United
States Court of Appeals for the Federal Circuit
00-5128
BLUEBONNET
SAVINGS BANK, F.S.B., STONE CAPITAL, INC.
(formerly
know as CFSB Corporation) and JAMES M. FAIL,
Plaintiffs‑Appellants,
v.
UNITED
STATES,
Defendant‑Appellee.
Mitchell R. Berger, Patton Boggs LLP, of
Washington, DC, argued for plaintiffs-appellants. With him on the brief were Michael J. Schaengold, and Ugo
Colella. Of counsel on the brief
were I. Thomas Bieging, and Catherine M. Grainger, McKenna &
Cueno LLP, of Denver, Colorado.
David M. Cohen, Director, Commercial
Litigation Branch, Civil Division, Department of Justice, of Washington, DC,
argued for defendant-appellee. With him
on the brief were Jeanne E. Davidson, Deputy Director; Elizabeth M.
Hosford, Craig Gottlieb, and Kenneth Dintzer, Trial
Attorneys.
Appealed from: United
States Court of Federal Claims
Judge Bohdan A. Futey
00-5128
BLUEBONNET SAVINGS BANK, F.S.B.,
STONE CAPITAL, INC.
(formerly known as CFSB Corporation),
and JAMES M. FAIL,
Plaintiffs-Appellants,
v.
UNITED STATES,
Defendant-Appellee.
__________________________
DECIDED:
September 21, 2001
__________________________
Before MAYER, Chief Judge, RADER and LINN, Circuit
Judges.
MAYER, Chief Judge.
Bluebonnet Savings Bank, FSB, Stone
Capital, Inc. (formerly known as CFSB Corporation), and James M. Fail
(collectively “Bluebonnet”) appeal the judgments of the United States Court of
Federal Claims (1) holding on summary judgment that the passage of the
Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), Pub. L.
101-73, 103 Stat. 183 (1989), and its implementing regulations and related
agency actions, breached a contract between Bluebonnet and the government, Bluebonnet
Savings Bank v. United States, 43 Fed. Cl.
69, 72, 80 (1999) (“Bluebonnet I”), but (2) awarding no damages, Bluebonnet
Savings Bank v. United States, 47 Fed. Cl. 156 (2000) (“Bluebonnet II”). We reverse and remand.
The history and circumstances surrounding
the thrift crisis of the early 1980’s and the enactment of FIRREA, have been
extensively discussed in the original Winstar cases and will be
revisited only as necessary to the present case. See Winstar Corp. v. United States, 518 U.S. 839,
843-858 (1996) (“Winstar III”). The savings and loan industry in the southwestern United
States in the late 1980's was in a state of crisis; hundreds of thrifts were
either insolvent or on the verge of insolvency, and the Federal Savings and
Loan Insurance Corporation (“FSLIC”) lacked sufficient funds to liquidate all
the troubled thrifts. In response, the
Federal Home Loan Bank Board (“FHLBB”) approved the "Southwest Plan"
on February 3, 1988, to provide government assistance to induce private capital
investors to bail out failed savings and loans in the southwestern United
States. Under this program, FHLBB
grouped insolvent thrifts into packages for sale to investors, and offered a
wide variety of incentives, including guaranteed assistance payments,
regulatory forbearances, and shared tax benefits. The goal of the Southwest Plan was to attract new capital and
management to the thrift industry, eliminate branch redundancies, and reduce
the operating expenses of failing thrifts.
James Fail, on behalf of Lifeshares Group,
Inc. (“Lifeshares”), an insurance company he owned, and Sidney Steiner, on
behalf of the S/D Acquisition Group, entered into a partnership (“the Fail
Group”) to acquire a group of fifteen insolvent thrifts that eventually became
Bluebonnet Savings Bank. The majority
of the negotiations between the Fail Group and FSLIC were conducted by Harry T.
Carneal, Executive Vice President of Lifeshares, and Robert Roe, an employee of
the Southwest Plan Office and FSLIC’s main negotiator for the Bluebonnet
thrifts. In response to a request by
FSLIC that Fail identify the source for a portion of his funding for the
acquisition, Fail and Carneal each wrote letters to Stuart Root, Executive
Director of FSLIC discussing the plans for capitalization and Fail’s commitment
to infuse $120 million into the newly formed thrift. The Fail letter was dated December 21, 1988, and the Carneal
letter was dated December 22, 1988.
