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Rosenberger v. United Community Bancshares, Inc.

Court of Appeals of Illinois, First District, Sixth Division

February 24, 2017

TERRANCE J. ROSENBERGER, Plaintiff-Appellant and Cross-Appellee,
UNITED COMMUNITY BANCSHARES, INC., Successor by Merger to Commercial Bancshares Corporation, a Delaware Corporation, Defendant-Appellee and Cross-Appellant.

         Appeal from the Circuit Court of Cook County, No. 14-L-2807: the Hon. James E. Snyder, Judge, presiding.

          Jeffrey Ogden Katz, Michael Haeberle, and Stephanie Simpson, of Patterson Law Firm, of Chicago, for appellant.

          Kathryn Montgomery Moran and Sean C. Herring, of Jackson Lewis P.C., of Chicago, for appellee.

          Panel PRESIDING JUSTICE HOFFMAN delivered the judgment of the court, with opinion. Justices Rochford and Delort concurred in the judgment and opinion.



         ¶ 1 The plaintiff, Terrance J. Rosenberger, filed the instant action against the defendant, United Community Bancshares, Inc. (UCB), successor by merger to Commercial Bancshares Corporation, alleging it breached his employment contract by failing to pay him severance benefits. The circuit court granted UCB's motion for summary judgment, finding that the doctrine of legal impossibility excused its performance since the severance benefits amounted to a "golden parachute, " which is prohibited by section 1828(k)(1) of the Federal Deposit Insurance Act (FDIA) (12 U.S.C. § 1828(k)(1) (2012)). Rosenberger appeals, arguing that the court erred in granting summary judgment because he falls within the so-called "white knight" exception to the prohibition against golden parachute payments. UCB cross-appeals, contending in the alternative that summary judgment was appropriate because Rosenberger's employment was terminated for cause, thus precluding his entitlement to severance benefits. For the reasons which follow, we dismiss UCB's cross-appeal, reverse the circuit court's judgment, and remand for further proceedings.

         ¶ 2 The following factual recitation is taken from the pleadings, affidavits, and depositions of record.

         ¶ 3 UCB, successor by merger to Commercial Bancshares Corporation, is a bank holding company, and CenTrust Bank, N.A. (CenTrust) is a wholly owned subsidiary of UCB that operates a community bank in Northbrook, Illinois. As a member of the Federal Deposit Insurance Corporation (FDIC), CenTrust is subject to FDIC regulations.

         ¶ 4 Prior to the events at issue here, in 2011, Rosenberger and James McMahon became interested in investing in a community bank after the bank they previously worked at, Park National Bank, failed. Rosenberger and McMahon, along with a third individual, Gerard Buccino, formed a company, United Financial Holdings Group, Inc. (United Financial), for the purpose of raising capital and acquiring a majority interest in a troubled community bank in the Chicago area.

         ¶ 5 Rosenberger and McMahon identified CenTrust as a candidate for acquisition. According to a "Strategic Plan, " CenTrust was founded in 2006, and by 2008, losses quickly emerged as a result of a "global liquidity crisis" that impacted the United States and local economies. Due to the declining value of commercial real estate, CenTrust experienced losses, which required additional capital to be committed to its loan-loss reserves. At some point, the Office of the Comptroller of the Currency (OCC) entered into an "Operating Agreement" with CenTrust, subjecting it to heightened regulatory oversight.

         ¶ 6 In January 2012, after months of planning and negotiating with UCB and federal regulators, United Financial entered into a Stock Purchase Agreement with UCB, whereby CenTrust would receive $7 million in new capital and Rosenberger, McMahon, and Buccino would be hired as CenTrust's new management team. The $7 million in new capital improved CenTrust's capital reserves above the minimum "Tier 1" regulatory levels.

