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Becotte v. The Cooperative Bank

United States District Court, D. Massachusetts

March 6, 2017




         Robert Becotte, reported management lapses at the Cooperative Bank to state and federal regulators and fellow Bank officers and, by his accounts, was fired for his deeds. He alleges wrongful retaliation by the Bank in violation of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), 12 U.S.C. § 1831j, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (CFPA), 12 U.S.C. § 5567. The Bank claims that Becotte was terminated for reasons that have nothing to do with his purported whistleblowing. It now moves for summary judgment.[1]


         The plausible facts, taken in the light most favorable to Becotte as the nonmoving party, are as follows. In 1998, the Cooperative Bank was born out of the merger of Roslindale Cooperative Bank and Charlestown Cooperative Bank. Becotte moved to the new Bank as its Treasurer and Chief Financial Officer (CFO), titles that he held throughout his tenure. In 2004, Becotte took on the additional duties of Chief Compliance Officer (CCO), which he performed until 2012. Becotte received excellent performance reviews, and in most years, merit-based salary increases.

         In 2011, then Bank President John McCarthy nominated Becotte as one of three potential candidates to succeed him. Acting on the recommendation of an outside consulting firm, McCarthy passed over Becotte and elevated Board Chairman William O'Neill. The following year, Becotte was removed as CCO and, as a result, saw a $15, 000 reduction in his annual salary.[2] On January 17, 2014, the Bank terminated Becotte.

         The backstory is as follows. In 2006, Becotte learned that then Bank President Paul Ladouceur was using a Bank credit card for personal expenses. Believing this to violate the banking laws as well as internal Bank policy, Becotte raised his concerns directly with Ladouceur. He also reported the misuse of the credit card to Eugene Blumenrich, the Bank's attorney, and to the then Board of Directors (Joseph Cefalo, Frances Giannakopoulos, and William O'Neill).

         In 2007, the Federal Deposit Insurance Corporation (FDIC) and Massachusetts Division of Banks (MDoB) conducted a Safety and Soundness Examination of the Bank. Becotte spoke to the examiners about Ladouceur's misfeasance. At some point, the examiners located a letter written by Blumenrich to the Bank's bonding company. The letter characterized Ladouceur's failure to reimburse the Bank as an “innocent lack of attention.” Becotte told the examiners that, in his view, the letter was an attempt to whitewash Ladouceur's misconduct.[3]

         In the fall of 2011, the Board hired consultants WTK Associates, Inc. (WTK), to evaluate the three potential successors to then President McCarthy. WTK gave high marks to Becotte, noting that he

has demonstrated the ability to oversee the financial accounting, financial reporting, and budgeting/forecasting of the Bank, as well as the other areas for which he has responsibility. He has done so with the level of performance that provides safety and soundness, supporting the other areas of the Bank as required. He also appears to have the skill-set or many of the key characteristics required to satisfy the position requirements of the President and CEO of the Bank.

Def.'s Ex. 7 at 7 (Dkt #27-7).[4]

         The third candidate, William O'Neill, the Chairman of the Board, was a practicing dentist on the verge of retirement. Were he to be chosen, WTK recommended a transition plan that would allow O'Neill to apprentice with McCarthy until January of 2013, when he would become full-time President and CEO. In addition, the plan contemplated that McCarthy would remain with the Bank as a Senior Vice President during the remainder of 2013 to assist O'Neill as needed.

         In March of 2012, several of the Bank's senior managers met with Joseph Cefalo, the new Board Chairman, to voice misgivings about the selection of O'Neill, “a dentist without banking experience.” The managers presented Cefalo with a memorandum detailing their concerns. After the meeting, Cefalo forwarded the memo to Becotte and Internal Auditor Brian Mahoney with the instruction to “burn it.” Becotte Aff. ¶ 10; Mahoney Aff. ¶ 5.

         In June of 2012, Becotte approached Cefalo to press the issue of the managers' continuing concerns about O'Neill's sub-par performance. Told to put it in writing, Becotte hand-delivered a “No Confidence Letter” to Cefalo just prior to the June 14, 2012 meeting of the Board. See Def.'s Ex. 1 at 13. The letter was signed by seven members of senior management and requested a meeting with the Board. No meeting occurred and neither Cefalo nor any other member of the Board responded to the Letter.[5]

         In the spring of 2012, Bank employees, including Brian Mahoney, sought out Becotte to report a pattern of unusual check cashing by President McCarthy. In April of 2012, another senior manager told Becotte that McCarthy had been “frequently seen stuffing cash into his pockets at the teller windows.” Becotte Aff. ¶ 12. Becotte asked Mahoney to review McCarthy's history of cash transactions at the Bank. The review revealed that McCarthy had cashed a large number of checks against employees'' accounts. Although Becotte had given McCarthy permission on a few occasions in 2008 to use his own account to cash checks, he revoked his authorization in 2009, when he discovered that McCarthy had occasionally used the account without his knowledge. Two other Bank employees (Judy Butler in 2010 and Jack Lynch in 2011) complained to Becotte when McCarthy asked to use their personal accounts to cash checks.[6]

