AMERICAN CAPITAL CORPORATION and Transcapital Financial Corporation, Plaintiffs, and Federal Deposit Insurance Corporation, as Successor to the Rights of the Transohio Savings Bank, Plaintiff-Intervenor, v. The UNITED STATES, Defendant, 66 Fed. Cl. 315

FINAL OPINION AND ORDER FOR JUDGMENT AWARDING TRANSCA-PITAL FINANCIAL CORPORATION $109.309 MILLION DAMAGES FOR LOSSES BASED ON RELIANCE INTERESTS BRADEN, Judge. This breach of contract ease was filed a decade ago. During the 21 months this ease has been pending before the undersigned judge, the court issued a decision determining, as a matter of law, that the United States (“Government”) was liable for a breach of contract. See American Capital Corp. v. United States, 58 Fed.Cl. 398 (2003) (“American Capital 7”).

Next, the court issued a decision determining, as a matter of law, that one of the plaintiffs, Transcapital Financial Corporation (“TFC”), incurred a loss of reliance interests as a direct result of the Government’s breach in the amount of $168.645 million. See American Capital Corp. v. United States, 59 Fed.Cl. 563 (2004) (“American Capital IF).

Following a 14-day Evidentiary Hearing spanning three months, the Government was afforded an opportunity to establish with reasonable certainty, under the standard set forth in Restatement (Second) of Contracts (“Restatement”) § 349 (1981), those losses that would have been incurred irrespective of the breach. Thereafter, the court decided to reduce the damage amount to $109.309 million. See American Capital Corp. v. United States, 63 Fed.Cl. 637 (2005) (“American Capital III").

Although the United States Court of Appeals for the Federal Circuit recently recognized the relevance of Restatement § 349 in Westfed Holdings, Inc. v. United States, 407 F.3d 1352, 1369-71 (Fed. Cir.2005), as of this date, no federal trial court in this country has ever afforded a defendant the opportunity to utilize it, as was done in this case.

As the court will again and further clarify herein, the court has determined in American Capital II and American Capital III that causation-in-fact and causation-in-law were established by TFC, whether the standard is “substantial factor,” “substantial evidence,” “but for,” “directly caused,” “definitely established,” or any other traditional causation standard utilized in our common law tradition.

Subsequently, the court exercised its discretion to evaluate three separate motions for reconsideration by the Government, i.e., November 17, 2003, March 12, 2004, and February 27, 2005, subsumed in which were 16 separate arguments, in addition to affording supplemental briefing regarding the United States Court of Appeals for the Federal Circuit’s decision in California Federal Bank v. United States, 395 F.3d 1263 (Fed. Cir.2005) (“California Federal Bank”), issued on January 19, 2005, on the same day as American Capital III. See American Capital Corp. v.

United States, 65 Fed.Cl. 241 (2005) (“American Capital IV”). The court further exercised its discretion to allow the Government the additional opportunity to supplement the record to argue the relevance of the United States Court of Appeals for the Federal Circuit’s opinion in Westfed Holdings, Inc. v. United States, 407 F.3d 1352 (2005). In the court’s judgment, this is a ease in which the factual record has been fully developed and the law is clear and settled. As the United States Court of Appeals for the Federal Circuit advised in Glendale Federal Bank, FSB v.

United States, 239 F.3d 1374 (Fed.Cir.2001) (“[It] is ... in the interests of the United States to settle these [Winstar-related] cases equitably and fairly, so the cost to the taxpayers can be concluded without further delay.”) Id. at 1383-84. If the Government decides to ignore that thoughtful and pragmatic guidance, then this case now is ripe for appellate review in every sense. On August 9, 1989, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act, Pub.L.

No. 101-73, 103 Stat. 183 (1989) (“FIRREA”) requiring all savings and loan associations (“thrifts”) strictly to comply with new “core capital,” “tangible capital,” and “risk-based” capital requirements. In United States v.

Winstar Corp., 518 U.S. 839, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996), the United States Supreme Court held that, although Congress may decide to change applicable law allowing the federal government to disavow agreements made in the 1980s with thrifts as an inducement to acquire failing and failed institutions, “[contractual] terms assigning the risk of regulatory change to the Government are enforceable, and the Government is therefore liable in damages for breach.” Id. at 843,116 S.Ct. 2432 (emphasis added).

In American Capital I, incorporated herein, the court held that the terms of an August 29, 1986 Assistance Agreement between the Federal Savings and Loan Corporation (“FSLIC”) and American Capital Corporation (“AMCAP”), Transcapital Financial Corporation (“TFC”), and Transohio Savings Bank, FSB (“Transohio Savings”), assigned the risk of regulatory change to the Government, at least with respect to a promise to allow Transohio Savings to amortize a FSLIC $107.5 million capital credit and $50 million in supervisory goodwill, as adjusted on a 25 year straight-line basis and to apply that amount toward meeting regulatory capital requirements.

Id. at 409. The court also held that on December -9, 1989,when FIR-REA was enacted, the Government breached those essential terms of the August 29, 1986 Assistance Agreement (“the breach”). See American Capital I, 58 Fed.Cl. at 401.

In American Capital II, incorporated herein, the court held that the Government’s breach of the August 29, 1986 Assistance Agreement was the cause of TFC’s loss of reliance interests and therefore TFC was entitled to damages in the total amount of $168.645 million, subject to an Evidentiary Hearing to afford the Government an opportunity, pursuant to Restatement (Second) of Contracts § 349 (1981) (“Restatement”), to establish with reasonable certainty any losses that Transohio Savings would have incurred, irrespective of the breach. See American Capital II, 59 Fed.Cl. at 582-83, 589.

At that Evidentiary Hearing the court learned, as the United States Supreme Court observed in Winstar that: [t]he impact of FIRREA’s new capital requirements upon institutions that had acquired failed thrifts in exchange for supervisory goodwill was swift and severe. Winstar, 518 U.S. at 857, 116 S.Ct. 2432. And, so it was for Transohio Savings.

Nevertheless, in the court’s judgment, the Government established at the Evidentiary Hearing with reasonable certainty, or the record otherwise evidenced, that $50.336 million of the net losses recorded in fiscal years 1989-1991 would have been incurred by Transohio Savings irrespective of the breach. Accordingly, in American Capital III, incorporated herein, the court determined that TFC’s losses based on reliance interests should be reduced from $168.645 million to $109.309 million.

On January 19, 2005, the same day that the court issued American Capital III, the United States Court of Appeals for the Federal Circuit issued California Federal Bank v. United States, 395 F.3d 1263, 1268 (Fed.

Cir.2005), wherein the standard of causation for lost profits cases was clarified to be one “definitely established.” Since the Government had motions for reconsideration pending regarding the court’s determination in American Capital I and American Capital II and indicated a motion for reconsideration would be filed regarding American Capital III, the court requested that the parties also address the relevance of California Federal at the same time that it submitted briefs regarding reconsideration of American Capital III.

On April 27, 2005, the court issued a Memorandum Opinion and Order Regarding the Government’s November 17, 2003, March 12, 2004, and February 27, 2005 Motions for Reconsideration, including the parties’ arguments regarding the relevance of California Federal Bank. See American Capital IV, 65 Fed.Cl. at 253, also incorporated herein. On May 17, 2005, the Government filed a Notice of Supplemental Authority regarding the decision of the United States Court of Appeals for the Federal Circuit in Westfed Holdings, Inc. v.

United States, 407 F.3d 1352 (2005), that the court has treated herein as a motion for reconsideration. On May 25, 2005, plaintiffs filed a response. The court’s determination of the issues raised in Westfed Holdings is included in the final

section of this Final Opinion discussing all the Winstar-related decisions of the United States Court of Appeals for the Federal Circuit issued after American Capital III and American Capital IV. In light of the multitude of issues addressed herein, an outline of the Final Opinion follows. I. FACTUAL BACKGROUND BEFORE TRANSOHIO SAVINGS BANK, FSB INCURRED NET LOSSES IN FISCAL YEAR 1989 A. 1984 American Capital Corporation’s Acquisitions Of Transohio Savings Bank, FSB And AmeriStar Financial Corporation.

B. 1985-1986 American Capital Corporation’s Negotiations With The Federal Home Loan Bank Board That Resulted In Transohio Savings Bank, FSB’s Supervisory Mergers Of Citizens Federal Savings And Loan Association Of Cleveland, Ohio And Dollar Savings Bank Of Columbus, Ohio. C. August 29, 1986 Supervisory Mergers Of Citizens Federal Savings And Loan Association Of Cleveland, Ohio And Dollar Savings Bank Of Columbus, Ohio With Transohio Savings Bank, FSB. D. The Financial Condition Of Transohio Savings Bank, FSB After The August 29, 1986 Supervisory Mergers Until 1989. 1.

The October 21,1987 Joint Examination By The State Of Ohio Division Of Savings And Loan Associations And The Federal Home Loan Bank Board For The Period January 1986-May 1987. a. Transohio Savings — Management. b. Transohio Savings — Asset Quality. c. Transohio Savings — Capital. d. Transohio Savings — Risk Management. e. Transohio Savings — Operating Results. 2. Transohio Savings’ Financial Condition From October 21, 1987 Until The Next Joint Examination Was Issued On March 30, 1989. II. PROCEDURAL BACKGROUND IN THE UNITED STATES COURT OF FEDERAL CLAIMS III. DISCUSSION A. Jurisdiction And Standing. B.

