Case Note
Hill v. TD Bank, NA, U.S. Court of Appeals for the Third Circuit, No. 13-3595, Sept. 24, 2014.
Federal Appeals Court affirms denial of bank executive’s golden parachute/breach of contract claim. In an unusual “non precedent” opinion written by Circuit Judge Rendell, the U.S. Court of Appeals for the Third Circuit Wednesday affirmed a district court judgment rejecting the breach of contract/golden parachute claims of Commerce Bank N.A.’s former Chairman and CEO, Vernon Hill II. The district court’s judgment was entered on a jury verdict for the Bank’s then-parent holding company, Commerce Bancorp LLC (“Bancorp”).
At trial, the holding company relied on a defense of “legal impossibility” based on 12 U.S.C. §1828(k) and the FDIC’s “Golden Parachute” regulations, 12 CFR Part 359. Bancorp contended that because its subsidiary bank, Commerce Bank, N.A., was subject to a cease and desist order and therefore in a “troubled condition” when Hill’s employment terminated, it could not pay the severance benefit provided by Hill’s employment contract without prior regulatory approval. Hill contended that because the OCC’s cease and desist order concerned certain insider real estate transactions and not the Bank’s financial condition, the Bank was not a “troubled institution” as defined in the FDIC’s regulations and the Golden Parachute prohibition did not apply.
The Appeals Court concluded that since the subsidiary bank was a national bank, the OCC’s rather than the FDIC’s definition of “troubled institution” controlled. Since the OCC’s definition, unlike the FDIC’s narrower definition, did not require that the cease and desist order concern the Bank’s financial condition, the Court agreed with Bancorp that the Bank was in a “troubled condition” and could not, therefore, pay Hill’s golden parachute benefit without prior regulatory approval.