American Capital Corp. v. United States

FINAL OPINION AND ORDER FOR JUDGMENT AWARDING TRANSCA-PITAL FINANCIAL CORPORATION $109.309 MILLION DAMAGES FOR LOSSES BASED ON RELIANCE INTERESTS

BRADEN, Judge.

This breach of contract ease was filed a decade ago. During the 21 months this ease has been pending before the undersigned judge, the court issued a decision determining, as a matter of law, that the United States (“Government”) was liable for a breach of contract. See American Capital Corp. v. United States, 58 Fed.Cl. 398 (2003) (“American Capital 7”). Next, the court issued a decision determining, as a matter of law, that one of the plaintiffs, Transcapital Financial Corporation (“TFC”), incurred a loss of reliance interests as a direct result of the Government’s breach in the amount of $168.645 million. See American Capital Corp. v. United States, 59 Fed.Cl. 563 (2004) (“American Capital IF). Following a 14-day Evidentiary Hearing spanning three months, the Government was afforded an opportunity to establish with reasonable certainty, under the standard set forth in Restatement (Second) of Contracts (“Restatement”) § 349 (1981), those losses that would have been incurred irrespective of the breach. Thereafter, the court decided to reduce the damage amount to $109.309 million. See American Capital Corp. v. United States, 63 Fed.Cl. 637 (2005) (“American Capital III"). Although the United States *317 Court of Appeals for the Federal Circuit recently recognized the relevance of Restatement § 349 in Westfed Holdings, Inc. v. United States, 407 F.3d 1352, 1369-71 (Fed. Cir.2005), as of this date, no federal trial court in this country has ever afforded a defendant the opportunity to utilize it, as was done in this case. As the court will again and further clarify herein, the court has determined in American Capital II and American Capital III that causation-in-fact and causation-in-law were established by TFC, whether the standard is “substantial factor,” “substantial evidence,” “but for,” “directly caused,” “definitely established,” or any other traditional causation standard utilized in our common law tradition.

Subsequently, the court exercised its discretion to evaluate three separate motions for reconsideration by the Government, i.e., November 17, 2003, March 12, 2004, and February 27, 2005, subsumed in which were 16 separate arguments, in addition to affording supplemental briefing regarding the United States Court of Appeals for the Federal Circuit’s decision in California Federal Bank v. United States, 395 F.3d 1263 (Fed. Cir.2005) (“California Federal Bank”), issued on January 19, 2005, on the same day as American Capital III. See American Capital Corp. v. United States, 65 Fed.Cl. 241 (2005) (“American Capital IV”). The court further exercised its discretion to allow the Government the additional opportunity to supplement the record to argue the relevance of the United States Court of Appeals for the Federal Circuit’s opinion in Westfed Holdings, Inc. v. United States, 407 F.3d 1352 (2005).

In the court’s judgment, this is a ease in which the factual record has been fully developed and the law is clear and settled. As the United States Court of Appeals for the Federal Circuit advised in Glendale Federal Bank, FSB v. United States, 239 F.3d 1374 (Fed.Cir.2001) (“[It] is ... in the interests of the United States to settle these [Winstar-related] cases equitably and fairly, so the cost to the taxpayers can be concluded without further delay.”) Id. at 1383-84 . If the Government decides to ignore that thoughtful and pragmatic guidance, then this case now is ripe for appellate review in every sense.

On August 9, 1989, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act, Pub.L. No. 101-73, 103 Stat. 183 (1989) (“FIRREA”) requiring all savings and loan associations (“thrifts”) strictly to comply with new “core capital,” “tangible capital,” and “risk-based” capital requirements. 1 In United States v. Winstar Corp., 518 U.S. 839 , 116 S.Ct. 2432 , 135 L.Ed.2d 964 (1996), the United States Supreme Court held that, although Congress may decide to change applicable law allowing the federal government to disavow agreements made in the 1980s with thrifts as an inducement to acquire failing and failed institutions, “[contractual] terms assigning the risk of regulatory change to the Government are enforceable, and the Government is *318 therefore liable in damages for breach.” Id. at 843 , 116 S.Ct. 2432 (emphasis added).

In American Capital I, incorporated herein, the court held that the terms of an August 29, 1986 Assistance Agreement between the Federal Savings and Loan Corporation (“FSLIC”) and American Capital Corporation (“AMCAP”), Transcapital Financial Corporation (“TFC”), and Transohio Savings Bank, FSB (“Transohio Savings”), assigned the risk of regulatory change to the Government, at least with respect to a promise to allow Transohio Savings to amortize a FSLIC $107.5 million capital credit and $50 million in supervisory goodwill, 2 as adjusted on a 25 year straight-line basis and to apply that amount toward meeting regulatory capital requirements. Id. at 409. The court also held that on December -9, 1989,when FIR-REA was enacted, the Government breached those essential terms of the August 29, 1986 Assistance Agreement (“the breach”). See American Capital I, 58 Fed.Cl. at 401 . 3

In American Capital II, incorporated herein, the court held that the Government’s breach of the August 29, 1986 Assistance Agreement was the cause of TFC’s loss of reliance interests and therefore TFC was entitled to damages in the total amount of $168.645 million, subject to an Evidentiary Hearing to afford the Government an opportunity, pursuant to Restatement (Second) of Contracts § 349 (1981) (“Restatement”), to establish with reasonable certainty any losses that Transohio Savings would have incurred, irrespective of the breach. See American Capital II, 59 Fed.Cl. at 582-83, 589 .

At that Evidentiary Hearing the court learned, as the United States Supreme Court observed in Winstar that:

[t]he impact of FIRREA’s new capital requirements upon institutions that had acquired failed thrifts in exchange for supervisory goodwill was swift and severe.

Winstar, 518 U.S. at 857 , 116 S.Ct. 2432 . And, so it was for Transohio Savings. Nevertheless, in the court’s judgment, the Government established at the Evidentiary Hearing with reasonable certainty, or the record otherwise evidenced, that $50.336 million of the net losses recorded in fiscal years 1989-1991 would have been incurred by Transohio Savings irrespective of the breach. Accordingly, in American Capital III, incorporated herein, the court determined that TFC’s losses based on reliance interests should be reduced from $168.645 million to $109.309 million.

On January 19, 2005, the same day that the court issued American Capital III, the United States Court of Appeals for the Federal Circuit issued California Federal Bank v. United States, 395 F.3d 1263, 1268 (Fed. Cir.2005), wherein the standard of causation for lost profits cases was clarified to be one “definitely established.” Since the Government had motions for reconsideration pending regarding the court’s determination in American Capital I and American Capital II and indicated a motion for reconsideration would be filed regarding American Capital III, the court requested that the parties also address the relevance of California Federal at the same time that it submitted briefs regarding reconsideration of American Capital III.

On April 27, 2005, the court issued a Memorandum Opinion and Order Regarding the *319 Government’s November 17, 2003, March 12, 2004, and February 27, 2005 Motions for Reconsideration, including the parties’ arguments regarding the relevance of California Federal Bank. See American Capital IV, 65 Fed.Cl. at 253 , also incorporated herein. 4

On May 17, 2005, the Government filed a Notice of Supplemental Authority regarding the decision of the United States Court of Appeals for the Federal Circuit in Westfed Holdings, Inc. v. United States, 407 F.3d 1352 (2005), that the court has treated herein as a motion for reconsideration. On May 25, 2005, plaintiffs filed a response. The court’s determination of the issues raised in Westfed Holdings is included in the final section of this Final Opinion discussing all the Winstar- related decisions of the United States Court of Appeals for the Federal Circuit issued after American Capital III and American Capital IV.

In light of the multitude of issues addressed herein, an outline of the Final Opinion follows.

I. FACTUAL BACKGROUND BEFORE TRANSOHIO SAVINGS BANK, FSB INCURRED NET LOSSES IN FISCAL YEAR 1989

A. 1984 American Capital Corporation’s Acquisitions Of Transohio Savings Bank, FSB And AmeriStar Financial Corporation.

B. 1985-1986 American Capital Corporation’s Negotiations With The Federal Home Loan Bank Board That Resulted In Transohio Savings Bank, FSB’s Supervisory Mergers Of Citizens Federal Savings And Loan Association Of Cleveland, Ohio And Dollar Savings Bank Of Columbus, Ohio.

C. August 29, 1986 Supervisory Mergers Of Citizens Federal Savings And Loan Association Of Cleveland, Ohio And Dollar Savings Bank Of Columbus, Ohio With Transohio Savings Bank, FSB.

D. The Financial Condition Of Transohio Savings Bank, FSB After The August 29, 1986 Supervisory Mergers Until 1989.

1. The October 21,1987 Joint Examination By The State Of Ohio Division Of Savings And Loan Associations And The Federal Home Loan Bank Board For The Period January 1986-May 1987.

a. Transohio Savings — Management.

b. Transohio Savings — Asset Quality.

c. Transohio Savings — Capital.

d. Transohio Savings — Risk Management.

e. Transohio Savings — Operating Results.

2. Transohio Savings’ Financial Condition From October 21, 1987 Until The Next Joint Examination Was Issued On March 30, 1989.

II. PROCEDURAL BACKGROUND IN THE UNITED STATES COURT OF FEDERAL CLAIMS

III. DISCUSSION

A. Jurisdiction And Standing.

B. The “Reliance Interest” Is A Recognized Judicial Remedy That Is Fixed When An Expenditure Is Made, But Does Not Arise Until The Breach Of Contract.

1. “Essential Reliance” Damages.

2. “Incidental Reliance” Or “Collateral Reliance” Damages.

C. The Court’s Final Determination Of TFC’s Reliance Interest Is $117,479 Million.

1. TFC Is Entitled To $126,479 Million, Based On The Government’s Breach Of TFC’s “Essential Reliance” Interest Or The Book Value Of Transohio Savings’ Stock, As Of August 29,1986, Minus The $9 Million Dividend Paid To AMCAP In Fiscal Year 1989.

*320 a. The Court’s Determination Of TFC’s “Essential Reliance” Interest In American Capital II.

b. The Court’s Determination Of TFC’s “Essential Reliance” Interest By Book Value, Rather Than Market Value.

c. The Court’s Final Determination Of TFC’s “Essential Reliance” Interest.

2. TFC Is Entitled To $42.166 Million Regarding Its “Collateral Reliance” Interest, i.e., The Capital TFC Transferred To Transohio Savings As A Result Of The December 31,1986 Transohio Rights Offering.

D. Calculating Damages Based On The Reliance Interest.

E. Regulatory Enforcement Attitudes After FIRREA.

F. The Arguments Of The Parties.

1. Summary Of The Government’s Argument.

a. Causation.

b. Transohio Savings’ Net Losses.

2. Summary Of TFC’s Argument.

G. Overview Of The Court’s RESTATEMENT § 349 Analysis.

H. Overview Of The Experts.

1. Overview Of The Government’s Experts.

a. Professor Kroszner.

b. Dr. Hamm.

c. Mr. Johnson.

2. Plaintiffs’ Expert.

a. Professor James.

I. Final Determination Of Net Losses That The Government Established With Reasonable Certainty That Transohio Savings Bank, FSB Would Have Incurred Irrespective Of The Breach.

1. January 1,1989-December 31,1989.

a. The Financial Condition Of Transohio Savings Bank, FSB And Net Losses Incurred.

(1) Transohio Savings Bank, FSB’s SEC Forms 10-K And Internal Documents.

(2) The Supervisory Authorities’ Joint Examination F or The Period March 30, 1989-September 6, 1989.

(aa) Transohio Savings — Management.

(i) General-Personnel.

(ii) The Aborted AmeriFirst Acquisition.

(iii) The Aborted Consolidation Of AMCAP And Transcapital Financial Into Transohio Savings.

(bb) Transohio Savings — Asset Quality.

(i) Asset Classification Policies And Procedures.

(ii) Composition Of Classified Assets.

(iii) Loan Underwriting.

(cc) Transohio Savings — Capital Adequacy.

(dd) Transohio Savings — Risk Management.

(i) Interest Rate.

(ii) GAP Hedging Activities.

(iii) Risk-Controlled Arbitrage-Hedged Mortgage Investment (“HMI”).

(iv) Other Hedging And Trading Activities.

(v) Secondary Market Activities.

(vi) Liquidity Risk.

(ee) Transohio Savings — Operating Results.

(3) The FDIC Examination For The Period January 1, 1989-December 31, 1989.

(aa) Transohio Savings — Capital.

(bb) Transohio Savings — Asset Quality.

(cc) Transohio Savings — Management.

(dd) Transohio Savings — Earnings.

(ee) Transohio Savings — Liquidity.

(4) Post-FIRREA.

*321 b. Analysis And Opinions Of The Government’s Experts.

(1) Professor Kroszner.

(2) Dr. Hamm.

(3) Mr. Johnson.

c. The Government Established With Reasonable Certainty That Trans-ohio Savings Bank, FSB Would Have Incurred Net Losses of $19,846 Million In Fiscal 1989 Irrespective Of The Breach.

2. January 1,1990-December 31, 1990.

a. The Financial Condition Of Transohio Savings And Net Losses Incurred.

(1) Transohio Savings’ OTS Form 10-K And Internal Memoranda.

b. Analysis And Opinion Of The Government’s Experts.

(1) Professor Kroszner.

(2) Dr. Hamm.

(3) Dr. Johnson.

c. The Government Established With Reasonable Certainty That Trans-ohio Savings Bank, FSB Would Have Incurred Net Losses of $11.69 Million In Fiscal 1990 Irrespective Of The Breach.

3. January 1,1991-December 31,1991.

a. The Financial Condition Of Transohio Savings And Net Losses Incurred.

b. Analysis And Opinion Of The Government’s Experts.

(1) Professor Kroszner.

(2) Dr. Hamm.

(3) Mr. Johnson.

c. The Government Established With Reasonable Certainty That Trans-ohio Savings Bank, FSB Would Have Incurred Net Losses of $18.8 Million In Fiscal 1991 Irrespective Of The Breach.

4. January 1,1992-July 10, 1992.

J. Limiting Rules On Reliance Damages.

1. Foreseeability.

2. Certainty.

K. The Government Is Not Entitled To A Credit In This Case.

L. Mrcsfar-Related Decisions Of The United States Court Of Appeals For The Federal Circuit Issued After American Capital II, American Capital III, And American Capital IV.

1. California Federal Bank v. United States, 395 F.3d 1263 (Fed.Cir.2005).

2. Home Savings of America, FSB v. United States, 399 F.3d 1341 (Fed.Cir. 2005).

3. Fifth Third Bank of Western Ohio v. United States, 402 F.3d 1221 (Fed.Cir. 2005).

4. Westfed Holdings, Inc. v. United States, 407 F.3d 1352 , 2005 WL 1119654 (Fed.Cir. May 12, 2005).

5. Hometown Financial, Inc. v. United States, No. 04-5116, 409 F.3d 1360 , 2005 WL 1253120 (Fed.Cir. May 27, 2005).

IV. CONCLUSION

I. FACTUAL BACKGROUND BEFORE TRANSOHIO SAVINGS BANK, FSB INCURRED NET LOSSES IN FISCAL YEAR 1989. 5

A. 1984 American Capital Corporation’s Acquisitions Of Transohio Savings Bank, FSB And AmeriStar Financial Corporation.

Transohio Savings was a federally chartered stock savings and loan association, in *322 sured by the FSLIC and a member of the Federal Home Loan Bank Board (“FHLBB”) of Cincinnati. See DX 29 at WOT286 0081. On July 24,1984, First Global Investors, Inc. (“FGI”) acquired control of Transohio Savings’ common stock. See DX 29 at WOT286 0063, WOT286 0080. On July 27, 1984, FGI became a wholly-owned subsidiary of AM-CAP, which became a savings and loan holding company. See id. FGI also owned 50.8% of the common stock of Transohio Financial Corporation, 6 which also owned 100% of Transohio Savings’ stock. See DX 29 at WOT286 0080-81; see also TR at 2448. And so, in this manner, Transohio Savings became a wholly-owned subsidiary and the principal asset of TFC. See DX 102 at PAC086 0489.

The primary lending activity of Transohio Savings was originating and purchasing loans secured by mortgages on residential properties, primarily those insured by the Federal Housing Administration or Veterans Administration. See DX 29 at WOT286 0081; DX 102 at PAC086 0464. Transohio Savings generated residential loan originations primarily through branch personnel and real estate brokers. See DX 102 at PAC086 0464. In addition, Transohio Savings made construction loans, usually only one year in length, that were generated by contractors. See DX 29 at WOT286 0082. Mobile home and home improvement loans were generated through dealers and contractors. See DX 102 at PAC086 0464.

Under the National Housing Act, Pub.L. No. 73-479, 48 Stat. 1246 (1934), as amended by the Competitive Equality Banking Act of 1987, Pub.L. No. 100-86, § 1204 , 101 Stat. 552 (1987), AMCAP, as a savings and loan holding company, was authorized to engage in non-savings institution transactions, if it controlled one institution that met the “qualified thrift lender” test, i.e., that directed 60% of its assets to housing and related activities. See DX 102 at PAC086 0477. Moreover, under the laws of the State of Ohio, Trans-ohio Savings could invest up to 15% of its assets in capital stock, obligations, or other securities of service corporations; 20% of its net worth in loans to service corporations; 10% of its assets in real estate; 10% of its assets in corporate equity securities; 3-10% of its assets in non-service corporations; and 15% of its assets in loans or investments not “otherwise specifically authorized or prohibited.” DX 102 at PAC086 0470-71.

*323 On September 19,1984, Transohio Savings acquired ail the common stock of a company that later changed its name to AmeriStar Financial Corporation (“AmeriStar”), for approximately $3.3 million, as well as the rights to other payments if AmeriStar was profitable. See DX 31 at WON251 1132; see also DX 30 at PAC024 1582; DX 33 at PAC016 1629-30; DX 41 at WON327 0756; DX 90 at FAC011 2210.