The “Reliance Interest” Is A Recognized Judicial Remedy That Is Fixed When An Expenditure Is Made, But Does Not Arise Until The Breach Of Contract. 1. “Essential Reliance” Damages. 2. “Incidental Reliance” Or “Collateral Reliance” Damages. C. The Court’s Final Determination Of TFC’s Reliance Interest Is $117,479 Million. 1. TFC Is Entitled To $126,479 Million, Based On The Government’s Breach Of TFC’s “Essential Reliance” Interest Or The Book Value Of Transohio Savings’ Stock, As Of August 29,1986, Minus The $9 Million Dividend Paid To AMCAP In Fiscal Year 1989. a.

The Court’s Determination Of TFC’s “Essential Reliance” Interest In American Capital II. b. The Court’s Determination Of TFC’s “Essential Reliance” Interest By Book Value, Rather Than Market Value. c. The Court’s Final Determination Of TFC’s “Essential Reliance” Interest. 2. TFC Is Entitled To $42.166 Million Regarding Its “Collateral Reliance” Interest, i.e., The Capital TFC Transferred To Transohio Savings As A Result Of The December 31,1986 Transohio Rights Offering. D. Calculating Damages Based On The Reliance Interest. E. Regulatory Enforcement Attitudes After FIRREA. F. The Arguments Of The Parties. 1.

Summary Of The Government’s Argument. a. Causation. b. Transohio Savings’ Net Losses. 2.

Summary Of TFC’s Argument. G. Overview Of The Court’s RESTATEMENT § 349 Analysis. H. Overview Of The Experts. 1. Overview Of The Government’s Experts. a. Professor Kroszner. b. Dr. Hamm. c. Mr. Johnson. 2. Plaintiffs’ Expert. a. Professor James. I. Final Determination Of Net Losses That The Government Established With Reasonable Certainty That Transohio Savings Bank, FSB Would Have Incurred Irrespective Of The Breach. 1. January 1,1989-December 31,1989. a. The Financial Condition Of Transohio Savings Bank, FSB And Net Losses Incurred.

(1) Transohio Savings Bank, FSB’s SEC Forms 10-K And Internal Documents.

(2) The Supervisory Authorities’ Joint Examination F or The Period March 30, 1989-September 6, 1989. (aa) Transohio Savings — Management. (

i) General-Personnel. (ii) The Aborted AmeriFirst Acquisition. (iii) The Aborted Consolidation Of AMCAP And Transcapital Financial Into Transohio Savings. (bb) Transohio Savings — Asset Quality. (

i) Asset Classification Policies And Procedures. (ii) Composition Of Classified Assets. (iii) Loan Underwriting. (cc) Transohio Savings — Capital Adequacy. (dd) Transohio Savings — Risk Management. (

i) Interest Rate. (ii) GAP Hedging Activities. (iii) Risk-Controlled Arbitrage-Hedged Mortgage Investment (“HMI”). (iv) Other Hedging And Trading Activities. (

v) Secondary Market Activities. (vi) Liquidity Risk. (ee) Transohio Savings — Operating Results.

(3) The FDIC Examination For The Period January 1, 1989-December 31, 1989. (aa) Transohio Savings — Capital. (bb) Transohio Savings — Asset Quality. (cc) Transohio Savings — Management. (dd) Transohio Savings — Earnings. (ee) Transohio Savings — Liquidity.

(4) Post-FIRREA. b. Analysis And Opinions Of The Government’s Experts.

(1) Professor Kroszner.

(2) Dr. Hamm.

(3) Mr. Johnson. c. The Government Established With Reasonable Certainty That Trans-ohio Savings Bank, FSB Would Have Incurred Net Losses of $19,846 Million In Fiscal 1989 Irrespective Of The Breach. 2. January 1,1990-December 31, 1990. a. The Financial Condition Of Transohio Savings And Net Losses Incurred.

(1) Transohio Savings’ OTS Form 10-K And Internal Memoranda. b. Analysis And Opinion Of The Government’s Experts.

(1) Professor Kroszner.

(2) Dr. Hamm.

(3) Dr. Johnson. c. The Government Established With Reasonable Certainty That Trans-ohio Savings Bank, FSB Would Have Incurred Net Losses of $11.69 Million In Fiscal 1990 Irrespective Of The Breach. 3. January 1,1991-December 31,1991. a. The Financial Condition Of Transohio Savings And Net Losses Incurred. b. Analysis And Opinion Of The Government’s Experts.

(1) Professor Kroszner.

(2) Dr. Hamm.

(3) Mr. Johnson. c. The Government Established With Reasonable Certainty That Trans-ohio Savings Bank, FSB Would Have Incurred Net Losses of $18.8 Million In Fiscal 1991 Irrespective Of The Breach. 4. January 1,1992-July 10, 1992. J. Limiting Rules On Reliance Damages. 1. Foreseeability. 2. Certainty. K. The Government Is Not Entitled To A Credit In This Case. L. Mrcsfar-Related Decisions Of The United States Court Of Appeals For The Federal Circuit Issued After American Capital II, American Capital III, And American Capital IV. 1. California Federal Bank v. United States, 395 F.3d 1263 (Fed.Cir.2005). 2.

Home Savings of America, FSB v. United States, 399 F.3d 1341 (Fed.Cir. 2005). 3. Fifth Third Bank of Western Ohio v. United States, 402 F.3d 1221 (Fed.Cir. 2005). 4. Westfed Holdings, Inc. v. United States, 407 F.3d 1352, 2005 WL 1119654 (Fed.Cir. May 12, 2005). 5. Hometown Financial, Inc. v. United States, No. 04-5116, 409 F.3d 1360, 2005 WL 1253120 (Fed.Cir. May 27, 2005). IV. CONCLUSION I. FACTUAL BACKGROUND BEFORE TRANSOHIO SAVINGS BANK, FSB INCURRED NET LOSSES IN FISCAL YEAR 1989. A. 1984 American Capital Corporation’s Acquisitions Of Transohio Savings Bank, FSB And AmeriStar Financial Corporation.

Transohio Savings was a federally chartered stock savings and loan association, insured by the FSLIC and a member of the Federal Home Loan Bank Board (“FHLBB”) of Cincinnati. See DX 29 at WOT286 0081. On July 24,1984, First Global Investors, Inc. (“FGI”) acquired control of Transohio Savings’ common stock. See DX 29 at WOT286 0063, WOT286 0080. On July 27, 1984, FGI became a wholly-owned subsidiary of AM-CAP, which became a savings and loan holding company. See id. FGI also owned 50.8% of the common stock of Transohio Financial Corporation, which also owned 100% of Transohio Savings’ stock.

See DX 29 at WOT286 0080-81; see also TR at 2448. And so, in this manner, Transohio Savings became a wholly-owned subsidiary and the principal asset of TFC. See DX 102 at PAC086 0489. The primary lending activity of Transohio Savings was originating and purchasing loans secured by mortgages on residential properties, primarily those insured by the Federal Housing Administration or Veterans Administration. See DX 29 at WOT286 0081; DX 102 at PAC086 0464. Transohio Savings generated residential loan originations primarily through branch personnel and real estate brokers. See DX 102 at PAC086 0464.

In addition, Transohio Savings made construction loans, usually only one year in length, that were generated by contractors. See DX 29 at WOT286 0082. Mobile home and home improvement loans were generated through dealers and contractors. See DX 102 at PAC086 0464. Under the National Housing Act, Pub.L. No. 73-479, 48 Stat. 1246 (1934), as amended by the Competitive Equality Banking Act of 1987, Pub.L.

No. 100-86, § 1204, 101 Stat. 552 (1987), AMCAP, as a savings and loan holding company, was authorized to engage in non-savings institution transactions, if it controlled one institution that met the “qualified thrift lender” test, i.e., that directed 60% of its assets to housing and related activities. See DX 102 at PAC086 0477.

Moreover, under the laws of the State of Ohio, Trans-ohio Savings could invest up to 15% of its assets in capital stock, obligations, or other securities of service corporations; 20% of its net worth in loans to service corporations; 10% of its assets in real estate; 10% of its assets in corporate equity securities; 3-10% of its assets in non-service corporations; and 15% of its assets in loans or investments not “otherwise specifically authorized or prohibited.” DX 102 at PAC086 0470-71.

On September 19,1984, Transohio Savings acquired ail the common stock of a company that later changed its name to AmeriStar Financial Corporation (“AmeriStar”), for approximately $3.3 million, as well as the rights to other payments if AmeriStar was profitable. See DX 31 at WON251 1132; see also DX 30 at PAC024 1582; DX 33 at PAC016 1629-30; DX 41 at WON327 0756; DX 90 at FAC011 2210.

B. 1985-1986 American Capital Corporation’s Negotiations With The Federal Home Loan Bank Board That Resulted In Transohio Savings Bank, FSB’s Supervisory Mergers Of Citizens Federal Savings And Loan Association Of Cleveland, Ohio And Dollar Savings Bank Of Columbus, Ohio. In June 1985, AMCAP raised approximately $75 million through the issuance of “Units consisting of an aggregate of $80 million principal amount of Notes and 14,960,000 Warrants in a public offering....

