• Retainer not subject to disgorgement. In an opinion noted as “at the risk of being redundant,” the court held that, in an administratively insolvent case converted from a Chapter 11 to a Chapter 7, there is no statutory provision that allows for the return or disgorgement of a retainer. Having previously authorized payments to the professional from the retainer, the court also noted that there is no other statutory provision allowing for recovery of the payment made post-petition. The court cited Jackson Walker, LLP v. Federal Deposit Insurance Corp., 13 F. Supp. 3d 953 (D. Minn. 2014) as holding that the moment the payment is drawn from the retainer, the funds are no longer property of the estate. In re: Next Generation Media, Inc., BKY 10-40097, 1/28/2015, U.S. Bankruptcy Court, District of Minnesota, citing In re Hyman Freightways, Inc. 342 B.R. 575 (Bankr. D. Minn. 2006), aff’d 2006 WL 3757972, No. 06-2607 (D. Minn. 2006).
• Intent required to prove contemporaneous exchange for value. The 8th Circuit affirmed the U.S. Bankruptcy Court, District of Minnesota and the Bankruptcy Appellate Panel, in holding that the preference defense of a contemporaneous exchange for value must be proven to be intentional as between the parties. In this case, a mandatory delay of over 15 days in the payment after the transfer of title documents, without any reasonable explanation for the delay, was held to mean that the debtor was given a short-term loan and that the exchange of value was not intended to be contemporaneous. Charles W. Ries v. Michael Calandrillo (In re Genmar), U.S. Court of Appeals, Case No. 13-3023, 1/28/2015
• Motion to withdraw reference must be timely. The jurisdiction of the United States Bankruptcy Courts is by reference from the United States District Court; however, that reference can be withdrawn “for cause shown.” Stern v, Marshall, 131 S. Ct. 2594, 2603 (2011) (quoting 28 U.S.C. Sections 1334(a), 157(a), (d)). Local Bankruptcy Rule 1070-1 implements this reference. The U. S. District Court for the District of Minnesota held that the defendants’ motion to withdraw reference was not timely since the defendants had waited nearly four years after suit commenced before filing the motion. In further support for denying the motion, the court went on to note that the defendants did not comply with Local Bankruptcy Rule 5011, which requires that a request for transfer be made first to the Bankruptcy Court. Kelley v. Opportunity Finance, LLC, et al, Civil File No. 14-3375, 1/26/2015.
–Timothy D. Moratzka
DeWitt Mackall Crounse & Moore S.C.
• Parole: No constitutional right to be advised of due process requirements associated with parole revocation proceedings. Appellant was convicted of first-degree burglary, given a stayed sentence, and placed on probation. Two years later, Appellant’s probation was revoked after he personally admitted to probation violations. The district court did not provide appellant with the rights advisory required by Minn. R. Crim. P. 27.04, which reflect the rights articulated in Morrissey v. Brewer, 408 U.S. 471, 488-89 (1972), and which informs the probationer’s of his right to: (1) a lawyer, including an appointed lawyer if the probationer cannot afford a lawyer; (2) a revocation hearing to determine whether clear and convincing evidence of a probation violation exists and whether probation should be revoked; (3) disclosure of all evidence used to support revocation and of official records relevant to revocation; (4) present evidence, subpoena witnesses, and call and cross-examine witnesses, except the court may prohibit the probationer from confrontation if the court believes a substantial likelihood of serious harm to others exists; (5) present mitigating evidence or other reasons why the violation, if proved, should not result in revocation; (6) appeal any decision to revoke probation. Minn. R. Crim. P. 27.04, subd. 2(1)(c). Unlike other rules regarding waivers, Rule 27.04 does not require a defendant to personally waive his Morrissey rights in writing or on the record in open court. Appellant argues that the district court violated an alleged constitutional right to be advised of his Morrissey due process rights prior to accepting Appellant’s admission of the probation violations, and that he did not knowingly and intelligently waive his Morrissey rights.
Pursuant to Morrissey and Gagnon v. Scarpelli, 411 U.S. 778 (1973), a probationer is entitled to due process prior to the revocation of probation, because the revocation of probation results in the loss of liberty. However, these cases do not suggest that a probationer has a constitutional right to be advised of these due process rights, and there exists no such separate constitutional right.
The district court’s failure to provide the appellant with Rule 27.04’s rights advisory was an error that was plain, because it contravened an unambiguous rule of criminal procedure. However, appellant has not met his heavy burden of showing the error affected his substantial rights. Appellant has not alleged, for example, that he lacked actual knowledge of the Rule 27.04 rights, nor that he would have denied the probation violations had the court read him the advisory. The revocation of appellant’s probation is affirmed. State v. Clarence Bruce Beaulieu, Sup. Ct. 2/4/15.
• DWI: Warrantless search of breath does not implicate fundamental rights, because search would be constitutional as search incident to a valid arrest. This case presented the question whether Minnesota’s test refusal statute violates appellant’s constitutional right to due process by criminalizing his refusal to consent to an unconstitutional search. Appellant was arrested on suspicion of DWI after police found him and two others attempting to remove a boat out of the water at a boat launch. When police arrived, appellant was in his underwear, smelled of alcohol, and admitted he had been drinking. At the police station, police read appellant the MN Implied Consent Advisory, after which appellant was given the opportunity to speak with an attorney. He instead called his mother, and then refused to take a breath test. Appellant was charged with first-degree test refusal, but, upon appellant’s motion to dismiss, the district court ruled that the test refusal statute was not unconstitutional on its face, but dismissed the charges, concluding that the police lacked a lawful basis to search appellant without a warrant. The court of appeals reversed, finding no due process violation because the officers had probable cause and could have secured a warrant to search appellant’s breath.
Held, the breath test police asked appellant to take would have been constitutional as a search incident to a valid arrest, and as a result, charging appellant with criminal test refusal does not implicate a fundamental right, and the test refusal statute is a reasonable means to a permissive object. The court of appeals’ analysis is flawed, because warrantless searches are generally unreasonable, and there is no probable cause exception to the warrant requirement. However, a search incident to arrest is a valid exception. This exception extends beyond merely “pat downs” of those who have been lawfully arrested (covers, for example, taking of fingerprints and photographs, x-rays, medical examinations, etc.). Taking a sample of an arrested person’s breath is not materially different from other warrantless searches conducted incident to a lawful arrest.
