Articles
Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

Notes & Trends – October 2015

BANKRUPTCY
JUDICIAL LAW

Lien stripping denied. In a recent case, the court denied the debtor’s effort to “strip” a lien. The debtor filed a Chapter 13 while owning a house. The proposed plan was to “strip” the junior of two liens secured by the house on the basis that there was no value to support the junior lien. The junior lien creditor objected, asserting value and asserting that its lien was secured by the interest of the debtor’s ex-husband, who was still personally liable for the debt involved. The debtor’s ex-spouse had conveyed his interest in the property prior to the filing of the Chapter 13 by the debtor. The court held that “lien stripping” cannot divest a lien securing a claim which is not subject to allowance or treatment in the bankruptcy. The debt owed the junior lien creditor by the non-debtor ex-spouse was not cognizable in the debtor’s bankruptcy. In re Sara Beth Brown, Bky. No. 14-35096 (Bankr. Minn., 9/11/2015).

Property surrendered in full satisfaction of claim. The debtor sought relief under Chapter 13 and obtained confirmation of a plan that provided for transfer of non-residential real estate to the secured creditor in full satisfaction of any claim. The property value was approximately 50% of the amount of the secured debt. The court found that the secured creditor had notice of the case filing, notice of the plan, its confirmation and its subsequent modification, all of which provided for the transfer of the real estate in question to the creditor in full satisfaction of the claim. Citing 11 U.S.C. Sec. 1325(a)(5)(C) and Sec. 1322(b)(9), the court held that it could confirm a plan which surrendered the property to a secured creditor in full satisfaction of the claim and vest said property in the creditor. The court entered an order directing the debtor to send an executed quit claim deed to the creditor and directed the creditor to either record the deed to effect the transfer or seek relief from stay to foreclose. In re Sharon D.M. Stewart, Bky No. 13-407709 (Bankr. Minn., 9/1/2015)

Violation of discharge injunction. The bank loaned money to the debtor for use in his business. The resulting debt was secured by a third mortgage on the residence of debtor and his non-debtor spouse. The note was either amended, modified or re-stated five times prior to debtor’s Chapter 7 bankruptcy. During the pendency of the bankruptcy the debtor, his spouse and the bank entered into an agreement reaffirming the debt (“agreement”). All parties knew, including the bank, that the agreement was ineffective because the requirements of 11 U.S.C. Sec. 524(c)(3) were not met. Debtor received a discharge and thereafter, upon repeated contact from the bank and representations of possible refinancing, made payments pursuant to the agreement totaling $46,000. When the debtor ceased making payments the bank commenced suit to enforce the agreement and debtor counterclaimed for damages and to enforce the discharge injunction contained in his discharge. The bankruptcy court found that the agreement did not comply with Section 524(c)(3). The bankruptcy court further held that there was no consideration under state law to support the agreement. The bankruptcy court awarded debtor damages and attorneys’ fees for violation of the discharge injunction. On appeal, the district court affirmed and increased the damages to include all payments made under the agreement. Subsequently, the appeals court affirmed the district court judgment finding that the agreement was unenforceable under the bankruptcy code. The court specifically concluded that post-discharge forbearance from foreclosure was not a consideration. The court held that the payments made by the debtor were not voluntary due to the contact and pressure from the bank made with hints of possible refinancing. The court found that these actions violated the injunction of Section 524(a)(2) contained in the discharge order and sustained the damage award. Venture Bank v. Howard Lapides, 2015 WL 5011704, (8th Cir. 8/25/2015).

– Timothy D. Moratzka

DeWitt Mackall Crounse & Moore S.C.

Commercial & Consumer Law
JUDICIAL LAW

When doing everything legal may not be enough. Can a perfected secured party lose its collateral to a subsequent third party? Clearly the general answer is no. Uniform Commercial Code §9-401 provides that a debtor’s rights in collateral are alienable, but §9-201 provides that a security agreement is effective according to its terms against not only the debtor but also third parties. Moreoever, §9-315(a) provides that a security interest continues in collateral notwithstanding sale, lease, license, exchange, or other disposition unless the secured party authorized the disposition free of the security interest. The security interest also attaches to any identifiable proceeds of the collateral that are received back on the disposition.

There are some “exceptions.” For example, a buyer in ordinary course of business, such as a customer of a retail seller who acquires goods from the seller’s inventory when the inventory is subject to a perfected security interest, takes free of the security interest created by that seller even if the security interest is perfected and the buyer knows of its existence. UCC §9-320(a). The reason is that buyers from retailers do not check filings as a rule, and commercial law should embody reasonable practices. A similar rule exists for licensees and lessees (UCC §9-326). But there need not be a loss to the secured party as that party’s security interest also attaches to the proceeds the seller receives from the buyer. Of course, cash proceeds may be dissipated, or their identity lost, but that is a non-legal risk and one a secured party can protect itself against by requiring the proceeds be deposited in an account subject to its control and by monitoring. In many cases the proceeds may be chattel paper, which may be assigned but is not likely to be lost.

But what if a seller whose inventory is secured sells seriously defective goods to a buyer, the buyer gives a perfected security interest to its lender, and the buyer decides to and successfully does revoke acceptance of the goods under UCC §2-608? Where are the secured parties? Will one have to lose? This was part of the fact pattern in a case that raised in that context the above stated question. There seems little or no direct authority on point.

To analyze the matter, upon revocation of acceptance the goods go back to the seller, and the buyer gets the purchase price back. The inventory-secured party thus will acquire a security interest in the returned goods as inventory, and its former interest in the returned price (proceeds of the original sale to the buyer) will initially remain perfected (but may become unperfected later under UCC §9-315). Official Comment 10(a)(1) to §9-330. No necessary loss here. The lender who lent to the buyer, even though the buyer’s interest in the goods is now transferred back to the seller, since the security interest attached when the buyer had rights in the collateral under UCC§ 9-203(b), the lender should retain that interest. UCC§ 9-315(a).

In addition, the buyer’s lender should acquire a security interest in the returned purchase price as proceeds of the “disposition” back to the seller. The Article 9 priority rules (UCC Article 9, Subpart 3-Priority) will then determine which secured party has priority in the goods, and in the proceeds. The inventory security interest should prevail as to both the goods and the proceeds as a general proposition. UCC §9-322(a)(1). But see §9-330(c) in some cases as described in Official Comment 10(a)(1) to §9-330. There is a loss, but it is due to priority and not to disposition of the collateral.

What is the lesson here? A secured party that does not monitor its debtor and its collateral may well bear legal collateral risks due to subsequent events even though protected by the law initially. Close watch will also reduce non-legal risks to the collateral as well. In short, vigilance is the price of good security. CB Aviation, LLC v. Hawker-Beechcraft Corp., No. 2:10 – cv – 1411 – JD (E.D. Pa. 2011).

– Fred Miller

Commissioner, Uniform Law Commission

CRIMINAL LAW
JUDICIAL LAW

Immigration consequences: Deportation consequences of third-degree criminal sexual conduct not clear; counsel must advise noncitizen defendant that conviction “could” or “may” result in deportation. Appellant was born in Mexico and entered the United States at the age of 12. He was granted immigration status under the “Deferred Action for Childhood Arrivals” program, and was soon thereafter charged with two counts of third-degree criminal sexual conduct and one count of furnishing alcohol to a minor. At his plea hearing, appellant’s counsel asked appellant on the record if he understood that, because he is not a United States citizen, his guilty plea to one third-degree criminal sexual conduct charge and furnishing alcohol to a minor “could result in either deportation, exclusion from admission to the United States, or denial of citizenship.” Appellant said he understood and stated that he wished to go forward with his plea. The plea agreement also stated that appellant was informed and understood that his guilty plea “may” result in deportation, exclusion from admission to the United States, or denial of citizenship. After appellant was sentenced, ICE seized appellant for removal proceedings. Two months later, appellant obtained new counsel, and filed a postconviction petition seeking to withdraw his guilty plea on the basis that he received “clearly erroneous” advice about the immigration consequences of his plea. Specifically, he argued that his removal was “an absolute certainty” following his sex offense conviction, so his attorney was required to inform him that a guilty plea would result in his deportation, making his plea neither voluntary nor intelligent. The postconviction court denied appellant’s petition after an evidentiary hearing, and appellant appealed.

Under Padilla v. Kentucky, 130 S. Ct. 1473 (2010), the 6th Amendment requires counsel must inform a noncitizen defendant of the deportation risks associated with pleading guilty. If the immigration consequences of a plea are not “truly clear,” however, counsel need only advise the noncitizen that a plea may carry a risk of adverse immigration consequences. More robust advice about the likelihood of deportation is required only if the deportation consequences can be easily determined. The immigration statute at issue here is not “truly clear,” as this term is used in Padilla, as to whether appellant’s conviction would lead to his deportation. The statute states that “[a]ny alien who is convicted of an aggravated felony at any time after admission is deportable.” 8 U.S.C. §1277(a)(2)(A)(iii). The statute lists the “generic crime” of “sexual abuse of a minor” as one crime that is considered an aggravated felony, but the statute does not define “sexual abuse of a minor.” To understand whether third-degree criminal sexual conduct falls under this term, counsel would have to do more than just examine the statute or analyze binding case law to determine that appellant’s conviction was an aggravated felony.

Held, because the immigration statute at issue is not succinct and straightforward as to the immigration consequences appellant faced, his attorney need have only advised appellant that his plea may carry a risk of adverse immigration consequences. Appellant’s attorney so advised appellant, as evidenced in the plea hearing transcript and the plea agreement. The postconviction court’s denial of appellant’s petition is affirmed. Francisco Herrera Sanchez v. State, Ct. App. 8/3/15.

Sentencing: Defendant’s remorse, on its own, is insufficient basis for downward durational departure. Respondent entered a Norgaard plea to third-degree criminal sexual conduct after a forced sexual encounter with respondent’s coworker while appellant was intoxicated. The district court granted respondent’s motion for a downward durational departure based on respondent’s age, remorse, cooperation with law enforcement, and limited criminal history, and the state appealed.

