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

Filing 44

OPINION & ORDER granting in part and denying in part 27 Motion for an Order Prohibiting Payment of Plaintiffs' Litigation Expenses from Trust Funds. Signed by District Judge James D. Peterson on 1/11/17. (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,
OPINION & ORDER
Plaintiffs,
v.

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.
The Federation has moved for an order prohibiting payment of the trustees’ litigation
expenses from Trust funds, pursuant to Wis. Stat. § 701.1004(3)(c)(1). Dkt. 27. The
Federation also asks the court to order the trustees to return to the Trust the funds that they
have used to pay their legal expenses to date, and to award the Federation its attorney fees
and costs incurred in bringing this motion. The court will grant the Federation’s motion to
prohibit payment. But the court will not award the Federation its fees and costs in bringing
this motion. The court will defer all decisions about who will bear the expense of this
litigation until the case is decided on the merits.

BACKGROUND
The court draws the following facts from the operative pleadings, Dkt. 26 and
Dkt. 31, and the parties’ evidentiary submissions. The parties’ rights and powers under the
Trust documents are sharply disputed; because the court will not reach the merits of any
claims in this opinion, it will keep the factual summary relatively brief.
In 1980, the Melvin S. Cohen Foundation, Inc., established the Melvin S. Cohen
Trust for the Minneapolis Federation for Jewish Service, to “operate[] in connection with”
that organization, whose name was later changed to the Minneapolis Jewish Federation.
Dkt. 30-3, at 2. The foundation—the Trust settlor—established the Trust “exclusively for
charitable, education and religious purposes, which shall be accomplished by making
distributions which exclusively benefit or carry out the charitable, education and religious
purposes of the Federation.” Id. at 1. The Federation is a Minnesota non-profit corporation
created under § 501(c)(3) of the Internal Revenue Code.
Article IV of the original Trust Agreement from 1980, Dkt. 30-3, titled “Use of Trust
Fund,” governs the Trust’s annual distribution to the Federation. The Trust’s net income
“shall exclusively benefit or carry out the charitable, education and religious purposes of the
Federation.” Id. at 3. The trustees are to maintain a “close working relationship with the
Federation” and “shall consult at least annually with the Federation to obtain information
concerning its operating budgets, proposed grant programs, recommendations of the
Federation for use of the trust’s income, and reports of uses to which previous distributions
were applied.” Id. The trustees may “designate in writing to the Federation their selection of a
particular function, activity, or grant program of the Federation, for the benefit of which the
trust’s annual distribution, or any designated portion of it, shall be applied.” Id. If the

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trustees do not designate a particular use for a distribution, the Federation may treat the
distribution as an “unrestricted gift.” Id. at 3-4.
According to the trustees, each November from 1981 to 2014, the trustees
determined the Trust’s annual distributions to “certain designated beneficiaries” through the
Federation. Dkt. 38, ¶ 4. The trustees determined how to use the annual distribution, and
each year, the Federation honored those designations.
On November 30, 2015, the Federation received a letter from one of the trustees,
Cohen, with a check for that year’s distribution. The letter listed the trustees’ chosen
beneficiaries and how much money the Federation should distribute to each. Two
distributions were to be made “at the request of” or “on behalf of” one of the trustees.
Dkt. 30-4, at 1-2. And the vast majority of the annual distribution was to go to Donors
Trust, Inc., for the Jewish Education and Support Fund. Id. at 1. Stu Silberman, the
Federation’s chief executive officer, believed that a number of the trustees’ designated
distributions were not “consistent with the Federation’s mission,” and he indicated that the
Federation would distribute the funds as it saw fit. Dkt. 30-7, at 1. A series of letters between
the trustees and the Federation followed: Cohen was “shocked” that the Federation balked at
making a number of the distributions, and Silberman emphasized that distributions must
support a “function, activity, or grant program” of the Federation. Id. at 2-17. Silberman
believed that the trustees did not have the right to require the Federation to distribute funds
to specific beneficiaries, and he asked to meet with the trustees to discuss the issue. Cohen
did not believe a meeting was necessary.
This back-and-forth went on for some time. Finally, on April 19, 2016, Federation
representatives and the trustees met to discuss the Trust, the Trust Agreement, and

