The opinion of the court was delivered by: STANLEY SPORKIN
Plaintiff, Joseph C. LaMagna, seeks enforcement of an employment agreement which the Federal Deposit Insurance Corporation ("FDIC") repudiated after being appointed receiver of Mr. LaMagna's former employer, the American Savings Bank ("American"). The agreement provided that if Mr. LaMagna was terminated without cause before the expiration of the one-year term, he would receive a lump-sum severance payment of $ 160,000 from American. Shortly after being appointed receiver of American, and before the expiration of Mr. LaMagna's employment agreement, the FDIC terminated Mr. LaMagna's employment without cause. The FDIC has refused to pay LaMagna the $ 160,000 severance benefits.
Defendant, the FDIC, has moved to dismiss Plaintiff's complaint pursuant to Fed. R. Civ. Pro. 12(b)(6). A hearing on Defendant's motion was held on July 1, 1993. At the hearing, counsel for both parties agreed that this case is ripe for a decision on the merits. Accordingly, this Memorandum Opinion and Order represents the final judgement of this Court.
Mr. LaMagna began working at American Savings Bank in 1987. In the summer of 1991 he was Controller of American. In July 1991, he received an offer of employment from another financial institution, the Dime Savings Bank. American asked LaMagna to remain at the bank as part of a new management team. In August 1991, LaMagna and American finalized a new one-year employment contract. Under the contract, LaMagna was promoted to Executive Vice President and Chief Financial Officer. He was also guaranteed severance benefits of one year's salary ($ 160,000) in the event he was terminated without cause.
On June 12, 1992, American was declared insolvent and the FDIC was appointed receiver. Shortly thereafter, and prior to the expiration of the one-year term of LaMagna's employment agreement, the FDIC terminated LaMagna's employment at American.
For the reasons stated below, the Court finds that the FDIC, as receiver of the American Savings Bank, must honor the severance clause of Mr. LaMagna's employment agreement. The FDIC will be ordered to issue a receivership certificate to LaMagna in the amount of $ 160,000 reduced by the pro rata distribution factor of American's assets.
FIRREA provides that a receiver may disaffirm or repudiate the uncompleted portion of any contract,
"the performance of which the . . . receiver . . . in its discretion, determines to be burdensome; and the disaffirmance or repudiation of which the . . . receiver determines . . . will promote the orderly administration of the institution's affairs."
The FDIC's ability to repudiate LaMagna's employment contract is based upon the extent to which obligations arising from that contract were fixed on the date the FDIC was appointed receiver of American.
See 12 U.S.C.A. § 1821(e)(3). The dispositive question, therefore, is when LaMagna's severance payment obligation became fixed, or determined.
Contract obligations can be classified as executory and nonexecutory. Executory contracts are those under which neither party has performed his or her obligation under the contract.
A nonexecutory contract is one under which liability for performance has accrued because one party has performed his or her contractual obligations. Under FIRREA, the FDIC can repudiate executory contracts. It cannot repudiate contracts which the non-bankrupt party has performed. See First Nat'l Bank v. Unisys Fin. Corp., 779 F. Supp. 85, 86-87 (N.D. Ill. 1991), aff'd, Unisys Fin. Corp v. RTC, 979 F.2d 609 (7th Cir. 1992).
In August 1991, LaMagna agreed to remain at American rather than accept the offer from the more secure Dime Savings Bank in exchange for a new one-year contract which included the severance payment. American agreed to pay severance benefits if LaMagna was terminated without cause. The FDIC was aware of the agreement and did not object to its terms.
As a result of the agreement, American received the services of an experienced employee for one year. The parties agree that Mr. LaMagna's termination constituted a "Termination Giving Rise to Severance Benefits" under the employment agreement.
The FDIC contends that the severance obligation did not vest until Mr. LaMagna was terminated, which occurred after the FDIC was appointed receiver of American. For this reason the FDIC ...