ABA Banking Journal - August 2011 - (Page 52)

legal issues | BY GREG TAYLOR FDIC can shoot down more now Harrison decision impacts deals with departed Restrictions on golden parachute and indemnification payments to institution-affiliated parties (“IAPs”) under FDIC rules are something with which most banking lawyers are very familiar. FDIC can restrict potentially abusive payments to IAPs by troubled financial institutions that are contingent on the IAP leaving the bank. (This power was added to the Federal Deposit Insurance Act in 1990.) While FDIC’s “golden parachute” rules are most frequently invoked when scrutinizing executive employment contracts, a very recent decision by the U.S. District Court for the Southern District of Florida solidifies a more expansive interpretation of these regulations by FDIC. The case is Harrison v. Ocean Bank, et al, Case No. 10-23138-CIV-Moreno (S.D. Fla., June 30, 2011). The opinion in Harrison sustained a decision by FDIC to invalidate an agreement between a bank and a former employee to settle a claim that the employee was wrongfully terminated by the institution. Rather than immediately commencing litigation, the bank and the former employee took part in pre-filing mediation that eventually yielded a settlement agreement. The terms of the settlement included provisions for the bank to pay the employee a measure of compensatory damages as well as back pay and attorney fees. Significantly (and, as it turns out, rather prudently), the settlement agreement also included a provision making the settlement contingent upon obtaining the approval of FDIC and the bank’s state chartering authority, despite the fact that the bank took the position that the settlement did not constitute a golden parachute. At the time of the settlement, the bank was deemed to be in a troubled condition, triggering the FDIC’s golden parachute regulations. A request to approve the settlement was filed with FDIC, which turned it down. The employee sued both FDIC and the bank in federal court, seeking to overturn the agency’s decision on the grounds that it was “arbitrary and capricious.” After an initial victory that saw FDIC’s denial remanded back 52  |  ABA BANKING JOURNAL  |  august 2011 to the agency for further explanation, the District Court eventually upheld FDIC’s decision to invalidate the settlement agreement. For attorneys, the Harrison case raises fundamental questions, such as whose opinion ultimately counts regarding the wisdom of settlement. Substantively, the court deferred to both FDIC’s finding that the regulation applied and the justification for its decision, ruling that the court’s inquiry “does not have to go beyond the explanation provided by FDIC” because the agency’s written determination provides a “rational connection between the facts, the regulation it needed to apply and the choice it made.” In other words, Harrison stands for the proposition that if FDIC adequately explains its concerns, a court should defer to a decision by the agency to invalidate a settlement. Does the possibility that the regulator will reject a settlement eliminate incentive for parties to seek a pre-filing settlement? Not necessarily. Still, for institutions in a condition which triggers the golden parachute restrictions, the result in the Harrison case serves notice that FDIC will not rubber-stamp settlements with former employees that, in their opinion, are excessive. n Greg Taylor is associate general counsel at ABA. Contact him at gtaylor@ aba.com

Table of Contents for the Digital Edition of ABA Banking Journal - August 2011

ABA Banking Journal - August 2011
Content
Chairman’s View
Editor’s Column
The Economy
Bank Notes
ABA Community Banking
Pass the Aspirin
Tech Topics
Cover Report: Branch Banking
Branch Design Portfolio
Will Local Players Win Reverse Mortgage Turf?
Compliance Clinic
Compliance Inbox
ABA Resources
Legal Issues
First Person

ABA Banking Journal - August 2011

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