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Case 1:93-cv-00531-LAS

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS __________________________________________ ) AMBASE CORPORATION AND ) CARTERET BANCORP, INC., ) ) Plaintiffs, ) ) and ) ) FEDERAL DEPOSIT INSURANCE ) CORPORATION, ) ) Plaintiff-Intervenor, ) ) v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) __________________________________________)

Civil Action No. 93-531 (Judge Loren Smith)

PLAINTIFFS' POST-TRIAL BRIEF

Charles J. Cooper COOPER & KIRK, PLLC 1523 New Hampshire Ave, N.W. Washington, D.C. 20036 (202) 220-9600 (202) 220-9601 (fax) Counsel of Record Of Counsel: Vincent J. Colatriano David H. Thompson Jesse Panuccio COOPER & KIRK, PLLC 1523 New Hampshire Ave, N.W. Washington, D.C. 20036 (202) 220-9600 (202) 220-9601 (fax) July 1, 2008

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TABLE OF CONTENTS Page TABLE OF AUTHORITIES ...........................................................................................................v INTRODUCTION ...........................................................................................................................1 I. PLAINTIFFS ARE ENTITLED TO THE VALUE OF THE THRIFT ..............................6 A. The Loss of Carteret's Value Was Reasonably Foreseeable ...................................6 1. 2. 3. B. 1. 2. 3. 4. The Logic of the Contracts and the Government's Viability Analyses .......7 The Government's Understanding of Supervisory Goodwill's Uses ..........8 The Magnitude of Carteret's Damage Was Foreseeable ...........................10 The Substantial Factor Test Applies ..........................................................12 Government Regulators Admitted the Breach Caused Carteret's Seizure........................................................................................................13 The Breach Devastated Carteret's Regulatory Capital Profile ..................16 Adjusting Solely for the Loss of Goodwill, Carteret Survives...................17 a. b. c. 5. Securitization of Residential Loans ...............................................18 Capital-Raising at the AmBase Level: $80-$100 Million..............19 Unlocking the Franchise................................................................21

The Breach Caused the Loss of Carteret's Value ..................................................12

Adjusting for More of the Breach's Effects Further Proves Carteret Would Have Survived in the Nonbreach World ........................................23 a. b. Carteret Was a Success Prior to the Breach .................................23 The Breach's Many Harms ............................................................23 i. ii. iii. iv. v. vi. c. Asset Shrink........................................................................25 Deposit Run-off ..................................................................25 Increased Cost of Funds ....................................................26 Branch Sales ......................................................................27 Ultra-conservative Loan Loss Reserves.............................31 Other Harms ......................................................................34

A Conservative Counterfactual......................................................35 Carteret Had Turned a Corner by 1992 .......................................38 i. ii. Sustainable Profits and Stabilized Assets ..........................38 Superior Management........................................................39

6.

The Government Prevented Mitigation .....................................................36 a.

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iii. b.

Situated to Thrive...............................................................40

The Government Exacerbated the Breach and Prevented Recovery.........................................................................................40 i. ii. Carteret's Seizure was Unreasonable and the Government Admitted that It Prevented Survival ..............40 Regulatory Risk Prevented Mitigation...............................44

7.

The Government's Causation Arguments Are Meritless...........................46 a. b. c. d. Carteret's Exposure to Lending Losses .........................................46 Adding Back Goodwill as of the Time of Seizure..........................48 Carteret's Supposed Mitigation.....................................................49 Professor Saunders Was not a Credible Witness...........................51

C.

AmBase Has Proved Expectancy Damages with Reasonable Certainty ...............56 1. Carteret's Value in 1989: $251 Million .....................................................57 a. b. 2. 3. 4. The AmBase Purchase Price..........................................................57 Carteret's Market Value Just Prior to the Breach.........................59

The Undiscounted Stream of Carteret's Future Earnings in 1989: $782.2 Million............................................................................................62 Carteret's Current Fair Market Value in a Nonbreach World: $904 65 Million........................................................................................................65 A Jury Verdict Award as an Alternative Measure of Damages................................................................................................67

III. IV. V. VI.

PLAINTIFFS SUFFERED SIGNIFICANT WOUNDED BANK DAMAGES ...............68 PLAINTIFFS ARE ENTITLED TO RELIANCE DAMAGES ........................................70 AMBASE IS ENTITLED TO RESTITUTION DAMAGES............................................72 THE RECEIVERSHIP DEFICIT IS ARTIFICALLY OVERSTATED AND INVALID...........................................................................................................................72 A. B. C. Section 1821 Does not Bar Review of the Validity of the Receivership Deficit...73 The FDIC Repeatedly Breached its Fiduciary and Statutory Duties Toward Carteret and AmBase .............................................................................................75 The FDIC's Estimates of Post-insolvency Interest Should Be Excluded from the Receivership Deficit.........................................................................................76 1. If Interest Is Deducted, it Must be Calculated Pursuant to 12 C.F.R. 360.3(b)...................................................................................................78 a. b. The Interest Rates Used by the FDIC are Contrary to Law ..........79 The Interest Rates Used in the FDIC Calculations Upset Reasonable, Well-Settled Expectations..........................................81 ii

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c. 2. D. E.

The Interest Rates Used in the FDIC Calculations Have no Economic Justification...................................................................82

If the FDIC's Interest Rates Are Used, its Calculations must be Corrected to Eliminate other Flaws ...........................................................82

Congress Overinflated the Receivership Deficit by Breaching the Contracts and by Delaying RTC Funding ..............................................................................84 The Minority Preference Program Harmed Carteret and AmBase........................85 1. The Minority Preference Program Violates the Due Process Clause ........85 a. b. 2. Congress Failed to Demonstrate a Compelling Interest for the MPP ...............................................................................................86 The Minority Preference Program Is not Narrowly Tailored to a Compelling Interest....................................................................87 Carteret's Assets Were Frozen to Effectuate the MPP..................89 Minority Bids for Carteret were Preferred over Non-minority Bids ................................................................................................91

The Minority Preference Program harmed Carteret and AmBase.............89 a. b.

F.

The Tax "Liability" Is a Phantom Liability that Is a Creation of the FDIC's Numerous Errors and that Will Never be Paid by the FDIC .................................91 1. 2. The FDIC Concedes that it Erroneously Overstated Taxable Income as a Result of its Treatment of Federal Financial Assistance.........................94 The IRS Will Allow the FDIC to Deduct up to $84 Million as an Interest Expense .........................................................................................95 a. b. 3. The FDIC Failed to Deduct Interest Actually Paid by Carteret....96 The FDIC Failed to Deduct Interest Accruing on Loans to Carteret ..........................................................................................96

The FDIC Failed to Carry Forward the 1992 Tax Return .......................100

G. H. VIII. A. B. C.

Penalties for Nonpayment Will Not Be Assessed and thus Are Not a Proper Component of the Receivership Deficit...............................................................101 Interest on the Tax Liability Should Not be Included in the Deficit ...................102 Even Discounting the Illegitimacy of the Receivership Deficit, Damages Should Be Paid Directly to AmBase....................................................................103 AmBase Is Entitled to the Legitimate Amount of the Surplus ............................104 AmBase Is Entitled to Direct Recovery on Its Derivative Claim ........................107 1. Federal Common Law Supplies the Rule of Recovery for AmBase's Derivative Contract Claim against the United States. .............................107

DAMAGES SHOULD BE PAID TO AMBASE DIRECTLY .......................................103

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2. 3. D. E. F. G. H. IX.

