Friday, September 27, 2013

The Wisner Trust - September 24, 2013 Hearing

The hearing on Tuesday went about like I expected it to, although I was left more confused on some matters than I was before I went in.  I think I've got a pretty good idea how this may play out and I'll play armchair court forecaster and give you my predictions as well as giving you the salient moments of the hearing.

Right out of the gate, let me boil down the three main points this hearing was meant to address:

1.  Perpetuity and standing - Is the Wisner Trust perpetual and are the heirs really heirs as challenged by the Mayor.

2.  Public or Private - Is the Trust a public or private entity.

3.  Breach of fiduciary duty - Has the Mayor breached his fiduciary duties as the Trustee of the Edward Wisner Donation Advisory Committee and should he be subsequently removed as the Trustee.

I'm going to take these points on individually even though they were addressed at different stages throughout the hearing.

Perpetual Motion

The most important point is obviously the perpetuity issue.  The Mayor is arguing that the trust should dissolve in 2014 and even went so far as to say that the heirs weren't really heirs at all.  Landrieu is essentially arguing that the "heirs" listed as beneficiaries in the Compromise Agreement ended with the death of Ed Wisner's daughters.

The heirs lawyers, led by Daniel Lund of the Montgomery Barnett law firm, refute the dissolution claim based not only on the wording of the original donation but also on a law passed by the Louisiana legislature in 1920 which declared all Louisiana charitable trusts as perpetual unless an express reserve is made to dissolve the said trust.  The law was also made retroactive so it covered charitable trusts already in existence.

Hey, you know what?  While we're on this subject, let me lay out a brief timeline of the history of the Trust for future reference:

1914 - Edward Wisner makes the donation.

1915 - Edward Wisner dies and also leaves a significant portion of his wealth to his wife, Mary Jane and two daughters, Elizabeth and Rowena.

A young and old portrait of Mary Jane Wisner - Tulane University Special Collections

1920 - The Louisiana legislature passes Act 167 outlining the parameters for charitable trusts.  Section 1 of the Act states the following:

Be it enacted by the General Assembly of the State of Louisiana, that wherever one or more persons, individuals or corporations has donated, subscribed, contributed or paid into a fixed or certain sum or amount of money or property, and dedicated it to some charitable, benevolent or eleemosynary user or purpose, whether such dedication appears in an act of charter, articles of incorporation, declaration of trust or otherwise, and have not expressly reserved in such dedication the right to dissolve, abolish or destroy the trust or dedication thus made, the said trust and dedication of funds or property for such purpose, as declared, shall remain and continue forever so long as there is a competent person or institution to administer, direct, carry out, or execute the trust, dedication, etc. 

The Wisner Trust did not, "...expressly reserve in such dedication the right to dissolve, abolish or destroy...", itself, as Lund argued in the hearing.

1915 through 1920's -  Trusted friend of Edward Wisner, co-executor of the Wisner estate and legal counsel to the widowed Mary Jane Wisner, Wear F. Milling, flips his loyalty to the Wisner family after Ed's death and begins a series of underhanded scams along with a businessman from Chicago, Charles T. Knapp, to rob the Wisner ladies of their estate and inheritance.  The assets obtained through this land and estate theft are eventually dumped into a company called the Louisiana Land and Exploration Company.  The wealth accrued by this company from the Wisner assets becomes enormous after the discovery of oil and gas in Southern Louisiana and will go on to shape the political landscape of the city and the state in profound ways.  This information isn't directly related to the evolution of the Trust itself but it is a critical part of the story in understanding the plight and motivation of Mary Jane Wisner in the wake of her husband's death.

1928 - By this time, Mary, Rowena and Elizabeth have been almost completely fleeced by Milling and company.  New, more honest, legal counsel approaches Mary Jane and makes the case that she never approved the creation of the Trust and could therefore nullify it and reclaim the Trust's assets.  The Wisner ladies file suit in Orleans Civil District Court.

1929 - An Agreement of Compromise and Satisfaction is reached by all parties in the Trust dividing beneficiaries in division with the following percentages in ownership:

City of New Orleans - 34.8 %
Tulane University - 12%
Charity Hospital - 12%
The Salvation Army 1.2%
Heirs - 40%

1930 - There is a judgement executed by the Orleans Civil District Court incorporating the Compromise Agreement.

The City argument is primarily based on an item in paragraph two of the Compromise Agreement which states, " the extent in the aggregate for the three of Forty Per Cent (40%) of the rights, interests, revenues and profits heretofore derived from the said estate and of the proceeds of the trust estate when and if sold..."  According to the City, this creates a "right of segregation" with the Trust.  In other words the City maintains that the heirs and apparently the other beneficiaries are only entitled to the income of the underlying assets of the Trust and not the assets themselves.

