No. 95-865 IN THE SUPREME COURT OF THE UNITED STATES OCTOBER TERM, 1995 UNITED STATES OF AMERICA, PETITIONER v. WINSTAR CORPORATION, ET AL. ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT PETITION FOR A WRIT OF CERTIORARI DREW S. DAYS, III Solicitor General FRANK W. HUNGER Assistant Attorney General PAUL BENDER Deputy Solicitor General JAMES A. FELDMAN Assistant to the Solicitor General DOUGLAS LETTER JACOB M. LEWIS SCOTT R. MCINTOSH Attorneys Department of Justice Washington, D.C. 20530 (202) 514-2217 ---------------------------------------- Page Break ---------------------------------------- QUESTIONS PRESENTED 1. Whether the doctrine that a contract will be interpreted to cede government regulatory authority only if it does so in unmistakable terms is applicable in a breach of contract action where the plaintiff seeks money damages but not injunctive relief. 2. Whether, absent a specific congressional authorization to do so, a federal agency may bind it- self and its successors by contract to exercise gov- ernmental regulatory authority in a particular way, regardless of subsequent legislative changes. 3. Whether provisions of the Financial Institu- tions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73, 103 Stat. 183, limiting the ability of thrift institutions to use intangible assets to satisfy minimum capitalization require- ments were "public and general acts," for purposes of the sovereign acts doctrine. (1) ---------------------------------------- Page Break ---------------------------------------- PARTIES TO THE PROCEEDING Aside from the parties named in the caption, United Federal Savings Bank, Statesman Savings Holding Corp., The Statesman Group, Inc., American Life and Casualty Company, and Glendale Federal Bank, F.S.B,, were parties in the court of appeals. (II) ---------------------------------------- Page Break ---------------------------------------- TABLE OF CONTENTS Page Opinions below . . . . 1 Jurisdiction . . . . 2 Statutory provisions involved . . . . 2 Statement . . . .2 Reasons for granting the petition . . . . 13 Conclusion . . . . 26 TABLE OF AUTHORITIES Cases: Amino Brothers Co. v. United States, "372 F.2d 485 (Ct. Cl.), cert. denied, 389 U.S. 846 (1967) . . . . 20, 22 Atlas Corp. v. United States, 895 F.2d 745 (Fed. Cir.), cert. denied, 498 U.S. 811 (1990) . . . . 22 Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41 (1986) . . . . 8, 14 15, 16, 17, 23 Carteret Savings Bank v. OTS, 963 F.2d 567 (3d Cir. 1992) . . . . 6, 17, 21 Charter Federal Savings Bank v. OTS, 976 F.2d 203 (4th Cir. 1992), cert. denied, 113 S. Ct. 1643 (1993) . . . . 16, 17, 18, 22 City of El Paso v. Simmons, 379 U.S. 497 (1965) . . . . 20 Deming v. United States, 1 Ct. Cl. 190 (1865), appeal dismissed, 76 U.S. 145 (1870) . . . . 22 Education Assistance Corp. v. Cavazos, 902 F.2d 617 (8th Cir.), cert. denied, 498 U.S. 896 (1990) . . . . 25 Fahey v. Mallonee, 332 U.S. 245 (1947) . . . . 2 Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380 (1947) . . . . 22 Flagship Federal Savings Bank v. Wall, 748 F. Supp. 742 (S.D. Cal. 1990) . . . . 18 (III) ---------------------------------------- Page Break ---------------------------------------- IV Cases -Continued: Page Guaranty Financial Services, Inc. v. Ryan, 928 F.2d 994 (llth Cir. 1991) . . . .17 Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398 (1934) . . . . 20 Horowitz v. United States, 267 U.S. 468 (1925) . . . . 12, 13, 22 Hughes Communications Galaxy, Inc. v. United States, 998 F.2d 953 (Fed. Cir. 1993) . . . . 24 Lynch v. United States, 292 U.S. 571 (1934) . . . .23 Merrion v. Jicarilla Apache Tribe, 455 U.S. 130 (1982) . . . . 14, 15 National Railroad Passenger Corp. v. Atchison, Topeka & Santa Fe Ry., 470 U.S. 451 (1985) . . . . 18-19 North American Commercial Co. v. United States. 171 U.S 110 (1898) . . . .20 Northern Pacific Ry. v. Minnesota, 208 U.S. 583 (1908) . . . . 20 OPM v. Richmond, 496 U.S. 414 (1990) . . . . 21-22 Perry v. United States, 294 U.S. 330 (1935) . . . .23 RTC v. FSLIC, 34 F.3d 982 (lOth Cir. 1994) . . . .17 Security Savings & Loan v. Director, OTS, 960 F.2d 1318 (5th Cir. 1992) . . . . 5 Stone. v. Mississippi, 101 U.S. 814 (1880) . . . . 20 Tony Downs Foods Co. v. United States, 530 F.2d 367 (Ct. C1. 1976) . . . .22 Transcapital Financial Corp. v. Director, OTS. 44 F.3d 10.23 (D.C. Cir. 1995) . . . . 17 Transohio Savings Bank v. Director, OTS, 967 F.2d 598 (D.C. Cir. 1992) . . . . 5, 17, 21 United States v. Cherokee Nation, 480 U.S. 700 (1987) . . . . 14, 16, 16 United States Trust Co. v. New Jersey, 431 U.S. 1 (1977) . . . . 20 ---------------------------------------- Page Break ---------------------------------------- v Cases-Continued: Page Veix v. Sixth Ward Building & Loan Ass'n, 310 U.S. 32 (1940) . . . . 20 Welch v. Cook, 97 U.S. 541 (1878) . . . . 19 Western Fuels-Utah, Inc. v. Lujan, 895 F.2d 780 (D.C. Cir.), cert. denied, 498 U.S. 811 (1990) . . . . 25 Wisconsin & Michigan Ry. v. Powers, 191 U.S. 379 (1903) . . . .19-20 Constitution, statutes and regulations: U.S. Const. Art. I, 10, Cl. 1 (Contract Clause) . . . . 20 Depository Institutions Deregulation and Monetary Control Act of 1980, Pub. L. No. 96-221, 94" Stat. 132 . . . . 4 Emergency Home Finance Act of 1970, Pub. L. No. 91-351,84 Stat. 450 . . . . 4 Federal Home Loan Bank Act, ch. 522, 30, 47 Stat. 741 . . . . 21 Financial Institutions Reform, Recovery, and Enforcement Act of 1989 Pub. L. No. 101-73, 103 Stat. 183 . . . . passim 12 U.S.C. 1464(c)(2)(A) . . . . 6 12 U.S.C. 1464(t)(l)(A) . . . . 4, 5 12 U.S.C. 1464(t)(2) . . . . 4, 5 12 U.S.C. 1464(t)(3) . . . . 5, 6 12 U.S.C. 1464(t)(9) . . . . 5 Garn-St Germain Depository Institutions Act of 1982, Pub. L. No. 97-320, 96 Stat. 1469 . . . . 4 12 U.S.C. 1437 note . . . . 3 12 U.S.C. 1441a . . . .3 12 U.S.C. 1464 (1988) . . . .18 12 U.S.C. 1729(f)(4)(A) (1988) . . . . 21 12 U.S.C. 1821 . . . . 3 12 C.F.R.: Section 567.2 . . . . 5 Section 567.5 . . . . 5 ---------------------------------------- Page Break ---------------------------------------- VI Miscellaneous: 135 Cong. Rec. (1989 p. 11,795 . . . .5 p. 18,863 . . . . 4 45 Fed. Reg. 72,681 (1980) . . . .4 47 Fed. Reg. (1982): p. 3543 . . . . 4 p. 31,859 . . . . 4 p. 52,961 . . . . 4 H.R. Rep. No. 54, 10lst Cong., 1st Sess Pt. 1 (1989) . . . . 2, 3, 4 S. Rep. No. 19, 10lst Cong., 1st Sess. (1989) . . . . 3 ---------------------------------------- Page Break ---------------------------------------- IN THE SUPREME COURT OF THE UNITED STATES OCTOBER TERM, 1995 No. UNITED STATES OF AMERICA, PETITIONER v. WINSTAR CORPORATION, ET AL. ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT PETITION FOR A WRIT OF CERTIORARI The Solicitor General, on behalf of the United States, respectfully petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Federal Circuit in this case. OPINIONS BELOW The en bane opinion of the court of appeals (App. la- 52a) is reported at 64 F.3d 1531. The panel opinion of the court of appeals (App. 53a-105a) is reported at 994 F.2d 797. The opinions of the Court of Federal Claims (App. 106a-152a, 153a-180a, 181a-182a, 183a-195a) are reported at 21 Cl. Ct. 112, 25 C1-Ct. 147,25 Cl. Ct. 541, and 26 Cl. Ct. 904. (1) ---------------------------------------- Page Break ---------------------------------------- 2 JURISDICTION The judgment of the court of appeals was entered on August 30,1995. On November 22, 1995, Chief Justice Rehnquist extended the time for filing a petition for a writ of certiorari to and including December 6, 1995. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTORY PROVISIONS INVOLVED The relevant provisions of the Financial Institu- tions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73, 103 Stat. 183, are set forth in the Appendix to this petition. App. 196a-204a. STATEMENT This petition concerns three separate cases that were consolidated for appeal before the Federal Cir- cuit. The circumstances of the three cases vary somewhat, but they involve a common factual back- ground and similar legal issues. 1. Savings and loan institutions or "thrifts" have been the subject of pervasive federal support, supervi- sion, and regulation since the 1930s. See Fahey v. Mallonee, 332 U.S. 245, 250 (1947) ('Blanking is one of the longest regulated and most closely supervised of public callings"). The modern thrift industry is now "a federally-conceived and assisted system to provide citizens with affordable housing funds." H.R. Rep. No. 54, 10lst Cong., 1st Sess. Pt. 1, at 292 (1989) (House Report). In the late 1970s and early 1980s, high interest rates and inflation resulted in a substantial increase in the cost of attracting deposits for thrifts. At the same time, many thrifts held long-term, low-yielding fixed rate mortgages. This "negative interest rate ---------------------------------------- Page Break ---------------------------------------- 3 mismatch" precipitated a major crisis in the thrift industry. See House Report at 294-295. Many thrifts were left with severely depleted capital or negative net worth. Their frequent response was "that the easiest way to regain profitability and generate adequate levels of new capital, was to grow rapidly," thus increasing the size of their loan portfolio and putting more of their depositors' money at risk. House Report at 298-299; S. Rep. No. 19, 10lst Cong., 1st Sess. 9 (1989). The result was a record number of failures of thrift institutions and a loss of public confidence that threatened to engulf the entire industry. 2. FIRREA was enacted in 1989 to prevent the collapse of the thrift industry and to restore it to economic health. This statutory scheme has provided well over $100 billion in taxpayer money to close insolvent institutions and recapitalize the federal insurance fund protecting thrift deposits. FIRREA modified the overall federal thrift regula- tory scheme by: (1) abolishing the Federal Savings and Loan Insurance Corporation (FSLIC) and trans- ferring its functions to other agencies; (2) creating a new thrift deposit insurance fund under the Federal Deposit Insurance Corporation (FDIC); (3) eliminat- ing the Federal Home Loan Bank Board (the Bank Board) and replacing it with the Office of Thrift Supervision (OTS)-an office within the Department of the Treasury-and making the OTS Director re- sponsible for regulation of all federally insured savings associations and chartering of federal thrifts; and (4) establishing the Resolution Trust Corpora- tion (RTC), charged with resolving certain closed thrifts. See 12 U.S.C. 1437 note, 1441a, and 1821. ---------------------------------------- Page Break ---------------------------------------- 4 At the "heart" of this legislative reform (135 Cong. Rec. 18,863 (1989) (Sen. Riegle)) was the requirement that OTS "prescribe and maintain uniformly applica- ble capital standards for savings associations," sub- ject to strict statutory constraints. 12 U.S.C. 1464(t)(l)(A). The federal regulatory scheme had long imposed certain capital requirements on federally insured institutions, including both requirements of minimal capitalization and restrictions on what could be counted as capital in determining g whether those requirements were satisfied. 1 FIRREA prescribed three strict new minimum capital requirements that thrifts must satisfy. See 12 U.S.C. 1464(t)(2) (re- quirements for "core capital" "tangible capital," and "risk-based capital"), reprinted at App. 196a-198a. The new strengthened capital requirements were considered crucial to prevent a recurrence of the thrift crisis since, in Congress's view, "[t]o a con- siderable extent, the size of the thrift crisis resulted from the utilization of capital gimmicks that masked the inadequate capitalization of thrifts." House Report at 310. From 1981 until the -enactment of FIRREA, the Bank Board had permitted thrifts to use "goodwill" ___________________(footnotes) 1 Those requirements have been the subject of numerous statutory and regulatory changes over the years. See, e.g., Garn-St Germain Depository Institutions Act of 1982, Pub. L. No. 97-320, 96 Stat. 1469 Depository Institutions Deregulation and Monetary Control Act of 19/30, Pub. L. No. 96-221, 94 Stat. 132; Emergency Home Finance Act of 1970, Pub. L. No. 91-351, 84 Stat. 450. In 1982 alone the regulations governing thrift capital reserve requirements changed three times. See 47 Fed. Reg. 3543 (1982); id. at 31,859 id. at 52,961. See also 45 Fed. Reg. 72,681 (1980) (Bank Board proposal to change regulatory treatment of goodwill).. ---------------------------------------- Page Break ---------------------------------------- 5 to satisfy federal regulatory capital requirements. Goodwill is an intangible "asset" that, under Gener- ally Accepted Accounting Principles (GAAP), equals the amount by which the cost of an acquisition (including all liabilities assumed by the acquirer) exceeds the fair market value of the acquired tangible assets. In the context of a supervisory merger, when such goodwill existed, it was known as "supervisory goodwill." Thus, the surviving thrift could declare as an asset the merged thrift's net worth deficit. Another type of intangible asset involved in "this case is Regulatory Accounting Practices goodwill, or "capital credits." The Bank Board often allowed double counting of funds that FSLIC contributed to merging, thrifts, permitting such funds to be counted both as cash and again as goodwill for purposes of meeting regulatory requirements. See Security Savings & Loan v. Director, OTS, 960 F.2d 1318,1320 n.5 (5th Cir. 1992); Transohio Savings Bank v. Director, OTS, 967 F.2d 598,604 (D.C. Cir. 1992). To strengthen the financial soundness of federally insured thrifts, FIRREA severely restricted the ability of thrifts to use intangible assets like supervi- sory goodwill or capital credits to meet the statute's three new minimum capital requirements. 12 U.S.C. 1464(t)(l)(A), 1464(t)(2) and (3); 1464(t)(9); 12 C.F.R. 567.2, 567.5. As Congress recognized, "[goodwill is not cash. It is a concept, and a shadowy one at that. When the Federal Government liquidates a failed thrift, goodwill is simply no good. It is valueless. That means, quite simply, that the taxpayer picks up the tab for the shortfall." 135 Cong. Rec. 11,795 (1989). Although it places limits on the use of intangible assets to meet federal capital requirements, FIRREA ---------------------------------------- Page Break ---------------------------------------- 6 does not eliminate such use altogether. FIRREA initially allowed some supervisory goodwill to be used for meeting some federal capital requirements, and it also permits goodwill to be counted for the purpose of determining the extent to which thrifts may make certain types of loans and investments. See, e.g., 12 U.S.C. 1464(c)(2)(A), 1464(t)(3). Although limited dis- cretion was given to OTS, the statute itself set forth most of the restrictions on the use of intangible as- sets like goodwill. See Carteret Savings Bank v. OTS, 963 F.2d 567, 574-582"(3d Cir. 1992). 3. Respondents are the owners of two now-defunct thrift institutions (United Federal Savings Bank, which was owned by plaintiff Winstar Corporation, and Statesman Bank for Savings, which was owned by plaintiff Statesman-Savings Holding Corp.), and one currently operating thrift, Glendale Federal Bank, FSB, which were involved in mergers or acquisitions of thrifts prior to l989. Following enactment of FIRREA, respondents filed three separate actions against the United States in the Court of Federal Claims, seeking monetary relief for asserted breach of contract or frustration of purpose caused by FIRREA, or just compensation for a claimed taking of constitutionally protected property rights. The contract and property right that respondents claim is the right to treat supervisory goodwill as capital for purposes of satisfying federal capital requirements for periods of 25 to 40 years and, in the case of Statesman, to treat capital credits as capital indefi- nitely. Respondents based their contract claims primarily on agreements that they signed with the FSLIC, and on regulatory resolutions and letters issued by the Bank Board governing transactions in which ---------------------------------------- Page Break ---------------------------------------- 7 goodwill was created, The material facts in each of the three eases differ to some extent, but they raise the same pivotal legal issues. Each of the three cases involves either a merger or an acquisition under which one thrift voluntarily merged with or took over one or more failing thrifts in 1981 (Glendale), 1983 (Winstar), and 1987 (States- man). App. 8a, 9a, ha. In each instance, the thrifts needed the regulatory approval of the Bank Board for the merger or acquisition. In each instance, the thrift and the FSLIC also entered into an agreement setting the terms of the transaction, as well as the terms of actual or potential government assistance? In all three instances, those contracts provided that "[n]othing in this Agreement shall require any unlawful action or inaction" by the parties. App. 82a. In each of the three transactions, goodwill was created. In each case, the Bank Board issued "forbearance letters" under which the agency stated that it would forbear in certain circumstances from bringing enforcement proceedings against the thrifts for failing to satisfy regulatory capital requirements following the merger or acquisition. The Bank Board also issued resolutions permitting each thrift to use GAAP principles, under which substantial amounts of goodwill would be amortized over lengthy periods: Glendale involved $716 million to be amortized by the thrift over 40 years, App. 9a, Winstar involved $9.1 million to be amortized by the thrift over 35 years, App, 28a, 171a, and Statesman involved $25.8 million in goodwill to be amortized over 25 years, App. 10a. In ___________________(footnotes) 2 In Winstar, the government contributed over $5.5 million to the transaction, App. 194a. In Statesman, the government contributed $60 million, App. 10a. ---------------------------------------- Page Break ---------------------------------------- 8 addition, the supervisory assistance agreement be- tween FSLIC and Statesman expressly permitted Statesman to count $26 million of the federal cash contribution as a "capital credit" that "[f]or purposes of reports to the Bank Board * * * shall be credited to [Statesman's] regulatory capital account and shall constitute regulatory capital." C.A. App. 803. Under FIRREA's stringent new regulations limit- ing the use of intangible assets to meet the new regulatory capital requirements, none of the intangi- ble assets created in any of the three transactions could continue to be counted as capital. The Winstar and Stateman thrifts, like many other thrifts at the time, were unable to meet the new capitalization requirements, and were placed in receivership; they no longer exist. Glendale raised the necessary new capital in private markets and is today an operating thrift. App. 14a. 4. In each of these three cases, the Court of Fed- eral Claims held that the subject thrift had a contract with the government guaranteeing favorable long- term regulatory treatment of goodwill, and that Congress through FIRREA breached that contract by restricting the use of existing goodwill to meet the new capitalization mandates. In Winstar, the trial court held that the thrift had an implied-in-fact contract with the govern- ment concerning treatment of goodwill. App. 187a. The court rejected the government's argument that