[00:00:00] Speaker 05:
is Hendrickson versus the United States.

[00:00:04] Speaker 05:
It's an appeal from a judgment of the Court of Federal Claims in favor of the government.

[00:00:12] Speaker 05:
It is case number 171996.

[00:00:14] Speaker 05:
Mr. Schwartz, you just want to reserve two minutes for rebuttal, is that right?

[00:00:24] Speaker 05:
Yes, Your Honor.

[00:00:32] Speaker 05:
You may begin.

[00:00:36] Speaker 01:
Good morning and may it please the court.

[00:00:38] Speaker 01:
The case before the court today involves the interpretation of the 1985 FDCA settlement agreement between the government and my clients the Hendrickson's.

[00:00:49] Speaker 01:
And the issue is

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very simple as to whether the government is obligated to make the future payments that are set forth in the agreement or whether the government fulfilled all of its obligations.

[00:01:00] Speaker 03:
Do we rely on paragraph 3 to support your position?

[00:01:03] Speaker 03:
Yes.

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That the agreement unambiguously obligates the government to make future payments.

[00:01:08] Speaker 03:
But paragraph 3 says, the government shall be obligated to make payment of certain future periodic payments as set forth in paragraph 5.

[00:01:18] Speaker 03:
So why doesn't the asset fourth phrase qualify how the future payments are to be made?

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The future payments that are described in paragraph five are the actual dollar amounts of future payments to be made.

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So that specific provision relates to those numbers in paragraph five as to what years and what numbers are to be paid.

[00:01:40] Speaker 01:
It doesn't necessarily relate to the manner of payment.

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And I think that's buttressed by paragraph seven.

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The discharge in this case was set forth to be incremental.

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What the discharge on paragraph 7 says is that the purchase of the annuity contracts and the lump sum payments, as outlined in paragraphs 5 and 6, and the payments there under, shall operate as a full and complete discharge and satisfaction of the periodic and other payments with respect to the United States of America pro tanto.

[00:02:11] Speaker 03:
Can you cite us to any case or document that sheds light on

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how we should interpret a pro-tonto clause.

[00:02:18] Speaker 01:
Well, pro-tonto, we did, Your Honor, but pro-tonto is a Latin term that has legal meaning.

[00:02:23] Speaker 01:
And it means incrementally as these things are made.

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And the combination of the addition of the payments they're under and the clause pro-tonto makes it.

[00:02:35] Speaker 01:
Couldn't wait.

[00:02:36] Speaker 01:
Stop.

[00:02:38] Speaker 03:
When I talk, you don't.

[00:02:39] Speaker 01:
I apologize, Your Honor.

[00:02:40] Speaker 03:
Couldn't the pro-tonto clause

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when you have payments they're under.

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Couldn't they just as reasonably refer to payments to purchase the annuity contracts and the lump sum payments outlined in paragraph six?

[00:03:01] Speaker 01:
I don't think that's a fair reading of the entire agreement or of that phrase, Your Honor, because the payments they're under clearly relate to the annuity contract, the payments that come through the annuity contract.

[00:03:10] Speaker 01:
Those are the payments that are specified in paragraph five,

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that under paragraph three, the government is obligated to make.

[00:03:17] Speaker 01:
I think if you put all those things together, it's clear what the intent of the parties was, and that was for the government to be obligated to make the payments.

[00:03:24] Speaker 01:
And just as in the Massey case, the government chose to delegate that to Executive Life Insurance Company.

[00:03:32] Speaker 03:
In a different context, I used the phrase solemn skiing in my first case.

[00:03:37] Speaker 03:
I think you're trying to get us to ski through certain gates in this contract.

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And if we do, if we follow your logic exactly, then that intent is shown.

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But there are a whole bunch of other possibilities.

[00:03:53] Speaker 01:
Well, Your Honor, I don't think you could have any clearer language than what's in paragraph three, that the United States shall be obligated to make the future periodic payments.

[00:04:01] Speaker 01:
I think the other provision in this case that you have to look at that could not possibly fit with the other interpretationist agreement is the section in paragraph five that says the government

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has the absolute right to change the beneficiary of the annuity.

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If you read this contract to say that by purchasing the annuity, the government is relieved of all of its obligation, and then it has the absolute right to change the beneficiary of who gets those payments, then the entire contract is illusory.

[00:04:28] Speaker 01:
The plaintiff's never had any right to collect any of the amounts that they were to collect.

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So if you look at this case and look at the language that this court found in Massey,

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obligated the government to make the payments, the language in this case is much clearer.

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First of all, it explicitly says the government is required to make the obligations.

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Secondly, it says that the discharge is only going to happen incrementally as the payments are made.

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And third, it gives the opportunity for the government to change the beneficiary at any time, even immediately after the annuity is purchased.

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You can't read those three provisions together and say that the government was relieved of its obligation to make the payments.

[00:05:15] Speaker 05:
Do you agree with the statement in the red brief that whether contracting authority exists is not extrinsic evidence.

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It is something that relates to the formation of any contract with the government in the first instance.

[00:05:32] Speaker 01:
In other words, you're saying, Your Honor, whether there was authority to make this deal that the contract says.

[00:05:37] Speaker 01:
The argument that the government has defaulted to after the nut decision is that the AUSA only had $900,000 of authority.

