Opinion
88 Civ. 7452 (THK)
May 8, 2002
MEMORANDUM OPINION AND ORDER
Following a trial in this action, the Court issued an Opinion ("the Opinion") which resolved several disputed issues regarding the construction of Plaintiff's employment agreement ("the Contract") with the now defunct Goldome Savings Bank ("Goldome" or "the Bank"). See Grey FDIC, No. 88 Civ. 7452 (THK), 1998 WL 483460 (S.D.N.Y. Aug. 14, 1998) ("Grey I"). Those issues centered around various provisions in the Contract for payment of deferred incentive payments ("DIPs") to Plaintiff. Specifically, the Court concluded that the employment agreement was unambiguous in requiring that before Plaintiff qualified for DIPs, he was required to satisfy a $50 million Threshold, by facilitating the actual sale or transfer of title in owned real estate and other non-performing assets of the Bank, having an aggregate sale or transfer price of $50 million, $25 million of which had to be based on the sale of assets designated "Florida Special Investments." Id. at **6-12. The Court further determined (1) that the employment agreement unambiguously required that the disposition of non-performing assets had to be consummated during Plaintiff's employment term in order to apply toward the $50 million Threshold, Id. at **13-16; (2) that Plaintiff was entitled to Threshold credit with respect to the disposition of only those assets identified in Exhibits A-1 through A-6 attached to Plaintiff's employment Contract, id. at **17-19; (3) that the "Disputes" provision of the Contract vested Goldome with authority to determine whether Plaintiff had satisfied the Threshold and was thus entitled to receive any DIPs, as well as the amount of any incentive payments to which he was entitled, id. at **19-20; and (4) that Goldome's determination with regard to Plaintiff's entitlement to DIPs was binding so long as it was reasonably consistent with the terms of the employment agreement and neither arbitrary, capricious, nor made in bad faith, id. Although the issue of liability was supposed to be fully determined at the trial, the Court concluded that there were two issues that Plaintiff had not adequately addressed: (1) whether, in view of the Court's conclusions as to which types of transactions could be credited toward satisfaction of the incentive payment Threshold, Plaintiff contended that he had satisfied the Threshold by facilitating the disposition of $50 millon worth of Coldome assets, and 2) whether it was Plaintiff's position that Defendant's determination in the contractually required alternative dispute resolution process ("ADR"), that he had not satisfied the Threshold, was not entitled to deference. Id. at **20-21.
The FDIC has served as The receiver for The Bank and stands in the shoes of the Bank in This action.
The Court held a lengthy conference with the parties on October 16, 1998, at which it heard oral argument on the substance of these issues and proposed procedures for resolving them. Plaintiff argued that the Bank's ADR determination was erroneous and made in bad faith, and that he had satisfied the $50 million Threshold. In order to prove that assertion, Plaintiff suggested that this already prolonged litigation would require what amounted to another full trial, of even greater length and complexity than the first trial, which was supposed to have resolved the basic issues in dispute. Plaintiff proposed undertaking an entire round of new discovery with respect to the Bank's closing documents, which were no longer in the custody of the Bank or the FDIC, for the various transactions in issue, most of which had occurred more than ten years earlier. Plaintiff also proposed calling an extensive list of witnesses — presumably former Bank employees and business people who had been involved in the transactions in issue. In contrast, the FDIC argued that, in effect, Plaintiff was seeking a de novo determination of whether he had satisfied the Threshold. The FDIC contended that Plaintiff had already failed in his attempt to establish the Bank's liability and, at most, the Court needed only to review the record relating to the alternative dispute resolution process to determine whether Plaintiff had met his burden of establishing that it was conducted in bad faith, and that the Bank's conclusions were arbitrary and capricious.
It appears to have been assumed that once the Court determined, after the initial trial, the types of transactions that applied to the Threshold, the determination of whether Plaintiff had or had not satisfied the Threshold would be self-evident. In the end, however, it was not self-evident, thus requiring further proceedings.
With the input of the parties, the Court established a procedure for the next stage in the litigation. Plaintiff was to submit a Proffer in the form of an affidavit, with evidentiary support, in which he was to attempt to demonstrate, consistent with the Court's construction of the Contract, how he had satisfied the $50 million Threshold, and why the Bank's conclusion to the contrary was inconsistent with the terms of the employment agreement, or was either arbitrary, capricious, or made in bad faith. The FDIC would then respond to Plaintiff's Proffer. It took several months to receive the parties' submissions. (Affidavit of Maurice Grey, dated November 30, 1998 ("Grey Aff. I" or "Proffer"); Letter of Charles E. Knapp (Plaintiff's attorney), dated November 30, 1998 ("Knapp Letter"; Affidavit of Jay A. Katz (attorney for the FDIC), dated January 14, 1999 ("Katz Aff.") FDIC Supplemental Memorandum of Law ("FDIC Mem."); Reply Affidavit of Maurice Grey, dated February 5, 1999 ("Grey Reply Aff.") Letter of Jay A. Katz, dated February 10, 1999; Affidavit of Maurice Grey, dated February 23, 1999 ("Grey Aff. II").)
At the same time, Plaintiff filed a motion for reconsideration of the Court's August 18, 1998 Opinion. That motion was denied. See Grey v. FDIC, No. 88 Civ. 7452 (THK), 1999 WL 587921 (S.D.N.Y. Aug. 5, 1999) ("Grey II").
In his Proffer, Plaintiff challenges Goldome's failure to credit numerous transactions to the Threshold, as well as the amounts that Goldome did credit with respect to various transactions. In essence, Plaintiff argues that Goldome breached the Contract by arbitrarily refusing to acknowledge the evidence in its files and by failing to award him incentive payments. Accordingly, Plaintiff requests that this Court schedule a second phase of the trial in this action, and he has identified a list of seventeen prospective witnesses who would testify to the details of various asset transactions which Plaintiff claims Goldome excluded erroneously from his Threshold credit.
Defendant responds that Plaintiff is improperly attempting to secure ade novo reconsideration of his claims, when he has already participated in a binding dispute resolution proceeding with Goldome, pursuant to his Contract. FDIC contends that with respect to the narrow issue remaining before the Court — whether Goldome acted in bad faith or in an arbitrary and capricious manner in denying Plaintiff Threshold credit — Plaintiff has not created any material issue of fact. Defendant argues that it is clear that Goldome arrived at its determination — that Plaintiff had not satisfied the Threshold — in a rational manner, after receiving input from Plaintiff and Bank accounting staff and reviewing Bank records, and that it is therefore entitled to summary judgment.
DISCUSSION
I. BACKGROUND A. The ADR Process
The Disputes provision of Plaintiff's Contract was addressed in this Court's earlier decision, but a brief reiteration of the Court's findings will be useful in this context. Paragraph 6 of Plaintiff's Contract with Goldome contained a provision entitled "DISPUTES", which reads:
Should any dispute arise between Goldome and yourself relative to the nature of and terms of your employment or the amount of any DIPs which you may be entitled to receive, such dispute shall be resolved by Goldome in a manner which the Bank, in its sole discretion, deems to be reasonably consistent with the terms of this agreement and such determination or resolution by Goldome, including any calculation of DIPs due or payable to you, shall be binding upon you and the Bank.
Neither party argues that the Disputes provision of the Contract is unenforceable. See Grey I, 1998 WL 483460, at *19. Further, the Court has already concluded that this provision established a legitimate dispute resolution mechanism for disagreements arising under Plaintiff's Contract with Goldome, and that this mechanism applied to the issue of whether Plaintiff had satisfied the $50 million Threshold provision in the Contract, so as to be entitled to any DIPs. See id. at **19-20.
