Von Rohr v. Reliance Bank et al

Filing 22

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that the decision of the FDIC that the contract damages plaintiff seeks would constitute a golden parachute payment requiring prior written approval from the FDIC is upheld. IT IS FURTHER ORDERED that plaintiffs motion for oral argument [Doc. #21] is denied. Signed by District Judge Carol E. Jackson on 5/20/2014. (KMS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
JERRY VON ROHR,
Plaintiff,
vs.
RELIANCE BANK and FEDERAL
DEPOSIT INSURANCE CORP.,
Defendants.

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Case No. 4:13-CV-232 (CEJ)

MEMORANDUM AND ORDER
This matter is before the Court for review of a decision by the Federal Deposit
Insurance Corporation (FDIC) regarding the application of golden parachute rules to
plaintiff’s breach of contract claim against his former employer, defendant Reliance
Bank. Plaintiff and the FDIC have submitted briefs on the issues.1 Plaintiff also moves
for oral argument. Because the issues presented can be resolved without additional
argument, that motion will be denied.
I.

Background2

On July 29, 1998, plaintiff Jerry Von Rohr and Reliance Bankshares, Inc.,
executed an employment agreement for plaintiff to serve as the chairman, president,
and chief executive officer of the bank, effective September 1, 1998. The term of the

1

Plaintiff filed suit on February 15, 2013, asserting a breach of contract claim and
seeking a declaration that his contract damages did not constitute a golden parachute
under federal law and regulations. At the parties’ request, the Court stayed the
proceedings so that plaintiff could exhaust his administrative remedies before the
FDIC. The parties filed the administrative record on October 31, 2013 and the stay
was thereafter lifted [Doc. ##8 and 10].
2

The parties have submitted the FDIC’s decision for review under the
Administrative Procedures Act, 5 U.S.C. §§ 701-06. Because the Court’s review is
limited to the administrative record (AR), the statement of facts is derived from
documents in that record.

original agreement was sixty calendar months, with one-year renewals thereafter
unless either party provided written termination notice at least sixty days before
September 1st of each year.

Employment Agreement, ¶3(a) (AR at p. 9).

On

September 1, 2001, plaintiff and Reliance Bank3 entered into the following amendment
to the employment agreement:
1.
Paragraph 3(a) of the Employment Agreement is amended in its
entirety to read as follows:
(a) Term of Employment. Effective September 1, 2001, the
period of Executive’s employment under this Agreement shall
continue for a period of thirty-six (36) full calendar months
thereafter. Commencing September 1, 2002, this Agreement shall
continue for consecutive three (3) year periods unless either party
terminates the same by giving written notice to the other not less
than sixty (60) days before September 1, each year. If notice of
termination is given as aforesaid, this Agreement shall continue for
the balance of the term herein provided and then will terminate at
the end thereof. . .
Amended Agreement, ¶1(a). All other terms of the original agreement remained in
effect. ¶2.
On June 16, 2011, Reliance Bank notified plaintiff in writing that it would not
renew the employment agreement and the agreement would terminate as of
September 1, 2011. The notice was “provided according to the terms contained in
Paragraph 1(a)” of the amended agreement. (AR at p.14). Plaintiff contested the
bank’s assertion that his term of employment ended on September 1, 2011, arguing
that it extended until September 1, 2012. (AR at p.23). He claimed that, as a result
of his premature termination, he was entitled to compensation for one year’s salary,
contributions to his retirement plan, and additional benefits. In July 2011, in response

3

Reliance Bankshares assigned the original employment agreement to Reliance
Bank. First Amendment to Employment Agreement (Amended Agreement) (AR at
p.13).
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to an inquiry from Reliance Bank, the FDIC stated that the requested payment
constituted a prohibited golden parachute which could not be paid unless Reliance Bank
submitted a golden parachute application certifying that plaintiff was not responsible
for the bank’s troubled condition. Reliance Bank did not file such an application. Id.
On October 28, 2013, Mark Moylan, deputy regional director for the FDIC’s
Division of Risk Management, issued a determination that the payment plaintiff seeks
are for services he did not render to a troubled institution.

The payment thus

constitutes a golden parachute under the Federal Deposit Insurance Act (FDIA), 12
U.S.C. § 1828(k)(4)(A) and the FDIC’s regulations, 12 C.F.R. § 359.1, and cannot be
paid without the FDIC’s prior written approval.
II.

Legal Standard

As a general rule, actions taken by federal administrative agencies are subject
to judicial review. See 5 U.S.C. § 706 (addressing scope of judicial review of agency
action). When reviewing agency action, courts accord “substantial deference to the
agency’s interpretation of the statutes and regulations it administers.” Friends of
Boundary Waters Wilderness v. Dombeck, 164 F.3d 1115, 1121 (8th Cir. 1999)
(citations omitted). The courts defer to the agency’s interpretation “so long as it is not
arbitrary, capricious, an abuse of discretion, or otherwise not supported by law.” Id.
(citation omitted). “Whether an agency’s action is arbitrary and capricious depends on
whether the agency has offered an explanation for its decision that runs counter to the
evidence before the agency, or is so implausible that it could not be ascribed to a
difference in view or the product of agency expertise.”

