Current developments in Judicial Law, Legislation, and Executive Action together with a foretaste of Emergent Trends in law and the legal profession for the complete Minnesota lawyer.
• United States Supreme Court: Federal agencies may change non-binding interpretive rules without notice-and-comment; questions raised about continued viability of Auer deference. A dispute about overtime under the Fair Labor Standards Act (FLSA) regulations provided the setting for the United States Supreme Court to clarify that federal agencies are not required to use notice-and-comment to change non-binding interpretive rules. The decision effectively overturns the D.C. Circuit’s long-standing and controversial Paralyzed Veterans doctrine, which had held that agencies must use notice-and-comment when issuing new interpretations that significantly deviate from prior, “definitive” interpretations.
The Perez case involved Department of Labor interpretive rules relating to the FLSA’s overtime provisions—in particular, the act’s overtime exemption for administrators. Under the APA and attendant case law, “interpretive rules” are rules that inform regulated parties as to how the agency interprets substantive legal requirements. Interpretive rules do not in themselves carry the force of law of a substantive “legislative rule” adopted under the APA’s rulemaking procedures. For this reason, the APA states that notice-and-comment procedures do not apply to interpretive rules.
Despite the APA’s language, a controversial line of cases in the D.C. Circuit including Paralyzed Veterans of America v. D.C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997) and Alaska Professional Hunters Association v. FAA, 177 F.3d 1030 (D.C. Cir. 1999), has held that some changes to interpretive rules may require notice-and-comment. These cases held that once an agency had provided a “definitive” interpretation to one of its own regulations, it could not make significant changes to that interpretation except by means of notice-and-comment rulemaking. The D.C. Circuit reasoned that changes to the interpretation of a rule are often tantamount to actual amendment of the rule, and as such should be subject to the rulemaking process.
In 1999 and 2001, the Department of Labor issued interpretive letters taking the position that mortgage-loan officers were not subject to the overtime exemption; in other words, the Department interpreted the FLSA as making these workers eligible for overtime. In 2004, however, the department promulgated new legislative rules relating to overtime eligibility, and in 2006 it issued a letter stating that it interpreted its new legislative rules to mean that mortgage-loan officers were now ineligible. Then, in 2010, without any change to the statute or legislative rules, the department withdrew its 2006 interpretation and issued a new interpretation that mortgage-loan officers were eligible for overtime after all.
The Mortgage Bankers Association challenged the department’s interpretive about-face under the Paralyzed Veterans doctrine. The association argued that the department’s 2006 interpretive rule had definitively stated the department’s position on the meaning of its own overtime rules. Therefore, the agency argued, the department’s 2010 reversal of its earlier interpretation amounted to a de facto amendment of the rule that should have been preceded by an opportunity for notice-and-comment.
The Court unanimously rejected the association’s arguments under Paralyzed Veterans. Writing for the Court, Justice Sotomayor observed that the D.C. Circuit’s approach was barred by the clear language of section 553(b) of the APA, which states that notice-and-comment procedures do not apply to “interpretive rules, general statements of policy, or rules of agency organization, procedure, or practice.” Justice Sotomayor further held that the Paralyzed Veterans approach was inconsistent with the Court’s admonishments in cases like Vermont Yankee Nuclear Power Corp. v. NRDC, 435 U.S. 519 (1978) that courts should avoid creating additional procedures beyond those required by the APA.
Even as the Court abrogated Paralyzed Veterans, however, several members of the Court also signaled that the Court may soon revisit whether agency interpretations of an agency’s own rules deserve the strong deference traditionally afforded under Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945) and Auer v. Robbins, 519 U.S. 452 (1997). Justice Sotomayor observed in a footnote that this deference ought to be diminished when an agency’s interpretation conflicts with a prior interpretation. And Justices Alito, Thomas, and Scalia (the latter being the author of Auer) wrote concurrences suggesting they are ready to dispense with this deference entirely. Perez v. Mortgage Bankers Association, __
U.S. __, 135 S. Ct. 1999 (2015).
– Mehmet K. Konar-Steenberg
William Mitchell College of Law
• Constructive notice sufficient for effective bar date. In a recent case the panel affirmed the bankruptcy court in holding that even though the creditor was not scheduled and did not receive notice from the court, the creditor had the information and the wherewithal to file a timely complaint, since the creditor admitted that he was aware of the bankruptcy 22 days before the deadline for filing a dischargeability case and had filed a proof of claim. Failure to do so resulted in the dischargeability claim being barred. In re Richard Allen Diamond, No. 15-6002, B.A.P. 8th Cir. 5/11/2015.
• Order denying confirmation is not a final order. Finding that it lacked jurisdiction over a debtor’s appeal, the court dismissed the appeal. Four separate orders were appealed to the BAP by the debtor, all relating to the denial of the confirmation of the debtor’s Chapter 11 plan. The BAP dismissed these appeals for lack of jurisdiction and this appeal to the 8th Circuit resulted. Noting that a determination by the BAP is not ‘final’ unless the underlying order of the bankruptcy court is ‘final’, the court went on to agree with the decisions of other circuits that an order denying confirmation of a proposed plan, which does not dismiss the bankruptcy case, is not a final order and is not subject to appeal. In re Civic Partners Sioux City, LLC, 779 F.3d 572 8th Cir. 3/3/2015.
• Relief from stay valid against inherited property. Property of the bankruptcy estate includes “all legal and equitable interests of the debtor in property as of the commencement of the case” under 11 U.S.C. Sec. 541(a)(1). The BAP affirmed the bankruptcy court in granting relief from stay to allow a creditor to exercise its rights against a vehicle which the debtor took under a will prior to filing the bankruptcy case. The debtor was found to have an equitable interest, the lien of the creditor was still attached to the vehicle and the amount of the lien exceeded the value of the vehicle. In re: Daniel Neale Gess, 526 B.R. 798 B.A.P. 8th Cir. 3/18/2015.
• Bankruptcy filing does not sever joint tenancy. In a recent case the court found that there is nothing in the bankruptcy code that would sever a joint tenancy. The court further found there was no authority in the bankruptcy code for joint tenancies to either be converted to tenancies in common or to effect a conveyance of title upon the filing of the bankruptcy. The joint tenancy properties were to be administered by the trustee subject to any exemption claim allowed the debtor. In re: Matthew Richard Peet, 2015 WL 1810496 B.A.P. 8th Cir. 4/22/2015.
– Timothy D. Moratzka
DeWitt Mackall Crounse & Moore S.C.
COMMERCIAL & CONSUMER LAW
• Statutory interpretation: Focus on policy v. minutiae. Two recent cases, one from Minnesota and the other a Uniform Commercial Code (UCC) case from Ohio (since all states have the UCC, a decision from any state interpreting the UCC is entitled to more deference than an out-of-state decision normally would be – See UCC §1-103(a)(3)), demonstrate a different attitude toward interpreting a statute that is based on the policy of the statute.
The Minnesota case involved Minn. Stat. §580.032, subd. 3, which unqualifiedly requires a lender to record a notice of pendency of the foreclosure before the first date of publication of the foreclosure notice. The lender in the case recorded the notice of pendency two days after the first date of publication of the foreclosure notice, and the homeowner sued, alleging that absent strict compliance with the statute, the foreclosure was void, citing an unpublished decision by the Minnesota Court of Appeals which held that a violation of the foreclosure by advertisement statute renders the foreclosure void.
The district court, following Badwari v. Wells Fargo Home Mortgage, Inc., 718 F.3d 756 (8th Cir. 2013), disagreed and held the foreclosure to be valid. The Eighth Circuit agreed with the district court, saying it would look to the state’s highest court for authority, that the Badwari case relied on Minnesota Supreme Court precedent, and that the notice of pendency requirement was for the benefit of redeeming creditors and not for the benefit of homeowners. A “generous” interpretation, to say the least. Sari v. Wells Fargo Bank, N.A., 2014 WL 6980580 (8th Cir. 2014).
Contrast this result with that of the Ohio Bankruptcy Court in a recent case. Modifying the facts in the case to make a point, in a Chapter 13 proceeding suppose the proposed payment plan recognized a claim secured by a mortgage and personalty on or related to the real estate, but proposed the real estate be surrendered and that any deficiency after foreclosure of it be treated as an unsecured claim. Suppose the creditor objected as to the personalty, claiming a perfected security interest, but the bankruptcy court overruled the objection and confirmed the plan.
There were several issues in the actual case, but the one discussed here involved the collateral description in the security agreement “all personal property of borrower…” (indicating some omitted language in the quote of the description). UCC §9-108(a) indicates a description is sufficient, whether or not it is specific, if it reasonably identifies what is described. However, in a concession to consumer interests, a “super generic” description, like “all debtor’s assets” or “all the debtor’s personal property” is generally not adequate. If the omitted language was nothing more than “wherever located,” the description then would fail. But if instead it was “including but not limited to all inventory, equipment, chattel paper and accounts,” it would be good as to those types of collateral. This interpretation would strictly follow the statute and its policy of adequate notice. In re Eyerman, 517 B.R. 800, 84 U.C.C. Rep. Serv.2d 654 (Bankr. S.D. Ohio 2014).
In conclusion, the Minnesota case seems sound in “generously” interpreting a statute to reach a sensible result, but the supposed Bankruptcy Court ruling in the Ohio case is equally sound in interpreting the statute where there should be no room for leeway given the policy involved, even though the statute involved may be more suitable for a consumer transaction than for a commercial one. The Ohio case also teaches a lesson in drafting: Why use words that can mean nothing legally but could lead to an argument that they control even over the more specific trailing language?
• Outstanding issue settled. In the March 2015 Notes and Trends column, the issue of a mistake in filing a termination statement was discussed. The discussion indicated that a remaining issue under agency law was still outstanding in the case. That has now been answered in a case where it was held that the secured creditor authorized the filing even though there was a mistake and the creditor did not intend to terminate its security interest in the collateral. Thus the statement was effective. In re Motors Liquidation Co., 60 Bankr. Ct. Dec. (CRR) 136, 2015 WL 252318, 85 U.C.C. Rep. Serv.2d 592 (2d Cir. 2015).
• Under UCC Article 9, it pays to be careful. Sales of goods may carry a variety of warranties to protect a buyer if something goes wrong, such as a warranty of title. UCC §2-312. Suppose the sale is a sale of collateral by a secured lender? The buyer of that collateral also may be protected, as UCC § 9-610(d) provides that a contract for sale, lease, license, or other disposition includes the warranties relating to title, possession, quiet enjoyment, and the like which by operation of law accompany a voluntary disposition of property of the kind subject to the contract. So far so good.
In a 2013 case, the secured party had a mortgage on real estate and equipment, foreclosed and sold the collateral together so as to provide a going concern, and it turned out much of the equipment was leased. The lessor in a true lease need not file a financing statement. UCC §2A-101, Official Comment, Filing. The buyer sued the secured party and the auctioneer in negligence and breach of the warranty of title.
The court concluded that in the combined sale of the collateral the existence of the warranty of title in UCC Article 9 renders the negligence theory, given the rationale for it in the real estate context, unnecessary ( See UCC § 1-103(b)), and in any event the economic loss doctrine would deny recovery.