Appellant argues that the search-incident-to-arrest exception does not apply, because it derives from concerns over officer safety and a desire to preserve evidence, and the State did not show any threat to officer safety or concern that appellant would destroy evidence. There are two types of searches that fall within the search-incident-to-arrest exception: a search of the arrestee’s person, and a search of the area within the arrestee’s immediate control. The safety and evidentiary concerns apply only to searches of the area within the arrestee’s immediate control, and have not been applied as a limitation on the warrantless search of the body of a person validly arrested.
Appellant also argues that the test refusal statute violates his constitutional due process rights. The search of appellant’s breath would have been constitutional, so no fundamental right is implicated. The constitutionality of the statute is, therefore, assessed using rational basis review, which requires that the statute not be “arbitrary or capricious.” In other words, the statute is constitutional if it is “a reasonable means to a permissive object.” The object of Minnesota’s implied consent law is public safety, and the state’s compelling interest in highway safety justifies efforts to keep impaired drivers off the road. Chemical tests to determine whether drivers suspected of DWI are, in fact, driving while impaired is reasonably related to this interest. Encouraging drivers to submit to chemical tests, by criminalizing their refusal, furthers that interest. It is, therefore, “rational to conclude that criminalizing the refusal to submit to a breath test relates to the State’s ability to prosecute drunk drivers and keep Minnesota roads safe.” As such, “the test refusal statute is a reasonable means to a permissive object.” The Court of Appeals is affirmed. State v. William Robert Bernard, Jr., Sup. Ct. 2/11/15.
• Habeas corpus: Judicial review of commissioner of corrections’ decision implementing sentence imposed by district court obtained only by filing petition for writ of habeas corpus. Appellant was convicted of first-degree criminal sexual conduct and received a stayed sentence of 98 months, and a conditional release term of five years. Appellant violated his probation, and served two-thirds of his sentence, before being placed on supervised release, the terms of which he also violated. The Department of Corrections then revoked his release and ordered him to serve the remaining portion of his executed sentence, recalculating the expiration date of appellant’s conditional release term to reflect the time he had spent in custody of this supervised release violations. Appellant filed a motion to correct his sentence under Minn. R. Crim. P. 27.03, subd. 9, alleging the DOC illegally extended his conditional release term. The State argued that the district court lacked jurisdiction to review the commissioner of corrections’ administrative decision implementing the sentence imposed by the district court because the court could not grant the relief requested. The district court found that it had jurisdiction, because Minn. R. Crim. P. 27.03, subd. 9, authorizes review of the DOC’s administrative decisions implementing a sentence, and denied appellant’s motion to correct his sentence on the merits. The court of appeals affirmed.
Held, the district court has subject matter jurisdiction over a motion to correct a sentence under Rule 27.03, subd. 9, because the district courts are courts of general jurisdiction and have original jurisdiction over the sentence imposed in a criminal case. However, a motion to correct appellant’s sentence is not the proper procedure to obtain juridical review of the DOC’s administrative decision implementing the sentence imposed by the district court. Rule 27.03, subdivision 9, applies to correct sentences that are incorrect as originally imposed. In contrast, the writ of habeas corpus is a remedy available to a confined person to obtain relief regarding the custody imposed, or the length of confinement in a given case. Only the petition for a writ of habeas corpus provides the district court with authority to review the DOC’s administrative decisions regarding the calculation of the number of days for which an offender is entitled to credit, and the expiration date of the conditional release term. Because appellant used the wrong procedure, a Rule 27.03, subd. 9, motion, and not a petition for writ of habeas corpus, denial of his motion to correct his sentence was warranted. State v. Brian Keith Schnagl, a/k/a Brian Keith Schnagel, Sup. Ct. 2/11/15.
• Game and fish laws: Definition of “taking” applies to “take” in Minnesota’s game and fish laws: A DNR officer found appellant sitting in a camouflaged ATV blind in an open field, wearing blaze orange, and possessing a loaded gun. Appellant was thereafter charged and convicted under Minn. Stat. §97B.301, which states that a person may not “take” deer without a license. The district court denied appellant’s motion for judgment of acquittal, and the Court of Appeals affirmed, defining “take” by the statutory definition of “taking,” which includes “pursuing” and “attempting to take,” and held that appellant’s conduct constituted “pursuing” deer. The Supreme Court accepts review to determine whether to define “take” by its narrower common law definition or by the broader statutory definition of “taking,” and whether appellant’s actions constituted a “take” under the applicable definition.
Held, the broader statutory definition of “taking” in Minn. Stat. §97A.015, subd, 47, applies to “take” in Minn. Stat. §97B.301, subd. 1. Appellant argument that “take” is defined by common law to mean “to acquire possession or control.” However, although “take” is not defined in Chapter 97B, “taking” is defined in Chapter 97A, which along with Chapters 97B and 97C are part of the “game and fish laws.” By the rules of grammar, “take” and “taking” share the same underlying definition. Also, in State v. O’Heron, 83 N.W.2d 785, 786 (Minn. 1957), a similar statute was interpreted, and the court applied the statutory definition of “taking” to define “take.” Finally, “taking” is used to define “take” throughout the game and fish laws. The only reasonable interpretation of “take” in Minn. Stat. §97B.301 incorporates the definition of “taking” from Minn. Stat. §97A.015, subd. 47.
It is further held that a jury could reasonably conclude that a person who sat in a camouflaged ATV blind in a field during deer hunting season, wore blaze orange, and had a loaded gun next to him, was “pursuing” or “attempting to take” deer, and therefore violated Minn. Stat. §97B.301, subd. 1. State v. Roger Benedict Schmid, Sup. Ct. 2/25/15.
EMPLOYMENT & LABOR LAW
• Age discrimination; summary judgment reversed for failure to promote. Summary judgment dismissing an age discrimination lawsuit brought by a police lieutenant in Eveleth was reversed and remanded for determination whether the 51-year-old claimant was the subject of age discrimination for not being promoted to the position of Chief. The 8th Circuit Court of Appeals, reversing the decision by Judge Richard Kyle in Minnesota, held that the City failed to articulate a non-discriminatory justification for reliance on the lieutenant’s eligibility for retirement as grounds for denying his promotion. Hilde v. City of Eveleth, 777 F.3d 998 (8th Cir. 2015).
