Mulholland et al v. Federal Deposit Insurance Corporation

Filing 55

ORDER granting Defendant's 30 Motion for Summary Judgment. Plaintiffs' 32 Motion for Summary Judgment is denied. This case is dismissed with prejudice. The final trial preparation conference, currently scheduled for 06/19/2014, and the three-day jury trial, set to begin 06/30/2014, are VACATED. By Judge Christine M. Arguello on 06/09/2014. (athom, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 12-cv-01415-CMA-MEH
DENNIS L. MULHOLLAND, and
ROBERT L. MEUSCH,
Plaintiffs,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION,
as Receiver for Bank of Choice, #10380,
Defendant.

ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

This matter is before the Court on cross-motions for summary judgment filed by
Plaintiffs Dennis Mulholland and Robert Meusch (Doc. # 32), and Defendant Federal
Deposit Insurance Corporation (“FDIC”) (Doc. # 30).
I. BACKGROUND
This case arises from Executive Salary Continuation Agreements (“Agreements”)
between Plaintiffs and their former employer, Bank of Choice (“Bank”). Several years
after Plaintiffs entered into those Agreements, the FDIC became the Bank’s receiver
and disaffirmed them. Plaintiffs then filed claims with the FDIC seeking damages
arising from the disaffirmed Agreements. The FDIC disallowed those claims.
On May 31, 2012, Plaintiffs timely filed suit against the FDIC in this Court,
seeking damages arising from the disallowance of their claims. (Doc. # 1.) Both

Plaintiffs and the FDIC filed motions for summary judgment on July 1, 2013. (Doc.
## 30; 32.)1 The motions are ripe for the Court’s review. 2 In addition, the Court
considers argument made at a hearing held on these motions, as well as supplemental
briefing ordered by the Court at that hearing. See (Doc. ## 52, 53, 54.)
A.

UNDISPUTED FACTS
1.

The Agreements

Each Plaintiff entered into his Agreement in 2004. (Doc. ## 29-1, 29-2.) Under
identical provisions in those Agreements, the Bank agreed to make post-termination
benefit payments to each Plaintiff so long as the Bank had not fired him “for cause.”
(Doc. ## 29-1 at 3-5; 29-2 at 3-5.) The Agreements described these “salary
continuation benefits” as “fringe benefits” unrelated to a salary reduction plan or
deferred compensation. (Doc. # 29-1 at 2.) They also required the Bank to “establish
an accrued liability retirement account for [each Plaintiff] into which appropriate reserves
[would] be accrued.” (Id. at 3.) Moreover, “during the terms of [each Agreement]” each
Plaintiff would be “one hundred percent (100%) vested in an amount equal to the Bank’s
accrued liability account balance.” (Id.)
The amount each Plaintiff was to receive from the Bank depended on the
circumstances of his termination. Retirement from continuous employment with the
Bank at age sixty-five would entitle Mr. Meusch to an “annual benefit” of $60,000 (Id.),
1

Due to a software malfunction, Plaintiffs’ initial summary judgment motion was incomplete
(Doc. # 29), and a complete version was filed on July 8, 2013 (Doc. # 32).

2

With respect to Plaintiffs’ motion, the FDIC filed an objection to Plaintiffs statement of facts and
a response on August 1, 2012, (Doc. ## 35; 36), and Plaintiffs replied on August 14, 2013 (Doc.
# 38). With respect to the FDIC’s motion, Plaintiff responded on July 19, 2013, (Doc. # 33), and
the FDIC replied on August 5, 2013 (Doc. # 37).
2

and Mr. Mulholland to an “annual benefit” of $40,000 (Doc. # 29-2 at 3). Each Plaintiff
would receive that same amount in the event that the Bank terminated him without
cause before he reached sixty-five. (Doc. # 29-1 at 3-5.) In a third scenario, if either
Plaintiff voluntarily terminated his employment before turning sixty-five, he would
receive as “severance compensation” the accrued balance of his liability reserve
account as of the termination date plus interest on the balance that accrued between
the termination date and the date of payment. (Id. at 4.) If either Plaintiff were
terminated for cause, he would receive nothing. (Id. at 5.) The Agreements also
provided for scenarios involving each Plaintiff’s death or disability. (Id. at 3-4.)