B. 1985-1986 American Capital Corporation’s Negotiations With The Federal Home Loan Bank Board That Resulted In Transohio Savings Bank, FSB’s Supervisory Mergers Of Citizens Federal Savings And Loan Association Of Cleveland, Ohio And Dollar Savings Bank Of Columbus, Ohio.

In June 1985, AMCAP raised approximately $75 million through the issuance of “Units consisting of an aggregate of $80 million principal amount of Notes and 14,960,000 Warrants in a public offering.... As a condition to incurring the indebtedness relating to the Units offering, [AMCAP] agreed not to use the proceeds of the Units offering without the approval of the [FHLBB], [AMCAP] invested $20 million of the proceeds of the Units offering in 13% Convertible Subordinated Notes of Transohio.” DX 29 at WOT286 0074 (emphasis added). Consequently, as of June 30, 1985, Transohio Savings had $2.9 billion in assets, shareholder equity of $101.4 million, and was the largest thrift in Ohio. See DX 29 at WOT286 0081; DX 41 at WON327 0755; see also TR at 84.

On August 29, 1985, the FHLBB notified AMCAP and TFC that the agency was looking for a viable financial institution to purchase two financially troubled thrifts: Citizens Federal Savings and Loan Association of Cleveland, Ohio (“Citizens”) and Dollar Savings Bank of Columbus, Ohio (“Dollar”). See American Capital I, 58 Fed.Cl. at 401 (citing PI. Motion for Partial S.J. on Liability Appendix at 322); see also TR at 2687-88. On May 30, 1986, the FHLBB’s Office of Supervisory Agent in Cincinnati provided the Assistant Director for Regional Operations in Washington, D.C. with an analysis of a proposal by AMCAP, TFC, and related entities to acquire both Citizens and Dollar. See DX 41. Approval of these acquisitions was recommended by the federal regulators, but made contingent upon several conditions being fulfilled, first among which was: “[Plaintiffs] shall stipulate to the FSLIC that it will cause the net worth of the surviving insured institution to be maintained at a level consistent with the requirements of Section 563.13(b) of the Rules and Regulations for Insurance of Accounts [ 12 C.F.R. § 563.13 (b) (1986),] as now or hereafter in effect, and, as necessary, will infuse sufficient additional equity capital, in a form satisfactory to the Supervisory Agent, to effect compliance with such requirement.” DX 41 at WON327 0762. By December 31, 1985, AMCAP owned approximately 51% of TFC, which in turn owned all of the common stock of Transohio Savings. See DX 31 at WON251 1129.

Within six months, Transohio Savings increased its total assets to $3.5 billion and had a regulatory net worth of 3.5%. On June 19, 1986, the FHLBB was informed of AMCAP’s intent to provide Transohio Savings with $45 million from a Transohio Rights Offering, which was planned to be concluded by the time the requisite regulatory approvals were completed, but prior to the closing of the Transohio Savings acquisition of Citizens and Dollar. See American Capital II, 59 Fed.Cl. at 566 (citing PL P.H. Appendix at 857-58); see also DX 29 at WOT286 0074 (emphasis added) (AMCAP’s 1985 Annual Report issued on May 2, 1986 that stated: “[AMCAP] intends to invest approximately $45 million of the remaining proceeds in subordinated notes and additional Transohio common stock to be issued in connection with a proposed rights offering by Transohio.”). The June 19, 1986 letter reflects that there had been extensive prior communications with the FHLBB about the terms of the proposed $45 million “Transohio Rights Offering” and that TFC was frustrated by the pace of regulatory review and upset with how that delay was interfering with the implementation of the Citizens/Dollar closing. See American Capital II, 59 Fed.Cl. at 567 (citing PL P.H. Appendix at 857-58).

Although the precise date that the Trans-ohio Rights Offering was first known by the *324 FHLBB cannot be ascertained from the record, that date was well before the time that the AMCAP’s Units Offering took place and over a year before August 29, 1986, when Transohio Savings’ proposed acquisition of Citizens and Dollar finally was approved by the federal regulators — and, by which time the federal regulators had actual knowledge of and expected that an additional $45 million in capital would be provided to effectuate that transaction. See DX 35 at PAC058 0054; see also American Capital II, 59 Fed. Cl. at 568 (citing PI. P.H. Appendix at 727-858) (evidencing that AMCAP’s 1985 Annual Report was provided to the FSLIC as an Exhibit to Plaintiffs’ Application H-(e)3 to acquire Citizens/Dollar).

C. August 29, 1986 Supervisory Mergers Of Citizens Federal Savings And Loan Association Of Cleveland, Ohio And Dollar Savings Bank Of Columbus, Ohio With Transohio Savings Bank, FSB.

On August 21, 1986, the FHLBB declared Citizens, a federally chartered FSLIC-insured thrift institution, insolvent. See American Capital I, 58 Fed.Cl. at 401 (citing PI. Motion for Partial S.J. on Liability Appendix at 14-23). Citizens’ assets were estimated at $430 million, with $520 million in liabilities. See DX 33 at PAC016 1629. Independently, the FSLIC estimated that a liquidation of Citizens would cost the Government $131 million. See American Capital II, 59 Fed.Cl. at 566 (citing PI. Motion for Partial S.J. on Liability Appendix at 338). On August 21, 1986, the FHLBB also declared that Dollar, an Ohio chartered FSLIC-insured mutual savings bank, was insolvent. See American Capital I, 58 Fed.Cl. at 401 (citing PI. Motion for Partial S.J. on Liability Appendix at 14-23). Dollar’s assets were estimated at $335 million, with $375 million in liabilities. See DX 33 at PAC016 1629. The FSLIC estimated that a liquidation of Dollar would cost the Government $52.5 million. See American Capital II, 59 Fed.Cl. at 566 (citing PI. Motion for Partial S.J. on Liability Appendix at 340).

On August 21, 1986, the FHLBB also issued Resolution No. 86-864 conditionally approving a proposed Assistance Agreement among plaintiffs, Transohio Savings, and the FHLBB. See American Capital II, 59 Fed. Cl. at 568 (citing PL Motion for Partial S.J. on Liability Appendix at 14-23). At that time, Transohio had a regulatory net worth of $132.2 million with liabilities of $3.4 billion, which exceeded regulatory requirements by $29.1 million. See American Capital II, 59 Fed.Cl. at 568 (citing Pl. Motion for Partial S.J. on Liability Appendix at 7) (Dec. 25, 2000 Aff. of Jack D. Burstein, former Chairman of Transohio Savings, Chairman, President and CEO of TFC, and President and CEO of AMCAP). On August 29, 1986, an Assistance Agreement was signed by Trans-ohio Savings, AMCAP, TFC, and the FSLIC, in its capacity as a corporate instrumentality and agency of the United States. See DX 102 at PAC086 0489; see also American Capital II, 59 Fed.Cl. at 568 (citing PL Motion for Partial S.J. on Liability Appendix at 228-85). The Assistance Agreement had several key provisions: Transohio Savings would merge with Citizens and Dollar to form one entity to be known thereafter as Transohio Savings; FSLIC would make a $107.5 million cash contribution to the “new” Transohio Savings; FSLIC agreed to indemnify AM-CAP, TFC, and Transohio Savings for certain claims and potential losses; FSLIC agreed to purchase 19 “problem loans,” representing approximately $41.5 million of Citizens’ assets at their book value; Transohio Savings would be allowed to book the $107.5 million in FSLIC assistance as a capital credit toward its regulatory net worth; Transohio Savings would be allowed to amortize intangible assets, ie., approximately $50 million in supervisory goodwill over a 25 year period using the straight-line method of depreciation; and AMCAP and TFC agreed to maintain the net worth of Transohio Savings at required regulatory levels and to a “Dividend Limitation Restriction.” DX 102 at PAC086 0489; see also American Capital II, 59 Fed. Cl. at 568 -69 (citing PL Motion for Partial S.J. on Liability Appendix at 1-10).

On September 10, 1986, after the closing, the FHLBB issued a Forbearance Letter promising that neither the FHLBB nor the FSLIC would foreclose on Transohio Savings in the event it failed to meet regulatory net *325 worth requirements for a five-year period after Transohio Savings merged with Citizens/Dollar, i.e., September 10, 1991. See American Capital II, 59 Fed.Cl. at 569 (citing PI. Motion for Partial S.J. on Liability Appendix at 293-94). On September 30, 1986, Transohio Savings had $240.6 million in regulatory capital, of which $162.5 million was “contractual regulatory capital,” including $55 million in goodwill. See PX 659; see also TR at 1242-43.

On December 31, 1986, four months after the Citizens/Dollar mergers were concluded, “[TFC] issued 626,219 shares of common stock pursuant to a shareholder rights offering.” DX 30 at PAC024 1580. “In addition, [TFC] issued 3,673,469 shares of common stock to [AMCAP] in a private placement transaction for an aggregate purchase price of approximately $45 million,” derived from AMCAP’s June 1985 issuance of $80 million in subordinated notes, and subject to a prior FHLBB “approval order.” DX 30 at PAC024 1580; see also DX 31 at WON251 1142-43. As a result, TFC “received net proceeds of $52 million of which approximately $42 million was contributed to Transohio Savings as additional equity capital.” American Capital II, 59 Fed.Cl. at 569 (citing PL Motion for Partial S.J. on Damages Appendix at 570-72); see also DX 30 at PAC024 1580; DX 412 at WOT665 0016. With this additional equity, Transohio Savings’ regulatory capital “exceeded minimum regulatory requirements by approximately $158 million at December 31, 1986, taking into account an amount of approximately $106 million which [was to be] treated as regulatory capital pursuant to the terms of the financial assistance package entered into with the FSLIC in connection with the acquisitions of Citizens and Dollar.” American Capital II, 59 Fed.Cl. at 569 (citing Pl. Motion for Partial S.J. on Damages Appendix at 571). On December 31, 1986, “[Transohio Savings’] net worth, as calculated on the basis of generally accepted accounting principles, exceeded 3% of liabilities by $31 miF lion.” American Capital II, 59 Fed.Cl. at 569 (citing PL Motion for Partial S.J. on Damages Appendix at 571). 7 By that date, AMCAP had increased its ownership position in TFC common stock to-65.5% and therefore its control over Transohio Savings. See DX 31 at WON251 1129.

D. The Financial Condition Of Transohio Savings Bank, FSB After The August 29, 1986 Supervisory Mergers Until 1989.

1. The October 21, 1987 Joint Examination By The State Of Ohio Division Of Savings And Loan Associations And The Federal Home Loan Bank Board For The Period January 1986-May 1987.

The State of Ohio’s Division of Savings and Loan Associations and the FHLBB Office of Examinations and Supervision (hereinafter “the Supervisory Authorities”) jointly conducted examinations of Transohio Savings on a periodic basis. During the period from 1986 to 1989, the Supervisory Authorities utilized a five-element qualitative composite rating system, known as “MACRO,” i.e., “Management,” “Asset Quality,” “Capital Adequacy,” “Risk Management,” and “Operating Results.” Each MACRO element also had components that were rated individually and then collectively. 8 First, each MACRO *326 element was assigned a rating of “1” through “5” in “ascending order of supervisory concern,” with a “1” representing the rating with least regulatory concern and a “5” representing the rating with highest regulatory concern. Then, all of the MACRO elements collectively were evaluated to arrive at an overall composite rating. 9 See, e.g., DX 90 at FAC011 2247.

The first Joint Examination conducted by the Supervisory Authorities following the August 29, 1986 merger of Transohio Savings with Citizens/Dollar was issued on October 21,1987, covering the fifteen-month period of January 1986 through May 1987. See DX 90. Transohio Savings received an overall “3” composite rating for this period. See DX 90 at FAC011 2247.

a. Transohio Savings — Management.

The Supervisory Authorities concluded that Transohio Savings’ management “appears to be in substantial compliance with the terms of th[e] Assistance Agreement relating to corporate structure.” DX 90 at FAC011 2120. It was noted, however, that no formal management policy had been implemented regarding Risk Controlled Arbitrage (“RCA”) nor did the Directors have sufficient information to monitor this activity, which significantly contributed to Transohio Savings’ growth from $3.5 billion to $5.6 billion or a 60% increase during this period. See DX 90 at FAC011 2120, 2123 (“The income produced by RCA maximizes shareholder return on investment and appears to be the second motivating factor behind such activity. The generation of profits enables the current shareholders to maintain their controlling interest in American Capital[.]”); see also DX 30 at PAC024 1547 (AMCAP 1986 Annual Report stating that Transohio Savings “has evolved from an essentially break-even operation in July 1984 into a highly profitable business with a return on equity of 19.8% in 1986. This transformation was achieved through American Capital’s continuing interest and involvement in Transohio.”).

Transohio Savings received a “2” rating for “Management;” 8 of the 10 components thereunder received a “2” rating, however, “Records, Systems, Controls” and “Accurate Financial Reports to FHLBB” each were ranked “3.” See DX90 at FAC011 2247.

b. Transohio Savings — Asset Quality.

Approximately $111.538 million or 2% of Transohio Savings’ assets were classified as “criticized assets.” DX 90 at FAC011 2159. Regarding those assets, Transohio Savings was found to have proper internal controls but was criticized for not providing sufficient information to the Supervisory Authorities. See DX 90 at FAC011 2122, (reporting that Transohio Savings did not always obtain an appraisal for repossessed real estate assets or establish reasons for parcels having a book value in excess of the most recently appraised value).

Transohio Savings received a “2” rating for “Asset Quality,” with 8 of the 11 components *327 receiving a “2” rating. See DX 90 at FAC011 2247. “Service Corporations,” “Risk Exposure,” and “Secured Market Activity” each were rated as a “3.” See DX 90 at FAC011 2247.

c. Transohio Savings — Capital.

For the period January 1986 through May 1987, Transohio Savings increased assets by 3.5% or $186.758 million, ie., from $123.537 million to $310.295 million. See DX 90 at FAC011 2121. Of this amount, $107.5 million was attributed to the FSLIC capital credits conveyed to Transohio Savings as a result of the mergers with Dollar/Citizens and the reclassification of approximately $15 million in borrowings. See DX 90 at FAC011 2121.

During the first six months of 1987, Amer-iStar recorded a “stand alone” $1.498 million loss attributed to unfavorable market movement, high operating expenses, and rising interest rates. See DX 90 at FAC011 2211. By the end of 1987, AmeriStar lost $2.9 million. These losses, however, were absorbed by Transohio Savings and offset by other assets. 10 To address declining mortgage servicing revenues, the Supervisory Authorities recommended “selling whole loans instead of mortgage-backed securities and by selling excess servicing to the marketplace for extra cash instead of buying the excess servicing for its own portfolio by issuing lower pass-through rates.” DX 90 at FAC011 2214.

Transohio Savings received a “2” rating for “Capital,” including all 4 components. See DX 90 at FAC011 2247.

d. Transohio Savings — Risk Management.

The Supervisory Authorities noted that although Transohio Savings had been success-fid in using interest rate swaps 11 to hedge liabilities involved in its Risk Controlled Arbitrage activities, this situation presented a “significant interest rate risk in a rising interest rate environment.” DX 90 at FAC011 2122.

Transohio Savings received a “3” rating for “Risk Management,” with 2 out of 6 components rated as a “3.” DX 90 at FAC011 2247.

e. Transohio Savings — Operating Results.

Transohio Savings “operated profitability” in 1986 and the first half of 1987, with reported net income of $22.6 million and $6.9 million for the first half of 1987. See DX 90 at FAC011 2128. Transohio Savings, however, sold $2.3 billion in mortgage loans in 1986 and $1.2 billion in the first half of 1987. See DX 90 at FAC011 2124. Since a major portion of Transohio Savings’ operating income was derived from mortgage banking operations, the Joint Examination included the following caveat: “Proposed accounting changes, if adopted, will have a major impact on the earnings of Transohio [Savings] and its wholly-owned mortgage banking subsidiary, AmeriStar Financial Corporation.” DX 90 at FAC011 2121. Despite Transohio Savings’ net profit, the Supervisory Authorities noted that both Dollar and Citizens “had experienced significant losses prior to the time of the [August 29, 1986 supervisory] merger and continued to have a negative impact on Transohio [Savings’] earnings.” DX 90 at FAC011 2128.

*328 Transohio Savings received a “3” rating for “Operating Results,” although the “Comparative Level” component was rated as a “2.” DX 90 at FAC011 2247.

2. Transohio Savings’ Financial Condition From October 21, 1987 Until The Next Joint Examination Was Issued On March 30,1989.

On February 5, 1988, AMCAP’s President provided Mr. Lawrence Muldoon of the Cincinnati Office of the FHLBB with a proposed Restructuring Plan to be discussed at a February 18, 1988 meeting. See DX 114 at WOL237 0743. This Restructuring Plan stated:

Transohio Savings is faced with increasing capital requirements arising from regulatory initiatives and its acquisition objectives. At the same time, American Capital and TransCapital Financial have significant assets/capital which are not currently included in Transohio Saving’s net worth.... [A] restructuring would alleviate the cash flow pressures of the consolidated group. The regulatory concerns and influence on Transohio Savings surrounding the fixed charge funding needs of the holding company would be favorably resolved through the combination of all entities into one.... Generally, the plan calls for an exchange of holding company securities for securities of Transohio Savings, including the restructuring of subordinated indebtedness into a new issue which qualifies as regulatory capital. The existing minority interest of TFC will receive common stock.

As set forth in the pro forma financial statements, Transohio Saving’s capital would be increased to a level of 6.27% of liabilities (from 5.53% currently) and thrift earnings would be enhanced as well.

