-
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[NOT FOR PUBLICATION]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
Document Info
Docket Number： 94-1054
Filed Date： 9/26/1994
Precedential Status： Precedential
Modified Date： 9/21/2015