Opinion ID: 70809
Heading Depth: 3
Heading Rank: 2

Heading: Actual Direct Compensatory Damages

Text: 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 12 U.S.C.A. § 1821(e)(3). Instead, it argues that the Severance Plan provides for a kind of liquidated damages, i.e., the plan is intended to liquidate the damages resulting from the termination of an employee. 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 § 1821(e)(3). 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 12 As further support for its conclusion, Howell relied on what it guessed Congress intended by actual direct compensatory damages: It is fair to guess that Congress, faced with mountainous bank failures, determined to pare back damages claims founded on repudiated contracts. Id. at 572. The court concluded that Congress simply intended to disallow claims it deemed less worthy and, accordingly, it is reasonable that they intended to exclude severance pay. Id. 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 of any contract and, therefore, it was logically inconsistent to treat the severance pay as liquidated damages for termination of the employment. 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 13 The FDIC attempts to distinguish OPEIU on the grounds that the severance benefits in that case were part of compensation under a collective bargaining agreement. This attempt to distinguish OPEIU misses the D.C. Circuit's point. OPEIU found that severance pay merely modifies the at will employment relationship between the parties by providing employees an entitlement upon termination where there would otherwise be none. See Monrad, 62 F.3d at 1174 ([OPEIU ] construed severance pay agreements as enforceable modifications of at will employment; whether the payment plan was provided in a specific collective bargaining agreement appears to be irrelevant to its analysis.). 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. Log. 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 14 The FDIC argues that the language of the Severance Agreement indicates that the severance pay is liquidated damages. The FDIC relies upon the following language: 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 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, 12 U.S.C.A. § 1821(e)(3)(B); and the inference of congressional intent arising from the golden parachute amendment. See supra note 10. 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, --- U.S. ---- , 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 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. 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 and the injury for which potential damages may be appropriate. The triggering act is not merely the discharge of McMillian, but more 15 According to Corpus Juris Secundum,  Compensatory damages' and actual damages' are synonymous terms ... and include[ ] all damages other than punitive or exemplary damages. 25 C.J.S. Damages § 2 (1966). precisely, the discharge without paying McMillian the compensation due him. The relevant injury for which there are potential damages is McMillian's having been discharged without payment of the compensation due him. Such injury is analogous to discharging an employee without giving him his last paycheck; i.e., without paying him compensation already earned. Contrary to the FDIC's characterization, the relevant injury is not the difficulty and perhaps inability of McMillian to obtain new and equivalent employment. Instead, to compensate McMillian for having been discharged without the payments agreed upon, the appropriate damages would be measured by the agreed-upon payments. It is through these payments that McMillian is made whole. The damages are clearly compensatory; the loss caused by the injury is simply replaced. The dollar amount he would receive is the actual amount due, and his damages flow directly from FDIC's repudiation (i.e., its refusal to honor the severance pay obligations). Thus, an award to McMillian would fall well within the term actual direct compensatory damages. The statutory language in 12 U.S.C.A. § 1821(e)(3)(B) provides some support for our conclusion. As noted supra, § 1821(e)(3)(B) expressly provides that the phrase does not include punitive damages, lost profits or damages for pain and suffering. Although it is probable that the listing in the statutory provision is not exclusive, it provides some support for our conclusion in this case; McMillian's severance payments are not at all like the listed exclusions. The damages here are clearly not in the nature of punitive damages. Rather, the damages would precisely compensate McMillian for not having been paid the amounts previously agreed to be part of his compensation package. Similarly, such damages are clearly not in the nature of profits or damages for pain and suffering. Our conclusion also derives strong support from the golden parachute amendment. See supra note 10. It is clear from the provisions of this amendment that Congress contemplated that some severance payments would fall within the phrase actual direct compensatory damages. Otherwise, the golden parachute amendment would be wholly unnecessary because the FDIC would already be protected (i.e., by the actual direct compensatory damages provision) from liability for paying any severance payments. Moreover, the golden parachute amendment provides strong support for the proposition that the particular Severance Plan in this case was of the kind which Congress intended for the FDIC to honor. The statute expressly indicates that Congress intended that qualified retirement plans and other nondiscriminatory benefit plan[s] are permissible. 12 U.S.C.A. § 1828(k)(4)(C)(i). Also permissible is any payment made pursuant to a bona fide deferred compensation plan or arrangement which the Board determines, by regulation or order, to be permissible. 12 U.S.C.A. § 1828(k)(4)(C)(ii). The Severance Plan in this case is apparently nondiscriminatory, applying to all employees with over two years of service, and providing for increase in benefits according to years of service. Indeed, the FDIC's proposed regulations expressly contemplate the permissibility of nondiscriminatory severance pay plans like the instant plan. 60 Fed.Reg. 16069, 16070 (to be codified at 12 C.F.R. Pt. 359.1(f)(2)(4)) (proposed March 29, 1995).16 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.