The largest shareholder at Massachusetts Fincorp has sued the small thrift over a new provision in its by-laws that excludes out-of-state residents from serving on its board.
Mark W. Jaindl, a resident of Allentown, Pa., and president of an Internet bank there, filed suit in a Delaware Court last week against $93 million-asset Mass Fincorp and each of its 10 directors. He contends that the amended by-laws are "discriminatory" and are crafted specifically to prevent him and two associates from joining Mass Fincorp's board. "The discriminatory feature of the residency by-law demonstrates, on its face, that the defendants have acted in a manner which attempts to preserve their position and perquisites as directors," Mr. Jaindl asserted in court documents filed Jan. 24. "There is no business purpose for imposing a residency requirement."
Paul C. Green, Mass Fincorp's president and chief executive officer, did not return telephone calls seeking comment on the board's actions.
Mass Fincorp, the Boston-based parent company of 92-year-old Massachusetts Co-operative Bank, went public in December 1998. Mr. Jaindl and his family began buying shares in the company in May and have become the thrift's largest shareholders, with a 9.9% stake.
Mr. Jaindl began voicing his displeasure with the thrift last summer, after its management ignored his pleas to buy back shares to help boost its sagging stock price. Its stock has traded in the $10 to $11 range for months, well below its book value of $17.25.
In October, Mr. Jaindl was nominated for a board seat by his father, Fred, and on Jan. 14, Mr. Jaindl nominated two other Pennsylvanians, William E. Schantz and Scott E. Buck, for election at the thrift's annual meeting in April.
Five days later, on Jan. 19, the thrift filed documents with the Securities Exchange Commission stating that it had inserted a residency requirement into its by-laws. The new by-laws say that no individual may run for a board seat unless he or she has lived for at least one year in a county where the thrift does business. Current directors, however, are exempt from the requirement.
In its SEC filing, Mass Fincorp said that its board voted to amend the by-laws on Jan. 12, two days before the official nominations of Mr. Schantz and Mr. Buck. However, Mr. Jaindl said in his lawsuit that he notified the thrift of his intentions in mid-December.
The amended by-laws also prohibit any officer or director at a competing bank, thrift, or credit union from serving on Mass Fincorp's board.
"We have exactly 11 customers in Massachusetts," said Mr. Jaindl, president of American Bank in Allentown. "If they consider that competition, shame on them."
Mass Fincorp is one of many thrifts engaged in proxy battles with impatient investors who are pushing the thrifts to replace management or sell outright.
David Baris, executive director at the American Association of Bank Directors in Bethesda, Md., said this dispute bears watching. Though boards occasionally include residency or noncompetition clauses in their by-laws, Mr. Baris said it is unusual for a board to insert such provisions in an attempt to block a nomination.
"We believe in giving a board fairly wide discretion to decide things within their fiduciary duties," Mr. Baris said, "but we're not in favor of boards doing things in the interest of self-preservation."
In an interview last week, Mr. Jaindl was sharply critical of Mass Fincorp's management and the company's performance since going public. He blasted the company for not boosting its loan loss provision as its loans have grown by more than 30% in the last year, and he questioned its spending $2.25 million on a new headquarters in Quincy, Mass.
"Why would a company that size sink that type of money into a building?" Mr. Jaindl asked.
Mr. Jaindl is asking the courts to invalidate the amendments to Mass Fincorp's by-laws. Mass Fincorp has not yet responded to the complaint.