Samuel M. McMILLIAN, Jr., Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver of Southeast Bank, N.A. and as de facto ERISA fiduciary of the Southeast Bank, N.A. Reduction in Force Severance Pay Plan, Defendant-Appellee.
No. 94-5045
United States Court of Appeals, Eleventh Circuit
April 25, 1996
81 F.3d 1041
Before TJOFLAT, Chief Judge, and KRAVITCH and ANDERSON, Circuit Judges.
ANDERSON, Circuit Judge:
Samuel M. McMillian, Jr., appeals the district court’s dismissal of his action for severance pay against the FDIC as receiver of a failed bank. The district court dismissed McMillian’s Worker Adjustment and Retraining Notification (“WARN”) Act claim for lack of jurisdiction pursuant to
I. FACTS
McMillian was a janitor at Southeast Bank, N.A. (“Southeast”) for nineteen years. Through Southeast and its parent, Southeast Banking Corporation, McMillian was a participant in and beneficiary of various employee benefit plans sponsored, at least in part, by Southeast. In particular, he was a participant in Southeast’s Reduction in Force Severance Pay Plan (“Severance Plan”), which provided, in relevant part:
In the event of a Participant’s termination of employment as a result of a Reduction in Force, the Participant shall be entitled
to receive from [Southeast] a Severance Payment in the amount provided in Section 4.2 and the other Severance Benefits provided in Section 4.4.
(Southeast Banking Corporation Reduction in Force Severance Pay Plan § 4.1). Under Section 4.2, participants who had been employed by Southeast for more than two years were entitled to one week of severance pay per year of employment.1 The Severance Plan defines “Reduction in Force” as “the involuntary termination of employment of a Participant because of the elimination of such Participant’s position with [Southeast or its parent] due to economic or business conditions, reorganizations of the Company which combine or limit positions or for other reasons.”
On September 19, 1991, the Office of the Comptroller of the Currency declared Southeast insolvent and appointed the FDIC receiver under
Claiming that he was entitled to nineteen weeks of severance pay based on his nineteen years with the bank, McMillian filed a claim for benefits under the Severance Plan with the FDIC. The FDIC disallowed the claim2 and McMillian filed suit in the United States District Court challenging the FDIC’s action. In his complaint, McMillian alleged a claim under the WARN Act,
The magistrate judge submitted a Report and Recommendation granting the FDIC’s motion to dismiss pursuant to
With respect to the severance pay claim under FIRREA, the magistrate judge based his conclusion almost entirely on two cases: American Nat’l Bank v. FDIC, 710 F.2d 1528, 1540 (11th Cir.1983), and Office & Professional Employees Int’l Union v. FDIC, 813 F.Supp. 39, 45 (D.D.C.1993). From these cases, he reasoned that the rights and liabilities of Southeast and its creditors were fixed at the declaration of insolvency. Those claims which had not accrued as of the appointment of the receiver, the magistrate judge concluded, are not cognizable under FIRREA. Because McMillian’s claim for benefits under the Severance Plan was found to be contingent—i.e., it did not accrue until his termination due to a Reduction in Force—it was not fixed as of the appointment of the FDIC and therefore failed.
After the magistrate judge submitted his Report and Recommendation, but before the district court entered its order, the D.C. Circuit reversed the district court in Office & Professional Employees Int’l Union. Office & Professional Employees Int’l Union v. FDIC, 27 F.3d 598 (D.C.Cir.1994) (“OPEIU”). The district court nonetheless adopted the magistrate judge’s recommendations based on what it considered the binding precedent of American Nat’l Bank, supra, and Bayshore Executive Plaza Partnership v. FDIC, 750 F.Supp. 507 (S.D.Fla.1990), aff’d on other grounds, 943 F.2d 1290 (11th Cir.1991).
A. WARN Act Claim
McMillian challenges the district court’s dismissal of his WARN Act claim for lack of jurisdiction. He essentially argues that the Severance Plan was drafted to “operate in tandem” with the WARN Act, and thus incorporated it by reference.