As a condition to incurring the indebtedness relating to the Units offering, [AMCAP] agreed not to use the proceeds of the Units offering without the approval of the [FHLBB], [AMCAP] invested $20 million of the proceeds of the Units offering in 13% Convertible Subordinated Notes of Transohio.” DX 29 at WOT286 0074 (emphasis added). Consequently, as of June 30, 1985, Transohio Savings had $2.9 billion in assets, shareholder equity of $101.4 million, and was the largest thrift in Ohio. See DX 29 at WOT286 0081; DX 41 at WON327 0755; see also TR at 84.

On August 29, 1985, the FHLBB notified AMCAP and TFC that the agency was looking for a viable financial institution to purchase two financially troubled thrifts: Citizens Federal Savings and Loan Association of Cleveland, Ohio (“Citizens”) and Dollar Savings Bank of Columbus, Ohio (“Dollar”). See American Capital I, 58 Fed.Cl. at 401 (citing PI. Motion for Partial S.J. on Liability Appendix at 322); see also TR at 2687-88.

On May 30, 1986, the FHLBB’s Office of Supervisory Agent in Cincinnati provided the Assistant Director for Regional Operations in Washington, D.C. with an analysis of a proposal by AMCAP, TFC, and related entities to acquire both Citizens and Dollar. See DX 41. Approval of these acquisitions was recommended by the federal regulators, but made contingent upon several conditions being fulfilled, first among which was: “[Plaintiffs] shall stipulate to the FSLIC that it will cause the net worth of the surviving insured institution to be maintained at a level consistent with the requirements of

Section 563.13(

b) of the Rules and Regulations for Insurance of Accounts [12 C.F.R. § 563.13(b) (1986),] as now or hereafter in effect, and, as necessary, will infuse sufficient additional equity capital, in a form satisfactory to the Supervisory Agent, to effect compliance with such requirement.” DX 41 at WON327 0762. By December 31, 1985, AMCAP owned approximately 51% of TFC, which in turn owned all of the common stock of Transohio Savings. See DX 31 at WON251 1129. Within six months, Transohio Savings increased its total assets to $3.5 billion and had a regulatory net worth of 3.5%.

On June 19, 1986, the FHLBB was informed of AMCAP’s intent to provide Transohio Savings with $45 million from a Transohio Rights Offering, which was planned to be concluded by the time the requisite regulatory approvals were completed, but prior to the closing of the Transohio Savings acquisition of Citizens and Dollar. See American Capital II, 59 Fed.Cl. at 566 (citing PL P.H.

Appendix at 857-58); see also DX 29 at WOT286 0074 (emphasis added) (AMCAP’s 1985 Annual Report issued on May 2, 1986 that stated: “[AMCAP] intends to invest approximately $45 million of the remaining proceeds in subordinated notes and additional Transohio common stock to be issued in connection with a proposed rights offering by Transohio.”).

The June 19, 1986 letter reflects that there had been extensive prior communications with the FHLBB about the terms of the proposed $45 million “Transohio Rights Offering” and that TFC was frustrated by the pace of regulatory review and upset with how that delay was interfering with the implementation of the Citizens/Dollar closing. See American Capital II, 59 Fed.Cl. at 567 (citing PL P.H. Appendix at 857-58).

Although the precise date that the Trans-ohio Rights Offering was first known by the FHLBB cannot be ascertained from the record, that date was well before the time that the AMCAP’s Units Offering took place and over a year before August 29, 1986, when Transohio Savings’ proposed acquisition of Citizens and Dollar finally was approved by the federal regulators — and, by which time the federal regulators had actual knowledge of and expected that an additional $45 million in capital would be provided to effectuate that transaction. See DX 35 at PAC058 0054; see also American Capital II, 59 Fed.

Cl. at 568 (citing PI. P.H. Appendix at 727-858) (evidencing that AMCAP’s 1985 Annual Report was provided to the FSLIC as an Exhibit to Plaintiffs’ Application H-(e)3 to acquire Citizens/Dollar). C. August 29, 1986 Supervisory Mergers Of Citizens Federal Savings And Loan Association Of Cleveland, Ohio And Dollar Savings Bank Of Columbus, Ohio With Transohio Savings Bank, FSB. On August 21, 1986, the FHLBB declared Citizens, a federally chartered FSLIC-insured thrift institution, insolvent. See American Capital I, 58 Fed.Cl. at 401 (citing PI. Motion for Partial S.J. on Liability Appendix at 14-23).

Citizens’ assets were estimated at $430 million, with $520 million in liabilities. See DX 33 at PAC016 1629. Independently, the FSLIC estimated that a liquidation of Citizens would cost the Government $131 million. See American Capital II, 59 Fed.Cl. at 566 (citing PI. Motion for Partial S.J. on Liability Appendix at 338). On August 21, 1986, the FHLBB also declared that Dollar, an Ohio chartered FSLIC-insured mutual savings bank, was insolvent. See American Capital I, 58 Fed.Cl. at 401 (citing PI. Motion for Partial S.J. on Liability Appendix at 14-23).

Dollar’s assets were estimated at $335 million, with $375 million in liabilities. See DX 33 at PAC016 1629. The FSLIC estimated that a liquidation of Dollar would cost the Government $52.5 million. See American Capital II, 59 Fed.Cl. at 566 (citing PI. Motion for Partial S.J. on Liability Appendix at 340). On August 21, 1986, the FHLBB also issued Resolution No. 86-864 conditionally approving a proposed Assistance Agreement among plaintiffs, Transohio Savings, and the FHLBB. See American Capital II, 59 Fed. Cl. at 568 (citing PL Motion for Partial S.J. on Liability Appendix at 14-23).

At that time, Transohio had a regulatory net worth of $132.2 million with liabilities of $3.4 billion, which exceeded regulatory requirements by $29.1 million. See American Capital II, 59 Fed.Cl. at 568 (citing Pl. Motion for Partial S.J. on Liability Appendix at 7) (Dec. 25, 2000 Aff. of Jack D. Burstein, former Chairman of Transohio Savings, Chairman, President and CEO of TFC, and President and CEO of AMCAP). On August 29, 1986, an Assistance Agreement was signed by Trans-ohio Savings, AMCAP, TFC, and the FSLIC, in its capacity as a corporate instrumentality and agency of the United States.

See DX 102 at PAC086 0489; see also American Capital II, 59 Fed.Cl. at 568 (citing PL Motion for Partial S.J. on Liability Appendix at 228-85).

The Assistance Agreement had several key provisions: Transohio Savings would merge with Citizens and Dollar to form one entity to be known thereafter as Transohio Savings; FSLIC would make a $107.5 million cash contribution to the “new” Transohio Savings; FSLIC agreed to indemnify AM-CAP, TFC, and Transohio Savings for certain claims and potential losses; FSLIC agreed to purchase 19 “problem loans,” representing approximately $41.5 million of Citizens’ assets at their book value; Transohio Savings would be allowed to book the $107.5 million in FSLIC assistance as a capital credit toward its regulatory net worth; Transohio Savings would be allowed to amortize intangible assets, ie., approximately $50 million in supervisory goodwill over a 25 year period using the straight-line method of depreciation; and AMCAP and TFC agreed to maintain the net worth of Transohio Savings at required regulatory levels and to a “Dividend Limitation Restriction.” DX 102 at PAC086 0489; see also American Capital II, 59 Fed.

Cl. at 568-69 (citing PL Motion for Partial S.J. on Liability Appendix at 1-10). On September 10, 1986, after the closing, the FHLBB issued a Forbearance Letter promising that neither the FHLBB nor the FSLIC would foreclose on Transohio Savings in the event it failed to meet regulatory net worth requirements for a five-year period after Transohio Savings merged with Citizens/Dollar, i.e., September 10, 1991. See American Capital II, 59 Fed.Cl. at 569 (citing PI. Motion for Partial S.J. on Liability Appendix at 293-94).

On September 30, 1986, Transohio Savings had $240.6 million in regulatory capital, of which $162.5 million was “contractual regulatory capital,” including $55 million in goodwill. See PX 659; see also TR at 1242-43.

On December 31, 1986, four months after the Citizens/Dollar mergers were concluded, “[TFC] issued 626,219 shares of common stock pursuant to a shareholder rights offering.” DX 30 at PAC024 1580. “In addition, [TFC] issued 3,673,469 shares of common stock to [AMCAP] in a private placement transaction for an aggregate purchase price of approximately $45 million,” derived from AMCAP’s June 1985 issuance of $80 million in subordinated notes, and subject to a prior FHLBB “approval order.” DX 30 at PAC024 1580; see also DX 31 at WON251 1142-43.

As a result, TFC “received net proceeds of $52 million of which approximately $42 million was contributed to Transohio Savings as additional equity capital.” American Capital II, 59 Fed.Cl. at 569 (citing PL Motion for Partial S.J. on Damages Appendix at 570-72); see also DX 30 at PAC024 1580; DX 412 at WOT665 0016.

With this additional equity, Transohio Savings’ regulatory capital “exceeded minimum regulatory requirements by approximately $158 million at December 31, 1986, taking into account an amount of approximately $106 million which [was to be] treated as regulatory capital pursuant to the terms of the financial assistance package entered into with the FSLIC in connection with the acquisitions of Citizens and Dollar.” American Capital II, 59 Fed.Cl. at 569 (citing Pl. Motion for Partial S.J. on Damages Appendix at 571).

