Appropriate Source for Payment of Judgments and Settlements in United States v. Winstar Corp.

Appropriate Source for Payment of Judgments and Settlements
in United States v. Winstar Corp.

The Federal Savings and Loan Insurance Corporation Resolution Fund is the appropriate source o f
paym ent for jud g m en ts against, and settlem ents by, the U nited States in U nited States v W tnstar
Corp and sim ilar cases arising from the breach o f certain agreem ents to which the Federal Savings
and L oan Insurance C orporation was a party

July 22, 1998

M em orand um O p in io n fo r th e D epu ty G en era l C o u n sel
D epartm ent o f the T rea su ry

On July 1, 1996, the Supreme Court decided United States v. Winstar Corp.,
518 U.S. 839 (1996). The Court held that the United States was liable in three
cases for breaching contracts into which it had entered with entities that took
over failing thrifts during the savings and loan crisis of the 1980’s. Because the
United States Court of Federal Claims (“ CFC” ) had not yet determined the appro­
priate measure or amount of damages, the Supreme Court remanded for further
proceedings. Id. at 910. After the Winstar decision was handed down, a large
number of cases premised on identical or similar theories of relief that had been
stayed pending the Supreme Court’s decision were activated.1 We understand that
in virtually all of these cases, which are currently pending before the CFC or
the United States Court of Appeals for the Federal Circuit, the government con­
tests liability and/or disagrees with the plaintiffs regarding the appropriate measure
or amount of damages.
You have asked for our views regarding the appropriate source for payment
of judgments in the Winstar-related cases.2 Because the government is currently
considering the possibility of settling two of the three cases that the Supreme
Court considered in Winstar, as well as certain other Winstar-ve\aie,A cases, you
have also asked for our opinion regarding the appropriate source of funds for
the payment of such settlements. The appropriate source of funds for a settled
case is identical to the appropriate source of funds should a judgment in that
case be entered against the government. See Availability o f Judgment Fund in
Cases Not Involving a Money Judgment Claim, 13 Op. O.L.C. 98, 103 (1989)
(“ [I]n determining whether a proposed settlement is payable from the Judgment
Fund, the Attorney General or his designee should examine the underlying cause
of action, and decide whether the rendering of a final judgment against the United
States under such a cause would have required a payment from the Judgment

1For ease o f discussion, we refer to both these cases and the cases decided by the Supreme Court in Winstar
collectively as "W//m,rar-re!ated cases ”
2 Although we provided the Federal Deposit Insurance Corporation the opportunity to provide its views on this
matter, it declined to do so

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Fund.” ); 3 Office of the General Counsel, United States General Accounting
Office, Principles of Federal Appropriations Law 14—9 (2d ed. 1994) (“ GAO Prin­
ciples” ) (stating that compromise settlements have no effect on the source of
funds).3
Our discussion o f the appropriate source of funds necessarily is premised on
courts finding the government liable or on the government entering into settle­
ments based on the risk that a court would find the government liable. We do
not, however, mean to suggest that we have reached any conclusions regarding
the likelihood of such potential findings. We discuss cases in the context of a
finding of government liability because it is only in those cases, and in settlements
entered into due to the risk of such a finding, that the appropriate source o f funds
for the payment of judgments by the government is an issue.
We understand from the Commercial Litigation Branch of the Civil Division
o f the Department of Justice that, to the extent that the government has settled
or is engaged in settlement negotiations in any of the Winstar-related cases, these
cases involve “ Assistance Agreements” or “ Supervisory Action Agreements” to
which the Federal Savings and Loan Insurance Corporation ( “ FSLIC” ) was a
party. We have therefore limited our analysis o f the appropriate source of payment
for settlements or potential judgments to the M ns/ar-related cases in which FSLIC
was a party to the underlying Assistance Agreements and Supervisory Action
Agreements.4
Based upon the information currently available to us, we believe that the FSLIC
Resolution Fund is the appropriate source o f funds to pay judgments and settle­
ments in W instar-related cases in which FSLIC was a party to an Assistance
Agreement or Supervisory Action Agreement.5 Congress created the FSLIC Reso­
lution Fund to assume, with a single statutory exception that is not relevant here,
12 U.S.C. § 1441a (1994), “ all assets and liabilities of the FSLIC on the day
before” FSLIC was abolished. 12 U.S.C. § 1821a(a)(2) (1994). Although the term
“ liabilities” is not defined in the statute, its ordinary meaning includes contingent
liabilities, such as certain contractual obligations, and there is no reason to believe
that Congress departed from this ordinary meaning when it created the FSLIC

3 A lthough the opinions and legal interpretations of the General Accounting Office and the Comptroller General
often provide helpful guidance on appropriations matters and related issues, they are not binding upon departments,
agencies, o r officers o f the executive branch. S e e Bowsher v. Synar, 478 U.S. 714, 727-32 (1986).
4 It is our understanding that whether an agreem ent qualifies as an “ Assistance Agreement” or a ‘‘Supervisory
A ction A greem ent” depends only on the labeling o f the agreement, the terms were used interchangeably, although
the term “ Assistance A greem ent” was more common. Telephone conversation between Caroline Krass, Attomey-
Adviser, O ffice o f Legal Counsel and Aaron Kahn, Principal Litigation Counsel, Office of the General Counsel,
O ffice o f Thrift Supervision, Department of the Treasury (June 30, 1998)
5 In March 1996, p n o r to the Supreme C ourt’s decision in Winstar, this Office opined that the FSLIC Resolution
Fund was the proper source for payment of the judgm ent in R TC v. F SU C , 25 F.3d 1493 (10th Cir. 1994) ("Security
F ederal"). See Letter for Ricki Heifer, Chairman, FDIC, from W alter Dellinger, Assistant Attorney General, Office
o f Legal Counsel, R e' Reimbursement from the Federal Judgment Fund fo r Payment o f Judgment in RTC v. FSUC,
(10th Cir 1994) (M ar. 18, 1996) ( “ Heifer L etter” ). Our opinion expressly stated, however, that it was limited
to the facts o f Security Federal. See id. at 2 ( “ We have not attempted to determine and make no suggestion here
as to the proper source o f paym ent for any judgm ent that might be entered in the other goodwill/capital forbearance
cases ” ).

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Resolution Fund. Based on the Supreme Court’s theory of liability in Winstar,
we believe that the judgments or settlements in the Winstar -related cases in which
FSLIC was a party to the underlying Assistance Agreements and Supervisory
Action Agreements would qualify as “ liabilities” of FSLIC under § 1821a(a)(2).
Accordingly, in these cases, the potential judgments, and the settlements entered
into to avoid the risk of such judgments, are payable from the FSLIC Resolution
Fund. Because payment is “ otherwise provided for” within the meaning of the
Judgment Fund statute, the Judgment Fund is not available to pay such judgments
and settlements. See 31 U.S.C. § 1304 (1994).

I. BACKGROUND

During the Great Depression, over 1,700 savings and loans, or “ thrifts,” failed
because borrowers could not pay their mortgages. See H.R. Rep. No. 101-54,
pt. 1, at 292 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 88 (“ House Report” ).
As a result, thrift depositors lost approximately $200 million. In response, Con­
gress took three actions to stabilize the thrift industry. First, in 1932, Congress
created the Federal Home Loan Bank Board (“ Bank Board” ) to channel funds
to thrifts to finance home mortgages and to prevent foreclosures. See Pub. L.
No. 72-304, ch. 522, 47 Stat. 725 (1932) (codified as amended at 12 U.S.C.A.
§§ 1421-1449 (West 1989 & Supp. 1998)). Second, Congress passed the Home
Owners’ Loan Act of 1933, which authorized the Bank Board to charter and to
regulate federal thrifts. See Pub. L. No. 73-43, ch. 64, 48 Stat. 128, 132-34 (1933)
(codified as amended at 12 U.S.C. §§ 1461-1468c (1994 & Supp. II 1996)).
Finally, in 1934, Congress created the Federal Savings and Loan Insurance Cor­
poration, “ under the direction of” the Bank Board, to insure thrift deposit
accounts and to regulate all federally insured thrifts to ensure that their capital
is unimpaired and that their financial policies and management are “ safe.” See
Pub. L. No. 73—479, ch. 847, 48 Stat. 1246, 1256-61 (1934) (codified as amended
at 12 U.S.C.A. §§ 1701-1750g (West. 1989 & Supp. 1998)); 12 U.S.C. § 1726(c)
(1988) (repealed 1989).

