## Facts

- During the 1980s savings-and-loan crisis, federal regulators encouraged “supervisory mergers” in which healthy thrifts or investors acquired failing institutions to avoid costly liquidations.
- As inducements, regulators approved accounting and regulatory-capital treatment allowing “supervisory goodwill” and certain “capital credits” to count toward regulatory capital, typically amortized over long periods.
- Respondents (Winstar/United Federal, Glendale Federal, and Statesman) entered transactions approved by the Federal Home Loan Bank Board and insured by the Federal Savings and Loan Insurance Corporation, relying on these capital treatments.
- In 1989, Congress enacted FIRREA, which barred thrifts from counting goodwill and capital credits toward regulatory capital.
- The change rendered respondents noncompliant with capital requirements; two were taken into receivership and one avoided seizure only through private recapitalization.
- Respondents sued the United States in the Court of Federal Claims for breach of contract, alleging the government promised the goodwill/capital-credit treatment for specified terms and later prevented performance.
- The Court of Federal Claims granted summary judgment for respondents; the Federal Circuit (en banc) affirmed; the Supreme Court granted review.

## Issues

1. Whether the supervisory-merger agreements created enforceable contracts obligating the government to permit supervisory goodwill and capital credits to count as regulatory capital for specified periods.
2. Whether the unmistakability doctrine barred enforcement because the agreements allegedly limited the government’s future regulatory authority.
3. Whether the sovereign acts doctrine barred liability because FIRREA was public and general legislation that made performance impossible.

## Decision

- The Court affirmed judgment for respondents and held the United States liable in damages for breach of contract.
- The Court found the agreements included enforceable commitments allowing the promised regulatory-capital accounting treatment for specified terms.
- FIRREA prevented specific performance of those commitments and therefore resulted in contractual breach.
- The unmistakability doctrine did not preclude enforcement on these facts.
- The sovereign acts doctrine did not relieve the government of liability where the contracts allocated the risk of regulatory change to the government.

## Legal Principles

- The United States, when contracting, may allocate to itself the risk of future regulatory change, and that allocation is enforceable under ordinary contract principles.
- The unmistakability doctrine is aimed at avoiding inadvertent surrender of sovereign powers by government agents; it does not bar damages when the government has contractually assumed the risk that later law changes will frustrate promised regulatory treatment.
- Public and general legislation may prevent specific contractual performance, but it does not automatically eliminate contractual liability; when the government has assumed the risk, the remedy is damages for nonperformance rather than immunity.
- A change in law that makes performance unlawful can constitute breach where the government promised a regulatory treatment as consideration in a bargain and later legislation negates that promised treatment.

## Conclusion

The Supreme Court held that the government’s supervisory-merger agreements were binding contracts that assigned to the United States the risk that later regulatory changes would negate the promised goodwill-based capital treatment; FIRREA’s contrary capital rules breached those contracts, and neither the unmistakability doctrine nor the sovereign acts doctrine barred damages.


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