A legal battle between local banks Provident Bankshares Corp. and Sterling Bancorp has spawned a related lawsuit: Provident has filed a $3 million claim alleging that its own lawyers were negligent in an aborted merger.
Provident's suit accuses Semmes, Bowen & Semmes of failing to adequately protect the bank in merger negotiations with Sterling.
Semmes' managing partner, Cleaveland D. Miller, drafted a letter of intent as a critical step in Provident's proposed merger with Sterling, according to papers filed in Baltimore City Circuit Court.
But, the suit claims, Mr. Miller failed to negotiate a period of "due diligence," when Provident could have reviewed Sterling's business before committing to the merger.
The omission proved costly, the suit says, because Provident discovered "problems with Sterling's operation," causing it to back out of the proposed merger.
Among the problems Provident discovered were that Sterling's loan portfolio appeared to be of "substandard quality according to Provident's standards" and that Sterling's loan loss reserve "appeared to be inadequate," the suit says.
Sterling sued Provident for $5.4 million for breach of contract. In a settlement announced in May, Provident paid $650,000.
"In a nutshell, Semmes failed to take the most basic steps to protect its client, to ensure Provident's right that the proposed merger was contingent on Provident's right to conduct due diligence," said William F. Ryan Jr. of Whiteford, Taylor & Preston, the law firm that represents the bank in the suit against Semmes, Bowen and Semmes.
But Semmes Vice Chair Daniel J. Moore said his law firm provided "quality, appropriate, professional representation."
"Provident made a number of business decisions in reference to the proposed merger with Sterling and the subsequent decision not to go forward with that merger," said Mr. Moore. "Provident now wrongfully is attempting to shift the burden and the costs of those independent business decisions to this law firm."
In the suit, Provident asks for $1.5 million each for counts of breach of contract and legal malpractice.
The suit says that Mr. Miller "holds himself out to be experienced in the area of bank mergers," and that Provident relied on him to draft a letter of intent regarding the merger with Sterling.
Mr. Miller's letter on behalf of Provident stated that it would be binding if accepted by Sterling, according to the suit.
The letter omitted any reference to Provident's right, agreed upon by the two banks, to conduct due diligence and to walk away from the proposed merger if it wasn't satisfied with its findings, the suit says.
The proposed merger, announced in December 1993, was called off in early 1994 when Provident said it did not like what it found when it inspected Sterling's books.