A contentious battle for control of Republic First Bancorp in Philadelphia will have to go forward without a court-appointed mediator.
Late Wednesday, A three-judge Appeals Court panel overruled a ruling by District Court Judge Paul Diamond, who found that filling a vacancy on Republic First’s eight-member board required the agreement of five of the remaining seven directors, not four.
The 30-page decision, authored by Judge Kent Jordan, called Diamond, who declared the $5.7 billion-asset company’s board to be deadlocked and appointed a prominent Philadelphia attorney as custodian to oversee the election of new directors, “well intentioned,” but concluded he overstepped his authority nonetheless.
According to Jordan, who has sat on the U.S. Court of Appeals for the Third Circuit since December 2006, Republic First’s bylaws clearly allow for a majority of remaining directors — not the customary five normally required to make a quorum — to fill a vacant board seat.
Jordan's ruling clears the way for a four-member faction of Republic First’s board led by Chairman and founder Harry Madonna to fill the seat left vacant by the death of director Theodore Flocco on May 10 — and potentially replace CEO Vernon Hill.
The Madonna faction already voted to remove Hill as chairman on May 13, replacing him with Madonna. They were blocked from going further when Hill and his allies filed suit in the U.S. District Court for the Eastern District of Pennsylvania. That suit led to Diamond’s appointment of Alfred Putnam, chairman emeritus at Faegre Drinker Biddle & Reath in Philadelphia, on May 31.
The Madonna faction appealed Diamond’s decision to the Third Circuit.
Wednesday’s ruling also throws into question arrangements Putnam made to hold a special meeting to fill the vacant eighth board seat and possibly a ninth. Diamond had directed that a special meeting be scheduled no later than July 10. In court documents last month, however, Putnam stated the
In addition to squaring off with the Madonna-led faction on Republic First’s board, Hill is dealing with two separate activist investor campaigns. One is led by New York investor Abbott Cooper, founder and managing member of Driver Management, and the second is headed by New Jersey insurance executive George Norcross and former TD Bank President and CEO Greg Braca.
Both activist groups, along with Hill and his allies on the board, have nominated candidates for the director positions to be voted on at the planned special meeting. The Norcross-Braca group nominated Braca. Cooper and Driver nominated Peter Bartholow, former chief financial officer at Dallas-based Texas Capital Bancshares. Hill and his supporters nominated Brian Ford, a retired partner at Ernst & Young.
One of the few issues on which Hill and his allies and the Madonna faction agree is that a special meeting may not be necessary at all.
According to a June 26 letter from Michael Schwartz to Appeals Court Clerk Patricia Dodszeweit, both groups believe Republic First “[will] be in a position” to hold its annual meeting in September, at which time elections for three of the eight board seats, including the vacant seat, are scheduled to be held.
“Thus, all seven Board members unanimously supported filling the vacancy at the annual meeting in September, not at a special shareholders’ meeting in July,” Swartz noted.
Cooper called the appellate decision “well reasoned,” adding it rectified Diamond’s “total disregard for Republic First as a corporate entity.”
“For a judge to appoint a custodian who is wholly unaccountable to shareholders to take control of a solvent, operating public corporation … is a complete insult to any notion of shareholder rights and established Pennsylvania law — so we are very happy with the result,” Cooper added.
The Norcross-Braca group also applauded the appeals court’s decision, which it claimed paves the way for Hill’s removal as CEO.
In his decision, which was joined by Judge Peter Phipps and Judge David Porter, Jordan found that Diamond’s action appointing a custodian for Republic First “did not reflect the required caution, circumspection, or justification for such a drastic step.”
A spokesman for Hill did not respond to a request for comment by deadline.
