Claims Against Trustees: Lund Again

In December 2014, Kim Lund, one of four siblings who shared beneficial ownership of Minnesota’s Lund grocery empire, filed a lawsuit against her brother Tres Lund (the CEO of the business entities), the entities themselves, two directors, and a co-trustee of one of Kim’s trusts. In the action Kim sought to divest her Lund business entity interests, and the court decided it would order a buyout. After a trial in February 2017, the district judge entered an order valuing Kim’s business interests and resolving Kim’s request for the removal of certain trustees from her trusts. The district judge’s decision was appealed. On January 14, 2019, the Minnesota Court of Appeals decided the appeal.[1]

The Lund appellate opinion touches numerous issues of interest in Minnesota minority shareholder and trust litigation. This post considers the appellate fate of Kim’s claims against the trustees of her trusts.

*    *     *     *     *

Along with her shareholder oppression claims, Kim also asked the Hennepin County court to grant her relief concerning co-trustees who managed trusts that owned Kim’s beneficial shares of the Lund business entities. Kim alleged two co-trustees, attorney Stanley Rein and her brother Tres Lund, had breached their fiduciary duties, and she wanted the court to remove Tres and Rein as trustees.

No harm, no foul. The trial court rejected Kim’s claims against Tres and Rein for breach of fiduciary duty. The Court of Appeals, without even discussing the wrongdoing that Kim alleged, agreed. Kim had failed to challenge the trial court’s determination that she offered no evidence of damages, and damages are an essential element of a breach of fiduciary duty claim.[2] Without showing damages, a plaintiff cannot prevail on a breach of fiduciary duty claim, no matter what bad acts the defendant did or did not do.

The “no harm, no foul” rule applies to many different legal claims, not just breach of fiduciary duty. It can be hard for a plaintiff to accept that regardless of how malicious, negligent, or spiteful the acts of the defendant were, the defendant bears no liability if the plaintiff did not sustain quantifiable damages. But as Lund shows, courts are more than willing to dismiss claims, without regard to the defendant’s alleged wrongdoing, if the plaintiff fails to show that she was damaged.

You win some, you lose some: trustee removal. The trial court decided that Tres should be removed as cotrustee of Kim’s trusts, but Rein should not. Both decisions were appealed by the respective losing sides, and both decisions were affirmed.

Under the applicable statute, a trustee may be removed if all of the following bulleted conditions are true:

  • The court finds that removal “best serves the interests of all of the beneficiaries”
  • The court finds that removal “is not inconsistent with a material purpose of the trust”
  • A suitable cotrustee or successor trustee is available.
  • Either removal is requested “by all of the qualified beneficiaries” or “there has been a substantial change in circumstances”

Minn. Stat. § 501C.0706(b)(4).[3]

In Kim’s case, Tres was removed as cotrustee because all the beneficiaries sought removal and the court concluded that removal was best for the beneficiaries.  The defendants argued that removal of Tres was inconsistent with the purposes of the trusts, but the purpose of the trusts was to provide benefits to Kim without exposing the assets to taxes after her death, so removal of Tres did not interfere with that purpose. Tres suggested that a trustee-succession mechanism indicated the purpose for the trust, thereby precluding his removal, but the Court of Appeals rejected this idea.[4]

In contrast, Rein was not removed as cotrustee.  Apparently the affected beneficiaries did not unanimously request removal of Rein, for the trial court analyzed the request to remove Rein under the “substantial change in circumstances” option in the statute instead of the unanimous request option. The trial court found that Rein was an attorney with nearly four decades of experience in trusts and estates, that Rein had served for two decades as a Lund family trust trustee, and that it was important to retain Rein as trustee in order to maintain “consistent administration” of Kim’s trust with the other trusts managed by Rein. Accordingly, the trial court declined to remove Rein. Kim argued on appeal that there was overwhelming evidence to support different findings on the statutory factors for removal, concerning Rein, but the appellate court did not even consider that evidence because “we do not reconcile conflicting evidence on appeal.”[5] The district court’s decision was supported by at least some evidence and therefore could not be overturned as an abuse of discretion.

The different outcomes in Kim’s attempts to remove Tres and Rein highlight the difference between convincing a court to remove a trustee in accordance with the unanimous preferences of all beneficiaries and convincing a court to remove a trustee against the wishes of at least one beneficiary. From the outside, it would appear that the court’s order for a buyout of Kim’s interests in the Lund businesses would certainly be a “substantial change in circumstances” – it was a change that Kim was willing to pursue through litigation for more than four years. The court, however, chose to wave the change away as a change that “does not bear upon Rein’s trusteeship,” apparently more concerned to pursue the broader goal of encouraging harmony in the administration of multiple trusts under Rein.

[1] On February 12, 2019, the Lund defendants filed a petition asking the Minnesota Supreme Court to review the decision of the Court of Appeals. That petition remains pending.

[2] Lund v. Lund, no. A18-0120 (Jan. 14, 2019), sl. op. at 15-16.

[3] Subsection (b)(4) states one way to obtain removal; subsections (b)(1)-(3) also authorize removal as a result of “a serious breach of trust,” lack of cooperation among cotrustees, or trustee failure to effectively administer the trust. Those avenues were apparently not at issue in Lund.

[4] Lund at 16.

[5] Lund at 17.