Free Reply to Response to Motion - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ) ) ) ) ) ) ) ) ) ) ) ) )

HOMER J. HOLLAND, HOWARD R. ROSS, AND FIRST BANK Plaintiffs, v. THE UNITED STATES OF AMERICA, Defendant.

No. 95-524 C (Judge G. Miller)

PLAINTIFFS' REPLY IN SUPPORT OF THEIR MOTION FOR LEAVE TO REVISE AND SUPPLEMENT THEIR DAMAGES CLAIMS Pursuant to the Court's Order of March 13, 2007, Plaintiffs hereby submit this reply in support of their motion for leave to revise and supplement their damages claims. Defendant's opposition attacks a straw man. Contrary to Defendant's arguments, First Bank's joinder to this case two years ago is wholly irrelevant to Plaintiffs' current request to supplement their damages claims, and no government prejudice will result from allowing Plaintiffs to pursue a claim for mitigation damages measured by the cost of retained earnings. As in all the other Winstar-related cases, Plaintiffs here have a right to present damages claims at trial that adhere to the guidance provided by the Federal Circuit in its Winstar damages decisions.1 The Federal Circuit ruling approving the retained earnings damages claim that Plaintiffs now seek leave to assert was issued in March 2005, Home Sav. of Am., FSB v. United

See Pl's Mar. 20, 2007 Motion at 5-6 (citing Citizens Fed. Bank, FSB v. United States, 59 Fed. Cl. 507 (2004); The Long Island Sav. Bank, FSB v. United States, No. 92-517 (Fed. Cl. April 15, 2003); Sterling Sav. v. United States, No. 95-829C (Fed. Cl. Dec.17, 2003); Hansen Bancorp, Inc. v. United States, No. 92-828C (Fed. Cl. Feb. 14, 2002); Stan. Fed. Bank v. United States, No. 92-844C (Fed. Cl. Mar. 13, 2002)).

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States, 399 F.3d 1341 (Fed. Cir. 2005), and has since gained further approval in damages trials in this Court.2 Plaintiffs should be permitted to account for this development, which post-dates Plaintiffs' last revision to their expert damages calculations.3 Furthermore, the Court should deny Defendant's request that Plaintiffs pay the costs Defendant alleges it has spent defending against Plaintiffs' damages claims. The "American rule" is that absent bad faith -- a showing Defendant does not and cannot make -- each party must bear its own litigation costs, including expert fees. 4 Moreover, Defendant's complaint that Plaintiffs have created inefficiencies by supplementing their damages claims over the years is belied by Defendant's own litigation conduct in this matter. It is Defendant -- not Plaintiffs -who has extended this case several years beyond its initially scheduled 2004 trial date by interposing procedural objections and dispositive motions (including its 2003 Motion to Dismiss, 2004 and 2005 "real party in interest" objections, and 2006 "accord and satisfaction" defense) that it could have raised at the outset. That Plaintiffs now seek to update their damages claims in accordance with Federal Circuit jurisprudence is a byproduct of Defendant's litigation inefficiencies, and not a reason to reimburse Defendant's costs.

See, e.g., Long Island Sav. Bank, FSB v. United States, 67 Fed. Cl. 616 (Sept. 15, 2005). Plaintiffs also request that the Court grant their now unopposed motion to revise Dr. Murphy's lost value damages analysis in the manner described in Plaintiffs' March 20, 2007 Motion. See Def.'s Opp. Brief at 5 n.2 (consenting to Dr. Murphy's revision to account for the Court's Nov. 17, 2006 liability ruling).
3 4

2

See, e.g., Applegate v. United States, 52 Fed. Cl. 751, 755 (2002) ("Traditionally, under the socalled `American Rule,' litigants generally pay their own way.") (citing Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975)); JL Simmons Co., Inc. v. United States, 60 Fed. Cl. 388, 399 n.15 (2004) (American rule prevents recovery of expert fees beyond those costs specifically authorized by statute); Total Minatome Corp. v. Jack/Wade Drilling, Inc., 258 F. 3d 385, 390 n.4 (5th Cir. 2001) ("The general rule in American lawsuits is that, absent a finding of bad faith, each party bear its own costs and expenses."). -2-

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I.

