Solsby v. Plaza Bank CA4/3

Filed 2/17/15 Solsby v. Plaza Bank CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication

or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

DONALD SOLSBY,

Plaintiff and Appellant, G049272

v. (Super. Ct. No. 30-2012-00564559-

CU-BC-CJC)

PLAZA BANK,

OPINION

Defendant and Respondent.

Appeal from a judgment of the Superior Court of Orange County, Craig L.

Griffin, Judge. Reversed and remanded.

Mahoney & Soll and Paul M. Mahoney, for Plaintiff and Appellant.

Linda Van Winkle Deacon and Stephanie M. Saito, for Defendant and

Respondent.

* * *

Donald Solsby appeals from a summary judgment entered in favor of

defendant Plaza Bank (the Bank) on his claim for breach of contract. Solsby alleged that

the Bank, his former employer, breached the terms of his severance agreement when it

failed to pay him $165,000 owed in connection with the Bank’s “change in control,” plus

an additional $165,000 owed in connection with the termination of his employment. The

Bank, which is insured by the Federal Depository Insurance Corporation (FDIC),

successfully moved for summary judgment on the basis that both of the payments Solsby

sought were prohibited by FDIC regulations governing the disbursement of “golden

parachutes” by “troubled institutions.”

Solsby argues the court erred in granting summary judgment because (1)

only a bankruptcy court can relieve the Bank of its obligations established by contract;

(2) Solsby’s right to the payments was “vested,” and thus cannot be defeated by FDIC

regulations; (3) the severance agreement was enforceable as a “settlement agreement”;

(4) the payments owed to him under the severance agreements do not meet the definition

of a “golden parachute” under the FDIC regulation; (5) any payment that qualified as a

prohibited “golden parachute” was severable from the remainder of the agreement; (6)

even if a payment qualified as a “golden parachute” under the FDIC regulation, the Bank

nonetheless “had a right” to make it; and (7) the court committed prejudicial error when it

sustained objections to portions of the declaration submitted by Solsby’s counsel.

In addition to countering those arguments, the Bank contends, for the first

time on appeal, that Solsby’s claimed right to the “change in control” Bonus was also

precluded by title 12 United States Code, section 1831o(f)(4) (all further statutory

references are to this title of the United States Code unless otherwise stated), because it

requires written FDIC approval for any “[B]onus” paid to an executive by an insured

institution which is “significantly undercapitalized.” However, because this argument

was not relied upon by the Bank in its summary judgment motion, we do not address it.

(Bank of America, N.A. v. Roberts (2013) 217 Cal.App.4th 1386, 1398-1399.)

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We reverse the judgment. For the most part, Solsby’s contentions are

fatally undermined by his refusal to recognize that because the Bank is a member of the

FDIC—a relationship which he acknowledges he was personally involved in

negotiating—his contractual right to receive these payments was expressly made subject

to FDIC regulations. Consequently, the Bank’s obligation to make those payments was

constrained by existing FDIC regulations as a matter of law. Thus, any suggestion that

Solsby’s contractual rights were somehow immunized from FDIC regulations, or that

they were violated by the enforcement of those regulations (arguments 1, 2, and 3),

necessarily fails.

However, we do agree with Solsby’s more specific assertion that one of the

two payments he seeks, the $165,000 “change in control” Bonus, does not meet the

statutory definition of a prohibited “golden parachute,” because the Bank’s obligation to

pay the Bonus was not contingent upon the termination of his employment. The trial

court erred in concluding otherwise, and that error requires reversal of the summary

judgment entered in the Bank’s favor.

As for Solsby’s additional contention, that even if the disputed payments

did qualify as prohibited “golden parachutes” – as appears to be the case with the

separate severance compensation payment he seeks – the Bank nonetheless “had a right”

to make them, it is legally irrelevant. The issue is whether the Bank was legally

obligated to make the payments under the terms of the severance agreement, not whether

it might have retained some option to do so voluntarily. As we have already noted, under

the terms of the parties’ agreement, the Bank had no obligation to make any payments

prohibited by FDIC regulation.

