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Cohen v. The Minneapolis Jewish Federation

United States District Court, W.D. Wisconsin

December 14, 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.

         In 1980, the Melvin Cohen Foundation created a trust to “benefit or carry out the charitable, education[al, ] and religious purposes” of defendant Minneapolis Jewish Federation. Dkt. 132-1, at 2. For many years, the Federation distributed funds from the trust without incident, but the relationship between the Federation and the current trustees-plaintiffs Maryjo Cohen, Emanuel Kallina, and Frederic Fransen-has become increasingly acrimonious in recent years, leading to this lawsuit in which each side is suing the other on numerous grounds. (For the remainder of the opinion the court will refer to the plaintiffs as “the Trustees” and to the defendant as “the Federation.”)

         Jurisdiction is present under 28 U.S.C. § 1332 because the Trustees and the Federation are citizens of different states and the amount in controversy is greater than $75, 000. The parties are seeking damages as well as declaratory and injunctive relief regarding a variety of issues about the purposes of the trust and the relative authority of the Trustees and the Federation over the distribution of funds. Both sides are also asserting claims for breach of fiduciary duty.

         The Trustees have filed a motion for summary judgment on all claims and counterclaims, with the exception of the Trustees' breach of fiduciary duty claims. Dkt. 119. The Federation is seeking summary judgment on all claims. Dkt. 129.

         The Trustees' view of the case rests on a fundamental misunderstanding of their relationship with the Federation. The Trustees see the Federation as a “conduit” through which they may support the charities of their choice, so long as those charities are not inconsistent with the Federation's basic purposes, as the Trustees understand them. Dkt. 159, at 6, 19, 23- 24. But that view is inconsistent with the trust agreement, trust law, and the federal regulations that govern the trust. Under those sources of authority, serving the Federation is the primary duty of the Trustees, a duty the Trustees have breached in many ways.

         For these reasons and those explained below, the court concludes that: (1) the original trust agreement did not give the Trustees the right to direct the Federation to donate the trust's annual gift to particular charities; (2) the Trustees are not entitled to substitute a new beneficiary; (3) the Trustees were not entitled to amend the agreement to give themselves more authority at the expense of the Federation; and (4) the Trustees breached their fiduciary duty to the Federation by appointing a new trustee without seeking input from the Federation or otherwise attempting to choose a trustee who would act for the benefit of the Federation. Disputed facts preclude summary judgment on the claims whether: (1) the Federation failed to distribute the trust's gifts as promised in 2005, 2006, and 2007; (2) Cohen used funds from the trust to pay an employee for work that was unrelated to the trust; and (3) Kallina charged the trust for legal services that were unrelated to the trust. The court will grant summary judgment to the Trustees on the Federation's claim under the Wisconsin Prudent Investor Act because that claim is untimely.

         Also before the court is the Federation's motion to compel discovery. Dkt. 178. The court will grant this motion to require the Trustees to produce unredacted copies of legal invoices and to allow limited depositions of Kallina and Patricia Ellenson.

         UNDISPUTED FACTS

         A. Preliminary issues

         Before setting forth the undisputed facts, the court will resolve one dispute about the parties' proposed findings of facts and address some problems related to those submissions.

         1. The Trustees' motion to strike the Federation's “second supplemental proposed findings of fact”

         The court will grant the Trustees' motion to strike a new set of “supplemental” facts that the Federation submitted with its reply brief but without seeking court approval. Dkt. 172 and Dkt. 174. The parties had two opportunities to submit their own proposed findings of fact (once with each side's own motion for summary judgment and once in response to the opposing side's motion) and each side took advantage of both opportunities, along with submitting responses to the other side's multiple sets of proposed findings of fact. This court's summary judgment procedures do not allow parties to submit yet another round of proposed findings of fact with their reply brief.

