Free Motion for Judgment on Partial Findings - District Court of Federal Claims - federal

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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 MOTION FOR JUDGMENT BASED UPON PARTIAL FINDINGS

MICHAEL F. HERTZ Deputy Assistant Attorney General JEANNE E. DAVIDSON Director KENNETH M. DINTZER Assistant Director JOHN H. ROBERSON Trial Attorney Commercial Litigation Branch Civil Division Department of Justice 1100 L Street, N.W. Attn: Classification Unit, 8th Floor Washington, D.C. 20530 Tel. (202) 353-7972 Fax (202) 514-8640 Attorneys for Defendant

OF COUNSEL: ARLENE PIANKO GRONER ELIZABETH M. HOSFORD BRIAN A. MIZOGUCHI JOHN J. TODOR SAMEER YERAWADEKAR

May 15, 2007

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TABLE OF CONTENTS
Page TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 I. II. Standard Of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Astoria Has Failed To Prove Entitlement To An Award Of Restitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A. B. Description Of Astoria's Restitution Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Federal Circuit Has Rejected Restitution Claims Premised Upon Avoided Liquidation Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 No Record Evidence Renders Astoria's Restitution Claim Viable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1. Astoria Has Failed To Distinguish The Economic Or Regulatory Environment Under Which Suburbia Was Operating From That Of Other Thrifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 To The Extent Any Facts Distinguish Suburbia From Other Troubled Thrifts, They Show FSLIC Was Less Likely To Liquidate Suburbia . . . . . . . . . . . . . . . . . . . . . . . . . . 8

C.

2.

D. III.

Restitution Claim Fails To Meet Other Legal Requirements . . . . . . . . . . . . . . . 11

Astoria's Reliance Claim Fails As A Matter Of Law And Fact . . . . . . . . . . . . . . . . . . . 12 A. B. Description Of Astoria's Reliance Damages Claim . . . . . . . . . . . . . . . . . . . . . . 12 The Federal Circuit Has Rejected Reliance Claims Premised Upon Net Liabilities Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 The Record Evidence Does Not Support Astoria's Claim That The Net Liabilities Assumed Represented A Cost To Fidelity . . . . . . . . . . 15

C.

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1.

The Same General Scenario Applies To The Suburbia Acquisition As To The Other Cases Rejecting Identical Reliance Claims . . . . . . . . . . . . . . . . . . . . . . . 16 The Facts Demonstrate That Dr. Kaplan Ignores Significant Benefits That Constitute An Offset To His Claimed Reliance Damages . . . . . . . . . . . . . . . . . . . . 17

2.

III.

Astoria's Expectancy Claims Fail As A Matter Of Law And Fact . . . . . . . . . . . . . . . . . 19 A. B. C. Overview Of Astoria's Expectancy Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Legal Standards For Expectancy Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Astoria's Lost Profits Claims Fail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1. 2. Description Of Astoria's Lost Profits Claim . . . . . . . . . . . . . . . . . . . . . . 24 Dr. Kaplan's Post-Astoria Damages Are Speculative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Dr. Kaplan's Pre-1994 Lost Profits Are Unsupported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Dr. Kaplan's Pre-1994 Lost Profits Fail For Lack Of Causation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 a. b. c. No Causation For Pre-FIRREA Damages . . . . . . . . . . . . . . . . . . 28 Fidelity Would Not Have Grown Absent The Breach . . . . . . . . . 29 Regulators Would Have Barred Dr. Kaplan's Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Economic Constraints Barred Dr. Kaplan's Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Fidelity Never Grew Wholesale Portfolio When Unconstrained . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Dr. Kaplan Omits Benefits To Fidelity Caused By The Breach . . . . . . . . . . . . . . . . . . . . . . . . . . 37

3.

4.

d.

e.

f.

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5.

Dr. Kaplan's Lost Profits Claims Fail For Lack Of Foreseeability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 a. Precedent Indicates Damages Nearing The Goodwill Amount Are Unforeseeable . . . . . . . . . . . . . . . . . 37 Fidelity's Operations Gave Regulators No Reason To Foresee The Scale Or The Source Of The Damages Dr. Kaplan Posits . . . . . . . . . . . . . . . . . 38

b.

6.

Dr. Kaplan's Lost Profits Claims Are Not Reasonably Certain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 a. Dr. Kaplan's Assumed Growth Rate Is Unsupportable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Dr. Kaplan's Reliance Upon The October 1988 Business Plan Creates Uncertainty . . . . . . . . . . . . . . . . . . . 39 Dr. Kaplan's Use Of Pre-FIRREA Growth Rate Creates Uncertainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Dr. Kaplan's Calculation Of An Assumed Spread Is Baseless . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Dr. Kaplan's Post-Astoria Merger Damages Are Unexplained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Dr. Kaplan's Post-Astoria Damages Fail To Adjust For A Non-Breach World . . . . . . . . . . . . . . . . . . . . . . 43

b.

c.

d.

e.

f.

B.

Dr. Kaplan's "Wounded Bank" Claims Fail . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 1. 2. OTS Assessment Claim Is Speculative . . . . . . . . . . . . . . . . . . . . . . . . . . 44 FDIC Insurance Premium Claim Is Speculative . . . . . . . . . . . . . . . . . . . 45

IV.

Astoria Is Not Entitled To "Jury Verdict" Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

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TABLE OF AUTHORITIES CASES Page Aktieselskabet Dampskibsselskabet Svenborg v. United States, 131 Ct. Cl. 399, 130 F. Supp. 363 (1955) .................................................................................... 11 Ariadne Fin. Servs. Pty. Ltd. v. United States, 133 F.3d 874 (Fed. Cir. 1998) ...................................................................................................... 28 Astoria Fed. Sav. & Loan Ass'n v. United States, 72 Fed. Cl. 712 (2006) ............................................................................................................. 3, 12 Aurigemma v. Arco Petroleum Prods. Co., 734 F. Supp. 1025 (D. Conn. 1990) ............................................................................................. 11 Bluebonnet Sav. Bank v. United States, 266 F.3d 1348 (Fed. Cir. 2001) .................................................................................................... 46 Bohac v. Dep't of Agriculture, 239 F.3d 1339 (Fed. Cir. 2001) .................................................................................................... 20 California Fed. Bank v. United States, 43 Fed. Cl. 445 (1999), vacated in part, 245 F.3d 1342 (Fed. Cir. 2001), cert. denied, 534 U.S. 1113 (2002) .......................................... 37 California Fed. Bank, v. United States, 245 F.3d 1342 (Fed. Cir. 2001), cert. denied, 534 U.S. 1113 (2002) .................................. 5, 8, 13 California Fed. Bank v. United States, 395 F.3d 1263 (Fed. Cir. 2005), cert. denied, 126 S. Ct. 344 (2005) .......................................... 19 Carley Capital Group v. City of Newport News, 709 F. Supp. 1387 (E.D. Va. 1989) ............................................................................................. 15 Capitol Elec. Inc. V. United States, 729 F.2d 746 (Fed. Cir. 1984) ............................................ 20 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) ............................................................................. 5 Citizens Fed. Bank v. United States, 52 Fed. Cl. 561 (2002), aff'd, 474 F.3d 1314 (Fed. Cir. 2007) .................................................... 5 iv

