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Contracts Keyed to Ayres
Glendale Federal Bank, FSB v. United States
Facts
As a result of the 1980s savings and loan crisis, the Government induced healthy savings and loan banks, such as Plaintiff, to acquire failed savings and loans in order to reduce the potential liability of the Federal Savings and Loan Insurance Corporation. In exchange for acquiring these failed banks, the Government would attribute the amount these healthy banks paid over the fair market value for the acquired banks (the goodwill) to its capital reserve requirements. The Government then enacted new regulations in 1989 that reversed course and required the acquiring banks to meet its capital reserve requirements without consideration of the goodwill. Three years after the breach, Plaintiff could no longer meet its capital reserve requirements and as a result of depositors’ resulting reservations, was required to pay more interest to attract depositors and to pay higher fees for deposit insurance. Plaintiff and other banks sued for breach of contract, resulting in the United States Supreme Court decision in United States v. Winstar, 518 U.S. 839 (1996). In Winstar, the Court found the Government liable but remanded the cases to the Federal Court of Claims for a determination of damages. In Plaintiff’s first damages trial, Plaintiff was awarded $909 million in restitution and expectancy damages. On appeal, the Federal Circuit vacated the judgment and remanded the case for a new damages trial, allowing only reliance damages to be awarded. Plaintiff’s reliance damages totaled $381 million. At the second damages trial, Plaintiff sought these reliance damages, which it called “wounded bank” damages as well as an additional $527 million in out-of-pocket losses. Defendant argued that no damages were due, as Plaintiff did not prove that it would have met its capital reserve requirements without the breach. The trial court awarded the “wounded bank” damages but denied the out-of-pocket damages as an inaccurate measure of actual losses sustained due to the breach. The Government appealed the award of “wounded bank” damages and Plaintiff appealed the denial of the out-of-pocket damages.
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