         The Federation's only justification for submitting new proposed findings of fact is that the Trustees submitted new declarations with their reply brief. But submitting evidence with a reply brief is not necessarily a violation of the court's procedures. For example, it is appropriate to submit new evidence in order to dispute evidence that the other side submitted with its opposition brief. The problem arises when a party makes new factual allegations that are not directly responsive to facts already in the case, as the Federation has done with its new supplemental facts. The court has not considered new, nonresponsive facts that either side submitted with its reply briefs, regardless whether those facts were included in new proposed findings of fact or simply new declarations.

         2. Problems with the proposed findings of fact

         The court also notes two problems with the proposed findings of fact. First, the Federation repeatedly cited evidence that did not support the particular proposed finding of fact at issue. E.g., Dkt. 171, ¶¶ 44-49, 53, 64, 66, 74, 82, 119-20. After the Trustees pointed out the problem in their responses, the Federation did not acknowledge the mistake but instead provided a boilerplate response that the Trustees' response “raises no genuine dispute of proposed fact, but rather responds with arguments on the merits or facts that are not directly responsive to the proposed fact.” Id. In most instances, the Federation would then provide a different citation for the original proposed fact.

         That was not an appropriate response. If a party's cited evidence does not support a proposed fact, the other side is entitled to object and it is not appropriate for the party to disregard the objection and simply provide a new citation in reply without seeking a stipulation from the other side or permission from the court to make corrections. In some instances, the Trustees anticipated what the Federation meant to cite and responded accordingly. But the court disregarded proposed facts when the other side did not have a fair opportunity to dispute the underlying evidence.

         Second, in its responses to the Trustees' proposed findings of fact, the Federation often raised boilerplate objections without explaining why they applied. In many instances, it was clear that the objection did not apply. For example, the Federation consistently objected to any proposed finding of fact that relied on Cohen's testimony on the ground that she did not have personal knowledge of the circumstances surrounding the creation of the trust, even when contemporaneous documents were also cited (sometimes the Federation's own documents) and even when the proposed fact had nothing to do with creation of the trust. E.g., Dkt. 160, ¶ 69 (objecting on this ground to proposed finding of fact that cited contemporaneous letter to prove communication about trust's first annual gift to the Federation); id. ¶¶ 73, 78, 82, 84, 98, 102 (objecting on this ground to proposed facts about communications received from Federation).

         In some instances, it was not even clear what the Federation's objection meant. For example, one boilerplate objection included the following language or something similar: “[the proposed fact is] disputed to the extent the proposed fact and cited evidence mischaracterize the document and statements contained therein.” E.g., Dkt. 160, ¶¶ 50, 108 and Dkt. 171, ¶¶ 25, 35-36, 54, 57. But the Federation did not explain how a particular proposed fact mischaracterized the evidence. See also Dkt. 160, ¶ 171 (objecting to proposed finding of fact about Maryjo Cohen's conduct and that cited Cohen's declaration on ground that “the cited evidence does not support the proposed fact with admissible evidence, but rather cites legal argument and characterization, ” without explaining basis for objection); id. ¶ 173 (objecting to proposed finding of fact that quoted Federation's own letter).

         Although the court's procedures do not prohibit the use of boilerplate objections, the court discourages their use. When responding to proposed findings of fact, a party should consider carefully whether an objection applies and tailor its response to the particular proposed fact. The court disregarded objections to proposed findings of fact when the party failed to explain the grounds for the objection and the grounds were not otherwise clear.

         B. Parties

         Maryjo Cohen, Emanuel Kallina, and Frederic Fransen are trustees of the Melvin S. Cohen Trust for the Minneapolis Federation for Jewish Service. (When the trust was created, the Federation was called the Minneapolis Federation for Jewish Service rather than the Minneapolis Jewish Federation.) The Trustees are citizens of Wisconsin, Maryland, and Indiana, respectively.