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Citizens Fed. Bank v. United States, 474 F.3d 1314 (Fed. Cir. 2007) .................................................................................................... 19 Citizens Fin. Servs., Inc. v. United States, 64 Fed. Cl. 498 (2004) ........................................................................................................... 21, 47 Columbia First Bank, FSB v. United States, 60 Fed. Cl. 97 (2004) ........................................................................................................... passim Commercial Fed. Bank, F.S.B. v. United States, 59 Fed. Cl. 338 (2004), aff'd, 125 Fed. Appx. 1013 (Fed. Cir. 2005) ............................................................................................................. 43, 44 Cooper v. United States, 37 Fed. Cl. 28 (1996) ..................................................................................................................... 2 Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993) ..................................................................................................................... 42 Energy Capital Corp. v. United States, 302 F.3d 1314 (Fed. Cir. 2002) .................................................................................................... 20 Fifth Third Bank of W. Ohio v. United States, 55 Fed. Cl. 223 (2003) ............................................................................................................. 5, 14 First Fed. Lincoln Bank v. United States, 73 Fed. Cl. 633 (2006), appeal docketed, No. 07-5044 (Fed. Cir. 2007) .............................. 43, 44 Franklin Fed. Sav. Bank v. United States, 431 F.3d 1360 (Fed. Cir. 2005) ................................................................................................ 5, 14 Franklin Fed. Sav. Bank v. United States, 55 Fed. Cl. 108 (2003) ............................................................................................................. 5, 14 Glendale Fed. Bank, FSB v. United States, 54 Fed. Cl. 8 (2002), aff'd, 378 F.3d 1308 (Fed. Cir. 2004), cert. denied, 544 U.S. 904 (2005) ................................................................ 5, 14 Glendale Fed. Bank, FSB v. United States, 239 F.3d 1374 (Fed. Cir. 2001) ............................................................................................ passim Glendale Fed. Bank, FSB v. United States, 378 F.3d 1308 (Fed. Cir. 2004), cert. denied, 544 U.S. 904 (2005) .................................. 5, 13, 21

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Granite Mgmt. Corp. v. United States, 58 Fed. Cl. 766 (2003), aff'd in part, vacated in part, & remanded, 416 F.3d 1373 (Fed. Cir. 2005) ........................................................... 14, 15 Granite Mgmt. Corp. v. United States, 73 Fed. Cl. 155 (2006) (appeal pending) ..................................................................................... 26 Granite Mgmt. Corp. v. United States, 416 F.3d 1373 (Fed. Cir. 2005) ................................................................................................ 5, 15 Hansen Bancorp, Inc. v. United States, 367 F.3d 1297 (Fed. Cir. 2004) .............................................................................................. 15, 20 Howard Indus. v. United States, 126 Ct. Cl. 283, 115 F. Supp. 481 (1953) ...................................................................................... 3 LaSalle Talman Bank, F.S.B. v. United States, 317 F.3d 1363 (Fed. Cir. 2003) ................................................................................................ 5, 13 Landmark Land Co. v. United States, 256 F.3d 1365 (Fed. Cir. 2001) .............................................................................................. 15, 20 Long Island Sav. Bank, FSB v. United States, 60 Fed. Cl. 80 (2004), rev'd on other grounds, 476 F.3d 917 (Fed. Cir. 2007) .................................................................................................. 5, 14 Roseburg Lumber Co. v. Madigan, 978 F.2d 660 (Fed. Cir. 1992) ...................................................................................................... 20 Rumsfeld v. Applied Cos., Inc., 325 F.3d 1328 (Fed. Cir. 2003) .................................................................................................... 20 S. Nat'l Corp. v. United States, 57 Fed. Cl. 294 (2003) ........................................................................................................... 14, 43 San Carlos Irrigation & Drainage Dist. v. United States, 111 F.3d 1557 (Fed. Cir. 1997) ................................................................................................... 20 Standard Fed. Bank v. United States, 62 Fed. Cl. 265 (2004) ................................................................................................................. 14 Westfed Holdings, Inc. v. United States, 407 F.3d 1352 (Fed. Cir. 2005) .................................................................................................... 13

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STATUTES Financial Institutions Reform, Recovery and Enforcement Act, Pub. L. 101-73, 103 Stat. 83 (1989) ................................................................. 2

RULES AND REGULATIONS Office of Thrift Supervision Regulatory Bulletin 3a-1 ................................................................ 34 RCFC, Rule 52(c) ...................................................................................................................... 1, 2

MISCELLANEOUS 3 Daniel B. Dobbs, Law of Remedies, §12.3(1) (2d ed. 1993) .................................................... 15 Charles T. McCormick, Damages §142 (1935) ........................................................................... 15 Restatement (Second) of Contracts § 347, cmt. b (1981) ........................................................... 20 Restatement (Second) of Contracts § 352 (1981) ....................................................................... 20 Restatement (Second) of Contracts § 384(1), cmt. a .................................................................. 11 Restatement (Second) of Contracts § 371, cmt. a ........................................................................ 10

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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 MOTION FOR JUDGMENT BASED UPON PARTIAL FINDINGS Defendant, the United States, respectfully requests the Court to enter judgment pursuant to Rule 52(c) for the Rules of the United States Court of Federal Claims ("RCFC") against plaintiff, Astoria Federal Savings & Loan Association ("Astoria"). Based upon the applicable precedent and the record Astoria has presented, Astoria cannot prevail upon any of its claims. Accordingly, we are entitled to judgment as a matter of law with respect to Astoria's restitution, reliance, and expectancy damages claims. In support of this motion, we rely upon the record established at trial, the parties' deposition designations, the parties' joint stipulations of fact ("Stip."), and the following brief. INTRODUCTION Rule 52(c) allows for the entry of judgment upon partial findings at the close of a party's case if that party has been fully heard and the Court finds that the party is not entitled to judgment as a matter of law. Here, Astoria has made a detailed presentation of its claims and has been fully heard.

