Martinez v. Rocky Mountain Bank

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT October 4, 2013
Elisabeth A. Shumaker
Clerk of Court
JOE F. MARTINEZ,
Plaintiff-Appellant,
v. No. 11-8076
(D.C. No. 2:10-CV-00245-NDF)
ROCKY MOUNTAIN BANK, a (D. Wyo.)
Wyoming banking corporation; ROCKY
MOUNTAIN CAPITAL, a Wyoming
corporation,
Defendants-Appellees.
ORDER AND JUDGMENT*
Before HARTZ, Circuit Judge, BRORBY, Senior Circuit Judge, and EBEL, Circuit
Judge.
Joe F. Martinez, a former president and regional vice-president of Rocky
Mountain Bank and Rocky Mountain Capital (collectively, “Bank”), sued the Bank to
recover his severance pay. The Bank settled but later refused to pay under the terms
*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
of the settlement agreement because federal regulators deemed the payment a
prohibited “golden parachute.” Mr. Martinez asked the district court to enforce the
agreement anyway, but the court denied his motion and granted in part the Bank’s
motion for a judgment of impracticability, excusing the Bank’s duty to perform under
the settlement agreement. The court then entered a Rule 54(b) certification, see
Fed. R. Civ. P. 54(b), and Mr. Martinez appealed. We affirm. We also deny the
Bank’s request to seal documents contained in the appendix and supplemental
appendix.
I
The Federal Deposit Insurance Act authorizes the FDIC to regulate certain
severance payments called “golden parachutes.” 12 U.S.C. § 1828(k). Relevant
here, a golden parachute is a payment made by a troubled bank (“insured depository
institution”) to a former employee (“institution-affiliated party”) on or after the date
the employee is terminated.1 “Troubled banks are generally prohibited from making
1
12 U.S.C. § 1828(k)(4)(A) defines a “golden parachute” as:
[A]ny payment (or any agreement to make any payment) in the nature of
compensation by any insured depository institution or covered company
for the benefit of any institution-affiliated party pursuant to an
obligation of such institution or covered company that –
(i) is contingent on the termination of such party’s affiliation with
the institution or covered company; and –
(ii) is received on or after the date on which –
....
(continued)
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golden parachute payments without the consent of the appropriate federal banking
agency and the written concurrence of the FDIC.” Mountain Heritage Bank v.
Rogers, 728 S.E.2d 914, 916 (Ga. Ct. App. 2012); see also 12 C.F.R. § 359.2; id.
§ 359.4(a)(1). It is undisputed that the Bank is an “insured depository institution,”
see 12 C.F.R. § 359.1(g), and that, as a former senior Bank officer, Mr. Martinez is
an “institution-affiliated party” (“IAP”), see id., § 359.1(h).
In 2007, the Bank hired Mr. Martinez under an employment contract providing
for an annual base pay of $200,000 plus bonuses and stock options. His contract also
provided for a severance package of one year’s base pay if he was terminated without
cause. On June 14, 2010, the Bank was notified by its primary regulator, the Federal
Reserve Board (“Federal Reserve”) that it was in a “troubled condition” as defined by
12 C.F.R. § 225.71(d). That designation triggered the regulatory prohibition on
golden parachute payments. Shortly thereafter, on September 23, 2010, Mr. Martinez
was terminated by the Bank. He was told at that time that the Federal Reserve and
FDIC prohibited the severance package promised to him in his employment contract.
Mr. Martinez responded with this lawsuit for breach of contract, breach of the
implied covenant of good-faith and fair dealing, and violation of Wyoming’s Unpaid
Wages Act, Wyo. Stat. Ann. §§ 27-4-101 to -116. According to the complaint,
Mr. Martinez was entitled to “[s]everance compensation in the amount of $200,000,”
(III) the institution’s appropriate Federal banking agency
determines that the insured depository institution is in a
troubled condition . . . .
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Aplt. App. at 15, which he characterized as “wages in the form of severance pay,” id.
at 20. The parties entered into negotiations, and on December 8, 2010, the Bank sent
a draft settlement agreement to Mr. Martinez. In the accompanying email, the Bank
alerted Mr. Martinez it was seeking approval from the Federal Reserve to make the
proposed settlement, which was “contingent upon [Federal Reserve] authorization.”
