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

Notes & Trends – December 2015

BANKRUPTCY
JUDICIAL LAW

•  All applicable Chapter 13 confirmation requirements must be met. In a recent case, the debtor attempted to pick and choose which subsections of 11 U.S.C. 1322(b) would be complied with and which would be ignored.

The debtor’s original Chapter 13 plan bifurcated non-priority unsecured claims into two classes, paying a higher dividend to the non-dischargeable student loan class. After the United States Trustee’s objection was sustained, the debtors filed a first modified plan that carved out one of the student loans for direct payment, dropped that when it was objected to, and after a third modified plan was confirmed, sought a reversal.

Debtors argued that they were allowed to choose which subsection of the statute applied. The BAP held that when a Chapter 13 debtor’s treatment of a creditor falls within more than one subsection of Sec. 1322(b), the debtor must satisfy both subsections. In re Jordahl, (2015 WL 6847770), 8th Circuit BAP, 11/2/2015.

ADMINISTRATIVE ACTION

•  Amendments to local rules of bankruptcy procedure and forms effective 12/1/2015. Certain local rule and form amendments took effect 12/1/2015, as summarized below:

•  Amendments to Local Rules 1005-1, 1007-1(c), 1009-1(b) and (c), 1019-1(a)(1) and (b), 2016-1(d)(1)(i), 3015-2(b), 4008-1(b) change form and schedule names, numbers and language to conform to the new official forms.

•  Amendments to Local Forms 1019-1, 1007-3-1(7) and 1007-3-1(13) change references to “Debtor” and “Joint Debtor” to “Debtor 1” and “Debtor 2,” to conform to the language of the new official forms.

•  New Local Rule 2016-1(e) establishes maximum compensation of $90 for non-attorney petition preparers, unless the court approves otherwise.

•  An amendment to Local Rule 3015-2(b) clearly identifies the time period for service of a motion for post confirmation modification of a chapter 13 plan. Previously, calculation of this period required review of multiple local rules. The time period has also been changed from 26 to 28 days to conform to the rules standard of time calculation using multiples of 7.

•  An amendment to the Local Form 2016-1 Order removes the second paragraph authorizing the trustee to disburse funds to the fee applicant, reflecting the U.S. Supreme Court’s recent decision in Harris v. Viegelahn.

•  The amendments to Local Form 1007-1 acknowledge that attorneys are statutorily required to execute a written contract (e.g., retainer agreement) with their clients. Therefore, references to that contract have been added to the form.

See http://www.mnb.uscourts.gov/welcome-12115-official-bankruptcy-forms-resource-page

– Timothy D. Moratzka

DeWitt Mackall Crounse & Moore S.C.


commercial & consumer law
Judicial Law

•  Less not more. We all know that in commercial law, an assignee may receive more than the assignor had, as in the circumstance of a holder in due course of a negotiable promissory note. But is it possible to receive less? That would seem unusual, to say the least, under the principle of nemo dat qui non habet (he who hath not cannot give). Yet that is exactly where the U.S. 2nd Circuit Court of Appeals ended up recently in an opinion that has caused real consternation in the securitization world.

A national bank originated credit card debt that it ultimately charged off. It had sold the debt to a second related national bank, and it ultimately was sold to an unaffiliated debt collector. The consumer on one account, who lived in New York and who had defaulted, filed a class action suit against the debt collector, who had tried to collect at 27% interest as allowed under Delaware law, alleging that violated the usury law in New York. When the debt was in the hands of the banks this was irrelevant, since under the National Bank Act and Marquette National Bank of Minneapolis v. First of Omaha Service Corp. 439 U.S. 299 (1978), the national banks were entitled to charge interest as allowed by the state where they were located, and to also export that rate for customers in other states even though their state laws only allowed less. Under nemo dat, the debt collector, as assignee of the banks, would be entitled to stand in their shoes.

Not so, said the 2nd Circuit. A person that is not a national bank, or a subsidiary or agent of one, or was otherwise not acting on behalf of a national bank was not entitled to the preemption, citing a 2014 Office of the Comptroller of the Currency Bulletin 2014-37, titled “Risk Management Guidance” to collapse over a century of precedence such as Nichols v. Fearson, 32 U.S. 103(1833) and other more recent cases. However, it seems clear the 2nd Circuit misunderstood the OCC Guidance and also whether its holding would significantly interfere with the ability of a national bank to exercise its power to sell its loans, as the result will freeze liquidity for the bank as well as disrupt a commonly used power to sell loans. Hopefully, a rehearing will be granted or, if not, given other federal appellate decisions, the Supreme Court will review the case. Madden v. Midland Funding, LLC, 786 F. 3d 246 (2d Cir. 2015).

•  The Constitution and commercial law. Minnesota Statutes §325G.051, as well as similar enactments in a number of other states including New York, prohibits a seller of goods and services from imposing a surcharge on a purchaser who elects to use a credit card in lieu of payment by cash, check, or similar means, provided the seller informs the purchaser of the surcharge both orally at the time of sale and by a conspicuous sign posted on the seller’s premises, and the surcharge does not exceed 5% of the purchase price. To illustrate, a merchant sells an item for $100. The buyer uses a bank credit card. The bank will only pay the merchant $95 for the charge, so the merchant charges the buyer $5 to recover the cost of the “merchant discount,” i.e., a $5 surcharge. Why is this bad? According to the New York Attorney General, it is like “bait and switch” because when the consumer gets ready to check out, there is a surprise, a higher price. According to the merchants in a case contesting the New York anti-surcharge statute, the ban violates due process and the 1st Amendment because it restricts what the merchant can tell the customer at the risk of a $500 fine and refund of the charge, and the customer needs to know about the discount for cash, the opposite of a charge for credit, which by the way must be disclosed by the merchant as a finance charge under Truth in Lending, but not the discount. See Regulation Z, 12 CFR §1026.4(b)(6) and 15 U.S.C. §1666f and §1666j(c), which seldom is complied with. See R. Rohner and F. Miller, Truth in Lending, ¶ 10.8 (Section of Business Law, American Bar Association 2000).