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Astoria has raised four claims, all of which fail. First, Astoria's restitution claim ­ premised upon the idea that the Government avoided the cost of liquidating Suburbia Federal Savings and Loan Association ("Suburbia") ­ fails as a matter of law under binding precedent, as Astoria has not demonstrated why the facts it has entered into the record in its case-in-chief somehow render its restitution claim distinguishable from the restitution claims denied in other cases. Second, Astoria's reliance claim ­ premised upon the notion that Suburbia's net liabilities at the time of its acquisition by Fidelity New York, F.S.B. ("Fidelity") represented a cost to Fidelity ­ is also barred as a matter of law under binding precedent, as Astoria cannot show that any facts it has placed on the record render that claim viable either. Third, Astoria's lost profits claim fails because it (1) is entirely hypothetical, (2) bears no relation to Fidelity's pre-breach plans, or to its earnings history, (3) begins calculating damages prior to the enactment of the Financial Institutions Reform, Recovery and Enforcement Act, Pub. L. 101-73, 103 Stat. 83 (1989) ("FIRREA"), and (4) fails to cease calculating damages upon Astoria's acquisition of Fidelity, which rendered all further alleged lost profits remote. Finally, Astoria's claimed wounded bank damages are unrelated to the breach and speculative. ARGUMENT I. Standard Of Review Rule 52(c) provides that, during trial, the Court may enter judgment against a party when it determines that an issue must be decided against that party under controlling law. See Columbia First Bank, FSB v. United States, 60 Fed. Cl. 97, 101-02 (2004). The applicable standard is not whether the plaintiff has made a prima facie case, as it would be for a directed verdict motion in a jury trial. See Cooper v. United States, 37 Fed. Cl. 28, 35 (1996). Instead, 2

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because the Court serves "as both the trier of fact and the trier of law," Rule 52(c) "permits the judge to weigh evidence and does not require that the judge resolve all credibility determinations in favor of the plaintiff." Id. "A plaintiff who has had full opportunity to put on his case and has failed to convince the judge, as trier of facts, of a right to relief, has no legal right . . . to hear the defendant's case." Howard Indus. v. United States, 126 Ct. Cl. 283, 289-90, 115 F. Supp. 481, 484-85 (1953).1 II. Astoria Has Failed To Prove Entitlement To An Award Of Restitution In denying the Government's motion for summary judgment respecting Astoria's restitution claim, the Court noted that "Plaintiff contends with documentary support that the facts of this case are more compelling than in other Winstar-related cases, and that an opportunity to present this evidence should not be foreclosed." Astoria Fed. Sav. & Loan Ass'n v. United States, 72 Fed. Cl. 712, 718 (2006). Having been given the opportunity to present its best case, Astoria has demonstrated no evidence of any kind to distinguish its restitution claim from those raised in the cases that reject such claims in Winstar cases. A. Description Of Astoria's Restitution Claim

Astoria's expert, Dr. Donald Kaplan, admits that the $128.259 million in restitution he describes is premised upon the notion that the Government, specifically the Federal Savings and Loan Insurance Corporation ("FSLIC"), avoided the cost of liquidating Suburbia. This cost is essentially equivalent to the goodwill that was estimated to arise from the Suburbia acquisition. PDX 105; Tr. 3344-45 (Kaplan); compare Stip. ¶ 40 with Stip. ¶ 61. Dr. Kaplan also admits that
1

Contrary to the Court's comments at trial transcript ("Tr.") 2628, the Court need not "construe all the evidence thus far in plaintiff's favor and determine whether there's any possibility that they can prevail." 3

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his restitution claim runs explicitly counter to repeated Federal Circuit decisions. PX 1314A ¶ 93. Nevertheless, Dr. Kaplan assumes that FSLIC received a $147.936 million economic benefit, which is the estimated amount of the liquidation costs. He then offsets this gross amount with selected benefits Fidelity gained from acquiring Suburbia: $16 million in cash assistance from FSLIC and $3.7 million in cash paid to Fidelity in 1990 for redemption of Suburbia's net worth certificates ("NWCs"). Finally, he concludes that the Government owes Astoria $128.259 million in restitution, in addition to his $1.4 million wounded bank claim. PDX 105. For the reasons given below, Dr. Kaplan's restitution claim fails. B. The Federal Circuit Has Rejected Restitution Claims Premised Upon Avoided Liquidation Costs

The Federal Circuit has repeatedly rejected the use of liquidation costs as a basis for a restitution claim. In Glendale Fed. Bank, F.S.B. v. United States, 239 F.3d 1374 (Fed. Cir. 2001), the Federal Circuit stated that "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. What the Government received in exchange for its promise was time ­ time to deal with other failing S&Ls, time to see what the market would do before having to commit substantial resources to the problem. Though the value of time was more than zero, there is no proof of what in fact it was worth." Id. at 1382. The Glendale Court further stated, "[i]t is important to remember that, even after Glendale's merger with Broward [the acquired thrift], the Government was not free of potential liability for the failing thrift." Id. "Had interest rates not come down, and Broward, and perhaps Glendale as well, failed, the Government's contingent liability would have matured, and the FSLIC would have had to step in at that time

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and assume the very losses that Glendale now claims were benefits the Government received." Id. The Federal Circuit also noted that FSLIC had several options other than liquidation it could have pursued. For all of these reasons, 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" and therefore vacated the trial court's award based upon that theory. Id. While no restitution claim premised upon liquidation costs in the Winstar context has ever been sustained, this Court and the Federal Circuit have repeatedly followed the Glendale decision. See California Fed. Bank, v. United States, 245 F.3d 1342, 1351-52 (Fed. Cir. 2000); Granite Mgmt. Corp. v. United States, 416 F.3d 1373, 1380-81 (Fed. Cir. 2005); Glendale Fed. Bank, F.S.B. v. United States, 378 F.3d 1308, 1313 (Fed. Cir. 2004); LaSalle Talman Bank, F.S.B. v. United States, 317 F.3d 1363, 1366-67 (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) (appeal pending on other issues); Franklin Fed. Bank v. United States, 55 Fed. Cl. 108, 120 (2003); Citizens Fed. Bank v. United States, 52 Fed. Cl. 561, 566 (2002), aff'd, 474 F.3d 1314 (Fed. Cir. 2007). C. No Record Evidence Renders Astoria's Restitution Claim Viable

Nothing distinguishes this case from the cases rejecting restitution claims premised upon avoided liquidation costs. Indeed, to the extent any factual distinctions exist, those distinctions show that Suburbia was less likely to be liquidated than the average thrift. 5

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1.

Astoria Has Failed To Distinguish The Economic Or Regulatory Environment Under Which Suburbia Was Operating From That Of Other Thrifts