The Court's earlier decision set forth a summary of the evidence that supported the conclusion that Plaintiff knowingly agreed to be found by the Disputes provision. See id. at *20 nn. 33-34.
Although Plaintiff now appears to take the position that there never was a genuine dispute resolution process between him and Goldome, the record indicates otherwise. Plaintiff and Goldome's president, Paul E. Ruch, engaged in an extended correspondence over the issue of whether Plaintiff had satisfied the Threshold requirement. On May 17, 1988, Plaintiff wrote to Ruch claiming that he had exceeded the contractual requirements for Threshold credit and that he was due a substantial bonus. (Def.'s Ex. C.) After Plaintiff wrote to Ruch claiming he was entitled to a bonus, Ruch was chosen, following a discussion with Goldome's chairman, to be in charge of resolving the bonus claim with Plaintiff. (Ruch Deposition Transcript ("Dep. Tr.") at 55-56, 154.) Between May 17, 1988, and July 21, 1988, approximately eleven letters were exchanged wherein Plaintiff and Ruch outlined their respective positions on Plaintiff's entitlement to DIPs. Ruch ultimately concluded that Plaintiff had sold only $23,235,000 in assets, and thus he had not satisfied the Threshold. (Pl.'s Ex. 269.) In conducting his investigation of Plaintiff's claims, Ruch received assistance from the Bank's counsel, Fred Wolf; from James Heron, a member of the Bank's financial reporting department; and from David Fusco, a personal aide to Ruch. (Ruch Dep. Tr. at 37-38.) Fusco prepared a report that Ruch examined while preparing calculations of actual sales of assets attributable to Plaintiff. Wolf assisted Ruch by helping him draft correspondence to Plaintiff, participating in the investigation of asset activity, and reviewing accountants' worksheets and materials, as well as Heron's spreadsheet reporting on activity with respect to Bank assets which were the subject of Plaintiff's Contract. (Ruch Dep. Tr. at 37-39; Trial Tr. at 490-91, 493-95, 499-500, 547-48.) Heron prepared spreadsheets and activity reports that Ruch also reviewed. (Ruch Dep. Tr. at 47-48, 58-59.)
The FDIC views Ruch's exchange with Plaintiff as constituting the entirety of the ADR process under the Disputes provision, and Plaintiff has suggested no reasonable basis to view it otherwise. On several occasions, Ruch wrote to Plaintiff, asking him to bring to his attention any information which supported his claim for DIPs, and inviting him to reconcile Ruch's figures with Plaintiff's records. (Def.'s Exs. J-K, O.) Toward the end of the process, Ruch asked Plaintiff to set forth in writing all of the non-performing assets ("NPAs") for which Plaintiff claimed Threshold credit, and the amount of credit he claimed for each. In response, on July 16, 1988, Plaintiff sent a letter to Ruch listing all of the NPAs for which he claimed credit. (Pl.'s Ex. 273.) The itemization of the transactions set forth in this letter represents Plaintiff's most comprehensive statement in the ADR process of his claim of entitlement to DIPs. Accordingly, this letter, as well as Ruch's July 21, 1988 response and the Bank records Ruch relied on in providing his response, constitutes the appropriate point of reference for the Court's assessment of whether the Bank's conclusion that Plaintiff was not entitled to DIPs was consistent with the Contract and is entitled to deference. B. Plaintiff's Proffer
Plaintiff apparently had access to a large quantity of documents relating to the various Bank transactions in which he was involved. Many of those documents were listed as exhibits in the Pre-Trial Order. (Trial Tr. at 700-02.) During his exchange with Ruch, however, Plaintiff chose nor to provide him with any of these documents. (Trial Tr. at 704.)
At trial, Plaintiff refused to acknowledge that his letters to Ruch set forth his claims as to his bonus entitlement. Rather, he characterized them "as a series of letters . . . by me under advice of counsel to see what Ruch's response would be to certain points that were raised in those letters." (Trial Tr. at 690.) That Plaintiff was receiving advice from counsel does nothing to undermine the validity of the ADR process. Indeed, it suggests that he was negotiating with the Bank on equal footing, and that his letters were an attempt to stake out his best position.
In his Proffer, Plaintiff identifies thirty-nine NPAs for which he claims Threshold credit in the amount of $56,475,000. He groups his assets into six categories, according to the nature of the transactions and whether or not the parties are in agreement as to their value. He then addresses each specific transaction, arguing that Ruch's determination of whether the transaction should have been credited to the Threshold, or of its value, was mistaken. Defendant points out that some of the NPAs in the Proffer were not even identified and claimed by Grey during the ADR process. The FDIC contends that if Plaintiff did not make claims to Ruch in 1988 for Threshold credits for specific transactions, he cannot now argue that Ruch acted arbitrarily by not considering those claims, which Plaintiff first makes more than ten years later in this proceeding. Defendant argues that once these belated and forfeited claims are excluded, it becomes impossible for Plaintiff to show that he met the Threshold. Defendants further claim that even if one accepts the values asserted by Plaintiff in the ADR for the qualifying assets identified in his Proffer, the maximum aggregate value for such assets is only $46,431,000. In other words, Defendant argues that Plaintiff never presented the Bank with a list of assets that qualify for Threshold credit, as has been determined by the Court, from which it would have been even possible to conclude that he met the $50 million Threshold. Thus, leaving aside the issue of whether Plaintiff has demonstrated that Goldome acted arbitrarily in reaching its ADR determination, the FDIC contends that based upon Plaintiff's own claims to the Bank for transactions which the Court has now determined should count toward the Threshold, Plaintiff cannot demonstrate that he satisfied the Threshold. Further, the FDIC argues that even the $56 million claimed in the Proffer must be reduced to exclude nonqualifying transactions and amounts. Once these reductions are made, Defendant argues that the value of the Proffer falls well below the $50 million Threshold. Finally, the FDIC contends that the record makes clear that the Bank reached its determination in the ADR process fairly and rationally, after considering its records and the claims and evidence submitted by Plaintiff.
Although Plaintiff has also included in his Proffer another group of NPAs (Group No. 7) he concedes that those assets were not recognizer in the Court's Opinion as ones for which Threshold credit was appropriate. The Court will to he ref eve not address Plaintiff's contentions with respect to his group of assets.
II. Applicable Law and Principles
Although there has already been a trial in this action, at which all issues relating to liability were to be decided, Plaintiff claims that further proceedings are necessary to address the issue of whether the Bank's ADR determination, denying him a bonus payment, was erroneous. Since this issue is not strictly one of contract interpretation, which was the primary thrust of the trial and the Court's Opinion, the Proffer procedure was agreed upon to allow for further argument by the parties, based upon the trial record and additional exhibits that the parties possessed, in light of the Court's conclusions as to the meaning of the Contract. Because of this unusual procedural posture, Defendant has made a post-trial motion for summary judgment, arguing that based upon the parties' submissions and the record before the Court, the undisputed facts demonstrate that the ADR determination reached by Coldome was consistent with the Contract terms and was arrived at in a fashion that was neither arbitrary nor capricious, nor undertaken in bad faith. Essentially, Defendant contends that under the Disputes provision, which granted Goldome "sole discretion" to resolve disputes regarding Plaintiff's entitlement to DIPs, the parties agreed to the equivalent of binding arbitration, and that Plaintiff is attempting to litigate de novo the merits of the Bank's determination. Defendant therefore argues that no further trial proceedings are necessary or appropriate.
