ST. PAUL -- A legal effort to at least temporarily unseat the three trustees who oversee the Otto Bremer Trust — one of the state’s oldest and largest philanthropies — returns to court on Wednesday, Sept. 30, with fresh accusations on all sides.
The Minnesota Attorney General’s office last month asked Ramsey County District Court Judge Robert Awsumb to temporarily remove trustees Brian Lipschultz, Daniel Reardon and Charlotte Johnson based on allegations they are attempting to sell Bremer Bank to boost their own salaries.
On Sept. 21, attorneys for the three trustees filed an 83-page legal memorandum in Ramsey County District Court, a point-by-point rebuttal to the attorney general’s various allegations of self-dealing.
In a written statement, the trustees said “the trust is experiencing exceptional growth and grantmaking and … the (attorney general’s office) has offered no evidence of any ‘imminent harm’ necessary for the relief it seeks.”
Attorney General Keith Ellison’s office responded Thursday by filing a 31-page reply in support of their petition for interim relief.
“Trustees minimize their conduct, fail to address the harm and generally take no responsibility for the conduct demonstrated by the attorney general,” it reads. “Not a single unnecessary day should pass with trustees continuing to act as fiduciaries for the trust while defending their own interests.”
The $13 billion bank is one of the state’s largest farm lenders and a major source of revenue for the St. Paul-based philanthropy, which has distributed some $400 million to charitable causes across Minnesota, Wisconsin and Montana in the past eight years alone.
Since late last year, the philanthropy has been caught in a legal tug-of-war with the board of the Bremer Financial Corporation, which runs Bremer Bank, its largest asset.
The bank board filed suit against its philanthropic parent in November, claiming the trustees had no right to sell voting stock in the corporation to outside investors — 19 out-of-state hedge funds — as part of a hostile takeover that would replace the board and set up the bank for sale.
It’s possible that Judge Awsumb could rule as early as Wednesday that the trustees temporarily step down while the attorney general’s accusations are reviewed through a formal trial process. It’s just as likely, however, that legal evidence gathering known as “discovery” could stretch on for months, with the trustees still in place, before the case heads to trial.
Attorneys for the Otto Bremer Trust have asked for a trial date by early 2021, while Ellison’s office has signaled that it will ask for more time. That and other scheduling issues remain before the judge.
Among the issues:
A BANK SALE: Attorneys for the Bremer Financial Corporation claim that selling voting shares in Bremer Bank to out-of-state investors violates the structure set up by German philanthropist Otto Bremer himself in the 1940s, which at the time put the locally-controlled philanthropy in charge of the bank.
On behalf of the trustees, Michael Ciresi and attorneys with Ciresi Conlin argue that the same founding document creates fiduciary duties for the trustees, who must do what’s best for the charity in the event of “unforeseen circumstances.”
Philanthropies operate under a federal requirement to distribute 5 percent of their fair market value to charity each year.
A revaluation of the Otto Bremer Trust in 2018 and 2019 found that the trust’s value had grown to $2 billion, or double its book value, under the trustees’ leadership. Distributing 5 percent of its assets would cut into principal, forcing a sale of some assets, unless steps were taken to grow cash through a sale, Ciresi has said.
SALARY: Bank officials have noted that a sale could increase annual compensation for the three trustees from the $300,000-to-$500,000 range to as much as $1.8 million.
That’s a huge break from the past. In the 2000s, the trustees were each paid a base salary of $42,000. Some of the current salary is redundant, according to the attorney general’s office, because both Lipschultz, Reardon and an outside firm receive pay for managing non-Bremer assets.
Ciresi has said in court that the trust’s founding documents limit total compensation for the trustees to 4 percent of the income from the trust estate, and they’re currently pocketing only half of that.
Trustee salaries must be approved every five years by a judge, and were last reviewed by Awsumb himself in late 2017. The salaries area also made public through an annual report filed with the Minnesota Attorney General’s office and the Internal Revenue Service.
LAVISH SPENDING: Employees have said they were taken aback by a $2.5 million office move that added lavish touches to the trustees’ meeting areas.
In the Sept. 21 filing, the trustees’ attorneys said Otto Bremer Trust maintains an expense ratio — overhead and administrative expenses compared to payments to charity — of less than 12 percent.
In other words, 88 cents on the dollar go back into the community, which is relatively competitive.
“This ratio is far less than other outstanding and prominent Minnesota philanthropic organizations, such as the Blandin, McKnight, St. Paul Minnesota Foundation, Bush and the
Minneapolis Foundations,” reads the filing.
TOXIC WORK ENVIRONMENT: Ellison’s office has alleged that Otto Bremer Trust employees operate in a toxic work environment — with no one to turn to about workplace conflicts or ethical lapses — and they may face retaliation for raising concerns.
“Current and former trust employees testified that they feared retaliation by trustees,” reads Thursday’s filing from the attorney’ general’s office.
In interviews with Ellison’s office, an employee recalled spotting a text message from Reardon to Lipschultz that described a female co-worker as a “doorknob.” On another occasion, a web search option for “pornography” appeared on Lipschultz’ company-issued laptop when his screen was displayed on a company whiteboard.
Attorneys for the trustees have denied claims of retaliation, and noted that case law shows courts cannot act as company personnel departments and micromanage work environments. They have said that proving a persistently hostile workplace would require a separate legal action.
ANTI-MUSLIM, ANTI-NATIVE AMERICAN SENTIMENT?: In interviews with Ellison’s office, a former program officer said a co-worker entered her office and explained that the Council on American-Islamic Relations had sought funding but “was not getting that grant because Brian doesn’t want to fund Muslims.”
Another former staffer, who is Native American, recalled Reardon discussing with him for up to 30 minutes why he disliked funding Native American causes.
Attorneys for the trustees have said those concerns are based on second-hand information, subjective interpretation or innuendo, and the interviews that have been released by Ellison’s office to date do not explicitly spell out acts of discrimination.