         ¶ 7 On February 1, 2012, UCB hired Rosenberger to serve as CenTrust's chief lending officer. His employment agreement provided an initial term of three years with a base salary of $200, 000 per year, subject to annual increases in "an amount not less than the increase to the Consumer Price Index for the prior twelve months." Rosenberger's compensation package also included a car allowance, reimbursement of country club and athletic club dues, a 401(k) plan, and discretionary bonuses. Relevant here, section 4(e) of the employment agreement entitled Rosenberger to severance benefits:

"(e) Severance Compensation. If this Agreement is terminated by the Company prior to the expiration of the Employment Period for any reason other than Cause, *** then the Employee shall be entitled to receive in a single payment *** an amount equal to two times his annual base salary then in effect."

         Section 16 of the employment agreement defined "cause, " in pertinent part, as "the failure to follow the Company's reasonable instructions with respect to the performance of the Employee's duties." Section 3 of the employment agreement, in turn, defined Rosenberger's duties as follows:

"3. Duties. Employee shall serve as Chief Lending Officer of the Company and will, under the direction of the Board of Directors, faithfully and to the best of his ability perform the duties of President [sic] and Chief Lending Officer of the Company as assigned by the Board of Directors from time to time."

         Although a termination without cause entitled Rosenberger to a lump sum severance payment, section 28(e) of the employment agreement provided that: "Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18[28](k) [of the FDIA] (12 U.S.C. § 1828(k))."

         ¶ 8 On July 25, 2012, following a regulatory examination by the OCC, CenTrust consented to the entry of an order ("Consent Order"), which required it to acquire and maintain increased amounts of capital, reduce the level of nonperforming loans, and improve its operations. The Consent Order set forth various duties required of the board of directors and management to bring CenTrust into compliance with banking regulations. As a result of the Consent Order, CenTrust was designated an institution in "troubled condition." See 12 C.F.R. § 303.101(c) (2012).

         ¶ 9 On April 13, 2013, Rosenberger received an annual performance evaluation for 2012. In the evaluation, an executive committee of UCB's board of directors stated that it was not satisfied with Rosenberger's performance, finding his due diligence on "loan and OREO" to be "poor" and the lack of loan growth "not acceptable." It further noted that "booking new, quality loans" is "critical to the overall value of the organization" and that "Rosenberger occasionally fails to exhibit proficiency in some of his responsibilities." The executive committee acknowledged, however, that Rosenberger "followed" the board of directors' policies and procedures and the provisions of the July 25, 2012, Consent Order.

         ¶ 10 On August 19, 2013, the executive committee provided Rosenberger with a "mid-year review." In that review, the executive committee observed that Rosenberger's "pipeline of new loans is increasing" but that the "new loans actually funded are seriously deficient and must be increased." Although the executive committee "offered suggestions" to generate new loans-e.g., opening "an office in Hinsdale solely for loans" and implementing "an active local calling program"-it did not specifically instruct Rosenberger to follow through on those suggestions.

         ¶ 11 In a memorandum dated October 15, 2013, the executive committee informed Rosenberger that he was underperforming and not "meeting [his] duties pursuant to Paragraph 3 of [his] Employment Agreement." According to the memo, the Bank budgeted approximately $56 million in new loans to be funded through September 30, 2013, but only $35 million had been funded, running a negative variance of over $20 million. The executive committee stated:

"As a result, the [executive committee] is not satisfied with the performance of your duties as Chief Loan Officer and wishes to immediately implement a performance correction plan regarding your employment. These steps are taken in an effort to improve the performance of your duties and in accomplishing the Company's overall goals of generating new loans and becoming profitable.
Below are areas of serious deficiencies in key areas where the [executive committee needs to see substantial improvement by year-end and would like a weekly progress report from you relating to the following items[.]"

         The performance correction plan, as set forth in the October 15, 2013, memorandum, goes on to list, in 17 bullet points, the "Key Areas/ Reasonable Instructions" that Rosenberger was to address in his weekly progress report. Following the ...

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