Suess v. United States

United States Court of Appeals for the Federal Circuit

2007-5070, -5071

C. ROBERT SUESS, LEO SHERRY, RICHARD A. GREEN, IRVING ROBERTS, on
behalf of all other shareholders of Benjamin Franklin Federal Savings and Loan
Association, PETER BAKER, BENJAMIN FRANKLIN FEDERAL SAVINGS AND LOAN
ASSOCIATION, and DONALD MCINTYRE,

Plaintiffs-Cross Appellants,

and

FEDERAL DEPOSIT INSURANCE CORPORATION,

Plaintiff-Appellee,

v.

UNITED STATES,

Defendant-Appellant.

Eric W. Bloom, Winston & Strawn LLP, of Washington, DC, argued for plaintiffs-
cross appellants. With him on the brief was Thomas M. Buchanan. Of counsel was
Charles B. Klein. Of counsel on the brief were Don S. Willner, Don S. Willner &
Associates, PC, of Trout Lake, Washington; and Rosemary Stewart, Spriggs &
Hollingsworth, of Washington, DC.

D. Ashley Doherty, Counsel, Legal Division, Federal Deposit Insurance
Corporation, of Washington, DC, argued for plaintiff-appellee. With her on the brief was
John V. Thomas, Deputy General Counsel.

Kenneth M. Dintzer, Assistant Director, Commercial Litigation Branch, Civil
Division, United States Department of Justice, of Washington, DC, argued for
defendant-appellant. With him on the brief were Michael F. Hertz, Deputy Assistant
Attorney General, Jeanne E. Davidson, Director, and F. Jefferson Hughes and Sameer
Yerawadekar, Trial Attorneys.

Appealed from: United States Court of Federal Claims

Senior Judge Loren A. Smith
United States Court of Appeals for the Federal Circuit

2007-5070, -5071

C. ROBERT SUESS, LEO SHERRY, RICHARD A. GREEN, IRVING ROBERTS, on
behalf of all other shareholders of Benjamin Franklin Federal Savings and Loan
Association, PETER BAKER, BENJAMIN FRANKLIN FEDERAL SAVINGS AND LOAN
ASSOCIATION, and DONALD MCINTYRE,

Plaintiffs-Cross Appellants,

and

FEDERAL DEPOSIT INSURANCE CORPORATION,

Plaintiff-Appellee,

v.

UNITED STATES,

Defendant-Appellant.

Appeals from the United States Court of Federal Claims in 90-CV-981, Senior
Judge Loren A. Smith.

DECIDED: August 7, 2008

Before MAYER, SCHALL, and MOORE, Circuit Judges.

SCHALL, Circuit Judge.

This is a shareholder derivative suit growing out of our decision in Winstar Corp.

v. United States, 64 F.3d 1531 (Fed. Cir. 1995) (en banc) (“Winstar I”), aff’d, 518 U.S.

839 (1996). The United States appeals from the final judgment of the United States
Court of Federal Claims awarding C. Robert Suess and other former shareholders

(collectively “Suess”) 1 of Benjamin Franklin Federal Savings and Loan Association

(“Franklin”) $52,008,750 in damages for two separate breaches of contract. Suess v.

United States, 74 Fed. Cl. 510 (2006) (“Damages Decision II”).

The court arrived at its final determination on liability and the amount of damages

over the course of three separate decisions. In California Federal Bank v. United

States, 39 Fed. Cl. 753 (1997) (“Contract Decision”), a consolidated case, the Court of

Federal Claims, on summary judgment, held that a contract arose between Franklin and

the government in connection with Franklin’s acquisition of Equitable Savings and Loan

Association (“Equitable”). The court also held that, pursuant to that contract, the

government had agreed that Franklin could treat the goodwill arising from Franklin’s

acquisition of Equitable as regulatory capital, an accounting treatment permitted by the

so-called “purchase method” of accounting, and could amortize the goodwill over a

period of forty-years. Id. at 776. The court further held that a similar contract had

arisen between Franklin and the government in connection with Franklin’s acquisition of

Western Heritage Savings and Loan Association (“Western”). Id. at 779. Later, by an

unpublished order issued on November 12, 1998, the court entered summary judgment

in favor of Suess, holding that the Financial Institutions Reform, Recovery, and

Enforcement Act (“FIRREA”), Pub. L. No. 101-73, 103 Stat. 183 (1989), breached both

of these contracts by phasing out the use of goodwill to satisfy regulatory capital

1
C. Robert Suess, Leo Sherry, Richard A. Green, Irving Roberts, Peter
Barker, and Donald McIntyre are all shareholders of Benjamin Franklin Federal Savings
and Loan Association. They brought this action on behalf of that company and of all
other shareholders.

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requirements. See Suess v. United States, 52 Fed. Cl. 221, 224 (2002) (“Damages

Decision I”).

In Damages Decision I, following a trial, the Court of Federal Claims awarded

Suess damages in the amount of the market value of Franklin stock on the day prior to

the government’s breach, estimated at approximately $35 million. Id. at 232. Finally, in

Damages Decision II, in which it granted in-part Suess’s second motion for

reconsideration, the court determined that Suess also was entitled to recover a fifty

percent control premium over the market value of Franklin’s stock. The court therefore

increased the damages award to $52,008,750. Damages Decision II, 74 Fed. Cl. at

518. The court, however, declined to award Suess compensation for certain taxes paid

on behalf of Franklin by the Federal Deposit Insurance Corporation (“FDIC”) while

Franklin was in receivership. Id. at 515.

On appeal, the government contends that the Court of Federal Claims erred as a

matter of law in holding that a contract existed between Franklin and the government for

the treatment of goodwill arising out of the Franklin-Equitable transaction. For this

reason, the government urges, it could not be liable for breach of contract. In the

alternative, the government argues that, assuming such a contract did exist, the court

erred as a matter of law in its determination of the damages arising from the breach of

the contract. On appeal, the government does not challenge the holding of the Court of

Federal Claims that a contract existed between Franklin and the government for the

treatment of goodwill arising out of the Franklin-Western transaction and that FIRREA

breached that contract.

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 For its part, Suess cross-appeals the Court of Federal Claims’ adverse ruling with

respect to taxes paid on behalf of Franklin by the FDIC while Franklin was in

receivership.

For the reasons discussed in this opinion, we agree with the government that no

contract existed between Franklin and the government for the treatment of goodwill

arising out of Franklin’s acquisition of Equitable. Accordingly, the decision of the Court

of Federal Claims in the Contract Decision holding the government liable for breach of

contract in connection with that transaction is reversed, and the judgment of the court

awarding damages to Suess in the amount of $52,008,750, as established in Damages

Decision I and Damages Decision II, is vacated. The case is remanded to the Court of

Federal Claims for the limited purpose of determining the amount of damages, if any, to

which Suess is entitled solely as a result of the government’s breach of the contract

between Franklin and the government arising out of Franklin’s acquisition of Western.

BACKGROUND

I.

The history and circumstances surrounding the thrift crisis of the early 1980s and

the resulting enactment of FIRREA have been extensively discussed in opinions of the

Supreme Court, see United States v. Winstar Corp., 518 U.S. 839, 843–58 (1996)

(“Winstar II”), and of this court, see, e.g., Anderson v. United States, 344 F.3d 1343,

1345–47 (Fed. Cir. 2003); Cal. Fed. Bank, F.S.B. v. United States, 245 F.3d 1342 (Fed.

Cir. 2001); Glendale Fed. Bank, F.S.B. v. United States, 239 F.3d 1374 (Fed. Cir.

