## Facts

- During the savings-and-loan crisis, federal regulators encouraged healthy thrifts to acquire failing institutions by allowing “supervisory goodwill” (negative net worth) to be treated as regulatory capital and amortized over time.
- In 1981, Glendale Federal Bank, FSB agreed to acquire an insolvent thrift (Broward) under an assistance agreement and regulatory approvals permitting Glendale to record roughly $734 million in supervisory goodwill as capital.
- In 1989, FIRREA and implementing regulations restricted or eliminated supervisory goodwill as regulatory capital and imposed stricter capital requirements, effectively repudiating earlier commitments.
- Glendale alleged it incurred substantial costs to comply with the new regime, including raising capital and altering operations.
- Liability for breach was established under the Winstar line of cases; the dispute here concerns the measure of damages.
- After an extensive damages trial, the Court of Federal Claims awarded approximately $908.9 million in restitution and certain non-overlapping reliance damages, and it rejected the government’s special plea of fraud.
- The United States appealed the damages award and fraud ruling; Glendale cross-appealed, seeking additional reliance damages if restitution were reversed.

## Issues

1. Whether the trial court’s restitution measure—based on the government’s alleged avoided costs of resolving the failed thrift—was a legally permissible and non-speculative basis for damages.
2. What contract-damages framework should apply following the government’s breach of supervisory-goodwill agreements (restitution, reliance, and/or expectation).
3. Whether Glendale could recover additional reliance damages if restitution were unavailable, and how to prevent duplicative recovery.
4. Whether the government proved its special plea of fraud sufficient to bar or limit Glendale’s recovery.

## Decision

- The Federal Circuit affirmed the rejection of the government’s special plea of fraud.
- The Federal Circuit held that the nearly $909 million restitution award could not stand because the asserted “benefit” to the government (avoided resolution/liquidation costs) was speculative and indeterminate.
- The court vacated the damages judgment and remanded for recalculation under an appropriate contract-damages framework, focusing on reliance-based recovery (and rejecting the challenged restitution theory).
- The court directed the trial court on remand to reassess allowable reliance items and ensure damages are not duplicative across theories.

## Legal Principles

- Contract remedies generally fall into expectation, reliance, and restitution; the chosen measure must fit recognized remedial categories and be supported by non-speculative proof.
- Restitution requires a concrete, non-speculative benefit conferred on the breaching party; hypothetical avoided-cost models dependent on contingent alternative scenarios may be too indeterminate to support restitution.
- Reliance damages may compensate actual, out-of-pocket costs incurred because of the contract, so long as the costs are proven, causally connected to the breach, and not duplicative of other recovery.
- A special plea of fraud requires proof of material fraudulent conduct sufficient to bar the claim; absent such proof, the plaintiff remains entitled to damages for breach.

## Conclusion

The Federal Circuit left the government’s breach liability intact and affirmed rejection of the fraud defense, but vacated the Court of Federal Claims’ massive restitution award because it rested on speculative avoided-cost “benefit” calculations, remanding for a non-duplicative reliance-based damages determination supported by non-speculative evidence.


Glendale Fed. Bank, FSB v. United States, 239 F.3d 1374 (Fed. Cir. 2001)