Opinion
No. 03 C 6828.
February 15, 2005
ORDER
Unsatisfied with the results of two previous lawsuits, Plaintiffs Jerome Maher and John Gravee have brought this third action against the Federal Deposit Insurance Corporation ("FDIC"), as successor in interest to their former employer, Horizon Federal Savings Bank ("Horizon"), seeking recovery of deferred compensation benefits allegedly owed under their employment contracts. The FDIC has moved to dismiss the complaint on several grounds, including that the claims are barred by the doctrine of res judicata. For the reasons set forth here, the motion is granted.
BACKGROUND
Maher and Gravee served as officers and directors of Horizon, a federally chartered and insured mutual savings and loan association in Wilmette, Illinois. (Cmplt. ¶ 8.) See Resolution Trust Corp. v. Gravee, No. 94 C 4589, 1995 WL 75373, at *1 (N.D. Ill. Feb. 22, 1995). Horizon was formed in 1982 when First Federal Savings and Loan Association of Wilmette merged with three failing institutions at the urging of officials from the Federal Home Loan Bank Board ("FHLB"). (Cmplt. ¶¶ 5, 6.) As part of the merger agreement, government representatives from the FHLB and the Federal Savings Loan Insurance Corporation required Plaintiffs to relinquish their existing pension plans with the understanding that new plans would be established once the new entity, Horizon, achieved financial stability. ( Id. ¶¶ 7, 9.)
A. The Deferred Compensation Trusts
Beginning in 1984, Horizon approved a number of speculative loans for commercial real estate projects. Resolution Trust Corp., 1995 WL 75373, at *1. Around the same time, Horizon established a deferred compensation trust for Plaintiffs, pursuant to which they would receive a certain amount of trust proceeds each year upon termination or death. (Cmplt. ¶ 10); Maher v. Harris Trust and Savings Bank, 75 F.3d 1182, 1185 (7th Cir. 1996). The trust was set up as a "Rabbi Trust," meaning that "the principal of the trust remain[ed] a part of the general assets of the corporation and [wa]s reachable by creditors." ( Id. ¶ 10.) In 1987, Horizon converted the Rabbi Trust to a "Secular Trust." As a result, the trust property became separate from Horizon's general assets and was no longer available to Horizon's creditors. ( Id. ¶ 11); Maher, 75 F.3d at 1185.
B. The Harris Trust Litigation
On January 11, 1990, the Office of Thrift Supervisor ("OTC") seized control of Horizon, which had lost in excess of $50 million on its speculative loans, and appointed the Resolution Trust Corporation ("RTC") as Receiver. ( Id. ¶ 13); Resolution Trust Corp., 1995 WL 75373, at *1. The RTC discharged Plaintiffs on January 29, 1990, and on April 12, 1990, Plaintiffs filed claims with the RTC to collect deferred compensation benefits under the terms of the Secular Trust. Plaintiffs allege that the RTC never ruled on their request for benefits. ( Id. ¶ 15; Ex. A to Intervener Reply.)
The FDIC is the statutory successor to the RTC.
The Intervener's Reply Memorandum in Support of its Motion to Dismiss is cited as "Intervener Reply, at ___."
In August 1990, Plaintiffs filed suit against the RTC and Harris Trust and Savings Bank, the trustee of the Secular Trust, in the Circuit Court of Cook County seeking to enforce the terms of the trust and recover their deferred compensation benefits. ( Id.) The RTC counterclaimed for the return of bonuses paid to Plaintiffs in 1989 and removed the case to federal court. ( Id.); Maher, 75 F.3d at 1187. Following a bench trial, the district court entered judgment in favor of the RTC, finding that both the Secular Trust and the bonuses violated federal regulations. See Maher v. Harris Trust and Savings Bank, No. 90 C 5118, 1994 WL 682625, at *3 (N.D. Ill. Dec. 5, 1994) (denying Plaintiffs' claim to vested rights in the trust assets and noting that "the secular trust was illegal and void from its inception"). The Seventh Circuit affirmed the judgment on appeal. Maher, 75 F.3d 1182.
