Hardball tactics alleged in lawsuit against Bruce Rauner

SPRINGFIELD — Republican Bruce Rauner had a quick answer when asked to assess blame for the fast collapse of a once-promising business venture created and backed by his one-time Chicago investment firm.

Christine Kirk.

The accomplished CEO he recruited from a high-flying national accounting firm couldn’t make their business-outsourcing firm, LeapSource, based in Tempe, Ariz., profitable because he said she didn’t share his vision of what makes a “good company.”

“The only thing Chris did on a consistent basis, on a timely basis, was spend,” Rauner said. “That’s the easy thing to do.

“The hard thing is getting customers; the hard thing is cutting expenses; the hard thing is laying people off. But that’s what good companies do when times are tough, and she just would not do it,” said Rauner, who sat on LeapSource’s board.

That statement comes from a June 2005 deposition that arose from litigation over a messy corporate divorce between Kirk and Rauner and his business partners at Chicago-based investment firm GTCR.

Her lawsuit against him, GTCR and several of its partners offers a firsthand look into Rauner’s business philosophy. It’s a philosophy Rauner has fine-tuned over the years that he repeatedly has said forms a cornerstone of what kind of Illinois governor he would be as he runs to unseat Gov. Pat Quinn. The lawsuit was settled in 2008 after a judge threw out most of the counts for a variety of legal defects.

The court case provides an unusual window into Rauner’s actions while under the stress of immense financial pressures, his attitude toward claims of hostile work environment and the tactics he employed when it appeared certain that Kirk intended to sue to challenge the start-up’s dismantling.

Kirk alleged in the lawsuit that Rauner threatened her personally and through a LeapSource board member — a claim she made in a sworn deposition. That former LeapSource board member confirmed in a deposition that “threatening things…were said to her” and that he had been involved in some of those conversations. Rauner denied the allegations through a spokesman.

The lawsuit alleged that Rauner told Kirk in February 2001: “If you go legal on us, we’ll hurt you and your family.”

Kirk also alleged that Rauner, wary of a her possibly suing, relayed a similar threat to her a few days earlier through another board member, Thomas Gilman, a consultant and ex-top executive at Chrysler Financial.

“I will bury her,” Rauner is alleged to have told Gilman.

“I will make her radioactive,” Rauner allegedly told Gilman, according to the complaint. “She will never get another job anywhere, ever. I will bankrupt her with legal fees. I don’t know if she has a family or not, but if she does, she better think twice about this.”

Gilman declined to comment.

A federal judge threw out most of the lawsuit, including the counts containing the allegations involving the threats. The judge, though, did not make a determination on the credibility of those allegations.

With part of the case still intact, Kirk and GTCR agreed to settle in 2008, with GTCR and a law firm associated with the deal agreeing to pay $511,000 to Kirk, Gilman and six other plaintiffs, all of who were LeapSource employees.

What makes the LeapSource case unique among the dozen subsidiaries that went bankrupt during Rauner’s watch at GTCR is that in this case, his own voice is accessible through excerpts of his court deposition — most of which is still under seal — and in transcripts from a series of board meetings that Kirk recorded in her closing weeks as CEO.

On Monday, a Rauner aide strenuously denied he ever threatened Kirk.

“It’s no surprise these false allegations were dismissed in summary judgment, which means the complaint had no merit in the eyes of the judge,” Rauner spokesman Mike Schrimpf said in a statement.

A GTCR spokesperson did not respond Monday to questions about the case.

With the possibility of investing as much as $65 million into LeapSource and a pledge by Rauner to “always be partners,” he and GTCR in September 1999 lured Kirk away from a partnership at the Arthur Andersen accounting firm, where she headed an outsourcing group, her complaint alleged.

As conceived by GTCR, LeapSource was poised to tap into what was estimated to be a $200 billion market by offering accounting, human resources and other services to mid- and large-sized businesses.

But GTCR’s funding commitment to LeapSource never materialized because GTCR, citing mounting losses at the company, fired Kirk in February 2001 and soon after pulled the plug on the start-up and its 400 employees less than two years into its existence. The shutdown cost Rauner’s investment firm at least $30 million, court records show.