Like all of the restitution claims rejected by the Federal Circuit and by this Court, Astoria's claim erroneously assumes liquidation was FSLIC's only option had Fidelity not merged voluntarily, Tr. 209-10 (Spaid); Tr. 1364 (Vigna), with Suburbia. Kane Depo. 40-41; 109-10. In fact, liquidation was the regulators' last of eight options, and there were several forms of liquidation that were less costly than a payout of funds to depositors, the option upon which the Astoria bases its liquidation cost estimate, including FSLIC's keeping Suburbia's franchise. Tr. 292 (Fiol); Tr. 1316-17 (Vigna); Tr. 1159-65, 1224-26 (Beesley); PX 1341 at 1235; PX 986 at AST064190; PX 112 (explained at Tr. 1512 (Vigna); PX 370); see also Tr. 3360 (Kaplan). Liquidation was a last option because the entire thrift industry was insolvent on a markto-market basis. Tr. 1737, 1748-49 (Wesp); Tr. 2713 (Kaplan). In the early 1980s, FSLIC could not afford to liquidate thrifts given its lack of funds and the fact that those funds were tied up in long-term investments. Tr. 114, 128 (Pratt); Tr. 1151-53; 1233-34 (Beesley); PX 286 at 14, 16, 76; see also Tr. 2712-13, 3373 (Kaplan). Dr. Kaplan acknowledged that after the Economy Savings payout in 1980, no liquidations that actually cost FSLIC the entire estimated liquidation cost were undertaken ever again. Tr. 3360 (Kaplan) (no payout after 1980). Testimony from regulators acknowledged that, had interest rates fallen, contrary to FSLIC's contemporaneous interest rate assumptions, FSLIC's liquidation and viability analyses would have been inaccurate. Tr. 247-48, 249-50 (Spaid); Tr. 315, 318 (Fiol); Tr. 1215-17 (Beesley); see also Tr. 3347, 3351 (Kaplan) (admitting that interest rates may affect liquidation cost analyses, and that the cost would have been lower with an interest rate assumption of lower than 14.73%). Interest rates are 6

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notoriously difficult to project, Tr. 279 (Fiol), and in the year following the liquidation analysis in this case, short term Treasury rates ­ which mirror rates on short-term deposits, Tr. 317 (Fiol) ­ fell 300 basis points, severely altering the cost of liquidation. Tr. 251, 261 (Fiol); Tr. 2725, 3353 (Kaplan) (interest rates fell "dramatically"). As with the restitution claims rejected in other cases, Astoria's claim ignores FSLIC's contingent liability for insuring deposits after the merger. Tr. 1217-18 (Beesley); Tr. 1506 (Vigna); Tr. 3368 (Kaplan). It also ignores the speculative nature of the contingent liability, which never came to pass. Tr. 1220-22, 1238-40 (Beesley). Further, the restitution claim ignores the fact that liquidation would have lowered public confidence in the thrift system, so FSLIC wished to avoid liquidation as an overall policy matter for that reason as well. Tr. 225-27 (Spaid); Tr. 1386 (Vigna). Indeed, it also ignores the reality that, had interest rates not fallen, no thrifts would have survived, Tr. 129 (Pratt), thus saving FSLIC nothing. The approval of Suburbia's acquisition by Fidelity was, like all such approvals, merely a stop-gap measure intended to buy FSLIC time for interest rates to fall so that thrifts' asset values would no longer be exceeded by their liabilities' costs industry-wide. Tr. 115, 116, 120 (Pratt); see also Tr. 85 (Pratt) (interest rates are beyond FSLIC's control). 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 (Pratt); Tr. 265 (Spaid); Tr. 307 (Fiol); Tr. 3362 (Kaplan). All of these facts are common to both Astoria's claim and the rejected restitution claims in other cases.

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2.

To The Extent Any Facts Distinguish Suburbia From Other Troubled Thrifts, They Show FSLIC Was Less Likely To Liquidate Suburbia

All of the facts that show any deviation between Suburbia's status and that of the average troubled thrift make Suburbia a less likely liquidation candidate. Although the evidence reveals that, at the time of the merger, Suburbia was not insolvent on a regulatory accounting basis, Tr. 195 (Spaid) (Suburbia regulatory net worth as of August 31, 1984 was $1.8 million); Tr. 1024 (Teurfs), Dr. Kaplan emphasizes that Suburbia was insolvent on a book, or GAAP, accounting basis (subtracting the deferred loan losses, appraised equity capital, and net worth certificates that FHLBB permitted Suburbia to count towards its regulatory net worth) with a negative book net worth of $57,756,000. PDX 100; Tr. 3194, 3356-57 (Kaplan). He claims this fact distinguishes this case from all the others in which restitution damages have been rejected. Tr. 3194 (Kaplan). That argument fails to comprehend the nature of Suburbia's situation. Suburbia, apart from the inflated (though negative) net worth it had on a book basis, was $160.093 million insolvent on a marked-to-market basis. PDX 100. That is the liability FSLIC sought to avoid. Yet that $160.093 million amount pales in comparison to the amounts of the mark-to-market capital deficits in other cases where restitution was rejected. In Glendale, 239 F.3d at 1377, the Federal Circuit rejected a restitution claim where the liabilities exceeded the assets as of November 1981 by $734 million; that amount is larger than all of Suburbia. In CalFed, 245 F.3d at 1345, 1351, the Federal Circuit rejected a restitution claim where the liabilities exceeded the assets in two transactions, both in 1982, by a total amount of $620 million. Restitution is no more warranted in this case because of an irrelevant negative book capital amount. Moreover, other Winstar-related cases indicate that institutions with

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negative book net worth were not liquidated, contrary to Dr. Kaplan's argument. See, e.g., Franklin Fed. Sav. Bank v. United States, 431 F.3d 1360, 1361 (Fed. Cir. 2005). Facts in the record that are relevant to the question of whether Suburbia would have been liquidated indicate that Suburbia was less likely than the average troubled thrift. Suburbia was repeatedly found to be a troubled institution prior to the merger with Fidelity, but FSLIC repeatedly gave Suburbia assistance in the form of NWCs and approved equity capital ("AEC") to boost its regulatory net worth and allow it to buy time until interest rates declined. Tr. 134647, 1349, 2753-54, 2755, 2757-58, 2850 (Vigna) (had Fidelity not acquired Suburbia, FSLIC could still have provided it more NWCs); DX 3187 at WOH020 0330; DX 3159; PX 132 at 2590; see also Tr. 2875 (Kaplan) (discussing Suburbia's use of another regulatory accounting tool ­ deferred loan losses). Regulators also approached Suburbia for participation in the voluntary assisted merger program ("VAMP") in another effort to prevent liquidation. Tr. 1344 (Vigna); PX 132. Astoria's claim ignores the fact that, in the absence of Fidelity's offer, FSLIC could and would have re-bid Suburbia, choosing to approve the Fidelity offer only because, while a re-bid could still have resulted in a lower cost offer, Fidelity's voluntary proposal was on the table and was good enough to approve, and FSLIC did not want to risk losing it. Tr. 212, 229, 232, 241, 265, 272 (Spaid); Tr. 1213-15 (Beesley); PX 112 at 9-10; see also Tr. 282-83 (Spaid) (could have been lower cost bids given that each thrift would have its own perspective on the value of Suburbia). Indeed, Mr. Lovely testified that out-of-state acquirers were interested in Suburbia. Tr. 1625-26 (Lovely).