We review questions of subject matter jurisdiction de novo. Tamiami Partners, Ltd. v. Miccosukee Tribe of Indians, 999 F.2d 503, 506 (11th Cir.1993). The rule in this circuit is clear: “FIRREA makes exhaustion of the FDIC’s administrative complaint review process mandatory when the FDIC has been appointed receiver for a financial institution.” Motorcity of Jacksonville, Ltd. v. Southeast Bank, 39 F.3d 292, 296 (11th Cir.1994), vacated, 58 F.3d 589 (11th Cir.1995).
In this case, McMillian has sued the FDIC in its capacity as receiver of Southeast; however, he did not file a WARN Act claim, either implicitly or explicitly, with the FDIC before bringing this action. Accordingly, we hold that the district court did not have jurisdiction of McMillian’s WARN Act claim because he failed to exhaust his administrative remedies as required by FIRREA.
B. Severance Pay Claim
Under FIRREA, the FDIC has the power to repudiate any contract to which it is a party, that it determines to be burdensome, and the repudiation of which will promote the orderly administration of the institution’s affairs.
Once the FDIC has repudiated, damages are measured by
(A) In general
Except as otherwise provided in subparagraph (C) and paragraphs (4), (5), and (6), the liability of the conservator or receiver for the disaffirmance or repudiation of any contract pursuant to paragraph (1) shall be—
(i) limited to actual direct compensatory damages; and
(ii) determined as of—
(I) the date of the appointment of the ... receiver....
(B) No liability for other damages
For purposes of subparagraph (A), the term “actual direct compensatory damages” does not include—
(i) punitive damages;
(ii) damages for lost profits or opportunity; or
(iii) damages for pain and suffering....
This case squarely confronts the meaning of these sections. The FDIC presses two grounds of support for the district court’s dismissal of the case: (1) the severance pay payments were contingent at the time FDIC was appointed receiver because McMillian’s employment had not yet been terminated—thus, McMillian’s claim was not provable under the pre-FIRREA common law;3 and (2) the relief for which McMillian prays does not constitute “actual direct compensatory damages” as contemplated by FIRREA. We examine these arguments in turn.
1. Contingent Contract Rights and Provability
The FDIC strenuously argues that contingent contract rights do not form a basis for recovery under FIRREA. This Court has stated that “[i]t is well settled that the rights and liabilities of a bank and the bank’s debtors and creditors are fixed at the declaration of the bank’s insolvency.” American Nat’l Bank v. FDIC, 710 F.2d 1528, 1540 (11th Cir.1983) (citing First Empire Bank-New York v. FDIC, 572 F.2d 1361, 1367-68 (9th Cir.1978), cert.
The FDIC contends that, at the moment it was appointed receiver, McMillian had a right to collect severance pay that was contingent upon his discharge due to a Reduction in Force. As merely a contingent right, the FDIC posits, McMillian’s severance pay is not recoverable. We disagree.
This argument mistakes the common law. The cases outside the lease context which require that rights and liabilities must be fixed upon insolvency simply require that the contract right (as opposed to a mere expectancy) arose before insolvency and that the claim is not based on a new, post-insolvency contract. To understand why the very language quoted by the FDIC in support of its contingency argument supports McMillian, we must take a step back and review the origin of these rules.
The common law cases, i.e., those decided prior to FIRREA, were based on the National Bank Act, which provided that a receiver of a failed national bank
shall make a ratable dividend of the money so paid over to him ... on all such claims as may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction.
