BBX Capital v. Fed. Deposit Ins. Corp, No. 19-11172

• Decision Date: 07 April 2020
• Docket Number: No. 19-11172
• Citation: 956 F.3d 1304
• Parties: BBX CAPITAL, f.k.a. Atlantic corp, Inc., Plaintiff - Appellant, v. FEDERAL DEPOSIT INSURANCE CORP, in its corporate capacity, Board of Governors of the Federal Reserve Board, Defendants - Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

956 F.3d 1304

BBX CAPITAL, f.k.a. Atlantic corp, Inc., Plaintiff - Appellant,

v.FEDERAL DEPOSIT INSURANCE CORP, in its corporate capacity, Board of Governors of the Federal Reserve Board, Defendants - Appellees.

No. 19-11172

United States Court of Appeals, Eleventh Circuit.

April 7, 2020

Grace Lee Mead, Eugene E. Stearns, Jenea M. Reed, Stearns Weaver Miller Weissler Alhadeff & Sitterson, PA, Miami, FL, for Plaintiff - Appellant

Duncan Stevens, Erik Bond, Sarah E. Faust, Federal Deposit Insurance Corporation, Appellate Litigation - Legal Division, Arlington, VA, for Defendant - Appellee FDIC Corp.

Joshua Paul Chadwick, Christopher John Becker, Board of Governors of the Federal Reserve System, Washington, DC, for Defendant - Appellee Board of Governors of Federal Reserve Board

Before ROSENBAUM, JILL PRYOR, and BRANCH, Circuit Judges.

PER CURIAM:

This case concerns severance payments that Plaintiff-Appellant BBX Capital ("BBX") seeks to make to five former executives of Atlantic (the ""), a federally insured savings that BBX's predecessor-in-interest, Atlantic Bancorp Inc. ("Bancorp"), used to own. Those severance payments were part of a 2011 Stock Purchase Agreement (the "SPA") that sold the to BB&T Corporation ("BBT"). At that time, however, the was operating in a "troubled" condition, and both the and Bancorp were operating under consent orders that prohibited them from making any so-called golden parachute payments absent approval by the Federal Reserve Board (the "FRB") and concurrence by the Federal Deposit Insurance Corporation (the "FDIC"; together with the FRB, the "agencies"). The SPA also called for BBT to reimburse BBX for any severance payments made to the executives.

After the sale of the was finalized, the FDIC notified BBX that it considered the severance payments to be golden parachute payments and that it would approve payments of only twelve months of salary to each executive, significantly less than what the SPA called for. The FDIC also concluded that BBT was required to seek and receive approval before making the reimbursement payments to BBX. Subsequently, the FRB approved the same payment amounts but took no action with respect to approving any payments over 12 months of salary because the FDIC had already prohibited any additional payments.

BBX then filed this action claiming that the agencies’ decisions were arbitrary and capricious and violated due process. The district court dismissed BBX's action against the FRB for lack of standing because FRB had not injured BBX, and the court granted summary judgment in favor of the FDIC. BBX now appeals. After careful review of the record and the briefs, we affirm.

I.

A. Legal Framework

In 1990, Congress added Section 1828(k) to Title 12. That section provides that "the [FDIC] may prohibit or limit, by regulation or order, any golden parachute payment or indemnification payment" to institution-affiliated parties ("IAPs"), including "any director, officer, [or] employee" of the insured bank. 12 U.S.C. §§ 1828(k), 1813(u). As relevant here, "golden parachute payment" means the following:

(A) [A]ny payment (or any agreement to make any payment) in the nature of compensation by any insured depository institution or covered company for the benefit of any institution-affiliated party pursuant to an obligation of such institution or covered company that—

(i) is contingent on the termination of such party's affiliation with the institution or holding company; and--

(ii) is received on or after the date which—

...

(III) the institution's appropriate Federal banking agency determines that the insured depository institution is in a troubled condition ...

12 U.S.C. § 1828(k)(4)(A).

The FDIC's implementing regulations define "golden parachute" in a largely similar manner. See 12 C.F.R. §§ 359.0, 359.1(f). Notably, the regulations define "payment," which is incorporated by the golden parachute payment definition, to include "[a]ny direct or indirect transfer of any funds[.]" Id. § 359.1(k)(1).

The regulations also set forth the process by which a covered company can seek and receive approval to make golden parachute payments. A covered company that intends to make a golden parachute payment must file an application with the FDIC and with its primary federal regulator, in this case the FRB. See 12 U.S.C. § 1813(q)(3)(F) ; 12 C.F.R. §§ 303.244, 359.4(a)(1), 359.6. A golden parachute payment is prohibited unless excepted. 12 U.S.C. § 1828(k)(1) ; 12 C.F.R. § 359.2.

