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State alleged pattern of’imprudent,’ ‘self-interested’ and ‘unlawful behavior’
The efforts to remove the trustees from the Otto Bremer Trust continue their path to a Sept. 27 trial date, but got no help this week from the Minnesota Court of Appeals.
The trust is embroiled in a feud between the leadership of Bremer Financial Corp. (BFC), which oversees Bremer Bank and the Trust. The bank is one of the largest farm lenders in the United States.
The trust is the charitable arm of the Bremer dynasty. Its stock in BFC is about 90% of its assets. In October 2019, the trustees sold part of the BFC stock, leading to a “flurry” of litigation, as the court said, and an Attorney General’s investigation lasting eight months.
Monday’s nonprecedential opinion in In the Matter of the Otto Bremer Trust was written by Judge Tracy M. Smith.
The state seeks removal of the trustees and interim relief pending a decision on the merits. The state alleges a “longstanding and presently ongoing pattern of imprudent, self-interested, and otherwise unlawful behavior” adverse to the trust. The Attorney General requested interim relief under the Minnesota Trust Code, Minn. Stat. §§ 501C.0101-.1304.
The District Court granted some relief but denied the state’s request to remove the trustees and to prohibit them from using trust assets to pay their legal fees. The Court of Appeals affirmed, finding no abuse of discretion.
“The District Court concluded that the interim relief that it ordered is ‘appropriate to better protect the integrity of the Trust, provide interim limitations on trustee compensation, and bring more transparency and accountability to the administration of the Trust going forward until the evidence has been fully developed and considered,’” Smith wrote.
Court of Appeals Judge Tracy M. Smith
Dahlberg standard
The Attorney General originally brought the case under the Minnesota Trust Code, which provides for removal of a trustee for a serious breach of trust and for other interim relief.
The Attorney General’s Office argued that when the statute specifically provides for injunctive relief, as does the trust code, it should apply. But the District Court used the five-factor test for injunctive relief in Dahlberg Bros. v. Ford Motor Co., a 1965 Minnesota Supreme Court opinion. The Dahlberg analysis is a five-factor test directing courts to consider:
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- (1) the parties’ relationships
(2) the relative harm to the parties of granting or denying temporary relief
(3) the likelihood of success on the merits
(4) public policy
(5) the administrative burden in enforcing injunctive relief.
The state said that the court should analyze whether the statutory prerequisites have been satisfied and whether the injunction would fulfill the legislative purpose behind the statute. The statutory prerequisite would be that relief is necessary to protect the trust property or the interests of the beneficiaries.
The state also argued that the District Court erred by considering whether the trustees committed a “serious breach of trust” rather than the necessity standard. Under the necessity standard, the District Court should have done more, including removing trustees, it said.
The Court of Appeals said the District Court took interim measures that were appropriate to protect the trust. Since the District Court acted within its discretion, any legal error is harmless, the Court of Appeals concluded.
The inclusive interim measures included restrictions on sales of stock, suspending some payments to trustees, barring them from using trust-office resources for non-trust purposes, requiring the trustees to engage a human-services professional and ordering training in fiduciary duties of a trustee of a charitable trust.
The District Court did not abuse its discretion by concluding that the trust is sufficiently protected without replacing the trustees on an interim basis, the Court of Appeals also determined.
Attorney fees
The general rule is that a trustee defending in good faith a challenge to the trust’s administration is entitled to reasonable attorney fees—paid from the trust, the Court of Appeals said. It was not convinced that refusing to prohibit payment of fees was an abuse of discretion.
“First … the District Court imposed interim measures and relied on other safeguards already in place to protect the trust during the pendency of litigation. Second, the Attorney General does not point to any Minnesota caselaw holding that a district court is required to stop attorney fees from being paid out of trust assets in a trustee-misconduct case,” the Court of Appeals said. (Emphasis by court.)
Judges James B. Florey and Michelle A. Larkin joined in the unanimous opinion.
