Free Statement of Facts - District Court of Federal Claims - federal

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IN THE U.S. COURT OF FEDERAL CLAIMS STERLING SAVINGS ASS'N, a state chartered savings Ass'n, STERLING FINANCIAL CORPORATION, a Washington Court No. 95-829-C corporation. (Judge Wheeler) Plaintiffs, v. U.S. OF AMERICA, Defendant. DEFENDANT'S PROPOSED FINDINGS OF UNCONTROVERTED FACT IN CONNECTION WITH DEFENDANT'S REVISED MOTION FOR SUMMARY JUDGMENT REGARDING DAMAGES AND STERLING'S RESPONSES THERETO AND STERLING'S PROPOSED FINDINGS OF UNCONTROVERTED FACT IN CONNECTION WITH ITS CROSS-MOTION FOR SUMMARY JUDGMENT AS TO DAMAGES Pursuant to Rule 56(d)(2) of the Rules of this Court, defendant, the United States, submits the following proposed findings of uncontroverted fact upon which defendant bases its accompanying motion for summary judgment regarding damages ("Motion") and as to which there is no genuine dispute. 1. Sterling is a state-chartered, federally-insured stock savings association

headquartered in Spokane, Washington. Compl. ¶ 1.1. Sterling commenced operations in 1983. Id. This case arises out of Sterling's acquisition of three failing savings and loan institutions in the 1980s: Lewis Federal Savings & Loan Association ("Lewis Federal"), Tri-Cities Savings & Loan Association ("Tri-Cities"), and Central Evergreen Federal Savings & Loan Association ("Central Evergreen"). STERLING'S RESPONSE: Sterling agrees to Paragraph 1. 2. In November 1985, Sterling successfully bid for and acquired Lewis Federal, an

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insolvent institution with assets of approximately $52.5 million, pursuant to an acquisition agreement with the Federal Savings and Loan Insurance Corporation ("FSLIC"). App. 1.

Sterling did not invest any of its own money. Instead, FSLIC, in its corporate capacity, executed an Assistance Agreement with Sterling in which FSLIC contributed $1.75 million to the acquisition, as well as other financial consideration. App. 15-22. STERLING'S RESPONSE: Sterling disagrees that Paragraph 2 fully describes the acquisition of Lewis Federal. At the request of its regulators, Sterling agreed to acquire the assets and liabilities of Lewis in exchange for a cash contribution and regulatory capital. App. 1353-54, ¶¶ 16-17. 3. In April 1988, Sterling acquired Tri-Cities. On April 7, 1988, the Federal Home

Loan Bank Board ("FHLBB"), pursuant to Resolution No. 88-250, approved the acquisition, authorized an Assistance Agreement and authorized and directed that a forbearance letter be sent to Sterling. App. 593-96. The Assistance Agreement required a FSLIC cash contribution of $11,730,128.00, and, as was the case with the Lewis Federal acquisition, Sterling did not invest any of its own money. App. 24. STERLING'S RESPONSE: Sterling disagrees that Paragraph 3 fully describes the acquisition of Tri-Cities. At the request of its regulators, Sterling agreed to acquire the assets and liabilities of Tri-Cities in exchange for a cash contribution and regulatory capital. App. 1356, ¶ 25. 4. In December 1988, Sterling acquired Central Evergreen. Although the Bank

Board issued a resolution, No. 88-1273, approving the acquisition, and entered into an agreement with Sterling governing the maintenance of regulatory capital by Sterling, the Bank Board did not issue a forbearance letter or enter into an assistance agreement, and no cash assistance was provided by FSLIC. App. 25-32. STERLING'S RESPONSE: Sterling disagrees that Paragraph 4 fully describes the acquisition 2

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of Central Evergreen. Sterling was asked three times by its regulators to acquire the failing Central Evergreen. App. 1358, ¶ 33. It refused for lack of sufficient capital, until the regulators proposed that Sterling would be the winning bidder on Tri-Cities, and could use that capital, together with the goodwill to be created in the Central Evergreen merger, to meet capital requirements. Id. It would have been madness for Sterling to undertake the Central Evergreen acquisition without these promises.1 Sterling threatened to pull out of the Central Evergreen merger until the Government reaffirmed its capital promises. Id. The Government did not provide cash assistance for the merger, although Sterling and the Government contracted that Sterling would operate according to its business plan. Id. 5. Each of Sterling's acquisitions was accomplished in furtherance of its strategy to

grow its asset base by acquiring other thrifts, rather than opening its own branches, and Sterling viewed its execution of this strategy as successful. In a Securities and Exchange Commission filing submitted in 1989, subsequent to the enactment of FIRREA, Sterling detailed the advantages of its acquisitions: These acquisitions have enabled [Sterling] to expand its deposit and mortgage delivery systems considerably in a relatively short period and have added significant assets, a more geographically diversified loan portfolio, and potential future tax benefits . . . . Through consolidation, the Association has reduced the cost of performing administrative functions and increased the operating efficiencies of these acquired institutions. Management of the Association believes that continued disciplined supervision of the assets acquired from Lewis Federal, Tri-Cities, and Central Evergreen will result in increased profitability to [Sterling.] App. 34. STERLING'S RESPONSE: Sterling disagrees. The SEC filing speaks for itself. The

acquisitions were the result of a strategy by the Government to save failing thrifts with a
Sterling understands that the Court has ruled that Sterling assumed the risk of regulatory change in the Central Evergreen contract. As discussed in response to Paragraph 19, infra, Sterling intends to file a proffer to preserve the record on this point.
1

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minimum of cash outlay. Sterling pursued a growth strategy of growing internally while making strategic acquisitions. App. 1111:1-10. The acquisitions were consistent with Sterling's growth strategy of targeting deposit gathering in smaller communities. App. 10, ¶ 22; App. 59.