2001). The following background is drawn largely from our decision in Anderson.

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 In the late 1970s and early 1980s, soaring interest rates and inflation had a

devastating effect on the savings and loan industry. To compete for and attract funds in

that financial climate, thrifts had to pay high interest rates for short-term deposits.

Winstar II, 518 U.S. at 845. However, the cost of these liabilities soon exceeded the

thrifts’ income from their principal assets, which were long-term fixed-rate home

mortgages created when interest rates were low. Id. More than 400 thrifts declared

bankruptcy between 1981 and 1983, and many more were on the verge of insolvency.

Id. The multitude of failed thrifts was threatening to exhaust the insurance fund of the

Federal Savings and Loan Insurance Corporation (“FSLIC”), which insured consumer

deposits in thrifts. Id. at 846–47.

In response to that crisis, the Federal Home Loan Bank Board (the “FHLBB”), the

federal regulatory agency responsible for overseeing federally chartered savings and

loans, encouraged healthy thrifts and outside investors to purchase insolvent thrifts in a

series of “supervisory mergers.” Id. at 847. To induce those mergers and to allow

those acquisitions to proceed without the acquiring thrifts immediately becoming

insolvent upon completion of the transactions, the FHLBB offered certain financial

incentives. Id. at 848–50. The most important incentive was the accounting treatment

of “supervisory goodwill,” a term for the difference between the market value of an

acquired entity’s liabilities and assets. Id. at 849–50. This use of supervisory goodwill

was attractive to healthy thrifts and outside investors for two main reasons. First, the

FHLBB often permitted an acquiring thrift to count supervisory goodwill toward its

reserve capital requirements. Id. at 850. Second, the regulators would in some

instances permit the goodwill to be amortized over a long period of time while the thrift

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could recognize accretion income over a shorter period through purchase accounting, 2

thus allowing the thrift to appear more profitable than it was in fact. Id. at 850–53.

Given the advantages of these incentives and the inherent risks of substantially

deviating from Generally Accepted Accounting Principles (“GAAP”), these arrangements

were the subject of express agreements between the regulators and the acquiring

institutions. Id. at 853–56. Despite such arrangements, the savings and loan industry

remained in crisis.

In response, Congress enacted FIRREA in 1989 to prevent the collapse of the

industry, to attack the causes of the crisis, and to restore public confidence. Id. at 856.

FIRREA abolished the FHLBB and FSLIC, transferred thrift insurance activities to the

FDIC, established the Office of Thrift Supervision (“OTS”) as the new thrift regulatory

agency, created the Resolution Trust Corporation (“RTC”) to liquidate or otherwise

dispose of certain closed thrifts and their assets, and made substantial changes in the

regulation of the savings and loan industry. Id. In particular, the statute required thrifts

to maintain a set minimum capital requirement and prohibited the use of supervisory

goodwill. Id. at 857. Based on that statutory mandate, the OTS promptly promulgated

2
“Accretion income” is income arising from “growth in assets through
mergers, acquisitions, and internal expansion.” Joel G. Siegel & Jae K. Shim,
Dictionary of Accounting Terms 12 (3d ed. 2000). The term “purchase accounting
method” is an umbrella term for a number of different accounting devices, defined
generally as “[a] method of accounting for mergers whereby the total value paid or
exchanged for the acquired firm’s assets is recorded on the acquiring firm’s books, and
any difference between the fair market value of the assets acquired and the purchase
price is recorded as goodwill.” Black’s Law Dictionary 21 (8th ed. 2004). In the present
case, the aspect of purchase accounting at issue between the parties is the ability to
treat supervisory goodwill as regulatory capital. Contract Decision, 39 Fed. Cl. at 776;
see also Fifth Third Bank of W. Ohio v. United States, 402 F.3d 1221, 1224 (Fed. Cir.
2005) (similarly involving the use of purchase accounting to count supervisory goodwill
toward reserve capital requirements and to amortize such goodwill over an extended
period of time).

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regulations enforcing FIRREA and denying the continued use of supervisory goodwill in

the thrifts’ accounting procedures. Id. The impact of the new statute and regulations

was swift and severe. In the wake of FIRREA, many thrifts rapidly fell out of compliance

with regulatory capital requirements and were seized by regulators. Id. at 857–58.

These events spawned hundreds of lawsuits in which the acquirers of ailing

thrifts sued the United States, alleging, inter alia, that by enacting FIRREA the

government breached contracts with the thrifts promising particular regulatory

treatment. Id. at 858–59. Eventually, in Winstar II, the Supreme Court upheld this

court’s en banc determination that documents executed by government regulators and

the acquiring thrifts in connection with the supervisory mergers at issue constituted

enforceable agreements. Id. at 859–60. Since then, we have reviewed a number of

other appeals involving the same breach of contract cause of action. See, e.g., D & N

Bank v. United States, 331 F.3d 1374 (Fed. Cir. 2003); Castle v. United States, 301

F.3d 1328 (Fed. Cir. 2002); Bluebonnet Sav. Bank, F.S.B. v. United States, 266 F.3d

1348 (Fed. Cir. 2001). This is another such case.

II.

A.

In 1982, Franklin was a federally chartered mutual savings and loan association

operating in the State of Oregon, with assets of approximately $1.6 billion. Damages

Decision I, 52 Fed. Cl. at 224. Equitable also was operating in the State of Oregon.

Like many thrift institutions in the early 1980s, Equitable was in imminent danger of

failure. On March 31, 1982, the Federal Home Loan Bank of Seattle (“FHLB-Seattle”)

stated that “[c]onsideration is being given to [an] unassisted merger [of Equitable] with

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an in-state association.” Report on Category I Cases (Mar. 31, 1982). 3 Franklin,

considering the acquisition of Equitable to present a potentially profitable business

opportunity, “independently negotiated an in-state, unassisted merger” with Equitable by

late May of 1982. Digest: Application for Merger 1–2. 4

In order to complete its proposed merger with Equitable, Franklin was required to

obtain the approval of the FHLBB. By May 11, 1982, Franklin representatives had

presented a business plan for a potential merger between Franklin and Equitable to

FHLB-Seattle representatives, requesting, inter alia, the use of purchase accounting in

order to treat goodwill as regulatory capital. In a letter to Franklin’s independent

accounting firm, Peat, Marwick, Mitchell & Co., Robert Downie, the President of

Franklin, described the May 11, 1982 business plan as follows:

At a meeting on May 11 in Seattle, . . . Franklin presented a business plan
for the acquisition of Equitable that was based on the combination of four
factors to provide break-even in fiscal 1983 and profitability in 1984:

1. Purchase accounting;

2. Significant reduction in operating expenses;

3. Earnings from approved asset utilization and deposit growth; and

4. Earnings from the investment of $500 million in long-term fixed
rate advances in deep discount loans and mortgage-backed
securities.

Letter from Robert Downie, President of Franklin, to Donald Greco, Peat, Marwick,

Mitchell & Co. (Sept. 24, 1982) (emphasis added).

3
The Report on Category I Cases is an internal FHLB-Seattle document
dated March 31, 1982. It presents a summary of Equitable’s financial condition.
4
The Digest: Application for Merger also is an internal FHLB-Seattle
document. Dated September 8, 1982, it recites the conditional approval of the merger
by FHLB-Seattle under authority delegated from the FHLBB and describes the
interactions of Franklin and Equitable in negotiating the merger.

