Free Response to Order to Show Cause - District Court of Federal Claims - federal

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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. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) __________________________________________)

Civil Action No. 93-531 (Judge Loren Smith)

AMBASE STATEMENT OF ISSUES REPLY BRIEF

Charles J. Cooper Counsel of Record Vincent J. Colatriano David H. Thompson Howard C. Nielson, Jr. David M. Lehn COOPER & KIRK, PLLC 555 11th Street, NW, Suite 750 Washington, D.C. 20004 Telephone: (202) 220-9600 Facsimile: (202) 220-9601

October 19, 2006

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TABLE OF CONTENTS Page TABLE OF AUTHORITIES ............................................................................................. iii INTRODUCTION ...............................................................................................................1 I. This Court Has Jurisdiction over AmBase's Objections to the Calculation of the Receivership Deficit...........................................................................................2 A. B. C. D. AmBase's objections arise incident to its suit against the United States for breach of contract. ..................................................................................2 AmBase's suit is against the United States, not the FDIC as receiver. .......4 The FDIC is a government actor for constitutional purposes. .....................7 AmBase's arguments provide an appropriate basis for reducing the receivership deficit.......................................................................................9 1. 2. II. AmBase's objections to the improper inflation of the receivership deficit are not claims for additional damages. .................................9 The FDIC misconstrues Bailey v. United States............................11

As The FDIC Concedes, A Tax Liability Should Not Be Included In The Receivership Deficit At This Time. .......................................................................13 A. B. C. D. E. F. G. The FDIC's Tax Returns Improperly Included FFA Income. ...................15 Post-Insolvency Interest Can And Will Be Deducted From Carteret's Taxable Income..........................................................................................16 Carteret's 1992 NOL Is Available to Reduce Its 1995 Taxable Income ...22 There Is No Excuse for the Other Errors in the FDIC's Tax Returns........23 Penalties Will Not Be Assessed.................................................................25 Interest Will Not Be Assessed. ..................................................................26 Taxes Might Be Appropriate If the FDIC Were Reporting a Surplus .......27 The United States should not be allowed to recover interest on the RTC loans from the damages otherwise payable to AmBase.............................28 1. The United States should not be allowed to recover interest because the necessity for the RTC loans is attributable to Congress.........................................................................................28 Interest should not be deducted from the damages otherwise payable to AmBase because those damages cannot be adjusted to reflect the time value of money. ................................................33

III.

The FDIC's Estimates of Post-Insolvency Interest Should Be Rejected...............27 A.

2.

B.

If the United States is allowed to recover interest, it must be calculated pursuant to 12 C.F.R. §360.3(b). ...............................................................39

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1. 2. 3. C.

The interest rates used in the FDIC's retroactive interest calculations are contrary to law. ....................................................39 The FDIC's retroactive interest calculations upset reasonable, well-settled expectations................................................................47 The rates used in the FDIC's retroactive interest calculations have no economic justification. .....................................................49

If the FDIC's interest rates are used, its calculations must be corrected to eliminate other flaws..............................................................................51 1. 2. The FDIC's interest calculations misallocate payments from the sale of Carteret's assets. ...........................................................52 The FDIC's interest calculations improperly treat the deposit premiums from the branch sales. ...................................................54

IV.

The Unconstitutional Minority Preference Program Substantially Inflated the Receivership Deficit...............................................................................................56 A. B. C. This Court has jurisdiction to consider AmBase's challenge to the MPP. 57 AmBase has standing to challenge the Minority Preference Program. .....60 The MPP substantially inflated the receivership deficit. ...........................62 1. 2. The MPP deflated the premiums received for Carteret branches. .63 The MPP caused assets to be sold below market value. ................65

V.

Other Improper Actions Have Also Inflated the Receivership Deficit..................66 A. B. C. Congress' failure to fund the RTC delayed Carteret's resolution and greatly decreased deposit premiums. .........................................................66 The enactment of FIRREA directly eliminated a valuable asset that would have greatly increased Carteret's resolution value. ........................67 The RTC squandered Carteret Mortgage Company's considerable value.72

VI. VII.

The United States and the FDIC Are Attempting to Overcharge the Carteret Receivership for Litigation and Administrative Expenses. ...................................74 The Inclusion in the Receivership of Charges Not Reasonably Related to Benefits Conferred by the Government Will Effect an Unconstitutional Taking. 76

CONCLUSION..................................................................................................................83

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TABLE OF AUTHORITIES Cases Page

Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970)..............................................................8 Alfa Laval Separation v. United States, 175 F.3d 1365 (Fed. Cir. 1999)..........................61 AmBase Corp. v. United States, 61 Fed. Cl. 794 (2004)............................................4, 6, 12 AmBase Corp. v. United States, 58 Fed. Cl. 32 (2003)................................................76, 80 American Federation of Government Employees v. United States, 258 F.3d 1294 (Fed. Cir. 2001)............................................................................................................61 Atlas Corp. v. United States, 895 F.2d 745 (Fed. Cir. 1990).............................................82 Auction Company of America v. FDIC, 132 F.3d 746 (D.C. Cir. 1997) .........................5, 7 Bailey v. United States, 341 F.3d 1342 (Fed. Cir. 2003) ........................................... passim Berkovitz v. United States, 486 U.S. 531 (1988) .........................................................20, 21 Bluebonnet Savings Bank v. United States, 339 F.3d 1341 (Fed. Cir. 2003) ....................71 Bowen v. Georgetown Univ. Hosp., 488 U.S. 204 (1988) .................................................43 Branch v. United States, 69 F.3d 1571 (Fed. Cir. 1995)........................................11, 81, 82 CACI, Inc.-Fed. v. United States, 719 F.2d 1567 (Fed. Cir. 1983) ...................................61 Cameron v. United States, 34 Fed. Cl. 422 (1995)............................................................58 Carlyle v. United States, 674 F.2d 554 (6th Cir. 1982) .....................................................22 Carteret Savings Bank, FA v. Office of Thrift Supervision, 963 F.2d 567 (1992).............68 Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) .43 Christensen v. Harris County, 529 U.S. 576 (2000) .........................................................43 Christian v. United States, 46 Fed. Cl. 793 (2000), rev'd in part on other grounds, 337 F.3d 1338 (Fed. Cir. 2003)....................................................................................59 Citibank v. Nyland, No. 86 Civ. 9181, 1990 U.S. Dist. LEXIS 12338 (S.D.N.Y. Sept. 19, 1990) .............................................................................................................76 Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971) ...........................22 Corbin v. Federal Reserve Bank, 475 F. Supp. 1060 (S.D.N.Y. 1979).................34, 45, 46 Crocker v. United States, 125 F.3d 1475 (Fed. Cir. 1997) ................................................57 Data Gen. Corp. v. Johnson, 78 F.3d 1556 (Fed. Cir. 1996).............................................61 Doty v. United States, 109 F.3d 746 (Fed. Cir. 1997)........................................................38 Dunlop v. Bachowski, 421 U.S. 560 (1975).......................................................................22 Eastern Enterprises, Inc. v. Apfel, 524 U.S. 498 (1998)..............................................11, 81