Under UCC §9-610, as in UCC Article 2, these warranties can be disclaimed. UCC §§2-316 and 9-610€. But the court knocked the disclaimer out as not covering the warranty of title but only merchantability and fitness. Compare UCC §9-610(e). Thus, the buyer prevailed. It is clear that the “commercially reasonable” requirement for a disposition is not the only hazard a foreclosing secured party may face. Ulbrich v. Groth, 310 Conn. 375, 78 A.3d 76, 82 U.C.C. Rep. Serv. 2d 77 (Conn. 2013).
— Fred Miller
Gray Plant Mooty
• Implied consent: Physician’s prescription for controlled substance found in driver’s blood not grounds for rescission of driver’s license revocation. Appellant’s driver’s license was revoked after his vehicle was stopped by police, field sobriety tests indicated he was impaired, and a test of his blood revealed the presence of amphetamine. Appellant argued that the revocation was improper, because the amphetamine was present in his blood as a result of his lawful use of a prescription drug. The district court found that the prescription-drug affirmative criminal defense does not apply in administrative license-revocation proceedings.
Held, under the implied consent law’s plain language and case law, a district court reviewing the commissioner of public safety’s decision to revoke the license of a driver whose chemical test results indicated the presence of a controlled substance may not rescind the revocation on the ground that the positive indication resulted from the driver’s prescribed, lawful use of the substance. The revocation of Appellant’s driver’s license was mandatory under Minnesota’s implied consent law, because the amphetamine detected in appellant’s blood after his arrest for suspected DWI is a Schedule II controlled substance. The affirmative prescription-drug defense can apply in a criminal proceeding under Minn. Stat. §169A.46, subd. 2. However, this statute does not extend the defense to license-revocation proceedings, and such proceedings are limited in scope to ten issues listed in clauses (1) to (10) of Minn. Stat. §169A.53, subd. 3(b). The prescription-drug defense is not listed in Minn. Stat. §169A.53, subd. 3(b), and that list is exclusive under Axelberg v. Commissioner of Public Safety, 848 N.W.2d 206 (Minn. 2014). Robert Edward Dornbusch v. Commissioner of Public Safety, Ct. App. 3/2/15.
• Search & seizure: Minnesota constitution does not afford greater protection than federal constitution against warrantless searches of garbage set out for collection. Appellant was convicted of third-degree possession of a controlled substance after police seized garbage picked up from appellant’s curb, in which police located methamphetamine, drug paraphernalia, and documents belonging to appellant and his wife. Police received information from a mandated reporter that appellant’s daughter saw her mother with a pipe, after which police contacted appellant’s garbage collector for assistance in securing appellant’s garbage. The collector picked up appellant’s garbage from the curb outside his house, and immediately thereafter met and turned over the garbage to police. Police later found more methamphetamine in the home after executing a search warrant. Appellant moved to suppress the evidence seized from his home, arguing the warrantless search of his garbage violated Art. I, Sec. 10 of the Minnesota constitution. The district court denied his motion, and Appellant was ultimately convicted.
The U.S. Supreme Court previously held in California v. Greenwood, 486 U.S. 35 (1988), that an individual does not have a reasonable expectation of privacy in garbage left at the curb, so a warrantless search of garbage set out for collection does not violate the 4th Amendment to the U.S. Constitution. While Minnesota may interpret its constitution as providing greater protection than the federal constitution, where the U.S. Supreme Court has already interpreted identical or substantially similar language, Minnesota will not construe its constitution as granting greater protection for individual rights unless there is a principled basis to do so. When the text of Minnesota’s constitution is materially identical to the federal constitution, Minnesota has construed its constitution to provide greater protection (1) when the U.S. Supreme Court “has made a sharp or radical departure from its previous decisions and we discern no persuasive reason to follow such a departure,” (2) “when the Court has retrenched on a Bill of Rights issue,” or (3) “when the Court precedent does not adequately protect our citizens’ basic rights and liberties.”
The Greenwood decision did not mark a “sharp or radical departure” from the U.S. Supreme Court’s previous approach to 4th Amendment interpretation, but simply applied previously articulated principles to a slightly different context. Greenwood also did not retrench on the protection against warrantless searches; rather, the Court’s analysis was consistent with decisions of a vast majority of state courts. Finally, the rule established in Greenwood is consistent with Minnesota’s longstanding rule that garbage set out for collection is not protected by the 4th Amendment and may be searched without a warrant. Thus, there is no “unique, distinct, or peculiar issue of state and local concern” that requires protection.
Under Greenwood and Minnesota case law, the search of appellant’s garbage was reasonable under the state and federal constitution, because he had no reasonable expectation of privacy in the garbage that was set out for collection on the side of a public street. State v. David Ford McMurray, Sup. Ct. 3/11/15.
• Sentencing: A prior felony conviction deemed a misdemeanor under Minn. Stat. §609.13 not a “prior felony conviction” under career offender statute. Respondent pleaded guilty to a fourth-degree controlled substance offense after selling to a confidential informant. Respondent’s criminal history included five prior felonies, one of which, a 1990 conviction for possession of cocaine, was deemed a misdemeanor at the end of respondent’s probation in 1994, by operation of the misdemeanor conversion statute, Minn. Stat. §609.13. The district court found that respondent was a career offender under Minn. Stat. §609.1095, subd. 4, and imposed a sentence of 66 months, a double upward departure from the presumptive sentence of 33 months. Respondent appealed, and the court of appeals reversed and remanded for resentencing. The state’s petition for further review was granted to consider whether a felony conviction that has been deemed a misdemeanor is a “prior felony conviction” under the career offender statute.
The career offender statute allows the imposition of an upward durational departure if a defendant has five or more prior felony convictions. A prior felony conviction is one “that occurred before the offender committed the next felony resulting in a conviction and before the offense for which the offender is being sentenced.” Minn. Stat. §609.1095, subd. 1(c). The misdemeanor conversion statute converts a felony conviction to a misdemeanor if the imposition of a prison sentence is stayed, the defendant is placed on probation, and the defendant is thereafter discharged without a prison sentence.
The question here is what point in time is relevant when determining the status of a prior felony conviction–when the defendant is being sentenced for the present offense or when the defendant is convicted of the prior felony. The resolution of the issue turns on the meaning of the verb have. In the career offender statute, “have” is used as a principal verb in the present third-person singular tense, “has,” which means that it is equivalent to the word “possesses.” Therefore, the statute requires a determination as to whether the defendant “has,” or “possesses,” five or more prior felony convictions. The use of the present tense in the statute means that the relevant time of possession of prior felony convictions is the time at which the sentence on the current offense is imposed.
Held, the district court erred when it determined that respondent had five prior felony convictions under the career offender statute. When respondent was sentenced, his first felony conviction had been converted to a misdemeanor, and was, therefore, only a misdemeanor conviction under the career offender statute. Respondent was not a career offender at the time of his sentencing. The court of appeals is affirmed, and the case is remanded to the district court for resentencing. State v. Michael David Franklin, Sup. Ct. 3/11/15.
• Guilty pleas: Withdrawal of guilty plea permitted where defendant informed of mandatory conditional release term only by complaint’s reference to undefined conditional release term. Appellant was charged with first-degree DWI and driving after cancellation as inimical to public safety in 2008. For the DWI charge, the complaint described the penalty as “3-7 years and/or $4,200-$14,000 plus a conditional release term.” Pursuant to a plea agreement, appellant pleaded guilty to the DWI charge. The plea agreement addressed the recommended sentence and mandatory minimum sentence, but made no reference to the mandatory conditional release term. Conditional release was not mentioned at the plea hearing, nor did the district court’s sentence (46 months, as contemplated by the plea agreement) contain a conditional release term. In 2013, the district court amended appellant’s sentence, adding a five-year conditional release term, after prompting from the DOC. Appellant petitioned the district court for post-conviction relief, arguing that the five-year conditional release term was added in error, and that he should be permitted to either withdraw his guilty plea or have his sentence amended to conform to the original agreement. The district court denied his petition.
Five years of conditional release is mandatory for persons convicted of first-degree DWI. A conditional release term is a direct consequence of a defendant’s guilty plea, because it affects the maximum amount of prison time a defendant may serve. A sentence omitting a mandatory conditional release period is unauthorized, and may be corrected only when the defendant has notice that a correction is required and has not developed a crystallized expectation as to the finality of that sentence. In any event, a sentence modification may not impermissibly alter a plea agreement, looking to what the parties reasonably understood to be the terms of the agreement. A plea agreement is violated when a conditional release term is added to a sentence after a defendant has pleaded guilty in exchange for a specific and definite sentence that would be extended by the addition of a conditional release term.
Here, appellant negotiated a definite-term sentence and was not informed that he was subject to a mandatory conditional release term. Adding a five-year conditional release term increases appellant’s total prison exposure from 46 months to 106 months. Importantly, Appellant had served the full 46-month sentence before the conditional release period was added. Appellant’s plea agreement was based on an unqualified promise of a strict 46-month sentence, which cannot now be fulfilled, as it is an “unauthorized sentence.” Adding a conditional release term after-the-fact violates the plea agreement. Due process requires that appellant be given the opportunity to withdraw his guilty plea, as his plea was not accurate, voluntary, and intelligent. Reversed and remanded to the district court. Robel Belay Kubrom v. State, Ct. App. 4/6/15.
• Guilty pleas: Insufficient factual basis for guilty plea if plea is based on facts not falling within statutory definition. Appellant was sentenced to 15 months in prison after pleading guilty to third-degree sale of narcotics. As the factual basis for his plea, appellant admitted he gave cocaine to his wife to hide when police pulled over the car in which he was a passenger. Appellant’s counsel confirmed that “it [was] the agreement that that satisfies the definition of sale,” and appellant affirmed that he understood the definition of sale “includes giving drugs to somebody.” Appellant subsequently filed a petition for post-conviction relief, seeking to withdraw his guilty plea because the record did not establish a proper factual basis (specifically, that he did not admit that he relinquished his possessory interest in the controlled substance). His petition was denied, and the court of appeals confirmed.
Held, because appellant did not “sell,” “give away,” or “deliver” the cocaine, his admitted conduct does not fit within the definition of “sell.” “Sell” is defined as “(1) to sell, give away, barter, deliver, exchange, distribute or dispose of to another, or to manufacture; or (2) to offer or agree to perform an act listed in clause (1); or (3) to possess with intent to perform an act listed in clause (1).” Minn. Stat. §152.01, subd. 15a(1). Appellant’s admissions did not satisfy the “to sell” portion of the definition, because he did not admit to receiving anything of value from his wife in exchange for the cocaine. To “give away” means to give up more than temporary control of the item at issue. While appellant admitted to handing or giving the cocaine to his wife, he did not admit that he gave away the cocaine—he did not admit that he gave up his interest in the cocaine. Rather, appellant admitted he gave the cocaine to his wife only so she could hide it from police. “Deliver” is used in the context of the criminalization of the sale of drugs, among other words and phrases that require the offender to give up his or her possessory interest in the drugs. Appellant did not admit that he gave up more than temporary control of the cocaine, which does not constitute “delivery” for purposes of the definition of a drug sale.
