## Facts

- During the Great Depression, Congress enacted measures to stabilize the thrift (savings-and-loan) industry and created federal entities including the Federal Home Loan Bank Board (FHLBB) and the Federal Savings and Loan Insurance Corporation (FSLIC).
- Federal regulators required thrifts to maintain minimum regulatory capital or face seizure and liquidation.
- In the late 1970s and early 1980s, high interest rates and other pressures triggered a renewed thrift crisis, and FSLIC lacked funds to close all failing thrifts through liquidation.
- To reduce immediate insurance payouts, FSLIC and the FHLBB used “supervisory mergers” to induce healthier institutions or investors to acquire failing thrifts.
- As part of negotiated merger arrangements, regulators offered special accounting and regulatory-capital treatment intended to keep the acquiring thrifts in compliance after assuming the failed thrifts’ net liabilities.
- The arrangements allowed the acquirers to record “supervisory goodwill” (an intangible asset reflecting the excess of liabilities over assets assumed) and to amortize that goodwill over extended periods.
- The arrangements also allowed supervisory goodwill and related regulatory “capital credits” to count toward meeting regulatory capital requirements for agreed periods.
- Winstar Corporation (Winstar), Statesman Savings Holding Corporation and related entities (Statesman), and Glendale Federal Bank (Glendale) entered supervisory-merger transactions and relied on the promised accounting treatment.
- Congress later enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which tightened capital standards and eliminated or sharply limited the use of supervisory goodwill and certain credits as regulatory capital.
- After FIRREA, Winstar and Statesman became noncompliant and were seized and liquidated; Glendale avoided liquidation only by undertaking a substantial private recapitalization.
- Winstar, Statesman, and Glendale sued the United States for monetary damages, alleging breach of the merger-related agreements. The Court of Federal Claims granted summary judgment for the thrifts on liability and certified the rulings for interlocutory appeal; the Federal Circuit consolidated the cases and heard them en banc.

## Issues

1. Whether the supervisory-merger documents and regulatory approvals formed binding contracts (express or implied-in-fact) committing the government to specified supervisory-goodwill and capital-credit treatment for regulatory-capital purposes.
2. Whether the relevant federal entities and officials had statutory authority to make contractual commitments about regulatory accounting and capital treatment in supervisory mergers.
3. Whether FIRREA’s capital changes, which disallowed or reduced the promised treatment, constituted a breach of those contractual commitments.
4. Whether the unmistakability doctrine barred recovery because any promise affecting future exercises of sovereign authority must be stated with unmistakable clarity.
5. Whether the sovereign acts doctrine insulated the government from liability because FIRREA was a public and general act.

## Decision

- The Federal Circuit (en banc) affirmed the Court of Federal Claims’ liability rulings and remanded for further proceedings, including damages.
- The court held that binding agreements existed: Statesman and Glendale proved express contractual commitments, and Winstar proved at least an implied-in-fact contract embodying equivalent promises.
- The court concluded that the contracts promised specified regulatory-capital treatment (including counting supervisory goodwill and capital credits and using agreed amortization schedules), and FIRREA’s contrary requirements prevented performance of those promises.
- The court rejected the government’s unmistakability defense, reasoning that the thrifts sought money damages for breach of a risk-allocation promise rather than an order preventing the government from changing the law.
- The court rejected the sovereign acts defense as applied, because the government had assumed the risk that later regulatory change would negate the agreed capital treatment, and that risk allocation supported contract liability when change in law caused nonperformance.
- The court also determined that the regulatory agencies involved had authority to enter supervisory-merger arrangements that included these accounting and capital-treatment commitments.

## Legal Principles

- The United States can be bound by express or implied-in-fact contracts formed through authorized agency action, evaluated under ordinary contract-formation requirements.
- In supervisory mergers, agreed regulatory accounting and capital treatment (such as counting supervisory goodwill and capital credits and setting amortization terms) can constitute enforceable contractual promises when the transaction documents and approvals show mutual assent and consideration.
- When later legislation or regulation prevents the government from performing a contractual promise, the change may be valid sovereign action yet still result in government liability for damages if the government assumed the risk of that change in the contract.
- The unmistakability doctrine generally concerns claims seeking to bar the government’s future exercise of sovereign power; it does not automatically defeat a damages claim based on the government’s contractual allocation of the financial consequences of regulatory change.
- The sovereign acts doctrine does not automatically excuse nonperformance where the government, as contracting party, agreed to bear the risk that a public, generally applicable change in law would frustrate performance.

## Conclusion

The en banc Federal Circuit held that the government, acting through thrift regulators, entered enforceable supervisory-merger contracts promising defined supervisory-goodwill and capital-credit treatment, and that FIRREA’s elimination of that treatment breached those agreements; neither the unmistakability doctrine nor the sovereign acts doctrine barred damages liability, so the case returned to the trial court for further proceedings on remedies.


Winstar Corp. v. United States, 64 F.3d 1531 (1995)