Full opinion text
MEMORANDUM OPINION SPELLMAN, District Judge. INTRODUCTION In a closed meeting held on April 6,1983, the Federal Home Loan Bank Board (FHLBB) adopted two resolutions which form the basis of Plaintiffs’ complaint in this case. FHLBB Resolution 83-184 rejected Plaintiffs’ recapitalization proposal designed to infuse new capital into the financially troubled Biscayne Federal Savings and Loan Association (Biscayne). FHLBB Resolution 83-185, adopted a short time thereafter, placed Biscayne in receivership under the control of the Federal Savings and Loan Insurance Corporation (FSLIC). Within an hour of the promulgation of the FHLBB resolutions, FSLIC officials entered each of Biscayne’s 34 branch offices, assumed control of the Association, ousted several of Biscayne’s senior officers and transferred Biscayne’s assets to the newly formed New Biscayne Federal Savings and Loan Association (New Biscayne). Within three hours of the FHLBB’s actions, Biscayne and its principal shareholder, Kaufman and Broad, Inc. (KB), filed the complaint in this action accompanied by a motion for a temporary restraining order. Plaintiffs prayed for the return of the Association to their control. An immediate hearing was set that evening. The parties’ characterization on April 6 of the FHLBB actions became the dominant recurring theme throughout the litigation. Plaintiffs asserted that the seizure of Biscayne by an army of myrmidons dispatched from Washington, D.C. culminated 16 months of “Janus-faced” and outrageous behavior by the FHLBB towards Biscayne and KB. Such behavior, Plaintiffs argued, drove Biscayne to its knees and caused it to become statutorily insolvent. Defendants contended that Plaintiffs’ histrionics obscured the truth and the simple legal issues before the Court. Defendants averred that although they were under no compunction to negotiate with Plaintiffs, they indulged Biscayne and KB with endless months of negotiations in an effort to solve Biscayne’s financial woes. Defendants contend that with Biscayne approaching $30 million negative net worth and insisting that the FHLBB bail out the Association with the infusion of public funds, the FHLBB had no alternative save appointing a receiver. The appointment of a receiver, Defendants argued, was authorized by statute to protect the depositors and the public confidence. Such appointment, Defendants asserted, was one of the risks of doing business with FHLBB and receiving insurance from FSLIC. The Court denied Plaintiffs’ motion for a temporary restraining order on April 6, 1983. Biscayne Federal Savings and Loan Association, et al. v. Federal Home Loan Bank Board, et al., 561 F.Supp. 1046 (S.D. Fla.1983), appeal docketed, No. 83-5432 (11th Cir. June 6, 1983). In compliance with the statutory mandate that this cause be heard on an expedited basis and in recognition that the public interest necessitated a rapid resolution, the Court ordered the immediate commencement of discovery and it scheduled opening arguments in the trial within three weeks. In denying the motion for a temporary restraining order, the Court invoked the All Writs Act, 28 U.S.C. § 1651, and instructed Defendants not to undertake any actions in the management of New Biscayne that could drastically alter the financial or organizational structure of Biscayne. Aware that the All Writs Act should not be invoked to circumvent the requirements for a temporary restraining order pursuant to Rule 65(b), Fed.R.Civ.P., the Court felt that the complete transformation of Biscayne during the pendency of the trial could result in a hollow victory for the Plaintiffs should they ultimately prevail. A complete dissipation of assets would effectively deny the Court jurisdiction over the res — the Association and its assets — in this proceeding and prevent the Court from restoring the Association to the Plaintiffs. 561 F.Supp. at 1049-50. See also Florida Medical Association v. U.S. Department of Health, Education and Welfare, 601 F.2d 199 (5th Cir. 1979). The short amount of time allotted for discovery placed a great strain on the parties as well as on the Court. The parties conducted numerous depositions in Miami, Washington, D.C., and New York. As many as 50,000 pages of documents were exchanged. The efforts of the parties and their response to this Court’s demands cannot go without comment. The filing of the complaint through closing arguments after trial consumed a period of only 63 days. This could not have occurred without the full cooperation of the two outstanding law firms and trial counsel for both parties. The FHLBB based the appointment of a receiver on its powers delineated in 12 U.S.C. § 1464(d)(6)(A). The FHLBB cited subsections (i) and (iii) as grounds for the appointment. These subsections allow for appointment of a receiver for the following reasons: (i) insolvency in that the assets of the association are less than its obligations to its creditors and others, including its members; (iii) an unsafe or unsound condition to transact business. 12 U.S.C. § 1464(d)(6)(A)(i) and (iii). Plaintiffs’ second amended complaint contains nine counts. Counts I through V name the FHLBB, the FSLIC and FHLBB officials in their official capacities. Counts VI through IX name the individuals in their individual capacity under a Bivens claim. See Bivens v. Six Unknown Federal Narcotics Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971). See also Davis v. Passman, 442 U.S. 228, 99 S.Ct. 2264, 60 L.Ed.2d 846 (1979); Carlson v. Green, 446 U.S. 14, 100 S.Ct. 1468, 64 L.Ed.2d 15 (1980). The Court bifurcated Counts I through V from Counts VI through IX. This opinion concerns Counts I through V. Counts I through V allege the following: Count I: Biscayne was statutorily insolvent pursuant to § 1464(d)(6)(A)(i); however, the FHLBB is estopped from asserting insolvency as a basis for the appointment because “defendants, singly and in concert”, created that insolvency. Biscayne was not in an unsafe and unsound condition pursuant to § 1464(d)(6)(A)(iii). Count II: The FHLBB’s appointment of a receiver constituted “an abuse of discretion”, was “arbitrary and capricious, contrary to prior representations” and “not warranted by the facts and circumstances”. Count III: In view of the sixteen (16) month history of negotiations between the FHLBB/FSLIC and plaintiffs, in view of the absence of any exigent circumstances suggesting that Biscayne Federal was in danger of imminent financial collapse or that the public interest in the integrity of a financial institution required such action, and in view of contrary representations by defendants, the ex parte appointment of a receiver for Biscayne Federal was an abuse of discretion. Count IV: Defendants’ assertions that Biscayne’s shareholders had no property interest and that the appointment of a receiver was undertaken to extinguish the cloud of shareholders’ interest in Biscayne rendered the ex parte appointment of the receiver a breach of Plaintiffs’ due process rights under the Fifth Amendment. Count V: The defendants have engaged in unequal treatment of similarly situated savings and loan associations who are admittedly insolvent. The defendants’ imposition of a receivership over insolvent Biscayne Federal while choosing not to impose a receivership over similarly situated savings and loan associations constitutes unequal treatment under the law in violation of the guarantees of the Fifth Amendment. Plaintiffs concluded: WHEREFORE, because defendants’ actions as alleged in Counts I, II, III, IV and V in appointing a receiver for Biscayne ex parte were improper, unwarranted, an abuse of discretion, and in violation of the Fifth Amendment, applicable federal statutes and regulations promulgated thereunder, plaintiffs request that this Court enter an Order removing the receiver, restoring the status quo and requiring FHLBB/FSLIC to agree to a plan that would resolve Biscayne Federal’s net worth and solvency problems. Plaintiffs also request that this court grant whatever other relief it deems just and proper including, but not limited to, an award of attorneys’ fees. ISSUES BEFORE THE COURT Plaintiffs assert that this case presents two issues for resolution: 1) whether one of the statutory criteria for the appointment of a receiver existed on April 6; and 2) whether, upon the finding that a statutory criterion existed, the FHLBB’s decision to appoint a receiver was “proper”. Defendants responded to each amended complaint with a motion to dismiss. The Court reserved ruling on the dismissal motions. Responsive pleadings were filed. Defendants dispute Plaintiffs’ formulation of the triable issues before the Court. They contend that the only reviewable issue for the Court is whether one of the statutory criteria existed on April 6. Defendants argue that once the Court is satisfied that the FHLBB’s decision finding the existence of one of the criteria was not an abuse of discretion, Plaintiffs’ cause must fail. Defendants contend that the FHLBB’s decision to appoint a receiver, once one of the criteria is met, is an exercise of its discretion which is beyond the permissible scope of judicial scrutiny. See Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, 435 U.S. 519, 558, 98 S.Ct. 1197, 1219, 55 L.Ed.2d 460 (1977). They assert that the FHLBB cannot be estopped from asserting insolvency as a basis for the appointment of a receiver, regardless of the extent of the alleged egregious behavior. Defendants argue that the issue of Biscayne’s unsafe and unsound condition need not be reached since Biscayne has stipulated to its statutory insolvency as of April 6. This stipulation, they argue vehemently, mandates dismissal of the ease. Defendants presented no evidence to rebut Plaintiffs’ contention that Biscayne was not in an unsound or unsafe condition on April 6, 1983. Defendants argue that Plaintiffs’ constitutional claims (Counts IV and V) have been foreclosed by previous rulings and are not properly triable in a § 1464(d)(6)(A) action. The Court was initially inclined to accept Defendants’ representation that the only triable issue was whether one of the statutory criteria was met. Defendants find support for their proposition in at least one other District Court opinion. See Telegraph Savings and Loan Association v. Federal Savings and Loan Insurance Corporation, 564 F.Supp. 862, 870 (N.D.Ill.1981) (memorandum opinion), affirmed, Telegraph Savings and Loan Association v. Schilling, 703 F.2d 1019 (7th Cir.1983). But see Washington Federal Savings and Loan Association v. Federal Home Loan Bank Board, 526 F.Supp. 343, 353-54 (N.D.Ohio 1981). It appears, however, that the Court in Telegraph Savings was not confronted with accusations that the Board had engaged in outrageous behavior. In another District Court case where Plaintiffs made serious allegations concerning the FHLBB’s behavior, the court framed the triable issues along the lines proposed by the Plaintiffs in the present action. Fidelity Savings and Loan Association v. Federal Home Loan Bank Board, 540 F.Supp. 1374 (N.D.Cal.1982), reversed on other grounds, 689 F.2d 803 (9th Cir.1982), cert. denied,-U.S.-, 103 S.Ct. 1893, 77 L.Ed.2d 283 (1983). The court stated: This court is not to substitute itself for the Federal Home Loan Bank Board in the decision to exercise its jurisdiction, if it is present. Rather, once the court determines that the three statutory prerequisites have been satisfied, it will not disturb the decision of the Board to exercise its jurisdiction unless there has been an abuse of discretion in the exercise of that power. Therefore the issues before this court are (1) whether, when looking at all the evidence that was available to the Board and that information subsequently discovered, the three statutory prerequisites were satisfied; and (2) whether the Board’s exercise of jurisdiction constituted an abuse of discretion. 540 F.Supp. at 1378. (Emphasis added). The Court believes that it is compelled to look beyond the issue of whether one of the statutory criteria has been met when the allegations indicate that the agency may have acted in an outrageous manner and in contravention of its statutory purpose. Regardless of whether the statutory prerequisites have been met, the doctrine of agency discretion may not be used to insulate the Board from judicial scrutiny when serious agency abuses offend decency. The Court ordered this action to address itself to whether one of the statutory criteria had been met and whether the FHLBB properly exercised its discretion when it appointed the receiver. The Court does not agree with Defendants’ argument that Plaintiffs’ constitutional claims (Claims IV and V) are not cognizable in a § 1464(d)(6)(A) action. The Court believes that § 1464(d)(6)(A) should not be read in a vacuum or apart from other applicable standards of review .under the Administrative Procedure Act where such standards dovetail with the statute and where the legislative history does not evince a Congressional intent to preclude the Court from making such an inquiry. See Johnson v. Robinson, 415 U.S. 361, 94 S.Ct. 1160, 39 L.Ed.2d 389 (1974). Accordingly, the constitutional issues were addressed by the parties pursuant to 5 U.S.C. § 706(2)(B). See Unity Savings Association v. Federal Savings and Loan Associa tion, 573 F.Supp. 137, 140-41 (N.D.Ill. May 31,1983). The opinion that follows constitutes the Court’s findings of fact and conclusions of law as required by Rule 52(a), Federal Rules of Civil Procedure. SCOPE OF REVIEW Prior to discussing the facts of this case, the Court shall address the. scope of its review. This issue was raised by the Court sua sponte at the commencement of this action. The parties agreed that the Court’s duty was to make a review of the administrative record to see if the agency abused its discretion. Having framed the two issues for review, the Court allowed the Plaintiffs to present additional evidence. The parties did not discuss the scope of review issue during closing arguments. In the text of their final brief, Plaintiffs argue that the Court should undertake a de novo review and utilize a greater weight of the evidence test to determine if the agency acted properly. However, in the conclusion of their brief and in the complaint itself Plaintiffs urge the Court to find that the Defendants abused their discretion. The abuse of discretion standard would be the standard utilized for a review on the record; it would not be the applicable standard for a de novo review. Defendants do not state in their final brief what the scope of review should be. Given Defendants’ articulation that the standard to be applied is “abuse of discretion” and their arguments to this Court, they advocate a review on the record. Several courts have addressed the issue of the scope of review in a § 1464(d)(6)(A) proceeding. While this Court is not examining this issue on a clean slate, it is