SCHILLINGER v. WELLS FARGO BANK

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Court of Appeal, First District, Division 2, California.

Ralph F. SCHILLINGER, Plaintiff/Appellant, v. WELLS FARGO BANK, N.A., et al., Defendant/Respondent.

No. A043454.

Decided: April 09, 1990

Brian S. Rodriguez, Oakland, for appellant Ralph F. Schillinger. R. Stewart Baird, A. David Darman, Wells Fargo Bank Legal Dept., San Francisco, Peter W. Davis, Kathy M. Banke, Crosby, Heafey, Roach & May, Oakland, for respondent Wells Fargo Bank, N.A.

Appellant Ralph F. Schillinger, a former officer of Wells Fargo Bank, asserted claims under state law for breach of an alleged employment contract, age discrimination, and related torts following his layoff and subsequent involuntary retirement.   He contends the trial court erred in ruling his claims were federally preempted and barred by a provision of the National Bank Act, 12 United States Code section 24, Fifth (section 24), which provides that national banks may “dismiss such officers or any of them at pleasure․”   We conclude the trial court was correct in its ruling and affirm.

I. FACTS AND PROCEDURAL HISTORY

The relevant facts are not in dispute.   Appellant was employed by Wells Fargo Bank (Bank) as vice president, chief special agent, and district manager.   Appellant had been hired at age 55 by the Bank after his retirement from a previous position as a captain in the Berkeley Police Department.   Eight years later, appellant was told by the person who had hired and promoted him that he would be laid off in an effort to consolidate positions and reduce costs throughout the Bank.

Appellant received two months' pay in lieu of notice and a further six months of salary continuation, for a total of eight months' pay following discharge.   When those benefits ran out, appellant was placed on an additional two months' leave by the Bank in order to allow him to “bridge” his employment until retirement;  he received retirement benefits at age 65 from the Bank.   The Bank also provided job placement services, which appellant found to be “very helpful”;  soon after appellant started receiving retirement benefits from the Bank, he found employment elsewhere as director of public safety.

Appellant filed this action against the Bank alleging his discharge constituted “Wrongful Termination” as a result of age discrimination in violation of the California Fair Employment and Housing Act, “Breach of Covenant of Good Faith and Fair Dealing,” “Intentional Infliction of Emotional Distress,” and “Breach of [Employment] Contract.”   After extensive proceedings in the trial court which are not relevant to this appeal, the trial court granted the Bank's motion for summary judgment “because [appellant's] action is barred by [section 24]․”  Appellant timely appealed from the judgment of dismissal.

II. DISCUSSION

The trial court correctly granted summary judgment because appellant's claims were preempted and barred by federal law.  Section 24 provides national banks may “dismiss such [bank] officers or any of them at pleasure․”

Federal decisions interpreting section 24, and identical language in other federal banking acts allowing the dismissal of bank officers “at pleasure,” are persuasive authorities which recognize the applicable federal statutory provisions as precluding all state law claims arising from the dismissal of such officers.  (See, e.g., Inglis v. Feinerman (9th Cir.1983) 701 F.2d 97, 98, cert. den. (1984) 464 U.S. 1040, 104 S.Ct. 703, 79 L.Ed.2d 168 [federal statutory provisions “preempt[ ] employee claims of wrongful discharge based on state law”];  Ana Leon T. v. Federal Reserve Bank of Chicago (6th Cir.1987) 823 F.2d 928, 931, cert. den. (1987) 484 U.S. 945, 108 S.Ct. 333, 98 L.Ed.2d 360 [“This provision preempts any state-created employment right to the contrary.”];  Mackey v. Pioneer Nat. Bank (9th Cir.1989) 867 F.2d 520, 524 [“This provision has been consistently interpreted to mean that the board of directors of a national bank may dismiss an officer without liability for breach of the agreement to employ.  [Citations.]   An agreement which attempts to circumvent the complete discretion of a national bank's board of directors to terminate an officer at will is void as against public policy.”];   see also Holland v. Bank of America (S.D.Cal.1987) 673 F.Supp. 1511, 1517 [“Thus, section 24 (Fifth) of the National Bank Act precludes all of [a former bank officer's] state law claims․”].)

