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IN THE UNITED STATES COURT OF FEDERAL CLAIMS Filed electronically: November 30, 2007
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ST
HOME LIQUIDATING TRUST,
EVERETTE E. MILLS, III and WILLIAM E. STONE, TRUSTEES P. O. Box 29446 Greensboro, NC 27429, SUSAN T. AND E.S. MELVIN 106 Willoughby Blvd. Greensboro, NC, 27408, G. DEE SMITH AND JEANNINE M. SMITH 317 Sherwood Forrest Rd. Winston-Salem, NC 27410, RODNEY E. AUSTIN 630 Tanners Lane Earlysville, VA 22936, MURRAY C. GREASON, JR. One West Fourth Street Winston-Salem, NC 27101, LASAHANE INVESTMENTS c/o F. Borden Hanes, Jr., Bowen, Hanes & Company, Inc. 807 S. Main Street Winston-Salem, NC 27101, PAULINE S. HOVIS c/o Janet Henry 738 Lexington Road Asheboro, NC 27205, ALBERT S. LINEBERRY, SR. 26 Sturbridge Lane Greensboro, NC 27408,
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No. 95-250C Senior Judge Loren A. Smith
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MRS. CLARENCE B. JONES 1808 St. Andrews Road Greensboro, NC 27408, JAMES B. MILLIKAN 4200 Blazing Star Lane Greensboro, NC 27410, PATRICIA AUSTIN NUSSBAUM SEVIER Trustee of the Family Trust u/w of Victor M. Nussbaum, Jr. 1608 Nottingham Road Greensboro, NC 27408, JAMES C. RATCLIFF 3117 Bentley Court Winston-Salem, NC 27104, JULE C. SPACH 1244 Arbor Road #197 Winston-Salem, NC 27104-1136, LOUIS C. STEPHENS, JR. and MARY ADAMS STEPHENS 1235 Wareham Court Charlotte, NC 28207, HENRY V. CUNNINGHAM, JR. and SARAH B. CUNNINGHAM 1000 Sunset Drive Greensboro, NC 27408, MARVIN L. FERRELL, JR. 2812 Lazy Lane Winston-Salem, NC 27106, WILLIAM C. FITZGERALD, III and CAROLYN N. FITZGERALD 1303 Dunbar Drive Laurinburg, NC 28352, ROBERT L. KITTERMAN 1019 Platinum Drive Fort Mill, SC 29708,
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JAMES E. MIMS 603 Staunton Drive Greensboro, NC 27410, JAMES E. MIMS JAMES E. MIMS IRA via MLPF&S, Cust. 603 Staunton Drive Greensboro, NC 27410-6074, ERLINE K. MIZE and WILLIAM R. MIZE, SR. 121 Southwest 13th Street Oak Island, NC 28465, THOMAS G. NISBET, JR. 9 Provincetown Court Greensboro, NC 27408, CHARLES P. ROBINSON 140 K Broadmoor Lane Winston-Salem, NC 27104, WILLIAM E. STONE 2805 St. Regis Rd. Greensboro, NC 27408, LARRY J. A. THOMPSON 26 Dutchman's Pipe Cove Greensboro, NC 27410, ESTATE OF SARAH HUTCHENS BRINSON c/o Sarah B. Cunningham 2003 Lafayette Avenue Greensboro, NC 27408, BROWN TECHNOLOGY ASSOCIATES, L.P. Attn: Susan Adams 890 Winter Street, Suite 225 Waltham, MA 02451, JOSEPH M. BRYAN, JR. 2317 Princess Ann Street Greensboro, NC 27408,
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LESTER R. BURNETTE 311 Burnette Acres Winston-Salem, NC 27107-9494, ESTATE OF ANITA P. BURGE BURTON Bonnie B. Hammond, Executrix 3400 Alamance Road Greensboro, NC 27407, JOHN W. DAVIS, III 411 South Marshall Street, No. 401 Winston-Salem, NC 27101, DAVID R. PARKER R-IRA via DB Securities Inc., Cust. Attn: Chris Harvey 1 South Street BAL01-1803 Baltimore, MD 21202, PRIME BANK Attn: Edward J. Maloney, S.V.P. & C.E.O. 7 Old Tavern Road P.O. Box 696 Orange, CT 06477, KENDALL DEMATTEO BERKEY 1757 Sierra Verde Road Chula Vista, CA 91913, GENE DEMATTEO, JR. 1127 High Ridge Road, No. 243 Stamford, CT 06905, ROBIN DEMATTEO 50 Hillandale Avenue Stamford, CT 06905, ELIZABETH DEMATTEO FALCONE 46 River Street New Canaan, CT 06840, CYNTHIA FALCONER 193 Gorham Avenue Hamden, CT 06514,
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KEVIN DEMATTEO 1100 North Florida Mango Road, #A West Palm Beach, FL 33409, ESTATE OF KATHERINE PREYER DEMATTEO John Peter Preyer & Allan Talmage Preyer III, Co-Administrators CTA 214 Glenburnie Street Chapel Hill, NC 27514, MANUEL V. FERNANDEZ and ALMA J. FERNANDEZ 650 Water Street, S.W. Washington, DC 20024, LOUISE C. PALMER 5 Rabbit Lane Darien, CT 06820, ANN L. BRENNER, TRUSTEE QTIP Trust f/b/o Ann L. Brenner 13 Graylyn Place Lane Winston-Salem, NC 27106, MS. ALLAN C. HOLLAN 1244 Arbor Road Winston-Salem, NC 27104, DAVID A. IRVIN Womble Carlyle Sandridge & Rice P.O. Drawer 84 Winston-Salem, NC 27102, JOHN L.W. GARROU 3910 Camerille Road Winston-Salem, NC 27106, SANDRA K. GALLANT via Wachovia Bank & Trust as Successor Trustee Under Agreement Dated 4/13/1987 P.O. Box 3081 Winston-Salem, NC 27150,
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JOHN T. EAGAN, JR. P.O. Box 25168 Winston-Salem, NC 27114-5168, RALPH H. WOMBLE Wachovia Bank, N.A. Closely Held Business Unit P.O. Box 3099 Winston-Salem, NC 27150, MARTHA H. WOMBLE 2006 REVOCABLE TRUST Wachovia Bank, N.A. Closely Held Business Unit P.O. Box 3099 Winston-Salem, NC 27150, JOAN W. STONE Wachovia Bank, N.A. Closely Held Business Unit P.O. Box 3099 Winston-Salem, NC 27150, CALDER W. WOMBLE 2006 REVOCABLE TRUST Wachovia Bank, N.A. Closely Held Business Unit P.O. Box 3099 Winston-Salem, NC 27150, EDITH WOMBLE P.O. Box 11653 Winston-Salem, NC 27116, GWYN WOMBLE DUNN Wachovia Bank, N.A. Closely Held Business Unit P.O. Box 3099 Winston-Salem, NC 27150, JANE WOMBLE HAVER P.O. Box 1276 Crested Butte, CO 81224,
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) ) ) ) WILLIAM F. WOMBLE, JR. ) 2658 Club Park Road ) Winston-Salem, NC 27104, ) ) LOUISE M. WOMBLE ) 729 Poinsettia Street ) Columbia, SC 29205, ) ) ANN W. STRADER ) 1010 Carter Drive, N.E. ) Atlanta, GA 30319, ) ) RITA A. GALLOS ) 2734 Spring Garden Road ) Winston-Salem, NC 27106, ) ) CHARLES T. HAGAN III, TRUSTEE ) 300 North Greene Street, Suite 200 ) Greensboro, NC 27401, ) ) MICHAEL W. HALEY ) 12121 West End ) North Palm Beach, FL 33408, ) ) H. CURTE HEGE, SR. ) 4249 Allistair Road ) Winston-Salem, NC 27104, ) ) JAMES E. HOLMES, JR. ) 1244 Arbor Road, #530 ) Winston-Salem, NC 27104-1149, ) ) INVESTORS MANAGEMENT CORPORATION ) P.O. Box 29552 ) Raleigh, NC 27626-0552, ) ) NATIONAL INVESTORS ) c/o Norwood Robinson ) Robinson & Lawing, LLP ) 101 North Cherry Street ) Winston-Salem, NC 27101, )