So far, except in a California case, the Constitutional arguments have been rejected, including in the New York case. Expressions Hair Design et al. v. Schneiderman et al. , nos. 13-4533, 13-4537 ( 2d Cir. 2015).

– Fred Miller

Retired G.L. Cross Research Professor, University of Oklahoma


CRIMINAL LAW
JUDICIAL LAW

•  DWI: Test refusal statute violates due process as applied to refusal of warrantless blood test. Appellant was arrested for DWI. He originally consented to a urine test, but police believed he had tampered with the sample and deemed his conduct a refusal. Appellant then refused a blood test and was charged with first-degree test refusal. Appellant pleaded guilty and was granted a downward departure, but appealed. Appellant’s case made its way to the Supreme Court, which remanded to the court of appeals for reconsideration of the issue of the constitutionality of the test-refusal statute in light of State v. Bernard, 859 N.W.2d 762 (Minn. 2015). On remand, appellant argues that the test refusal statute violates his right to due process by criminalizing his refusal to submit to a warrantless test of his blood.

Appellant’s due process argument is premised on a 4th Amendment violation, so the court first considers whether a warrantless blood test would have been reasonable under the 4th Amendment. Warrantless searches are generally unreasonable, unless an exception to the warrant requirement applies. Here, two exceptions are relevant: search incident to arrest and exigent circumstances. The court concludes that warrantless blood tests are not justified under the search-incident-to-arrest exception, because blood draws are serious physical intrusions into the body, far more intrusive than a breath test or other searches of the person the courts have upheld as searches incident to a valid arrest. In this case, the exigency exception also does not apply, as this was essentially a routine impaired driving arrest, and falls in the category of “those drunk-driving investigations where police can reasonable obtain a warrant before a blood sample can be drawn.” McNeely v. Missouri, 133 S.Ct. 1552, 1561 (2013).

Because a warrantless search of appellant’s blood would have been unconstitutional under these circumstances, appellant’s fundamental right to be free from unreasonable searches is implicated, subjecting the test refusal statute to strict scrutiny. Under strict scrutiny, the state must meet the heavy burden of showing that the statute is narrowly tailored to serve a compelling government interest. The state certainly has a compelling and substantial interest in highway safety. However, the test refusal statute is not narrowly tailored, as the state has other viable options to address drunk driving (such as offering a breath test and, if refused, then charging the driver with test refusal, prosecuting a driver for driving under the influence without measuring their alcohol concentration, or securing a warrant to test the driver’s blood). The court declines to extend the good faith exception to the exclusionary rule “to the admissibility of evidence that could have been collected in an unconstitutional search that did not occur.”

Held, the test refusal statute as applied to appellant fails strict scrutiny and violates appellant’s right to due process. Appellant’s conviction is reversed. State v. Todd Eugene Trahan, Ct. App. 10/13/2015.

•  Contempt: Monetary sanction for lawyer’s failure to appear for client’s criminal hearing may be imposed only if contempt procedures followed. Appellant, an attorney, was retained to represent a client on criminal charges, but was unable to appear at a scheduled uncontested omnibus hearing. He arranged for another lawyer to appear, but that lawyer was mistaken as to the hearing date and failed to appear. The hearing judge ordered appellant to pay $100 in court costs. On appellant’s petition for writ of prohibition, the special term panel of the court of appeals finds that the hearing judge did not have authority to summarily impose court costs for appellant’s failure to appear.

Minnesota’s contempt statutes address statutorily mandated contempt, as well as the court’s inherent contempt power to summarily punish offenses committed in the court’s presence to preserve the dignity of courtroom proceedings. Contempt can be classified as remedial (civil) or punitive (criminal), and as direct (occurs in the presence of the court) or constructive. Case law makes clear that constructive contempt proceedings for punitive purposes entitle the accused to procedural safeguards.

Appellant’s failure to appear could only be classified as constructive contempt, “because the reasons for counsel’s failure to appear is what makes the conduct contemptuous or excusable, and the court had no firsthand knowledge of those reasons when it imposed court costs.” The hearing judge’s order to pay costs was also criminal/punitive, “because it is intended to punish counsel’s failure to appear at a hearing.” As such, the hearing judge did not have inherent or statutory authority to summarily punish appellant’s failure to appear. Appellant was entitled to the procedural safeguards contained in Minnesota’s contempt statutes, and the hearing judge erred in imposing court costs without complying with these statutes. In re Craig E. Cascarano, State v. Michael Demond Rashaun Mason, Ct. App. 10/19/2015.

•  Right to compel and present witnesses: Harmless error analysis applies to claim that government interfered with defense witness’s decision to testify. Appellant’s sixth petition for postconviction relief raised, among other points, newly discovered evidence that a defense witness was threatened by a state actor prior to testifying at appellant’s 2003 trial for first degree murder. An affidavit from a defense witness stated that he was interviewed prior to trial by someone he believed to be a prosecutor and told that they would make his life “a living hell” if his testimony helped appellant. The district court denied appellant’s petition without an evidentiary hearing. On appeal, the parties disagreed on what standard of review applied to this witness intimidation claim.

Held, harmless-error analysis applies to a claim that a government actor interfered with a defense witness’s decision to testify. Due process requires that a defendant be allowed to present a complete defense, which includes the right to compel the attendance and present the testimony of his own witnesses. The Supreme Court has previously held that the “substantial interference test” applies when a defendant argues that the state has infringed on this right by interfering with a witness’s decision to testify. The court cites federal and state case law supporting the proposition that most constitutional errors are to be considered trial errors, as opposed to structural errors, and trial errors are usually reviewed under a “prejudicial-impact” or harmless-error analysis. The court concludes by finding that, to obtain a new trial under the substantial interference test, a defendant must prove (1) a government actor interfered with a defense witness’s decision to testify; (2) the interference was substantial; and (3) the defendant was prejudiced by the contact. Because appellant failed to satisfy the third requirement, denial of his petition is affirmed. Darryl Colbert v. State, Sup. Ct. 10/21/2015.

