Bank of New England v. Newman

Court of Appeals for the First Circuit·Decided December 19, 1996·No. 96-1638·Published

Opinion

USCA1 Opinion

[NOT FOR PUBLICATION]

UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT FOR THE FIRST CIRCUIT

____________________

No. 96-1638

BANK OF NEW ENGLAND CORPORATION,

Defendant, Appellant,

v.

LACY G. NEWMAN,

Plaintiff, Appellee.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge] ___________________

____________________

Before

Selya, Circuit Judge, _____________

Aldrich, Senior Circuit Judge, ____________________

and Boudin, Circuit Judge. _____________

____________________

James Donnell with whom Andrews & Kurth L.L.P. was on brief for _____________ _______________________
appellant.
George F. Parker, III with whom Lawrence J. Cohen and Badger, ______________________ __________________ _______
Dolan, Parker & Cohen were on brief for appellee. _____________________

____________________

December 16, 1996
____________________

ALDRICH, Senior Circuit Judge. The agreed question ____________________

in this appeal from the bankruptcy court is whether security

for an employer's breach of contract posted following the

execution of a written employment contract on November 1,

1990, was security for that, or was security for an

antecedent debt within 11 U.S.C. 547(b) because an oral

contract had already been made in June. If it was June, the

security was invalid as a preference -- November 1 being less

than 90 days before the employer's filing under Chapter 7 of

the Bankruptcy Code on January 7, 1991. 11 U.S.C. 547.1

By granting defendant Bank of New England

Corporation (Bank)'s trustee's motion for summary judgment

the bankruptcy court ruled, without opinion, that plaintiff

Lacy G. Newman (Newman) and defendant Bank had in fact

contracted by June 18, 1990, when Newman started work.

Newman v. Bank of New England Corp., 187 B.R. 405, 409 ______ ____________________________

____________________

1. 11 U.S.C. 547 provides in relevant part:

(b) Except as provided in subsection (c) of this section, the
trustee may avoid any transfer of an interest of the debtor
in property--

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by
the debtor before such a transfer was made;

(3) made while the debtor was insolvent;

(4) made--

(A) on or within 90 days before the date of
the filing of the petition . . . .

-2-

(Bankr. D. Mass. 1995). On Newman's appeal the district

court reversed, stating that, on the record before it, it was

not possible to tell whether there was an agreement before

the written contract in November. Upon remand for trial, the

bankruptcy court found "there was no definite agreement until

November 1, 1990." On Bank's appeal the district court

affirmed. On Bank's further appeal, we too affirm.

The contractual problem arose because of the

provisions of the bankruptcy laws and the desire of Newman,

in no way opposed by Bank, that in case his employment

contract was terminated without cause,2 his damages would be

secured. The facts were these. In May, 1990 Bank and Newman

began consideration of the latter's becoming employed as a

senior vice president. There were, of course, talks about

terms, but by June 18, the parties, as evidenced by a written

memorandum, had agreed that Newman's employment was for two

years; his title was to be Senior Vice President; his annual

salary was $225,000, with a guaranteed bonus the first year

of $25,000; there was to be a relocation bonus and expenses,

and an option for 35,000 shares of common stock with standard

anti-dilution provisions. Particularly where Newman began

working, if the matter had ended there, this might have been

____________________

2. It is disputed whether the Chapter 7 proceedings
terminated the contract. The successor bank did not adopt
it. The bankruptcy court's finding in Newman's favor is too
clearly correct to call for further discussion.

-3-

a typical case permitting a finding of an established

contract even though the parties planned a writing that might

add minor details. Chedd-Angier Prod. Co. v. Omni ________________________ ____

Publications Int'l, 756 F.2d 930, 935 (1st Cir. 1985). The __________________

matter, however, did not stop there. The memorandum

indicated that there was to be added a provision to the

effect that in case of termination without fault on Newman's

part, damages were to be secured to protect him from having

to claim with ordinary creditors. Bank agreed in principle -

- apportionment among its creditors would be of no

consequence to it. The problem, as recognized in the

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USCA1 Opinion




[NOT FOR PUBLICATION]



                            UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS



                                FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT



                                 ____________________



        No. 96-1638



                           BANK OF NEW ENGLAND CORPORATION,



                                Defendant, Appellant,



                                          v.



