Net First Nat. Bank v. First Telebanc Corp., 4D02-519.

• Decision Date: 22 January 2003
• Docket Number: No. 4D02-519.,4D02-519.
• Citation: 834 So.2d 944
• Parties: NET FIRST NATIONAL BANK, Craig Connors, Laura K. Pugliese, Randall R. Rossilli, Richard Pasley, William A. High and Glenn E. Gromann, Appellants, v. FIRST TELEBANC CORP., a/k/a Net First Financial Corporation, Keith F. Duffy and Bradley B. Groves, Appellees.
• Court: Florida District Court of Appeals

834 So.2d 944

NET FIRST NATIONAL BANK, Craig Connors, Laura K. Pugliese, Randall R. Rossilli, Richard Pasley, William A. High and Glenn E. Gromann, Appellants, v. FIRST TELEBANC CORP., a/k/a Net First Financial Corporation, Keith F. Duffy and Bradley B. Groves, Appellees.

No. 4D02-519.

District Court of Appeal of Florida, Fourth District.

January 22, 2003.

James S. Telepman of Cohen, Norris, Scherer, Weinberger & Wolmer, North Palm Beach, for appellants Craig Connors, Laura K. Pugliese, Randall R. Rossilli, Richard Pasley, William A. High and Glenn E. Gromann.

Thompkins W. White and Edward W. Dougherty, Jr. of Igler & Dougherty, P.A., Tallahassee, for appellees.

PER CURIAM.

This is an appeal from a non-final order granting a temporary injunction that prevents Appellants from acting in their former roles as directors of Net First National Bank. Jurisdiction is under Florida Rule of Appellate Procedure 9.130(a)(3)(B).

I. Background

This complex case involves two groups of investors battling for control of Net First National Bank ("the Bank") and the Bank's sole shareholder, First Telebanc Corporation ("the holding company"). The events leading to the present rift in leadership began in January 1999, when the directors of the Bank appointed Keith Duffy to fill a vacant director position. Sometime prior to May 2000, the Bank was designated a "troubled institution" under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA").

In June 2000, Duffy began acting as president and chief executive officer of the Bank. Throughout this time, the Bank experienced increasing financial difficulties, resulting in a Consent Order and Stipulation between the Office of the Comptroller of Currency ("OCC") and the Bank. The order gave the OCC increased oversight of the Bank's business dealings, most importantly a veto power over any proposed senior executive officer.

Pursuant to FIRREA requirements, Duffy submitted a form 914 Notice to the OCC detailing his qualifications for his senior executive and director positions with the Bank. Duffy was later interviewed, and the OCC declined to grant him authority to act as a senior executive of the Bank, stating that he did not have sufficient experience to hold a leadership position in a "problem bank." The OCC did not object at that time to Duffy's continuing as a director.

In February 2001, however, the OCC nullified its non-objection to Duffy serving as director. In a five-page letter, the OCC detailed material misrepresentations and omissions Duffy made in the biographical portion of his 914 application and his interview. The OCC found that Duffy gave a false answer and omitted material information regarding his past involvement with a state-chartered bank, then continued to misrepresent facts and give inconsistent explanations in subsequent documents and his interview.

At the center of Duffy's misrepresentations to the OCC was his past involvement with a state-chartered bank. Duffy failed to disclose that his application to serve as president of the state bank was disapproved by Florida's Department of Banking and Finance. Duffy also failed to disclose that after disapproval, he continued to serve as president of the state bank, in violation of the Department's numerous demands that he step down. The state bank was in poor financial condition and under a cease and desist order from the State Comptroller when Duffy arrived, and it deteriorated further during his tenure, with criticism of his performance including "inappropriate insider transactions involving Duffy-related companies, a number of violations of laws, and continued noncompliance with the cease and desist order." As a result, the OCC withdrew its approval for Duffy to have any connection with Bank leadership.

In September 2000, the Federal Reserve Bank notified the board of the holding company that the OCC decision not only precluded Duffy from serving as a director of the Bank, but governed his actions as a director of the holding company as well. The Federal Reserve warned that "[h]olding company board of directors' minutes should clearly note Mr. Duffy's abstention from all policymaking decisions regarding the bank." Several months later, in May 2001, the holding company elected six directors of the Bank. They included Duffy, Randall Rossilli, and Laura Pugliese, with Duffy's directorship subject to the outcome of a pending appeal of the OCC nullification. The OCC responded by advising the Bank's directors that "Mr. Duffy may not participate in the affairs of the bank or otherwise act as an `institution affiliated party' in board meetings or under any other circumstances," and that such participation subjected other directors to civil penalties. Duffy's appeal of the OCC nullification was resolved against him.

