In re: the Trust of the Arnold G. A. Schauer and Yvonne B. Schauer Family Irrevocable Trust.

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2018).

STATE OF MINNESOTA
IN COURT OF APPEALS
A18-0969

In re: the Trust of the Arnold G. A. Schauer
and Yvonne B. Schauer Family Irrevocable Trust.

Filed April 8, 2019
Affirmed in part, reversed in part, and remanded
Hooten, Judge

Sibley County District Court
File No. 72-CV-16-118

Kenneth R. White, Law Office of Kenneth R. White, P.C., Mankato, Minnesota; and

Paul E. Grabitske, Grabitske Law Firm, PL C, Mankato, Minnesota (for appellant
Rettmann)

Steven L. Ward, Ward Law Office, Hutchinson, Minnesota; and

Scott L. Nokes, Glencoe Law Office, Glencoe, Minnesota (for respondent Schauer)

Christopher E. Sandquist, Sandquist Law Office, LLC, Mankato, Minnesota (trustee)

Considered and decided by Reyes, Presiding Judge; Hooten, Judge; and Cochran,
Judge.
U N P U B L I S H E D O P I N I O N
HOOTEN, Judge
In this trust dispute, appellant argues that the district court erred (1) by approving
the trustee’s mediated settlement agreement for the sale price of stock held by the trust
because the trustee breached his duty of impartiality, and (2) by awarding attorney fees to

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be paid by the trust to the trust beneficiary who was acting in his capacity as the purchaser
of stock in the mediation. We affirm in part, reverse in part, and remand.
FACTS
At dispute in this case is the Arnold G.A. Schauer and Yvonne B. Scha uer Family
Irrevocable Trust. In 2010, Arnold and Yvonne Schauer created the trust in their namesake.
They named their two adult children, appellant Diane Rettmann and respondent David
Schauer, as the sole beneficiaries of the trust. The trust named Richard Kakeldey as trustee.
By its terms, the trust obligated the trustee, upon the death of Arnold and Yvonne ( the
grantors), to distribute $350,000 to their daughter, Rettmann. T he remaining balance of
the trust was to be divided between the two siblings, with 55% going to Rettmann and 45%
going to their son, David Schauer.
The principal asset of the trust consisted of the grantors’ shares in a farming
company called Arnold & Da vid Schauer Enterprises, Inc. As its name entails, the
company was owned by the Schauer parents and their son, but Rettmann was not an owner
of the company. The trust was closely linked to the family’s farming company, as the trust
granted the trustee the power to “execute and carryout the terms” of the company’s Stock
Transfer Agreement (STA). The STA provided that upon the death of a shareholder, the
surviving shareholders must purchase all of the decedent’s stock in the company. Upon
the death of both grantors, respondent Schauer was the only surviving shareholder of the
company.
After Yvonne passed away in 2013 and Arnold passed away in 2016, Kakeldey
resigned as trustee and appointed Christopher Sandquist as successor trustee, contingent

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upon court approval. Rettmann then petitioned the district court for approval of the
successor trustee, but Schauer objected. The district court appointed Sandquist as acting
trustee, but restricted his abilities to carry out the terms of the trust until a final resolution
was reached between the beneficiaries. After the parties attended an unsuccessful court -
ordered mediation, the district cou rt ordered trustee Sandquist to administer the trust
according to the grantors’ wishes and removed the trustee restrictions.
In a separate action initiated by Schauer, the district court ordered Schauer and the
trust to arbitrate a number of issues, inc luding the dispute over corporate stock valuation.
According to the STA, any disputes arising under the agreement were to be resolved by
arbitration. The parties agreed to mediate before attending arbitration.
Schauer and trustee Sandquist mediated i n January 2018. Schauer and Sandquist
each hired an expert to value the company and the purchase price of the stock. Using both
experts’ advice, Schauer and trustee Sandquist reached a settlement agreement. They
agreed that the value of the company’s sto ck was $1,310,827, and the sales price of the
stock held by the trust was $686,372. Their agreed -upon purchase price included a
reduction for taxes and a discount for a lack of control and marketability. The agreement
was made subject to approval by the district court, and trustee Sandquist petitioned the
district court for approval of the sales price of stock and approval of his administrative fees
as allowable expenses of the trust. He also requested that the district court decide whether
the trust sho uld pay for the claimed administrative expenses of former trustee Kakeldey,
the company, and Schauer.