WILLIAM F. WOMBLE 1244 Arbor Road, Apt. 441 Winston-Salem, NC 27104-1139,
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JCP ASSOCIATES PARTNERSHIP AND JOSE SORIANO 52 East 76th Street, Suite 2 New York, NY 10021, ESTATES OF JOHN H. and ANTOINETTE B. THOMAS J. Christopher Thomas, Executor 1 Woodchute Lane Charleston, WV 25314, ALICE W. THOMASON 4201-B Blazing Star Lane Greensboro, NC 27410, DAN R. THOMASON, JR. Box 1218 Southern Pines, NC 28388, ELIZABETH L. WINN P.O. Box 188 Butler, MD 21023-0188, JAMES J. WINN, JR. P.O. Box 188 Butler, MD 21023-0188, YOUNG PHILLIPS EMPLOYEE PROFIT SHARING PLAN 2990 Bethesda Place, #605 Winston-Salem, NC 27103, F. JAMES BECHER, JR. P.O. Box 18825 Greensboro, NC 27419-8825, J.S. BRODY REMAINDERMEN, LLC 530 S.E. Greenville Blvd., Suite 200 Greenville, NC 27858, ESTATE OF D.D. CAMERON William H. Cameron, Executor P.O. Box 3649 Wilmington, NC 28406,
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MARSHA SHIFF, MARILYN LANE, and HYNDA DALTON 6106 MacArthur Blvd., Suite 200 Bethesda, MD 20816, DIANE S. BRUMBACK 1817 Rolling Road Greensboro, NC 27403, GEORGE R. BRUMBACK 2004 Tiffany Place Greensboro, NC 27408, CAROLINA HOSIERY MILLS, INC. EMPLOYEES PROFIT SHARING TRUST P.O. Box 850 Burlington, NC 27216, GEORGE E. CARR, JR. 2310 Princess Ann Street Greensboro, NC 27408, TG PARTNERS c/o Kenneth H. Fields Equitable Center 787 7th Avenue New York, NY 10019-6016, AVERY CHOPE 4281 24th Street San Francisco, CA 94114, ALAN D. COHN c/o Smith Barney 787 7th Avenue, 36th Floor New York, NY 10019, JOANN DAVIS 1289 N. Fordham Blvd. PMB #408 Chapel Hill, NC 27514, HYATT HAMMOND and BONNIE B. HAMMOND 3400 Alamance Road Greensboro, NC 27407,
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ESTATE OF JOAN S. HILSON c/o Sonhil Associates c/o John S. Pyne Smith Barney 787 7th Avenue, 36th Floor New York, NY 10019, RICHARD T. HOWARD 538 Beach Road North Wilmington, NC 28411, ELIZABETH G. KAVANAGH 14307 Galax Trail Greensboro, NC 27410, ROBERT G. KELLEY 707 Pebble Drive Greensboro, NC 27410, AMY J. POLLINGER c/o Kenneth H. Fields Klingenstein, Fields & Co., LP Equitable Center 787 7th Avenue New York, NY 10019-6016, ANDREW D. KLINGENSTEIN, JOHN KLINGENSTEIN and STANLEY W. MORTEN, TRUSTEES u/a dtd. 11/6/1979 f/b/o Andrew D. Klingenstein c/o Thomas D. Klingenstein Cohen, Klingenstein, & Marks 2109 Broadway New York, NY 10023, FREDERICK A. KLINGENSTEIN c/o Kenneth H. Fields Klingenstein, Fields & Co., LP Equitable Center 787 7th Avenue New York, NY 10019-6016,
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JOHN KLINGENSTEIN c/o Kenneth H. Fields Klingenstein, Fields & Co., LP Equitable Center 787 7th Avenue New York, NY 10019-6016, LUCY L. KLINGENSTEIN c/o Kenneth H. Fields Klingenstein, Fields & Co., LP Equitable Center 787 7th Avenue New York, NY 10019-6016, PATRICIA D. KLINGENSTEIN c/o Kenneth H. Fields Klingenstein, Fields & Co., LP Equitable Center 787 7th Avenue New York, NY 10019-6016, SARAH D. KLINGENSTEIN, JOHN KLINGENSTEIN, and FREDERICK A. KLINGENSTEIN, TRUSTEES u/a dtd. 7/1/1985 f/b/o Sarah D. Klingenstein c/o Kenneth H. Fields Klingenstein, Fields & Co., LP Equitable Center 787 7th Avenue New York, NY 10019-6016, SHARON L. KLINGENSTEIN c/o Kenneth H. Fields Klingenstein, Fields & Co., LP Equitable Center 787 7th Avenue New York, NY 10019-6016, THOMAS D. KLINGENSTEIN 2109 Broadway, Suite 207 New York, NY 10023, MAURICE J. KOURY P.O. Box 850 Burlington, NC 27216,
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ROBERT C. LOCK P.O. Box 13739 Greensboro, NC 27415, ROY MANESS P.O. Box 802 Troy, NC 27371, MCMILLION/EUBANKS, INC. P.O. Box 21447 Greensboro, NC 27420, MCMILLION/EUBANKS, INC. EMPLOYEE PROFIT-SHARING PLAN P.O. Box 21447 Greensboro, NC 27420, MADELINE J. MILLS, CUSTODIAN FOR CLARENCE BLAKE MILLS 1507 Allendale Road Greensboro, NC 27408-6501, MADELINE J. MILLS, CUSTODIAN FOR WILLIAM EVERETTE MILLS 1507 Allendale Road Greensboro, NC 27408, EVERETTE E. MILLS, III 1507 Allendale Road Greensboro, NC 27408, WILLIAM G. MOORE 307 St. Lauren Drive Greensboro, NC 27410, MARY CANNON MORRIS CHARITABLE FOUNDATION Attn: Joseph E. Morris, President 6727 Brookbank Road Summerfield, NC 27358, OKABENA PARTNERSHIP V-4 1800 IDS Center 80 South Eighth Street Minneapolis, MN 55402-4523,
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CHESTER T. NUTTALL, JR. 1704 Park Place Wilkesboro, NC 28697, WILLIAM G. PANNILL 4 South Lake Trail Palm Beach, FL 33480, WILLIAM L. PANNILL 328 East Church Street Martinsville, VA 24112, QUEEN REALTY COMPANY 6106 MacArthur Blvd., #200 Bethesda, MD 20816, KATHY K. KLINGENSTEIN c/o Kenneth H. Fields Klingenstein, Fields & Co., LP Equitable Center 787 7th Avenue New York, NY 10019-6016, OVIDE E. DE ST. AUBIN TRUSTEE of Trust #2, Under Article 7 u/w/o Ovide de St. Aubin, Jr. dtd. 10/21/1966 P.O. Box 378 Siler City, NC 27344, NANCY K. SIMPKINS c/o Kenneth H. Fields Klingenstein, Fields & Co., LP Equitable Center 787 7th Avenue New York, NY 10019-6016, ESTATE OF EARL F. SLICK P.O. Box 5958 Winston-Salem, NC 27113, M. WILLARD TUCKER 8109 Thorndike Road Greensboro, NC 27409,
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SIT INVESTMENT ASSOCIATES, INC. Attn: Paul Rasmussen 3300 IDS Center 80 South 8th Street Minneapolis, MN 55402, SUSAN KLINGENSTEIN c/o Kenneth H. Fields Klingenstein, Fields & Co., LP Equitable Center 787 7th Avenue New York, NY 10019-6016, H. MICHAEL WEAVER P.O. Box 26040 Greensboro, NC 27420-6040 RTP LIMITED PARTNERSHIP c/o William M. Griffin, General Partner The WMG Company One State Street, Suite 1740 Hartford, CT 06103, RAYMOND A. TIERNAN, TRUSTEE OF THE RAYMOND A. TIERNAN IRA Elias, Matz, Tiernan, & Herrick, LLP 734 15th Street, NW, 12th Floor Washington, DC 20005 v. THE UNITED STATES, Defendant.
