UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________

No. 22-2023 _____________ VERNON W. HILL, II; BRIAN TIERNEY; BARRY SPEVAK, Derivatively on Behalf of Republic First Bancorp Inc.

v.

ANDREW B. COHEN; LISA JACOBS; HARRY MADONNA; HARRIS WILDSTEIN; REPUBLIC FIRST BANCORP INC.,

Andrew B. Cohen, Lisa Jacobs, Harry Madonna, Harris Wildstein, Appellants _______________

On Appeal from the United States District Court For the Eastern District of Pennsylvania (D.C. No. 2-22-cv-1924) District Judge: Honorable Paul S. Diamond _______________

Argued June 28, 2022 Before: JORDAN, PORTER, and PHIPPS, Circuit Judges

(Filed: July 6, 2022) _______________ Andrew M. Erdlen John S. Summers Hangley Aronchick Segal Pudlin & Schiller One Logan Square 18th & Cherry Streets, 27th Floor Philadelphia, PA 19103 Frank Olander Michael E. Swartz [ARGUED] Schulte Roth & Zabel 919 Third Avenue New York, NY 10022 Counsel for Appellants Amit Agarwal [ARGUED] Holland & Knight 315 South Calhoun Street, Suite 600 Tallahassee, FL 32301 Tracy Z. Quinn Carolyn P. Short Holland & Knight 2929 Arch Street, Suite 800 Philadelphia, PA 19104

2 Martin L. Seidel Holland & Knight 31 West 52nd Street, 12th Floor New York, NY 10019 Counsel for Appellees _______________

OPINION OF THE COURT _______________ JORDAN, Circuit Judge.

Under Pennsylvania law, a court has the power to appoint a custodian to take control of a corporation if the corporation’s board of directors is deadlocked or if the directors’ acts are illegal, oppressive, fraudulent, or wasteful. 15 Pa. Cons. Stat. §§ 1767(a)(3), 1981(a). But that power should be “used sparingly, with caution and circumspection, and only in an extreme case[.]” Tate v. Phila. Transp. Co., 190 A.2d 316, 321 (Pa. 1963).

This is not such an extreme case, though its facts are dramatic. The eight-person Board of Directors of Republic First Bancorp, Inc. (“Republic First” or “FRBK”1) became evenly split into two factions – one led by the current CEO, Vernon W. Hill, II (the “Hill Directors”), and one led by the former CEO, Harry D. Madonna (the “Madonna Directors”) – with competing visions for the future of Republic First and its bank subsidiary. The deadlock persisted until May 10,

“FRBK” is Republic First’s stock ticker symbol on the 1 NASDAQ.

3 2022, when one of the Hill Directors died. The Madonna Directors immediately used their newfound numerical advantage to start rearranging the bank’s leadership and to take steps to fill the vacancy on the Board with an ally. The Hill Directors sued in the District Court to make them stop.

Within hours of receiving the complaint, the District Court ordered the Madonna Directors to cease their actions while it considered whether to appoint a custodian. Nine days later, without an evidentiary hearing or fact-finding, the Court did appoint a custodian to take control of Republic First and to hold a special shareholders’ meeting to fill the vacant Board seat. The following month, the District Court – without prompting from any shareholder or Board member – directed the custodian to add an additional seat to the Board and to fill that seat at the special shareholders’ meeting as well.

The District Court’s decision to displace the corporate governance structure of a publicly traded company, while no doubt well-intended, did not reflect the required caution, circumspection, or justification for such a drastic step. Republic First’s bylaws (the “Bylaws”) provide instructions for how the Board should pr