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April 25, 1991


The opinion of the court was delivered by: Bissell, District Judge.


This matter arises before the Court on the basis of plaintiff Carteret's application for a preliminary injunction restraining the defendants from taking any regulatory action against it for failure to meet any and all such regulations as a result of defendants' refusal to permit plaintiff to utilize its "supervisory goodwill" in determining compliance with such regulations.


A. The Parties

Plaintiff Carteret Savings Bank, FA ("Carteret") is one of the largest savings and loan associations in New Jersey. (Plaintiff's Br. at 5; O'Brien*fn1 Aff., ¶¶ 4-6). Carteret converted, in 1982, to a federally chartered mutual association. In 1983, it converted to a federally chartered stock association. Its shares were publicly traded until 1986, and are presently owned by Carteret Bancorp, which is in turn owned by AmBase Corporation, whose shares are publicly traded.

Defendant Office of Thrift Supervision ("OTS") is the successor in interest to the Federal Home Loan Bank Board ("FHLBB"), which had worked in conjunction with the Federal Deposit Insurance Corporation's ("FDIC") predecessor, Federal Savings and Loan Insurance Corporation ("FSLIC"). FHLBB was charged with regulating and supervising federally chartered thrift institutions, acting as the operating head of FSLIC, and enforcing compliance by such institutions with various banking regulations, particularly the regulatory capital (or "net worth") requirements. Home Owners' Loan Act of 1933, Pub.L. No. 101-73, § 301, 83 Stat. 277 ("HOLA," codified as amended at 12 U.S.C. § 1461-1468c). FHLBB was also authorized to appoint FSLIC as conservator or receiver for an insolvent thrift, 12 U.S.C. § 1464(d)(6), and to prescribe rules for the liquidation of such thrifts under the circumstances provided in the statute and applicable regulations. 12 U.S.C. § 1464(d)(1).

FSLIC was essentially designed to insure deposit accounts of federally chartered thrifts upon compliance with Title IV of the National Housing Act of 1934 ("NHA"), 12 U.S.C. § 1724 et seq., in addition to numerous other assigned duties. One of these duties, however, is particularly important to the present case: FSLIC was authorized to extend assistance to failing thrifts, including the arrangement of mergers with "healthy" thrifts. 12 U.S.C. § 1729(f)(1) (repealed).

Both the FHLBB and FSLIC were abolished by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183, codified at 12 U.S.C. and other titles. OTS was then established and acquired most of the functions of FHLBB. 12 U.S.C. § 1462a, 1464. FIRREA also transferred many of FSLIC's functions to the FDIC. 12 U.S.C. § 1811, 1814. FIRREA was further amended by the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990, Pub.L. No. 101-647, 104 Stat. 4859 (Nov. 19, 1990), to be codified throughout 12 U.S.C. In addition, FIRREA has been modified by the Technical and Miscellaneous Amendments Act, Pub.L. No. 101-647, 104 Stat. 4906 (Nov. 19, 1990) (collectively, the "1990 Act").

B. The Events

The "S & L crisis" of the late 1970's and early 1980's is well documented. High interest rates and record inflation caused many thrifts which held long-term, low-yield, fixed-rate mortgages to experience operating losses and ultimately fail. The government had to act in order to diminish the crisis.

The present litigation revolves around what the government did then. The parties herein tell the story differently, as to what exactly the government did and pursuant to what authority. Carteret describes the events of the 1980's as follows. FHLBB and FSLIC implemented a policy of requiring problem thrifts to merge into healthy institutions, in order to save the cost and cash outlays required to liquidate the failing bank. (Plaintiff's Br. at 8; Faucette*fn2 Aff., ¶ 6; O'Brien Aff., ¶¶ 8, 9). Despite any possible savings, the cost of the mergers was very high because FSLIC provided supervisory financial assistance to the merging institutions. (Plaintiff's Br. at 8 (citing Beesley*fn3 Remarks, 3/3/82, at Plaintiff's App., Exh. 6)). These cash outlays were threatening to bankrupt the FSLIC. (Plaintiff's Br. at 9 (citing Beesley Remarks 9/9/82, at Plaintiff's App., Exh. 4)). Therefore, FSLIC promised healthy acquiring institutions that goodwill derived under the purchase method of accounting*fn4 would count dollar-for-dollar as regulatory capital, for purposes of determining compliance with government standards. (Plaintiff's Br. at 9; Beesley Remarks, 4/13/82 at 6-8, Plaintiff's App., Exh. 5; Pratt*fn5 Interview, 11/24/81 at 6-7, Plaintiff's App., Exh. 9).