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SECOND AMENDED COMPLAINT In accordance with the Court's Opinion and Order of May 11, 2007 (the "May 11 Decision"), and the Court's Order of November 15, 2007 the following (collectively, "Plaintiffs") hereby file this Second Amended Complaint against defendant the United States: (1) 1st Home Liquidating Trust ("1st Home Trust"); (2) Everette E. Mills, III and
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William E. Stone, Trustees (the "Trustees," and together with the Trust, the "Original Plaintiffs"); and (3) the other plaintiffs named above ("Additional Named Plaintiffs"), and state as follows: NATURE AND SUMMARY OF THIS ACTION
1.
If there is any inconsistency between the allegations of this Second
Amended Complaint and the findings and conclusions of the May 11 Decision, the latter shall control. 2. This is an action for breach of contract, restitution, and deprivation of
property without just compensation or due process of law. The Original Plaintiffs assert claims on behalf of 1st Home Trust, as successor to 1st Home Federal Savings and Loan Association of the Carolinas, F.A. ("1st Home Federal"), and on behalf of beneficiaries of the Trust. The Additional Named Plaintiffs each assert claims in their own behalf, because they are either "original investors" or as "legal successors in interest" within the meaning of the May 11 Decision, and thus are entitled to restitution because they or their predecessors invested in 1st Home Federal at the time of its supervisory conversion in reliance on the government's contractual promises noted below. 3. The claims asserted by Plaintiffs are based upon: (1) a contractual
agreement entered into between, on the one hand, 1st Home Federal and the Additional Named Plaintiffs or their legal predecessors in interest who invested in the 1st Home Federal conversion, and the other investors in that conversion (collectively, the "Acquirers") and, on the other hand, the United States, as represented by its agencies
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the Federal Home Loan Bank Board ("FHLBB") and the Federal Savings and Loan Insurance Corporation ("FSLIC"); (2) the breach, frustration and abrogation of that contract by the United States, acting through various agencies and officials; (3) the government's taking of the contract and property rights of 1st Home Federal and the Acquirers without just compensation or due process of law; and (4) other government conduct resulting from or related to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C. § 1464 (1989), regulations promulgated under FIRREA, and acts and omissions of government agencies and officials relating to FIRREA and the FIRREA regulations. 4. For relief, Plaintiffs seek: (a) damages to compensate for the
consequences of the government's breach, frustration and abrogation of the contractual agreement with the United States; (b) restitution to the Acquirers of the funds invested by them or their legal predecessors in interest in reliance upon the government's contract commitments; (c) restitution of other benefits conferred on the government, which constitute unjust enrichment of the United States at Plaintiffs' expense; (d) just compensation for the unconstitutional taking of contract and property rights of 1st Home Federal, its beneficiaries and the Additional Named Plaintiffs, and the other unlawful government conduct noted below; and (e) other appropriate monetary relief. 5. This case involves deliberate conduct by the United States government in
reneging on central commitments it made in a contractual agreement with 1st Home Federal and the Acquirers. 6. In October 1986, the government consummated a contractual agreement
with 1st Home Federal and the Acquirers, pursuant to which the government, in order to 16
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save itself the cost of liquidating 1st Home Federal, agreed to 1st Home Federal's conversion from a mutual to a stock-based savings and loan association, and, in particular, agreed (1) that 1st Home Federal could use purchase method accounting under generally accepted accounting principles ("GAAP") and could include resulting goodwill, amortized over an established period, as capital for purposes of meeting its regulatory capital requirements, and (2) to forbear for a period of three years from taking adverse regulatory action should 1st Home Federal not meet its minimum regulatory capital requirement, provided that such deficiency would not have occurred if 1st Home Federal were permitted to calculate its capital in accordance with regulatory accounting principles. The government's agreement on these regulatory accounting matters was a fundamental term of the parties' contract governing the conversion, and a necessary prerequisite for 1st Home Federal to raise and for the Acquirers to invest $32.5 million in new equity capital, thus avoiding the failure of 1st Home Federal. 7. With the enactment of FIRREA in 1989, the United States reneged on
its contractual commitments to 1st Home Federal and the Acquirers, including the Additional Named Plaintiffs or their legal predecessors in interest, concerning the regulatory capital treatment of goodwill. Following FIRREA, the government required immediate exclusion from 1st Home Federal's regulatory capital of much of the goodwill that the government previously had agreed 1st Home Federal could include in meeting its net worth requirement. 8. The government's blatant reversal of position on inclusion of goodwill in
capital for regulatory purposes, and the government's breach of the contractual
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commitments it made to 1st Home Federal and to the Acquirers, including the Additional Named Plaintiffs or their legal predecessors in interest, concerning goodwill and its amortization, had significant and material adverse financial effects on 1st Home Federal and eventually forced it out of business. 9. The government's conduct represents a fundamental breach, frustration
and abrogation of the parties' contractual agreement governing 1st Home Federal's conversion and constitutes a deprivation of valuable property in violation of applicable constitutional requirements. For that unlawful government conduct, Plaintiffs seek relief in this action, primarily in the form of restitution to the Additional Named Plaintiffs in accordance with the Court's May 11 Decision, but also alternatively in the form of damages, just compensation and/or other appropriate contractual, constitutional and other relief. JURISDICTION 10. This Court has jurisdiction over the subject matter of this action under
28 U.S.C. § 1491(a)(1). THE PARTIES 11. 1st Home Federal was a federally chartered savings and loan
association until its voluntary liquidation and dissolution in May 1993. 12. 1st Home Trust is an express trust established in August 1993 pursuant to
a liquidating trust agreement (the "Trust Agreement") and under the laws of the State of North Carolina for the purpose of managing the liquidation and any residual assets, liabilities and claims of 1st Home Federal. Upon creation of the Trust, shares owned by shareholders in 1st Home Federal were converted into an equivalent amount of interest in the Trust,
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owned by Trust beneficiaries (who previously were shareholders of 1st Home Federal). 13. The Trustees are the current trustees of 1st Home Trust. Under the
Trust Agreement and in accordance with applicable law, the Trustees are authorized to act on behalf of 1st Home Trust. 14. The Additional Named Plaintiffs or their legal predecessors in interest
are among the investors who collectively invested $32.5 million in 1st Home Federal at the time of its supervisory conversion in 1986 in reliance on the contractual promises made by the United States and noted in this Second Amended Complaint. The Additional Named Plaintiffs include both "original investors" and "legal successors interest" within the meaning of the May 11 Decision. Attachment A to this Second Amended Complaint lists all the Additional Named Plaintiffs, and for each lists the amount of restitution due to the plaintiff (at $10 per share) under the Court's May 11 Decision. 15. In this action, the Trustees assert claims against the United States on
behalf of 1st Home Trust, and each Additional Named Plaintiff asserts claims against the United States on his, her, or its own behalf. 16. The FSLIC was an agency and instrumentality of the United
States until it was abolished by FIRREA in 1989. The FSLIC insured the accounts of depositors up to $100,000 in certain savings institutions, including 1st Home Federal, and also enforced compliance by such institutions with various regulatory requirements designed to safeguard FSLIC's deposit insurance fund. 17. The FHLBB was an agency of the United States until it was abolished by
FIRREA in 1989. The FHLBB, as operating head of FSLIC, was charged with, among
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other things, regulating federally-chartered savings and loan associations and savings banks, acting as the operating head of the FSLIC, enforcing compliance by such institutions with various regulatory requirements, and approving and assisting conversions of mutual savings and loan associations to stock-based associations. 18. The Federal Deposit Insurance Corporation ("FDIC") is an agency of the
United States. Under FIRREA, the FDIC is designated as the successor to the FSLIC for purposes relevant to this action. 19. The Office of Thrift Supervision ("OTS") is an agency of the United
States and the Director of OTS is an officer and agent of the United States. Under FIRREA, the OTS and its Director are designated as the successor to FHLBB for purposes relevant to this action. 20. FIRREA provides that it "shall not affect the validity of any right, duty,
or obligation" of the United States, FSLIC, FHLBB, or "any other person" which arose prior to FIRREA, and that "all orders, resolutions, determinations, and regulations" of FSLIC and FHLBB prior to FIRREA "shall continue in effect" according to their terms and "be enforceable by or against" FDIC or the Director of the OTS, as the case may be, until terminated or superseded "in accordance with law." STATEMENT OF FACTS The Government Originally Encouraged 1st Home Federal To Adopt Regulatory Accounting Principles. 21. In the early 1980's, a large number of thrift institutions across the United
States encountered financial difficulties brought about primarily by extraordinarily high interest rates. The resulting thrift industry "crisis" threatened the government's deposit insurance fund, administered by FSLIC, with enormous and catastrophic losses.