A. Summary Judgment Standard
Summary judgment is appropriate when
the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
Fed.R.Civ.P. 56(c); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2511-12 (1986); Allen v. Coughlin, 64 F.3d 77, 79 (2d Cir. 1995); Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 36 (2d Cir. 1994). The moving party bears the initial responsibility of "informing the court of the basis for its motion" and identifying those portions of the record that it "believes demonstrate the absence of a genuine issue of material fact." FDIC v. Giammettei, 34 F.3d 51, 54 (2d Cir. 1994) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553 (1986)); Chambers, 43 F.3d at 36. "In moving for summary judgment against a party who will bear the ultimate burden of proof at trial," however, "the movant's burden will be satisfied if he can point to an absence of evidence to support an essential element of the nonmoving party's claim." Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995); accord Gallo v. Prudential Residential Servs., L.P., 22 F.3d 1219, 1223-24 (2d Cir. 1994) ("[T]he moving party may obtain summary judgment by showing that little or no evidence may be found in support of the nonmoving party's case."). If the moving party meets its burden, the burden then shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); accord Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525-26 (2d Cir. 1994). To defeat the summary judgment motion, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356 (1986). Instead, the nonmovant must "come forward with enough evidence to support a jury verdict in its favor, and the motion will not be defeated merely . . . on the basis of conjecture or surmise." Trans Sport, Inc. v. Starter Sportswear, Inc., 964 F.2d 186, 188 (2d Cir. 1992) (quotation marks omitted).
B. Alternative Dispute Resolution
Although ADR clauses between parties to a contract, which do not call for traditional arbitration by a neutral third-party, have not been the subject of many reported decisions in the New York courts, there are some guiding principles that can be drawn from the limited caselaw on the subject, as well as the more extensive caselaw on traditional contractual arbitration clauses. As a general matter, New York policy "favors and encourages arbitration and alternative dispute resolutions . . . as "an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process'." Westinghouse Elec. Corp. v. New York City Transit Auth., 82 N.Y.2d 47, 53-54, 603 N.Y.S.2d 404, 407 (1993) (citations omitted). It is therefore the "policy of the law to interfere as little as possible with the freedom of consenting parties to achieve that objective." Id.; see also Mount St. Mary's Hosp. of Niagara Falls v. Catherwood, 26 N.Y.2d 493, 500, 311 N.Y.S.2d 863, 867 (1970) ("The simple and ineradicable fact is that voluntary arbitration and compulsory arbitration are fundamentally different if only because one may, under our system, consent to almost any restriction upon or deprivation of right . . . ."); Siegel v. Lewis, 40 N.Y.2d 687, 689-90, 389 N.Y.S.2d 800, 801-02 (1976) ("[C]ommercial arbitration is a creature of contract. Parties, by agreement, may substitute a different method for the adjudication of their disputes than those which would otherwise be available to them in public courts of law. When they do so, they in effect select their own forum.") (citations omitted).
The Court relies primarily upon New York law, since this is a diversity action in which Defendant Goldome Bank was based in New York, Plaintiff's contract was negotiated and signed in New York and Plaintiff appears to have worked in New York. in addition, the parties themselves have relied primarily on New York law in their arguments to the Court.
Thus, as this Court has already determined, see Grey I, 1998 WL 483460, at **19 n. 32, 20 n. 33, New York has recognized the validity of negotiated alternative dispute resolution mechanisms even when an employee of one of the parties to a contract is authorized to make final and binding decisions on questions arising under the contract. See e.g., Westinghouse, 82 N.Y.2d at 54, 603 N YS.2d at 407 (upholding provision allowing an employee of a public agency, which was a party to a contract procured by a public bidding process, to make final decisions under the contract); Yonkers Contracting Co. v. Port Auth. Trans-Hudson Corp., 87 N.Y.2d 927, 930, 640 N.Y.S.2d 866, 867 (1996) ("New York courts have therefore regularly refused to disqualify arbitrators on grounds of conflict of interest or partiality "even in cases where the contract expressly designates a single arbitrator employed by one of the parties'.") (citations omitted); Siegel, 40 N.Y.2d at 690, 389 N YS.2d at 802 ("[A]ssent by a party to the choice of an arbitrator in the face of that party's knowledge of a relationship between the other side and the arbitrator is a waiver of the right to object."); cf. Thomas Crimmins Contracting Co. v. City of New York, 74 N.Y.2d 166, 171, 544 N.Y.S.2d 580, 583 (1989) (standard clause in city construction contract, providing that city's chief engineer's determinations were final and conclusive, empowered engineer to make conclusive factual determinations)
Similarly, courts look to the parties' agreement to determine what standards of judicial review will apply to ADR determinations. In the absence of an express standard agreed to by the parties, in cases where the arbitration or dispute resolution procedure has been voluntarily agreed upon and the arbitrator is granted binding authority, the ADR resolution will be dispositive, except in very narrow circumstances. See Motor Vehicle Accident Indemnification Corp. v. Aetna Cas. Sur. Co., 89 N.Y.2d 214, 223, 652 N.Y.S.2d 584, 588-89 (1996) ("[W]here the arbitration is pursuant to the voluntary agreement of the parties, in the absence of proof of fraud, corruption, or other misconduct, the arbitrator's determination on the issues of law . . . as well as fact, is conclusive."); Tufano Contracting Corp. v. Port of New York Auth., 18 A.D.2d 1001, 1001, 238 N.Y.S.2d 607, 608 (2d Dept), aff'd, 13 N.Y.2d 848, 242 N.Y.S.2d 489 (1963) (where contract contained no reservation on a party's engineer's authority to resolve factual disputes under a contract, the engineer's determinations were conclusive and binding in the absence of "fraud, bad faith or palpable mistake," and the court would not substitute its judgment for that of the engineer); Lear Siegler Aerospace Prods. Holding Corp. v. Smiths Indus. Inc., No. 88 Civ. 1528 (JMC), 1990 WL 422417, at *5 (S.D.N.Y. Mar. 16, 1990) (where parties designate a third party to determine specified issues, "tilt is well settled under New York law that the determination by a designated third party is conclusive and binding on the parties in the absence of fraud, bad faith, or palpable mistake by the third party."); cf. Yonkers Contracting, 87 N.Y.2d at 930, 640 N.Y.S.2d at 868 (leaving open the question of what standard of review applies to ADR where contract does not provide for specific standard, but suggesting that standard is narrow); N.Y. C.P.L.R. 7511(b)(1) (McKinney 1998) (providing for vacatur of an arbitration award only on narrow grounds, such as where a party's rights were prejudiced by corruption, fraud, or misconduct in procuring the award, or where the person making the award exceeded his powers);Silverman v. Benmor Coats, Inc., 61 N.Y.2d 299, 307-08, 473 N.Y.S.2d 774, 778-79 (1984) (when arbitration award is governed by article 75 of the CPLR, court may not vacate award even though it concludes that arbitrator misconstrued or disregarded agreement's plain meaning, unless decision was totally irrational or exceeded a specifically enumerated limitation on the arbitrator's power); Murphy v. Wack, 177 A.D.2d 382, 383, 576 N.Y.S.2d 129, 130 (1st Dept 1991) (arbitration award may not be vacated unless it is violative of strong public policy, is totally irrational, or clearly exceeds limitations on the arbitrator's powers);Ardsley Constr. Co. v. Port Auth. of New York and New Jersey, 54 N.Y.2d 876, 878, 444 N.Y.S.2d 907, 908 (1981) (where ADR provision was similar to a broad arbitration clause, allowing the resolution of questions of law as well as of fact, court notes, without needing to decide, that CPLR article 75 standard of review may apply).
