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Case 1:93-cv-00531-LAS

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS AMBASE CORPORATION AND CARTERET BANCORP, INC., Plaintiffs, and FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Intervenor, v. THE UNITED STATES Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

No. 93-531C Senior Judge Loren Smith

GOVERNMENT'S RESPONSE IN SUPPORT OF FDIC MOTIONS TO DISMISS DERIVATIVE PLAINTIFFS' CLAIMS TO A SURPLUS, TO APPORTION DAMAGES, TO MEASURE DAMAGES BY THE DERIVATIVE PLAINTIFFS' ALLEGED LOSS RATHER THAN CARTERET'S ALLEGED LOSS, AND TO EXCLUDE EVIDENCE CONCERNING THE RECEIVERSHIP DEFICIT The FDIC has filed four motions seeking to dismiss the derivative plaintiffs' claims for a direct recovery of damages from the United States, to measure damages by the alleged harm to the derivative plaintiffs rather than to Carteret Savings Bank ("Carteret"), to apportion damages between Carteret and the derivative plaintiffs, and to exclude evidence relating to the

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receivership deficit.1 For the reasons which follow, the motions should be granted.2 ARGUMENT I. DERIVATIVE PLAINTIFFS' CLAIMS TO A RECEIVERSHIP SURPLUS, TO A DIRECT RECOVERY OF APPORTIONED DAMAGES, AND TO MEASURE DAMAGES BY REFERENCE TO THEIR ALLEGED LOSS, RATHER THAN THE ALLEGED LOSS TO CARTERET, SHOULD BE DISMISSED The FDIC argues in its Motion To Dismiss Surplus Claim that Count V of the Amended Complaint, in which Carteret Bancorp, Inc. ("Bancorp") asserts a direct cause of action for a liquidation surplus, fails to state a claim upon which relief can be granted and should be dismissed. Further, FDIC argues that damages cannot be apportioned between the derivative plaintiffs and Carteret and that the harm stemming from the breach, if any, must be measured by the alleged injury to Carteret rather than to the derivative plaintiffs, if any. Motion To Dismiss Claims For Direct Recovery at 4-11; Motion To Measure Direct Harm at 3-7. As the FDIC points out, to the extent the direct recovery of damages or a receivership surplus is premised upon FDIC's mismanagement of the receivership, the claim is a cross-claim by Ambase against the FDIC. Motion For Direct Recovery Of Surplus at 3-4; Motion For Direct Recovery Of Damages at 3-4. As this Court has recognized, the Tucker Act does not empower

The motions are styled: Plaintiff-Intervenor FDIC's Motion To Dismiss Carteret Bancorp's Claim For A Surplus ("Motion To Dismiss Surplus Claim"); Plaintiff-Intervenor FDIC's Motion To Dismiss Carteret Bancorp's Claim For A Direct Award Of Derivative Damages ("Motion For Direct Damages"); Plaintiff-Intervenor FDIC's Motion To Dismiss Shareholder Plaintiff's Claim That Damages Should Be Based On Their Alleged Losses ("Motion For Direct Losses"); and Plaintiff-Intervenor FDIC's Pre-Trial Objections To Witness And Exhibits And Pre-Trial Motion In Limine ("Motion In Limine"). The FDIC also argues Ambase should be dismissed because the derivative count in the Amended Complaint only names Bancorp. We agree and join the FDIC's motion to dismiss Ambase as a party to the litigation. 2
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this Court to adjudicate cross-claims between private parties but, instead, limits this Court's jurisdiction to non-tort claims for money damages against the United States. Ambase Corporation v. United States, 61 Fed. Cl. 794, 796 (2004) ("The Tucker Act does not grant this Court jurisdiction over tortious claims, nor does it permit this Court to hear claims between private parties") ("Ambase II"). Thus, the derivative plaintiff's claim for a direct recovery of the surplus, for a direct recovery of damages, and to measure the harm by reference to their alleged injury rather than the alleged injury of Carteret is invalid and must be dismissed. If, as the FDIC persuasively demonstrates, the derivative plaintiffs' claim to a direct recovery of the surplus, for direct damages, and to measure direct harm are based upon the fact that the FDIC is indistinguishable from the United States and, therefore, cannot be trusted to distribute the proceeds recovered on Carteret's contract claim in accordance with the FDIC distribution statute, 12 U.S.C. § 1821(d)(11)(A)(i-v), the claims for direct recovery of the surplus, direct recovery of damages, and to measure direct harm, should be dismissed under principles of law of the case. As this Court has observed: The cases Plaintiffs point to in which the courts have directed a ratable recovery to shareholders, were all suits between private parties in district courts not constrained by the Tucker Act. Ambase's claim that the FDIC has mismanaged the Carteret receivership is a claim against the FDIC, but for purposes of this litigation, this is not a claim against the government. The FDIC is not generally considered to be the government for jurisdictional purposes in Winstar litigation. Ambase II, 61 Fed. Cl. At 796-97; see Slattery v. United States, 73 Fed. Cl. 527, 530-31 (2006) (dismissing intervenors' complaint because complaint alleged injuries due solely to acts of the FDIC as receiver, which was not the United States).