Federal Common Law Supports Direct Recovery when the Corporate Recovery would be Funneled Back to the Wrongdoers...........................109 New Jersey Law Supports the Pro Rata Recovery Doctrine....................114

AmBase Is Entitled to Direct Recovery Under the Closely-Held Corporation Exception. ............................................................................................................116 The Court Can Fashion a Remedy that Protects the Rights of Bona Fide Creditors...............................................................................................................117 The FDIC's Renewed Challenges to this Court's Jurisdiction are Groundless ...119 Direct Payment of Damages to AmBase Will Avoid Substantial Questions under the Takings Clause.....................................................................................121 If the Court Awards Damages to the FDIC, AmBase Will Suffer a Taking .......122

AMBASE IS ENTITLED TO A TAX GROSS-UP ........................................................123

CONCLUSION............................................................................................................................124 APPENDIX: THE EVOLVING LEXICON OF ANGELO VIGNA ..........................................125

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TABLE OF AUTHORITIES Cases Page

Abrams v. Occidental Petroleum Corp., No. 67-2858, 1975 U.S. Dist. LEXIS 12715 (S.D.N.Y. Apr. 23, 1975) ..............................................................................109, 110, 111, 112 Acceptance Ins. Cos. v. United States, 503 F.3d 1328 (Fed. Cir. 2007)......................................121 Acme Process Equip. Co. v. United States, 347 F.2d 509 (Ct. Cl. 1965) ......................................72 Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995)............................................................85 Allenfield Assocs. v. United States, 40 Fed. Cl. 471 (Fed. Cl. 1998)...........................................109 AmBase Corp. v. United States, 61 Fed. Cl. 794 (2004)........................................................ passim Ambase Corp. v. United States, 58 Fed. Cl. 32 (Fed. Cl. 2003) ..........................................7, 8, 121 American Capital Corp. v. United States, 472 F.3d 859 (Fed. Cir. 2006) ........32, 71, 77, 105, 106 American Capital Corp. v. United States, 66 Fed. Cl. 315 (2005) ..........................................32, 70 Anchor Sav. Bank, FSB v. United States, 81 Fed. Cl. (2008) ........................................................10 Aqua-Culture Techs. v. Holly, 677 So. 2d 171 (Miss. 1996).......................................................111 Atheron v. FDIC, 519 U.S. 213 (1997)................................................................................107, 108 Atkinson v. Marquart, 541 P.2d 556 (Ariz. 1975) .......................................................................111 Backus v. Finkelstein, 23 F.2d 357 (D. Minn. 1927) ...................................................111, 112, 114 Bailey v. Jacobs, 189 A. 320 (Pa. 1937)......................................................................................113 Bailey v. United States, 341 F.2d 1342 (2003) ........................................................74, 77, 106, 122 Balsamides v. Protameen Chems., 734 A.2d 721 (N.J. 1999).....................................................114 Bank of Am. v. United States, 67 Fed. Cl. 577 (2005) ..................................................................20 Barth v. Barth, 659 N.E.2d 559 (Ind. 1995) ................................................................................116 Belmont Indus., Inc. v. Bechtel Corp., 425 F. Supp. 524 (E.D. Pa. 1976) ....................................37 Bluebonnet Sav. Bank, FSB v. United States, 339 F.3d 1341 (Fed. Cir. 2003) .....................67, 106 Bluebonnet Sav. Bank, F.S.B. v. United States, 266 F.3d 1348 (Fed. Cir. 2001) ..6, 13, 56, 57, 104

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Boggess v. Hogan, 410 F. Supp. 433 (N.D. Ill. 1975) .................................................................111 Bowker v. Nashua Textile Co., 169 A.2d 630 (N.H. 1961) .........................................................113 Boyle v. United Tech. Corp., 487 U.S. 500 (1988) ......................................................................107 Branch v. FDIC, 825 F. Supp. 384 (D. Mass. 1993) ...........................................114, 115, 116, 117 Brown v. Brown, 731 A.2d 1212 (N.J. App. Div. 1999) .............................................................123 Brown v. Legal Found., 538 U.S. 216 (2003)..............................................................................123 Carteret Sav. Bank v. OTS, No. 91-661 (D.N.J. July 8, 1991) ......................................................27 Carteret Sav. Bank, FA v. OTS, 762 F. Supp. 1159 (D.N.J. 1991)....................4, 24, 26. 34, 43, 44 Carteret Sav. Bank, FA v. OTS, 963 F.2d 567 (3d Cir. 1992) .......................................................50 Castle v. United States, 301 F.3d 1328 (Fed. Cir. 2002) .............................................................121 Caswell v. Jordan, 362 S.E.2d 769 (Ga. Ct. App. 1987).............................................................116 Cermak v. Babbitt, 234 F.3d 1356 (Fed. Cir. 2000) ....................................................................121 Christian v. United States, 46 Fed. Cl. 793 (2000)........................................................................86 Citizens Fed. Bank v. United States, 474 F.3d 1314 (Fed. Cir. 2007) .....................................12, 13 Citizens Fed. Bank, FSB v. United States, 59 Fed. Cl. 507 (2004)................................................13 Coast Fed. Bank, FSB v. United States, 48 Fed. Cl. 402 (2000) .............................................13, 47 Commercial Fed. Bank, FSB v. United States, 59 Fed. Cl. (2004)............................13, 47, 67, 338 Consolidation Coal Co. v. United States, No. 07-5108, 2008 U.S. LEXIS 12426 (Fed. Cir. June 11, 2008) .......................................................................................................122 Crites, Inc. v. Prudential Ins. Co., 322 U.S. 408 (1944) ...............................................................75 Crosby v. Beam, 548 N.E.2d 217 (Ohio 1989) ....................................................................116, 117 Derouen v. Murray, 604 So. 2d 1086 (Miss. 1992).......................................................................16 Dill v. Johnston, 179 P. 608 (Okla. 1919) ...........................................................................111, 113 Downey v. Vernitron Corp., 559 F. Supp. 1081 (D. Mass. 1982) ...............................................111 Energy Capital Corp. v. United States, 302 F.3d 1314 (Fed. Cir. 2002).................................12, 62 Energy Capital Corp. v. United States, 47 Fed. Cl. 382 (2000), aff'd in part and rev'd vi

