Opposition Brief — California Federal Bank, FSB v. United States

No. 01-698

IN THE

Supreme Court of the United States

UNITED STATES,

Petitioner,

Vv

CALIFORNIA FEDERAL BANK, FSB,

Respondent.

On Cross-Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Federal Circuit

BRIEF FOR RESPONDENT IN OPPOSITION

THEODORE J. BOUTROUS

Counsel of Record

JOHN C. MILLIAN

PAUL BLANKENSTEIN

MARK A. PERRY

THOMAS H. DUPREE, JR.

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 955-8500

Counsel for Respondent

QUESTION PRESENTED

Based upon this Court’s decision in United States v.

Winstar Corp., 518 U.S. 839 (1996), both courts below

found that the undisputed facts established that the gov-

ernment had entered into valid and binding contracts

with respondent California Federal Bank, FSB. The sole

question presented by the government’s cross-petition is

whether this Court should revisit those concurring de-

terminations.

PARTIES TO THE PROCEEDINGS

AND RULE 29.6 STATEMENT

All of the parties to the proceedings in the court of

appeals are listed in the caption of this petition. Califor-

nia Federal Bank, FSB is a wholly owned subsidiary of

Golden State Holdings, Inc., which in turn is a wholly

owned subsidiary of Golden State Bancorp, Inc.

TABLE OF CONTENTS

QUESTION PRESEN TED......ccccscososessesosssevsveveveeeses

PARTIES TO THE PROCEEDINGS AND

POEs BPO EPA LEMEIINE ceccovcccescovsecescessevetersecsovens

I. THE SAVINGS AND LOAN CRISIS

SENT bivaiioieteductseeonperesrenstoecenseesee

Il. THE CALFED TRANSACTIONS ............

III. PROCEEDINGS BELOW. ..................:cceee

I. THE GOVERNMENT HAS OFFERED

NO REASON FOR THIS COURT TO

REVISIT THE FACTUAL FINDINGS

OF BOTH COURTS BELOW....................

II. THE DECISION BELOW RESTS ON A

STRAIGHTFORWARD

APPLICATION OF WINSTAR AND IS

CONSISTENT WITH SETTLED

PRINCIPLES OF CONTRACT AND

ADMINISTRATIVE LAW. .................:c0000

iced a htcatitievhevexsereivevesesierseosinseces

iV

TABLE OF AUTHORITIES

Page(s)

CASES

Bailey v. Railroad Co., 84 U.S. 96 (1872)... 16

Berenyi v. District Director, 385 U.S. 630

CADGT) cccvrsscossinsiersconssmenesenescosescijutiedieiliissibistibetagbieagiiss 12

Charter Federal Savings Bank v. OTS, 976

P28 2S 66 Cie. TO centecttrcettereimnninees 16

Cienega Gardens v. United States, 162 F.3d

1123, superseded by 194 F.3d 1231 (Fed.

Cae, FN eiratoritsivccssvapiaievsaapinediiaiecmintbtiinaeimutenens 17

Exxon Co. v. Sofec, Inc., 517 U.S. 830 (1996) .........00+ 12

Goodman v. Lukens Steel Co., 482 U.S. 656

“| 2) RRRRSw OSS oir Beer He eke Bis 2 +e ceeeo 12

Graver Mfg. Co. v. Linde Co., 336 U.S. 271

(DDD) sncinsnsicensitcviteateiptiilincadbiatiniiatiatitbaialetaisiecine 12

Mobil Oil Exploration & Producing Southeast,

Inc. v. United States, 530 U.S. 604 (2000).............. 19

National Railroad Passenger Corp. v.

Atchison, Topeka & Santa Fe Railway Co.,

SIDEEE GEE Chr ca titutaties east hertemsecronene 18

Ryan v. United States, 136 U.S. 68 (1890)............:000008 16

Steinke v. Sungard Fin. Sys., Inc., 121 F.3d

ye T 2 te | 7) ae ene oe arene 2c ee 16

United States v. Doe, 465 U.S. 605 (1984)............c000 12

United States v. Johnston, 268 U.S. 220 (1925)........... 11

Vv

United States v. Reliable Transfer Co., 421

TEE RC ae

United States v. Winstar Corp., 518 U.S. 839

a

STATUTES

Financial Institutions Reform, Recovery, and

Enforcement Act, Pub. L. No. 101-73, 103

I I isd cidilliddiinicanisnminaistenbsaecensestonnicinncssionss

OTHER AUTHORITIES

1 A. Corbin, Corbin on Contracts § 2.10

OU eae a,

3 A. Corbin, Corbin on Contracts § 573

ee See

I E. Farnsworth, Farnsworth on Contracts

ee CD etetissidndencetniticastichicesisasecesoesses

Restatement (Second) of Contracts § 209

a

Stern et al., Supreme Court Practice § 4.14

PI EE WRITE cashiininnddueinabinidiin ec

IN THE

Supreme Court of the United States

No. 01-698

UNITED STATES,

Petitioner,

v.

