Free Post Trial Brief - District Court of Federal Claims - federal

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TABLE OF CONTENTS Page TABLE OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv SUMMARY OF ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 I. Astoria Should Not Be Awarded Restitution.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 A. B. C. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Economic Backdrop. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 The Evidence Does Not Support Astoria's Contentions. . . . . . . . . . . . . . . . . . . . . 7 1. Liquidation Was Not An Alternative Because FSLIC Lacked Fund.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Thrifts With Spread Problems Were Not Liquidated.. . . . . . . . . . . . . . . . . 8 There Were Other Options For Addressing Suburbia's Problems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2. 3.

II.

Astoria's Reliance Claim Fails As A Matter Of Law And Fact. . . . . . . . . . . . . . . . . . . . 15 A. Astoria's Reliance Claim Depends Upon An Accounting Entry For Net Liabilities Assumed At The Moment Of Acquisition And Is Barred By Federal Circuit Precedent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Astoria's Claimed Reliance Cost For "Discharging" Net Liabilities Assumed Is Contrary To Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

B.

III. IV.

Federal Circuit Precedent Requires The Offset Of Benefits That Fidelity Received. . . . 24 Astoria Did Not Establish Causation Of Its Lost Profits Damages. . . . . . . . . . . . . . . . . . 25 A. Astoria's Lost Profits Claims Lack Foundation In The Record.. . . . . . . . . . . . . . 26 1. Regulators Would Have Restricted Fidelity's Growth Irrespective Of The Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

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a.

Fidelity Would Have Received A "4" Or Worse After FIRREA Irrespective Of The Breach .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Fidelity Could Not Have Improved Its Asset Quality Through The Use Of Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Prior To FIRREA, Fidelity Had Not Been Pursuing A Growth Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

b.

c.

2.

Even Absent The Breach, Numerous Non-Breach Related Events Would Have Caused Fidelity To Curtail Its Growth. . . . . . . . . . . 36 a. b. Bad Loans Affected Fidelity's Capacity To Grow.. . . . . . . . . . . . 38 Dr. Kaplan Ignores The Well-Recognized Need For A Capital Cushion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Fidelity's Interest Rate Risk Problems Would Have Affected Its Growth Irrespective Of The Breach . . . . . . . . . . . . . . . . . . . . . . . 43 Regulators Would Not Have Permitted The Wholesale Growth Strategy Proposed In Dr. Kaplan's Model Because He Sets Forth A Risk Controlled Arbitrage Strategy .. . . . . . . . . . . . . . . . . . . . . 46

c.

d.

3. 4.

Fidelity Was Not Restricted To No Growth. . . . . . . . . . . . . . . . . . . . . . . 47 Plaintiff's Claim For Lost Profits Cannot Be Asserted As Beginning In July 1989 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 No Causation Leading Up To Or After Fidelity's Conversion. . . . . . . . . 48 Astoria Points To No Basis For Restrictions Upon Astoria's Growth. . . 50 . . . . . . . . . . . . . . . . 51

5. 6. B. C. V.

Astoria Must Definitively Establish "But For" Causation

Astoria's Comparisons To Other Cases Are Unavailing. . . . . . . . . . . . . . . . . . . . 56

Dr. Kaplan's Lost Profits Claims Fail For Lack Of Foreseeability. . . . . . . . . . . . . . . . . . 58 A. Astoria Has Not Rebutted Any Of Our Demonstrations That Dr. Kaplan's Lost Profits Are Unforeseeable. . . . . . . . . . . . . . . . . . . . . . . . 59 ii

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B. C. VI.

Dr. Kaplan's Lost Profits Are Not Foreseeable As A Matter Of Law. . . . . . . . . . 59 Astoria's Contentions Of Fact Support A Finding Of Unforeseeability. . . . . . . . 61

Astoria's Lost Profits Claims Are Not Reasonably Certain.. . . . . . . . . . . . . . . . . . . . . . . 65 A. B. Dr. Kaplan Failed To Model The Non-Breach Fidelity. . . . . . . . . . . . . . . . . . . . . 66 Dr. Kaplan Failed To Model The Whole Bank Or Even The Whole Wholesale Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Dr. Kaplan Failed To Adequately Specify The Investments Or Funding Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 The Non-Breach Growth Rate Fails The Requirement Of Reasonable Certainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Dr. Kaplan's Assumption Of Unlimited ARM MBS At A Price Fidelity Would Be Willing To Pay Is Unsupported By The Record . . . . . . . . . . . . . . . . . 73 Dr. Kaplan's Profit Spread Is Unreliable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Astoria's Post-1994 Lost Profits Are Also Uncertain. . . . . . . . . . . . . . . . . . . . . . 76

C.

D.

E.

F. G. VII. VIII.

Astoria's Wounded Bank Claims Fail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 There Is No Damage Claim Connected With Fidelity's Conversion Properly Before This Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

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TABLE OF AUTHORITIES Page(s) CASES Abbott Labs. v. Brennan, 952 F.2d 1346 (Fed. Cir. 1991). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Am. Capital Corp. v. FDIC, 472 F.3d 859 (Fed. Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Bohac v. Dep't of Agric., 239 F.3d 1334 (Fed. Cir. 2001). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Cal. Fed. Bank, FSB v. United States, 245 F.3d 1342 (Fed. Cir. 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 16, 18 Cal. Fed. Bank, FSB v. United States, 54 Fed. Cl. 704 (2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Cal. Fed. Bank, FSB v. United States, 395 F.3d 1263 (Fed. Cir. 2005), cert. denied, 126 S. Ct. 344 (2005). . . . . . . . . . . . . . . . . . passim Carley Capital Group v. City of Newport News, 709 F. Supp. 1387 (E.D. Va. 1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Caroline Hunt Trust Estate v. United States, 65 Fed. Cl. 271 (2005), aff'd in part, rev'd, in part and remanded, 470 F.3d 1044 (Fed. Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Cinenega Gardens v. United States, _ F.3d _, 2007 WL 2778687 (Fed. Cir. Sept. 25, 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Citizens Fed. Bank, FSB v. United States, 52 Fed. Cl. 561 (2002), aff'd, 474 F.3d 1314 (Fed. Cir. 2007). . . . . . . . . . . . . . . . . . . . . . 6, 51, 52 Citizens Fin. Servs., FSB v. United States, 64 Fed. Cl. 498 (2005), aff'd, 170 Fed. Appx. 129 (Fed. Cir. 2006).. . . . . . . . . . . . . . . . . . . . . . 65 Columbia First Bank, FSB v. United States, 60 Fed. Cl. 97 (2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Fifth Third Bank v. United States, 55 Fed. Cl. 223 (2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 16 iv

