United States v. Winstar Corporation

PETITIONER:United States
RESPONDENT:Winstar Corporation
LOCATION:Texas General Assembly

DOCKET NO.: 95-865
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Federal Circuit

CITATION: 518 US 839 (1996)
ARGUED: Apr 24, 1996
DECIDED: Jul 01, 1996

ADVOCATES:
Charles J. Cooper – Argued the cause for the respondents Winstar Corp., et al
Joe G. Hollingsworth – Argued the cause for the respondent Glendale Federal Bank
Paul Bender – Department of Justice, argued the cause for the petitioner

Facts of the case

During the savings and loan crisis of the 1980s, the Federal Home Loan Bank Board encouraged thrifts in good standing and outside investors to take over ailing thrifts in supervisory mergers. The Board agreed to permit acquiring entities to designate the excess of the purchase price over the fair value of identifiable assets as an intangible asset referred to as supervisory goodwill and to count such goodwill and certain capital credits toward the capital reserve requirements imposed by federal regulations. Subsequently, Congress’s passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) forbade thrifts from counting goodwill and capital credits in computing the required reserves. Three thrifts, created through supervisory mergers who consequently ran into financial troubles, each filed suit against the United States for breach of contract. Agreeing with the thrifts, the District Court granted each summary judgment. The court rejected Government’s arguments that surrenders of sovereign authority, such as the promise to refrain from regulatory changes, must appear in unmistakable terms in a contract in order to be enforceable and that a public and general sovereign act, such as FIRREA’s alteration of capital reserve requirements, could not trigger contractual liability. The Court of Appeals affirmed.

Question

Can the federal government be sued by thrifts that were sent into financial trouble when Congress changed the computation of required reserves after the Federal Home Loan Bank Board encouraged actions based on premise that the rules would not change?

William H. Rehnquist:

We’ll hear argument first this morning in Number 95-865, The United States v. Winstar Corporation.

Mr. Bender.

Paul Bender:

Mr. Chief Justice, and may it please the Court:

In 1989, Congress enacted FIRREA, the Financial Institutions Reform, Recovery and Enforcement Act in an attempt to deal with the calamity… one might more accurately say catastrophe… that had befallen the savings and loan or thrift industry in the United States during the decade of the 1980’s largely because of a rise in interest rates at the beginning of the 1980’s and then because of the risks that S&L owners took in order to make more money to deal with the losses that were caused by the rise in interest rates.

S&L’s are invested in… were invested in long term low interest things, mortgages.

Primarily when interest rates go up their profit and loss picture tends to go down if they’re stuck with those long-term debts.

During that decade, about a sixth of all the S&L’s in the United States, about 500, had to either be closed or absorbed into other S&L’s because they were insolvent, because they failed.

That accelerated at the end of the eighties.

About half of those failures occurred in 1987 and 1988.

The costs of that failure are enormous.

The cost in money to the insurance fund… which is in turn, was in turn mostly financed by premiums that the banks had to pay, and so when the insurance fund loses the banks have to pay more premiums, and that spirals the losses… the cost to the insurance fund was over $40 billion in those closings.

The cost in public confidence in the industry is probably even greater.

Still we are familiar with runs on banks and what that can cause, and when large numbers of institutes, one in six, have to start being closed, there is an enormous problem of possibly failing public confidence.

The public at the end of the eighties had $1.3 trillion invested in S&L’s, and S&L’s in turn are there because Congress put them there in order to help the housing market, and the housing industry, and make housing affordable.

Antonin Scalia:

And I gather before FIRREA was even passed, the executive branch was concerned about this problem and induced some solvent banks to take on their backs some insolvent banks in order to prevent them from failing.

Isn’t that what this is all about?

Paul Bender:

It’s not clear who induced whom in these transactions.

Stephen G. Breyer:

Oh, I see.

I thought they did it in order to save the Congress from having to appropriate more money to pay the depositors who would have lost money.

Paul Bender:

They did it for a number of reasons.

It was the policy of the Federal bank regulators during the 1980’s to close as few banks as possible and to have them absorbed into other banks because the insurance fund had a limited amount of money, and if that money runs out, Congress either has to appropriate money, which it has very rarely done, or the premiums have to be raised on the insurances.

The fund is primarily funded by premiums that the banks pay.

The banks have to pay more premiums.

The problem that you have of losses becomes even greater.

The policy, then, was to try to keep the banks alive.

David H. Souter:

In any case, whoever induced whom by doing what these banks did, the claims on the insurance fund were drastically reduced.

They were eliminated with respect to every one of these failing banks, I take it.

Paul Bender:

That’s true, for a while they were reduced–

David H. Souter:

Yes.

Paul Bender:

–but the danger was created, and it happened within that decade.

David H. Souter:

They were reduced until… the problem in effect was deferred until FIRREA was passed.

Paul Bender:

Well, the problem reappeared before FIRREA was passed, because if one bank, if one S&L absorbs another, which has happened in one of these three cases, and the other two people came into the industry who hadn’t been in it before, and took over a failing thrift, they then often take great risks.

Those risks may turn out not to be profitable.

They then… the larger entity may then fail, and that was what was happening at the end of the eighties.

David H. Souter:

But one of–

Paul Bender:

Don’t assume that just because one bank is absorbed by another that deals with the problem.

That’s a way of putting the problem off.

David H. Souter:

–One of those risks was the object of the contracts in these three cases.

Paul Bender:

I want to talk about the contracts in these three cases, but I think the right context to talk about it in is the context of what Congress did and why they did it in FIRREA and whether that amounted to a breach of any promise that had been made.

What Congress did in 1989 to deal with… to try to deal with the crisis, they did a number of different things.

They, for example, for the first time invested an enormous amount of money in the fund, $100 billion to try to increase public confidence and make the money available.

The thing they did that’s most relevant, or directly relevant to this case, is, the reason banks become insolvent is because they lack capital.

I mean, that’s almost a truism.

These banks that… the regulators during the eighties had permitted banks to continue to exist with zero or negative capital by counting things like the goodwill involved in this case as capital.

It’s not capital, it’s a fantasy.

It’s actually a loss that’s on the books of the bank you acquire, but they… you’re right, that by… the strategy was to not close the banks, and in order to do that they permitted them to count as capital things that were not capital.

That is a very risky situation, because… a number of reasons.

The people who own those banks, if they have no capital in them, having nothing to lose by taking risks.

They lost everything they have already because they’re at a zero stage.

They are encouraged to take more risks to make a profitable situation.

By taking more risks, there are more failures.

When there are more failures–

Sandra Day O’Connor:

Well, that was the policy that the Government regulators permitted–

Paul Bender:

–Right.

Sandra Day O’Connor:

–to occur.

I mean, this… they were following Government policy in having that kind of capital–

Paul Bender:

They were, and the question in this case is, when Congress changed the policy in 1989 to require real capital so that banks would not be operating on zero or negative capital, so that the owners of the banks would have something at stake… several reasons for requiring real capital.

The owners have something at stake.

They’re less likely to take risks.

There’s a cushion there, also.

Paul Bender:

If a bank has $10 million in real capital it can absorb $10 million in losses before becoming insolvent.

If it doesn’t have that, it can’t do that.

Congress decided, as one of the many different things it did in FIRREA as a way of dealing with this was to require real capital, require a minimum amount of real capital as a safety feature.

