Zillges v. Kenney Bank & Trust, Iteam Cos.
| Decision Date | 29 September 2015 |
| Docket Number | Case No. 13-cv-1287-pp |
| Court | U.S. District Court — Eastern District of Wisconsin |
| Parties | NICHOLAS ZILLGES, Plaintiff, v. KENNEY BANK & TRUST, iTEAM COMPANIES INC., iSTREAM FINANCIAL SERVICES INC., KENNETH W. BIEL, THOMAS W. TICE, JERRY GAGERMAN, KRIS AXBERG, THOMAS ANDERSON, and ROBERT ATWELL, Defendants. |
DECISION AND ORDER ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT (DKT. NO. 70) AND PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT (DKT. NO. 75)
This case turns on the question of whether plaintiff Nicholas Zillges was a hero or a villain. Defendants Kenneth Biel, Thomas Tice, Jerry Gagerman, Kris Axberg, Thomas Anderson, and Robert Atwell hired Zillges to correct banking issues and to bring defendants Kenney Bank & Trust, iTeam Companies Inc., and iStream Financial Services Inc. into compliance with state and federal regulations. The relationship soured, however, resulting in the plaintiff's termination. The parties do not agree on the reason for the termination, or the motive of the terminating defendants. The plaintiff alleges that the defendants terminated him for reporting violations to the FDIC, and has filed a motion for partial summary judgment on three counts of his firstamended complaint and on all counts of iStream's counterclaim. The defendants, asserting that the plaintiff was terminated for making risky and unauthorized investments, filed a motion for summary judgment on all remaining counts of the plaintiff's first amended complaint. The court addresses both motions here, and finds that, for the most part, it is the province of a jury to determine which characterization of Zillges the facts support.
Defendant iTeam "is a bank holding company, incorporated in . . . Delaware" whose principal place of business is in Wisconsin. Dkt. No. 74 at ¶1. Defendant iStream is a Wisconsin corporation whose principal place of business is also in Wisconsin. Dkt. No. 74 at ¶2. iStream provides services to banks, including "remote deposit capture (RDC), automated clearing house (ACH) payments, check cashing, tax refund processing, remittance processing, and direct deposit services (iDD)." Id. It also provides services to non-profit organizations, corporate entities, and individuals. Id. iTeam holds 85% of iStream's stock. Dkt. No. 74 at ¶3. Defendant Kenney Bank & Trust (KBT) is "afederally insured bank chartered in Kenney, Illinois." Dkt. No. 74 at ¶4. It has a single branch in Kenney, Illinois, with its executive office is in Wisconsin. Id. KBT is owned by iTeam, Dkt. No. 74 at ¶75, and provides standard banking services to the "local . . . community,"Dkt. No. 74 at ¶6. iTeam purchased KBT "to facilitate iStream's payments processing business and never intended to own or run a standalone community bank." Dkt. No. 74 at ¶7.
While KBT employed the plaintiff, "defendant Kenneth Biel, now deceased, served as Chairman, President and CEO of iTeam and Chairman and CEO of iStream." Dkt. No. 74 at ¶9. "[D]efendant Thomas Tice served [as] Chairman of KBT and [as] a director of iTeam and iStream." Dkt. No. 74 at ¶10. "[D]efendant Jerome Gagerman served as a Director of KBT." Dkt. No. 74 at ¶11. "[D]efendant Kris Axberg served as CFO, Vice President, and Treasurer of iTeam, iStream, and KBT, and Director of KBT." Dkt. No. 74 at ¶12. "[D]efendant Anderson was a Director of iTeam and iStream." Dkt. No. 74 at ¶13. "[D]efendant Robert Atwell served as a Director of iTeam and iStream." Dkt. No. 74 at ¶14.
On June 3, 2011, the FDIC and the State of Illinois Department of Financial and Professional Regulation, Division of Banking (IDFPR) (the regulators) "issued KBT a consent order relating to Bank Secrecy Act Violations and its involvement with Advent Financial Services, a high-risk tax refund service provider." Dkt. No. 74 at ¶25. On May 4, 2012, the regulators issued "a separate consent order relating to [KBT's] weak Compliance and CommunityReinvestment Act (CRA) rating." Dkt. No. 74 at ¶26. The consent orders "directed KBT's board of directors to assume full responsibility for the approval of sound policies and objectives and for the supervision of all of [KBT's] activities, and to provide adequate oversight over [KBT's] third-party relationships . . . ." Dkt. No. 77 at ¶18. The regulators issued another amended consent order on October 29, 2013, dkt. No. 77 at ¶19, which "emphasized that KBT needed to bring in qualified management to address the regulatory problems." Dkt. No. 77 at ¶20.
