Opinion ID: 70809
Heading Depth: 3
Heading Rank: 1

Heading: Contingent Contract Rights and Provability

Text: 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 3 The Severance Plan ostensibly permitted Southeast to terminate it so long as certain procedures were followed. The parties have not addressed the relevance of this or the apparent fact that the Severance Plan was not terminated prior to McMillian's discharge. Because of the 12(b)(6) posture of this case, we do not address these issues as they relate either to the contingency issue or to the value of McMillian's claim, leaving them for appropriate development in the district court on remand. 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 v. FDIC, 572 F.2d 1361, 1367-68 (9th Cir.), cert. denied, 439 U.S. 919, 99 S.Ct. 293, 58 L.Ed.2d 265 (1978); FDIC v. Grella, 553 F.2d 258, 262 (2d Cir.1977); Kennedy v. Boston-Continental National Bank, 84 F.2d 592, 597 (1st Cir.1936), cert. [dismissed], 300 U.S. 684, 57 S.Ct. 667, 81 L.Ed. 887 (1937)). Based on this language, the FDIC concludes that if a contract is in any way contingent, i.e., not fixed, as of the date of the appointment of the receiver, its subsequent breach does not give rise to damages.4 The FDIC contends that, at the moment it was appointed 4 The cases upon which the FDIC relies for its contingency argument were decided prior to the enactment of FIRREA in 1989. The parties do not address whether FIRREA has preempted the common law rules regarding repudiation, but rather, they assume that their reach is coextensive. Because we conclude that McMillian's claim is not barred by the pre-FIRREA common law rules of provability, we need not address whether these rules continue to apply. See generally, O'Melveny & Myers v. FDIC, --- U.S. ----, ----, 114 S.Ct. 2048, 2054, 129 L.Ed.2d 67 (1994); RTC v. Ford Motor Credit Corp., 30 F.3d 1384, 1388 (11th Cir.1994). We note that there exists some conflict among the courts which have addressed this issue. Compare Office and Professional Employees Int'l Union v. FDIC, 27 F.3d 598, 602-03 (D.C.Cir.1993) (assuming sub silentio that the common law remained intact after the passage of the statute, although not directly addressing this issue); Hennessy v. FDIC, 58 F.3d 908, 917-18 (3d Cir.1995) (same); and Dababneh v. FDIC, 971 F.2d 428, 433-34 (10th Cir.1992) (reading FIRREA as a codification of existing federal common law); Bayshore Exec. Plaza Partnership, 750 F.Supp. at 509 n. 5 (same); Credit Life Ins. Co. v. FDIC, 870 F.Supp. 417, 426 (D.N.H.1993); Otte v. FDIC, 990 F.2d 627 (5th Cir.1993) (table) (suggesting that the provability doctrine should be read into FIRREA through the actual direct compensatory damages language of § 1821(e)(3)); with Nashville Lodging Co. v. RTC, 59 F.3d 236, 244 (D.C.Cir.1995) (reading portions of the repudiation section of FIRREA to change common law); Bank One, TX, N.A. v. Prudential Ins. Co. of America, 878 F.Supp. 943, 947 n. 1 (N.D.Tex.1995) (same). 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. 12 U.S.C.A. § 194 (1988). 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 5 The ratable distribution concept directs that dividends be declared proportionately upon the amount of all claims as they stand on the date of insolvency. American Sur. Co. v. Bethlehem Nat'l Bank, 314 U.S. 314, 417, 62 S.Ct. 226, 228, 86 L.Ed. 241 (1941). 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 of Lometa, 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 adopted the so-called provability test under which a claim is provable against the FDIC as receiver if: (1) it existed before the bank's insolvency and did not depend on any new contractual obligations arising thereafter; (2) liability on the claim was absolute and certain in amount when suit was filed against the receiver; and (3) the claim was made in a timely manner. See, e.g., Dababneh v. FDIC, 971 F.2d 428, 434 (10th Cir.1992); Citizens State Bank of Lometa v. FDIC, 946 F.2d 408, 412 (5th Cir.1991); First Empire Bank v. FDIC, 572 F.2d 1361, 1367-69 (9th Cir.1978). 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 Ratability obligates the court to focus on the point in time that insolvency is declared. [Cit.] A creditor's claim that increases after insolvency must be denied, because the claim will change the amount of the creditor's ratable share. [Cit.] The value of a claim is therefore fixed no later than the point of insolvency. Bank One, TX, N.A. v. Prudential Ins. Co. of America, 878 F.Supp. 943, 954 (N.D.Tex.1995). 