Sandra Day O’Connor:

–Well, Mr. Bender–

–And this was–

–No, go ahead.

And… I was going to say, and this event, I take it it is fair to say, was exactly the event that the parties assumed might happen when they made their contracts.

Paul Bender:

Exactly.

Congress had changed capital standards many times over the years.

David H. Souter:

Doesn’t that fact defeat the Government’s attempt to bring this case essentially under the impossibility doctrine, because the impossibility doctrine, if I understand it, assumes that the parties assume that the event that did happen was not something that was going to happen.

They both had made an assumption that was false, whereas in this case, it seems to me, each party had made the very assumption that turned out to be true.

Paul Bender:

You mean… by the impossibility doctrine you’re referring to the sovereign acts doctrine?

David H. Souter:

Well, I think sovereign acts is an element of it, yes–

Paul Bender:

But where the Government–

David H. Souter:

–but the one… I mean, I think sovereign acts makes sense within the concept of an impossibility defense, and I think the impossibility defense, I understand it, rests upon the assumption that the act or event that makes it impossible to perform, and hence excuses performance, is an act or event which each party assumed would not happen, whereas in this case, each party assumed that it might very well–

Paul Bender:

–It might very well happen.

I think–

Sandra Day O’Connor:

–Mr. Bender, are you relying on impossibility or unmistakability?

Paul Bender:

–We’re relying on the fact that there was no promise here–

Sandra Day O’Connor:

The unmistakability doctrine?

Paul Bender:

–The unmistakability doctrine is a doctrine of construction of a contract, and that doctrine… we don’t think that doctrine needs to be used here at all.

If you just read the contracts… I’ll get to that in a second… there is no promise such as the plaintiffs say.

I think… let’s talk about what the plaintiffs are claiming.

The plaintiffs claim–

David H. Souter:

Well, may I… just before you leave the… my question is… I take it your answer is yes, we… each side was assuming that this might very well happen, and this was part of the object of contracting.

Paul Bender:

–Right, and because of that, these contracts should be read and are only sensibly read as not making the promise that the plaintiffs say they make, namely a promise that that wouldn’t change.

David H. Souter:

Well, no, it wasn’t necessarily a promise that that wouldn’t change.

It was a promise about what would happen to these banks if it did change.

Paul Bender:

The promise that they allege is either that Congress would not toughen capital requirements to increase the required solvency, or that if it did, these banks would be exempted from that, and the issue in this case is whether there is a promise like that.

Antonin Scalia:

And you want to convince us that these bankers and lawyers who signed this agreement put themselves in a visibly insolvent state at a time when there was clearly a crisis in the S&L industry and Congress was clearly going to take some action, visibly put themselves in an insolvent condition without any commitment on the part of the Government to not count that against them for purpose of shutting them down.

Paul Bender:

Without any–

Antonin Scalia:

I mean, it is so utterly implausible–

Paul Bender:

–No, it’s not.

No, it’s not implausible at all.

There was a tremendous amount of money to be made in this industry.

These people were taking a risk.

Take Winstar.

They invested $2 million of their own money.

In return for that $2 million they got an enormous amount of assets that they could lend out, and Congress had loosened the restrictions on what they could lend it to, that they could lend out on risky ventures.

They were risking their $2 million, but the leveraging that they were getting was enormous.

They could have made enormous profits.

Glendale, for example, turned a very large profit during that time by doing… by taking on an insolvent institution, because Glendale got an institution with a tremendous number of assets in a totally new market, a booming market where they hoped they could lend out a lot of money–

Anthony M. Kennedy:

–At a time when not only they but–

–When you say assets, I… when you say assets, I assume you mean deposits which are really, in effect, a liability, as everyone knows.

Paul Bender:

–Right, but they… the assets are the loans, not the deposits.

The deposits are the liabilities.

Anthony M. Kennedy:

I find it very difficult to believe that if these documents had contained a clause that said that the Government, or FSLIC, reserves the right to change capital requirements and not to count this goodwill, that these parties would have executed the agreement.

I just don’t believe that would have happened.

Paul Bender:

If the contract said the Government–

Anthony M. Kennedy:

If the contract had had a clause specifically allowing the Government to do what it’s done in this case, it is impossible for me to believe that the parties would have entered into the transaction.

Paul Bender:

–I would look at that a different way.

If it is so vital to these acquirers that they be guaranteed that they can continue to count this capital even though Congress changes the rules to require real capital rather than phony capital, if it’s so important to them, you would think that they would get a promise to that effect.

There is no promise here anything like that.

William H. Rehnquist:

Well, isn’t that where the unmistakability doctrine comes in, that people are not entitled to deal with the Government on assumptions of their own, or what reasonable people might say, it has to be unmistakable, not just what a reasonable person would–

Paul Bender:

Right… I think that’s… that is–

Antonin Scalia:

–Tell me why this is not unmistakable, Mr. Bender.

Paul Bender:

–Right.

Antonin Scalia:

The provision in the Winstar agreement… I think it’s the Winstar one.

The Statesman agreement.

It says… it’s on page 23 of the… set forth in full on page 23 of the Winstar brief.

Antonin Scalia:

It says, in the case of any ambiguity in the interpretation or construction of any provision of this agreement, such ambiguity shall be resolved in a manner consistent with such regulations, that is, including future regulations, and the bank board’s resolution or action relating to the acquisition, the mergers, or of this agreement.

If there is a conflict, it says, between such regulations, which would mean future regulations, and the bank board’s resolution or action relating to the acquisitions, the mergers, or this agreement, the bank board’s resolution or actions shall govern.

In other words, the bank board’s resolution that approved counting this as capital–

Paul Bender:

No, it–

Antonin Scalia:

–shall govern.

Paul Bender:

–For the future?

No, it didn’t.

What–

Antonin Scalia:

That sentence doesn’t–

Paul Bender:

–No.

There’s no bank board resolution approving counting this as capital for the future.

The strongest thing in Statesman’s case–

Antonin Scalia:

–Oh, I see.

The bank board’s resolution only applies to counting it today.

Paul Bender:

–I think, Justice Scalia, that you were right to start with Winstar.

Winstar has a forbearance letter that they rely on.

There’s a serious problem whether a forbearance letter should be deemed to be a promise by the Government that… because the letter isn’t in the agreement.

Winstar… all these banks signed agreements.

These provisions aren’t in those agreements, but let’s look at the letter and assume it is a promise.

What does it say?

It says, for purposes of reporting to the board… I’m reading from the joint appendix at page 123.

Anthony M. Kennedy:

And could you tell me, is this a different document than the document set forth in Winstar’s briefs at page 23, or… are you just reading other parts of the same document, or are you referring us to a different document?

Paul Bender:

No, I think I’m referring to the same document.

All right.

I was reading from Statesman.

Paul Bender:

Oh, no, I’m not referring to what Justice Scalia–

Antonin Scalia:

I don’t know that State… I was talking about Statesman.

Paul Bender:

–I know, you were talking about Statesman.

No, I was talking about Winstar.

There are different things in each case.

Antonin Scalia:

I understand.

Paul Bender:

Let’s look at the various things.

Antonin Scalia:

Let’s start with Statesman.

Paul Bender:

You want to start with–

Antonin Scalia:

What’s wrong with Statesman?