A. The Savings and Loan Crisis ef the Early 1980’s

The savings and loan crisis of the early 1980’s originated from the rising interest
rates of the late 1970’s and early 1980’s. Many thrifts were locked into long­
term, low-yield, fixed-rate mortgages created when interest rates were low, and
thus the high interest rates caused the thrifts to experience large operating losses
as they raised savings account interest rates in an effort to attract funds from
depositors. See Winstar, 518 U.S. at 845 (plurality opinion); House Report at 291,
reprinted in 1989 U.S.C.C.A.N. at 87. By 1981, thrifts’ mortgage portfolios were
yielding ten percent, but the thrifts were paying an average of eleven percent

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for their funds, and between 1981 and 1983, 435 thrifts failed. See House Report
at 296, reprinted in 1989 U.S.C.C.A.N. at 92. As the federal insurer of the thrift
deposits, FSLIC was responsible for liquidating the failed thrifts, if necessary,
and reimbursing depositors for the insured funds they had lost. FSLIC, however,
lacked adequate assets to do so. In 1985, for example, FSLIC had $4.55 billion
in its insurance fund, but the Bank Board estimated that it would cost $15.8 billion
to liquidate all the thrifts deemed insolvent under generally accepted accounting
principles (“ GAAP” ). See Winstar, 518 U.S. at 847 (plurality opinion).
In response to the crisis, Congress and the executive branch extensively deregu­
lated the thrift industry to enable thrifts to compete with other financial services
providers for funds and to broaden their investment powers. See id. at 845 (plu­
rality opinion); House Report at 291, reprinted in 1989 U.S.C.C.A.N. at 87. In
addition, the Bank Board lowered the capital requirement for thrifts from five
percent to four percent of assets in 1980, and from four to three percent in 1982.
See Winstar, 518 U.S. at 845-46 (plurality opinion). The capital requirement has
been described as “ ‘the most powerful source of discipline for financial institu­
tions.’ ” Id. at 845 (quoting Breeden, Thumbs on the Scale: The Role that
Accounting Practices Played in the Savings and Loan Crisis, 59 Fordham L. Rev.
S71, S75 (1991)). To give more leeway to the struggling thrifts, the Bank Board
also promulgated new “ regulatory accounting principles” that often replaced
GAAP in determining whether thrifts could meet the Bank Board’s capital require­
ment. “ The reductions in required capital reserves,” the plurality explained in
Winstar, “ allowed thrifts to grow explosively without increasing their capital base,
at the same time deregulation let them expand into new (and often riskier) fields
o f investment.” Id. at 846.
Based upon the facts before it, the plurality observed that, “ [Realizing that
FSLIC lacked the funds to liquidate all of the failing thrifts, the Bank Board chose
to avoid the insurance liability by encouraging healthy thrifts and outside investors
to take over ailing institutions in a series of ‘supervisory mergers.’ ” Id. at 847.
The plurality explained:

Such transactions, in which the acquiring parties assumed the
obligations of thrifts with liabilities that far outstripped their assets,
were not intrinsically attractive to healthy institutions; nor did
FSLIC have sufficient cash to promote such acquisitions through
direct subsidies alone, although cash contributions from FSLIC
were often part of a transaction. Instead, the principal inducement
for these supervisory mergers was an understanding that the
acquisitions would be subject to a particular accounting treatment
that would help the acquiring institutions meet their reserve capital
requirements imposed by federal regulations.

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Id. at 848 (citations omitted).
According to the plurality in Winstar, the Bank Board and FSLIC6 granted
acquiring entities three different types of beneficial accounting treatment, often
referred to as “ forbearances,” in connection with supervisory mergers. Id. at 848-
56. First, the Bank Board and FSLIC “ let the acquiring institutions count super­
visory goodwill toward their reserve requirements.” Id. at 850 (plurality opinion).
Under the “ purchase method” of accounting, “ goodwill,” i.e., the amount by
which the purchase price of an acquired entity exceeds the fair value of all identifi­
able assets, could be counted as an intangible asset. Id. at 848-49 (plurality
opinion). The plurality noted that, in the typical situation, the counting of goodwill
as an intangible asset makes sense because a rational purchaser in a free market
would not purchase a business for more than the fair value of the business’s assets
unless there were some “ going concern” value that made up the difference. Id.
at 849. In the supervisory mergers, however, this situation was not the case.
Instead, “ [b]ecause FSLIC had insufficient funds to make up the difference
between a failed thrift’s liabilities and assets, the Bank Board had to offer a ‘cash
substitute’ to induce a healthy thrift to assume a failed thrift’s obligations.” Id.
at 849-50 (plurality opinion). According to the plurality, that “ cash substitute”
permitted the healthy thrift to count the amount by which the liabilities of a failing
thrift exceeded the fair value of its assets as an intangible asset, and was referred
to as “ supervisory goodwill.” Id. Counting supervisory goodwill as an intangible
asset that could be used to meet capital requirements was attractive to the
acquiring entities because it prevented the negative net worth of the failing thrifts
from being deducted from the acquiring entities’ capital, thereby allowing them
to avoid insolvency under federal requirements. Id. at 850 (plurality opinion).
Second, thrifts were permitted to take extended periods of time, up to forty
years, to “ depreciate” or amortize the value of supervisory goodwill, a question­
able asset. The essence of supervisory goodwill was that it created a paper asset
in a supervisory merger that was necessary because the liabilities of the institution
being acquired exceeded the fair value of its assets. When the acquiring entity
was permitted to extend the time to write down that paper asset, it understated
for each reporting period the resulting amortization expense and reduction in its
recorded assets and deferred a possible failure to meet capital requirements. See
id. at 851 (plurality opinion).
In addition, thrifts were permitted to accelerate the recognition of capital gains
to be realized on depreciated assets, when those benefits in fact arose over longer
periods. The “ gains” arose from the accretion of discounts on loans in portfolio.
A thrift cannot sell at face value a loan bearing interest at a below-market interest
rate. Instead, it accepts a discount from face value that would increase the effective
rate on that asset to a market rate. As these loans approach maturity, the discount

6 We refer to “ the Bank Board and FSLIC " together for ease o f discussion in this section of the memorandum,
although both entities may not have been involved in all cases

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decreases to zero. The acquiring entity would record the accretion of discount
on its income statement as a gain, in the same fashion as it would for a bond
in portfolio that it holds to maturity. The faster the thrift recognized the gains,
the more income it could report in the short term. See id.
The amount of discount in a troubled thrift would generally approximate the
amount of goodwill created by the supervisory merger. Ideally, a thrift should
have written down its goodwill at the same rate it recognized gains from accretions
of discount. The combination of the questionable practices of accelerating the rate
of gain recognition and deferring the amortization of supervisory goodwill pro­
vided a method for unhealthy institutions to attempt to survive by engaging in
supervisory mergers. According to the plurality in Winstar, “ [t]he difference
between amortization and accretion schedules thus allowed acquiring thrifts to
seem more profitable than they in fact were.” Id. at 853.
Third, the Bank Board and FSLIC generally permitted double-counting of cash
contributions by FSLIC to supervisory mergers. While the acquiring entity was
permitted to treat FSLIC’s cash contribution as a credit for its capital requirement,
described as a “ capital credit,” it was not required to subtract the amount of
the contribution from the amount of supervisory goodwill. Id. Thus, the amount
was, in effect, counted twice, once as a tangible asset— cash— and once as an
intangible asset— supervisory goodwill. Id.

B. The Legislative Response: FIRREA

The regulatory measures taken in the 1980’s by the Bank Board and FSLIC
to prop up the failing thrift industry actually aggravated its decline by papering
over inadequate reserves and encouraging thrifts to engage in risky loans and
investments. See Transohio Savings Bank v. Director, Office o f Thrift Supervision,
967 F.2d 598, 602 (D.C. Cir. 1992); House Report at 298-99, reprinted in 1989
U.S.C.C.A.N. at 94-95. By 1988, FSLIC was insolvent by over $50 billion. See
House Report at 304, reprinted in 1989 U.S.C.C.A.N. at 100. In response to this
situation, and to restore the strength of the thrift industry and the deposit insurance
fund, Congress enacted the Financial Institutions Reform, Recovery, and Enforce­
ment Act, Pub. L. No. 101-73, 103 Stat. 183 (1989) (“ FIRREA” ). See House
Report at 291, reprinted in 1989 U.S.C.C.A.N. at 87. FIRREA was adopted, inter
alia, to “ promote, through regulatory reform, a safe and stable system of afford­
able housing finance,” to “ improve the supervision o f savings associations by
strengthening capital, accounting, and other supervisory standards,” and to “ cur­
tail investments and other activities of savings associations that pose unacceptable
risks to the Federal deposit insurance funds.” FIRREA, § 101(1)—(3), 103 Stat.
at 187 (codified at 12 U.S.C. § 1811 note (1994)).
FIRREA abolished both FSLIC and the Bank Board. FSLIC’s thrift deposit
insurance function was assumed by the Federal Deposit Insurance Corporation