To gain regulatory approval to make a golden parachute payment, the applicant must first "demonstrate" and "certify" that it is not aware of any reason to believe the IAP (i) has "committed any fraudulent act or omission, breach of trust or fiduciary duty, or insider abuse," (ii) was "substantially responsible" for the institution's troubled condition, or (iii) has "violated any applicable Federal or State ing law or regulation." 12 C.F.R. § 359.4(a)(4)(i)-(iii) ; see also 18 U.S.C. § 1828(k)(2). The contents of that certification are not at issue here, but, significantly, only if the applicant demonstrates that the IAP satisfies those requirements will the IAP be eligible to receive a golden parachute payment. 12 C.F.R. § 359.4(a)(4)(i)-(iii).

If that threshold certification requirement is satisfied, then the regulations provide for three categories of permissible payments, only two of which are relevant here: the "regulator's-concurrence exception" and the "change-in-control exception." Id . §§ 359.4(a)(1), (3).¹ The regulator's-concurrence exception permits a golden parachute payment if "[t]he appropriate federal ing agency, with the written concurrence of the [FDIC], determines that such a payment or agreement is permissible[.]" Id . § 359.4(a)(1). The change-in-control exception permits a "reasonable severance payment, not to exceed twelve months salary," "in the event of a[n] [unassisted] change in control of the insured depository institution," provided that the institution first "obtain[s] the consent of the appropriate federal ing agency[.]" Id . § 359.4(a)(3).

In determining whether to permit a payment under one of the listed exceptions, § 359.4(b) provides that the FDIC and the FRB "may consider" the following factors:

(1) Whether, and to what degree, the IAP was in a position of managerial or fiduciary responsibility;

(2) The length of time the IAP was affiliated with the insured depository institution or depository institution holding company, and the degree to which the proposed payment represents a reasonable payment for services rendered over the period of employment; and

(3) Any other factors or circumstances which would indicate that the proposed payment would be contrary to the intent of section 18(k) of the Act or this part.

12 C.F.R. § 359.4(b)(1)-(3).

B. Factual Background

In 2011, Bancorp sought to sell the Bank, which it owned entirely, to BBT under the SPA. The SPA provided that, upon closing, Bancorp would be obligated to make severance payments to, as relevant here, five executives (the "Proposed Payments"), and BBT would reimburse BBX for those payments.² Those Proposed Payments were significantly greater than each executive's average salary over the prior years.

In the wake of the 2008 Great Recession, however, both Bancorp and the had been deemed to be, and remained in 2011, in "troubled condition," were covered companies, and were operating under public consent orders that, among other things, prohibited the making of any golden parachute payments unless Bancorp complied with the FDIC's corresponding regulations. In addition, BBT's acquisition of the and Bancorp's merger with BBX, under the SPA, required regulatory review and approval. To expedite that approval process, Bancorp agreed that it would not make the Proposed Payments without either a determination by both the FDIC and the FRB that the payments were not golden parachutes, or FRB and FDIC approval of the payments. BBT agreed to the same conditions with respect to its reimbursement payments. The sale of the to BBT closed on July 31, 2012, with the non-objection of the FDIC and the FRB.

The following year, the FDIC notified BBX that the proposed severance payments (and any reimbursements) were golden parachutes that could not be made without FRB approval and FDIC concurrence. With respect to two of the executives, DeVaux and McClung, the FDIC found that though those executives had previously executed severance agreements in 1999 and 2001, respectively, the Proposed Payments set forth in the SPA replaced payments due under the earlier agreements.³ Finally, the FDIC determined that the reimbursement payments from BBT to BBX also constituted indirect golden parachute payments and therefore required approval.

In September 2013, BBX submitted its applications to make the Proposed Payments to each of the executives but also reaffirmed its disagreement about the applicability of the golden parachute provisions.

The FDIC issued its decisions in January 2018. It first confirmed that the Proposed Payments were subject to the golden parachute regulations. Quoting the preamble to its golden parachute regulations, the FDIC noted that § 1828(k)(4)(A)(ii) "provides that any payment which is contingent on the termination of an IAP's employment and is received on or after an institution or holding company becomes troubled is a prohibited golden parachute. If this payment is prohibited under the prescribed circumstances, it is prohibited forever." So changes to the corporate structure—that is, BBT's purchase of the and BBX's exit from the ing industry—did not change the applicability of the restrictions.

In addition, the FDIC determined that BBX is subject to golden parachute regulations as a "covered company" for the purposes of the Proposed Payments. And even if BBX were not a covered company, the Proposed Payments would still be subject to the golden parachute restrictions because they arose from the executives’ employment at Atlantic and Bancorp and...