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First Fed. Lincoln Bank v. United States, 73 Fed. Cl. 633 (2006), appellate argument scheduled, Nos. 07-5044, -5048 (Fed. Cir. Nov. 8, 2007). . . . . . . . . . . passim First Fed. Savings and Loan Ass'n of Rochester v. United States, 76 Fed. Cl. 765 (2007), appeal docketed, No. 2007-5161 (Fed. Cir. Aug. 22, 2007) . . . . . . . . . .51 Franklin Fed. Sav. Bank v. United States, 55 Fed. Cl. 108 (2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 16 Glendale Fed. Bank, FSB v. United States, 239 F.3d 1374 (Fed. Cir. 2001). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Glendale Fed. Bank, FSB v. United States, 54 Fed. Cl. 8 (2002), aff'd, 378 F.3d 1308 (Fed. Cir. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Glendale Fed. Bank, FSB v. United States, 378 F.3d 1308 (Fed. Cir. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 16, 66 Globe Sav. Bank v. United States, 65 Fed Cl. 330 (2005) aff'd in relevant part, 189 Fed. Appx. 964 (Fed. Cir. 2006). . . . . 54, 55, 56 Granite Mgmt. Corp. v. United States, 416 F.3d 1373 (Fed. Cir. 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 21 Granite Mgmt. Corp. v. United States, 58 Fed. Cl. 766 (2003), aff'd in part, and remanded on other grounds, 416 F.3d 1373 (Fed Cir. 2005). . . . . . . . . . . . . . . . . . . . . . 16, 20, 21 Granite Mgmt. Corp. v. United States, 74 Fed. Cl. 155 (2006), appeals docketed, No. 2007-5044 (Fed. Cir. Feb. 6, 2007).. . . . . . . 61, 76 Hansen Bancorp, Inc. v. United States, 367 F.3d 1297 (Fed. Cir. 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Hughes v. United States, 71 Fed. Supp. 284 (2006) rev'd on other grounds, _ F.3d _ (2007) WL 2433838 (Fed. Cl. 8 (2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 17 LaSalle Talman Bank, FSB v. United States, 317 F.3d 1363 (Fed. Cir. 2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 16, 17 LaSalle Talman Bank, FSB v. United States, 64 Fed. Cl. 90 (2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

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Landmark Land Co. v. United States, 256 F.3d 1365 (Fed. Cir. 2001). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 22, 58, 59 Long Island Sav. Bank, FSB v. Shaw, 60 Fed. Cl. 80 (2004) rev'd on other grounds, 476 F.3d 917 (Fed. Cir. 2007). . . . . . . . . . . . . 6, 16 Menne v. Celotex Corp., 861 F.2d 1453 (10th Cir.1988). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52, 53 Point Productions A.G. v. Sony Music Entertainment, Inc., 215 F. Supp. 2d 336 (S.D.N.Y2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52, 53 S. Nat'l. Corp. v. United States, 57 Fed. Cl. 294 (2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 San Carlos Irrigation & Drainage Dist. v. United States, 111 F.3d 1557 (Fed. Cir. 1997). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Shyface v. Sec'y of Health & Human Servs., 165 F.3d 1344 (Fed. Cir. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52, 53 Standard Fed. Bank v. United States, 62 Fed. Cl. 265 (2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 20, 21 Wells Fargo Bank v. United States, 88 F.3d 1012 (Fed. Cir. 1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 WestFed Holdings, Inc. v. United States, 407 F3.d 1352 (Fed. Cir. 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim RULES AND STATUTES 15 U.S.C. §77l(a)(2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101 -73, 103 Stat. 183 (1989).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 MISCELLANEOUS Charles T. McCormick, Damages § 142, at 584 (1935). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Dobbs, Law of Remedies, § 12.3(1) at 51-52 (2d ed. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Prosser & Keeton, The Law of Torts, 268. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 vi

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________________________ ) ASTORIA FEDERAL SAVINGS & ) LOAN ASSOCIATION, ) ) Plaintiff, ) ) v. ) ) THE UNITED STATES, ) ) Defendant. ) ____________________________________)

No. 95-468C (Judge Thomas C. Wheeler)

DEFENDANT'S POST-TRIAL REPLY BRIEF SUMMARY OF THE ARGUMENT Defendant, the United States, respectfully submits its post-trial reply brief. The initial post-trial brief submitted by plaintiff, Astoria Federal Savings and Loan Association ("Astoria"), does not even attempt to apply law to fact. Rather, the initial brief attempts to demonstrate Astoria's purported entitlement to damages through implications drawn from the facts it alleges, rather than through reliance upon the evidence. As we explain below, these implications fail. Astoria's restitution claim fails because it is barred as a matter of law, the identical claim having been rejected in numerous Winstar-related cases. Contrary to its apparent assertions, Astoria cannot demonstrate that either it or Fidelity New York, F.S.B. ("Fidelity") paid down the net liabilities acquired from Suburbia Federal Savings and Loan Association ("Suburbia"). Rather, Fidelity assumed from Suburbia a speculative liability that never came to pass. Moreover, Fidelity did not spare the Federal Savings and Loan Insurance Corporation ("FSLIC") the expense of liquidating Suburbia, because, absent Fidelity's acquisition of Suburbia, FSLIC

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would not have liquidated. Rather, FSLIC would have fallen back upon any of a variety of options it regularly used to resolve troubled thrifts. Astoria's reliance claim is similarly flawed. Binding Federal Circuit precedent bars award of alleged reliance costs that were not actually incurred, and the net liabilities assumed from Suburbia ­ the alleged cost for which Astoria requests compensation ­ was never incurred. Nor has Astoria demonstrated that either it or Fidelity ever discharged the net liabilities. In addition, Astoria ignores a variety of offsets that would swamp Astoria's restitution and reliance claims. Astoria also cannot demonstrate entitlement to any of its claimed expectancy damages. With respect to its lost profits claim, Astoria cannot prove causation, foreseeability, or reasonable certainty. Astoria cannot prove causation because its lost profits are dependent upon Fidelity's growth absent the breach, and the evidence demonstrates that, because of Fidelity's precarious position caused by historic loan losses and the recessionary environment, the regulators would not have permitted the risky wholesale portfolio growth that Astoria posits. Nor can Astoria demonstrate that, had Fidelity been able to retain goodwill as part of regulatory capital, it would have been able to follow through on any desire to grow. In addition, Astoria cannot be awarded damages for any period when Fidelity's failure to grow was not caused by the breach, including the period before the enactment of the Financial Institutions Reform, Recovery and Enforcement Act, Pub. L. No. 101-73, 103 Stat. 183 (1989) ("FIRREA"), or the period immediately before or at any time following Fidelity's capital-raising stock conversion.

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Furthermore, following its acquisition of Fidelity, Astoria would not have desired to grow to the size or in the manner asserted. Certainly, Astoria cannot seriously maintain that its own failure to grow after acquiring Fidelity was somehow caused by the breach, when it was flush with capital, had no growth restrictions, and returned massive amounts of capital to its shareholders rather than increase its leverage. Astoria also fails to establish that its claimed lost profits were foreseeable. Among other things, Astoria cannot prove that, at the time of the contract, the Government could have foreseen the magnitude and type of Astoria's claimed damages, because they are based upon the assumption that Fidelity would have grown during a severe economic downturn and would have done so in a portfolio that increased its interest rate risk, especially when the assets in that portfolio did not constitute the bulk of its holdings. Moreover, no party could have foreseen the transfer of Fidelity's goodwill to Astoria with Astoria's acquisition of Fidelity, contrary to both regulatory restrictions in the assistance agreement and generally accepted accounting principles ("GAAP"). Astoria also cannot prove its claimed lost profits with reasonable certainty. Astoria's claimed lost profits do not reflect Fidelity's actual assets or the assets it planned to hold. Nor does the growth rate assumed for the non-breach Fidelity bear any relation to the realities faced by its peers or by Astoria itself. Astoria's lost profits are uncertain in part because its expert, Dr. Donald Kaplan, failed to model the non-breach Fidelity as a whole bank as required by case law, and also failed to fully model the incremental wholesale portfolio that he posits Fidelity and Astoria would have held absent the breach. In modeling the purported foregone portfolio, Dr. Kaplan identified the foregone assets and liabilities with such scant detail as to render it 3