The latter "promise" represents the crux of the present dispute. OTS asserts, essentially, that the government made no such promise, and even if it did FIRREA overrides it to preclude the use of supervisory goodwill in determining compliance with the capital regulations.

C. The Relevant Transactions and Related Documents

1. The 1982 Acquisitions

On September 30, 1982, Carteret acquired, under the supervision of FSLIC and FHLBB, two FSLIC-insured failing thrifts. (O'Brien Aff., ¶ 14). One was the First Federal Savings and Loan Association of Delray Beach ("Delray") in Florida, and the other was the Barton Savings and Loan Association ("Barton") of New Jersey. (Id.) Carteret received $11.7 million in financial assistance for the acquisition of Barton, but no financial assistance for the acquisition of Delray. (Id.) As of the acquisition date, Barton had assets with a fair market value of $126 million and liabilities with a fair market value of $172 million, such that the acquisition left $46 million of goodwill. (Id., ¶ 15). Similarly, Delray had assets with a fair market value of $644 million and liabilities valued at $812 million, such that it had $168 million in goodwill. (Id.) Thus, the acquisition of these two institutions provided Carteret with $214 million in supervisory goodwill, about 90% of the amounts presently in question. (Id., ¶¶ 15, 16).

Numerous documents were generated as a result of the merger of Delray and Barton into Carteret. The first is a letter from FHLBB Secretary J.J. Finn to Robert O'Brien of Carteret, dated September 30, 1982, which confirms the parties' understanding. (See O'Brien Aff., Exh. A (referred to herein as "1982 Forbearance Letter")). This letter was subsequently clarified by letter of the FHLBB dated October 12, 1988. (See O'Brien Aff., Exh. B). The second is an "Assistance Agreement" between FSLIC and Carteret, dated September 29, 1982 and signed by the parties on the 29th and 30th of that month. (See O'Brien Aff., Exh. C). The third document is FHLBB Resolution No. 82-662, adopted on September 30, 1982, approving the merger. (See Faucette Aff., Exh. H). Carteret has also provided the Court with the various bid letters it submitted to FHLBB prior to completion of the transaction. (See Faucette Aff., Exhs. D, E, F).

2. The 1986 Transactions

On June 6, 1986, Carteret acquired two*fn6 additional troubled thrifts in another supervisory merger. One is the First Federal Savings and Loan Association of Montgomery County ("First Federal"), in Blacksburg, Virginia, and the other is Mountain Security Savings Bank ("MSSB") of Wytheville, Virginia. (O'Brien Aff., ¶ 25). The acquisition of these two thrifts resulted in additional supervisory goodwill in the amount of $22,059,000. (Id.) As with the 1982 acquisitions, this transaction generated various documents: FHLBB Resolution No. 86-566 (Blanco*fn7 Aff., Exh. D); an Acquisition Agreement between FSLIC and Carteret (id., Exh. E); an Assistance Agreement between FSLIC and Carteret (id., Exh. F); and various revised bid letters to FSLIC and FHLBB from Carteret (Blanco Aff., Exhs. A, B, C).

Carteret contends that the documents for each transaction constitute a binding contract, permitting it to use supervisory goodwill in determining whether it has met its regulatory requirements.


FIRREA sharply curtailed the use of supervisory goodwill in determining whether regulatory capital requirements are met. Amortization of supervisory goodwill is limited to 20 years. 12 U.S.C. § 1464(t)(9)(B). In addition, its use to calculate "core capital," an accounting category that now must amount to no more than three percent of the institution's total asset base, is being phased out. 12 U.S.C. § 1464(t)(2)(A). By January 1, 1995, supervisory goodwill cannot be used at all to calculate core capital. 12 U.S.C. § 1464(t)(3)(A).

At the same time, FIRREA has strengthened the capital standards which savings associations must meet. Specifically, "[t]he Director [of OTS] shall, by regulation, prescribe and maintain uniformly applicable capital standards for savings associations. Those standards shall include (i) a leverage limit; (ii) a tangible capital requirement; and (iii) a risk-based capital requirement." 12 U.S.C. § 1464(t)(1)(A). All three of these standards must be met. 12 U.S.C. § 1464(t)(1)(B).

