Free Notice (Other) - District Court of Federal Claims - federal

Case 1:95-cv-00524-GWM

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ HOMER J. HOLLAND, ) STEVEN BANGERT, Co-Executor of ) the Estate of HOWARD R. ROSS, and ) FIRST BANK, ) ) Case No. 95-524C Plaintiffs, ) ) (Judge George W. Miller) v. ) ) (Winstar-Related Case) THE UNITED STATES, ) ) Defendant. ) ____________________________________) DEFENDANT'S NOTICE OF FILING PURSUANT TO THE COURT'S ORDER DATED SEPTEMBER 6, 2007 Pursuant to the Court's order dated September 6, 2007, defendant, the United States, respectfully submits a chart describing four damage theories presented by plaintiffs connected with the acquisition of San Antonio Federal Savings Bank ("SAFSB"). During the hearing held on September 6, 2007, First Bank described its claim for damages connected with the SAFSB acquisition as encompassing a single claim for $45 million dollars. Hearing Tr. (Sept. 6, 2007) at 29:11-22. During our response, we proposed introducing a chart that described our understanding of the four SAFSB-related damage theories previously presented by plaintiffs. Id. at 78:19-79:7. We asked that we be given some clarity as to the claims that plaintiffs will be permitted to present at trial. We noted that it was our understanding that plaintiffs would not be asserting a lost profits claim based upon lost leverage (id. at 54:1955:16), and that they would not be asserting a tax gross up claim. Id. at 55:17-56:16. We further noted, with regard to the SAFSB claim, that we understood that, in the past, plaintiffs had set forth four different SAFSB damage claims, with three of the claims set forth by argument of counsel alone (i.e., without any supporting expert report). Given that plaintiffs only presented

Case 1:95-cv-00524-GWM

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one SAFSB-related damage theory to the Court during the hearing, a claim for $45 million, we indicated to the Court that clarity concerning which SAFSB-related damage claims would be presented by plaintiffs at trial would be useful in our trial preparations. Id. at 58:13-60:8. To demonstrate the amount and substance of plaintiffs' four previously asserted SAFSB-related damage theories, we proposed to introduce a chart to facilitate the Court's understanding of plaintiffs' SAFSB-related damage claims. The Court asked that we not introduce the chart, noting that we would be permitted to file it at a later time. Id. at 78:19-79:14. In its order dated September 6, 2007, the Court asked that we provide the chart that we intended to introduce. We have annexed that chart (IV-1) as an exhibit to this notice. The chart demonstrates, in the left hand column, the SAFSB-related damage claim for $28.609 million asserted by Dr. Holland in connection with his Corrected Second Supplemental Expert Report and Declaration dated February 22, 2005. In the middle column, the chart sets forth the three damage claims presented by argument of counsel only. That is, none of the claims listed in the middle column were the subject of an expert report. Instead, these three damage claims were set forth by argument of plaintiffs' counsel only, appearing for the first time as argument in Plaintiff First Bank's Motion for Partial Summary Judgment dated September 21, 2005, at pages 17-23. As we asserted in our brief responding to plaintiffs' summary judgment motion and during the hearing last week, plaintiffs' presentation of damage theories by argument of counsel is improper pursuant to Rule 26 of the Rules of the Court of Federal Claims, and pursuant to the Winstar Procedural Orders, which require that all expert opinion be disclosed in an expert report prior to trial. Hearing Tr. (Sept. 6, 2007) at 59:1-20; Def. Resp. to Pl. First Bank's Mot. for Partial Summ. J. (Dec. 5. 2005) at 77-78. During the hearing, plaintiffs acknowledged that some