Because appellant’s only factual admission, that he gave cocaine to his wife so she could hide it for him, does not satisfy the definition of “sell,” the record does not support the conclusion that he actually committed the offense to which he pleaded guilty, and the factual basis for his plea is, therefore, insufficient. Reversed and remanded to the district court. Abshir Abtidon Barrow v. State, Sup. Ct. 4/15/15.
• Post-conviction: Petition for post-conviction relief is appropriate avenue to challenge sentence based on terms of plea agreement. Appellant, 16 years old, was charged with first-degree criminal sexual conduct, first-degree aggravated robbery, and two counts of simple robbery. He was sentenced pursuant to the terms of a plea agreement, and placed on extended jurisdictional juvenile (EJJ) status. In the plea agreement, the state agreed to dismiss the first-degree criminal sexual conduct and simple robbery charges, in exchange for appellant’s plea to an amended second-degree criminal sexual conduct charge and the aggravated robbery charge. The parties also agreed that appellant would receive a stayed 96-month sentence (two 48-month, consecutive sentences; an upward durational departure for the criminal sexual conduct charge, and an upward departure for the consecutive sentences). Appellant later violated the terms of his EJJ probation, his EJJ status was revoked, and the court ordered the execution of his consecutive 48-month sentences. Approximately seven years later, appellant filed a petition for post-conviction relief, and later filed a motion to correct his sentence under Minn. R. Crim. P. 27.03, subd. 9. Appellant argued that the district court’s sentence was impermissible, because the court imposed an upward durational departure without citing any substantial and compelling reasons. The district court denied relief, and the court of appeals affirmed, both courts construing appellant’s request as a time-barred petition for post-conviction relief.
Appellant’s request falls under the post-conviction statute, which is broad and plainly encompasses a motion seeking correction of a sentence (even where the request is purportedly brought under Rule 27.03). Unlike Minn. Stat. §590.01, the post-conviction statute, Rule 27.03 is limited to sentences, and the court’s authority under the rule is restricted to modifying a sentence. If appellant’s request is granted, and his sentence is modified, the terms of the plea agreement will, in effect, have been rejected, which requires an opportunity for appellant to withdraw his guilty plea. Where a sentence was imposed as part of a plea agreement, a motion to change that sentence impacts more than simply the sentence; it involves the plea agreement itself, which goes beyond the scope of Rule 27.03. In such a case, a challenge to the sentence is properly viewed as a petition for post-conviction relief.
Here, because appellant’s request was filed more than two years after his conviction was final, and having decided that his request must be construed as a petition for post-conviction relief, appellant’s request is time-barred. State v. Dakari Michael Coles, Sup. Ct. 4/15/15.
• 6th Amendment: Right to jury trial requires finding by jury as to defendant’s risk level before court may impose 10-year conditional release period for failure to register as predatory offender. Appellant was required to register as a predatory offender after he was adjudicated delinquent of sex crimes in 1998. Before being released from prison in 2003, the DOC designated him a risk-level-III offender. Appellant was charged with failing to register as a predatory offender in 2008, after failing to notify law enforcement that he had moved. A jury found appellant guilty, and the district court imposed a presumptive sentence, along with a 10-year conditional-release term, based on appellant’s risk level status. Five years later, appellant moved the district court to correct his sentence, arguing the imposition of a conditional release period violated his 6th Amendment rights, because his risk level status was never proved to a jury beyond a reasonable doubt. The district court denied appellant’s motion, and the court of appeals affirmed.
The Minnesota Supreme Court has previously held that a defendant’s 6th Amendment right to trial by jury is violated if a court, rather than a jury, finds the facts necessary to impose a conditional release term. See State v. Jones, 659 N.W.2d 748, 752 (Minn. 2003). This case turns on the issue of whether the 10-year conditional release term imposed by the district court exceeded the “statutory maximum,” or “the maximum sentence a judge may impose solely on the basis of the facts reflected in the jury verdict or admitted by the defendant.” Blakely v. Washington, 542 U.S. 296, 303 (2004).
Here, the 10-year conditional release term was imposed under Minn. Stat. §243.166, subd. 5a, which provides that, “[n]otwithstanding the statutory maximum sentence otherwise applicable to the offense or any provision of the sentencing guidelines, when a court commits a person to the custody of the commissioner of corrections [for a violation of the registration requirements] and, at the time of the violation, the person was assigned to risk level III… the court shall provide that after the person has been released from prison, the commissioner shall place the person on conditional release for 10 years.” The jury found that appellant committed the offense of failure to register, but made no finding as to whether he was a risk level III at the time of the violation. The district court imposed the conditional release period only after the presentence investigation report identified him as a risk-level-III offender. Therefore, appellant’s sentence exceeded the statutory maximum for the conviction offense, because the 10-year conditional release period imposed was based on a fact that was not reflected in the jury’s verdict.
The Supreme Court also rejects the state’s argument, accepted by the court of appeals, that appellant’s risk level is so analogous to the fact of a prior conviction that it falls under the “prior conviction exception” to the general rule that facts used to enhance a sentence must be found by a jury beyond a reasonable doubt. This exception permits the sentencing court to find the existence of a prior conviction when sentencing a defendant, so long as the prior conviction is not itself an element of the current offense. A risk-level assessment, unlike a defendant’s probationary status, does not flow directly from the sentence imposed for a prior conviction. Rather, it is a qualitative assessment by the DOC, not the court or a jury, of the “public risk” posed by an offender, based in part on factors unrelated to the prior conviction. It is a calculation of an offender’s future likelihood of re-offense and the risk he poses to the community, requiring a comparison and weighing of bad conduct. In addition, the DOC’s administrative proceedings in assigning risk levels are not cloaked in the same procedural safeguards as judicial proceedings, and the assigned risk level status cannot be verified by simply reviewing court records related to the prior conviction.
Appellant’s 10-year conditional release term is vacated, and the matter remanded to the district court for further proceedings. State v. Ge Her, Sup. Ct. 4/22/15.
– Frederic Bruno
– Samantha Foertsch
EMPLOYMENT & LABOR LAW
• Family & Medical Leave (FMLA); no “serious” medical condition. An employee who claimed that his employer wrongfully refused to re-instate him to his position after returning from a leave under the Family Medical & Leave Act (FMLA) lost his claim. Affirming summary judgment for the employer, the 8th Circuit Court of Appeals held that the employee did not establish that he qualified for protection under the statute by virtue of having a “serious health condition,” which generally requires afflictions causing more than three days of inability to work. Johnson v. Wheeling Machine Products, 779 F.3d 514 (8th Cir. 2015).
• Race discrimination; large verdict remitted. A white school superintendent who received a jury verdict for $40,000 for race discrimination by a school district consisting of a majority of African-American members had the award remitted. The 8th Circuit held that the verdict for wrongful termination was excessive because it should not have been more than the value of the salary and benefits remaining on the superintendent’s contract and, therefore, remanded for remittitur, along with reconsideration of a related claim for attorney’s fees. Nassar v. Jackson, 779 F.3d 547 (8th Cir. 2015).
• Race discrimination; finding a pretext upheld. An African-American deputy prosecutor brought forth sufficient facts to establish that his firing was a pretext for race discrimination. The 8th Circuit examiner, refusing to disturb the findings of a district court, affirmed the lower court ruling and also held that it lacked jurisdiction to consider the employer’s challenge to the sufficiency of the evidence on the finding of pretext. Austin v. Long, 779 F.3d 522 (8th Cir. 2015).
• Disability discrimination; driving as essential function of job. A technical supervisor for a cable company failed in his claim of violation of his rights under the Americans with Disabilities Act (ADA) and related state law following his termination because he was unable to drive a vehicle. Affirming a lower court ruling, the 8th Circuit held that driving was an “essential function” of the supervisor position, and he was unable to do so, with or without an accommodation, which precluded coverage under the disability laws. Further, there is no showing that the employer did not offer the employee a “reasonable accommodation” that was consistent with his physical capabilities. Minnihan v. Mediacom Communications Corp., 779 F.3d 803 (8th Cir. 2015).
• Disability claim; disruption due to bipolar disorder. An employee who was fired for repeated misconduct, including erratic, aggressive, and disruptive behavior, lost her disability discrimination claim based upon her alleged bipolar disorder. Affirming a ruling of the U.S. District Court Judge Richard Kyle in Minnesota, the 8th Circuit held that the employee did not establish a material fact that she could perform the “essential” functions of her job with or without accommodation, because working with others harmoniously was an “essential” function of the job. Additionally, she did not disclose her bipolar disorder to her employer and her employer was not aware of it, which precluded any duty to accommodate. Walz v. Ameriprise Financial, Inc., 779 F.3d 842 (8th Cir. 2015).
• Discrimination and retaliation; performance problems preclude claim. A pharmacist who sued for discrimination and retaliation under state law after she was terminated from her position with a pharmacy lost her claim because of poor performance. Affirming summary judgment, the 8th Circuit held that the employee’s performance issues were more serious than an employee with whom she claimed she was similarly situated, and she was provided with opportunities to improve her performance after a promotion, which precluded any finding of retaliation. Jain v. CVS Pharmacy, Inc., 779 F.3d 753 (8th Cir. 2015).
• Arbitration agreement; no standing for former employees. A group of former employees with a claim for unpaid overtime under the Fair Labor Standards Act (FLSA) did not have standing to challenge an agreement among a group of employers canceling their new arbitration policy for current employees. The 8th Circuit Court of Appeals held that the ex-employees did not have standing to challenge the agreement since it applied only to current employees. Therefore, the district court lacked jurisdiction and an injunction issued against implementation of the new policy was vacated. Conners v. Gusano’s Chicago Style Pizzaria, 779 F.3d 835 (8th Cir. 2015).
• Tortious interference with contract; advice-of-counsel defense. A company that hired an employee from a competitor, knowing that he had a non-compete agreement, was not liable for tortious interference with contract because it reasonably relied upon the advice of outside counsel. Affirming a ruling of the court of appeals, the Minnesota Supreme Court held that the company could not be liable because it made reasonable inquiry in reliance on advice of outside counsel that the non-compete agreement was unenforceable. Sysdyne Corp. v. Rousslang, 860 N.W.2d 347 (Minn. 2015).
• FELA interest; state court follows federal law. Recovery of pre-judgment interest in an action brought in state court under the Federal Employer’s Liability Act (FELA), 45 U.S.C. §51, is controlled by federal substantive law. Because existing federal law does not allow a successful plaintiff in an FLA action brought in state court to recover post-verdict interest under Minn. Stat. § 549.09, subd. 1(a), the Supreme Court held that a successful plaintiff in an FELA action brought in state court may not recover post-verdict, pre-judgment interest under Minn. Stat. §549.09, subd. 1(a), because such recovery is not allowed under Federal existing law. Kinworthy v. Soo Line Railroad Company, 860 N.W.2d 355 (Minn. 2015).