The

earliest date on which each Plaintiff could receive payment was upon reaching age
sixty-five, with an exception for early or late retirement, which is not at issue here.
(Id. at 2-5) (describing “normal retirement age” beginning of payments following
retirement from continuous employment, voluntary termination, and involuntary
termination).
2.

Procedural History

On July 22, 2011, while Plaintiffs were employed by the Bank, the Colorado
Division of Banking closed the Bank and appointed the FDIC as its receiver. (Doc.
## 30 at 2, 5; 32 at 2.) Shortly thereafter, Plaintiff Meusch voluntary resigned his
position and Plaintiff Mulholland’s employment was involuntarily terminated. Neither
Plaintiff had reached retirement age, as defined by the Agreements. (Doc. ## 30 at 2;
33 at 2-3.) On October 17, 2011, the FDIC informed Plaintiffs that any claims they
might have had against the Bank needed to be filed with the FDIC on or before October

3

27, 2011. (Doc. ## 30-8; 30-9.) On or about the same date, Plaintiffs filed claims
with the FDIC for the accrued balance of the liability accounts associated with their
respective Agreement. See (Doc. ## 32-3; 32-4.)
In letters dated October 19, 2011, the FDIC notified Plaintiffs that it had
disaffirmed the Agreements as burdensome, as authorized by 12 U.S.C. § 1821(e).
(Doc. ## 30-10; 30-11.) The letters also advised Plaintiffs of their right to file claims
arising from the disaffirmance with the FDIC within ninety days. (Id.) On January 11,
2012, Plaintiffs’ counsel emailed an FDIC representative, requesting that the FDIC
honor Plaintiffs claims. (Doc. # 32-5.) In letters dated April 5, 2012, the FDIC informed
Plaintiffs that it had disallowed their claims, explaining that neither Plaintiff’s retirement
benefits had vested when the Bank entered FDIC receivership. (Doc. ## 32-6; 32-7.)
According to the letters, “the benefits remained subject to a triggering event that had not
occurred as of such date (i.e., the Claimant’s reaching his retirement age of sixty-five
(65), or dying, becoming disabled, voluntary [sic] terminating his employment, or having
his employment involuntarily terminated without cause).” (Id.)
II. STANDARD OF REVIEW
A.

SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate “if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56. In analyzing the evidence on a motion for summary judgment,
this Court must view the factual record and draw reasonable inferences in favor of the
non-moving party. Kidd v. Taos Ski Valley, Inc., 88 F.3d 848, 851 (10th Cir.1996).

4

“There is no genuine issue of material fact unless the evidence, construed in the
light most favorable to the non-moving party, is such that a reasonable jury could return
a verdict for the non-moving party.” Bones v. Honeywell Int’l, Inc., 366 F.3d 869, 875
(10th Cir. 2004). Further, “[t]o defeat a motion for summary judgment, evidence,
including testimony, must be based on more than mere speculation, conjecture, or
surmise.” Id.
B.

THIS COURT’S REVIEW OF PLAINTIFFS’ CLAIMS
In their filings, Plaintiffs state that the FDIC did not argue that the Agreements

constitute prohibited golden parachutes until it filed its response to Plaintiffs’ summary
judgment motion. (Doc. # 38 at 1.) Plaintiffs also argue that the FDIC must have
agreed that 12 C.F.R. § 359.7 did not bar Plaintiffs’ claims because the FDIC did not
cite or refer to the regulation in the letters disallowing their claims. (Doc. # 33 at 6.)
As such, Plaintiffs appear to argue that the FDIC cannot rely on grounds not discussed
in its administrative letters.
It is a long established rule that a court may uphold an administrative order only
upon the same grounds as the agency relied upon in making that administrative order.
See, e.g., Southern Utah Wilderness Alliance v. Office of Surface Mining Reclamation
& Enforcement, 620 F.3d 1227, 1236 (10th Cir. 2010) (emphasis added) (citing SEC
v. Chenery Corp., 318 U.S. 80, 95 (1943)). In this case, however, the Court is not
deciding whether to uphold an administrative order. Following the FDIC receiver’s
disallowance of Plaintiffs’ claims, Plaintiffs had the choice either to seek administrative
review or to file suit on the claim in federal court. See 12 U.S.C. § 1821(d)(6). Plaintiffs