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 (12 U.S.C.A. § 194) calling for a ratable distribution. Id. From this, the FDIC gleans that no reference whatsoever should be made to post-insolvency events, and that a claim must be absolutely' fixed, due, and owing as of the date of insolvency to be provable'.... Citizens State Bank, 946 F.2d at 413 (characterizing the FDIC's argument). This statement in Kennedy, however, only applies in the lease context and is better represented outside this context by the court's new contract theory.6 In First Empire v. FDIC, 572 F.2d 6 In Kennedy, the court examined how future lease payments should be treated in the context of a national bank receivership. 84 F.2d at 597-98. As pointed out by the dissent in that case, the court could have either followed the bankruptcy rule (under which future lease payments were not provable) or the equity rule (under which they were provable). Kennedy, 84 F.2d at 598-99 (Morton, J., dissenting in part). Review of the bankruptcy rules in effect at the time Kennedy was decided reveals the limited scope of that decision. Prior to the 1934 amendments to the Bankruptcy Act of 1898, claims for rent under a lease due after the trustee's repudiation were not recoverable. See generally, 3 Collier on Bankruptcy § 502.02[7] (1979). This treatment of leases derived from the traditional theory of rent as laid down by Lord Coke:  Rent is a sum stipulated to be paid for the actual use and enjoyment of another's land.... The actual enjoyment of the land is the consideration for the rent which is to be paid.... From this it seems clear, that although there be a lease, which may result in a claim for rent, which will constitute a debt, yet no debt accrues until such enjoyment has been had.'  Clark on Receivers § 446(b) (19__) (quoting Bordman v. Osborn, 23 Pickering (Mass.) 295 (1939)). The Bankruptcy Act, as originally drafted, reflected this theory in that [i]t was held that rent to accrue after the filing of the bankruptcy petition was incapable of proof as it was not a fixed liability absolutely owing but rather a demand contingent upon the occurrence of certain events. 3 Collier on Bankruptcy § 502.02[7] (1979). Although the Bankruptcy Act recognized contingent non-lease claims, courts continually stopped short of extending the same liberality to claims based on breaches of leases. Id. See also Manhattan Properties v. Irving Trust Co., 291 U.S. 320, 332-39, 54 S.Ct. 385, 387-89 [78 L.Ed. 824] (1934). Thus, [w]hile from a strictly logical point of view there should be no need or justification to treat leases differently from other bilateral contracts, the development of a landlord's rights arising from the bankruptcy of his tenant led to so many deviations from the general law applicable to contractual rights in bankruptcy that leases of real estate were for 1361 (9th Cir.1978), the court examined Kennedy and cases parroting its language and concluded that [a]lthough 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 many years considered sui generis. 3 Collier on Bankruptcy § 502.02[7] (1979). The court in Kennedy elected to follow the soon-to-be outdated bankruptcy rule which precluded recovery of future lease payments. First Empire, 572 F.2d at 1367-68. The bankruptcy rule on which Kennedy was based was subsequently repealed in favor of a broad and liberal provability rule. See 11 U.S.C.A. § 101(5); First Empire, 572 F.2d at 1368. Nonetheless, in the present bankruptcy code (and, in fact, in FIRREA) leases remain in a category apart from other contract claims. First Empire, 572 F.2d at 1368. In sum, the court in Kennedy created the new contract theory which continues to find application in the common law provability doctrine. See Dababneh, 971 F.2d at 434; Citizens State Bank, 946 F.2d at 412; First Empire Bank, 572 F.2d at 1367-69. The strict due and owing language in Kennedy, however, has been confined to claims for future rent. 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 12 U.S.C.A. § 1821(e), with § 1821(e)(3). These cases are distinguishable simply by virtue of the fact that they involve claims for future lease payments. As to other contracts, however, the strong language in Kennedy simply refers to the common law rule of provability discussed supra (i.e., claims cannot depend upon post-insolvency contracts). 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 7 It did so in the context of evaluating whether the FDIC had standing to bring a declaratory judgment action against the lessee. Id. at 262. 