Court Opinion

ID: 9840788
Source: CourtListenerOpinion
Date Created: 2023-09-20 14:01:54.379646+00
Date Added: 2024-06-11T08:22:51.275983
License: Public Domain

UNITED STATES DISTRICT COURT
                        FOR THE DISTRICT OF COLUMBIA

F. SCOTT BAUER, et al.,                        )
                                               )
                      Plaintiffs,              )
                                               )
               v.                              )   Civil Case No. 18-3047 (RJL)
                                               )
FEDERAL DEPOSIT INSURANCE                      )
CORPORATION, et al.,                           )
                                               )
                      Defendants.              )
                                               )
                                               )

                             MEMO! r ;DUM OPINION
                       September J1_, 2023 [Dkt. ##50, 51, 53, 55]

       In its 2017 determination, the Federal Deposit Insurance Corporation ("FDIC")

rejected an effort by two former executives to recover money damages in a state-court

action against a bank and its successors for alleged breaches of contract, tortious

interference, and parallel state-law violations. The FDIC determined that the damages

those executives sought, as well as any prospective settlements, qualified as "golden

parachute payments" prohibited by federal statute-a decision that effectively smothered

the executives' pursuit of their claims in state court by ensuring they would receive nothing

even if they established the banks' liability. Now, before this Court, those executives have

appealed the FDIC's determination as arbitrary and capricious under the Administrative

Procedure Act ("AP A"). In their motion for summary judgment, they argue that none of

the payments that might comprise a future damages or settlement award in state court

constitutes a golden parachute under the statutory or regulatory definition of that term. The
FDIC, as well as the banks on the hook for such an award, have opposed in cross-motions

for summary judgment, insisting the FDIC was reasonable in forbidding the executives

from collecting-whether through a settlement or judgment-the kinds of payments at

issue.

         For the reasons that follow, I will GRANT IN PART and DENY IN PART the

parties' cross-motions. The FDIC reasonably determined that three of the four disputed

payments-namely, the change-in-control benefits, severance payments, and contractual

attorneys' fees-were prohibited golden parachutes and could not form any part of a

prospective settlement or damages award in state court.         As for the last group of

payments--ordinary salary and benefits-the agency erred in concluding that an award in

the state-court litigation based on those payments would be prohibited by the golden

parachute rules. Accordingly, I will VACATE the FDIC's determination with respect to

the salary and benefits payments.

                                     BACKGROUND

I.       Legal Framework

         The Federal Deposit Insurance Act ("FDI Act") gives the FDIC authority to regulate

the financial practices of FDIC-insured banking institutions, as well as "institution-

affiliated part[ies]" ("IAPs"), which include their directors, officers, employees, and

controlling shareholders. 12 U.S.C. § 1813(c)(2), (u)(l). Among the practices the FDIC

closely monitors is the disbursement of so-called "golden parachute payments" to an IAP.

These typically consist of "windfall" payments contractually promised to an institution's

high-ranking employees "if they are fired, the company becomes bankrupt, or the company

                                              2
is acquired." Wollschlager v. Fed. Deposit Ins. Corp., 992 F.3d 574, 578 (6th Cir. 2021).

While such arrangements are not categorically problematic, the FOi Act authorizes the

FDIC to restrict the circumstances under which an institution that has fallen into financial

disrepair can honor a golden parachute payment.         12 U.S.C. § 1828(k)(l). After all,

"making good on those promised payments may put more financial stress on an already

struggling institution or unjustly reward those who contributed to the [institution's]

financial woes." Bauer v. Fed. Deposit Ins. Corp., 38 F.4th 1114, 1116 (D.C. Cir. 2022).

       The FDI Act specifically defines "golden parachute payment" as:

       any payment (or any agreement to make any payment) in the nature of
       compensation by any insured depository institution or covered company for
       the benefit of any [IAP] pursuant to an obligation of such institution or
       covered company that-
              (i) is contingent on the termination of such party's affiliation with the
              institution or covered company; and
              (ii) is received on or after the date on which-

                      (111) the institution's appropriate Federal banking agency
                      determines that the insured depository institution is in a
                      troubled condition.

12 U.S.C. § 1828(k)(4)(A). The FDIC's implementing regulations largely track this

statutory definition, 12 C.F.R. § 359. l(f), while also clarifying that, "to qualify as a golden

parachute, the payment must be made to a party whose affiliation with the institution is

terminated at a time when the institution is in a troubled condition," Bauer, 38 F.4th at

1117 (citing 12 C.F.R. § 359.l(f)(l)(iii)). On this last point, the FDIC has further explained

that "[i]f [a] payment is prohibited" at the time the IAP's affiliation is terminated, "it is

prohibited forever," regardless of whether the institution later recovers or finds a healthy

                                               3
buyer. 61 Fed. Reg. 5926-02, 5928 (Feb. 15, 1996).

        Thus, consistent with the FDI Act's mandate and its own regulatory purpose in

preventing the wrongful disposition of institution assets, the FDIC generally prohibits

golden parachute payments "except as provided" by regulation. 12 C.F.R. § 359.2. In all

events, an institution wishing to make a golden parachute payment to an IAP must seek the

FDIC's consent by written application. Id. §§ 303.244(b)-(c), 359.4(a). Once it reviews

an application, the FDIC issues an administrative decision either granting or denying the

institution's request to pay a golden parachute.

