Minnesota Supreme Court Affirms Decision to Remove Trustee from Multibillion-Dollar Otto Bremer Trust
February 8, 2024
Back in April 2022, in one of the most complex and highly publicized trust disputes in Minnesota’s history, Henson Efron attorneys Christopher J. Burns and Eric Friske helped the Minnesota Attorney General’s Office secure an order removing Trustee Brian Lipschultz from the Otto Bremer Trust for having committed a series of breaches of his fiduciary duties. After years of litigation and appeals, on February 7, 2024, the Minnesota Supreme Court issued a decision upholding that removal.
Otto Bremer Trust is one of Minnesota’s largest charitable foundations with over $2 billion in assets, distributing about $70 million annually. The Trust, and its chief asset, Bremer Financial Corporation, were cast into the public spotlight nearly four years ago when Bremer alleged that the trustees had sought to enrich themselves by engineering a hostile takeover and sale of Bremer. Those allegations led to an investigation by the Minnesota Attorney General’s Office, which regulates charities in Minnesota, and eventually an action seeking to remove the trustees for misconduct.
Henson Efron attorneys Christopher Burns and Eric Friske assisted the Attorney General’s Office in that lengthy litigation, which culminated in a twenty-day trial with over 500 exhibits and over two dozen witnesses. Following trial, the district court judge found that Trustee Lipschultz had committed a series of breaches of his fiduciary duties, identifying four specific instances of misconduct, discussed below. The cumulative effect of those breaches, according to the district court, gave rise to a “serious breach of trust” under Minn. Stat. 501C.0706(b)(1), justifying Lipschultz’s removal. The Minnesota Court of Appeals affirmed that decision back in January 2023, which was followed by a petition to the Minnesota Supreme Court for review.
In its recent precedential opinion, the Minnesota Supreme Court upheld the decisions of the lower courts. Of the four instances of misconduct relied on by the district court, the Supreme Court analyzed three of those grounds, declining to consider the fourth because there was already sufficient grounds to affirm based on the other three. The breaches of fiduciary duty which supported Lipschultz’s removal are described below:
Breach of Duty of Loyalty – Financial Self-Dealing
According to the district court, Lipschultz breached his fiduciary duty of loyalty by using Trust resources for his own personal benefit, “probably from the day [he] arrived at the Otto Bremer Trust” in 2012. He improperly used staff time and mailing and computer resources for as much seven years, and even registered his personal business with the Minnesota Secretary of State at the same address as the Trust. And his self-dealing led to tax liabilities for the Trust, the total value of which was not fully determined. During his appeal, however, Lipschultz argued that his self-dealing was “de minimis” and could not be a basis for removal, largely based on the relatively small tax penalties the Trust had incurred. The Minnesota Supreme Court disagreed, stating that “there is no ‘de minimis defense’ to whether self-dealing violates the duty of loyalty.” It went on to state that to “establish a breach for self-dealing, ‘no fraud, in fact, need be shown by the beneficiaries, and no excuse can be offered by the trustee to justify such transactions.’”
Breach of Duty of Information – Identity of Successor Trustee
The district court also found that Lipschultz breached his duty of information as trustee by failing to disclose his successor. Prior to trial, the Attorney General, who had the rights of a qualified beneficiary and authority to conduct investigations and seek information, asked Lipschultz to identify his successor trustee’s identity. Lipschultz initially claimed he did not have one, then later represented he did have one but refused to identify the individual. Not until he testified at trial did he reveal that successor’s identity, asserting that he was trying to protect that person from public scrutiny. The district court found that Lipschultz’s reasons for not revealing his successor’s identity “are not valid reasons to be evasive about a topic that the [Attorney General’s Office] has every right and reason to explore.” Affirming, the Supreme Court stated that because Lipschultz was one of three trustees of a massive charitable trust, it was imperative for the Attorney General’s Office to ascertain the identity of his named successor. Further, it said, Lipschultz did not merely delay revealing his successor’s identity but affirmatively lied about having a named successor.
Breach of Duty of Loyalty – Misuse of Grantmaking Power
The district court found that Lipschultz breached the duty of loyalty as trustee when he “misuse[d] grantmaking power to further his own personal objectives and resentment,” by making seemingly threatening statements to a grantee implying that funding would be cut off if the grantee did not support the Trust and the trustees in the conflict with Bremer and the Attorney General’s Office. According to the district court, “[a]t worst, [Lipschultz’s] actions could be reasonably interpreted as threats against future grants,” and “[a]t best it was abusive treatment of a grantee for operational decisions unrelated to any legitimate charitable purpose of the Trust.” The Minnesota Supreme Court, agreeing with the lower courts, recognized that Lipschultz’s conduct harmed the grantee because it caused the organization to receive delayed funding during a critical time, to return a $1.2 million grant, and to sever its relationship with the Trust, which had previously been the organization’s largest donor.
Breach of Duty of Loyalty – Stock Sale Conduct
Lastly, the district court concluded that, during the stock sale dispute Lipschultz “displayed a crude, vulgar, and otherwise offensive brashness that has no place in the charitable world.” The conduct was so egregious and vindictive that, according to the district court, Lipschultz has put his own interests and conduct above that of the Trust. The Minnesota Supreme Court, having already concluded that the three breaches discussed above were sufficient to justify removal for a “serious breach of trust,” declined to address this issue.
The Supreme Court’s precedential opinion provides further clarity on what constitutes “a serious breach of trust” under Minnesota law, and makes clear that even a series of smaller breaches may justify removal. The decision also reaffirms, if it was ever in doubt, that the misuse of trust resources, dishonesty, and placing one’s own interests above that of the trust or its beneficiaries—regardless of perceived insignificance—can potentially warrant removal of a trustee. As always, trustees should adhere to the highest standards of ethical conduct and act in the best interests of the trust and its beneficiaries at all times.
Henson Efron is honored to have contributed to the development of Minnesota trust law and to have played an important role assisting the Minnesota Attorney General’s Office in safeguarding the interests of the public and protecting one of Minnesota’s largest and most important charitable trusts from trustee misconduct.