the thrift's claims were defeated by the "unmis- takability doctrine" derived from this Court's de- cision in Bowen v. Public Agencies Opposed to Social Security Entrapment (POSSE), 477 U.S. 41, 52-53 (1986), and other cases. That doctrine provides that a contract will not be construed to waive sovereign ---------------------------------------- Page Break ---------------------------------------- 9 regulatory authority unless the intent to do so is expressed by the contract in unmistakable terms. App. 157a-170a. The court concluded that FIRREA had breached the implied contract by restricting use of goodwill for regulatory capitalization purposes. App. 171a-172a. The trial court also rejected the government's ar- gument that there could be no liability for breach of contract in any event because of the "sovereign- act s" doctrine, which precludes breach of contract actions against the government where the government's inability to perform is the result of a "public and general act" of the Congress. The court found this doctrine inapplicable because, in. the court's view, FIRREA was not a "public and general act" insofar as it abrogated the contracts of a particular class of entities that had contracted to use supervisory goodwill to satisfy federal capital requirements. App. 173a-179a. The court announced that, in subsequent proceedings, it would determine the amount of the injuries, if any, and the appropriate measure of dam- ages. App. 180a. The trial court relied on its Winstar rulings regarding the unmistakability and sovereign acts doctrines in its subsequent rulings in Statesman and Glendale. The court held that the thrifts in those cases had express contracts with the government concerning regulatory treatment of goodwill. App. 120a-125a. The court rejected the government's argument that the contracts themselves contained clauses making clear that they were subject to changes in the regulatory scheme. App. 125a-132a. The court concluded that the contracts covering Statesman and Glendale had been breached by FIRREA. It consolidated the two cases, combined ---------------------------------------- Page Break ---------------------------------------- 10 them with Winstar, and certified its order for imme- diate interlocutory appeal. App. 150a-l52a. 5. The Federal Circuit accepted the consolidated cases for interlocutary appeal, and a divided panel of the court reversed the decision of the Court of Federal Claims, The panel held that the plaintiffs had failed to meet the high standard for showing that their contracts contained terms guaranteeing them a specified form of favorable regulatory treatment for lengthy periods stretching well into the next century. App. 53a-105a, "The Federal Circuit then granted respondents' petitions for rehearing en bane. After debriefing and reargument before the full court, the court reversed the panel decision and affirmed the trial court's ruling on contract breach liability. App. la-46a. The Federal Circuit held that the express con- tracts into which FSLIC had entered with all three thrifts included promises that all three could count supervisory goodwill (and Statesman could count capital credits as well) as capital for purposes of satisfying federal capital requirements. App. 17a-29a. As noted above, pp. 7-8, supra, Statesman's supervi- sory assistance agreement (SAA) expressly per- mitted it to use $26 million of capital credits to satisfy federal capital requirements. App. 24a. None of the SAAs, however, contained express provisions per- mitting supervisory goodwill to be similarly used, The court held that each thrift's "contract was not limited to the SAA itself, but also included the contemporaneous resolutions and letters issued by the FSLIC and the Bank Board," App. 17a (Glendale); see App. 25a (Statesman), 27a (Winstar). In each case, the court found in those documents the crucial term promising that supervisory goodwill could be counted ---------------------------------------- Page Break ---------------------------------------- 11 for the next 40 years (Glendale), 25 years (States- man), or 35 years (Winstar) to satisfy regulatory capital requirements. App. 18a-22a (Glendale); 25a-26a (Statesman); 28a (Winstar) 3 The court also found that the FSLIC and Bank Board had the authority to enter into contracts containing those terms. App. 39a. The Federal circuit held that the unmistakability doctrine-pursuant to which contractual promises by the government to exercise its regulatory authority in a certain way will be found only if expressed in . unmistakable terms-has no application in this case. App. 31a-38a. The Federal Circuit agreed with the trial court that the unmistakability doctrine applies only where plaintiffs are seeking to hold the govern- ment to an alleged bargain by seeking injunctive relief, and not where, as here, plaintiffs are only seeking contract damages. App. 31a-38a. The Federal ___________________(footnotes) 3 For example, in Glendale, the court relied on a Bank Board resolution requiring Glendale to furnish an accountant's opinion that "(a) indicates the justification under [GAAP] for the use of the purchase method of accounting for its merger with Broward, (b) specifically describes * * * any goodwill or discount of assets arising from the merger to be recorded on Glendale's books, and (c) substantiates `he. reasonableness of amounts attributed to goodwill and the discount of assets and the resulting amortization periods and methods." APP. 18a- 19a. The resolution also required Glendale to "submit a stipulation that any goodwill arising from this transaction shall be determined and amortized in accordance with " a Bank Board memorandum providing that "[a]n application * * * requesting approval for a business combination to be accounted for by the purchase method of accounting, from which intangible assets will result, should include a description of any resulting intangible assets and the plan for their amortization." App. 19a & n.4. ---------------------------------------- Page Break ---------------------------------------- 12 Circuit also ruled that the sovereign acts doctrine is inapplicable in these cases. In the court's view, FIRREA cannot be said to be a "public and general act" because it "singles out supervisory goodwill for special treatment, albeit treatment less harsh than other forms of intangible assets." App. 42a. Judge Nies dissented, essentially for the reasons given in her prior opinion for the panel App. 47a-48a. In her view, "no clause can be found in the contracts under which the Bank Board and the FSLIC promised to pay if Congress decided to step in and do away with the `purchase method of accounting,' a euphemism for spinning straw into gold, and ether accounting gim- micks." App. 48a. Therefore, "[i]n this highly regu- lated industry, the thrifts did not negotiate contracts that freed them from the risk of a change in re- gulations." App. 48a. She also stated that the major- ity's approach "impermissibly fuses `the two charac- ters which the government possesses as a contractor and as a sovereign.'" App. 47a (quoting Horowitz v. United States, 267 U.S. 458,461 (1925)). In her view, the thrifts' sole possible remedy at this point was to seek compensation for. a taking, and she believed that the matter should be remanded to the trial court for a determination of whether a taking had occurred. App. 47a. Judge Lourie also dissented. He believed that "the sovereign acts doctrine is a barrier to the thrifts' recovery under a breach of contract theory." App. 49a. In his view, FIRREA was a public and general act because "Congress- did not act only against cer- tain thrifts or contracts; it acted to deal with the entire thrift system in order to save it." App. 50a-51a. Judge Lourie relied on this Court's holding in Horowitz that "the United States when sued as a ---------------------------------------- Page Break ---------------------------------------- 13 contractor cannot beheld liable for an obstruction to the performance of [a] particular contract resulting from its public and general acts as a sovereign." App. 49a (quoting Horowitz, 267 U.S. at 461). REASONS FOR GRANTING THE PETITION The en banc decision by the Federal Circuit re- garding the application of the unmistakability doc- trine is in conflict with rulings of other circuits as well as with this Court's application of the doctrine. The court's decision also incorrectly resolves im- portant questions concerning the authority of executive branch officials to commit the government to refrain from future exercises of sovereign regulatory authority, and it misconceives the scope of the sovereign acts doctrine. The decision may, in addition, have an enormous fiscal impact upon the federal government. It directly affects over 90 cases that are pending in the Court of Federal Claims and have been stayed awaiting a ruling in this case. " The issues raised are also present in cases pending in the Ninth Circuit and in several district courts. The pending cases involve a total of approximately $10 billion in goodwill. The decision below also estab- lishes precedent in the Federal Circuit, which could affect a wide range of government contract cases outside the thrift context. Review by this Court is therefore warranted. 1. a. The alleged contractual terms cm which respondents rest their claims of breach in this case would have committed the government to exercise its regulatory authority in a particular way over a period of between 25 and 40 years (or forever, in the case of Statesman's capital credits). Under respondents' theory, those terms. would have to be construed to ---------------------------------------- Page Break ---------------------------------------- 14 have bargained away the discretion of the then- existing federal regulatory authorities under the then-existing statutory scheme to interpret and enforce then-existing capital requirements They would also have to- be construed to have bargained away Congress's right to change the law-as it did in FIRREA-to overhaul federal regulation of thrift institutions by strengthening capital requirements. The alleged contractual terms thus fall squarely within the unmistakability principle articulated by this Court in Bowen v. Public Agencies Opposed to Social Security Entrapment (POSSE), 477 U.S. 41, 52-53 (1986); Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 148 (1982)2 and United States v. Cherokee Nation, 480 U.S. 700, 707 (1987). In POSSE, the Court held that States that entered into contracts with the federal government that gave them the right to withdraw their employees from the social security system had not obtained the right to enforce those provisions when subsequent legislation made withdrawal of state employees illegal. The Court relied on the principle that "courts should be extremely reluctant to construe [agreements] in a manner that forecloses Congress' exercise of [its sovereign] authority." 477 U.S. at 52. The Court concluded that "contractual arrangements, including those to which a sovereign itself is party, `remain subject to subsequent legislation' by the sovereign." Ibid. In POSSE, the Court referred to its decision in Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 148 (1982), for the governing legal principles. See 477 U.S. at 52. Merrion involved an Indian Tribe's claim to the right to impose a severance tax on oil and gas production on Reservation land. The Tribe had ---------------------------------------- Page Break ---------------------------------------- 15 previously negotiated leases with the oil and gas producers that included royalty payments to the Tribe. The Court held that, absent an unmistakable surrender of its sovereign right to impose a tax, the Tribe's action in negotiating the royalty payments should not be construed as a surrender of that right. The Court stated that "sovereign power, even when unexercised, is an enduring presence that governs all contracts subject to the sovereign's jurisdiction, and will remain intact unless surrendered in unmistak- able terms." 455 U.S. at 148. In United States v. Cherokee Nation, 480 U.S. 700, 707 (1987), the Court invoked the unmistakability doctrine to find that a federal agreement to cede fee simple title to a riverbed to an Indian Tribe should not be construed to have surrendered the federal naviga- tional servitude. Citing POSSE, the Court stated that a waiver of "sovereign authority will not be im- plied but instead must be surrendered in unmis- takable terms." Ibid. (quoting POSSE, 477 U.S. at 52). b. The Federal Circuit expressly declined to apply the unmistakability doctrine in this case. In doing so, the court of appeals did not question the proposition that the claimed contractual terms involved the exercise by the government of its sovereign re- gulatory authority. Instead, the court relied on the fact that "[tlhe thrifts did not ask for * * * injunctive relief that would have enjoined the thrift regulators from applying the FIRREA requirements to the thrifts" and "[m]oney damages, in contrast to injunctive relief, presents little threat to the government's sovereign powers." App. 37a. This ruling by the Federal Circuit -conflicts with this Court's consistent treatment of the unmis- ---------------------------------------- Page Break ---------------------------------------- 16 takability doctrine as a principle governing contract interpretation, not contract relief. The Court has never suggested that a plaintiff may recover on a claim that the government failed to honor an implied contractual term regarding the exercise of its sover- eign regulatory authority, so long as the plaintiff seeks only monetary relief. Indeed, in Cherokee Nation, the plaintiffs did not seek injunctive relief, but instead sought "compensation [under the Takings Clause] for damage to the[] riverbed interests" that they alleged had been damaged. 480 U.S. at 701. Notwithstanding that monetary claim, the Court applied the doctrine that "a waiver of sovereign authority will not be implied, but instead must be `surrendered in unmistakable terms.'" 480 U.S. at 707 (quoting POSSE, 477 U.S. at 52). The Federal Circuit's ruling also conflicts with the decision of the Fourth Circuit in Charter Federal Savings Bank v. OTS, 976 F.2d 203 (4th Cir. 1992), cert. denied, 113 S. Ct. 1643 (1993). Charter Federal involved claims regarding treatment of goodwill that are virtually identical to the claims in the cases at bar. The plaintiff thrift in Charter Federal sought "a declaratory judgment concerning its contractual rights" that the parties understood could "later serve[] as a basis for money damages." 976 F.2d at 209-210. The court rejected plaintiff's claims by applying the unmistakability doctrine. The court held that, "[w]here the federal government is a party to a contract, courts should apply a[] * * * special rule of contract construction." 976 F.2d at 211. Citing this Court's decision in POSSE, the court observed that the "FHLBB approved [the thrift's] use of supervisory goodwill under its then statutory discretion to permit such accounting practices, but ---------------------------------------- Page Break ---------------------------------------- 17 made no explicit promise to [the thrift] of continued approval throughout the life of the amortization period." 976 F.2d at 212. "Without a more explicit promise, we will not enlarge the scope of guarantees given to Charter." Ibid. 4 Had the court of appeals applied the unmistakability doctrine, it could not have reached the result it did. The strongest argument in these cases for finding an unmistakable. contractual commitment not to employ the sovereign power of the federal government was presented by the provision in Statesman's contract with the FSLIC that expressly provided that States- man could treat its capital credit- as an asset to ___________________(footnotes) 4 The courts of appeals have similarly applied the unmis- takability doctrine as a principle of contract interpretation in actions for injunctive relief arising in a factual setting similar to that in these cases. In Guaranty Financial Services, Inc. v. Ryan, 928 F.2d 994, 1000-1001 (llth Cir. 1991), the Eleventh Circuit held that courts in such cases must apply the rule of construction "that one who wishes to obtain a contractual right against the sovereign that is immune from the effect of future changes in law must make sure that the contract confers such a right in unmistakable terms." See also Carteret, 963 F.2d at 574 (noting relevance of unmistakability doctrine to thrift claims of contract rights the same as those raised here). Although the D.C. Circuit has suggested that it is possible that there is a distinction between actions for injunctive and for monetary relief, see Transcapital Financial Corp. v. Director, OTS, 44 F.3d 1023, 1025-1026 (D.C. Cir. 1995), that court has also denied contractual claims for injunctive relief in a situation virtually identical to those involved in these cases. See Transohio Savings Bank v. Director, OTS, 967 F.2d 598 (D.C. Cir. 1992). By contrast, although not mentioned by the Federal Circuit, the Tenth Circuit has also found the unmistakability doctrine inapplicable outside the injunctive context. RTC v. FSLIC, 34 F.3d 982 (lOth Cir. 1994). ---------------------------------------- Page Break ---------------------------------------- 18 satisfy federal capital requirements. See pp. 7-8, supra. That contract, however, was subject to three provisions that clearly provide that any term in the contract could be vitiated by subsequent legislation. These provisions required Statesman to comply with all statutes, regulations, and orders of the United States regarding the conduct of Statesman's busi- ness, provided that nothing in the agreement would require any unlawful action by either party, and stated that, if any provision in the agreement were to be invalid or unenforceable, the remaining provisions would still have full force and effect. App. 126a C.A. App. 853,854,855. The claims of all three thrifts regarding supervi- sory goodwill rest on far weaker footing. Indeed, the express commitment that Statesman obtained re- garding treatment of its capital credit highlights the failure of any of the three thrifts to obtain a like commitment regarding the use of supervisory good- will to satisfy capital requirements. Nowhere in any of the three cases did the contracts-even if construed to include Bank Board resolutions and letters5-mention the use of supervisor, goodwill to ___________________(footnotes) 5 Bank Board resolutions were not contract documents; they were regulatory agency decisions issued in informal agency adjudications approving applications by thrifts to consummate mergers that could not have been completed without first obtaining regulatory approval (see, e.g., 12 U.S.C. 1464 (1988)). See Charter, 976 F.2d at 211 ("resolutions issued by the [Bank Board] in connection with the mergers merely granted that agency's approval of the merger and the accounting practices employed by [the thrift] in connection therewith? and did not constitute a contract); Flagship Federal Savings Bank v. Wall, 748 F. Supp. 742, 748 (S.D. Cal. 1990) ("the forbearance letter was not a contract but a statement by the [Bank Board] that it would not prosecute"). Cf. National Railroad Passenger Corp. ---------------------------------------- Page Break ---------------------------------------- 19 meet federal capital requirements, much less grant the thrifts permission to use supervisory goodwill for that purpose for many years, regardless of changes in the governing statutes and a thorough overhaul of the regulatory system. 