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Rettmann objected to the agreed -upon purchas e price . And i n response to the
trustee’s petition to approve the mediated settlement agreement, Rettmann petitioned the
district court to compel distribution of $350,000 as provided in the trust. She also requested
that the district court charge Schauer with any discount o n the purchase price of shares ,
alleging that the trustee acted partially and that the only remedy for this breach of duty was
to charge the discount to Schauer’s 45% distribution. She also objected to the payment of
attorney fees from the trust for Schauer or the company.
Following a motion hearing, the district court approved the mediated agreement’s
sale price of the stock, finding that the trustee did not breach his duty of impartiality. It
also approved payment of trustee Sandquist’s request for fees in the amount of $30,143.28,
reserved former trustee Kakeldey’s request for fees, d enied attorney fees requested by the
company, and approved in part Schauer’s request for attorney fees, awarding him a total of
$188,566.46 in fees. In a supplemental order, the district court awarded former trustee
Kakeldey’s expenses in the amount of $6,380.
This appeal follows.
D E C I S I O N
I. Duty of impartiality

Rettmann argues that the trustee breached his duty of impartiality by agreeing to a
purchase price of the stock held in the trust. We review a district court’s determination of
whether a trustee breached his fiduciary duties for an abuse of discretion. In re Trusteeship
Created by City of Sheridan, 593 N.W.2d 702, 708 (Minn. App. 1999). We apply a clear-
error review to a district court’s find ings of fact. In re Pamela Andreas Stisser Grantor

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Trust, 818 N.W.2d 495, 507 (Minn. 2012). A finding of fact is clearly erroneous “only if
the reviewing court is left with the definite and firm conviction that a mistake has been
made.” Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 101 ( Minn. 1999) (quotation
omitted). We will not disturb a district court’s finding of fact if there is reasonable evidence
in the record to support it. Id.
A trustee’s duty to “act in good faith and in accordance with the terms and purposes
of the trust and the interests of the beneficiaries” is mandatory and cannot be eliminated by
the terms of the trust. Minn. Stat. § 501C.0105(b)(2) (2018). “If a trust has two or more
beneficiaries, the trustee shall administer the trust impartially, giving due regard to the
beneficiaries’ respective interests.” Minn. Stat. § 501C.0803 (2018).
The precise meaning of the trustee’s duty of impartiality and
the balancing of competing interests and objectives inevitably
are matters of judgment and interpretation. Thus, the duty and
balancing are affected by the purposes, terms, distribution
requirements, and other circumstances of the trust, not only at
the outset but as they may change from time to time.

Norwest Bank Minn. N., N. A. v. Beckler , 663 N.W.2d 571, 581 (Minn. App. 2003)
(quotation omitted).
Rettmann argues that the trustee breached his duty of impartiality in agreeing to the
purchase price for stock held by the trust . She therefore contends that the district court
erred by accepting the trustee’s petition to approve the mediated settlement agreement
between the trust and the company on several grounds.

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Tax Reduction
Rettmann first argues that the trustee breached his duty of impartiality by agreeing
to a 40% reduction in the value of the stock for tax purposes.
We generally will not consider matters not argued to and considered by the district
court. Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) . Although Rettmann made
general objections to the purchase price as set forth in the mediated agreement, she did not
specifically challenge the tax reduction. Accordingly, the district court did not consider
whether the tax reduction constituted a breach of duty. For thes e reasons, whether the tax
reduction constituted a breach of the trustee’s duty of impartiality is not properly before
us. And even if we were to consider the merits of Rettmann’s argument, we would find no
reason to reverse the district court’s acceptanc e of the purchase price or decision to not
grant an evidentiary hearing on the issue.
In determining the value of the company, the trustee relied on two valuation experts.
Both experts recommended using a liquidation value approach to determine the net v alue
of the company . The trustee submitted Rettmann’s objection to the liquidation value
approach to the experts. Both experts rejected her objection and recommended use of this
approach based on the company’s type and primary assets consisting of farmland, vehicles,
and equipment. Because “a willing buyer or seller of an equ ity interest would look to the
company’s underlying assets to establish the fair market value,” the experts recommended
using the liquidation value approach. Both experts indicated this approach includes
accounting for a 40% reduction for the combined federal and state income tax rate upon
sale.