DX 114 at WOL237 0746.

On July 8, 1988, a meeting of AMCAP, TFC, and Transohio Savings was held with the FHLBB where the agency expressed concern about the proposed restructuring of AMCAP. See DX 144. Specifically, the high cost of subordinated debt, decrease in GAAP capital, impact of net losses on Transohio Savings, and real estate problems were raised as factors mitigating against FHLBB approval of the restructuring. See DX 144 at WOL240 2204. The principal concern of the FHLBB staff was that AMCAP might not be able to meet its debt service, which could adversely effect the insurance fund because Transohio Savings was an insured entity. See DX 144 at WOL240 2205. On August 15, 1988, the FHLBB’s Office of Supervisory Agent recommended that the Office of Regulatory Activities deny approval for the restructuring. See DX 154. Approximately one year later, AMCAP tried to resurrect this transaction.

By the end of fiscal year 1988, Transohio Savings had recorded net earnings of $18.5 million. See DX 102 at PAC086 0489. Transohio Savings reported that two new 1988 accounting requirements had an adverse impact on earnings: Statement of Financial Accounting Standards No. 91 (“SFAS No. 91”) and Financial Account Standards Board Technical Bulletin 87-3 (“Bulletin 87-3”). See DX 102 at PAC086 0489. SFAS No. 91 required all non-refundable loan origination fees and certain direct origination costs to be deferred and recognized over the life of the loan as a yield adjustment that cost Transohio Savings $5.6 million. See DX 102 at PAC086 0489. Bulletin 87-3 decreased net earnings by approximately $5.6 million. See DX 102 at PAC086 0489-90. Despite $11.2 million in unexpected charges resulting from these new accounting requirements, Transohio Savings increased earnings in 1988 (over 1987) because of the “increased volume of loans and mortgaged-backed certificates combined with increased gains on the sales of investments and mortgage-backed certificates.” See DX 102 at PAC086 0490. In addition, Transohio Savings’ regulatory capital exceeded minimum requirements by approximately $169 million, of which $26 million was attributed to regulatory forbearance and $97.5 million of direct financial assistance provided by FSLIC as a result of the Citizens/Dollar mergers. See DX 102 at PAC086 0496.

In anticipation of the enactment of FIR-REA, on December 23, 1988, the FHLBB published proposed regulations governing the computation and minimum amount of *329 regulatory capital for FSLIC-insured institutions that “would fundamentally alter, and over time substantially increase” capital requirements. See DX 102 at PAC086 0481.

II. PROCEDURAL BACKGROUND IN THE UNITED STATES COURT OF FEDERAL CLAIMS

On August 8, 1995, plaintiffs filed a Complaint in the United States Court of Federal Claims asserting both breach of contract and takings claims. On March 25,1997, the Federal Deposit Insurance Corporation (“FDIC”) filed a Complaint in Intervention, as successor to the rights of Transohio Savings. See 12 U.S.C. § 1441a(m)(2); 12 U.S.C. § 1821a(a)(l)(2). The FDIC’s Complaint included: claims for breach of contract; frustration of purpose; and violations under the Fifth Amendment to the United States Constitution, pursuant to the Just Compensation and Due Process clauses thereof.

On October 10, 2000, plaintiffs filed a Motion for Partial Summary Judgment challenging the Government’s breach of two specific promises: “(1) to record [the approximately $50 million in supervisory] goodwill created by the transaction as an intangible, amortizing asset, and to count the goodwill toward compliance with Transohio regulatory capital requirements; and (2) to record, as a direct credit to Transohio’s regulatory capital, a $107.5 million cash contribution made by the Federal Savings and Loan Insurance Corporation in order to partially offset the massive net worth deficit of the failing thrifts that Plaintiffs acquired.” PI. Motion for Partial S.J. on Liability at 2.

On August 31, 2001, plaintiffs also filed a Motion for Partial Summary Judgment regarding “the value of their investment in Transohio [Savings] at the time of the Citizens/Dollar deal under either a reliance or restitution theory.” PL Motion for Partial S.J. on Damages at 20, 21-26. In addition, plaintiffs asked the court to enter summary judgment regarding the $42 million capital “infusion” plaintiffs made to Transohio Savings on December 31, 1986 as “reliance damages.” Id. at 27, 28-31. On August 31, 2001, plaintiffs filed an Appendix in support. See PL Motion for Partial S.J. on Damages Appendix at 466-696. On that date, plaintiffs also filed Proposed Findings of Uncontro-verted Facts incorporating by reference plaintiffs’ Proposed Findings of Uncontro-verted Facts, submitted together with plaintiffs’ October 10, 2000 Motion for Partial Summary Judgment as to Liability.

On November 30, 2001, the Government filed a Response. On November 30, 2001, the Government also submitted two volumes of Appendices. In addition, on that date, the Government filed a Statement of Genuine Issues, incorporating by reference the Government’s December 18, 2000 Statement of Genuine Issues, submitted with an Opposition to Plaintiffs’ Motion for Partial Summary Judgment regarding liability. On February 15, 2002, plaintiffs filed a “Combined Reply,” in support of a Motion for Partial Summary Judgment with Respect to Damages.

iji ^ ^ ^ ^ ^

On August 15, 2003, this case was reassigned to the undersigned judge. On October 31,2003, the court issued a Memorandum Opinion and Order entering a judgment granting plaintiffs’ October 10, 2000 Motion for Summary Judgment as to Liability. See American Capital I, 58 Fed.Cl. at 406-09. On November 17, 2003, the Government filed a Motion for Reconsideration regarding the court’s determination of liability. On December 19, 2003, plaintiffs filed a Response, together with three additional Exhibits. On January 23, 2004, the Government filed a Reply.

On December 16, 2003, the court held an oral argument to consider the plaintiffs’ August 31, 2001 Motion for Partial Summary Judgment as to damages, in which all parties, including the FDIC, participated. On January 13, 2004, the court issued an order affording all parties an opportunity to address issues that the parties requested to brief further and/or that arose during that oral argument.

On January 5, 2004, the Government filed a Cross-Motion for Summary Judgment upon Plaintiffs’ Claims for Restitution, together with a Statement of Genuine Facts in *330 support thereof. On February 2, 2004, Plaintiffs filed an Opposition, together with two additional exhibits. On February 2, 2004, the FDIC filed an Opposition. On February 17, 2004, the Government filed a Reply.

On February 27, 2004, the court issued a Memorandum Opinion and Partial Summary Judgment granting plaintiffs’ August 31, 2001 Motion determining that TFC’s “essential reliance” interest was $126,479,000 and TFC’s “collateral reliance” interest was $42,166,000, subject to an Evidentiary Hearing to provide the Government with the opportunity to identify: “Any loss that plaintiffs would have suffered, if Transohio Savings had been allowed to count the [capital credit and supervisory goodwill toward regulatory capital].” American Capital II, 59 Fed.Cl. at 585 . Accordingly, the court denied Plaintiffs’ Motion for Partial Summary Judgment as to Restitution and granted the Government’s January 5, 2004 Cross-Motion for Partial Summary Judgment in that regard. Id. at 585-86 .

On March 29, 2004, May 14, 2004, and June 4, 2004, the court convened telephone conferences with the parties to resolve certain pre-trial motions and set a schedule for an Evidentiary Hearing on reliance damages. On May 14, 2004, the Government filed a Memorandum of Contentions of Fact and Law (“Gov’t Pre-Trial Brief’). On May 28, 2004, TFC filed a Memorandum of Contentions of Fact and Law (“PI. Pre-Trial Brief’). An Evidentiary Hearing took place over a three month period on: June 21, 22, 23, 24, 25, 2004; July 19, 20, 21, 22, 23, 2004; and August 9,10,11,12, 2004 (“TR”). See supra note 5.

On October 1, 2004, the Government filed a Post-Trial Brief, including proposed Findings of Fact and Law (“Gov’t Post-Trial Brief’). On that date, TFC also filed a Post-Trial Brief, including proposed Findings of Fact and Law (“PI. Post-Trial Brief’). On October 25, 2004, the Government filed a Post-Trial Reply (“Gov’t Post-Trial Reply”). On November 22, 2004, the court convened a telephone conference to discuss a schedule for an oral argument that later took place on December 3, 2004 over a period of five hours. On December 6, 2004, at the request of the court, TFC filed a reproduction of a demonstrative used at oral argument summarizing their investment in Transohio Savings at the end of fiscal year 1989, 1990-1992 and losses allegedly caused by the breach. On December 17, 2004, also at the request of the court, the Government filed two rebuttal demonstrative summary charts. In addition, while the court was finalizing the opinion, the parties were asked to answer certain additional questions.

On April 27, 2005, the court issued a Memorandum Opinion and Order Regarding the Government’s November 17, 2003, March 12, 2004, and February 27, 2005 Motions for Reconsideration, including the parties’ arguments regarding the relevance of California Federal Bank. See American Capital IV, 65 Fed.Cl. at 253 , also incorporated herein.

On April 27, 2005, the court also directed plaintiffs to advise the court no later than May 6, 2005 whether “the pending claims brought under the Just Compensation Clause of the Fifth Amendment to the United States Constitution should be set for trial or voluntarily dismissed, without prejudice.” American Capital III, 63 Fed.Cl. at 715 . On May 6, 2005, plaintiffs advised the court that the pending ‘“takings’ claims should be voluntarily dismissed without prejudice.” See May 6, 2005 Plaintiffs’ Notice Regarding Disposition of “Takings” Claims. The Government did not object to the voluntary dismissal of these claims.

On May 17, 2005, the Government filed a Notice of Supplemental Authority regarding the decision of the United States Court of Appeals for the Federal Circuit in Westfed Holdings, Inc. v. United States, 407 F.3d 1352 (2005), that the court has treated herein as a motion for reconsideration. On May 25, 2005, plaintiffs filed a response. The court’s determination of the issues raised in Westfed Holdings is included in the final section of this memorandum decision discussing all the Winstar-related decisions of the United States Court of Appeals for the Federal Circuit issued after American Capital III and American Capital IV.

*331 III. DISCUSSION

Although most of the analysis in Sections A, B, and C 2 that follows was set forth in American Capital II, and repeated substantial portions in American Capital III to facilitate an understanding of the court’s final determination of TFC’s essential reliance interest in Section C 1 and determination in Section I of the net losses that the Government established with reasonable certainty, or the record otherwise evidenced, that Transohio Savings would have incurred during fiscal years 1989-1991, irrespective of the breach.

A. Jurisdiction And Standing.

The United States Court of Federal Claims is authorized under the Tucker Act, 28 U.S.C. § 1491 (a)(1) (2000), to render judgment and money damages on any claim against the United States based on the United States Constitution, an Act of Congress, a regulation of an executive department, or an express or implied contract with the United States. See United States v. Testan, 424 U.S. 392, 397-98 , 96 S.Ct. 948 , 47 L.Ed.2d 114 (1976). The United States Supreme Court, however, has clarified that the Tucker Act does not create any substantive right for monetary damages. See United States v. Mitchell, 445 U.S. 535, 538 , 100 S.Ct. 1349 , 63 L.Ed.2d 607 (1980). Instead, a plaintiff must identify and plead an independent contractual relationship, constitutional provision, federal statute, and/or executive agency regulation that provides a substantive right to money damages for the court to have jurisdiction. See Khan v. United States, 201 F.3d 1375, 1377 (Fed.Cir.2000).

Plaintiffs properly have pled a basis for the court’s jurisdiction in this case. See PI. Amended Compl. at 111110, 104-11. In light of the court’s Memorandum Opinion and Order in American Capital II, only TFC had standing thereafter to participate in the Evi-dentiary Hearing and subsequent briefing to defend the preliminary determination made of TFC’s essential and collateral reliance interests. See American Capital II, 59 Fed. Cl. at 582 n. 16, 59 Fed.Cl. at 584 n. 18 (noting that the court specifically did not consider whether AMCAP is entitled to any portion of this amount based on its alleged ownership of First Global and that entity’s 50.8% alleged ownership of 100% of TFC’s stock).

B. The “Reliance Interest” Is A Recognized Judicial Remedy That Is Fixed When An Expenditure Is Made, But Does Not Arise Until The Breach Of Contract. 12

The Restatement has recognized the “reliance interest,” i.e., the “interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as [the party] would have been in had the contract not been made,” as a judicial remedy for breach of contract. Id. at § 344 (emphasis added). The United States Court of Appeals for the Federal Circuit has required that a plaintiff seeking damages based on reliance interest or interests must demonstrate that: 1) plaintiffs losses were reasonably foreseeable at the time of the contract; 2) the breach was a substantive factor in causing its losses; and 3) the losses must be proven with reasonable certainty. See Bluebonnet Sav. Bank, FSB v. United States, 47 Fed.Cl. 156, 167 (2000), rev’d on other grounds, 266 F.3d 1348 (Fed.Cir.2001); see also Restatement §§ 344(b), 351-52. It is well established that “the reliance claim must be considered as an option when the plaintiff cannot prove expectancy damages with reasonable certainty.” Dobbs Law Of Remedies (“Dobbs”) § 12.3(l)(2d ed.1993); see also Restatement §§ 347, 349. Damages for a breach of contract based on reliance interest protects “an injured party that has relied and is of particular importance if the cost of reliance is an appreciable part of the expectation interest.” E. Allan Farnsworth, Farnsworth on Contracts § 12.16 (3d ed. *332 2004) (“Farnsworth”). Therefore, the reliance interest “afford[s] a means for giving some relief when the full expectation interest is for some reason inappropriate.” Id. (emphasis added). Therefore, where the injured party “may have changed [its] position in reliance on the contract by, for example, incurring expenses ... in performing,... the court may recognize a claim based on... reliance[.]” Restatement § 344 and cmt. a; Dobbs, supra, § 12.3(1) (“The reliance recovery is a reimbursement for losses the plaintiff suffers in reliance on the defendant’s contractual promise.”).

The amount of the “reliance interest” is fixed at the time when an expenditure is made, although the cause of action for recovery of a reliance interest does not arise until a breach occurs. See 11 Arthur L. Corbin, Corbin on Contracts § 008 at 64 (1964 & Supp.1996) (“Corbin”) (reliance damages must be foreseeable by defendant “at the time he enters into the contract^]”); Restatement § 351(1).

The Restatement recognizes at least two types of reliance interest: “essential reliance” and “incidental reliance” or “collateral reliance.” Restatement § 349 cmt. a. Individually or collectively, these components ordinarily do not equal the plaintiffs “expectation interest,” because a recovery based on the “reliance interest” excludes the injured party’s lost profit. Id. at § 344 cmt. a. In other words, damages based on the “reliance interest” will never exceed an amount that would place the plaintiff in a better position, if awarded, than would be the case if the contract had been performed. See Farnsworth, supra, § 12.16; see also Restatement § 349 cmt. a (a “[l]oss in value and cost or other loss avoided are key components of [reliance] damages.... [However,] recovery for expenditures... may not exceed the full contract price.”). Accordingly, as a matter of law, reliance damages seek to measure the injured party’s cost of reliance on the breached contract. Therefore, an injured party cannot recover for costs incurred before that party made the contract. See Farnsworth, supra, § 12.16, at n.2; see also Dobbs, supra, § 12.3(1), at 56.

1. “Essential Reliance” Damages.

The law requires, where a breach of contract has occurred, an award of expenses based on a plaintiffs actual outlay of funds as special damages for “essential reliance,” i.e., those that are “necessary or essential for the plaintiffs performance of his promises under the contract.... Essential reliance expense would normally be within the contemplation of the parties, so its recovery would not be forbidden under the [foreseeability] rule limiting consequential damages.” Dobbs, supra, § 12.3(2), at 58; see also Restatement § 349 cmt. a. “Essential reliance” damages also have been defined as “the ‘price’ that a party must pay for what it is to receive under the contract.” Farnsworth, supra, § 12.1, at 153; see also L.L. Fuller and William R. Perdue, Jr., The Reliance Interest in Contract Damages: 1, 46 Yale L.J. 52 , 81 (1936) (“Fuller and Perdue”) (“ ‘[Essential reliance’ consists of those acts which must occur before the plaintiff is entitled to the benefits of the contract and is therefore in a sense the ‘price’ of those benefits[.]”). Damages to compensate for “essential reliance” include: “the performance of express and implied conditions in bilateral contracts, the performance of the act requested by an offer for a unilateral contract, preparations to perform in both of the cases... mentioned[.]” Fuller and Perdue, supra, at 78.

2. “Incidental Reliance” Or “Collateral Reliance” Damages.

In addition, the Restatement has recognized that damages may be awarded where expenses are incurred in “preparation for collateral transactions that a party plans to carry out when the contract ... is performed [.]” Restatement at § 349 cmt. a (emphasis added); see also Farnsworth, supra, § 12.1, at 153. Professor Corbin refers to these expenditures in a functional manner, describing them as “collateral” to the contract:

There are many expenditures made in reliance upon an existing contract that can not properly be regarded as having been made in part performance of it, or even as in necessary preparation for such performance. Such expenditures as these are not expected to be compensated directly by the *333 payments or other performance promised by the defendant, for they do not constitute a part of the agreed exchange. Nevertheless, the net loss involved in such expenditures may be included in the damages awarded, if at the time the contract was made the defendant had reason to foresee that such expenditures would be made and that [its] own breach would prevent their reimbursement. These expenditures now referred to are collateral to performance of a contract for breach of which the action for damages is brought; and the net losses resulting may readily be regarded as too remote from contemplation and too likely to be the result of other factors to justify their inclusion in the damages for breach. Whenever their inclusion is just, their amount is an addition to the full contract price unpaid-that is, to the full value of the performance promised and not rendered by the defendant. They are included in damages, not because they would have been directly reimbursed by the performance promised by the defendant (or by its ‘value’ as ordinarily measured), but because the defendant’s breach has prevented probable future gains and has rendered determination of their amount impossible.