The statute encompassed two related concepts that reappear in pre-FIRREA cases; ratability and provability. See, e.g., Citizens State Bank of Lometa v. FDIC, 946 F.2d 408 (5th Cir.1991); Hennessy v. FDIC, 58 F.3d 908 (3d Cir.1995). Of these, only provability is at issue in this case.5 The National Bank Act did not specify the requirements of a “provable claim.” “Instead, Congress intended that the just and equal distribution of an insolvent bank’s assets be effected ‘through the operation of familiar equitable doctrines’ fashioned by the courts.” Bank One, TX, N.A. v. Prudential Ins. Co. of America, 878 F.Supp. 943, 954 (N.D.Tex.1995) (quoting Citizens State Bank, 946 F.2d at 412; American Sur. Co. v. Bethlehem Nat’l Bank, 314 U.S. 314, 316, 62 S.Ct. 226, 228, 86 L.Ed. 241 (1941)). Most courts
Only the first prong is at issue here. It requires, in part, that the claim must exist before the bank’s insolvency. A claim exists before insolvency if it is based on a pre-insolvency contract which requires payment upon a stated event. See Citizens State Bank, 946 F.2d at 415; OPEIU, 27 F.3d at 601-02; First Empire Bank, 572 F.2d at 1368-69 (finding that contingent claims of which the worth or amount can be determined by recognized methods of computation at a time consistent with the expeditious settlement of the estates are provable); Bank One, TX, 878 F.Supp. at 955. The fact that certain post-insolvency events affect liability under a pre-insolvency contract does not necessarily mean that the claim did not exist before insolvency. See Citizens State Bank, 946 F.2d at 415; OPEIU, 27 F.3d at 603. It is the contract right which must exist before insolvency, not the fully-matured obligation to pay.
Thus, the FDIC’s reliance on cases which state that a claim is only provable if it exists before the bank’s insolvency is misplaced. This aspect of the provability rule is plainly satisfied in this case because the Severance Plan existed before insolvency.
The first prong of the provability test also requires that the claim cannot depend on contracts arising after insolvency, i.e., “new contracts.” This rule is derived from a line of cases which generally involve claims for future rent. See, e.g., Kennedy v. Boston-Continental Nat’l Bank, 84 F.2d 592 (1st Cir.1936), cert. dismissed, 300 U.S. 684, 57 S.Ct. 667, 81 L.Ed. 887 (1937); Argonaut Sav. & Loan Ass’n v. FDIC, 392 F.2d 195 (9th Cir.), cert. denied, 393 U.S. 839, 89 S.Ct. 116, 21 L.Ed.2d 110 (1968); FDIC v. Grella, 553 F.2d 258 (2d Cir.1977); Dababneh v. FDIC, 971 F.2d 428 (10th Cir.1992); 80 Pine, Inc. v. European Am. Bank, 424 F.Supp. 908 (E.D.N.Y.1976); Executive Office Centers, Inc. v. FDIC, 439 F.Supp. 828 (E.D.La.1977), aff’d, 575 F.2d 879 (5th Cir.1978) (per curiam). Since Kennedy, the better reasoned cases simply stand for the proposition that new contractual obligations created after insolvency do not give rise to “provable” claims and, as a specific application of this general rule, claims for future rent are not provable.
In Kennedy, the court examined whether a lessor’s assignee could recover liquidated damages under a lease covenant which provided that such damages did not accrue until the landlord sent written demand, gave notice, and reentered the property. 84 F.2d at 595. Upon reentry, the agreement provided that the lessee became liable for liquidated damages. Id. The court stated the rule that the bank’s liability must have accrued and become unconditionally fixed by the time of insolvency. Id. at 597. It held, therefore, that the lessor’s assignee could not recover because his claim was based on a “new contract” which was created by the affirmative act of reentry. Id. Accord Argonaut Savings and Loan Ass’n v. FDIC, 392 F.2d 195, 197 (9th Cir.), cert. denied, 393 U.S. 839, 89 S.Ct. 116, 21 L.Ed.2d 110 (1968). In other words, the assignee could not recover the liquidated damages because his entitlement to them was created by a post-insolvency contract.
The FDIC and the cases it cites rely on the statement in Kennedy that “[i]f nothing is due at the time of insolvency, the claim should not be allowed, for that would be in violation of the National Bank Act (
[although these cases use broad language, indicating that the bank’s liability on any claim must have accrued and be unconditionally fixed at the date of insolvency, they are, by virtue of their dependence on the ‘new contract’ principle, distinguishable from cases not dealing with lease options exercised after insolvency. The claims here are based on letters of credit that were in existence before insolvency and are not dependent on any new contractual obligations arising later.
Id. at 1367. The court properly concluded that Kennedy’s broad language should be limited to cases involving leases and the loss of future rent. Id. at 1368. It explicitly stated that the rule should not be extended to other contingent obligations:
To follow those cases here would amount to extending into new areas a rule that now appears to be outmoded, based as it is on a bankruptcy rule that today has been repealed in favor of the contrary equity rule.