C. The RTC Litigation
While Plaintiffs' appeal in the Harris Trust case was pending, the RTC filed suit against the former officers and directors of Horizon, including Plaintiffs, alleging that they were grossly negligent in carrying out their duties. Federal Deposit Ins. Corp. v. Gravee, 966 F. Supp. 622, 628 (N.D. Ill. 1997). Plaintiffs filed a counterclaim in this "RTC litigation" to recover employment benefits under a breach of contract theory. (Cmplt. ¶ 16.) The RTC reached a settlement agreement with all defendants except Maher and Gravee; rather than proceed against the two individuals, the RTC dismissed the case without prejudice. The court transferred Plaintiffs' counterclaims to the United States Court of Federal Claims, but noted that the RTC could reinstate its case in the event Maher and Gravee prevailed in that action. ( Gravee, Minute Order of 5/29/97, Doc. No. 198.)
Plaintiffs filed an amended complaint in the Court of Federal Claims (the "Maher litigation"), naming the United States as a defendant. Plaintiffs alleged that the United States, acting through the RTC, the OTS, and the FDIC, (1) breached a contract between the government and Horizon to which Plaintiffs were third-party beneficiaries; and (2) breached an implied-in-fact contract with Plaintiffs. (Cmplt. ¶ 19). See also Maher v. United States, 314 F.3d 600, 602 (Fed. Cir. 2002). Though the Seventh Circuit had already confirmed that the Secular Trust was illegal, Plaintiffs again sought to enforce the trust "as part and parcel of the merger contract with the Federal Government agency ([FHLB]) back when the merger took place in 1982." ( Id. ¶ 17.) The Court of Federal Claims dismissed the case for failure to state a claim. Maher v. United States, 48 Fed. Cl. 585 (2001). The Federal Circuit affirmed the dismissal on appeal and the Supreme Court denied certiorari. (Cmplt. ¶¶ 19-20); Maher, 314 F.3d at 607 ("Maher and Gravee have not pled sufficient facts to establish that they are intended third-party beneficiaries of the merger agreement between the government and Horizon, or that they have an implied-in-fact contract with the government for employment and pension benefits"), cert. denied Maher v. United States, 540 U.S. 821 (2003).
D. The Instant Lawsuit
On October 1, 2003, Plaintiffs filed the instant lawsuit again seeking to recover their deferred compensation benefits, this time under what appears to be a theory of breach of vested rights. (Cmplt. ¶¶ 4, 21, 27.) Recognizing that the Secular Trust has been declared void, Plaintiffs now claim that they are entitled to their benefits payable out of Horizon's general assets instead of from the assets of the trust. ( Id. ¶¶ 21, 27.) Plaintiffs also make a vague reference to the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1140 et seq. The FDIC has moved to dismiss this latest lawsuit on three grounds: (1) the claims are barred by the doctrine of res judicata; (2) Plaintiffs failed to exhaust their administrative remedies under the Financial Institution Reform, Recovery, and Enforcement Act ("FIRREA"), 12 U.S.C. § 1821(d); and (3) the action is moot because the Horizon receivership was terminated as of January 1, 2002 and there are no assets and no institution from which Plaintiffs could recover. The court finds that res judicata is dispositive here and grants the motion on that basis.
DISCUSSION
The doctrine of res judicata is designed to ensure the finality of decisions by prohibiting parties from relitigating issues that were decided in a prior lawsuit, as well as any issues that could have been raised in a prior lawsuit. Golden v. Barenborg, 53 F.3d 866, 869-70 (7th Cir. 1995); Car Carriers, Inc. v. Ford Motor Co., 789 F.2d 589, 593 (7th Cir. 1986). For res judicata to apply, there must be "(1) judgment on the merits in an earlier action; (2) identity of parties or privies in the two suits; and (3) identity of the cause of action between both suits." Brzostowski v. Laidlaw Waste Sys., Inc., 49 F.3d 337, 338 (7th Cir. 1995). Causes of action are similar for purposes of res judicata if they have "a single core of operative facts which gives rise to a remedy." Roboserve, Inc. v. Kato Kagaku Co., 121 F.3d 1027, 1034 (7th Cir. 1997) (quoting Golden, 53 F.3d at 869).