First Bank's Joinder is Irrelevant to Plaintiffs' Motion to Revise Their Damages Claims The central argument in Defendant's opposition brief -- that First Bank's joinder to this

case was conditioned on a promise by Plaintiffs forever to refrain from revising their damages claims -- distorts the record, and mischaracterizes the Court's reasoning in joining the real-partyin-interest here. As Defendant recounts repeatedly in its brief, Plaintiffs represented to the Court that "the joinder of First Bank, MO is a ministerial act that will have no effect on the substance of the claims at issue in this action, and no effect on Plaintiffs' calculation for damages."5 First Bank's addition to the case has proceeded as promised: Plaintiffs amended the complaint only to name First Bank as party plaintiff and to insert its name throughout the pleadings,6 and this Court held Defendant liable to First Bank for the same breaches of contract that Holland and Ross alleged from the outset.7 Furthermore, Plaintiffs have not changed their damages claims "as a result of First Bank's joinder." Indeed, as promised, First Bank's joinder has had "no effect on Plaintiffs' calculations for damages."8 This remains the case with Plaintiffs' motion for leave to supplement their damages claims with a cost of retained earnings analysis: there is no relationship whatsoever between First Bank's joinder and Plaintiffs' proposed damages revision. Rather, Plaintiffs' proposed revisions are aimed entirely at presenting a damages case consistent with prevailing Federal Circuit precedent. When the Court ruled to permit First Bank's (and First Banks, Inc.'s) joinder, its decision

5

Pl's Motion to Resume Pretrial Activities April 12, 2005. 6 See Third Amended Complaint.
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See Holland v. United States, 74 Fed. Cl. 225, 258-263 (2006). 8 See Def.'s Opp. Brief at 3-7 (quoting Holland v. United States, No. 95-524C, (Fed. Cl. May 12, 2005) (Opinion and Order permitting the joinder of First Bank).

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was not premised on prohibiting any future revisions to Plaintiffs' damages claims. Rather, the Court directed that the joinder of First Bank may not cause or give rise to new damages claims. It has not. Plaintiffs have not revised their damages theories since the court-authorized submission of Dr. Holland's Second Supplemental Report in February 2005 -- prior to First Bank's joinder -- and seek to do so now for reasons that have nothing whatsoever to do with First Bank's addition to the case. Instead, almost two years removed from First Bank's joinder, Plaintiffs simply seek to harmonize their damages claims with the Federal Circuit's jurisprudence in preparation for a 2007 trial. 9 II. This Court Has Routinely Permitted Winstar Plaintiffs to Revise Their Damages Claims to Conform to Federal Circuit Precedent As Plaintiffs demonstrated in their March 20, 2007 filing, this Court has routinely allowed Winstar plaintiffs to update their damages claims in reaction to Federal Circuit precedent, particularly when long periods have elapsed between the original development of a plaintiff's expert damages analysis and an eventual damages trial.10 This approach is consistent with the Federal Circuit's expressed hope that Winstar plaintiffs adapt to its evolving guidance so that "the remainder of the Winstar cases can be disposed of ... based on the particular facts of the
9