However, the capital promises offered by the Government in exchange for the three acquisitions were absolutely the key factor that justified Sterling's assumption of liabilities in excess of total of assets acquired plus cash assistance. App. 1108:13-19, 1112:19-1113:5, 1114:12-1115:23; App. 1251:18-22. Sterling would not have done the deals without the capital promises made by the Government. Id.; App. 273:18-22, 292:1-9. The acquisitions were successful until the Government's breach of the agreements. 6. The fifteen branches acquired by Sterling through the acquisitions of Lewis

Federal, Tri-Cities, and Central Evergreen are an integral part of Sterling's branch network; at the time of the alleged breach, the deposit base from the acquired branches represented approximately 57 percent of Sterling's deposit base. App. 407. Through 1994, the deposits in the acquired branches represented over 50 percent of Sterling's deposits, and, as recently as 2001, deposits in the acquired branches accounted for twenty percent of the deposit base. App. 407-08. Further, subsequent to the alleged breach, Sterling earned over $50 million in income from the acquired branches. App. 409. STERLING'S RESPONSE: Sterling disagrees with Paragraph 6, and notes that the breach caused Sterling to curtail its operations, shrink its asset base, and lose other potential acquisitions. App. 1165:8-25; App. 849-50; App. 1166:15-1167:12. Had the Government not breached its contracts with Sterling, Sterling would have been even more profitable and the acquired branches would have been a smaller part of Sterling's deposit base. At the time of the breach, Sterling had not absorbed Central Evergreen and asked the Government to take it back. App. 1358, ¶ 33. That fact, and the fact that the Government refused to take it back, confirms 4

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that both sides saw no value whatsoever in Central Evergreen. 7. On August 9, 1989, Congress enacted FIRREA. Among other things, FIRREA

established new capital requirements. In particular, FIRREA, and the regulations promulgated to implement it, required thrifts to comply with three separate regulatory capital standards: a leverage (or "core capital") standard, a tangible capital standard, and a risk-based capital standard. 12 U.S.C. §1464(t) (1989); 12 C.F.R. §§ 567.1, 567.2, 567.5 (1990); 54 Fed. reg. 49,411 (Nov. 30, 1989). "Qualifying supervisory goodwill" was to be phased-out gradually between 1990 and 1995. 12 U.S.C. §1464(t); 12 C.F.R. §563.13. In the intervening years, eligible savings associations were permitted to include qualifying supervisory goodwill to satisfy core and risk-based capital standards established under FIRREA. Id. STERLING'S RESPONSE: Sterling agrees with Paragraph 7. 8. As of December 31, 1989, Sterling failed to meet FIRREA's minimum capital

requirements. By its own calculations, Sterling failed its tangible, core, and risk-based capital requirements by $22.8 million, $23.0 million, and $32.3 million, respectively. App. 37. STERLING'S RESPONSE: Sterling agrees that, due to the Government's breach of the agreements to treat the goodwill granted to Sterling by the acquisitions as capital, Sterling did not meet the capital requirements of FIRREA. 9. Pursuant to FIRREA's directive that all capital deficient thrifts "submit and adhere

to" a plan setting forth the institution's strategy for increasing capital, Sterling filed an amended "Capital Restoration Plan" on February 28, 1990. 12 U.S.C.A. § 1464(s)(4), 103 Stat. 183, 303. App. 5. In that plan, Sterling acknowledged that, as of December 31, 1989, it failed to meet each of FIRREA's new capital standards. App. 37. To resolve its capital deficiency, Sterling

proposed that it be acquired by another financial institution by May 31, 1990. App. 37-38. STERLING'S RESPONSE: Sterling agrees that it submitted a capital plan under threat from 5

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the Government, which had breached its contracts. Def's App. 35. 10. In April 1990, OTS approved Sterling's capital restoration plan on the condition

that Sterling's board execute an operating agreement which, among other things, consented to the appointment of a receiver or conservator in the event that Sterling did not execute a definitive merger agreement. App. 753. On May 10, 1990, Sterling declined to execute the operating agreement. App. 754. STERLING'S RESPONSE: Sterling agrees with Paragraph 10. 11. On May 22, 1990, because Sterling had failed to meet FIRREA's capital

standards, refused to consent to the operating agreement, and did not propose an acceptable remedy for its capital deficiency, OTS denied the capital plan and imposed certain operating restrictions on the thrift in an effort to ensure its safe and sound operation, pursuant to 12 C.F.R. § 567.10(a)(4). App. 45. STERLING'S RESPONSE: Sterling disagrees with Paragraph 11. The Government refused to abide by its contracts with Sterling relating to the three acquisitions and eventually threatened to shut down Sterling. App. 23, ¶¶ 7-8. 12. In May 1990, Sterling filed suit in the United States District Court for the Eastern