The OTS, the agency charged with enforcing FIRREA, has interpreted its requirements as applying to all thrifts not specifically exempted by FIRREA. Accordingly, on January 9, 1990, OTS issued "Thrift Bulletin 38-2" which prohibits the use of supervisory goodwill in determining whether a savings association is in capital compliance, regardless of any previous forbearances issued. Thus, argues OTS, even if Carteret had an otherwise enforceable contract to use supervisory goodwill to meet capital requirements, this contract has been abrogated by the statute and is therefore no longer enforceable.

E. Recent Events

In June and December 1990, OTS prepared an examination report of Carteret. (Walsh*fn8 Aff., ¶ 30). In that report, the regulators did not include Carteret's supervisory goodwill as regulatory capital in calculating Carteret's compliance, consistent with its position. (Id.) Thus, Carteret was declared out of compliance, and all of the consequences thereof contained in FIRREA began. These consequences include a prohibition against asset growth and a requirement that Carteret comply with a capital directive issued by OTS. 12 U.S.C. § 1464(t)(6). Thus, on February 4, 1991, OTS Assistant Director Joseph Kehoe sent Carteret a "Stipulation and Consent to the Issuance of a Capital Directive," with instructions to adopt it by February 28, 1991. (See Walsh Aff., Exh. B). The Capital Directive contains a wide variety of requirements with which Carteret must comply, many of which are extreme. The overall effect of these requirements is substantial governmental control of and/or intervention in even the most basic day-to-day operation of the plaintiff. Furthermore, although this Directive appears to seek consent before it will be imposed, it is evident that failure to consent results in its imposition, without consent.

The sole basis of OTS' action is Carteret's failure to meet capital requirements (specifically, the risk-based capital requirements), and the only reason it does not meet them is because OTS does not count the supervisory goodwill in making its determination. If Carteret was able to use that goodwill, it would be in capital compliance. No other basis for regulatory action against Carteret is asserted.

Based on these events, Carteret filed a seven-count complaint. Count One asserts that defendants' failure to recognize Carteret's supervisory goodwill is an action in excess of its statutory authority and is in violation of § 401(f), (g) and (h) of FIRREA (found at 12 U.S.C. § 1437 note (1990)). Count Two states that the actions of the defendants constitute a violation of the Administrative Procedure Act ("APA"). Count Three seeks a declaratory judgment that FIRREA cannot and did not abrogate plaintiff's alleged contracts with defendants' predecessors. Count Four asserts that the defendants are estopped from prohibiting the use of goodwill as a result of their actions and Carteret's reliance thereon. Count Five asserts that plaintiff's contractual right to use goodwill is property protected by the fifth amendment, so that OTS' restriction on its use violates the fifth amendment and Carteret's right to due process of law. Count Six seeks reformation of the contract to provide plaintiff with cash or assets in the amount that it should have received as consideration under the parties' contracts. Finally, Count Seven asserts a claim against OTS and FDIC for breach of the contracts entered into by FHLBB and FSLIC. Carteret therefore seeks numerous forms of equitable relief and declaratory judgments.

On the same day it filed its complaint, Carteret also sought a temporary restraining order ("TRO") against the OTS. After oral argument was heard on February 15, 1991, this Court issued a TRO restraining OTS from taking any action against Carteret based on a determination that supervisory goodwill cannot be used. The Court also set the matter down for a preliminary injunction hearing, which was held on April 12, 1991, resulting in the present opinion.



In the February 18, 1991 oral opinion, this Court stated that it had jurisdiction as follows:

  The Court determines, first, that it does have
  jurisdiction on at least two bases. The first
  under the Administrative Procedure Act, 5 U.S.C.
  Sections 702 and 706 as elaborated by Judge
  Rodriguez in the Hansen [Savings Bank, et al. v.
  Office of Thrift Supervision [758 F. Supp. 240], No.
  90-4092, slip op. (D.N.J. January 30, 1991)] case
  and also pursuant to the expressed directive of
  12 U.S.C. § 1464(d)(1) as several other courts with
  similar cases have held.
    The Court specifically finds, at least at this
  juncture of the case, the defendants have not
  persuaded the Court that the Tucker Act or
  comparable remedies which the plaintiff might have
  before the Court of [C]laims are exclusive.

(Tr. of Op. on Order to Show Cause, February 18, 1991 at 3). This Court specifically reiterates those findings and supplements them as follows.

