# Caroline Hunt Trust Estate v. United States

> United States Court of Federal Claims · April 29, 2005 · 65 Fed. Cl. 271

URL: https://www.frixlaw.com/law-library/cases/6653702

## Case

- **Full name:** CAROLINE HUNT TRUST ESTATE v. United States
- **Court:** United States Court of Federal Claims
- **Decided:** April 29, 2005
- **Citations:** 65 Fed. Cl. 271; 2005 U.S. Claims LEXIS 128; 2005 WL 1023483
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Merow
- **Judges:** Merow
- **Cited by:** 11 later opinions in the Frix Law Library

## Citator (automated)

- **Red flag:** Reversed in part, on other grounds by Caroline Hunt Trust Estate v. United States, 470 F.3d 1044 (2006).
- Negative treatments: 1
- Distinguished by: 0
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/6653702

## How later opinions describe it (automated extraction)

- explaining that “there is sufficient evidence to make a fair and reasonable approximation of damages and offsetting benefit. Accordingly, as an alternative to the foregoing, the court applies the so-called ‘jury-verdict’ approach to damages [to award net damages of $14,847,100]”

## Opinion text

OPINION
MEROW, Senior Judge.
Factual background
The Caroline Hunt Trust Estate (“CHTE”) seeks to recover its required contributions under a 1988 agreement with the government wherein its subsidiary Southwest Savings Association (“SSA”), acquired via merger, four troubled thrifts. Federal assistance included a $307.5 million credit to the regulatory capital level required of the vastly larger postmerger SSA. CHTE asserts the enactment of the Financial Institution Reform, Recovery, and Enforcement Act of 1989, Pub.L. 101-73, 103 Stat. 183 (Aug. 9, 1989) (“FIRREA”) and its implementing regulations, which eliminated the $307.5 million capital .credit, materially breached that agreement. CHTE seeks damages equal to the value of its contributions.
The Caroline Hunt Trust Estate
CHTE is an irrevocable trust created in 1935 with diversified holdings in real estate, oil and gas, and other investments. Caroline Hunt is the sole beneficiary. Since 1982, and during all times relevant here, Donald Crisp (“Crisp”) was the trustee who administered the Trust with a three-person advisory board of which he was a member.
In 1972, CHTE acquired majority ownership of SSA, a Texas chartered, federally regulated savings and loan association. Between 1980 and 1990, CHTE held more than 90% of SSA’s stock. For approximately three years during this period, the president of SSA, Todd Miller (“Miller”), owned 4% of the shares, but Crisp held the voting proxy for those shares. The remaining shares were held by family members of Caroline Hunt, or their trusts. CHTE also controlled SSA’s Board of Directors. From 1986 to June 1990, Miller was president, chief executive officer, and a director of SSA. No dividends were paid by SSA to CHTE since at least 1982 when Crisp became the trustee.
Prior to August 9, 1989 and the enactment of the FIRREA, the Federal Home Loan Bank Board (“FHLBB”) was responsible for regulating all savings and loan associations, also referred to as thrifts. Thrift savings accounts were insured by the Federal Savings and Loan Insurance Corporation (“FSLIC”). 12 U.S.C. § 1461 et seq. (1988). These entities were independent agencies of the United States, although the FHLBB served as the operating head of the FSLIC, and the FSLIC conducted its operations as a division or office within the FHLBB. The FHLBB and FSLIC were abolished by FIR-REA. The Office of Thrift Supervision (“OTS”) succeeded these agencies as the federal regulator for open savings and loans associations and their holding companies. The Federal Deposit Insurance Corporation (“FDIC”) replaced FSLIC as insurer. The Resolution Trust Corporation (“RTC”) succeeded FSLIC as the federal receiver for closed associations. At 1995 year-end, the RTC was replaced by the FDIC as the receiver for all closed thrifts. 12 U.S.C. § 1441a(m)(l)-(2).
*274 Before FIRREA, SSA was regulated by the Texas Savings and Loan Department as weU as the FHLBB and FSLIC. After FIR-REA, but prior to June 1990, SSA was regulated principally by OTS. SSA was required to obtain and file annual financial statements audited by an independent accounting firm and did so. During times relevant here, SSA, along with other federally regulated thrifts, filed quarterly Thrift Financial Reports (“TFRs”).
As the principal shareholder of a FSLIC-insured institution, CHTE was a savings and loan holding company under the Savings and Loan Holding Company Act as it existed in 1988 (12 U.S.C. § 1730a et seq.) (the “Holding Company Act”). Jt. Stip. II3. CHTE was a diversified unitary savings and loan holding company, meaning its holdings included other investments in addition to SSA. If CHTE had owned more than one thrift, it would have been classified as a multiple rather than a unitary savings and loan holding company. Multiple holding companies were subject to more restrictions and filings, 12 U.S.C. § 1730a(e)(3) (1982 & Supp. V 1987), although under Section 408(m) of the National Housing Act and the Holding Company Act, FHLBB could have waived certain restrictions. CHTE made periodic filings required by the Holding Company Act and the FHLBB.
Under the Holding Company Act and regulations, CHTE was required to obtain the approval of the FHLBB before CHTE and/or SSA could acquire other thrifts. 12 U.S.C. § 1730a(e)(l); 1 12 C.F.R. § 584.4 (1988). 2 On June 2, 1983, “in order to facilitate regulatory approval of the proposed acquisition of Landmark Savings Association of Ennis, Texas (‘Landmark’), by [SSA],” Crisp, on behalf of CHTE, with the approval of Tom Hunt, another member of the Trust’s advisory board, wrote to Joseph E. Settle, Principal Supervisory Agent of the FHLBank of Little Rock, Arkansas, that, “[t]he Trust will cause [SSA] to meet the minimum statutory reserve and net worth requirements applicable to institutions insured for twenty years or more, as set out in 12 C.F.R. § 563.13 , and where necessary, will infuse additional equity capital, in a form satisfactory to the Supervisory Agent, sufficient to effect compliance with such requirements.” DX 5. The Trust also agreed not to receive cash dividends in excess of 50% of SSA’s net income. Id. On June 3, 1983, the FHLBB approved the Trust’s application to acquire control of Landmark and to merge it into SSA. 3
Subsequently, in 1986, CHTE sought federal approval to merge New Federal, a subsidiary of SSA, into Pioneer Savings Association of Waco, Texas, and liquidate the combination into SSA. At that time, an H(e)3 Application under Section 408(e)(l)(A)(ii) of the National Housing Act *275 was required for a savings and loan holding company to acquire one or more thrifts by merger into its existing subsidiary. In its H-(e)3 Application, CHTE was the “Applicant.” 4 On May 23, 1986, FHLBB Resolution No. 86-532 approved the Trust’s Application on the condition that the Trust again stipulate to maintain SSA’s regulatory capital at a certain level and limit dividends paid by SSA to CHTE. Subsequently, in a July 25, 1986 letter to the FHLBB’s Principal Supervisory Agent, CHTE wrote that, as long as it controlled SSA, the Trust would cause SSA’s net worth to be maintained at a level consistent with that required by Section 563.13(b) of the Rules and Regulations for Insurance of Accounts, and if necessary, infuse equity capital in a form satisfactory to the Supervisory Agent to meet those requirements. DX 24. The Trust also wrote that, absent prior approval from the Supervisory Agent, SSA would limit dividends to 50% of net income under parameters specified in the letter. Id. While referred to in testimony, exhibits and argument by various terms, including net worth maintenance agreements or obligations, these two letters are primarily described in this opinion as regulatory capital maintenance letters. While there was testimony that regulators required bilateral agreements in other transactions with other acquirers and other thrifts, the regulatory capital maintenance letters here were signed only by CHTE, not SSA, and were on CHTE letterhead. Neither of the letters were signed by the government nor any other party. The value of the release of any obligations of the Trust thereunder is an issue in this ease.
On several occasions prior to the 1988 acquisitions that are the subject of this litigation, CHTE infused capital into SSA. CHTE contributed an office building, a bank branch, and stock in a life insurance company 5 . The government contends these contributions were not meaningful. The value of these contributions is not material to the court’s findings. Also prior to the 1988 transactions at issue here, CHTE acquired subordinated debentures — promissory notes of SSA issued March 23, 1983 for $1.3 million; 6 August 31, 1984 for $5 million; June 28, 1985 for $15 million; and July 25, 1985 for $5 million. These notes are referred to collectively herein as the subordinated notes, subordinated debentures, or subdebt. In the event SSA was liquidated, the notes would be paid last, ahead only of stockholders, thus they were “subordinated.” PX 3; Tr.2079 (Dr. McConnell). As of May 18, 1988, the outstanding balance owed to CHTE on the subordinated notes was $23,780,462.06. DX 210. SSA made all payments on these notes to CHTE. PI. Facts 381 and Gov’t Resp. The subdebt was included in SSA’s regulatory capital. Tr. 177 (Miller). The value of CHTE’s contribution of the subordinated notes to the equity of postmerger SSA is also an issue in this case.
The thrift crisis and the government bailout
Much, if not most, of SSA’s loan portfolio was secured by real property in the Dallas, Texas area. In 1987, the thrift industry in Texas was in crisis. Falling oil prices and the Tax Reform Act of 1986 7 undermined the *276 Texas economy in general, and the Dallas real estate market specifically. An oversupply of real estate depressed prices and lenders lost money on foreclosures. Texas thrifts paid higher interest rates on their savings deposits during the 1980s due to these economic conditions and increased competition— the “Texas premium.” Most Texas thrifts with assets above $500 million that originated commercial loans in the 1980s did not survive this crisis.
These unprecedented market conditions put intense financial pressure on thrifts in the Dallas district, and by October 1987, no one could accurately predict when the Texas real estate market and the thrift industry would rebound. The pressure on government regulators as insurers of the thrift deposits was also intense. While the FHLBB faced some 20 failed institutions in 1987, in 1988 it faced nearly 300 possible failures in Texas. The deteriorating financial condition of the thrift industry overwhelmed FSLIC’s resources. Home Saw. of Am. v. United States, 399 F.3d 1341, 1345 (Fed.Cir.2005) (“[A]lthough legally committed to compensating depositors whose savings were lost, [FSLIC] lacked sufficient funds to bail out all the failing thrifts.”). By 1988, FSLIC was estimated to be insolvent by over $50 billion. United States v. Winstar, 518 U.S. 839, 847 , 116 S.Ct. 2432 , 135 L.Ed.2d 964 (1996). All the insolvent thrifts simply could not be liquidated, so FSLIC sought private investors, both because it did not have the funds to pay depositors the deficits, and because it wanted to avoid public panic if all the troubled thrifts were liquidated. PL Facts No. 20 and Gov’t Resp.; Fifth Third Bank of Western Ohio v. United States, 402 F.3d 1221, 1224 (Fed.Cir. 2005) (noting that to deal with this crisis, the FHLBB sought out healthy financial institutions and outside investors to acquire troubled thrifts).
In this financial and regulatory environment, the government offered cash, notes, and agreements to forbear from enforcing regulatory requirements as incentive for private investment. Much of the pre-FIRREA assistance inflated a troubled thrift’s regulatory capital cushion through the accounting gimmick of supervisory goodwill, allowing the negative net worth of an acquired thrift to “count” as regulatory capital. First Commerce Corp. v. United States, 335 F.3d 1373 , 1376 n. 1 (Fed.Cir.2003). As a result, a thrift with negative net worth was an attractive acquisition. The FHLBB also offered “capital credits,” described by the Supreme Court as “an express commitment to include those credits in the calculation of regulatory capital.” Winstar, 518 U.S. at 867 , 116 S.Ct. 2432 . Capital credits, like supervisory goodwill, cushioned depleting asset bases. Also, asset coverage (agreement to reimburse thrift for loss on the sale of an asset), yield maintenance (guaranteed return on the sale of certain assets), tax benefits, equity splits, and various other forbearances were negotiated through the FHLBB’s Office of Regulatory Policy Oversight and Supervision (“OR-POS”).
In this environment, CHTE’s subsidiary SSA, which itself had a regulatory capital deficit of over $60 million, acquired four deeply insolvent Texas thrifts. Under the auspice and approval of CHTE’s May 18, 1988 H-(e)3 Application, the four thrifts were placed into federal receivership and their assets and certain liabilities conveyed to SSA. FSLIC’s financial assistance and incentive for CHTE’s subsidiary SSA assuming these additional liabilities included a $307.5 million capital credit (“the capital credit”). Less than two years later, FIRREA caused the elimination of this credit.
Shortly following FIRREA, SSA was placed into federal receivership and liquidated. CHTE claims the passage of FIR-REA and attendant elimination of the $307.5 million capital credit was a material breach of its contract with the government. As damages, CHTE seeks $23,979,700, the total value of the subordinated notes and the value of SSA, both contributions required under its contract with the government. After extensive pre-trial proceedings, a four-week trial, briefings and argument, supplemental filings were allowed to address recent Federal Circuit Winstar cases. Based on the testimony of numerous witnesses recorded in some 5,000 pages of trial transcript, arguments of counsel, the voluminous briefs submitted, together with some 574 exhibits, and over 600 *277 findings proposed by the parties, the court reaches the following conclusions.
Contract liability
Prior to the 1988 acquisitions at issue, SSA itself had a serious regulatory capital deficiency. In September 1987, SSA’s regulatory capital deficit was $21,921,000; by December 31, 1987, it was $43,794,000; and by March 31, 1988, it was $60,884,000. DX 629A. Regulators were well aware of deficiencies prior to approving the acquisitions.