2. Even if the Federal Circuit's failure to apply the unmistakability doctrine were correct, the Federal Circuit's conclusion that the then-existing thrift regulators had the authority to enter into contracts binding the government not to apply new statutory capital requirements conflicts with fundamental principles governing the exercise of legislative power and its delegation. The Federal Circuit construed the contracts to include a promise. that the federal government would continue to permit supervisory goodwill and capital credits to be counted as capital for purposes of federal thrift capitalization require- ments. The court construed that promise to extend for periods of up to 40 years into the future, regard- less of any change in the law. It is doubtful whether any such commitment by regulators concerning the exercise of federal regulatory authority could bind the legislative branch of the federal government. Certainly such a delegation should not be found to exist absent the most explicit grant of authority by Congress to enter into such arrangements. More than a century ago, this Court held that there can be no contract right to a regulatory scheme, regardless of a party's expectations to the contrary. See Welch v. Cook, 97 U.S. 541, 542 (1878); Wisconsin & Michigan Ry. v. Powers, 191 U.S. 379, 386-387 ___________________(footnotes) v. Atchison, Topeka & Santa Fe Ry., 470 U.S. 451, 465-469 (1985) (no contractual rights had been created when repealed statutory provision had merely stated a regulatory policy). ---------------------------------------- Page Break ---------------------------------------- 20 (1903), "[Governmental [regulatory] powers cannot recontracted away." North American Commercial Co. v. United States, 171 U.S. 110, 137(1898); North- ern Pacific Ry. v. Minnesota, 208 US. 583, 598 (1908); City of El Paso v. "Simmons, 379 U.S. 497, 508-509 (1965); Amino Brothers Co. v. United States, 372 F.2d 485, 491 (Ct. Cl.), cert. denied, 389 U.S. 846 (1967)? Because "the legislature cannot bargain away the police power of a State: Stone v. Mississippi, 101 U.S. 814,817 (1880), this Court has consistently ruled that the Contract Clause in the Constitution does not require governments "to adhere to a contract that surrenders an essential attribute of its sovereignty." United States Trust Co. v. New Jersey, 431 U.S. 1,23 (1977). To hold otherwise would impermissible permit legislators or unelected federal regulatory officials to use contracts with private individuals to commit subsequent legislatures not to take actions that are in the public interest. See United States Trust, 431 U.S. at 45 (Brennan, `J., dissenting). See also Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 434-444 (1934). The Federal Circuit in this case nevertheless held that "the Bank Board and the FSLIC, as the principal regulators of the thrift industry, were fully em- powered to enter into the contracts at issue here." App. 39a. In support of that holding, the court cited only the general provision in FSLIC's statutory charter granting it authority "[t]o make con tracts," ___________________(footnotes) 6 In Veix v. Sixth Ward Building & Loan Ass'n, 310 U.S. 32 (1940), the Court rejected a Contract Clause challenge to a state statute altering the scheme of regulation of a thrift. The Court held that the regulations governing the thrift had always remained "subject to the paramount police power." Id. at 38. ---------------------------------------- Page Break ---------------------------------------- 21 and other general provisions permitting FSLIC and the Backboard "to extend assistance to acquirers of insolvent FSLIC-insured thrifts * * * and to set minimum capital limits on a case-by-case basis." App. 39a. Those provisions establish that FSLIC had authority to enter into assistance agreements. They may also establish that the then-existing regulatory agencies had the authority to grant capital for- bearances? The cited provisions do not, however, provide even a hint that Congress intended to grant FSLIC or the Bank Board the authority to commit Congress not to modify the governing statutes! Nor do they suggest that FSLIC or the Bank Board had the authority to commit successor agencies operating under a new set of statutory requirements to permit thrifts to calculate -their capital in a way that Congress had made illegal! Compare OPM v. ___________________(footnotes) 7 The FSLIC could not grant financial assistance to thrifts if the amount of assistance. would be greater than the cost of liquidating the institution. See 12 U.S.C. 1729(f)(4)(A) (1988) (now repealed). In light of that provision, it is highly unlikely that the FSLIC had authority to enter binding contracts whereby the United States would assume a risk, if Congress later changed thrift capitalization rules, of having to pay contract breach damages that would exceed the cost of closing the thrift. 8 To the contrary, as the D.C. Circuit noted, "the Bank Board statute, like the law in POSSE, contains an express reservation of `[t]he right to alter, amend or repeal this chapter." Transohio Savings, 967 F.2d at 623, quoting Section 30 of the Federal Home Loan Bank Act, ch. 522, 47 Stat. 741 (1932). 9 Respondents were on notice that Congress could at any point affect their agreements by changing the regulatory scheme, as it had done so many times in the Past. See note 1, supra; Carteret, 963 F.2d at 581 (noting the "massively -------------------------------------- Page Break ---------------------------------------- 22 Richmond, 496 U.S. 414 (1990); Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 383-384 (1947). 3. The Federal Circuit also erred in finding the "sovereign acts" doctrine inapplicable here. Under that doctrine, parties to a contract are immune from liability for breach of contract when the government has acted in its sovereign capacity, regardless of whether such -actions infringe existing contractual rights or create additional monetary burdens on private parties who have contracted with the govern- ment. See Horowitz v. United States, 267 U.S. 458, 461 (1925). Thus, the United States is not liable on contract damage theories if the act that precluded the gov- ernment's performance was "public and general," and not taken merely to avoid obligations to a particular party. See Deming v. United States, 1 Ct. C1 190, 191 (1865), appeal dismissed, 76 U.S. 145 (1870). See, e.g., Atlas Corp. v. United States, 895 F.2d 745, 754-755 (Fed. Cir.), cert. denied, 498 U.S. 811 (1990); Tony Downs Foods Co. v. United States, 530 F.2d 367 (Ct. Cl. 1976); Amino Brothers Co., 372 F.2d at 491. FIRREA is a "public and general" statute for these purposes; it was a comprehensive overhaul of the regulation of an entire industry for the protection of depositors nationwide in order to benefit the general welfare. The provisions of FIRREA imposing capital requirements did not merely affect thrifts that had ___________________(footnotes) regulated banking industry, where the rules of the game change with some regularity"); Charter Federal, 976 F.2d at 212 (explaining that since "[c]apital requirements have been an evolving part of the regulatory scheme since its inception: the Bank Board "would have expected changes in statutory requirements, including capital requirements"). ---------------------------------------- Page Break ---------------------------------------- 23 allegedly obtained commitments from the regulatory agencies to permit them to count supervisory good- will or capital credits as capital. They sharply cur- tailed the ability of any thrift to count intangible assets as capital, regardless of whether those assets had ever been at issue in any arrangement with federal regulators. The pivotal question in deter- mining whether a legislative action is a "public and general act" under the sovereign acts doctrine is not whether a particular party is affected by the governmental action at issue; it is whether the effect on a particular party or parties is an incidental effect of a new law enacted to govern government regula- tory policy generally and to advance the general welfare.10 The Federal Circuit concluded that the sovereign acts doctrine is inapplicable here because "the rele- vant sections of FIRREA are not public and general sovereign acts." App. 39a. In the court's view, that conclusion followed from certain provisions of FIRREA that specifically refer to thrifts in re- spondents' position and that therefore amount to legislation that is not "public and general" but whose "principal effect is to abrogate specific contractual rights." App. 40a. The FIRREA "transition rule[s]," App. 42a, to which the court of appeals referred make limited ___________________(footnotes) 10 Application of the sovereign acts doctrine here is con- sistent with this Court's rulings in Lynch v. United States, 292 U.S. 571 (1934), and Perry v. United States, 294 U.S. 330 (1935). As this Court stated in POSSE, those "decisions * * * held that Congress does not have the power to repudiate its own debts, which constitute property to the lender, simply in order to save money." POSSE, 477 U.S. at 55 (emphasis added). ---------------------------------------- Page Break ---------------------------------------- 22 Richmond, 496 U.S. "414 (1990); Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 383-384 (1947). 3. The Federal Circuit also erred in finding the "sovereign acts" doctrine inapplicable here. Under that doctrine, parties to a contract are immune from liability for breach of contract when the government has acted in its sovereign capacity, regardless of whether such actions infringe existing contractual rights or create additional monetary burdens on private parties who have contracted with the govern- ment. See Horowitz v. United States, 267 U.S. 458, 461 (1925). Thus, the United States is not liable on contract damage theories if the act that precluded the gov- ernment's performance was "public and general," and not taken merely to avoid obligations to a particular party. See Deming v. United States, 1 Ct. Cl. 190, 191 (1865), appeal dismissed, 76 U.S. 145 (1870). See, e.g., Atlas Corp. v. United States, 895 F.2d 745, 754-755 (Fed. Cir.), cert. denied, 498 U.S. 811 (1990); Tony Downs Foods Co. v. United States, 530 F.2d 367 (Ct. Cl. 1976); Amino Brothers Co., 372 F.2d at 491. FIRREA is a "public and general" statute for these purposes; it was a comprehensive overhaul of the regulation of an entire industry for the protection of depositors nationwide in order to benefit the general welfare. The provisions of FIRREA imposing capital requirements did not merely affect thrifts that had ___________________(footnotes) regulated banking industry, where the rules of the game change with some regularity"); Charter Federal, 976 F.2d at 212 (explaining that since "[c]apital requirements have been an evolving part of the regulatory scheme since its inception," the Bank Board "would have expected changes in statutory requirements, including capital requirements"). ---------------------------------------- Page Break ---------------------------------------- 26 CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. DREW S. DAYS, III Solicitor General FRANK W. HUNGER Assistant Attorney General PAUL BENDER Deputy Solicitor General JAMES A. FELDMAN Assistant to the Solicitor General DOUGLAS LETTER JACOB M. LEWIS SCOTT R. MCINTOSH Attorneys DECEMBER 1995 ---------------------------------------- Page Break ---------------------------------------- No. 95-865 IN THE SUPREME COURT OF THE UNITED STATES OCTOBER TERM, 1995 UNITED STATES OF AMERICA, PETITIONER v. WINSTAR CORPORATION, ET AL. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT BRIEF FOR THE PETITIONER DREW S. DAYS, III Solicitor General FRANK W. HUNGER Assistant Attorney General PAUL BENDER Deputy Solicitor General JAMES A. FELDMAN Assistant to the Solicitor General DOUGLAS LETTER JACOB M. LEWIS SCOTT R. MCINTOSH Attorneys Department of Justice Washington, D.C. 20530 (202) 514-2217 ---------------------------------------- Page Break ---------------------------------------- QUESTIONS PRESENTED 1. Whether the unmistakability doctrine, which pro- vides that a contract with the government will be inter- preted as including a promise by the government not to exercise sovereign regulatory authority only if such a promise is stated in unmistakable terms, is applicable in a breach of contract action in which the plaintiff seeks money damages. 2. Whether, absent a specific congressional authoriza- tion to do so, a federal agency has authority to bind itself and its successors by contract to exercise govern- mental regulatory authority in a particular way, regard- less of subsequent legislative changes. 3. Whether the provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73, 103 Stat. 183, limiting the ability of thrift institutions to use intangible assets to satisfy minimum capitalization requirements, were "public and general acts" for purposes of the sovereign acts doctrine. (I) ---------------------------------------- Page Break ---------------------------------------- TABLE OF CONTENTS Page Opinions below . . . . 1 Jurisdiction . . . . 1 Statutory provisions involved . . . . 2 Statement . . . . 2 Summary of argument . . . . 10 Argument: Introduction . . . . 14 I. A contract with a government agency should be construed to restrict the future exercise of fed- eral regulatory authority only if it does so in unmistakable terms . . . . 16. II. The relevant federal agencies had no authority to bind their successors to particular regulatory policies despite subsequent legislative changes . . . . 36 III. Respondents' claim for breach of contract dam- ages is also precluded by the sovereign acts doctrine . . . .43 Conclusion . . . .46 TABLE OF AUTHORITIES Cases: Amino Brothers Co. v. United States, 372 F.2d 485 (Ct. Cl.), cert. denied, 389 U.S. 846 (1967) . . . .44 Astoria Fed. Sav. & Loan Ass'n V. Solimino, 501 US". 104 (1991) . . . . 19-20 Atascadero State Hosp. v. Scanlon, 473 U.S. 234 (1985) . . . . 19 Atlantic Coast Line R. R. v. City of Goldsboro, 232 U.S. 548 (1914) . . . . 38 Atlas Corp. V. United States, 895 F.2d 745 (Fed. Cir.), cert. denied, 498 U.S. 811 (1990) . . . . 44 (III) ---------------------------------------- Page Break ---------------------------------------- Iv Cases-Continued: Bowen v. Public Agencies Opposed to Social Secur- ity Entrapment, 477 U.S. 41 (1986) . . . . 7, 16, 17, 21, 41 Butchers' Union Slaughter-House & Live-stock Landing Co. V. Crescent City Live-Stock Land- ing & Slaughter-House Co., 111 U.S. 746 (1884 ) . . . .38 Carteret Savings Bank v. OTS, 963 F.2d 567 (3d Cir. 1992) . . . .5, 27 Charter Fed. Sav. Bank V. OTS, 976 F.2d 203 (4th Cir. 1992), cert. denied, 507 U.S. 1004 (1993) . . . .22, 26, 27 Contributors to the Pennsylvania Hosp. V. City of Philadelphia, 245 U.S. 20 (1917) . . . .38 Denting V. United States, 1 Ct. Cl. 190 (1865), ap- peal dismissed, 76 U.S. (9 Wall.) 145 (1870 ) . . . . 44 Douglas V. Kentucky, 168 U.S. 488 (1897) . . . . 38 EEOC V. Arabian American Oil. CO., 499 U.S. 244 (1991) . . . . 19 Fahey v. Mallonee, 332 U.S. 245 (1947) . . . . 2 Federal Crop Ins. Corp. V. Merrill, 332 U.S. 380 (1947) . . . . 42 Gregory v. Ashcroft, 501 U.S. 452 (1991) . . . . 19 Guaranty Financial Services, Inc. V. Ryan, 928 F.2d 994 (llth Cir. 1991) . . . . 22 Home Building & Loan Ass'n V. Blaisdell, 290 U.S. 398 (1934) . . . .37, 38 Home Tel. & Tel. Co. V. City of Los Angeles, 211 U.S. 265 (1908) . . . . 18, 39, 40 Horowitz V. United States, 267 U.S. 458 (1925) . . . .10, 43 Jefferson Branch Bank V. Skelly, 66 U.S. (1 Black) 436 (1862) . . . .18, 39 Keefe v. Clark, 322 U.S. 393 (1944) . . . . 18 Lynch V. United States, 292 U.S. 571 (1934) . . . . 38, 41, 42 Merrion v. Jicarilla Apache Tribe, 455 U.S. 130 (1982) . . . .16, 17, 21 National R.R. Passenger Corp. v. Atchison, T. & S.F. Ry., 470 U.S. 451 (1985) . . . . 24 North American Commercial Co. V. United States, 171 U.S. 110 (1898) . . . . 38 OPM V. Richmond, 496 U.S. 414 (1990) . . . . 42 Perry v. United States, 294 U.S. 330 (1935) 41, 42 ---------------------------------------- Page Break ---------------------------------------- v Cases-Continued: Page Peterson v. United States Dep't of the Interior 899 F.2d 799 (9th Cir.), cert. denied, 498 U.S. 1003 (1990) . . . . 39 Pierce Oil Corp. v. City of Hope, 248 U.S. 498 (1919) . . . . 38 Providence Bank V. Billings,29 U.S. (4 Pet.) 514 (1830) . . . . 17,18 Security Sav. & Loan V. Director, OTS, 960 F.2d 1318 (5th Cir. 1992) . . . . 5 Stone V. Mississippi, 101 U.S. 814 (1880) . . . . 37, 38 The Delaware R.R. Tax, 85 U.S. (18 Wall.) 206 (1873) . . . . 18. Tony Downs Foods Co. V. United States, 530 F.2d 367 (Ct. C1. 1976) . . . . 44 Transohio Sav. Bank V. Director, OTS, 967 F.2d 598 (D.C. Cir. 1992) . . . . 5, 20, 22, 36, 39 Trustees of Dartmouth College V. Woodward, 17 U.S. (4 Wheat.) 518 (1819) . . . . 37 United States V. Cherokee Nation, 480 U.S. 700 (1987) . . . . l7, 21 United States V. Dion, 476 U.S. 734 (1986) . . . . 19 United States V. Nordic Village, Inc., 503 U.S. 30 (1992) . . . . 19 United States Trust Co. V. -New Jersey. 431 U.S. 1 (1977) . . . . 19, 38 Vicksburg, S. & P.R.R. v. Dennis, 116 U.S. 665 (1886) . . . . 18 Watt V. Western Nuclear, Inc., 462 U.S. 36 (1983 ) . . . . 19 Welch V. Cook, 97 U.S. 541 (1878) . . . . 25 Wisconsin & Mich. Ry. v. Powers, 191 U.S. 379 (1903) . . . . 24-25 Constitution, statutes and regulations Us. Const.: Art. I, 10, Cl. 1 (Contract Clause) . . . . .38, 39 Amend. XI . . . . 19 Administrative Procedure Act, 5 U.S.C. 701 (a) (2) . . . . 41 ---------------------------------------- Page Break ---------------------------------------- VI Statutes and regulations-Continued: Page Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990, Pub. L. No. 101-647, Tit. XXV, 104 Stat. 4859: 2551, 104 Stat. 4889 . . . . 28 2556, 104 Stat. 4892 . . . . 28 Depository Institutions Deregulation and Monetary Control Act of 1980, Pub. L. No. 96-221, 94 Stat. 132 . . . .3 Emergency Home Finance Act of 1970, Pub. L. No. 91-351, 84 Stat. 450 . . . . 3-4 Financial Institutions Reform, Recovery, and En- forcement Act of 1989, Pub. L. No. 101-73, 103 Std. 183 . . . . 2, 3 12 U.S.C. 1437 note . . . . 3 12 U. KC. 1441a . . . .3 12 U.S.C. 1464 (c) (2) (A) . . . .5 12 U.S.C. 1464 (t) (1) (A) . . . . 3, 5, 27 12 U.S.C. 1464 (t) (2) . . . . 4, 5, 27 12 U.S.C. 1464 (t) (3) . . . . 5, 27 12 U.S.C. 1464 (t) (9) . . . . 5, 27 12 U.S.C. 1821 . . . . . Garn-St Germain Depository Institution Act of 1982, Pub. L. No. 97-320,96 Stat. 1469 . . . . 3 12 U.S.C. 1464 (1988) . . . . 6, 25 12 U.S.C. 1725 (a) (1988) (repealed) . . . . 24 12 U.S.C. 1725 (c) (3) (1988) (repealed) . . . . 9, 40 12 U.S.C. 1726 (1988) (repealed) . . . . 6, 25 12 U.S.C. 1729 (f) (2) (A) (1988) (repealed) . . . . 41 12 U.S.C. 1831a(b) (1) (E) . . . . 27 12 U.S.C. 1831o (c) (3) . . . . 27 12 U.S.C. 1831o(h) (3) . . . . 27 12 C.F.R.: Section 546.2 (1982) . . . .6, 25 Section 561.13 (1988) . . . . 34 Section 563.22 (1982) . . . . 6, 25 Section 567.2 . . . .5 Section 567.5 . . . . 5 ---------------------------------------- Page Break ---------------------------------------- VII Miscellaneous: Page Accounting Principles Board Opin. No. 16 (1970 ). . . . 4 William Black, Ending Our Forebearers' Forbear- ances: FIRREA and Supervisory Goodwill, 2 Stan. L & Pol'y Rev. 102 (1990) . . . . 