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22.
At that time, the FHLBB was faced with a large number of thrift
institutions with negative or unfavorable net worth positions due, among other things, to unprecedented high interest rates and, in particular, huge losses suffered by thrifts resulting from the mismatch between the low interest rates the thrifts collected on longterm fixed-rate loans, such as thirty-year residential mortgages, and the higher interest rates the thrifts had to pay to attract and keep deposits. 23. To help alleviate problems resulting from interest rate mismatch, the
FHLBB encouraged certain thrifts to depart from GAAP and to prepare their financial statements and calculate their regulatory net worth according to regulatory accounting principles ("RAP"). Under RAP, savings and loan associations were permitted, among other things, to defer and amortize losses resulting from sales of long-term fixed-rate loans over the remaining life of the loans sold. 24. In late 1982, when 1st Home Federal was encountering some financial
difficulties as a result of interest rate mismatch, the FHLBB encouraged it to sell a significant amount of long-term fixed-rate loans at a loss, to defer and amortize the loss pursuant to RAP, and to thereafter report its regulatory capital position pursuant to RAP. The Transaction Giving Rise to the Contract and Property Rights Asserted Here by Plaintiffs. 25. By 1985, RAP was in disfavor with the FHLBB. As a result, the FHLBB
began to encourage thrifts to discontinue RAP accounting and to prepare their financial statements and calculate net worth according to GAAP, which excluded certain categories of assets, particularly deferred loan losses, from a thrift's calculation of its regulatory net worth. The FHLBB eventually generally prohibited use of RAP altogether, and entirely prohibited use of deferred loan losses as a component of regulatory capital.
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26.
In early 1985, on a RAP basis, 1st Home Federal had a regulatory net
worth of approximately $31.5 million. However, on a GAAP basis, 1st Home Federal had a net worth of negative $36.7 million due primarily to its inability to include deferred losses as assets under GAAP. 27. Also in 1985, 1st Home Federal and the FHLBB and FSLIC determined
and agreed that 1st Home Federal required a significant capital infusion--in the neighborhood of $30 million--in order to assure its continued viability. The government and its agencies, the FHLBB and FSLIC, had a powerful financial incentive to assist 1st Home Federal in securing the needed new capital. Absent such capital, 1st Home Federal faced potential failure, which would have imposed a tremendous cost on the government's FSLIC insurance fund. 28. 1st Home Federal eventually sought to obtain the necessary capital infusion by
converting from a mutual to a stock association and selling stock to outside investors. 29. From the outset of the planning for 1st Home Federal's supervisory
conversion by 1st Home Federal and the FHLBB and FSLIC, those agencies took a particular and material interest in the specific identities of each potential investor in 1st Home Federal, in order to assure that only qualified and capable investors approved by the agencies participated in the supervisory conversion and that such investors understood and accepted the terms of the conversion. 30. Despite the government's strong financial incentive to help make 1st Home
Federal's conversion and stock sale successful, because 1st Home Federal on a RAP basis complied with applicable regulatory capital requirements, the government was unwilling (or unable) to provide cash assistance to facilitate the conversion. At the same time, the
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government required that, in connection with the conversion, 1st Home Federal change from RAP to GAAP in preparing its financial statements and in calculating and reporting its regulatory capital. 31. In the context of the governmentally-imposed requirements mentioned
above--no cash assistance, and a change from RAP to GAAP accounting--1st Home Federal and various potential investors began to negotiate with the FHLBB and FSLIC concerning terms and conditions for 1st Home Federal's conversion. The key objective of all parties was to (1) agree on terms that would make 1st Home Federal not only viable but profitable after the conversion, and thereby both attract sufficient new equity capital to make the conversion successful and to ensure the continued viability of the institution, and, correspondingly, (2) ensure that the investments made by the Acquirers, including the Additional Named Plaintiffs or their legal predecessors in interest, would be reasonably secure and sound. 32. The terms agreed upon between 1st Home Federal and the Acquirers, and
the FSLIC and FHLBB, initially were set forth in the formal application for conversion and the accompanying detailed three-year Business Plan that was submitted to the FHLBB on behalf of both 1st Home Federal and the Acquirers. 33. Those documents, as amended and revised during the negotiation
process, showed that 1st Home Federal could change from RAP to GAAP accounting and raise approximately $30 million in new equity only if the government agreed to 1st Home Federal's use of purchase method accounting for the conversion as set forth in the Business Plan accompanying the Application. Under purchase method accounting, the approximately $30 million negative net worth that 1st Home Federal otherwise would
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report under GAAP, after the conversion, would be offset by an intangible asset, goodwill, to be amortized by 1st Home Federal over an agreed period. 34. In their Business Plan submitted to the FHLBB, 1st Home Federal and
the Acquirers set forth the amount of goodwill that 1st Home Federal expected to report and specified the amortization period information necessary to enable 1st Home Federal to convert to stock form, eliminate the use of RAP, and maintain an acceptable regulatory net worth position under GAAP following the conversion. The Application and Business Plan also requested that the FHLBB and FSLIC forbear for a period of five years from taking adverse regulatory action should 1st Home Federal not meet its minimum regulatory capital requirement provided that such deficiency would not have occurred if 1st Home Federal were permitted to calculate its capital in accordance with regulatory accounting principles 35. After extensive review, discussion and negotiation of the terms of 1st
Home Federal's proposed conversion, the FHLBB and FSLIC expressly agreed to the conversion on generally the terms negotiated between the parties, and manifested that agreement in, among other documents, FHLBB Resolution No. 85-1214 dated December 26, 1985. That Resolution specifically set forth the government's agreement that 1st Home Federal could and would complete its conversion transaction "in accordance with the terms of" 1st Home Federal's formal conversion application and the accompanying Business Plan. 36. FHLBB Resolution No. 85-1214 also specifically identified Acquirers,
and further demonstrated the government's particular interest the identities of the Acquirers by expressly requiring 1st Home Federal to submit to the FHLBB upon closing of the
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conversion an affidavit certifying and specifying the identities of the Acquirers. 37. In its Resolution, the FHLBB also certified 1st Home Federal as
