Gibson v. Resolution Trust Corp.

• Decision Date: 30 October 1990
• Docket Number: No. 90-0498-CIV.,90-0498-CIV.
• Parties: Thelma V.A. GIBSON, and Catherine H. Fahringer; and F. Lee Bailey, Richard E. Gerstein, Edward A. Carhart, Paul M. Rashkind, Ronald C. Dresnick, and Bonnie Rippingille, d/b/a Bailey Gerstein Carhart Rashkind Dresnick & Rippingille, Plaintiffs, v. The RESOLUTION TRUST CORPORATION, Centrust Bank, Centrust Federal Savings Bank, and Citibank, N.A. Defendants.
• Court: U.S. District Court — Southern District of Florida

750 F. Supp. 1565

Thelma V.A. GIBSON, and Catherine H. Fahringer; and F. Lee Bailey, Richard E. Gerstein, Edward A. Carhart, Paul M. Rashkind, Ronald C. Dresnick, and Bonnie Rippingille, d/b/a Bailey Gerstein Carhart Rashkind Dresnick & Rippingille, Plaintiffs, v. The RESOLUTION TRUST CORPORATION, Centrust Bank, Centrust Federal Savings Bank, and Citibank, N.A. Defendants.

No. 90-0498-CIV.

United States District Court, S.D. Florida.

October 30, 1990.

Richard E. Gerstein, Paul M. Rashkind, Bailey, Gerstein, Carhart, Rashkind, Dresnick & Rippingille, Ronald R. Ravikoff, Roberto Martinez, Zuckerman, Spaeder, Taylor & Evans, Miami, Fla., Peter R. Kolker, Blair G. Brown, Zuckerman, Spaeder, Taylor & Evans, Washington, D.C., for plaintiffs.

Maureen Donlan, Asst. U.S. Atty., U.S. Dept. of Justice, Miami, Fla.

Jose I. Astigarraga, Steel, Hector & Davis, Miami, Fla., for Citibank, N.A.

Thomas M. Lahiff, Jr., Citibank, N.A., Legal Dept., New York City.

Sanford L. Bohrer, Susan H. Aprill, Thomson, Muraro, Bohrer & Razook, P.A., Miami, Fla., for David Paul.

Alan Kluger, Kluger, Peretz, Kaplan & Berlin, Miami, Fla., for RTC.

MEMORANDUM OPINION AND ORDER REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT

MORENO, District Judge.

THIS CAUSE has come before the court upon cross-motions for summary judgment filed by the parties. Pursuant to Fed.R. Civ.P. 56, the plaintiffs, Thelma Gibson, Catherine H. Fahringer and the law firm of Bailey Gerstein Carhart Rashkind Dresnick & Rippingille moved for entry of judgment in their favor on Count I of the defendant's counterclaim and crossclaim.¹

Defendant/Counterclaimant, Resolution Trust Corporation ("RTC"), as Receiver for CenTrust Bank, a Florida State Savings Bank, and as Conservator for CenTrust Federal Bank, a Federal Savings Association, moved for summary judgment on each count of the complaint, seeking declaratory relief that it properly disaffirmed and repudiated an executory contract. The parties have fully briefed the motions and the Court has heard oral argument. The Court makes the following findings of fact and conclusions of law, granting summary judgment in favor of defendant RTC.

SUMMARY OF THE CASE

This case arises from the actions of the RTC, as Conservator of CenTrust, which, pursuant to the powers granted it by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), repudiated a contract between CenTrust and the Bailey Gerstein law firm. The contract allocated over $11 million dollars for the benefit of the former officers and directors of CenTrust to pay their legal fees and damages resulting from claims made against them connected with their management of the institution.

Pursuant to the terms of the contract, in the event CenTrust failed to indemnify an officer or director, the legal fees and damages of such an officer or director would be paid from the $11 million dollar fund allocated by the contract and held in an account controlled by the Bailey Gerstein law firm. Upon taking over CenTrust, RTC determined that the contract was burdensome and demanded return of the assets contained in the fund. Plaintiffs brought this action seeking declaratory relief under the contract creating the $11 million dollar fund.

UNDISPUTED FACTS

On August 21, 1986, CenTrust, a savings and loan association chartered under the laws of the State of Florida, entered into a contract (the "Indemnity Agreement") with the law firm of Sparber, Shevin, Shapo, Heilbronner & Book, P.A. which established a fund. The term "fund" was defined in the Indemnity Agreement as referring to cash and securities deposited into a designated bank account for use pursuant to the terms of the agreement. Plaintiff Fahringer was a member of the CenTrust Board of Directors at the time the Indemnity Agreement was executed. The Indemnity Agreement was first amended on January 8, 1987 and again on April 7, 1989. Plaintiff Gibson was elected to the Board of Directors in April 1987.