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 language in American Nat'l Bank to support its contingency argument is misplaced. The provability doctrine, in relevant part, simply demands that claims must exist before the bank's insolvency (even if contingent) and that new contractual 8 obligations cannot arise thereafter. The pre-FIRREA cases 8 In addition, the provability doctrine has been applied in a different and special way to claims for future rent. As discussed, these cases are distinguishable simply by virtue of the fact that they involve future rent. uniformly state that rights and liabilities are fixed upon appointment of the receiver and that claims based upon new contracts are not provable. These rules are consistent with the policy underlying their creation: ratability and provability. These cases do not support the proposition that any contingency destroys provability. See FDIC v. Liberty Nat'l Bank & Trust Co., 806 F.2d 961, 965 (10th Cir.1986) (Nothing in § 194 or the opinions cited ... requires us to hold that a bank's obligation to pay a fixed amount of money upon the occurrence of a specified event is rendered entirely null and void if the bank's insolvency intervenes before the triggering event occurs.). To the contrary, the cases permit claims which arise pre-insolvency to survive and only preclude claims based on new, post-insolvency contracts. As the Supreme Court put it over a century ago: 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 598, 601 (D.C.Cir.1994). 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 standby letters of credit in that they are provable even though the bank's obligation is still contingent as of the date of insolvency. Id. at 602-03 (citing Citizens State Bank of Lometa v. FDIC, 946 F.2d 408, 415 (5th Cir.1991); FDIC v. Liberty Nat'l Bank & Trust Co., 806 F.2d 961 (10th Cir.1986); First Empire Bank-New York v. FDIC, 572 F.2d 1361 (9th Cir.), cert. denied, 439 U.S. 919, 99 S.Ct. 293, 58 L.Ed.2d 265 (1978)). See also Monrad v. FDIC, 62 F.3d 1169, 1174 (9th Cir.1995) (concluding that, among the alternatives, OPEIU offers the better-reasoned approach to the severance pay issue); Bank One, TX, N.A. v. Prudential Ins. Co. of America, 878 F.Supp. 943, 955, 958 (N.D.Tex.1995) (holding that the FDIC is liable for contingent claims so long as those claims arose before insolvency and did not rely on new contractual obligations created after insolvency). As the D.C. Circuit later explained: To show that the claim had accrued,' it was enough that if the bank had remained solvent and had unilaterally repudiated 9 See also Monrad v. FDIC, 62 F.3d 1169, 1174 (9th Cir.1995) ([T]he fact that the actual termination date post-dates the appointment of the receiver is insufficient to defeat an otherwise valid claim to severance pay.); Citizens State Bank of Lometa v. FDIC, 946 F.2d 408, 415 (5th Cir.1991) (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.). 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 10 contracts. 12 U.S.C.A. § 1828(k). This legislation, enacted one 10 12 U.S.C.A. § 1828(k) provides, in relevant part: (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——
party's affiliation with the institution or holding company; and—
(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 year after the enactment of FIRREA, empowers the FDIC to promulgate regulations disallowing certain severance payments defined as golden parachute payments. It is clear from the golden parachute such institution;
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);
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. amendment that Congress expressly contemplated that some severance payments will be permissible notwithstanding the fact that payment is contingent on the termination of such parties' affiliation with the institution. 12 U.S.C. § 1828(k)(4)(A)(i). 11 If the FDIC's contingency argument were valid, the golden parachute provision would be wholly unnecessary, because all such contingent payments would be impermissible. 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 91213. 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 11 We are not persuaded otherwise by the footnote to the supplementary information preceding the proposed regulations which reads: Claims for certain benefits may not be provable or constitute actual direct compensatory damages' ... if the institution is placed in receivership. This regulation does not provide otherwise. 60 Fed.Reg. 16,069, 16,077 n. 13 (1995). 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 court in Hennessy relied on Kennedy, it applied rules that belong exclusively in the lease context or misapplied the rules embodying the new contract theory. 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.