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in part, 302 F.3d 1314 (Fed. Cir. 2002) ..................................................................................12 Fibelok, Inc. v. LMS Enterps., Inc., 976 F.2d 958 (5th Cir. 1992) ................................................37 Fifth Third Bank v. United States, 518 F.3d 1368 (Fed. Cir. 2008) ..............................................52 First Fed. Sav. & Loan Ass'n v. United States, 76 Fed. Cl. 106 (2007)........................................13 First Hartford Corp. Pension Plan & Trust v. United States, 194 F.3d 1293 (Fed. Cir. 1999) .............................................................................................................108, 122 Geltman v. Levy, 207 N.Y.S.2d 366 (N.Y. App. 1960) ...............................................................114 General Elec. Co. v. Bucyrus-Erie Co., 563 F. Supp. 970 (S.D.N.Y. 1983) ......................109, 111 Glendale Fed. Bank, FSB v. United States, 54 Fed. Cl. 8 (2002), aff'd, 378 F.3d 1308 (Fed. Cir. 2004) .................................................................................................................68, 70 Glendale Fed. Bank, FSB v. United States, 378 F.3d 1308 (Fed. Cir. 2004) ....................56, 68, 69 Glendale Fed. Bank, FSB v. United States, 239 F.3d 1374 (Fed. Cir. 2001) ........................ passim Glendale Fed. Bank, FSB v. United States, 43 Fed. Cl. 390 (1999), aff'd in part and vacated in part, 239 F.3d 1374 (Fed. Cir. 2001) ................................................................16, 25, 26, 68 Globe Sav. Bank , F.S.B. v. United States, 65 Fed. Cl. 330 (2005), aff'd in part and vacated in part, 189 Fed. Appx. 964 (Fed. Cir. 2006).....................................................................7, 67 Golden Pac. Bancorp v. FDIC, 375 F.3d 196 (2d Cir. 2004) .......................................................75 Granite Mgmt. Corp. v. United States, 416 F.3d 1373 (Fed. Cir. 2005) ......................................70 Grutter v. Bollinger, 539 U.S. 306 (2003) ..............................................................................85, 86 Hall v. Staha, 858 S.W.2d 672 (Ark. 1993).........................................................................111, 112 Hall v. United States, 69 Fed. Cl. 51 (2005) ...................................................................49, 60, 112 Hansen Bancorp, Inc. v. United States, 367 F.3d 1297 (Fed. Cir. 2004) ......................................71 Holland v. United States, 75 Fed. Cl. 483 (2007)..........................................................................13 Home Sav. of Am., FSB v. United States, 399 F.3d 1341 (Fed. Cir. 2005)................13, 47, 69, 123 Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060 (Fed. Cir. 2001) ............69 In re PSE & G S'holder Litig., 801 A.2d 295 (N.J. 2002) ..........................................110, 111, 115 In re Sharkey, 272 B.R. 574 (Bankr. D.N.J. 2001)..............................................................116, 119

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Interlake Porsche + Audi v. Blackburn, 728 P.2d 597 (Wash. Ct. App. 1986), reh'g denied, 107 Wn.2d 1022 (Wash. 1987)..............................................................................................118 J.A. Croson Co., 488 U.S. 469 (1989) .....................................................................................87, 88 James v. James, 768 So. 2d 356 (Ala. 2000) .......................................................................113, 118 Jannes v. Microwave Commc'n, Inc. 385 F. Supp. 759 (N.D. Ill. 1974).....................................111 Johnson v. American Gen. Ins. Co., 296 F. Supp. 802 (D.D.C. 1969) ........................................111 Johnson v. Gilbert, 621 P.2d 916 (Az. Ct. App.1980).................................................................116 Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991)..............................................................108 Kirk v. Denver Publ'g Co., 818 P.2d 262 (Colo. 1991)...............................................................123 Kirk v. First Nat'l Bank of Columbus, 439 F. Supp. 1141 (M.D. Ga. 1977) ...............................116 Koby v. United States, 53 Fed. Cl. 493 (2002) ................................................................37, 74, 108 Kroese v. General Steel Castings Corp., 179 F.2d 760 (3d Cir. 1950) .......................................110 Landmark Land Co. v. United States, 256 F.3d 1365 (Fed. Cir. 2001) ...........................................7 LaSalle Talman v. United States, 462 F.3d 1331 (Fed. Cir. 2006)..............................................123 Lawson Mardon Wheaton v. Smith, 734 A.2d 738 (N.J. 1999) ..................................................114 Long Island Savings Bank, FSB v. United States, 503 F.3d 1234 (Fed. Cir. 2007).............107, 108 Longshore v. United States, 77 F.3d 440 (Fed. Cir. 1996) ..........................................................123 Lynch v. Patterson, 701 P.2d 1126 (Wyo. 1985).................................................................111, 112 Marquis Theatre Corp. v. Condado Mini Cinema, 846 F.2d 86 (1st Cir. 1988) .................111, 113 Martinez v. United States, 333 F.3d 1295 (Fed. Cir. 2003).................................................120, 121 Massachusetts v. United States, 435 U.S. 444 (1978) .................................................................123 Michigan Elec. Employees Pension Fund v. Encompass Elec. & Data, Inc., No. 07-140, 2008 U.S. Dist. LEXIS 40241 (W.D. Mich., May 19, 2008) ................................................108 Miller v. Ruth's of North Carolina, Inc., 322 S.E.2d 557 (N.C. 1984)........................................116 Montgomery v. Etreppid Techs., LLC, No. 06-00056, 2008 U.S. Dist. LEXIS 35561 (D. Nev. Apr. 18, 2008).........................................................................................................108