•   Implied consent: No violation of right to additional chemical test where driver does not request access to phone after first test. After responding to a report at a gas station that an individual was unable to pay for gasoline, police arrested appellant for DWI. Appellant spoke with an attorney prior to consenting to a chemical test, and told police that she wanted an additional test. Appellant then submitted to a urine test, after which she did not repeat her earlier request for an additional test. Appellant challenged the revocation of her driver’s license based on the urine test results, which showed a BAC of 0.141, but the district court sustained the revocation, finding that appellant was not denied her statutory right to an additional test.

Held, police did not prevent or deny an attempt to obtain additional testing, so appellant’s statutory right to an additional test was not violated. An officer must allow an additional test to be administered, but need not act affirmatively to facilitate the test – the officer’s only obligation in assisting the driver in obtaining an additional test is to allow them the use of a phone. The court of appeals rejects appellant’s argument that the obligation to allow the use of a telephone for the purpose of obtaining an additional test can be satisfied only after the state’s test is administered, citing case law suggesting the contrary. Here, appellant did not attempt to arrange an additional test or ask to use a phone after she submitted to the state’s test. “Requiring an officer to offer post-test use of a telephone in the absence of a request would mandate assistance that is not required under law.” Kristin Marie Poeschel v. Commissioner of Public Safety, Ct. App. 10/26/2015.

– Frederic Bruno

– Samantha Foertsch

Bruno Law


EMPLOYMENT & LABOR LAW
JUDICIAL LAW

•  Race discrimination; retaliation pay inequity dismissal reversed. An African-American employee who claimed racial discrimination because she and another black employee were paid less than white co-workers and that she was fired in retaliation for complaining was entitled to her day in court. The 8th Circuit Court of Appeals reversed and remanded dismissal of the case. Smith v. UPS Corp., 296 F.3d 1244 (8th Cir. 2015).

•  Age discrimination; adverse decision reversed. The statement by a manager that he was responsible for firing an employee was not enough to allow an age discrimination case to proceed. The 8th Circuit reversed dismissal of an age discrimination claim because of evidence that the manager was involved in the adverse decision-making, leaving a triable fact issue as to whether the discharge was due to age. Thomas v. Heartland Employment Services, LLC, (8th Cir. 2015). 797 F.3d 527(8th Cir. 2015).

•  Workplace fatality; OSHA fine reversed. A $490,000 fine was imposed by the U.S. Department of Labor against a manufacturer due to a workplace fatality caused by a machine that fell upon an employee when it overturned. Affirming a decision of the Department of Safety and Health (OSHA), the Eighth Circuit held that the Secretary of Labor’s “unprecedented” interpretation of machine regulation constituted an “unfair surprise.” Perez v. Loren Cook Co,, 750 F.3d 1006 (8th Cir. 2015).

•   Employment claims; statutes of limitations bar case. A number of statutes of limitations barred defamation, retaliation, and infliction of distress claims by a discharged employee about her ex-employer. The appellate court deemed the pro se claims untimely, not actionable or insufficiently pled. McDonald v. Allina Health Sys. 2015 Minn. App. LEXIS 988 (Minn. App. 2015) (unpublished).

•  Unemployment compensation; back pay overpayment upheld. Overpayment of unemployment benefits due to an employee’s receipt of back pay as part of a settlement was affirmed. The court of appeals held that because the settlement did not specify what period the back pay covered, it should have been deducted from benefits, and the failure to do so constituted an overpayment recoverable from the employer. Kern v. Minneapolis Institute of Arts, 2015 Minn. App. LEXIS 972 (8th Cir. 2015) (unpublished).

•   Unemployment compensation; untimely appeal dismissed. The filing of an appeal from an initial determination of ineligibility one day late was fatal to the claimant. The court of appeals reiterated the well-established rule barring extension of the 20-day limitations period. Scholz v. DEED, 2015 Minn. App. LEXIS 965 (8th Cir. 2015).

•  Unemployment compensation; license misrepresentation. An employee who falsely represented herself as a pharmacist when signing a prescription drug order was denied unemployment benefits. The appellate court deemed the misrepresentation that she was licensed as a pharmacist to constitute disqualifying “misconduct.” Banks v. Regions Hospital, 2015 Minn. App. LEXIS 1027 (Minn. App. 2015) (unpublished).

•  Unemployment compensation; rare reversal at request of DEED. In a rarity, a request by the Department of Employment & Economic Development (DEED) to reverse a ruling by an unemployment law judge (ULJ) was granted. The appellate court agreed with the Department’s claim, without objection by the employer, that the employee was denied a fair hearing because the judge impeded the applicant, a pro se, a discharged bus driver, from offering evidence and cross-examining adverse witnesses. Horan v. Centerline Charter Corp., 2015 Minn. App. LEXIS 1024 (Minn. App. 2015) (unpublished).

•  Unemployment compensation; conflict of interest. An employee fired for violating his company’s policy prohibiting transactions with family members was denied unemployment benefits. The appellate court ruled that the credit union employer’s policy was a valid way to avoid conflicts of interest, and its admitted violation by the employee constituted disqualifying “misconduct.” Nolan v. Great River Fed. Credit Union, 2015 Minn. App. LEXIS 1002 (Minn. App. 2015) (unpublished).

•  Unemployment compensation; refusal to sign warning. An employee’s refusal to sign a written warning warranted denial of unemployment benefits. The appellate court ruled that the employee’s noncompliance was disqualifying “misconduct.” Schilling v. Site Solutions Professionals, 2015 Minn. App. LEXIS 992 (Minn. App. 2015) (unpublished).

•  Unemployment compensation; two quitters lose. A pair of employees who quit their jobs were denied unemployment by the court of appeals.

