WELLS FARGO BANK, Petitioner, v. The SUPERIOR COURT of the City and County of San Francisco, Respondent.
Barbara WERTZ, Real Party in Interest. WELLS FARGO BANK, Petitioner, v. The SUPERIOR COURT of the City and County of San Francisco, Respondent. Wilma BOTELHO et al., Real Parties in Interest.
The issue raised by these two petitions for writ of mandate is whether branch managers for Wells Fargo Bank, National Association (Wells Fargo), who were made vice president or assistant vice president and designated by Wells Fargo as “officers” of the bank, were “at will” or “at pleasure” employees for purposes of the National Bank Act (12 U.S.C. § 24 Fifth (hereafter Paragraph Fifth)). That paragraph authorizes a national banking association “[t]o elect or appoint directors, and by its board of directors to appoint a president, vice president, cashier, and other officers, define their duties, require bonds of them and fix the penalty thereof, dismiss such officers or any of them at pleasure, and appoint others to fill their places.” (Emphasis added.) We conclude that these employees were not “officers” with “at will” status because they were not appointed and dismissed by the board of directors of the bank.
We abbreviate the facts and procedures because the issue is one of law. Barbara Wertz, a branch manager for only a few months, was discharged in 1985 for her role in permitting an individual customer personally to negotiate a $300,000 check payable to Wells Fargo, drawn on the account of another customer, a corporation. The bank took a loss when the corporation complained about the use of money from its account and the individual was unable to repay withdrawals under the line of credit he secured with the funds.
Ms. Wertz brought an action for wrongful termination, claiming an implied agreement that she could be terminated only for cause. Wells Fargo moved for summary judgment on the ground that Ms. Wertz was an “officer” within the meaning of the National Bank Act and could be dismissed without a showing of cause. The court denied summary judgment. Wells Fargo's petition No. A046100 for writ of mandate followed.
At least 12 other Wells Fargo branch managers were discharged or induced to quit for poor performance during 1984 and 1985. (Throughout this opinion, various forms of words like “terminate,” and “remove” will be used, somewhat inexactly, to refer both to discharging and inducing a plaintiff to quit or retire.) These 12 joined together in an action for wrongful termination against Wells Fargo. Again Wells Fargo moved for summary judgment based upon the National Bank Act. Again the court denied the motion. In its order denying the motion, the court relied upon its prior ruling in the Wertz case. Wells Fargo's petition No. A046657 for writ of mandate followed. Three plaintiffs remain in the two cases (Wilma Botelho, Thomas Moore, and Barbara Wertz), the others having settled their claims or having been dismissed by the court because they had released their claims.
Under California law employment is presumed to be “at will” unless a specific duration is stated in the employment agreement, but an employee can overcome such presumption by proof of an agreement, express or implied, that he or she will be discharged only for good cause. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 675–682, 254 Cal.Rptr. 211, 765 P.2d 373; Pugh v. See's Candies, Inc. (1981) 116 Cal.App.3d 311, 320, 324–325, 171 Cal.Rptr. 917.) If, however, these plaintiffs are classified as “officers” under Paragraph Fifth and thus “at will” employees, state law is preempted by federal law despite any contrary understanding between employer and employee. (See Kozlowsky v. Westminster Nat. Bank (1970) 6 Cal.App.3d 593, 596–597, 86 Cal.Rptr. 52.) Thus, the key question is whether federal law dictates “at will” employment status for these plaintiffs.
Paragraph Fifth, adopted in 1864 (Act of June 3, 1864, ch. 106, § 8, 13 Stat. 99, 101), is part of the National Bank Act (12 U.S.C. § 24). It defines the corporate powers of national banking associations, including the power to make contracts, sue and be sued, prescribe bylaws, and exercise all incidental powers necessary to carry on the business of banking. Two of its ten “paragraphs” are pertinent here: “a national banking association ․ shall have power— ․ [¶] Fifth. To elect or appoint directors, and by its board of directors to appoint a president, vice president, cashier, and other officers, define their duties, require bonds of them and fix the penalty thereof, dismiss such officers or any of them at pleasure, and appoint others to fill their places. [¶] Sixth. To prescribe, by its board of directors, by-laws not inconsistent with law, regulating the manner in which its stock shall be transferred, its directors elected or appointed, its officers appointed, its property transferred, its general business conducted, and the privileges granted to it by law exercised and enjoyed.”
