Winstar Corp. v. United States

During the Great Depression, Congress enacted legislation and created agencies to restore public confidence in the failing savings-and-loan industry, also known as the thrift industry. These measures included the creation of the Federal Home Loan Bank Board (bank board) and the Federal Savings and Loan Insurance Corporation (FSLIC). Among other things, the agencies set minimum capital reserves that thrifts, or savings-and-loan institutions, were required to maintain or else face seizure and liquidation. The industry stabilized for a time, but high interest rates in the late 1970s and early 1980s caused a second crisis. The FSLIC, which insured deposits in federally regulated thrifts, lacked sufficient funds to close all the failing thrifts. Consequently, the bank board and the FSLIC incentivized healthy thrifts to take on failing thrifts, offering special regulatory treatment that would allow the acquiring thrifts to stay in compliance with the capital requirements. Specifically, the negotiated contracts allowed the thrifts to (1) count supervisory goodwill as an asset for regulatory-capital purposes and (2) amortize the supervisory goodwill over extended periods. Winstar Corporation (Winstar), Statesman Savings Holding Corporation (Statesman), and Glendale Federal Bank (Glendale) (plaintiffs) were among the healthy thrifts that acquired failing thrifts. Despite the bank board’s and the FSLIC’s efforts to stabilize the thrift industry, thrifts continued to fail, and Congress eventually responded by passing the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which prevented the promised special regulatory treatment and increased minimum capital requirements. Due to FIRREA’s limitations, Winstar and Statesman each fell into noncompliance with the capital requirements and were seized and liquidated. Glendale avoided liquidation only via a major private recapitalization. Winstar, Statesman, and Glendale separately sued the government (defendant), seeking monetary damages for breach of contract. The government argued that it did not have a contractual obligation in part because the government could not be held to a promise to refrain from exercising its legislative authority unless the promise was unmistakably clear in the contract. In each case, the Court of Federal Claims granted summary judgment in the thrift’s favor. It then consolidated the cases for an interlocutory appeal.