An employee who quit because he did not show up after being told that failure to perform his jobs would lead to discharge did not have good reason caused by the employer to quit. Corrigan v. No. Metro Harness Initiative, LLC, 2015 Minn. App. LEXIS 993 (Minn. App. 2015) (unpublished).

An employee who quit after her superior took an extended leave of absence was not entitled to benefits. Because the employee had a difficult working relationship with the supervisor, the leave did not constitute “good reason” to quit. Sayen v. No. Hennepin Community College, 2015 Minn. App. LEXIS 1004 (Minn. App. 2015) (unpublished).

LOOKING AHEAD

The Minnesota Supreme Court will soon rule on the statute of limitation for whistleblowers. The Court early last month heard the case of Ford v. Minneapolis Pub. Sch., No. A13-1072, which raises the issue of whether the limitations period for claims under Minn. Stat. §181.936 is two years for tort claims, governed by § 541.07(1), or six years for liability created by statute under § 541.05, subd. 1(2), as the Court of Appeals held.

The Supreme Court is also considering a significant workers compensation case heard early last month. In Shirei v. Rosemount, Inc., A15-0856, the justices will decide whether an injury incurred by an employee at a company-sponsored event is covered by the Workers Compensation Act, or whether it is excluded because the employee was hurt while participating in an unauthorized game of laser-tag during the event.

– Marshall H. Tanick

Hellmuth & Johnson, PLLC


ENVIRONMENTAL LAW
JUDICIAL LAW

•   8th Circuit upholds FERC interpretation of “avoided cost” rate for QF power purchases. The U.S. Court of Appeals for the 8th Circuit upheld a regulatory interpretation by the Federal Energy Regulatory Commission (FERC) that the avoided cost rate paid by an electricity distribution cooperative for energy purchased from a qualifying small production power production facility (QF) is the same as the avoided cost rate of the co-op’s all-requirements generation supplier.

In this case, the QF was an Iowa farmer-owned wind power generator that sold its excess power to Midland Power Cooperative, a non-generating electricity distributor. The Central Iowa Power Cooperative (CIPCO) was Midland’s “all-requirements” electricity supplier, so called because Midland was contractually bound to purchase all of its electricity from CIPCO. FERC regulations promulgated pursuant to section 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA) require electric utilities to offer to purchase electric energy from qualifying small power production facilities. The rate paid to the QF is the purchasing utility’s “avoided costs.” In a 1987 administrative ruling, FERC determined that, in the case of an all-requirements contract between a wholesale electricity supplier and a non-generating distributor, the “avoided costs” rate under the rule is based on the supplier’s avoided costs rather than those of the non-generating distributor actually purchasing the QF’s excess power. City of Longmont, 39 FERC ¶ 61,301 (6/16/1987).

The QF wind generator in the 2015 case challenged FERC’s interpretation, claiming that the language of the relevant FERC regulation, 18 C.F.R. §292.303(d), required Midland to obtain the QF’s consent before CIPCO’s avoided cost rate (which was lower than Midland’s) could apply to Midland’s purchase of the QF’s power. However, the 8th Circuit concluded that FERC’s interpretation of the regulation in Longmont was not “plainly erroneous or inconsistent with the regulation” and thus deferred to FERC’s interpretation pursuant to Auer v. Robbins, 519 U.S. 452 (1997). Swecker v. Midland Power Cooperative, No. 14-2186 (8th Cir. 10/6/2015).

ADMINISTRATIVE ACTION

•  EPA revises CERCLA comfort/status letter policy. On 8/25/2015, the EPA issued a memorandum setting forth its revised Superfund comfort/status letter policy, as well as three updated model Superfund comfort/status letters for parties interested in acquiring contaminated, potentially contaminated, and formerly contaminated properties for reuse and redevelopment. Comfort/status letters are one means EPA uses to address concerns regarding properties that may present CERCLA cleanup and liability issues. The letters are purely informational; they do not provide any EPA assurance against enforcement action. However, by summarizing information contained in the EPA’s files regarding contamination and cleanup at the property, the letters can help interested parties make informed decisions regarding potential CERCLA liability. In addition, EPA’s policy indicates that the agency’s comfort/status letters may suggest property-specific reasonable steps a party may take at the property to achieve or maintain liability protections under the Bona Fide Prospective Purchaser (BFPP) provision of CERCLA (42 U.S.C. § 9601(40)), a key concern of potential brownfield developers following a 2013 4th Circuit decision holding that owner failed to establish BFPP exemption from liability. See PCS Nitrogen Inc. v. Ashley II of Charleston LLC, 714 F.3d 161 (4th Cir. 2013) cert. denied, 134 S. Ct. 514 (2013).

– 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

•  Limitations on sole legal custodian. The court of appeals recently addressed whether a district court had abused its discretion by declining to order a parent to bring the children to Catholic Mass each week. Following a trial, the district court granted the parties joint physical custody of their children and granted husband sole legal custody. The parties had agreed to raise their children in the Catholic faith but disagreed about what that would entail. Wife requested that the district court order each party to bring the children to Mass every week. During the marriage, husband took the children to Mass more often than wife but stopped consistently taking them to Mass after the parties separated. The district court credited husband’s testimony that this was due to harassment from wife and her parents during Mass. The district court ordered the parties to “continue to support the minor children in their Catholic faith” but left to the discretion of each of the parents whether to bring the children to Mass. Wife appealed and the court of appeals affirmed because granting wife’s request would have infringed on husband’s rights as the sole legal custodian. The district court’s directive to continue supporting the children in the Catholic faith was already a limitation on husband’s rights but he had not challenged that. This case shows that even though district courts are often called upon to decide specific parenting issues between joint legal custodians who disagree, they have no such authority in the context of the initial custody determination if one of the parties is granted sole legal custody. Rexine v. Rexine, A14-2206 (Minn. Ct. App. 10/26/2015).

•  Award of pension benefits. A recent published decision from the court of appeals shows the need for precision in describing pension benefits when drafting a Judgment and Decree and QDRO.