apparent that the writing already committed to slate is contradictory. Compare Fidelity Savings, 540 F.Supp. at 1378 with Telegraph Savings, 564 F.Supp. 862 at 869-70 (N.D.Ill.1981) and Washington Federal, 526 F.Supp. at 350-354. At least one court which advocated a review on the record struggled with the problem of obtaining a complete record for judicial review. Washington Federal, 526 F.Supp. at 350-354. The problems with assembling a complete administrative record for review are occasioned in great part by the organizational structure of the FHLBB. Under the organizational scheme, the Chairman assumes a dual role in considering matters involved in the present action. He acts in a quasi-judicial role with the two other Board members in deciding how to interpret agency policy and regulations, when to invoke the FHLBB authority to appoint a receiver, and whether a particular proposal should be accepted in light of agency policy. In his other role, the Chairman effectively acts as the Chief Executive Officer. He guides and advises the staff during its negotiations with a particular association pri- or to the submission of a proposal to the full Board for consideration. It was the performance in these dual roles by Chairman Pratt that is the crux of Plaintiffs’ case. Plaintiffs argued that in guiding the staff, the Chairman received information upon which he ultimately decided the fate of KB’s proposals and of Biscayne. It is clear from the testimony in this case that Chairman Pratt, generally considered a forceful Chairman, conferred on a number of occasions with the senior staff regarding KB’s proposals and Biscayne’s situation. The contents of these conversations were not included in the administrative record originally offered to the Court by the Defendants on April 6. On inquiry from the Court, the Defendants agreed on several occasions that all information given to the Board concerning the Biscayne situation should be considered the basis for the Board’s decisions. Defendants agreed that the contents of the conversations should be included in the record. The Court considered how to obtain the contents of these discussions. Plaintiffs noticed the depositions of FHLBB staff members as well as members of the Board. Defendants moved for a protective order as to the Board members. The Court initially allowed only the depositions of the staff members. Plaintiffs were allowed to inquire into the history of the negotiations between the parties and into what they communicated to the Board members. The Court allowed Plaintiffs to depose the Board members and inquire as to what the staff communicated to them when it became evident that senior staff members had held several important conversations with Pratt concerning this matter. Sentient that the mental processes of the decision makers is above inquiry, the Court felt that Plaintiffs should be given an opportunity to substantiate their claims that the Board and staff had been involved in the worst form of double-dealing and outrageous behavior. But see United States v. Morgan, 304 U.S. 1, 18, 58 S.Ct. 773, 776, 82 L.Ed. 1129 (1938), 313 U.S. 409, 421, 61 S.Ct. 999, 1004, 85 L.Ed. 1429 (1941); Davis v. Braswell Motor Freight Lines, 363 F.2d 600, 604-605 (5th Cir.1966). Since there exists no articulated Board policy or rules concerning what kind of proposals are approved by the Board or when a receiver will be appointed, the only way for the Plaintiffs to compare what the staff represented to them as being Board policy and what in fact was Board policy was to depose the Board members. Plaintiffs withdrew their notice of Chairman Pratt’s deposition when Defendants announced that he would testify at trial. The Court notes that the District Judge in Washington Federal allowed the Plaintiffs to submit testimony refuting statements made by staff members at the Board meetings and allowed Plaintiffs to inquire of staff members as to what they communicated to the Board members at the briefing sessions and to the contents of the communications. Washington Federal, 526 F.Supp. at 350-352, 354. In essence, the court expanded the initial record and supplemented it with live testimony concerning the communications and the factual underpinnings of the Board’s decision. Regardless of how the scope of review is characterized in Washington Federal or in the present case, the procedures followed are similar. Defendants assumed the initial burden of producing the record which included depositions of staff and Board members. Plaintiffs presented their witnesses and Defendants presented witnesses to rebut Plaintiffs’ claims. Both of the parties had the chance to examine all of the significant players in the negotiating and decision-making process. Having considered all of the evidence, the Court does not feel that the issue of the proper standard of review need be reached. Under either the greater weight of the evidence standard or the abuse of discretion as to at least Count II, Plaintiffs must prevail. THE PARTIES Defendant Federal Home Loan Bank Board (FHLBB) is a federal agency organized pursuant to the Federal Home Loan Bank Act, 12 U.S.C. §§ 1422 et seq. The agency has supervisory authority over federally chartered savings and loan associations pursuant to the Home Owners’ Loan Act of 1933, 12 U.S.C. §§ 1461 et seq. The adoption of final resolutions by the FHLBB is accomplished by the vote of the three Board members. The members of the Board at the time the FHLBB adopted the two resolutions being attacked by Plaintiffs were Richard T. Pratt (Pratt), Edwin J. Gray (Gray) and Jamie Jackson (Jackson). Pratt served as Chairman of the FHLBB. Defendant Federal Savings and Loan Insurance Corporation (FSLIC) is a federal agency organized pursuant to Title IV of the National Housing Act, as amended, 12 U.S.C. §§ 1724-17301 FSLIC insures the accounts of eligible state savings and loan associations, various savings banks and all federal savings and loan associations. 12 U.S.C. §§ 1724-1730f. FSLIC operates under the direction of the FHLBB. 12 U.S.C. § 1725(a); 12 U.S.C. § 1437(b); Reorganization Plan No. 3 of 1947. When the FHLBB appoints a receiver for a federally chartered savings and loan association, it must appoint FSLIC. 12 U.S.C. §§ 1462, and 1464(d)(6)(D). Plaintiff Biscayne Federal Savings and Loan Association (Biscayne) which operated 34 branches in South Florida was organized in 1956 and chartered that same year by the FHLBB. Its charter expressly provided that it was subject to “all lawful and applicable rules, regulations, and orders of the Federal Home Loan Bank Board.” By virtue of its status as a federally chartered association, Biscayne has enjoyed the benefits of FSLIC insurance since its inception in 1956. In 1976 Biscayne converted from a mutual to a stock association with the FHLBB approval. In 1980 Biscayne’s management defeated a takeover bid by Empire Gas Corporation by persuading Plaintiff Kaufman and Broad, Inc. (KB) to acquire control of Biscayne; KB acted as a “white knight” in the parlance of corporate acquisition litigators. KB purchased approximately 25% of Biscayne’s outstanding stock. As part of its agreement with Biscayne, KB also acquired a seven-year option to tender for any and all of the remaining shares of Biscayne stock. The FHLBB approved KB’s acquisition of a controlling interest in Biscayne pursuant to FHLBB Board Resolution No. 80-673. The FHLBB placed several conditions on the acquisition. Plaintiffs