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 The following day, Mr. Downie presented a proposal for the acquisition of

Equitable by Franklin to FHLB-Seattle President James Faulstich, which proposal also

requested the use of purchase accounting. In a letter to Mr. Faulstich describing the

proposal for acquisition, Mr. Downie stated:

The acquisition will provide the firm with a break-even in fiscal 1983 and
profitability in 1984—assuming continuation of present interest rate
levels—through a combination of four factors: (1) purchase accounting; (2)
significant expense reduction via a consolidation of overlapping branches
in Oregon and duplicate staff functions; (3) earnings from improved asset
utilization and deposit growth; and (4) earnings from the investment of
$500 million in long-term advances.

Letter from Robert Downie, President of Franklin, to James Faulstich, President

of FHLB-Seattle (May 12, 1982) (emphasis added).

On June 28, 1982, Franklin formally submitted to FHLB-Seattle its application for

an unassisted merger with Equitable, proposing amortization of the goodwill acquired

from the merger over a thirty-five year period. The application provided: “Goodwill: . . .

. The excess of liabilities over assets is attributed to goodwill. This amount has been

amortized over a period of 35 years.” Franklin Application for Merger. On July 21,

1982, Franklin submitted a revised merger plan prepared by Kaplan Smith & Associates

that provided for a forty-year amortization of goodwill.

Following Franklin’s presentation of its business plan and application for merger,

the FHLBB entered into discussions with Franklin regarding approval of the Equitable

merger. On August 16, 1982, Franklin and Equitable representatives met with FHLBB

accountants in Washington, D.C. During this meeting, Franklin and the FHLBB

discussed the use of purchase accounting and the amortization of goodwill over a forty-

year period. The FHLBB announced satisfaction with the terms of the proposed

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merger, and Mr. Faulstich formally announced the FHLBB’s conditional approval of the

merger plan on September 8, 1982. Approval of the merger was made conditional

upon Franklin’s providing notice to shareholders regarding the effects of the merger,

certifying approval of the merger by stockholders and the board of directors, and

providing the FHLBB with financial analyses of the merger. Acting under its authority

conferred by Federal Regulation section 546.2(h)(7), 47 Fed. Reg. 17802 (Apr. 26,

1982), FHLB-Seattle granted three forbearances to Franklin: (1) For purposes of

calculating its net worth, Franklin was permitted to exclude for up to five years operating

losses on acquired assets, capital losses sustained following disposition of acquired

assets and acquired scheduled items, and the amount of liabilities of the acquired

association. (2) For purposes of calculating its liquidity, Franklin was permitted to

exclude for up to one year any liquidity deficiency of the acquired association and any

aggregate net withdrawals from the acquired association. (3) For purposes of

calculating the acquired association’s investments, Franklin was permitted to exclude

the building investments of the acquired association.

Submitting a “merger digest,” FHLB-Seattle informed the Regional Director of the

FHLBB that it had conditionally approved the Franklin-Equitable merger. The merger

digest recited FHLB-Seattle’s approval of the merger and listed the key terms of the

approval. In addition to noting the forbearances that FHLB-Seattle was offering

Franklin and discussing the financial viability of the merger, the merger digest stated

that the merger would be accounted for under the purchase method. Digest:

Application for Merger 3 (“The transaction is to be accounted for by the purchase

method. An opinion issued by [an] independent accounting firm . . . indicates the

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purchase method is appropriate for this transaction and that the application of that

method . . . is in conformance with GAAP.”).

On August 18, 1982, Franklin’s Board of Directors approved the merger with

Equitable. On April 22, 1983, in compliance with the conditions placed upon FHLB-

Seattle’s approval of the merger, Franklin’s Chief Financial Officer, Ian McKechnie,

submitted a financial analysis of the proposed merger to FHLB-Seattle’s Vice President,

Donald Mochel. In the letter, Mr. McKechnie based the financial analysis of the

merger on usage of purchase accounting and amortization of the acquired goodwill over

a period of forty years. Letter from Ian McKechnie, Chief Financial Officer of Franklin, to

Donald Mochel, Vice President of FHLB-Seattle (April 22, 1983) (“[Franklin] has

recorded as goodwill on its balance sheet, at September 30, 1982, $342 million

representing the difference between the fair value of the liabilities assumed and the

assets acquired. It has accorded a life of 40 years to this asset and is amortizing this

goodwill on a straight-line basis, ratably over 480 months.”).

In 1985, the FHLBB encouraged Franklin to acquire Western Heritage Savings

and Loan Association (“Western”), another failing thrift institution. See Damages

Decision I, 52 Fed. Cl. at 225. To assist Franklin in its acquisition of Western, FSLIC

provided $8.8 million of cash assistance to the resulting merged institution. Id. Franklin

also contracted with the FHLBB to receive several forbearances, including: (1) the

ability to amortize the goodwill acquired in the transaction over a period of twenty-five

years; (2) the ability to exclude losses, liabilities, and scheduled items attributable to

Western in computing minimal capital requirements for a period of five years; and (3)

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the ability to book cash assistance from FSLIC as a credit to Franklin’s net worth. Id. at

225, 225 n.5. 5

In 1986, Franklin decided to convert to a public corporation and sought approval

from the FHLBB for doing so. In connection with the approval of its conversion to a

public corporation, Franklin agreed to reduce the remaining thirty-six years of its

amortization period for the goodwill associated with the Franklin-Equitable transaction to

twenty-eight years. Robert E. Wolpert Aff. ¶ 5.

B.

Congress passed FIRREA in 1989. Pub. L. No. 101-73, 103 Stat. 183 (1989).

Amongst numerous other changes to the thrift industry, FIRREA required that all

federally insured thrifts meet tangible capital, core capital, and risk-based capital

requirements. 12 U.S.C. § 1464(t) (2000). Under the newly enacted standards,

supervisory goodwill could no longer be included in satisfying minimal tangible capital

requirements, and its use for meeting core capital level requirements was to be phased

out over the course of five years. Damages Decision I, 52 Fed. Cl. at 225.

The newly enacted requirements with respect to the treatment of supervisory

goodwill had an immediate deleterious impact on Franklin’s financial position. Id.

Specifically, the change resulted in Franklin immediately becoming insolvent and facing

a tangible capital account deficiency of nearly $178 million. Id. As a consequence of

Franklin’s insolvency, OTS required it to submit a capital plan outlining its program for

5
The Court of Federal Claims specifically held that Franklin had contracted
with the FHLBB to receive certain forbearances in the Franklin-Western merger, which
forbearances included the amortization of goodwill over a twenty-five-year period.
Damages Decision I, 52 Fed. Cl. at 225, 225 n.4, 225 n.5. The government does not
challenge this determination on appeal.

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achieving capital compliance. Id. Franklin submitted such a plan to OTS on January 8,

1990. Id. OTS formally rejected the plan on February 20, 1990, and it placed Franklin

into an RTC conservatorship. Id. The FDIC later took over responsibility for managing

Franklin in receivership.

III.

Following the placement of Franklin into receivership, Suess brought a derivative

suit in the Court of Federal Claims on behalf of Franklin, seeking damages for the

losses occasioned by the enactment of FIRREA. The government, in due course,

brought a motion to dismiss for lack of jurisdiction and lack of standing. Denying the

motion, the court concluded that it possessed jurisdiction over the derivative suit and

that the shareholder plaintiffs were not required to show individual standing to bring the

suit. Suess v. United States, 33 Fed. Cl. 89, 97 (1995). The court then, over the course

of three subsequent decisions, determined the merits of Suess’s dispute and its

entitlement to damages.