If SSA had not been able to acquire federal assistance, it had a “Plan B” — a “hunker-down” survival strategy to attempt to return to regulatory capital compliance. Branches could have been closed; operating costs could have been trimmed. Tr. 498-99 (Miller); Tr. 1036-37 (Crisp); Tr. 1273-74 (Herrick). CHTE could have acquired some of SSA’s troubled loans or provided noncash collateral. Tr. 499-500 (Miller). While the government argues that this amorphous Plan B would not have saved SSA from its ultimate (albeit post-May 1988) demise, the court’s conclusions do not depend on conjecture over this hypothesis.
SSA management was well-regarded
In 1987 and early 1988, in the FHLBB’s Management Consignment Program (“MCP”), the government entered into contracts with thrifts considered to be well-managed to handle the day-to-day operations of other failing institutions. SSA’s management was well-regarded, and was twice requested to participate in the MCP program. On the third urgent appeal, after Miller received authorization from Crisp, as he did before making major decisions, SSA accepted the government’s plea and assisted in the management of a troubled thrift in Texar-kana, Texas. • Tr. 181-82 (Miller). SSA’s management reportedly performed well under the circumstances. 8 DX 125; Tr. 184 (Miller). , ,,
From 1985 to 1988, Miller was a director of FHLB-Dallas, having been elected by his thrift industry peers. During part of his tenure, he was the Vice Chairman. Tr. 166-69 (Miller).
Negotiations commence
Before any negotiations began concerning these acquisitions, Crisp instructed Miller that any deal with the government to acquire troubled thrifts must include sufficient time for the economy and real estate values to improve, a release of the regulatory capital maintenance letters, and adequate financial assistance to carry SSA through until the economy recovered. Miller was authorized to grant the government equity in SSA in return for its assistance. Pl. Facts No. 91. On August 21, 1987, following their meeting, David Bradley of FHLB-Dallas sent SSA Executive Vice-President H. Martin Hearne (“Hearne”), a list of Texas thrifts in need of assistance. DX 46. On October 16, 1987, Miller proposed that, with federal assistance, SSA acquire three 9 troubled Texas thrifts. DX 65.
Crisp had been advised that there was a question whether the regulatory capital maintenance letters were enforceable. Pl. Facts No. 126 and Gov’t Resp. Nonetheless, Crisp instructed Miller to condition any acquisition proposal on a release of these letters because, while the Trust was willing to risk its investment in SSA to do a deal, given the unknowns of troubled thrifts to be acquired, it would not be prudent for the Trust to extend that risk. Crisp testified: “in the very beginning of the negotiations, Mr. Miller and others made it very clear that the [release] was a condition.” Tr. 978 (Crisp). Regardless of whether made by SSA or CHTE (or both), the request for release was on behalf of the Trust — the only signatory on the letters. 10 Tr. 3056-57 (former FHLBB *278 Chairman Danny Wall); PX 234B. A release was a condition from the very beginning and was raised in almost every subsequent meeting with the government. 11 Tr. 1250-51 (Herrick). Indeed, the government admits that a release was a condition of each acquisition proposal. Gov’t Resp. to Pl. Facts No. 193. A release was a constant and a “deal-breaker” for CHTE. Gov’t Resp. to Pl. Facts No. 129.
In the midst of these negotiations, during the Fall of 1987, FHLBB consultant Bud Gravette (“Gravette”) formulated clusters of thrifts — combinations of troubled institutions proposed for acquisition. Previously, single troubled thrifts were generally touted as targets. This cluster approach evolved into FHLBB’s “Southwest Plan” adopted February 3, 1988, in Resolution No. 88-68. This Resolution announced that the FHLBB was “engaged in the development of a plan for solving the multi-billion dollar problem of thrift institutions” in the Southwest. 12 PX 28. The Southwest Plan’s goal was to consolidate troubled Texas thrifts under well-qualified management. Jt. Stip.117; Pl. Facts Nos. 24 and 27 and Gov’t Resp. Unlike earlier efforts to deal with failing thrifts on a case-by-case basis, the Southwest Plan consolidated groups of failed thrifts for acquisition by entities with well-qualified management teams. FSLIC had not previously transferred a group of thrifts to one acquirer. Tr. 3488-90 (former FHLBB Supervisory Agent David Bradley). FHLBB/FSLIC solicitation material for the Southwest Plan outlined available government assistance, including capital loss coverage, yield maintenance, and a FSLIC note in the amount of the negative net worth of an acquired institution. Regulatory forbearances and specific accounting treatments could be requested, but were not automatically granted, and FSLIC could require an equity share in the resulting thrift. DX 88. at 900547-48.
FSLIC sent potential acquirers “invitations for investment,” and “solicited people to indicate interest if they wanted to participate.” Tr. 1842, 1846-47 (FSLIC Executive Director Stuart Root). If more than one invitee expressed an interest, offers were compared in a matrix. Tr. 1848 (Root). Gravette reported positively on SSA’s management team. Miller was highly regarded by Gravette, Joe Selby, Executive Vice President and Director of FHLB-Dallas (“Selby”), and George Barclay, FHLB-Dallas President (“Barclay”). Id.
FHLBB Resolutions
The FHLBB resolutions of May 18, 1988, contain the terms of the acquisitions as finally negotiated and approved. The FHLBB had the final authority to approve the acqui *279 sition of the troubled thrifts, and only the FHLBB could release the Trust from any obligations under the regulatory capital maintenance letters. Gov’t Facts No. 38 and PI. Resp.
Extensive negotiations discussed infra culminated before the FHLBB on May 18,1988. The Board was presented with voluminous analyses and recommendation packages from three subagencies. First, the ORPOS package (from the so-called regulatory arm of the FHLBB), explained that SSA proposed to acquire four insolvent thrifts, Briereroft Savings Association of Austin, Texas (“Brier-croft”); City Savings and Loan Association of San Angelo, Texas (“City Savings”); Lamar Savings Association of Austin, Texas (“Lamar”); and Stockton Savings Association of Dallas, Texas (“Stockton”). DX 139. These four insolvent thrifts would first be placed into FSLIC receivership and the package included the resolutions to do so. FSLIC would then convey the assets and liabilities of these thrifts to SSA.
CHTE was described as the holder of approximately 94% of SSA’s stock. SSA’s management’s satisfactory performance in the MCP program was noted; its management was “experienced and capable,” with “good organizational strengths,” with a “rating of 1 for the Management MACRO factor.” 13 DX 139 at WOB023 0494. The package also explained that while the Trust could have acquired each of the four failing thrifts directly, for business reasons the Trust chose to have its subsidiary, SSA, acquire them. 14 For perspective, SSA had approximately $1.4 billion in assets immediately before the May 18, 1988 transactions, and $6.8 billion in assets thereafter — a nearly fivefold increase. Jt. Stip.H 12.
The Board was informed that SSA itself was a troubled thrift, and its viability depended both upon the financial assistance in the proposal and time for the economy to recover. 15 The package included a FHLB-New York financial analysis memorandum that warned SSA’s capital level was less than half of its requirement; its financial condition had seriously deteriorated over the preceding five quarters; reserves had not increased with additional nonperforming assets; “the association is over-stating its capital position;” and loss allowances appeared inadequate. DX 139 at WOB023 1069-71. SSA was in regulatory capital failure and its pre-merger prospects for survival were weak. Id.
SSA’s then most recent audited financial statement for the fiscal year ending September 30, 1987 and its March 1988 TFR, were attached. Id. Attach. G & H. An FHLBB examination report of October 27, 1987, and an April 29, 1988 letter from SSA’s assigned Supervisory Agent to SSA’s Board of Directors (the “Supervisory Letter”) summarized areas of concern and criticized SSA’s $43 million regulatory capital deficiency. A detailed business plan to cure that deficiency was requested. Id. Attach. I & J. The regulators also questioned almost $200 million of SSA’s assets, and asked that a prudent loan loss reserve be established in conjunction with independent auditors. Sporadic attendance by certain members of the Board of Directors was also noted. Id.
The package also included a May 4, 1988 letter from ORPOS that outlined areas of supervisory concern, and Miller’s May 10, 1988 response. Id. Attach. J. A May 5, *280 1988 memo from SSA’s Supervisory Agent and Regulatory Analyst reported favorably on SSA as an acquirer, and noted management was strong and very capable. Its regulatory capital deficit was also described, as was the need for additional general reserves. Id. Attach. E.
Discussing this data and concerns raised therein, the ORPOS executive summary to the package attributed SSA’s declining capital primarily to adverse economic conditions and concluded the pre-merger SSA’s viability was dependent on FSLIC assistance. Adequacy of SSA’s loan loss reserves was highlighted. The SSA Board was requested to revisit this issue with the concurrence of its independent auditors. ORPOS planned to followup. Change in the composition of the five member SSA Board of Directors was recommended due to sporadic attendance. The size of the Board was recommended to be increased by two members, experienced and not affiliated with either SSA or CHTE. Id. Attach. J, p. WOB023 0495. Two other conditions were endorsed — SSA should obtain prior regulatory approval of any senior management change (particularly a departure of Todd Miller which would elicit supervisory concerns) and submit a business plan for the newly enlarged thrift within ninety days. DX 139, p. WOB023 0496. The OR-POS summary concluded that supervisory concerns were not sufficient to warrant objection to the acquisitions, particularly since the planned FSLIC assistance would add to SSA’s regulatory capital. The ORPOS package deferred SSA’s postaequisition financial viability to FSLIC. Id. at WOB023 0498.
The ORPOS executive summary pointed out that massive government assistance was necessary to resolve the acquisition of four supervisory cases with an aggregate negative regulatory capital of approximately $924.2 million. Id. at WOB023 0499. The ORPOS summary also described the government for-bearances to be extended. The FHLBB would agree to forbear for ten years from any supervisory or enforcement action against the postmerger SSA for failure to meet regulatory capital requirements “provided that SWS [regulators’ acronym for SSA] regulatory capital does not fall below 3.0% to [sic] total liabilities.” Id. at WOB023 0502 (emphasis in original). The release of CHTE from its regulatory capital maintenance letters, acknowledged as a “deal-killer,” would be granted “in return for the association’s conversion of its subordinated debt to the Trust for common stock.” Id. at WOB023 0494, 0499. The substitution of permanent regulatory capital in the form of common stock would be exchanged for the Trust’s subordinated debentures which would increase the permanent capital by approximately $27 million. Id. at. WOB023 0500. “[I]n the opinion of this Office, [this] adequately compensates for the loss of the net worth maintenance agreement as a source of capital.” Id.
“[I]n order to facilitate the subject transaction,” there was no objection to a limited waiver of the requirement that transactions between CHTE and SSA be approved by the regulators. 16 SSA was allowed to lease office space in a building owned by CHTE, provided that the lease was on market terms, both the Trust and SSA kept adequate records of the transactions to the satisfaction of the Supervisory Agent, and the amount paid by SSA to the Trust did not exceed $750,000 in any twelve-month period (the “transactions with affiliates” forbearance). Id. at WOB023 0502-03. Also, no supervisory objection was taken to the preapproval of certain future debts of the Trust (“debt preapproval”). 17 Id. at WOB023 0507. These provisions were included in the draft forbearance letter in the ORPOS package. Id. at WOB023 1271-72.
The proposed government assistance package included a promissory note from FSLIC, the details of which were not the focus of the ORPOS package which concentrated on the regulatory rather than the financial and legal *281 aspects of the acquisitions. Indeed, the Assistance Agreement, which the government argues is the “contract,” to which CHTE is not a named party, was neither an attachment nor included in the ORPOS package. Id. at WOB023 0510. The ORPOS summary did explain, however, that the portion of the FSLIC note necessary to increase SSA’s capital to 5% would be credited to SSA’s regulatory capital (the “capital credit”).
The portion of the FSLIC promissory note(s) issued to SWS, pursuant to the Assistance Agreement, will be a credit to SWS’ regulatory capital to the extent that such note(s) increases SWS’ regulatory capital to a level equal to five percent of liabilities at the time of acquisition.
Id. at WOB023 0506-07. As subsequently computed, the regulatory capital credit was $307.5 million. Pl. Facts 154 and Gov’t Resp. In other words, upon closing, the post-merger SSA would have $307.5 million credited toward its regulatory capital requirement. CHTE alleges the government’s subsequent elimination of this $307.5 million regulatory capital credit was a substantial and material breach of contract.
Included as an attachment in the ORPOS package was CHTE’s H-(e)3 Application, with CHTE listed as the “Applicant.” DX 139, Attach. K, WOB023 1247-69. CHTE’s H-(e)3 Application, signed by Crisp, requested approval for CHTE to acquire up to 15 Texas thrifts via merger into SSA. CHTE was permitted to file a short-form application because information on the Trust was already on file. Tr. 1259-60 (Herrick); Tr. 2794-95 (Williams). The Application listed the geographic location and deposit size of the branch offices of all fifteen targeted thrifts, and contained a FHLBB form for the purchase of the assets of each target and merger into SSA, described as the “resulting institution.” DX 139 at WOB023 1251-69.