The district court may consider only offense-related factors, as opposed to offender-related factors, when granting a downward durational departure. The ultimate question is whether the offense was significantly less serious than the typical conduct involved in that offense. The district court improperly relied on several offender-related factors in granting respondent a downward durational departure, including his age and cooperation. His criminal history was already considered when determining the presumptive guideline sentence, and the district court rejected the argument that respondent’s conduct was less serious than the typical third-degree criminal sexual conduct offense.

However, respondent argues that his remorse was a proper, sufficient factor to justify the downward durational departure. Remorse is only relevant in the context of a downward durational departure where remorse, or lack thereof, bears on the seriousness of the underlying offense. In this case, respondent’s remorse did not diminish the seriousness of the offense. The record supports the conclusion that respondent showed remorse only once he realized a conviction was likely, not once he realized what he had done. Respondent entered a plea in the middle of trial, after numerous witnesses had testified. In addition, the victim had previously confronted respondent, and he claimed to have no memory of his conduct. Held, remorse alone cannot support a downward durational departure when the purported remorse does not “relate back” to the offense or make the offender’s conduct less serious than the typical offense. Reversed and remanded for resentencing. State v. Jacob Miles Solberg, Ct. App. 8/24/15.

Sentencing: No error to impose same sentence on lesser-included offense on remand as originally imposed for greater offense, where sentence is within guideline range and is not longer than original sentence. After a jury trial, appellant was convicted of attempted second-degree murder for the benefit of a gang, attempted second-degree murder, second-degree assault for the benefit of a gang, and second-degree assault. He was sentenced to 165 months for the second-degree murder for the benefit of a gang conviction. On appeal, the court of appeals found that the state failed to present sufficient evidence on the benefit of a gang element, reversed appellant’s convictions for attempted second-degree murder for the benefit of a gang and second-degree assault for the benefit of a gang, and remanded the case for sentencing on the attempted second-degree murder conviction. The district court imposed a 165-month sentence on the attempted second-degree murder charge. Appellant again appealed, arguing the district court abused its discretion in imposing the same sentence for attempted second-degree murder as it had for attempted second-degree murder for the benefit of a gang. The court of appeals affirmed the sentence, emphasizing that the new sentence was neither longer than the original sentence nor a departure from the presumptive sentencing guidelines.

Appellant argues that the district court originally imposed a sentence for the attempted second-degree murder conviction of 153 months, which was automatically increased under the sentencing guidelines to 165 months, because the commission of this lesser-included offense benefited a gang and the victim was under 18. As a result, he argues that the 165-month sentence on remand violated State v. Prudhomme, 228 N.W.2d 243 (Minn. 1975) (holding that a district court may not impose a longer sentence than the sentence originally imposed when a defendant is granted a new trial or when an appellate court sets aside a sentence and remands for resentencing).

Appellant’s argument presumes that the district court calculated his original sentence by first determining that the appropriate sentence for the lesser-included attempted second-degree murder offense was a middle-of-the-box sentence of 153 months, then adding 12 months, as required by the guidelines, to account for the fact that this lesser-included offense was committed for the benefit of a gang and the victim was younger than 18. However, the record shows that the district court did not originally impose any sentence for appellant’s attempted second-degree murder conviction, and neither the parties nor the court discussed this 153-plus-12-month analysis. Therefore, the record does not support a finding that the district court imposed a greater sentence on remand following appellant’s successful original appeal. The court of appeals and the 165-month sentence are affirmed. State v. Kabba Kangbateh, Sup. Ct. 8/5/15.

Order for protection: Preponderance of evidence must support issuance of order for protection under Minn. Stat. §518B.01. An order for protection (OFP) was issued against appellant for his 12-year-old son due to allegations of excessive punishment. At the OFP hearing, the child’s mental health case manager and psychologist testified to the child’s out-of-court statements describing appellant’s alleged abuse. Minn. Stat. §518B.01 does not specify what standard of proof applies to the issuance of an OFP. However, subdivision 11(b) of the statute establishes a preponderance of the evidence standard for modifying or vacating an OFP. The court holds that the language of subdivision 11(b) implies that the same preponderance of the evidence standard of proof must be met to obtain an OFP. In this case, the child’s out-of-court statements were properly admitted, and the evidence as a whole met the preponderance of the evidence standard of proof. The district court is affirmed. In re Cindy Jean Oberg, obo minor child v. Gregory Brian Bradley. Ct. App. 8/3/15.

Postconviction: Stay of adjudication under Minn. Stat. §152.18 does not trigger two-year postconviction statute of limitations. In 2009, appellant pleaded guilty to fifth-degree possession of a controlled substance. The district court imposed a stay of adjudication under Minn. Stat. §152.18, and placed appellant on probation for five years. Approximately four years later, on 5/24/2011, after appellant admitted to violating the terms of his probation, the district court revoked the stay of adjudication and imposed a 13-month executed sentence. On 5/23/2013, appellant filed a petition for postconviction relief requesting to withdraw his guilty plea, based on recently discovered evidence of deficiencies in the drug-testing protocols of the St. Paul Crime Laboratory. The postconviction court denied his petition as untimely and because appellant failed to demonstrate a manifest injustice permitting him to withdraw his plea. The court of appeals agreed that his petition was untimely, holding that a stay of adjudication is a “sentence” that triggers the two-year statute of limitations for filing a postconviction petition. The Supreme Court accepted review.

Because there was no direct appeal of the stay of adjudication from 2009, the timeliness of appellant’s petition is determined by Minn. Stat. §590.01, subd. 4(a)(1), which provides that the two-year statute of limitations commences upon “the later of: …the entry of judgment of conviction or sentence.” Held, a stay of adjudication under Minn. Stat. §152.18 is neither a “judgment of conviction” nor a “sentence” under Minn. Stat. §5901.01, subd. 4(a)(1). A judgment of conviction requires a plea, verdict, adjudication of guilt, and sentence. When the district court stayed adjudication, there was, by definition, no adjudication of guilt, so there was no “entry of judgment of conviction” at that time. Both the common and technical definitions of “sentence” refer to the imposition of punishment following a criminal conviction or adjudication of guilt. Therefore, a stay of adjudication under Minn. Stat. §152.18 is also not a “sentence” under Minn. Stat. §590.01.

In this case, the two-year period was triggered only after the district court revoked appellant’s stay of adjudication on May 24, 2011. Appellant’s petition was timely, as it was filed within two years of that date. Remanded to the court of appeals to determine whether the postconviction court erred by concluding appellant failed to allege facts to satisfy that the manifest injustice standard for withdrawing his guilty plea and denying appellant an evidentiary hearing. Harvey Ray Dupey v. State, Sup. Ct. 8/5/15.

4th Amendment: Where totality of circumstances supports finding of exigent circumstances, warrantless blood draw is reasonable under the 4th amendment. Appellant was charged with criminal vehicular operation resulting in death, fourth-degree DWI, careless driving, and reckless driving, after a fatal crash. Appellant challenged the admissibility of the results of a blood test showing his blood alcohol concentration at the time of the collision was 0.20. Appellant was ejected from his vehicle during the crash and sustained serious injuries. He was transported to the New Ulm Medical Center (NUMC), and law enforcement learned he may need to be transferred to a trauma center. Before being taking to NUMC, appellant admitted he was the driver of the vehicle. At NUMC, appellant admitted he had been drinking prior to the crash, and smelled strongly of alcohol. Law enforcement directed a nurse to draw appellant’s blood, which was done without a warrant approximately 70 minutes before the 2-hour window for obtaining a blood sample expired. The district court found that the state failed to prove exigent circumstances justifying the warrantless search, but that the test results were admissible under the good faith exception. After appellant’s motion for reconsideration, the district court suppressed the test results on the ground that the Supreme Court declined to resolve State v. Brooks, 838 N.W.2d 563 (Minn. 2013), on the basis of the good faith exception. The state appealed, and the court of appeals reversed, finding that exigent circumstances justified the warrantless blood draw.

In light of the U.S. Supreme Court’s decisions in Missouri v. McNeely, ___ U.S. ___, 133 S.Ct. 1552 (2013), and Schmerber v. California, 384 U.S. 757 (1966), and because appellant does not challenge whether law enforcement had probable cause to believe he committed a crime, the Supreme Court framed the relevant inquiry as “whether, under all of the facts reasonably available to the officer at the time of the search, it was objectively reasonable for the officer to conclude that he or she was faced with an emergency, in which the delay necessary to obtain a warrant would undermine the efficacy of the search.” The Court finds that, under these facts, the warrantless blood draw was justified by exigent circumstances, highlighting appellant’s admissions, and that appellant’s medical condition and need for treatment rendered his future availability for a blood draw uncertain (either because he would be transported elsewhere or his condition could worsen). Although the Supreme Court does not adopt the court of appeals’ reasoning, its ultimate determination that the warrantless blood draw was justified by exigent circumstances is affirmed. State v. Derek Lawrence Stavish, Sup. Ct. 8/19/15.

4th Amendment: Exclusionary rule does not apply to violations of fourth amendment when law enforcement acts in good faith. Appellant was convicted of third-degree DWI after a trial at which the results of a blood alcohol concentration test were admitted. The charges arose from a single vehicle collision involving appellant, who had been driving, and her husband, who was injured in the accident. The two fled from the vehicle, and were found by police hiding in their home. Officers observed a number of indicia of intoxication and appellant failed field sobriety tests. She was brought to a hospital for a blood test, and her blood was drawn without officers attempting to obtain or obtaining a warrant or appellant’s consent. On appeal, appellant challenged only the sufficiency of the evidence, and the court of appeals affirmed her conviction. However, nine days after the release of the court of appeals’ opinion, Missouri v. McNeely, ___ U.S. ___, 133 S.Ct. 1552 (2013), was decided, and the Supreme Court stayed proceedings pending final disposition in State v. Brooks, 838 N.W.2d 563 (Minn. 2013), cert. denied, ___ U.S. ___, 134 S.Ct. 1799 (2014). After Brooks, the Supreme Court vacated the court of appeals’ decision and remanded for further proceedings in light of McNeely and Brooks. The court of appeals again affirmed, and the Supreme Court then accepted review to consider the parties’ constitutional questions: (1) whether the warrantless blood draw was constitutional under McNeely, and (2) whether Minnesota should adopt the good-faith exception.

