McCarron v. F.D.I.C.

• Decision Date: 01 May 1997
• Docket Number: No. 96-1123,96-1123
• Citation: 111 F.3d 1089
• Parties: John R. McCARRON, Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Meritor Savings Bank and in its own capacity.
• Court: U.S. Court of Appeals — Third Circuit

Page 1089

111 F.3d 1089

John R. McCARRON, Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Meritor Savings Bank and in its own capacity.

No. 96-1123.

United States Court of Appeals Third Circuit.

Argued Sept. 11, 1996.

Decided May 1, 1997.

Jeffrey B. McCarron (argued), Swartz, Campbell & Detweiler, Philadelphia, PA, for Appellant.

Jaclyn C. Taner (argued), Federal Deposit Insurance Corporation, Washington, DC, Henry K.W. Woo, Laurdea & Associates, Philadelphia, PA, for Appellee.

Before: COWEN, LEWIS and WEIS, Circuit Judges.

OPINION OF THE COURT

LEWIS, Circuit Judge.

John R. McCarron, a former executive of Meritor Savings Bank, appeals from an order of the district court entering judgment for the defendant, the Federal Deposit Insurance Corporation, on his claims to recover severance pay and retirement benefits pursuant to the terms of his employment agreement with Meritor. The issues raised in this appeal are whether the district court erred in determining: (1) that McCarron's severance agreements fell within the scope of the FDIC's valid repudiation of "severance pay" under our ruling in Hennessy v. FDIC, 58 F.3d 908 (3d Cir.1995); and (2) that McCarron's retirement benefits had not accrued and did become unconditionally fixed on or before the time Meritor was declared insolvent.

For the reasons which follow, we conclude that the FDIC's repudiation of McCarron's Severance Compensation Agreement was valid, and that no triggering event occurred which would entitle McCarron to severance payment under his Change in Control Agreement. Accordingly, we will affirm the district court's order on this issue; however, we will reverse and remand for further proceedings the district court's conclusion that McCarron's retirement agreement was not vested at the time Meritor was placed into receivership.

I.

In August, 1988, McCarron left his employment as a partner in a Philadelphia law firm to accept the position of Executive Vice President and General Counsel to Meritor Savings Bank, also in Philadelphia. McCarron entered into an employment contract with Meritor whereby McCarron would leave the law firm partnership and work for Meritor in exchange for a promise by Meritor to pay severance benefits under either of two mutually exclusive agreements. An "Agreement for Compensation On Discharge Subsequent to a Change in Control" provided that if the Bank discharged McCarron without cause in a "change in control," Meritor would agree to pay McCarron a lump sum severance payment in an amount equal to three times his annual salary, and to extend insurance benefits for 36 months. In the event that McCarron was discharged under circumstances other than a change in control, a "Severance Compensation Agreement" provided that McCarron would receive twice his annual salary, as well as the continuation of certain health, accident and life insurance benefits for an additional 24 months.

McCarron was also covered under two additional plans. The "Separation Pay Plan," an ERISA-qualified employee welfare benefit plan covering all of Meritor's employees, provided severance pay based upon years of service with Meritor. In addition, Meritor provided McCarron coverage under its "Supplementary Unfunded Retirement Plan," a non-qualified pension plan providing retirement payments to highly paid executives to supplement those available under its qualified pension plan.

On December 11, 1992, the Secretary of Banking for the Commonwealth of Pennsylvania closed Meritor and appointed the FDIC as receiver. The FDIC entered into a purchase and assumption agreement with Mellon Bank the same day. Mellon Bank assumed Meritor's deposit liabilities and certain other liabilities, and purchased certain Meritor assets. The FDIC, as receiver, retained the liabilities not assumed by Mellon, along with the unpurchased Meritor assets, and proceeded to liquidate them for the benefit of Meritor's approved creditors.

On the day of the FDIC's appointment as receiver, McCarron attended a meeting along with other Meritor employees. The FDIC's Closing Manager, Jack Goodner, made a brief presentation. When he finished his remarks, a Meritor employee asked him whether severance benefits would be paid. Goodner thought not, but was unsure. After looking toward two other FDIC officials for guidance, both of whom shook their heads, Goodner responded "no." At the time this statement was made, neither Goodner nor the other FDIC representatives present were aware of the existence of McCarron's employment agreement. The FDIC asserts that Goodner's statement serves as the basis for the FDIC's repudiation of all McCarron's severance agreements, relying on our decision in Hennessy v. FDIC, 58 F.3d 908 (3d Cir.1995), in which we found that Goodner's statement was sufficient to repudiate Meritor's Separation Pay Plan agreements for its other employees.