CALIFORNIA FEDERAL BANK, FSB,

Respondent.

On Cross-Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Federal Circuit

BRIEF FOR RESPONDENT IN OPPOSITION

Respondent California Federal Bank, FSB

(“CalFed”) respectfully submits this brief in opposition

to the government’s conditional cross-petition for a writ

of certiorari.!

OPINIONS BELOW

The opinion of the court of appeals (01-592 Pet.

App. la-15a) is reported at 245 F.3d 1342 (2001). The

opinion of the Court of Federal Claims regarding liabil-

ity (01-592 Pet. App. 48a-101a) is reported at 39 Fed.

Cl. 753 (1997), and the opinion of the Court of Federal

Claims regarding remedies (01-592 Pet. App. 17a-47a)

is reported at 43 Fed. Cl. 445 (1999).

1 CalFed’s separate petition for a writ of certiorari is

pending in this Court as No. 01-592.

2

JURISDICTION

The judgment of the court of appeals was entered on

April 3, 2001. A timely petition for rehearing was de-

nied on July 10, 2001. 01-592 Pet. App. 16a. CalFed’s

petition for a writ of certiorari in No. 01-592 was dock-

eted on October 9, 2001. The government’s conditional

cross-petition for a writ of certiorari in No. 01-698 was

docketed on November 19, 2001. The jurisdiction of

this Court is invoked under 28 U.S.C. § 1254(1).

STATEMENT OF THE CASE

On summary judgment, the Court of Federal Claims

found that the undisputed evidence in this case estab-

lished that the government had entered into a Winstar-

contract with CalFed to allow CalFed to include

goodwill resulting from three supervisory mergers as

regulatory capital for specified periods. See generally

United States v. Winstar Corp., 518 U.S. 839 (1996)

(holding that United States is liable for breach of good-

will contracts). The Federal Circuit, which reviewed the

trial court’s liability determination de novo, affirmed.

I. The Savings and Loan Crisis and FIRREA

During the early 1980s, in the midst of the worst

savings and loan crisis since the Great Depression, the

federal government found itself facing deposit insurance

_ liabilities that threatened to bankrupt the government’s

insurance fund. Winstar, 518 U.S. at 846-47. Asa

means of avoiding insurance liability, and as an alterna-

tive to government takeovers of failing thrifts, the gov-

ernment encouraged healthier thrifts, such as CalFed, to

take over the failing thrifts through so-called “supervi-

sory mergers.” Jd. at 847.

As this Court stated in Winstar, “the principal in-

ducement for these supervisory mergers was an under-

standing that the acquisitions would be subject to a par-

ticular accounting treatment that would help the acquir-

ing institutions meet their reserve capital requirements

3

imposed by federal regulations.” Jd. at 848. This spe-

cial regulatory accounting treatment was essential be-

Cause it permitted the acquiring institutions to count the

liabilities of the acquired failing thrifts as “supervisory

goodwill,” i.e., as an asset for purposes of regulatory

capital requirements. Jd. at 849-50; id. at 921 (Scalia,

J., concurring in judgment) (goodwill promises were the

“sine qua non” of the supervisory mergers). This use of

supervisory goodwill allowed the acquiring thrifts to

meet their regulatory obligations and “to leverage more

loans (and [they] hoped, make more profits).” Jd. at

851. The acquiring thrifts were allowed to amortize the

supervisory goodwill obtained in the acquisitions over

extended periods (up to 40 years), which further allowed

the thrifts to satisfy regulatory capital requirements. Jd.

at 852-53.

The federal thrift regulators approved hundreds of

supervisory mergers in the 1980s, id. at 847 n.3, includ-

ing three with CalFed that are at issue in this case. As

detailed below, and as the courts below held, in each of

these transactions the government promised CalFed that

it could amortize supervisory goodwill over periods

ranging from 35 to 40 years and could include the

unamortized goodwill in calculating regulatory capital.

In 1989, Congress passed the Financial Institutions

Reform, Recovery, and Enforcement Act (“FIRREA”),

Pub. L. No. 101-73, 103 Stat. 183, which made enor-

mous changes in the structure of federal thrift regula-

tion. Winstar, 518 U.S. at 856. Most important for pre-

sent purposes, FIRREA mandated the promulgation of

regulations requiring thrifts to maintain levels of regula-

tory capital that could not include supervisory goodwill

(either immediately or after a 5-year phase-out). Jd. at

857. In effect, the FIRREA-mandated regulations

eliminated the favorable treatment of goodwill promised

by the government as the principal inducement to hun-

dreds of thrifts involved in supervisory mergers.

4

In Winstar, which involved three “test” cases, this

Court held that the new regulatory capital requirements

imposed by FIRREA breached the goodwill contracts

arising out of the supervisory mergers. 518 U.S. at 870.