• Race discrimination; assistant principal claimant denied. An African-American man who claimed age and race discrimination because he was not allowed a position as an assistant principal in the Minneapolis Public Schools lost his claim. The court of appeals held that the claimant did not provide evidence that the district hired anyone who was younger than him or was not African-American, which barred him from establishing a necessary prima facie claim of discrimination. Saulsberry v. Minneapolis Public Schools, 2015 WL 64852 (Minn. Ct. App. 2/17/2015) (unpublished).
• Unemployment compensation; quitting by seasonal employee. An employee who quit his job after requesting a seasonal position was denied unemployment compensation benefits. The court of appeals held that the employee could not receive benefits because he quit without good reason caused by the employer when it refused to allow him to convert to a seasonal position. Mudek v. Redtail Management, Inc., 2015 WL 648452 (Minn. Ct. App. 2/17/2015) (unpublished).
• Unemployment compensation; improper reasons to quit. A school janitor who quit his job for reasons was denied unemployment benefits. The court of appeals held that none of the reasons, which ranged from poor relations with subordinates to claimed harassment by co-workers, were sufficient to constitute good reason caused by the employer to warrant resignation and receipt of benefits. Paxton v. Ind. Sch. Dist. No. 47, 2015 WL 648483 (Minn. Ct. App. 2/17/2015) (unpublished).
• Unemployment compensation; leaving child on bus. A school bus driver was denied unemployment compensation benefits after being fired for twice leaving a child on a bus after she failed to complete a required walk-through at the completion of the bus trip. The court of appeals held that the employee’s conduct could have endangered the safety of children on the bus, and therefore constituted disqualifying misconduct. Johnson v. Minneapolis Special School District No. 1, 2015 WL 1013646 (Minn. Ct. App. 3/9/2015) (unpublished).
• Unemployment compensation; violating patient confidentiality. A health services employee who accessed confidential information of a patient was denied unemployment compensation benefits. The court of appeals held that the employee’s conduct constituted disqualifying “misconduct.” Eiden–Kellam v. Mayo Clinic Health Systems – Fairmont, 2015 WL 1013983 (Minn. Ct. App. 3/9/2015)(unpublished).
• Correction: A description in the April 2015 edition of Notes & Trends concerning the recent Minnesota Supreme Court case of Nichols v. State, 858 N.W.2d 773 (Minn. 2015) was erroneous.
The Court actually held that Nichols could not maintain a statutory claim of fraudulent inducement against the State under Minn. Stat. §181.64-65, because such a claim is precluded by sovereign immunity and the Legislature “did not demonstrate a plain, clear, and unmistakable intent to waive sovereign immunity.”
– Marshall H. Tanick
Hellmuth & Johnson, PLLC
• 8th Circuit holds Clean Water Act jurisdictional determinations are subject to immediate judicial review. On 4/10/2015, the U.S. Court of Appeals for the 8th Circuit unanimously held that Clean Water Act (CWA) jurisdictional determinations (JDs)—determinations of whether a water body is subject to federal jurisdiction under the CWA—issued by EPA or the Army Corps of Engineers (Corps) can be challenged in court even before agency enforcement actions based on the JDs.
The case involved a proposed expansion of a peat mining operation on wetlands property in Marshall County, Minnesota. Plaintiffs submitted an application to the Corps for a CWA section 404 permit (on the grounds that no permit was required). The Corps made a final jurisdictional determination that the property was a “water of the United States” subject to regulation by the Corps under the CWA. Accordingly, any filling of the wetlands would require a CWA section 404 permit. Plaintiffs appealed the JD to the U.S. District Court, which in August 2013 granted the Corps’ motion to dismiss. The current appeal followed.
At issue was whether the JD constituted “final agency action” subject to judicial review. The 8th Circuit wrote that for agency action to be subject to judicial review under the federal Administrative Procedure Act, two conditions must be satisfied: First, the action must mark the consummation of the agency’s decision-making process—it must not be of a merely tentative or interlocutory nature. There was little doubt that the JD marked the consummation of the Corps’ decision-making process; the court cited the agency’s own regulations, which describe a JD as “a Corps final agency action.” 33 CFR § 320.1(a)(6).
A closer call was whether the JD met the second condition for “final” agency action, which requires that the agency action must be “one by which rights or obligations have been determined, or from which legal consequences will flow.” The parties debated the correct application of the US Supreme Court’s decision in Sackett v. EPA, 132 S. Ct. 1367 (2012). In Sackett, the US EPA issued an administrative compliance order requiring a person to restore wetlands (which EPA had determined to be jurisdictional) into which the person had deposited fill without a section 404 permit. The Supreme Court held that the compliance order constituted final agency action and was subject to immediate judicial review. The district court in Hawkes distinguished Sackett on the grounds that unlike a compliance order, which requires a party to take action or face substantial penalties, a JD does not itself command a party to do or forbear anything; it is simply “a bare statement of the Corps’ opinion.”
The 8th Circuit disagreed. It cited numerous cases for the proposition that for purposes of determining whether “rights or obligations have been determined” or whether “legal consequences will flow” from agency action, there is no difference between an agency order that compels affirmative action and an order that prohibits a party from taking otherwise lawful action. The court noted that the Corps’ JD required the appellants either to “incur substantial compliance costs (the permitting process), forego what they assert is lawful use of their property, or risk substantial enforcement penalties.” Accordingly, the JD is much more than “a bare statement of the Corps’ opinion.”
The court thus concluded that the JD constituted final agency action, reversed the district court judgment, and remanded the case for further proceedings. Notably, the 8th Circuit’s decision creates a split with the 5th Circuit Court of Appeals, which, in a July 2014 ruling, held that JDs are not immediately judicially reviewable. Belle Co., L.L.C. v. U.S. Army Corps of Engineers, 761 F.3d 383 (5th Cir. 2014). A week after the Eighth Circuit’s decision in the case discussed here, one of the parties in Belle Co. case submitted a petition for writ of certiorari to the Supreme Court. Hawkes Co., Inc. v. U.S. Army Corps of Engineers, 782 F.3d 994 (8th Cir. 2015).
– Jeremy 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
• Trademark trial and appeal board; issue preclusion. Reversing the 8th Circuit, the Supreme Court held that decisions by the Trademark Trial and Appeal Board (TTAB) can have preclusive effect in a subsequent Lanham Act proceeding so long as the “other ordinary elements” of issue preclusion are met. B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293 (2015).
• Access to judicial records; permissive intervention; Fed. R. Civ. P. 24(b). Joining at least seven other circuits, the 8th Circuit found that Fed. R. Civ. P. 24(b) provides “an appropriate procedural vehicle for parties seeking to intervene for the purpose of obtaining judicial records.” Flynt v. Lombardi, 782 F.3d 963 (8th Cir. 2015).
• CAFA; local controversy exception; last-known address of potential class members. A putative class action was filed in the Missouri courts and was removed by the defendants under CAFA. After permitting discovery on the citizenship of the potential class members, the district court cited the last-known addresses of the potential class members and relied on CAFA’s “local controversy” exception in remanding the action to the Missouri courts. The only remaining defendant appealed. Rejecting a number of district court decisions, and finding a 7th Circuit decision “more persuasive,” the 8th Circuit held that the last-known address evidence was not sufficient for plaintiffs to meet their burden of proof that the local controversy exception applied. Hood v. Gilster-Mary Lee Corp., ___ F.3d ___ (8th Cir. 2015).
• Consent to removal by multiple defendants; timing; certification. Where one defendant filed a timely notice of removal accompanied by a certification that other defendants had given their consent to the removal, a second defendant filed a timely consent to the removal, but a third defendant filed a seemingly untimely consent to removal, the 8th Circuit acknowledged a circuit split and then joined the 4th, 6th and 9th Circuits in holding that a defendant’s timely removal which reflects the consent of a codefendant, signed pursuant to Rule 11, and followed by a notice of consent filed by the codefendant, is sufficient to establish the codefendant’s consent to removal. Griffioen v. Cedar Rapids & Iowa City Rwy. Co., ___ F.3d ___ (8th Cir. 2015).
• Removal; remand; request for attorney’s fees under 28 U.S.C. §§ 1447(c) and 1927. Where the defendants removed the plaintiff’s civil rights action on the basis of federal question jurisdiction and immediately sought the dismissal of the action; the district court ultimately remanded the action because the plaintiff had failed to exhaust its administrative remedies; and the district court denied the plaintiff’s request for attorney’s fees under 28 U.S.C. §§ 1447(c) and 1927, and the court’s inherent power, the 8th Circuit, affirming the denial of the plaintiff’s requests for attorney’s fees, rejected the plaintiff’s argument that removal is improper when its “sole purpose” is to have the action dismissed for want of jurisdiction, and instead held that attorney’s fees are not warranted anytime removal is “objectively reasonable.” Convent Corp. v. City of North Little Rock, ___ F.3d ___ (8th Cir. 2015).
• 28 U.S.C. § 1920; taxation of costs for transcribed and recorded depositions. The 8th Circuit rejected a challenge to a district court’s award of costs for both printed and electronically recorded deposition transcripts despite the fact that 28 U.S.C. §1920(2) allows the recovery of costs for “printed or electronically recorded transcripts,” finding that the “context” of the statute supported a “conjunctive” reading. Stanley v. Cottrell, Inc., ___ F.3d ___ (8th Cir. 2015).
• “Motion for opportunity to respond to plaintiff’s motion” denied. Where the defendant failed to disclose its expert’s opinions in accordance with the Pretrial Scheduling Order and failed to file timely opposition to the plaintiff’s motion for summary judgment, but instead filed a “motion for opportunity to respond to plaintiff’s motion” three days before the April 17 summary judgment hearing, which was supported by its counsel’s declaration that he had not “learned of the existence of the motion” until April 10, Judge Frank denied the “opportunity” motion in its entirety, found that the “opportunity” motion was brought “without good cause,” and reserved the right to award attorney’s fees to the plaintiff pursuant to Local Rule 7.1(g)(4). D.C. Riggot, Inc. v. Estate of Kearns, 2015 WL 1729533 (D. Minn. 4/15/2015).
• Diversity jurisdiction; master limited partnerships. While acknowledging that unit holders in publicly traded master limited partnerships are have “limited influence” on the partnership and are similar to stockholders, Judge Nelson relied on a half-dozen decisions from district courts around the country in concluding that the citizenship of the unit holders must be considered in determining whether the parties are diverse. Great Lake Gas Trans. L.P. v. Essar Steel Minnesota, LLC, ___ F. Supp. 3d ___ (D. Minn. 2015).
• “Fixed time to act;” weekend deadlines in scheduling order; Fed. R. Civ. P. 6(a)(1)(C). Where a Pretrial Scheduling Order established a Saturday deadline for motions to amend pleadings but the motion to amend was not filed until the following Monday, Chief Judge Davis cited multiple decisions from the District of Minnesota and several treatises, and determined that Magistrate Judge Noel was “within his discretion” in granting the untimely motion to amend.
This is at least the third case in the district in the past two years to analyze the interplay between Fed. R. Civ. P. 6(a)(1)(C) and “fixed” deadlines. While the deadline was ultimately extended in each of these cases, litigants should remain aware that Rule 6(a)(1)(C)’s weekend/holiday extension does not automatically apply to “fixed” deadlines. Hood Pkg. Corp. v. Steinwagner, 2015 WL 1197464 (D. Minn. 3/16/2015).