         The trust was created in 1980 through the execution of a trust agreement between the Cohen Foundation and the three initial trustees: Melvin Cohen, Gerald Schwartz, and Stephen Lieberman. Wisconsin is the situs of the trust and the location of its business office. Melvin Cohen was a trustee from 1981 until his death in 2008, when his daughter Maryjo replaced him. (The court will refer to Melvin Cohen by his full name and to Maryjo Cohen as simply “Cohen.”) Emanuel Kallina and Frederic Fransen became trustees in August 2015 and November 2015, respectively. The trust currently has approximately $70 million in assets.

         The Federation is a nonprofit corporation. Minnesota is the Federation's state of incorporation and the location of its principal place of business.

         The Federation's articles of incorporation in effect in 1980 identified two “purposes and objects”:

1. To plan with and coordinate Jewish philanthropic, educational and communal activities and agencies; to foster cooperation among all Jewish organizations in the Twin Cities Metropolitan area; to engage in philanthropic, cultural and other group activities which will contribute to the welfare of Jews; to coordinate fundraising activities for local, national and overseas Jewish causes; to raise, collect and distribute funds for the advancement of the welfare of Jews, either directly or through presently or hereafter established agencies; to cooperate with the United Way of Hennepin County and with other intersectarian and communal groups engaged in promoting the welfare of the Twin Cities Metropolitan community, to the end that the happiness, well-being and cultural life of the community may be enriched.
2. To receive, hold, invest, manage and disburse devises, bequests and gifts designated for the Federation's endowment fund or for any philanthropic fund under the control of the Federation; and to utilize the corpus and/or income of such bequests or gifts for charitable, religious or educational purposes in the Jewish or general communities which qualify as recipients of tax-deductible contributions under the United States Internal Revenue Code of 1954, as amended, and the applicable laws of the State of Minnesota.
As of 2006, the Federation broadened its purposes to include the following:
A. To serve as the central communal organization for the metropolitan Minneapolis Jewish Community;
B. By itself and in cooperation with other Jewish communal institutions, to preserve, enhance, and perpetuate Jewish identity locally, nationally, and through the world;
C. To foster and promote cooperation among and between Jewish organizations and communities throughout the Twin Cities metropolitan area;
D. To foster and promote understanding and cooperation between the Jewish and general communities;
E. By itself and in cooperation with other Jewish communal organizations, to plan, coordinate, and engage in Jewish philanthropic, educational, social, cultural, and other communal activities to preserve, enhance, and advance the welfare of Jews and Jewish communities wherever they may be;
F. To raise, collect, and distribute funds for the benefit and welfare of Jews and Jewish communities directly or through existing and future local, national, and overseas Jewish organizations and institutions; and
G. To cooperate with inter-sectarian and non-Jewish organizations promoting the goods and welfare of the general Twin Cities metropolitan community.

         In addition to contributing to various causes directly related to the Jewish community, the Federation has contributed to Planned Parenthood, the Minnesota Center for Environmental Advocacy, Minnesota Public Radio, the University of Minnesota Foundation, Carlton College, and the Greater Twin Cities United Way. None of these contributions included funds from the trust.

         C. Summary of the trust agreement

         Under the trust agreement, the basic purpose of the trust is to “benefit or carry out the charitable, education[al, ] and religious purposes” of the Federation. Dkt. 132-1, at 2. See also Id. at 4 (“All such uses [of the trust] shall exclusively benefit or carry out the charitable, educational and religious purposes of the Federation. . . .”). The agreement also expresses the settlor's intent that the trust qualify as a “supporting organization” under Section 509(a)(3) of the federal tax code. Id. at 2.

         The agreement directs the Trustees to “distribute ‘substantially all' . . . of the net income of the trust each year for the support of the foregoing purposes of the Federation” and it allows the Trustees to designate “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. at 4. If the Trustees do not designate “any particular use” for the annual distribution, the Federation may treat it as an unrestricted gift. The agreement also sets out a process for appointing successor trustees and for amending or terminating the trust. The court will discuss relevant provisions of the agreement in more detail in the court's analysis of the parties' claims.