Rejecting any notion that the government was entitled to

“special rules” when contracting, the Court reaffirmed

“the general principle that, ‘when the United States en-

ters into contract relations, its rights and duties therein

are governed generally by the law applicable to con-

tracts between private individuals.’” Jd. at 895 (citation

omitted). The Court explained that the goodwill con-

tracts, which were based upon the acquiring thrifts’ as-

sumption of the failing thrifts’ liabilities, involved the

transfer of valuable consideration designed to prevent or

mitigate an impending crisis in the thrift industry and

thereby save the government’s insurance fund from fi-

nancial collapse. Jd. at 886-87, 869, 906, 908; id. at 918

(Breyer, J., concurring); id. at 919 (Scalia, J., concurring

in judgment). Accordingly, the Court affirmed the Fed-

eral Circuit’s finding of liability and remanded the cases

for a determination of remedies. /d. at 910.

Il. The CalFed Transactions

In the early 198Us, CalFed entered into supervisory

merger agreements with the government in connection

with three separate transactions: the “Southeast” trans-

action, the “Brentwood” transaction, and the “Family”

transaction. In each instance, the government’s good-

will promises induced CalFed, which “was a relatively

healthy thrift” (01-592 Pet. App. 18a), to acquire thrifts

on the verge of failure. The government now concedes

that the Southeast transaction resulted in a goodwill

contract that the government breached, Pet. 4, but none-

theless asserts that no contract arose from the Brent-

wood and Family transactions. Those two transactions

were identical to the Southeast transaction in all mate-

rial respects, except that neither had an “Assistance

Agreement” because, unlike in Southeast, the govern-

5 oo

ment provided no financial assistance as part of the

transactions.

A. Southeast

In late 1981, CalFed agreed to merge with three

Georgia thrifts and one Florida thrift (collectively, “the

Southeast institutions”). The merger agreement was

conditioned on the Federal Savings and Loan Insurance

Corporation (FSLIC) and the Federal Home Loan Bank

Board (FHLBB) granting “regulatory forbearances in-

cluding net worth compliance waivers satisfactory to

California Federal” and “an indemnity agreement for

unknown material events and other contingencies.”

A5002175.2

CalFed proceeded to negotiate with the government,

offering to acquire the Southeast institutions in ex-

change for $9 million in assistance, a forbearance by the

FHLBB and the FSLIC from “any action against Cali-

fornia Federal . . . for failure to comply with reserve and

net worth requirements and scheduled item limitations

insofar as such noncompliance is due to the acquisition

of” the Southeast institutions, and the amortization over

thirty to forty years of any goodwill resulting from the

acquisition, as well as the right to include the unamor-

tized goodwill in regulatory capital. A5002171-73.

The FSLIC accepted CalFed’s offer. In February

1982, the FSLIC and CalFed entered into an “Assistance

Agreement” providing that in partial exchange for as-

suming the Southeast institutions’ $305.67 million in

net liabilities, CalFed would receive a $9 million capital

credit from the FSLIC. 01-592 Pet. App. 2a. CalFed

also received a forbearance letter permitting the excess

liabilities to be recorded as supervisory goodwill to be

includable as regulatory capital and amortized over 35

2 Unless otherwise indicated, all record references are

to the Joint Appendix filed with the Federal Circuit.

-

6

to 40 years. Jd. The Assistance Agreement included a

provision incorporating the forbearance letter. Jd. at 2a-

3a.

B. Brentwood

In 1982, CalFed agreed to acquire the Brentwood

Savings and Loan Association and assume $314.63 mil-

lion in net liabilities from the failing thrift. 01-592 Pet.

App. 3a. As in the Southeast transaction, CalFed’s

agreement with Brentwood was conditioned on it secur-

ing from the FSLIC and the FHLBB certain regulatory

forbearances, as well as an agreement to include the su-

pervisory goodwill resulting from the acquisition in cal-

culating regulatory capital. A5002254-64; A5002329-

31.

Once it had entered into a conditional agreement

with the thrift, CalFed, as it had in the Southeast trans-

action, proceeded to negotiate with the government.

CalFed proposed to acquire Brentwood in exchange for

receiving the same sort of forbearances and waivers the

government had agreed to in the Southeast transaction.

A5002332-33. In particular, CalFed requested the

FHLBB’s approval of “the amortization [over 35 years]

of any goodwill created.” A5002325; 01-592 Pet. App.

3a. CalFed noted that its acquisition of the failing thrift

would “avoid great expenditures of resources of the

FSLIC” and emphasized that “[tJhe types of waivers and

forbearance requested are important to CalFed in pro-

viding an adequate basis for CalFed’s management and

directors to finalize the proposed transaction.”

A5002331, 5002334.

The government concluded that “FSLIC assistance”

would be “necessary” without the CalFed merger.