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expert opinion was likely to be given at trial concerning the $45 million SAFSB claim. Hearing Tr. (Sept. 6, 2007) at 30:17-19 ("Your honor, the SAFSB lost-profits claim will be presented largely through fact witnesses. There may be some expert testimony, . . . .") (emphasis added). As we reiterated during the hearing, this is improper. Id. at 59:1-20. There is only one SAFSBrelated damage theory that has been set forth by plaintiffs' expert, Dr. Holland, and that is a $28.609 million claim, as is indicated in the annexed chart.1 That should be the only SAFSB permitted at trial. See Def. Resp. To Pl. First Bank's Mot. For Partial Summ. J. (Dec. 5, 2005) at 77-78. In any event, however, in order to prepare for trial we respectfully request clarity concerning which of the four SAFSB-related damage claims plaintiffs will be permitted to present at trial, (as well as whether plaintiffs will be permitted to present their abandoned "lost profits" claim based upon lost leverage, or an as-yet-unasserted claim for a tax gross up of any potential award). It was in furtherance of a resolution of these issues that we intended to present the annexed chart which describes plaintiffs' four previously asserted SAFSB-related damage claims. Respectfully submitted

MICHAEL F. HERTZ Deputy Assistant Attorney General

JEANNE E. DAVIDSON Director

To be sure, however, each of plaintiffs' SAFSB-related damage theories is fatally flawed. See Def. Resp. To Pl. First Bank's Mot. For Partial Summ. J. (Dec. 5. 2005) at 67-86. -3-

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

Of Counsel: SCOTT D. AUSTIN KENNETH M. DINTZER ELIZABETH A. HOLT WILLIAM G. KANELLIS BRIAN A. MIZOGUCHI AMANDA L. TANTUM JOHN J. TODOR September 11, 2007

/s/ John H. Roberson JOHN H. ROBERSON Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor, 1100 L Street Washington, D.C. 20530 Tele: (202) 353-7972 Fax: (202) 514-8640 Attorneys for Defendant

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CERTIFICATE OF SERVICE

I hereby certify that on this 11th day of September 2007, a copy of the foregoing "DEFENDANT'S NOTICE OF FILING PURSUANT TO THE COURT'S ORDER DATED SEPTEMBER 6, 2007" was served by hand delivery and facsimile to: David B. Bergman, Esq. Arnold & Porter, LLP 555 Twelfth Street, NW Washington, DC 20004 Facsimile: (202) 942-5999

/s/ John H. Roberson John H. Roberson

Case 1:95-cv-00524-GWM

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Homer J. Holland, Howard R. Ross, and First Bank v. The United States (No. 95524C)

PLAINTIFFS' LOST PROFITS (SAFSB) CLAIMS
Overview
CORC SAFSB Lost Value

($ in millions)

Dr. Holland

Plaintiffs' Counsel

$28.609
· Reflects the "entire [aftertax] economic benefit...of the purchase of SAFSB" (also referred to as the "value of the bargain purchase") less AMT and incremental interest expense to nobreach River Valley. $ 29.963 Bargain purchase 1 0.635 AMT liability (2.12%) 0.719 Interest expense $ 28.609

$44.930
or

2

· Reflects the reported taxable income of WCHI (and successors) from 1992 through 2004.

$35.000
or

· Reflects an estimate of the unrealized taxable gains embedded in SAFSB's loan portfolio at December 31, 1993. · Plaintiffs attribute this calculation to defendants expert, Dr. Griffin. · Reflects Dr. Holland's claim for the "entire [aftertax] economic benefit...of the purchase of SAFSB" (also referred to as the "value of the bargain purchase)."

$29.963

Notes: 1 Plaintiffs assert that "In the actual SAFSB acquisition, Western Capital's investors paid $10.381 million for net markedtomarket assets worth $40.344 million [i.e., a difference of $29.963 million]." (First Bank's Summary Judgment Motion dated September 21, 2005, p. 21 (emphasis and citation in original omitted)). 2 Plaintiff's calculation includes some simple arithmetic errors. Their calculation, once corrected, should be $44.84 million. Sources: * Plaintiff First Bank's Motion for Partial Summary Judgment dated September 21, 2005, pp. 17 23 * Corrected Second Supplemental Expert Report and Declaration of Dr. Homer J. Holland dated February 22, 2005, ¶¶ 6 9

IV1

Privileged and Confidential September 6, 2007