Court Opinion

ID: 2962876
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:03:04.600824+00
Date Added: 2024-06-11T15:01:19.425064
License: Public Domain

USCA1 Opinion

	

          September 26, 1994                                [NOT FOR PUBLICATION]                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                                                                      ____________________        No. 94-1054                              KEVIN J. SHEEHAN, ET AL.,                               Plaintiffs, Appellants,                                          v.                        FEDERAL DEPOSIT INSURANCE CORPORATION,                      as Receiver for Bank of New England, N.A.,                                   in Liquidation,                                 Defendant, Appellee.                                                                                      ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. William G. Young, U.S. District Judge]                                             ___________________                                                                                      ____________________                                Selya, Cyr and Boudin,                                   Circuit Judges.                                   ______________                                                                                      ____________________             Lee H.  Kozol, with  whom David A.  Rich and Friedman  & Atherton             _____________             ______________     ____________________        were on brief for appellants.             Jeannette  E. Roach, Counsel, with  whom Ann S. Duross, Assistant             ___________________                      _____________        General Counsel, Colleen B. Bombardier, Senior Counsel, Maria Beatrice                         _____________________                  ______________        Valdez,  Counsel, Leila R.  Kern, Maryaustin Dowd,  and Kern, Hagerty,        ______            ______________  _______________       ______________        Roach & Carpenter, P.C., were on brief for appellee.         _______________________                                                                                      ____________________                                                                                      ____________________                    Per  Curiam.  Plaintiff-appellants, former employees of                    Per  Curiam                    ___________          the  Financial Products Services Group (the Group) of the Bank of          New  England (BNE), initiated a  class action for  breach of con-          tract  based on  BNE's failure  to approve  bonuses under  a plan          designed to  encourage Group personnel to  generate greater reve-          nues for  BNE.  The Federal Deposit Insurance Corporation (FDIC),          as receiver for BNE, later assumed  responsibility for defense of          the action.                    The class  action plaintiffs were engaged  in providing          sophisticated  securities processing  and accounting  services to          institutional investors in behalf of BNE.   In late 1988 or early          1989, plaintiff-appellant Kevin  J. Sheehan, officer-in-charge of          the  Group, discussed with BNE  officials the establishment of an          incentive plan for  the Group  employees.  In  November of  1989,          Sheehan received a copy  of the incentive plan (the  Plan), which          included a cursory formula for funding a bonus pool for distribu-          tion  among  Group employees.    The  Plan  empowered Sheehan  to          determine awards  to individual Group employees,  "subject to the          approval of the SBU [Strategic Business Unit] Head, the  Chairman          of BNE, N.A. and the Directors' Compensation Committee."1                      In 1988,  and thereafter, BNE experienced severe finan-          cial losses which  eventually led  to the issuance  of a  Federal          Reserve  Board Cease  and Desist  order prohibiting,  inter alia,                                                                _____ ____          bonus payments  to BNE employees  absent advance approval  by the                                        ____________________               1As officer-in-charge,  Sheehan  likewise was  eligible  for          bonus awards subject to BNE management approval.                                          2          Federal Reserve.   The only bonuses BNE ever  made under the Plan          were disbursed  to Sheehan  and the  Group employees  in November          1989,  based on  their performance  for the  first six  months of          1989.                     On November 28, 1990,  the present action was commenced          against BNE in Massachusetts Superior Court.  On January 6, 1991,          BNE was declared insolvent.   After FDIC was  appointed receiver,          the  action was removed to  the United States  District Court for          the District of Massachusetts and the parties filed cross-motions          for  summary judgment.   Ultimately,  the district  court granted          summary judgment in favor of FDIC, and plaintiffs appealed.                      Summary judgment rulings are reviewed de novo under the                                                          __ ____          same criteria  incumbent  on  the district  court  in  the  first          instance.  Velez-Gomez v. SMA Life Assur. Co., 8 F.3d 873, 874-75                     ___________    ___________________          (1st  Cir. 1993).   "Summary  judgment is appropriate  where 'the          pleadings, depositions, answers to interrogatories and admissions          on file, together with the affidavits, if any, show that there is          no genuine  issue as  to any  material fact and  that the  moving          party is  entitled to judgment as  a matter of law.'"  