The FSLIC package was from Stuart Root, Executive Director of FSLIC (“Root”) (who testified at trial) and General Counsel Jordan Luke. DX 140. The report’s Executive Summary explained that a March 1,1988 Request for Proposals was disseminated by the government, to which SSA responded with a proposal dated March 30, 1988. SSA was subsequently determined suitable. An extensive analysis of potential acquirers was reportedly performed, but none of the other proposals equaled that of SSA. DX 140 at Pl. 000324-26. FSLIC would be appointed receiver for the insolvent four thrifts. FSLIC would then provide financial assistance for SSA to acquire substantially all their assets as well as assume their liabilities. The memorandum discloses the various forms of financial assistance to be granted by FSLIC, including a ten-year, interest-bearing FSLIC promissory note in an amount equal to the difference between liabilities assumed and tangible assets acquired, with general and specific loss reserves reversed. Id. at Pl. 000331. SSA’s existing regulatory capital of 1.9% as of March 31,1988 was acknowledged. Id. at Pl. 000322.
Referencing the opinion of FHLBB’s Corporate and Securities Division (“CASD”), the third subagency package, FSLIC recommended approval of the structure of the acquisitions contained in CHTE’s H-(e)3 Application. Id. at Pl. 000330. FSLIC did not object to the appointment of a receiver for the four insolvent institutions, the granting of the requested forbearances, the entering of the Assistance Agreement (a draft of which was included in this, but not in the ORPOS package), or the transfer of the assets to SSA. Further details of the financial assistance are contained in the package, including a reference to the release of the regulatory capital maintenance letters “in return for” CHTE’s contribution of $25 million in subordinated debt. Id. at Pl. 000333. More than thirty FHLBB resolutions were part of the package.
The CASD opinion was signed by Julie Williams, Deputy General Counsel (‘Williams”). DX 140 at WSJ069 0818-39. Williams’ May 17, 1988 legal opinion, addressed to FSLIC Office of General Counsel, described the transaction sequence under the facts and regulatory environment, as an H(e)3 Application by CHTE to acquire control, with FSLIC assistance, of the four insolvent thrifts, by merger into CHTE’s wholly owned subsidiary, SSA. The header and subject line of the opinion is the “Savings and Loan Holding Company Application H-(e)3 filed by *282 The Caroline Hunt Trust Estate Dallas, Texas FHLBB No._to acquire control with FSLIC financial assistance of [City Savings, Lamar Savings, Briercroft Savings, and Stockton Savings] by merger into the Acqui-ror’s wholly-owned subsidiary.” Id. at WSJ069 0818 (omission in original). The first sentence of the twenty-one page legal opinion, under “FACTS,” states: “The Caroline Hunt Trust Estate (the ‘Acquiror’ and ‘Trust’), proposes to acquire control of substantially all the assets and certain liabilities of [the four insolvent thrifts] (collectively the ‘Target Institutions’) through the following steps: ____” Id. at WSJ069 0819 (parentheti-cals in original). The sequential transactional steps were delineated as: (1) the appointment of FSLIC as receiver for the targeted institutions; and (2) the transfer of the assets and certain of the liabilities from FSLIC to SSA pursuant to the Assistance Agreement.
The legal opinion describes CHTE’s proposal including FSLIC financial assistance in the form of yield maintenance and capital loss coverage, primarily on the acquired thrifts’ assets and liabilities. 18 SSA’s preac-quisition assets were not so covered. In short, FSLIC would guarantee certain rates of return and cover certain losses on assets from the acquired thrifts, but did not extend that guarantee to SSA’s existing portfolio. FSLIC would issue two promissory notes — a “Net Worth Deficit Note” for the amount of the net worth deficit of the acquired thrifts plus certain net operating losses, and a second promissory note, the Regulatory Capital Note:
to assure that Southwest has adequate regulatory capital after the consummation of the acquisition so that it is able to attract depositors and other investors, the FSLIC will contribute additional capital to Southwest by executing a second promissory note (the “Regulatory Capital Note”) payable on the same terms and bearing interest at the same rate provided in the Net Worth Deficit Note.
Id. at WS J069 0819.
The Regulatory Capital Note would be credited toward SSA’s capital requirements.
The promissory note(s) issued to and made to the order of Southwest, pursuant to the Assistance Agreement, will be a credit to Southwest’s regulatory capital to the extent that such credit increases Southwest’s ratio of regulatory capital to total liabilities to _% at the Effective Date, for purposes of determining compliance with Section 563.13 of the Insurance Regulations, or any successor regulation.
Id. at WSJ069 0836 (omission in original).
“In consideration of the issuance by FSLIC of the Regulatory Capital Note,” SSA would also issue common stock warrants and two series of preferred stock, one to FSLIC and one to CHTE. As a result, FSLIC would have the right to acquire 50% of SSA’s outstanding common stock (exercisable from May 1988 until May 2003), and the right to 90% of SSA’s value at the end of ten years, up to a maximum of $54 million, with CHTE allowed to retain the remaining 10% up to a maximum of $6 million. Id. at WSJ069 0820. For a period of up to ten years, FSLIC would forbear from taking enforcement action against SSA under 12 C.F.R. § 563.13 , provided that SSA’s regulatory capital did not fall below 3% of total liabilities.
The FSLIC will forbear, for a period not to exceed ten years ... from exercising its authority to take action under Section 563.13 Regulatory Capital Requirement of the Rules and Regulations for the Federal Savings and Loan Insurance Corporation (“Insurance Regulations”) for any failure of Southwest to meet the Regulatory Capital Requirement of Section 563.13 of the Insurance Regulations, provided that, Southwest’s regulatory capital does not fall below 3.0% of total liabilities.
Id. at WSJ069 0835. The Trust’s request for preapproval of debt was explained, and the legal opinion concurred that the Board had authority to grant the exemption. Id. at WSJ069 0828. Likewise, no legal objection was raised to the Trust’s request for a limit *283 ed waiver of preapproval of transactions with affiliates. Id. at WSJ069 0830. 19
“[T]he Trust requests that FSLIC release the Trust from the net worth maintenance provisions____” because of the substantial increase and uncertainties attendant the proposed mergers. DX 140 at WSJ069 0822-23. Counsel had no objection to the release. 20
Girded with the foregoing packages, the FHLBB approved the transactions and issued implementing resolutions on May 18, 1988. DX 152-55. The voluminous resolutions included No. 88-364P (Briercroft), 88-372P (City Savings), 88-380P (Lamar Savings), and 88-388P (Stockton), which all recite the following: (1) FSLIC would be appointed as receiver for each respective thrift; (2) CHTE was the holder of 90% of the common stock of SSA, the Assuming Association; and (3) CHTE and SSA, defined as “the Applicants,” had applied for approval to acquire control of the respective thrifts. DX 152, PI. 000483, 000494, 000516, 000527, 000550, 000561, 000583, 000594.
Recitals included the Board’s consideration of proposed FSLIC agreements, including the Assistance Agreement, “... pursuant to which the FSLIC in its corporate capacity will provide financial assistance and certain indemnifications to the Assuming Association to facilitate the Acquisition----” DX. 152 at Pl. 000495, (emphasis supplied). Immediately following these “whereas clauses,” under the subtitle “Holding Company Approval,” the Resolutions determined in the “resolved clauses” 21 that (1) the acquisition of control by the “Applicants” (CHTE and SSA) would not be detrimental to FSLIC, (2) the “Applicants” were qualified to acquire the targeted thrifts, and (3) the acquisition would be consistent with the standards of the National Housing Act, 12 U.S.C. § 1730a(e)(2)(1982). The Resolutions authorized the execution of appropriate documents in the form proposed in the Board packages, 22 and granted the regulators the authority to decide which applicant, CHTE or SSA, would sign necessary documentation:
RESOLVED FURTHER, That the Director, or Director, Financial Assistance Division, FSLIC, with the concurrence of the ORPOS and the OGC, shall determine which of the Applicants are necessary parties to such stipulations and other documents; ....
' DX 152 at PL 000496, 000529, 000563, 000596.
The Resolutions preapproved certain future debts of CHTE, preapproved certain CHTE affiliated transactions, 23 authorized *284 FSLIC to execute the Assistance Agreement, and granted the $307.5 million capital credit to be used to determine post-merger SSA’s regulatory compliance under both existing and future regulations:
[t]hat for regulatory accounting purposes, the promissory note(s) issued to and made to the order of the Assuming Association pursuant to the Assistance Agreement will be a credit to the Assuming Association’s regulatory capital to the extent that such credit increases the Assuming Association’s ratio of regulatory capital to liabilities to five percent (5%) at the Effective Date of the Acquisition, for purposes of determining compliance with § 563.13 of the Insurance Regulations, 12 C.F.R. § 563.13 (1987), or any successor rule or regulation; ____
DX 152 at PL 000503-04, 000536-37, 000570-01, 000603-04. A forbearance letter was authorized and subsequently issued. DX 152 at PL 000505, 000538, 000572, 000605; and DX 139 at WOB023 1270.
Resolution 88-393NP released CHTE from any obligation to maintain SSA’s net worth, including under the regulatory capital maintenance letters. 24 DX 152 at PL 000614-15. See also PX 17 and 18. The Resolution recited that SSA required as a condition to entering into the various Acquisition Agreements and the Assistance Agreement, that CHTE be released from any obligation to maintain SSA’s net worth. It was likewise a condition of FSLIC 25 entering into the Assistance Agreement “that the $25 million of subordinated debt of the Assuming Association to the Hunt Trust be converted into equity capital.” DX 152, PL 000614.
Implementation
Pursuant to these and other FHLBB Resolutions, a myriad of agreements were signed. FSLIC was appointed receiver for the four insolvent thrifts and transferred ownership interests in the four thrifts to SSA. Jt. Stip.H 9. FSLIC and SSA signed the Assistance Agreement. DX 158; Jt. Stip. IT 8. The Assistance Agreement, to which CHTE is neither a signatory nor a named party, conditioned FSLIC’s obligations thereunder in part on (1) the subdebt contribution and addition to SSA’s equity capital, (2) SSA’s issuance of preferred stock to FSLIC, and (3) issuance of warrants to FSLIC to acquire 387,247 shares of SSA’s common stock. DX 158, IT s 2(b), 6, 8, and 9 at PCR001 0071-0072.
The subordinated notes were contributed by CHTE to SSA’s equity capital. They were interlined with the notation “[Cancelled *285 May 18, 1988 as a contribution to equity capital of the Maker by Payee, Caroline Hunt Trust Estate.” 26 PX 3. Minutes of a May 17, 1988 meeting of SSA’s Board of Directors stated “[t]he debentures payable to the Caroline Hunt Trust Estate were discussed and following discussion, Mr. Crisp informed the Board that the Caroline Hunt Trust Estate would contribute the principal amount of the debentures in the amount of $23,780,462.06 to permanent capital pursuant to the various agreements with FSLIC.” DX 498-000. The FHLB-Dallas subsequently acknowledged this was contributed capital. DX 210.
The government argues that while CHTE held the subdebt, only SSA could include the relinquishment of that debt to the thrift’s equity. Gov’t Resp. to PPF No. 152, citing Tr. 3467-68 (Bradley). In contrast, CHTE, consistent with its position that the Assistance Agreement was one of several documents in an overarching acquisition scheme, asserts that only the Trust could contribute its debt instruments, and as majority shareholder, commit that contribution to equity as required under its H-(e)3 approved by the FHLBB.
There is no dispute that CHTE owned almost $24 million in subdebt on which SSA’s payments were current. Its relinquishment deleted a future obligation of SSA, and that amount was added to SSA’s capital. The reduction of SSA’s debt correspondingly increased the thrift’s assets. The outstanding balance owed on the subordinated notes as of May 17, 1988 was $23,780,462.06. DX 133.
By Board resolution, SSA created a Series A Special Preference Stock which granted FSLIC the then vested right to 90% of the first $60 million of the postmerger SSA’s earnings or value. Preferred stock certificates were issued. PX 7 & 9; Tr. 322 (Miller). Under a warrant agreement, SSA also granted FSLIC the right to purchase 387,247 shares of common stock — the right to acquire 50% of the stock of the postmerger SSA in ten years. 27 DX 148, 149; Jt. Stip. 1111. Granted that right would not be realized for ten years, the anticipated time period necessary for economic recovery, it was nevertheless a vested interest. As a result, the Trust’s 94% interest in SSA could be literally cut in half — diluted to accommodate the government’s interest — a reduction possible only with, at minimum, the Trust’s acquiescence, because SSA had no treasury stock. Tr. 1770-72 (Boone); Tr. 1399 (Leibold); Tr. 1012-13 (Crisp); Tr. 234-35, 634, 645, 660, 945 (Miller) (Neither the stock warrants nor the preferred stock could be issued without the Trust’s approval.). Root acknowledged that to the extent FSLIC’s shares went up, CHTE’s ownership interest was diminished. 28 Tr.1904-06 (Root); Tr. 1340-41 and 1770-71 (Attorneys Boone and Herrick) (equity dilution required the consent of the Trust).
A ten-year partnership was formed. CHTE allowed the vehicle of SSA, including its highly regarded management, to acquire the four distressed thrifts, contributed over $23 million in promissory notes and relinquished a significant interest in the profits and equity of the postmerger SSA, all for the opportunity to be a 50% shareholder of a much larger merged institution. The government extended financial assistance including a $307.5 million regulatory capital credit, and avoided the cost of liquidating these four thrifts with the attendant negative publicity and reduction in public trust, not to mention the potential run on its insurance fund. At the end of ten years, the government would be 50% owner of a hopefully successful financial enterprise and have a preferential right to its profits.