On December 31, 1986, “[Transohio Savings’] net worth, as calculated on the basis of generally accepted accounting principles, exceeded 3% of liabilities by $31 miF lion.” American Capital II, 59 Fed.Cl. at 569 (citing PL Motion for Partial S.J. on Damages Appendix at 571). By that date, AMCAP had increased its ownership position in TFC common stock to-65.5% and therefore its control over Transohio Savings. See DX 31 at WON251 1129. D. The Financial Condition Of Transohio Savings Bank, FSB After The August 29, 1986 Supervisory Mergers Until 1989. 1.

The October 21, 1987 Joint Examination By The State Of Ohio Division Of Savings And Loan Associations And The Federal Home Loan Bank Board For The Period January 1986-May 1987. The State of Ohio’s Division of Savings and Loan Associations and the FHLBB Office of Examinations and Supervision (hereinafter “the Supervisory Authorities”) jointly conducted examinations of Transohio Savings on a periodic basis.

During the period from 1986 to 1989, the Supervisory Authorities utilized a five-element qualitative composite rating system, known as “MACRO,” i.e., “Management,” “Asset Quality,” “Capital Adequacy,” “Risk Management,” and “Operating Results.” Each MACRO element also had components that were rated individually and then collectively. First, each MACRO element was assigned a rating of “1” through “5” in “ascending order of supervisory concern,” with a “1” representing the rating with least regulatory concern and a “5” representing the rating with highest regulatory concern.

Then, all of the MACRO elements collectively were evaluated to arrive at an overall composite rating. See, e.g., DX 90 at FAC011 2247. The first Joint Examination conducted by the Supervisory Authorities following the August 29, 1986 merger of Transohio Savings with Citizens/Dollar was issued on October 21,1987, covering the fifteen-month period of January 1986 through May 1987. See DX 90. Transohio Savings received an overall “3” composite rating for this period. See DX 90 at FAC011 2247. a. Transohio Savings — Management.

The Supervisory Authorities concluded that Transohio Savings’ management “appears to be in substantial compliance with the terms of th[e] Assistance Agreement relating to corporate structure.” DX 90 at FAC011 2120. It was noted, however, that no formal management policy had been implemented regarding Risk Controlled Arbitrage (“RCA”) nor did the Directors have sufficient information to monitor this activity, which significantly contributed to Transohio Savings’ growth from $3.5 billion to $5.6 billion or a 60% increase during this period.

See DX 90 at FAC011 2120, 2123 (“The income produced by RCA maximizes shareholder return on investment and appears to be the second motivating factor behind such activity. The generation of profits enables the current shareholders to maintain their controlling interest in American Capital[.]”); see also DX 30 at PAC024 1547 (AMCAP 1986 Annual Report stating that Transohio Savings “has evolved from an essentially break-even operation in July 1984 into a highly profitable business with a return on equity of 19.8% in 1986.

This transformation was achieved through American Capital’s continuing interest and involvement in Transohio.”). Transohio Savings received a “2” rating for “Management;” 8 of the 10 components thereunder received a “2” rating, however, “Records, Systems, Controls” and “Accurate Financial Reports to FHLBB” each were ranked “3.” See DX90 at FAC011 2247. b. Transohio Savings — Asset Quality. Approximately $111.538 million or 2% of Transohio Savings’ assets were classified as “criticized assets.” DX 90 at FAC011 2159.

Regarding those assets, Transohio Savings was found to have proper internal controls but was criticized for not providing sufficient information to the Supervisory Authorities. See DX 90 at FAC011 2122, (reporting that Transohio Savings did not always obtain an appraisal for repossessed real estate assets or establish reasons for parcels having a book value in excess of the most recently appraised value). Transohio Savings received a “2” rating for “Asset Quality,” with 8 of the 11 components receiving a “2” rating.

See DX 90 at FAC011 2247. “Service Corporations,” “Risk Exposure,” and “Secured Market Activity” each were rated as a “3.” See DX 90 at FAC011 2247. c. Transohio Savings — Capital. For the period January 1986 through May 1987, Transohio Savings increased assets by 3.5% or $186.758 million, ie., from $123.537 million to $310.295 million. See DX 90 at FAC011 2121. Of this amount, $107.5 million was attributed to the FSLIC capital credits conveyed to Transohio Savings as a result of the mergers with Dollar/Citizens and the reclassification of approximately $15 million in borrowings. See DX 90 at FAC011 2121.

During the first six months of 1987, Amer-iStar recorded a “stand alone” $1.498 million loss attributed to unfavorable market movement, high operating expenses, and rising interest rates. See DX 90 at FAC011 2211. By the end of 1987, AmeriStar lost $2.9 million. These losses, however, were absorbed by Transohio Savings and offset by other assets.

To address declining mortgage servicing revenues, the Supervisory Authorities recommended “selling whole loans instead of mortgage-backed securities and by selling excess servicing to the marketplace for extra cash instead of buying the excess servicing for its own portfolio by issuing lower pass-through rates.” DX 90 at FAC011 2214. Transohio Savings received a “2” rating for “Capital,” including all 4 components. See DX 90 at FAC011 2247. d. Transohio Savings — Risk Management.

The Supervisory Authorities noted that although Transohio Savings had been success-fid in using interest rate swaps to hedge liabilities involved in its Risk Controlled Arbitrage activities, this situation presented a “significant interest rate risk in a rising interest rate environment.” DX 90 at FAC011 2122. Transohio Savings received a “3” rating for “Risk Management,” with 2 out of 6 components rated as a “3.” DX 90 at FAC011 2247. e. Transohio Savings — Operating Results.

Transohio Savings “operated profitability” in 1986 and the first half of 1987, with reported net income of $22.6 million and $6.9 million for the first half of 1987. See DX 90 at FAC011 2128. Transohio Savings, however, sold $2.3 billion in mortgage loans in 1986 and $1.2 billion in the first half of 1987. See DX 90 at FAC011 2124.

Since a major portion of Transohio Savings’ operating income was derived from mortgage banking operations, the Joint Examination included the following caveat: “Proposed accounting changes, if adopted, will have a major impact on the earnings of Transohio [Savings] and its wholly-owned mortgage banking subsidiary, AmeriStar Financial Corporation.” DX 90 at FAC011 2121.

Despite Transohio Savings’ net profit, the Supervisory Authorities noted that both Dollar and Citizens “had experienced significant losses prior to the time of the [August 29, 1986 supervisory] merger and continued to have a negative impact on Transohio [Savings’] earnings.” DX 90 at FAC011 2128. Transohio Savings received a “3” rating for “Operating Results,” although the “Comparative Level” component was rated as a “2.” DX 90 at FAC011 2247. 2. Transohio Savings’ Financial Condition From October 21, 1987 Until The Next Joint Examination Was Issued On March 30,1989.

On February 5, 1988, AMCAP’s President provided Mr. Lawrence Muldoon of the Cincinnati Office of the FHLBB with a proposed Restructuring Plan to be discussed at a February 18, 1988 meeting. See DX 114 at WOL237 0743. This Restructuring Plan stated: Transohio Savings is faced with increasing capital requirements arising from regulatory initiatives and its acquisition objectives.

At the same time, American Capital and TransCapital Financial have significant assets/capital which are not currently included in Transohio Saving’s net worth.... [A] restructuring would alleviate the cash flow pressures of the consolidated group. The regulatory concerns and influence on Transohio Savings surrounding the fixed charge funding needs of the holding company would be favorably resolved through the combination of all entities into one....

Generally, the plan calls for an exchange of holding company securities for securities of Transohio Savings, including the restructuring of subordinated indebtedness into a new issue which qualifies as regulatory capital. The existing minority interest of TFC will receive common stock. As set forth in the pro forma financial statements, Transohio Saving’s capital would be increased to a level of 6.27% of liabilities (from 5.53% currently) and thrift earnings would be enhanced as well. DX 114 at WOL237 0746.

On July 8, 1988, a meeting of AMCAP, TFC, and Transohio Savings was held with the FHLBB where the agency expressed concern about the proposed restructuring of AMCAP. See DX 144. Specifically, the high cost of subordinated debt, decrease in GAAP capital, impact of net losses on Transohio Savings, and real estate problems were raised as factors mitigating against FHLBB approval of the restructuring. See DX 144 at WOL240 2204.

The principal concern of the FHLBB staff was that AMCAP might not be able to meet its debt service, which could adversely effect the insurance fund because Transohio Savings was an insured entity. See DX 144 at WOL240 2205. On August 15, 1988, the FHLBB’s Office of Supervisory Agent recommended that the Office of Regulatory Activities deny approval for the restructuring. See DX 154. Approximately one year later, AMCAP tried to resurrect this transaction. By the end of fiscal year 1988, Transohio Savings had recorded net earnings of $18.5 million. See DX 102 at PAC086 0489.

Transohio Savings reported that two new 1988 accounting requirements had an adverse impact on earnings: Statement of Financial Accounting Standards No. 91 (“SFAS No. 91”) and Financial Account Standards Board Technical Bulletin 87-3 (“Bulletin 87-3”). See DX 102 at PAC086 0489. SFAS No. 91 required all non-refundable loan origination fees and certain direct origination costs to be deferred and recognized over the life of the loan as a yield adjustment that cost Transohio Savings $5.6 million. See DX 102 at PAC086 0489. Bulletin 87-3 decreased net earnings by approximately $5.6 million.

