Civ. A. No. 91-3426.
June 8, 1993.
Christine Carey Lilore, Sokol, Behot Fiorenzo, Hackensack, NJ, for plaintiff.
David L. Fox, Lane, Felcher, Kurlander Fox, P.C., New York City, for defendants.
This matter comes before the court on the motions of plaintiff Malcolm Marsa ("Marsa") and defendant Resolution Trust Corporation ("RTC") for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the following reasons, Marsa's motion is granted and the RTC's motion is denied.
The RTC was substituted as a defendant in this action by Order dated September 10, 1991.
I. Factual Background
The following facts are undisputed.
Plaintiff Marsa is the former President and Chairman/Chief Executive Officer of Metrobank for Savings F.S.B. ("Metrobank F.S.B.") and Metrobank Financial Group, Inc. ("Metrobank Financial") ("collectively Metrobank"). Marsa resigned from Metrobank on May 10, 1990 pursuant to a "Settlement Agreement and Release" ("Settlement Agreement") executed by the parties that same date.
At the time of his resignation, the terms of Marsa's employment with Metrobank were governed by an employment agreement, dated January 1, 1988 ("Employment Agreement"). The initial term of the Employment Agreement was to end December 31, 1992, at which time it was to be automatically renewed to December 1994. The Employment Agreement provided for a base salary of $270,000, plus fringe benefits. Including benefits, Marsa's total yearly earnings were approximately $400,000.
In 1989 and 1990, Metrobank suffered considerable losses. Specifically, the 1989 and 1990 Annual Reports for Metrobank Financial show a net income loss for the year ending December 31, 1989 of $20,493,000 and a net income loss for the year ending December 31, 1990 of $8,330,000. According to the Settlement Agreement, these losses prompted Metrobank to downsize its operations. As a result of the downsizing, Marsa's services were no longer needed and the parties entered into the Settlement Agreement, terminating Marsa's relationship with Metrobank.
According to the Settlement Agreement, Marsa had a claim under the Employment Agreement for approximately $1.8 million (four and one-half years remaining under the Employment Agreement x $400,000 per year) plus fringe benefits. Pursuant to the Settlement Agreement, the parties agreed to the following:
1) Marsa immediately resigned as an officer, director and employee of Metrobank and its subsidiaries:
2) The Employment Agreement was terminated and Marsa waived all future salary and benefits thereunder;
3) Marsa agreed to receive immediately, upon execution of the Settlement Agreement, a lump sum payment of $250,000, and an annual fee of $100,000, payable in monthly installments over the succeeding 4 years starting in 1991 and continuing to 1994. In addition, Marsa agreed to sign over all insurance benefits to Metrobank;
4) Marsa agreed that, upon the reasonable request of Metrobank, he would cooperate with Metrobank in connection with any matters pertaining to the business of Metrobank and/or in connection with any litigation against Metrobank; and
5) Marsa agreed to release Metrobank from any claims and rights against Metrobank, including any claims arising under the Employment Agreement.
The Settlement Agreement also provided as follows:
In the event any party fails to comply with or breaches any of its obligations under this Settlement Agreement, the other party shall have the right to bring an action against the defaulting party for enforcement of its or his obligations thereunder, and for direct and actual damages caused by such default.
The Settlement Agreement also provided that "[t]he prevailing party in any such action shall be entitled to an award of reasonable attorney's fees incurred in connection therewith." Id.
On June 14, 1991, thirteen months after the Settlement Agreement was executed, the Board of Directors of Metrobank F.S.B., by resolution, consented to the appointment of a conservator or receiver. On June 27, 1991, the Office of Thrift Supervision ("OTS") appointed the RTC as Receiver for Metrobank F.S.B. pursuant to Order No. 91-394 on the basis that the "OLD THRIFT [Metrobank F.S.B.] is in an unsafe and unsound condition to transact business due to having substantially insufficient capital, in that OLD THRIFT has tangible capital of only .8% and is failing all of its capital requirements. See Order No. 91-394. Pursuant to that same order, the OTS appointed the RTC as Conservator for Metrobank Federal Savings and Loan Association, the new thrift that was taking over the assets of Metrobank F.S.B. In addition, James P. Allen ("Allen") was appointed Managing Agent for Metrobank F.S.B.