28 135 Cong. Rec. (1989): p. 11,795 . . . . 5 p. 18,860 . . . . 3 p. 18,863 . . . . 3 6 Corbin on Contracts (1962) . . . . 44 45 Fed. Reg. 72,681' (1980) . . . . 4 47 Fed. Reg. (1982): p. 3543 . . . . 4 p. .31,859 . . . . 4 p. 52,961 . . . . 4 53 Fed. Reg. 334 (1988) . . . . 34 54 Fed. Reg. 46,845 (1989) . . . . 7 H.R. Conf. Rep. No. 222, 10lst Cong., 1st Sess. (1989)....5 H.R. Rep. No. 54, 10lst Cong., 1st Sess., Pt. 1 (1989) . . . .2, 4, 5 National Commission on Financial Institutions Re- form, Recovery and Enforcement, Origins and Causes of the S & L Debacle: A Blueprint for Reform, A Report to the President and Congress of the United States (1993) . . . .28 Restatement (Second) of Contracts (1981) . . . . 20, 44 S. Rep. No. 19, 10lst Cong., 1st Sess. (1989) . . . .2 David Toscano, Note, Forebearance Agreements: Invalid Contracts for the Surrender of Sover- eignty, 92 Colum. L. Rev. 426 (1992) . . . . 40, 41 ---------------------------------------- Page Break ---------------------------------------- IN THE SUPREME COURT OF THE UNITED STATES OCTOBER TERM, 1995 NO. 95-865 UNITED STATES OF AMERICA, PETITIONER v. WINSTAR CORPORATION, ET AL. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT BRIEF FOR THE PETITIONER OPINIONS BELOW The en bane opinion of the court of appeals (Pet. App. la-52a) is reported at 64 F.3d 1531. The panel opinion of the court of appeals (Pet. App. 53a-105a) is reported at 994 F.2d 797. The opinions of the Court of Federal Claims (Pet. App. 106a-152a, 153a-180a, 18la-182a, 183a-195a) are reported at 21 Cl. Ct. 112, 25 Cl. Ct. 147, 25 Cl. Ct. 541, and 26 Cl. Ct. 904. JURISDICTION The judgment of the en bane court of appeals was entered on August 30, 1995. On November 22, 1995, Chief Justice Rehnquist extended the time for filing a petition for a writ of certiorari to and including Decem- ber 6, 1995. The petition for a writ of certiorari was filed on December 1, 1995, and was granted on January 19, 1996. 116 S. Ct. 806 (J.A. 648). The jurisdiction of this Court rests on 28 U.S.C. 1254(1). (1) ---------------------------------------- Page Break ---------------------------------------- 2 STATUTORY PROVISIONS INVOLVED The relevant provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat, 183, and its implementing regu- lations are set forth in an appendix to the petition. Pet. App. 196a-211a. STATEMENT This case concerns three separate cases that were con- solidated for appeal before the Federal Circuit. The three cases involve a common background and similar legal issues. 1. Savings and loan institutions or "thrifts" have been the subject of pervasive federal support, supervision, and regulation since the 1930s. See Fahey v. Mallonee, 332 U.S. 245, 250 (1947) ("Banking is one of the longest regulated and most closely supervised of public callings" ). The modern thrift industry is "a federally-conceived and assisted system to provide citizens with affordable housing funds." H.R. Rep. No. 54, 10lst Cong., 1st Sess., Pt. 1, at 292 ( 1989) (House Report). In the late 1970s and early 1980s, high interest rates and inflation resulted in a substantial increase in the cost of funds for thrifts. Many thrifts held long-term, low- yielding, fixed-rate mortgages. This " `negative' interest rate mismatch" precipitated a crisis in the thrift industry. See House Report 294-295. Many thrifts were left with severely depleted capital or negative net worth. In these circumstances, "the easiest way to regain profitability and generate adequate levels of new capital, was to grow rapidly"; as a result, thrifts frequently sought to increase the size of their loan portfolios, thus putting even more of their depositors' money at risk. Id. at 298-299; S. Rep. No. 19, 10lst Cong., 1st Sess. 9 (1989). The result was a record number of failures of thrift institutions and a widespread loss of public confidence. ---------------------------------------- Page Break ---------------------------------------- 3 2. The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), Pub. L. No. 101-73, 103 Stat. 183, was enacted in 1989 to prevent the collapse of the thrift industry and to restore it to economic health. Under FIRREA, Congress has appropriated well over $100 billion to close insolvent institutions and recapital- ize the federal insurance fund that protects thrift deposits. FIRREA overhauled the federal thrift regulatory scheme by: (1) abolishing the Federal Savings and Loan Insurance Corporation (FSLIC) and transferring its functions to other agencies; (2) creating a new thrift deposit insurance fund under the Federal Deposit Insur- ance Corporation (FDIC); (3) eliminating the Federal Home Loan Bank Board (the Bank Board) and replac- ing it with the Office of Thrift Supervision (OTS)-an office within the Department of the Treasury-with re- sponsibility for the regulation of all federally insured savings associations; and (4) establishing the Resolution Trust Corporation (RTC), charged with liquidating or otherwise disposing of certain closed thrifts and their assets. See 12 U.S.C. 1437 note, 1441a, 1821. At the "heart" of this legislative reform (135 Cong. Rec. 18,863 (1989) (Sen. Riegle) ) was the mandate that OTS "prescribe and maintain uniformly applicable capital standards for savings associations" subject to strict statutory requirements (12 U.S.C. 1464(t)(1) (A)). See also 135 Cong. Rec. 18,860 (1989) (Sen. Chafee) (capital standards the "most critical requirement" of FIRREA and "the backbone of the legislation"). Prior federal regulations had imposed requirements on federally insured institutions, including restrictions on what can be counted as capital in meeting those requirements.1 ___________________(footnotes) 1 Capitalization requirements have been the subject of numerous statutory and regulatory changes over the Years. See, e.g., Garn- St Germain Depository Institutions Act of 1982, Pub. L. No. 97-320, 96 Stat. 1469; Depository Institutions Deregulation and Monetary Control Act of 1980, Pub. L. No. 96-221, 94 Stat. 132; Emergency Home Finance Act of 1970, Pub. L. No. 91-351, 84 ---------------------------------------- Page Break ---------------------------------------- 4 FIRREA prescribed three strict new minimum capital requirements that thrifts must satisfy to avoid the threat of closure. See 12 U.S.C. 1464(t)(2) (requirements for "core capital," "tangible capital," and "risk-based capi- tal" ), reprinted at Pet. App. 197a-198a. The new mini- mum capital requirements were necessary in order to prevent a recurrence of the thrift crisis, since, "[t]o a considerable extent, the size of the thrift crisis resulted from the utilization of capital gimmicks that masked the inadequate capitalization of thrifts." House Report 310. For at least several years prior to 1981 and until the enactment of FIRREA, the Bank Board had permitted thrifts to use "goodwill" to satisfy federal regulatory capital requirements. Goodwill is an intangible "asset" that, un- der Generally Accepted Accounting Principles ( GAAP), equals the amount by which the cost of an acquisition (including all liabilities assumed by the acquirer) exceeds the fair market value of the acquired tangible assets. See Accounting Principles Board Opin. No. 16, Par. 11 and 87 ( 1970). In the context of a supervisory merger or ac- quisition, when such goodwill was created it was known as "supervisory goodwill." 2 Thus, the books of the surviving thrift could carry as an asset the net worth deficit of the acquired or merged thrift. Another type of intangible asset involved in this case is Regulatory Accounting Practices (RAP) goodwill, or "capital credits." RAP goodwill was created when the Bank Board allowed double counting of funds that FSLIC contributed to merging thrifts, permitting such funds to be counted both as cash and again as goodwill for purposes of meeting regulatory capital requirements. ___________________(footnotes) Stat. 450. In 1982 alone, the regulations governing thrift capital reserve requirements changed three times. See 47 Fed. Reg. 3543; id. at 31,859; id. at 52,961. See also 45 Fed. Reg. 72,681 (1980) (Bank Board proposal to change regulatory treatment of goodwill). 2 We use the term "supervisory goodwill" to refer to goodwill that is created in accordance with GAAP in a supervisory transaction. ---------------------------------------- Page Break ---------------------------------------- 5 See Security Sav. & Loan v. Director, OTS, 960 F.2d 1318, 1320 n.5 (5th Cir. 1992); Transohio Sav. Bank V. Director, OTS, 967 F.2d 598, 604 (D.C. Cir. 1992). FIRREA severely restricted the ability of thrifts to continue to we intangible "assets" like supervisory good- will or capital credits to meet the statute's new minimum capital requirements. 12 U.S.C. 1464(t)(1) (A), (2), (3), and (9); 12 C.F.R. 567.2, 567.5. As Congress recognized, "[goodwill is not cash. It is a concept, and a shadowy one at that. When the Federal Government liquidates a failed thrift, goodwill is simply no good. It is valueless. That means, quite simply, that the taxpayer picks up the tab for the shortfall." 135 Cong. Rec. 11,795 (1989). In addition, the undercapitalization of thrifts that results from counting goodwill as an asset results in "excessive risks because of the perception [by the thrift's managers] that the FSLIC insurance fund will pay a substantial portion of the costs if the gamble fails." House Report 298. See also H.R. Conf. Rep. No. 222, 10lst Cong., 1st Sess. 404 (1989) ("[A]n adequate capital requirement will provide the self-restraint neces- sary to limit risk-taking by federally insured savings associations.") 3 3. Respondents are the owners of two now-defunct thrift institutions (United Federal Savings Bank, which was owned by plaintiff Winstar Corporation, and States- man Bank for Savings, which was owned by plaintiff ___________________(footnotes) 3 Although it places strict limits on the use of goodwill "and other intangible assets to meet federal capital requirements, FIRREA does not eliminate such use altogether. FIRREA allowed some supervisory goodwill to be used to satisfy some federal capital requirements for a limited period of time, and it permits goodwill to be counted for the purpose of determining the extent to which thrifts may make certain types of loans and investments. See, e.g., 12 U.S.C. 1464(c) (2) (A), 1464(t) (3). Limited discretion was given to OTS on this subject; the statute itself sets forth most of the restrictions on the use of intangible assets like goodwill. See Carteret Savings Bank v. OTS 963 F.2d 567, 574-582 (3d Cir. 1992) . ---------------------------------------- Page Break ---------------------------------------- 6 Statesman Savings Holding Corp.) and one currently operating thrift, Glendale Federal Bank, FSB. Following enactment of FIRREA, respondents filed three separate actions against the United States in the Court of Federal Claims, seeking monetary relief for asserted breach of contract or frustration of purpose caused by FIRREA, or seeking just compensation for a claimed taking by FIRREA of constitutionally protected property rights. 4 Respondents based their contract claims primarily on agreements that they signed with FSLIC, and on regula- tory resolutions and letters issued by the Bank Board. The material facts in the three cases are not identical, but they raise similar legal issues. In each of the cases, a thrift voluntarily merged with or acquired one or more failing thrifts. This occurred in 1981 (Glendale), 1984 (Winstar), and 1988 (States- man). Pet. App. 8a, 9a, 1 la. In each instance, the thrifts needed the regulatory approval of the Bank Board for the merger or acquisition. See 12 U.S.C. 1464, 1726 (1988); 12 C.F.R. 546.2, 563.22 ( 1982). That approval was given in resolutions adopted by the Bank Board, In each instance, the thrift and FSLIC also entered into an agreement setting the terms of the transaction and speci- fying the actual or potential governmental assistance that would be provided.6 Goodwill was created in each of the three transactions. Statesman was permitted to count $26 million of the $60 million federal cash contribution to Statesman's acquisi- ___________________(footnotes) 4 Both courts below held that there had been a breach of contract and that respondents were entitled to contract damages. They did not reach respondents' frustration of purpose or just compensation claims, and those claims are not before this Court. 5 In Winstar, the government contributed more than $5.5 million to the transaction, Pet. App. 194a, and in Stateman, the govern- ment contributed $60 million, id. at 10a. Glendale received a num- ber of benefits, including a government guarantee against the effects of rising interest rates for a period of four years. See p. 43, infra. ---------------------------------------- Page Break ---------------------------------------- 7 tions as a capital credit. Glendale involved $716 million in supervisory goodwill, Pet. App. 9a; Winstar involved $9.1 million in supervisory goodwill, id. at 28a, 171a; and Statesman involved $25.8 million in supervisory good- will, id. at 10a. FIRREA's new capital requirements became effective when implementing regulations were promulgated by the Office of Thrift Supervision on December 7, 1989 See 54 Fed. Reg. 46,845 ( 1989). Under FIRREA, the intangible assets at issue that were created in the three transactions could not continue to be counted as capital after a brief phase-out period The Winstar and States- man thrifts, like many other thrifts at the time, were un- able to meet the new statutory capitalization requirements, and were placed in receivership; they no longer exist. Glendale raised the necessary new capital in private mar- kets and has remained an operating thrift. Pet. App. 14a, 4. In each of these three cases, the Court of Federal Claims held that the subject thrift had a contract with the government promising favorable long-term regulatory treatment of goodwill, and that FIRREA had breached that contract by restricting the use of goodwill to meet the new capitalization requirements. In Winstar, the court held that the thrift had an implied- in-fact contract with the government concerning the treat- ment of goodwill. Pet. App. 187a. The court rejected the government's argument that any alleged contract between Winstar and FSLIC concerning future government regu- lation of Winstar should be interpreted under the "unmis- takability doctrine" derived from this Court's decision in Bowen V. Public Agencies Opposed to Social Security Entrapment (POSSE), 477 U.S. 41, 52-53 (1986), and other cases. That doctrine provides that the government will be held to have contracted not to exercise its sov- ereign regulatory authority in the future only if a con- tract expresses that intent in unmistakable terms. Pet. App. 157a-170a. The court found the unmistakability doctrine inapplicable because plaintiffs' claims were for ---------------------------------------- Page Break ---------------------------------------- 8 money damages rather than injunctive relief. Id. at 169a- 170a. The court then went on to conclude that FIRREA had breached the implied contract by restricting the extent to which the government would count Winstar's goodwill as capital for purposes of meeting regulatory requirements. Id. at 171a-172a. The court also rejected the government's argument that there could be no liability for breach of contract because of the "sovereign acts" doctrine, which precludes breach of contract actions against the government where the gov- ernment's inability to perform was the result of a "public and general act" of Congress. The court found this doc- trine inapplicable because it believed that FIRREA was not a "public and general act" insofar as it abrogated con- tracts that permitted the use of supervisory goodwill to satisfy federal capital requirements. Pet. App. 173a-179a. The court stated that, in subsequent proceedings, it would determine the amount of the plaintiffs' injuries, if any, and the appropriate damages. Id. at 180a. The court relied on its Winstar rulings in its subsequent rulings in Statesman and Glendale. It held that the plain- tiffs in those cases had express contracts with the govern- ment concerning future regulatory treatment of goodwill. Pet. App. 120a-125a. The court concluded that the con- tracts had been breached by FIRREA. It consolidated the two cases, combined them with Winstar, and certified its liability determinations for immediate interlocutory appeal. Id. at 150a-152a. 5. The Federal Circuit accepted the consolidated cases for interlocutory appeal and a divided panel reversed the decision of the Court of Federal Claims. Pet. App. 53a-105a. The panel held that the plaintiffs had failed to meet the unmistakability doctrine's high standard for showing that their contracts contained terms promising them a specified form of favorable regulatory treatment for lengthy periods stretching well into the next century. The Federal Circuit then granted respondents' petitions for rehearing en banc. After debriefing and reargument, ---------------------------------------- Page Break ---------------------------------------- 9 the court reversed the panel decision and affirmed the Court of Federal Claims' ruling on liability. Id. at la-52a. The Federal Circuit held that the express cent.tacts that FSLIC had made with all three thrifts included promises that each thrift could count supervisory goodwill (and that Statesman could count capital credits as well) as capital for purposes of satisfying federal capital require- ments. Pet. App. 17a-29a. In Statesman's case, the court rested its conclusion on Statesman's Assistance Agreement, which permitted it to use $26 million of capi- tal credits to satisfy federal capital requirements. Id. at 24a. As noted above, however, none of the Assistance Agreements contained provisions permitting supervisory goodwill to be similarly used. The court held, however, that each thrift's "contract was not limited to the [As- sistance Agreement] itself, but also included the contem- poraneous resolutions and letters issued by the FSLIC and the Bank Board." Id. at 17a (Glendale); see id. at 25a (Statesman), 27a ( Winstar). In each case, the court interpreted the specification of an amortization period in those documents as constituting a promise that supervisory goodwill could continue to be counted for the length of that period to satisfy regulatory capital requirements, de- spite future changes in the law. In the case of Glendale, the amortization period was 40 years; in the case of States- man, 25 years; in the case of Winstar, 35 years. Id. at 18a-22a (Glendale), 25a-26a (Statesman), 28a (Win- Star) . The court then held that FSLIC and the Bank Board had the authority to enter into contracts contain- ing those terms, by virtue of FSLIC's general statutory power "[t]o make contracts," see 12 U.S.C. 1725(c)(3) (1988 ) (repealed), and the authority of FSLIC and the Bank Board "to extend assistance to acquirers of insolv- ent FSLIC-insured thrifts * * * and to set minimum capital limits on a case-by-case basis." Pet. App. 39a. The Federal Circuit declined to apply the unmistak- ability doctrine in interpreting the contracts in this case; it agreed with the Court of Federal Claims that the un- ---------------------------------------- Page Break ---------------------------------------- 10 mistakability doctrine is inapplicable where plaintiffs seek only money damages. Pet. App. 3la-38a. The court of appeals also held the sovereign acts doctrine inapplicable; in the court's