Finally, Solsby’s claim of error in connection with the court’s evidentiary

ruling is wholly conclusory. He fails to even identify the basis of the court’s ruling or

cite to its location in the record. Moreover, his assertion of error is unsupported by either

citation to authority or any analysis of the purported significance of the excluded

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evidence. The claim is consequently waived. (See Cahill v. San Diego Gas & Electric

Co. (2011) 194 Cal.App.4th 939, 956, [“‘“When an appellant fails to raise a point, or

asserts it but fails to support it with reasoned argument and citations to authority, we treat

the point as waived”’”].)

FACTS

Solsby’s complaint is brief, alleging in somewhat truncated fashion that in

October 2008, the parties entered into a severance agreement, that Solsby performed “all

acts, services, covenants and conditions required by said written severance agreement,”

and that the Bank breached the agreement by failing to pay him in accordance with the

terms of the agreement. He sought damages “in excess of $330,000 according to proof.”

In January 2013, the Bank moved for summary judgment on Solsby’s

“single claim for breach of contract,” arguing that FDIC regulations “bar” its compliance

with the payment obligations set forth in Solsby’s severance agreement. The Bank

argued that because it had already been determined to be a “troubled institution” by the

FDIC by the time it entered into Solsby’s severance agreement, which qualified as a

“golden parachute” under 12 Code of Federal Regulations parts 359.0(b)—359.1(f)

(2014), the FDIC’s advance written approval was required to even enter into the

severance agreement, which approval was never obtained. Thus, the Bank argued that

the payment provision of the severance agreement “is void, and Solsby’s claim based

upon [it] must be denied.”

The underlying facts of the parties’ relationship—as well as the

circumstances surrounding their dispute—were fleshed out in connection with the Bank’s

motion for summary judgment, and they are essentially undisputed.

By Solsby’s own description, he has been “involved in the banking industry

for over 45 years. During his career, he has worked as the Chief Executive Officer and

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President of various banks.” In late 2004, he worked with others (including Lawrence

Luckey, who filed a separate lawsuit alleging a similar claim against the Bank), to form

the Bank. Solsby testified in his deposition that he was personally involved in

negotiations with the FDIC to secure the Bank’s membership (and thus its status as an

FDIC insured institution). Solsby claimed that he was unaware if it was even possible to

open a bank without FDIC insurance, stating, “You can’t open without an FDIC

insurance certificate.” Solsby also explained “there are very strict guidelines that the

regulators will approve as to [the] compensation . . . package for any of the approvable

positions of senior officers in de novo institutions.”

Solsby entered into his own employment agreement with the Bank in

January 2006, agreeing to serve as the Bank’s president and chief executive officer

(CEO), at a salary of $165,000, plus bonuses. Among other provisions, the agreement

contained a Section 12, which governed Solsby’s rights in the case of a “merger,

consolidation or reorganization” of the Bank. (Capitalization and underscoring omitted.)

Among other things, Section 12(b) set forth a general rule that Solsby’s employment

“shall not be terminated due to a Change in Control,” a term which is defined in specific

ways, but generally amounts to when a change in ownership results in the Bank’s current

shareholders owning less than 50 percent of its shares. But the provision then stated that

“[n]otwithstanding the forgoing, this Agreement and Executive’s employment may be

terminated . . . in consideration of the agreement of the Successor Entity or Bank to pay

to [Solsby] the Severance Compensation described in Section 12(c) below.” (Italics

added.)

Section 12(c) of the agreement then set forth the details of both payments,

as follows: “Except as may be restricted by any then applicable policy of the California

Department of Financial Institutions (the ‘DFI’) or the Federal Deposit Insurance

Corporation (‘FDIC’), upon any Change in Control: (1) the surviving or resulting

corporation, the transferee of the Bank’s assets, or the Bank shall pay to [Solsby] on the

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effective date of the Change in Control, a lump sum bonus payment equal to twelve (12)

months of base salary (the ‘Bonus’) . . . and (3) this Agreement and [Solsby’s]

employment may be terminated by the Successor Entity (or by Bank effective upon the

Change in Control if required to do so under the terms of its agreement with the

Successor Entity) upon execution of a Severance Agreement with [Solsby] providing for

the payment to [Solsby] of severance compensation equal to twelve (12) months of his

then existing base salary, payable in substantially equal semi-monthly installments over a

twelve (12) month period . . . (the ‘Severance Compensation’). The Severance

Compensation shall be in addition to the Bonus.” (Italics added.)