You say that there is no conflict if a future regulation contradicts… a future regulation contradicts the regulation that the board adopted in order to approve this transaction–

Paul Bender:

–No, let’s… and let’s look at that regulation.

Antonin Scalia:

–rendering that sentence almost utterly… entirely meaningless.

Paul Bender:

I agree with your interpretation of that, Justice Scalia.

The important thing, though, is to look at the regulation or document or promise that Statesman says constitutes a promise to them that, even if Congress were to raise capital requirements, make them stronger, require real capital, that even if that were to happen, they could continue to count this nonreal capital for, in the Statesman’s case, I think it was 25 years.

That just doesn’t exist.

There is no promise like that.

The closest they have is with regard to capital credits, which are a different form of goodwill, and that’s what is on page 362a of the Joint Appendix.

Stephen G. Breyer:

Can I ask you a question about–

Paul Bender:

Yes.

Stephen G. Breyer:

–the unmistakability doctrine?

I mean, my thought is that there are two courts that have said they did make a promise, at least one that gets them damages, below us–

Paul Bender:

And several–

Stephen G. Breyer:

–and the issue is, is that unmistakable, and my question on the unmistakability doctrine is where… what’s the line as to where it applies and where it doesn’t?

That is, would you say it applies if the Government promises to sell somebody 2 tons of oil, and then what happens is an environmental reg prevents them from releasing the oil, and they come in and say, we’re not paying damages?

Suppose the Government promises to buy a piece of property, and the law… change a contract–

Paul Bender:

–Probably not.

Stephen G. Breyer:

–to buy a house, and the Government says, oh, I’m sorry, I’m not going to pay you damages, because after all, it doesn’t say unmistakably, and I will pay damages if later on a regulation on property law makes it impossible for me to convey the house.

Where does the unmistakable… where does it apply, where doesn’t it apply?

Paul Bender:

I think it applies when somebody suggests that Government officials have made a promise that Congress will or will not regulate for the public interest in a certain way.

It certainly applies when somebody says that Government officials or Congress have made a promise that they will or will not regulate in things that have to do with safe–

Antonin Scalia:

Well, wait, if the Government says–

–Has anybody ever made such a promise?

Do you have any case in which a member of the executive branch has promised that Congress will not do something?

Paul Bender:

–Or that if they did–

Antonin Scalia:

And that is the situation in which you contend this doctrine–

Paul Bender:

–No.

Antonin Scalia:

–is inapplicable.

Paul Bender:

No.

There–

Antonin Scalia:

Only in that situation.

Paul Bender:

–No, there are two kinds of promises that they are alleging, that they could allege that would win.

One is that Congress won’t do it, and the other is that if Congress did it, it would exempt them from the regulation, and no, I can’t think of a promise like that, and it doesn’t surprise me.

David H. Souter:

So, but–

–Isn’t there a third possibility, Mr. Bender, that even if they are not exempted in the sense of being able to enforce their agreement specifically to allow them to act contrary to the regulation, isn’t there a third possibility, and that is that the risk of loss if that happens falls on the Government, not on them, and that’s why it seems to me important that we’re dealing with a damages action here rather than an action for specific performance.

Paul Bender:

I don’t think so, Justice Souter, because the unmistakability doctrine is a doctrine of how you interpret contracts.

That’s the question in this case.

Did the Government make a promise that these people would be exempted from future tightening of capital requirements in the S&L industry?

David H. Souter:

Yes, but in each case, the question, I suppose, is, is it unmistakable that they either:

a) promised that Congress wouldn’t do it?

Of course not.

b) That if Congress did it, they would be specifically exempt from the application of the regulation?

Probably not.

Or c), that if Congress did do it, the risk of whatever the added cost would be would have to be borne by the Government and not by them?

Paul Bender:

That would have to be unmistakable–

David H. Souter:

And what may be unmist… I mean, what might be necessary to show unmistakability in case one, which is virtually impossible, or two, unlikely, may, in fact, be quite enough in case three, if we’re talking about a contract which is reasonably read simply to shift a risk.

Paul Bender:

–Well, I don’t think it is reasonably read to shift a risk, and that’s what–

Ruth Bader Ginsburg:

Mr. Bender, are you–

Paul Bender:

–and that’s what I’m trying to say.

Ruth Bader Ginsburg:

–Are you arguing to any extent that there was no authority in the executive branch to make such an agreement, or are you saying, yes, they could make it, but it had to be unmistakable?

Paul Bender:

We are arguing that there was no authority, because that also has to appear unmistakably, and that plainly did not appear here.

Ruth Bader Ginsburg:

In other words–

Paul Bender:

–and that’s another reason why you don’t have these–

Ruth Bader Ginsburg:

–are you making the argument that they couldn’t do this unless Congress had said specifically, and you can guarantee to these people with whom you’re contracting that they will not lose the benefit of their bargain?

Paul Bender:

–Right.

Ruth Bader Ginsburg:

Would Congress have had to have said that?

Paul Bender:

Quite clearly.

Unmistakably–

David H. Souter:

Are you saying that even a riskshifting contract was ultra vires?

Not a contract that you will be specifically exempted if the regulation changes, or if the law changes, but a contract that says, if it does, the risk is on the Government, not on you?

You’re saying that that last case is… would be, or was, or would have been ultra vires?

Paul Bender:

–I think so, yes, because it would be committing a future Congress to paying–

David H. Souter:

No, it’s not committing a future Congress.

It’s committing the Government to bear the risk if a future Congress makes a change.

Why is that ultra vires?

Paul Bender:

–Because I don’t… I think it would be… it’s only ultra vires if there is no clear authority doing it.

I’m not… that authority could be given to Government officials.

It was not given in this case.

I’m not arguing it cannot be given, but I think you would be–

David H. Souter:

Why isn’t it given in the capacity of the Government working through its insurance arm, in effect, to make agreements that preclude the Government from having to cough up on its insurance obligations?

Paul Bender:

–Let me–

David H. Souter:

Why is that not within the capacity of the Government as an insurer?

Paul Bender:

–It’s within the capacity of the Government if Congress permits the officials to make that kind of a contract, but I think before–

David H. Souter:

But you’re… are you saying that the… that when the insolvency of the S&L’s came along, that the only course that the Government in fact could follow with… that the only course that the insurance… that the… I’m trying to think of the insurance acronym and I can’t do it… you know it.

Paul Bender:

–FSLIC.

David H. Souter:

That the only course it could follow was simply to pay up?

Paul Bender:

At which time are you… to which time are you–

David H. Souter:

Prior… at the moment these contracts were made, are you saying that in fact the Government had only one option, and that was to declare the banks insolvent and pay up the–

Paul Bender:

–No.

The Government had the option to do what it did in this case, and that is, enter into a joint venture with these people.

It was to the Government’s benefit, yes, because the policy at that time was to delay the closings–

David H. Souter:

–But the contract as you are reading it has the Government promising virtually nothing.

The Government basically, with respect to capital requirements, the Government is simply saying, on your reading, whatever we agree to, we agree to, but if there’s a change, too bad.

Well, of course–

–You’re saying that–

David H. Souter:

–I suppose it promised that FSLIC would continue to–

Paul Bender:

–Right.

David H. Souter:

–respect–

Paul Bender:

Right.