Root provided a memorandum to FHLBB recommending that it accept the Fail
Group’s bid and approve the acquisition on December 22, 1988. That same day, FHLBB approved the Fail
Group's bid to acquire Bluebonnet, but conditioned its approval on Fail and
CFSB identifying the source of a portion of the funding for the acquisition as
recommended by the Corporate and Securities Division (“CASD”) of the Office of
General Counsel in its review of the
proposed bid (“CASD Memo”).
Bluebonnet and FSLIC entered into the
following agreements: (1) an Assistance
Agreement, pursuant to which, Fail and CFSB agreed to recapitalize Bluebonnet
by infusing $120 million over a two year period and FSLIC
agreed to provide assistance to Bluebonnet that exceeded $3 billion, including
FSLIC promissory notes, asset coverage and yield maintenance; (2) a Capital
Maintenance Agreement (“CMA”) which imposed a number of conditions upon CFSB
and Bluebonnet concerning certain ownership and operation issues; (3) a ten‑year
capital forbearance that allowed Bluebonnet to maintain capital levels lower
than those required by regulation but at levels which would increase each year;
and (4) a dividend forbearance, which permitted Bluebonnet to pay cash
dividends of up to 50% of its net retained earnings beginning December 23,
1989, if it met the capital levels contained within the CMA and if declaring
common stock dividends would not cause it to fall below these capital
levels. In connection with the CMA,
CFSB agreed to purchase and at all times own 100% of the common stock of
Bluebonnet, and FSLIC obtained the right to seize Bluebonnet in the event CFSB
failed to timely make the capital infusions or to maintain capital compliance.
Pursuant to the Assistance
Agreement, Fail and CFSB agreed to recapitalize Bluebonnet by infusing $120
million over a two-year period, with $70 million due the day the Assistance
Agreement was signed, and an additional $25 million due on the first and second
anniversary dates. The Assistance
Agreement required that one‑half of the total infusion be raised through
the sale of Bluebonnet‑issued capital notes and one‑half consist of
equity. With respect to the initial $70
million, CFSB agreed to infuse $35 million into Bluebonnet through the purchase
of Bluebonnet common stock. The remaining
$35 million would be infused in the form of subordinated debt issued by
Bluebonnet and to be purchased by Lifeshares or one of its affiliates. The Assistance Agreement also required that
CFSB purchase $12.5 million of Bluebonnet's common stock on each of the two
successive anniversaries of the effective date, while Lifeshares would either
purchase or place with an unaffiliated third party $12.5 million of
subordinated debt each year.
To meet the initial capital
infusions required under the Assistance Agreement, Mutual Security Life Insurance Company (“MSL”), a company owned
by Fail, purchased $35 million of subordinated debt issued by Bluebonnet and
CFSB purchased $25 million in Bluebonnet common stock funded by a loan in that
amount from Bankers Life and Casualty Company (“Bankers Life”), an insurance
company affiliated with Robert T. Shaw.
Fail’s common stock shares in Lifeshares and CFSB were used as
collateral for the Bankers Life Loan.
The final $10 million was raised on December 30, 1988, when Fail and
CFSB entered into a loan agreement with Bankers Life to allow Fail to purchase
the remaining $10 million of Bluebonnet common stock. On March 8, 1989, FHLBB issued a technical amendment to its
initial approval of the acquisition, which permitted Bluebonnet to treat
certain subordinated debt as regulatory capital (“subordinated debt
forbearance”).
During 1989, considerable
efforts were made by Fail to secure capital sources that either were willing to
invest in Bluebonnet or to provide financing.
He sent John Kirchhofer, a business representative of Steiner, and
Carneal to meet with potential capital sources. Kirchhofer focused on finding a “tax-advantaged partner.” A tax‑advantaged partner is an
investor with substantial net earnings capable of utilizing the net operating
losses generated by Bluebonnet. Between
February and August 1989, Kirchhofer met with three potential tax‑advantaged
partners and two investment banking firms, but was unable to obtain
financing. In early 1989, Carneal met
with several New York investment banking firms, in an effort to find investors
willing to provide either equity or debt financing, but also was
unsuccessful. Fail also utilized
accounting firms, consultants, and law firms to help search for candidates
willing to provide financing or to be a tax‑advantaged partner.