A review of the merits of the arbitration award, and its impeachment because of errors of law or fact, are precluded. See Motor Vehicle Accident Indemnification Corp., 89 N.Y.2d at 223, 652 N YS.2d at 588-89 (award will not be overturned merely because the arbitrator committed an error of fact or of law); Yonkers Contracting Co. v. Port Auth. Trans-Hudson Corp., 208 A.D.2d 63, 67, 621 N.Y.S.2d 642, 645 (2d Dep't 1995), aff'd, 87 N.Y.2d 927, 640 N.Y.S.2d 866 (1996); Integrated Sales, Inc. v. Maxell Corp. of America, 94 A.D.2d 221, 224, 463 N.Y.S.2d 809, 811 (1st Dep't 1983). "Nor does a plaintiff's mere disagreement with the conclusion reached rise to a level of bad faith." Ardsley Constr. Co. v. Port Auth. of New York and New Jersey, 75 A.D.2d 760, 761, 427 N.Y.S.2d 814, 815 (1st Dep't 1980), aff'd, 54 N.Y.2d 876, 444 N.Y.S.2d 907 (1981) (citations and quotation marks omitted)
In contrast, where arbitration is compulsory or where the contract so provides, courts will review ADR and arbitration determinations under the "arbitrary and capricious" standard. See, e.g., Motor Vehicle Accident Indemnification Corp., 89 N.Y.2d at 223, 652 N.Y.S.2d at 589 ("An award in a compulsory arbitration proceeding must have evidentiary support and cannot he arbitrary and capricious."); Westinghouse Elec. Corp. v. New York City Transit Auth., 14 F.3d 818, 821-22 (2d Cir. 1994) (applying "arbitrary and capricious" standard of review because it was expressly set forth in the parties' contract); Nab Constr. Corp. v. Metro. Transp. Auth., 180 A.D.2d 436, 436, 579 N.Y.S.2d 375, 375 (1st Dep't 1992) (adhering to parties' agreement that ADR determination would be reviewed under standard in CPLR article 78, that is, whether it was arbitrary, capricious, or so grossly erroneous as to evidence bad faith).
Under New York law, a determination is arbitrary and capricious "when it is said to be without sound basis in reason." Westinghouse, 14 F.3d at 823 (quoting Pell v. Bd. of Educ., 34 N.Y.2d 222, 231, 356 N.Y.S.2d 833, 839 (1974); see also Pell, 34 N.Y.2d at 231, 356 N YS.2d at 839 (" [T]he arbitrary or capricious test chiefly relates to whether a particular action should have been taken or is justified . . . and whether the administrative action is without foundation in fact. . . . Arbitrary action is without sound basis in reason and is generally taken without regard to the facts.") (citations and quotation marks omitted); Nab Constr., 180 A.D.2d at 436, 579 N.Y.S.2d at 375 (arbitrary and capricious standard looks to whether the determination was based on a rational view of the evidence); cf. Zervos v. Verizon New York, Inc., 277 P.3d 635, 646 (2d Cir. 2002) (holding that the arbitrary and capricious standard applies in an ERISA action, where an insurer had discretion to interpret provisions of the plan; stating, "A decision is arbitrary and capricious if it is without reason, unsupported by substantial evidence or erroneous as a matter of law.") (citations and quotation marks omitted).
In this case, the dispute resolution mechanism was voluntarily arrived at, and the parties agreed that the Bank's determinations were to be binding, and to be decided in a manner which the Bank "in its discretion deem[ed] to be reasonably consistent with the terms of the [employment] agreement." (Contract, ¶ 6.) Indeed, in the Pre-Trial Order, Plaintiff acknowledged that the Bank was "to resolve any applicable disputes in its sole discretion, so long as its determination was reasonably consistent with the Contract." (Joint Pre-Trial Order ¶ 85.) Under the caselaw discussed above, the ADR determination of the Bank should stand in the absence of complete irrationality, fraud, corruption, or other misconduct. Here, Plaintiff has never made such a claim or showing, and thus no material issue of fact exists concerning the validity of the ADR decision. Moreover, in its original Opinion, the Court determined that, consistent with the terms of the Disputes provision, the Bank's determination of which transactions should apply toward the bonus Threshold was reasonably consistent with the other terms of the Contract. Therefore, the Bank's determination that Plaintiff failed to satisfy the Threshold and qualify for bonus payments should be binding.
See also Plaintiff's Pre-Trial Brief at 58-62 (arguing that if the Disputes provision of the Contract were applied to Plaintiff's entitlement to bonus payments, the Bank's conclusions as to the meaning of the Contract were to be binding, as long as they we e consistent with the Contract terms).
Ordinarily, the Court's foregoing conclusion would be the end of the matter. However, it is the Defendant who originally suggested, albeit without squarely addressing the issue, that the Bank's determination should be reviewed on the basis of whether it was arbitrary, capricious, or made in bad faith. See, e.g., FDIC's Pre-Trial Brief at 30 ("FDIC submits that if paragraph 6 is enforceable as a valid ADR provision, then Plaintiff was bound by Goldome's rejection of his claims for DIP's, so long as the rejection was not arbitrary and capricious and not made in bad faith.").) Although the arguments of counsel cannot substitute for the plain meaning of the Contract's terms or the parties' intent at the time of contracting, since this was the standard of review suggested by Defendant, and, if anything, it is more generous to Plaintiff, out of an abundance of caution the Court adopted the "arbitrary and capricious" standard in its original Opinion, and will apply it here as well. III. Application of the Arbitrary and Capricious Standard
Neither party has addressed the relevant caselaw on this issue. The Court's conclusion that the more restrictive standard of review should apply is based upon its independent review of the caselaw. In any event, the issue is largely academic, as Plaintiff's claim tails as a matter of law under either standard.
Even under the more generous standard of review, Plaintiff has failed to demonstrate that the ADR determination was arbitrary and capricious or that there are material issues of fact that require further proceedings on this claim.
Plaintiff's claim that he satisfied the $50 million Threshold, and that the contrary decision reached by Paul Ruch in the ADR process was made in bad faith and was arbitrary and capricious, is premised primarily on four contentions: (1) the parties are bound by Ruch's purported statement in his May 27, 1988 letter to Plaintiff, that in addition to sales, Plaintiff was entitled to Threshold credit for a broad range of transactions in which non-performing assets were restructured, including loans being payed down and returned to earning status; (2) Ruch failed to resolve the dispute with Plaintiff in a manner that was "reasonably consistent" with the terms of the Contract because he based his Threshold credit calculations on the reductions in net book value of qualifying transactions rather than on the gross sale or transfer price of the disposed assets; (3) Ruch improperly excluded from Threshold consideration transactions where Plaintiff had facilitated the disposition of the asset during the term of his Contract, but the actual disposition of the asset by the Bank occurred within ninety days after Plaintiff's Contract term had ended; and (4) Ruch excluded the disposition of certain assets by Plaintiff without any basis in fact. (Knapp Letter.)
A. The Types and Timing of Transactions Credited Toward the Threshold
The Court begin by addressing Plaintiff's first and third arguments, since each is merely an attempt to resurrect issues relating to the construction of Plaintiff's employment Contract, which this Court has now twice decided — first in its initial Opinion and then in its Memorandum and Order denying Plaintiff's motion for reconsideration.
Plaintiff argues that Ruch sent him a letter on May 27, 1988, which concedes that transactions other than simply sales of nonperforming assets would count toward determining whether Plaintiff had satisfied the Threshold. Ironically, Plaintiff contends that Ruch's statement in that letter is binding on the parties, even though his subsequent statements and ultimate conclusion are not. The FDIC disagrees with Plaintiff's interpretation of Ruch's letter, but the Court need not resolve this disagreement.