II.     Factual and Procedural Background

        A.      The Employment Agreements, Southern Community's Financial Woes,
                Merger With Capital Bank, and Plaintiffs' Termination

        Plaintiffs F. Scott Bauer and Jeffrey T. Clark ("plaintiffs" or "Bauer and Clark")

were senior executives at Southern Community Bank & Trust and the bank's holding

company,       Southern       Community         Financial     Corporation        (together,     "Southern

Community"). 1 In 2006 and 2007, Bauer and Clark entered into a series of employment

agreements with Southern Community setting out their rights and obligations as bank

executives. AR 219-326. Four components of those agreements are relevant here.

        First, the severance payments:           Under Sections 2.2, 3.l(b), and 4.4, Southern

        1
          This opinion adopts the parties' preferred short terms for the various bank entity defendants. See,
e.g., Compl. [Dkt. #1] ,r,r 5, 6(c), 7. When referring to defendants Southern Community Bank & Trust and
Southern Community Financial Corporation, the collective term "Southern Community" is used. When
referring to defendants Capital Bank Financial Corporation, Capital Bank Corporation, Capital Bank, N.A.,
Winston 23 Corporation, and Southern Community Financial, LLC, the collective term "Capital Bank" is
used. The remaining three defendants in this case-the FDIC, First Horizon National Corporation ("First
Horizon"), and First Tennessee Bank National Association ("First Tennessee")-are referred to
individually.

                                                     4
Community was authorized to terminate Bauer and Clark without cause upon 60 days'

notice, but in that event, Bauer and Clark would be entitled to their base salaries for the

unexpired term of the agreements, as well as monthly retirement benefits beginning at age

62. AR 220,224, 228, 253, 274, 278, 280-81, 306. Second, change-in-control benefits:

Under Sections 5.1 through 5.4, Bauer and Clark would each receive a lump-sum cash

payment equal to three times his annual compensation if Southern Community underwent

a change in control, as through a merger. AR 229-31, 281-83. Notably, Bauer and Clark

could collect either the severance payments or change-in-control benefits, but not both,

under the agreements' express terms. AR 930, 982. Third, attorneys' fees: Section 8.9 of

the agreements required Southern Community to pay up to $500,000 in any attorneys' fees

incurred by Bauer and Clark if they had to retain counsel to enforce their legal entitlement

to the change-in-control benefits. AR 239--40, 291-92. Finally, the assumption provisions:

Under Section 8.1, Southern Community was obligated to "require any successor ... to

expressly assume and agree to perform this Employment Agreement in the same manner

and to the same extent [that Southern Community] would be required to perform ifno such

succession had occurred." AR 237, 289.

       Shortly after the employment agreements were signed, Southern Community began

to experience financial difficulties. In 2008, the bank accepted almost $43 million in U.S.

Treasury investment under the Troubled Asset Relief Program ("TARP"). AR 355, 487.

In early 2010, the FDIC downgraded Southern Community's asset quality to a less than

satisfactory rating following an in-person visit to the bank by FDIC examiners. AR 1-5.

Later that year, after a second in-person visit, the FDIC issued a report detailing Southern

                                             5
Community's deteriorating financial condition and deficient management practices,

including those of Bauer and Clark. AR 6-75. By February 2011, Southern Community

had agreed to a consent order with the FDIC that required the bank to take remedial actions

to improve its situation. AR 697-722. As part of that order, Southern Community was

deemed to be "in a troubled condition" for purposes of the FDI Act and its regulations. AR

79; see 12 U.S.C. § 1828(k)(4)(A)(ii); 12 C.F.R. §§ 225.71(d)(2), 303.l0I(c). The consent

order also required Southern Community to obtain a management assessment report from

an independent consultant, who ultimately concluded that Bauer's and Clark's deficient

leadership had contributed to the bank's financial woes. AR 724-862, 1056.

       In March 2012, after several years of uncured financial trouble, Southern

Community sought to merge with Capital Bank Financial Corporation and its related

affiliates (collectively, "Capital Bank"), a healthy institution. AR 383-462. The merger

plan required Bauer and Clark to enter into amended employment agreements that would

have limited their roles at the bank and substantially reduced the benefits to which they

were entitled. AR 452. Bauer and Clark refused to sign the amended agreements, and in

September 2012, Southern Community terminated the executives without cause under

Section 3.l(b) of their original agreements. AR 176. The merger with Capital Bank closed

on October 1, 2012.

       B.     The State-Court Action and FDIC's Administrative Decision

       In November 2014, Bauer and Clark sued Southern Community and Capital Bank

in North Carolina state court, asserting breaches of contract, tortious interference, and

unfair and deceptive trade practices under North Carolina law. See Bauer v. Southern

                                             6
Cmty. Fin. Corp., No. 14-CVS-7208 (N.C. Super. Ct. filed Nov. 26, 2014); AR 183-218.

They alleged that Southern Community had breached its obligation to ensure that its

successor, Capital Bank, "assume and agree to perform" the terms of their original

employment agreements-theorizing that, had Southern Community honored the

assumption provisions of Section 8.1, Bauer and Clark would have become employees of

non-troubled Capital Bank and would have received the payments to which they were

entitled, including their ordinary salaries and benefits, change-in-control payments,

severance payments, and/or attorneys' fees. AR 208-212. Bauer and Clark also alleged

that, "but for Capital Bank's tortious interference in requiring them to sign the amended

employment agreements, they would have been retained as employees of the new merged

entity and continued to receive compensation and benefits." Bauer, 38 F.4th at 1119; see

AR 212-216. Based on these various contract, tort, and statutory theories of harm, Bauer

and Clark sought judgment against the banks "in an amount to be determined at trial," as

well as treble damages under North Carolina law and attorneys' fees. AR 216.