A2000242, A200249. Consequently, on September 30,

1982, the FHLBB approved the Brentwood acquisition,

recommending in an internal memorandum that amorti-

zation of supervisory goodwill “be granted” and stating

that the “association should be allowed to use regulatory

7

accounting procedures in reports to the Board.”

A5002595. The next day, the FHLBB issued a forbear-

ance letter stipulating, per CalFed’s request, that the re-

sulting association could amortize over 35 years any

goodwill created by the acquisition and count that

goodwill for regulatory capital purposes. 01-592 Pet.

App. 3a. The FHLBB also agreed not to enforce its net

worth requirements for a period of five years to the ex-

tent that CalFed’s failure to meet the requirements was

attributable to the assets or liabilities acquired from

Brentwood. Jd.

Unlike CalFed’s offer in the Southeast transaction,

its Brentwood offer did not request a cash payment.

Consequently, the Brentwood transaction did not in-

volve an Assistance Agreement. 01-592 Pet. App. 3a.

C. Family

The next year, 1983, CalFed entered into a contract

with Family Savings and Loan Association to acquire

that Nevada thrift. As in the Southeast and Brentwood

transactions, CalFed conditioned the merger agreement

on the FHLBB’s approving the amortization over 40

years of any goodwill created, and on the government’s

granting certain regulatory forbearances. A52002340-

44.

Just as in the Southeast and Brentwood transactions,

CalFed then submitted its merger application to the

government, again conditioning its proposal to acquire

Family upon the regulators’ approval of the now-

familiar forbearances and waivers, including the right to

amortize the goodwill produced by the acquisitions over

40 years and to include the unamortized goodwill in

regulatory capital. 01-592 Pet. App. 3a. The FHLBB

characterized CalFed’s submission as an “offer submit-

ted” and a “proposal ... acceptable to the FSLIC” that

would “present the lowest expense to the Corporation.”

A5002557. In a resolution dated January 5, 1983 and a

forbearance letter of the same date, the government ac-

8

cepted CalFed’s offer. A5002559-60, A5002624-26;

01-592 Pet. App. 3a. CalFed assumed $17.74 million in

net liabilities through the acquisition. 01-592 Pet. App.

3a.

As in the Brentwood transaction, because CalFed

did not request a cash payment, its agreement with the

government did not involve an Assistance Agreement.

01-592 Pet. App. 3a.

Ill. Proceedings Below

Relying on Winstar and black-letter contract law,

then-Chief Judge Smith of the Court of Federal Claims

granted summary judgment in favor of CalFed as to the

issue of liability in all three transactions. 01-592 Pet.

App. 10Ja. He began by observing that “[b]ecause the

dollars at stake appear to be so large the government has

raised legal and factual arguments that have little or no

basis in law, fact or logic,” and specifically noted the

government’s efforts “to relitigate the core Winstar li-

ability issues in every case.” Jd. at 49a.

After reviewing the extensive documentary record

surrounding each of the three CalFed transactions,

Judge Smith held that in each case, the government

made binding contractual promises regarding the use of

goodwill in order to induce CalFed into acquiring the

net liabilities of the failing thrifts. He expressly rejected

the government’s contentina that an “assistance agree-

ment” is a necessary elerwent of a Winstar-type contract:

“(T]he factual record[ ] ... show/[s] intent to contract

with the government for specified treatment of good-

will, and documents such as correspondence, memo-

randa, and Bank Board resolutions confirm that intent

[T]he absence of an [Assistance Agreement]

9

should be irrelevant to the finding that a contract ex-

isted.” 01-592 Pet. App. 87a.3

The court of appeals, which reviewed the question

of contract formation de novo, affirmed Judge Smith’s

liability determinations. 01-592 Pet. App. 5a-9a. Citing

the “contemporaneous documents and surrounding cir-

cumstances that included forbearance letters,” the Fed-

eral Circuit held that the government entered into le-

gally binding goodwill contracts in each of the three

CalFed transactions. Jd. at 5a. The court explained that

the absence of an Assistance Agreement in the Brent-

wood and Family transactions “is not dispositive of the

issue of contract formation between the government and

CalFed,” and agreed with the lower court that “the fac-

tual record” surrounding the transactions established the

existence of legally binding contracts. Jd. at 6a.

The court of appeals’ ruling, like Judge Smith’s,

rested on a close review of the documentary evidence:

“Based on all of the contemporaneous documents in

each of the three transactions, the FHLBB and the

FSLIC were contractually bound to recognize the super-

visory goodwill and the amortization periods reflected

in the forbearance letters.” Jd. The Federal Circuit con-

cluded that “[i]t is clear from the documents” that the

parties manifested an intent to enter into a legally bind-

ing contract, and further observed that “[t]he documen-

tary evidence for both the Brentwood and Family trans-

actions” was “precisely the type of evidence relied upon

by the Winstar courts to establish the existence of con-

tracts between acquiring thrifts and the government.”

