Baltimore Bancorp has filed suit against its former attorneys, alleging legal malpractice and breach of fiduciary duty and asking the court to relieve the banking company of its hefty legal bill.
The lawsuit, filed last week in the Superior Court of Washington, claims attorney Dennis Gingold and his law firm, Dickstein, Shapiro & Morin, leaked confidential information to the press, poisoned the company's relations with federal regulators and improperly advised current and former directors of the company about their resignations from the board.
The law firm was hired last year to advise businessman Edwin F. Hale Sr. in his proxy fight with former Baltimore Bancorp management. The relationship ended this year when the law firm was terminated, according to the banking company's management, or voluntarily withdrew, according to the firm.
The law firm denied yesterday the allegations in the suit, which it called "wholly without merit." Managing partner Angelo V. Arcadipane said the company "filed this suit only after we informed it that we insisted on payment of our legal fees," which he said are in the "low hundreds of thousands."
He said the firm is considering whether to file a countersuit aimed at collecting its fees.
The lawsuit joins a recent stream of bruising publicity about the company, which has $3.2 billion in assets and owns the Bank of Baltimore.
Partly because of the filing, more detailed news is likely to come. Mr. Arcadipane said the suit probably will require his firm to make some documents public, such as the meticulous legal bills and the firm's February resignation letter, that otherwise would have been subject to attorney-client confidentiality.
Separately, the Federal Deposit Insurance Corp. confirmed yesterday that it has completed a report, with recommendations, from its financial examination that ended in February. The FDIC and Baltimore Bancorp said that document will not be made public, however.
The lawsuit against the Washington law firm follows the resignation of five directors from the 18-member board in the past two months, four of them because of disagreements over management style with Mr. Hale, who became chairman in September, according to filings with the Securities and Exchange Commission.
The company reported a loss of $126.5 million last year, primarily because of large provisions for bad loans made by the previous management. That loss was increased by $25 million last month after an examination by the Federal Deposit Insurance Corp.
The banking company did report some good news this month, however, in the form of a $5.1 million first-quarter profit. But that resulted largely from the sale of assets, something the company has said it will continue through the year to reduce its assets in an effort to meet federal capital requirements.
Last week's lawsuit, which Dickstein, Shapiro said it received Friday, illustrates the bad blood between Mr. Hale and his former adviser, Mr. Gingold.
The suit alleges, for example, that Mr. Gingold and a law partner advised several Baltimore Bancorp directors in March "to resign in a 'noisy,' or highly publicized, manner."
The 16-page suit, which does not specify the amount of damages the company is seeking, also accuses Mr. Gingold of providing "highly confidential information" to the Daily Record, a legal and business newspaper in Baltimore.
Those disclosures and others led to "negative stories in the media, adverse to the [company's] interests and resulting in harm to the institution and its reputation," the suit alleges. Specifically, Baltimore Bancorp's insurance broker referred two weeks ago to a Wall Street Journal article about the director resignations in explaining its inability to provide a certain amount of officers' liability coverage.
In addition, the suit claims the adverse publicity kept the company's stock price low despite the encouraging first-quarter earnings report and "likely will result in a higher cost to the institution to raise needed capital."