BANK UNITED of TEXAS FSB V. US CONCLUSION For

BANK UNITED OF TEXAS FSB v. U.S. 645 Cite as 50 Fed.Cl. 645 (2001) CONCLUSION to damages of $8,826,783 for the proven For the foregoing reasons, the court finds costs incurred to mitigate the breach. that plaintiffs have not met the requirements So ordered. for class certification as set forth in RCFC 23 and Quinault. Plaintiffs have not demon- strated that certification in this action will United States O74(13, 15) serve the interests of justice or is otherwise Plaintiffs who prevailed in liability phase appropriate.10 Therefore, the court DE- of Winstar action were not entitled to recov- NIES plaintiffs’ September 21, 1999 motion ery of lost profits from the contract breach, for class certification. since they could and did mitigate the significant loss of borrowing capacity caused by the IT IS SO ORDERED. passage of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA); rather, plaintiffs were entitled to damages of , $8,826,783 for the proven costs incurred to mitigate the breach. Federal Deposit Insur- ance Act, § 2[1] et seq., 12 U.S.C.A. § 1811 et seq. BANK UNITED OF TEXAS FSB, USAT Walter B. Stuart, IV, Houston, TX, for Holdings Inc., Hyperion Holdings Inc. plaintiffs. David T. Hedges, Jr., John D. and Hyperion Partners L.P., Plaintiffs, Taurman, Karen Jewell, James A. Reeder, v. Jr., Tegan Flynn, Joseph E. Hunsader, Fred Williams and Michael Holmes, of counsel. UNITED STATES of America, Defendant. John J. Hoffman, with whom were Acting No. 95–473 C. Assistant Attorney General David W. Ogden, David M. Cohen and Jeanne E. Davidson, United States Court of Federal Claims. Washington, DC, for defendant. Colleen Oct. 29, 2001. Conry, Teresa Kolb, Luke Levasseur, Je- rome A. Madden and Marc Sacks, of counsel. Financial entities brought Winstar ac- OPINION and ORDER tion alleging that the passage of the Finan- cial Institutions Reform, Recovery, and En- TURNER, Judge. forcement Act (FIRREA) breached various This suit arises from the impact of the promises made by the government in con- Financial Institutions Reform, Recovery and nection with acquisition of failed thrift. Af- Enforcement Act of 1989 (FIRREA), Pub.L. ter summary judgment was entered for No. 101–73 (Aug. 9, 1989), on the savings and plaintiffs on the issue of liability, 49 Fed.Cl. loan industry. Following the Supreme 1, damages trial was held. The Court of Court’s decision in United States v. Winstar Federal Claims, Turner, J., held that plain- Corp., 518 U.S. 839, 116 S.Ct. 2432, 135 tiffs were not entitled to recovery of lost L.Ed.2d 964 (1996), holding that FIRREA profits from the contract breach, since they breached the government’s contracts with could and did mitigate the significant loss of three thrift institutions, this court—finding borrowing capacity caused by the passage of breach of a similar contract—granted sum- the FIRREA, and (2) plaintiffs were entitled mary judgment for plaintiffs on the issue of 10. The fact that class certification is not appro- parties to coordinate discovery or briefing on priate in this instance does not, however, fore- related issues found in separate cases, where the close the possibility that if other actions are later cases share common legal issues but the individ- filed by other project owners, other case manage- ual claims for damages are predicated on very ment techniques may be deemed appropriate. different factual questions. The court has, on other occasions, worked with 646 50 FEDERAL CLAIMS REPORTER liability. Bank United of Texas v. United The Board, well aware that thrift prob- States, 49 Fed.Cl. 1 (1999) (Smith, C.J.). lems were concentrated in Texas, devel- The case was then transferred to this judge oped the Southwest Plan to deal with the for resolution of damages. A damages trial situation while also proceeding to resolve was held over a six-week period in Septem- the worst cases elsewhere. The Southwest ber and October 1999, and final arguments Plan, formally introduced in February were heard on February 7, 2000. 1988, combined consolidation of an over- built thrift industry with attracting acquir- The sole basis for damages sought by ers who would bring in strong manage- plaintiffs is alleged lost profits, although ment, new capital, and carry out a business plaintiffs presented evidence concerning the plan aimed at cutting operating costs and cost of substitute capital in the event the ultimately reducing the high interest rates court determined that law requiring mitiga- being paid on deposits. tion of damages precluded recovery of lost profits. Pl. Br. (12/15/99) at 8; PX 460 at 2. To attract outside investors, FSLIC made We conclude that plaintiffs are not entitled regulatory commitments to potential acquir- to lost-profit