Jerry Von Rohr v. Reliance Bank ( 2016 )

United States Court of Appeals
For the Eighth Circuit
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No. 15-2392
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Jerry Von Rohr
lllllllllllllllllllll Plaintiff - Appellant
v.
Reliance Bank; Federal Deposit Insurance Corporation
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the Eastern District of Missouri - St. Louis
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Submitted: April 12, 2016
Filed: June 21, 2016
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Before GRUENDER and KELLY, Circuit Judges, and ERICKSEN,1 District
Judge.
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ERICKSEN, District Judge.
Jerry Von Rohr was an executive at Reliance Bank. After the bank terminated
Von Rohr, he requested payment for the one year remaining on his employment
1
The Honorable Joan N. Ericksen, United States District Judge for the District
of Minnesota, sitting by designation.
contract. The Federal Deposit Insurance Corporation (FDIC) advised that the payment
was a prohibited “golden parachute,” which the bank could not make without prior
agency approval. Von Rohr filed suit against the bank and the FDIC. He alleged a
breach of contract under Missouri law and sought a declaration that federal law does
not prohibit the payment. The district court2 upheld the FDIC determination and
granted summary judgment to the bank. Von Rohr appeals. We affirm.
I
For thirteen years, Von Rohr was an executive at the bank, serving initially as
chairman, president, and chief executive officer. On June 16, 2011, the bank notified
Von Rohr it would not renew his employment agreement when it terminated on
September 1, 2011. Von Rohr asserted that his contract did not expire for another
year and claimed he was entitled to compensation for that year. The FDIC, in
response to an inquiry from the bank, advised that Von Rohr sought a “golden
parachute payment,” which the bank could not make without prior FDIC approval.
The bank declined to make the payment Von Rohr sought.
On February 5, 2013, Von Rohr filed a complaint against the bank and the
FDIC. He alleged he was terminated in breach of his contract and sought $405,000
in damages. He also sought a declaration that any payment compensating him for the
termination was not prohibited by federal law. At the parties’ joint request, the district
court stayed the action while Von Rohr applied to the FDIC for a final agency
determination as to whether the compensation sought was a prohibited golden
parachute under the Federal Deposit Insurance Act, 12 U.S.C. § 1828(k), and the
implementing regulations, 12 C.F.R. § 359.1
2
The Honorable Carol E. Jackson, United States District Judge for the Eastern
District of Missouri.
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The Act defines “golden parachute payment” to include “any payment (or any
agreement to make any payment) in the nature of compensation by any insured
depository institution . . . for the benefit of any institution-affiliated party” (IAP) that
is also “contingent on the termination” of the IAP and received when the institution
is in “troubled condition.” 12 U.S.C. § 1828(k)(4). The regulatory definition largely
tracks the statutory definition, except for the contingency clause. While the statute
states a golden parachute payment is “contingent on” termination, the regulation
states it is “contingent on, or by its terms is payable on or after,” termination. 12
C.F.R. § 359.1(f)(1)(i). Once the FDIC determines a payment is a golden parachute,
a bank cannot make the payment without FDIC approval. Id. at § 303.244. FDIC
regulations list the information an application for approval must contain. Id. This
regulatory scheme prevents troubled banks from draining their already low resources
with payments to terminated executives, who may have been responsible for the
bank’s condition.
On October 28, 2013, the FDIC determined that Von Rohr was an IAP seeking
a golden parachute from a bank in troubled condition. The FDIC’s opinion letter
concluded: “It is our opinion that, once Von Rohr was terminated, any payments
being sought by Von Rohr from Reliance Bank for services he did not render
constitute prohibited golden parachute payments under Part 359.” The FDIC did not
address whether to approve an exception because, as the letter stated, Von Rohr did
“not meet even the basic application requirements prescribed.”
On May 20, 2014, the district court upheld the FDIC’s determination. On May
28, 2015, the district court entered summary judgment for the bank, finding that the
FDIC’s determination made the bank’s performance under the contract impossible.
Von Rohr filed a timely appeal challenging the agency action and the grant of
summary judgment.
