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Rauner’s lawyers accuse ex-business partner of ‘pattern of self-dealing’

Harreld “Kip” Kirkpatrick III, left, in 2009.
From YouTube. Gov. Bruce Rauner, right, in 2017. | Ashlee Rezin/Sun-Times
Ashlee Rezin/Sun-Times

Lawyers for Gov. Bruce Rauner accuse one of the governor’s former business partners of “a continuing pattern of self-dealing” and argue the ex-partner will be unable to prove his allegation that he and Rauner reached an oral agreement – discussed in part on the balcony of the governor’s mansion — about a $67.5 million settlement.

The governor’s lawyers on Wednesday filed newly unsealed documents responding to the private lawsuit Harreld “Kip” Kirkpatrick III filed against Rauner in Cook County Circuit Court.

The dispute involves a business deal that dates back before Rauner’s election as governor over the allocation of the $67.5 million settlement. Unsealed documents Kirkpatrick filed on Tuesday contend the settlement allowed Rauner to turn a $15 million profit on a $5 million investment, which “apparently is not enough for Rauner,” because he was seeking more.

Kirkpatrick and Rauner invested together in Kirkpatrick Capital Partners Fund I, a limited partnership that acquired a 20 percent minority share in United Shore Financial Services, a privately-held Michigan based mortgage lender.

Kirpatrick joined United Shore as CEO in 2011 and negotiated a “transaction bonus” that gave him an escalating percentage of proceeds from the sale of the business. As he tried to sell United Shore, however, Kirkpatrick was replaced as CEO. That let to litigation in Michigan, which resulted in the June 2016 settlement. Kirpatrick contends the settlement covers both the money owed the investor group, as well as his transaction bonus.

Kirkpatrick filed suit against Rauner in October, but Rauner’s lawyers sought to prevent the matter from being made public in Cook County Circuit Court. Judge David Atkins then ruled last week that the matter should no longer remain under seal, allowing Kirkpatrick’s attorneys, Dan K. Webb and William O’Neill, to refile their complaint on Tuesday.

Rauner’s lawyers followed suit on Wednesday.

Rauner is seeking arbitration, while Kirkpatrick’s side is seeking a ruling in Cook County Circuit Court. In an Oct. 26 memo, Rauner’s attorneys say any dispute over whether there was an oral agreement “allowing him [Kirkpatrick] to pay himself tens of millions of dollars that would otherwise go to the Limited Partners” show that the disagreement is about a limited partnership agreement, and should therefore go to arbitration.

And it notes “any controversy over whether Mr. Rauner orally consented to an amendment to that LPA provision, and whether such oral consent (even if proven, which it will not be) would somehow constitute the requisite ‘written consent’ to amend the LPA, are also questions clearly ‘related to’ the LPA because they require an examination of the LPA’s terms.”

The governor’s office on Wednesday pointed to that as proof the filings “dispute” Kirkpatrick’s allegations. Kirkpatrick’s attorneys maintain that Rauner was kept informed about the settlement status, including during in-person meetings with Rauner at the governor’s mansion in Springfield on May 11, 2015 and at the Chicago Club on Sept. 15. 2015.

“This is a contract dispute that stems from before Governor Rauner took office. The Governor is seeking to enforce the terms of that contract. Court filings dispute Mr. Kirkpatrick’s allegations, including his characterizations of any conversations,” Rauner spokeswoman Rachel Bold said in a statement. “The Governor is not involved in day-to-day investment decisions.”

The Associated Press reported late Wednesday that Rauner’s state-paid scheduler set up a May 2015 meeting at the Executive Mansion with Kirkpatrick.

Obtained under the Freedom of Information Act, Rauner’s official calendar for May 11, 2015, blocks out 5 p.m. to 5:30 p.m. for “Meeting w/Kip Kirkpatrick,” followed by a redacted section and “(Executive Mansion/Springfield, IL).”

The calendar shows no indication of a meeting on the second date, Sept. 15, 2015.

Kirkpatrick’s account of his contacts with Rauner raised questions about the “blind trust” arrangement in which the governor says he placed his vast wealth when he took office. Under that arrangement, Rauner has stated he no longer has personal control over his assets to avoid potential conflicts of interest.

But the governor’s office on Tuesday also disputed Kirkpatrick’s allegations.

Rauner’s attorneys filed their documents on Wednesday. Most of another filing — 157 pages — are exhibits that explain a limited partnership agreement Kirkpatrick, Rauner and other partners entered into.

There’s also a disbursement schedule that shows that Rauner has received $20.245 million from the settlement. Former Hearst Corporation CEO Victor Ganzi received $10.122 million, and ComPsych Corp. Chairman Richard Chaifetz received $4.049 million in the settlement. Rauner received the last amount of $8.2 million in June 2017 in a wire transfer.

A filing to the American Arbitration Association shows Rauner believed that Kirpatrick used the settlement money to resolve a personal dispute — which the filing defines as “a dispute over his employment agreement with Shore.”

The filing says that under the terms of the settlement agreement, Shore agreed to repurchase the fund’s interest for $67.5 million and to pay that money to the fund. It was to be paid $13 million on the closing date and additional payments on the six anniversaries following the closing date

Rauner’s attorneys claim “notwithstanding the express provisions” of the agreement “that ascribed no value to Mr. Kirkpatrick’s Personal Dispute, Mr. Kirkpatrick takes the position that most of the $67.5 million payment under the Redemption Agreement should be paid to him personally for settling his personal claim against Shore.”

Rauner’s attorneys say Kirkpatrick told Rauner, Ganzi and Chaifetz he intended to distribute “only a part of the proceeds” in June 2016. Rauner’s attorneys sought arbitration on Oct. 20, 2016.

“Through Mr. Kirkpatrick’s tortious interference as part of a continuing pattern of self-dealing by Mr. Kirkpatrick, the General Partner has repudiated its duties under the limited partnership agreement for the Fund to distribute funds in accordance with the provisions of that agreement. Mr. Rauner demands arbitration,” Rauner’s attorneys wrote in a filing to the American Arbitration Association.

Lawyers for Rauner filed a demand for arbitration in the summer of 2017, arguing that Kirkpatrick and Kirkpatrick Capital breached the limited partnership agreement with investors in allocating the $67.5 million. The lawsuit from Kirkpatrick seeks a declaratory judgment from the court that the settlement agreement controls the allocation.

Unsealed filings on Wednesday also include letters sent to Rauner and other investors from Kirkpatrick.

Contributing: Associated Press