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Keller v. Orix Credit Alliance

November 24, 1997

FREDERICK F. KELLER, APPELLANT

v.

ORIX CREDIT ALLIANCE, INC.



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

D.C. Civil No. 93-03466

Before: SLOVITER, Chief Judge, and BECKER, STAPLETON, MANSMANN, GREENBERG, SCIRICA, COWEN, NYGAARD, ALITO, ROTH, LEWIS, and MCKEE, Circuit Judges

ALITO, Circuit Judge

Originally Argued: March 6, 1996

Reargued In Banc: April 16, 1997

Opinion Filed: November 24, 1997

OPINION OF THE COURT

Frederick F. Keller sued his former employer, ORIX Credit Alliance, Inc., in federal district court, asserting claims under the federal Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. Section(s) 621 et seq., and the New Jersey Law Against Discrimination ("NJLAD"), N.J.S.A. Section(s) 10:5-1 et seq. Keller, who had served as executive vice president and a member of the board of directors, claimed that ORIX Credit Alliance had discriminated against him based on his age when it failed to promote him to the position of chief operating officer and later terminated his employment. The district court granted summary judgment for ORIX Credit Alliance. A panel of this court issued a decision reversing the district court, but ORIX Credit Alliance's petition for rehearing en banc was granted, and we now affirm.

I.

A.

Background of the Parties and the Dispute.

ORIX Credit Alliance is a subsidiary of companies that are in turn subsidiaries of ORIX Corporation, a Japanese company. App. 385-86, 616. ORIX Credit Alliance is a commercial finance company that is engaged primarily in the business of financing the acquisition or leasing of equipment. Id. at 310. ORIX Credit Alliance generally must borrow the funds needed to support the financing it provides for its customers. Id. In simple terms, the company makes a profit by borrowing funds at one rate and then lending to its customers a higher rate. Id. at 80.

Frederick Keller was born on January 31, 1942. App. 610. After college, he was hired by Franklin National Bank and eventually handled its relationship with Credit Alliance Corporation, ORIX Credit Alliance's predecessor. Id. at 611. In 1976, Credit Alliance Corporation hired Keller as a vice president, and in that capacity he shared the primary responsibility for raising funds for the company. Id. at 612, 1121. Keller obtained funding from banks, helped to supervise "the commercial paper program," and worked on "other sources of funding." Id. at 1120-21. The then-chairman of the company has described Keller's work as "excellent," and after several years, Keller was promoted to senior vice president of finance. Id. at 614.

In December 1984, First Interstate Bancorp acquired Credit Alliance Corporation's parent company, and Credit Alliance Corporation continued to do business as First Interstate Credit Alliance Corp. App. 613. After this acquisition, First Interstate Bancorp provided most of the funding used by First Interstate Credit Alliance Corp. for its lending activities, and therefore it was no longer necessary for Keller to raise money. Id. at 614. Keller acquired the titles of executive vice president, chief financial officer, and chief credit officer, and he served as a member of the company's board of directors. Id. 70-71, 1121. In 1988, the chairman of the board of First Interstate Credit Alliance Corp. told Keller that he had been considered for the presidency of the company but that Daniel Ryan had been selected. Id. at 1121.

In September 1989, ORIX subsidiaries acquired First Interstate Credit Alliance Corp., which continued to do business under the name of ORIX Credit Alliance. App. at 616. Prior to the acquisition, Keller and six other key executives were requested to sign employment contracts with the new company, and Keller signed a three-year contract for employment at a substantial annual salary. Id. at 616, 644.

After this acquisition, Keller was given the responsibility for raising funding for ORIX Credit Alliance. App. 78. At that time, according to Keller's affidavit, "Credit Alliance had approximately 1.6 billion in debt outstanding to First Interstate Bancorp, 1.3 billion of which was to continue to be provided on a temporary basis. Because it was the goal of Credit Alliance to obtain funding independent of First Interstate Bancorp and of ORIX Corp. or ORIX USA[an ORIX subsidiary] [Keller] determined that it would ultimately be necessary for Credit Alliance to have available credit facilities totaling approximately 1.5 billion dollars." Id. at 616-17 (emphasis added). Keller stated that he communicated this goal to the board of directors at "[m]ore than one meeting." Id. at 15.