See DX 102 at PAC086 0489-90. Despite $11.2 million in unexpected charges resulting from these new accounting requirements, Transohio Savings increased earnings in 1988 (over 1987) because of the “increased volume of loans and mortgaged-backed certificates combined with increased gains on the sales of investments and mortgage-backed certificates.” See DX 102 at PAC086 0490.

In addition, Transohio Savings’ regulatory capital exceeded minimum requirements by approximately $169 million, of which $26 million was attributed to regulatory forbearance and $97.5 million of direct financial assistance provided by FSLIC as a result of the Citizens/Dollar mergers. See DX 102 at PAC086 0496. In anticipation of the enactment of FIR-REA, on December 23, 1988, the FHLBB published proposed regulations governing the computation and minimum amount of regulatory capital for FSLIC-insured institutions that “would fundamentally alter, and over time substantially increase” capital requirements.

See DX 102 at PAC086 0481. II. PROCEDURAL BACKGROUND IN THE UNITED STATES COURT OF FEDERAL CLAIMS On August 8, 1995, plaintiffs filed a Complaint in the United States Court of Federal Claims asserting both breach of contract and takings claims. On March 25,1997, the Federal Deposit Insurance Corporation (“FDIC”) filed a Complaint in Intervention, as successor to the rights of Transohio Savings. See 12 U.S.C. § 1441a(m)(2); 12 U.S.C. § 1821a(a)(l)(2).

The FDIC’s Complaint included: claims for breach of contract; frustration of purpose; and violations under the Fifth Amendment to the United States Constitution, pursuant to the Just Compensation and Due Process clauses thereof. On October 10, 2000, plaintiffs filed a Motion for Partial

Summary Judgment challenging the Government’s breach of two specific promises: “(1) to record [the approximately $50 million in supervisory] goodwill created by the transaction as an intangible, amortizing asset, and to count the goodwill toward compliance with Transohio regulatory capital requirements; and (2) to record, as a direct credit to Transohio’s regulatory capital, a $107.5 million cash contribution made by the Federal Savings and Loan Insurance Corporation in order to partially offset the massive net worth deficit of the failing thrifts that Plaintiffs acquired.” PI. Motion for Partial S.J. on Liability at 2. On August 31, 2001, plaintiffs also filed a Motion for Partial

Summary Judgment regarding “the value of their investment in Transohio [Savings] at the time of the Citizens/Dollar deal under either a reliance or restitution theory.” PL Motion for Partial S.J. on Damages at 20, 21-26. In addition, plaintiffs asked the court to enter

summary judgment regarding the $42 million capital “infusion” plaintiffs made to Transohio Savings on December 31, 1986 as “reliance damages.” Id. at 27, 28-31. On August 31, 2001, plaintiffs filed an Appendix in support. See PL Motion for Partial S.J. on Damages Appendix at 466-696. On that date, plaintiffs also filed Proposed Findings of Uncontro-verted Facts incorporating by reference plaintiffs’ Proposed Findings of Uncontro-verted Facts, submitted together with plaintiffs’ October 10, 2000 Motion for Partial

Summary Judgment as to Liability. On November 30, 2001, the Government filed a Response. On November 30, 2001, the Government also submitted two volumes of Appendices. In addition, on that date, the Government filed a Statement of Genuine Issues, incorporating by reference the Government’s December 18, 2000 Statement of Genuine Issues, submitted with an Opposition to Plaintiffs’ Motion for Partial

Summary Judgment regarding liability. On February 15, 2002, plaintiffs filed a “Combined Reply,” in support of a Motion for Partial

Summary Judgment with Respect to Damages. iji ^ ^ ^ ^ ^ On August 15, 2003, this case was reassigned to the undersigned judge. On October 31,2003, the court issued a Memorandum Opinion and Order entering a judgment granting plaintiffs’ October 10, 2000 Motion for

Summary Judgment as to Liability. See American Capital I, 58 Fed.Cl. at 406-09. On November 17, 2003, the Government filed a Motion for Reconsideration regarding the court’s determination of liability. On December 19, 2003, plaintiffs filed a Response, together with three additional Exhibits. On January 23, 2004, the Government filed a Reply. On December 16, 2003, the court held an oral argument to consider the plaintiffs’ August 31, 2001 Motion for Partial

Summary Judgment as to damages, in which all parties, including the FDIC, participated. On January 13, 2004, the court issued an order affording all parties an opportunity to address issues that the parties requested to brief further and/or that arose during that oral argument. On January 5, 2004, the Government filed a Cross-Motion for

Summary Judgment upon Plaintiffs’ Claims for Restitution, together with a Statement of Genuine Facts in support thereof. On February 2, 2004, Plaintiffs filed an Opposition, together with two additional exhibits. On February 2, 2004, the FDIC filed an Opposition. On February 17, 2004, the Government filed a Reply. On February 27, 2004, the court issued a Memorandum Opinion and Partial

Summary Judgment granting plaintiffs’ August 31, 2001 Motion determining that TFC’s “essential reliance” interest was $126,479,000 and TFC’s “collateral reliance” interest was $42,166,000, subject to an Evidentiary Hearing to provide the Government with the opportunity to identify: “Any loss that plaintiffs would have suffered, if Transohio Savings had been allowed to count the [capital credit and supervisory goodwill toward regulatory capital].” American Capital II, 59 Fed.Cl. at 585. Accordingly, the court denied Plaintiffs’ Motion for Partial

Summary Judgment as to Restitution and granted the Government’s January 5, 2004 Cross-Motion for Partial

Summary Judgment in that regard. Id. at 585-86. On March 29, 2004, May 14, 2004, and June 4, 2004, the court convened telephone conferences with the parties to resolve certain pre-trial motions and set a

schedule for an Evidentiary Hearing on reliance damages. On May 14, 2004, the Government filed a Memorandum of Contentions of Fact and Law (“Gov’t Pre-Trial Brief’). On May 28, 2004, TFC filed a Memorandum of Contentions of Fact and Law (“PI. Pre-Trial Brief’). An Evidentiary Hearing took place over a three month period on: June 21, 22, 23, 24, 25, 2004; July 19, 20, 21, 22, 23, 2004; and August 9,10,11,12, 2004 (“TR”). See supra note 5. On October 1, 2004, the Government filed a Post-Trial Brief, including proposed Findings of Fact and Law (“Gov’t Post-Trial Brief’).

On that date, TFC also filed a Post-Trial Brief, including proposed Findings of Fact and Law (“PI. Post-Trial Brief’). On October 25, 2004, the Government filed a Post-Trial Reply (“Gov’t Post-Trial Reply”). On November 22, 2004, the court convened a telephone conference to discuss a

schedule for an oral argument that later took place on December 3, 2004 over a period of five hours. On December 6, 2004, at the request of the court, TFC filed a reproduction of a demonstrative used at oral argument summarizing their investment in Transohio Savings at the end of fiscal year 1989, 1990-1992 and losses allegedly caused by the breach. On December 17, 2004, also at the request of the court, the Government filed two rebuttal demonstrative

summary charts. In addition, while the court was finalizing the opinion, the parties were asked to answer certain additional questions. On April 27, 2005, the court issued a Memorandum Opinion and Order Regarding the Government’s November 17, 2003, March 12, 2004, and February 27, 2005 Motions for Reconsideration, including the parties’ arguments regarding the relevance of California Federal Bank. See American Capital IV, 65 Fed.Cl. at 253, also incorporated herein.

On April 27, 2005, the court also directed plaintiffs to advise the court no later than May 6, 2005 whether “the pending claims brought under the Just Compensation Clause of the Fifth Amendment to the United States Constitution should be set for trial or voluntarily dismissed, without prejudice.” American Capital III, 63 Fed.Cl. at 715. On May 6, 2005, plaintiffs advised the court that the pending ‘“takings’ claims should be voluntarily dismissed without prejudice.” See May 6, 2005 Plaintiffs’ Notice Regarding Disposition of “Takings” Claims.

The Government did not object to the voluntary dismissal of these claims. On May 17, 2005, the Government filed a Notice of Supplemental Authority regarding the decision of the United States Court of Appeals for the Federal Circuit in Westfed Holdings, Inc. v. United States, 407 F.3d 1352 (2005), that the court has treated herein as a motion for reconsideration. On May 25, 2005, plaintiffs filed a response. The court’s determination of the issues raised in Westfed Holdings is included in the final

section of this memorandum decision discussing all the Winstar-related decisions of the United States Court of Appeals for the Federal Circuit issued after American Capital III and American Capital IV. III. DISCUSSION Although most of the analysis in Sections A, B, and C 2 that follows was set forth in American Capital II, and repeated substantial portions in American Capital III to facilitate an understanding of the court’s final determination of TFC’s essential reliance interest in

Section C 1 and determination in

Section I of the net losses that the Government established with reasonable certainty, or the record otherwise evidenced, that Transohio Savings would have incurred during fiscal years 1989-1991, irrespective of the breach. A. Jurisdiction And Standing. The United States Court of Federal Claims is authorized under the Tucker Act, 28 U.S.C. § 1491(a)(1) (2000), to render judgment and money damages on any claim against the United States based on the United States Constitution,

an Act of Congress, a regulation of an executive department, or an express or implied contract with the United States. See United States v. Testan, 424 U.S. 392, 397-98, 96 S.Ct. 948, 47 L.Ed.2d 114 (1976). The United States Supreme Court, however, has clarified that the Tucker Act does not create any substantive right for monetary damages. See United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 63 L.Ed.2d 607 (1980).