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Also, given that Suburbia had spread problems, and not asset quality or fraud issues, FSLIC could have simply done nothing had the Fidelity offer not materialized, or prolonged Suburbia's independent existence through issuance of NWCs, hoping for interest rates to drop. Tr. 212, 214-15, 223, 235, 266-67 (Spaid); Tr. 1272, 1278, 1298 (Vigna); Tr. 3362 (Kaplan); see also Tr. 1237-38 (Beesley) (spread problems solved with reduction in interest rates, unlike asset quality problems). Because Suburbia's problems were spread problems, its resolution was hardly urgent for FSLIC. Tr. 162-63 (Spaid); see also Tr. 1272, 1306, 1502-03, 1506 (Vigna) (despite deteriorating condition of Suburbia, FSLIC did not liquidate when the only problems were spread-related); Tr. 1727 (Wesp). In addition, Suburbia had an asset size larger than the norm in the early 1980s, which meant that FSLIC was less likely to liquidate it. Tr. 1236-37 (Beesley). Astoria's claim also ignores Fidelity's inability to have saved Suburbia had interest rates not fallen, given its own mark-to-market insolvency. Tr. 1184-85 (Beesley). Not only was Fidelity not being asked to, but it could not afford to cover the gap between Suburbia's liabilities and assets with a payment. Tr. 263 (Spaid); Tr. 3234 (Kaplan). Fidelity certainly lacked the economic capacity to provide a benefit in the amount claimed by Astoria. As of August 31, 1984, Fidelity had only $22.1 million in book capital, PX 237 at AA0000177, and that figure was almost certainly overstated. Tr. 1737, 1748-49 (Wesp); Tr. 2713 (Kaplan) (all thrifts insolvent on a mark-to-market basis). Fidelity could not have provided any benefit to the Government. Moreover, any such benefit would not have been foreseeable: had interest rates dropped, Suburbia would not have required liquidation, but if they rose, FSLIC would have remained liable for the losses of Suburbia, as well as those of Fidelity. Tr. 1506 (Vigna) (Government still

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insured deposits of Suburbia after Fidelity acquisition). In reality, following the acquisition, interest rates fell, reducing FSLIC's exposure to any losses. FSLIC also did not liquidate thrifts which, like Fidelity, had prospects for growth. Tr. 1243 (Beesley); Tr. 1298 (Vigna); see also Tr. 1506 (Vigna) (Suburbia buyer would be found given Suburbia's franchise value). FSLIC liquidated zero New York thrifts from 1980 through 1989. Tr. 1503 (Vigna). Indeed, FSLIC even informed Suburbia's board that it would be expected to continue to operate even if it became insolvent on a regulatory basis. Tr. 1301-02 (Vigna); PX 52 at 2. For all of these reasons, Suburbia was less likely to be liquidated than the average thrift. Indeed, Dr. Kaplan has testified that he could not say that FSLIC would have liquidated Suburbia absent the merger. Tr. 3363 (Kaplan). D. Restitution Claim Fails To Meet Other Legal Requirements

Another obstacle to Astoria's claim is that, to obtain restitution, Astoria must return the benefits it has received from the contract. See Restatement (Second) of Contracts § 384(1), cmt. a; accord Aktieselskabet Dampskibsselskabet Svenborg v. United States, 131 Ct. Cl. 399, 130 F. Supp. 363, 367 (1955). If those benefits to be returned have been "substantially altered in character," restitution is generally unavailable. See Restatement (Second) of Contracts § 384, cmt. a, § 371, cmt. a; accord Aurigemma v. Arco Petroleum Prods. Co., 734 F. Supp. 1025, 1032-33 (D. Conn. 1990). Here, Astoria's restitution claim fails for both reasons. First, Fidelity received millions of dollars in direct, identifiable benefits from acquiring Suburbia, in the form of accretion of discounts, Stip. ¶ 60, DX 3026 at PAA006 1365 ($8.2 million in accretion income in 1987 alone); see also Tr. 676 (Powderly), gains on asset sales, DX 3026 at PAA006 1385 (sale of Suburbia's conventional and mortgage-backed securities for a 11

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profit); PX 986 at 4, and tax benefits. DX 3205 at 1 ($74 million in net operating loss tax deductions inherited from Suburbia). Astoria also currently retains deposits from former Suburbia branches that are extremely valuable. Tr. 821-22 (Powderly); see also Tr. 1561-62, 1566-67, 1604-05, 1608, 1611-12 (Lovely) (Suburbia's branch network "impressive"). These benefits combine to exceed any alleged benefit Fidelity conferred upon the Government. Second, to quantify all of Fidelity's and Astoria's benefits from the acquisition is impossible: it would require the Court to unwind nearly two decades of Fidelity's and Astoria's business decisions. Dr. Kaplan testified that after the Suburbia merger with Fidelity, "the eggs had been scrambled, and there was no unscrambling of the eggs." Tr. 3192 (Kaplan); see also Tr. 3264 (Kaplan). Here, the Government conferred benefits which have been altered beyond recognition. For these reasons as well, Astoria's restitution claim fails. III. Astoria's Reliance Claim Fails As A Matter Of Law And Fact In denying our motion for summary judgment respecting Astoria's reliance claim, the Court recognized that "existing precedent may tilt in Defendant's favor," but that "[t]he issues to be addressed are decidedly factual, and therefore a trial is necessary." Astoria, 72 Fed. Cl. at 718. Astoria has now had its chance to present all of the evidentiary support for its reliance claim, and has failed to distinguish its case from those of the numerous plaintiffs whose net liabilities assumed reliance claims were rejected. A. Description Of Astoria's Reliance Damages Claim

Dr. Kaplan's reliance damage claim begins with an assumption that, when Fidelity assumed the $160.093 million in net liabilities by acquiring Suburbia, the liabilities represented a cost to Fidelity. PDX 106. From this assumed "cost," Dr. Kaplan deducts $16.1 million in 12

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FSLIC's direct cash assistance and $3.7 million in cash provided to Fidelity by the Federal Deposit Insurance Corporation ("FDIC") in December 1990, upon retirement of Fidelity's NWCs. This left leaving $140.416 million in costs, according to Dr. Kaplan. PDX 106. To that amount, Dr. Kaplan adds the $1.432 million in wounded bank damages, for a total of $141.848 million. PDX 106. As we explain below, because Astoria's claim is barred by binding precedent, and also ignores other required offsets, it is barred. B. The Federal Circuit Has Rejected Reliance Claims Premised Upon Net Liabilities Assumed

The Federal Circuit has repeatedly rejected reliance damages claims premised upon the net liabilities assumed by an acquiring thrift. The Federal Circuit has foreclosed reliance damages premised upon net liabilities assumed because the assumption of net liabilities represented only a potential cost, represented by a paper calculation, and not an actual expenditure. 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. As stated by the Federal Circuit in LaSalle, which addressed a net liabilities assumed restitution claim, "[a]lthough the assumed liabilities are indeed an accounting cost, . . . 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." LaSalle, 317 F.3d at 1376. "[T]he accounting rearrangement whereby net liabilities are designated a paper asset does not create a `cost' subject to restitution for full cash value, reduced only by real cash infusions and real cash profits." Id. at 1377. As the Federal Circuit stated, the same prohibition bars reliance as well as restitution claims premised upon net liabilities assumed

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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." Id. at 1376; see also Tr. 3341 (Kaplan) (liquidation cost and net liabilities assumed just a matter of "flip[ping] the coin"). Based upon Federal Circuit precedent, this Court has repeatedly dismissed both restitution and reliance claims premised upon the notion that assumed net liabilities represent a cost. See 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); 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). The argument that the net liabilities represent costs actually paid falls flat, as other plaintiffs failed when advancing that same argument. As stated by this Court 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. Granite, 58 Fed. Cl. at 775-76. Accordingly, because Dr. Kaplan has not identified any actual "cost" as the basis for his claim in this case, it fails. See also Standard Fed., 62 Fed. Cl. at 298 (denying same claim brought by Dr. Kaplan).