Corbin, supra, § 1035 (footnotes omitted) (emphasis added); see also Fuller and Per-due, supra, at 78-84 (contrasting essential reliance damages with incidental or collateral damages).

Therefore, the Restatement § 349 endorses a black letter rule that allows damages to be awarded based on the promisee’s reliance interest, i.e., expenditures made in preparation for performance or in performance, including, but not limited to, recovery of expenditures invested in collateral transactions. See Robert A. Hudec, Symposium: The Restatement (Second) of Contracts: Restating the “Reliance Interest,” 67 Cornell L. Rev. 704 , 723-28 (1982).

C. The Court’s Final Determination Of TFC’s Reliance Interest Is $117,479 Million.

1. TFC Is Entitled To $126,479 Million, Based On The Government’s Breach Of TFC’s “Essential Reliance” Interest Or The Book Value Of Trans-ohio Savings’ Stock, As Of August 29, 1986, Minus The $9 Million Dividend Paid To AMCAP In Fiscal Year 1989.

a. The Court’s Determination Of TFC’s “Essential Reliance” Interest In American Capital II.

In this case, the “essential reliance” interest was fixed as the cost of performance for the August 29, 1986 Assistance Agreement, i.e., what was “put on the table” by plaintiffs as consideration for FSLIC’s agreement to convey to Transohio Savings: title to the assets and liabilities of Citizens and Dollar, which had a negative net worth of $130 million; a cash payment of $107.5 million, which also could be counted as a capital credit toward Transohio Savings’ regulatory net worth; and permission to amortize approximately $50 million in supervisory goodwill, over a 25 year period using the straight-line method of depreciation. See American Capital II, 59 Fed. Cl. at 580 (citing PL Motion for Partial S.J. on Liability Appendix at 14-25, 228-92, 323-44).

Initially, plaintiffs claimed that they were entitled “under a reliance framework” either to $126,479 million, the value of Transohio Savings’s equity at the time the Assistance Agreement was finalized, 13 or $216.1 million, an estimate of the “market value” of Transohio Savings’ equity made by Professor Timothy Koch, an expert for the FDIC. See American Capital II, 59 Fed.Cl. at 581 (citing Pl. Motion for Partial S.J. on Damages Appendix at 680, 690-91); see also PX 24. The Government correctly argued that the “Assistance Agreement, FHLBB Resolution and Forbearance Letter make no mention of any contribution on the part of the plaintiffs *334 to the transaction.” American Capital II, 59 Fed.Cl. at 581 (citing Def. Resp. to PL Motion for S.J. on Damages at 20). Here, the Government relies on TFC and AM-CAP’s SEC Forms 8-K, dated August 29, 1986, stating that “‘[n]o consideration’ was paid by either company or Transohio Savings in connection with Transohio Savings’ acquisition of Citizens/Dollar.” See American Capital II, 59 Fed.Cl. at 581 (citing Def. Resp. to PL Motion for Partial S.J. on Damages Appendix at 96-98). The August 29, 1986 Assistance Agreement, signed by plaintiffs, Transohio Savings, and FSLIC, however, specifically conditioned the FSLIC’s obligations on the satisfaction of conditions previously discussed. See American Capital II, 59 Fed.Cl. at 581 (citing PL Motion for Partial S.J. on Liability Appendix at 238-41(§ 2)). In addition, FSLIC required, and received, legal assurance that Transohio Savings, Dollar, and Citizens had entered into “separate Merger Agreements and Plans of Merger... pursuant to which TRANSOHIO [SAVINGS] will succeed to all of the rights and liabilities of DOLLAR and CITIZENS, and all of the assets and property of every kind and character belonging to DOLLAR and CITIZENS will be vested in and become the property of TRANSOHIO [SAVINGS], except for covered assets purchased by the [FSLIC] as provided in this Agreement.” American Capital II, 59 Fed.Cl. at 581 (citing Pl. Motion for Partial S.J. on Liability Appendix at 233-34 (Recital C)). The Assistance Agreement further provides, “In consideration of the mutual promises contained in this [Assistance] Agreement, the parties enter into the following agreement.” American Capital, II, 59 Fed.Cl. at 581 (citing Pl. Motion for Partial S.J. on Liability Appendix at 234 (Recital F)). Therefore, although it is true that neither plaintiffs nor Transohio Savings paid any cash consideration when Citizens/Dollar were merged into Transohio Savings, TFC, Transohio Savings’ sole shareholder, “put on the table” an ongoing business with equity valued at $126.479 million, which was the contract “price” paid as performance for the benefits set forth in the Assistance Agreement. See Restatement § 349.

The Government argued, however, that TFC’s surrender of its equity in Transohio Savings was not an “expenditure” or “cost” in performance of the Assistance Agreement, and the only legitimate form of consideration must be either cash or real estate. See Def. Resp. to Pl. Motion for S.J. on Damages at 29-31. As the court stated, that is certainly not the holding in Landmark Land Co. v. FDIC, 256 F.3d 1365 (Fed.Cir.2001). See American Capital II, 59 Fed.Cl. at 581 . In Landmark, the plaintiff real estate development company signed a contract with the FSLIC to acquire two failing thrifts and required plaintiff to make an initial contribution of not less than $20 million to one of the thrifts: “Landmark did this by contributing real estate and cash valued at $21.5 million. In exchange, the FSLIC agreed to allow [the newly capitalized thrift] to treat its shortfall in actual assets as supervisory goodwill, which could be applied to [its] regulatory capital maintenance requirements.” Landmark, 256 F.3d at 1370 . The Federal Circuit affirmed the trial court’s award of approximately $21.5 million in restitution since that amount was required under the terms of the Assistance Agreement. Id. at 1373 (“[T]he entirety of Landmark’s $21.5 million initial contribution constitutes performance under the Agreement^]”).

In this-case, the FSLIC required that the owners of Transohio Savings agree to allow Transohio Savings, in which they held stock valued at $126.479 million, to acquire two failed thrift institutions with a negative net worth of $130 million, which would have wiped out plaintiffs’ entire equity interest, but for the benefits promised by the Government that were intended to preserve plaintiffs’ equity position in Transohio Savings. See American Capital II, 59 Fed.Cl. at 581 (citing Pl. Motion for Partial S.J. on Liability Appendix at 233-34 (Recital C)), 240 (“[FSLIC] shall receive certified copies of the corporate resolutions of AMCAP, TFC, and TRANSOHIO, as appropriate, authorizing the Mergers, the Merger Agreements and this Agreement, and the execution and delivery of the Merger Agreements, this Agreement, and any other agreements and stipulations which AMCAP, TFC, and *335 TRANSOHIO are required to execute pursuant to this Agreement and the resolutions of the BANK BOARD approving the Mergers, the Merger Agreement and this Agreement.”), and PL Motion for Partial S.J. on Liability Appendix at 323 (stating that the fair value of liabilities assumed in the acquisition exceeded the fair value of assets acquired by approximately $56 million).

Although the Restatement does not define “expenditures,” it clearly states that reliance damages are to be measured by the “loss” incurred by the non-breaching party “including [but not limited to] expenditures made ... in performance [.]” See Restatement § 349 at 124 (emphasis added); see also Restatement § 349 cmt. a at 124 (emphasis added) (“Loss in value and cost or other loss avoided are key components of contract damages.”); see also United States v. Behan, 110 U.S. 338, 344 , 4 S.Ct. 81 , 28 L.Ed. 168 (1884) (emphasis added) (holding that the non-breaching party may always recover the “loss of actual outlay and expense.”). Therefore, the actual outlay of TFC’s equity in Transohio Savings was the “contract price” for the Government’s cash contribution of $107.5 million to Transohio Savings, and the Government allowing Transohio Savings to amortize $50 million in supervisory goodwill over a 25 year period using a straight-line method of depreciation, which also could be counted as a capital credit toward Transohio Savings’ regulatory net worth. See American Capital II, 59 Fed.Cl. at 582-82 . Therefore, as a matter of law, the value of Trans-ohio Savings’ equity as of August 29, 1986 represents TFC’s “essential reliance” interest. See PX 24. And, the loss of this amount, as a result of the Government’s breach, if restored to TFC, will “put [TFC] in as good a position [in which it] would have been in had the contract not been made[.]” Restatement § 344.

On February 27, 2004, the court determined that TFC’s “essential reliance” interest was $126,479 million, representing the equity value of the stock of Transohio Savings, as of August 29, 1986. See American Capital II, 59 Fed.Cl. at 580 -82 (citing United States v. Behan, 110 U.S. 338, 344-45 , 4 S.Ct. 81 , 28 L.Ed. 168 (1884) (holding the non-breaching party may always recover the “loss of actual outlay and expense.”)); RESTATEMENT § 349 (the essential reliance may be equated with the contract price paid for performance). This valuation of Trans-ohio Savings’ stock was made at “book value” and was certified by Transohio Savings’ independent auditors, Peat, Marwick, Mitchell and Co., and accepted by the FHLBB without objection at that time. See PX 24. On summary judgment, however, plaintiff argued that TFC’s “essential reliance” interest should be measured by the “market value” of the Transohio Savings stock, but estimated that value as $216.1 million, based on a report by the FDIC’s expert. See American Capital II, 59 Fed.Cl. at 580-81 . The Government agreed that the “essential reliance” interest should be measured by “economic value,” although the Government’s estimate of what that amount should be was substantially less than plaintiffs. Id. Therefore, the court afforded both parties an opportunity to proffer expert testimony at an Evidentiary Hearing, so the court could consider whether to calculate plaintiffs’ “essential reliance” interest by the book value or market value of Transohio Savings’ stock. Id. at 582, 589 .

b. The Court’s Determination Of TFC’s “Essential Reliance” Interest By Book Value, Rather Than Market Value.

Prior to the Evidentiary Hearing, the Government argued that the court erred in relying on Transohio Savings’ book value to ascertain TFC’s essential reliance interest and indicated it would demonstrate at the Evi-dentiary Hearing that “economic value” was the proper measure of Transohio Savings’ “equity value” in 1986. See Gov’t Pre-Trial Brief at 30-31.

The following chart is a composite created by the court from documents admitted at trial. See DX 305 at PAC 087 1075 (Trans-ohio Savings’ Form SEC Form 10-K for the fiscal year ending December 31, 1989, summarizing the consolidated statements of Transohio Savings’ equity for the years ending December 31, 1986, December 31, 1987, and December 31, 1988) and DX 613 at WON537 2242 (Transohio Savings’ OTS *336 Form 10-K for the fiscal year ending December 31, 1991,summarizing consolidated statements of Transohio Savings’ equity for the fiscal years ending December 31, 1990 and December 31, 1991). The data in this chart shows that on December 31, 1986, only three months after the August 29, 1986 Assistance Agreement was executed, Transohio Savings’ shareholders’ equity or book value was $177.437 million or $50.958 million more than the court’s prior determination that TFC’s “essential reliance” interest was $126.479 million. On December 31, 1989, only days after the December 7,1989 breach, Transohio Savings’ equity or book value was $167.152 million or $40.673 million more than the court’s initial determination of TFC’s essential reliance interest at $126.479 million.

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DX 305 at PAC087 1075; DX 613 at WON537 2242.

At the Evidentiary Hearing, Professor Randall S. Kroszner of the University of Chicago, Graduate School of Business and a former member of the President’s Council on Economic Advisors, advised the court that determining TFC’s “essential reliance” interest by shareholders’ equity should have been done by determining the “market value” of Transohio Savings’ equity, as of August 29, 1986, which was $93.113 million. See Krosz-ner Direct 6 at U 14 and Exhibit C at line [F]; TR at 1560. “Market value” was calculated as follows: TFC was listed and traded on the New York Stock Exchange, therefore, TFC’s equity value was ascertained by multiplying the reported price per share by the number of outstanding shares as of a date certain. See Kroszner Direct 6 at H13. Since Trans-ohio Savings was the principal asset of TFC, Transohio Savings’ equity was determined by subtracting the value of TFC’s assets and other non-Transohio Savings’ assets from TFC’s equity and adding TFC’s liabilities. See Kroszner Direct 6 at 1113 and Exhibit C; see also DX 90 at FAC011 2130 (“for planning purposes, the management of Transohio and TFC consider the two as a single entity!;.]”); DX 90 at FAC011 2131 (Transohio Savings’ Vice President Deborah Cook stated that “for most purposes, management as well as outside investors consider Transohio and TFC to be a single entity.”).

*337 The court does not question Professor Kroszner’s methodology; however, recognized experts in the field of accounting have cautioned: “It is also erroneous to assume that there is a direct relationship between book value and the market price of a share of stock. Book value may be one factor affecting the market price, but market prices are influenced by many factors which simply cannot be quantified.” See Finney and Miller’s Principles of Accounting at 372 (8th ed.1980) (emphasis added); see also TR at 1857-59 (Professor Kroszner recognized that the drop in Transohio Savings’ market value between 1986-1987 was caused by a “stock market break.”). 14 The court is aware that the standard valuation of assets used in many contract cases is “market value in contradistinction to any peculiar value the object in question may have had to the owner.... However when the standard is applied to ... shares of stock that are not actively traded... the determination of market value is somewhat fictional.” John D. Calamari & Joseph M. Perillo, The Law of Contracts § 14.12, at 582 (4th ed.1998) (citing McCormick, Damages § 44). As another leading scholar on contract damages also has observed: “[T]he ‘market value’ of property is often a matter of opinion or something even less certain than that----[Thus,] when property values must be found in expert opinions which differ enormously, courts have been willing to say the value finally determined is ascertainable.” Dobbs, supra, § 3.6(2), at 340. For this reason, Professor Kroszner testified that “market values tend to be forward looking... at the future revenue streams, the future cash flows that would be associated with the asset and the future value if you were to sell that asset, which could deviate from what the historical cost basis was.” TR at 1741. Market value also includes a subjective element, because it is based on the “expectations of market participants.” TR at 1745; see also TR at 1859-62 (Professor Kroszner testifying that “there is a lot of information about prospects and promises and possibilities with a lot of uncertainty associated with [stock market values].”).

As discussed in American Capital II, 59 Fed.Cl. at 575-76 , and herein, the doctrines of certainty and foreseeability are common law limitations applicable to any determination regarding reliance interest. In the court’s judgment, utilizing book value better satisfies these limitations for the reasons discussed in the following exchange with Professor Kroszner:

THE COURT: [Y]ou have instructed me is that in your judgment I have made an error in relying on the book value as a starting point of the shareholders contribution. .. I should have instead looked at [regulatory] market value. Now, I don’t know if there is anything in the record I had at that point to look at market value but I do now. I have at least what you have and some other benchmarks. Is that true, that’s the first mistake I made?

PROFESSOR KROSZNER: Your Honor, I wouldn’t characterize it as a mistake. It is an alternative. And I think a more fruitful alternative in this case is to be focusing on the market value and decline in market values. As you said at the time you had only the accounting values.

THE COURT: I can’t remember... whether anybody submitted anything on market value or not but I felt really comfortable going to a consolidated statement by the accountants that the regulators didn’t question. No one questioned that that was an accurate number for the book value, so I felt that was a safe haven to go to.

PROFESSOR KROSZNER: Right. I don’t want to say that it was a mistake. The key for me is that in both the market value numbers and the accounting value numbers, you see significant declines and as we have discussed earlier, negative tangible capital by 1992 and market value is trivial.

THE COURT: Let me ask it a different way. The reliance damages, the focus of *338 that in the law is basically to encourage people to contract, in other words—

PROFESSOR KROSZNER: Of course.

THE COURT: That they can depend upon the system basically to provide them with a remedy if things don’t work out. In your judgment, looking from that perspective, about what the law intends, do you believe that — what is the advantage or disadvantage of looking, relying or using the book value versus market value?

PROFESSOR KROSZNER: Well, getting back to the earlier discussion, the market values tend to be more forward looking.

THE COURT: Forward looking.

PROFESSOR KROSZNER: Forward looking. And the market’s evaluation of what is likely to be happening to an institution. And, you know, where the — what their aspects for profitability, cash flows are. And so I would tend to think that that would be valuable, it would be more valuable to be looking at market values. Here, in some sense we’re in the lucky situation that in terms of the movements of the market value and the book value over the long horizon, there can be bumps and differences along the way, but by the time we get to seizure, the book value, the tangible capital is negative and the market value is trivial. And so we see this very, very sharp decline in both. So we have been marking down the assets over time in the book value sense and the markets have been reducing their, value the prospects—

TR at 1923-26.

In this case, the shareholders’ equity was reported as the book value of Transohio Savings’ stock in the financial documents submitted to all federal regulators, including the FSLIC, FHLBB, and SEC without objection at the time. Moreover, the FSLIC and FHLBB specifically relied on book value as the appropriate valuation of a portion of the amount of consideration Transohio Savings owed the Government for the terms set forth in the August 29, 1986 Assistance Agreement. Compare DX 222 at WOT970 0901 with TR at 1793 (Professor Kroszner explained to the court that the reason the FHLBB relied on the book value of Trans-ohio Savings was because they were following FASB rules and accounting customs); see also Richard E. Baker, Valdean C. Lembke, and Thomas E. King, Advanced Financial Accounting 814 (5th ed. 2002) (“[B]ook value... is simply the total amount of the capital, which is also the difference between total assets and total liabilities. Book value is important because it serves as a basis for asset revaluations or goodwill recognition.”). And, as Professor Kroszner testified, because “[b]ook values tend to focus on recording the initial costs associated with purchasing of different assets. And so they provide, typically... an historical record of what was paid... for various assets.” TR at 1741 (emphasis added); see also TR at 1862 (Professor Kroszner describing book value as being a “backward-looking measure that looks at historical cost and then puts a variety of adjustments to that.”). Moreover, as the Government conceded during the December 3, 2004 oral argument, it would be unfair for' the court to deduct Restatement § 349 losses against an essential reliance interest determined by market value, since in this case those losses were listed on balance sheets wherein shareholder equity was stated by book value rather than market value. See Post Hearing TR at 122-23. Perhaps, for these reasons, the United States Court of Appeals for the Federal Circuit accepted without question the use of the book value of stock exchanged in determining the amount of restitution due to plaintiff in another Winstar case. See Hansen Bancorp, Inc. v. United States, 367 F.3d 1297, 1307, 1317 (Fed.Cir.2004); see also Old Stone Corp., 63 Fed.Cl. at 80 (wherein the Government stipulated based on the facts in that case that book value and market value were the same, see Post Hearing TR at 121).