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II
We review de novo the district court’s decision to uphold the FDIC’s
determination. See El Dorado Chemical Co. v. EPA, 763 F.3d 950, 955 (8th Cir.
2014). A reviewing court must set aside an agency action where it is “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A). An agency action is arbitrary or capricious if “the agency has relied on
factors which Congress has not intended it to consider, entirely failed to consider an
important aspect of the problem, offered an explanation for its decision that runs
counter to the evidence before the agency, or is so implausible that it could not be
ascribed to a difference in view or the product of agency expertise.” El Dorado
Chemical, 763 F.3d at 955–56.
A
Von Rohr first argues the agency determination is not worthy of deference
because it is inconsistent with FDIC positions taken elsewhere. The Supreme Court
has stated that deference is unwarranted where the agency’s interpretation does not
reflect the agency’s “fair and considered judgment,” which “might occur when the
agency’s interpretation conflicts with a prior interpretation.” Christopher v.
SmithKline Beecham Corp., 132 S. Ct. 2156, 2166 (2012).
Von Rohr points to two documents that he claims reveal inconsistencies. First,
he cites to a footnote in an FDIC guidance document stating that golden parachute
restrictions “do not apply to the payment of salaries or bonuses.” The FDIC’s action,
though, accords with this statement. The agency’s letter barred post-termination
payments to Von Rohr “for services he did not render.” Nothing in the FDIC’s
opinion prevented Von Rohr from receiving salary and bonuses owed to him for work
he had performed.
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Von Rohr also cites to the FDIC’s position in Harrison v. Ocean Bank, 614 F.
App’x 429 (11th Cir. 2015). In Harrison, a bank in troubled condition terminated an
executive, who threatened to sue for discrimination and whistleblower retaliation,
among other claims. Id. at 432. Though no suit was filed, the bank agreed to a $1
million settlement, subject to FDIC approval. Id. The FDIC determined the settlement
was a golden parachute and did not approve an exception. Id. at 433. The district
court upheld the FDIC. Id. at 435-36. On appeal to the Eleventh Circuit Court of
Appeals, the FDIC stated in a footnote that “[a]ffirmance would not preclude
terminated IAPs such as Harrison from litigating in court the merits of their claims.”
Von Rohr argues this footnote is at odds with the FDIC’s position limiting his
ability to litigate his claim. However, Harrison involved statutory claims, while Von
Rohr brought only a contract claim. The agency has consistently held that section
1828(k) does not preclude payment of damages for statutory claims. It has not taken
the same position with regard to contract claims. As discussed in the next section, the
agency’s distinction between statutory and contract claims is reasonable.
There is also some discussion in the briefs about whether to extend Chevron
and Auer deference to the agency. Chevron deference applies when an agency
interprets ambiguous language in its enabling statute. Chevron ,U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984). Auer deference applies when
an agency interprets ambiguous language in its own regulation. Auer v. Robbins, 519
U.S. 452 (1997). As discussed below, the outcome in this matter hinges on the
definition of “contingent.” The FDIC relies on the dictionary meaning of the word.
Black’s Law Dictionary defines “contingent” to mean: “Dependent on something that
might or might not happen in the future; conditional.” (10th ed. 2014). Because the
agency treats the word as unambiguous and relies on its dictionary meaning, the issue
of Chevron and Auer deference is irrelevant. We simply rely on the word’s common
and dictionary meaning too.
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B
Von Rohr challenges the agency determination that he seeks payment
“contingent on” his termination, as necessary to meet the definition of “golden
parachute payment” in section 1828(k). He concedes the payment otherwise satisfies
the statutory definition.
Von Rohr argues the payment is not contingent on termination because he
would have received the same amount if he had worked for the one year left on his
contract instead of being terminated. Von Rohr might be correct that the contract
contemplated two ways he could become entitled to the same amount. But this does
not mean the agency determination was arbitrary. One could reasonably characterize
the payment obligation as contingent on either Von Rohr’s termination or his
continued employment. If a third event occurred, such as Von Rohr choosing to quit,
the obligation would not arise.3 Von Rohr alleged the bank came to owe the payment
because of his termination, not because of services he rendered. The agency therefore
determined the payment was contingent on termination. We cannot find that this
determination was arbitrary or capricious.