• Discovery relating to sexually transmitted diseases barred. Granting in part and denying in part defendants’ motion to compel, Judge Nelson limited discovery to the six named plaintiffs in the NHL concussion litigation MDL and ordered those six plaintiffs to provide a complete medical history going back to age 15 rather than limiting discovery to treatment for head or brain injuries as the plaintiffs requested, but found that “highly-sensitive” information relating to HIV, AIDS or sexually-transmitted diseases need not be disclosed unless the defendants could establish the relevance of this information for a specific plaintiff.
At the Court’s request, the parties submitted supplemental briefing that analyzed how other District of Minnesota MDL’s have handled discovery of plaintiffs in mass tort and personal injury actions, and it appears that Judge Nelson relied on this information in reaching her decision. Accordingly, future litigants may want to educate themselves regarding the commonly permitted scope of medically related discovery in the District of Minnesota. In Re National Hockey League Players’ Concussion Injury Lit., 2015 WL 1334027 (D. Minn. 3/16/2015).
• Recent awards of attorney’s fees. Judge Nelson awarded the prevailing plaintiff in a “contentious” and “time-intensive” battle over claims brought under the Equal Payment Act and the MHRA just under $2 million in attorney’s fees and costs. Press reports suggest that this is the largest statutory award of attorney’s fees to an individual in the history of the district. The order is also notable for approving of paralegal rates as high as $210 per hour, which may also be a record for the district. Ewald v. Royal Norwegian Embassy, 2015 WL 1746375 (D. Minn. 2015).
Judge Doty awarded a prevailing plaintiff, who had been awarded only $27,640 in an excessive force case, more than $243,000 in attorney’s fees and costs, describing plaintiff’s lead counsel’s hourly rate of $650 per hour as “reasonable” for excessive force cases in the district. Fancher v. Klann, 2015 WL 1810235 (D. Minn. 4/21/2015).
– Josh Jacobson
Law Office of Josh Jacobson
• Denial of motion to reopen asylum hearing was proper. In an unpublished decision, the 8th Circuit Court of Appeals upheld the immigration judge’s denial of the petitioner’s motion to reopen after a removal order was issued in absentia when he missed his deportation hearing. The IJ properly found the petitioner failed, in his motion to reopen, to rebut the strong presumption that the hearing notice was delivered to him by certified mail, nor for that matter, present any previously unavailable evidence of changed country conditions to warrant reopening his asylum hearing. Guevara-Ascencio v. Holder, No. 14-2041, slip op. (8th Cir. 2/20/2015) at http://media.ca8.uscourts.gov/opndir/15/02/142041U.pdf
• No more continuances. The 8th Circuit Court of Appeals found the BIA did not abuse its discretion when it affirmed the Immigration Judge’s denial of a 13th continuance when the petitioner failed to show “good cause,” after the petitioner was found to have entered into a sham marriage, never appealed that finding, and presented no evidence of any likelihood of an approval of his wife’s relative petition. Mogeni v. Holder, No. 13-3597, slip op. (8th Cir. 3/9/2015) at http://media.ca8.uscourts.gov/opndir/15/03/133597P.pdf
• Gang violence victims do not constitute a “particular social group.” The 8th Circuit Court of Appeals held the petitioner failed to demonstrate that being a victim of gang violence constituted a particular social group within the political asylum context. That group did not show sufficient “particularity” and “visibility” to warrant its being perceived as a cohesive group by Guatemalan society. Chilel v. Holder, No. 14-1936, slip op. (8th Cir. 3/10/2015) at http://media.ca8.uscourts.gov/opndir/15/03/141936P.pdf
• Personal retribution is not a valid basis for an asylum claim. The 8th Circuit Court of Appeals upheld the denial of political asylum because the petitioner’s persecutor (Adrian Sanchez) was motivated by personal retribution, and fear of personal retribution alone is not a valid basis for that form of relief. The targeting of Martinez-Galarza is not “on account of his membership in a particular social group” as would be the case for people providing information to ICE in its efforts to remove individuals residing in the United States without authorization. Rather, according to Martinez-Galarza, Sanchez sought to harm him because he ended Sanchez’s American dream by helping ICE remove him to Mexico. Martinez-Galarza v. Holder, No. 14-1436, slip op. (8th Cir. 4/9/2015) at http://media.ca8.uscourts.gov/opndir/15/04/141436P.pdf
• Failure to demonstrate changed country conditions. The 8th Circuit Court of Appeals affirmed the denial of the petitioner’s motions to reopen and reconsider within the political asylum context on account of his failure to demonstrate, through evidence, that the death of his friend in Guatemala reflected a change in country conditions there. Martinez v. Lynch, No. 14-1213, -1926, slip op. (8th Cir. 5/12/2015) at http://media.ca8.uscourts.gov/opndir/15/05/141213P.pdf
• FY 2015 H-2B cap reached. U.S. Citizenship and Immigration Services (USCIS) recently announced that the H-2B cap for Fiscal Year 2015 (employment with a start date before 10/1/2015) had been reached as of 3/26/2015. The H-2B program provides employers the opportunity to petition for certain foreign national workers to fill temporary nonagricultural jobs in the United States. Employers petitioning for such workers must prove that there are insufficient workers “able, willing, qualified, and available to do the temporary work”; their employment “will not adversely affect the wages of and working conditions of similarly employed U.S. workers”; and the need for such workers’ services or labor is “temporary, regardless of whether the underlying job can be described as temporary.” “Temporary” is construed to mean a “one-time occurrence,” “seasonal need,” “peakload need,” or “intermittent need.” The current H-2B cap set by Congress is 66,000 visas per fiscal year with 33,000 set aside for the first half of the fiscal year (10/1 – 3/31) and the remaining 33,000 for employment in the second half of the fiscal year (4/1 – 9/30). http://www.uscis.gov/news/alerts/uscis-reaches-h-2b-cap-fiscal-year-2015
• New rules for H-2B visa program. The Departments of Labor (DOL) and Homeland Security (DHS) announced that in response to recent court decisions, changes have been made in the H-2B visa program. Improvements to the program were initiated through the recent promulgation of an interim final rule. 80 Fed. Reg. 24042-144 (4/29/2015). http://www.gpo.gov/fdsys/pkg/FR-2015-04-29/pdf/2015-09694.pdf
As part of that process, a final rule establishing a prevailing wage methodology was issued as well. 80 Fed. Reg. 24146-90 (4/29/2015). http://www.gpo.gov/fdsys/pkg/FR-2015-04-29/pdf/2015-09692.pdf
These new rules, according to both DOL and DHS, strengthen protections for U.S. workers by giving them a fair opportunity to find and apply for positions contemplated for H-2B workers while at the same time ensuring employers are able to hire H-2B workers when U.S. workers are unavailable. These new rules are likewise viewed as strengthening protections for both H-2B and U.S. workers as they relate to wages, working conditions, and benefits. http://www.uscis.gov/news/new-rules-h-2b-visa-program-announced-us-departments-labor-and-homeland-security
• FY 2016 H-1B cap reached. On 4/7/2015, just one week after the period opened for employers to file H-1B visa petitions for prospective foreign national employees, USCIS announced that the cap of 65,000 visas set by Congress had been reached for Fiscal Year 2016 with nearly 233,000 H-1B petitions being filed. With that, USCIS will next employ a lottery to randomly select individuals for further H-1B visa processing. The H-1B visa is a temporary worker visa for individuals holding a bachelor’s degree or higher (or its equivalent) to fill positions with that educational background as a minimal requirement. http://www.uscis.gov/news/news-releases/uscis-reaches-fy-2016-h-1b-cap
• Change in H-1B job site location may be a material change. On 4/9/2015, the Administrative Appeals Office (AAO), USCIS, DHS, found that a change in an H-1B worker’s place of employment that necessitates the filing of a new Labor Condition Application may affect H-1B eligibility and thus constitutes a “material change.” As such, the employer is required to file an amended or new H-1B petition. Matter of Simeio Solutions, LLC, 26 I&N Dec. 542 (AAO 2015). http://www.justice.gov/sites/default/files/eoir/pages/attachments/2015/04/16/3832.pdf
• No original signature. In a decision issued on 5/14/2015, the Board of Alien Labor Certification Appeals (BALCA) upheld the denial of three labor certifications (a process involving employer-sponsored permanent residence for foreign national employees) for failing to have original signatures. “While 20 C.F.R §656.17(g)(1) does not distinguish between handwritten and electronic signatures, there is no indication that the typed name on the recruitment report was intended to be a signature.” Matter of New York City Department of Education, 2012-PER-02553, -02632, -02658 (BALCA 5/14/2015). http://www.oalj.dol.gov/decisions/alj/per/2012/in_re_new_york_city_depart_2012per02553_%28may_14_2015%29_140438_
• Foreign terrorist organizations. Secretary of State John Kerry recently announced that both the Revolutionary Armed Forces of Colombia (FARC) (also known as Fuerzas Armadas Revolucionarias de Colombia) as well as the Popular Front for the Liberation of Palestine (and other aliases) will continue to remain designated as foreign terrorist organizations in accordance with Section 219 of the Immigration and Nationality Act (8 U.S.C. §1189). 80 Fed. Reg. 19728 (4/13/2015) and 80 Fed. Reg. 25766 (5/5/2015/2015). http://www.gpo.gov/fdsys/pkg/FR-2015-04-13/pdf/2015-08475.pdf http://www.gpo.gov/fdsys/pkg/FR-2015-05-05/pdf/2015-10581.pdf
– R. Mark Frey
Frey Law Office
PROBATE & TRUST LAW
• Requirements applicable to protected persons’ exercise of elective share rights do not violate equal protection. The Minnesota Supreme Court ruled that a statute that requires a surviving spouse under conservatorship to obtain a court order authorizing the exercise of elective share rights does not violate constitutional equal protections rights. Under Minn. Stat. §524.2-212, a surviving spouse can independently exercise elective share rights, but a protected surviving spouse can only exercise the same rights after a court has determined that “exercise is necessary to provide adequate support for the protected person” and “the election will be consistent with the best interests of the natural bounty of the protected person’s affection.” Conservator for protected surviving spouse sought and was granted a district court order authorizing the exercise of the surviving spouse’s elective share rights, but the required elements were not addressed. The district court held that Minn. Stat. §524.2-212 violates the surviving spouse’s equal protection rights, because it treats protected surviving spouses differently than non-protected spouses. The court of appeals disagreed, holding that protected and non-protected surviving spouses are not similarly situated and that a protected person’s impairments warrant additional protection under the law. The Supreme Court, applying a rational basis standard of review, determined that:
The distinctions are genuine and substantial because a protected person has an impairment that warrants an order of protection.
A clear connection exists between the unique needs of a protected person and the required judicial oversight. A conservator has a duty to manage the pecuniary affairs of the protected person, but “should not have the unilateral power to make a decision that should be based on both pecuniary and non-pecuniary interest.”
The adequate support requirement “rationally balances the deceased spouse’s testamentary wishes with the surviving protected spouse’s needs.”