      After their motion to dismiss was denied, Southern Community and Capital Bank

filed a written application with the FDIC, seeking guidance as to whether the golden

parachute restrictions would prevent Bauer and Clark from collecting the monetary relief

they demanded in state court. AR 173-180. In response, Bauer and Clark submitted their

own letter to the FDIC, insisting that "there is nothing for [the FDIC] to 'determine' under

[12 C.F.R.] Part 359" because the payment of any settlement or judgment based on the

breach of a purely non-financial obligation would not constitute a golden parachute. AR

885. The letter further explained that, had Capital Bank assumed Bauer and Clark's

                                             7
original employment agreements, "nothing would have prevented Capital Bank from

making any payments under" those agreements, because Capital Bank-unlike Southern

Community-has never been a "troubled" institution. AR 883-884.

       In June 2017, the FDIC issued its final decision, concluding that "any payments to

Bauer and Clark" arising from their state-court litigation "are golden parachute payments"

prohibited by the FDI Act. AR 1061, 1069. Specifically, and as relevant here, the FDIC

determined that: (1) all "change-in-control benefits and additional termination benefits are

subject.to ... the Golden Parachute Rules"; (2) Capital Bank, "as [the] healthy successor[]

to the troubled entities from whom the payment obligation arises, ... cannot make these

payments on [Southern Community]'s behalf'; (3) because plaintiffs' "tort and statutory

claims arise from the same agreement," those claims, too, "are subject to the limitations of

the Golden Parachute Rules"; and lastly, (4) "[a]ny payment of attorney's fees," or "any

settlement amount related to the State Court Action," would also be a golden parachute.

AR 1061, 1069. In explaining these detenninations, the FDIC reasoned, inter alia, that it

"has consistently maintained that golden parachute payments by a healthy acquirer are

subject to the Golden Parachute Rules to prevent IAPs from circumventing the golden

parachute regulation as a result of the timing or the structure of a purchase by a healthy

acquirer." AR 1058, 1066. Moreover, the FDIC declared, if a healthy successor's payment

obligations exist merely because it "contractual[ly] assum[ ed]" the obligations of a

troubled institution, the successor "can no more make these payments without prior

regulatory approval than could the troubled entities." AR 1058, 1066.

       Accordingly, the FDIC denied Southern Community and Capital Bank's golden

                                             8
parachute application "in its entirety." AR 1054, 1062. The state-court litigation was

stayed to allow Bauer and Clark to challenge the FDIC's determination in federal court.

      C.     The Present Litigation

      In December 2018, Bauer and Clark filed the present action against the FDIC,

Southern Community, Capital Bank, and Capital Bank's two successors-First Horizon

and First Tennessee, see supra note I-challenging the FDIC's golden parachute

determination under the AP A. After the parties cross-moved for summary judgment, the

Court requested supplemental briefing on "[w ]hether the FDIC acted inconsistently with

12 C.F.R. § 303.244 by issuing a decision about hypothetical damages [or settlement]

payments." Minute Order (June 10, 2020). Consistent with that Minute Order, and based

on my own review of the FDI Act and implementing regulations, I vacated the FDIC's

golden parachute determination, concluding that the FDIC had exceeded its authority in

issuing that determination without knowing the specific amount of the payments sought in

the underlying state-court action. Bauer v. FDIC, 486 F. Supp. 3d 93, 100, 101 n.5.

(D.D.C. 2020), rev 'd, 38 F.4th 1114 (D.C. Cir. 2022).       Having vacated the FDIC's

determination on these grounds, I left unaddressed the merits of Bauer and Clark's AP A

claims.

       In July 2022, our Circuit Court reversed my ruling on this score. Bauer, 38 F.4th at

1116. It held, to the contrary, that the FDIC had acted within its authority to render a

decision based on hypothetical payments, and it directed this Court on remand to address

Bauer and Clark's APA claims in the first instance. Id. at 1126. After the mandate issued,

the Court and parties agreed to a schedule for renewed summary judgment briefing, which

                                            9
concluded in February 2023. See generally Pls.' Mot. Summ. J. [Dkt. #50] ("Pls.' Mot.");

FDIC's Cross-Mot. Summ. J. & Opp'n to Pls.' Mot. [Dkt. #51] ("FDIC's Mot. & Opp'n");

Bank Defs.' Cross-Mot. Summ. J. & Opp'n to Pls.' Mot. [Dkt. ##53, 55] ("Bank Defs.'

Mot. & Opp'n"); Pls.' Opp'n to Defs.' Cross-Mot. Summ. J. & Reply in Supp. Mot. Summ.

J. [Dkt. #57]; FDIC's Reply in Supp. Cross-Mot. Summ. J. [Dkt. #59]; Bank Defs.' Reply

in Supp. Cross-Mot. Summ. J. [Dkt. #60] ("Bank Defs.' Reply"). The parties' cross-

motions are now ripe for review.

                                   LEGAL STANDARD

       While, normally, Federal Rule of Civil Procedure 56 governs the Court's review of

a motion for summary judgment, "the standard set forth in Rule 56[] does not apply" in

cases challenging agency action "because of the limited role of a court in reviewing the

administrative record." Se. Conf v. Vi/sack, 684 F. Supp. 2d 135, 142 (D.D.C. 2010).

