Broken Trust

Legal ideas like "decoupling" or "fiduciary" or "Trust Agreement" can be confusing, so this case study should help people learn about and discuss these ideas. Teachers use case studies all the time: When people have a simplified specific example to discuss, it's easier to learn ideas and debate issues.

A Case Study: Raiding the Richardson Trust

Case Study Facts

Tom and Kathy Richardson spent a lifetime carefully saving and working hard, so they accumulated a large estate: Half their assets were in stocks and bonds, the other half was a scenic and highly profitable vineyard.

The Richardsons wanted to pass their estate to their children and grandchildren in a reliable way, so they signed a Trust Agreement; that is, a legal agreement that lets someone transfer property and assets for the benefit of someone else called the beneficiary.

The Richardson Trust transferred the stocks, bonds, and vineyard to Beaver State Bank who agreed to be the trustee for Richardson's descendants. The Trust agreement specifically required day-to-day vineyard management to be done by Oregon Vineyard Management, a well respected firm that managed many other local vineyards.

After the couple died in 1950, the Richardson Trust worked as expected for decades: Beaver State Bank oversaw the Richardson Trust, Oregon Vineyard Management grew and harvested grapes, and each year the descendants got paid millions of dollars from profit.

As time went on, a new Beaver State Bank employee was assigned as Trustee, and she worried about the evils of drinking alcohol. So she fired Oregon Vineyard Management and hired her own vineyard expert instead. She told the new vineyard expert not to harvest any wine grapes. Naturally, the vineyard began losing money and started falling into disrepair.

This new Trustee's next idea was to convert the vineyard into a vineyard/public park, so she signed an agreement with Beaver Consultants to write a vineyard-to-park conversion plan, and no competitive bidding was allowed when this agreement was signed. Beaver Consultants was another company within Beaver Bank's parent company. Beaver Consultants was paid $870,000 to design playgrounds and other park amenities. Beaver Consultants worked privately: their meetings weren't open to outside observers, and their internal discussions and working papers were kept secret until a few months before the final plan was released in December 2020.

Both Beaver State Bank and Beaver Consultants knew the vineyard/park idea had nothing to do with the original Trust's goal, so they hid the payments to Beaver Consultants by lumping financial results from the stocks, bonds, and vineyard together in a combined statement each year.

Several beneficiaries got suspicious, and they independently asked how much Beaver Consultants was being paid. Beaver State Bank handled each inquiry by saying they would get back with the information, but they never followed through. Finally, one of the beneficiaries got mad enough about the obvious run-around that he filed a formal request backed up by threats of legal action if Beaver State Bank didn't disclose what they had been paying for the vineyard/park concept. Only at this point did Beaver State Bank say they had paid more than $870,000 to Beaver Consultants to design the vineyard/park.

One key problem with the vineyard/park idea came from Oregon's zoning laws: the vineyard was zoned for exclusive agricultural use, and the land was specifically prohibited from being used as a playground. Both Beaver State Bank and Beaver Consultants said they hoped to get around this legal difficulty by asking the Oregon Legislature to pass a law to change the vineyard's zoning.

Beaver State Bank has a large Trust Department, so it manages other vineyards under similar Trust Agreements. Thirteen of these other beneficiaries got together and sued Beaver State Bank for failing to maximize vineyard revenues. In November 2019, a Linn County jury gave these thirteen plaintiffs a $1.1 billion dollar award against Beaver State Bank for breaching its fiduciary duties.

A central feature of the vineyard/park plan was to transfer ownership of the land from the Richardson Trust to Beaver Consultants. The vineyard/park plan said this transfer would "decouple" the vineyard from the Richardson Trust. In actuality, the term "decouple" was just a fancy way of saying the vineyard would be sold. The plan said "decoupling" would happen without allowing a competitive auction so other people could offer to buy the vineyard.

Discussion Questions

1. Alcohol destroys many lives, so the Trustee at Beaver State Bank has good reason to worry about how wine damages our society. Does this excuse Beaver State Bank's unilateral decision to stop harvesting wine grapes?

2. Everyone wants to believe they are good people, so hiding questionable actions is a universal human trait -- we often subconsciously hide things from ourselves. Does this excuse how Beaver State Bank and Beaver Consultants said they were being open and transparent while they shielded their actions from view?

3. If a Trustee cannot put their clients' interest ahead of their own personal beliefs, what alternatives does the trustee have that are legal and ethical?

4. Near the top of this page is a list of duties a trustee is expected to follow. Which duties did Beaver State Bank ignore or break?

5. If Beaver Consultants knew the contents of the Richardson Trust, were they wrong to accept the $870,000 in consulting fees offered by Beaver State Bank? Beaver Consultants was not a trustee, so was it OK to knowingly accept illegally diverted funds from a trustee?

6. How should the beneficiaries be compensated for lost value while the vineyard wasn't being managed according to standard industry practices? Was the trustee's behavior in this case egregious enough to warrant punitive damages?

Case analysis: Vineyards versus Treefarms

This case study is factually the same as the real life situation with the Elliott State Forest, only the names were changed. Here are the name changes:

• Vineyard and Grapes --> Treefarm and Trees

• Richardson Trust --> Oregon's Constitution, Article VIII, establishing School Trust Lands and the Common School Fund

• Beaver State Bank --> Oregon State Land Board

• Oregon Vineyard Management --> Oregon Department of Forestry

• Beaver Consultants --> OSU College of Forestry

We hope this case study clarifies why we feel Oregon's K-12 schoolchildren deserve trustees who don't have divided loyalties, who won't put the political interests of urban environmentalists ahead of their duty to act in good faith.

Just as it doesn't make sense to completely shut down vineyards over concerns about alcohol use, it doesn't make sense to completely shut down Oregon's forests over apparent concerns about carbon sequestration and endangered species. Yet the trustees who are overseeing the Elliott State Forest have stopped all logging, have no plans for future logging, and have entered into perpetual planning as a way to avoid accountability for their inaction and justify their rationale.