Accordingly, the court has determined that utilizing the book value of Transohio Savings’ stock as of August 29, 1986 meets the certainty and foreseeability requirements of the Restatement and thereby provides a reliable basis for determining Transohio Savings’ essential reliance interest. 15 In light of this *339 ruling, there was no need for the court to consider TPC’s control or acquisition premium argument. See, e.g., PI. Pre-Trial Brief at 28; TR at 1565-81, 1757-63, 1864-72; see also James Direct at 13-14, 49-51.

c. The Court’s Final Determination Of TFC’s “Essential Reliance” Interest.

At the Evidentiary Hearing, the court also reviewed documents and heard testimony about a $9 million dividend that Transohio Savings’ Board authorized be paid to TFC/AMCAP in fiscal year 1989, the first year that Transohio Savings incurred net losses and without regard to the views of the regulatory authorities. For example, on March 15, 1989, FHLBB Supervisory Agent Doebereiner, advised Transohio Savings’ Board: “We expect that advisable portfolio restructuring... will be timely and effectively implemented, even if the recognition of resulting accounting losses would adversely impact the institution’s ability to pay dividends.” PX 1114 at WON257 0380; see also PX 882 at 6 (May 17, 1990 Meeting Minutes of Transohio Savings’ Board when FDIC Examiner Leonard also warned “about the likely pressure [from TFC] for dividends from Transohio.”). At the Evidentiary Hearing, FDIC Examiner Leonard also testified that he considered this payment “an objectionable practice,” given the low levels of capital. See TR at 472. He further explained that “normally regulators do not object to paying capital or paying dividends, if the purpose... is to ... pay the debt to acquire an institution. .. [but][i]f it was for some other reason, to a third party, like [AMCAP]’s cash flow problems, then we did have a problem with that.” TR at 472-74; see also TR at 531, 572, 649-52 (the former Regional Director of the FDIC’s Chicago Office emphasized the payment of a dividend in 1989 led to the FDIC’s decision in 1991 to prohibit Trans-ohio Savings from paying any more dividends: “And one of the last things we were going to ... allow ... was to let more capital leave that institution at that point irrespective of... an agreement five or six years earlier or something like that.”).

In addition, regarding the $9 million dividend paid in fiscal year 1989, Professor Kroszner advised the court:

[W]hen you pay a dividend out, you are paying cash that the institution has out to the outside world that will directly reduce the equity of the firm.

The shareholder is held the same because the firm is now $9 million, worth $9 million less, but that $9 million is now in the pockets of the shareholders. So they are fine.

TR at 1770; see, e.g., DX 305 at PAC087 1093; DX 613 at WON 537 22456; see also TR at 1849-54. But for this dividend payment, Transohio Savings would have incurred a net loss on a consolidated basis of only $10.8 million in fiscal year 1989, instead of $19.8 million. See DX 305 at PAC087 1054, 95.

The court does not question Transohio Savings’ legal obligation to pay dividends to shareholders as part of a prior agreement with the FHLBB. See DX 93 at WON018 2575. 16 TFC, however, may not ignore the fact that this payment imposed an actual loss on Transohio Savings that reduced the value of TFC’s equity and hence reduced TFC’s “essential reliance” interest from $126,479 million to $117,479 million. See Robert S. Kay & D. Gerald Searfoss, Handbook of *340 Accounting and Auditing at 2-10 (2d ed. 1988) (“Handbook of Accounting”) (“Distribution to owners are decreases in net assets ... [and] decrease ownership interest or equity in an enterprise.”). The court is mindful that our appellate court has ruled in another Winstar case that dividends should not be credited to the Government in restitution cases, unless the dividends were derived or due the Government. See Landmark, 256 F.3d at 1374 . In this case, however, the court is not crediting the $9 million dividend payment to the Government, but instead deducting that amount from the court’s determination of TFC’s “essential reliance” interest. Moreover, in the court’s judgment, to allow TFC to receive $9 million in dividends and the full amount of its “essential reliance” interest would result in a windfall. See, e.g., Admiral Financial Corp. v. United States, 378 F.3d 1336, 1345 (Fed.Cir.2004) (holding “[damages] should not be awarded if it would result in a windfall to the nonbreaching party.”); Hi-Shear Tech. Corp. v. United States, 356 F.3d 1372, 1382 (Fed.Cir.2004) (“Determining the amount of damages to award... is not an exact science, and the methodology of assessing and computing damages is committed to the sound discretion of [the trial court].”). Therefore, the court has determined that TFC’s final “essential reliance” interest should be $117.479 million, which was lost as a direct result of the Government’s breach of the August 29, 1986 Assistance Agreement.

2. TFC Is Entitled To $42.166 Million Regarding Its “Collateral Reliance” Interest, i.e., The Capital TFC Transferred To Transohio Savings As A Result Of The December 31, 1986 Transohio Rights Offering.

The court analyzed plaintiffs’ claim concerning the $42.166 million of capital that TFC contributed to Transohio Savings as a result of the December 31, 1986 Transohio Rights Offering in two ways. See American Capital II, 59 Fed.Cl. at 582-84 . First, the Restatement recognizes that expenses incurred “in preparation for collateral transactions that a party plans to carry out when the contract is performed” may be recovered as “incidental reliance” or “collateral reliance” damages. See Restatement § 349 cmt. a. As the United States Court of Appeals for the Federal Circuit has confirmed, there can be more than one type of reliance damages, because the “underlying principle... is that a party who relies on another party’s promise made binding through contract is entitled to damages for any losses actually sustained as a result of the breach of that promise.” Glendale, 239 F.3d at 1382 (emphasis added); see also Richard A Posner, Economic Analysis of Law (“Posner”) § 4.8, at 133 (5th ed.1998) (defining the “reliance loss-[as] the sum of the costs [the injured party] incurred as a result of the contract[.]”) (emphasis added).

Although the August 29, 1986 Assistance Agreement did not require plaintiffs to provide Transohio Savings with any amount of capital after the acquisition of Citizens/Dollar, shortly thereafter plaintiffs executed plans previously discussed with the regulators to provide Transohio Savings with over $40 million of additional capital to support “additional growth and acquisitions of Transohio [Savings].” See American Capital II, 59 Fed.Cl. at 583 (citing PL Motion for Partial S.J. on Damages at 27 (emphasis in original)); see also DX 30 at PAC024 1574. In fact, the record evidences that the FHLBB had actual knowledge of these plans some time prior to June 1985, at the time AMCAP issued an $80 million subordinated debt offering, which the FHLBB conditioned so that a substantial portion of the proceeds would be available to be provided as capital to Transohio Savings after it merged with Citizens and Dollar. See DX 29 at WOT286 0074; PL P.H. Appendix at 736, 857-58.

The court also determined that, on August 29, 1986, when the Assistance Agreement was finalized, the Government had actual notice and therefore reason to foresee that an additional $42.166 million in capital would be made available to Transohio Savings as a result of a Transohio Rights Offering. See American Capital, II, 59 Fed.Cl. at 583 (citing Pl. Motion for Partial S.J. on Damages Appendix at 640, 648-49; DX 30; TR at 2677-83.) Again, the fact and amount of this additional capitalization are a matter of public record in plaintiffs’ Securities and Ex *341 change Commission disclosures. Moreover, they are not contested by the Government and meet certainty requirements. In addition, but for plaintiffs’ reliance on the full benefit of the Government’s contractual promises regarding the $107.5 million capital credit and amortization of the $50 million in supervisory goodwill, plaintiffs would not have gone forward with the $42,166 million Transohio Rights Offering. See American Capital, II, 59 Fed.Cl. at 583 (citing PI. Motion for Partial S.J. on Liability Appendix at 9; PI. Motion for Partial S.J. on Damages at 641; PI. P.H. Appendix at 738 (May 6, 1986 FSLIC Application H-(e)3 of AMCAP, TFC and Transohio Savings re: Acquisition of Citizens/D ollar advising “Applicants view Federal Home Loan Bank Board approval of the applications and requests submitted in connection with the [Transohio] Rights Offering ... as integral to the acquisitions of Citizens and Dollar.”)); see also DX 412 at WOT665 0016 (Sept. 27, 1990 letter to FDIC representing that the “$42.2 million of common equity has been contributed by [AM-CAP] ... at a time when the Bank was unable to raise capital independently. Also, -the regulators encouraged [AMCAP] to raise funds to enable it to acquire supervisory institutions. The issuance of the debt was reviewed and approved by the FHLBB.”).

Therefore, plaintiffs demonstrated that the $42.166 million was made in a collateral transaction to support the implementation of the August 29, 1986 Assistance Agreement, as well as to finance other potential acquisitions to leverage Transohio Savings’ regulatory net worth. As the United States Court of Appeals for the Seventh Circuit held in Designer Direct, Inc. v. DeForest Redevelopment Authority, 313 F.3d 1036, 1049 (7th Cir.2003), specifically relying on Glendale, “[t]he Restatement and case law are clear____[R]eliance damages are not limited to those expenses made in relation to duties spelled out in the contractual agreement.”

In the alternative, the court determined that the $42.166 million capital collateral in Transohio Savings resulting from the Trans-ohio Rights Offering may be viewed as consideration and acceptance of the terms of the September 10, 1986 FHLBB Forbearance Letter. See American Capital II, 59 Fed.Cl. at 583 (citing PI. Motion for Partial S.J. on Liability Appendix at 293-94). On October 31, 2003, the court held that the August 29, 1986 Assistance Agreement was breached by the enactment and implementation of FIR-REA with regard to the plaintiffs in this case. See American Capital I, 58 Fed.Cl. at 409 . In doing so the court, like the United States Court of Appeals for the District of Columbia in a related case, did not consider whether the September 10, 1986 FHLBB Forbearance Letter was a part of the contract between the parties. Compare American Capital I, 58 Fed.Cl. at 408 with Transohio Sav. Bank v. Director, Office of Thrift Supervision, 967 F.2d 598, 618 (D.C.Cir. 1992). Therefore, even if the court has misconstrued the law regarding “collateral reliance,” the court is well within existing precedent in granting summary judgment to Transohio Savings’ sole shareholder for its “essential reliance” interest based on the separate agreement that arose as a result of the “post-contract” September 10, 1986 FHLBB Forbearance Letter and subsequent acceptance by TFC, by proceeding with the Transohio Rights Offering that resulted in a $42.166 million capital contribution to Transohio Savings. The factual circumstances here are unique. Transohio Savings was a party to the Forbearance Letter Agreement, but it only had one shareholder, TFC, that also was a signatory on the August 29, 1986 Assistance Agreement that established regulatory net worth requirements. See American Capital II, 59 Fed.Cl. at 584 (citing PI. Motion for Partial S.J. on Liability Appendix at 265-66 (establishing “net worth maintenance” covenants binding TFC)). Therefore, in the court’s judgment, TFC was entitled to the benefits of the September 10, 1986 Forbearance Letter as a third-party beneficiary. See FDIC v. United States, 342 F.3d 1313, 1319 (Fed.Cir.2003) (citing Restatement § 315) (quoting Glass v. United States, 258 F.3d 1349, 1354 (Fed.Cir.2001)) (“Third party beneficiary status is an ‘exceptional privilege’ and, to avail oneself of this exception privilege, a party must ‘at least show that [the contract] was intended for his direct benefit.’ ”).

*342 Accordingly, the court has determined that the proper amount of TFC’s “collateral reliance” interest is $42.166 million, the capital TFC transferred to Transohio Savings as a result of the December 31, 1986 Transohio Rights Offering, which was lost as a direct result of the Government’s breach of the August 29,1986 Assistance Agreement.

D. Calculating Damages Based On The Reliance Interest.

Damages based on the reliance interest reimburse the injured party so that the party is “put in as good a position as he would have been in had the contract not been made[J” Restatement at § 344; see also Farnsworth, supra, § 12.16, at 280 (stating reliance recovery may be reduced to the extent that the breaching party can prove “any benefit received [by the claimant] through salvage or otherwise.”). Accordingly, after determining the amount of payments made by the plaintiff based on its total reliance interest, i.e., “essential reliance” plus “incidental reliance” or “collateral reliance,” the court should first deduct any benefits “plaintiff receives from the expenditures in reliance.” Dobbs, supra, § 12.3(1), at 51-52; see also Fuller and Perdue, supra, at 81 (“If a plaintiff should perform his side of the contract and then claim both compensation for the reliance involved in his performance and at the same time the full value of the defendant’s performance, it would be obvious that he was asking too much.”).

Therefore, the Restatement provides that further deductions should be taken for “any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.” Restatement § 349; see also Restatement § 351. As the relevant comment to Restatement § 349 explains, the burden of establishing any losses defendant claimed would have been incurred by plaintiff, even if the contract had not been breached, falls squarely on the defendant. See Restatement § 349 cmt. a (“[I]t is open to the party in breach to prove the amount of the loss, to the extent that [it] can do so with reasonably certainty ... and have it subtracted from the injured party’s damages.”); see also Posner, supra, § 4.8 (since the “reliance measure [is] on the victim’s loss from the breach,” reliance damages may never exceed the plaintiff’s “net reliance loss.”); Dobbs, supra, § 12.3(1). For this reason, the “reliance measure of damages ... will tend, therefore, to understate the social costs of breach.” Posner, supra, § 4.8.

E. Regulatory Enforcement Attitudes After FIRREA.

On December 7, 1989, FIRREA abolished the FSLIC and made the OTS the primary federal supervisory authority instead of the FHLBB. See Winstar, 518 U.S. at 856-57 , 116 S.Ct. 2432 . The FDIC was relegated to a “backup” supervisory role. Id; see also TR at 557-58. At the Evidentiary Hearing, the court heard testimony illustrating the “sea change” in regulatory enforcement attitudes that occurred after the enactment and implementation of FIRREA.

For example, as previously discussed, pn October 21, 1987, the FHLBB and the State of Ohio gave Transohio Savings’ management a “2” rating and an overall institution composite rating of “3” for the period January 1986-May 1987. SeeDX90. At the Eviden-tiary Hearing, FHLBB Supervisory Agent Benham, who conducted that Joint Examination, advised the court that after AMCAP acquired Transohio Savings the “institution itself seemed to take on a lot different risk profile ... also seemed like the Board of Directors didn’t seem to be watching management as closely as we thought they had under the prior administrations.” TR at 85. Because Supervisory Agent Benham’s 2004 opinion of Transohio Savings’ management’s performance seemed in conflict with the October 21,1987 “2” rating, the court interrupted the questioning to probe further:

GOVERNMENT’S COUNSEL: What position did Mr. Burstein hold in the organization to the best of your recollection?

MR. BENHAM: I think he was Chairman of the Board.

GOVERNMENT’S COUNSEL: And how qualified did you consider Mr. Burstein to run a thrift of Transohio’s size?

MR. BENHAM: I didn’t really think he was well qualified. He had been an ac- *343 eountant by profession ... and his only exposure to banking was very limited just prior to the acquisition of Transohio. COURT: Did you make those views known in writing?

MR. BENHAM: No.

THE COURT: Why?

MR. BENHAM: I was never asked to.

THE COURT: Okay. It was not part of your job responsibility? Is that what you are saying? To evaluate the professional merits of potential—

MR. BENHAM: As an agency, you only did that when the institution was in a troubled condition and was putting in executive officers. And at the time that American Capital acquired TransCapital and Transohio Savings, they were not in a troubled condition.

THE COURT: So as long as the institution is solvent, frankly the agency really doesn’t care or do any due diligence about the board members; is that what you are saying?

MR. BENHAM: Normal board members, no. If you file an application to acquire someone, we do background checks, FBI checks, to see if there is anything that jumps out, but we really do not make—

COURT: Did anything jump out—

MR. BENHAM: No.

THE COURT: — regarding this individual at that time?

MR. BENHAM: —No. We don’t make assessments as to their professional competence to run an institution.

TR at 93-95.

From May 1987 until March 1989, no regulatory agency ever conducted an overall institution examination of Transohio Savings. See DX 222. Shortly after September 6, 1989, a Joint Examination was issued for the period of March 30,1989-September 6, 1989, wherein Transohio Savings received an overall composite rating of “3.” Four months later, on February 20, 1990, the FDIC commenced an examination utilizing information as of the close of business December 31, 1989, wherein Transohio Savings received an overall composite rating of “5.” See DX 323. When the FDIC Examiner-In-Charge of that examination was asked about the agency’s response to learning that Transohio Savings made a $9 million dividend payment in 1989, at a time when the institution first incurred net losses and despite the fact that Transohio Savings’ Board had been warned not to pay out any dividends, he responded:

MR. LEONARD: I noted the problem.

THE COURT: Then what happen[ed]?

MR. LEONARD: Nothing. I mean, unless-you know, the capital is gone. They can’t bring it back. Normally what the regulators do is if an institution is in serious shape or has significant problems, they initiate a corrective program and a corrective program may say: You will not pay dividends without the prior written approval of the FDIC or the—

THE COURT: But that didn’t happen at this time.