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(“ FDIC” ), which became the manager of the new “ Savings Association Insurance
Fund.” See 12 U.S.C. § 1811(a) (1994); H.R. Conf. Rep. No. 101-222, at 393,
394 (1989), reprinted in 1989 U.S.C.C.A.N. 432, 433 (“ House Conference
Report” ) (FIRREA gives FDIC “ the duty of insuring the deposits of savings
associations as well as banks.” ). In addition, FIRREA created a separate fund
under the management of the FDIC called the FSLIC Resolution Fund. See 12
U.S.C. §821a. The FSLIC Resolution Fund generally assumed all of the “ assets
and liabilities” of FSLIC as of the day before its abolition. Id. § 1821a(a)(2).
Each of the Bank Board’s principal functions was transferred to a different
agency upon its dissolution: (1) the supervision and regulation of the thrift industry
was transferred to the Office of Thrift Supervision (“ OTS” ) in the Department
of the Treasury, see 12 U.S.C. § 1462a(e) (1994); 12 U.S.C. §1813(q) (1994);
House Conference Report at 404, reprinted in 1989 U.S.C.C.A.N. at 443; House
Report at 453, reprinted in 1989 U.S.C.C.A.N. at 249; (2) the management and
regulation of thrift deposit insurance through FSLIC was transferred to the FDIC,
see 12 U.S.C. §1811; (3) the oversight and supervision of the twelve regional
Federal Home Loan Banks was transferred to the Federal Housing Finance Board,
see 12 U.S.C. § 1422a (1994); 12 U.S.C. § 1422b (1994); and (4) the liquidation
of the assets of failed thrifts was transferred to the Resolution Trust Corporation
(“ RTC” ) for those thrifts that became insolvent between 1989 and 1995, see 12
U.S.C. § 1441a. See also House Conference Report at 408-09, reprinted in 1989
U.S.C.C.A.N. at 447-48; see generally American F ed’n o f G ov’t Employees, Local
3295 v. Federal Labor Relations Auth., 46 F.3d 73, 74 & n.l (D.C. Cir. 1995);
Employment Status o f the Members o f the Board o f Directors o f the Federal
Housing Finance Board , 14 Op. O.L.C. 127 (1990).
FIRREA also required OTS to prescribe at least three capital requirements for
thrifts— a leverage limit requiring thrifts to maintain core capital o f at least three
percent of the thrift’s total assets; a tangible capital requirement of at least one-
and-a-half percent of the thrift’s total assets; and a risk-based capital requirement
aligned with the risk-based capital requirement for national banks. See 12 U.S.C.
§ 1464(t)(l)-(2), (9) (1994). In addition, FIRREA gradually phased out over a
five-year period the ability of thrifts to include “ qualifying supervisory goodwill”
in calculating core capital. Id. § 1464(t)(3)(A). Under FIRREA, OTS promulgated
regulations equating capital credits with supervisory goodwill, thereby excluding
such credits from satisfying the capital requirements. 12 C.F.R. §567.1(w) (1990).
As a result of these new strict requirements, “ many institutions immediately fell
out of compliance with regulatory capital requirements, making them subject to
seizure by thrift regulators.” Winstar, 518 U.S. at 858 (plurality opinion).

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C. U nited States v. Winstar

The Supreme Court’s Winstar decision addressed the consequences of the new
capital requirements on three different institutions—Glendale Federal Bank, FSB,
W instar Corporation, and The Statesman Group, Inc.— that were parties to super­
visory mergers. All three claimed financial losses due to the change in the regu­
latory structure caused by FIRREA, and they filed suit against the United States
in the Court of Federal Claims on both contractual and constitutional theories.
That court granted the plaintiffs’ motions for partial summary judgment on con­
tract liability because it found that the government had breached contractual
obligations to permit the plaintiffs to count supervisory goodwill and capital
credits toward their capital requirements. Statesman Sav. Holding Corp. v. United
States, 26 Cl. Ct. 904 (1992) (granting summary judgment on liability to States­
man and Glendale); Winstar Corp. v. United States, 25 Cl. Ct. 541 (1992) (finding
contract breached and entering summary judgment on liability); Winstar Corp.
v. United States, 21 Cl. Ct. 112 (1990) (finding an implied-in-fact contract but
requesting further briefing on other contract issues). After the cases were consoli­
dated, a divided panel of the Federal Circuit reversed, holding that the parties
did not clearly assign the risk o f a subsequent change in the regulatory capital
requirements to the government. Winstar Corp. v. United States, 994 F.2d 797,
811-13 (Fed. Cir. 1993). After rebriefing and reargument, the Federal Circuit,
sitting en banc, reversed the panel and affirmed the CFC’s rulings on liability,
concluding that FIRREA breached the government’s prior contractual obligations
and that the government therefore was liable in money damages for the breach.
Winstar Corp. v. United States, 64 F.3d 1531 (Fed. Cir. 1995) (en banc).
Writing for a plurality of four,7 Justice Souter first described the merger between
Glendale and the First Federal Savings and Loan Association of Broward County,
a thrift whose liabilities exceeded the fair value o f its assets by over $700 million.
FSLIC entered into a “ Supervisory Action Agreement” (“ SAA” ) with Glendale.
W instar, 518 U.S. at 861 (plurality opinion). The SAA contained an integration
clause that, according to the plurality, incorporated by reference the Bank Board’s
resolution approving the merger, which in turn referred, inter alia, to a document
stipulating that any supervisory goodwill would be treated in accordance with
Bank Board Memorandum R-31b. That memorandum permitted the use of the
purchase method of accounting and the recognition o f supervisory goodwill as
an asset subject to amortization. One of the reasons that the plurality interpreted
the integration clause in the SAA to include the Board’s resolutions and memo­
randa was that it would have been “ irrational” for Glendale to enter into an agree­
ment that immediately made it insolvent unless it obtained a contractual commit­
ment that the policies identified in the resolutions and memoranda would continue.

7 Justice Souter w as joined by only two other Justices in two subsections of his opinion that discussed the govern­
m ent’s “ sovereign acts” defense. 518 U.S. at 896-903.

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Id. at 862-63. The plurality agreed with the Federal Circuit’s judgment that “ ‘the
government had an express contractual obligation to permit Glendale to count the
supervisory goodwill generated as a result of its merger with Broward as a capital
asset for regulatory capital purposes.’ ” Id. at 864 (quoting Winstar Corp. v.
United States, 64 F.3d at 1540).8
The Winstar merger resulted from FSLIC actively soliciting bids for the acquisi­
tion of Windom Federal Savings and Loan Association, a failing thrift. Id. (plu­
rality opinion). FSLIC and Winstar Corporation, a group of private investors
formed for the purpose of acquiring Windom, entered into an “ Assistance Agree­
ment” ( “ AA” ) under which FSLIC agreed to contribute $5.6 million in cash
to the acquisition. The AA contained an integration clause that, according to the
plurality, also incorporated the Bank Board’s approval resolution and a forbear­
ance letter signed by the Bank Board permitting the amortization of supervisory
goodwijl over thirty-five years. Id. Again, the plurality noted that it was apparent
that “ ‘the intention of the parties [was] to be bound by the accounting treatment
for goodwill arising in the merger.’ ” Id. at 866 (quoting Winstar Corp. v. United
States, 64 F.3d at 1544).
When Statesman asked FSLIC for government assistance in purchasing a sub­
sidiary of an insolvent thrift, FSLIC responded that it could only obtain such
assistance if it purchased the parent thrift as well as three other unstable thrifts.
Statesman and FSLIC entered into an AA under which FSLIC contributed $60
million to the acquisition, $26 million of which could be treated as a permanent
capital credit for purposes of the regulatory capital requirement. Like the trans­
actions with Glendale and Winstar, the plurality found that the AA contained an
integration clause incorporating contemporaneous resolutions and letters issued by
the Bank Board approving the use of supervisory goodwill to be amortized over
a long period (this time twenty-five years). Id. at 867. Once again, the plurality
accepted the Federal Circuit’s finding that “ ‘the government was contractually
obligated to recognize the capital credits and the supervisory goodwill generated
by the merger.’ ” Id. (quoting Winstar Corp. v. United States, 64 F.3d at 1543).
Justice Souter, writing for the plurality, rejected the government’s various
common law defenses and held that the United States was liable for breach of
contract. In characterizing the contracts at issue, the plurality emphasized that
“ [n]othing in the documentation or the circumstances of these transactions pur­
ported to bar the Government from changing the way in which it regulated the
thrift industry.” Id. Rather, Justice Souter explained:

8 The government’s petition for a wnt o f certiorari did not directly contest the existence of contracts between
the government and plaintiffs, and therefore the question was not technically before the Court See 518 U.S. at
860-61 (plurality opinion); United States v Winstar Corp , 64 F 3 d 1531 (Fed Cir 1995) (en banc), petition fo r
cert file d , 64 U S L W. 3486 (U S Dec 1, 1995) (No 95-865) (listing as “ questions presented” whether
unmistakability doctnne, reserved powers doctnne, or sovereign acts doctrine should bar enforcement of alleged
contracts) The Federal Circuit and the Court o f Federal Claims, however, both found that contracts existed in the
three transactions at issue in Winstar, see Winstar Corp. v United States, 64 F 3d at 1545, and the plurality seemed
to accept the Federal Circuit’s characterization o f the contracts

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We read this promise as the law of contracts has always treated
promises to provide something beyond the promisor’s absolute con­
trol, that is, as a promise to insure the promisee against loss arising
from the promised condition’s nonoccurrence. Holmes’s example
is famous: “ [i]n the case of a binding promise that it shall rain
tomorrow, the immediate legal effect of what the promisor does
is, that he takes the risk of the event, within certain defined limits,
as between himself and the promisee.”

