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Holland v. United States

October 12, 2010

HOMER J. HOLLAND AND STEVEN BANGERT (CO- EXECUTOR OF THE ESTATE OF HOWARD R.ROSS), PLAINTIFF-APPELLEES, AND FIRST BANK, PLAINTIFF-CROSS APPELLANT,
v.
UNITED STATES, DEFENDANT-APPELLANT.



Appeal from the United States Court of Federal Claims in 95-CV-524, Judge George W. Miller.

The opinion of the court was delivered by: Prost, Circuit Judge.

Before RADER, Chief Judge, LOURIE and PROST, Circuit Judges.

In this Winstar case, the United States ("the Government") appeals the United States Court of Federal Claims' grant of summary judgment holding the Government liable to Plaintiffs Homer J. Holland ("Holland"); Steven Bangert, as co-executor of the estate of Howard R. Ross ("Ross"); and First Bank (collectively, "Plaintiffs") for breach of contract, as well as the court's award of $18.6 million in damages to Plaintiff First Bank. First Bank cross-appeals the denial of its request for lost profit damages.

We reverse the Court of Federal Claims' holding that the Government is liable for breach of contract because we conclude that a settlement agreement between the parties extinguished all of Plaintiffs' claims against the Government arising out of the contracts at issue. In light of our conclusion on liability, we do not reach the damages issues raised in the Government's appeal and First Bank's cross-appeal.

BACKGROUND

A.

In response to the savings and loan crisis of the early 1980s, the Federal Home Loan Bank Board ("Bank Board"), the Government agency that regulated all federally insured thrifts, and the Federal Savings and Loan Insurance Corporation ("FSLIC"), an agency under the Bank Board's authority that insured thrift deposits, sought healthy thrifts to take over ailing thrifts. To encourage such transactions, the Bank Board and FSLIC commonly offered the acquiring thrifts favorable regulatory treatment, including supervisory goodwill*fn1 and capital credits.*fn2 This case arises out of two such Government-assisted acquisitions of failing thrifts.

The first transaction ("River Valley I Acquisition") involved the acquisition of three insolvent Illinois thrifts:

(1) Galva Federal Savings and Loan Association of Galva, Illinois ("Galva"), (2) Mutual Savings and Loan Association of Canton, Illinois ("Mutual"), and (3) Home Federal Savings and Loan Association of Peoria, Illinois ("Home"). The transaction provided for the merger of Galva and Mutual with and into Home, the conversion of Home into River Valley Savings Bank, F.S.B. ("River Valley I"), and Holland and Ross's acquisition of all the voting stock of River Valley I. An Assistance Agreement ("River Valley I Assistance Agreement") detailed the terms of the acquisition, specifying that FSLIC would provide River Valley I with an initial cash contribution of approximately $34.2 million, purchase 50,000 preferred shares of River Valley I for $5 million, and indemnify certain losses, and that River Valley I would provide a subordinated debenture of $4.6 million. The agreement further permitted River Valley I to count $8 million of FSLIC's initial cash contribution and $4.6 million of the subordinated debenture as regulatory capital.

On July 28, 1988, the Bank Board,as operating head of FSLIC, issued Resolution 88-638, in which the Bank Board approved the River Valley I Assistance Agreement and authorized FSLIC to execute the agreement. The "Accounting" section of Resolution 88-638 provided that River Valley I must report "to the Bank Board and the FSLIC" in accordance with generally accepted accounting principles ("GAAP") with two exceptions: (1) River Valley I may credit $8 million of FSLIC's initial cash contribution and $4.6 million of the subordinated debenture to its regulatory capital account "in accordance with the forbearance letter authorized pursuant to this Resolution" and (2) River Valley I may amortize "[t]he value of any unidentifiable intangible assets resulting from the application of push-down accounting . . . over a period not in excess of twenty-five (25) years by the straight line method." The Resolution further authorized and directed an executive of the Bank Board to send River Valley I a letter regarding regulatory forbearances.