In its opposition brief, Defendant states that should the Court permit Plaintiffs to pursue a retained earnings damages claim, Defendant would file yet another motion for reconsideration of this Court's ruling permitting First Bank's joinder. See Def.'s Opp. Brief at 9 n.5. The Court should decline Defendant's invitation to revisit First Bank's joinder, and refuse its proposed ninth brief on that issue. See Docket ## 232, 242, 250, 256, 262, 279, 283, 365 (Defendant's previous eight briefs opposing First Bank's joinder). 10 See Pl's Mar. 20, 2007 Mot. at 4-6 (citing Citizens Fed. Bank, FSB v. United States, 59 Fed. Cl. 507 (2004); Sterling Sav. v. United States, No. 95-829C, (Fed. Cl. Nov. 10, 2003) (Order directing parties to address whether changes in intervening jurisprudence by the Federal Circuit justify revision to damages claims); Sterling Sav. v. United States, No. 95-829C, (Fed. Cl. Dec. 17, 2003) (Order permitting revision of expert reports); The Long Island Sav. Bank, FSB v. United States, No. 92-517 (Fed. Cl. April 15, 2003); Stan. Fed. Bank v. United States, No. 92844C (Fed. Cl. Mar. 13, 2002); Hansen Bancorp, Inc. v. United States, No. 92-828C (Fed. Cl. Feb. 14, 2002) (Order authorizing revisions to expert report to adapt to intervening Federal Circuit rulings after a period of delay and where trial "was in sight")).

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case, and without further dispute over the theory by which damages may be calculated."11 In the context of consolidated cases working their way through trial and appeal, it is inevitable and desirable that parties whose cases remain pending react and adapt to decisions in closely related preceding cases. The Court should reject Defendant's argument that Plaintiffs must stick their heads in the sand and present to the Court a damages case that ignores developing law. That Plaintiffs have supplemented their damages claims previously should not bar the revision Plaintiffs now propose. As was proper, Plaintiffs earlier revised their damages calculations in reaction to new information learned in discovery, 12 and to adapt to the Court's rulings on liability.13 Moreover, Plaintiffs here are not the first Winstar plaintiffs to revise their damages claims more than once.14 For example, in the American Federal case, plaintiff initially designated two damages experts, each of whom presented initial reports in July 2001, and then supplemental expert reports in January 2005. 15 Then, in December 2005 -- after the Court ruled on the parties' respective cross-motions for summary judgment upon damages -- American Federal introduced a new cost of replacement capital damages model through a new expert, John Jay. 16 On March 21, 2006, in order to address certain information disclosed in the defendant's experts' reports and
11

Glendale Federal Bank, F.S.B. v. United States, 378 F.3d 1308, 1313 (Fed. Cir. 2004). 12 See Dr. Holland's Second Supplemental Report dated February 21, 2005 (responding to testimony by late disclosed government fact witness Larry Kenny). See December 2003 Supplemental Expert Reports of Dr. Holland and Dr. Murphy (responding to the Court's liability decision concerning Peoria goodwill). 14 See Sterling Savings v. United States, 95-829C (Fed. Cl.) (multiple supplemental reports permitted to adapt to Federal Circuit precedent); American Federal Bank, FSB v. United States, 95-498C (Fed. Cl.) (same). 15 See Am. Fed. Bank FSB v. United States, 68 Fed. Cl. 346, 355-360 (2005) (discussing reports and revised calculations of experts Roger Kormendi, PhD and S. Lynn Stokes, CPA). 16 According to the government, Mr. Jay's model was the "eighth damage model" presented by American Federal. See Am. Fed. Bank, FSB v. United States, No. 95-498C, Def.'s Mem. of Contentions of Law at 3, Feb. 28, 2006 (emphasis in original) (attached as Exhibit 1).
13

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depositions, American Federal revised its damages model and provided the Court with Mr. Jay's First Supplemental and Rebuttal Expert Report.17 Finally, during American Federal's damages trial, Mr. Jay introduced another damages model during his rebuttal testimony in which he used different figures and applied a different methodology. 18 All of Mr. Jay's damages calculations were submitted past the initial discovery cut-off date, and after briefing on summary judgment, but were allowed by the Court as they were aimed at assisting the Court in making an accurate damages calculation at trial.19 As in American Federal, where later adaptation of Plaintiffs' damages claims assisted the Court in making a fair and reasonable approximation of damages at trial consistent with prevailing precedent, the Court here should allow Plaintiffs to submit their proposed retained earnings damages claim. III. Plaintiffs' Retained Earnings Claim Will Not Prejudice Defendant Defendant argues that it will be prejudiced by Plaintiffs' proposed damages revision, complaining that Plaintiffs' retained earnings claim will require Defendants to engage in additional expert discovery. But the Court has already ordered a schedule for pretrial activities that provides ample time for expert discovery prior to trial, during which Defendant can prepare its defense. There can be no prejudice to Defendant where, as here, it is provided a full and fair opportunity to depose Plaintiffs' expert and prepare a rebuttal report before trial.20

17 18

Am. Fed. Bank, FSB v. United States, 72 Fed. Cl. 586, 611 (2006).