But they seem to be ignoring paragraph four in the Agreement which changes the right of segregation to an "ownership in division", "...hereby release, abandon and forego the right of segregation conferred upon them by the terms of said act of donation, and agree that said donated property shall be held in division and administered by the Trustee during the trust period as a whole...".  That demand should legally make all the beneficiaries owners of the actual property and underlying assets, not just the income.

Aside from the battle over the interpretation of the Compromise Agreement's text, the City put forth other arguments regarding common practices in the state.

In closing comments, the City's lead attorney on Wisner litigation, Adam Swensek, also made the argument that because the Trust contains a private beneficiary, it's a mixed trust and the state has never ruled that mixed trusts could be held in perpetuity.  Sighting some cases to support that claim, he also focused on the comments of Wisner heir and appointee to the Advisory Committee, Michael Peneguy, who testified that the heirs had been actively trying to negotiate an extension of the Trust with the City and other beneficiaries since Peneguy took his position on the Advisory Committee in 1984.

Apparently the argument was that since the heirs had been unable to successfully negotiate a compromise to extend the must not be perpetual.  There have been five mayors since 1984, Dutch Morial, Sidney Barthelemy, Marc Morial, Ray Nagin, and now Mitch Landrieu so I suppose they were suggesting that because none of these men were willing to extend the Trust while in office, that negates the validity of perpetuity.  I'm not sure how political opinion on the part of these past mayors has anything to do with the letter of the law but that appeared to be the City's argument, nonetheless.

Prediction:  The judge will rule the Trust is perpetual and the heirs have standing.  I don't see how it could go any other way, even though I'm not a lawyer and have no "#standing" to make that assessment.  There simply didn't seem to be any real legal basis to justify the City's argument.

Noteworthy:  A lawyer for LSU stood up after both parties made their closing arguments and very poignantly restated the organization's opinion that they believe the Trust to be perpetual.  He was careful to note that the issue of perpetuity is the only item being addressed that the school is taking an opinion on and urged Judge Zeno to make an expeditious decision on the matter.

Private or Public?

On the second item, the Trust's status as a private or public entity, the argument really boiled down to how the Trust has operated historically.  The City argues that because the Trust has never paid a land tax in Lafourche, St. John and Jefferson Parishes, that it must be considered a public entity.  The heirs argue that the Trust has filed a tax return every year since its inception and is viewed by the IRS as a private entity, not public.

The City also referred to two Louisiana Attorney General opinions from 1949 and 1980 in which they referred to the Trust as a public entity.  Both opinions were in respect to paying property tax because the LaFourche Parish assessor wanted to add the Wisner property to the parish's tax rolls.  While it provides some background on the matter, the court is in no way bound by an Attorney General's opinion.

It's also important to note that although the Trust doesn't pay land taxes the heirs do pay taxes on the income they receive from the Trust.

The argument is also interesting because Tulane University, one of the beneficiaries, is a private entity that doesn't pay property taxes here in Orleans Parish.  If the City is truly concerned about Orleans and neighboring Parishes missing out on property taxes from a private entity it seems like they should be taking Tulane to court as well.

While the private/public issue was the least debated item of the day, it has some pretty large implications for the future of the Trust.

Prediction: This is a tough one...but I think it will be ruled as a public entity and will therefore be subject to public records requests, open meeting laws, etc.  That's just a hunch....I'm not a lawyer.

I'm actually OK with that decision because this Trust affects so many aspects of the City.

Trust buster or champion of transparency?

So that brings us to item three and what I thought was by far the most serious and debated item in the hearing, whether or not Mayor Landrieu has breached his fiduciary duty as Trustee of the Advisory Committee.

As Andrew Vanacore pointed out in his story in the Advocate, witness and former Secretary-Treasurer for the Advisory Committee, Cathy Norman, testified under the questioning of Lund that the Mayor immediately began to create a hostile environment with the Advisory Committee upon taking office.  I don't need to dredge all that back up in this post, but I have plenty of examples of that just go back through the blog and you'll witness a taste of the horror in 720p.

All and all, Norman's testimony was rather uneventful on both sides but during her testimony it was noted that the City completely changed their methods of accounting from the previous administration and that they stopped running the applications for the City's Wisner grants through the Advisory Committee.  In fact, for a period of time the City stopped providing the Advisory Committee with accounting reports, altogether.

