Legal Showdown Likely After Washington Bank's Proxy Battle

First Financial Northwest (FFNW) and activist investor Stilwell Group have both declared victory following last week's proxy battle for a director's seat. The final decision could rest in the hands of a judge.

The central question may be whether Stilwell Group's nominee, Spencer Schneider, "failed to cast a signed master ballot" at First Financial's May 24 annual meeting in Renton, Wash. Because he didn't sign his ballot, Schneider "never voted," Victor Karpiak, First Financial's chairman, president and chief executive, said in a Tuesday interview. "He never cast a ballot, so none of those votes counted."

Stilwell Group, led by investor Joseph Stilwell, last week said it had won the proxy battle. The firm reiterated that claim Tuesday in a regulatory, saying Schneider defeated Karpiak "by a substantial percentage." First Financial "is attempting to invalidate the Group's votes" and Stilwell Group will sue to stop it, the filing said.

First Financial has called Stilwell Group's bluff. The $1 billion-asset company claimed that Karpiak and two other nominees were re-elected and that the vote count was confirmed by its "independent inspector of election," Carl T. Hagberg & Associates. Ray Riley, who represents the outside firm, confirmed the outcome but wouldn't comment further.

Stilwell Group provided a master ballot after the inspector began counting the votes, though the company "claimed it was late," Schneider said in an interview. "The master ballot wasn't needed because our proxies were clear as to how it would be voted and cast," he said. "Before they asked for [the master ballot] the inspector acknowledged to our solicitor that we won the votes."

Schneider said Stilwell Group was told that he had received abound 8 million votes. "I won by approximately 2 million, votes but they voided all our votes," he said.

First Financial disclosed in a filing with the Securities and Exchange Commission late Tuesday that Schneider officially received 650 votes. The company's nominees each received more than 6 million votes.

Schneider has already been a First Financial director once, though he quit after a few weeks after claiming that the board wasn't serious about cutting costs. Stilwell launched the proxy contest after Schneider resigned from the board, saying that First Financial needed to look for a buyer or do more to improve shareholders' value.