Id. As to other contracts, the court in First Empire adopted Kennedy’s new contract analysis.
In sum, the “fixed, due and owing” language from Kennedy has been applied strictly in the context of lease payments on the grounds that such payments are not provable. See Dababneh, 971 F.2d at 435. Courts have uniformly deemed claims for future rent “unprovable,” see id. (citing cases), and FIRREA continues this distinction by providing separate rules in the lease and non-lease contexts. Compare
A careful review of the leading cases, particularly those cited in American Nat’l Bank, 710 F.2d at 1540, reveals strong support for these general propositions. In First Empire Bank, the court confronted the issue of whether standby letters of credit are provable. The court held that such claims are provable because the liability was absolute and certain when the suit was filed against the receiver. 572 F.2d at 1369. The fact that the standby letters of credit were to some extent contingent at the time the receiver was appointed did not destroy their provability.
In FDIC v. Grella, 553 F.2d 258 (1977), the First Circuit examined the rights of lessors to collect future rent from the FDIC.7 The court applied the indisputable rule that lessors have no rights to collect future rent, i.e., a claim for rent “must be due and owing at the time of insolvency, [cit.], otherwise it does not constitute a claim against a receiver regardless of what other rights the obligee may have.” Id. at 262. This case provides no support for the theory that the right to collect under an ordinary contract (i.e., not a lease) against a bank must be fully matured and payable as of appointment of the receiver.
In American Nat’l Bank v. FDIC, 710 F.2d 1528 (11th Cir.1983), we had to decide which of two parties was entitled to an interpleaded sum of money. In disposing of an argument raised by the claimant against the FDIC, we stated that “[i]t is well settled that the rights and liabilities of a bank and the bank’s debtors and creditors are fixed at the declaration of the bank’s insolvency.” Id. at 1540. Thus, we concluded that any attempt by the claimant to rely on events subsequent to the bank’s closing in support of its claim to the fund “must fail since the rights of the parties were frozen ... when the Bank’s doors were shut to business.” Id. at 1540-41.
We relied on First Empire, Grella, and Kennedy to support this proposition. Those cases, read properly, stand for the “new contract” theory, i.e., that rights cannot be created anew after appointment of the receiver. Indeed, this is how the rule was applied in American Nat’l Bank in that we rejected attempts by the claimant to rely on events subsequent to receivership to create new contractual rights. In American National Bank, the claimant failed to demonstrate any pre-insolvency entitlement to the fund. Accordingly, its attempts to rely on post-insolvency events to create new contractual rights were properly rejected by the court.
Finally, in Dababneh v. FDIC, 971 F.2d 428 (10th Cir.1992), the Tenth Circuit examined the now-familiar question of whether future rents are “provable” under the pre-FIRREA common law. After repeating the oft-cited rule from Kennedy that rent must be due and owing at insolvency, and the rule from First Empire that claims for rent cannot depend upon “new contracts” arising after insolvency, the court held that future rents were not recoverable. Id. at 435 (“The federal courts have uniformly adopted Kennedy’s common law rule barring as ‘unprovable’ claims for future rent against the receiver of an insolvent bank.”). As with the other lease cases cited by the FDIC, Dababneh creates a rule which applies to claims for future rent, but falls flat with respect to other claims, which, although contingent, existed when the FDIC was appointed receiver. Cf. First Empire Bank, 572 F.2d at 1367 (finding that the lease cases, “by virtue of their dependence on the ‘new contract’ principle, [are] distinguishable from cases not dealing with lease options exercised after insolvency”); Dababneh, 971 F.2d at 435 (finding that First Empire is distinguishable from the lease cases and “inapplicable by its own stated exception”).
Thus, the FDIC’s reliance on the common-law provability doctrine and on our
The business of the bank must stop when insolvency is declared. [Cit.] No new debt can be made after that. The only claims the [receiver] can recognize in the settlement [of] the affairs of the bank are those which are shown by proof satisfactory to him or by the adjudication of a competent court to have had their origin in something done before the insolvency.
White v. Knox, 111 U.S. 784, 787, 4 S.Ct. 686, 687, 28 L.Ed. 603 (1884).