Now, there’s–

David H. Souter:

–Yes, but you’re saying in the same breadth that FSLIC had no authority in any effective way to continue to do that, because FSLIC would be overruled by any change in legislation, and if it was so overruled, the risk of that overruling never shifted from the three banks here to the Government.

Paul Bender:

–The promise that they made–

David H. Souter:

That’s not much of an agreement.

Paul Bender:

–was that as long as the law permits this to be treated as capital for satisfying capitalization requirements, you can do certain things with it.

You can put it on your books, and the most important thing that went on, coming back to the Winstar agreement, for example… they all have elements of this in them… at that time, this capital, under existing accounting regulations, would have had to be amortized over the period that was the same as the average life of the deposits that the banks had.

And even though mortgages are like, 30-year mortgages or 15-year mortgages, the average life of those is about 10 years, so under the accounting principles at the time, this goodwill that they got would have had to be amortized over 10 years, which would mean they’d have to take one-tenth of it off each year.

The Winstar forbearance letter said, we forbear from applying that.

You can do it over 35 years, a much longer period of time, much more to the benefit of them.

That was a promise that was made.

David H. Souter:

But the extent of the Government’s authority to make that contract would have been, as it were… as you view it would have been made explicit if those provisions had been followed by a further sentence saying, the Government may nonetheless, through an act of Congress, place you in insolvency at any moment after the signing of this agreement, and in effect you’re saying that’s the extent of their contracting authority in these circumstances.

Paul Bender:

I think it would have to say… I would agree with you except it would be that Congress could, by changing the requirements–

David H. Souter:

Yes.

Paul Bender:

–of capitalization, yes, place you in insolvency, and they were taking a risk.

Antonin Scalia:

Why just Congress?

Why not the agency?

I thought you say there’s no agreement here at all.

Do you–

Paul Bender:

No, I did not say that.

Antonin Scalia:

–say that there’s an agreement not to change our regs unless we’re forced to change it by law?

Is there that much of an agreement?

Paul Bender:

No, I don’t think there’s that–

Antonin Scalia:

There’s not even that agreement?

Paul Bender:

–No.

Antonin Scalia:

Just for today–

Paul Bender:

No–

Antonin Scalia:

–we’ll say you can do it for 40 years–

Paul Bender:

–No, it’s not–

Antonin Scalia:

–but tomorrow we may change our mind.

Paul Bender:

–No.

I think if the definition of what could be counted as capital did not change, there is a promise that you can amortize it over 35 years rather than over 10 years.

Antonin Scalia:

So no promise at all even with respect to their own changing of their own regulations the next day?

Paul Bender:

Right, because at that time Congress had delegated to them the primary… Justice Scalia, think of a hypothetical that’s I think a lot like this.

Suppose that hospitals were acting in unsafe ways, and a number of them had to close because of the large number of claims upon them.

The hospital regulatory agency decided that the way to try to deal with that, because we needed the hospitals, was to have other hospitals absorb them and promise to maintain certain minimum safety regulations as a condition of absorbing them, and suppose they signed contracts like, to do that.

Say it was a condition of this you’re going to have to have this many nurses, this many operating rooms, this many this and this many that.

After that happens, hospitals continue to have real safety problems, and in the next 5 years there are lots of suits against them, lots of people are injured or die, and the legislature decides to increase those safety requirements.

Would anybody want to read a contract that said, you can do this if you meet these minimum safety requirements?

Antonin Scalia:

Certainly not, because there’s no relationship between the safety requirements and the risk of insolvency which the hospitals have acquired by taking these hospitals that are being sued upon their back.

Mr. Bender–

–Here, there is such a relationship.

Paul Bender:

I wasn’t talking about the insolvency there.

I was talking about the safety problem.

There, the Government is trying to deal with a safety problem.

Here, the Government–

Anthony M. Kennedy:

Are you saying, Mr. Bender, that FSLIC was powerless to include the terms that the respondents now claim is a necessary part of their contract?

Paul Bender:

–That is our position, although I don’t think you have to reach that, because–

Anthony M. Kennedy:

There was no way… there was no form of language, there was no provision that FSLIC was authorized to include which would reach the result that these respondents seek here?

Paul Bender:

–Insofar as what they seek is to say… when you say reach the result, you mean that they get… that they–

Anthony M. Kennedy:

To treat the capital the same–

Paul Bender:

–No, I’m sorry, I take that back.

If all you’re asking about is the remedy that they could… that they could, for example, get the–

Anthony M. Kennedy:

–I’m asking about FSLIC’s authority to make the contract that the respondents here assert was made.

Are you saying that FSLIC could… if all of this had been on the table in the bargaining session, if we had known about this problem, that FSLIC would have been powerless to include a provision that gives them the relief they now want?

Paul Bender:

–No, they wouldn’t have been powerless to include a provision that gives them the relief they want.

If the relief they want, for example, is return of their investment, FSLIC would have been able to put in a provision saying if the capital rules change within the next 10 years, you can get your invest… you can wash out the agreement and get your investment back.

Paul Bender:

That’s not what the… what is involved in this case.

What’s involved in this case is a claim that the contract was made that they would be exempted from any changes in the capital requirements, and they’re asking not just to get that money back, they’re asking for breach of contract damages.

There is a possibility in this case, and they have made these claims… they’re not involved in this proceeding.

This is just the breach of contract part.

There is a possibility of them arguing frustration of purpose.

If, for example, Justice Scalia, the next day they will close down, I would think that would be a very powerful claim.

That–

David H. Souter:

But Mr. Bender, isn’t your answer predicated on the fact not that they would be able to get their investment back by suing on their contract, they would be able to get their investment back on the theory that the contract was a nullity, and if that’s the answer… I don’t think that’s the answer… I don’t think that’s the point of Justice Kennedy’s question, because you’re still… you’re not saying that they would have authority to make a contract.

You’re saying that the law would give them restitution if the contract turned out to be a nullity.

Paul Bender:

–Right.

David H. Souter:

So you’re still in the position of saying… I think the answer to Justice Kennedy’s question on your position is, it would have been ultra vires for them to do that.

Paul Bender:

No, I think if there had been a provision in the contract saying what the law would probably give anyway… that is, if the contract’s frustrated you can get your investment back… that would not have been ultra vires.

That… I really need to stress that.

That is not what they’re arguing here.

They are arguing that they had a contract that they should be excluded from the changes in capital regulations, and that they have a right to breach of contract damages, which are more than just getting their money back.

It is the profit that they would have made in the future.

If they bring… brought a suit for frustration of purpose, either on the theory of implied frustration in the contract or Justice Kennedy’s example of an explicit frustration of purpose provision, which I think… I’m sorry if I misspoke before.

I think that is a provision that could have been included in these contracts… that’s a different case.

Antonin Scalia:

Mr. Bender, isn’t any contract, not only by the Government but by a private person, subject to the condition which you say this must have been subject to, namely, if what I have promised becomes unlawful, of course I won’t do it?

I mean, to say that this agency, if it was a promise, would have been conditioned upon that, is to say what every contract is conditioned upon.

Paul Bender:

I thought Justice Kennedy’s example and Justice Souter’s example were more than that.

It was not that, I won’t do it.

It’s that, one of the parties will get their money back, which is what the frustration of purpose doctrine I think would do in this case, or the provision that Justice Kennedy mentioned.

Thank you very much.

William H. Rehnquist:

Thank you, Mr. Bender.