"insolvent," and specifically found that (1) the FHLBB had the power to appoint a receiver to liquidate 1st Home Federal, (2) upon liquidation, no equity value would be realizable by 1st Home Federal's account holders, (3) severe conditions existed which threatened the financial condition of 1st Home Federal, and (4) following the conversion 1st Home Federal would be a viable entity as defined by FHLBB regulations. The FHLBB resolution also set forth the names of Acquirers, thereby confirming that the Acquirers were included among the agreed-upon elements of the conversion. 38. In the same Resolution, the FHLBB further ratified its consent to the
regulatory accounting terms set forth in Business Plan submitted by 1st Home Federal and the Acquirers by (a) expressly agreeing to issue 1st Home Federal a "forbearance letter" concerning regulatory net worth matters relating to the conversion, and (b) requiring that 1st Home Federal submit, following the conversion, an opinion letter from its independent accountants describing 1st Home Federal's treatment of goodwill resulting from the conversion and substantiating the reasonableness of the amount included as goodwill and the amortization periods attributed to such goodwill. 39. Between the issuance of FHLBB Resolution No. 85-1214 and the
consummation of 1st Home Federal's supervisory conversion in October 1986, the identities of the Acquirers changed to some extent. At the request of the FHLBB and FSLIC, 1st Home Federal submitted to those agencies for approval the names of each the new or replacement Acquirers, because the government had made clear that it deemed the identity and suitability of each individual investor/Acquirer to be important and material
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both to the government's agreement to the terms of the supervisory conversion and to the success of the transaction. 40. Also between the issuance of FHLBB Resolution No. 85-1214 and the
consummation of 1st Home Federal's supervisory conversion in October 1986, the government determined that it would only agree to the regulatory forbearance requested by 1st Home Federal and the Acquirers, and noted in paragraph 34 above, for a period of three years rather than the five years originally requested. 1st Home Federal and each Acquirer elected to proceed to consummate the conversion on the same terms originally negotiated and agreed with the government excepting only the change from a five year period to a three year period for this regulatory forbearance. In so doing, 1st Home Federal and the Acquirers specifically agreed to and ratified all those ultimate terms for the conversion, and the FHLBB and FSLIC also agreed to and became bound to honor those ultimate terms for the conversion 41. On October 30, 1986, 1st Home Federal and the Acquirers
consummated the conversion on the terms and conditions they had agreed upon with the FHLBB and FSLIC. At that time, 1st Home Federal issued stock to the Acquirers, who invested an aggregate total of $32.5 million of new equity into the institution. In making that investment, and in purchasing stock in 1st Home Federal, each of the Acquirers relied upon the terms and conditions agreed between and among 1st Home Federal, the Acquirers and the government with regard to financial, regulatory and other matters mentioned above and reflected in the formal conversion Application and accompanying Business Plan submitted by 1st Home Federal and the Acquirers, and in the FHLBB Resolution, forbearance letter and other documents memorializing the parties' agreement and noted
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above. 42. At the time of the conversion, the FHLBB issued the forbearance letter
mentioned in the FHLBB Resolution and noted above, which is among the documents memorializing the terms of the agreement between 1st Home Federal and the government concerning the conversion. Following the conversion and as required by the FHLBB Resolution, 1st Home Federal submitted, among other things, (1) an affidavit specifying the number and identity of the Acquirers, and (2) an opinion letter from its independent accountants describing 1st Home Federal's use of purchase method accounting and resulting goodwill in the conversion, and substantiating the reasonableness of the amounts included as goodwill and the related amortization periods That letter also memorialized key terms of the parties' agreement relating to the conversion. 43. The terms of 1st Home Federal's conversion included the
government's express agreements that 1st Home Federal (a) would change from RAP to GAAP accounting for purposes of calculating and reporting its regulatory net worth, (b) would use the purchase method of accounting, and (c) would include the goodwill arising from purchase method accounting, amortized over a fixed period, in its capital for purposes of calculating its regulatory net worth. The government's agreements with 1st Home Federal and the Acquirers on these matters were fundamental and necessary terms of the conversion, without which 1st Home Federal could not have raised and the Acquirers would not have invested more than $30 million in the conversion transaction, thereby saving the government the cost of potentially liquidating the institution. These terms were intended to benefit, and did benefit, the government, 1st Home Federal and the Acquirers.
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44.
The government's agreements on the regulatory accounting terms of
the conversion were contractual agreements, legally binding and enforceable against the United States. In connection with those agreements, all the traditional elements of contract formation were present: capacity and mutual intent to contract; arms length regulation; and the exchange of real obligations for real benefits. Accordingly, the government could not abrogate those agreements without liability. FIRREA 45. On August 7, 1989, FIRREA was enacted into law. As set forth below,
under FIRREA the government directly and deliberately abrogated its contractual agreements with 1st Home Federal and the Acquirers regarding regulatory capital treatment of the goodwill resulting from the use of purchase method accounting in the conversion transaction. 46. OTS also promulgated implementing regulations related to FIRREA's
regulatory capital provisions. In some respects those regulations go beyond FIRREA's express requirements and thus constitute agency action independently giving rise to Plaintiffs' causes of action here. 47. Under FIRREA and its implementing regulations, goodwill such as 1st
Home Federal acquired in the conversion and which the government agreed would be included in regulatory capital and amortized over thirty years, generally was required to be deducted from a thrift's net worth for purposes of determining compliance with regulatory capital requirements. The only exception with respect to goodwill under FIRREA permitted a declining portion of goodwill to be counted for certain regulatory capital purposes during a brief phase-out period, but for other regulatory capital purposes
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FIRREA provided no exception and all goodwill had to be deducted immediately. These new requirements under FIRREA and the OTS regulations relating to goodwill abrogated the contractual agreement that 1st Home Federal and the Acquirers had made with the government, and the contract rights asserted by Plaintiffs. Claims for Damages, Restitution and Unjust Enrichment. 48. The government's abrogation of the contract rights that 1st Home Federal
and the Acquirers obtained by way of the conversion caused material and significant adverse financial consequences. By requiring the dramatic and precipitous deduction of a significant amount of regulatory capital from 1st Home Federal's books, in violation of its own prior contractual commitments, the government caused 1st Home Federal to suffer tremendous financial damage. As a direct result of the government's conduct, 1st Home Federal was forced, because of its greatly depleted capital, to voluntarily liquidate pursuant to a plan of liquidation. 49. The government's abrogation of the contract rights that 1st Home Federal