FSLIC financial assistance included a ten-year, interest-bearing promissory note to SSA in an amount equal to the negative *286 capital of the four acquired thrifts. Tr. 796-97 (Miller); DX 158 at PCR001 0081-85. Initially, the amount of the note was calculated as approximately $483 million, but following an audit, the amount was increased to in excess of $700 million. DX 266 at FCR349 1182; Tr. 320-21, 797 (Miller). That portion of the note necessary to increase postmerger SSA’s regulatory capital to 5% of liabilities, was credited to SSA’s regulatory capital (the “capital credit”). DX 158 at PCR001 0083. Subsequently computed, the capital credit was $307.5 million. Gov’t Resp. to PL Facts No. 154.
An FHLBB letter dated May 20, 1988, granted forbearances to both CHTE and SSA. 29 DX 163. The $307.5 million capital credit applied to SSA’s regulatory capital “to the extent that such credit increases SWS’ ratio of regulatory capital to total liabilities to 5.0% at the Effective Date, for purposes of determining compliance with Section 563.13 of the Insurance Regulations, or any successor regulation.” DX 163 at WSJ069 0524. FSLIC also agreed to forbear for ten years from specified regulatory remedies if SSA failed to meet its minimum regulatory capital requirement, “provided that SWS’ regulatory capital did not fall below 3% of total liabilities.” DX 163 at WSJ069 0522, (emphasis in original). The transactions with affiliates and debt preapproval forbearances were granted.
FSLIC agreed to pay SSA a guaranteed yield on “covered assets,” i.e., assets acquired in the transaction, with certain exceptions, including marketable securities and performing one-to-four family residential loans, which had their own form of assistance; and to reimburse SSA for capital losses upon the disposition of such assets. DX 158 at PCR001 0062-64, PCR001 0073, PCR001 0077. For the covered assets, FSLIC also committed to give SSA cash if the assets sold below their book value. The marketable securities SSA received as a part of the transaction were not covered, they were marked to market — to the then current market rather than book value. Barron Bancshares, Inc. v. United States, 366 F.3d 1360, 1365 (Fed.Cir.2004). Tr. 794-99 (Miller). SSA’s preexisting assets, referred to as noncovered or uncovered, received no assistance. Tr. 398, 794 (Miller). Gov’t Facts Nos. 83 and 84 and Pl. Resp.
The cost of this government assistance was less than the cost to liquidate these thrifts. FSLIC rarely did a transaction where the cost of the transaction itself exceeded the liquidation cost. Pl. Facts No. 367 and Gov’t Resp; Tr. 1866-67 (Root). Carrie Wagner (“Wagner”), then employed in the Analysis and Evaluation Division (“AED”) of FSLIC, and the lead financial analyst in the SSA transactions, testified that SSA’s acquisition of these troubled thrifts saved the government between $400 and $500 million in liquidation, depositor and other costs. Tr. 3162-65 (Wagner).
CHTE was a disclosed principal
The government argues it did not have a contract with CHTE, particularly concerning the $307.5 million regulatory capital credit. In addition to the acknowledgments and recitations of CHTE’s role in these acquisitions, as well as the structure of the foregoing transactions and history of prior dealings, all summarized above, negotiations, disclosures, and understandings of the participants, provide additional foundational support for the findings and conclusions herein.
CHTE argues that despite their titles, the source of their paycheck, or the heading of their stationery, many if not all of their negotiators either wore different hats on different occasions (SSA vice CHTE), or regardless of their hats, acted only on the behest of, or with the concurrence or acquiescence of, the Trust, a fact known to the government and expressly communicated by the negotiators. In a “get real” mode, CHTE also urges the court to look at the factual and legal reality of the transactions. CHTE, a 90% shareholder, with control of SSA’s Board of Directors, called the shots. A major decision to more than quadruple SSA’s assets and liabilities by taking on four insolvent thrifts was truly made by CHTE, *287 the holding company, a known and disclosed principal. CHTE also points out that under the Southwest Plan, FHLBB courted potential investors, rather than potential acquiring thrifts, to resolve the thrift crisis. Tr.l904r-05 (Root) (investors were solicited to make proposals).
The government relies on documents to belie this schizophrenia. The deal that was allegedly breached according to CHTE’s Complaint in this matter was in the Assistance Agreement, and only SSA signed that document. The sole benefit and integration clauses deny the existence of any other party, and the attorney negotiators, Herrick and Boone, both paid by. SSA, expressly disclaimed any representation of the Trust in pre-merger correspondence to the Board. All this, the government urges, is evidence that the government did not enter into a contract with the Trust. Tr. 227 (Miller); Tr. 678 (FSLIC counsel and government negotiator Mike Duhl) (government said they didn’t give a “flip” about the Trust). Moreover, the government argues that the Trust, which purposely and effectively insulated itself from any further obligations of SSA by obtaining a release of the net worth maintenance letters, should not be allowed now to change horses in midstream and assert contractual privity.
The Holding Company Act and regulations required CHTE to obtain federal approval for its subsidiary to acquire the troubled thrifts. In his summary of the May 19, 1988 recommendation package to the FHLBB concerning the proposed merger, Stuart Root, Executive Director of FSLIC (“Root”), described the structure of the proposal as CHTE’s H-(e)3 Application:
E. Holding Company Application
According to the opinion of the Corporate and Securities Division (“CASD”), attached as Exhibit L-2, the Application on Form H-(e)3 of the Caroline Hunt Trust and Southwest (“the Applicants”) to acquire control of the Associations complies with the applicable standards of the Savings and Loan Holding Company Act, and CASD has no objection to the acquisitions. The Application, a copy of which is attached hereto as Exhibit L-12, requests approval of the structure of the Acquisition. We recommend that the Bank Board, as operating head of the FSLIC, approve the Applicants’ H-e(3) application pursuant to § 408(e)(1)(B) and (2) of the NHA.
DX 140 at Pl. 000330.
The CASD opinion was that the transfer of the four thrifts into SSA could not be approved without CHTE’s H-(e)3 Application being approved first. Tr. 2792-98 (Williams); Tr. 1418 (Leibold) (“[tjhere wouldn’t have been a deal without this application”); Tr. 1418 (Leibold). The government does not dispute that SSA’s acquisition of the four thrifts could not have been accomplished without the approval of CHTE’s H(e)3 Application.
Moreover, by virtue of its prior H-(e)3 Applications, and the numerous references to CHTE’s ownership in documents and FHLBB recommendation packages, government knowledge of CHTE’s ownership of SSA is clear. The FHLBB knew the Trust held over 90% of SSA’s stock and controlled the Board of Directors, the latter being a source of concern, prompting a recommendation that the Board be expanded with independent directors. DX 20; Tr. 1757 (Boone) (Trust controlled the Board of Directors); Tr. 3252-53 (Jardieu) (too many CHTE folks on the SSA Board of Directors which presented at least the appearance that they are more interested in the holding company’s activities that those of the thrift); Tr. 3496 and 3516 (Bradley) (SSA’s Board of Directors was not independent). See also DX 66 (SSA Board resolution of October 22,1987 authorizing Miller to negotiate for FSLIC-assisted acquisitions — with Board members being Crisp, David Sands, and Miller). Moreover, an acquisition of this size with its Sisyphean 30 debt load could not have been approved without the express agreement of CHTE, the 90% shareholder.
*288 Also, FSLIC was granted a substantial equity interest in the Trust’s subsidiary— warrants to acquire 50% of SSA’s common stock in ten years, and preferred stock in the lion’s share of future profits. The Trust’s ownership interest in SSA could not have been diluted without the Trust’s agreement. Danny Wall, former FHLBB Chairman, testified that CHTE “as a control owner, the management of the institution could not have signed anything that its owner would not have agreed to ____” Tr. 3057 (Wall). See also Tr. 1473 (Leibold) (it was simply a fact of life that SSA was a recognized agent of a recognized principal); Tr. 1770-71 (Boone) (In the corporate world, a 90% shareholder’s interest is not diluted without that shareholder’s consent. That documents may recite that SSA is issuing stock, does not mean SSA did it on its own.).
.While CHTE was a disclosed principal, on the proverbial other side of the fence, government negotiators could talk — only the appropriate officials for the FHLBB, the other disclosed principal, could contract. Just as government negotiators represented Wall and the Bank Board, Crisp and Miller were taking their directions, and derived their authority, from the Trust, the decision-maker. Tr. 1772; 1246 (Herrick — negotiating with the FHLBB was like dealing with a Hydra). The FHLBB and CHTE made the decisions.
In addition to allowing the use of its subsidiary, CHTE provided material consideration for the acquisitions, subordinated notes and the stock warrants. See Tr. 1774 (Boone) (analogizing CHTE’s ownership and contribution of the subordinated notes to someone who borrows money from a bank. The debtor cannot simply call up the bank and cancel the debt, only the creditor could do that.). In an admission of the Trust’s contribution of the $23.5 million subdebt, then FHLBB Chairman Wall testified before the Committee on Banking, Finance and Urban Affairs of the United States House of Representatives on September 14, 1990, that the conversion of CHTE’s subdebt to equity “was done in order to eliminate an accruing interest obligation, to more clearly put it at risk as an equity investment and in an attempt to even more inextricably lock in the Trust.” PX 515 at 161, (emphasis supplied); Tr. 3059-61 (Wall). Also, Chairman Wall, when asked in a congressional hearing about minority or female participation in the Southwest Plan, testified that one acquisition was with a trust with a female beneficiary, a reference to CHTE. PX 512 at 32;Tr. 3090-92.
Consideration flowed directly to CHTE, specifically, the release of the regulatory capital maintenance letters as well as preappro-val of CHTE’s debt and transactions with affiliates restrictions. 31 That SSA, as well as the Trust benefited does not deny that benefits flowed directly from the government to the Trust and that the government’s documents so stated. The government’s release of CHTE’s regulatory capital maintenance letters, CHTE’s contribution of the subdebt and the equity split to the FSLIC, were material, substantial, and significant parts of these acquisitions.
With the foregoing background, negotiations further support the involvement of the Trust as a principal. Despite extensive discussions, by the end of 1987, no deal had been reached. Communication then commenced directly with FHLBB in Washington, DC. The negotiators, selected by Crisp on behalf of the Trust were Miller, Hearne, Dick Park (SSA’s chief financial officer), Mike Boone (outside Dallas corporate counsel (“Boone”)) and Mike Herrick (outside Washington regulatory counsel (“Herrick”)). Tr. 211-12 (Miller); Tr. 1004 (Crisp). Crisp’s *289 approach to negotiations was to form a very competent team of negotiators that, as. a “good tactic,” did not include himself — the decision-maker. Tr. 1004 (Crisp). This arrangement was confirmed by other witnesses. Tr. 1245^16 (Herrick) (negotiations were overseen by Crisp who had the overall decision-making authority) and 1773 (Boone) (government negotiators Mike Duhl (“Duhl”) and John Rogers (“Rogers”) took directions from Danny Wall and the Bank Board; Boone and the other “SSA” negotiators got their directions from Crisp). Negotiations were extensive. Miller testified there were approximately 25 government representatives at the first meeting in Washington at the office of Hopkins and Sutter, counsel for FSLIC. The government’s negotiating team was lead by FSLIC counsel Duhl and Rogers of Hopkins & Sutter. Day-to-day negotiations were overseen by Crisp who had the overall decision-making authority for both the Trust and SSA. The SSA/CHTE negotiating team traveled several times to Washington, DC to negotiate with Rogers and Duhl and other government representatives.
In addition to the consideration provided to and from CHTE, the recitations in the documents, and the government’s prior knowledge of CHTE’s ownership and control of SSA, and having observed the testimony of the witnesses, the court finds that the “SSA” negotiators informed government regulators that they were negotiating acquisitions for the Trust, via the vehicle of SSA, its subsidiary thrift. Miller, lead negotiator for SSA, testified that his team was negotiating on behalf of both CHTE and SSA, and repeatedly told government representatives that CHTE was the decision-maker. Miller told government negotiators “we are here on behalf of CHTE. We would not be here but for them” and “[w]e’re not negotiating separate and apart from the Trust.” Tr. 226-28, 678-79 (Miller). “They were consciously aware, just as they had someone to talk to, that we did in the same fashion. And that every — well, it is a simple matter. We couldn’t deliver the transaction. We were not the principals. We were working on behalf of the decisionmakers.” Tr. 247 (Miller). See also Tr. 1760-63 (Boone); Tr. 1244-45 (Herrick) (Crisp had the overall decision-making authority); Tr. 1170, 1189 (Crisp — the SSA negotiators informed him that they had communicated the Trust’s required conditions).
As Boone testified, he and his team negotiated on behalf of the Trust:
Q. Did you ever have occasion to tell the Government representatives in these negotiations that your team was negotiating on behalf of the Caroline Hunt Trust Estate?
A. I don’t know how we could have made it any clearer. We said from the very beginning that this was a question of what the trust would do or not do. The trust had [sic], again, was a very strong financial entity and had lots of options. And it was not going to necessarily just turn over and do any transaction that the Government proposed.
Regardless of what they might think about their insignificance, and there was always that at the beginning anyway, we thought that that’s who they had to go through. That’s who I had to go through to get the transaction done from our side, and so — go ahead.
Q. Mr. Boone, did you say these things yourself to the Government representative: A. Yes, I sure did.
Q. Did you hear anyone else say it?
A. Mi'. Miller, several times.
Tr. 1761-62.
Attorney Herrick’s testimony was in accord:
Q. Did any of your negotiating team ever tell the Government in the spring of 1988 that your team was negotiating on behalf of the Caroline Hunt Trust Estate?
