Memorandum of Law in Opposition to the Petition for Interim Relief

62-C9-61-315222 Filed in District Court State of Minnesota 9/21/2020 2:38 PM

STATE OF MINNESOTA DISTRICT COURT

COUNTY OF RAMSEY SECOND JUDICIAL DISTRICT

Court File No. 62-C9-61-315222

In the Matter of the OTTO BREMER TRUST TRUSTEES’ MEMORANDUM OF LAW IN OPPOSITION TO THE PETITION FOR INTERIM RELIEF

NON-CONFIDENTIAL VERSION 62-C9-61-315222 Filed in District Court State of Minnesota 9/21/2020 2:38 PM

TABLE OF CONTENTS

INTRODUCTION ...... 1

STATEMENT OF FACTS ...... 8

A. OBT is a Charitable Trust (Not a Non-profit Corporation)...... 8

B. OBT Trust Instrument ...... 9

C. OBT Administration ...... 14

1. Asset composition and workplace management...... 14

2. OBT is Thoroughly Supervised...... 15

3. The Trustees have administered OBT prudently and consistent with Otto Bremer’s intent...... 18

D. History of OBT’s Major Asset: BFC ...... 20

1. Unforeseen Circumstance: Enactment of Tax Reform Act of 1969...... 21

2. Unforeseen Circumstance: Enforcement of Tax Reform Act necessitates the sale of BFC shares in 1989, and vests temporal “voting control” of BFC with its newly established minority shareholders...... 22

3. Unforeseen Circumstance: Following Sarbanes Oxley Act of 2002, BFC expands Board of Directors, diluting OBT’s board presence and influence...... 25

4. Unforeseen Circumstance: 2019, a confluence of unforeseen and unintended events instigated by BFC management’s pursuit of merger—not the Trustees’ efforts—culminating in the need for the ability to separate to prevent detrimental consequences for BFC and OBT...... 26

(a) BFC Management Opens Pandora’s Box for OBT...... 26

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(b) Separation was necessary for both BFC and OBT, which BFC’s Board refused to acknowledge or allow...... 28

E. Trustee compensation...... 34

ARGUMENT ...... 37

I. WHEN “INTERIM RELIEF” IS SOUGHT THE TRADITIONAL DAHLBERG FACTORS APPLY...... 39

A. The Dahlberg Factors Favor Denial of Interim Relief...... 40

1. The Balance of Harms favors the Trustees...... 41

(a) There is No Credible Risk of Imminent Harm...... 41

(i) The Trustees will not sell more BFC shares while this case is pending...... 42

(ii) The Trustees will not make new investments in private equity or hedge funds while this case is pending...... 44

(iii) The Trustees’ use of CBFC is approved under the Trust Instrument and law...... 47

(iv) The potential for self-dealing is not a valid risk...... 48

(v) The welfare of OBT employees is not at risk...... 51

(b) The AGO’s allegation of “Ongoing Waste” due to the Trustees’ defense in pending litigation occasioned by the exercise of their discretion is a red herring...... 54

(d) There are no other risks of irreparable harm...... 61

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(e) OBT risks substantial harm by the AGO’s interference with the proper operation of the Trust...... 63

2. Likelihood of success favors Trustees...... 64

(a) The Trustees acted reasonably and responsibly in selling BFC shares...... 65

(b) The Trustees have properly administered OBT...... 66

(d) The AGO cannot seek to have the Trustees removed without cause...... 72

3. Public policy favors denying interim relief...... 74

4. “The parties’ relationship” favors the Trustees...... 74

5. The administrative burdens of the AGO’s requested relief would be prohibitive...... 75

CONCLUSION ...... 76

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TABLE OF AUTHORITIES

Page(s)

Cases

In re Comstock’s Will, 17 N.W.2d 656 (Minn. 1945)...... 49, 65, 67, 68

Connexus Energy v. Comm’r of Revenue, 868 N.W.2d 234 (Minn. 2015)...... 73

Dahlberg Bros., Inc. v. Ford Motor Co., 137 N.W.2d 314 (Minn. 1965)...... 38, 39, 40, 63 duPont v. Southern Nat’l Bank of Houston, 771 F.2d 874 (5th Cir.1985) ...... 57

In re Enger’s Will, 30 N.W.2d 694 (1948) ...... 70

In re Estate of Nelson, 936 N.W.2d 897 (Minn. Ct. App. 2019) ...... 39

In re Estate of Rosenbrook, No. A12-1715, 2013 WL 2301954 (Minn. Ct. App. May 28, 2013) (Crosby Lehmann Aff., Ex. 13) ...... 67

Evers v. Alliant Techsystems, Inc., 241 F.3d 948 (8th Cir. 2001) ...... 51

In re Freeman’s Tr., 75 N.W.2d 906 (1956) ...... 69, 70

IFS Indus., Inc. v. Stephens, 205 Cal.Rptr. 915 (1984) ...... 57

Leppink v. Water Gremlin Co., 944 N.W.2d 493 (Minn. Ct. App. 2020) ...... 39

In re Luhrs’ Trust, 443 N.W.2d 646 (S.D.1989) ...... 57

Lund v. Lund, 924 N.W.2d 274 (Minn. Ct. App. 2019) ...... 69

Miller v. Foley ...... 37, 41 ii 62-C9-61-315222 Filed in District Court State of Minnesota 9/21/2020 2:38 PM

Morse v. Waterville, 458 N.W.2d 728 (Minn. Ct. App. 1990) ...... 41

State ex rel. Neighbors Organized in Support of Env’t v. Dotty, 396 N.W.2d 55 (Minn. Ct. App. 1986) ...... 39

Norwest Bank Minnesota N., N.A. v. Beckler, 663 N.W.2d 571 (Minn. Ct. App. 2003) ...... 64

In re Ordean’s Will, 261 N.W. 706 (1935) ...... 42

Pacific Equip. & Irrigation v. Toro Co., 519 N.W.2d 911 (Minn. Ct. App. 1994) ...... 41, 63, 75

Pickerign v. Pasco Mktg., Inc., 228 N.W.2d 562 (1975) ...... 37, 74

In re Ruth Easton Fund, 680 N.W.2d 541 (Minn. Ct. App. 2004) ...... 48, 69

Sampson v. Murray, 415 U.S. 61 (1974) ...... 41

Schrier v. Univ. of Colo., 427 F.3d 1253 (10th Cir. 2005) ...... 65

State by Ulland v. Int’l Ass’n of Entrepreneurs of Am., 527 N.W.2d 133 (Minn. App. 1995), review denied (Minn. Apr. 18, 1995) ...... 39

Sternberg v. St. Louis Union Trust Co., 163 F.2d 714 (8th Cir.1947), cert. denied, 332 U.S. 843 (1947) ...... 57

Sunny Fresh Foods, Inc. v. MicroFresh Foods Corp., 424 N.W.2d 309 (Minn. Ct. App. 1988) ...... 37

Sword v. Marquette Nat’l Bank, 91 N.W.2d 75 (Minn. 1958)...... 68

Matter of Tr. Created by Hill on Dec. 31, 1917 for Ben. of Maud Hill Schroll, 499 N.W.2d 475 (Minn. Ct. App. 1993) ...... 46, 57, 70, 71

In re Tr. of Jones, A18-0021, 2018 WL 3826331 (Minn. Ct. App. Aug. 13, 2018) (Crosby Lehmann Aff., Ex. 1) ...... 45

In re Trusts Created by Hormel, 504 N.W.2d 505 (Minn. App. 1993) ...... 69

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U. S. v. O’Shaughnessy, 517 N.W.2d 574 (Minn. 1994)...... 38, 64

Unlimited Horizon Mktg., Inc. v. Precision Hub, Inc., 533 N.W.2d 63 (Minn. Ct. App. 1995) ...... 37

In re Ward, 360 N.W.2d 650 (Minn. App. 1985) ...... 68, 70, 71

In re Will of Gershcow, 261 N.W.2d 335 (Minn. 1977)...... 49, 67

In re Will of Williams, 631 N.W.2d 398 (Minn. App. 2001) ...... 68

Wolosoff v. CSI Liquidating Trust, 500 A.2d 1076 (1985) ...... 57

Yager v. Thompson, 352 N.W.2d 71 (Minn. App. 1984) ...... 41

Statutes

12 U.S.C. § 1844 ...... 16

26 U.S.C. § 4941(e) ...... 15

26 U.S.C. § 4942(e)(1)(A) ...... 20

26 U.S.C. § 4943(c)(2)(A)(i) & (c)(4)(B)(i) ...... 20

Minn. Stat. § 15.472 ...... 76

Minn. Stat. § 317A.255, subd. 1 ...... 15

Minn. Stat. § 317C.1101, subd. 6 ...... 48

Minn. Stat. §§ 501B.31-.45 ...... passim

Minn. Stat. § 501C ...... passim

Other Authorities

17 CFR § 240.10A-3 ...... 25

26 CFR § 1.6033-2(d)(1) ...... 59

Restatement (Second) of Trusts ...... 42, 45

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INTRODUCTION

The Otto Bremer Trust (“OBT”) was established by Otto Bremer, a prominent Minnesota

businessman and philanthropist, on May 22, 1944. The express and unambiguous terms of the

Trust Instrument (“Trust”) provide that the Trustees, S. Brian Lipschultz, Daniel Reardon, and

Charlotte Johnson (collectively the “Trustees”), have absolute discretion to, inter alia:

(a) carry out the purposes of the Trust including the application of that property as they deem expedient or necessary;

(b) sell all or any portion of the stock of Bremer Financial Corporation (“BFC”) if, in their opinion, it is necessary or proper owing to unforeseen circumstances;

(d) choose the purposes, objects, or institutions that from time to time shall receive aid or be beneficiaries of the Trust so long as (i) such beneficiaries are residents or have their sites in Minnesota, Wisconsin, North Dakota, or Montana, and (ii) it comports with the purposes set forth in Paragraph 3 of the Trust;

(e) employ and pay all agents, employees, and attorneys for the management of the Trust including attorney fees incurred by being a party to any proceeding as a result of being a trustee unless such an action arises from willful neglect;

(f) manage the trust property in whatever legal entity they deem appropriate; and

(g) appoint their own successor or successors.

Decl. of Daniel Reardon, Ex. 1 (Trust Instrument).

Trustees Johnson, Reardon, and Lipschultz have over 60 years of experience in managing, directing, and growing OBT into a premier and one of the most effective philanthropic organizations in the Upper Midwest. It is a unique and complex organization spanning banking, investments, and philanthropy – all directed to fulfilling the mission of the

Trust as expressly set forth by Otto Bremer. The Trustees’ long-term prudent and persistent exercise of their fiduciary responsibility has been exemplary and led to extraordinary results.

OBT has distributed more than $400,000,000 to deserving charitable organizations in the last

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eight years alone while maintaining an expense ratio (which includes all the expenses the

Attorney General now challenges) averaging approximately 12%. Reardon Decl., Exs. 19, 20.1

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. Id., Ex. 21. The Trustees manage a highly diverse and experienced workforce—many of whom are long-term employees. Id., Ex. 2 at 7-8. The Trustees’ exercise of their fiduciary discretion has also enabled the OBT’s non-BFC investment portfolio to more than double over the last eight years, with its recent performance substantially outperforming traditional benchmarks and other non-profits.

The Trustees’ verified annual accounts set forth the action of the Trustees in their administration of the Trust, and each was filed annually and unobjected to by the Attorney

General’s Office (“AGO”). In addition, after proper notice, a hearing is held every five years to review all actions of the Trustees in their administration of the Trust during the period covered by the annual accounts. This includes all sales, investments, reinvestments, grants, all payment of compensation to the Trustees, and all changes in the form of Trust assets. After a hearing the court exercises its oversight and judgment in deciding whether to approve, ratify, and confirm such actions.

The last hearing was held on June 27, 2017, for all annual accounts through December

31, 2016, and this Court’s order issued on December 26, 2017. That hearing encompassed and approved many of the issues to which the AGO now objects, including that the:

1 OBT has distributed approximately $367 million in contributions, gifts, and grants from 2012- 2019, as reported in the Trust’s annual Form 990 filings. After adding the Trust’s distributions in 2020, the total number of distributions exceeds $400 million.

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(a) precise methodology used to determine the Trustee compensation was appropriate, which the AGO now challenges;

(b) compensation being paid to the Trustees was in accordance with the prescribed methodology and was just and reasonable;

(c) Trustees have the discretion to determine whether it was necessary and proper to sell BFC shares due to unforeseen circumstances and for the period in question the retention of the shares was proper;

(d) mission of the Trust was being carried out effectively by the Trustees for the period in question; and

(e) name change was appropriate for the Trust because its dynamic proactive mission encompasses philanthropic work, operating a bank holding company and managing a significant investment in BFC and its other investments and more properly reflected the obligations of the Trustees to fulfill the aspirations of the Trustor, Otto Bremer.

The duly noticed and confirmed (without objection) annual verified accounts and the

Order on the five-year hearing all constitute final judgments, res judicata, and the AGO is otherwise estopped as to the matters contained therein. These stringent, long-established and well-disciplined practices have enabled OBT to become a prominent and effective philanthropic entity serving the common good in the geographic area intended by Otto Bremer. It also has provided OBT the flexibility and resources necessary to respond to emerging needs in our community.

The Trust Instrument and all applicable law also impose a duty and obligation on the

Trustees to exercise their discretion in managing, protecting, and improving the Trust property.

In properly exercising that discretion, the Trustees sold a portion of OBT’s Class B stock in

October of 2019. The AGO in ignoring the history of that sale, characterizes it as a

“breathtakingly reckless hostile takeover attempt.” (Mem. at 1.) To the contrary, it was a prudent step taken by the Trustees to preserve all of their options in protecting and improving

OBT’s property.

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This step was only taken after entrenched management of BFC initiated discussions to merge BFC with another financial institution. That action revealed a dramatically increased market value of BFC (causing severe tax consequences for OBT) and also prompted an expression of interest to buy BFC by another financial institution. Management, through control of the BFC Board, ultimately terminated and prohibited any further sale discussions. The BFC

Board actions effectively blocked any potential exercise of the Trustees’ obligation and duty to exercise their discretion to sell BFC shares if they deemed it necessary and proper. Put another way, this option to protect and improve OBT property was foreclosed. It is that series of events, initiated by BFC entrenched management, which led to what the AGO characterizes as “a cascade of unfortunate consequences.” (Mem. at 1.) The Trustees’ decision to sell was taken prudently and after consultation with experts, including counsel on trust matters by the Dorsey firm, nationally preeminent bank regulatory counsel at Sullivan and Cromwell, and one of the country’s leading financial advisors to the financial services industry, Keefe, Bruyette and

Woods. Moreover, the AGO was fully informed before the sale, made no objection, and said it would like to talk after “the contemplated sale is finalized.” Berens Decl. Ex. G.

The AGO’s Petition For Interim Relief and its accompanying memorandum consists of innuendo, rank speculation, and incomplete facts devoid of any factual showing of imminent harm or exigent circumstances that would warrant the permanent relief it seeks. Removal of the

Trustees on such a barren record would be a fundamental denial of due process, contrary to law, and public policy. The petition constitutes a gross overreaching by the AGO of its statutory role of supervision. In essence, the AGO seeks to substitute its judgment for the Trustees on matters within the Trustees’ discretion. At the same time, the AGO proffers no position on the discretion the Trustees possess to sell the Trust BFC shares. The AGO’s inability to deny that the Trustees

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have such discretion is not surprising in light of the express language of the Trust, the Court orders, and the statutory authority allowing a sale of the stock regardless of whether the acquiring entity is outside of Minnesota. See Minn. Stat. § 501B.45.

The claimed evidentiary justification for the AGO’s petition to peremptorily remove the

Trustees is set forth at pages 102-06 of its Memorandum. One must assume that these are the most probative assertions to be made. Each will be dealt with more fully in the factual and legal sections below, but a brief exposition exposes the utter lack of any imminent or past harm, or for that matter any showing of merit. The AGO allegations consist of:

(a) Trustees have [allegedly] indicated intent to divest BFC stock and the AGO won’t be able to respond (Mem. at 102):

 trustees have stated under oath they will not dispose of any additional stock during the pendency of this action without coming to the court beforehand so this is moot;

(b) Trustees will [allegedly] make additional investments into an asset category prohibited by law and Trust policy (Mem. at 102):

 Trustees have said no new additional commitments will be made in the designated asset category during the pendency of the action so this is moot; and

 the asset class about which the AGO complains is not prohibited and is consistent with the express terms of the Trust.

(c) “Trustees made structural changes to Trust, including creating a subsidiary to [allegedly] shield Trustees from liability and Trust assets from Supervising Court scrutiny” (Mem. at 103):

 the subsidiary is not hidden, is totally transparent, and will be on the Form 990 PF tax return so this is moot; and

 this assertion by the AGO is rank speculation and exhibits a lack of knowledge of applicable law and legal entities.

(d) “. . . the [alleged] lack of independent oversight and investigation by co-Trustees and counsel over Lipschutz’s self-dealing which is particularly serious and conceded” behavior (Mem. at 103.)

