Free Motion for Miscellaneous Relief - District Court of Federal Claims - federal

Case 1:92-cv-00550-MCW

Document 182

Filed 01/14/2008

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS NORTHEAST SAVINGS, F.A., Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) ) )

No. 92-550C (Judge Williams)

DEFENDANT'S MOTION FOR LEAVE TO NOTIFY THE COURT OF SUPPLEMENTAL AUTHORITY Defendant, the United States, respectfully requests leave to notify the Court of a newly decided case from the United States Court of Appeals for the Federal Circuit (the "Federal Circuit") that is directly relevant to the damage claims presented in this case. On January 8, 2008, the Federal Circuit issued its opinion in Granite Management Corp. v. United States, No. 07-5054; __ F.3d __; 2008 WL -------- (Fed. Cir. January 8, 2008) ("Granite III."). The Court held that supervisory goodwill is an "accounting fiction" and its elimination does not, in and of itself, constitute proof of damage. Id., Slip. op. at 6-8. Underlying Northeast's lost profits claim is the assertion that goodwill is so valuable that its phase-out must have caused significant damage. In effect, Northeast argues that the fact of the breach, i.e. the phase-out of goodwill, is sufficient to prove that damage has in fact occurred. Indeed, plaintiff castigates us for contending "that a contract breach eliminating more than one fifth of a billion dollars of Northeast's bargained for regulatory capital" caused no damages. Pl. Br. at 10-11. In a prior Granite opinion, the Federal Circuit quoted and rejected an identical argument advanced by the very same counsel representing Northeast. In direct response to this argument,

Case 1:92-cv-00550-MCW

Document 182

Filed 01/14/2008

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the Court held that the fact that plaintiff lost "over a quarter of a billion dollars in contractually guaranteed regulatory capital" in itself does not constitute proof of any damage. Granite Mgmt. Co. v. United States, 416 F.3d 1373, 1383 (Fed. Cir. 2005) (emphasis in the original, quoting Granite's appellate brief). Rather, the Court required an "actual factual basis" for any damages claim. Id. On remand, this Court held that Granite failed to prove any damage and entered judgment for the Government. Granite Mgmt. Co. v. United States, 74 Fed. Cl. 155 (2006). This Court specifically rejected the notion that goodwill is always valuable. Granite, 74 Fed. Cl at 164-67. Indeed, this Court found that, in the context of that case, goodwill was "an unnecessary and likely useless asset that amortized and would therefore, be an expense." Granite, 74 Fed. Cl. at 166. Again plaintiffs appealed, and the Federal Circuit, in its January 8, 2008 opinion, rejected the appeal and held that goodwill is a "fictitious asset." Granite III, at 6. Moreover, the Federal Circuit held, yet again, that the elimination of this "accounting fiction," id. at 7, is not in and of itself proof of any damage. Id. at 8.1 Respectfully submitted, MICHAEL F. HERTZ Deputy Assistant Attorney General

Logically, if the use of goodwill as regulatory capital always, or even usually, created profits and value it would have been irrational for Congress and the President to eliminate it. Rather, Congress would have dispensed even more of this "accounting fiction" to create even more wealth and profits. As the Federal Circuit observed, Congress phased out the use of goodwill as capital because its use "exacerbated the [thrift] crisis rather than alleviat[ing] it." Castle v. United States, 301 F.3d 1328, 1333 (Fed. Cir. 2002), cert. denied, 539 U.S. 925 (2003). 2

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Case 1:92-cv-00550-MCW

Document 182

Filed 01/14/2008

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/s/ Jeanne E. Davidson JEANNE E. DAVIDSON Director

/s/ Kenneth M. Dintzer KENNETH M. DINTZER Assistant Director

OF COUNSEL: SCOTT AUSTIN Senior Trial Counsel ELIZABETH HOSFORD SAMEER YERAWADEKAR Trial Attorneys

/s/ Tarek Sawi TAREK SAWI Senior Trial Counsel Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Telephone: (202) 616-0323 Facsimile: (202) 307-0972 Attorneys for Defendant

January 14, 2008

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