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PL Capital v. Orrstown Financial Services board

PL Capital v. Orrstown Financial Services board

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Published by Public Opinion
PL Capital v. Orrstown Financial Services board
PL Capital v. Orrstown Financial Services board

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Categories:Business/Law
Published by: Public Opinion on Feb 05, 2013
Copyright:Attribution Non-commercial

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07/10/2013

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UNITED STATE DISTRICT COURTFOR THE MIDDLE DISTRICT OF PENNSYLVANIAHARRISBURG DIVISIONPL Capital, LLC; PL Capital Advisors,LLC; Goodbody/PL Capital, LLC;Financial Edge Fund, L.P.; FinancialEdge-Strategic Fund, L.P.;Goodbody/PL Capital, L.P.; PLCapital/Focused Fund, L.P.; Richard J.Lashley; and John W. Palmer, onbehalf of shareholders of OrrstownFinancial Services, Inc,
Plaintiffs,
v.Joel Zullinger, Thomas Quinn, JeffreyCoy, Anthony Ceddia, Mark Keller,Andrea Pugh, Gregory Rosenberry,Glenn Snoke, Floyd Stoner, and JohnWard,
 Defendants
,andOrrstown Financial Services, Inc,
 Nominal Party.
))))))))))))))))))))))))))))Civil Action No. ___
VERIFIED COMPLAINTINTRODUCTION
1.
 
This is a shareholder derivative action on behalf of nominal partyOrrstown Financial Services, Inc. (“Orrstown” or the “Company”) brought to
Case 1:13-cv-00047-CCC Document 1 Filed 01/07/13 Page 1 of 38
 
 
2redress the wrongful adoption and discriminatory application of amendments tocertain director qualification by-laws. Plaintiffs John Palmer and Richard Lashley,through PL Capital, LLC, PL Capital Advisors, LLC, Goodbody/PL Capital, LLC,Financial Edge Fund, L.P., Financial Edge-Strategic Fund, L.P., Goodbody/PLCapital, L.P., PL Capital/Focused Fund, L.P. (collectively, the “PL Capital Group,”and with Palmer and Lashley, the “Plaintiffs”), own 6.9% of Orrstown’s commonstock, rendering the PL Capital Group Orrstown’s largest shareholder. Thecomplaint seeks relief against the Orrstown Board of Directors – defendantsThomas Quinn, Joel Zullinger, Jeffrey Coy, Anthony Ceddia, Mark Keller, AndreaPugh, Gregory Rosenberry, Glenn Snoke, Floyd Stoner and John Ward(collectively, the “Orrstown Board” or the “Board”) – for the Orrstown Board’sbreach of its fiduciary duties owed to the Company and for the Board’sfundamentally unfair deprivation of, and tortious interference with, Plaintiffs’ andother investors’ core shareholder rights.2.
 
Orrstown is a company in crisis. In 2011, Orrstown’s regulators, theFederal Reserve Bank of Philadelphia (the “FRB”) and the PennsylvaniaDepartment of Banking, Bureau of Commercial Institutions (the “Department of Banking” and, collectively with the FRB, the “Regulators”), issued a Joint Reportof Examination finding, among other things, that the Company’s wholly ownedsubsidiary Orrstown Bank (the “Bank”) had, among other things, “engaged in
Case 1:13-cv-00047-CCC Document 1 Filed 01/07/13 Page 2 of 38
 
 
3unsafe or unsound banking practices or violations of law or policy.” On March 22,2012 the Company and the Bank jointly entered into a Consent Order with theDepartment of Banking and a written agreement with the FRB that requiredOrrstown and the Bank to adopt plans to, among other things, strengthen oversightof management and operations, reduce the level of classified assets, improve creditrisk management practices, maintain adequate loan loss allowances, maintainsufficient capital, and revise loan underwriting and credit administration policies.The regulatory agreements contained 36 pages of findings and requirements, astinging rebuke by the Regulators.3.
 
The Orrstown and Bank boards (which contain identical members)are also under regulatory scrutiny for their role in the Company’s crisis. TheMarch 22, 2012 regulatory agreements with the FRB and the Department of Banking required the Bank to, among other things, (a) retain an independentconsultant to evaluate “each existing director and senior officer to determinewhether these individuals possess the ability, experience, and other qualificationsrequired to perform present and anticipated duties, including adherence to theBank’s established policies and practices, and restoration and maintenance of theBank in a safe and sound condition,” (b) take actions to “strengthen Boardoversight of the management and operations of the Bank, with full responsibilityfor the approval of sound policies and objectives and for supervision of all of the
Case 1:13-cv-00047-CCC Document 1 Filed 01/07/13 Page 3 of 38

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