Mr. Hollingsworth, we’ll hear from you.

Joe G. Hollingsworth:

Mr. Chief Justice, and may it please the Court:

What Mr. Bender refers to and what his reply brief referred to, and it did so by referencing a law review article in a 1993 Government report, is a hypothesized thrift which does not exist on this record.

It’s this Court’s purpose now to determine what the intent of the parties was in 1981, and the hypotheticals about what a Government report said the intent of other thrifts besides Glendale was in 1981 are not admissible.

William H. Rehnquist:

Well, doesn’t the unmistakability doctrine, Mr. Hollingsworth, require a little bit different focus on that?

William H. Rehnquist:

I mean, as I understand the doctrine, it would mean that even though, if you take the reasonable man theory of contracts, this is what reasonably… that’s not enough in this case to hold the Government liable for damages.

You have to show something more.

Joe G. Hollingsworth:

Mr. Chief Justice, the unmistakability doctrine requires a clear promise, and clear authority, and interpreting the clear promise, this Court’s precedents have held that the Court can look to the plain meaning and can interpret the plain meaning of what the parties intended from the language of the contract and from the circumstances under which the contract was made.

William H. Rehnquist:

Then what does the unmistakability doctrine add to the ordinary law of contracts, then?

Joe G. Hollingsworth:

It requires a clear promise, a clear promise in a contract where you’re dealing with the Government where there is a regulatory promise at issue, and of course–

William H. Rehnquist:

Does that rule any promise by implication?

Joe G. Hollingsworth:

–No, it does not, Your Honor, and if the Court refers to page 32 of our brief, the Court will see the references to cases in which the course of dealing with the parties is also used to construe the plain meaning of the contract.

Antonin Scalia:

Well–

Joe G. Hollingsworth:

Now, that may not be the same as implication.

We’re not arguing here that there is some implied contract, or implied warranty, or implied indemnity.

We’re showing the Court that there was an expressed contract here, that its terms were in the clearest possible terms, as both lower courts held, and that the Government had authority to do what it did.

That’s the–

Antonin Scalia:

–What’s the clearest language you have?

Joe G. Hollingsworth:

–The clearest language we have, Your Honor, is that the integration clause makes the–

William H. Rehnquist:

Can you tell us where it’s found in the brief, or in the–

Joe G. Hollingsworth:

–Yes, I can, Your Honor.

The integration clause appears at page 599 of the Joint Appendix.

That clause, Your Honor, makes the resolution… and the resolution page I’m referring to is at page 607 of the Joint Appendix.

That clause, the integration clause, makes the resolution a “agreement between the parties”, and the resolution sets forth the promise of the parties that goodwill would be treated as an asset for purposes of determining regulatory capital, and that promise is set forth in the requirement that goodwill shall be established based on–

Antonin Scalia:

–Walk me through that, would you?

You begin at page 599?

Joe G. Hollingsworth:

–Yes, I will, sir.

Antonin Scalia:

Okay.

Joe G. Hollingsworth:

At page 599–

Antonin Scalia:

Right.

Joe G. Hollingsworth:

–is the integration clause and the supervisory action agreement.

Antonin Scalia:

Okay.

Where’s that… how does that read?

Joe G. Hollingsworth:

That clause says that the agreement of the parties is… is final.

Prior agreements are superseded except for–

Antonin Scalia:

Excepting only–

Joe G. Hollingsworth:

–Except for, Justice Scalia, letters and resolutions entered contemporaneously with the agreement by the Federal Home Loan Bank Board and that resolution appears at page 607 of the Joint Appendix, Justice Scalia, and–

Antonin Scalia:

–Okay, and then we go to 607, and what do we see there?

Joe G. Hollingsworth:

–And we see at 607, in paragraph 3, a requirement that Glendale shall submit a letter from its independent accountant that shall justify the use of purchase method accounting which allows Glendale to use goodwill as an asset, which shall set forth the amount of goodwill in accordance with the accountant’s opinion, and which shall set forth the duration or amortization period under which goodwill shall operate.

And the second thing that’s important on page 607, Justice Scalia, is a requirement that Glendale shall submit a stipulation, a stipulation that goodwill resulting from this merger shall be determined, which means shall be determined now and for the future in accordance with a regulation, memorandum R31b, in effect at the time.

William H. Rehnquist:

Well, the letter from… a letter from Glendale’s accountant doesn’t really sound like what would be a binding, explicit promise on the Government.

Joe G. Hollingsworth:

Well, the Government requires that Glendale’s accountant, Glendale’s agent memorialize, in effect, Mr. Chief Justice, what the parties agreed to.

That is–

William H. Rehnquist:

Well–

Joe G. Hollingsworth:

–what is goodwill–

William H. Rehnquist:

–that’s a very strange provision in agreement, that it’s not contained in the agreement itself, but it’s… one of the parties’ accountants furnishes a memorial of it.

Joe G. Hollingsworth:

–Well, Your Honor, it would be as if you were entering a contract to build a house, and you agreed with the contractor that an architect’s certificate would be provided, and the parties would be bound by that, notwithstanding that it’s a third party, and in Government contract law, Your Honor–

William H. Rehnquist:

But an architect is generally a neutral party as between the parties.

Here, it’s one of the parties’ accounts.

Joe G. Hollingsworth:

–Well, it is a certified public accountant the opinion of which both parties agreed would finally memorialize what the final determination of the amount of goodwill was, that is, the number of liabilities of Broward which exceeded the assets of Broward, and the justification for the 40-year term under purchase method accounting, which is authorized by the regulation, which is adopted by reference.

Anthony M. Kennedy:

Mr. Hollingsworth, may–

–Is the goodwill that you seek to amortize here the goodwill that’s referred to in subparagraph 4 at page 607, or is that something else?

Joe G. Hollingsworth:

No, Your Honor, it is the goodwill that is referred to both in paragraph 3 and resulting amortization periods, which means goodwill for the future, and in paragraph 4, in which the stipulation, which means a term of agreement of the parties, shall say that goodwill is amortized pursuant to the Government’s regulation, which is memorandum R31b.

John Paul Stevens:

May I ask you a question similar to the Chief Justice’s?

This paragraph describes an obligation of Glendale.

It says that the approval is conditioned on Glendale doing these things.

How do you translate that into a commitment by the Government that if you do these things you’re protected for 40 years?

Joe G. Hollingsworth:

Your Honor, this is a promise.

This is a promise that was made as part of a–

John Paul Stevens:

No, what… the promise, though, that you referred to describes an obligation of Glendale, paragraphs 3 and 4 on page 607.

Joe G. Hollingsworth:

–Paragraph 4 is an obligation that becomes an obligation of both parties.

When that regulation–

John Paul Stevens:

How does that happen?

Joe G. Hollingsworth:

–When that regulation is read into the contract as adopted by reference, as our… as the case is cited in–

John Paul Stevens:

As describing what Glendale must do?

Joe G. Hollingsworth:

–As describing what the parties have agreed–

John Paul Stevens:

Glendale must do.

Joe G. Hollingsworth:

–As what Glendale must do and what the parties have agreed is a requirement–

John Paul Stevens:

Where is the provision on which you rely describing what the obligation of the Government is when Glendale does that?

Joe G. Hollingsworth:

–The obligation of the Government is to treat that goodwill–

John Paul Stevens:

Where?