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 this inadvertent misuse of Trust assets, which occurred years ago, consisted of use of the office address, phone, fax and nominal assistant time. It consisted of $1,875 over three years and was self-corrected and reported, and the money was repaid along with the tax penalty. (See Reardon Decl., Ex. 4 (Third CID Response)); and

 in addition to being nominal, it was corrected, and safeguards are in place to prevent reoccurrence so this is moot. If this assertion were grounds for removal it would discourage, not encourage, self-correction;

(e) “. . . finally the AGO is concerned for current Trust employees, who [it alleges] universally have expressed fears about Trustee retaliation for cooperating with the AGO. . . ” (Mem at 103):

 the Trustees have not and would not retaliate and have given assurances no retaliation would be taken so this is moot;

 the AGO’s rank speculation is also misleading because the AGO hasn’t spoken with the “universe” of OBT employees and has otherwise mischaracterized the testimony of employees it did interview; and

 even if such a thing could happen in the imagination of the AGO, this would be a human resources issue with appropriate redress under employment law.

The above allegations are the only claims under the section entitled, “imminent harmful

Trustee Action” in the AGO’s Memorandum. The AGO then goes on to speculate that “ongoing waste of Trust Assets” warrants immediate relief. The accusations regarding such “waste” include:

(a) “The AGO seeks immediate relief to [allegedly] cauterize the bleeding of Trust assets in the form of Trustees attorney fees.” (Mem. at 103.) This allegation is amplified by referring to the litigation initiated by entrenched management regarding the sale of BFC stock that was triggered, at the outset, by management’s own decisions, which go unreported in the AGO’s Memorandum:

 the Trustees have agreed to a stay of the civil action so this is moot;

 the litigation in question was initiated by entrenched management, not OBT; and

 the Trust expressly allows such fees.

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Finally, the AGO claims immediate relief is “necessary because Trustees personal interests are hostile and adverse to the best interest of the Trust.” (Mem. at 104.) This section strains credulity and consists of a hodgepodge of nebulous speculation and unsupported opinion that do not begin to approach a legally supported basis for removal (or any relief) of the Trustees.

They include:

(a) Trustees are allegedly in “a fight of a lifetime to justify their actions. This incentive for self-preservation and extended litigation positions supersedes the objectivity and loyalty required for Trustees to appropriately serve the Trust” (Mem. at 104):

 this gratuitous observation is directly contrary to the express terms of the Trust, which require the Trustees to defend themselves against the spurious actions by entrenched management and the Petitions of the AGO.

(b) “trustees dispute has [allegedly] influenced grantmaking . . .” (Mem. at 104):

 the Trust gives absolute discretion to the Trustees to make grants; and

 this assertion is supported by incomplete and misleading citations and is false.

(c) “The AGO doesn’t have certainty, for example, that Trustees used a different valuation method . . .” for BFC stock to justify their litigation position (Mem. at 105):

 Trustees are required by law to state the fair market value of their assets or the 501(c)(3) status of the trust would be in jeopardy;

 the assertion is false and the AGO acknowledges it is speculating; and

 the AGO doesn’t even attempt to say how this speculative and false assertion creates imminent or immediate harm.

(d) Finally, the AGO states its belief that the “specter of potential attorney conflicts” are adverse to the best interests of the Trust (Memo. at 105):

 there is no such conflict; and

 Again this is rank speculation by the AGO and it offers no factual predicates for its speculation.

None of the AGO’s allegations justifies the draconian, unprecedented removal of the

Trustees without trial nor their immediate replacement with persons with no knowledge or

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experience with OBT’s operations or the complexities of running a bank holding company.

Furthermore, the AGO states that different trustees may “make the same choices” as those the

AGO now contests, which means the AGO admits the decisions at issue are within the Trustees’ discretion. (Mem. at 106 (emphasis added).) On the facts presented, even as one-sidedly as the

AGO has presented them, there simply is no risk of imminent harm to OBT’s assets, to OBT’s staff, or to the public.

As a result, this Court should deny the Interim Petition and instead set a schedule culminating in an expedited trial on the merits early next year.

STATEMENT OF FACTS

The “facts” presented by the AGO are not a full or fair review of the evidence. The AGO has chosen instead to present a thin veneer of subjective, unsubstantiated speculation and quotes, chopped up, taken out of context, and strung together to create an imagined basis for its requested relief. Indeed, the AGO ignores and fails to address the wealth of evidence that undercuts and contradicts what appears to be a predetermined outcome. A fair review of the facts shows the Trustees’ persistent and prudent stewardship of OBT.

For now, the Trustees focus primarily on the lack of justification for the immediate relief the AGO seeks. Even that, however, requires a fair rendition of at least some of the historical record the AGO ignores. That record is summarized below and set forth in the Declarations of S.

Brian Lipschultz, Daniel C. Reardon, Charlotte S. Johnson and William Berens, and the exhibits that accompany them.

A. OBT is a Charitable Trust (Not a Non-profit Corporation).

OBT is a Minnesota charitable trust established in 1944 by Otto Bremer to benefit the people of Minnesota, Wisconsin, North Dakota, and Montana. OBT’s charitable purposes include alleviating poverty, establishing need-based scholarships to Minnesota colleges, aiding

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orphanages, promoting public health, and assisting catastrophe victims. Reardon Decl., Ex. 1 at

¶ 3. To fund these activities, Mr. Bremer endowed OBT with assets including stock in the Otto

Bremer Company (now known as BFC), the holding company which owned the Bremer banks.

As described more fully below, the Trust Instrument, by which Mr. Bremer established OBT, grants the Trustees broad powers and discretion to administer OBT.

Unlike a nonprofit corporation, which is a legal entity separate and distinct from its board and officers, a charitable trust has no legal existence apart from its trustees. Stated differently, a charitable trust is indistinguishable from the trustees who control it. Minnesota Statute §

501B.35, subd. 3, defines a “charitable trust” as “a fiduciary relationship with respect to property that arises as a result of a manifestation of an intention to create it, and that subjects the person by whom the property is held to equitable duties to deal with the property for a charitable purpose.” Minnesota Statute § 501B.35, subd. 4, defines trustees as the group of persons who in a joint capacity “vested with the control or responsibility of administering property held for a charitable purpose.” In other words, by law a charitable trust (defined as a trustee’s fiduciary relationship with property) is its trustees (those holding the fiduciary relationship with property) and vice versa. A charitable trust does not have a board of directors; nor does it necessarily have employees (though, of course, OBT does).

B. OBT Trust Instrument

Mr. Bremer created OBT for the enumerated purposes set forth in Paragraph Three of its

Trust Instrument, which include:

 “To relieve poverty” in St. Paul, Minnesota;  “To establish scholarships and assist poor and deserving children in securing education” in Minnesota colleges and universities, and “to aid such [educational institutions] to increase their efficiency;”

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 “To provide or assist in providing physical training in schools and public grounds;”  “To promote citizenship by aiding such movements as the Boy Scouts, Girl Scouts, and Camp Fire Girls;”  “To advance religion by aiding in the construction and maintenance of churches, aiding in the up building of church choirs and music and the supply of music;”  “To aid orphan and baby’s homes conducted as charitable institutions;”  To promote public health by aiding in the construction, enlargement, and maintenance of hospitals and by aiding them to purchase new surgical and other appliances” used for treatment;  “To aid or provide for the study of causes or cure or treatment of diseases or other human ailments;” and  “To aid persons suffering from catastrophe that effects a section of the community and by reason of which a call for aid to the Red Cross or the public is made.”

Reardon Decl., Ex. 1 at ¶ 3. Otto Bremer imbued its Trustees with “all powers necessary to carry out the purposes of the Trust” unless expressly prohibited by the Trust Instrument:

Id. (emphasis added); see also id. at ¶ 7(a) (granting Trustees power to “manage, operate, maintain, improve, lease, sell, exchange, mortgage and pledge trust property) and ¶ 7(c)

(granting Trustees rights to protect and improve trust property). Mr. Bremer further provided

OBT’s Trustees with “full and unlimited discretion” to choose which purposes to devote aid, as well as the methods to choose qualified recipients:

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Id. (emphasis added). Mr. Bremer also granted OBT’s Trustees the exclusive power to name their own successors, to distribute income, and to establish a corporation to administer the trust, among other powers. Id. at ¶¶ 8, 14, 19.

To manage OBT’s assets, Mr. Bremer prescribed the Trustees with express authority and direction under Paragraph 16. With regard to BFC stock, Mr. Bremer directed that such stock

“may only be sold if, in the opinion of the Trustee[s], it is necessary or proper to do so owing to unforeseen circumstances:”

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Id. With regard to non-BFC assets, Paragraph 16 continues that Trustees possess “absolute discretion” to invest, with a specific restriction for certain real-estate investments:

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The Trust Instrument further authorizes compensation for OBT’s Trustees, declaring that they may be compensated with amounts “not to exceed four per cent of the cash income of the trust estate.” Id. at ¶ 13. Such provision also provides that trustees will be repaid all sums necessary to carry out the purposes of the trust, including amounts paid for the protection and management of the trust property, such as “attorney’s fees incurred or suffered by reason of being a party to any action or proceeding by reason of being such trustee, save one rising from his willful neglect.” Id.; see also id. at ¶ 7.

In that regard, the Trust Instrument insulates its Trustees from liability but for an act of dishonesty or willful commission of a knowing breach of trust:

(id. at ¶12 (emphasis added)), and permits the Trustees to consult with experts:

Id. at ¶12.

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C. OBT Administration

OBT is prudently and faithfully administered by its Trustees pursuant to Otto Bremer’s express written directives. It is extensively supervised and has all the necessary safeguards and protections in place to ensure present and future compliance with the Trust Instrument’s terms and duties, as well as federal and state regulations.

1. Asset composition and workplace management.

The assets of OBT fall into two general categories: (i) BFC assets and (ii) non-BFC assets. Between the two, the BFC assets comprise approximately 90% of the Trust estate, whereas the remaining 10% are the non-BFC assets. The latter, non-BFC assets are composed of securities and other investments.

In order to effectuate the Trust and intent of Otto Bremer, the Trustees manage an office of approximately 18 people located in St. Paul, Minnesota, who are tasked with day-to-day operations of OBT. Although the method and selection of aiding qualified recipients is subject to the Trustees’ “full and unlimited discretion” (Reardon Decl., Ex. 1 at ¶ 5), they have overseen the creation of policies and procedures to guide OBT employees as they assist the Trustees in identifying and evaluating possible recipients of charitable distributions, and in monitoring those distributions the Trustees decide to make.

OBT strives to include and incorporate diverse perspectives among its workforce, employing individuals from various backgrounds and demographics. At times, certain employees have left employment or been asked to leave. Declaration of S. Brian Lipschultz ¶ 21.

OBT is also audited annually by an independent international audit firm, most recently

Ernst & Young, and receives expert accounting assistance from the firm of Clifton Larsen Allen.

As part of its duties and regulatory responsibilities, OBT conducts annual fair market value assessments of its asset portfolio, reporting the same to the IRS. As the AGO is aware, OBT has

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never received anything other than clean audit opinions as well as repeated confirmation that

OBT’s internal controls were appropriate. See, e.g., Reardon Decl., Ex. 23 (2019 audited

financial report).

The AGO’s allegations of impropriety regarding specific grants and office renovations

are belied by the evidence. With regard to grants to organizations that involve OBT Trustees or

their family members, OBT follows IRS guidance for foundations, which permits grants to such

organizations so long as such relationships are disclosed. See Reardon Decl., Ex. 24 at 25 (IRS

Form 1023 Instructions containing model conflict of interest policy and procedures for disclosure

of conflicts); Declaration of Charlotte S. Johnson ¶¶ 6-7; see also, 26 U.S.C. § 4941(e) (defining self-dealing to require financial benefit); Minn. Stat. § 317A.255, subd. 1 (providing that nonprofit transaction with procedure when conflict arises). OBT policy conforms to these standards and requires the Trustees to sign conflict forms to that effect. With regard to office renovations and related expense, OBT outgrew its prior offices, necessitating a larger space. Lipschultz

Decl. ¶ 28. Regardless, that such expenditures form a basis for the AGO’s Petitions for Removal is perplexing given that, as described more fully below, all such grants and expenses were either disclosed and unobjected to by the AGO or approved by Order of this Court.

2. OBT is Thoroughly Supervised.

The AGO’s Petition for Interim Relief and supporting Memorandum neglects to acknowledge that OBT is regulated in three different capacities by four different government entities: as a charitable trust, by this Court and the AGO; as a bank holding company, by the

Federal Reserve; and as a private foundation, by the Internal Revenue Service. In the AGO’s own words to this Court just three years ago:

The Foundation, due to its unique status, is overseen and supervised in several ways. It is exempt from federal income taxation pursuant to Section 501(c)(3) of the Internal Revenue

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Code, 26 U.S.C. § 501(c)(3), and thus subject to the IRS’s regulatory authority. As noted below, the IRS has authority to review whether 501(c)(3) organizations have paid compensation in accordance with federal law. As noted above, the Foundation is also a bank holding company, must file annual reports with the Federal Reserve Board, and is subject to the Federal Reserve System’s regulatory authority. See 12 U.S.C. § 1844.

In addition, the Foundation is registered as a charitable trust with the AGO pursuant to the Minnesota Supervision of Charitable Trusts and Trustees Act, Minn. Stat. §§ 501B.31-.45. Finally, the Foundation is a court-supervised trust under Minnesota Statutes section 501C.0205. As a court supervised trust, the Foundation’s trustees must file an annual accounting of the trust’s administration with the Court and receive approval of such accountings at least once every five years. The Foundation has done so for the past several years.

Reardon Decl., Ex. 17 (November 3, 2017 Letter of Sarah Gillaspey to Referee Joel Olson).

In accordance with its obligations, OBT regularly reports to, and is subject to frequent examination by, its various supervisors. As this Court knows, OBT files annual accounts and, at least every five years, files more fulsome petitions seeking the Court’s detailed review and approval of the Trustees’ administration of OBT during the review period. OBT files those annual accounts, together with its Form 990 PF tax returns, directly with the AGO every year so that the AGO has an opportunity to review the Trustees’ administration and raise any concerns it may have—either with OBT or directly with the Court. OBT also files regular reports, on demand and on a regular basis, with the Federal Reserve, through the Federal Reserve Bank of

Minneapolis. See, e.g., Id. at Ex. 18. Finally, OBT files its Form 990 PF tax returns annually with the IRS. Id., Ex. 11 (2019 Form 990 PF).

OBT most recently filed its petition for review with this Court in 2017, encompassing the accounts for fiscal years 2013 through 2016. Decl. of William J. Berens, Ex. A (June 27, 2017

Petition). By its Order, dated December 26, 2017, this Court approved, ratified, and confirmed the administration of OBT and the actions taken by the Trustees during the preceding four-year

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period. Id., Ex. F (December 26, 2017 Order). Such approved conduct included the Trustees’

opinion at that time that “no unforeseen circumstances arose that caused it to be necessary or

proper for the Trustees to sell the shares [of BFC],” thereby providing that their “retention of the

shares of [BFC] during the period covered by the accounts was proper and should be approved,

ratified, and confirmed.” Id. at 3, 12. The Court further found that, with regard to OBT’s other

assets, their investment in and retention … was proper and should [also] be approved, ratified,

and confirmed.” Id. at 4, 12-13. Those assets, which were listed in Exhibit A of OBT’s

submission and expressly referenced by the Court, included categories of investments the AGO

complains of in its present Petitions. Id., Ex. A at 19 (Petition at 19).

The Court’s Order also approved expenses, including for any severance agreement, office

remodeling, and furniture acquisition during the period. Id., Ex. F at 12. And finally, among

other things, the Court also held that that the Trustees’ compensation methodology and amounts

for the covered periods —including the separate compensation to two Trustees under their

Investment Services Agreements for managing OBT’s investment portfolio—were “just and

reasonable and properly allocated to income and should be approved, ratified, and confirmed.”

Id. at 11, 12-13; see also Id. at 5-11 (providing a detailed description and list of how compensation was determined to be appropriate).

OBT is also subject to potential investigation by the AGO’s office. Prior to the present proceedings, for example, the AGO exercised its civil investigative demand (“CID”) authority and conducted a thorough evaluation of OBT in 2014. See, e.g., Reardon Decl., Ex. 25. At no

time subsequent to that investigation did the AGO indicate any concerns with the Trustees’

administration of OBT, much less demand the drastic relief it seeks by filing suit against the

Trustees. Nor did the AGO object during the Court’s probate proceedings on the same subjects

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years later. That the AGO nevertheless seeks removal in its present Petitions is, again, all the

more perplexing given that much, if not most, of the current basis for its claimed relief is

premised on the same information.

The AGO’s Petitions and Memorandum largely ignore the multi-faceted supervision to

which OBT is subject.

3. The Trustees have administered OBT prudently and consistent with Otto Bremer’s intent.

Although the AGO makes not one mention of it, the Trustees have an admirable—indeed,

stellar—record of administering OBT. The most objective measures of performance, none of

which the AGO acknowledges—including the number and value of charitable distributions

made, the nature and good work of the organizations receiving those distributions, the expenses

OBT incurs in delivering those distributions, and the investment returns on OBT’s asset

portfolio—all demonstrate the unassailable truth of the Trustees’ outstanding performance. As a

supervisor of all charities in Minnesota, the AGO must be well aware of these important

elements and metrics.

