Howell v. F.D.I.C., No. 92-1542

• Decision Date: 06 February 1993
• Docket Number: No. 92-1542
• Citation: 986 F.2d 569
• Parties: Bruce A. HOWELL, et al., Plaintiffs, Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION as receiver for Eliot Savings Bank, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 569

986 F.2d 569

61 USLW 2518

Bruce A. HOWELL, et al., Plaintiffs, Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION as receiver for Eliot Savings Bank, Defendant, Appellee.

No. 92-1542.

United States Court of Appeals First Circuit.

Heard Feb. 6, 1993.

Decided Feb. 17, 1993.

Edwin A. McCabe with whom Karen Chinn Lyons, Joseph P. Davis, III, The McCabe Group, and Lawrence Sager, Cambridge, MA, were on brief for plaintiffs, appellants.

Lawrence H. Richmond, Counsel, with whom Ann S. DuRoss, Asst. Gen. Counsel, Colleen B. Bombardier, Sr. Counsel, F.D.I.C., Washington, DC, John C. Foskett, Michael P. Ridulfo and Deutsch Williams Brooks DeRensis Holland & Drachman, P.C., Boston, MA, were on brief for defendant, appellee.

Before BREYER, Chief Judge, HIGGINBOTHAM, Senior Circuit Judge, ^* and BOUDIN, Circuit Judge.

BOUDIN, Circuit Judge.

Appellants in this case are former officers of a failed bank. They sued the FDIC as the bank's receiver when the FDIC disallowed their claims for severance pay under their contracts with the bank. The district court sustained the FDIC, reasoning that Congress had restricted such claims. Although the statute in question is not easily construed and the result is a severe one, we believe that the officers' claims fail, and we sustain the district court.

The facts, shorn of flourishes added by the parties, are simple. In 1988 and 1989, the four appellants in this case were officers of Eliot Savings Bank ("Eliot") in Massachusetts. In November 1988, when Eliot was undergoing financial strain, Eliot made an agreement with Charles Noble, its executive vice president, committing the bank to make severance payments (computed under a formula but apparently equivalent to three years' salary) if his employment were terminated. In August 1989, the bank entered into letter agreements with three other officers--appellants Bruce Howell, Patricia McSweeney, and Laurence Richard--promising them each a year's salary as severance in the event of termination. Finally, in December 1989 a further letter agreement was made with Noble, reaffirming the earlier agreement with him while modifying it in certain respects.

The agreements make clear that they were not intended to alter the "at will" employment relationship between Eliot and the officers. The bank remained free to terminate the officers, subject to severance payments, and (so far as appears) the officers were not bound to remain for any fixed term. The letter agreements with the three officers other than Noble state that the severance payments were promised in consideration of the officers' "willingness to remain" in the bank's employ; and the same intent can be gleaned from the two agreements with Noble. The weakened financial condition of the bank is adverted to in each of the four 1989 agreements.

At some point in 1989 the FDIC began to scrutinize closely Eliot's affairs. The officers allege, on information and belief, that the FDIC and the bank agreed that Eliot would take steps to retain its qualified management; and the complaint states that the FDIC "knew and approved" of the four letter agreements made in 1989. The officers also contend that they were advised by experienced counsel at a respected law firm that the severance agreements were valid and would withstand an FDIC receivership if one ensued. It is further alleged that, in December 1989, the FDIC and the bank entered into a consent order that provided that the bank would continue to retain qualified management.

Eliot failed and was closed on June 29, 1990. The FDIC was appointed its receiver. Within two months, the officers were terminated. The officers then made administrative claims for their severance benefits pursuant to applicable provisions of FIRREA, 12 U.S.C. §§ 1821(d)(3), (5), the statute enacted in 1989 to cope with the torrent of bank failures. ¹ In October 1990, the FDIC disallowed the claims, stating that the claims violated public policy. Although the FDIC letter is not before us, it apparently is based upon the FDIC's general opposition to what are sometimes called "golden parachute payments," a subject to which we will return. Following the disallowance, the officers pursued their option, expressly provided by FIRREA, to bring an original action in federal district court. 12 U.S.C. § 1821(d)(6).