Instead, a plaintiff must identify and plead an independent contractual relationship, constitutional provision, federal statute, and/or executive agency regulation that provides a substantive right to money damages for the court to have jurisdiction. See Khan v. United States, 201 F.3d 1375, 1377 (Fed.Cir.2000). Plaintiffs properly have pled a basis for the court’s jurisdiction in this case. See PI. Amended Compl. at 111110, 104-11.

In light of the court’s Memorandum Opinion and Order in American Capital II, only TFC had standing thereafter to participate in the Evi-dentiary Hearing and subsequent briefing to defend the preliminary determination made of TFC’s essential and collateral reliance interests. See American Capital II, 59 Fed. Cl. at 582 n. 16, 59 Fed.Cl. at 584 n. 18 (noting that the court specifically did not consider whether AMCAP is entitled to any portion of this amount based on its alleged ownership of First Global and that entity’s 50.8% alleged ownership of 100% of TFC’s stock). B.

The “Reliance Interest” Is A Recognized Judicial Remedy That Is Fixed When An Expenditure Is Made, But Does Not Arise Until The Breach Of Contract. The Restatement has recognized the “reliance interest,” i.e., the “interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as [the party] would have been in had the contract not been made,” as a judicial remedy for breach of contract. Id. at § 344 (emphasis added).

The United States Court of Appeals for the Federal Circuit has required that a plaintiff seeking damages based on reliance interest or interests must demonstrate that: 1) plaintiffs losses were reasonably foreseeable at the time of the contract; 2) the breach was a substantive factor in causing its losses; and 3) the losses must be proven with reasonable certainty. See Bluebonnet Sav. Bank, FSB v. United States, 47 Fed.Cl. 156, 167 (2000), rev’d on other grounds, 266 F.3d 1348 (Fed.Cir.2001); see also Restatement §§ 344(b), 351-52.

It is well established that “the reliance claim must be considered as an option when the plaintiff cannot prove expectancy damages with reasonable certainty.” Dobbs Law Of Remedies (“Dobbs”) § 12.3(l)(2d ed.1993); see also Restatement §§ 347, 349. Damages for a breach of contract based on reliance interest protects “an injured party that has relied and is of particular importance if the cost of reliance is an appreciable part of the expectation interest.” E. Allan Farnsworth, Farnsworth on Contracts § 12.16 (3d ed. 2004) (“Farnsworth”).

Therefore, the reliance interest “afford[s] a means for giving some relief when the full expectation interest is for some reason inappropriate.” Id. (emphasis added). Therefore, where the injured party “may have changed [its] position in reliance on the contract by, for example, incurring expenses ... in performing,... the court may recognize a claim based on... reliance[.]” Restatement § 344 and cmt. a; Dobbs, supra, § 12.3(1) (“The reliance recovery is a reimbursement for losses the plaintiff suffers in reliance on the defendant’s contractual promise.”).

The amount of the “reliance interest” is fixed at the time when an expenditure is made, although the cause of action for recovery of a reliance interest does not arise until a breach occurs. See 11 Arthur L. Corbin, Corbin on Contracts § 008 at 64 (1964 & Supp.1996) (“Corbin”) (reliance damages must be foreseeable by defendant “at the time he enters into the contract^]”); Restatement § 351(1). The Restatement recognizes at least two types of reliance interest: “essential reliance” and “incidental reliance” or “collateral reliance.” Restatement § 349 cmt. a.

Individually or collectively, these components ordinarily do not equal the plaintiffs “expectation interest,” because a recovery based on the “reliance interest” excludes the injured party’s lost profit. Id. at § 344 cmt. a. In other words, damages based on the “reliance interest” will never exceed an amount that would place the plaintiff in a better position, if awarded, than would be the case if the contract had been performed.

See Farnsworth, supra, § 12.16; see also Restatement § 349 cmt. a (a “[l]oss in value and cost or other loss avoided are key components of [reliance] damages.... [However,] recovery for expenditures... may not exceed the full contract price.”). Accordingly, as a matter of law, reliance damages seek to measure the injured party’s cost of reliance on the breached contract. Therefore, an injured party cannot recover for costs incurred before that party made the contract. See Farnsworth, supra, § 12.16, at n.2; see also Dobbs, supra, § 12.3(1), at 56. 1. “Essential Reliance” Damages.

The law requires, where a breach of contract has occurred, an award of expenses based on a plaintiffs actual outlay of funds as special damages for “essential reliance,” i.e., those that are “necessary or essential for the plaintiffs performance of his promises under the contract....

Essential reliance expense would normally be within the contemplation of the parties, so its recovery would not be forbidden under the [foreseeability] rule limiting consequential damages.” Dobbs, supra, § 12.3(2), at 58; see also Restatement § 349 cmt. a. “Essential reliance” damages also have been defined as “the ‘price’ that a party must pay for what it is to receive under the contract.” Farnsworth, supra, § 12.1, at 153; see also L.L. Fuller and William R.

Perdue, Jr., The Reliance Interest in Contract Damages: 1,46 Yale L.J. 52, 81 (1936) (“Fuller and Perdue”) (“ ‘[Essential reliance’ consists of those acts which must occur before the plaintiff is entitled to the benefits of the contract and is therefore in a sense the ‘price’ of those benefits[.]”).

Damages to compensate for “essential reliance” include: “the performance of express and implied conditions in bilateral contracts, the performance of the act requested by an offer for a unilateral contract, preparations to perform in both of the cases... mentioned[.]” Fuller and Perdue, supra, at 78. 2. “Incidental Reliance” Or “Collateral Reliance” Damages.

In addition, the Restatement has recognized that damages may be awarded where expenses are incurred in “preparation for collateral transactions that a party plans to carry out when the contract ... is performed [.]” Restatement at § 349 cmt. a (emphasis added); see also Farnsworth, supra, § 12.1, at 153.

Professor Corbin refers to these expenditures in a functional manner, describing them as “collateral” to the contract: There are many expenditures made in reliance upon an existing contract that can not properly be regarded as having been made in part performance of it, or even as in necessary preparation for such performance. Such expenditures as these are not expected to be compensated directly by the payments or other performance promised by the defendant, for they do not constitute a part of the agreed exchange.

Nevertheless, the net loss involved in such expenditures may be included in the damages awarded, if at the time the contract was made the defendant had reason to foresee that such expenditures would be made and that [its] own breach would prevent their reimbursement. These expenditures now referred to are collateral to performance of a contract for breach of which the action for damages is brought; and the net losses resulting may readily be regarded as too remote from contemplation and too likely to be the result of other factors to justify their inclusion in the damages for breach.

Whenever their inclusion is just, their amount is an addition to the full contract price unpaid-that is, to the full value of the performance promised and not rendered by the defendant. They are included in damages, not because they would have been directly reimbursed by the performance promised by the defendant (or by its ‘value’ as ordinarily measured), but because the defendant’s breach has prevented probable future gains and has rendered determination of their amount impossible.

Corbin, supra, § 1035 (footnotes omitted) (emphasis added); see also Fuller and Per-due, supra, at 78-84 (contrasting essential reliance damages with incidental or collateral damages). Therefore, the Restatement § 349 endorses a black letter rule that allows damages to be awarded based on the promisee’s reliance interest, i.e., expenditures made in preparation for performance or in performance, including, but not limited to, recovery of expenditures invested in collateral transactions. See Robert A. Hudec, Symposium: The Restatement (Second) of Contracts: Restating the “Reliance Interest,” 67 Cornell L.

Rev. 704, 723-28 (1982). C. The Court’s Final Determination Of TFC’s Reliance Interest Is $117,479 Million. 1. TFC Is Entitled To $126,479 Million, Based On The Government’s Breach Of TFC’s “Essential Reliance” Interest Or The Book Value Of Trans-ohio Savings’ Stock, As Of August 29, 1986, Minus The $9 Million Dividend Paid To AMCAP In Fiscal Year 1989. a. The Court’s Determination Of TFC’s “Essential Reliance” Interest In American Capital II.

In this case, the “essential reliance” interest was fixed as the cost of performance for the August 29, 1986 Assistance Agreement, i.e., what was “put on the table” by plaintiffs as consideration for FSLIC’s agreement to convey to Transohio Savings: title to the assets and liabilities of Citizens and Dollar, which had a negative net worth of $130 million; a cash payment of $107.5 million, which also could be counted as a capital credit toward Transohio Savings’ regulatory net worth; and permission to amortize approximately $50 million in supervisory goodwill, over a 25 year period using the straight-line method of depreciation.

See American Capital II, 59 Fed. Cl. at 580 (citing PL Motion for Partial S.J. on Liability Appendix at 14-25, 228-92, 323-44). Initially, plaintiffs claimed that they were entitled “under a reliance framework” either to $126,479 million, the value of Transohio Savings’s equity at the time the Assistance Agreement was finalized, or $216.1 million, an estimate of the “market value” of Transohio Savings’ equity made by Professor Timothy Koch, an expert for the FDIC. See American Capital II, 59 Fed.Cl. at 581 (citing Pl. Motion for Partial S.J. on Damages Appendix at 680, 690-91); see also PX 24.