Instead, "[ s]ummary judgment is ... the mechanism for deciding whether as a matter of

law the agency action is supported by the administrative record and is otherwise consistent

with the APA standard of review." Id. In turn, the APA allows a court to overturn agency

action only if it is arbitrary, capricious, or otherwise contrary to law. 5 U.S.C. § 706(2).

Under this "deferential" standard, "[a] court simply ensures that the agency has acted

within a zone of reasonableness and, in particular, has reasonably considered the relevant

issues and reasonably explained the decision." Fed. Commc 'ns Comm 'n v. Prometheus

Radio Project, 141 S. Ct. 1150, 1158 (2021). While a court may not "substitute its own

judgment for that of the agency," Nat'/ Ass'n ofRegul. Util. Comm 'rs v. Fed. Energy Regul.

Comm 'n, 964 FJd 1177, 1189 (D.C. Cir. 2020), it must nevertheless "uphold a decision of

                                             10
less than ideal clarity if the agency's path can reasonably be discerned," Xcel Energy Servs.

Inc. v. Fed. Energy Regul. Comm 'n, 41 F.4th 548, 557 (D.C. Cir. 2022) (quoting Motor

Vehicle Mfrs. Ass 'n of US., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)).

                                      DISCUSSION

       "The FDIC's golden parachute decision came in two distinct steps." Bauer, 38 F.4th

at 1122. On remand, Bauer and Clark challenge only the first step: "whether the proposed

payments [sought in state court] constitute golden parachutes within the statutory and

regulatory definitions." Id. For purposes of those definitions, all parties agree that Bauer

and Clark are IAPs, 12 U.S.C. § 1828(u)(l), and that Southern Community was "in a

troubled condition" at the time of the merger, id. § 1828(k)(4); 12 C.F.R. § 359.l(f).

I.     The FDIC may restrict a healthy successor's payment of a judgment or
       settlement if it consists of prohibited golden parachute payments.

       As an initial matter, the parties spend much of their briefs debating whether Capital

Bank's satisfaction of a potential judgment or settlement falls within the FDIC's power to

regulate at all. Bauer and Clark insist the answer is "no," and that the FDIC's determination

misunderstands their state-court claims: They are not seeking the recovery of specific

payments, which the FDIC may restrict, but are instead seeking damages for Southern

Community's breach of a "non-financial obligation" (i.e., the assumption provisions),

Capital Bank's tortious conduct, and statutory violations.         Defendants counter that

"[r]egardless of how Bauer and Clark chose to describe their claims in the State Court

Litigation," what they seek, at bottom, are the compensation and benefits allegedly owed

to them under their original employment agreements. FDIC's Mot. & Opp'n 12; see Bank

                                             11
Defs.' Reply 2--4. It does not matter, defendants continue, that a healthy successor-as

opposed to "troubled" Southern Community-would be the payor, or that Bauer and

Clark's damages claims are premised on non-monetary theories of harm. The FDIC has

the authority to regulate "any payment (or any agreement to make any payment) in the

nature of compensation," 12 U.S.C. § 1828(k)(4) (emphasis added), with "payment" itself

broadly defined as "any direct or indirect transfer of any funds or any asset," id.

§ 1828(k)(5)(C).

       Upon reflection, it seems to me the defendants have the better argument here. To

suggest, as Bauer and Clark do, that their state lawsuit is not really about "payments" defies

reality-not only in the sense that a request for money damages plainly contemplates the

"transfer of any funds or any asset," id., but also because an award of damages to Bauer

and Clark would be measured by the specific payments described in their contracts with

Southern Community. This is true, of course, regardless of whether those damages stem

from a contract claim, tort claim, or some other cause of action. See Harrison v. Ocean

Bank, 614 Fed. App. 429,432 (11th Cir. 2015) (affirming FDIC's determination that the

pre-suit settlement of tort and statutory claims-including "defamation; intentional

infliction of emotional distress; whistleblower retaliation"-constituted a golden

parachute); Von Rohr v. Reliance Bank, 2015 WL 3440343, at *4 (E.D. Mo. May 28, 2015)

(affirming "FDIC's detennination that the contractual damages plaintiff seeks constitute a

golden parachute"), aff'd, Rohr v. Reliance Bank, 826 F.3d 1046 (8th Cir. 2016). It is also

true regardless of whether Southern Community, Capital Bank, or another healthy

successor would be the one writing the check. Cf 12 C.F.R. § 359.0(b) (explaining that

                                              12
the golden parachute limitations apply not only to troubled institutions but to "healthy

holding companies which seek to enter into contracts to pay . . . IAPs of a troubled

[institution]"). "[T]he golden parachute provisions focus on qualifying payments, not on

qualifying institutions." BEX Cap. v. Fed. Deposit Ins. Corp., 956 F.3d 1304, 1315 (11th

Cir. 2020) (emphases added). To hold differently is to "allow otherwise prohibited golden

parachute payments to be made through simple corporate restructuring[,] or by delaying

the payments until ... the institution is no longer 'troubled."' Id. at 1316; see also BEX

Cap. v. Fed. Deposit Ins. Corp., 2018 WL 6531607, at *10 (S.D. Fla. Nov. 14, 2018).

       None of this is to say the FDIC can categorically restrict the payment of a judgment

or settlement in these circumstances. Each of the payments (or agreements to pay) that

would underlie such an award must itself still qualify as a golden parachute under the FDI

Act and regulations. See Sterling Sav. Bank v. Stanley, 2012 WL 3643679, at *2 (E.D .

