IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

February 9, 2016 Session

KENNETH R. VAUGHT v. GREEN BANKSHARES, INC., ET AL.

Appeal from the Chancery Court for Knox County

No. 1818482 Clarence E. Pridemore, Jr., Chancellor

No. E2015-01259-COA-R3-CV-FILED-APRIL 18, 2016

This appeal arises from an effort by a former bank employee to collect certain deferred 

compensation payments. Kenneth R. Vaught (―Vaught‖) filed a complaint against his 

former employer, Green Bankshares, Inc., and its wholly owned subsidiary, Greenbank 

(―Greenbank‖), in the Chancery Court for Knox County (―the Trial Court‖). Both sides 

agree Vaught is entitled to certain deferred compensation. The issue is the amount. 

According to Greenbank, Federal Deposit Insurance Corporation (―FDIC‖) and Troubled 

Asset Relief Program (―TARP‖) regulations prevent payment of the total amount 

requested by Vaught as it would constitute a prohibited ―golden parachute.‖ After a trial, 

the Trial Court found in favor of Vaught, awarding him the full amount. Greenbank 

appeals. On appeal, FDIC, amicus curiae, argues that the additional deferred 

compensation payment to Vaught constitutes a prohibited golden parachute. We hold 

that the Trial Court‘s judgment places Greenbank in the untenable position of having to 

either disobey the Trial Court‘s judgment or flout federal regulations and FDIC. We 

vacate the judgment of the Trial Court, remand this case to the Trial Court, and order a 60 

day stay, during which time Vaught may pursue, should he elect to do so, other avenues 

of relief, including via the Administrative Procedure Act (―the APA‖) to challenge 

FDIC‘s determination.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Vacated; 

Case Remanded

D. MICHAEL SWINEY, C.J., delivered the opinion of the court, in which CHARLES D.

SUSANO, JR., and THOMAS R. FRIERSON, II, JJ., joined.

Edward H. Trent and Mary M. Helms, Knoxville, Tennessee, for the appellants, Green 

Bankshares, Inc. and Greenbank.

Craig L. Garrett, Maryville, Tennessee, for the appellee, Kenneth R. Vaught.
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Colleen J. Boles, Assistant General Counsel, Kathryn R. Norcross, Senior Counsel, and, 

Jerome A. Madden, Counsel, Arlington, Virginia, for amicus curiae Federal Deposit 

Insurance Corporation.

OPINION

Background

This appeal concerns the ramifications of a 2004 Non-Competition 

Agreement (―the Agreement‖) Vaught entered into with his then employer, Greenbank. 

Pursuant to the Agreement, Vaught was entitled to deferred compensation. The 

Agreement provided that payment under the Agreement was to begin when he turned 50 

years old in July 2014 or upon his termination, whichever occurred later, and continue for 

ten years. The annual benefit upon termination was slated to be $84,924 paid in equal 

payments over a ten year period resulting in a total of $849,240. 

In August 2011, Vaught was terminated as President and Chief Operating 

Officer of Greenbank. At the time, Greenbank officially was designated as in ―troubled 

condition.‖ This designation had important implications for Vaught‘s compensation. At 

the time of Vaught‘s termination, the amount accrued on the books toward his deferred 

compensation was $521,497. The essence of this appeal is which total figure Vaught is 

entitled to: $849,240 over ten years as originally contemplated, or $521,497 over ten 

years as accrued at the time of his termination. The parties do not dispute that Vaught is 

entitled to the latter figure. However, Greenbank and FDIC, as amicus curiae, contend 

that, given Greenbank‘s troubled condition at the time of Vaught‘s termination, a full 

payment of $849,240 over ten years would constitute an impermissible golden parachute 

under applicable TARP and FDIC regulations.

Vaught sued Greenbank in December 2011.1 Vaught asserted, among other 

things, that he was entitled to severance and change in control benefit payments. 

Greenbank filed a motion for summary judgment in opposition. In February 2014, 

Vaught amended his complaint by seeking declaratory relief regarding the amount he was 

owed under the Agreement in deferred compensation. In August 2014, the Trial Court 

granted Greenbank‘s motion for summary judgment relative to the severance and change 

in control benefits, concluding they were prohibited golden parachutes under TARP 

regulations. In May 2015, the issue of deferred compensation was tried. At trial, the 

Trial Court deemed inadmissible as hearsay an FDIC opinion letter dated May 28, 2014 

opining that Vaught was limited to $521,497 and that the additional sum would amount 

 

1 Vaught also sued North American Financial Holdings and Capital Bank, N.A., but they are not parties to 

this appeal.
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to a prohibited golden parachute. The Trial Court found in favor of Vaught. By June 

2015 order, the Trial Court entered its findings and conclusions as follows:

1. In 1998, Kenneth Vaught (hereinafter Plaintiff) was working at 

First Tennessee Bank in Maryville, Blount County, Tennessee.

2. Plaintiff was recruited by Greenbank (hereinafter Defendant) to 

come to work for Defendant in 1998 to operate and run two (2) branches of 

Greenbank in Blount County, Tennessee, then operated as American 

Fidelity Bank.

3. Over the course of the next twelve (12) months, Plaintiff either 

recruited or hired approximately twenty-five (25) new employees to come 

work for him at Greenbank operating the two (2) American Fidelity 

branches.

