In re The Melvin S. Cohen Trust for the Minneapolis Jewish Federation v. The Minneapolis Jewish Federation

Filing 114

OPINION & ORDER granting in part and denying in part 49 Motion to Compel; granting in part and denying in part 72 Motion to Dismiss. Signed by District Judge James D. Peterson on 8/18/17. (jat)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

MARYJO COHEN, FREDERIC J. FRANSEN, and
EMANUEL J. KALLINA, II,
in their capacities as trustees of the Melvin S. Cohen
Trust for the Minneapolis Federation for Jewish Service,

v.

Plaintiffs,

OPINION & ORDER
16-cv-325-jdp

THE MINNEAPOLIS JEWISH FEDERATION,
Defendant.
This case arises from a dispute between the trustees and the beneficiary of a charitable
trust. Plaintiffs Maryjo Cohen, Frederic J. Fransen, and Emanuel J. Kallina, II, trustees of the
Melvin S. Cohen Trust for the Minneapolis Federation for Jewish Service, filed suit against
the Trust’s sole beneficiary, the Minneapolis Jewish Federation, to modify the Trust. The
Federation has filed counterclaims alleging, among other things, that the trustees have
breached their duty to the Trust and that the trustees’ attempted modification would subvert
the purpose of the Trust and must be stopped.
Two motions are before the court. First, the Federation has moved to dismiss the
trustees’ fifth cause of action, pursuant to Federal Rule of Civil Procedure 12(b)(6). Dkt. 72.
The court will deny this motion for the most part. Second, the Federation moves to compel
communications between the Trust and one of its law firms, Kallina and Associates, LLC.
Dkt. 49. The court will grant this motion in part, requiring plaintiffs to produce the law
firm’s unredacted invoices.

ALLEGATIONS OF FACT
The court draws the following facts from the operative pleadings. Dkt. 67 and
Dkt. 68. The parties’ rights and powers under the Trust documents are sharply disputed;
because the Federation’s motion to dismiss concerns only one claim, the court will keep the
factual summary relatively brief. 1
In 1980, the Melvin S. Cohen Foundation, Inc., and three individuals set up the
Melvin S. Cohen Trust for the Minneapolis Federation for Jewish Service (now known as the
Minneapolis Jewish Federation). The Trust distributed funds to the Federation to
“exclusively benefit or carry out the charitable, educational and religious purposes of the
Federation.” Dkt. 68, ¶ 14. All agree that in the beginning, the Trust’s and the Federation’s
interests were aligned: both “intended to benefit the Jewish community on a local, regional,
national, and worldwide basis.” Id. ¶ 15. The entities worked in harmony for decades: the
trustees trusted the Federation to distribute Trust funds to appropriate donees to further
agreed-upon charitable interests. For years, “the [t]rustees believed that all of the requested
distributions were made by the Federation.” Id. ¶ 21.
But the relationship between the trustees and the Federation has soured in recent
years. What exactly happened depends on who you ask. According to the trustees, the
Federation moved away from Jewish-community interests and began emphasizing “general
charitable” and “non-Jewish causes.” Id. ¶ 22. The Federation began to refuse to make
donations to Jewish charities the trustees selected. The trustees “had always controlled where
its grants went, and how its assets were invested.” Id. ¶ 36. So the trustees would like to

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For additional factual background, see the court’s January 11, 2017 opinion and order.
Dkt. 44.

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replace the Federation and to redirect the Trust’s annual distributions to “new supported
organizations,” including Donors Trust, the National Community Foundation, and “other
organizations that are committed to honoring [the Cohen Foundation’s] donative intent.” Id.
¶ 39. The trustees bring various claims against the Federation regarding its failure to
distribute Trust funds as directed, and they ask the court to modify the Trust due to the
Federation’s “substantial failure . . . in regard to its role as a supported organization.” Id.
¶ 50.
But according to the Federation, it is the trustees who have altered their priorities.
The trustees have engaged in self-dealing and have attempted to divert funds away from the
Federation to serve their own organizations and ideological agendas. According to the
Federation, the trustees “intend to convert the Charitable Trust to a private foundation, take
the funds of the Charitable Trust away from the Federation, and use those benefits for their
own purpose.” Dkt. 67, ¶ 29. The Federation alleges, among other things, that the trustees
have breached their fiduciary duties to the Federation.

