Charles J. Cooper and Vincent J. Colatriano, Cooper & Carvin,
Editor's Note: In our last issue, we summarized the Supreme Court's
July 1996 split decision in United States v. Winstar, which affirmed
summary judgment against the Government on the issue of liability
for breach of contract in three 'test cases' arising from the FIRREA's
invalidation of a spate of forbearance agreements pursuant to which
failing savings and loan associations were acquired by healthier
thrifts in the mid-1980's. The High Court remanded the cases, which-along
with over one hundred companion cases-have subsequently wound through
some very interesting proceedings, recounted by our authors here.
The Supreme Court's decision in United States v. Winstar Corp.,
116 S. Ct. 2432 (1996), has not brought to a close the supervisory
goodwill litigation. Far from it. Instead, the focus has returned
to the Court of Federal Claims, where there is more activity in
so-called " Winstar-related" cases than ever. That activity
is proceeding along two broad fronts. The first front involves the
coordination of proceedings in the 120 other "Winstar-related"
cases that had been stayed pending the Supreme Court's ruling.
Chief Judge Loren Smith, with the cooperation of the parties, has
fashioned a broad case management plan to deal with this issue.
This case management plan includes procedures for automatic limited
document exchanges by the parties, as well as procedures for the
filing of so called "short form" motions for partial summary
judgment on liability with respect to breach of contract issues.
The theory behind this short form summary judgment procedure is
that, because the Court of Federal Claims has by now become intimately
familiar with the factual and legal backdrop against which goodwill
deals were made, as well as the basic legal principles underlying
the primary breach of contract claims made in these cases, the plaintiffs
can dispense with covering these issues in their motions, and can
instead focus upon the particular documents and other facts underlying
the specific claims in their case. The government also benefits
from this "short form" procedure, because instead of having,
as it would have under the court's rules, 28 days to respond to
the summary judgment motion, it now has a total of 120 days to respond.
The government's response occurs in two steps. First, 60 days following
the filing of the summary judgment motion, the government files
a response detailing its position with respect to two questions:
(1) the existence or nonexistence of a contract between the parties
with respect to regulatory capital issues; and (2) whether FIRREA
was "inconsistent" with that contract. Second, 120 days
after the filing of the summary judgment motion, the government
files a second response detailing whether it has any affirmative
defenses to the breach of contract claims raised in the motion.
As of the date of this writing, the government has filed its "60-day
response" to about twenty summary judgment motions, and has
filed its "120-day response" to approximately ten summary
The case management plan also establishes procedures whereby "common
issues" raised in a number of cases are resolved by "issues
judges" on a consolidated basis. This common issue resolution
procedure has already been successfully utilized with respect to
two issues. First, the common issue procedure was used to resolve
the government's motion to dismiss more than 20 cases on statute
of limitations grounds. Cases filed in the Court of Federal Claims
must be filed within six years of the accrual of a claim. The government
argued in its motion that any breach of contract which occurred
in a "Winstar-related" case occurred on the date of FIRREA's
enactment, August 9, 1989, and therefore any case filed after August
9, 1995 was time-barred. The plaintiffs raised a number of arguments
in response, the primary argument being that because FIRREA was
not self-executing, but instead directed the OTS to promulgate new
capital regulations limiting the thrifts' right to utilize supervisory
goodwill, it was not until those regulations became effective, on
December 7, 1989, that any claims for breach of contract accrued.
The Court of Federal Claims, in an opinion issued by Judge Wiese,
agreed with the plaintiffs, and therefore ruled that any case filed
before December 7, 1995 was timely. The court thus denied the government's
motion to dismiss with respect to all but two cases. The plaintiffs
in those two cases, which were filed after December 7, 1995, have
since appealed their dismissal to the Court of Appeals for the Federal
The second occasion on which common issue resolution procedures
were utilized involved the Federal Deposit Insurance Corporation's
("FDIC's") motion to intervene and to substitute itself
as plaintiff in more than 40 cases involving seized thrifts. The
FDIC's motion can only be described as audacious. The FDIC argued
that, as the official successor to thrifts which had been placed
in receivership, it and only it could represent those thrifts and
advance the thrifts' claims against the federal government. The
FDIC also argued that, not only did it have the exclusive right
to pursue the claims of the seized thrifts, any claims brought by
the shareholders or holding companies of those thrifts also belonged
exclusively to the thrift (and thus to the FDIC), regardless of
whether the shareholders or holding companies had themselves entered
into contractual relationships with the government. The FDIC's motion
thus constituted a very serious threat to the claims raised in these
cases, as it amounted to an attempt by a federal agency to completely
take over claims raised by private parties against the federal government.
After extensive briefing and two full days of oral argument before
Judge James Turner, Judge Turner ruled that while he would grant
the FDIC's motion to intervene, and thus allow the FDIC to become
a party to these cases, he would deny the FDIC's motion to substitute
itself for all of the private plaintiffs in those cases.
The case management plain also identifies thirteen cases as so-called
"priority" cases, meaning, in theory at least, that these
will be the first to be tried following the Glendale and Statesman
trials. The plaintiffs in these cases obtained their priority status
by agreeing to waive any discovery rights against the government,
except for the right to take depositions of government expert witnesses.
The priority cases are scheduled to go to trial, two per month,
starting four months after the conclusion of the Statesman trial.
Which brings us to the second front on which the goodwill litigation
is being fought -- the damages trials in two of the three cases
that were before the Supreme Court - - Glendale and Statesman. Chief
Judge Smith has already required the parties in those cases to brief
and argue, through motions in limine, the legal principles relating
to the damages theories that can be utilized in those cases. In
December of last year, after briefing and extensive oral argument,
Chief Judge Smith denied the government's motion to prevent the
plaintiffs from offering evidence as to lost profits. This was a
very significant ruling, as the plaintiff in Glendale is seeking
lost profits of more than one billion dollars, and the Statesman
plaintiffs are seeking lost profits of approximately $120 million.
The Glendale trial started in February 24, 1997, and is expected
to last into May Of this year. The Statesman trial is scheduled
to begin in early June and should last four to six weeks- Trial
in Winstar has not yet been scheduled.
*Mr. Cooper is a partner at Cooper & Carvin, PLLC, in Washington,
D.C. and previously served as Assistant Attorney General, Office
of Legal Counsel, U.S. Department of Justice. Mr. Colatriano is
an associate at Cooper & Carvin. Messrs. Cooper and Carvin represent
the plaintiffs in a number of Winstar-related cases, including the
Winstar and Statesman.