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As the FDIC points out, in a derivative action under New Jersey and general corporate law, the proceeds of the claim belong to and must be paid to the corporate party, not the derivative plaintiffs. Motion To Dismiss Carteret's Claim For A Direct Award Of Derivative Damages at 4-10. Accordingly, this Court lacks the authority to apportion damages between Carteret and the derivative plaintiffs or direct a pro-rata award to the derivative plaintiffs. If, on the other hand, the derivative plaintiffs' claim to a direct recovery is premised upon the existence of a contractual relationship between themselves and the Federal Home Loan Bank Board ("FHLLB"), we agree with the FDIC that such a direct claim either was voluntarily dismissed by the derivative plaintiffs or was implicitly dismissed by this Court in its liability decision which ruled that a contract relating to goodwill evolved from transactions between Carteret and the FHLBB, but not between the derivative plaintiffs and the FHLBB. Ambase Corporation v. United States, 58 Fed. Cl. 32, 41-49, 52-54 (2003) ("Ambase I"). Indeed, as this Court noted, the derivative plaintiffs did not even acquire an ownership position in Carteret until 1988, which was well after the relevant contracts were executed between Carteret and the FHLBB. Further, this transaction did not involve any contracts between the derivative plaintiffs and the FHLBB. Id. at 41-49. Therefore, this Court's liability decision precludes the derivative plaintiffs from asserting direct contract claims against the United States. Id. Further, the derivative plaintiffs have made it plain throughout the course of the litigation that they are not asserting direct claims for breach of contract damages against the United States. For example, in their Motion To Suspend The Expert Discovery Period, they stated: "Specifically, Ambase is not asserting a breach of contract action against defendant, but rather is asserting a constitutional claim under the Takings Clause of the Fifth Amendment for the taking

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of its bank, as a direct result of defendant's enactment and implementation of certain provisions in the Financial Institutions Reform, Recovery, and Enhancement Act ("FIRREA")." Motion To Suspend Expert Discovery at 2-3 (Exhibit I attached hereto). Likewise, at a status conference on October 2, 2000, Mr. Cooper, derivative plaintiffs' counsel of record, stated: "I . . . represent the two private Plaintiffs in this case, Ambase and Carteret Bank Corp. . . . This case, like the Republic case, is unique in the Winstar-docket in the sense that the private Plaintiffs are not asserting a contract claim. Our only claim, as our summary judgment motion makes clear, is a takings claim and an illegal exaction claim." Transcript of October 2, 2000 status conference, 5:1-9 (Exhibit 2 attached hereto). This Court acknowledged in a status conference on October 16, 2000 that: "The Ambase case, which dealt with a taking, was one where the plaintiffs contend they don't have a contract claim, which was the only reason we finally have reached that last week, actually." Transcript of Status Conference of October 17, 2000, 60:4-8 (Exhibit 3 attached hereto). Thus, the derivative plaintiffs have consistently disavowed a direct contract claim, and this Court's liability decision confirms that the only contract relating to the amortization of goodwill arose as a result of transactions between the FHLBB and Carteret, not between the FHLBB and the derivative plaintiffs. As the FDIC points out, moreover, a direct claim for a surplus suggests the amount of surplus can be known prior to the resolution of the receivership which reflect a misconception concerning the administration of the receivership. Motion To Dismiss Claim for Surplus at 4-5. Logically there cannot be a cause of action for a surplus which anticipates the apportionment of damages prior to the resolution of the receivership because the existence and amount of surplus,