Thus, Section 12 of the employment agreement specified that Solsby would

be paid the equivalent of one year’s base salary, (the “bonus”) if the Bank underwent a

“change in control,” without regard to the termination of his employment, but would be

entitled to an additional payment equivalent to a year’s base salary (the “severance

compensation”) if his employment was terminated in connection with such a “change in

control.”

The Bank did not perform as well as Solsby and his colleagues had hoped.

Although there is certainly a dispute about whether Solsby bore responsibility for that

lackluster performance (not surprisingly, he claims it stemmed entirely from decisions he

had opposed), that is not relevant for our purposes. What is pertinent, and undisputed, is

that the Bank was declared by the FDIC to be a “troubled institution” no later than

January 2008.

In late 2007 and early 2008, the Bank began seeking additional capital

investment. In October 2008, the Bank entered into a stock purchase agreement with a

third party, Carpenter Fund, which all parties agreed qualified as a “change in control” of

the Bank. Moreover, the parties agreed that Solsby’s employment would be terminated

when that “change in control” became effective; i.e., on the date when the stock purchase

transaction Carpenter Fund closed. These agreements were memorialized in Solsby’s

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“Severance Agreement,” which was signed on the same day as the Carpenter Fund stock

purchase agreement. The severance agreement essentially incorporated, without change,

the provisions of Solsby’s employment agreement which entitled him to be paid the

“change in control” bonus and the severance compensation, specifying that “[s]ubject to

the terms of [his] Employment Agreement: (a) [the Bank] will pay to [Solsby] on the

Closing Date a cash lump sum Bonus in the amount of . . . ($165,000.00) . . .; and (b) [the

Bank] will also pay to [Solsby] Severance Compensation in the total amount of . . .

($165,000.00), payable in twenty four (24) substantially equal and semi-monthly

installments over a twelve (12) month period . . . .”

Solsby continued to work for the Bank until the Carpenter Fund stock

purchase transaction closed in June 2009, at which time his employment terminated in

accordance with the terms of his severance agreement. The Bank thereafter declined to

pay him either the change in control bonus or the severance compensation provided for in

his severance agreement.

DISCUSSION

1. Standard of Review

Our review of an order granting summary judgment is de novo. “Because a

motion for summary judgment raises only questions of law, we independently review the

parties’ supporting and opposing papers and apply the same standard as the trial court to

determine whether there exists a triable issue of material fact. [Citations.] In practical

effect, we assume the role of a trial court and apply the same rules and standards

governing a trial court’s determination of a motion for summary judgment. [Citation.]

We liberally construe the evidence in support of the party opposing summary judgment

[citation] and assess whether the evidence would, if credited, permit the trier of fact to

find in favor of the party opposing summary judgment under the applicable legal

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standards.” (City of San Diego v. Haas (2012) 207 Cal.App.4th 472, 487.) The de novo

standard also applies to issues of statutory and regulatory interpretation. (See Bruns v. E-

Commerce Exchange, Inc. (2011) 51 Cal.4th 717, 724 [“[s]tatutory interpretation is a

question of law that we review de novo”]; Harbor Regional Center v. Office of

Administrative Hearings (2012) 210 Cal.App.4th 293, 305 [“Our interpretation of the

relevant statutes and regulations . . . is still de novo, even where we determine questions

concerning the application of the law to the facts”].)

2. Solsby’s Claim That the FDIC Directed “a Breach of Contract” is Specious

An over-arching theme in Solsby’s opening brief (expressed as a

“preliminary statement,” although not developed into a specific claim of error), is that

allowing the FDIC to dictate whether or not he receives his severance payment is “wrong

and dangerous” because it impairs the right of parties to enforce their contracts and

allows “the federal government, without intervening in a lawsuit, [to] tell a bank to

breach a contract with an employee.” He even invites this court, without the benefit of

any comparative analysis, to view his claimed right to the payments outlined in his

Severance Agreement as the functional equivalent of the court’s own judicial pension

system, and suggests that “if judges’ pensions were impaired [they] would argue fiercely

that their pensions could not be touched because of the contracts clause of the United

States and California Constitutions.” The clear implication behind this comparison is the

suggestion that this court’s analysis of his contract claim would be colored by the panel

members’ self-interest in preserving their own judicial pensions. Not only is the

implication both improper and insulting, the comparison is legally specious.

