2014 Va. Cir. LEXIS 52
Norfolk Cir. Ct.2014Background
- Harvard was President of Shore Bank and EVP of HRB; in a 2008 employment agreement he was entitled to severance equal to 2.99× his base salary payable in 60 monthly installments upon termination within six months of a defined change in control.
- HRB (the parent), Shore Bank, and Harvard executed a Securities Purchase Agreement with Treasury on December 31, 2008 under TARP/CPP; Treasury purchased securities and required compliance with executive compensation rules then in effect.
- Harvard signed a letter agreement and waiver on December 31, 2008 accepting compensation limits set by Treasury’s October 2008 interim rule (which capped ‘‘golden parachute’’ payments at 3× base under the then-existing definition).
- Congress amended EESA in February 2009 and Treasury issued a June 2009 interim rule broadening the definition of golden parachute to cover virtually any departure payment; HRB refused to pay Harvard’s severance in reliance on the June Rule.
- Harvard sued for breach of contract seeking his contracted severance; defendants filed a Plea in Bar arguing TARP/Treasury rules bar the payment; Harvard countered that retroactive application of the June Rule effects a Fifth Amendment taking of his contract rights.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the June 2009 Treasury rule bar Harvard’s contractual severance (Plea in Bar)? | Harvard concedes his payment falls within June Rule but contends the rule is unconstitutional as applied. | Rule prohibits paying golden parachutes to TARP recipients; thus defendants are barred from paying Harvard. | Plea in Bar denied — court proceeds to consider constitutional claim; June Rule does not automatically bar recovery here. |
| Whether retroactive application of the June Rule to Harvard’s pre-existing contracted severance constitutes a Fifth Amendment taking. | The June Rule targeted and extinguished Harvard’s vested contractual severance rights in order to protect the government’s investment; retroactive application is a taking without just compensation. | Government regulation of TARP recipients and conditions on public funds are permissible; contracts made subject to sovereign authority. | Court held the amendment and June Rule, as applied retroactively here, constitute a taking of Harvard’s contract rights for which no compensation was provided. |
| Do HRB’s agreements and Harvard’s waiver defeat the taking claim (investment‑backed expectations / consent)? | Harvard argues the Securities Purchase Agreement and waiver only incorporated rules in effect at closing and did not authorize later amendments that extinguish vested rights. | Defendants argue recipients of public funds are subject to federal regulation and the agreements signaled consent to restrictions. | Court found the agreements and waiver covered only rules in effect at closing and that the June Rule exceeded those terms; expectations supported finding a taking. |
Key Cases Cited
- Lynch v. United States, 292 U.S. 571 (property includes valid contracts)
- Perry v. United States, 294 U.S. 330 (distinguishing government obligations from private contracts under congressional power)
- United States v. Winstar Corp., 518 U.S. 839 (Congressional regulation can affect contractual commitments)
- Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104 (ad hoc regulatory takings framework)
- Eastern Enterprises v. Apfel, 524 U.S. 498 (plurality discussing limits on economic legislation affecting contracts)
- Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (regulatory takings may require compensation when regulation goes too far)
- Omnia Commercial Co. v. United States, 264 U.S. 502 (government action incidentally harming private contract rights is not always a taking)
- Cienega Gardens v. United States, 331 F.3d 1319 (Fed. Cir. — legislation that expressly abrogates contract rights can constitute a taking)
- Norman v. Baltimore & Ohio R.R. Co., 294 U.S. 240 (contracts made subject to governmental authority)