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if any, only can be known after the estate has been closed and all claims adjudicated at the administrative level. Id. This same reasoning, moreover, demonstrates this Court's lack of authority to apportion damages or to measure the amount of injury by the alleged damage to the derivative plaintiffs rather than to Carteret. Finally, as the FDIC points out, because the derivative plaintiffs fail to state a claim for a direct recovery of a receivership surplus or for direct damages, this Court lacks a basis upon which to seek to "apportion" damages between the FDIC (Carteret) and the derivative plaintiffs. Motion To Dismiss Claim For Surplus at 8-13. As the FDIC points out, as the victim of the breach, Carteret, but not the derivative plaintiffs, has a right to receive damages as a remedy for the breach. Motion To Dismiss Shareholder Plaintiffs Claim For Direct Losses at 3-6. Further, even if a direct claim for a receivership surplus existed, the relevant statutory structure and common law of jurisdiction demonstrate that no equitable remedy of "apportionment" to liquidate the claim exists in this Court. Id. Thus, the derivative plaintiffs' claim for a direct recovery of "apportioned" damages or a receivership surplus has no basis in fact or in law. Accordingly, Count V of the Amended Complaint should be dismissed. II. ONLY EVIDENCE BEARING UPON THE GOVERNMENT'S LIABILITY FOR DAMAGES AND THE AMOUNT OF DAMAGES IS RELEVANT AND CAN BE ADMITTED AT TRIAL The only issues this Court will determine at trial will be whether the breach caused damages to Carteret and, if so, the quantum of damage. Motion In Limine at 6-10. As the FDIC persuasively demonstrates, evidence relevant to these issues is admissible, but not evidence bearing upon the administration of the receivership, which is irrelevant and, therefore, inadmissible. Id. at 10-16. Although, unlike the receiver, we believe that taxes and interest

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which, if paid, will flow to Government entities, are relevant to jusiticiability, the FDIC is correct that, as a practical matter, it is not possible to quantify the recovery of Government entities before the receiver resolves administrative claims against the estate. Id. Accordingly, we agree with the FDIC-R that the procedure employed in Suess v. United States, 33 Fed. Cl. 89 (1995) and 52 Fed. Cl. 221 (2002), which placed justiciability on hold until the resolution of the administrative claims against the receivership estate, apply here as well. This procedure will be fair and equitable because it will respect the statutory division between the authority of this Court to resolve claims for damages against the United States and the FDIC's administrative authority to resolve claims against the receivership estate. CONCLUSION For these reasons, the FDIC's motions in limine, to dismiss Bancorp's claims for a direct recovery of the receivership surplus, to apportion damages and to measure damages by the amount of the derivative plaintiffs' alleged harm rather than Carteret's alleged harm should be granted. Respectfully submitted, MICHAEL F. HERTZ Deputy Assistant Attorney General OF COUNSEL: TAREK SAWI Senior Trial Counsel JEANNE E. DAVIDSON Director /s/ Kenneth M. Dintzer KENNETH M. DINTZER Assistant Director /s/ David A. Levitt DAVID A. LEVITT Trial Attorney Commercial Litigation Branch 7

ARLENE PIANKO GRONER ELISABETH HOSFORD F. JEFFERSON HUGHES DELISA SANCHEZ AMANDA TANTUM

Case 1:93-cv-00531-LAS

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Civil Division Department of Justice 1100 L Street N.W. Washington, D.C. 20005 Tel: (202) 307-0309 Attorneys for Defendant January 7, 2008

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CERTIFICATE OF FILING I hereby certify that on this 7th day of January 2008, a copy of the foregoing "Government's Response In Support Of FDIC Motions To Dismiss Derivative Plaintiffs' Claims To A Surplus, To Apportion Damages, To Measure Damages By The Derivative Plaintiffs' Alleged Loss Rather Than Carteret's Alleged Loss, And To Exclude Evidence Concerning The Receivership Deficit" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system. /s/ David A. Levitt David A. Levitt

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