On the same day, the Bank Board sent a letter to Holland, as President and Chief Executive Officer of River Valley I ("River Valley I Forbearance Letter"). The River Valley I Forbearance Letter "granted" River Valley I several regulatory forbearances, including that River Valley I may: (1) credit a portion of FSLIC's initial cash contribution "not to exceed $8.0 million" to its regulatory capital and (2) amortize "the value of any intangible asset resulting from the application of push-down accounting in accounting for the purchases . . . over a period not to exceed 25 years by the straight line method."

On July 29, 1988, River Valley I, Holland, Ross, and FSLIC executed the River Valley I Assistance Agreement. The Bank Board did not sign the River Valley I Assistance Agreement. The agreement, however, contained an integration clause, Section 23, which provided that:

[t]his Agreement . . . constitutes the entire agreement between the parties and supersedes all prior agreements and understandings of the parties in connection with it, excepting only . . . any resolutions or letters concerning the Transaction or this Agreement issued by the Bank Board or the [FSLIC] in connection with the approval of the Transaction and this Agreement.

The second transaction ("River Valley II Acquisition") involved the merger of Republic Savings and Loan Association of South Beloit, Illinois ("Republic") with and into River Valley Savings Bank of Rock Falls, Illinois ("River Valley II"). Holland and Ross were the sole shareholders of River Valley II. An Assistance Agreement specified the terms of the acquisition ("River Valley II Assistance Agreement") (collectively, with the River Valley I Assistance Agreement, "the Assistance Agreements"), including that FSLIC would indemnify River Valley II for certain losses and make a $16.6 million initial cash contribution to River Valley II, and that River Valley II could credit $5 million of this initial cash contribution as regulatory capital.

On July 27, 1988, the Bank Board issued Resolution 88-612, which, as with Resolution 88-638 for the River Valley I Acquisition, approved the River Valley II Assistance Agreement, authorized FSLIC to execute the agreement, and authorized and directed an executive of the Bank Board to send River Valley II a forbearance letter. The "Accounting" section of Resolution 88-612 provided that River Valley II must use GAAP "except that $5[ million] of the initial cash contribution by the FSLIC to River Valley [II] . . . shall be credited to the regulatory capital account of River Valley [II] and shall constitute regulatory capital."

On July 29, 1988, the Bank Board sent a letter to Holland as Vice Chairman of River Valley II ("River Valley II Forbearance Letter"). The River Valley II Forbearance Letter "granted" River Valley II approval "to issue and include in its regulatory capital . . . a subordinated debenture in the aggregate principal amount not to exceed $2[ million]" provided that certain conditions were satisfied.

On July 29, 1988, River Valley II and FSLIC executed the River Valley II Assistance Agreement. The Bank Board did not sign the agreement. The River Valley II Assistance Agreement included an integration clause identical to that in the River Valley I Assistance Agreement.

On May 18, 1989, the Bank Board sent a letter to Holland as Vice Chairman of River Valley II ("River Valley II Forbearance Confirmation Letter") to "confirm[] the understanding that the Bank Board and the FSLIC will waive or forbear from taking action to enforce certain requirements to River Valley [II]," including that River Valley II: (1) may credit to its regulatory capital a portion of FSLIC's initial cash contribution "not to exceed $5.0 million" and (2) may amortize "the value of any intangible asset, resulting from the application of push-down accounting in accounting for the purchase . . . over a period not to exceed 25 years by the straight line method."

B.

On August 9, 1989, Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub. L. No. 101-73, 103 Stat. 183, to prevent the collapse of the thrift industry. Winstar, 518 U.S. at 856. FIRREA abolished FSLIC and created a new thrift deposit insurance fund, the FSLIC Resolution Fund ("FRF"), under the Federal Deposit Insurance Corporation ("FDIC"). Id.; Admiral Fin. Corp. v. United States, 329 F.3d 1372, 1374 (Fed. Cir. 2003). With FIRREA's passage, the assets of FSLIC were placed in the FRF. Admiral, 329 F.3d at 1374.

FIRREA also replaced the Bank Board with the Office of Thrift Supervision ("OTS"), an office of the Treasury Department with the responsibility of regulating all federally insured savings associations. Winstar, 518 U.S. at 856. FIRREA obligated the OTS to "prescribe and maintain uniformly applicable capital standards for savings associations" in accordance with new stricter capital requirements. Id. at 856-57. The OTS issued regulations implementing FIRREA's capital standards and directed that all savings ...


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