In the last eight years alone, as OBT’s annual accountings attest, the Trustees’

stewardship has led to the growth of the Trust’s value from approximately $765,000,000 to

approximately $2,000,000,000, while overseeing distribution of $400,000,000 to deserving

nonprofit organizations providing services and support to hundreds of thousands of community

members in the four state region. For eight consecutive years, i.e. each year that the current set of Trustees have been in their positions, OBT has exceeded its previous record for charitable distributions. Reardon Decl. Exs. 19; see also id. at Exs. 11, 26-40 (February 12, 2020 Press

Release; OBT 2012-19 Annual Reports and IRS Form 990PF filings). Building on these successes, the Trustees have implemented plans to expand further giving into Eastern Wisconsin

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and Montana—regions desperately in need of philanthropic support. Reardon Decl., Ex. 41

(September 17, 2019 Press Release).

The Trustees are pursuing critical priorities – poverty reduction, racial justice, COVID pandemic, and economic equity – at a time when these efforts are needed most. Johnson Decl. at

¶ 3. OBT’s strategic initiatives emphasize these priorities, and include:

 Greater Minnesota Housing Fund (antipoverty)

 Northeast Entrepreneur Fund (economic inequality)

 Propel Nonprofits (economic inequality)

 Smithsonian Implicit Bias Programing (racial justice)

 University of Minnesota mobile healthcare units (health service to the underserved)

 Wakota Life Care Center (antipoverty)

Reardon Decl., Ex. 42 (December 4, 2019 Trustee meeting agenda).

Beyond these priorities, the Trustees have adapted to unprecedented challenges to target resources. On March 16, 2020, the Trustees launched a $50,000,000 fund to provide emergency funding, loans, lines of credit, and other financial resources to organizations impacted by and responding to the COVID-19 outbreak—one of the first initiatives of its kind in the nation.

Reardon Decl., Ex. 43 (March 16, 2020 Press Release).

The Trustees have accomplished this while maintaining an expense ratio (that is, the comparison between OBT’s expenses, including the expenses the AGO now challenges, like

Trustee compensation and commercial office space, as a percent of its IRS reported qualified distributions) averaging approximately 12%—far less than comparable organizations in

Minnesota and one of the lowest in the nation. Reardon Decl., Exs. 20 (OBT expense ratio) and

21 (Peer institution expense ratio). As the facts show, the Trustees do more with less. OBT is the

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third largest private grant making institution in Minnesota (Id., Ex. 44 (Minnesota Council on

Foundations Rankings)), but operates at lower administrative costs than every peer institution in

the state. Id., Ex. 21 (Peer institution expense ratio). That OBT’s trust administration expenses

have averaged 11.69% of qualified distributions means OBT only requires 12 cents of every

dollar distributed in order to manage this massive endeavor. For peer institutions—including

bellwether foundations such as the McKnight, Bush, Northwest Area, and Blandin foundations—

the average ratio of expenses to distributions is greater than 30%. Id.; Berens Decl., Ex. E at 4.

Throughout this time, the Trustees have managed OBT’s investment portfolio

commendably, more than doubling the value of its non-BFC assets over the last eight years and,

more recently, substantially outperforming benchmarks. Lipschultz Decl., Ex. D; Reardon Decl.,

Ex. 45 (Otto Bremer Trust Performance Summary) and Ex. 46 (July 2020 Monthly Investment

Performance Reports). They have also overseen, as managers of a first-tier bank holding

company, and as directors of the second-tier holding company and of the bank itself, the growth

in value of OBT’s primary asset, BFC.

D. History of OBT’s Major Asset: BFC

Between 1951 and 1989, OBT was the sole owner of BFC, with complete control of the

company. In 1989, however, a significant change to the federal tax code took effect: the Tax

Reform Act of 1969 required charitable foundations that owned businesses in trust to hold no

more than twenty percent of the voting stock in those businesses, giving foundations until 1989

to comply. 26 U.S.C. § 4943(c)(2)(A)(i) & (c)(4)(B)(i). The Tax Reform Act also required

charitable foundations to determine the aggregate fair market value of their assets each year, and

then distribute at least five percent of that value in qualified distributions by the end of the following year. 26 U.S.C. § 4942(e)(1)(A). Failing to comply with either obligation would trigger punitive taxes and violate Minnesota law. See Minn. Stat. § 501B.32, Subd. 1.

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1. Unforeseen Circumstance: Enactment of Tax Reform Act of 1969.

During the 20 years between the enactment of the Tax Reform Act of 1969 and its enforcement in 1989, numerous efforts were made to explore whether it was possible for OBT to retain its ownership of BFC under those tax laws and statutory governance—including efforts to obtain an exemption, enact other laws, and other assistance from various public officials. In fact,

Minnesota’s Attorney General Warren Spannaus was among the officials who initially expressed doubt, questioning in a letter dated July 16, 1980, whether BFC could sustain the burden of paying large dividends to OBT necessary to support OBT’s compliance with the distribution requirements of the Tax Reform Act. Reardon Decl., Ex. 47.

Prior to the Act’s 1989 enforcement date, OBT also actively explored selling BFC to avoid being in noncompliance. See, e.g., Lipschultz Decl., Ex. B-1 at 19-20 (1987 letter discussing efforts to sell). On August 4, 1986, for example, a BFC internal Fact Sheet distributed to its executives noted that OBT “would be prudent to [] consider selling its entire ownership of Bremer Financial Corporation," and that an amendment to the Supervision of

Charitable Trusts and Trustees Act would place OBT in a stronger position to sell BFC.

Lipschultz Decl., Ex. B-2 at 1.

Coordination with government officials at the time also indicates a sale remained an option. On February 26, 1987, OBT told St. Paul Mayor George Latimer:

We appreciated the opportunity to explain the legislation that the Foundation is seeking in the Minnesota legislature which will allow the Foundation, as required by Federal law, to sell its 100% ownership of Bremer Financial Corporation at the best price possible. By achieving top dollar for the required sale of the bank holding company, we can increase our grantmaking by the Foundation in the City of St. Paul and the three state area.

Lipschultz Decl., Ex. B-4. And on May 1, 1987, then-BFC CEO and OBT Trustee Robert

Reardon told Senator Rudy Boschwitz:

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The Foundation’s Trustees have at great length explored the possibility of selling all or a substantial portion of the Company in order to comply with the divestiture requirements of Section 4943. In that connection, during the past ten years, the Foundation has retained the services of three separate investment bankers to assist it in its efforts to sell the Company… [I]f the Foundation realizes what the Trustees consider to be full value for its assets, the benefit would of course accrue to the charities that are the recipients of the Foundation's grants.

Lipschultz Decl., Ex. B-7.

By 1988, the Trustees and BFC were able to identify an avenue by which OBT could retain majority ownership of BFC and comply with the Tax Reform Act—the “Plan of

Reorganization”—but it would require a wholesale re-organization of BFC and amendments to

BFC’s articles of incorporation to ensure the necessary mandates were met while at the same time providing that adequate protections remained in place to protect OBT’s interests.

2. Unforeseen Circumstance: Enforcement of Tax Reform Act necessitates the sale of BFC shares in 1989, and vests temporal “voting control” of BFC with its newly established minority shareholders.

Otto Bremer did not anticipate the Tax Reform Act of 1969, nor its consequences that continue to be felt to this day. In 1989, OBT and BFC executed their “Plan of Reorganization” to bring OBT and BFC into compliance with the Tax Reform Act. Reardon Decl., Ex. 51. Under this agreement, OBT exchanged all of its then-existing BFC shares for 1.2 million shares of

Class A (voting stock) and 10.8 million shares of Class B (nonvoting stock). OBT then sold

80% of its Class A shares to BFC’s directors, employees, and employee stock ownership and

401(k) plans, while retaining 100% of the Class B shares. It was the Trustees opinion in 1989 that their sale of 80% of the Class A shares in BFC (amounting to 8% of the total BFC ownership) was a necessary or proper action to comply with the Tax Reform Act, an unforeseeable circumstance to Otto Bremer, who died in 1951. As a result, OBT retained a 92% ownership interest in BFC, but held only 20% of the company’s voting power on most issues, including director elections.

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Explicit protections for OBT were built into the Plan of Reorganization and reflected in

BFC’s Restated Articles of Incorporation. For example, while OBT held only 20% of voting power through its Class A shares, its Class B shares possessed limited voting rights in the event that (a) BFC sought to further amend its Restated Articles, or (b) if a proposed sale or acquisition was presented to the shareholders. Reardon Decl., Ex. 52 § 5 (Restated Article of Incorporation).

Indeed, the preservation of OBT’s right to sell its BFC shares was so paramount that at the same time the Plan of Reorganization was executed, at the request of OBT and BFC, the Minnesota

Legislature passed Minnesota Statute §501B.45, further ensuring OBT’s statutory right to sell

BFC to an out-of-state buyer. See Minn. Stat. 501B.45, subd. 3 (1989) (“It is the express intention of the Minnesota legislature... to permit certain charitable trusts to sell, assign, or transfer certain financial institutions' assets without regard to whether the entity acquiring the assets of the charitable trust is located outside of this state.”); see also Reardon Decl., Ex. 53

(1989 Prospectus for BFC shares)2. These protections were put in place to recognize and ensure that if OBT was presented with a valid offer for BFC, it had the ability to accept it and thereby

“enhance [OBT’s] grantmaking capacity and further enhance its charitability.” Lipschultz, Ex. B-

1 at 20 (June 23, 1988 Presentation by BFC President Terry Cummings to management).

Additional protections were also built into the Plan of Reorganization to protect OBT’s rights and ensure it could meet its tax obligations under the Tax Reform Act of 1969. For example, in the event BFC failed to issue a dividend equivalent to 5% of its “book value” to

2 The 1989 Prospectus for BFC shares note the possibility of the “sale of all or substantially all of the shares of Class B Common Stock held by the Foundation,” and that BFC could be sold to another financial institution based on enabling legislation obtained by the company: “the Company successfully obtained special legislation in North Dakota, Wisconsin and Minnesota which would allow the Company, subject to the various conditions and limitations set forth in the special legislation, to be acquired by a bank holding company or any other entity located in any state.”

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shareholders each year,3 OBT unilaterally could convert its Class B shares to Class A voting shares. Reardon Decl., Ex. 52 at § 6(b). Similarly, and so as not to depress the value of OBT’s

Class B shares to third parties, the Plan of Reorganization expressly granted OBT “the unrestricted legal right to transfer [its BFC shares] to any [non-disqualified] third party or

entity,” who would then have the unilateral right to convert their purchase of Class B shares into

Class A voting shares. Reardon Decl., Ex. 52 §§ 6(a), 7; see also, e.g., Lipschultz Decl., Ex. B-8

at 4 (June 23, 1988 Memorandum from BFC’s then-President, Terry Cummings to BFC

management stating, “[OBT’s] Class B Common can be converted into Class A Common at the

election of a holder of Class B Common upon the transfer of Class B Common from [OBT] to a

third party . . . . Conversion rights allow [OBT] to deliver voting control of the corporation to an

acquiror. Upon sale, the shares are transferred and they are converted to voting and the special

structure that has been set up to meet divestiture is no longer in effect.”). These measures were

expressly understood by both BFC and OBT at the time of the 1989 Plan of Reorganization as

protections against BFC management “do[ing] something unreasonable like not paying

dividends,” since OBT “can effectively change the control of BFC by merely selling $1 million

in stock to a third party.” Lipschultz Decl., Ex. B-5 at 1.

3 “Book value” is generally defined as the difference in a company’s assets against its liabilities on a balance sheet. “Fair market value” is the market value a willing buyer would pay to a willing seller for an asset. In 1989, BFC’s book value exceeded its fair market value, effectively enabling OBT to possess the necessary income to meet its mandatory 5% minimum distributions under the Tax Reform Act. This remained the understanding of OBT throughout the years until 2019 when, as described more fully herein, a drastic shift altered that understanding and necessitated sale efforts.

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All this is to make patently obvious that neither OBT nor BFC—nor the governing

regulatory or legislative bodies—regarded the two as inseparable. Rather, all have always

understood that OBT had the authority to sell BFC and that, because of the impact of the 1969

changes to the tax laws, OBT may need, at the appropriate time, to do so. The Plan of

Reorganization encapsulates that understanding.

3. Unforeseen Circumstance: Following Sarbanes Oxley Act of 2002, BFC expands Board of Directors, diluting OBT’s board presence and influence.

Otto Bremer did not anticipate that the Trustees ever would be relegated to anything less

than the entirety of the Board of Directors for BFC or that OBT no longer would own or control

BFC fully. From 1951 through 1989, OBT trustees were the sole members of BFC’s board of

directors. After the 1989 reorganization, OBT no longer had the unilateral power to elect

directors but it still maintained a majority presence on BFC’s Board of Directors—possessing

three of the four seats. As such, OBT still maintained at least the majority of oversight authority

for BFC’s management and operations. That changed in 2002.

Based on corporate governance trends following the enactment of the Sarbanes-Oxley

Act of 2002, BFC’s Board of Directors gradually expanded from four members to ten,

effectively relegating OBT to a minority position. See 17 CFR § 240.10A-3 (implementing

Section 10A(m)(1) of the Securities Exchange Act, as added by Section 301 of the Sarbanes-

Oxley Act of 2002); see also Reardon Decl., Ex. 56 (BFC June 30, 2004 SEC 10-K filing, noting

director elections conform to director independence guidelines).

Pursuant to BFC’s bylaws, many actions of BFC are dictated by a majority decision of its

board. Now, instead of being the majority owner and presence on the board, OBT Trustees

would need to convince a majority of the board of non-trustees before any formal board action or

resolution could occur.

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Otto Bremer could not have anticipated the confluence of events that led to and included what transpired in 2019, but he had the foresight to give the Trustees flexibility to respond to them so as to carry out the Trust’s purpose. Compounding the consequences of the unanticipated

1989 tax laws and the early 2000’s BFC board expansion, at the outset of 2019, BFC management opened a pandora’s box that could not be closed. Contrary to the AGO’s allegation that it was the Trustees who “intentionally triggered a ‘cascade of unfortunate consequences’”

(Mem. at 1), it was instead the current management of BFC and its non-Trustee board members who initiated the cascade.

(a) BFC Management Opens Pandora’s Box for OBT

It was BFC management—not the OBT Trustees—who first considered the potential to change OBT’s 92% ownership of BFC through a “merger of equals” with another regional bank.

When BFC management notified the Trustees in March 2019 of this potential transaction, the

Trustees warned BFC management that such a transaction would have far-reaching implications for the Trust. See, e.g., Reardon Decl., Ex. 57 (notifying BFC board that OBT had retained legal and financial experts to advise on merger-of-equals).

As previously addressed, since the passage of the 1969 Tax Reform Act, OBT has been obligated to report the fair market value of its net assets to the IRS on an annual basis. Such annual valuations are necessary to identify the amounts OBT is required to distribute under the

Tax Reform Act (i.e., 5% of fair market value). OBT previously reported the fair market value of the BFC shares as below the shares’ “book value,” which BFC reported to be around $1

Billion. As the 92% owner of BFC, this corresponded to an annual obligation for OBT to

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distribute approximately $50 million each year based on BFC shares alone. In years past, such

distribution requirements presented little issue for OBT because it received a nearly equal annual

dividend from BFC premised on BFC’s book value. The events triggered by BFC management

in March 2019, however, drastically altered those dynamics.

As a result of BFC management’s effort to merge BFC into a public company, it became

apparent to everyone—BFC and OBT alike—that BFC was an attractive acquisition target and

that its market value was far more than at least OBT had contemplated previously. On March

28, 2019, BFC’s own consultant, JP Morgan, assessed BFC’s standalone

Reardon Decl., Ex. 58 at 12. Having alerted

BFC management of the need to build a team to review and consider what effectively was a restructuring of BFC, OBT retained its own investment banking firm, which confirmed the fair market value likely was at least that amount. Id., Ex. 57.

Why was that important? The tax laws—the same unforeseen tax laws that justified the partial sale in 1989—had similar consequences in 2019. Now faced with a fair market value of possibly $2 Billion, OBT was looking at a related charitable distribution requirement of at least

$100 million—nearly double the base dividend derived from BFC’s “book-value” dividend that

BFC would be expected to pay OBT each year. With no ability to compel BFC to cover the newfound $50 million gap, and, indeed, substantial doubt that BFC could dividend at such a level without running afoul of good banking practices and, likely, of its obligations to the Federal

Reserve, OBT was forced to explore its strategic options. Lipschultz Decl. ¶¶ 5-11.

BFC management nevertheless persisted in their pursuit of the merger-of-equals proposal. Jeanne Crain, BFC’s CEO, held ongoing discussions with the merger partner into June

2019, and ultimately secured an agreement that she

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See

Reardon Decl., Ex. 59. This was the result the BFC management team had sought. In May

2019, the merger-of-equals proposal (dubbed “Project Piano” by BFC) was formally presented to the BFC Board.

BFC’s proposed merger-of-equals would have required OBT to divest its shares in BFC for shares of the merged companies, a result BFC management and its non-Trustee board members expected and needed to occur. In other words, at a time when it benefited its entrenched management, it was BFC’s position that OBT possessed every right to divest its shares so as to shepherd through BFC’s proposed merger.

The merger-of-equals proposal, however, would not have been a good deal for BFC (or

OBT). By the end of June, BFC’s board voted against proceeding any further.