Husband was a 53-year-old teacher and the parties’ stipulated Judgment and Decree from May of 2011 awarded wife one-half of husband’s “TRA retirement benefits” as of 12/31/2010. The parties immediately signed a QDRO stating that husband “shall assign and [wife] is awarded any and all benefits from [husband’s TRA].” In October 2013, husband applied for disability benefits. TRA began paying out disability benefits to each party in accordance with the QDRO and informed the parties that the disability benefits would continue until husband turned 65, after which he would be deemed to be in retirement status and his retirement annuity would take effect.

Thereafter, husband brought motions in district court to amend the Judgment and Decree and the QDRO so that wife would not receive any of the disability benefits. The district court denied husband’s motion and held that the Judgment and Decree unambiguously provided for a division of husband’s TRA benefits, which included the disability benefits.

Husband appealed and the court of appeals reversed, holding that the Judgment and Decree unambiguously limited wife’s award to retirement benefits. The court distinguished its holding in VanderLeest v. VanderLeest, 352 N.W.2d 54 (Minn. Ct. App. 1984), that an award to wife of an interest in her husband’s “pension plan” included disability payments paid to husband under the plan. In this case, the Judgment and Decree reflected the parties’ agreement to limit wife’s interest to husband’s “retirement benefits.”

Although not emphasized in the opinion, the problem in this case appears to be the discrepancy between the Judgment and Decree’s reference to “retirement benefits” and the QDRO’s reference to “any and all benefits.” This case demonstrates the importance of addressing all of the benefits that exist under a pension plan when drafting the Judgment and Decree and the need to ensure that the description of such benefits in the QDRO is consistent with the description in the Judgment and Decree. Ertl v. Ertl, A15-0163 (Minn. Ct. App. 2015).

– Jaime Driggs

Henson & Efron PA


FEDERAL PRACTICE
JUDICIAL LAW

•  District court erred in refusing to rule on timely Fed. R. Civ. P. 60(b) motion. Where the plaintiff appealed the dismissal of his action and simultaneously filed a timely motion pursuant to Fed. R. Civ. P. 60(b), and the district found that the notice of appeal divested it of jurisdiction to consider the Rule 60(b) motion, the 8th Circuit found that the district court retained jurisdiction to consider the Rule 60(b) motion under Fed. R. App. P 4(a) and (b), and that it lacked jurisdiction over the appeal on the merits until the district court ruled on the 60(b) motion. Smith v. Missouri, ___ F.3d ___ (8th Cir. 2015).

•  Motion for protective order to preclude plaintiff’s own deposition granted. In one of the more curious recent discovery motions, Magistrate Judge Noel granted the defendant’s motion for a protective order to preclude the plaintiff’s “self-deposition” until after the plaintiff could be deposed by the defendant, finding that the self-deposition would result in “extra expense” and no “exceptional circumstances” warranted the deposition.  Judge Schiltz subsequently rejected the plaintiff’s challenge to the order, and indicated that he was “puzzled” by the plaintiff’s alleged need for the self-deposition. James v. Covidien L.P., 15-CV-1179 (PJS/FLN) (D. Minn. 9/4/2015), aff’d (D. Minn.  9/30/2015).

•  Motion to seal documents continued pending briefing. Judge Doty denied the parties’ joint request to allow certain exhibits to a complaint to be filed under seal,  finding that the parties’ filings “insufficiently detail[ed] the grounds for sealing the exhibits in their entirety,” in light of the “common-law right of public access to judicial records” and indicated that the parties needed to show “compelling reasons to keep the information secret,” and that even if the parties were able to establish “compelling interests,” “the court need not seal documents in their entirety.”  Judge Doty “ask[ed] the parties to submit briefing to explain whether the exhibits should be sealed at all, or whether redaction is a reasonable alternative,” and resolution of the motion was continued pending further briefing, with the documents remaining under seal until the motion is decided. Seifert v. Generac Mobile Products, LLC, 15-CV-3848 (DSD/BRT) (D. Minn. 10/16/2015).

•  Untimely request for attorney’s fees granted; excusable neglect. In a Report and Recommendation subsequently adopted by Judge Davis, Magistrate Judge Brisbois recommended granting the plaintiff’s untimely motion for attorney’s fees where it appeared that plaintiff’s counsel had relied on an outdated version of Local Rule 54.3 when determining the deadline to file the motion, finding that counsel was guilty of nothing more than excusable neglect, and that the defendant had not been prejudiced by the delay. Marquette Business Credit, Inc. v. Gleason, 2015 WL 5836323 (D. Minn. 10/6/2015).

•  Fed. R. Civ. P. 52(a)(1); request for amended findings following summary judgment denied. Judge Doty denied the plaintiffs’ motion for additional or amended findings following an award of summary judgment to the defendants, finding that Fed. R. Civ. P. 52(a) applies only when the case is tried to the court, and that the rule does not apply when the case is resolved on summary judgment. Keiran v. Home Capital, Inc., 2015 WL 5776090 (D. Minn. 10/1/2015).

•  Motion for contempt premised on violation of arbitration award denied. Where the respondent prevailed in an arbitration, the arbitration award enjoined the petitioner from selling certain products, and the arbitration award was confirmed by the court, Judge Doty denied the respondent’s subsequent motion for an order of civil contempt premised on the petitioner’s alleged violation of the arbitration award prior to its confirmation, finding that  the arbitration award was not a court order and could not serve as the basis for a contempt finding. Arkwright Advanced Coating, Inc. v. MJ Solutions GmbH, 2015 WL 5602840 (D. Minn. 9/23/2015).

•   Motion to dismiss fraud claims pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6) denied. Judge Nelson denied the defendants’ motion to dismiss claims arising out of an alleged fraudulent billing scheme, finding that the plaintiffs had adequately alleged a scheme to defraud, that they were not required to allege the details of every fraudulent claim, and that they had provided significantly more details than in cases that had been dismissed. State Farm Mut. Ins. Co. v. Healthcare Chiropractic Clinic, Inc., 2015 WL 6445324 (D. Minn. 10/23/2015).