Here, at the time the FDIC was appointed receiver, McMillian was party to a contract with Southeast which entitled him to severance pay. This right was contingent, of course, on his discharge as a result of a “Reduction in Force.” This contingency did not destroy McMillian’s contract rights. The policies of ratability and provability are amply satisfied in this case. At the time the FDIC was appointed receiver, it could have simply reviewed the bank records to determine that McMillian had a right to severance pay that would become payable upon his termination. Knowledge of this contingent right allowed it to plan accordingly.
The contract rights which gave rise to McMillian’s claim were created before the FDIC was appointed receiver. The fact that these rights were contingent at that time is of no moment. “The employees had a right to severance pay as of the date of the appointment—albeit a contingent one—and that right should be treated essentially the same as the right to accrued vacation pay or health benefits.” OPEIU, 27 F.3d at 601. It would make no sense to limit recovery under FIRREA to only those contracts in which all contingencies had been eliminated prior to appointment of the receiver. All contracts are to some extent contingent until both parties have performed or breached. The FDIC’s interpretation would permit recovery only when a contract had been breached before receivership—a result clearly contrary to the plain language of the statute, Congress’ intent, and the common law. Indeed, it would mean that things like health benefits and pension benefits would not be recoverable.
Our conclusion is supported by OPEIU, 27 F.3d 598 (D.C.Cir.1994). Accord Monrad v. FDIC, 62 F.3d 1169 (9th Cir.1995); Citizens State Bank of Lometa v. FDIC, 946 F.2d 408 (5th Cir.1991); and Bank One, TX, N.A. v. Prudential Ins. Co. of Amer., 878 F.Supp. 943 (N.D.Tex.1995). OPEIU involved facts almost identical to this case. Plaintiffs claimed entitlement to severance pay under a collective bargaining agreement that was repudiated by the FDIC after it was appointed receiver. The FDIC interposed the same contingency argument it presses on this Court. The court held that the contingent nature of these contracts did not render them unrecoverable on the grounds that they had not yet “accrued.” OPEIU, 27 F.3d at 601.9 Instead, the court held that severance benefits should be treated the same as stand-
As the D.C. Circuit later explained:
at 415 (“That liability [under standby letters of credit] was actually triggered shortly [after insolvency] cannot be said to completely eradicate the contractual liability which originated from standby letters of credit pre-dating [the bank’s] insolvency.”).
To show that the claim had ‘accrued,’ it was enough that if the bank had remained solvent and had unilaterally repudiated the severance obligations, the employees could have sued successfully in court for the value of those benefits.... In short, the question of whether the employees’ rights were sufficiently vested on the relevant date (and their claims sufficiently provable) turned on whether the insolvent bank’s promise was ‘binding and enforceable under contract law’ at that time. Nashville Lodging Co. v. RTC, 59 F.3d 236, 244 (D.C.Cir.1995) (citing OPEIU, 27 F.3d at 602).
Our conclusion also finds strong support in an amendment to the Federal Deposit Insurance Act governing “golden parachute” contracts.
Our conclusion is inconsistent with the recent Third Circuit decision in Hennessy v. FDIC, 58 F.3d 908 (3d Cir.1995), and so we pause to explain our differences. In Hennessy, former employees and managers of Meritor Savings Bank (“Meritor”) sought to recover, inter alia, severance pay under a separation pay plan. Id. at 912-13. Under the plan, eligible employees were entitled to severance pay based on their experience and salary. Id. at 913. These benefits were triggered by involuntary termination as a result of “lack of work, job elimination, reorganization or reduction-in-force.” Id. After Meritor was declared insolvent and the FDIC was appointed receiver, the FDIC repudiated the severance plan. Id. at 914. The court in Hennessy adopted the rule from American Nat’l Bank, 710 F.2d at 1540, that rights and liabilities of a bank and its debtors and creditors are fixed as of the date of the declaration of a bank’s insolvency. Hennessy, 58 F.3d at 918. In addition, it applied the language from Kennedy, that a claim must have accrued and become unconditionally fixed on or before the bank’s insolvency. Id. Applying these rules to severance payments, the court concluded that because the severance benefits had not “vested” prior to the FDIC’s appointment as receiver, they had not “accrued” and were, therefore, unrecoverable. Id. Accord FDIC v. Coleman, 611 So.2d 1300 (Fla.App. 4 Dist.1992).