do not challenge the authority of the FHLBB to impose those conditions; Plaintiffs do not deny that they are bound by the conditions therein imposed. Two of the conditions state, in essence, that KB will maintain Biscayne’s net worth at no less than the minimum regulatory level from the time it acquires 50% or more of Biscayne’s stock, and that Biscayne may not pay dividends in any particular year in excess of 50% of Biscayne’s net income. Plaintiff Kaufman and Broad is a publicly traded corporation based in Los Angeles and founded in 1957 with interests in various businesses including home building, insurance and mortgage banking. Mr. Eli Broad is its founder, President and majority stockholder. KB has consolidated assets in excess of $1 billion and total capital of $270 million. Since 1980, KB has owned approximately 25% of Biseayne’s outstanding stock of approximately 1.9 million shares and is Biscayne’s largest shareholder. Mr. H. Brent Beesley (Beesley) was at all times relevant hereto the director of the Office of FSLIC at the Bank Board. Mr. Thomas P. Vartanian (Vartanian) was at all times relevant hereto General Counsel to the Bank Board and director of the Office of General Counsel (OGC). Mr. D. James Croft (Croft) is director of the Office of Examinations and Supervision (OES) at the Bank Board. Defendants Stanley Warranch, Charles I. Babcock, Jr., Kenneth Kamberg, R. Bruce Ricks and Ray M. Shaw are the directors of New Biscayne and were joined by this Court’s Order for purposes of placing them on notice of the Court’s decree issued pursuant to the All Writs Act. Biscayne Federal Savings and Loan Association, et a1. v. Federal Home Loan Bank Board, et aL, No. 83-815-CIV-EPS (S.D.Fla. May 6, 1983, nunc pro tunc, April 29, 1983) (“Order on Matters Presented to the Court at Trial on April 29, 1983”). ECONOMIC OVERVIEW The savings and loan industry operated at a profit for decades. Savings and loan associations (S & L’s) accepted savers’ deposits, paying interest at low rates which were fixed by the federal government. These deposits were then reinvested primarily in single family home mortgages. The long-term interest rates on these mortgages were slightly higher than the short-term interest rates paid to depositors, thereby allowing S & L’s to realize a profit. By fixing the rate which could be paid to depositors, the government was able to indirectly control the interest rates charged by S & L’s on home mortgages; this guaranteed the continued infusion of funds into America’s housing industry. The viability of this system was based upon the existence of stable interest rates. Since the income of any given S & L was essentially fixed based on its portfolio of long-term mortgages, its financial health was dependent on its ability to stabilize its costs, i.e., the interest paid to depositors. The ability to stabilize costs was easily achieved through the 1960’s as the interest rate paid to depositors remained fixed by the government and competitive with market rates. The popularity of money market funds and other liquid investments increased as interest rates rose in the late 1970’s. Investors transferred money from S & L passbook accounts to money market funds. It became increasingly difficult for S & L’s to extend new loans. S & L’s looked elsewhere to find funds to support loans to which they had already been committed. They were forced to borrow these funds at high current market rates. In seeking to assist the troubled S & L industry, Congress authorized S & L’s as of July 1, 1978 to issue deposit instruments which paid interest at a level higher than the passbook rate. Interest on these six-month money market certificates was payable at a rate of Vi% above the rate on six-month U.S. Treasury securities. The initial effect of money market certificates was positive as the interest rate being paid on these certificates remained lower than the rates of the S & L’s combined investment portfolio. As the United States’ economy began to experience a period of high and wildly gyrating interest rates, the effect of the certificates was less promising. For most of the period from the beginning of 1981 to the middle of 1982, S & L depositors with low-paying passbook accounts transferred large amounts of their funds to S & L money market certificates. While S & L’s were forced to pay these high rates to their depositors on the certificates, their source of income was the mortgage portfolio made up of long-term loans fixed at relatively low levels. S & L’s with older portfolios containing mortgages executed long before the sudden rise in interest rates were hurt most severely since they received the lowest interest payments. In 1981 and 1982, it is estimated that 85% of the S & L’s were losing money. The S & L industry was suffering losses at dramatic rates. Plaintiffs’ expert witness opined that from July 1981 to February 1983, on the basis of fair market value, there was “no question” that the entire S & L industry had no net worth. Chairman Pratt agreed that the negative net worth of the industry reached a low point of $50 to $150 billion in 1982 and termed this time as a “holocaust” for savings and loan institutions. Industry conditions created an unprecedented workload for the FHLBB in its effort to maintain supervision over many troubled institutions. In late 1982 and 1983, interest rates again subsided dramatically. This had an immediate effect on the short-term profitability of the industry as more savings and loans began to realize a positive “spread”. The spread is the difference between the average return on their assets and the average cost of their deposits. More recently (February 1983), the industry as a whole has experienced an infusion of one billion dollars of new capital. BISCAYNE’S FINANCIAL CONDITION During the 1980-81 fiscal year, Biscayne first began to experience a negative spread; its cost of borrowing money in the form of money market certificates, passbook accounts and other sources exceeded the return it realized from its loan and investment portfolio by .34%. During the 1981-82 fiscal year, the negative spread fell to -1.54%. This figure represented a loss in that single fiscal year of approximately $30 million. Biscayne exhibited a negative annualized spread from at least June 1981 until December 1982. It regained a positive spread as of March 31, 1983; the spread was positive .64%. Plaintiffs’ expert opined that absent a rise in interest rates, the positive spread should become larger. If interest rates were to rise, however, there is no indication that Biscayne would have been insulated from a further precipitous decline in net worth or that its spread would remain positive. From July 1981 through April 6, 1983, Biscayne’s net worth steadily decreased. By the end of July 1982, Biscayne Federal registered a negative net worth on a book value basis of $-3.93 million. Its liabilities exceeded its assets as reflected on the institution’s balance sheet. Biscayne’s negative net worth continued to plummet. Between July 1, 1982 and February 28, 1983 Biscayne’s net worth decreased approximately $3.5 million per month. The parties do not dispute that by April 6, 1983 Biscayne had a book value negative net worth of approximately $30 million. Despite a positive net spread and the fact that the industry was continuing to show a recovery, Biscayne continued to lose money. Defendants projected that even if interest rates were to remain