view, FIRREA cannot be said to be a "public" and "general act" because it "singles out super- visory goodwill for special treatment albeit treatment less harsh than other forms of intangible assets." Id. at 42a. Judge Nies dissented, essentially for the reasons given in her prior opinion for the panel. Pet. App. 47a-48a. In her view, "no clause can be found in the contracts under which the Bank Board and the FSLIC promised to pay if Congress decided to step in and do away with the `purchase method of accounting,' a euphemism for spinning straw into gold, and other accounting gim- micks." Id. at 48a. Therefore, "[i]n this highly regulated industry, the thrifts did not negotiate contracts that freed them from the risk of a change in regulations." Ibid. She also stated that the majority's approach "impermis- sible fuses `the two characters which the government pos- sesses as a contractor and as a sovereign.' " Id. at 47a (quoting Horowitz v. United States, 267 U.S. 458, 461 ( 1925)). In her view, the thrifts' sole possible remedy at this point was to seek compensation for a taking, and she believed that the matter should be remanded to the trial court for a determination of whether a taking had occurred, Pet. App. 47a. Judge Lourie also dissented. Pet. App. 49a-52a. He believed that "the sovereign acts doctrine is a barrier to the thrifts' recovery under a breach of contract theory." Id. at 49a. In his view, FIRREA was a public and gen- eral act because "Congress did not act only against cer- tain thrifts or contracts; it acted to deal with the entire thrift system in order to save it." Id. at 50a-51a. . SUMMARY OF ARGUMENT I. Under respondents' theory, the FSLIC agreements and Bank Board letters and resolutions authorizing their transact ions constituted binding contractual commitments ---------------------------------------- Page Break ---------------------------------------- 11 that, regardless of any change in the governing statutes, the government would continue to allow them to count goodwill to satisfy federal regulatory capital requirements well into the next century. Respondents thus contend that the government entered into contract provisions promising that it would exercise its sovereign regulatory powers in a particular way for 25 to 40 years (or, in the case of Statesman's capital credit, indefinitely). Such highly un- usual contractual commitments are strongly disfavored. Under the unmistakability doctrine, they must, if they are to be recognized at all, be expressed clearly and un- mistakably in the language of the contractual documents. That standard is not satisfied here. Contracts entered into by government regulators with private parties promising specific regulatory treatment in the future may harmfully limit the ability of government to act to serve the public interest. The unmistakability doctrine protects against that danger. It helps to ensure that public officials who enter into contracts-and others who review them-are fully aware of the serious step they are taking before they agree that the government will not exercise sovereign regulatory authority in the future. It also ensures that, where there is any possible ambiguity, courts do not mistakenly construe contracts to restrict the government's regulatory authority. The Federal Circuit held the unmistakability doctrine inapplicable in this case because it believed that suits for contract damages, unlike suits for injunctions, do not threaten the government's exercise of sovereign regulatory authority. That holding is incorrect. This Court's cases make clear that the unmistakability doctrine governs the interpretation of the promises made in a contract, not the relief to be afforded for a breach. The unmistakability doctrine protects against requiring the public to pay in damages for the privilege of changing government policy, just as it protects against injunctions precluding such alterations altogether. ---------------------------------------- Page Break ---------------------------------------- 12 The contract provisions on which the Federal Circuit relied in this case do not in fact contain promises that respondents' goodwill will continue to be counted for purposes of satisfying federal regulatory capital require- ments. With the exception of a reference to Statesman's capital credits, the Assistance Agreements include no express promises regarding goodwill at all. And even if those Agreements are read to include Bank Board resolu- tions and forbearance letters, the relevant portions of those documents contain directives as to what respondents must do to comply with current regulatory policy, not commitments by the government to continue to permit goodwill to be counted as capital. In addition each of the contracts makes quite clear in other provisions that the risk of subsequent legislative change was to be borne by respondents. Those provisions establish that respondents never obtained the promises they allege, even under ordi- nary principles of contract interpretation. Under the un- mistakability doctrine, a court certainly may not construe those documents to contain those promises. H. Even if respondents had unmistakably obtained the promises they allege, those promises would be invalid and unenforceable because the thrift regulators who would have made them would not have had the authority to bind future Congresses. Under the "reserved powers" doctrine, this Court has frequently held that core sovereign powers may not be alienated by a legislature, That principle ap- plies even more powerfully to alienations of future legis- lative power alleged to have been made by administrative officials. The right to set future policy for thrift capital safety is a power exercised by Congress. Before an administra- tive agency could be held to have committed future Con- gresses not to exercise it, a court must assure itself that Congress actually delegated such authority. Under settled precedent, general grants of authority to carry on an agency's ordinary business are insufficient for that pur- pose. Thus, even if the right to set future thrift capital ---------------------------------------- Page Break ---------------------------------------- 13 policy is not a reserved power, any commitments made by federal regulators that thrift capital requirements would not be changed would be ultra vires and invalid. III. Finally, even if respondents had obtained the con- tractual commitments they allege, and even if the agencies had authority to make such commitments, respondents could nevertheless not obtain breach of contract damages. Under the sovereign acts doctrine, the United States and its agencies are immune from liability for breach of con- tract when a public and general sovereign act-such as the enactment of FIRREA-makes the government's per- formance of a contractual commitment impossible. The purpose of the doctrine is to put the government on the same footing as private parties, who are similarly gen- erally protected from breach of contract actions when their performance of a contract is rendered impossible by a change in law. FIRREA was "public and general." It was an integral part of a systematic overhaul of the entire thrift regula- tory scheme, designed to rescue an ailing industry and restore public confidence. The provisions limiting the ability of a thrift to treat goodwill as capital were a cru- cial feature of the reforms. They apply to all thrifts and to all forms of goodwill, whether originating in super- visory transactions (as here ) or not. The only relevant FIRREA provisions that were directed specifically at thrifts that had supervisory goodwill or capital credits provided a partial exemption and transition period to ease the strict rules that otherwise would govern. The Federal Circuit erred in relying on those provisions- which had the effect of giving respondents (among others) a special benefit-to find that FIRREA was not a "public and general" act under the sovereign acts doctrine. ---------------------------------------- Page Break ---------------------------------------- 14 ARGUMENT Introduction Respondent thrifts each engaged in mergers with, or acquisitions of, failing thrifts prior to the enactment of FIRREA. In order to complete those transactions, the thrifts needed the formal approval of the Bank Board. That approval was contained in Resolutions of the Board, supplemented by Bank Board forbearance letters. Those documents were not contracts between the Bank Board and the thrifts. They were, instead, statements of the con- ditions that the thrifts would have to satisfy in order to obtain Board approval of the transactions. Bank Board policy at the time permitted respondents to count good- will as an asset for purposes of satisfying federal capital requirements. The Resolutions and forbearance letters made clear how respondents were to comply with the existing goodwill capital policy. The Board Resolutions and forbearance letters made no promises regarding the continuation of existing capital requirements or the policy under which goodwill could be counted as capital. In connection with their transactions, respondents sought and obtained valuable government cash and non- cash financial assistance. Contractual commitments to furnish such assistance were contained in contracts called Assistance Agreements or Supervisory Action Agreements between FSLIC and respondents. Those Agreements pro- vided that FSLIC would, inter alia, assist the Winstar and Statesman transactions with cash contributions and would assist the Glendale transaction with a valuable guarantee against rising interest rates. The Agreements also com- mitted respondents to take certain steps thought neces- sary to protect the government's investment, such as submitting to audits and vigorously pursuing claims held by the merged or acquired institutions, With the excep- tion of the Statesman capital credit, these contracts, like the Board Resolutions and forbearance letters, make no promises regarding (indeed, do not even mention) (fed- ---------------------------------------- Page Break ---------------------------------------- 15 eral capital requirements or the treatment of supervisory goodwill as capital. They contain no undertaking by FSLIC that its parent body-the Bank Board-or Con- gress would not change those requirements or the treat- ment of goodwill under them. The basic error committed by the courts below lay in beginning its analysis by hypothesizing an intent by the thrift regulators to promise that the federal govern- ment would continue to count goodwill as capital for purposes of satisfying federal regulatory capital re- quirements for decades into the future, regardless of any statutory or regulatory changes in, federal policy gov- erning the required financial soundness of thrifts. The courts then found evidence for that promise by incorrectly treating the regulatory documents-the Bank Board Reso- lutions and forbearance letters-as contractual agree- ments, and by interpreting the terms of those documents -contrary to their plain meaning-as making promises that goodwill would continue to be treated as capital in the future. The courts below were led into this erroneous con- clusion by their failure to apply the unmistakability doc- trine, a doctrine that precludes courts from assuming that the government has contracted away its power to regulate unless such abdication is expressed with unmistakable clarity. Recognition of this error by this Court obviates the need to inquire whether Congress ever gave the thrift regulators the authority to commit the government not to change its regulatory policy. If such an inquiry were to be undertaken, however, settled precedent of this Court establishes that any such promises would, in fact, have been ultra vires, and therefore invalid and unenforceable. Finally, the sovereign acts doctrine would in any event preclude respondents from recovering damages for regu- latory acts required by Congress's enactment of FIRREA. ---------------------------------------- Page Break ---------------------------------------- 16 1. A CONTRACT WITH A GOVERNMENT AGENCY SHOULD BE CONSTRUED TO RESTRICT THE FUTURE EXERCISE OF FEDERAL REGULA- TORY AUTHORITY ONLY IF IT DOES SO IN UN- MISTAKABLE TERMS 1. Respondents allege that the government contracted in these cases to limit its exercise of its regulatory au- thority for periods of between 25 and 40 years (or in- definitely, in the case of the treatment of Statesman's capital credits). Under respondents' theory, the govern- ment also contracted not to apply to them for many years future federal statutes that might strengthen capital re- quirements for operating thrifts. Under long-established principles, contracts that limit the government's future exercises of regulatory authority are strongly disfavored; such contracts will be recognized only rarely, and then only when the limitation on future regulatory authority is expressed in unmistakable terms. Thus, in Bowen V. Public Agencies Opposed to Social Security Entrapment (POSSE), 477 U.S. 41, 52-53 (1986), the Court referred to its "often-repeated admoni- tions that contracts should be construed, if possible, to avoid foreclosing exercise of sovereign authority." POSSE involved a claim by certain States that they had entered into contracts with the federal government giving them the right to withdraw their employees from the Social Security system, despite subsequent legislation making such withdrawal illegal. The Court refused to construe the provisions relied upon by the States as having that effect. It relied on the principle that "courts should be extremely reluctant to construe [agreements] in a manner that forecloses Congress' exercise of [its sovereign] au- thority." Id. at 52 . The Court concluded that "contrac- tual arrangements, including those to which a sovereign itself is party, `remain subject to subsequent legislation' by the sovereign." Ibid. In POSSE, the Court relied upon its decision in Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 148 ---------------------------------------- Page Break ---------------------------------------- 17 (1982), for the governing legal principles. See 477 U.S. at 52. Merrion involved an Indian Tribe's ability to impose a severance tax on oil and gas production on reservation land. The Tribe had preciously negotiated leases with the oil and gas producers that included royalty payments to the Tribe. The Court held that the royalty payment agreement should not be construed as a sur- render of the Tribe's sovereign right to impose a sub- sequent tax, absent an unmistakable surrender of that right. The Court stated that "sovereign power, even when unexercised, is an enduring presence that governs all con- tracts subject to the sovereign's jurisdiction, and will re- main intact unless surrendered in unmistakable terms." 455 U.S. at 148 (emphasis added). One year after POSSE, in United States v. Cherokee Nation, 480 U.S. 700, 707 (1987), the Court again invoked the unmistakability doctrine in refusing to con- strue a federal agreement to cede title to a riverbed to an Indian Tribe as having surrendered the federal right to keep the river navigable in the future. The plaintiffs there sought monetary compensation from the United States because of alleged damage to the riverbed caused by federal efforts to ensure navigability, The Court stated that a waiver of this "sovereign authority will not be im- plied, but instead must be `surrendered in unmistakable terms.'" Ibid. 2. The principle that a contractual surrender of a sovereign power for the future should never be found without unmistakable language to that effect was recog- nized by this Court as early as 1830, in Providence Bank v. Billings, 29 U.S. (4 Pet. ) 514, 560-561. (1830). In that case, a bank claimed that its state charter should be construed to have surrendered the right of the State to tax it in the future, and that the subsequent imposition of a tax was thus unconstitutional. In an opinion by Chief Justice Marshall rejecting the claim, the Court explained that, "as the whole community is interested in retaining [the taxing power] undiminished; that commu- nity has a right to insist, that its abandonment ought not ---------------------------------------- Page Break ---------------------------------------- 18 to be presumed, in a case in which the deliberate purpose of the state to abandon it does not appear." Id. at 561. Relying on Providence Bank, this Court has repeatedly reaffirmed the principle that "neither the right of taxation, nor any other power of sovereignty, will be held by this court to have been surrendered, unless such surrender has been expressed in terms too plain to be mistaken," Jefferson Branch Bank V. Skelly, 66 U.S. (1 Black) 436, 446 ( 1862). See also Keefe v. Clark, 322 U.S. 393, 396 ( 1944); Vicksburg, S. & P.R.R. V. Dennis, 116 U.S. 665, 668 (1886) (collecting early cases). As this Court commented in The Delaware R.R. Tax, 85 U.S. (18 Wall, ) 206, 225-226 ( 1873), that unmistakability rule applies "with special force" where it is the government's regulatory authority, rather than the mere expenditure of government funds, that was allegedly contracted away -i.e., "when the right, privilege, or immunity claimed calls for any abridgment of the powers of the government, or any restraint upon their exercise." If the government has the authority to agree not to exercise a sovereign power at all, "the surrender when claimed must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the reservation of the power." Id. at 226. See also Home Tel. & Tel. Co. V. City of Los Angeles, 211 U.S. 265, 273 ( 1908). 3. The unmistakability doctrine serves important pub- lic purposes. Contracts in which the government promises not to exercise its future regulatory authority in certain ways constitute a direct impairment of the government's ability to serve the public interest, should regulation of the sort prohibited by the contract become necessary or advisable at a later time. In most circumstances, it is extremely doubtful whether government officials have the power to enter such contracts at all. See pp. 36-43, infra. At the very least, it should not be assumed that they have done so unless that intention is expressed in the clearest possible terms. An error in construing a contract to surrender sovereign regulatory authority for ---------------------------------------- Page Break ---------------------------------------- 19 the future, when that result was neither intended nor authorized, might have enormously serious consequences -consequences much more serious than an error in the opposite direction. The doctrine also helps to ensure that, before officials take a step as significant as contract- ing away the government's right to exercise future sover- eign regulatory authority, the parties to the contract, as well as other officials with oversight responsibility or other interests in the area, will be on full notice that such a step is being taken.6 In this respect, the unmistakability doctrine is closely related to clear statement rules that are applied elsewhere in the law. For example, in Atascadero State Hosp. v. Scanlon, 473 U.S. 234 (1985), this Court noted that a waiver of Eleventh Amendment immunity "implicates the fundamental constitutional balance between the Fed- eral Government and the States." Id. at 238. Therefore, "a State will be deemed to have waived its immunity only where stated by the most express language or by such overwhelming implication from the text as [will] leave no room for any other reasonable construction." Id. at 239-240 (internal quotation marks omitted).7 Somewhat ___________________(footnotes) 6 As Justice Brennan commented, " [t]he Framers fully recognized that nothing would so jeopardize the legitimacy of a system of government that relies upon the ebbs and flows of politics to "clean out the rascals' than the possibility that those same rascals might perpetuate their policies simply by locking them into binding contracts." United States Trust Co. V. New Jersey, 431 U.S. 1, 45 (1977) (Brennan, J., dissenting). 