Home Sav. Bank, F.S.B. by Resolution Trust Corp. v. Gillam
| Decision Date | 31 December 1991 |
| Docket Number | No. 90-35765,90-35765 |
| Citation | 952 F.2d 1152 |
| Parties | HOME SAVINGS BANK, F.S.B., by its Conservator, the RESOLUTION TRUST CORPORATION, Plaintiff-Appellee, v. Robert B. GILLAM, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Thomas Amodio, Birch, Horton, Bittner Prestinger & Anderson, Anchorage, Alaska, for plaintiff-appellee.
Howard S. Trickey, Jermain, Dunnagan & Owen, Anchorage, Alaska, for defendant-appellant.
Appeal from the United States District Court for the District of Alaska.
Before TANG, REINHARDT and RYMER, Circuit Judges.
Robert Gillam is the former chief executive officer and major shareholder of the Home Savings Bank ("Bank"). In 1987, the financially-troubled Bank entered into a Capital Forbearance Agreement with the Federal Home Loan Bank Board ("FHLBB") designed to stem the flow of money out of the Bank. In May 1988, the Bank's Board of Directors created a legal indemnification fund for its officers by transferring $300,000 out of the Bank. The Board also voted generous severance payments for some of its officers, including a $177,000 severance benefit for Gillam. The Resolution Trust Corporation ("RTC"), as conservator of the Bank, subsequently sued Gillam to recover the severance benefits paid to him upon his resignation and opposed Gillam in an interpleader action contesting control over the legal indemnification fund. The district court granted summary judgment for the RTC, ordering Gillam to return the $177,000 and awarding the legal indemnification fund to the RTC. The district court also granted the RTC pre-judgment and post-judgment interest and attorney's fees. Gillam appeals. We reverse the award of attorney's fees. We affirm all other aspects of the district court's judgment.
The Bank is a state-chartered, federally insured savings and loan institution. The Bank began experiencing financial trouble, specifically a significant reduction in its capital structure, in 1986. In an effort to avoid a takeover by the FHLBB for violation of federal minimum capital requirements, see 12 C.F.R. § 563.13, the Bank submitted a proposed Capital Forbearance Agreement to the FHLBB in July 1987. Three months later, in anticipation of finalizing the Forbearance Agreement, the Bank's president, Joseph Miller, engineered a change in the personnel manual's salary and benefit provisions. The district court found that Miller made the changes to preserve management discretion in personnel matters.
The Bank and the Federal Savings and Loan Insurance Corporation ("FSLIC") signed the Forbearance Agreement in December 1987. The four-year agreement imposed strict federal supervision over many aspects of the Bank's daily operations. Large transfers of money out of the Bank, whether as loans, investments, dividends, or new compensation, required prior notification to, and a statement of no objection by, FSLIC.
The agreement further provided that, notwithstanding FSLIC's active supervisory role in the Bank's affairs, "the board of directors of the Bank shall at all times continue to have ultimate responsibility for the safe and sound management of the Bank." FSLIC reserved the right to terminate the Agreement if the Bank either failed to adhere to the terms of the Agreement or engaged in any unsafe or unsound practices.
Of particular relevance to the current litigation is section 16 of the Forbearance Agreement, which regulates compensation terms. Section 16.1 reads:
The Bank ... without prior written notice of no objection by the [FSLIC] Supervisory Agent, shall not:
A. make any increase in the rate of compensation to any of its directors, or senior officers, or agree to do so;
* * * * * *
C. employ any person to serve as a senior officer who is not so employed or appointed as of the date of this Agreement; employ any person pursuant to an agreement that is not terminable at the will of the employer; or enter into, or amend or renew any new collective bargaining agreements, pension or profit sharing, bonus, severance pay, retirement, fringe benefit, or other employee benefit plans, or other employment contract with any employee, director, or officer, or amend any such contracts that By early 1988, the Bank was losing approximately $250,000 a month. The staggering losses fueled concern among the officers and directors about their potential personal liability in litigation arising from the Bank's financial woes. Efforts to obtain officers and directors insurance proved unfruitful. About the same time, the Board also began investigating ways to provide special severance benefits to certain key personnel such as Gillam and Miller.
are presently binding on the employer....