4. Plaintiff‘s original employment contract with Defendant contained 

both a non-compete provision and also contained a bonus provision to 

provide for bonuses based on a formula connected to the bottom line 

profitability of the two (2) American Fidelity branches managed by 

Plaintiff.

5. Over the next several years the American Fidelity branches 

managed by Plaintiff were profitable and upon expiration of Plaintiff‘s 

existing employment contract, the parties desired to enter into new 

employment contracts.

6. The parties entered into two (2) new contracts. One contract was 

the Employment Contract and the other was a Non-Competition Agreement 

that is the subject of this litigation.

7. The Non-Competition Agreement entered into by the parties and 

stipulated as Exh. No. 1, provided in paragraph no. 2 that for and in 

consideration of the deferred compensation benefits granted by the 

company to the employee under the terms of the agreement that Plaintiff, 

during the term of his employment and for a period from termination, 

whether by resignation or otherwise, would not compete with Defendant 

until his 46th birthday, directly or indirectly. At the time of the execution 

of the contract, Plaintiff was 40 years old.

8. Paragraph No. 8 of the Non-Competition Agreement titled 

―Deferred Compensation Benefits‖, provided that in consideration of the 

covenants contained therein, that the Defendant agreed to provide deferred 

compensation benefits to Plaintiff in the amount set forth in Schedule A 

under the column ―Annual Benefit Upon Termination‖ for the age specified 

in said schedule upon termination of his employment.

9. Schedule A to the Non-Competition Agreement showed the 

annual benefit grew each year that Plaintiff remained employed at the bank.
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10. The agreement specifically provided that under no circumstances 

would Plaintiff receive the first annual benefit payment under the contract 

until he reached age 50 and, that if Plaintiff‘s employment was terminated 

from the bank prior to age 50, his benefit payment would not start until his 

50th birthday.

11. The agreement further provided that if Plaintiff chose to remain 

employed at the bank after reaching age 50 and chose to continue to be 

bound by the Non-Competition Agreement, then the annual benefit would 

continue to grow until Plaintiff‘s 60th birthday at which time payments 

would begin.

12. The footnote to Schedule A provided that if Plaintiff‘s 

termination of his employment occurs after age 50, that payments would 

commence the month following termination and the annual payments 

would continue for ten (10) years.

13. The footnote to Schedule A also provided the accrual liability 

balance is based on accruals required under Generally Accepted 

Accounting Principals (GAAP) and was based on a plan commencement 

date of September 1, 2004, the method of calculating interest was a 6.5% 

discount rate compounded monthly.

14. This Court has previously held that the change of control benefit 

was barred by the federal TARP regulations. However, the same is not at 

issue in this present litigation.

15. At the time the Defendant and Plaintiff entered into the NonCompetition Agreement, the Defendant bought two (2) bank owned life 

insurance policies (BOLI) to fund Plaintiff‘s non-compete agreement for 

the $2,500,000.00

16. The BOLI policies were not put into a specific trust for the 

Plaintiff‘s contract, but were purchased by the Defendant to fund Plaintiff‘s 

Non-Competition Agreement.

17. Defendant has argued that the lower annual benefit of 

$52,149.70 is mandated by two sets of federal regulations (i.e. TARP and 

FDIC) because the greater payment of $84,924.00 would constitute a 

golden parachute under these regulations.

18. There is no dispute that the lower payment of $52,149.70 is 

deferred compensation which is a clear exception to both the TARP and 

FDIC regulations prohibiting golden parachutes.

19. Both the TARP and FDIC regulations provide seven (7) 

requirements for a benefit plan to meet the deferred compensation 

exclusion. The TARP requirements are listed at 31 CFR 30.01. The FDIC 

requirements are found at 12 CFR 359.1(d).
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20. It is undisputed that the annual benefit under Plaintiff‘s NonCompetition Agreement meet the first six (6) requirement of both 

definitions.

21. The only disputed portion is the seventh requirement which reads 

as follows: ―... and payments pursuant to the plan are not in excess of the 

accrued liability computed in accordance with GAAP‖ (TARP definition, 

31 CFR 30.1) ―...payments pursuant to such plans shall not be in excess of 

the accrued liability computed in accordance with GAAP‖ ( FDIC 

definition CFR 359.1(d)).

22. Neither of the above cited regulations require accrual to stop at 

termination.

23. The $521,497.00 accrued at the time of Plaintiff‘s termination in 

August 2011 was the then present value of the future payments of $84,924 

which were to begin upon Plaintiff‘s 50th birthday in July 2014 and to be 

payable for a period of ten (10) years.

24. The original accrual schedule set up by the bank and its 

consultant, Clark Consulting, was prepared pursuant to GAAP and 

anticipated that accrual would occur until Plaintiff‘s 50th birthday which 

was assumed to be when the first payment would begin. This accrual 

schedule was prepared to GAAP.

25. The bank continued to accrue liability for the annual benefit past 

Plaintiff‘s termination and up to the date of his 50th birthday. This 

continued accrual was done pursuant to GAAP.

26. As of December 31, 2015, the Defendant has accrued 

$852,743.18 towards Plaintiff‘s annual benefit.