7 See also united States V. Nordic Village, Inc., 503 U.S. 30, 33-34 (1992) (waivers of federal sovereign immunity); Gregory V. Ashcroft, 501 U.S. 452, 460-461 (1991) (alteration of federal/ state balance); EEOC v. Arabian American Oil Co., 499 U.S. 244, 248 (1991) (legislation applying outside territorial jurisdiction of United States); United States V. Dion, 476 U.S. 734, 740 (1986) (abrogation of Indian treaty rights); Watt V. Western Nuclear, Inc., 462 U.S. 36, 59 (1983) ("land grants are construed favorably to the Government, [and] * * * nothing passes except what is conveyed in clear language") ; cf. Astoria Fed. Sav. & Loan Ass'n --------------------------------------- Page Break ---------------------------------------- 20 similar principles apply to the interpretation of purely private contracts, where "[i]n choosing among the reason- able meanings of a promise or agreement or a term thereof, a meaning that serves the public interest is gen- erally preferred." Restatement (Second) of Contracts 207 ( 1981). As the drafters of the Restatement under- stood, that principle in effect constitutes a clear statement rule disfavoring terms contrary to the public interests 4. The Federal Circuit declined to apply the unmis- takability doctrine in this case. In doing so, the court did not question the proposition that the respondents here rely on claimed contractual terms that would limit the future exercise by the government of its sovereign regulatory authority? Instead, the court pointed to the fact that "[t]he thrifts did not ask for * * * injunctive relief that would have enjoined the thrift regulators from applying the FIRREA requirements to the thrifts," and "[m]oney damages, in contrast to injunctive relief, presents ___________________(footnotes) v. Solimino, 501 U.S. 104, 108 (1991) ("Rules of plain statement and strict construction prevail only to the protection of weighty and constant values, be they constitutional or otherwise.") (citation omitted). 8 The Restatement sets forth the following illustration: An in- ventor assigns "all * * * rights in a pending patent application and all improvements on the invention covered." Restatement (Second) of Contracts 207 illus. 1, at 106 (1981). The inventor makes a future invention and the assignee claims it as an improvement. In that circumstance, " [t]he public interest in encouraging inven- tion supports an interpretation of the agreement excluding future improvements unless future improvements were specifically in- cluded" (ibid.), i.e., unless future improvements were unambigu- ously specified. 9 A term in a government contract involves sovereign regulatory authority if it "could appear only in contracts with the government such as a waiver from future regulation." Transohio Sav. Bank V. Director, OTS, 967 F.2d 598, 623 (D.C. (Cir. 1992). On the other hand, contract "terms that resemble those in contracts between private parties", such as the price term in a lease of land," do not implicate sovereign regulatory authority. Ibid. ---------------------------------------- Page Break ---------------------------------------- 22 authority by their successors. That reluctance fully app. plies when a future body of citizens would be require to pay (in damages) for the privilege of having its gov ernment's regulatory powers used to serve its current needs. The rule of law proposed by the Federal Circuit would also lead to absurd results in a case in which plaintiff seeks both an injunction and damages; such contract would have to be interpreted one way in ruling on the claim for injunction, and in a different way in ruling on the damages claim. Respondents' claims in this case depend on the proposi- tion that the federal thrift regulators entered into con- tracts that committed the government to follow certain regulatory policies for 25 to 40 years into the future, and that Congress then violated those commitments by enact- ing new regulatory legislation. Under established prin- ciples, the documents relied upon by respondents to reach that unusual result should not be construed to contain such contractual commitments unless agreements to that effect were expressed with unmistakable clarity, We now turn to an examination of the documents relevant to this case to see whether such clarity is present 12 5. Examination shows that the language relied upon by respondents in this case does not unmistakably grant respondents the right, despite future legislative changes, to continue to count goodwill as capital for purposes of meeting federal capital requirements. On the contrary, the language of the documents demonstrates that careful attention was paid to limiting the contractual commit- ments of the United States to actions that would be taken to comply with then-current regulatory policy; no ___________________(footnotes) 12 Three courts of appeals, contrary to the court below, have applied the unmistakability doctrine to contracts similar to those in this case. See Charter Fed. Sav. Bank V. OTS, 976 F.2d 203 (4th Cir. 1992), cert. denied, 507 U.S. 1004 (1993) ; Transohio Saw. Bank v. director, OTS, 967 F.2d 598 (D.C. Cir. 1992) ; Guar- anty Financial Services, Inc. v. Ryan, 928 F.2d 994, 1000-1001 (llth Cir. 1991). ---------------------------------------- Page Break ---------------------------------------- 23 promises were made that that policy would not be changed or that respondents would be immune from such changes, if they were made. a. Glendale In connection with Glendale's 1981 merger with a troubled thrift, First Federal Savings and Loan of Broward County, Florida, FSLIC entered into a Super- visory Action Agreement (SAA) with Glendale. That contractual document did not include any promises relat- ing to supervisory goodwill, and the Federal Circuit did not hold that it did,13 Instead, the court below held (1) that the Glendale SAA's "integration" clause included in the contract the substantially contemporaneous Bank Board Resolution 81-710, see Pet. App. 17a-18a, and (2) that that Resolution, in turn, contained a promise that the Bank Board would continue to count Glendale's supervisory goodwill as capital for purposes of satisfying federal capital requirements, despite any changes that might be made in governing legislation.14 Although the SAA incontrovertibly refers to the Bank Board Resolution, the Federal Circuit erroneously con- cluded that that reference transformed the statements in the resolution into contractual commitments of the gov- ernment. The integration clause provided, in relevant part: This Agreement, together with an interpretation thereof or understanding agreed to in writing by the ___________________(footnotes) 13 The SAA did provide a number of other benefits for Glendale, including protection against interest rate increases, see J.A. 591- 593, which threatened the health of the thrift industry at the time; a federal agreement for a variety of short-term cash ad- vances, see J.A. 596-598; and indemnification against unknown liabilities of Broward for a ten-year period, see J.A. 593-594. 14 The SAA expired in November 1991. See J.A. 598. In our view-though not in Glendale's-any promise regarding supervisory goodwill could have committed federal regulators only until that date. ---------------------------------------- Page Break ---------------------------------------- 24 parties, constitutes the entire agreement between the parties thereto and supersedes all prior agreements and understandings of the parties in connection here- with, excepting only the Agreement of Merger and any resolutions or letters issued contemporaneously herewith by the Bank Board] or the FSLIC. J.A. 598-599; see Pet. App. l7a. The court of appeals held that the Bank Board Resolution was "[o]ne of these contemporaneous documents," id. at 18a, referred to in the last clause of the intimation clause. and that "all of the contemporaneous documents * * * under the integration clause of the SAA collectively constituted the `Agreement' of the parties: id. at 21a. The Federal Circuit was correct in holding that, under the integration clause, Bank Board resolution 81-710 was a "resolution * * * issued contemporaneously * * * by the [Bank Board]." Bank Board Resolution 81-710 was adopted by the Board on November 19, 1981, the same day that the SAA between FSLIC and Glendale was signed. By the terms of the integration clause, the Resolution was, therefore, not "supersede[d]" by the 1981 SAA with Glendale.15 That, however, does not suggest that the terms of the Bank Board Resolution were transformed by the SAA into contractual commit- ments of the government .16 ___________________(footnotes) 15 The governing statute, 12 U.S.C. 1725(a) (1988), provided that FSLIC "shall be under the direction of the Federal Home Loan Bank Board and operated by it under such bylaws, rules, and regulations as it may prescribe for carrying out [its statutory]: purposes." The Bank Board thus acted as the ultimate authority for FSLIC, similar to a board of directors. It is therefore under- standable that FSLIC, when entering into a contract would have wanted to ensure that it was taking no action that would "super-' wade" or contradict an official Bank Board policy. 16 This court has cautioned against reading Statutes to constitute contractual commitments by the government. See, e.g., National R.R. Passenger Corp. v. Atchison, T. & S.F. Ry., 470 U.S. 451, 465- 469 (1985); Wisconsin & Mich. Ry. v. Powers, 191 U.S. 379.386- ---------------------------------------- Page Break ---------------------------------------- 25 Resolution 81-710 was a regulatory agency decision that approved an application by Glendale to consummate merger that required regulatory approval. See 12 U.S.C. 1464, 1726 ( 1988); 12 C.F.R. 546.2, 563.22 ( 1982). It contains no mention of federal regulatory capital re- quirements and no promise by the government that Glendale could continue to count regulatory goodwill as an asset despite changes in governing legislation or regu- latory policy. The court of appeals, however, found such a contractual promise in the portion of the Bank Board Resolution that provided: Glendale shall furnish an opinion from its indepen- dent accountant, satisfactory to the Supervisory Agent, which (a) indicates the justification under generally accepted accounting principles for the use of the purchase method of accounting for its merger with Broward, (b) specifically describes, as of the Effective Date, any goodwill or discount of assets arising from the merger to be recorded on Glendale's books, and (c) substantiates the reasonableness of amounts attributed to goodwill and the discount of assets and the resulting amortization periods and method. App, 18a-19a; J.A. 607." The evident purpose and function of those Resolution provisions, however, was not to make promises about future regulatory policy, but to inform Glendale about how to record the merger transac- 387 (1903) ; Welch V. Cook, 97 U.S. 541 (1878). For the same reasons, agency adjudicatory decisions are not ordinarily contrac- tual documents, and they were not in this case. 17 The Resolution also provided that "Glendale shall submit a stipulation that any goodwill arising from this transaction shall be determined and amortized in accordance with" a Bank Board Memorandum that discussed the documentation a thrift had to provide if it wanted to use the purchase method of accounting. Pet. APP. 19a; see id. at 19a n.4 (quoting Memorandum). See also J.A. 607, 573. The amortization period works out to be 40 years. Pet. App. 18a-19a; J.A. 607.17 The evident purpose and function of those Resolution provisions, however, was not to make promises about future regulatory policy, but to inform Glendale about how to record the merger transac- ___________________(footnotes) 387 (1903); Welch V. Cook, 97 U.S. 541 (1878). For the same reasons, agency adjudicatory decisions are not ordinarily contrac- tual documents, and they were not in this case. 17 the Resolution also provided that "Glendale shall submit a stipulation that any goodwill arising from this transaction shall be determined and amortized in accordance with" a Bank Board Memorandum that discussed the documentation a thrift had to provide if it wanted to use the purchase method of accounting. Pet. App. 19a; see id. at 19a n.4 (quoting Memorandum). See also J.A. 607, 573. The amortization period works out to be 40 years. ---------------------------------------- Page Break ---------------------------------------- 26 tion on its books and what kind of documentation Glen- dale was required to provide in order to satisfy then- current Bank Board policies.18 As the Fourth Circuit stated in Charter Fed. Sav. Bank v. OTS, 976 F.2d 203, 211 (4th Cir. 1992), cert. denied, 507 U.S. 1004 (1993), "resolutions issued by the [Bank Board] in connection with the mergers merely granted that agency's approval of the merger and the accounting practices employed by `[the thrift t] in connection therewith," Nothing in the language of the Resolution committed the Bank Board or Congress to continue to treat goodwill as an asset for purposes of satisfying federal capital requirements in the future. In- deed, in light of the frequency with which federal capital requirements had changed in the past, see p. 3, n. 1, supra, it would have been unreasonable for Glendale, FSLIC, or the Bank Board to expect or rely upon the fact that those requirements would remain unchanged. The court of appeals also relied on what it termed "other evidence and * * * the circumstances surrounding the transaction." Pet. App. 22a. The court noted that, "[w]ithout the use of supervisory goodwill, the merged thrifts would have been in a failing position" that would have caused FSLIC exactly the losses that it was trying to avoid by approving the merger, Ibid. The court thus correctly understood that the Bank Board's policies at the time of the Glendale SAA in 1981 permitted the thrift to use supervisory goodwill to satisfy regulatory capital requirements. The merger transaction permitted FSLIC to avoid (at least for the time being) substantial losses that would have occurred had Broward been put into receivership. And, for the very reason that the Bank Board wanted to avoid closing institutions unnecessarily, the Bank Board was unlikely to, change its capitalization ___________________(footnotes) 18 The FederaI Circuit correctly noted (Pet. App, 20a-21a) that Glendale in fact submitted the required accountant's letter, and that it was satisfactory to the Bank Board. Neither fact supports Glendale's argument that the Bank Board, by accepting the letter, agreed to freeze then-current capital requirements for a period of 40 years. ---------------------------------------- Page Break ---------------------------------------- 27 policies quickly. Indeed, the policy permitting goodwill to be included in capital was not changed for eight years, and then the change was made by Congress in FIRREA, and not by the Board. The court below also noted that "it is appropriate to observe that no healthy thrift would consummate a trans- action that immediately put it in regulatory noncompli- ance? Pet. App. 22a. We agree that a healthy thrift would not enter into an agreement and arrangement that would immediately render it insolvent and subject to closure under existing regulatory policy.19 But Glendale did not enter into such an arrangement. Under existing regulatory policy it remained solvent upon absorbing Broward. The relevant question is whether Glendale would take a risk that this regulatory policy might change in the future. As a number of observers-including a commission charged by statute with investigating the causes of the thrift crisis-have explained, transactions of this sort offered a number of immediate benefits to the acquiring thrift that would justify taking just such a risk. 20 ___________________(footnotes) 19 It should be noted, however, that thrifts generally Operate subject to the risk of statutory change that might threaten them with closure. See Carter et Sav. Bank V. OTS', 963 F.2d 567, 681 (3d Cir. 1992) (noting the "massively regulated banking industry, where the rules of the game change with some regularity") ; Charter, 976 F.2d at 212 (explaining that since ["c]apital require- ments have been an evolving part of the regulatory scheme since its inception," the Bank Board "would have expected changes in statutory requirements, including capital requirements"). There thus is always the possibility that Congress will increase the fed- eral capital requirements or their method of implementation and thereby threaten some thrifts with the possibility of immediate closure. For example, in FIRREA, see 12 U.S.C. 1464(t) (1) (A), 1464 (t) (2), (3), and (9), Congress increased the capital require- ments, and in a subsequent statute, Congress required federal reg- ulators to appoint a receiver for any institution that remained critically undercapitalized by a certain measure for a one-year period, see 12 U.S.C. 1831o (b) (1) (E), 1831o (c) (3), 1831o (h) (3). 20 Acquisitions of insolvent thrifts "were tempting to other [thrifts] trying to stave off accounting insolvency because acquirers ---------------------------------------- Page Break ---------------------------------------- 28 One other provision of the SAA has a bearing on the meaning of the Glendale contract. The SAA included a provision stating that "[n]othing in this Agreement shall require any unlawful action or inaction by either of the parties hereto," Pet. App. 23a; see J.A. 600. The most natural reading of that provision is to allocate to G1en- dale the risk of a change in law-especially statutory law -that might affect the parties' executory contractual commitments. As such, the clause is sufficient by itself to defeat Glendale's claim. At the very least, it estab- lishes that the contract did not unmistakably give Glen- dale a right to count supervisory goodwill as capital for purposes of satisfying federal capital requirements after the governing statute was changed to make it illegal for it to do so.21 b. Winstar The Winstar transaction was quite similar to the C dale transaction, As with Glendale, FSLIC entered into' ___________________(footnotes) could show fictitious income and continue to pay (indeed increase) dividends, high salaries, and so on." National Commission on Financial Institutions Reform, Recovery and Enforcement, Origins and Causes of the S&L Debacle: A Blueprint for Reform, A Report to the President and Congress of the United States 38-39 (1993) (Blueprint). See Comprehensive Thrift and Bank Fraud Prosecu- tion and Taxpayer Recovery Act of 1990, Pub. L. No. 101-647, Tit, XXV, $32551, 2556, 104 Stat. 4889, 4892. In addition, because of complicated rules regarding thrift accounting, amortization, and valuation of assets, accumulation of intangible assets such as good- will could be quite profitable. See Blueprint 38-39. See also William Black, Ending Our Forebears' Forbearances: FIRREA and Super- visory Goodwill, 2 Stan. L. & Pol'y Rev. 102, 104-105 (1990). 