Rice v. Resolution Trust Corp.

• Citation: 785 F. Supp. 1385
• Decision Date: 06 March 1992
• Docket Number: No. CIV 91-62 PHX EHC.,CIV 91-62 PHX EHC.
• Parties: Gene RICE, Plaintiff, v. The RESOLUTION TRUST CORPORATION, as Receiver for MeraBank, Defendant.
• Court: U.S. District Court — District of Arizona

785 F. Supp. 1385

Gene RICE, Plaintiff, v. The RESOLUTION TRUST CORPORATION, as Receiver for MeraBank, Defendant.

No. CIV 91-62 PHX EHC.

United States District Court, D. Arizona.

March 6, 1992.

Sandra R. Kane, Jennings Strouss & Salmon and Raymond M. Hunter, Hunter & Lehman P.C., Phoenix, Ariz., for plaintiff.

John Howard Bernstein, Kutak Rock, Denver, Colo. and E. Scott Dosek, Kutak Rock & Campbell, Phoenix, Ariz., for defendant.

ORDER

CARROLL, District Judge.

Background

Plaintiff was employed as MeraBank's Chief Executive Officer (CEO) from May, 1984 through January 31, 1990, when his employment was terminated by Defendant Resolution Trust Corporation (RTC). First Amended Complaint at para. 4. In 1982, plaintiff and MeraBank executed a "Salary Continuation Agreement"¹ (Agreement), which provides, in part, as follows:

Continuation of Salary. Upon termination of employment of employee, at any time after the last day of the calendar year Employee reaches the age of fifty-seven (57) years, the Employer shall pay the Employee, in monthly installments, an amount equal to seventy-five percent (75%), increased by five percent (5%) for each full year Employee is employed by Employer after the year in which Employee reaches age fifty-seven (57) with a maximum of one hundred percent (100%), of the average of the highest five (5) years base salary Employee has received during this employment divided by twelve (12), which amount shall be continued for a total of one hundred twenty (120) months.

Agreement at para. 2.

Plaintiff alleges that because he was employed by MeraBank for over two years after the year in which he reached the age of 57, he is entitled to receive 85 percent of the average of his highest five-year base salary payable in 120 monthly installments. First Amended Complaint at para. 7. The average of the highest five-year base salary plaintiff received is $421,088. Eighty-five (85) percent of that figure is $357,925. Id. at para. 8. Plaintiff claims that because defendant terminated his employment, he is entitled to 120 equal and consecutive monthly installments of $29,827 ($357,925 divided by 12) beginning on February 20, 1990. Id. at para. 9.

In addition, the Agreement provides that if plaintiff's employment is terminated "upon change in control of the management of" MeraBank, then plaintiff shall be paid the same benefits² as if he had reached normal retirement. Id. at para. 10 (citing Agreement at para. 3). The Agreement defines "change of control" as "the election of a majority of the Board of Directors consisting of persons other than those who were members of the Board of Directors during the year prior to the date of such election." Id. at Agreement para. 10.H.

Defendant terminated all of MeraBank's directors immediately upon its appointment as receiver on January 31, 1990. First Amended Complaint at para. 11. Plaintiff alleges that this constituted a "change in control" of the management of MeraBank, which entitles plaintiff to 100 percent of the benefits provided in the Agreement para. 2. Such benefits amount to 120 monthly installments of $35,091 ($421,088 divided by 12) beginning on February 28, 1990. Id.

Defendant, as receiver for MeraBank, has failed to make the payments to which plaintiff claims he is entitled. Id. at para. 13. Plaintiff alleges that because the payments are "wages" within the meaning of A.R.S. § 23-355, he is entitled to an amount treble the unpaid wages pursuant to A.R.S. § 23-355. Id. at para. 14. Plaintiff contends that he is also entitled to recover reasonable attorneys' fees. Id. at para. 15 (citing Agreement at para. 10.E).

Defendant's Motion for Summary Judgment

On October 1, 1991, defendant filed a motion for summary judgment on the issue of vesting. Defendant contends that the Salary Continuation Agreement upon which plaintiff bases his claims was terminated by operation of law pursuant to 12 C.F.R. § 563.39 upon the appointment of RTC as receiver for MeraBank on January 31, 1990. Motion at 2. Furthermore, defendant contends that plaintiff had no vested rights under the Agreement prior to the time it was terminated by operation of law and, therefore, plaintiff is not entitled to any penalties for unpaid wages pursuant to A.R.S. § 23-355. Id.