The termination of the merger-of-equals discussions did not, however, solve OBT’s dilemma. With the market value evidence BFC now had, OBT would be required to report a higher valuation for BFC to the IRS, which in turn would require it to make charitable distributions at a level it could not sustain. Lipschultz Decl. ¶¶ 5-6.

(b) Separation was necessary for both BFC and OBT, which BFC’s Board refused to acknowledge or allow.

It became evident that separation of BFC and OBT was in the best interest of both parties. Faced with the latest fair market valuations, neither BFC nor OBT could thrive as long as they remained together.

More specifically, if market conditions persisted and BFC’s “fair market” value continued to remain at its elevated level (or grew), there was no way BFC could sustain OBTs distribution shortfall—even if it was willing to—without impairing itself and causing detrimental effects to BFC’s business and operations. The Trustees knew this based on their collective years

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of experience with BFC’s operations and financial performance, and their knowledge of regulatory requirements for bank capital and dividends. BFC management also noted as much, indicating that while

Reardon Decl., Ex. 60. Conversely, OBT could not sustain its annual distribution requirements if its primary, illiquid asset was limited to generating only a portion of the income necessary to distribute. As BFC board member Glenn McCoy put it: OBT was Reardon Decl., Ex. 61. Given the circumstances, it became evident that separation was necessary, due in large part to the very tax laws that provided adequate justification for the sale of BFC stock in 1989.

The Trustees shared their views and intent to explore the sale of BFC with the BFC

Board at the June 2019 Board of Directors meeting and reiterated their intention shortly thereafter in early July. This disclosure of intent set into motion a series of events by BFC personnel to impede any prospective, intended sale. At the following meeting of the BFC Board on July 23, 2019, for example, a new law firm arrived on the scene: Wachtell Lipton, Rosen &

Katz LLP of New York, who purported to represent the general BFC Board in order to aid in

BFC’s consideration of “strategic options.”4 Regardless, it was at that July 2019 BFC Board meeting that the directors were reminded of their duties to BFC and its shareholders to keep their best interests in mind when pursuing potential strategic options.

4 Wachtell is currently BFC’s litigation counsel in the stayed civil litigations brought against the Trustees and worked cooperatively with the AGO this spring actively advocating against OBT, despite purporting to represent the board and its members (which included all three Trustees) and despite being intimately involved in the underlying factual predicate giving rise to BFC’s spurious claims. Reardon Decl., Ex. 62 (Ron James email to BFC board providing notice of hiring of Wachtell); see also C. Washington Decl. Ex. 141.

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In early August 2019, the Trustees received a proposed but time-sensitive indication from

a major North American bank of its interest in purchasing BFC for $1.9 billion. Upon receiving

that indication of interest, the Trustees informed the BFC Board and arranged to meet with the

AGO to provide notice and to answer any questions it may have.

OBT thereafter met with the AGO on August 16, 2019. Assistant Attorneys General

Sarah Gillaspey and Ben Velzen attended that meeting in the AGO’s offices with counsel for

OBT, Williams Berens and Claire Topp of Dorsey & Whitney LLP. Berens Decl. ¶ 9. At the

meeting, counsel informed the AGO that the Trustees intended to sell their BFC shares and

described the reasons for the Trustees’ decision. Id., ¶¶ 10- 16. At no time did the AGO request,

or even recommend, that the Trustees seek court approval before moving forward with their

plans. Id., ¶ 17. The AGO subsequently sent an unsolicited letter to OBT’s counsel noting its

appreciation for “keep[ing] the AGO informed as OBT considers its options moving forward,

including providing it copies of relevant documents in a timely manner” and further stating that

“[w]hen appropriate, and most likely after any contemplated sale is finalized, the AGO will want to discuss with OBT its trustee compensation.” At no time did the AGO object to the sale. Id., ¶

17 and Ex. G (emphasis added)).

At the same time, Mr. Lipschultz invited the BFC Board to engage with the Trustees in a collaborative effort, along with BFC management, to institute “a professional process to secure maximum value for all shareholders.”5 Reardon Decl., Ex. 63 at 5 (emphasis added). “If we work together, management will have an important role and voice in the communication with

5 Moreover, BFC’s Board of Directors intended to utilize JP Morgan for any sale, using a sell- side advisor that would reap JP Morgan $20 million even if JP Morgan ultimately was not involved directly in the sale. Conversely, OBT’s advisor would only cost $5 million, saving BFC and OBT $15 million. Reardon Decl., Ex. 63.

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potential buyers . . . and we could all perform our fiduciary duties as Board members and as

Trustees to maximize shareholder value[.]” Id. (emphasis added).

Prior to the August 29, 2019 board meeting and believing they were acting in the best interests of all parties, the Trustees reiterated their intention to pursue a sale. In doing so, the

Trustees once again echoed their reasons why it was necessary for OBT, which included a detailed memo again explaining the tax implications that BFC triggered earlier in the year. The

BFC Board was advised that

Reardon Decl., Ex. 9 at Tab 1.

The Trustees’ efforts at collaboration were rebuffed. The Trustees’ decision to pursue a sale displeased BFC management and the non-Trustee board members, all of whom might lose their positions in such a sale. At the August 29, 2019 BFC Board of Directors meeting, the BFC

Board approved a resolution, over the dissenting votes of the OBT Trustees, formally

“terminating any further discussion regarding a sales transaction,” and further directing

“management to refrain from participating in any further sales discussion without explicit approval by the Board.” Washington Decl., Ex. 151 (August 29, 2019 Special Meeting of the

BFC Board of Director Minutes). In other words, rather than welcoming the opportunity even to explore maximizing shareholder value, BFC through its Board refused to consider a sale and refused to allow any potential acquirer to perform due diligence. As a result, no offer could be negotiated. No offer could be investigated. And no offer could therefore be presented to the shareholders, at which meeting OBT’s Class B shares were otherwise entitled to voting rights for approval. As a result, the rights of a 92% majority shareholder were effectively held hostage.

The OBT Trustees accordingly found themselves in an untenable situation. Fortunately, protections were built into their Class B shares for this very situation. The Trustees, acting

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consistently with their duty of care and in accordance with the express authorization of the Trust

Instrument, consulted with legal and financial experts with respect to actions to be taken in

reaction to the BFC’s board’s refusal to consider any sale or allow OBT the necessary access to

bank management and the due diligence information necessary to sell their shares. The Trustees

turned to Keefe Bruyer &Woods, a premier investment banking firm for bank mergers and

acquisitions that they retained earlier for advice regarding BFC’s likely value and the potential

market for it. They also retained H. Rodgin Cohen of Sullivan and Cromwell, a highly respected

banking and regulatory lawyer in the nation, and William G. Berens of Dorsey, a prominent

Minnesota authority on trust law. Lipschultz Decl. ¶¶ 7, 10.

For the Trustees to fulfill their fiduciary duty and also protect and maximize OBT’s

assets, it would be necessary to proceed in a two-step process (that had been expressly

contemplated in the 1989 reorganization): first, sell a small portion of shares to investors allowed

to exercise their independent voice to potentially elect directors at least willing to consider a sale

(a step BFC itself had envisioned years earlier to be something OBT might do to preserve its

rights, and about which OBT counsel had presented to the BFC Board as recently as January

2019);6 second, then explore whether an appropriate offer from an appropriate suitor could be secured. When the Trustees pursued the first step, however, BFC refused to register the shares to the purchasers and started a litigation and media war against the Trustees based on the false narrative that the Trustees had instigated the dispute and were selling so they could increase their compensation. Lipschultz Decl. ¶ 11.

6 Reardon Decl., Ex. 55 (June 23, 1988 memorandum from BFC President, Terry Cummings on the finalized Plan of Reorganization), and Ex. 9 at Tab 2 (January 19 2019 memo from Claire and Steve Rubin to the BFC board); Lipschultz Decl., Ex. B-5.

32 62-C9-61-315222 Filed in District Court State of Minnesota 9/21/2020 2:38 PM

On October 28, 2019—before BFC initiated their lawsuit against the Trustees—

Mr. Berens and Ms. Topp of Dorsey met once again with the AGO to inform them of OBT’s sale of a portion of its Class B shares to independent investors, which included the circumstances and basis for OBT’s approach. Berens Decl. ¶¶ 19-21. At no time during that meeting did the AGO express concern or object to OBT’s approach. Id. ¶ 22

What the foregoing describes, and what the admissible evidence will plainly show, is that what the AGO characterizes as a “breathtakingly reckless hostile takeover attempt” (Mem. at 1), was in reality a carefully considered and appropriate fiduciary decision to protect OBT in the face of aggressive resistance by BFC’s entrenched management and its non-Trustee directors.

The Trustees took this step only after proper consultation, after notifying the Federal Reserve, after attempting to obtain BFC’s cooperation, and in reliance on the AGO’s earlier consent to a sale. Lipschultz Decl. ¶¶ 5-11; Reardon Decl., Ex. 65 (CIBC Memorandum to the Federal

Reserve Bank of Minneapolis), Ex. 66 (October 2, 2019 letter from the Federal Reserve confirming that , and Ex.

22 (August 23, 2019 letter from AAG Sarah Gillaspey). They did so, in good faith, because they believed doing so was the only way to accomplish their goal of protecting OBT’s charitable assets and its concomitant ability to double the annual charitable distributions to the public they serve, all while securing additional assets that could be utilized for the purposes Otto Bremer originally intended. Lipschultz Decl. ¶¶ 5-11; Reardon Decl. ¶ 7; Johnson Decl. ¶ 4.

Unfortunately, and despite OBT’s explicit right (in the Plan of Reorganization) to proceed in the manner conducted, BFC instituted litigation in an effort to continue its obstruction

33 62-C9-61-315222 Filed in District Court State of Minnesota 9/21/2020 2:38 PM

and prevent OBT from doing what the majority of BFC’s own Board failed to do: look out for

the best interests of the company and its shareholders.7

E. Trustee compensation.

The Trust Instrument provides its trustees may be compensated up to four percent of the trust estate’s cash income. Reardon Decl., Ex. 1 at ¶ 13 (providing, inter alia, up to 4%

compensation for ordinary services to be “divided among the trustees as they desire,” and further

permitting additional compensation necessary for “extraordinary services”). At all times during

their administration the Trustees’ compensation has been substantially below that limit. Berens

Decl., Ex. F at 5-11, 13; Reardon Decl., Exs. 13, 27-40.

To further reinforce the reasonableness and care devoted to their compensation, OBT

retained independent consultants and conducted third-party compensation studies to confirm that

the Trustees’ compensation structure is reasonable. In 2010, for example, the Trustees hired

Riley, Dettmann & Kelsey (“RDK”) to ascertain a market-based compensation range “given the

unique circumstances of the Foundation and its ownership of [BFC].” Berens Decl, Ex. C at 3.

RDK concluded the Trustees’ compensation fell within an appropriate range of base

compensation at the time. Id. The Trustees again engaged a third-party consultant in 2015 to

review their compensation. That consultant, Total Compensation Solutions, compiled

information from three peer groups: (1) for-profit bank holding companies, (2) charitable

foundations, and (3) not-for-profit financial trusts. Reardon Decl., Ex. 67 (Total Compensation

Solutions Report). TCS reported that the Trustees’ compensation was conservative compared to

the median pay for the peer groups in its study and “significantly below the competitive range.”

7 The AGO’s contention that the Trustees should have secured D&O insurance to cover them in the event BFC were to litigate reflects a fundamental misconception—there is no insurance that conceivably could have been purchased.

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Id. at 21. This information was provided to this Court and previously confirmed, ratified, and approved by Order. Berens Decl., Ex. F at 5-11, 13 (December 26, 2017 Order). It was available and provided to the AGO in those prior filings and submissions, and what then existed was provided to the AGO in response to its CID in 2014. Lipschultz Decl., Ex. K. Indeed, following its 2014 investigation, the AGO never raised concerns about Trustee compensation (or the governance structure of OBT or, indeed, about any aspect of the Trustees’ administration of it). Nor did the AGO object in 2017 when the Court sought its comments considering OBT’s petition. Berens Decl. ¶ 5 and Exs. B-E.

Addressing the AGO’s specific allegations, and as the historical recitation of the events in

2019 should make abundantly clear, the Trustees’ decision to sell its BFC shares was never motivated by the desire to increase their own compensation—and the AGO offers no shred of evidence to the contrary.8 The Trustees well understood that if they sold BFC, the nature of their jobs, and of their compensation, necessarily would change. They said as much to the Federal

Reserve: “A complete structural change of the type and amount of OBT’s assets following a sale of BFC would necessitate a completely new compensation plan which would need to be approved by the Court.” Lipschultz Decl., Ex. H at 2 (Lipschultz November 5, 2019 email to

Federal Reserve examiner Greg Aase). The AGO said as much to them in Ms. Gillaspey’s

August 23, 2019 letter acknowledging the plan to sell: “when appropriate, most likely after the sale, the AGO will want to discuss trustee compensation.” Berens Decl., Ex. G. Indeed, Mr.

Lipschultz did not expect to personally benefit from a sale, sharing that:

8 The AGO’s allegations appear to be premised on baseless—indeed frivolous—allegations contained in separate civil complaints filed by BFC and its lawyers against the Trustees. Indeed, the AGO’s approach curiously follows an outline and allegations set forth in a 29-page memorandum submitted by BFC’s attorneys to the AGO earlier this year, which was just recently produced. Crosby Lehmann Aff. ¶ 14.

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In most deals, the principals who take the big risks (financial and reputational) also get outsized returns and that’s just a spoken or unspoken reality. A CEO or fund manager may get absolutely trashed but then they pull in an extra $50 million and that makes the pain go away. As a Trustee I get the same financial return from business as usual as from helping generate an extra billion dollars for the Trust. And I’m fine with that deal because it’s what I agreed to when I voluntarily stepped into this role 7 years ago.

Lipschultz Decl. Ex. H at 1 (text to Joseph Gulash of KBW) (emphasis added).

The Trustees also were aware, because this Court twice had told them, that material changes to compensation required prior court approval. Reardon Decl. Ex. 5 (March 9, 2011 court order approving Trustee compensation structure) and Ex. 6 (March 26, 2012 court order approving Trustee compensation and structure); Berens Decl., Ex. F (December 26, 2017 Order).

And when BFC sued, based on the false greed narrative, the Trustees formally acted to freeze their compensation and director fees for two years so as to make plain that was not their motive and to clarify to both the AGO and Federal Reserve that the first and subsequent sale transactions would result in 100% proceeds flowing to OBT. Reardon Decl., Ex. 68 (Trustee’s Written

Action).

The AGO’s fixation on compensation is particularly egregious given that the office has repeatedly reviewed the Trustees’ compensation and the compensation structure over the last decade, without raising any concerns whatsoever. The record reflects that the present structure of the Trustees’ compensation was established ten years ago, based on advice from consultants and counsel, has been reviewed by the AGO annually, and was the subject of an extensive Civil

Investigative Demand from the AGO in 2014. At no time has the AGO challenged the Trustees’ compensation (or the structure). Reardon Decl., Ex. 69 (Feb. 28, 2011 AGO letter to the court stating no objection to Trustee compensation and fees; Oct. 22, 2012 AGO letter to the court stating no objection to Trustee compensation and fees; Mar. 19, 2012 AGO letter to the court

36 62-C9-61-315222 Filed in District Court State of Minnesota 9/21/2020 2:38 PM

stating no objection to Trustee compensation and fees). Rather, the AGO essentially defended the Trustees’ compensation in response to repeated challenges to it by a member of the public.

See Berens Decl., Ex. C (November 3, 2017 Letter of Sarah Gillaspey to Referee Joel Olson).

Moreover, although the AGO’s Petitions and Memorandum never acknowledge it, this

Court has regularly approved both the structure and amount of the Trustees’ compensation.

Reardon Decl. Exs. 5, 6; Berens Decl., Ex. F.

Indeed, none of the regulators supervising OBT has challenged Trustee compensation.

OBT discloses compensation information to the Federal Reserve as well as to the IRS. Neither has ever challenged the appropriateness of that compensation. See, e.g., Reardon Decl., Ex. 70

(August 19, 2014 Trustee letter to the Federal Reserve providing updates on Trustee compensation, OBT internal controls, OBT audited financial statements, and the Trust’s engagement of Promontory Financial Group, a regulatory compliance consultant) and Ex. 71

(IRS audit closure letter dated 2/29/2012 finding Trustees to be full-time employees).

ARGUMENT

A preliminary injunction is “an extraordinary” remedy, and the burden is high to show the need for such relief. Miller v. Foley, 317 N.W.2d 710, 712 (Minn. 1982). “Injunctive relief should be awarded only in clear cases, reasonably free from doubt. The burden of proof rests upon the complainant to establish the material allegations entitling him to relief.” Sunny Fresh

Foods, Inc. v. MicroFresh Foods Corp., 424 N.W.2d 309, 310 (Minn. Ct. App. 1988) (internal quotation marks omitted). The purpose of issuing such a preliminary injunction is to preserve the status quo. Pickerign v. Pasco Mktg., Inc., 228 N.W.2d 562, 564 (1975). Equally important,

“[t]he party seeking an injunction must establish that the legal remedy is inadequate and the injunction is necessary to prevent irreparable harm.” Unlimited Horizon Mktg., Inc. v. Precision

Hub, Inc., 533 N.W.2d 63, 66 (Minn. Ct. App. 1995).