Insofar as the court relied on the rule we enunciated in American Nat’l Bank, it misconstrued the meaning of that case. The rule that rights and liabilities are fixed at insolvency, as discussed supra, does not preclude liability for contracts which are to some extent contingent at insolvency. Instead, the common-law rule of provability (of which the rule in American Nat’l Bank is a restatement) precludes liability for claims which did not exist prior to insolvency and for claims which depend on new contractual obligations created after insolvency. To the extent the
(I) the insured depository institution or depository institution holding company, or any insured depository institution subsidiary of such holding company, is insolvent;
(II) any conservator or receiver is appointed for such institution;
(III) the institution’s appropriate Federal banking agency determines that the insured depository institution is in a troubled condition (as defined in the regulations prescribed pursuant to section 1831i(f) of this title);
(IV) the insured depository institution has been assigned a composite rating by the appropriate Federal banking agency or the Corporation of 4 or 5 under the Uniform Financial Institutions Rating System; or
(V) the insured depository institution is subject to a proceeding initiated by the Corporation to terminate or suspend deposit insurance for such institution.
(B) Certain payments in contemplation of an event
Any payment which would be a golden parachute payment but for the fact that such payment was made before the date referred to in subparagraph (A)(ii) shall be treated as a golden parachute payment if the payment was made in contemplation of the occurrence of an event described in any subclause of such subparagraph.
(C) Certain payments not included
The term “golden parachute payment” shall not include—
(i) any payment made pursuant to a retirement plan which is qualified (or is intended to be qualified) under section 401 of Title 26 or other nondiscriminatory benefit plan;
(ii) any payment made pursuant to a bona fide deferred compensation plan or arrangement which the Board determines, by regulation or order, to be permissible; or
(iii) any payment made by reason of the death or disability of an institution-affiliated party.
The FDIC also relies on Bayshore Exec. Plaza Partnership v. FDIC, 750 F.Supp. 507 (S.D.Fla.1990), aff’d on other grounds, 943 F.2d 1290 (11th Cir.1991), to support its contingency argument. Its reliance is misplaced, however, as Bayshore involved a lessor’s attempt to recover rent that had accrued one year after the bank’s declaration of insolvency. The court simply applied the hoary rule that rights and liabilities are frozen at insolvency, American Nat’l Bank, 710 F.2d at 1540, and the interpretation most courts have given this rule in the lease context to conclude that the FDIC was not liable for the post-insolvency rent. See, e.g., FDIC v. Grella, 553 F.2d 258 (2d Cir.1977).
Thus, we hold that the common law provability rules, if they continue to apply, do not bar the enforcement of McMillian’s Severance Plan.
2. “Actual Direct Compensatory Damages”
We address next the second ground proffered by the FDIC in support of the district court’s opinion. The FDIC contends that even if McMillian’s severance pay is provable, it does not constitute “actual direct compensatory damages” within the meaning of
We face a split among the circuits on this question. The FDIC urges that we adopt the reasoning of Howell v. FDIC, 986 F.2d 569 (1st Cir.1993). There, the First Circuit held that severance payments are not “actual direct compensatory damages” because they are “at best an estimate of likely harm made at a time when only prediction is possible.” Id. at 573. Thus, the court concluded that severance payments are equivalent to liquidated damages or even penalties (when the damages are quite large). Id. In its view, employees would have no way of proving actual damages at the time of termination because they could prove neither employment opportunities foregone nor the possibility that they might mitigate damages by finding new employment. Id. Therefore, according to the court in Howell, severance pay protects employees from their inability to prove actual damages by liquidating the liability.12 Id. See also Hennessy v. FDIC, 58 F.3d 908, 921 (3d Cir.1995) (following Howell with little or no analysis); Westport Bank & Trust Corp. v. Geraghty, 865 F.Supp. 83, 86 (D.Conn.1994) (citing Howell, 986 F.2d at 573) (“Courts have found that damages resulting from the repudiation of a severance package are not ‘actual direct compensatory damages’ within the meaning of § 1821 because they are analogous to liquidated damages.”); Lanigan v. RTC, No. 91 C 7216, 1993 WL 792085 (N.D.Ill. March 31, 1993) (following Howell). The courts following Howell generally conclude that because severance payments are in the nature of liquidated damages, they are not actual damages and thus do not fall within the “actual direct compensatory damages” contemplated by