On August 9, 1989, FIRREA was signed into
law. FIRREA and its implementing
regulations changed the capital requirements applicable to thrifts, imposing
core capital, tangible capital, and risk‑based capital requirements. The most important of these changes for
Bluebonnet was the new requirement to maintain core capital equal to at least
3% of assets. 12 U.S.C. § 1464(t)(2)(A)
(Supp. I 1989). FIRREA also altered the
then existing regulatory regime, replacing FHLBB and FSLIC with a new agency,
the Office of Thrift Supervision (“OTS”).
A thrift deposit insurance fund was also created which the Federal
Deposit Insurance Corporation (“FDIC”) would oversee. Finally, FIRREA prohibited Bluebonnet from treating subordinated
debt as regulatory capital, which decreased Bluebonnet's regulatory capital
level by $35 million, the amount of the subordinated debt note issued to
MSL. As a result, Bluebonnet's core
capital ratio dropped to 2.06% of assets, which failed to comply with FIRREA's
new core capital requirement.
Concerned with a threat of seizure and because
neither Fail nor CFSB had sufficient funds to infuse capital into Bluebonnet,
the Board of Directors of Bluebonnet
(“Board of Directors”) informed Robert Brick, Caseload Manager of OTS,
of FIRREA's impact on Bluebonnet's existing capital structure. After rejecting a series of proposals by the
Board of Directors, OTS ultimately approved a plan, which called for Bluebonnet
to issue, and CFSB to purchase, $12.5 million of perpetual preferred stock in
place of the subordinated debt. On
December 21, 1989, CFSB infused $25 million into Bluebonnet which it obtained
from Consolidated National Successor Corporation (“CNC”), a holding company
owned in part by Shaw. CNC also agreed
to refinance the Bankers Life loan. In
exchange, CNC obtained, among other things, a right to contingent interest
amounting to 9% of the profits of CFSB, together with the right to acquire
Bluebonnet, or, alternatively, 50% of the net proceeds of a potential sale of
Bluebonnet.
When this infusion proved insufficient to
restore capital compliance, Bluebonnet's management took additional steps to
adequately capitalize the thrift. These
efforts included shrinking Bluebonnet in size by selling approximately $150 million
in assets and retaining all of its net earnings to date ($35,221,000) for use
as regulatory capital, despite the provision of the Dividend Forbearance, which
permitted the distribution of 50% of its net retained earnings on December 23,
1989. As a result of management's
efforts, Bluebonnet was able to achieve capital compliance by December 31,
1989.
Again in 1990, Carneal and Kirchhofer
individually met with several potential capital sources. Although some of these
investors expressed interest, none chose to finance the 1990 infusion. Throughout May 1990, the Board of Directors
sought to declare dividends, but OTS denied these requests, reasoning that
Bluebonnet was only marginally compliant with its capital requirements and that
there was insufficient evidence to ascertain whether Bluebonnet would remain
compliant. On September 12, 1990, the
Board of Directors sought approval to declare a common stock dividend of $25
million to CFSB, which CFSB would then use to purchase $12.5 million in common
stock and $12.5 million in subordinated debt.
OTS denied this request. When on
October 30, 1990, the Board of Directors again sought regulatory approval to
declare a dividend, OTS officially objected to the Board of Director's notice
to declare dividends, and informed them that Bluebonnet could not declare
dividends until it provided FDIC with a satisfactory commitment to infuse the
remainder of the $120 million in capital and subordinated debt. By the end of November 1990, no new
financing had been secured and Fail and CFSB were unable to provide FDIC with a
satisfactory commitment. On November
28, 1990, OTS deemed Bluebonnet to be an institution requiring “more than
normal supervision,” pursuant to OTS Regulatory Bulletin 3a‑1. This prohibited Bluebonnet from engaging in
certain business activities, including declaring dividends, without first
receiving approval from OTS.
