The future of Bremer Financial Corp., which operates Minnesota’s fourth largest bank, and the charitable trust that owns it is being tested this week in St. Paul.
The state attorney general’s office will face off against the Otto Bremer Trust, which owns the bank in a one-of-a-kind arrangement in U.S. banking.
State prosecutors will try to convince a judge that the three Bremer directors who tried to sell the bank two years ago should be sacked over alleged mismanagement and self-operations.
During the trial, which is expected to last around two weeks, more than two dozen witnesses are expected to be called to testify primarily in person.
Among those expected to take the helm are the directors – Daniel Reardon, Brian Lipschultz and Charlotte Johnson – as well as Bremer Bank CEO Jeanne Crain, other current and former employees, and outside experts, including economist Glenn Hubbard , who headed the Council of Economic Advisors under President George W. Bush.
“I imagine this is going to be an expert battle in some ways,” particularly over what it means to be a good steward of a trust, said Paul Vaaler, a business law expert at the University of Minnesota.
He said both sides have a lot of resources at their disposal and have shown that they are determined to make it happen.
“This sort of thing is usually sorted out behind the scenes,” Vaaler added.
Not in this case. Over the past year and a half, thousands of pages of factums, examinations for discovery and other court documents have been filed.
Two legal heavyweights from Minnesota argue for either side. On one side is the office of Attorney General Keith Ellison, who has assembled a winning team to successfully prosecute former Minneapolis cop Derek Chauvin for the murder of George Floyd.
The team hired by the trust is led by Mike Ciresi, a prominent Minnesota lawyer who is perhaps best known for taking on Big Tobacco in the 1990s and winning a $ 7.1 billion settlement.
But the lawsuit may not resolve the central dispute between the bank’s trustees and executives over whether the trustees can sell the Saint-Paul-based banking company,
The attorney general’s office says its case is not about this specific issue, but rather how the trustees decided to do it, showing evidence of mismanagement.
In a recent order, Ramsey County District Judge Robert Awsumb wrote that it “may not be possible” to arrive at the state’s alleged wrongdoing without determining whether the attempt of the trustees to sell Bremer Financial was appropriate.
The fight against Bremer Financial began in 2019 when the directors announced that they wanted to sell the trust’s stake in the bank, even after the bank’s board rejected the idea. The trust said it could increase its charitable donations with the proceeds from the sale, which at the time may have exceeded $ 1 billion.
But Bremer Financial executives argued that the trustees wanted to proceed with the sale to increase their own income.
Bremer Financial has approximately $ 15 billion in assets and operates 83 branches in Minnesota, Wisconsin and North Dakota.
The trust owns the bank in an unusual arrangement that dates back to the 1940s when the bank’s founder, Otto Bremer, established it a few years before his death. However, since the 1980s, trustees have been prevented by law from exercising control over the operations of the banking company.
Today, Bremer is the only bank in the United States owned by a charitable trust. And the Otto Bremer Trust, which derives its funds from dividends paid by Bremer Financial, is one of the state’s largest philanthropies. It distributes more than $ 50 million a year to organizations in Minnesota and other states where the bank has a presence.
After the directors clashed with executives over the bank’s future, they sold part of the trust’s shares in Bremer Financial to outside investors, mostly hedge funds, in hopes of bringing in more. voice to push for the sale of Bremer Financial to another bank.
A flurry of lawsuits ensued in late 2019. And last year, Ellison’s office, which has public oversight over the trust, stepped in and asked the court to oust the three trustees.
In November 2020, Awsumb refused to dismiss the three directors urgently. But he put restrictions on their jobs, canceled their compensation, and banned them from selling more Bremer shares without his approval. He said a full hearing would be needed to consider the merits of the case, which will begin this week.
The attorney general’s office alleges that the directors are unfit to run Otto Bremer Trust and are engaged in professional misconduct. He called the trust’s sale of Bremer Financial shares in October 2019 “hasty and reckless.”
The trustees counter that they have administered the trust with proper prudence and note that its charitable contributions have increased each year under their leadership. They said the sale of the trust’s shares in Bremer Financial was necessary to comply with the rules governing charitable trusts.
“After an eight-month investigation, followed by a year of litigation and demanding discoveries, the record is clear: there was no breach of fiduciary duty on the part of the trustees, let alone a serious breach. “the trustees said in court documents.
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