Id. at 868-69 (plurality opinion) (footnote omitted) (quoting Holmes, The Common
Law (1881) in 3 The Collected Works of Justice Holmes 268 (S. Novick ed.
1995)). In other words, “ the Bank Board and FSLIC . . . assumed the risk [that
the law would] change,” id. at 908 (plurality opinion), see id. at 883 (plurality
opinion), and agreed to pay plaintiffs for the losses, if any, caused by rsuch a
change, see id. at 887 (plurality opinion) ( “ [T]he Government agreed . . . to
indemnify its contracting partners against financial losses arising from regulatory
change.” ). See also id. at 890 (plurality opinion). The plurality found that,
“ [w]hen the law as to capital requirements changed . . . the Government was
unable to perform its promise and, therefore, became liable for breach.” Id. at
870.
Justice Scalia, writing for himself and two other Justices, concurred in the judg­
ment. He agreed with the plurality “ that the contracts at issue in this case gave
rise to an obligation on the part o f the Government to afford respondents favorable
accounting treatment, and that the contracts were broken by the Government’s
discontinuation of that favorable treatment, as required by FIRREA.” Id. at 919
(Scalia, J., concurring). He also agreed that by promising to regulate the plaintiffs
in a particular fashion into the future, “ the Government had assumed the risk
o f a change in its laws.” Id. at 924.
However, Justice Scalia disagreed with the approach used by the plurality to
reject the government’s “ unmistakability” and “ sovereign acts” defenses.
According to Justice Scalia, by characterizing the contracts at issue as merely
insurance against the contingency that the regulations might change, rather than
as promises not to change the regulations, the plurality had incorrectly avoided
making the determination whether the government was entitled to assert these
defenses to contractual liability. Id. at 919. Justice Scalia argued that prior prece­
dent had not made the availability of these defenses dependent upon the nature
o f the underlying contract, id., and he suggested that, in any event, the contracts
did appear to constrain the sovereign authority of the government insofar as they
required the government to pay damages for undertaking a sovereign act. Id. at
919-20. With respect to this latter point, he added that “ [virtually every contract
operates, not as a guarantee o f particular future conduct, but as an assumption
o f liability in the event of nonperformance: ‘The duty to keep a contract at

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common law means a prediction that you must pay damages if you do not keep
it,—and nothing else.’ ” Id. at 919 (quoting Holmes, The Path o f the Law (1897),
in 3 The Collected Works of Justice Holmes 391, 394 (S. Novick ed. 1995)).
Nevertheless, Justice Scalia concluded that the government’s contractual under­
taking was sufficiently clear to overcome the “ unmistakability” and “ sovereign
acts” defenses. Id. at 919-22, 923-24. He also concluded that, because the plain­
tiffs did not seek to enjoin the exercise of sovereign authority, but rather to receive
damages for breach of contract, there was no force to the government’s “ reserved
powers” defense, which he described as “ [s]tand[ing] principally for the propo­
sition that certain core governmental powers cannot be surrendered.” Id. at 922-
23. Finally, Justice Scalia rejected the government’s defense that there was no
“ express delegation” of authority permitting the restraint of sovereign power. Id.
at 923.
Although the plurality and Justice Scalia may have differed in their characteriza­
tion of the relevance, of the nature of the underlying contracts to the availability
of certain governmental defenses, they agreed that the government had assumed
the risk of regulatory change. They also were in general agreement on what con­
stituted the breach of contract: the plurality adopted the Federal Circuit’s conclu­
sion that the breach occurred when, pursuant to the new requirements imposed
by FIRREA, the federal regulatory agencies limited the use of supervisory good­
will and capital credits, id. at 870, and Justice Scalia found that the enactment
and implementation of FIRREA gave rise to plaintiffs’ claims of breach of con­
tract. Id. at 920. Finally, both the plurality and Justice Scalia found that the Bank
Board and FSLIC had sufficient authority to enter into the contracts: “ the Bank
Board and FSLIC had ample statutory authority to . . . promise to permit respond­
ents to count supervisory goodwill and capital credits toward regulatory capital
and to pay respondents’ damages if. that performance became impossible.” Id.
at 891 (plurality opinion); see also id. at 923 (Scalia, J., concurring) ( “ [WJhatever
is required by the ‘express delegation’ doctrine is to my mind satisfied by the
statutes which the principal opinion identifies as conferring upon the [Bank Board
and FSLIC] authority to enter into agreements of the sort at issue here.” ). For
such authority, the Court pointed both to FSLIC’s statutory authority to enter into
contracts under 12 UTS.C. § 1725(c) (1988) (repealed 1989), and to its authority
in certain circumstances to guarantee an acquiring institution against certain losses
in order to facilitate a merger or consolidation with a failed or failing thrift under
12 U.S.C. § 1729(f)(2) (1988) (repealed 1989). 518 U.S. at 890 (plurality opinion);
id. at 923 (Scalia, J., concurring).

n. ANALYSIS
We understand that currently pending before the Court of Federal Claims and
the Federal Circuit are more than one hundred cases premised on identical or

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similar theories of relief as the three cases at issue in Winstar. We further under­
stand that some of these cases involve AA’s or SAA’s entered into by FSLIC,
and that FSLIC was involved in some but not all of the remaining cases. We
address here only those cases in which FSLIC was a party to an AA or SAA.
See supra p. 142.
There are two potential sources for the payment of judgments (or settlements)
against the government in the cases considered here: the Judgment Fund or the
FSLIC Resolution Fund. The “ Judgment Fund” is a permanent and indefinite
appropriation established by Congress in 1956 to pay certain final judgments,
awards, compromise settlements, and interest and costs. The Automatic Payment
of Judgments Act, ch. 748, § 1302, 70 Stat. 678, 694-95 (1956) (codified as
amended at 31 U.S.C. § 1304). The Judgment Fund may be used to pay certain
judgments and settlements when payment is “ not otherwise provided for.” Id.
The question for our purposes is whether Congress “ otherwise provided for” the
payment of judgments and settlements in the Winstar-reYdXeA cases addressed in
this memorandum when it created the FSLIC Resolution Fund in 1989 to assume,
with a single statutory exception that is not applicable here, 12 U.S.C. § 1441a,
“ all assets and liabilities of the FSLIC on the day before” FSLIC was abolished,
12 U.S.C. § 1821a(a)(2).

A. Availability of the Judgment Fund

Prior to the creation of the Judgment Fund, many agencies had to seek specific
appropriations from Congress to pay judgments and settlements because agency
operating appropriations are not generally available to make such payments. As
a result of this burdensome process, payments were often unduly delayed, causing
excess charges for post-judgment interest. See Availability o f the Judgment Fund
fo r the Paym ent o f Judgments or Settlements in Suits Brought Against the Com­
m odity C redit Corporation Under the Federal Tort Claims Act, 13 Op. O.L.C.
362, 363 (1989) (“ CCC Opinion” ). The Judgment Fund addressed this problem
by eliminating the need for Congress to pass specific appropriations bills for the
payment of judgments and settlements that were not “ otherwise provided for.”
31 U.S.C. § 1304; see CCC Opinion at 363; 3 GAO Principles at 14-24 to 14-
26. This Office has explained that §1304 was not “ designed to shift liability
to the United States Treasury from agencies that had specific and express statutory
authority to pay judgments and settlements out of their own assets and revenues,
but rather to eliminate the need for Congress to pass specific appropriations bills
for the payment of judgments.” CCC Opinion at 366.
Section 1304 provides in pertinent part:

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(a) Necessary amounts are appropriated to pay final judgments,
awards, compromise settlements, and interest and costs specified
in the judgments or otherwise authorized by law when—

(1) payment is not otherwise provided for;
(2) payment is certified by the Secretary of the Treasury;
and ,
(3) the judgment, award, or settlement is payable—
(A) under sections 2414, 2517, 2672, or 2677 of title
28; . . . .

