Koss Corp. v. Park Bank (Liability for Embezzlement)

In Koss Corp. v. Park Bank (2019 WI 7), the Wisconsin Supreme Court found that Park Bank was not liable for failing to protect Koss Corp. from its executive’s embezzlement. The court issued a plurality opinion written by Chief Justice Roggensack and Justice Ziegler, with a concurring opinion by Justices Anne Walsh Bradley, Abrahamson, and Dallet, upholding the lower court’s decision. Justices Kelly and Rebecca Bradley issued a dissent.

The case involved sophisticated and complicated embezzlement maneuvers by one of Koss Corporation’s executives, its vice president of finance. In total, the executive embezzled $31 million from the company.

The issue in the case was whether Park Bank acted in “bad faith” and was therefore liable for failing to protect Koss Corp. from the executive’s embezzlement. Because the statute does not define “bad faith,” the court grappled with what it means for a bank to act in bad faith. Justices Roggensack and Ziegler said bad faith is determined by acts evidencing dishonesty by the bank by willfully failing to investigate compelling and obvious known facts suggesting fiduciary misconduct due to a deliberate desire to evade knowledge of fiduciary misconduct.

Justices A.W. Bradley, Abrahamson, and Dallet agreed Park Bank was not liable, but came up with a different definition for bad faith and therefore did not join the lead opinion.

Justices Kelly and R.G. Bradley would have adopted a much lower standard for bad faith. They also found that the facts in this case could lead a jury to find that Park Bank acted in bad faith when it “remained intentionally ignorant of whether the individuals transacting business on Koss Corporation’s accounts had the authority to do so.”