In contrast to this line of federal court decisions which hold that section 24 is a comprehensive bar to state law claims, the California cases applying section 24 have reached diverse and contradictory results.   Appellant relies on a contrary California decision by the Fourth District, Division Three, which has been ordered not to be published in the official reports.   That decision obviously has no value as precedent;  while it correctly recognized federal law would be supreme over contrary state law, it concluded there was no conflict between the federal law allowing dismissal of national bank officers “at pleasure” and state law causes of action to the contrary.

Division Five of this district recently decided Schey v. Trans Pacific Nat. Bancorp (1990) 217 Cal.App.3d 432, 266 Cal.Rptr. 39.   We do not interpret the actual holding of Schey to be inconsistent with our conclusion that the claims appellant has asserted here are preempted by section 24.   In Schey, Division Five held section 24 barred state remedies on similar facts for claims of breach of an implied employment contract, breach of the covenant of good faith and fair dealing, fraud, and negligent misrepresentation.   However, the Schey decision also held a state law claim would not be preempted if asserted under Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 164 Cal.Rptr. 839, 610 P.2d 1330 for retaliatory discharge due to the plaintiff's decision to bring violations of banking law to the attention of the authorities.

Appellant has not sought to plead such a cause of action, and has not relied upon the Tameny doctrine.   Therefore, we need not address the possible exception created by the Schey opinion.

We nonetheless note there may be some tension within Schey 's holding that tort claims are preempted by section 24, and the seemingly contradictory holding that a Tameny tort claim is not preempted.   It is hard, at first blush, to derive this result from the actual language of section 24.   It seems difficult to explain why a Tameny claim survives preemption for reasons of “public policy,” when certain types of torts which clearly embody society's judgments as to public policy, such as claims for fraud, breach of contract, and breach of contractual covenants implied in fact or in law, do not survive preemption.   Surely the distinction cannot be the simple denomination of a claim as one based upon some vague notion of public policy, rather than upon clearly established tort law as an expression of that public policy.

Nevertheless, the actual result as to the specific public policy claim in issue in Schey may be supportable, if the holding in the case is analyzed more narrowly and in the context of the presumed intent of Congress in passing section 24.   The plaintiff in Schey alleged he was discharged for reporting to federal authorities the sort of malfeasance within the banking system which Congress presumably intended to remedy, in part, by allowing boards of directors to remove unsatisfactory officers at pleasure.   We agree it might, therefore, be anomalous to hold that precise type of public policy claim preempted by federal law.   The plaintiff in our case, by contrast, has made no such allegation that he was discharged for bringing financial malfeasance to the attention of federal regulatory authorities.

A month after the Schey decision by Division Five, Division Three of this district decided Wells Fargo Bank v. Superior Court (1990) 218 Cal.App.3d 329, 267 Cal.Rptr. 49, which also examined section 24 preemption issues in the context of the personnel practices of Wells Fargo.   Division Three held section 24 did not preempt any of the wrongful termination claims in issue in that case, because the officers in question had not been appointed and discharged directly by action of the board of directors, but had been (as was appellant here) discharged by high executives to whom the board had assigned such authority through corporate bylaws.   We believe in this instance the holding of Division Three is in relevant part inconsistent with the decision of Division Five in Schey.   After analyzing the issue, we are unable to agree with certain portions of the rationale advanced in Wells Fargo Bank;  and we believe a different result is required here.

Wells Fargo Bank was a writ proceeding in which the Bank challenged numerous trial court rulings, which refused to apply section 24 to preempt claims by discharged branch managers of the Bank who had been made vice presidents or assistant vice presidents.   Division Three held the Bank had not established the preemption defense, because it had not established that the bank officers in question were made officers by the Bank's board of directors and were discharged by direct action of the board.   It rejected as legally insufficient an evidentiary showing that the officers were appointed and discharged by superiors who acted by virtue of authority assigned to them by the board of directors through corporate bylaws, and it required that a bank prove these facts by reference to the agenda of a board of directors meeting in which the name of the officer would be listed.

Division Three supported this result by observing that placing the names of hired and fired officers on the agenda of the board of directors would require a decision to hire or terminate was made only after careful scrutiny at the highest corporate levels.   We find it difficult to see, initially, how the act of simply appending a list of names to a consent agenda provided to the board of directors on a regular basis would fulfill that claimed requirement.

While Division Three made an extensive analysis of relevant precedents from other jurisdictions dating back to the nineteenth century, it did not discuss Schey, supra.   In Schey, Division Five observed that, under 12 Code of Federal Regulations section 7.4425, the board of directors could validly assign the performance of its duties in this respect;  in the Schey case, to an executive committee.  “The power to terminate may, however, be assigned to an executive committee of the board, and when such an assignment has been made the termination remains privileged under section 24, Fifth.”  (Schey v. Trans Pacific Nat. Bancorp, supra, 217 Cal.App.3d at p. 440, 266 Cal.Rptr. 39.)