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Finally, the Federal Circuit has ruled that, even if the net liabilities assumed did constitute a cost to the acquirer, that cost was incurred prior to FIRREA, and accordingly was unrelated to the breach, making awarding such an amount an impermissible windfall. See Granite Mgmt. Corp. v. United States, 416 F.3d 1373, 1380 (Fed. Cir. 2005).2 Moreover, any claimed reliance damages must be offset by any benefits the plaintiff received from the contract. See 3 Daniel B. Dobbs, Law of Remedies § 12.3(1), at 51-52 (2d ed. 1993); 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). Reliance damages are subject to the ordinary limitations upon contract remedies, including causation, certainty, and foreseeability. See Granite, 58 Fed. Cl. at 774. In order to be entitled "to recover reliance damages, plaintiffs must prove that both the magnitude and type of damages were foreseeable" at the time the contract was made. Landmark Land Co. v. United States, 256 F.3d 1365, 1378 (Fed. Cir. 2001) (emphasis added). Accordingly, reliance is also barred because Astoria did not and, indeed, cannot show that Fidelity made net out-of-pocket expenditures that were caused by the phase-out of goodwill, were reasonably certain, and were foreseeable at the time of the Suburbia acquisition. C. The Record Evidence Does Not Support Astoria's Claim That The Net Liabilities Assumed Represented A Cost To Fidelity

The evidence fails to distinguish Astoria's net-liabilities-assumed reliance claim from identical claims rejected in other cases.

As windfalls are not permitted for restitution either, this rationale also bars a restitution award for net liabilities assumed. See Hansen Bancorp, Inc. v. United States, 367 F.3d 1297, 1315 (Fed. Cir. 2004). 15

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1.

The Same General Scenario Applies To The Suburbia Acquisition As To The Other Cases Rejecting Identical Reliance Claims

Dr. Kaplan admitted that the concept behind Astoria's reliance claim was no different from that in the reliance claims in every other case and was unrelated to the specific facts of the thrift involved. Tr. 3256 (Kaplan) ("[Goodwill] is not an item that gets adjusted over time because of any behavior with regard to the loans that were on the books that were in the mark-tomarket."). As witness testimony repeatedly confirmed, the dollar amount of net liabilities assumed at the time of the merger represented only a paper calculation, Tr. 1566-67, 1623 (Lovely) ("phantom" money), not an actual payment. Tr. 1044-45, 1113 (Teurfs) (no cash payment in Suburbia transaction); Tr. 2053-54 (Wesp) (goodwill insensitive to interest rates, has no impact on net income or asset value); Tr. 3234 (Kaplan). Moreover, it is undisputed that Suburbia's liabilities out-valued its assets at the time of the merger solely due to interest rates being high; when interest rates dramatically declined following the merger, the values of the assets grew and were capable of covering the lessened costs of the liabilities, preventing Fidelity from ever needing to incur any cost to pay them. Tr. 263 (Spaid) (Fidelity not expected to pay the gap between Suburbia's liabilities and assets); Tr. 1103-04, 1105-06 (Teurfs) (asset and liability values change over time with interest rates and mortgage prepayment rates); Tr. 1220-22 (Beesley); Tr. 1906 (Wesp); Tr. 3273 (Kaplan); Kane Depo. 16-17, 24-25, 48-49, 49-50, 52-54, 59, 82. The calculation of actual costs paid ­ Suburbia's liabilities paid when they came due versus the value of the proceeds from Suburbia's assets ­ is admittedly impossible, Tr. 1105 (Teurfs), and Dr. Kaplan did not premise his calculated reliance cost upon the liabilities having been paid. Tr. 3233, 3330 (Kaplan); see also Tr. 3235-38, 3244 (Kaplan) (reliance model

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contains no calculation of deposits being paid). Moreover, as Suburbia was acquired for fair market value, no evidence exists to suggest that Fidelity paid any cost when it voluntarily acquired Suburbia. To the extent that Astoria argues that the goodwill expense after the "cross-over point" leading to net negative purchase accounting income reflected a "payment" by Fidelity, Rough Tr. (May 14, 2007) 131 (Kaplan), that "payment" was merely a paper offset to income that did not reflect any economic reality, and occurred because of an accounting change specifically requested by Fidelity in conjunction with the Suburbia acquisition. Compare PX 185 with PX 303; Tr. 1392 (Vigna); Tr. 2909 (Kaplan); see also Tr. 1406 (Vigna) (goodwill expense not a "drain"); Tr. 3234 (Kaplan) (goodwill amortization bore no relation to liabilities actually being paid). Accordingly, nothing presented by the plaintiffs permits the reliance claim to survive. 2. The Facts Demonstrate That Dr. Kaplan Ignores Significant Benefits That Constitute An Offset To His Claimed Reliance Damages

In addition to being foreclosed by precedent and conceptually flawed, Dr. Kaplan's model omits several obvious benefits that are required to be offset against the "cost" Fidelity allegedly suffered in acquiring Suburbia. The model ignores tens of millions of dollars in net operating loss ("NOL") tax deductions Fidelity received from Suburbia, Tr. 885-86 (Powderly); Tr. 1110 (Teurfs); Stip. ¶ 60, ­ net operating loss deductions which, when taken, reduce the outstanding balance of goodwill. Tr. 1114, 1135 (Teurfs); see also Tr. 2991 (Kaplan) (NOL exercise reduces goodwill balance). The model also ignores cash derived from the sale of discounted Suburbia assets. Tr. 1111 (Teurfs) ($128 million in Suburbia mortgages sold by Suburbia); Tr. 1729 (Wesp) ($100 million in cash from sale of Suburbia assets); DX 3478 at AST0129893 ($2.8