         D. Operation of the trust

         1. 1981 to 2015

         Beginning in 1981, the trust made an annual gift to the Federation. Each year, the trust would send the Federation a letter accompanied by a check. The Federation would then write checks to different recipients. The parties have highlighted certain incidents that they contend are pertinent to the issues in this case, particularly the intent of the settlor and the genesis of the underlying dispute.

         In November 1981, Melvin Cohen wrote to then-trustee Lieberman about his intent to “send[] a check to the Federation . . . with the usual instructions that the entire amount be dedicated to the Emergency Fund in Israel.” Melvin Cohen also wrote that “some nominal sum might be carved out for another specific purpose, such as the Talmud Torah in Minneapolis.” Dkt. 128-11.

         In 1982, the trustees “request[ed]” that the Federation use a portion of the annual gift for the Torah Academy of Minneapolis, a Jewish lecture series at the University of Minnesota, and the Emergency Fund in Israel. Dkt. 128-28. The Federation agreed to comply with these requests.

         In 1987, Melvin Cohen asked the Federation to use a portion of the annual gift for the National Workshop on Christian-Jewish Relations. The Federation agreed to make the donation.

         In 1992, the trustees at the time “request[ed]” that the Federation use a portion of the annual gift for the Rachel Liba Cardozo Children's Foundation, which Melvin Cohen had created as a memorial to a family member who had died at a young age. In an internal memo, the Federation concluded that it could “[v]ery liberally justify the distribution” and it would “do whatever Mel Cohen wants, ” in part because “no one could talk Mel out of the recommendation and to attempt to do so would be counterproductive.” Dkt. 128-34. The Federation distributed the money to the foundation as requested.

         In 1997, Melvin Cohen wrote to the Federation that he was “most surprised” to learn that the trust was listed in the Federation's annual report as supporting a charity serving the Minneapolis community. He wrote that he believed that “all funds distributed to [the Federation], each year, are strictly for use in Israel.” Dkt. 128-20, at 2. In response, the Federation wrote that its purpose was to “support activities for the ‘Jewish community' wherever in the Jewish world these activities take place” and they suggested that the trust “earmark[]” particular contributions “for Israel.” Dkt. 128-21. In another response, Melvin Cohen wrote, “as a suggestion only, ” that the Federation could create a category in its annual report called “Supporting Trusts With Funds Primarily Designated for Israel.” Dkt. 128-22.

         In 1998, the Federation donated money to Bridges for Peace-an organization devoted to improving relations between Christians and Jews-using funds from the trust and at Melvin Cohen's request. Dkt. 128-41. The Federation did not have a previous relationship with that organization.

         In 1999, Melvin Cohen asked then-trustee Lieberman whether “we can direct up to $100, 000 of our next remittance” for the Middle East Media & Research Institute (MEMRI), which Cohen stated “has effectively influenced the political debate and directed it to what should be of utmost importance viz., the intentions and motivations of the Arab side.” Dkt. 128-43. The Federation informed Cohen that it determined that MEMRI was registered as a nonprofit corporation and the Federation would make the donation.

         In 2002, Melvin Cohen asked the Federation to inform the trustees “of the ultimate distribution of the funds sent each year to the United Jewish Communities. While we know that presumably causes in Israel are the beneficiaries, we have no information as to what those causes may be.” Dkt. 160, ¶ 58.

         In 2004, Melvin Cohen “ask[ed]” that the Federation donate a specified portion of a $750, 000 gift to MEMRI ($110, 000), Bridges for Peace ($50, 000), and the Torah Academy of Minnesota ($7, 000). He also “ask[ed]” that the remaining portion be used for “apparent needs in Israel.” Dkt. 132-12.

         In 2011, the Federation agreed to an “emergency” contribution to MEMRI, using funds from the trust. Although the Federation stated that MEMRI “is not a beneficiary partner” of the Federation, the Federation agreed that “Israel is under siege, and in need of the tremendous work that MEMRI performs” and concluded that the donation was “within [the Federation's] mandate.” Dkt. 128-26.