27. Pursuant to the terms of the Non-Competition Agreement, the 

benefit did not continue to grow after Plaintiff‘s termination, but the accrual 

would have continued up until the date of the first payment on July 2, 2014, 

such that the accrual as of the date of payment would have been the present 

value of July 2, 2014, of the annual payments of $84,924 payable over ten 

(10) years. This is the accrual required by GAAP. The present value of the 

stream of payments due to Plaintiff was included in the $852,743.18 on the 

Defendant‘s books.

28. The annual benefit payment was for and in consideration of the 

non-compete and was not a severance payment for departure.

29. That the payments met the definition of deferred compensation, 

which is excluded from the golden parachute definitions.

30. In April 2011, the Defendant was advised by the FDIC in a letter 

entered as Exh. No. 7, that they were prohibited from paying or agreeing to 

pay any golden parachute payments without the approval of the FDIC.
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31. The Defendant acknowledged receipt of the FDIC‘s April 2011 

letter and stated in the letter stipulated as Exh. No. 11, that Defendant 

would not pay or agree to pay any golden parachute payment without the 

approval of the FDIC.

32. In May 2012, Defendant entered into an agreement with North 

American Financial Holdings/ Capital Bank to be acquired in a merger 

wherein the acquirer would acquire 90% of the stock of Defendant.

33. The merger of the two banks required the preparation of a Final 

Proxy Statement that would be voted upon by the Defendant‘s 

shareholders.

34. The Final Proxy Statement which was stipulated as Exh. No. 12 

is a detailed and comprehensive document that describes in detail the 

merger transaction along with a detailed section regarding executive 

compensation of the bank officers.

35. Both sides to the merger process had significant input into the 

preparation of the proxy documents and the proxy documents were 

reviewed by law firms for both parties, accountants for both parties and 

bank officers for both parties.

36. The Final Proxy Statement (Exh. No. 12) provided that if 

Plaintiff was terminated in 2011, that the annual benefit he was entitled to 

for ten (10) years would be $84,924. There was no mention in the Final 

Proxy by Defendant that any portion of this $84,924 was considered to be a 

golden parachute.

37. Plaintiff was terminated from his employment with Defendant by 

letter dated August 9, 2011, which was stipulated as Exh. No. 13.

38. Plaintiff‘s termination letter was signed by bank CEO Stephen 

Rowand.

39. Plaintiff‘s termination letter was drafted by the bank‘s legal 

counsel Bass, Berry and Sims.

40. The Defendant was aware of FDIC and TARP regulations 

regarding golden parachute payments at the time of both the Final Proxy 

Statement and Plaintiff‘s termination letter.

41. Plaintiff‘s termination letter concluded that the proper annual 

benefit was $84,924 and that the same was not a golden parachute, but 

appropriate deferred compensation and that the Defendant agreed in the 

termination letter to pay Plaintiff the $84,924 benefit for ten (10) years 

beginning on his 50th birthday.

42. Plaintiff presented the testimony of James Adams, who was the 

former CFO of Defendant.

43. This Court found Mr. Adams to be an expert on Generally 

Accepted Accounting Procedures (GAAP).
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44. This Court found Mr. Adams‘ testimony to be credible and 

helpful to the Court.

45. The Defendant has failed to present any witnesses to support 

their position that any payment above $52,149.70 would be considered a 

golden parachute payment.

46. The Defendant has failed to provide any explanation as to why it 

has changed its opinion as to Plaintiff‘s annual benefit amount since the 

time of the termination letter and the 2011 Final Proxy Statement.

47. The Defendant has provided no testimony that would require the 

accrual for Plaintiff‘s annual benefit to cease at the time of his termination 

in 2011 rather than at the time payments began in July 2014.

48. The current issue before this Court was not part of Plaintiff‘s 

original Complaint filed in December 2012.

49. Subsequent to the filing of the December 2012 Complaint, 

Plaintiff became aware of the Defendant‘s intention to not pay the full 

annual benefit of $84,924 and amended his Complaint to add Count V, 

which is the subject of this current matter before the Court.

50. When the first annual benefit payment became due on Plaintiff‘s 

50th birthday (July 2, 2014), the Defendant made no payment to Plaintiff in 

any amount.

51. In April 2015, Plaintiff received a check in the mail from the 

Defendant in the amount of $52,149.70, dated April 16, 2015, which came 

directly to Plaintiff‘s home and did not go through Plaintiff‘s legal counsel. 

The check did not include any interest for being late.

CONCLUSIONS OF LAW

A. This Court finds that the Annual Benefit Upon Termination under 

Plaintiff‘s Non-Competition Agreement is not a golden parachute payment, 

under either the TARP regulations or the FDIC regulations.

B. This Court has previously ruled that the annual benefit was 

deferred compensation and not a golden parachute payment under the 

TARP regulations when it granted Plaintiff‘s Motion for Summary 

Judgment on this issue and this Court reiterates and reaffirms that finding.

C. This Court finds that the annual benefit under the NonCompetition Agreement was not paid as a result of Plaintiff‘s departure or 

for a change of control but was for work performed and benefits accrued.

D. This Court finds that the consideration for the Non-Competition 

Agreement was Plaintiff‘s covenant not to compete and that Plaintiff fully 

complied with this covenant by not competing with the Defendant until his 

46th birthday.
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E. This Court finds that the annual benefit under the NonCompetition Agreement was not for Plaintiff‘s departure and that the only 

effect that Plaintiff‘s termination had on the benefit was to determine the 

amount to be paid under Schedule A of the Non-Competition Agreement.