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million profit in sale of Suburbia assets in 1991). Similarly, the model ignores income Fidelity enjoyed as the result of discount accretion ­ which represented real cash repayments of interest and principal on loans. Tr. 1030 (Teurfs) (Fidelity "appreciated" purchase accounting income benefit); Tr. 2736, 3256 (Kaplan) (thrift profits high in mid-1980s due to purchase accounting income); see also Tr. 1046-47, 1107, 1109-10 (Teurfs). In addition, the model ignores $1 million in annual economies of scale. DX 3148 at 0102; Tr. 1516 (Vigna); Tr. 1632-33 (Lovely). Most egregiously, Dr. Kaplan's model ignores the benefit to Astoria from retaining Suburbia's valuable franchise. Tr. 1517 (Vigna); Tr. 3263, 3264, 3326 (Kaplan) (no attempt to calculate benefit from Suburbia franchise); PX 986 at AST064190, Stip. ¶ 58. Dr. Kaplan omitted this offset despite admitting that calculating Suburbia's franchise value was possible, and that the Suburbia franchise had value to Fidelity. Tr. 3334, 3338 (Kaplan). These ignored offsets render Dr. Kaplan's model unreliable, and likely swamp Dr. Kaplan's claimed "costs." Dr. Kaplan argues that, because Suburbia was insolvent at the time of the merger, no benefits could be derived from acquiring it until it regained solvency. Tr. 3264 (Kaplan) (off set is an "all-in" concept). This is illogical because the initial cost against which the benefits offset (the net liabilities assumed) reflect the measure of the insolvency. Dr. Kaplan's argument means that either (1) Fidelity derived more than the amount of the net liabilities assumed in benefits from Suburbia, in which case there are no damages, or (2) it derived less in benefits than the net liabilities assumed, in which case there are not only damages, but no offset. Because that result runs contrary to the Federal Circuit cases that require offsets be taken into account even where they do not wipe out the entire amount of claimed damages, Dr. Kaplan's argument, like the rest of his reliance damage claim, fails. 18

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III.

Astoria's Expectancy Claims Fail As A Matter Of Law And Fact Astoria claims it lost over a hundred million dollars in lost profits as well as wounded

bank damages when goodwill no longer counted as capital for regulatory purposes. These claims fail. A. Overview Of Astoria's Expectancy Claims

Astoria advances three separate expectancy claims: (1) a claim for allegedly lost profits from 1989 to 1994; (2) a claim for allegedly lost profits from 1995 to 2014; and (3) a "wounded bank" claim for allegedly excessive assessments paid to the Office of Thrift Supervision ("OTS") and the FDIC. B. Legal Standards For Expectancy Damages

To recover expectancy damages, including lost profits, a plaintiff must prove three elements: (1) the lost profits were within the contemplation of the parties because the loss was foreseeable; (2) there would have been a profit but for the breach; and (3) the measure of damages must be reasonably certain. See California Fed. Bank v. United States, 395 F.3d 1263, 1266 (Fed. Cir. 2005). With respect to causation, the plaintiff must prove that "profits would have been made but for the breach," Id. at 1268, "the causal connection between the breach and the loss of profits must be `definitely established[,]'" id., and the lost profits must have "inevitably and naturally, not possibly or even probably, flow[ed] from the defendant's breach." Id. at 1267 (citation omitted).3 Under Federal Circuit precedent, because a lost profits award should not place the
3

We respectfully disagree with the Federal Circuit's decision in Citizens Federal Bank v. United States, 474 F.3d 1314 (Fed. Cir. 2007), which indicated that the trial court possessed discretion to impose a "substantial factor" test for causation. We are currently pursuing 19

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plaintiff in a better position than it would have occupied absent the breach, costs that were caused to be borne by factors other than the breach must be subtracted from damages. See Hansen, 367 F.3d at 1315; Restatement (Second) of Contracts § 347, cmt. b (1981). With respect to foreseeability, the Court examines whether the alleged loss was foreseeable at the time of contracting. Bohac v. Dep't of Agriculture, 239 F.3d 1339, 1340 (Fed. Cir. 2001). "Loss may be foreseeable as a probable result of a breach because it follows from the breach (a) in the ordinary course of events, or (b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know." Landmark, 256 F.3d at 1378 (citation omitted). Astoria must prove "both the magnitude and the type of damages were foreseeable." Id. (emphasis added). In addition, Astoria must establish the fact of lost profits and prove the amount with reasonable certainty. See Rumsfeld v. Applied Cos., Inc., 325 F.3d 1328, 1340 (Fed. Cir. 2003) (citation omitted); Energy Capital Corp. v. United States, 302 F.3d 1314, 1325 (Fed. Cir. 2002); Restatement (Second) of Contracts § 352 (1981). Unreliable lost profits models cannot give rise to recovery. See San Carlos Irrigation & Drainage Dist. v. United States, 111 F.3d 1557, 1563 (Fed. Cir. 1997); Roseburg Lumber Co. v. Madigan, 978 F.2d 660, 667 (Fed. Cir. 1992). Because nearly every lost profits claim in Winstar-related cases has failed, the Federal Circuit has noted that these claims are often "inherently unreliable" and that lost profits models are largely a

rehearing of this decision. Regardless, the panel decision in Citizens Federal cannot be understood to overrule the previous panel decision in CalFed. Capitol Elec. Inc. v. United States, 729 F.2d 746 (Fed. Cir. 1984) (only Court sitting en banc can overrule earlier panel decision). To the extent that Citizens Federal permits this Court to apply the "substantial factor" causation standard at its discretion, this standard does not provide a lower standard of causation that the but-for test. 20

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"waste of time and effort." Glendale, 378 F.3d at 1313. Moreover, where, as here, plaintiff's expert has failed to identify with specificity the investments the thrift would have made in the "but-for" world, this Court has rejected plaintiffs' lost profits claims. See, e.g., Citizens Fin. Servs., Inc. v. United States, 64 Fed. Cl. 498, 514 (2004). Similarly, the Federal Circuit has found that it is appropriate to deny lost profits claims in Winstar-related cases that assume that growth would have automatically led to profits. See, e.g., Glendale, 239 F.3d at 1378. Under these standards, all of Astoria's expectancy claims fail. C. Astoria's Lost Profits Claims Fail

Astoria's lost profits calculations from 1989 to 1994, and from 1995 to 2014, are factually speculative and legally insufficient. Messrs. Powderly and Wesp both provided testimony so utterly inconsistent with the premises of Dr. Kaplan's lost profits model that the testimony alone should be sufficient to defeat Astoria's claim. Specifically, Mr. Powderly testified on re-direct examination that the Capital Plan, which, contrary to Dr. Kaplan's model, provided for no asset growth, "formalized policies under which the bank generally had been operating since 1987." He testified: Q. Now I'd like you to go ahead in that same document to page 7. Mr. Todor referred you to I guess it's the third full paragraph on that page and the ­ it's all one sentence, the last sentence in that paragraph that begins "the capital plan, which was developed by Messrs. Powderly, Wesp and Meyer." Do you see that I referred to? Which is the one ­ number 7? It's on page 7, and it's the third full paragraph on that page. And in the second half of the paragraph ­ Yes, I see it. Okay. And that talks about the capital plan being "to a significant degree" ­ strike that, let me start that over again. The sentence says the capital plan, which was developed by 21

