United States v. Winstar Corp.

In response to the Great Depression, Congress revamped the savings-and-loan industry, or thrift industry. Among other things, Congress created the Federal Savings and Loan Insurance Corporation (FSLIC), which insured deposits in federally regulated savings-and-loan institutions. In the late 1970s and early 1980s, inflation and high interest rates caused a second crisis in the savings-and-loan industry. The FSLIC lacked sufficient funds to close all the failing institutions. Consequently, the government (defendant) asked financially viable savings-and-loan institutions to take over failing institutions. Three such viable institutions were Glendale Federal Bank (Glendale), Winstar Corporation (Winstar), and The Statesman Group, Inc. (Statesman) (collectively, the rescuing institutions) (plaintiffs). In exchange, the government promised to give the rescuing institutions special regulatory treatment that would help them continue to meet regulatory capital requirements. The negotiated contracts allowed the rescuing institutions to (1) count supervisory goodwill as an asset for regulatory-capital purposes and (2) amortize the supervisory goodwill over extended periods. After the rescuing institutions took over the failing institutions, Congress passed new regulations that prevented the promised special regulatory treatment and increased minimum capital requirements. When the rescuing institutions failed to meet the new requirements, federal regulators seized and liquidated Winstar and Statesman. Glendale avoided liquidation only via a major private recapitalization. Each of the rescuing institutions sued the government, seeking monetary damages for breach of contract. The government argued, among other things, that it was not liable because the government could not be held to a promise to refrain from exercising its regulatory authority unless the promise was unmistakably clear in the contract. In each case, the Court of Federal Claims granted summary judgment in the rescuing institution’s favor. It then consolidated the cases for interlocutory appeal. The Federal Circuit en banc affirmed, and the United States Supreme Court granted certiorari.