5

chose to file suit on their claims in federal court, which initiated a new lawsuit.
Consequently, the Court is not deciding whether to uphold the FDIC’s orders disallowing
Plaintiffs’ claims. Instead, the Court determines de novo whether Plaintiffs may recover
damages on their claims. See id. (“claimant may request administrative review of the
claim . . . or file suit . . . .”); see also Bank of America National Association v. Colonial
Bank, 604 F.3d 1239, 1247 (11th Cir. 2010) (“statutory right to de novo review in federal
district court”). Thus, the Court is free to consider any arguments properly raised in
this proceeding by the parties and is not limited to the reasons that the FDIC stated in
disallowing Plaintiffs’ claims.
“Although an agency’s interpretation or application of a statute is a question of
law reviewed de novo, the Court must give deference to the agency’s construction of a
statutory provision it is charged with administering.” Knyal v. Officer of Comptroller of
Currency, No. C 02-2851, 2003 WL 26465939, *10 (N.D. Cal. 2003) (slip copy) (citing
Bear Lake Watch, Inc. v. FERC, 324 F.3d 1071, 1073 (9th Cir. 2003); Brower v.
Evans, 257 F.3d 1058, 1065 (9th Cir. 2001); Eisinger v. F.LR.A., 218 F.3d 1097, 110001 (9th Cir. 2000)); see also Lockheed Martin Corp. v. Admin. Review Bd., U.S. Dep’t of
Labor, 717 F.3d 1121, 1131 (10th Cir. 2013). When a statute is silent or ambiguous on
a particular point, the court may defer to the agency’s interpretation. See Chevron,
U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 (1984). Review is
limited to whether the agency’s conclusion is based on a permissible construction of
the statute. Id.

6

III. DISCUSSION
The Court may grant summary judgment in Plaintiffs’ favor only if the undisputed
facts show that: (1) the Agreements do not fall within an exception for golden
parachutes, and (2) 12 C.F.R. § 359.7 does not bar Plaintiffs’ claims. The Court will
address each issue in turn.
A.

WHETHER THE AGREEMENTS ARE PROHIBITED GOLDEN PARACHUTE
PAYMENTS
Pursuant to its statutory authority, see 12 U.S.C. § 1828(k), subject to certain

exceptions, the FDIC has prohibited insured depository institutions and their holding
companies from “mak[ing] or agree[ing] to make any golden parachute payment.” 12
C.F.R. § 359.2. 12 U.S.C. § 1828(k) defines a golden parachute, in relevant part, as
any payment (or any agreement to make any payment) in the nature of
compensation by any insured depository ... for the benefit of any institutionaffiliated party3 pursuant to an obligation of such institution ... that—
(i) is contingent on the termination of such party's affiliation with the
institution or covered company; and—
(ii) is received on or after the date on which—
...
(II) any conservator or receiver is appointed for such institution.
12 U.S.C. § 1828(k)(4)(A); see also 12 C.F.R. 359.1(f)(1).

3

Under 12 C.F.R § 359.1(h)(1), an institution-affiliated party (“IAP”) is defined as, among others,
“[a]ny director, officer, employee, or controlling stockholder (other than a depository institution
holding company) of, or agent for, an insured depository institution or depository institution
holding company.” It is undisputed that Plaintiffs meet this definition.
7

The FDIC argues that the payments Plaintiffs seek are prohibited golden
parachutes. Plaintiffs do not contest that the Agreements meet this definition, and the
undisputed facts demonstrate that they do. However, Plaintiffs argue that the payments
are “bona fide deferred compensation plans or agreements” (“BFDCP”) and, thus, are
excluded from the “golden parachute” prohibition. See 12 C.F.R. § 359.2(f)(2)(iii).
Pursuant to 12 U.S.C. § 1828(k)(4)(C), the FDIC is empowered to exclude
from the definition of a golden parachute payment “any payment made pursuant to
a [BFDCP] which [it] determines, by regulation or order, to be permissible.” See also
12 C.F.R. 359.1(f)(2)(iii). A BFDCP includes “any plan, contract, agreement, or other
arrangement whereby:
...
(2) An insured depository institution . . . establishes a nonqualified
deferred compensation or supplemental retirement plan, other than
an elective deferral plan described in (e)(1) of this section:
...
(ii) Primarily for the purpose of providing supplemental retirement
benefits or other deferred compensation for a select group of
directors, management or highly compensated employees
(excluding severance payments described in paragraph (f)(2)(v) of
this section and permissible golden parachute payments described
in § 359.4) . . . .
12 C.F.R. § 359.1(d)(2). The Agreements state that they create an “unfunded
arrangement maintained primarily to provide supplemental retirement benefits for
the Executive.” (Doc. ## 29-1 at 1; 29-2 at 1) (emphasis added). The Agreements
describe Plaintiffs as “valued Executive[s]” who have performed services of “exceptional
merit.” In light of each Plaintiff’s “experience, knowledge . . . , reputation, and contacts
8