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you, Mr. Wesp and Mr. Meyer, "to a significant degree formalized policies under which the bank generally had been operating since 1987." Was the capital plan in all respects something you had been operating under since 1987? A. In many respects, yes. Q. In all respects? A. Yes, I believe so. Q. With respect to your real estate operations, when was it that you began cutting off the real estate lending and sending the developers elsewhere? A. As soon as I ­ as soon as I got the job of running that portfolio. I would say it was mid-`87. Q. And does the reference there to 1987 refer to aspects of the bank's operation other than the real estate operations? MR. TODOR: Objection; leading. BY MR. EISENHART: Q. If you know. THE COURT: I'll allow it. THE WITNESS: What was the question again? BY MR. EISENHART: Q. Does the reference there to the bank's operations since 1987 refer to things other than the real estate operations? A. Yes. Tr. 989-91 (Powderly) (discussing page 7 of PX 986 (AST064176), which projects: "No or little growth followed by moderate shrinkage in calendar year 1994."). Plainly, if Fidelity's Chief Executive Officer testified that Fidelity, since 1987, was not planning to grow, and given the corroboration of that statement in numerous formal filings of the company, PX 964 at OAA004 2506, 2541; PX 985 at AST064176, AST064193; PX 986 at AST064176, the Court must reject Dr. Kaplan's lost profits model, which is premised upon significant asset growth, must be rejected. Moreover, Mr. Wesp testified that the Capital Plan saved Fidelity by permitting it to survive in desperate economic times. He testified:

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Q.

A.

Q. A.

Now, if Fidelity had its goodwill restored at this point in time in a but-for world, would it have abandoned its stated goal here of purchasing five- to seven-year duration balloon securities? The only way I can answer that question is we're getting close here to offering time. We're getting close to compliance. We're in `92, right? 1992? September `92. So we're getting close to the point where we're coming ­ there's light at the end of the tunnel. And so rather than have the goodwill restored, we had the capital markets restore our capital. And when that happened, these remained our goals for the foreseeable future, as we talked about yesterday or the day before, I forget which. We had done road shows, we had indicated to the Street what we had been doing, which is run a short duration bond fund. Until they heard from us, until our institutional investors heard from us, when we did an institutional presentation about some other business that we wanted to be in, this was the way we were going to operate. We had a lot more latitude, a lot more flexibility and we could change our minds on a dime now, but on the day after the offering, we behaved the same way. If the goodwill had been reinstated the day after, we would have behaved the same way. By pure luck, this turned out to be a great strategy to survive one of the worst periods of economic recession and volatility in the post-war history.

Tr. 2359-61 (Wesp); see also Tr. 2301-02 (Wesp) (annual budgets and long-term strategic plans are immune to goodwill, which does not affect them). Plainly, if Fidelity would have behaved the same way with or without the goodwill, and moreover if the Capital Plan strategy that restricted growth "by pure luck" helped Fidelity survive "one of the worst periods of economic recession and volatility in post-war history," Astoria cannot claim that, with the goodwill, Fidelity would have grown, or that it would have survived had it tried.

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1.

Description Of Astoria's Lost Profits Claims

Looking first at the 1989-1994 claim, starting with Fidelity's December 31, 1988 tangible assets, Dr. Kaplan's model ­ what he describes as a "very simple calculation," Tr. 3045 (Kaplan) ­ assumes a two percent per quarter growth rate to calculate the but-for bank's tangible asset size. He subtracts Fidelity's actual tangible assets to calculate foregone assets. PX 1314A at Exh. 9A. Between December 1988 and March 1994, Dr. Kaplan assumes Fidelity's non-breach assets would have increased at his assumed growth rate from December 1988 levels, resulting in a total of $737 million in "foregone assets." PX 1314A at Exh. 9A. After March 1994, Dr. Kaplan stops this growth in "foregone assets" in accordance with Fidelity's real-world constant asset size in anticipation of merging into Astoria. PX 1314A at Exh. 9A. Finally, Dr. Kaplan multiplies foregone assets by an assumed 80 basis point, or 0.80 percent, earnings rate, to calculate lost profits. PX 1314A at Exh. 9A. Also, Dr. Kaplan purports to exclude non-earning assets from his foregone assets figure. PX 1314A at Exh. 9A, note a. Dr. Kaplan's model concludes that Fidelity forewent $22.3 million in lost profits it would have earned had it retained the right to use goodwill in regulatory capital, because it could have grown a profitable wholesale portfolio, involving "primarily" one-year adjustable rate mortgage backed securities ("ARM" "MBS") funded by one-year Federal Home Loan Bank ("FHLB") advances. PX 1314A at Exh. 9A; PDX 72; Tr. 3389 (Kaplan). Moreover, Dr. Kaplan provides an alternative calculation as a "demonstration" beginning January 1, 1990, using the same methodology and resulting in a $14.3 million damages figure. PX 1314A at Exh. 9B; Tr. 3076, 3134 (Kaplan). Dr. Kaplan makes all of these assertions while admitting that it would have been "speculative" to say what Fidelity

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would have done absent the breach. Tr. 3094 (Kaplan). Dr. Kaplan further admits that he did not model a "but-for" world. Tr. 3524 (Kaplan). Dr. Kaplan's lost profits claim for the period from 1995 through 2014 is similar to the model for his earlier damages period, although even less detailed respecting the basis for his calculations. Assuming, as he does, that Fidelity would have merged with Astoria absent the breach, Tr. 3147 (Kaplan), he uses Astoria's average leverage between 1995 and 2000 as the factor by which he divides the average balance of goodwill for each of those years. PDX 85. After 2000, he assumes the remaining balance of goodwill would be leveraged at seven percent per year. PDX 85. By dividing the average goodwill balance by the "leverage ratio," Dr. Kaplan arrives at what he terms "foregone earning assets." PDX 85. Dr. Kaplan multiplies the "foregone earning assets" by a hypothetical return on foregone assets of 0.80 percent per year, without any explanation of the identity of the assets purchased or the liabilities funding these assets. PDX 81, 85; see also Tr. 2231-32 (Wesp) (cost of funds relevant to determine spread, along with other factors). Dr. Kaplan's calculations result in "lost profits" of $87.687 million from 1995 through 2007, and $9.475 million in lost profits from 2008 through 2014 (discounted to 2007 dollars at a 10.5 percent rate), for a total of $97.161 million in lost profits from 1995 through 2014. PDX 85.4

Dr. Kaplan testified: "My standard practice in this kind of analytic exercise is to try and build up a basis of support for a conclusion that I'm going to reach and adopt." Tr. 3099 (Kaplan). Dr. Kaplan's analytical method is exactly backwards, reaching his conclusion first and then seeking to justify it. This is the antithesis of scientific analysis. Moreover, given that Dr. Kaplan's model remains unsupported, he failed to live up to the standards of his conclusory methodology. 25

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2.

Dr. Kaplan's Post-Astoria Damages Are Speculative

With respect to Dr. Kaplan's damage calculation from 1995 onward, Dr. Kaplan cannot explain how Astoria would have received the benefit of Fidelity's goodwill absent the breach. One year after the conversion, in which Fidelity's shares sold at $11.50 per share, Astoria paid $29 in cash per share for Fidelity, Tr. 541 (Powderly), out of