Court of Appeals of Illinois, First District, Sixth Division
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.
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.
PRESIDING JUSTICE HOFFMAN delivered the judgment of the
court, with opinion. Justices Rochford and Delort concurred
in the judgment and opinion.
HOFFMAN, PRESIDING JUSTICE
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
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."
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(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[.]"
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 ...