US SUPREME COURT DECISIONS
UNITED STATES v. WINSTAR CORP. ET AL. 518 U.S. 839
Subscribe to Cases that cite 518 U.S. 839OCTOBER TERM, 1995
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UNITED STATES v. WINSTAR CORP. ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
No. 95-865. Argued April 24, 1996-Decided July 1, 1996
Realizing that the Federal Savings and Loan Insurance Corporation (FSLIC) lacked the funds to liquidate all of the failing thrifts during the savings and loan crisis of the 1980's, the Federal Home Loan Bank Board (Bank Board) encouraged healthy thrifts and outside investors to take over ailing thrifts in a series of "supervisory mergers." As inducement, the Bank Board agreed to permit acquiring entities to designate the excess of the purchase price over the fair value of identifiable assets as an intangible asset referred to as supervisory goodwill, and to count such goodwill and certain capital credits toward the capital reserve requirements imposed by federal regulations. Congress's subsequent passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) forbade thrifts to count goodwill and capital credits in computing the required reserves. Respondents are three thrifts created by way of supervisory mergers. Two of them were seized and liquidated by federal regulators for failure to meet FIR REA's capital requirements, and the third avoided seizure through a private recapitalization. Believing that the Bank Board and FSLIC had promised that they could count supervisory goodwill toward regulatory capital requirements, respondents each filed suit against the United States in the Court of Federal Claims, seeking damages for, inter alia, breach of contract. In granting each respondent summary judgment, the court held that the Government had breached its contractual obligations and rejected the Government's "unmistakability defense"-that surrenders of sovereign authority, such as the promise to refrain from regulatory changes, must appear in unmistakable terms in a contract in order to be enforceable, see Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U. S. 41, 52-and its "sovereign act" defense-that a "public and general" sovereign act, such as FIRREA's alteration of capital reserve requirements, could not trigger contractual liability, see Horowitz v. United States, 267 U. S. 458, 461. The cases were consolidated, and the en banc Federal Circuit ultimately affirmed.
Held: The judgment is affirmed, and the case is remanded. 64 F.3d 1531, affirmed and remanded.
JUSTICE SOUTER, joined by JUSTICE STEVENS, JUSTICE O'CONNOR, and JUSTICE BREYER, concluded in Parts II, III, IV, and IV-C that
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the United States is liable to respondents for breach of contract. pp. 860-896; 904-910.
(a) There is no reason to question the Federal Circuit's conclusion that the Government had express contractual obligations to permit respondents to use goodwill and capital credits in computing their regulatory capital reserves. When the law as to capital requirements changed, the Government was unable to perform its promises and became liable for breach under ordinary contract principles. Pp. 860-871.
(b) The unmistakability doctrine is not implicated here because enforcement of the contractual obligation alleged would not block the Government's exercise of a sovereign power. The courts below did not construe these contracts as binding the Government's exercise of authority to modify its regulation of thrifts, and there has been no demonstration that awarding damages for breach would be tantamount to such a limitation. They read the contracts as solely risk-shifting agreements, and respondents seek nothing more than the benefit of promises by the Government to insure them against any losses arising from future regulatory change. Applying the unmistakability doctrine to such contracts not only would represent a conceptual expansion of the doctrine beyond its historical and practical warrant, but also would compromise the Government's practical capacity to make contracts, which is "of the essence of sovereignty" itself, United States v. Bekins, 304 U. S. 27, 51-52. pp. 871-887.
(c) The answer to the Government's unmistakability argument also meets its two related ultra vires contentions: that, under the reserved powers doctrine, Congress's power to change the law in the future was an essential attribute of its sovereignty that the Bank Board and FSLIC had no authority to bargain away; and that in any event no such authority can be conferred without an express delegation to that effect. A contract to adjust the risk of subsequent legislative change does not strip the Government of its legislative sovereignty, and the contracts did not surrender the Government's sovereign power to regulate. And there is no serious question that FSLIC (and the Bank Board acting through it) lacked authority to guarantee respondents against losses arising from subsequent regulatory changes. Pp. 888-891.
(d) The facts of this case do not warrant application of the sovereign act doctrine. That doctrine balances the Government's need for freedom to legislate with its obligation to honor its contracts by asking whether the sovereign act is properly attributable to the Government as contractor. If the answer is no, the Government's defense to liability depends on whether that act would otherwise release the Government from liability under ordinary contract principles. Pp.891-896.