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The trustee used both expert opinions to settle on the value of the company. “So
long as the trustees act in good faith, from proper motives, and within the bounds of
reasonable judgment, the court will not interfere with their decisions.” United States v.
O’Shaughnessy, 517 N.W.2d 574, 577 (Minn. 1994). Here, the trustee was well within his
discretion to determine the value of the company and relied upon two expert opinions to
establish the valuation approach. I n order to fulfill his duties as trustee , he used the
valuation of the company to agree to a sales price for the stock held in the trust. We would
not, even on the merits of Rettmann’s argument, grant the relief requested based on the tax
reduction. This leads us to her second objection to the trustee’s valuation.
Lack-of-marketability-and-control discount
Second, Rettmann argues that the district court erred by finding that the trustee did
not breach his duty of impartiality by agreeing to a 25% discount for lack of control and
marketability in a closely held corporation in the stock purchase price. Again, we review
findings of fact for clear error. In re Stisser, 818 N.W.2d at 507.
In reaching its decision that the trustee did not breach his duty of impartiality, the
district court made detailed findings regarding the nature of the trustee’s powers and his
efforts in reaching a settlement on the sale of stock. First , the district court found that the
trustee had the power to sell the stock. The trust grants the trustee the power to sell assets
and was required, upon the death of the grantors, to distribute the remaining balance of the
trust to Rettmann and Schauer. The district court also noted the trustee’s power to sell
stock as codified in Minn. Stat. § 501C.0816 (7)(iii) (2018).

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Second, the district court approved the mediated price for the shares because “[t]he
compromises made by the Trustee were made in good faith and in line with his assessment
of the risks posed to the Trust.” The district court found that the trustee agreed to the sales
price by relying on both expert opinions hired by the trust and Schauer and the input of
both Rettmann and Schauer as beneficiaries. It appears that both experts were instructed
to evaluate the company based on a fair market value not including a discount for lack of
marketability and control . Schauer’s expert opined that if they were to i nclude this
discount, the discount should b e 34%. Instead, the parties agreed to a 25% discount for
lack of marketability and control, which takes into account the actual value of stock
depending on the ownership interest in the stock (co ntrol) and the ability to sell the stock
for cash (marketability). The district court concluded that “all matters related to a discount
for the common stock for marketability and lack of control were considered at the
mediation.”
The district court the n addressed Rettmann’s contention that the trustee granted
Schauer a significant benefit at her expense by reducing the sales price of the stock. In
response, the district court indicated that the mediation for the sales price involved only
the remaining shareholders of the company—the trust and Schauer. It found that the trustee
did not agree to a discount or benefit for Schauer as beneficiary, but for Schauer as
shareholder of a company and the buyer of stock held by the trust.
We have previously addressed valuation methods which use discounts for lack of
control and marketability in a closely held corporation. In In re Estate of King, we affirmed
a district court’s approval of a 45% discount for the sale of stock based on a lack of control

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and marketability. 668 N.W.2d 6, 8, 10 (Minn. App. 2003). In that case, upon King’s
death, the shares of a closely held corporation were to be sold to one of her nephews. Id.
at 8. King’s personal representatives used the fair market value of the shares and applied
a 45% discount to the shares to account for a lack of control and marketability . Id. The
district court approved the sales price, thereby approving the method used in determining
the value which used a discount for lack of control and marketability. Id. at 9. On review,
we held that in order to reverse the district court, the appellant had to show that the fair
market value method was unreasonable. Id. at 10. We reasoned that “it is not the province
of this court to determine which method of valuation is the best,” but to “determine whether
the district court’s findings regarding valuation and distribution are clearly erroneous.” Id.
Because the appellant failed to show that the method used was unreasonable, and the
district court determined that both the method used and the method suggested by the
appellant were reasonable, we concluded that the district court did not abuse its discretion
by approving the method used by the trustees. Id. at 10–11.
Similarly here, Rettmann does not provide any reasoning why the liquidation value
approach used by the trustee was unreasonable. She contends that we should reverse the
district court for approving the discount used in the approach, but does not identify a clear
error that warrants reversal. “This court will not substitute its discretion for the discretion
of the trustee save when it is necessary to prevent an abuse of discretion such as where the
trustee is given discretion in distributing income and corpus.” Id. at 9. And a trustee must
act within the bounds of reasonable judgment. O’Shaughnessy, 517 N.W.2d at 577.
Because Rettmann failed to provide any reason to conclude that the valuation method,

