A federal judge put an attorney in control of Republic First bank to end chaos of rival board factions

A federal judge has appointed a custodian to oversee Republic First Bancorp Inc., which he wrote has been paralyzed as deadlocked board factions trade “poisonous accusations” in a fight for control of the Philadelphia bank.

A volley of lawsuits in state and federal courts pit Republic’s chief executive Vernon W. Hill II and board allies against bank founder and director Harry Madonna and a group of dissident board members and investors, including one-time Hill business partner George E. Norcross III. Both sides have accused the other of fraudulent behavior at the bank, which has 33 branches in Pennsylvania, New Jersey, and New York, and $5.6 billion in assets.

“The unseemly efforts by both Madonna and Hill to hijack Republic First can only injure both public confidence in the institution and the institution itself,” U.S. District Court Judge Paul S. Diamond wrote in his order Thursday appointing a custodian.

Republic First’s shares, which closed Friday at $4.03, have fallen about 27% since mid February.

The appointment of a custodian came after Madonna’s dissident faction took advantage of the May 10 death of director Theodore Flocco, a Hill ally, to break a 4-4 board deadlock. Flocco’s death gave the dissidents a 4-3 board advantage, which they used to replace Hill as board chair with Madonna.

Diamond said in his 12-page order that the actions by the Madonna faction at a late night special board meeting May 12 violated the bank’s bylaws because a quorum, or a majority of the board, including the unfilled seat, was needed to remove Hill and appoint Madonna interim chair.

After an emergency hearing on Hill’s effort to return to the chair’s seat, Diamond ordered a weeklong “standstill” on May 17, hoping that “the Hill and Madonna factions could stop their infighting and return a semblance of reason to Republic First,” Diamond said.

That failed. “Unfortunately, both factions’ filings confirm that they intend to continue their destructive conduct,” he said.

Citing legal precedent, Diamond called “unjust” Madonna’s efforts to “wrest immediate control of Republic First by abruptly firing executives and changing management at the very highest levels.”

The first task for the custodian, Alfred W. Putnam, an attorney with Faegre Drinker Biddle & Reath LLP in Philadelphia, will be to facilitate a special shareholders meeting by July 10 to elect a replacement for Flocco.

Diamond’s order also says Putnam must do whatever “necessary to manage Republic First in its shareholders’ best interests,” including potentially allowing shareholders to elect a ninth director.

After shareholders elect a replacement for Flocco, Putnam could also vote as a ninth director, Diamond said.

The latest move by Norcross was to announce Friday that his dissident shareholder group would nominate a member of that group, former TD Bank executive Gregory Bracca, to replace Flocco.