In re. Guardianship and Conservatorship of Helen Louise Durand, 859 N.W.2d 780 (Minn. 2015).
• New trust code enacted. The governor signed into law the new Minnesota Trust Code, which updates and modernizes Minnesota trust law and implements a version of the Uniform Trust Code. The Act is effective 1/1/2016. A complete copy of the new trust code can be found at the revisor’s website (www.revisor.mn.gov) and will be coded as Minnesota Statutes, Chapter 501C.
• Notice from 4th Judicial District Court – Probate/Mental Health Division. The following notice is being printed with the permission of the 4th Judicial District Court.
Effective June 2, 2015, the Probate/Mental Health Division will change how probate cases are scheduled on commencing and account hearing calendars. When commencing or account hearing petitions are filed, they will be scheduled on the following days:
- Formal estates (commencing) – Monday mornings;
- Guardian/conservator (commencing & accounts) – Tuesday, Wednesday or Thursday mornings;
- Trusts (commencing & accounts) – Wednesday afternoons.
The filing party must include either a cover letter with the petition, or must add a comment in the EFS envelope when documents are e-filed, specifying dates that will not work for his/her schedule, if conflicts exist. If no dates are specified, court administration will assume the matter may be scheduled on any date. The filing party will be notified of the date on which the petition is scheduled as soon as possible. Court hearings are typically scheduled to be heard within 45 to 60 days of receipt of the petition.
Effective immediately, all attorneys are required to file Certificates of Representation pursuant to Gen. R. of Prac. 104.
Questions may be referred to Court Administration at (612) 348-3244.
– Robin R. Tutt
Lindquist & Vennum LLP
• Zoning; denial of conditional use permit was not arbitrary and capricious. Property owner RDNT owned the Martin Luther Care Campus, which consisted of two buildings providing assisted living services. RDNT sought to add a third building to the project and applied to the City of Bloomington for a conditional use permit (CUP). In connection with the permit application, numerous citizens voiced concerns to the city about the impact on traffic. Both the city and RDNT commissioned traffic studies with varying opinions on the traffic impact, although both reports agreed that the new building would result in increased traffic. City staff also concluded that the proposed three-story building would not preserve the character of the surrounding low-density, single-family neighborhood. The City Council voted to deny the CUP application. The city gave four reasons for the denial, three of which related to conflicts with provisions in the city’s comprehensive plan. The fourth basis for denial was that the CUP did not meet the requirement in the ordinance that “the proposed use will not be injurious to the surrounding neighborhood or otherwise harm the public health, safety and welfare.” RDNT petitioned for alterative writ of mandamus and the district court granted summary judgment for RDNT. The city appealed and the court of appeals reversed. RDNT then petitioned for review by the Minnesota Supreme Court, which petition was granted.
The Supreme Court first addressed whether the city’s ordinance was legally sufficient. The court focused on the requirement that the proposed use not harm the neighborhood or general welfare. The court observed that these general standards did provide a sufficient basis to deny a CUP. But because the lack of express standards made the decision-making process more vulnerable to arbitrariness, the court examined the factual basis for the city’s findings more closely than it would under a less subjective standard. Nevertheless, the court held that a sufficient basis for denial existed in the record. Specifically, the court noted that there were two studies showing increased traffic impacts as well as testimony from the city engineer and neighbors.
Because the court was able to uphold the denial of the CUP on one of the city’s bases, the majority opinion did not address the other three, which related to the CUP conflicting with the comprehensive plan. The concurring opinion addressed this issue at length. The concurring justice was alarmed by the idea of allowing denial of a CUP on the grounds that it conflicts with a comprehensive plan. According to the concurrence, a comprehensive plan is intended to be a broad, advisory document to be considered when adopting zoning regulations. Using such a broad document as a tool for specific zoning decisions would invite arbitrary practices. Affirmed. RDNT, LLC v. City of Bloomington, 861 N.W.2d 71, A13-0310 (Minn. 2015).
• Foreclosure; failure to post bond is not sufficient basis for summary judgment in foreclosure action. In December 2006, Alan and Mary Jane Keiran granted a mortgage on their home which was subsequently assigned to Bank of New York Mellon. In October 2009, the Keirans sent a letter to the initial mortgagee and the servicer purporting to rescind the mortgages due to the mortgagee’s failure to comply with the Truth In Lending Act. In October 2010, the Keirans commenced a lawsuit in federal court seeking, among other relief, a declaration that the mortgage had been rescinded. The federal court granted summary judgment against the Keirans on the grounds that their lawsuit was not timely and the Keirans appealed to the 8th Circuit Court of Appeals. While the appeal was pending, the bank commenced a foreclosure by action in state court. The Keirans moved to stay the proceedings and the bank moved for summary judgment. The court denied summary judgment, granted the stay, and ordered the Keirans to post a monthly bond. The Keirans never paid the bond. In the federal case, the 8th Circuit affirmed the summary judgment and the Keirans petitioned the Supreme Court for review. In the state case, the bank again moved for summary judgment. The district court granted a continuance, but told the Keirans that if they did not post the bond, the stay would be lifted and “we’re done.” The Keirans did not post the bond and the court entered summary judgment in favor of the bank. The Supreme Court subsequently granted certiorari review, vacated the judgment and remanded the matter to the 8th Circuit. The Keirans then appealed the state court summary judgment.
The Keirans first argued that the district court had no jurisdiction over the matter. The Keirans relied on the doctrine of prior exclusive jurisdiction, which provides that if two suits are in rem, the court in which a lawsuit was first filed has jurisdiction over the matter. In this case, the federal lawsuit was first in time and, according to the Keirans, would have exclusive jurisdiction. The court of appeals disagreed, holding that a foreclosure action was one in personam and, therefore, the doctrine of prior exclusive jurisdiction did not apply.
The court of appeals then addressed the propriety of summary judgment. The district court had made no express finding of an absence of a genuine issue of material facts. Instead, the court’s grant of summary judgment appeared to be entirely predicated on the Keirans’ failure to post the bond. The court of appeals held that failure to post a bond was not sufficient grounds to support summary judgment. Accordingly, the court reversed and remanded the matter. Reversed and remanded. The Bank of New York Mellon v. Keiran, ___N.W.2d___, A14-0304, A14-0620 (Minn. App. 4/6/15).
• Foreclosure; eviction of holdover mortgagor. Gary and Leila Mitchell defaulted on the mortgage of their home. Foreclosure proceedings were completed and the sheriff’s certificate of sale was conveyed to Freddie Mac. The Mitchells remained in the property after their redemption period expired and Freddie Mac commenced an eviction action. The district court granted summary judgment. The Mitchells appealed.
The Mitchells argued that Freddie Mac did not have standing to pursue the eviction because the foreclosure was void and because it had not proved that it properly acquired or recorded its interest. The court observed that the holder of a sheriff’s certificate acquires an ownership interest in the property if there is no redemption. And the sheriff’s certificate is prima facie evidence that the foreclosure was properly performed. Because the Mitchells remained in the property after expiration of the redemption period and because there was no evidence of any defect in the proceedings, Freddie Mac had standing to evict.
The Mitchells also challenged the district court’s grant of summary judgment in light of their claim that the foreclosure was void. The court of appeals held that such a claim could not be litigated in an eviction action. An eviction action is a summary proceeding generally dealing only with the right to possession of the property. A challenge to a foreclosure could only be litigated in an eviction action if it was the sole forum available. There is no dispute that there were other forums available, but the Mitchells argued that they were expressly permitted to raise the issue in the eviction action under the landlord-tenant statutes. The court of appeals assumed that the Mitchells were referring to Minn. Stat. §504B.121, which generally prohibits tenants from defending an eviction action on the grounds that the landlord lacks title. The statute contains an exception to that prohibition if prior to entering the lease, the tenant possessed the property under a claim of title adverse to the landlord. The court of appeals held that this provision did not apply to the Mitchells because they were not tenants for the purposes of the statute. The court’s holding, which was based on the general definitions for Chapter 504B, would appear to mean that holdover mortgagors are not “tenants” for purposes of the entire chapter. Affirmed. Federal Home Loan Mortgage Corp. v. Mitchell, ___N.W.2d___, A14-1037 (Minn. App. 3/30/15).
– C.J. Deike
Edina Realty Home Services
• Real property taxes: Valuation of undeveloped lots. In a recent case, the Minnesota Tax Court reduced the value of 12 single-family lots located in Prior Lake for the assessment year beginning 1/2/2010. The principal issue was whether the lots were to be valued as a unit or each of the lots individually assessed. The court found authority for the use of the development cost approach (valuation as an aggregate unit) in Hansen v. County of Hennepin, 527 N.W.2d 89 (Minn. 1995) but only on narrowly defined facts, which were not present here. The court found that each of the units had to be valued since there was a lack of evidence showing that the potential purchaser of the land would be a developer rather than the lots being sold individually. Further, the taxpayer could not cite a single case permitting use of the development cost approach to value building lots after they had been plotted and streets and utilities had been installed, which were the facts here. The value of each unit, however, was lowered for eight units from $112,500 to $85,000 and for four units from $99,000 to $69,000. Central Bank v. County of Scott, Docket No. 70-CV-11-7676, 2015 WL 653193 (Minn. T. Ct. 2/12/2015).
• Real property taxes: Tax court reverses and allows amendment of appeal. The Minnesota Tax Court reversed a prior order and allowed a taxpayer’s appeal to include a new count for error in classification of the subject property. The court, in reviewing the matter after trial, discovered that the parties had, in the joint statement of the case, identified an issue as to whether the property should be classified as commercial or vacant land, which fact had not been brought to the court’s attention when it made its first ruling denying the amendment. With this new information, the amendment was allowed. United Land LLC v. County of Scott, Docket No. 70-CV-12-8331, 2015 WL 653329 (Minn. T. Ct. 2/10/2015)
• Income tax: Nuclear decommissioning liabilities are not includable in basis of acquired assets. The Court of Appeals for the Federal Circuit held that nuclear decommissioning liabilities were not includable in the basis of acquired assets under IRC Code §461(h)(1). Under an accrual method of accounting, liability is incurred, and is generally taken into account for tax purposes, in the year in which: (1) all the events have occurred that establish the fact of liability; (2) the amount of the liability can be determined with reasonable accuracy; and (3) economic performance has occurred with respect to the liability. See IRC Code §§461(h)(1); IRC Code §461(h)(4); Regulation §1.461-1(a)(2)(ii). The taxpayer argued that the liabilities for decommissioning liability should be added to the basis of the property and the economic performance requirement found in IRC Code §461(h) should only be applied to expense deductions by an accrual basis taxpayer. The court rejected that contention and held that IRC Code §461(h)(1) plainly states that it applies for all “purposes of this title,” i.e., the Internal Revenue Code, not just to a subset of tax provisions, such as specific deduction provisions. Accordingly, the taxpayer’s claims were denied. AmerGen Energy, 115 AFTR.2d ¶ 2015-520 (Ct. App. Fed. Cir. 2015).