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NCP Litig. Trust v. KPMG LLP, 901 A.2d 871 (N.J. 2006) ...............................................111, 115 NLRB v. Catholic Bishop, 440 U.S. 490 (1979) ..........................................................................121 Norte & Co. v. Huffines, 288 F. Supp. 855 (S.D.N.Y. 1968) .....................................................114 Nyquist v. Randall, 819 F.2d 1014 (11th Cir. 1987)......................................................................37 O'Melveny & Meyers v. FDIC, 512 U.S. 79 (1994) ............................................................107, 108 Old Stone Corp. v. United States, 63 Fed. Cl. 65 (2004), aff'd in part and rev'd in part, 450 F.3d 1360 (Fed. Cir. 2006) .............................................................................13, 39, 47, 52 Perlman v. Feldman, 219 F.2d 173 (2d. Cir. 1955).....................................................................113 Phillips v. Wash. Legal Found., 524 U.S. 156 (1998), dismissed on other grounds sub nom. Washington Legal Found. v. Texas Equal Access to Justice Found., 86 F. Supp. 2d 617 (W.D. Tex. 2000)...................................................................................................................123 Prudential Ins. Co. v. United States, 801 F.2d 1295 (Fed. Cir. 1986).................................107, 109 Rankin v. Frebank Co., 121 Cal. Rptr. 348 (Cal. Ct. App. 1975)................................................118 Reich v. Collins, 513 U.S. 106 (1994) ...........................................................................................73 Richards v. Bryan, 879 P.2d 638 (Kan. App. 1994) ....................................................................116 Rothe Dev. Corp. v. United States Dep't of Def., 262 F.3d 1306 (Fed. Cir. 2001) ...........85, 86, 87 Sale v. Ambler, 6 A. 2d 519 (Pa. 1939)........................................................................................114 Samia v. Central Oil Co., 158 N.E.2d 469 (Mass. 1969) ............................................................111 Sartin v. United States, 5 Cl. Ct. 172 (1984) ................................................................................99 Schur v. Salzman, 377 N.Y.S.2d 82 (N.Y. App. Div. 1975) .......................................................113 Seaboard Lumber Co. v. United States, 15 Cl. Ct. 366 (Cl. Ct. 1988) ........................................107 Shaw v. Hunt, 517 U.S. 899 (1996) ...............................................................................................86 Slattery v. United States, 69 Fed. Cl. 573 (2006) .................................................................. passim Smith v. Price Dev. Co., 125 P.3d 945 (Utah 2005) ....................................................................123 Southern California Fed. Sav. & Loan Ass'n v. United States, 422 F.3d 1319 13 (Fed. Cir. 2005) .......................................................................................................................13 Sovereign Bank v. Schwab, 414 F.3d 450 (3d Cir. 2005) .............................................................75

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Steelman v. Mallory, 110 Idaho 510 (1986) ................................................................................116 Strasenburgh v. Straubmuller, 683 A.2d 818 (N.J. 1996)..............................................115 Suess v. United States, 33 Fed. Cl. 89 (1995) .............................................................................105 Suess v. United States, 52 Fed. Cl. 221 (2002) ............................................................49, 57, 58, 62 Toyota Indus. Trucks U.S.A., Inc. v. Citizens Nat'l Bank, 611 F.2d 465 (3d Cir. 1979) ........27, 74 United States v. Burton Coal Co., 273 U.S. 337 (1927) ...............................................................70 United States v. McDonald & Eide, Inc., 865 F.2d 73 (3d Cir. 1989).........................................108 United States v. Sperry Corp., 493 U.S. 52 (1989) .....................................................................123 United States v. Virginia, 518 U.S. 515 (1996) .............................................................................86 Vernon J. Rockler & Co. v. Minneapolis Shareholders Co., 425 F. Supp. 145 (D. Minn. 1977) .....................................................................................................................112 Watson v. Button, 235 F.2d 235 (9th Cir. 1956) ..........................................................................116 Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (1980) .................................77, 122 Westfed Holdings, Inc. v. United States, 407 F.3d 1352 (Fed. Cir. 2005).....................................71 Westfed Holdings, Inc. v. United States, 55 Fed. Cl. 544 (2003) .................................................13 Westfed Holdings, Inc. v. United States, 52 Fed. Cl. 135 (2002) ..................................................12 Whitney Benefits, Inc. v. United States, 25 Cl. Ct. 232 (1992) ................................6, 105, 106, 120 United States v. Winstar Corp., 518 U.S. 839 (U.S. 1996)..................................................9, 10, 23 Wygant v. Jackson Bd. of Educ., 476 U.S. 267 (1986) ..................................................................86 Zouck v. Antlers Ranch, Inc., No. 94-8032, 1996 U.S. App. LEXIS 10226 (10th Cir. Apr. 27, 1996) ......................................................................................................112 Other 5 U.S.C. 701 ............................................................................................................................120 12 U.S.C. 1441a(w)(17)(A) ........................................................................................................88 12 U.S.C. 1441a(w)(17)(E)(ii)....................................................................................................88 12 U.S.C. 1811............................................................................................................................88

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12 U.S.C. 1813(j) ........................................................................................................................80 12 U.S.C. 1821 .............................................................................................................73, 80, 122 12 U.S.C. 1821(d)(6) ................................................................................................................120 12 U.S.C. 1821(d)(11) ..............................................................................................................101 12 U.S.C. 1821(d)(11)(B) .................................................................................................105, 107 12 U.S.C. 1821(g)(2) ..................................................................................................................82 12 U.S.C. 1821(j) ...............................................................................................................80, 107 12 U.S.C. 1821(d)(13)(E)(i)........................................................................................................75 12 U.S.C. 1821(d)(13)(E)(ii) ......................................................................................................75 12 U.S.C. 1821(d)(13)(E)(iv)......................................................................................................88 26 U.S.C. 448............................................................................................................................101 26 U.S.C. 461(h)(4) ....................................................................................................................98 26 U.S.C. 7507(b) ......................................................................................................................93 26 U.S.C. 597..............................................................................................................................94 26 U.S.C. 6621(d) .......................................................................................................................84 12 C.F.R. 360.3 ...................................................................................................................78, 101 12 C.F.R. 360.3(b) ......................................................................................................................79 12 C.F.R. 563.13 .........................................................................................................................10 12 C.F.R. 1630.2 .........................................................................................................................88

26 C.F.R. 1.446-1(e)(2)(i)...........................................................................................................99 26 C.F.R. 1.597-7(b) ...................................................................................................................94 139 CONG. REC. H10,162, 10,175-76 (1993).................................................................................86 139 CONG. REC. H10,897, 10,899 (1993) ......................................................................................86 RESTATEMENT (SECOND) OF CONTRACTS 344(b)........................................................................70

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RESTATEMENT (SECOND) OF CONTRACTS 344(c) ........................................................................72 RESTATEMENT (SECOND) OF CONTRACTS 347 ............................................................................68 RESTATEMENT (SECOND) OF CONTRACTS 349 ............................................................................71 RESTATEMENT (SECOND) OF CONTRACTS 351 (1981)...........................................................7, 104 RESTATEMENT (SECOND) OF TRUSTS 170(1)...............................................................................75 RESTATEMENT (THIRD) OF TRUSTS 5 ..........................................................................................75 LAWS OF CORPORATIONS 373 (3d ed.1983) ......................................................................110, 114 13 FLETCHER CYC. CORP. 6028 (2007) ....................................................................110, 112, 114 2 COX, HAZEN & O'NEAL, CORPORATIONS 15.4 (2002)............................................109, 112, 114 24 SAMUEL WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS 64:2 (4th ed. 2002)................................................................................................................68 5 Arthur L. Corbin, CORBIN ON CONTRACTS 1039 (1964) ...................................................37, 74 AMERICAN LAW INSTITUTE, 2 PRINCIPLES OF CORPORATE GOVERNANCE 7.01 (1992) ............................................................................................................115, 116, 117, 119 Douglas G. Baird, The Uneasy Case for Corporate Reorganizations, 15 J. LEGAL STUD. 127 (1986)................................................................................................................................90 DEMOTT, SHAREHOLDER DERIV. ACTION L. & PRAC. 7:6 (2007) ....................................110, 112 H. HENN & ALEXANDER, LAWS OF CORPORATIONS 373 (3d ed. 1983).............................110, 114 Note, Individual Pro Rata Recovery in Stockholders' Derivative Suits, 69 HARV. L. REV. 1314 (1956)............................................................................................................................110 John A. Gebauer, Annotation, Action in Own Name by Shareholder of Closely Held Corporation, 10 A.L.R. 6th 293, 18 (2006) ......................................................................110 MAGNUSON, SHAREHOLDER LIT. 9:33 (2007) ...........................................................................110 Revenue Ruling 70-367, 1970-2 C.B. 37 (1970) ...........................................................................99 Treas. Reg. 1.597-4(f) Individual Pro Rata Recovery in Stockholders' Derivative Suits, 69 HARV. L. REV. 1314 (1956) ..............................................................................................110

