Herring v. Oak Park Bank

963 F.Supp. 1558

C. James HERRING, Plaintiff, v. OAK PARK BANK, et al., Defendants.

No. 95-2623.

United States District Court, D. Kansas.

April 4, 1997.

As Amended May 9, 1997.

COPYRIGHT MATERIAL OMITTED

Lawrence L. Ferree, III, Ferree, Bunn & O'Grady, Chtd., Overland Park, KS, C. Joseph Yast, Law Office of C. Joseph Yast, Northfield, IL, for C. James Herring.

Charles W. German, Brant M. Laue, William D. Beil, Rouse, Hendricks, German, May & Shank, Kansas City, MO, for Oak Park Bank, Hillcrest Bank, Olathe Bank, Jack N. Fingersh, Irwin J. Blitt and Lewis White.

MEMORANDUM AND ORDER

LUNGSTRUM, District Judge.

By this action, plaintiff alleges that defendants terminated his employment for the purpose of interfering with his rights under his "phantom stock" plan, in violation of section 510 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1140. Plaintiff has also brought a common law civil conspiracy claim, alleging that the individual defendants conspired to violate section 510. The matter is presently before the court on defendants' motion for summary judgment (Doc. 52) and defendants' motion to strike plaintiff's demand for a jury trial and to strike plaintiff's punitive damages claim (Doc. 51). For the reasons set forth below, the court grants defendants' motion for summary judgment. The summary judgment obviates consideration of the jury trial and punitive damages issues, and defendants' other motion is therefore denied as moot.

I. Facts¹

Defendants Oak Park Bank, Hillcrest Bank, and The Olathe Bank are privately owned by three family groups. Individual defendants Jack Fingersh, Irwin Blitt, and Lewis White are active owners and serve as directors for the banks.

In July of 1993, defendants hired plaintiff to act as CEO, Chairman of the Board, and Director for each of the three banks, and as President of Oak Park Bank. Defendants had terminated plaintiff Is predecessor because of concerns about his judgment with regard to commercial lending and because two of the banks had encountered regulatory difficulties, coming under FDIC Memoranda of Understanding (MOUs).

As part of plaintiff's compensation, the parties instituted a "Deferred Compensation Plan and Agreement" (the Agreement). The Agreement took effect when plaintiff began his employment, although plaintiff did not sign it until May of 1994. The Agreement expressed the following purpose:

The purpose of the Deferred Compensation Plan described in this Agreement (the "Plan") is to provide an additional incentive to [plaintiff] to remain in the employ of the banks and to provide to [plaintiff] an opportunity to receive additional compensation for his contribution to the long-term financial success of the Banks.

The Agreement set out a "phantom stock" plan. The theory behind the plan was that plaintiff would "purchase" a phantom interest in the banks for $337,870, which amount would be financed entirely by the banks. The concept was effected by crediting an account each year with a percentage of the banks' profit, less plaintiff's "carrying cost" (the payment on the cost of his interest — the prime rate times $337,870). The Agreement contained the following provision concerning plaintiff's account:

The Banks will jointly establish the Account for [plaintiff] to which amounts awarded under the Plan will be credited. An account ledger will be established as an appropriate record and from time to time, but no less than annually based on the December 31 year end financial statements, the Banks will enter in such account ledger [the appropriate credits].

The Agreement further provided that the banks' boards would adjust the account "[p]romptly after the completion of the Banks' financial statements as of the end of each Plan Year." The plan vested fully after five years; on January 1, 1994, the plan became 40 percent vested. The Agreement expressly made the amounts credited to plaintiff's account an unfunded liability.

Plaintiff would be paid under the Agreement upon the occurrence of one of seven "events of payment". Upon death or disability of plaintiff or the sale or dissolution of the banks, plaintiff would receive, as a lump sum payment, the amount in the account that had vested. If plaintiff retired, he would receive the vested amount over a 13-month period. Upon "voluntary termination" of plaintiff's employment, plaintiff would receive half of the vested amount over 25 months. Upon "involuntary termination" of plaintiff's employment, he would receive the vested amount or $150,000—whichever amount was greater — over 13 months. If plaintiff's termination was "for cause" (defined in the Agreement) or if, in the banks' determination, plaintiff had committed an act during his employment that would have given rise to termination "for cause", plaintiff would get nothing. Plaintiff would also forfeit any payment if he competed with the banks while receiving installment payments. The Agreement expressly reserved the banks' right to terminate plaintiff for any reason. The Agreement also provided for amendment by written consent of the parties. Finally, the banks could terminate the Agreement any time, with plaintiff receiving his vested amount.

