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

Heading: The Ability of the Individual Plaintiffs to Recover Under the RCMA

Text: 36 Although the Individual Plaintiffs were not party to the Assistance Agreement, they were in contractual privity with the government under the RCMA. The question becomes, then, whether they are entitled to the damages they seek based on the terms of that contract. 37 There are four components of the RCMA relevant to this determination. First, Recital A indicates that the [Individual Plaintiffs] collectively own 97.5 percent of the outstanding voting securities of [SCH] and control [SCH]. Second, Recital G and § 1 include the government's promise that SCH and SoCal will be able to account for $217.5 million in capital credits as part of its regulatory capital. Third, the RCMA states that so long as [SCH] shall be obligated pursuant to § 1, the [Individual Plaintiffs], severally in proportion to their initial ownership of the common stock of [SCH] as reflected in the percentages set forth opposite their signatures below, hereby guarantee the performance of [SCH] and [SoCal] under § 1. Finally, the RCMA requires that the Individual Plaintiffs, or their successors who have assumed their shares of the guarantee and have not been objected to by the FSLIC, shall collectively own not less than a majority of the outstanding voting power of [SCH]. 38 The DMT Plaintiffs argue that the incorporation of the capital credit promise into the terms of the RCMA is sufficient to uphold the Court of Federal Claims' award of damages. This argument fails to recognize, however, that the damages for which the Individual Plaintiffs seek to recover, namely the dilution and extinguishment of their ownership interests in SCH, were not caused by the obligations they incurred in the RCMA. The RCMA did not require that the Individual Plaintiffs invest in SCH. To the contrary, Recital A indicates that the incorporation, ownership and control of SCH were established prior to the parties entering into the RCMA. At the most, the RCMA obligated the Individual Plaintiffs to collectively contribute to SCH and SoCal an additional $5 million in the event that SCH and SoCal did not maintain SoCal's regulatory capital at the required level. There is no indication that the government ever enforced this guarantee or that the Individual Plaintiffs ever complied with its terms. 39 Under the terms of the agreement, even if we assume that the passage of FIRREA constituted a breach of the RCMA, the Individual Plaintiffs are not entitled to recover the damages they seek under any applicable theory of contract damages. There are three forms of damages typically awarded to compensate for breach of a contract: expectation damages, restitutionary damages, and reliance damages. Hansen Bancorp, Inc. v. United States, 367 F.3d 1297, 1308 (Fed.Cir.2004). Expectation damages give the non-breaching party the benefit of his bargain by putting him in as good a position as he would have been in had the contract been performed. Bluebonnet Savings Bank, F.S.B. v. United States, 266 F.3d 1348, 1355 (Fed.Cir.2001). Expectation damages are recoverable provided they are actually foreseen or reasonably foreseeable, are caused by the breach of the promisor, and are proved with reasonable certainty. Id. Restitutionary damages restore the non-breaching party to the position he would have been in had there never been a contract to breach. Landmark Land Co., Inc. v. United States, 256 F.3d 1365, 1372 (Fed.Cir.2001). Such damages, however, are not recoverable for actions taken voluntarily, beyond the obligations of the contract. Id. at 1375 (the law is well settled ... that in order to be compensable as restitution, the plaintiff's contribution must have been made in performance of its contractual obligations). Reliance damages are damages designed to compensate a plaintiff for foreseeable loss caused by reliance on the contract. Id. at 1369. The Individual Plaintiffs are not entitled to recover dilution damages under any of these theories of recovery. 40 As a preliminary matter, it is worth noting that there are no terms in the RCMA that require the Individual Plaintiffs to raise capital for SCH and SoCal by diluting their ownership interest in order to issue equity to new investors. At the most, the RCMA obligates the Individual Plaintiffs to contribute an additional $5 million to the operation of SCH and SoCal. Accordingly, based on the unambiguous terms of the RCMA, the Individual Plaintiffs' loss of their ownership interests was neither the foreseeable result of nor caused by the government's breach of the RCMA and therefore dilution damages cannot be awarded as a form of expectation damages. Similarly, because the Individual Plaintiffs were not required to dilute their ownership interests, but voluntarily chose to do so, they cannot recover restitution for their actions. Furthermore, because the recapitalizations did not occur until after FIRREA was passed, it is axiomatic that the dilution of the Individual Plaintiffs' ownership interest was not undertaken in reliance on the government's promises regarding accounting for capital credits and supervisory goodwill. Accordingly, they do not have grounds to recover reliance damages. Finally, because the initial investment in SCH occurred prior to the execution of the RCMA, the Individual Plaintiffs cannot point to that undertaking as grounds to recover under any of the applicable theories. 41 The Individual Plaintiffs do not have standing to sue under the Assistance Agreement and they cannot recover the damages they seek under the RCMA. The decision of the Court of Federal Claims holding the government liable to the Individual Plaintiffs and awarding damages to these parties is vacated. In light of this holding, it is not necessary to address the government's challenge to the amount of damages awarded to the Individual Plaintiffs or the DMT Plaintiffs' cross-claim for additional damages. 42