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INTRODUCTION This Court and the Federal Circuit have noted the government's penchant for relitigating issues that have long since been decided. That tactic remains in full force in this case with claims by the government's expert, Professor Saunders, that supervisory goodwill is worthless and that it was irresponsible to leverage goodwill. But in this, the final Winstar case, the government has a new tactic: the wholesale repudiation of the sworn testimony of its own witnesses. Virtually every important argument advanced by Plaintiffs AmBase Corporation and Carteret Bancorp, Inc. (AmBase) is supported by sworn testimony of government officials and the government's own hand-picked expert, Professor Roy Smith. Thus, to rule in Ambase's favor, this Court need only credit the testimony of the government's own witnesses. Professor Smith acknowledged that "[s]upervisory goodwill for Carteret was akin to a license to continue to do business since, without goodwill, Carteret would not meet its capital requirement." Tr. 3038:16-20 (emphasis added). Similarly, on the key issue of causation, the government regulators uniformly admitted that the "[loss of $180 million of regulatory capital] certainly was a very severe consequence of [FIRREA]." Vigna Dep. 80:6-14 (JX 1 at 589) (emphasis added). As the RTC put it, "CSB's regulatory capital levels were significantly damaged by the change in the banking laws in 1989." PX 4002 (Conservatorship Plan) at C-AM-A0400815. Given these facts, it should come as no surprise that the government regulators also made the critical admission that the breach caused Carteret's failure: William Day of the FDIC testified that the breach was a "significant factor" in Carteret's demise, Dep. 69:1-6 (JX 1 at 47); Russell Meyer of the OTS testified "[t]hey could have survived" in a non-breach world, Dep. 42:2443:11 (JX 1 at 369). The third in command in the OTS northeast region, Michael Simone, testified that it was "very likely" that Carteret would have been able to operate beyond December 4, 1

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1992, if it had had an additional $140 million in capital. Dep. 105:1-21 (JX 1 at 500-01). At the time of his deposition--when he was the Director of the OTS Northeast Region--Robert Albanese answered "no" when asked if Carteret would have been seized if it satisfied its tangible capital requirement. Dep. 160:13-17 (JX 1 at 13). The Regional Director of OTS at the time of Carteret's seizure, Angelo Vigna, stated unequivocally "no" when asked, under oath: "If Carteret had . . . tangible capital, for example, if Carteret had raised $150 million to replace dollar for dollar the supervisory goodwill that it lost, would Carteret have been seized?" Dep. 158:6-11 (JX 1 at 599). Similarly, he again answered simply "no" when asked: "If the injunction that Judge Bissell entered had not been vacated but continued to be in effect, requiring OTS to accord full regulatory capital treatment to Carteret's unamortized supervisory goodwill, would Carteret have been seized?" Id. at 159:18-159:25 (JX 1 at 600). To be sure, at trial, Messrs. Albanese and Vigna attempted pirouettes worthy of Baryshnikov. But they offered no credible explanation for their recantations of their deposition testimony and, as demonstrated during their trial testimony, their recollection of events was much fresher in 1999, during their depositions. Professor Smith put it succinctly when he stated that after the breach Carteret was "in jail." Tr. 3009:20-23; Dep. 282:22 (JX 1 at 527). The consequences of Carteret's prison term included a multi-billion dollar asset shrink for which the breach was "a principal reason." R. Smith Dep. 135:9-18 (JX 1 at 515). Mr. Zamorski, former deputy regional director for the FDIC, explained the consequences of this asset shrink: "[t]he concern was that they had bolstered equity by selling off some of their branches . . . . [but] that's only a limited means by which you can increase capital, because as you do that on a longer-term basis, you diminish the earning capacity of the franchise. And so that might stem losses on a short-term basis, but longer-term, it diminishes the earnings capacity of the bank." Tr. 2137:7-20.

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In the aftermath of the breach, the OTS acknowledged that "Carteret . . . `bidded up' its CD rates above its local competitors to solicit steady deposits inflows." DX 201 (OTS Draft Memo 3/8/91) at WOP3260183 (emphasis added). The highest-ranking OTS official called by the government as a witness at trial testified that Carteret was "paying a lot on their deposits . . . a premium in the market," and "[a]t one time . . . maybe the talk was 100 plus basis points over the market place." Tr. 2518:17-22 (Downey). The need for capital also drove Carteret to, as Mr. Vigna put it, take "a very, very aggressive and I would say ultraconservative view of the valuation of their portfolio and their real estate assets; far, far more conservative than any of the other institutions, at least in our region, and probably nationally." Dep. 109:25-110:7 (JX 1 at 592). See also Tr. 2221:10-2222:10. Mr. Vigna explained the role of discretion in setting reserves by stating that "[w]hen you're looking at these assets, there's sometimes a range of appropriate reserves, you know, 15 to 20 percent," and that within this range, Carteret was "taking 20 percent." Tr. 2273:7-10. On a billion dollar portfolio, this 5 percent range of reasonableness amounts to $50 million. Government regulators made clear that, in the absence of a breach, Carteret could have raised a smaller amount of capital than the $200 million needed after the breach. Mr. Albanese explained that "if they had a smaller hole to fill," it "goes without saying" that "somebody [was] more likely to step in." Dep. 160:5-12 (JX 1 at 13). Carteret could have raised this capital by unlocking some of its considerable franchise value in its branches and mortgage operations. Indeed, witness after witness confirmed that "Carteret's franchise was extremely valuable," due to the "longstanding nature of its relationships with its customers," its "very good branch location," its "consistency" in customer support, and its "loyal customer base." Griffin Dep. 95:11-96:9 (JX 1 at 231). Alternatively, AmBase could have raised capital and infused it into Carteret.