F. This Court finds that the annual benefit under the NonCompetition Agreement was not a severance benefit or a termination 

benefit which would meet the TARP definition of a golden parachute.

G. This Court further finds that the Annual Benefit Upon 

Termination meets the definition under both TARP and FDIC regulation for 

bona fide deferred compensation, which is an exclusion to the golden 

parachute under both sets of regulations.

H. This Court finds that the $521,497 accrued on the Defendant‘s 

books as of Plaintiff‘s termination in August 2011 was the then present 

value of the $84,924 annual benefit payable over ten (10) years beginning 

July 2, 2015, and this amount was accrued on the Defendant‘s books 

according to GAAP which requires and mandates that the Defendant accrue 

only the present value of a future stream of benefits on its books.

I. This Court finds that the Defendant continued to accrue for 

Plaintiff‘s annual benefit upon termination and this continued accrual was 

pursuant to GAAP which requires and mandates that a bank or other entity 

accrue to the full eligibility date which this Court finds to be July 2, 2014 

(Plaintiff‘s 50th birthday). This Court further finds that neither the TARP

regulations or the FDIC regulations require under their definition of 

deferred compensation that the Defendant stop accruing for deferred 

compensation at the time of the employee‘s termination unless the 

employee‘s benefits begin at termination. Plaintiff‘s benefits did not begin 

at termination but began later upon his 50th birthday.

J. This Court finds that the annual benefit payment in [sic] not 

limited to the $521,497 accrued on the Defendant‘s books in August 2011 

because this amount was merely the present value of the future stream of 

benefits to begin in July 2014.

K. This Court finds that since the $521,497 was the present value in 

August 2011 of $84,924 annually, beginning in July 2014, then the 

payments of $84,924 annually for ten (10) years beginning in July 2014 

would not be in excess of the amount accrued on the Defendant‘s books 

and would not be contrary to either the TARP or FDIC definition of 

deferred compensation.

L. This Court finds that as of the date of the first payment due 

Plaintiff on July 2, 2014, the bank had fully accrued on its book the present 

value of the ten (10) year payment stream that Plaintiff was to receive in the 

amount of $84,924 and as such, the payment of the annual benefit in that 
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amount would not exceed the accrued liability on the Defendant‘s books as 

of that date.

M. This Court finds that the accrual of liability per GAAP is merely 

an account entry recognizing a liability on the books of the bank.

N. This Court finds that by continuing to accrue for the liability after 

Plaintiff‘s termination, that the Defendant did not increase the actual benefit 

amount but only increased the liability accrual up until the payments began.

O. This Court finds that accrual under GAAP is based upon and 

considers the time value of money.

P. This Court finds that both TARP and FDIC regulations recognize 

the time value of money, by requiring accrual pursuant to GAAP.

Q. This Court finds that the Plaintiff is entitled to the annual benefit 

of $84,924 which payments were to begin on July 2, 2014, and be paid 

annually for a period of ten (10) years.

R. This Court finds that the declaratory judgment statutes of the 

State of Tennessee allow and require the court to give complete relief in 

conjunction with a ruling for declaratory relief.

S. This Court finds that Plaintiff is entitled to prejudgment interest 

from July 2, 2014, forward at a rate of 5.25%.

T. This Court finds that the Plaintiff is entitled to pre-judgment 

interest on the difference between the $84,924 payment due and the 

$52,149.70 payment received, which is a difference of $32,774.30 at a rate 

of 5.25% from April 16, 2015, until the date declaratory judgment is 

entered. Thereafter, judgment interest would accrue per statute.

U. This Court finds that Plaintiff shall have a monetary judgment 

against the Defendant for $32,774.30, along with pre-judgment interest as 

set forth above, for which execution may issue. Plaintiff shall prepare said 

money judgment.

V. This Court finds that Plaintiff is entitled to future annual 

payments of $84,924 payable for nine (9) more years, with the next 

payment being due on July 2, 2015, and July 2nd of each year thereafter.

W. This Court orders that in the event payment is not made by the 

Defendant on July 2nd of each year, and if the Plaintiff files an affidavit 

with the Court to that effect after the due date, that the Plaintiff shall be 

allowed to submit a monetary judgment with his affidavit for that year‘s 

annual payment plus statutory interest for the time that the same is not paid 

and the Court will grant judgment for which execution may issue.

X. The cost associated with this cause are taxed to the Defendant 

Greenbank, for which execution may issue.

In July 2015, the Trial Court entered its final judgment, stating:
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This matter came before the Court for trial on Count V of Plaintiff, 

Kenneth R. Vaught‘s Amended Complaint. Previously, the Court granted 

Defendants, Green Bankshares, Inc. and GreenBank‘s Motion for Summary 

Judgment as to Counts I, III, and IV of the Amended Complaint. Based on 

this Court‘s August 20, 2014 Order, as clarified by Order dated October 22, 

2014, and based on this Court‘s June 11, 2015 Findings of Facts and 

Conclusion of Law and Order following trial on Count V, the Court enters 

this Final Judgment pursuant to Rule 54.02, Tenn. R. Civ. P. as to all claims 

filed by Plaintiff against Defendants Green Bankshares, Inc. and 

GreenBank finding that there is no reason to delay entry of judgment on 

these claims, which involve all issues between these parties.