In the Contract Decision, the Court of Federal Claims granted summary judgment

in favor of Suess on the issue of liability. In so doing, the court rejected the

government’s argument that there was no contract between Franklin and the

government providing for the use of purchase accounting and for the amortization of

goodwill over twenty-eight years in the case of the Franklin-Equitable merger and over

twenty-five years in the case of the Franklin-Western merger.

Most relevant to the present appeal, the government argued that the various

documents detailing the discussions between Franklin and the government in the

Franklin-Equitable merger did not evidence an intent on the part of the government to

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guarantee Franklin’s continued use of purchase accounting or its ability to amortize

goodwill. Contract Decision, 39 Fed. Cl. at 775–76. The government contended that

the absence of an express contract guaranteeing Franklin’s right to use purchase

accounting or to amortize its goodwill foreclosed any obligation on the part of the

government to compensate Franklin for losses resulting from the regulations’

disallowing the application of those accounting methods. Id. The government further

contended that an approval of a merger cannot constitute a contract guaranteeing the

continued use of an accounting method used in the merger. Id. at 776. The court

rejected these arguments, concluding that the documents generated during the

FHLBB’s approval of the Franklin-Equitable merger, when considered together,

evidenced an intent on the part of the government to guarantee continued use of

purchase accounting and amortization of goodwill. The court concluded:

Suess Plaintiffs adequately demonstrate that the intent existed to form a
contract concerning the amortization of goodwill. Suess Pl. Mot. Summ. J.
at 8–12 (citing letters, the Merger Application, independent accountants’
opinions, the FHLBB-Seattle’s internal “merger digest,” and deposition and
affidavit testimony of government and [Franklin] negotiators).

Contract Decision at 776. Finally, as noted above, the Court of Federal Claims also

rejected the government’s argument that a similar contract for the treatment of goodwill

did not arise out of the Franklin-Western merger. Id. at 767.

In addition, the government argued that, when it acquired Equitable, Franklin

assumed the risk that the government might alter the regulations controlling the

treatment of goodwill as regulatory capital. Id. at 768. The court also rejected that

argument. The court determined that Franklin reasonably relied on the government’s

approval of the merger as a guarantee of the continued ability to amortize goodwill. Id.

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at 769. The court, moreover, was persuaded that Franklin, like the plaintiffs in Winstar

II, would not have rationally pursued a merger with Equitable had it not assumed that it

would be permitted to amortize the goodwill acquired from the transaction. In the

court’s view, this strongly suggested that Franklin did not assume the risk of an

alteration in regulatory policy. Id. at 769–70.

The Court of Federal Claims did not, in the Contract Decision, enter any findings

as to whether the government had breached its contracts with Franklin. Rather, the

court merely held that contracts between the government and Franklin regarding the

use of the purchase method of accounting and treatment of goodwill had arisen in both

the Franklin-Equitable and Franklin-Western transactions. See generally id. The court

further ordered, at the conclusion of the Contract Decision, that the government show

cause as to why liability should not be found on all such contracts between the

government and the plaintiff thrifts that were parties in the case. Id. at 779. The

government does not appear to have successfully argued against entry of liability, and

the court, by an unpublished decision dated November 12, 1998, entered summary

judgment in favor of Franklin, holding that the government was liable for breaching both

contracts with Franklin. See Damages Decision I, 52 Fed. Cl. at 224.

Following its holding in the Contract Decision that contracts existed between the

government and Franklin with respect to the treatment of goodwill and the later entry of

judgment in favor of Franklin on the issue of liability, the court turned to the question of

the appropriate measure of damages. Before that, on April 13, 1999, the court

permitted the FDIC to join the suit as a party, although the FDIC did not participate

extensively during the subsequent trial on damages. Id. at 224 n.2. The court permitted

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the FDIC’s joinder as a party in order to protect the interests of Franklin, after

concluding that the joinder would not impose any unreasonable hardship upon the

United States. Suess v. United States, No. 90-981C (Ct. Fed. Cl. Apr. 13, 1999).

Following a trial, in Damages Decision I, the Court of Federal Claims awarded

Suess damages in the amount of $35 million. This sum represented the difference in

the value of Franklin’s stock prior to the government breach ($35 million) and after the

breach ($0). 52 Fed. Cl. at 231 In arriving at this figure, the court rejected Suess’s

claims to expectation and restitution damages. Id. at 225–30.

In awarding damages based upon Franklin’s stock’s market value, the court did

not attempt to distinguish between damages attributable to the breach of the contract

associated with the Franklin-Equitable merger and those associated with the Franklin-

Western merger. Instead, the court apparently conflated the two breaches, assuming

that their combined effect was to render Franklin insolvent. In addition, the court did not

enter findings as to whether the breach of the contract associated with the Franklin-

Western transaction or that associated with the Franklin-Equitable transaction would

have alone rendered Franklin insolvent.

Following Damages Decision I, both Franklin and the government filed Motions

for Reconsideration. Franklin argued in its motion, inter alia, that it was entitled to a

fifty-percent “control premium” over the market value of its stock prior to the breach and

that it should receive a “gross up” for tax liabilities incurred while in receivership. The

government argued in its motion that the court should set aside its award of damages.

The Court of Federal Claims, adhering to its theory that the market capitalization

of Franklin comprised the appropriate measures of damages, concluded that a control

2007-5070, -5071 16
premium was required to properly reflect the true market capitalization of the company.

Damages Decision II, 74 Fed. Cl. at 513. The court reasoned that a control premium

awards a shareholder who controls the operations of a company and that, since

Franklin controlled its own internal operations, it was entitled to a control premium. Id.

Relying upon evidence submitted by the parties as to the appropriate amount of the

control premium, the court awarded a premium comprising fifty percent of the market

capitalization of Franklin. Id. Franklin’s roughly $35 million market capitalization award,

coupled with the fifty-percent control premium, resulted in a total damages award of

$52,008,750. Id. at 518. In arriving at this figure, the court rejected the government’s

argument that any award to Suess should be reduced by the amount of Franklin’s

residual value in receivership. Id. at 516. Finally, the court rejected Suess’s claim for

compensation for certain taxes paid on behalf of Franklin by the FDIC while Franklin

was in receivership. Id. at 515.

In Damages Decision II, the Court of Federal Claims again did not attempt to

separate the damages attributable to the Franklin-Equitable breach from those

attributable to the Franklin-Western breach. Rather, the court apparently assumed that

the combined effect of these breaches drove Franklin into insolvency and therefore

justified an award of damages based upon Franklin’s market capitalization prior to the

breach, with an added control premium.

DISCUSSION

I.

On appeal, the government challenges the decisions of the Court of Federal

Claims on both liability and damages. As far as the court’s liability decision is

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concerned, the government does not appeal the court’s conclusion that it breached the

contract that arose from the Franklin-Western transaction. It does argue, however, that

the court erred as a matter of law in holding that a contract existed between Franklin

and the government for the treatment of goodwill arising out of the Franklin-Equitable

transaction. As a result, the government states, it could not be held liable for breach of

contract. As far as damages are concerned, the government argues that the court erred

as a matter of law in awarding the 1989 stock market capitalization of Franklin as the

thrift’s damages for breach of contract and in awarding a fifty percent control premium in

addition to Franklin’s stock market capitalization. The government also argues that the

court erred in failing to reduce the award of Franklin’s market capitalization by Franklin’s

existing value in the receivership.

Suess responds that the Court of Federal Claims correctly held that the

government entered into, and breached, a binding supervisory goodwill contract with

Franklin relating to the Franklin-Equitable transaction. It also argues that the court did

not err, and properly exercised its discretion, in arriving at its damages award. The

FDIC’s sole argument on appeal relates to damages. It urges us to reject the

government’s argument that the damages award should be reduced by the positive

amount in the receivership, contending that the government’s position on this point is

contrary to controlling Winstar precedent. In addition, Suess cross-appeals the

determination of the Court of Federal Claims in Damages Decision II not to award it

compensation for the payment of certain taxes by the FDIC on behalf of Franklin.

