Opposition Brief — Bank of America National Trust & Savings Ass'n v. Superior Court of the City of San Francisco

Supreme Court, U.S.

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JOSEPH F. SPANIOL, JR.

No. 90-1007 CLERK

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In The

Supreme Court of the United States

October Term, 1990

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BANK OF AMERICA NATIONAL TRUST AND

SAVINGS ASSOCIATION,

Petitioner,

SUPERIOR COURT OF THE CITY AND

COUNTY OF SAN FRANCISCO,

Respondent.

(GEORGE WALTERS, Real Party in Interest.)

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Petition For Writ Of Certiorari To The California

Court Of Appeal, First Appellate District

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BRIEF IN OPPOSITION

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Counsel of Record

S -PHEN M. MurpHy

Bianco, BRANDI & JONES

44 Montgomery Street, Suite 900

San Francisco, California 94104

(415) 362-6100

Attorneys for Real Party in Interest

George Walters

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

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QUESTIONS PRESENTED

1. Whether the National Bank Act preempts claims of

misrepresentation arising out of the hiring of an officer.

2. Whether the National Bank Act preempts tort causes

of action unrelated to the term of an officer’s employ-

ment.

3. Whether the National Bank Act preempts contract

causes of action unrelated to the term of an officer’s

employment.

4. Whether the National Bank Act allows banks to

breach express and implied contracts relating to the term

of an officer’s employment when the officer is terminated

by someone other than the board of directors.

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TABLE OF CONTENTS

Page

Caseptions PRMGGUIEE ..... 20 coc ccesscsccsccssccasnens i

pe gf POSTE TTT TITTLET TT TTL Tee iii

Seba TE Te GO 6 osc cc ccs cncresccsesccotss 1

Summary Of Argument.............---eeeeeee eee: 3

Reasons For Denying The Writ ........... ‘peivnese 3

A. The Trial Court’s Ruling Is Consistent With

The Majority Of Federal And State Court Deci-

B. The Petition Overstates The Significance Of

The Superior Court’s Order............---.--++: 6

C. Since The Majority Of Real Party’s Claims

Relate To His Hiring, Rather Than His Firing,

The National Bank Act Does Not Apply........ 7

D. The Decision In This Case Affects The Liti-

gants Only, Has No Precedential Authority,

And Thus Does Not Warrant Review By This

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TABLE OF AUTHORITIES

Page

Cases

Kozlowsky v. Westminister National Bank, 6 Cal.

ee ane vn cacesbarccesdceunessesse 8, 9

Mackey v. Pioneer National Bank, 867 F.2d 520

a ieee as icdesesnecesoons 5, 6, 8, 9

McWhorter v. First Interstate Bank, 81 Or. 132, 724

Riis ene nehsech ead evisnencsiceees 4,5

Rohde v. First Deposit National Bank, 497 A.2d

i theses eG Skee s bo cbenenereseeenss 8, 9

Wells Fargo Bank v. Superior Court, 218 Cal. App.

3d 329, depublished at 267 Cal. Rptr. 49 (1990)..... 10

Westervelt v. Mohrenstecher, 76 F. 118 (8th Cir.

OR TG: BORAT TS aC ye ee en 4

Wiskotoni v. Michigan Nat. Bank-West, 716 F.2d

ERG a ee 4

STATUTES

12 United States Code Section 24 (Fifth) (National

REESE RSA ea OLE or POP a passim

No. 90-1007

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In The

Supreme Court of the United States

October Term, 1990

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BANK OF AMERICA NATIONAL TRUST AND

SAVINGS ASSOCIATION,

Petitioner,

V.

SUPERIOR COURT OF THE CITY AND

COUNTY OF SAN FRANCISCO,

Respondent.

(GEORGE WALTERS, Real Party in Interest.)

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Petition For Writ Of Certiorari To The California

Court Of Appeal, First Appellate District

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BRIEF IN OPPOSITION

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Real party in interest George Walters respectfully

requests that this Court deny the petition for writ of cer-

tiorari, seeking review of the decision of the California Court

of Appeal, First Appellate District, filed on July 17, 1990.

STATEMENT OF THE CASE

Real party in interest George Walters is a securities

broker. Before joining Bank of America, he enjoyed an

increasingly successful career at Bateman Eichler, Hill

Richards. He became one of the top producers of limited

partnerships and in his last year earned approximately

$100,000.