On June 28, 1991, the RTC disaffirmed, in writing, both the Employment Agreement and the Settlement Agreement, relying on 12 U.S.C. § 1821(e)(1). Since the disaffirmance, Marsa has not received any monthly installments due under the Settlement Agreement. Accordingly, Marsa commenced this action in April 1991, seeking to recover the $400,000 he claims is still due him under the Settlement Agreement, as well as attorneys' fees and costs.
Marsa commenced the action in the Supreme Court of New Jersey. Law Division. Bergen County. On August 5, 1992, the RTC removed this action to the United States District Court for the District of New Jersey.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), and the regulations promulgated thereunder, confer broad powers on receivers and conservators of failed depository institutions, Gross v. Bell Sav. Bank, 974 F.2d 403, 407 (3d Cir. 1992), including the power to terminate contracts to which the failed institution is a party. The RTC relies on two sources for its disaffirmance of the Settlement Agreement between Marsa and Metrobank: 12 U.S.C. § 1821(e) and 12 C.F.R. § 563.39.
Marsa argues that the RTC did not have authority to repudiate the Settlement Agreement under either 12 U.S.C. § 1821(e) or 12 C.F.R. § 563.39 because his rights to payment under the agreement had vested. The RTC in turn, argues that it was indeed authorized to repudiated the Settlement Agreement pursuant to both 12 U.S.C. § 1821(e) and 12 C.F.R. § 563.39 and that Marsa's rights had not vested under the agreement. Inasmuch as the issues raised by these arguments present questions of statutory and contract interpretation, this matter appears ripe for disposition on summary judgement.
In its briefs, the RTC also argues that it properly repudiated the Employment Agreement between Marsa and Metrobank. Marsa however is claiming that he is entitled to benefits only under the Settlement Agreement. This court will therefore address Marsa's rights under that agreement only.
A. Standard for Summary Judgement
Summary judgment may be granted only if the pleadings, supporting papers, affidavits, and admissions on file, when viewed with all inferences in favor of the nonmoving party, demonstrate that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see Todaro v. Bowman, 872 F.2d 43, 46 (3d Cir. 1989); Chipollini v. Spencer Gifts. Inc., 814 F.2d 893, 896 (3d Cir.), cert. dism'd, 483 U.S. 1052, 108 S.Ct. 26, 97 L.Ed.2d 815 (1987). Put differently, "summary judgment may be granted if the movant shows that there exists no genuine issues of material fact that would permit a reasonable jury to find for the nonmoving party." Miller v. Indiana Hospital, 843 F.2d 139, 143 (3d Cir.), cert. denied, 488 U.S. 870, 109 S.Ct. 178, 102 L.Ed.2d 147 (1988). An issue is "genuine" if a reasonable jury could possibly hold in the nonmovant's favor with regard to that issue. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). A fact is material if it influences the outcome under the governing law. Id. at 248, 106 S.Ct. at 2510.
Within the framework set out above, the moving party essentially bears two burdens. First, there is the burden of production, of making a prima facie showing that it is entitled to summary judgment. This may be done either by demonstrating that there is no genuine issue of fact and that as a matter of law, the moving party must prevail, or by demonstrating that the nonmoving party has not shown facts relating to an essential element of the issue for which it bears the burden. Once either showing is made, this burden shifts to the nonmoving party who must demonstrate facts supporting each element for which it bears the burden as well as establish the existence of genuine issues of material fact. Second, there is the burden of persuasion. This burden is a stringent one which always remains with the moving party. If there remains any doubt as to whether a trial is necessary, summary judgment should not be granted. See Celotex Corp. v. Catrett, 477 U.S. 317, 330-33, 106 S.Ct. 2548, 2556-58, 91 L.Ed.2d 265 (1986); Advisory Committee's Notes on Fed.R.Civ.P. 56(e). 1963 Amendment; see generally C. Wright, A. Miller, M. Kane. Federal Practice and Procedure § 2727 (2d ed. 1983).