Wash. Aug. 23, 2012) (in analogous TARP context, agreeing the FDIC could, "in a

vacuum," regulate "the payment of a discrimination-damages award," but disagreeing that

the award in that case met the other requirements for being a golden parachute). The

bottom line, rather, is that Bauer and Clark cannot seek indirectly what they are prohibited

from seeking directly. If the golden parachute restrictions forbid an IAP from recovering

a specific payment, they also forbid the IAP from seeking the same payment by another

means-as, in this case, through a claim for damages, even one based on non-financial

harms and paid by a healthy bank. See 61 Fed. Reg. at 5928 ("If this payment is prohibited

under the [golden parachute provisions], it is prohibited forever."); BBX, 995 F.3d at 1316.

                                             13
II.    Most, but not all, of the disputed payments are prohibited golden parachutes.

       Concluding that the FDIC was reasonable in finding Capital Bank's payment of a

prospective award in the state-court litigation subject to the golden parachute rules does

not, however, end this case. The component payments by which that award would be

measured must themselves be prohibited by the golden parachute rules before the FDIC

can forbid Bauer and Clark from recovering it. Here, Bauer and Clark identify four distinct

payments from their employment agreements with Southern Community that would

comprise a damages award in state court: (1) change-in-control benefits, (2) severance

payments, (3) contractual attorneys' fees, and (4) ordinary salary and benefits.

       A.       Change-in-Control Benefits

       First up are the change-in-control benefits. Had Capital Bank agreed to assume the

payment obligations of the original employment agreements, the change-in-control

benefits would have been payable to Bauer and Clark upon the merger of Southern

Community and Capital Bank. In its 2017 determination, the FDIC concluded that these

benefits were quintessential golden parachutes because they "arose as a result of [Bauer

and Clark's] termination" from Southern Community and would have been made after

Southern Community was deemed to be "troubled." AR 1058. In their briefs, defendants

add that the word "termination" is used broadly in the FDI Act and regulations, covering

not just an executive's termination of employment, but the termination of his "affiliation"

with an institution. 2 Resisting these conclusions, Bauer and Clark raise two arguments for

        2
        Defendants separately argue in their briefs that, because the assumption provisions of Section 8.1
make successors responsible for performing the employment contracts only "to the same extent" as

                                                   14
why the change-in-control benefits cannot be golden parachutes: first, because they would

have been paid by non-troubled Capital Bank and, second, because Bauer and Clark would

not have been "terminated" had the banks honored the original employment agreements.

       Defendants again have the better of this dispute. For one thing, as already explained,

plaintiffs' first argument-that the golden parachute rules "appl[y] exclusively to payments

by troubled institutions," Pls.' Mot. 36-37-runs headlong into the FDIC's "focus on

payments and agreements to make payments," rather than on institutions, BBX, 956 F.3d

at 1316. That focus is "reasonable and makes sense," id., because it "advances a policy

goal of preventing loopholes that would allow bankers to engineer transactions [e.g.,

mergers] to avoid the golden parachute restrictions," BEX, 2018 WL 6531607, at * 10; cf

12 C.F.R. § 359.0(b); Hill v. Com. Bancorp, Inc., 2012 WL 694639, at *5 (D.N.J. Mar. 1,

2012) ("An interpretation according to which an entity's 'troubled' status is destroyed by

its acquisition would eviscerate the [FDI Act]'s restrictions by providing a safe harbor to

officers and directors seeking to activate their golden parachutes through acquisition by

another institution."). Indeed, the more relevant question in golden parachute cases is not

"who," but "when": If a payment or agreement to make a payment "is prohibited ... at the

time of an IAP's termination due to the troubled condition of the [institution]," "it is

Southern Community, AR 938, and because-at the time of the merger-troubled Southern Community
was barred from performing the payment obligations of those contracts, so, too, is successor Capital Bank
barred from doing the same. This state-law issue of contract construction played no part in the FDIC's
determination, however, which was grounded in the interpretation and application of its own regulations-
not the interpretation of Bauer and Clark's employment contracts. Because "we may uphold agency orders
based only on reasoning that is fairly stated by the agency," Williams Gas Processing-Gulf Coast Co. v.
FERC, 373 F.3d 1335, 1345 (D.C. Cir. 2004), I will not address defendants' after-the-fact justifications
here.

                                                   15
prohibited forever," regardless of the eventual payor. 61 Fed. Reg. at 5928; see 12 C.F.R.

§ 359.l(f)(l)(iii)(A) (resting the golden parachute definition on the timing of the

termination, not when the check is written).

       Bauer and Clark's second argument fares no better. In their telling, had Capital

Bank assumed their employment agreements with Southern Community, Bauer and Clark

"would have seamlessly become employees of the non-troubled successor by virtue of the

merger, i.e., there would have been no termination." Pls.' Mot. 39. Assuming the validity

of plaintiffs' "but for" analysis, their focus on termination of employment is misplaced;

termination of affiliation, as defendants point out, is equally covered by the plain text of

the FDI Act and regulations. See 12 U.S.C. § 1828(k)(4)(A); 21 C.F.R. § 359.l(f)(l)(i).

Thus, even in their "but for" world-a world in which Bauer and Clark were not fired by

Southern Community-their affiliation with that institution would have ended as soon as

the merger closed and Southern Community ceased to exist. See Harrison, 614 Fed. App.

at 437 ("[T]he regulation adopts a broad interpretation of the statute's use of the word

'termination[.]"').

