THE LONG ISLAND SAVINGS BANK, FSB, and The Long Island Savings Bank of Centereach FSB, Plaintiffs, v. The UNITED STATES, Defendant, 67 Fed. Cl. 616

OPINION AND ORDER LETTOW, Judge. INTRODUCTION Both liability and damages remain unresolved in this Wwsiar-related case. Plaintiffs are federal savings banks or “thrifts” which allege that the government breached a contract entered in 1983 involving the treatment of goodwill as regulatory capital and that plaintiffs suffered expectancy and reliance damages as a result of the breach. To adjudicate the disputed issues of fact, the court conducted a 24-day trial commencing on January 18, 2005 and ending on March 23, 2005. Post-trial briefs were filed thereafter, and a closing argument was held on July 7, 2005.

The case is now ready for disposition. For the reasons set out below, the court finds that the government entered into a contract with plaintiffs providing for, among other things, the recognition of goodwill amounting to approximately $625.4 million in connection with the acquisition by plaintiff The Long Island Savings Bank, FSB (“Syosset”) of The Long Island Savings Bank of Centereach FSB (“Centereaeh”) from the Federal Savings and Loan Insurance Corporation (“FSLIC”) with the participation of the Federal Home Loan Bank Board (“FHLBB” or “Bank Board”).

The contract also provided for the use of push-down accounting regarding the acquisition, for the treatment of the goodwill as regulatory capital, and for the amortization of the goodwill over a period of forty years. The court additionally finds that this contract was breached by the government upon the enactment on August 9, 1989 of the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”), Pub.L.

No. 101-73, 103 Stat. 183 (codified in scattered sections of Title 12 of the U.S.Code, including 12 U.S.C. § 1464), and the adoption of implementing regulations on November 8,1989, to be effective December 7,1989, by the Office of Thrift Supervision (“OTS”), the successor of the Bank Board under FIRREA. The court further finds that plaintiffs are entitled to damages caused by the breach in the amount of $435,755,000. FACTS Syosset Syosset was a conservatively run, “plain vanilla” bank with branches on Long Island, in Queens, Nassau, and Suffolk counties. Tr. 3913:23 to 3914:1, 3917:10-16 (Test, of James J.

Conway, Jr., Syosset’s chairman of the board of directors and chief executive officer); Tr. 66:11-14 (Test, of Mark Fuster, at various times Syosset’s senior vice president, treasurer, and chief financial officer); Tr. 981:2-8 (Test, of William E. Viklund, Syosset’s president and chief operating officer). Syosset was organized as a New York State chartered mutual savings bank in 1876 and had converted to a federal mutual savings bank in December 1982. DX606 at WOQ 632 1702 (Prospectus by Long Island Savings Bank, FSB (Feb. 14, 1994)).

Early in the 1980s, Syosset was a healthy thrift that had twelve branches, roughly $950 million to $1 billion in assets, and a tangible net worth of approximately 8% of those assets, or $80 million. Tr. 981:9-22 (Test, of Viklund). Syosset’s management realized that it would have to grow to remain competitive and to address the marketing and technological changes that were occurring in the banking industry following considerable deregulation. Tr. 982:7-16 (Test, of Viklund).

The FDIC’s Creation of Suffolk Phoenix In 1979, two other sizeable thrifts on Long Island, County Federal Savings and Loan Corporation (“County”) and Suffolk County Fedei’al Savings and Loan Association (“Old Suffolk”), began incurring significant operating losses. See PX 5 at 5-10 (Memo from Edward J. O’Connell, III, Regional Director, FHLBB, to J.J. Finn, Secretary to the Board, FHLBB (May 13, 1983)). County was almost as large as Syosset, and Old Suffolk was actually larger than Syosset. Tr. 66:5 to 67:13 (Test, of Fuster).

County and Old Suffolk were merged in April 1982 under FSLIC’s “Phoenix program,” resulting in the creation of Suffolk County Federal Savings and Loan Association (“Suffolk Phoenix”). PX 5 at 1. In connection with this merger, Suffolk Phoenix received $62 million from FSLIC in the form of interest-bearing notes in exchange for income capital certificates (“ICCs”) and net worth certificates (“NWCs”). PX 78 at LIP0017898 (Suffolk Phoenix’s Consolidated Financial Statements and Schedules (Dec. 31, 1982)).

Suffolk Phoenix recorded on its books approximately $742 million of supervisory goodwill to be amortized over forty yeai’s on the straight-line method. Id. Syosset’s Acquisition of Suffolk Phoenix In August 1982, Syosset, acting through its legal counsel, offered to acquire Suffolk Phoenix from FSLIC. See PX 67 (Letter from Douglas P. Faucette, Muldoon & Murphy, to H. Brent Beesley, Director, FSLIC (Aug. 31, 1982)). Syosset’s offer letter proposed that it acquire Suffolk Phoenix through a direct merger in exchange for a capital contribution by FSLIC in the amount of $225 million. Id. at 1.

In addition, Syosset conditioned its offer on the Bank Board’s approval of Syosset’s use of “the purchase method of accounting pursuant to the method generally accepted in the savings and loan industry on August 9,1982 ... [,] includ[ing] the straight line amortization of any goodwill created by such adjustment [of Syosset’s assets] for a 40-year period.” Id. at 2.

By this language, Syosset sought to grandfather generally accepted accounting principles (“GAAP”) as they existed prior to the Financial Accounting Standards Board’s promulgation of Statement of Financial Accounting Standards No. 72 (“SFAS 72”) in February 1983. See DX 1238 (SFAS 72); Tr. 94:22 to 97:11 (Test. of Fuster). As the Supreme Court explained in Winstar, SFAS 72 eliminated any doubt that the differential amortization periods on which acquiring thrifts relied to produce paper profits in supervisory mergers were inconsistent with GAAP.

SFAS 72 also barred double counting of capital credits by requiring that financial assistance from regulatory authorities must be deducted from the cost of the acquisition before the amount of goodwill is determined. Winstar Corp., 518 U.S. at 855, 116 S.Ct. 2432 (citation omitted). Syosset’s August 1982 proposal requested pre-SFAS 72 accounting treatment to set in place a permissible, favorable accounting option that would soon become obsolete.

Although SFAS 72 was “applied prospectively to business combinations initiated after September 30, 1982[,] ... [r]etroactive application to a business combination initiated prior to October 1, 1982[wa]s permitted but not required.” DX 1238 ¶ 15. Syosset’s offer letter further proposed that “Notwithstanding any change in generally accepted accounting principles o[r the]

interpretation thereof, ... FHLBB shall permit LISB to report for any and all regulatory purposes as well as any reports published to its customers, creditors, depositors, security holders or the public, its financial condition and operations in accordance with the results of the [purchase method] adjustments described in the preceding sentence.” PX 67 at 2. In that connection, Syosset requested from FSLIC an indemnification for any lost profits caused by a subsequent governmental decision to disallow use of the purchase method of accounting. Id. at 2-3. FSLIC did not respond to Syosset’s August 1982 offer.

Tr. 94:22 to 99:18 (Test. of Fuster); Tr. 996:18 to 1000:16 (Test. of Vicklund). Subsequent to the merger between County and Old Suffolk, the financial condition of the resulting institution continued to decline. See PX 5 at 1-4 (Memo from O’Connell to Finn (May 13, 1983)). Consequently, in October 1982, the regulators undertook a national solicitation for potential acquirers of the Suffolk Phoenix and conducted a bidders’ conference in December of that year. Id. at 11. Syosset attended that conference and submitted a proposal in January 1983, PX 3 (Letter from John R.

Hall, Muldoon, Murphy, Bray & Faucette, to Angelo A. Vigna, Supervisory Agent, FHLBB (Jan. 20, 1983)), which proposal Syosset supplemented and amended in April of the same year. PX 4 (Letter from Hall to Beesley (Apr. 5, 1983)). The offer submitted in January contained two alternative bids, one proposing assistance from FSLIC in the form of capital certificates, and the other requesting a combination of capital certificates, cash, and subsidized borrowings. See PX 3.

An amended proposal by Syosset in April 1983 contained only the latter bid; in these proposals, Syosset uniformly requested accounting treatment containing elements that had been put forward in its offer of August 1982, but in somewhat modified form. See PX 4; Tr. 110:14-22 (Test. of Fuster). Syosset’s overriding goal with respect to the proposed transaction was to protect itself from Suffolk Phoenix’s tangible-capital deficit. Tr. 68:25 to 69:6, Tr. 72:3-14 (Test. of Fuster); PX 57, item (2) (list of items to consider for acquisition).

Syosset’s secondary goal was to secure its ability to use the resulting goodwill to stay in business, but not to grow. See Tr. 657:15 to 660:15 (Test. of Fuster); Tr. 1153:4 to 1155:18 (Test. of Viklund); Tr. 3915:10-23 (Test, of Conway); DX 1545 at 1 (Letter from James J. Nacos, the banks’ executive vice president and secretary, to Stephen D. Rohrs, Assistant District Director, OTS (Jan. 31, 1991)).

To achieve these goals, Syosset proposed that Suffolk Phoenix would convert to the stock form, and Syosset would acquire Suffolk Phoenix as a wholly-owned subsidiary, rather than by merger, for a purchase price of $100,000 in exchange for capital stock. PX 3 at 3-4; PX 4 at 2. In addition, Syosset would maintain the subsidiary’s net worth ratio at a minimum of one percent. PX 3 at 4; PX 4 at 2.

