Texas Commerce Bank v. United Sav. Ass'n, Civ. A. No. H-91-210.
| Decision Date | 29 April 1992 |
| Docket Number | Civ. A. No. H-91-210. |
| Citation | 789 F. Supp. 848 |
| Parties | TEXAS COMMERCE BANK, N.A., Trustee, Plaintiff, v. UNITED SAVINGS ASSOCIATION OF TEXAS, et al., Defendants. |
| Court | U.S. District Court — Southern District of Texas |
Robert G. Bailey, Bailey, Crowder & O'Neil, Houston, Tex., for FDIC and United Sav. Ass'n of Texas FSB.
Michael P. Cash, Liddell, Sapp, Zivley, Hill & LaBoon, Houston, Tex., for Texas Commerce Bank, Nat. Ass'n Trustee.
Paul D. Clote, Franci N. Beck, Susman & Godfrey, Martha N. Jacob, Lance C. Winchester, Ryan & Winchester, Kent W. Robinson, McFall & Sartwelle, Houston, Tex., for defendants-counter-claimants.
OPINION ON INTERPLEADER
In March 1988, United Savings Association set up deferred compensation for its top managers, called the executive bonus plan. United created an express trust at Texas Commerce Bank to implement the plan. Texas Commerce Bank is the trustee, and the top two tiers of managers at United are the beneficiaries. Texas Commerce interpleaded the corpus of the trust for the court to determine whether the Federal Deposit Insurance Corporation or the beneficiaries had the right to the funds. With the exception of the seven managers who released their interest in the trust funds, the beneficiaries will recover their vested interests in the trust.
United Savings Association of Texas was a state-chartered savings association. Like many others in the 1980s, it failed. On December 30, 1988, the Federal Home Loan Bank Board declared United insolvent. By a series of resolutions, it terminated all employment contracts and liquidated substantially all of United's assets by sale.
As United continued to accumulate loan losses, its prospects dimmed. To keep the key employees from leaving, United adopted a plan that promised a specific group of United managers additional compensation if they remained with United until January 1, 1989. United established the plan and trust in March 1988. The amounts held for each employee reflected differences in job responsibility and experience, and they ranged from $1,500 to $50,000 (16% to 34% of base salary) for the midlevel managers and from $50,000 to $156,000 (29% to 40% of base salary) for the senior managers. Before April 30, 1988, United paid each employee 25% of the promised additional compensation. Texas Commerce held the remaining 75% in trust until it deposited the funds with the court in late 1991.
Under paragraph four of the plan, as long as United did not fire the employee and the employee did not quit, the employee was entitled to the money. United did not fire any of the beneficiaries, nor did any of the beneficiaries quit before January 1, 1989. They all worked through December 30, 1988, the last working day of the year. The plan also stated that if United was dissolved or liquidated, or if it sold substantially all of its assets, the employees would receive their money on the day of dissolution or, if the employee became an employee of the successor company, on January 3, 1989.
The FDIC, as receiver for United, now claims that the beneficiaries fraudulently diverted the money from the financially troubled United to Texas Commerce in anticipation of United's insolvency. The beneficiaries contend that the plan and trust were valid inducements to have key workers remain with United during troubled times and that they earned the money.
There are no issues of material fact. Herbert Abstract Co., Inc. v. Touchstone Properties, Ltd., 914 F.2d 74 (5th Cir.1990). Based on the pleadings, the twenty-eight beneficiaries will recover their interest as a matter of law. The seven senior managers, as a matter of law, released their right to the trust funds.
The purpose of the trust, as spelled out in the plan, was to induce United managers to stay with the troubled company. The amounts were not exorbitant and were to be awarded only for work that the employees actually performed. The money was conditioned on their working at United until January 1, 1989.
These "bonuses" were, more accurately, a form of deferred compensation. They were not severance pay. An employee who receives severance pay is actually being compensated for not working. These bonuses also were not golden parachutes (current slang for high-level, expensive severance packages). Parenthetically, in some instances extraordinarily expensive severance packages for numerous executives are used as a technique to limit the attractiveness of the company to an independent successor. Unlike receiving severance pay or a golden parachute, the United employees actually worked for the compensation now held in trust. This plan is similar to retaining part of an expatriate worker's pay on the condition that the full term abroad be worked. Each of the beneficiaries accepted United's offer to defer for nine months their reward for riding out the rapid downward spiral of United.