MOTION TO DISMISS
A motion to dismiss pursuant to Rule 12(b)(6) tests the complaint’s legal sufficiency.
To state a claim upon which relief can be granted, a complaint must provide a “short and
plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P.
8(a)(2). Rule 8 “does not require ‘detailed factual allegations,’ but it demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A complaint must
offer “more than labels and conclusions, and a formulaic recitation of the elements of a cause

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of action will not do. Factual allegations must be enough to raise a right to relief above the
speculative level.” Twombly, 550 U.S. at 555 (citations omitted).
The Federation moves to dismiss the trustees’ “breach of duty” claim. Dkt. 68, ¶¶ 6474 (count five). The trustees allege that the Federation had duties of loyalty, care, and
obedience to disburse Trust funds as instructed. The Federation breached those duties when
it “misused, misappropriated, and otherwise failed . . . to faithfully follow the Trust’s annual
distribution instructions and restrictions.” Id. ¶ 68. The Federation assumes that it owed the
trustees the fiduciary duties alleged. Dkt. 73, at 2 n.2 (“In responding here based on the
statute of limitations, the Federation does not concede any of the allegations of the Second
Amended Complaint with respect to the assertions of duties, but assumes for purposes of the
motion that such duties exist as alleged.”). The Federation challenges the trustees’ ability to
adequately plead any actionable, timely breaches: the trustees have not complied with
Federal Rule of Civil Procedure 9(b)’s heightened pleading standard, the applicable statute of
limitations bars all purported breaches that occurred before May 19, 2014, and the
Federation has not breached its fiduciary duties since 2014.
A. Rule 9(b)
The Federation contends that the trustees have not adequately pled their breach of
fiduciary duty claim. The parties dispute whether Rule 9(b)’s heightened pleading standard
applies.
Under Rule 9(b), a party alleging fraud “must state with particularity the
circumstances constituting fraud.” What “particularity” requires depends on the case, but
usually the party must describe “the who, what, when, where, and how of the fraud.” Camasta

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v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 737 (7th Cir. 2014) (quoting AnchorBank, FSB v.
Hofer, 649 F.3d 610, 615 (7th Cir. 2011)).
A claim for breach of fiduciary duty is not a claim for fraud. But the parties
acknowledge that Rule 9(b) kicks in “where the plaintiff alleges that a defendant’s breach of
fiduciary duty took the form of a fraudulent act.” Rogers v. Baxter Int’l, Inc., 417 F. Supp. 2d
974, 984 (N.D. Ill. 2006), aff’d, 521 F.3d 702 (7th Cir. 2008); see Thornton v. Evans, 692 F.2d
1064, 1083 n.43 (7th Cir. 1982). And “averments of fraud must be pled with particularity
even if the plaintiff does not style his claim as one for fraud.” Rogers, 417 F. Supp. 2d at 984.
The trustees allege that the Federation breached its fiduciary duties when it “misused,
misappropriated, and otherwise failed in its fiduciary duty to faithfully follow the Trust’s
annual distribution instructions and restrictions,” i.e., when it did not distribute the Trust’s
funds as the trustees instructed. Dkt. 68, ¶ 68. At first blush, the alleged breach does not
appear to be a fraudulent act. But the trustees accuse the Federation of misrepresenting its
intentions and committing fraudulent acts in the process. The trustees allege that the
Federation told the trustees that it would comply and had complied with their instructions,
even when it did not. The Federation lied. The trustees allege that “the Federation
intentionally hid this information from the Trust and the [t]rustees.” Id. ¶ 71. The trustees
go so far as to accuse the Federation of “actionable misrepresentations.” Id. ¶ 73. These
averments are subject to Rule 9(b). Though breach of fiduciary duty is not, by definition, a
fraudulent tort, “Rule 9(b) applies to ‘averments of fraud,’ not claims of fraud, so whether the
rule applies will depend on the plaintiffs’ factual allegations.” Borsellino v. Goldman Sachs Grp.,
Inc., 477 F.3d 502, 507 (7th Cir. 2007). The trustees’ contention that the claim targets the

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Federation’s “objective failure” to abide by the trustees’ instructions does not change the fact
that the trustees have alleged fraud. Dkt. 81, at 17.
So the court must determine whether the trustees have complied with Rule 9(b).
Assuming the truth of the trustees’ allegations, here’s what they tell us. We know that until
2015, the Federation consistently told the trustees that it would comply and had complied
with the annual distribution instructions. We know that at some point between 1980 and
2015, the Federation told the trustees that it would disburse the annual distribution as
instructed, but it did not. We know that on at least one occasion, the Federation sent
restricted funds (money earmarked for the Israeli Emergency Fund) to organizations without
restricting its use. We know that on other occasions, the Federation used Trust funds for
impermissible purposes, such as satisfying its “obligations and commitments to other entities,
such as the United Jewish Communities and the Jewish Federation of North America.”
Dkt. 68, ¶ 70. We know that the Federation intentionally hid the fact that it misused the
Trust funds.
The trustees have pled their breach of fiduciary duty claim with sufficient
particularity. They identify the who, the Federation, and the what, its failure to comply with
distribution restrictions and related misrepresentations. They provide exemplar “hows.” And
they are not required to plead intent with particularity. Fed. R. Civ. P. 9(b) (“[I]ntent . . .
and other conditions of a person’s mind may be alleged generally.”). The weak spot is the
when: they do not allege when the purported breaches occurred within a nearly 40-year
period. But at this point, with discovery ongoing and the dispositive motion deadline around
the corner, the trustees have satisfied Rule 9(b)’s pleading standard. The trustees should keep
in mind that summary judgment will be their “put up or shut up” moment, and they will