•   Diversity jurisdiction; amount in controversy; lack of subject matter jurisdiction. Faced with the defendants’ motion to dismiss and the plaintiffs’ motion for voluntary dismissal in a defamation action premised on diversity jurisdiction, Judge Magnuson found that the plaintiff’s complaint, which sought only injunctive relief, did not allege damages of more than $75,000.  Accordingly, Judge Magnuson dismissed the action for lack of subject matter jurisdiction, and denied the pending motions as moot. Jesika v. Daniel, 2015 WL 6756111 (D. Minn. 11/4/2015).

•  Motion to transfer granted; plaintiff’s choice of forum entitled to no weight. Judge Doty granted the Missouri defendant’s motion to transfer a Minnesota plaintiff’s action to the United States District Court for the Eastern District of Missouri, finding that a forum selection clause applied to the plaintiff’s claims, and that in light of the forum selection clause the plaintiff’s choice of forum was irrelevant absent “unusual or extraordinary circumstances.” Auld v. Daugherty Sys., Inc., 2015 WL 5970731 (D. Minn. 10/13/2015).

•  Patent action stayed pending inter partes review. Reversing two orders by Magistrate Judge Noel, Chief Judge Tunheim granted the parties’ joint motion to stay litigation pending inter partes review, finding that the magistrate’s orders were clearly erroneous because the parties had established all three factors required for the stay.  Arctic Cat, Inc. v. Polaris Indus., Inc., 2015 WL 6757533 (D. Minn. 11/5/2015).

– Josh Jacobson

Law Office of Josh Jacobson


INDIAN LAW
JUDICIAL LAW

•  Treaty rights; Wisconsin tribes can resume night hunting. On remand from the 7th Circuit, the U.S. District Court for the Western District of Wisconsin held that Wisconsin Chippewa tribes may exercise their treaty rights to hunt deer at night in ceded territory covering the northern one-third of Wisconsin. The decision comes after more than two decades of litigation.

Wisconsin had banned all off-reservation nighttime deer hunting, alleging that the hunting was not safe. The Wisconsin Chippewa tribes have long argued that their treaties preserved the right to hunt at night throughout territory in Wisconsin that they ceded to the government in the 1800s. In 1991, the Western District of Wisconsin allowed the state to apply its ban on night hunting to the tribes. But last year, the 7th Circuit disagreed. It ordered the district court to reconsider the ban in light of the tribes’ safety record and proposed regulations. On remand, the Western District of Wisconsin found the tribal regulations to be adequate. Accordingly, the court lifted the ban on night deer hunting by tribal members in the ceded territory for the 2015 hunting season and future seasons. Lac Courte Oreilles Band Of Lake Superior Chippewa Indians et al. v. State of Wisconsin, Case No. 74-cv-314-bbc, 2015 WL 5944238 (W.D. Wis. 10/13/2015).

•   Tribal-court exhaustion; AT&T must litigate tribal telecom regulatory jurisdiction in tribal court. The South Dakota District Court, Southern Division, dismissed in part and stayed in part AT&T’s complaint challenging the Oglala Sioux Tribe utility commission’s exercise of jurisdiction and levying of fees upon the telecommunications giant.

The district court held that it lacks jurisdiction over a dispute relating to the access charges that the tribe’s local-exchange carrier levies for completing the transmission of long-distance calls into the Pine Ridge Reservation. The court held that because the question of whether the Oglala Sioux Tribe can regulate AT&T at all is subject to tribal-court exhaustion, AT&T must litigate the issue of jurisdiction in tribal court in the first instance. AT&T Corp. v. Oglala Sioux Tribe Utility Commission et al., Case No. 4:14-cv-04150, 2015 WL 5684937 (D.S.D. 9/25/2015).

•  Tribe adds 104 acres to Scott County reservation. The United States Department of the Interior, Bureau of Indian Affairs, proclaimed 104.40 acres of land in Scott County, Minnesota as part of the Shakopee Mdewakanton Sioux Community of Minnesota on 9/22/2015. Federal Register Volume 80, Number 191 (10/2/2015). The Department of the Interior has the authority, through various statutes, to take land into trust for Indian tribes as part of the United States’ trust responsibility to tribes.

– Jessica Intermill

– Jessie Stomski Seim

Hogen Adams PLLC


PROBATE & TRUST LAW
ADMINISTRATIVE ACTION

•  2016 indexed amounts.  The IRS has published the inflation adjustments applicable in 2016. See Rev Proc 2015-53, 2015-44 IRB ___(11/2/2015).  The following adjustments relate to estate planning:

  • 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).

•   Minnesota Judicial Branch notice on searching for wills. On 10/27/2015, the Minnesota Judicial Branch published this notice: “Wills deposited with the court during a testator’s lifetime under Minn. Stat. § 524.2-515 are confidential, while wills deposited with the court after a testator’s death under Minn. Stat. §§ 55.10 or 524.2-516 are public.  If you are searching for a will for a deceased person, you will need to seek the assistance of court staff to conduct a thorough search. In addition, Rule 4, subd. 1(i), of the Rules of Public Access to Records of the Judicial Branch, requires that you provide to the court proof of the testator’s death before the court can disclose the existence of a will that was deposited during the testator’s lifetime.  Providing proof of death will also conveniently provide the date of death for purposes of determining whether a will was deposited before or after the death.  Obtaining a copy of a will deposited before the testator’s death or transferring an original will to the appropriate court requires a court order.”