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Elmco Properties, Inc. v. Second National Fed. Sav. Ass'n, 94 F.3d 914 (4th Cir. 1996)................................................................................................................7 Exxon Corp. v. United States, 40 Fed. Cl. 73 (1998).........................................................41 FDIC v. Citizens State Bank, 130 F.2d 102 (8th Cir. 1942) ..............................................34 FDIC v. Mallen, 486 U.S. 230 (1988) .................................................................................7 FDIC v. Meyer, 510 U.S. 471 (1994) ..................................................................................7 First Hartford Corp. Pension Plan & Trust v. United States, 194 F.3d 1279 (Fed. Cir. 1999)..........................................................................................10, 60, 78, 80 Frank's Livestock & Poultry Farm, Inc. v. United States, 905 F.2d 1515 (Fed. Cir. 1990)............................................................................................................59 Frank's Livestock & Poultry Farm, Inc. v. United States, 17 Cl. Ct. 601 (1989) .............59 Glass v. United States, 47 Fed. Cl. 316 (2000), rev'd in part, vacated in part, 258 F.3d 1349 (Fed. Cir. 2001)..............................................................................69, 70 Glendale Fed. Bank v. United States, 239 F.3d 1374 (Fed. Cir. 2001) ................................. Golden Pac. Bancorp v. FDIC, 375 F.3d 196 (2d Cir. 2004)............................................46 Golden Pac. Bancorp v. FDIC, No. 98 Civ. 9281, 2002 U.S. Dist. LEXIS 24961 (S.D.N.Y. Dec. 24, 2002) ......................................................................................33, 46 Golden Pac. Bancorp, No. 95 Civ. 9281, 1997 U.S. Dist. LEXIS 15537 (S.D.N.Y. Oct. 7, 1997) ...................................................................................20, 21, 45 Hall v. United States, 69 Fed. Cl. 51 (2005)..................................................................3, 44 Hamlet v. United States, 63 F.3d 1097 (Fed. Cir. 1995)......................................................3 Hamlet v. United States, 873 F.2d 1414 (Fed. Cir. 1989) ...........................................57, 58 Heagy v. United States, 12 Cl. Ct. 694 (1987) ..................................................................57 Health Ins. Ass'n of Am. v. Shalala, 23 F.3d 412 (D.C. Cir. 1994)...................................44 Home Sav. of Am., FSB v. United States, 399 F.3d 1341 (Fed. Cir. 2005)..................69, 71 In re First Nat'l Bank, 523 N.W.2d 591 (Iowa 1994) .................................................33, 46 In re Hartsdale Assocs., 452 F. Supp. 67 (S.D.N.Y. 1978) ...............................................45 Jackson v. United States, 428 F.2d 844 (Ct. Cl. 1970)......................................................58 Klamath & Modoc Tribes v. United States, 174 Ct. Cl. 483 (1966)....................................4 LaChance v. United States, 15 Cl. Ct. 127 (1988) ............................................................57 Landmark Land Co. v. FDIC, 256 F.3d 1365 (Fed. Cir. 2001) .........................................11 LaSalle Talman Bank v. United States, 317 F.3d 1363 (Fed. Cir. 2003)...........................71 Lee v. United States, 32 Fed. Cl. 530 (1995) .....................................................................58 Local Oklahoma Bank, N.A. v. United States, 452 F.3d 1371 (Fed. Cir. 2006) ................38

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Longshore v. United States, 77 F.3d 440 (Fed. Cir. 1996) ....................................78, 79, 82 Longval v. United States, 41 Fed. Cl. 291 (1998)..............................................................58 Martinez v. United States, 333 F.3d 1295 (Fed. Cir. 2003)...............................................44 Matagorda County v. Russell Law, 19 F.3d 215 (5th Cir. 1994).........................................7 Meriden Trust & Safe Deposit Co. v. FDIC, 62 F.3d 449 (2d Cir. 1995) .........................82 Mid-Jersey Nat'l Bank v. Fidelity-Mortgage Investors, 518 F.2d 640 (3d Cir. 1975) ......45 National Bank of the Commonwealth v. Mechanics' Nat'l Bank, 94 U.S. 437 (1877)......54 Ochran v. United States, 117 F.3d 495, 504 n.4 (11th Cir. 1997) .....................................22 Paralyzed Veterans of Am. v. Secretary of Veterans Affairs, 345 F.3d 1334 (Fed. Cir. 2003)............................................................................................................44 Plaintiffs in all Winstar-Related Cases, 44 Fed. Cl. 3 (1999) ...........................................60 Prescott v. United States, 973 F.2d 696 (9th Cir. 1992)....................................................22 Simon v. Cebrick, 53 F.3d 17 (3d Cir. 1995) .......................................................................7 Skidmore v. Swift & Co., 323 U.S. 134 (1944) ..................................................................43 Slattery v. United States, No. 93-280C, 2006 U.S. Claims LEXIS 301 (Fed. Cl. Oct. 11, 2006) .............................................................................................5, 6 Statistica, Inc. v. Christopher, 102 F.3d 1577 (Fed. Cir. 1996) ........................................61 Stewart v. United States, 199 F.2d 517 (7th Cir. 1952) .....................................................22 Stone v. FDIC, 179 F.3d 1368 (Fed. Cir. 1999)...................................................................7 Swaaley v. United States, 376 F.2d 857 (Ct. Cl. 1967) .....................................................58 Texas State Bank v. United States, 423 F.3d 1370 (Fed. Cir. 2005)....................................9 Traynor v. Turnage, 485 U.S. 535 (1988) .........................................................................41 United States v. Connolly, 716 F.2d 882 (Fed. Cir. 1982) ................................................58 United States v. Mikutowicz, 365 F.3d 65 (1st Cir. 2004) .................................................15 United States v. Sperry, 493 U.S. 52 (1989)................................................................81, 82 Walter E. Heller & Co. v. Cox, 343 F. Supp. 519 (S.D.N.Y. 1972) ..................................45 Statutes and Regulations 12 U.S.C. § 1441a(w)(17)(A) ..............................................................................................8 12 U.S.C. § 1813(j) ............................................................................................................40 12 U.S.C. § 1821(d)(13)(D)(ii) ............................................................................................6 12 U.S.C. § 1831................................................................................................................50 28 U.S.C. §1491.................................................................................................................62 28 U.S.C. § 2516(a) ...........................................................................................................34