By contrast, at least two circuits have found that severance payments comprise “actual direct compensatory damages.” See, e.g., Monrad v. FDIC, 62 F.3d 1169 (9th Cir.1995); OPEIU, 27 F.3d 598 (D.C.Cir.1994). In OPEIU, the D.C. Circuit addressed and rejected the Howell court’s characterization of severance payments as liquidated damages. The D.C. Circuit pointed to a logical inconsistency in the Howell opinion. Although the employees were at will employees, the Howell court treated the severance pay as liquidated damages—i.e., “an approximation of the employee’s future salary for an agreed term.” 27 F.3d at 604. However, because the employment was at will, the termination of employment was not a breach
Rather than liquidated damages for termination of employment, the D.C. Circuit viewed severance pay as part of the employee’s compensation package. Id. at 603 (“An employer’s promise to make severance payments is part of the consideration of the employment contract.”).13 Likewise, in Monrad, the Ninth Circuit considered the analysis in Howell and Hennessy, rejected it, and concluded that the D.C. Circuit’s opinion in OPEIU was better reasoned.
In this case, it appears that McMillian’s employment was at will, not for a term of years. As pointed out by the D.C. Circuit in OPEIU, the termination of McMillian’s employment did not, by itself, breach a contract, and thus, the termination logically could not give rise to liquidated damages. As in OPEIU, McMillian’s severance pay appears to have been part of his compensation package. McMillian and other employees became eligible for severance pay after two years of employment and the amount of severance pay to which they were entitled increased with seniority. The increase of benefits based on seniority is inconsistent with the concept of liquidated damages. The years of employment would not be relevant to an estimation of the damages which an employee might incur as a result of being terminated. Instead, the fact that severance pay increases with seniority supports McMillian’s position that it was part of his compensation. Cf. Nolde Bros., Inc. v. Local No. 358, Bak. & Conf. Wkrs. U., 430 U.S. 243, 248 n. 4, 97 S.Ct. 1067, 1070 n. 4, 51 L.Ed.2d 300 (1977) (“The fact that the amount of severance pay to which an employee is entitled under the ... agreement varies according to the length of his employment and the amount of his salary ... supports the ... position that severance pay was nothing more than deferred compensation.”). An increase in benefits based on seniority is a common practice in developing the structure of compensation packages. Like the D.C. Circuit in OPEIU, we believe McMillian’s severance pay was part of his compensation package—i.e., “part of the consideration of the employment,” OPEIU, 27 F.3d at 603—similar to health and pension benefits.14
Our task is the interpretation of the statutory term “actual direct compensatory damages.” We note that there is no relevant legislative history; the parties have cited none, and we have been able to find none. See Howell, 986 F.2d at 572. Thus, our analysis relies upon the plain meaning of the statutory language. It is also informed, however, by two statutory provisions—i.e., the express statutory exclusion of punitive damages, lost profits and damages for pain and suffering,
We begin with the plain meaning of the phrase. See Perrin v. United States, 444 U.S. 37, 42-43, 100 S.Ct. 311, 314, 62 L.Ed.2d 199 (1979) (“A fundamental canon of statutory construction is that, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary common meaning.”); United States v. McLymont, 45 F.3d 400, 401 (11th Cir.), cert. denied, 514 U.S. 1077, 115 S.Ct. 1723, 131 L.Ed.2d 581 (1995) (“[T]he plain meaning of this statute controls unless the language is ambiguous or leads to absurd results.”). “Compensatory damages” are defined as those damages that “will compensate the injured party for the injury sustained, and nothing more; such as will simply make good or replace the loss caused by the wrong or injury.” Black’s Law Dictionary (6th Ed.1991). “Actual damages,” roughly synonymous with compensatory damages, are defined as “[r]eal, substantial and just damages, or the amount awarded to a complainant in compensation for his actual and real loss or injury, as opposed to ‘nominal’ damages [and] ‘punitive’ damages.” Id.15 Finally, “[d]irect damages are such as follow immediately upon the act done.” Id. Thus, “actual direct compensatory damages” appear to include those damages, flowing directly from the repudiation, which make one whole, as opposed to those which go farther by including future contingencies such as lost profits and opportunities or damages based on speculation. See OPEIU, 27 F.3d at 602; RTC v. Management, Inc., 25 F.3d 627, 632 (8th Cir.1994) (holding that neither penalties designed to dissuade a party from breaching nor liquidated damages are compensable under FIRREA).