The Supreme Court first holds that appellant did not forfeit her right to challenge her warrantless blood draw, because McNeely was decided when appellant’s case was on direct appeal and was an intervening change in law that excused appellant’s failure to bring what would have otherwise been a futile argument in the district court and court of appeals. The court then addresses, for the first time, whether the good-faith exception set forth in Davis v. United States should be adopted in Minnesota. In Davis v. United States, ___ U.S. ___, 131 S.Ct. 2419, 2429 (2011), the United States Supreme Court held that “[e]vidence obtained during a search conducted in reasonable reliance on binding precedent is not subject to the exclusionary rule.” The Minnesota Supreme Court considers prior cases applying the exclusionary rule, and finds that the Davis good faith exception is consistent with these prior applications, each of which emphasized that the “central purpose” of the exclusionary rule of deterring police misconduct. The court agrees with the United States Supreme Court “that applying the exclusionary rule to evidence obtained during a search conducted in reasonable reliance on binding appellate precedent would have no deterrent value on police misconduct… and imposes substantial social costs.”

Held, the exclusionary rule does not apply to violations of the 4th Amendment to the United States Constitution or Article I, Section 10 of the Minnesota Constitution when law enforcement acts in objectively reasonable reliance on binding appellate precedent. This “good faith exception” applies only when law enforcement acts pursuant to binding appellate precedent that specifically authorizes the behavior – it cannot extend the law to areas in which no precedent exists or the law is unsettled. Importantly, the court declines to adopt the good faith exception with regard to evidence obtained other than through law enforcement’s reliance on binding appellate precedence (such as evidence obtained pursuant to a facially valid warrant later held to be deficient). At the time the officer in this case facilitated appellant’s blood draw, based on the officer’s observations of appellant and her husband, a reasonable officer would have understood State v. Shriner, 751 N.W.2d 538 (Minn. 2008) (abrogated by McNeely), and State v. Netland, 762 N.W.2d 202 (Minn. 2009) (abrogated in part by McNeely), to allow a warrantless blood draw, because there was probable cause to believe appellant was intoxicated when she caused a motor vehicle accident that resulted in injury. As such, the officer acted in reasonable reliance on binding appellate precedent, and the district court did not err in admitting the results of Appellant’s blood draw. State v. Bonnie Ann Lindquist, Sup. Ct. 8/19/15. 

Assault: Felony fourth-degree assault of peace officer requires more than inentional act of throwing or transferring bodily fluid; proof of physical assault required. Law enforcement went to appellant’s home to execute an arrest warrant for driving without proof of insurance. Appellant was ultimately Tased by the officer, after which appellant smeared a small amount of blood from a small, bleeding chest wound onto the officer’s uniform. Appellant was charged with felony fourth-degree assault of a peace officer for smearing blood on the officer’s uniform, gross misdemeanor fourth-degree assault for physically assaulting the officer, and gross misdemeanor obstruction of legal process or arrest. Appellant asked the district court to instruct the jury, as part of its felony fourth-degree assault instruction, on the element of “physical assault,” but the district court declined to do so. The jury found appellant guilty of the felony assault and obstruction charges. The court of appeals affirmed, relying, as the district court did, on State v. Kelley, 734 N.W.2d 689 (Minn. App. 2007) (holding that the intentional throwing or otherwise transferring of bodily fluids at or onto an officer is fourth-degree assault without other assaultive behavior).

Minn. Stat. §609.2231, subd. 1, refers first to the physical assault of a peace officer, making it a gross misdemeanor offense. It goes on to make the offense a felony if (1) the assault inflicts demonstrable bodily harm, or (2) the person intentionally throws or transfers bodily fluids or feces at or onto the officer. The Supreme Court applies rules of grammar and concludes that these two sentences, must be read together, as the felony assaults described in the second sentence are predicated on the occurrence of the gross misdemeanor crime of “physically assaulting” a peace officer in the first sentence.

The court next rejects the state’s position that the intentional act of throwing or transferring bodily fluid at or onto an officer is, per se, the physical assault criminalized by Minn. Stat. §609.2231, subd. 1 (fourth-degree felony assault of a peace officer). The court holds that a physical assault must be an element of felony fourth-degree assault of a peace officer – transfer of bodily fluids, because the transfer of bodily fluids enhances a gross misdemeanor physical assault into a felony. Therefore, the state is required to prove both that a transfer of bodily fluids and a physical assault occurred.

Held, the district court erred by not instructing the jury on the element of physical assault during its instructions on the charge of fourth-degree felony assault of a peace officer – transfer of bodily fluids. It cannot be said that this error did not have a significant impact on the jury, because it permitted the jury to find that the act of intentionally smearing blood alone was sufficient to find appellant guilty. Reversed and remanded. State v. Thomas Raymond Struzyk, Sup. Ct. 8/26/15.

• Criminal contempt: Violation of term of probation, on its own, not a violation of “mandate of a court” warranting criminal contempt under Minn. Stat. §558.20, Subd. 2(4): Appellant was placed on probation after a stay of imposition on a controlled substance crime, with conditions including refraining from the use of alcohol and remaining law abiding. Five months later, appellant was charged with minor consumption, disorderly conduct, and criminal contempt of court. The contempt charge was based solely on appellant’s violation of a term of probation. The criminal contempt statute makes it a misdemeanor to willfully disobey “lawful process or other mandate of a court.” Minn. Stat. §588.20, subd. 2(4). The district court granted appellant’s motion to dismiss the contempt charge, and the court of appeals affirmed.

Held, the court of appeals is affirmed, but the Supreme Court declines to adopt the court of appeals’ reasoning, concluding that a “term” of probation is not a court “mandate,” and, thus, the willful violation of a term of probation does not itself constitute a violation of a “mandate of a court.” The probation statutes specify the possible consequences of a probation violation, but do not explicitly or implicitly refer to criminal contempt. The probation statutes also refer to “terms” of probation, not “orders” or “mandates.” This interpretation also avoids separation of powers issues that may come into play if, for example (as in this case), the court decides that a probation violation does not undermine the authority of the court (and, therefore, that criminal contempt under Minn. Stat. §§588.01-.015, punishable by the judiciary, is inappropriate), but the state decides to charge criminal contempt under Minn. Stat. §588.20, subd. 2(4) (criminal contempt prosecutable by the state like any other crime), anyway. The history of the criminal contempt and probation statutes also supports the court’s holding, and most courts that have considered this issue have also concluded that a violation of a term of probation does not amount to contempt of court. State v. Miranda Lynn Jones, Sup. Ct. 8/26/15.

– Frederic Bruno

– Samantha Foertsch

Bruno Law

EMPLOYMENT & LABOR LAW
JUDICIAL LAW

• Religious discrimination; insufficient evidence for claimant.  A hospital nurse lost her religious discrimination and retaliation lawsuit under the Federal Civil Rights Act and state laws. The 8th Circuit Court of Appeals upheld summary judgment because there was insufficient evidence, other than the timing of her discharge, to overcome the accumulation of excessive “points” under the hospital’s disciplinary policy. Shirrell v. St. Francis Medical Center, 24 F.3d 851 (8th Cir. 2015).

• Labor strike: worker discharge upheld. A striking union member was properly discharged by the company, despite a ruling by the National Labor Relations Board (NLRB) reinstating the employee to his position. The 8th Circuit overturned the NRLB decision and held that there was no showing that the company had “discriminatory animus” toward the union’s member or that his participation in protected conduct constituted a “substantial or motivating factor” in the company’s decision to fire him, a decision that drew a dissent from Justice Diana Murphy of Minnesota, who felt that the court should not have overridden the Board’s “expertise,” and that there was “substantial evidence” that the discharge was attributable to the worker’s participation in a strike. Nichols Aluminum, LLC v. National Labor Relations Board, 2015 U.S. App. LEXIS 14173 (8th Cir. 8/13/2015).

• Arbitration award; pay upgrades upheld. Pay upgrades for employees were required under an arbitrator’s award in a management-labor dispute. Confirming the arbitrator’s award, the 8th Circuit held that the arbitrator’s refusal to follow a prior award involving a similar dispute was appropriate under the broad discretion accorded the arbitrator and that his decision drew its “essence” from the labor union contract. SBC Advanced Solutions, Inc. v. Communication Workers of America, Dist. 6, 2015 U.S. App. LEXIS 13046 (8th Cir. 7/28/2015).

• Arbitration award; police officer suspension upheld. The suspension of a police officer for making false statements in a grievance proceeding was upheld by the Minnesota Court of Appeals. Confirming an arbitration award, it rejected the union’s contention that the arbitrator’s decision “violates public policy,” because there was no “well defined” policy that prohibited the employer from disciplining an employee due to improper statements made in the employee’s grievance of a written reprimand for failing to provide coverage for overtime work. Law Enforcement Labor Services, Inc., v. Blaine Police Department, 2015 Minn. App. LEXIS 787 (Minn. Ct. App. 8/10/2015)(unpublished).

• Early retirement; ineligibility upheld. The ineligibility of five employees with the Minnesota Department of Corrections for early retirement under the Rule-of-90 formula was upheld by the court of appeals. Affirming a decision of the Minnesota State Retirement System (MSRS), it ruled that the employees were not eligible because they became employees of the state after the Rule-of-90 formula was abrogated on 7/1/1989, and the time spent before that day in training was not applicable because they were not performing the duties of their position and thus were not state employees during that period for purposes of pension eligibility. In re Moser, 2015 Minn. App. LEXIS 812 (Minn. Ct. App. 8/17/2015)(unpublished).

