The banks announced in January that they planned to merge, with First Priority being folded into Mid Penn.
The lawsuit was filed by First Priority shareholder Paul Parshall in the Court of Common Pleas of Chester County, according to a Securities and Exchange Commission filing made by Mid Penn. The suit states class claims on behalf of all First Priority shareholders.
Parshall could not be reached for comment. In a lawsuit Parshall filed last year against Royal Bancshares of Pennsylvania Inc., he was represented by attorneys at Delaware firm Rigrodsky & Long P.A., which has pursued other merger-related lawsuits.
The merging banks dismissed the suit.
“Mid Penn and First Priority believe that the lawsuit is without merit as there are substantial legal and factual defenses to the claims asserted and intend to vigorously defend the lawsuit,” Mid Penn said in its Securities and Exchange Commission filing.
Representatives from Mid Penn declined to comment further. First Priority officials were not immediately available for comment.
The suit comes as mergers, often a target for legal action, are attracting fewer lawsuits.
The rate of mergers-and-acquisitions litigation has declined in recent years, according to a recent Cornerstone Research study. The average number of lawsuits per deal in both 2017 and 2016 was 2.8 — the lowest average in 10 years, the study said.
According to Mid Penn’s SEC filing, Parshall’s suit alleges that First Priority directors breached their fiduciary duty through misstatements and omissions in a joint proxy statement Mid Penn and First Priority filed June 19 with the Securities and Exchange Commission.
It also claims that the merger consideration is “inadequate,” meaning that the agreement is unfair.
Additionally, the suit contends that Mid Penn aided and abetted the First Priority directors’ alleged breaches of fiduciary duty.
The lawsuit seeks to stop the merger, or if it is completed, rescission or revocation of the merger, rescissory damages, unspecified damages and costs of the lawsuit, including attorneys’ and experts’ fees.
Rescissory damages are awarded when courts find that a merger is completed at an unfair price. They are also a possible remedy for a breach of the duty of loyalty — including cases where directors of a corporation have put their personal interests above those of the stockholders’. The damages are determined by the fair value of the plaintiffs’ stocks minus any amount already received in the merger, according to the Washington University Law Review.
Headquartered in Millersburg, Mid Penn has assets of approximately $1.4 billion and 29 branches in Cumberland, Dauphin, Fayette, Lancaster, Luzerne, Northumberland, Schuylkill and Westmoreland counties.
According to its most recent earnings report, Mid Penn had net income of $1 million in the first quarter of 2018, down from $2 million in its first quarter of 2017. Results included nearly $1.7 million in expenses stemming from the bank’s acquisition of The Scottdale Bank & Trust Co., which closed in January, and the pending merger with First Priority.
First Priority is headquartered in Malvern and has approximately $615 million in assets. The bank has seven locations in Chester, Berks, Montgomery and Bucks counties. According to its most recent earnings report, First Priority had net income of $762,000 in the first quarter of 2018, down from $782,000 in the first quarter of 2017.