The Court has already determined, based upon the unambiguous language in the Contract, that only sales or third-party transfers of title were intended to count toward the Threshold. See Grey I, 1998 WL 483460, at **7-11. In addition, the Court has determined that even if one considered the extrinsic evidence in the record, it would support the conclusion that the parties intended only sales and third-party transfers of title to count toward the Threshold. See id. at **11-12. Plaintiff cannot now relitigate these issues in the guise of arguing that the ADR was conducted in bad faith, based upon a single letter of ambiguous meaning. The May 27 letter, whatever its meaning, was sent at an early stage of the ADR process. In the course of the parties' exchanges on the issues, the Bank ultimately made clear that the Threshold was to be satisfied by actual sales. (See, e.g., Def.'s Ex. H (June 3, 1988 memo from the Bank's attorney to Ruch explaining that Plaintiff would not be entitled to any DIPs unless he satisfied the $50 million Threshold by facilitating the sale of non-performing assets); Pl.'s Ex. 266 (June 16, 1988 letter from Ruch to Grey, stating that receipt of DIPs was contingent upon achieving the $50 million sales goal); Pl.'s Ex. 267 (June 23, 1988 letter from Ruch to Grey, eliminating transactions from the Threshold calculation that did not involve sales); Pl.'s Ex. 269 (July 21, 1988 letter from Ruch to Grey, stating that unless Plaintiff sold $50 million in assets, he would not be given commissionable credit in the reduction of any other non-earning assets of the Bank).) Ruch's determination is more than "reasonably consistent with the terms of the agreement," as required by the Disputes provision; it is fully consistent with the Court's conclusion as to the plain meaning of the Contract. It is thus beyond cavil that his determination was neither arbitrary nor capricious, and is binding.
Similarly, Ruch's determination to exclude from the Threshold calculation any transactions where the actual disposition occurued either before or after the term of Plaintiff's employment Contract, cannot have been arbitrary or made in bad faith since it too was "reasonably consistent with the terms of the agreement." As this Court. has determined, the Contract required that in order to count toward the satisfaction of the Threshold, the actual disposition of $50 million in non-performing assets had to take place during Plaintiff's nine-month employment term. See Grey I, 1998 WL 483460, at **13-16; Grey II, 1999 WL 587921, at **4-5.
B. The Disparity Between Plaintiff's Proffer And His ADR Claim
Plaintiff has submitted a Proffer identifying thirty-nine nonperforming assets, grouped in six categories, for which he claims he should have received Threshold credit in the amount of $56,475,000. (Grey Aff. I.) As noted, Defendant contends that applying Plaintiff's own values, as claimed in the ADR process, to the thirty-nine arguably creditable assets claimed by Plaintiff in his Proffer, makes manifest that the Bank did not act arbitrarily, capriciously, or in bad faith in concluding in 1988 that Plaintiff had not satisfied the $50 million Threshold.
The NPAs in Group 7 of Plaintiff's Proffer are irrelevant to the issues before the Court since they involve transactions that the Court has already determined do not qualify for Threshold credit under The Contract. See Grey I, 1993 WL 483460, at **17-19.
Plaintiff was given an opportunity in the ADR process to set forth the transactions, and their related values, that he believed demonstrated that he satisfied the Threshold. Beginninq in May 1988, Plaintiff and Ruch engaged in a series of communications in which they expressed their views about various assets. On June 28, 1988, in an attempt to reach an "ultimate resolution," Ruch invited Plaintiff to provide a full accounting of the transactions, and corresponding values, that Plaintiff believed demonstrated that he satisfied the Threshold. (Pl.'s Ex. 268.) Plaintiff responded on July 16, 1988, and submitted a list of relevant transactions "[i]n a final effort to resolve the matter and to assist you in expeditiously reviewing the situation." (Pl.'s Ex. 273.)
In determining whether Goldome acted arbitrarily and capriciously in its assessment that Plaintiff failed to satisfy the Threshold, the record to be considered is the one that existed when the ADR determination was made, not a de novo record created for purposes of this trial. "'It is well settled that a court lacks the power to consider newly submitted evidence when reviewing an arbitration proceeding." In re Obot (New York State Dep't of Corr. Servs., 224 A.D.2d 1006, 1006, 637 N.Y.S.2d 544, 545 (4th Dep't 1996); see also Instituto de Resseguros do Brasil v. First State Ins. Co., 221 A.D.2d 266, 267, 634 N.Y.S.2d 79, 81 (1st Dep't 1995) ("The purpose and nature of arbitration are wholly incompatible with the entertaining of motions for a rehearing on the ground of newly discovered evidence since the arbitration award would be the beginning rather than the end of the controversy and the protracted litigation which arbitration is meant to avoid would be invited.) (citations and quotation marks omitted); In re Hirsch Constr. Corp. (Cooper), 181 A.D.2d 52, 55, 585 N.Y.S.2d 418, 419-20 (1st Dep't 1992) (arbitral awards cannot be challenged on the basis of newly discovered evidence which was not before the arbitrators); cf. Reg'l Action Group for the Env't, Inc. v. Zagata, 245 A.D.2d 798, 801, 666 N.Y.S.2d 307, 310 (3d Dep't 1997) (article 78 review of administrative actions, under the arbitrary and capricious standard, must be conducted on the record as it existed before the agency when the determination was made). In addition, in determining challenges to an arbitration award, courts will not even consider new arguments that were not advanced before the arbitrator. See In re Migdal Plumbing Heating Corp. (Dakar Developers), 232 A.D.2d 62, 64, 662 N.Y.S.2d 106, 107-08 (1st Dep't 1997); Smith v. Suffolk County Police Dep't, 202 A.D.2d 678, 678, 609 N.Y.S.2d 645, 645 (2d Dep't 1994); cf. New York Hotel and Motel Trades Council, AFL-CIO v. Hotel St. George, 988 F. Supp. 770, 778 (S.D.N.Y. 1997) (in federal action involving confirmation of an arbitration award, court holds that failure to raise legal argument before arbitrator results in a waiver).
If Plaintiff did not present certain claims for Threshold credit in the 1988 ADR process, he cannot argue that Ruch acted arbitrarily in that process by not considering such claims, which Plaintiff advances for the first time more than ten years later, in this proceeding. Similarly, Plaintiff cannot credibly argue that Ruch acted arbitrarily in under-crediting claims Plaintiff did make in 1988, on the basis of evidence first offered in this proceeding that allegedly shows higher values for those claims. To address such claims and evidence would render the contractually agreed upon ADR process meaningless, and require this Court to make a de novo determination of whether Plaintiff satisfied the Threshold. This is precisely what the Contract precludes, yet it is precisely what Plaintiff attempts to do.
In the ADR, after consulting with Bank officials and reviewing Bank records, Ruch provided Plaintiff with his assessment of the dispositions for which Plaintiff was entitled to Threshold credit. He invited Plaintiff to "provide a full accounting as to the amounts to which you feel you may be entitled and the detail which supports that calculation." (Pl.'s Ex. 268.) Although Plaintiff possessed a substantial amount of documentation about the transactions in which he had been involved, and has identified many of those documents as exhibits in the Pre-Trial Order, he did not supply any of these documents to Ruch to support his claims, and did not make all of his current arguments to Ruch. Plaintiff testified at trial that Those omissions were deliberate, and were based on the advice of counsel. (Trial Tr. at 690-91, 704.)
