Partners sue over Blue Bell-Willow merger

Michael A. McLaughlin was flabbergasted by the call in July 2007 from an old friend about the sale of Blue Bell Mortgage Group L.P.

McLaughlin, a limited partner in Blue Bell and an investment manager in Haddonfield, knew nothing about a sale of his own company.

He found out soon enough: Most of Blue Bell's loan officers and key staff, plus managing partner Thomas J. Campbell 3d, were being absorbed into Willow Financial Bancorp Inc. Willow even took over Blue Bell's Gilbertsville office and still uses the same phone number.

Today, McLaughlin and six other local businessmen, who together invested $275,000 to start Blue Bell in 1999, say they were left empty-handed and are convinced that Campbell and Willow had stolen their business.

"That's just not right," said McLaughlin, president of McLaughlin Asset Management Inc.

Joe Crivelli, a spokesman for Willow and Harleysville National Corp., which is buying Willow, said none of the bank officials would comment about the allegation that is now heading to court. In court documents, Willow and Campbell emphatically deny the accusations.

Both sides will have their say in court. Oral arguments in the partners' lawsuit against Campbell and Willow are scheduled for today in Montgomery County Court.

The partners' lawsuit alleges that Campbell violated his fiduciary duty to the other partners by diverting Blue Bell's business to Willow for his own benefit and that Willow interfered illegally in Blue Bell's operations. The partners say they did not receive a dime back for their stakes.

John Lawlor, owner of Keystone Fire Protection Co., of Montgomeryville, and investor of $50,000 in Blue Bell, had a hard time getting his head around what happened.

"To say that I'm shocked and livid is to put it mildly," Lawlor said.

Also at the center of Blue Bell Mortgage's murky tale is David W. Morgan, a certified public accountant and business counselor in Trappe.

Morgan said he teamed up with Campbell, a mortgage-industry veteran, to start Blue Bell as a mortgage broker in 1995, prompted by Morgan's supply of clients looking for home loans.

They decided to make the jump to being a mortgage bank in 1999, to capture more of the profit from their loans. As a mortgage bank, Blue Bell would have its own substantial line of credit from a bank or other lender from which it would make loans before selling them to investors.

To get a Pennsylvania mortgage banker's license, they had to raise $250,000 in capital. Morgan turned to old friends and acquaintances, even his brother, and rounded up $275,000.

Blue Bell thrived, completing $20 million in mortgages some months during the real estate boom.

Then last year, the bottom fell out for Blue Bell, as it did for many mortgage companies. In May 2007, cash flow got tight at Blue Bell, Morgan said. The company decided to stop using its own line of credit and go back to acting more like a mortgage broker.

At the same time, Morgan and Blue Bell's controller, Scott Summers, restricted Campbell by refusing to let him take any more advances in pay, said Morgan and Summers.

That is when Campbell started communicating with executives at Willow, according to e-mails Morgan said he obtained from Blue Bell computers.

Willow was trying to expand its residential-mortgage business against the headwind of a stalling housing market. In April 2007, it hired John J. Held as president of mortgage banking. Held had been at Home 123, a conventional-lending unit of New Century Financial Corp., one of the first subprime lenders to go belly up.

Held and Campbell met in June 2007, according to the e-mails provided by Morgan. The men exchanged e-mails about volume projections, starting from $3 million in August and building to $20 million in June 2008, which is when Willow's fiscal year ends.

On July 16 last year, Campbell and five members of Blue Bell's staff were scheduled to go to Willow for a meeting with Held, according to an e-mail from Campbell to Held.

That afternoon, McLaughlin, who was playing golf at the time, got the call from his old friend, who worked at Willow: "Hey Mike, I heard that you and Dave sold Blue Bell Mortgage."

McLaughlin immediately called Morgan, who was shocked and started investigating.

Aaron M. Schulman, a Blue Bell loan officer in Mount Laurel, said he was told by Campbell over the phone that Blue Bell was merging with Willow and that "I needed to get all my loans over to Willow Financial Bank. I wasn't given a choice. It wasn't an option."

Campbell resigned from Blue Bell on Aug. 17. Even after that, Morgan said, Campbell continued coming to the Blue Bell office two or three times a week.

At his Blue Bell e-mail address, Campbell received notice Aug. 23 from a Willow vice president, Daniel Wyatt, about a new source of funds for mortgages: "Great News. . . . We are approved by Chase :-))"

"Yippee!!" Campbell replied.

Campbell and Brian J. Kalisky, Blue Bell's sales manager and a partner since 2004, were still occupied with the move to Willow. "Tom [Campbell] and I have been working to get ALL our existing employees set up as part of the new venture," Kalisky wrote Aug. 31.

Most did. They resigned en masse Sept. 15, said Morgan.

Today's hearing follows at least one settlement effort. Morgan said Willow did not accept a $2.8 million settlement proposal from the partners. He said he and the other partners already have spent more than $130,000 in attorney's fees.

"It's just a disaster," Morgan said. "It's probably going to get worse before it gets better."