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Here, the AGO rests its demand for interim relief on the purported wrongdoing outlined

at pages 102-06 of its Memorandum, which it lumps into three categories: imminent harm, waste

of charitable assets, and favoring Trustee interests over those of OBT. Summary removal,

appointment of a special fiduciary, or any interim relief is improper, however, because the AGO

cannot meet its burden under either Dahlberg or the statutory prerequisites for the relief sought.9

As set forth below, the AGO fails to show what the law requires before imposing such

extraordinary relief—which at the very least requires a showing that the Trustees committed a

serious breach of their fiduciary duties and are risking imminent harm to OBT. Minn. Stat.

§ 501C.0706(b)(1). “So long as the trustees act in good faith, from proper motives, and within

the bounds of reasonable judgment, the court will not interfere with their decisions.” U. S. v.

O’Shaughnessy, 517 N.W.2d 574, 577 (Minn. 1994). Indeed, granting the requested relief would disrupt the status quo, and irreparably harm OBT and its beneficiaries, and would convert the

AGO’s oversight role into one of direct control, which is contrary to law and a violation of its statutory authority.10

9 In addition to removal of the Trustees, the AGO seeks interim relief in the form of appointing a fiduciary to take control of and administer OBT, suspending the Trustees and requiring their cooperation with new ones, appointing certain new trustees, denying or requiring the Court to pre-approve all attorney fees for the Trustees defense in this and the related cases, court review of attorney conflicts, and granting other relief. Collectively, the relief requested by the AGO is objected to and referred to herein as “removal” of the Trustees. 10 The AGO only recently produced deposition testimony and certain limited other information from its months long investigation. Since this information was produced as “attorneys eyes only,” no Trustee has even had the opportunity to review the information. No witness has reviewed or certified their own testimony. In keeping with the Court’s admonition, the Trustees reserve the right to supplement their briefing and evidence.

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I. WHEN “INTERIM RELIEF” IS SOUGHT THE TRADITIONAL DAHLBERG FACTORS APPLY.

The AGO characterizes the relief it seeks as injunctive and relies solely on Minn. Stat.

§ 501C.0706 as the legal basis for it. (Mem. at 102.) Even when a statute provides for temporary injunctive relief, Dahlberg Bros., Inc. v. Ford Motor Co., 137 N.W.2d 314, 321 (Minn. 1965) must be applied. Leppink v. Water Gremlin Co., 944 N.W.2d 493, 498 n.2 (Minn. Ct. App. 2020)

(analysis of Dahlberg factors, as articulated by the supreme court, are required for a temporary injunction); In re Estate of Nelson, 936 N.W.2d 897, 910-11 (Minn. Ct. App. 2019) (reversing temporary injunction for failure to consider Dahlberg where request was based on a statute);

State ex rel. Neighbors Organized in Support of Env’t v. Dotty, 396 N.W.2d 55, 58-59 (Minn. Ct.

App. 1986) (requiring Dahlberg even for a request for a temporary injunction based on a statute).

Failure to do so is reversible error. In re Estate of Nelson, 936 N.W.2d at 910-11 (citing State by

Ulland v. Int’l Ass’n of Entrepreneurs of Am., 527 N.W.2d 133, 135 (Minn. App. 1995), review denied (Minn. Apr. 18, 1995)).

Looking to the statutory framework here, Minnesota Stat. § 501C.0706 allows for injunctive relief under § 501C.1001(b) “as may be necessary to protect the trust property or the interests of the beneficiaries.” Minnesota Statute § 501C.1001(b) allows for various forms of relief but when removal is requested, it provides that Minn. Stat. § 501C.0706 applies.

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Minnesota Statute § 501C.0706(b)(1) requires removal only for a “serious breach of trust” (or other factors not alleged here).11 This analysis is wrapped into the Dahlberg factors.12

Under the Dahlberg factors, one result is compelled: full denial of the AGO’s Petition for Interim Relief.

A. The Dahlberg Factors Favor Denial of Interim Relief.

Under Dahlberg, Minnesota courts consider five factors when considering a request for a preliminary injunction:

(1) the parties’ relationship before the dispute; (2) “[t]he harm to be suffered by plaintiff if the temporary restraint is denied as compared to that inflicted on defendant if the injunction issues pending trial;” (3) the likelihood that plaintiff will succeed on the merits of the case; (4) public policy; and (5) the administrative burden involved in enforcing the injunctive relief.

Dahlberg, 137 N.W.2d at 321-22. Each Dahlberg factor—as shown in order: balance of harms, likelihood of success on the merits, policy considerations, relationship between the parties, and administrative burden—favors denial of the AG petition for interim relief.

11 Although unclear, the AGO may argue that removal is appropriate under Minn. Stat. § 501C.0706(b)(3), which identifies removal when it “best serves the interests of the beneficiaries because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively.” Reliance on this section quickly fails since the AGO made no effort to show the best interests of the beneficiaries (of which there are many in the Midwest). Rather, the evidence shows the Trustees serve OBT effectively as shown by its growth, its impact in the community, and the low expense ratio among other factors raised herein, and the Court’s affirmation of the Trustees’ administration of the trust, with no AGO objection raised to any annual reports or prior court orders. 12 The language in Minn. Stat. § 501C.0706(c) is taken directly from the Uniform Trust Code, which is described in a Uniform Trust Code comment as authorizing such relief as “injunctive.” Unif. Trust Code § 706 cmt.

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1. The Balance of Harms favors the Trustees.

The balance of harms factor requires the AGO to prove two elements: (1) irreparable

harm to the AG, and (2) no substantial harm to OBT. Pacific Equip. & Irrigation v. Toro Co.,

519 N.W.2d 911, 915 (Minn. Ct. App. 1994) (citing Yager v. Thompson, 352 N.W.2d 71, 75

(Minn. App. 1984)). “The failure to show irreparable harm is, by itself, a sufficient ground upon which to deny a preliminary injunction.” Morse v. Waterville, 458 N.W.2d 728, 729

(Minn. Ct. App. 1990) (emphasis added). “‘The key word in this consideration is irreparable.

Mere injuries, however substantial, in terms of money, time and energy necessarily expended in

the absence of a stay, are not enough.’” Miller, 317 N.W.2d at 713 (quoting Sampson v. Murray,

415 U.S. 61, 90 (1974)) (emphasis and alteration in original). There is no evidence that the

status quo and continued service of the Trustees will cause any harm, much less irreparable

harm, whereas the converse would be true: removal of the Trustees will certainly cause

substantial harm to OBT.

(a) There is No Credible Risk of Imminent Harm.

The AGO identifies five “concerns” alleged to present an immediate danger of imminent

harm, supported merely by conjecture and contradicted by the terms of the Trust Instrument,

Court Orders, annual reporting by OBT, and law: (i) sale of BFC shares without notice; (ii)

private investments the AGO considers illegal; (iii) AGO uncertainty of whether OBT intends to

use the Trust’s recently-formed subsidiary, Community Benefit Financial Company, LLC

(“CBFC”) to shield assets from scrutiny; (iv) alleged risk of future self-dealing after a Trustee

self-corrected for use of Trust administrative resources; and (v) worries of retaliation against

Trust employees. (Mem. at 102-04.) None of these purported concerns presents a real risk of

imminent harm to OBT, OBT assets, or its beneficiaries. Yet, to address the AGO’s worries and

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OBT’s interest in transparency, OBT offers a solution as detailed below vitiating any “risk,”

even using the AGO’s perspective, of purportedly imminent “harm.”

(i) The Trustees will not sell more BFC shares while this case is pending.

The risk that the Trustees might sell additional or all shares of BFC is neither a real risk

nor grounds, in any event, for the relief sought. And, the AGO’s concern is misplaced as a matter

of trust law.

As the Trustees have demonstrated above, the Trust Instrument reserves solely to the

Trustees the authority to decide whether unforeseen circumstances make it necessary or proper to sell BFC shares in the near term. Reardon Decl., Ex. 1 at ¶ 16. The AGO does not possess the authority to usurp the explicit terms of the Trust Instrument. An expressly authorized exercise of discretion is appropriate as long as the Trustees: (a) act reasonably, and (b) not dishonestly or from an improper motive.13 Restatement (Second) of Trusts §187, cmt e. The Trust Instrument,

Paragraph 16, shows that Otto Bremer conferred the sale of BFC shares to the trustees’ discretion instead of the court’s or AGO’s prerogative, meaning that no outside approval is needed before any sale. See Restatement (Second) of Trusts, § 167, cmt d (when a settlor manifests an intention to authorize a trustee to act no court permission is needed for the trustee to act); In re Ordean's

Will, 261 N.W. 706, 710 (1935) (holding trustee need not obtain advance judicial permission because discretion “is not subject to control by the court except of course to prevent abuse by the

13 While the AGO states that it does not “weigh in on the discretion that a trustee has to sell the Trust’s BFC shares and under what circumstances,” it argues that the Trustees “abused that discretion nonetheless in a manner that requires removal.” (Mem.at 3, 84.) No court can evaluate whether a trustee abused discretion without first understanding the discretion allowed by the Trust. Any attempt by the AGO to ignore this fundamental contradiction must fail since Minnesota law and the Trust Instrument give the Trustees the right to sell and the AGO cannot act contrary to law or the Trust Instrument.

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trustee of the discretion so granted”). And, acknowledging the impact of the 1969 tax laws,

Attorney General Warren Spannaus14, BFC President Cummings15, the Minnesota legislature16,

and the Court17 all recognized the harm facing OBT by the newly required dividend payments

and otherwise affirmed the Trustees’ discretion to sell BFC without first having to seek pre-

approval from either the AGO or this Court.

Trust law unequivocally requires the Trustees, as part of their fiduciary duties, to

regularly monitor OBT’s assets and, as part of that monitoring, to consider the potential for

diversifying those assets by selling BFC. See, e.g., Reardon Decl., Exs. 64 (2011 OBT letter to

IRS); Berens Decl., Ex. F (Dec. 26, 2017 Court Order approving monitoring and decision not to sell). If the Trustees determine, in the exercise of their fiduciary duty, to maximize and protect

OBT assets by selling more of (or all) BFC shares, the Trust Instrument does not require notification to the AGO before doing so; it does not even require them to obtain court approval.

Nevertheless, the Trustees did notify the AGO first in August of their intent to sell, and then in

October of the fact they had sold some shares and, at that time, the AGO did not raise any concern as to the sale, and did not request the ability to pre-approve any future sale. Berens

14 Reardon Decl., Ex. 47. 15 Reardon Decl., Ex. 55. 16 Presumably to mediate the impact to OBT due to the 1969 tax laws, the Minnesota legislature enacted Minn. Stat. § 501B.45 to expressly authorize a charitable trust that directly or indirectly owns a bank or bank holding company to sell its shares to another financial institution, even one located outside Minnesota, consistent with banking regulations. OBT was and is the only charitable trust in Minnesota owning a bank or bank holding company. 17 Berens Decl., Ex. F (Dec. 26, 2017 Order evaluated whether there was any need for OBT to sell its shares to meet its fiduciary duties); Reardon Decl., Ex. 5 (2011 Order approved OBT’s 1989 Plan of Reorganization, which details the two-step sale process, and the sale of shares to BFC employees, without it or the AGO having pre-approved those sales).

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Decl., Ex. G. The AGO’s implication (Mem. at 47) that the Trustee’s counsel withheld material information is false, as shown by, among other things, the Berens Declaration.18

As a practical matter, the AGO’s concern is misplaced. The current economic environment, combined with the AGO’s attack on OBT, renders any sale of BFC shares in the near term unlikely. The Trustees have not had an indication of interest from any potential buyer since March 2020 and do not expect to receive any during the pendency of these proceedings.

Lipschultz Decl. ¶12.

In any event, to accommodate the AGO’s concern, the Trustees agree not to sell any further BFC shares during the pendency of these proceedings without first providing notice to the

Court and to the AGO and, if they receive an offer at an attractive price, to notify both.

Lipschultz Decl. at ¶ 12; Reardon Decl. at ¶ 7; Johnson Decl. at ¶ 4.

(ii) The Trustees will not make new investments in private equity or hedge funds while this case is pending.

The AGO’s contention that the Trustees have secretly invested in improper and risky investments (Mem. at 102), is factually incorrect. Nor does OBT’s investment strategy pose a risk of imminent harm.

The Trust Instrument provides the Trustees with “absolute discretion” to make investments they consider appropriate. Absolute discretion means that reasonableness is not even a factor. The only limitation on the trustees’ absolute discretion is that trustees may not exercise

18 Contrary to the AGO, the Trustees, through their counsel, informed the AGO that BFC opposed the sale, that the sales were of Class B shares, the basis for the price calculation for the shares, and the nature of the investors. Berens Decl. ¶¶ 19-20. Revealingly, the AGO’s citation to imply that material information was withheld is supported only by the testimony of Trustee Johnson who testified that she “d[id] not know” what was said during the AGO meetings with her attorneys. See Washington Decl., Ex. 4 at 243:1-244:19. The AGO participated in the meetings and had full knowledge of the content of the information exchanged.

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dishonesty or be for an improper motive. See In re Tr. of Jones, A18-0021, 2018 WL 3826331, at

*2 (Minn. Ct. App. Aug. 13, 2018) (Crosby Lehmann Aff., Ex. 1) (rejecting request to remove trustee for making certain investment decisions when trust provided absolute discretion to make them); Restatement (Second) of Trusts §187, cmt j. Under the Trust Instrument, the Trustees face no limitation as to the type of securities they may utilize, including the ones at issue here, namely private equity funds and hedge funds. Reardon Decl., Ex. 1 at ¶ 16.19

In the exercise of their absolute discretion, beginning in 2019 and continuing into this year, the Trustees shifted OBT’s portfolio of non-BFC assets away from mutual funds and individual equities towards classes of investments with traditionally higher (and less volatile) rates of return, including private equity funds and, in limited instances, hedge funds. They did so only after extensive study and consideration, and after retaining Cambridge Associates, one of the nation’s leading firms serving charitable foundations and nonprofit institutions to review and recommend potential investment opportunities. Lipschultz Decl. at ¶ 13-15.

Moreover, the Trustees have acted openly, not secretly, and the Court and the AGO have previously reviewed and approved similar investments. OBT’s portfolio of non-BFC investments is reflected in its annual accounts submitted to the AGO and filed with the Court. Its investments are also reflected generally in its annual audited financial statements, and realized gains and losses are reflected on the returns in its annual tax filings on Form 990 PF, as submitted to the IRS and the AGO. Reardon Decl., Exs. 11-13 and 34-40. Hedge funds and offshore investment companies have been components of OBT’s portfolio since at least 2011.

19 That the most current iteration of OBT’s Investment Policy lists such investments in the prohibited category is not determinative. The policy serves as a guideline and does not limit the authority granted in the Trust Instrument. The policy is typically reviewed and revised annually; here, the policy is in the process of being updated to reflect that such investments are now in the approved category. Lipschultz Decl. at ¶ 13.

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See, e.g., Reardon Decl., Ex. 72 (Oct. 24, 2011 OBT letter to IRS referencing hedge fund High

Bridge and offshore investment company GMO Multi-Strategy Fund). As such, those

investments are reflected in the annual accounts regularly submitted to the AGO and Court,

(Berens Decl., Ex. F (Dec. 26, 2017 court order approving five-year petition)), just as the more

current group of private equity funds will be. At no time has the AGO asked OBT to refrain

from making such investments or appealed the orders approving investments in hedge funds. See

Matter of Tr. Created by Hill on Dec. 31, 1917 for Ben. of Maud Hill Schroll, 499 N.W.2d 475,

489 (Minn. Ct. App. 1993) (“An order allowing an annual account of a trustee has the legal

effect of a final judgment.”). Nor has it offered any reason to believe the Trustees, if asked,

would not discuss their investment strategy with the AGO before making any further investments

of this type.

As for the AGO’s concern of illegality, during the investigation it was informed that the

Trustees sought guidance from the Federal Reserve and received assurance that: (i) the Volcker

rule to which the AGO refers (Mem. at 60-61) would not be applied to preclude OBT from

making such investments; and (ii) the particular investments did not pose inappropriate risks for

a first-tier bank holding company like OBT. Lipschultz Decl. at ¶ 14; Washington Decl., Ex. 3 at

155-56 (Thompson); Washington Ex. 9, at 136 (Lipschultz).

Moreover, because of their generally above-market returns, such categories of

investments are regularly held by charitable institutions and by many other reputable and

successful institutional investors—including the Minnesota State Board of Investments, on the

board of which the Minnesota Attorney General himself sits. Crosby Lehmann Aff., Ex. 2 (State

Investment Board Webpages); see also id., Ex. 3 (Sept. 11, 2020 Star Tribune article explaining

Minnesota State Board of Investments solid return on private equity). In this instance, even in

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this most challenging of years, OBT’s investment returns have been exemplary: its most recent statement from its advisor, Cambridge Associates, reports OBT ranked first for net return on investment among more than 300 major endowments worldwide representing over $400 billion in asset value. Lipschultz Decl. ¶ 15 and Ex. D. The investment strategy has not hurt OBT or its beneficiaries and is not likely to do so.

In any event, although the Trustees are obligated to fulfill pending commitments, the

Trustees agree not to make any new investments in private equity funds or hedge funds during the pendency of these proceedings without first providing notice to the AGO and Court.