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distribution designations. Silberman, Tom Sanders (a Federation board member), and Jerry
Ribnick (a former Federation president) attended on behalf of the Federation. For now, it
suffices to say that the parties reached an impasse regarding the meaning of certain aspects of
the Trust Agreement.
Months before the April meeting, the trustees amended the Trust Agreement. The
trustees did not mention the Amended Trust Agreement, Dkt. 30-8, at the April meeting.
The amendments revised the “function, activity or grant program” language to allow
designations to specific “donee charities” selected by the trustees.
Following the April 19 impasse, the Trust filed suit in state court to modify the Trust
to replace the Federation as the beneficiary; to compel the Federation to transfer the Trust’s
2015 distribution to the substituted beneficiaries; and to have the court declare that the
Amended Trust Agreement is valid and operative. The Federation removed the case to this
court and filed a third-party complaint against the trustees. Dkt. 6. The parties stipulated to
the substitution of the trustees as plaintiffs, and the Trust was dismissed from the case.
Dkt. 19 and Dkt. 21. The Federation denies the allegations of the complaint, opposes
modification of the Trust, and contends that the trustees have breached their duties to the
Trust in multiple ways.
The court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1332:
the parties are completely diverse, and the amount in controversy exceeds $75,000.

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ANALYSIS
By the terms of the Trust Agreement, the Trust is governed by the law of Wisconsin,1
which has recently enacted a version of the Uniform Trust Code. Under Wisconsin law,
attorney fees and costs associated with litigation involving a trust’s administration may be
paid with trust funds, without prior approval or court authorization. Wis. Stat.
§ 701.1004(3)(a). That is, unless the court with jurisdiction over the case orders otherwise.
Id. A party may move to prohibit a trustee from paying litigation fees or costs with trust
funds “[i]f a claim or defense based upon breach of trust is made against [the] trustee.”
§ 701.1004(3)(c)1. If the moving party demonstrates that there is a reasonable basis to
believe that a breach of trust occurred, “the court shall enter an order prohibiting the
payment of further attorney fees and costs from trust property and shall order attorney fees
or costs previously paid from trust property in such proceeding to be refunded, unless the
court finds good cause to allow attorney fees and costs to be paid from the trust.”
§ 701.1004(3)(c)2.
But before applying the statute, the court must determine whether the Trust
documents speak to this issue. See § 701.0105(1) (“Except as otherwise provided in the terms of the
trust, this chapter governs the duties and powers of trustees, directing parties, and trust
protectors; relations among trustees, directing parties, and trust protectors; and the rights and
interests of beneficiaries.” (emphasis added)). The trustees contend that the Trust Agreement
explicitly allows them to pay attorney fees and costs with Trust funds, and, as a result, it
supersedes the statute. The trustees direct the court to Article VI, section (e) of the Trust
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The Trust Agreement provides that “[t]his agreement is executed and delivered in the State
of Wisconsin, the situs shall be in that state, and it shall be governed by, and construed and
administered in accordance with the laws of that state.” Dkt. 30-3, at 10.

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Agreement, which provides that the trustees have the power “[t]o pay all administration
expenses of this trust . . . to commence or defend suits or legal proceedings, and to represent
this trust in all suits or legal proceedings.” Dkt. 30-3, at 5.2
This section does not expressly authorize the payment of litigation expenses, but it
does authorize the trustees to represent the Trust in all suits or proceedings. So it would be
reasonable to interpret this section to allow the payment of litigation expenses for suits by or
against the Trust itself. But that is an entirely different matter than a suit against a trustee. It
would not be a reasonable to read this section to allow a faithless trustee to use Trust assets
to pay for the defense of a meritorious allegation that the trustee had breached his or her
duties to the Trust. This section does not afford such blanket indemnification. The Trust
Agreement also provides that “all expenses of this trust or of any Trustee acting hereunder
shall be paid by the Trustees from the trust fund.” Id. at 8.3 But this provision does not afford
blanket indemnification either, because a faithless trustee is not acting under the Trust
Agreement.
The court concludes that there is no language in the Trust Agreement that conflicts
with § 701.1004, so that statutory section controls.
A. Reasonable basis
Under § 701.1004, the Federation must demonstrate that there is a reasonable basis
to believe that a breach of trust occurred. The Federation contends that the trustees breached
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Although the status of the Amended Trust Agreement is disputed, Article VI, section (f) of
the Amended Trust Agreement is nearly identical: “[t]o pay all administration expenses of
this trust . . . to commence or defend suits or legal proceedings, and to represent this trust in
all suits or legal proceedings. Trust assets shall be used to make such payments.” Dkt. 30-8,
at 5.
3

Article VIII of the Amended Trust Agreement is identical. Dkt. 30-8, at 6.