In their district court complaint, the officers asserted claims against the FDIC for breach of contract, for breach of the contracts' implied covenant of fair dealing, and for detrimental reliance. The FDIC moved to dismiss or for summary judgment. Thereafter, the officers sought to amend their complaint by adding a promissory estoppel claim and by explicitly naming the FDIC in its "corporate capacity" as well as in its capacity as receiver. In a bench decision, the district judge ruled that the FDIC had lawfully repudiated the contracts between Eliot and the officers and that under FIRREA there were no compensable damages for the resulting breach. As for the promissory estoppel claim, the court deemed it "futile" and refused to allow the amendment; the court referred to the general principle that estoppel does not operate against the government and to the FDIC's broad grant of authority under FIRREA. The officers then sought review in this court.

The first claim made on appeal, taken in order of logic, is that the FDIC's repudiation of the severance agreements was itself invalid. At this point we need to explain briefly the structure of the statute. Section 1821 governs, among other matters, the powers of the FDIC as receiver, 12 U.S.C. § 1821(d), the procedure for processing claims against the failed bank, 12 U.S.C. §§ 1821(d)(3), (5), and substantive rules for contracts entered into prior to the receivership. 12 U.S.C. § 1821(e). Section 1821(e)(1) gives the receiver the right to disaffirm or repudiate any contract that the bank may have made before receivership if the FDIC decides "in its discretion" that performance will be "burdensome" and that disavowal will "promote the orderly administration" of the failed bank's affairs. 12 U.S.C. § 1821(e)(1).

The power of a receiver to repudiate prior executory contracts made by the debtor, a familiar incident of bankruptcy law, see 11 U.S.C. § 365 (executory contracts and unexpired leases), means something less than might appear. By repudiating the contract the receiver is freed from having to comply with the contract, e.g., Americare Medical Supply, Inc. v. RTC, 1990 WL 58589, 1990 U.S.Dist. LEXIS 5355 (D.Kan.1990) (specific enforcement), but the repudiation is treated as a breach of contract that gives rise to an ordinary contract claim for damages, if any. Whether that claim is then "allowed" by the receiver and if so whether there are assets to satisfy it, are distinct questions; at this point we are concerned only with the receiver's authority to affirm or disaffirm. In this case the officers do not dispute that the FDIC did repudiate the severance agreements. Rather the officers argue that the repudiation is ineffective, and the agreements remain enforceable, because the FDIC did not make the statutory findings, or abused its discretion, or both.

Interesting questions are posed by such a challenge, but the questions need not be resolved in this case. The claim was not made in the district court and, accordingly, it is waived. Clauson v. Smith, 823 F.2d 660, 666 (1st Cir.1987). The complaint makes only the barest reference to abuse of discretion by the FDIC, mentioning it not as a separate claim but in the prefatory description of facts; and there is no reference whatever to this line of argument, or to lack of required FDIC findings, in the opposition filed by the officers to the FDIC's motion to dismiss. A litigant would normally have an uphill battle in overturning an FDIC finding of "burden," if the FDIC made one, but in all events the issue has not been preserved in this case.

The second ground of appeal raises the central question before us, namely, whether a damage claim based on a repudiated severance contract is allowed under FIRREA. A stranger to FIRREA might think it apparent that breach of a contract to make severance payments inflicts damages on a discharged employee in the amount of the promised payments. The hitch is that in FIRREA Congress adopted restrictive rules that limit the damages permitted for repudiated contracts. 12 U.S.C. § 1821(e). In a general provision subject to certain exceptions, 12 U.S.C. § 1821(e)(3)(A)(i) provides that the receiver's liability for a repudiated contract is "limited to actual direct compensatory damages...." Additionally, section 1821(e)(3)(B) provides:

For purposes of subparagraph (A), the term 'actual direct compensatory damages' does not include--

(i) punitive or exemplary damages;

(ii) damages for lost profits or opportunities; or

(iii) damages for pain and suffering.

The question thus framed is whether, or to what extent, the statute's limitation to "actual direct compensatory damages" bars the contractual severance claims made in this case. ² The question is easy to state but less easy to answer. Although FIRREA's concept of limiting allowable claims for contract damages echoes the approach of the Bankruptcy Code, 11 U.S.C. 502, that statute is more specific and informative. In particular, section 502(b)(7) limits claims by a terminated employee for future compensation to one year's pay. So far as appears from the parties' briefs, FIRREA's broad exclusionary language ("actual direct compensatory damages") has been plucked out of the air by Congress, although the general purpose is obvious enough. If there is any illuminating legislative history or precedent, it has not been called to our attention by the parties and we have been unable to locate anything very helpful.

It is fair to guess that Congress, faced with mountainous bank failures, determined to pare back damage claims founded on repudiated contracts. In all likelihood, the...