The FDIC contends that res judicata bars Plaintiffs' claims for deferred compensation benefits because those claims were already litigated — or could have been litigated — in the Harris Trust, RTC, and Maher lawsuits. Plaintiffs first argue that Defendant has waived this defense by failing to raise it in those earlier proceedings. (Pl. Resp., at 11) (citing Arizona v. California, 530 U.S. 392, 410 (2000) ("res judicata [is] an affirmative defense ordinarily lost if not timely raised").) This argument is misplaced here. First, Defendant's alleged failure to raise the res judicata defense in earlier lawsuits does not bar that defense in this case. The Arizona case is obviously distinguishable: the State parties in that case attempted to raise res judicata for the first time many years into an ongoing action that had produced two prior rulings from the Supreme Court. Here, conversely, Defendant has raised the defense at its first available opportunity in a motion to dismiss.
There is no dispute that Plaintiffs and either the RTC or the FDIC were parties to the Harris Trust, RTC, and Maher litigations, and that the cases resulted in final judgments on the merits. Plaintiffs argue, however, that their current claims "sprang forth as a separate cause of action only after the Secular Trust provision was held invalid." (Pl. Resp., at 12.) In Plaintiffs' view, "there has been no litigation concerning the enforcement of the remainder of the Plaintiffs['] employment agreements after the secular trusts were found unenforceable." ( Id. at 12.) Assuming this is true, the argument still fails because Plaintiffs could have asserted the vested contract and ERISA claims in the earlier cases as alternative theories of recovery. Indeed, this is common practice in litigation where, as Plaintiffs discovered, courts do not always agree with a party's primary theory of relief. Plaintiffs chose not to raise their current claims, which arise out of the same core of operative facts as the earlier ones, and cannot now be allowed a "second bite of the apple." Shaver v. F.W. Woolworth Co., 840 F.2d 1361, 1368 (7th Cir. 1988); Golden, 53 F.3d at 869-70.
Plaintiffs suggest that a former RTC attorney, Wm. Carlisle Herbert, admitted during the Harris Trust litigation that Plaintiffs "were entitled to their deferred compensation agreements and the contractual rights that existed under those agreements." (Pl. Resp., at 13) (citing "trans. 298, 299.") Plaintiffs have not provided any context for this statement or a copy of the cited transcript pages. In any event, statements made during proceedings that occurred more than ten years ago are not relevant to this action and in no way demonstrate that Plaintiffs are entitled to deferred compensation benefits under a vested contract or ERISA theory. To the contrary, any such theories are barred due to Plaintiffs' failure to raise them in the earlier proceedings.
It is worth noting that even if Plaintiffs' claims were not barred by res judicata, they are nonetheless barred for failure to exhaust administrative remedies. FIRREA sets forth a detailed claims process that requires a claimant to first file a claim with the RTC, which then has 180 days to respond. If the RTC disallows the claim or fails to respond, the claimant has 60 days to file suit. 12 U.S.C. §§ 1821(d)(5)(A)(i), 1821(d)(6)(A). Plaintiffs filed claims with the RTC on April 12, 1990 (Cmplt. ¶ 15); they filed this lawsuit in October 2003, some 13 years too late.
Administrative claims must now be filed with the FDIC because the RTC no longer exists. At the time Plaintiffs filed their claims, however, the RTC was still the entity charged with providing a response.
CONCLUSION
For the reasons stated above, the FDIC's motion to dismiss is granted.