The FDIC’s power to regulate Solsby’s contractual right to payment is not

derived from some arbitrary governmental prerogative to impose its will on retirement

provisions whenever and however it chooses. This is not a case, as Solsby seems to be

implying, where a shadowy government regulator has emerged from nowhere and

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curtailed the parties’ ability to enter into and enforce their agreement in a manner they

could not have anticipated. Here, the FDIC was invited to regulate many aspects of the

Bank’s financial dealings when the Bank signed on as a member of the FDIC.

More significantly, Solsby specifically agreed in his original employment

agreement that the Bank’s obligation to pay him a “change in control” bonus and

severance compensation would be “restricted by any then applicable policy . . . of the

[FDIC].” And he later expressly acknowledged in his severance agreement that his bonus

and severance compensation remained “[s]ubject to the terms of [his] Employment

Agreement.” Consequently, Solsby specifically agreed that the Bank would be adhering

to all FDIC restrictions in effect at the time any such payments became due, and thus

those restrictions were effectively incorporated into his contract. It is well-settled that

“‘“all applicable laws in existence when an agreement is made, which laws the parties are

presumed to know and to have had in mind, necessarily enter into the contract and form a

part of it, without any stipulation to that effect, as if they were expressly referred to and

incorporated.”’” (Swenson v. File (1970) 3 Cal.3d 389, 393.)

The fact that Solsby’s agreement with the Bank explicitly acknowledged

the binding effect of FDIC regulations means there is no need to rely on a presumption

that the parties had the FDIC’s regulatory authority in mind when they entered into their

agreement. Rather, it is indisputable that the parties intended the Bank’s payment

obligations would be restricted by the FDIC policies in effect at the time those payments

became due. There is simply nothing in this record to support Solsby’s notion that the

FDIC’s supposed regulatory intrusion impaired his vested contractual rights. The

suggestion is wholly unfounded.

Consequently, the only real issue in this appeal is whether the trial court

properly applied those regulations in determining that both Solsby’s “change in control”

Bonus and his Severance Compensation qualified as “golden parachute” payments under

the applicable FDIC regulations. We conclude that while the court was correct in

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determining the “Severance Compensation” qualified as a “golden parachute,” it was

incorrect in applying that label to the “change in control” Bonus. The Bank’s liability for

that Bonus was never made contingent upon the termination of Solsby’s employment,

and thus it did not qualify under the statutory definition of a FDIC “golden parachute.”

3. The FDIC’s “Golden Parachute” Rule

Section 1828 (k)(4)(A), offers the general definition of what qualifies as a

potentially prohibited “golden parachute” payment by an FDIC insured institution: “In

general. The term ‘golden parachute payment’ means 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 institution-affiliated party 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-- [¶] . . . [¶] (III) the institution’s

appropriate Federal banking agency determines that the insured depository institution is

in a troubled condition . . . .”

An “institution affiliated party” (IAP), is defined as “any director, officer,

employee, or controlling stockholder . . . of, or agent for, any insured depository

institution.” (§ 1813(u)(1).) There is no dispute that Solsby meets the definition of an

IAP. It is also undisputed that the Bank was declared by the FDIC to be in “troubled

condition” in January 2008, before the date Solsby was scheduled to receive both his

“change in control” Bonus and his Severance Compensation. Thus, under

section 1828(k)(4)(A), these payments would qualify as “golden parachutes” if they are

“contingent on the termination of [Solsby’s] affiliation” with the Bank.