• Domicile: Minnesota resident did not change domicile to Nevada. The Minnesota Tax Court held that the taxpayers were residents of Minnesota for individual income taxes for 2005 and 2006. The taxpayers were raised in Glenwood, Minnesota, and established companies that were very successful in that city. The taxpayer was on the board of the local bank and guaranteed various loans of the corporation and his own personal items. In 2005 the taxpayer built a property in Lake Tahoe. They leased a property on Marco Island, Florida, starting in 2004. In addition, the taxpayer owned a couple of million dollar homes in Glenwood, Minnesota. The taxpayer sold his stock in one of the companies to an ESOP and a loan from that sale was refinanced in 2006. The taxpayers took the position that the 2006 refinancing was not taxable in Minnesota and the loan payoff should only be reported on the federal return because they were Nevada residents. The court found the taxpayers to be Minnesota residents for 2005-2006. The Court focused on the close family ties the taxpayers had to Minnesota since their two sons remained in Minnesota with their families. Secondly, the court focused on the continued involvement of the husband in the two businesses as an important employee and executive in their operations. The testimony was that the businesses relied on personal relationships that the husband had established. Further, he guaranteed the loans of the various businesses. Thirdly, the husband logged 182 days in 2006 and his wife logged 180 days, indicating a strong physical presence in Minnesota. The taxpayers completed most of the items in the 26-factor residency test, such as homesteading the Nevada property, registering and voting in Nevada, receiving mail in Nevada, joining a church in Nevada, and the local community center, and obtaining a library card, in addition to opening a bank account. However, in weighing the evidence, the court focused on the realities of the transactions and the taxpayers’ actions. Therefore, the taxpayers had not cut off or established a new domicile in Nevada and remained Minnesota residents from 2005 through 2006. Larry and Diane Zavadil v. Commissioner of Revenue, Docket No. 8433-R, 2015 WL 1331322 (Minn. T. Ct. 3/18/2015).
• Income taxes: Refundable state tax credits includible in income despite being labeled “overpayments.” The United States Tax Court held that refundable New York state credits must be included in the taxpayer’s Federal income regardless of state law labeling the credits as “overpayments” of past tax. The taxpayer argued that if New York state tax law labeled these payments “overpayments,” the court had no power to call them something different, citing Aquilino, 363 U.S. 509, 5 AFTR.2d ¶ 1698 (1960). The Court held that “precedent established that a particular label given to a legal relationship or transaction under state law is not necessarily controlling for Federal tax purposes.” The refundable credits did not depend on past tax payments. They were not refunds of past “overpayments” but rather they were like direct subsidies. Therefore the tax benefit rule did not apply and the refundable credits were in accession to wealth and must be included in Federal gross income under IRC Code §61. Maines v. Commissioner, 144 T.C. No. 8, 2015 WL 1062997 (2015).
• Procedure: Sending of notice of intent to taxpayer’s last known address is sufficient even though taxpayer did not receive it, nor the holder of the power of attorney. The United States Tax Court held that since the IRS had mailed the notice of intent to levy to the taxpayer’s last known address, the appeal was untimely when not filed within the appropriate time even though the taxpayer had not actually received the IRS notice, nor had his power of attorney received it. It is well-established law that “the failure of the respondent to send a notice of the deficiency to the taxpayer’s counsel, pursuant to a request contained in a Power of Attorney filed with the respondent, does not affect the time within which the taxpayer must file a petition with this Court if a notice of deficiency has been sent to the taxpayer by * * * [certified] mail to his last known address.” Allen v. Commissioner, 29 T.C. 113 (1957); See also Houghton v. Commissioner, 48 T.C. 656 (1967). In addition, actual receipt of a levy notice is not a prerequisite to the validity of that notice under the regulations. See Section 301.6330-1(a)(3). Merlene Godfrey v. Commissioner, Docket No. 21507-13 L (2015).
• Procedure: Innocent spouse petition allowed to be withdrawn from U.S. Tax Court. The United States Tax Court determined that it had discretion to allow a taxpayer to withdraw her “stand alone” petition seeking review of the IRS’s denial of innocent spouse relief under the petition, since it did not involve the court’s deficiency jurisdiction under IRC Code §6213 or otherwise require it to enter a decision upon dismissal of the case. The taxpayer invoked the court’s jurisdiction by a “stand alone” petition requesting IRC Code §6015 relief and invoking the Court’s jurisdiction under IRC Code §6015(e)(1). To invoke this section, the IRS must have issued a final determination denying the taxpayer’s claim for IRC Code §6015 relief or failed to rule on the taxpayer’s claim within six months of its filing. The taxpayer sought and was denied relief under IRC Code §6015 from joint and several liabilities for 2007 and 2008. The IRS issued its final determination denying her request and the taxpayer filed a timely petition with the Tax Court contesting the denial under IRC Code §6015(e). In January 2015, after the IRS filed its answer, the taxpayer filed an unopposed motion to dismiss, requesting that she be permitted to voluntarily withdraw her petition. At issue was whether the Tax Court had the authority to dismiss without entering a decision. The court held that it did, since it did not require the redetermination of deficiencies. However, it is clear that in deficiency cases under IRC Code §6213, the taxpayer may not withdraw his or her petition in order to avoid a decision. See Estate of Ming, 62 T. Ct. No. 519 (1974). Davidson v. Commissioner of Revenue, 114 T. Ct. No. 13 (2015).
• Sales and use tax: Materials used in industrial drying systems exempt in Minnesota. The Minnesota Tax Court held that the materials the taxpayer installed or otherwise used in the manufacture of its industrial drying systems were exempt from use tax since they were purchases for resale by the taxpayer in the normal course of business. The Tax Court rejected the commissioner’s claim that the materials were taxable because they were used in the erection of buildings or the alteration, repair, or improvement of real property under Minn. Stat. §297A.61, Subd. 4(d) . Although “real property” is not defined in the sales and use tax law, read together, Minn. Stat. §272.03, Subd. 1 and Minn. Stat. §297A.61, Subd. 10(b) , include in the definition of “real property” only those items that are of permanent benefit to the building, regardless of its use, and exclude from the definition of “real property” those items installed for use only in the business or production activity being conducted and not of permanent benefit to the building. The taxpayer’s drying systems were not used to improve “real property” because they are “attached to or installed in real property for use in the business or production activity conducted thereon,” within the meaning of the exclusion from real property under Minn. Stat. §272.03, Subd. 1(c)(i). Nor would one of the taxpayer’s drying systems be considered part of the real property at common law as a fixture. Dahmes Stainless, Inc. v. Commissioner of Revenue, Docket No. 8228-R, 2015 WL 1542287 (4/7/2015).
• Procedure: Taxpayer has no right to be present at interview of an accountant pursuant to a summons. The taxpayer’s accountant and return preparer was summoned but asserted the Federally Authorized Practitioner Privilege under IRC Code §7525, and refused to be interviewed without taxpayer’s counsel. The IRS moved to enforce the summons. The court held (1) “a taxpayer does not have an absolute right to be present at a third party IRS summons proceeding concerning the taxpayer’s liabilities” and (2) the summons should be enforced. In order to determine whether a taxpayer should be permitted to be present at such a hearing, a Court must engage in “[t]he usual process of a balancing opposing equities” – the standard identified in Donaldson, 400 U.S. 529, and left undisturbed by Congress’s subsequent revisions to provisions concerning taxpayer’s rights on third-party summons. The court then moved to enforce an order of enforcement of the summons, finding no legally protectable interest. United States v. Capital McEligot, 2015 U.S. Dist. LEXIS 45519 (M.D. CAL 2015).
• Income tax: Husband a Nevada resident and wife a Minnesota resident. The Minnesota Tax Court held that a married couple could have separate residencies during tax years 2009 through 2011. The facts are unique in that the wife worked for Best Buy but travelled outside of Minnesota for extended periods of time. The couple’s only child was a student at the University of St. Thomas. The court held that the husband had established a domicile in Nevada, when he sought new employment there and took his dog, personal possessions, and became a member of three social clubs. The husband’s return to Minnesota was limited to three weeks. After his job was terminated, he returned to Minnesota in 2011. The court concluded that the husband had rebutted the presumption of continued Minnesota domicile and had established by a preponderance of the evidence that he was domiciled in Nevada from April 2009 through March 2011. First, the husband established that he reasonably expected his position with a defense contractor to be long-term and, therefore, he reasonably expected to live in Nevada indefinitely. The court felt that the husband credibly testified that once he received the offer of employment in Nevada, he no longer sought employment in Minnesota. Second, the husband’s employment established that, once the couple’s son graduated from high school, the couple had few remaining ties to Minnesota. The court indicated that the couple could live almost anywhere there was an airport. Third, the evidence established that there were other, non-employment-related reasons for the husband to be domiciled in Nevada rather than Minnesota, notably, proximity to his elderly and ailing parents and a sister living in Arizona. Fourth, the husband established non-employment-related ties to the Las Vegas community, including a leadership position with a local nonprofit. The Court felt there was “no evidence that the husband maintained any comparable ties to Minnesota, such as membership in local organizations, between April 2009 and March 2011.” The case is unique since the couple retained contacts with Minnesota by owning a residence and a lake cabin, the former maintained as a homestead for all the periods at issue, put their residence as Minnesota on their Federal income tax return, registered to vote in Minnesota and not Nevada (although they did not vote), kept their Minnesota drivers’ licenses, continued to use their Minnesota accountant, and continued to worship in Minnesota when here. Further, their son attended college in Minnesota and bank accounts were maintained in Minnesota and opened in Nevada. The husband leased an apartment in Nevada and leased furniture for it but explained that they were waiting for the market on real estate to change and to make sure that his employment was of a permanent nature before purchasing a home and furniture, since there were cutbacks in the defense industry. The husband represented himself in the tax dispute. Michael John and Mary Dianne Dudley v. Commissioner of Revenue, Docket No. 8666-R, 2015 WL 1814047 (Minn. T. Ct. 4/15/2015).
• Procedure: Appeal defective since it was not served on the commissioner. The Minnesota Tax Court dismissed the taxpayer’s appeal since he had not served the commissioner with the notice of appeal within 60 days of making and filing of an order. Even though the taxpayer had properly filed in a timely manner with the Tax Court, Minn. Stat. 271.06, Subd. 2 required a statutory filing on the commissioner. Auto Motion Sales, LLC v. Commissioner of Revenue, Docket No. 8803, 2015 WL 2018321 (Minn. T. Ct. 4/24/2015).
• Real property taxes: Petition dismissed for failure to comply with 60-day rule. The Minnesota Tax Court dismissed the taxpayer’s property tax appeal for the year 2012 because financial information was not disclosed to the county within the 60-day time period found in Minn. Stat. §278.05, Subd. 6 (a). The court held that the property was income?producing because it generated two streams of income for its owner. First, it was undisputed that the property had generated $4,800 in annual rental income from the expired billboard lease. Second, it was undisputed that as of the assessment date, the property generated $76,800 in annual rental income from a lease to a related party. There was no merit to the taxpayer’s argument that the property was not subject to the 60-day disclosure requirements because it was “owner-occupied.” Mostafa Sadat v. County of Scott, Docket 70-CV-12-8404, 2015 WL 2018805 (Minn. T. Ct. 4/24/2015).
n Procedure: Commissioner-filed returns valid without manual signature. The Minnesota Tax Court held that commissioner-filed returns did not need to have a manual signature to be valid and, therefore, the tax was properly assessed. The taxpayer argued that since the commissioner-filed returns did not have a written signature of an appropriate officer of the DOR, it lacked a filing date and therefore was an improper assessment. The court rejected said arguments, citing Minn. Stat. §§270 C.33, Subd. 3, §270 C.33, Subd. 4, and §270 C.62. Daniel Berglund v. The Commissioner of Revenue, Docket 8779, 2015 WL 2018413 (Minn. T. Ct. 4/22/2015).