Accordingly, it is now

ORDERED AND ADJUGED:

1. Based on the Court‘s June 11, 2015 Findings of Facts and 

Conclusion of Law and Order, above Findings of Fact and Conclusions of 

Law, the Court enters judgment in favor of Plaintiff, Kenneth R. Vaught as 

to Count V of the Amended Complaint seeking Declaratory Judgment 

regarding the amount of the ―Annual Benefit Upon Termination‖ to which 

he is entitled under his 2004 Non-Competition Agreement as follows:

a. Plaintiff is entitled to the annual benefit of $84,924, which 

payments were to begin on July 2, 2014, and be paid annually for a period 

of ten (10) years.

b. The declaratory judgment statutes of the State of Tennessee allow 

and require the Court to give complete relief in conjunction with a ruling 

for declaratory relief.

c. Plaintiff is entitled to prejudgment interest from July 2, 2014, 

forward at a rate of 5.25%.

d. Plaintiff is entitled to pre-judgment interest on the difference 

between the $84,924 payment due and the $52,149.70 payment received, 

which is a difference of $32,774.30 at a rate of 5.25% from April 16, 2015, 

until the date declaratory judgment is entered. Thereafter, judgment 

interest would accrue per statute.

e. Plaintiff shall have a monetary judgment against the Defendant for 

$32,774.30, along with pre-judgement interest as set forth above, for which 

execution may issue.

f. Plaintiff is entitled to future annual payments of $84,924 payable 

for nine (9) more years, with the next payment being due on July 2, 2015, 

and July 2nd of each year thereafter.

g. In the event payment is not made by the Defendant on July 2nd of 

each year, and if the Plaintiff files an affidavit with the Court to that effect 
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after the due date, that the Plaintiff shall be allowed to submit a monetary 

judgment with his affidavit for that year‘s annual payment plus statutory 

interest for the time that the same is not paid and the Court will grant 

judgment for which execution may issue.

2. Final Judgment is entered in favor of Defendants, Green 

Bankshares, Inc. and GreenBank on Counts 1, III, and IV of the Amended 

Complaint, consistent with the Court‘s August 20, 2014 Order.

3. The costs associated with this cause are taxed to Defendants, 

Green Bankshares, Inc. and GreenBank.

Greenbank timely appealed to this Court.

Discussion

Although not stated exactly as such, Greenbank raises three issues on 

appeal: 1) whether TARP regulations limit Vaught‘s deferred compensation to 

$52,149.70 each year for 10 years rather than $84,924; 2) whether FDIC golden 

parachute provisions limit deferred compensation benefits to amounts actually accrued on 

the books; and, 3) whether the Trial Court erred in excluding a May 28, 2014 opinion 

letter from an FDIC representative to Greenbank‘s counsel in which the FDIC 

representative supported Greenbank‘s stance as to Vaught‘s deferred compensation, on 

the basis that the letter was inadmissible hearsay. Vaught raises his own issue of whether 

Greenbank‘s appeal is frivolous. FDIC, in an amicus curiae brief, raises the additional 

issues of whether this Court even has subject matter jurisdiction and whether Vaught‘s 

only recourse is through the APA and federal court.

Our review is de novo upon the record, accompanied by a presumption of 

correctness of the findings of fact of the trial court, unless the preponderance of the 

evidence is otherwise. Tenn. R. App. P. 13(d); Bogan v. Bogan, 60 S.W.3d 721, 727 

(Tenn. 2001). A trial court‘s conclusions of law are subject to a de novo review with no 

presumption of correctness. S. Constructors, Inc. v. Loudon County Bd. of Educ., 58 

S.W.3d 706, 710 (Tenn. 2001).

This appeal requires an examination of federal regulations. Golden 

parachute means: ―The term ―golden parachute payment‖ means any payment to a senior 

executive officer for departure from a company for any reason, except for payments for 

services performed or benefits accrued.‖ 12 U.S.C. § 5221(a)(2). Federal regulations 

prohibit the payment of golden parachutes under a variety of circumstances. Deferred 

compensation plans may be excluded from the golden parachute prohibitions as follows: 
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(4) Payments from benefit plans and deferred compensation plans. A 

payment from a benefit plan or a deferred compensation plan is treated as a 

payment for services performed or benefits accrued only if the following 

conditions are met:

(i) The plan was in effect at least one year prior to the employee‘s 

departure;

(ii) The payment is made pursuant to the plan and is made in accordance 

with the terms of the plan as in effect no later than one year before the 

departure and in accordance with any amendments to the plan during this 

one year period that do not increase the benefits payable hereunder;

(iii) The employee has a vested right, as defined under the applicable plan 

document, at the time of the departure or the change in control event (but 

not due to the departure or the change in control event) to the payments 

under the plan;

(iv) Benefits under the plan are accrued each period only for current or 

prior service rendered to the TARP recipient (except that an appropriate 

allowance may be made for service for a predecessor employer);

(v) Any payment made pursuant to the plan is not based on any 

discretionary acceleration of vesting or accrual of benefits which occurs at 

any time later than one year before the departure or the change in control 

event; and

(vi) With respect to payments under a deferred compensation plan, the 

TARP recipient has previously recognized compensation expense and 

accrued a liability for the benefit payments according to GAAP or 

segregated or otherwise set aside assets in a trust which may only be used 

to pay plan benefits, except that the assets of this trust may be available to 

satisfy claims of the TARP recipient‘s creditors in the case of insolvency 

and payments pursuant to the plan are not in excess of the accrued liability 

computed in accordance with GAAP.