[00:05:46] Speaker 05:
I'm putting aside whether that's a separate issue to be addressed, like the Court of Federal Claim seemed to treat it, or whether it is part of the overall contract interpretation.

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I mean, there are some basic principles of contract interpretation.

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And if the existence of the authority to contract

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is, as the government contends, inherent in the formation of any contract with the government, isn't that a factor that we should at least consider in interpreting the contract?

[00:06:18] Speaker 01:
I don't believe so, Your Honor.

[00:06:19] Speaker 01:
I believe that's a question of fact.

[00:06:21] Speaker 01:
I think the issue of authority, in other words, the contract says what it says.

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So the question is, was the AUSA authorized to sign the contract that says what it says?

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And what they're trying to do is make a circular argument.

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They're trying to say, the contract

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can't be interpreted to mean what it says because the AUSA wouldn't have authority to have done that.

[00:06:42] Speaker 05:
But the contract does say more than once that ultimately the government is settling for a total of $900,000, right?

[00:06:50] Speaker 01:
The contract says several things, Your Honor.

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It says, for instance, in paragraph five, the paragraph that is relied upon by the court below and by the government, that the payment of only $522,000 for the annuity was a complete discharge.

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And that isn't true even under the government's interpretation, because there were two other payments that were required, clearly.

[00:07:12] Speaker 03:
But the issue... Why doesn't pro tanto mean those payments?

[00:07:16] Speaker 01:
Because pro tanto is such as they are made, is as the future payments are made.

[00:07:25] Speaker 03:
The payments there under... There's three payments.

[00:07:29] Speaker 01:
Yes, but the payments there under is clearly relating to the annuity.

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That's what...

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It follows the statement about the purchase of the annuity right there.

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And the use of pro tanto, there's no reason to insert pro tanto.

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And again, I get back to your honor, if just as in the nutcase, this court held that there were certain provisions that would make absolutely no sense under a contrary interpretation of the contract, the provision to allow the government to make

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to change the beneficiary after buying the annuity makes no sense if the government is completely off the hook by buying the annuity.

[00:08:10] Speaker 05:
The government is going to argue that the reason they had to own it and have free reign is so that your client could get the payments tax free.

[00:08:21] Speaker 01:
And that's a false argument because the only provision under the tax code that protects the taxability is the ownership of the annuity.

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The plaintiffs cannot own the annuity.

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Anyone else can own the annuity.

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But the change of beneficiary is not anywhere in the tax code.

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We've cited to the section of the tax code, there's nothing in the tax code that says that the government or the owner of the annuity has the right to change the beneficiary.

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And there are provisions in the tax code that actually the government could have utilized, which is the absolute assignment.

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And that can be done, a qualified assignment can be done with the permission of the plaintiffs to say that the obligation is now going to be the insurance company's obligation.

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But that wasn't done here.

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The government had a choice to do it.

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And in the nutcase, the government did do it.

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The nutcase shows how a contract that is going to relieve the government of obligation by buying the annuity can be written.

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But none of that was present here.

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And I think that the argument here is that there's different interpretations.

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I respectfully disagree that you can read that section that says the government's obligated to make future payments.

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as saying that that does not obligate the government to make future payments.

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But if you did say that, then you have to turn to saying that our interpretation is equally reasonable as the government's interpretation.

[00:09:41] Speaker 01:
And if we do that, then the doctrine of who drafted the agreement has to apply here, just as it did in the Massey case.

[00:09:51] Speaker 02:
Does that doctrine apply in the setting of a negotiated contract?

[00:09:56] Speaker 01:
It does, Your Honor, and the only exceptions to it under a negotiated contract is if the ambiguous terms can be shown were specifically negotiated.

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So if two parties, the cases cited by the government, if two parties negotiate a particular term, and there's evidence that they negotiated that term, and then later the court decides that specific term is ambiguous, then the... But this contract

[00:10:20] Speaker 02:
It certainly was a negotiated contract.

[00:10:23] Speaker 02:
Sure, Your Honor.

[00:10:24] Speaker 02:
It wasn't like a government procurement contract that has standard provisions in it.

[00:10:29] Speaker 01:
No.

[00:10:29] Speaker 01:
And in fact, what I think this case shows is that the government didn't intend to use standard contracts when it came to these agreements because they're all so different.

[00:10:36] Speaker 01:
But the point is that the important terms that were negotiated were the amounts of money to be paid and who was going to pay them and when they were going to be paid.

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The other language was provided explicitly by the government.

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And the only evidence in the record of that is the declaration of the attorney that was involved.

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There's no other evidence in the record that suggests otherwise.

[00:10:57] Speaker 01:
And that declarations on page 94, 95 of the record clearly says... Sorry to jump in on you there.

[00:11:06] Speaker 02:
But I did want to just go back to something you were arguing in support of your case.

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You point to the provision in paragraph five

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At appendix 21, it says, the defendant shall be the sole owner of the annuity and shall have all rights of ownership, including without limitation the right to change the beneficiary.

[00:11:26] Speaker 02:
How, in your view, does that equate to the obligation that you're seeking to impose here?

[00:11:34] Speaker 02:
Namely, that the government has to make up the shortfall that resulted from the financial problems of ENLI.