MR. LEONARD: It didn’t happen at this time, no.

TR at 474. What type of message did the OTS send Transohio Savings by not taking immediate action regarding the $9 million dividend payment?

As for the FDIC, the former Regional Director of the Chicago Office told the court that, if concerns were justified, the FDIC would issue a Cease and Desist Order, pursuant to Section 8-T of the Federal Deposit Insurance Act, allowing the FDIC to impose corrective action, even though it was not the primary regulator. See TR at 603-05, 613. In fact, despite Transohio Savings’ composite rating of “5,” based on the FDIC’s February 20, 1990 examination, the former Regional Director of the FDIC’s Chicago Office admitted that: “we believe[d] [that] the proposed corrective actions [were] sufficient to address the problems in evidence and that Section 8(a) action [was] premature ... we did not feel at this point in time that [Transohio Savings] was uninsurable... by the time we proceed with a Section 8(a) ... we really ... do not want to insure that institution any more.” TR at 600; see also DX 355 at FAC009 1427.

The court had difficulty understanding how an institution with a “5” rating did not war *344 rant the FDIC’s immediate issuance of a Cease and Desist Order.

THE COURT: It seems to me that the — it wasn’t just this institution ... after FIR-REA, were kind of operating a little bit in a schizophrenic regulatory environment because the OTS were the primary regulators and the people they needed to satisfy first, I mean, their first priority had to be on those folks.

MR. MASA: Yes, Your Honor.

THE COURT: And then ... the FDIC comes in and they had what appeared to be a slightly distinct, different way of doing the analyses.

MR. MASA: Right.

THE COURT: Perhaps, if I can say so, more rigid or more — you were protecting the fiscal first; that was what you were worried about.

MR. MASA: Since 1933.

THE COURT: So you would look at things really with a much more, I would think, jaundice eye because you want to really protect the backside, and really looking to protect the Federal Government here, so if there was something on the margin you would be more conservative, if I may say so. Is that fair or am I being unfair?

MR. MASA: After a period, we had been in business since 1933. We feel we have been very successful, but I will say this.

THE COURT: Certainly Congress felt you were successful.

MR. MASA: Yes. I don’t believe we would have gotten this responsibility if they didn’t have faith in us and that we had done our job over many, many, many years. And I will also say this: We’re looking at a very, very difficult situation here, failure.

H? H* H* H* H«

THE COURT: I am not making value judgments. Exactly what I am trying to say [was] there really ... a schizophrenic regulatory picture?

MR. MASA: I cannot argue with that, Your Honor. It was a completely changed structure, that is true.

TR at 667-71. What type of message did the OTS send Transohio Savings by not immediately issuing a Cease and Desist Order after assigning the institution a “5” composite rating? In the court’s judgment, the financial institution could only read the rating as being inflated to cover the regulators, in the event of a failure.

The FDIC examination noted that, on May 17, 1990, a meeting was held with Transohio Savings’ board of directors and representatives of the FDIC, OTS, and Ohio Department of Commerce to discuss the findings of the FDIC examination. See DX 323 at FAC009 1721. The examination also noted that the board of directors was receptive to the regulators’ comments and indicated that the board would take action to correct deficiencies. See id. Although the examination reveals that the FDIC’s authority to terminate insurance and back-up authority to take formal Cease and Desist action was discussed at the meeting, the examination does not indicate that the FDIC told the board that it would pursue a Cease and Desist Order. See id. The examination only noted that the FDIC had indicated to the board that “that the Chicago Regional Office would be in close contact with the Cincinnati OTS to ensure that action was taken to improve the condition of Transohio and protect the depositors.” Id.

One of the most vivid examples of the post-FIRREA schizophrenic regulatory environment is evidenced in the March 8, 1990 Minutes of a Joint Meeting of the Boards of AMCAP, TFC, and Transohio Savings with the top OTS regional officials and examiners, wherein it was reported that:

Mr. Muldoon [OTS Executive Vice President of Regulatory Functions in the Cincinnati Office] advised the Boards that the OTS is being very tough. With respect to [Transohio Savings’] capital compliance, he indicated that the primary focus was on ... asset classifications. He advised the Boards that this meeting was in the middle of the spectrum of various types of supervisory conferences in this District. The purpose of the meeting was to advise *345 each Board of the regulatory concerns at the same time.

DX 331 at PAC065 2041 (emphasis added).

Mr. Burstein asked Mr. Muldoon if the regulators wanted him to resign. Mr. Muldoon affirmatively stated that they do not want him to resign.

Mr. Burstein then asked if there was any other specific action that would be required to make the regulatory authorities comfortable and Mr. Muldoon stated that there were no specific actions required. Mr. Muldoon reiterated that as far as supervisory conferences went, this meeting was middle of the road. When the regulators have “serious” concerns, they require action to be taken-they do not ask. He said he has trained his staff to be hardnosed and cynical and this is what we had seen at the meeting. Thrift regulators had been severely criticized and they were very concerned that they act conservatively and take strong positions with the institutions they supervise.

[Francis] Coy [a member of the TFC Board of Directors] asked if the regulators would like any [AMCAP] affiliates to resign from the TFC Board and Mr. Mul-doon replied in the negative. Mr. Coy also questioned Mr. Muldoon about the assignment of the [prior OTS] Macro rating of 3. Mr. Muldoon advised that there was concern with [AMCAP’s] influence among his staff. However, the biggest problem was the poor performance in 1989. He advised the Board that the most positive step they could take was to produce a plan for good earnings and to bolster the capital of the institution. He indicated that he was satisfied with the performance of management and that this confidence had been reflected in their approval of the Citizens and Dollar acquisitions and support for the AmeriFirst acquisition. Mr. Muldoon recognized the problems caused by the C & D acquisition.

DX 331 at PAC065 2042 (emphasis added).

What type of message did the OTS send Transohio Savings by advising the institution that it was “in the middle of the road” and declining to address the institution’s inquiry about specific steps that the OTS agency staff had been advocating internally to turn the situation around?

F. The Arguments Of The Parties.

1. Summary Of The Government’s Argument.

a. Causation.

The centerpiece of the Government’s argument was the continuing argument that TFC failed to establish that “the breach was ... the source of ... Transohio’s continuing losses.” Gov’t Post-Trial Brief at 2; see also Post Hearing TR at 123-52. The Government, however, misconstrued and misstated TFC’s causation burden. The breach occurred on December 7,1989, upon the enactment and implementation of FIRREA that no longer allowed Transohio Savings to count capital credits and supervisory goodwill toward meeting regulatory capital requirements, pursuant to the terms of the August 29, 1986 Assistance Agreement. At that time, the Government became hable to TFC for its reliance interests, fixed prior to that time, because the Government caused the breach and TFC was deprived of the full benefits of the August 29, 1986 Assistance Agreement. See Restatement § 235(2) (‘When performance of a duty under a contract is due any non-performance is a breach.”) (emphasis added); see also Bluebonnet Sav., 266 F.3d at 1356 (holding that rebanee damages are appropriate where the plaintiff shows that, but for the breach, plaintiff would not have agreed to the contract or that the breach “adversely affected the terms of the [contract].”); Dobbs, supra, § 12.4(2), at 65 (When plaintiffs claim consequential damages they must prove that the “breach in fact caused the loss they claim.”). Thus, the causation-in-fact requirement “prevents the plaintiffs recovery for any losses not proven to have occurred at all, for losses which in fact occurred as a result of factors wholly other than the defendant’s breach, and for losses which in fact occurred but which would have resulted even if the defendant had not breached.” Id. at 66. Here, TFC would not have been a party to the August 29, 1986 *346 Assistance Agreement nor the Transohio Savings’ offering that raised and contributed $42 million to Transohio Savings as additional equity if it thought that the Government had liberty to breach the terms of the Assistance Agreement. See PI. P.H. Appendix 738 (May 6, 1986 FSLIC Application H-(e) 3 of AMCAP, TFC, and Transohio Savings re: Acquisition of Citizens/Dollar).

Nevertheless, having determined that the Government was liable for the breach in American Capital I, 58 Fed.Cl. at 401 and that the loss of TFC’s reliance interests was caused by the breach and that TFC’s reliance interests were both foreseeable by the Government and certain in American Capital II, 59 Fed.Cl. at 576 , the only legal determination to be made thereafter was to ascertain the amount of any RESTATEMENT § 349 losses and any credits due for benefits that Transohio Savings received from the Government prior to the breach.

b. Transohio Savings’ Net Losses.

In the alternative, the Government argued that for fiscal years 1989 until mid-1992, Transohio Savings lost approximately $200 million that would have been incurred irrespective of the breach. See, e.g., DX 305 at PAC087 1054; DX 453 at WOT970 0515; DX 613 at WON537 2228; PX 715 at C-AC-K-0031355; see also TR at 1120 (Dr. Hamm estimated between January 1, 1989 and June 30,1992 Transohio Savings lost $218 million).

The Government identified the following individual and net losses incurred by Trans-ohio Savings for each of the fiscal years 1989-1992, as reported in Transohio Savings’ SEC Form 10-K and OTS Forms 10-K, and effectively employed the testimony of former regulators and experts in certain circumstances to describe why they believed those losses would have been incurred by Trans-ohio Savings irrespective of the breach.

In fiscal year 1989, the Government argued that Transohio Savings lost: $9.4 million associated with the termination of the aborted AmeriFirst acquisition; $14.1 million associated with losses from downsizing and phasing out AmeriStar’s mortgage banking business; and $4 million from having to write off losses from the sale of junk bonds. See Gov’t Post-Trial Brief at 56-58. In addition, the Government implied that the $9 million dividend paid in fiscal year 1989 also should be treated as a loss for Restatement § 349 purposes. See Gov’t Post-Trial Brief at 61. 17

In fiscal year 1990, the Government argued that Transohio Savings lost $30.2 million relating to loan losses and $17.4 million in restructuring charges. See Gov’t Post-Trial Brief at 61-67.

In fiscal year 1991, the Government argued that Transohio Savings lost “a staggering $122.6 million.” Gov’t Post-Trial Brief at 67 (citing DX 613 at WON537 2228). The components of that loss were $38.418 million relating to loan losses; $26.076 million of foreclosed real estate; $15 million in losses from increased amortizations; $26.7 million in mortgage servicing, including $9.7 million relating to Transohio Savings’ I/O strips and $17 million for losses from the sale of securities that had to be recorded at the lower of cost or market (“LOCOM”); and an $18.3 million write off of remaining goodwill. See Gov’t Post-Trial Brief at 67-72.

The Government argued that “absolutely none of these losses was caused by the phase-out of goodwill. Rather, these losses were caused by Transohio’s own business decisions, combined with inadequate management and internal procedures, and external factors such as declining interest rates, increasing mortgage prepayments, and a deteriorating real estate market.” Gov’t Post-Trial Brief at 73; see also Kroszner Direct 1119, at 9-10 (losses during the period 1990 through 1992 were caused by “operating factors, not the [bjreach.”); Post Hearing TR at 154-207.

In advising the court how to conduct an analysis under Restatement § 349, the Government stated that the court first should focus on:

[the] decrease in the value of the institution before the breach and further decreas *347 es after the breach, [and determine that] the institution would have failed under the reliance theory of damages [and], the Plaintiffs shouldn’t receive any damages ... [if] Plaintiffs [lost] their investment ... at any time. It doesn’t matter if they would have failed on the date of FIRREA, the next day, because we’re trying to think what would have happened in the real world. And if in the real world the Plaintiffs would have failed, if the Plaintiffs lost their investment in Transohio in the absence of the breach, then they ... lost their investment. We don’t have to focus solely on would they have failed on the date of the breach.

TR at 816-17; see also TR at 825, 1228-29 (“[I]t is the Government’s position that they certainly weren’t seized in the real world when they lost their goodwill, so that couldn’t have been the harm at the time of the breach[.]”); TR at 1232 (“Plaintiffs’ expenditures were $168 million in reliance on the contract, we’re saying that they would have lost those expenditures regardless of the breach. That’s true whether you focus on the date of the breach, whether you focus on the date of seizure.... But [if] you focus on the date of seizure, you add back the goodwill, if you look at everything that happened in the interim, they would have been seized even in the absence of the breach.”); see also TR at 1909-11 (“There is no dispute that [Transohio Savings] lost a lot of value. You can talk about whether they were worth 160 or 93 million in ’86 but there is no dispute by 1992 all, virtually all of that was gone----It doesn’t matter whether you look at market value or book value____ There is precious little dispute that virtually all of these losses cannot possibly be linked to the phaseout of goodwill____ So their only link, their only hope is the toothfairy theory. Yes, we lost whatever value it was by 1992, probably we lost it for reasons that have absolutely nothing to do with the breach, but if you pretend that we would have stayed open, then you should also pretend that we would have regained that value back.”).

Following the oral argument, at the court’s request, the Government submitted the following charts summarizing its argument that all of the losses incurred by Transohio Savings in fiscal years 1989-1992 were not related to the breach, but were attributed solely to independent and unrelated actions by Transohio Savings.

The Government’s Summary of Plaintiffs’ Investment Prior to the Breach and Losses Incurred Thereafter (Footnotes 18-24 herein were authored by the Government)

Plaintiffs’ Investment At End Of 1989 1989-92 (Losses) Losses Caused By The Breach

1989— $19.8 Million

$35,718 Million (market value) 18 1990— $44.3 Million -$712,000 (Shrink) 19

1991— $122.6 Million $ 0 (I/O LOCOM) 20

1992— $13 Million $ 0 (GW Write-off) 21

Book Value Of Transohio At End Of 1988 $199.7 Million $ 0 (1990 Restructuring) 22

*348 $195.498 M $199.700 Million — $ .188 Million $ 0 (Columbus GW) 23 $900,000 (Mortgage

$199.512 M (Non-Breach Losses From $199.512 Million [Net Losses Caused Banking Income) 24

_1989-1992) By Non-Breach $ 188 Thousand

$ 4.014 (remaining book equity at 6/30/92) Factors]

The Government’s Reconciliation of Total Net Losses with Individual Items of Loss (Footnotes 25-34 herein were authored by the Government)

NET GAIN OR LOSS ON OTHER TOTAL NET INDIVIDUAL ITEMS OF LOSS ASPECTS YEAR LOSS_IDENTIFIED IN 10-K_OF BUSINESS

1989 $ 19.8 Million 25 $ 9.4 M — Termination Of AmeriFirst $7.7 Million Gain Acquisition

$ 14.1 M — AmeriStar Losses

$ 4.0 M — Junk Bond Losses

_$ 27.5 Million 26 _

1990 $ 44.3 Million 27 $ 26.3 M — Provisions For Loan Losses $ .6 Million Loss

$ 17.4 M — Restruet. Charge

_$ 43.7 Million 28 ~~_

1991 $122.6 Million 29 $ 38.4 M — Provisions For Loan Losses 30 $1.9 Million Gain

$ 26.1 M — Losses On Foreclosed Real Estate 31

$ 15.0 M — Mortgage Banking Losses, Stemming From Increased Amortization 32

$ 26.7 M — Losses On Mortgage Derivatives 33

$ 18.3 M — Goodwill Write Off 34 $124.5 Million

2. Summary Of TFC’s Argument.

TFC does not dispute the amount of the *349 net losses incurred during fiscal years 1989-1992, but argued that most would not have been incurred if the regulatory capital benefits of the August 29, 1986 Assistance Agreement had been honored. See PI. Post-Trial Brief at 74-75 (“[Plaintiffs have demonstrated that the breach caused more than $130 million in losses and foregone earnings. This analysis does not even take into account other losses caused by the breach that have not been quantified, such as Transohio’s higher relative operating costs and costs of deposits, and unnecessarily aggressive asset write-downs that would likely not have been forced upon Transohio were it not for the capital problems stemming from the Government’s breach.”).

Since the Government had the burden of proof at the Evidentiary Hearing to establish with reasonable certainty any losses that Transohio Savings would have incurred irrespective of the breach, as a strategic matter, TFC did not directly rebut individual losses that were identified by the Government. Instead, TFC’s briefs and arguments focused on three broad responsive themes. First, but for the breach, Transohio Savings would not have embarked on a strategy to survive FIRREA by selling off their most valuable assets or acquiesce to the insistence of the write off of other losses in a manner that improved Transohio Savings’ earning capacity, but eventually imposed enormous loan loss reserves, other costs, and/or resulted in the “fire sale” of the thrift’s remaining assets. See PI. Post-Trial Brief at 73-75. Second, if the disallowed “contractual capital were simply added back to Transohio’s balance sheet, Transohio’s regulatory capital position would have been stronger than any bank seized in 1992.” See PI. Post-Trial Brief at 72-73. Third, Transohio Savings today would be worth substantially more than the $168,645 million in reliance interest, if the IMCR had not been imposed in May 1991. See PI. Post-Trial Brief at 75-79.

TFC’s COUNSEL: [S]tart with the proposition that ... the reliance interest is the $168 million ... [s]o the question ... is would the Plaintiffs have lost their investment if the Government had kept its word and honored the contract? Now, we disagree with the Government on looking at what happened to the value during interim periods. We think that if the Court finds, Number 1, the bank would have survived if they had honored the contract, and, Number 2, the Plaintiffs’ investment would be worth anything above the [$]168 [million] that the Court has already found was the reliance interest, then that’s the recovery.

TR at 818.

He ^ # # # %

TFC’s COUNSEL: Just so we are clear ... we actually have two alternative theories on this. One ... if the regulatory contract had been there at the time, the business would have taken a better run through the economic [recession]____The second line of analysis that’s similar to but slightly separate from the business would have taken a better run through the recession is even if on a business basis, it just took the same run ... with the regulatory capital, the capital ratios look a lot better ... if we had, even if things weren’t any better, and they would have been between ’89 and ’92 ... with the additional cushion of the regulatory capital, a little bit more time would have been enough, we turn the corner[.]