B. 12 C.F.R. § 563.39
Under 12 C.F.R. § 563.39(b)(5), all obligations under employment contracts between an insured institution and its employees are terminated by operation of law when the receiver determines that the institution is in an unsafe or unsound condition. See Rush v. Federal Deposit Ins. Corp., 747 F. Supp. 575, 577 (N.D.Cal. 1990). Rights that have already vested, however, will not be affected by termination of the contract. Id. ("Under Section 563.39(b)(5), rights that have vested prior to the regulation's triggering events are not terminated."). The regulation provides in relevant part:
The RTC also cites to 12 C.F.R § 563.39(a) which states in pertinent part: "A [savings] association shall not enter into an employment contract with any of its officers or other employees if such contract would constitute an unsafe or unsound practice. Subsection (b)(5), however, deals specifically with termination of employment contracts and is the provision directly applicable in this case. The case cited by RTC which applied subsection (a). Federal Sav. Loan Ins. Corp. v. Bass, 576 F. Supp. 348 (N.D.Ill. 1983), is inapposite to the facts of this case. In Bass, the FSLIC commenced an action to attack the validity of existing employment contracts, which the court properly examined in light of subsection (a) Bass did not involve the issue of whether an employee is entitled to benefits under a terminated employment agreement. This issue is appropriately resolved under subsection (b)(5)
It is undisputed that Metrobank was determined to be in an unsafe and unsound financial condition by the OTS. See Order No 91-394.
All obligations under the [employment] contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the institution . . . by the Director or his or her designee . . . when the association is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.12 C.F.R. § 563.39(b)(5).
Both Marsa and the RTC assume, without discussion, that the Settlement Agreement is an employment contract within the meaning of 12 C.R.F. § 563.39(b)(5). That the Settlement Agreement constitutes an employment contract is far from clear, however. The term "employment contract" is not defined in either the regulation or in the statute itself. Courts that have addressed the issue have relied on the definition contained in Black's Law Dictionary, which defines "employment contract" as "an agreement or contract between employer and employee in which the terms and conditions of one's employment are provided." Black's Law Dictionary (6th ed. 1990); see Rice v. Resolution Trust Corporation. 785 F. Supp. 1385, 1390 (D.Ariz. 1992), Fresca v. Federal Deposit Insurance Corporation. 818 F. Supp. 664, 667 (S.D.N.Y. 1993). In Rice the court held that a "Salary Continuation Agreement" constituted an employment contract within the meaning of 12 C.F.R. § 563.39(b)(5) because the agreement set forth the general terms and conditions of the plaintiff's employment and because it was the only agreement that governed the plaintiff's employment while he was at the bank. 785 F. Supp. at 1389-90. In contrast, in Fresca, the court suggested that an early retirement package did not constitute an employment contract because the agreement did not set out the terms of the plaintiff's employment and did not envision the plaintiff's continued employment. 818 F. Supp. at 667.
Similar to the agreement at issue in Fresca, the Settlement Agreement in this case does not set forth the conditions and terms of Marsa's employment. Rather, it terminated Marsa's employment and effectively replaced the agreement that governed the terms of Marsa's employment with Metrobank. I therefore find that the Settlement Agreement is not an employment agreement within the meaning of 12 C.F.R. § 563.39 and that, as a consequence, the RTC did not have authority pursuant to that regulation to terminate Marsa's agreement with Metrobank.