[00:11:46] Speaker 01:
The government's plan here is set forth clearly in the settlement agreement as well as the accompanying assumption and assignment agreement.

[00:11:55] Speaker 01:
And that was that they were going to purchase the annuity through this subsidiary of Executive Life, first executive corporation.

[00:12:04] Speaker 01:
And then they were going to assign their obligation under the agreement to pay the plaintiffs to that insurance company.

[00:12:11] Speaker 01:
And that did happen.

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There's evidence in the record that that

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agreement was sent forward.

[00:12:18] Speaker 02:
What that agreement... You're talking about the document at 307?

[00:12:21] Speaker 01:
Yes, the assignment and assumption agreement.

[00:12:23] Speaker 01:
And no, I'm sorry, there's two documents.

[00:12:26] Speaker 02:
One that's the signature and the one that's kind of unreadable.

[00:12:29] Speaker 01:
Yes, the unreadable document is what the government has produced.

[00:12:33] Speaker 01:
It's called an absolute assignment document.

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And that is simply a document that transferred the ownership of the annuity to First Executive Corporation.

[00:12:44] Speaker 02:
You're talking about the document, then, when you say the assignment and assumption, the one at 287?

[00:12:48] Speaker 02:
The assignment and assumption agreement, Your Honor, is at... Oh, it's at... It's at 133-134.

[00:13:02] Speaker 01:
I apologize.

[00:13:03] Speaker 01:
And what that agreement did, and clearly by its terms, it recites that a separate agreement was entered into between the plaintiffs and the government

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and that the government is obligated to make certain future payments to the plaintiffs.

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And they're assigning that obligation to First Executive Corporation.

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And First Executive Corporation was paid $1,000 to do that.

[00:13:23] Speaker 01:
And also then the absolute assignment, the fuzzy document at 307, was signed to turn over the ownership of the annuity to First Executive.

[00:13:33] Speaker 01:
Now think about, Your Honor, if there was no obligation of the United States to pay the future payments

[00:13:41] Speaker 01:
there was no obligation ever for first executive corporation to make the payments to the plaintiffs, then how could the government have just turned over the annuity to the insurance company with no strings attached to it?

[00:13:54] Speaker 01:
So obviously, the assignment assumption agreement was executed together with the absolute assignment, which then transferred the obligation under the agreement in this case to make the future payments to the insurance company.

[00:14:08] Speaker 01:
The key element there is the plaintiffs were not a party to that assignment.

[00:14:11] Speaker 01:
That assignment could only be effective against the plaintiffs.

[00:14:16] Speaker 02:
I read that, leaving aside whether it's signed or not.

[00:14:21] Speaker 02:
But in looking at that just on its face, it seemed to me I had read that document as a document to facilitate the annuity arrangement that was contemplated by the Basic Settlement Agreement.

[00:14:37] Speaker 02:
Yes, Your Honor, it is.

[00:14:39] Speaker 02:
See how it really makes that much of a difference.

[00:14:42] Speaker 02:
on the government's, on the obligation which you're seeking to impose upon the government.

[00:14:47] Speaker 01:
Well, the reason that it makes a difference, Your Honor, is because in that document it recites the intent of the parties, and particularly the intent of the government, to be obligated to make the future payments.

[00:14:57] Speaker 01:
Because it says the government signed an agreement with the plaintiffs that obligated it to make future payments, and now we're going to...

[00:15:06] Speaker 01:
via the annuity.

[00:15:08] Speaker 01:
Well, it doesn't say that, Your Honor.

[00:15:10] Speaker 01:
It doesn't say via the annuity.

[00:15:11] Speaker 01:
No, no, but the basic settlement agreement seems to say via or through the annuity arrangement.

[00:15:17] Speaker 01:
Because that's exactly what happened in Massey.

[00:15:20] Speaker 01:
In other words, the government delegated its obligation.

[00:15:23] Speaker 01:
It didn't eliminate its obligation.

[00:15:25] Speaker 01:
It delegated its obligation.

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And that's what it did here.

[00:15:29] Speaker 01:
The government delegated its obligation.

[00:15:31] Speaker 01:
And the Assignment Assumption Agreement makes that clear because it states that.

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that it's the government's obligation.

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In other words, at the time the assignment and assumption agreement is entered into, the government has already obligated itself to make these future payments.

[00:15:45] Speaker 01:
Now it's taking this agreement and transferring and delegating that obligation to the insurance company.

[00:15:51] Speaker 05:
Does the government make a claim on behalf of the Hendrickson's in connection with the winding down of the insurance company?

[00:15:59] Speaker 01:
No, the government hasn't taken any action at all.

[00:16:03] Speaker 01:
That amount is being held in escrow, actually, whatever the liquidation amount is from the liquidation bureau that's being held in escrow pending the outcome of this case.

[00:16:13] Speaker 05:
But here, there's another... But if the government owns the annuity, why wouldn't the government be the one that should be taking action with respect to that insurance company?

[00:16:26] Speaker 01:
The government didn't own the annuity anymore.

[00:16:29] Speaker 01:
Based upon that absolute assignment, they transferred it to first executive.

[00:16:32] Speaker 01:
Who made a claim?

[00:16:33] Speaker 01:
Anyone?

[00:16:34] Speaker 01:
No claim has been officially made.

[00:16:37] Speaker 01:
There have been offers made by the liquidation bureau.

