Bank’s board of directors rejected the request from its former CEO, saying he did not act ‘in good faith’


(the review) Former Bank of Oswego CEO Dan Heine returned to Oregon this week and asked a federal court judge to order his former employer to cover his legal costs in a pending criminal trial.

The bank’s board of directors passed a unanimous resolution on July 21 rejecting Heine’s request. On Tuesday, the bank’s attorneys defended that decision, saying Heine’s claims for financial relief “defy the unambiguous language of the bank’s articles and Oregon law.”

U.S. District Court Judge Michael Simon was not so easily convinced, saying at the close of the four-hour proceedings that he would likely need the next two weeks to issue a decision.

Heine and ex-Bank of Oswego Chief Financial Officer Diana Yates face 27 federal criminal charges, including conspiracy to commit bank fraud and making false bank entries. Prosecutors for the U.S. Attorney’s Office have alleged that both were involved in a scheme to hide bad loans from the bank’s board of directors, shareholders and regulators in an effort to portray the bank’s financial condition as much better than it was.

The allegations gained traction in July, when former Bank of Oswego executive Geoff Walsh admitted his role in such a scheme as part of a plea deal on the eve of his own criminal trial, which was to include 32 fraud-related charges unrelated to his time at the Lake Oswego financial institution.

If convicted, Heine and Yates face a maximum of 30 years in prison for each count, as well as the forfeiture of any money or property obtained as the result of the violations.

Heine’s lawsuit largely hinges on the bank’s articles of incorporation, which he says require it to pay all legal expenses for any person involved in a criminal action as a result of their role as a director or officer of the bank.

Heine’s attorneys argue the bank is attempting to shirk its contractual duties to its executives, and that the bank’s articles of incorporation specify that the institution is required to advance any expenses “incurred by a director or officer in defense of a proceeding related to his official function.”

But Bank of Oswego attorneys tried to demonstrate that the bank’s charter granted permission to provide protection only to certain officers and to advance fees contingent on a good-faith standard. In its July 21 resolution, the bank’s board of directors claimed that under the Oregon Banking Act, “the bank is not permitted to indemnify an officer nor advance expenses unless the board has determined that the officer acted in good faith.”

“After due investigation and consideration of the Heine criminal case, the indictment and the records underlying the transactions specified therein, the board cannot conclude that Mr. Heine acted in good faith and in a manner he believed to be in the best interest of the bank,” the resolution says.

Attorney Casey Nokes argued that Heine’s case was not “a cookie-cutter advancement of fees litigation,” adding, “Mr. Heine’s case depends on this court either rewriting or ignoring the bank’s unique, Oregon-based articles of incorporation.”

The bank’s attorneys criticized Heine, who they characterized as financially insolvent, for pursuing expensive out-of-town representation. They said the rates charged by the New York-based firm Pryor Cashman “are well above the prevailing market rate for white-collar criminal defense in Portland,” which the defense determined to fall within the $400- to $550-an-hour range.

Hourly rates for Pryor Cashman attorneys have been quoted as high as $900, with Heine’s primary attorney, Jeffrey Alberts, billing $640 an hour — a rate Nokes called unreasonable for the relatively youthful Alberts’ “vintage.”

But Pryor Cashman attorney Bryan Mohler argued it was reasonable for Heine to seek representation from someone with “white-collar expertise,” given that Heine faced “significant sentencing exposure.”

“I don’t think a (billable hourly) rate of $640 is unreasonable,” Simon said. “I do think $900 is unreasonable, and I won’t approve it.”

Attorneys for Bank of Oswego also pointed out that regardless of the lawsuit’s outcome, Heine will have access to a $3 million directors and officers liability insurance policy.

Simon had already granted the bank its counterclaim for an amount of just over $141,600, which Heine admitted he owes the bank after defaulting on a $100,000 loan, nearly $30,000 in credit card debt and the resulting interest on both. According to court documents, Heine has not made payments to the bank since late last year.

Both Heine and Yates have waived their rights to trial by jury. Simon scheduled a status conference for Nov. 18, at which point he said he intended to set a trial date for the criminal case against Heine and Yates and to make a decision on Heine’s lawsuit against the bank.

originally published Nov 4 2015

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