Keller's Failure to Meet the $1.5 Billion Goal and His Explanations.

This goal, however, was never met or even approached. Keller himself stated in his deposition that "Credit Alliance never achieved the goal for funding that [he] had communicated to the board of directors." App. 16. Indeed, he acknowledged that, at all times from September 1989 (the time of the ORIX acquisition) to April 1, 1993 (the time of his termination), funding provided by First Interstate Bancorp and ORIX affiliates constituted more than 50% of ORIX Credit Alliance's funding. Id. at 81-82. In December 1991, $785 million in credit facilities was available to ORIX Credit Alliance. App. 13. By September 1992 -- approximately when the initial decision to terminate Keller was made -- the total available bank lines had dropped to $695 million. Id. at 48. After September 1992, Keller did not secure any increase in bank lines. Id. at 24-25.

While Keller does not dispute that he failed to meet or approach the financing goal, he claims that this was due to factors beyond his control. See Appellant's Br. at 8-11, 35-36; App. 617-32 (Keller Affidavit). For example, Keller explained that ORIX Credit Alliance was unable to launch a "commercial paper program," as he had projected, because "there were many obstacles to obtaining a sufficiently high credit rating to permit Credit Alliance to issue and sell commercial paper on favorable terms." App. 618. Among these, he stated, "were the absence of any guarantee by ORIX Corp., and the growing weakness of the Japanese economy which would affect Credit Alliance's parent." Id. Keller summarized these problems in memos that he sent to Ryan. Id.

Keller likewise provides a plethora of reasons for his failure to secure bank lines of credit. He cites the company's credit rating, "the perceived `downturn in the equipment financing industry' . . . [,] Credit Alliance's statistics for `past dues' or untimely payments from its customers and other aspects of its portfolio . . .[,] bank `environment[s] . . . not conducive to risk of any sort' . . .[,] and bank limitations on lending to financing companies . . . or to companies outside a particular geographical area," "the negative impact of the recession in the United States and Japan during the late 1980's and early 1990's and the resulting reluctance of American banks to `book loans,' " and "banks' reluctance to lend to a company having a Japanese parent, given the negative economic situation in Japan at the time." App. 620-21.

During this same period, when Keller was allegedly unable to raise funds by means of a commercial paper program or bank lines of credit, Keller repeatedly expressed opposition to raising funds by "asset-backed securitization," a process that involves the sale of accounts receivable or loan paper to a specially created trust that in turn sells interests or securities in that trust. See App. 90, 626. Ryan mentioned the possibility of raising funds in this way to Keller before or shortly after the ORIX acquisition (id. at 90), but Keller repeatedly advised Ryan that in his opinion asset-backed securitization was "not for us." Id. at 28-29, 627.

Finally, Keller states that he explored the possibility of private placements of ORIX Credit Alliance debt with insurance companies and other institutional investors. App. 628. But Keller states that it was not until July 1992 (one or two months prior to the decision to terminate him) that he proposed to Ryan that ORIX Credit Alliance Corp. take "[t]he first step" in this direction, i.e., the selection of a bank to act as the company's agent. Id. at 627-28.

ORIX Credit Alliance's Assessment of Keller's Performance.

ORIX Credit Alliance points to evidence that paints a picture of growing dissatisfaction within the company about Keller's failure to reach or approach the funding goal. Keller and Ryan both testified that Ryan repeatedly questioned Keller about the funding situation. App. 40, 44, 98-99. Ryan also stated that he asked Keller why ORIX Credit Alliance's competitors were able to obtain forms of financing that his company either did not pursue or allegedly could not obtain. Id. at 90, 92, 98. See also id. at 627 (Keller Affidavit). One of ORIX Credit Alliance's outside directors, David E. Mundell, who had served for nearly 20 years as the president of another leading commercial lending company, stated that at most, if not all, of the board meetings from March 1991 until April 1993 he questioned Keller and "expressed dissatisfaction with the lack of progress in raising funding." Id. at 388. At one meeting, Mundell added, he "expressed the view that, based on [his] knowledge of the equipment finance industry and [his] experience in managing the liability side of finance companies' balance sheets, [he] believed that Credit Alliance was not raising funds in the amounts and on the terms that it should have been able to in light of the relevant factors, such as its financial statements, the sufficiency of its equity, and its status in the industry." Id. Mundell continued that "Keller responded by offering a list of excuses for his inability to raise more funds," but that he "did not . . . make any concrete proposals for correcting the problems that, he claimed, were preventing him from producing the desired results." Id. at 389.