[00:16:41] Speaker 01:
And again, that amount is being held in escrow pending the outcome of this case.

[00:16:44] Speaker 01:
And the plaintiffs continue to get 50% of their payments.

[00:16:48] Speaker 03:
And they get a subsidy or whatever you'd call it from the insurance industry entity as well?

[00:16:58] Speaker 01:
Yes, but much less than they're entitled to under the agreement, yes.

[00:17:01] Speaker 01:
They would be entitled to that.

[00:17:03] Speaker 01:
Yes, and again, that claim is contingent on what happens in this case, because there's a right of the liquidation bureau to reclaim their money in the event that we're successful in this case.

[00:17:14] Speaker 01:
So that amount is being held in escrow.

[00:17:16] Speaker 01:
But it's certainly not an amount that's going to satisfy the judgment here.

[00:17:21] Speaker 01:
And I want to point out that, again, the assignment and assumption agreement

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is important because it sets the context of what this agreement was.

[00:17:31] Speaker 01:
You know what?

[00:17:31] Speaker 05:
I just realized you're way over your time.

[00:17:33] Speaker 05:
So I'm going to give you two minutes for rebuttal, but we've got to move on.

[00:17:37] Speaker 00:
Thank you.

[00:17:51] Speaker 04:
Good morning.

[00:17:52] Speaker 04:
On behalf of the United States, we ask that this court affirm the decision of the trial court.

[00:17:57] Speaker 03:
If we find the agreement unambiguous, is it your position that we can still use that extrinsic letter from the then acting assistant attorney general?

[00:18:10] Speaker 04:
Our position is that the agreement is plain and unambiguous, but as Judge Malley had mentioned earlier, the element of authority to contract is an element of contract formation in the first instance.

[00:18:23] Speaker 04:
So before any court gets to whether or not there has or hasn't been a breach of an agreement,

[00:18:27] Speaker 04:
The plaintiff appellants in this case have to prove that the agreement exists in the manner that they purport it exists.

[00:18:34] Speaker 04:
So they have to prove a duty, an obligation, a promise arising from that duty, a breach.

[00:18:40] Speaker 04:
And in the instance of contracts with the United States government, that the United States representative who entered that contract had the actual authority to have done so.

[00:18:49] Speaker 04:
And in this case, as the trial court found, the undisputed evidence shows that the assistant US attorney who entered this settlement had actual authority

[00:18:57] Speaker 04:
that was clearly and indisputably capped at $900,000.

[00:19:01] Speaker 05:
Let me ask you a question.

[00:19:03] Speaker 05:
What if this insurance company had gone belly up within the first year or two?

[00:19:08] Speaker 05:
Would these people just be completely out of luck?

[00:19:17] Speaker 04:
It didn't happen, so I can't say for certain.

[00:19:19] Speaker 04:
But theoretically, yes.

[00:19:22] Speaker 04:
I mean, they contracted for the purchase of an agreement, for the purchase of an annuities,

[00:19:26] Speaker 04:
That purchase was made by the United States government.

[00:19:29] Speaker 04:
The AUSA had authority to disperse $900,000, and it did so in the form of cash payments to the Hendrickson's at settlement, attorney's fees, which were, under the FTCA, limited to 25% of the value of settlement.

[00:19:43] Speaker 04:
In this case, the Hendrickson's attorneys get $225,000, which is 25% of $900,000.

[00:19:48] Speaker 04:
The AUSA had authority to settle, and the purchase of annuities.

[00:19:54] Speaker 05:
we distinguish Massey on two grounds.

[00:19:59] Speaker 05:
One of which is that in Massey, the agreement said that the annuity payments were guaranteed for 15 years.

[00:20:07] Speaker 05:
Here, this agreement says the annuity payments are guaranteed for 40 years.

[00:20:12] Speaker 05:
So that's the first ground.

[00:20:13] Speaker 05:
So that puts you closer to Massey with respect to that issue than it does not.

[00:20:20] Speaker 05:
Also, we distinguish it on the grounds that the parties

[00:20:23] Speaker 05:
actually contemplated in the agreement in Massey that there would be, I'm sorry, contemplated here as opposed to the agreement in Massey, or not, as opposed to the agreement in Massey that there could be a problem with the insurance company and the government actually said that they would help sue the insurance company and help the party.

[00:20:45] Speaker 05:
So everybody was contemplating that this kind of circumstance could happen.

[00:20:48] Speaker 05:
The court pointed out in Massey that the government had retained

[00:20:52] Speaker 05:
the control of the annuity or ownership of the annuity.

[00:20:55] Speaker 05:
So now we've got two important factors upon which we have not distinguished Massey.

[00:21:01] Speaker 05:
And both of those exist in this case.

[00:21:04] Speaker 05:
Why shouldn't that be enough to say, all right, Massey, where the government was bound, is really the controlling case, not Nutt?

[00:21:13] Speaker 05:
That was a long question.

[00:21:15] Speaker 04:
I understand.

[00:21:15] Speaker 04:
Yes, Your Honor.

[00:21:16] Speaker 04:
So Massey is distinguishable.

[00:21:20] Speaker 04:
on a number of bases.

[00:21:21] Speaker 04:
So you're correct that in not this court distinguished Massey based on the finding that Massey had this guarantee language, and that same guarantee language is present in the Hendrickson's agreement.

