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HomeMy WebLinkAbout2011-7681 AMERISERV FINANCIAL, INC., : IN THE COURT OF COMMON PLEAS OF PETITIONER : CUMBERLAND COUNTY, PENNSYLVANIA : : V. : : : THOMAS McKEON, : RESPONDENT : 11-7681 CIVIL TERM IN RE: PETITION TO VACATE OR MODIFY ARBITRATION AWARDS OPINION AND ORDER OF COURT Masland, J., May 24, 2012:-- Before the court is a Petition to vacate or modify arbitration awards filed by Ameriserv Financial, Inc., Petitioner, regarding an award obtained by Thomas McKeon, Respondent. After careful review of the parties’ briefs and oral argument, the court denies the petition to vacate or modify the arbitration awards. I. Facts 1 The facts are not in dispute. 1. AmeriServ Financial, Inc. [Petitioner] is a bank holding company headquartered in Johnstown, Pennsylvania. 2. On January 22, 2007, Petitioner and Bruce L. Marra, Janet Marra and [Respondent] Thomas McKeon entered into a stock purchase agreement (“Stock Purchase Agreement”), pursuant to which AmeriServ purchased 100% of the capital stock of West Chester Capital Advisors, Inc. (“the Company”). 3. [Respondent] has received all of the portion of the purchase price for the stock of the Company due to him. 4. [Petitioner] continues to own 100% of the capital stock of the Company. 5. On March 6, 2007, the Company, [Petitioner], AmeriServ Bank and [Respondent] entered into an employment agreement, a true and correct copy of which is attached as Exhibit A. 1 Prior to arbitration the parties entered into a joint stipulation of facts. See Stipulation of Facts, Pet. Ex. A. 11-7681 CIVIL TERM 6. In December 2008, [Petitioner] received $21,000,000 in financial assistance from the U.S. Treasury under the Troubled Asset Relief Program Capital Purchase Program (“TARP”). 7. The funds received by [Petitioner] under the TARP program have not yet been repaid. 8. On May 3, 2010, the Company terminated [Respondent’s] employment. 9. [Respondent’s] employment with the Company was not terminated for “Cause” within the meaning of Section 3(a) of the Employment Agreement. 10. The termination of [Respondent’s] employment did not follow a “Change in Control” within the meaning of Section 5(b) of the Employment Agreement. 11. [Respondent’s] annual base salary as of the date of the termination of his employment was $181,000. [Respondent] did not receive any bonus award in any of the three calendar years immediately preceding the termination of his employment. 12. In 2009, aside from [Petitioner’s] “senior executive officers”, [Respondent] was the second “most highly compensated employee” of [Petitioner] and its affiliated entities, which collectively constitute the “TARP Recipient”, as the terms “senior executive officer”, “most highly compensated employee” and “TARP Recipient” are defined in Section 30.1 of the Interim Final Rule, TARP Standards for Compensation and Corporate Governance, 74 Fed. Reg. 28394, 28408 (June 15, 2009), 31 C.F.R. Part 30 (“the Interim Rule”). A true and correct copy of the Interim Final Rule is attached as Exhibit B. 13. The Company provided [Respondent] with his base salary and fringe benefits for the period ending June 3, 2010. 14. Neither the Company, [Petitioner] or AmeriServ Bank paid [Respondent] any of the amounts described in Subsections 7(a) and (b) of the Employment Agreement. Pet. Ex. A (emphasis added). II. Employment Agreement The relevant portions of the Employment Agreement read: -2- 11-7681 CIVIL TERM 7. Rights in Event of Termination of Employment Without Cause in Absence of Change in Control. In the event that [Respondent’s] employment is terminated by the Company without Cause and no Change in Control shall have occurred at the date of such termination, [Respondent] shall be entitled to receive the amounts and benefits set forth in this section. (a) Current Compensation at Termination. For a period of one year from the date of termination of employment, [Respondent] shall be paid his Current Compensation at Termination. (i) For purposes of this section, the term “Current Compensation at Termination” means the sum of (A) [Respondent’s] base salary as of the date of termination of employment (or prior to any reduction thereof preceding termination of employment), and (B) a dollar amount equal to the