Centex Corp. v. United States

Centex Corporation

Centex participated in the bail-out of the savings and loan insurance fund in 1988. It acquired four insolvent financial institutions, assumed their liabilities and promised to resolve their bad loans. As an incentive, Centex received special tax benefits. After the deal closed, however, Congress revoked the tax benefits in retroactive legislation purportedly "clarifying" that the tax benefits never existed.

Centex sued in the Court of Federal Claims. In that court, our team secured summary judgment on liability and won a trial on damages. On appeal, the Court of Appeals upheld the judgment.

In a powerful affirmation of government responsibility and accountability, the Federal Circuit held that the tax legislation was "targeted" and therefore breached the government's covenant of good faith and fair dealing. The government's two main defenses were that the tax legislation was a mere "clarification" and that Congress has plenary power to clarify or change the Tax Code. The Court rejected both defenses, finding that the statute "cannot be regarded as a sovereign act because it was not generally applicable legislation in form or substance, but was specifically targeted at appropriating the benefits of a government contract." The Court also let stand the trial court's decision that the damages, when collected, would not be taxable income to the plaintiffs.

The case marked the first time that a court held that tax legislation, validly enacted by Congress, breached the government's duties of good faith and fair dealing. The Centex decision controlled a group of other cases arising out of the same legislation.

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