damages resulting from the con- ers. Many of the deals had common features tract breach but that they are entitled to including (1) FSLIC providing cash or a damages of $8,826,783 for the proven costs promissory note in an amount equal to the incurred to mitigate the breach. difference between the book value of the institution’s assets and its liabilities; (2) I FSLIC agreeing to provide capital-loss cov- During the 1980’s, there was widespread erage and yield maintenance payments for financial deterioration of the thrift industry non-performing assets the acquirer agreed to leading to the insolvency of the Federal Sav- liquidate on FSLIC’s behalf, and (3) FSLIC ings and Loan Insurance Corporation agreeing to forbear from enforcing certain (FSLIC) fund insuring deposits held by thrift regulations against the acquirer or to other- institutions. In 1987, the thrift industry re- wise liberalize the application of regulations. ported a net loss from operations of over $8 PX 391 at BU942216–17. billion, and the reserves in the insurance Such assisted transactions had advantages fund had decreased to a negative $13.7 bil- to the FDIC when compared with liquidation lion. Pl. Mem. (7/15/99) at 5. By the end of such as (1) maintaining goodwill, (2) requir- 1987, over 500 savings institutions were insol- ing payment only for an insolvent thrift’s vent, including 117 in Texas. Pl. Br. deficit rather than the full amount of insured (12/15/99) at 8; PX 460 at 24; PX 391 at deposits, and (3) reducing immediate cash BU942215. In 1988, the FSLIC insurance payment by substituting a variety of other fund had a loss of $66 billion, bringing its benefits including notes, capital-loss cover- total deficit to $75 billion. Pl. Br. (12/15/99) age, tax benefits, regulatory forebearances at 8. and interstate branching rights. These ar- The FSLIC lacked the funds necessary to rangements allowed FSLIC to resolve a liquidate the insolvent thrifts. As an alterna- greater number of thrifts with its limited tive, the FSLIC sought to merge failing resources than it could have through liqui- thrifts with healthy thrifts or to attract pri- dation. Pl. Br. 12/15/99 at 9–10. vate investors to purchase failed thrifts in An assisted transaction having a number of exchange for regulatory forebearances. features attractive to plaintiffs and to thrift regulators was negotiated and completed in In February 1988, the Federal Home Loan late 1988. Bank Board (FHLBB) and FSLIC promul- gated the Southwest Plan to deal with problems faced by thrifts in the Southwest, espe- II cially in Texas. Pl. Mem. (7/15/99) at 5. In A brief history of the plaintiffs and a de- its 1988 Annual Report, the FHLBB wrote: scription of the agreement between plaintiff BANK UNITED OF TEXAS FSB v. U.S. 647 Cite as 50 Fed.Cl. 645 (2001) Hyperion Partners L.P.1 and the government B will assist in understanding the damages res- In the fall of 1988, Hyperion Partners L.P. olution. bid on a number of savings and loan pack- ages offered by the FSLIC and the FHLBB. Plaintiffs are Hyperion Partners L.P., Hy- Def. Mem. (7/28/99) at 6. Eventually, Hyper- perion Holdings Inc., USAT Holdings Inc. ion Partners L.P. entered into negotiations to and Bank United of Texas FSB. purchase a failed thrift named United Sav- ings Association of Texas (Old United). Id. A The parties wanted to complete the transaction by the end of 1988. There was a flurry In 1988, Lewis Ranieri resigned his posi- of negotiations and document exchanges be- tion as Vice Chairman at Salomon Brothers tween Hyperion Partners L.P. and the regu- and with his associates Scott Shay 2 and Sal- lators in December 1988. vatore Ranieri 3 formed Hyperion Partners L.P. to make investments in the financial On December 13, 1988, Hyperion Partners L.P. submitted a draft regulatory forbear- services, real estate and housing markets. ance letter to the FHLBB. PX 369. On Def. Br. (12/15/99) at 4; Def. Mem. (7/28/99) December 16, 1988, Linda Plye, Director of at 5; Pl. Br. (12/15/99) at 4, 10. The partner- the FHLBB Office of Regulatory Activities ship was initially capitalized with $4.3 million (ORA), informed Hyperion Partners L.P. from the general partner, Hyperion Ventures that it needed to submit (1) an acceptable L.P., and obtained pledges for up to $430 business plan (pro forma financial statements million from the limited partners. JX 20 at and a detailed narrative) and (2) a complete, BU603431–32. acceptable statement of need for each of the Prior to his involvement with Bank United, forbearances requested in connection with L. Ranieri had assisted the government in the proposed transaction (Justification Let- resolving problems with other thrifts. Tr. ter). Tr.

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