Glendale Federal Bank, FSB v. United States

The federal government (defendant) entered into an agreement with Glendale Federal Bank (plaintiff) regarding Glendale’s acquisition of another savings and loan institution, First Federal Savings and Loan Association of Broward County, Florida. The contract was entered into in November 1981, during the savings and loan crisis. Because the savings and loan institutions were in financial trouble due to soaring interest rates, the federal government sought ways to ensure the institutions did not default on their obligations. One tool used by the federal government was permitting institutions who acquired troubled banks to value the acquired accounts as an asset, called supervisory goodwill, even though the actual value was negative. In Glendale’s case, it was permitted to book the Broward bank’s negative net worth of approximately $734 million as an asset. The financial conditions soon improved, and Congress passed the Financial Institutions Recovery, Reform, and Enforcement Act (FIRREA). This statute changed many of the terms of Glendale’s contract, along with many other similar contracts with savings and loan institutions, including requiring the supervisory goodwill to be deducted on an accelerated schedule and increasing certain minimum capital requirements for financial institutions. These changes required Glendale to raise new funds from investors, sell off divisions and subsidiaries, and enter into a new merger. A number of institutions, including Glendale, sued the federal government, alleging breach of contract. A previous case, affirmed by the Supreme Court, determined that the government did breach its contracts by enacting FIRREA. The trial court held a damages trial in this case, which lasted for 14 months. The trial court awarded damages for restitution and reliance totaling approximately $900 million. The government appealed.