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need to adduce evidence of particular breaches to maintain their claim. Johnson v. Cambridge
Indus., Inc., 325 F.3d 892, 901 (7th Cir. 2003) (quoting Schacht v. Wis. Dep’t of Corr., 175
F.3d 497, 504 (7th Cir. 1999)).
B. Statute of limitations
The trustees’ breach of fiduciary duty claim is subject to a three-year statute of
limitations, pursuant to Wis. Stat. § 893.57. Am. Tr. & Sav. Bank v. Philadelphia Indem. Ins.
Co., 678 F. Supp. 2d 820, 825 (W.D. Wis. 2010) (“A breach of fiduciary duty claim is
subject to the statute of limitations for intentional torts[.]” (citing Wis. Stat. § 893.57)); see
also Zastrow v. Journal Commc’ns, Inc., 2006 WI 72, ¶ 43, 291 Wis. 2d 426, 718 N.W.2d 51.
So the trustees may maintain a claim for breach of fiduciary duty only if they brought it
within three years of the date it accrued.
“Wisconsin applies the ‘discovery rule’ to tort actions, including claims subject to
§ 893.57.” Am. Tr. & Sav. Bank, 678 F. Supp. 2d. at 826 (quoting Spitler v. Dean, 148 Wis.
2d 630, 436 N.W.2d 308, 308 (1989)). Under the discovery rule, “a cause of action will not
accrue until the plaintiff discovers, or in the exercise of reasonable diligence should have
discovered, not only the fact of injury but also that the injury was probably caused by the
defendant’s conduct or product.” Id. (quoting Borello v. U.S. Oil Co., 130 Wis. 2d 397, 388
N.W.2d 140, 146 (1986)).
The parties agree that Wisconsin’s three-year intentional torts statute of limitations
and the discovery rule apply. But they debate when the trustees’ claims accrued. The
Federation contends that the trustees were able to discover the purported breaches as they
occurred and that only those that have occurred since May 19, 2014, if any, are actionable.
The trustees contend that they did not discover the alleged breach(es) until they filed suit

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and conducted discovery. 2 Dkt. 81, at 13. The court will accept the trustees’ representation
regarding actual discovery. The real issue is whether the trustees should have been able to
discover any and all purported breaches as they occurred each year, considering that the
Federation was reporting to the trustees. The trustees have one potentially compelling reason
for why they were unable to discover the breaches sooner: the Federation was lying to them
about how it handled its distributions. As discussed, the trustees allege that the Federation
“always . . . informed the [t]rustees that the Federation would comply with the instructions
and restrictions placed upon the annual distribution” and that the Federation hid its efforts
to misuse the distributions. Dkt. 68, ¶¶ 66, 71.
Fact issues prevent the court from adjudicating any statute of limitations issues at this
point. The court cannot determine whether the trustees should have been able to discover the
purported breaches as they occurred by exercising reasonable diligence, both because that
question raises fact issues regarding the Federation’s purported fraud and because the trustees
have not yet nailed down when the purported breaches occurred. The court cannot decide the
issue on this motion to dismiss. We will have to resolve this issue at a later date, either at
summary judgment on a more complete, undisputed factual record or at trial. See Am. Tr. &
Sav. Bank, 678 F. Supp. 2d at 826 (“Because facts are disputed, whether plaintiff exercised
reasonable diligence is a question of fact for the factfinder.”); Doe v. Archdiocese of Milwaukee,
211 Wis. 2d 312, 565 N.W.2d 94, 105 (1997) (“Ordinarily, reasonable diligence is a
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To say that the trustees learned about purported breaches during discovery is a stretch.
Instead, it appears that the trustees discovered certain facts that could suggest that discovery
will reveal that the Federation breached certain duties it owed the trustees. See Dkt. 81, at 14
(“At minimum, the Trustees are entitled, to discovery into what ‘community code 24550’ is
and how MJF’s ‘account’ at JFNA/UJC is handled. Such discovery will establish that MJF was
using the Cohen Trust’s annual gift for its own benefit, and not adhering to the Trustees’
restrictions.”).

