Morton v. ARLINGTON HEIGHTS FEDERAL S&L

• Decision Date: 22 June 1993
• Docket Number: No. 90 C 6683.,90 C 6683.
• Citation: 836 F. Supp. 477
• Parties: Donald F. MORTON, Plaintiff, v. ARLINGTON HEIGHTS FEDERAL SAVINGS AND LOAN ASSOCIATION, Resolution Trust Corporation as Receiver, Defendant.
• Court: U.S. District Court — Northern District of Illinois

836 F. Supp. 477

Donald F. MORTON, Plaintiff, v. ARLINGTON HEIGHTS FEDERAL SAVINGS AND LOAN ASSOCIATION, Resolution Trust Corporation as Receiver, Defendant.

No. 90 C 6683.

United States District Court, N.D. Illinois, E.D.

June 22, 1993.

COPYRIGHT MATERIAL OMITTED

Kenneth Philip Ross, Eugene J. Schiltz, Robert F. Coleman & Associates, Chicago, IL, for defendant.

Thomas R. Meites, Michael M. Mulder, Annette R. Appell, Meites, Frackman & Mulder, Chicago, IL, for plaintiff.

RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

WEISBERG, United States Magistrate Judge.

This is a dispute between the receiver for a failed savings and loan association and the retired president of the association, who asks the court to enforce an agreement requiring the association to pay him $1,100 per month for the rest of his life. The receiver contends that the agreement was properly repudiated. This court has jurisdiction under 12 U.S.C. § 1821(d)(6)(A) and 28 U.S.C. § 1331. The parties have consented to proceed before the undersigned pursuant to 28 U.S.C. § 636(c), and both parties have moved for summary judgment. For the reasons that follow, we grant the receiver's motion.

The following facts are undisputed. Plaintiff Donald F. Morton was the president and chairman of the board of Arlington Heights Federal Savings and Loan Association (Arlington). Morton retired on January 31, 1988.¹ Upon his retirement he received a lump sum payment of approximately $740,000 from his pension plan at Arlington and an automobile valued at approximately $14,000. A few months prior to his retirement, he and Arlington had entered into the "Donald F. Morton Retirement Agreement" dated October 26, 1987, Pl.Mo.Exh. C (the Agreement), which provided, among other things, that Morton was to receive $1,100 per month for the rest of his life. In return, he was to refrain from competing with Arlington and was to attend meetings of Arlington's board of directors and be available for consultation.

Almost two years after Morton retired, on December 7, 1989, the Office of Thrift Supervision declared Arlington insolvent and the Resolution Trust Corporation (RTC) became Arlington's receiver. (Although Arlington is no longer in business and its assets have been transferred, we refer to the defendant as "Arlington" although the RTC is the real party in interest.) On December 27, David E. Albertson, RTC's managing agent in charge of Arlington, notified Morton that all of Arlington's employment agreements had been terminated and that the Agreement was terminated as well. Pl.Mo.Exh. E. Morton had received all payments due under the Agreement up to that date. Plaintiff's Statement of Material Facts ¶ 13.

On March 15, 1990, Morton wrote RTC asserting a claim for damages for the repudiation of the Agreement, noting that he had not received proper notification of the repudiation. Id. Exh. F.² After receiving the letter, Albertson told Morton that he believed that the original notice had been insufficient and told him he would receive an additional check covering January — March 1990. The check was prepared, Pl.Mo.Exh. H, but was not given to Morton. Although Albertson had told Morton he could pick up his check, he called Morton again and told him he would have to employ the RTC claims procedure. On March 27, 1990, the receiver responded with another notice of the repudiation of the Agreement, and informed Morton how to file a claim. Id. Exh. G. On June 23, 1990, Morton filed a claim for $221,760 based on his then life expectancy of 16.8 years times the $13,200 per year he would receive under the Agreement. Id. Exh. I. His claim was denied on September 20, 1990, id. Exh. J, and Morton filed this suit November 16, 1990.

Statutory Provisions

Before considering the contentions of the parties we briefly review the applicable statute. The recent savings and loan crisis prompted Congress to enact the Financial Institution Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). FIRREA contains broad revisions in federal banking law to enhance certain powers of the FDIC and to eliminate impediments to the efficient disposition of failed financial institutions. Under FIRREA, the FDIC is authorized to act as receiver of insured federal depository institutions such as Arlington. 12 U.S.C. § 1821(c)(2). In its capacity as receiver, the FDIC may resolve claims against the failed institution. 12 U.S.C. § 1821(d)(3). The receiver may prescribe regulations regarding the allowance, disallowance and determination of claims. 12 U.S.C. § 1821(d)(4).

