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In a decision likely to set the pattern for 45 other “ Winstar cases,” the U.S. Court of Appeals for the Federal Circuit ruled last week that the federal government owes $381 million to a bank that had taken a troubled savings and loan off the government’s hands. Glendale Federal Bank, FSB v. U.S., No. 03-5136. The Winstar cases take their name from U.S. v. Winstar Corp., 518 U.S. 839 (1996). The U.S. Supreme Court held that the government was liable for breaching agreements under which healthy institutions had acquired troubled savings and loans during the 1980s. (Glendale acquired Florida-based Broward Savings and Loan under such an agreement and was one of the plaintiffs in the Winstar case.) By arranging the sales and thus keeping the troubled thrifts from folding, the government was able to avoid reimbursing account holders under a deposit insurance program. In exchange, the government promised the acquiring institutions that it would relax capital-reserve requirements, according to the Winstar decision. When Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, it insisted on strict enforcement of capital-reserve requirements, following a short transition period. Although Winstar established the government’s liability for breaching the agreements, the calculation of damages has remained a point of contention. Because the Federal Circuit clarified that issue, Carter G. Phillips, who represented Glendale, said the decision will have an impact on 45 other Winstar cases pending at trial level. “The decision provides a framework for settlement or at least narrows the issues for trial,” he said. Phillips is a partner in the Washington office of Sidley Austin Brown & Wood. The U.S. Department of Justice, which represented the government, said it had no comment on the ruling. Throughout years of litigation, the government has insisted that Glendale is entitled to zero damages. But Glendale didn’t get everything it wanted. During those years, the bank has often asked for amounts approaching $1 billion. The $381 million in reliance damages reimburses Glendale for higher interest rates it had to pay to attract customers and for higher deposit insurance fees after the act put it out of capital compliance. The court made clear that Winstar plaintiffs are not entitled to lost profits unless they present causal proof strong enough to take such expectancy damages out of the realm of the speculative.

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