– Robin R. Tutt

Lindquist & Vennum LLP


REAL PROPERTY
JUDICIAL LAW

•  Minn. Stat. §514.051. Minnesota’s statute of limitations bars claims “arising out of the defective and unsafe condition of an improvement to real property” that are not brought within two years after discovery of an injury caused by an improvement. Contech Engineered Solutions LLC designed and fabricated a pedestrian bridge in a facility in Alexandria, Minnesota. The bridge was delivered and installed in Holland, Michigan. Contech hired Element Materials Technology St. Paul Inc. to inspect the bridge in Minnesota. After installation in Michigan, an additional inspection by a third party revealed defects that Element had not discovered. Contech sued Element, and Element moved for summary judgment based on the two-year statute of limitations. Contech argued that Element’s inspection services are not covered by the statute, and that application of the statute would have impermissible extraterritorial effect. The court concluded that Element is within the class that the statute was meant to protect because inspection services are “supervision” and “observation of construction” activities. The court also noted that the statute’s express exception for inspection services does not apply because the lawsuit was not against an owner or possessor of real estate. Finally, the court ruled that the statute’s application in this case is not extra-territorial because the statute does not substantively regulate anything outside of Minnesota. Instead, it is a procedural rule meant to regulate access to Minnesota courts. Contech Engineered Solutions LLC v. Element Materials Technology St. Paul Inc., No. 14-119, ___ F.Supp3d ___, 2015 WL 6561696 (D. Minn. 10/29/2015).

•  Delivery of deed. Delivery of a deed to a third party can pass title. But the bankruptcy appellate panel of the 8th Circuit held that delivery and conveyance of title does not happen immediately where the third party is instructed to wait a period of time before recording the deed. The Chapter 7 bankruptcy trustee had objected to the debtor’s homestead exemption based on the delivery date of a deed. The debtor’s father had executed a quit claim deed in favor of the debtor in 2010. The father’s attorney possessed the deed after its execution, and the father instructed the attorney to await a further instruction on whether to record the deed. In 2013 the father instructed the attorney to record the deed. Under Minnesota law, delivery requires that the grantor surrender control of the deed, and that the grantor intends to convey title. The bankruptcy court held that the father did not have the requisite intent to convey title until 2013 when he instructed the attorney to record the deed. The debtor appealed the decision to the bankruptcy appellate panel. Because the debtor did not provide contradictory evidence on the grantor’s intent, the bankruptcy court’s decision was not clearly erroneous. In re Bruess, No. 15-6019, ___ B.R. ___, 2015 WL 6847734 (Bankr. D. Minn. 10/29/2015).

– Joseph P. Bottrell

Meagher & Geer, PLLP


TAX
JUDICIAL LAW
•   Sales and use taxes: Petition for certiorari filed in U.S. Supreme Court on Minnesota’s right to enforce a tax judgment in California. A California taxpayer seeks review of the California Court of Appeals’ denial of his motion to vacate a judgment for unpaid Minnesota petroleum and sales taxes. The taxpayer, who was the majority owner of several Minnesota gas stations, contends that the Minnesota court’s denial of his request for discovery in the underlying tax proceedings violated his procedural due process rights and, therefore, the Minnesota judgment should not be given full faith and credit in the California courts. Nelson v. Commissioner of Revenue, U.S. Docket No. 15-62, petition for cert. filed 7/13/2015, ruling in California as Commissioner of Revenue, State of Minnesota v. Nelson, Docket No. B25125, 2015 WL 81897 (Cal. Ct. App. 1/6/2015), rev. denied Docket No. S224461 (Cal. 4/15/2015).

•  Income taxes: Settlement of estate dispute did not generate a taxable gift. The U.S. Tax Court held that a 1972 transfer of stock was made in the ordinary course of business for full and adequate consideration. The court’s ruling means that the transfer was not a gift for federal gift tax purposes. The tax court had to consider whether the parties to a settlement agreement were settling a genuine dispute, and were not colluding to make the transfer appear to be something else. According to the court, all the elements of an “arms-length” transaction existed in this case. In order for a gift to be treated as being made “in the ordinary course of business,” it must be free from donative intent. Estate of Edward S. Redstone, 145 T.C. No. 11 (2015).

•  Income taxes: Joint return requires two signatures and is not valid despite intent to file jointly. The tax court held that a joint return that was not signed by the wife was not a valid return and, as a result, imposed the failure-to-file penalty. In so doing, it rejected the taxpayer’s arguments that the return was valid either because it substantially complied with the valid return rules or because the wife intended to file a joint return and passively consented to the filing of a joint return. Reifler v. Commissioner of Revenue, T.C. Memo 2015-199 (2015).

•   Real property taxes: Menard Home Improvement Center values lowered. The Minnesota Tax Court reduced the assessments for four years from the county’s assessed value of $11.2 million for each of the years to $7.4 million in 2011, $7.6 million in 2012, $7.2 million in 2013, and $7.3 million in 2014. The court used a cost and sales approach. It weighted the cost approach at 60% and the sales method at 40% for the years 2011 and 2012 and for years 2013 and 2014 used 50%. The income approach was not used. The highest and best use was for commercial use and for use as a big box retail store. Menard, Inc. v. County of Clay, Dkts. Nos.: 14-CV-12-1500, 14-CV-13-1454, 14-CV-13-1405, and 14-CV-14-1352, 2015 (Minn. T. Ct. 9/18/2015).

•  Procedure: Protective order for confidential information issued. The Minnesota Tax Court held that certain proprietary and confidential information should be protected as “nonpublic data” by Minn. Stat. Chapter 13. In a corporate tax dispute, the commissioner requested copies of Seneca’s agreements with its suppliers. Seneca objected and cited the need for it to be protected from public disclosure. The commissioner took the position that the discovery material was already protected as “return information” by Minn. Stat. §270B.02, Subd. 1 and, therefore, was already non-public data under the Minnesota Government Data Practices Act. The court held that the commissioner’s argument was incorrect and that the court historically issued protective orders under Minnesota Rule of Civil Procedure 26.03. The court then went on to rule that Seneca had a valid business and security concern justifying the confidentiality of the information and that the specified information should receive “nonpublic data” protection provided by Minn. Stat. Chapter 13. Seneca Foods Corp. v. Commissioner of Revenue, Docket No. 8683-R, 20015 WL 4875000 (Minn. T. Ct. 7/21/2015).