[00:21:31] Speaker 04:
However, the guarantee phrased in Massey was phrased following the first clause, which is that distributions, and this appears twice in the Massey agreement, the distributions of the future annuity payments would be made on behalf of the United States.

[00:21:50] Speaker 04:
That on behalf phrase appears twice in the Massey agreement.

[00:21:53] Speaker 04:
It nowhere appears in the Hendrickson agreement or in Nutt.

[00:21:57] Speaker 04:
And that is a critical difference.

[00:21:59] Speaker 05:
But our court in Nutt did not rely on that language to distinguish Massey.

[00:22:03] Speaker 05:
It relied on the guarantee language.

[00:22:05] Speaker 04:
It relied on guarantee language, but also, yes.

[00:22:13] Speaker 04:
But that's not to say that there are not additional reasons for the two agreements to be

[00:22:18] Speaker 04:
But in not, the court is looking to distinguish what were the critical phrases in the court's view and not from the critical phrases in Massey.

[00:22:26] Speaker 04:
All of these agreements have some terms in common, but they're not identical.

[00:22:30] Speaker 04:
And that's why we have come back to this court.

[00:22:34] Speaker 02:
You're suggesting, Ms.

[00:22:35] Speaker 02:
Finnan, that that on behalf of language that appeared in Massey shows the insurance company there just acting as sort of a pay agent.

[00:22:46] Speaker 02:
of the government.

[00:22:47] Speaker 02:
Is that the idea?

[00:22:48] Speaker 02:
As opposed to an annuity type of thing.

[00:22:52] Speaker 04:
That's correct.

[00:22:53] Speaker 04:
So in not, the court recognized that there were these distributions on behalf of the United States in the Massey agreement.

[00:23:02] Speaker 04:
And that phrase is not here in Hendrickson.

[00:23:04] Speaker 04:
I'll also point out that the Hendricksons in the trial court below expressly waived any claim for a guarantee.

[00:23:11] Speaker 04:
And that's at appendix 486.

[00:23:13] Speaker 04:
They are claiming in this litigation

[00:23:15] Speaker 04:
that the United States government had a direct payer responsibility for this future annuity payments.

[00:23:20] Speaker 04:
They have expressly waived and disclaimed any allegation that the Hendrickson agreement is a guarantee.

[00:23:28] Speaker 05:
Well, but they're not disclaiming that the fact of the reference to the payments being guaranteed isn't relevant to the question of whether the parties contemplated that the government would be making these payments.

[00:23:44] Speaker 05:
A guarantee theory is different than relying on the guarantee language for interpretation of the contract.

[00:23:51] Speaker 04:
Understood.

[00:23:51] Speaker 04:
But this court in Massey found that there was a guarantee.

[00:23:56] Speaker 02:
Where's this language?

[00:23:57] Speaker 02:
You say they waived the guarantee?

[00:23:59] Speaker 04:
It should be appendix 486.

[00:24:02] Speaker 02:
Because I don't have a 486 and what?

[00:24:06] Speaker 02:
Maybe I do.

[00:24:07] Speaker 02:
Hold on.

[00:24:08] Speaker 04:
I might be mixing up my numbers.

[00:24:10] Speaker 04:
468, I'm sorry.

[00:24:11] Speaker 02:
Court 68.

[00:24:12] Speaker 02:
OK.

[00:24:12] Speaker 04:
Court 68.

[00:24:12] Speaker 04:
It's a reply brief filed at the trial court.

[00:24:15] Speaker 04:
Reading from that, it's page 5 of the Hendricksons' reply.

[00:24:18] Speaker 04:
As an initial matter, plaintiffs herein do not argue that the stipulation requires the United States to quote, guarantee the future payments to be made to the United States.

[00:24:26] Speaker 05:
Right.

[00:24:27] Speaker 05:
No.

[00:24:28] Speaker 05:
What they said is that they're not saying that the United States is the guarantor of someone else's obligation.

[00:24:35] Speaker 05:
They're saying it was the United States' obligation, but that the guarantee language

[00:24:41] Speaker 05:
helps support their argument that it was the United States' obligation.

[00:24:45] Speaker 04:
Understood.

[00:24:46] Speaker 05:
Yes.

[00:24:47] Speaker 04:
But going back to your initial question about whether or not this case is closer to Massey than it is to not.

[00:24:53] Speaker 04:
So as I have mentioned, I think one critical difference is Massey's use of the phrase on behalf of, distributions on behalf of the United States, which appears twice in Massey.

[00:25:03] Speaker 04:
In addition, actual authority was not at issue in Massey.

[00:25:07] Speaker 04:
Neither of the parties challenged or there was no

[00:25:10] Speaker 04:
disagreement or argument as to the scope of the military secretary's authority to have entered that agreement.

[00:25:15] Speaker 04:
That is not the case in Hendrickson.

[00:25:16] Speaker 04:
Hendrickson was settled under the Federal Tort Claims Act as opposed to the Military Claims Act.

[00:25:21] Speaker 04:
And there are very specific statutes and regulations that delegate actual authority.

[00:25:25] Speaker 05:
We specifically rejected the notion that that is grounds for distinguishing the two cases in nut.