• Workers compensation; no res judicata, collateral estoppel. Neither res judicata nor collateral estoppels barred a claim for medical expenses by an injured worker arising after a claim that previously was denied, and the worker’s condition had changed since that time. The Minnesota Supreme Court vacated and remanded a decision of the Worker’s Compensation Court of Appeals, which had reversed a decision of a compensation judge. Mach v. Wells Concrete Products Co., 866 N.W.2d 921 (Minn. 2015).

• Worker’s compensation; election of remedies. Anoka County was entitled to summary judgment on a tort claim by a Lino Lakes police officer arising out of injuries he received in a joint county fire arms training program with the City of Anoka. The appellate court, reversing the Anoka County District Court, held that the lawsuit was not actionable because the training exercise was a common, or joint, enterprise and the employee elected his remedy by receiving worker’s compensation benefits, which barred a tort suit under the exclusivity provision of Minn. Stat. §176.061, subd. (1)(4). Schirmers v. County of Anoka, 2015 Minn. App. LEXIS 646 (Minn. Ct. App. 7/20/2015)(unpublished).

• Unemployment compensation; claimants lose for lack of diligence and fraud. A pair of part-time claimants lost their bids before the court of appeals for unemployment compensation benefits on different grounds.

A determination of ineligibility by the Department of Employment & Economic Development (DEED) on grounds that the claimant was not “available for suitable employment,” as required for eligibility by Minn. Stat. §268.085, subd. 15, because she voluntarily limited her job search to part-time work to accommodate her schedule at school. Marcellais v. Prairie Harvest Mental Health, 2015 Minn. App. LEXIS 653 (Minn. Ct. App. 7/20/2015)(unpublished).

An employee who failed to report to DEED the number of hours worked and earnings from a part-time job was denied unemployment benefits on grounds of fraud. Knowingly misstating her income resulted in her ineligibility. Ellis v. DEED, 2015 Minn. App. LEXIS 640 (Minn. Ct. App. 7/20/2015)(unpublished).

ADMINISTRATIVE ACTION

Regulations devised by the Obama Administration to extend minimum wage and overtime laws to employees who provide home care for the elderly and disabled were reinstated by a Federal appellate court. The D.C. Circuit upheld the regulation, which had been struck down about nine months ago by a trial court. The rules remove an exemption in the federal minimum wage and overtime laws for home care workers who are employed by third-party staffing agencies, including thousands in Minnesota. The appellate court ruled that the Labor Department has the authority to eliminate the exemption, which was applauded by union leaders and advocates, such as the president of the Service Employees International Union (SEIU), which viewed the decision as a “step forward for home workers and for our country.”

But industry groups challenged the regulation, which sought to override an exemption created 40 years ago, decried the ruling, and stated that it was “considering all options, including Supreme Court review,” according to the attorney for the Center for Healthcare Law, a home care and hospice-supported organization. The ruling comes on the heels of a decision last spring by the U.S. Supreme Court, which upheld a re-interpretation by the Labor Department of its rules for overtime pay for bank mortgage loan officers in Perez v. Mortgage Bankers Association, 135 S.Ct. 1199 (2015), holding that the agency had the authority to modify its prior interpretation disallowing overtime pay without need for notice and following rule-making procedures. Home Care Association of America v. Weil, 2015 U.S. App. LEXIS 14730 (D.C. Cir. 8/21/2015).

The National Labor Relations Board (NLRB) gave employees union another major victory shortly before Labor Day, holding that businesses can be deemed a “joint employer” with subcontractors. Thus, companies that hire temporary workers may be exposed to liability for minimum wage payments and overtime, among other matters. It also could be explained to cover franchisors who might be covered by workplace laws, on behalf of those workers for their franchises, particularly in the fast food industry, which is the subject of a pending NLRB proceeding brought against McDonalds.

The decision, made in a 3-2 partisan ruling, was welcomed by advocates of employees and unions as advancing the rights of workers. But it was decried by a spokesperson for small businesses, who claimed it will hurt subcontractors because it will “drive up expenses,” while a franchise industry representative scornfully attributed the decision to “out-of-control Washington bureaucrats.” Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (8/27/2015).

President Obama used Labor Day to announce a new Executive Order requiring all federal contractors to allow their employees up to seven days of paid sick leave annually to care for themselves or a sick relative. The workers will earn one hour of paid leave for every 30 hours worked, not to exceed seven days a year. The measure is expected to affect about 300,000 workers when it goes into effect in 2017, although it could be changed, or eliminated, by his successor.

The president noted that about 40 percent of all private sector workers, mainly those working for small and mid-size employers, some 44 million, do not have access to paid sick leave. The move, one of several presidential actions extending rights to employees of companies contracting with the federal government, was decried by some businesses officials. A spokesman for a small business group said the act will impose “an arbitrary expense that will ultimately result in shorter hours, lower pay, or disappearing jobs” for workers. Union leaders and employee advocates praised the initiative.

– Marshall H. Tanick

Hellmuth & Johnson, PLLC

ENVIRONMENTAL LAW
JUDICIAL LAW

U.S. Supreme Court rejects EPA mercury and air toxics standards for power plants. On 6/29/2015, the United States Supreme Court held that the U.S. Environmental Protection Agency (EPA) acted unreasonably when it deemed cost irrelevant to the decision to regulate emissions of mercury and other hazardous air pollutants (HAPs) from power plants under the Mercury and Air Toxics Standards (MATS).  The MATS, which is now on remand to EPA, is one of the Obama administration’s signature environmental rulemakings.

Section 112 of the Clean Air Act (CAA) requires EPA to regulate emissions of HAPs from “major sources”—a stationary source or group of stationary sources that emit or have the potential to emit 10 tons per year or more of a HAP or 25 tons per year or more of a combination of HAPs. 42 U.S.C. §7412(c)(1)-(2). For major sources that are fossil-fuel-fired power plants, however, Congress established a unique procedure for EPA to determine whether regulation under section 112 was required. This unique treatment was partially borne out of the fact that power plants are subject to numerous other emissions-reducing provisions of the CAA, which could have the collateral benefit of reducing emissions of HAPs. Thus, Congress required EPA, prior to regulating power plants under section 112, to undertake a study of the public health hazards of HAPs emitted by power plants and, on the basis of the study, determine whether regulation is “appropriate and necessary.”

After conducting the required study, EPA found that regulation of power plants under section 112 was both appropriate and necessary. EPA’s regulatory analysis estimated that the regulation would cost power plants $9.6 billion per year with corresponding benefits of only $4 to $6 million. However, EPA determined the costs and benefits were not relevant to the initial decision of whether or not to regulate power plants under the MATS.

Justice Scalia, writing for a five-justice majority, disagreed. Even under the deferential standard adopted in Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984)—which directs courts to accept an agency’s reasonable resolution of an ambiguity in a statute that the agency administers—EPA could not reasonably interpret the “appropriate and necessary” standard in this context as requiring no consideration of costs and benefits. In a dissent joined by Justices Ginsburg, Breyer, and Sotomayor, Justice Kagan argued that although EPA had not considered costs in its initial decision to regulate power plants, EPA subsequently considered costs in great detail when categorizing and setting emissions limits for power plants, identifying $80 billion in quantifiable benefits of the rule. Assuming EPA can apply this cost data on remand to meet the “appropriate and necessary” standard, the substance of EPA’s rule is likely to remain intact.

The more lasting impact of this case may come from Justice Thomas’ concurring opinion, in which he called into question the validity of the longstanding Chevron doctrine. By allowing agencies to determine the meaning of ambiguous statutes, Thomas argued, the doctrine vests legislative power in the executive branch. Moreover, by requiring courts to acquiesce to agency interpretations of these statutes, Thomas claimed, the doctrine undermines the judicial branch’s ultimate interpretive authority. Michigan v. E.P.A., 135 S. Ct. 2699 (2015).

U.S. District Court applies “NEPA Exception,” waives bond requirement for preliminary injunction. On 6/24/2015, the United States District Court for the District of Minnesota endorsed the “NEPA Exception” in holding that a two-county diversion board did not need to post a bond for a preliminary injunction. The diversion board brought an action including a claim under the National Environmental Policy Act (NEPA) that challenged a plan by the U.S. Army Corps of Engineers and a local government sponsor to build a diversion structure to protect the Fargo-Moorhead metro area from floodwaters. Many courts’ rulings on cases asserting claims under NEPA have not required plaintiffs seeking preliminary injunctions to post a bond. These courts have cited the important public interest in the enforcement of NEPA and the deterrence to litigation that would result if substantial bonds were required.

Although the 8th Circuit has not expressly adopted the NEPA Exception, the district court found the rationale of the exception compelling and applicable to the facts in this case, even though the plaintiff was a governmental entity, not a citizen group (the traditional NEPA plaintiff). Notably, one of the plaintiff’s bases for seeking an injunction was that state environmental review, under Minnesota’s Environmental Policy Act (MEPA), was not yet complete. The court held that it was “appropriate to apply the logic behind the NEPA exception to the bond requirement in the context of MEPA.” Richland/Wilkin Joint Powers Authority v. U.S. Army Corps of Engineers, No. 13-2262 (D. Minn., 5/13/2015).

ADMINISTRATIVE ACTION

EPA makes first revisions in 30 years to National Water Quality Standards rule. On 8/5/2015, EPA issued a final rule revising the requirements and procedures for developing, reviewing, revising, and approving state water quality standards pursuant to section 303(c) of the Clean Water Act (CWA). Under the CWA, states determine the appropriate water quality standards for bodies of water within their borders. State water quality standards set forth the designated uses of a body of water, the water quality criteria necessary to support the designated uses, and anti-degradation requirements. These standards then become the basis for water-quality-based effluent limitations in NPDES permits under the CWA. State water quality standards must be approved by EPA. EPA’s rules governing the federal approval process are set forth in 40 CFR part 131.