However, the FDIC’s own regulation arguably expands that “golden

parachute” definition somewhat. Title 12 Code of Federal Regulations part 359.1(f)

(2014) states that “(1) The term golden parachute payment means any payment (or any

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agreement to make any payment) in the nature of compensation by any insured

depository institution or an affiliated depository institution holding company for the

benefit of any current or former IAP pursuant to an obligation of such institution or

holding company that: [¶] (i) Is contingent on, or by its terms is payable on or after, the

termination of such party’s primary employment or affiliation with the institution or

holding company; and [¶] (ii) Is received on or after . . . [¶] . . . [¶] (C) A

determination . . . that the insured depository institution or depository institution holding

company is in a troubled condition . . . .” (Italics added.) It is this additional language

included in the regulation which the Bank primarily relies upon in arguing the two

payments provided for in Solsby’s severance agreement qualify as “golden parachutes.”

When a payment meets the definition of a “golden parachute,” then FDIC

regulations generally prohibit its disbursement. (12 C.F.R. §§ 359.2, 359.4 (2014).)

However, as also explained in the regulations, such payments can be made if expressly

approved by the FDIC, upon the request of either the institution or the IAP: “An insured

depository institution or depository institution holding company may agree to make or

may make a golden parachute payment if and to the extent that: [¶] (1) The appropriate

federal banking agency, with the written concurrence of the Corporation, determines that

such a payment or agreement is permissible; or [¶] (2) Such an agreement is made in

order to hire a person to become an IAP either at a time when the insured depository

institution or depository institution holding company satisfies or in an effort to prevent it

from imminently satisfying any of the criteria set forth in § 359.1(f)(1)(ii), and the

institution’s appropriate federal banking agency and the Corporation consent in writing to

the amount and terms of the golden parachute payment. . . .; Or [¶] (3) Such a payment is

made pursuant to an agreement which provides for a reasonable severance payment, not

to exceed twelve months salary, to an IAP in the event of a change in control of the

insured depository institution; provided, however, that an insured depository institution or

depository institution holding company shall obtain the consent of the appropriate federal

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banking agency prior to making such a payment . . . .” (12 C.F.R. § 359.4(a)(1) – (3)

(2014).)

The regulation further provides that “[a]n insured depository institution,

depository institution holding company or IAP making a request pursuant to paragraphs

(a)(1) through (3) of this section shall demonstrate that it does not possess and is not

aware of any information, evidence, documents or other materials which would indicate

that there is a reasonable basis to believe, at the time such payment is proposed to be

made, that: [¶] . . . [¶] (ii) The IAP is substantially responsible for . . . the troubled

condition, as defined by applicable regulations of the appropriate federal banking agency,

of the insured depository institution, depository institution holding company or any

insured depository institution subsidiary of such holding company. . . .” (12 C.F.R.

§ 359.4(a)(4) (2014).)

Finally, “In making a determination [whether there is reasonable basis to

believe the IAP is substantially responsible for the institution’s troubled condition] the

appropriate federal banking agency and the Corporation may consider: [¶] (1) Whether,

and to what degree, the IAP was in a position of managerial or fiduciary responsibility;

[¶] (2) The length of time the IAP was affiliated with the insured depository institution

or depository institution holding company, and the degree to which the proposed payment

represents a reasonable payment for services rendered over the period of employment;

and [¶] (3) Any other factors or circumstances which would indicate that the proposed

payment would be contrary to the intent of section 18(k) of the Act or this part.” (12

C.F.R. § 359.4 (b)(1) – (3) (2014).)

In this case, there is nothing in the record suggesting that either the Bank or

Solsby ever requested that the FDIC approve disbursement of the payments provided for

in Solsby’s severance agreement. And because it is the FDIC, and not the courts, which

has been given this discretion to approve “golden parachute” payments, our assessment

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of whether the FDIC would have (or should have) approved these payments to Solsby, if

requested to do so, is immaterial.

4. Solsby’s “Severance Compensation” Payment Qualifies as a “Golden Parachute”

We have no difficulty concluding the trial court correctly determined that

Solsby’s severance compensation met the statutory definition of an FDIC “golden

parachute.” First, as we have already noted, there is no dispute that Solsby qualified as

an IAP of the Bank, and no dispute that the Bank had been declared by the FDIC to be in

“troubled condition” by January 2008, long before the payment became due.

