Bunn v. Fed. Deposit Ins. Corp.

• Decision Date: 08 November 2018
• Docket Number: No. 18-1907,18-1907
• Citation: 908 F.3d 290
• Parties: James R. BUNN, Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver FOR VALLEY BANK ILLINOIS, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

908 F.3d 290

James R. BUNN, Plaintiff-Appellant,

v.FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver FOR VALLEY BANK ILLINOIS, Defendant-Appellee.

No. 18-1907

United States Court of Appeals, Seventh Circuit.

Argued October 31, 2018

Decided November 8, 2018

Stephen T. Fieweger, Esq., Attorney, STEPHEN T. FIEWEGER, P.C., Davenport, IA, Jack A. Schwartz, Attorney, Rock Island, IL, James R. Bunn, Pro Se, for Plaintiff - Appellant.

John W. Guarisco, Attorney, FEDERAL DEPOSIT INSURANCE CORPORATION, Legal Division, Appellate Litigation Unit, Arlington, VA, Antony S. Burt, Attorney, SCHIFF HARDIN LLP, Chicago, IL, for Defendant - Appellee.

Before Flaum, Easterbrook, and Brennan, Circuit Judges.

Flaum, Circuit Judge.

After its appointment as receiver for Valley Bank Illinois ("Valley Bank"), the Federal Deposit Insurance Corporation ("FDIC") disaffirmed a benefits agreement between Valley Bank and James Bunn, a bank executive. Bunn sued the FDIC to recover a "change of control termination benefit" he claims he is entitled to receive pursuant to this agreement. The district court granted summary judgment to the FDIC because it determined the benefit Bunn seeks is a "golden parachute payment" prohibited by federal law. We affirm.

I. Background

A. Factual Background

James Bunn worked for Valley Bank as Executive Vice President from 2001 until the bank’s failure on June 20, 2014. He also served as the bank’s Director beginning in 2008 or 2009. During Bunn’s employment, Valley Bank was an FDIC-insured, state-chartered nonmember bank regulated by both the FDIC in its corporate capacity ("FDIC-C") and the Illinois Department of Financial and Professional Regulation ("IDFPR").

1. The Salary Continuation Agreement

In 2003, Valley Bank entered into a Salary Continuation Agreement (the "Agreement") with Bunn "to provide salary continuation benefits to [Bunn] that are payable from [Valley Bank’s] general assets for the purpose of encouraging [Bunn] to remain an employee of [Valley Bank]." After amending and restating the document in 2005 and 2008, the parties signed the operative version of the Agreement on July 22, 2008.

In this Agreement, Valley Bank agreed to provide Bunn with certain termination benefits in the event Bunn "ceases to be employed by [Valley Bank] for any reason, voluntary or involuntary." The Agreement provides for benefits to Bunn in various scenarios, including the event of his death, normal retirement, early termination before retirement, disability, and termination after a "change of control" in Valley Bank’s ownership.

The "change of control" termination benefit is the only potential benefit provision that is relevant to this appeal. According to this provision, if Valley Bank terminated Bunn’s employment "within twelve months of a Change [of] Control, for reasons other than death, Disability, or retirement," then Bunn was entitled to receive from Valley Bank "the dollar amount equal to the liability accrued on the books of [Valley Bank] at the effective time of closing of said Change of Control, which shall be reported to [Bunn] on an annual basis by [Valley Bank]."¹

The Agreement provides that a "change of control" triggering Bunn’s entitlement to this benefit would occur upon "either a change in the ownership of [Valley Bank]’s capital stock ... or the sale or other disposition of substantially all of [Valley Bank]’s assets." Bunn would be entitled to payment of this benefit within sixty days following his termination under such circumstances.

Valley Bank purchased two life insurance policies, one from Massachusetts Mutual Life Insurance Company and one from New York Life Insurance and Annuity Corporation, for which Bunn was the named insured. Valley Bank retained ownership of these policies but, according to Bunn, Valley Bank purchased these policies for the express purpose of funding the Agreement. The Agreement references the existence of such policies:

[Bunn] and beneficiary are general unsecured creditors of [Valley Bank] for the payment of benefits under this Agreement. The benefits represent the mere promise by [Valley Bank] to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on [Bunn]’s life is a general asset of [Valley Bank] to which [Bunn] and beneficiary have no preferred or secured claim.

The Agreement further provides that Bunn’s "rights and the benefits provided under this Agreement are subject to and conditioned upon compliance with all applicable federal and state laws, regulations, rules and regulatory orders relating to the safety and soundness of banking institutions and the compensation of bank officers and employees."