in the industry,” the Bank entered into the contracts in an effort to retain his services for
the remainder of his career. (Doc. # 29-1 at 1.) Accordingly, the Court finds, and the
parties concede, that the undisputed facts demonstrate that the Agreements meet the
first two requirements of a BFDCP.
In addition, in order to qualify as a BFDCP, the Agreements must meet the seven
requirements outlined in 12 C.F.R. § 359.1(d)(3). During oral argument, the FDIC
confessed that it disputes only whether the second and sixth requirements of Subpart
359.1(d)(3) are met. The Court addresses in turn each of the seven requirements in
12 C.F.R. § 359.1(d)(3), along with the corresponding undisputed facts that support
those requirements.
(i) The plan was in effect at least one year prior to any of the
events described in paragraph (f)(1)(ii) of this section 4;
It is undisputed that Plaintiffs entered into the Agreements in 2004, more than six
years before the Bank entered FDIC receivership. See (Doc. ## 29-1; 29-2); 12 C.F.R.
§ 359.1(d)(3)(i).
(ii) Any payment made pursuant to such plan is made in
accordance with the terms of the plan as in effect no later than
one year prior to any of the events described in paragraph (f)(1)(ii)
of this section and in accordance with any amendments to such
plan during such one year period that do not increase the benefits
payable thereunder;
The FDIC argues that the words “one year” reference the timing of “any
payments”, rather than “any of the events” or “any amendments”. However, a plain
reading of the regulation demonstrates that the “one year” limitation does not refer to
4

12 C.F.R. § 359.1(f)(1)(ii) includes, as relevant here, the “appointment of any conservator or
receiver.”
9

the payment itself—it refers to “any of the events” (which include, inter alia, the
appointment of a receiver) and “any amendment” to the plan. The FDIC argues that
this interpretation renders redundant the additional requirement that the Agreement be
“in effect at least one year prior to [the FDIC’s appointment as receiver].” See 12 CFR
§ 359.1(d)(3)(i). However, it is possible that a plan could be in effect more than one
year prior to receivership, but changes are made to some, but not all of the plan’s terms
within the year prior to receivership. Hence, the requirement that payments are made
“in accordance with the terms of the plan as in effect no later than one year prior to” the
date that the Bank entered into receivership, is a further limitation and not redundant.
Because neither Agreement was amended in the year prior to receivership (Doc.
## 29-1; 29-2), this requirement is met. See 12 C.F.R. § 359.1(d)(3)(ii).
(iii) The IAP has a vested right, as defined under the applicable
plan document, at the time of termination of employment to
payments under such plan;
The Agreements meet this requirement. The terms state that, “during the terms
of this agreement” Plaintiffs’ rights “vested in an amount equal to the Bank’s accrued
liability account balance.” See (Doc. ## 29-1; 29-2); 12 C.F.R. § 359.1(d)(3)(iii).
(iv) Benefits under such plan are accrued each period only for
current or prior service rendered to the employer (except that an
allowance may be made for service with a predecessor employer);
Plaintiffs assert, and the FDIC does not dispute, that the benefits accrued only
for current or prior service, as evidenced by the Bank’s former Assistant CFO Scott
Horton’s deposition testimony, which is supplemented by documentary evidence,
including financial and liability statements. Horton explained that Plaintiffs’ liability