District of Washington and immediately sought a temporary restraining order. The court issued a temporary restraining order in May 1990 and a preliminary injunction in August 1990. In its opinion granting the preliminary injunction, the court severely restricted OTS's and FDIC's authority to regulate Sterling pursuant to FIRREA because the court determined that FIRREA did not preclude the agencies from honoring what it determined to be contracts with Sterling. Sterling Savings Assoc. v. Ryan, 751 F. Supp. 871, 881-82 (E.D. Wash. 1990). OTS and FDIC filed a motion for reconsideration, which the court granted in part and denied in part in November 1990. Sterling, 751 F. Supp. at 882-83. 6

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STERLING'S RESPONSE: Sterling disagrees.

The U.S. District Court for the Eastern

District of Washington consistently affirmed the Government's authority to regulate Sterling, but ruled that the Government could not breach its contracts. Id. 13. Upon issuance of the injunction, OTS complied with its terms, and expressly

conveyed to Sterling that the agency intended to "strictly obey" the district court's order prohibiting it from enforcing any restrictions contrary to the agreements Sterling entered into in connection with its acquisitions of Lewis Federal, Tri-Cities, and Central Evergreen. App. 46, 48-49. Further, during the pendency of the injunction, which ultimately was dissolved in 1992, Sterling never needed to initiate an action to compel enforcement of the injunction or complain of Government noncompliance with the injunction. Indeed, Sterling's internal audit department, in a memorandum dated September 20, 1991, referred to restrictions imposed prior to the issuance of the injunction as "OTS operational concerns stayed by preliminary injunction." App. 750. Moreover, in exam reports issued during the pendency of the injunction, examiners

expressly acknowledged that OTS was enjoined from enforcing FIRREA's capital requirements. App. 59, 71, 144. STERLING'S RESPONSE: Sterling disagrees with Paragraph 13. Though the injunction did provide Sterling time to raise the capital necessary to meet FIRREA standards to avoid a receivership, Sterling's earnings and asset growth had already been severely limited both by the shrinkage of its assets and the limitations imposed by the Government, which eliminated Sterling's most profitable opportunities. App. 2-3, ¶¶ 7-8; App. 1165:8-25. Moreover, the Government continued to treat Sterling as a troubled thrift, even under the injunction. App. 2-3, ¶¶ 7-8; App. 849-850. Specifically, on June 5, 1990 (five days after issuance of the injunction), the Government wrote Sterling notifying it to report all actions inconsistent with those restrictions imposed upon it prior to the entering of the injunction. App. 848. Subsequently, the 7

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Government sent Sterling other correspondence manifesting its intent to regulate Sterling's operations. App. 824; App. 851; App. 856. On June 20, 1990, the Government sent a letter which confirmed the stranglehold on Sterling: As always appropriate internal controls should be in place to ensure that all regulatory requirements are adhered to...The listing attached to your letter does not reflect the asset growth restrictions that Sterling is subject to. By virtue of the denied capital plan, no growth is permitted. In additional, residential construction lending is limited to 3.3 percent of total assets and investment authority restricted to short term investments. The institution's activities are limited to those specified in the capital plan.... App. 852-53 (emphasis added). The preliminary injunction forbade the OTS to breach the contracts, but it did not forbid the Government to regulate Sterling. Notably, the injunction did not prevent the OTS from treating Sterling as a troubled thrift under so-called safety and soundness regulations. App. 2-3, ¶¶ 7-8; App. 1248:25-1249:11, 1250:2-9. Under the guise of "safety and soundness" regulation, the Government indirectly threatened Sterling with poor performance ratings. App. 2-3, ¶¶ 7-8. The threatened use of this standard showed the

Government's intent to regulate Sterling as a troubled thrift, in breach of its contracts, despite the contracts and injunction. Finally, the Government successfully moved for a partial reconsideration and appealed to the Ninth Circuit, which eventually vacated the injunction. Sterling Savings Assoc. v. Ryan, 959 F.2d 241 (9th Cir. 1992). Thus, Sterling knew all along that if Sterling made aggressive business decisions, Sterling could have exposed itself to ruin should the Ninth Circuit vacate the injunction. App. 2-3, ¶¶ 7-8. This caution was validated by the Ninth Circuit's ruling. It cannot reasonably be disputed that the injunction only had the effect of keeping the Government at bay while Sterling fought to reach capital compliance in accordance with the new, non-contractual capital standards of FIRREA. Id.; App. 1170:12-22. 14. In November 1991, Sterling raised approximately $21 million through a public 8