Regarding the proposed accounting treatment, Syosset would be permitted to record goodwill “in accordance with the purchase method of accounting pursuant to the method generally accepted in the savings and loan industry on August 9, 1982,” and “[s]uch method [would] include the straight line amortization of any goodwill created by such adjustment for a 40-year period____” PX 3 at 4; PX 4 at 3. Syosset’s bid further provided that “[notwithstanding any change in generally accepted accounting principles or

interpretation thereof, ... the [Bank] Board shall permit Suffolk [Phoenix] and LISB to report for any and all regulatory purposes” in accordance with pre-SFAS 72 accounting treatment. PX 3 at 4; PX 4 at 3; Tr. 106:3 to 107:23 (Test. of Fuster). Out of six bids received, FSLIC “determined that the bid of LISB [wa]s the most favorable.” PX 5 at 11-12 (Memo from O’Connell to Finn (May 13, 1983)); see also PX 95 at 5-7 (“A Memo” from David W. Glenn, Director, FSLIC, to FHLBB (Aug. 9, 1983)).

Thereafter, representatives of Syosset and the Bank Board engaged in detailed negotiations regarding the nature of the assistance FSLIC would provide, the accounting treatment that Syosset and its subsidiary would apply, and the period of amortization of goodwill that the transaction would generate. The negotiations proceeded along the lines outlined in Syosset’s April 1983 amended bid until Syosset’s outside counsel working on the transaction, John R. Hall, received on July 5, 1983 an undated letter from the Bank Board that was inconsistent with the terms Syosset had been seeking in two important respects.

Tr. 817:10 to 818:3 (Test. of Hall); see PX 6 (Letter from Lawrence W. Hayes, Senior Associate General Counsel, FHLBB, to Hall). In that letter, the Bank Board agreed that FSLIC’s cash contribution and the resulting goodwill would count toward computing Suffolk Phoenix’s net worth, but the Bank Board specified a thirty-five year amortization period in lieu of the forty-year period Syosset proposed. PX 6 at 6; Tr. 117:3-13 (Test, of Fuster); Tr. 818:4-19 (Test, of Hall).

The letter further stated the Bank Board’s understanding that such accounting treatment was allowed by regulatory accounting principles (“RAP”) rather than GAAP. PX 6 at 6; Tr. 117:3 to 118:11 (Test. of Fuster). Syosset did not consent to these terms. Instead, Mark Fuster, Syosset’s senior vice president, treasurer, and chief financial officer, made handwritten changes to a draft of the Assistance Agreement that Syosset received from FSLIC to reflect the terms that Syosset had originally proposed.

Tr. 124:25 to 133:12 (Test. of Fuster); PX 87 (draft Assistance Agreement (date illegible)); PX 7 at GTP0031225-26 (Fuster’s handwritten changes to draft Assistance Agreement); PX 502 (demonstrative of Fuster’s handwritten changes to draft Assistance Agreement in typewritten form). In pertinent part, Mr. Fuster proposed that changes be made to the accounting section,

Section 10, specifying that the applicable accounting principles would include those “in effect for mergers and acquisitions prior to the issuance of FASB # 72, permitting the use of ‘push down accounting’ as noted in R Memorandum # 55 and those accounting principles used by [Syosset] prior to this agreement.” PX 7 at GTP0031225; PX 502. Mr. Fuster informed the regulators of these requested changes at a meeting between representatives of Syosset and the government held in July 1983 at the Bank Board’s Washington, D.C. offices. Tr. 133:13 to 134:16 (Test. of Fuster); 818:21 to 821:7 (Test, of Hall).

The regulators accepted Mr. Fuster’s terms and added his proposed language to a draft dated July 13, 1983 and to the final Assistance Agreement. Tr. 134:17-19, 135:6 to 136:2 (Test. of Fuster); PX 90 at 19 (draft Assistance Agreement (July 13,1983)); PX 1 at 19-20 (executed Assistance Agreement (Aug. 17, 1983)). In connection with the transaction, Suffolk Phoenix converted to a federal stock savings bank and changed its name to The Long Island Savings Bank of Centereach FSB. PX 1 at 1. Syosset acquired Centereach as a wholly owned subsidiary by paying $100,000 cash for all of Centereach’s stock. Id.

Pursuant to the assistance agreement entered by the parties, FSLIC paid $75 million to Centereach as a direct contribution to the bank’s net worth, id. § 3(a), and FSLIC paid Syosset $63 million in the form of a five-year promissory note in exchange for an ICC in the same amount issued by Syosset. Id. § 5(b). In return, Syosset assumed responsibility for the $62 million of outstanding ICCs and NWCs that Suffolk Phoenix had issued. Id. § 9(e)(3)-(4).

Syosset was further obligated to maintain Centereach’s net worth at one percent of Centereach’s liabilities for ten years following the date of acquisition, after which period Syosset would maintain the subsidiary’s net worth at the level required by regulation for institutions insured for twenty years or more. Id. § 9(a). Syosset applied the push-down method to account for the acquisition, and Centereach recorded approximately $625.4 million of goodwill on its books, records, and audited financial statements, which amount was to be amortized over forty years by the straight-line method.

Tr. 155:9 to 156:19 (Test. of Fuster); PX 105 at LIP0828908, LIP0828910 (Centereach’s Explanation of Purchase Accounting Transactions (Aug. 17, 1983)); PX 109 at GTP0097041-42 (the banks’ Consolidated Financial Statements (1983 & 1982)). Absent the ability to include this massive amount of goodwill in the computation of Centereach’s regulatory capital, Centereach would have had a negative net worth of approximately $550 million and, on a consolidated basis, would have overwhelmed Syosset’s retained earnings. Tr. 156:23 to 157:1 (Test. of Fuster).

As required by the Bank Board’s resolution approving the transaction, Syosset submitted a letter from its independent accounting firm, Peat, Marwick, Mitchell & Co., opining that the acquisition had been accounted for in accordance with GAAP. PX 9 (Letter from Nacos to Vigna attaching accountant’s letter (Nov. 17,1983)). The supervisory agent at the Bank Board received that opinion letter and found it to be acceptable. Tr. 2147:20 to 2148:5 (Test. of Vigna).

Syosset’s and Centereach’s Successful Operations On a consolidated basis, Syosset’s acquisition of Centereach enabled Syosset to increase its branch network fourfold, from twelve to forty-eight branches, and to grow its assets more than threefold, from approximately $1.2 billion to $4.1 billion. PX 104 at LIP0000045-46 (Nacos’s copy of closing binder entitled “Acquisition of Suffolk County Federal Savings and Loan Association” (Aug. 17, 1983)); PX 109 at GTP0097037 (the banks’ Consolidated Financial Statements (1983 & 1982)).

After Syosset’s acquisition of Centereach, the two banks operated with separate accounts but were effectively run in tandem, with almost identical board members and officers, and with a single loan department. Tr. 1155:25 to 1158:6 (Test. of Viklund). The two banks’ operations were virtually indistinguishable, with only the fine print on signage and filigree denominating either Syosset or Centereach. See id. Operating pursuant to a very conservative philosophy, the banks lended locally to buyers of single-family homes and one- to four-unit properties.

Tr. 657:15 to 658:10 (Test. of Fuster); Tr. 3913:19 to 3914:21, 3915:10 to 3917:16 (Test. of Conway). The banks developed a practice of selling fixed-rate loans into the secondary market while keeping floaters, or adjustable-rate loans. Tr. 1361:21 to 1365:18 (Test. of Singer); Tr. 5609:4-17 (Test, of Fuster). Their purpose was to keep themselves “asset-sensitive, which means your assets reprice faster than your liabilities.” Tr. 1365:8-9 (Test. of Singer). The banks, through Centereach, had also kept a folio of deeply discounted loans acquired with the Suffolk Phoenix transaction.

Those loans had a substantial mark-to-market gain that was being accreted over the life of the assets. Tr. 1365:21 to 1366:14 (Test, of Singer). The banks also developed some new lines of business, especially home-equity loans at floating rates, that proved to be excellent assets for the bank. Tr. 1364:15 to 1365:11 (Test, of Singer). They also issued a few student loans. Tr. 5607:8-11 (Test, of Fuster). As the years passed, the consolidated statements of the banks’ financial condition show that the tangible-capital deficit in Centereach was gradually being reduced by retained earnings.

See PX 109; PX 125 (the banks’ Consolidated Financial Statements (1984 & 1983)); PX 130 (the banks’ Consolidated Financial Statements (1985 & 1984)); PX 141 (the banks’ Consolidated Financial Statements (1986 & 1985)); PX 145 (the banks’ Consolidated Financial Statements (1987 & 1986)); PX 152 (the banks’ Consolidated Financial Statements (1988 & 1987)); PX 180 (the banks’ Consolidated Financial Statements (1989 & 1988)). Between 1983 and 1989, Syosset and Centereach on a consolidated basis increased their total assets from $4.1 billion to $5.3 billion and total deposits from $3.2 billion to $4.4 billion.

Compare PX 109 at GTP0097037, with PX 180 at LIP0017412. The banks further expanded their operations in April 1986 with the FSLIC-assisted acquisition of Flushing Federal Savings and Loan Association, which had approximately $422 million in assets and eight branches located in Queens, Nassau, and Suffolk counties. PX 145 at LIP0148358-59 (the banks’ Consolidated Financial Statements (1987 & 1986)); Tr. 214:12-22 (Test, of Fuster); Tr. 1006:14 to 1007:3 (Test, of Viklund).