EPA’s revisions to part 131 are the first amendments to the rule since 1983. EPA’s stated goals of the rulemaking were to improve the regulation’s effectiveness, increase transparency, and enhance opportunities for meaningful public engagement at the state, tribal and local levels. The revisions address six key program areas: (1) EPA’s determinations of whether new or revised state water quality standards are necessary; (2) designated uses for water bodies; (3) triennial reviews of state and tribal water quality standards; (4) antidegradation requirements; (5) variances to water quality standards; and (6) provisions authorizing the use of schedules of compliance for water quality-based effluent limits in NPDES permits. EPA, Final Rule Updating the National Water Quality Standards, ____ Fed. Reg. ____.

– Jeremy P. Greenhouse

The Environmental Law Group, Ltd.

For more information and to view background documents and links associated with these updates, please visit Jeremy’s environmental law blog, Fire on the River, at www.jeremygreenhouse.com

FAMILY LAW
JUDICIAL LAW

• Review accepted in Curtis v. Curtis. On 9/15/2015, the Supreme Court granted the wife’s petition for review in a case that was the subject of an unpublished split decision from the court of appeals which was addressed in this column in the August 2015 issue of Bench & Bar. The case has generated considerable interest, as it raises important questions implicating the relationship between assets and income in the context of spousal maintenance as well as the consideration of tax consequences. Curtis v. Curtis, No. A14-1841 (Minn. Ct. App. 6/22/2015).

Religious-based objection to psychological evaluation. In a published decision, the court of appeals rejected a father’s constitutional challenge to an order requiring him to undergo a psychological evaluation and parenting assessment under Minn. Stat. §518.131, subd. 1. As part of a custody proceeding initiated by mother, the district court ordered both parties to obtain psychological evaluations and parenting assessments. Mother complied with the order but father refused to do so, asserting that compliance would violate his Rastafarian religion. Based upon father’s refusal, the district court drew adverse inferences regarding father’s mental health and ordered that father’s parenting time be supervised.

Father appealed, arguing that the statute upon which the order for the psychological evaluation was based, Minn. Stat. §518.131, subd. 1, as applied to him, violated his right to freedom of religion under the Minnesota Constitution. The court of appeals rejected this argument because there was substantial evidence supporting the district court’s findings raising serious concerns over father’s mental health. As such, the government had an overriding and compelling interest in protecting the child’s best interests by requiring the psychological evaluation. Although father argued that there were less-restrictive means of ascertaining his mental health status, he was unable to identify any of them. Thus, the district court’s decision was affirmed. Newstrand v. Arend, ___ N.W.2d ___ (Minn. Ct. App. 2015).

– Jaime Driggs

Henson & Efron PA

FEDERAL PRACTICE
JUDICIAL LAW

“Unusual” Fed. R. CIV. P. 30(d)(2) sanctions order arising out of improper deposition conduct reversed. Where the trial court during trial sua sponte instructed defense counsel to show cause why she should not be sanctioned for “making numerous objections” during depositions “that lacked a good faith basis in law or fact and which impeded, delayed, or frustrated” the depositions, issued an order to show cause three days after the trial ended, and ultimately imposed an “outside-the-box” sanction and required the attorney to produce a training video on deposition conduct, the 8th Circuit found that while the district court was permitted to impose Fed. R. Civ. P. 30(d)(2) sanctions sua sponte, it had erred in imposing its “unusual” sanction without providing “clear” notice of the form of the sanction. After determining that any additional sanction proceeding would not serve Rule 30(d)(2)’s “deterrent purpose,” and instead of remanding the matter for the imposition of a lesser sanction, the 8th Circuit panel concluded that the attorney had suffered enough, and it vacated the previously imposed sanction. Security Nat’l Bank v. Jones Day, ___ F.3d ___ (8th Cir. 2015).

Personal jurisdiction; repeated electronic contacts. The 8th Circuit reversed a district court’s dismissal of a breach of contract action for lack of personal jurisdiction over a Hong Kong defendant, finding that “daily” email and telephonic communication for more than two years, when combined with the shipping of “thousands” of samples, were sufficient to establish personal jurisdiction over the defendant. Creative Calling Solutions, Inc. v. LF Beauty Ltd., ___ F.3d ___ (8th Cir. 2015).

FINRA arbitration does not toll federal statute of limitations. Affirming the district court’s dismissal of bulk of the plaintiffs’ claims as time-barred, the 8th Circuit rejected the plaintiffs’ argument that the statute of limitations on their federal securities fraud claims was tolled while their FINRA arbitration was pending, while suggesting that the plaintiffs should have commenced and then sought to stay a timely federal action while their arbitration was pending. Zarecor v. Morgan Keegan & Co., ___ F.3d ___ (8th Cir. 2015).

Denial of post-judgment motion to amend affirmed. Rejecting the plaintiffs’ argument that it was “self-defeating” to seek leave to amend a complaint while simultaneously opposing a motion to dismiss, the 8th Circuit affirmed a district court’s denial of a motion for leave to amend a complaint which was brought nine days after defendant’s motion to dismiss was granted. Ash v. Anderson Merchandisers, LLC, ___ F.3d ___ (8th Cir. 2015).

No error in district court’s Fed. R. CIV. P. 54(b) certification. Countering a recent trend, the 8th Circuit found no error in a district court’s certification of “self-contained” issues pursuant to Fed. R. Civ. P. 54(b) one month after it granted certain defendants’ Fed. R. Civ. P. 50(a)(1) motion at the close of plaintiffs’ evidence during trial. Dean v. County of Gage, ___ F.3d ___ (8th Cir. 2015).

Request for en banc review of same-sex marriage mootness decision filed. In September 2015, this column noted 8th Circuit’s decisions finding that three appeals in same-sex marriage cases had not been mooted by the Supreme Court’s Obergefell decision. Each of those cases was remanded to the district court from which it came. The State of Nebraska has now filed a petition for rehearing en banc on both the mootness issue and the affirmance of the trial court’s preliminary injunction. The motivation for the petition appears to be Nebraska’s concern that the entry of a final judgment for the plaintiffs following remand would result in the plaintiffs being considered “prevailing parties,” and that Nebraska will be “punished financially,” presumably as a result of an award of attorney’s fees to the plaintiffs. As of the date of this writing, the 8th Circuit has not acted on Nebraska’s petition. Waters v. Ricketts, ___ F.3d ___ (8th Cir. 2015), petition for rehearing en banc filed, No. 15-1452 (8/25/2015).

Motion to strike “fail-safe” class allegations denied. Judge Nelson denied a defendant’s motion pursuant to Fed. R. Civ. P. 12(f) and 23 to strike the alleged impermissible “fail-safe” class allegations, finding that the 8th Circuit had yet to rule on the propriety of fail-safe class allegations and expressing doubts regarding whether the class allegations involved a fail-safe class at all. Judge Nelson suggested that the more appropriate remedy for curing defective class definitions was to require the plaintiff to amend those allegations at the class certification stage. Soular v. Northern Tier Energy LP, 2015 WL 5024786 (D. Minn. 8/25/2015).

Twombly/Iqbal; affirmative defenses; motion to strike denied. Adopting a Report and Recommendation by Magistrate Judge Keyes, Judge Davis denied a Fed. R. Civ. P. 12(f) motion to strike affirmative defenses for failure to comply with the Twombly/Iqbal pleading standards, finding that the assertion that the Twombly/Iqbal pleading standard applies to affirmative defenses is “incorrect,” and that allowing such motions “would simply introduce a… burdensome round of motions asserting the futility of affirmative defenses.” Dahhane v. Stanton, 2015 WL 5009642 (D. Minn. 8/24/2015).

Motion to remand premised on alleged fraudulent joinder rejected. Rejecting arguments that certain non-diverse defendants had been fraudulently joined, Judge Davis granted the plaintiff’s motion to remand. Towley v. Tavernetti, 2015 WL 5092516 (D. Minn. 8/28/2015).

LOOKING AHEAD

Upcoming Supreme Court cases relating to civil procedure.  The United States Supreme Court has granted certiorari on three procedural cases of importance to federal court practitioners.

The first appeal involves the long-festering question of whether a case becomes moot for Article III purposes when an offer of judgment under Rule 68 is made to a plaintiff and, if yes, whether the answer to the question is any different when the plaintiff has brought a putative class action, but receives the offer of judgment prior to certification of a class. Argument is scheduled for 10/14/2015. Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), cert. granted, 135 S. Ct. 2311 (2015).

Not surprisingly, Judge Montgomery recently granted a motion to stay a putative class action which also involved unaccepted offers of judgment pending the Supreme Court’s decision in Gomez. Yaakov v. Varitronics, LLC, 2015 WL 5092501 (D. Minn. 8/28/2015).

In contrast, Judge Kyle recently rejected a mootness argument that followed an unaccepted Rule 68 offer of judgment, following a recent dissent by Justice Kagan and several subsequent circuit court decisions, and finding that “an unaccepted offer of judgment simply cannot moot a case.” Johnson v. Collecto, Inc., ___ F. Supp. 3d ___ (D. Minn. 9/8/2015).

The second appeal asks whether Congress can confer standing on a plaintiff who has not been harmed by creating a private right of action under a federal statute. Argument is scheduled for 11/2/2015. Robins v. Spokeo, Inc., 742 F.3d 409 (9th Cir. 2014), cert. granted, 135 S. Ct. 1892 (2015).

The final appeal of note is from an 8th Circuit decision, and questions whether a class action or FLSA collective action is properly certified where liability and damages will be determined using statistical techniques that presume that all class members are identical to the average observed in a sample, or where the class contains hundreds of members who were not injured. Argument is scheduled for 11/10/2015. Bouaphakeo v. Tyson Foods, Inc., 765 F.3d 791 (8th Cir. 2014), cert. granted, 135 S. Ct. 2806 (2015).