I want you to point me to the language on which you rely for that obligation.

Joe G. Hollingsworth:

–That obligation appears in memorandum R31b, which permits the use of purchase method accounting and amortization over a period of years, and it appears, sir, in the accountant’s letter, Mr. Justice Stevens, at page 623 in which the accountant–

Antonin Scalia:

That’s a commitment of the accountant.

That’s not–

–That’s a commitment of the accountant.

Right.

Would you look at page 610?

What does the Resolved, the second Resolved further, on page 610 of the appendix, mean?

That is to say that the Secretary, Assistant Secretary is authorized and directed to send to Glendale a letter concerning scheduled items attributed to Broward and the forbearance of the FSLIC and the bank board with respect to certain regulatory requirements, a copy of which letter is in the minute exhibit file.

What does that letter cover?

Joe G. Hollingsworth:

–That letter covered the discount of assets other than the goodwill.

Antonin Scalia:

Other than the goodwill.

Joe G. Hollingsworth:

Yes, Your Honor, that’s correct.

Anthony M. Kennedy:

Getting back to paragraph 4 on page 607… because I’m still, as the Chief Justice and Justice Stevens were inquiring, interested as to the Government’s obligation… Glendale shall submit a stipulation.

Is that some sort of a document that’s signed by the Government and Glendale?

Joe G. Hollingsworth:

That is a stipulation which was–

Anthony M. Kennedy:

What is a stipulation?

Joe G. Hollingsworth:

–A stipulation, according to Black’s dictionary, is an agreement of the parties, a stipulation that goodwill will be treated at that point in accordance with the regulation.

That–

Anthony M. Kennedy:

Was a stipulation submitted that required the Government’s signature?

Joe G. Hollingsworth:

–That stipulation was made by virtue of this agreement, to which the parties both agreed by virtue of the integration clause–

William H. Rehnquist:

Answer Justice Kennedy’s question.

He asked you whether there was a signed stipulation.

Joe G. Hollingsworth:

–Your Honor, the supervisory action agreement is signed by the parties.

Joe G. Hollingsworth:

It adopts a resolution.

There is no stipulation that I know of that is signed by the Government, other than the reference in this contract to the fact that the parties had stipulated.

Anthony M. Kennedy:

And stipulation is not some term of art in savings and loans, it’s just the Black’s Law Dictionary definition–

Joe G. Hollingsworth:

Not that I know of.

It’s a term of law in contracts which imports an agreement between the parties–

Antonin Scalia:

–Well, I–

Joe G. Hollingsworth:

–and this stipulation was–

Antonin Scalia:

–It doesn’t always mean an agreement.

I mean, I can say right now I’ll stipulate that I–

Joe G. Hollingsworth:

–Well–

Antonin Scalia:

–You often say, he stipulated that.

I mean, it’s a concession, certainly, by one party.

Joe G. Hollingsworth:

–A stipulation is a bilateral connotation, I think that’s certain.

A stipulation is bilateral, and the parties involved here–

Antonin Scalia:

Well, how can Glendale submit a bilateral document?

I mean–

Joe G. Hollingsworth:

–Because… well, because… well, this document–

Antonin Scalia:

–I mean, if it said Glendale shall submit and the board shall accept, and the board shall sign, then you would have something.

Joe G. Hollingsworth:

–The board had the right to reject the accountant’s letter, and it didn’t.

For 8 years its course of conduct was to operate in accordance with the accountant’s letter, to deduct goodwill, to allow goodwill as an asset for purposes of regulatory capital, and they had the right to overturn that or reject that accountant’s letter by this contract, and, of course, they did not, but the stipulation draws into the contract the regulation.

At pages 21 to 24 of our brief we cite this Court’s opinions and Government contract opinions in particular in which adoption by reference is standard operating procedure.

That’s what this–

Antonin Scalia:

Would you have been in violation of the then-applicable regs of the board if that stipulation did not also constitute a commitment by the board?

Joe G. Hollingsworth:

–The then… I don’t think we would have been in violation of the then-applicable regs of the board, Justice Scalia, but we would not have had a contract had we not had a stipulation adopting this regulation and fixing it in time and agreement as to the amount of goodwill, as to the duration in which goodwill could be amortized.

John Paul Stevens:

Well, that clearly obligated Glendale to comply with those regulations, but I find… I’m trying to find… I’m sure there’s… it’s in here somewhere, but I’m trying to find what it is that obligated the Government not to change the regulations.

Joe G. Hollingsworth:

What obligated the Government not to change the regulations is two things, Justice Stevens.

First, it is a stipulation which fixes this regulation and puts the burden, or puts the risk of nonperformance on the Government.

Secondly, there is another clause–

John Paul Stevens:

And where is that?

Joe G. Hollingsworth:

–That is at page 607.

Joe G. Hollingsworth:

By stipulating that the regulation becomes a part of the contract, the risk of nonperformance of that regulation–

Sandra Day O’Connor:

But there is no stipulation.

I mean, you can’t cite here in the record a written document–

Joe G. Hollingsworth:

–This document–

Sandra Day O’Connor:

–to which this refers?

Joe G. Hollingsworth:

–This document, resolution 81-710, refers to a stipulation on the bank board regulation which appears at Joint Appendix 571.

That becomes a part of the contract.

Antonin Scalia:

I don’t under–

–I’m not talking about the memorandum.

I’m talking about the stipulation.

Where is the stipulation that was submitted?

Where is that?

Is that here in the appendix somewhere?

Joe G. Hollingsworth:

The stipulation that was submitted is the one Your Honor is looking at.

The accountant’s letter memorialized the parties’ agreement on the amount of goodwill and the duration under which goodwill was to be treated.

Antonin Scalia:

I’m… maybe you don’t understand my question.

It says, Glendale shall submit a stipulation.

I assume a stipulation was submitted.

Where is that?

Joe G. Hollingsworth:

That stipulation was submitted as part of the accountant’s letter.

The accountant was Glendale’s agent, and that’s–

Antonin Scalia:

Where is it?

I’d like to read it.

Joe G. Hollingsworth:

–That letter, Your Honor–

Antonin Scalia:

Is it in here?

Joe G. Hollingsworth:

–That letter appears at the Joint Appendix page 623 and 624.

Antonin Scalia:

623–

Joe G. Hollingsworth:

Actually, that is an attachment to the accountant’s letter, and if Your Honor will look at page 623, 623 states that this determination of the amount of goodwill and the duration of goodwill is made pursuant to the supervisory action agreement, and I’m looking in the middle of the page, Justice Scalia, at page 623.

That is the stipulation that the resolution refers to.

David H. Souter:

–Mr. Hollingsworth, with respect to 31b, which you point out is set out starting on 571, is that otherwise expressly incorporated into the contract, or is it refer… or is its only reference through the stipulation paragraph that we’ve been talking about?

Joe G. Hollingsworth:

Your Honor, that is expressly incorporated into the contract by virtue of the stipulation we’ve been referring to.

David H. Souter:

But it has… in any case, its incorporation has to come through paragraph 4 here.

Joe G. Hollingsworth:

Absolutely–

David H. Souter:

Okay.

Joe G. Hollingsworth:

–and it is expressly incorporated thereby.

Also, there are uncontradicted facts in the record below, including affidavits and a statement of uncontradicted facts, that make that clear as well, sir.