relatively lower than they had been in the 1982-83 period, Biscayne would not reach a positive net worth for another eight years and it would not become profitable for another three years. Plaintiffs claim and Defendants do not dispute that Biscayne did not suffer from a liquidity crisis and that it had a present ability to meet depositor demand for funds and other obligations as they became due. Plaintiffs’ expert as well as the report completed by Wertheim and Company for the Bidders’ Package issued by the FHLBB after April 6,1983, indicates that net worth is principally a book entry and not necessarily a true characterization of the daily operation of the institution, its ability to generate profits or its true financial condition. Plaintiffs argue that the primary inquiry in assessing the financial condition of an institution is the liquidity of the institution. Plaintiffs, however, do not argue that insolvency as it is used in 12 U.S.C. § 1464(d)(6)(A) means lack of liquidity. They agree that it refers to negative book value net worth. They also concede that under this statutory scheme, Biscayne was approximately $30 million insolvent. What is set forth hereafter chronicles a series of negotiations aimed at solving an inevitable problem of insolvency if no feasible solution could be arrived at. Biscayne, through KB and its principal stockholder Eli Broad, made every effort to save Biscayne from receivership while watching it go from $24 million in the black to $30 million in the red. THE FACTS BISCAYNE — POSITIVE NET WORTH 23.82 MILLION On October 26, 1981, Ronald Kabot (Kabot), KB’s Senior Vice President, wrote a memorandum to Eli Broad (Broad), KB’s Chairman of the Board, Chief Executive Officer and largest shareholder. In this memorandum Kabot noted that, “Biscayne’s net loss could easily approach $30 million for its fiscal year ending June 30, 1982”. He suggested that KB sell its option to purchase outstanding shares of Biscayne while it was still worth something. He concluded: “I’m beginning to favor disposing of our option if the price gets us our money out. It would give us more flexibility to ‘strike again’ from a position of strength when FSLIC may even be more desperate than now.” THE NEGOTIATION PROCESS: PHASE I BISCAYNE — POSITIVE NET WORTH 20.37 MILLION In the late fall of 1981, one of KB’s Washington, D.C. attorneys, George Christopher (Christopher), had lunch with Beesley, Director of FSLIC. Christopher enumerated Biscayne’s problems to Beesley and talked “about the possibility of trying to put together some kind of a plan that would allow us to deal with these problems without having to go through the disruption inherent in a receivership involving a publicly traded company.” Beesley told Christopher that he was “not particularly optimistic” about the possibility of saving the existing shareholders’ interest in Biscayne. Beesley stated that he was willing to work with KB and its counsel to try to find a way to assist Biscayne with a view toward creating a model for dealing with other failed stock associations. Broad and Kabot met with Beesley on a number of occasions starting on December 14, 1981 to discuss possible FSLIC assistance to Biscayne. In preparation for the December 14, 1981 meeting, Kabot wrote a memorandum to Broad based on the earlier conversations between Christopher and Beesley. The memorandum stated, in pertinent part: 3. For purposes of review, I am listing below the key points from the Beasley [sic]/Christopher meeting(s) which I believe should affect our thinking most significantly in preparing our proposal to FSLIC: (a) Beasley’s [sic] two major conditions to do a deal: (1) Some new hard $$ must be put into Biscayne by other than FSLIC and the ‘old’ capital must be subordinate to everything (2) For FSLIC to agree to assistance, there must be new management (b) Other Beasley [sic] concerns: (1) Should FSLIC actually have to provide assistance, he wants to be repaid and be in a preferred or pari passu position (2) Would like all shareholders to have the opportunity to participate in putting new capital into Biscayne ... (3) He wants to honor FSLIC’s rule of not talking to outsiders without talking with management; he would like K & B to tell BFS [Biscayne Federal Savings] management and Christopher agreed to this; ... (c) Some other Beasley [sic] thoughts to consider: (1) He wants only to assist Biscayne so it may survive and be salvaged vs our thought of making it a very strong Florida S & L able to absorb other weak ones (2) He wants a model to use for a stock company (3) He will shop any deal proposed with K & B ... (4) He would prefer to do a deal with existing shareholders (5) He would like to avoid a fight with a listed company (6) He asked if $10 million was all that K & B was willing to contribute (in response to a Christopher comment) (7) Thinks shareholders should contribute 1-2% of assets. 5. Time appears to be of the essence; in every conversation I’ve had with Christopher, he conveys a sense of urgency which he has been made to feel from Beasley [sic]. The December 14 meeting was attended by Beesley and several members from the FSLIC staff including Gene Hall and Bernard McKee. Christopher, Robert Wittie, a member of Christopher’s law firm, Kabot, Broad and Don Kaplan, a financial analyst, represented KB. The proposal presented by KB at the December 14 meeting provided that Biscayne would issue subordinated preferred stock and that FSLIC would infuse a quantity of money which would ultimately be repaid without interest. The proposal was modeled after what KB understood to be a recently accepted proposal by the FHLBB for another troubled savings and loan association. KB’s understanding of the other proposal was based on what it had read in the Wall Street Journal. Beesley rejected this proposal and stated emphatically that any FSLIC assistance would have to be repaid with interest. He stated that FSLIC was not going to make any more deals along the lines of the one referred to in the Wall Street Journal. BISCAYNE-POSITIVE NET WORTH 16.77 MILLION A second meeting was held in Washington on January 14, 1982, between Mr. Beesley and representatives of KB. The parties agreed upon a set of parameters acceptable to FSLIC for a new capital infusion proposal. BISCAYNE-POSITIVE NET WORTH 11.78 MILLION On February 2nd KB submitted a revised recapitalization proposal consistent with the agreed parameters. This involved a preferred stock offering, certain financial commitments by KB to assure that at least $10 million of preferred stock would be sold and a form of FSLIC aid known as “spread assistance.” The spread assistance would be repaid by Biscayne Federal with compounded interest. To support the feasibility of its proposal, KB engaged an economic consulting firm to perform financial simulations. The summaries of the simulations were forwarded to Beesley. Kabot testified that at the February 4th meeting, Beesley told him that “the world has changed again” in view of deteriorating economic conditions within the industry, and FSLIC was no longer willing to provide the kind of assistance they had talked about in their earlier meetings. During the February 4th meeting, Beesley suggested that KB submit a revised proposal utilizing a purchase accounting method and other “market-to-market” accounting techniques utilizing income capital certificates. On February 25, 1982 Biscayne issued a news release which stated in pertinent