Wells Fargo contends that plaintiffs are “officers” of the bank and are therefore subject to removal without cause. Wells Fargo points to its bylaws, which provide for election and appointment of officers: “The Bank shall have (i) a Chairman of the Board, (ii) a President and (iii) a Secretary. The Bank also may have, at the discretion of the Board of Directors, ․ one or more Senior Vice Presidents, one or more Vice Presidents, one or more Assistant Vice Presidents, ․ and such other officers as the Board may by resolution create․ The following officers shall be filled only pursuant to election by the Board of Directors: [12 officers are listed]. Other officers [including the assistant vice presidents involved in this action] may be appointed by the Chief Executive Officer or by any officer or committee whom he [or she] may authorize to perform this duty. All officers shall hold office at will, at the pleasure of the ․ officer or committee authorized by the Chief Executive Officer to remove such officers, and may be removed at any time, with or without notice and with or without cause. No authorization by the Chief Executive Officer to perform such duty of appointment or removal shall be effective unless done in writing, signed by the Chief Executive Officer.”
Wells Fargo presented evidence below that the chief executive officer delegated to executive vice presidents, who delegated to senior vice presidents, the authority to approve the removal or termination of any officers or employees within their groups or effect removals or terminations themselves. Further evidence showed that the remaining plaintiffs, each of whom held the title of assistant vice president, were removed by senior vice presidents under authority delegated by the executive vice president.
Plaintiffs in A046657 disputed the chain of delegation in some of the terminations. But more importantly, they and Ms. Wertz contended below and argue here that designation of these branch managers as “officers” by Wells Fargo and delegation of authority to hire and fire them does not make them “officers” within the meaning of Paragraph Fifth. The trial court accepted their argument, ruling that “officers” within the meaning of the National Bank Act should be construed to apply only to those who are appointed and dismissed by the bank's board of directors itself.
Wells Fargo contends that, contrary to the trial court's analysis, the National Bank Act “plainly permits national banks to allocate responsibility over business affairs through use of corporate bylaws. The appointment of officers is among the specific powers which may be regulated through use of national bank bylaws.” (Emphasis omitted.) What Wells Fargo says is true; a national bank is permitted to adopt bylaws governing operation of the banking business. Like Wells Fargo's, these bylaws may designate the “officers” of the bank and may delegate authority to hire and fire these “officers.” But Wells Fargo's analysis begs the question of whether by bestowing the title “officer” the bank may automatically bring an employee within the “at pleasure” employment clause of Paragraph Fifth.
The meaning of “officer” in Paragraph Fifth is critical. Is it open-ended, subject only to the definitions and delegations of authority contained in a particular national bank's bylaws? Or is the superior court correct that it is limited to those “officers” appointed directly by the board of directors? Is there some middle ground under which the court is required to analyze the duties and responsibilities of the employee to determine whether he or she is an “officer” within the meaning of the “at will” employment section?
The questions are significant. If Wells Fargo is correct, “at will” employment status has been conferred upon every bank employee designated by the bank as an “officer” and appointed by delegation of authority from the chief executive officer. In addition to many assistant vice presidents in the bank's headquarters, this probably includes all branch managers, many assistant branch managers, and perhaps certain loan officers and others. If plaintiffs are correct, the only “at will” employees are those appointed directly by the bank's board of directors, in this case the “Chairman of the Board, Vice Chairman of the Board, President, Vice Chairman [sic ], Executive Vice President, Senior Vice President, Vice President, Senior Trust Officer, Cashier, General Auditor, Chief Loan Examiner, Controller and Secretary.” If some middle ground is adopted, courts will shoulder the burden of determining, on a case-by-case basis, whether a particular person designated by the bank as an “officer” has the duties and responsibilities expected of an “at will” officer of the bank.
To determine the scope of “at will” employment by national banks, we must consider the purpose and function of Paragraph Fifth. The stage for interpreting the “at will” provision was set in Westervelt v. Mohrenstecher (8th Cir.1896) 76 Fed. 118. There, persons who had posted a bond to secure the performance of the bank's cashier refused to pay the bank's receiver on the ground that the bond expired when the prior cashier's one-year term ended. In spite of bylaws that set a one-year term, the court rejected the contention that the cashier's office had a one-year term. The court explained: “The act of congress expressly fixed the tenure of office of the cashier of this bank. It expressly provided that the board of directors might dismiss the cashier and certain other officers ‘or any of them at pleasure and appoint others to fill their places.’ It provided that this cashier should always hold his [or her] office subject to instantaneous removal at the pleasure of the board of directors. Nor is it at all probable that this provision of the national bank act was inserted without purpose or consideration. Observation and experience alike teach that it is essential to the safety and prosperity of banking institutions that the active officers, to whose integrity and discretion the moneys and property of the bank and its customers are intrusted, should be subject to immediate removal whenever the suspicion of faithlessness or negligence attaches to them. High credit is indispensable to the success and prosperity of a bank. Without it, customers cannot be induced to deposit their moneys․ It sometimes happens that, without any justification, a suspicion of dishonesty or carelessness attaches to a cashier or a president of a bank, spreads through the community in which he [or she] lives, scares the depositors, and threatens immediate financial ruin to the institution. In such a case it is necessary to the prosperity and success—to the very existence—of a banking institution that the board of directors should have power to remove such an officer, and to put in his [or her] place another, in whom the community has confidence. In our opinion, the provision of the act of congress to which we have referred was inserted, ex industria, to provide for this very contingency.” (Id., at p. 122.)