With less than one month remaining before the
1990 infusion was due, and with approximately $80 million in outstanding debt
to Bankers Life and CNC, Fail and CFSB returned to Shaw for help. On December 12, 1990, Fail and CFSB entered
separate loan agreements with Marquette National Life Insurance Company
(“Marquette”), a company owned by Shaw, under which Marquette loaned CFSB $25 million
for the final infusion and refinanced the 1988 and 1989 loans from Bankers Life
and CNC. On that same date, Fail
entered the "Stock Acquisition Agreement" with Bluebonnet Interests,
Inc. (“BBI”), another company owned by Shaw, which gave BBI the right to seek
and obtain regulatory approval to purchase CFSB from Fail by December 11,
1992. The loan agreement with Marquette
included a provision that gave it the right to accelerate the due date on the
loans to thirty days after it determined BBI would not acquire Bluebonnet. Soon after BBI entered this agreement, Mr.
Shaw undertook efforts to acquire Bluebonnet.
On March 28, 1991, OTS downgraded Bluebonnet's
classification from a Tier 1 to a Tier 3 institution, which barred Bluebonnet
from making any capital distributions without receiving OTS approval. OTS denied all of the Board of Directors'
requests in 1991 to declare common stock dividends, and approved only one
request to declare a preferred stock dividend of $375,000. On June 5, 1991, Bluebonnet filed suit
against the FDIC in the District Court for the Northern District of Texas,
seeking a declaratory judgment as to the proper application of the Assistance
Agreement, damages, and other relief.
Bluebonnet and the FSLIC settled portions of that case, but Bluebonnet
reserved its right to bring an action in the Court of Federal Claims for claims
of breach “relating to capital forbearances, dividend forbearances, and
dividend payments.”
In September 1992, Shaw
abandoned his efforts to acquire Bluebonnet.
Fail and CFSB began negotiations with him concerning the repayment of
their outstanding loans, which amounted to approximately $140 million and were
due on December 31, 1992. Shaw and Fail
eventually reached a verbal agreement, which they memorialized in an exchange
of letters dated October 7, 1992. Shaw,
through CNC, agreed that upon Fail and CFSB's reduction of their existing debt
to $81 million, CNC would execute long‑term loans of not more than that
amount to them. In exchange, Fail
agreed to give CNC a 50% economic interest in CFSB. At the time, Fail and CFSB did not have sufficient funds to
reduce their debt to the required levels.
Consequently, Bluebonnet sought an injunction in the District Court for
the Northern District of Texas to force OTS to permit, among other things,
Bluebonnet to distribute common stock dividends. OTS subsequently rated Bluebonnet as a Tier 1 institution and
approved outstanding requests to declare dividends, but required that the funds
be used solely to pay down acquisition debt held by Fail and CFSB.
On January 25, 1993, Fail,
CFSB, and CNC executed the “Economic Benefits Agreement,” (“EBA”) which further
detailed the agreement discussed by Fail and Shaw in their October 7, 1992
letters. Pursuant to the agreement, CNC
reduced the amount of debt held by Fail and CFSB and provided long‑term
financing for that debt, in exchange for Fail essentially giving CNC a 49%
interest in the future profits of CFSB.
CNC also obtained the right to receive a percentage of the proceeds from
a sale of Bluebonnet. The EBA was
amended in 1995 (Amended and Restated Economic Benefits Agreement (“AREBA”))
and 1997 (Second Amended and Restated Economic Benefits Agreement (“SAREBA”))
without material change.
Bluebonnet ultimately brought suit in the United States Court of
Federal Claims against the government for breaching the contractually assured
forbearances by enacting FIRREA. In Bluebonnet I,
the court determined that the Assistance Agreement, CMA, the FHLBB Resolution,
the Fail letter, and the Carneal letter constituted a contract, which it
referred to as the "Transaction Agreement." 43 Fed. Cl. at 72, 80. The
court also held on summary judgment that the passage of FIRREA and its
implementing regulations and related agency actions, breached the CMA, dividend
forbearance, and subordinated debt forbearances because the passage of FIRREA fundamentally altered the nature of the
transaction, and changed the premises under which Fail had made the deal. Id. at 80. Following a trial on the merits, however, the Court of Federal
Claims entered judgment for the government because Bluebonnet failed to prove
the quantum of damages to a reasonable certainty. This appeal followed.
