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Cohen v. Minneapolis Jewish Federation

United States District Court, W.D. Wisconsin

January 11, 2017

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, Plaintiffs,
v.
THE MINNEAPOLIS JEWISH FEDERATION, Defendant.

          OPINION & ORDER

          JAMES D. PETERSON District Judge.

         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 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 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, ...


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