• Indemnification; no appeal from department refusal. The Court of Appeals did not have jurisdiction over a petition by an employee seeking indemnification from the Department of Human Services for legal defense and judgment incurred in connection with these job-related duties. The Supreme Court upheld that the decision by the department, because the employee was not acting within the scope of his employment under Minn. Stat. §3.736, subd. 9, did not give rise to subject matter jurisdiction because there was no determination by a “trier-of-fact” sufficient to warrant certiorari jurisdiction. Nelson v. Schlener, 2015 WL 543143 (Minn. 2/11/2015) (unpublished).
• Fraudulent inducement; state may be liable. A lawsuit against the state due to alleged fraudulent inducement by the Secretary of State may proceed. Affirming the Court of Appeals, the Supreme Court held that sovereign immunity does not exist for a claim by an ex-employee under Minn. Stat. §181.64-65 for inducing an employee to come to Minnesota outside the state and then terminating the employee. Nichols v. State, 858 N.W.2d 773 (Minn. 2015).
• FELA; railroad liable for violation. A railroad was liable for injuries incurred by an employee due to an engineer’s violation of federal radio communications regulations. The Minnesota Court of Appeals upheld a Hennepin County District Court jury verdict under the Federal Employee’s Liability Act as well as waiver by the employee of objection to considering the claimant’s future income in assessing damages. Kennedy v. Soo Line R.R. Co., 2015 WL 404381 (Minn. Ct. App. 2/2/ 2015) (unpublished).
• Independent contractors; no duty of care. A personal injury judgment for an injured construction worker was reversed because the claimant was an independent contractor and was not owed a duty of due care. The court of appeals overturned a Faribault County District Court verdict on grounds that the defendant did not exercise sufficient control to impose liability based solely on inspection of the work and to assure compliance with project deadlines. Smith v. Wells Concrete Products Co., 2015 WL 404603 (Minn. Ct. App. Feb. 2, 2015) (unpublished).
• Unemployment compensation; four misconduct decisions upheld. The court of appeals recently affirmed three determinations of employee “misconduct” by the Department of Employment & Economic Development (DEED) resulting in disqualification of applicants for unemployment compensation benefits in a variety of circumstances.
The improper disclosure of patient information by a worker at a medical facility warranted disqualification in Campbell v. Planned Parenthood Minnesota, WL 404610 (Minn. Ct. App. 2/2/2015) (unpublished).
Repeated improper accusations of impropriety by a supervisor leading to a reprimand for unprofessional behavior constituted “misconduct” in Ritter v. Inter City Oil Co., Inc., 2015 WL 404638 (Minn. Ct. App. 2/2/ 2015) (unpublished).
Repeatedly working overtime without authorization during a three-year period constituted disqualifying “misconduct” in Weckert v. United Healthcare Services, Inc., 2015 WL 404742 (Minn. Ct. App. 2/2/ 2015) (unpublished).
• Equal pay legislation. An effort to update the Federal Equal Pay Act (29 U.S.C. §206) has failed in Congress. The Senate declined to vote on a bill, S. 2199, that would bar employers from paying unequal wages to male and female workers who perform jobs that require substantially equal skills, effort, and responsibility without a legitimate reason. The measure also would bar employers from retaliating against employees who inquire about or disclose their wages to other employees as part of a complaint or investigation. The bill, which has been lingering for five years, has been supported by the American Bar Association as providing “more effective remedies, procedures, and protection” to address gender-based pay disparities. The bill has been opposed by some business groups.
• Whistleblower statute of limitations. The statute of limitations for wrongful termination whistleblower claims will be decided by the Minnesota Supreme Court. The justices agreed last month to hear an appeal from a ruling by the Court of Appeals late last year in a case applying a six-year limitations period for claims arising under statute, pursuant to Minn. Stat. §541.05, rather than the general two-year limitations period for most employment-related claims, which had been imposed in prior litigation under the Whistleblower law, Minn. Stat. §181.932. Ford v. Minneapolis Public Schools, 857 N.W.2d 725 (Minn. Ct. App. 2015) rev. granted (Minn. 3/4/2015).
–Marshall H. Tanick
Hellmuth & Johnson, PLLC
• Minnesota Court of Appeals upholds MPUC wind contract awards. On February 9, 2015, the Minnesota Court of Appeals rejected a challenge to a decision by the Minnesota Public Utilities Commission (MPUC) approving Northern States Power Company d/b/a Xcel Energy’s (Xcel) petition to purchase wind-powered electricity from four specific companies. The relators—Minnesota-based wind-power companies formed to develop community-based energy-development (C-BED) projects on land owned and farmed by member-owners pursuant to Minn. Stat. §216B.1612—submitted bids in response to Xcel’s February 2013 solicitation for additional wind power but were not ultimately selected to provide the wind power. The relator C-BED wind companies objected to Xcel’s decision on the grounds that Xcel had not made a reasonable effort to fulfill its wind-energy needs through C-BED projects. The C-BED companies also challenged MPUC’s denial of their request for a contested case proceeding.
In affirming the MPUC’s decision, the Court of Appeals concluded that the MPUC was not required to give C-BED projects preferential treatment; local ownership was just one of several enumerated factors the MPUC must consider. Other factors, such as cost of the power, weighed against the higher-priced proposals from the C-BED companies. The Court also upheld the MPUC’s denial of a contested case, concluding that the C-BED companies had shown neither “contested material facts” nor “a right to a hearing under statute or rule” as required by Minn. R. 7829.1000. In re Xcel Energy, 2015 WL 506416 (Minn. Ct. App. 2015).
• Minnesota Court of Appeals upholds DNR fishing restrictions on Mille Lacs Lake. On February 17, 2015 the Minnesota Court of Appeals upheld a rule adopted by the Department of Natural Resources (DNR) limiting size and quantity of fish that could be harvested from Mille Lacs Lake during the upcoming fishing season. Petitioners, residents and a resort near the lake, brought a pre-enforcement declaratory judgment challenge to the rule on the grounds that (a) DNR’s administrative record did not reference or discuss the relevance of article XIII, section 12, of the Minnesota Constitution (the “Preservation Provision,” which states that “Hunting and fishing and the taking of game and fish are a valued part of our heritage that shall be forever preserved for the people and shall be managed by law and regulation for the public good”) or the public-trust doctrine (a common-law principle providing that the state, in its sovereign capacity, holds absolute title to all navigable waters and the soil under them for the common use); and (b) the rule exceeded DNR’s authority under Minn. Stat. §14.69.