[00:25:32] Speaker 05:
We said the government argues that because one was under the Military Claims Act and the other is under the Federal Tort Claims Act,

[00:25:38] Speaker 05:
That's an important distinction.

[00:25:39] Speaker 05:
We said, we don't buy it.

[00:25:41] Speaker 05:
We said, no.

[00:25:43] Speaker 04:
Understood, yes.

[00:25:45] Speaker 04:
But as the United States read the Knot decision, that refusal to distinguish Massey and, in that case, Knot on the basis of Military Claims Act versus Federal Tort Claims Act was in the context of the United States government's argument at that stage of the proceedings that the Federal Tort Claims Act as a matter of law prohibits

[00:26:09] Speaker 04:
the government from entering into agreements that involve future distribution of damages.

[00:26:15] Speaker 04:
It was a sovereign immunity argument.

[00:26:17] Speaker 04:
And on that grounds, the Federal Circuit was not persuaded by the government's argument that the Military Claims Act was different in that regard.

[00:26:25] Speaker 04:
I'm arguing something slightly different here in that actual authority.

[00:26:29] Speaker 04:
So taking a step back, this court found a nut that

[00:26:34] Speaker 04:
The Federal Tort Claims Act does not prohibit the United States government from entering into compromises or settlements that involve the future distribution of money.

[00:26:43] Speaker 04:
We argued otherwise.

[00:26:44] Speaker 04:
The court disagreed.

[00:26:45] Speaker 04:
That holding is firm, and we understand that.

[00:26:48] Speaker 04:
But whether or not the Federal Tort Claims Act as a general matter does not prohibit the United States government from entering into settlements that involve the future distribution of funds,

[00:27:00] Speaker 04:
does not answer the second half of the inquiry whether or not that happened or can happen in an individual case.

[00:27:08] Speaker 04:
So even taking the Nutt's general proposition that these sort of contingent settlement agreements with structured settlements are not prohibited by the FTCA, we then look to an individual case to determine whether or not it happened in that case.

[00:27:23] Speaker 04:
And so in Nutt, the court, yes, found that as a general matter,

[00:27:28] Speaker 04:
The US government could enter these sorts of agreements, but then looking at the plain language of not found they had not done that, not.

[00:27:34] Speaker 04:
They didn't need to reach actual authority, because they found based on the plain language that it wasn't relevant.

[00:27:40] Speaker 03:
Here.

[00:27:40] Speaker 03:
Let me direct you a little bit differently.

[00:27:44] Speaker 03:
In contrast to your friend on the other side, in the red brief, the government argues that pro tanto was shorthand reference to paragraph's five schedule of future sums, what I raised.

[00:27:57] Speaker 03:
the payments, quote, and the payments they're under, which would be paid by the annuities in varying degrees only for as long as those payments might last pro tanto.

[00:28:07] Speaker 03:
Same question I asked him.

[00:28:09] Speaker 03:
How do we know that?

[00:28:10] Speaker 03:
What's your authority?

[00:28:13] Speaker 04:
Your honor, so all we have is vis-a-vis a definition of pro tanto or dictionary definitions.

[00:28:18] Speaker 04:
That was all the parties ever offered to the trial court.

[00:28:20] Speaker 04:
It's all that's cited to in this brief.

[00:28:22] Speaker 03:
We couldn't find anything.

[00:28:24] Speaker 03:
We looked, believed.

[00:28:25] Speaker 04:
Understood.

[00:28:26] Speaker 04:
But I would submit that the United States's interpretation of pro tanto is not only consistent with the plain language of the definition of the Latin term, but also consistent with the rest of paragraph seven, as well as the rest of the agreement as a whole.

[00:28:42] Speaker 04:
And that would be what the government offers is the additional evidence of the meaning of pro tanto.

[00:28:46] Speaker 04:
This court, it's well established, does not cherry pick and read individual words and phrases.

[00:28:51] Speaker 03:
I already asked those questions in your post account.

[00:28:55] Speaker 03:
the ensuing paragraphs in there.

[00:28:58] Speaker 04:
Whether or not pro tanto specifically, that meaning is clear or unclear.

[00:29:03] Speaker 04:
I don't think it changes the unambiguous meaning of the agreement as a whole when you read all of those provisions together.

[00:29:10] Speaker 04:
We've got consistent with not the same phrasing, annuities which will pay, which this court found, given the syntax of that sentence, the fairest reading, is that it was the annuities that would be responsible for future payments, not the United States.

[00:29:23] Speaker 04:
We have that same language as in not

[00:29:25] Speaker 04:
which we have argued brings this settlement agreement closer to Hendrickson than to Massey.

[00:29:30] Speaker 04:
We also have caps, like in paragraph seven that the, and I'm reading from paragraph seven in appendix 304, the purchase costs, parentheses, premium of the annuity contracts and lump sum payments as outlined in paragraph five, those are the future payments, shall be in a total combined sum not to exceed $523,217.

[00:29:52] Speaker 04:
So even if,

[00:29:57] Speaker 04:
one were to read the agreement to, in some manner, suggest that there was a future expectation of payment.

[00:30:03] Speaker 04:
That future expectation of payment was satisfied by the United States government's expenditure of $900,000 in total, or specifically, as in paragraph 7, is $523,217 to purchase the annuity.

[00:30:15] Speaker 04:
So that option slaps.