The relevant federal regulation (12 C.F.R. § 7.4425) provides that a board of directors may not delegate the final “responsibility for its duties but may assign the performance thereof.”   The regulation places no limits on the party or parties to whom such an assignment is made, and clearly the board may assign certain duties to a high executive officer.  “Thus, a board of directors may assign performance of the job of dismissing an officer at pleasure to other persons․”  (Mahoney v. Crocker Nat. Bank (N.D.Cal.1983) 571 F.Supp. 287, 291.)   While the Schey court could not find satisfactory evidence that such an assignment by the board had occurred, it explicitly recognized that such a valid assignment (which, under the relevant federal regulation, may be made to a party or parties other than an executive committee) would be dispositive.   In fact, Division Five concluded the claims in issue were preempted because the board of directors could be presumed to have ratified the action of its executive committee.   Obviously, a very similar presumption could attach to the actions of high executive officers to whom the board had assigned its authority to dismiss officers.

Division Three by contrast applied section 24 “strictly” so as to preclude such an assignment of the board's authority according to corporate bylaws.   In so doing, it distinguished or expressed disagreement with relevant federal authorities.   It also cited but did not satisfactorily explain away the contrary language of 12 United States Code section 24, Sixth, which allows the board as a matter of statute, “To prescribe, by its board of directors, bylaws 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.”  (Emphasis added.)

Division Three pointed out that the quoted language allowed the board to establish bylaws for the appointment of officers but did not explicitly grant authority to establish bylaws governing the removal of officers, and from this observation reached the conclusion that national banks were powerless to enact bylaws on the subject of the removal of officers who were appointed pursuant to their bylaws.   It did not analyze the statutory language to which we have added emphasis, which language allows the board to establish bylaws governing the exercise of its statutory privilege to discharge officers at pleasure;  nor did it analyze the language of the federal regulation upon which Division Five relied.   When we read this statute together with the regulation, we reach a conclusion which differs from that reached by Division Three.   We find nothing in the specific circumstances of a decision to discharge an officer at pleasure which would alter the usual rule, repeated here in the relevant statute and regulation, that a board of directors may through bylaws establish a procedure for the orderly exercise of its powers through assignment of authority to the board's executive agents.  (See Schey v. Trans Pacific Nat. Bancorp, supra, 217 Cal.App.3d at pp. 440–441, 266 Cal.Rptr. 39;  accord Mackey v. Pioneer Nat. Bank, supra, 867 F.2d at p. 525;  cf. Bell v. Superior Court (1989) 215 Cal.App.3d 1103, 1110, 263 Cal.Rptr. 787 [observing that corporate entities “always retain the authority to enforce at-will employment conditions through bylaws or resolutions․”].)

We think Division Five correctly analyzed this issue in Schey, and we are not persuaded by the contrary holding of Division Three in Wells Fargo Bank.   The evidence before the trial court in our case showed, without any material dispute, that the board of directors had assigned its privilege to discharge at pleasure to senior vice presidents pursuant to its bylaws;  and that pursuant to such an assignment the appellant vice president was discharged after consideration by a senior vice president who was also the secretary of the Bank.   In short, the dismissal here was decided upon only after consideration of the issue at the highest levels of the Bank.   The trial court correctly concluded this was sufficient evidence that appellant was discharged pursuant to the statutory “at pleasure” provision of section 24.  (See Schey v. Trans Pacific Nat. Bancorp, supra, 217 Cal.App.3d at pp. 440–441, 266 Cal.Rptr. 39.)

The only other recent California authority relevant here is Kozlowsky v. Westminster Nat. Bank (1970) 6 Cal.App.3d 593, 596–597, 86 Cal.Rptr. 52, which held the National Bank Act barred a state law claim for alleged breach of a former officer's employment contract:  “Because of this statute plaintiff cannot state a cause of action for breach of his contract of employment.”   (P. 597, 86 Cal.Rptr. 52.)   We follow Kozlowsky in this holding.