The Court rejected both arguments. First, the Court held there is no requirement that an agency such as DNR must discuss or even reference the agency’s underlying constitutional or common-law authority to adopt a rule; citing the agency’s statutory authority—which DNR did—is sufficient. Second, the Court held that Minn. Stat. §14.69, which sets forth the scope of judicial review of agency contested case decisions, was inapplicable to petitioners’ pre-enforcement declaratory judgment proceeding. Judge Hudson wrote a concurring opinion, concluding that petitioners had not shown sufficient injury to establish standing and that the court could have decided the case without reaching the merits. Save Mille Lacs Sportsfishing, Inc. v. Minnesota Dept. of Natural Resources, 2015 WL 648326 (Minn. Ct. App. 2015) (reviewing 38 Minn. Reg. 1379 (4/21/2014) (to be codified at Minn. R. 6264.0400, subp. 4).
• Minnesota Supreme Court takes broad view of “take.” On February 25, 2015, the Minnesota Supreme Court, in a unanimous decision written by Justice Lillehaug, held that the prohibition in Minn. Stat. §97B.301, subd. 1 that a person may not “take” deer without a license, includes pursuing deer as well as actually killing them. The defendant in this case was convicted of violating section 97B.301, subd. 1 for pursuing (not killing) a deer without a proper license; a DNR officer found him sitting on his ATV in an open field with a loaded gun, camouflage blind raised, wearing blaze orange clothing.
At issue on appeal was the definition of “take.” The fish and game statutes include a definition for “taking,” Minn. Stat. 97A.015, subd. 47, which includes “pursuing, shooting, killing, [or] capturing … wild animals” and specifies that “taking” includes “attempting to take wild animals.” However, the defendant argued that this definition was inapplicable because section 97B.301 uses the word “take,” not “taking”; accordingly, the common law definition of “take” should be used instead, which is “to acquire possession or control” of a deer and does not include simply pursuing one.
The Court disagreed and held the statutory definition applied. It undertook a grammatical analysis and concluded that there was no relevant difference between “take” and “taking” in this case (“the only definitional difference between the root ‘take’ and the progressive form ‘taking’ is the timing of the action”). Furthermore, the Court found persuasive a prior case, State v. O’Heron, 250 Minn. 83 (1957), in which the Court applied a similar statutory definition of “taking” to a statute making it illegal to “take” migratory waterfowl. State v. Schmid, ___ N.W.2d ____ (Minn. 2015).
• Minnesota Court of Appeals upholds county’s denial of EAW petition. On February 17, 2015, the Minnesota Court of Appeals affirmed the Crow Wing County Board of Commissioners’ determination not to prepare an Environmental Assessment Worksheet (EAW) in connection with an amended conditional use permit authorizing a new church camp on Arrowhead Lake. The proposed camp would hold up to 200 campers and 60 staff, with attendant parking and storage facilities, as well as amenities such as a mini-golf course, target range, and a waterpark. Relators petitioned the County for an EAW, arguing that there “may be potential for significant environmental effects” associated with the camp. Minn. Stat. §116D.04, subd. 2a(c), Minn. R. 4410.1100, subp. 6 (2013). The potential environmental effects cited in the petition included increased storm-water runoff, wastewater, traffic, and noise, as well as the conversion of forest land and night-time light pollution. Relators also claimed the project exceeded certain thresholds for a mandatory EAW under Minn. R. 4410.4300.
The court was not convinced. It agreed with the county that neither of the mandatory EAW categories cited by relators—clearcutting of 80 or more acres of shoreland forest or “permanently” converting 80 or more acres forest or naturally vegetated land—were applicable. In addition, although the relators’ petition identified environmental concerns associated with the camp, the court held that they failed to present evidence of the potential for significant environmental effects, particularly in light of the camp’s design and ongoing regulatory authority over aspects of the camp (e.g., a required storm-water pollution prevention plan) that would minimize environmental effects. The court also found no evidence to support the relators’ final claim—that a county staff member’s position on the board of the organization proposing the church camp improperly influenced the county’s decision—particularly since the staff member in question had recused himself from the EAW process according to county policies.
EPA finalizes new, more restrictive definition of solid waste. In December 2014, the U.S. Environmental Protection Agency (EPA) finalized its revised “Definition of Solid Waste” (DSW) Rule, which aims to reestablish hazardous waste restrictions eased by the Bush administration in 2008. Hazardous wastes subject to regulation under Subtitle C of the federal Resource Conservation and Recovery Act (RCRA) are a subset of solid wastes. Materials that are not solid wastes are not subject to regulation as hazardous wastes; consequently, the definition of “solid waste” plays a key role in defining the scope of EPA’s authority under RCRA.
The statute defines ‘‘solid waste’’ in relevant part as ‘‘. . . any garbage, refuse, sludge from a waste treatment plant, water supply treatment plant, or air pollution control facility and other discarded material…resulting from industrial, commercial, mining, and agricultural operations, and from community activities . . .’’ (RCRA section 1004 (27) (emphasis added)).
Over the last three decades EPA has struggled to distinguish between materials that are legitimately recycled for beneficial reuse (and thus not “discarded” as waste) and those that are not. In particular the agency has attempted to guard against “sham” recycling—practices that claim to be recycling but in reality are storage or treatment—as well as types of recycling in which the hazardous materials continue to pose a danger.
The last iteration of the DSW rule, finalized in 2008, expanded the number of practices that were deemed to be legitimate recycling. In particular the 2008 rule liberalized the regulation of a form of recycling known as “reclamation”—the processing or regeneration of a material to recover a usable product—which EPA had previously generally deemed akin to “treatment” (not recycling). According to EPA, the 2008 rule effectively de-regulated 1.5 million tons of materials, such as arsenic, benzene, trichloroethylene, lead and mercury. Environmental groups, including the Sierra Club, claimed that the deregulation resulted in third-party recyclers over-accumulating materials, which increased the risk of accidents and environmental releases and also raised environmental justice concerns.
