A court-ordered cooldown has not stopped the “destructive conduct” between the two competing sides in the Republic First Bank proxy fight, leading Judge Paul Diamond on Thursday to appoint a special custodian, Alfred Putnam of Faegre Drinker Biddle & Reath LLP, to temporarily assume control of the bank.
“In warring for control of Republic First Bancorp Inc., its evenly split Board of Directors has largely ignored the interests of the institution and its shareholders. One faction has sought to exploit the sudden death of a Director, calling immediate and late-night meetings so that it might immediately take over the Bank, replace the Board Chair and the deceased Director, and install new management,” Diamond wrote in a scathing ruling that criticized both sides for what he characterized as “chaotic and destructive circumstances.”
“It appears, however, that Republic First’s By-laws and Articles of Incorporation do not allow these actions. Moreover, each Faction has publicly accused the other of self-dealing and gross mismanagement,” added Diamond.
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The ruling comes on the heels of a wild few weeks since the passing of Board Director Ted Flocco, a longtime ally of bank CEO Vernon Hill. Prior to that point, Hill’s faction was deadlocked in a 4-4 board stalemate with a faction led by Republic Bank founder Harry Madonna, who is backed by activist investor groups led by George Norcross III and Abbott Cooper.
Following Flocco’s death on May 12, a special board meeting was called by Madonna, which the Hill faction refused to attend. At that meeting, Hill was removed as chair of the board and Madonna was appointed interim chairman.
The Hill side contended that Madonna acted without a quorum, as required by the Republic First by-laws. Madonna’s side argued that the actions were permissible because its side now had a 4-3 board majority.
Diamond’s ruling said that because the May 12 meeting likely did not have a quorum, any actions taken violated Republic First’s By-laws.
Madonna called two additional special board meetings for May 17 and May 18, at which Hill was expected to be ousted as chief executive officer and replaced by Greg Braca, a Norcross ally and former TD Bank U.S. CEO. That led to Hill filing an emergency lawsuit in the United States District Court for the Eastern District of Pennsylvania seeking immediate injunctive relief and the appointment of a Custodian.
During the hearing, Diamond urged the two sides maintain a status quo for one week.
“At my urging, after the May 17 hearing, the Parties consented to a week-long ‘standstill’ agreement that I hoped would allow a ‘cool down’ during which the Hill and Madonna Factions could stop their infighting and return a semblance of reason to Republic First,” Diamond wrote. “Unfortunately, both Factions’ filings confirm that they intend to continue their destructive conduct. These circumstances compel the appointment of a Custodian.”
Putnam inherits a volatile proxy battle, which NJBIZ has extensively reported on over the last few months. In addition to temporarily assuming control of the bank, he will supervise a special shareholders vote on Flocco’s replacement by July 10.
Putnam will oversee the board and can act as a tiebreaker.
“The appointment of a Custodian will ensure this Election will take place. Whether the Custodian may vote as a ninth Director to break any deadlock that follows the election, or whether the Board should be expanded to nine members (to mirror the Bank’s Board) is something the Custodian and the Parties should consider as well as any other lawful measures that will restore order to Republic First,” Diamond wrote.
“In sum, there are ample grounds warranting the appointment of a Custodian to oversee a special election of the board,” he added.
Despite Diamond’s siding with Hill’s request in his decision, the Norcross side applauded the appointment of a custodian in a letter to the Republic First Bank Board on Friday. In a statement, they noted that they had called for a custodian back in April to help break the board’s stalemate and paralysis.
“We are pleased that immediate action is being taken to reconstitute the Board so it can reach full membership and then turn its attention to the critical strategic, governance and operational issues at hand. In particular, we note the specific role of the Custodian is to swiftly hold an election whereby Republic First shareholders will elect a replacement director and, thereafter, to return control of Republic First to the Board. We could not agree more with that objective and that is the purpose of our communication today,” they wrote.
They also announced the intention to nominate Braca to fill the board seat of the late Flocco.
“We look forward to an open, transparent and fair election process and completion of this election as soon as possible so the Board may return to the important work ahead for the benefit of the Company, its shareholders, customers and other stakeholders,” the group said in their letter to the board.
Hill’s side had no comment on the plans to nominate Braca to fill the open board seat.
Editor’s note: This story was updated at 1:30 p.m. ET May 27 with comments from the Norcross team.