Another outside director, Yoshiaki Ishida, who was also the president and chief executive officer of an ORIX parent corporation, stated that at several board meetings he "questioned Mr. Keller about his presentation." App. 1164. Ishida added that he "was not satisfied with the results that Mr. Keller reported because the level of funds raised for Credit Alliance was much too low and the goal of independence in funding was not being achieved." Id. Ishida added that he told Ryan at private meetings that "the ORIX parent companies were not happy with the lack of progress in raising funds for Credit Alliance, and with Credit Alliance's continued reliance on another ORIX company (ORIX Ireland) for a large portion of its funding." Id. Ishida also stated that he "told Mr. Ryan, on several occasions, that [he] felt that Mr. Keller's work in raising funds was not satisfactory." Id. at 1165.

In August or September of 1991, still another outside director, Sachio Hata, a senior officer of the parent Japanese corporation, suggested to Ryan that "perhaps [he] was remiss in giving Mr. Keller too much to do and that that could have been the reason why [the company's] financing situation was making such little progress." App. 103. Shortly after Hata made this remark, Ryan relieved Keller of his responsibilities as chief credit officer, primarily so that he "could focus on the financing function." Id.

Keller attempts to counter this evidence by pointing to the absence of proof that Ryan ever expressly "criticized" his performance or disputed his explanations for his inability to obtain various types of funding. Keller points to Ryan's inability during his deposition to recall more than two discussions at board meetings regarding Keller's performance. App. 484-90, 492-93. In addition, Keller points out that, in describing those discussions, Ryan did not mention that either involved a direct criticism of Keller. See Appellant's Br. at 12. Keller also notes that one member of the board of directors, Neil Umhafer, stated that during the period from 1988 to March 1992, "[n]o one challenged or disagreed with Keller's presentations at [board] meetings or suggested in any way that the difficulties he was encountering were in any way due to his performance rather than factors beyond his control." *fn1 App. 1126.

Selection of the New Chief Operating Officer . In about December 1991 -- in the midst of the time when Keller was experiencing difficulty in obtaining funding -- Ryan announced that he planned to retire in approximately two and one-half years from his positions as chairman of the board and chief operating officer of ORIX Credit Alliance. App. 84. Ryan stated that he:

felt the job required someone that had a deep understanding and background of the company's primary business, someone who had held a line position with the company, preferably someone who had personally performed as many of the tasks that are required to operate the company's business as possible.

Id. at 101. He said that he therefore considered only the two most senior officers from the operational side of the company, division managers Philip Cooper, age 43, and Mark Lasher, age 50. Id. at 101, 268. Keller, then 50 years of age, was not considered even though he had been considered for the position of president in 1988 when Ryan was chosen. Id. at 101. Keller had never held a line position and had never worked in or managed any of the company's branch offices or divisions. Id. at 65, 53.

Cooper was chosen as the new chief operating officer. App. 101. Cooper had decades of experience in line positions managing the company's operations and had been with the company longer than Keller. Id. at 53, 101, 315. In May 1992, Keller, as a member of the board of directors, voted to ratify Cooper's promotion. Id. at 314-15, 345.

The April 13, 1992 Conversation. Keller relies most heavily on a conversation he had with Ryan on April 13, 1992. Keller described this conversation as follows at his deposition:

[Ryan] assured me that he felt comfortable that Orix would be there for us as far as being able to loan us money. But then [he] made a comment that . . . "We really can't complain if we're not out developing relationships."

He said to me that he didn't see me traveling around the country visiting with banks. He said I was spending a lot of time in New York City.