II. The Current Controversy

As of September 2001, the holding company's board consisted solely of Duffy, Rossilli, and Director Bradley Groves. At that time, the Board resolved unanimously that "Laura Pugliese is approved as Director for 914 approval." By letter date-stamped October 25, 2001, the Federal Reserve notified the holding company that it did not intend to disapprove Pugliese's appointment to the Board of the holding company, and the appointment should be consummated no less than three months from the date of the letter.

The situation came to a head on November 9, 2001, at a meeting of the Bank's directors chaired by Rossilli and attended by Groves. The directors voted to withdraw the Bank as a party to Duffy's appeal of the OCC nullification and find new corporate counsel. On the same date, an excess of 20% of holding company shareholders called for a special meeting of shareholders to be held on December 18, 2001, at which they would vote on whether to remove Duffy and Groves as directors of the holding company.

On November 20, 2001, Duffy, in his capacity as chairman of the holding company, called a special meeting of the holding company's board. The meeting included corporate counsel George A. Igler, Duffy, Groves, Rossilli attending by phone, and a man named Armen Markarian. Markarian had recently invested $600,000.00 in the holding company. The Federal Reserve Bank of Atlanta later notified corporate counsel that Markarian could not serve as a director of the holding company until he filed a 914 application and received approval.

The minutes of the meeting indicate that Rossilli objected to Markarian's presence and asked why Pugliese was not present. Groves responded that Markarian had been elected a director of the holding company in August and Pugliese had not. Duffy and Groves complained that they were denied access to the holding company's corporate offices by the corporate Secretary, Glen Gromann, whom they claim acted at Rossilli's direction. Duffy and Groves then began discussing Gromann's removal.

Rossilli objected and then left the meeting by hanging up. Afterward, Duffy, Groves, and Markarian voted to remove Gromann and replace him with Groves, to authorize Groves to vote all of the holding company's shares, and to add Sean K. Olhan to the holding company's board. The meeting was adjourned, to reconvene after a meeting of the Bank's shareholders.

Duffy, Groves, and Markarian then immediately convened a meeting of the shareholders of the Bank, on the ground that they represented the holding company, which was the sole shareholder. The stated purpose of the meeting "was to consider the removal of certain Bank directors and replace them with competent directors who are not necessarily associated with one another." They waived notice requirements, then voted to remove Bank directors Rossilli, Pugliese, Craig Connors, and Richard Paisley, replacing them with Markarian, Olhan, and two others. Rossilli and Pugliese then called a meeting of the directors of the holding company on December 6, 2001, at which they voted to remove Duffy and Groves as directors. According to the minutes, the holding company's by-laws allow a vote of 60% of disinterested directors to carry a vote, and Rossilli and Pugliese claimed to represent 100% of the disinterested directors. On the same day, Duffy and Groves held a meeting at which they voted to remove Rossilli from the holding company's board. The shareholders went forward with the special meeting on December 18, and an excess of 60% of the holding company's shares voted to ratify Rossilli's and Pugliese's actions at the December 6 meeting, voted directly to remove Duffy and Groves from the holding company board, and elected a new slate of directors for the holding company's board.

Plaintiffs, led by Duffy, filed two separate lawsuits, one naming the Bank and its individual directors as defendants, and the other naming the shareholders of the holding company as defendants. Plaintiffs twice sought emergency hearing on their motion for temporary injunction in the holding company case, but were unsuccessful. Plaintiffs' motion for injunctive relief in the Bank case was set for hearing when they filed a motion to consolidate the two cases. Prior to the injunction hearing, Plaintiffs voluntarily dismissed the Bank as a party defendant due to a conflict of interest stemming from their attorneys' role as the Bank's general counsel.

At the injunction hearing, the judge granted Plaintiffs' motion to consolidate the two cases. The judge later entered the injunction order, which was drafted and submitted to the trial court by Plaintiffs' counsel, and states:

Plaintiffs have a likelihood of success on the merits, have suffered irreparable harm and have an inadequate remedy of law with respect to the continuing deprivation of their rights to control the corporate governance, operations and assets of First Telebanc, in that damages are likely to be speculative, non-quantifiable, and inadequate with respect to such deprivation. Further, such tortious interference and continuing harm excuses actual proof of irreparable

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