Thus, the only remaining question to be addressed in determining whether

the severance compensation qualified as an FDIC “golden parachute” is whether it “is

contingent on the termination of [Solby’s] affiliation with the institution or covered

company . . . .” (§ 1828(k)(4)(A)(i).) And the answer to that question is clearly yes.

The Bank’s obligation to pay Solsby’s severance compensation was

initially provided for in Section 12 of his employment agreement, as part of an exception

to the general rule that his employment “shall not be terminated due to a Change of

Control.” The exception provided that the Bank “may” nonetheless terminate Solsby’s

employment “effective upon a Change in Control . . . in consideration of the

agreement . . . to pay [Solsby] the Severance Compensation . . . .” (Italics added.) Thus,

from the inception of Solsby’s employment, his right to receive the Severance

Compensation payment was always contingent upon the Bank’s decision to terminate his

employment in connection with a “change in control.” And when the Severance

Compensation obligation was later restated as part of Solsby’s severance agreement, it

was not altered in any way. To the contrary, the severance agreement expressly provides

that the Bank’s obligation to pay the Severance Compensation is “[s]ubject to the terms

of [his] Employment Agreement.” Consequently, the Severance Compensation which

was originally promised to Solsby under the terms of his employment agreement and was

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then carried forward into his severance agreement, remained tied to the Bank’s decision

to terminate his employment. The payment thus met the FDIC’s definition of a “golden

parachute.”

And of course, because one of the terms of Solsby’s employment

agreement, which carried over into the severance agreement, was that the Bank’s

obligation to pay either Solsby’s Severance Compensation or his “change in control”

Bonus was subject to “restrict[ion] by any then applicable policy of the . . .

(“FDIC”) . . . ,” those FDIC restrictions were at all times part of the agreement. Thus,

the FDIC’s prohibition against making a “golden parachute” payment absent its express

approval must be treated as though it had been written into the parties’ contract, and we

reject Solsby’s repeated assertions that adherence to this regulation would illegally impair

his right to payment in accordance the contract terms.

Consequently, because the Bank’s payment of the Severance Compensation

to Solsby would qualify as a “golden parachute” under FDIC regulations, we conclude

the trial court correctly ruled that in the absence of the FDIC’s explicit approval, the

Bank had no contractual obligation to make that payment.

Solsby’s arguments to the contrary are unavailing. We have no quibble

with his assertion that it is the substance of the parties’ agreement, rather than its label,

which controls the parties’ obligations, and it is for that reason we are unswayed by his

effort to relabel the severance agreement as “just the opposite” of a severance agreement.

Even if it were true, as Solsby claims, that the underlying goal of the agreement was

actually to ensure he would “stay on board so that the Stock Purchase Agreement could

go forward,” rather than to force his resignation, that does not change its substance –

which includes the provision stating that the Bank’s obligation to pay the Severance

Compensation is “[s]ubject to the terms of [his] Employment Agreement.” Because

those terms include both the specification of the payment’s contingent nature as well as

the Bank’s required adherence to applicable FDIC policy in making it, it is the substance

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of the severance agreement, not its label, which dooms Solsby’s claim to recover the

severance compensation in the absence of FDIC approval.

Nor does the fact this severance agreement contains distinct provisions

normally associated with settlement agreements, such as mutual releases, change our

analysis. The FDIC regulation prohibiting the payment of “golden parachutes” without

its approval contains no exception for cases in which those provisions are included in

“settlement agreements” and Solsby cites no authority suggesting it does. And it should

go without saying that such an exception could easily be used to nullify the FDIC’s

authority to regulate “golden parachute” payments in its entirety.

And of course, Solsby’s assertion that his right to the severance

compensation is “vested” adds nothing. The only contractual right that could have

“vested” is the one set forth in the agreement, which as we have already explained, was

made subject to FDIC restrictions. Pursuant to those restrictions, Solsby has no

enforceable right to payment of the Severance Compensation absent FDIC approval.

