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

Tech CU, according to final arbitration award documents from2011 obtained by Credit Union Times, said then-CEO Burnshad applied for the Patelco job – which he got in 2009 – while simultaneously, unbeknownst to theTech CU board, he became involved in efforts to merge the twocredit unions. That bid ultimately failed.

The $1.7 billion Tech CU – a San Jose-based institution thatitself last year failedin its bid to become a bank – also accused Burns of takingconfidential 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 anadditional $28,625 in legal fees, both to be paid by Burns,according to the documents filed with the American ArbitrationAssociation Employment Arbitration Tribunal.

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

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

According to the arbitration documents, the dispute with Tech CUbegan in 2008 when Burns was contacted by executive search firmO'Rourke, Mitchell & Associates, asking if he would beinterested in the Patelco CEO job.

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

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

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

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

“So where the merger was the horse pulling the cart, in lateJanuary (2009) the regulatory pressure got intense, and I thinkthis turned Patelco's thinking, saying maybe what we should do ispin down the leadership transition problem that is causing all thisangst 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, afterBurns had received a job offer from Patelco in late January, thearbitration documents said. The merger negotiations included anagreement that Burns would be the CEO of the combined credit union;however, at the time, Brenzel had no idea Patelco had already madeBurns an offer, which included a $100,000 bonus for the successfulcompletion of the merger and a 2.8% mortgage, the documentssaid.

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

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

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

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

Finally, Burns was also determined to have “misappropriatedTCU's Three-Year Strategic Plan”, considered a trade secret, whenhe 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 theaborted merger ($50,775), the cost of an executive compensationsurvey initiated by TCU that Burns used to negotiate his Patelcosalary ($752), costs to recruit and compensate new CEO Barbara Kamm($146,927), disgorgement of Burn's salary and bonus from October2008 through April 2009 ($230,432) and disgorgement of Burns' 2009paid time off ($37,390).

TCU filed a suit in San Francisco County Superior Court in July2011 to enforce the award, but filed to dismiss the case in August,indicating it no longer needed the court's help in seeking paymentof the claim against Burns.

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