Later decisions have used the “at pleasure” provision of Paragraph Fifth to protect national banks and their customers from unwise employment agreements that would have provided security for key bank personnel. For example, in Copeland v. Melrose Nat. Bank (1930) 229 A.D. 311, 241 N.Y.S. 429, the bank agreed to employ its vice president for three years at a salary of $8,000 per year and to pay the rest of his salary as liquidated damages if it terminated him early. The Copeland court held that the bank had no authority to enter such an agreement, which conflicted with the employee's “at will” status: “In Rankin v. Tygard [8th Cir.1912] 119 C.C.A. 591, 198 F. 795, the statute was under consideration, and it was held that no term of office could be fixed which would prevent the bank from exercising its unrestricted power to remove an officer at pleasure during the term. [¶] Plaintiff's engagement was merely a hiring, terminable at the will of the directors. The intent of the statute was to place the fullest responsibility upon the directors by giving them the right to discharge such officers at pleasure. A contract for a definite term which forbids such discharge except under penalty of paying compensation for the full term violates the statute, and is unenforceable. To uphold the liquidated damage provision of the contract would be to countenance a patent subterfuge designed to circumvent the law. It is idle to say that the statute merely gives the power to discharge the official, without the right to do so. The grant of the power carries with it the untrammeled right to its exercise, free from penalty.” (Copeland, supra, 241 N.Y.S. at p. 430.)
More recently, one court has observed: “The case law uniformly interprets [Paragraph Fifth] and substantially similar provisions as rendering unenforceable, as against public policy, all contractual provisions which do not allow a national banking association to discharge its officers at will without incurring liability for breach of contract. [Citations.]” (McGeehan v. Bank of New Hampshire, Nat. Ass'n (1963) 123 N.H. 83, 455 A.2d 1054, 1055.)
While it is clear that national banks may not enter binding employment security agreements with those defined as “officers” by Paragraph Fifth, the case law is less than clear about who should be considered “officers” for purposes of that section. One of Wells Fargo's supporting cases, Mahoney v.Crocker Nat. Bank (N.D.Cal.1983) 571 F.Supp. 287 (opn. by Aguilar, J.), made clear statements on the issue, but only in dicta. There, the plaintiffs argued that lesser officers (an assistant branch manager and a branch lending manager) should not be considered “officers” within the meaning of Paragraph Fifth. But the court did not decide the issue, because it determined that there was a break in the chain of delegation of the authority to discharge the plaintiffs, and therefore the “at pleasure” provision was inapplicable. In its analysis, however, the court suggested that employees would be considered “officers” under Paragraph Fifth if appointed in accordance with the bank's bylaws by those to whom the appointment power was delegated. The court also stated boldly that “in light of the powers given to boards of directors by Congress in the National Bank Act, the Court cannot interpret the language of the dismissal at pleasure provision as meaning that the dismissal at pleasure defense can be asserted only when the board of directors itself makes the dismissal.” (Id., at p. 290, original emphasis.)
In plaintiffs' strongest case, Wiskotoni v. Michigan Nat. Bank–West (8th Cir.1983) 716 F.2d 378, decided six days after Mahoney, the court noted that the question of whether a branch manager is an officer to whom Paragraph Fifth applies had not yet been resolved. The bank there argued that its characterization of branch managers as officers in the bylaws should be dispositive. The Wiskotoni court said it did not agree and that Paragraph Fifth required that officers be appointed and dismissed by a national bank's board of directors. (Wiskotoni, supra, at p. 387.) But in Wiskotoni the president hired and fired the plaintiff, even though the bylaws specified that branch managers were to be appointed by the board of directors and made no provision for delegation of that authority.
