Glendale Federal Bank, FSB v. United States

Nature of the Case

The United States (D) appeals the award by the Court of Federal Claims, to Glendale Federal Bank (P) of $ 381 million in ‘wounded bank’ damages. Glendale Federal Bank cross-appeals the trial court’s denial of another $527.5 million in reliance damages.

Facts

This is the second appeal on the damages question. The first resulted in an award to Glendale of $909 million in restitution and ‘non-overlapping reliance damages.’ In the first appeal the court concluded that the award of $909 million was not supportable and vacated the judgment. In the first damages trial Glendale sought ‘expectancy damages,’ the kind of damages often associated with lost profits. The trial court rejected that theory. The trial court fashioned a restitution remedy based on the assumed risk.

The issue was the market value of the liabilities assumed by Glendale. The court awarded $510 million. In yet another review, the appeals court concluded that the restitution theory was flawed, because it was based on an assumption that the non-breaching party was entitled to the supposed gains received by the breaching party, when those gains in the context of these cases were both speculative and indeterminate. The $510 million was vacated. A viable theory on which damages could be based was a reliance theory. The trial court had considered reliance theory as a basis for an award, and had added specific reliance damages of $381 million to the total award granted Glendale; these were denominated non-overlapping reliance damages, and identified as damages for post-breach events. Such damages had to be real, and reasonably ascertainable.

Following the first appeal on damages and our remand to the trial court for further consideration of the issues, Glendale moved in the trial court for entry of judgment, asking the court to reinstate the post-breach ‘wounded bank’ portion of its earlier judgment. This was the $381 million with an additional $527 million in out-of-pocket losses. The defendant asserted that Glendale invented the notion of ‘wounded bank’ damages and was not entitled to recovery. These losses were said to have occurred because three years after, and as a result of, the breach, Glendale fell out of capital compliance; depositors and others became nervous about placing funds with it; the bank was required to pay more interest to attract depositors; and it was required to pay higher fees for deposit insurance. Glendale relied upon the same model it presented in support of its earlier claim for lost profits under the now-discredited expectancy damages theory.

Glendale got the $381 million but not $527 million because its reliance model failed to measure the actual losses sustained by it as a result of the government’s breach and the government appealed. Glendale cross-appealed the denial of its claim for the additional $527 million.

Issue

When restitution damages are based on recovery of the expenditures of the non-breaching party in performance of the contract, can the award be viewed as a form of reliance damages?

Holding and Rule of Law

Yes. Restitution damages can be viewed as a form of reliance damages when they are based on recovery of the expenditures of the non-breaching party in performance of the contract.

Reliance damages are supportable when based on actual losses that are fully proven. Proof of reliance damages are factual determinations to be made by the trial court on the basis of the evidence presented. If a reasonable probability of damage can be clearly established, uncertainty as to the amount will not preclude recovery,’ and the court’s duty is to ‘make a fair and reasonable approximation of damages.

Disposition

Judgment affirmed.