Glendale Federal Bank, FSB v. United States

In the late 1980s, following a crash of the savings-and-loan industry, the United States government (government) (defendant) asked Glendale Federal Bank, FSB (Glendale) (plaintiff) and other financially viable savings-and-loan banks (the rescuing banks) to take over failing savings-and-loan banks. The reason was that the Federal Savings and Loan Insurance Corporation did not have sufficient funds to close the failing banks. In exchange, the government promised to give the rescuing banks special regulatory treatment that would help them continue to meet regulatory capital requirements despite taking on the failing banks. Following this agreement, however, Congress passed new regulations that, among other things, prevented the special regulatory treatment for the rescuing banks and increased minimum capital requirements. As a result, Glendale fell out of compliance with the regulatory capital requirements. Consumers were then wary of using Glendale, forcing Glendale to offer higher interest rates to attract business. Glendale also paid higher insurance fees. Glendale and other similarly situated rescuing banks sued the government for breach of contract. In United States v. Winstar, 518 U.S. 839 (1996), the United States Supreme Court held that the government breached its contracts with the banks and remanded the cases to the federal claims court for damages trials. In its first damages trial, Glendale sought expectation damages for alleged lost profits. The federal claims court determined that such damages were too speculative and therefore inappropriate. It instead awarded restitutionary damages and awarded an additional $381 million in reliance damages. The reliance damages, which Glendale referred to as wounded-bank damages, were to compensate Glendale for the higher interest offerings and fees Glendale incurred because of noncompliance with capital requirements. The Federal Circuit reversed and remanded for a new damages trial using only reliance to measure damages. In the second damages trial, Glendale sought reinstatement of the $381 million reliance award and also sought $527 million in additional reliance damages for supposed out-of-pocket expenses. The federal claims court reinstated the $381 million award but did not award additional reliance damages, concluding that Glendale’s measure of reliance damages failed to measure the actual additional losses Glendale incurred because of the breach. The government appealed the $381 million award, and Glendale cross-appealed seeking the additional reliance damages.