10

balances accrued monthly, beginning on Plaintiffs’ respective plan implementation dates
through July 2011, when the Bank entered receivership. (Doc. # 53-1 at 14-17, 61); see
12 C.F.R. § 359.1(d)(3)(iv).
(v) Any payment made pursuant to such plan is not based on any
discretionary acceleration of vesting or accrual of benefits which
occurs at any time later than one year prior to any of the events
described in paragraph (f)(1)(ii) of this section;
Plaintiffs assert, and the FDIC agrees, that there is no indication that these
payments would be based on any discretionary acceleration of vesting or
accrual. See 12 C.F.R. § 359.1(d)(3)(v).
(vi) The insured depository institution or depository institution
holding company has previously recognized compensation
expense and accrued a liability for the benefit payments according
to [Generally Accepted Accounting Principles (“GAAP”)] or
segregated or otherwise set aside assets in a trust which may
only be used to pay plan benefits, except that the assets of
such trust may be available to satisfy claims of the institution’s
or holding company’s creditors in the case of insolvency; and
The FDIC argues that “the record is devoid of any evidence that the Bank
recognized any compensation expense to [] Plaintiff’s relating to the [] Agreements,
[because] Plaintiffs were not eligible for and never received any benefits from the Bank
prior to its insolvency.” (Doc. # 54 at 14.) However, Plaintiffs have provided the Bank’s
liability statements, which reflect the accrued balances of each Plaintiff’s benefits under
the Agreements. Those statements reflect that the Bank accounted for a liability of
$403,381 for Plaintiff Mulholland, and $74,849 for Plaintiff Meusch as of July 2011, the
time in which the Bank entered receivership and each Plaintiff’s employment was
terminated. (Doc. # 53-1 at 14-17, 61.) These statements demonstrate that the Bank

11

“recognized compensation expense and accrued a liability for the benefit payments” and
despite the FDIC’s urging, there is no genuine dispute as to these facts. Moreover, the
FDIC has not contested that these liabilities accrue and are expensed according to
GAAP. Cf. (Doc. # 53-2) (affidavit of Scott Rulon, CPA, stating that GAAP requires the
use of an accrual method of accounting and that the liability is expensed). Accordingly,
Plaintiffs have met this requirement. See 12 C.F.R. § 359.1(d)(3)(vi).
(vii) Payments pursuant to such plans shall not be in excess of the
accrued liability computed in accordance with GAAP.
The parties agree that the undisputed facts demonstrate that this requirement is
met. (Doc. # 52 at 18); see 12 C.F.R. § 359.1(d)(3)(vii).
The undisputed facts demonstrate that the Agreements are golden parachutes,
as defined by 12 C.F.R.§ 359.1(f)(1), but meet the BFDCP exception, as defined in
12 C.F.R. § 359.1(d). Therefore, the Court must next determine whether 12 C.F.R.
§ 359.7 relieves the FDIC from an obligation to pay damages arising from the
disaffirmed Agreements.
B.

WHETHER 12 C.F.R. § 359.7 RELIEVES THE FDIC OF AN OBLIGATION
TO PAY DAMAGES ARISING FROM THE DISAFFIRMED AGREEMENTS
1.

Authority To Adopt 12 C.F.R. § 359.7

As a threshold matter, the Court must address whether the FDIC had legal
authority to adopt 12 C.F.R. § 359.7, or if that regulation was beyond the scope of
FDIC’s authority to prohibit financial institutions from entering into golden parachute
agreements. Subpart 359.7 applies beyond golden parachutes—encompassing “other

12

agreements,” including, as argued here, an agreement that is excluded from the
definition of a golden parachute because it is a BFDCP.
The Court agrees with the FDIC that through the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (“FIRREA”) 5, Congress authorized the FDICR 6, to “disaffirm or repudiate any contact” that the receiver determines, in its discretion,
to be burdensome toward “promot[ing] the orderly administration of the institution’s
affairs.” 12 U.S.C. § 1821(e) (emphasis added). Following the passage of FIRREA,
Congress passed the Banking Law Enforcement Act of 1990, which enhanced FDIC-C’s
authority to regulate or prohibit golden parachute and indemnification payments. See
18 U.S.C. § 1828(k). This grant of authority, however, was not intended to “effect or
alter . . . any other authority the agencies may have under existing law and regulations.”
136 Cong. Rec. E3684-02, 1990 WL 206971; see further 12 U.S.C. § 1821(d)(2)(J)(i)
(granting the FDIC “such incidental powers as shall be necessary to carry out [its
powers as receiver]”). Accordingly, pursuant to FIRREA, FDIC-R maintained the ability
to repudiate burdensome contracts, including those that FDIC-C may have approved
prior to the institution’s insolvency. See 12 U.S.C. § 1821(e); 12 C.F.R. § 359.7 (“Any
5

“Congress enacted FIRREA in 1989 in response to the precarious financial condition of the
nation’s banks and savings and loan institutions. FIRREA grants broad powers to the FDIC to
“deal expeditiously with failed financial institutions. Upon its appointment as receiver, the FDIC
succeeds to all rights, titles, powers, and privileges of the insured depository institution, along
with the duty to pay all valid obligations of the insured depository institution.” FirsTier Bank,
Kimball, Neb. v. F.D.I.C., 935 F. Supp. 2d 1109, 1116 (D. Colo. 2013) (internal citations and
quotation marks omitted).
6