Accordingly, then new DSW rule rolls back the flexibilities of the 2008 rule, redefining certain materials as hazardous waste and implementing stricter controls on facilities and processes. EPA’s preamble to the proposed rules groups the regulatory changes into six major categories:
1. Exclusion for hazardous secondary materials that are legitimately reclaimed under the control of the generator (retaining the exclusion from “solid waste” for companies who recycle the waste they generate).
2. Verified recycler exclusion (replacing the 2008 transfer-based exclusion with an exclusion for verified recyclers reclaiming hazardous materials, placing more responsibility on the generator who selects the recycler).
3. Remanufacturing exclusion (excluding from “solid waste” certain hazardous spent solvents that are remanufactured into commercial-grade products).
4. Prohibition of sham recycling and revisions to the definition of legitimacy (imposing more stringent requirements for demonstrating “legitimate recycling”).
5. Revisions to solid waste variances and non-waste determinations (providing for a variance to conduct recycling or reclamation and for product-specific non-waste determinations).
6. Deferral on Revisions to Pre-2008 Recycling Exclusions (largely allowing existing facilities operating under a pre-2008 solid waste exclusion determination to continue doing so).
The new DSW rule takes effect on July 13, 2015, although states such as Minnesota that are authorized to enforce RCRA must individually adopt the rule before it becomes effective in those states. These states have until July 1, 2016 to do so. Rulemaking on the Definition of Solid Waste. 80 Fed. Reg. 1694 (Jan. 13, 2015) (to be codified at 40 CFR Parts 260 and 261).
–Jeremy P. Greenhouse
The Environmental Law Group, Ltd.
For more information and to view background documents and links associated with these updates, please visit Jeremy’s environmental law blog, Fire On the River, at www.jeremygreenhouse.com.
• Fed. R. Civ. P. 50(a) and (b); lack of particularity; waiver. Where the defendants moved for judgment as a matter of law at the close of the plaintiffs’ case, but cited only “the plaintiffs’ failure to carry their burden” in support of their motion—and then renewed their Rule 50 motion after the jury returned its verdict, claiming for the first time that the plaintiffs had offered insufficient evidence to support their discrimination claims, and that the jury’s verdict was excessive—the 8th Circuit held that the defendants had waived their Rule 50 argument as it applied to the discrimination claim because their “failure to carry their burden” argument “lack[ed] the particularity required of a Rule 50(a) motion.” However, the Court found that the attack on the damage award, properly brought under Fed. R. Civ. P. 59 rather than 50(b), had not been waived, because defendants “could not have known at that time” that the jury’s award would be excessive. Nassar v. Jackson, ___ F.3d ___ (8th Cir. 2015).
• Right to appeal magistrate’s discovery ruling waived; no timely objection filed. Relying on Fed. R. Civ. P. 72(a), the 8th Circuit held that a defendant had waived his right to appeal a magistrate judge’s denial of portions of his motion to compel where he did not object to the order before the district court. St. Jude Medical S.C., Inc. v. Tormey, ___ F.3d ___ (8th Cir. 2015).
• Motions to strike affidavits and declarations: permitted or not? The 8th Circuit recently held that a declaration that does not meet the requirements of Fed. R. Civ. P. 56(c)(4) “may be stricken or disregarded” by a district court. Jain v. CVS Pharmacy, Inc., ___ F.3d ___ (8th Cir. 2015).
However, the judges in the District of Minnesota continue to question the use of a motion to strike to challenge the admissibility of affidavits. Most recently, Judge Ericksen denied the defendant’s motion to strike affidavits filed by the plaintiffs in opposition to the defendant’s motion for summary judgment. However, Judge Ericksen did “decline to consider” those affidavits, where the affiants were not properly disclosed under Fed. R. Civ. P. 26, and the plaintiffs were unable to establish that their failure to make proper disclosures was not “substantially justified or harmless.” Saunders v. Mayo Clinic, 2015 WL 774132 (D. Minn. Feb. 24, 2015).
Similarly, Judge Nelson recently denied the defendant’s motion to strike portions of the plaintiff’s memorandum and a declaration by her attorney submitted in opposition to the defendant’s motion for judgment on the pleadings, finding that “neither the Federal Rules of Civil Procedure nor this District’s Local Rules authorize a party to bring a motion to strike memoranda or affidavits.”
Acker v. Environmental Resources Mgmt., Inc., 2015 WL 868055 (D. Minn. Feb. 27, 2015).
• Action to confirm arbitration award; defects in service excused. Where the petitioner had prevailed in an arbitration against a Chinese company, had commenced a federal action to confirm that arbitration award, had served its papers in the federal action on the Chinese company and its former counsel by email and/or first class mail for 18 months without objection before the Chinese company retained Minnesota counsel and sought to have multiple judgments vacated under Fed. R. Civ. P. 60(b)(4) for improper service, Judge Montgomery “excused” the petitioner’s failure to comply with the extraterritorial service requirements of Fed. R. Civ. P. 4(f)(1), and instead relied on a handful of decisions from other jurisdictions in finding that defects in service may be excused so long as the respondent received actual notice of the proceedings. Judge Montgomery also found that the petitioner’s request for attorney’s fees was not a “new claim for relief” under Fed. R. Civ. P. 5(a)(2) that would have required service in compliance with Fed. R. Civ. P. 4, but that its attempt to materially modify the judgment was a “new claim” that had not been properly served. Power Electric Distribution, Inc. v. Hengdian Group Linix Motor Co., 2015 WL 880642 (D. Minn. Mar. 2, 2015).
• Motion for entry of default denied; motion to transfer granted. Judge Nelson denied the plaintiff’s motion for entry of a default where the defendant had not filed an answer or a motion pursuant to Fed. R. Civ. P. 12(b), but had participated in a full-day mediation and filed two motions. Recognizing that entry of a default judgment is at the discretion of the court, and finding no “clear record of delay or contumacious conduct” by the defendant, Judge Nelson exercised her “discretion” and denied the motion for entry of a default. Judge Nelson then relied on a forum selection clause in the parties’ contract in transferring the action to the Southern District of Indiana. Rogovsky Enter., Inc. v. MasterBrand Cabinets, Inc., ___ F. Supp. 3d ___ (D. Minn. 2015).