The Tucker Act grants the Court of Federal
Claims jurisdiction over actions "founded either upon the Constitution, or
any Act of Congress or any regulation of an executive department, or upon any
express or implied contract with the United States, or for liquidated or
unliquidated damages in cases not sounding in tort." 28 U.S.C. § 1491(a)(1) (1994).
We have jurisdiction under 28 U.S.C. § 1295(a)(3) (1994). The trial court's
legal conclusions are reviewed independently.
Hendler v. United States, 175 F.3d 1374, 1378‑79 (Fed. Cir.
1999). Findings of fact are subject to the clearly erroneous standard. Id. at 1378.
The judgment of liability is contested
only to the extent that the government argues that any claim under the
subordinated debt forbearance is barred by the settlement of the lawsuit in the
Northern District of Texas. The Court
of Federal Claims addressed this in Bluebonnet I. The settlement agreement’s mutual release
excepted "all claims of CFSB and Fail to the
extent they relate to alleged breaches of contract relating to capital forbearances,
dividend forbearances, and dividend payments, or takings arising from any of
the foregoing." 43 Fed. Cl. at
79. The court found that Bluebonnet
believed that the capital forbearances encompassed the subordinated debt
forbearance. Id. at 79-80. Given the generic language of the release, we
agree that the absence of a definition of “capital forbearance” in the
settlement agreement, and Bluebonnet’s contemporaneous understanding, the
subordinated debt claim was not barred by the settlement agreement.
“One way the law makes the non‑breaching
party whole is to give him the benefits he expected to receive had the breach
not occurred.” Glendale Federal
Bank, FSB v. United States, 239 F.3d 1374, 1380 (Fed. Cir. 2001) (citing
Restatement (Second) of Contracts § 344(a) (1981)). A party's expectation interest is the
"interest in having the benefit of his bargain by being put in as good a
position as he would have been in had the contract been performed." Restatement (Second) of Contracts § 344(a)
(1981). Expectation damages are
recoverable provided they are actually foreseen or reasonably foreseeable, are
caused by the breach of the promisor, and are proved with reasonable
certainty. See Restatement
(Second) of Contracts §§ 347, 351, 352 (1981).
The ascertainment of damages is not an exact
science, and where responsibility for damage is clear, it is not essential that
the amount thereof be ascertainable with absolute exactness or mathematical
precision: "'It is enough if the
evidence adduced is sufficient to enable a court or jury to make a fair and
reasonable approximation."' Elec. & Missile Facilities, Inc. v.
United States, 416 F.2d 1345, 1358 (Ct. Cl. 1969) (quoting Specialty
Assembling & Packing Co. v. United States, 355 F.2d 554, 572 (Ct. Cl.
1966)).
Bluebonnet seeks to recover the increase in
financing costs caused by the passage of FIRREA which breached the capital,
subordinated debt, and dividend forbearances.
Bluebonnet argues that the government knew or should have known that
Fail and CFSB lacked adequate capital to acquire Bluebonnet and intended to
rely on dividends distributed from Bluebonnet to CFSB to help finance the cost
of acquisition. The breach of the three
forbearances, it argues, increased the risk of the acquisition, making
financing harder to find and ultimately more expensive (including additional
interest on indebtedness, higher fees paid to lenders, and the cost of the EBA
and its successor agreements).
Foreseeability is a question of fact reviewed
for clear error. Landmark Land Co.,
Inc. v. Fed. Deposit Ins. Corp., 256 F.3d 1365, 1378 (Fed. Cir. 2001). The government is not persuasive when it
asserts that it was unforeseeable at the time of contract execution that the
breach of the forbearances would lead to increased financing costs for Fail and
CFSB. The Court of Federal Claims
correctly concluded that the dividend forbearance could only plausibly be
interpreted as a cash flow guaranty to Fail and CFSB, albeit limited by
Bluebonnet’s continued compliance with the capital forbearance. There were no restrictions on the use of the
dividends by Fail and CFSB and existing regulations allowed debt to be serviced
with dividends of up to 50% of the thrift’s net income per year (the exact
limit in the dividend forbearance). 12 C.F.R. §
574.8(a)(1)(iii)(A) (1989) (effective November 28, 1988, as stated in 53 Fed.