The Government correctly argued that the “Assistance Agreement, FHLBB Resolution and Forbearance Letter make no mention of any contribution on the part of the plaintiffs to the transaction.” American Capital II, 59 Fed.Cl. at 581 (citing Def. Resp. to PL Motion for S.J. on Damages at 20). Here, the Government relies on TFC and AM-CAP’s SEC Forms 8-K, dated August 29, 1986, stating that “‘[n]o consideration’ was paid by either company or Transohio Savings in connection with Transohio Savings’ acquisition of Citizens/Dollar.” See American Capital II, 59 Fed.Cl. at 581 (citing Def.

Resp. to PL Motion for Partial S.J. on Damages Appendix at 96-98). The August 29, 1986 Assistance Agreement, signed by plaintiffs, Transohio Savings, and FSLIC, however, specifically conditioned the FSLIC’s obligations on the satisfaction of conditions previously discussed. See American Capital II, 59 Fed.Cl. at 581 (citing PL Motion for Partial S.J. on Liability Appendix at 238-41(§ 2)).

In addition, FSLIC required, and received, legal assurance that Transohio Savings, Dollar, and Citizens had entered into “separate Merger Agreements and Plans of Merger... pursuant to which TRANSOHIO [SAVINGS] will succeed to all of the rights and liabilities of DOLLAR and CITIZENS, and all of the assets and property of every kind and character belonging to DOLLAR and CITIZENS will be vested in and become the property of TRANSOHIO [SAVINGS], except for covered assets purchased by the [FSLIC] as provided in this Agreement.” American Capital II, 59 Fed.Cl. at 581 (citing Pl.

Motion for Partial S.J. on Liability Appendix at 233-34 (Recital C)). The Assistance Agreement further provides, “In consideration of the mutual promises contained in this [Assistance] Agreement, the parties enter into the following agreement.” American Capital, II, 59 Fed.Cl. at 581 (citing Pl. Motion for Partial S.J. on Liability Appendix at 234 (Recital F)).

Therefore, although it is true that neither plaintiffs nor Transohio Savings paid any cash consideration when Citizens/Dollar were merged into Transohio Savings, TFC, Transohio Savings’ sole shareholder, “put on the table” an ongoing business with equity valued at $126.479 million, which was the contract “price” paid as performance for the benefits set forth in the Assistance Agreement. See Restatement § 349.

The Government argued, however, that TFC’s surrender of its equity in Transohio Savings was not an “expenditure” or “cost” in performance of the Assistance Agreement, and the only legitimate form of consideration must be either cash or real estate. See Def. Resp. to Pl. Motion for S.J. on Damages at 29-31. As the court stated, that is certainly not the holding in Landmark Land Co. v. FDIC, 256 F.3d 1365 (Fed.Cir.2001). See American Capital II, 59 Fed.Cl. at 581.

In Landmark, the plaintiff real estate development company signed a contract with the FSLIC to acquire two failing thrifts and required plaintiff to make an initial contribution of not less than $20 million to one of the thrifts: “Landmark did this by contributing real estate and cash valued at $21.5 million. In exchange, the FSLIC agreed to allow [the newly capitalized thrift] to treat its shortfall in actual assets as supervisory goodwill, which could be applied to [its] regulatory capital maintenance requirements.” Landmark, 256 F.3d at 1370.

The Federal Circuit affirmed the trial court’s award of approximately $21.5 million in restitution since that amount was required under the terms of the Assistance Agreement. Id. at 1373 (“[T]he entirety of Landmark’s $21.5 million initial contribution constitutes performance under the Agreement^]”).

In this-case, the FSLIC required that the owners of Transohio Savings agree to allow Transohio Savings, in which they held stock valued at $126.479 million, to acquire two failed thrift institutions with a negative net worth of $130 million, which would have wiped out plaintiffs’ entire equity interest, but for the benefits promised by the Government that were intended to preserve plaintiffs’ equity position in Transohio Savings. See American Capital II, 59 Fed.Cl. at 581 (citing Pl.

Motion for Partial S.J. on Liability Appendix at 233-34 (Recital C)), 240 (“[FSLIC] shall receive certified copies of the corporate resolutions of AMCAP, TFC, and TRANSOHIO, as appropriate, authorizing the Mergers, the Merger Agreements and this Agreement, and the execution and delivery of the Merger Agreements, this Agreement, and any other agreements and stipulations which AMCAP, TFC, and TRANSOHIO are required to execute pursuant to this Agreement and the resolutions of the BANK BOARD approving the Mergers, the Merger Agreement and this Agreement.”), and PL Motion for Partial S.J. on Liability Appendix at 323 (stating that the fair value of liabilities assumed in the acquisition exceeded the fair value of assets acquired by approximately $56 million).

Although the Restatement does not define “expenditures,” it clearly states that reliance damages are to be measured by the “loss” incurred by the non-breaching party “including [but not limited to] expenditures made ... in performance [.]” See Restatement § 349 at 124 (emphasis added); see also Restatement § 349 cmt. a at 124 (emphasis added) (“Loss in value and cost or other loss avoided are key components of contract damages.”); see also United States v.

Behan, 110 U.S. 338, 344, 4 S.Ct. 81, 28 L.Ed. 168 (1884) (emphasis added) (holding that the non-breaching party may always recover the “loss of actual outlay and expense.”). Therefore, the actual outlay of TFC’s equity in Transohio Savings was the “contract price” for the Government’s cash contribution of $107.5 million to Transohio Savings, and the Government allowing Transohio Savings to amortize $50 million in supervisory goodwill over a 25 year period using a straight-line method of depreciation, which also could be counted as a capital credit toward Transohio Savings’ regulatory net worth.

See American Capital II, 59 Fed.Cl. at 582-82. Therefore, as a matter of law, the value of Trans-ohio Savings’ equity as of August 29, 1986 represents TFC’s “essential reliance” interest. See PX 24. And, the loss of this amount, as a result of the Government’s breach, if restored to TFC, will “put [TFC] in as good a position [in which it] would have been in had the contract not been made[.]” Restatement § 344. On February 27, 2004, the court determined that TFC’s “essential reliance” interest was $126,479 million, representing the equity value of the stock of Transohio Savings, as of August 29, 1986.

See American Capital II, 59 Fed.Cl. at 580-82 (citing United States v. Behan, 110 U.S. 338, 344-45, 4 S.Ct. 81, 28 L.Ed. 168 (1884) (holding the non-breaching party may always recover the “loss of actual outlay and expense.”)); RESTATEMENT § 349 (the essential reliance may be equated with the contract price paid for performance). This valuation of Trans-ohio Savings’ stock was made at “book value” and was certified by Transohio Savings’ independent auditors, Peat, Marwick, Mitchell and Co., and accepted by the FHLBB without objection at that time. See PX 24. On

summary judgment, however, plaintiff argued that TFC’s “essential reliance” interest should be measured by the “market value” of the Transohio Savings stock, but estimated that value as $216.1 million, based on a report by the FDIC’s expert. See American Capital II, 59 Fed.Cl. at 580-81. The Government agreed that the “essential reliance” interest should be measured by “economic value,” although the Government’s estimate of what that amount should be was substantially less than plaintiffs. Id.

Therefore, the court afforded both parties an opportunity to proffer expert testimony at an Evidentiary Hearing, so the court could consider whether to calculate plaintiffs’ “essential reliance” interest by the book value or market value of Transohio Savings’ stock. Id. at 582, 589. b. The Court’s Determination Of TFC’s “Essential Reliance” Interest By Book Value, Rather Than Market Value.

Prior to the Evidentiary Hearing, the Government argued that the court erred in relying on Transohio Savings’ book value to ascertain TFC’s essential reliance interest and indicated it would demonstrate at the Evi-dentiary Hearing that “economic value” was the proper measure of Transohio Savings’ “equity value” in 1986. See Gov’t Pre-Trial Brief at 30-31. The following chart is a composite created by the court from documents admitted at trial.

See DX 305 at PAC 087 1075 (Trans-ohio Savings’ Form SEC Form 10-K for the fiscal year ending December 31, 1989, summarizing the consolidated statements of Transohio Savings’ equity for the years ending December 31, 1986, December 31, 1987, and December 31, 1988) and DX 613 at WON537 2242 (Transohio Savings’ OTS Form 10-K for the fiscal year ending December 31, 1991,summarizing consolidated statements of Transohio Savings’ equity for the fiscal years ending December 31, 1990 and December 31, 1991).

The data in this chart shows that on December 31, 1986, only three months after the August 29, 1986 Assistance Agreement was executed, Transohio Savings’ shareholders’ equity or book value was $177.437 million or $50.958 million more than the court’s prior determination that TFC’s “essential reliance” interest was $126.479 million. On December 31, 1989, only days after the December 7,1989 breach, Transohio Savings’ equity or book value was $167.152 million or $40.673 million more than the court’s initial determination of TFC’s essential reliance interest at $126.479 million.

DX 305 at PAC087 1075; DX 613 at WON537 2242. At the Evidentiary Hearing, Professor Randall S. Kroszner of the University of Chicago, Graduate School of Business and a former member of the President’s Council on Economic Advisors, advised the court that determining TFC’s “essential reliance” interest by shareholders’ equity should have been done by determining the “market value” of Transohio Savings’ equity, as of August 29, 1986, which was $93.113 million.

