McMillian v. F.D.I.C.

• Decision Date: 25 April 1996
• Docket Number: No. 94-5045,94-5045
• Citation: 81 F.3d 1041
• Parties: Samuel M. McMILLIAN, Jr., Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver of Southeast Bank, N.A. and as de facto ERISA fiduciary of the Southeast Bank, N.A. Reduction in Force Severance Pay Plan, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1041

81 F.3d 1041

64 USLW 2694

Samuel M. McMILLIAN, Jr., Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver of Southeast Bank, N.A. and as de facto ERISA fiduciary of the Southeast Bank, N.A Reduction in Force Severance Pay Plan, Defendant-Appellee.

No. 94-5045.

United States Court of Appeals Eleventh Circuit.

April 25, 1996.

Harry D. Lewis, Miami, FL, for Appellant.

Edward J. O'Meara, Daniel H. Kurtenbach, Maria Beatrice Valdez, F.D.I.C., Washington, DC, for Appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT, Chief Judge, and KRAVITCH and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge:

Samuel M. McMillian, Jr., appeals the district court's dismissal of his action for severance pay against the FDIC as receiver of a failed bank. The district court dismissed McMillian's Worker Adjustment and Retraining Notification ("WARN") Act claim for lack of jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). We affirm the district court's disposition of the WARN Act claim. With respect to McMillian's Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA") claim, the district court dismissed the complaint pursuant to Fed.R.Civ.P. 12(b)(6). This appeal raises two FIRREA issues: (1) whether FIRREA bars the enforcement of severance pay agreements because they are "contingent"; and (2) whether severance payments constitute "actual direct compensatory damages" under FIRREA. The district court held that McMillian's claim is barred because his right to receive severance pay was contingent when the FDIC was appointed receiver. We reverse.

I. FACTS

McMillian was a janitor at Southeast Bank, N.A. ("Southeast") for nineteen years. Through Southeast and its parent, Southeast Banking Corporation, McMillian was a participant in and beneficiary of various employee benefit plans sponsored, at least in part, by Southeast. In particular, he was a participant in Southeast's Reduction in Force Severance Pay Plan ("Severance Plan"), which provided, in relevant part:

In the event of a Participant's termination of employment as a result of a Reduction In Force, the Participant shall be entitled to receive from [Southeast] a Severance Payment in the amount provided in Section 4.2 and the other Severance Benefits provided in Section 4.4.

(Southeast Banking Corporation Reduction in Force Severance Pay Plan § 4.1). Under Section 4.2, participants who had been employed by Southeast for more than two years were entitled to one week of severance pay per year of employment. ¹ The Severance Plan defines "Reduction in Force" as "the involuntary termination of employment of a Participant because of the elimination of such Participant's position with [Southeast or its parent] due to economic or business conditions, reorganizations of the Company which combine or limit positions or for other reasons."

On September 19, 1991, the Office of the Comptroller of the Currency declared Southeast insolvent and appointed the FDIC receiver under 12 U.S.C.A. § 1821(c). Within two days thereafter, the FDIC terminated McMillian's employment and granted him two weeks of severance pay. There is no dispute that McMillian was terminated as a result of a "reduction in force."

Claiming that he was entitled to nineteen weeks of severance pay based on his nineteen years with the bank, McMillian filed a claim for benefits under the Severance Plan with the FDIC. The FDIC disallowed the claim ² and McMillian filed suit in the United States District Court challenging the FDIC's action. In his complaint, McMillian alleged a claim under the WARN Act, 29 U.S.C.A. § 2101 et seq., and a claim for damages under FIRREA, 12 U.S.C.A. § 1821(e).

The magistrate judge submitted a Report and Recommendation granting the FDIC's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). The magistrate judge recommended dismissal on the grounds that: 1) the district court lacked subject matter jurisdiction over McMillian's WARN Act claim; and 2) McMillian's severance pay claim was "contingent" as of the appointment of the FDIC as receiver and, therefore, not cognizable under FIRREA, 12 U.S.C.A. § 1821(e)(3)(A)(ii)(I).

With respect to the severance pay claim under FIRREA, the magistrate judge based his conclusion almost entirely on two cases: American Nat'l Bank v. FDIC, 710 F.2d 1528, 1540 (11th Cir.1983), and Office & Professional Employees Int'l Union v. FDIC, 813 F.Supp. 39, 45 (D.D.C.1993). From these cases, he reasoned that the rights and liabilities of Southeast and its creditors were fixed at the declaration of insolvency. Those claims which had not accrued as of the appointment of the receiver, the magistrate judge concluded, are not cognizable under FIRREA. Because McMillian's claim for benefits under the Severance Plan was found to be contingent--i.e., it did not accrue until his termination due to a Reduction in Force--it was not fixed as of the appointment of the FDIC and therefore failed.