McCarron timely filed a claim for severance pay and pension payments with the FDIC. Near the expiration of the statutory period for the FDIC to consider the claims, the FDIC requested that McCarron agree to a six month extension, which he did. The FDIC failed to act on McCarron's claims within that six-month period.

The FDIC's inaction prompted McCarron to file suit against the FDIC as Meritor's receiver in federal district court. McCarron's suit sought to recover severance and supplemental pension benefits under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C. § 1821. He alleged that his severance and retirement agreements remained valid and enforceable against the FDIC in light of our decision in Hennessy. In response, the FDIC advanced a very different interpretation of Hennessy. It claimed that Hennessy compelled the conclusion that the agreements were unenforceable because Goodner's statement constituted a valid repudiation. The district court heard oral argument, after which the parties agreed to submit the case for adjudication on the stipulated facts. The district court then entered summary judgment in favor of the FDIC.

On appeal, McCarron contends that the district court erroneously concluded that the FDIC's repudiation of the Separation Pay Plan, which we found to be valid in Hennessy as it related to other Meritor employees, controls McCarron's present claims for severance benefits. Alternatively, McCarron seeks "actual direct compensatory damages" under FIRREA for breach of those agreements. McCarron also invites us to explore the FDIC's "white knight" exception to its general ban on "golden parachutes." ¹ Finally, he asserts that the FDIC is equitably and judicially estopped from denying his claims.

The district court had jurisdiction pursuant to 28 U.S.C. § 1331. We have jurisdiction over the appeal pursuant to 28 U.S.C. § 1291. Our review of a district court's grant of summary judgment is plenary, and we are required to apply the same test the district court should have used initially. Chipollini v. Spencer Gifts, Inc., 814 F.2d 893, 896 (3d Cir. 1987) (en banc).

II.

This case considers the same facts underlying our decision in Hennessy v. FDIC, 58 F.3d 908 (3d Cir.1995). At issue is whether the district court properly determined that our finding of valid repudiation in Hennessy is controlling in the case of McCarron's present claims for severance pay.

The Hennessy plaintiffs were former middle managers of Meritor who sought to recover severance payments pursuant to Meritor's Separation Pay Plan. The district court held that while the "repudiation may have been informal, it was clear, unambiguous and reasonable under the circumstances." Hennessy v. FDIC, 858 F.Supp. 483, 488 (E.D.Pa.1994), aff'd, 58 F.3d 908 (3d Cir.1995). On appeal, we were asked to decide whether the FDIC was required to make formal findings that the terms of this plan were "burdensome" and that repudiation was necessary in order to "promote the orderly administration of the institution's affairs" pursuant to 12 U.S.C. § 1821(e)(1). We held that the FDIC's repudiation of the Separation Pay Plan was valid because "there is no basis in the statute or in the case law for requiring the FDIC, which has discretion in making the decision concerning whether to repudiate, to produce written findings." Hennessy, 58 F.3d at 920.

We note at the outset that in Hennessy, we were not called upon to address whether the FDIC's repudiation was valid against any agreements other than Meritor's Separation Pay Plans. It is therefore necessary to return once again to the events surrounding the FDIC's repudiation of December 11, 1992 in order to determine which of McCarron's severance agreements were validly repudiated.

A.

Section (e)(1) of FIRREA delineates the rights and obligations of the FDIC as receiver for a failed financial institution with respect to contracts entered into by the institution before the appointment of the receiver. That provision states that the receiver,

may disaffirm or repudiate any contract or lease--(A) to which such institution is 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.

12 U.S.C. § 1821(e)(1).

The receiver has broad discretion to determine what is burdensome, and a court's review of a decision by the FDIC to repudiate is narrowly circumscribed. 1185 Ave. of Americas Associates v. RTC, 22 F.3d 494, 498 (2d Cir. 1994); Howell v. FDIC, 986 F.2d 569, 572 (1st Cir.1993) ("[a] litigant would normally have an uphill battle in overturning an FDIC finding of 'burden'...."). Once the receiver makes a finding that a contract is burdensome, it does not have to give reasons for its decision. 1185 Ave. of Americas Assoc., 22 F.3d at 498; Morton v. Arlington...