part: Continuation of the Association’s losses at current levels will exhaust the Association’s net worth in the near future. Once the Association’s net worth is exhausted, the FSLIC is likely to take action to protect depositors which could result in the total loss of stockholder capital investment in the institution. The FHLBB has recently expressed to the Association its concern with respect to the situation and has called the Association’s attention to the FHLBB’s power to act.. .. Exhaustion of the Association’s net worth can be averted only through a substantial capital infusion from private investors, which in all probability would need to be coupled with FSLIC assistance. Biscayne Federal is actively seeking such additional capital. However, there can be no assurance that third parties can be induced to make such substantial investment or that FSLIC would grant the required assistance and approve any proposed capital infusion or that such infusion would result in the preservation of existing shareholder capital investment. In February 1982, the Bank Board staff proposed that Biscayne’s Board adopt a resolution consenting to merging Biscayne with a strong association. Biscayne’s Board of Directors was reluctant to adopt such a resolution due to, among other things, the disclosure requirements of the Securities Act of 1934. During March and early April 1982, officials at the Atlanta Federal Home Loan Bank informally “shopped” Biscayne by making telephone inquiries of thirteen savings and loan associations to determine their interest in merging with Biscayne. None indicated an interest in a merger in the absence of substantial FSLIC assistance. BISCAYNE — POSITIVE NET WORTH 8.89 MILLION On March 15, 1982, Broad and Kabot joined Beesley and his wife for dinner in Park City, Utah. At dinner, the parties discussed the outline of a recapitalization plan for Biscayne. On March 17th Broad wrote a letter to Beesley setting forth the outline of a proposal which he characterized as “our mutual general understandings.” He stated in part: We agreed that our general understanding is subject to you and your staff’s review of the “numbers” and a satisfactory definitive agreement. We are pleased that [FHLBB] Chairman Pratt is in conceptual agreement. Under the Park City formula, as understood by Plaintiffs, new capital would be raised by means of a rights offering to existing shareholders. FSLIC would purchase sufficient income capital certificates (ICC’s) for three years for Biscayne Federal to have a net worth equal to its required minimum net worth plus an amount representing Biscayne Federal’s estimated losses for the 12 months following the closing of the transaction. In accordance with Beesley’s wishes, as expressed in the parties’ earlier discussions, the transaction would be accounted for using purchase accounting. Since the ICC’s would have had to be repaid upon Biscayne’s achievement of a specified level of income, the FSLIC assistance under the Park City proposal was considered to be repayable assistance. Beesley believed that the recapitalization proposal outlined in Broad’s March 17th letter did not conform to what was discussed at the Park City dinner meeting. He testified that he was “totally taken back” by Broad’s reference to Chairman Pratt since “to my knowledge that was never discussed and certainly I don’t believe that Chairman Pratt had any idea at that point in time what the discussions were.” (Emphasis added). Kabot testified that Beesley stated that he thought the proposal “would be acceptable”. As to that matter, there was no indication that Beesley represented that Pratt would agree to the proposal or that Beesley was authorized to say that the Board would adopt it. He did not, however, write a letter to Broad to correct Broad’s misunderstanding. Beesley explained that he received scores of letters each day and generally delegated responsibility for replies to his subordinates. Beesley orally advised representatives of KB of the misunderstanding sometime prior to April 8th but not before KB and Board staff members had spent a significant amount of time working on the details of the proposed transaction and after KB had incurred expenses to retain investment banking advisors. BISCAYNE — POSITIVE NET WORTH 8.31 MILLION On April 19,1982, Broad, Kabot and Wit-tie met with Beesley, Vartanian and Hall to discuss the Biscayne recapitalization proposal. Vartanian’s contemporaneous notes record that Broad stated during the meeting that “I understand FSLIC is not here to give money away to stockholders.” (Emphasis added). KB’s attorneys were directed by the Bank Board staff to modify the documents to provide for a formula basis for the infusion of new shareholder capital and the income capital certificates. On April 21, Kabot wrote a letter to Albert Pallot, Biscayne’s founder and then Board Chairman and Chief Executive Officer, in which he summarized the April 19 meeting. He stated that KB had no assurance that FSLIC would accept the proposal because FSLIC “anticipates receiving at least two other proposals from other parties and that FSLIC must proceed to enter into the arrangement that is the most cost effective to the FSLIC fund.” BISCAYNE — POSITIVE NET WORTH 4.99 MILLION By early May 1982, attorneys for KB and FSLIC had incorporated the KB proposal into a draft that contemplated purchase of Income Capital Certificates (ICC’s) by FSLIC from Biscayne. KB believed that the negotiations had been completed. However, the FHLBB staff sent the draft agreements to outside legal counsel for a general review. The outside counsel retained the investment banking firm of Lehman Brothers to assist in the evaluation. Counsel reported on May 18 that the proposed agreement raised “substantial fairness questions and reporting concerns regarding Biscayne’s common stockholders” as well as “the substantial prospect of ‘strike’ or injunctive litigation which could stop this deal before it is ever consummated.” In late May 1982, Kabot, Christopher and Wittie met with Beesley and members of his staff. After stating that he had conceptual problems regarding the KB proposal, Beesley was persuaded by Kabot to proceed with the drafting of the proposal. Beesley added that his staff would assume responsibility for redrafting the proposal and incorporating FSLIC’s concerns. BISCAYNE — POSITIVE NET WORTH 0.90 MILLION The staff attorneys delivered a revised draft to Wittie on June 4. On June 15 Christopher and Wittie responded in a lengthy letter wherein they complained that the staff’s redraft gave FSLIC increased control over Biscayne and made FSLIC’s capital infusion conditional. Counsel specified item-by-item their criticisms of the staff’s redraft. BISCAYNE — POSITIVE NET WORTH 0.69 MILLION On July 2, 1982 FHLBB attorney Hal Levi sent to Wittie a letter stating that redrafts of the proposed agreements containing “a number of accommodations made as a result of your letter and our meetings” had been sent to KB’s counsel the previous day. Levi also stated that Biscayne’s deteriorating financial condition made it imperative that KB respond as soon as possible to determine whether the transaction would be consummated. Plaintiffs did not tender a redraft to Levi. On July 12 Biscayne announced that it had entered into an agreement in principle with City Federal Savings and Loan Association of Elizabeth, New Jersey to sell City Federal six of its thirty-four branches. Biscayne