Trustees of the Otto Bremer Trust will keep trying to sell Bremer Financial Corp., Minnesota's fourth-largest bank, whether or not it makes financial sense, the Minnesota Attorney General's Office said in a post-trial summary of its effort to remove them.
The trustees said in their own summary of October's trial that they have always managed conflicts of interest "with appropriate precision" and should be allowed to keep their jobs atop a foundation that annually distributes tens of millions of dollars across the Midwest.
The filings, which were made Monday evening and available publicly Tuesday, summarized a conflict that began in 2019 between the St. Paul-based Bremer businesses — and will soon lie in the hands of Ramsey County District Judge Robert Awsumb.
Lawyers are scheduled to make final arguments before Awsumb on Jan. 31. The judge will then have about three months to make a ruling that could not only affect the direction of the trust but also its main asset, Bremer Financial.
The charity is the only one in the U.S. that still owns a bank. Most of the bank's profit goes to the trust, which then distributes the money in the states where the bank operates.
The Bremer entities in 1989 completed a workaround to a 1969 federal law that made it illegal for foundations to own major businesses. In their compromise, the trust retained a 92% ownership stake in Bremer Financial but took a minority say in its operations.
For 30 years, the two Bremer entities generally operated in an arm's-length manner. But their competing interests surfaced in early 2019 when Bremer Financial executives told trustees that, as valuations were soaring in the banking industry, another bank had expressed interest in a merger.
Trustees realized that a sale could create a moment of liquidity for its biggest asset. They estimated the proceeds of a sale would double the trust's approximately $1 billion base of assets. The trust would then be able to diversify into other investments that might grow at a faster rate than Bremer Financial.
By summer 2019, trustees and the bank's board were clashing over whether and who would lead a sale or other strategic action. The bank's executives and board accused trustees of trying to personally profit from a sale, saying that an enriched trust would pay them bigger salaries. Trustees pointed to the executives' own large salaries and desire to retain their jobs.
After a series of lawsuits, the Attorney General's Office, which has oversight of charitable trusts, intervened and sued to remove the Bremer trustees — Charlotte Johnson, Brian Lipschultz and Daniel Reardon. The AG's office said it takes no position on the eventual fate of Bremer Financial, but its entry into the matter effectively froze further market action.
In the latest filing, the state underscored its argument that the three trustees behaved in ways that were not in the interests of the charities that benefit from the trust's annual giving. Nearly two-thirds of the 106-page document focuses on the dispute that arose in 2019, including a partial sale of the trust's stake in Bremer Financial to other investors who backed a complete sale.
The state said the current trustees have gone so far in their effort to sell the stake in Bremer Financial that, if they stay, they'll make a deal "regardless of whether it is best for the trust."
"Changed circumstances call into doubt that trustees will evaluate the future need to sell and use their discretion based upon legitimate factors, as opposed to self-interested ones," the state wrote.
As part of its criticism, the state noted that trustees had spent nearly $20 million trying to sell Bremer Financial, $7.5 million fighting the attorney general's lawsuit and $1.9 million responding to the agency's investigation. The state has not disclosed what it has spent on the Bremer dispute.
In their filing, the trustees said that their actions can't be "reviewed or evaluated in a vacuum without acknowledging the conduct" of Bremer Financial executives and board members. They noted that Bremer Financial has spent more than $20 million on fees associated with the litigation it initiated. The trustees placed the trust's legal spending at around $16 million.