We believe McMillian’s damages fall within the plain meaning of the terms “actual,” “direct,” and “compensatory” damages. The precise nature of the injury for which he seeks damages is clarified by viewing McMillian’s severance pay as part of his compensation package. McMillian’s injury was his being discharged without receiving the compensation due him under the terms of the Severance Plan. A significant flaw in the FDIC’s view of this case is its mischaracterization of the act triggering potential damages
The statutory language in
Our conclusion also derives strong support from the golden parachute amendment. See
For the foregoing reasons, we reject the FDIC’s argument that McMillian’s severance payments do not qualify as “actual direct compensatory damages.” The judgment of the district court cannot be affirmed on this theory.
III. CONCLUSION
Accordingly, the decision of the district court is reversed and the case is remanded for proceedings consistent with this opinion.
REVERSED and REMANDED.
R. LANIER ANDERSON III
UNITED STATES CIRCUIT JUDGE
Notes
(k) Authority to regulate or prohibit certain forms of benefits to institution-affiliated parties
(1) Golden parachutes and indemnification payments
The Corporation may prohibit or limit, by regulation or order, any golden parachute payment or indemnification payment.
(2) Factors to be taken into account
The Corporation shall prescribe, by regulation, the factors to be considered by the Corporation in taking any action pursuant to paragraph (1) which may include such factors as the following:
(A) Whether there is a reasonable basis to believe that the institution-affiliated party has committed any fraudulent act or omission, breach of trust or fiduciary duty, or insider abuse with regard to the depository institution or depository institution holding company that has had a material affect on the financial condition of the institution.
(B) Whether there is a reasonable basis to believe that the institution-affiliated party is substantially responsible for the insolvency of the depository institution or depository institution holding company, the appointment of a conservator or receiver for the depository institution, or the depository institution’s troubled condition (as defined in the regulations prescribed pursuant to section 1831i(f) of this title).
(C) Whether there is a reasonable basis to believe that the institution-affiliated party has materially violated any applicable Federal or State banking law or regulation that has had a material affect on the financial condition of the institution.
(E) Whether the institution-affiliated party was in a position of managerial or fiduciary responsibility.
(F) The length of time the party was affiliated with the insured depository institution or depository institution holding company and the degree to which—
(i) the payment reasonably reflects compensation earned over the period of employment; and
(ii) the compensation involved represents a reasonable payment for services rendered.
(4) Golden parachute payment defined
For purposes of this subsection—
(A) In general
The term “golden parachute payment” means any payment (or any agreement to make any payment) in the nature of compensation by any insured depository institution or depository institution holding company for the benefit of any institution-affiliated party pursuant to an obligation of such institution or holding company that—
(i) is contingent on the termination of such party’s affiliation with the institution or holding company; and—
(ii) is received on or after the date on which—
The purpose of the [Severance] Plan is to financially assist qualifying employees, who become unemployed as result of a Reduction in Force, through a period of readjustment while they seek new employment by providing them with severance benefits.
We reject the FDIC’s argument. The quoted language does not purport to estimate damages; indeed, as we have noted, the termination was not a breach of contract and thus triggered no damages. A purpose to tide an employee over a period of readjustment would not seem to have much relevance to the issue of whether the payments are liquidated damages or part of the compensation package. For example, a pension plan is similarly intended to tide employees over the period of their retirement, yet, pension plans are clearly part of the compensation package and not liquidated damages for the termination of employment.