WASHINGTON - Almost a decade after the Supreme Court's decision in United States v. Winstar, supervisory goodwill cases are creeping close to a resolution, and a recent decision could give hope to a class of plaintiffs that did not sign assistance agreements with the federal government.
In his Sept. 30 decision in the U.S. Court of Federal Claims, Judge Charles F. Lettow sided with the former American Federal Bank FSB, whose successor is SunTrust Banks Inc. of Atlanta, in concluding there was a breach of contract by the federal government.
American Federal, of Greenville, S.C., agreed to acquire four thrifts in 1981 and 1982. All were either insolvent or approaching insolvency, sunk by rising interest rates that devastated their asset portfolios. The government had decided in the 1980s to let buyers of insolvent institutions include supervisory goodwill in Tier 1 capital calculations; American Federal added $61.3 million of supervisory goodwill in connection with the acquisitions, and planned to write the amount down over 40 years.
But the thrift never signed assistance agreements with the federal government that dictated the terms of the acquisitions.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 excluded supervisory goodwill from Tier 1 capital and gave buyers five years to write it off their books. Many of the buyers became insolvent themselves as a result of the decision, and over 100 eventually sued the government, claiming aggregate damages of more than $10 billion.
In the 1996 Winstar case the Supreme Court ruled that the federal government was in breach of contract for reneging on its promise to let supervisory goodwill count as Tier 1 capital.
The Justice Department has settled a handful of the Winstar cases, but has made few big payouts.
In August the U.S. Court of Appeals for the Federal Circuit upheld damages of $384.1 million in Glendale Federal Bank FSB v. United States. A Justice Department spokesman said the agency has not yet decided whether to appeal but that it will make that decision in the near future.
Most of the Winstar plaintiffs signed assistance agreements with the governments that dictated the terms for acquiring ailing or failing thrifts. Those that did not have had a tougher time proving contractual breaches by the government.
Judge Lettow, however, noted that even though American Federal's acquisitions did not have assistance agreements, in each case it submitted a merger application spelling out its use of supervisory goodwill.
"The courts have been reluctant to find implied-in-fact contracts in these Winstar-related cases where there is no assistance agreement," said David Bergman, a lawyer for the plaintiffs with Arnold & Porter LLP in Washington. "I think this American Federal case is perhaps the best application and reasoning that the trial courts have applied to an implied-in-fact contract analysis. I hope that other trial courts will look at this and agree."
