Opinion ID: 210038
Heading Depth: 2
Heading Rank: 2

Heading: Discounting Damages to the Date of Judgment

Text: The majority's conclusion that damages must be calculated as of the date of breach was considered and expressly rejected in Energy Capital Corp. v. United States, 302 F.3d 1314, 1330 (Fed.Cir.2002). There, a financing corporation sued for damages after the government breached a contract allowing it to provide financing for energy improvements in subsidized housing. Id. at 1317-20. The Court of Federal Claims awarded the corporation the profits it lost as a result of the government's breach, discounted to the date of judgment. On appeal, the government argued that the damage award should have been discounted to the date of breach instead of the date of judgment. Id. at 1330. This court rejected that contention, concluding that since lost profits were to accrue over the course of the contract, damages were correctly discounted to the date of judgment. Id. `The time when performance should have taken place is the time as of which damages are measured.' Id. (quoting Reynolds v. United States, 141 Ct.Cl. 211, 158 F.Supp. 719, 725 (1958)). Lost profits typically have not accrued on the date of breach; they accrue on an ongoing basis throughout the contract term. Id. Because lost profits and other expectancy damages would have accrued on an ongoing basis over the course of the contract, damages should properly be awarded as of the date of judgment rather than the date of breach. Future profits are discounted to the date of judgment to reflect the present value of money. Id. at 1330 (Discounting future lost profits to the date of judgment merely converts future dollars to an equivalent amount in present dollars at the date of judgment. . . .); see also N. Helex Co. v. United States, 225 Ct.Cl. 194, 634 F.2d 557, 562-64 (1980) (awarding damages for breach of contract discounted to the date of judgment). The majority is simply wrong when it states that First Federal's claim for lost profits was disallowed by the Court of Federal Claims. . . . Ante at 1317. The Court of Federal Claims statedrepeatedly and unambiguouslythat its damages award was based on a lost profits model. [1] First Fed. Lincoln Bank v. United States, 73 Fed.Cl. 633, 643 (2006). The damages award was premised entirely on the lost profits model prepared by First Federal's expert witness, Dr. Donald Kaplan. Id. This model had two components: (1) $250 million in deposits lost from missed growth opportunities, and (2) $300 million in deposits lost due to the shrink. Although the trial court rejected the first component of Dr. Kaplan's model as unduly speculative, it awarded damages based on what remain[ed] of Dr. Kaplan's lost profits model  which was his calculation of [First Federal's] lost franchise value due to the foregone deposits caused by the thrift's post-breach shrink. Id. (emphasis added). The trial court's damage award was designed to approximate the discounted present value of the net interest income, operating expenses, and fee income generated by the foregone deposits in perpetuity. Id. Given that the damage award was essentially an award for projected revenuesless projected expenseson foregone deposits, it is hard to fathom how it can be perceived as anything other than a lost profits award. Although the damage award is sometimes referred to as a lost franchise value award rather than a lost profits award, the difference between the two types of awards is one of semantics, not substance. The award was specifically designed to compensate First Federal for projected income, less projected expenses, on foregone deposits, and the trial court therefore properly treated it as a lost profits award. See Katz v. Cisneros, 16 F.3d 1204, 1207 (Fed.Cir.1994) (Regardless of the characterization of the case ascribed by [the plaintiff] in its complaint, the court must look to the true nature of the action.); see also LaSalle Talman Bank, F.S.B. v. United States, 462 F.3d 1331, 1337 (Fed.Cir.2006) (affirming an award of special dividends in a damages award regardless [of] whether the dividends were called special or mandatory); Balboa Ins. Co. v. United States, 775 F.2d 1158, 1163 (Fed.Cir.1985) (surety had right to total fund remaining in government's possession regardless of what [the fund] is called). The majority's assertion that the trial court's damage award cannot be deemed a lost profits award, ante at 1317-18, is also curious because even the government acknowledges that the award was for lost profits. The government explains: Since a valuation of [First Federal's] franchise (including any premia paid for [First Federal's] deposits) would incorporate the future expected profits of the franchise, it is the equivalent of a `lost profits' award. Since the damage award was an award of lost profits, under the reasoning of Energy Capital, the trial court was justified in calculating damages as of the date of trial rather than the date of breach. The majority's assertion that First Federal's claim for lost profits was disallowed by the Court of Federal Claims, and that ruling has not been appealed, ante at 1317, is not correct. First Federal states expressly that the Court of Federal Claims made an award of lost profits, and argues that that award should be affirmed on appeal: The government has failed to meet its burden of showing that the trial court's award of expectancy damages measured by the value of [First Federal's] foregone deposits caused by the government's breach of the Great Plains contract was clearly erroneous, or that the quantum of damages awarded constituted an abuse of discretion.  Lost profits may be recovered where the plaintiff establishes by a preponderance of the evidence that: (1) the loss was the proximate result of the breach; (2) the lost profits were foreseeable; and (3) a sufficient basis exists for estimating the lost profits with reasonable certainty. The Court of Federal Claims found that [First Federal] had satisfied this burden and awarded $4.5 million in expectancy damages based on the diminished value of [First Federal's] franchise resulting from the deposits that the Great Plains breach caused [First Federal] to run off. First Federal Brief at 44-45 (footnotes and citations omitted) (emphases added); see also id. at 70 (Lost franchise value models provide a well-settled measure of lost profits in Winstar cases.); id. at 80 (The trial court correctly awarded expectancy damages based on lost deposit franchise value. . . . ). The Court of Federal Claims did reject one portion of First Federal's claim for lost profits. First Federal initially sought to recover lost earnings on foregone deposits based on an adjustable mortgage backed security (MBS) rate. The court, however, found that this calculation was unduly speculative because First Federal did not maintain the adjustable rate MBS in its investment portfolio following the breach. . . . First Fed., 73 Fed.Cl. at 644. This is the portion of the lost profits award that has not been appealed. Clearly, lost profits from an asset and that asset's fair market value are related concepts. See, e.g., Protectors Ins. Serv., Inc. v. United States, 132 F.3d 612, 616 (10th Cir.1998) (the prospect of future earnings is considered in arriving at the fair market value of a given business); Eateries, Inc. v. J.R. Simplot Co., 346 F.3d 1225, 1236 (10th Cir.2003) (fair market value ` necessarily incorporate[s] expected future profits') (emphasis in original, citations omitted). The trial court elected to proceed on a lost profits rather than a fair market value model, and the majority has shown no clear error in its decision to do so. See Bank of Am., F.S.B. v. Doumani, 495 F.3d 1366, 1372 (Fed.Cir.2007) (the clear error standard governs a trial court's findings about the general type of damages to be awarded (e.g., lost profits)). The trial court's damages methodology is also fully consistent with Globe, a Winstar case with facts similar, in many respects, to those of the present case. In Globe, the government's breach caused Globe Savings Bank to downsize by disposing of its branch networks. Globe Sav. Bank, F.S.B. v. United States, 65 Fed.Cl. 330, 345-46 (2005), aff'd in relevant part and vacated in part, 189 Fed.Appx. 964 (Fed.Cir.2006). Globe was forced to run off $160 million in deposits to meet elevated capital requirements. Id. The value of Globe's foregone deposits was calculated using a deposit premium based on branch sales occurring close to the time of trial, not at the time of breach. Id. at 358. The Globe approach to damages was properly used by the Court of Federal Claims as a template for awarding damages in the present case. The court explicitly stated that it was relying on the methodology affirmed by the Federal Circuit in Globe. 73 Fed.Cl. at 646.