• Personal jurisdiction; motion to dismiss by foreign defendant denied. Judge Montgomery denied Chinese defendants’ motion to dismiss for lack of personal jurisdiction, finding that the corporate defendant’s 10-year business relationship with the plaintiff, its “regular” electronic and telephonic communication with the plaintiff’s employees in Minnesota, and the individual defendant’s visit to the plaintiff in Minnesota meant that exercising personal jurisdiction over the defendants did not violate “notions of fair play and substantial justice.” Rockland Indus. Holdings, LLC v. Container Navigation Corp., 2015 WL 868069 (D. Minn. Feb. 27, 2015).
• Question certified to Minnesota Supreme Court; proposed statement of facts required. Judge Kyle certified a question to the Minnesota Supreme Court pursuant to Minn. Stat. §480.065. Because Minn. Stat. §480.065 subd. 6(a)(2) requires that every order of certification include “the facts relevant to the question,” Judge Kyle ordered the parties to meet and confer regarding a proposed statement of facts to accompany the order of certification, and to submit either an agreed statement of facts or separate proposed statements of fact by each party. Wilcox v. State Farm Fire & Cas. Co., 2015 WL 927342 (D. Minn. Mar. 4, 2015).
• Taxation of costs reduced or eliminated; duplicate costs; indigency. Chief Judge Michael J. Davis reduced a cost judgment from more than $13,000 to less than $3,000, rejecting the clerk’s allowance of costs for depositions obtained in a separate case, finding that allowing such costs would raise the possibility of a “double recovery,” and that a “prevailing party should not recover costs for defending against completely separate claims.” Lockridge v. Per Mar Security & Research Corp., 2015 WL 1000689 (D. Minn. Mar. 5, 2015).
Adopting an unopposed Report and Recommendation by Magistrate Judge Brisbois, Judge Schiltz held that the defendants were not entitled to tax costs against an indigent plaintiff. Thull v. Techtronic Indus. Co., 2015 WL 1021316 (D. Minn. Mar. 9, 2015).
Law Office of Josh Jacobson
• Foreclosure reconveyance; good faith purchaser. During the statutory six-month redemption period after foreclosure, the foreclosed homeowner sold the property to a foreclosure purchaser, as defined in Minnesota Statutes Chapter 325N, with a lease-back agreement and an option to purchase the property back. The foreclosure purchaser provided the notice of the right to cancel form, required by Minnesota Statutes §325N.13(a), which allows the foreclosed homeowner to cancel a foreclosure reconveyance transaction within five days after signing a contract or the end of the redemption period, whichever is earlier.
It was undisputed that the homeowner timely cancelled the transaction, but the foreclosure purchaser refused to honor the cancellation. The foreclosure purchaser recorded the deed and granted a mortgage to a bank to finance the redemption from the foreclosure. Most of the loan proceeds went to the county sheriff to redeem, and the foreclosure purchaser kept the rest. The foreclosure purchaser defaulted on the mortgage and the bank foreclosed the mortgage. During the redemption period of the second foreclosure, the former homeowner brought suit alleging, among other things, that he did not lawfully sell his home to the foreclosure purchaser because the deed was void based on his notice of cancellation.
The district court held that the homeowner rescinding or cancelling the transaction rendered the deed void, but held that the bank was a good faith purchaser and the mortgage was valid. The court of appeals reversed and held that (1) the bank was not a good faith purchaser because it had constructive notice of the rights of the party in possession, and had an inquiry been made of the homeowner, the bank would have been made aware of the cancellation of the sale to the foreclosure purchaser, and (2) that the foreclosure purchaser had no interest in the property to convey to the bank because of the cancellation, regardless of whether the bank was a good faith purchaser.
A 4-3 divided Supreme Court affirmed the court of appeals by resolving the matter on the cancellation theory and held that the timely cancellation left the foreclosure purchaser with no interest in the property to convey to the bank, and therefore, the bank could not obtain any rights in the property as a good faith purchaser. The majority held that the homeowner’s cancellation was effectively a rescission, which rendered void all of the instruments to the transaction, including the deed. The majority held that because the deed was void, the foreclosure purchaser had no interest in the property to convey to the bank. The majority discounted the good faith purchaser protections in Minnesota Statutes §325N.17(f)(3) as only protecting good faith purchasers with respect to prohibited transfers that take place during the cancellation period, and only when a homeowner does not elect to cancel the transaction. §325N.18, Subd. 3 also protects good faith purchasers, but the majority concluded that section does not create additional rights for good faith purchasers, but merely protects existing rights. The majority remanded the bank’s equitable arguments back to the district court for consideration.
The dissent noted that common law, the Recording Act, and specific provisions of Chapter 325N all protect the rights of good faith purchasers against unrecorded interests in real property. The dissent noted that the majority’s interpretation of §325N.17(f)(3) is narrow and far-fetched. If a foreclosure purchaser engaged in a prohibited transfer during the cancellation period and the homeowner didn’t timely cancel the transaction, the homeowner would have no right to cancel and there would be no need to a statutory protection for good faith purchasers. Thus, the good faith purchaser protection in Section 325N.17(f)(3) is essentially meaningless under the majority’s interpretation.
Moreover, the dissent noted that cancellation rendered the transaction voidable, but not void ab initio. A voidable transaction, such as the one in this case, is valid until it is annulled and is capable of being affirmed or rejected. Under longstanding case law, voidable transactions do not defeat a good faith purchaser’s rights. On the other hand, transactions where the deed is forged or lacks the required signature are void ab initio, or void from the beginning, and cannot pass title even to a good faith purchaser. Whereas the majority claims “nothing plus nothing equals nothing,” the dissent notes that under Minnesota real estate law, there have always been “degrees of nothing.” An agreement that is void ab initio was always nothing, while a voidable agreement becomes nothing at the option of a party. Minnesota case law has long held that voidable transactions pass an interest that can be protected in favor of good faith purchasers even if a party later chooses to void it. The dissent also noted this is the first time the Court has held that delivery of a deed was ineffective because the transaction was subject to a statutory right of cancellation. Graves v. Wayman, ___ N.W.2d ___, 2015 WL 774761 (Minn. 2015).
Beisel & Dunlevy, P.A.