When the RTC as receiver takes over a failed institution, 12 U.S.C. § 1821(e)(1) permits the receiver to repudiate contracts that the receiver deems burdensome to the institution:

(1) Authority to repudiate contracts

In addition to any other rights a conservator or receiver may have, the conservator or receiver for any insured depository institution may disaffirm or repudiate any contract or lease —

(A) to which such institution is a 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.

(2) Timing of repudiation

The conservator or receiver ... shall determine whether or not to exercise the rights of repudiation under this subsection within a reasonable period following such appointment.

A party to a repudiated contract or lease is entitled to claim "actual direct compensatory damages," but may not recover punitive or exemplary damages, damages for lost profits or opportunity or damages for pain and suffering. 12 U.S.C. § 1821(e)(3). The damage claim for repudiation of a service contract is deemed to have arisen as of the date the receiver was appointed and the contracting party is treated as a general creditor of the institution, except that services rendered after the receiver was appointed and before the contract is repudiated are to be paid according to the contract as administrative expenses. 12 U.S.C. § 1821(e)(7). There are no published regulations governing the repudiation of contracts by the RTC acting as receiver.³ RTC did have internal guidelines for receivers exercising the power of repudiation, of which more later.

A person having a claim against a failed institution must first file a claim with the receiver under 12 U.S.C. § 1821(d)(5)(D). Within 60 days after the 180-day period following the claim's submission, or within 60 days of the date of any notice of disallowance, a claimant may seek judicial review in the United States district court for the district in which the depository institution's principal place of business is located. 12 U.S.C. § 1821(d)(6). Morton has met these prerequisites.

The Summary Judgment Motions

Rule 56(c) of the Federal Rules of Civil Procedure provides that a summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The court is to draw all reasonable inferences in favor of the non-movant, but the non-moving party is required to go beyond the pleadings and designate specific facts showing a genuine issue for trial. Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir.1991).

Local Rules 12(M) and 12(N) provide that a party moving for summary judgment must submit a statement listing the material facts it believes to be undisputed and which, taken together, entitle it to judgment as a matter of law. The other party must then respond specifically to these allegations, and, where it denies that a fact is undisputed, it must come forward with references to the record that support a contrary finding. Statements of undisputed fact not denied in accordance with the rule may be deemed admitted. Schulz v. Serfilco, Ltd, 965 F.2d 516 (7th Cir.1992).

Morton's motion is really two alternative motions. He first contends that, as a matter of law, the receiver did not properly repudiate the Agreement and that it is therefore still in force. Second, in the event that the court rejects that contention, he asks the court to find that he has sustained damages in the amount of $31,367, consisting of salary, pension and profit sharing contributions he relinquished in consideration for the Agreement. Arlington's motion simply asks for a judgment that it owes Morton nothing. We will address the motions together and determine whether judgment can be entered in favor of either party as a matter of law.

A. Was the Agreement Executory — And Does it Matter?

Morton contends that 12 U.S.C. § 1821(e) permits the receiver to repudiate only "executory" contracts, and that the Agreement is not executory. In contrast to the familiar provision of the Bankruptcy Code, 11 U.S.C. § 365(a), the word "executory" does not appear in the statute. Morton cites no authority for his argument, and no court appears to have decided the question. Morton notes that the RTC's First Affirmative Defense referred to the RTC's power to repudiate executory contracts, and points to certain "Guidelines For Repudiation Or Disaffirmance Of Executory Or Unperformed Leases Or Contracts" employed by RTC, Pl.Mo.Exh. K.

The Guidelines, an internal document not formally adopted as a regulation, may not be used in interpreting the statute. Pulley v. Bowen, 817 F.2d 453 (7th Cir.1987) (Social Security Program Operations Manual could not be considered in interpreting statute because not adopted as a regulation). Furthermore, Arlington states in its brief, without contradiction, that the Guidelines were drafted under pre-FIRREA law. Def. Br. in Support of Mo. for Summary Judgment at 10 n. 3. We would be loath to read the...