Aplt. App. at 442. During that same month, the Bank’s new CEO, Terry Earley, had
multiple conversations with regulators at the Federal Reserve, attempting to obtain
their approval. The parties eventually reached an agreement requiring the Bank to
pay Mr. Martinez $100,000 in exchange for his release of his claims. On January 6,
2011, the Bank sent Mr. Martinez a final settlement agreement, with the stipulation
that he amend his complaint to remove any reference to severance pay. Mr. Martinez
amended his complaint accordingly, and the Bank sent the amended complaint to the
Federal Reserve. The Bank also sent the Federal Reserve a risk analysis assessing
the Bank’s liability. On January 10, Mr. Martinez executed the settlement
agreement, making it enforceable under its express terms. The Federal Reserve still
had not approved the payment.
The next month, the Bank wrote a letter to the Federal Reserve asking it to
issue a “non-objection” to the settlement payment. Aplt. App. at 377. On March 11,
2011, Stephen Meyer, assistant general counsel to the Board of Governors of the
Federal Reserve System in Washington, D.C., responded to the Bank by letter
(“Meyer letter”). The Meyer letter stated that the $100,000 payment was in fact a
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prohibited golden parachute under 12 U.S.C. § 1828(k) and 12 C.F.R. § 359.2. The
Meyer letter informed the Bank that it could seek an exception to these restrictions,
but doing so would require the Bank or Mr. Martinez to certify that they neither
possessed nor were aware of any information indicating that Mr. Martinez was
substantially responsible for the Bank’s troubled condition. See 12 C.F.R.
§ 359.4(a)(4)(ii). The Bank could not make this certification, however, because
Mr. Earley had already discovered that Mr. Martinez was involved in originating
risky loans that resulted in significant losses for the Bank.
Mr. Martinez thus reinstated his claims for severance pay in a second amended
complaint and moved the district court to enforce the settlement agreement. For its
part, the Bank moved for a legal determination of impracticability, arguing that it
could not legally make the payment due to the regulatory prohibitions.
In two separate orders, the district court denied the motion to enforce the
settlement agreement and later granted in part the Bank’s motion for a determination
of impracticability.2 The court first concluded that an enforceable contract existed,
but that the Bank’s obligation to perform had not become due because the Federal
Reserve had refused to authorize the payment. Then, to determine whether the Bank
had taken reasonable steps to obtain that authorization, the court held an evidentiary
hearing. It found that the Bank had acted in accord with its contractual obligations,
2
The court denied the Bank’s motion to the extent it sought a determination of
impracticability for its obligations under Mr. Martinez’s employment contract. We
express no opinion on that ruling.
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including the covenant of good faith and fair dealing, but its performance was
impeded by a supervening impracticability—the Federal Reserve’s refusal to
authorize the payment. Thus, the court ruled that the Bank’s performance under the
settlement agreement was excused by the non-occurrence of a condition precedent.
After the court entered its Rule 54(b) certification, this appeal followed.3
II
On appeal, Mr. Martinez advances three arguments, although not in this order.
First, he contends the district court erred in interposing a condition precedent to the
settlement agreement. Second, he challenges the court’s finding of impracticability,
which he says relied solely on inadmissible hearsay. And third, Mr. Martinez asserts
his settlement payment falls within an exception to the golden parachute restrictions.
We consider these arguments in turn.
A. Settlement Agreement
We review the district court’s refusal to enforce the settlement agreement for
an abuse of discretion. See Walters v. Wal-Mart Stores, Inc., 703 F.3d 1167, 1172
(10th Cir. 2013). “Because settlement agreements are contracts, issues involving the
formation and construction of a purported settlement agreement are resolved by
3
The court certified its judgment under Rule 54(b) and 28 U.S.C. § 1292(b),
though Mr. Martinez made no application to appeal pursuant to § 1292(b). In accord
with Rule 54(b), the court entered a final judgment, finding no just reason for delay.
