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
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thrifts. 12 U.S.C. § 1729(f)(1) (repealed).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").
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.
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
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,
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
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).
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
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.
A. JURISDICTION AND RIPENESS
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
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
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
(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 ...