2. Valley Bank Suffers Financial Trouble and Ultimately Fails

Valley Bank began to experience financial trouble in 2009. Specifically, in February 2009, the FDIC-C and IDFPR downgraded Valley Bank’s rating after an examination to a composite "4" under the Uniform Financial Institutions Rating System (the "CAMELS" rating system).² The bank maintained its 4 rating through later examinations until April 2013, when it received a downgraded composite CAMELS rating of 5, the lowest possible score.³

On June 20, 2014, the IDFPR took possession and control of Valley Bank, closed it after determining the bank was "conducting its business in an unsafe and unsound manner," and requested the FDIC immediately accept appointment as Valley Bank’s receiver. The FDIC accepted this appointment in its "FDIC-R" receiver capacity. See Veluchamy v. FDIC , 706 F.3d 810, 812 (7th Cir.2013) (the FDIC can act both in its corporate capacity as insurer of a bank’s depositors and in its receiver capacity as receiver of a failed bank). By accepting this appointment, the FDIC succeeded "by operation of law" to Valley Bank’s "rights, titles, powers, and privileges." 12 U.S.C. § 1821(d)(2)(A) ; see also FDIC v. Ernst & Young LLP , 374 F.3d 579, 581 (7th Cir.2004) ("FDIC–Receiver acquires the assets and legal interests of the failed bank and proceeds much as a trustee in bankruptcy ....").

Upon its appointment as receiver, the FDIC entered into a Purchase and Assumption Agreement with Great Southern Bank. Pursuant to this agreement, the FDIC transferred a portion of Valley Bank’s assets to Great Southern Bank on June 20, 2014. The FDIC did not employ Bunn after these events; Great Southern Bank did, but only for approximately one week.

3. The FDIC Disaffirms the Agreement

As receiver for a failed institution, the FDIC has the authority to "disaffirm or repudiate any contract or lease" to which the institution is a party, the performance of which it "determines to be burdensome," and "the disaffirmance or repudiation of which [it] determines, in [its] discretion, will promote the orderly administration of the institution’s affairs." 12 U.S.C. § 1821(e)(1). The FDIC must determine whether or not to exercise this authority "within a reasonable period" following its appointment as receiver. Id. § 1821(e)(2).

On September 16, 2014, the FDIC advised Bunn in a letter that pursuant to these statutory provisions, it would disaffirm the Agreement. The FDIC further notified Bunn that if he intended to pursue a claim for the Agreement’s benefits against the receivership estate, he was required to file a proof of claim with the FDIC within ninety days. Bunn submitted his proof of claim on September 28, 2014, seeking $230,000 to $240,000 for his "accrued and vested" change of control benefits under the Agreement. However, the FDIC disallowed Bunn’s claim.

B. Procedural Background

After the FDIC disallowed his claim, Bunn filed the instant lawsuit in federal court. In his operative amended complaint, Bunn sought either $240,000 as the sum of the benefits he claimed to have accrued under the Agreement or, in the alternative, the $443,944 accrued cash value of the two bank-owned life insurance policies Valley Bank had purchased, as well as his costs and attorney’s fees. The FDIC moved to dismiss the amended complaint. The district court denied the motion, and the parties proceeded with discovery.

On May 1, 2017, the FDIC moved for summary judgment, arguing in part that the change of control termination benefit was a "golden parachute payment" prohibited by 12 U.S.C. § 1828(k) and its implementing regulations, meaning Bunn was not entitled to payment. Bunn opposed the motion, arguing the Agreement qualified for an exception to the prohibition on golden parachute payments as a "bona fide deferred compensation plan."

The district court granted the FDIC’s motion for summary judgment. It held the change of control termination benefit met the definition of a golden parachute payment and did not qualify for the definition’s bona fide deferred compensation plan exception. Therefore, Bunn could not recover any damages based on the FDIC’s disaffirmation of the Agreement. The court further held that, even if the benefit was not a golden parachute payment, Bunn still could not prevail because he had not presented evidence of any damages incurred by virtue of the FDIC’s disaffirmation. The district court entered judgment in the FDIC’s favor, and Bunn appeals.

II. Discussion

We review a district court’s summary judgment ruling de novo. See C.G. Schmidt, Inc. v. Permasteelisa N. Am. , 825 F.3d 801, 805 (7th Cir.2016). "Summary judgment is proper if the moving party ‘shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’ " Spurling v. C & M Fine Pack, Inc. , 739 F.3d 1055, 1060 (7th Cir.2014) (quoting Fed. R. Civ. P. 56(a) ). A genuine dispute exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). We "consider all of the evidence in the record in the light most favorable to the non-moving party,...