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Case Tests Banking Ethics
On one side of the courtroom: The businessman who was turned down for a loan to buy a pump company.

On the other: The bank officer who notified him of the loan rejection, then proceeded to buy the company herself.

The civil dispute unfolding in Hamilton County Common Pleas Court has a few million dollars at stake, but also poses a public test of banking ethics. The trial started Dec. 3, and, beginning Monday, the 10 jurors will have to sort through laborious rehashings of who said what to whom four years ago and the sleep-inducing explanations of collateral and other financial jargon.

The story starts in early 1997, when Fort Mitchell business consultant Jeffrey Groob decided to buy Oldfield Equipment Co., a commercial pump-rental company in Reading, from its retiring owner.

Negotiations dragged on for months before Mr. Groob obtained what he thought to be a gentlemen’s agreement to buy Oldfield for $1.8 million. But two banks took a pass on giving him the loan he needed. And after Carol Sapinsley, vice president of commercial banking at KeyBank, called him that Halloween with another rejection, the deal died.

“She said, “We have no interest in doing this deal,’” Mr. Groob said on the witness stand. “It (the phone call) probably lasted 60 seconds, but it felt like a lifetime. I was just stunned.”

Mr. Groob, today president of SensorScript Corp. in Milford, brooded for a while and tried to put the affair behind him. Then, in March 1999, he read an obituary for Oldfield’s former owner. In it were the names of two of the company’s current owners. One was Carol Sapinsley.

Stunned anew, Mr. Groob cited Ms. Sapinsley’s “gross breach of ethics” in letters to KeyBank’s top executives. Receiving no reply, he sued Ms. Sapinsley and KeyBank, accusing them of tortious interference, breach of fiduciary duty, negligence in supervision and misappropriation of business opportunity. He claimed $5 million in damages. KeyBank denied any wrongdoing.

Most of the charges against KeyBank were subsequently dismissed by Visiting Judge John Crouse. The only remaining charge centers on its supervision of Ms. Sapinsley.

Ms. Sapinsley denied harboring any interest in buying Oldfield when she turned down Mr. Groob for a loan.

According to testimony, though, the bank officer was quite familiar with Oldfield. Oldfield kept its accounts at KeyBank, and Ms. Sapinsley was the account’s main caretaker. She knew that its former owner, John Scheve, was nearing retirement age and had received offers to sell Oldfield in the past.

Armed with that information, Ms. Sapinsley knew that Mr. Groob’s $1.8 million offer put him in the ballpark.

The problem, she testified, was that Mr. Groob brought no money of his own to the table. Mr. Groob wanted $1.2 million from KeyBank — including $400,000 for working capital — and spoke of $1 million in seller financing from Mr. Scheve. Mr. Groob didn’t have a signed purchase agreement, just a brutally edited draft.

“It was pretty obvious just by looking at it for a few minutes that it didn’t” meet the bank’s lending standards, she testified. “It was probably one of the craziest requests that I’d ever heard in my life.”

At her suggestion, Mr. Groob brought a potential investor, Lowell Bowie, to an Oct. 28 meeting with Ms. Sapinsley. Mr. Bowie testified that he was ready to provide the necessary backing, but wasn’t asked. Ms. Sapinsley said she thought he was just a business adviser.

Ms. Sapinsley, whose banking career spanned a decade, said she called Mr. Scheve’s lawyer with her opinion that the loan was off. She said Mr. Scheve asked her to find a replacement buyer. She came up with a longtime banking client, Clark Sarver, owner of Maximum Communications.

Ms. Sapinsley denied revealing any aspect of the Groob offer to anyone. On Nov. 4, Mr. Sarver and Carol Sapinsley’s husband, Thomas Sapinsley, signed a letter of intent to buy Oldfield. The offer came about so quickly because she wanted to head off any other buyers, she testified.

By spring 1998, the new buyers had done their own due diligence on Oldfield. They applied for a $1.35 million loan from Fifth Third Bank.

Fifth Third liked the fact that the Sapinsleys and Mr. Sarver were putting $400,000 of their own money into the deal — and guaranteeing the loan. The loan was approved, and the purchase of the company — minus its building and land — went through April 1, shortly after Ms. Sapinsley quit her job at KeyBank.

To Mr. Groob, Ms. Sapinsley not only expropriated his deal, but violated KeyBank’s ethics policy. Mr. Groob’s lawyer, Robert Croskery of West Chester, cites two lines of that policy in particular. They say bank employees:

• Will “maintain no position or interest, financial or otherwise, which affects or could affect the employee’s independence or judgment concerning transactions between KeyCorp and its customers, suppliers or others with whom KeyCorp competes or has existing or pending or potential business relationships.”

• Cannot divulge confidential information “nor use it for trading in securities or for other personal gain during or after employment.”

Ms. Sapinsley, who is represented by David Kamp of Cincinnati, said she didn’t believe her actions constituted a breach of the ethics code.

Mr. Groob isn’t at all forgiving about losing Oldfield to Ms. Sapinsley. He said she agreed with him that Oldfield’s pump inventory was worth more than the $1.8 million purchase price.

“She said we had found the goose that laid the golden eggs,” he testified.

Ms. Sapinsley denied ever uttering those words.

Oldfield’s new owners suffered a spate of troubles, from losing money to — of all ironies — the flooding of the pump company’s premises.

In Oldfield’s first year under Norden LLC — a company formed by the Sapinsleys and Mr. Sarver — a drought dried up demand for pumps, handing the company a financial blow and forcing it to lay off employees. The company lost money in both 1998 and 1999.

Strife meantime boiled over in Oldfield’s executive suite. Carol Sapinsley filed for divorce from Tom Sapinsley in February, and Mr. Sapinsley accused her of having an affair with Mr. Sarver — something the Groob v. Sapinsley jury wasn’t allowed to hear. Mr. Sarver and Ms. Sapinsley denied it.

In 2000, Mr. Sarver’s own marriage — to Carol Sarver, daughter of Cincinnati businessman Richard Lindner — ended in divorce on amicable terms.

The latest turn came just a month ago. Norden filed a civil suit against Carolyn Scheve — John Scheve’s widow — for refusing to pay for flood damage incurred during a heavy July rain.

Norden stated it was out $19,500 in repair costs and cited a lease provision requiring Mrs. Scheve to repair any fire and casualty damage. Mrs. Scheve accused Norden of failing to make its August rent payment. She filed an eviction notice Sept. 4.

So what’s your opinion of this banking ethics situation?