Capital Bank, which just prevailed in a breach-of-contract lawsuit filed by former CEO Grant Yarber, is facing a new complaint filed by two former top executives at Winston-Salem-based Southern Community Bank and Trust that treads some of the same ground.
Both the lawsuit filed by Yarber, which was dismissed March 18 by a federal court judge, and the lawsuit filed April 26 by the ex-Southern Community executives center on clauses in their contracts that entitled them to lucrative severance packages if they lost their jobs as a result of their banks being sold.
The two lawsuits offer distinct variations on that theme, however.
Yarber argued he was wrongfully coerced into surrendering the change-in-control clause in his contract when Raleigh-based Capital Bank was in negotiations to be acquired by North American Financial Holdings. When he was later dismissed he sued, arguing he was still entitled to the $1.1 million in severance contemplated by that clause. North American Financial changed its name to Capital Bank Financial Corp. after completing the deal.
By contrast, the two Southern Community executives, former CEO and founder Scott Bauer and Jeffrey Clark, previously senior vice president and chief commercial banking officer, declined to amend their contracts when the new Capital Bank was negotiating to buy their bank. They claim in their lawsuit that they were dismissed because of that refusal and are now seeking their change-in-control severance.
Kenneth Posner, a spokesman for Capital Bank, said of both lawsuits: Our policy is not to comment on litigation.
Capital, which has 182 employees in the Raleigh-Cary metropolitan area, is technically headquartered in Florida, but its two top executives are based in Charlotte. Capital has 164 branches in North and South Carolina, Florida, Tennessee and Virginia.
North American Financial acquired a majority stake in the old, Raleigh-based Capital Bank for $181 million in 2011. Yarber was the CEO of the old Capital and became market president for the new Capital Banks North Carolina branches after the sale was final. But he was dismissed from the bank in November 2011, after his new employer discovered he was trying to assemble an investor group to acquire a bank. He filed his lawsuit in February 2012.
The new Capital contended it had a legitimate interest in getting Yarber and other top executives at the old Capital to forgo their change-in-control payments before investing in the bank. It also contended that Yarber benefited financially from the deal and was trying to get a second bite of the apple by seeking severance.
In dismissing Yarbers lawsuit, Chief Judge James C. Dever III in federal court in Raleigh found that Yarber made a calculated decision to give up his right to severance payments in exchange for retaining a job and completing the deal.
Yarber declined to comment on the dismissal but said he doesnt plan an appeal.
To me, it is done, he said. Its just not worth it. Last year, Yarber acquired a majority stake in Amazon Millworks, a Durham company that makes hand-carved furniture and other woodwork.
Capital agreed to acquire Southern Community in March 2012 and completed the $52 million acquisition of the 22-branch bank in October.
The lawsuit filed by Bauer and Clark contends Capital made eliminating the employees change-in-control agreements a mandatory requirement of the deal, prompting Southern Community to demand that employees agree to the change.
The suit also states that Bauer, the CEO, and other executives were cut out of the deal negotiations, which were handled by the banks chairman, Dr. William G. Ward.
Understandably, the vast majority of employees capitulated under the coercion and threat of termination, the suit alleges. About 80 employees, including some tellers, had change-in-control benefits, according to the suit.
But Bauer and Clark refused to capitulate and were fired.
The failure to pay their change-in-control benefits by Southern Community and Capital amounts to a breach of contract, the suit contends.
The lawsuit also states that Southern Community contended that its acceptance of funds from the U.S. Treasury under the Troubled Asset Relief Program, or TARP, prohibited it from paying change-in-control benefits because of federal restrictions on executive compensation.
But the suit calls that bogus, arguing that those restrictions dont apply when a bank is acquired by an institution like Capital Bank that had no TARP debt of its own.
The lawsuit doesnt specify the damages being sought but notes that Southern Communitys 2011 proxy estimates that Bauers change-in-control package totaled $4.9 million, and that Clarks totaled $2.6 million.
However, the proxy filed by Southern Community last year estimated that if Bauer and Clarks change-in-control clauses had been in effect they would have been owed $2.6 million and $1.4 million, respectively.
Raleigh attorney Christopher Graebe of Graebe Hanna & Sullivan, which is representing Bauer and Clark, had no comment on the suit.
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