further claimed that it would recognize a $38 million gain from the transaction. On July 15, Broad, Kabot, Christopher and Wittie met with Beesley, Hall, Levi and Bernie McKee (McKee) to discuss the recapitalization proposal. The parties could not reach an agreement; they agreed, however, that the proposed branch sale to City Federal would generate the required capital. The parties agreed to hold the original proposal in abeyance. There was no further activity with respect to KB’s first proposal after the middle of July 1982. In their closing arguments, Plaintiffs stated that they did not ascribe any wrongdoing to the FHLBB for their conduct during this first phase of negotiations. THE NEGOTIATION PROCESS: PHASE II BISCAYNE — ZERO NET WORTH After the July 15 meeting, the parties turned their attention to KB’s new proposal based on the branch sale. Before KB began negotiations with the FHLBB concerning the branch sale proposal involving City Federal Savings & Loan Association, KB rescinded the proposal and presented another branch sale proposal. The new proposal entered into in principle on August 9 involved Biscayne and California Federal Savings and Loan Association (Cal Fed). BISCAYNE-NEGATIVE NET WORTH— 3.93 MILLION The Biscayne/Cal Fed agreement provided that: (a) Cal Fed would pay Biscayne approximately $1.7 million for the assets of the eight branches; (b) Cal Fed would assume responsibility for payment of principal and interest on the deposits at those branches; and (c) Biscayne would give Cal Fed a mortgage-backed bond in consideration for its agreement to assume those deposits. The amount of the bond was to be determined by multiplying the amount of liabilities assumed by .8634146. The bond was to carry a fixed interest rate calculated by increasing the average aggregate cost of the deposits assumed by Cal Fed on the date the deal was consummated by 5%. Had the transaction been consummated on August 9, 1982 — the date of the Cal Fed/Biscayne agreement — Cal Fed would have assumed $410 million in deposits, which then had an average aggregate cost of 12.8%, in exchange for a mortgage-backed bond issued by Biscayne in the amount of $354 million ($410 million X .8634 = about $354 million) carrying a fixed interest rate of 17.8% (12.8% + 5% = 17.8%). The agreement gave Biscayne the right to prepay the bond at any time but imposed a 20% call premium if the bond were prepaid at any time within the first ten years. The bond could be prepaid as mortgages backing it were prepaid. Had the transaction been consummated on August 9,1982, Biscayne would have had to pay Cal Fed $63 million in interest ($354 million X 17.8%) in exchange for Cal Fed’s assumption of the obligation to pay about $52.5 million interest on the deposits it assumed ($410 million X 12.8%). Biscayne’s net annual payout to Cal Fed would have been approximately $10.5 million ($63 million-$52.5 million). While consummation of the transaction would have saved Biscayne the cost of operating the eight branches (approximately $3.7 million per year), Biscayne would still have had to make a net annual payout to Cal Fed over the life of the bond; $6.8 million would have been paid during the first year alone assuming interest rates remained at August 1982 levels. If interest rates and the corresponding cost of the deposits decreased, the amount of Biscayne’s net annual payout to Cal Fed would increase accordingly. Biscayne’s net annual payout would have been less if, as Kabot asserted, a substantial portion of the underlying mortgages were prepaid. Biscayne’s management, on Beesley’s earlier suggestion to utilize purchase accounting techniques, sought to account for the transaction by recording a paper profit of $56 million which would thereby restore facially the association’s balance sheet to a positive net worth position. Biscayne’s management proposed to: (a) account for the branch sale transaction as if it had occurred on August 9, 1982, the date of its agreement with Cal Fed; (b) record the transaction as the exchange of a $410 million liability — the deposits in the eight branches — for a $354 million liability — the mortgage-backed bond; and (c) thereby record an instantaneous decrease in its liabilities of $56 million with a resultant instantaneous increase in its net worth of $56 million. Plaintiffs argue that by booking a $56 million profit, Biscayne would have been free to implement its new business plan. As part of its plan, Biscayne proposed to engage in mortgage banking which involved the sale of mortgages to investors at a profit while retaining the mortgage servicing rights. Part of this plan was to aggressively seek to refinance the mortgages underlying the bond to Cal Fed. Plaintiffs assert that Biscayne had experienced considerable success refinancing mortgages with the Fannie Mae Program. If interest rates were to drop, a rise in housing sales could be expected bringing about greater prepayment of the underlying mortgages. Plaintiffs’ scenario had projected a complete prepayment of the principal balance on the mortgage-backed bond within five years. BISCAYNE — NEGATIVE NET WORTH— 8.68 MILLION Effective September 1, 1982, Kabot replaced Pallot as Chairman of the Board and Chief Executive Officer of Biscayne. KB’s representation on the ten member Biscayne Board of Directors increased to six. On September 14, 1982, Cal Fed filed an application with the FHLBB’s designated supervisory Agent at the Federal Home Loan Bank of San Francisco for approval of the branch sale transaction. The Supervisory Agent sent the application to the FHLBB’s Office of Examinations and Supervision (OES) for action pursuant to an OES directive that all Federal Home Loan Bank inter-district branch sale transactions be sent to Washington for final approval. The Washington office wanted to examine the effect of the transaction on both the purchaser and the seller. The Cal Fed/Biscayne transaction was the first interdistrict branch sale to be examined by OES. A copy of Cal Fed’s application was sent to Robert Cohrs, the Supervisory Agent at the Federal Home Loan Bank of Atlanta who had primary responsibility for Biscayne. On September 22, 1982, Cohrs sent a letter to George Murphy, a Washington lawyer whose firm represented both Cal Fed and Biscayne in the transaction, requesting certain information. Mr. Cohrs stated: Due to the financial condition of Biscayne Federal, this application is being submitted to the Federal Home Loan Bank Board for consideration. Accordingly, we must have sufficient documentation to determine that the sale is in the best interests of Biscayne Federal and the Federal Savings and Loan Insurance Corporation. We are continuing to review the application from Biscayne Federal’s point of view and will advise you if any additional information is deemed necessary. BISCAYNE — NEGATIVE NET WORTH— 12.44 MILLION Biscayne filed an application to issue securities on October 7 with the Atlanta office of the FHLBB. On October 14 Mr. Cohrs disapproved Biscayne’s application. Biscayne’s application to issue the mortgage-backed bond went to OES in Washington for reconsideration and final disposition. By October, the OES staff had identified five basic concerns with the branch sale proposal: (1) whether Biscayne was disposing of its best branches; (2) whether it was proper to account for the transaction as if it had been consummated on August 9; (3) whether the 17.8% interest rate was a fair market value as