In Holland v. Bank of America (S.D.Cal.1987) 673 F.Supp. 1511, another case relied upon by Wells Fargo, the issue arose again. The court there ruled that the plaintiff, a former branch manager, was an “at will” employee whose wrongful demotion action should be dismissed. Citing Wiskotoni, the plaintiff argued that a branch manager was not a bank officer within the meaning of Paragraph Fifth, and that the act would not apply because he was not terminated directly by the board of directors. In a very loose analysis of the issue, the Holland court said the following: “as the Bank of America notes, positions are not definitionally within the Act; it depends on whether a person within a bank's particular corporate structure is considered an officer. Bank of America then points to Holland's deposition testimony that prior to 1979, he was a ‘bank officer’ and vice president. Second, Bank of America contends that the Act applies even though a delegatee of the Board of Directors carries out the appointments and dismissals. [¶] The Bank's position is meritorious. Holland considered himself to be a bank officer, and officers can be dismissed at the pleasure of the bank․ Thus, section 24(Fifth) of the National Bank Act precludes all of Holland's state law claims that arise out of his assertion that he was improperly demoted from branch manager.” (Holland, supra, at pp. 1516–1517.)
Early in 1989, the Ninth Circuit considered this issue in a slightly different context. In Mackey v. Pioneer Nat. Bank (9th Cir.1989) 867 F.2d 520, the discharged employee was the bank's executive vice president, and he was discharged by the executive committee of the board of directors of the bank. The full board ratified the executive committee action. The plaintiff argued, however, that because he was not hired by the board, he could not be fired “at will” by the board and that, if he could, the action of the executive committee was insufficient for that purpose. The Mackey court rejected both arguments. It concluded that he was properly hired “by the board” through delegation of authority to the bank's president, and that he was properly discharged by the board through its executive committee with subsequent ratification by the full board. The Mackey court cited Wiskotoni as authority for its conclusion that the board could delegate hiring authority without risking its “at will” benefits under the National Bank Act (even though Wiskotoni said no such thing). (Mackey, supra, at p. 525.)
The case law is contradictory and does not convincingly answer the critical question of whether a bank's bylaws may define “officer” for purposes of Paragraph Fifth. For reasons not apparent to this court, none of the courts have focused much attention on the wording of that paragraph. The language of Paragraph Fifth is actually limited and specific, not expansive, as the decisions discussed above might suggest. It authorizes a national banking association to “elect or appoint directors, and by its board of directors to appoint ․ other officers, define their duties, ․ dismiss such officers or any of them at pleasure, and appoint others to fill their places.” (Emphasis added.)
The language of the statute does not leave room for the latitude to delegate afforded by the dicta in Mahoney, the reliance by Holland upon an employee's statement that he was an “officer,” or the Mackey court's assumption that “at will” status was not jeopardized by delegation of hiring authority. The section authorizes the “board of directors” of a national bank to appoint “other officers,” to define their duties, and to “dismiss such officers or any of them at pleasure․” Nothing is said about delegating the authority to dismiss at pleasure. Even though the sixth paragraph of 12 United States Code section 24 authorizes the board of directors to prescribe bylaws regulating the way officers are appointed, it says nothing about delegating the authority to dismiss. The bank's bylaws may not authorize delegation of the “at pleasure” dismissal authority where the National Bank Act has reposed the authority with the board of directors.
Instead of applying the language of the statute, the Mahoney, Holland, and Mackey courts apparently determined that federal policy dictated a more expansive interpretation of the statute. But unless congressional intent is clear, any expansion of the statute beyond its current language should be done by Congress, not by the courts. “[N]otwithstanding that national banks derive their powers from the federal statute, they remain subject to the laws of the state.” (Joy v. North (D.Conn.1981) 519 F.Supp. 1312, 1324, reversed on other grounds (2d Cir.1982) 692 F.2d 880, cert. den. sub nom. Citytrust v. Joy (1983) 460 U.S. 1051, 103 S.Ct. 1498, 75 L.Ed.2d 930.) “[U]nless federal law directly conflicts with the state scheme or unless application of state law ‘would be inconsistent with the federal policy underlying the cause of action,’ state law prevails. [Citations.]” (Id., at p. 1322.) State law allows an employee to rely upon a promise not to discharge him or her without cause. “ ‘Courts are reluctant to infer preemption, and it is the burden of the party claiming Congress intended to preempt state law to prove it.’ [Citations.]” (Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 937, 216 Cal.Rptr. 345, 702 P.2d 503, quoting Elsworth v. Beech Aircraft Corp. (1984) 37 Cal.3d 540, 548, 208 Cal.Rptr. 874, 691 P.2d 630.)