Reg. 47941, 47942 (1988)). The
court found it “foreseeable under the circumstances that Mr. Fail and CFSB
would incur the increased financing costs they now claim without dividends to
assist in obtaining additional loans and repaying existing debt.” Bluebonnet II, 47 Fed. Cl. at
172. It was therefore foreseeable that
Fail and CFSB would be forced to find alternate means of financing the required
capital infusions when the FSLIC barred the payment of dividends. When the compounding effects of the
increased capital requirements of FIRREA and its bar on using subordinated debt
as regulatory capital are taken into account, it is forseeable that Fail and
CFSB would have been forced to seek even more capital to meet the heightened
regulatory requirements. It is also
foreseeable that the heightened regulatory requirements and Bluebonnet’s risk
of seizure due to failure to meet those requirements, would heighten the risk
of investing in Bluebonnet and thereby increase the cost of securing either
debt or equity financing. We see no
clear error in the court’s findings that the damages
claimed by Bluebonnet were foreseeable at the time the parties entered the
contract.
Causation is also a question of fact reviewed
under the clear error standard. Hendler,
175 F.3d at 1378. The Court of Federal
Claims properly determined that the breach of the forbearances was a
substantial factor in Bluebonnet’s increased financing costs because it forced
Bluebonnet to raise capital at a time when FIRREA had made investments in
thrifts riskier and considerably less attractive. The government’s various arguments regarding alternative causes
for the damages lack merit.
Bluebonnet persuasively argues that it would
not have entered into the EBA but for the breach and, therefore, it should be
entitled to the entire cost of the EBA.
Before entering into the EBA, Bluebonnet made considerable efforts to
obtain conventional financing and to acquire a tax-advantaged partner but was
unable to do so, in large part, because of the passage of FIRREA and the
unfavorable climate it created for investments in thrifts. The government argues that Bluebonnet failed
to prove its EBA damages to a reasonable certainty because it did not
sufficiently explain the derivation of its EBA-related costs. It is undisputed, however, that CFSB had
paid approximately $5.4 million under the EBA.
The Court of Federal Claims concluded that Bluebonnet was not entitled
to that cost because it failed to establish its but-for the breach hypothetical
world. This finding was clearly
erroneous, and contradicted the court’s explicit finding that the breach,
specifically the denial of requests to distribute dividends, adversely affected
the terms of the EBA. The EBA, and its
grant of a 50 percent equity stake in CFSB to Shaw, was only entered into
because the breach removed the dividend distributions as a source of funds for
the required capital infusions and made it impossible to obtain long-term
financing elsewhere. As a result, Fail
and CFSB were repeatedly forced to resort to Shaw and his affiliated companies
for short-term financing to meet the various capital infusion requirements and
to avert seizure by the OTS. In the
absence of the breach, Fail and CFSB
would not have agreed to the EBA because dividend financing would have been
available and it would have been unnecessary to give up a significant equity
stake in CFSB to obtain financing.
There is sufficient content to the
contracts to permit the determination of an appropriate remedy. Ace-Federal Reporters, Inc. v. Barram,
226 F.3d 1329, 1333 (Fed. Cir. 2000).
“If a reasonable probability of damage can be clearly established,
uncertainty as to the amount will not preclude recovery,” and the court's duty
is to “make a fair and reasonable approximation of the damages.” Id.
(quoting Locke v. United States, 283 F.2d 521, 524 (Ct. Cl.
1960)). It is undisputed that $5.4
million was paid by Fail and CFSB to Shaw under the EBA. In addition, the Memo Account, which
purports to document the amounts owed by Fail to Shaw under the SAREBA was
presented at trial. Evidence showed
that it was a document regularly prepared in the normal course of business and that
the amounts owed were agreed to by representatives of Shaw and Fail, whose
interests in the amount owed were adverse to each other. However, the Court of Federal Claims
improperly rejected the Memo Account as support for the EBA damages because the
Deputy Counsel for CFSB was unable to fully explain the basis for all the costs
set out in it. This was clear error
because the amounts owing under the SAREBA are directly spelled out in that
contract and evidence was presented that the Memo Account was prepared in
accordance with the SAREBA. This meets
the reasonable certainty test and it is inappropriate to require CFSB to
justify the basis for each term in the agreement.