Gaskell v.                                                                 _______          The Harvard Coop. Soc'y, 3 F.3d 495, 497 (1st Cir. 1993) (quoting          _______________________          Fed.R.Civ.P.  56  (c)).   We review  the  evidence, and  draw all          reasonable  inferences, in the light  most favorable to the party          challenging summary judgment.  Velez-Gomez, 8 F.3d at 875.                                          ___________                    The central question presented on appeal is whether the          failure  of  BNE management  to approve  Plan bonuses  awarded by          Sheehan for the periods July 1 - December 31, 1989, and January 1                                          3          -May 26,  1990, constituted a breach of  contract under Massachu-          setts  law.2  Plaintiffs concede  that the Plan  did not restrict          BNE management's discretion to withhold approval of bonuses.  See                                                                        ___          Additional Provision  #2.   Nevertheless,  as  Massachusetts  law          implies a  covenant of good  faith and  fair dealing in  all con-          tracts, Anthony's Pier Four,  Inc. v. HBC Associates, 583  N.E.2d                  __________________________    ______________          806, 820 (1991),  plaintiffs insist that  their right to  receive          bonuses  vested in accordance with the terms of the bonus formula          set out in  the Plan.  They  rely on Hoefel v.  Atlas Tack Corp.,                                               ______     _______________          581 F.2d 1,  7 (1st Cir.  1978) (applying Massachusetts  contract          law),  cert.  denied, 440  U.S.  913  (1979), where  an  employer                 _____  ______          expressly reserved the right to "change, suspend or discontinue .          . . [its pension] plan at any time," but attempted  to revoke the          plan  long after the  plaintiff employees  had retired  and their          pension benefits  had vested.   Id. at 4.   Hoefel held  that the                                          ___         ______          former  employees' right  to receive  their pensions,  as delayed          compensation, vested as  soon as  the employees had  met all  the          pension  eligibility requirements imposed  by their pension plan.          Id. at 5.            __                    Similarly,  these plaintiffs  urge that their  right to          Plan bonuses vested in accordance with the formula  prescribed in          the  Plan, see supra p.  2, notwithstanding the express provision                     ___ _____          that all bonus awards were subject to approval by BNE management.                                        ____________________               2For  present  purposes,  we  indulge  the  parties'  mutual          assumption that the Plan was a valid contract, without indicating          any  view as to the  correctness of their  assumption in light of          Massachusetts law.                                           4          Further, again relying on Hoefel, 581 F.2d at 7 ("We  fail to see                                    ______          how Atlas'  financial difficulties can excuse  its performance of          its contractual obligations to  its former employees."), and not-          withstanding Additional Provision #2,  see supra p. 4, plaintiffs                                                 ___ _____          make the  related  claim that  BNE's financial  condition was  an          insufficient basis, as a matter of law, for withholding bonuses.                     Hoefel is inapposite, however,  since it simply  upheld                    ______          the  retired employees' right  to continue to  receive their pen-          sions after  all pension-vesting conditions imposed  by the terms          of their  pension plan  had been met.   Here, the  Plan expressly          reserved to BNE the exclusive power to approve all bonuses in the          first instance,  which plainly precluded any  bonus vesting under                                                              _______          the Plan  prior to  approval by  BNE management.   Because it  is          undisputed that BNE management approved no bonuses after November          1989, plaintiffs cannot rely on Hoefel as support for their claim                                          ______          to unapproved Plan  bonuses.   See Northern Heel  Corp. v.  Compo                                         ___ ___________________      _____          Industries  Inc.,  851 F.2d  456,  461  (1st  Cir. 1988)  ("Under          ________________          Massachusetts  law, contracting parties  may provide that perfor-          mance  is not  required  unless and  until stipulated  conditions          precedent  have been  met.") (applying  implied covenant  of good          faith).                      The  right to  withhold approval  of bonuses  under the          Plan is  governed by  the terms of  the contract,  subject to  an          implied  covenant of good faith and fair dealing.  Anthony's Pier                                                             ______________          Four,  583 N.E.2d at 820  ("[T]he rule is  clear in Massachusetts          ____          that every contract  is subject  to an implied  covenant of  good                                          5          faith and fair dealing.").  Since the terms of the Plan expressly          reserved to  BNE management the unrestricted  discretion to with-          hold approval and plaintiffs generated no trialworthy issue as to          whether bonuses were  withheld in "bad  faith," we conclude  that          the district court correctly granted summary judgment in favor of          FDIC.3                    Under Massachusetts law, "[i]t is. . . bad faith to use          discretion 'to recapture opportunities forgone on contracting' as          determined  by the  other  party's  reasonable expectations--  to          refuse 'to pay  the expected cost of  performance.'"  