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Even the government's own investment banking expert testified that AmBase "might find investors" for this type of transaction. R. Smith Dep. 509:1-14 (JX 1 at 544). In all events, even in the breach-affected world, the government regulators admitted that by 1992, Carteret "had turned a corner." Meyer Dep. 234:18-22 (JX 1 at 380). As Professor Smith explained, "the financial markets recognized that the worst was over and, indeed, improved real estate prices began making the recovery process much easier." Tr. 3096:13-18. And Carteret's management was well-suited to capitalize on these trends. Mr. Vigna described the Bianco team as "very strong," "exceptional," "outstanding," Tr. 2219:2-12, and acknowledged that "in all [his] 32 years as a thrift regulator, [he] had not seen a stronger management team particularly with respect to workouts," Tr. 2269:22-2270:1. Unsurprisingly, Mr. Vigna concluded that "[t]here was no risk to the fund or the taxpayers by allowing this institution to see if they could raise this capital." Dep. 104:13-105:6 (JX 1 at 591-92) (emphases added). Thus, Mr. Albanese admitted in late 1992: "We strongly recommended that more time be given to Carteret's management because there was still considerable interest being expressed by investors in the institution." PX 2819. But the OTS in Washington rejected this advice, stating: "Although other investors are looking at the thrift, staff are prepared to transfer it as early as November 20." PX 4887 at 1. Mr. Albanese candidly lamented that it was "foolish to rush a transfer" in these circumstances. PX 4889 (R. Albanese to A. Vigna, 11/27/92) (emphasis added). And OTS examiner Russell Meyer explained the truth of the matter: the government "elected to use the shotgun approach and take everybody out." Dep. 181:1319 (JX 1 at 378). It is little wonder that Judge Bissell concluded a year before seizure, that the OTS's conduct towards Carteret represented "agency discretion gone haywire." Carteret Savings Bank, F.A. v. OTS, 762 F. Supp. 1159, 1177 (D.N.J. 1991). In any event, this evidence (and

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much more like it) that the decision to seize the breach-affected Carteret in the breach-affected world was not only far from an open-and-shut case but was in fact unreasonable only makes more compelling the conclusion that is compelling enough on its own--namely, that there is no way that Carteret would have been seized in a world in which the government actually honored its regulatory capital promises. The government's "shotgun approach" also prevented Carteret's efforts to raise capital by creating significant regulatory risk. As Professor Smith acknowledged, "[n]othing affects finance and business more than the government." Tr. 3085:15-23. Specifically, investors at the time were concerned that "Congress is likely to re-address the [S&L] problem in 1991 and may well decide to tax and punish the thrifts even further." Tr. 3083:10-16 (R. Smith). According to Mr. O'Rourke these "were legitimate concerns, given the past." Dep. 40:11-22 (JX 1 at 449). Mr. Simone acknowledged that "one of the reasons [the investors] are giving for pulling out is the regulatory risk." Dep. 117:18-118:3 (JX 1 at 502). As for the value of Carteret, which constitutes the essential building block for the primary damages sought by AmBase, Professor Smith acknowledged that the $266 million paid in 1988 represented the stock market price plus a control premium that was "within the realm of reason." Tr. 2927:1-18; 3050:10-12. Professor Smith also made clear that the losses sustained by Carteret in 1990-91 were not known in 1989. Tr. 3077:12-16, 3077:21-23. Carteret's regulators were of the same opinion. For example, FDIC Regional Director Zamorski testified that the commercial loan losses "didn't become really apparent, I think, until probably near the fall of 1990." Tr. 2066:21-23. Finally, the entirety of the so-called receivership deficit is bogus, as revealed by the testimony of FDIC witneses, who admitted that the tax liability is "artificially created," Vordtriede

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Dep. 388:2-18 (JX 1 at 696), and the interest claimed is more than is necessary to compensate the government. This phony receivership deficit would be of no moment if it were not being advanced as a means of funneling contract damages from one government coffer to another. This sleight-of-hand would, if accomplished, amount to a taking. That result need not obtain, however, because this Court can and should award damages directly to AmBase either under the logic of Whitney Benefits, Inc. v. United States, 25 Cl. Ct. 232 (1992), or established principles allowing damages to flow directly to shareholders where, as here, awarding damages to the corporation would result in damages flowing directly back to the wrongdoers. And, of course, because Carteret would have survived in a non-breach world, the entire receivership deficit is itself a creation of the breach. In the face of this evidence, Professor Saunders opined that Carteret would have been seized absent the breach. He reached this conclusion by simply ignoring evidence inconsistent with his foreordained conclusions. Indeed, there was never a doubt as to what conclusions he would reach--for, in his opinion, every award of damages to every Winstar plaintiff has been an unjustified transfer of wealth. Tr. 3694:13-18. AmBase respectfully submits that the Court should credit the testimony of Mr. Bianco, Professor Calomiris, and the government regulators, not the views of an expert who takes issue with the very economic premises of Winstar contracts. I. PLAINTIFFS ARE ENTITLED TO THE VALUE OF THE THRIFT "Expectation damages are recoverable provided they are actually foreseen or reasonably foreseeeable, are caused by the breach of the promisor, and are proved with reasonable certainty." Bluebonnet Sav. Bank, F.S.B. v. United States, 266 F.3d 1348, 1355 (Fed. Cir. 2001). A. The Loss of Carteret's Value Was Reasonably Foreseeable " `Loss may be foreseeable as a probable result of a breach because it follows from the

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breach (a) in the ordinary course of events, or (b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know.' " Landmark Land Co. v. United States, 256 F.3d 1365, 1378 (Fed. Cir. 2001) (quoting RESTATEMENT (SECOND) OF CONTRACTS (hereinafter RESTATEMENT)

351(2)); see also Globe Sav. Bank , F.S.B. v. United States,

65 Fed. Cl. 330, 347 (2005), aff'd in part and vacated in part, 189 Fed. Appx. 964 (Fed. Cir. 2006). "Here, the question is whether regulators foresaw, or should have foreseen, at the time of contract formation, that breaching the `goodwill' portion of their contract with [Carteret] would have resulted in a significant or total loss of [Carteret's] net worth or market value." Slattery v. United States, 69 Fed. Cl. 573, 582. 1. The Logic of the Contracts and the Government's Viability Analyses The very logic of the contracts in this case answers the question of foreseeability. "Prior to the merger, Carteret operated relatively free of supervisory concern and had operating ratios that were generally more favorable than those of like-sized institutions." AmBase, 58 Fed. Cl. 32, 45 (2003) (internal quotations omitted); Proposed Findings of Fact (FF) 1-2; PX 2433 (Mem. from H. Beesley, 9/30/82) at OAM0060016. Cf. Slattery, 69 Fed. Cl. at 582. Barton and Delray, on the other hand, "were thrifts in financial dire straights," AmBase, 58 Fed. Cl. at 45, and Carteret's absorption of their liabilities absent an agreement on supervisory goodwill would have left the resulting institution immediately and massively insolvent--to the tune of a negative net worth of $212 million, FF 7 & n.6. Consequently, the "goodwill provision . . . made the deal possible," and the "regulators clearly understood this" at the time. Slattery, 69 Fed. Cl. at 582. In the words of Brent Beesley, the Director of the FSLIC in 1982: "it's clear that absent the use of purchase accounting that neither . . . Carteret [n]or the FSLIC, would have wanted to do this transaction . . . because Carteret would have immediately had a negative net worth even on a