and the Acquirers obtained by way of the conversion also deprived each individual Acquirer of the benefits of the agreements the government had made with the Acquirers. Those agreements by the government had been a material and necessary inducement for the Acquirers to participate in the conversion and constituted a fundamental and necessary part of the consideration that the Acquirers received for their investments. 50. Prior to its voluntary liquidation, the required deductions of the goodwill
from 1st Home Federal's regulatory capital caused it to fall out of regulatory capital compliance and to face potential seizure and liquidation by the government. As a consequence, the Director of OTS, the FDIC and other government agencies and officials
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denied 1st Home Federal valuable benefits and business opportunities that would have been available to 1st Home Federal had the government not reneged on its agreements. 51. The damages claims asserted by Plaintiffs also arise from the
government's unconstitutional taking of property rights without just compensation and the invalidation of those property rights without due process. The government's contractual agreement relating to the specified and bargained-for capital treatment of goodwill was of significant value to both 1st Home Federal and the Acquirers, and reflected legitimate, investment-backed expectations constituting property rights. Those rights cannot be taken by the government without just compensation and without due process of law. 52. The actions of the United States relating to the enactment and
implementation of FIRREA rendered meaningless the government's contractual agreement with 1st Home Federal and the Acquirers respecting the accounting treatment of goodwill. The fundamental assumptions of the parties as to the existing facts on which that agreement was premised have proved to be mistaken, the contract has been breached, and its basic purpose frustrated. For these reasons as well, Plaintiffs are entitled to recover restitution of the benefits conferred upon the United States by the actions of 1st Home Federal and the Acquirers in entering into the conversion transaction agreement. COUNT I (Restitution for Breach of Contract; Original Investors) 53. Plaintiffs repeat and reallege here all allegations set forth in paragraphs 1
through 52 above. 54. By deliberately rescinding its promises to allow 1st Home Federal to
include and amortize over a fixed period, for purposes of satisfying regulatory capital requirements, the goodwill resulting from the use of purchase method accounting in its
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conversion, the United States breached material terms of its contractual agreement with 1st Home Federal and the Acquirers relating to the conversion. 55. As a result of that breach, 1st Home Federal and the Additional Named
Plaintiffs and/or their legal predecessors in interest suffered substantial financial damages. 56. Because of the United States' breach of material terms of its contractual
agreement with 1st Home Federal and the Acquirers, and as set forth in the Court's May 11 Decision, the United States must pay restitution of the funds invested in the 1st Home Federal conversion to original investors and legal successors in interest. 57. This Count I of this Second Amended Complaint seeks recovery of
restitution of the funds invested by original investors in the 1st Home Federal conversion who are currently beneficiaries of the Trust. 58. All current Trust beneficiaries who were original investors in the 1st
Home Federal conversion are listed below in paragraph 59, together with the original amount, in shares and in dollars, invested in the 1st Home Federal conversion by each such investor. 59. Each original investor listed below is an "original investor" within the
meaning of the Court's May 11 Decision and is an Additional Named Plaintiff in this action: Name of Investor Susan T. & E.S. Melvin G. Dee Smith and Jeanine M. Smith Rodney E. Austin Murray C. Greason, Jr. Shares 20,000 20,000 3,000 1,500 Amount Invested $200,000.00 $200,000.00 $30,000.00 $15,000.00
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Name of Investor LasaHane Investments Albert S. Lineberry, Sr. Mrs. Clarence B. Jones James B. Millikan James C. Ratcliff Jule C. Spach Louis C. Stephens, Jr. and Mary Adams Stephens Henry V. Cunningham, Jr. and Sarah B. Cunningham Marvin L. Ferrell, Jr. William C. Fitzgerald, III and Carolyn N. Fitzgerald Robert L. Kitterman James E. Mims James E. Mims James E. Mims IRA via MLPF&S, Cust. Erline K. Mize and William R. Mize, Sr. Thomas G. Nisbet, Jr. Charles P. Robinson William E. Stone Larry J.A. Thompson Brown Technology Associates, L.P.
Shares 20,000 10,000 7,000 3,000 1,000 1,000 10,000
Amount Invested $200,000.00 $100,000.00 $70,000.00 $30,000.00 $10,000.00 $10,000.00 $100,000.00
7,500
$75,000.00
3,500 25
$35,000.00 $250.00
2,500 3,000 7,000
$25,000.00 $30,000.00 $70,000.00
2,000
$20,000.00
200 1,000 500 7,500 13,800
$2,000.00 $10,000.00 $5,000.00 $75,000.00 $138,000.00
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Name of Investor Joseph M. Bryan, Jr. Lester R. Burnette John W. Davis, III David R. Parker R-IRA via DB Securities Inc., Cust. Manuel V. Fernandez and Alma J. Fernandez Charles T. Hagan III, Trustee Michael W. Haley H. Curte Hege, Sr. James E. Holmes, Jr. Investors Management Corporation National Investors Dan R. Thomason, Jr. Elizabeth L. Winn James J. Winn, Jr. Young Phillips Employee Profit Sharing Plan F. James Becher, Jr. Carolina Hosiery Mills, Inc. Employees Profit Sharing Trust George E. Carr, Jr. Avery Chope Alan D. Cohn
Shares 50,000 25,000 2,500 5,000
Amount Invested $500,000.00 $250,000.00 $25,000.00 $50,000.00
75,000
$750,000.00
5,000 25,000 25,000 10,000 50,000 30,000 100,000 2,500 2,500 25,000
$50,000.00 $250,000.00 $250,000.00 $100,000.00 $500,000.00 $300,000.00 $1,000,000.00 $25,000.00 $25,000.00 $250,000.00
4,000 25,000
$40,000.00 $250,000.00
500 500 5,000
$5,000.00 $5,000.00 $50,000.00
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Name of Investor JoAnn Davis Hyatt Hammond and Bonnie B. Hammond Richard T. Howard Robert G. Kelley
Shares 50,000 10,000
Amount Invested $500,000.00 $100,000.00
10,000 500
$100,000.00 $5,000.00 $100,000.00
Andrew D. Klingenstein, 10,000 John Klingenstein, and Stanley W. Morten, Trustees u/a dtd. 11/6/1979 f/b/o Andrew D. Klingenstein Frederick A. Klingenstein John Klingenstein Patricia D. Klingenstein 30,000 30,000 10,000
$300,000.00 $300,000.00 $100,000.00 $100,000.00
Sarah D. Klingenstein, John Klingenstein 10,000 and Frederick A. Klingenstein, Trustees u/a dtd. 7/1/1985 f/b/o Sarah D. Klingenstein Sharon L. Klingenstein Thomas D. Klingenstein Maurice J. Koury Robert C. Lock Roy Maness McMillion/Eubanks, Inc. McMillion/Eubanks, Inc. Employee Profit-Sharing Plan Madeline J. Mills, Custodian for Clarence Blake Mills Madeline J. Mills, Custodian for William Everette Mills 10,000 35,000 15,000 50,000 500 20,000 5,000
$100,000.00 $350,000.00 $150,000.00 $500,000.00 $5,000.00 $200,000.00 $50,000.00
1,250
$12,500.00
1,250
$12,500.00
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Name of Investor Everette E. Mills, III William G. Moore Okabena Partnership V-4 Chester T. Nuttall Jr. William G. Pannill William L. Pannill Queen Realty Company RTP Limited Partnership Ovide E. de St. Aubin, Trustee of Trust #2 Under Article 7 u/w/o Ovide de St. Aubin, Jr. dtd. 10/21/1966 M. Willard Tucker Sit Investment Associates, Inc. H. Michael Weaver 60.
