Sheehan v. FDIC

• Court: Court of Appeals for the First Circuit
• Decided: September 26, 1994
• Docket: 94-1054
• Status: Published

Opinion

USCA1 Opinion

September 26, 1994
                                [NOT FOR PUBLICATION]

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                                     
                                 ____________________

        No. 94-1054

                              KEVIN J. SHEEHAN, ET AL.,

                               Plaintiffs, Appellants,

                                          v.

                        FEDERAL DEPOSIT INSURANCE CORPORATION,
                      as Receiver for Bank of New England, N.A.,
                                   in Liquidation,

                                 Defendant, Appellee.

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APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

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

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                                Selya, Cyr and Boudin,

                                   Circuit Judges.
                                   ______________

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Lee H.  Kozol, with  whom David A.  Rich and Friedman  & Atherton
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        were on brief for appellants.
             Jeannette  E. Roach, Counsel, with  whom Ann S. Duross, Assistant
             ___________________                      _____________
        General Counsel, Colleen B. Bombardier, Senior Counsel, Maria Beatrice
                         _____________________                  ______________
        Valdez,  Counsel, Leila R.  Kern, Maryaustin Dowd,  and Kern, Hagerty,
        ______            ______________  _______________       ______________
        Roach & Carpenter, P.C., were on brief for appellee. 
        _______________________

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Per  Curiam.  Plaintiff-appellants, former employees of
                    Per  Curiam
                    ___________

          the  Financial Products Services Group (the Group) of the Bank of

          New  England (BNE), initiated a  class action for  breach of con-

          tract  based on  BNE's failure  to approve  bonuses under  a plan

          designed to  encourage Group personnel to  generate greater reve-

          nues for  BNE.  The Federal Deposit Insurance Corporation (FDIC),

          as receiver for BNE, later assumed  responsibility for defense of

          the action.

                    The class  action plaintiffs were engaged  in providing

          sophisticated  securities processing  and accounting  services to

          institutional investors in behalf of BNE.   In late 1988 or early

          1989, plaintiff-appellant Kevin  J. Sheehan, officer-in-charge of

          the  Group, discussed with BNE  officials the establishment of an

          incentive plan for  the Group  employees.  In  November of  1989,

          Sheehan received a copy  of the incentive plan (the  Plan), which

          included a cursory formula for funding a bonus pool for distribu-

          tion  among  Group employees.    The  Plan  empowered Sheehan  to

          determine awards  to individual Group employees,  "subject to the

          approval of the SBU [Strategic Business Unit] Head, the  Chairman

          of BNE, N.A. and the Directors' Compensation Committee."1  

                    In 1988,  and thereafter, BNE experienced severe finan-

          cial losses which  eventually led  to the issuance  of a  Federal

          Reserve  Board Cease  and Desist  order prohibiting,  inter alia,
                                                                _____ ____

          bonus payments  to BNE employees  absent advance approval  by the

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               1As officer-in-charge,  Sheehan  likewise was  eligible  for
          bonus awards subject to BNE management approval.

                                          2

Federal Reserve.   The only bonuses BNE ever  made under the Plan

          were disbursed  to Sheehan  and the  Group employees  in November

          1989,  based on  their performance  for the  first six  months of

          1989. 

                    On November 28, 1990,  the present action was commenced

          against BNE in Massachusetts Superior Court.  On January 6, 1991,

          BNE was declared insolvent.   After FDIC was  appointed receiver,

          the  action was removed to  the United States  District Court for

          the District of Massachusetts and the parties filed cross-motions

          for  summary judgment.   Ultimately,  the district  court granted

          summary judgment in favor of FDIC, and plaintiffs appealed.  

                    Summary judgment rulings are reviewed de novo under the
                                                          __ ____

          same criteria  incumbent  on  the district  court  in  the  first

          instance.  Velez-Gomez v. SMA Life Assur. Co., 8 F.3d 873, 874-75
                     ___________    ___________________

          (1st  Cir. 1993).   "Summary  judgment is appropriate  where 'the

          pleadings, depositions, answers to interrogatories and admissions

          on file, together with the affidavits, if any, show that there is

          no genuine  issue as  to any  material fact and  that the  moving

          party is  entitled to judgment as  a matter of law.'"  Gaskell v.
                                                                 _______

          The Harvard Coop. Soc'y, 3 F.3d 495, 497 (1st Cir. 1993) (quoting
          _______________________

          Fed.R.Civ.P.  56  (c)).   We review  the  evidence, and  draw all

          reasonable  inferences, in the light  most favorable to the party

          challenging summary judgment.  Velez-Gomez, 8 F.3d at 875. 
                                         ___________

