Resolution Trust Corp. v. MacKenzie, s. 738

• Decision Date: 24 July 1995
• Docket Number: D,Nos. 738,798,s. 738
• Citation: 60 F.3d 972
• Parties: RESOLUTION TRUST CORPORATION, as Conservator for Columbia Banking Federal Savings and Loan Association, Plaintiff-Appellee, v. William B. MACKENZIE and Ronald H. Timms, Defendants-Appellants. ockets 94-7674, 94-7684.
• Court: U.S. Court of Appeals — Second Circuit

Page 972

60 F.3d 972

RESOLUTION TRUST CORPORATION, as Conservator for Columbia Banking Federal Savings and Loan Association Plaintiff-Appellee, v. William B. MACKENZIE and Ronald H. Timms, Defendants-Appellants.

Nos. 738, 798, Dockets 94-7674, 94-7684.

United States Court of Appeals Second Circuit.

Argued Jan. 11, 1995.

Decided July 24, 1995.

Fred G. Aten, Jr., Rochester, NY (Harter, Secrest & Emery, Rochester, NY), for plaintiff-appellee.

William G. Bauer, Rochester, NY (Woods, Oviatt, Gilman, Sturman & Clarke, Rochester, NY), for defendant-appellant William B. MacKenzie.

Jeffrey M. Wilkens, Rochester, NY (Osborn, Reed, Burke & Tobin, Rochester, NY), for defendant-appellant Ronald H. Timms.

Before: KEARSE, McLAUGHLIN and PARKER, Circuit Judges.

PARKER, Circuit Judge:

This case concerns an interpleader action brought by Norstar Trust Company ("Norstar") to determine the ownership of certain assets it held as a third-party trustee. The assets in question are funds deposited as part of two deferred executive compensation plans ("Plan assets") by Columbia Banking Federal Savings and Loan Association ("Columbia") for several of its executives. Two former Columbia executives, William B. MacKenzie, formerly President and Chief Executive Officer of Columbia ("MacKenzie"), and Ronald H. Timms, former Senior Vice President of Columbia ("Timms"), seek payment from the Plan assets under the terms of Norstar's trust agreement with Columbia. The Resolution Trust Corporation ("RTC"), in its role as successor to and Receiver for Columbia, seeks possession of the Plan assets to resolve claims by Columbia's creditors.

MacKenzie originally brought suit in state court against Norstar seeking disbursement of his share of the Plan assets on July 19, 1991. MacKenzie alleged that Norstar had breached its fiduciary duties and contractual obligations as Trustee of the Plan assets in failing to disburse MacKenzie's share of those assets upon his request. Norstar commenced an interpleader action by way of a counterclaim against MacKenzie and a third-party complaint against RTC and Timms as well as several other potential beneficiaries of Columbia's executive compensation plans. Timms and RTC filed answers to Norstar's third-party complaint. On November 6, 1992, RTC removed the case to the United States District Court for the Western District of New York pursuant to 12 U.S.C. Sec. 1819(b)(2)(B). RTC further asserted several counterclaims and cross-claims against Norstar, MacKenzie and Timms. At the conclusion of discovery, Timms, MacKenzie and RTC each moved for summary judgment.

On October 18, 1993, Judge Larimer issued a Decision and Order granting RTC's motion for partial summary judgment, denying MacKenzie's and Timms' respective motions for summary judgment, and directing Norstar to transfer the Plan assets to RTC. Timms and MacKenzie seek to have the District Court ruling reversed and an order granting their respective motions for summary judgment entered by this court.

Summary judgment is appropriate where the record, as a whole, shows that there is "no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). We review a district court's grant of summary judgment de novo, viewing the evidence "in a light most favorable to ... the non-moving party, and draw[ing] all reasonable inferences in his favor." Aslanidis v. United States Lines, Inc., 7 F.3d 1067, 1072 (2d Cir.1993).

Background

The material facts in this matter are undisputed. In 1985, Columbia's Board of Directors created two deferred executive compensation plans, the Golden Retention Plan and Executives' Deferred Compensation Plan. Under the Golden Retention Plan, covered employees were assigned "minimum target benefits" in addition to their regular annual salaries, and periodic contributions were made on behalf of each covered employee into their individual accounts ("Plan accounts") within the Golden Retention Plan asset corpus. These contributions were scheduled to reach the minimum target benefits for each covered employee over a period of ten years. MacKenzie's minimum target benefit was set at $1,000,000 and Timms' at $500,000.