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Pub. L. No. 102-242, § 131, 105 Stat. 2236, 2253-55 (1991) ...........................................50 12 C.F.R. § 360.3 ....................................................................................................... passim 12 C.F.R. § 360.7 ...................................................................................................49, 50, 53 26 C.F.R. § 1.446-1............................................................................................................25 60 Fed. Reg. 35,487 ...........................................................................................................42 60 Fed. Reg. 35,488 ...........................................................................................................42 66 Fed. Reg. 65,144 ...........................................................................................................50 66 Fed. Reg. 65,145 ...........................................................................................................50 66 Fed. Reg. 65,146 .....................................................................................................50, 53 Other ANTHONY SAUNDERS & MARCIA MILLON CORNETT, FINANCIAL MARKETS AND INSTITUTIONS: AN INTRODUCTION TO THE RISK MANAGEMENT APPROACH 418 (2007)....................................................................................................................36 Timothy Curry & Lynn Shibut, The Cost of the Savings and Loan Crisis: Truth and Consequences, 13 FDIC BANKING REV. 26 (2000) .............................................35 U.S. GEN. ACCOUNTING OFFICE, FINANCIAL AUDIT: FEDERAL DEPOSIT INSURANCE CORPORATION'S 1997 AND 1996 FINANCIAL STATEMENTS 11 (1998) .........................36 U.S. GEN. ACCOUNTING OFFICE, RESOLUTION TRUST CORPORATION: PERFORMING ASSETS SOLD TO ACQUIRERS OF MINORITY THRIFTS 4 (1995)...............................64, 65

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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, ) ) Civil Action No. 93-531 v. ) (Judge Loren Smith) ) UNITED STATES OF AMERICA, ) ) Defendant. ) __________________________________________)

AMBASE STATEMENT OF ISSUES REPLY BRIEF INTRODUCTION The briefing in this show cause proceeding has now made clear that this Court has jurisdiction to consider Carteret's claims for damages. The FDIC now explicitly concedes as much because, in its words, "there is no reason to treat the FDIC's current estimates of the receivership's ultimate tax liability as dispositive." FDIC Br. 19-20. This concession was well-founded because, as we explained in our opening brief, because Carteret's receivership could not have both generated a large deficit and an enormous amount of taxable income. Neither the FDIC nor the United States has any coherent response to this economic reality. The briefing has also made clear that no interest should be charged to the receivership deficit. The FDIC, the RTC, the GAO, and the textbook authored by the

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United States' own expert all calculate the cost of the resolution without including any charge for interest. More importantly, neither the United States nor the FDIC offers any justification for charging interest on the offset to damages when there is no interest on the damages themselves. As for the retroactive decision in 1999 to increase the rate of interest at a cost of $64 million to the receivership, neither the United States nor the FDIC offer any basis for concluding that the National Depositor Preference statute should govern Carteret's receivership. Nor has any legal or factual justification been provided for the FDIC's failure to pay down the highest cost loans first. Faced with this reality that neither the taxes nor the interest, which constitute the bulk of the receivership deficit, are genuine costs to the receivership, the United States attempts to relitigate the issue of whether this Court can peer behind the receivership deficit. As this Court has noted before, this is not the first time that the Department of Justice has deployed this tactic in the Winstar cases. This Court's determinations were right when made, however, and they are right today. That the United States dislikes them is not the proper ground for reconsideration. I. This Court Has Jurisdiction over AmBase's Objections to the Calculation of the Receivership Deficit. A. AmBase's objections arise incident to its suit against the United States for breach of contract.

This is a suit against the United States for breach of contract falling squarely within the scope of the Tucker Act. That the United States breached its contract with Carteret has been established, but the amount of damages it must pay is yet to be determined. As sole shareholder of Carteret, AmBase will receive the damages awarded net of the receivership deficit. See, e.g., Bailey v. United States, 341 F.3d 1342, 1345

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(Fed. Cir. 2003). Furthermore, under Federal Circuit precedent, the justiciability of this suit arguably depends on whether the damages owed by the United States for breach of contract exceed the final receivership deficit. See, e.g., id. at 1346. Thus, AmBase's objections to the calculation of the receivership deficit arise incident to determining whether this suit against the United States is justiciable and, if it is, the amount of damages for the United States' breach of contract to which AmBase is entitled. These objections are not freestanding claims. They are merely sub-issues in the determination of justiciability and the calculation of damages on a breach-of-contract claim. Both the United States and the FDIC contend that AmBase's objections may not be considered because the Tucker Act does not grant this Court jurisdiction to consider torts or breaches of fiduciary duty. See U.S. Br. 11-13; FDIC Br. 25. This argument presupposes that each of AmBase's objections to the calculation of the receivership deficit is a freestanding claim that must have a separate and independent basis of jurisdiction in the Tucker Act. This presupposition is plainly wrong. As the Court of Federal Claims and the Federal Circuit have confirmed in multiple contexts, the Tucker Act confers jurisdiction to consider issues--such as AmBase's objections to the deficit calculation--that arise as incidents of the adjudication of a Tucker Act claim, regardless of whether there would be jurisdiction over those issues if they were brought as freestanding claims. See, e.g., Hamlet v. United States, 63 F.3d 1097, 1107 (Fed. Cir. 1995) (holding that the Tucker Act bars jurisdiction over constitutional torts only when they are brought "`standing alone,' i.e. without an underlying statutory or regulatory right to recovery" (emphasis added)); Hall v. United States, 69 Fed. Cl. 51, 56 (2005) (holding that the

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Tucker Act grants jurisdiction to review agency actions as an incident of a breach-ofcontract claim); Klamath & Modoc Tribes v. United States, 174 Ct. Cl. 483, 488 (1966) (holding that the Court may use equitable accounting procedures incidental to rendering a money judgment); see also infra Part IV. A; Part III. B.1. As correctly determined in AmBase II, AmBase's objections to the receivership deficit calculations arise as incidents of its breach-of-contract claim, and this Court has authority to review those objections because it has jurisdiction over AmBase's breach-of-contract claim. As this Court has repeatedly emphasized, reviewing the receivership deficit will not in any way extend this Court's jurisdiction beyond the pending claim for breach of contract. Rather, review of the deficit is merely a necessary incident to confirming justiciability, calculating damages, and resolving the contract claim. See AmBase Corp. v. United States, 61 Fed. Cl. 794, 797 (2004) ("AmBase II") ("Plaintiffs in this case ask nothing more of this Court than the exercise of its equitable power incident to their claim for money damages against the federal government, a claim which lies squarely within our jurisdiction."); id. at 800 ("Plaintiffs do not ask the Court to expand its jurisdiction, but rather to conduct an equitable review which is an incident of our general jurisdiction.") (quotation marks omitted."). B. AmBase's suit is against the United States, not the FDIC as receiver.