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impossible to assess the credibility of the final claimed lost profits figure. Indeed, it is only Dr. Kaplan's obfuscation that renders his constant 80 basis point profit spread possible. Astoria's wounded bank claims also fail. Astoria cannot demonstrate that it would have received higher MACRO ratings from the Office of Thrift Supervision ("OTS") absent the breach given its asset quality problems. Moreover, Astoria's claim for increased Federal Deposit Insurance Corporation ("FDIC") premiums fails because, among other things, a risk-based premium structure was unforeseeable at the time of contracting, and because Fidelity could have been assessed the same premiums absent the breach for having been considered unsafe and unsound. Finally, in response to certain vague assertions respecting Fidelity's stock conversion in Astoria's initial brief, we explain that Astoria is barred from raising any damage claims premised upon the notion that it may have received a different amount of proceeds from the conversion absent the breach. ARGUMENT I. Astoria Should Not Be Awarded Restitution A. Introduction

Astoria seeks restitution of $147.936 million (less certain offsets, which will be addressed in another section, below) because it claims Fidelity saved the Government the cost of liquidating

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Suburbia. Plaintiff's Proposed Findings of Fact ("PPFF") ¶ 880.1 As we have already explained, this claim fails as a matter of law and fact. We do not dispute the availability of restitution as a remedy in appropriate cases. See Plaintiff's Proposed Conclusions of Law ("PPCL") ¶ 29.2 For example, in Landmark Land Co. v. United States, 256 F.3d 1365, 1375 (Fed. Cir. 2001), the Court awarded restitution to restore the plaintiff's contractually-required contribution and, in Hansen Bancorp, Inc. v. United States, 367 F.3d 1297, 1316 (Fed. Cir. 2004), the Court allowed the plaintiff to advance a restitution claim arising out of an exchange of stock. This case differs from those precedents, however, because Fidelity did not pay anything to acquire Suburbia or for the goodwill that it recorded. See Defendant's Post Trial Memorandum of Facts and Law ("DMFL") ¶ 117. Accordingly, there is nothing for this Court to restore by awarding restitution. As we have previously shown, the theory of restitution that Astoria advances here is barred as a matter of law, having been repeatedly rejected by the Federal Circuit and this Court. DMFL at 143-44 (discussing Glendale Fed. Bank, FSB v. United States, 239 F.3d 1374, 1382 (Fed. Cir. 2001); California Fed. Bank, FSB v. United States, 245 F.3d 1342, 1351-52 (Fed. Cir.

Plaintiff's Proposed Findings of Fact ¶ 877 cites PDX 100 as support for a liquidation cost of $147.963 million. That appears to be a typographical error. Elsewhere, plaintiff asserts the cost of liquidation as $147.936 million. See PPFF ¶¶ 155, 880, PDX 105, and PX 1314A, Corrected Exhibit 22. The references to PX 1314 in PPFF ¶¶ 880 and 881 are also errors. PX 1314 was not admitted, Tr. 2618:21-23 (Eisenhart), and PX 1314A was admitted instead. Tr. 2693:22-24 (Court). Astoria's citation to American Capital Corp. v. FDIC, 472 F.3d 859 (Fed. Cir. 2006), in PPCL ¶ 29 does not support an award of restitution in this case. The Court there explained that "we see no reason why a party's claim for restitution in this case would be different than an alternate claim for reliance damages." American Capital, 472 F.3d at 870. In this case, Astoria makes different claims for restitution and reliance damages, although both are based upon rejected legal theories. 5
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2001); Granite Mgmt. Corp. v. United States, 416 F.3d 1373, 1380-81 (Fed. Cir. 2005); Glendale Fed. Bank, FSB. v. United States, 378 F.3d 1308, 1313 (Fed. Cir. 2004); LaSalle Talman Bank, FSB. v. United States, 317 F.3d 1363, 1376-77 (Fed. Cir. 2003); Caroline Hunt Trust Estate v. United States, 65 Fed. Cl. 271, 298 (2005), aff'd in part, rev'd in part and remanded, 470 F.3d 1044 (Fed. Cir. 2006); Long Island Sav. Bank, FSB v. United States, 60 Fed. Cl. 80, 96 (2004), rev'd on other grounds, 476 F.3d 917 (Fed. Cir. 2007); Fifth Third Bank of W. Ohio v. United States, 55 Fed. Cl. 223, 245 (2003); Franklin Fed. Bank v. United States, 55 Fed. Cl. 108, 120 (2003); Citizens Fed. Bank, FSB v. United States, 52 Fed. Cl. 561, 566 (2002), aff'd, 474 F.3d 1314 (Fed. Cir. 2007)). Astoria attempts to distinguish these binding precedents by asserting that Fidelity assumed and ultimately paid Suburbia's net liabilities: "Fidelity paid off Suburbia's net liabilities by completely amortizing, with cash earnings, all of the supervisory goodwill put onto its books as a result of the Suburbia acquisition." PPCL ¶ 33. The record does not support this claim. First, Fidelity did not have the capacity to pay off Suburbia's net liabilities, DMFL at 155, and most likely was tangibly insolvent at the time it acquired Suburbia. DMFL ¶ 117. Fidelity's acquisition of Suburbia did not relieve the Government of insurance exposure on Suburbia's net liabilities, and Fidelity was not required to pay off these liabilities. DMFL ¶¶ 79-80. FSLIC remained contingently liable for insuring Suburbia's deposits after the merger. DMFL at 156, see also Tr. 1217:25-1218:3 (Beesley); Tr. 1506:10-12 (Vigna); Tr. 3368:6-12 (Kaplan). As in the binding precedents, here Fidelity assumed a speculative contingent liability that never came to pass. Tr. 1220:13-1222:8, 1238:15-1240:9 (Beesley). Accordingly, as in Glendale, 239 F.3d at 1382, the action taken by Fidelity in acquiring Suburbia "did not result in 6

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the Government, specifically the FSLIC, saving the dollar value of the net obligations of the thrift." Thus, there is no record basis upon which to distinguish this case from precedent. B. The Economic Backdrop

We do not dispute Astoria's showing in PPFF § I(A) that the savings and loan industry suffered economic distress in the 1980s. However, we do dispute as misleading and incomplete PPFF ¶ 6, which asserts that the Federal Home Loan Bank Board ("FHLBB") prohibited thrifts from operating with a negative capital account. As shown in DMFL ¶¶ 1-2, the vast majority of thrifts were insolvent on a marked-to-market basis in the early 1980s, Tr. 1202:6-11 (Beesley), including Fidelity. DMFL ¶ 117. Reported regulatory capital was somewhat meaningless because the true value of a thrift's assets and liabilities was substantially negative in virtually every case. Tr. 1151:20-24 (Beesley). C. The Evidence Does Not Support Astoria's Contentions

Astoria asserts that its restitution claim is based upon "the net costs that the Government avoided when Fidelity merged with Suburbia," PPCL ¶ 30, because liquidation was the only alternative to the Fidelity acquisition that was "seriously considered" by the regulators. PPCL ¶ 31 (citing PPFF §§ I(H)-(N)). The record does not support this contention. Rather, the evidence is overwhelming that liquidation was not the real alternative to Fidelity's acquisition of Suburbia. See DMFL ¶¶ 40, 42, 87, 107.

