CertusBank Founders' Defamation Lawsuit Tossed

A federal judge has dismissed a lawsuit by the founders of CertusBank that claimed they were fired as part of a racist conspiracy at the Columbia, S.C., company.

Judge Timothy Cain of the U.S. District Court for South Carolina dismissed the case Friday, ruling that it did not meet the criteria to be heard in a federal court. He determined that the court lacks the authority to hear the case because one of the plaintiffs is a legal resident of South Carolina, where CertusBank is also based.

"Because complete diversity of citizenship is lacking, and as plaintiffs' complaint states no cognizable federal claim, the court concludes that this action must be dismissed for lack of subject matter jurisdiction," he wrote.

Subject-matter jurisdiction in a federal lawsuit requires that none of the plaintiffs reside in the same state as any of the defendants. Cain dismissed the suit without prejudice, meaning that the dismissal was due to a procedural issue and the case can be refiled in the proper jurisdiction.

Three founders of CertusBank — Milton Jones, Walter Davis and Angela Webb — sued the bank and a hedge-fund investor after the executives were fired in early April. Their lawsuit claimed that the investor, Benjamin Weinger of New York's 3-Sigma Values Financial Opportunities Fund, conspired to wrest control of the bank by defaming them with racist stereotypes.

CertusBank and Weinger engaged in a "campaign to defame the plaintiffs through the communication of half-truths and gross distortions which were rife with hateful and racial remarks and heinous stereotypes about African-Americans," the executives' complaint stated.

Jones, Davis and Webb were dismissed from their leadership of the $1.5 billion-asset bank in early April, shortly after American Banker published an article focusing on Certus' heavy losses and allegations of improper spending and mismanagement. In their complaint, the executives claimed that Certus' board approved these expenses, as well as the bank's payments to a consultancy they themselves founded and owned.

Before the firings, Weinger, whose fund holds a 4.9% stake in Certus, had circulated a letter among the shareholders highlighting what he regarded as mismanagement. The letter includes phrases such as "they gots to go" and "the ship be sinking," which the ousted execs argued were an attempt to foster racial enmity toward them.

CertusBank denied the charges, claiming that Jones, Webb and Davis were fired for poor management, and pointed out that the majority of directors who voted for the firing are also African-American.

The bank's losses have continued under new Chief Executive John Poelker. On Friday, Certus disclosed a $15 million third-quarter loss, bringing its losses for the first nine months of the year to $39 million.

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