See Krosz-ner Direct 6 at U 14 and Exhibit C at line [F]; TR at 1560. “Market value” was calculated as follows: TFC was listed and traded on the New York Stock Exchange, therefore, TFC’s equity value was ascertained by multiplying the reported price per share by the number of outstanding shares as of a date certain. See Kroszner Direct 6 at H13. Since Trans-ohio Savings was the principal asset of TFC, Transohio Savings’ equity was determined by subtracting the value of TFC’s assets and other non-Transohio Savings’ assets from TFC’s equity and adding TFC’s liabilities.

See Kroszner Direct 6 at 1113 and Exhibit C; see also DX 90 at FAC011 2130 (“for planning purposes, the management of Transohio and TFC consider the two as a single entity!;.]”); DX 90 at FAC011 2131 (Transohio Savings’ Vice President Deborah Cook stated that “for most purposes, management as well as outside investors consider Transohio and TFC to be a single entity.”).

The court does not question Professor Kroszner’s methodology; however, recognized experts in the field of accounting have cautioned: “It is also erroneous to assume that there is a direct relationship between book value and the market price of a share of stock.

Book value may be one factor affecting the market price, but market prices are influenced by many factors which simply cannot be quantified.” See Finney and Miller’s Principles of Accounting at 372 (8th ed.1980) (emphasis added); see also TR at 1857-59 (Professor Kroszner recognized that the drop in Transohio Savings’ market value between 1986-1987 was caused by a “stock market break.”). The court is aware that the standard valuation of assets used in many contract cases is “market value in contradistinction to any peculiar value the object in question may have had to the owner....

However when the standard is applied to ... shares of stock that are not actively traded... the determination of market value is somewhat fictional.” John D. Calamari & Joseph M. Perillo, The Law of Contracts § 14.12, at 582 (4th ed.1998) (citing McCormick, Damages § 44).

As another leading scholar on contract damages also has observed: “[T]he ‘market value’ of property is often a matter of opinion or something even less certain than that----[Thus,] when property values must be found in expert opinions which differ enormously, courts have been willing to say the value finally determined is ascertainable.” Dobbs, supra, § 3.6(2), at 340.

For this reason, Professor Kroszner testified that “market values tend to be forward looking... at the future revenue streams, the future cash flows that would be associated with the asset and the future value if you were to sell that asset, which could deviate from what the historical cost basis was.” TR at 1741.

Market value also includes a subjective element, because it is based on the “expectations of market participants.” TR at 1745; see also TR at 1859-62 (Professor Kroszner testifying that “there is a lot of information about prospects and promises and possibilities with a lot of uncertainty associated with [stock market values].”). As discussed in American Capital II, 59 Fed.Cl. at 575-76, and herein, the doctrines of certainty and foreseeability are common law limitations applicable to any determination regarding reliance interest.

In the court’s judgment, utilizing book value better satisfies these limitations for the reasons discussed in the following exchange with Professor Kroszner: THE COURT: [Y]ou have instructed me is that in your judgment I have made an error in relying on the book value as a starting point of the shareholders contribution. .. I should have instead looked at [regulatory] market value. Now, I don’t know if there is anything in the record I had at that point to look at market value but I do now. I have at least what you have and some other benchmarks. Is that true, that’s the first mistake I made?

PROFESSOR KROSZNER: Your Honor, I wouldn’t characterize it as a mistake. It is an alternative. And I think a more fruitful alternative in this case is to be focusing on the market value and decline in market values. As you said at the time you had only the accounting values. THE COURT: I can’t remember... whether anybody submitted anything on market value or not but I felt really comfortable going to a consolidated statement by the accountants that the regulators didn’t question. No one questioned that that was an accurate number for the book value, so I felt that was a safe haven to go to.

PROFESSOR KROSZNER: Right. I don’t want to say that it was a mistake. The key for me is that in both the market value numbers and the accounting value numbers, you see significant declines and as we have discussed earlier, negative tangible capital by 1992 and market value is trivial. THE COURT: Let me ask it a different way. The reliance damages, the focus of that in the law is basically to encourage people to contract, in other words— PROFESSOR KROSZNER: Of course. THE COURT: That they can depend upon the system basically to provide them with a remedy if things don’t work out.

In your judgment, looking from that perspective, about what the law intends, do you believe that — what is the advantage or disadvantage of looking, relying or using the book value versus market value? PROFESSOR KROSZNER: Well, getting back to the earlier discussion, the market values tend to be more forward looking. THE COURT: Forward looking. PROFESSOR KROSZNER: Forward looking. And the market’s evaluation of what is likely to be happening to an institution. And, you know, where the — what their aspects for profitability, cash flows are.

And so I would tend to think that that would be valuable, it would be more valuable to be looking at market values. Here, in some sense we’re in the lucky situation that in terms of the movements of the market value and the book value over the long horizon, there can be bumps and differences along the way, but by the time we get to seizure, the book value, the tangible capital is negative and the market value is trivial. And so we see this very, very sharp decline in both.

So we have been marking down the assets over time in the book value sense and the markets have been reducing their, value the prospects— TR at 1923-26. In this case, the shareholders’ equity was reported as the book value of Transohio Savings’ stock in the financial documents submitted to all federal regulators, including the FSLIC, FHLBB, and SEC without objection at the time.

Moreover, the FSLIC and FHLBB specifically relied on book value as the appropriate valuation of a portion of the amount of consideration Transohio Savings owed the Government for the terms set forth in the August 29, 1986 Assistance Agreement. Compare DX 222 at WOT970 0901 with TR at 1793 (Professor Kroszner explained to the court that the reason the FHLBB relied on the book value of Trans-ohio Savings was because they were following FASB rules and accounting customs); see also Richard E. Baker, Valdean C. Lembke, and Thomas E.

King, Advanced Financial Accounting 814 (5th ed. 2002) (“[B]ook value... is simply the total amount of the capital, which is also the difference between total assets and total liabilities. Book value is important because it serves as a basis for asset revaluations or goodwill recognition.”). And, as Professor Kroszner testified, because “[b]ook values tend to focus on recording the initial costs associated with purchasing of different assets.

And so they provide, typically... an historical record of what was paid... for various assets.” TR at 1741 (emphasis added); see also TR at 1862 (Professor Kroszner describing book value as being a “backward-looking measure that looks at historical cost and then puts a variety of adjustments to that.”).

Moreover, as the Government conceded during the December 3, 2004 oral argument, it would be unfair for' the court to deduct Restatement § 349 losses against an essential reliance interest determined by market value, since in this case those losses were listed on balance sheets wherein shareholder equity was stated by book value rather than market value. See Post Hearing TR at 122-23.

Perhaps, for these reasons, the United States Court of Appeals for the Federal Circuit accepted without question the use of the book value of stock exchanged in determining the amount of restitution due to plaintiff in another Winstar case. See Hansen Bancorp, Inc. v. United States, 367 F.3d 1297, 1307, 1317 (Fed.Cir.2004); see also Old Stone Corp., 63 Fed.Cl. at 80 (wherein the Government stipulated based on the facts in that case that book value and market value were the same, see Post Hearing TR at 121).

Accordingly, the court has determined that utilizing the book value of Transohio Savings’ stock as of August 29, 1986 meets the certainty and foreseeability requirements of the Restatement and thereby provides a reliable basis for determining Transohio Savings’ essential reliance interest. In light of this ruling, there was no need for the court to consider TPC’s control or acquisition premium argument. See, e.g., PI. Pre-Trial Brief at 28; TR at 1565-81, 1757-63, 1864-72; see also James Direct at 13-14, 49-51. c. The Court’s Final Determination Of TFC’s “Essential Reliance” Interest.

At the Evidentiary Hearing, the court also reviewed documents and heard testimony about a $9 million dividend that Transohio Savings’ Board authorized be paid to TFC/AMCAP in fiscal year 1989, the first year that Transohio Savings incurred net losses and without regard to the views of the regulatory authorities.

For example, on March 15, 1989, FHLBB Supervisory Agent Doebereiner, advised Transohio Savings’ Board: “We expect that advisable portfolio restructuring... will be timely and effectively implemented, even if the recognition of resulting accounting losses would adversely impact the institution’s ability to pay dividends.” PX 1114 at WON257 0380; see also PX 882 at 6 (May 17, 1990 Meeting Minutes of Transohio Savings’ Board when FDIC Examiner Leonard also warned “about the likely pressure [from TFC] for dividends from Transohio.”).

At the Evidentiary Hearing, FDIC Examiner Leonard also testified that he considered this payment “an objectionable practice,” given the low levels of capital. See TR at 472.

He further explained that “normally regulators do not object to paying capital or paying dividends, if the purpose... is to ... pay the debt to acquire an institution. .. [but][i]f it was for some other reason, to a third party, like [AMCAP]’s cash flow problems, then we did have a problem with that.” TR at 472-74; see also TR at 531, 572, 649-52 (the former Regional Director of the FDIC’s Chicago Office emphasized the payment of a dividend in 1989 led to the FDIC’s decision in 1991 to prohibit Trans-ohio Savings from paying any more dividends: “And one of the last things we were going to ... allow ... was to let more capital leave that institution at that point irrespective of... an agreement fiv

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