Sheehan v. FDIC, 1st Cir. (1994)

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[NOT FOR PUBLICATION]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 & Ather
_____________
______________
_________________
were on brief for appellants.
Jeannette E. Roach, Counsel, with whom Ann S. Duross, Assist
___________________
_____________
General Counsel, Colleen B. Bombardier, Senior Counsel, Maria Beatr
_____________________
___________
Valdez, Counsel, Leila R. Kern, Maryaustin Dowd, and Kern, Hager
______
______________ _______________
___________
Roach & Carpenter, P.C., were on brief for appellee.
_______________________
____________________
____________________
Per Curiam.
Per Curiam
___________
Plaintiff-appellants, former employees of
the
Financial Products Services Group (the Group) of the Bank of
New
England (BNE), initiated a
tract
based on
designed to
nues for
BNE's failure
class action for

to approve
encourage Group personnel to
BNE.
breach of con-
bonuses under
a plan
generate greater reve-
The Federal Deposit Insurance Corporation (FDIC),
as receiver for BNE, later assumed
responsibility for defense of
the action.
The class
sophisticated
action plaintiffs were engaged
securities processing
and accounting
institutional investors in behalf of BNE.

1989, plaintiff-appellant Kevin
the
the Group
Sheehan received a copy
services to
In late 1988 or early
J. Sheehan, officer-in-charge of
Group, discussed with BNE
incentive plan for
in providing
officials the establishment of an

employees.
In
November of
of the incentive plan (the
1989,
Plan), which
included a cursory formula for funding a bonus pool for distribution
among
Group employees.
determine awards
The
Plan
empowered Sheehan
to individual Group employees,
to
"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,
cial losses which
Reserve
and thereafter, BNE experienced severe finaneventually led
Board Cease
bonus payments
and Desist
to the issuance
order prohibiting,
to BNE employees
of a
Federal
inter alia,
_____ ____
absent advance approval
by the
____________________
1As officer-in-charge, Sheehan likewise was
bonus awards subject to BNE management approval.
2
eligible
for
Federal Reserve.
were disbursed
1989,
The only bonuses BNE ever

to Sheehan
based on
and the
made under the Plan
Group employees
their performance
for the
in November
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 United States
District Court for
the
action was removed to
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
instance.
(1st
incumbent
on
the district
court
in
the
first
Velez-Gomez v. SMA Life Assur. Co., 8 F.3d 873, 874-75

___________
___________________
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
party is
issue as
to any
material fact and
entitled to judgment as
that the
a matter of law.'"
moving
Gaskell v.
_______
The Harvard Coop. Soc'y, 3 F.3d 495, 497 (1st Cir. 1993) (quoting
_______________________
Fed.R.Civ.P.
reasonable
56
(c)).
We review
inferences, in the light
challenging summary judgment.
the
evidence, and
draw all
most favorable to the party
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,
setts
1990, constituted a breach of
law.2
Plaintiffs concede
contract under Massachu-
that the Plan
did not restrict
BNE management's discretion to withhold approval of bonuses.
See
___
Additional Provision
law
implies a
#2.
Nevertheless,
covenant of good
faith and
as
Massachusetts
fair dealing in
all con-
tracts, Anthony's Pier Four, Inc. v. HBC Associates, 583

__________________________
______________
806, 820 (1991),
bonuses
their right to
receive
vested in accordance with the terms of the bonus formula
set out in
581 F.2d 1,
law),
plaintiffs insist that
N.E.2d
cert.
_____
the Plan.
They
7 (1st Cir.
denied, 440
______
rely on Hoefel v.
______
Atlas Tack Corp.,

_______________
1978) (applying Massachusetts

U.S.
913
(1979), where
an
contract
employer
expressly reserved the right to "change, suspend or discontinue .

. . [its pension] plan at any time," but attempted
plan
long after the
pension benefits
plaintiff employees
had vested.
Id. at 4.
to revoke the
had retired
Hoefel held
and their
that the
___
former
employees' right
compensation, vested as
pension
to receive
soon as
______
their pensions,
the employees had
eligibility requirements imposed
as delayed
met all
the
by their pension plan.
Id. at 5.
__
Similarly,
these plaintiffs
urge that their
Plan bonuses vested in accordance with the formula

the
Plan, see supra p.

___ _____
right to
prescribed in
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

______
how Atlas'
financial difficulties can excuse
its contractual obligations to
related
claim that
its performance of
its former employees."), and not-
withstanding Additional Provision #2,

make the
fail to see
see supra p. 4, plaintiffs

___ _____
BNE's financial
condition was
an
insufficient basis, as a matter of law, for withholding bonuses.

Hoefel is inapposite, however,
______
the
retired employees' right
sions after
of their
since it simply
to continue to
receive their pen-
all pension-vesting conditions imposed
pension plan
had been met.
upheld
Here, the
by the terms
Plan expressly
reserved to BNE the exclusive power to approve all bonuses in the

first instance,
the Plan
which plainly precluded any
prior to
approval by
bonus vesting under

_______
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
Industries Inc.,
________________
bonuses.
851 F.2d
See Northern Heel Corp. v.