For the reasons set forth below, we agree with the government that no contract

existed between Franklin and the government for the treatment of goodwill arising from

2007-5070, -5071 18
the Franklin-Equitable transaction. The Court of Federal Claims therefore erred in

holding the government liable for breach of contract and in awarding damages in

connection with that transaction. Because we dispose of the appeal on the basis of

liability, we do not address the issue of damages.

II.

As seen above, the Court of Federal Claims decided liability on summary

judgment. Summary judgment is appropriate “if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show that

there is no genuine issue as to any material fact and that the moving party is entitled to

a judgment as a matter of law.” R. Ct. Fed. Cl. 56(c). We review a grant of summary

judgment by the Court of Federal Claims de novo. Amerisource Corp. v. United States,

525 F.3d 1149, 1152 (Fed. Cir. 2008). Generally, whether a contract exists is a mixed

question of law and fact. Caroline Hunt Trust Estate v. United States, 470 F.3d 1044,

1049 (Fed. Cir. 2006). In this case, however, the pertinent facts are not in dispute. The

question of whether a contract existed between the government and Franklin regarding

the treatment of goodwill thus reduces to a question of law—whether as a matter of law,

on the given facts, a contract existed between the government and Franklin. We review

the Court of Federal Claims’ legal conclusions de novo. USA Choice Internet Servs.,

LLC v. United States, 522 F.3d 1332, 1336 (Fed. Cir. 2008).

The requirements for a contract between the United States and a private party

are (1) mutuality of intent to contract, (2) consideration, (3) lack of ambiguity in offer and

acceptance, and (4) authority on the part of the government agent entering the contract.

D&N Bank, 331 F.3d at 1378; Lewis v. United States, 70 F.3d 597, 600 (Fed. Cir. 1995).

2007-5070, -5071 19
A contract need not be memorialized in a single document; rather, “a contract may arise

as a result of the confluence of multiple documents” so long as there is “a clear

indication of intent to contract[,] and the other requirements for concluding that a

contract was formed” are met. D&N Bank, 331 F.3d at 1378; Cal. Fed., 245 F.3d at

1347.

On appeal, the government focuses solely upon the requirement of intent to

contract, contending that the documents involved in the FHLBB’s approval of the

merger do not evince intent on the government’s part to guarantee the continued ability

of Franklin to utilize purchase accounting or to amortize goodwill. Accordingly, we limit

our discussion to that prong of the test for the existence of a contract and do not reach

the issues of the existence of consideration, unambiguous offer and acceptance, or

authority on the part of the contracting government agent.

Though an implied-in-fact contract guaranteeing continued use of purchase

accounting and goodwill amortization can arise from parties’ statements and documents

surrounding a merger, “there needs to be something more than a cloud of evidence that

could be consistent with a contract to prove a contract and enforceable contract rights.”

D&N Bank, 331 F.3d at 1377. Specifically, in order to prove that the government

intended to guarantee continued use of purchase accounting or a specific amortization

period, the party alleging the existence of such a contract must allege “something more”

than the mere approval of the merger by the FHLBB. Id. at 1378. As we stated in D&N

Bank: “Mere approval of the merger does not amount to an intent to contract. The

[FHLBB], in its regulatory capacity, must approve all mergers. . . . An agency’s

performance of its regulatory or sovereign functions does not create contractual

2007-5070, -5071 20
obligations.” Id. Rather, “there must be an objective manifestation of voluntary, mutual

assent. . . . To satisfy its burden to prove such a mutuality of intent, a plaintiff must

show, by objective evidence, the existence of an offer and a reciprocal acceptance.”

Anderson, 344 F.3d at 1353.

The determination of whether the government has shown assent to a contract

guaranteeing a particular treatment of goodwill is a fact-intensive inquiry. In D&N Bank,

Anderson, and First Federal Lincoln Bank v. United States, 518 F.3d 1308 (Fed. Cir.

2008), we found the evidence presented insufficient to support the existence of intent to

contract on the government’s part. By contrast, in Winstar I, Fifth Third Bank of W. Ohio

v. United States, 402 F.3d 1221 (Fed. Cir. 2005), California Federal, LaSalle Talman

Bank, F.S.B. v. United States, 317 F.3d 1363 (Fed. Cir. 2003), and La Van v. United

States, 382 F.3d 1340 (Fed. Cir. 2004), we considered the evidence presented

sufficient to demonstrate intent to contract on the government’s part. We think that the

undisputed facts before us put this case in the D&N Bank, Anderson, and First Federal

Lincoln line of authority. We therefore hold, as a matter of law, that Suess failed to

establish the existence of a contract between the government and Franklin pursuant to

which the government guaranteed the continued use of purchase accounting or the

amortization of goodwill by Franklin.

III.

In D&N Bank, D&N Bank (“D&N”) relied on a number of documents exchanged

between the FHLBB and D&N during the approval of its acquisition of another thrift as

establishing an intent to contract on the government’s part. 331 F.3d at 1377. These

documents included a merger agreement contingent upon the government’s approval of

2007-5070, -5071 21
the purchase method of accounting, various internal government memoranda, an

FHLBB resolution conditioning approval of the merger on the submission of detailed

accounting analyses of the supervisory goodwill that would arise from the use of

purchase accounting, and an accountant’s letter submitted by D&N in satisfaction of the

requirement for detailed accounting analyses of the supervisory goodwill. Id. at 1378.

None of the documents purported to be a contract binding upon D&N and the FHLBB.

Id. After reviewing this evidence, we concluded that the only document that could

arguably demonstrate intent to contract on the government’s part was the FHLBB

resolution conditionally approving the merger. Id. We determined, however, that the

resolution did not evince the requisite intent to contract because it merely approved the

merger and use of the purchase method of accounting; it did not contain any promise by

the government with respect to amortization of goodwill or to guaranteeing the

continued use of the purchase method of accounting. Id. at 1378–79. We stated:

Mere approval of the merger does not amount to intent to contract. The
[FHLBB], in its regulatory capacity, must approve all mergers. . . . An
agency’s performance of its regulatory or sovereign functions does not
create contractual obligations. . . . Something more is necessary. The
[FHLBB] Resolution says nothing about goodwill and there was no
negotiation between D&N Bank and the [FHLBB] that resulted in approval
of the merger. D&N and First Federal simply submitted an application for
approval of the merger, and the [FHLBB] accepted it.

Id.

We also did not find any intent to contract on the government’s part under a

similar fact pattern in Anderson. In Anderson, The Westport Company (“Westport”)

proposed to acquire Dade County Savings and Loan Association (“Dade”). 344 F.3d at

1347. Westport submitted an application to the FHLBB, specifically requesting use of

the purchase method of accounting and amortization of the goodwill acquired in the

2007-5070, -5071 22
transaction over a period of forty years. Id. The FHLBB ultimately determined to

approve the merger of Westport and Dade but did not mention the amortization of

goodwill in its approval letter. Id. We noted that, to the extent that the government

entered into any contract with Westport, its approval letter, which lacked any term

relating to the treatment of goodwill, effectively constituted a counter-offer, repudiating

Westport’s initial offer that it merge with Dade and amortize goodwill arising from the

transaction. Id. at 1358. Westport, we determined, effectively accepted that counter-

offer by proceeding with the merger in the face of the government’s failure to guarantee

Westport’s ability to amortize goodwill. Id. Thus, any contract between Westport and

the government did not contain a term permitting Westport to amortize goodwill. See id.