Shares 5,000 1,000 40,000 45,000 100,000 50,000 5,000 150,000 147,500
Amount Invested $50,000.00 $10,000.00 $400,000.00 $450,000.00 $1,000,000.00 $500,000.00 $50,000.00 $1,500,000.00 $1,475,000.00
500 20,000 30,000
$5,000.00 $200,000.00 $300,000.00
The United States is liable to pay, and should be directed to pay,
restitution to each of the Additional Named Plaintiffs listed in paragraph 59 above in the respective amounts shown next to the Additional Named Plaintiff's name. COUNT II (Restitution for Breach of Contract; Legal Successors In Interest; Beneficiaries Who Own Shares Due To One Or More Deaths) 61. Plaintiffs repeat and reallege here all allegations set forth in paragraphs
1 through 60 above. 62. By deliberately rescinding its promises to allow 1st Home Federal to
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requirements, the goodwill resulting from the use of purchase method accounting in its conversion, the United States breached material terms of its contractual agreement with 1st Home Federal and the Acquirers relating to the conversion. 63. As a result of that breach, 1st Home Federal and the Additional Named
Plaintiffs and/or their legal predecessors in interest suffered substantial financial damages. 64. Because of the United States' breach of material terms of its contractual
agreement with 1st Home Federal and the Acquirers, and as set forth in the Court's May 11 Decision, the United States must pay restitution of the funds invested in the 1st Home Federal conversion to original investors and legal successors in interest. 65. This Count II of this Second Amended Complaint seeks recovery of
restitution by Trust beneficiaries who obtained their 1st Home Federal shares, or equivalent interest in the Trust, as a direct result of the death of an original investor or of another qualifying shareholder or beneficiary ("Legal Successors By Death"). The term "qualifying shareholder or beneficiary" refers to someone who obtained his/her shares upon the death of an original investor or upon the death of someone who obtained his/her shares upon the death of an original investor. In other words, excluded are persons who obtained their shares upon the death of someone not themselves entitled to restitution under the Court's May 11 decision. 66. All Trust beneficiaries who are Legal Successors By Death as defined
above are "legal successors in interest" within the meaning of the Court's May 11 Decision. 67. All current Trust beneficiaries who are Legal Successors By Death are
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listed below, together with (a) that number of shares currently owned by such person out of the original number of shares purchased in the 1st Home Federal conversion by the person's predecessor who was an investor in the conversion (i.e., an Acquirer), and (b) the corresponding amount of restitution due to the listed person, at $10 per share, under the Court's May 11 Decision. Each Legal Successor By Death listed below is an Additional Named Plaintiff in this action: Name of Investor Pauline S. Hovis c/o Janet Henry Mrs. Clarence B. Jones Patricia Austin Nussbaum Sevier Trustee of the Family Trust u/w of Victor M. Nussbaum, Jr. Estate of Sarah Hutchens Brinson c/o Sarah B. Cunningham Estate of Anita P. Burge Burton Bonnie B. Hammond, Executrix Prime Bank Kendall DeMatteo Berkey Shares 2,000 Amount Invested $20,000.00
13,000 10,000
$130,000.00 $100,000.00
25,000
$250,000.00
15,000
$150,000.00
201,997 18,003.00 11,666.67 29,669.67 11,666.67 11,666.67 11,666.67 11,666.67 11,666.67
$2,019,970.00 $180,030.00 $116,666.67 $296,696.67 $116,666.67 $116,666.67 $116,666.67 $116,666.67 $116,666.67
Gene DeMatteo, Jr. Robin DeMatteo Elizabeth DeMatteo Falcone Cynthia Ann Falconer Kevin DeMatteo
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Name of Investor Estate of Katherine Preyer DeMatteo John Peter Preyer & Allan Talmage Preyer III, Co-Adminstrators CTA Rita A. Gallos Estates of John H. and Antoinette B. Thomas J. Christopher Thomas, Executor Alice W. Thomason J.S. Brody Remaindermen, LLC Estate of D.D. Cameron William H. Cameron, Executor Marsha Shiff, Marilyn Lane, and Hynda Dalton Estate of Joan S. Hilson c/o Sonhil Associates c/o John S. Pyne Elizabeth G. Kavanagh Mary Cannon Morris Charitable Foundation Estate of Earl F. Slick 68.
Shares
Amount Invested
10,000 25,000 10,000
$100,000.00 $250,000.00 $100,000.00
100,000 35,000 20,000
$1,000,000.00 $350,000.00 $200,000.00
10,000
$100,000.00
10,000
$100,000.00
20,000 100,000
$200,000.00 $1,000,000.00
25,000
$250,000.00
The United States is liable to pay, and should be directed to pay,
restitution to each of the Additional Named Plaintiffs listed in paragraph 67 above in the respective amounts shown next to the Additional Named Plaintiff's name. COUNT III (Restitution for Breach of Contract; Legal Successors In Interest; Beneficiaries Who Own Shares Due To Partnership Dissolution Or Divorce) 69. Plaintiffs repeat and reallege here all allegations set forth in paragraphs
1 through 68 above.
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70.
By deliberately rescinding its promises to allow 1st Home Federal to
include and amortize over a fixed period, for purposes of satisfying regulatory capital requirements, the goodwill resulting from the use of purchase method accounting in its conversion, the United States breached material terms of its contractual agreement with 1st Home Federal and the Acquirers relating to the conversion. 71. As a result of that breach, 1st Home Federal and the Additional Named
Plaintiffs and/or their legal predecessors in interest suffered substantial financial damages. 72. Because of the United States' breach of material terms of its contractual
agreement with 1st Home Federal and the Acquirers, and as set forth in the Court's May 11 Decision, the United States must pay restitution of the funds invested in the 1st Home Federal conversion to original investors and legal successors in interest. 73. This Count III of this Second Amended Complaint seeks recovery of
restitution by Trust beneficiaries (collectively, "Legal Successors By Partnership Dissolution or Divorce") who own or obtained their share in 1st Home Federal, or equivalent Trust interest, in one of three ways: (a) upon dissolution of a partnership that was an original investor in the 1st Home Federal conversion or a successor partnership to an original investor with identical beneficiaries (i.e., no change in beneficial interest from the partnership that was the original investor) (b) following the divorce of an original investor in the 1st Home Federal conversion, in which divorce the shares obtained in the conversion were divided into equal shares now owned individually by the former spouses, or (c) upon the termination of a trust or a pension plan that was an original investor in the 1st Home Federal conversation in which the trust assets or
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pension plan assets have been distributed to the trust beneficiaries or to a new pension plan/IRA. 74. All current Trust beneficiaries who are Legal Successors By Partnership
Dissolution, Divorce, or Trust or Pension Plan Termination are listed below in paragraph 75, together with (a) that number of shares currently owned by such person out of the original number of shares purchased in the 1st Home Federal conversion by the person's predecessor who was an investor in the conversion (i.e., an Acquirer), and (b) the corresponding amount of restitution due to the listed person, at $10 per share, under the Court's May 11 Decision. 75. Each Trust beneficiary who is a Legal Successor By Partnership
Dissolution, Divorce, or Trust or Pension Plan Termination listed below is an Additional Named Plaintiff in this action and is a "legal successor in interest" within the meaning of the Court's May 11 Decision: Name of Investor Louise C. Palmer Ann L. Brenner, Trustee QTIP Trust f/b/o Ann L. Brenner Ms. Allan C. Hollan David A. Irvin John L.W. Garrou Sandra K. Gallant via Wachovia Bank & Trust as Successor Trustee Under Agreement Dated 4/13/1987 John T. Eagan, Jr. Ralph H. Womble Shares 5,000 10,000 Amount Invested $50,000.00 $100,000.00
10,000 5,000 3,000 5,000
$100,000.00 $50,000.00 $30,000.00 $50,000.00
7,500 3,000
$75,000.00 $30,000.00
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Name of Investor Martha H. Womble 2006 Revocable Trust Joan W. Stone Calder W. Womble 2006 Revocable Trust Edith Womble Gwyn Womble Dunn Jane Womble Haver William F. Womble William F. Womble, Jr. Louise M. Womble Ann W. Strader JCP Associates Partnership and Jose Soriano Diane S. Brumback George R. Brumback Raymond A. Tiernan, Trustee of the Raymond A. Tiernan IRA TG Partners Amy J. Pollinger Lucy L. Klingenstein Kathy K. Klingenstein Nancy K. Simpkins Susan Klingenstein 76.