       Pulling these definitional elements together, the FDIC was reasonable in concluding

that the change-in-control benefits were prohibited golden parachutes. Under Sections 5.1

through 5.4 of the employment agreements, those benefits were expressly "contingent on"

the close of the merger (i.e., the change in control from Southern Community to Capital

Bank), which would have terminated Bauer and Clark's affiliation with Southern

Community. And, at the time of the would-be termination, Southern Community was "in

a troubled condition," making any effort to pay the benefits prohibited absent the FDIC's

                                               16
written permission. On their own tenns, then, the change-in-control benefits contemplated

by Bauer and Clark's original employment agreements could not have been paid at the time

of the merger and are now "prohibited forever." 61 Fed. Reg. at 5928.

       The FDIC's reasoning offers a second path, too, for upholding its decision here. See

Xcel Energy Servs., 41 F.4th at 557. Recall that Bauer and Clark's various theories of harm

in the state-court litigation are all premised on the banks' failure to comply with the

assumption provisions of Section 8.1, which provide that, in the event of a "succession,"

Southern Community "shall require any successor ... to expressly assume and agree to

perform this Employment Agreement in the same manner and to the same extent [Southern

Community] would be required to perform if no such succession had occurred." AR 990.

This would involve agreeing to perform all payment obligations under the employment

contracts, including the change-in-control benefits.     But this is exactly the kind of

"agreement to make any payment" that the golden parachute rules are designed to forestall.

12 U.S.C. § 1828(k)(5)(C); 12 C.F.R. § 369.l(k)(l) (emphasis added). If, in Bauer and

Clark's "but for" world, Capital Bank had agreed to assume the change-in-control payment

obligations of Southern Community, that agreement would have been "contingent on"

Capital Bank's succession (i.e., plaintiffs' termination of affiliation with Southern

Community), as would the obligations themselves. And, at the time Capital Bank would

have entered the agreement to pay Southern Community's financial obligations, Southern

Community would have been a "troubled" institution subject to the golden parachute rules.

Cf 12 C.F.R. § 359.0(b) (applying golden parachute limitations to "healthy holding

companies which seek to enter into contracts to pay or to make golden parachute payments

                                            17
to IAPs ofa troubled [institution]"); BBX, 956 F.3d at 1310, 1315-1317. Simply put, the

golden parachute limitations would have never allowed Capital Bank to agree to pay

Southern Community's change-in-control obligations in the first place. Any theory of

damages premised on that "but for" scenario collapses on this reality. 3

        B.      Severance Payments

        Next up are the severance payments. On this front, plaintiffs theorize that had

Capital Bank agreed to assume the original employment agreements, and had Capital Bank

been the one to fire Bauer and Clark, they would have received the severance payments

from post-merger Capital Bank, which was not covered by the golden parachute rules.

Specifically, while admitting that the "severance payments (and Capital's agreement to

make them) ... would be by their nature contingent on termination," Bauer and Clark insist

those payments do not meet the second element of the golden parachute definition: "[T]hey

would not be made on or after a determination that Capital [Bank] was troubled." Pis.'

Mot. 33.

        As before, plaintiffs' focus on the timing of the payments, rather than the timing of

the termination, misses the point. See 12 C.F.R. § 359.l(f)(l)(iii)(A). That distinction is

        3
          In the alternative, Bauer and Clark argue that, "if the Court agrees with the FDIC that the Change-
in-Control Benefits could not have been paid by Capital immediately after the merger, then the Change-in-
Control Benefits would have continued under the assumed agreements" and would have been payable upon
the change in control from Capital Bank to First Horizon and First Tennessee in November 2017. Pls.'
Mot. 39. Yet the FDIC did not address this new change-in-control scenario, since its determination came
several months prior to the 2017 merger. Neither the prospect of that merger, nor any other change in
Capital Bank's circumstances that might affect a golden parachute analysis, was presented to the FDIC
when it made its decision. Because review of agency action under the AP A "is limited to the administrative
record before the agency at the time of its decision," EarthReports, Inc. v. Fed. Energy Reg. Comm 'n, 828
F.3d 949, 137 (D.C. Cir. 2016), I will not invalidate the FDIC's decision as arbitrary and capricious based
on facts or arguments it had no reason or duty to anticipate.

                                                     18
especially salient here, given that the problem in this case is just as much about the

payments themselves as it is about Capital Bank's would-be agreement to make the

payments, which-in Bauer and Clark's "but for" analysis-would have occurred upon

termination of their affiliation with troubled Southern Community. Put another way, the

same golden parachute analysis that would have precluded Capital Bank from agreeing to

assume the change-in-control payments at the merger with Southern Community, see supra

at 17-18, applies with equal force to the severance payments, since both payment

obligations-which themselves are contingent on a termination event-would have arisen

from the same prohibited agreement to perform the employment contracts of a troubled

bank.