31 U.S.C. § 1304(a) (1994 & Supp. II 1996). Thus a judgment or settlement may
be paid out of the Judgment Fund only if three conditions are met: payment must
not be “ otherwise provided for;” the Secretary of the Treasury must certify pay­
ment; and the judgment must be payable pursuant to one of several specified statu­
tory provisions.
Whether the Judgment Fund is available for payment of judgments and settle­
ments in the Winstar-related cases addressed in this memorandum depends first
upon whether such payment is “ otherwise provided for” within the meaning of
§ 1304(a), i.e., whether there is another appropriation or fund that lawfully may
be used for payment.9 See 62 Comp. Gen. 12, 14 (1982); see also 3 GAO Prin­
ciples at 14-25 (to determine whether Judgment Fund is available to pay a type
of judgment that did not exist prior to the Fund’s establishment, usually examine
whether Congress has established a mechanism that is available for payment).
Whether a payment is “ otherwise provided for” is a question of legal availability
rather than actual funding status. See Memorandum for Donald B. Ayer, Deputy
Attorney General, from J. Michael Luttig, Principal Deputy Assistant Attorney
General, Office of Legal Counsel, Re: Department o f Energy Request to use the
Judgment Fund fo r Settlement o f Fernald Litigation at 7 (Dec. 18, 1989) ( “ DoE
Opinion” ) (citing 66 Comp. Gen. 157, 160 (1986)); accord 3 GAO Principles
at 14-26. The Judgment Fund does not become available simply because an
agency may have insufficient funds at a particular time to pay a judgment. See
id.; DoE Opinion at 7. If the agency lacks sufficient funds to pay a judgment,
but possesses statutory authority to make the payment, its recourse is to seek funds
from Congress. See DoE Opinion at 8; 3 GAO Principles at 14—26. Thus, if
another appropriation or fund is legally available to pay a judgment or settlement,
payment is “ otherwise provided for” and the Judgment Fund is not available.
9 Because we conclude that payment for the judgments and settlements at issue fails to meet the “ not otherwise
provided for” requirement in § 1304(a), we express no opinion as to whether that provision’s other two requirements
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B. Availability of the FSLIC Resolution Fund

The FSLIC Resolution Fund (“ FRF” ) is another possible source of payment
for judgments against, or settlements by, the government, at least in the Winstar-
related cases addressed in this memorandum. FIRREA simultaneously abolished
FSLIC as of the date of enactment, August 9, 1989, and, except as provided in
12 U.S.C. § 1441a, transferred “ all assets and liabilities of the [FSLIC] on the
day before August 9, 1989” to the FRF, a separate fund to be managed by the
FDIC.10 12 U.S.C. § 1821a(a)(2) (1994); .see FIRREA § 401(a)(1) (codified at 12
U.S.C. § 1437 note (1994)). The FRF may not be commingled with any other
FDIC funds or assets. Id. It was initially funded by FSLIC’s transferred assets,
income earned on those assets, certain liquidating dividends and payments on
claims from receiverships, and borrowed funds. Id. § 1821a(b) (1994). From 1989
to 1992, the FRF was supplemented by certain assessments against members of
the Savings Association Insurance Fund. Id. If these sources of funds “ are insuffi­
cient to satisfy the liabilities of the FSLIC Resolution Fund, the Secretary of the
Treasury shall pay to the Fund such amounts as may be necessary, as determined
by the [FDIC] and the Secretary, for FSLIC Resolution Fund purposes.” Id.
§ 1821a(c)(l) (1994). In addition, “ [t]here are authorized to be appropriated to
the Secretary of the Treasury, without fiscal year limitation, such sums as may
be necessary to carry out [§ 1821a].” Id. § 1821a(c)(2) (1994). Because this lan­
guage merely authorizes an appropriation, there would have to be an appropriation
from which the Secretary of the Treasury could replenish the FRF. See 1 GAO
Principles at 2-34 ( “ ‘The mere authorization of an appropriation does not
authorize expenditures on the faith thereof . . . . ’ ” (quoting 16 Comp. Gen.
1007, 1008 (1937)).
The question that we must answer in determining whether the FRF is available
to pay judgments or settlements in the M nsrar-related cases in which FSLIC was
a party to an AA or SAA is one o f congressional intent. We must decide whether
Congress intended for the phrase “ all assets and liabilities of the [FSLIC] on
the day before August 9, 1989,” which FIRREA transferred to the FRF, 12 U.S.C.
§ 1821a(a)(2), to encompass the kind of liability that would give rise to settlements
by, or judgments against, the United States in Winstar-related cases of this type.
If Congress did so intend, then the FRF is available to pay the judgments or
settlements that arise out of such cases.11 If not, then the FRF is not available
to pay such judgments or settlements and, absent the existence of some other
loSection 1441a established the RTC and provided for its termination by December 31, 1995 See 12 U.S.C
§ 1441a(b) (1994), 12 U S .C § 1441a(m)(l) (1994) Upon termination, all assets and liabilities of RTC were to
be transferred to the FRF Id §1441a(m)(2) If the RTC’s assets exceeded its liabilities, FIRREA obligated the
FRF to transfer any net proceeds from the sale of the assets to the Resolution Funding Corporation Id
11 In addition to transferring the assets and liabilities of FSLIC to the FRF, it is clear that Congress also intended
for judgm ents o r settlements arising from the “ liabilities o f the [FSLIC]” to be paid out of the FRF See 12 U S C
§ 1821a(c) (providing for a “ Treasury backup” if the funds in the FRF are insufficient to satisfy its liabilities),
id. § 1821a(d) (limiting the payment o f certain judgm ents to the assets o f the FRF).

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fund from which payment could be made, the Judgment Fund would be the appro­
priate source of payment.
We conclude that, in light of the relevant statutory text and legislative history,
Congress intended the phrase “ liabilities of the [FSLIC] on the day before August
9, 1989,” 12 U.S.C. § 1821a(a)(2), to encompass the contingent liability that arose
from the contractual obligations that, under the theory of liability set forth in
Winstar, FSLIC had assumed prior to FIRREA’s passage and that may, as a con­
sequence of FIRREA’s enactment and implementation, become definite liabilities
resulting in judgments against, or settlements by, the United States. Our conclusion
is based on three related determinations: (1) liability arising from AA’s or SAA’s
to which FSLIC was a party constitute “ liabilities o f the [ F S U C ]” id. (emphasis
added), to the extent that the statutory term “ liabilities” encompasses contingent
liabilities; (2) the statutory phrase “ liabilities of the [FSLIC],” id. (emphasis
added), does encompass contingent liabilities arising from FSLIC contracts that
may have created obligations leading to the payment of judgments or settlements
by the United States in the class of Winstar-related litigation considered herein;
and (3) the language “ on the day before August 9, 1989,” does not reflect
Congress’s intention to exclude contingent liabilities arising from such FSLIC
agreements, even though it is the enactment of FIRREA, an event that took place
after the “ day before August 9, 1989,” that might give rise to any such judgments
or settlements. We therefore conclude that the FRF is the appropriate source of
payment for such settlements or judgments. We note that our construction of
§ 1821a(a)(2) is consistent with the Tenth Circuit’s decision in Security Federal,
25 F.3d 1493 (10th Cir. 1994).'2

1.

It is our view that liabilities resulting from AA’s or SAA’s to which FSLIC
was a party qualify as “ liabilities o f the [F S U C ],” 12 U.S.C. § 1821a(a)(2)
(emphasis added), to the extent that the term “ liabilities” encompasses contingent
liabilities. As we have explained, the Supreme Court’s decision in Winstar held
the government liable insofar as the enactment and implementation of FIRREA
resulted in the breach of AA’s and SAA’s that had been entered into with various
plaintiffs. The Court concluded that these contracts provided for the assumption
of the risk of regulatory change and constituted promises to pay plaintiffs damages

l2The Tenth Circuit held in that case that the FRF is the appropriate source for payment of a judgm ent resulting
from the breach o f contractual obligations incurred by FSLIC where the breach occurred after FSLIC’s abolition
Id In reaching that conclusion, the court o f appeals relied on §§ I821a(a) and I821a(d) to hold that the restitution
to which the plaintiff investors were entitled should be paid from the FRF rather than the RTC’s assets: “ Because
FIRREA designates the FSLIC Resolution Fund as the successor to FSLIC rights and obligations and limits recovery
to the Fund’s assets, the Fund is the proper source o f restitution to the Investors.” Id. at 1506; c f Heifer Letter
(concluding that under § 1821 a(d)» the FRF rather than the Judgment Fund was the proper source for payment of
the judgment in Security Federal because FDIC, FSLIC and FRF were all named defendants, the court ordered
payment of the judgment from the FRF, and the case involved an AA negotiated and executed by FSLIC)