Lipschultz Decl. at ¶ 15; Reardon Decl. at ¶ 7; Johnson Decl. at ¶ 4. They also agree to provide the Court during the pendency of these proceedings with a monthly financial and operational report that includes performance data regarding the portfolio of non-BFC investments. Id.

(iii) The Trustees’ use of CBFC is approved under the Trust Instrument and law.

Failing to conduct an appropriate legal inquiry, ignoring evidence, and presuming the worst of the Trustees, the AGO claims “substantial questions exist” as to whether the Trustees will “shield” assets by use of a recently established subsidiary, Community Benefit Financial

Company LLC. (Mem. at 103.) The AGO misapprehends the purpose and role of CBFC—as well as the law applicable to it.

The Trustees created CBFC as a marketing and operational tool to safely conduct OBT’s program-related investments (“PRIs”), a well-accepted and longstanding complement to its responsive grant-making activities. A PRI is a generally below market rate investment designed to serve a trust’s mission rather than to generate market rates of return. The Trustees utilize

CBFC as a management tool for OBT’s use of PRIs and to centralize, market, fund, and track that aspect of OBT’s charitable work. PRI’s expand the reach of OBT in the communities it

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serves. Lipschultz Decl. at ¶¶ 16-17; Reardon Decl. Exs. 27-33; Reardon Decl., Ex. 1 at ¶¶ 5, 7.

The Trust Instrument gives the Trustees the discretion to create CBFC and use it to manage trust property (Reardon Decl., Ex. 1 at ¶ 19), and neither the Court nor the AGO may substitute its judgment for that of the Trustees. Id. at ¶ 7 (“all powers” to manage trust property), ¶ 16

(absolute discretion on investments), and ¶ 19 (discretion to administer by a corporation); In re

Ruth Easton Fund, 680 N.W.2d 541, 549 (Minn. Ct. App. 2004) (“[T]rustees [may] act . . . within the bounds of reasonable judgment, the court will not interfere with their decisions.”).

The AGO’s concern over avoiding scrutiny is misplaced, if not perplexing. CBFC is a single-member Minnesota nonprofit LLC. Lipschultz Decl., Ex. F at 2. Legally, that means three things: (i) OBT’s charitable assets are protected from any potential third-party liability related to PRI distributions, which is a significant benefit given the development of common law lender liability theories; (ii) the AGO has more authority, under Minn. Stat. § 317C.1101, subd.

6, over CBFC (a nonprofit corporation) than it does over OBT itself (a charitable trust) because §

322C.1101, subd. 6, provides that the AG has the same authority and powers with regard to a nonprofit limited liability company as with regard to a nonprofit corporation governed by

Chapter 317A; and (iii) CBFC’s financial results are passed through to its sole member, OBT, and must be reported in OBT’s audited financial statements, its Form 990 PF tax returns, and in the annual accounts filed with this Court. By law, CBFC’s activities are transparent to AGO review, meaning the allegation that the Trustee may “shield” assets is simply wrong. Moreover, the monthly financial and operational report the Trustees offer to provide to the Court and AGO will contain CBFC activity.

(iv) The potential for self-dealing is not a valid risk.

The AGO contends removal of the Trustees is needed since the AGO lacks adequate assurances that a single example of self-dealing has been “conclusively remedied and will not

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happen again.” (Mem. at 103.) This claim ignores the facts as well as the Trust Instrument requirements on Trustee liability for breaches of trust. Moreover, removing a trustee for following the statutory guidance of correcting what is the equivalent of an administrative error would be bad policy and contrary to established law. See In re Will of Gershcow, 261 N.W.2d

335, 339-40 (Minn. 1977) (holding that trial court did not abuse its discretion when it declined to remove a trustee for inconsequential, corrected mistakes not harming the trust); In re Comstock’s

Will, 17 N.W.2d 656, 665 (Minn. 1945) (holding that trial court did not abuse its discretion when it declined to remove a trustee for mistakes “made in good faith”).

Without minimizing the nature of any self-dealing by any trustee, the sole example of which the AGO complains was, by any fair measure, an innocent, de minimis misuse that was appropriately and promptly corrected. As Mr. Lipschultz voluntarily disclosed to the AGO that, over a several year period, he used the OBT address for companies in which he was a passive investor, occasionally performed work while in his office at OBT monitoring those personal investments, and used the services of his executive assistant to assist him with matters related to those personal investments, including infrequent printing, faxing, scanning and mailing, all without being aware that such actions might constitute a breach of trust or self-dealing under tax law. There is no dispute that once he learned such conduct constituted an inappropriate use of

OBT resources and self-dealing under IRS rules, Mr. Lipschultz immediately changed the address for those personal investments, stopped doing any work related to them while at OBT offices, reimbursed OBT for the fair value of the resources he used, and paid all interest and penalties associated with amended tax filings (a total of approximately $1875 plus $300 for taxes). Lipschultz Decl. at ¶ 18 and Ex. C, G (Response to Third CID).

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Section 501C.1001(c) instructs that to remedy such a breach of trust, a trustee should

“redress a breach of trust by paying money,” which is what was done. The only evidence the

AGO provides on any alleged lack of “assurances” is Trustee Lipschultz’s own interrogatory response and examination testimony, all of which describe his recognition and correction of the error. (Mem. at 103.)

No facts support a likelihood of any self-dealing occurring again. Mr. Lipschultz will not engage in any similar conduct, and he has arranged for separate administrative assistance with respect to the monitoring of his personal investments. Lipschultz Decl. at ¶ 18. OBT has appropriate policies in place and, with the assistance of its Controller, Mr. Thompson, has instituted financial controls to pinpoint any such future potential use of OBT resources, and those policies were effective in alerting the Trustees to this matter and ensuring full reimbursement to

OBT. See, e.g., Reardon Decl. Ex. 72. Nor has the AGO offered any evidence indicating that the potential for self-dealing poses any imminent risk of harm to anyone.

The AGO’s concern dubbed a “lack of oversight” relates, not to any “serious breach” of the Trust Instrument as is required by statute for removal of a trustee, but instead to its misunderstanding, and apparent dislike, of all trusts. (Mem. at 103.) The AGO has told the

Court now that it serves as the “board of directors” for OBT. Crosby Lehmann Aff., Ex. 4, (Sept.

9, 2020 Hearing Transcript). By law, however, trusts have trustees, not boards or executive directors. And the AGO has oversight, not control or the ability to substitute its judgment for that of any trustees. See Minn. Stat. §§ 501B.33-.45.

In any event, the financial and operational reports the Trustees have agreed to provide the

Court will provide sufficient information to enable the Court and the AGO to identify any potential self-dealing. Lipschultz Decl. at ¶ 15; Reardon Decl. at ¶ 7; Johnson Decl. at ¶ 4.

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(v) The welfare of OBT employees is not at risk.

The AGO advances a false narrative that the Trustees oversee a “toxic workplace” with rampant retaliation. This is baseless, untrue, and without merit. Moreover, the AGO has no legal authority for using administration of standard human resource concerns as the basis of a serious breach sufficient to justify removal of the Trustees, appointment of a special fiduciary, or any of the interim relief sought. It is well-established that the court does not “sit as a ‘super-personnel department’ to second guess the wisdom of a business’s personnel decisions.” Evers v. Alliant

Techsystems, Inc., 241 F.3d 948, 957 (8th Cir. 2001).

The AGO offers no evidence any Trustee has ever retaliated against any employee for any reason, including due to cooperation with the AGO over the last eight-plus months. Indeed, the evidence shows the opposite. The Trustees have cultivated a diverse, inclusive staff at OBT, many of whom are longstanding employees. Reardon Decl. Ex. 2 at 6-8 (January 27, 2020 First

CID Response to Interrogatory No. 2 (reflecting that all but one of OBT's leadership positions have been held by women and/or persons of color (Kari Suzuki, with OBT for 21 years; Tony

Vasquez, with OBT for 28 years; Aretha Rupert Green, who was with OBT for 11 years, Lue

Her, with OBT for 13 years; Tony Thompson, with OBT for 2 years). Together with that staff, the Trustees have developed an efficient and effective organization—one that has repeatedly delivered critically important charitable distributions to the communities OBT and its employees serve, at an expense ratio far, far lower than its peers. Moreover, the Trustees from the outset pledged full cooperation with the AGO and honored that pledge throughout the investigation.

See, e.g., Reardon Decl., Exs. 2-4, 8-10. Each Trustee also agreed, under oath, to not take any retaliatory action whatsoever against any employee who cooperated with the AGO.

That employees from time-to-time have left OBT, some of them involuntarily, is neither atypical nor damning. Terminations, including some accompanied by separation agreements, are

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usual for a strong organization; it certainly is not indicative of the wholesale dysfunction the

AGO would have the Court believe exists. Any employee complaints about other employees, as well as the few employee terminations, were investigated and handled in accordance with direction from counsel (Lipschultz Decl. at ¶¶ 20-21), and the costs associated with them were included in the Form 990 PF and the annual accounts submitted to the Court and AGO. It is unfortunate, but hardly surprising, that some of those former employees remain disgruntled. The

Trustees, of course, have not yet had the opportunity to cross-examine any former employees or to explain the circumstances leading to their departures.

The AGO’s Memorandum also makes numerous brash and salacious personal allegations that are totally lacking in evidentiary support. For example, the AGO purportedly relies on testimony from former OBT employee, Christine Fuglestad, as the basis for its abhorrent allegation that Messrs. Lipschultz and Reardon belittle or treat women unfairly. (Mem. at 21)

Contrary to the AGO’s support, however, Ms. Fuglestad testified she never personally witnessed

Crosby

Lehmann Aff., Ex.7, Fuglestad at 50:20-51:03 (emphasis added). Indeed, every other OBT employee the AGO interviewed testified they never witnessed any of the trustees make disparaging gender-based remarks. Id., Ex.5 at 69 (D. Benjamin); Ex. 6 at 39, 40, 45 (Carr); Ex.

8 at 56-59 (LookingElk); Ex. 9 at 119 (Pagel); Ex. 10 at 136-139 (Roth); Ex. 11 at 162 (Schon);

Ex. 12 at 108-109, 121 (Suzuki)). That the AGO can make such allegations without a modicum of evidentiary proof borders on slander.20

20 Further undermining the AGO’s allegations of discrimination (Mem. at 21), the “formal sex discrimination charge brought this year with the Minnesota Department of Human Rights” was denied. Reardon Decl., Ex. 73.

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The AGO’s allegations that Trustees Lipschultz and Reardon were biased against ethnic

and religious groups (Mem. at 21-22) are similarly belied by the evidence. For example,

although the AGO relies on testimony from Diane Benjamin for its allegations, Ms. Benjamin

testified she never personally observed any such behavior. Crosby Lehmann Aff., Ex. 5 at 68:07-

13 (D. Benjamin). When asked if she heard from anyone else, Ms. Benjamin referenced

something from another employee, Ann Pagel. Id. at Ex. 5 at 68-69. Yet no testimony the AGO obtained from Ms. Pagel supports such allegation and instead her testimony reflects she never witnessed or heard from anyone else at OBT say that a trustee had spoken with animosity toward an ethnic or immigrant group. Id. at 119:04-16 (Pagel). The other OBT employees interviewed by the AGO also testified they never witnessed the Trustees make disparaging remarks towards racial or ethnic groups. Id. at Ex. 6 at 38-39, 42-43, 45 (Carr); Ex. 7 at 44-45 (Fuglestad); Ex. 10 at 136-139 (Roth); Ex. 12 at 121 (Suzuki).

While former OBT employee Tony LookingElk testified to encounters with Mr. Reardon regarding Native American treaty rights and reservations, such discussions appear to have surrounded conversations as to whether OBT should privately fund certain organizations— certain Native American-affiliated non-profits, in this instance—that were already being provided public/government funding. Of no small moment, OBT funds many non-profit organizations affiliated with Native American groups and tribes—as well as other non-profits that are racially or ethnically diverse, including Muslim and others that may be religiously- affiliated—which has been and continues to be important areas of philanthropy for OBT.

Notwithstanding the foregoing, and with apparent regard to particular organizations at issue at

the time, Mr. LookingElk acknowledged his discussions centered on Mr. Reardon’s

and what Mr. LookingElk viewed as Mr. Reardon’s

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politically conservative views. Crosby Lehmann Aff., Ex. 8 at 82:09-19; 87:10-13 (LookingElk).

That Mr. LookingElk may have taken subjective offense to the alleged discussions is certainly his right, but to paint any of the Trustees as therefore biased or racist is neither fair nor appropriate from one individual’s subjective impression or belief. To further emphasize the unfairness of such allegations, Mr. LookingElk was subsequently asked if he believed the

Trustees possessed “animus” towards certain groups, to which he did not identify any other instances or remarks but instead stated that he because the Trustees were known to be politically conservative, so that meant it was

Id. at 85-87 (LookingElk). No evidence, however, supports Mr. LookingElk’s allegations or opinions.

In any event, even were it so—which it was not—a toxic workplace is not a breach of trust. Settled law makes it plain that the court is not a personnel department, and the AGO has not cited any case law or other authority to suggest otherwise. The Trust Instrument gives the

Trustees full authority to administer OBT as they see fit, and it places full responsibility for the organization squarely on their shoulders. Reardon Decl., Ex. 1 at ¶ 7. That the organization functions, and functions well, is obvious from its performance under objective measures

(including growth of trust assets and the low expense ratio), the number and quality of charitable distributions over the years, the efficient delivery of those distributions, and the diversity and longevity of its employees.

(b) The AGO’s allegation of “Ongoing Waste” due to the Trustees’ defense in pending litigation occasioned by the exercise of their discretion is a red herring.

Up until the BFC Board instigated a merger-of-equals triggering a fair market valuation of nearly $2 billion, OBT always understood the book value of BFC was more than the fair market value. This is critical since BFC pays OBT a dividend of 5% of its book value, but OBT

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must distribute 5% of the fair market value of its assets, including the BFC shares. The obligation for OBT to “

” Reardon Decl., Ex. 61 (emphasis added).

BFC’s pursuit of its intended merger-of-equals “was a gamechanger . . . changing all of our math.” Washington Decl., Ex. 139 (emphasis added). Against this new math, the Trustees evaluated the best way they could protect the trust and serve the community by maximizing their grants and honor the intent of Otto Bremer. In their judgment, this was to sell BFC, capture the extra $1 billion, and shed the risk of low dividends putting OBT’s charitable tax status at risk.

Seeking legal and banking advice, the Trustees invoked their rights under the Trust Instrument to sell their 92% ownership share. In this context, the AGO equates OBT’s decision to exercise its discretion to meet its fiduciary duties as “ongoing waste” since BFC told OBT that litigation would ensue. (Mem. at 103-04.)

In any big merger or sale, litigation should be expected. Otto Bremer anticipated it as well, by authorizing Trustees use of trust assets for litigation fees. Defending litigation filed by others regarding the Trustees’ administration, discretion, and their fiduciary duties falls squarely within the scope of the fees provision. Reardon Decl., Ex. 1 ¶ ¶ 7(c), 13. Moreover, OBT attempted to mitigate the litigation risks by inviting BFC’s participation in the effort to sell, even going so far as to agree that BFC’s own investment banker could lead the effort. Washington

Decl., Ex. 151 at 13. As Mr. Lipschultz told the AGO, the Trustees hoped the BFC directors would see the value of the offer by a major bank and embrace their fiduciary duty to maximize shareholder value (and thereby benefit the charities served by OBT as well) instead of pursuing

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litigation. Lipschultz Decl. at ¶ 9. And when BFC nonetheless initiated litigation, OBT even

offered, at the request of the AGO, to mediate the dispute—but BFC declined. In litigation, OBT

sought an early motion hearing to challenge BFC’s standing to bring claims, but BFC (along

with the AGO) succeeded in delaying that hearing, forcing OBT to engage in costly discovery.21

At the same time, the AGO put the Trustees through a nearly eight month investigation at tremendous expense wherein OBT worked cooperatively and collaboratively until the AGO abruptly filed suit.

Furthermore, the AGO’s position ignores the law: the Trustees have a continuing fiduciary duty to maximize and protect OBT’s charitable assets, a duty which requires them to balance the prudence of diversification with the dictates of the Trust Instrument. The Trust

Instrument (and Minn. Stat. § 501B.45) expressly empower the Trustees to sell BFC when necessary or proper owing to unforeseen circumstances, Reardon Decl., Ex. 1 at ¶ 7 and ¶ 16, and the AGO does not contend otherwise. Honoring the Trust Instrument by fighting against

BFC for the right to double its annual charitable distribution may be expensive in the short run, but it is critical for the life of OBT – a trust that began with $2 million in 1944 and has grown exponentially during the Trustees tenure, to the point where last year, when the litigation began, it had roughly $2 billion in charitable assets.

As for indemnity for the defense against the AGO Petitions, there is no doubt the Trust

Instrument expressly grants that right to the Trustees. Reardon Decl., Ex. 1 at ¶ ¶ 7(c), 13.

Regardless, in view of the recent stay, the AGO’s concern on fees is resolved.

21 Oddly, the AGO faults the Trustees for not obtaining insurance against BFC. No such insurance exists and the AGO fails to provide contrary evidence.