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question of fact for the fact-finder. However, when the facts and reasonable inferences that
can be drawn from them are undisputed, whether a plaintiff has exercised reasonable
diligence in discovery his or her cause of action is a question of law.” (citation omitted)).
C. Breaches allegedly occurring between 2014 and 2016
Believing it had the statute of limitations issue locked up, the Federation looks to the
previous three years and argues that the trustees do not have any actionable, timely breach of
fiduciary duty claims: the Federation has not distributed the 2015 or 2016 funds, and it
distributed the 2014 funds as directed. The court will address each in turn.
The Federation has not distributed the 2015 or 2016 funds—those funds are “being
held in a restricted ‘reserve’ under the control of the Federation and none of those funds has
been distributed to the designated donees.” Dkt. 68, ¶ 35. As discussed, the trustees allege
that the Federation breached its fiduciary duties when it distributed or used Trust funds
against the trustees’ wishes; they do not allege that the Federation’s decision to hold the
2015 and 2016 funds in escrow violated any fiduciary duties. If the trustees had wanted to
pursue that conduct, they could have pled as much. So that conduct is not actionable under
count five. (The trustees bring a separate claim regarding the Federation’s decision to hold
the funds in escrow. See id. ¶¶ 55-58.)
The Federation’s arguments regarding the 2014 funds wade into fact issues more
appropriately resolved at summary judgment or trial. The Federation essentially asks the
court to take it at its word that it distributed the 2014 funds as the trustees instructed, but,
as discussed, the veracity of those representations is at issue. The parties and the court will
need to sort through this at summary judgment.

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MOTION TO COMPEL
The Federation seeks the production of all communications between the trustees and
the law firm Kallina and Associates, which represented them at one point. The trustees have
asserted that those communications are protected by attorney/client privilege and refused to
produce them. The Federation moves to compel.
The Federation contends, essentially correctly, that the trustees owe a fiduciary duty
to the Federation, because the Federation is the sole beneficiary of the Trust. But the
Federation further contends that the trustees cannot assert attorney/client privilege because
of the “fiduciary exception.” The theory is that because the trustees must act only in the
interests of the beneficiary, the beneficiary is effectively also a client of the lawyer who
represents the trustees.
The Federation finds some threads of support for this notion in some older Wisconsin
cases, particularly In re Hoehl’s Estate, 181 Wis. 190, 193 N.W. 514, 515 (1923). Some states
have recognized a fiduciary exception. See, e.g., United States v. Mett, 178 F.3d 1058, 1062
(9th Cir. 1999). And it is generally recognized in the ERISA context. Id. But the court
concludes that Wisconsin does not recognize a general fiduciary exception to attorney/client
privilege. Attorney/client privilege is a statutory creation, and the fiduciary exception is not
among the exceptions recognized in Wisconsin’s statute. Wis. Stat. § 905.03(4). And Hoehl’s
Estate presents a much simpler situation that is not squarely analogous to this case.
The trustees have a duty to keep the Federation informed of actions that might affect
the Federation’s interests. But the trustees are also entitled to get their own legal advice. That
legal advice is privileged, unless one of the exceptions in § 905.03(4) applies. The Federation
has not persuaded the court that they do. After all, the Trust itself retained a different law

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firm to represent it in preparation for this suit. Had the Federation sought communications
with that law firm, the results might be quite different.
But under the circumstances of this case, it is not inconceivable that the crime/fraud
exception might apply. Trustee Kallina’s own law firm represented the trustees, which raises
the possibility of a conflict of interest and prohibited self-dealing. And the amount of the fees
seems very large in relation to the ordinary questions one would expect to come up in the
administration of a charitable trust. It is not clear that the trustees met their duty to keep the
Federation informed of actions that might affect its interests. Accordingly, the court will
grant the motion to compel production of unredacted invoices for the services that Kallina
and Associates provided to the trustees. Billing entries do not typically contain substantive
legal advice; typically they include only the information that would be included on a proper
privilege log, including the topic of a communication and the parties to it. But the Federation
is entitled to review these invoices to ensure that the services of Kallina and Associates were
not used in connection with a fraud committed against the Federation. The trustees’ clawback requests are denied. The trustees have until Monday, August 28, 2017, to produce the
invoices.
The motion to compel is otherwise denied, though the Federation may renew it if the
invoices suggest that the crime/fraud exception might apply. Both sides will bear their own
fees and costs in connection with this motion.

ORDER
IT IS ORDERED that:
1. Defendant the Minneapolis Jewish Federation’s motion to dismiss, Dkt. 72, is
GRANTED in part and DENIED in part, as discussed herein.

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2. Defendant’s motion to compel, Dkt. 49, is GRANTED in part and DENIED in
part. The trustees have until Monday, August 28, 2017, to produce the
invoices.
Entered August 18, 2017.
BY THE COURT:
/s/
________________________________________
JAMES D. PETERSON
District Judge

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