We also concluded in Anderson that the government’s course of conduct

preceding the merger did not evidence an intent to form a contract with Westport. We

considered two pieces of evidence as potentially containing the requisite assent to

contract on the government’s part: a Resolution providing conditions for the

government’s approval of the merger and a Forbearance Letter. Id. at 1355. The

Resolution required Westport to submit accounting analyses of the merger addressing

the reasonableness of Westport’s treatment of goodwill. Id. We concluded that the

Resolution merely imposed a condition on regulatory approval of the merger—

submission of accounting analyses—and did not constitute any contractual guarantee of

Westport’s ability to utilize any specific method of goodwill amortization. Id. at 1355–

56. Similarly, the Forbearance Letter granted two forbearances, neither of which

concerned Westport’s ability to amortize goodwill. Id. at 1357. Accordingly, we

concluded that the government merely approved the Westport-Dade merger and that it

2007-5070, -5071 23
did not assent to Westport’s ability to amortize goodwill in a manner sufficient to support

the existence of a contract to that effect. Id. at 1359.

In First Federal Lincoln, the government disputed the existence of a contract with

respect to two of three mergers it had approved between First Federal Lincoln Bank

(“Lincoln”) and various failing thrift institutions. 518 F.3d at 1312–13. In the first of the

two disputed mergers, between Lincoln and Tri-Federal Savings and Loan Association

of Wahoo, Nebraska (“Tri-Federal”), Lincoln filed an application for merger seeking use

of the purchase method of accounting. Id. at 1312. The FHLBB ultimately issued an

approval letter in which it noted the use of the purchase method of accounting but did

not address the amortization period for goodwill. Id. at 1313. In the second of the two

disputed mergers, between Lincoln and First Federal Savings and Loan Association of

Norfolk, Nebraska (“Norfolk”), Lincoln again filed an application for merger seeking use

of the purchase method. Id. Again, the FHLBB issued an approval letter sanctioning

the use of the purchase method of accounting. Id.

After reciting the rule for contract formation, we concluded:

There is no evidence that the government took any action to encourage
[Lincoln] to merge with either Norfolk or Tri-Federal. There is also nothing
in the merger agreements between [Lincoln] and Norfolk and Tri[-]Federal,
or the government’s approval letters that could evidence the government’s
intent to enter into a goodwill contract. In both mergers [Lincoln]
communicated to the government a request only for, and in both mergers
received, standard treatment of goodwill, including use of the purchase
method of accounting and amortization of goodwill over a twenty-five year
period in compliance with GAAP. Neither merger was designated as
instituted for supervisory purposes, no government assistance was
provided, there were no forbearances with respect to goodwill, and there
was no negotiation with respect to the treatment of goodwill.

Id. at 1320–21.

2007-5070, -5071 24
 IV.

We conclude that the evidence presented by the parties establishes that the

FHLBB merely approved Franklin’s use of purchase accounting and amortization of

goodwill and did not contractually guarantee Franklin’s continued ability to utilize the

purchase method of accounting or to amortize goodwill. In our view, the relevant

documents, as in D&N Bank, Anderson, and First Federal Lincoln, demonstrate only

FHLBB approval of the Franklin-Equitable merger and do not support the existence of

an intent to contract on the government’s part. Indeed, all documents relied upon by

Suess to demonstrate governmental intent to contract merely acknowledge the

government’s approval of purchase accounting or amortization of goodwill; they do not

contain any agreement concerning Franklin’s continued ability to employ those

accounting methods. Though certain statements by former FHLB-Seattle officials made

in affidavits during the litigation of this case do suggest the existence of intent to

contract on the government’s part with respect to the purchase method of accounting

and the amortization of goodwill, we think that the lack of any statement suggesting an

intent to guarantee continued use of purchase accounting and amortization of goodwill

in the documents approving the merger is more probative of the question of

governmental intent than are statements of government officials made years after the

transaction at issue.

The May 12, 1982 letter from Mr. Downie to Mr. Faulstich proposing the Franklin-

Equitable merger merely proposes that Franklin be permitted to use the purchase

method. The letter states: “The acquisition will provide the resulting firm with a break-

even in fiscal 1983 and profitability in 1984—assuming a continuation of the present

2007-5070, -5071 25
interest rate levels—through a combination of . . . factors [including the use of] purchase

accounting.” Letter from Robert Downie, President of Franklin, to James Faulstich,

President of FHLB-Seattle (May 12, 1982). In First Federal Lincoln, we concluded that

a similar request for use of purchase accounting on the part of a thrift did not provide a

premise for intent to contract on the part of the government. 518 F.3d at 1320–21.

Rather, we concluded that such a request merely demonstrated that the thrift solicited

the ability to employ the purchase method and that the government approved its doing

so, which alone was insufficient to prove any intent to contract on the government’s

part. Id. (“In both mergers [Lincoln] communicated to the government a request only

for, and in both mergers received, standard treatment of goodwill, including use of the

purchase method of accounting and amortization of goodwill over a twenty-five year

period in compliance with GAAP. . . . [T]here was no negotiation with respect to the

treatment of goodwill.”).

The June 28, 1982 merger application submitted by Franklin to FHLB-Seattle

contemplated the purchase method of accounting and recited the assumption that the

goodwill acquired in the transaction would be amortized over the course of thirty-five

years. In D&N Bank, we also confronted a merger agreement contingent upon the

government’s approval of the purchase method of accounting; we held that the

government’s approval of the merger agreement reflected only its sanctioning of the use

of the purchase method at the time of the merger, not a contractual guarantee that D&N

would be permitted to use the purchase method indefinitely. 331 F.3d at 1382.

Similarly, in First Federal Lincoln, we held that approval of the amortization of goodwill

does not constitute a guarantee that a thrift will be permitted to amortize goodwill over

2007-5070, -5071 26
the original period contemplated by the parties. 518 F.3d at 1320–21. Franklin’s

merger application did not provide a premise for the requisite governmental intent to

contract, constituting merely an approval of the use of purchase accounting and

goodwill amortization.

In the merger digest, FHLB-Seattle approved the Franklin-Equitable merger and

granted three regulatory forbearances, none of which related to use of the purchase

method of accounting or amortization of goodwill. The merger digest noted that

“Equitable had independently negotiated an in-state, unassisted merger with [Franklin],”

Digest: Application for Merger 1–2, and stated that “the proposed merger constitutes a

voluntary, non-FSLIC assisted intra-state merger,” id. at 2. The digest then stated that

“[t]he transaction is to be accounted for by the purchase method.” Id. at 3. Like the

FHLBB resolution in D&N Bank, the merger digest merely describes an “independently

negotiated” merger, recites FHLBB approval of the merger itself, and acknowledges use

of the purchase method to account for the merger. See 331 F.3d at 1379. The merger

digest does not contain any language that could be construed as a guarantee by the

government that Franklin may use the purchase method indefinitely or that it may

amortize goodwill for any specified period of time. Neither is there any reference to

negotiations between Franklin and the FHLBB relating to the use of the purchase

method of accounting or the amortization of goodwill.

Similarly, the September 8, 1982 letter from Mr. Faulstich to Mr. Downie

conditionally approving the merger required Franklin to complete various tasks prior to

the merger, including furnishing financial analyses of the thrift’s treatment of goodwill.