Id. at 611, 628. 19 Id. at 612 (the Court used "Mr. Jay's several models to produce a . . . suitable [damages award]" (emphasis added)).
20

See Transamerica Ins. Corp. v. United States, 28 Fed. Cl. 418, 420-22 (1993) (expert witness testimony should be heard at trial provided the expert was made available for deposition before trial); Mid-America Tablewares, Inc. v. Mogi Trading Co., 100 F.3d 1353 (7th Cir. 1996) (no prejudice from late disclosure of expert opinion where defendant had time to depose expert Footnote continued on next page -6-

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Indeed, given Defendant's most recent line of argument to the Federal Circuit concerning mitigation damages in the Winstar cases, it is Plaintiffs who may be prejudiced if they are barred from presenting a claim for the costs of retained earnings. In a brief filed yesterday in the American Federal case, Defendant argued that "the trial court erred" by awarding cost of replacement damages to the plaintiff there, "[b]ecause the retention of earnings mitigated the breach."21 According to Defendant, the plaintiff "had replaced all but [a de minimis amount] amount of [breached] goodwill ... with retained earnings." 22 Because the plaintiff did not quantify and claim damages in association with those retained earnings, Defendant argued, plaintiff forfeited its right to seek any other damages. Defendant would surely raise the same argument on appeal in this case if Plaintiffs were not permitted to present a damages computation based upon the cost of retained earnings, and the Court then awarded damages based upon another of Plaintiffs' damages theories. Defendant argues that Plaintiffs' retained earnings claim would increase the total quantum of damages that Plaintiffs seek at trial. This is neither relevant nor correct. As Plaintiffs stated during the March 12, 2007 Status Conference, and in their March 20, 2007 filing, should the Court permit Plaintiffs to submit a retained earnings claim, Plaintiffs intend to

Footnote continued from previous page before trial); ABB Air Preheater, Inc. v. Regenerative Environmental Equipment Co., 167 F.R.D. 668, 672 (D. N.J. 1996) ("the pivotal issue is whether admission of the evidence will result in incurable prejudice to the resisting party."). 21 Am. Fed. Bank, FSB v. United States, No. 2007-5440, Defendant-Appellant's Brief at 18 (attached as Exhibit 2). 22 Id. at 21.

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set aside their claim for lost leverage profits, reducing Plaintiffs' claims for damages by roughly $31 million.23 Plaintiffs' claim for retained earnings damages will not exceed this amount. Defendant further complains that Plaintiffs did not set forth the precise contours of their retained earnings damages claim in their March 20, 2007 filing. No such requirement was imposed by the Court's March 13, 2007 Order, which directed Plaintiffs to "file and serve a motion for leave ... to submit a supplemental damages analysis" -- not to set forth the analysis itself. As Plaintiffs explained, and Defendant is aware, Plaintiffs intend to seek retained earnings damages consistent with Home Savings, see Pl's March 20, 2007 filing at 4, a claim against which the government has defended in several other cases. Should the Court grant Plaintiffs' motion, Plaintiffs will disclose their retained earnings analysis through an expert report by Dr. Holland on June 1, 2007, as the Court's March 20, 2007 Scheduling Order provides. IV. The Court Should Deny Defendant's Request for Costs The Court should deny Defendant's request that Plaintiffs pay all Defendant's alleged costs in defending against Plaintiffs damages claims. "The general rule in American lawsuits is that, absent a finding of bad faith, each party bear its own costs and expenses,"24 including expert fees.25 Defendant cites no reason to depart from that standard here and certainly can make no allegation that Plaintiffs are acting in bad faith to revise their damages claims. Indeed, Defendant's own litigation conduct is responsible for the years-long delays in this case that have occasioned Plaintiffs' need to update their damages analyses.
23