Distinct from the FDIC-C, the agency’s corporate capacity in which it functions as a bank
regulator and insurer of bank deposits, the FDIC-R steps in to administer, as receiver or
conservator, the assets of receivership estates of failed institutions. See FDIC v. Bank of
Boulder, 911 F.2d 1466, 1473 (10th Cir. 1990), cert denied, 499 U.S. 904 (1991); 12 U.S.C.
§§ 1821(d)(2), 1821(i)(2).
13

consent or approval granted under the provisions of this part by the FDIC . . . shall not
in any way obligate such agency or receiver to pay any claim or obligation pursuant
to any golden parachute, severance, indemnification, or other agreement.”) Thus,
pursuant to FIRREA, Congress authorized FDIC-R to promulgate Subpart 359.7,
including the ability to disaffirm agreements that would, absent receivership, be
excluded or exempted from the golden parachute definition. See 12 U.S.C. § 1821(e).
Plaintiffs argue that it would be “counterintuitive” if one subpart of Section 359
were to allow certain agreements that would otherwise constitute prohibited golden
parachutes, while another subpart prohibited the same agreement. (Doc. # 38 at 7.)
The Court disagrees. Section 359’s subparts, which define, proscribe, and allow certain
golden parachute payments, apply outside of the receivership context. See 12 C.F.R.
§§ 359.1, 359.2, and 359.4. In contrast, Subpart 359.7 applies “in the event of
receivership” and bars certain claims only “when the FDIC is appointed as receiver for
any depository institution.” Read together, these subparts represent the FDIC’s choice
to permit insured depository institutions to enter into BFDCAs while reserving the
FDIC’s authority, if it becomes the institution’s receiver, to repudiate or disaffirm those
agreements and avoid the obligation to pay the benefits those agreements promise.
See Cross-McKinley v. F.D.I.C., No. CV 211-172, 2013 WL 870309, *7 (S.D. Ga. 2013)
(“the FDIC, through its regulations, has interpreted 12 U.S.C. § 1821(e)(3)(A) to mean
that claims for golden parachute benefits after the receiver’s appointment and
disaffirmance of a contract are not recoverable.”).

14

This is reasonable, not counterintuitive, particularly in light of Congress’s
explanation that 12 U.S.C. § 1828(k) “is intended to provide the [FDIC] with the
necessary authority to prevent officers and directors of insured institutions or holding
companies from voting themselves generous bonuses at the expense of the institution
or company, and ultimately, perhaps, the [FDIC] . . . .” 136 Cong. Rec. E3684-02, 1990
WL 206971. Indeed, these changes were made “to provide a means of preventing
executives who have been terminated from depository institutions from draining money
from those institutions, to the detriment of shareholders and creditors, or in the case of
failed institutions, to the detriment of the FDIC.” Kynal, 2003 WL 26465939, at *14.
Accordingly, the Court finds that the FDIC had authority to promulgate Subpart 359.7.
2.

Whether Subpart 359.7 Bars Plaintiffs’ Recovery

The Court next addresses the FDIC’s argument that, even if Plaintiffs
demonstrate that the Agreements are BFDCPs, it has no obligation to pay to Plaintiffs
the damages associated with their disaffirmed agreements in light of Subpart 359.7.
FIRREA authorizes the FDIC, when acting as a receiver of a financial institution, to
disaffirm or repudiate contracts it deems burdensome, provided that the disaffirmance
of the contract “will promote the orderly administration of the institution's affairs.”
12 U.S.C. § 1821(e)(1). Once a contract is disaffirmed, the FDIC's action “is treated
as a breach of contract giving rise to an ordinary contract claim for damages.” WRH
Mortg., Inc. v. S.A.S. Assocs., 214 F.3d 528, 532 (4th Cir. 2000). FIRREA limits
recoverable damages to “actual direct compensatory damages,” which are “determined