– Josh Jacobson

Law Office of Josh Jacobson

INDIAN LAW
JUDICIAL LAW

Tribal-court exhaustion; Sprint must litigate tribal telecom regulation in tribal court. In 2013, the Oglala Sioux Tribe formally established the Tribal Utilities Commission (OSTUC) to regulate telecommunications on the Pine Ridge Reservation, including through business registration and licensure. The OSTUC filed an action in the Oglala Sioux Tribal Court against certain telecommunications carriers, including Sprint Communications Company L.P. and a related entity (“Sprint”), for noncompliance with the regulatory requirements.

In response Sprint initiated a federal court action against the tribal court judge and OSTUC commissioners, seeking a declaratory judgment that Sprint is not subject to regulation by the OSTUC and an order permanently enjoining the OSTUC from proceeding against Sprint in tribal court. The United States District Court of South Dakota, Southern Division, denied Sprint’s motion for a preliminary injunction, and instead stayed the matter because Sprint must exhaust its remedies in tribal court.

The district court explained that “the central question is whether any Sprint entity is subject to Oglala Sioux Tribal regulatory and adjudicative authority” under Montana v. United States, 450 U.S. 544, 565 (1981), and “that examination should be conducted in the first instance in the Tribal Court itself.” Sprint argued that tribal court exhaustion is not required because the tribal court plainly lacks jurisdiction. The district court disagreed, noting that although Sprint does not have physical locations on the Pine Ridge Reservation, it provides services using wires to customers located on the reservation and bills those on-reservation customers. Therefore, “it does not plainly appear that tribal jurisdiction in this matter is frivolous or obviously invalid. As a matter of comity, the tribal court should have the first opportunity to balance the interests involved and determine its jurisdiction.”

The district court also rejected Sprint’s assertion that the FCC’s telecommunications regulation undoubtedly preempts tribal regulation. “Despite the prominence of the FCC in telecommunications regulation, the OSTUC’s assertion of jurisdiction is based on tribal regulations and not on a federal statute that provides for exclusive jurisdiction in a federal forum.” The district court also gave a nod to the FCC’s recognition that “tribes have a role to play in the regulation of telecommunications services.”

The district court noted that it was not finding that tribal jurisdiction ultimately existed under the Montana doctrine, but “only that the tribal court should be given the first opportunity to resolve that question.” Sprint Commc’ns Co. L.P. v. Wynne et al., No. 4:15-CV-04051-KES, ___ F.Supp.3d ____, 2015 WL 4644983 (D.S.D. 8/4/2015).

Federal statute of general applicability does not abrogate tribal sovereign immunity; FACTA class-action against tribe dismissed. The United States District Court for the Eastern District of Wisconsin dismissed a putative class action alleging that the Oneida Tribe of Indians of Wisconsin violated the Fair and Accurate Credit Transactions Act (FACTA), 15 U.S.C. §1681c(g)(1). The district court held that the tribe’s sovereign immunity bars the claim and Congress has not waived that immunity. FACTA makes no reference to Indian tribes, and United States Supreme Court precedent requires evidence of a “clear” congressional decision to abrogate tribal sovereign immunity, which Congress must “unequivocally” express. In light of the federal government’s trust relationship with Indian tribes, the district court explained that it cannot lightly infer that in FACTA Congress intended to undermine Indian self-government—especially when “Congress knows how to [expressly] abrogate tribal immunity[.]” Jeremy Meyers et al. v. Oneida Tribe of Indians of Wisconsin, Case No. 1:15-cv-00445 (E.D. Wis. 9/4/2015).

Tribe relieved of duty to pay city under gaming contract. In 1988, the Fond du Lac Band of Lake Superior Chippewa Band and the City of Duluth entered into a joint venture to operate a casino and memorialized that agreement in a federal consent decree. In 2011, the federal agency charged with Indian gaming oversight ordered the tribe to stop making payments to the city and the tribe sought Fed. R. Civ. P. 60(b)(6) relief from the consent judgment. Following the 8th Circuit’s second reversal and remand in the matter with instructions to the United States District Court of Minnesota to give “significant weight” to the congressional policy that tribes the sole beneficiary of gaming operations (City of Duluth v. Fond du Lac Band of Lake Superior Chippewa, 785 F.3d 1207 (8th Cir. 2015)), the district court granted the band’s motion for retrospective relief, relieving the band of its obligation to pay to the city the rent withheld in 2009, 2010, and 2011. City of Duluth v. Fond du Lac Band of Lake Superior Chippewa, Case No. 09-CV-2668 SRN/LIB, 2015 WL 4545302 (D. Minn. 7/28/2015).

– Jessica Intermill

– Jessie Stomski Seim

Hogen Adams PLLC

INTELLECTUAL PROPERTY
JUDICIAL LAW

• Exceptional patent case. Judge Montgomery recently granted attorney’s fees and costs following remand of this case from the U.S. Supreme Court, which created a new test for “exceptional” patent cases. Icon Health & Fitness sued Octane Fitness for patent infringement related to elliptical exercise machines. The district court granted summary judgment in favor of Octane after concluding that Octane’s exercise machines did not infringe Icon’s patent. Octane then pursued attorney’s fees under Section 285 of the Patent Act. The district court denied the motion for attorney’s fees and the Court of Appeals for the Federal Circuit affirmed, holding that Octane had not established the case as “exceptional” under the current standard. The Supreme Court granted certiorari and reversed, rejecting the existing framework of “exceptional” as “unduly rigid,” rendering Section 285 largely superfluous. As a result, the Supreme Court announced a new standard for determining whether a case is “exceptional” under Section 285 and remanded the Octane case for further proceedings. Under this new standard, the district court was asked to consider whether under the totality of the circumstances, the Octane case “stands out from others with respect to the substantive strength” of Icon’s litigation positions or whether the case was litigated in an unreasonable manner. In granting Octane’s renewed motion for attorney’s fees following the remand, the district court found that Icon’s infringement arguments stood out as exceptionally weak because they were wholly at odds with the patent text, prosecution history, and inventor testimony. In addition, the court also found that Icon employed litigation tactics designed to accelerate Octane’s litigation costs in an effort to force Octane to settle rather than defend the suit. Given the totality of the above circumstances, the Court granted Octane’s motion for attorney’s fees. Icon Health & Fitness, Inc. v. Octane Fitness, LLC, Civ. No. 09-319 (D. Minn. 07/01/15).

• Patent claim construction. Judge Montgomery also recently construed several patent claim terms, including several means-plus-function terms. LTJ sued Custom Marketing Co. (CMC) for infringement of a patent involving a system for indicating the level of bulk material in a bin. The parties disputed the meaning of nine patent claim terms, including several means-plus-function terms. A means-plus-function claim term includes a stated function, but not the specific structures to perform the function. In its claim construction analysis, the court relied on virtually every portion of the patent at issue including the specification, the drawings, and other claims in the patent. For example, to prevent inconsistencies throughout the claims, the court rejected both parties’ definitions of the terms “body” and “arm” in favor of the plain and ordinary meanings of each term. The court further relied on the prosecution file history of the patent. CMC argued that prosecution history estoppel barred LTJ’s definition of the term “rack.” The court determined that prosecution history estoppel did not apply and that “rack” did not require construction because the prosecution amendments did not narrow the claims to affect a more restrictive definition. The term “gear” was also found not to require construction because the jury would understand its meaning without a lengthy definition. Finally, the remaining means-plus-function claims were construed. The court implemented a two-step process outlined in Kemco Sales, Inc. v. Control Papers, Co., 208 F.3d 1352, 1361 (Fed.Cir. 2000). First the function recited was construed, then the specification was examined to determine what structures had been disclosed that correspond to the means for performing the identified function. The court used this strategy to construe all of the contested means-plus function claims. LTJ Enterprises, Inc. v. Custom Marketing Co., LLC, 2015 U.S. Dist. Lexis 73696 (D. Minn. 06/08/15).

– Tony Zeuli

– Karen Beckman

Merchant & Gould

PROBATE AND TRUST LAW
JUDICIAL LAW

• Revocatory acts on photocopy of will do not constitute valid revocation of will. The Minnesota Court of Appeals confirmed that a validly executed will cannot be revoked by alterations to a photocopy of the will. In order for a revocatory act on a will to be effective, the act must be performed on “a will executed according to statutory formalities,” and a photocopy is not a will executed according to statutory formalities. In re Estate of Sullivan, ___ N.W. 2d ____, 2015 WL 4877796 (Minn. Ct. App. 2015).

• Priority to nominate personal representative linked to qualification to serve. The court of appeals held that when a person with priority to serve as personal representative is unsuitable or does not qualify to serve in such capacity, that person is divested of his/her statutory authority to nominate a personal representative. In re Estate of Nething, No. A15-0543, 2015 WL 5312315 (Minn. Ct. App. 9/14/2015).

ADMINISTRATIVE ACTION

• Projected 2016 indexed amounts. Based on the August 2015 Consumer Price Index released by the Labor Department, the following is a partial list of the projected indexed amounts applicable in 2016:

  • Unified estate and gift tax exclusion amount applicable to gifts made and estates of decedents dying in 2016 will be $5,450,000 (up from $5,430,000).
  • Generation-skipping transfer (GST) tax exemption amount will increase to $5,450,000 for transfers in 2016.
  • Gift tax annual exclusion amount remains steady at $14,000 for gifts made in 2016.
  • The decrease in value resulting from the use of special valuation is limited to $1,110,000 for decedents dying in 2016. This is an increase of $10,000 over the 2015 special use valuation reduction limit.
  • The annual exclusion amount for gifts made in 2016 to noncitizen spouses will be $148,000 (up from $147,000 in 2015).