When defendants proposed the Agreement, they showed plaintiff a projection of the banks' earnings that would increase his account to over $1,000,000 at the time of plaintiff's likely retirement in 2007. Mr. Fingersh told plaintiff that the projections were conservative and that plaintiff should be able to retire a wealthy man.

Tom Davies, President of The Olathe Bank, and Mark Parman, President of Hillcrest Bank, participated in similar phantom stock plans. Nothing was done by the banks to administer the Agreement until April or May of 1994, when, in response to questions from an FDIC regulator, an employee calculated the present value of the plans.

In April and May of 1994, an FDIC regulator conducted an examination of Oak Park Bank. The regulator presented her results at a May 23, 1994, meeting of the bank's board of directors, attended by plaintiff and Mr. Fingersh. The regulator indicated that she would recommend that the bank's MOU be lifted. The regulator then discussed plaintiff's Agreement, as reflected in the minutes of the meeting:

Ms. Lang then commented on the deferred compensation plan which had been approved for President Herring. She noted three areas which needed correction: the first is that the contract included a provision that an account was to have been established at the beginning of the year, she said that account should be established as soon as possible; secondly, she noted that the agreement does not reference how the cost will be allocated among the three institutions, the contract should be amended to include this information; thirdly, she noted that the agreement does not reference how the plan will be funded. She indicated that if the bank funds the contract through a life insurance policy, all regulatory and accounting issues should be thoroughly addressed, including FASB 106 and APB 12, and should be approved by the FDIC and the State Banking Department.

On July 1, 1994, the FDIC sent the bank a copy of its report, by which it lifted the MOU against the bank. The report complimented plaintiff for his work at the bank, attributing primary responsibility for the bank's improvement to plaintiff. The report also noted that plaintiff's account under the Agreement had not been established, "reminded" the bank to research thoroughly any possible mechanisms for funding the plan, and "encouraged" the bank to amend the Agreement to address how it would be funded and how the payment to plaintiff would be allocated among the three banks.

Although Mr. Fingersh was told during the examination of Oak Park Bank that funding plaintiff's plan would be required, he indicated to plaintiff at that time that defendants would not fund the plan. Nevertheless, after the May 23 board meeting, Mr. Fingersh believed that plaintiff's plan would have to be funded. The regulators did in fact require that the plan be funded. By August of 1994, the bank was negotiating with the FDIC not about the fact of the funding requirement, but about the method and frequency of funding.

The individual defendants, Mr. Fingersh, Mr. Blitt, and Mr. White, began to be dissatisfied with plaintiff's performance a few months into his employment. In particular, the owners found fault with plaintiff's management style, the marketing of the banks, and his inability to develop new business, a shortcoming exacerbated by the fact that plaintiff still commuted to Kansas City from Chicago. On July 6, 1994, Mr. Fingersh drafted an evaluation of plaintiff. In the evaluation, Mr. Fingersh complimented plaintiff for his efforts with problem loans and getting the MOUs lifted, and for exhibiting good leadership qualities and improving morale. Mr. Fingersh also noted a few possible improvements in the areas of sales and marketing, plaintiff's establishing himself in the community, overhead costs, and plaintiff's habit of co-opting other's ideas. The evaluation concluded: "We are encouraged about the future of the Banks and your participation in moving them ahead." Mr. Fingersh did not give plaintiff the evaluation, however; because he was not involved in the day-to-day operation of the banks, he wanted to meet with employees to confirm his conclusions.

Within the next few weeks, Mr. Fingersh met separately with Mr. Davies, Mr. Parman, and Pat Humphrey, an Oak Park employee. In each meeting, Mr. Fingersh talked about general concerns regarding the direction of the banks and their organizational structure. Mr. Fingersh also asked each employee to set out his or her thoughts on those subjects in writing. Plaintiff was discussed only generally.

Mr. Fingersh then received memoranda back from each of the three employees. The memos generally addressed the structure of the banks and the author's ideas and frustrations...