The United States and the FDIC likewise contend that this Court may not consider AmBase's objections relating to the FDIC's management of the receivership and calculation of the receivership deficit. They argue that the Tucker Act does not confer jurisdiction over suits against parties other than the United States and that the FDIC in its capacity as receiver should not be considered the United States for jurisdictional

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purposes. See U.S. Br. 11-13; FDIC Br. 15-16. Even assuming, solely for the sake of argument, that the FDIC is not the United States for purposes of the Tucker Act when it acts as receiver, see Slattery v. United States, No. 93-280C, 2006 U.S. Claims LEXIS 301, at *10-*12 (Fed. Cl. Oct. 11, 2006); but see Auction Company of America v. FDIC, 132 F.3d 746, 750 (D.C. Cir. 1997) (holding that "the FDIC as Receiver counts as the United States for the Tucker Act"), AmBase brings no claim against the FDIC in that capacity. Much of the improper inflation of the receivership deficit is attributable to actors other than the FDIC as receiver--for example, to Congress for imposing the Minority Preference Program (MPP) and for its failure to fund the RTC, and to the FDIC in its corporate capacity for its policies and decisions relating to tax accounting, interest calculation, and allocation of administrative expenses. See Corrected Statement of Issues ("Opening Br.") 29-103. And though the FDIC as receiver did play a role in calculating and improperly inflating the receivership deficit, scrutinizing its actions is not tantamount to adjudicating a "claim" against it, because, contrary to the United States' bald assertion, see U.S. Br. 12, a reduction in the receivership deficit does not amount to an award of damages against the FDIC as receiver. Quite the contrary--as the FDIC acknowledges, see FDIC Br. 24-25, Bailey holds that the claim for the receivership deficit is held by the United States against the receivership--and hence against both Carteret and the FDIC as its receiver. Indeed, the receivership deficit is in the nature of a set of counterclaims held by the United States against Carteret. For example, the purported tax liability is in the nature of a potential claim by the IRS against the failed thrift, and the interest calculation reflects the subrogated depositors' claim held by the FDIC in its corporate (i.e., governmental) capacity against Carteret. Accordingly, AmBase, as Carteret's sole

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shareholder, raises its objections to the improper inflation of the receivership deficit as a defense to the United States' counterclaims against the receivership, which will in effect function as an offset against any contract damages recovered. Thus, as this Court properly recognized in AmBase II, none of AmBase's objections to the receivership deficit constitutes a "claim relating to any act or omission of [the FDIC] as receiver," 12 U.S.C. § 1821(d)(13)(D)(ii) (emphasis added), because AmBase's "claim [is] not against the receivership, but rather against the United States for breach of a goodwill contract." 61 Fed. Cl. at 799. 1 In sum, AmBase has brought a claim against the United States seeking damages for breach of contract. It has brought no tort claim or claim for breach of fiduciary duty. It brings no claim against, nor seeks any damages from, the FDIC as receiver or any party other than the United States. AmBase merely requests that this Court "accurately and fairly determine the amount of claims that are otherwise plainly within [its] jurisdiction, and determine monetary awards in fair and efficient fashion." AmBase II, 61 Fed. Cl. 800-01 (quotation marks omitted). In order to do so, this Court "must determine the size of the [receivership] deficit or surplus." Id. at 802.

This case is therefore quite different from Slattery v. United States, No. 93280C, 2006 U.S. Claims LEXIS 301 (Fed. Cl. Oct. 11, 2006). That case involved freestanding claims seeking money damages directly against the FDIC as receiver, for its alleged failure to comply with the depositor preference statute. See id. at *8-*9. The calculation of the receivership deficit was not at issue, and a finding of liability would have resulted in a direct award of damages against the FDIC as receiver. See id. Here, by contrast, a finding that the FDIC has mismanaged the receivership is only relevant in determining the amount of damages owed by the United States for its breach of contract, not by the FDIC for its mishandling of the receivership. 6

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C.

The FDIC is a government actor for constitutional purposes.

Going beyond its contention that the FDIC as receiver should not be considered as the United States for jurisdiction purposes, the FDIC also advances the remarkable assertion that when it acts as receiver it is not even a government actor subject to the constraints of the Constitution. See FDIC Br. 16 ("Because the FDIC, when acting as receiver, is not `the government,' AmBase may not assert takings claims, or claims for denial of equal protection, via the due process clause, against it."). This is plainly false: regardless of whether it should be distinguished from the "United States" for jurisdictional purposes when it acts as a receiver, the FDIC is plainly a "federal instrumentality," Auction Company, 132 F.3d at 749, subject to the constraints of the Constitution in whatever capacity it acts. See, e.g., Elmco Properties, Inc. v. Second National Fed. Sav. Ass'n, 94 F.3d 914, 918-19 (4th Cir. 1996) (holding that the RTC as receiver violated the Due Process Clause in failing to provide adequate notice of its receivership and in denying a creditor's claim against the receivership); Simon v. Cebrick, 53 F.3d 17, 23 (3d Cir. 1995) ("[T]he FDIC is acting in a governmental capacity when it winds up the affairs of failed banking institutions pursuant to FIRREA."); see also FDIC v. Meyer, 510 U.S. 471, 483-86 (1994) (considering whether a constitutional tort committed by the FDIC as receiver in violation of the Fifth Amendment could support a Bivens claim against the agency); FDIC v. Mallen, 486 U.S. 230, 240 (1988) (holding that the Due Process Clause restricted the FDIC's statutory discretion to order the suspension of an indicted bank officer); Stone v. FDIC, 179 F.3d 1368, 1374 (Fed. Cir. 1999) (holding that the FDIC is "the government" subject to the Due Process Clause in discharging its own employees); cf. Matagorda County v. Russell Law, 19 F.3d 215, 223-