During the same period, the banks unsuccessfully sought other acquisitions, and they closed or sold several branches located outside the Long Island tricounty area. Tr. 215:24 to 216:25 (Test, of Fuster); Tr. 1009:19 to 1011:3, 1014:17 to 1015:12 (Test, of Viklund); PX 131 (Minutes of Syosset’s board meeting (Nov. 11, 1985)); PX 154 (Syosset’s proposal to acquire four branches of Goldome (Oct. 24,1988)). The Advent of FIRREA The enactment of FIRREA on August 9, 1989 eliminated or phased out the ability of thrifts to count goodwill toward regulatory capital.

On November 8,1989, OTS promulgated interim regulations implementing the new capital requirements to take effect on December 7,1989. 54 Fed.Reg. 46,845 (Nov. 8, 1989). In addition, on November 6, 1989, OTS issued Thrift Bulletin 36, which stated that a thrift that failed any one of the minimum capital requirements would be subject to “more than normal supervision” and to certain growth restrictions. DX 292 at LIP134538 (Letter from Vigna to Center-each’s board of directors and managing officer attaching copies of Thrift Bulletins 36 and 36-1 (Dec. 18, 1989)).

A thrift that failed one or more of the capital requirements was required, among other things, to submit to OTS a “capital plan” demonstrating that it would achieve capital compliance no later than December 31, 1994. Id. at LIP134539. Subsequent to passage of FIRREA, Centereach had on its books approximately $492 million of supervisory goodwill, of which amount approximately $458 million was rendered immediately non-qualifying by the capital standards imposed by FIRREA.

Tr. 224:16-20, 244:19 to 245:23 (Test, of Fuster); PX 26 Revised (Demonstrative summarizing Centereach’s core capital position from 1989 through 1993 including goodwill). With FIR-REA, Centereach’s capital ratio plummeted from more than 8% positive to a negative 11%. Tr. 224:11-15 (Test, of Fuster); PX 21 (Summary of Centereach’s quarterly regulatory capital ratios (1985-89)). By contrast, Syosset exceeded the new capital requirements. PX 205 at 1 (Internal OTS mem. from John Robinson through Jonathan Fieehter and John Downey (April 30, 1990)).

Combined, the banks would have had negative $29 million of tangible capital. Id. at 2. As a consequence of Centereach’s capital position, it retained the investment banking firm of Goldman Sachs & Co., DX 301 at 21 (Capital Plan for Centereach (Jan. 8, 1990)); Tr. 290:23 to 291:7 (Test, of Fuster), and submitted a capital plan to OTS on January 8,1990 in accord with Thrift Bulletin 36. DX 301. Because the plan did not demonstrate that Centereach would achieve capital compliance by December 31,1994, OTS informed Centereach that the plan was unacceptable and would be rejected, and Centereach withdrew it.

Id. at 14; PX 197 (Internal OTS mem. from Joseph P. Kehoe, Assistant Director, OTS, to Vigna (Feb. 20, 1990)); DX 83 at 7-8 (Minutes of Syosset’s board of trustees meeting (Sept. 25,1990)); Tr. 292:7-18 (Test, of Fuster). Centereaeh’s Capital Plan Over the next several months, OTS engaged in internal discussions about whether to require Syosset and Centereach to file a capital plan on a consolidated basis, and OTS eventually decided to require consolidation.

PX 197; PX 199 at GTP0033235-38 (Minutes of meeting of Supervisory Policy Committee (Mar. 21, 1990)); PX 203 (Internal OTS mem. of oral communication between Kehoe and James Catón (Apr. 19, 1990)); PX 205 (Internal OTS mem. from John Robinson through Jonathan Fiechter and John Downey (Apr. 30, 1990)).

At meetings between the parties held in April and May 1990, the banks urged OTS not to require the banks to consolidate, which would result in two capital-deficient institutions rather than just one, but Long Island did indicate its willingness to supplement Centereach’s capital plan and to strengthen Centereach’s capital position. DX 317 (Internal OTS mem. from Ruth Ann Popielarski to the files (May 1, 1990)); PX 208 (Letter from Viklund to Vigna supplementing meeting held on April 27,1990 (May 1, 1990)); PX 11 (Internal OTS mem. from Kehoe to the files (May 8, 1990)).

Following those meetings, OTS ultimately relented on its position regarding consolidation. PX 12 (Memorandum from Jonathan L. Fiechter, Principal Senior Deputy Director, OTS, to Vigna (Aug. 8, 1990)); PX 212 (Letter from Vigna to Viklund (Aug. 24, 1990)); DX 83 at 7-8 (Minutes of Syosset’s board of trustees meeting (Sept. 25, 1990)).

On October 25, 1990, Centereach submitted a second capital plan, pursuant to which Syosset would make additional capital contributions to Centereach through 1994, PX 13 at 32-34 (Capital Plan for Centereach (Oct. 25, 1990)), and Center-each would “determine later the precise further actions to be taken in 1994 (or thereafter), depending on the economic, regulatory, legal and other circumstances at the time.” Id. at 42. Centereach submitted to OTS further amendments to its capital plan in December 1990 and April 1991, PX 225 (Letter from Conway to David R.

Dorgan, Senior Assistant Director, OTS (Dec. 18,1990)); DX 1565 (Letter from Nacos to Michael Simone, Assistant District Director, OTS (Apr. 25, 1991)), and it received conditional approval in May 1991. DX 1571 (Letter from Vigna to Centereach’s board of directors (May 22, 1991)). In October 1991, Centereach submitted another amendment containing amended projections, DX 389A (Letter from Conway to Rohrs (Oct. 30, 1991)), and OTS granted final conditional approval several days later. DX 387 (Letter from Angelo A. Vigna, then-Northeast Regional Director, OTS, to Centereach’s board of directors (Oct. 30, 1991)).

As Thrift Bulletin 36 provided, the effect of such approval was to allow Centereach to continue to operate so long as it stayed in compliance with the capital plan, i.e., continued moving toward capital compliance. See DX 292 at LIP134538 (Letter from Angelo A. Vigna, then-District Director, OTS-New York, to LISB’s board of directors and managing officer attaching copies of Thrift Bulletins 36 and 36-1 (Dec. 18,1989)).

In April 1991, Centereach’s MACRO rating was decreased from a composite rating of 2 to a composite rating of 4 “resulting] from the institution’s insolvent regulatory capital position.” PX 249 (Letter from Vigna to Nacos (Mar. 25,1992)); see also Tr. 286:1-20, 287:15 to 288:6 (Test, of Fuster); PX 35 (Demonstrative summarizing ratings for Syosset, Centereach, and Long Island Ban-corp, Inc.); PX 35A (supporting materials for PX 35). “Because of the assigned MACRO rating, Centereach [wa]s considered a troubled institution and [had to] pay the premium assessment as indicated in Thrift Bulletin 48.” PX 249.

Centereaeh’s capital deficiency also caused Fannie Mae and Freddie Mae to notify Centereach that it could no longer be a seller-servicer. Tr. 286:21 to 287:8 (Test. of Fuster). On December 19, 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991, Pub.L. No. 102-242, 105 Stat. 2236 (1991) (codified at 12 U.S.C. §§ 1811-34b) (“FDICIA”).

Section 131 of FDICIA added

Section 38 to the Federal Deposit Insurance Act, entitled “Prompt Corrective Action,” establishing five new capital categories for insured depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” Id. § 131A, 105 Stat. at 2253 (codified at 12 U.S.C. § 1831o). On September 29, 1992, final rules implementing that

section were adopted by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, FDIC, and OTS. 57 Fed.Reg. 44866-901 (Sept. 29, 1992) (codified in part at 12 C.F.R. §§ 208.33 (Federal Reserve Board), 325.103 (FDIC) and 565.4(OTS) (1993)). The final rules became effective December 19, 1992, which was also the effective date of

Section 131 of FDICIA. The regulations defined the five capital categories in terms of minimum capital ratios. See, e.g., 12 C.F.R. § 565.4(b) (1993). In addition, the regulations set out sanctions applicable to institutions deemed to be undercapitalized, significantly undercapitalized, or critically undercapitalized. Id. § 565.6. On November 16, 1992, OTS sent a letter to Centereach stating that Centereach would have been deemed critically undercapitalized based on its June 30, 1992 Thrift Financial Report data, had the prompt corrective action provision of FDICIA been effective at that time.

PX 281 (Letter from Vigna to Centereach’s board of directors (Nov. 16, 1992)). Three days after that provision took effect, OTS sent Centereach notice that Centereach’s capital ratios placed it in the critically undercapitalized category. PX 293 (Letter from Vigna to Centereach’s board of directors (Dee. 22,1992)). The Restructuring In April 1992, several months after FDI-CIA was enacted, Mr. ViHund asked Mr. Fuster and William D. Singer, the banks’ chief investment officer, to develop a restructuring plan for bringing Centereach at least into the well-capitalized capital category under FDICIA.

Tr. 339:18 to 340:18 (Test, of Fuster); Tr. 1076:1 to 1077:5 (Test, of Viklund); Tr. 1344:19 to 1345:13 (Test, of Singer). Messrs. Fuster and Singer concluded that in addition to reducing borrowings, realizing embedded profits in assets, and writing off its remaining goodwill, Centereach would have to shrink and sell deposits. Tr. 340:19 to 341:15 (Test, of Fuster); Tr. 1345:17 to 1346:25 (Test, of Singer). Initially, the banks’ management envisioned shrinking only Centereach, but at Mr. Nacos’s suggestion it also considered shrinking both Center-each and Syosset.

Tr. 341:16 to 342:1 (Test, of Fuster); see also Tr. 1345:19 to 1346:15 (Test, of Singer). This strategy was eonsidered because, although Centereach was progressing ahead of the projections of its capital plan, the banks’ management realized that Centereach could not achieve capital compliance on its own. Tr. 342:2 to 344:3 (Test, of Fuster); PX 518 (Demonstrative showing capital still needed by Centereach after mitigation efforts to June 30, 1992). Mr.