Finally, Solsby also attacks the significance of a FDIC ruling set forth in

the Federal Register (61 Fed.Reg. 5926 (Feb. 15, 1996)), to the effect that once an

individual’s” golden parachute” payment has been prohibited, it is prohibited forever. He

argues this ruling should be disregarded, because it was never incorporated into a formal

regulation and is thus no more binding on the courts than “Vanity Fair, Rolling Stone, or

Gentlemen’s Quarterly.” However, Solsby is simply ignoring the well-settled principal

that courts will defer to an administrative agency’s interpretation of its own regulations.

(Pacific Legal Foundation v. Unemployment Ins. Appeals Bd. (1981) 29 Cal.3d 101, 111

[courts defer to an agency’s interpretation of its own regulations because of its expertise

in that area of the law]; Reddell v. California Coastal Com. (2009) 180 Cal.App.4th 956,

965 [courts “generally defer to an agency’s interpretation where the agency ‘“possess[es]

special familiarity with satellite legal and regulatory issues”’”].) Thus, absent some

argument explaining why the ruling set forth in the Federal register (61 Fed.Reg. 5926

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(Feb. 15, 1996)) is an erroneous application of the FDIC “golden parachute” regulations

(and Solsby offers none), we presume it is correct.

5. Solsby’s Change in Control “Bonus” Does not Qualify as a “Golden Parachute.”

By contrast to the severance compensation payment, Solsby’s right to the

separate “change in control” bonus was never made dependent upon the termination of

his employment with the Bank. Instead, under the terms of Solsby’s employment

agreement, the Bank (or its successor) was obligated to pay Solsby this bonus if the Bank

experienced a defined “change in control,” even though the agreement also specified, as a

general matter, that his employment “shall not be terminated due to a Change in Control.”

The only exception to this general rule prohibiting termination of Solsby’s employment

in connection with a “change in control” allowed the Bank (or its successor) to do so on

condition that it agreed to pay him the additional severance compensation also provided

for in the agreement. Thus, it is only the severance compensation, not the bonus

payment, which was contractually dependent upon the additional circumstance of

Solsby’s employment being terminated in connection with a change in control.

And again, the parties’ severance agreement did nothing to change the

terms of the Bank’s payment obligation as outlined in Solsby’s employment agreement.

Rather, it expressly confirmed that the Bank’s obligation to pay the “change in control”

Bonus remained “[s]ubject to the terms of the Employment Agreement,” which would

include the provision specifying that the “change in control” bonus would be owed to

Solsby without regard to any alteration in his employment.

And while the Bank is correct in asserting that the severance agreement

requires Solsby to resign his employment effective on the “Closing Date” – which is the

same date on which his bonus was also required to be paid – that confluence of timing

does not, in and of itself, demonstrate those two obligations are legally interdependent.

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What is arguably most significant about the severance agreement is its

explicit acknowledgment that the Bank’s underlying stock sale transaction with Carpenter

Fund qualified as a “change in control” over the Bank, which would then trigger both

the Bank’s obligation to pay Solsby’s “change in control” bonus and its related, but

separate, option to terminate his employment in exchange for its payment of the

severance compensation. Thus, the “Closing Date” identified in the severance agreement

is simply defined as the date on which that underlying stock sale transaction is

consummated; i.e., as the “closing of the transactions contemplated by that certain Stock

Purchase Agreement.” Consequently, the fact that both the termination of Solsby’s

employment and the Bank’s obligation to pay his “change in control” Bonus were set to

take effect on that same “Closing Date” implies nothing more than that each of these

distinct obligations was separately tied to the consummation of that stock sale

transaction.

Moreover, any temptation to simply infer a general rule that all of the

Bank’s payment obligations in the severance agreement were intended to be conditioned

on Solsby’s full performance of his obligations thereunder, including his resignation from

employment, is rather squarely rebutted by the agreement’s inclusion of a broad

severability clause providing that in the event “any provision” of the agreement is

determined to be “invalid, unenforceable or void for any reason, and cannot be saved by a

narrowing construction,” it “shall be severed from the remaining provisions of this

Agreement and shall not affect the validity and enforceability of such remaining

provisions.” In the face of this language, which implies that no single provision of the

severance agreement should be viewed as key to the enforceability of any other

provision, we cannot presume a link which is not stated.