Congressional intent in this area is difficult to determine. Paragraph Fifth was written long before the current system of branch banking was envisioned, at a time when a bank could operate with a small staff. Thus, when adopted, it affected only the few highly placed bank officers whose actions were critical to the bank's solvency. In the modern era, to permit national banks to impose “at will” status upon any employees considered by the banks to be “officers” would create a large class of California employees not allowed to apply state contract law principles to their employment agreements. Congress has said nothing to suggest that “at will” status is required for this large class of employees.
If evolving federal banking policy requires an expansion of the reach of the “at will” provision, Congress should say so. Congress, unlike the courts in Mahoney, Holland, and Mackey, would hold hearings and take testimony on the subject before announcing federal policy. Unless and until Congress acts to adjust the wording of the statute to meet the changed conditions in the banking industry, we look to the words of Paragraph Fifth for federal policy. We apply the statute strictly, according to its terms.
The consequences of finding an employee covered by this section are significant: not only does the employee serve at the pleasure of the appointing officer, but any employment agreement which states otherwise is void as against public policy. But even under our ruling, a national bankmay designate certain officers for “at will” status merely by placing their appointment and discharge on the agenda of the board of directors.
We recognize that requiring Wells Fargo's board of directors to hire and fire all assistant vice presidents would place a significant administrative burden upon this multi-branch national bank. But we agree with the observation of the trial court on this point: “The fact that the board itself makes the determination to employ and to terminate provides some assurance that the individual is serving in a capacity warranting the disregard of contractual obligations in favor of the financial integrity of the institution, and that any decision to terminate is made only after careful consideration at the highest and most responsible level of bank management.” If a national bank considers it important to retain the right to terminate branch managers or employees in some other category “at will,” it may bring them under Paragraph Fifth by requiring the board of directors to hire and fire them directly.
Plaintiffs suggest that we impose a further limitation upon “at will” employment. Applying the doctrine of ejusdem generis, they would permit the board of directors to appoint as “other officers” only those whose functions were similar to the specifically identified officers. (See Case v. First Nat. Bank (N.Y.1908) 59 Misc. 269, 109 N.Y.S. 1119, 1120.) Ejusdem generis is a rule of construction under which a word's meaning is derived from associated words. In particular, when a list of items is followed by a general phrase, like “and others,” ejusdem generis requires that those “others” be of the same kind, class, or nature as the enumerated items. (Black's Law Dict. (5th ed. 1979) p. 464.) Paragraph Fifth enumerates three officers subject to “at pleasure” dismissal, president, vice president, and cashier. Under the doctrine of ejusdem generis, the “other officers” also subject to “at pleasure” dismissal must be of the same kind, class, or nature as the enumerated officers.
Alegria v. Idaho First Nat. Bank (1986) 111 Idaho 314 [723 P.2d 858, 860] held that the doctrine of ejusdem generis should not be applied to prevent “at will” discharge of an assistant branch manager. Rather, the court looked to the purpose of the National Bank Act, as stated in Westervelt v. Mohrenstecher, supra, 76 Fed. at page 122: “Observation and experience alike teach that it is essential to the safety and prosperity of banking institutions that the active officers, to whose integrity and discretion the monies and property of the bank and its customers are entrusted, should be subject to immediate removal whenever the suspicion of faithlessness or negligence attaches to them.” The Alegria court concluded that the plaintiff's responsibilities made him an “officer” within the meaning of the National Bank Act. (Note that plaintiff in Alegria was appointed and discharged by the board of directors.)
Citing Alegria, Wells Fargo contends that ejusdem generis should not be applied in interpreting the National Bank Act. Wells Fargo points to Congress's use of the term “executive officer” in 12 United States Code section 375a, as showing that Congress knew how to restrict “officers” only to the corporate elite. But Congress's use of a qualifier in a different section, adopted many years later, sheds little light on the meaning of “other officers” in Paragraph Fifth.
We conclude that ejusdem generis should not be applied here. “Ejusdem generis is a rule of construction used to carry out, not to defeat, the legislative intent.” (County of Placer v. Corin (1980) 113 Cal.App.3d 443, 448, fn. 2, 170 Cal.Rptr. 232.) We need not further define “other officers” because Congress has already done so. Its requirement that “other officers” be appointed and discharged by the board of directors sufficiently defines who those “other officers” may be. Application of ejusdem generis would only present an endless series of factual questions and require courts to take evidence about the specific duties of various bank officers before determining who could properly be discharged at will. The requirement of Paragraph Fifth of appointment and discharge by the board of directors brings certainty and simplicity to the determination.
The alternative writ is discharged, and the petition for a peremptory writ is denied.
BARRY–DEAL, Associate Justice.
WHITE, P.J., and STRANKMAN, J., concur.