FNCB continues fight with insurance company over $5 millon lawsuit settlement

Sept. 06--Nearly three years after First National Community Bank in Dunmore settled a $5 million shareholder's lawsuit, the lending institution continues to battle an insurance company over whether the payout will be covered.

Fidelity and Deposit Co. of Maryland filed a federal lawsuit in 2012, asking a judge to rule it is not obligated to pay the settlement and associated legal costs because FNCB made several misrepresentations and omissions when it applied in 2010 to renew an insurance policy that covered directors and officers.

The suit alleged, among other things, that FNCB withheld information regarding its lending practices that led shareholders to file suit in 2012.

The shareholder’s suit filed by Lori Gray alleged the bank engaged in "self dealing" when it loaned millions of dollars to bank insiders, including disgraced former Luzerne County Judge Michael Conahan, who later defaulted on their obligations. Those deals contributed to multimillion-dollar losses from 2009 to 2012 that caused the bank's stock to plummet. FNCB agreed to settle the case in December 2013.

In June, Fidelity was granted permission to take Mr. Conahan's deposition at the Federal Correctional Institution-Coleman in Sumterville, Florida, where he is serving a 17 1/2 -year prison sentence in connection with the "Kids for Cash" scandal in Luzerne County.

Mr. Conahan pleaded guilty in 2010 to racketeering conspiracy for taking money from a developer who built a juvenile detention center. Federal prosecutors alleged Mr. Conahan used a condo, which he purchased with an FNCB loan, as part of a scheme to launder the cash. Fidelity's suit contends the bank was aware of Mr. Conahan's illegal dealings related to the condo but failed to disclose that information when it applied to renew its insurance.

The highly contentious legal battle has dragged on for years, in part due to multiple pretrial motions attorneys for FNCB and Fidelity filed. Attorneys have fought over numerous issues, including whether Fidelity agreed to settle the case.

FNCB claimed an attorney representing Fidelity verbally agreed to settle the case during a March 2014 meeting with Louis DeNaples, one of the bank's directors.

Fidelity disputed that, however. U.S. District Judge Mitchell Goldberg sided with Fidelity in October 2014 and allowed the lawsuit to proceed.

Five days after he issued the ruling, Richard Sprague, one of FNCB's attorneys, filed a motion demanding Judge Goldberg recuse himself from the case because Mr. Sprague had represented a person who sued the judge's father 28 years earlier.

In a sharply worded opinion, Judge Goldberg questioned Mr. Sprague's motive, noting Mr. Sprague had no objection to Judge Goldberg hearing the case until the jurist indicated he was going to rule against FNCB on the settlement issue.

Judge Goldberg said he had no direct involvement in the case regarding his father and was confident it would not impact his impartiality. He nevertheless "begrudgingly" agreed to recuse himself because he was concerned FNCB would use the issue to sidetrack the Fidelity case.

U.S. District Judge Jeffrey Schmehl was appointed in November 2014 to replace Judge Goldberg. Mr. Sprague then filed a motion asking Judge Schmehl to overturn Judge Goldberg's October 2014 ruling regarding the purported settlement. Judge Schmehl denied that motion in March 2015.

In the latest developments, Judge Schmehl on Aug. 8 denied FNCB's motion seeking to depose the attorney involved in settlement talks. The judge also ordered any remaining pretrial motions be filed by Jan. 30.

Contact the writer:

[email protected], @tbeseckerTT on Twitter

___

(c)2016 The Times-Tribune (Scranton, Pa.)

Visit The Times-Tribune (Scranton, Pa.) at thetimes-tribune.com

Distributed by Tribune Content Agency, LLC.