___ ___________________
456,
461
Massachusetts
law, contracting parties
mance
required
is not
precedent
have been
unless and
(1st
Cir. 1988)
("Under
may provide that perfor-
until stipulated
met.") (applying
Compo
_____
conditions
implied covenant
of good
faith).
The
right to
withhold approval
Plan is
governed by
implied
covenant of good faith and fair dealing.
Four,
____
the terms of
of bonuses
583 N.E.2d at 820
that every contract
the contract,
("[T]he rule is
is subject
subject to
an
Anthony's Pier
______________
clear in Massachusetts
to an implied
5
under the
covenant of
good
faith and fair dealing.").

reserved to
Since the terms of the Plan expressly
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
refuse 'to pay

(quoting
other
party's
the expected cost of
reasonable expectations-performance.'"
Id.
___
to
at 473
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)).
even
Notwithstanding the
though
bonuses would
they
disclaim
contrary terms
reliance on
be approved despite BNE's
see Reply Brief at 3-4 and

___
oral
of the Plan,
and
assurances
that
financial difficulties,
10-11, plaintiffs implausibly contend
that it was reasonable to expect that BNE would
forego its right
to withhold bonuses during difficult financial times.

insist
that BNE
retained
no discretion
Plaintiffs
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,
was
BNE's disapproval of their bonuses on the ground that BNE
experiencing
faith,
a breach of
dealing.
serious
financial
problems
the implied covenant of
constituted
bad
good faith and fair
We do not agree.
First, the Plan, see Additional Provision #2, in no way

___
restricted the
al.
Second, in these circumstances, a trialworthy claim of "bad
faith"
of
power of BNE management to withhold bonus approv________
or "unfair dealing" did not arise merely as a consequence
BNE's
decision to
withhold
approval
of bonuses
based
on
nonpretextual grounds explicitly identified

plaintiffs failed to present an
reasonable inference
(finding no breach
dealing
where
employer
Cf.
___
Cheney v.
______
385 N.E.2d at 961, 966
of implied
Thus,
adequate evidentiary basis for a
of "bad faith."
Sprinkler Corp. of America,

__________________________
in the Plan.4
covenant of good
withheld
earned
Automatic
_________
(Mass. 1979)
faith and
bonuses
for
fair
reasons
authorized in bonus plan).

Absent a cognizable basis
thrust of plaintiffs' position
the
Plan to
for inferring bad faith, the
on appeal is to urge
preclude BNE's reliance
on its
revision of
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."
right to
adjust bonuses in response to
that ultimately led to
its demise.
been
BNE could
no showing
that
the financial conditions
Leaving aside that there has

have obtained
Federal Reserve
Board approval for disbursing bonuses in light of its deteriorating financial condition, see supra at
___
scrivener is
one for the
p. 2, the role of contract
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.").

in the day to deny FDIC the benefit of a
And it is too late
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.
Affirmed.
________
The parties are to bear their own costs.

The parties are to bear their own costs.
_______________________________________

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Sheehan v. FDIC, 1st Cir. (1994)

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USCA1 Opinion

September 26, 1994

Plaintiff-appellants, former employees of

Financial Products Services Group (the Group) of the Bank of

England (BNE), initiated a

class action for

encourage Group personnel to

generate greater reve-

The Federal Deposit Insurance Corporation (FDIC),

as receiver for BNE, later assumed

responsibility for defense of

action plaintiffs were engaged

institutional investors in behalf of BNE.

Sheehan received a copy

In late 1988 or early

Group, discussed with BNE

incentive plan for

officials the establishment of an

of the incentive plan (the

included a cursory formula for funding a bonus pool for distribution

to individual Group employees,

approval of the SBU [Strategic Business Unit] Head, the

of BNE, N.A. and the Directors' Compensation Committee."1

and thereafter, BNE experienced severe finaneventually led

absent advance approval

The only bonuses BNE ever

made under the Plan

the present action was commenced

against BNE in Massachusetts Superior Court.

BNE was declared insolvent.

After FDIC was

the United States

District Court for

action was removed to

the District of Massachusetts and the parties filed cross-motions

summary judgment in favor of FDIC, and plaintiffs appealed.

Summary judgment rulings are reviewed de novo under the

Velez-Gomez v. SMA Life Assur. Co., 8 F.3d 873, 874-75

pleadings, depositions, answers to interrogatories and admissions

on file, together with the affidavits, if any, show that there is

material fact and

inferences, in the light

challenging summary judgment.

most favorable to the party

Velez-Gomez, 8 F.3d at 875.

The central question presented on appeal is whether the

1990, constituted a breach of

contract under Massachu-

that the Plan

did not restrict

BNE management's discretion to withhold approval of bonuses.

tracts, Anthony's Pier Four, Inc. v. HBC Associates, 583

vested in accordance with the terms of the bonus formula

plaintiffs insist that

Atlas Tack Corp.,

1978) (applying Massachusetts

expressly reserved the right to "change, suspend or discontinue .

long after the

the employees had