A federal judge threw yet another twist into the convoluted proxy fight for control of Baltimore Bancorp yesterday, ordering a new shareholder vote on a proposal to expand the company's board of directors to 28 members from 18.
The expansion proposal was designed to allow dissident stockholders led by Edwin F. Hale Sr. to gain control of the Bank of Baltimore's parent company.
U.S. District Judge J. Frederick Motz ruled that it was impossible to award disputed ballots involving more than 1 million shares to either side, because the ballot forms designed by two outside firms were so poorly written that they left unclear the intent of the stockholders who used them.
"There was an ambiguity in the proxy communications sent by [the two firms] which makes it impossible to determine how the 1 million votes in question were intended to be cast," Judge Motz wrote in a 37-page order released only one day after the last arguments in the case.
"Although I am not unmindful of the substantial cost and, perhaps more importantly, the continuing uncertainty to which another election will subject the bank, I have concluded that a new election is the only effective remedy which can be granted," he added.
The judge's decision was a major setback for the Hale slate, which had been anointed the winner on all issues by Corporation Trust Co., the Delaware firm that counted the votes in the election.
"The judge doesn't cite any law to justify the [review of] CT's count," said Dennis Gingold, a lawyer for Mr. Hale. "There was no evidence that the shareholders were confused, or that they intended to confer discretionary authority" allowing management to vote their stock against expanding the board.
Baltimore Bancorp Executive Vice President Jerome P. Baroch was in a better mood.
"We're disappointed that the judge didn't find in our favor [on all issues], but we think it's the most equitable decision," Mr. Baroch said.
Corporation Trust had refused to count the disputed ballots on the issue of expanding the board, dumping them all into the abstentions column.
With those votes on the sidelines, the motion to expand the board passed by 5.2 million votes to about 4.2 million votes. The company has 12.8 million shares outstanding, and stockholders get one vote for each share they own.
Both sides said that the new election probably couldn't be held before late August or even September. The Hale slate said that it would appeal to the 4th U.S. Circuit Court of Appeals, which is expected to hear the case in early July.
Mr. Baroch said that it would then take about 10 days for each side to get proxy materials approved by the U.S. Securities and Exchange Commission, and the campaign in the new election would take another four weeks.
Yesterday's ruling does not affect the six directors loyal to Mr. Hale who were elected to the existing seats on the company's board, Mr. Gingold said.
Their election stands, and they will take their seats on the board as soon as possible, he said.
Mr. Gingold promised that the new campaign would be hard-nosed, with the new directors feeling free to use information they learn about the bank in their new jobs during the campaign.
Confronted with half a dozen legal issues in the case, Judge Motz pretty much split them down the middle.
But on the most important issue, he sided with the dissidents, ruling that it takes only a majority vote to amend the bylaws to allow the expansion of the board.
The company's incumbent management had insisted that the company's bylaws demanded an 80 percent vote, but dissidents had said that bylaw was illegal under Maryland law.
The judge said that an 80 percent bylaw could have been legal but that Baltimore Bancorp's bylaws aren't written in a way that qualifies them the protection of the section of Maryland's General Corporation Law that would make an 80 percent requirement legal.
This part of the ruling means that the Hale slate needs only a simple majority vote to win a new election.