This certification was proper because the denial of the settlement agreement
extinguished Mr. Martinez’s remedies under that contract, leaving him to seek relief
on the “distinct and separable” claims alleged in his second amended complaint. See
Jordan v. Pugh, 425 F.3d at 820, 826 (10th Cir. 2005).
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applying state contract law.” Id. (internal quotation marks and brackets omitted). In
Wyoming, mutual assent to a settlement agreement is established by an offer,
acceptance, and consideration. W. Mun. Constr. of Wyo., Inc., v. Better Living, LLC,
234 P.3d 1223, 1227-28 (Wyo. 2010).
Mr. Martinez first argues that the district court erred in interposing a condition
precedent to the Bank’s obligation to perform under the settlement agreement. He
says there is no mention of a condition in the settlement agreement and parol
evidence should not have been used to establish one. He further argues that he never
assented to any condition precedent and that if the need for regulatory authorization
was foreseeable, it should have been incorporated into the settlement agreement.
The underlying flaw in these arguments, however, is the false premise that the
parties could assent to the regulations. Unlike other cases in which the validity of the
condition precedent turns on the parties’ assent, see, e.g., Lewis v. Roper, 579 P.2d
434, 439 (Wyo. 1978), the condition here—the Federal Reserve’s approval—was
imposed by regulatory mandate, see 12 C.F.R. § 359.2; id. § 359.4(a)(1). Thus, the
parties had no choice but to submit to the golden parachute regulations and obtain the
Federal Reserve’s authorization, regardless of Mr. Martinez’s assent.
Of course, the parties could have provided for this foreseeable contingency in
their contract, but the absence of any express provision does not suggest the Bank
assumed the risk that the Federal Reserve would deny authorization. Mr. Martinez
insists the Bank was “expected to have provided for any foreseeable contingencies in
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the controlling contract.” Aplt. Br. at 22, citing Mortenson v. Scheer, 957 P.2d 1302,
1306 (Wyo. 1998). But Mortenson is distinguishable. The obligors in that case
expressly “agreed they would obtain the necessary [government] permits and
approvals,” yet they failed to do so and failed to include any provision in the contract
for that contingency. Id. at 1304, 1307 (internal quotation marks omitted). Here, by
contrast, the settlement agreement did not obligate the Bank to obtain the Federal
Reserve’s approval. And the regulations enabled either the Bank or Mr. Martinez to
seek the required authorization. See 12 C.F.R. § 359.4(a)(4). Consequently, we
cannot say the Bank was solely responsible for satisfying the condition precedent and
assumed the risk of failing to do so by omitting any provision for that contingency in
the contract.4
Still, Mr. Martinez contends that because there is no mention of a condition
precedent in the settlement agreement, no condition precedent should apply. But the
evidence before the district court clearly established that both parties knew the
settlement agreement was subject to the Federal Reserve’s approval. Indeed, the
Bank’s December 8 email to Mr. Martinez expressly stated that the proposed
4
This is not to say the Bank had no obligation to seek the Federal Reserve’s
approval. Although the settlement agreement did not require the Bank to obtain the
Federal Reserve’s approval, the Bank was still duty bound by the implied covenant of
good faith and fair dealing to seek the required authorization. See Scherer Constr.,
LLC v. Hedquist Constr., Inc., 18 P.3d 645, 653 (Wyo. 2001) (“Compliance with the
obligation to perform a contract in good faith requires that a party’s actions be
consistent with the agreed common purpose and justified expectations of the other
party.”).
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settlement was “contingent upon [Federal Reserve] authorization” and that “the Bank
will not execute the agreement until such time as the [Federal Reserve] gives us the
green light.” Aplt. App. at 442. Additionally, Mr. Earley testified that the parties
agreed that Mr. Martinez “would amend [his] complaint to delete the severance claim
and that it would be settled for $100,000 subject to approval by the regulators to
allow that payment.” Id. at 274. Consistent with this testimony, the Bank emailed
the final agreement to Mr. Martinez on January 6, 2011, with the stipulation that he
remove from his complaint all references to severance pay, and Mr. Martinez
amended his complaint accordingly the next day. This demonstrates that both parties
knew there was an existing condition precedent. Mr. Martinez protests the use of this
parol evidence, but Wyoming law allows parol evidence to establish conditions
precedent, see Belden v. Thorkildsen, 156 P.3d 320, 324 (Wyo. 2007). Thus, the
court did not err in finding a condition precedent to the Bank’s duty to perform.