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1.

Liquidation Was Not An Alternative Because FSLIC Lacked Funds

First of all, we dispute as misleading Astoria's claim, PPFF § I(C), that FSLIC had sufficient funds to liquidate Suburbia in 1984. Given its outstanding assistance commitments at that time, and the continuing decline of the health of a large number of thrifts, FSLIC was effectively near-insolvent, and anything that would cost money was a last resort for FSLIC. Tr. 5848:22-23 (Stearns); see DMFL ¶¶ 2, 7, 10-17. We do not dispute that FSLIC was charged with insuring the thrift industry, PPFF § I(B), but it lacked the capital reserves to accomplish its mission. See DMFL ¶¶ 4, 7, 10-17. In PPFF § I(G), Astoria contends that the number of thrifts liquidated increased significantly in the 1980s. However, in PPFF ¶ 62, Astoria overstates the cash payout to depositors. The exhibit cited, PX 375 at 27, Table 5, shows a $2.2 billion cash payout to depositors in 1985, not $42.2 billion as Astoria claims. PPFF ¶ 64 also misstates the cited testimony, which actually indicates that the average size of the institutions liquidated ­ not the cost of liquidations ­ grew exponentially between 1983 and 1985, approximately doubling each year from involving deposits of $49 million in 1983 to $92 million in 1984 and $189 million in 1985. 2. Thrifts With Spread Problems Were Not Liquidated

We do not dispute that, in the 1980s, FSLIC developed several low-cost strategies for resolving failing thrifts, and considered liquidation the last option. PPFF § I(D); see DMFL ¶¶ 417. In 1984, the FSLIC liquidated only nine institutions, with combined deposits of $829 million, none of which were in the Northeast region, and all with "severe asset quality problems." DMFL ¶¶ 10-11. Given the state of FSLIC's finances in 1984 and 1985, liquidation 8

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was the last alternative that the FSLIC would have pursued for Suburbia, an institution of about $700 million in assets that had interest spread rather than asset quality problems. DMFL ¶ 13. Plaintiff's Proposed Findings of Fact ¶¶ 17 and 18 are therefore misleading. As a general matter, institutions with spread problems improved when interest rates dropped. Tr. 1241:7-12 (Beesley). It was harder for FSLIC to solve asset quality problems. Tr. 1238:13-14 (Beesley); see DMFL ¶¶ 8-9. While Mr. Beesley did testify that some institutions had been so weakened that their survival remained precarious even when interest rates fell, he attributed their precarious state to many variables, not simply the stress of interest rate volatility. Tr. 1193:3-1194:2 (Beesley). It therefore makes sense that FSLIC used net worth certificates ("NWCs") to help Suburbia cope with its spread problem. We do not dispute Astoria's showing in PPFF § I(E) that the use of NWCs and appraised equity capital was authorized by the Garn St. Germain Act, see DMFL ¶ 34, or its showing in PPFF § I(J) that FSLIC kept Suburbia solvent with artificial capital. Indeed, it was pursuant to that statute that Suburbia was authorized to issue NWCs to boost its regulatory net worth and buy time until interest rates declined. DMFL ¶¶ 34-35. Astoria incorrectly claims in PPFF § I(F), however, that FSLIC always took action before a thrift's capital level reached zero. We have shown that nearly all thrifts had negative net worth on an economic basis in the early 1980s. DMFL ¶¶ 1-2. Testimony that FSLIC prevented a thrift's accounting capital from reaching zero, Tr. 1156:19-1157:2 (Beesley), does not support Astoria's claim in PPFF § I(K) that Suburbia's eligibility for future NWCs was questionable. Rather, as we previously explained, DMFL ¶ 37, NWCs were issued retroactively to maintain

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Suburbia's capital above 0.5 percent.3 Had Fidelity not acquired Suburbia, NWCs could have kept Suburbia afloat until interest rates declined and its spread problems were ameliorated.4 We therefore dispute Astoria's claim in PPFF ¶ 124 that Suburbia would not have received additional NWCs had it not merged with Fidelity. The evidence does not support Astoria's claim that FSLIC would have liquidated Suburbia, an institution of about $700 million in assets. See DMFL ¶ 13. Such a liquidation would have lowered public confidence in the thrift system, which FSLIC wished to avoid as an overall policy matter. Tr. 225:1-227:15 (Spaid); Tr. 1386:18-24 (Vigna). Rather, the record makes clear that FSLIC would not have liquidated Suburbia had Fidelity not acquired it. See DMFL ¶¶ 16-17, 40, 87, 105, 107-08.

Astoria cites Mr. Vigna's testimony in PPFF ¶ 117 for the proposition that Suburbia would not have been eligible for further assistance if its net worth dipped below 0.5 percent but ignores his subsequent correction of this testimony. Tr. 2755:15-17, 2757:22-2758:1, 2848:11-12 (Vigna); see also Tr. 4135:4-18, 4136:3-4138:13 (Albanese). PPFF ¶ 125 is also incorrect in asserting that, as of August 31, 1984, Suburbia was not eligible for any further GarnSt. Germain financial assistance. It did, in fact, receive such assistance in the form of NWCs, which were issued retroactively. DMFL ¶ 37. We do not dispute that Suburbia's capital condition suffered and that it became a serious regulatory concern as a result of negative interest rate spreads. PPFF §§ I(H)-(I). However, we disagree with Mr. Kane's speculation, cited in PPFF ¶ 105, that Suburbia's capital level would have eventually gone negative had it not merged with Fidelity. Indeed, this testimony is contradicted by Mr. Albanese's testimony that it is possible that Suburbia was in better condition when it was acquired than it had been previously because the amounts of net worth certificates it was issued actually decreased by 1984. Tr. 4195:17-22 (Albanese). Thus, as shown above, positive regulatory capital could have been maintained through NWCs until interest rates dropped or another acquirer could have been identified. Since such strategies were available, PPFF ¶ 106 is misleading. FHLBB and FSLIC did not have to choose between liquidation and waiting to see if interest rates came down. 10
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3.

