- Internal Investigation Terminates Bank Employee, Wrongful Discharge Claim Preempted
- May 9, 2008 | Author: Travis P. Nelson
- Law Firm: Pepper Hamilton LLP - Princeton Office
The U.S. Court of Appeals for the Fourth Circuit, which includes the states of Maryland, Virginia, West Virginia, North Carolina, and South Carolina, addressed the application of the National Bank Act (NBA) to state wrongful discharge claims in Schweikert v. Bank of America, No. 06-2137 (4th Cir. Apr. 1, 2008).
The plaintiff, a private client manager who served as a senior vice president of the bank, had assisted a female client of the bank arrange several loans. When the plaintiff received a call from someone claiming to be an FBI agent, the plaintiff declined to divulge the female client’s financial records. On April 1, 2005, a supervisor terminated the plaintiff’s employment during a telephone call. Poor judgment and his alleged failure to cooperate with a bank internal and external investigation were the reasons given for his termination. The bank’s board of directors then ratified the plaintiff’s termination, along with that of several other employees, in a schedule attached to a board resolution.
The plaintiff claimed wrongful or abusive discharge under state law. The defendant bank removed the matter to federal court, then moved to dismiss the complaint on the ground that the “dismiss at pleasure” provision of the NBA preempted the claim. The NBA provides, in pertinent part, that banks shall have the power “to elect or appoint directors, and by its board of directors to appoint a president, vice president, cashier and other officers … and … to dismiss such officers of any of them at pleasure, and appoint others to fill their places.” The plaintiff argued that he was not an “officer” of the bank within the meaning of the NBA and his dismissal did come from the board directly.
The court held that the term “officers” as used in the NBA was not limited to the enumerated officers contained in the statute, but rather to any officer of the bank regardless of specific title. The court further held that the board of directors need not vote on each specific termination in order to invoke the “dismiss at pleasure” language of the NBA. Rather, the court held that ratification by the board of management’s termination action may be noted in the board’s minutes, as was done in this case. The board’s action was entitled to federal preemption of the plaintiff’s state law claims.
Pepper Points – This case affirms the protection for national banks, and by implication Federal Reserve Banks and Federal Home Loan Banks, against state court suits by terminated officers. This is especially valuable for banks that would otherwise under state law face compensatory damages, attorney’s fees, and in some cases, reinstatement of the employee, and punitive damages.
This case is also instructive for in-house counsel and bank management conducting internal investigations when faced with the difficult task of recommending the removal of officers who have engaged in misconduct, or have been obstructive during the course of internal investigations.
It is important to consider, however, that the “dismiss at pleasure” language of the NBA would not bar a terminated employee from suing for money damages resulting from breach of an employment contact. While it is important to anticipate the variety of possible supervisory and investigatory situations that may arise during the employment context when drafting “for cause” language, in-house counsel and management must be careful not to create a contract negotiation atmosphere that alienates a prospective new bank officer.