sole Benefit clause was to limit the benefits of the Assistance Agreement to the Institutional Plaintiffs as parties to the contract. The Court of Federal Claims rejected this argument on the grounds that reading the Sole Benefit clause in that manner would effectively nullify the Entire Agreement clause. SoCal I, 52 Fed.Cl. at 541. 23 The Entire Agreement clause of the Assistance Agreement reads in pertinent part: 24 This Agreement, together with any interpretation or 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 it, excepting only any resolutions or letters concerning the Conversion, the Acquisition or this Agreement issued by [FHLBB] or [FSLIC] in connection with the approval of the Conversion, the Acquisition and this Agreement. 25 On its face, the Entire Agreement clause specifically incorporates the Forbearance Letter from the FHLBB and the government does not contest that the letter should be considered part of the Assistance Agreement. SoCal I, 52 Fed.Cl. at 535. The Court of Federal Claims interpreted the Entire Agreement clause to also incorporate the RCMA. Id. at 541. Accordingly, the court determined that there was a direct conflict between the expansive terms of the Entire Agreement clause and the limitations of the Sole Benefit clause. Id. at 541. In order to avoid reading out of the contract the Entire Agreement clause, the court determined that the Sole Benefit clause was unenforceable. Id. at 542. 26 The Court of Federal Claims' reading of the Entire Agreement clause violates one of the basic precepts of contract interpretation — it does not comport with the plain meaning of the clause. C. Sanchez and Son, Inc. v. United States, 6 F.3d 1539, 1543 (Fed.Cir.1993) (A contract is read in accordance with its express terms and the plain meaning thereof.); see also Lowber v. Bangs, 69 U.S. (2 Wall.) 728, 736, 17 L.Ed. 768 (1865) (The construction to be put upon contracts of this sort depends upon the intentions of the parties, to be gathered from the language of the individual instrument. (citation omitted)); Foley Co. v. United States, 11 F.3d 1032, 1034 (Fed.Cir.1993) (Contract interpretation begins with the plain language of the agreement.). The Entire Agreement clause specifically incorporates only a) interpretations or understandings agreed to in writing by the parties; and b) resolutions or letters from the FHLBB or the FSLIC. The RCMA does not constitute either of the types of documents integrated into the Assistance Agreement. It is a separate contract that involves additional parties and distinct promises, including its own Entire Agreement clause. The RCMA does not purport to either interpret the Assistance Agreement or embody an understanding of the Assistance Agreement and there is no question that the RCMA is not a resolution or letter from the government regulators. 27 Not only does the Entire Agreement clause not reference the RCMA, the definition section of the Assistance Agreement identifies the RCMA as a separate agreement to be executed in substantially the form provided for in Exhibit A to the Assistance Agreement. Although the existence of the RCMA is acknowledged by the Assistance Agreement, the RCMA itself is neither explicitly incorporated into the Assistance Agreement nor implicitly incorporated by the Entire Agreement clause. McAbee Constr., Inc. v. United States, 97 F.3d 1431, 1434 (1996) (stating that the parties may expressly incorporate documentary or other evidence into a contract via an integration clause); see also Winstar, 518 U.S. at 861-68, 116 S.Ct. 2432 (giving effect to contract integration clauses incorporating specific extrinsic documents as part of the contract). Furthermore, far from indicating that the Assistance Agreement and the RCMA should be read as constituting one contract, the plain language of the Sole Benefit clause and the Entire Agreement clause evidences the parties' intent to limit the scope of the Assistance Agreement to its specified terms. Barron Bancshares, Inc. v. United States, 366 F.3d 1360, 1375 (Fed.Cir.2004) (holding that an integration clause conclusively establishes that the integration is total and prohibits the use of external evidence to add to or modify the terms of a written agreement). 