        The Eleventh Circuit recognized as much in a case dealing with a similar agreement

by an institution (Bancorp) and its healthy successor (BBX) to assume the severance

payment obligations of a troubled institution (Bank.Atlantic) "upon closing" of their

merger. BBX, 956 F.3d at 1309-1310; see also BBX, 2018 WL 6531607, at *7. Before the

FDIC, BBX had argued that the severance payments in that case were not golden

parachutes because, "once BBX's obligation to make the Proposed Payments arose under

the [Stock Purchase Agreement (SPA)]," BBX would have "exited the banking industry"

and would no longer be covered by the golden parachute rules. BBX, 2018 WL 6531607,

at *7. Rejecting that argument, the FDIC concluded that, regardless of whether BBX was

covered by the rules at the time the severance payments came due, the payments

"remain[ed] subject to regulation given that they were agreed to" at a time when Bancorp

was a covered company and Bank.Atlantic was still troubled. Id. (emphasis added). Both

                                            19
the district court and Eleventh Circuit later upheld the FDIC's reasoning, holding that,

because "[t]he SPA was an agreement that obligated BBX to make certain qualifying

payments" to BankAtlantic's IAPs, and because "[BankAtlantic] was still a 'troubled'

institution at the time the SPA was executed," the FDIC did not act umeasonably in

applying the golden parachute limitations to the situation at hand. BBX, 956 F.3d at 1316;

see also BBX, 2018 WL 6531607, at *8. In a coda to its analysis, the Eleventh Circuit

remarked that, if the bank wishing to make an otherwise prohibited payment "was in fact

no longer 'troubled,' then it could have executed new severance agreements that would not

have been subject to the golden parachute restrictions." BBX, 956 F.3d at 1316.

       So, too, here. In Bauer and Clark's "but for" world, the agreement to perform

Southern Community's employment contracts under Section 8.1 "was an agreement that

obligated [Capital Bank] to make certain qualifying payments," including severance

payments, to Southern Community's IAPs. Id; accord AR 1058. And, at the time the

agreement would have been entered (i.e., at the merger), Southern Community "was still a

'troubled' institution." BBX, 956 F.3d at 1316. Under BBX and the plain language of the

regulations alike, these facts put the would-be agreement well "within the golden parachute

framework's purview." Id.; see Larison v. Ameris Bank, 2022 WL 4548216, at *8 (M.D.

Fla. July 20, 2022) (rejecting argument that a benefit payment "did not constitute a golden

parachute because the bank's troubled designation was lifted," since the earlier agreement

to make that payment "was executed ... while the bank was still troubled"). Unless and

until Capital Bank chose to execute new payment agreements, the FDIC was reasonable in

recognizing, and closing, a potential loophole by which a troubled bank can skirt the golden

                                            20
parachute restrictions by contractually requiring its successor to agree to perform payment

obligations the bank itself could not. Cf Rohr, 826 F.3d at 1051 (rejecting interpretation

of regulations that "would create a giant loophole" by enabling "[b]anks and executives

[to] structure their agreements to allow for . . . payments that would function as golden

parachutes but avoid the magic words triggering the FDIC's regulations").

       C.     Contractual Attorneys' Fees

       The FDIC was likewise reasonable in deciding that the third payment at issue-

attorneys' fees under Section 8.9 of the agreements-was a prohibited golden parachute.

Finding that "payment of the fees would constitute a benefit to Bauer and Clark," the FDIC

ultimately concluded it could not treat attorneys' fees "as separate from the change-in-

control payments," since those fees "arise directly from obligations ... to pay change-in-

control payments." AR 1060. On this last point, the FDIC further explained that Bauer

and Clark would not have incurred attorneys' fees at all had there been no change in

control, making them dependent not only on the change-in-control obligations, but on the

change in control itself. Challenging this outcome, Bauer and Clark raise two arguments

for why the payment of attorneys' fees is not restricted by the golden parachute rules. Both

are easily rejected.

       First, Bauer and Clark contend that legal fees are not "in the nature of

compensation" within the meaning of the FDI Act and regulations, 12 C.F.R. § 359. l(f)(l),

since any fees would be payable to Bauer and Clark's attorneys, not Bauer and Clark

themselves.    This cramped reading of the golden parachute restrictions, however, is

unsupported by the plain text of the regulations, the caselaw, and common sense alike. See

                                            21
Harrison, 614 Fed. App. at 438 (explaining that the term "in the nature of compensation"

"should be construed broadly," and finding the payment of attorneys' fees to be "plainly

compensatory in nature"); Harrison v. Ocean Bank, 2011 WL 2607086, at *5 (S.D. Fla.

June 30, 2011) (similar); see also Knyal v. Office of Comptroller of Currency, 2003 WL

26465939, at *15 (N.D. Cal. Nov. 25, 2003) (in similar vein, finding the payment of

insurance policy premiums on an IAP's behalf to be "in the nature of compensation"). Any

payment of attorneys' fees would relieve Bauer and Clark from having to pay the fees

themselves. That scenario is plainly encompassed by the rules' prohibition on the "direct

or indirect transfer" of funds, assets, or other compensation, 12 U.S.C. § 1828(k)(5)(C)

(emphasis added), "for the benefit of' an IAP, 12 C.F.R. § 359.l(t)(l).

       Second, Bauer and Clark maintain that the payment of legal fees would not, in fact,

be "contingent on" their "termination" because those fees would be triggered only if Bauer

and Clark sought to enforce their asserted right to the change-in-control benefits in court.

Again, however, Bauer and Clark take too narrow a view of the golden parachute rules. As

explained above, see supra at 16, "termination" means not just the termination of an IAP' s

employment, but the termination of his affiliation with an institution-which, in this case,

would have occurred upon the change in control from Southern Community to Capital

Bank. Meanwhile, as a practical matter, the legal fees provision would kick in only after

Southern Community in fact experienced a change in control, since Bauer and Clark would

have no cognizable right to change-in-control benefits otherwise, and no need to enforce

that right in court. Thus, putting two and two together, the attorneys' fees under Section

8.9 are effectively contingent on Bauer and Clark's termination of affiliation with Southern

                                            22
Community via the change in control. Any argument to the contrary is little more than a

repackaged disagreement with the FDIC's reasonable conclusion that the underlying

change-in-control benefits are themselves prohibited golden parachutes.