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25 (5th Cir. 1994) (adjudicating a takings claim against the FDIC for actions taken in its receivership capacity). Furthermore, AmBase's constitutional objections are directed against the United States. While it is true that the FDIC as receiver has played (and is playing) a role in the constitutional violations of which AmBase complains, that role is limited to implementing or facilitating the United States' unconstitutional actions. First, with respect to the Minority Preference Program, the FDIC merely implemented Congress's unconstitutional mandate. See 12 U.S.C. § 1441a(w)(17)(A) ("[T]he [RTC] shall give preference to an offer from any minority individual, minority-owned business, or a minority depository institution, over any other offer that results in the same cost . . . .") (emphasis added). Even if the FDIC when acting as receiver could properly be considered a genuinely private actor, its implementation of the MPP would plainly violate the equal protection component of the Fifth Amendment. As the Supreme Court has explained regarding this provision's Fourteenth Amendment counterpart, "a State is responsible for the discriminatory act of a private party when the State, by its law, has compelled the act. . . . [D]iscriminatory acts done by private parties done under the compulsion of state law offend the Fourteenth Amendment." Adickes v. S.H. Kress & Co., 398 U.S. 144, 170-71 (1970). With respect to its takings objection, AmBase challenges the potential confiscation of some or perhaps all of its property interest in the potential liquidation surplus by the United States. Although the FDIC as receiver, through its management of the receivership and its calculation of the receivership deficit, has played a role in improperly inflating this deficit, the effect of including improper charges within the

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receivership deficit is to capture some or all of AmBase's interest in the potential liquidation surplus and transfer that interest to the owner of the receivership deficit-- which is not the FDIC but the United States. Cf. Texas State Bank v. United States, 423 F.3d 1370, 1377 (Fed. Cir. 2005) ("[W]here, as here, the government command to a third party results in the transfer of alleged private property to the United States, we think that the United States must bear responsibility if a direct government appropriation would itself constitute a compensable taking.") (emphasis added). In short, the effect of the FDIC's improper actions as receiver is to facilitate the United States' seizure of AmBase's liquidation surplus for itself. D. AmBase's arguments provide an appropriate basis for reducing the receivership deficit. 1. AmBase's objections to the improper inflation of the receivership deficit are not claims for additional damages.

The FDIC argues that AmBase's due process and takings objections "are really claims for money damages from the Government," that its goodwill objection "is really not a separate claim but a potential additional item of damages for [the] already-alleged breach [of contract]," and that "[n]one of these claims is a basis for recalculating the estimated receivership deficit." FDIC Br. 12. Once again it misses the mark. As noted above, the receivership deficit is in the nature of a counterclaim owned by the United States against the failed thrift, the value of which must be deducted from the recovery to shareholders because the United States has higher priority than the shareholders in the statutory distribution framework. See Bailey, 341 F.3d at 1345. AmBase raises its objections not as freestanding claims, but in a defensive posture against the United States' asserted offset to its recovery.

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For example, the gravamen of AmBase's takings argument is that the improper inflation of the receivership deficit, together with the subsequent deduction of that deficit from the damages to which it would otherwise be entitled as Carteret's sole shareholder, will take some, and perhaps all, of its property interest in the potential liquidation surplus. 2 Plainly this argument arises directly from the operation of the Bailey regime in the context of this case. Similarly, AmBase's arguments relating to the MPP and to the elimination of its supervisory goodwill are raised neither as freestanding claims seeking damages nor additional items of damages to be awarded on its breach-of-contract claim. See FDIC Br. 12. Rather, AmBase objects to the inclusion in the receivership deficit of costs that would not have been incurred but for improper government action. In the case of the MPP, Congress's mandate that Carteret be resolved according to a cumbersome and unconstitutional system of racial preferences directly increased the costs of resolution by causing the receivership to incur otherwise unnecessary debt and by reducing the premiums obtained from the sale of Carteret's deposits. See Opening Br. 74-103. In the case of the supervisory goodwill, Congress's statutory breach of its contract with Carteret directly eliminated a critical asset that would have greatly increased Carteret's resolution value, thereby increasing resolution costs. See Opening Br. 72-73. AmBase's objections thus arise in the context of this case because the inclusion of these costs in the

Contrary to the FDIC's assertion, see FDIC Br. 13 n.7, AmBase's takings argument does not assert derivatively an interest owned by the receivership. Rather, AmBase seeks to protect its own interest in the liquidation surplus. As the Federal Circuit explained in First Hartford Corp. Pension Plan & Trust v. United States, this is "a direct and cognizable property interest." 194 F.3d 1279, 1296 (Fed. Cir. 1999) (emphasis added). 10

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receivership deficit will directly reduce the amount of damages that AmBase would otherwise receive from the breach-of-contract claim. In all events, even if the FDIC's characterization of AmBase's objections were correct in treating these arguments as freestanding claims or additional items of damages, awarding extra damages in the precise amount of the improper inflation of the receivership deficit, and then allowing the United States to recover the improperly inflated deficit from the enhanced damages awardwhich is essentially what the FDIC's position would require"would entail an utterly pointless set of activities." Eastern Enterprises, Inc. v. Apfel, 524 U.S. 498, 521 (1998) (quotation marks omitted); see also Branch v. United States, 69 F.3d 1571, 1576 (Fed. Cir. 1995) (declining to embrace "the curious conclusion that the government may take [plaintiff's] money as long as it pays the money back"). 2. The FDIC misconstrues Bailey v. United States.

The FDIC also argues that AmBase's objections to the FDIC's mismanagement of the receivership and its calculation of the receivership deficit do not provide a basis for reducing the receivership deficit. Bailey did not "create an `offset' scheme," according to FDIC, but rather "held that receivership deficits are not, per se, assets available for recovery by the FDIC as receiver" because they are " `predominantly held' " not by the receiver but by the United States. FDIC Br. 24 (quoting Bailey, 341 F.3d at 1345). Under the regime outlined in Bailey, however, it is plain that once this Court determines the amount of damages owed by the United States for breach of contract, the receivership deficit will first be paid from those damages, and then the remainder will be paid to AmBase as Carteret's sole shareholder. See Landmark Land Co. v. FDIC, 256 F.3d

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1365, 1380 (Fed. Cir. 2001). There can be no doubt that the receivership deficit thus functions as an offset to AmBase's recovery against the United States. See AmBase II, 61 Fed. Cl. at 802 ("Under Bailey . . . the AmBase Plaintiffs are to have their recovery reduced by the size of the receivership deficit . . . ."). The language the FDIC quotes from Bailey--that the receivership deficit is not "available for recovery by the FDIC as receiver" because it is " `predominantly held' " by the United States, FDIC Br. 24 (quoting Bailey, 341 F.3d at 1345)--in no way suggests that the receivership deficit will not be deducted from the damages that would otherwise be paid to a thrift's shareholders. As is evident from context, this language was not addressed to the question whether the receivership deficit would reduce the shareholders' recovery--a point that Bailey recognized and indeed took for granted--but rather constituted the court's reason for refusing to allow the receivership to recover an amount of damages equivalent to the receivership deficit, in addition to the amount of damages otherwise caused by the United States' breach of contract, to compensate for the subsequent deduction of the receivership deficit from the damages award. Indeed, the court's statement confirms that the receivership deficit--because owned by and payable to the United States rather than the FDIC as receiver--functions as a direct offset to the damages otherwise owed by the United States on the breach-of-contract claim. Any suggestion that the FDIC's improper actions cannot constitute a proper ground for reducing the receivership deficit because the receivership deficit is payable to the United States rather than the FDIC, is a non sequitur. Even though the receivership deficit belongs to the United States, the FDIC as receiver is charged with administering the receivership and calculating the receivership deficit. Accordingly--as this case well