– Robin R. Tutt

Lindquist & Vennum LLP

REAL PROPERTY
JUDICIAL LAW

• Truth in lending. In a case that had previously reached the United States Supreme Court, the United States District Court for the District of Minnesota granted a lender’s motion for summary judgment and dismissed the plaintiff homeowners’ lawsuit that sought rescission of a promissory note and voiding of a mortgage. The lawsuit was based on an alleged failure to provide disclosure statements required under TILA, and a failure to accurately state finance charges. Earlier this year in Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015), the Supreme Court held that a consumer borrower can exercise TILA rescission rights by sending written notice to the lender, contrary to earlier precedent that a borrower had to commence a lawsuit within the rescission window. Because the district court had previously dismissed the lawsuit on timeliness grounds, it was now left to decide the merits of the TILA claims. The record contained copies of acknowledgements signed by the plaintiff-borrowers stating they had received the TILA disclosure statements. The lender-defendant had not admitted to TILA violations, and the plaintiff-borrowers relied solely on affidavits that they had not received the TILA disclosures. Because the signed acknowledgements created a rebuttable presumption of no TILA violation, which the plaintiff-borrowers could not overcome with only affidavits, the court dismissed the TILA delivery claim. The court also dismissed the claim regarding accuracy of finance charges stated in the TILA disclosure. The court found that the finance-charge discrepancies were within one-half of 1 percent of the total amount of credit extended, and that $35 threshold was inapplicable. The $35 threshold applies where a borrower exercises rescission rights “after the initiation” of a foreclosure. 15 U.S.C. §1635(i)(2). Applying Minnesota law, the court determined that a foreclosure is “initiated” under the federal law when it is “commenced” under Minnesota law. Because a foreclosure by advertisement in Minnesota commences upon first publication of the notice of sale, which was after the plaintiff-borrowers sent their TILA rescission notice, the $35 accuracy threshold did not apply. Keiran v. Home Capital, Inc., No. 10-4418, 2015 WL 5123258 (D. Minn. 9/1/2015).

Landlord-tenant. While other claims may be available, residential tenants may not, prior to actually entering the premises and taking possession, obtain possession of premises through a claim of unlawful exclusion via a lockout petition. Minnesota Statutes section 504B.375 provides residential tenants with a claim to recover possession of leased property upon “actual or constructive removal or exclusion.” The definitions in chapter 504B state that a “residential tenant” is one who “is occupying” a dwelling. “Occupying” is not defined in the statutes. The Minnesota Court of Appeals applied Webster’s and American Heritage dictionary definitions for the word. The court determined that the plaintiff had never occupied the premises because she had not yet moved into the premises. Thus, the plaintiff was not entitled to recover the premises through a lockout petition. The court further bolstered its opinion by stating that public policy would not support the plaintiff’s recovery of the premises because one who has never had possession has not yet moved personal property onto the premises and likewise does not face hardship or risks to personal safety as a result of being locked out. However, the court of appeals reversed the district court’s determination on damages under the ouster statute, Minn. Stat. §504B.231. The plaintiff-tenant had paid a $2,400 security deposit and incurred $1,380 in out-of-pocket expenses. The court of appeals remanded to the district court for a determination of whether the plaintiff-tenant must succeed on the lockout petition to recover ouster damages. Cocchiarella v. Driggs, ___ N.W.2d ___, No. A14-1876, 2015 WL 5194931 (Minn. Ct. App. 9/8/2015).

Inverse condemnation; takings. Takings claims under Minnesota law must first proceed through an action or petition for mandamus to initiate condemnation proceedings. Only once the mandamus proceeding is complete may a property owner proceed with takings claims under federal law. The mandamus court determines whether there has been a taking, thus requiring the initiation of condemnation proceedings, and the amount of damages. The plaintiff insurance companies sued the city of Minneapolis after a water main broke and damaged property that the plaintiff insured. The United States District Court for the District of Minnesota dismissed the plaintiffs’ trespass claim because there was no proof that the city intended for the water main to break, intended to cause water to enter the insured property, or believed with substantial certainty that such events would occur. The court dismissed the takings claims because the plaintiffs had not petitioned for mandamus to commence condemnation proceedings. The takings claim, under both Minnesota and federal law, was premised on a theory that the flooding constituted an uncompensated taking. The court dismissed the takings claim under Minnesota law because the plaintiffs did not initiate the correct proceeding under state law. And the court additionally dismissed the takings claim under federal law because the plaintiffs had not exhausted their state law remedies—the mandamus petition. American Family Ins. v. City of Minneapolis, No. 14-CV-1428, 2015 WL 5228287 (D. Minn. 9/8/2015).

– Joseph P. Bottrell

Meagher & Geer, PLLP

TAX
JUDICIAL LAW

Income taxes: Interrelationship of principal residence exclusion and foreclosure of property limitation. The 8th Circuit affirmed the tax court and held that a foreclosed sale of a principal residence would cause recognition of previously excluded gain under IRC Code §121. The taxpayer sold his primary residence in 2006 pursuant to an installment sale contract. The buyers’ indebtedness was secured by the residence. The taxpayer, pursuant to IRC Code §121, excluded $500,000 in gain on the sale in completing his return. In 2009, the buyers defaulted on the contract and the taxpayer reacquired the property. In a notice of deficiency to the taxpayer, the IRS determined that the taxpayer was required to recognize long-term capital gain on the reacquisition of the property, including the $500,000 that taxpayer had previously excluded from gain. The court agreed that the taxpayer was required to recognize long-term capital gain on the reacquisition of the property, pursuant to IRC Code §1038, including gain previously excluded under IRC Code §121. IRC Code 1038(e) only applies to those taxpayers who resell a principal residence upon foreclosure or default within one year. That did not take place here. Marvin E. DeBough v. Commissioner of Revenue, Docket No. 14-3036, 116 AFTR.2d ¶ 2015-5192 (8th Cir. 2015).

Corporate income tax: Taxpayer could not use multistate tax compact apportionment formula. The Minnesota Tax Court held that a taxpayer could not use the Multistate Tax Compact’s equally weighted three-factor apportionment formula to apportion its income to Minnesota. The court rejected the taxpayer’s argument that although the state amended its version of the compact to eliminate Articles III and IV of the compact (relating to apportionment) in 1987, Minnesota was still obligated to allow taxpayers to use the compact’s 3-factor apportionment formula during the tax years at issue until it formally repealed the compact in 2013. Kimberly-Clark Corporation & Subsidiaries v. Commissioner of Revenue, Docket No. 8670-R, 2015 WL 3843986 ( Minn. T. Ct. 6/19/2015).

Income tax: Nonqualified ESOP distribution was taxable income and subject to six year statute of limitations. The 8th Circuit affirmed the tax court, and held that an unreported distribution of a newly acquired LLC stock from taxpayer’s nonqualified ESOP to his IRA was a taxable distribution; and when not reported, was subject to the six-year statute of limitations under IRC Code §6501(e)(1). The taxpayer argued that the three-year statute should apply because the IRS obtained actual knowledge of the distribution within three years of the return, via an unrelated audit. The 8th Circuit said that this was an erroneous view of a prior statute of limitations and not the current law. Taxpayer’s reasonable belief that the distribution was tax-free was irrelevant on the application of the statute of limitations. Further, the nonqualified distribution was not adequately disclosed on any returns to constitute a “clue” for the IRS. Heckman v. Commissioner, 115 AFTR 2d ¶ 2015-817 (8th Cir. 2015).

Income taxes: Employment outside of state not enough to establish new domicile from Minnesota. The Minnesota Tax Court determined that the wife remained a domiciliary of Minnesota for the tax years 2009, 2010, and 2011 despite working in North Carolina, Massachusetts, Ohio, and Michigan. The determination of domicile was based on the fact of the presumption her domicile was Minnesota since the husband and her son remained in Minnesota. Further, the Woodbury residence was not sold or her furnishings moved out-of-state. When the taxpayer’s employment in the various states terminated, she always returned to Minnesota to her husband and son. The record also disclosed substantial days in Minnesota during the time period 2009 through 2011 of at least 100 days. A domiciliary questionnaire was answered by the taxpayer stating that she was a resident of Minnesota for the periods. Her federal return filings always listed the Woodbury address. Lastly, the wife’s testimony on the stand was inconsistent with her filing position and claim of residency. Further, she never registered to vote, registered a car, or became involved in any of the other states. Flora Ayeni v. Commissioner of Revenue, Docket No. 08697, 2015 WL 496152 (Minn. T. Ct. 2/2/2015)

Income taxes: Appeal dismissed for lack of evidence on unitary and authority of officer. The Minnesota Tax Court, in a tax dispute on whether the taxpayer was a unitary taxpayer for the years 2005 through 2009, ruled that the taxpayer failed to introduce any evidence on its unitary status and, therefore, was unitary. Further, the taxpayer failed to present any evidence on the authority or lack thereof of a corporate officer, who when interviewed by an auditor, indicated that the companies were unitary for the years at issue. Accordingly, the court granted the commissioner’s motion under Minnesota Rule of Civil Procedure 41.02(b) for an involuntary dismissal for lack of evidence. SunGard Data Systems, Inc. v. Commissioner of Revenue, Docket No. 8461, 2015 WL 4875101 (Minn. T. Ct. 8/11/2015).

Real property taxes: special assessment appeals. The Minnesota Court of Appeals reversed the district court and held that in order to protest a special assessment, under Minn. Stat. ¶ 429.061 and Minn. Stat. §429.081, the taxpayer needs to object in writing and have the objection signed before or at the special assessment hearing. Further, the court held that “substantial compliance” was not warranted even though the taxpayer provided his name and address for the record, when he addressed the City Council, and as directed by the mayor, signed the “yellow pad” when he finished speaking. McCullough and Sons, Inc. v. City of Vadnais Heights, Docket No. 62-CV-14-5555, 2015 WL 4877761 (Ct. of App. 8/17/2015).

Real property taxes: Ethanol plant valuations reversed. The Minnesota Supreme Court reversed the tax court on the valuations for the years 2009, 2010, and 2011. The Supreme Court reversed because it failed to explain the reason for its calculation of external obsolescence, which amount was substantially lower than the appraisers for each of the parties. The Supreme Court did affirm the tax court decision that the ethanol-plant tanks are taxable property. The case was remanded to the tax court for further proceedings on the issue of the party’s obsolescence calculation. Guardian Energy, LLC v. County of Waseca, Docket Nos. A14-1883 and A14-2168, 2015 WL 4747826 (Minn. 8/12/2015).