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in case o f breach. Under the theory of liability recognized in Winstar, a demonstra­
tion that the governmental party to the AA’s or SAA’s had the statutory authority
to enter into them is critical to any claim that may be brought to enforce them.
Winstar, 518 U.S. at 890-91 (plurality opinion); id. at 923 (Scalia, J., concurring).
The Supreme Court recognized in Winstar that FSLIC had such authority to enter
into agreements that provided for the assumption of the risk of regulatory change.
See id. at 890 (plurality opinion); see also id. at 923 (Scalia, J., concurring).
Accordingly, to the extent that the governmental liabilities arising out of these
agreements in the Winstar-related cases constitute “ liabilities” within the meaning
of § 1821a(a)(2), it is fair to treat them as liabilities “ of the [FSLIC,]” as any
governmental obligation to pay, or settlement premised on such an obligation,
would arise from contracts entered into by FSLIC.
Moreover, we do not believe that, for purposes of determining the statutory
source of payment, such liabilities could be attributed to the Bank Board. In con­
trast to FSLIC, which exercised its contracting power in forging the underlying
agreements, it is our understanding that, in the cases considered in this memo­
randum, the Bank Board was “ acting through” FSLIC’s authority to contract,
Winstar, 518 U.S. at 890 (plurality opinion), and was not exercising authority
in connection with the agreements that are the subject of this memorandum other
than in its capacity as the “ operating head” o f FSLIC. House Report at 424,
reprinted in 1989 U.S.C.C.A.N. at 220; see 12 U.S.C. § 1725(a) (1988) (repealed
1989) (establishing FSLIC “ under the direction of” the Bank Board). Accord­
ingly, for purposes of construing the statutory provision that established the FRF,
any liabilities resulting from the agreements would be “ liabilities” of FSLIC,
rather than of the Bank Board.13
We also believe that, in light of the quasi-corporate nature of FSLIC, Congress
would have intended to treat these liabilities as “ liabilities of the [FSLIC.]” This
conclusion is supported by the fact that Congress does not ordinarily intend for
the Judgment Fund to serve as the source of payment for liabilities that result
from the breach of contractual obligations of governmental entities such as FSLIC.
Instead, Congress ordinarily expects that such liabilities will be paid out of the

13 At least for purposes o f § 1821a(a)(2), the fact that the “ United States” appears as the defendant in the Winstar-
related cases does not make any liabilities resulting from FSLIC agreements liabilities of (he United States as a
whole rather than o f FSLIC. The styling of the captions in these cases simply reflects the requirement that all
cases brought in the CFC must be brought against the “ United States,” see 28 U S C § 1491(a) (1994), a requirement
that obtains without regard to the source from which payments would be made for any liability that results from
such litigation A lthough 12 U.S C § 1821a(d) defines one class o f judgments payable from the FRF as those
“ resulting from a proceeding to which [FSLIC] was a party pnor to its dissolution or which is initiated against
the [FDIC] with respect to [FSLIC] o r with respect to the FSLIC Resolution Fund,” we do not believe that this
provision limits the liabilities transferred to the FR F to those resulting from actions in which FSLIC or the FDIC
was named as a defendant Instead, it is clear that, in light o f the text, structure, and legislative history of § 1821a(d).
Congress did not intend for this provision to lim it the class of payable FSLIC liabilities, but rather to insure that
the FDIC would only use FRF funds to pay those FSLIC liabilities that had been transferred to the FRF See S
Rep No. 101-19, at 319 (section 1821 a(d) “ insulates the FDIC and the other funds it manages from liabilities
o f FSLIC that are transferred to the [FRF]” ), see also House Report at 335, reprinted in 1989 U S .C C A N at
131 ( “ Any judgm ent resulting from any action which is initiated against the FDIC based upon FSLIC actions
is limited to the assets o f the FSLIC Resolution Fund ” )

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 Appropriate Source fo r Payment o f Judgments and Settlements in United States v. Winstar Corp.

separate funds of such governmental entities. Accordingly, it seems entirely logical
to conclude that Congress intended for the FRF to serve as the source of payment
for all those liabilities that Congress, had it not abolished FSLIC, would have
expected FSLIC to have paid out of its own funds. The FRF, after all, is the
fund that Congress established in order to succeed generally to all o f the assets
and liabilities of FSLIC.
Our determination that FSLIC is the type of governmental entity that Congress
ordinarily would expect to use its own funds to pay for liabilities resulting from
the breach of its contractual obligations stems from both its statutory designation
as a “ government corporation” and an examination of the functions that it per­
forms. For example, the General Accounting Office (“ GAO” ) has generally found
that judgments against a government corporation, such as FSLIC, see 31 U.S.C.
§9101(3)(E) (1988) (repealed 1989) (listing FSLIC as a wholly-owned govern­
ment corporation), should be paid from the corporation’s own funds:

The theory is that a government corporation is set up to operate
in a business-like manner. It is usually given considerable latitude
in determining its expenditures; it is free of many of the restrictions
on appropriated funds that apply to noncorporate agencies; and its
statutory charter typically contains a ‘sue and be sued’ clause. Of
particular relevance . . . a corporation may generally retain funds
it receives in the course of its operations and is not required to
deposit them in the Treasury as miscellaneous receipts. Also, unlike
a regular government agency, a government corporation may pro­
cure liability insurance. This being the case, it is logical that losses
incurred by a government corporation, whether by judgment or
otherwise, should be treated as liabilities of the corporation and
charged to corporate funds.

3 GAO Principles at 14—36.
This Office has not expressly considered or adopted GAO’s reasoning regarding
the appropriate source for payment of judgments against a government corpora­
tion. Our approach has been to focus on case-specific determinations of congres­
sional intent. In Availability o f the Judgment Fund fo r the Payment o f Judgments
or Settlements in Suits Brought Against the Commodity Credit Corporation Under
the Federal Tort Claims Act, 13 Op. O.L.C. 362 (1989), for example, we analyzed
whether the Judgment Fund was available to pay settlements for suits brought
against the Commodity Credit Corporation ( “ CCC” ) under the Federal Tort
Claims Act ( “ FTCA” ), by searching for indications that Congress intended for
the CCC to discharge its own debts, including judgments against it, from its own
funds. Id. at 367. As evidence of such intent, we noted that: (1) for the first
fifteen years of its existence, the CCC operated largely in a private manner; (2)

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like similar government corporations, the CCC was exposed to legal liability
through a sue-and-be-sued clause; and (3) the CCC was authorized to “ ‘determine
the character of and the necessity for its obligations and expenditures and the
manner in which they shall be incurred, allowed, and paid’ ’’ and to ‘ ‘ ‘make final
and conclusive settlement and adjustment of any claims by or against the Corpora­
tion.’ ” Id. (quoting 15 U.S.C. §714b(j), (k)). We found that “ [s]ince the CCC
thus has the authority to apply its own funds to the payment of ‘any’ of its judg­
ment claims, it follows that the C C C ’s obligations arising from FTCA may be
paid from corporate funds. Accordingly, payment of such FTCA judgments against
the CCC is ‘otherwise provided for’ within the meaning of 31 U.S.C. § 1304(a)(1),
and the Judgment Fund is not available for that purpose.” Id.
The common thread running through our and the GAO’s analysis is that, in
determining whether Congress intended for an entity to pay judgments from its
own funds, relevant considerations include whether: Congress has designated the
entity as a government corporation; the government corporation operates in a pri­
vate, or “ business-like,” manner, as evidenced by, for example, its latitude to
determine its expenditures, its exemption from the normal restrictions on appro­
priated funds, or the type of program it runs; the government corporation is
exposed to legal liability through a sue-and-be-sued clause; and the government
corporation has a revolving fund through which it may retain funds received in
the course of its income-generating operations and spend those funds on day-to-
day expenses.
We believe that the relevant circumstances indicate that Congress intended for
FSLIC to pay judgments against it from its own funds. Congress expressly des­
ignated FSLIC as a government corporation. See 31 U.S.C. §9101(3)(E) (1988)
(repealed 1989). In addition, while FSLIC in part performed an inherently govern­
mental function in its role as a regulator of the thrifts, the deposit insurance func­
tion it performed was one that could have been performed by the private sector.
FSLIC had considerable latitude to determine its necessary expenditures and could
operate without considering the usual statutory provisions regarding the use of
appropriated funds. See 12 U.S.C. § 1725(c)(5) (1988) (repealed 1989) (requiring
FSLIC to “ determine its necessary expenditures . . . and the manner in which
the same shall be incurred, allowed, and paid, without regard to the provisions
of any other law governing the expenditure of public funds” ). FSLIC also oper­
ated like a private business in that its real property was subject to state or local
taxes. See id. § 1725(e). And FSLIC could sue and be sued. See FDIC v. Meyer,
510 U.S. 471, 475 (1994) (citing 12 U.S.C. § 1725(c)(4) (1988)). Finally, FSLIC’s
insurance fund operated as a revolving fund—paying for both its current operating
expenses and defaults on depositors’ accounts out of premiums levied on the
institutions it insured, without having to deposit its funds in the Treasury as mis­
cellaneous receipts. See 12 U.S.C. § 1727(b) & (c) (1988) (repealed 1989) (pro­
viding for payment of premiums to FSLIC by insured institutions); id. § 1725(d)

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 Appropriate Source fo r Payment o f Judgments and Settlements in United States v. Winstar Corp

(1988) (repealed 1989) (“ Moneys of [FSLIC] not required for current operations
shall be deposited in the Treasury of the United States, or upon the approval
of the Secretary of the Treasury, in any Federal Reserve bank, or shall be invested
in obligations of, or guaranteed as to principal and interest by, the United
States.” ); id. § 1728 (1988) (repealed 1989) (providing for payment of insurance
by FSLIC). Thus, it appears that Congress would have expected the liabilities
of FSLIC that resulted from breaches.of contracts into which FSLIC had entered
to have been paid from FSLIC’s insurance fund, and that Congress would have
expected the liabilities at issue here to have been paid from that fund if they
had become definite prior to FSLIC’s abolition.