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Having falsely accused them of myriad wrongdoings, the AGO contends that the

Trustees’ intent to defend their discretionary decisions in litigation instituted by others justifies removal. (Mem. at 104-06.) The hostility the AGO feels toward the Trustees is palpable – from its use of speculation rather than supported claims, twisting of testimony, leading questions, overall tenor of investigation, and the extraordinary relief it seeks.22 Hostility, however, “is insufficient to require the removal of the trustee.” Matter of Tr. Created by Hill, 499 N.W.2d at

485 (citing Sternberg v. St. Louis Union Trust Co., 163 F.2d 714, 719 (8th Cir.1947), cert. denied, 332 U.S. 843 (1947)). There was no hostility with the AGO until it filed suit. “It would be a poor rule indeed that would permit a [party] to remove a trustee for hostility it itself engendered . . . .” IFS Indus., Inc. v. Stephens, 205 Cal.Rptr. 915, 925 (1984). Courts should not condone “the creation of hostility by a [party] in order to effectuate the removal of a trustee.” Matter of Tr. Created by Hill, 499 N.W.2d at 485 (citing duPont v. Southern Nat’l Bank of Houston, 771 F.2d 874, 885–86 (5th Cir.1985)); see also Wolosoff v. CSI Liquidating

Trust, 500 A.2d 1076, 1082-83 (1985); In re Luhrs’ Trust, 443 N.W.2d 646, 651 (S.D.1989).

The AGO acknowledges that overall its request for interim relief is based on its desire for a “clean slate,” recognizing that the new trustees it has chosen may exercise their discretion to

“make the same choices,” but those choices won’t be clouded by the need “to litigate where the parties’ . . . loyalties lie.” (Mem. at 106.) The AGO’s inherent dislike of the charitable trust structure and the Trustees’ exercise of their discretionary rights is certainly not a basis for any injunctive relief. If new trustees can make the same decisions as the current ones, the AGO is recognizing that the decisions at issue are discretionary, not a “serious breach of trust.”

22 This hostility is perplexing in light of the previous relationship between the Trustees and the AGO and it bears a strong resemblance to the position set forth by entrenched management, as set forth in their counsel’s 29-page memorandum of May 1, 2020. Crosby Lehmann Aff. ¶ 14.

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The AGO’s error appears to stem from a fundamental misapprehension of trust law: as set forth above, OBT is not a nonprofit corporation with a separate existence with separate legal interests from the Trustees; it is a trust that acts solely through its trustees and has no separate legal existence. Minn. Stat. § 501B.35. As the Trustees repeatedly informed the AGO, OBT is the Trustees and the Trustees are OBT—there is no distinction between them. This is not, as the

AGO mistakenly declares, “a misguided standard” (Mem. at 2), it is the law. It also is Otto

Bremer’s intent: he believed the trustees he appointed, and the successors they appointed, would faithfully execute their fiduciary duties to carry out his charitable intent and that only those trustees should have the authority to do so. Indeed, as a matter of law, the Trustees are fiduciaries bound by the Trust Instrument (the talisman reflecting Mr. Bremer’s intent), and it is the terms of that Trust Instrument, as informed by applicable trust, bank holding company, and tax laws, by which the Trustees’ conduct must be measured—and not some amorphous “best interest of the Trust” measure animated by the AGO’s subjective “concerns.”

Moreover, the AGO’s error continues with an equally fundamental misapprehension regarding oversight of charitable trusts such as OBT. The AGO implies that the Trustees are unsupervised and unaccountable. This is untrue. As set forth above, the Trustees are subject to multiple levels of oversight by: the court through annual filings and every five year hearings, the

AGO through oversight and annual filings, the Federal Reserve (as a bank holding company) through quarterly reporting, and the IRS (by reason of the trustees’ tax return filings for OBT and the occasional audit of those returns by the IRS). The AGO has accepted each annual report without exercising any right to object or appeal. See Minn. Stat. § 501B.31, subd. 5.

None of the four examples the AGO offers in support of its concern (Mem. at 104-05) suggest the Trustees have personal motives adverse to those of OBT. The purported punishment

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of a potential grantee, for example, did not happen. The Trustees exercised their absolute discretion not to fund a PRI request from Habitat for Humanity because BFC already had a lending program with that organization; OBT continues to support Habitat with grants, the most recent one made earlier this year. Reardon Decl., Ex. 74 at 10.23 The Trustees request of an employee that he ask BFC for ESOP plan documents that OBT had no other means of obtaining was neither coercive nor inappropriate; it related specifically to the Trustees’ concern that the board’s conduct in refusing to consider a sale of the company violated their fiduciary duties under ERISA to maximize plan assets. Similarly, the employee declaration itself shows that no testimony was changed but instead the declaration clarifies that her testimony was not inconsistent with the manner in which a Trustee’s inadvertent self-dealing was remedied.24

Finally, the valuation OBT recently received of the BFC shares (Reardon Decl., Ex. 16) had nothing to do with the Trustees’ self-interest, or with sustaining a litigation position, and everything to do with ensuring OBT’s compliance with IRS requirements (which requires the

Trustees, under penalty of perjury, to state the fair market value of an asset for which there was now an active market, with offers, and information from BFC itself, indicating its value to be substantially more than previously stated). See 26 CFR § 1.6033-2(d)(1).

23 OBT was sensitive to the potential for the appearance of problems if both it and BFC loaned money to the nonprofit. Regardless, Brian Lipschultz invited further discussions, stating that “we can get back together later in 2020 and see where things are at in terms of future opportunities.” Reardon Decl., Ex. 75. 24 The employee’s declaration clarifies her testimony relating to questions on her division of time that had become a focus because of the Trustees’ desire to correct the impact of Mr. Lipschultz’s use of the employee in connection with his monitoring of certain private investments. Washington Decl., Ex. 71. The declaration does not deny or change her testimony and, as she herself explained to the AGO, was signed and submitted voluntarily. Id.

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Nor does the fact Trustees consulted counsel throughout their process of deciding to sell their BFC shares and implementing that decision somehow evidence that the Trustees’ interests, or those of their chosen counsel, are separate from and hostile to those of OBT. The Trustees, of course, had the right to retain and consult counsel, and it was prudent to do so. Reardon Decl.,

Ex. 1 at ¶ 12. Exercising those rights does not separate the Trustees from OBT, just as serving as the Trustees’ counsel does not mean counsel is not serving the interests of OBT. The issue is not a separation of interests but rather whether a serious breach of trust has occurred. Regardless, new counsel is involved now to take this case to trial. Whatever the AGO’s concerns once were, the issue no longer exists.

In sum, the AGO’s hyperbole that “every future action Trustees take with respect to BFC will be corrupted by the question of whether Trustees are seeking to retrospectively justify their actions, or prospectively serve the Trust” (Mem. at 105 (emphasis added)) is not and cannot be the standard for preemptory removal or any interim relief. Under no legal standard is it sufficient for the AGO to accuse the Trustees of wrongdoing then conclude that any actions the

Trustees might take, including defending their conduct, are tainted by those accusations, and thus the Trustees must be removed immediately. In other words, following the AGO’s logic, the

Trustees must be removed because the AGO wants them to be removed. The AGO has no legal support for this argument which eviscerates the bedrock notions of procedural fairness and due process.25

25 One need merely turn the lens around to see that the AGO has the same “conflict” of which it accuses the Trustees: unless the AGO succeeds in removing the Trustees and mooting the BFC litigations, it will have wasted tremendous resources of the State and millions of dollars’ worth of charitable assets on an irresponsible investigation and litigation campaign of its own (not to mention having helped BFC destroy the opportunity to add $1,000,000,000 of charitable assets to OBT).

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(d) There are no other risks of irreparable harm.

The AGO presumably included all of its most serious allegations in the section of its

Memorandum seeking interim relief. (Mem. at 102-06.) To the extent it now contends that other allegations justify any interim relief, the AGO has not established any irreparable harm.

For example, the contention that the Trustees made grants to “worthy recipients” for which they disclosed their service as board members does not threaten irreparable harm or violate the conflict policy. (Mem. at 71; Washington Decl., Ex. 41, OBT Conflict Policy.) In fact, citing to the OBT Conflict of Interest policy (Washington Decl., Ex. 41) and to certain testimony involving four individual grants, the AGO’s evidence shows no financial or fiduciary conflict. (AGO Mem. 18-20.)

OBT’s conflict policy details two types of conflicts: financial and fiduciary. No financial conflict is raised by the AGO. The AGO may be challenging the fiduciary conflict policy, which encourages the Trustees to be involved in the community and to serve on other charitable boards, since doing so “furthers [OBT’s] mission by having its Trustees involved in the community.”

(Washington Decl., Ex. 41 at 2.) The fiduciary policy acknowledges that such organizations may apply for funding from OBT, which creates a fiduciary conflict that, although not legally required, is best handled by the Trustee’s disclosure of his or her involvement. (Mem. at 17.)

Rather than assert a violation of the fiduciary policy, the AGO disagrees with the policy and the Trustees’ absolute discretion as to four grants. To the AGO, no grant should have been made to the (1) Como Zoo when it was in financial distress since the Trustees knew Reardon was on the Como board; (2) to the St. Paul Police Federation since Reardon knew the Police Chief;

(3) Free the Children since an employee viewed the organization as ineffective; and, (4) We Day.

(Mem. at 18-20.) The evidence the AGO cites for these four grants involves general dislike of strategic grants by staff since staff doesn’t have the same level of control over such grants, along

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with self-described “watercooler” talk. Reviewing the citations, there is no evidence of any wrongdoing. (Mem. at 19-20.)

The AGO’s last allegation is particularly egregious. The AGO implies that Lipschultz’s family received some benefit (in the form of a trip to Africa) from a grant recipient. (Mem. at

19.) This is blatantly false, unsupported, and defamatory. Lipschultz Decl. ¶ 19. For this, the

AGO asked the witness to give her “unofficial” “understanding,” “just hypothesize,” or “just the talk” related to the We Day grant. Crosby Lehmann Aff., Ex. 5 at 46-47 (D. Benjamin). The witness, in the page included by the AGO, raised that We Day runs trips to Africa and “after they made the grant, that summer his family took a trip.” (Mem. at 19; Washington Decl., Ex. 40 at

46.) Her testimony continued, however (which the AGO omitted from its Declaration), establishing that she had no first-hand knowledge and was unaware of anyone that would know of any connection. Crosby Lehmann Aff., Ex. 5 at 47 (D. Benjamin). Lipschultz confirms he did not receive any such travel benefit. Lipschultz Decl. at ¶ 19. Of all the cites provided of alleged self-dealing in grantmaking, none shows any impropriety, violation of law or OBT policy, or bad faith.

Similarly, the fact that four years ago the Trustees moved offices and in 2018 expanded to include the remaining fraction of the same floor (or risk losing the remainder of the same floor for the next ten years) does not threaten irreparable harm necessitating emergency relief. The expenses for what the AGO calls the “lavish” offices were incurred in 2016 or before and were reflected in the annual accounts, including that for 2016 which was specifically confirmed and ratified by the Court in its December 26, 2017 Order. Office expenses are also included within

OBT’s reported expenses, which nonetheless continued to reflect a far lower expense to

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distribution ratio than its peers. Regardless, removing the Trustees now, without a fair trial, will

do nothing to remedy this purported injury.

Lastly, as described more fully below, the AGO makes much of the Trustees’

compensation but ignores that the Court repeatedly approved the compensation structure, the

structure has been followed, the compensation was reported annually to the AGO and the AGO

never objected, and the Trust Instrument, as confirmed by the Court, allows compensation of up

to 4% of OBT’s value (a level the Trustees’ compensation has never even approached). See,

e.g., Reardon Decl. Ex. 5; Berens Decl., Ex. F, (2011 and 2017 orders).

(e) OBT risks substantial harm by the AGO’s interference with the proper operation of the Trust.

Under Dahlberg, the AGO must prove both that it will suffer irreparable harm, and that

there will be no substantial harm to OBT. See Pacific Equip. & Irrigation, 519 N.W.2d at 915.

Here, the Trustees will unquestionably suffer substantial harm if the temporary relief in the

Interim Petition is granted.26

Removing the Trustees would deprive them of their long-standing jobs and would upend the trustee selection process Mr. Bremer set forth in the Trust Instrument, which has worked for seventy-five years. Reardon Decl., Ex. 1 at ¶ 8. Rather than allowing an individual who has an intimate knowledge of the needs of OBT to select his or her successor, the AGO wishes to

26 To alleviate the Court and AGO’s concern, as noted herein, the Trustees are willing to provide monthly accountings of OBT’s expenses and grants and to not commit to new private investments in hedge fund or private equity. The Trustees are already bound by law and the Trust Instrument to not commit a breach of trust. None of the remaining relief requested (which is appointing a fiduciary to take control of the Trust property and administer the Trust, suspending and removing the Trustees and requiring their cooperation with new ones, appointing new trustees, denying or requiring the Court to pre-approve all attorney fees for the Trustees’ defense in this and the related cases, court review of attorney conflicts, and granting other relief) is warranted or related to the allegations at hand.

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appoint hand-picked candidates with no experience or history with OBT and no experience with banking or operating a bank holding company. Doing so jeopardizes the future viability of the organization. Given the AGO’s dislike of trusts, it may dictate that the new trustees change the corporate format and influence any new trustee to decline, despite fiduciary duties, to consider a sale of BFC. The time to create, and eventually undo, any corporate structure along with the learning curve to manage the investments of a $2 billion charitable trust will be felt by the community and the bottom line. Diverting the Trust’s focus to provide the AGO a “clean slate” is not and cannot be justified. (Mem. at 105.)

Finally, the summary removal of the Trustees without affording them an opportunity to testify and present evidence at a full hearing on the Petition against them, especially when there is no serious breach of fiduciary duty alleged and no risk of imminent or irreparable harm, deprives them of due process and is contrary to Minn. Stat. § 501C.0706. Therefore, the balance of the harms weighs decidedly in favor of denying interim relief.

2. Likelihood of success favors Trustees.

The bar for injunctive relief is high and the AGO’s Petition for Interim Relief fails to meet it. Courts generally do not disturb the decisions of trustees. O’Shaughnessy, 517 N.W.2d at 577. “[S]o long as the trustees act in good faith, from proper motives, and within the bounds of reasonable judgment, the court will not interfere with their decisions.” Id. (citation omitted);

Norwest Bank Minnesota N., N.A. v. Beckler, 663 N.W.2d 571, 580–81 (Minn. Ct. App. 2003)

(same).

The same facts and law showing the absence of irreparable harm, highlight that the

Trustees acted in good faith from proper motives and within the bounds of reasonable judgment for every allegation raised by the AGO. That is enough to show there has been no breach of trust, let alone a breach of the serious nature required by the statute and the Trust Instrument

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before the Trustees can be liable and before their removal (or any relief) could be proper. See In

re Comstock’s Will, 17 N.W.2d at 665 (stating that a trust was administered “in a careful, prudent, honest, and intelligent manner” despite “mistakes made by the trustee . . . in good faith and upon the advice of counsel”). In order to expedite both AGO petitions, OBT requests that the Court make findings that by law none of the AGO allegations is a serious breach of trust.

(a) The Trustees acted reasonably and responsibly in selling BFC shares.

At the very heart of the AGO’s Petitions is its unsupported allegation the Trustees acted

“breathtakingly recklessly” and contrary to the purpose of the Trust Instrument in selling BFC shares on October 25, 2019. (Mem. at 1.) As an initial matter, because the sale took place 10 months ago it cannot possibly require preliminary injunctive relief. See Schrier v. Univ. of Colo.,

427 F.3d 1253, 1267 (10th Cir. 2005) (“The purpose of a preliminary injunction is not to remedy

past harm but to protect plaintiffs from irreparable injury that will surely result without their

issuance.”). More importantly, the facts confirm the Trustees made this decision in good faith

and as part of a deliberate process years in the making.

As early as 1989, Attorney General Warren Spannaus and BFC President Terry

Cummings recognized the potential need for and right of OBT, as 92% owner of BFC, to sell and

control a sale of BFC. Lipschultz Decl., Exs. B-6, B-8. The Court’s 2017 Order shows

consideration of a sale was part of the Trustees’ annual fiduciary duty. As shown by the 2019

BFC board minutes, there was considerable effort expended by BFC and OBT to evaluate the

need and potential sale along with compliance with the terms of the Trust Instrument. Indeed,

BFC management’s own pursuit of a sale through a merger-of-equals transaction caused the

cascade of events forming the basis of the BFC litigation and the AGO Petitions. It created, for

the first time in the history of OBT, a situation in which OBT would be required to report BFC’s

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fair market value as being substantially in excess of its book value, which meant BFC would not be able to sustain paying dividends at the level that its increased value would require for OBT to meet its tax obligations for making charitable distributions. As for allegations that the Trustees would profit based on a sale, the Trustees had no compensation incentive since any material compensation change would require Court approval (and they agreed to freeze their salary for

2020-2021 to confirm this). And OBT voluntarily engaged the AGO in pre-sale discussions, with the AGO raising only a post-sale compensation question. All of this, combined with extensive consultation with legal and industry experts and based on the existence of unforeseen changed circumstances created the necessity and propriety of selling BFC to maximize (and preserve) OBT’s charitable assets.

After investigating the sale for eight months, the AGO now “takes no position on the validity of the transaction,” i.e., on whether the Trustees had the right—even the duty—to make those sales. (Mem. at 40, n.4.) As a matter of law, this alone is enough to conclude the AGO lacks a legal basis to allege any breach, much less a serious one, of fiduciary duty based on any allegations concerning the potential sale.