Stephen G. Breyer:

If it is unmistakable, if it isn’t unmistakable, what is that to do with us?

I thought that the… I may be wrong.

I thought that the lower courts held the historical understanding of the unmistakable doctrine is not applicable to this issue, and therefore, if we think it is applicable, we have to send it back–

Joe G. Hollingsworth:

I think that the–

Stephen G. Breyer:

–and if we think it isn’t applicable, then I guess you’d win.

I thought that was the issue, whether it is applicable or whether it isn’t applicable.

Joe G. Hollingsworth:

–I think Your Honor is referring to a provision in the lower court’s opinion which dealt with what I refer to as a second promise theory, which I don’t think any decision of this Court or any other court has recognized.

What the lower court did, however, was find and apply the unmistakability doctrine correctly in accordance with this Court’s prior rulings in the cases the Government relies on, and it did so and found that the contract between Glendale and the Government was stated in the, quote, clearest possible terms.

They did so in accordance with meeting the requirements of the unmistakability doctrine.

William H. Rehnquist:

Mr. Hollingsworth, your time has expired.

You probably can’t see it because your thing is over the red light.

Joe G. Hollingsworth:

Excuse me, Your Honor.

Thank you.

William H. Rehnquist:

Mr. Cooper, we’ll hear from you.

Charles J. Cooper:

Thank you, Mr. Chief Justice, and may it please the Court:

Justice Scalia, I would like to open by returning to the examination of the contract documents in the tatesman case… I represent Statesman and Winstar… and you earlier referred to page 23 of our brief.

I’d like to pick up where you left off, if I may.

Justice Scalia, you quoted one of the two sentences that are italicized.

William H. Rehnquist:

Are you now reading from page 23 of your brief?

Charles J. Cooper:

Of my brief, yes, Your Honor, and you’ll note in the block quote there that the last two sentences of that block quote are italicized.

Justice Scalia quoted a sentence that in fact the Government omitted from its discussion of this provision, which is absolutely critical to understanding the importance of this provision.

If there is a conflict between such regulations and the bank board’s resolution or action relating to the acquisition, the mergers for this agreement, the bank board’s resolution or action shall govern.

Your Honor, Mr. Bender responded that, well, that means the regulations at the time, not future regulations, and that’s why we’ve also italicized the following sentence: For purposes of this section, the accounting principles in governing regulations shall be those in effect on the effective date as subsequently changed, amended, clarified, or interpreted by the bank board.

Your Honor, the parties anticipated this very dispute, and they decided it right then and there at the closing table.

Charles J. Cooper:

They decided among themselves.

Ruth Bader Ginsburg:

Mr. Cooper, there’s one thing that I’d like you to distinguish for me.

There have been, I think, cases involving consent decrees both in the environmental area and the civil rights area, consent decrees signed by the Government and the complaining party, and then when the administration changed, the argument was made, well, yes, the Government, the then-administrators of X agency, signed that document, but that’s not the policy of the current administration, and one administration can’t bind another to a policy even in a written agreement filed in the court and made a part of a consent judgment.

Now, I take it you must regard this situation as entirely discrete from that.

Charles J. Cooper:

Your Honor, I do, because we are not seeking to hold the Government to continue to count our goodwill, to continue to count our capital credit.

That is not part of our claim.

It couldn’t be done now in any event.

We’re simply suggesting, as Justice Souter, I think, has correctly read this very provision, that it placed the risk… the parties understood that this could happen, but this was a life-and-death term for my clients, and so–

Ruth Bader Ginsburg:

In other words, in those consent decrees, at least as the Government’s argument went, there would be no responsibility on the Government’s part.

It could walk away from the agreement as if it had never been made.

But that’s not what you’re saying here.

You are, of course, recognizing Congress’ authority to legislate.

However, you’re saying my client must get the benefit of the bargain that was made.

Charles J. Cooper:

–The Government can’t break this agreement without any cost, exactly.

They can’t visit on my client’s shoulders alone–

Ruth Bader Ginsburg:

Well, that’s what… where you’re saying there’s a difference between at least the argument that was made that the Government could walk away from a consent decree without any cost.

Charles J. Cooper:

–Well, Your Honor, I’m… I suspect that those consent decrees are not involved in the world of commerce, which is what these contracts were involved in.

We had the Government acting as an insurer of deposits.

It was the one who was on the hook for untold millions of dollars if these thrifts that we took off their hands happened to fail, and they had to pay off the depositors.

We came to the table with cash that they wanted.

Your Honor, if we had added in the next sentence of this clause that I’ve been reading to you a liquidated damages clause, surely no one would… I can’t imagine the proposition that that would be invalid as well, but of course that is the necessary implication of the Government’s argument, and–

Antonin Scalia:

What about your other client?

Just to be sure that I have… what about the agreement for Winstar?

Charles J. Cooper:

–Yes, Your Honor.

Your Honor–

Antonin Scalia:

This was the Statesman contract, right?

Charles J. Cooper:

–That’s the Statesman contract.

Antonin Scalia:

What about Winstar?

Charles J. Cooper:

With respect to this particular provision, Winstar had a virtually identical provision.

The wording of the two sentences that I’ve just read to you is, I think, identical.

Charles J. Cooper:

It’s certainly not in any material way different, so–

Antonin Scalia:

And what about the bank board’s resolution to which this refers?

Where does that appear, and how does that close the loop?

Charles J. Cooper:

–Yes, Your Honor.

On the next page we’ve set that out as well, page 24 of our brief, and it carries over to page 25.

The block quote begins at the bottom of the page there, and the… the wording, again, that I’d like to call the Court’s attention to, this whole provision is key, obviously.

It contains in, I think the courts below were quite correct, the clearest possible terms, the nature of the regulatory capital promises that the Government agreed with us that we could rely upon.

But the wording that I want to call the Court’s attention to is in the first paragraph there.

It provides that the acquisition shall be accounted for and shall report to the bank board and the FSLIC in accordance with generally accepted accounting principles as accepted modified, clarified, or interpreted by applicable regulations of the bank board and the FSLIC, okay, so they had to report according to GAAP, except to the extent that their regulations changed GAAP.

The next phrase–

From time to time, presumably.

Charles J. Cooper:

–From time to time, but the next phrase, again, is key, indicating we anticipated future changes, except to the extent of the following departures from GAAP, so again… and these departures–

William H. Rehnquist:

What does the except clause modify, in your view?

Charles J. Cooper:

–Your Honor, I think it modified the phrasing that went before it.

It modifies the–

William H. Rehnquist:

Yes, but there’s several pieces of phrasing that go before it.

Is that except clause, does that modify the entire paragraph, or just the thing that’s already excepted?

Charles J. Cooper:

–Your Honor, I think it modifies the entire provision that goes before it.

In other words, the parties agreed that GAAP would control unless they regulated a difference in GAAP, but that these particular regulatory promises would remain constant, because again–

Sandra Day O’Connor:

Now, these provisions are different from those in the contract and agreement of Glendale, I take it?

Charles J. Cooper:

–Your Honor, I think that is true.

I don’t represent Glendale, but I don’t believe that contract has these particular provisions, but–

Sandra Day O’Connor:

May I also ask you, do you… have you sought any other relief under the Takings Clause, or have you sought relief by way of rescission of the agreement or anything?