2.

There remains, then, the question whether the statutory term “ liabilities” should
be construed to encompass not only definite liabilities, such as a final judgment
entered prior to FSLIC’s abolition as the consequence of an AA or SAA entered
into by FSLIC, but also such contingent liabilities as a contractual obligation that
FSLIC had assumed in an AA or SAA but that had not been breached prior to
the time FIRREA abolished FSLIC. FIRREA does not define the term “ liabil­
ities” in the phrase “ liabilities of the [FSLIC],” 12 U.S.C. § 1821a(a)(2), but
it is well-established that “ the starting point for interpreting a statute is the lan­
guage of the statute itself. Absent a clearly expressed legislative intention to the
contrary, that language must ordinarily be regarded as conclusive.” Consumer
Prod. Safety Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980). In accord
with this interpretive principle, the Supreme Court has explained that when a word
or phrase in a statute has not been defined by Congress, it should ordinarily be
construed in accordance with “ its ordinary or natural meaning.” FDIC v. Meyer,
510 U.S. at 476 (relying on Black’s Law Dictionary for the ordinary meaning
of a term).
In ordinary usage, the term “ liability” is “ a broad legal term [that] has been
referred to as of the most comprehensive significance, including almost every
character of . . . responsibility, absolute, contingent, or likely.” Black’s Law Dic­
tionary 914 (6th ed. 1990); see id. (liability “ has been defined to mean: all char­
acter of debts and obligations . . . an obligation which may or may not ripen
into a debt; any kind of debt or liability, either absolute or contingent, express
or implied; condition of being actually or potentially subject to an obligation;
condition of being responsible for a possible or actual loss, penalty, evil, expense,
or burden; . . . every kind of legal obligation, responsibility or duty . . . present,
current, future, fixed or contingent debts” ) (citations omitted); c f Webster’s Third
New International Dictionary 1302 (1986) (defining “ liability” as “ the quality
or state of being liable” and defining “ liable” as “ bound or obligated according
to law or equity: responsible, answerable” ); Montauk Oil Transp. Corp. v. Tug

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“El Zorro Grande,” 54 F.3d 111, 114 (2d Cir. 1995) (quoting Black’s Law Dic­
tionary as support for reading the term “ liabilities” in a statute broadly to encom­
pass civil penalties already imposed). Thus, the ordinary meaning of the term
“ liabilit[y]” strongly supports the conclusion that Congress intended the phrase
“ liabilities of the [FSLIC]” in § 1821a(a)(2) to include any contingent liability
arising from promises made by FSLIC to insure against the risk of regulatory
change, even though that liability had not become definite by the time of FSLIC’s
abolition.
O f course, we do not mean to suggest that the term “ liabilities” is invariably
best construed, regardless of context, to include contingent liabilities arising from
agreements that have provided for the assumption of the risk of events that have
not yet occurred. Here, however, the overall statutory context counsels in favor
of giving the term “ liabilities” its ordinary, expansive meaning. When FIRREA
abolished FSLIC, it designated where the functions and the assets and liabilities
of FSLIC would be transferred. See supra, p. 146-47; see also House Report
at 438, reprinted in 1989 U.S.C.C.A.N. at 234 (explaining that the FRF “ will
assume all the assets and liabilities of the FSLIC except for those expressly trans­
ferred or assumed by the Resolution Trust Corporation” ). Congress established
the FRF to wind up all of FSLIC’s affairs, see 12 U.S.C. § 1821a(f) (providing
for dissolution of FRF “ upon satisfaction of all debts and liabilities and sale of
all assets” ), and was careful not to extinguish existing obligations attributable
to FSLIC’s actions. See FIRREA, § 401 (f) (codified at 12 U.S.C. §1437 note
(1994)) ( “ savings provision” explaining that the abolition of FSLIC “ shall not
affect the validity of any right, duty, or obligation o f ’ FSLIC and providing for
the continuation of all suits commenced against FSLIC). But nowhere in FIRREA
did Congress expressly provide that it intended for the FRF to assume only defi­
nite, but not contingent, liabilities with respect to FSLIC.
It would be anomalous to conclude that Congress, in creating a detailed statutory
framework intended to wind up the affairs of FSLIC, simply left unanswered the
question where the contingent liabilities arising from FSLIC agreements that had
not yet been breached should be transferred. This anomaly does not arise, how­
ever, if “ liabilities” is construed consistent with its ordinary, broad meaning. For
under such a construction, it is clear that Congress intended the FRF, which (with
the sole exception of 12 U.S.C. § 1441a) Congress identified as the fund to which
“ all” of the FSLIC “ liabilities” would be transferred, to be the source of payment
for the subset of liabilities that were contingent prior to FSLIC’s abolition.
Moreover, we have found no affirmative evidence in our review of the relevant
legislative materials that Congress intended to exclude contingent liabilities from
the “ liabilities” that it plainly intended to transfer to the FRF. All of these mate­
rials are consistent with construing “ liabilities” in a manner that would include
the contingent liability attributable to the FSLIC agreements, and none provides
a clear, contrary indication of congressional intent. In light of the expansive, ordi­

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nary meaning of the term “ liability,” as well as the particular statutory context
at issue here, the term “ liabilities” in § 1821a(a)(2) should be construed to include
the type of contingent liability that arose from AA’s and SAA’s that FSLIC
entered into prior to its abolition. See John Hancock Mut. Life Ins. Co. v. Harris
Trust & Sav. Bank, 510 U.S. 86, 94-95 (1993) (in interpreting the meaning of
a statutory provision, “ we examine first the language of the governing statute,
guided not by a single sentence or member of a sentence, but looking to the
provisions of the whole law, and to its object and policy” ) (quotations and cita­
tions omitted).
Certainly the statutory provision that addresses payments from the FRF arising
from “ legal proceedings,” 12 U.S.C. § 1821a(d), does not manifest an intention
on the part of Congress to exclude liabilities that were only contingent at the
time of FSLIC’s abolition. Instead, that provision makes clear that Congress fully
expected the FRF to be the source of payment for FSLIC liabilities that would
arise from litigation commenced only after FSLIC had been abolished. Section
1821a(d) provides: “ Any judgment resulting from a proceeding to which [FSLIC]
was a party prior to its dissolution or which is initiated against the [FDIC] with
respect to [FSLIC] or with respect to the FSLIC Resolution Fund shall be limited
to the assets of the FSLIC Resolution Fund.” 12 U.S.C. § 1821a(d). The plain
language of this provision indicates that Congress contemplated that judgments
resulting from cases initiated against the FDIC after the enactment of FIRREA
with respect to FSLIC’s pre-FIRREA activities would be paid from the FRF. That
is to say, Congress must have intended for the “ liabilities of the [FSLIC]” trans­
ferred to the FRF to include at least some potential judgments resulting from
actions by FSLIC prior to its abolition, brought against the FDIC as the successor
to FSLIC’s obligations. 12 U.S.C. § 1821a(a)(2). Yet, in addressing the availability
of the FRF to pay such future judgments, Congress did not purport to limit the
class of payable “ liabilities:” Instead, Congress employed the broad phrase “ any
judgment,” which comports with the expansive, ordinary meaning of “ liabilities”
that we believe Congress intended to adopt in § 1821a(a)(2).
Nor can it be argued that the particular class of future judgments and settlements
at issue here—judgments and settlements that may arise from contractual agree­
ments assuming the-risk of regulatory change that, by definition, had not been
breached prior to FSLIC’s abolition—were so far beyond the contemplation of
Congress at the time that it established the FRF that it would be implausible to
construe the term “ liabilities” in § 1821a(a)(2) to encompass them. As Justice
Souter explained in Winstar, the effect that the enactment of FIRREA might have
on the agreements was a subject of “ intense concern” in the congressional debate
over the legislation. 518 U.S. at 902 (plurality opinion).14 For example,
“ [o]pponents of FIRREA’s new capital requirements complained that ‘[i]n its

14This section o f Justice Souter’s plurality opinion and the other portions of the opinion cited in this paragraph
were joined by only tw o other Justices