21 The court of appeals' conclusory statement that the Clause referred only to "the law as it existed at the time the contract was entered into," Pet. App. 23a turns the unmistakability doc- trine on its head. See also id. at 23a-24a (" [T]he clause clearly is not an escape hatch that allows the federal government to avoid performance of its contractual obligations without penalty by pass- ing a law prohibiting its own performance"). Instead of favoring the interpretation of the contract that preserves the sovereign's regulatory authority, the court of appeals' conclusory statement does just the opposite. ---------------------------------------- Page Break ---------------------------------------- 29 an Assistance Agreement with Winstar in connection with Winstar's acquisition of a failing thrift in 1983. The Agreement required FSLIC to contribute capital (which eventually amounted to $5,5 million, see Pet. App. 194a, J.A. 97-98) to the resulting institution. It also con- tained a number of provisions requiring Winstar to take various steps to protect the federal investment, such as vigorously pursuing claims of the acquired thrift. See J.A. 102-105, The Federal Circuit correctly noted that "Winstar's Assistance Agreement, like Glendale's SAA, did not directly cover the treatment of supervisory goodwill." Pet. App, 27a. But the Federal Circuit held that, as in Glendale, the Assistance Agreement contained an integration clause that incorporated a forbearance letter from the Bank Board and a Bank Board Resolu- tion. Id. at 27a-28a, The Federal Circuit held that those documents, in turn, included promises by the then-thrift regulators to permit Winstar to count supervisory good- will resulting from the merger as capital for purposes of meeting federal capital requirements for a period of 35 years. See id. at 28a. The Federal Circuit's conclusion with respect to Win- star is wrong for the same reasons that its conclusion with respect to Glendale is wrong. The integration clause did not make the forbearance letter and Bank Board Resolu- tion into contractual promises that Winstar could continue to capitalize goodwill in the future, even if regulatory policy or the governing statute should change. Those documents reflected then-current regulatory policy and stated the steps Winstar needed to take to capitalize good- will-and the amortization schedule that could be used in doing so-under that policy.22 ___________________(footnotes) 22 Winstar's integration clause was virtually identical to Glen- dale's. Compare J.A. 112 (Winstar) with J.A. 598-599 (Glendale). The forbearance letter that the Bank Board sent to Winstar provided, in relevant part: For purposes of reporting to the Board, the value of any intangible assets resulting from accounting for the merger in ---------------------------------------- Page Break ---------------------------------------- 30 Winstar has argued that the "accounting principles" clause in its Assistance Agreement, J.A. 108-109, had the effect of contractually committing the government to use the Bank Board Resolution-rather than any future regulations-to govern accounting for the transaction. See Winstar Br. in Opp. 24-25. Winstar's argument is not persuasive, and it was not relied upon by the Fed- eral Circuit. Indeed, the language of that clause, insofar as it has any relevance to this case, supports the govern- ment's position. The accounting principles clause by its own terms ap- plied only to "any computations made for the purposes of this Agreement." J.A. 108. As argued above, the ___________________(footnotes) accordance with the purchase method may be amortized by [Winstar] over a period not to exceed 35 years by the straight- line method. J.A. 123; see also Pet. App. 28a. That statement is very similar to the language of the Glendale Bank Board Resolution requiring Glendale to "determine] and amortize []" goodwill in accordance with the schedule in a previous Board Resolution. See id. at 19a & n.4. As in Glendale, the statement in the Winstar Resolution includes no reference to federal capital requirements, and it does not purport to impose an obligation on the federal government. See pp. 25-26, supra. The Bank Board Resolution with regard to the Winstar transac- tion provided, in relevant part: [Winstar] shall furnish an analysis, accompanied by a con- curring opinion from its independent public accountants., satis- factory to the Supervisory Agent and to the Office of Examina- tions and Supervision, which (i) specifically describes as of the closing date, any intangible assets, including goodwill or the discounts and premiums arising from the acquisition to be recorded on [Winstar's] consolidated books; and (ii) sub- stantiates the reasonableness and conformity with regulatory requirements of the amounts attributed to intangible assets, including goodwill, and the discounts and premiums and the related amortization periods and methods. J.A. 76, The operative language in that provision, again, is almost identical to the operative language in the corresponding provision of the Glendale Bank Board Resolution. See pp. ,25-26, supra. The Glendale analysis applies equally to Winstar. ---------------------------------------- Page Break ---------------------------------------- 31 Agreement contained no provision relating to supervisory goodwill or capital requirements (which, as the Federal Circuit recognized (Pet. App. 27a), were discussed only in the forbearance letter and Bank Board Resolution). Accordingly, no computations regarding goodwill or capi- tal requirements had to be or were "made for the pur- poses of this Agreement." Moreover, the portion of the clause upon which Winstar relies has to do with what occurs "[i]n the case of any ambiguity in the interpreta- tion or construction of any provision of this Agreement." T.A, 109. There was, however, no ambiguity in any provision of the Agreement regarding supervisory good- will, since the Agreement did not mention that subject. Finally, the sentence on which Winstar relies states: For the purposes of this section, the governing regu- lations and the accounting principles shall be those in effect on the Effective Date or as subsequently clarified, interpreted or amended by the Bank Board or the Financial Accounting Standards Board ( "FASB"), respectively, or any successor organiza- tion. J.A. 109. That sentence recognizes that the "governing regulations and the accounting principles" will be those in effect at the time of the transaction "or as subsequently clarified, interpreted, or amended by the Bank Board" or other authorities. It thus strongly supports our argu- ment that the parties recognized that Bank Board policies could change, and that whatever new policies were adopted would, from then on, govern future accounting by Winstar. As with Glendale, there are other provisions in the Winstar Assistance Agreement that demonstrate the par- ties' understanding that Bank Board policies could change, especially if Congress enacted legislation requiring such changes. As in Glendale, the agreement provided that "[n]othing in this Agreement shall require any unlawful action or inaction by either party." J.A. 112. The Bank Board Resolution made the same point; it required Win- ---------------------------------------- Page Break ---------------------------------------- 32 star to file a "Net Worth Maintenance Stipulation" recit- ing that Winstar would comply with capital regulations "as now or hereafter in effect." J.A. 78 (emphasis added). Thus, the Resolution contemplated that regulatory capital- ization requirements might be changed, and WinStar pledged to comply with those changes. Finally, the Winstar Agreement provided that, "[e]xcept as otherwise specifically provided in this Agreement, this Agreement shall terminate [in 1986]." J.A. 110. Thus, even if the agreement had placed an obligation on the government to permit the inclusion of goodwill in Win- star's regulatory capital, that obligation would have ex- pired prior to the enactment of FIRREA. c. Statesman Unlike Glendale and Winstar, Statesman has alleged that it entered into a contract that bound the federal gov- ernment to permit it to count two distinct forms of goodwill-supervisory goodwill and capital credits (RAP goodwill) -as regulatory capital for purposes of satisfy- ing federal capital requirements. In 1987, Statesman acquired four failing thrifts. The Statesman transaction regarding supervisory goodwill is in relevant respects like the Winstar transaction, and calls for the same analysis. In connection with Statesman's acquisition of the four failing thrifts, it entered into a 1988 Assistance Agreement with FSLIC; that Agreement contained nothing about supervisory goodwill or federal capital requirements. The Statesman Assistance Agree- ment included an integration clause that differed some- what from that in the Glendale and Winstar contracts; after providing that "[t]his Agreement, together with any resolutions adopted by the Bank Board * * * constitutes the entire agreement between the parties," it continued with language similar to that in the other transactions. See J.A. 408 (emphasis added). With respect to super- visory goodwill, the Bank Board Resolution included ---------------------------------------- Page Break ---------------------------------------- 33 language similar to that in Glendale and Winstar. 23 The Federal Circuit relied on that language to reach the same result it did with respect to Glendale and Winstar. Pet. App. 25a-26a. As in Glendale and Winstar, the Bank Board Resolu- tion referred to in the Agreement's integration clause made no promises concerning the continued application of existing federal capital requirements to Statesman's super- visory goodwill; the Resolution merely stated the require- ments for Statesman to capitalize goodwill under then- current regulatory capital policy. Accordingly, the Agree- ___________________(footnotes) 23 The Bank Board Resolution provided, in relevant part: [T]he Acquisition and the Mergers shall be accounted for, and [Statesman] shall report to the Bank Board and the FSLIC, in accordance with generally accepted accounting prin- ciples prevailing in the savings and loan industry, as accepted, modified, clarified, or interpreted by applicable regulations of the Bank Board and the FSLIC, except to the extent of the following departures from generally accepted accounting principles: (a) Twenty-one million dollars of the initial contribution by the [FSLIC] to [Statesman, and five million dollars of the principal amount of the Subordinated Debenture issued to the FSLIC, pursuant to 6 of the Assistance Agreement, shall be credited to the regulatory capital account of [Statesman] ; and (h) The value of any unidentifiable intangible assets result- ing from accounting for the Acquisition and the Mergers in accordance with the purchase method of accounting may be amortized by [Statesman] over a period not in" excess of twenty- five (25) years by the straight line method. J.A. 458-459; see also Pet. App. 25a-26a. Clause (a) mirrors the language of the Assistance Agreement regarding Statesman's capital credits, see p. 34, infra; clause (b) concerns supervisory goodwill, and is almost identical to the corresponding clauses in the Glendale and Winstar transactions. As with Glendale and Winstar, the Resolution also required Statesman to submit an accountant's report describing the good- will resulting from the acquisitions that Statesman carried on its books and substantiat[ing] the reasonableness and conformity with regulatory requirements of the amounts attributed to intan- gible assets, including goodwill * * *, and the related amortization periods and methods." J.A. 459; see also Pet. App. 26a. ---------------------------------------- Page Break ---------------------------------------- 34 ment cannot be construed to include a commitment to permit Statesman to count its supervisory goodwill as capital for purposes of satisfying federal capital require- ments for the 25-year amortization period, despite subse- quent changes in the law. Pursuant to Statesman's Assistance Agreement, FSLIC contributed some $60 million to Statesman Bank. J.A. 362. The Agreement provided that $26 million of the FSLIC contribution could also be counted as capital for purposes of satisfying federal capitalization requirements. The Agreement stated: For purposes of reports to the Bank Board * * *, $26 million of the contribution [made by FSLIC] shall be credited to [Stateman's] regulatory capital account and shall constitute regulatory capital (as defined in 561.13 of the Insurance Regulations). J.A. 362a. Unlike the provisions in various documents relied on by Glendale and Winstar, that provision men- tions Statesman's "regulatory capital account," and it states that the capital credit "shall constitute regulatory capital." In addition, it states a commitment by both parties as to how capital is to be calculated, rather than a requirement placed only on the thrift. as in Winstar and Glendale. It therefore demonstrates that the parties to these transactions could formulate contractual commit- ments regarding regulatory treatment of intangible assets and that they did so when that was their intention. The Statesman capital credit clause, however, also makes clear that the regulatory commitment it made would not survive a change in regulatory policy. The statement that the capital credit "shall constitute regula- tory capital (as defined in $561.13 of the Insurance Regulations)"- a reference to 12 C.F.R. 561.13 (1988)% -demonstrates the parties' understanding that treatment ___________________(footnotes) 24 That, regulation defined what constituted regulatory capita] of a thrift institution. It was modified from time to time, and the most recent amendments had been promulgated on January 6, 1968, about two months prior to the Statesman transaction. 53 Fed, Reg. 334 (1988). ---------------------------------------- Page Break ---------------------------------------- 35 of the capital credit as an asset depended entirely upon existing regulations and that the same treatment would not necessarily be accorded if changes were made in the governing regulations or statute.25 In addition, other provisions of the Statesman Agree- ment operated expressly to allocate the risk of a change in the governing law to Statesman. The Statesman Assist- ance Agreement contained the same governing law pro- vision as in Glendale and Winstar, providing that "[n]othi- ing in this Agreement shall require any unlawful action or inaction by either party." J.A. 408. Once FIRREA was passed, a contract right obliging OTS to continue to count Statesman's capital credit as regulatory capital would have required OTS to act unlawfully. The Agree- ment also included a provision requiring Statesman to "comply in all material respects with all applicable statutes, regulations, orders of, and restrictions imposed by the United States or * * * by any agency of [the United States]," J.A. 407,26 and therefore independently ___________________(footnotes) 25 The Statesman Assistance Agreement provided that "this Agreement shall terminate five (5) years following the Effective Date," or March II, 1993. J.A. 405. In our view, therefore, any promise regarding Statesman's capital credit would thus have ter- minated in 1993. 26 The provision stated that: [Statesman] shall, and shall cause its subsidiaries, Affiliates, and service corporations to, comply in all material respects with all applicable statutes, regulations, orders of, and restric- tions imposed by the United States or any state, municipality, or other political subdivision, or by any agency of the fore- going public units, regarding the ownership of its properties and conduct of its business, including, without limitation, all applicable statutes, regulations, orders, and restrictions relat ing to equal employment opportunities, employment retirement income security, and environmental standards and controls; provided, however, that nothing contained in this [section] shall require [Statesman, or any of its subsidiaries, Affiliates, or service corporation, to comply with any law so long as the applicability thereof shall be contested in good faith. J.A. 407. ---------------------------------------- Page Break ---------------------------------------- 36 required Statesman to comply with FIRREA capita requirements. 6. We have demonstrated above that the contracts at issue in this case did not purport to make any promises by the government concerning whether supervisory good- will would continue to be treated as regulatory "capital in the future. Under ordinary principles of contract inter- pretation, that would be sufficient to establish that no such promises were made. It follows, a fortiori, that no such promises were made unmistakably in the documents at issue in this case.27 II. THE RELEVANT FEDERAL AGENCIES HAD NO AUTHORITY TO BIND THEIR SUCCESSORS TO PARTICULAR REGULATORY POLICIES DESPITE SUBSEQUENT LEGISLATIVE CHANGES The Federal Circuit's theory was that the former thrift regulators entered into contracts that committed the fed- eral government to count respondents' goodwill as capital for periods of 25 to 40 years (or, in the case of States- man's capital credits, perhaps permanently ), and that those contracts remained fully valid and enforceable even after legislation made that treatment of capital illegal. In other words, the contracts either committed Congress not to enact new legislation requiring a different treat- ment of respondents' capital or granted respondents a prospective immunity from any such legislative change. This Court has never held that a federal agency has the authority to enter into an agreement that binds future Congresses not to change regulatory schemes or that im- munizes private parties from the effects of such changes. Even if an agency in some circumstances could make such an agreement, however, it certainly could not do so without an express delegation of authority from Congress. ___________________(footnotes) 27 That is especially true in the present context. See Transohio, 967 F.2d at 619-620 (court may not "compensate for the absence of an unmistakable waiver given that * * * the transaction was heavily lawyered and * * * extensively negotiated"). ---------------------------------------- Page Break ---------------------------------------- 37 There was no such delegation here. Thus, even if re- spondents had received unmistakable promises that capital requirements would not change-which they did not- such promises would be invalid and unenforceable. 1. In what has become known as the "reserved pow- ers" doctrine, this Court has frequently held that state legislatures may not contract away essential attributes of sovereignty. For example, in Stone v. Mississippi, 101 U.S. 814 (1880), plaintiff corporation, after paying a monetary premium for the privilege, see id. at 817-818, obtained a charter from the state legislature permitting it I to conduct lotteries; 28 plaintiff then claimed that the charter immunized it from a state statute, enacted one year later, that outlawed lotteries. The Court rejected that claim, holding that "the legislature cannot bargain away the police power of a State." Id. at 817. The Court explained that the power of governing is a trust committed by the people to the government, no part of which can be granted away. The people, in their sovereign capac- ity, have established their agencies for the preserva- tion of the public health and the public morals, and the protection of public and private rights. These several agencies can govern according to their dis- cretion, if within the scope of their general authority, while in power; but they cannot give away nor sell the discretion of those that are to come after them, in respect to matters the government of which, from the very nature of things, must "vary with varying circumstances ." Id. at 820. Accordingly, "[a]ll that one can get by a [contract purporting to alienate a reserved power] is a suspension of certain governmental rights in his favor, ___________________(footnotes) A state-granted charter is a contract. Trustees of Dartmouth College V. Woodward, 17 U.S. (4 Wheat.) 