A. That concept was made clear continually. And it was made clear in many ways, but the principal way it was made clear in almost every meeting was, you know, that there was a discussion of the net worth maintenance stipulation and the fact that that would have to be released in regard to any transaction that was done, so as to limit the liability of the Caroline Hunt Trust Estate.
But it was also discussed in other ways. And, in fact, the Holding Company Act and *290 regulations, you know, required that the Caroline Hunt Trust Estate as a registered holding company, you know, be a party to this transaction and a party to any such a transaction where there is going to be an acquisition involving Southwest Savings.
Q. Based on your presence at these negotiating sessions, Mr. Herrick, is it possible that the Government didn’t hear those things, didn’t understand those things?
A. No.
Tr. 1250-51.
Negotiations included percentages of equity, a deal point only the Trust could provide. In an April 19, 1988 Memorandum to the government, outstanding issues included an equity split with 40% of the shares of SSA retained by existing shareholders with 60 % to FSLIC. DX 101 at WSJ026 0768. On April 20, 1988, the split was 63% for the government with 37% to the shareholders, with the latter having the right to reacquire 25% of the government’s share depending on SSA’s performance. 32 PX 234C and Tr. 286-87(Miller). On May 6, 1988, the proposed equity split was 60% to FSLIC with an agreement to reduce that to 40% if SSA met certain performance standards..
On May 8,1988, in Washington, DC, Boone thought a deal had been reached. The Trust signed a shareholder’s agreement on equity sharing. Tr. 1777-78. On May 9, 1988, government negotiators called the deal off, saying the Bank Board wanted more equity. Chairman Wall wanted to meet directly with Miller. Tr. 235-36 (Miller). Miller and Wall met alone on May 10, 1988. 33 Wall demanded 95%. Tr. 238-45 (Miller), Tr. 1011-12 (Crisp), Tr. 1778-79 (Boone). As he had no authority to further dilute the Trust’s interest, Miller and his team returned to Dallas. Tr. 235-36 (Miller), Tr. 1777-78 (Boone). Crisp was informed of these developments. In a speaker phone conference in Crisp’s Dallas office, the government offered flexibility. Crisp then compromised on equity, and a deal was reached shortly thereafter. Tr. 1781.
The court is not persuaded by the government’s position that Herrick was only negotiating for SSA because. Herrick disclaimed representation of the Trust (“we are not counsel to the Trust”) in his February 18, 1988 letter to the FHLBB regarding the release of the Trust’s regulatory capital maintenance letters, and his May 4, 1988 letter to ORPOS regarding proposed for-bearances. DX 87 at 2; DX 114 at 4. Those same letters present the Trust’s position on the release and on the forbearances — content that belies his qualifier. Tr. 1260 (Herrick) (testifying he did not recall why the letters had the disclaimer). Furthermore, attorney Herrick testified that he had previously represented both SSA and the Trust. In these negotiations he took directions from CHTE and then delivered the message to the government. Tr. 1004 (Crisp) (Attorneys Boone and Herrick had both worked for CHTE in connection with prior acquisitions). The court does not find those disclaimers to be either binding on this court, or determinative of the issue of contract liability. Nor is the fact that the negotiators’ fees and salaries were paid by SSA decisive on contract status, particularly here where the intent, understanding, and documents of the parties tell a different tale.
That some documents refer to SSA as the acquiring association and others refer to CHTE as the acquirer, majority shareholder or the holding company with control over SSA, does not alter the court’s findings either. Fundamentally, that SSA was the subsidiary thrift that CHTE chose to take ownership of the insolvent thrifts, is consistent *291 (indeed dictated by) the structure of the acquisition under the H-(e)3 Application, negotiations, the FHLBB resolutions and the intent of the parties. While it is not clear from the record when the Trust’s H-(e)3 Application was submitted (it is dated in blank May _, 1988), it was in, and the foundation of, the package approved by the FHLBB — the government entity with contracting authority.
The court also rejects the government’s argument that because the SSA Board resolution gave Miller full authority to negotiate specific terms to be memorialized in an Assistance Agreement, Miller was negotiating only for SSA. 34 While Miller and the negotiating team had the flexibility to negotiate, all significant terms had to be taken, and were in fact taken, to CHTE for approval, a reality known to, discussed with, and acknowledged by the government.
Documents also confirm CHTE’s substantive participation. Miller’s notes of a February 1, 1988 meeting with government representatives, including Roger Martin (one of the three members of the FHLBB), Root and Selby and his administrative aide, Alise Py-lan, memorialize CHTE’s deal points communicated by Miller in the meeting, specifically, release “net worth maintenance,” retain debentures (the subdebt) according to their terms, retain control, and share equity with FSLIC in a reasonable percentage with an option to regain control. PX 234B. The release would benefit only CHTE; only CHTE could dilute its ownership of SSA. Miller testified he told the assembled group that these were the deal points SSA’s stockholder (the Trust) required. Tr. 280-83 (Miller).
Accordingly, in partial summary, the court concludes that the government was informed that CHTE was a party principal and negotiations, as well as the ultimate agreement, included terms that only CHTE could provide.
Adverse Inferences
While CHTE’s witnesses testified that they identified themselves as negotiating for the Trust from which their decision-making authority came, CHTE requests the court draw an adverse inference from the government’s failure to call its negotiators, particularly Duhl or Rogers, as witnesses to rebut CHTE’s position. These former government employees were not available to CHTE for trial preparation without a government attorney monitoring the conversation.
An adverse inference is the “ ‘well settled principle of evidence which provides that, where a party fails to call a witness available to him and who has knowledge of material facts, the court may draw the inference that the testimony of the witness concerning those facts would have been unfavorable to the party.’ ” Day & Zimmermann Serv. v. United States, 38 Fed.Cl. 591, 603 (1997), citing Barnett v. United States, 6 Cl.Ct. 631, 671 (1984). This evidentiary precept, established in Graves v. United States, 150 U.S. 118, 121 , 14 S.Ct. 40 , 37 L.Ed. 1021 (1893), provides “that if a party has it peculiarly within his power to produce witnesses whose testimony would elucidate the transaction, the fact that he does not do it creates the presumption that the testimony, if produced, would be unfavorable.” The inference, however, is adverse, not conclusive. JHP & Assoc, v. NLRB, 360 F.3d 904 , 909-10 (8th Cir.2004); New World Communications v. NLRB, 232 F.3d 943 , 946 (8th Cir.2000). See Energy Capital Corp. v. United States, 302 F.3d 1314, 1323 (Fed.Cir.2002) (noting the trial court declined to apply an adverse inference because the witnesses were equally available to both parties); Aptix Corp. v. Quicktum Design Systems, Inc., 269 F.3d 1369 , 1374 (Fed.Cir.2001) (approving adverse inference against witness who invoked his Fifth Amendment privilege); A.B. Dick & Co. v. Burroughs Corp., 798 F.2d 1392 , 1400 n. 9 (Fed.Cir.1986) (noting propriety of inference and explaining that the likelihood of bias may make witness not equally available to both parties). Cf. Herbert v. Wal-Mart Stores, Inc., 911 F.2d 1044, 1047-49 (5th Cir.1990) (declining to apply rule where witness could have been subpoenaed by either party).
*292 CHTE argues that because the government prohibited contact with former government employees without the permission and participation of Department of Justice attorneys, they were practically unavailable to CHTE. 35 The court finds that insistence on the presence of government counsel, in this instance, made the former government negotiators “unavailable” in a practical sense. Jones v. Otis Elevator Co., 861 F.2d 655, 659 (11th Cir.1988) (affirming adverse inference jury instruction against defendant for not calling witnesses with direct personal knowledge of material facts, in part, because they were employees of defendant and were practically unavailable to plaintiff). That CHTE could have deposed these witnesses, but for the Trust’s selection to be in the so-called “first wave” of Winstar cases in which depositions were forgone, is neither a defense nor a nullification of this inference. 36
In contrast to the several witnesses who testified as to CHTE’s role in the negotiations and the disclosure of that role to the government negotiators, the government’s sole witness as to negotiations was former FHLBB Chairman Danny Wall, who, while making the decisions on behalf of the government, was not directly involved in many of the early meetings. Wall dealt with many transactions and understandably, his recollection of details conveyed to him by government negotiators was not refreshed. 37 Accordingly, CHTE’s testimony in this regard in essentially unrebutted. Miller, Crisp, Herrick and Boone testified in this regard. CHTE Trustee Crisp testified that he gave Miller his negotiating parameters; these instructions were confirmed by Miller. Tr. 1000 (Crisp) (he, on behalf of the Trust, authorized Miller to acquire the troubled thrifts); 1005-09 (Crisp) (he approved the positions Miller took in the proposals he made to the government; Crisp informed Miller that the Trust had to have the net worth maintenance letters released because of uncertainty over the large institutions being acquired; the release of the Trust and a ten-year period for economic improvement were non-negotiable conditions to which Miller reported he had never received any negative reaction from the government); Tr. 200-OS, 216, 234-35, 644 (Miller) (Crisp was in the same office building and Miller kept him informed as the transaction evolved; Miller followed Crisp’s instructions on equity split and release of the net worth maintenance letters; the Trust signed a shareholder authorization for the equity split; in sum, Miller was authorized to negotiate pursuant to directions received from the Trust.). Testimony of attorneys Herrick and Boone corroborated the forgoing. Tr. 1760-61, 1772-73, 1780-81 (Boone) (CHTE appointed Miller as the lead negotiator — Boone would report to and get instructions from Crisp); Tr. 1245-46,1249-50 (Herrick) (same).
The court also rejects the government’s position that adverse inferences may not be considered in determining whether plaintiff has satisfied its burden of proof that CHTE was a disclosed principal, citing Bosies v. Benedict, 27 F.3d 539, 543 (Fed.Cir.1994). CHTE presented a prima facie case through testimony of at least four witnesses that government negotiators were told CHTE was the decision-maker in the negotiations. The absence of testimony from numerous government negotiators fully warrants the inference *293 that they would have admitted (or at least not denied) that CHTE was a disclosed principal. Adams v. Dept of Transp., FAA, 735 F.2d 488, 492 (Fed.Cir.1984) (“[P]etitioners’ silence before the Board, after the agency had established a prima facie case, fully warranted the Board’s drawing of an adverse inference.”). See also Anderson v. Dept. of Transp., FAA, 827 F.2d 1564, 1572 (Fed.Cir. 1987) (applying adverse inference to add to agency’s prima facie ease). Cf. Knorr-Bremse Systems Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337,1341 (Fed.Cir. 2004) (limiting adverse inference on lack of exculpatory legal opinion in patent cases) and Insituform Technologies, Inc. v. CAT Contracting, Inc., 385 F.3d 1360, 1377 (Fed.Cir. 2004) (remanding in light of Knorr-Bremse). Alternatively, based on witness testimony, the court finds that even without the application of an adverse inference, CHTE was a disclosed principal.
Contract formation
As a result of the foregoing, CHTE contends, and it is found, that the Trust had a contract with the government to acquire up to fifteen insolvent thrifts, including the four involved in this initial transaction. The contract included the $307.5 million capital credit. ‘“When the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals.’ ” Winstar, 518 U.S. at 895 , 116 S.Ct. 2432 , 135 L.Ed.2d 964 (citation omitted). Accordingly, fundamental contract principles are applied.
The testimony, agreements, resolutions, and implementing documents summarized above, “constitute a contract only if three elements are met: ‘mutual intent to contract including an offer and acceptance, consideration, and a Government representative who had actual authority to bind the Government.’ ” La Van v. United States, 382 F.3d 1340 .1346 (Fed.Cir.2004) (“La Van III”) (citing Cal. Fed. Bank v. United States, 245 F.3d 1342, 1346 (Fed.Cir.2001)) (quoting Massie v. United States, 166 F.3d 1184, 1188 (Fed.Cir. 1999)). See also Barron Bancshares, Inc. v. United States, 366 F.3d 1360, 1375 (Fed.Cir. 2004) (“[M]utual intent to contract is required to prove an enforceable agreement ____[TJhere must be an offer, an acceptance, consideration, and governmental authority.”); Anderson v. United States, 344 F.3d 1343, 1353 (Fed.Cir.2003).
The Federal Circuit recently revisited the application of contractual requisites in the Winstar context. In La Van III, investors, who like CHTE, were defined as acquirers in FHLBB resolutions, 38 infused funds for the government-assisted conversion of a failing state-chartered stock association into a federally-chartered stock association. The Federal Circuit affirmed the finding of a contract between the government and the investors in Board resolutions and internal memorandums that reflected favorable accounting treatment as the epicenter of negotiations. Government participation was contractual not merely regulatory. “ ‘[Although a contract may arise as a result of the confluence of multiple documents, there must still be a clear indication of intent to contract and the other requirements for concluding that a contract was formed.’ ” La Van III, 382 F.3d at 1346 (citing in comparison D & N Bank v. United States, 331 F.3d at 1379). There were no negotiations in. D & N Bank. The documents did not mention favorable accounting for goodwill subsequently eliminated by FIRREA, the basis for the breach alleged; rather the Bank Board simply performed its regulatory function and approved the merger. ‘“Something more is necessary.’ ” 331 F.3d at 1379 (emphasis in original). See Fifth Third Bank of Western Ohio, 402 F.3d at 1231 -34 (citing the parties’ negotiations, documents, and surrounding circumstances in finding a contract and ascertaining its terms).
