In 2015, the Minnesota Legislature amended the Minnesota Trust Code to incorporate large portions of the Uniform Trust Code. One of the new provisions adopted concerned the grounds on which a settlor or beneficiary could petition a court to remove a trustee. Specifically, in Minn. Stat. § 501C.0706(b)(1), the statute was amended to read as follows: “The court may remove a trustee if … the trustee has committed a serious breach of trust.” Because the term “serious breach of trust” is not defined within the statute or generally in the Minnesota Trust Code, a question arose as to what precisely constitutes a “serious breach of trust.” In the recently decided and important case of In re Bremer Trust (“Bremer Trust”), the Minnesota Supreme Court had the opportunity to address this question.
Background of the Case
The Bremer Trust case arose out of a highly publicized dispute among certain board members of Bremer Bank (the “Bank”) regarding the future of the Bank. Three of the Bank’s ten board seats were held by trustees of the Otto Bremer Trust (the “Trust”), a charitable trust created by Otto Bremer in 1944 for the purpose of “relieving poverty, promoting good citizenship, and supporting education.” At the time of the dispute, the Trust was considered one of the largest charitable trusts in the state of Minnesota, holding more than $2 billion in assets, most of which constituted stock in the Bank. Since its inception, the Trust had granted more than $800 million to organizations in the Midwest to further its charitable purposes.
In early 2019, the board considered various options for the future of the Bank, including continuing with the status quo, going public through an IPO, pursuing a merger, and exploring a sale. Ultimately, the board voted not to pursue a sales transaction. However, the trustees felt strongly that a sale, which they believed could yield “hundreds of millions of dollars more for the Trust than a merger,” disagreed. In October 2019 they sold approximately 7% of the Trust’s holding in the Bank to 11 separate buyers. The Bank refused to recognize these transactions, and initiated a lawsuit.
In addition, in August 2020 the Minnesota Attorney General, in his capacity as primary regulator of Minnesota charitable trusts, filed a petition seeking permanent removal of the three trustees from the board. Following a 20-day bench trial, the district court issued an order removing one of the trustees, Brian Lipschultz (“Lipschultz”), on grounds that he had committed “a serious breach of trust that justif[ied] removal under Minn. Stat. § 501C.0706(b)(1).” The Minnesota Court of Appeals affirmed the district court’s decision on January 17, 2023, and the case was appealed to the Minnesota Supreme Court
The Bremer Trust Decision
In its Bremer Trust decision, the Supreme Court set out to answer two questions: (1) whether the district applied the correct legal standard to remove a trustee; and (2) whether the district court properly removed Lipschultz as a trustee from the Trust.
(1) The Correct Legal Standard to Remove a Trustee
With regard to this first question, Lipschultz argued that the Court should “divine” a new rule from the court’s previous trust cases and define a “serious” breach of trust as limited to one that works “material and substantive harm” on the trust. The Court rejected that invitation, however, and relied on the comments to the Uniform Trust Code to find that a “serious breach of trust” may consist of “a single act that causes significant harm or involves flagrant misconduct” or “a series of smaller breaches, none of which individually justify removal when considered alone, but which do so when considered together.”
(2) Whether the District Court Properly Removed Lipschultz as a Trustee
With regard to whether the district court properly removed Lipschultz as a trustee from the Trust, the Court highlighted three breaches by Lipschultz.
Breach #1 – Self-Dealing
First, the Court pointed to Lipschultz’s admitted breach of loyalty through the use of Trust resources for personal or non-Trust purposes. These actions included using Trust staff on a regular basis to do such things as entering his children’s sporting events and his travel plans on his personal calendar, scanning documents for Lipschultz’s business associates, and receiving and sending mail for Lipschultz’s own business. The Court further found that, even if Lipschultz’s misuse of Trust assets was minor in comparison to the overall value of the Trust, there is no “de minimis defense” to whether self-dealing violates the duty of Loyalty.
Breach #2 – Failure to Provide Information
Second, the Court cited Lipschultz’s failure to timely and accurately respond to a request by the Attorney General for information about the identity of his successor and found this to be a breach of his duty as a trustee. Specifically, the district court found that the Attorney General’s office asked Lipschultz on numerous occasions to identify all persons he had appointed or would appoint to serve as his successor. Lipschultz responded that he had not appointed a successor, when in fact he had identified a successor. The Supreme Court affirmed the district court and the Court of Appeals, finding that Lipschultz not only improperly delayed revealing his successor’s identity, “but affirmatively lied about having a named successor.”
Breach #3 – Misuse of Influence/Power
Finally, the Supreme Court agreed with the district court and the Court of Appeals that Lipschultz breached his duty of loyalty to the trust when he misused his influence and power as trustee “to further his own personal objectives and resentment.” In particular, according to the Court, Lipschultz convinced the CEO of one of the Trust’s grantees that its funding from the Trust might be in jeopardy unless the grantee agreed to lobby the governor or the attorney general’s office and tell them that their actions constituted “government overreach.” Identifying this as the “most concerning” of Lipschultz’s breaches, the Court affirmed that this amounted, at a minimum, to “abusive treatment of a grantee for operational decisions unrelated to any legitimate charitable purpose of the Trust.”
Conclusion
The Bremer Trust decision is significant for multiple reasons. First, it emphasized the high standards expected of trustees in carrying out their duties. The decision reaffirms that self-dealing, even in amounts considered extremely minor in comparison to the value of the trust, is never acceptable. In addition, failing to fully and frankly disclose to the beneficiaries material facts pertaining to the trust, or affirmatively using trust authority and power to further one’s own personal objectives, are grounds for removal. Finally, and perhaps most importantly, the Minnesota Supreme Court confirmed that multiple acts of a trustee, even if thought too small or insufficient by themselves to warrant removal, may be considered together and as part of a series of breaches when determining whether the trustee has engaged in a “serious breach of trust.”
For questions about trust-related disputes, probate, estate controversies, or any type of probate or trust litigation, please contact Pat Rooney or David Ness. These matters can be very complicated, and our team at FMJ can help you navigate them.
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