At the time of the second amendment on April 7, 1989, the Sparber Shevin law firm resigned as counsel and was replaced by the law firm of Squire, Sanders & Dempsey. On January 24, 1990, Squire, Sanders & Dempsey assigned its rights as a party to the Second Amended Agreement to the Bailey Gerstein law firm.

Under the Agreement, the Bailey Gerstein firm is authorized to provide legal representation to CenTrust's officers and directors if claims are made. The Bailey Gerstein firm is to bill CenTrust for the legal services on a monthly basis. If Cen- Trust fails to pay any statement within 75 days following receipt of the statement, the Bailey Gerstein law firm may charge against the Fund. The Agreement does not alter CenTrust's obligations to pay future legal fees for its officers and directors.

On February 2, 1990, the RTC was appointed Conservator of CenTrust pursuant to the Office of Thrift Supervision's Administrative Order No. 90-271. On February 4, 1990, the RTC, through its managing agent, Kurt Wierschem, disaffirmed and repudiated the Second Amended Agreement pursuant to Section 212(a), § 11(e) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). At the time of repudiation and disaffirmance of the Second Amended Agreement, the Fund contained in excess of eleven million dollars worth of assets.

CONCLUSIONS OF LAW

Fed.R.Civ.P. 56(c) provides that summary judgment shall enter if 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. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Plaintiffs and RTC have both moved for summary judgment, stipulating in their briefs and before this Court during oral argument, that the material facts are undisputed. The Court finds that there is no dispute as to the material facts. Summary judgment is therefore proper.

FIRREA provides that a conservator or receiver, in this case, the RTC, may "disaffirm or repudiate any contract or lease —

(A) to which such institution is a party;

(B) the performance of which the conservator or receiver, in the conservator's or receiver's discretion, determines to be burdensome; and

(C) the disaffirmance or repudiation of which the conservator or receiver determines, in the conservator's or receiver's discretion, will promote the orderly administration of the institution's affairs.

Financial Institutions Reform, Recovery, and Enforcement Act of 1989, P.L. 101-73, Section 212(a), § 11(e), 12 U.S.C. § 1821(e). The central issue before the Court then, is whether the RTC properly exercised its discretion in finding that the contract was burdensome and that repudiation would promote the orderly administration of CenTrust's affairs.

Plaintiffs advance six arguments as to why the Bailey Gerstein law firm should retain control of the Fund due to the RTC's improper repudiation of the Agreement, the most compelling of which is plaintiffs' claim that the contract is non-executory and therefore Section 212(a), § 11(e) of FIRREA is inapplicable.² The RTC asserts that the power of a conservator or receiver to disaffirm and repudiate burdensome contracts is not limited to executory contracts and the court need not determine whether the Second Amended Agreement is executory or non-executory. Notwithstanding this contention, the RTC maintains that the contract is executory and this fact alone provides ample grounds for disaffirmance and repudiation of the Second Amended Agreement.

RTC contends that any contract is subject to repudiation under § 212 of FIRREA. Plaintiffs argue that only executory contracts may be repudiated under the statute and concede that if the contract is executory, FIRREA applies and the RTC is empowered to disaffirm and repudiate the contract. Because the court finds that, as a matter of law, the contract is executory and clearly subject to repudiation, the court need not determine the issue as to the RTC's authority to repudiate non-executory contracts. The court finds that the Second Amended Agreement is an executory contract and thus RTC properly repudiated the contract pursuant to § 212 of FIRREA.

THE SECOND AMENDED AGREEMENT IS AN EXECUTORY CONTRACT.

The courts have yet to agree on a standard definition of the term "executory contract." However, the Supreme Court and each Circuit which has addressed the question directly, including the Eleventh Circuit, has found that reciprocal remaining obligations characterize an executory contract. See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 522, n. 6, 104 S.Ct. 1188, 1194, n. 6, 79 L.Ed.2d 482 (1984); In re Brada Miller Freight System, Inc., 702 F.2d 890, 894, n. 10 (11th Cir.1983).

The cornerstone of Plaintiffs' position is the contention that both CenTrust, by transferring the requisite assets and selecting counsel for the Fund, and its officers and directors, by providing their services, have fully performed under the Second Amended Agreement. Underlying this contention is the implication that the Second Amended Agreement is in effect a contract of indemnity between CenTrust and plaintiff officers and directors in exchange for the rendering of their services in managing the institution. Because plaintiffs have rendered their services, and performance is complete, Plaintiffs argue that the contract was non-executory at the time of the repudiation. Plaintiffs' argument is fatally flawed as the Second Amended Agreement clearly constitutes a contract between CenTrust and the Bailey Gerstein law firm for the prepayment of future legal services for the benefit of CenTrust's officers and directors.

The Second Amended Agreement consists of mutual promises between CenTrust and the Bailey Gerstein firm regarding the rendering of, and payment for, future legal services to CenTrust's officers and directors. Neither CenTrust nor the Bailey Gerstein firm has...