A judge late Friday ordered the removal of the trustee at Otto Bremer Trust who pushed hardest for the sale of Bremer Financial Corp. during a 2019 dispute that turned into a courtroom battle.
Judge removes trustee at Otto Bremer Trust who pushed hardest for sale of Bremer Bank
But the judge said the trust has right to sell its ownership of Bremer Bank.
April 30, 2022 at 12:31AM
But the trustees were acting within their duties to explore selling Bremer Financial, Minnesota's fourth-largest bank, Ramsey County District Judge Robert Awsumb said. He also suggested the two St. Paul institutions should end their decades-long relationship.
"There are many valid reasons supporting further exploration of strategic options to separate [Bremer Financial] from its ownership by the Trust," he wrote. "Doing so may very well be in everyone's best interests."
In a 103-page ruling, the judge ordered trustee Brian Lipshultz out. He wrote that Lipschultz "allowed his own personal interests, enmity, or vindictiveness to impact his decisions and behavior as a trustee of one of the region's most important charitable institutions."
The dispute is rooted in a unique relationship in American banking: Otto Bremer Trust's ownership of Bremer Financial is the only instance of a charity still owning a bank. Nearly all U.S. charities, including those associated with founding families, gave up ownership of companies following tax law changes in the 1960s.
The Bremer relationship survived via several legal compromises and remained amicable for decades. But in 2019, trustees and bank executives started to fight bitterly over who should control the future of Bremer Financial — and whether the trust could sell its 90% stake in the bank.
A series of lawsuits led the Minnesota Attorney General's Office, which has oversight of charitable trusts, to intervene. After a nine-month investigation, it petitioned the court to remove the three trustees on the grounds of various breaches of duty.
Awsumb ruled against nearly all those allegations. He said the other two trustees — Daniel Reardon and Charlotte Johnson — could remain in place.
Bank founder Otto Bremer set up the trust in the 1940s to own the bank after his death. Today, most of Bremer Financial's profits, $17 million in the first quarter of this year, go to the trust. It distributes them as grants to charities throughout the Upper Midwest.
Awsumb noted that both Bremer organizations face constraints because of the relationship. He wrote the extra regulation associated with owning a bank impedes the trust's ability to invest its assets. And the requirement on the bank to deliver a sizable dividend to the trust affects its ability to grow.
"The real question may be how to proceed from here to best allow both organizations to prosper," Awsumb wrote.
The judge did, however, cite several breaches of duty by Lipschultz, including a refusal to disclose to the Attorney General's Office the person he had designated as a potential successor at the trust. He also faulted Lipschultz for using the trust's resources and employees to work on personal matters.
And as the dispute over Bremer Financial's future unfolded in 2019, Lipschultz "displayed a crude, vulgar and otherwise offensive brashness that has no place in the charitable world," Awsumb wrote. The judge referenced conversations, texts and e-mails presented as evidence during the trial.
Some of the "most disturbing" testimony, the judge said, revealed threats by Lipschultz to withhold grants to Junior Achievement in Minneapolis after the organization honored a Bremer Financial executive. That resulted in delayed funding "during a devastating pandemic and resulting hardships," the judge wrote. Then last August, JA returned a $1.2 million grant to the trust.
Awsumb said the trust and Attorney General's Office should discuss whether a successor is needed for Lipschultz. He asked for proposals within 60 days.
In a statement, the trust said it was "extremely disappointed" by the removal of Lipschultz. It added, "We are pleased that the court ruled in our favor on the central issue in this case: the right of the trustees to sell Bremer Financial Corporation if it is in the best interests of the trust."
The Attorney General's Office said it was reviewing the order. In a statement, Attorney General Keith Ellison said, "I am heartened that the court saw that removing Trustee Lipschultz was the right thing to do for the trust and its beneficiaries."
Bremer Financial said that it hoped the ruling "will help restore the critical relationship" between it and the trust.
Evidence at the trial showed the trust had spent $16 million and Bremer Financial $20 million in legal costs since 2019 because of the dispute.
Pending sales were up double digits for the first time this year.
