The legal gladiators for the two sides in the Baltimore Bancorp takeover battle were to meet in court today.
The confrontation before a federal judge comes a week after a preliminary count of shareholder ballots showed that 16 dissident shareholders won a clear majority. The vote means that six of the opposition candidates will sit on the board, unless the vote is overturned. However, whether the dissidents gain a majority on the board will be decided in the legal battle over securities law and the company's bylaws.
Baltimore Bancorp, the parent company of the Bank of Baltimore, is the fifth largest banking operation in Maryland. The dissident group that is trying to gain control is led by Edwin F. Hale Sr., who owns the Baltimore Blast soccer team as well as trucking and barging businesses.
In a proxy fight, a group tries to persuade shareholders to support its slate of candidates by casting votes at a company's annual meeting.
Today's hearing in Baltimore before U.S. District Court Judge J. Frederick Motz involves a suit brought by Hale's group.
Among three issues before the court is whether the Hale group needs a simple majority or an 80 percent vote of the shareholders to enlarge the board from 18 to 28 positions.
Since only a third of the 18 members were up for election, the Hale group's strategy to take over the board included expanding the board to 28 members and then electing 16 members. But the company's bylaws require an 80 percent vote to change the size of the board -- which the Hale group did not achieve.
Lawyers for Hale contend that Maryland law requires that such a restriction be in the company's charter, not its bylaws. Therefore, they say, the 80 percent requirement should be thrown out. Baltimore Bancorp argues that the requirement is valid.
A second issue is the company's discretionary right to vote the ballots of shareholders who sent in proxies. Challenging that right is another way the Hale group hopes to achieve the required number to enlarge the board.
Under normal circumstances, shareholders who send in their proxies before a meeting give management the right to vote their shares on matters that come before the meeting. In this case, the company used these discretionary votes against the proposal to increase the size of the board. The Hale group contends that the discretionary power can not be used in this case because a specific shareholder proposal was presented before the annual meeting on May 22 and management should have solicited authority from the shareholders to vote against it.
The third issue is whether Baltimore Bancorp management properly extended shareholder voting beyond the May 22 meeting to noon on May 28. Management said it took the action at the request of the Securities and Exchange Commission, while the Hale group said it was done as a way to give managementmore time to solicit support.
A decision from Motz is not expected for a least a couple of days. That decision can be appealed to the U.S. 4th Circuit Court of Appeals.
A suit brought by Baltimore Bancorp against the Hale group is to be heard by Motz on June 19. That case charges the Hale group made false and misleading statements in its campaign for support. As a result of those actions, the bank is asking that the shareholder vote be overturned and held again.
But the Hale group is hoping to head off that case if Motz grants its request for an injunction to install Hale's entire slate before Baltimore Bancorp's regular board meeting on June 18. If that is done, the new board might drop the case.
"If our directors are sitting, I wouldn't be surprised if they voted to dismiss the litigation," says Dennis Gingold, an attorney for the Hale group.