* * *

And then he said . . . "If you are getting too old for the job, maybe you should go hire one or two young bankers." App. 27 (emphasis added).

Keller said that, because of Ryan's reference to Keller's age, Keller prepared a handwritten summary of the meeting within an hour or two after it ended. App. 25. These handwritten notes state in pertinent part:

DNR then suggested that we cannot complain about not being able to fund our needs if we have not made a good effort to develop lines etc. -- he said I don't see you traveling across . . . country developing relationships I see you spending a lot of time in NYC. He suggested I hire one or two young bankers. Also discussed possibility of securitization if necessary.

Id. at 168-69. The handwritten summary contains no reference to Ryan's alleged words "If you are getting too old," but Keller explained at the deposition:

The reason I made those notes in the first place was because of that statement, I didn't need these notes to remind me of what he said. Id. at 26.

The Decision to Discharge Keller. By August or September 1992, Ryan had decided that Keller should be discharged. App. 91, 1156. After Ryan made his initial decision, he discussed it with at least four individuals who were directors or senior officers of the company, and all expressed agreement. Id. at 1156-57. Those informed included Mundell, Ishida, Cooper, and Jacob Mehl, an executive vice president and the general counsel of the company. Id.

Ryan and Cooper then drew up a list of criteria to be used in identifying a replacement. App. 316. Among their primary criteria were "experience in implementing asset-backed securitization programs and other creative forms of [fundraising]," "strong skills in working with rating agencies and bankers, particularly Japanese bankers," and a "results driven" character. Id. at 316. According to Cooper, "[t]hese were among the areas in which we felt that Mr. Keller's skills were inadequate for his job at Credit Alliance." Id.

Cooper communicated these criteria to an executive search firm, which subsequently proposed several candidates. App. 316. From among these, Ryan selected Joseph McDevitt, who was born on December 12, 1946, and is thus four years, ten months, and 19 days younger than Keller. Id. at 317, 269, 610.

Keller's Final Months. In September 1992 (i.e., at roughly the time when Ryan made his initial decision to terminate Keller), Ryan began to explore on his own the possibility of obtaining funding by means of asset-based securitization. App. 91. Shortly thereafter, Goldman Sachs & Co. was engaged by Cooper and Ryan for a securitization program, and within two years the company had closed two asset-backed securitization deals and raised nearly $500 million. Id. at 389.

Keller was not informed of Ryan's initial decision to discharge him, App. 590-92, and thus in late 1992 or early 1993 Keller presented to Cooper a one-page document entitled "TIMETABLE FOR DIVERSIFICATION OF FUNDING SOURCES." This plan listed such items as the following:

2/8-5/1/93 Meet bankers and gauge level of interest in providing credit facilities.

2/9/93 Visit S&P; discuss 9-month results; determine feasibility of "A-2" rating before year-end numbers are available. If feasible, set up rating meeting as soon as possible. If not feasible, see below.

3/15/93 Decide if public securitization is a viable funding source. If so, move to market (90 days).

App. 1107. In response to questioning by Keller's attorney, Ryan acknowledged that most, if not all, of these steps were eventually taken, id. at 542-45, but Keller has not pointed to any evidence that any of the steps proposed were novel or that he did much if anything to accomplish any of the objectives. *fn2

Keller was formally discharged by unanimous vote of the executive committee of the board of directors on April 1, 1993, effective on that date. App. 1159, 1162. Ryan went to Keller's office to inform him of the decision. Id. at 591. Keller states that the following occurred:

I asked Dan if he was asking for my resignation because of my age and reminded him of the conversation that we had in April of `92 when he was -- when he asked me if I was getting too old for the job and suggested that I, if I were, that I hire one or two young bankers to travel around the country. He gave me -- there was no response to that, to my comments. Id. at 593.

Keller subsequently asked to "get together [with Ryan] to discuss [his] situation" (App. 595), and the two men met for lunch at a Manhattan restaurant on approximately April 9. Id. at 595-96. During the lunch, according to Keller, Ryan stated that Keller's suggestion of a "$1 million plus" severance package was out of the question, and Ryan added:

"Look, you do what you have to do, you know. I have discussed this with Jerry Mehl, and he doesn't see ...


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