Swensek kept making a point to note that none of the other beneficiaries were required to consult with the Advisory Committee on how they spent their share of the Trust's income.  He even asked Michael Peneguy, on the stand, how much of their proceeds from the Trust he and the other heirs spent on charity.  That has absolutely no bearing on the case but hay was made of it.

Later on during the closing statements, Judge Zeno asked Lund why he thought the Trust specified that the City was the only beneficiary who must consult with the Advisory Committee before deciding how their share of the Wisner funds should be spent.  Lund noted that he could only speculate, but, "The obvious answer is politics!"  He went on to muse that the authors of the Compromise Agreement may have been concerned that the money would be misappropriated by the City if there was not some body of oversight to make sure the funds were being used for their intended purpose.

Lund also pointed out that regardless of the motivation of the authors, the Agreement of Compromise clearly states that "...the Mayor of the City of New Orleans, with the approval of the Commission Council (or its successor body), may act as such Trustee up on the advice and the with the consent of the majority of said Commissioners (the Advisory Committee members)...".   The City, on the other hand, has focused on the "may" part of that sentence to maintain that the Mayor is not legally bound to seek the Advisory Committee's approval.

But here's the problem, the Mayor acted on that assumption without it being officially clarified.  He even went so far as to set up a completely independent committee to assess applicants for the City's Wisner grants.  During the testimony of Erica Beck, Executive Counsel to the Mayor and current appointee on behalf of the Mayor to the Advisory Committee, it was revealed that the Mayor's newly created committee was originally composed entirely of employees of the Mayor's Office.  Later NORD Director, Vic Richard, was added to the Mayor's Wisner Committee who is not an employee of the Mayor's Office but he, too, was appointed to his job by the Mayor, himself.

Lund also asked Beck about donations from the City's Wisner fund that may have been made to the Mayor's NOLA FOR LIFE program.  Beck confirmed that 500k had been allocated to the program from Wisner but the money had not yet been disbursed.  Lund pointed out that in this situation, you have an oversight committee created by the Mayor designed to supersede the existing Advisory Committee, stacked with people who are not only loyalists to the Mayor but owe him their jobs, that voted to give 500k to an entity that the Mayor himself created when he took office.

That's kind of like Snow White creating a committee to decide who the fairest maiden in the land is and appointing the seven dwarves.  I have no idea where that metaphor came from.  I've been on the wagon for a while so forgive me, I have some crazy things running through my head.

The ethical argument here is whether or not the Mayor bypassed the legal check and balance system that had been established by the Compromise Agreement in order to spend the money the way he wanted.

The conversation became much more interesting to me when City Attorney, Sharonda Williams, argued in closing statements that the Mayor already had a check and balance system in place which was the existing branches of City government, the Mayor's Office vis-a-vis City Council.  She pointed out that the New Orleans City Code gives City Council oversight and control over the City's portion of the Wisner funds.

This is's absolutely true although I don't have that portion of the City Code readily available to post.  I have read it and may have even posted it previously....I will get back to you with that.

When she said this, I nearly bust out laughing and I'm sure Judge Zeno would not have hesitated to throw me out of the courtroom or worse had I lost composure...luckily I didn't.  I have good reason to believe that City Council members have repeatedly asked the Mayor's Office for accounting statements and information regarding the City's actions with the money from the Trust and have received nothing....nada....just like the requests from the Advisory Committee.

In fact, Judge Zeno even asked Williams if City Council had made any inquiries to the Mayor's office regarding the Trust.  Sharonda furtively deflected the line of questioning saying she wasn't sure and that she would have to check on it.  I find it hard to believe one of the two city attorneys appointed to the Wisner litigation doesn't know if City Council is making inquiries into the operations and accounting of the City's portion of the Wisner funds.  That's a hard pill to swallow.

Prediction: I think Judge Zeno will rule in favor of the City on this matter and allow Mitch to keep the puppet board he's created to oversee the grant process and how the money is spent.  If he were to rule in favor of the heirs and have the Mayor removed as Trustee, it would open the door for all kinds of political nastiness and possibly even criminal nastiness.  I don't see that happening, even though I think it should.

Subverting the process of democracy should have consequences, methinks.

I'm going to stop here but I have a number of other observations I want to share later.




Anonymous said...

Clay here.

So, there's a big party that's kept suspiciously quiet: Tulane.

Has Mitch coopted them into remaining silent? Do they have an opinion?

What would Tulane have to gain by remaining silent?

Anonymous said...

I did not read the documents so I don't know if you copied it correctly, but there is a difference between "in division" and "in indivision"

mominem said...

Let me offer a reason why the City alone was required to work with the advisory board.