There Were Other Options For Addressing Suburbia's Problems

As was the case in each of the restitution claims rejected by the Federal Circuit and this Court, FSLIC had other options to Fidelity's acquisition of Suburbia which were less costly than a payout of funds to depositors, the option upon which Astoria bases its liquidation cost estimate. As Mr. Vigna testified: "I'm sure we would have gotten some kind of proposal less than the cost of liquidation." Tr. 1505:22-23 (Vigna). It is true that Suburbia had been shopped extensively in 1982. PPFF § I(L); see also DMFL ¶¶ 32-33. While the supervisory merger with Fidelity was Suburbia's best option in April 1984, we dispute Astoria's claim in PPFF ¶ 165 that Fidelity was its only option for a capital infusion. We also dispute Astoria's claim in PPFF § I(M) that the Fidelity merger, liquidation and rebidding were the options available to the regulators in 1984. FSLIC had "a lot of good, creative and not only financial but regulatory" ways to resolve troubled thrifts. Tr. 1316:191317:3 (Vigna). FSLIC had significant flexibility and could have gone back to one of the four firms that had submitted bids after the December 1982 bid conference, approached all four prior bidders, contacted the two dozen firms that had shown interest by asking for bid packages, or could have put together a new solicitation. DMFL ¶ 109; see also Tr. 1505:19-22 (Vigna). Indeed, in PPFF ¶ 148, Astoria itself identifies another option, based upon Mr. Spaid's testimony, "doing nothing." Mr. Spaid testified that what he meant by "doing nothing" was allowing Suburbia to continue under the NWC program. Tr. 175:5-7 (Spaid). Astoria acknowledges in PPFF § I(M) that rebidding was considered as an option to resolve the financial problems of Suburbia. See also DMFL ¶ 88. The chance of a lower cost bid being received was identified as an advantage of this option. Joint Stipulations of Fact ("JSF") 11

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¶ 44. We therefore dispute as incomplete and misleading PPFF ¶ 146. Mr. Spaid testified that FSLIC did not think the Government would get less costly proposals if it rebid Suburbia because of the condition of Suburbia and the interest rate scenario at the time. Tr. 211:24-212:1 (Spaid). The availability of NWCs would have allowed the FSLIC to wait until interest rates declined and Suburbia's condition improved before soliciting additional bids, which might have resulted in higher bids. It is also inappropriate for Astoria to dismiss the Phoenix option based upon Mr. Stearns' testimony. See PPFF ¶ 150 (citing Tr. 5852:13-22 (Stearns)). Mr. Stearns testified that the Suburbia transaction was a fait accompli when he arrived at FSLIC, Tr. 5852:5-12 (Stearns), and that he had no idea whether a Phoenix would have been a viable alternative for Suburbia. Tr. 5852:22 (Stearns). Although we objected to the question that Astoria cites as speculation, Tr. 5852:17 (Roberson), the Court did not rule on the objection after the witness responded, "I have no idea." Tr. 5852:22 (Stearns). The Court should therefore reject as unsupported PPFF ¶ 150. Instead, the Court should credit the testimony of Mr. Vigna, who testified that Suburbia could have been placed in the Phoenix program. Tr. 1505:16-23 (Vigna). In PPFF ¶ 34, Astoria also incorrectly claims that the FHLBB did not follow its sequential order of preference. In the omitted words from the cited passage, Dr. Pratt explained that one or more of the options might not be feasible in a particular case so the FHLBB might have to undertake a less preferred alternative. Tr. 152:16-21 (Pratt). He did not suggest that the FHLBB could deviate from the sequential order of preference. In PPFF ¶ 28, Astoria likewise used ellipses to omit critical words that show the limited use of the liquidation alternative. The quoted sentence from PX 112 at D3-0006243 (emphasis added) actually states: "A traditional 12

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liquidation, accompanied by the cash payment of insurance, will only be used when and if there is no less costly or less disruptive alternative available." Astoria posits that the record in this case "belies" the argument that the calculated cost of restitution is meaningless as a cost comparison. PPCL ¶ 32 (citing I (D-N)). According to Astoria, the Government "avoid[ed] a sizable net cost and reap[ed] a substantial benefit when Fidelity acquired Suburbia" which it should return to the plaintiff. PPCL ¶ 35. That is not the case. Liquidation costs were calculated simply to determine the legal maximum FSLIC could spend in resolving a troubled institution. Tr. 1179:6-10 (Beesley). The fact that all resolutions of troubled thrifts were accompanied by cost comparisons to liquidation did not mean FSLIC was actually considering liquidation. Such comparisons were required by law. Tr. 117:15-22 (Pratt); Tr. 265:4-13 (Spaid); Tr. 307:9-308:2 (Fiol); Tr. 3362:4-5 (Kaplan). All of these facts are common to both Astoria's claim and the restitution claims that were rejected in other Winstarrelated cases. There is also no record support for Dr. Kaplan's speculation, PPFF ¶ 30, that the ultimate cost of liquidating Suburbia might well have been higher than the 1984 liquidation estimate had Fidelity not acquired Suburbia. The policy of the regulators was to buy time for the savings and loan industry until interest rates fell. The reality was that, had interest rates not fallen, no thrifts would have survived, Tr. 129:6-10 (Pratt), and FSLIC would have been liable as the insurer of the thrift industry's deposits. Interest rates did fall, however, and the interest rate spread problems of thrifts eased. Tr. 1238:15-1240:10 (Beesley). Accordingly, Suburbia's spread problem would have been resolved even if Fidelity had not acquired it. As Mr. Kane testified, if interest rates had come down, Suburbia would no longer have faced an operating deficit and 13

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would have started to return to favorable operating results. DX 3490 at 22:4-17 (Kane). See DMFL ¶¶ 24-30. As an alternative for calculating restitution, Astoria suggests that the Court could evaluate the four 1982 bids for Suburbia, and speculates that "any new bid in 1984 would have almost certainly resulted in a higher cost to the FSLIC." PPCL ¶ 34 (citing §§ I (L)-(N)). We have already shown in DMFL ¶¶ 33, 109 that this exercise makes no sense. The present value of the lowest bid in 1982 was $17 million, as compared to Fidelity's bid of approximately $16 million. Had the Government continued to rely upon NWCs until interest rates declined, thereby allowing Suburbia's condition to improve before soliciting additional bids, FSLIC might very well have received lower bids. See DMFL ¶ 88. Indeed, as we explained, DMFL at 148, it would be hypothetical to assume that the average cost of bids received for a thrift (e.g., Suburbia in 1982) represents the cost avoided by a merger that occurred two years later in 1984. Finally, Astoria cites Mr. Vigna's testimony about Fidelity's successful operations under its capital plan as evidence that "Fidelity's assumption of Suburbia's liabilities saved the Government substantial capital." PPCL ¶ 36 (citing PPFF ¶ 714 [sic, ¶ 685]). Fidelity's operations under the capital plan ­ after the breach ­ have nothing to do with restitution, which is designed to restore the parties to the positions they occupied before the contract. See Hansen, 367 F.3d at 1316; Glendale, 239 F.3d at 1380-81. Thus, the evidence makes clear that Fidelity did not save the Government the cost of liquidating Suburbia. As the Federal Circuit explained in Glendale, "the action taken by the purchasing S&L in acquiring the failing thrift did not result in the Government, specifically the FSLIC, saving the dollar value of the net obligations of the thrift." Id. at 1382. Since FSLIC had 14