of August 9; (4) since the transaction constituted, in substance, a loan of $354 million from Cal Fed to Biscayne, and since a loan of that size violated the loans-to-one-borrower restriction in 12 C.F.R. § 563.9-3, whether Cal Fed’s compliance with that regulation should be waived in order to permit it to consummate the transaction; (5) whether the transaction would insure the long-term viability of Biscayne. On October 15, Atlanta supervisory Agent Cohrs sent a memorandum to Mark Rundle, an OES Regional Director whose region encompasses Florida, recommending against the branch sale. Cohrs’ recommendation was based in large part on what he felt was an unrealistic accounting method for the rate for the mortgage-backed note proposed by Biscayne; the very method that Beesley had earlier suggested could be employed. While acknowledging the reports submitted by Shearson/American Express and Deloitte, Haskins & Sells by Biscayne in support of the fairness of the proposed transaction and the proposed accounting methods, Cohrs believed that the accounting treatment and the rate advocated by the others did not realistically reflect Biseayne’s financial condition. Although Cohrs voiced such an objection, no effort was made at that time to secure advice from an outside source to evaluate the reports submitted. Kabot, acting as Chairman and Chief Executive Officer of Biscayne, and other Biscayne representatives, met with Croft and his staff on October 28 to discuss the proposed Cal Fed branch sale and OES concerns. After that meeting the staff resolved concern (1) by concluding that Biscayne was not disposing of its best branches. The staff felt that concern (4) — the loans-to-one-borrower restriction — would not be a problem if the other concerns could be resolved. Concerns (2), (3) and (5) somewhat interrelated, remained open; viz., the date and rate of the transaction and the viability of the institution. As will be noted infra, Biscayne conceded that concerns (2) and (3) and also the basis for the claim of viability (McGuirk Report) proved to be totally erroneous. BISCAYNE-NEGATIVE NET WORTH— 16.81 MILLION On November 5, T.F. Sharkey, the FHLBB supervisory agent in San Francisco, recommended approval of the branch sale transaction based on his review of the effect on Cal Fed. On November 9, Croft called Kabot. He told Kabot that if the branch sale application were to go before the Board at that time, he would recommend against it. Kabot requested an opportunity to present additional information in support of the application before Croft made his recommendation. BISCAYNE-NEGATIVE NET WORTH— 19.86 MILLION On December 10, Biscayne provided the FHLBB a concurring opinion from Merrill Lynch that 17.8% was a fair market price for the bond. OES staff accountants questioned whether the 17.8% rate was a fair market rate as of August 9. They also took the position that under Generally Accepted Accounting Principles (GAAP) the transaction should be accounted for as of the date it was consummated, not the August 9 agreement date. OES retained First Boston Corporation to assist it in evaluating the proposed transaction. On December 22, First Boston opined (a) that as of August 9, 1982 the fair market interest rate on the proposed $354 million mortgage-backed bond would range between 17.25% and 17.75%; (b) that the 17.8% rate was “close enough to this range to qualify as an appropriate rate”; and (c) that as of December 21, 1982, the appropriate interest rate on the proposed mortgage-backed bond would be 13.73% to 14.23%. OES staff accountants concluded that the transaction should be accounted for as of the date it was consummated and, therefore, Biscayne’s accounting gain should be no greater than $23.5 million. Plaintiffs complain that the FHLBB was dilatory in requesting First Boston to render an opinion two and one-half months after the Cal Fed application was submitted. They state that the request should not have been made since Biscayne had already submitted an opinion from Shear-son/American Express. To the extent that these allegations might relate to Plaintiffs’ count alleging violation of equal protection, they will be subsumed in the Court’s treatment of that count. Although the Court believes that the FHLBB cannot be chastised for being prudent, the delay precipitated by these actions further placed Biscayne at the mercy of the FHLBB. As for the viability issue, Biscayne’s ten-year forecast showed that it would realize a total gain of $96.4 million. Croft instead asked the Qualitative Analysis Division (QAD) of the Office of FSLIC to run its own ten-year forecast using the standard FSLIC interest rate scenario. It should be noted that this procedure by itself was irregular. QAD was not under the supervision of Croft. There is no evidence that Croft had ever before used this division to assist him in his duties and responsibilities. Croft never questioned the results of QAD’s analysis nor was an attempt made to understand KB’s projections; no effort was made to determine why QAD’s results differed so radically from those of Biscayne; even after KB requested a meeting for that purpose. On December 29 Edward McGuirk, Director of QAD, reported to Croft the results of QAD’s projections. The first forecast, which assumed no branch sale, showed Biscayne becoming profitable in the third year and regaining solvency in year eight. The second forecast, which assumed the occurrence of the branch sale, showed Biscayne regaining solvency immediately (by virtue of the recognition of a $56 million accounting gain) but returning to insolvency in the second year, and remaining insolvent beyond year ten. McGuirk’s third forecast, which assumed consummation of the branch sale, recognition of a $56 million accounting gain and implementation of Biscayne’s business plan, showed Biscayne immediately returning to solvency but losing money throughout the ten-year period, returning to insolvency in the second year and ending the decade with $508 million negative net worth. The QAD analysis was based, in McGuirk’s own words, on a “clearly mistaken assumption” which yielded “meaningless results”. It yielded devastating results to Biscayne because it formed the basis of the opinions of Croft and Beesley. Plaintiffs argue that QAD’s incorrect analysis provided the basis for Croft’s determination that the branch sale transaction would not result in Biscayne being a viable institution. Plaintiffs allege and Defendants do not dispute that the unreliability of the Bank Board’s projection is reflected in QAD’s failure to comprehend the prepayment provisions of the mortgage-backed bond, as discussed above, and in QAD’s failure to understand the mortgage backing business. The Defendants do not seriously challenge Plaintiffs’ assertion that Croft and Beesley relied, to a large extent, on the QAD analysis in determining that Biscayne would not be viable under the branch sale proposal. The evidence indicates that Beesley believed this as early as November 29. On December 23,1982, Croft was contacted by Bernard Carl, a lawyer representing KB. The purpose of the phone call was to threaten litigation if the branch sale proposal were turned down. Mr. Carl requested a further meeting with the staff. BISCAYNE — NEGATIVE NET WORTH— 22.50 MILLION On January 5, 1983, a meeting was held to discuss the branch sale transaction. The meeting was attended by Croft, Beesley, Vartanian, Kabot and Carl. Other representatives