Schrimpf justified Kirk’s firing from LeapSource, saying the company was not meeting expectations.

Kirk declined an interview request.

But the Phoenix lawyer who once represented her said GTCR’s promise of a partnership with her to make a financially viable company was an empty one that hurt his one-time client, who was paid $600,000 a year to head LeapSource.

“What I think is typical of investment banking firms, they do a very good job of taking care of themselves, and they can be very ruthless in their treatment of everybody else,” said the attorney, Scot Stirling.

In his deposition, Rauner saw things differently.

“She would say whatever she felt she needed to say to get us to continue to fund the business, that we were very close to a sale, that we were very close to an investor, that…we had a lot of clients signed up or virtually signed up,” Rauner said.

“We were trying to be pretty believing and tried to be pretty patient, and we would keep going. And then we would explore whatever came up, whatever she brought up, and it would end up, in my judgment, being a house of cards,” he said.

Shortly before her firing, Kirk recorded a board meeting in February 2001, where discussion about the company’s precarious finances was sidetracked after she brought to the board’s attentions allegations that a LeapSource manager routinely brought a gun to work in his car, had a violent temper and had threatened to “take someone out” at work, according to a transcript in the court record.

Kirk also alleged the same employee, Matt Appel, wound up striking his secretary, causing her to quit, and posed “some big risks” to GTCR “from a litigation perspective,” the transcript shows.

“Whether it’s true or not, it’s a hostile work environment, it’s well documented and it’s not a good thing,” Kirk said in the transcript.

Rauner expressed sympathy for the former secretary but also suggested LeapSource’s precarious financial condition trumped concerns about the manager and any liability related to the secretary being struck.

“In a normal operating company, there would be certainly channels on how to deal with that and no company and no civil person would want to have anything to do with an employee like that,” Rauner said at one point, according to the transcript. “The flip side is, we as a board … are you know, debating issues of whether LeapSource has its lights on on Monday. I mean, and so, you know, whether the secretary sues or not, you know, pales by comparison.”

Rauner went on to suggest Kirk’s allegations and the question of whether Appel would be “capable of being a leader going forward in LeapSource’s potential future” should be dealt with by Kirk’s successor.

There is no evidence that Appel ever was disciplined. He was never charged criminally.

Stirling, Kirk’s former attorney, said Rauner’s focus on LeapSource’s financial condition and getting rid of Kirk over the concerns she was raising about Appel demonstrated misplaced priorities.

Rauner’s spokesman, Schrimpf, said any questions about Rauner’s seeming focus on whether “LeapSource has its lights on” over whether Appel’s secretary “sues or not” were “disingenuous and slanted.”

“It is clear from the partial transcript that Bruce went into the phone call completely unaware of Appel’s alleged behavior,” Schrimpf said. “He was disturbed to learn that no executives at the company had done anything to address the issue with Matt Appel when they had first come to learn of it. That is what would have happened in a normal operating company.”

In an interview, Appel categorically denied striking his secretary and accused Kirk of making up the allegations against him.

“She was creating a diversion in the stories she was fabricating about me and perhaps other people. Rauner could see through it,” Appel said.

While vouching for Rauner, Appel said he believes the private equity investor, in pushing for LeapSource’s dissolution, just wanted to put GTCR’s botched investment in the start-up behind him quickly.

Rauner and GTCR succeeded in having nearly all of Kirk’s case against them tossed out because in part it wasn’t proven they had “breached the fiduciary duties of loyalty and due care, which, indisputably, are the touchstone of corporate governance,” U.S. District Judge Robert C. Broomfield wrote in his opinion.

But Broomfield characterized the way in which Rauner and his co-defendants conducted themselves.

“At the end of the day, it appears that plaintiffs were displeased because at nearly every step of the way, from negotiating the original purchase agreement to the wind-down operations, defendants chose to ‘play hard ball,’” the judge said.

Dave McKinney is the Sun-Times Springfield bureau chief. Carol Marin is a Sun-Times columnist and political reporter at NBC 5 News where Don Moseley is a producer.