Charles J. Cooper:

–Your Honor, our complaint in this case outlines counts under theories of frustration of purpose as well as under the Takings Clause and the Due Process Clause.

The courts below didn’t need to get to constitutional issues.

We had a contract.

The Government waived its sovereign immunity for breaches of contract in the Tucker act, and here we are.

Stephen G. Breyer:

You concede that it has to be unmistakable.

Charles J. Cooper:

I beg your pardon?

Stephen G. Breyer:

You concede that to win you have to show the promise is unmistakable.

Charles J. Cooper:

Yes, Your Honor, and I think that the courts below well and correctly understood what unmistakable means.

The unmistakable doctrine, unmistakability doctrine, Your Honor, truly, if reduced to a sound bite, is simply that the Government cannot be held to promises that it doesn’t make.

Stephen G. Breyer:

So the only issue before us is whether or not–

–No, that’s–

–Is that any different–

–That’s no different from ordinary contract–

–than any contract.

Charles J. Cooper:

Well, Your Honor, if you look at the unmistakability cases that they rely… Merrion.

What was at issue there?

A tax exemption alleged to flow in connection with a lease for oil–

William H. Rehnquist:

Well then, are you–

Charles J. Cooper:

–and there was nothing in the contract about taxes, Your Honor.

William H. Rehnquist:

–Are you saying, Mr. Cooper, then, that the unmistakability doctrine really does… is not… have any substantive content, that entirely apart from that doctrine you simply interpret the contract and decide who prevails?

Charles J. Cooper:

Well, Your Honor, I think that it is a canon of construction designed to aid this Court and other courts in divining the true and genuine intent of the contracting parties.

William H. Rehnquist:

Well, then it should be applied to everybody.

Why limit it just to Government, if it aids in determining the true intent of the parties?

Charles J. Cooper:

Well, Your Honor, I think the one feature that it does bring is that when you are talking about a contract such as what was alleged in Merrion and what was alleged in the POSSE case, which they rely prominently on, that is, a contract that would, indeed, surrender a sovereign authority, there the taxing authority in Merrion, the Court approaches that with some skepticism, and so it requires that a clear expression of that promise take place.

Your Honor, I am happy to live with the unmistakability doctrine in no matter how rigid a formulation except theirs.

Theirs is a doctrine invented, Your Honor, for the purpose of saying a clear and plain promise, even coupled with provisions like I have read to you, is inadequate, because it isn’t also coupled with the further promise that we will not breach those promises.

We… Congress is committed not to enact a law that changes this deal, or if it does–

John Paul Stevens:

You say Congress is committed.

Charles J. Cooper:

–you’re immunized.

That’s their–

John Paul Stevens:

May I ask you, who is the party to the contract?

Who is the party to the contract that you’re suing?

Charles J. Cooper:

–Your Honor, the sovereign was the–

John Paul Stevens:

Did the sovereign make the contract?

I thought an agency–

Charles J. Cooper:

–The sovereign’s agent, Your Honors, FSLIC and the bank board, authorized–

John Paul Stevens:

–Which is no longer in existence, I guess.

Charles J. Cooper:

–Well, you know, these contracts also recognized that possibility, too, and suggested that these provisions were binding on their successors.

But Your Honor, surely the Congress can’t avoid it’s contractual… or the sovereign can’t avoid its contractual obligations by simply eliminating and extinguishing its agents.

John Paul Stevens:

May I ask just one other–

–It does by eliminating sovereign immunity, by reinstituting sovereign immunity.

Charles J. Cooper:

And Your Honor, if FIRREA had repealed the Tucker act for these purposes, I would have a much tougher case here.

John Paul Stevens:

May I ask, just to save me time looking for it, you say there’s… you relied heavily in the Statesman contract, the stuff on page 23.

Charles J. Cooper:

Yes.

John Paul Stevens:

Where do I find the corresponding language in the Winstar contract, just so I don’t–

Charles J. Cooper:

Your Honor, we don’t set that out in our brief because the–

John Paul Stevens:

–Because it’s probably a little different.

Charles J. Cooper:

–or at least the accounting principles clause… that is, the one on page 23–

John Paul Stevens:

But what are you relying on?

Charles J. Cooper:

–is virtually identical.

John Paul Stevens:

Just so I know where to find the corresponding–

Charles J. Cooper:

Yes, Your Honor.

Okay, at page 108 of the parties’ appendix, Your Honor.

John Paul Stevens:

–Okay, thank you.

Charles J. Cooper:

It is marked as section 10 at the bottom of the page.

It begins there.

That’s the Winstar accounting principles.

John Paul Stevens:

I don’t want to use your time up.

I just wanted to know where it was.

Charles J. Cooper:

Yes.

John Paul Stevens:

Thanks.

Charles J. Cooper:

I see that my time has almost expired, so let me close by simply saying this.

The question before the Court is whether these contracting parties are simply going to remain in the places that they are, with the Government holding $24 million of my client’s money in its pocket, and with my clients with a $24 million lesson in the value of the Government’s solemn contractual oath.

If there are no additional questions–

Antonin Scalia:

Precisely what did the Government promise?

Precisely, the Government promised to let you continue to do… what it boils down to is, they promised to let you continue doing business as a bank so long as you maintained that minimum level of capital that these accounting principles would produce.

Is that the essence of the promise?

Charles J. Cooper:

–They promised to calculate our regulatory capital in–

Antonin Scalia:

I mean, I don’t care how they calculate it.

You care that they let you continue to do business as a bank, so you’re saying they gave you a sort of a charter, a promise that your bank charter wouldn’t be yanked so long as you kept your capital the way these accounting principles–

Charles J. Cooper:

–Yes, Your Honor.

Antonin Scalia:

–would require.

Charles J. Cooper:

That’s right.

Anthony M. Kennedy:

Mr. Cooper, if you seek damages for frustration, restitution, you still have to show a contract, don’t you?

That is to say, the measure of damages doesn’t particularly help us here, does it?

In either case there has to be a contract that was A, breached, or B, frustrated?

Charles J. Cooper:

Yes, Your Honor.

You at least have to show that the parties attempted but failed to enter into a binding contract.

Anthony M. Kennedy:

So is the contractual inquiry and the unmistakability inquiry the same in either case, case A, breach, damages for breach, case B, restitution?

Charles J. Cooper:

Your Honor, I think that even if Mr. Bender is right in everything that he says and we don’t have a contract, and this effort was… died… was a failure at the closing table, and that they could have, as they say they could have, said as we left the closing table $21 million for these banks is not enough, we want more capital, and we would have no protection against that, and again he’s right in everything he says, I still surely am entitled, under frustration of this effort to make a contract, to my money back.

Anthony M. Kennedy:

Well, under what theory?

You still have to have a contract, don’t you?

Charles J. Cooper:

Your Honor, I think–

Anthony M. Kennedy:

Can you sue the Government for unjust enrichment and restitution under the–

Charles J. Cooper:

–No, Your Honor.

In fact, in the final pages of our brief we cite cases that make clear that the Government can’t… even if this contract was void in its beginning, it was illegal, there was no authority under FSLIC and he’s right, then I am entitled at least to the return of the benefits that I’ve given them under the pretense of this false contract.

William H. Rehnquist:

I think you’ve answered the question, Mr. Cooper.

Charles J. Cooper:

Thank you.

William H. Rehnquist:

The case is submitted.