B. Impracticability and the Meyer Letter
We next consider whether it was impracticable for the Bank to make the
settlement payment. “Impracticability of performance is a legal justification or
excuse for nonperformance of a contractual obligation.” Central Kan. Credit Union
v. Mutual Guar. Corp., 102 F.3d 1097, 1102 (10th Cir. 1996) (citing Restatement
(Second) of Contracts § 261 (1981)). “After a contract is made, if a party’s
performance is made impracticable by the occurrence of an event, the nonoccurrence
of which was a basic assumption upon which the contract was made, that party is
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relieved of the obligation.” Id. The dispositive principle is § 264 of the Restatement,
which provides:
If the performance of a duty is made impracticable by having to comply
with a domestic or foreign governmental regulation or order, that
regulation or order is an event the non-occurrence of which was a basic
assumption on which the contract was made.
Restatement (Second) Contracts § 264 (1981).
The Meyer letter established that the Federal Reserve refused to authorize the
settlement payment as a prohibited golden parachute. This excuses the Bank’s
obligation to perform. See Whitlock Constr., Inc. v. S. Big Horn Cnty. Water Supply
Joint Powers Bd., 41 P.3d 1261, 1267 (Wyo. 2002) (excusing parties’ performance
because contingency of state approval did not occur). Mr. Martinez maintains that
the Meyer letter is inadmissible hearsay, but the letter was not hearsay at all.
Hearsay is an out-of-court statement offered “to prove the truth of the matter asserted
in the statement.” Fed. R. Evid. 801(c)(2). The Meyer letter was not admitted to
show the propriety of the Federal Reserve’s decision, but to show that the Federal
Reserve refused to authorize the payment. Under these circumstances, the letter was
not hearsay, and the Bank’s performance was excused under the doctrine of
impracticability.
C. Exceptions to the Golden Parachute Restrictions
We turn then to Mr. Martinez’s contention that the settlement payment is
excepted from the golden parachute restrictions. Mr. Martinez argues that under
12 C.F.R. § 359.1(f)(2), his settlement was excluded from the golden parachute
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restrictions as either non-discriminatory severance pay, see id. § 359.1(f)(2)(v), or
pay owed to him under state law, see id. § 359.1(f)(2)(vi). The problem with this
argument, however, is that Mr. Martinez either waived or forfeited it by failing to
raise it in the district court. See Richison v. Ernest Grp., Inc., 634 F.3d 1123,
1127-28 (10th Cir. 2011) (holding that legal theories advanced for the first time on
appeal are waived if omitted intentionally or forfeited if omitted through neglect).
In the district court, Mr. Martinez did not argue that his settlement payment
fell under an enumerated exception to the golden parachute regulations. Instead, he
argued that the settlement agreement was enforceable without regard to the golden
parachute regulations. He urged the court to consider only the four corners of the
contract and asserted that if regulators wanted to invoke the regulations to stop the
payment, they should intervene, establish standing, and either object to the entry of
judgment or wait until he attempted to execute on the judgment. See Aplt. App. at
139-40, 168. Then at the evidentiary hearing, Mr. Martinez repeatedly objected to
evidence suggesting that the golden parachute regulations barred his payment. See,
e.g., id. at 239-40 (objecting to the Meyer letter and the June 14, 2010 notice from
Federal Reserve that Bank was in a “troubled condition”); id. at 291 (arguing that the
Meyer letter should be stricken). Although the Bank responded that the evidence was
relevant to establish the impracticability of its performance, not the propriety of the
Federal Reserve’s application of the golden parachute regulations, see id. at 317-18,
Mr. Martinez insisted the evidence was unreliable, see id. at 314 (arguing that
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Mr. Meyer should be subject to cross-examination to show “why . . . [his] opinion
may not be supported by foundation or may be incorrect”).