Offer
An offer is “the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” Anderson, 344 F.3d at 1353 . *294 See also Linear Tech. Corp. v. Micrel, Inc., 275 F.3d 1040, 1051 (Fed.Cir.2001) (quoting Restatement (Second) of Contracts § 24). While acknowledging there were prior negotiations, plaintiff contends that CHTE’s H(e)3 Application was its “offer.” Pl.’s Post-Trial Response Brief at 12. Therein, CHTE is the “applicant” and SSA is the identified subsidiary. The Application references SSA’s Proposal dated March 7,1988 (DX 92), amended from time to time, and requests forbearances and waivers noted to have been filed previously. “By this Application H-(e)3 (‘Application’), SWS and the Trust, to the extent required by law, request the approval of the FHLBB, as acting head of the FSLIC, for the merger [pursuant to applicable laws and regulations].” DX 138 at Pl. 000004. The Application is sufficiently definite to constitute a contractual offer to acquire failed thrifts by merging their assets and liabilities into CHTE’s subsidiary. Home Sav. of Am., 399 F.3d at 1348-49 (“The Resolutions recognized that the ‘offer’ that led to the contract was [the holding company’s] application for regulatory approval of [the subsidiary’s] purchases ____”).
A capital credit in an amount to be negotiated was requested in each proposal sent to the FHLBB by Miller beginning in October, 1987, including the March 7, 1988 proposal referenced in the H-(e)3 Application and its subsequent derivations. 39 The court finds that in its H-(e)3 Application, CHTE made an offer to the government to acquire troubled thrifts through the vehicle of its subsidiary SSA, and that offer included the $307.5 million capital credit that was subsequently eliminated by FIRREA.
Williams’ legal opinion dated May 17,1988, presented to the Board, describing the structure of the proposals as CHTE’s H-(e)3 Application, detailed above, is further evidence the Application was an “offer.”
The government acknowledges that CHTE’s H-(e)3 Application was required by regulation, and that SSA’s acquisition of the four thrifts could not have been accomplished without it. Gov’t Resp. to PI. Facts No. 133. But, the government points out, the Application contains a qualifying footnote that it was “solely” for the purpose of obtaining approval of the transaction. DX 138. The footnote warned that the Application should not be construed as an admission that the Trust was a savings and loan holding company, a premise that was then, but no longer, in dispute. Jt. Stip. 113. This recital made no difference to government regulators. (Tr. 2794) (Former FHLBB Deputy General Counsel Williams testified that the disclaimer made no difference in the way CHTE’s Application was processed by her office.). The court rejects the government’s suggestion that this footnote prevents contractual formation.
In sum, CHTE offered to use its subsidiary thrift to acquire initially four failing thrifts (that the government would otherwise have had to liquidate at great expense), in return for various incentives, including a substantial regulatory capital credit later quantified as $307.5 million dollars.
Acceptance
“For a contract to be formed once an offer is made, there must be an acceptance, i.e., a ‘manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.’ ” Anderson, 344 F.3d at 1355 (quoting Restatement (Second) of Contracts § 50(1)). In Winstar cases, the critical inquiry is whether the “acceptance” or regulatory approval is simply boilerplate — ergo, no contract, or “something more” that comports with the negotiated offer — ergo, a contract. The foregoing Board resolutions, release of the net worth maintenance letters, extension of the $307.5 million capital credit, and other forbearances negotiated and agreed upon, are clearly the “‘something more,’ that is, the recognition that the government was engaged in negotiations about the terms of the *295 [acquisitions] as well as the subsequent manifest assent to abide by the Resolutions] required under D & N Bank.” La Van III, 382 F.3d at 1347, citing Anderson, 344 F.3d at 1357 .
Here, as in La Van III, the extensive negotiations summarized above, the Board recommendation packages, resolutions and implementing agreements are that “something more.” CHTE, agreed under the auspices of its H-(e)3 Application to acquire troubled thrifts from the government through its subsidiary SSA. Through intense negotiations, and a confluence of documents summarized in Board resolutions and internal memorandums, the offer included use of SSA and its management expertise, The offer also included the right to acquire more than half the equity in the postmerger SSA, the Trust’s relinquishment of its subdebt, and the acceptance of an enormous debt load that relieved the government’s insurance fund and staved off tremendous costs of liquidating all of the thrifts. In return, for federal assistance including $307.5 million in regulatory capital credit and forbearance from certain adverse regulatory action.
The requisite elements of mutuality and clarity of intent and consideration here are akin with those in La Van III where there were negotiations over the push-down accounting and amortization of goodwill subsequently approved by the FHLBB. “ ‘[T]he facts and circumstances surrounding the August 24, 1984 Resolution approving the conversion establish a bargained-for agreement in which the acquirors agreed to infuse capital into the institution, and thus save the bank from immediate liquidation, based on the express understanding that they would in exchange receive the above-specified goodwill.’ ” La Van III, 382 F.3d at 1347, citing La Van, 53 Fed.Cl. at 298. The Federal Circuit also affirmed the analogy to Cal. Fed. where “ ‘the government bargained with Cal Fed 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.’” Id., citing Cal. Fed., 245 F.3d at 1347 . See also San Juan City College v. United States, 391 F.3d 1357, 1360 (Fed.Cir. 2004) (Incorporating regulatory requirements into an agreement “does not make [the regulatory requirements] any less contractual obligations or provisions, or constitute a valid reason for not treating them as such.”).
Alternatively, the FHLBB resolutions, the Assistance Agreement, and other documents generated from the May 18, 1988 transactions were the FHLBB’s counter-offer which CHTE accepted by its performance including the contribution of the subdebt, the use of its subsidiary to acquire the troubled thrifts, and the equity grant.
The government argues (1) the Assistance Agreement cannot be an acceptance because it contains a sole benefit clause which applied only to the signator SSA; (2) the Board resolutions could not be an acceptance because the regulators testified they did not intend to enter contracts by passing the resolutions, and resolutions do not always create contracts. While the latter statement is true, not all resolutions create contracts, here the court has found the “something more” that does. La Van III, 382 F.3d at 1346. Furthermore, Board intention as to contractual status is not controlling on the determination of that legal issue.
The Federal Circuit recently rejected the government’s position that the sole benefit clause in the Assistance Agreement precluded a holding company contract. In Home Savings of America v. United States, 399 F.3d 1341 (Fed.Cir.2005), the holding company did not sign the Assistance Agreement, but was found a “party to the contractual arrangement as a whole.” “[T]he ‘offer’ that led to the contract was [the holding company’s] application for regulatory approval [of the subsidiary thrift’s acquisition of troubled thrifts].” 399 F.3d at 1348 . Reciprocal promises in the FHLBB resolutions were part of an agreement larger than (but encompassing) the Assistance Agreement.
The Assistance Agreements, regardless of their ‘sole benefit’ clause, do not preclude Ahmanson [the holding company] from having any contractual rights. See Winstar,. 518 U.S. at 907-09 , 116 S.Ct. 2432 , 135 L.Ed.2d 964 ; Cal. Fed. Bank , *296 FSB v. United States, 245 F.3d 1342, 1346 (Fed.Cir.2001). Although Ahmanson did not sign the Assistance Agreements, the Court of Federal Claims properly focused on a set of ‘larger transactions’ involving Ahmanson, FSLIC, FHLBB, and Home [the wholly-owned subsidiary]. See [Home Sav. of Am., F.S.B. v. United States,] Home II, 51 Fed.Cl. [487] at 497-99 [(2002)]. In each transaction, the Assistance Agreement is not the entire contract; the Resolutions contain reciprocal promises that were part of the overall bargains between the plaintiffs and the government----Ahmanson was party to the larger transactions in which those obligations were incurred; the government’s promise therefore runs directly to Ahmanson. Accordingly, Ahmanson is in privity of contract and consequently has standing to seek damages in this case.
399 F.3d at 1349 .
As in Home Savings, the integration clause here incorporates the Board resolutions and forbearance letter, the umbrella under which the acquisitions were approved. 40 See also Barron Bancshares, 366 F.3d at 1374 (finding integration clause incorporated Board resolutions and forbearance agreement). 41
Finally, the subsequent implementation of the agreement mirrored the respective offers by the Trust and the government. Anderson, 344 F.3d at 1355 .
Consideration
Consideration was clearly exchanged here. Regardless of the analytical construct, as part of a multi-million dollar rescue of five (including SSA) failing thrifts and preservation of the FSLIC insurance fund (as well as the pockets from which any deficit would have been paid and the stability of the national thrift industry), a holding company and the government entered into a complex agreement. The government contributed four thrifts already in federal receivership and CHTE contributed SSA. As the Federal Circuit commented in Hansen, “there is no doubt that the merger was desirable from the FSLIC’s point of view.” 367 F.3d at 1316-17. “By assuming the liabilities [of the failing thrift], the Hansens allowed the FSLIC to avoid the high cost of bailing out another insolvent thrift.” Id. at 1317. “In a very real sense, what the Government received in exchange for its promise was time — time to deal with other failing S & Ls, time to see what the market would do before having to commit substantial resources to the problem.” Glendale Fed. Bank v. United States, 239 F.3d 1374, 1382 (Fed.Cir.2001); Am. Capital Corp. v. United States, 59 Fed. Cl. 563, 586 (2004)(“[The government’s] real gain was delaying political accountability for federal regulators’ interference with market forces.”). The Federal Circuit recently reiterated the mutual consideration exchanged in most Winstar cases:
The FHLBB was dealing with the worsening crisis in the savings and loan industry by seeking healthy institutions to merge with or acquire failing thrifts and by offering incentives such as the use of supervisory goodwill. The healthy thrifts sought permission from and agreement with the FHLBB in order to safely undertake the *297 salvage efforts the Government so eagerly desired.
Fifth Third Bank, 402 F.3d at 1231 .
The court’s conclusions on contract formation
Home Savings is dispositive on contractual privity. CHTE’s “offer” was its H-(e)3 Application. The “offer” in Home Savings was the holding company’s H-(e)3 Application. In both cases the holding company engaged in or was the initiator of negotiations. In Home Savings, the holding company agreed to maintain the net worth of the resulting institution. Here, CHTE agreed to and did contribute subdebt and stock warrants in the newly expanded SSA. The overarching contract was implemented as detailed herein-above. 42 CHTE’s expanded subsidiary had $307.5 million in regulatory capital credit, and the parties embarked on an envisioned ten-year business plan, at the end of which CHTE and the government would have weathered an economic storm and emerged as partners in a major financial institution. The Assistance Agreement was part of a larger, umbrella contract between CHTE and the government.
Governmental authority to contract
The government’s contention that the FHLBB lacked authority to contract with a holding company was also recently rejected in Home Savings. Home Savings held the government had authority to contract with the holding company under 12 U.S.C. § 1725 (c). 399 F.3d at 1356-57 . Previously, two of the three Winstar acquisitions found to be contractual by the Federal Circuit and the Supreme Court were made by holding companies. Winstar III, 518 U.S. at 864-65, 866-68 , 116 S.Ct. 2432 (discussing acquisition by Winstar corporation and Statesman Savings Holding Company, both of which filed H-(e)3 applications); 12 U.S.C. § 1725 (c); 12 U.S.C. § 1729 (f)(2) and (f)(3); Hansen Ban-corp, Inc. v. United States, 367 F.3d 1297, 1303-04 (Fed.Cir.2004) (discussing without reservation on authority, FSLIC promises to plaintiff holding company). Furthermore, contracting authority in Winstar cases extends to capital credits. Cal. Fed. Bank v. United States, 395 F.3d 1263, 1274-75 (Fed. Cir.2005) (Cal.Fed.II) (finding government authority to extend forbearances, including capital credits to be well established, citing Winstar, 518 U.S. at 890 , 116 S.Ct. 2432 ). Accordingly, the FHLBB had the authority to bind the government to obligations found herein.
Given the existence of a contract, it is necessary to resolve whether there was a breach, whether any breach was material, and if so, what is the appropriate measure and amount of damages.
The breach alleged — an overview
On August 9,1989, Congress adopted FIRREA which established more stringent capital requirements for thrifts including new measures of mandatory capital — tangible capital, core capital and risk-based capital. 12 U.S.C. § 1464 (t)(l)(A) to (D). FIRREA also included new provisions affecting whether and in what amount goodwill, other intangibles and other forms of capital could be used to satisfy these requirements. 12 U.S.C. § 1464 (t)(9)(C), 12 U.S.C. § 1464 (t)(3)(A). Pl. Facts No. 223 and Gov’t Resp. Prior to FIRREA, regulatory capital (“RAP”), essentially consisting of whatever the regulators permitted, sufficed for regulatory purposes and allowed a thrift to remain open. Tr. 2990 (Wall); Tr. 3550-51 (Bradley); Tr. 1864 (Root): Tr. 3807-08 (Smuzynski); Tr. 930-31 (Miller).
FIRREA required the Director of OTS to “prescribe and maintain uniformly applicable capital standards” for thrifts. 12 U.S.C. § 1464 (t)(l)(A). Those standards, promulgated in regulations, were effective in December 1989 ( 12 C.F.R. § 567.2 -.9). An OTS *298 Thrift Bulletin issued shortly thereafter made it clear that the new capital standards applied to thrifts that had been operating under capital and/or accounting forbearances. OTS Thrift Bulletin No. 38-2, Jan. 9, 1990. ¶. Stip. 1115; Pl. Facts No. 224 and Gov’t Resp. Thereafter, thrifts were required to maintain tangible capital at 1.5% of assets. Goodwill and other intangible assets would not count. Core capital could be no lower than 3% of assets, or the level set for national banks by the Comptroller of the Currency, whichever was higher. Only limited amounts of “qualifying supervisory goodwill” could be included in computing core capital. Risk-based capital was to be in an amount substantially comparable to that required by the • Comptroller of the Currency for national banks. Jt. Stip. No. 16.
