Free Response to Motion - District Court of Federal Claims - federal

Case 1:92-cv-00550-MCW

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS __________________________________________ ) ) ) Plaintiff, ) ) v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) ) __________________________________________) NORTHEAST SAVINGS, F.A.,

Civil Action No. 92-550C Judge Williams

PLAINTIFF'S RESPONSE TO DEFENDANT'S MOTION FOR LEAVE TO NOTIFY THE COURT OF SUPPLEMENTAL AUTHORITY Pursuant to the Court's Order dated January 15, 2008, Plaintiff, Northeast Savings, F.A. ("Northeast"), hereby respectfully submits this response to Defendant's Motion for Leave to Notify the Court of Supplemental Authority ("Motion"). The government's motion fails, on every level of analysis, to provide any meaningful assistance to this Court in connection with its resolution of the damages issues presented in this case. Not only does the motion trumpet a decision -- the Federal Circuit's January 8 decision in Granite Management Corp. v. United States, No. 07-5054, ____ F.3d ___ (Fed. Cir. Jan. 8, 2008) -- that is utterly irrelevant to such damages issues, it also mischaracterizes both the import of the Federal Circuit's holding in Granite and the nature of our arguments in this case. What is perhaps more telling, however, is that while the government seeks to convince this Court that the irrelevant Granite decision is somehow "directly relevant to the damages claims presented in this case," Motion at 1, the government completely ignores a different damages decision, issued on the same day as Granite, that is in fact "directly relevant" to Northeast's expectancy damages

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claims -- Astoria Federal Savings & Loan Association v. United States, No. 95-468C, ___ Fed. Cl. ___ (Jan. 8, 2008) (copy attached). As the Federal Circuit made clear in multiple places in its Granite opinion, the only issue addressed in Granite was whether, absent the breach in that case, the plaintiff would have been allowed to transfer contractual goodwill in connection with a sale of the thrift. See Granite at 5. See also id. at 4, 6. Plaintiffs in that case sought damages on the theory that the thrift " `could have been sold for more if it had included the "supervisory goodwill." ' " Id. at 4 (quoting Granite Management Corp. v. United States, 416 F.3d 1373, 1384 (Fed. Cir. 2005). The Federal Circuit held only that the Court of Federal Claims' factual finding that thrift regulators would not have approved such a goodwill transfer was supported by substantial evidence, and thus Plaintiff would not have received a higher sale price. Id. at 5. Obviously, the damages claim asserted in Granite, and the Federal Circuit's disposition of that claim, have absolutely nothing to do with the claims asserted by Northeast in this case. Northeast has not sought damages based on the claim that it would have received a higher sale price when the thrift was sold to Shawmut. The government tries to manufacture relevance both by implying that Granite holds that supervisory goodwill is valueless in all contexts and that Northeast's damages claim is premised upon the proposition "that the fact of the breach, i.e. the phase-out of goodwill, is sufficient to prove that damage has in fact occurred." Motion at 1. Neither suggestion is remotely accurate. The Federal Circuit's observations regarding the "fictitious" nature of supervisory goodwill came solely in the context of its discussion of whether there was substantial evidence that the regulators would have exercised their contractual right to refuse to approve the transfer of goodwill. Slip op. at 6-7. The Federal Circuit did not purport to hold that goodwill never has