Fuster and his staff additionally considered and rejected merging the two banks without shrinkage, concluding that it was not reasonable to sacrifice Syosset’s favorable capital position in a circumstance in which the resulting entity would still be subject to a capital plan. Tr. 344:25 to 345:8 (Test, of Fuster). In August 1992, a restructuring committee of the banks was formed and selected the investment banking firm of Bear, Stearns & Co. (“Bear Stearns”) to prepare a restructuring analysis.

PX 260 at 1 (Minutes of restructuring committee meeting (Aug. 24, 1992)); see also PX 263 at 4 (Syosset’s board of trustees meeting (Sept. 22,1992)); PX 269 (Letter from Robert A. Baer, Jr., Senior Managing Director, Bear Stearns, to Viklund confirming the banks’ engagement of Bear Stearns (Oct. 21, 1992)); Tr. 346:17 to 347:2 (Test, of Fuster).

Bear Stearns performed its due diligence during September and October of 1992, Tr. 350:2-4 (Test, of Fuster); PX 261 (Preliminary due diligence request list from Bear Stearns to Syosset (Aug. 25, 1992)), and presented its final restructuring analysis and recommendation to the banks’ boards the following month. PX 14 (Presentation on Restructuring Alternatives (Nov. 19, 1992)); PX 283 at LIP0119461-68 (Minutes of Centereach’s board of directors meeting (Nov. 19,1992)).

The plan recommended by Bear Stearns involved achieving a targeted 5.25% capital ratio by selling branches with $1.0 billion of deposits, funded by the sale of $1.25 billion of securities and loans, paying down other borrowings of $250 million, merging Centereach and Syosset, and writing off goodwill. PX 14 at GTP0057159, GTP0057162-63; PX 283 at LIP0119463-64. Bear Stearns considered and rejected several restructuring alternatives, including a targeted capital ratio of 5%, because that option would not provide for any capital cushion whatsoever. PX 14 at GTP0057159.

In addition, Bear Stearns analyzed and rejected targeting a 6% capital ratio, which alternative would result in a severe impact on future earnings and a high expense ratio. Id. Following Bear Stearns’s presentation, the banks’ boards decided to implement Bear Stearns’s recommended plan. PX 283 at LIP0119469; Tr. 935:5-18 (Test, of Donald Wenk, chairman of Syosset’s board of directors, succeeding Conway); Tr. 1437:13-25 (Test, of John J. Conefry, chairman of Syosset’s board of directors and chief executive officer at relevant times).

The banks submitted their restructuring plan to OTS on November 23, 1992, DX 1657 (Letter from Viklund to Vigna (Nov. 23, 1992)), and the following month OTS provided written notice that it did not object to that plan and considered the proposed restructuring an acceleration of the resolution of Centereach’s capital deficiency addressed in Centereach’s capital plan. PX 297 (Letter from Vigna to Center-each’s board of directors (Dec. 23, 1992)). In furtherance of their restructuring plan, Centereach and Syosset began paying down borrowings, selling assets, and taking preparatory steps to sell branches.

Based on the earlier work of Messrs. Fuster and Singer, as examined and verified by Bear Stearns, the banks knew they would have to sell a significant volume of their better earning assets to fund the sale of the branches. On behalf of the banks, Mr. Singer began selecting and assembling sizable packages of loans and mortgage-backed securities for sale and making sales. Tr. 1363:19 to 1364:14 (Test, of Singer).

As to the branches, the banks initially considered selling branches clustered in particular locations, but ultimately developed a list of twenty branches that could be sold, with the buyer to pick ten branches from this list. Tr. 735:17 to 736:21 (Test, of Fuster). In due course, in April 1993 Syosset and Centereach entered into an agreement in principle with Home Savings of America (“Home Savings”) to sell to the latter thrift ten branches in the tri-county area which then had approximately $950 million of deposits. PX 309 (Joint press release of Home Savings and the banks (Apr. 29, 1993)).

The three banks entered into a Purchase of Assets and Liability Assumption Agreement in June 1993, pursuant to which Home Savings would purchase five branches of Syosset and five branches of Centereach. PX 311 at GTP0069185 (Purchase of Assets and Liability Assumption Agreement (June 9, 1993)). The parties to the transaction submitted a joint application to OTS in July 1993, and OTS conditionally approved the application the following month. PX 327 (Letter from Thomas F. Sharkey, Assistant Regional Director, West Region, OTS, to William J. Wiley, Vice President, Home Savings, and Na-cos (Aug. 4, 1993)).

Closing the deal on September 3, 1993, Syosset and Centereach paid Home Savings $817,195,112 to assume $836,253,302 of deposits. PX 333 at GPT0069110 (Summary of branch sale accounting (Sept. 3, 1993)); DX 606 at 5, 33 (Long Island Bancorp, Inc.’s Prospectus (Feb. 14,1994)). Concurrently with this transaction, Syosset merged into Centereach, a “reverse” merger of the parent into the subsidiary, and the resulting entity took the name The Long Island Savings Bank, FSB (“Long Island” or “Bank”).

PX 324 (Letter from Vigna to Viklund granting conditional approval of Center-each’s application to convert to mutual charter and acquire by merger Syosset (July 30, 1993)); PX 325 (Letter from Vigna to Viklund granting conditional approval of Center-each’s application to transfer Syosset’s Assistance Agreement to Centereach (July 30, 1993)); PX 335 (Memorandum from Viklund to Long Island’s employees (Sept. 7, 1993)); DX 606 at 5, 33.

In connection with the merger, Long Island adopted SFAS 72 and wrote off its remaining goodwill balance, resulting in a charge of approximately $442 million to earnings in the Bank’s fiscal year that ended September 30,1993. Tr. 365:8-25 (Test, of Fuster); PX 519 (Demonstrative showing Long Island’s goodwill write-off); DX 606 at 5, 33, F-8. Because the merger succeeded in making the surviving entity well capitalized for purposes of FDICIA, albeit barely, on September 3,1993, OTS terminated Centereach’s capital plan. PX 332 (Letter from Vigna to Long Island’s board of directors (Sept. 3,1993)).

To fund the branch-sale payment made to Home Savings, Bear Stearns had initially projected that Syosset and Centereach would need approximately $1.1 billion. DX 926 at PLI169 1556 (Bear Stearns’s presentation to the Special Committee of Long Island (Sept. 29, 1992)). Following the announcement in April 1993 of the sale of the ten branches, however, those branches experienced deposit runoff in the amount of approximately $114 million, reducing their total deposits to approximately $836 million. Tr. 5498:10 to 5499:11 (Test, of Dr.

Nevins Baxter, an expert witness for plaintiffs); PX 803 (Demonstrative showing deposit runoff in the sold branches); PX 333 at GPT0069110 (Summary of branch sale accounting (Sept. 3, 1993)). Because of that runoff, Mr. Singer sold more assets than the amount that ultimately became necessary. Tr. 5606:9-22 (Test, of Fuster). The banks sold a variety of assets. They sold their portfolio of student loans to Sallie Mae. They securitized and sold approximately $300 million of home equity lines of credit (“HELOCs”) (on which the banks retained servicing).

They also securitized and sold a package of fixed-rate whole loans, (in which the banks retained some servicing rights), and sold a portfolio of mortgage-backed securities, together totaling approximately $272 million. See Tr. 359:4-15, 5601:1-11, 5602:10 to 5603:6, 5607:3 to 5608:20 (Test, of Fuster); Tr. 1364:2-14, 1365:21 to 1366:4, 1370:10 to 1377:2 (Test, of Singer); PX 296 (Letter from Singer to Simone (Dec. 23, 1992)); DX 926 PLI169 1556; PX 14 at GTP0057163 (Presentation on restructuring alternatives (Nov. 19, 1992)).

The banks would not have sold the HELOCs but for the restructuring, because those loans produced a favorable net interest margin with a relatively short duration. Tr. 360:2-14 (Test, of Fuster); Tr. 1364:15 to 1365:11 (Test, of Singer). Likewise, the agency mortgage-backed securities and whole loans would not have been sold in the ordinary course because Long Island “could not replace them in the market at the current yield that they were throwing off.” Tr. 1366:5-14 (Test, of Singer).

Some of those loans and securities had been marked to market at a discount in connection with the Suffolk Phoenix transaction, and Centereach had been amortizing gains on those marked-to-market loans and securities, but market-related gains were realized upon their sale. Specifically, the sale of these assets produced an accretion gain of approximately $41 million and a $3 million gain on a cash basis. PX 296; Tr. 1365:23 to 1366:4 (Test, of Singer); Tr. 5609:23 to 5611:4 (Test, of Fuster).

The banks invested the proceeds of the sales in short-term securities in anticipation of the need to fund the branch sale, and it retained the securities to the extent it did not need the funds for the branch sale. Among other things, it expanded its portfolio of U.S. Treasury securities. PX 391 at 44 (Long Island Bancorp, Inc.’s annual report (1994)).

Immediately prior to the branch sale and merger, on August 31, 1993, the capital ratio of the banks on a consolidated basis was 4.26%, an improved but still insufficient ratio that reflected the sale of assets and reduction in borrowings to prepare for the branch sale. Tr. 368:6 to 369:5 (Test, of Fuster); PX 520 (Demonstrative showing tangible-capital ratios of banks before and after restructuring). Subsequent to the branch sale and merger, on September 30, 1993, the Bank’s capital ratio was 5.31%, i.e., only 0.31% above the minimum ratio for the well capitalized level. Tr. 369:6-12 (Test, of Fuster); PX 520.

