Following death of board member, judge appoints custodian to quell Republic Bank fight

PHILADELPHIA - A federal judge on Thursday ordered a custodian to oversee the management of the Republic Bank's parent firm after the death of a bank board member brought the battle for control of the company to a fever pitch.

Prior to the death of longtime director Theodore Flocco at age 77 on May 10, Republic First Bancorp Inc.’s board was split 4-4 over control of the company. Half supported keeping the current chairman, Vernon Hill II, and the other half sought to oust him.

The evenly split board “has largely ignored the interests of the institution and its shareholders” in “warring for control” of Republic First, wrote Judge Paul S. Diamond in his decision to appoint a custodian.

The custodian, Alfred W. Putnam Jr., must convene a special shareholders’ meeting to elect Flocco’s replacement on or before July 10, per the decision. He is also responsible for managing the company in the best interest of shareholders and can elect a ninth board member.

Without appointing a custodian, the “chaotic and destructive circumstances” — public accusations of self-dealing, fraud and gross mismanagement and attempts to “exploit the sudden death of a director” — will continue, according to Diamond.

This comes a week after the judge issued a status quo order preventing the board from using the broken tie to appoint a new chairman.

Within hours of Flocco’s death, Hill’s adversaries on the board, now with a 4-3 majority, moved to appoint Republic Bank President Harry Madonna as the interim chairman, according to a federal complaint filed by Hill and his associates.

Three days later, Republic First announced that Madonna, who founded Republic Bank in 1988, would succeed Hill “effective immediately.” Hill would remain a director and the company’s CEO, according to the announcement.

A vote to permanently replace Hill would occur at an annual meeting that has not been scheduled yet.

Previously: Norcross group proposes takeover of Republic First Bancorp.

On May 17, Hill, along with fellow directors Brian Tierney and Barry Spevak, filed a federal lawsuit against the rest of the board claiming they “waged a campaign to seize control of (Republic First’s) board so that they can sell or refinance (Republic First) at any price and on any terms to their benefit and that of their allies but to the detriment of the vast majority of (Republic First) shareholders.”

The complaint alleges that Madonna’s employment agreement “gives him a powerful incentive to sell” Republic First. It also says that he is entitled to a transaction bonus of no less than $1 million in the event of a “merger or sale or transfer of a majority of the stock of the bank or company.”

However, Madonna also alleged Hill of wrongdoing. According to the custodian order, Madonna accused Hill of self-dealing by circumventing the board and approving a highly lucrative contract with his wife's architectural design firm, continuing bank expansions without board approval and by taking “poison-pill-type steps” to entrench his leadership.

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Also on May 17, an investment group led by South Jersey businessman George Norcross III and former TD Bank executive Greg Braca withdrew two lawsuits against the company and some of its directors.

The first regarded “alleged efforts to modify employment and compensation agreements in order to entrench (Hill) as chairman and CEO and disenfranchise the Republic First shareholders,” according to a news release. The second suit sought to compel Republic First to make its books and records available for inspection.

The Norcross-Braca group, which owns 9.6% of Republic First, expressed dissatisfaction with Hill’s performance in the past and signaled their support for replacing him.

According to the custodian order, both Norcross-Braca and another investment group, Driver Opportunity Partners I LP, which owns about 1% of the company, appear to have aided Madonna and his allies in their attempt “to wrest control of Republic First from the Hill faction.”

The status quo order, issued May 19, prohibited the board from engaging “in any actions outside the ordinary course of day-to-day management of (Republic First or Republic Bank)” without unanimous consent from all members until May 26. It also required at least five board members to be present at any business meeting during this period for the board to transact business.

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This is the latest development in an ongoing battle for control of the Philadelphia-based bank, which has 33 offices in Philadelphia, South Jersey and New York City. The company also operates Oak Mortgage Co.

In March, the Norcross-Braca group offered to invest $50 million in Republic First and to spend as much as $106 million to acquire a majority stake in the company. The proposal also included a demand to remove Hill as chairman and CEO.

In April: Auditor requests independent investigation into Republic Bank's operator

In addition to the leadership clash, Republic First is also in the midst of an independent review and audit concerning “related party transactions, certain of the company’s controls and any associated financial statement and disclosure implications” for 2021.

This prevented the company from filing its annual and Q1 reports with the Securities and Exchanges Commission, according to a press release.

The same day the injunction was issued, though, First Republic received a notification from the Nasdaq Stock Market that it was not in compliance with the market’s listing rules for failing to file the reports. The company has yet to file the reports and does not expect to file them until the review is completed, according to the release. The notice doesn’t immediately affect the listing of First Republic’s stock on the market, and it has until May 31 to submit a plan to Nasdaq to regain compliance.

Aedy Miller is a multimedia journalist covering education, labor, climate change, mental health and the intersections thereof for the Burlington County Times, Courier-Post and The Daily Journal. Reach them at amiller4@gannett.com.

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This article originally appeared on Cherry Hill Courier-Post: Judge intervenes in Republic Bank battle after board member's death