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several options other than liquidation that it could have pursued, the Federal Circuit concluded that a restitution award based upon the supposed liquidation costs of the acquired thrift was merely a "speculative assessment of what might have been." Id. The same is true in this case, and Astoria's claim for restitution fails. II. Astoria's Reliance Claim Fails As A Matter Of Law And Fact Astoria's reliance claim is premised upon a net liability figure assumed at the moment of Fidelity's Suburbia acquisition ­ an accounting mark-to-market calculation of Suburbia's assets versus its liabilities under the interest rates prevailing at the time. We demonstrated that Astoria's characterization of this net liabilities assumed figure as damages is barred by binding Federal Circuit precedent. DMFL at 166-70. Astoria failed to present any argument or evidence distinguishing its net liabilities assumed claim from prior such claims rejected by this Court and the Federal Circuit. Even assuming, contrary to Federal Circuit precedent, that Astoria's claim is not barred as a matter of law, the evidence at trial showed that Fidelity did not pay or otherwise incur a net cost of $160 million based upon the net liability figure assumed at the moment of acquisition. DMFL at 170-186. A. Astoria's Reliance Claim Depends Upon An Accounting Entry For Net Liabilities Assumed At The Moment Of Acquisition And Is Barred By Federal Circuit Precedent

As we confirmed at trial, Astoria's reliance claim depends upon the premise that the approximately $160 million net liability figure assumed at the moment of Fidelity's Suburbia acquisition ­ reflecting a marked-to-market valuation of Suburbia's assets and liabilities under the interest rates prevailing at that instant ­ was an actual cost Fidelity incurred to "discharge" the net liability. DMFL at 166-67. However, this Court, and the Federal Circuit, consistently 15

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have rejected such net liabilities assumed claims as a basis for damage, whether characterized as restitution or reliance damages. Id.5 In its post-trial brief, Astoria does not even attempt to distinguish this case from the Federal Circuit precedents such as LaSalle that we consistently have cited as barring Astoria's reliance claim. See PPCL ¶¶ 42-48. Accordingly, Astoria's claim should be dismissed as a matter of law. Further, Astoria made virtually no effort to tie the facts of this case to its claim. Astoria's brief concerning reliance consists primarily of a few general propositions of law, with no indication how they relate to the facts of this case. E.g., PPCL ¶¶ 42-47.6 The sum of Astoria's

The same prohibition bars reliance as well as restitution claims premised upon net liabilities assumed because, in this context, prohibited restitution claims premised upon net liabilities assumed can be seen as reliance claims: When restitution damages are based on recovery of the expenditures of the non-breaching party in performance of the contract, the award can be viewed as a form of reliance damages, wherein the non-breaching party is restored to its pre-contract position by returning as damages the costs incurred in reliance on the contract. LaSalle, 317 F.3d at 1376; see also Tr. 3341:5-17 (Kaplan) (liquidation cost and net liabilities assumed just a matter of "flip[ping] the coin"). The Federal Circuit and this Court have repeatedly dismissed both restitution and reliance claims premised upon the argument that net liabilities assumed represent a cost. See Westfed Holdings, Inc. v. United States, 407 F.3d 1352, 1371 (Fed. Cir. 2005); Glendale, 378 F.3d at 1313; CalFed, 245 F.3d at 1351; Glendale, 239 F.3d at 1382-84; Standard Fed. Bank v. United States, 62 Fed. Cl. 265, 295-99 (2004); Long Island, 60 Fed. Cl. at 96; Granite Mgmt. Corp. v. United States, 58 Fed. Cl. 766, 776 (2003), aff'd in relevant part, 416 F.3d 1373 (Fed. Cir. 2000); S. Nat'l Corp. v. United States, 57 Fed. Cl. 294, 300 (2003); Fifth Third, 55 Fed. Cl. at 245-46; Franklin, 55 Fed. Cl. at 120-21; Glendale Fed. Bank, FSB v. United States, 54 Fed. Cl. 8, 13 (2002), aff'd, 378 F.3d 1308 (Fed. Cir. 2004). Astoria also discusses Hughes v. United States, 71 Fed. Cl. 284, 309 (2006), rev'd on other grounds, __ F.3d __, 2007 WL 2433838 (Fed. Cir. Aug. 29, 2007), as an example of the consideration of reliance and restitution as "related concepts." PPCL ¶ 47. However, the 16
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discussion of the facts underlying its reliance claim may be found in a single conclusory statement: Plaintiff's damages arise not from merely assuming Suburbia's net liabilities, but from actually discharging them ­ dollar by dollar, and at great cost to its regulatory standing and marketplace competitiveness. See generally, Proposed Findings of Fact, Section V (D). PPCL ¶ 48. The "Proposed Findings of Fact, Section V (D)" that Astoria cited as support for its net liabilities assumed reliance claim, PPCL ¶48, simply relates to the booking of goodwill amortization. See PPFF at ¶¶ 692-702. Moreover, given that Astoria's references to goodwill amortization cite to figures exceeding $160 million,7 such amortization plainly includes matters unrelated to Suburbia or the breach, such as goodwill amortization associated with the acquisition of Dollar Federal Savings and Loan Association ("Dollar"). There was only $160.093 million in goodwill created as a result of Fidelity's acquisition of Suburbia. PPFF ¶ 221. Astoria's goodwill assumed and "discharg[ed]" claim is indistinguishable from net liabilities assumed claims that are barred by Federal Circuit precedent. To illustrate, the Federal Circuit in LaSalle entertained the appeal of a plaintiff claiming ­ just as Astoria claims here ­ that it "was obligated to pay the assumed liabilities as they became due and . . . did substantially reduce these liabilities, either through payment or by sale of the underlying asset, before the breach." LaSalle, 317 F.3d at 1376. The Federal Circuit considered and then rejected this claim:

plaintiffs in Hughes, unlike this case, sought restitution and reliance damages for real estate assets that had been actually contributed to a new thrift, see Hughes, 71 Fed. Cl. at 309, as distinguished from Astoria's net liabilities assumed claim.
7

See, e.g., PPFF ¶ 697, citing $170 million in goodwill. 17

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However, the calculation of restitution damages based on the treatment of assumed "goodwill" liabilities as a cost of performance was generally resolved in Glendale, 239 F.3d at 138283, where this court held that damages are not properly keyed to "a liability that was at most a paper calculation." Although the assumed liabilities are indeed an accounting cost, as LaSalle stresses, we agree with the Court of Federal Claims they are not a usable measure of either cost to the thrift or benefit to the government, and thus not an appropriate threshold for restitution damages. See also Cal. Fed. Bank, 245 F.3d at 1351. Id. Further, during cross examination, Dr. Kaplan admitted that it is his understanding that a reliance damage claim based upon net liabilities assumed by the acquiring thrift, such as presented in his damage model, is not a valid legal theory of damages pursuant to decisions of the Federal Circuit. Tr. 3250:17-3251:7 (Kaplan). It follows that Astoria's claim is barred by binding Federal Circuit precedent and thus should be dismissed. B. Astoria's Claimed Reliance Cost For "Discharging" Net Liabilities Assumed Is Contrary To Fact

Even assuming, for purposes of argument, that Astoria's net liabilities assumed reliance claim was not barred, as it is, by Federal Circuit precedent, the facts of this case contradict Astoria's claim that it was damaged by $160 million of "cost," because Astoria did not prove that it incurred an actual cash cost in paying off any of the net liabilities assumed. Further, Astoria ignored the offsetting benefits that it secured with Fidelity's acquisition of Suburbia. First, as we demonstrated at trial: (1) Fidelity did not actually pay Suburbia's excess liabilities of $160 million at the time of acquisition, and did not have the capacity to do so;