         Most of McCarthy's checks appeared to have been cashed against Chairman O'Neill's account. O'Neill and McCarthy were friendly and socialized both in and outside the Bank, so at that time Becotte did not know whether O'Neill had authorized McCarthy to use his account. Mahoney and Becotte met with Cefalo to express their concerns about McCarthy's check cashing habits, his limited work hours and general unavailability to employees, and the lack of employee confidence at the prospect of O'Neill becoming the permanent President and CEO. On July 3, 2012, after reviewing Mahoney's summary of McCarthy's check cashing activity, the Board suspended McCarthy and named O'Neill as acting President.

         At the direction of the Audit Committee, O'Neill hired an outside accountant, Shatswell McCleod & Company, to compile an inventory of McCarthy's irregular cash withdrawals. The review, which was completed in August of 2012, identified 735 checks, totaling in excess of $590, 000 that McCarthy had cashed by placing holds on employee accounts. The majority of the checks - 480 totaling in excess of $350, 000 - were cashed using O'Neill's account. O'Neill told the auditors that he was unaware of McCarthy's activity involving his account. See Pl.'s Ex. 7. The auditors' report, however, listed instances in which O'Neill had accompanied McCarthy to the teller window to authorize the cashing of a check.[7] The report also found checks cashed by McCarthy that had been endorsed by O'Neill.[8]

         The Board terminated McCarthy on August 22, 2012, and made O'Neill full-time President and CEO.[9] In August of 2012, the Bank's senior managers were summoned to a meeting with the Board of Directors. According to Becotte and Mahoney, “during the meeting Cefalo read management the riot act about having to bring up issues with banking regulators. Cefalo said something to the effect of ‘if this happens again, heads will roll.'” Becotte Aff. ¶ 17; Mahoney Aff. ¶ 17. Mahoney further testified that “after the check-cashing incident, the Board became both dismissive and hostile to Becotte in Audit Committee meetings.” Mahoney Aff. ¶ 19. He understood “that the Board blamed Becotte for events leading to the dismissal of McCarthy.” Id.

         In September of 2012, Cefalo circulated a questionnaire among Bank managers asking when they first became aware of the McCarthy check-cashing scheme.[10] Shortly thereafter (in October 0f 2012), O'Neill and Cefalo stripped Becotte of his duties as CCO officer and reduced his salary. O'Neill wrote a letter to the Board faulting Becotte for his “indefensible” failure to take action earlier in the McCarthy matter. See Def.'s Ex. 1-B (Dkt #27-1 at 15.). After acknowledging Becotte's “strong understanding of the financial aspects of banking” and the positive views held by outside vendors of his “financial acumen, ” O'Neill proposed that Becotte “continue to serve as the CFO with some changes in his job description and his assurance of his corporate fidelity.” Id. At the October 2012 Board meeting, a motion was made and seconded to terminate Becotte's employment, although it did not pass.[11]

         The FDIC and MDoB conducted another Safety and Soundness examination of the Bank in the first quarter of 2013. Becotte was interviewed by the examiners about McCarthy's check cashing scheme. Becotte also complained to the examiners about

the Board's penchant for selecting third-party firms to legitimize Board decisions, Cefalo's failure to disclose material information about management's concerns to the full Board, the Board's succession planning and relationship with WTK, McCarthy's compensation for hours he did not work, the selection of O'Neill as president, the no confidence letter, the shortcomings of the Shatswell Report, and board fees.

Id. ¶ 20. According to Becotte, the bank examiners knew none of this prior to his disclosures, including the “lack of CEO oversight, and of the Bank's weak whistle blowing procedures.” Id. In May of 2013, the examiners shared their preliminary findings with the Board.

         After reviewing the examiners' concerns, the Board hired two outside consultants - Phillip O'Connor to evaluate the operational practices of the Bank, and Thomas Grottke of Northeaster Banking Services Group to review corporate governance and management. One of the issues Grottke addressed was Becotte's continued viability as both Treasurer and CFO. As part of his assessment, Grottke identified potential replacement candidates for the position of CFO, one of whom was Phillip O'Connor.[12]

         In July of 2013, the FDIC issued its Report of Examination (ROE).[13]The ROE faulted the Board's oversight of the Bank and for inadequate succession planning, noting that the Directors, not McCarthy, had a fiduciary duty to select candidates for WTK to assess. The FDIC also criticized Cefalo for failing to promptly share the mangers' No-Confidence Letter with the Board to provide them “the opportunity to review the letter and address the concerns raised by the senior management team prior to the appointment of Mr. O'Neill as acting and then permanent CEO.” ROE at 5. The ...

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