• Corporate income tax: Minnesota JOBZ tax exemptions and jobs credit. The commissioner revised a release that explains the refundable Job Opportunity Building zones (“JOBZ”) jobs credit based on increased payroll, as well as the exemptions from sales, income, and property taxes available to qualified businesses in these zones. The release also discusses the refundable JOBZ credit. See JOBZ Fact Sheet (Minnesota Department of Revenue, 3/1/2015).
• Income tax: Understanding error rejection codes. The commissioner issued guidance to tax preparers as to error rejection codes when returns are e-filed. An error code that is 4 digits is a commissioner-issued error code. The preparer’s software may or may not provide an explanation of the error. To view an explanation of the error and learn why the preparer received the error code, the preparer should visit the commissioner’s website. An error code other than 4 digits is a software vendor-issued error code. In such cases, the preparer must contact the software vendor to learn more about it. See “Tax Preparer Tip: Understanding Error Rejection Codes” (Minnesota Department of Revenue, 3/6/2015).
• Income tax: Commissioner-filed returns. The commissioner issued guidance on commissioner-filed returns (CFR) and tax orders. When the commissioner believes a taxpayer is required to file a Minnesota income tax return and the commissioner has not received one, the commissioner sends a letter requesting the taxpayer to file. If a taxpayer receives this letter, the taxpayer has 30 days to respond in one of the following ways: (1) prove that a return was already filed; (2) show that the taxpayer was not required to file the return; or (3) file the return. If the commissioner does not receive a response, it will issue a CFR or tax order. If a taxpayer does not agree with the CFR, the taxpayer can replace it by filing his or her own return. If the taxpayer does not file his or her own return, the taxpayer will be liable for the amount owed as reported on the CFR. If the taxpayer does not agree with the tax order, the taxpayer must file an administrative appeal within 60 days of the order being issued. If the taxpayer does not file an appeal within the 60 days, collection action may be taken by the commissioner. See “Tax Preparer Tip” (Minnesota Department of Revenue, 3/12/2015).
• Sales and use tax: Schools—sales and purchases. The commissioner revised a release on how sales tax applies to sales and purchases made by schools and school districts to reflect that starting 1/1/2015, the first $20,000 of fundraising annual gross receipts by youth and senior citizen groups is exempt from sales tax (the previous limit was $10,000). See Minnesota Sales Tax Fact Sheet 111 (3/1/2015).
• Commissioner of Revenue releases 2015 Tax Incidence Study. The commissioner released the 2015 Tax Incidence Study as mandated by the Legislature every two years. This year’s study focuses on actual results for the years 2012 and projects, under existing law, to the year 2017. The purpose of the Tax Incidence Study is to see who bears the burden of the property, various consumptive taxes, and the income tax by levels of income. The study shows the overall effective tax rate was 11.5 percent in 2012 and is projected to decrease to 11.4 percent in 2017. The effective tax rate is the net tax rate a taxpayer pays on income that includes all forms of taxes. It is calculated by dividing the total tax paid by taxable income. The major changes enacted in 2013 and 2014 – the property tax refund expansion, Working Family Credit expansion, fourth income tax tier rate increase, tobacco tax increase, and estate tax cuts – together are projected to make Minnesota’s tax system less regressive. Effective tax rates appear to be going down in nine of the ten deciles, only increasing 0.2 percent for the top earners. The state’s highest-income taxpayers continue to have a lower effective tax rate than any other decile. The study projects that the 10 percent of households earning more than $165,871 in 2017 will pay an effective tax rate of 10.7 percent. The remaining 90 percent of low- and middle-income households are projected to pay an average effective tax rate of 11.9 percent in 2017. Overall, the SUITS index, a measure of tax progressiveness, shows that Minnesota’s income tax continues to be the most progressive element of the State’s tax system. Other major Minnesota and local taxes are regressive. The Tax Incidence Study is available on the Department of Revenue’s web site at www.revenue.state.mn.us/research_stats/Pages/Tax_Incidence_Studies.aspx.
• Minnesota taxes: Payment options. The commissioner created a one-stop shop for payment options available for individuals and businesses. Taxpayers should review the commissioner’s Make a Payment page on the commissioner’s website for electronic and paper payment options. See “Tax Preparer Tip: Make a Payment Options” (Minnesota Department of Revenue, 3/19/2015).
• Income taxes: “Financial disability” tolling does not suspend refund claim period for net operating loss carry-back. The IRS determined that IRC Code §6511(h), which suspends certain limitations periods where the taxpayer is “financially disabled,” does not extend the special three-year limitations period for net operating losses (“NOL”) or capital loss carry-backs under IRC Code §6511(d)(2). Rather IRC Code §6511(h), by its terms, only applies to the limitations period under IRC Code §6511(a), IRC Code §6511(b), and IRC Code §6511(c). See Chief Counsel Advice 201515019.
• Procedure: Withholding; surety deposits for non-Minnesota construction contractor. The commissioner revised a release explaining surety deposits for non-Minnesota construction contractors. If a person hires or contracts with a non-Minnesota contractor to perform construction work in Minnesota, the person must withhold 8 percent of contractor’s compensation as a Minnesota surety deposit. Payments are subject to 8 percent withholding only if the work was performed in Minnesota and the value of the contract exceeds $50,000. The cash surety is deposited with the Department and is used as a surety to guarantee that the contractor has fulfilled the requirements for withholding, sales and use, franchise and income taxes. After the project has been completed, the construction contractor can apply for a refund using Form SDR (Refund of Surety Deposits for Non-Minnesota Contractors). The department will refund any amounts held as surety, including interest. See Minnesota Withholding Tax Fact Sheet 12 (4/1/2015).
• Sales tax: Hubbard County 0.5 percent transit sales-use tax. The commissioner has announced that effective July 1, 2015, Hubbard County will impose a 0.5 percent transit sales and use tax. The Commissioner will administer this tax. This transit tax applies to retail sales or uses made within Hubbard County. See “Hubbard County 0.5% Transit Sales and Use Tax” (Minnesota Department of Revenue, 4/28/2015).
• Sales and use tax: Minnesota capital equipment refund. The commissioner reminds taxpayers that the capital equipment refund will become an up-front sales tax exemption on 7/1/2015. Until 6/30/2015, businesses that purchase qualified capital equipment must continue to pay sales tax and then file a refund claim with the commissioner. See Minnesota Department of Revenue, “Up-Front Capital Equipment – 2014 Law Change” (5/4/2015).
• Procedure: Medicare benefit cards and Social Security numbers. In the coming years, Medicare benefit cards will no longer include Social Security numbers. Prompted by a desire to lower the risk of identity theft for those carrying Medicare benefit cards, the Medicare Access and Chip Reauthorization Act (P.L. 114-10) was recently signed by President Obama. This law requires a new identification system be created for Medicare cards. The change will take time, though, with a four-year period allocated for creating the new system and beginning to issue the new cards, and another four years to get all current recipients new cards. See Robert Pear, “New Cards for Medicare Recipients Will Omit Social Security Numbers,” The New York Times (4/20/2015).
• Proposed legislation: Congressional Research Service (CRS) report on policy considerations of changing the cash method of accounting rules. The Congress and the President have proposed law changes to the cash method of accounting. One bill would expand the number of businesses allowed to use the cash method by including all businesses regardless of legal structure increasing the average gross receipts threshold. The other proposal would either eliminate cash method accounting for all business or restrict use for certain types of businesses. These proposals, and their direct effect on businesses, are summarized by the CRS in a recent report on the cash method of accounting verses the accrual method of accounting. See Congressional Research Service Report “Cash Verses Accrual Accounting: Tax Policy Considerations” (4/24/2015) (www.crs.gov).
– Jerry Geis
Briggs and Morgan, P.A.
TORTS & INSURANCE
• Commencement of action: Service on foreign insurers through Department of Commerce. Plaintiffs suffered property damage to their home. They tendered the claim to defendant insurer, who denied the claim. The insurance policy at issue contained a clause requiring suit to be “brought within two years after the date of loss or damage occurs.” Four days before the expiration of the limitations period, plaintiffs sent copies of the summons and complaint by certified mail to both the Commissioner of Commerce and the insurer pursuant to Minn. Stat. §45.028. subd. 2. Sixteen days later (twelve days after the limitations period had run), plaintiffs filed an affidavit of compliance attesting to service of the complaint with the district court. The district court granted the insurer’s motion for summary judgment, holding service was not completed within the limitations period. The court of appeals reversed and remanded.
The Minnesota Supreme Court affirmed the decision of the court of appeals. The court looked at the language of Minn. Stat. §45.028, subd. 2, and noted its three requirements for service on foreign insurers through the department of commerce: (1) service on the commissioner, either by certified mail or by personal delivery; (2) service on the insurer by certified mail; and (3) the filing of an affidavit of compliance with the district court “on or before the return day of the process[.]” Because the statute did not expressly address when an action is commenced, the Court held looked to the rules of civil procedure and held: “an action is commenced… when a plaintiff sends a copy of the process to the Commissioner of Commerce by certified mail.” The court went on to note: “[F]ulfillment of the other statutory requirements… is necessary only to preserve the effectiveness of service.” Meeker v. IDS Property Cas. Ins. Co., No. A13-1302 (Minn. 4/8/2015). http://mn.gov/lawlib/archive/supct/2015/OPA131302-040815.pdf
• Insurance coverage: Coverage through MIGA. Plaintiff, a small business, retained a third-party to provide human resource services, including the procurement of insurance policy. The policy obtained listed the third-party as the named insured, but further provided that the policy “will apply as though the client company is the employer and is insured under this policy.” The policy contained a $1,000,000 deductible. After an employee submitted a workers’ compensation claim, the third-party servicer and the insurer became insolvent. So plaintiff tendered the claim to the Minnesota Insurance Guaranty Association (MIGA), who denied it. After plaintiff filed suit, the district court granted summary judgment in favor of MIGA.
The Minnesota Court of Appeals affirmed. In so holding, the court rejected plaintiff’s argument that it was not an “insured” under the policy, reasoning that it was either an “insured beneficiary” under the policy under Minn. Stat. §60C.09 or a third-party beneficiary. The court went on to the claim at issue was not a “covered claim” because the policy at issue contained a deductible in excess of $300,000. Terminal Transport, Inc. v. Minn. Ins. Guar. Assoc., No. A14-1284 (Minn. Ct. App. 4/20/2015). http://mn.gov/lawlib/archive/ctappub/2015/opa141284-042015.pdf
– Jeff Mulder
Bassford Remele, A Professional Association