On October 11, 2011, to comply with the order, the defendants hired the plaintiff to work for KBT. Dkt. No. 74 at ¶19. During his employment, the plaintiff served as a director, president, and CEO. Dkt. No. 74 at ¶18. Eleven months into his employment, on August 8, 2012, the plaintiff and KBT entered into an initial employment agreement. Dkt. No. 74 at ¶20. The parties signed a revised version on September 19, 2012. Id. The relevant portions include sections covering basic duties, the plaintiff's status as an "at will" employee, compensation and benefits, a stock options agreement, and a termination clause. Dkt. No. 74 at ¶21.
The plaintiff's "primary job duties included . . . overseeing [KBT's] financial planning[,] budget management functions . . . , benchmarks for measuring the financial[,] operating performance[,] . . . and financial analysis of the [Asset/Liability Committee (ALCO)]." Dkt. No. 74 at ¶22. The duties also included responsibility "for all regulatory compliance matters . . . andcommunications with . . . regulators; lifting" consent orders, "and bringing KBT into full compliance with banking regulations." Dkt. No. 74 at ¶22.
According to iStream, in 2012 "the [r]egulators conducted two exams of" KBT. Dkt. No. 7 at 39. By that time, the regulators had already placed the bank under one consent order, and one of the 2012 exams determined whether or not the regulators would lift that order. Id. "The second [exam] was a Community Reinvestment Act (CRA) exam." Id. Because the bank did not do well on either exam, the first consent order remained in place and the regulators put a second consent order in place. Id.
The plaintiff and iStream entered into a Management Incentive Bonus Agreement on August 8, 2012. Dkt. No. 74 at ¶23. iStream and Zillges entered into the bonus agreement for the purpose of incentivizing Zillges' efforts to lift both consent orders. Dkt. No. 7 at 39-40. Under the terms of the agreement, the plaintiff would receive a "compliance bonus" if he brought KBT into compliance with various banking regulations and provisions. Dkt. No. 74 at ¶24. The plaintiff would receive "$50,000 upon the completion of 2012 . . . to be paid in four installments in 2013," and "two $30,000 compliance bonuses upon lifting, rescission, or other completion of the Consent Order[s]." Dkt. No. 35 at ¶148. The bonus agreement indicated that Zillges would not receive any bonus money unless "payable." Dkt. No. 74 at ¶24. The contract defined "payable" as "(i) all terms and conditions applicable to such bonus have been satisfied" by both parties and "(ii) [Zillges] has not sooner been terminated . . . for [c]ause nor resigned . . . without [g]ood [r]eason." Id.
The parties do not agree on whether or not the consent orders ever were lifted, or whether the plaintiff brought the defendants into compliance with the consent orders.
A portion of the dispute focuses on the purchase of trust-preferred securities, or TruPS. On April 26, 2013, Jack Harrington, former Chairman of ALCO, purchased TruPS from Taylor Capital Group in an amount of $526,596.00. Dkt. No. 74 at ¶28. The purchase occurred "through broker FIG Partners." Dkt. No. 74 at ¶29. Subsequently, on May 28, 2013, ALCO "discussed" investing in Seacoast TruPS, but the committee did not approve the investment previously made by Harrington. Dkt. No. 74 at ¶¶31-32.
KBT had an "investment policy," that in relevant part "authorized" the president, vice president, and treasurer of KBT to "conduct investment transactions approved by" an internal committee. Dkt. No. 74 at ¶50. The policy also required the purchasing officer to conduct "a pre purchase analysis" and "present[] [it] to the Investment Committee." Id. In most instances, these investments required the authorization of the investment committee. Id.
"On June 20, 2013, Harrington purchased a second block of Taylor TruPS in the amount of $199,914.62 and a block of Seacost TruPS in the amount of $502,777.80." Dkt. No. 74 at ¶33. Harrington sought prior approval of these purchases "by telephoning" certain members of the defendant entities. Dkt. No. 74 at ¶39. At some point, Axberg received notice of the purchase and informed Tice, Dkt. No. 74 at ¶42, who "notified the remainder of the [iTeam]Board of the purchase," Dkt. No. 74 at ¶43. These purchases "concerned" Anderson, because they "might hinder the sale of KBT." Dkt. No. 74 at ¶46. "Mike Steppe, KBT's investment advisor," even "recommended against purchasing the Seacoast TruPS." Dkt. No. 74 at ¶49. On July 1, 2013, in an email to the plaintiff, Tice questioned the TruPS purchases. Dkt. No. 74 at ¶64. The plaintiff responded, "[The] TruPS purchase was made as a policy exception and was documented as such and approved by ALCO." Dkt. No. 74 at ¶65. The parties do not agree to what extent the plaintiff was involved in these purchases, or if they contributed to his termination.
As president of KBT, the plaintiff had direct contact with the FDIC, and had a duty "to be honest and forthcoming with regulators on issues within the bank." Dkt. No. 88 at ¶8. This included "a duty to self-report and cure" any internal violations he discovered. Dkt. No. 88 at ¶9. "On February 26, 2012, Anderson, Biel, Tice, [and two non-defendants] held a meeting to discuss" some of the communications that the plaintiff had had with the FDIC. Dkt. No....
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