15

as of the date of the appointment of the . . . receiver,” 12 U.S.C. § 1821(e)(3)(A).
Subpart 359.7 states:
The provisions of this part, or any consent or approval granted under the
provisions of this part by the FDIC (in its corporate capacity), shall not in
any way bind any receiver of a failed insured depository institution. Any
consent or approval granted under the provisions of this part by the FDIC
or any other federal banking agency shall not in any way obligate such
agency or receiver to pay any claim or obligation pursuant to any golden
parachute, severance, indemnification or other agreement. Claims for
employee welfare benefits or other benefits which are contingent, even
if otherwise vested, when the FDIC is appointed as receiver for any
depository institution, including any contingency for termination of
employment, are not provable claims or actual, direct compensatory
damage claims against such receiver.
12 C.F.R. § 359.7.
The FDIC argues that two portions of this regulation give it independent authority
to deny payments to Plaintiffs. First, the FDIC argues that it is not obligated to make
payments because the Agreements are “other agreements”. However, as is apparent
from a plain reading of the regulation, that portion of the regulation merely addresses
cases in which “consent or approval” has been granted under Subpart 359. In those
instances, “consent or approval” does not create an obligation for the receiver “to pay
any claim or obligation” arising from “any golden parachute, severance, indemnification
or other agreement.” See 12 C.F.R. § 359.7. However, in the instant case, neither
party asserts that the “FDIC or any federal banking agency” granted “consent or
approval.” Cf. 12 C.F.R. 359.4(a) (certain golden parachute payments are permitted
if the financial institution seeks and receives the FDIC’s consent); see further Erwin
v. FDIC, No. 10-cv-9467, 2013 WL 1811924, *4 (S.D.N.Y. 2012) (certain exceptions in
Subpart 359.4(a) do not apply where the parties offer no evidence the FDIC consented
16

in writing to the agreements; nonetheless, Subpart 359.7 bars the claims as contingent).
Therefore, this portion of Subpart 359.7 is not applicable here.
Next, the FDIC argues that Plaintiffs claims are contingent and therefore not
recoverable. For a plaintiff to recover damages on a disaffirmed contract, the damages
claim must satisfy the common law requirement of “provability” 7 and the FIRREA
requirement that the damages be “actual, direct, and compensatory.” See 12 U.S.C.
§ 1821(e)(3); McMillian v. FDIC, 81 F.3d 1041, 1045-1056 (11th Cir. 1996). In light of
these requirements, Subpart 359.7 expressly precludes recovery of damages on the
claims for (1) employee welfare benefits or other benefits; (2) that are “contingent,
even if otherwise vested”; (3) when the FDIC is appointed as receiver. 8 Id.

7

Prior to FIRREA’S enactment, courts applied the common law rule of provability to determine
whether bank contracts repudiated by a receiver were recoverable. See, e.g., First Empire
Bank-New York v. FDIC, 572 F.2d 1361, 1367 (9th Cir. 1978). Courts have reached differing
conclusions about whether FIRREA left provability intact, codified it, incorporated it, or altered it.
See McMillian v. F.D.I.C., 81 F.3d 1041, 1046 n.4 (11th Cir. 1996) (collecting cases). Courts
have also decried FIRREA as confusing, to say the least. See, e.g., Marquis v. F.D.I.C., 965
F.2d 1148, 1151 (1st Cir. 1992) (“FIRREA’s text comprises an almost impenetrable thicket,
overgrown with sections, subsections, paragraphs, subparagraphs, clauses, and subclauses—
a veritable jungle of linguistic fronds and brambles. In light of its prolixity and lack of coherence,
confusion over its proper interpretation is not only unsurprising—it is inevitable.”); Guidry v.
Resolution Trust Corp., 790 F. Supp. 651, 653 (E.D. La. 1992) (“[T]he statute makes the Internal
Revenue Code look like a first grade primer.”) Because both parties cite provability case law,
apparently on the assumption that the provability test survived FIRREA, it is not necessary to
decide whether provability survived FIRREA’s enactment. See McMillian, 81 F.3d at 1046 n.4

