Shore Bank v. Harvard

• Decision Date: 08 March 2013
• Docket Number: Civil Action No. 2:12cv336.
• Citation: Shore Bank v. Harvard, 934 F.Supp.2d 827 (E.D. Va. 2013)
• Parties: SHORE BANK, and Hampton Roads Bankshares, Inc., Plaintiffs, v. Scott C. HARVARD, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

934 F.Supp.2d 827

SHORE BANK, and Hampton Roads Bankshares, Inc., Plaintiffs,

v.Scott C. HARVARD, Defendant.

Civil Action No. 2:12cv336.

United States District Court,

E.D. Virginia,

Norfolk Division.

March 8, 2013.

Scott William Kezman, Mark Edward Warmbier, Kaufman & Canoles PC, Norfolk, VA, for Plaintiffs.

Charles Michael Sims, John MacDonald Robb, III, LeClairRyan PC, Richmond, VA, for Defendant.

OPINION AND ORDER

MARK S. DAVIS, District Judge.

This matter is currently before the Court on DefendantScott C. Harvard's (“Harvard”)motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction.After examining the Complaint, Harvard's motion to dismiss and the associated memoranda, the Court finds that the facts and legal contentions are adequately presented and oral argument would not aid in the decisional process.Fed.R.Civ.P. 78(b);E.D. Va. Loc. Civ. R. 7(J).The matter is therefore ripe for decision.For the reasons set forth below, the CourtGRANTS Harvard's motion to dismiss pursuant to Rule 12(b)(1).

I.FACTUAL HISTORY¹

Plaintiffs Shore Bank (“Shore Bank”) and Hampton Roads Bankshares, Inc.(“Hampton Roads Bankshares”)(collectively, “Plaintiffs”) are financial institutions organized under the laws of the Commonwealth of Virginia.Shore Bank's principal place of business is in Olney, Virginia.Hampton Roads Bankshares's principal place of business is in Norfolk, Virginia.Shore Bank is a wholly owned subsidiary of Hampton Roads Bankshares.

Defendant Harvard is a resident of Virginia and the past President and Chief Executive Officer of Shore Bank and past Executive Vice President of DelMarVa Operations for Hampton Roads Bankshares.Harvard entered into an Employment Agreement (“Employment Agreement”) with Plaintiffs on January 8, 2008 in which he accepted both of the above positions.Harvard's Employment Agreement contains several provisions concerning his compensation and benefits, including Paragraph 4(b), which provides for a “severance allowance” upon “termination for a change in control event.”Compl.Ex. 1, ECF No. 1–4.Specifically, Paragraph 4(b) provides:

If [Harvard's] employment is terminated by the Bank in accordance with Section 3(a)(iii) or [Harvard] terminates his employment pursuant to Section 3(b)(iii) hereof, then:

...

(b) The Employer shall pay [Harvard] a severance allowance in sixty (60) equal monthly payments commencing on the last day of the month in which the Date of Termination occurs, the total amount of which will equal 2.99 times (2.99x) the base amount.

Id.Paragraph 3(b)(iii) entitles Harvard “to terminate his employment pursuant to th[e][Employment] Agreement within six (6) months after the occurrence of a ‘Change in Control’ with respect to [Hampton Roads Bankshares], its successor's or assigns, (Employer's ‘ Parent Company ’).”Id.Such paragraph goes on to define what constitutes a “Change in Control” under the Employment Agreement.Id.

During the course of Harvard's employment, Plaintiffs began participating in the United States Department of the Treasury's Troubled Asset Relief Program (“TARP”), which program was established on October 3, 2008 pursuant to the Emergency Economic Stabilization Act of 2008 (“EESA”), 12 U.S.C. §§ 5201 et seq.Hampton Roads Bankshares began receiving TARP funds on December 31, 2008.In preparation for its participation in TARP, Hampton Roads Bankshares executed a letter with Harvard on December 31, 2008(“Letter”) concerning its intent to participate in TARP's Capital Purchase Program (“CPP”).In that Letter, Hampton Roads Bankshares stated that, as a condition of its participation, it was “required to make changes to existing compensation agreements” and that it “intend[ed] to apply [such] standards to all of its executive officers.”Compl.Ex. 2, ECF No. 1–5.The Letter then set forth five paragraphs, including the following:

(1)No Golden Parachute Payments.The Company is prohibited from engaging in any golden parachute payment to you during any “CPP Covered Period.”A “ CPP Covered Period ” is any period during which (A) you are an executive officer and (B) the [Department] holds an equity or debt position acquired from [Hampton Roads Bankshares] during the CPP.

...

(3)Compensation Program Amendments.Each of the Company's compensation, bonus, incentive, and other benefit plans, arrangements and agreements (including golden parachute, severance, and employment agreements (collectively, “ Benefit Plans ”) with respect to you is hereby amended to the extent necessary to give effect to provisions (1) and (2) above and you agree to execute any such amendments as maybe necessary to implement the agreements contained in this letter.