TR at 820-22.

H« H* H* H« H« H«

TFC’s COUNSEL: Between 1989 and 1992, the losses would have been substantially less because there would have been a lot more earnings from the part of the bank that was lopped off in direct response to the breach, Number 1, and, Number 2, there would be a lot less regulatory backing and forthing that led to a lot of trouble ____ Number 3 ... that additional earning and that additional capital ... would have been enough to keep the doors open as of 1992, ... and after 1992, the thing would come back[.]

TR at 2384-87.

Professor Kroszner’s testimony at the Evi-dentiary Hearing also was helpful in explaining why simply adding back the adjusted $120 million in contractual regulatory capital lost as a result of the breach would not have made Transohio Savings whole, either at the *350 time the IMCR was imposed in 1991 or in 1992, because:

[t]he OTS’s seizure decision is based on the risks that the institution poses to the Deposit Insurance Fund and ultimately the taxpayers. And so they make that assessment and then they look at the capital cushion that is there to protect against those losses.

TR at 1607-08. Regulatory capital was an accounting mechanism, not actual capital that would effect the risk to the insurance fund or absorb losses. See TR at 1614, 2329; see also TR at 2291 (regulatory capital would have “no impact on margins.”); TR at 2366-68 (same). Nevertheless, Professor Krosz-ner testified in response to a question as to whether contractual regulatory capital had economic value: “It is necessary to meet capital requirements in order for an institution to stay open. So to the extent that regulatory capital can help an institution to meet its capital requirements, it can have value.” TR at 1845.

The court agrees that simply adding back disallowed contractual capital at any given point after the breach was irrelevant to determining the Restatement § 349 losses that Transohio Savings would have incurred irrespective of the breach. Moreover, whether Transohio Savings would or would not have been profitable if it had been able to avoid the final cannibalization of its assets and earning capacity, inevitable after the imposition of IMCR, likewise was irrelevant to the Restatement § 349 loss determination.

On the other hand, in the court’s judgment, the most effective of TFC’s arguments and the subject of much of the Evidentiary Hearing was Transohio Savings’ decision starting in mid-1989, in anticipation of FIR-REA, to embark on an aggressive program to sell the most marketable parts of its portfolio in the attempt to meet FIRREA’s new regulatory capital requirement and survive. Mr. Wooldredge, a former TFC and Trans-ohio Director and CEO of Transohio Savings, summarized the malignant effect of the breach, which required the sale of Transohio Savings’ most liquid and profitable assets to reduce asset size and costs to meet the new regulatory capital requirements.

MR. WOOLDREDGE: [The breach] had a major negative impact in that it withdrew or took away some regulatory capital or capital that counted towards regulatory capital. It really put us in a very severe bind. We had done an acquisition with a contract that we would be able to have that capital. And since that capital was removed, we were then saddled with an acquisition we, I don’t think, ever would have made without that capital. Because there were some problem loans that came about, not surprisingly, in those acquisitions that hurt us, brought us about a lot of losses that we never would have had if we hadn’t made that acquisition. We never would have made the acquisition, so I can be clear, without that regulatory capital. And that regulatory capital was the basis then for us to continue to grow or a basis when we lost that capital, it caused us to have to drastically, totally, really, 180 degrees, change our strategy. And in changing that strategy then had to take some decisions that had some, you know, major negative impacts on us.

TFC’s COUNSEL: What types of decisions are you referring to?

MR. WOOLDREDGE: Well, we had to downsize. Since we no longer had that capital, we had to downsize. And in downsizing, we had to sell assets. And when you sell assets that you can sell, obviously, and those are some of our better assets and we had to do this fairly quickly, so we weren’t always selling at the right time or in the right way we wanted to, so that we were hurt by this, major hurt, I would say.

TFC’s COUNSEL: To what extent if any did that shrinkage impact Transohio’s earnings?

MR. WOOLDREDGE: Oh, it materially impacted our earnings going forward negatively.

TFC’s COUNSEL: And to what extent, if any, did that shrinkage have any impact on Transohio’s cost structure?

MR. WOOLDREDGE: Well, that’s a very interesting question because obviously we had built up a cost structure, G & A, whatever you want to call it, to bring about growth. And when we lost the regulatory *351 capital and had to start shrinking, we didn’t need that structure any longer. Well, as a businessman, I can tell you, you cannot-when you change your direction quickly, you cannot, you know, eliminate or downsize your cost structure as fast. And so it hurt us in a major way. Again, it caused losses or helped cause losses we would not otherwise have had.

TFC’s COUNSEL: And what effects if any did the shrinkage have on Transohio’s ability to deal with any asset quality issues that might come up?

MR. WOOLDREDGE: Asset quality, can you tell me what you are trying to get-

TFC’s COUNSEL: If you add troubled assets, for example.

MR. WOOLDREDGE: Well, if we had troubled assets, we had to deal with them sooner and perhaps in some cases have to, you know, get rid of real estate owned as an example at a time when we would not have been as propitious or as good for us.

TFC’s COUNSEL: How did the loss of earnings, if any, related to the shrinkage relate to any problems with assets or bad loans?

MR. WOOLDREDGE: Well, when you lose the assets — well, when we had to downsize, we had to sell off assets, sometimes at a time when the price was not as good, and certainly it took away earnings that would have been there otherwise that would have helped offset some of the losses that we had in our, for instance, commercial real estate portfolio.

TR at 2490-93; see also TR at 2548, 2552, 2640-42, 47-48.

Mr. Cook, Director, Senior Vice President, and Chief Financial Officer of AMCAP and TFC and a former Director of Transohio Savings, also described the adverse effect of the breach in equally compelling terms:

TFC’s COUNSEL: And how if at ah did the loss of that regulatory capital, the dis-allowance of it, affect Transohio’s business strategies after the enactment of FIR-REA?

MR. COOK: It was devastating. It was a material part of our total capital. We had placed a significant economic reliance on that in terms of our compliance. It was a very severe-it was material to every aspect of the bank. It impacted the reconsideration of each asset and liability and cost and revenue. That repudiation of the capital assistance was devastating to Transohio.

TFC’s COUNSEL: And what if any options did the bank consider after the enactment of FIRREA with respect to this issue?

MR. COOK: Well, we brainstormed internally and communicated with the regulators and frankly initially instinctively felt that there would be some practical solution. At the end of the day, we were conceptually in favor of strengthening the industry but because we had effectively, you know, received economic value, we could not envision the, just the abandonment of those terms and so we went to the regulators and we asked them to consider alternatives. Could we substitute cash assistance? Could we give your shops back, the supervisory shops back? Those would be very difficult things but we discussed them. One that I was very hopeful that would be acceptable to them is we asked them if they would consider some kind of a stipulation, implementation, or provision whereby we would not grow until we became compliant with the regulatory standards. Again, the magnitude of that action was so severe to Transohio, we were— we felt that given the clear four corners of the documents and the fact that we had essentially helped them with an association they had trouble resolving, there might be ways to come up with a negotiated solution and so the no growth scenario was one I personally was hopeful to-it made sense that we would not go through this destructive, you know, changing of our business, our risks were what they were and to start peeling off earning assets was a very destructive and unnecessary process and we asked them to consider that. And so to make a long story short, although the regulators were sympathetic to our problem, you know, they indicated that the Congress had spoken and had apparently considered the implications of this action or the industry had extreme problems and as regulators, their hands were tied. So we *352 tried to come up with some ideas for the practicality. We got feedback, my general recollection is I felt initially that, you know, we worked through it together, but we were unsuccessful in getting any kind of relief or mitigation from them. And as the communications ensued, it became clear that we would be subjected to rigorous compliance with the, ... newly enacted regulations without regard to the economic assistance that we had previously relied on.

TR at 2727-29.

ÍjS 5*í ijí ^

TFC’s COUNSEL: What strategy did the bank ultimately adopt in connection with disallowance of the goodwill and capital credit?

MR. COOK: Radical restructuring of our asset and liability composition in our operations.

TFC’s COUNSEL: Why didn’t the bank just raise additional capital?

MR. COOK: Very simple. To endure the repudiation of a capital contract with the Government for in excess of $100 million was such a turnoff to the financial community, both to our company and to prospective investors, that alone in my opinion was a show stopper. And in addition to that, the marketplace was horrible at this point in time. The thrift industry was perceived as deeply troubled, front page news. Frequently markets were conservative. There were, you know, certain submarkets such as the real estate market and the economy were troubled. It was the worst possible time to access the capital markets. And with our baggage of a heavy duty, you know, contractual assistance agreement and a breach, we were-it was not practicable to raise capital____ At least I would like to say it was not practical to raise enough capital to comply with FIRREA. Our sense was that we could raise probably some amount to show good faith, to show that we were viable, but our own investor group was ... asking what was next with this kind of a situation and so we would have been willing to put some capital on the table if we saw a total solution. For example, this is a little bit of a hypothetical, but if the Government accepted our idea to not grow and in that situation, I believe we could have brought some capital to the table and then we could have brought some amount just to show our good faith. We could not have raised the FIRREA compliance capital with an unresolved question of contractual accounting treatment.

TR at 2732-34; see also PX 294 (evidencing efforts made by Transohio Savings to raise new capital or sell the entire institution); PX 322 at WOL235 0411 (same); PX 369 (Trans-ohio Resolution Strategies).

MR. COOK: Well, Transohio re-evaluated its asset liability composition and one of its primary objectives was to reduce its assets in a manner that would bring its quantitative capital ratios in line as closely as possible with the newly enacted legislation. Also try to consider obviously the, with less capital and with the different structure, is there — are there better ideas for the relative composition of the bank, the lines of business we should be in? Can we support mortgage banking? You know, how much should we have in mortgage securities? The role of, you know, retail versus wholesale. We re-evaluated each aspect of the business and attempted to manage our radical shrinking as best possible. The decisions of how to shrink were integrally related to the cost composition and the need to balance cost and so the availability for cost cutting conforming to, you know, asset shrinkage was another ingredient that went into the decision-making process.

TFC’s COUNSEL: What do you mean when you say the decisions to shrink and how to shrink were integrally related to cost issues? Is that what you say?

MR. COOK: Yes, yes. Transohio had built up a cost structure, a G & A structure to support growing bank with diversified operations. Mortgage banking is probably the best example of that. We had an enormous computer infrastructure and personnel infrastructure, we had a very big servicing department. Those kinds of *353 things have to be done typically years in advance of fully generating revenues and so specifically with respect to mortgage banking, there was an opportunity to, a decision to cut both costs, both assets, a significant block of assets, as well as cost, and the bank was grappling with cost issues, administration and so we tried to integrate that decision-making process. What is a revised picture that’s manageable to comply with these new capital guidelines?

TFC’s COUNSEL: Generally speaking, what types of assets did Transohio sell or get rid of as part of the shrinkage strategy?

MR. COOK: Well, we certainly sold a very large amount of mortgage-backed securities. The primary consideration there was the liquidity and the expedited nature under which we could do this. We wanted to get compliant as quickly as possible. And if you sell loans or retail assets ... that has to be done, file by file. Mortgage-backed securities can be done efficiently through an established broker/dealer marketplace. And that was the first element of our sales.

TFC’s COUNSEL: And what was the effect on Transohio’s earnings of selling the mortgage-backed securities?

MR. COOK: It materially, it reduced the earnings corresponding to the assets sold. Although we try to balance, you know, the hedging and the sales and the assets and the liabilities to come up with matched portfolios, the reality is that to liquidate quickly did result in some, some degree of inefficiency. It was efficient in the sense that we peeled off big amounts of assets quickly, and, you know, got us very close to a compliant plan. We were looking for a total solution, but it was inefficient in the sense that we had these, this earning asset base that we had to forfeit.

TFC’s COUNSEL: How if at all did the shrinkage strategy relate to Transohio’s branch system?

MR. COOK: Well, basically it put — our concept was to reemphasize retail lending in the branches and to save as many branches as possible and they would become a more important part of the total pie. There were some branches that we had acquired in the supervisory acquisitions, Dollar Savings of Columbus, that we identified for shrinkage because they were marginal performers. When we acquired them, Columbus was a market we very much were interested in and it was a vibrant area of the northeast economy. Pri- or to Dollar Savings, we had not been in Columbus. We had always wanted to be there and our plan was to build it up. We also had a branch system in Cincinnati that was a similar thing. It was a very, very desirable market, had some good branches but not enough and the economics were such that, you know, in the context of looking for opportunities to shrink, those were natural targets. And I think we sold some Cleveland area branches also.

TFC’s COUNSEL: What did you mean when you say Columbus and Cincinnati were marginal performers?

MR. COOK: They were — I don’t remember exactly where they stood, but they weren’t strong contributors to profitability in the business plan subsequent to the restructuring, if you will. They were more marginal and they were consuming capital and management resources and administrative resources and so we thought without weakening and impairing our Cleveland branches, which was our primary branch system, we could make that sacrifice. And they were making a marginal contribution to profits of the bank, but we felt that we could give those up in the context of, you know, the shrinkage program. It was an acceptable balance.

TFC’s COUNSEL: What was the basic economic climate like for Transohio in the early 1990s as far as real estate markets or that financial economy?

MR. COOK: Right. The markets had gone through what I would call turbulence. In the financial markets there was some degree of volatility with interest rates going up for a period and then starting to come down. Of significance to Transohio was the commercial real estate market in northeast Ohio and pretty much nationwide, had gone into at least a mini-depres *354 sion. The market conditions were depressed. There was a lack of liquidity in the market, lack of supply/demand and balance of properties, and commercial real estate was an area that was cyclically depressed.

TFC’s COUNSEL: How if at all did that economic climate relate to Transohio’s profile with respect to the loss of its contractual capital?

MR. COOK: Well, obviously to — I like to say that we had what would be under any circumstances turbulence. When you combine, when you combine the turbulence of an economy with the contractual repudiation, it became, you know, the perfect storm, if you will. And so when we most needed the capital cushion that we had bargained for and were relying on, it was, you know, it was taken off the equation, in addition to losing, you know, the earnings that would be available otherwise to absorb real estate losses.

TFC’s COUNSEL: I’m sorry, losing the earnings?

MR. COOK: Earnings from the anticipated asset growth that that capital would support, it was a devastating confluence of events.

TR at 2735-40; see also DX 303 at WOL246 0160; DX 412 at WOT665 0017.

Nor were the regulators passive bystanders in the decisions made as to what assets to sell and what assets to hold.

THE COURT: I wanted to explore with the witness a bit here, did you-what did the regulators know about your decision to proceed with shrinkage? Did you discuss it with them before you embarked on it?

MR. COOK: Absolutely. Absolutely.

THE COURT: Okay.

MR. COOK: I did mention we had had general discussions as to whether there was some way we could avoid shrinkage. I my own mind, I can’t get off the topic of how destructive that was in the sense that it didn’t really impact our risk, whatever risks were there remained with the bank, but there was a mandate to comply with FIRREA. And I think as Mr. Brafman testified, that, you know, shrinkage is something that banks do to come into compliance with capital. And so shrinkage was included in the business plans that were presented prior to, you know, beginning to take off the assets and—

THE COURT: And did the Government see these business plans?

MR. COOK: Yes. All of our business plans we submitted to the Government, you know, prior to executing transactions. So they were, you know, generally supportive of it. And frankly we were all hopeful that we could use some responsible degree of shrinkage to find some practical solution that would show compliance, if you will, and let us survive. And so unquestionably the Government was advised, aware of, and everything I know says that they were in agreement with our plans to shrink.

THE COURT: But that’s going where I was going to go next. Did they suggest to you an alternative way particularly of coming into compliance with FIRREA other than shrinkage?

MR. COOK: Well, they certainly suggested in addition to shrinkage that we raise new capital. That was clearly—

THE COURT: And you explained at great length why you made efforts to do that but it was impossible in the environment?

MR. COOK: That’s correct.

TR at 2799-2801; see also DX247 at PAC082 1599; DX 247; DX 259; DX 276; DX 305; DX 323 at FAC009 1714, 32; PX 102 at WON107 2187; see also TR at 3311-42.

During the Evidentiary Hearing, the court asked OTS Regional Director Brafman to discuss the soundness of Transohio Savings’ decision to try to keep in capital compliance by shrinking assets:

THE COURT: Based on your considerable experience ... in your judgment, was management’s decision to — we have heard the word “shrink,” but reduce the — the size of their assets a rational approach to meeting the new FIRREA capital requirements?

MR. BRAFMAN: Yes, and it was-it was a generally accepted method ... this wasn’t unique to Transohio, their own unique *355 idea. Others were doing it. It was a practice at that time.

THE COURT: There wasn’t anything inherently cavalier or risky about proceeding in that way?

MR. BRAFMAN: In ... concept, no.

TR at 982-83.

MR. BRAFMAN: The options that you have, if you sell the nonearning assets, you’re correct, you — you have to sell them at market value, and that value may well be below the value that you have been carrying them at, in which case it does impact capital. The other alternative is you sell the earning assets, you don’t impact capital but you impact earnings----I was asked whether this was a unique practice to Transohio. The answer is no. All associations we were shrinking to comply, and that was a rather widespread prae-tice[.]

TR at 993-94; see also DX 393 (On February 10, 1991, OTS concluded an examination recognizing as of July 1989 Transohio Savings’ management decided to “reduce the size of the institution as a means of meeting the capital requirements. Transohio’s total assets declined by approximately $1.4 billion.”); see also TR at 981.

Following oral argument, at the court’s request, TFC submitted the following chart that was used as a demonstrative summarizing its argument that Transohio Savings incurred a $136 million loss as a result of the breach.

