Opinion ID: 205913
Heading Depth: 1
Heading Rank: 2

Heading: Home Savings' Acquisition of Security Federal Savings and Loan Association, Hamiltonian Federal Savings and Loan Association, and Southern Federal Savings and Loan Association

Text: One of the supervisory mergers undertaken pursuant to the Bank Board's strategy to mitigate the savings and loan crisis involved H.F. Ahmanson & Co. and its wholly-owned subsidiary, Home Savings of America, FSB. On November 5, 1981, Home Savings, at the time a California-chartered thrift, submitted a proposal to acquire Southern Federal Savings and Loan Association (Southern), an ailing federally-chartered mutual thrift located in Florida. Home Savings subsequently offered to acquire two other struggling thrifts: Hamiltonian Federal Savings and Loan Association (Hamiltonian) and Security Federal Savings and Loan Association (Security), both located in Missouri. Although other institutions had expressed interest in acquiring the three thrifts, FSLIC recommended that the Bank Board approve the acquisitions by Home Savings as the proposals least costly to FSLIC. [1] Following negotiations, FSLIC and Home Savings agreed that the acquisition was to be structured as two separate mergers. First, Hamiltonian and Security was merged into Southern. Southern was then merged into Home Savings, upon which event Home Savings was reorganized into a federally chartered thrift. This second merger was subject to several conditions. Among them was the Bank Board's approval of the transactions accomplished by the two mergers and, additionally, that FSLIC shall have entered into an agreement with Home [Savings] in form and substance satisfactory to Home [Savings]. On December 17, 1981, FSLIC and Home Savings entered into an Assistance Agreement. The agreement referenced the two mergers and stated that FSLIC has decided, pursuant to § 406(f) of the [National Housing] Act, 12 U.S.C. § 1729(f) (Supp. III 1979), to provide indemnification and/or financial assistance as set forth in this Agreement having determined that each MERGING ASSOCIATION is in danger of default and that the amount of such assistance would be less than the losses [FSLIC] would sustain upon the liquidation of each such MERGING ASSOCIATION through a receivership accompanied by the payment of insurance of accounts. [2] The Assistance Agreement recited that the Home Savings-Southern merger was to be a tax free reorganization pursuant to Section 368(a)(1)(G) of the Internal Revenue Code. . . . The Assistance Agreement contemplated a complex system of assistance to be provided to Home Savings. It included, among other items: indemnification against losses resulting from unreserved-for liabilities or losses arising out of legal challenges to the mergers or the Assistance Agreement; cash contributions equal to the negative net worth, if any, of each merging thrift, with the negative net worth including the amounts by which appraised losses exceeded appraised gains on real estate owned by the merging thrifts as of the effective date of the mergers; and indemnification for indicated losses on problem loans of the merging thrifts identified as such during the initial audit. The obligations of Home Savings and FSLIC under the Assistance Agreement were subject, among other conditions, to the merger of Hamiltonian and Security into Southern, and then of the new Southern into Home Savings. Home Savings' obligations were subject to satisfaction of several additional conditions, among them the Bank Board's issue of the federal charter to Home Savings, a supervisory forbearance letter in approved form, and a letter containing certifications that grounds specified in 12 U.S.C. § 1464(d)(6)(A)(i) or (iii) exist or will exist with respect to each MERGING ASSOCIATION. . . . The Assistance Agreement contained an integration clause that incorporated by reference the merger agreement between SOUTHERN and HOME and any resolutions or letters issued contemporaneously herewith by the Federal Home Loan Bank Board or [FSLIC]. . . . Unless otherwise agreed by the parties, the Assistance Agreement was to terminate after five years. Also on December 17, 1981, the Bank Board issued Resolution 81-803. The resolution stated that the Bank Board determined that the merger of Southern into Home Savings [3] was pursuant to an action by the FSLIC to prevent the failure of Southern and the insurance liability or risk of the FSLIC will be reduced as a result of the merger. The resolution explained that these findings constituted certification that the grounds specified in 12 U.S.C. § 1464(d)(6)(A)(i) or (iii) existed and were necessary to ensure that the merger of Southern into Home Savings would qualify as a tax-free reorganization under 26 U.S.C. § 368(a)(1)(G). See 26 U.S.C. § 368(a)(3)(D)(ii)(III) (Supp. V 1981). Also in Resolution 81-803, the Bank Board approved the establishment of Home Savings' Florida and Missouri branches resulting from Home Savings' acquisition of the merging thrifts, and conditionally approved Home Savings' establishment of two more branches in each of those states. As a result, future applications of Home . . . for permission to establish or maintain branch offices in the State of Florida and Missouri shall be processed. . . as if the home office of Home were located in Florida or Missouri, respectfully [sic]. The resolution authorized the issuance of a letter to Home Savings, also dated December 17, 1981, confirming these branching rights. These rights were valuable to Home Savings because until 1981, Bank Board regulations prohibited thrifts from opening branches outside of the state in which they had their home office. [4] Resolution 81-803 further approved the purchase method of accounting for the acquisition of Southern by Home Savings, and stated that the Bank Board hereby determines that it does not object to (1) the amount of any resulting intangible assets being first assigned to the acquired savings deposit base in the amount of .5 percent of the acquired savings balances and .05 percent of the acquired certificate balances, which will have a life of ten (10) years, and (2) any excess being assigned to goodwill and initially amortized, in accordance with generally accepted accounting principles, over forty (40) years. . . . The parties refer to these rights, cumulatively, as the RAP rights. Finally, Resolution 81-803 authorized the issuance of a supervisory forbearance letter. The letter, also dated December 17, 1981, represented that, during the five-year term of the Assistance Agreement, the regulators would waive violations by Home Savings of regulatory reserve and net worth requirements attributable to the merger of Southern into Home Savings. The letter also represented that losses of Southern shall not be deemed to reduce Home Savings' net worth for the purpose of regulations of the Bank Board or for FSLIC's permitting the waiver of net worth requirements. The merger of Hamilton and Security into Southern, and then Southern into Home Savings proceeded as planned, on the same day as the Assistance Agreement, December 17, 1981. In the wake of the Supreme Court's decision in Winstar, Ahmanson and Home Savings filed their own Winstar -like damage suit. The lawsuit concerned several supervisory mergers, including the Southern-Home Savings merger. See Home Sav. of Am. v. United States, 50 Fed.Cl. 427, 430-31 (2001) ( Home I ), aff'd 399 F.3d 1341 (Fed.Cir.2005). Although Home Savings tacitly acknowledge[d] the lack of explicit language regarding the inclusion of supervisory goodwill in regulatory capital, id. at 434, the court concluded based on its analysis of the Assistance Agreement and the FHLBB Resolution 81-803 that the [Bank Board] and . . . FSLIC promised that plaintiffs would be able to count supervisory goodwill acquired in the Florida/Missouri. . . transaction[ ] in meeting their regulatory capital requirements until such goodwill was completely amortized. Id. at 438. The court then held that the limitation imposed by FIRREA on plaintiffs' ability to count supervisory goodwill in meeting their regulatory capital requirements constituted a breach of the contracts entered into by plaintiffs and the government in the Florida/Missouri . . . transaction[ ]. Id. at 439. In Home Sav. of Am. v. United States, 57 Fed.Cl. 694 (2003), aff'd 399 F.3d 1341, and Home Sav. of Am. v. United States, 70 Fed.Cl. 303 (2006), the court awarded Home Savings a total of $90,360,000 in damages and grossed up the awards for taxes, resulting in a total award of $149,951,000.