A bitter family feud that has divided the owners of Emigrant Savings Bank in New York took an ugly turn last week when the thrift company's chairman filed a lawsuit to remove his own nephew as chief executive officer.
Paul Milstein, who bought Emigrant 14 years ago with his brother Seymour and helped build it into one of the East Coast's largest thrifts, is seeking to oust Seymour's son Philip as president and chief executive officer of the thrift and its holding company, $7.3 billion-asset Emigrant Bancorp.
Paul Milstein, along with his sons Howard and Edward, argued in court documents that Philip is unfit to manage the company and "engaged himself in a campaign of corporate" misconduct to assure himself permanent control of Emigrant.
"I find him increasingly dictatorial, although at the same time not sure of what he is saying or doing," Paul Milstein said of his nephew in a letter to shareholders in March. "He lacks critical thinking. It is time for a change."
The suit was filed in a New York City court after repeated attempts to replace Philip as CEO were rebuffed. The plaintiffs said that Philip, who was named CEO in 1993 and is paid roughly $1 million per year, has purposely not called a shareholder meeting since 1996, thus preventing shareholders from voting to replace him.
They also allege that Philip has refused to consider the thrift's conversion to a subchapter S corporation unless shareholders agree to appoint him as Emigrant's "president for life." Because S corporations are permitted to pass certain tax obligations on to shareholders, conversion would save Emigrant about $50 million per year in federal taxes, according to the complaint.
"His conduct has already cost [Emigrant] and its shareholders tax savings and shareholder distributions of approximately $150 million," says the complaint, noting that banks and thrifts have been eligible for S corporation status since 1997. "In essence, Philip Milstein has hijacked Emigrant and is holding the institution hostage to his demand for absolute and permanent control of Emigrant."
Philip Milstein did not return telephone calls seeking comment.
But one source said the suit is just the latest example of the power struggle at Emigrant that has gone on for much of the past decade. Though Emigrant, which has 35 branches in metro New York, has been viewed for years as a logical takeover target, many potential buyers have backed off because of the infighting.
"There are at least six companies that have looked at Emigrant seriously over the last few years, and they were all turned back by the idea of the Milsteins being on their boards," said one banker who has looked at Emigrant. "They are constantly fighting. They are untrusted."
Indeed, relations between the two sides are so testy that attorneys for Paul Milstein and his sons went so far as to hire a public relations firm to alert the media that the suit was filed.
Still, the Milstein's are one of New York's most prominent families. The family has extensive real estate holdings and until recently owned the National Hockey League's New York Islanders. Howard and Edward Milstein also made a bid in 1998 for ownership of the expansion Cleveland Browns of the National Football League, and last year they bid for the Washington Redskins of the National Football League.
The family entered the banking business in late 1986, when real estate moguls Paul and Seymour Milstein bought struggling Emigrant and immediately injected it with $90 million of much-needed capital. Emigrant, founded in 1850, suddenly doubled its assets in 1992, when it acquired the assets of the failed Dollar Dry Dock Bank.
Philip Milstein was named CEO in 1993. Soon after, Paul became "dissatisfied" with Philip's performance and installed his son, Howard, as co-CEO, according to the complaint. But Philip has limited Howard's authority by simply refusing to call meetings that involve Howard, the complaint says.
The plaintiffs also argue that the thrift's performance has suffered with Philip in charge. They say the thrift has "consistently underperformed in comparison to other banking institutions and other Milstein family businesses."
The thrift achieved record net income in 1997, but its earning have fallen in each of the last two years. Emigrant's return on assets was slightly above average last year, compared with those of similar-size thrift companies, but its 10.79% return on equity was well below average.
In the suit filed April 25, Paul Milstein and his sons are asking the court to remove Philip Milstein as an officer and director. They are also asking for undetermined damages for what they called "breach of fiduciary duty."
The defendants have not responded to the complaint and are under no deadline to do so, according to the plaintiffs' attorney.
Liz Moyer contributed to this article.