The district court clarified that it was not reviewing the Federal Reserve’s
application of the golden parachute regulations, let alone any of the exceptions now
invoked by Mr. Martinez. As the court explained:
[T]he issue here is not a review of agency action. We’re not here to
ascertain whether the Federal Reserve [Board’s] decision was arbitrary,
capricious or not adequately supported. We are here to inquire into the
efforts of Rocky Mountain Bank, both past and current, in terms of
meeting its burden to show that their – that they have impracticability or
impossibility available to them as a defense.
Id. at 319. Moreover, the court’s recognition that the golden parachute restrictions
applied was predicated not on its own independent analysis of the regulations but on
the Federal Reserve’s June 14, 2010, notice that the Bank was in a troubled
condition. Indeed, as the court observed:
One effect of the “troubled condition” determination is that [the Bank]
was “generally prohibited from making, or entering into an agreement to
make, a severance payment to any officer, director, or employee without
the prior written approval of the [Federal Reserve] and the Federal
Deposit Insurance Corporation [FDIC].
Id. at 197 (quoting the Federal Reserve’s June 14, 2010, notice). Although the court
noted the specific regulatory exceptions Mr. Martinez now relies upon, the court
never evaluated those exceptions because Mr. Martinez never invoked them.
The only exception the court did consider was whether the Bank or
Mr. Martinez might have sought authorization under 12 C.F.R. § 359.4(a)(4) if either
of them could have certified that Mr. Martinez was not substantially responsible for
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the Bank’s troubled condition. But the evidence demonstrated that the Bank had
conducted a good-faith inquiry into whether it could make the required certification
and had appropriately concluded that it could not. And since there was no evidence
that Mr. Martinez had attempted to make the required certification himself, the court
recognized that § 359.4(a)(4) was not available. Apart from this provision, the court
did not consider any other exceptions because Mr. Martinez did not raise them.
Accordingly, we decline to consider in the first instance whether Mr. Martinez’s
settlement payment falls under an exception to the golden parachute restrictions.
D. Bank’s Request to Seal
Finally, we consider the Bank’s request to seal Volume One of the
supplemental appendix, as well as other documents in the main appendix. The Bank
submitted Volume One of the supplemental appendix under seal, but the clerk
directed the Bank to show cause why these documents should remain under seal
given our presumption in favor of public access. In response, the Bank claims the
materials are protected from public disclosure under the bank examination privilege.
See In re Bankers Trust Co., 61 F.3d 465, 471 (6th Cir. 1995). Moreover, the Bank
says the same privilege applies to certain documents in the main appendix. Although
the Bank does not specify which documents in the main appendix should be sealed, it
appears that the Bank seeks to protect from public disclosure any documents that
were sealed in the district court, including the parties’ briefs on the motion to enforce
the settlement agreement; the Bank’s motion for a judgment of impracticability; the
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court’s order granting a judgment of impracticability; and the court’s Rule 54(b)
certification. The district court sealed these and other documents, as well as the
evidentiary hearing transcripts.
Mr. Martinez objects to the sealed volume of the supplemental appendix. He
says it contains hearsay evidence that should not have been submitted to the district
court and was not considered by the district court. Consequently, Mr. Martinez asks
that we strike Volume One of the supplemental appendix.
We deny the Bank’s request to seal any of the materials in either the
supplemental appendix or the main appendix. The Bank has not shown that its
interests in protecting regulatory communications or matters potentially detrimental
to its business “outweigh the public interests in access” to the judicial records. See
Colony Ins. Co. v. Burke, 698 F.3d 1222, 1241 (10th Cir. 2012). And because the
sealed volume of the supplemental appendix has no impact on our disposition, we
grant Mr. Martinez’s request to strike Volume One of the supplemental appendix and
direct the clerk to return those materials to the Bank.
III
The judgment of the district court is affirmed. The Bank’s request to seal
Volume One of the supplemental appendix and portions of the main appendix is
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denied. Volume One of the supplemental appendix is stricken, and the clerk is
directed to return that volume to the Bank.
Entered for the Court
David M. Ebel
Circuit Judge
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