In addition, it approved three forbearances, none of which related to the purchase

2007-5070, -5071 27
method or treatment of goodwill. Thus, like the merger digest, the Faulstich letter

recites FHLB-Seattle’s approval of the merger but does not contain any promise relating

to purchase accounting or goodwill; it therefore does not establish governmental intent

to contract.

Finally, the April 22, 1983 letter from Mr. McKechnie to Mr. Mochel merely served

to inform FHLB-Seattle that Franklin intended to use the purchase method and that it

planned to amortize the goodwill acquired in the transaction over a forty-year period.

The letter stated: “This combination was accounted for under the purchase method.”

Letter from Ian McKechnie, Chief Financial Officer of Franklin, to Donald Mochel, Vice

President of FHLB-Seattle (Apr. 22, 1983). The letter did not contain any statement

suggesting that the FHLBB had guaranteed Franklin’s continued ability to utilize the

purchase method. Similarly, the letter recited Franklin’s intent to amortize the goodwill

associated with the Franklin-Equitable merger over a period of forty years, but it did not

contain any language suggesting that Franklin negotiated with the FHLBB the ability to

amortize goodwill or that the FHLBB guaranteed Franklin’s ability to amortize over a

forty-year period. Rather, like the merger digest and the Faulstich letter, the McKechnie

letter simply indicates that the FHLBB approved Franklin’s proposed use of purchase

accounting and amortization of goodwill. As we concluded in First Federal Lincoln,

mere FHLBB approval of an accounting method or goodwill amortization is not sufficient

to demonstrate intent to contract on the part of the government. 518 F.3d at 1320–21.

In sum, the documentary evidence does not demonstrate intent on the part of the

FHLBB to enter into a contract with Franklin guaranteeing its continued use of the

purchase method of accounting or amortization of goodwill. Suess, however, attempts

2007-5070, -5071 28
to support the existence of such a contract by pointing to depositions and affidavits of its

and the government’s witnesses. It cites to a deposition of Mr. Faulstich in which he

stated that the FHLBB “was encouraging the merger between the two institutions.”

Faulstich Dep. 30. However, mere “encourag[ement]” of a merger does not amount to

a governmental promise to guarantee continued use of purchase accounting or

goodwill amortization, nor does it constitute negotiation between the government and

the thrift regarding the terms of the merger. Suess also cites to an affidavit submitted

by Mr. Downie in which he asserts that “[t]here were difficult negotiations with FHLB-

Seattle and with FHLB’s accountant Lynnwood Campbell in Washington, D.C. over

whether the 40-year period was economically justified in our case. When the

government was finally satisfied with the 40-year period, the final agreement was

reached soon thereafter.” Downie Aff. ¶ 5. A self-serving reference to “negotiations”

by the former President of Franklin, however, does not suffice to prove intent to contract

on the part of the government, particularly given the large number of contemporaneous

documents that make no mention of a contract between Franklin and the FHLBB

relating to purchase accounting or the amortization of goodwill or negotiations relating to

such a contract. See Coast Fed. Bank, FSB v. United States, 323 F.3d 1035, 1039

(Fed. Cir. 2003) (en banc) (declining to rely upon “extrinsic evidence” to alter the

meaning of a merger contract deemed “unambiguous”).

Suess also points to comments made by a former government official in

connection with Franklin’s 1986 conversion into a public corporation as reflecting a

belief on the part of the FHLBB that a contract relating to purchase accounting and the

amortization of goodwill arose out of the Franklin-Equitable merger. Prior to the

2007-5070, -5071 29
conversion, the Securities & Exchange Commission had adopted a new policy that set a

maximum goodwill amortization period of twenty-five years. In approving Franklin’s

conversion to a public corporation, the FHLBB sought to enforce the policy. Eventually,

following negotiations, Franklin and the FHLBB reached a compromise under which

Franklin would reduce its goodwill amortization period to twenty-eight years in exchange

for FHLBB approval of the conversion. Robert Wolpert, former Deputy Chief

Accountant of the FHLBB’s Office of Regulatory Policy Oversight, stated in his

December 1996 affidavit that he did not believe the FHLBB could “unilaterally impose

on [Franklin] a shorter amortization period than was agreed to in 1982,” Wolpert Aff. ¶ 5,

suggesting that Mr. Wolpert believed that the FHLBB was contractually bound to honor

the amortization period originally allowed. Mr. Wolpert also stated in his affidavit:

“Franklin was a mutual association which had merged with a failing thrift, [Equitable,] in

1982. As part of the consideration for the merger, [the FHLBB] had agreed to treat the

resulting goodwill for regulatory purposes as a capital asset to be amortized over a 40

year period.” Id. at ¶ 3 (emphasis added). Thus, Mr. Wolpert apparently believed that,

in connection with the Franklin-Equitable merger, Franklin and the FHLBB had entered

into a contract with respect to purchase accounting and the treatment of goodwill.

However, Mr. Wolpert’s belief, expressed in 1996, as to the nature of FHLBB’s approval

of a merger that occurred in 1982 does not, in our view, demonstrate contractual intent

on the part of the government at the time of the merger agreement. See Coast Fed.

Bank, 323 F.3d at 1039.

Finally, Suess cites to the November 1996 affidavits of Messrs. Faulstich and

Mochel, both former FHLB-Seattle officials involved in the Franklin-Equitable merger.

2007-5070, -5071 30
Mr. Faulstich stated in his affidavit that “[t]he 40 year amortization period of goodwill

agreed to by the FHLB of Seattle was an important part of the consideration received by

[Franklin] in return for merging with Equitable.” Faulstich Aff. ¶ 5 (emphasis added).

Mr. Mochel similarly stated that “[e]ssential consideration provided by FHLBB to

[Franklin] was the approval condition that [Franklin] could treat goodwill derived from the

merger in accordance with [GAAP] for regulatory purposes.” Mochel Aff. ¶ 5 (emphasis

added). Mr. Mochel further stated that he “understood that purchase accounting and

the 40 year amortization period constituted a material part of the financial projections

used to justify the merger proposal and the Principal Supervisory Agent’s approval.” Id.

¶ 7. Finally, he asserted: “It is my understanding and belief that, upon final acceptance

and review, merger authorizations were irrevocable and that subsequent FHLBB

policies would not retroactively change the committed acceptance of merger conditions

for an institution that was in compliance.” Id. ¶ 8. These affidavits reflect Mr.

Faulstich’s and Mr. Mochel’s apparent belief in 1996 that, when they approved the

Franklin-Equitable merger in 1982, they committed the government to guaranteeing

Franklin’s use of purchase accounting and amortization of goodwill. However, as

previously discussed, the documents exchanged between the FHLBB and Franklin at

the time of the merger are notably devoid of any language suggesting that the

government intended to contractually bind itself in such a way. Thus, we do not

consider the Faulstich and Mochel affidavits sufficient to overcome the notable lack of

any evidence in the documents leading to the approval of the merger of any contractual

guarantee of Franklin’s ability to utilize any specific accounting method. See Coast Fed.

Bank, 323 F.3d at 1039.

2007-5070, -5071 31
 V.

Suess argues, however, that our precedents in Winstar I, Fifth Third Bank,

California Federal, LaSalle Talman, and La Van support the argument that the

documents and testimony presented before the Court of Federal Claims establish the

existence of a contract. We conclude that those precedents do not support Franklin’s

argument.

All three consolidated cases involved in the Winstar I decision featured

assistance agreements from FSLIC. 64 F.3d at 1536–58 (“[Plaintiffs] acquired

insolvent, failing thrifts under this policy of encouraging thrift mergers. In each case,

they received the government's approval and assistance.”). Similarly, in LaSalle

Talman, we noted that the thrift pursuing a merger partner received cash assistance

from the FSLIC. 317 F.3d at 1367. In the Franklin transaction, by contrast, the FSLIC

provided no such cash assistance. Rather, the FHLBB merely approved the merger as

proposed by Franklin.