         In 2013, the Trustees and the Federation had a dispute about then-trustee Harold Roitenberg's successor. The dispute was resolved by Roitenberg deciding to remain a trustee for the time being.

         From 1981 until 2015, the Federation confirmed to the Trustees that it had honored every designation the Trustees made.

         2. 2015 to the present

         In March 2015, in accordance with a provision of the trust agreement, Roitenberg named Fransen as his potential successor, but Roitenberg did not step down at that time. Fransen did not have a relationship with the Federation and Roitenberg knew nothing about Fransen. Roitenberg chose Fransen because Cohen recommended him.

         In November 2015, Cohen and Roitenberg provided a check on behalf of the trust to the Federation and designated for MEMRI. The Federation did not comply with the request to distribute the money on the ground that the Federation had “some questions” about the gift. Dkt. 160, ¶ 159.

         During a November 24, 2015 telephone conference between the Trustees and Federation representatives, the parties discussed each side's relative authority to choose recipients for the trust's annual gift to the Federation. Without reaching agreement about the underlying dispute, the parties agreed to an in-person meeting in April 2016.

         On November 30, 2015, Roitenberg informed Cohen's assistant that he was resigning. Cohen contacted Fransen to confirm that he would succeed Roitenberg as a trustee and to obtain approval for the distributions to the Federation, which were due that day. Cohen also spoke with Kallina to discuss designations for the trust. After that discussion, Cohen emailed Fransen with a list of proposed designations and Fransen approved the list in full.

         The same day, the Trustees sent the Federation the trust's annual gift and a letter stating that the gift “should be distributed” to the various specified organizations in specified dollar amounts. Dkt. 133-25. Of the $2, 425, 000 designated, the Donors Trust, Inc. for the Jewish Education and Support Fund was to receive $1, 693, 500. That organization's website states that it is “the only fund committed to supporting and promoting the principles of liberty. We make grants to charities that do not rely on government funding but do promote the foundations of civil society: limited government, personal responsibility, and free enterprise.” Dkt. 171, ¶ 90. The Donors Trust donor's guide states: “All grant recommendations are subject to approval by Donors Trust's Board of Directors (or its Officers acting on their behalf) and must be for grants to public charities that do not contradict Donors Trust's mission to promote liberty through limited government, personal responsibility, and free enterprise.” Dkt.161. Cohen is a libertarian and the account holder of the Jewish Education and Support Fund at Donors Trust.

         In response to Cohen's letter, the Federation wrote a letter that included the following passage:

Some of your recommended distributions are for functions, activities or grant programs of the [Federation], and so we will of course make those distributions. Others are not but may be distributions consistent with the Federation's mission that the Federation is willing to make. The remaining funds will be distributed in accordance with the Federation's normal allocation process.

         In a letter to the Federation dated December 9, 2015, Cohen stated that “[a]ll of the proposed distributions do in fact support both Jewish causes and the Federation's stated mission” and that the Federation “does not have the right or authority to alter the . . . designated charities.” Dkt. 128-67. She asked the Federation to make the distributions or discuss any questions with the Trustees.

         In a letter to Cohen dated December 15, 2015, the Federation expressed its willingness to meet with the Trustees to resolve their differences. In the meantime, the Federation stated that it was “holding the funds received from the Trust in reserve pending resolution.” Dkt. 128-68.

         In a letter to the Federation dated December 17, 2015, Cohen asked the Federation to identify particular designated charities to which it objected and to explain each objection. In a letter to Cohen dated January 11, 2016, the Federation listed the charities it approved and those it rejected, but it did not give reasons, instead stating that it had “multiple and varied reasons” that it would discuss with the Trustees if they wanted. Dkt. 128-70.