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offering of common stock. App. 329. The public offering brought Sterling into compliance with all of the minimum capital ratios required by FIRREA. Id. The prospectus for the offering set forth the purpose for raising the capital: The primary purpose of the offering is to increase Sterling's regulatory capital levels. The net proceeds from this offering will be used to support the growth of Sterling's business, including the origination of loans. App. 209. STERLING'S RESPONSE: Sterling agrees that Sterling raised approximately $21 million through a public offering of common stock in November 1991 and that such offering brought Sterling into compliance with the capital ratios required under FIRREA. 15. In addition, Sterling's 1992 Annual Report indicated that completion of the equity

offering brought Sterling into compliance with the capital standards imposed by FIRREA: Fiscal 1992 was an outstanding year for Sterling Savings. Your company, profitable every year since its inception, reported record earnings this fiscal year. We also completed a $21 million equity offering, making Sterling one of the only thrifts in the nation to have met all applicable capital requirements after having been deemed to be in non-compliance with such requirements. Our primary regulator, OTS, had taken the position that FIRREA eliminated most of the capital regulatory provisions of acquisition agreements entered into during the late 80's. Our compliance with capital standards is a victory for us all ­ our shareholders, customers, employees, and the communities we serve across the Pacific Northwest. App. 329 (emphasis added). STERLING'S RESPONSE: Sterling agrees. The fact that Sterling successfully completed this offering demonstrates the validity of Sterling's business plan and strength of Sterling's management. App. 3, ¶ 9; App. 162-63. 16. According to Harold Gilkey, Sterling's Chief Executive Officer, the 1991 capital

raising would not have occurred if Sterling had already been in capital compliance at the time, 9

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because Sterling would have had substantial excess capital. App. 373. STERLING'S RESPONSE: Sterling disagrees. Sterling Chief Executive Officer Harold

Gilkey testified concerning the actual bank after it had already shrank by 17% to $600 million. App. 1, ¶ 3. The deposition testimony cited by the Government does not discuss whether the but for bank, at over $731 million, would have raised capital. App. 2, ¶ 5. It is undisputed that Sterling's policy during the 1990s was to raise as much capital as the market would allow. App. 2, ¶ 6. 17. On April 14, 19921, the Ninth Circuit Court of Appeals reversed the district court

decision. Sterling Savings Assoc. v. Ryan, 959 F.2d 241 (9th Cir. 1992). The Ninth Circuit, relying upon Far West Federal Bank v. OTS, concluded that "the stricter capital requirements in FIRREA apply to thrift institutions notwithstanding prior agreements by the government such as the agreements alleged by Sterling." Sterling, 959 F.2d at 241. On that basis, the Ninth Circuit vacated and remanded the district court's judgment to the district court. Id. By the time the Ninth Circuit issued its decision, however, Sterling had already completed its public offering and achieved compliance with all of FIRREA'S capital requirements. STERLING'S RESPONSE: Sterling agrees. Sterling notes that the Ninth Circuit also held that Sterling's proper remedy was an action for damages for breach of contract in the Court of Claims. The case was then transferred to this Court. 18. In 1993, Sterling's holding company, Sterling Financial Corporation, raised

approximately $17 million through a preferred stock offering, and downstreamed approximately $12 million to Sterling. In the prospectus, Sterling Financial Corporation noted increased capital requirements would be phased-in as of December 31, 1994. App. 603. As of September 30, 1992 (prior to the offering), however, Sterling "exceeded all regulatory capital requirements, including requirements . . . scheduled to be phased in through December 31, 1994." Id. at 606. 10

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Further, it was anticipated that Sterling would continue to meet all regulatory requirements in the future, although "there can be no assurance in this regard." Id. at 603. STERLING'S RESPONSE: Sterling disagrees with the characterization of the prospectus and states that the prospectus speaks for itself. Sterling agrees that Sterling Financial Corporation, raised approximately $17 million through a preferred stock offering in 1993, and downstreamed approximately $12 million to Sterling. 19. With respect to the Central Evergreen acquisition, the Government did not breach

a contract with Sterling because the risk of regulatory change had been contractually allocated to Sterling. Sterling Savings v. United States, 72 Fed. Cl. 404 (2006). STERLING'S RESPONSE: Sterling agrees that this Court has held that the risk of regulatory change had been contractually allocated to Sterling in the Central Evergreen contract. Sterling respectfully disagrees with that ruling; Sterling will shortly file a proffer related to Central Evergreen to preserve the record on this point. STERLING'S PROPOSED FINDINGS OF UNCONTROVERTED FACT Pursuant to Rule 56(d)(2) of the Rules of this Court, Sterling submits the following proposed findings of uncontroverted fact upon which Sterling bases its accompanying motion for summary judgment and as to which there is no genuine dispute. 1. Sterling began operations in 1983 as a State of Washington-chartered federally

insured stock savings and loan association headquartered in Spokane, Washington. App. 1245:821. 2. In contrast to the vast majority of thrifts, Sterling was a profitable and sound

financial institution all during the troubled period of the 1980s. App. 9, ¶ 18; App. 105. 3. During this time, Sterling's market area enjoyed more favorable growth than most

states, and completely avoided the 1990-1991 recession. App. 3-4, ¶ 11; App. 1253:11-12:54:4. 11

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4.