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illustrates--the FDIC plainly can incur or recognize fictional, or otherwise illegitimate, receivership costs that should not be included in the receivership deficit. Indeed, as explained above, it is precisely because this deficit is owed to the United States rather than the FDIC as receiver that it functions as an offset to AmBase's breach-of-contract claim for damages and that AmBase's objections to the improper inflation of the deficit constitute a defense to the United States' offset rather than a series of separate claims against the FDIC as receiver. II. As The FDIC Concedes, A Tax Liability Should Not Be Included In The Receivership Deficit At This Time. The FDIC as receiver has acknowledged what our opening brief made clear: the receivership deficit should not include a $93.7 million tax liability. The FDIC as receiver acknowledges that "[t]he actual amount, if any, that will ultimately be paid in federal taxes is yet to be finally determined," FDIC Br. 7 (emphasis added), and thus "there is no reason to treat the FDIC's current estimates of the receivership's ultimate tax liability as dispositive." FDIC Br. 19-20 (emphasis added). As the FDIC as receiver quite properly concedes, the removal of the tax liability as a component of the receivership deficit, standing alone, makes clear that this Court has jurisdiction to decide Carteret's claim for breach-of-contract damages. Significantly, even the United States concedes that only the actual amount of taxes ultimately paid should be included in the receivership deficit. See U.S. Br. 85 (acknowledging that receivership deficit should be adjusted "if IRS settles the tax claim against Carteret and the receivership shows a lesser deficit than now appears on the books"). This concession confirms the commonsense proposition that Carteret's contract damages cannot be mooted by claims of possible future expense. This is especially true where, as here, there is no genuine underlying liability.

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As a global matter, the United States has no explanation as to how the Carteret receivership could have simultaneously both generated a loss of $160 million and a tax liability of $90 million. To be sure, the United States notes that $80 million of deductions (relating to the interest deduction) were, in its view, lost as a result of timing differences. But even if that were correct, the United States cannot explain how the remaining claimed loss of $80 million could have generated a tax liability of more than $90 million. Thus, viewed at a global level, the tax returns that the United States seeks to rehabilitate cannot be squared with the financial statements that underlie the FDIC's calculation of the receivership deficit. As for the specific errors identified in our opening brief, neither the FDIC nor the United States has pointed to any law or facts undermining the conclusions that: · the IRS would have allowed the deduction of NOLs generated by Carteret in 1992 on its 1995 tax return; · the IRS would have allowed the FDIC to eliminate $21.2 million of taxable income from its 1995 return under the proper interpretation of the FFA regulations; and · the IRS would have allowed Carteret to deduct post-insolvency interest on the 1995 return. The United States repeatedly claims that it is "pure speculation" as to whether the IRS will fight the FDIC's interpretation of the tax issues relevant to Carteret's tax liability. But the relevant statutes, the regulations, and the case law uniformly support AmBase's interpretation of the tax code, and the United States has cited no legal authority that is contrary to AmBase's views. Moreover, the FDIC has acknowledged the

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reasonableness of the IRS in this area, and the IRS's conduct with respect to Ben Franklin confirms this view. But even if it were not crystal clear that the IRS will adhere to its position with respect to Ben Franklin, the United States could end any "speculation" simply by consulting with itself, since the IRS is an arm of the United States. The failure to do so is telling. Nevertheless, the United States does attempt to defend the validity of the tax returns prepared by the FDIC. We briefly address these arguments below. A. The FDIC's Tax Returns Improperly Included FFA Income.

The United States maintains that "there is no evidence FFA was improperly calculated." U.S. Br. 72 (emphasis added). But as AmBase's opening brief made clear, the FDIC's own tax representative stated repeatedly during his 30(b)(6) deposition that FFA had not been properly treated on the 1993, 1994, and 1996 returns. See Opening Br. 33-35. In addition, as demonstrated in AmBase's opening brief, the IRS agreed to the FDIC's current understanding of FFA in its settlement with Ben Franklin. Tellingly, the United States makes no attempt to defend the FDIC's handling of FFA on the returns for 1993, 1994, and 1996. Nor does the United States dispute the magnitude of the impact of a proper treatment of FFA, which it properly acknowledges to be $21.2 million. U.S. Br. 73 n.12. The United States nevertheless makes a token effort to charge Carteret with FFA income. First, the United States notes that AmBase has not retained a tax expert. This is true, but irrelevant, since the proper interpretation of Section 597 of the Internal Revenue Code is a question of law as to which expert testimony is not required. See, e.g., United States v. Mikutowicz, 365 F.3d 65, 73 (1st Cir. 2004) (holding, in a tax case, that

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"[e]xpert testimony proffered solely to establish the meaning of a law is presumptively improper") (quotation marks omitted). Second, the United States notes that there are no "work papers" associated with the FDIC's current calculations of FFA income. U.S. Br. 74. But the United States is in possession of the actual spread sheets detailing those calculations. Tellingly, the United States offers no indication as to how these work papers could possibly change the result of the FDIC's analysis: given that there was positive tax basis in Carteret, no FFA could possibly have been included in taxable income. See Opening Br. 35. Finally, the United States quotes Mr. Vordtriede's deposition for the proposition that the IRS "accepted" the FDIC's calculation of FFA. U.S. Br. 74. But Mr. Vordtriede made clear that he had no reason to believe the IRS had ever even looked at this issue with respect to Carteret. See App. 992 (Deposition of James F. Vordtriede ("Vordtriede Dep.") 295) ("Q[uestion]: Well, when you answered the question that the IRS had accepted the FFA calculation, do you just mean that they hadn't rejected the return. A[nswer]: Yes, I would say that's true."). Moreover, as noted, the IRS's position is clear since it agreed with the FDIC's current view of FFA in the Ben Franklin case. B. Post-Insolvency Interest Can And Will Be Deducted From Carteret's Taxable Income.