31 C.F.R §30.1.

Seven requirements must be met in order for a plan to fulfill the definition 

of a deferred compensation plan, as follows:
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(3) In the case of any nonqualified deferred compensation or supplemental 

retirement plans as described in paragraphs (d)(1) and (2) of this section, 

the following requirements shall apply:

(i) The plan was in effect at least one year prior to any of the events 

described in paragraph (f)(1)(ii) of this section;

(ii) Any payment made pursuant to such plan is made in accordance with 

the terms of the plan as in effect no later than one year prior to any of the 

events described in paragraph (f)(1)(ii) of this section and in accordance

with any amendments to such plan during such one year period that do not 

increase the benefits payable thereunder;

(iii) The IAP has a vested right, as defined under the applicable plan 

document, at the time of termination of employment to payments under

such plan;

(iv) Benefits under such plan are accrued each period only for current or 

prior service rendered to the employer (except that an allowance may be 

made for service with a predecessor employer);

(v) Any payment made pursuant to such plan is not based on any 

discretionary acceleration of vesting or accrual of benefits which occurs at 

any time later than one year prior to any of the events described in 

paragraph (f)(1)(ii) of this section;

(vi) The insured depository institution or depository institution holding 

company has previously recognized compensation expense and accrued a 

liability for the benefit payments according to GAAP or segregated or 

otherwise set aside assets in a trust which may only be used to pay plan 

benefits, except that the assets of such trust may be available to satisfy 

claims of the institution‘s or holding company‘s creditors in the case of 

insolvency; and

(vii) Payments pursuant to such plans shall not be in excess of the accrued 

liability computed in accordance with GAAP.

12 C.F.R. § 359.1(d)(3).
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We first must establish whether this Court has subject matter jurisdiction. 

Our Supreme Court held that state courts‘ jurisdiction had been preempted in the Wiggins

case, stating as follows in a case concerning the National Labor Relations Board:

There is no question made in the present case as to the identity of 

issues or of the parties in the respective state and federal proceedings, 

except to the extent that the landowner, Wiggins and Company, was found 

not guilty of unfair labor practices in the N.L.R.B. case. It is not insisted, 

however, that this fact should affect our disposition of the state court 

proceedings or that Wiggins alone would be entitled to maintain in force an 

injunction against the union. As noted previously, the property was under a 

commercial lease and the premises were occupied in their entirety by 

Kresge and Giant Foods. There were no other tenants in the shopping 

center.

It is the principal insistence of appellees that this Court should either 

withhold its decision until the Court of Appeals for the Sixth Circuit takes 

final action upon review of the N.L.R.B. order or, in the alternative, that 

this Court should leave in force the injunction ordered by the state Court of 

Appeals until the federal appellate court acts. We find no merit in this 

position. Once the Court of Appeals for the Sixth Circuit acts, it would still 

be possible for appellees to seek review in the Supreme Court of the United 

States. If appellees‘ contention had merit, the state courts might well leave 

an injunction in force until the Supreme Court of the United States had 

completed certiorari review.

We do not so understand the pre-emption doctrine. As a result of the 

action of the state Court of Appeals, the Union has been enjoined from 

doing the very acts which the N.L.R.B. expressly authorized it to do. 

Appellees, on the other hand, are entitled to prohibit picketing under the 

state court order while they are required to permit it and to post notices to 

that effect under the order of the federal agency. Each of the parties is 

subject to cross-injunctions which are diametrically conflicting.

Appellee insists that the action of the N.L.R.B. is erroneous and not 

in accord with previous decisions of the federal courts. It insists that the 

action may well be reversed, noting that in the majority opinion in the Sears

case, supra, it was stated that trespassory picketing has seldom been held to 

be a protected activity.
-15-

However this may be, that argument goes to the merits, or lack

thereof, of the N.L.R.B. decision, not to the question of state court 

jurisdiction. We have already noted that the Court of Appeals for the Sixth 

Circuit denied a stay of the N.L.R.B. order pending review. The issue of 

whether the order should or should not be stayed until the federal appellate 

court renders its decision is a matter for determination by the federal, not 

the state, courts.

The judgment of the Court of Appeals is reversed and the cause is 

dismissed because jurisdiction of the state courts has been pre-empted. 

Costs will be taxed to appellees.

Wiggins and Co., Inc. v. Retail Clerks Union Local No. 1557, AFL-CIO, 595 S.W.2d 802, 

804-05 (Tenn. 1980).

In the Hampton Roads Bankshares, Inc. case, the Supreme Court of 

Virginia addressed whether TARP regulations prohibiting golden parachutes constituted 

a taking without compensation:

Harvard filed an action for the breach of a private contract. In 

response, HRB asserted EESA § 111 and the June Rule as an affirmative 

defense. To avoid HRB‘s defense, Harvard alleged that EESA § 111 and 

the June Rule effected an unconstitutional taking without just 

compensation. Certainly, we have jurisdiction over the breach of contract 

action, and we can apply federal law if necessary to resolve the dispute. 

See Merrell Dow Pharm., Inc. v. Thompson, 478 U.S. 804, 808, 106 S.Ct. 

