RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 21a0076p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
┐
DANIEL WOLLSCHLAGER,
│
Plaintiff-Appellant, │
> No. 20-1536
│
v. │
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FEDERAL DEPOSIT INSURANCE CORPORATION, │
Defendant-Appellee. │
┘
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 2:19-cv-10505—Victoria A. Roberts, District Judge.
Decided and Filed: March 31, 2021
Before: SUHRHEINRICH, SILER, and SUTTON, Circuit Judges.
_________________
COUNSEL
ON BRIEF: Mark S. Demorest, DEMOREST LAW FIRM, PLLC, Royal Oak, Michigan, for
Appellant. John W. Guarisco, FEDERAL DEPOSIT INSURANCE CORPORATION,
Arlington, Virginia, for Appellee.
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OPINION
_________________
SUTTON, Circuit Judge. The State Bank in Fenton, Michigan faced financial challenges
during the 2008 Great Recession. It hired Daniel Wollschlager, a banking executive and lending
officer, to steady the ship. As an enticement, the Bank’s holding company offered to pay
Wollschlager roughly two years’ salary if the Bank fired him prematurely—a golden parachute
arrangement that Congress requires the Federal Deposit Insurance Corporation (FDIC) to
approve when it comes to troubled banks. That risk materialized in 2011, when Wollschlager
No. 20-1536 Wollschlager v. FDIC Page 2
and the Bank parted ways. The Bank sought permission from the FDIC to pay Wollschlager the
first installment of this money, roughly a year’s salary. The FDIC approved the request. When
the Bank later asked permission to pay the last installment, however, the FDIC declined on the
ground that golden parachute arrangements should not exceed one year’s salary, particularly for
someone who had worked at the bank for just three years. Wollschlager sued the agency,
alleging that it violated the Administrative Procedure Act by refusing to permit the second
payment. The district court granted the FDIC’s motion for judgment on the administrative
record. Because the FDIC’s decision was neither arbitrary nor capricious, we affirm.
I.
A.
When companies hire executives, they sometimes promise to pay them a windfall if they
are fired, the company becomes bankrupt, or the company is acquired. To guard against
excessive golden parachute payments by struggling financial institutions, Congress established
limitations for the FDIC to implement. 12 U.S.C. § 1828(k). It defined a “golden parachute
payment” to include “any payment” made to employees that is “contingent on” their termination
and made after the bank is determined to be “in a troubled condition.” Id. § 1828(k)(4)(A).
Under the statute, the FDIC may “prohibit or limit, by regulation or order, any golden parachute
payment.” Id. § 1828(k)(1).
Congress gave the FDIC guideposts in exercising this authority. Id. § 1828(k)(2). The
statute says that the agency should withhold golden parachute payments if the employee
committed fraud, is responsible for the institution’s troubles, or violated banking and finance
laws. See id. § 1828(k)(2)(A)–(D). Apart from misconduct, the statute adds other factors for the
agency to consider in deciding whether to approve a golden parachute payment, including
whether the employee “was in a position of managerial or fiduciary responsibility,” the “length
of” the employment, and whether the “compensation involved represents a reasonable payment
for” the employee’s services. Id. § 1828(k)(2)(E)–(F). On top of that, Congress authorized the
FDIC to “prescribe, by regulation,” the details of these and other “factors to be considered.” Id.
§ 1828(k)(2).
No. 20-1536 Wollschlager v. FDIC Page 3
After a notice and comment period, the FDIC announced final regulations implementing
Congress’s instructions. No troubled entity, the regulations say, may make a golden parachute
payment unless it “obtains permission” from the agency. 12 C.F.R. § 303.244(a). If a covered
company wants to make a payment, including agreements to make payments, it must submit a
letter to the FDIC and receive its approval. Id. § 303.244(b).
The regulations generally bar a troubled financial entity from making a golden parachute
payment. Id. § 359.2. But they carve out exceptions, two of which matter today. The first is a
catchall, permitting payments if the “appropriate federal banking agency” and the FDIC find that
the “payment or agreement is permissible.” Id. § 359.4(a)(1).
The second exception, known as the white knight provision, takes on the problem of
encouraging a talented banker to join a ship that may be sinking. It permits a troubled bank to
agree to make a golden parachute payment if (a) the agreement is made when the bank faces
solvency challenges or to “prevent it from imminently” becoming troubled, id. § 359.4(a)(2), and
(b) the relevant banking agency (the Federal Reserve Bank in this instance) and the FDIC
“consent in writing to the amount and terms of the golden parachute payment,” id.; see generally
FDIC, Guidance on Golden Parachute Applications, FIL-66-2010, at 9 (2010).