28 In support of the Court of Federal Claims' expansive interpretation of the scope of the Assistance Agreement, the DMT Plaintiffs cite to a number of cases that purportedly establish that it is proper to read related instruments as constituting one single contract. The non-binding case law to which the DMT Plaintiffs cite does not stand for the proposition claimed, namely that a party to one contract can be deemed a party to a related contract simply because the separate contracts constitute components of one transaction. To the contrary, the cases cited apply a basic rule of contract interpretation to the effect that where several instruments, executed contemporaneously or at different times, pertain to the same transaction, they will be read together, even though they do not expressly refer to each other. Kurz v. United States, 156 F.Supp. 99, 104 (S.D.N.Y.1957); see also Peterson v. Miller Rubber Co. of New York, 24 F.2d 59, 62 (8th Cir.1928); Cf. Hampton Roads Shipping Assoc. v. Int'l Longshoremen's Assoc., 597 F.Supp. 709, 716 (E.D.Va.1984) (suggesting that several writings will constitute a single contract as long as they involve the same subject matter and prove to be parts of an entire transaction; despite the language used, the analysis undertaken by the court focused only on the meaning of a term used in multiple agreements). The issue before the Court of Federal Claims was not the construction of a common term, however, but rather the existence of an agreement between the government and the Individual Plaintiffs. The cases cited by the DMT Plaintiffs are not persuasive authority for ignoring the terms of the Assistance Agreement and extending the benefits of the contract to the Individual Plaintiffs who were not party to that contract. 29 The Court of Federal Claims premised its finding that the Individual Plaintiffs have standing to sue on its determination that there was one overall contract to which the Individual Plaintiffs were not ancillary, as the Government urges, but rather central to this transaction. The thrift would have failed — and the acquisition never have occurred — but for the Individual Plaintiffs. SoCal I, 52 Fed.Cl. at 542. 4 In so finding, the court focused on evidence suggesting that the Individual Plaintiffs initiated the conversion and acquisition processes prior to incorporating SCH and that at least some of them negotiated directly with the government in arranging the transaction. Id. at 533. Furthermore, the evidence showed that the government was aware both that the Individual Plaintiffs would be supplying the money used to rehabilitate SoCal and that the Individual Plaintiffs would be the primary shareholders of SCH. Contrary to the conclusion of the Court of Federal Claims, however, these roles of negotiator and shareholder do not bring the Individual Plaintiffs into privity of contract with the government in regards to the Assistance Agreement entered into with SCH and SoCal. 30 The court's emphasis on the Individual Plaintiff's involvement in the conversion and acquisition processes fails to acknowledge that a corporation is generally considered to be a separate legal entity from its shareholder — a concept well grounded in state law. Wenban Estate, Inc. v. Hewlett, 193 Cal. 675, 227 P. 723, 731 (1924). Here, it is the law of California that governs the construction of the Assistance Agreement as specifically provided for in the Governing Law clause. Under California law, the corporate entity may be disregarded in order to prevent fraud, to protect third persons or to prevent a grave injustice, including an injustice to shareholders. Cooperman v. Unemployment Insur. Appeals Bd., 49 Cal.App.3d 1, 122 Cal.Rptr. 127, 131 (1975). In order for the acts and obligations of a corporation to be legally recognized as those of a particular person, 31 the following combination of circumstances must be made to appear: First, that the corporation is not only influenced and governed by that person, but that there is such a unity of interest and ownership that the individuality, or separateness, of the said person and corporation has ceased; second, that the facts are such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice. 32 Minifie v. Rowley, 187 Cal. 481, 202 P. 673, 676 (1921). Here, there is no allegation that the Individual Plaintiffs had the necessary unity of interest with SCH and its subsidiary SoCal or that continued recognition of the corporate form would work a grave injustice. Accordingly, there is no justification for the Court of Federal Claims' disregard of the corporate structure invoked by the Individual Plaintiffs in facilitating the acquisition and conversion of Old Southern. See Aladdin Oil Corp. v. Perluss, 230 Cal.App.2d 603, 41 Cal.Rptr. 239, 245 (1964) (Parties who determine to avail themselves of the right to do business by means of the establishment of a corporate entity must assume the burdens thereof as well as the privileges. The alter ego doctrine is applied to avoid inequitable results not to eliminate the consequences of corporate operations.) 