Id. (citations, internal

quotations, and alterations omitted). The court may not substitute its judgment for
that of the agency, South Dakota v. Ubbelohde, 330 F.3d 1014, 1031 (8th Cir. 2003),

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even if the evidence would have also supported the opposite conclusion. Harrod v.
Glickman, 206 F.3d 783, 789 (8th Cir. 2000). The plaintiff bears the burden of proving
that the agency’s action was arbitrary and capricious. South Dakota v. U.S. Dep’t of
Interior, 423 F.3d 790, 799-800 (8th Cir. 2005).
III.

Discussion

As a preliminary matter, the Court notes that plaintiff has conflated two statutes
that are administered by different agencies. In his complaint, plaintiff asks the Court
to declare that his compensation is not subject to the Troubled Asset Relief Program
(TARP), 12 U.S.C. §§ 5201 et seq. TARP is not administered by the FDIC but by the
Treasury Department, which is not a party to this action. See 12 U.S.C. § 5211(1)
(authorizing the Secretary of the Treasury to establish TARP). Regardless of this
confusion, the parties are in agreement that plaintiff may not recover the damages he
seeks if they constitute a golden parachute under the FDIC’s regulations. Thus, it is
appropriate for the Court to review the FDIC’s application of its governing statute and
regulations.
Section 18(k) of the Federal Depository Insurance Act (FDI Act), 12 U.S.C. § 12
U.S.C. § 1828(k)(4)(A), defines a golden parachute payment as:
any payment (or any agreement to make any payment) in the nature of
compensation by any insured depository institution . . . for the benefit of
any institution-affiliated party [IAP] pursuant to an obligation of such
institution . . .that—
(i) is contingent on the termination of such party’s affiliation with
the institution . . .; and
(ii) is received on or after the date on which . . . (III) the
institution’s appropriate Federal banking agency determines that
the insured depository institution in is a troubled condition.
12 U.S.C. § 1828(k)(4)(A).

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Section 18(k) also grants the FDIC the authority to “prohibit or limit, by
regulation or order, any golden parachute payment.” 12 U.S.C. § 1828(k)(1). Under
FDIC regulations, a “golden parachute payment” consists of:
a payment (or any agreement to make any payment) in the nature of
compensation by any [bank] . . . for the benefit of any current or former
[institution-affiliated party] IAP pursuant to an obligation of such [bank]
that
(i) Is contingent on, or by its terms is payable on or after, the
termination of such party’s primary employment or affiliation with
the [bank]; and
(ii) Is received on or after, or is made in contemplation of, any of
the following events:
***
(C) A determination by the [bank’s] . . .appropriate federal
banking agency . . . that the [bank] is in a troubled
condition, as defined in the applicable regulations of the
appropriate federal banking agency . . . and,
***
(iii) Is payable to an IAP whose employment by or affiliation with
[the bank] is terminated at a time when the [bank] by which the
IAP is employed is [in a troubled condition].
12 C.F.R. § 359.1(f)(1) (emphasis added).
The regulations define an “institution-affiliated party,” or IAP, as “[a]ny director,
officer, employee, or controlling stockholder (other than a depository institution holding
company) of, or agent for, an insured [bank].”

12 C.F.R. § 359.1(h)(1).

It is

undisputed that plaintiff is an institution-affiliated party within the meaning of the
regulation, and that the bank was in a troubled condition at the time of his termination.
The Act excludes from the definition of golden parachute payments made pursuant to
a qualified retirement plan or a bona fide deferred compensation plan, or by reason of
the death or disability of an employee. 28 U.S.C. § 1828(k)(4)(C).

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In making its determination, the FDIC examined the language of the statute and
implementing regulations; the parties’ positions regarding the employment contract;
and plaintiff’s arguments from case law.

(AR at pp.28-31).

Based on that

examination, the agency found that (1) the payment plaintiff seeks is in the form of
compensation to an IAP pursuant to a binding agreement; (2) it is contingent on, and
being paid after, the IAP’s termination; (3) the payment would be received after the
bank was deemed to be in a troubled condition; and (4) the IAP was terminated while
the bank was in a troubled condition. Based on these findings, the FDIC determined
that the contract damages plaintiff seeks constitute an impermissible golden parachute.
Plaintiff argues that the FDIC determination is arbitrary and capricious because
the payment he seeks is merely the compensation he would have received if he had
not been improperly terminated.

He argues that the payment is not a golden

parachute because it is not “contingent on . . . termination,” as required by 12 U.S.C.
§ 1828(k)(4)(A).

He acknowledges, however, that the implementing regulation

expands the statutory definition to include a payment that, “by its terms is payable on
or after, the termination” of an IAP’s employment. 12 C.F.R. § 359.1(f)(1)(i). There
is no contention that FDIC exceeded its authority when it defined golden parachutes
to include payments that are payable after termination. “It was . . . within the spirit
of § 18(k) for the FDIC to extend this protection to agreements to make payments that
are ‘payable after’ termination as well as to those that are ‘contingent on’ termination.”
Knyal v. Office of Comptroller of Currency, C 02-2851 PJH, 2003 WL 26465939 at *1415 (N.D. Cal. Nov. 25, 2003) (noting that legislative purpose of § 1828(k) is to prevent
terminated executives from draining funds from banks to detriment of shareholders or
regulatory agencies).

