Baltimore Bancorp launched yesterday yet another legal challenge to a slate of dissident shareholders trying to gain control of the company by asking U.S. District Judge J. Frederick Motz to rule that the company that counted shareholders' votes on a proposal to expand the board of directors refused to count votes that should have been voted for management.
"It would be unconscionable for the board [of directors] to just turn over the corporation to an untested, outside group without taking every step to ensure that this is truly the will of the stockholders," Baltimore Bancorp Chairman and CEO Harry L. Robinson said in a statement. "There are over 1 million votes that the Inspector of Election has erroneously placed in the abstention category that should be included in the vote for management."
An aide to Edwin F. Hale Sr., the barge company owner who has led the challenge to management's control of the company, said, "Ed thinks its unconscionable the amount of money they're spending to keep themselves in office."
Daniel H. Burch, a New York-based proxy solicitor who is advising the Hale slate, said, "This is a full employment act for lawyers." He said that the company sent 12 lawyers to a court hearing Tuesday and 11 to meetings in Delaware last week where the shareholder vote was being tallied and double-checked.
Six candidates led by Mr. Hale defeated management's incumbent nominees for seats on the company's 18-member board of directors, winning 61 percent of the vote in results that were released last week and confirmed Tuesday. The difference between the two sides' vote was more than 2 million shares.
The Hale slate also won a narrower majority -- about 900,000 shares -- for a proposal to expand the board to 28 members. That would give the Hale slate control of the company, because management did not field candidates to oppose the Hale-backed nominees for the 10 seats that would be created.
Baltimore Bancorp, the parent company of the Bank of Baltimore, has 12.8 million shares outstanding. About 82 percent of the shares were voted by their owners in an election whose polls closed May 28.
Management is trying to get 1 million of the 1.1 million abstentions on the issue of expanding the board moved into management's column. The company said that Corporation Trust Co., the Delaware proxy-election inspection company that counted the votes, refused to count 1,016,793 shares that should have gone to the incumbents' side.
Management says that it has evidence that the owners of those shares wanted to vote with management, or meant to give management discretion on how to vote, but that errors by two stock-servicing firms resulted in the votes being cast as abstentions. Corporation Trust denied management's appeals to reverse the alleged errors while the votes were being counted.
Mr. Burch said that there is no language on the ballots in question giving management the right to vote the shares. He said that the owners of hundreds of thousands of the disputed shares voted against management on other issues.
Judge Motz said that a hearing on yesterday's challenge has tentatively been set for June 20.
The fact that the issue is coming before Judge Motz at all is a surprise. Management's lawyer, David Clarke Jr., from the firm of Piper & Marbury, said in court Tuesday that state courts have exclusive jurisdiction over erroneous vote counts in proxy contests in Maryland.
If the judge doesn't rule that Corporation Trust made a mistake, management asked him to rule that the Hale team tally still isn't enough to expand the board for two reasons.
One is that the insurgents need an 80 percent shareholder vote under the company's bylaws to expand the board, management contends. Mr. Hale's lawyers have contended that under Maryland law, bylaws that require more than a majority vote to pass measures are illegal, and Judge Motz has said in hearings that the bylaw itself, even if it is valid under state law, may not be clear on the issue.
Yesterday's suit adds the claim that even if state law requires only a majority vote, the Hale slate doesn't have that. Despite the insurgents' 900,000 vote lead, the company says the 1.1 million abstentions should be counted as votes cast. That would give the Hale slate less than a majority of all votes cast.