Of course, the existence of FSLIC cash assistance is not necessary to prove

intent to contract on the part of the government. In Fifth Third Bank, the President of

Citizens Federal Bank FSB (“Citizens”), a thrift seeking to merge with four failing thrifts,

repeatedly requested cash assistance from the FHLBB. 402 F.3d at 1226. The FHLBB

declined to award Citizens cash assistance but promised Citizens that it would be

permitted to amortize goodwill over an extended period of time as an inducement to

complete the proposed mergers. Id. at 1226–27. Citizens consummated all four

proposed mergers under this understanding. Id. Finding that a contract between the

government and Citizens existed, we stated:

2007-5070, -5071 32
 [T]he parties negotiated the terms of the agreement—[Citizen’s President]
asked for cash assistance, and [the chief supervisory agent of FHLB-
Cincinnati] offered instead that Citizens could book supervisory goodwill
as an asset, which would count toward regulatory capital requirements,
and Citizens could amortize the goodwill over an extended period of
time. . . .

Id. at 1231 (emphases added). We have concluded that the evidence before us

indicates that the interaction between Franklin and FHLB-Seattle featured no such

negotiation for favorable accounting treatment as an inducement to Franklin to

consummate the Franklin-Equitable merger. Franklin sought out Equitable as a merger

partner, and the FHLBB approved the transaction as a regulatory matter, sanctioning

the use of purchase accounting and goodwill amortization as proposed by Franklin.

Similarly, in California Federal, California Federal Bank (“California Federal”)

negotiated with the FHLBB the terms of its merger with two failing thrifts, specifically

agreeing to assume the liabilities of the thrifts in exchange for the ability to amortize the

acquired goodwill over an extended period of time. 245 F.3d at 1345, 1347. The

FHLBB agreed to allow such amortization of goodwill and specifically granted regulatory

forbearances addressing the treatment of goodwill. Id. at 1345. We found that

California Federal had entered a contract with the government:

Here, as in [Winstar II], the government bargained with [California Federal]
to assume the net liabilities of the acquired thrifts in exchange for
favorable regulatory consideration allowing goodwill to be counted as an
asset for regulatory capital purposes and to be amortized over 35 to 40
years. We agree with the Court of Federal Claims that “[i]f the factual
records of individual cases show intent to contract with the government for
specified treatment of goodwill, and documents such as correspondence,
memoranda, and [FHLBB] resolutions confirm that intent, the absence of
an [assistance agreement] or [supervisory agency action] should be
irrelevant to the finding that a contract existed.”

2007-5070, -5071 33
Id. at 1347 (quoting Contract Decision, 39 Fed. Cl. at 773). Here, by contrast, the two

documents addressing the regulatory forbearances, the merger digest and the Faulstich

letter of September 8, 1982, do not recite any regulatory forbearance related to the

treatment of goodwill or the use of purchase accounting. In addition, we have

concluded that the evidence does not indicate that Franklin negotiated with the FHLBB

the right to use the accounting methods it did: it merely submitted a merger application

proposing the use of purchase accounting and the amortization of goodwill, which

application FHLB-Seattle approved.

Finally, in La Van, the FHLBB negotiated with certain officers and directors of

Century Savings & Loan Association (“CSLA”) the terms of CSLA’s conversion from a

state mutual association to a federally chartered stock corporation. 382 F.3d at 1342,

1347. The FHLBB approved the conversion and issued a resolution stating that CSLA

“may amortize the value of any intangible asset resulting from the purchase over a

period not to exceed 35 years by the straight line method.” Id. at 1344. In finding that

the government contracted with CSLA to permit CSLA to amortize goodwill over the

course of thirty-five years, we considered the negotiations between the government and

CSLA over the terms of the merger to comprise the “something more” than mere

regulatory approval needed to demonstrate the existence of a contract. Id. at 1347.

Here, by contrast, though Suess points to certain after-the-fact statements suggesting

that negotiation took place between the government and Franklin, all of the documents

actually associated with the merger refer only to FHLBB approval of the transaction and

do not refer to the FHLBB’s exchanging promises with Franklin or otherwise negotiating

the terms of the Franklin-Equitable merger. Thus, unlike in La Van, the

2007-5070, -5071 34
contemporaneous evidence indicates that the FHLBB did not negotiate with Franklin

any guarantee with respect to the use of the purchase method of accounting or the

amortization of goodwill, but rather merely approved a merger that featured those

accounting methods.

In short, we conclude that the facts of this case are similar to those in D&N Bank,

Anderson, and First Federal, whereas the facts are distinguishable from those in

Winstar I, LaSalle Talman, Fifth Third Bank, California Federal, and La Van. The

evidence essentially demonstrates FHLBB approval of the Franklin-Equitable

transaction. The evidence does not, when considered as a whole, convince us that the

Franklin-Equitable merger involved any grant of FSLIC financial assistance, any

bargaining for favorable accounting treatment, or any negotiation over the terms of the

merger between Franklin and FHLB-Seattle. Rather, the evidence reflects the

submission of a merger plan to FHLB-Seattle, premised upon the use of the purchase

method of accounting and amortization of goodwill, which FHLB-Seattle approved. As

such, the evidence does not demonstrate the “something more” than mere regulatory

approval, which we have considered necessary to prove the existence of a contract

between the government and the thrift at issue. First Federal Lincoln, 518 F.3d at 1320;

D&N Bank, 331 F.3d at 1379.

VI.

As previously noted, the Court of Federal Claims held in the Contract Decision

not only that the FHLBB contracted with Franklin with respect to its ability to utilize

purchase accounting and to amortize goodwill in the Franklin-Equitable transaction, 39

Fed. Cl. at 776, but also that the FHLBB did so in the Franklin-Western transaction, id.

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at 779. The court also determined that both contracts were breached. As noted, the

government does not challenge the court’s determination that such a contract arose in

the Franklin-Western transaction and that the contract was breached. Accordingly, we

do not disturb that aspect of the court’s decision in this case.

Since we have determined, however, that a contract did not arise between the

government and Franklin in the Franklin-Equitable merger regarding purchase

accounting and the amortization of goodwill, we vacate the Court of Federal Claim’s

award of damages. Since the court did not separate the damages attributable to the

Franklin-Equitable merger and those attributable to the Franklin-Western merger,

instead concluding that Franklin was entitled to the value of its market capitalization with

an added fifty-percent control premium in compensation for both breaches, we must

vacate the entire award of damages and remand to the court so that it may determine,

in the first instance, what damages, if any, are properly attributable solely to the

government’s breach of contract related to the Franklin-Western transaction.

CONCLUSION

For the foregoing reasons, we reverse the decision of the Court of Federal

Claims that a contract arose between the government and Franklin guaranteeing the

continued use of the purchase method of accounting and the amortization of goodwill in

the Franklin-Equitable merger. At the same time, we vacate the court’s award of

damages to Franklin, which conflated the damages attributable to the breach of the

purported Franklin-Equitable transaction contract and those attributable to the breach of

the Franklin-Western transaction contract. We remand the case to the Court of Federal

Claims so that it may determine what damages, if any, are necessary to compensate

2007-5070, -5071 36
Franklin for its losses associated solely with the government’s breach of contract

associated with the Franklin-Western transaction.

REVERSED-IN-PART, VACATED-IN-PART, and REMANDED

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