                    The central question presented on appeal is whether the

          failure  of  BNE management  to approve  Plan bonuses  awarded by

          Sheehan for the periods July 1 - December 31, 1989, and January 1

3

-May 26,  1990, constituted a breach of  contract under Massachu-

          setts  law.2  Plaintiffs concede  that the Plan  did not restrict

          BNE management's discretion to withhold approval of bonuses.  See
                                                                        ___

          Additional Provision  #2.   Nevertheless,  as  Massachusetts  law

          implies a  covenant of good  faith and  fair dealing in  all con-

          tracts, Anthony's Pier Four,  Inc. v. HBC Associates, 583  N.E.2d
                  __________________________    ______________

          806, 820 (1991),  plaintiffs insist that  their right to  receive

          bonuses  vested in accordance with the terms of the bonus formula

          set out in  the Plan.  They  rely on Hoefel v.  Atlas Tack Corp.,
                                               ______     _______________

          581 F.2d 1,  7 (1st Cir.  1978) (applying Massachusetts  contract

          law),  cert.  denied, 440  U.S.  913  (1979), where  an  employer
                 _____  ______

          expressly reserved the right to "change, suspend or discontinue .

          . . [its pension] plan at any time," but attempted  to revoke the

          plan  long after the  plaintiff employees  had retired  and their

          pension benefits  had vested.   Id. at 4.   Hoefel held  that the
                                          ___         ______

          former  employees' right  to receive  their pensions,  as delayed

          compensation, vested as  soon as  the employees had  met all  the

          pension  eligibility requirements imposed  by their pension plan.

          Id. at 5.  
          __

                    Similarly,  these plaintiffs  urge that their  right to

          Plan bonuses vested in accordance with the formula  prescribed in

          the  Plan, see supra p.  2, notwithstanding the express provision
                     ___ _____

          that all bonus awards were subject to approval by BNE management.

____________________

               2For  present  purposes,  we  indulge  the  parties'  mutual
          assumption that the Plan was a valid contract, without indicating
          any  view as to the  correctness of their  assumption in light of
          Massachusetts law. 

                                          4

Further, again relying on Hoefel, 581 F.2d at 7 ("We  fail to see
                                    ______

          how Atlas'  financial difficulties can excuse  its performance of

          its contractual obligations to  its former employees."), and not-

          withstanding Additional Provision #2,  see supra p. 4, plaintiffs
                                                 ___ _____

          make the  related  claim that  BNE's financial  condition was  an

          insufficient basis, as a matter of law, for withholding bonuses. 

                    Hoefel is inapposite, however,  since it simply  upheld
                    ______

          the  retired employees' right  to continue to  receive their pen-

          sions after  all pension-vesting conditions imposed  by the terms

          of their  pension plan  had been met.   Here, the  Plan expressly

          reserved to BNE the exclusive power to approve all bonuses in the

          first instance,  which plainly precluded any  bonus vesting under
                                                              _______

          the Plan  prior to  approval by  BNE management.   Because it  is

          undisputed that BNE management approved no bonuses after November

          1989, plaintiffs cannot rely on Hoefel as support for their claim
                                          ______

          to unapproved Plan  bonuses.   See Northern Heel  Corp. v.  Compo
                                         ___ ___________________      _____

          Industries  Inc.,  851 F.2d  456,  461  (1st  Cir. 1988)  ("Under
          ________________

          Massachusetts  law, contracting parties  may provide that perfor-

          mance  is not  required  unless and  until stipulated  conditions

          precedent  have been  met.") (applying  implied covenant  of good

          faith).  

                    The  right to  withhold approval  of bonuses  under the

          Plan is  governed by  the terms of  the contract,  subject to  an

          implied  covenant of good faith and fair dealing.  Anthony's Pier
                                                             ______________

          Four,  583 N.E.2d at 820  ("[T]he rule is  clear in Massachusetts
          ____

          that every contract  is subject  to an implied  covenant of  good

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faith and fair dealing.").  Since the terms of the Plan expressly

          reserved to  BNE management the unrestricted  discretion to with-

          hold approval and plaintiffs generated no trialworthy issue as to

          whether bonuses were  withheld in "bad  faith," we conclude  that

          the district court correctly granted summary judgment in favor of

          FDIC.3

                    Under Massachusetts law, "[i]t is. . . bad faith to use

          discretion 'to recapture opportunities forgone on contracting' as

          determined  by the  other  party's  reasonable expectations--  to

          refuse 'to pay  the expected cost of  performance.'"  Id.  at 473
                                                                ___

