National Bank Act Preemption Remains A Viable Defense Against Terminated Officers' Employment Claims
Ohio and federal courts continue to recognize an effective but seldom used preemption defense under the National Bank Act (“NBA”). This legal defense, available only to national banking associations, can be asserted against certain employment claims brought by terminated bank officers.
Specifically, the NBA grants national banks the power: To elect or appoint directors, and by its board of directors to appoint ... 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.
Courts continue to hold that the NBA’s “at-pleasure” provision preempts state-law tort and contract wrongful discharge claims brought by terminated bank officers. For instance, recently in Schweikert v. Bank of America, Case No. 06-2137 (4th Cir. April 1, 2008), Bank of America terminated Schweikert, a senior vice president in private banking, for failing to cooperate with the bank’s and the FBI’s investigation of a client for whom Schweikert had arranged several loans. Schweikert sued the bank for wrongful and abusive discharge under Maryland law. The trial court held the NBA’s “at-pleasure” provision preempted the claims and dismissed the complaint. The federal Court of Appeals for the 4th Circuit upheld the trial court’s application of the NBA’s “at-pleasure” provision. In so ruling, the 4th Circuit cited with approval the 9th Circuit’s nearly twenty-year-old ruling in Mackey v. Peoria National Bank, 867 F.2d 520, 525-26 (9th Cir. 1989), where the 9th Circuit held that the NBA’s “at-pleasure” provision preempts a terminated bank officer’s state tort and contract claims.
The federal 6th Circuit similarly has held that the NBA’s “at-pleasure” provision preempts state law governing employment relations between a national bank and its officers. See, e.g., Wiskotoni v. Michigan National Bank-West, 716 F.2d 378, 387 (6th Cir. 1983) (squarely recognizing the NBA’s preemption defense but finding in this case that it did not apply to the former bank branch manager’s implied employment contract and public policy wrongful termination claims because the bank could not establish that the branch manager was an “officer” or that they bank’s Board of Directors had ratified his dismissal in a timely manner, since it waited nearly three years to pass a resolution ratifying the dismissal and it did so only on the eve of the oral argument requesting the trial court to apply the NBA’s preemption defense).
Recently, Ohio’s 9th District Court of Appeals went even further by holding that the NBA also preempts state-law statutory employment and retaliation discrimination claims. See Boesch v. Champaign National Bank, Case No. 24014 (Ninth App. Summit Cty., June 30, 2008) (“the trial court properly found that the employment discrimination and retaliation provisions of R.C. 4112 [Ohio’s employment discrimination statute] are in conflict with , and are therefore preempted by, the NBA.”) See also Farmer v. National City Corp., Case No. C-2-94-966 at 6-7 (U.S. District Court, S.D. Ohio E.D., September 12, 1995) (the NBA preempts all state-law actions, including employment discrimination).
In applying the NBA’s “at-pleasure” provision, however, these Ohio and federal court decisions make clear that the defense is only available if the bank’s Board of Directors — itself — makes or expressly ratifies the termination decision. Thus, to invoke the preemption defense successfully, the bank must show that its Board of Directors took action to dismiss the bank officer, either by itself or by ratification of the termination decision. See, e.g., Schweikert at p. 6 (citing to and relying upon the California Supreme Court’s seminal decision in Wells Fargo Bank v. Superior Court, 811 P.2d (525, 1038 (Cal. 1991) and holding that a Board of Directors’ ratification of an officer’s termination is sufficient to invoke the preemptive effect of the “at-pleasure” provision of the NBA).
By way of example, the Schweikert court found that the minutes of a board meeting showed the board had “reviewed proposals . . . to ratify the termination from employment, as officers of the Bank, the individuals listed on the document entitled ‘Officer Separations’ dated August 2, 2005.” Since the document listed Schweikert with a separation date, the Schweikert court held that the minutes “reflect that the Board exercised its discretion with respect to Schweikert and ratified his termination.”
By contrast, the Boesch Ohio Court of Appeals reversed the trial court’s dismissal of one of the terminated officer’s claims because a genuine issue of material fact existed regarding whether the bank’s Board of Directors actually dismissed the officer or ratified the dismissal decision, since it appeared that an undated amendment to the Board’s meeting minutes concerning the dismissal was prepared after-the-fact for litigation purposes. See Boesch at p. 10.
So, a bit of a conundrum exists. The NBA’s preemption defense definitely is a powerful defense. It leaves a terminated bank officer with virtually no employment-related remedy. But, to invoke the defense successfully, the bank’s Board of Directors must be “involved” in the termination decision. Such involvement, however, necessarily exposes the bank’s Board members to discovery as witnesses in the terminated bank officer’s employment-related litigation — the very litigation against which the bank desires to assert the NBA’s preemption defense. Moreover, in some states — like Ohio — “supervisors” and “managers” — and “any person acting directly or indirectly in the interest of the employer” — can be held individually liable for engaging in employment discrimination. It remains to be seen, therefore, whether a bank’s Board members in those states could be subject to such an individual liability claim based on their involvement in the decision to dismiss or ratify the dismissal of an officer of a national bank association.
Consequently, Board members, many of whom are not employed by the bank and who have their own busy jobs and careers, may view becoming involved in the bank’s efforts to assert the NBA’s preemption defense as more than they bargained for when they agreed to become a Board member. By the same token, their involvement likely can be protected by D&O and/or EPLI insurance policies, and the economic benefits to the bank and its shareholders — including the reduction of significant legal defense expenses and removal of potential liability for most employment termination claims — appear to far outweigh the inconveniences of potential litigation imposed on the Board members.