In 1985 he was contacted by Terry Roussel, director

of the Special Investment Group (“SIG”) at Bank of Amer-

ica. Roussel made numerous representations to Walters to

induce him to work for SIG as a salesman of limited

partnerships. These representations included statements

that there were sufficient clients and product, that Wal-

ters would earn hundreds of thousands of dollars and

that he would be employed a minimum of two years.

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Based on these representations, Walters left Bateman

Eichler, Hill Richards and began work for SIG. During the

thirteen months Walters worked for SIG, there was vir-

tually no product to sell. Instead of earning hundreds of

thousands of dollars he earned only his base salary of

$64,000. He also learned that many of Roussel’s represen-

tations were untrue. Walters was never told that his lofty

title of vice president subjected his employment to the

National Bank Act or that he was employed at the plea-

sure of the board of directors.

In December 1986 SIG was closed by Clyde Claus, an

executive vice president. Walters was terminated in Feb-

ruary 1987 by vice president Brenda Thomas, allegedly at

the direction of Claus, when he refused to sign a release.

The board of directors did not participate in or ratify the

termination.

SUMMARY OF ARGUMENT

The decision of the Superior Court is consistent with

federal and state court precedent in requiring the board

of directors, or an executive committee of the board, to

make the decision to terminate an officer under the

National Bank Act. In any eveni, since this case involves

numerous contract and tort issues unrelated to the

National Bank Act, the overall impact of any ruling by

this Court will be minimal.

The decision of the Court of Appeal upholding the

Superior Court consisted of one sentence and was

unpublished. The decision therefore will have no prece-

dential effect and does not justify this Court’s involve-

ment. Finally, the issues raised by the Petition are

presently before the California Supreme Court so that any

action by this Court will be premature.

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REASONS FOR DENYING THE WRIT

A. The Trial Court’s Ruling is Consistent with the

Majority of Federal and State Court Decisions.

Several courts have ruled that an officer is not subject

to the “at pleasure” provision of the National Bank Act

unless the decision to terminate was made by the board

of directors. In view of the drastic effect of the Act in

allowing banks to breach contracts, both express and

implied, these rulings are sound. The act was intended,

not to give national banks the unrestricted right to breach

its express contracts, but to allow banks to remove

quickly any officer whose continued employment

“threatens immediate ruin to the institution.” Westervelt v.

Mohrenstecher, 76 F. 118, 122 (8th Cir. 1896). Requiring the

board of directors to make the decision to terminate

ensures that the termination is so significant to the finan-

cial integrity of the bank that the decision is made by the

highest level of management.

In Wiskotoni v. Michigan Nat. Bank-West, 716 F.2d 378,

38 (6th Cir.1983), the court stated:

The terms of section 24 (Fifth) require that offi-

cers be appointed and dismissed by a national

bank’s board of directors. Wiskotoni was neither

appointed nor dismissed by the Bank’s board.

Wiskotoni was hired by . . . [the] president of

the Bank. The decision to terminate was made

by ... the successor president of the Bank. .. .

[T]he board . . . took no official action until

. when on the eve of oral argument on this

issue before the district court, it passed a resolu-

tion purportedly ratifying Wiskotoni’s dismiss-

al... . For these reasons Wiskotoni was not an

officer of the Bank for purposes of the National

Bank Act.

Wiskotoni was followed by the Oregon Court of

Appeal in McWhorter v. First Interstate Bank, 81 Or. 132,

724 P.2d 877 (1986), which observed that the

authority to hire and fire officers of national

banks is not simply a matter of corporate organi-

zation; it is a matter which Congress has

deemed sufficiently important to regulate by

statute.

Id. at 135, 724 P.2d at 879. The court further noted:

Section 24 (Fifth) —s confers the respon-

sibility for the hiring and dismissal of officers on

the board of directors. Other provisions of the

National Banking Laws make it clear that Con-

gress knows how to manifest its intent about

what powers are exercisable only by the board

and what powers may be exercised by subordi-

nate entities. See, e.g., 12 U.S.C. § 24, (Seventh)

(“board of directors or awy authorized officers or

agents”). [Emphasis added]. Defendant’s argu-

ment rests on the premise that the board may

divest itself of a duty that Congress has placed

on it by enacting a by-law which makes no

reference to that duty but which, if there were

no statute, might be sufficient under general cor-

poration law principles to confer hiring and fir-

ing authority on the president.