                                   LACY G. NEWMAN,



                                 Plaintiff, Appellee.



                                 ____________________


APPEAL FROM THE UNITED STATES DISTRICT COURT



                          FOR THE DISTRICT OF MASSACHUSETTS



                     [Hon. William G. Young, U.S. District Judge]
                                             ___________________



                                 ____________________



                                        Before



                                 Selya, Circuit Judge,
                                        _____________



                            Aldrich, Senior Circuit Judge,
                                     ____________________



                              and Boudin, Circuit Judge.
                                          _____________



                                 ____________________


James Donnell with  whom Andrews &  Kurth L.L.P. was on  brief for
            _____________            _______________________

        appellant.

            George F.  Parker, III  with whom  Lawrence J.  Cohen and  Badger,
            ______________________             __________________      _______

        Dolan, Parker & Cohen were on brief for appellee.
        _____________________



                                 ____________________



                                  December 16, 1996

                                 ____________________



ALDRICH, Senior Circuit Judge.  The agreed question
                               ____________________



            in  this appeal from the bankruptcy court is whether security



            for  an employer's  breach of  contract posted  following the



            execution  of a  written employment  contract on  November 1,



            1990,  was  security  for  that,   or  was  security  for  an



            antecedent  debt within  11 U.S.C.    547(b) because  an oral



            contract had already been made in June.  If it  was June, the



            security was invalid as a preference -- November 1 being less



            than  90 days before the employer's filing under Chapter 7 of



            the Bankruptcy Code on January 7, 1991.  11 U.S.C.   547.1



                      By  granting   defendant   Bank  of   New   England



            Corporation  (Bank)'s trustee's  motion for  summary judgment



            the bankruptcy  court ruled, without opinion,  that plaintiff



            Lacy  G.  Newman (Newman)  and  defendant  Bank had  in  fact



            contracted  by  June  18,  1990, when  Newman  started  work.



            Newman  v. Bank  of  New England  Corp.,  187 B.R.  405,  409
            ______     ____________________________



                                
            ____________________



            1.  11 U.S.C.   547 provides in relevant part:



            (b) Except as provided in subsection (c) of this section, the

            trustee may avoid any  transfer of an interest of  the debtor

            in property--



                      (1) to or for the benefit of a creditor;



                      (2) for or on account of an antecedent debt owed by

            the debtor before such a transfer was made;



                      (3) made while the debtor was insolvent;



                      (4) made--



                           (A)  on or within  90 days before  the date of

            the filing of the petition . . . .



                                         -2-



(Bankr.  D.  Mass. 1995).   On  Newman's appeal  the district



            court reversed, stating that, on the record before it, it was



            not possible  to tell whether  there was an  agreement before



            the written contract in November.  Upon remand for trial, the



            bankruptcy court found "there was no definite agreement until



            November  1, 1990."    On Bank's  appeal  the district  court



            affirmed.  On Bank's further appeal, we too affirm.



                      The  contractual  problem  arose  because   of  the



            provisions of the bankruptcy  laws and the desire of  Newman,



            in  no way  opposed  by Bank,  that  in case  his  employment



            contract was terminated without  cause,2 his damages would be



            secured.  The facts were these.  In May, 1990 Bank and Newman



            began consideration  of the  latter's becoming employed  as a



            senior vice  president.  There  were, of course,  talks about



            terms, but by June 18, the parties, as evidenced by a written



            memorandum, had  agreed that Newman's employment  was for two



            years;  his title was to be Senior Vice President; his annual



            salary was $225,000, with  a guaranteed bonus the first  year



            of  $25,000; there was to be a relocation bonus and expenses,



            and an option for 35,000 shares of common stock with standard



            anti-dilution  provisions.   Particularly where  Newman began



            working,  if the matter had ended there, this might have been


____________________



            2.  It   is  disputed  whether   the  Chapter  7  proceedings

            terminated the  contract.  The  successor bank did  not adopt

            it.   The bankruptcy court's finding in Newman's favor is too

            clearly correct to call for further discussion.