Again, the United States states that there is "no evidence" that the IRS will agree to allow Carteret to deduct post-insolvency interest from 1995. U.S. Br. 76. All of the evidence contradicts the United States' view. AmBase's opening brief quoted from the internal FDIC documents that acknowledged that post-insolvency interest could be deducted going back to 1995. Opening Br. 39-40. Of course, any other approach would violate the basic principle that thrifts are required to pay tax only on their net interest

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income and are entitled to a deduction for their cost of funds. Not surprisingly, the IRS, in the words of an FDIC tax specialist, "agrees that this is a valid tax deduction available from the date of closing [i.e., 1995]." App. 10380. Government witness after government witness agreed. See Opening Br. 40. And Mr. Vordtriede agreed in an internal email: "[t]he way I see it, we ought to accrue and deduct PII from inception [i.e., 1995]." App. 10381 (Vordtriede Dep. Ex. 9). AmBase's opening brief pointed to the IRS's recent settlement in Suess as confirming evidence of the FDIC's position that PII is deductible in 1995. The United States responds that there is "no evidence" that Ben Franklin and Carteret's tax profile are "remotely similar." U.S. Br. 78. In fact, Ben Franklin and Carteret are similarly situated in all material respects relevant to the deductibility of PII. Both Ben Franklin and Carteret were in receivership at the relevant time period. Both received advances from the RTC. Both were charged interest from the date of the loan. And in neither case did the RTC deduct such interest at the time of the loan on the tax returns, thereby creating a very significant tax liability since the primary expense of the financial institutions was not deducted. In Ben Franklin's case, of course, the IRS has now agreed that such a deduction may still be taken. The United States has pointed to no law, logic, or factual evidence that would suggest a different result should and will obtain here. The United States attempts to justify the FDIC's failure to deduct post-insolvency interest by claiming that any other policy would have entailed " `a huge administrative cost.' " U.S. Br. 76 (quoting App. 262). The United States never explains, however, what that burden would have been. The United States' desire to gloss over this point is understandable because the burden would have been trivial: under the United States'

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method of calculating interest, anyone with access to a calculator could quantify the amount of interest accruing for Carteret in less than a few hours. But even if there were genuinely a significant burden, it surely would have not been severe enough to forgo an $80 million tax deduction. And it would have been easy enough for the government to confine making such a calculation to those institutions with some prospect of being able to pay the interest, including those with Winstar claims. Moreover, the United States offers no excuse for failing to round 94.96% up to 95% in order to take an $80 million tax deduction. Nor does it offer any justification for the receivership's failure to pay $712,000 out of its $20 million cash horde to hit the 95 percent threshold and qualify for the deduction. To be sure, the United States claims "[t]here is no evidence in the record suggesting that the money could have been used for this purpose at the time." U.S. Br. 79. But the FDIC's debt repayment schedule shows that just such payments were made in 1998. Reply App. 00094 (Liability Register). Moreover, the 1997 income statement for the receivership confirms that Carteret was an empty shell with little or no operating expenses--for all of 1997, total expenses were $300,000. App. 01084. Presumably, the $20 million of cash plus $23 million of securities available at the end of 1997 would have been sufficient to meet operating expenses even if a $712,000 debt repayment had been made. In short, the evidence conclusively demonstrates that there was in fact ample cash available to comply with the 95% requirement and qualify for the deduction even under the FDIC's policy. The simple reality is that there is no indication that anyone at the FDIC gave a moment's thought to attempting to minimize Carteret's tax burden. If anyone had, he would have realized that by failing to make the debt repayment of

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$712,000, and by failing to round 94.96% up to 95%, the FDIC was denying Carteret the ability to take an $80 million deduction. Significantly, there is no FDIC document that purports to justify the 95 percent rule on the basis of the tax code. Nevertheless, the Department of Justice offers this made-for litigation defense. Specifically, the United States invokes the "all events" test of Section 461 in an attempt to cast some doubt on whether it was appropriate to deduct the interest that was accruing in 1995 on the 1995 return. The United States fails to cite a single case that calls into question the proposition, established in the cases cited in AmBase's opening brief, that the accrual method of accounting requires the deduction of such interest, even if it is highly unlikely that the taxpayer will be able to pay the interest. See Opening Br. 41-42 (collecting authority). And, of course, the IRS's agreement to allow Ben Franklin to eliminate almost $900 million in tax liability largely because of this issue confirms AmBase's understanding of the case law. Without citation, the United States maintains that "the FDIC believed the 95 percent policy served the interests of receiverships." U.S. Br. 71. That is nonsense. The policy systematically created a tax liability where none would have existed under a faithful adherence to the Internal Revenue Code. See Opening Br. 41-42. But the receiverships did not benefit from this policy in any conceivable way, and no FDIC employee or document suggested any such advantage. Rather, the impact of this policy ranged from indifference for those receiverships that had no funds to pay taxes to disaster for those like Ben Franklin and Carteret that did have such funds. 3

The United States argues that it is "utterly irreconcilable" for AmBase to seek a tax deduction for interest paid and to claim that the interest entailed no cost to the 19

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In the face of the overwhelming evidence that the FDIC was and still is permitted to deduct post-insolvency interest from the 1995 tax return, the United States attempts to immunize the FDIC's conduct from judicial review, again. In a thinly veiled effort to reverse this Court's ruling of August 31, 2004, the United States argues that the Court cannot review the reasonableness of the FDIC's policy of not accruing interest until 95% of the principal had been paid down. As a threshold matter, this argument is a red herring. The issue is not whether the FDIC's policy of accruing interest on its own internal books is appropriate. Rather, the issue is whether the FDIC's failure to deduct the interest on the tax returns it filed improperly inflated the receivership deficit, irrespective of internal FDIC recordkeeping procedures. The FDIC's witnesses acknowledged that tax returns often differ from the books and records of the taxpayer. App. 00817 (Deposition of Elaine Tama). Even if the tax issue did turn upon the validity of the FDIC's accrual policy, this Court has the authority to consider all aspects of the receivership deficit, including this aspect of the FDIC's tax calculation. The United States argues that AmBase's challenge to the FDIC's policy fails because AmBase "offers no evidence" that the policy is not subject to the "discretionary act exception to the Federal Tort Claims Act, 28 U.S.C. § 1346(b)" or "the `committed to agency discretion' provision of the Administrative Procedure Act[,] 5 U.S.C. § 701(a)(2)." U.S. Br. 70. In support, the United States cites only two cases: Berkovitz v. United States, 486 U.S. 531, 537 (1988), and an unreported decision of the Southern District of New York, Golden Pac. Bancorp, No. 95 Civ. 9281, 1997 U.S. Dist. LEXIS 15537 (S.D.N.Y. Oct. 7, 1997). Far from supporting the United government. U.S. Br. 77 n.13. If the receivership is charged interest, the interest is a cost to the receivership and gives rise to a tax deduction. 20