The regulations incorporate § 1828(k)(2)’s factors, including the employee’s degree of
responsibility, length of service, and whether the payments amount to reasonable compensation
for the services performed. 12 C.F.R. § 359.4(b)(1)–(2). They add, for good measure, “[a]ny
other factors or circumstances which would indicate that the proposed payment would be
contrary to the intent” of the statute. Id. § 359.4(b)(3).
The FDIC has issued guidance about the scope of the exceptions. One matters here. It
says that the first exception—the catchall provision requiring only consent—“should not be
viewed as being intended to permit golden parachute payments in excess of 12 months’ salary”
for an employee. See FDIC, FIL-66-2010 at 8.
No. 20-1536 Wollschlager v. FDIC Page 4
B.
The 2008 Great Recession was not good to the State Bank, a wholly owned subsidiary of
Fentura Financial. That October, the Bank sought Wollschlager’s help to deal with “problem
loans.” R.16-2 at 3. Wollschlager and Fentura signed a retirement agreement providing a golden
parachute worth $175,000 if the Bank fired him early. A year later, in October 2009, the FDIC
deemed the Bank to be in a “troubled” state. R.16-7 at 3.
Two years into Wollschlager’s tenure at the Bank, he negotiated a larger golden
parachute. Fentura and Wollschlager signed an amended retirement agreement in December of
2010, awarding him $245,000 if discharged early. The new agreement “rescind[ed] and
replace[d]” the original one. Id. at 35.
Wollschlager’s relationship with the Bank soured. In September 2011, Fentura and
Wollschlager signed a separation agreement providing that he would be paid his base
compensation through the end of the year, roughly an additional $28,000. The agreement also
set forth how Wollschlager’s $245,000 golden parachute payment would be made. $138,000—
equal to one year’s salary—would be paid within 60 days of Wollschlager’s departure. The
remaining $107,000 would be paid once the Bank’s conditions improved, a prerequisite that also
applied to the $28,000 separation payment.
Fentura did not seek the FDIC’s approval before making these agreements.
A month before Wollschlager’s departure, Fentura wrote to the FDIC and the Federal
Reserve Bank seeking permission to pay Wollschlager the first $138,000 installment. It
acknowledged that payments under the amended retirement agreement “would constitute a
golden parachute payment,” as would the separation payment. R.16-2 at 3. And it realized that
the FDIC’s regulations “generally limit payments to no more than one year of annual salary.” Id.
The Federal Reserve and the FDIC greenlighted the first payment.
After the Bank’s condition improved in 2013, Fentura sought approval to pay the
remainder: $107,000 from the amended retirement agreement and $28,000 from the separation
agreement. As Fentura put the matter, it requested consent to “satisfy the terms of the”
No. 20-1536 Wollschlager v. FDIC Page 5
retirement agreement “and the Separation Agreement.” R.16-7 at 4. It “acknowledged” that the
two agreements had “required prior approval pursuant to the Golden Parachute Restrictions” and
that it had not met this condition. Id. at 5.
Although the Federal Reserve agreed to the second payment, the FDIC did not.
Wollschlager, the FDIC reasoned, had already received a golden parachute payment equivalent
to a full year’s salary. Were Fentura to pay an additional $135,000, the total payment would be
“almost two times” his annual salary, rendering it “inconsistent with” the agency’s regulatory
guidance. R.17-3 at 9. The FDIC also noted that Fentura “never submitted” its agreements with
Wollschlager “for regulatory approval,” id., violating the rule that golden parachute agreements
must receive the FDIC’s consent, see 12 C.F.R. § 359.2. It added that the second payment of
$135,000 would be “unreasonable given the Bank’s troubled condition” as well as
Wollschlager’s “relatively short three-year employment at the Bank.” R.17-4 at 4. With the
second payment too large, Wollschlager’s tenure too short, and the FDIC’s preapproval
nonexistent, the agency denied consent.
Wollschlager sued the FDIC, alleging that it acted unlawfully. The district court granted
the FDIC’s motion for judgment on the administrative record.
II.
Under the Administrative Procedure Act, we may “hold unlawful” agency actions that are
“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A). The initial choice over the right course of discretionary action is the agency’s, not
ours. A federal court should not “substitute its judgment for that of the agency” over matters that
Congress has permissibly delegated to the agency. Motor Vehicle Mfrs. Ass’n of U.S., Inc. v.