The OTS treated capital credits in the same manner as supervisory goodwill, Jt. Stip. No. 17; accordingly, plaintiff’s $307.5 million capital credit was eliminated. FIR-REA also abolished the FHLBB and FSLIC, distributing their authorities to several other agencies, including the newly created OTS, RTC, and FDIC. Jt. Stip. No. 14.
That FIRREA’s enactment and implementation could result in a breach of contract is clear. See Winstar Corp. v. United States, 64 F.3d 1531, 1545 (Fed.Cir.1995) (en banc) (“We conclude the government failed to perform its contractual obligations----),” aff'd, 518 U.S. 839 , 116 S.Ct. 2432 , 135 L.Ed.2d 964 (1996). The Supreme Court remanded for consideration of damages. 518 U.S. at 910 , 116 S.Ct. 2432 (affirming Federal Circuit’s finding the government liable for breach of contract and remanding for determination of the “appropriate measure or amount of damages”). See Fifth Third Bank, 402 F.3d 1221, 1224, 1235 (explaining “subsequent government activity caused [Winstar contracts] to be breached;” and “[w]hen the Government changed the regulations, it could no longer make good on its promise and was therefore in breach of the contract”); Hansen, 367 F.3d at 1310, n. 11 (“FIRREA had the effect, in part, of preventing thrifts from counting capital credits toward regulatory capital requirements.”).
The contract between the government and CHTE included the capital credit. Given that FIRREA and its implementing regulations eliminated that asset, thus breaking the government’s contract with CHTE, the next issue is whether the breach was material. CHTE claims FIRREA’s elimination of the $307.5 million capital credit was a material, substantial and total breach, and asks to be restored to its pre-contract/pre-relianee position with a damage award of $21,700,000— the asserted value of the subordinated debentures contributed to the “new” SSA — and $2,279,700, the asserted equity value of the “old” SSA that CHTE provided to acquire four insolvent thrifts — CHTE’s cost of performance. PI. Initial Post-Trial Brief at 38. The government contests both materiality and quantum of damages.
Damages in Winstar cases
In Winstar cases, expectancy-lost profits have generally proven impractical and not susceptible to reasonable proof. Fifth Third Bank, 402 F.3d at 1236 ; Calif. Fed. Bank v. United States, 395 F.3d 1263, 1270 (Fed.Cir.2005); Glendale Fed. Bank v. United States, 378 F.3d 1308, 1313 (Fed.Cir.2004), cert. denied, — U.S. -, -, 125 S.Ct. 1590 , 1592, 161 L.Ed.2d 277 (2005) (Nos. 04-626, 04-786). CHTE does not seek lost profits; neither does CHTE request damages for the estimated $400 to $500 million the government would have had to spend to liquidate the troubled thrifts (referred to in some Winstar cases as restitution), or the amount of liabilities it assumed. Indeed such recovery would be precluded. Glendale, 378 F.3d at 1313 , citing LaSalle Taiman Bank, F.S.B. v. United States, 317 F.3d 1363, 1376-77 (Fed.Cir.2003).
CHTE seeks the value of the hard assets it contributed to the transaction as the contract required. Under the cost of performance damage model, “the value of the benefits provided to the defendant and the plaintiffs other costs incurred as a result of its performance under the contract” are awarded to the nonbreaching party. Landmark Land Co., Inc. v. FDIC, 256 F.3d 1365, 1372 (Fed.Cir.2001), citing Acme Process Equip. Co. v. United States, 171 Ct.Cl. 324 , 347 F.2d 509 , 530 (1965), rev’d on other grounds, 385 U.S. *299 138 , 87 S.Ct. 350 , 17 L.Ed.2d 249 (1966). See also Restatement (First) of Contracts § 347 et seq. (1932).
The Second Restatement of Contracts defines restitution as that amount necessary to prevent the unjust enrichment of the breaching party. Damages are the value to the breaching party of the benefits conferred in order to prevent the breaching party’s “enrichment” which would be “unjust” given the breach. “Reliance” damages satisfy the non-breaching party’s “interest in being reimbursed for loss caused by rebanee on the contract by being put in as good a position as he would have been in had the contract not been made.” Restatement (Second) of Contracts § 344(b) (1981), quoted in Glendale, 239 F.3d at 1382-83 . 43
Perhaps to clarify whether the focus should be on the value of investor’s consideration to the government, the breaching party (unjust enrichment), or the value to the investors (cost of performance), the Federal Circuit recently explained that while the “two approaches to restitution are not necessarily incompatible, we have observed that the ‘costs’ measurement may sometimes be more properly viewed as a form of rebanee damages.” Hansen, 367 F.3d at 1314 n. 13 (citing LaSalle, 317 F.3d at 1376 ) (citing Glendale, 239 F.3d at 1379-80 ) (“When restitution damages are based on recovery of the expenditures of the non-breaching party in performance of the contract, the award can be viewed as a form of rebanee damages, wherein the non-breaching party is restored to its pre-contract position by returning [to it] as damages the costs incurred in reliance on the contract.”). The Federal Circuit noted that the approach of the Second Restatement of Contracts § 344 (that restitution prevents unjust enrichment of the breaching party) was not incompatible with the cost of performance measure, because the definition of restitution varies with each particular case. “The amount of recovery ... is not invariably determined by the value of what is received. In some cases the value of what is given is determinative____ The principle of restitution damages is to return the costs incurred in performing the contract, costs sometimes conveniently measured by the benefits conferred on the breaching party.” LaSalle, 317 F.3d at 1376 .
Rebanee is, however, the preferred remedial construct. “ ‘Reliance is an ideal recovery in Winstar cases.’ ” Glendale, 378 F.3d at 1313 (quoting Jon W. Burd, Where the Rabbit Hole Ends: A Working Model for Measuring Winstar-type damages in the Federal Circuit, 13 Fed. Cir. B.J. 657 , 685 (2004)). “Despite the landscape where alternative forms of recovery are speculative and loss models inherently unrehable, rebanee damages can be ascertainable and fixed.” Id.
Irrespective of theoretical underpinnings, the Federal Circuit counsels against focus on doctrinal damage labels; rather the task is, in appropriate cases, to return nonbreaching parties to their pre-contract position and not quibble about analytical construct. ‘We remain optimistic that with the additional guidance and support given the trial court ... the remainder of the Winstar cases can be disposed of ... based on the particular facts of the case, and without further dispute over the theory on which damages may be calculated.” Id.
CHTE’s Amended Complaint alleges the contribution of its subordinated debentures and authorization of the use of its subsidiary to take on these thrifts was made in rebanee on the government’s promises concerning capital. 44
*300 The net value of required contractual contributions has been awarded in Winstar eases. Hansen, 367 F.3d at 1314-15 (explaining restitution may be the net market value of benefits provided); Glendale, 378 F.3d at 1313 (sanctioning return or restitution of specific contributions, and recovery or restitution of expenses of nonbreaching party “as a form of reliance damages”). Landmark affirmed an award of $21,458,571, the value of real estate and cash contributed under the express terms of the Assistance Agreement. 256 F.3d at 1372-73, 1375 .
In La Van v. United States, 56 Fed.Cl. 580, 583-84 (2003) the shareholder acquirers were awarded money-back restitution — their hard dollar contributions. The shareholder claims for expectancy or reliance damages were rejected as belonging to the thrift receivership, not the individual shareholders. The government did not appeal the acquirers’ award of their initial investment. In La Van III, the Federal Circuit reversed and remanded the rejection of the lost profits claim, noting however, that if the shareholders could not prove their lost profits claim, the money-back restitution would still be available “as a fall-back position.” La Van III, 382 F.3d at 1351 (citing Glendale, 239 F.3d at 1380 ). See Hansen 367 F.3d at 1308-09 (explaining that reliance damages are preparation expenditures made by the nonbreaching party in part performance of the contract and other expenses made in reliance on the contract). See also Far West Federal Bank v. OTS, 119 F.3d 1358 , 1367 (9th Cir.1997) (affirming award of restitution of $26.6 million — the investor’s capital contributions to the thrift) and Resolution Trust Corp. v. Fed. Sav. and Loan Ins. Corp. 25 F.3d 1493, 1505 (10th Cir.1994) (affirming summary judgment for return of capital contribution).
The government argues that CHTE’s contributions were not required by the contract but were merely conditions precedent to the acquisitions. The contributions must have been required. Castle v. United States, 301 F.3d 1328, 1340 (Fed.Cir.2002) (“[T]he law is well settled, however, that in order to be compensable as restitution, the plaintiffs contribution must have been made in performance of its contractual obligations.”) (citing Landmark, 256 F.3d at 1375 ). One issue in Hansen was whether a requirement that plaintiff transfer stock as part of the agreement was a true “condition” of the Assistance Agreement. In other words, was it required? The Federal Circuit held that it was, and return of that consideration would be appropriate assuming FIRREA was a material breach. 367 F.3d at 1317 ; See also La Van III, 382 F.3d at 1349. In that there would not have been a deal if the subdebt had not been contributed, that contribution was required here. CHTE’s contribution of SSA as the vehicle to form its partnership with the government was the lynchpin of the deal, and thus required. Accordingly, the court finds that the contractual arrangement required CHTE’s contribution of its subdebt and SSA.
Materiality
“The impact of FIRREA ... was swift and severe, and many thrifts quickly fell out of compliance with regulatory capital requirements, making them subject to seizure by thrift regulators.” Fifth Third, 402 F.3d at 1224 . Was the FIRREA breach here “material?” Recently, the Federal Circuit addressed this issue in the context of restitution of $1 million, the value of the capital contribution made by a holding company to effectuate the acquisition of a troubled thrift. The Federal Circuit explained that remedy would be “ ‘available only if the breach gives rise to a claim for damages for total breach and not merely to a claim for damages for partial breach.’ ” Hansen Bancorp, 367 F.3d at 1309 (citing Restatement (Second) of Contracts § 373). Damages from a breach must be definitely established. See generally, Cal. Fed. II, 395 F.3d at 1267-68 (rejecting “substantial factor” causation test, stating that while damages must be “definitely established,” the breach need not be the sole cause; the existence of other factors operating in confluence with the breach will not *301 preclude recovery). Cf. Centex v. United States, 395 F.3d 1283, 1304-1311 (Fed.Cir.2005) (FIRREA deprived acquirers of a “substantial part” of the benefit of their bargain in breach of the implied covenant of good faith and fair dealing).
Hansen defined a total breach as one that ‘“so substantially impairs the value of the contract to the injured party at the time of the breach that it is just in the circumstances to allow him to recover damages based on all his remaining rights to performance.’ ” “[T]he breach ‘must be of a relatively high degree of importance.’” 367 F.3d at 1309, 1312 , citing Restatement (Second) of Contract § 243(4) and George E. Palmer, The Law of Restitution § 4.5 (1978). While this standard “is necessarily imprecise and flexible,” Restatement (Second) of Contracts § 241 cmt. a., cited at 367 F.3d at 1312 , the focus is (1) on the value of the contribution to the nonbreaching contributing party — (2) as of the time of the breach. The five factors of Restatement Section 241 were cited as significant in this determination:
(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
Id. While noting circumstance (c) would rarely apply to the government where, as here, the government is the breaching party, circumstance (a) (the extent to which the injured party will be deprived of the benefit which he reasonably expected) “will always be a pertinent consideration.” Id. ‘“In deciding whether the breach is essential enough to justify restitution, a court should be concerned primarily with the objective of the plaintiff in seeking the performance promised by the defendant.’ ” Id., citing Palmer, The Law of Restitution § 4.5. To “significantly narrow” “a gateway to ... the enjoyment of all other rights ... violated material conditions in the contraet[ ]... [and] was ‘substantial,’ depriving the companies of the benefit of their bargain.” Id., citing Mobil Oil, 530 U.S. at 621, 120 S.Ct. 2423 , citing Restatement (Second) of Contracts § 243. “[T]he determination of whether a breach was material ‘depends on the nature and effect of the violation in light of how the particular contract was viewed, bargained for, entered into, and performed by the parties.’ ” 367 F.3d at 1312 , citing Stone Forest Indus., Inc. v. United States, 973 F.2d 1548, 1551 (Fed.Cir.1992).
Here, having considered the facts and circumstances surrounding the contract and the breach, the court finds the loss of the $307.5 million capital credit was an essential, substantial, material and total breach.
Capital credits
The capital credits here must be understood in the context of the agreements and the breach. Capital credit was described by the Supreme Court in Winstar : “[s]ome transactions included yet a further inducement, described as a ‘capital credit’ ... [which] permitted the acquiring institution to count the FSLIC contribution as a permanent credit to regulatory capital.” United States v. Winstar Corp., 518 U.S. 839, 853 , 116 S.Ct. 2432 , 135 L.Ed.2d 964 (1996). “[T]he capital credits portion of the agreement contains an express commitment to include those credits in the calculation of regulatory capital.” Winstar, 518 U.S. at 867 , 116 S.Ct. 2432 . See also Hansen Bancorp., 367 F.3d at 1310 n. 11.
Regulatory capital was a thrift’s lifeblood. Capital credits “counted” toward meeting minimum regulatory capital ratios for a financial institution to remain open. Regulatory capital was an asset against which a thrift could expand or leverage loans. Am. Capital v. United States, 63 Fed.Cl. 637, 640 (2005); Old Stone Corp. v. United States, 63 Fed.Cl. 65, 67 (2004).