[[Image here]]

G. Overview Of The Court’s RESTATEMENT § 349 Analysis.

Neither of the parties nor the court was able to identify any federal trial or appellate court that has addressed to date how to conduct a Restatement § 349 loss analysis. Therefore, the court constructed the following analysis to make that determination.

To ascertain what losses, 35 if any, plaintiffs would have incurred if Transohio Savings had been allowed to continue to amortize and count the $107.5 million capital credit and $50 million supervisory goodwill acquired toward the institution’s regulatory capital requirement, on the terms set forth in the August 29, 1986 Assistance Agreement, the court first analyzed Transohio Savings’ financial condition for fiscal years 1989 — 1991 utilizing SEC Form 10-K and OTS Forms 10-K, as reflected in the following composite chart of Transohio Savings’ Consolidated Statements of Operation prepared by the court: 36

*356 [[Image here]]

*357 [[Image here]]

DX453 at WOT970 0531; DX 613 at WON537 2243.

Next, the court reviewed Transohio Savings’ audited financial statements, internal documents and reports, and regulatory agency examinations and internal agency documents. After considering this “hard” financial data, the court reviewed and weighed the testimony of state and federal regulatory authorities and/or Transohio Savings’ management and any relevant testimony of the Government’s or TFC’s experts. Then, the court made a final determination as to whether the Government met its burden of proof to establish with reasonable certainty which of the net losses for fiscal years 1989-1991 would have been incurred by Transohio Savings irrespective of the breach. Finally, the court re-examined the effect of the common law limitations of foreseeability and certainty and evaluated the Government’s argument that it was entitled to a credit for benefits allegedly received by TFC prior to the breach.

H. Overview Of The Experts.

The court clearly stated that the purpose of the Evidentiary Hearing was to determine whether:

[A]ny loss that plaintiffs would have suffered, if Transohio Savings would have been allowed to count the [capital credit and supervisory goodwill toward regulatory capital, where] the burden is on the Government to establish any such loss with “reasonable certainty.”

American Capital II, 59 Fed.Cl. at 585 (citing Restatement § 349). In the court’s judgment, however, much of the direct testimony of both the Government’s and TFC’s experts did not address this inquiry, but was more general in nature or addressed other issues. 37 Nevertheless, the court has decided to provide an overview of the direct testimony of each of the experts in this Section. 38 To the extent specific testimony addressed the requirements of Restatement § 349, that testimony is discussed in the court’s final determination of the net losses that the Government established with reasonable certainty would have been incurred by Transohio Savings, irrespective of the breach during fiscal years 1989,1990, and 1991.

1. Overview Of The Government’s Experts.

a. Professor Kroszner.

Professor Randall S. Kroszner of the University of Chicago’s Graduate School of Business and former member of the President’s Council of Economic Advisors was one of the Government’s expert witnesses. His report and direct testimony summarized four opinions:

• The value of Plaintiffs’ investment in TFC declined substantially prior to the proposal or enactment of FIRREA and its implementing regulations: on December 31, 1988, the market value of Trans- *358 ohio was approximately $54 million. The decline in market value prior to December 31, 1988 cannot be attributed to the Breach.

• While the value of Transohio declined by. approximately $18.4 million during 1989 (the year FIRREA and its implementing regulations were proposed and enacted), this decline can be attributed to factors other than the Breach, namely Trans-ohio’s net loss of $19.8 million and the $9 million in dividends that Transohio paid to TFC during the year.

• The Breach did not cause Transohio to fail. Transohio was in compliance with FIRREA’s new capital requirements when they became effective and Trans-ohio’s management anticipated that it would be able to remain in compliance notwithstanding the Breach. Instead of the profits that management had projected, however, Transohio experienced substantial operating losses during 1990, 1991 and 1992 which eroded its capital, and rendered it unable to comply with both FIRREA’s capital requirements and its IMCR.

• The data show that even in the absence of the Breach, Transohio would not have been in compliance with its capital requirements by December 31, 1991 and is likely to have failed subsequently. Therefore, Plaintiffs would not have obtained any additional return on their investment in the Bank in the absence of the Breach.

Kroszner Direct 1112, at 5-6. None of these opinions, other than the third, however, directly addressed the issues raised under Restatement § 349.

Exhibit E of Professor Kroszner’s Direct depicts what is described as the “Primary Causes of Transohio’s Operating Losses,” incurred from 1990 through the first quarter of 1992:

[[Image here]]

Kroszner Direct at Exhibit E. At the Eviden-tiary Hearing, Professor Kroszner testified that “[t]he purpose of Exhibit E was to take the description from the official SEC document about what the primary causes of losses were.” TR at 1693. Professor Kroszner also testified that

the amortization and excess servicing fees, those were largely driven by changes in the interest rate environment which I argue had nothing to do with FIRREA. On the IO strips it is precisely the same thing. The provision for possible loan losses ... they made a number of choices to expand in businesses that turned out quite poorly for them---- Those were choices they made that I believe had nothing to do with FIRREA. The restructuring program ... although there may have been some of it, I believe they would have undertaken independent of FIRREA----I believe that the poor performance in Ohio of the real estate market and choices they made were independent of FIRREA.

TR at 1670-72.

During the Evidentiary Hearing, Professor Kroszner, however, admitted that the losses listed on Exhibit E were not net of any gains. See TR at 1672. In addition, Dr. Kroszner testified that he did not undertake an analysis as to how Transohio Savings’ portfolio would have been different had it not been for the breach. See TR at 1675. Instead, Professor Kroszner measured Transohio Sav *359 ings’ actual performance against Transohio Savings’ business plans, rather than analyze the effect of the shrinkage that the regulators acknowledged was undertaken to comply with FIRREA’s capital requirements. Professor Kroszner indicated that most of the shrinkage appeared to come from the family mortgages and mortgage-backed securities for 1988-1991. See TR at 1655-63; see also TR at 1677-81. Nevertheless, Professor Kroszner concluded that the choices made by Transohio Savings “seem to have nothing at all to do with the breach.” TR at 1721. Contrary to the Government’s argument that Transohio Savings would have failed irrespective of the breach, Professor Kroszner testified at the time of the enforcement of FIRREA, Transohio Savings “had sufficient capital even under the new FIRREA definitions.” TR at 1731. Dr. Kroszner also testified that “supervisory goodwill or contractual regulatory capital is of economic value to the shareholders because in that circumstance ... it makes a difference between the thrift being seized or staying open and staying in business.” TR at 1846.

b. Dr. Hamm.

Dr. William G. Hamm, Managing Director of the Public Policy Practice of LEGG, LLC, an economic accounting firm, was engaged by the Government to answer five questions:

• Would Transohio Savings “have failed if there had been no breach?”

• “Did the breach cause the OTS to place Transohio in receivership during 1992?”

• “Did the breach cause [TFC] to lose the value of its equity in Transohio [Savings]?”

• “How did the benefits that Transohio [Savings] received from the contract compare with the plaintiffs’ out-of-pocket expenditures in reliance on the contract?”

• “What was the economic value of the plaintiffs’ contribution to the contract?”

Hamm Direct 1125, at 12.

Dr. Hamm reached the following opinions regarding these questions:

• It is virtually certain that if the breach had not occurred, Transohio would have failed its capital requirements and been placed in receivership.

• Transohio failed-and the but-for Trans-ohio would have failed-for reasons having nothing to do with the breach.

• TFC lost the value of its equity in Trans-ohio for reasons having nothing to do with the breach.

• When the benefits that Transohio received from the contract are taken into account, there is no evidence that the plaintiffs incurred net out-of-pocket expenditures in reliance on the contract.

• The economic value of the plaintiffs’ contribution to the Citizens and Dollar acquisitions was considerably less than the book value of Transohio’s directly.

Hamm Direct H 27, at 13 (emphasis in original).

Question 3, however, was at least tangentially relevant to the RESTATEMENT § 349 inquiry: i.e., “Did The Breach Cause the Plaintiffs to Lose the Value of Their Equity in Transohio?” Dr. Hamm concluded that the breach did not “cause” the loss of the “entire value of Transohio’s pre-acquisition equity, as well as TFC’s $42.1 million capital infusion into the thrift,” because the decline in TFC’s (and Transohio Savings’) equity value was “caused by factors other than the breach. Consequently, the plaintiffs would have lost all, or nearly all, of their equity interest in Transohio even if the contract had been performed.” Hamm Direct U336, at 121. Dr. Hamm’s conclusion was based on two premises:

1. ) TFC (and, by implication, Transohio [Savings]) lost well over one-half of its pre-acquisition equity value while the contract was being performed.

2. ) Factors other than the breach can easily explain the disappearance of Trans-ohio’s remaining equity value after the breach.

Hamm Direct If 336, at 121 (emphasis added).

Regarding Dr. Hamm’s opinion that most of Transohio Savings’ equity was lost “while the contract was being performed,” first he determined that “TFC’s share price dropped sharply” between August 29, 1986 and August 8,1989. Hamm Direct If 338-39, at 121- *360 22. Then, Dr. Hamm posited that the trend of TFC’s stock during the acquisition period declined 57% below the stock’s closing price on August 29, 1986, during the period that the Government still was in compliance with the August 29, 1986 Assistance Agreement. See Hamm Direct 11339, at 122. As previously discussed, many factors can influence the market price of stock, including, in this case, the fact that the public was on notice since at least February 1989 that significant regulatory changes likely were going to be imposed by Congress that would devalue the stock of Transohio Savings, as well as all thrift institutions, at least for an initial period of time.

Regarding Dr. Hamm’s conclusion that FIRREA “had — at most — a minimal impact on TFC’s equity value — and perhaps no adverse impact at all,” he noted that TFC’s share price declined from $6.625 on August 9, 1989 to $0.25 on July 13, 1992. See Hamm Direct 2 at 122, Hamm Direct 1111345-46, at 123. In fact, Dr. Hamm admitted that during this latter period, “it is possible ... the breach caused investors to lower their estimates of Transohio’s future earnings, thereby contributing to the decline.” Hamm Direct 11346, at 123-24. Dr. Hamm also testified that the breach “could not have caused the post-breach loss of TFC’s equity value” because: 1) the breach “did not bring Transohio [Savings’] survival into question;” and 2) “non-breach related factors can easily explain the subsequent fall in TFC’s stock price.” Hamm Direct Hit 345-355, at 123-26.

In sum, Dr. Hamm concluded that Trans-ohio Savings’ losses were caused by factors other than the breach, because “the regulators, Transohio [Savings’] management, or investors ... all ... expected Transohio [Savings] to survive ... the phase-out of the thrift’s forbearance capital.” Hamm Direct 11347, at 124.

A central element of TFC’s argument is that in order to attempt to stay in capital compliance, without the benefit of the regulatory capital conveyed by the Assistance Agreement, Transohio Savings was forced to sell assets or undergo a substantial “shrinkage,” which led to losses.

DR. HAMM: [E]ven if the contract had been performed, they could not have avoided shrinking. They couldn’t have avoided it because of the losses that they took and because of the nonbreaching portions of FIRREA that significantly increased their capital requirement and reduced ... the amount of regulatory capital they had without breaching any contract.

TR at 1261.

GOVERNMENT’S COUNSEL: I’d like to turn to the issue of shrinkage. You have testified that you do not believe or that you believe that the shrink would have occurred even in the absence of the breach. How can that be? Transohio lost regulatory capital as a result of the breach; isn’t that correct?

DR. HAMM: Yes.

GOVERNMENT’S COUNSEL: Is its asset size for a thrift determined by the amount of capital that it has?

DR. HAMM: Well, I would put it differently. It is limited by the amount of capital that it has but asset size is not determined by the amount of capital because that also is a reflection of what’s available in the market. There are plenty of thrifts sitting around even today that have capital that they’d like to leverage but can’t find profitable assets to put it into. But if I can just change your question from determined to limited, yes, regulatory capital is extremely important in setting an upper limit of what the size of the thrift can be.

GOVERNMENT’S COUNSEL: Then why didn’t the loss of some of Transohio’s regulatory capital cause it to shrink?

DR. HAMM: Because Transohio’s regulatory capital went down for so much for nonbreach related factors that even if the phase out hadn’t occurred it still would have been forced to shrink. In my direct testimony I have, I believe it’s table 21 and chart, or figure 27, that reflect my analysis of all of the factors that caused Transohio’s risk-based capital position or its capital position to deteriorate between September 1989 and June 1992. And based on my analysis the breach accounted for less than 12 percent of the decline in Transohio’s *361 regulatory capital position. In other words, nonbreach related factors accounted for more than 88 percent of the decline. Now, to put that in numbers, Transohio lost 360 million dollars in regulatory capital over this nearly three-year period for reasons having nothing to do with the breach. That’s a staggering amount of regulatory capital to lose and it would have forced Transohio to shrink even if it could have continued to count its forbearance capital toward its requirements.

TR at 3074-76.

$ $ ^ ^ ^ ^

GOVERNMENT’S COUNSEL: Now, are you testifying that the phase out of goodwill had absolutely nothing whatsoever to do with any shrinkage?

DR. HAMM: No. As I indicated a few minutes ago, and as shown on DX 1003, the breach did reduce the amount of regulatory capital that Transohio had available to support assets. It can’t be ignored. It pales in comparison to the nonbreach related factors that are discussed in table 21 and figure 27 that caused deterioration in Transohio’s regulatory capital position. But you can’t ignore it. I do think, however, that you can pretty much ignore it after 1989. Any effect that the breach had on shrinkage it had in 1989 if it had any effect at all.

TR at 3085.

$ $ $ ^ ^ H:

DR. HAMM: No. I don’t believe so. Number one, as I just testified, the shrinkage was primarily caused by nonbreach related factors, again the breach may have been a factor in 1989 but for the most part the cause of the shrinkage was nonbreach related factors. Number two, the distribution of loan assets that shows up in the 1991 column of table 15 of my direct testimony reflects decisions made by management as to how to shrink the balance sheet. Those decisions weren’t made by accident. They were made by management based on various analyses that undoubtedly were conducted. But management made those decisions. It could have if it had wanted to decided that it was going to shrink both traditional loans and higher risk loans by the same percentage. In fact, it could have decided to reduce the overall risk profile of the thrift and shrink higher risk loans by more than, in percentage terms, than it shrank traditional loans but it chose not to do that. It chose instead to shrink traditional loans by more than higher risk loans and as a consequence that caused the change in its risk profile. Now, I think as we established on cross about half that change occurred prior to the breach. I mean, this process of engaging in more risk taking began I think back in 1984 and in fact you can see from the table on page 7 of DX 613 if you take a look at the top line single family conventional or 1 to 4 family residential other than construction conventional and FHA VA both categories of what are referred to in the thrift industry as plain vanilla loans shrank in 1988 and this was well before the FIRREA was even introduced and well before anybody had any idea what its contents would be. So the process of shifting in the direction of higher risk lending began well before FIRREA was a consideration. But the important fact is that management could have done it differently. It chose to do it the way that is displayed in table 15.

TR at 3089-90.

ijs s¡« s-«

GOVERNMENT’S COUNSEL: Dr. Hamm, as a matter of economies what, if any, damages do you believe that TFC and AmCap suffered as a result of the breach?

DR. HAMM: As a matter of economics, ... I don’t believe that TFC and AmCap suffered any damages.

GOVERNMENT’S COUNSEL: Why is that?

DR. HAMM: Well, because if the government had fully performed its obligations under the contract Transohio would still have been significantly out of capital compliance and even more importantly than that it lacked the necessary qualities to be viable on a going forward basis. It didn’t have sufficient interest earning assets to cover its interest bearing liabilities, it didn’t have a reasonable spread on its as *362 sets. It had excessive operating expenses and a lot of problem loans. And in my opinion if the government had fully performed the contract Transohio would have been seized, the investors would have lost their investment in Transohio and as a consequence any award of damages to the plaintiffs in this case would put them in a better economic position than they would have been in had the contract been performed. In other words, it would give them a windfall.

TR at 3167-68.

c. Mr. Larry Johnson.

Mr. Larry Johnson, Managing Partner of the accounting firm of Johnson Lambert & Company and CEO of VERIS, a consulting firm, was engaged by the Government to review and evaluate the report of Timothy W. Koch, Ph.D., the FDIC’s expert witness. See Johnson Direct 115, at 2,116, at 3; Exhibit A. Since Dr. Koch was not proffered by plaintiffs at the Evidentiary Hearing, the court has not considered Mr. Johnson’s opinions regarding Dr. Koch’s conclusions, however, the court did consider Mr. Johnson’s opinion of “the fundamental causes of Trans-ohio’s failure and to evaluate the economics of its acquisition of Citizens and Dollar.” Johnson Direct at 115, at 2. In addition, Mr. Johnson also advised the court that:

• The capital failures that occurred and led to the demise of Transohio were not caused by the impact of FIRREA’s reduction of regulatory capital attributable to the capital credit and goodwill related to Transohio’s acquisitions of Dollar and Citizens.

• Subsequent to its acquisitions of Dollar and Citizens, Transohio experienced erosion of its capital in excess of $278 million attributable to matters unrelated to the enactment of FIRREA.

• The aforementioned erosion of Trans-ohio’s capital subsequent to its acquisitions of Dollar and Citizens substantially exceeded the identification of reliance damages described in this Court’s earlier opinion [in American Capital II ].

Johnson Direct If 13, at 5.

Mr. Johnson placed a great deal of weight on the fact that Transohio Savings met the new regulatory capital requirements of FIR-REA both in 1989 and 1990 and reasoned that Transohio Savings’ failure also to meet these requirements in 1991 and 1992 could not have been caused by FIRREA. See Johnson Direct Iflf 14-15, at 6-7. Instead, Mr

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