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which included a discount for lack of marketability and control, was unreasonable, we
affirm the district court’s approval of the mediated stock sales price.
Because we conclude that the trustee did not breach his duty of impartiality, we need
not address Rettmann’s argument that the district court erred by failing to re medy the
alleged breach.
II. Attorney fees

Rettmann argues that the district court abused its discretion by granting Schauer
attorney fees in the amount of $188,566.46 to be paid by the trust. An award of attorney
fees from a trust will not be reversed abs ent an abuse of discretion. In re Great N. Iron
Ore Props., 311 N.W.2d 488, 492 (Minn. 1981).
Minnesota courts have long recognized that a beneficiary or party to the trust may
be allowed attorney fees and expenses from a trust. Id. The oft-cited rule was established
in In re Atwood’s Trust:
In the sound and cautiously exercised discretion of the court,
and not as a matter of right, attorneys’ fees and other expenses
reasonably and necessarily incurred by all necessary parties to
litigation may be allow ed and properly charged to the trust
estate where such litigation, with respect to substantial and
material issues, is necessary in order to resolve the meaning
and legal effect of ambiguous language used by the settlor in
the trust instrument, if an adjud ication thereof is essential to a
proper administration of the trust, and if, without unnecessary
expense or delay, the litigation is conducted in good faith for
the primary benefit of the trust as a whole.

35 N.W.2d 736, 740 (Minn. 1949).
The Minnesota Legislature recently adopted a section of the Uniform Trust Code on
the topic of attorney fees. See Minn. Stat. § 501C.1004 (2018); Lund as Trustee of

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Revocable Trust of Kim A. Lund v. Lund , ___N.W.2d ___, ___, 2019 WL 178461, at *8
(Minn. App. Jan. 14, 2019), review denied (Minn. Mar. 27, 2019 ). Section 501C.1004
provides, “In a judicial proceeding involving the administration of a trust, the court, as
justice and equity may require, may award costs and expenses, including reasonable
attorney fees, to any party from the trust that is the sub ject of the judicial proceeding.”
Minn. Stat. § 501C.0106 (2018) provides that the common law supplements the Minnesota
Trust Code “except to the extent modified by [the code] or another law of this state.” And
this court has specifically recognized that the common law supplements the trust code in
relation to attorney fees. Lund, 2019 WL 178461, at *8–9.
Here, the district court awarded the majority of Schauer’s attorney fees . In doing
so, it reasoned that jus tice and equity entitled Schauer to the award of attorney fees as a
beneficiary of the trust in working to settle trust disputes. But Schauer was not acting in
the role of beneficiary in contesting the value of the stock held by the trust ; he was acting
in his role as a shareholder of the family’s farming company. And as the shareholder
purchasing the stock, Schauer’s interests were precisely contrary to the interests of the trust.
Schauer’s attorney fees incurred in contesting the value of the stock , therefore, cannot be
based solely upon his role as a beneficiary of the trust. The award of these attorney fees to
Schauer solely on the basis of his status as a beneficiary of trust was error as a matter of
law.
Appellant also argues that in awarding attorney fees to Schauer, the district court
also made a number of other factual and legal errors . We agree. First, the district court
failed to make any findings regarding how it determined the amount of fees awarded to