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Plaintiff argues that the regulation applies only to payments the parties agreed
in advance would be payable after termination. The damages he seeks, he argues, are
for compensation he is owed for the unexpired term of his contract which, “by its
terms,” was payable only before his termination. The FDIC considered plaintiff’s claim
that he was terminated before the contract expired:
It is irrelevant . . . when the contract would have expired by its own
terms. As soon as [plaintiff] was terminated and no longer providing
services to the institution, any subsequent payments in the form of
compensation would constitute golden parachute payments subject to
prior FDIC approval. (AR at p.30).
Plaintiff argues that his claim for damages is comparable to the damages in
Sterling Savings Bank v. Stanley, CV-12-214-EFS, 2012 WL 3643679 (E.D. Wash.
Aug. 23, 2012).

Sterling Savings Bank was a recipient of TARP funds when it

terminated the employment of senior executive Heidi Stanley. She alleged that the
termination was based on her gender and medical condition and filed suit in state
court. The bank sought a declaration in federal court that any discrimination award
Stanley won in the state action would constitute an impermissible golden parachute
under TARP statutes and regulations.
Unlike the present case, Sterling Savings did not involve judicial review of an
agency decision under the APA, and thus the court was not constrained by the
deferential standard of review that applies here. Quoting the relevant portion of the
TARP statute, the court defined a golden parachute payment as “any payment to a
senior executive officer for departure from a company for any reason, except for
payments for services performed or benefits accrued.” Sterling Savings at *2 (quoting
12 U.S.C. § 5221(a)(2)). The district court determined that “[a]n employee who is
fired as a result of her employer’s discriminatory conduct is not ‘departing’ from the

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employer as that term is” used in the TARP laws. Id. The employee would not have
departed but for the wrongful termination and a damages award is made to
compensate the employee who has been unable to continue receiving wages. Id. Put
another way, an award of lost wages in this circumstance “is essentially a payment for
services performed.” Id. at *3. The court concluded that, in passing the TARP laws,
“Congress did not intend to alter the right of a wrongfully-terminated senior executive
officer to recover actual damages for discrimination.”

Id. (citation and internal

quotation omitted).
In this case, the FDIC considered, and rejected, plaintiff’s contention that his
claim is analogous to that considered in Sterling Savings. Citing Keveney v. Missouri
Military Acad., 304 S.W. 3d 98, 102 (Mo. 2010) (en banc), the FDIC determined that
there is a fundamental difference between damages that may be recovered for a
termination arising from unlawful discrimination and a termination arising from breach
of an employment contract. (AR at pp.30-31). The Missouri Supreme Court stated:
An employee discharged in violation of an employment contract can
recover the amount of income he or she would have earned absent the
breach, less any income earned in the interim. If an employee is
discharged for refusing to violate a public policy requirement, a breach of
contract action satisfies private contractual interests but fails to vindicate
the violated public interest or to provide a deterrent against future
violations. When an employer’s actions violate not only the employment
contract but also clear and substantial public policy, the employer is liable
for two breaches, one in contract and one in tort. It follows that the
employer must bear the consequences of its actions.
Keveney, at 102-03 (internal quotations and citations omitted). The FDIC determined
that, unlike the wrongfully discharged employee in Sterling Savings, plaintiff is not
seeking damages for a separate wrong over and above those he seeks for his breach
of contract claim. The damages for the contract claim is the compensation to be paid

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to an IAP who was terminated while the bank was in a troubled condition and therefore
constitutes a golden parachute payment.
According the decision of the FDIC substantial deference, as it must, the Court
finds that plaintiff has not met his burden of showing the decision is arbitrary and
capricious. The FDIC has offered an explanation for its decision; that decision does not
run counter to the evidence before the agency; and is not so implausible that it could
not be ascribed to a difference in view or the product of agency expertise. Friends of
Boundary Waters, 164 F.3d at 1121. The FDIC’s explanation provides a “rational
connection between the facts, the regulation it needed to apply and the choice it
made.” Harrison v. Ocean Bank, No. 10-23138-CIV, 2011 WL 2607086 at *5 (S.D. Fla.
June 30, 2011) (FDIC was not arbitrary and capricious when it determined that
agreement between terminated executive and bank in settlement of whistle-blower and
Title VII claims constituted golden parachute payment).
Accordingly,
IT IS HEREBY ORDERED that the decision of the FDIC that the contract
damages plaintiff seeks would constitute a golden parachute payment requiring prior
written approval from the FDIC is upheld.
IT IS FURTHER ORDERED that plaintiff’s motion for oral argument [Doc. #21]
is denied.

___________________________
CAROL E. JACKSON
UNITED STATES DISTRICT JUDGE
Dated this 20th day of May, 2014.

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