33 This court has regularly acknowledged the legal distinction between a corporation and its shareholders and rejected claims by shareholders to assert a breach of contract claim on behalf of the corporation. First Hartford Corp., 194 F.3d at 1289 (holding that a shareholder lacks privity of contract to sue the government for Winstar damages when only the corporation entered into an agreement with the FDIC); FDIC v. United States ( Karnes ), 342 F.3d 1313, 1318 (Fed.Cir.2003) (same); Castle, 301 F.3d at 1339 (dismissing shareholders' claims on the grounds that they had not established that the government had entered into a contract with them as individuals independent of their status as shareholders); Cain v. United States, 350 F.3d 1309, 1317 (Fed.Cir.2003) (stating that the holding that there was no contract between the government and the shareholders of a thrift was consistent with this court's prior cases addressing the issue). We have done so, in part, out of the recognition that one of the principal motivations behind utilizing the corporate form is often the desire to limit the risk of ownership to the amount of capital invested and thus avoid the obligations, contractual or otherwise, of the corporation. First Hartford, 194 F.3d at 1289. Having chosen to limit their personal liability by adopting a corporate form, we have refused to allow shareholders to rely on their involvement in the negotiation process or their role in funding a transaction to alter their chosen legal status. See Karnes, 342 F.3d at 1319 (Neither [the government's] knowledge, the supplying of the new capital, or the Lee's position as stockholders in Kames, made them parties to those arrangements.); Cain, 350 F.3d at 1315-17 (holding that the government's communication and negotiation with shareholders did not establish that the shareholders were parties to the contracts entered into between the government and the corporation). We reached a different result in La Van v. United States, 382 F.3d 1340, 1349 (Fed.Cir.2004), by focusing on factual distinctions between Karnes and Cain and the case presented in La Van. Specifically, we held that the shareholders were so critical to the conversion transaction that they, rather than the corporation, were essentially the direct purchasers of the converted federally-insured institution. Id. In La Van, however, unlike here, there was no indication that the parties identified state law intended to govern the contract. The factual analysis of La Van does not address the legal requirements imposed here, namely the strictures of California law mandating a distinction between a corporation and its shareholders. 34 Not only do the Individual Plaintiffs not have standing in this case based on their status as shareholders, but we must also be mindful of the possibility that allowing such a suit would create an impermissible double recovery. The purpose of damages for breach of contract is generally to put the wronged party in as good a position as he would have been had the contract been fully performed. See Cal.Civ.Code § 3300 (2005); Restatement (Second) of Contracts § 347 cmt. a (1981). In light of this general purpose, a wronged party is typically not allowed to recover twice for the same harm, here a breach of contract. See EEOC v. Waffle House, Inc., 534 U.S. 279, 297, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002) ([I]t goes without saying that the courts can and should preclude double recovery by an individual.) (internal citations omitted); see also Chou v. Univ. of Chicago, 254 F.3d 1347, 1365 (Fed.Cir.2001). This limitation applies even where claims exist under both contract and tort, see, e.g., Ostano Commerzanstalt v. Telewide Sys., Inc., 880 F.2d 642, 649 (2d Cir.1989), or where a claim exists under a statutory provision and under common law, see, e.g., Waffle House, 534 U.S. at 297, 122 S.Ct. 754. California, by statute, limits damages in contract cases to those that a party could have gained by the full performance thereof on both sides, unless additional damages are provided for by statute. Cal.Code § 3358 (2005). Since the compensation awarded the corporation flows to its shareholders through the value of their stock, to allow individuals to recover both through the corporation and as individuals would be to allow duplicative recovery. See Gaff v. FDIC, 814 F.2d 311, 315 (6th Cir.1987) (a diminution in the value of corporate stock resulting from some depletion of or injury to corporate assets is a direct injury only to the corporation; it is merely an indirect or incidental injury to an individual shareholder); see also Vinci v. Waste Mgmt. of Alameda County, Inc., 80 F.3d 1372, 1375 (9th Cir.1996) (holding that a shareholder of a corporation cannot recover directly for antitrust violations, because such would amount to double recovery.); Stein v. United Artists Corp., 691 F.2d 885, 895-96 (9th Cir.1982) (prohibiting creditors and guarantors of a corporation from recovering separately on antitrust claims, because double recovery would result); Hometown Fin., Inc. v. United States, 56 Fed.Cl. 477, 486-87 (2003) (explaining that a shareholder suit against the government for breach of contract with a failed thrift presented serious risk of impermissible double recovery). The Individual Plaintiffs are not parties to the Assistance Agreement and therefore they do not have standing to sue the government for a breach of the promises made in that agreement. 35