Kozlowsky, however, remanded to the trial court certain other tort claims, brought by the former officer in that case, for “deceit” in inducing him to accept the position from which he was later terminated, and for another party's “interference with [his] contractual relations” with the bank.   The Kozlowsky court did not discuss in any detail whether these tort claims would be barred, as the breach of contract claim was, by the National Bank Act's “at pleasure” language.   By implication, however, the tort claims in that case were not considered to be barred by the national act;  either because they were claims in tort, not contract, or more probably because the tort claims at issue were judged not to impermissibly trammel the power of a national bank's board of directors to dismiss an officer.   To the same effect is a decision by the Supreme Court of New Hampshire, Rohde v. First Deposit Nat. Bank (1985) 127 N.H. 107, 497 A.2d 1214, 1216, which found a breach of contract claim barred but added without further analysis the observation, “It does not necessarily follow, however, that because national banks are immune from liability for breach of officer employment contracts, they or their officers are also immune from tort claims arising out of their conduct during the negotiation of such contracts․”  (Emphasis added.)

The Kozlowsky and Rohde cases are not persuasive authority for a proposition not there directly discussed, whether a bank officer's tort claims challenging his allegedly wrongful dismissal could generally escape preemption.   In any event, Division Five in Schey, supra, rejected such a theory.  (217 Cal.App.3d at p. 441, 266 Cal.Rptr. 39.)   Its ruling was in accord with recent persuasive federal authority, squarely on point, which rejects any attempt to carve out an exception for tort claims, similar to those asserted by appellant here, from the broad federal statute allowing banks to “dismiss such officers ․ at pleasure․”   According to this view, there is no meaningful distinction, in terms of the federal statute and its purposes, between a cause of action challenging a dismissal brought in contract and one brought in tort.  “[I]t would make little sense to allow state tort claims to proceed, where a former bank officer's contract claims are barred by Section 24 (Fifth).   The effect would be to substitute tort for contract claims, thus subjecting the national bank to all the dangers attendant to dismissing an officer.   The purpose of the provision in the National Bank Act was to give those institutions the greatest latitude possible to hire and fire their chief operating officers, in order to maintain the public trust.”  (Mackey v. Pioneer Nat. Bank, supra, 867 F.2d at p. 526;  accord Ambro v. American Nat. Bank and Trust Co. (1986) 152 Mich.App. 613, 394 N.W.2d 46, 48–49 [State law contract and tort claims against a national bank arising out of a former officer's discharge were held preempted by federal law.  “This provision has been consistently construed by state and federal courts to preempt state law governing employment relations between a national bank and its officers and to deprive a national bank of the power to employ its officers other than ‘at pleasure.’  [Citations.]”].)

The language of the statute, which explicitly and uncompromisingly allows dismissal “at pleasure,” supports this interpretation.   The statute certainly makes no exception for state law tort claims.   If the statute were simply a direction to plaintiffs to file actions in tort rather than in contract, this provision would serve no purpose in allowing national banks broad discretion to discharge entrenched but inefficient, untrustworthy, or merely redundant officers.   Clearly the statute bars not only appellant's breach of contract claim, but also his other related tort claims arising from the same dismissal “at pleasure.”  (§ 24;  Mackey v. Pioneer Nat. Bank, supra, 867 F.2d at p. 526;  Ambro v. American Nat. Bank and Trust Co., supra, 394 N.W.2d at p. 49.)

Appellant contends the statute does not apply to him, but his arguments here are quite unpersuasive.   Appellant first claims the statute does not apply because the Bank did not “dismiss” him, but rather laid him off and then involuntarily retired him.   This is a distinction without a difference.   As a result of the Bank's actions, appellant was no longer employed at the Bank, an outcome which was involuntary on appellant's part and which he challenged as a wrongful “discharge” and wrongful “termination.”   Thus, the Bank did “dismiss” appellant within the meaning of section 24 since the directors of the Bank, acting through their authorized agent, severed his employment without his consent.   Any state law claim arising out of that involuntary severance of the employment relationship is, therefore, barred.  (See Mackey v. Pioneer Nat. Bank, supra, 867 F.2d at p. 524 and fn. 1 [bank officer's forced resignation under threat of termination constitutes dismissal for which National Bank Act bars liability];  see also Holland v. Bank of America, supra, 673 F.Supp. at pp. 1516–1517 [claims of bank officer who was demoted but never terminated barred by “at pleasure” provision, since the power to dismiss at pleasure necessarily includes the right to take less drastic employment actions].)

