Opinion ID: 211711
Heading Depth: 2
Heading Rank: 4

Heading: The Award to the Institutional Plaintiffs for Wounded Bank Damages

Text: 49 The Court of Federal Claims awarded the Institutional Plaintiffs $35,961,591.97 in damages for wounded bank expenses, i.e. increases in its costs due to being identified as a troubled institution. SoCal II, 57 Fed.Cl. at 628. The court calculated the amount of wounded bank damages as follows: $32,320,000 for excess cost of funds; $278,258.55 for legal, consulting and filing fees; $64,879.42 for FHLBB Collateral delivery fees; $2,509,000 for FDIC deposit insurance premiums; and $789,454 in excess assessments paid to the government's Office of Thrift Supervision. Id. The government challenges the court's award of wounded bank damages on the grounds that: (i) as a matter of law, the damages are too remote from the breach to be recoverable; (ii) the finding that the damages were caused by the breach was clearly erroneous; and (iii) the measurement of excess costs of funds was based on flawed expert testimony. 50 The government's first challenge to the Institutional Plaintiffs' claim for wounded bank damages is that it is too remote as a matter of law. The government argues that in order to reach the claimed wounded bank damages an extended chain of causation must be followed that indicates that the Institutional Plaintiffs are seeking consequential damages beyond those typically permitted in contract actions. See Wells Fargo Bank, N.A. v. United States, 88 F.3d 1012, 1021-23 (Fed.Cir.1996). This argument raises the question whether the increased costs of funds were reasonably foreseeable at the time the contract was entered into. Contrary to the government's characterization, foreseeability is a question of fact reviewed for clear error. Bluebonnet, 266 F.3d at 1355. The government does not, however, address why it would be unforeseeable that the loss of the contracted-for benefits would impact the health of SoCal and increase its costs of doing business, particularly since the regulatory treatment at issue was designed to foster the recovery of ailing thrifts. The government also fails to acknowledge this court's approval of similar damage theories in Winstar -related cases. See Bluebonnet, 266 F.3d at 1355-56 (approving a thrift's claim to recover the increase in financing costs caused by the passage of FIRREA); Glendale Fed. Bank, FSB v. United States, 378 F.3d 1308, 1311-12 (Fed.Cir.2004) (affirming the trial court's award of wounded bank damages to compensate a thrift for the higher costs of conducting its general business after FIRREA). The government's argument that wounded bank damages are not recoverable as a matter of law is without merit. 51 The government's second challenge to the award of wounded bank damages is an attack on the Court of Federal Claims' determination that the damages were caused by FIRREA. Causation is ... a question of fact reviewed under the clear error standard. Bluebonnet, 266 F.3d at 1356. The Court of Federal Claims concluded that FIRREA was the principal cause of SoCal's recapitalization and was the substantial factor in SoCal's incurring higher costs of funds after the breach. SoCal II, 57 Fed.Cl. at 616. In so holding, the court considered and discounted evidence regarding the impact on SoCal's operations of the recession in California, the massive decline in real estate values, losses stemming from the Los Angeles riots following the Rodney King trial and the Northridge earthquake. Id. The government does not attack this fact finding directly, but attempts to undermine the factual conclusions on which it was based. The government asserts that the breach did not cause SoCal to fall out of capital compliance, did not cause negative publicity for SoCal, did not disrupt SoCal's planned branch expansion, did not cause SoCal's interest rate risk and hedging problems, and did not cause an increase in SoCal's funding costs. Although there is certainly merit to the government's claim that SoCal was a relatively weak institution prior to the passage of FIRREA, the government is not persuasive in arguing that because of that weakness FIRREA had no effect on the thrift's operations. There is certainly evidence to support the government's claims, but there is also countervailing evidence consistent with the court's conclusions. At its base, the government's causation argument is nothing more than a request that this court reweigh the evidence heard by the Court of Federal Claims and come to a different conclusion. The government has not established that it was clear error for the court to conclude that the passage of FIRREA lead to specific and quantifiable increases in the thrift's cost of doing business. 52 Finally, the government challenges the evidentiary support for the court's award of wounded bank damages. Specifically, the government argues that the testimony of Dr. Hartzog, the Institutional Plaintiffs' expert on wounded bank damages, was procedurally flawed and that it lacked credibility. The government also asserts that it was penalized by the court for not presenting an alternative damages model. Neither of the government's arguments have merit. The government presented its challenges to the credibility of Dr. Hartzog's testimony at trial and, despite those challenges, the Court of Federal Claims found Dr. Hartzog's testimony to be entirely accurate and credible and supported by other experts and witnesses. SoCal II, 57 Fed.Cl. at 630. The government's invitation to overturn the court's credibility determination is not well-founded. Syntex LLC v. Apotex, Inc., 407 F.3d 1371, 1384 (Fed.Cir.2005) (Credibility determinations are the type of factual determinations that are best left to the fact finder, the trial court.). Nor is there merit to the government's argument that it was penalized for failing to present an alternative damage theory, because the court simply indicated that the government's failure to present such a model undermined its efforts to challenge the model presented by the Institutional Plaintiffs. The Court of Federal Claims' award of wounded bank damages is affirmed.