average of the awards [Respondent] received as bonuses (including deferred bonuses) for each of the three calendar years preceding the year in which the termination of employment occurs. (ii) Amounts required to be paid to [Respondent] under this Section 6(a) shall be paid in a lump sum within 30 days following the date of termination of employment. (b) Benefits. For a period of one year from the date of termination of employment [Respondent shall receive a continuation of all life, medical insurance and other welfare benefits (other than disability insurance) in effect with respect to [Respondent] during the two calendar years prior to his termination of employment …. At the election of the Company, the amount required to be paid by this Section 7(b) may be paid as a lump sum equal to the Company’s good faith estimate of the present value of such benefits. Employment Agreement ¶¶7(a)-(b). III. Regulations At the outset, the court notes, as reflected in the parties’ stipulation, there is no dispute that at the time of termination, Petitioner was a TARP recipient and Respondent was a highly compensated employee governed by TARP’s Golden Parachute provisions. The real issue the parties submitted to the Arbitrator was whether the disputed payments constituted Golden Parachute payments as -3- 11-7681 CIVIL TERM described by the applicable Treasury Department Regulations. The relevant regulations provide: Golden parachute payment. (1) General rule. The term “golden parachute payment” means any payment for the departure from a TARP recipient for any reason, or any payment due to a change in control of the TARP recipient or any entity that is included in a group of entities treated as one TARP recipient, except for payments for services performed or benefits accrued. … Payments for services performed or benefits accrued. (i) General rules … a payment made … is for services performed or benefits accrued only if the payment was made, or the right to the payment arose, for current or prior …. Whether a payment is for services performed or benefits accrued is determined based on all the facts and circumstances. However, a payment, or a right to a payment, generally will be treated as a payment for services performed or benefits accrued only if the payment would be made regardless of whether the employee departs or the change in control event occurs, or if the payment is due upon the departure of the employee, regardless of whether the departure is voluntary or involuntary (other than reasonable restrictions, such as the forfeiture of the right to a payment for an involuntary departure for cause, but not restrictions relating to whether the departure was a voluntary departure for good reason or subsequent to a change in control). 31 CFR § 30.1 (emphasis added). IV. Arbitrator’s Decision Pursuant to paragraph nine of the employment agreement, the parties submitted this dispute to Arbitration conducted by the American Arbitration Association. The Arbitrator ultimately concluded that the payments did not constitute a Golden Parachute. He reasoned: [T]he [Petitioner] desired to retain the [Respondent’s] services for at least four years during which period West Chester would transition its clients and culture into the [Petitioner]. And it is also clear to the Arbitrator, that the Employment Agreement was part of the total mix of consideration bargained-for by the [Respondent] when considering the sale of his West Chester stock to the [Petitioner]. -4- 11-7681 CIVIL TERM Therefore, the Arbitrator finds that the Termination Payments, based on all the facts and circumstances of this dispute, are not Golden Parachute Payments under the Regulations, but, fall under the exception for services performed or benefits accrued. These Termination Payments were part of the consideration for the Stock Purchase Agreement, i.e., [Respondent’s] expectation for a 4-year term of employment, excepting termination for cause; and are due to the [Petitioner] “regardless of whether the departure is voluntary or involuntary.” Interim Award of Arbitrator at 7. Following the Arbitrator’s decision, Petitioner sought relief in this court by filing a Petition to Vacate or Modify Arbitration Awards. V. Discussion At the outset we note our courts “strongly favor the settlement of disputes by arbitration.” Langston v. National Media Corp., 596 A.2d 860, 864 (Pa. Super. 