3229, 92 L.Ed.2d 650 (1986) (the existence of a federal statutory defense 

generally does not create federal subject matter jurisdiction). Indeed, the 

United States District Court for the Eastern District of Virginia dismissed 

HRB‘s prior action for declaratory judgment because the case turned on a 

question of Virginia contract law, and the ―mere fact that TARP is 

implicated‖ was insufficient to support the exercise of federal jurisdiction. 

Shore Bank v. Harvard, 934 F.Supp.2d 827, 841 (E.D. Va. 2013). 

Although the dispute comes to us in a different posture, it still turns on a 

question of Virginia contract law, and we will resolve it accordingly.

***

Harvard attempted to mount a collateral attack on the constitutionality of 

EESA § 111, as amended by the June Rule. But the validity of the law 

rendering performance impossible does not affect the validity of the 
-16-

defense, provided the promisor relies upon the law in good faith. See White 

v. J.M. Brown Amusement Co., 360 S.C. 366, 601 S.E.2d 342, 345-46 

(2004) (holding that subsequent invalidation of a law did not revive a 

contract after the parties had ceased performing in good faith compliance 

with the law); Gaunt v. Shelter Mut. Ins. Co., 808 S.W.2d 401 (Mo. Ct. 

App. 1991) (holding that the respondent did not breach a settlement 

agreement by making payment pursuant to a lien that was subsequently 

declared invalid); Directions, Inc. v. New Prince Concrete Constr. Co., 200 

N.J. Super. 639, 491 A.2d 1347 (Ct. App. Div. 1985) (concluding that the 

appellant was not required to challenge an apparently valid administrative 

order to determine its validity before refusing to perform a contract).

There is nothing in the record that would suggest HRB refused to 

make the golden parachute payment in bad faith. After Harvard terminated 

his employment, HRB sought guidance from Treasury regarding its 

contractual obligation to make the disputed golden parachute payment, and 

whether it could perform that obligation in light of EESA § 111, as 

implemented by the June Rule. In response, Treasury provided informal 

guidance indicating that HRB could not make the payment and comply 

with EESA § 111. Where, as here, the government has clearly expressed its 

intent to enforce the law, and the promisor cannot in good faith perform its 

contractual obligation without violating the law, the promisor is discharged 

from its obligation. See Harriscom Svenska v. Harris Corp., 3 F.3d 576 (2d 

Cir. 1993) (finding that, in light of evidence that the government would not 

allow continued sales, the seller complied in good faith with the 

government‘s requirements and refused to perform its remaining 

obligations); Restatement (Second) of Contracts § 264 cmt. b.

***

For these reasons, the circuit court erred when it ordered HRB to 

make the golden parachute payment despite the federal prohibition on such 

payments found in EESA § 111, and as implemented by the June Rule.

Hampton Roads Bankshares, Inc. v. Harvard, 291 Va. 42, 781 S.E.2d 172, 177, 179-80 

(2016) (Footnotes omitted).

Our review of Wiggins and Hampton Roads Bankshares, Inc. persuades us 

that the Trial Court, and this Court, have subject matter jurisdiction to hear the present 

case. Unlike Wiggins, we are not dealing with the body of law stemming from the 

National Labor Relations Act. Administrative procedures already had been undertaken in 
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Wiggins, as well. In addition, Hampton Roads Bankshares, Inc. sustains the proposition 

that, among other things, TARP‘s mere implication does not require exclusive federal 

subject matter jurisdiction.

While our jurisdiction is not preempted, a separate question exists as to 

what deference, if any, Tennessee courts are to extend to FDIC‘s interpretation of its 

regulations. According to Vaught, the FDIC opinion letter dated May 28, 2014 which 

takes the position that Vaught is not entitled to the additional deferred compensation 

payments is merely an informal advisory opinion which is binding on no one. Vaught 

asserts that the Trial Court correctly ruled that the letter was inadmissible hearsay. 

Relevant case law suggests, however, that the issue of the FDIC‘s 

interpretation and resulting stance does not begin or end with the question of whether the 

letter was properly excluded as hearsay.

2

 In articulating a deferential standard to be 

applied when an agency interprets its own regulations, the United States Supreme Court 

provided:

In the absence of any unambiguous statute or regulation, we turn to 

the FCC‘s interpretation of its regulations in its amicus brief. See, e.g., 

Chase Bank USA, N.A. v. McCoy, 562 U.S. ––––, ––––, 131 S.Ct. 871, 880, 

178 L.Ed.2d 716 (2011). As we reaffirmed earlier this Term, we defer to 

an agency‘s interpretation of its regulations, even in a legal brief, unless the 

interpretation is ―  ̳plainly erroneous or inconsistent with the regulation [s]‘ 

‖ or there is any other ―  ̳reason to suspect that the interpretation does not 

reflect the agency‘s fair and considered judgment on the matter in 

question.‘ ‖ Id., at ––––, ––––, 131 S.Ct., at 880, 881 (quoting Auer v. 

Robbins, 519 U.S. 452, 461, 462, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997)).

Talk Am., Inc. v. Mich. Bell Tel. Co., 564 U.S. 50, 131 S. Ct. 2254, 2260-61, 180 L.Ed.2d 

96 (2011).

