The future of Bremer Financial Corp., which operates Minnesota's fourth-largest bank, and the charitable trust that owns it is on trial this week in St. Paul.
The state Attorney General's Office will face off against the Otto Bremer Trust, which owns the bank in an arrangement unlike anything else in the U.S. banking industry.
State attorneys will try to convince a judge that the three Bremer trustees who tried to sell the bank two years ago should be removed because of alleged mismanagement and self-dealing.
During the trial, which is expected to last about two weeks, more than two dozen witnesses are slated to be called to provide mostly in-person testimony.
Among those expected to take the stand include the trustees — 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 led the Council of Economic Advisers under President George W. Bush.
"I imagine this is going to be in some respects a battle of experts," particularly about 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 plenty of resources at their disposal and have shown they're committed to seeing this through.
"This kind of thing usually gets settled behind the scenes," Vaaler added.
Not in this case. Over the past year and a half, thousands of pages of briefs, discovery and other court documents have been filed.
Making the case for each side are two legal heavyweights in Minnesota. On one side is Attorney General Keith Ellison's office, which assembled a winning team to successfully prosecute former Minneapolis police officer Derek Chauvin for the murder of George Floyd.
The team hired by the trust is led by Mike Ciresi, a high-profile attorney in Minnesota who is perhaps best known for taking on Big Tobacco in the 1990s and winning a $7.1 billion settlement.
But the trial may not resolve the central dispute between the trustees and the bank's managers, which is whether the trustees can sell the St. Paul-based banking company,
The attorney general's office says its case is not about that specific issue, but is more about the way the trustees decided to do so as showing evidence of mismanagement.
In a recent order, Ramsey County District Judge Robert Awsumb wrote that it "may not be possible" to get to the wrongdoing alleged by the state without determining whether the trustees' attempt to sell Bremer Financial was proper.
The fight over Bremer Financial began in 2019 when trustees announced 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 giving with proceeds from the sale, which at the time may have exceeded $1 billion.
But executives at Bremer Financial argued the trustees wanted to make the sale to increase their own earnings.
Bremer Financial has about $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 to the 1940s when the bank's founder, Otto Bremer, set it up a few years before his death. However, since the 1980s, the trustees have been prevented by law from exercising control over the bank company's operations.
Today, Bremer is the only bank in the U.S. owned by a charitable trust. And the Otto Bremer Trust, which gets its funds from dividends paid by Bremer Financial, is one of the largest philanthropies in the state. It distributes more than $50 million a year to organizations in Minnesota and other states where the bank has a presence.
After trustees clashed with executives over the bank's future, they sold a portion of the trust's shares in Bremer Financial to outside investors, chiefly hedge funds, in the hopes of bringing more voices to push for a 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 of the trust, stepped in and petitioned the court to oust the three trustees.
In November 2020, Awsumb declined to remove the three trustees on an emergency basis. But he put restrictions on their jobs, rolled back their compensation and prohibited them from selling any more Bremer shares without his approval. He said a full hearing would be needed to vet the merits of the case, which will start this week.
The attorney general's office is alleging that the trustees are unfit to run Otto Bremer Trust and are engaged in misconduct. It called the trust's sale of Bremer Financial shares in October 2019 "rushed and reckless."
The trustees counter that they have administered the trust with proper prudence and note its charitable contributions grew each year under their stewardship. They said the sale of the trust's shares in Bremer Financial was necessary to comply with rules governing charitable trusts.
"After an eight-month investigation, followed by a year of litigation and exacting discovery, the record here is clear: There has been no breach of fiduciary duty by the trustees, let alone a serious breach," the trustees said in court documents.