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Plaintiffs cite several cases to analogize their agreements to severance payments. See, e.g.,
McMillian v. FDIC, 81 F.3d 1041 (11th Cir. 1996); Monrad v. FDIC, 62 F.3d 1169 (9th Cir. 1995);
Office & Professional Employees International Union v. FDIC, 27 F.3d 598 (D.C. Cir. 1994).
However, those cases were decided prior to the promulgation of 12 C.F.R. 359 et seq. in 1996.
See Erwin, 2013 WL 1811924, *4 (citing 61 Fed. Reg. 5926). Therefore, those cases did not
specifically address the effect of Subpart 359.7. See id. (declining to follow pre-Subpart 359.7
cases and instead finding that the FDIC is not liable for damages pursuant to Subpart 359.7
when it repudiates a severance agreement). Nonetheless, those cases are distinguishable.
Here, Plaintiffs do not ask for severance payments, and their claims were contingent on their
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First, Plaintiffs’ claims are for other benefits. The Agreements themselves state
that they are intended to provide “supplemental retirement benefits” for Plaintiffs.
Next, Plaintiffs make various arguments that their claims had vested when the
FIDC was appointed as the Bank’s receiver. See (Doc. # 32). Claims may be vested
and accrued, even though the contracts contemplate payment upon the occurrence of
events that had not occurred before the date of insolvency or appointment of a receiver.
See, e.g., McMillian, 81 F.3d 1041 (severance payments); Monrad v. FDIC, 62 F.3d
1169 (9th Cir. 1995) (same); Office & Professional Employees International Union v.
FDIC, 27 F.3d 598 (D.C. Cir. 1994) (same); FDIC v. Liberty Nat’l Bank & Trust Co., 806
F.2d 961 (10th Cir. 1986) (standby letters of credit); First Empire Bank-New York v.
FDIC, 572 F.2d 1361 (9th Cir. 1978) (same). The Court agrees that Plaintiffs’ claims
are vested: they are based on contracts in existence when the Bank entered
receivership, and the Agreements expressly state that Plaintiffs were vested up to the
amounts in their respective accrued liability accounts. (Doc. ## 29-1 at 3; 29-2 at 3.)
However, pursuant to 12 C.F.R. § 359.7, even a claim that is vested, if contingent, is not
a provable claim. Nor is it an actual, direct compensatory damage claim against FDICR. See Erwin, 2013 WL 1811924, *4
The undisputed facts show that Plaintiffs’ claims were contingent. “Contingent is
commonly defined as possible but not assured; doubtful or uncertain; conditioned upon
the occurrence of some future event which is itself uncertain or questionable . . . .”

separation from the Bank, not to mention also contingent on the manner in which they
separated and upon reaching the retirement age of 65 years.
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Knyal, 2003 WL 26465939, at *14 (citing Black’s Law Dictionary (6th ed. 1990)). Under
the Agreements, neither Plaintiff was entitled to receive any payment until he reached
age sixty-five, regardless of whether Plaintiffs’ employment with the Bank ended on the
day the Bank entered receivership or later. It is undisputed that, on the day the Bank
entered receivership, neither Plaintiff had reached retirement age, as defined by the
Agreements. See (Doc. ## 30 at 2; 33 at 2). In addition to not having reached
retirement age, Plaintiffs’ respective separations from the Bank had yet to occur. The
circumstances of their respective separations determine not only the amount they would
be paid, but also, whether Plaintiffs would be paid at all. Consequently, neither prior to,
nor at the time of the receivership did the Bank have a current obligation to pay either
Plaintiff under the Agreements. Because the possibility of payment was based on
uncertain future events, the claims were contingent, even though they were otherwise
vested. Accordingly, Plaintiffs’ claims pursuant to the Agreements are “not provable
claims or actual, direct, compensatory damage claims against” the FDIC. 12 C.F.R.
§ 359.7; see Cross-McKinley, 2013 WL 870309, at *4; Erwin, 2013 WL 1811924, *4
(Subpart 359.7 “appears to settle the question of whether the FDIC is liable for
damages when it repudiates a severance agreement: it is not.”).
IV. CONCLUSION
Based on the foregoing, the Court hereby GRANTS the FDIC’s Motion for
Summary Judgment (Doc. # 30), and DENIES Plaintiffs’ Motion for Summary Judgment
(Doc. # 32). Accordingly, this case is DISMISSED WITH PREJUDICE, and the Clerk of
the Court shall enter judgment in favor of Defendant and against Plaintiffs. Pursuant to

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D.C.Colo.LCivR 54.1, Defendant may thereafter have its costs by filing a bill of costs
within 14 days of the date of that order. It is
FURTHER ORDERED that the final trial preparation conference, currently
scheduled for June 19, 2014, and the three-day jury trial, set to begin June 30, 2014,
are VACATED.
DATED: June

09 , 2014
BY THE COURT:

_______________________________
CHRISTINE M. ARGUELLO
United States District Judge

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