Id. at 8a-9a. Consequently, “[jJust as in Winstar ... all

3 Following the grant of summary judgment as to li-

ability, the remedies portion of CalFed’s case was transferred

to Judge Hodges for trial. The decisions of Judge Hodges

and the Federal Circuit on remedies are the subject of Cal-

Fed’s petition in No. 01-592. See note 6, infra.

10

of the necessary elements of contract formation are here,

and the parties are bound by the terms of that contract.”

Id. at 7a.

ARGUMENT

The government’s conditional cross-petition repre-

sents merely its most recent attempt to evade responsi-

bility for the promises it made during the thrift crisis of

the 1980s and subsequently repudiated. Rather than ac-

cept liability for breaching its contracts with CalFed, the

government seeks to relitigate the same question de-

cided against it in Winstar itself, which was faithfully

followed by the lower courts in this case.

After an extensive review of the contemporaneous

documentary record and the surrounding factual circum-

stances, the Court of Federal Claims and the United

States Court of Appeals for the Federal Circuit both

concluded that the government made contractual good-

will promises in exchange for CalFed’s acquisition of

Brentwood and Family. Further review of that determi-

nation, which is supported by the undisputed evidence

in the summary judgment record, and necessarily fol-

lows from a straightforward application of this Court’s

decision in Winstar, is unwarranted.

I. The Government Has Offered No Reason For

This Court To Revisit The Factual Findings Of

Both Courts Below

The government invites this Court to undertake a

third review of the documentary evidence surrounding

the Brentwood and Family transactions, and render a

decision reversing the finding of the two lower courts.

The government does not argue that the courts below

applied an improper legal standard, but rather contends

that there is no “evidence of a mutual intent to contract,”

Pet. 19, and insists that “there was nothing present in the

record that would permit ... the conclusion that there

were contracts.” Pet. 23 (emphasis omitted). Indeed,

1]

the government devotes several pages of its petition to a

discussion of its interpretation of the record evidence

and whether “the documents suggest[ ] an exchange of

contractual commitments.” Pet. 17; see also Pet. 16-19

(requesting this Couri’s review of, inter alia, various

merger applications, correspondence between CalFed

and Bank Board, resolutions adopted by Bank Board,

forbearance letters, and internal CalFed documents).

The government thus asks this Court to undertake

precisely the kind of case-specific factual review that

this Court expressly declined to perform in Winstar it-

self. In Winstar, as here, the Federal Circuit had af-

firmed the trial court’s summary judgments as to con-

tract liability. See 64 F.3d 1531, 1540-44 (Fed. Cir.

1995) (en banc). While this Court granted the govern-

ment’s petition to consider (and, ultimately, reject) the

availability of certain defenses asserted by the govern-

ment, the Court left undisturbed the lower courts’ de-

terminations that the goodwill contracts at issue had

been formed: “/WJe are in no better position than the

Federal Circuit and the Court of Federal Claims to

evaluate the documentary records of the transactions at

issue.” 518 U.S. at 860-61 (emphasis added). So, too,

here. The government has not even attempted to ex-

plain why, in the circumstances of this case, this Court

is in any better position than either court below to re-

solve the question whether the contemporaneous evi-

dence establishes the existence of goodwill contracts.

That is undoubtedly because, as in Winstar itself, the

question of contract formation in this case reflects the

application of settled legal principles to undisputed

facts—an inadequate basis for plenary review by this

Court. As the Court explained in United States v.

Johnston, 268 U.S. 220, 227 (1925), “[w]e do not grant

: certiorari to review evidence and discuss specific

acts.”

The Winstar Court’s acceptance of the lower courts’

determinations regarding contract formation was simply

12

a particularized application of the “two-court rule,”

which provides that when two lower courts agree on the

facts, this Court will not conduct its own independent

review of the evidentiary record absent extraordinary

circumstances. See generally Stern et al., Supreme

Court Practice § 4.14 at 189 (7th ed. 1993). Indeed, the

Court has made “repeated pronouncements that it ‘can-

not undertake to review concurrent findings of fact by

two courts below in the absence of a very obvious and

exceptional showing of error.” Berenyi v. District

Director, 385 U.S. 630, 635 (1967) (quoting Graver

Mis: Co. v. Linde Co., 336 U.S. 271, 275 (1949)). See

also Exxon Co. v. Sofec, Inc., 517 U.S. 830, 840-41

(1996) (declining to reconsider factual conclusion of

lower courts when petitioner failed to make an “obvious

and exceptional showing of error”) (citation omitted);

Goodman vy. Lukens Steel Co., 482 U.S. 656, 665 (1987)

(when “both courts below hav[e] agreed on the facts, we

are not inclined to examine the record for ourselves ab-

sent some extraordinary reason for undertaking this

task”); United States v. Doe, 465 U.S. 605, 614 (1984)

(“Traditionally, we ... have been reluctant to disturb

findings of fact in which two courts below have con-

curred”).