Id.  at 473                                                                ___          (quoting  Steven J. Burton, Breach of Contract and the Common Law                                      _____________________________________          Duty to Perform in Good Faith, 94 Harv. L. Rev. 369, 369, 372-373          _____________________________          (1980)).   Notwithstanding the  contrary terms  of the Plan,  and          even  though  they  disclaim  reliance on  oral  assurances  that          bonuses would  be approved despite BNE's  financial difficulties,          see Reply Brief at 3-4 and  10-11, plaintiffs implausibly contend          ___          that it was reasonable to expect that BNE would  forego its right          to withhold bonuses during difficult financial times.  Plaintiffs          insist  that BNE  retained  no discretion  to disapprove  bonuses          except  for inadequate  employee performance.   Thus,  say plain-                                        ____________________               3As the district court  noted, the bonus-approval discretion          retained by BNE distinguishes this  case from Fortune v. National                                                        _______    ________          Cash Register, Inc., 384 N.E.2d 1251, 1257  (Mass. 1977) (holding          ___________________          that employer  acted in bad faith by firing an "at will" employee          to  prevent the  employee  from receiving  a  commission due  the          employee).   See also Maddaloni v. Western Mass. Bus Lines, Inc.,                       ___ ____ _________    _____________________________          438  N.E.2d 351, 354  (Mass. 1982) (same).   There is no evidence          that BNE  withheld  bonus  approval  for other  than  the  stated          financial reasons, nor that the financial losses which led to its          failure were not serious.                                          6          tiffs,  BNE's disapproval of their bonuses on the ground that BNE          was  experiencing  serious  financial  problems  constituted  bad          faith,  a breach of  the implied covenant of  good faith and fair          dealing.  We do not agree.                      First, the Plan, see Additional Provision #2, in no way                                     ___          restricted the  power of BNE management to withhold bonus approv-                                                     ________          al.   Second, in these circumstances, a trialworthy claim of "bad          faith"  or "unfair dealing" did not arise merely as a consequence          of  BNE's  decision to  withhold  approval  of bonuses  based  on          nonpretextual grounds explicitly identified  in the Plan.4  Thus,          plaintiffs failed to present an  adequate evidentiary basis for a          reasonable inference  of "bad faith."   Cf.  Cheney v.  Automatic                                                  ___  ______     _________          Sprinkler Corp. of America,  385 N.E.2d at 961, 966  (Mass. 1979)          __________________________          (finding no breach  of implied  covenant of good  faith and  fair          dealing  where  employer  withheld  earned  bonuses  for  reasons          authorized in bonus plan).                     Absent a cognizable basis  for inferring bad faith, the          thrust of plaintiffs' position  on appeal is to urge  revision of          the  Plan to  preclude BNE's reliance  on its  expressly reserved                                        ____________________               4It  is undisputed that the  parties knew that  BNE had been          experiencing serious financial problems since 1988.  Moreover, in          January  1990,  within a  month  after  Sheehan determined  bonus          awards for the second half of 1989, and well before he did so for          any portion of 1990, Additional Provision #6 was adopted pursuant          to Additional  Provision #3 (empowering BNE  management to alter,          amend, suspend or discontinue  the Plan or any award)  to specify          that any  award or group  of awards  could be adjusted  by senior          management based,  inter  alia, on  "prevailing financial  condi-                             _____  ____          tions."                                          7          right to  adjust bonuses in response to  the financial conditions          that ultimately led to  its demise.  Leaving aside that there has          been  no showing  that  BNE could  have obtained  Federal Reserve          Board approval for disbursing bonuses in light of its deteriorat-          ing financial condition, see supra at  p. 2, the role of contract                                   ___          scrivener is  one for the  parties, not the court.   Cf. Northern                                                               ___ ________          Heel, 851 F.2d at 466 (declining to rewrite agreement "to include          ____          a  representation which the parties were  mutually content to let          slide in the course of their negotiations.").  And it is too late          in the day to deny FDIC the benefit of a  valid defense expressly          reserved to BNE under the terms of the Plan.  See ITT Corp v. LTX                                                        ___ ________    ___          Corp, 926 F.2d 1258, 1261 (1st Cir. 1991) (applying Massachusetts          ____          parol  evidence rule).   Accordingly,  the judgment  must  be af-          firmed.                    Affirmed.  The parties are to bear their own costs.                    Affirmed.  The parties are to bear their own costs.                    ________   _______________________________________                                          8