The FDIC contends that the plan and trust are invalid because (a) the funds were fraudulently transferred, (b) their creation was unsafe and unsound, and (c) there was never board approval. The FDIC has failed to articulate a plausible factual basis for these bald assertions. The beneficiaries presented ample evidence to squelch these gratuitous quibbles.
To support a claim of fraudulent transfer, the FDIC must show that the officers created the trust with the intent to defraud United creditors and that the trust rendered United insolvent. Tex.Bus. & Com. Code Ann. § 24.001 (1991). United was not insolvent when it created the trust, and there is no evidence to support the allegation that the trust rendered United insolvent.
United did not conceal the transfer; members of the FHLB were present at the board meeting when the managers discussed and ratified the plan and trust. Upon United's full disclosure, the FHLB did not object. United did not attempt to hide the money at Texas Commerce. United regularly used Texas Commerce as a trustee. It was United's legitimate business decision to encourage experienced employees to stay with the company. United was not in the position to recruit and train new managers in what became its last few months of existence. There was no fraudulent transfer of funds.
The federal regulations prohibit insured institutions from entering into an employment contract that is an "unsafe or unsound" practice. 12 C.F.R. § 563.39(a) (1988). The FDIC asserts, without any factual basis, that the plan rewarded officers for mismanaging the institution into insolvency. The plan rewarded the beneficiaries for standing watch as the ship slowly sank; it did not reward them for running the ship onto the rocks. As a legitimate business decision, the trust and plan were not "unsafe or unsound" for purposes of the federal regulation. Mere allegations, however insulting, will not create issues of fact.
The FDIC also asserts that, even if lawful, the plan and trust never became effective because they were not ratified by the board of directors. Again, the FDIC provides no factual basis for this claim and ignores the evidence in the record. The evidence clearly demonstrates that, not only were they discussed and ratified, but the discussions took place in front of FHLB members. On March 30, 1988, the United compensation committee approved the plan. The board of directors ratified the committee's actions in May of 1988. Both the plan and trust were effective.
Not only is there no factual basis for this claim, but the alleged D'Oench Duhme doctrine is not relevant here. Only if the beneficiaries were trying to enforce the trust against USAT, FSB, or the FDIC would D'Oench Duhme apply. Neither the trust nor the plan is an agreement that tends to diminish the right, title, or interest of the FDIC in any asset it acquired. D'Oench Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). The trust corpus is not an asset of the FDIC. Texas Commerce, as trustee, holds legal title to the funds.
Even if D'Oench Duhme did apply, its requirements of a writing, execution, approval, and continuous official record are satisfied because the minutes reflect multiple specific references to the plan and trust. FDIC v. Eagle Properties, Ltd., 664 F.Supp. 1027, 1051 (W.D.Tex.1985). On the facts and the law, the FDIC is wrong.
To interpret the trust and plan, either federal regulations or Texas law applies. The federal regulations govern employment contracts of savings and loan associations and allow the FSLIC to terminate contracts for future employment after a savings and loan collapses. The other option is to apply Texas trust law. Because the result is the same under either, the debate is academic.
The federal regulations apply specifically to future employment contracts. 12 C.F.R. § 563. Under these regulations, the FSLIC has the ability to treat every employee as an at-will employee. It may fire or retain any employee at its option. The purpose of this regulation was to provide the FSLIC with greater flexibility to reject excessive term and excessive benefit contracts for employment. 47 Fed.Reg. 17471 (1982). The trust and plan are not the abusive contracts contemplated by the regulation; these are not long-term service or high pay commitments that would force a successor entity to buy out former employees. Rather, the trust, created in advance, was a reserve to award the beneficiaries only for the work they performed in 1988. If the trust and plan were disguised severance pay contracts, then the regulations would apply and terminate the long-term, abusive obligations. Rush v. FDIC, 747 F.Supp. 575 (N.D.Cal.1990).
The beneficiaries' claims do not stem from contractual employment rights. See trust article XV. The...
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