Id.At the bottom of the three-page Letter, Harvard signed his name in a block containing the following statement: “Intending to be legally bound, I agree with and accept the foregoing terms on the date set forth below.”Id.Hampton Roads Bankshares apparently began receiving TARP benefits on that same date, December 31, 2008.²SeeCompl.¶ 12, ECF No. 1.Harvard's employment with both Plaintiffs continued until he submitted his resignation to Shore Bank on June 24, 2009.

The instant action concerns a dispute between the parties regarding Harvard's entitlement to the severance allowance provided for in Paragraph 4(b) of the Employment Agreement (“Allowance”).SeeCompl.Ex. 1, ECF No. 1–4.On March 13, 2012, Harvard sent Plaintiffs a letter seeking payment of the Allowance.SeeCompl.Ex. 3, ECF No. 1–6.Since this demand, Plaintiffs have consistently denied Harvard's request for three reasons.First, Plaintiffs assert that no “Change in Control” occurred that would entitle Harvard to the Allowance.Second, Plaintiffs claim that, as recipients of TARP benefits, they are barred from paying Harvard the Allowance, because such Allowance is a “golden parachute payment” prohibited under TARP.In support of this position, Plaintiffs apparently sought guidance from the United States Department of the Treasury(“Treasury”) concerning the Allowance, although the exact timing of Plaintiffs' inquiry is unclear.³According to Plaintiffs, the Department advised them that an Interim Final Rule codified at 31 C.F.R. Part 30, which became effective on June 15, 2009, prohibits Plaintiffs from paying Harvard the Allowance.Finally, Plaintiffs contend that Harvard is not entitled to the Allowance because, by signing the Letter, Harvard amended his Employment Agreement to include TARP's prohibition of golden parachute payments.

II.PROCEDURAL HISTORY

Prior to the commencement of this action, Harvard filed a Complaint for DeclaratoryJudgment in the Norfolk Circuit Court on May 22, 2012 seeking a declaratory judgment that Plaintiffs must pay the legal fees and costs that Harvard has incurred and will incur as a result of the parties' disagreement about the Allowance, pursuant to Paragraph 11 of the Employment Agreement.SeeCompl.Ex. 5, ECF No. 1–8.In his complaint, Harvard represented that he“intends to file a claim for breach of the Employment Agreement....”Id.¶ 15.However, there are no facts before the Court suggesting that any such action has been filed.Instead, Plaintiffs have preemptively sought relief in this Court.

Plaintiffs filed the instant action on June 14, 2012.The single-count Complaint seeks declaratory judgment that (1) the Allowance is a golden parachute payment prohibited by TARP and its corresponding regulations; and (2)Plaintiffs are prohibited from paying the Allowance, now or in the future, because they were recipients of TARP funds at the time Harvard resigned.Harvard filed the instant motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) on July 3, 2012.ECF No. 5.Harvard asks the Court to dismiss the single-count Complaint for want of subject matter jurisdiction and to award him attorney's fees pursuant to Paragraph 11 of the Employment Agreement.Plaintiffs filed their memorandum in opposition on July 16, 2012.ECF No. 8.On July 23, 2012, Harvard filed his reply memorandum.ECF No. 9.Therefore, the motion is fully briefed and ripe for this Court's consideration.

III.LEGAL STANDARD

Harvard seeks to dismiss Plaintiffs' Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1), which permits a defendant to move for dismissal of a claim due to the court's lack of subject matter jurisdiction.Fed.R.Civ.P. 12(b)(1);see also, A.W. ex rel. Wilson v. Fairfax Cnty. Sch. Bd.,548 F.Supp.2d 219, 221(E.D.Va.2008).Federal district courts are courts of limited subject matter jurisdiction.United States ex rel. Vuyyuru v. Jadhav,555 F.3d 337, 347(4th Cir.2009)(citingExxon Mobil Corp. v. Allapattah Servs., Inc.,545 U.S. 546, 552, 125 S.Ct. 2611, 162 L.Ed.2d 502(2005)).They may exercise “only the jurisdiction authorized them by the United States Constitution and by federal statute.”Id.(citingBowles v. Russell,551 U.S. 205, 127 S.Ct. 2360, 168 L.Ed.2d 96(2007)).Accordingly, the Court must “presume ... that a case lies outside its limited jurisdiction unless and until jurisdiction has been shown to be proper.”United States v. Poole,531 F.3d 263, 274(4th Cir.2008)(citingKokkonen v. Guardian Life Ins. Co. of Am.,511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391(1994))(emphasis in original).Having filed the instant action—thereby seeking to invoke the jurisdiction of the Court—Plaintiffs bear the burden of proving that this Court has subject matter jurisdiction.Richmond, Fredericksburg & Potomac R.R. Co. v. United States,945 F.2d 765, 768(4th Cir.1991).

A district court can resolve a motion to dismiss for lack of subject matter jurisdiction in two ways: (1)“[t]he court may find insufficient allegations in the pleadings, viewing the alleged facts in the light most favorable to the plaintiff, similar to an evaluation pursuant to Rule 12(b)(6)”; or (2)the court may conduct an evidentiary hearing and...