In the present case, Greenbank received a letter from an FDIC 

representative opining that Vaught must not be paid the excess deferred compensation, 

lest this additional amount constitute a prohibited golden parachute. Moreover, FDIC 

appeared at oral arguments, and submitted an amicus curiae brief adopting a position 

contrary to Vaught‘s. If Vaught‘s argument is to be accepted, then we would be 

constrained to ignore FDIC‘s position on a question that involves that agency and its 

regulations. This Court declines to take such a view. Even if the FDIC letter was 

 

2 We believe the FDIC letter was not hearsay. The FDIC letter was offered to prove FDIC‘s opinion on 

the matter at issue, not that FDIC‘s opinion was correct. However, as we explain herein, the issue of the 

letter‘s admissibility is moot.
-18-

inadmissible hearsay, we know now by this point in the case unequivocally what FDIC‘s 

position is. The issue of the admissibility of the FDIC letter as evidence that the 

contested payments constitute an impermissible golden parachute is therefore moot. As 

the United States Supreme Court stated in Talk America, our deference to an agency‘s 

interpretation of its regulations can be based on the ―agency‘s interpretation of its 

regulations, even in a legal brief . . . .‖ Id.

Deference, however, does not amount to abdication of a court‘s duty to 

review. We still must determine whether the agency‘s interpretation is plainly erroneous

or inconsistent with the regulations, or, whether the interpretation reflects the agency‘s 

fairly considered judgment. As to the latter analysis, FDIC‘s consistent and persistent 

position in this case leaves us with no serious doubt as to whether that agency has taken a 

carefully considered judgment on the present case. With respect to whether that 

interpretation is plainly erroneous, or inconsistent with the regulations, Vaught advances 

a number of arguments as to why FDIC‘s interpretation is entitled to no deference. 

Among other things, Vaught points to testimony at trial supporting his position that the 

deferred compensation was an accrued liability, and not ―vested.‖ This is a critical 

distinction according to Vaught, which takes into account the ―the time value of money.‖ 

In other words, $521,497 was the present value in 2011 of the originally contemplated 

$849,240 total amount in deferred compensation, and the latter figure is therefore not 

excessive but part and parcel of what Vaught was entitled to all along. Vaught also notes 

the inconsistency in Greenbank having previously approved his deferred compensation 

package before reversing course. 

While Vaught‘s position regarding accounting principles, trial testimony,

and the time value of his deferred compensation is not illogical, we disagree with his 

implicit characterization of the issue confronting this Court on appeal. We perceive the 

issue before us to be a legal issue, rooted in TARP and the applicable regulations. This 

Court has found no case law, or indeed regulation, that unambiguously resolves a 

scenario like that of the present case. FDIC presents the following argument in its amicus

brief:

First, under 12 C.F.R. § 359.1(d)(3)(vii), payments due to Mr. 

Vaught cannot exceed the accrued liability computed under GAAP. As 

reflected in Schedule A, there is no dispute that the Accrued Liability, 

determined under GAAP, as of 2011 was $521,497. Therefore, as of the 

date of termination, the Bank had no further obligation to continue to

accrue a liability in order to commence payments as of 2014; and whether it 

did or not is irrelevant. Second, the court‘s interpretation of 12 C.F.R. § 

359.1(d)(3)(vii)—accrual under GAAP—is inconsistent with the parties‘ 

agreement that the deferred compensation meet the requirements of 12 
-19-

C.F.R. § 359.1(d)(3)(iii)—vesting. 12 C.F.R. § 359.1(d)(3)(iii) provides 

that the IAP must have ―a vested right, as defined under the applicable plan 

document, at the time of termination of employment to benefits under such 

plan.‖ Schedule A expressly provides that as of 2011 that Mr. Vaught was 

100 percent invested in $521,497, the amount of the Accrued Liability—not 

$849,240.

(Footnote omitted, emphasis in original). We find FDIC‘s interpretation of the 

regulations to be a reasonable one, and hold that it is entitled to deference. 

Greenbank has been placed in an untenable position. It either must comply 

with the Trial Court‘s judgment, or flout FDIC and federal regulations which could 

expose Greenbank to serious legal penalties. Having advanced a reasonable 

interpretation of applicable regulations, FDIC‘s interpretation requires the courts‘ initial

deference. The judgment of the Trial Court is vacated, and this case is remanded.

FDIC argues in its amicus brief that ―Mr. Vaught does have a remedy, 

however.‖ Vaught may yet pursue relief in federal court through the APA, where he may 

challenge the FDIC‘s interpretation of the applicable regulations if he elects to do so. We 

agree that Vaught should be given the opportunity to do so. Therefore, we order a 60 day 

stay in this case while on remand in the Trial Court to allow Vaught to pursue such other 

avenues of relief as are available to him, including filing a lawsuit against FDIC under 

the APA, should he so choose. Should Vaught elect not to pursue these other potential 

avenues of relief within the 60 day stay, the Trial Court is instructed to enter judgment in 

favor of Greenbank. This would leave Vaught with a judgment to receive the deferred 

compensation payments totaling $521,497, the amount all parties agree he is entitled to 

receive. All other issues raised on appeal are pretermitted.

 

Conclusion

The judgment of the Trial Court is vacated, and this cause is remanded to 

the Trial Court for further proceedings consistent with this opinion and for collection of 

the costs below. The costs on appeal are assessed against the Appellee, Kenneth R. 

Vaught.

____________________________________

D. MICHAEL SWINEY, CHIEF JUDGE