Hill sues Commerce in firing

WASHINGTON - Vernon W. Hill II, ousted in the summer as chairman and chief executive officer of Commerce Bancorp Inc. amid a federal probe of insider dealings, has sued the bank he founded for $50 million.

The lawsuit, filed Monday in federal court in Washington, alleges that Office of the Comptroller of the Currency regulators "set upon a course to drive Mr. Hill out of Commerce based on unsubstantiated allegations."

The agency's six-month investigation focused on the long-disclosed side businesses that Hill and his wife, Shirley, operated: renting real estate to and furnishing Commerce Bank branches - deals that earned the Hills roughly $72 million in 10 years.

Although Hill did not sue the agency, he alleged that its banking regulators conspired with Commerce board members to remove Hill and that the agency threatened to publicize its investigatory findings if Hill remained at the bank.

Hill handpicked most of the board members he is now suing.

An attorney for Commerce said the lawsuit was without merit. "We intend to defend it vigorously," said H. Rodgin Cohen of the firm Sullivan & Cromwell L.L.P.

Comptroller office spokesman Kevin Mukri said the regulatory agency did not comment on issues before a court.

Hill's lawsuit seeks damages for emotional distress and says publicity about his termination has made it harder for him to find work.

It also seeks at least $11 million that Hill says the bank owes him in compensation, plus an additional $7.5 million allegedly owed his wife's design firm, InterArch Inc., of Mount Laurel.

"The bank ought to be paying Mr. Hill what they owe him and ought not to be bullying his wife because of disputes with Mr. Hill," said Hill's attorney, Andrew Sandler of Skadden, Arps, Slate, Meagher & Flom L.L.P.

Cohen, the lawyer representing Commerce, said federal "golden-parachute" regulations prohibited the bank from making contract payments to Hill without approval from the Federal Reserve and the Federal Deposit Insurance Corp.

"There are regulations and a statute, known as the golden parachute, and basically, they say when a bank is found to be in a 'troubled condition,' which does not necessarily mean financially troubled, you cannot make payments unless various findings can be made" by the regulators, Cohen said. "So that's the issue."

Sandler disagreed. "Those rules were designed for situations involving failing banks where management looted the bank," he said.

Hill - who founded the bank in 1973 - transformed retail banking by operating branches seven days a week, staying open late, and adding perks such as free coin-counting.

Nine of Commerce's 12 directors are named as defendants. Eight of the nine did not respond to requests for comment yesterday. Director John K. Lloyd, president and CEO of Meridian Health, referred questions to Commerce spokesman David Flaherty, who declined to comment.

About a year ago, Commerce first publicly disclosed the federal investigation into the bank's insider business dealings on bank branches. During that investigation, the federal agency refused to approve Commerce's applications for new branches.

That refusal threatened to strangle fast-growing Commerce, which said it needed to keep adding to its 425-plus branches to support its relatively high cost structure.

Hill's lawsuit alleges that "the OCC refused to approve numerous pending branch applications unless and until Commerce terminated Mr. Hill."

Commerce did that June 28, the same day it entered into a consent decree with federal regulators in which it promised to terminate by the end of 2007 its relationships with two real estate firms partly owned by Vernon Hill and with Shirley Hill's design firm.

From 1996 through 2006, Commerce made $12.74 million in lease and other payments to real estate firms affiliated with Hill or family members and $59.23 million to Shirley Hill's InterArch.

Commerce stopped using InterArch on Oct. 31, two months before the regulatory deadline and two months before a contract expired and started taking a 10 percent discount on the InterArch bills it paid, the lawsuit said.

Meanwhile, TD BankNorth, of Toronto, announced Oct. 2 the planned purchase of Commerce Bank for $8.5 billion, a transaction that will go before Commerce shareholders next month for approval.

Commerce shares fell 56 cents yesterday to $36.35 in New York Stock Exchange trading.