As indicted above, the OTS has issued Thrift Bulletin 38-2 which states:

  The Office of Thrift Supervision is applying the
  new capital standards to all savings associations,
  including those associations, that have been
  operating under previously granted capital and
  accounting forbearances. Section 5(t) of HOLA as
  amended by [FIRREA] eliminates these forbearances.
  All savings associations presently operating with
  these forbearances, therefore, should eliminate
  them in determining whether or not they comply with
  the new minimum regulatory capital standards. (Any
  FSLIC capital contributions that resulted in the
  creation of goodwill will be subject to the
  requirements for goodwill established in the
  capital regulation). If the association determines
  that it will fail its minimum regulatory capital
  requirements upon the elimination of capital and
  accounting forbearances, it must submit a capital
  plan . . . in accordance with the regulatory
  capital regulation and Thrift Bulletin 36.
  A capital plan will not be acceptable if it
  includes the continuation of previously granted
  capital and accounting forbearances. Capital plans
  already submitted that propose to continue
  previous capital and accounting forbearances will
  be either disapproved, returned for revision and
  resubmittal or conditionally approved with the
  requested forbearances denied.

(Plaintiff's App. to Compl., Exh. 15) (emphasis added). This bulletin is a final agency action within the meaning of APA § 2(c), 5 U.S.C. § 551(4), and is ripe for judicial review. See Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967). Other federal courts have reached the same result. See e.g. Hansen Savings Bank, et al. v. Office of Thrift Supervision, 758 F. Supp. 240, 243 (D.N.J. 1991); Franklin Federal Savings Bank, et al. v. Director, Office of Thrift Supervision, 927 F.2d 1332, 1337 (6th Cir. 1991).

With respect to the FDIC, however, this Court reiterates its view expressed from the bench on February 18, 1991, that plaintiff's claims against it are not ripe. The comments of the Sixth Circuit are particularly on point here:

  While we conclude that the suit against the OTS is
  sufficiently ripe, the claim against the FDIC is a
  different story. The FDIC has, so far as we can
  tell, taken no action that has had any effect
  whatsoever on the plaintiff. The only thing that
  the FDIC might be able to do to [the plaintiff]
  would be to revoke its insurance coverage. If it
  were to do that, however, [the plaintiff] would be
  entitled to an adversary hearing prior to the
  termination of its insurance.
  12 U.S.C. § 1818(a)(2) & (3). That determination would then be
  subject to appellate review in accordance with the
  provisions of the Administrative Procedure Act.
  12 U.S.C. § 1818(h)(2). Thus, we conclude that the
  claim against the FDIC is not ripe for review.

Franklin Federal, 927 F.2d at 1338. This Court agrees with this analysis and, therefore, finds that plaintiff's present claims against the FDIC herein are not ripe for review. The Court understands that the FDIC has been named as a defendant in part because it is the successor to FSLIC, a party to the contracts in question. On that basis, FDIC remains a viable defendant for purposes of plaintiff's complaint.

The second basis for jurisdiction in this Court is 12 U.S.C. § 1464(d)(1)(A) which provides that the Director of OTS is subject to suit, other than suits on claims for money damages.*fn9 Thus, sovereign immunity has been waived as to that federal agency and this Court has jurisdiction.

The parties, subsequent to this Court's previously quoted oral opinion, have argued at length whether this Court has jurisdiction to hear plaintiff's "taking" and contract claims. Essentially, defendants argue that these claims are within the exclusive jurisdiction of the Claims Court as a result of the Tucker Act, 28 U.S.C. § 1491. The relevant portion of the Tucker Act reads as follows:

  (a)(1) The United States Claims Court shall have
  jurisdiction to render judgment upon any claim
  against the United States founded either upon the
  Constitution, or any Act of Congress or any
  regulation of an executive department, or upon any
  express or implied contract with the United States,
  or for liquidated or unliquidated damages in cases
  not sounding in tort. For the purpose of this
  paragraph, an express or implied contract with the
  Army and Air Force Exchange Service, Navy
  Exchanges, Marine Corps Exchanges, Coast Guard
  Aeronautics and Space Administration shall be
  considered an express or implied contract with the
  United States.
  (3) To afford complete relief on any contract
  claim brought before the contract is awarded, the
  court shall have exclusive jurisdiction to grant
  declaratory judgments and such equitable and
  extraordinary relief as it deems proper, including
  but not limited to injunctive relief. In
  exercising this jurisdiction, the court shall give
  due regard to the interests of national defense
  and national security.

28 U.S.C. § 1491(a)(1), (3) (emphasis added).

Several courts have considered whether supervisory goodwill cases, based on contracts with the FHLBB and FSLIC, are properly brought only under the ...

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