In support of its motion for summary judgment, the FDIC has provided a series of charts listing the thirty-nine NPAs in Plaintiff's Proffer for which he claims Threshold credit. (Katz Aff., attachment entitled "Charts.") In his Proffer, Plaintiff contends that the sales value of these assets totaled $56,523,000, thus satisfying the $50 million Threshold. (Proffer, Groups 1 through 6.) Although still disputing the values Plaintiff attributed to various assets, the FDIC, for argument's sake, has created a chart that accepts the values which Plaintiff claimed in the APR. The chart aggregates these values for all of the assets in the Proffer for which Plaintiff claimed credit in the ADR. (Again, the FDIC correctly points out that the relevant inquiry with respect to the reasonableness of the ADR determination is the record made in the ADR based on Plaintiff's claims there, not his claims made ten years later in this litigation.) The FDIC convincingly demonstrates that even accepting Plaintiff's asset values, and crediting all transactions identified in his Proffer that were also submitted in the ADR, the total value of Plaintiff's dispositions is no greater than $46,431,000. (Katz Aff., Chart 1.) There thus can be no argument that Ruch's conclusion that Plaintiff failed to meet the $50 million Threshold was arbitrary or made in bad faith. If Plaintiff did not claim credit for certain transactions in the ADR, he cannot plausibly argue that Ruch's decision, which failed to give Threshold credit for those transactions, was arbitrary or made in bad faith. Similarly, if Plaintiff claimed a certain value for asset transactions in the ADR, he cannot be heard to argue that Ruch should have given them the greater values Plaintiff now suggests.
There are relatively minor discrepancies among the parties' and the Court's calculations of this figure. The FDIC contends that Plaintiff's claims for Threshold credit, for the assets in Groups 1-6, amount to $56,475,000. (Katz Aff. ¶ 17.) Plaintiff appears to have arrived at a total value for the assets in Groups 1-6 of $56,360,000. (Proffer, Ex. C.) The Court's calculation of the total claimed by Plaintiff in the Proffer is $56,523,000.
The use of Plaintiff's values also renders irrelevant Plaintiff's contention that Ruch relied upon the net book value of assets rather than on their gross sale price, as was required by the Contract.
For example, although Plaintiff claims Threshold credit in his Proffer for the sale of such properties as Pebble Bend, London Square, and Lake Tiffany, he never claimed credit for those transactions when he was involved in the ADR process. (Pl.'s Ex. 273.) Although he attempts to attribute responsibility for these omissions to Mr. Heron, an accounting executive at the Bank, Plaintiff knew very well which NPAs were identified in his Contract and for which he had responsibility. Further, his testimony at trial demonstrated a recall of highly specific data about the many transactions in which he was involved.
Based upon the values that the Bank attributed to these transactions, it concluded that the total value of dispositions of NPAs was only $23,225,000.
Ruch was entitled to rely on the claims before him, and he obviously was not required to predict what transactions and asset values Plaintiff would later claim, in litigation more than ten years later, he should have included in his determination. In short, the time and place for Plaintiff to introduce claims, and evidence of the value of claims, were at the ADR in 1988, not in this litigation now. C. The Bank's Exclusion of Transactions
It bears noting that Ruch's determinations of values to credit toward the Threshold were not entirely one-sided in favor of the Bank. There were a number of assets for which Plaintiff claimed values where Ruch gave Plaintiff greater credit than he claimed. With respect to the Sea View property, for example, Plaintiff claimed $114,000 in the ADR process, the Bank credited $351,000, and Plaintiff now claims $381,000 in his Proffer, with respect to Westchester Lakes, Plaintiff claimed $73,000 in the ADR process, the Bank credited him with $106,000, and he now claims $110,000 in his Proffer. (Katz Aff. Chart 2.)
Further evidence makes still clearer that the Bank's determination that Plaintiff failed to satisfy the $50 million Threshold was rationally based and consistent with the terms of the employment agreement. As discussed above, the Court has determined that, under the Contract, dispositions occurring after the expiration of Plaintiff's employment term were not intended to count toward the Threshold. See Grey I, 1998 WL 483460, at **13-16; Grey II, 1999 WL 587921, at **4-5. Further, there can be no serious dispute that assets disposed of before Plaintiff's employment term began, on August 17, 1987, were not to be credited toward the Threshold, since the thrust of the Contract provisions on bonus incentives was to reward Plaintiff for his efforts in disposing of non-performing assets. Defendant has identified ten assets for which Plaintiff claims Threshold credit where at least some part of their disposition occurred either before or after Plaintiff's employment term. (Katz Aff. ¶¶ 20-23, Charts 3-6; FDIC Supp. Mem. at 13-14.) With respect to some of these transactions, Plaintiff appears to concede the timing asserted by the FDIC; with respect to others, he has failed to submit any evidence that would suggest a material dispute of fact. In addition, the FDIC has identified four assets for which Plaintiff claims Threshold credit that it claims involved repayments, rather than dispositions, which this Court has determined were not eligible to apply to the Threshold under the terms of the Contract. (FDIC Supp. Mem. at 14.) The combined value of these fourteen assets is over $24 million. Even if only one-fourth of these NPAs were deducted from the $56 million Proffer made by Plaintiff, it is apparent that he could not satisfy the $50 million Threshold. Therefore, this Court could not reasonably conclude that the Bank's determination that the Threshold had not been satisfied was arbitrary and capricious, or "so grossly erroneous [as] to evidence bad faith." Nab Constr., 180 A.D.2d at 436, 529 N.Y.S.2d at 375.
The Court now turns to some specific examples demonstrating the erroneous assumptions that pervade Plaintiff's challenge to Ruch's ADR determination. More significantly, once the value of these selected transactions is deducted from Plaintiff's $56 million total Proffer, Plaintiff's inability to meet the $50 million Threshold becomes obvious. There is thus no doubt that Plaintiff's Proffer fails to raise an issue of material fact meriting further proceedings.
For example, an asset entitled Lalique was not even listed in Plaintiff's ADR claim. Yet, Plaintiff claims that the Bank should have given him Threshold credit in the amount of $2,577,000. Moreover, as Plaintiff himself acknowledges, the Lalique transaction involved two loan participations secured by property, and not as required for Threshold credit, a sale. (Equitable Bank, as the lead lending bank, sued Goldome in connection with a construction failure; it appears that Goldome was successful in obtaining a judgment for its loan participations.) There is thus no basis to conclude that the Bank's denial of Threshold credit to Plaintiff for this asset was arbitrary and capricious, given that (1) it was not even claimed by Plaintiff in the ADR; (2) in the Pre-Trial Order, Plaintiff claimed that he was entitled to credit for these assets because they were loans returned to earnings status, which the Court has determined do not qualify for credit; and (3) Goldome's reports show the asset remaining on Goldome's books in June 1988, after the expiration of Plaintiff's term of employment. (Katz Aff. ¶ 46 n. 13; Proffer ¶¶ 61-63; Pl.'s Ex. 628; Pre-Trial Order ¶ 154.)
Further, in the Pre-Trial Order, Plaintiff claimed that this asset was worth only $2,075,000, not the $2,577,000 he now claims.
Lake Tiffany/Country Lakes is another asset that was not listed in Plaintiff's ADR claim. Yet, Plaintiff in his Proffer seeks Threshold credit in the amount of $1,800,000 for its disposition. (Proffer ¶ 66.) Moreover, the Bank's accounting reports indicate that as of June 30, 1988, the asset remained on its books with a net book value of $1,775,000. (Pl.'s Ex. 628; Katz Aff. ¶ 47, Chart 5.) Finally Plaintiff implicitly concedes that this sale did not occur during his employment term, inasmuch as he claims only that the sale was "structured with loaned funds which were approved during the Contract term." (Proffer ¶ 66.) Again, the Bank's failure to grant Threshold credit for this asset could not have been arbitrary and capricious when Plaintiff failed to seek credit for it in his ADR claim and when there was so clearly a reasonable basis to conclude that it was not disposed of until after Plaintiff's contract term had ended.
