Court Approves Valuation Expert’s $18.6M Diminished Value Tag in S&L Case

WASHINGTON, D.C. – In a case that begins at the dawn of the 1980s S&L crisis, the U.S. Court of Federal Claims has found “fair and reasonable” the opinion of an expert witness for S&L owners that the Government’s breach of their assistance agreements caused by the enactment of FIRREA cost them $18.6 million in economic value.  Claims for future lost profits did not survive, however.
Publisher’s Note:  You can comment on this story and see the complete case summary where the Court addresses a number of valuation methods and the defense expert’s testimony elsewhere on this blog.  
Plaintiffs Holland and Ross purchased all of the shares in Rock Falls Savings & Loan Association in 1986, about the time that S&Ls were collapsing across the country.  The FSLIC, which insured the thrift deposits, tried to get healthy thrifts to acquire insolvent ones.  The plaintiffs entered into an assistance agreement with the FSLIC to purchase some S&Ls.  The agreement included language that cash contribution from the FSLIC, the subordinated debenture and preferred stock purchased by the FSLIC could all be counted as regulatory capital on River Valley’s books – a provision that was wiped out with the enactment of FIRREA in1989.   To purchase another thrift called San Antonio Federal Savings Bank, the pair had to find other investors and form a new entity.  They acquired the bank.  Its assets were sold at a significantly gain for the investors.  First Bank acquired River Valley in 1995. 
Holland, Ross and First Bank sued the Government for breach of contract.  The court ruled in an earlier decision that the Government’s enactment of FIRREA did breach the contracts. 
Losing on Future Lost Profits
In calculating damages, the Court reviewed the plaintiffs’ theories, starting with the claim that they suffered lost opportunity to purchase SAFSB; therefore losing  potential profits or dividends.  Rejecting this claim, the Court said that when seeking damages from future income generating property, the market value of the asset at the time of the breach must be considered, not lost actual profits that could have been produced in the future had a different set of circumstances occurred.  Lost potential future income and dividends are not recoverable for the loss of the acquisition opportunity, the Court determined.

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