To be an “interested person” under the Minnesota Trust Code, a party must have a property right in or claim against the assets of the trust arising out of the trust instrument itself, not merely a possibility of becoming a beneficial owner based on agreements separate from the trust agreement, the Ramsey County District Court held on May 14, 2019. The decision was a matter of first impression in Minnesota.
The Court’s ruling may have effectively narrowed standing in a trust instruction proceeding and limited the “catch-all” provision of Minn. Stat. § 501C.0201, placing the Minnesota courts in line with New York courts on this issue.
U.S. Bank, as trustee of several trusts, filed a petition for instruction in the administration of trust pursuant to Minn. Stat. § 501C.0201, et seq, seeking instruction approving the settlement of certain claims of the trusts’ in the New York courts. U.S. Bank filed the petition in Minnesota because it has a corporate office in Minnesota and, under the applicable trust statute, venue may be in Minnesota.
Several certificate holders appeared, opposing the proposed settlement. The National Credit Union Administration Board (NCUA) also appeared in the proceeding in support of the proposed settlement. NCUA asserted that it had standing because (1) it transferred all interest in its certificates in one of the trusts at issue to two legally separate resecuritization trusts that would become NCUA assets at some point in the future upon legal maturity and unwinding, and (2) it had a direct interest in two of the other trusts at issue. One certificate holder moved to exclude NCUA for lack of standing, and the Court granted the motion.
Who has Standing?
In finding that NCUA lacked standing in the proceeding, the Court relied on several grounds. First, the Court held that to be an “interested person” as defined by the Minnesota Trust Code, NCUA must have a property right in or claim against the assets of the trust and cannot rely on the possibility that at some later date the trust certificates will revert back to NCUA.
Second, the Court found that NCUA cannot base its standing on a generalized proof of “injury-in-fact” because the Minnesota Trust Code requires a narrower statutory requirement for standing, namely that NCUA be an “interested person,” which NCUA failed to prove.
Third, under the catch-all provision in Minn. Stat. § 501C.0201, an interested person must be “determined according to the particular purposes of, and matter involved in, any petition.” The Court refused to read this section so broadly as to permit anyone with a role in the underlying New York litigation as having standing to appear in the Minnesota proceeding.
When do Interested Persons Need to Announce Their Holdings?
The Court held that NCUA did not disclose its direct holdings in two other trusts involved in the litigation at least five days before the initial hearing or at the initial hearing. NCUA therefore could not rely on these direct holdings as a basis for their standing.
Since many international debt issues and other financings are governed by English law, it is worth noting that in England, well-developed procedures are available for trustees under English law trust instruments to seek guidance from the court as to the proper administration of the trust. For example, where the trustee wishes to obtain the blessing of the court because the proposed action of the trustee would be particularly momentous, or to determine how the trust instrument should be interpreted. A beneficiary of the trust is also entitled to seek the court’s guidance.
Note: Faegre Baker Daniels advises on U.S. and English law trust instruments and assists in court proceedings out of its U.S. and London offices.