518, 627 (1819). See also Home Building & Loan Ass'n V. Blaisdell, 290 U.S. 398, 435 (1934) . ---------------------------------------- Page Break ---------------------------------------- 38 subject to withdrawal at will." Id. at 821 .29 As the Court stated in Atlantic Coast Line R.R. V. City of Goldsboro, 232 U.S. 548, 558 ( 1914), "the power of the State to establish all regulations that are reasonably necessary to secure the health, safety, good order, comfort, or general welfare of the community * * * can neither be abdicated nor bargained away, and is inalienable even by express grant." The reserved powers doctrine was developed in the context of Contract Clause challenges to actions by the States. The logic of the doctrine, however, applies equally to contracts alleged to have been made by the federal government. At least with respect to the exercise of sovereign regulatory authority, a particular Congress, like a state legislature, cannot take actions that tie the hands of its successors. "[G]overnmental [regulatory] powers cannot be contracted away." North American Commercial Co. v. United States, 171 U.S. 110, 137 (1898 ) .30 This doctrine precludes any interpretation of ___________________(footnotes) 29 Numerous cases of this court have relied on the reserved powers doctrine to hold that purported alienations of sovereign authority-generally by a legislature-are invalid. See, e.g., United States Trust Co. v. New Jersey, 431 U.S. 1, 23 (1977) (dicta) ("[T]he Contract Clause does not require a State to adhere to a contract that surrenders an essential attribute of its sovereignty") ; Pierce Oil Corp. v. City of Hope, 248 U.S. 498, 501 (1919) (dicta) ; Contributors to the Pennsylvania Hosp. v. City of Philadelphia, 245 U.S. 20, 23 (1917) ; Douglas v. Kentucky, 168 U.S. 488, 502-503 (1897) ; Butchers' Union Slaughter-House & Live-Stock Landing Co. V. Crescent City Live-Stock Landing & Slaughter-House Co., 111 U.S. 746, 750-751 (1884). See also Home Building & Loan Ass'n v. Blaisdell, 290 U.S. at 434-444. 30 See also Lynck v. United States, 292 U.S. 571, 579 (1934) ("As Congress had the power to authorise the Bureau of War Risk Insurance to issue [insurance contracts,], the due process clause prohibits the United States from annulling them, unless, indeed, the action taken falls within the federal police power or some other paramount power.") (emphasis added). ---------------------------------------- Page Break ---------------------------------------- 39 the contracts in this case that would grant respondents the future right to violate capitalization standards imposed by Congress. 2. It need not be decided in this case, however, whether the authority to alter capital requirements to ensure the safety of thrift institutions is a "reserved power" of Congress that may not be contracted away. Cf. Jefferson Branch Bank v. Skelly, 66 U.S. (1 Black) 436 (1862) (requiring State not to impair obligation of contract granting partial exemption from tax). Given the serious consequences of a limitation on future legislative authority in this area, a federal agency may certainly not bind a future Congress without an express delegation of authority from Congress to do so. Congress, however, never granted federal thrift regulators the power to con- tract for the limitation of its authority over thrift capital- ization requirements. See Transohio Savings Bank v. Director, OTS, 967 F.2d 598, 621 (D.C. Cir. 1992); cf. Peterson v. United States Dep't of the Interior, 899 F.2d 799, 811 n.17, 813 n.18 (9th Cir. ), cert. denied, 498 U.S. 1003 (1990). The requirement that a delegation of authority to make contracts limiting legislative regulatory power must be stated expressly and clearly is confirmed by this Court's decision in Home Tel. & Tel. Co. v. City of Los Angeles, 211 U.S. 265 ( 1908). In that case, the City of Los Angeles had granted a charter to a telephone company specifying certain maximum prices that the com- pany could charge. Id. at 272. The city later attempted to regulate the prices further, and the company brought suit, claiming that the new price regulations violated the Contract Clause. This Court held that the company's claim depended upon a showing that the "city council has the power to enter into a contract fixing, unalterably, during the term of the franchise, charges for telephone service and disabling itself from exercising the charter power of regulation." Id. at 272-273. In connection ---------------------------------------- Page Break ---------------------------------------- 40 with determining whether a showing of such a delegation was made, the Court stated: The surrender, by contract, of a power of govern- ment, though in certain well-defined cases it may be made by legislative authority, is a very grave act, and the surrender itself, as well as the authority to make it, must be closely scrutinized. No other body than the supreme legislature (in this case, the legis- lature of the State) has the authority to make such a surrender, unless the authority is clearly delegated to it by the supreme legislature. The general powers of a municipality or of any other political subdivision of the State are not sufficient. Specific authority for that purpose is required. Id. at 273 (emphasis added) 31 Those principles are di- rectly applicable to this case.32 No specific congressional delegation of authority to enter into contracts limiting Congress's future regulatory power is present in this case. In holding that the federal thrift regulators had the authority to make contracts granting respondents the rights they claim, the court of appeals relied (Pet. App. 39a) on statutes generally grant- ing FSLIC and the Bank Board the power "[t]o make contracts, " 12 U.S.C, 1725(c)(3) (1988) (repealed), ___________________(footnotes) 31 The Court added that the effect of the City's contract with the telephone company "is to suspend, during the life of the contract, the governmental power of fixing and regulating the rates." 211 U.S. at 273. In language directly applicable to this case, the Court then stated that, "for the very reason that such a contract has the effect of extinguishing pro tanto an undoubted power of government, both its existence and the authority to make it must clearly and unmistakably appear, and all doubts must be resolved in favor of the continuance of the power." Ibid. 32 These principles have been referred to as the "vertical dimen- sion"' of the unmistakability doctrine. See David Toscano, Note, Forbearance Agreements: Invalid Contracts for the Surrender of Sovereignty, 92 Colum. L. Rev. 426, 464 (1992). See also Home Tel. & Tel., 211 U.S. at 276 ("The decisions of this court * * * where a contract of this kind was found and enforced, all show unmistakably legislative authority to enter into the contract." ) (emphasis added). ---------------------------------------- Page Break ---------------------------------------- 41 to extend assistance to acquirers of insolvent federally insured thrifts, 12 U.S.C. 1729(f)(2)(A) (1988) (re- pealed), and the agencies' authority to set minimum capi- tal requirements on a case-by-case basis.33 The cited provisions, however, do not provide even a hint that Con- gress intended to grant FSLIC or the Bank Board the authority to commit Congress not to modify the governing statutes, or to immunize particular thrifts from the effects of statutory changes for periods of 25 to 40 years or more. 3. Respondents assert that this Court's decisions in Lynch V. United States, 292 U.S. 571 (1934), and Perry V. United States, 294 U.S. 330, 350 (1935), support their argument. See Glendale Br. in Opp. 19-20. That contention is mistaken. Lynch and Perry involved government efforts to renege on purely financial contractual obligations-government- issued life insurance contracts in Lynch, the obligation to repay government bonds in gold in Perry. Such contracts do not limit the government's authority to regulate the conduct of private parties or entities for the public good. See Lynch, 292 U.S. at 580 (no suggestion that Congress "abrogate[d] these contracts in the exercise of the police or any other power") 34 See also David Toscano, Note, Forbearance Agreements: Invalid Contracts for the Sur- render of Sovereignty, 92 Colum, L. Rev. 426, 455-456 (1992). . ___________________(footnotes) 33 The Court of Federal Claims also relied (Pet. App. 147a) upon statutory language providing that FSLIC could "in its sole discretion and upon such terms and conditions as [FSLIC] may prescribe" guarantee a thrift against loss from a merger. See 12 U.S.C. 1729(f) (2) (A) (1988) (repealed). But that section merely served to exempt such FSLIC determinations from review under the Administrative Procedure Act (5 U.S.C. 701 (a) (2)) ; it did not delegate to FSLIC the authority to make contracts limiting Congress's power to impose regulations on all thrifts. 34 Cf. POSSE, 477 U.S. at 55 ("Congress does not have the power to repudiate its own debts, which constitute `property' to the lender, simply in order to save money."). ---------------------------------------- Page Break ---------------------------------------- 42 Lynch and Perry also illustrate the point that a general grant of the power to make contracts to an administrative agency is insufficient to grant the agency the authority to make contracts in derogation of the power of Congress to modify the law. Lynch, for example, involved "a pol- icy for yearly renewable term insurance issued during the World War pursuant to the War Risk Insurance Act." 292 U.S. at 574 (footnote omitted). Perry involved a bond "issued pursuant to the Act of September 24, 1917." 294 U.S. at 346. As the Court's opinions in both cases make clear, the statutes at issue expressly au- thorized the relevant authorities, in the clearest possible terms, to enter into the precise kinds of contracts upon which the plaintiffs there relied. See, e.g., Perry, 294 U.S. at 348 ("The terms of the bond are explicit. They were not only expressed in the bond itself, but they were definitely prescribed by the Congress."). The delegations of general contracting authority on which respondents and the Federal Circuit relied here do not remotely satisfy that standard. 4. As this Court has stated, "anyone entering into an arrangement with the Government takes the risk of hav- ing accurately ascertained that he who purports to act for the Government stays within the bounds of his au- thority." Federal Crop Ins. Corp. V. Merrill, 332 U.S. 380, 384 ( 1947). Thus, even if respondents had ob- tained the promises they allege from the federal officials who allegedly made them, those promises would be un- enforceable. In comparable circumstances, this Court has made clear that a party relying on the authority of a government agent may have his expectations disappointed, See OPM v. Richmond, 496 U.S. 414 ( 1990). 5. It is important to note that our position does not mean that the agreements that were made between re- spondents and the federal regulatory agencies were il- lusory or of little worth. The thrifts received substantial benefits from those agreements, even in light of the later changes made by FIRREA. They all obtained the bene- ---------------------------------------- Page Break ---------------------------------------- 43 fits of the Bank Board policy permitting them to count goodwill as capital for the period during which that policy was in effect-i.e., until FIRREA was enacted, eight years after the Glendale transaction, five years after the Winstar transaction, and nearly two years after the Statesman transaction. In Winstar and Statesman, the thrifts also received substantial infusions of federal cash and access to new markets. See note 5, supra, In Glendale, the thrift got an express commitment for pro- tection from rising interest rates for four years, at a time when the thrift industry was under siege by "unprece- dented high interest rates," J.A. 550, 591-593; ten years of indemnification against the unknown liabilities of Broward, J.A. 593-594; and a variety of short-term cash advances, J.A. 596-598. In addition, Glendale obtained access to new and potentially very lucrative markets in Florida, one of the top five thrift markets in the country. See J.A. 551. III. RESPONDENTS' CLAIM FOR BREACH OF CON- TRACT DAMAGES IS Al-SO PRECLUDED BY THE SOVEREIGN ACTS DOCTRINE 1. This Court long ago held that "[w]hatever acts the government may do, be they legislative or executive, so long as they be public and general, cannot be deemed specially to * * * violate the particular contracts into which it enters with private persons." Horowitz v. United States, 267 U.S. 458, 461 ( 1925). That has come to be known as the sovereign acts doctrine. Where the alleged breach of contract by the government resulted from a "public and general" act, the government is immune from liability for breach of contract. 2. The sovereign acts doctrine is based on a principle of equality between the government and private contrac- tors. See Pet. App. 40a (the "doctrine is intended to level the playing field between the government and its con- tractors" ). Under ordinary principles of contract law, a party's duty to render performance is discharged when an intervening action by the sovereign, such as enactment ---------------------------------------- Page Break ---------------------------------------- 44 of a statute, precludes performance. See, e.g., 6 Corbin on Contracts 1343, at 417 (1962) (when performance is prevented by intervening legislation "there is no ques- tion that the duty of the party whose performance is thus prevented is discharged"). See also Restatement (Sec- ond) Contracts 261, 262. The sovereign acts doctrine applies the same rule to the government as contractor. Where a performance of a contract made by a govern- ment agency is rendered impossible by a subsequent fed- eral statute or other action that is a public and general act, performance of the contract by the agency is excused, The primary qualification on the doctrine is that the sovereign act relied upon to excuse performance be a "public and general" one. If it is not-if the sovereign act merely enables the government to evade its particular contractual obligations-then the rationale of the doctrine does not apply and the government's breach is actionable. 3. Thus, even if respondents had the contract rights that they claim, the United States would not be liable for contract damages if the governmental act that caused the breach of those rights was "public and general," and not taken merely to avoid contractual obligations to a partic- ular party. See, e.g., Deming V. United States, 1 Ct. Cl. 190, 191 ( 1865), appeal dismissed 76 U.S. (9 Wall.) 145 ( 1870); Atlas Corp. V. United States, 895 F.2d 745, 754-755 (Fed. Cir.), cert. denied, 498 U.S. 811 ( 1990); Tony Downs Foods Co. V. United States, 530 F.2d 367 (Ct. Cl. 1976); Amino Brothers Co. V. United States, 372 F.2d 485, 491 (Ct. Cl.), cert. denied, 389 U.S. 846 ( 1967). The statutory provisions of FIRREA that plain- tiffs challenge in this case were such "public and general" acts. FIRREA as a whole is plainly a "public and general" statute. It instituted a comprehensive overhaul of the regulation of the entire thrift industry, for the protection of depositors nationwide and in order to promote the general welfare. Moreover, even the specific provisions of FIRREA imposing new capital requirements did not ---------------------------------------- Page Break ---------------------------------------- 45 merely affect alleged contractual commitments from `the regulatory agencies permitting thrifts to count goodwill as capital for purposes of meeting whatever federal capi- tal requirements might be in effect. These new provisions regulating the use of goodwill were general ones, sharply curtailing the ability of any thrift, as of the effective date of FIRREA, to count most intangible assets as capital, regardless of whether those assets had ever been at issue in any arrangement with federal regulators. The relevant question in determining whether a legisla- tive action is a "public and general act" under the sover- eign acts doctrine is not whether a particular party is affected by the governmental action at issue; it is whether the impact on a particular party or parties is caused by a law enacted to govern regulatory policy and to advance the general welfare. The FIRREA provisions involved in this case satisfy that standard. The sovereign acts doctrine accordingly would preclude liability for breach of contract here even if the alleged agreements upon which respondents rely had been included in their con- tracts with the federal agencies. 4. The Federal Circuit found the sovereign acts doc- trine inapplicable because "the relevant sections of FIRREA are not public and general sovereign acts." Pet. App. 39a. In the court's view, that conclusion follows because provisions of FIRREA specifically refer to super- visory goodwill. Because of those provisions, the court concluded that FIRREA's new regulations of capital con- stituted legislation that is not "public and general" but whose "principal effect is to abrogate specific contractual rights." Id. at 40a. The FIRREA "transition rule[s]," Pet. App. 42a, on which the court of appeals relied make limited exceptions to some of FIRREA's restrictions on the use of intangible assets for thrifts with supervisory goodwill, including thrifts in respondents' position, As the Federal Circuit recognized, these rules were designed to place respondents in a better position than other thrifts and in a better ---------------------------------------- Page Break ---------------------------------------- 46 position than they would have been had no such excep- tions been made: "The statute plainly singles out super- visory goodwill for special treatment, albeit treatment less harsh than other forms of intangible assets." Ibid. (em- phasis added). Congress thus meant to soften the impact of the new capital requirements on thrifts that had en- tered into mergers or acquisitions during the crisis in the thrift industry. The fact that transition rules in the stat- ute granted respondents a partial exception from more generally applicable restrictions-an exception that did not have to be granted-could not possibly mean that the restrictions themselves, insofar as they continued to apply to respondents, were not "public and general acts." CONCLUSION The judgment of the court of appeals should be reversed. Respectfully submitted. DREW S. DAYS, III Solicitor General FRANK W. HUNGER Assistant Attorney General PAUL BENDER Deputy Solicitor General JAMES A. FELDMAN Assistant to the Solicitor General DOUGLAS LETTER JACOB M. LEWIS SCOTT R. MCINTOSH Attorneys MARCH 1996