Charles J. Cooper and Vincent J. Colatriano*
The month of February saw two rather significant developments in
the litigation of the so-called "Winstar-related" cases
in the U.S. Court of Federal Claims. First, February 24, 1998 marked
the first anniversary of the beginning of the damages trial in the
Glendale case, one of the three cases in which the governments
liability for breach of a supervisory goodwill contract was established
by the Supreme Court in United States v. Winstar Corp., 116 S. Ct.
2432 (1996). Second, on February 20, the government filed "show
cause" pleadings in approximately 40 other Winstar-related
cases, which pleadings demonstrate that, even after losing the Winstar-liability
decision and even in the face of a scathing rebuke regarding its
litigation tactics by Chief Judge Loren Smith, the government is
still insisting on relitigating the core Winstar-liability issues
in case after case.
Turning first to the Glendale case: what was originally -- and,
it turns out, unrealistically -- projected to be a month-long trial
has entered its second year. This is not altogether surprising,
given the huge amounts at stake in that trial. The plaintiff in
Glendale is seeking a recovery of well over a billion dollars, under
several different damages theories. Both the plaintiff and the government
have put on numerous expert witnesses who have testified regarding,
among other things, how the plaintiff thrift would have fared financially
if the government had not breached its supervisory goodwill contract,
and how much money the government saved as a result of the plaintiffs
performance of that contract. The plaintiff finished putting on
its case-in-chief last July. The government begin its case-in-chief
immediately after Labor Day, and just finished presenting its case
in late February 1998. The plaintiff is currently putting on its
rebuttal case, expected to last through mid-March, after which the
government is expected to put on a sur-rebuttal case, which is expected
to last into the first week of April. A decision is expected later
The damages trial in the Statesman case -- another one of the three
cases that were before the Supreme Court in Winstar -- is expected
to go to trial in mid-May before Judge Christine Miller. The trial
in the Statesman case is expected to be much shorter in duration
than the Glendale trial, and should last, by our estimate, between
6 and 8 weeks. Notwithstanding its shorter expected duration, the
Statesman trial is expected to raise several complex issues that
are not faced by the litigants in the Glendale trial. The most significant
complicating factor in Statesman is the fact that there are three
different parties in that case: (1) the original plaintiffs, which
were the owners of and investors in the Statesman Bank for Savings,
and which were also, along with Statesman Bank, parties to the contract
with the government; (2) the defendant (i.e., the government); and
(3) the Federal Deposit Insurance Corporation, which has intervened,
as a party plaintiff, purportedly to represent the interests of
Statesman Bank, which was placed into receivership as a result of
the governments breach. The presence of the FDIC has raised
complicated issues regarding, among other things, the circumstances
under which one government agency may sue the United States, and
whether the original holding company plaintiffs are entitled to
a direct recovery of damages against the government or whether,
instead, any such damages awarded must "flow through"
the Statesman Bank receivership estate. A decision in Statesman
is also expected later this year.
Notwithstanding the fact that his dance card is more than full
with the Glendale trial, Chief Judge Smith has also found time to
deal with the governments continuing efforts to evade its
responsibility for breaching scores of other supervisory goodwill
contracts. In an article published in the Spring 1997 issue of this
publication, we described the "common issue" process,
established under the case management plan governing proceedings
in all Winstar-related cases, pursuant to which the parties have
attempted to identify "common" or "cross-cutting"
issues for resolution by the Court. Pursuant to this process, the
plaintiffs last year identified eleven common issues which had been
raised by the government in its responses to summary judgment motions
seeking to establish the governments liability in approximately
forty other Winstar-related cases. All eleven of these common issues
raised by the government, in the plaintiffs opinion, failed
to distinguish, in any meaningful way, the cases in which such issues
were raised from the three Winstar cases which the Supreme Court
had decided. In fact, most of these issues represented subtle --
and, in some cases, not so subtle -- attempts by the government
to relitigate the core liability issues which had been litigated
and decided in Winstar. At the plaintiffs urging, Chief Judge
Smith agreed to hear and resolve these common issues in the context
of the Courts resolution of the summary judgment motions filed
in four of the thirteen so-called "priority" cases, i.e.,
those cases that will be the first to be tried following the Glendale
and Statesman trials. Chief Judge Smith heard oral argument in these
four cases -- the Cal Fed, Lasalle Talman, Landmark, and Suess cases
-- during a marathon two-day session held in San Francisco in August.
The Court issued its "common issue" decision in these
four cases on December 22, 1997. California Federal Bank, et al.
v. United States, 1997 WL 78936 (Ct. Fed. Cl. Dec. 22, 1997). Using
sharply-worded language that "severely criticize[d] the tactics
and approach of the government" in these cases, the Court ruled
in the plaintiffs favor with respect to all eleven common
issues, holding that none of the common arguments raised by the
government precluded a finding that the government had breached
its contractual promises. Noting at the outset of its opinion that
it "is the obligation of the United States to do right,"
the Court noted that in these cases "the United States has
not acted in a manner worthy of the great just Nation it is."
"Because the dollars at stake appear to be so large,"
the Court went on, "the government has raised legal and factual
arguments that have little or no basis in law, fact or logic."
The Court was not finished: "[i]f the arguments put forth here
are the strongest the United States can muster against liability
then the government has a moral obligation to seek a fair and equitable
settlement from the parties whose contracts were breached."
The Court concluded its decision by granting summary judgment with
respect to the common issues for the plaintiffs in the four cases
before it. The Court also gave the government, in the approximately
forty Winstar-related cases in which summary judgment motions were
pending, sixty days to "show cause . . . why those motions
should not be granted, and liability found on all Winstar contract
issues based upon the instant decision." The Court warned that
in preparing these "show cause" filings, the government
was not to raise issues "that have been resolved by opinions
in the original Winstar cases as clarified in this decision."
"[F]ailure to follow this order," the Court further admonished,
"will require the government to reimburse the plaintiffs for
attorneys fees spent litigating issues that have already been resolved."
In late February, the government filed its "show cause"
filings pursuant to Chief Judge Smiths December 22 decision.
These filings demonstrate that the government has not heeded the
Courts admonition that it stop attempting to relitigate the
core Winstar-liability issues. Although the government in these
filings paid lip service to the proposition that it could not continue
to relitigate the eleven common issues decided by the Court, a close
reading of the governments filings demonstrates that the government
is continuing to press these issues, and in fact thinks it may be
entitled to discovery with respect to such issues before the Court
may enter liability findings in the Winstar-related cases. (To be
sure, in one case, the Coast case, the government has apparently
abandoned any effort to contest the entry of a liability judgment
against it). Indeed, perhaps in recognition of the fact that its
"show cause" filings failed to conform to the Courts
order, the Department of Justice took the remarkable step of having
the Director of the Commercial Litigation Branch enter his own personal
appearance with respect to the governments "show cause"
filing in each case, apparently to spare the Departments line
attorneys from being exposed to sanctions by the Court. At the time
of the writing of this article, the parties and the Court are exploring
how to proceed in the aftermath of the governments show cause
*Charles Cooper is a partner at Cooper, Carvin & Rosenthal,
PLLC, in Washington, D.C. and previously served as Assistant Attorney
General, Office of Legal Counsel, U.S. Department of Justice. Vincent
J. Colatriano is also a partner at Cooper, Carvin & Rosenthal.
Cooper, Carvin & Rosenthal represents the plaintiffs in a number
of Winstar-related cases, including the Winstar, Statesman, Cal
Fed, and Coast cases.