Outgoing Patelco Credit Union President/CEO Ken Burns was ordered to pay nearly a half million dollars to a former employer to settle Technology Credit Union's claims against him, claims that include self-dealing and breaching loyalty.

Tech CU, according to final arbitration award documents from 2011 obtained by Credit Union Times, said then-CEO Burns had applied for the Patelco job – which he got in 2009 – while simultaneously, unbeknownst to the Tech CU board, he became involved in efforts to merge the two credit unions. That bid ultimately failed.

The $1.7 billion Tech CU – a San Jose-based institution that itself last year failed in its bid to become a bank – also accused Burns of taking confidential strategic documents with him when he moved over to the $3.9 billion Patelco in Pleasanton, Calif.

The arbitrator awarded Technology $466,277 in damages and an additional $28,625 in legal fees, both to be paid by Burns, according to the documents filed with the American Arbitration Association Employment Arbitration Tribunal.

However, arbitrator Dana Welch did not award TCU any punitive damages, saying in the June 15, 2011 decision, that “while Burns' breaches were egregious, they do not rise to the level of malice necessary to award punitive damages.”

Burns recently announced he would be leaving Patelco this summer, citing his desire to seek new challenges.

According to the arbitration documents, the dispute with Tech CU began in 2008 when Burns was contacted by executive search firm O'Rourke, Mitchell & Associates, asking if he would be interested in the Patelco CEO job.

During initial discussions regarding the Patelco position, Managing Director Gene O'Rourke and Burns first discussed a merger between the two credit unions.

Burns approached TCU Chairman Mical Brenzel in November 2008 regarding the merger, but did not mention he had applied for Patelco's CEO position, according to the arbitration documents.

Burns also signed a non-disclosure agreement with Patelco that permitted the exchange of information; however, Burns did not tell anyone at TCU about the agreement, the arbitration documents said. Further, email communications between Burns and O'Rourke indicate the two discussed keeping the employment negotiations from the TCU board.

O'Rourke told Credit Union Times on Wednesday that Burns made the decision to keep the information from his board. Further, O'Rourke said he thinks Patelco had initially made the merger a priority over hiring Burns; however, Patelco was struggling financially in late 2008 after assuming the assets of troubled credit unions Cal State 9 and Sterlent, and O'Rourke said the NCUA was pressuring Patelco to select a CEO quickly.

“So where the merger was the horse pulling the cart, in late January (2009) the regulatory pressure got intense, and I think this turned Patelco's thinking, saying maybe what we should do is pin down the leadership transition problem that is causing all this angst with the regulator,” O'Rourke said. “Let's reverse course, grab Ken, and then continue with the merger.”

Formal merger discussions kicked off in February 2009, after Burns had received a job offer from Patelco in late January, the arbitration documents said. The merger negotiations included an agreement that Burns would be the CEO of the combined credit union; however, at the time, Brenzel had no idea Patelco had already made Burns an offer, which included a $100,000 bonus for the successful completion of the merger and a 2.8% mortgage, the documents said. 

It wasn't until April 13, 2009, when Burns submitted his resignation, that the TCU board would learn about the offer.

After conducting additional due diligence without Burns, who had left TCU April 27, TCU terminated merger discussions. In her letter, Brenzel cited the potential erosion of TCU member capital, the failure of Patelco to adequately recognize loan losses, and the situation with Burns.

The arbitrator determined that Burns violated his fiduciary duty by breaching the duty of loyalty, duty of confidence, and engaging in self-dealing, the documents said.

He was also found to be liable for unfair competition, as well as fraudulent concealment for failing to disclose that he was seeking the Patelco CEO position during merger negotiations.

Finally, Burns was also determined to have “misappropriated TCU's Three-Year Strategic Plan”, considered a trade secret, when he took the document with him to Patelco, the documents said.

The award required Burns to return the strategic plan and pay $466,277 in damages to compensate TCU for the costs from the aborted merger ($50,775), the cost of an executive compensation survey initiated by TCU that Burns used to negotiate his Patelco salary ($752), costs to recruit and compensate new CEO Barbara Kamm ($146,927), disgorgement of Burn's salary and bonus from October 2008 through April 2009 ($230,432) and disgorgement of Burns' 2009 paid time off ($37,390).

TCU filed a suit in San Francisco County Superior Court in July 2011 to enforce the award, but filed to dismiss the case in August, indicating it no longer needed the court's help in seeking payment of the claim against Burns.

Tech CU, Patelco CU and Burns all declined to comment.