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States' arguments, both cases confirm that the United States' irrational and self-serving policy is subject to judicial review. 4 Finally, neither of the two cases cited by the United States supports its contention that AmBase must introduce evidence showing that neither the APA's exception for actions "committed to agency discretion," nor the discretionary-act exception to the

In Golden Pacific Bancorp v. United States, the shareholder plaintiff claimed that the FDIC had breached its fiduciary duties when it sold all the bank's assets to a Hong Kong bank in return for payment far short of the true franchise value, and that the FDIC's liquidation expenses were "excessive, self-serving, and wasteful." No. 95 Civ. 9281, 1997 U.S. Dist. LEXIS 15537, at *6. As here, the FDIC argued (1) that the plaintiff's claims for breach of fiduciary duty had to be brought under the FTCA, and were therefore barred by its "discretionary act" exception; and (2) in any case, that the "committed to agency discretion" exception of the APA barred judicial review of its actions. Id. at *4-*5 (quotation marks omitted). The Court rejected the first argument out of hand, holding that "claims for unjust enrichment and breach of fiduciary duty are not claims for money damages and are not torts within the meaning of the FTCA." Id. at *3. Thus, the FTCA's discretionary-act exception was irrelevant. Similarly here, AmBase has not brought a claim under the FTCA, and the United States has not and cannot point to a single claim by AmBase that sounds in tort. The Golden Pacific Court next turned to the "committed to agency discretion" exception to the APA. The Court noted that this APA exception "protects only governmental actions and decisions based on considerations of public policy." Id. at *4*6 (quotation marks omitted). Accepting as true the plaintiff's allegations that "the FDIC [had] made a decision to proceed with the liquidation of a bank which it had discovered was solvent, and conducted that liquidation in a deliberately wasteful and self-serving manner," the Court refused to dismiss the complaint under section 701(a), finding that those decisions would "not fall into the category of the permissible exercise of policy judgment exempted from judicial review." Id. at *6-*7 (quotation marks omitted). Thus, far from supporting the United States' argument that AmBase's claims are barred by the "committed to agency discretion" exception of the APA, Golden Pacific in fact held precisely the opposite. Even less relevant is Berkovitz. That case involved a suit under the FTCA against the FDA regarding its decision to license a certain vaccine manufacturer. Berkovitz v. United States, 486 U.S. 531, 539-58 (1998). Not only is this case obviously irrelevant on its facts, but the Supreme Court actually reversed the lower court's finding that the suit was barred by the discretionary-act exception and held that the FDA had no discretion to issue the license without demonstrating proper compliance with regulatory procedures. Id. at 544, 548. In any case, as discussed above, AmBase did not bring suit under the FTCA, its claims do not sound in tort, and that statute is therefore irrelevant. 21

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FTCA applies. The case law is clear that absent an express statutory bar on judicial review, the party seeking to invoke the "committed to agency discretion" exception bears a "heavy burden of overcoming the strong presumption" that Congress intended judicial review of agency actions. Dunlop v. Bachowski, 421 U.S. 560, 567 (1975). The United States has not even attempted to meet this burden. Nor could it, because the exception applies only "in those rare instances where `statutes are drawn in such broad terms that in a given case there is no law to apply.' " Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 410 (1971) (quoting S. REP. NO. 752, 79th Cong., 1st Ses., 26 (1945)). Here, the FDIC's conduct is regulated both by statute and by the Fifth Amendment, which is self-executing. 5 C. Carteret's 1992 NOL Is Available to Reduce Its 1995 Taxable Income

The United States concedes that "the 1992 return prepared by Carteret indicates a tax loss of $73.9 million." U.S. Br. 80. And the United States does not contest that net operating losses generated by Carteret in 1992 would have been available to shield Carteret's income in 1995, provided they had not already been utilized. The United States notes, however, that because AmBase reported some losses for a portion of 1992, the amount of available NOL carryforwards generated by Carteret in 1992 were "approximately $56 million rather than $73.9 million." U.S. Br. 81. It is a fair point that

Similarly, with respect to the FTCA, the "burden of production of the policy considerations that might influence the challenged conduct" is "on the Government." Ochran v. United States, 117 F.3d 495, 504 n.4 (11th Cir. 1997); see also Prescott v. United States, 973 F.2d 696, 702 (9th Cir. 1992) ("[T]he government bears the ultimate burden of proving the applicability of an exception to the FTCA"); Carlyle v. United States, 674 F.2d 554 (6th Cir. 1982) (same); Stewart v. United States, 199 F.2d 517, 520 (7th Cir. 1952) (same). Here, the United States' statement that the "FDIC believed the policy served the interests of receiverships," U.S. Br. 71, is obviously insufficient to meet this burden. 22

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NOLs cannot be used twice. But only $15 million of Carteret's 1992 NOLs have ever been used. See Reply App. 00014. AmBase has not used any of the other NOLs. Thus, there was no excuse for the FDIC's failure to deduct the remaining $58 million in NOLs. 6 D. There Is No Excuse for the Other Errors in the FDIC's Tax Returns

As for the other errors identified in AmBase's opening brief, the United States repeats its unsupported refrain that there is "no evidence" of such errors. The facts regarding each of these issues are otherwise: a. Interest deduction. The United States does not dispute that Carteret paid depositors interest of $3.7 million in 1995. Nor does the United States dispute that only $584,000 of interest was deducted from the 1995 return. Nor does the United States dispute that interest that is paid can be deducted. These concessions necessarily yield the conclusion that the FDIC neglected to deduct millions of dollars of interest that all parties agree was a legitimate deduction. The United States resists this conclusion on two grounds. First, the United States notes that the interest deduction appears on statement 19 of the 1995 return. Although the United States complains that the statement "is not part of the record," U.S. Br. 84, the complete 1995 return is a part of the record, including a page bearing the label "statement 19." More importantly, the United States fails to offer any explanation--for there is

Contrary to the United States' inexplicable assertion, Mr. Vordtriede testified that it would be prudent to examine whether there were any NOL carry-forwards available to shield the 1995 income. App. 00896 (Vordtriede Dep. 46). The exchange between counsel and Mr. Vordtriede illustrates that the FDIC recognized the obvious fact that NOLs should be carried forward to reduce taxable income. App. 00894-96 (Vordtriede Dep. 41-46). 23

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none--as to how that statement could possibly justify the failure to deduct $3.7 million of interest that was actually paid to depositors. Second