• Sales and use tax: Supreme Court addresses discrimination in interstate commerce and the 4-R Act. For the second time, the U.S. Supreme Court remanded Alabama Department of Revenue v. CSX Transportation to the 11th Circuit without a clear victor in the dispute. At issue in the case is whether Alabama’s taxing regime violates the 4-R Act (Railroad Revitalization and Regulation Reform Act), which forbids discriminatory taxation of railroad carriers. The taxpayer, CSX, argued that Alabama’s imposition of a sales tax that applied to diesel fuel purchases by rail carriers, but not to diesel fuel purchases by motor or water carriers, was unlawfully discriminatory. The Court held that the appropriate comparison class for assessing discrimination under the Act can vary depending on the alleged discrimination. Here, for example, the Court found that CSX properly alleged that motor and water carriers, as competitors to railroads, were a proper comparison class. On remand, the 11th Circuit must consider not only the appropriate comparison class, but also whether Alabama could justify its decision to exempt motor carriers from its sales and use taxes through its decision to subject a complementary tax on motor carriers. The 11th Circuit is instructed to consider (1) whether Alabama’s fuel excise tax is the rough equivalent of Alabama’s sales tax as applied to diesel fuel that consequently justifies the motor carrier sales tax exemption; and (2) whether any of the state’s alternative rationales justify that exemption. The opinion is also notable in that it is only the second instance of Justices Ginsburg and Thomas dissenting on the same issue in the same case. Alabama Department of Revenue v. CSX Transportation, Inc., 135 S. Ct. 1136 (3/4/2015).
• Sales tax: Constitutional challenge to Colorado’s tax not prohibited by the Tax Injunction Act. A group of retailers sued the Colorado Department of Revenue in federal district court arguing that certain notice and reporting requirements that state imposed on retailers that did not collect taxes on sales to Colorado purchasers. The United States District Court for the District of Colorado granted summary judgment to association and permanently enjoined enforcement of requirements on ground that they violated Commerce Clause. The United States Court of Appeals for the 10th Circuit, however, remanded with instruction to dismiss on ground that District Court lacked jurisdiction because of the Tax Injunction Act. The Tax Injunction Act provides that federal courts “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” 28 U.S.C. §1341. The Supreme Court disagreed that the Tax Injunction Act applied. The Court held that enforcement of the Colorado statutory notice and reporting requirements was not “assessment, levy, or collection” within scope of the Act, and further that an injunction against enforcement of notice and reporting requirements would not “restrain” assessment, levy, or collection of tax under the Act. Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124 (2015).
• Corporate income tax: Loss from abandonment of securities ordinary, not capital. Reversing the Tax Court, the 5th Circuit held that a corporation’s loss from its abandonment of securities was an ordinary, not a capital, loss. At issue was whether §1234A applied to the abandonment of the taxpayer’s securities. If 1234A applied, the taxpayer’s $90-plus million dollar loss would receive capital treatment. If 1234A did not apply the treatment would be ordinary. By its terms, 1234A applies to “the termination of rights or obligations with respect to capital assets” and does not refer to the termination of the ownership itself. Reasoning that “the ordinary meaning of [statutory] language accurately expresses the legislative purpose,” the reviewing court held that §1234A did not apply to the abandonment loss. Since the corporation abandoned the securities, not a right or obligation with respect to them, Code Sec. 1234A(1) did not apply, and the company was entitled to ordinary treatment. Pilgrim’s Pride Corp. v. Comm’r, No. 14-60295, 2015 WL 791418, at *3 (5th Cir. 2/25/2015).
• Tax-exempt status challenged: Tax Injunction Act not a barrier; lack of personal jurisdiction. A district court in Texas dismissed in part a conservative organization’s claim that it had been targeted by the government for unconstitutional and unlawful treatment based on its conservative political views when it applied for tax-exempt status. In particular, the taxpayers had named an IRS official in her personal capacity, but failed to establish personal jurisdiction over the named defendant. The court dismissed the claims against the former IRS official without prejudice for lack of personal jurisdiction. However, the court further held that the taxpayers’ lawsuit was not barred by the Tax Injunction Act, and certain claims survived. The Court granted plaintiff leave to replead. Freedom Path, Inc. v. Lerner, No. 3:14-CV-1537-D, 2015 WL 770254, at *1 (N.D. Tex. 2/24/2015).
• Sales and use tax: No discrimination in disparate taxation of satellite providers and cable providers. A Tennessee intermediate court reversed a state trial court’s determination that Tennessee exemption of $15 of a subscription fee for cable providers, but not for satellite providers, violates the dormant commerce clause. Reasoning that “satellite providers and cable providers are not similarly situated for purposes of the Commerce Clause,” the court found for the Department of Revenue. DIRECTV, Inc. v. Roberts, No. M201301673COAR3CV, 2015 WL 899025, at *1 (Tenn. Ct. App. 2/27/2015).
• Corporate income tax: Pure online retailer found to have sufficient nexus to uphold assessment of commercial activity tax. In two cases, the Ohio Board of Tax Appeals (BTA) upheld commercial activity tax (CAT) assessments on retailers with no physical presence in Ohio. In both instances, the retailer was found to have more than $500,000 in gross receipts in Ohio sales over the periods at issue, thus meeting the bright-line presence test for nexus with Ohio. Ohio statute defines bright-line presence as having taxable gross receipts of at least $500,000. Newegg, Inc. v. Testa, Ohio Board of Tax Appeals, No. 2012-234, 2/26/2015, ¶404-296; Crutchfield, Inc. v. Testa, Ohio Board of Tax Appeals, Nos. 2012-926, 2012-3068, and 2013-2021, 2/26/2015, ¶404-295.
• Broker’s report is an appraisal. Less than five days before trial, petitioner furnished a report titled “Broker Price Opinion.” The county moved to dismiss, pursuant to Minn. Stat. §278.05, subd. 6(d), arguing that the report was an appraisal, submitted fewer than five days before the hearing, which required dismissal of the action. The court agreed with the county, holding that the broker’s price opinion was an appraisal, under a plain meaning interpretation. The court rejected petitioner’s argument that an appraisal must come from an expert appraiser. 1501 Partnership v. Cnty of Hennepin, 2015 WL 820849 (Minn. T.C. 2/25/2015).