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(2) FSLIC did not request, let alone receive as consideration, a promise that Fidelity would pay Suburbia's net liabilities and permanently discharge FSLIC's insurance liability; and (3) Fidelity never generated enough cash earnings to permanently discharge the $160 million of net liabilities assumed in connection with the Suburbia acquisition. DMFL at 171-72. That Fidelity never paid Suburbia's net liabilities is evident from the fact that, although the net liabilities of the combined institution immediately after the merger was actually greater than $160 million, Tr. 3329:3-12 (Kaplan), Fidelity was, on a mark-to-market basis, insolvent by only $13.3 million as of May 30, 1990. Tr. 3327:11-3328:8 (Kaplan). Accordingly, the excess liabilities that Fidelity assumed when it acquired Suburbia had largely been eliminated as of May 1990 ­ a point in time when, given Fidelity's modest cash earnings after the acquisition, the net liabilities could not have been paid with actual cash earnings generated after the merger. Indeed, Dr. Kaplan admits as much: "I have not suggested that [Fidelity's] earnings paid down Suburbia's original liabilities as of that date [May 1990]." Tr. 3330:17-19 (Kaplan). In sum, Fidelity did not "pay off" Suburbia's liabilities. DMFL at 173. Second, goodwill amortization cannot be posited as an actual payment of the net liabilities assumed. Astoria's proposed findings of fact rely, erroneously, upon Mr. Teurfs (who was not qualified as an expert, Tr. 1068:22-24, 1123:3-4; 1132:17-18) to support an opinion that "[t]here is an opportunity cost when an institution has to amortize goodwill . . . ." PPFF ¶ 244. Astoria alleged that "[t]he money used to amortize goodwill cannot be used for other types of investments, such as loans. (Teurfs, Tr. 1138, lines 9-12)." PPFF ¶ 244 (emphasis added). Astoria's contention is based upon inadmissible testimony and, in any event, is plainly erroneous. As is recorded immediately after the cited testimony, the Court sustained our objection to 19

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Mr. Teurfs's testimony. Tr. 1138:13-14. Contrary to plaintiff's contention that there was "money used to amortize goodwill," we demonstrated that the amortization of goodwill is a noncash accounting entry that was not tied to the actual payoff of liabilities assumed with Suburbia ­ whether as a matter of accounting or as a matter of fact. DMFL at 173-76. Third, in reality the net liabilities assumed figure, based upon the $160 million of goodwill created at the moment of the acquisition, certainly did not remain fixed at that amount and, thus, was not a "cost" actually paid in that amount. As confirmed at trial, with every change in interest rates, the mark-to-market "costs" change; and would change ­ decrease as the value of assets increased and liabilities decreased ­ dramatically with a downturn in interest rates. DMFL at 176-78. This is precisely what occurred after Fidelity's acquisition of Suburbia. Id. Given that Suburbia's net liabilities were not paid off by Fidelity at the time of its acquisition, but, if at all, years later as the (repriced to market) deposit liabilities came due, any actual costs that hypothetically were incurred (although not proven at trial) would have little or no correlation to the "net liabilities" figure Astoria proposed as damages. Indeed, this is precisely the point made by this Court in rejecting the same net liabilities assumed/discharged argument in Granite: It is inappropriate, however, to argue that the liabilities were paid as they came due and yet include the entire amount of net liabilities assumed on the date of acquisitions in the cost of performance calculation. . . . While it is possible that plaintiff may have paid off some of the liabilities, it is impossible to discern what portion was actually paid out when the entire amount of net liabilities is included as a cost. 58 Fed. Cl. at 775-76. Accordingly, because plaintiff has not identified any actual "cost" as the basis for its reliance claim, its claim fails. See also Standard Fed., 62 Fed. Cl. at 298 (denying same reliance claim sponsored by same expert). 20

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Fourth, even if net liabilities assumed could be construed to be a cost by an acquirer, the alleged "cost" ­ i.e. goodwill ­ stems from the quality of the assets and liabilities reflected by their mark-to-market, at the moment of acquisition. That alleged "cost" of performance is a function of the asset and liability valuation assumed at the moment of acquisition, and is unrelated to the later FIRREA breach of contact. See Granite, 416 F.3d at 1380. Because the mark-to-market value at the time of acquisition is a figure not generated or caused to have been incurred by FIRREA, awarding such an amount would provide Astoria with an impermissible windfall. See id.8 The Federal Circuit's observation in Granite points up another flaw in Astoria's claim for net liabilities assumed as damages: as discussed below, the acquisition of marked-to-market Suburbia brought to Fidelity a bundle of associated and offsetting benefits. Finally, reliance damages are subject to the ordinary limitations upon contract remedies, including causation, certainty, and foreseeability. See Granite, 58 Fed. Cl. at 774. Any reliance damages must be the net cost caused to be suffered from attempted performance of the contract, i.e., costs must be netted against offsetting benefits the plaintiff received from the contract: Given that no one disputes that as a consequence of tax benefits from acquiring Bell, Bell's "purchase price was zero," we conclude that the trial court clearly erred in finding that Westfed actually sustained a loss of $20 million in connection with the purchase of Bell, for which it should be compensated. See Glendale, 239 F.3d at 1382; Dan B. Dobbs, Law of Remedies, § 12.3(1) at 51-52 (2d ed. 1993) ("The reliance damages recovery is a recovery for net reliance loss, so the defendant is credited with any benefit the plaintiff receives from the expenditure in reliance.").

Since windfalls are not permitted as restitution either, this rationale bars a restitution award for net liabilities assumed as well. See Hansen, 367 F.3d at 1315. 21

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Westfed, 407 F.3d at 1369; see also Carley Capital Group v. City of Newport News, 709 F. Supp. 1387, 1399 (E.D. Va. 1989); Charles T. McCormick, Damages § 142, at 584 (1935). Further, in order to be entitled "to reliance damages, a plaintiff must prove that both the magnitude and type of damages were foreseeable" at the time the contract was made. Landmark, 256 F.3d at 1378 (emphasis added). In this case, reliance is barred because Astoria cannot show that Fidelity made net out-ofpocket expenditures that were caused by the phase-out of goodwill, were reasonably certain, and were foreseeable at the time of the Suburbia acquisition. As we demonstrated at trial, plaintiff's claim counts only the alleged "cost" assumed at the moment of acquisition, while failing to credit the multitude of offsetting benefits that Fidelity and Astoria obtained from Fidelity's acquisition of Suburbia. In its post-trial proposed findings of fact, plaintiff claims that "FIRREA . . . took away the benefits of the deal," citing Tr. 1572:4-1573:9 (Lovely). PPFF ¶ 452. Plaintiff misstated the evidence. The cited testimony at Tr. 1572:18-19 is that "goodwill" ­ not "benefits" ­ allegedly was taken. Further, the evidence is plain that Fidelity received and retained a multitude of benefits as a result of its assisted acquisition of Suburbia. As Fidelity represented in its Offering Circular, it acquired Suburbia "primarily for the purpose of enhancing its retail deposit and lending franchise[.]" PX 986 at AST064173; DX 4004. Plaintiff's expert conceded that a deposit franchise is valuable.9 Utilizing a valuation