Because Sterling opened in 1983, after peak interest rates, it did not have a

portfolio of low-rate mortgage loans made in the 1960s or 1970s, but instead held all loans at current market rates, exceeding the rates it was paying on deposits. App. 1254:18-24; 2006 App. 131. 5. App. 131. 6. Its deposits, assets and profits increased each year without interruption through By the end of its first year of business, Sterling was profitable. App. 10, ¶ 19;

fiscal year 1989. App. 10, ¶ 19; App. 105. 7. Sterling had a relatively small market share in the markets that it entered, so it had

a substantial market available to it for growth. App. 1278:1-19. 8. The success of Sterling during the 1980s was due primarily to its good

management. App. 10, ¶¶ 20-21; App. 61. 9. Management success included the development and adoption of a business

strategy that focused on generating deposits in Spokane and small towns in Washington, and building a lending capability in Spokane and Western Washington where loan demand was stronger. Id. 10. achieved. Id. 11. Sterling had the same management team throughout this period (and still does), Sterling's plan was implemented with considerable skill, and success was

and the same management and business strategy would have been in place absent the breach. Id. 12. The supervisory acquisitions that are the focus of this litigation were consistent

with the growth plan, which from the outset included goals to achieve steady and consistent growth. App. 10, ¶ 22; App. 59. 13. Sterling pursued a strategy of internal growth combined with strategically-suited 12

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acquisitions. App. 1111:1-10. 14. Sterling's plan was to grow aggressively through a balanced combination of

acquisitions and branch creation. Id.; App. 1243:4-25, 1244:1-6, 1240:11-1247:19. 15. By the late 1980s, the number of insolvent thrifts threatened to swamp the

resources of the FSLIC. Winstar, 518 U.S. at 847 (noting that by 1988 the FSLIC was itself insolvent by over $50 billion). 16. The FSLIC found, however, that some healthy institutions were willing, under

certain circumstances, to take on thrifts whose liabilities exceeded the value of their assets without cash assistance sufficient to fill the net worth "hole" (excess of liabilities over assets). Id. at 848. 17. The Office of Thrift Supervision recognized Sterling's ability to meet its business

plan, and on this basis recommended it as a thrift capable of acquiring troubled institutions. App. 1353-54, ¶¶ 16-17, 1356, ¶ 25, 1358, ¶ 33. 18. Sterling completed three of these acquisitions of troubled thrifts, Lewis, Tri-Cities

and Central Evergreen. E.g., id. 19. These acquisitions were consistent with Sterling's growth strategy of targeting

deposit gathering in smaller communities. App. 10, ¶ 22; App. 59. 20. The inducements offered by the Government in exchange for these three

acquisitions were the key factor that justified Sterling's assumption of liabilities in excess of the total of assets acquired plus cash assistance. 1115:23; App. 1251:18-22. 21. Sterling would not have done the deals without the Capital Inducements made by App. 1108:13-19, 1112:19-1113:5, 1114:12-

the Government. App. 1108:13-19, 1109:21-1110:1, 1112:19-1113:5; App. 273:18-22, 292:1-9.) 22. Sterling's growth and profitability were attained through sound and conservative 13

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operating policies. App. 10, ¶¶ 20-21; App. 882. 23. As of June 30, 1989, Sterling had total assets of $731 million, and deposits of

$519 million. App. 958-996. 24. It earned net income of $1.3 million for fiscal year 1989 (an actual increase from

1988) despite the very large, unassisted absorption of Central Evergreen in December 1988. App. 978. 25. In 1989, then, prior to the breach, Sterling was well on its way towards its goal of

becoming a major player in the Northwest market in accord with its original and consistentlymaintained business strategy. App. 961-62. 26. However, this rapid growth during the 1980s, coupled with the acquisitions of the

three troubled thrifts, each with liabilities in excess of its assets, left Sterling in an undercapitalized position, although it had regulatory capital modestly in excess of its requirements. App. 13, ¶ 28; App. 60. 27. Sterling had always been sensitive to its capital needs, and in 1989 planned an

equity offering of $10.5 million that would have left the institution with a comfortable margin above the minimum requirements, and would provide for the growth Sterling intended to pursue. App. 1008. 28. The proposed equity offering was included in Sterling's 1989 Business Plan

(although at a level of $5 million), to which Sterling and the government were committed by the terms of the Central Evergreen acquisition agreement. App. 779. 29. 30. This offering did not take place due to the Government's breach. App. 14, ¶ 32. After the enactment of FIRREA, the Government began to treat Sterling as an

undercapitalized, troubled thrift, forcing Sterling to shrink its business operations and to abandon its growth strategy through the imposition of certain operating restrictions. App. 1165:8-25; 14

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App. 849-50. 31. These restrictions included: (1) a limit on asset growth; (2) a moratorium on

capital distributions; (3) limits on residential loans to conforming loans; (4) consumer lending restrictions; (5) loans to one borrower limits of $500,000; (6) no authority to purchase or sell any asset or group of assets in excess of $500,000; (7) approval of OTS required to increase compensation of any executive officer or director; and (8) inability to accept uninsured deposits. Id. 32. 33. Sterling was forced to curtail its operations significantly. App. 1166:15-1167:12. From June 1989 to June 1991, Sterling shrunk its asset base, declining in size for

the first time in its history. App. 10, ¶ 21; App. 161-163; App. 1271:13-1274:17. 34. Sterling's total assets shrank to $609 million in June 1991 from the $731 million

of June 1989, a decline of over 17%. App. 161-63. 35. Because of the breach, Sterling's commercial lending ability was all but

destroyed, its residential construction mortgage business severely curtailed, and its real estate lending crippled. App. 1116:2-1117:15; App. 1255:1-18, 1256:19-1257:1, 1257:15-23, 1284-85, 1286:22-1287:15, 1288:1-3; 1290-92. 36. 37. Sterling lost valuable employees. App. 1118:15-1120:2; App. 1286:15-1287:15. Sterling was forced to forgo investment opportunities, including acquisitions.