See Pl's Supp. Appdx. dated Sept. 21, 2005 at Tab 2 (Dr. Holland's Corrected Second Supp. Report at 17, ¶ 48 (b)(c) & (d)). 24 See Total Minatome Corp, 258 F.3d 385, 390 n.4 (5th Cir. 2001); see also Applegate v. United States, 52 Fed. Cl. 751, 755 (2002); Griffin v. United States, 21 Cl. Ct. 1, 5 (1990) ("Since 1796, the United States has followed the general rule that each party to a judicial proceeding must bear its own costs of litigation."). 25 See JL Simmons Co., Inc. v. United States, 60 Fed. Cl. 388, 399 n.15 (2004). -8-

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Since this Court's original liability ruling in favor of Holland and Ross in July 2003, Defendant has interposed an unending series of procedural objections and dispositive motions, all of which raised issues that Defendant could have litigated much earlier in the case. In fact, Defendant could have challenged the standing of Plaintiffs Holland and Ross, opposed the joinder of River Valley's successor, and asserted its "accord and satisfaction" defense all in connection with the 2001 and 2002 summary judgment briefing in this case -- if not sooner. Instead, Defendant has raised these issues individually, in succession, over the last three years. 26 Defendant's inefficient approach to litigating these issues -- resulting in the cancellation of three previously scheduled damages trials -- has imposed significant costs and expenses on Plaintiffs, whose ultimate damages award will not benefit from pre-judgment interest. Because Defendant's own litigation conduct is responsible for the delays here, Plaintiffs should not be charged with any of Defendant's costs associated with Plaintiffs' rightful amendment of its damages theories to conform its trial presentation to the current state of law. CONCLUSION For the reasons stated, the Court should grant Plaintiffs' motion for leave to submit a supplemental retained earnings damages analysis. Plaintiffs further respectfully request that the Court grant Plaintiffs' unopposed motion to revise Dr. Murphy's damages analysis in the manner described in Plaintiffs' March 20, 2007 filing. In addition, Plaintiffs request that the Court deny Defendant's requests for costs, and deny Defendant leave to submitted any proposed motion to revisit First Bank's joinder.

26

See Def.'s Mot. to Dismiss dated Dec. 2, 2003 (seeking dismissal of Holland and Ross); Def.'s Opposition to Joinder of First Banks, Inc. dated April 12, 2004; Def.'s Motion for Continuance dated Jan. 25, 2005 (challenging joinder of First Banks, Inc.); Def.'s Cross Motion for Summary Judgment dated Dec. 5, 2005 (raising accord and satisfaction defense).

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Respectfully Submitted,

Of Counsel: Melvin C. Garbow Howard N. Cayne Michael A. Johnson Joshua P. Wilson ARNOLD & PORTER, LLP 555 Twelfth Street, N.W. Washington, D.C. 20004-1206 Co-counsel for First Bank: Donald J. Gunn, Jr., Esq. Sharon R. Wice, Esq. Gunn and Gunn First Bank Building Creve Coeur 11901 Olive Blvd., Suite 312 P.O. Box 419002 St. Louis, Missouri 63141 (314) 432-4550 (tel.) (314) 432-4489 (fax) Dated: April 10, 2007

/s/ David B. Bergman David B. Bergman ARNOLD & PORTER, LLP 555 Twelfth Street, N.W. Washington, D.C. 20004-1206 (202) 942-5000 (tel.) (202) 942-5999 (fax) Counsel for plaintiffs Holland and Ross and First Bank.

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CERTIFICATE OF SERVICE I certify that on this 10th day of April 2007, I caused the foregoing Plaintiffs' Reply in Support of Their Motion for Leave to Revise and Supplement Their Damages Claims to be filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system.

Dated: April 10, 2007

/s/ Joshua P. Wilson Joshua P. Wilson

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