*302 Capital credit was negotiated
The amount of capital (or capital credit) to be provided by the government to counter the negative burdens of the troubled thrifts to be acquired was heavily negotiated. A capital credit, note or a total forbearance from any regulatory capital requirements was part of the negotiations from the beginning. 45 The proposals in October of 1987 included a capital note equal to 4% of the liabilities of the acquired thrifts, the full amount of their net worth deficiencies, and a ten-year forbearance from regulatory capital requirements. DX 65 at HB024231 and HB 024234 (Oct. 16, 1987 proposal) and FX 17 at HB024249 and HB 024254 (October 29, 1987 proposal). November 24, 1987 and January 15, 1988 proposals included a FSLIC Note for the negative net worth of the acquired thrifts and an additional capital contribution note in an amount to be negotiated. DX 73 at FCR446 0714-16 (November 24, 1987 proposal) and DX 81 at HB005725-57 (January 15, 1988 proposal). A ten-year forbearance from regulatory capital requirements was repeated. DX 73 at CFR446 0718 and DX 81 at HB005729. The February 11, 1988 proposal was for a FSLIC Regulatory Capital Note (or transfer of assets) for 4% of the target thrifts’ liabilities plus the full amount of their net worth deficiency and certain net operating losses. DX 84 at HB 005984-86. Also, for a ten-year period “... FSLIC would forbear from any supervisory or enforcement action against [SSA] for failure to meet the Regulatory Capital requirements of 12 C.F.R. H [sic] 561.13 or any similar regulation.” DX 84 at HB 005988 (February 11, 1988 proposal). The March 7, 1988 proposal referenced in CHTE’s H-(e)3 Application included a Net Worth Note and a Regulatory Capital Note as well as a ten-year forbearance from supervisory action for failure to meet regulatory capital. DX 92 at WOT131 0284 and WOT131 0305. Clearly, CHTE was concerned about regulatory capital. A capital credit was a cornerstone of the negotiations.
A ten-year plan
In analyzing the materiality of breach and the issue of whether the breach harmed CHTE, it must be noted that a ten-year plan was envisioned, and the capital credit would be a credit for the full ten years. Ten years was provided to transform the consolidated failed thrifts into a profitable financial institution. The forbearance letter granted several ten-year restraints. DX 163. The government estimated ten years was necessary for the economy to improve and real estate values to recover. Tr. 1873-76 (Root); Tr 3557-58 (Bradley). Proposed acquirers in the Southwest Plan were offered ten-year notes in the amount of the tangible negative net worth of the acquired thrifts. DX 88 at FCR043 0009. The Assistance Agreement had a ten-year term. DX 158. The FSLIC recommendation memorandum described a ten-year FSLIC note, a ten-year yield maintenance rate, and a ten-year term on the preferred stock. DX 140 at PI. 000332-334. Stock options granted to FSLIC were exercisable in ten years. Id. The ORPOS recommendation memorandum referred to the ten-year term of the Assistance Agreement and the ten-year qualified thrift lender status to be granted to CHTE. DX 139 at WOB023 0504^06.
This ten-year term was important to CHTE. Tr. 1001, 1007, 1033-34, 1008-09 (Crisp); Tr. 1768, 1782, 1786-87 (Boone). In his February 11, 1988 detailed proposal to Root (Executive Director of FSLIC) and Martin (FHLBB member), Miller wrote: “[w]e do not believe that it would be prudent for Southwest Savings to expose its present net worth and going concern value to these undefinable risks without adequate indemnities, yield maintenance and other protections *303 DX from FSLIC for a period of ten years: 84 at HB 005992-93. See also Tr. 1767-70 and 1784 (attorney Boone) (the ten-year term of the acquisitions in general and the capital note in particular, were important to CHTE). Boone’s trial testimony captured not only CHTE’s essential role in the acquisitions but also CHTE’s reliance on the government’s promises:
[t]he value of the enterprise increases by being a successful business, increases, inures to the benefit of the shareholders. And so they have the savings and loan, they control it, they own it. They have a lot of latitude to do a lot of things because of their financial wherewithal to make it successful.
And now to bring in a partner, okay, the question is going to be is how you share that equity. And they all — this is clear at the time we were doing it — in fact, that’s why we had a fight over the equity. The Government wanted more equity because everybody believed, with the assistance and the ten years and the turnaround of the real estate market, that this was going to be a very valuable enterprise long — you know, over the ten-year period, by the end of’98.
And so that was a factor that inured to the benefit of the shareholders. That’s why they were — that’s what they were negotiating, is how they shared that enterprise value with the Government. But it was in reliance upon the Government’s doing then* part of the bargaining and that’s doing the federal assistance over the ten years, the capital note, et cetera.
Tr. 1769-70.
The contract included the capital credit
As finally negotiated, the regulatory capital credit was granted in the FHLBB Board resolutions, 46 the Assistance Agreement, 47 and the forbearance letter:
It is the intention of the FSLIC that the promissory note(s) issued to and made to the order of SWS, pursuant to an Assistance Agreement to be entered into between the FSLIC and SWS, will be a credit to SWS’ regulatory capital to the extent that such credit increases SWS’ ratio of regulatory capital to total liabilities to 5.0% at the Effective Date, for purposes of determining compliance with Section 563.13 of the Insurance Regulations, or any successor regulation.
DX 163 at WS J0690524.
As computed, the capital credit was $307.5 million, more than ten times SSA’s pre-deal regulatory capital — a significant, substantial, and material aspect of the transaction.
Crisp testified that the decision to acquire $5 billion in troubled assets was based on the government’s commitment to provide significant regulatory capital. Initially cash, notes or other tangible capital was requested, but to save money FSLIC agreed to provide “a contractual provision which would allow the new Southwest to meet its regulatory capital requirements. CHTE relied upon those contractual commitments when it allowed South *304 west to enter into the transaction.” PX 128. at 1-2; Tr. 1065-66 (Crisp).
A May 6, 1988, FSLIC memorandum encapsulates the materiality of the regulatory capital credit (the amount of which was still being negotiated), to the transactions, and ironically, foretold of the consequences of its elimination:
[T]he acquisition ... [without capital assistance will] result in a $8.9 billion association with $30 million of regulatory capital, — a level of capital which evidences the continued financial weakness of the resulting institution. While expected future earnings resulting from FSLIC’s financial assistance should rebuild capital over a 10 year period, during the interim, and particularly in the early years of the agreement, the institution will have the appearance of being severely undercapitalized. The solution proposed for this transaction is to treat $450 million of FSLIC’s negative capital note as regulatory capital. This approach produces 6% regulatory capital for the resulting institution, but does so without any tangible capital infusion. Whether this accounting treatment provides sufficient financial strength to engender public confidence and lower Southwest Savings’ cost of funds is difficult to evaluate, but the alternative of operating in a near-insolvent status is no more attractive. As a matter of policy, the Board may conclude that the 6% regulatory capital resulting from the transaction will not be well received pub-lically and that the assistance will be considered to be inadequate and the resulting institution weak and undercapitalized.
DX 117 at 054943^44. While the final negotiated capital credit was 5% rather than 6%, the government recognized before the transaction closed that without it, SSA would appear to be “severely undercapitalized.” Indeed, it soon was.
Although CHTE does not claim that the subsequent seizure and liquidation of the “new” SSA was a breach, SSA’s post-FIR-REA disintegration is outlined as background on breach and materiality, and the importance of the capital credit at or about the time of breach, and the government’s defense that SSA would have failed anyway, therefore FIRREA caused no harm, the latter addressed hereinafter.
Congress recognized that FIRREA would have a substantial effect on government contracts. Winstar, 518 U.S. at 900 , 116 S.Ct. 2432 (“The statute not only had the purpose of eliminating the very accounting gimmicks that acquiring thrifts had been promised, but the specific object of abrogating enough of the acquisition contracts as to make that consequence of the legislation a focal point of the congressional debate.”) (citing congressional testimony). Thrifts failed as a result of FIRREA’s elimination of favorable accounting treatment.
Despite the superficial appeal of supervisory mergers, these arrangements could not rescue the industry and the FSLIC from a worsening crisis. In 1989, Congress intervened by enacting FIRREA. As part of an extensive reformation of the savings and loan industry, FIRREA mandated minimum capital requirements and prohibited the use of supervisory goodwill. No longer able to rely on supervisory goodwill, many thrifts could not comply with FIR-REA’s capital requirements and were seized by regulators.
Hansen, 367 F.3d at 1303 (citations omitted). The elimination of capital credits had the same effect.
Following the May 18, 1988 closing on the acquisitions, SSA’s regulatory capital continued to plummet. By March 31, 1989, SSÁ’s regulatory capital, including the $307.5 million capital credit, was 3.91%. DX 209 at FCR349 0512. As of June 30, 1989, it was 3.05%. Tr. 3254-55 (Jardieu). By September of 1989, it was 2.41%. Tr. 922-23 (Miller); DX 291; DX 499-W; Tr. 3379 (Robert Brick). SSA was, however, regulatory capital deficient prior to the acquisitions. Pre-merger SSA was regulatory capital deficient by almost $22 million as of September 30, 1987 (only 69% of its required minimum), almost $43 million as of December 31, 1987 (only 47% of its required minimum), and over $61 million as of March 31,1998 (only 33% of its required minimum). DX 629A. Clearly, substantial pre-merger, pre-FIRREA regulatory deficiencies were not a bright-line trigger for receivership.
*305 Witnesses testified that prior to FIRREA, with regulatory capital of 2.41%, SSA would not necessarily have been immediately placed into receivership; the percentage would have to have been closer to zero. Tr. 3424-25 (Brick); Tr. 3534 (Bradley); Tr. 3808-09 (Smuzynski). The common practice pre-FIRREA was to work with an institution, placing it into receivership when it was much closer to actual insolvency (liabilities in excess of assets). Tr. 3424-25 (Brick), Tr. 3534 (Bradley); Tr. 3808-09 (Smuzynski). Less drastic measures would have been taken, particularly where management was strong. Tr. 3425-26 (Brick); Tr. 3533-34 (Bradley). SSA did not have management problems that would lead to seizure. Tr. 3809-10 (Smuzyn-ski).
Within months after the May 18,1988 deal closing, SSA was looking for additional capital from outside investors, retaining the investment firm of Merrill Lynch. DX 185. Merrill Lynch presented a potential investor interested in providing capital for SSA, provided SSA could obtain federal assistance on its uncovered assets. DX 250, Tr. 857, 861 (Miller). The government suggests that SSA’s engagement of Merrill Lynch in late 1988 indicates CHTE was willing to further dilute its equity interest in the thrift and that the investment firm’s concern about lack of government coverage on SSA’s pre-merger assets suggests that SSA had no value.
FHLB-Dallas’ supervisory letter to SSA of June 22, 1989, criticized numerous instances of loan reserves that did not adequately reflect declining real estate values, identified an additional $54 million in loan loss reserves and directed SSA to increase reserves accordingly. These were not actual losses, as the security had not been foreclosed. These were accounting cushions to absorb possible future losses. As a result of this accounting adjustment, SSA was very close to failing the 3% capital provision of its forbearance letter. DX 223 at PI. 011228. A long-term capital plan acceptable to the regulators was demanded by October 1,1989, or FHLB-Dallas would, request and expect to receive authorization from the shareholders and the Board to negotiate a reorganization or acquisition to infuse capital. Id.
In the June 30, 1989 regulatory plan for SSA generated by the regulators, CHTE is noted as the holding company and controlling entity. Management reportedly complied with the terms of the FSLIC agreement in consolidation and cost savings efforts, and had generally operated SSA in a prudent manner. Capital infusion was pressed. DX 524 at FCR226 0792, 0799-000. SSA was required to submit a business plan by September 1, with an October 1, 1989 deadline for negotiations with potential investors. Progress on consolidation and costs savings would be monitored monthly, with quarterly monitoring for compliance with the forbear-ances. Id. at FCR226 0803-05. A safety and soundness examination was scheduled for July 10,1989. Id. at FCR226 0804.
A Report of Examination from July 11, 1989 to August 25, 1989 of Anthony Jardieu, OTS examiner-in-charge, questioned SSA’s long-term viability due to the lack of earnings retention, poor quality of uncovered assets, and inadequate monitoring of interest rate risk. DX 291 at FCR164 2894.
FIRREA was enacted on August 9, 1989, and implementing regulations became effective in December of 1989. Jt. Stip. 1113; PI. Facts No. 224. Robert Brick, OTS Caseload Manager took over the supervision of SSA in November of 1989. Tr. 3365 (Brick).
On October 30, 1989, Chip Kiesewetter, OTS Principal Supervisory Agent, wrote to SSA’s Board of Directors, expressing “significant concern” about the level and composition of SSA’s capital. “The association will be required to meet the tangible and core capital tests imposed by the Financial Institutions Reform, Recovery and Enforcement Act (‘FIRREA’).” DX 260 at PI. 00496. SSA’s deadline for submitting a capital plan was extended to October 31, 1989, with a warning that if significant progress toward infusing new capital was not made by November 15, 1989, appointment of a conservator would be considered. Id. SSA’s MACRO rating was downgraded to a 5 due to lack of earnings retention, deteriorating asset quality and lack of GAAP (capital measured under general accounting principles) and tangible capital. A macro rating of 5 was reserved for thrifts “with an extremely high immedi *306 ate or nea

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/6653702. Public record. Not legal advice.