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present form, [FIRREA] would abrogate written agreements made by the U.S.
government to thrifts that acquired failing institutions by changing the rules in
the middle of the game.’” Id. at 900-01 (plurality opinion) (quoting 135 Cong.
Rec. 12,145 (1989) (statement of Rep. Ackerman)). More generally, Justice Souter
noted that the effect that the legislation might have on existing FSLIC contracts
was “ a focal point of the congressional debate,” id. at 900 (plurality opinion),
and that “ Congress itself expressed a willingness to bear the costs at issue here
when it authorized FSLIC to ‘guarantee [acquiring thrifts] against loss’ that might
occur as a result of a supervisory merger.” Id. at 883 (quoting 12 U.S.C.
§ 1729(f)(2) (1988) (repealed 1989)). Given the attention in Congress to the ques­
tion whether FIRREA would abrogate the agreements to assume the risk of regu­
latory change, it would appear reasonable to construe “ liabilities of the [FSLIC]”
to encompass any liability that might result from the breach of those agreements.
Finally, the relevant legislative history does not demonstrate that Congress
intended for “ liabilities of the [FSLIC]” to exclude contingent liabilities. In
accordance with the natural reading of the term “ liabilities” in § 1821a(a)(2), the
earlier versions of the provision reported out of both the Senate and House
committees specified that the types of liabilities that the FRF would inherit
included “ debts, obligations, contracts and other liabilities of [FSLIC], matured
or unmatured, accrued, absolute, contingent, or otherwise.” S. Rep. No. 101-19,
at 107-08 (Apr. 13, 1989); House Report at 64 (May 16, 1989) (identical lan­
guage); see also S. Rep. No. 101—19, at 319 (explaining that “ [t]he liabilities
transferred include FSLIC’s outstanding obligations under assistance agreements
with acquirers of failing thrift institutions” ); House Report at 334, reprinted in
1989 U.S.C.C.A.N. at 130 (explaining that the FRF “ is the successor to the
existing reserves and assets, debts, obligations, contracts and other liabilities of
the FSLIC” ). This explanatory language was deleted without any reference in
the House Conference Report, and thus it could be argued that the deletion reflects
Congress’s intent to have adopted a narrower meaning of “ liabilities” in the
statute itself. We do not believe, however, that such a reading of the legislative
history would be sound. To the contrary, the appearance of this broad description
of liabilities in the Senate and House reports is consistent with the conclusion
that Congress intended the term “ liabilities” to retain its ordinary, and quite
expansive, meaning, and that Congress simply deleted the explanatory language
as unnecessary.
In evaluating the effect of the deletion of the explanatory language, we have
reviewed the case law that concludes that Congress does not ordinarily “ intend
sub silentio to enact statutory language that it has earlier discarded in favor of
other language.” INS v. Cardoza-Fonseca, 480 U.S. 421, 4 4 2 ^ 3 (1987); see also
G ulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 200 (1974) (Congress’s deletion
of provision “ strongly militates against a judgment that Congress intended a result
that it expressly declined to enact” ). There are certainly situations in which the

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deletion of language that has appeared in an earlier, unenacted version of the
legislation may be read to signal Congress’s intention to have enacted a provision
with a different meaning. There are also situations, however, where the deletion
of the language that appeared in earlier versions of the bill merely reflects
Congress’s intention to have avoided an unnecessary redundancy that would have
resulted from the inclusion of the additional language. See Gemsco, Inc. v.
Walling, 324 U.S. 244, 263-65 (1945) (rejecting argument that deletion in con­
ference of an illustrative parenthetical phrase from a bill meant that Congress
intended to circumvent the authority conferred by the bill where parenthetical had
been both inserted and deleted without comment); see also Erie R.R. v. Tompkins,
304 U.S. 64, 72-73 & n.5 (1938) (overturning the Court’s previous interpretation
of §34 of the Federal Judiciary Act in part because of the “ research of a com­
petent scholar, who examined the original document” ) (citing Charles Warren,
New Light on the History o f the Federal Judiciary Act o f 1789, 37 Harv. L. Rev.
49, 51-52, 81-88, 108 (1923) (when the drafter of an amendment to §34 replaced
his original version’s phrase “ the Statute law of the several States in force for
the time being and their unwritten or common law now in use, whether by adop­
tion from the common law of England, the ancient statutes of the same or other­
wise” with “ laws of the several States,” the latter was intended to be a concise
summary that encompassed the former)).
Here, as we have explained, the ordinary meaning of the undefined term “ liabil­
ities” is perfectly consistent with the expansive descriptions of “ liabilities” con­
tained in the House and Senate reports.15 In addition, the other indications of
congressional intent that we have identified above do not suggest that Congress
intended to depart from the ordinary meaning of “ liabilities” in establishing the
FRF. Indeed, they all suggest that Congress intended to ensure a comprehensive
transfer to the FRF of all of the assets and liabilities that had formerly been
FSLIC’s. Accordingly, we believe that Congress would have indicated in some
way its intention for the deletion of the explanatory language to exclude the ordi­
nary meaning of the term “ liabilities,” rather than merely to eliminate
redundancies, if it had intended that result. Thus, the legislative history concerning
the use of the term “ liabilities” in § 1821a(a)(2) is consistent with the conclusion
that Congress intended for that term to retain its ordinary meaning.

1?1ln reaching its conclusion in Security Federal that the FRF was the appropriate source of payment, the Tenth
Circuit relied on the earlier, more complete, listing o f the types o f liabilities transferred to the FRF. See 25 F.3d
at 1505 ( “ the FSLIC Resolution Fund . ‘is the successor to the existing reserves and assets, debts, obligations,
contracts and other liabilities of the FSLIC’ ” (quoting House Report at 334)). The court did not address, however,
whether the deletion o f that additional, descriptive language from the final version of § 1821a(a)(2), which uses
only the term “ liabilities,” reflected Congress’s intention to have adopted a narrower meaning of “ liabilities”

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3.

Although we believe that Congress intended the phrase “ the liabilities of the
[FSLIC]” to encompass contingent liabilities resulting from contracts in which
FSLIC assumed the risk of regulatory change, we must still consider the effect
of the remaining portion of the relevant statutory language—i.e., the portion of
the statute that limits the liabilities of FSLIC to include only those that existed
“ on the day before August 9, 1989.” It could be argued that the inclusion of
this limiting language reflected Congress’s intention to exclude liabilities resulting
from breaches of contract caused by FIRREA’s enactment and implementation,
which, of course, occurred after August 8, 1989. Under that view, the phrase
“ liabilities of the [FSLIC]” on the day before it was abolished would encompass,
for example, outstanding promissory notes for the cash assistance that FSLIC had
promised to contribute to supervisory mergers. The phrase would not encompass
mere contingent liabilities that were attributable to agreements by FSLIC that
would not be breached until after August 8, 1989. We do not believe, however,
that this argument has force.
As we have already explained, there is nothing in the term “ liabilities” itself
that would counsel in favor of construing it to exclude contingent liabilities
resulting from FSLIC contracts that had not been breached as of August 8, 1989.
Indeed, the ordinary meaning of that term points in the opposite direction, and
we have found no evidence that Congress intended the date restriction in
§ 1821a(a)(2), i.e., the phrase “ on the day before August 9, 1989,” to limit the
types of “ liabilities” of FSLIC transferred to the FRF. We do not believe, for
example, that Congress intended this date restriction to preclude the FRF from
serving as the source of payment for judgments or settlements resulting from
breaches of FSLIC agreements that occurred either on the date of FIRREA’s
enactment, or later, when FIRREA was implemented, and thus after “ the day
before August 9, 1989.” Instead, we believe that the inclusion of the date restric­
tion merely resulted from the timing of FSLIC’s abolition; technically, FSLIC
was abolished just after midnight on August 8, and thus the transfer to the FRF
of FSLIC’s liabilities as of midnight on August 8 makes sense as a matter of
timing. Earlier versions of the bill reported out of both the House and Senate
committees had used the phrase “ [o]n the date of the dissolution of [FSLIC] in
accordance with section 401 of [FIRREA],” see S. Rep. No. 101-19, at 107 (Apr.
13, 1989); House Report at 64 (May 16, 1989), and there is no indication in
the House Conference Report that the substitution of “ the day before August 9,
1989” for “ the date of the dissolution of [FSLIC]” was intended to work any
substantive change.

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III. CONCLUSION

We conclude, therefore, that the transfer of “ all assets and liabilities of the
[FSLIC] on the day before August 9, 1989” to the FRF included not only the
transfer of those liabilities that were definite on the day before FSLIC was abol­
ished by reason of a judgment, or that arose from a breach of a contractual obliga­
tion that occurred on or before that date, but also those contingent liabilities that
resulted from FSLIC’s earlier assumption of the risk of adverse changes in the
regulatory structure and that became definite only after FSLIC had been abolished.
12 U.S.C. § 1821a(a)(2). Because the FRF inherited these contingent liabilities
from FSLIC, it also inherited the corresponding duty to pay damages once the
regulatory structure changed. Thus, the FRF is legally available to pay judgments
resulting from proceedings seeking to enforce this duty, and any settlements based
on the risk of such judgments. Because payment is “ otherwise provided for”
within the meaning of the Judgment Fund statute, the Judgment Fund is not avail­
able to pay such judgments and settlements. See 31 U.S.C. § 1304. In sum, we
believe that the FRF is the appropriate source of funds to pay judgments and
settlements in Wmstar-related cases in which FSLIC was a party to an Assistance
Agreement or Supervisory Action Agreement.

RANDOLPH D. MOSS
Acting Assistant Attorney General
Office o f Legal Counsel

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