Opinion ID: 789745
Heading Depth: 2
Heading Rank: 1

Heading: Regulatory Setting

Text: 5 It has been more than twenty years since the critical events in the thrift industry crisis of the 1980s occurred, and almost a decade since the law that governs these cases was first established. During that time the history and circumstances surrounding the thrift crisis and the ensuing events, including enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. No. 101-73, 103 Stat. 183 (FIRREA), have been extensively discussed in opinions of the Supreme Court, see United States v. Winstar Corp., 518 U.S. 839, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996), and this court, see, e.g., Winstar Corp. v. United States, 64 F.3d 1531 (Fed.Cir.1995) (en banc); Glendale Fed. Bank, FSB v. United States, 239 F.3d 1374 (Fed.Cir.2001). We need provide only a brief overview here to serve as backdrop for our decision in this case. 6 Rising interest rates and inflation during the late 1970s and early 1980s precipitated a crisis in the savings and loan industry. More than 400 thrifts failed between 1981 and 1983, and many additional thrifts were on the verge of insolvency. This situation threatened to exhaust the insurance fund of the Federal Savings and Loan Insurance Corporation (FSLIC). 7 To deal with this crisis, the Federal Home Loan Bank Board (FHLBB), the agency responsible for regulating federally chartered savings and loan associations, sought out healthy financial institutions and outside investors for the purpose of having them purchase troubled thrifts through the use of supervisory mergers. The FHLBB offered financial incentives to induce such mergers and to prevent an acquiring thrift from becoming insolvent upon completion of the transaction. The incentive most pertinent to this case was the accounting treatment of what was called supervisory goodwill, basically the difference between the fair market value of the failing thrift's liabilities assumed by an acquiring thrift and the fair market value of the failing thrift's assets. 8 In a merger utilizing supervisory goodwill, the FHLBB would permit the acquiring institution to count supervisory goodwill toward its reserve capital requirements and to use the purchase method of accounting to amortize this supervisory goodwill over an extended period of time, up to forty years. Additional incentives provided by the FHLBB in some supervisory mergers included cash contributions in the form of permanent credits to regulatory capital and forbearance agreements by the FHLBB not to enforce regulatory capital requirements for a specified period of time. 9 However well-intended these various measures were, the problems in the savings and loan industry persisted. In 1989 Congress stepped in with the enactment of FIRREA. FIRREA abolished the FHLBB and FSLIC, transferred thrift insurance activities to the Federal Deposit Insurance Corporation (FDIC), established the Office of Thrift Supervision (OTS) as the new thrift regulatory agency, created the Resolution Trust Company (RTC) to liquidate failed thrifts, and made substantial changes in the regulation of the savings and loan industry. 10 Directly to the point for purposes of this case, FIRREA also created a minimum capital requirement for thrifts, phased out the thrifts' ability to count supervisory goodwill toward capital requirements, and limited the amortization period of supervisory goodwill. The impact of FIRREA, in particular the supervisory goodwill provisions, was swift and severe, and many thrifts quickly fell out of compliance with regulatory capital requirements, making them subject to seizure by thrift regulators. 11 This course of events gave rise to hundreds of lawsuits filed by formerly healthy thrifts that had been acquirers of failing thrifts. The plaintiffs sought damages from the Government under several theories, including breach of contract. The thrifts alleged that Congress's enactment of FIRREA breached the Government's obligation to allow special accounting treatment of supervisory goodwill. In due course the matter reached the Supreme Court in United States v. Winstar Corp., 518 U.S. 839, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996). The appeal involved the cases of three acquiring thrifts taken as test cases; the cases had been consolidated for appeal. The Supreme Court affirmed this court's en banc determination that the thrifts had indeed entered into enforceable contracts with the Government, and that the Government was liable for breach of contract as a result of the enactment and enforcement of FIRREA. 12 In the years since the Supreme Court's Winstar decision, appeals in numerous Winstar -related cases have come before this court. Because the background and the fact pattern of the Government's involvement with the thrifts are well-known, in many cases the existence between the Government and the acquiring thrift of an agreement to allow supervisory goodwill is clear. The Government concedes liability, and the issue of contention between the parties has been the amount of damages. 2 In a relatively few cases, because of particular circumstances in the transactions at issue, the Government has contested whether the FHLBB and the thrift understood that supervisory goodwill would be part of the transaction. 13 In assessing the issue of contractual obligation and breach, there is a difference between the issue of contract formation and the issue, once it is determined that the relationship is one of contract, of interpreting the dimension of particular contractual obligations. In this case, the parties do not dispute basic issues of offer, acceptance, and consideration, the essentials of contract formation. What is in dispute is whether a particular term is part of whatever contract existed between the parties, i.e., did the parties intend to bind themselves to long-term amortization of the regulatory goodwill created by the transactions in which they engaged. Often in cases such as this, with the facts of record and generally agreed, the matter is decided on summary judgment; this case is unusual in having the facts and the trial court's conclusions determined only after a full trial.