Von Rohr argues the FDIC should regulate only those arrangements that
specifically contemplate compensation solely in the event of termination. Von Rohr’s
approach, though, would create a giant loophole. Banks and executives could
structure their agreements to allow for post-termination payments that would function
as golden parachutes but avoid the magic words triggering the FDIC’s regulations.
3
Von Rohr’s employment agreement states that, if Von Rohr, without consent,
shall “cease to render services as required by this Agreement . . ., he will thereby
relinquish all rights to any benefits hereunder, including future salary payments.”
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Von Rohr cites to Sterling Savings Bank v. Stanley, No. 12-cv-214, 2012 WL
3643679 (E.D. Wa. Aug. 23, 2012), where the court found that golden parachute
restrictions did not preclude a terminated bank executive from recovering damages
in her discrimination suit against her former employer. Id. at *3. Like the court in
Sterling Savings, the FDIC takes the position that Congress did not intend the golden
parachute rules to preclude damages based on discrimination or other statutory
claims. Von Rohr’s case is different, though, because Von Rohr brought a contract
and not a statutory claim. The FDIC’s letter specifically distinguished Sterling
Savings on this basis.
The FDIC’s distinction between contract and statutory claims is sensible given
the statutory language. Section 1828(k) authorizes the FDIC to “prohibit or limit . .
. any golden parachute payment,” including “any agreement to make any [golden
parachute] payment.” 12 U.S.C. §§ 1828(k)(1), (4)(A). When a terminated bank
executive sues for breach of contract, the basis of his claim is an agreement, which
the FDIC is authorized to restrict to prevent golden parachute payments. By contrast,
when the basis of the claim is a statute, the FDIC does not have the same authority
because section 1828(k) does not expressly authorize the FDIC to restrict bank
employees’ statutory protections.4
Von Rohr advances several other grounds for questioning the agency action,
each of which is unavailing. First, he argues the agency misinterpreted the “by its
terms is payable on or after” termination language in the regulatory contingency
clause. However, the Court need not examine this language because the FDIC’s
decision does not hinge on it. The “contingent on” termination language, which is in
4
Von Rohr’s argument that the Sterling Savings court did not distinguish
between contract and statutory claims is irrelevant. The FDIC has made the
distinction, and it is the FDIC’s reasoning that is under review.
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both the statute and the regulation, does all the work necessary to support the
agency’s determination.
Second, Von Rohr argues the FDIC has no authority to deprive him of his
vested compensation rights. He cites to a case in which the court held a bank
executive was entitled to retirement benefits that had vested at the time of FDIC
receivership. See McCarron v. FDIC, 111 F.3d 1089, 1098 (3d Cir. 1997). Von Rohr,
though, does not seek vested retirement benefits or any other type of vested benefit
excluded from the statute. See 12 U.S.C. § 1828(k)(4)(C) (defining “golden parachute
payment” to exclude payments pursuant to qualified retirement plans, other
nondiscriminatory benefit plans, and certain bona fide deferred compensation plans).
Finally, Von Rohr attacks the FDIC for disregarding the common meaning of
golden parachute payment. However, because the term is given a specific definition
in the statute, the common meaning is irrelevant. The agency is bound to follow the
statutory definition. See Perrin v. United States, 444 U.S. 37, 42 (1979). The agency’s
determination as to Von Rohr is a reasonable application of this statutory language.
III
We review de novo the district court’s decision to grant summary judgment.
Wingate v. Gage Cnty. Sch. Dist., No. 34, 528 F.3d 1074, 1078 (8th Cir. 2008).
