Burnsville Council Member's Business Debts Lead to Lawsuit

The $98,000 Council Member Dan Kealey owes to Wells Fargo Bank is, by Kealey’s own admission, just a small portion of his business debts.

After Wells Fargo filed suit against Kealey last week in Dakota County, Kealey told Burnsville Patch he owes hundreds of thousands of dollars in other outstanding business loans to several creditors.

The suit is the latest chapter in the demise of Kealey's once-thriving business, DSK Sound, Inc., once a chain of CD, DVD and video game stores. In August, another of Kealey's creditors, M & I Bank, foreclosed on the company's four remaining storefronts. 

Two months later, nobody is more surprised by the reversal of fortunes than Kealey himself.

“I thought I had made it through (the recession). It was quite a shocker to see it reverse course,” said Kealey, a two-term council member. “I couldn’t believe it would go backwards like that.”  

DSK’s disintegration would have been hard to imagine at its founding in 1993. The company prospered through the 1990s and early 2000s. At its height, DSK had stores in Burnsville, Minnetonka, Roseville, Maplewood, St. Cloud and Blaine, along with a bustling online business.

The loans now dogging DSK originated during these flush times. Kealey said he borrowed the money to fund remodeling, marketing initiatives or to buy new products and refresh inventory. In addition to the amount named in the suit brought by Wells Fargo, Kealey said DSK borrowed a “significant amount” from M & I Bank. He also obtained a large private loan.

By Kealey’s account, these debts were manageable until the market crash of 2008. The financial crisis had an immediate, devastating effect on DSK’s sales, Kealey said.

Kealey and his officers were quick to action. In 2008, DSK shuttered the shops in Roseville and Minnetonka and closed the company’s central office. Kealey cut his salary at DSK to zero and took another full-time job to support himself. He implemented a pay cut for his employees and asked managers to work longer hours. He jettisoned smaller expenses like window and carpet cleaning services.

But Kealey knew he couldn’t balance his books alone. He asked landlords to reduce rent. He contacted debtors and asked to defer payments or go to an interest-only payment plan.

“It was incredibly stressful,” Kealey said. “But we were able to nip and tuck and scrape and make it through the worst of it.”

By 2010, it appeared DSK had weathered the worst of the storm. Sales began to creep up. Though revenues were still significantly lower than pre-2008 levels, the stores at last were on the point of breaking even. For the first time in two years, he said, sales met overhead.

But the tide changed yet again, Kealey said, in spring of 2011.

“I did all I could to keep the business alive,” said Kealey. “I lasted as long as I could, but by then I didn’t have any more rabbits in my hat.” 

DSK had run out of reserves and there was no fat left to cut when a sudden 30 percent drop in sales pushed the company to a breaking point. Facing unsustainable losses, Kealey soon fell behind on rent. This summer, the bank foreclosed on the company.

“I’m extremely sad and disappointed after all I’ve done to keep this business alive and for the 20-some people who have joined unemployment line,” Kealey said. “The recession won and I lost.”

Thus far, Wells Fargo is the only creditor to bring suit against Kealey, as an individual, and his ex-wife, Robin. Both are listed in the summons as co-owners of DSK, though Kealey says that Robin Kealey is no longer a part-owner. Many of DSK’s lenders were willing to negotiate and take a settlement on smaller debts, Kealey said, but Wells Fargo was not.

The bank alleges the Kealeys owe the bank nearly $98,000 in personally guaranteed business loans dating to 2005. According to the complaint, no payments have been made on the balance since October 2009. The bank is suing for the total principal amount, plus interest, fees and court costs.

Because of the personal guarantee attached to the loan, the outcome of the suit could jeopardize other personal properties owned by the parties, specifically a home at 4891 142nd Street in Apple Valley, the home of Dan Kealey’s ex-wife. Kealey came close to losing his own four-bedroom home to foreclosure in 2010, but managed to avert a sheriff's sale by selling the property during the redemption period.

At this point, Kealey hasn't filed for bankruptcy protection, though that may become a necessity. 

Kealey isn't the only member of the Burnsville City Council embroiled in financial troubles in recent years. In June 2010, Thisweek Live reported that Council Member Dan Gustafson had filed for chapter 7 bankruptcy protection.

Editor's Note: Two parts of this story have been clarified and corrected. In the original version, the article stated that "Kealey lost his home to foreclosure" in 2010. This is not the case, though his property did go part way through the foreclosure process. A homeowner threatened with foreclosure is given a a set amount of time to redeem the property. According to Kealey, he was able to redeem the property before the appointed deadline by selling it to another party.

At another juncture in the original, the article stated that Kealey was unable to make payments to his primary lender, M & I Bank, and thus the bank foreclosed on DSK's storefronts. While it is true that the bank foreclosed on the properties, Kealey said this was due to his inability to pay rent, though he was current on his debt payments to M & I. The impending eviction from the commerical space triggered the bank's foreclosure.