State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). But an agency’s judgment and exercise
of discretion must turn on reasoned decision making. Encino Motorcars, LLC v. Navarro, 136
S. Ct. 2117, 2125 (2016). The question at day’s end is whether the agency reached a reasoned
decision that accounted for the material considerations at hand. Citizens to Preserve Overton
Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). We review a district court’s decision in this area
with fresh eyes. Glenn v. MetLife, 461 F.3d 660, 665–66 (6th Cir. 2006).
No. 20-1536 Wollschlager v. FDIC Page 6
The FDIC considered the relevant factors, fairly explained its reasoning, and reached a
sensible judgment. Recall the factors the agency must assess. Did Wollschlager commit fraud,
take actions putting the Bank in a troubled state, or violate banking laws? 12 C.F.R.
§ 359.4(a)(4). No: The FDIC found those factors favored Wollschlager, explaining that its
“analysis and conversations with field examiners” concluded that “Wollschlager was not the
cause of the bank’s . . . problems.” R.17-3 at 8.
Did Wollschlager have managerial responsibility? 12 C.F.R. § 359.4(b)(1). Yes: That
factor helped Wollschlager, too, as he “was tasked with working through . . . problem assets, and
by all accounts, was effective in this challenging role.” R.17-3 at 8.
So far, these signs favor the payment.
But what about Wollschlager’s length of employment and the reasonableness of the
payment? 12 C.F.R. § 359.4(b)(3). No: These factors, the FDIC reasonably found, undermined
the payment, as it would result in a windfall of two years’ salary for an employee who worked
for just three years. On top of that, the agency explained, the Bank never sought initial approval
for the agreement.
These reasons stand on solid footing. As the Bank and Wollschlager already had reason
to know, the FDIC’s public guidance disapproves of golden parachute payments exceeding one
year’s salary. See FDIC, FIL-66-2010 at 8. And the FDIC requires approval of all payments by
troubled entities, 12 C.F.R. § 303.244(a), which the statute tells us includes any payment “or any
agreement to make any payment,” 12 U.S.C. § 1828(k)(4). Fentura sought to pay Wollschlager
almost twice the suggested cap and neglected to secure approval before signing any of its
agreements with Wollschlager. Either fact by itself might offer the agency room to balk. Taken
together, and considered alongside Wollschlager’s brief tenure at the Bank, the FDIC provided
“adequate reasons” for withholding consent, Encino Motorcars, 136 S. Ct. at 2125, after
considering “the relevant factors,” Overton Park, 401 U.S. at 416. All told, the agency did not
act arbitrarily or (to the extent there is a difference) capriciously in refusing to sign off on the
second payment to Wollschlager.
No. 20-1536 Wollschlager v. FDIC Page 7
The only appellate case directly on point charts a similar course. After the FDIC refused
to allow golden parachute payments exceeding 12 months’ salary for some banking executives,
BBX Capital sued the agency, insisting its decision was arbitrary and capricious. BBX Capital v.
Federal Deposit Ins. Corp., 956 F.3d 1304, 1311–12 (11th Cir. 2020) (per curiam). Disagreeing,
the Eleventh Circuit emphasized the statutory default rule that “golden parachute payments are
prohibited unless excepted.” Id. at 1317. And it explained that the “FDIC’s analysis of the
discretionary factors” buttressed its finding. Id. Although the agency found that the executives
had managerial responsibilities, it reasoned that they had been fairly compensated based on their
tenure and cautioned that the leaders of troubled institutions should not “be awarded windfall
payments.” Id. at 1318 (quotation omitted). In the court’s view, “the FDIC did exactly what it
was supposed to do” in weighing the pertinent factors. Id. A similar outcome applies here.
III.
Trying to head off this conclusion, Wollschlager insists that he is the kind of white knight
contemplated by the regulations and that the FDIC failed to follow its own regulations in
denying the second payment. The white knight provision, sure enough, is designed to entice
people like Wollschlager to join troubled institutions. See FDIC, FIL-66-2010 at 9. But the
exception imposes two straightforward requirements, and Wollschlager does not challenge the
agency’s authority to promulgate either one. A bank “may agree to make . . . a golden parachute
payment if”: (1) the “agreement is made in order to hire a person . . . when the insured
depository institution” is troubled or is about to become troubled, and (2) the Federal Reserve
Bank and the FDIC “consent in writing to the amount and terms of the golden parachute
payment.” 12 C.F.R. § 359.4(a)(2). Wollschlager did not satisfy the first condition and that
suffices by itself to reject his challenge.