Based on the foregoing, we conclude that Solsby’s “change in control”

bonus does not qualify as a “golden parachute” under the definition set forth in

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section 1828(k)(4)(A)(i), because it was never made “contingent on the termination of

[his] affiliation with the institution.”

On the other hand, as we have already acknowledged, the FDIC’s own

regulation arguably expanded that “golden parachute” definition somewhat. Title 12

Code of Federal Regulations part 359.1(f) (2014) states that “[t]he term golden parachute

payment” refers to any payment which “(i) Is contingent on, or by its terms is payable on

or after, the termination of such party’s primary employment or affiliation with the

institution or holding company; and [¶] (ii) Is received on or after . . . . [¶] . . . [¶] (C) A

determination . . . that the insured depository institution or depository institution holding

company is in a troubled condition . . . .” (Italics added.) It is this distinct language,

found in the regulation but not the statute, which the Bank relies upon in arguing that

Solsby’s “change in control” Bonus – which, after all, was scheduled to be paid on the

same date his employment was terminated in accordance with the Severance Agreement

– qualifies as a “golden parachute.” While we do find some surface appeal in the

argument, we reject it.

First, we note that as a rule, any inconsistency between the language of a

statute and the language of a regulation must be resolved in favor of the statute. This is

true under both state and federal law. (California School Bds. Assn. v. State Bd. of

Education (2010) 191 Cal.App.4th 530, 544 [“an agency does not have discretion to

promulgate regulations that are inconsistent with the governing statute, alter or amend the

statute, or enlarge its scope”]; Chevron, U.S.A., Inc. v. NRDC, Inc. (1984) 467 U.S. 837,

842-843 [104 S.Ct. 2778, 81 L.Ed.2d 694][“If the intent of Congress is clear, that is the

end of the matter; for the court, as well as the agency, must give effect to the

unambiguously expressed intent of Congress”].) Thus, we would be required to reject

any regulation which expands the definition of a “golden parachute” beyond the one set

forth by Congress in the applicable statute.

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But we need not do so in this case, as we conclude the regulation’s

additional reference to a payment which “by its terms is payable on or after, the

termination of . . . employment” (12 C.F.R. 359.1(f)(1)(i) (2014), italics added) does not

imply any intention to go beyond the statute’s reference to payments that are

“contingent” on termination. Instead, the regulation’s reference to a payment which “by

its terms” is payable on or after termination must be construed literally; i.e., as applying

to those obligations which specify, as a term, that payment will not be made until “on or

after” employment termination, whenever that might be. Under this interpretation, it is

not sufficient to simply compare the date of employment termination with the date a

particular payment obligation becomes due, as the Bank has done in this case. Instead,

the Bank would be required to demonstrate that the termination of employment was a

necessary prerequisite to the purported “golden parachute” payment obligation, which it

has failed to do in connection with Solsby’s “change in control” bonus.

6. The Bank did not Rely on its Undercapitalized Status as a Separate Basis for

Summary Judgment

In addition to renewing its “golden parachute” argument made in the trial

court, the Bank also relies on section 1831o(f)(4) as a separate basis for excusing

payment of Solsby’s “change in control” bonus. Section 1831o(f)(4) requires written

FDIC approval for any “bonus” paid to an executive by an insured institution which is

“significantly undercapitalized.” However, because this argument was not relied upon by

the Bank in its summary judgment motion, we do not address it. (Bank of America, N.A.

v. Roberts, supra, 217 Cal.App.4th 1398-1399.)

Consequently, because we conclude the Bank has failed to demonstrate that

Solsby’s right to payment of the “change in control” bonus specified in his severance

agreement qualified as a “golden parachute” under the definition set forth in

section 1828, subdivision (k)(4)(A)(i) – which was the sole rationale underlying the

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Bank’s motion for summary judgment – we conclude the court erred in granting

summary judgment in its favor on Solsby’s single cause of action for breach of contract.

DISPOSITION

The judgment in favor of the Bank is reversed, and the case is remanded to

the trial court for further proceedings. Solsby is to recover his costs on appeal.

RYLAARSDAM, ACTING P. J.

WE CONCUR:

ARONSON, J.

THOMPSON, J.

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