Specifically, defendant asserts that the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) authorizes the RTC to disaffirm or repudiate the contracts of a failed savings institution that are burdensome. Id. at 7 (citing 12 U.S.C. § 1821(e)). In addition, RTC claims it is relieved of obligations under employment contracts entered into by an institution, arguing that such contracts are automatically terminated at the time the institution (1) goes into default,³ (2) enters into an assistance agreement with the Federal Deposit Insurance Corporation (FDIC) or RTC, (3) is the subject of a supervisory merger, or (4) is declared to be in an "unsafe or unsound condition." Motion at 7 (citing 12 C.F.R. § 563.39(b)(5)).

Section 563.39(b) provides, in pertinent part, as follows:

(b) Required provisions. Each employment contract shall provide that:

(4) If the savings association is in default (as defined in Section 23(x)(1) of the Federal Deposit Insurance Act),⁴ all obligations under the contract shall terminate as of the date of default, but this paragraph (b)(4) shall not affect any vested rights of the contracting parties: Provided, that this paragraph (b)(4) need not be included in an employment contract if prior written approval is secured from the Director or his or her designee.

(5) All obligations under the contract shall be terminated, except to the extent determined that continuation of the contract is necessary of sic the continued operation of the association

(i) by the Director or his or her designee, at the time the Federal Deposit Insurance Corporation or Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the association under the authority contained in 13(c) of the Federal Deposit Insurance Act; or

(ii) by the Director or his or her designee, at the time the Director or his or her designee approves a supervisory merger to resolve problems related to operation of the association or when the association is determined by the Director to be in an unsafe or unsound condition.

Any rights of the parties that have already vested, however, shall not be affected by such action.

12 C.F.R. § 563.39(b)(4) and (5). Section 563.39(b) requires that each employment contract contain a term that recites the regulation, and, if not included, the term is read into the contract. Motion at 10 (citing Wilde v. First Fed. Sav. and Loan Ass'n of Wilmette, 134 Ill.App.3d 722, 89 Ill.Dec. 493, 496, 480 N.E.2d 1236, 1239 (1985)). The underlying purpose of the regulation was to terminate contracts negotiated by the failed institution in the past, which "bestowed huge benefits on the very managers who were responsible for the bank's demise." Motion at 9 (citing FSLIC v. Quinn, 922 F.2d 1251, 1257 (6th Cir.1991)).

Defendant asserts that the Salary Continuation Agreement upon which plaintiff bases his claims is an "employment contract" for purposes of 12 C.F.R. § 563.39(b), which terminated upon the declaration of the Office of Thrift Supervision (OTS) that MeraBank was insolvent and the appointment of RTC as its receiver. Motion at 13. The Agreement's paragraphs 2 and 3 provide benefits to plaintiff only upon the express condition of plaintiff's termination by change in control of management. Id. Defendant argues that because plaintiff's employment and the Agreement were terminated by operation of law upon the OTS's declaration of MeraBank's insolvency and the appointment of RTC as receiver, plaintiff had no vested rights under the Agreement at the time the Agreement was terminated. Id. at 13-14. Defendant cites Rush v. FDIC, 747 F.Supp. 575 (N.D.Cal.1990); FSLIC v. Quinn, 711 F.Supp. 366 (N.D.Ohio 1989); and Wilde, 89 Ill.Dec. at 493, 480 N.E.2d at 1236 in support of its motion.

In sum, defendant asserts that because plaintiff had no vested rights under the Salary Continuation Agreement at the time the Agreement was terminated, plaintiff is not entitled to the payments he seeks. Motion at 14. Moreover, because RTC, as receiver for MeraBank, is not obligated to make the claimed payments to plaintiff, plaintiff has no claim for benefits under A.R.S. § 23-355. Id. at 14-15.

Plaintiff's Response and Cross-Motion for Summary Judgment

Plaintiff responded to defendant's motion with a combined response and cross-motion for summary judgment. Plaintiff asserts that the Salary Continuation Agreement is a retirement contract and, as such, was not terminated by operation of law pursuant to 12 C.F.R. § 563.39 because that regulation applies only to employment contracts. Response at 1. Alternatively, plaintiff argues that if the Agreement is an employment contract within the meaning of the regulation, the appointment of the RTC as receiver for MeraBank did not terminate plaintiff's right to receive benefits because his rights had vested. Id. at 1-2.

Specifically, plaintiff maintains that for 12 C.F.R. § 563.39 to apply in this case, it must first be established that the Agreement is an "employment contract." Id. at 4. Plaintiff argues that because the term "employment contract" is not defined anywhere in the regulation or the underlying statute, the term must be interpreted according to its plain meaning. Id. at 5 (citing Fagner v. Heckler, 779 F.2d 541, 543 (9th Cir.1985)). Black's Law Dictionary (6th ed. 1990) defines an employment contract as "an agreement or contract between employer and employee in which the terms and conditions of one's employment are provided." Response at 5.

Plaintiff argues that the Agreement does not fit Black's definition because, although it relates to compensation after termination of employment or death, it is completely silent on terms...