Blogging Employee Benefits

March 21, 2006

Secular Trust Dead Horse Buried

Filed under: Executive Compensation, Litigation — Fuguerre @ 7:00 pm

Under the doctrine of res judicata, [plaintiffs] are not entitled to seek repeatedly the pension funds on marginally different theories.

Finding the case moot, the 7th Circuit has affirmed dismissal of claims by two former executives against the Federal Deposit Insurance Corporation, seeking nonqualified pension funds promised under employment contracts with a failed savings institution. Furthermore, “to encourage finality” in litigation that has stretched out over 15 years, the appellate court alternatively affirmed district court judgment that the executives’ claims are barred by res judicata. [Mayer and Gravee v. FDIC, No. 05-1701]

Upon the 1982 merger of their savings and loan institution with three troubled institutions, the two executives relinquished their pension plans established at the predecessor bank, with the understanding that a new plan could be established at the merged institution upon attainment of financial stability. A rabbi trust was established in 1985, which two years later was amended to create a secular trust to provide retirement benefits for the executives. After the institution was declared insolvent and the executives’ employment terminated in 1990, the government’s trustee for the failed institution ordered the secular trust against payment of the pensions. The executives filed suit, only to be denied in 1994 by a district court ruling that found the secular trust to have violated 12 C.F.R. §563.39 rules relating to conditions on savings association employment contracts. After a long trail of subsequent litigation over the claims, the current phase finds the executives alleging that invalidation of the secular trust resurrects the rabbi trust, from which they continue to seek payment.

Since FDIC corporate liability is limited to assets of the failed institution’s receivership, which has long been exhausted, the court sees no possible relief to order for the executives against the agency, therefore dismisses for lack of a justiciable case or controversy. Even if the court were to order relief, the court finds the claims barred by the doctrine of res judicata, the principle of claim preclusion of which the court considers this case “paradigm” as all parties to the current litigation have already seen final judgment on the merits in not one, but two previous lawsuits.

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