Glendale Federal Bank, FSB v. United States
United States Court of Appeals, Federal Circuit
378 F.3d 1308 (Fed. Cir. 2004)
In the late 1980s, following a crash of the savings and loan industry, the United States government (United States) (defendant) asked Glendale Federal Bank, FSB (Glendale) and other financially viable savings and loan banks to take over failing savings and loan banks. This was designed to reduce the United States’ liability through its insolvent Federal Savings and Loan Insurance Corporation (FSLIC). In exchange, the United States promised to treat the excess money paid by Glendale in its purchase price above the market value of the failing savings and loan banks as “goodwill” capital. The United States agreed to give favorable regulatory treatment to Glendale, and to amortize the capital over the next 40 years. Following this agreement, however, the United States breached its agreement to give Glendale favorable regulatory treatment and to amortize its capital. The United States required Glendale to contribute additional new capital to maintain its reserve requirements. Glendale and many other banks in the same position sued the United States, claiming breach of contract. In United States v. Winstar, 518 U.S. 839 (1996), the United States Supreme Court held that the United States breached its contracts with Glendale and the other savings and loan banks. The Supreme Court provided no guidance, but remanded the cases to the Federal Court of Claims to determine damages. In its damages trial before the Federal Court of Claims, Glendale sought “expectancy damages” amounting to lost profits. The Federal Court of Claims rejected Glendale’s theory of expectancy damages as being too speculative, and instead awarded Glendale $909 million. This award was based on $527 million in restitution damages and $381 million in “non-overlapping reliance damages”, or “wounded bank” damages. The United States appealed, and the United States Court of Appeals for the Federal Circuit reversed and remanded the decision. In its second damages trial, Glendale sought restitution damages amounting to $798 million. The Federal Court of Claims sided with Glendale, but reduced the award to $510 million. After a second review, the court of appeals vacated the award of $510 million. On remand to the Federal Court of Claims, Glendale requested an entry of judgment amounting to a reinstatement of the $381 million in reliance, or “wounded bank” damages, plus an additional $527 million in actual out-of-pocket loss suffered by Glendale as a result of the breach. Glendale calculated the $527 million based on its earlier expectancy damages model, basing the loss on the fact that Glendale fell out of capital compliance after the United States’ breach and had to pay higher fees and interest to keep customers. The Federal Court of Claims rejected Glendale’s claim for $527 million, finding that Glendale’s reliance model failed to measure the actual losses Glendale sustained due to the Government’s breach. Glendale was awarded $381 million in “wounded bank” damages. The United States appealed the award of $381 million to Glendale, and Glendale cross-appealed the denial of the award of $527 million.
Rule of Law
Holding and Reasoning (Plager, J.)