After the magistrate judge submitted his Report and Recommendation, but before the district court entered its order, the D.C. Circuit reversed the district court in Office & Professional Employees Int'l Union. Office & Professional Employees Int'l Union v. FDIC, 27 F.3d 598 (D.C.Cir.1994) ("OPEIU "). The district court nonetheless adopted the magistrate judge's recommendations based on what it considered the binding precedent of American Nat'l Bank, supra, and Bayshore Executive Plaza Partnership v. FDIC, 750 F.Supp. 507 (S.D.Fla.1990), aff'd on other grounds, 943 F.2d 1290 (11th Cir.1991).

II. DISCUSSION

A. WARN Act Claim

McMillian challenges the district court's dismissal of his WARN Act claim for lack of jurisdiction. He essentially argues that the Severance Plan was drafted to "operate in tandem" with the WARN Act, and thus incorporated it by reference.

We review questions of subject matter jurisdiction de novo. Tamiami Partners, Ltd. v. Miccosukee Tribe of Indians, 999 F.2d 503, 506 (11th Cir.1993). The rule in this circuit is clear: "FIRREA makes exhaustion of the FDIC's administrative complaint review process mandatory when the FDIC has been appointed receiver for a financial institution." Motorcity of Jacksonville, Ltd. v. Southeast Bank, 39 F.3d 292, 296 (11th Cir.1994), vacated, 58 F.3d 589 (11th Cir.1995).

In this case, McMillian has sued the FDIC in its capacity as receiver of Southeast; however, he did not file a WARN Act claim, either implicitly or explicitly, with the FDIC before bringing this action. Accordingly, we hold that the district court did not have jurisdiction of McMillian's WARN Act claim because he failed to exhaust his administrative remedies as required by FIRREA.

B. Severance Pay Claim

Under FIRREA, the FDIC has the power to repudiate any contract to which it is a party, that it determines to be burdensome, and the repudiation of which will promote the orderly administration of the institution's affairs. 12 U.S.C.A. § 1821(e)(1). The election to repudiate a contract must be made within a reasonable time following the appointment of the receiver. 12 U.S.C.A. § 1821(e)(2).

Once the FDIC has repudiated, damages are measured by § 1821(e)(3), which provides, in relevant part:

(A) In general

Except as otherwise provided in subparagraph (C) and paragraphs (4), (5), and (6), the liability of the conservator or receiver for the disaffirmance or repudiation of any contract pursuant to paragraph (1) shall be--

(i) limited to actual direct compensatory damages; and

(ii) determined as of--

(I) the date of the appointment of the ... receiver....

(B) No liability for other damages

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

(i) punitive damages;

(ii) damages for lost profits or opportunity; or

(iii) damages for pain and suffering....

This case squarely confronts the meaning of these sections. The FDIC presses two grounds of support for the district court's dismissal of the case: (1) the severance payments were contingent at the time FDIC was appointed receiver because McMillian's employment had not yet been terminated--thus, McMillian's claim was not provable under the pre-FIRREA common law; ³ and (2) the relief for which McMillian prays does not constitute "actual direct compensatory damages" as contemplated by FIRREA. We examine these arguments in turn.

1. Contingent Contract Rights and Provability

The FDIC strenuously argues that contingent contract rights do not form a basis for recovery under FIRREA. This Court has stated that "[i]t is well settled that the rights and liabilities of a bank and the bank's debtors and creditors are fixed at the declaration of the bank's insolvency." American Nat'l Bank v. FDIC, 710 F.2d 1528, 1540 (11th Cir.1983) (citing First Empire Bank v. FDIC, 572 F.2d 1361, 1367-68 (9th Cir.), cert denied, 439 U.S. 919, 99 S.Ct. 293, 58 L.Ed.2d 265 (1978); FDIC v. Grella, 553 F.2d 258, 262 (2d Cir.1977); Kennedy v. Boston-Continental Nat'l Bank, 84 F.2d 592, 597 (1st Cir.1936), cert. [dismissed], 300 U.S. 684, 57 S.Ct. 667, 81 L.Ed. 887 (1937)). Based on this language, the FDIC concludes that if a contract is in any way contingent, i.e., not fixed, as of the date of the appointment of the receiver, its subsequent breach does not give rise to damages. ⁴

The FDIC contends that, at the moment it was appointed receiver, McMillian had a right to collect severance pay that was contingent upon his discharge due to a Reduction in Force. As merely a contingent right, the FDIC posits, McMillian's severance pay is not recoverable. We disagree.

This argument mistakes the common law. The cases outside the lease context which require that rights and liabilities must be fixed upon insolvency simply require that the contract right (as opposed to a mere expectancy) arose before insolvency and that the claim is not based on a new, post-insolvency contract. To understand why the very...