Minnetonka bankers' dispute gets ugly

A falling-out between two local bank executives has turned decidedly nasty.

David Grzan, former president of Equity Bank of Minnetonka, alleges in a lawsuit that his former boss and longtime business partner Steven Liefschultz threatened to murder him, burn down his house and cut off his two children's fingers if he left for another job. Grzan also claims that Liefschultz owes him about $3 million for gains on commercial real estate transactions.

He has asked a Hennepin County judge for a temporary restraining order against Liefschultz and says he and his family live in fear for their lives.

An attorney representing Liefschultz says Grzan's lawsuit is "outrageous" and is part of a malicious scheme to extort money. Liefschultz has countersued, accusing Grzan of deliberately mismanaging an upscale apartment complex in Woodbury out of resentment. Liefschultz, majority owner and chief executive officer of Equity Bank, has also accused Grzan of defamation by circulating his lawsuit to people who do business with the bank.

Equity Bank, which was founded 74 years ago and specializes in business lending, is on sound financial footing with healthy levels of capital. The bank, which has $50 million in assets, made about $100,000 last year in profits.

However, a bitter and prolonged legal battle involving its owner and one of its former top executives could prove unsettling to clients and investors, analysts say.

"This is so bizarre that customers are going to wonder what kind of bank they're dealing with," said Loren Prairie, a bank consultant from Apple Valley. "The risk to their reputation is serious."

The two seemed to have a solid business relationship. In 2001, Liefschultz put Grzan on the board of directors of Equity Bank. Then, after selling three apartment buildings in 2003, Liefschultz appointed Grzan vice president and branch manager for Equity Bank's two branches in southern Minnesota, where he oversaw lending activities, according to court pleadings.

However, in an interview Tuesday, Grzan said he spent most of the past 15 years working in an unusually hostile work environment. He says Liefschultz would explode into fits of rage several times a week that caused many of the bank's receptionists to resign within a day. "He would grit his teeth, foam at the mouth, jump up and down, turn red, his fist waving," Grzan said. "Everyone was petrified."

Grzan alleges that Liefschultz would punctuate his orders with threats, such as "I'll burn your house down," and threatened to hurt his family if he did not obey orders. On one occasion, Liefschultz allegedly threatened to cut off the fingers of Grzan's two children. "He also admits to torturing animals, hiring others to phsycially assault others, and that he sympathizes with serial killers," the lawsuit says.

Grzan alleges that the hostile environment led at least 70 employees to leave Equity Bank over the years. But Grzan says he could not afford to quit. Grzan claims he often paid for upkeep and renovations of the apartment complexes out of his own pocket -- at one point, running up a credit-card debt in excess of $100,000 -- and relied on Liefschultz to reimburse him. He also claims that Liefschultz promised him a portion of the profits on two house sales on Lake Minnetonka, but the payments never materialized.

Tim Kelly, a lawyer representing Liefschultz, said the allegations are "completely false," and questioned why Grzan stuck with Liefschultz if things were so bad. "What kind of idiot would work for someone for 15 years who was periodically threatening his life?" Kelly said.

The counterclaim alleges, among other things, that Grzan was mismanaging the Classic at the Preserve. Liefschultz accuses Grzan of turning the upscale apartment complex into a "motel" by allowing for short-term leases, and then falsifying the rent rolls to disguise that he was giving away free rent to unqualified tenants. Grzan also threatened and abused employees who "failed to help him hide his conduct," the counterclaim alleges.

After Grzan left on Jan. 18, Liefschultz claims he discovered that Grzan had caused the Woodbury complex to lose hundreds of thousands of dollars in rent, as well as lost value.

George Eck, an attorney representing Grzan, denied the allegations. noting that his client had an ownership stake in the apartment complex that he is accused of mismanaging. "His self-interest was to make that project work," Eck said. "It's crazy."