         After Cohen sent another letter explaining her understanding of the mission of each of the rejected charities, the Federation again asked for a meeting with the Trustees and stated its position that the Trustees do not have the right under the trust agreement to designate specific charities. It also explained its objections regarding each charity it rejected. In a letter dated February 2, 2016, Cohen wrote that she could not “comprehend [the Federation's] strained reading and interpretation of the English language.” Dkt. 128-73. She asked the Federation to discuss all of the Trustees' designated charities at an upcoming Federation board meeting.

         At the Federation's February 2016 board meeting, the board voted to have the trust's gift “held in reserve and not allocated to any beneficiaries until there is resolution of the issue concerning the relative authority of the Federation and the Trust to determine the allocation and the disagreements between the Federation and the Trust as to which organizations should receive the allocations.” Dkt. 160, ¶ 189. In a letter dated February 19, 2016, the Federation informed the Trustees of this decision.

         In February 2016, the Trustees voted to amend various provisions of the trust agreement, including the following:

• in Article IV, they added the sentence that a designation “may be made to any charity within the purpose of the Federation or the Federation's donor advised fund” and that the designation “need not be restricted to prior donee charities of the Federation”;
• in Article VII, they removed any reference to a “Federation Trusteeship” and they removed the Federation's right to appoint a successor for that trusteeship when the outgoing trustee failed to choose one;
• in Article XI, they added a sentence that allows the Trustees to “elect” to become a private foundation; and
• in Article XI, they removed the requirement that amendments to the agreement be made “by unanimous agreement.”

         On April 19, 2016, the Trustees and three representatives of the Federation met in Eau Claire, Wisconsin. The Trustees did not tell the Federation that they had amended the trust agreement or that they were planning to sue to remove the Federation as the trust beneficiary. The parties did not reach an agreement at the meeting and this lawsuit followed.

         In November 2016, the Trustees made their annual gift to the Federation, again designating specific charities and amounts for each charity. Again, the Federation decided to hold the funds in reserve pending resolution of the parties' dispute.

         E. Trust finances

         1. Trustees' investment strategy

         The trust is “invested conservatively, ” mostly in treasury bills, certificates of deposit, and other fixed-interest investments. Dkt. 171, ¶ 39. Each year since 1981, the Trustees have provided the Federation the trust's financial statement, along with a copy of its income tax return and the Federation has acknowledged receiving this information. Dkt. 160, ¶¶ 76-79.

         In April 2014, the Federation's chief financial officer analyzed the trust's gift history since 2011. He concluded that the “[t]he precipitous decline in the grant amounts is a function of the extremely conservative investment strategy followed by the Trust.” Dkt. 160, ¶ 154. In a letter dated May 15, 2015, a lawyer for the Federation wrote that he “see[s] a need for a better diversification in the current investments of the Trust and a portfolio more likely to deliver income in amounts sufficient to make a minimum required distribution.” Id. ¶ 152.

         2. Patricia Ellenson salary

         Patricia Ellenson provides accounting and other services for the trust and five other charitable organizations operated by the Cohen family. Fifty percent of Ellenson's compensation is allocated to the trust. In 2015, that amount was approximately $80, 000.

         After reviewing Ellenson's deposition testimony regarding the scope of her accounting work for the trust in 2015, the Federation's accounting expert concluded that the work was worth approximately $20, 000. Ellenson testified in her deposition that she “do[es] everything” for the Cohen family, including paying their bills and driving Cohen on long trips, Dkt. 110 (Ellenson Dep. 230:1-23), but the Trustees have provided no evidence that Cohen has allocated any portion of Ellenson's salary to the personal errands that she performs for Cohen.

         3. Legal services

         In 2014, the trust hired Kallina's law firm to perform legal services. Since then, Kallina has billed the trust more than $200, 000 in legal expenses. The law firm bills submitted to the trust including the following line items:

• 7/24/15 Review and modify letter to BSA.
• 7/27/15 Email to Pat and Maryjo regarding letter ...

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