Id.

In Mackey v. Pioneer National Bank, 867 F.2d 520 (9th

Cir. 1989), a case relied on by Bank of America, the

plaintiff was terminated by unanimous vote of the execu-

tive committee of the Board of Directors. The full board

subsequently ratified that decision. The Ninth Circuit

distinguished McWhorter, supra, by stating:

there is no question that Mackey’s firing was

accomplished by the Board of Directors acting

through its Executive Committée, . . . and not by

the individual action of Pioneer’s President.

Id. at 525.

In allowing an executive committee of the board to

terminate officers with board ratification, Mackey pro-

vides a middle ground between the board itself and offi-

cers who have been delegated the responsibility to

terminate. Although the executive committee is not the

board itself, it is comprised of board members. Thus, at

least some of the highest decision makers in the bank are

participating in the decision.

Despite Petitioner’s arguments to the contrary, the

superior court’s decision is consistent with Mackey v.

Pioneer National Bank, 867 F.2d 520 (9th Cir. 1989). The

superior court denied Petitioner’s motion for summary

adjudication because there was no evidence that “the

termination of plaintiff was approved or ratified by the

Board of Directors or an Executive Committee of the

Board.” (Pet.app.A.) Since Mackey was decided by the

Ninth Circuit, the highest federal court in California, Real

Party has been granted no more power by suing in state

court than he would have had in federal court. Peti-

tioner’s claim that “officers discharged from the same

bank in California would have different legal standards

applied to their terminations depending upon the court

in which they filed their claims” (Pet.6) is a gross distor-

tion of the superior court’s ruling.

B. The Petition Overstates the Significance of the

Superior Court’s Order.

Despite stating that the importance of the issues

raised by the Petition cannot be overstated, (Pet.5), Bank

of America proceeds to overstate the issues’ importance

to the point of absurdity. The superior court’s ruling

involved the Bank’s right to breach employment contracts

with officers under the National Bank Act. The court did

not consider whether Walters was an officer for purposes

of engaging in bank-related business. Petitioner’s state-

ment that all business transactions requiring officer

approval would be subject to rescission or ultra vires

challenge, (Pet.7), is pure hysteria. By no stretch of the

imagination did the superior court’s ruling have any such

effect.

To enjoy the benefits of the National Bank Act, a bank

must comply with its requirements. Termination by some-

one other than the board of directors, or executive com-

mittee of the board, does not extinguish the employee’s

status as an “officer.” It means only that the bank may not

rely on the National Bank Act as a defense in the termina-

tion of the officer.

C. Since the Majority of Real Party’s Claims

Relate to his Hiring, rather than his Firing, the

National Bank Act does not Apply.

Real party’s complaint states tort causes of action for

misrepresentation, fraud, deceit and intentional and neg-

ligent infliction of emotional distress. These causes of

action relate to defendant's misrepresentations to plaintiff

that his employment was guaranteed for a minimum of

two years; that defendant would fully perform its obliga-

tions; that defendant would not deal with plaintiff arbi-

trarily, unlawfully, or in bad faith; that plaintiff could

reasonably expect to earn commissions of several hun-

dred thousand dollars; and that plaintiff could rely on

defendant’s cooperation and assistance. Defendant mis-

represented the availability of product for plaintiff to

market, the number and quality of clients interested in

purchasing the product, and the current success of the

Special Investments Group. In reliance on these represen-

tations, plaintiff was induced to leave secure employment

to work for Bank of America.

Several courts have considered the question of

whether a terminated officer’s tort claims are also pre-

empted when the National Bank Act is held to preempt

contract claims. Two state appellate decisions have

allowed the employee to proceed on tort claims even

though the contract claims were preempted by the

National Bank Act. The tort claims in Kozlowsky v. West-

minister National Bank, 6 Cal. App.3d 593, 86 Cal.Rptr.52

(1970) consisted of deceit and interference with contrac-

tual relations. Kozlowsky alleged that he had relied on a

representation regarding the owner of controlling stock in

the bank in leaving his former employment. Because the

representation was a material fact which induced plaintiff

to change his position, the court granted him an oppor-

tunity to prove it at trial. Id. at 598. Kozlowsky did not

discuss in detail whether the tort claims were barred by

the National Bank Act.