A deposit franchise is a very valuable resource because consumer retail deposits are a relatively stable, reliable and low-cost sources of funds. Tr. 3333:4-10 (Kaplan). Indeed, a deposit franchise is valuable because it is the raw material or fuel that a bank utilizes to move forward. Tr. 3333:11-18 (Kaplan). Suburbia's branch deposits were not different and, in fact, were valuable to Fidelity. Tr. 3334:15-3335:9 (Kaplan). Further, Dr. Kaplan admitted that one could quantify the value of Suburbia's deposit franchise. Tr. 3338:8-11 (Kaplan). 22

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method similar to that employed by plaintiff Astoria to quantify its franchise value, we demonstrated that plaintiff benefitted and continues to benefit from the value of Suburbia's franchise, in amounts offsetting the initial net liabilities assumed. See DMFL at 161-65, 178-80; Tr. 5035:17-5036:17 (Rochester). Astoria's claim also ignores the benefits of cash savings and cash received from the Suburbia acquisition. As we detailed, plaintiff secured from the Suburbia acquisition millions of dollars in cash gains on sale of Suburbia's assets, savings from economies of scale, and tax benefits (i.e., the same kind of benefits that the Federal Circuit in Westfed, 407 F.3d at 1369-70, required be netted against alleged reliance costs). DMFL at 180-86. These benefits overwhelm the purported cost of the net liabilities assumed, precluding, even if it were not otherwise barred by binding precedent, Astoria's claim for $140 million in reliance damages ­ as well as its claim for restitution damages. As we demonstrated at trial, plaintiff's expert relied upon a double-counting of goodwill ­ first as an alleged cost to Fidelity, and then again, as an offset to the offset for gains on the sale of discounted loans. Id. at 180-81. Similarly, plaintiff attempted to resurrect the pre-merger $57 million accounting deficit at Suburbia (an accounting entry eliminated by the very mark-tomarket that created the post-merger net liability assumed), to attempt to avoid crediting offsets to the alleged cost of net liabilities assumed. Id. at 182. Plaintiff's arguments in this regard are illogical and reflect erroneous accounting. Id. at 180-82. Plaintiff's expert also argues that no offset should be allowed until Fidelity returned to solvency. That is contrary to the Federal Circuit's description of reliance damages as a "net" loss, requiring that "any" benefit be credited as an offset: "[T]he reliance damages recovery is a recovery for net reliance loss, so the 23

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defendant is credited with any benefit the plaintiff receives from the expenditure in reliance." Westfed, 407 F.3d at 1369, (quoting Dobbs, Law of Remedies, § 12.3(1) at 51-52) (emphasis added). Accordingly, pursuant to binding precedent of the Federal Circuit, Astoria's claim must be denied. Moreover, even if its reliance claim had not been barred by binding precedent, the reliance claim presented by Dr. Kaplan is unfounded in fact and law for the reasons we have described, including his failure to take into account the net alleged cost after credit for any benefits obtained. Thus, for all of these reasons, Astoria's reliance claim should be rejected. III. Federal Circuit Precedent Requires The Offset Of Benefits That Fidelity Received Plaintiff's brief concludes with an argument that no offsets should be credited. See PPCL ¶¶ 49-50. Plaintiff cites Hansen, a case in which dividends paid by a thrift to a capital contributor were not deemed an offsetting benefit for restitution purposes, as the basis for its argument that no offset should be allowed upon a reliance claim. Plaintiff misplaces its reliance upon Hansen because it is factually and legally inapposite. As the Federal Circuit made plain in Westfed, 407 F.3d at 1369, recovery must be "net" of "any" benefit. In Westfed, for example, the acquired thrift ­ Bell ­ had net operating loss carryforwards that accrued to Westfed as a result of acquiring the thrift. Id. As we demonstrated, DMFL at 158-65, 178-86, plaintiff here likewise benefitted, receiving from the Government-assisted acquisition Suburbia's franchise, discounted assets (and resulting accretion income and gains on sale), and tax benefits, et al., all of which Fidelity retained and from which it benefitted. In sum, with respect to reliance and restitution, respectively, the value and cash realized from the acquisition of Suburbia's franchise

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and assets plainly were benefits that must be credited as offsets to alleged costs of net liabilities assumed or as offsets against the benefit of liquidation avoidance allegedly conferred by Fidelity. IV. Astoria Did Not Establish Causation Of Its Lost Profits Damages Astoria's lost profits claims fail for lack of causation, foreseeability, and reasonable certainty. We address each of these elements in turn. In its proposed conclusions of law, Astoria claims that it established causation through the testimony of "Fidelity's senior managers, Mr. Wesp and Mr. Powderly, and its expert witness Dr. Kaplan, about Fidelity's pre-FIRREA operations and business plans and the comparison with post-FIRREA life under the Capital Plan." PPCL ¶ 17 (citations omitted). Specifically, Astoria argues that, "[t]he Record shows that pre-FIRREA, Fidelity was healthy and well-managed and was dealing with its real estate challenges. The record further shows that after FIRREA, Fidelity was unhealthy, capital deficient, and existing at the whim of its regulators." PPCL ¶ 19 (citations omitted). Contrary to Astoria's claims, however, the record shows that the breach did not cause Fidelity to forego growth at any period. See generally DMFL ¶¶ 227-74; DMFL at 214-36. As we demonstrated in our proposed conclusions of law, Dr. Kaplan's damages model suffers from several flaws, including: no support for damages beginning before the passage of FIRREA (id. at 214-17); the testimony that regulators would have barred Fidelity's growth pursuant to regulations RB3a-1 (id. at 217-19), concern with its interest rate risk (id. at 219-22) and restrictions regarding wholesale investment strategies (id. at 222-25); Fidelity's activities leading up to and after its conversion being unchanged by the breach (id. at 225-28); Dr. Kaplan's wholesale growth strategy being inconsistent with Fidelity's actual practices before the breach 25

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(id. at 228-29); economic constraints barring Fidelity's pre-1994 growth (id. at 229-33); the loss of Fidelity's non-contractual goodwill (id. at 233-34); and the non-breach costs Fidelity would have incurred in the but-for world (id. at 234-36). Astoria's proposed findings do not address these issues directly, but instead rely upon after-the-fact characterizations of testimony that ignore the key documents and admissions we established at trial. Astoria thus has failed to establish causation for the reasons we previously demonstrated, and which we discuss below. See generally DMFL ¶¶ 227-74; DMFL at 214-36. A. Astoria's Lost Profits Claims Lack Foundation In The Record

Astoria bases its pre-1994 lost profits damages claim upon Dr. Kaplan's assumption that Fidelity would have grown at a rate of 8.25 percent per year after the breach, and that its was prevented from doing so by a lack of regulatory capital after the breach. The record, however, demonstrates that both of these assumptions are incorrect. Absent the breach, Fidelity still would have been prevented from growing for most or all of the period prior to its conversion because of growth restrictions imposed by RB3a-1 based upon Fidelity's asset quality before FIRREA. Furthermore, economic conditions and Fidelity's asset quality problems would have restricted Fidelity's growth after the breach apart from regulatory restrictions. Lastly, Fidelity would have ceased growth in preparation for its 1993 conversion, and faced no capital-related restraints upon its growth after the conversion. After Fidelity's merger with Astoria, Astoria cont