institutional investor has spilled over into a federal court in Nebraska.
Within five days, the Omaha thrift company and Franklin Mutual Advisors of Short Hills, N.J., each sued the other in U.S. District Court in Omaha. Commercial Federal, with $12.8 billion of assets, fired the first shot Oct. 13 when it tried to bar Franklin from nominating two candidates to its board.
Franklin, which owns 7.9% -- or about $92 million worth -- of Commercial Federal's stock, retaliated with a suit of its own Monday. This complaint alleges that Commercial Federal and its directors have broken the law in trying to keep the names of Franklin's nominees off an upcoming ballot.
At stake is Commercial Federal's independence. Franklin has said its nominees, if elected, would advocate selling the thrift -- a move its 10-member board and its chief executive officer adamantly oppose.
The dispute began in August when the investment group filed documents with the Securities and Exchange Commission urging Commercial Federal to sell. In the filing Franklin said the thrift has "no realistic, stand-alone operating plan (that) can come close to generating shareholder returns that would result from a sale or merger." Officials of the investment group declined to comment Wednesday other than to clarify facts of the pending litigation.
William A. Fitzgerald, the thrift's chairman and CEO, said he disagrees with Franklin's assessment. A study commissioned by Commercial Federal and unveiled four weeks ago by Goldman Sachs Group Inc. and Merrill Lynch & Co. found that the thrift could return greater shareholder value by staying independent rather than selling in the near term.
"With the current market conditions, it makes no sense to consider a sale," Mr. Fitzgerald said.
In its lawsuit, the thrift has challenged the eligibility of J. Thomas Burcham and Matthew P. Wagner to run for or serve on its board.
Franklin nominated Mr. Burcham to the board and Mr. Wagner as an alternate candidate in early September. Commercial Federal is not challenging Franklin's other board nominee, George R. Zoffinger, who is president and chief executive officer of Constellation Capital Corp., a New Jersey commercial finance and investment company.
Commercial Federal claims that Mr. Burcham does not meet the thrift's bylaw requirements and Office of Thrift Supervision rules because he is a controlling shareholder of MBT Bancshares, parent of a competitor -- the $92.3 million-asset Missouri Bank and Trust Co. of Kansas City, Mo. It is challenging Mr. Wagner because he is president and CEO of California-based Western Bancorp, which is not a competitor but is being acquired by U.S. Bancorp. Minneapolis-based U.S. Bancorp operates in many of Commercial Federal's markets.
"It is not in the best interests of Commercial Federal's shareholders to have officers, directors, or controlling shareholders of competitors sitting on our board," Mr. Fitzgerald said. "After all, Pepsi people do not sit on Coca-Cola's board."
One analyst said the thrift's suit might be weakened by regulators' plan to loosen their rules, allowing leaders of financial institutions with only a small market share, such as MBT, to serve on competitors' boards.
"Does the Commercial Federal suit pass that smell test? My sense is no," said the analyst, who asked not to be named. "Commercial Federal might just be sending a message, 'You mess with me, and I'll mess with you.' "