2014 Va. Cir. LEXIS 138
Norfolk Cir. Ct.2014Background
- Scott C. Harvard was President of Shore Bank and had an employment agreement (with HRB and Shore Bank) entitling him to 2.99x annual base salary as severance upon termination within six months of a defined change in control; base salary $250,000.
- HRB received TARP/CPP funds (Securities Purchase Agreement with Treasury) on Dec. 31, 2008; Harvard signed a letter agreeing not to receive any "golden parachute" during CPP coverage and a waiver to comply with Treasury rules.
- A change in control occurred Dec. 31, 2008 (shareholder purchase); Harvard resigned June 24, 2009 (within six months) and sought his contractual severance.
- Treasury issued an interim rule in 2009 (June Rule) broadening the definition of "golden parachute"; HRB and Shore Bank refused payment, citing TARP restrictions.
- Harvard sued for breach of contract; defendants raised a Plea in Bar arguing TARP barred payment and contested whether Shore Bank (versus Shore Financial Corp.) was the employer obligated to pay.
- The Court denied the Plea in Bar, applied judicial estoppel to prevent Shore Bank from disavowing its earlier factual position that it was a TARP recipient/treated as the same employer as HRB, and awarded Harvard $655,495.43 plus interest and stipulated attorney’s fees for two actions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether TARP/June Rule barred contractual severance (taking) | Harvard: the amendment/June Rule effected a taking of contract rights without just compensation | HRB/Shore Bank: TARP rules prohibited payment of the severance | Court: TARP regulation as applied effected a taking; Plea in Bar denied (Court previously ruled) |
| Whether Shore Bank is liable as "Employer" under the employment agreement | Harvard: Shore Bank is estopped from denying employer status; paid him and asserted TARP coverage earlier | Shore Bank: Shore Financial Corp. (not Shore Bank) was employer (W-2s etc.) | Court: Judicial estoppel bars Shore Bank from asserting it is not the employer; Shore Bank liable |
| Whether judicial estoppel applies to bar defendants' changed factual position | Harvard: defendants previously asserted Shore Bank was treated as same employer under TARP; must be bound | Defendants: now argue different factual position (separate employer) | Court: Applied judicial estoppel—three prerequisites met; prior factual assertion was relied upon by court |
| Entitlement to attorney’s fees and scope | Harvard: Employment Agreement requires employer to pay legal fees for contests concerning Change in Control provision; seeks fees from three actions | Defendants: contest scope (declaratory action not covered) and assert bad faith | Court: Fees awarded for federal action ($12,500) and current action ($142,500 through July 15, 2014); declaratory judgment fees denied; no bad-faith bar |
Key Cases Cited
- Bentley Funding Group, L.L.C. v. SK&R Group, L.L.C., 269 Va. 315 (2005) (sets out judicial estoppel prerequisites in Virginia)
- Lofton Ridge, L.L.C. v. Norfolk S. Ry., 268 Va. 377 (2004) (discusses limits of judicial estoppel to factual statements)
- Virginia Elec. & Power Co. v. Norfolk S. Ry., 278 Va. 444 (2009) (clarifies that prior factual position must have been relied upon by the court)
- Parson v. Carroll, 272 Va. 560 (2006) (equitable nature of judicial estoppel and protecting judicial integrity)
- Matthews v. Matthews, 277 Va. 522 (2009) (addresses interpretation of the “success”/reliance prerequisite for judicial estoppel)
- Cienega Gardens v. United States, 331 F.3d 1319 (Fed. Cir. 2003) (framework for ad hoc factual inquiry when evaluating whether regulation effects a taking)
- New Hampshire v. Maine, 532 U.S. 742 (2001) (Supreme Court discussion of judicial estoppel principles)