• Motion for summary judgment denied. Commissioner assessed additional income tax on appellant based on a statement made by appellant’s Director of Domestic Tax Compliance and Audits. The statement indicated that appellant operated as a unitary business during the tax year at issue. Appellant did not dispute the statement, but instead, disputed that the statement bound appellant. The Court held that appellant made a sufficient showing that the appropriate weight to be given to the statement was in dispute, thus creating a genuine issue of material fact. Therefore, the Commissioner’s motion for summary judgment was denied. Sungard Data Systems, Inc. v. Comm’r of Rev., 2015 WL 1012833 (Minn. T.C. 3/5/2015).
• Motion to vacate judgment denied. Pro se taxpayers failed to meet their burden to vacate an earlier tax court decision. The court held that an order issued in favor of the appellants from 2004 could not be considered newly discovered evidence under the plain meaning of Minn. R. Civ. P 60.02(b). Johnson v. Comm’r of Rev., 2015 WL 820913 (Minn. T.C. 2/25/2015).
• Clerical error corrected. Upon petitioner’s unopposed motion, the court corrected a clerical error in its findings of fact and conclusions of law. As a result of these corrections, the assessed value of the subject property was lowered for each of the years at issue. Macy’s Retail Holdings, Inc. v. Cnty of Hennepin, 2015 WL 653381 (Minn. T.C. 2/13/2015).
• FAQs on final tangible property regs released. The IRS has released frequently asked questions (FAQs) on the final tangible property regulations. According to the IRS website: “The final regulations combine the case law and other authorities into a framework to help you determine whether certain costs are currently deductible or must be capitalized. The final tangible property regulations also contain several simplifying provisions that are elective and prospective in application (for example, the election to apply the de minimis safe harbor, the election to utilize the safe harbor for small taxpayers, and the election to capitalize repair and maintenance costs in accordance with books and records).” The site provides links to a number of subsidiary questions.
• Oral arguments in King v. Burwell. The Supreme Court heard oral arguments on March 4 over IRS regulations extending premium assistance tax credit to enrollees in federal-facilitated Health Insurance Marketplaces. The decision is expected in June. The plaintiffs challenged the validity of an IRS final rule implementing the premium tax credit provision of the Patient Protection and Affordable Care Act. The final rule interprets PPACA as authorizing the IRS to grant tax credits to individuals who purchase health insurance on both state-run insurance “exchanges” and federally-facilitated “exchanges” created and operated by the Department of Health and Human Services. According to the plaintiffs’ argument, the IRS’s interpretation is contrary to the language of the statute because the statute authorizes tax credits only for individuals who purchase insurance on state-run exchanges. The Court of Appeals decision is reported at King v. Burwell, 759 F.3d 358, 363 (4th Cir.) cert. granted, 135 S. Ct. 475, 190 L. Ed. 2d 355 (2014).
Hamline University School of Law
TORTS & INSURANCE
• MUFTA: No Ponzi scheme presumption. In 2009, after a bank failed due to a Ponzi scheme, a court appointed a receiver to recover and liquidate its assets. The receiver commenced an action against other financial institutions under the Minnesota Uniform Fraudulent Transfers Act (“MUFTA”), seeking to claw back payments made to them by the failed bank. The district court dismissed claims against most of the financial institutions as time-barred, applying the six-year statute of limitations for actions “upon a liability created by statute.” With respect to those claims not time-barred, it granted summary judgment in favor of the receiver based in part on a “Ponzi-scheme presumption,” which the court described as a rule providing that “the profits that good-faith investors enjoy in connection with a Ponzi scheme are recoverable as fraudulent transfers.” The court of appeals affirmed in part and reversed in part.
The Minnesota Supreme Court affirmed as modified. The Court first held that the “Ponzi-scheme presumption” was not available for claims brought under the MUFTA. The Court emphasized that the MUFTA “does not contain a provision allowing a court to presume anything based on the mere existence of a Ponzi scheme” and that the “MUFTA does not address ‘schemes.’” Rather, the “MUFTA addresses a ‘transfer made or obligation incurred by a debtor,’ which indicates that the focus of the statute is on individual transfers, rather than a pattern of transactions that are part of a greater ‘scheme.’” As a result, the Court declined to adopt the “Ponzi-scheme presumption” or any three of the presumptions it provides.
The Court then addressed the statute of limitations issue. After acknowledging that two limitations periods were potentially applicable, the provisions applicable to statutory causes of action and those based upon fraud, the court found the latter applied to actions brought under the MUFTA. As a result, it remanded claims against certain financial institutions for a determination as to whether or not the “Receiver filed its action within 6 years of the discovery of the ‘facts constituting the fraud.’” Finn v. Alliance Bank, Nos. A12-1930 & A12–2092 (Minn. 2/18/2015). Slip op. at http://mn.gov/lawlib/archive/supct/2015/OPA121930-021815.pdf
• Tortious interference with contract; advice of counsel defense. Plaintiff company sued its former employee for breach of his noncompete agreement and his new employer for tortious interference with contract. The district court granted partial summary judgment to the plaintiff as to liability on its breach of contract claim, and, after trial, entered judgment against the former employee in the amount of $158,240. While the district court found tortious interference, it ruled in favor of the new employer, concluding that its interference was justified because it honestly believed, based on advice of outside counsel, that the agreement was unenforceable. The court of appeals affirmed.
The Minnesota Supreme Court affirmed. The Court first held that the justification defense to a tortious interference claim could be based on good-faith reliance on the advice of counsel. The Court reasoned that “the justification defense may be satisfied by a defendant’s reliance on advice of outside counsel when that reliance is reasonable” “[g]iven the fact-based nature of the justification-defense inquiry.”
The Court also affirmed the district court’s conclusion that the reliance on the advice of counsel was reasonable in this case, despite the fact that little information was provided to counsel, the advice was only conveyed orally, and that counsel only “billed 0.4 hours for review of the letter and agreement and 0.3 hours for a telephone conference.” The Court emphasized that while these factors may be relevant to the reasonableness analysis, it would not disturb the trial court’s finding of fact on the question of reasonableness in this case. Sysdyne Corp. v. Rousslang, No. A13-0898 (Minn. Mar. 4, 2015). Slip op. at http://mn.gov/lawlib/archive/supct/2015/OPA130898-030415.pdf
Bassford Remele, A Professional Association