Finally, appellant argues his state law age discrimination claim might survive preemption, since if he had brought a federal age discrimination claim, such a federal claim would not be preempted by section 24.   This is a non sequitur.   The fact that appellant might have been able to assert a federal remedy for age discrimination (an issue we need not address) does not mean he has a state remedy—as he has unambiguously contended—which survives preemption by federal law.   He does not.  (Ana Leon T. v. Federal Reserve Bank of Chicago, supra, 823 F.2d at p. 931 [state law discrimination claim barred because federal “at pleasure” provision “preempts any state-created employment right to the contrary.”].)

Contrary to appellant's suggestion, the result reached here, that section 24 bars appellant's claims, is neither unfair nor irrational.   It is unfortunate the Bank faced cost constraints, which required the layoff of an officer who had been a good employee and the elimination of other positions at the Bank.   However, appellant was an officer of the bank, serving at the will and pleasure of its board of directors.   A high-level executive employee or an officer, serving “at [the] pleasure” of his board of directors, can hardly claim a dismissal motivated by cost constraints violates the express or implied-in-fact contractual obligations assumed by the employer.   Thus, our Supreme Court has noted that the courts, in recognizing such wrongful discharge liability, are “in essence acting to protect ‘the interest in having promises performed’ (Prosser, Law of Torts [4th ed. 1971] p. 613)—the traditional realm of a contract action—rather than to protect some general duty to society which the law places on an employer without regard to the substance of its contractual obligations to its employee.”  (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 689–690, 254 Cal.Rptr. 211, 765 P.2d 373.)

An executive employee who, pursuant to relevant statute and corporate bylaws, serves “at pleasure” necessarily has made a very different sort of bargain with his employer from that sought to be protected by wrongful discharge liability as it has been defined in Foley;  such a bargain for “at pleasure” employment is also one of the “contractual obligations” assumed by the parties, and is one deserving of protection as well.  (47 Cal.3d at p. 690, 254 Cal.Rptr. 211, 765 P.2d 373.)

Moreover, we note the similarity between this case and another case not involving federal provisions governing the dismissal of an officer of a national bank, in which this court (Div. Two) held a similar layoff motivated by the need to cut corporate expenses constituted good cause for discharge under state law.  (Malmstrom v. Kaiser Aluminum & Chemical Corp. (1986) 187 Cal.App.3d 299, 321, 231 Cal.Rptr. 820.)   This as a matter of law is “a fair and honest reason, regulated by good faith” to discharge an employee.   (Ibid., quoting Clutterham v. Coachmen Industries, Inc. (1985) 169 Cal.App.3d 1223, 1227, 215 Cal.Rptr. 795, quoting Pugh v. See's Candies, Inc. (1981) 116 Cal.App.3d 311, 330, 171 Cal.Rptr. 917, quoting R.J. Cardinal Co. v. Ritchie (1963) 218 Cal.App.2d 124, 145, 32 Cal.Rptr. 545, internal quotation marks omitted.)

Further, in this particular case, appellant points to no more evidence that the Bank impermissibly dismissed him because of his age than would necessarily be expected in a case in which it hired him at age 55, after he had retired from another job, and subsequently promoted him to vice president.   Obviously, any adverse employment action undertaken after the hiring of such an employee could cause the employee to perceive himself as being a victim of age discrimination;  appellant's “perception of himself, however, is not relevant.   It is the perception of the decision maker which is relevant.”  (Smith v. Flax (4th Cir.1980) 618 F.2d 1062, 1067 [judgment as a matter of law proper in favor of employer accused of age discrimination, in dismissal of employee it had hired at age 52, where dismissal was motivated by legitimate business reasons].)  Here, the evidence indicated the Bank faced a more competitive economic environment following deregulation of the banking industry;  a consequent need to cut costs and increase efficiency ultimately led to staff reductions which affected appellant's position as well as other positions.

Finally, here as in Malmstrom v. Kaiser Aluminum & Chemical Corp., supra, the employer recognized and fulfilled its moral duty to assist an employee who was, unfortunately, affected by such a layoff;  its actions were far from outrageous and do not violate the prevalent mores of a civilized society.  (187 Cal.App.3d at p. 321, 231 Cal.Rptr. 820.)   Therefore, even if appellant's claims were not federally preempted, his claims of breach of contract, age discrimination, and related torts would apparently fail under state law.

III. DISPOSITION

The judgment of dismissal is affirmed.

PETERSON, Associate Justice.

SMITH, Acting P.J., and BENSON, J., concur.