OTS and FDIC conducted examinations of the banks commencing prior to their restructuring and concluding subsequent to the restructuring and their merger. PX 15 (FDIC’s report of examination (commenced July 6,1993)); PX 328 (OTS report of examination (commenced Aug. 11, 1993)). Representatives of both regulatory entities met with Long Island’s board of trustees on October 26, 1993 to present the findings of their respective examinations. PX 15 at GTP0056285; PX 328 at 3; PX 16 at 7-10 (Long Island’s board of trustees meeting (Oct. 26, 1993)).

OTS indicated in its report that “[t]he principal area of concern is asset quality as the level of delinquencies in the various loan portfolios remains high,” PX 328 at 1, and that asset quality is “considered less than satisfactory.” Id. at 5.

Despite this finding with respect to the MACRO factor of asset quality, OTS informed Long Island that OTS assigned the Bank a composite MACRO rating of “2.” PX 328 at 2; PX 15 at GTP0056285; PX 16 at 8; Tr. 369:23 to 370:3 (Test, of Fuster); PX 35 (Demonstrative summarizing ratings for Syosset, Centereach, and Long Island Bancorp, Inc.); PX 35A (supporting materials for PX 35) at PX035A0026 (Letter from Rohrs to Long Island’s board of directors (Oct. 28,1993)).

For its part, FDIC agreed with OTS that Long Island’s level of nonperforming assets posed a problem; however, FDIC considered the problem so serious as to disqualify the Bank from a composite “2” rating.

FDIC observed at the meeting that the restructuring and merger “had brought capital up to 5%, but in the process, the Bank had to sell some high earning and good assets.” PX 16 at 9; see also PX 15 at GTP0056283 (stating FDIC’s opinion that “[a]lthough capital is now above regulatory requirements, the volume of marginal and inferior quality assets remains at a high level and will continue to have a negative impact on earnings performanee in the future”); id. at GTP0056285 (FDIC’s representatives informing Long Island that in FDIC’s view, “[t]he asset sale transaction was seen as negatively impacting future earnings performance”).

Consequently, FDIC assigned Long Island a composite rating of “3.” PX 15 at GTP0056285; see also PX 16 at 9. In an effort to increase its capital ratio subsequent to the merger in the circumstance of the Bank’s shrinkage by 20%, and coincidentally to improve its MACRO rating, Long Island began to look internally to reduce expenses, Tr. 372:2-16 (Test, of Fuster), and to dispose of non-earning assets. Tr. 387:9 to 388:2 (Test, of Fuster); see also Tr. 368:23 to 369:22 (Test, of Fuster).

In that connection, as FDIC observed in its report of examination, Long Island’s “short term goal for fiscal 1994 is to reach a tangible equity to assets ratio of 6.00%.” PX 15 at GTP0056283 (FDIC’s report of examination of Long Island (commenced July 6,1993)); see also DX 441 at 4 (Long Island’s Corporate Strategic Plan & Operating Budget for the Fiscal Year Ending Sept. 30, 1994 (Sept. 28, 1993)); Tr. 384:13 to 386:9 (Test, of Fuster).

Although Long Island’s short-term goal was to achieve a 6% tangible-capital ratio, Long Island’s board wanted to operate the Bank at a capital ratio of 8% to 9%, the level at which the banks had been operating pre-FIRREA. Tr. 372:17 to 373:4 (Test, of Fuster); Tr. 1122:18-20 (Test, of Viklund); see also PX 21 (Demonstrative summarizing Center-each’s/Syosset’s quarterly regulatory capital ratios from 1985 through 1998); PX 22 (Demonstrative summarizing Syosset’s quarterly regulatory capital ratios from Dec. 1985 through June 1993).

To improve its risk profile, Long Island sought to put together a package of its nonperforming and underperforming loans and a separate package of its real estate owned, such that the packages might be sold in bulk. Tr. 387:9 to 388:2 (Test, of Fuster). At the time, Long Island’s officers were concerned that the losses incurred on such a sale might drop Long Island’s tangible-capital ratio below the FDICIA well-capitalized level. Tr. 387:21-24 (Test, of Fuster). The Bank retained Merrill Lynch as its advisor for the transaction, and the Bank exercised caution to avoid too large a loss on the sale.

Tr. 392:3 to 19 (Test, of Fuster); PX 352 at 8 (Minutes of Long Island’s board of trustees meeting (Nov. 23, 1993)). In December 1993, Long Island entered into a contract for the bulk sale of the resulting package of nonperforming and underperforming loans (the “Bulk Sale”). Tr. 392:13-19 (Test, of Fuster); PX 391 at 19 (Long Island Bancorp, Inc.’s annual report (1994)); PX 354 at 1.1 (Conversion Valuation Appraisal Report (Dec. 17, 1993)). The real estate owned was sold separately from the Bulk Sale of the loans. PX391 at GTP0083019.

As of September 30, 1993, the book value of the loans to be sold was approximately $142.0 million, and that of the real estate to be sold was about $14.0 million. PX 391 at GTP0083019; see also PX 354 at 1.3. The sale of the loans was completed by December 31, 1993, and the sale of the real estate was consummated in the second quarter of fiscal year 1994. PX 391 at GTP0083019. On September 30, 1993, the values of the assets sold in the Bulk Sale were adjusted to market based on the sales price established in the Bulk Sale. Id.

In sum, as a result of the Bank’s restructuring actions, including sale of assets, diminution of borrowings, the branch-deposit sale, the write-off of goodwill, the Bulk Sale, and the sale of real estate owned, the Bank’s total assets declined from $5.6 billion as of September 30, 1992 to $4.0 billion as of September 30, 1993. Id. Long Island’s tangible-capital ratio reached and remained above 5%, albeit barely. On December 31, 1993, after the Bulk Sale had been made, Long Island’s tangible capital was $224.536 million and its tangible capital ratio had dropped to 5.27%. PX 423, Ex.

C at 4 (Expert Report of Charles W. Calomiris (June 14, 2004)). By March 31, 1994, after the real estate owned had been sold, Long Island’s tangible capital had dropped slightly more, by $296,000, to $224.240 million. Id. Long Island’s Conversion to a Stock Company. Long Island’s restructuring efforts did not succeed in bringing the Bank’s capital ratio to the level which the Bank’s management considered necessary to continue operating the institution. Tr. 939:3-13 (Test. of Wenk); see also Tr. 369:6-22, 372:17 to 373:4, 383:23 to 384:9 (Test. of Fuster); Tr. 1122:18-20 (Test, of Viklund).

In August 1993, several months prior to the Bulk Sale, the Bank had formed an ad hoc committee and appointed Mr. Conefry as chair to evaluate Long Island’s capital condition subsequent to its restructuring efforts and to recommend alternatives for acquiring sufficient capital. PX 329 at LIP0041916-17 (Minutes of Long Island’s board of directors meeting (Aug. 24, 1993)); Tr. 939:3-23 (Test, of Wenk); Tr. 1442:11-17, 1548:1-10 (Test, of Conefry); PX 367 at LIP0181276 (Memorandum from Conefry to distribution among Long Island’s directors).

The committee requested reports in this regard from seven Wall Street firms, all of which advised that additional capital was necessary and that a conversion from a mutual to a stock company was the only practicable means of raising such capital. Tr. 1443:15 to 1444:7, 1548:11 to 1549:1 (Test, of Conefry); PX 367 at LIP0181276. In accord with this advice, in November 1993, Long Island began the process of converting to a stock company.

PX 349 (Minutes of Long Island’s special board of trustees meeting (Nov. 16, 1993)); PX 351 at LIP0172208 (Memorandum from Wenk to Long Island’s employees (Nov. 19, 1993)); PX 352 at 10 (Minutes of Long Island’s board of trustees meeting (Nov. 23, 1993)). The Bank retained Merrill Lynch and Salomon Brothers Inc. to underwrite the conversion. Tr. 944:10-11 (Test, of Wenk).

In addition, Long Island retained RP Financial, Inc. to provide an appraisal of the pro forma market value of the common stock to be issued by a newly formed holding company, Long Island Bancorp, Inc. (“Long Island Bancorp”) and to prepare a business plan for the period through September 30, 1997. DX 1082A (Letter from Ronald S.

Riggins, President and Managing Consultant, RP Financial, to Conefry confirming engagement for appraisal (Oct. 27, 1993)); PX 345 (Letter from Riggins to Conefry confirming engagement for business plan (Oct. 27, 1993)); PX 354 (Conversion Valuation Appraisal Report (Dec. 17, 1993)); PX 357 (Business Plan (Dec. 30,1993)).

Long Island’s conversion was “motivated by the need for capital[, approximately three hundred million dollars of [which] capital need can be attributed to the government mandated write-off of supervisory goodwill and the related divestiture of 20% of the bank’s business for the purposes of complying with a government mandated capital plan.” PX 367 at LIP0181276 (Memorandum from Conefry to distribution among Long Island’s directors (Feb. 24, 1994)); accord Tr. 1446:20 to 1447:4 (Test, of Conefry); Tr. 1382:9 to 1383:11 (Test, of Singer).

As Merrill Lynch advised the Bank, “[i]ncreased capital provides greater operating flexibility and a cushion against unanticipated losses.” PX 331 at LIP0155255 (Merrill Lynch’s presentation to Long Island (Sept.1993)). Long Island’s management believed that raising capital via a conversion would assist the Bank in competing with its peers, provide access to additional capital markets, and strengthen its customer services, lending, and investment operations. PX 349 at LIP0091182 (Minutes of Long Island’s special board of trustees meeting (Nov. 16, 1993)); see also Tr. 1447:5-11 (Test, of Cone-fry). Mr.