                                         -3-



a  typical  case  permitting  a  finding  of  an  established



            contract even though the parties planned a writing that might



            add  minor   details.     Chedd-Angier  Prod.  Co.   v.  Omni
                                      ________________________       ____



            Publications Int'l, 756 F.2d  930, 935 (1st Cir. 1985).   The
            __________________



            matter,  however,  did  not   stop  there.    The  memorandum



            indicated  that  there was  to be  added  a provision  to the



            effect that in  case of termination without fault on Newman's



            part, damages were to  be secured to protect him  from having



            to claim with ordinary creditors.  Bank agreed in principle -



            -  apportionment   among  its   creditors  would  be   of  no



            consequence to  it.    The  problem,  as  recognized  in  the



            memorandum, was the needed approval of the bank regulators.



                      This matter  was of consequence to  Newman, who had



            an unhappy  memory of  what happened  to his  severance claim



            when employed by a previous bank that went into receivership.



            The  present  resolution  took  some  four  months.    Partly



            responsible, as the bankruptcy court noted, was the fact that



            Bank's  senior  counsel "had  neither  previously written  an



            employee or severance agreement nor understood the applicable



            banking  regulations   [and]  struggled  to  draft   a  final



            document."  Thereby went the passage of time.



                      This  produced  an  unusual  situation.    If  full



            expression  of  the  promised  severance  provision   was  an



            essential matter, Rosenfield v.  United States Trust Co., 290
                              __________     _______________________



            Mass.  210, 216, 195 N.E.  323, 325 (1935),  Newman went four


-4-



months without any contractual protection at  all in order to



            obtain  an  agreement in  which  it  was positively  assured.



            Without mentioning  this dilemma the  bankruptcy court  found



            that Newman had in fact chosen the positive security route.



                      We see  possible grounds  for this conclusion.   In



            the  first place, the importance of being secured was high in



            Newman's mind  not only from past  experience, but especially



            because Bank was  a "troubled  institution."  He  was not  in



            need  of this  particular  employment; he  had other  offers.



            Against  waiting  for  final  resolution,  however,  Bank had



            agreed that it  was willing  to afford security  and to  work



            jointly in appeasing the bank regulators.  It had even agreed



            to work  out some other device if the regulators did not come



            through.   Might  not  this be  enough so  that  there was  a



            definite June  contract, the  eventually selected form  to be



            but  a detail?  Could this not  have been claimed if the Bank



            had discharged Newman in October?



                      There  was,  however,   a  further  reason.     The



            bankruptcy court  found that  the various severance  packages



            that  were  considered  "varied  as  to  amount  and  terms."



            "Varied"  was  an  understatement.   The  record  shows  that



            amounts differed so substantially that Newman might well have



            delayed over this aspect alone.



                      Taken  altogether,  we  can accept  the  bankruptcy



            court's finding  that there  was no completed  June contract.


-5-



Hence the funds deposited in escrow were in connection with a



            November agreement, and thus reachable.



                      Affirmed.
                      _________


-6-

Bank of New England v. Newman, (1st Cir. 1996).

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Bank of New England v. Newman (Bank of New England v. Newman) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

Rosenfield v. United States Trust Co.

195 N.E. 323 (Massachusetts Supreme Judicial Court, 1935)

Newman v. Bank of New England Corp. (In re Bank of New England Corp.)

187 B.R. 405 (D. Massachusetts, 1995)

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