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April 16, 1993

FEDERAL DEPOSIT INSURANCE CORPORATION, Receiver for the Seamen's Bank for Savings, Defendant.


The opinion of the court was delivered by: LEONARD B. SAND


 This action is brought by Jacqueline Fresca and her husband, Crescent Fresca, against the FDIC as receiver for Seamen's Bank for Savings (the "Bank"), under 12 U.S.C. § 1821, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), challenging the repudiation of benefits under an Enhanced Retirement Program ("ERP"). Currently before the Court are cross-motions for summary judgment. Because we find that plaintiffs have proven entitlement to the value of the benefits under the ERP as a matter of law, their summary judgment motion is granted as to liability. Defendant's summary judgment motion is denied. Because the Court has not been presented with information sufficient to fashion damages, we will refer to a magistrate judge for hearing on that issue only.

 Factual Background

 The facts are undisputed and are as follows. Plaintiff, Jacqueline Fresca, was employed by Seamen's Bank for Savings for approximately thirty-six years when, in mid-March, 1989, she was offered an early retirement package, entitled "Enhanced Retirement Program". The plan, which provided benefits for both Jacqueline and her husband, appears to have been an incentive to employees to take early retirement in an effort to conserve funds for the Bank.

 The ERP provided two advantages over the regular retirement plan: (1) an increase in monthly benefits or a long-service award, and (2) a retirement bonus. The medical and life insurance benefits under the ERP and the regular retirement program appear to be the same. The section on medical benefits notes that "the bank reserves the right to review its medical plan and make changes from time to time." *fn1"

 Plaintiff and others in her position were given a very short time to make the decision whether to accept early retirement. The window of opportunity was from March 16, 1989 to April 21, 1989, with retirement to take effect on May 1, 1989. Plaintiff accepted the program, and retired on May 1, 1989.

 On April 18, 1990, almost a full year after plaintiff's retirement, the Bank was declared insolvent and the FDIC was appointed as receiver. Pursuant to the requirements of 12 U.S.C. § 1821, plaintiff submitted a proof of claim to the FDIC for the value of medical and life insurance benefits under the ERP, which claim was denied. Plaintiff was advised by the FDIC on October 3, 1990 that her claim was disallowed because "after the Seamen's Bank for Savings was declared insolvent, the medical and life insurance benefits provided to employees were cancelled." There is no claim advanced by the FDIC that plaintiff's benefit arrangement was collusive, in anticipation of the bank's insolvency or that it was in any way tainted.

 Plaintiff has properly exhausted her administrative remedies, and brings this action seeking a declaratory judgment mandating the continuation of the benefit plan under the contract, or, alternatively, the value of the medical and life insurance benefits under the plan. Plaintiff does not challenge her pension benefits or the retirement bonus, and we assume that those obligations have been or are being met according to the terms of the contract.


 Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate if the supporting evidence demonstrates that there are no genuine issues of material fact in dispute and that the movant is entitled to judgment as a matter of law. A court does not resolve disputed issues of fact, but rather, resolving any ambiguities and drawing all reasonable inferences against the moving party, assesses whether genuine issues of material fact remain for the trier of fact. See, e.g., Knight v. United States Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932, 94 L. Ed. 2d 762, 107 S. Ct. 1570 (1987).

 The liability aspect of this case is particularly suited to a determination on motion for summary judgment, because what is in dispute is entirely a matter of interpretation of the FIRREA statute. The FDIC contends that it has broad power under the law to repudiate contracts which are deemed burdensome, and that plaintiff's contract falls into this category. Plaintiff argues that the statute does not confer power to repudiate contracts where a party's rights have vested. The answer, we believe, lies somewhere in between.

 Although both parties frame the question as whether the FDIC has the power to repudiate this contract under 12 U.S.C. § 1821(e), we must in fact examine three different, but related, questions, to discern the overall mechanism of how FIRREA works in relation to contracts entered into before the appointment of a receiver. First, does an employment contract of the type at issue here automatically terminate under the regulations promulgated pursuant to FIRREA, codified at 12 C.F.R. § 563.39? Second, what does it mean to repudiate a contract under 12 U.S.C. § 1821(e), and does that power extend to executory and non-executory contracts alike? Finally, if the FDIC does have the power to repudiate the contract, may it do so with impunity, or are there damages available to plaintiffs under 12 U.S.C. § 1821 (e)(3)? We address each question in turn.

 A. Regulations regarding employment contracts under 12 C.F.R. § 563.39:

 The FDIC argues that plaintiff's contract was terminated by operation of law under 12 C.F.R. § 563.39(b)(5)(ii) when the FDIC was appointed as receiver on April 18, 1990. The regulation, which governs employment contracts, provides in relevant part:

All obligations under the contract shall be terminated . . . by the Director or his or her designee . . . when the association is determined by the Director to be in an unsafe or unsound condition.
Any rights of the parties that have already vested, however, shall not be affected by such action.

 In Rice v. Resolution Trust Corp., 785 F. Supp. 1385 (D. Ariz. 1992), plaintiff was the CEO of the failed bank. The contract at issue was a "Salary Continuation Agreement", which provided that if the plaintiff were terminated after reaching the age of 57, he would receive a certain percentage of his salary for five years. The agreement further provided that if the plaintiff's employment was terminated upon change in control of the management of the Bank, he would receive the same benefits as if he had reached normal retirement. Plaintiff was terminated by the RTC as soon as it was appointed receiver. Plaintiff argued that this was termination by "change in control" and claimed the benefits under the agreement; the RTC refused to pay those benefits.

 In Rice, as in the case before this Court, the defendant argued that plaintiff's contract was terminated by operation of law pursuant to the regulation. The court found that the contract, although dealing with matters of termination, was an employment contract, because it set out the terms and conditions of plaintiff's employment. The court further held that plaintiff's rights had not vested at the time of the appointment of the RTC, because a condition precedent to those rights, the "change in control", had not occurred at the point in time when the bank was declared insolvent. Therefore, the contract terminated by virtue of the statute at the time of the appointment of the RTC, and the plaintiff had no rights under it. As the Rice court explained:

In this case, plaintiff could have had "vested" rights under the Agreement that would not have been terminated had he retired early, died, or been terminated for reasons other than for cause at any time before January 31, 1990, when the RTC took over MeraBank.
785 F. Supp. at 1392.

 Similarly, in Rush v. Federal Deposit Ins. Corp., 747 F. Supp. 575 (N.D.Cal. 1990), the other case upon which defendant relies, the court held that a severance agreement which provided the plaintiff with one year's salary upon termination without cause had not vested at the time the FDIC was appointed as receiver of the bank. Because the condition precedent, termination without cause, had not occurred prior to the appointment, the employment contract was terminated by operation of the regulation. The court looked to cases decided under ERISA to define "vested", and determined that the term "has been defined to mean an unconditional claim arising from a plan participant's service." 747 F. Supp. at 578.

 An analysis of these cases and the regulation reveals that plaintiff Fresca's contract was not terminated as a matter of law under the regulation. First of all, it is by no means obvious that the ERP would qualify as an employment contract under the regulation at all. It does not set out the terms of plaintiff's employment, nor does it envision the continued employment of plaintiff until some ...

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