          (quoting  Steven J. Burton, Breach of Contract and the Common Law
                                      _____________________________________

          Duty to Perform in Good Faith, 94 Harv. L. Rev. 369, 369, 372-373
          _____________________________

          (1980)).   Notwithstanding the  contrary terms  of the Plan,  and

          even  though  they  disclaim  reliance on  oral  assurances  that

          bonuses would  be approved despite BNE's  financial difficulties,

          see Reply Brief at 3-4 and  10-11, plaintiffs implausibly contend
          ___

          that it was reasonable to expect that BNE would  forego its right

          to withhold bonuses during difficult financial times.  Plaintiffs

          insist  that BNE  retained  no discretion  to disapprove  bonuses

          except  for inadequate  employee performance.   Thus,  say plain-

____________________

               3As the district court  noted, the bonus-approval discretion
          retained by BNE distinguishes this  case from Fortune v. National
                                                        _______    ________
          Cash Register, Inc., 384 N.E.2d 1251, 1257  (Mass. 1977) (holding
          ___________________
          that employer  acted in bad faith by firing an "at will" employee
          to  prevent the  employee  from receiving  a  commission due  the
          employee).   See also Maddaloni v. Western Mass. Bus Lines, Inc.,
                       ___ ____ _________    _____________________________
          438  N.E.2d 351, 354  (Mass. 1982) (same).   There is no evidence
          that BNE  withheld  bonus  approval  for other  than  the  stated
          financial reasons, nor that the financial losses which led to its
          failure were not serious.

                                          6

tiffs,  BNE's disapproval of their bonuses on the ground that BNE

          was  experiencing  serious  financial  problems  constituted  bad

          faith,  a breach of  the implied covenant of  good faith and fair

          dealing.  We do not agree.  

                    First, the Plan, see Additional Provision #2, in no way
                                     ___

          restricted the  power of BNE management to withhold bonus approv-
                                                     ________

          al.   Second, in these circumstances, a trialworthy claim of "bad

          faith"  or "unfair dealing" did not arise merely as a consequence

          of  BNE's  decision to  withhold  approval  of bonuses  based  on

          nonpretextual grounds explicitly identified  in the Plan.4  Thus,

          plaintiffs failed to present an  adequate evidentiary basis for a

          reasonable inference  of "bad faith."   Cf.  Cheney v.  Automatic
                                                  ___  ______     _________

          Sprinkler Corp. of America,  385 N.E.2d at 961, 966  (Mass. 1979)
          __________________________

          (finding no breach  of implied  covenant of good  faith and  fair

          dealing  where  employer  withheld  earned  bonuses  for  reasons

          authorized in bonus plan). 

                    Absent a cognizable basis  for inferring bad faith, the

          thrust of plaintiffs' position  on appeal is to urge  revision of

          the  Plan to  preclude BNE's reliance  on its  expressly reserved

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               4It  is undisputed that the  parties knew that  BNE had been
          experiencing serious financial problems since 1988.  Moreover, in
          January  1990,  within a  month  after  Sheehan determined  bonus
          awards for the second half of 1989, and well before he did so for
          any portion of 1990, Additional Provision #6 was adopted pursuant
          to Additional  Provision #3 (empowering BNE  management to alter,
          amend, suspend or discontinue  the Plan or any award)  to specify
          that any  award or group  of awards  could be adjusted  by senior
          management based,  inter  alia, on  "prevailing financial  condi-
                             _____  ____
          tions."

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right to  adjust bonuses in response to  the financial conditions

          that ultimately led to  its demise.  Leaving aside that there has

          been  no showing  that  BNE could  have obtained  Federal Reserve

          Board approval for disbursing bonuses in light of its deteriorat-

          ing financial condition, see supra at  p. 2, the role of contract
                                   ___

          scrivener is  one for the  parties, not the court.   Cf. Northern
                                                               ___ ________

          Heel, 851 F.2d at 466 (declining to rewrite agreement "to include
          ____

          a  representation which the parties were  mutually content to let

          slide in the course of their negotiations.").  And it is too late

          in the day to deny FDIC the benefit of a  valid defense expressly

          reserved to BNE under the terms of the Plan.  See ITT Corp v. LTX
                                                        ___ ________    ___

          Corp, 926 F.2d 1258, 1261 (1st Cir. 1991) (applying Massachusetts
          ____

          parol  evidence rule).   Accordingly,  the judgment  must  be af-

          firmed.

                    Affirmed.  The parties are to bear their own costs.
                    Affirmed.  The parties are to bear their own costs.
                    ________   _______________________________________

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