Real property taxes: Retail shopping center valuations overturned on appeal. The Minnesota Supreme Court affirmed and reversed the Tax Court decision in KCP Hastings, LLC v. County of Dakota, Docket Nos. 19HA-CV-11-2713, 19HA-CV-12-2223, and 19HA-CV-13-1742, 2014 WL 6345861 (Minn. T. Ct. 11/12/2014). The Supreme Court held that the tax court should have used the discount cash flow analysis since all of the factual data was in the record. The tax court erroneously dismissed the discounted cash flow analysis for failure to provide the spreadsheet showing its calculations, but the taxpayer’s appraisal report contained sufficient data and the spreadsheet was not a statutory requirement. Since the tax court relied exclusively on the sales approach, its values needed to be adjusted. Therefore, the case was remanded to the tax Court for further proceeding.  KCP Hastings, LLC v. County of Dakota, Docket No. A15-0018, 2015 WL 4747830 (Minn. 8/12/2015).

Income taxes: Home mortgage limits apply on a per-taxpayer basis. The 9th Circuit reversed the tax court and held that the debt limit (mortgage) provisions in IRC Code §163(h)(3) on the deduction of interest on home acquisition and home equity indebtedness applied to unmarried co-owners of a residence on a per-taxpayer basis rather than on a per-residence basis. Voss v. Commissioner, Docket Nos. 12-73256, 12-73261, 116 AFTR.2d ¶ 2015-5529 (Ninth Cir. 2015).

Real property taxes: Failure to pay taxes accrued in tax forfeiture action.  The Minnesota Court of Appeals held, in an action to quiet title to various tax-forfeited properties in favor of the state, the taxpayers failed to deposit with the court administrator the amount of money owing in taxes as required by Minn. Stat. §284.10 , and so the taxpayer’s counterclaims and defenses were properly barred. The failure to pay the required deposit results in automatic dismissal of the adverse claims or defenses. The court also rejected the taxpayer’s argument that the statute impermissibly infringes on its 1st Amendment right of access to the courts by forcing it to pay a deposit to challenge the tax forfeiture. County of Washington v. Walker Properties of Woodbury II, LLC, et al., Docket. No. A14-2101, 2015 WL 5089049 (Minn. Ct. App. 8/31/2015).

Real property taxes: Right-of-way maintenance assessment is not tax. The Minnesota Court of Appeals held that a city’s right-of-way maintenance assessment is a regulatory service fee and is not a tax. The city uses an annual right-of-way (ROW) assessment to recoup the costs related to street maintenance. The taxpayers challenged the ROW because it is a tax, does not meet the special-benefit standard, and is improperly based on estimated costs. The purpose of the ROW assessment at issue is to “recoup the cost” of maintaining all city streets and sidewalks. Therefore the ROW assessment is a regulatory service fee and all of the services relate to the regulatory exercise of the city’s police power. The assessment is reasonably related to the costs of services and was not improperly calculated based on estimated costs. First Baptist Church of St. Paul, et al. v. City of St. Paul, Docket. No. A15-0015, 2015 WL 5089063 Minn. Ct. of App. 8/31/2015).

ADMINISTRATIVE ACTION

Sales and use tax: Coupons, discounts, rewards, and rebates. The commissioner revised a release that discusses the taxability of coupons, discounts, rewards, rebates, and other forms of payment to clarify the information about rewards and rebate programs. See Minnesota Sales Tax Fact Sheet 167 (6/1/2015).

Estate tax administration: Taxpayer must request IRS closing letter. The IRS recently changed the process for obtaining estate tax closing letters, moving from automatically sending them to requiring that taxpayers request them. A closing letter on any estate tax return – Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return – filed on or after 6/1/2015, will be issued only upon request by the taxpayer. This is a new requirement. See the Frequently Asked Questions on Estate Taxes at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Estate-Taxes#1

Sales and use tax: Items for use outside state. The commissioner revised a release discussing the application of the sales tax on items for use outside Minnesota. The release covers: items delivered outside Minnesota; items delivered into Minnesota and stored in a public warehouse; items picked up in Minnesota for business use outside Minnesota; advertising materials used outside Minnesota; direct mail; direct pay businesses; drop shipments; and local sales and use taxes. See Minnesota Sales Tax Fact Sheet 110 (6/1/2015).

Sales and use tax: Motor vehicle rental tax and fee. The commissioner revised a release on the state’s motor vehicle 9.2% rental tax and 5% fee to clarify that rentals of pickup trucks are subject to the rental tax and fee, and cargo vans are not. The rental tax and the fee must be collected for leases and rentals of a pick-up truck with a manufacturer’s nominal rated carrying capacity of three-quarter ton or less. The 9.2% rental tax and the 5% fee do not apply to vans designed or adapted primarily for transporting property rather than passengers (including vans with a barrier between the operator and the cargo areas). See Minnesota Sales Tax Fact Sheet 136 (9/1/2015).

Procedure: File claim for refund where your current return needs to be filed. The IRS issued final regulations that updated existing regulations on the proper place to file a claim for refund or credit. The updated regulations reflect various legislative changes made over the last 40 years. Previously, the IRC Code §6402 regulations provided that a claim for refund or credit had to be filed with the service center servicing the internal revenue district in which the tax was paid. The final regulations specify that the proper venue for filing a claim is the service center at which the taxpayer currently must file a return for the type of tax to which the claim relates, regardless of where the tax was paid. Further, the regulations made clear that the IRS lacks the authority to provide a refund on equitable grounds for penalties or other amounts legally collected that compromise an overpayment. See T.D. 9727 (7/24/2015).

Sales and use tax: Minnesota issues industry guides. The commissioner issued four industry guides that provide answers to the sales and use tax questions for that particular industry. The four industry guides cover: motor vehicle dealers; off-road vehicle dealers; personal services; and professional services. See Motor Vehicle Dealer Industry Guide, Minnesota Department of Revenue (9/3/2015); Off-Road Vehicle Dealer Industry Guide, Minnesota Department of Revenue (9/3/2015); Personal Services Industry Guide, Minnesota Department of Revenue (9/3/2015); and Professional Services Industry Guide, Minnesota Department of Revenue (9/3/2015).

LEGISLATIVE ACTION

Tax provisions in Highway Trust Fund legislation. Congress, in July 2015, enacted a three-month extension to the Highway Trust Fund and in the process enacted tax provisions of substantial interest. Here’s the information on the changes with the dates they take effect:

  • Mortgages. Starting in 2017, for the 2016 tax year, lenders will have to provide more information to the IRS about an individual’s mortgage. Now, lenders have to include not only interest but the loan’s origination date, the amount of outstanding principal balance at the beginning of the year, and the address of the property.
  • Partnership tax return filings. Starting in 2017, for the 2016 tax year, partnership tax returns will be due March 15 rather than April 15.
  • C corporation tax return filings. C corporation tax returns are due April 15 rather than March 15, effective for tax years beginning after 12/31/2015. For C corporations with a tax year ending on June 30, the changes are effective for tax years beginning after 12/31/2025.
  • Foreign accounts. The deadline for filing FinCen Form 114, which is often called Fbar, was moved to the April 15 tax filing date. Taxpayers can also get a six-month extension (until October 15) to file it.
  • Basis reporting for estates. Some estates will now have to provide both heirs and the IRS with information about the value of certain assets, to insure that tax won’t be under-reported if the asset is later sold. The provision takes effect for estates filing returns after 7/31/2015, so it could affect the estates of some who died last year. Note, however, the IRS has delayed the requirement to file a statement until 2/29/2016, if the statement would have been appended to a return due before that date. The IRS indicated that it needed to issue forms or other guidance to implement the reporting requirements of the new law. See Notice 2015-57, 2015-36 IRB.
  • Statute of limitations. Congress overruled Home Concrete, and now a basis omission triggers the six-year statute of limitations on assessment of returns. Effective for returns filed after 7/31/2015, except it retroactively applies to certain returns and cases presently in the courts.

– Jerry Geis

Briggs and Morgan, P.A.

TORTS & INSURANCE
JUDICIAL LAW

Legal malpractice; sufficiency of expert affidavit. Plaintiff filed suit against defendant attorney, alleging he negligently drafted a power of attorney. Plaintiff claimed that as a result of the negligence, his nephew was allowed access to bank accounts and stole funds. Plaintiff included an affidavit of expert review with the complaint, stating that an expert had reviewed the facts alleged and that in the expert’s opinion defendant “deviated from the applicable standard of care, and by that action caused damages.” Plaintiff, however, did not provide an affidavit of expert disclosure in discovery. Instead plaintiff simply relied on his affidavit of expert review. The district court granted defendant’s motion for summary judgment. The court of appeals reversed and remanded.

The Minnesota Supreme Court reversed the order of the court of appeals and affirmed the grant of summary judgment to defendant. After acknowledging that the Court’s precedent required expert testimony on the issues of standard of care and any deviations from that standard, the Court went on to hold that expert testimony was required to establish proximate cause in this case. The Court went on to hold that the conclusory statement contained in plaintiff’s affidavit of expert review was insufficient to satisfy plaintiff’s burden or to even trigger even the safe-harbor provision contained in Minn. Stat. §544.42, subd. 6(c).

Justice Lillehaug filed a concurrence. Justice Lillehaug noted that the result set forth in the majority’s opinion was compelled “under existing law” but wrote separately to suggest that the Court’s precedent should be overruled. Guzick v. Kimball, No. A14-0429 (Minn. 8/31/2015). http://www.mncourts.gov/mncourtsgov/media/Appellate/Supreme%20Court/Special%20Releases/OPA140429-083115.pdf

– Jeff Mulder

Bassford Remele A Professional Association

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