Fuster testified that Long Island could not have competed effectively in its market while it was only minimally in compliance with capital requirements: Q. [Mr. Infelise] ... [I]t’s true isn’t it that Long Island Savings Bank’s decision to convert from a mutual to a thrift [stock] institution in April of 1994 was not necessary for Long Island Savings Bank to attain capital compliance, was it? A. [Mr.

Fuster] While the bank may have been in compliance at the point that it converted, it certainly was only minimally in compliance and could not realistically grow or compete without the ability of having additional capital. Tr. 764:3-11 (Test, of Fuster). OTS indicated that it was “very pleased” with Long Island’s plans for conversion and an initial public offering (“IPO”). Tr. 1489:14 to 1490:4 (Test. of Conefry); see also PX 349 at LIP0091182. The appraisal evaluation for the conversion was done by Mr. Ronald Riggins of RP Financial. The original appraisal was completed on December 17,1993, and filed with OTS.

PX 354 (Conversion Valuation Appraisal Report for The Long Island Savings Bank, FSB (Dec. 17, 1993)); Tr. 1650:9 to 1654:11 (Test, of Riggins). That report indicated that the estimated midpoint of the pro forma market value of the to-be-issued common stock was $225,000,000, based on the proposed issuance of 22,500,000 shares at $10.00 a share. Id. at LIP0035247. The valuation was principally driven by Mr. Riggins’ assessment of Long Island’s earning potential relative to that of a peer group. Tr. 1690:14 to 1698:5 (Test, of Riggins). See also Tr. 1658:12 to 1706:9 (Test, of Riggins).

The conversion regulations contemplated establishing a range of value, from 15 percent below the appraised value (the “minimum”), to 15 percent above the midpoint (the “maximum”). OTS also provided for an upper limit, which is 15 percent above the maximum (the “super maximum”). Tr. 1655:10-16 (Test, of Rig-gins). The appraisal and the application for conversion were approved by OTS, a prospectus was prepared and proffered to OTS and the Securities and Exchange Commission (“SEC”), and then the prospectus was publicly issued on February 14, 1994, following the incorporation of comments by OTS and SEC.

Tr. 1651:5 to 1652:2 (Test, of Rig-gins). After an appraisal update was issued on April 6, 1994, the public offering took place and yielded $297.6 million, the “super maximum.” Tr. 1656:5-15 (Test, of Riggins). The IPO was a so-called “community” offering, basically to Long Island’s depositors, and was heavily oversubscribed; 90% of the shares were purchased by depositors and the remaining 10% were issued for Long Island’s newly formed employee stock option plan and its management retention plan.

Tr. 1385:6-19 (Test, of Singer); Tr. 1656:18 to 1658:11 (Test, of Riggins); PX 391 at GTP0083002 (Long Island Bancorp’s 1994 annual report). The shares were sold to the depositors at $11.50 a share. Tr. 5597:6-8 (Test, of Fuster). The conversion was completed on April 14, 1994. Tr. 392:24-25 (Test, of Fuster); PX 391 at GTP0083002 (Long Island Baneorp’s annual report (1994)). Long Island Bancorp ultimately realized $296.9 million of net proceeds from the IPO, $164 million of which amount was contributed to the Bank in exchange for all of its issued and outstanding common stock.

Tr. 393:22 to 394:2, 394:22-25 (Test, of Fuster); PX 521 (Demonstrative showing conversion proceeds); PX 391 at GTP0083018, GTP0083041. The Bank used $23.8 million of that contribution for an Employee Stock Ownership Plan (“ESOP”) and $8.9 million for a Management Recognition and Retention Plan (“MRP”). Tr. 394:5-21 (Test, of Fuster); PX 521; PX 391 at GTP0083018, GTP0083036, GTP0083041-42. The remaining conversion proceeds of approximately $100.2 million were retained at the holding company level.

The holding company was required by OTS regulations to transfer to the Bank at least 50% of the net conversion proceeds. Tr. 5579:19-25 (Test, of Fuster). That amount would have been approximately $148 million. Tr. 5580:4-6 (Test, of Fuster). However, the Bank actually transferred $164 million, more than required, because “[t]he bank and the holding company wanted the bank to have at least an 8 percent capital ratio going into its new existence as a public company.” Tr. 5580:12-14 (Test, of Fuster).

Long Island’s Post-Conversion Operations and Subsequent Merger with Astoria Following Long Island’s conversion and IPO, by September 30, 1994, the Bank had achieved a tangible capital level of almost $360 million, increasing its tangible-capital ratio to 8.14%. Tr. 395:23 to 396:4 (Test, of Fuster); PX 522 (Demonstrative showing Long Island’s tangible capital and tangible-capital ratio); PX 391 at GTP0083032. Through the conversion, the Bank had completed the task of replacing the goodwill lost as regulatory capital by the enactment of FIRREA. Long Island focused on its operations.

In November 1994, Long Island expanded its origination business, acquiring eleven loan servicing and lending offices from Entrust Financial Corporation and a retail lending office from Developer’s Mortgage Corporation, expanding such services to in-elude Pennsylvania, Delaware, Maryland, Virginia, and Georgia. PX 394 at GTP0077838 (Long Island Bancorp’s annual report (1995)). Long Island promptly began to pay a dividend. As Mr.

Singer explained: The decision to pay dividends, the company was earning money or earning capital, the decision to pay dividends was ours because we did what was known as a community offering, which we basically offered the stock to our depositors. Depositors had taken money out of their savings and/or CD accounts and bought stock. They were foregoing interest on their savings, and we were paying a dividend back to them as a return of some of the, quote, what you would call, interest income that they were losing on the deposits because they had bought the stock.

So we looked at it as a way of returning to them some of the interest income they would have had had they left the money in the bank as a deposit. Tr. 1385:4-16 (Test, of Singer). The process of paying dividends had two steps. Long Island Savings Bank paid dividends to Long Island Bancorp and Bancorp paid dividends to shareholders. The Bank paid dividends to Bancorp as follows: Fiscal year Dividend 1995 $10,800,000 1996 10,500,000 1997 20,000,000 1998 25,000,000 PX 423, Ex. D (Expert Report of Charles W. Calomiris (June 14, 2004)).

Overall, Bancorp paid dividends to its shareholders and repurchased its stock in the following amounts: Repurchases Dividends Fiscal year 1995 $17,812,000 $ 9,693,000 Fiscal year 1996 $42,043,000 $ 9,171,000 Fiscal year 1997 $24,017,000 $13,378,000 Fiscal year 1998 (part year) $ 6,894,000 $11,214,000 PX 404 at 31 (Long Island Bancorp’s annual report 1997); DX 597 at BAN0000134-36 (Long Island Bancorp’s Form 10-Q (Aug. 14, 1998)); Tr. 701:20 to 705:11 (Test, of Fuster). Long Island Bancorp initially paid a quarterly dividend of 10 cents per share. PX 423, Ex. D (Expert Report of Charles W.

Calomiris (June 14, 2004)). That dividend was increased to 15 cents per share in the first quarter of fiscal year 1997 and to 20 cents per share in the third quarter of 1998. Id. In addition to steadily increasing dividends, Long Island Bancorp’s shareholders benefit-ted from a strong increase in the price per share of Long Island’s stock, from $11.50 per share at the initial public offering in April 1994 to $47.00 per share at September 30, 1997. PX 404 at LIP0083716 (Long Island Bancorp annual report (1997)).

On April 2, 1998, an agreement and plan of merger was signed between Long Island Bancorp and Astoria Financial Corporation, pursuant to which each share of the former would be exchanged for 1.15 shares of the latter. PX 406 at VLI004 0549-0550 (Astoria Financial Corp.’s 14(

a) definitive proxy statement (July 17, 1998)). The transaction was consummated on September 30, 1998, with Long Island and Long Island Bancorp merging into Astoria Federal Savings and Loan Association and Astoria Financial Corp., respectively. Tr. 612:25 to 613:10 (Test, of Fuster). For each share of Long Island’s common stock, Long Island’s shareholders received Astoria shares valued at $48.44, for a capital gain of 321%, or 38% on an annualized basis, over the IPO price of $11.50 per share. PX 423 at 12 (Report of Charles W. Calomiris (June 14, 2004)). ANALYSIS A. Liability The disputed issue respecting the government’s liability for breach of contract focuses on

interpretation of contractual language. The government has conceded that it entered into a contract with Syosset, Hr’g Tr. 29:6— 15, 34:1-15 (closing arguments on July 7, 2005). Long Island maintains that the contractual documents and circumstantial evidence demonstrate that both Syosset and Centereach entered into a contract with the government that includes, among other terms, the right of the banks to count supervisory goodwill toward regulatory capital and to amortize that goodwill over a period of forty years.

Hr’g Tr. 15:19 to 19:7 (closing arguments on July 7, 2005); Plaintiffs’ Post-Trial Brief (“Pis.’ Br.”) at 31-36; Plaintiffs’ Posh-Trial Reply Brief (“Pis.’ Reply”) at 4-8. The government denies that its contract includes the right of either Syosset or Center-each to amortize goodwill over a particular period of time, Hr’g Tr. 31:17 to 32:8, 33:5-8; Defendant’s Posh-Trial Responsive Brief (“Def.’s Reply”) at 4-5, and it also denies that the contract obligates the United States to render performance to Centereach.

