Hampton Roads Bankshares, Inc. v. Harvard

In January 2008, Scott Harvard (plaintiff) entered an employment contract with Hampton Roads Bankshares, Inc. (HRB) (defendant). The contract entitled Harvard to severance benefits if he terminated his employment within six months after a change in control of HRB. On December 31, 2008, HRB acquired Gateway Bank, which constituted a change in control under Harvard’s employment contract. Also on December 31, 2008, HRB entered an agreement with the U.S. Treasury (Treasury) for Treasury to invest directly in HRB pursuant to Treasury’s Troubled Asset Relief Program (TARP). TARP was authorized by the Emergency Economic Stabilization Act of 2008 (EESA), which was enacted in response to the financial crisis of 2007–2008. As a condition to receiving TARP funding, HRB had to amend its compensation agreements with its senior executive officers—which included Harvard—to comply with EESA, including any subsequent amendments to EESA, and Treasury’s implementing regulations for as long as Treasury maintained its investment in HRB. Initially, this required a slight modification of the severance-benefits provision of Harvard’s employment contract. Harvard agreed to this modification, acknowledging the need to comply with EESA. Following an amendment to EESA in February 2009 and Treasury’s adoption of implementing regulations on June 15, 2009, HRB was prohibited from paying any severance benefits to its senior executive officers if they departed HRB. On June 24, 2009, Harvard terminated his employment with HRB. Pointing to the change in control triggered by HRB’s acquisition of Gateway Bank, Harvard requested to be paid the severance benefits under his employment contract. After being told by Treasury that payment of the severance benefits to Harvard was prohibited by EESA and Treasury’s regulations, HRB refused Harvard’s request. Harvard then sued HRB for breach of contract. HRB asserted the legal prohibition on its payment of the severance benefits as an affirmative defense. Notwithstanding that prohibition, the trial court ordered HRB to pay Harvard the severance benefits. HRB appealed.