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value. Indeed, it took pains to make clear that it was not so holding, as it noted that the fact that Granite had not proved the damages claim it was pursuing did not mean either that it had not been damaged by the breach or that goodwill has no value. See Granite, slip op. at 8. As for Northeast's arguments in this case, the government ignores the record when it suggests that our position is that the fact of the breach itself is sufficient to prove damages. The only point Northeast has made is that the government's argument that its breach not only did not harm Northeast but actually helped Northeast is (to put it kindly) implausible in light of both the magnitude of the breach and the facts proved at trial regarding the impact of the breach on Northeast's operations and business strategies. Indeed, we made this point in the very paragraph of our post-trial brief that the government cites in its motion. There, after discussing in some detail the facts establishing the impact of the breach on Northeast, we noted that "[g]iven the magnitude of the government's breach and the straightforward facts underlying Northeast's damages claim, one who is not familiar with the government's litigation strategies in the Winstar cases might have legitimately expected that while the government may dispute certain aspects of Dr. Baxter's damages calculations, it would never dispute the basic proposition that its breach had a crushing impact on Northeast." Plaintiff's Post-Trial Brief, Doc. No. 163, at 10 (Jan. 22, 2007) (emphasis added). Remarkably, while the government uses the irrelevant Granite decision to knock down various strawmen, it ignores a decision issued the same day that awards damages on claims quite similar to Northeast's claims. In Astoria, Judge Wheeler awarded $14.6 million in lost profits and $1.4 million in so-called "wounded bank" damages. Astoria, slip op. at 45. As is the case here, the lost profits claim in Astoria was premised on the proposition that absent the breach, the plaintiff thrift would have held additional assets and liabilities on which it would have earned a

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positive spread. Id. at 33-34. Again like this case, the additional assets and liabilities that the plaintiff would have held absent the breach consisted primarily of wholesale assets and liabilities. Id. at 34-35. In addition, as is also the case here, the wounded bank claim in Astoria included a claim for increased deposit insurance premium assessments caused by the breach. Id. at 40. 1 Judge Wheeler held that the plaintiff in Astoria had proven all of the elements for the recovery of expectancy damages. With respect to foreseeability, the Court noted that that requirement "is satisfied where regulators knew or should have known that a bank intended to leverage its supervisory goodwill and capital credit." Id. at 32.2 With respect to the reasonable certainty requirement, Judge Wheeler noted that that element "is satisfied when the evidence adduced enables the Court to make a fair and reasonable approximation of the damages." Id. (citations and internal quotation marks omitted). Finally, the Court concluded that the plaintiff had established causation "under either the `but for' or the `substantial factor' standard of causation." Id. at 36. 3 While every damages case must of course be decided on its own facts, and while claims for lost profits and wounded bank damages are in many respects particularly fact-intensive, the decision in Astoria is nevertheless instructive. The Court there awarded damages on claims that, for the reasons discussed above, are in many respects quite similar to Northeast's. Indeed, in at least one respect, Astoria's damages claim was much more aggressive than Northeast's, as As1

While Judge Wheeler rejected the plaintiff's claim for $100 million in additional lost profits, he did so on grounds that are not applicable here. The additional claimed lost profits were premised on the notion that the plaintiff would have been able to transfer its goodwill in the no-breach world, a proposition that Judge Wheeler, like the Federal Circuit in Granite, rejected. Slip op. at 4. See also id. ("The cases acknowledge that government regulators expected thrifts to profit from the use of supervisory goodwill on their books after government-assisted mergers."). 3 See also id. at 31 ("Even when the `but for' causation standard is applied, the law does
2

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toria's claim was premised on claims of continued asset growth. Astoria, slip op. at 34. In contrast, Northeast's claim does not depend upon a demonstration that, absent the breach, the bank would have been larger than it actually was prior to the breach.

February 1, 2008

Respectfully submitted,

/s/ Charles J. Cooper Charles J. Cooper COOPER & KIRK, PLLC 1523 New Hampshire Avenue, NW Washington, D.C. 20036 (202) 220-9600 (202) 220-9601 (fax) Counsel of Record Of Counsel: Michael W. Kirk Vincent J. Colatriano David H. Thompson COOPER & KIRK, PLLC 1523 New Hampshire Avenue, NW Washington, D.C. 20036 (202) 220-9600 (202) 220-9601 (fax)

not require the plaintiff to show that the breach was the sole cause for the loss of profits.")

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CERTIFICATE OF SERVICE I hereby certify that on this 1st day of February 2008, copies of the foregoing were filed electronically. Notice of this filing will be sent by operation of the Court's electronic filing system to all parties indicated on the electronic filing receipt. Parties may access this through the Court's system.

/s/ Charles J. Cooper Charles J. Cooper COOPER & KIRK, PLLC 1523 New Hampshire Ave., NW Washington, D.C. 20036 (202) 220-9600 (202) 220-9601 (fax) [email protected]

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