Tr. 31:22 to 32:14 (opening arguments); Defendant’s Posh-Trial Brief (“Def.’s Br.”) at 29-36; Def.’s Reply at 2-4. 1. Amortization of goodwill over a forty-year period. The documents involved in Syosset’s FSLIC-assisted purchase transaction contain some ambiguity, but the circumstances surrounding the transaction manifest that the parties intended to enshrine an amortization period of forty years and that they did so in a unique and awkward but effective way.

Except for Syosset’s offer letter for the acquisition of Suffolk Phoenix, PX 4 at 3 (quoted in pertinent part supra, at 620), the contractual documents do not specify an amortization period of forty years. Rather, they refer generally to pre-FAS 72 accounting principles, push-down accounting, and Bank Board Memorandum R-55.

Section 10 of the Assistance Agreement provides in pertinent part: Except as otherwise provided in this Agreement, any computations made for the purposes of this Agreement shall be governed by generally accepted accounting principles as applied in the savings and loan industry, including the accounting principles in effect for mergers and acquisitions prior to the issuance of FASB # 72, permitting the use of “push down accounting” as noted in R Memorandum # 55 and those accounting principles used by [Syosset] prior to this Agreement---- PX 1 § 10 (executed Assistance Agreement (Aug. 17,1983)). Putting aside briefly the reference to preFAS 72 accounting principles, the reference in

Section 10 of the Assistance Agreement to “push down accounting” and Bank Board Memorandum R-55 by themselves provide an answer to the liability question.

Section 17 of the Assistance Agreement, the integration clause, states in part that “[t]his Agreement and the Master Agreement, together with any

interpretation or understanding agreed to in writing by the parties, constitute the entire agreement between the parties.” Id. § 17.

The “entire agreement” included Bank Board Resolution No. 83-435, which provided: That not later than 90 days following the effective date of the acquisition of Center-each by [Syosset], [Syosset] and Center-each shall submit to the Supervisory Agent an opinion of independent certified public accountants that [Syosset] and Centereach have accounted for the transaction in accordance with generally accepted accounting principles, except that as herein provided by the Bank Board, for purposes of reporting to the Bank Board: (a) “push down” accounting shall be used to reflect the acquisition on Centereach’s books; and (

b) the cash contribution by the FSLIC to Centereach with respect to Suffolk [Phoenix] pursuant to the Assistance Agreement shall be deemed a contribution to net worth, and shall be booked as a direct credit to Centereach’s net worth. PX 2 at 11 (FHLBB Resolution No. 83-435 (Aug. 11, 1983)).

In addition, Syosset and Centereach each entered into a Master Agreement with the government, which agreement required the respective bank to keep proper and adequate books of record and account, in which full and substantially correct entries shall be made of all dealings and transactions relating to the Certificates and the properties, business and affairs of the [bank], and such books and records shall be adequate to enable the [bank] to prepare its financial statements in accordance with generally accepted accounting principles consistently applied and in accordance with § 10 of the Assistance Agreement.

PX 104 at LIP0000210 (Section 5.5 of Center-each’s Amendment to Master Agreement, Income Capital Certificates and Purchase Agreement (Aug. 17, 1983)), LIP0000495 (Section 5.5 of Syosset’s Master Agreement for Issuance of Income Capital Certificates (Aug. 17,1983)). These documents and much of the circumstantial evidence in this case bear some similarity to the evidence involved in the Century and Ohio transactions in Home Savings of America, F.S.B. v. United States, 57 Fed.Cl. 694 (2003) (“Home Savings III”), affd in part and vacated and remanded in part, 399 F.3d 1341 (2005) (“Home Savings IV”).

In that case, “[t]he Century and Ohio Resolutions did not specify an amortization period, but they did set out the process by which the amortization period would be determined.” Home Savings IV, 399 F.3d at 1350 (citing Home Savings III, 57 Fed.Cl. at 704 (“Home Savings was to provide regulators with an analysis, supported by independent auditors, [that] included the proposed amortization period for supervisory goodwill arising from those transactions.”)). Cf. Fifth Third Bank of W. Ohio v.

United States, 402 F.3d 1221, 1232 (Fed.Cir.2005) (“The need to specify the exact length of the amortization period never became a relevant consideration; it got resolved by default in the later paperwork.”). In the instant case, the Resolution refers to push-down accounting, and both Master Agreements incorporate the accounting treatment specified in

Section 10 of the Assistance Agreement, which

section in turn incorporates Memorandum R-55. PX 2 at 11; PX 104 at LIP0000210, LIP0000495. The Resolution thus refers implicitly to Memorandum R-55 (which established the push-down method of accounting, see supra, at 620 n. 6), and the Master Agreements explicitly incorporate that document. Memorandum R-55 sets out that process, and thus the transactional documents “set out the process by which the amortization period [was to] be determined.” Home Savings IV, 399 F.3d at 1350.

Memorandum R-55 describes “[push-down accounting [a]s the establishment of a new accounting and reporting basis” and states that such method “is acceptable for purposes of reporting to the FHLBB although its use is not required.” PX 8 at 1 (Memorandum R-55 (Jan. 17, 1983)) (emphasis added). The memorandum describes the reporting process as follows: Supervisory staff encountering the use of push-down accounting should determine if it has been applied in accordance with GAAP.

An opinion from an independent public accountant that both the establishment of a new basis of accounting at the time of the acquisition and the current use of push-down accounting are in conformity with GAAP, or, alternatively, an independent certified public accountant’s opinion on the association’s subsequent financial statements which is not qualified with respect to the use of push-down accounting should provide evidence to support this staff determination. This requirement may be satisfied at the date of completion of the regular audit covering the period during which the accounting change was made.

Id. at 2. Importantly, Memorandum R-55 further sets out the process for determining the period of amortization in the following way: In addition to assuring that an opinion as to the appropriateness of the push-down accounting applied has been rendered by the independent public accountant, sufficient specific review should be made to assure that: 2. amounts of intangible assets, including goodwill, are reasonably determined and the amortization methods and periods are justified, but, in any event, do not exceed 40 years from the date of the acquisition; .... Id.

Syosset and Centereaeh complied with the reporting process for amortization periods set out in Memorandum R-55. Syosset’s and Centereach’s accountant, Peat Marwick, reviewed the accounting for Syosset’s acquisition of Centereaeh, and in November 1983, the chairman of Peat Marwick sent Syosset and Centereaeh a letter opining that the transaction was accounted for in accordance with GAAP and “that push down accounting can be reflected on the books and records of Centereaeh.” PX 9 at LIP0140600 (Letter from Peat Marwick to Conway (Nov. 15, 1983) ).

The banks submitted that accountant’s opinion to the supervisory agent of the Bank Board, explaining that they were acting pursuant to the Bank Board’s Resolution No. 83-435. Id. at LIP0140599 (Letter from Na-cos to Vigna (Nov. 17, 1983)). Neither Peat Marwick’s opinion nor the banks’ letter to the Bank Board attaching that opinion specified a particular length of amortization. However, Peat Marwick also examined the banks’ consolidated statements of financial condition as of September 30, 1983 and 1982, and sent them its accountants’ report in December 1983.

PX 117 at GTP0096971 (Letter from Peat Marwick to Syosset’s board of directors (Dec. 9, 1983)). In that report, Peat Marwick stated explicitly that “[t]he excess of cost over the net assets acquired totaled approximately $625,375,000 and is being amortized on the straight-line basis over 40 years.” Id. at GTP0096985. In May 1984, the banks submitted to FSLIC that accountants’ report along with its consolidated statements of financial condition as of September 30,1983 and 1982, explaining that it was doing so in accord with the Master Agreement. PX 118 (Letter from Nacos to David K.

Schweitzer, Case Manager,' Financial Assistance Division, FSLIC (May 29, 1984) ). The materials submitted also included Mr. Fuster’s certification of the financial statements, which he confirmed “are in accordance with generally accepted accounting principles, consistently applied and in accordance with

Section 10 of the Assistance Agreement.” PX 117 (Letter from Fuster to FSLIC (May 29, 1984)). The preparation of Peat Marwick’s opinion on the banks’ financial statements complied with the reporting requirement of Memorandum R-55, which “may be satisfied at the date of completion of the regular audit covering the period during which the accounting change was made.” PX 8 at 2 (Memorandum R-55 (Jan. 17, 1983)) (paragraph quoted in full supra, at 634). The regulators notified the banks that they received Peat Marwick’s audit report.

PX 119 (Letter from Vincent A Cerreta, Assistant District Director, Operations, Office of Examinations & Supervision, FHLBB, to Conway (June 4, 1984)). Thus, a forty-year amortization period for the goodwill was enshrined. The peculiar, unique aspect of Suffolk’s contract for the acquisition of Centereaeh relates to the backhanded way in which the parties established accounting treatment that allowed forty-year amortization of goodwill. The testimony at trial of the participants in the negotiations supports the banks’

interpretation of the contract and does nothing to further the government’s position in litigation of this case. Mr. Fuster, the lead negotiator for Syosset, testified that he edited an early draft of the Assistance Agreement prepared by the government’s counsel, to include specific references to pre-SFAS 72 accounting as well as to push-down accounting and Memorandum R-55, because he intended to contract for the banks’ ability to count goodwill as regulatory capital and to amortize that goodwill over forty years, as specified in Syosset’s amended bid letter.