1991). Accordingly, our review of a Common Law Arbitration proceeding is exceedingly narrow. Specifically, “[t]he award of an arbitrator in a nonjudicial arbitration … is binding and may not be vacated or modified unless it is clearly shown that a party was denied a hearing or that fraud, misconduct, corruption or other irregularity caused the rendition of an unjust, inequitable or unconscionable award.” 42 Pa.C.S. §7341 (emphasis added). Further, “arbitrators are the final judges of both law and fact, and an arbitration award is not subject to a reversal for a mistake of either.” McKenna v. Sosso, 745 A.2d 1, 4 (Pa. Super. 1999) (emphasis added). Here, Petitioner argues the Arbitrator erred in holding the Termination Payments constituted payments for services rendered and benefits accrued and consequently rendered the award unjust, inequitable, or unconscionable as the -5- 11-7681 CIVIL TERM award required Petitioner to violate applicable federal law and subject Petitioner to federal penalties. Petitioner points to both the Treasury Regulations and the language of the Employment Agreement to support its position. Specifically, the Regulations state: [A] payment for services performed or benefits accrued only if the payment would be made regardless of whether the employee departs or the change in control event occurs, or if the payment is due upon the departure of the employee, regardless of whether the departure is voluntary or involuntary …. 31 CFR § 30.1 (emphasis added). Meanwhile, Section 7 of the Employment Agreement clearly conditions eligibility for the Termination Payment upon Respondent’s termination without cause. Accordingly, had Respondent been terminated involuntarily, with cause, he would not have been entitled to the Termination Payment. Thus, the Payment is not for services rendered or benefits accrued because Respondent is not entitled to it regardless of whether termination was voluntary or involuntary. We find this argument persuasive, and if we were conducting a de novo review we would be constrained to agree. However, as previously stated, our review here is decidedly narrow and what we perceive to be an error of law is insufficient for us to vacate an arbitration award. McKenna v. Sosso, 745 A.2d 1, 4 (Pa. Super. 1999). Further, Petitioner has failed to establish it was denied a hearing or was the victim of fraud, misconduct, corruption or other irregularity. Moreover, we do not consider the award to be unjust, inequitable or -6- 11-7681 CIVIL TERM unconscionable -- in the grand scheme of parachutes, this one was gold-plated at best. We are also unconvinced by Petitioner’s contention that compliance with the Arbitration Award would force it to violate federal law and subject it to criminal sanction. We hesitate to predict the response of an appellate court, let alone another branch of government, but are relatively confident that with our Court Order in hand, Petitioner will avoid the wrath of the Treasury Department. VI. Conclusion For all these reasons, the Petition to Vacate or Modify Arbitration Awards is denied and the Final Arbitration Award is affirmed in all respects. ORDER OF COURT AND NOW, this day of May, 2012, the Petition to Vacate or DENIED Modify Arbitration Awards is and the Final Arbitration Award is AFFIRMED . By the Court, Albert H. Masland, J. G. Thompson Bell, III, Esquire 111 North Sixth Street P.O. Box 679 Reading, PA 19603-0679 For Petitioner William T. Wilson, Esquire 17 West Miner Street P.O. Box 660 West Chester, PA 19381-0660 For Respondent :saa -7- AMERISERV FINANCIAL, INC., : IN THE COURT OF COMMON PLEAS OF PETITIONER : CUMBERLAND COUNTY, PENNSYLVANIA : : V. : : : THOMAS McKEON, : RESPONDENT : 11-7681 CIVIL TERM IN RE: PETITION TO VACATE OR MODIFY ARBITRATION AWARDS ORDER OF COURT AND NOW, this day of May, 2012, the Petition to Vacate or DENIED Modify Arbitration Awards is and the Final Arbitration Award is AFFIRMED . By the Court, Albert H. Masland, J. G. Thompson Bell, III, Esquire 111 North Sixth Street P.O. Box 679 Reading, PA 19603-0679 For Petitioner William T. Wilson, Esquire 17 West Miner Street P.O. Box 660 West Chester, PA 19381-0660 For Respondent :saa