A former giant of New Jersey’s banking sector and the empire he built are squaring off in a trial that quietly got underway this week in Camden federal court.
In one corner is the parent company of Commerce Bank, once the largest and fastest-growing bank in the Garden State.
In the other is Vernon Hill, the hard-charging founder of Commerce whose philosophy of customer-first both upended the staid culture of bank branches and turned him into a wealthy superstar of the banking industry.
At dispute is nearly $20 million that Hill says he is owed as a result of being fired in 2007. He was let go after the bank settled a federal probe into real estate transactions that allegedly benefited Hill’s family.
The jury trial before Judge Robert Kugler is over a lawsuit that Hill filed five years ago. It is expected to last several weeks.
Several notable names are slated to be called as witnesses. These include George Norcross, the South Jersey Democratic power broker, executive chairman of Conner Strong & Buckelew and former member of Commerce’s board of directors. Defense attorneys want him to testify on the impact of the federal probe on Commerce’s business, according to a court filing.
Also expected to be called is Joseph Buckelew, another former Commerce board member and founding member of the Conner Strong & Buckelew insurance agency. Senior officials from TD Bank also will be called to the witness stand. The Canada-based lender acquired Commerce in March 2008 in a stock and cash transaction worth about $8.5 billion.
Hill, too, is slated to testify, possibly as early as today.
An owner of Burger King franchises, Hill started Commerce in 1973 with a single branch in Marlton.
Over the next 34 years, he built his bank business into a vast empire of more than 425 branches, 11,000 employees, $47 billion in assets and 2.4 million customers in the region.
The bank’s rapid expansion and strong profits endeared Hill to Wall Street investors and analysts, at least one of whom hailed him as the Michael Jordan of his field.
Crowd-pleasing tactics were part of the reason for Commerce’s growth: seven-day-a-week operating hours, free coin-counting machines in lobbies and red lollipops helped drive customers to its branches.
But Commerce’s rapid expansion by building brick-and-mortar branches also contributed to Hill’s downfall, and Commerce’s eventual sale to TD, a U.S.-based subsidiary of Canada’s Toronto-Dominion Bank.
In 2006 and 2007, investigators with the Office of the Comptroller of the Currency and the Federal Reserve Board sounded alarms over real-estate dealings to build out Commerce’s branch network in which members of Hill’s family, including his wife, allegedly profited.
The OCC advised Commerce Bank in April 2007 that it would freeze approvals for new branches, attorneys for the bank’s holding company allege in a court filing. Less than three months later, on June 28, 2007, the bank’s board of directors signed a consent order with the regulator over Hill’s alleged dealings. That same day, the board unanimously voted to fire Hill.
Both sides agree that Hill was terminated “without cause,” court filings show.
Hill’s attorneys, who did not return a call for comment, argue this entitles the former CEO to his entire compensation package due through 2010, plus interest, stock options and attorneys fees. That amounts to just under $20 million, according to a court filing.
But attorneys for Commerce Bancorp, which still exists as a legal entity despite being bought by TD Bank, counter Hill’s claims by arguing that federal rules on “golden parachutes” limit its ability to make such a payment, even though it was contractually obligated to do so.
The OCC’s consent order put Commerce in a troubled condition. Under those circumstances, the bank would have to seek regulators’ permission to pay Hill his severance. But as part of that application, the bank would have to certify that it had no reason to believe Hill had committed fraud, breached his fiduciary duty or abused his insider status.
Commerce said it cannot make that certification, particularly in light of a separate OCC consent order it reached with Hill in November 2008. In this case, the regulator said it found Hill had engaged in “unsafe and unsound practices” and breached his fiduciary duty. Hill signed the agreement without admitting or denying wrongdoing.
William Tambussi, an attorney with Brown & Connery who is representing Commerce, did not return a call. A TD Bank spokeswoman declined to comment.