Campanelli v. Flagstar Bancorp, Inc.

Background

Joseph P. Campanelli sued his former employer, Flagstar Bancorp, Inc., over two compensation arrangements. As president and chief executive officer of Flagstar’s bank subsidiary, Campanelli negotiated a Supplemental Executive Retirement Plan payment projected at approximately $14 million if paid on his 62nd birthday. After he resigned, the parties entered into a consulting agreement providing for approximately $1.8 million in fees.

The agreements anticipated that the payments might be restricted by federal banking rules governing certain payments to executives of troubled financial institutions. The agreements required or contemplated efforts to obtain regulatory approval and limited payments to amounts allowed by law. Flagstar initially sought regulatory determinations concerning the payments. It later withdrew its request for approval of the accelerated retirement payment, and Campanelli’s payment became due under the employment agreement when he turned 62 in August 2018. Flagstar did not pay either amount.

Campanelli alleged that Flagstar later stopped pursuing approval of the consulting payment and refused to seek approval for either payment. Flagstar responded that it could not truthfully make the certifications required to seek approval because of the bank’s regulatory history and condition. Campanelli alleged that this position was baseless and that Flagstar breached its agreements by failing to seek approval and support the applications.

Claims and Arguments

Campanelli asserted an Employee Retirement Income Security Act claim to recover the retirement benefit, two breach-of-contract claims under New York law concerning the employment and consulting agreements, and two alternative claims for breach of the implied covenant of good faith and fair dealing.

Flagstar moved to dismiss the entire complaint. It argued that the retirement and consulting payments could not legally be made without regulatory approval, that Flagstar was unable to seek that approval because it could not make the required certifications, and that Campanelli was not harmed because he could seek approval himself. Flagstar also argued that the implied-covenant claims duplicated the contract claims.

Court’s Analysis

Judge Engelmayer held that Campanelli adequately pleaded an ERISA claim. The complaint alleged that the retirement arrangement was covered by the statute, that Campanelli was a participant, and that he was wrongfully denied benefits. Whether Flagstar’s regulatory concerns legally excused it from seeking approval presented a factual dispute that could not be resolved in Flagstar’s favor at the pleading stage. The court also noted that Flagstar’s position relied on attorney argument and materials that the court could not consider for the truth of their contents on a motion to dismiss.

The court likewise held that Campanelli adequately pleaded breach-of-contract claims concerning both the retirement payment and the consulting payment. The complaint alleged agreements, Campanelli’s performance, Flagstar’s breach, and damages. The court rejected dismissal based on Flagstar’s assertion that regulatory approval was an unfulfilled condition or that Flagstar was unable to seek approval. Discovery could show whether Flagstar had a valid basis for its position and whether an unsupported application by Campanelli would have been an effective alternative.

The court dismissed the two implied-covenant claims. Under New York law, an implied-covenant claim based on the same facts and seeking the same damages as a contract claim is duplicative when a valid written contract covers the dispute. The court found no genuine dispute about the existence, validity, or scope of the agreements that would allow the alternative claims to proceed alongside the contract claims.

Disposition

The court granted Flagstar’s motion to dismiss in part and dismissed Campanelli’s two claims for breach of the implied covenant of good faith and fair dealing. It denied the motion to dismiss the ERISA claim and the breach-of-contract claims concerning both agreements. The case was therefore allowed to proceed on those remaining claims, subject to further proceedings and factual development.