The estate of the late D.D. Wozniak, known as "the grandpa judge" by his colleagues on the Minnesota Court of Appeals, is at the center of a roiling family feud.

The judge's oldest granddaughter -- Victoria Alvina Morton, 31, of Minnetonka -- has gone to court seeking to remove two of her uncles as trustees of his estate, alleging that one has cheated her and her 10 cousins out of an estimated $3.9 million, and that the other uncle turned a blind eye to his brother's actions.

Daniel Donald Wozniak, patriarch of a storied St. Paul family, was known publicly by his initials -- D.D. He served as a state representative from 1950 to 1965, when he left for Ecuador as ambassador select, a notch below the rank of ambassador. He was appointed by Gov. Rudy Perpich to the newly formed state Court of Appeals in 1982 and became its chief two years later. He retired from the bench in 1992 at the age of 70 and died of natural causes in 2005.

In the early 1990s, the judge set up two irrevocable trusts for the benefit of his 11 grandchildren. His two sons, Daniel D. Wozniak Jr. and George W. Wozniak, were appointed to oversee the trusts. Dan Jr. is a partner in MW Development, a Minneapolis-based developer and investment firm focusing on infill and redevelopment projects. George had owned Gabe's Roadhouse in St. Paul and also the now defunct Hobbit Travel agency.

Collectively, the trusts are involved in partnerships that own five Walgreens stores in Minnesota and Colorado and a small mall in Anoka County. Their combined holdings in April 2010 were valued at about $15 million.

Morton filed a petition in Hennepin County District Court in November seeking to remove her two uncles as co-trustees. She contends that Daniel Wozniak plundered the trusts for his own benefit and that George Wozniak abdicated nearly all of his trustee duties, even after an auditor he hired several years ago raised serious concerns.

The granddaughter seeks an accounting of the trusts from 1992 to 2010 and surcharges for losses the trusts sustained due to "willful breaches of loyalty" and certain other issues. She wants her mother, Victoria Wozniak-Morris, appointed as trustee. Victoria is Dan's and George's sole surviving sister. She could not be reached for comment Monday.

Morton's attorney, Dulce Foster of the Minneapolis law firm Fredrikson & Byron, said her client does not want to comment publicly on the dispute.

"Despite how it might look, she doesn't want to hurt her uncles any more than it appears she has to. And she's not interested in hurting her cousins, either. And I think they feel pretty strongly that publicity will damage a lot of those relationships," Foster said. "We consider this a private family matter. We're not trying to make it bigger than it is."

Investigators hired

But the petition raises serious legal issues, largely based on a report prepared in October by Waypoint Inc., a group of former federal investigators based in White Bear Lake that Morton hired to evaluate the handling of the trusts.

"The report concludes that Daniel D. Wozniak, Jr., blatantly abused his co-trustee powers for personal gain," Morton's petition says. The report, written by retired IRS agent Rodney Oakes, says that Daniel Wozniak Jr. engaged in "self-dealing through numerous transactions" involving the trusts' business interests. It alleges that he diverted some of the trusts' income and assets to himself and to third parties, including Richard J. Hauser, a longtime business associate, and to Hauser's family. And it says that Dan Jr. commingled the trusts' funds with his own and leveraged their business interests to obtain loans for himself.

The petition says George Wozniak "wilfully breached his duty of loyalty" and due care by failing to properly supervise his brother's actions and by failing to rectify any breaches he discovered.

The brothers' attorney said they did nothing wrong.

"There's absolutely no merit whatsoever to any of the allegations," said Jack Harper, a lawyer with Messerli & Kramer in Minneapolis. He declined to comment on specific allegations. "When the facts come out it will be clear:All the allegations they made are unfortunate and without merit," Harper said.

Morton seeks recovery of property that she alleges "has been misappropriated" by Hauser and his family or any other individual or entity. Waypoint's investigation found that Hauser or his family members had varying interests in all of the trusts' holdings, though Morton isn't alleging that the Hausers intended to do anything improper.

Richard Hauser could not be reached for comment.

According to regulatory filings, Hauser previously worked with Daniel Wozniak Jr. at Reliance Development Co. Hauser is president and owner of Capital Real Estate, Inc., a commercial real estate development company based in Minneapolis, which he founded in 2001. He also owns and manages Net Lease Development, an operating company under Capital Real Estate, and is "a member and managing partner of several other partnerships formed for real estate and related ventures." Hauser Holdings is an entity controlled by his wife, Mary Jane Hauser, which has a major stake in the upscale restaurant chain Kona Grill.

'A position of personal gain'

The Waypoint report says that in all six partnerships in which the trusts were invested, Daniel Wozniak Jr. "placed himself in a position of personal gain." He was a principal in the companies that developed and sold the properties to the partnerships, "a clear conflict of interest between a trustee's fiduciary duty and personal interest," the report says. It says he also held a personal interest in many of the transactions in which he or his partners stood to gain.

In one deal, the Waypoint report says, Daniel Wozniak sold on behalf of one of the partnerships an Inver Grove Heights lot. Hauser's Net Lease Development firm bought it for $38,000, then resold it the same day for $220,000. The profit on that "clearly questionable" deal should have gone to the trust's partnership, the report said. Making matters worse, it says the transaction was reported improperly, meaning the partnership reported a net gain rather than the loss it was entitled to, resulting in a tax overpayment.

Before he died, Judge Wozniak apparently raised some concerns about Dan Jr.'s trust activities. In a memos to his brother George in 1997 and to Judge Wozniak the following year, Dan Jr. said he planned to give up his personal interests in the trusts, noting that "after receiving advice from my attorneys I've concluded the attacks on my integrity are not worth it."

In a 1998 memo to his father, Daniel wrote: "I want to end the current feeling by my siblings and you that I have somehow been benefitted personally by the investments I have made on behalf of the Trust in Reliance's (or our own) development projects."

Although Dan Jr. did assign "some or all" of his interests in the trusts, he later disregarded those assignments "and continued to treat the Partnership interests as his own," the Waypoint report says. "His failure to acknowledge the transfers is unmistakable in the Partnership and Trust tax returns, and in misleading letters and valuation analyses provided to the beneficiaries."

One example of Daniel's alleged conflicts of interest involves a checking account the trusts held at Pinehurst Bank in St. Paul, where he was a member of the board of directors. In August 2005, he took out a $544,500 loan from the bank in the name of the two trusts, but the money flowed into his personal bank account, the report says. (Pinehurst Bank was shut down last May by regulators for being undercapitalized and the trusts' account was transferred to Coulee Bank, the report notes.)

The trusts' books were so poorly organized and their accounts so intertwined that Waypoint cautioned that it was difficult to estimate damages. It said the minimum amount due to the beneficiaries is $3,923,053.

Daniel Jr. claimed a piece in five of the six trust partnerships even though he contributed little or no capital for any of the acquisitions, which were funded primarily through contributions from the trusts, the Waypoint report says. It says he also let third parties -- including the Hausers -- do likewise.

Dan Browning • 612-673-4493