App. 1121:17-24, 1131:22-1144:2; App. 1279:13-1281:8. 38. Moreover, Sterling suffered damage to its reputation because of the Government's

restrictions on the type and amount of business in which Sterling could engage. App. 1213:71214:24; App. 1217; App. 1219:22-1233:24, 1234:3-1235:14; App. 1238-1239; App. 1255-57. 39. In addition, Sterling was forced to cancel the 1989 offering because the OTS

refused to commit to allow Sterling to pay dividends on the preferred stock that was part of the 15

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offering. App. 1008. 40. The Government's breach severely damaged Sterling's ability to engage in

residential construction lending through its subsidiary, Action Mortgage. App. 1290:5-9. 41. 42. Residential construction lending was a high profit area. App. 1290:10-14. Prior to the breach, Sterling intended to expand Action Mortgage into Seattle,

Portland, Vancouver (WA), Lake Oswego (OR), Boise and Salt Lake City. App. 1290-91. 43. Action's business plan was to quadruple lending activity, to be achieved through

opening these offices. App. 1292:9-13. 44. Sterling attempted to support an Action Mortgage office in Salt Lake City, but

could not make a profit without the ability to engage in construction lending. App. 1290:21-25. 45. 46. Sterling thus had to close that office. Id. Sterling was able to keep open a Boise office to handle single family loans, but

could not expand that office into residential construction lending, the more profitable side of Action Mortgage. App. 1291:1-4. 47. Utah subsequently underwent an economic upswing, which Sterling could not

benefit from because the Action office had to be closed. App. 1283:15-25. 48. The restriction also stopped Sterling from opening Action Mortgage offices in

Seattle, Portland and Lake Oswego until after January of 1992. App. 1291:12-25; App. 1292:46. 49. By that time, Sterling had lost contact with the persons it intended to hire to

supervise those offices, thus leading to further cost to find appropriate staff. App. 1291:15-17. 50. Sterling eventually opened the Seattle and Lake Oswego offices, which have been

highly profitable. App. 1291:19-21. 51. However, Sterling lost years of time in Lake Oswego and in Seattle due to the 16

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breach. Id. 52. Two-thirds of the existing staff of Intervest, another Sterling subsidiary, left

following the Government's breach, including all of the big producers of assets, and Intervest was forced by the breach to eliminate almost all of its lending. App. 1286:22-1287:15. 53. Had the larger producers stayed and the breach not occurred, Intervest would have

been able to substantially increase the size of its staff and therefore the size of its assets and lending capacity. Id. 54. Specifically, Intervest's operations would have expanded to cover northern

California, Oregon, Idaho, parts of Utah, Montana and Washington. 1287:9-15. 55. Sterling suffered a reduction in servicing income because OTS restrictions did not

permit it to originate certain types of construction loans that would have been converted to permanent loans. App. 1116:2-1117:15. 56. Sterling was forced to withdraw business banking, consumer lending, commercial

real estate and residential construction activity. App. 1285:1-3. 57. The Government forced Sterling to withdraw from fixed rate lending and public

funding activities for a period of time. App. 1285:4-9. 58. 59. Sterling also was forced to stop gathering uninsured deposits. App. 1285:6-10. Sterling lost many customers with deposits in excess of $100,000, including a

priest in Salish who had deposits in excess of $ 1 million. App. 1255:1-11; App. 1256:19-15; App. 1257:1. 60. Condron Homes and Baker Construction left due to OTS limitations on Sterling.

App. 1255:12-18. 61. Fred Burstad and Burstad Construction of Seattle left due to OTS limitations.

App. 1257:15-23. 17

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62.

Sterling could not make certain loans to its customers and was forced to refer

those customers to other financial institutions; "[Sterling was] not only turning them away, we were walking them across the street to our competitors to avoid the restrictions that we were placed under." App. 1282:20-23. 63. The following customers left Sterling as a result of uncertainty about the Bank:

(1) Boyd, Bjockman & Frickle, an accounting firm with a term loan for equipment and leasehold improvements as well as a credit line; (2) CRM Optical, a contact lens manufacturer with multiple term equipment loans and a credit line; (3) DIVCO Energy Control Company, a heating and air conditioning company, and its principal, Robert Nelson, considered a $5 million customer, with several equipment loans and a large credit line; (4) Latah Creek Winery, which had a $1 million equipment loan and a credit line; (5) Miller-Jordan Travel, a travel agency, had a credit line and a few equipment term loans; (6) Northern Technologies, Inc., a technology company that manufactured surge protectors, had a rapidly increasing credit line designed to keep pace with the company's growth; and (7) Northwest Ski Exchange, a retail shop, had several term loans and inventory financing. App. 1184:8-1185:16, 1186:17-1193:7, 1193A:141193B:5, 1193B:24-1204:25, 1205:12-1210:18; App. 1211. 64. Sterling's inability to continue commercial activity and the uncertainty of when

the issues with the Government would be resolved cost Sterling many valuable business customers, including the following: (1) Aslin-Finch; (2) Dane Armstrong; (3) Ted Beasley; (4) Larry Biggs; (5) Cedar Builders; (6) Empire Jewelry and Loan; (7) George Hansen; (8) Don Howell; (9) Craig Jacobs; (10) Bill Lawson of A & A Construction; (11) Michael Manz; (12) Metallic Arts; (13) Grant Person; (14) Randy Ramey of Ramey Construction and Ramey Development; (15) Red Barn, NSE Inc.; (16) Doug Romney; (17) Roy Mitchell, Inc.; (18) Kevin and Chris Rudeen, Rudeen Development; (19) John Schreinir; (20) Harry and Daryl Siria; (21) 18

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G. Wesley Sodoroff; (22) Vandervert Development; (23) Mike Walker; and (24) Woodland Montessori School. App. 1213:7-1214:24; App. 1217. 65. Likewise, specific customers sought construction loans from Sterling during that

time or inquired about the possibility of loans and Sterling was unable to accommodate them, including the following: (1) Bill Lawson, who sought approximately $1.5 million; (2) Dick Vandervert; (3) Dick Villelli, who sought approximately $2.0 million; (4) Harlan Douglas; (5) Richard Naccarato of Cedar Pines General Partnership; (6) Bob Spears; (7) Ted Gunning; (8) Dean Grafos of Opportunity Plaza; (9) Thompson and Brumback. 1234:3-1235:14. 66. Sterling could not expand its subsidiaries or keep pace with its customers' needs; App. 1219:22-1233:24,

without the promised regulatory capital, Sterling was capital deficient and unable to take advantage of many potential acquisition opportunities. App. 1279:13-25; App. 1280:17-25; App. 1281:1-8. 67. 1121:17-24. 68. Further, a number of other acquisitions failed in part or as a direct result of The acquisition of two Great American branches was denied by the OTS. App.

Sterling s post-FIRREA, weakened capital position. App. 1132-1144. 69. For example, Sterling entered into discussions to acquire Horizon Bank, but could

not satisfy Horizon as to Sterling's level of capital. App. 1131-32. 70. Likewise, Intervest ended negotiations for an acquisition due to the capital

structure and Sterling's problems with the Government. App. 1132-33. 71. Sterling started discussions with Great Northwest Savings and Vancouver Federal

in 1991, but Sterling was unable to convince either institution to go forward because of the Government's treatment of Sterling and Sterling's resultant poor capital position. App. 1136-38. 19

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72.

Sterling attempted to acquire Summit Savings in the mid-1990s, but Summit

chose to go with another institution due to Sterling's capital structure and the breach. App. 1134-35. 73. Sterling had similar experiences with Gibraltar Savings, Willamette Savings,

Hamilton Financial Services, and Security Pacific. App. 1138-44. 74. All of these transactions may have been completed if Sterling had had sufficient

capital to be a competitive candidate for acquisition. E.g., id. 75. The CJ-4 loan was a property in Bellevue, Washington, that Sterling committed to

loan for construction prior to the enactment of FIRREA. App. 1089:12-14. 76. FIRREA limited the size of a loan a financial institution could make to any one

borrower, based on the level of capital an institution possessed. App. 1092:25-1093:5. 77. When the Government breached and refused to acknowledge the contracts for the

three acquisitions, Sterling was treated as if it had deficit capital and limited to a $500,000 ceiling for a loan to any one borrower. App. 1093:6-13. 78. Because the CJ-4 loan was in excess of $500,000, Sterling was not permitted to

make additional advances against the loan commitment that was already in effect. Id. 79. Because the Government would not allow Sterling to make further advances, the

project fell behind on construction. App. 1091:10-1092:9. 80. 81. The borrowers then sued Sterling for breaching the loan commitment. Id. To resolve the dispute with the borrowers, Sterling was forced to foreclose on the

property, repossess it, and make the improvements which the borrowers would have made if Sterling had been able to advance the funds per the loan commitment. Id. 82. In the process of foreclosure, repossession and improvements, the market value of

the property declined significantly. Id. 20

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83.

When Sterling liquidated the property, therefore, Sterling suffered a $1.615

million loss. App. 1094:6-1095:2; App. 1288:1-3. 84. 23, ¶¶ 7-8. 85. In May 1990, Sterling filed suit against the OTS in the United States District The Government eventually threatened to shut Sterling down completely. App.