      D.     Ordinary Salary and Benefits

      Lastly, Bauer and Clark seek as damages "at least 60 days" of salary and benefits

under their original employment contracts. Pls.' Mot. 28. In plaintiffs' narrative, "[h]ad

the Agreements been assumed and performed, Bauer and Clark would have been entitled

to receive their ordinary salary and benefits" from non-troubled Capital Bank, pursuant to

Capital Bank's own obligation to compensate them for work performed. Id. These kinds

of payments, plaintiffs claim, are not golden parachutes because they meet "none of the

definitional elements of 12 C.F.R. § 359.l(f)": They are neither "contingent on" Bauer

and Clark's "termination," nor would they have been paid after a "troubled" designation.

Id. at 31-32. For their part, defendants respond that Bauer and Clark "never presented"

this theory to the agency and are therefore barred from raising it here. FDIC's Mot. &

Opp'n 25-26. The bank defendants additionally contend that salary and benefits should

"not [be] treated differently from change-in-control payments or severance payments;

regardless of the type of payment, the golden parachute statute and regulations apply to

agreements . . . [that] shift[] payment obligations from a troubled institution to a non-

troubled entity." Bank Defs.' Mot. & Opp'n 41 (emphasis added).

       For starters, defendants are only half correct that Bauer and Clark did not present

this argument to the FDIC. While, to be sure, plaintiffs' letters to the agency did not

mention "salary and benefits" specifically, they made abundantly clear that their theories

                                            23
of harm in the state-court action were premised on the banks' failure to comply with the

assumption provisions of Section 8.1, which "were supposed to guarantee [Bauer and

Clark's] employment with any successor." AR 883. From this premise, the FDIC could

have anticipated that Bauer and Clark were seeking to recover all payments provided by

their original employment agreements, including salary and benefits. In any event, it is not

clear the FDIC did not anticipate or address this argument: After acknowledging that

plaintiffs' claims stemmed from the banks' "failure to require Capital to agree to assume

and perform the Agreements," AR 812, the FDIC's determination broadly concluded "that

any payments to Bauer and Clark are golden parachute payments," AR 816 (emphasis

added). On this ground alone, I am not persuaded that plaintiffs' argwnents on this score

were either waived by Bauer and Clark or wholly ignored by the FDIC.

       Finding no waiver here, Bauer and Clark at last have a winning argument. True, as

the bank defendants point out, Capital Bank's would-be agreement with Southern

Community to perform Bauer and Clark employment contracts would have included an

agreement to pay their ordinary salary and benefits, in addition to change-in-control

benefits, severance payments, and attorneys' fees. And that agreement to pay, as explained

above, would have met all elements of the golden parachute definition, since it would have

been contingent on Capital Bank's merger (and consequent termination of plaintiffs'

affiliation) with Southern Community, which was troubled at that time. But critically, the

change-in-control benefits, severance payments, and attorneys' fees were also themselves

"contingent on, or by [their] terms payable on or after," a termination event; ordinary salary

and benefits are not. Indeed, when dealing with a situation like this one involving the

                                             24
attempt to transfer one bank's obligations to a successor entity, it makes sense to require

both:   The agreement to pay, and the payment itself, must be contingent on some

tennination event. Otherwise, payments that clearly do not offend the FDI Act and its

purposes, including payments for services actually rendered, could be deemed golden

parachutes simply by virtue of their inclusion in a prohibited agreement.

        The FDIC does not disagree with this reasoning, at least not in the abstract. Indeed,

before this Court and elsewhere, it has conceded that "[e]arned compensation, for actual,

bona fide employment at a non-troubled bank, is not subject to the golden parachute

restrictions," because it is not contingent on termination. FDIC's Mot. & Opp'n 25 n.7;

see Fed. Deposit Ins. Corp., Guidance on Golden Parachute Applications at 1 n.2,

https://perma.cc/QAQ2-6N6P ("The restrictions do not apply to the payment of salaries or

bonuses."); see also Rohr, 826 F.3d at 1050. Rather, the agency's concern in this case-

aside from plaintiffs' purported waiver-is that Bauer and Clark never worked as Capital

Bank employees, since they were fired before the merger; thus, there can be no

compensation owed for work that Bauer and Clark never performed. But for purposes of

plaintiffs' claims in state court, what matters is not the "real" world but Bauer and Clark's

"but for" world-a world in which they allege they would have been retained as employees

of Capital Bank and would have worked there until Capital Bank fired them. If Bauer and

Clark can prove in state court that their "but for" world would have been the "real" world

absent the banks' breaches of contract, torts, and state-law violations, the golden parachute

rules should not foreclose their recovery of damages for the salary and benefits they would

have earned while Capital Bank continued to employ them.

                                              25
                                     CONCLUSION
        For the foregoing reasons, plaintiffs' motion for summary judgment [Dkt. #SO], the

FDIC's cross-motion for summary judgment [Dkt. #51], and the bank defendants' cross-

motion for summary judgment [Dkt. ##53, 55] are GRANTED IN PART and DENIED

IN PART, and the FDIC's determination with respect to the salary and benefits payments

is VACATED. An order consistent with this Memorandum Opinion will issue on this

date.

                                                        RICHARDJ.N
                                                        United States District Judge

                                            26