Brody v. Island Federal Credit Union

Background

Gene Brody was formerly the president and chief executive officer of Bay Ridge Federal Credit Union. Bay Ridge merged into Island Federal Credit Union in 2018. Brody alleged that Bay Ridge’s employment agreements entitled him and his spouse to lifetime health benefits and that Island assumed Bay Ridge’s obligation to pay those benefits after the merger. The benefits cost approximately $2,459 per month.

Brody sued Island for breach of contract, breach of the duty of good faith and fair dealing, unjust enrichment, conversion, and violations of New York Labor Law Sections 191(d) and 193. He also sued Island’s president, Bret W. Sears, for intentionally interfering with the contractual relationship. Brody sought a declaration that Island was required to pay the benefits and money damages for unpaid benefit payments.

Island and Sears denied that Island had to pay the benefits, arguing in part that federal regulations issued by the National Credit Union Administration (NCUA) prohibited the payments as “golden parachute payments.” Island also asserted a counterclaim seeking the return of $86,500 that Brody received from Bay Ridge when his employment ended. Island alleged that this severance payment was likewise an impermissible golden parachute payment because Bay Ridge was in troubled condition and had not obtained NCUA approval.

Motions and legal standard

The parties submitted letters addressing the regulatory issues. The court treated the defendants’ letter as a motion to dismiss Brody’s complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a pleading states a legally sufficient claim. The court treated Brody’s letter as a motion to dismiss Island’s counterclaim under the same rule.

At this stage, the court accepted well-pleaded factual allegations as true and drew reasonable inferences for the party opposing dismissal. It did not weigh evidence or resolve factual disputes.

Benefits and golden parachute regulations

The court interpreted NCUA regulations governing golden parachute payments by federally insured credit unions. The regulations generally prohibit such payments unless an exception applies, including approval by the NCUA. The regulations define golden parachute payments to include compensation paid under an agreement after an institution-affiliated person’s employment ends, when the person’s credit union was in troubled condition at the relevant time.

The court rejected Brody’s argument that the regulations could not apply because the benefit agreement was made before Bay Ridge became troubled. It held that the regulatory definition can cover post-termination payments received after the credit union becomes troubled, even when the underlying agreement was made earlier.

The court also rejected Brody’s argument that the regulations did not apply because Island, the surviving credit union, was not troubled. The court concluded that the regulations can apply when a non-troubled surviving credit union makes payments arising from obligations of a credit union that became troubled before the merger. Based on the complaint’s allegations, the benefits were golden parachute payments under the regulations.

The court nevertheless denied dismissal of Brody’s claims. The regulations allow a federally insured credit union or an institution-affiliated person to seek NCUA approval. The court stated that the NCUA’s earlier review of Brody’s employment agreement did not necessarily approve payments made after Bay Ridge became troubled. But the complaint did not establish at the pleading stage that the benefits could not be approved or that Island could not seek approval. Island’s assertion that Brody was substantially responsible for Bay Ridge’s troubled condition raised a factual issue that the court could not resolve on a motion to dismiss.

Severance-payment counterclaim

The court also denied Brody’s motion to dismiss Island’s counterclaim. Island plausibly alleged that Bay Ridge made the $86,500 severance payment after becoming troubled, in connection with the termination of Brody’s employment, and without NCUA approval. Although the payment might ultimately fall within a regulatory exception, the pleadings supported a plausible inference that it was a prohibited golden parachute payment.

The court further held that the regulations prohibit a credit union from making a golden parachute payment before obtaining required approval. It rejected Brody’s argument that Island’s counterclaim was premature merely because the NCUA had not issued a final decision. The court found no legal requirement that Island obtain a final NCUA determination before bringing a claim against Brody in a private lawsuit.

The court also declined to consider a September 2018 letter from Sears because it was not attached to or incorporated into the pleadings. Brody’s arguments that Island knew about the severance payment before the merger and that Island should pursue another party or an insurance carrier raised issues that could not be resolved from the pleadings.

Disposition

The court denied the defendants’ motion to dismiss Brody’s complaint. It also denied Brody’s motion to dismiss Island’s counterclaim. The order allowed the claims and counterclaim to proceed, without finally deciding whether Island must pay the benefits or whether Brody must return the severance payment.