[00:30:16] Speaker 05:
What I need to make up the fact that the trial court who presided over this case, who said that he was familiar with the

[00:30:26] Speaker 05:
terms of the agreement, who said that he had approved the terms of the agreement.

[00:30:32] Speaker 05:
What are we to make of the fact that he believed that it was a guarantee by the government that there would be 40 years of payments?

[00:30:41] Speaker 04:
Yes, Your Honor.

[00:30:41] Speaker 04:
So respectfully, that decision was vacated and reversed by the Second Circuit.

[00:30:47] Speaker 05:
But because they felt that he hadn't

[00:30:50] Speaker 05:
properly retained jurisdiction, and so it had to be filed in a different court.

[00:30:54] Speaker 05:
Understood.

[00:30:55] Speaker 04:
But that, respectfully, Arna, that district court judge had no personal knowledge of any of the internal deliberations of the parties.

[00:31:04] Speaker 05:
All he did was enter a dismissal, even before seeing... He spent pages talking about the fact that he knew he retained jurisdiction because he was

[00:31:15] Speaker 05:
had spent time being involved in having to approve what the parties had entered into.

[00:31:21] Speaker 04:
Yes, Your Honor.

[00:31:21] Speaker 04:
And in the joint appendix, there is an excerpt of the transcript of the counsel who appeared before that district court judge.

[00:31:28] Speaker 04:
And as we quoted in our brief, those excerpts of the district court transcript reflect that counsel told the district court judge that they had a settlement in principle, that that settlement was negotiated, and that it would

[00:31:44] Speaker 04:
involve the future payment of money, but that the United States' obligation would be capped at $900,000.

[00:31:50] Speaker 04:
And so to the extent the district court judge, 30 years later, entered an opinion that he said he felt that the agreement meant something else, all he had to go on is the same transcript that you all are seeing.

[00:32:03] Speaker 03:
Wait a minute.

[00:32:04] Speaker 03:
Doesn't Article III make us omnipotent?

[00:32:09] Speaker 05:
Yes.

[00:32:11] Speaker 05:
One last question.

[00:32:13] Speaker 05:
Why are we now looking at the third version of annuity agreements with claimants from the same government?

[00:32:25] Speaker 05:
Can we not get on one page and draft an annuity agreement that does what the government thinks it wants to do and does not have confusing language?

[00:32:37] Speaker 04:
Yes, Your Honor.

[00:32:37] Speaker 04:
So I'm outside the record here, but I can explain to the extent I know that

[00:32:42] Speaker 04:
The use of structured settlements in these tort settlement agreements was a new thing in the early 1980s.

[00:32:49] Speaker 04:
This was the first time the United States government and parties were starting to use the structured settlement vehicle as a way to facilitate settlements of these claims.

[00:32:58] Speaker 04:
So in that sense, I don't know that the drafting of these agreements had quite caught up to a universal standard or that people were as familiar with structured settlements as they are today.

[00:33:11] Speaker 04:
I would submit that I think the torts division has a much more routine blanket agreement.

[00:33:18] Speaker 02:
You're saying there is a kind of a standard form agreement now?

[00:33:22] Speaker 04:
I can speculate that there is.

[00:33:25] Speaker 04:
I can't.

[00:33:26] Speaker 02:
I'm not a right.

[00:33:27] Speaker 02:
I agree with Judge O'Malley.

[00:33:29] Speaker 02:
It'd certainly be helpful if you had that kind of an agreement that spelled out all of this.

[00:33:35] Speaker 02:
And then the parties would know exactly what they were getting or were not getting when they signed it.

[00:33:41] Speaker 04:
Understood.

[00:33:42] Speaker 04:
And Your Honor, I do have it on some authority from the Tort's Division of the Department of Justice that these agreements now do specifically explain that the United States is not responsible for future payments, that that is in these current agreements.

[00:33:56] Speaker 04:
But the five or six of these breach of settlement agreements that are slowly winding their way up to this court were all entered between 1980 and 1985.

[00:34:06] Speaker 04:
They were entered by AUSAs.

[00:34:08] Speaker 04:
in different districts across the country in different years.

[00:34:12] Speaker 04:
Occasionally, if the amount of the settlement, the authorized amount of the settlement, reached a certain dollar amount, the torts division was contacted in connection with that settlement.

[00:34:23] Speaker 04:
But if it didn't reach whatever was that tipping point dollar amount, they were settled more locally at the AUSAs level.

[00:34:30] Speaker 04:
And so that would be what accounts for some of these differences in terminology.

[00:34:35] Speaker 04:
OK.

[00:34:36] Speaker 04:
Thank you.

[00:34:36] Speaker 04:
I will give you your two minutes back.

[00:34:43] Speaker 01:
Thank you, Your Honor.

[00:34:43] Speaker 01:
As you pointed out, the significant factors in not to distinguish Massey in this court's view were both the provision in the agreement, which said specifically that in the event of default, the government would participate and assist the plaintiffs in suing the insurance company.

[00:35:02] Speaker 01:
There is no such provision in this agreement.

[00:35:05] Speaker 01:
In fact, the opposite is true because the government can retain complete control and the ability to change the beneficiary.

[00:35:13] Speaker 01:
And this court in Nutt said that it would be nonsensical for the government to be required to continue to make the payments if there's a specific provision that says they're going to cooperate with the plaintiff to sue the insurance company in the event of a default.

