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In re Marvin M. Schwan Charitable Foundation

Supreme Court of South Dakota

May 18, 2016

In the Matter of the MARVIN M. SCHWAN CHARITABLE FOUNDATION, MARK SCHWAN and PAUL SCHWAN, as members of the Trustee Succession Committee of the Marvin M. Schwan Charitable Foundation, Petitioners and Appellants,
v.
LAWRENCE BURGDORF, KEITH BOHEIM, KENT RAABE, GARY STIMAC, and LYLE FAHNING, as Trustees of the Marvin M. Schwan Charitable Foundation, Respondents and Appellees

          Argued April 26, 2016.

          APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT MINNEHAHA COUNTY, SOUTH DAKOTA. THE HONORABLE MARK SALTER, Judge.

         BLAKE SHEPARD, JR., ALLEN I. SAEKS of Stinson Leonard Street, LLP, Minneapolis, Minnesota and THOMAS J. WELK, JASON R. SUTTON of Boyce Law Firm, LLP, Attorneys for petitioners and appellants.

         REECE ALMOND, VINCE M. ROCHE of Davenport, Evans, Hurwitz & Smith, LLP, Sioux Falls, South Dakota, Attorneys for respondents and appellees.

         RONALD A. PARSONS, JR., PAMELA R. BOLLWEG of Johnson, Janklow, Abdallah, Bollweg & Parsons, LLP, Sioux Falls, South Dakota, Attorneys for beneficiaries and appellees Bethany Lutheran College, Wisconsin Lutheran College, Evangelical Lutheran Synod, and WELS Kingdom Workers.

         MARTY J. JACKLEY, Attorney General, PHILIP D. CARLSON, JEFFREY P. HALLEM, Assistant Attorneys General, Pierre, South Dakota, Attorneys for appellee Attorney General of South Dakota.

         KENNITH L. GOSCH of Bantz, Gosch & Cremer, LLC, Aberdeen, South Dakota, Attorneys for appellee Wisconsin Evangelical Lutheran Synod.

         WILBUR, Justice. GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and KERN, Justices, concur.

          OPINION

         WILBUR, Justice

          [¶1] Two members of a seven-member trust succession committee petitioned the circuit court for court supervision of the trust under SDCL 21-22-9. The trustees, beneficiaries, and attorney general requested that the court dismiss the petition. After a hearing, the circuit court dismissed the petition because it concluded that the two members did not meet the classifications of persons able to petition the circuit court for supervision. Reverse and remand.

         Background

          [¶2] Marvin M. Schwan owned and operated Schwan's Sales Enterprises (a.k.a. The Schwan Food Company) until his death in 1993. In 1992, Marvin had created the Marvin M. Schwan Charitable Foundation. The Foundation is a tax-exempt, charitable supporting organization under Internal Revenue Code sections 501(c)(3) and 509(a)(3). The Foundation's governing documents (Trust Instrument) indicate that the Foundation is " organized and operated exclusively to support or benefit" the named beneficiaries. The Trust Instrument names the following seven beneficiaries: Wisconsin Evangelical Lutheran Synod, The Lutheran Church, Missouri Synod, Wisconsin Lutheran College Conference, Inc., Evangelical Lutheran Synod, Bethany Lutheran College, Inc., International Lutheran Laymen's League, and Wisconsin Lutheran Synod Kingdom Workers, Inc. (Beneficiaries).

          [¶3] The Trust Instrument provided for at least two trustees and not more than five trustees. Marvin had named himself, his brother Alfred Schwan, and his friend Lawrence Burgdorf as original trustees. Currently, the trustees include Burgdorf, Keith Boheim, Kent Raabe, Gary Stimac, and Lyle Fahning (Trustees). The Trust Instrument grants the Trustees broad powers in their administration of the Foundation. The Trust Instrument further provides that all powers be exercised exclusively for the benefit of the Beneficiaries. In particular, the Trustees are charged with the responsibility to distribute income or principal to the Beneficiaries, to provide services or facilities for individual members of the Beneficiary organizations, and to support the activities of any religious or educational associations of the Beneficiary organizations.

          [¶4] The Trust Instrument also provided for a Trust Succession Committee (Committee) comprising at least three members and not more than seven. The original members of the Committee included Marvin, Alfred, Burgdorf, and Owen Roberts. Currently, the Committee members include Marvin's sons (Mark Schwan and Paul Schwan), David Ewert, Paul Tweidt, and three Foundation Trustees--Burgdorf, Boheim, and Raabe. The Trust Instrument empowers the Committee to monitor the Trustees' administration of the Foundation. The Committee may fire existing Trustees with or without cause, hire new Trustees, and request the Trustees to account " with regard to the Trustees' doings" related to the Foundation.

          [¶5] After Marvin's death, the Trustees redeemed all Marvin's stock in the company and funded the Foundation with assets valuing nearly $1 billion. The parties do not dispute that certain investments made by the Trustees over several years caused approximately $600 million in losses to the Foundation. These losses reduced the value of ...


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