Shares 5,000 2,500 10,000 4,000 2,500 2,500 10,000 2,500 2,500 5,000 200,000
Amount Invested $50,000.00 $25,000.00 $100,000.00 $40,000.00 $25,000.00 $25,000.00 $100,000.00 $25,000.00 $25,000.00 $50,000.00 $2,000,000.00
2,500 2,500
$25,000.00 $25,000.00
2,500 25,000 10,000 10,000 10,000 10,000 10,000
$25,000.00 $250,000.00 $100,000.00 $100,000.00 $100,000.00 $100,000.00 $100,000.00
The United States is liable to pay, and should be directed to pay,
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restitution to each of the Additional Named Plaintiffs listed in paragraph 75 above in the respective amounts shown next to the Additional Named Plaintiff's name. COUNT IV (Restitution for Breach of Contract; Original Plaintiffs On Behalf Of Any/All Other Original Investors or Legal Successors In Interest) 77. Plaintiffs repeat and reallege here all allegations set forth in paragraphs
1 through 76 above. 78. By deliberately rescinding its promises to allow 1st Home Federal to
include and amortize over a fixed period, for purposes of satisfying regulatory capital requirements, the goodwill resulting from the use of purchase method accounting in its conversion, the United States breached material terms of its contractual agreement with 1st Home Federal and the Acquirers relating to the conversion. 79. As a result of that breach, 1st Home Federal and the Acquirers and/or
their successors in interest have suffered substantial financial damages. 80. Because of the United States' breach of material terms of its contractual
agreement with 1st Home Federal and the Acquirers, and as set forth in the Court's May 11 Decision, the United States must pay restitution of the funds invested in the 1st Home Federal conversion to original investors and legal successors in interest. 81. In this Count IV of this Second Amended Complaint, the Original
Plaintiffs seek recovery of restitution in favor of each Trust beneficiary or other person not named in Counts I through III above who the Court may determine to have standing, and thus be entitled to restitution under the May 11 Decision. 82. Included among the Trust beneficiaries referred to in the preceding
paragraph are the following persons, who are listed here together with the number of
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shares they currently own. and the corresponding amount of potential restitution (at $10 per share), if these persons are found to have standing. According to the best information available to the Original Plaintiffs, these persons obtained their shares by purchase for valuable consideration: Name of Investor Michael W. Burke Richard D. Hensel Weaver Foundation, Inc. The Edward M. Armfield Sr. Foundation, Inc. J. Douglas Galyon Laura Jeraldine Greene James R. Austin, Jr. Ovide E. de St. Aubin Kevin Adams Marital Trust u/w of Garson L. Rice Deborah G. Rice-Marko, Trustee William F. Womble J.S. Brody Remaindermen, LLC 83. Shares 10,000 5,000 25,000 25,000 Amount Invested $100,000.00 $50,000.00 $250,000.00 $250,000.00
30,000 7,500 125,000 40,000 10
$300,000.00 $75,000.00 $1,250,000.00 $400,000.00 $100.00
50,000 2,500 5,000
$500,000.00 $25,000.00 $50,000.00
Also included among the Trust beneficiaries or other persons referred to
in paragraph 82 above are (a) persons whose identities the Trustees have not yet been able to determine, and (b) persons who are not Trust beneficiaries. 84. The United States is liable to pay, and should be directed to pay,
restitution to each of persons listed in paragraph 82 and referred to in paragraph 81 who the Court may determine to have standing, in such amount as the Court may 43
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determine in accordance with the May 11 Decision. COUNT V (Expectation, Other Restitution and/or Reliance Damages for Breach of Contract) 85. The Original Plaintiffs repeat and reallege here all allegations set forth in
paragraphs 1 through 84 above. 86. In this Count V, the Original Plaintiffs seek relief on behalf of the Trust,
all Trust beneficiaries and other persons to the extent the Court determines they have standing to recover the relief requested. 87. As a result of the passage of FIRREA, the promulgation of the OTS
regulatory capital regulations, and other conduct abrogating the United States' contractual obligations and promises under the contractual agreement described herein, the United States breached fundamental and material terms of its contract with the Acquirers and 1st Home Federal. 88. Because of that breach, 1st Home Federal and the Acquirers and/or their
successors suffered tremendous financial harm and are entitled to recover damages to compensate for that harm; in addition, because of that breach the Trust and other persons are entitled to recover restitution of all benefits conferred upon the United States as a result of the foregoing contractual agreement. The Trust and other persons are further entitled to recover the amount by which the United States has been unjustly enriched by any benefits it received from 1st Home Federal and the Acquirers pursuant to the contractual agreement. COUNT VI (Restitution for Frustration of Purpose)
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89.
The Original Plaintiffs repeat and reallege here all allegations set forth
in paragraphs 1 through 88 above. 90. The United States' agreement that the goodwill which arose from 1st
Home Federal's conversion could be used to satisfy regulatory capital standards and be amortized over a fixed period, was both a fundamental and essential element of the parties' contractual agreement. 1st Home Federal and the Acquirers would not have undertaken the conversion and the changeover from RAP to GAAP in the absence of the agreed terms respecting the treatment of goodwill, nor would the Acquirers have invested some $32.5 million in 1st Home Federal without those provisions. 91. Neither 1st Home Federal, the Acquirers nor the contracting government
officials could reasonably have foreseen government conduct that would abrogate those fundamental elements of their contractual agreement. 92. The elimination of goodwill from 1st Home Federal's capital overturns
the basis of the bargain struck by the parties and frustrates its purpose. 93. As a result of this frustration of the purpose of the contractual
agreements, the Trust, all Trust beneficiaries and other person are entitled to recover restitution of all benefits conferred upon the United States to the extent the Court determines they have standing to recover such relief. COUNT VII (Restitution as a Result of Mutual Mistake) 94. The Original Plaintiffs repeat and reallege here all allegations set forth in
paragraphs 1-93 above. 95. All parties to the foregoing contractual agreement between 1st Home
Federal and the United States assumed that 1st Home Federal could for purposes of
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satisfying regulatory capital requirements count toward capital and amortize over a fixed period the goodwill acquired as a result of the conversion. 96. Those assumptions, which existed at the time of contracting and went to
the basis of the bargain, were mistaken. 97. Accordingly, as a result of this mutual mistake, the Trust, all Trust
beneficiaries and other persons are entitled to recover restitution of the benefits the United States received and by which it has been unjustly enriched to the extent the Court determines they have standing to recover such relief. COUNT VIII (Compensation for Taking of Contract Rights) 98. The Original Plaintiffs repeat and reallege here all allegations set forth in
paragraphs 1-97 above. 99. The rights which the United States conferred upon 1st Home Federal and
the Acquirers pursuant to the contractual agreement between the parties, including rights arising from the government's promise that the goodwill resulting from 1st Home Federal's conversion could be counted toward regulatory capital and amortized over a fixed period, constitute valuable property. 100. The United States took those contractual property rights from 1st Home
Federal and the Acquirers or their legal successors in interest by enacting FIRREA, by