Federal Judge Refuses to Dismiss Claims in Long-Running Battle Over Spencer Savings Bank

A federal judge in New Jersey declined to dismiss a complaint brought by Spencer Savings Bank against nine named defendants alleging that the individuals opened their accounts for the sole purpose of assisting Lawrence Seidman in his long-standing effort to gain a seat on the bank’s board of directors.

Spencer Savings Bank is a mutually organized and operated community bank headquartered in Elmwood Park that operates 26 branches across New Jersey. According to the opinion, the board of directors principally governs the bank, which has no stockholders. Each member-depositor has one vote in board elections as per Spencer’s bylaws and New Jersey law.

Spencer’s complaint included claims of breach of implied covenant of good faith and fair dealing, tortious interference with business relationship, fraud, and conspiracy against the nine individuals, according to the opinion. According to the bank’s written policy, all member-depositors must either live or work in New Jersey. The bank’s limited membership structure allows the bank to avoid compliance with banking laws in other states.

In 2021, due to a change in Connecticut law, Spencer reviewed its records to see if any bank account holders resided in that state. A broader review revealed that 1,895 deposit accounts were potentially noncompliant. The bank then requested confirmation of New Jersey residency or employment within 25 days. Spencer closed 1,651 accounts for failure to comply with the request, according to the opinion.

The accounts of nine individuals named as defendants in this case were closed during the 2021 audit. The bank believes these people were involved in assisting Seidman’s quest for a board seat, according to the opinion.

Seidman was an attorney, first with the U.S. Securities and Exchange Commission then as an associate with Regan, Goldfarb, Heller, Wetzler & Quinn and Hannoch, Weisman, Stern & Besser. He was also a member and principal shareholder of his own law firm, Seidman & Rappaport. Seidman is the founder, president, and portfolio manager of Veteri Place Corp.

He is known for acquiring interests in small banks and pressuring them to sell out to larger rivals. According to Forbes, he turned an $11 million investment in IBS Financial of Cherry Hill, a bank with 10 branches, into $18 million after it was sold to Hubco of Mahwah in 1998.

Seidman first clashed with Spencer’s management in 2004 when he heard a rumor that the bank was going public. Seidman said he called the bank’s CEO, Jose Guerrero, who was hostile and refused to answer questions. Right after that phone call, Seidman wrote a letter seeking to nominate himself to the board. He allegedly attempted to collect depositors’ signatures while standing on public property near the bank’s offices, but the bank’s officers told him to leave and threatened to call police.

Seidman is a New Jersey resident and is not named in this case.

In November 2021, a New Jersey state court action was filed by Seidman and two other individuals who had their accounts closed against Spencer, board of directors member Barry Minkin, and other members of the board of directors, according to the opinion. That complaint asserted breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the New Jersey Consumer Fraud Act.

A little more than a month later, Spencer filed this federal action, which the defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(7) for failure to join Seidman as a necessary party under F.R.C.P. 19. And alternatively, the defendants moved to dismiss the complaint under the Colorado River abstention doctrine or the first-filed rule, according to the opinion.

U.S. District Judge Kevin McNulty of the District of New Jersey, in his written opinion, stated that “the defendants argued that the court cannot accord complete relief in Seidman’s absence” because the relief Spencer seeks is “preventing defendants from attempting … to interfere with Spencer’s management, governance, and elections.” Without Seidman included, according to the defendants, an order would not prevent him from continuing his efforts.

“That objection is misconceived,” McNulty stated.

“Spencer has not asked this court to take any such action against Seidman, nor could it,” McNulty stated. “The claim is that the depositors are ineligible and that their accounts must remain canceled because they live and work out of state.”

McNulty concluded that he could grant the relief sought by Spencer without joining Seidman as a defendant. And, McNulty stated, under Rule 19(a)(1)(a), the district court can “grant complete relief to persons already named as parties to the action; what effect a decision may have on absent parties is immaterial.” Since the defendants failed to satisfy any of the requirements under 19(a), the judge ruled joiner of Seidman unnecessary.

As to the Colorado River abstention, McNulty stated that federal courts have a “virtually unflagging obligation” to exercise the jurisdiction given to them by Congress, citing the U.S. Supreme Court case Colorado River Water Conservation Dist. v. United States.

McNulty applied the Third Circuit’s six-factor framework for determining the appropriateness of abstention “where the presence of concurrent state proceedings may indicate that a district court should abstain from the ‘contemporaneous exercise of concurrent jurisdiction’ due to principles of ‘wise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.’”

McNulty’s evaluation of each factor resulted in each weighing against abstention or neutral and found that this case does not present the exceptional circumstances necessary to exercise jurisdiction.

As to the defendant’s claim that the first-filed rule applies, McNulty again disagreed.

The judge cited a New Jersey district court ruling in Gaetano v. Gilead Sci., which held that the first-filed rule “generally applies when the two cases are truly duplicative, i.e., when they involve the same issues and same parties.”

“Here, the federal and state court matters do not involve the ‘same issues’ and the ‘same parties,’” McNulty said. “It is true that they overlap; both assert claims for breach of contract based on the same underlying facts. However, Spencer alleges tort claims in the federal action that are not present in the State Case, and the State Case includes additional parties not before this court, including Seidman, Ira Camhi, and members of Spencer’s Board of Directors.

“In short, I decline to apply the first-filed rule in this case, both as a discretionary matter and because it is not appropriately applied to concurrent state and federal cases,” McNulty said.

McNulty denied the defendant’s motion to dismiss the complaint.

“Spencer is pleased with Judge McNulty’s decision. Defendants will now be required to respond to Spencer’s allegations, which they did not deny in their motion to dismiss, on the merits,” said Tony Cicatiello, a spokeman for Spencer.

“We are disappointed with the Court’s denial of defendants’ motion to dismiss and look forward to completing the expedited proceeding ordered by the Supreme Court in the earlier action filed by defendants in Passaic County,” stated counsel for the defendants, Jan Alan Brody of Carella, Byrne, Cecchi, Olstein, Brody & Agnello.

“In that matter, Judge Covello found that there is a likelihood that they will succeed on the merits of their claim that Spencer’s closing of their accounts was pretextual and in its continuing efforts to entrench its board members and to keep Lawrence Seidman from being able to gain a seat on the board,” Brody said.

Counsel for Spencer and Barry Minkin, Douglas P. Faucette of Locke Lord, declined to comment for this report.