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book basis." Dep. 45:3-10 (JX 1 at 16). Similarly, this Court has previously found that "Carteret's request to account for the resulting goodwill in a particular fashion," in the 1986 mergers, "was one of several important motivations surrounding the transactions." AmBase, 58 Fed. Cl. at 49. Indeed, were supervisory goodwill not counted in 1986, Carteret would have been significantly out of capital compliance immediately upon acquiring First Federal and Mountain Security. See FF 4, 8. Thus, the government understood, at the time of the acquisitions, that Carteret could not survive without the use of the supervisory goodwill. Indeed, before approving the acquisitions, the government memorialized its grasp of this simple concept through viability analyses.1 The purpose of these analyses, as Director Beesley explained, "was to make sure that the resulting institution would be healthy and would be able to stay in compliance with its minimum capital requirements." Dep. 22:22-23:2 (JX 1 at 15). Absent the use of supervisory goodwill, Carteret could not have satisfied this requirement, either in 1982 or 1986. The FSLIC's conclusions of viability, undergirded as they were by the inclusion of goodwill, show that the government understood that the exclusion of goodwill would render Carteret nonviable, and subject to seizure. 2. The Government's Understanding of Supervisory Goodwill's Uses The government also understood that thrifts make money by leveraging their capital to support expanding their earning assets, creating a positive interest spread in the process. As Director Beesley testified: "[W]ith capital you have the option of leveraging and the expectation and hope of a positive spread." Dep. 63:5-7 (JX 1 at 19).2 Both Carteret and the government

See PX 2433 (Mem. from H. B. Beesley, 9/30/82), PX 2474 (Mem. from C. Fiol, 5/30/86), PX 2484 (Mem. from T. Connell, 6/5/86); FF 6-9. 2 The FSLIC Acting Director in 1986, Thurman Connell, similarly affirmed that "excess capital and liquidity [were] things [he] felt were important to allow the thrift to . . . withstand any adverse economic terms and to grow their business." Dep. 120:7-11 (JX 1 at 26); see also id. at 8

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understood, therefore, that the supervisory goodwill created by the Carteret mergers was extremely valuable because it gave Carteret the opportunity to profitably leverage that regulatory capital. See United States v. Winstar Corp., 518 U.S. 839, 851 (1996) ("[T]he treatment of supervisory goodwill as regulatory capital was attractive because it inflated the institution's reserves, thereby allowing the thrift to leverage more loans (and, it hoped, make more profits)."). Indeed, the very theory behind the supervisory goodwill device, as affirmed by government regulators in their testimony, was that it would provide the capital and time cushions necessary for healthy thrifts to eliminate the debt of the acquired, failing thrifts. FF 8-10, 156.3 It was perfectly foreseeable, then, that yanking the supervisory goodwill rug out from under Carteret would hinder the thrift's ability to leverage its assets and could cause Carteret to fall out of capital compliance and be seized--thereby "lead[ing] to the loss of [Carteret's] net worth or market value." Slattery, 69 Fed. Cl. at 582. As Director Connell testified, if the amortization period for goodwill were shortened in the fifth or sixth year from forty years to one year, "[i]t would have a very dramatic impact . . . it could have a pretty dramatic impact on what the viability of the institution would be." Dep. 85:7-86:4 (JX 1 at 25). Accordingly, the government cannot credibly dispute that it was reasonably foreseeable--indeed, that the government actually foresaw--that Carteret would fail if the government breached its contract.4

392:12-22 (affirming that "it would have been our expectation" that supervisory goodwill "would have been leveraged toward profit-making"). 3 See Beesley Dep. 45:24-46:1 (JX 1 at 16) ("Carteret would be able to take this supervisory goodwill and leverage it in an attempt to make profits and fill the tangible hole"); id. at 32:22-25 (JX 1 at 15). 4 Judge Block aptly described the relationship between the government's goodwill promises, thrift leverage, and profitability in finding that foreseeability had been established in Anchor: [O]n several occasions the Federal Circuit and this court have recognized the ba9

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3. The Magnitude of Carteret's Damage was Foreseeable The government has argued that damages of the magnitude requested by AmBase were not foreseeable, either at the time of contract formation or at the time of the breach. As for foreseeability at the time of contract formation, the economics of the 1982 and 1986 mergers belie this contention. The government foresaw that Carteret was very likely to grow by leveraging the supervisory goodwill (indeed, the government counted on such growth). Therefore, the government knew that a breach could cause a failure of a much larger and more valuable bank than the one it contracted with in 1982 and 1986. Indeed, the government was aware of several data points that made it reasonably foreseeable that Carteret would generate hundreds of millions in profits under the contract. First, the 1982 acquisitions left Carteret with a tangible capital deficit of approximately $212 million and total liabilities of approximately $3.3 billion. Yet, the government approved the deal only upon a finding of future viability. FF 7. A prediction of Carteret's future viability had to be based on the premise that the thrift would earn enough profits to erase that debt and remain in capital compliance over the course of the goodwill amortization period. See Anchor, 81 Fed. Cl. at 78. The capital rules then in effect required Carteret to maintain capital net worth of three percent of total liabilities. See 12 C.F.R. 563.13 (1983); 47 Fed. Reg. 10511 (Mar. 11, 1982); Winstar, 518 U.S. 839, 845-46. Accordingly, the government predicted--that is, foresaw--that Carteret would earn at least $302 million after acquiring Barton and Delray, FF 7--enough to fill the

sic equation embodied in the supervisory goodwill contracts in which, in the ideal environment, supervisory goodwill allowed increased thrift assets. Additional assets, in turn, enabled increased thrift profits, which were ultimately essential to replace the amortizing goodwill as regulatory capital. Given this circular interdependence, it was eminently foreseeable that a breach of the supervisory goodwill contacts would cause an acquiring thrift to sacrifice assets and forego the very profit opportunity that made the contracts appealing in the first place. Anchor Savings Bank, FSB v. United States, 81 Fed. Cl. 1, 78 (2008). 10