[00:35:30] Speaker 01:
So clearly under the Nutt agreement, the risk of default fell on the plaintiffs.

[00:35:34] Speaker 01:
And that was clear based upon that term.

[00:35:37] Speaker 01:
What's equally clear is that the risk of default in our agreement falls on the government because of this explicit language that the government is required to make the future payments, as well as the fact that there's no analogous language to nut that says that the government or the plaintiffs have any right.

[00:35:53] Speaker 01:
The government's going to cooperate with the plaintiffs to sue the insurance company.

[00:35:56] Speaker 03:
What about the $900,000 limitation?

[00:35:59] Speaker 01:
Your Honor, the authority argument is, I think, a specious one because

[00:36:05] Speaker 03:
Under the statutory scheme of the... According to your opposing counsel, and I didn't look at this, but all of a sudden it's true, that in open court, the court was told there was a limitation of $900,000.

[00:36:19] Speaker 01:
For the immediate payment of the... The immediate cash amount that was required for the settlement was $900,000.

[00:36:26] Speaker 03:
Where is that in the appendix?

[00:36:30] Speaker 01:
Your Honor, it's several places in the appendix.

[00:36:34] Speaker 03:
The transcript.

[00:36:36] Speaker 03:
Nothing else.

[00:36:43] Speaker 03:
I didn't see it.

[00:36:47] Speaker 03:
The government knows.

[00:36:51] Speaker 03:
The government can say.

[00:36:52] Speaker 00:
The transcript is found, I think, beginning on a page about 283.

[00:36:57] Speaker 00:
I'm sorry, 293.

[00:37:04] Speaker 05:
289.

[00:37:04] Speaker 00:
289.

[00:37:07] Speaker 01:
But the point that I'm trying to make, Your Honor, is that there is no question that the AUSA did not draft this agreement.

[00:37:17] Speaker 01:
In the transcript, it indicates that the negotiations occurred at the assistant attorney general level in Washington.

[00:37:23] Speaker 01:
The AUSA was provided this agreement by Washington, and he was authorized to sign it.

[00:37:28] Speaker 01:
In his cover letter sending that agreement on, along with the assignment assumption agreement,

[00:37:33] Speaker 01:
he says all necessary authority has been obtained.

[00:37:37] Speaker 01:
So the question is not whether that he had immediate $900,000 of authority to spend.

[00:37:43] Speaker 01:
The question is whether he had authority to bind the government under the agreement as it's written.

[00:37:48] Speaker 01:
And the government seems to argue now that even if it says what it says, that they're obligated to make the payments, it can't be true because he had no authority to do that.

[00:37:56] Speaker 01:
But he had authority.

[00:37:58] Speaker 01:
to sign the agreement.

[00:37:59] Speaker 01:
There's no contrary evidence that he didn't have authority to sign the agreement.

[00:38:02] Speaker 01:
And the government has made that statement that he had complete authority to sign the agreement.

[00:38:08] Speaker 01:
The agreement says what it says.

[00:38:09] Speaker 01:
It obligates the government to do it.

[00:38:11] Speaker 03:
But the transcript says what it says, too.

[00:38:12] Speaker 03:
And it says the total settlement is $900,000.

[00:38:15] Speaker 03:
I'm looking at 291.

[00:38:19] Speaker 01:
Yes.

[00:38:20] Speaker 01:
And in there, it says that documents are going to be drafted.

[00:38:24] Speaker 01:
which are going to execute the agreement.

[00:38:27] Speaker 01:
And the document that was drafted after that statement is the agreement that was signed.

[00:38:32] Speaker 01:
And the parties then signed that agreement, and the judge then approved it by signature.

[00:38:39] Speaker 01:
So the point is that there's a statutory scheme that basically says that any agreement by the attorney general or his designee to pay money for a Federal Tort Claims Act case has an appropriation.

[00:38:51] Speaker 01:
It's automatically appropriated and an indefinite appropriation.

[00:38:56] Speaker 01:
And that's what the law is.

[00:38:57] Speaker 01:
And the Settlement Act, the Judgment Act actually also puts that into play to prevent the government from being delayed in making payments.

[00:39:07] Speaker 01:
So there's no issue that if the AUSA had authority to sign the agreement and the agreement binds the government to spend more than $900,000, there's clearly appropriation authority to pay that because the statutory scheme sets that up.

[00:39:19] Speaker 01:
So the issue is not 900,000.

[00:39:20] Speaker 02:
That's different from what, leaving aside what authority may exist for something, that's different from what authority was available to the AUSA in this particular case.

[00:39:31] Speaker 01:
My argument, Your Honor, is that the AUSA's authority was to spend $900,000 immediately and to execute this agreement, which had a contingency possibility that it could pay more in the future.

[00:39:43] Speaker 01:
And as long as that agreement states what it says,

[00:39:46] Speaker 01:
then you can't bootstrap your argument to say that the clear terms of the agreement don't count because the AUSA couldn't have had authority to sign that because there's no evidence that he didn't have the authority to sign that.

[00:40:00] Speaker 01:
Council will take your argument under advisement.

[00:40:02] Speaker 01:
Thank you.

[00:40:07] Speaker 05:
All right.