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the Trust Agreement in nine ways, see Dkt. 28, at 16-18, including by attempting to
designate specific beneficiaries, by attempting to designate funds for the trustees’ personal
benefit, by attempting to designate funds to Donors Trust, Inc., by “deceiving” the
Federation at the April 19 meeting by concealing the fact that the trustees had amended the
Trust Agreement, and by attempting to amend the Trust Agreement to benefit the trustees
and to remove the Federation as the beneficiary.
The court cannot, and need not, resolve the merits of the case on the basis of the
record now before the court. But the court concludes that the Federation has at least a
reasonable basis for its allegation that the trustees have breached their duty to the Trust by
seeking to remove the Federation as the beneficiary and supported organization. The original
1980 Trust was established to accomplish beneficent purposes “by making distributions
which exclusively benefit or carry out the charitable, education and religious purpose of the
Federation.” The trustees may ultimately be able to show that the Federation has become so
radically secular since 1980 that the Trust must be modified to effectuate the intent of the
settlor to benefit Jewish charity. But that will take a substantial showing that the trustees
have not yet made.
B. Good cause
So it falls to the trustees to show good cause to allow them to pay their litigation
expenses with Trust funds. Here, the trustees simply reargue that the Trust Agreement allows
them to use Trust funds. And, so the trustees argue, the parties’ other claims are inextricably
intertwined with the breach of trust claims, so the court should permit payment of all
litigation expenses with Trust funds.

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The court agrees that the claims of the trustees are inextricably intertwined with the
counterclaims of the Federation. But this does not help the trustees. The overarching
question here is whether the parties’ actions are consistent with the Trust. If the Federation
prevails, all the trustees’ actions, including the filing of the original suit in the name of the
Trust, will be part of the same breach of their duties as trustees. The trustees will prevail if
they can show that the Federation is no longer a proper beneficiary for the Trust, or that it
has not followed the designation procedures under the Trust. If that happens, the court
would allow the Trust to pay the expense of this litigation. But at this point, the trustees
have not made a showing that suggests that that outcome is likely. And it will be easier to
ensure ultimate payment to the proper parties if the expenses of the litigation remain in the
Trust, rather than trying to claw the fees back from the trustees or their lawyers.
The trustees do not contend that they will be unable to press their claims or to mount
a defense to the counterclaims without access to the Trust’s assets. The court concludes that
the trustees have not shown good cause to allow them to pay fees and costs associated with
this litigation with Trust funds.
C. The Federation’s attorney fees and costs
Finally, the Federation asks the court to award it its fees and costs incurred in
bringing this motion. It contends that the trustees intentionally violated § 701.1004 and
used Trust funds without properly notifying the Federation.
“If a claim or defense based upon a breach of trust is made against a trustee . . . the
trustee shall provide notice to each qualified beneficiary . . . of the trustee’s intention to pay
costs or attorney fees incurred in the proceeding from the trust prior to making payment.”

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Wis. Stat. § 701.1004(3)(b). The notice should inform the beneficiary of its right to move to
prohibit payment with trust property. Id.
At this point, it appears that the trustees complied with this notice requirement,
though perhaps belatedly. On August 16, 2016, Cohen sent Silberman a letter informing the
Federation that the trustees intended to pay for this litigation with Trust funds. Dkt. 30-9.
Cohen explicitly notified the Federation that it had the right to move the court for an order
prohibiting the trustees from paying attorney fees and costs with Trust funds.
The trustees have not paid any fees or costs attributable to defending the breach of
trust claims with Trust funds. The original complaint was filed in the name of the Trust, as
opposed to the trustees. At that time, the case did not, on its face, involve breach of trust
claims. As soon as the Federation filed counterclaims against the Trust and a third-party
complaint against the trustees, the trustees retained separate counsel; Ruder Ware remained
counsel for the Trust. After the parties determined that the Trust was not a proper party in
this case, Dkt. 19, the court dismissed the Trust from the case, Dkt. 21, and Ruder Ware
concluded its involvement. The trustees paid Ruder Ware in full with Trust funds, “for the
work . . . performed in preparing the Trust’s original Complaint against [the Federation] and
for work performed up to the filing of the Counterclaims against the Trustees.” Dkt. 43, ¶ 12.
Ruder Ware indicates that it does not intend to seek compensation for its work preparing a
motion to dismiss after that date. Id. Paying Ruder Ware with Trust funds does not, on its
face, violate § 701.1004. The court will not at this point order the trustees to return any
funds to the Trust.
The court will deny the Federation’s request for fees and costs at this point. However,
the court will revisit the issue of fees and costs once the case is decided on the merits.

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ORDER
IT IS ORDERED that defendant the Minneapolis Jewish Federation’s motion for an
order prohibiting payment of plaintiffs’ litigation expenses from Trust funds, Dkt. 27, is
GRANTED in part and DENIED in part. Plaintiffs Maryjo Cohen, Frederic J. Fransen, and
Emanuel J. Kallina, II, may not use Trust funds to pay fees and costs associated with this
litigation. The Federation’s request for its fees and costs associated with bringing this motion
is denied at this point without prejudice.
Entered January 11, 2017.
BY THE COURT:
/s/
________________________________________
JAMES D. PETERSON
District Judge

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