Hearing heats up bank fight Judge to rule on ground rules for vote


U.S. District Judge J. Frederick Motz set a hearing for today on a legal question that could decide the outcome of the battle between Baltimore Bancorp and a committee of dissident shareholders who are trying to win election to the company's board.

The hearing is only one of several fronts on which the battle is being fought for control of the Bank of Baltimore's parent company. Both sides are making new appeals to shareholders through newspaper advertisements and have swapped legal opinions in a battle before the Federal Reserve, which regulates banks.

An official at the Fed said that it hasn't yet ruled on a bid last Friday by the company's management to order the group of shareholders led by Baltimore Blast owner Edwin F. Hale Sr. to stop soliciting proxies until the group applies to the Fed for permission to proceed under the Change in Bank Control Act.

The company also seeks to disqualify three members of the 16-member Hale-organized slate of director candidates, including Mr. Hale, on the grounds that they are also directors of other bank holding companies. Attorneys for the dissidents counter that two of the men aren't directors of other banks and that one is a director of a new bank that is exempt from the ban on interlocking bank directorships because the bank is less than 2 years old.

Judge Motz is set to hear an appeal by Barbara S. Larkin, a shareholder from Severna Park, who contends that only a majority of the shares voted is necessary to pass a shareholder proposition to expand the company's board to 28 from 18 members.

Baltimore Bancorp has contended that an 80 percent vote is needed. Since only six of the board's 18 members are up for re-election, the Hale group cannot win control of the board unless the board is expanded.

The legal issue is that Baltimore Bancorp's 80 percent rule is outlined in the company's bylaws. Attorneys for Mr. Hale, who also represent Mrs. Larkin, contend that such a "supermajority" requirement is valid under Maryland law only if it is written into a company's corporate charter.

Even as the parties fight in the courts, the battle for shareholders' hearts and minds continues.

In today's Sun and Evening Sun, the dissidents have taken out a full-page ad saying that the bank has made paltry profits under Chairman Harry L. Robinson. The ad says the dissidents will boost the bank's earnings and present any offers to buy the company to the shareholders.

Mr. Robinson has been criticized for his refusal last year to consider atakeover offer from First Maryland Bancorp, the parent company of the First National Bank of Maryland.

Jerome Baroch, Baltimore Bancorp executive vice president, said the company is planning to counter with a new ad of its own, which he said will be used as soon as it is approved by the SEC. He declined to say what is in the ad.

At the Federal Reserve, attorneys for Mr. Hale responded yesterday to the May 10 letter from Sullivan & Cromwell, the New York law firm representing Baltimore Bancorp, that asked the Fed to stop the proxy solicitation by dissidents.

The letter from Baltimore Bancorp had said that companies seeking control of bank holding companies need to seek prior approval from the Fed.

Normally, that means a company has to seek Fed permission before buying a bank because, Baltimore Bancorp's lawyers said, there are no known instances of anyone trying to take over a bank through a proxy fight.

But the Federal Home Loan Bank Board, the now-defunct federal agency that used to regulate savings and loans, used a similar law to require bank board approval before a proxy fight could be launched for control of a thrift.

"You have two statutes that are identical," said H. Rodgin Cohen, a Sullivan & Cromwell attorney. "The people who ran the S&Ls; made their decision. The Fed has never had to deal with this issue."

Mr. Hale's attorneys countered that the stockholders' committee leading the proxy fight will disband after the shareholders' meeting on Wednesday, so it isn't a company and doesn't have to seek permission from the Fed before trying to gain control of the bank.

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