Editor's Note: In our last issue, we summarized the Supreme Court's July 1996 split decision in United States v. Winstar, which affirmed summary judgment against the Government on the issue of liability for breach of contract in three 'test cases' arising from the FIRREA's invalidation of a spate of forbearance agreements pursuant to which failing savings and loan associations were acquired by healthier thrifts in the mid-1980's. The High Court remanded the cases, which-along with over one hundred companion cases-have subsequently wound through some very interesting proceedings, recounted by our authors here.
The Supreme Court's decision in United States v. Winstar Corp., 116 S. Ct. 2432 (1996), has not brought to a close the supervisory goodwill litigation. Far from it. Instead, the focus has returned to the Court of Federal Claims, where there is more activity in so-called " Winstar-related" cases than ever. That activity is proceeding along two broad fronts. The first front involves the coordination of proceedings in the 120 other "Winstar-related" cases that had been stayed pending the Supreme Court's ruling.
Chief Judge Loren Smith, with the cooperation of the parties, has fashioned a broad case management plan to deal with this issue. This case management plan includes procedures for automatic limited document exchanges by the parties, as well as procedures for the filing of so called "short form" motions for partial summary judgment on liability with respect to breach of contract issues. The theory behind this short form summary judgment procedure is that, because the Court of Federal Claims has by now become intimately familiar with the factual and legal backdrop against which goodwill deals were made, as well as the basic legal principles underlying the primary breach of contract claims made in these cases, the plaintiffs can dispense with covering these issues in their motions, and can instead focus upon the particular documents and other facts underlying the specific claims in their case. The government also benefits from this "short form" procedure, because instead of having, as it would have under the court's rules, 28 days to respond to the summary judgment motion, it now has a total of 120 days to respond. The government's response occurs in two steps. First, 60 days following the filing of the summary judgment motion, the government files a response detailing its position with respect to two questions: (1) the existence or nonexistence of a contract between the parties with respect to regulatory capital issues; and (2) whether FIRREA was "inconsistent" with that contract. Second, 120 days after the filing of the summary judgment motion, the government files a second response detailing whether it has any affirmative defenses to the breach of contract claims raised in the motion. As of the date of this writing, the government has filed its "60-day response" to about twenty summary judgment motions, and has filed its "120-day response" to approximately ten summary judgment motions.
The case management plan also establishes procedures whereby "common issues" raised in a number of cases are resolved by "issues judges" on a consolidated basis. This common issue resolution procedure has already been successfully utilized with respect to two issues. First, the common issue procedure was used to resolve the government's motion to dismiss more than 20 cases on statute of limitations grounds. Cases filed in the Court of Federal Claims must be filed within six years of the accrual of a claim. The government argued in its motion that any breach of contract which occurred in a "Winstar-related" case occurred on the date of FIRREA's enactment, August 9, 1989, and therefore any case filed after August 9, 1995 was time-barred. The plaintiffs raised a number of arguments in response, the primary argument being that because FIRREA was not self-executing, but instead directed the OTS to promulgate new capital regulations limiting the thrifts' right to utilize supervisory goodwill, it was not until those regulations became effective, on December 7, 1989, that any claims for breach of contract accrued. The Court of Federal Claims, in an opinion issued by Judge Wiese, agreed with the plaintiffs, and therefore ruled that any case filed before December 7, 1995 was timely. The court thus denied the government's motion to dismiss with respect to all but two cases. The plaintiffs in those two cases, which were filed after December 7, 1995, have since appealed their dismissal to the Court of Appeals for the Federal Circuit.
The second occasion on which common issue resolution procedures were utilized involved the Federal Deposit Insurance Corporation's ("FDIC's") motion to intervene and to substitute itself as plaintiff in more than 40 cases involving seized thrifts. The FDIC's motion can only be described as audacious. The FDIC argued that, as the official successor to thrifts which had been placed in receivership, it and only it could represent those thrifts and advance the thrifts' claims against the federal government. The FDIC also argued that, not only did it have the exclusive right to pursue the claims of the seized thrifts, any claims brought by the shareholders or holding companies of those thrifts also belonged exclusively to the thrift (and thus to the FDIC), regardless of whether the shareholders or holding companies had themselves entered into contractual relationships with the government. The FDIC's motion thus constituted a very serious threat to the claims raised in these cases, as it amounted to an attempt by a federal agency to completely take over claims raised by private parties against the federal government. After extensive briefing and two full days of oral argument before Judge James Turner, Judge Turner ruled that while he would grant the FDIC's motion to intervene, and thus allow the FDIC to become a party to these cases, he would deny the FDIC's motion to substitute itself for all of the private plaintiffs in those cases.
The case management plain also identifies thirteen cases as so-called "priority" cases, meaning, in theory at least, that these will be the first to be tried following the Glendale and Statesman trials. The plaintiffs in these cases obtained their priority status by agreeing to waive any discovery rights against the government, except for the right to take depositions of government expert witnesses. The priority cases are scheduled to go to trial, two per month, starting four months after the conclusion of the Statesman trial.
Which brings us to the second front on which the goodwill litigation is being fought -- the damages trials in two of the three cases that were before the Supreme Court - - Glendale and Statesman. Chief Judge Smith has already required the parties in those cases to brief and argue, through motions in limine, the legal principles relating to the damages theories that can be utilized in those cases. In December of last year, after briefing and extensive oral argument, Chief Judge Smith denied the government's motion to prevent the plaintiffs from offering evidence as to lost profits. This was a very significant ruling, as the plaintiff in Glendale is seeking lost profits of more than one billion dollars, and the Statesman plaintiffs are seeking lost profits of approximately $120 million. The Glendale trial started in February 24, 1997, and is expected to last into May Of this year. The Statesman trial is scheduled to begin in early June and should last four to six weeks- Trial in Winstar has not yet been scheduled.
*Mr. Cooper is a partner at Cooper & Carvin, PLLC, in Washington, D.C. and previously served as Assistant Attorney General, Office of Legal Counsel, U.S. Department of Justice. Mr. Colatriano is an associate at Cooper & Carvin. Messrs. Cooper and Carvin represent the plaintiffs in a number of Winstar-related cases, including the Winstar and Statesman.