(b) The Trustees have properly administered OBT.

The AGO contends the Trustees should be removed because of “their longstanding failure to effectively administer” the Trust, and zeroes in on the purported examples set forth in pages 102-06 of its Memorandum, without once mentioning any of the metrics that reflect the objective measure of the Trustees’ effectiveness in administering OBT. Nor has the AGO attempted to establish that any of the conduct alleged, even were it true, would amount to a breach of trust sufficiently serious—one, in the words of the Trust Instrument itself, “attributable to the Trustees’ “dishonesty or to the willful commission by him of an act known by him to be a breach of trust”—to justify the extreme remedy of removal. Each AGO allegation is addressed

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in detail above. Here, the AGO’s primary claims as to OBT administration (Lipschultz’s

corrected mistake, investment strategy, CBFC subsidiary, the OBT workplace, legal fees) are

addressed summarily and sufficiently to show that no allegation is likely to succeed on the

merits.

Lipschultz’s corrected mistake. The contention the AGO calls “serious” (Trustee

Lipschultz’s voluntary payment of administrative resources) is one that has already been

corrected in the manner provided by statute. (Mem. at 103; Minn. Stat. § 501C.1001(b).) Yet the

AGO offers no legal authority to justify the relief sought for the worries it raises. See In re

Estate of Rosenbrook, No. A12-1715, 2013 WL 2301954, at *3-4 (Minn. Ct. App. May 28,

2013) (Crosby Lehmann Aff., Ex. 13) (affirming a district court’s decision not to remove a

trustee for using a trust property for personal purposes where the district court determined that

the trustees did not act in bad faith because they believed the use was consistent with the intent

of the trust instrument). Mistakes which a trustee corrects and do not prejudice the trust are not

grounds for removal. In re Will of Gershcow, 261 N.W.2d at 340 (corrected mistakes made in good faith are no basis for removal); In re Comstock's Will, 17 N.W.2d at 665 (same).

Absolute discretion for investments. Similarly, the AGO cannot show that the Trustees’ good faith, well-researched, and properly executed shift in the investment strategy for OBT’s non-BFC portfolio violated the Trust Instrument, or Minnesota or federal law. The investment strategy, discussed by OBT with the Federal Reserve, has performed exceedingly well, and there is no evidence it has subjected OBT to inappropriate or unnecessary risk. Reardon Decl, Ex. 45-

46. The Trust Instrument gives the Trustees absolute discretion in making investment

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decisions.27 See Sword v. Marquette Nat’l Bank, 91 N.W.2d 75, 76 (Minn. 1958) (“A trustee derives his authority from the instrument creating the trust, and each case must be decided in the light of the provisions of the particular trust instrument.”).

Applicable case law and statutes respect that discretion and impose a duty on trustees to invest trust assets prudently, and to diversify if prudent. See, In re Comstock's Will, 17 N.W.2d at 661 (looking to facts at the time to determine whether investments were prudent); In re Will of

Williams, 631 N.W.2d 398, 406 (Minn. App. 2001) (“[S]ettlor’s intent, as expressed in the trust instrument, is relevant to the question of whether the trustees had a duty to diversify the trust assets. But it does not, alone, answer the question. . . .”).28 Within that framework of deference to the Trustees’ investment decisions, the AGO’s failure to offer expert testimony establishing serious impropriety is particularly damning. Given prior approval by the Court and lack of objection by the AGO of OBT’s similar and longstanding investments in other private funds, the

AGO cannot succeed on its claim that the Trustees’ investment decisions somehow breach their fiduciary duties, justifying any relief. See In re Ward, 360 N.W.2d 650, 653 (Minn. App. 1985)

27 The Trust Instrument provides only that Trustees may not invest in certain real estate or mortgages or unimproved property or mortgages in excess of 50% of the fair market value of the real estate, with further limits on the amortization period and types of buildings permitted. Reardon Decl. Ex. 1 at ¶ 16. These limitations are not at issue. 28 The Minnesota Prudent Investor Act requires trustees to “invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust” Minn. Stat. § 501C.0901, subd. 2. The Act also requires Trustees to “diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.” Id., subd. 3. Whether the particular asset in which a trustee invests or of which the trustee disposes bears some special relationship to the purpose of the trust, is just one of eight express factors trustees are required to consider in making investments. Id., subd. 2(c). Evaluation of a trustee’s investment and management decisions cannot be made “in isolation.” Id., subd. 2(b). Rather, trustees must consider the “context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.” Id.

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(holding that a trustee’s decisions previously approved by a court accounting are “res judicata

and the trustee should have been able reasonably to rely on the court's approval).

CBFC subsidiary. Nor can the AGO show that the Trustees’ decision to create CBFC

and use it as a management tool for OBT’s PRI charitable distributions constitutes a breach of

trust, let alone a serious one. As shown above, creating CBFC was a prudent, discretionary

decision in OBT’s continued efforts to maintain a low expense-to distribution ratio. Courts will

not interfere with a trustee’s exercise of discretion unless that discretion has been abused. See In

re Trusts Created by Hormel, 504 N.W.2d 505, 512 (Minn. App. 1993). The AGO offers no

evidence of such abuse.

The OBT workplace. Putting aside that the AGO’s allegations regarding OBT’s

workplace environment are based largely on the secret complaints (and speculation) of

disgruntled former employees, whom the Trustees have not had an opportunity to cross-examine,

the AGO offered no evidence of retaliation or other wrongful acts by the Trustees. Nor has it

provided any authority to support its assertion that workplace conditions could be a basis for

removing a trustee. Trustees have broad discretion to exercise judgment in the management of

the organization, and courts generally do not peer into those matters. In re Ruth Easton Fund,

680 N.W.2d at 549 (“[T]rustees [may] act . . . within the bounds of reasonable judgment, the

court will not interfere with their decisions.”).

OBT legal fees. The AGO’s contention the Trustees are inappropriately spending funds on legal counsel fails on the language of the Trust Instrument. Reardon Decl., Ex. A ¶ 7(c).

Trustees are permitted to pay attorney fees in litigation. In re Freeman’s Tr., 75 N.W.2d 906,

910 (1956) (“A trustee is entitled to reasonable attorneys’ fees, to be paid out of the trust estate,

incurred in good faith.”); see also Lund v. Lund, 924 N.W.2d 274, 285-86 (Minn. Ct. App. 2019)

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(noting that In re Freeman’s Tr. is still good law). The Trustees’ fiduciary duties require payment of legal fees to enforce the rights and obligations of current and future Trustees under the Trust Instrument and applicable law as well as the rights and obligations with regard to OBT assets. Lipschultz Decl. ¶ 26-28.

The Trustees did not initiate any litigation, and indeed were hopeful that if any litigation in fact were forthcoming the clear language in the Trust Instrument and the conversion rights of the Class B shares would put a swift end to any fight. That the end has not been swift cannot be blamed on the Trustees, and likely was motivated by various BFC directors and officers motivated to keep their jobs. As the AGO well knows (but disregards), the Trustees repeatedly tried to limit the costs of discovery and pushed for early termination of the litigation through motions to dismiss only to be stymied by the AGO’s own request for a delay. Id. at ¶¶ 5, 26-28.

Put simply, the Trustees have a right to defend themselves, choose their investments, corporate structure, and administration of OBT while relying on the Court-approved annual accounts for which the AGO failed to object or appeal. No serious breach has been alleged and each allegation should be dismissed in hand. Importantly, any scare tactic that trusts are illegitimate as they lack oversight and that trustees have no right to a legal defense should be questioned by every trustee of any charitable trust in Minnesota.

Orders allowing annual accounts have the legal effect of a final judgment. In re Trust

Created by Hill, 499 N.W.2d at 489 (citing In re Enger’s Will, 30 N.W.2d 694, 699 (1948)). In

Hill, all claims prior to the trust's court-approved annual accounts through were dismissed as res judicata. 499 N.W.2d at 489. Moreover, trustees are permitted to, and reasonably should, rely on the court’s approval. In re Ward, 360 N.W.2d at 653 (holding that, among other reasons, a

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trustee’s decision to invest and make distributions previously approved by a court accounting are

“res judicata and the trustee should have been able reasonably to rely on the court's approval”).

Here, the AGO erroneously characterizes the Trustees’ compensation as a “persistent failure” justifying their removal.29 (Mem. at 72.) The AGO also complains of the expenses for an allegedly “lavish” 2015 office remodel and furniture purchase and old payments for severance agreements. The Court’s 2017 Order reviews and approves all such expenses through 2016, including the Trustees’ compensation structure, investment advisory fees, and office expenses.

As a matter of law, these claims are precluded from objection today (Matter of Tr. Created by

Hill, 499 N.W.2d at 289) and the Trustees are allowed to reasonably rely on the Court’s approval. Ward, 360 N.W.2d at 653; see also Minn. Stat. § 501C.0802(b)(2) (“[T]ransaction[s] involving the investment or management of trust property . . . for the trustee’s own personal account or which is otherwise affected by a conflict between the trustee’s fiduciary and personal interests is voidable by a beneficiary affected by the transaction unless . . . the transaction was approved by the court.”) The Court’s and AGO’s repeated acceptance of that compensation over the past decade bars it from pursuing any claim whatsoever with respect to compensation.

In any event, both the Trust Instrument unquestionably authorizes Trustees’ compensation up to 4% of OBT’s income, and the Trustee compensation has never reached the

4% level. Reardon Decl., Ex. 1 at ¶ 13. Moreover, the Trustees have periodically engaged independent consultants to evaluate their compensation, including that paid under the Investment

29 A “persistent failure” can only be the basis of a trustee’s removal when “the court determines that removal of the trustee best serves the interests of the beneficiaries because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively.” Minn. Stat. § 501C.0706. Given that OBT has the lowest expense ratio in Minnesota, the trust assets have grown dramatically under the current Trustees, and the Trustees have distributed more than $400,000,000 to deserving charitable organizations in the last eight years alone, there can be no sincere allegation that removal of the Trustees is needed to provide for effective administration.

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Services Agreement to compensate for the unique responsibilities and services of the Trustees, and those experts concluded the Trustees’ compensation was well below that of comparable peers performing similar responsibilities. Reardon Decl., Ex. 67.

(d) The AGO cannot seek to have the Trustees removed without cause.

Relying on Minn. Stat. § 501C.0706(4), the AGO claims it is the sole “qualified beneficiary,” and because it seeks removal, the court can therefore remove the Trustees without cause. (Mem. at 99-100.) This is factually and legally unsupported.

Minnesota Stat. § 501C.0706(4) provides that a court may remove a trustee when:

there has been a substantial change in circumstances or removal is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available.

By statute, however, the AGO is not a qualified beneficiary of OBT, nor could it ever be the sole one. There are many beneficiaries as there are many who have received a permissible distribution of trust income or principal—each year, OBT issues grants to hundreds of organizations, each of which qualified to benefit from OBT. And, as shown herein, the remainder of the provision is not met since removal is not in the best interests of all beneficiaries and is inconsistent with the Trust Instrument regarding who is an appropriate successor trustee.

For background, Minn. Stat. § 501C.0103 defines a "qualified beneficiary" as a beneficiary who or which “(1) is a distributee or permissible distributee of trust income or principal; (2) would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in clause (1) terminated on that date without causing the

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trust to terminate; or (3) would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date.” The AGO is none of these things.

Under Chapter 501B the AGO is a representative of “beneficial interest,” having the authority to participate in court proceedings (in rem proceedings are brought pursuant to Minn.

Stat. § 501C.0203) involving charitable trusts and to seek various form of relief, including removal, in order to remedy and redress breaches of trust. Minn. Stat. § 501B.41, subd. 7. In comparison, Minnesota Stat. § 501C.0110(d), the statute the AGO relies on (Mem. at 100), gives the AGO the “rights of a qualified beneficiary,” meaning it has rights as to notice and standing.

This provision does not convert the AGO into a qualified beneficiary able to circumvent the statutory standard for removal. In fact, Minn. Stat. § 501B.41, which describes the enforcement powers specific to the AGO, is silent as to the applicable standard when the AGO seeks removal, meaning that the specific removal rules of Minn. Stat. §501C.0706 apply. See Connexus Energy v. Comm’r of Revenue, 868 N.W.2d 234, 242 (Minn. 2015) (explaining that in times of conflict between statutory provisions, the “[s]pecific provisions in a statute control general provisions” and this is particularly true when the specific provision is part of a comprehensive scheme targeting “specific problems with specific solutions”).

* * *

Ultimately, it appears that the Trustees’ sin, in the eyes of the AGO, is that they are trustees of a Minnesota charitable trust making the discretionary decisions their Trust Instrument empowers them to make but with which the AGO disagrees. The AGO would rather OBT be a nonprofit corporation subject to an oversight regime that feels more comfortable to the AGO.

But that is not what the grantor wanted, is not what the Trust Instrument says, and is not what the law of charitable trusts allows. In fact and in law, the Trustees (acting as fiduciaries) are OBT

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and OBT is the Trustees. As any fair reading of the record will demonstrate, the Trustees have faithfully fulfilled their fiduciary duties and there is no basis for removal, or any interim relief.

3. Public policy favors denying interim relief.

Public policy factors similarly weigh against removing the Trustees or granting any other relief constraining their ability to function. The Petition for Interim Relief would create an intolerable precedent and ill-conceived public policy if the AGO can:

 Ignore years of AGO accepted, court-approved annual accountings, without any new evidence of expenses, grant-making, compensation, workplace decisions and other aspects of trust administration to use as the basis for removal;

 Second-guess a trustee’s judgment regarding investment strategy without any objective evidence of impropriety and without any showing of harm to the trust;

 Abrogate the terms of a charitable trust instrument with respect to the appointment of successor trustees merely because it mistrusts existing trustees and prefers a “clean slate”;

 Ignore the province of other regulators, especially the Federal Reserve, on appropriate investments and sale of a bank holding company;

 Force a wholesale change in the structure and focus of a charitable trust, without proving any serious breach of trust law, or that it would serve the beneficiaries’ interests; and

 Use the fact that a trustee retains lawyers to defend himself against false charges as a basis for removal (thereby depriving Minnesota trustees of the right to defend a trust in court).

Allowing the AGO such unbridled discretion undermines the confidence of charitable trusts and their beneficiaries, and exceeds the statutory authority granted to the AGO.

4. “The parties’ relationship” favors the Trustees.

When considering the relationship of the parties, the court examines whether the issuance of the preliminary injunction would change the status quo between the parties. See Pickerign,

228 N.W.2d at 565. Here, the status quo indisputably would change: the interim relief sought in

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fact would be permanent since the Trustees would lose their positions; the appointment of the proposed replacement trustees or a special fiduciary would abrogate the terms of the Trust

Instrument (which specifies the precise methodology for the replacement of trustees and caps their number at three in ¶ 8(c)), the long-term grantmaking strategy would be disjointed and possibly abandoned; and the heretofore decades-long relationship of cooperation and productive dialogue between the Trustees and their regulators would evaporate. Granting the preliminary relief would effectively give the AGO the final relief it seeks—before a full and fair hearing on the merits. It is difficult to imagine a more complete—and irrevocable—change in the status quo.

Before the petitions were filed, the AGO and Trustees had an open and cordial relationship. These Petitions created the hostility the AGO complains of. See supra at

Section I(A)(1)(c) (explaining how hostility may not be created then used by the same party as a basis for removal). There should be no room for hostility where the Trustees, as here, have offered increased transparency during the pendency of these proceedings.

5. The administrative burdens of the AGO’s requested relief would be prohibitive.

The AGO’s requested relief would impose significant burdens on this Court. When analyzing this factor courts generally conclude that the injunctions that impose ongoing supervisory duties on the court “would be a drain on scarce judicial resources” and therefore counsel against issuing an injunction. See Pacific Equip. & Irrigation, 519 N.W.2d at 916. In this case, the AGO requested not only that the Court remove the current trustees but also that that it replace them or have a special fiduciary in addition to other requested relief. Although the

AGO has hand-picked its own candidates, there is no reason to believe they would be able to manage the complexities of the organization, particularly its status as a bank holding company

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reporting to the Federal Reserve, without recourse to the Court for constant reporting, supervision and, potentially, decision-making.30

CONCLUSION

For all the foregoing reasons, and based on the accompanying Declarations, this Court should deny any interim relief and dismiss the Petition for Interim Relief. In addition, the

Trustees request an Order awarding them attorney fees and expenses incurred to defend against this Petition since the position of the AGO was not substantially justified. See Minn. Stat.

§ 15.472.

Dated: September 21, 2020 CIRESI CONLIN LLP

__/s/ Michael V. Ciresi _

Michael V. Ciresi (MN #16949) Katie Crosby Lehmann (MN #257357) Mathew R. Korte (MN #386829) 225 South Sixth Street, Suite 4600 Minneapolis, MN 55402 Tel: (612) 361-8200 Fax: (612) 361-8217 Email: [email protected] [email protected] [email protected]

Attorneys for Trustees Charlotte S. Johnson, Daniel C. Reardon, and S. Brian Lipschultz

30 As further evidence of the imprudence of the AGO’s actions, it and its proposed nominees have failed to obtain proper approval from applicable regulatory authorities.