The Executives' Deferred Compensation Plan merely provided Columbia executives the option of electing to defer receipt of a portion of their regular annual salaries, presumably for tax purposes. Like the Golden Retention Plan, the Executives' Deferred Compensation Plan also maintained all Plan assets in a single asset corpus. However, for bookkeeping purposes, each individual's share of that corpus was described as a separate Plan "account".

To maximize employee compensation, both the Golden Retention Plan and the Executives' Deferred Compensation Plan (collectively "the Plans") were structured consistent with having their Plan assets deposited in irrevocable grantor trusts. In this instance, Columbia deposited the assets from the two Plans in two grantor trusts, created on the same day through two identical grantor trust agreements (collectively "the Grantor Trust Agreement"), to be administered by Norstar.

Grantor trusts confer favorable tax treatment to the trust grantee--in this case the covered employees--by maintaining the trust as an asset of the employer at all times during its existence. 26 U.S.C. Sec. 671. As such, the employer pays whatever taxes are due on any income generated by the trust and all post-tax income accrues to the trust for the employee's benefit. In this way, the employee defers individual tax liability on his allocated share of the trust assets while trust income accrues.

However, because the trust assets are considered assets of the employer, they remain available to the employer's general creditors in the event of insolvency. Both Plans and the Grantor Trust Agreement state this fact. Section 9 of the Golden Retention Plan provides:

Notwithstanding the creation of the trust ... the contributions of [Columbia], and earnings thereof, irrespective of their allocation to the Employee's Account, shall at all times remain subject to the claims of the general creditors of [Columbia], should such disposition be directed by a court of competent jurisdiction.

Section 4(B) of the Executives' Deferred Compensation Plan provides:

[Columbia's] obligation to pay the Participant Compensation deferred under the Plan is and shall at all times remain a general unsecured obligation of [Columbia]. Title and beneficial ownership of any assets, whether cash or investments, contained in the Deferred Compensation Account is and shall at all times remain in [Columbia]. The Participant and/or his designated beneficiary will not have any property interest in such assets.

Similarly, Section 2.8 of the Grantor Trust Agreement entered into by Columbia and Norstar provides for the protection of Columbia's general creditors at the potential expense of the covered employees in the event of Columbia's insolvency:

The Chief Executive Officer and the entire Board of Directors shall advise the Trustee as soon as administratively practicable of any event or condition that portends [Columbia's] impending bankruptcy or insolvency (i.e., [Columbia's] inability to meet its current obligations). Immediately upon receipt of such notice, the Trustee shall cease all benefit payments to [covered employees] and beneficiaries and shall thereafter distribute Trust Fund assets only in accordance with judicial direction. Upon [Columbia's] bankruptcy or insolvency, the rights of [covered employees] and beneficiaries to Trust assets shall not be any greater ... than the rights of [Columbia]. In the event of [Columbia's] bankruptcy or insolvency the Trust's assets shall be subject to the claims of [Columbia's] creditors. Nothing in this Section specifically, or the Agreement generally, shall give [Columbia's] creditors any claim against Trust Fund assets prior to [Columbia's] bankruptcy or insolvency.

Under both Plans, an employee's share of the Plan assets was to be disbursed upon that employee's death, disability or termination. In the event of death or disability, the Golden Retention Plan provided that the employee, or his or her beneficiary, would receive 100% of the amount credited to the employee's Plan account at that time. Similarly, if an employee stopped working for Columbia more than five years after commencement of a Golden Retention Plan account for that employee, he or she would receive 100% of the amount credited to his or her Plan account at that time, subject to certain exclusions if the termination was involuntary. However, if an employee stopped working for Columbia prior to the five-year anniversary of commencement of his or her Golden Retention Plan account, that employee would not be entitled to any of the Plan assets. Because the Executives' Deferred Compensation Plan deferred salary income which had already been earned, that Plan made no distinction between voluntary termination, involuntary termination and death, nor did it require a specific period of service prior to disbursement.

Columbia's Board of Directors created both Plans in December 1985. The Golden Retention Plan Agreement designated January 1, 1986 as the commencement date of Golden Retention Plan accounts for both MacKenzie and Timms. On March 13, 1989 Columbia's Board of Directors voted to transfer the Plan assets, under both the Golden Retention Plan and the Executives' Deferred Compensation Plan to a third-party trustee. On September 28, 1989, the Grantor Trust Agreement was executed between Columbia and Norstar. On January 1, 1991, while still employed by Columbia, both MacKenzie and Timms reached their five-year anniversary of commencement under the Golden Retention Plan. Therefore, according to the terms of the Golden Retention Plan, both MacKenzie and Timms were entitled to 100% of the amount credited to their respective Plan accounts, upon death, disability, or...