Court for the Eastern District of Washington and sought a temporary restraining order. App. 311-351. 86. The district court issued a temporary restraining order in May of 1990 and a

preliminary injunction in August 1990. App. 352-381. 87. Though the injunction did provide Sterling time to raise the capital necessary to

meet FIRREA standards to avoid a receivership, Sterling's earnings and asset growth had already been severely limited both by the shrinkage of its assets and the limitations imposed by the Government, which eliminated Sterling's most profitable opportunities. App. 2-3, ¶¶ 7-8; App. 1165:8-25. 88. Moreover, the Government continued to treat Sterling as a troubled thrift, even

under the injunction. App. 2-3, ¶¶ 7-8; App. 849-850. 89. Specifically, on June 5, 1990 (five days after issuance of the injunction), the

Government wrote Sterling notifying it to report all actions inconsistent with those restrictions imposed upon it prior to the entering of the injunction. App. 848. 90. Subsequently, the Government sent Sterling other correspondence manifesting its

intent to regulate Sterling's operations. App. 824; App. 851; App. 856. 91. on Sterling: As always appropriate internal controls should be in place to ensure that all regulatory requirements are adhered to...The listing attached to your letter 21 On June 20, 1990, the Government sent a letter which confirmed the stranglehold

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does not reflect the asset growth restrictions that Sterling is subject to. By virtue of the denied capital plan, no growth is permitted. In additional, residential construction lending is limited to 3.3 percent of total assets and investment authority restricted to short term investments. The institution's activities are limited to those specified in the capital plan.... App. 852-53 (emphasis added). 92. Sterling's CEO was "scared to death" of what the regulators would do during this

time, and highly concerned that the Government would shut down the Bank through another avenue. App. 1258:25-1270:17. 93. The preliminary injunction ostensibly restricted the ability of OTS and FDIC to

regulate Sterling; however, the injunction did not prevent the OTS from treating Sterling as a troubled thrift under so-called safety and soundness regulations. App. 2-3, ¶¶ 7-8; App. 1248:25-1249:11, 1250:2-9. 94. Under the guise of "safety and soundness" regulation, the Government indirectly

threatened Sterling with poor performance ratings. App. 2-3, ¶¶ 7-8. 95. The Government successfully moved for a partial reconsideration and appealed to

the Ninth Circuit, which eventually vacated the injunction. Sterling Savings Assoc. v. Ryan, 959 F.2d 241 (9th Cir. 1992). 96. Thus, Sterling knew all along that if Sterling made aggressive business decisions,

Sterling could have exposed itself to ruin should the Ninth Circuit vacate the injunction. App. 23, ¶¶ 7-8. 97. The injunction only had the effect of keeping the Government at bay while

Sterling fought to reach capital compliance in accordance with the new, non-contractual capital standards of FIRREA. App. 2-3, ¶¶ 7-8; App. 1170:12-22. 98. Because Sterling's capital ratios were low after the breach, Sterling was forced to

turn away from the growth and expansion strategy that had brought success to Sterling in the 22

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past. App. 1165:8-25. 99. In contrast to most capital deficient thrifts, Sterling operated at a small profit in

fiscal 1990, and returned to near its past record of profitability in 1991. App. 18, ¶ 45; App. 163. 100. Sterling thus could go to the capital market in 1991, earlier than most other capital

deficient thrifts. App. 62. 101. Sterling raised gross proceeds of $23.7 million in late 1991, which put Sterling

back in full capital compliance. App. 1060. 102. Sterling's business strategy called for periodic offerings to raise capital in line

with its growth-oriented strategy. App. 1111; App. 1243:4-25, 1244:1-6, 1246:11-1247:19. 103. Sterling would have raised capital in 1991 even if the breach had not occurred.

App. 1-2, ¶¶ 3-6; App. 63. 104. Following the profit recovery in fiscal 1991 and the capital offering in late 1991,

Sterling returned to its basic business strategy of growth through deposit-gathering. App. 162167. 105. In the mid-1990s, Sterling modified its strategy to shift from the traditional

savings institution focus on home mortgage lending toward becoming the full service community bank that had been part of its original strategic plan. Id. 106. Sterling reduced its holdings of mortgage assets, and has increased its commercial

real estate, business, consumer and construction lending, while continuing to stress retail deposits. Id. 107. Since 1990 and continuing through the present, Sterling operated successfully,

with increasing assets and profits. App. 3, ¶ 9; App. 162-63.

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Respectfully submitted this 29th day of March, 2007. WITHERSPOON, KELLEY, DAVENPORT & TOOLE, P.S. By: /s/ William D. Symmes William D. Symmes, Counsel of Record And Member of the Bar of the United States Court of Federal Claims 1100 U.S. Bank Building 422 West Riverside Avenue Spokane, WA 99201-0300 Telephone No. (509) 624-5265 Facsimile No. (509) 458-2717 Attorneys for Plaintiffs

24

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CERTIFICATE OF SERVICE I certify under penalty of perjury that on March 29, 2007, a copy of the foregoing DEFENDANT'S PROPOSED FINDINGS OF UNCONTROVERTED FACT IN CONNECTION WITH DEFENDANT'S REVISED MOTION FOR SUMMARY JUDGMENT REGARDING DAMAGES AND STERLING'S RESPONSES THERETO AND STERLING'S PROPOSED FINDINGS OF UNCONTROVERTED FACT IN CONNECTION WITH ITS CROSS-MOTION FOR SUMMARY JUDGMENT AS TO DAMAGES 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/ William D. Symmes William D. Symmes Attorney for Plaintiff

25

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