Island Club, which consisted of a fifty-four-unit townhome community, was listed by Plaintiff at $1,850,000 in both his ADR claim and his Proffer. The Bank granted Plaintiff Threshold credit in the amount of $480,000, reflecting the sale of townhomes in September 1987, during Plaintiff's contract term. The Bank excluded Threshold credit for sales of townhomes that occurred in July 1987 and August 1987, prior to the commencement of Plaintiff's employment term. (Katz Aff. ¶ 45.) Bank records demonstrate that a contract for the sale of these assets was negotiated in May 1987 and that twenty-seven or twenty-eight of the units were sold by August 13, 1987. (Heron Report (Def.'s Ex. R); Pl.'s Exs. 53, 53.1, 428, 617-18.) Plaintiff does not dispute these facts. Moreover, in May 1988, when Plaintiff received a report on the calculation of sales pertaining to his Contract, which credited him with $438,000 in sales related to Island Club, he registered no disagreement. (Def.'s Ex. T; Pl.'s Ex. 252.) Under these circumstances, it cannot reasonably be argued that the Bank acted arbitrarily in excluding credit for sales which were accomplished before the commencement of Plaintiff's employment term.
At least in the Pre-Trial Order, Plaintiff implicitly recognizes that the Bank did not intend to credit him with sales for assets whose disposition had been sufficiently advanced or completed before his employment term commenced, on August 17, 1987. (Pre-Trial Order ¶¶ 40, 42, 90, 100, et seq. (reflecting Grey and his staff's claimed performance with respect to assets, commencing in August 1987).)
Plaintiff seeks $550,000 in Threshold credit for the disposition of the Guycor property. The Bank gave Plaintiff no sales credit for this property because its records established that its sale did not close within Plaintiff's employment term. (Katz Aff. ¶ 48, Chart 6.) Indeed, although Plaintiff contends that all of his contractual duties were completed with respect to this property prior to May 17, 1988, he concedes that it was not sold until some time later. (Proffer ¶ 67.) The denial of Threshold credit for this property was therefore consistent with the terms of the employment agreement, as construed by the Court, and cannot be viewed as arbitrary and capricious.
Pebble Bend, London Square, and Riverparc, valued in the aggregate at $3,534,000, were not claimed by Plaintiff in his original ADR claim for Threshold credit, but they are claimed in his Proffer. Moreover, the Bank's documents establish that these assets were sold after the expiration of Plaintiff's employment term. (Katz Aff. ¶ 57, Charts 5-6.) Even Plaintiff acknowledges this fact. (Pre-Trial Order ¶¶ 180-81; Proffer ¶ 99.) Accordingly, there can be no claim that denial of Threshold credit for these assets was arbitrary and capricious.
In his ADR claim Plaintiff sought Threshold credit of $500,000 for the disposition of Smugglers Cove. The Bank allowed Threshold credit in the amount of $72,000. In his Proffer Plaintiff seeks Threshold credit in the amount of $584,000. It follows that the Proffer figure must be reduced by at least $84,000, since, as noted, it cannot reasonably be argued that the Bank acted arbitrarily in failing to credit an amount not even presented as part of Plaintiff's ADR claim. Further reductions in the claim, amounting to $474,000, are also rationally supported. Bank records indicate that as of May 31, 1988, after Plaintiff's employment term had ended, non-performing assets valued at this amount remained on the Bank's books. (Katz Aff. ¶ 50, Charts 3, 6; Pl.'s Exs. 627-628.) Indeed, Plaintiff contends only that he "facilitated" the disposition of this property during his Contract term (Proffer ¶ 70). and he concedes that actual sales did not occur until June and July of 1988. (Pre-Trial Order ¶¶ 178-81.) Since Goldome' s treatment of this NPA was consistent with the terms of the Contract, as construed by the Court, and is supported by Bank records as well as Plaintiff's concessions, there can be no argument that the Bank acted arbitrarily or in bad faith in reducing Plaintiff's credit for this asset by $474,000.
In his Reply Affidavit, Plaintiff appears to take the position that the Bank improperly excluded only $12,000 in Threshold credit for this asset. (Grey Reply Aff. ¶ 69.)
The Rose is another asset for which Plaintiff claimed a dramatically different amount of Threshold credit in his ADR claim from what he does in his Proffer. In the ADR claim, he listed this asset as having a value of $232,000, while in his Proffer he lists it as having a value of $2,530,000 — its full net book value at the commencement of Plaintiff's employment Contract. The Bank credited Plaintiff with sales in the amount of $112,000. (Pl.'s Ex. 269.) As discussed above, the Bank cannot be viewed as having acted arbitrarily in denying Plaintiff over $2 million in Threshold credit that he now claims, when his actual ADR claim did not include that amount. Moreover, the amount that the Bank did credit to the transaction was entirely rational, since sale of the remainder of the asset did not occur until after Plaintiff's employment term had ended. (Katz Aff. ¶ 42, Chart 3; Proffer ¶¶ 57-58.)
In 1988, Plaintiff sought Threshold credit for the Lido asset in the amount of $2,652,000, and in his Proffer he seeks credit in the amount of $3,202,000. (Katz Aff. ¶ 38.) Once again, there can be no argument that the Bank's failure to credit the amount in the Proffer was arbitrary and capricious. Moreover, Plaintiff was actually given $2,466,000 in Threshold credit by the Bank. The Bank's records reflect sales of approximately $192,000 either before or after Plaintiff's contract term, thus accounting for the difference between Plaintiff's ADR claim and the amount credited. (Id. ¶ 38, Charts 3, 5.) Ruch's reliance on these records was reasonable, and Plaintiff's conclusory contention that they were not accurate does not render the Bank's determination arbitrary and capricious.
Plaintiff seeks Threshold credit in the amount of $4,200,000 for the sale of the Atrium. Plaintiff claims that he was improperly denied credit for this transaction because Ruch erroneously claimed that the Bank sold the property independently pursuant to a discount program (Proffer ¶¶ 80-85); Defendant disputes this contention (Katz Aff. ¶ 54). However, this dispute need not be resolved. Bank documents indicate, and Plaintiff concedes, that this asset was not sold until July 1988, well after Plaintiff's employment term had ended. (Pre-Trial Order ¶ 179.) Accordingly, there can be no argument that the Bank acted arbitrarily in denying Plaintiff Threshold credit for this transaction.
Though no additional evidence is needed, other transactions involving smaller amounts of Threshold credit further support Defendant's position. With respect to Long Island Realty, for example, Plaintiff sought $1,154,000 in credit in the ADR and $1,274,000 in his Proffer. (Katz Aff., Chart 1.) Plaintiff was given Threshold credit for a substantial portion of this transaction ($882,000), but Goldome's books and Plaintiff's admissions reflect partial sales of the asset occurring in late May and June 1988, after Plaintiff's employment term had ended. (Katz Aff. ¶ 36 n. 11, Charts 3, 5; Proffer ¶¶ 39-40; Pre-Trial Order ¶ 179.) The refusal to credit these amounts toward the Threshold therefore was neither arbitrary nor inconsistent with the terms of the employment agreement.
Plaintiff seeks Threshold credit in the amount of $2,992,000 for the disposition of Capri Harbor. He was credited with $2,071,000 by the Bank. Bank records show that actual sales amounted to $2,071,000, that $658,000 was charged off for this asset, and that approximately $185,000 in sales closed after May 17, 1988, and $78,000 in sales closed in June 1988. (Katz Aff. ¶ 44, Chart 5; Pl.'s Exs. 627-628.) In the Pre-Trial Order, Plaintiff acknowledged sales occurring in June, which was after his employment term had ended. (Pre-Trial Order ¶ 179.) His conclusory and partially inconsistent assertion in his Proffer that the property sold at the price of $2,992,000 during the term of his Contract does not create a material issue of fact as to whether the Bank's determination of Threshold credit in the ADR was arbitrary and capricious.