Tr. 124:25 to 133:12 (Test, of Fuster); PX 4 at 3 (Letter from Hall to Beesley (Apr. 5, 1983)). Mr. Fuster’s understanding was that the phrase he inserted into the draft Assistance Agreement referring to pre-SFAS 72 accounting was sufficient to specify an amortization period of forty years. Tr. 133:7-12 (Test, of Fuster). In this regard, he proposed these changes after Long Island’s counsel received from the Bank Board a response to Syosset’s amended bid letter, which response proposed a thirty-five year amortization

schedule and use of regulatory accounting principles, rather than accounting under generally accepted accounting principles. Tr. 117:3 to 118:11 (Test, of Fuster); Tr. 818:4-19 (Test, of Hall); PX 6 at 6 (Letter from Hayes to Hall (undated)). Mr. Hall, Syosset’s outside counsel who participated in the negotiations, including the meeting held at the Bank Board’s offices in July 1983, testified that the Bank Board’s chief accountant, Robert Moore, nodded in acquiescence to these terms. Tr. 820:4 to 822:3 (Test, of Hall). The revisions proposed by Mr.

Fuster thereafter were put in place and used in the final text of the Assistance Agreement. The witnesses the government presented at trial regarding contractual

interpretation supported the banks’ position. In particular, Mr. Vigna, the District Director of OTS at the pertinent time, testified that at the time of his deposition in this case in 1999, he apparently understood that the parties contracted for an amortization term of forty years. Tr. 4463:11 to 4464:17 (Test, of Vigna). The evidence thus demonstrates that the banks established through the contractual negotiations that they wanted agreement on use of a forty-year

schedule for amortizing goodwill, that the government agreed, and that the contractual language reflected that agreement, albeit in a unique way. The parties’ subsequent conduct is fully consonant with this finding. Subsequent to its initial consolidated financial statements and accountants’ report in 1983, the banks continued submitting such materials for each of the years 1984 through 1989, in which materials the Bank consistently and continuously specified that it was amortizing goodwill over forty years.

PX 125 at LIP0208091 (the banks’ Consolidated Financial Statements (1984 & 1983)); PX 130 at GTP0026505 (the banks’ Consolidated Financial Statements (1985 & 1984)); PX 141 at LIP197040 (the banks’ Consolidated Financial Statements (1986 & 1985)); PX 145 at LIP0148359 (the banks’ Consolidated Financial Statements (1987 & 1986)); PX 152 at GTP0085312 (the banks’ Consolidated Financial Statements (1988 & 1987)); PX 180 at LIP0017422 (the banks’ Consolidated Financial Statements (1989 & 1988)).

Moreover, FDIC and OTS conducted regular examinations of the banks subsequent to the acquisition and issued reports expressing their understanding that “[i]n accordance with a FSLIC Assistance Agreement, the goodwill was to be amortized over a forty-year period, with LISB-Centereach permitted to include the outstanding goodwill as part of capital for all regulatory purposes.” DX 775 at WOQ638 0108 (OTS’s report of examination of the banks (commenced Apr. 8, 1991)); PX 262 at 13 (OTS’s report of examination of the banks (commenced Sept. 1, 1992)); accord DX 768 at 1 (FDIC’s report of examination of Centereach (Dec. 11, 1990)); PX 227 at 8 (OTS’s report of examination of Centereach (commenced Apr. 8, 1991)); DX 779 at 1 (FDIC’s report of examination of Centereach (July 27, 1992)); see also PX 138 at 8 (“S Memo” from O’Connell to Jeff Sconyers; Secretary to FHLBB (Apr. 16, 1986)).

At no point did the regulators object to Centereach’s inclusion of its goodwill in its regulatory capital or to the amortization of that goodwill over forty years. Tr. 269:24 to 270:5, 274:6-13 (Test, of Fuster). As the trial court and the court of appeals observed in Home Savings with respect to similar circumstantial evidence, “it is unreasonable to believe that regulators would have allowed [plaintiff] to amortize supervisory goodwill over a 40 year period absent an understanding that this was the implementation of the process agreed upon in the ...

Assistance Agreements.” Home Savings IV, 399 F.3d at 1351 (quoting Home Savings III, 57 Fed.Cl. at 705). 2. Promises running to Centereach as well as Syosset. Secondarily, the government argues “[t]he plain language of the Assistance Agreement ... demonstrates that Centereach did not have a goodwill promise.” Def.’s Br. at 29. In developing this argument, the government focuses solely on the Assistance Agreement and ignores the other two primary components of the contract, the Resolution and the Master Agreements.

In particular, the government observes that the term “this Agreement” in the Assistance Agreement refers only to the Assistance Agreement, to the exclusion of the “entire agreement,” such that the phrase “computations made for the purpose of this Agreement” in

Section 10 of the Assistance Agreement refers only to computations required by the Assistance Agreement itself. Id. at 30-32; Def.’s Reply at 2. The government then notes that the only computation so required is that addressed by

Section 9, providing that “[Syosset] shall cause the net worth of CENTER-EACH to be maintained at” one percent for the first ten years following consummation of the transaction. Def.’s Br. at 32-34 (quoting PX 1 § 9 (executed Assistance Agreement (Aug. 17, 1983))); Def.’s Reply at 3.

From these premises, the government contends that “[t]hese computations included Syosset’s obligation to maintain Centereach’s capital, but not any computations allowing Center-each to include goodwill in its capital.” Def.’s Br. at 35; see also Tr. 32:12-14 (defendant’s counsel at opening arguments stating that “[t]here is no provision in the [Assistance [A]greement that addresses Center-each’s obligation itself to meet prevailing capital requirements”). The government misconstrues the pertinent terms of the Resolution and Master Agreements and ignores their relationship to Memorandum R-55 and to

Section 10 of the Assistance Agreement. The Resolution specifically obligates both Syosset and Center-each to submit to the Supervisory Agent an accountant’s opinion that both banks have accounted for the transaction in accordance with GAAP, including the application of push-down accounting “to reflect the acquisition on Centereach’s books.” PX 2 at 11 (FHLBB Resolution No. 83-435 (Aug. 11, 1983)) (provision quoted in full supra, at 633).

That provision of the Resolution is not surprising, considering that Centereach, as the subsidiary entity, was necessarily and inherently involved in a purchase transaction applying push-down accounting. The goodwill was recorded on Centereach’s books and records, not those of Syosset. See PX 8 (Memorandum R-55 (Jan. 17, 1983)).

The government seeks to negate the import of the Resolution by asserting that “[t]he resolution imposed an independent obligation upon Syosset and Centereach to provide an accountant’s opinion” and that “[Conspicuously lacking in the resolution were any provisions specifically providing that, for purposes of Centereach’s regulatory reporting requirement, pre-SFAS No. 72 accounting would apply, a particular amortization period could be used, or goodwill would count fully as an asset.” Def.’s Br. at 31-32 (emphasis added); see also Def.’s Reply at 5.

However, far from imposing an “independent” requirement on the banks, the Resolution’s use of the term “push-down accounting” for purposes of recording the goodwill on Center-each’s books refers to Memorandum R-55, which sets forth precisely the provisions the government finds “[Conspicuously lacking” in the four comers of the Resolution itself. See supra, at 634.

Moreover, the Master Agreements for both Syosset and Centereach require each bank “to prepare its financial statements in accordance with [GAAP] principles consistently applied and in accordance with § 10 of the Assistance Agreement.” PX 104 at LIP0000210 (Section 5.5 of Centereach’s Amendment to Master Agreement, Income Capital Certificates and Purchase Agreement (Aug. 17, 1983)), LIP0000495 (Section 5.5 of Syosset’s Master Agreement for Issuance of Income Capital Certificates (Aug. 17, 1983)) (provision quoted in full supra, at 634).

The government counters the natural thrust of this provision in the Master Agreements by contending that “[t]his [provision] simply means that GAAP applies, except to the extent

section 10 applies different treatment to calculations that are required pursuant to the Assistance Agreement.” Def.’s Reply at 2. This purported

interpretation of the Master Agreements is disingenuous;

Section 10 of the Assistance Agreement provides for GAAP accounting as it existed prior to SFAS 72 and specifically for the accounting treatment described in Memorandum R-55. See supra, at 633-35. In short, the contract Syosset and Centereach entered into with the government includes Centereach’s right to count its supervisory goodwill toward regulatory capital and to amortize that goodwill over a forty-year period. With the enactment of FIR-REA and the adoption of regulations implementing that statute, the government breached this contract.

That breach caused damages and loss to Centereach and Syosset, as the facts and circumstances proven at trial establish, and the government is liable for those damages and losses. B. Damages Compensation by way of an award of money damages to the injured party is the primary means of remedying a breach of contract. 24 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 64:1, at 4-5 (4th ed.2002) (hereafter “Williston”).

Expectancy damages, the amount representing the benefit to the non-breaching party had performance been rendered, ordinarily provides the basis for an award of contractual damages. LaSalle Talman Bank, F.S.B. v. United States, 317 F.3d 1363, 1371 (Fed.Cir.2003); Restatement (Second) of Contracts § 344 & cmt. a (1981); Williston § 64:2, at 30.

A plaintiff is entitled to an award of expectancy damages upon showing by a preponderance of the evidence that such damages were proximately caused by the breach, that they were actually foreseen or reasonably foreseeable, and that the amount can be estimated with reasonable certainty. La Van v. United States, 382 F.3d 1340, 1351 (Fed.Cir.2004). Expectancy damages are often measured by the amount of profits lost but also include any other losses caused by the breach, including incidental losses. Glendale Fed. Bank, FSB v.

United States, 239 F.3d 1374, 1380 (Fed.Cir.2001) (citing Restatement (Second) Contracts § 347); Williston § 64:2, at 30. “Incidental losses include costs incurred in a reasonable effort, whether successful or not, to avoid loss, as where a party pays brokerage fees in arranging or attempting to arrange a substitute transaction.” Restatement (Second) Contracts § 347 cmt. c; see also Williston § 66:55-56, at 664-677. 1. Cost of replacement capital. a. Causation. The ban

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