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Schauer’s attorneys. Both of his attorneys submitted invoices to the district court outlining
their fees in representing Schauer . Attorney Scott Nokes submitted an invoice indicating
an amount for $91,563.75 in fees. After the motion hearing to discuss the issue of fees,
Nokes submitt ed a second invoice with a number of entries crossed out by hand. He
indicated that “upon further consideration of the caselaw . . . as well as the comments and
observations of the Court,” he eliminated certain entries characterized as fees relating to a
criminal case and a harassment r estraining order. After eliminating these entries, Nokes
reduced his request to the amount of $88,669.75. Of that, the district court granted
$85,010.28 to be paid from the trust. Schauer’s second attorney, Steve Ward, su bmitted
four invoices to the district court, totaling what appears to be $112,106 in attorney fees.
The district court awarded Schauer $103,556.18 for attorney fees owed to Ward. In doing
so, the district court stated that it “spent a significant amount of time going through each
invoice” and “determined what fees . . . have related to issues of the Trust and
representation of Mr. Schauer as a beneficiary to the Trust.”
While the district court indicated it spent time going through each invoice, it did not
provide any guidance in its order or memorandum outlining how it arrived at each amount.
We therefore have no indication of why or how the district court reduced attorney Nokes’
bills by $3,659.47 or attorney Ward’s bills by $8,549.82. This precludes us from assessing,
upon review, the reasonableness of the fees awarded.
Furthermore, the strikingly dissimilar award of fees, in comparison to the trustee’s
fees, undermines the district court’s reasoning in granting Schauer’s requests for attorney
fees. From our review of the record, it is unclear why the trustee only incurred fees in the

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amount of $30,143.28, while Schauer’s attorneys incurred $188,566.46 in fees. In the
district court’s memorandum, it explained that neither party objected to the payment of
trustee Sandquist’s fees from the trust. And based on Minn. Stat. § 501C.1004, the district
court concluded that justice and equity required that Schauer’s fees also be paid by the
trust, “so far as they relate to the same issues that Trustee Sandquist had to work through.”
In Lund, this court clarified the different standards that apply in awarding attorney
fees in light of the recent statut ory adoptions to the Minnesota Trust C ode.1 Lund, 2019
WL 178461, at *8–9. In Lund, we held that Minn. Stat. § 501C.1004 did not apply to the
trustee fees, but that Minn. Stat. § 501C.0709 (2018) did apply , as supplemented by
common law. Id. at *8–9. On the other hand , Minn. Stat. § 501C.1004, the justice -and-
equity rule, applies to t he award of beneficiary and third -party attorney fees, as
supplemented by the common law. See id. at *8–9. While beneficiary attorney fees are
subject to a justice -and-equity analysis, trustees are entitled to fees when “the fees are
reasonable and incurred in good faith.” Id. at *9.
Applying these principles to this case, we conclude that trustee Sandquist is entitled
to fees under Minn. Stat. § 501C.0709 , while beneficiaries of the trust are entitled to
attorney fees under Minn. Stat. § 501C.1004. It appears that district court’s award of
attorney fees to Schauer was based primarily upon the fact that the trustee was awarded
attorney fees for the same dispute without objection. But if this were the only criteria for
granting attorney fees to benefi ciaries, such interpretation would render Minn. Stat.

1 This opinion was not published at the time of the district court’s order.

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§ 501C.1004 superfluous. Instead, Minn. Stat. § 501C.1004 requires that when district
courts assess whether a beneficiary should be awarded attorney fees, it may award attorney
fees as justice and equity require.
And, as this court has instructed, this section is supplemented by the common law.
Lund, 2019 WL 178461, at *8–9. The longstanding rule from Atwood is still required in
assessing whether beneficiary attorney fees should be awarded. See In re Atwood , 35
N.W.2d at 740. Here, the district court did not discuss or rule on whether (1) the litigation
was “necessary in order to resolve the meaning and legal effect of ambiguous language
used by the settlor in the trust instrument, ” (2) the adjudication “is essential to a proper
administration of the trust, ” and (3) “without unnecessary expense or delay, the litigation
is conducted in good faith for the primary benefit of the trust as a whole.” Id. Because the
district court failed to discuss or r ule on whether attorney fees should be awarded under
Atwood, we are unable to review whether the attorney-fee award on behalf of Schauer was
appropriate on appeal. See Thiele, 425 N.W.2d at 582 (holding that appellate courts cannot
review matters not considered by the district court).
As requested by Rettmann, and based on the district court’s lack of findings and
errors of law, we reverse the district court’s award of Schauer’s attorney fees and remand
for further proceedings in accordance with this opinion.
Affirmed in part, reversed in part, and remanded.