The two-court rule is an insurmountable obstacle to

the government’s request that this Court re-examine the

factual findings in which both lower courts have con-

curred. A party seeking an exception to the two-court

rule bears a “heavy burden,” United States v. Reliable

Transfer Co., 421 U.S. 397, 401 n.2 (1975), and the

government falls far short of making “a very obvious

and exceptional showing of error.” Berenyi, 385 U.S. at

635. In fact, as explained infra, the court of appeals

conducted a careful and thorough review of the eviden-

tiary record in concluding that the government and Cal-

Fed manifested a mutual intention to contract. That the

government interprets the evidence differently can

hardly justify disturbing the considered judgment of the

13

two lower courts that have reviewed the documents in

question and reached identical conclusions.

II. The Decision Below Rests On A Straightforward

Application Of Winstar And Is Consistent With

Settled Principles Of Contract And Administra-

tive Law

1. The government does not claim that the decision

below conflicts with Winstar. Instead, the government

devotes its energies to attempting to distinguish W in-

star, in which this Court recognized that the govern-

ment’s goodwill promises induced numerous acquisi-

tions of failing thrifts and constituted binding contracts.

The basis for the government’s purported distinction is

the fact that the transactions at issue in Winstar involved

Assistance Agreements that included integration

clauses, whereas the Brentwood and Family transactions

did not. Pet. 19. The absence of an Assistance Agree-

ment also serves as the government’s sole basis for dis-

tinguishing the Brentwood and Family transactions from

the Southeast transaction, which served as the model for

the subsequent Brentwood and Family transactions, and

which the government concedes resulted in a contract.

As the lower courts correctly recognized, the ab-

sence of an Assistance Agreement containing an

integration clause is not a material failing where, as

here, there is a record of contemporaneous documents

evidencing a mutual intent to contract. In its Winstar

ruling, the Federal Circuit held that “all of the

contemporaneous documents”—including, as here,

FHLBB resolutions and correspondence between the

Bank Board and acquiring institutions—established that

the government had entered into goodwill contracts. 64

F.3d at 1540-44. This Court agreed that “the realities of

the transaction” demonstrated that the contemporaneous

documents were “contractual commitments, not mere

statements of policy.” 518 U.S. at 863.

14

The courts below faithfully applied the teaching of

Winstar in focusing on “the realities of the transaction”

and scrutinizing the contemporaneous documents sur-

rounding each acquisition. Both lower courts analyzed

each element of contract formation—offer, acceptance,

and consideration—and determined, based on the undis-

puted facts and a careful comparison between the

documentary evidence in this case and the original Win-

star cases, that the government entered into binding

contracts with CalFed.

The Federal Circuit agreed with the trial court that

““the factual record[ ] . . . show[s] intent to contract with

the government for specified treatment of goodwill, and

documents such as correspondence, memoranda and

[FHLBB] resolutions confirm that intent.’” 01-592 Pet.

App. 6a (quoting id. at 87a). The court of appeals stated

that, “[b]ased on all of the contemporaneous documents

in each of the three transactions,” it had “no doubt that

both the government and Cal Fed provided considera-

tion for the agreements,” and that “the FHLBB and the

FSLIC were contractually bound to recognize the super-

visory goodwill and the amortization periods reflected

in the forbearance letters.” Jd. Accordingly, the court

properly concluded that “[jJust as in [Winstar], all of the

necessary elements of contract formation are present

here, “ the parties are bound by the terms of that con-

tract.” Jd.

The conclusion of both lower courts that goodwill

contracts were formed is plainly correct. In each of the

three transactions, CalFed made an offer to contract

with the government, promising to acquire one or more

failing thrifts in exchange for the right to include super-

visory goodwill in calculating its regulatory capital. See

A5002171-73, A5002174-83 (Southeast offer);

A5002254-64, A5002329-31 (Brentwood offer);

A5002335-46, A5002557 (Family offer). The govern-

ment accepted each of these offers. See A5002162 (ac-

ceptance of Southeast offer by FHLBB resolution);

15

A5002319-24 (acceptance of Brentwood offer by

FHLBB resolution and forbearance letter); A5002548-

61 (acceptance of Family offer by FHLBB resolution

and forbearance letter). And each side provided consid-

eration: CalFed assumed the assets and liabilities of the

acquiring institutions (which converted the govern-

ment’s obligations into obligations of CalFed), whereas

the government pledged favorable regulatory treatment

(and in the case of Southeast, cash assistance).

