Judge Allows Lawsuit to Proceed in $870 Million Schwan Heir Case
ST. PAUL, Minn. (AP) _ The children of frozen food tycoon Marvin Schwan may proceed with a lawsuit that claims their uncle mishandled Schwan’s $870 million gift to a charitable foundation, a federal judge ruled Tuesday.
The family dispute involves a transaction after Marvin Schwan died in 1993 as one of the 100 richest people in the country.
U.S. District Judge Paul Magnuson allowed the lawsuit to continue in federal court while dismissing some of the allegations on technical grounds.
``We’re very pleased,″ said attorney Allen Saeks, who represents Marvin Schwan’s four adult children.
Before he died, Schwan left two-thirds of the stock in his Marshall-based company, Schwan’s Sales Enterprises, to a religious charity foundation that became known as the King’s Foundation.
Schwan left his brother Alfred as chief executive of the privately held company. Alfred Schwan also was named a co-trustee of the King’s Foundation.
The foundation’s other trustee is Lawrence Burgdorf, Marvin Schwan’s longtime friend and a former Lutheran Church-Missouri Synod pastor.
Marvin Schwan had wanted the foundation to sell the stock back to the company, thus generating cash for charitable donations to religious institutions.
Marvin Schwan’s children _ Mark, David and Paul Schwan and Lorrie Schwan-Okerlund _ are contesting the buyback deal that Alfred Schwan and Burgdorf struck in 1994.
Under the plan, the company made an $89 million down payment and committed to a 15-year note for $780 million at 8.5 percent interest to the foundation in exchange for both the voting and nonvoting stock. The entire buyback, including interest, will be worth $1.8 billion to the foundation.
The children do not contest that their father’s wish was to give the foundation two-thirds of the company stock.
However, they argue that he intended for the foundation to sell back only the 5,000 shares of voting stock, not the nearly 26 million nonvoting shares as well.
By Marvin Schwan’s wish, Alfred Schwan and Burgdorf also control the separate trusts that Marvin Schwan had set up for his four children and their heirs. Like his later gift to the charitable foundation, the estimated $430 million that Marvin Schwan had earlier placed in the separate family trusts came in the form of company stock.
The children, who are minority stockholders, contend the company was hurt by the huge price it paid to buy back both voting and nonvoting stock from the foundation.
The children argue that the foundation should have kept the nonvoting stock, earning dividends on it, rather than sell it back to the company for cash.
Magnuson threw out four of the children’s allegations, saying they were improperly filed. However, the judge cleared the way for the children to pursue claims that Alfred Schwan and Burgdorf breached their duty as trustees to the children’s separate trusts.
``Our allegations of breach of trust are really at the heart of the case,″ Saeks said.
He said he will amend the lawsuit to conform to the judge’s objections.
Peter Hendrixson, an attorney for Schwan Sales Enterprises, said the company was pleased that the judge dismissed claims that sought to undo the company’s transactions.
``The Schwan heirs have already benefited considerably from the company’s success over the years and will continue to benefit in the future,″ he said.
Richard Ostlund, a personal attorney for Alfred Schwan and Burgdorf, said, ``Contrary to the claims in this ill-conceived lawsuit, the best interests of the company and the Schwan family have and will continue to guide the trustees’ actions, just as Marvin Schwan intended.″