A special meeting of the Board was convened in May. Noting that "time is of the essence," the Board approved new severance benefits for top officers and directors. The package guaranteed Gillam a year's salary, a car allowance, and insurance benefits. The Board also approved the creation of a legal indemnification fund. To this end, the Board ordered the transfer of $300,000 to the Jim Stanley Corporation, where attorney Jim Stanley would administer the fund. An indemnification committee, consisting of Gillam, Miller, and two others, was granted irrevocable control over the fund.
When FSLIC learned of the Board's actions, its supervising agent for the Bank, Collin Cook, immediately protested. Cook advised the Board that the severance payment plan violated the prohibition in section 16.1 of the Forbearance Agreement against the unilateral creation of new severance benefits. The severance plan, Cook also asserted, lacked a justifiable business purpose. Cook characterized the transfer of $300,000 out of the Bank to create a legal indemnification fund as imprudent, in light of the Bank's precarious financial condition, and a thinly veiled attempt to establish a preference for the officers and directors over other Bank creditors. Cook demanded the return of the $300,000 and suspension of the new severance plan.
When the Board repeatedly refused to comply with Cook's requests, FSLIC demanded and obtained the resignations of Gillam and Miller. Gillam then collected $177,480 in severance benefits. Other high-level bank officials also resigned and received benefits under the newly enacted severance plan, costing the Bank $281,980.
In August 1988, new counsel for the Bank wrote to Gillam and demanded return of the severance benefits. Gillam refused. A new Board of Directors for the Bank also instructed Stanley Corporation to return the $300,000 legal indemnity fund. The Corporation did not comply. Gillam and Miller separately requested that the Stanley Corporation pay the $300,000 to their attorneys to cover their impending legal expenses. Faced with these competing demands, the Stanley Corporation filed an interpleader action, 28 U.S.C. § 1335, in federal district court.
The Bank filed a separate action against Gillam, Miller, and others in state court seeking to recover the severance payments. Miller subsequently removed the action to federal district court. 28 U.S.C. § 1441. In December 1989, the interpleader and severance benefits actions were consolidated.
In the meantime, the Bank's finances continued to falter. FSLIC was appointed conservator for the Bank in March 1989. In January 1990, the district court substituted the RTC for the Bank in both cases.
In July 1990, the district court granted summary judgment to the RTC in both the interpleader legal indemnification fund action and the suit to recover severance payments. With respect to the indemnification fund, the district court noted that nothing in Alaska law mandated the creation of external, irrevocable indemnification funds. "[C]reation of any external fund prior to the commencement of litigation," the court emphasized, was unusual. The Board's failure to seek prior approval from FSLIC for this action, the district court continued, violated the Forbearance Agreement. More specifically, the district court ruled that "the legal indemnity fund constituted an impermissible 'fringe benefit' within the meaning of Section 16.1 of the forbearance agreement." The district court then imposed a constructive trust on the funds held by the Stanley Corporation and ordered The district court turned next to the severance payments and held that "the directors were even less justified in that action." Creating new severance benefits "resulted in precious funds being transferred out of the Bank at a critical time." Establishing the plan and disbursing funds without seeking FSLIC's prior approval, the district court held, "violated both the letter and the spirit of the forbearance agreement." The district court concluded that Gillam had been unjustly enriched by the severance payments and, accordingly, imposed a constructive trust on the money and ordered it refunded to the RTC.
their return, with interim interest, to the RTC.
In October 1990, the district court entered a separate order on the RTC's request for pre- and post-judgment interest and attorney's fees. The court awarded post-judgment interest and costs against Gillam in accordance with 28 U.S.C. §§ 1920, 1961.
Observing that federal common law on attorney's fees and pre-judgment interest had not yet developed, the court turned to Alaska law for guidance. The court awarded pre-judgment interest to the RTC at a rate of 10.5 percent annually, finding that it "is the policy of the State of Alaska that interest ... be payable 'on money after it is due.' "
The district court also followed Alaska's "English Rule" on awards of attorney's fees, which provides for the routine award of at least partial fees in civil cases. Alaska Civil Rule 82. The court accordingly ordered Gillam and Miller to pay attorney's fees for both the interpleader and severance payment actions.
Gillam timely noticed his appeal to this court. 1
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