Summary judgment is proper “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a). “Although the burden of demonstrating the absence of any genuine
issue of material fact rests on the movant, a nonmovant may not rest upon mere
denials or allegations, but must instead set forth specific facts sufficient to raise a
genuine issue for trial.” Wingate, 528 F.3d at 1078-79. “The mere existence of a
scintilla of evidence in support of the [nonmovant’s] position will be insufficient;
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there must be evidence on which the jury could reasonably find for the [nonmovant].”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).
Under Missouri law, “[i]f a party, by contract, is obligated to a performance
that is possible to be performed, the party must make good unless performance is
rendered impossible by an Act of God, the law, or the other party.” Farmers’ Elec.
Co-op., Inc. v. Missouri Dep’t of Corr., 977 S.W.2d 266, 271 (Mo. banc 1998). Here,
the bank’s obligation to pay Von Rohr was rendered impossible when the FDIC
determined the payment was a golden parachute.
Either Von Rohr or the bank could have attempted to render the golden
parachute payment possible by applying for an exception. FDIC regulations allow
banks or IAPs to apply for approval of a golden parachute payment. 12 C.F.R. §
359.4(a)(4). The parties signed a joint motion to stay the district court action to allow
Von Rohr to “submit a written application covering all of the issues concerning which
Von Rohr seeks a decision from the FDIC concerning the payment.” However, Von
Rohr failed to meet the basic application requirements for an exception.5 As a result,
the FDIC never decided whether to approve an exception. If Von Rohr had submitted
a proper application and the agency had declined to grant an exception, Von Rohr
could have sought judicial review of that decision. But, having failed to initiate the
process with the agency, Von Rohr cannot now ask the Court to examine whether he
should receive an exception.
5
Von Rohr argues that, without the bank’s help, he could not satisfy the
requirement that his application state the “cost of the proposed payment and its
impact on the institution’s capital and earnings.” 12 C.F.R. § 303.244(c)(4). However,
the amount sought is specified in his complaint, and details on the bank’s finances are
publicly available.
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Even though the bank remains barred from making the payment, Von Rohr
argues the bank lost its ability to rely on the impossibility defense when it failed to
submit its own application for FDIC approval. Von Rohr cites to the doctrine that a
party relying on the impossibility defense must demonstrate “it took virtually every
action within its powers to perform its duties under the contract.” Farmers’ Elec., 977
S.W.2d at 271.
The bank maintains it did not apply because it could not meet the requirement
that an applicant certify “it does not possess and is not aware of any information,
evidence, documents or other materials which would indicate that there is a
reasonable basis to believe . . . [t]he IAP is substantially responsible for . . . the
troubled condition.” 12 C.F.R. § 359.4(a)(4)(ii). The bank cites to an October 3, 2011
letter to Von Rohr from the bank’s chairman and CEO, Allan Ivie. The letter states
that the bank’s Board of Directors’ reasons for termination include “the opinion that
your leadership was significantly responsible for the Bank’s current financial
condition.” The record also contains a declaration from Ivie stating the bank will not
make the certification “[a]s a result of this October 3, 2011 letter, and the information
upon which it is based.”
Von Rohr suggests the October 3, 2011 letter is unsupported hearsay. However,
the letter was not admitted to prove the truth of the matter. It was admitted to show
the bank possesses a document preventing it from making the necessary certification.
Von Rohr also asserts the bank has not shown Von Rohr was responsible for the
bank’s troubled condition. However, the relevant issue is not whether he was in fact
responsible but whether the bank can certify it does not possess information giving
it a reasonable basis to believe Von Rohr was substantially responsible. Von Rohr
failed to create a genuine dispute on this issue. Von Rohr did not ask for or conduct
any discovery, and he did not submit any evidence to rebut the bank’s evidence
showing it could not make the certification.
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Finally, Von Rohr argues the FDIC action did not preempt, and thus did not
render fully impossible, the state breach of contract claim. Von Rohr elides two
separate defenses: the contract defense of impossibility and the federal preemption
of state law. Application of the impossibility defense does not require a finding of
federal preemption.6
IV
Accordingly, we affirm the district court.
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6
We offer no opinion on the applicability of a conflict preemption defense, an
issue that was not addressed by the district court.
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