Even if the Settlement Agreement were interpreted as an employment contract governed by 12 C.F.R. § 563.39, I find that Marsa's rights to payment were vested at the time the RTC was appointed receiver and therefore could not be impaired by any purported disaffirmance. Rights under an agreement will be deemed vested if they are not subject to a condition precedent or, stated differently, are unconditional. See, e.g., Wilde v. First Federal Sav. Loan Ass'n of Wilmette, 134 Ill. App.3d 722, 89 Ill.Dec. 493, 480 N.E.2d 1236 (1985); Federal Sav. Loan Ins Corp. v. Quinn, 711 F. Supp. 366 (N.D.Ohio 1989), vacated on other grounds, 922 F.2d 1251 (6th Cir. 1991). For example, in Wilde, the plaintiff was discharged pursuant to 12 C.F.R. § 563.39(b)(5) and subsequently sued for severance benefits under an employment contract. The contract provided for benefits in the event the employee was terminated without cause. In denying benefits, the court reasoned that termination without cause was a condition precedent to vesting of the employment agreement, stating, "[a]s plaintiff's benefits are dependent upon the happening of a contingency — termination without cause — they do not `vest' until such contingency occurs." 89 Ill.Dec. at 499, 480 N.E.2d at 1242. Because the agreement expired by operation of law 12 C.F.R. § 563.39(b)(5) prior to the actual termination of the plaintiff's employment, vesting could not have taken place. Id. In Quinn, the plaintiff's employment contract also provided for benefits upon termination without cause. The court looked to caselaw under the Employee Retirement Income Security Act of 1974 ("ERISA") to determine the definition of vesting. Under ERISA, the term "vested" has been defined as an unconditional claim arising from a plan participant's service. Because the plaintiff's employment in that case was terminated by operation of law prior to the triggering event of "termination without cause," his right was conditional and, accordingly, not vested. 711 F. Supp. at 379. See also Rice, 785 F. Supp. at 1391 (following approach of Quinn and Wilde); Rush, 747 F. Supp. at 578 (same).
In this case, Marsa's rights to payment under the Settlement Agreement vested at the time he executed the agreement and resigned from Metrobank, over one year prior to the bank's takeover by the RTC and the RTC's disaffirmance of the Settlement Agreement. There was no condition precedent to receipt of the benefits under the Settlement Agreement. See Fresca, 818 F. Supp. at 667 (plaintiff's rights under retirement agreement vested at the time of her retirement from the company, which occurred prior to appointment of receiver); Rice, 785 F. Supp. at 1392 (noting, in dicta, that vesting would occur where employee had been terminated without cause prior to appointment of receiver).
The RTC argues, however, that under the Settlement Agreement, plaintiff had a continuing obligation to cooperate with Metrobank in future litigation or legal matters involving Metrobank. The RTC therefore concludes that Marsa's right to payment under the Agreement was conditional and therefore not vested. I disagree. There is nothing in the Settlement Agreement indicating that Marsa's right to payment was conditioned upon his cooperating with Metrobank in future litigation. Rather, Marsa's obligation to cooperate in litigation constitutes a promise or duty, not a condition precedent to Metrobank's obligation to make payment.
Condition precedents are disfavored by the courts. See Castle v. Cohen, 840 F.2d 173, 177 (3d Cir. 1988) ("Since the failure to comply with a condition precedent works a forfeiture, such conditions are disfavored."); Standefer v. Thompson, 939 F.2d 161, 164 (4th Cir. 1991) (law does not favor conditions precedent but court will construe contract as conditional if its "plain language" compels the court to do so); Byler v. Great American Ins. Co., 395 F.2d 273, 276 (10th Cir. 1968) (same); see also Restatement (Second) of Contracts, § 227, comment b ("When . . . it is doubtful whether or not the agreement makes an event a condition of an obligor's duty, an interpretation is preferred that will reduce the risk of forfeiture"). Thus, where the contract language is unclear, an obligation should be interpreted as a promise, rather than a condition precedent. See Castle, 840 F.2d at 177; see also Standard Oil Co. of California v. Perkins, 347 F.2d 379, 383 (9th Cir. 1965) ("a court will not imply that a covenant is a condition unless it clearly appears the parties so intended it"); Restatement (Second) of Contracts, § 227, comment d (there is a "preference for an interpretation that merely imposes a duty on the obligee to do the act and does not make the doing of the act a condition for the obligee's duty."). Here, the Settlement Agreement contains no language that even arguably makes Marsa's duty to cooperate in Metrobank litigation a condition precedent to Metrobank's duty to make payment. The contract language sets forth a list of mutual promises and no more. Indeed, the agreement expressly refers to the obligations undertaken by the parties as "mutual covenants and agreements." See Settlement Agreement at 2.