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hole and be in capital compliance at the end of the goodwill amortization. And this assumes no growth, even though the FSLIC expressly premised its viability conclusion on Carteret's "historical growth." PX 2433 at OAM0060028. Second, aside from historical growth, FSLIC also based its viability conclusion upon the fact that Carteret had turned profits of $4.6 million in the last six months of 1982. Id. Assuming no growth, that translates into $368 million in profits over forty years. The same logic holds for the 1986 merger, but with even greater force. By 1986, Carteret was doing exactly what the government had predicted in 1982--turning substantial profits and erasing the debt it had assumed in the Barton and Delray acquisitions. See PX 9004. Indeed, in 1986, Carteret had earnings of $46.1 million, which translates into $1 billion of profits over the 25-year amortization period. Id.; PX 5 at AMB013858, 77. Thus, in 1986, the government had every reason to believe that Carteret would earn substantial profits if the contracts were honored. FF 8. Third, Professor Saunders testified that for thrifts, "historically, over long periods of time, data shows [a return on assets] of about one percent has been . . . achieved on average." Tr. 3874:25-3875:3. In 1982, Carteret had assets of approximately $3 billion. DX 8000A (Smith Rpt.) ex. 3 at 1. A return of one percent per year on those assets--$30 million--translates into $1.2 billion over the 40-year amortization period of the contract. Fourth, the government was well aware at the time of the 1982 acquisitions that it was reaping a huge benefit--namely, that it was avoiding a $187.4 million liability at a time when carrying costs were approximately between 12% and 15%, or between $22.5 and $28.1 million per year.5 Over forty years, that totals between $900 million and $1.1 billion and suggests the

See PX 2702A (Calomiris 5/07 Rpt.) at 10 n.15; PX 9102; Tr. 1050:1-1053:21 (Calomiris); PX 6014 (reporting 30-year Treasury bill rates of 15.2% on September 29, 1981, 13.81% on March 30, 1982, 14.11% on June 29, 1982, and 11.79% on September 30, 1982). 11

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government knew quite well the value of the obligation it was putting off on Carteret specifically through its contractual promises regarding the capital treatment of supervisory goodwill. See PX 9102; Tr. 1053:22-1054:4 (Calomiris). Fifth, Carteret's acquisition of the four failing thrifts allowed the government to avoid a total liquidation cost of $187.4 million. See PX 9102; Tr. 1050:1-21. Accounting for debt service on that value through 2007--by bringing the value forward using a one-year constant treasury yield--shows that the government saved $709 million. B. The Breach Caused the Loss of Carteret's Value 1. The Substantial Factor Test Applies AmBase must demonstrate that the government's breach caused the seizure of Carteret and the attendant loss of the thrift's value. Slattery, 69 Fed. Cl. at 581. The Federal Circuit has recognized both a "substantial factor" and a "but for" standard of causation. Citizens Fed. Bank v. United States, 474 F.3d 1314, 1319 (Fed. Cir. 2007). Citizens established that the selection of the appropriate standard "depends upon the facts of the particular case and lies largely within the trial court's discretion." Id. While the evidence establishes causation under either standard, in Slattery this Court applied the substantial factor test, see 69 Fed. Cl. at 582 (citing Westfed Holdings, Inc. v. United States, 52 Fed. Cl. 135, 159-60 (2002)), and that approach is equally appropriate here. This Court's prior decisions in Energy Capital and Citizens establish that the substantial factor standard is properly invoked when the parties assert multiple possible causes for the claimed damages. As explained in Energy Capital, "[b]ecause often many factors combine to produce the result complained of, the causation prong requires the injured party to demonstrate that the defendant's breach was a substantial factor in causing the injury." Energy Capital Corp. v. United States, 47 Fed. Cl. 382, 395 (2000), aff'd in part and rev'd in part, 302 F.3d 1314 (Fed. Cir. 2002) (internal

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quotations omitted); accord Citizens Fed. Bank, FSB v. United States, 59 Fed. Cl. 507, 514-16 (2004). This rationale especially applies in the Winstar cases because one of the purposes of regulatory capital is to help cushion financial institutions from the effects of recessions and many other nonbreach factors often cited by the government.6 And in Citizens, the Federal Circuit acknowledged that this "standard has been adopted in numerous Winstar-related cases before other judges on the Court." Citizens, 474 F.3d at 1319-20 (quoting Citizens, 59 Fed. Cl. at 515).7 Ultimately, however, the question of which causation standard is appropriate here is of purely academic interest. The Court should find that AmBase has proven that its damages were caused by the breach under either standard. 2. Government Regulators Admitted that the Breach Caused Carteret's Seizure Government regulators repeatedly confirmed that Carteret would have survived absent the breach. FF 65. For example, Russell Meyer, an OTS examiner, testified as follows: Q. A. Q. A. Q. A.
6

Did you think that the new capital rules in FIRREA caused a lot of institutions to fail? A lot--I know that they caused institutions to fail, yes. Do you recall thinking that it caused Carteret to fail? Yes. Because of its disallowance of the ability to use goodwill towards capital? It was one of the things, yes. They could have survived, I thought.

See, e.g., Home Sav. of Am., FSB v. United States, 399 F.3d 1341, 1353 (Fed. Cir. 2005); Commercial Fed. Bank, FSB, 59 Fed. Cl. 338, 347 (2004), aff'd, 125 Fed. Appx. 1013 (Fed. Cir. 2005); Coast Fed. Bank, FSB v. United States, 48 Fed. Cl. 402, 425-26 (2000); Old Stone Corp. v. United States, 63 Fed. Cl. 65, 80-81 (2004), aff'd in part and rev'd in part, 450 F.3d 1360 (Fed. Cir. 2006). 7 See Citizens, 59 Fed. Cl. at 514-15 (collecting cases); Westfed Holdings, Inc. v. United States, 55 Fed. Cl. 544, 553 (2003) (collecting cases); Coast, 48 Fed. Cl. at 435. For decisions subsequent to Citizens, see First Fed. Sav. & Loan Ass'n v. United States, 76 Fed. Cl. 106, 113 (2007); Holland v. United States, 75 Fed. Cl. 483, 489 (2007). The Federal Circuit has also indicated its approval of trial courts' use of the substantial factor standard in other Winstar cases, including Southern California Federal Savings & Loan Association v. United States, 422 F.3d 1319 (Fed. Cir. 2005), and Bluebonnet Savings Bank, FSB v. United States, 266 F.3d 1348 (Fed. Cir. 2001). 13

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Dep. 13:4-7, 42:24-43:11 (JX 1 at 368-69); see also id. at 76:8-18 (JX 1 at 370). Likewise, Mr. Meyer's superior, Mr. Simone, was also an OTS official at the time of his deposition and testified that it was "likely" that Carteret would not have been seized if the thrift had positive tangible capital of $80 million. Dep. 19:9-11, 105:1-21 (JX 1 at 498, 500-01).8 Mr. Simone's superior, Mr. Albanese, went even further. While serving as Regional Director of OTS he testified that Carteret would not have been seized if it had met its tangible capital requirement. Dep. 160:13-17, 161:6-15 (JX 1 at 13-14).9 Moreover, at the time of his deposition, Mr. Alabanese answered "no" when asked if "it was likely after enactment of FDICIA . . . that you may have closed an institution that actually satisfied its tangible capital requirement." Dep. 47:13-17 (