The government concedes that a contract was

formed in the Southeast transaction, Pet. 4, and the sole -

difference between that transaction and the Brentwood

and Family transactions is the existence of an Assis-

tance Agreement that happened to include an integration

clause. But the undisputed, contemporaneous evidence

established that the regulators did not view the presence

or absence of an Assistance Agreement as having any

bearing on the government’s obligations. Assistance

Agreements were included only in transactions that in-

volved substantial cash payments by the government,

and were never intended to distinguish between contrac-

tual and regulatory actions. As D. James Croft, the gov-

ernment’s senior regulator at the time, who was ulti-

mately responsible for approving all three transactions

at issue, has averred: “An acquiring institution, such as

CalFed, would have had the same level of assurance as

to the treatment of goodwill in both types of transac-

tions, and the FHLBB certainly did not draw a distinc-

tion nor intend that acquiring institutions draw any dis-

tinctions as to the treatment of goodwill between as-

sisted and unassisted transactions.” A5002914-15; see

also id. (according to Dr. Croft, Assistance Agreements

“had no effect on the nature or extent to which the

FHLBB believed itself bound by its agreement”’).

Moreover, the government’s assertion that “a sepa-

rate contract” containing an integration clause “was

necessary to convert regulatory documents into contrac-

tual undertakings” (Pet. 20) defies black-letter contract

16

law, for “it is well-settled law that several writings exe-

cuted between the same parties . . . may be read together

as forming parts of one transaction.” Bailey v. Railroad

Co., 84 U.S. 96, 108 (1872). See also Ryan v. United

States, 136 U.S. 68, 83 (1890) (“a complete contract . . .

may be gathered from letters, writings and telegrams be-

tween the parties”); 1 A. Corbin, Corbin on Contracts

§ 2.10 at 165, 171 (1993); I E. Farnsworth, Farnsworth

on Contracts § 3.3 at 187 (1998). Thus, contracts need

not have an integration clause to be binding (or even in-

tegrated), regardless of how many documents are in-

volved. Restatement (Second) of Contracts § 209 &

cmt. b (1983); 3 A. Corbin, Corbin on Contracts § 573

at 359 n.3 (1960); Steinke v. Sungard Fin. Sys., Inc., 121

F.3d 763, 771 n.5 (1st Cir. 1997).4

The government’s argument ultimately amounts to a

claim that, in determining whether a contract existed,

the court below gave inadequate weight to the absence

of an Assistance Agreement containing an integration

clause. Pet. 22-23. But even were this the case (and it

is not), a miscalculation in weighing the evidence hardly

constitutes legal error meriting this Court’s review.

2. The government renews its contention, rejected

once already by this Court in Winstar, that the lower

court confused regulatory action with contractual under-

takings. Pet. 14-15. This theme permeates the govern-

4 The government’s reliance on Charter Federal Sav-

ings Bank v. OTS, 976 F.2d 203 (4th Cir. 1992), for the

proposition that “regulatory” documents cannot manifest the

government’s intent to form a contract (Pet. 23 n.3), is mis-

placed. The Charter court acknowledged that the forbear-

ance letter at issue “may constitute an express a ent,

[but] its terms have expired and it is now moot.” 976 F.2d at

211 n.11. Moreover, the Charter court based its decision on

the government’s broad reading of the “unmistakability”

doctrine, id. at 212, a reading that was rejected by this Court

in Winstar.

17

ment’s petition. In the government’s view, the lower

court’s misreading of regulatory approvals as contrac-

tual commitments “conflicts with long-standing princi-

ples of administrative law” and “threaten[s] to replace

ordinary review of agency action under the Administra-

tive Procedure Act with entirely different standards ap-

plicable to contractual commitments.” Pet. 24, 27.

The government’s attempt to distinguish between

the FHLBB’s and FSLIC’s “contractual” undertakings

and their “regulatory” undertakings is nothing less than

an attempt to reargue Winstar, where the Court held that

“(t]he inescapable conclusion ... is that the Govern-

ment’s ‘regulatory’ and ‘nonregulatory’ capacities were

fused in the instances under consideration.” 518 U.S. at

893-94. Indeed, the Court dismissed as “fundamentally

implausible” the government’s theory that goodwill

promises were simply matters of regulatory grace, and

noted that the government was protecting its own finan-

cial interests by “convert[ing] some of its financial in-

surance obligations into responsibilities of private en-

trepreneurs.” Jd. at 862-63, 894. Winstar thus makes

clear that the government acted as both a regulator and a

contractor in making the goodwill promises, and it is li-

able to the injured parties for breaching those contrac-

tual commitments.°

5 Although the government characterizes the decision

below as “deeply troubling” and warns of dire consequences

for administrative and contract law should the ruling stand,

Pet. 27, its ostensible concern is undercut by its decision to

file only a conditional cross-petition. In any event, the Fed-

eral Circuit’s post-Winstar decisions amply demonstrate that,

contrary to the government’s unfounded concerns, the lower

courts have declined to read Winstar as authorizing a depar-

ture from established law. See, e.g., Cienega Gardens v.