In Rohde v. First Deposit National Bank, 497 A.2d 1214

(N.H. 1985), plaintiff alleged tort claims for negligent

misrepresentation and deceit arising out of an express

promise of three-year employment. The New Hampshire

Supreme Court held that there was no preemption under

the Act for “tort claims arising out of [defendants’] con-

duct during the negotiation of such contract under theo-

ries of inducement or detrimental reliance.” Id. at 1216.

The courts which have held tort claims preempted

have done so with minimal analysis of the reasons there-

for. In Mackey v. Pioneer National Bank, 867 F.2d 520 (9th

Cir. 1989), the court dismissed plaintiff’s tort claims for

negligent misrepresentation and interference with busi-

ness relationships, without discussing the underlying

basis for such claims except to say that they arose “from

his being forced to resign.” Id at 522. In finding that there

was no distinction to be made between tort and contract

claims under the National Bank Act, the court stated that:

it would make little sense to allow state tort

claims to proceed, where a former bank officer’s

contract claims are barred by Section 24 (Fifth).

The effect would be to substitute tort for con-

tract claims, thus subjecting the national bank to

all the dangers attendant to dismissing an offi-

cer. The purpose of the provision in the National

Bank Act was to give those institutions the

greatest latitude possible to hire and fire their

chief operating officers, in order to maintain the

public trust.

Id. at 526.

The present case also does not allege tort claims

challenging wrongful dismissal. Instead, as in Kozlowsky

and Rohde, Walters’ claims arise out of express represen-

tations made during the negotiation of his contract which

induced him to leave secure employment. Thus, the claims

concern petitioner’s actions while hiring Walters, rather

than while firing him. As such, this case is distinguish-

able from Mackey, which concerned tort claims arising

from Mackey’s being forced to resign.

Allowing Walters to proceed with his tort claims

would not hinder the power of a national bank to dismiss

an officer. A national bank would still be able to dismiss

officers immediately to protect the safety and integrity of

the bank. The bank’s reasons for such dismissal would

not be questioned. Rather, the bank’s actions in hiring an

officer would be questioned. If the bank committed fraud

in inducing an officer to leave secure employment to

work for the bank, the bank should be subjected to lia-

bility for that fraud. To rule otherwise would give

national banks a license to commit fraud.

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Thus, since the majority of the claims, as well as the

evidence at trial, will concern Real Party’s hiring and not

firing, the overall impact of any decision by the Supreme

Court will be minimal. It would be a waste of this Court's

time to grant a writ of certiorari on a relatively insignifi-

cant issue in this case.

D. The Decision in this Case Affects the Litigants .

only, has no Precedential Authority, and thus

does not Warrant Review by this Court.

The opinion of the Court of Appeal consisted of one

sentence denying Bank of America’s petition for writ of

mandate. (Pet.app.B). There was no narrative included

with the decision and it was unpublished. Thus, only the

litigants will be affected by the opinion.

In addition, the issue of whether the board of direc-

tors of a national bank can delegate authority to termi-

nate an officer is presently pending before the California

Supreme Court. See Wells Fargo Bank v. Superior Court, 218

Cai. App. 3d 329, depublished at 267 Cal. Rptr. 49 (1990).

The decision in Wells Fargo will resolve many of the

issues raised in this case by petitioner and will have far

greater impact on banks in California. It would therefore

be premature for this Court to rule on this issue since the

California Supreme Court soon may resolve the same

issues presented by Bank of America’s Petition.

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CONCLUSION

For the foregoing reasons the Petition for Writ of

Certiorari should be denied. The ruling of the superior

court was consistent with federal and state decisions in

requiring the board of directors, or an executive commit-

tee of the board, to make the decision to terminate an

officer. In addition, since the majority of Real Party’s

claims arise out of his hiring, rather than his firing, any

decision by this Court will have a minimal impact on this

case. The opinion of the Court of Appeal was

unpublished and will have no precedential effect. Finally,

the issues raised by the Petition are presently before the

California Supreme Court and any action by this Court

therefore would be premature.

DATED: January 18, 1991 BIANco, Branpi & Jones

BY: StepHeN M. Murpuy

Attorney for Real Party

In Interest