The Trust had a purpose. Tulane the Salvation Army and Charity Hospital are entities where the income would inevitably be used for "charitable purposes", if only because some charitable function was inherent in their normal operation. Even funds used for administration would make other funds available for their inherently charitable functions.

The City however could (and likely would) divert the funds for normal operation of the City or even private purposes if not otherwise constrained.

Anonymous said...

If anything, Tulane should be arguing alongside the heirs. Are they not a private party as well? They also stand to lose their whole interest as well - if the City gets it way.

One other note on reporting use of funds. At the time the trust was established - the City was the only public entity involved, I assume. Charity at that time was private (now its public because of LSU).

Jason Brad Berry said...

And that brings up another interesting point because technically "Charity" was just purchased by Children's Hospital, the LSUHC is now, technically Charity. But LSU maintains that they are the trustee.

Confusing stuff, huh?

Jason Brad Berry said...

"Has Mitch coopted them into remaining silent?

Yeah, I think so.

Jason Brad Berry said...

"The City however could (and likely would) divert the funds for normal operation of the City or even private purposes if not otherwise constrained."

And that actually happened when Moon Landrieu tried to use the funds to buy garbage trucks back in the 60's.

Jason Brad Berry said... clarify one thing before I set off a firestorm...the building that housed "Charity" is still owned by LSU, not Children's.

Anonymous said...

Please see California v. City of New Orleans case (Court of Appeal, 1st Circuit 1952)
In this case the City takes the position that Wisner is private.

I am confused...

Jason Brad Berry said...

I remember it being mentioned in the hearing but I don't have it. Let me see if I can track it down and I'll look at it.

Anonymous said...

As to Tulane University's silence, if readers don't grok how Mitch placed them squarely in his back pocket last year, let me count the ways:
1. Zoning matters
2. Expedited stadium permits (before CZO kicks in)
3. Watered down "Good Neighbor" agreements
4. need I go on?

Errata: "Citing" (not "Sighting")

Anonymous said...

Tulane's appointment to the Board, Anthony P. Lorino, should have had the General Counsel's (attn: Victoria Johnson)office appoint outside legal counsel on this matter. He has a fiduciary duty as the Senior Vice President of Operations & Chief Financial Officer to ensure that Tulane University is protected. He is clearly on notice that litigation has commenced and that Tulane is a named party since he sits on the Wisner Advisory Board.

Anonymous said...

Am I just confused, or is the mayor in breach of fiduciary duty simply by not extending the donation? Clearly he is not concerned about the best interests of the donation (first and foremost duty as trustee), much less the city, and the state for that matter.

Anonymous said...

Wear Milling practiced law with his brother, Roberts Milling, and his father, Robert Milling.

Timken is another out-of-state name involved in this.

What a terrible way to treat one of New Orleans's most generous families.

Jason Brad Berry said...

"Am I just confused, or is the mayor in breach of fiduciary duty simply by not extending the donation? Clearly he is not concerned about the best interests of the donation (first and foremost duty as trustee), much less the city, and the state for that matter."

He's in breach because he ignored the legal requirements set forth by the 1929 Compromise Agreement which requires all grants to be reviewed and approved by the Advisory Committee. He set up his own Committee and simply bypassed the official AC. In fact, he doled out grant money without the AC's approval so legally, he could be charged with misappropriation of funds.

He's also in breach because he's become hostile towards the other trustees in his attempt to dissolve the Trust and their interest in it. I'm going to expound on that in next post.

Jason Brad Berry said...

"Wear Milling practiced law with his brother, Roberts Milling, and his father, Robert Milling.

Timken is another out-of-state name involved in this.

What a terrible way to treat one of New Orleans's most generous families."

I'm going to build on this in an upcoming post...hang tight.

Jason Brad Berry said...

"Wear Milling practiced law with his brother, Roberts Milling, and his father, Robert Milling.

Timken is another out-of-state name involved in this.

What a terrible way to treat one of New Orleans's most generous families."

I'm going to build on this in an upcoming post...hang tight.

Jason Brad Berry said...

"Wear Milling practiced law with his brother, Roberts Milling, and his father, Robert Milling.

Timken is another out-of-state name involved in this.

What a terrible way to treat one of New Orleans's most generous families."

More to come on this...hang tight.

Anonymous said...

A confusing, but interesting (to me) side note: Robert E. Milling had two sons named Robert. One was Robert E. Jr, and one was Robert C. Milling. They and their their brother Wear F. Milling joined into their father's law firm around the same time (early 1900's). Robert E. Milling, Jr.'s son is R. King Milling of Whitney Bank holdings, etc. fame, and supposedly a lead proponent in wetlands restoration.