United States, 162 F.3d 1123, superseded by 194 F.3d 1231

(Fed. Cir. 1998). Tellingly, the government’s conditiona’

cross-petition fails to cite a single case supporting its fears

that contract actions would operate to replace review of

18

3. The government also argues that the decision be-

low is inconsistent with the principle set forth in Na-

tional Railroad Passenger Corp. v. Atchison, Topeka &

Santa Fe Railway Co., 470 U.S. 451, 466-67 (1985),

that “absent ‘an adequate expression of an actual intent’

of the State to bind itself, this Court simply will not

lightly construe that which is undoubtedly a scheme of

public regulation to be, in addition, a private contract to

which the State is a party.” The government claims the

lower courts erred because the FHLBB and the FSLIC

did not provide an “adequate expression” of the gov-

ernment’s intent to be bound. Pet. 25-26.

This argument is a transparent attempt to revive the

“unmistakability” doctrine the government unsuccess-

fully urged upon this Court in Winstar. In Winstar, the

government, as here, argued that the thrifts needed to

show that the government had made a clear and un-

equivocal statement of intent to be bound before it could

be deemed to have entered into a contract. Specifically,

the government contended that “contracts that limit the

government’s future exercises of regulatory authority

... Will be recognized only rarely, and then only when

the limitation on future regulatory authority is expressed

in unmistakable terms.” 518 U.S. at 871 (quoting Brief

for United States at 16).

The plurality opinion rejected the argument, ex-

plaining that “[s]Jince the facts of the present case dem-

onstrate that the Government may wish to further its

regulatory goals through contract, we are unwilling to

adopt any rule of construction that would weaken the

Government’s capacity to do business by converting

every contract it makes into an arena for unmistakability

litigation.” Jd. at 886. As Justice Souter explained for

the plurality, there was “no need for an unmistakably

agency actions that should properly proceed under the Ad-

ministrative Procedure Act.

19

clear ‘second promise’ not to change the capital re-

quirements,” adding that “it is sufficient that the Gov-

ernment undertook an obligation that it subsequently

found itself unable to perform.” Jd. at 887. While Jus-

tice Scalia’s concurring opinion did not reject the appli-

cability of the unmistakability doctrine per se, he de-

clared that “the doctrine has little if any independent le-

gal force beyond what would be dictated by normal

principles of contract interpretation.” Id. at 920 (Scalia,

J., concurring in judgment). Significantly, the govern-

ment does not maintain that application of these “nor-

mal principles of contract interpretation” commands a

result different than that reached by the two lower

courts.

In fact, the government’s position is quite to the

contrary: It insists that it is entitled to special rules

when contracting. But its plea conflicts with this

Court’s recognition that “[wJhen the United States en-

ters into contract relations, its rights and duties therein

are governed generally by the law applicable to con-

tracts between private individuals.” Mobil Oil Explora-

tion & Producing Southeast, Inc. v. United States, 530

U.S. 604, 607 (2000) (quoting Winstar, 518 U.S. at

895). The courts below did not err by refusing to create

a special rule for the government. Rather, they faith-

fully applied Winstar in examining the “the realities of

the transaction,” 518 U.S. at 863, and concluding that

the documentary record evidenced the government’s in-

tent to be bound. The government has put forth no per-

suasive reason for this Court to revisit that case-specific

determination.®

6 Unlike the government’s conditional cross-petition,

CalFed’s petition (in No. 01-592) presents substantial ques-

tions regarding the appropriate remedies for the govern-

ment’s breach of Winstar-type contracts—questions that may

affect more than 100 pending cases and warrant this Court’s

review as a consequence of the court of appeals’ failure to

Ne rT ee a ee

20

CONCLUSION

The conditional cross-petition petition for a writ of

certiorari should be denied.

Respectfully submitted.

THEODORE J. BOUTROUS

Counsel of Record

JOHN C. MILLIAN

PAUL BLANKENSTEIN

MARK A. PERRY

THOMAS H. DUPREE, JR.

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 955-8500

Counsel for Respondent

December 19, 2001

adhere to well-established /egal principles governing con-

tract remedies. The government asserts, however, that “Tilf

this Court decides to address the damages issues raised by

[CalFed], it should not do so without considering the antece-

dent liability issue raised herein.” Pet. 15. Contrary to the

government’s suggestion, resolution of those remedial issues

would in no way be advanced by a predicate determination

that the government had in fact entered into goodwill con-

tracts with CalFed. The government has conceded that a

contract was formed in the Southeast transaction, and thus

the remedial issues would remain open even if this Court

were somehow to reverse the liability determinations as to

the Brentwood and Family transactions. Thus, if the Court

grants CalFed’s petition (as we respectfully submit it

should), it should deny the government’s conditional cross-

petition because, as in Winstar, there is no reason for the

Court to revisit determinations as to contractual intent in

which both lower courts concurred, and that, in any event,

are correct.