The first requirement establishes that the agreement must be made “in order to hire a
person.” Id. Fentura sought the FDIC’s approval of the second golden parachute payment to
“satisfy the terms of the” amended incentive agreement “and the Separation Agreement.” R.16-7
at 4. The amended retirement agreement came about in December 2010—two years into
Wollschlager’s tenure—to provide “additional inducement” to keep him at the Bank. Id. at 3.
As Wollschlager concedes, it was made in order to retain, not to hire, him. See Reply Br. at 5.
No. 20-1536 Wollschlager v. FDIC Page 8
In its final rule, the FDIC refused to allow golden parachute payments to incentivize existing
employees to stay at a troubled institution. In the agency’s words, the white knight “rationale
does not apply to the case of a current employee of a troubled institution since he/she does not
need to be enticed to give up an established, stable career with another employer.” 61 Fed. Reg.
5926, 5928 (1996). As for the separation agreement, it was signed in September 2011, just one
month before Wollschlager departed the Bank. Fentura signed that agreement in order to fire
Wollschlager, not “in order to hire” him. 12 C.F.R. § 359.4(a)(2).
Even so, Wollschlager counters, he and Fentura entered into the original incentive
agreement so that he would join the Bank at a time when it faced challenges. Maybe so. But the
amended incentive agreement “rescind[ed] and replace[d]” the original agreement between
Fentura and Wollschlager. R.16-7 at 35. And Fentura sought the FDIC’s consent only to
“satisfy the terms of the” amended incentive agreement “and the Separation Agreement.” Id. at
4. It never asked for the agency’s approval to fulfill the terms of the original agreement between
Wollschlager and Fentura. The relevant “agreement” before the agency was not made “in order
to hire” Wollschlager. 12 C.F.R. § 359.4(a)(2). The agency did not act arbitrarily by opting not
to consider a rescinded agreement.
Wollschlager separately argues that the FDIC acted arbitrarily by failing to consider the
white knight provision’s applicability. No doubt, had the FDIC explicitly addressed the white
knight provision’s relevance to this case, that would have facilitated review. But we uphold
decisions “of less than ideal clarity” where the “agency’s path may reasonably be discerned.”
Bowman Transp., Inc. v. Arkansas-Best Freight, 419 U.S. 281, 286 (1974). Because the agency
clearly articulated its reasons for denying the second payment, the administrative record provides
ample grounds for our judgment that the agency did not act arbitrarily or capriciously.
But even if the FDIC erred in this respect, any error was harmless. The Administrative
Procedure Act instructs us to take “due account” of “the rule of prejudicial error.” 5 U.S.C.
§ 706; see Nat’l Ass’n of Home Builders v. Defs. of Wildlife, 551 U.S. 644, 659–60 (2007).
Remember that the same balancing factors the agency considered—an employee’s position
of authority, time spent at the entity, and whether a payment is reasonable given their
services—applies to the white knight provision. See 12 C.F.R. § 359.4(b). And the white knight
No. 20-1536 Wollschlager v. FDIC Page 9
provision’s consent requirement mirrors the catchall consent exception. There is no reason to
think the FDIC would change its mind by applying a different combination of the same words.
Last and least, Wollschlager contends that, because the FDIC approved the first golden
parachute payment to Wollschlager, it “waived its argument that the agreements were never
approved.” Appellant’s Br. at 31. Wollschlager is right that the agency (generously) overlooked
Fentura’s failure to obtain prior approval for the first $138,000 golden parachute payment. But
he is wrong that the agency may not enforce that requirement now.
“Waiver is the intentional, voluntary relinquishment of a known right.” Am. Bank, FSB
v. Cornerstone Cmty. Bank, 733 F.3d 509, 615 (6th Cir. 2013). No “voluntary relinquishment”
occurred. The FDIC faced a new application for a second golden parachute payment when
Fentura returned for more, and it reasonably denied that request based on the regulations. It
never gave up its authority to deny a later payment on grounds set forth in those regulations.
To the extent Wollschlager argues that the agency is estopped from changing its mind,
that argument fails too. “An essential element of any estoppel is detrimental reliance on the
adverse party’s misrepresentations.” Lyng v. Payne, 476 U.S. 926, 935 (1986). Wollschlager
did not detrimentally rely on the FDIC’s approval of the first golden parachute payment, nor did
the FDIC misrepresent anything to anyone. That the FDIC overlooked the preapproval
requirement when it allowed the first payment of $138,000 is a single act of grace it had no
obligation to repeat.
We affirm.