Plaintiff sought Threshold credit in the amount of $1,568,000 for Sand Dollar. He was credited with $1,140,000. The Bank's records indicate that $318,000 in sales of this asset occurred before Plaintiff's employment term began, in August 1987 (Pl.'s Ex. 618; Katz Aff. ¶ 37, Charts 3, 5). and that sales in the amount of $110,000 occurred in June 1988 or later, after Plaintiff's employment term ended (Pl.'s Ex. 628). Plaintiff has not disputed these facts. (Proffer ¶¶ 42-44.) His contention that Goldome improperly retained one of the living units in this asset for its staff, with the result that its disposition could not occur until after his employment term had ended (Proffer ¶ 44), does not give rise to an inference that the Bank acted arbitrarily, or in a manner that was inconsistent with the employment agreement, in calculating Threshold credits for this asset.
The Court has determined that the Contract did not entitle Plaintiff to Threshold credit for loan prepayments, paydowns, or restructurings where loans were returned to earning status. See Grey I 1998 WL 4834690, at **11-12. Nevertheless, Plaintiff persists in claiming Threshold credit for a number of such transactions, the value of which is significant. For example, the Fiddlesticks asset was valued by Plaintiff in his ADR claim at $5,255,000, but is only valued in his Proffer at $2,141,000. There is no dispute that the balance between Plaintiff's ADR claim and Proffer, $3,114,000, remained on Goldome's books as a non-accrual loan as of May 31, 1988, after Plaintiff's contract term had ended. (Katz Aff. ¶ 33; P1.'s Ex. 627.) Both Plaintiff and the FDIC agree that Goldome received a repayment of approximately $2,141,000, as part of a workout arranged as an alternative to a sale by foreclosure of property securing a loan. The borrowers apparently sold a portion of the property for which Goldome had issued a loan; after receiving the proceeds, Goldome released a portion of its first lien on the property. The part of the loan that was not paid off remained with the Bank. Goldome treated this transaction as a repayment, not as a sale of owned real estate or as a sale of loan paper, and did not allow Plaintiff any Threshold credit for the transaction. (Katz Aff. ¶ 33, Chart 4 n. 3; Pl.'s Exs. 618 at 1.7, 269; Proffer ¶¶ 31-33.) Since there was no sale or transfer of title in property or loan paper owned by the Bank, as this was essentially a loan restructuring and paydown — precisely the type of transaction that was not intended to count toward the Threshold — there can be no argument that the Bank's determination was arbitrary or capricious, or inconsistent with the terms of the employment agreement.
Had Plaintiff satisfied the Threshold, he could have received deferred incentive payments for this transaction, since the employment Contract did provide for DIPs for cash consideration received for prepayments and paydowns of non-accrual loans held by the Bank. (Contract ¶ 5A.) Such transact ions were not, however, dispositions to be credited toward the Threshold. See Grey I, 1998 WL 481460, at *11.
Plaintiff did not make an ADR claim for the Westador asset. Nevertheless, in his Proffer he seeks Threshold credit in the amount of $208,000. Moreover, the Bank's records show a $208,000 repayment with respect to this asset, not a disposition (Katz Aff. ¶ 31, Chart 4) and Plaintiff has not offered any competent evidence to suggest that there should have been sales credited in that amount. Accordingly, there is no basis to conclude that the Bank's determination with respect to this asset was arbitrary and capricious.
* * * *
The Court has focused on only some of the assets for which the FDIC has offered explanations and evidence that support the rationality of the Bank's determination to withhold Threshold credit from Plaintiff. These examples involve Bank determinations that are fully consistent with the terms of the employment agreement, as construed by the Court, and that are supported by Bank records and Plaintiff's concessions. Despite Plaintiff's disagreement with the accuracy or propriety of the Bank's determinations, he has failed to present any competent evidence to suggest that the determinations on the assets described above were made in bad faith or without any reasonable basis in fact. The elimination of Threshold credit for even a portion of the value of these assets makes manifest that, as a matter of law, Plaintiff's Proffer cannot support a claim that the Bank's determination in the ADR process that Plaintiff failed to meet the $50 million Threshold, was arbitrary, capricious, or made in bad faith.
To summarize, the Court's conclusion can be reached in at least two different ways. First, in his Proffer Plaintiff claims Threshold credit for thirty-nine NPAs which he contends fall within the Court's determination of gualifying NPAs under the Contract. Plaintiff claims that those NPAs have a total value of $56,475,000. However, the value claimed by Plaintiff for these same NPAs during the ADR process was only $46,431,000, an amount that falls short of the required Threshold.
Second, even considering the values claimed by Plaintiff in his Proffer, offered more than ten years after the dispute resolution process, the total sales value for the thirty-nine NPAs is no greater than $56,475,000. However, the exclusion of certain amounts that, as discussed above, do not conform to the requirements of the employment agreement as construed by the Court, necessitates a reduction in Threshold credit of substantially more than $6.5 million. Clearly then, the Bank's determination that Plaintiff fell well below the $50 million Threshold was rationally supported.
Many of the exclusions would also apply to the $46,431,000 value of the ADR assets, reducing that number even further.
In essence, Plaintiff's Proffer seeks to have this Court (1) disregard the determinations it made in its original Opinion with regard to the construction of Plaintiff's employment Contract, and (2) make a de novo determination as to the propriety and the sales value of each transaction for which Plaintiff claims Threshold credit. In order to accomplish the latter task (which the Court strongly doubts could be done accurately), Plaintiff proposes to call no fewer than seventeen witnesses who had some involvement in approximately forty complex real estate transactions completed fourteen years ago, in addition to submitting closing documents and Bank records numbering thousands of pages, many of which the FDIC claims can no longer be located or authenticated. (Indeed, the parties conducted virtually no pretrial discovery on these issues.) Such a procedure would be in complete contravention of the Disputes provision of the Contract, which was intended to make the Bank's determination on this issue, among others, binding, provided that it was reasonably consistent with the terms of the Contract — as the Court has already determined it was.
Six of these witnesses were not previously identified in the Pre-Trial Order and would be barred from testifying.
The issue before the Court is not to determine whether the Bank's conclusion that Plaintiff had achieved only $23 million toward the Threshold was correct, or to determine whether there was some error in its calculations with regard to any individual assets. The burden is on Plaintiff to come forward with competent evidence that raises a material issue of fact as to whether the Bank acted arbitrarily, capriciously, or in bad faith in concluding in the ADR process that Plaintiff did not satisfy the $50 million Threshold. Plaintiff has not satisfied that burden.
Indeed, the existing trial record, Plaintiff's Proffer, and the supporting evidence offered by both parties makes evident that the Bank's determination was rationally based. Moreover, this is the second opportunity that Plaintiff has had to meet his burden of proof. The issue of Defendant's liability was to be fully determined at the trial of this action. In its post-trial Opinion, the Court concluded that the evidence produced at the trial "strongly suggest[ed] that [the FDIC's] conclusion that the threshold was not satisfied was rationally based," Grey I, 1998 WL 483460, at *20, and that "Plaintiff had not argued, or presented any evidence demonstrating that the value of the NPAs that he sold during his employment term, which were listed on Exhibits A-1 through A-6, exceeded the $50 million threshold." Id. at *21.
Plaintiff failed at the trial to meet his burden of proving that he had satisfied the $50 million Threshold and was entitled to bonus payments, and that Goldome had breached its Contract with him by concluding otherwise. He also failed to prove that the Bank's determination in the ADR process (which was intended to be binding) that he did not qualify for bonus payments, was arbitrary and capricious, no less fraudulent. His Proffer does not give rise to a triable issue of fact with respect to the propriety of the Bank's conclusion. Accordingly, Defendant's motion for summary judgment is granted with respect to the conclusiveness of the Bank's determination in the ADR process that Plaintiff did not satisfy the $50 million Threshold. Judgment shall be entered for Defendant and this action shall be dismissed with prejudice.