It is not the duty of courts to
second-guess the terms of a bargained-for exchange. Aero Spacelines v. United States, 530 F.2d 324, 354 (Ct.
Cl. 1976). The trial court determined
that, following the breach, Fail and CFSB had no choice but to rely on Shaw for
financing, and that it was reasonable to enter into the EBA considering the OTS
restrictions on declaring dividends and their use, and the amount of debt
already owed to Shaw and CNC. Both
parties’ experts agreed that costs arising from the EBA are appropriate costs
of financing that can be awarded as damages.
The Court of Federal Claims needed not to determine why the terms
of the EBA and follow-on agreements were what they were, it needed to determine
to a reasonable certainty what the costs were under those
agreements. The EBA represented a
bargained-for exchange between Fail and CFSB, on the one hand, and Shaw and
CNC, on the other. Once the court
determined (1) that the breach caused Fail and CFSB to enter into the EBA, (2)
that the increased financing costs reflected in the EBA were due to the
increased risk of financing Bluebonnet following the breach, and (3) that it
was foreseeable that the breach would cause such increased financing costs, all
that was left was to quantify the measure of damages to a reasonable
certainty.
We have also
allowed so‑called “jury verdicts,” if there was clear proof of injury and
there was no more reliable method for computing damages‑‑but only
where the evidence adduced was sufficient to enable a court or jury to make a
fair and reasonable approximation. Elec.
and Missile Facilities, 416 F.2d at 1358 n.46 (citing Bell v. United
States, 404 F.2d 975 (Ct. Cl. 1968)).
“In estimating damages, the Court of Claims occupies the position
of a jury under like circumstances; and all that the litigants have any right
to expect is the exercise of the court's best judgment upon the basis of the
evidence provided by the parties.” Specialty
Assembling, 355 F.2d at 572 (citing United States v. Smith, 94 U.S.
214, 219 (1876)). In the absence of any more reliable method of determining
the quantum of EBA damages, the undisputed $5.4 million payment and the
Memo Account memorializing the amounts due and payable under the SAREBA are
more than sufficient to provide a “fair and reasonable” basis from which to
calculate these EBA-related damages.
“[T]he amount of the recovery can only be approximated in the format of
a 'jury verdict' where the claimant can demonstrate a justifiable inability to
substantiate the amount of his resultant injury by direct and specific proof.” Joseph
Pickard's Sons Co. v. United States, 532 F.2d 739, 742 (Ct. Cl. 1976). Even if Bluebonnet had been justifiably
unable to substantiate the amount of the EBA damages, it would have been
appropriate for the court to award jury verdict damages as a fair and
reasonable approximation of EBA damages.
This was, in fact, unnecessary, as we have shown, because Bluebonnet
adequately substantiated the damages it suffered as a result of entering into
the EBA.
However, the Court of Federal Claims
properly rejected Bluebonnet’s claim for non-EBA damages, even under a “jury
verdict” theory. Bluebonnet’s non-EBA
damage claim was based on the costs of financing in the actual world and a
hypothetical but-for world based on assumptions of what should have happened absent
the breach. The government argues that
Professor Weil, CFSB’s expert, assumed a speculative financing term of 13.5%
and that CFSB would pay down its debt as quickly as possible. The court correctly noted that there was no
evidence presented that anyone would have loaned CFSB the funds required for
the capital infusions at 13.5%. The
only witness that suggested this rate made that statement contingent on CFSB
converting a short-term $35 million loan to long-term financing in advance and
there was no evidence presented about the feasibility of that refinancing or
the rate that would be available. The
Court of Federal Claims correctly found that without long-term financing for
this loan, it was highly unlikely that willing investors would have been found
for the capital infusions. The court
then properly concluded that the evidence was insufficient to determine the
quantum of non-EBA damages to a reasonable certainty. We need not address and express no opinion on the court’s
alternative grounds for denying an award of non-EBA damages.
Conclusion
Accordingly, the judgment of the United States Court of Federal Claims is reversed, and the case is remanded with instructions to formulate an appropriate award of EBA-related damages as determined by the payments already made by Fail to Shaw under the EBA, and the value of the EBA debt as calculated in the Memo Agreement.
COSTS
Costs to appellants.
REVERSED AND REMANDED