•  Income taxes: IRS Guidance on “reasonable cause” exception to penalties for failure to file partnership return. The district court held that the penalty for failure to file partnership returns under IRC Code §6698 would only apply if the “reasonable cause” requirements set forth in Revenue Procedure 84-35 were adhered to. The IRS asserted late penalties against the partnership. None of the partners timely filed their Form 1040 for the applicable years. Revenue Procedure 84-35 required such action in order to establish “reasonable cause.” The court held that revenue procedure was issued over 30 years ago and the timeliness requirement was always present with respect to all partners filing their individual returns. The court noted that the IRS position was reasonable, highly practical, and consistent with the legislative history of IRC Code §6698. Therefore, the “reasonable cause” exception did not apply and the penalties were imposed. Battle Flat, LLC v. United States, Docket No. 5:13-5070-JLV, 2015 U.S. Dist. LEXIS 125678 (D.S.D. 9/21/2015).

•   Income taxes: S corporations treated same as C corporations for purposes of determining interest rate on tax overpayments. The U.S. Court of Federal Claims ruled that the interest due to an S corporation for an overpayment of tax is determined by the reference to the interest rate paid to corporations rather than the interest rate paid to individuals under IRC Code §6621. See Contra, Garwood Irrigation Company v. Commissioner of Revenue, 126 T.C. 233 (2006) (tax court held that S corporations are not included in the definition of a corporation for the interest rate for overpayments exceeding $10,000). Eagle Hawk Carbon, Inc., 116 AFTR.2d §2015-5053 (Fed. Cl. Ct. 2015).

•   Income taxes: Real estate professional and material participation test illustrated. The U.S. Tax Court held that the taxpayers’ losses from rental activities were non-passive. Although a summary opinion and not citable as precedent in other cases, the case provides a helpful analysis as to how the real estate professional rules work in conjunction with the material participation test in the regulations. It is also a practical reminder that even taxpayers who maintain contemporaneous logs may face challenges in establishing that their rental activities were non-passive. When the scope of time spent on a rental activity may be unclear, such as here (where a taxpayer lived in a building she also owned and rented), it may be helpful to keep additional records to differentiate and prove the specific activities each year. Brown v. Commissioner, T.C. Summary Op. 2015-62 (10/15/2015).

•  Income taxes: There is no “hardship exemption” to cancellation of debt income (CODI). The U.S. Tax Court held that the taxpayer was subject to cancellation of indebtedness income even though he was dying from cancer. The taxpayer was 76 and dying of cancer. He had taken out a $50,000 line of credit with his bank in 2008 for his business. He couldn’t pay off the credit line and the bank agreed to accept $15,000 as full payment on the loan in 2009. The taxpayer also couldn’t pay other debts totaling over $68,000, and that amount was also cancelled in 2009. The taxpayer received a Form 1099-C from the bank with Box 5 checked, indicating that the taxpayer was not liable for repaying the debt balance. However, the taxpayer did not report his CODI on his 2009 tax return. He attached a statement to the return that the local IRS office had told him that “it would likely come under the hardship rule for approval.” While the taxpayer believed he was not liable for reporting the CODI, the IRS and the Court disagreed. The court noted there is no exception under IRC Code §108 for “hardship.” The taxpayer needs to be either insolvent or in bankruptcy. Dunnigan v. Commissioner, T.C. Memo 2015-190 (2015).

ADMINISTRATIVE ACTION

•  Income taxes: Settlement of class action did not result in discharge in cancellation of debt income (“CODI”). The IRS, in a private letter ruling, held that a lender was not required to issue Form 1099-C “Cancellation of Debt” when it settled a class action lawsuit by agreeing to write off debt balances owed by members of the class. The IRS determined that the write-offs occurred by operation of law, not because of an “identifiable event” that triggers reporting under IRC Code §6050P and Regulation §1.6050P-1. There was no “identifiable event” because the debt was discharged by operation of state law, not because of the parties’ agreement to settlement of the litigation and not because of the creditor’s decision or policy to discontinue collection activity. See Private Letter Ruling 20154000.

•   Personal income tax: Commissioner issues scam alert in Minnesota. The commissioner is warning taxpayers of a recent over-the-phone phishing scam. Taxpayers should beware of phone calls and voice messages saying the taxpayer is being audited and demanding that the taxpayer call back to make a payment to settle the tax debt. Phishing (as in “fishing for information” and “hooking” victims) is a scam to trick taxpayers into revealing personal and financial information that can be used to steal the taxpayer’s identity. Taxpayers should use caution and never provide personal information unless the taxpayer is absolutely sure the situation is legitimate. Taxpayers can report suspicious calls or messages that may have received by visiting the commissioner’s website. See Scam Alert, Minnesota Department of Revenue (10/9/2015).

•  Income taxes: Contemporaneous written acknowledgements. The IRS recently issued proposed regulations that acknowledge the exception from the rule of a contemporaneous written acknowledgement of a donation under IRC Code §170(f)(8)(D). The regulations allow a “cure” if the charitable organization files a form (yet to be announced) on or before February 28 of the year after the donation. The form must be a timely filed form, cannot be filed at the time the taxpayer is under examination, and a copy of the form must be provided to the donor. See Reg. 138344-13 (9/16/2015) and Proposed Treasury Regulation §§1.170A-13(f)(18)(i-iii).

•  Procedure: Procedures for administrative appeals of docketed cases updated. The IRS provided a proposed revenue procedure, which will update its published description of the IRS administrative appeal process in cases docketed in the U.S. Tax Court. See Notice 2015-72, 2015-44 IRB.

•  Sales and use taxes: Multiple points of use; purchaser refund claims and amended returns. The commissioner issued a release announcing the commissioner’s position that purchaser refund claims and amended returns are not valid when based on an apportionment of use tax among multiple jurisdictions. Minn. Stat. §297A.668, Subd. 6a allows business purchasers of a service, digital good or computer software delivered electronically to apportion use tax among multiple taxing jurisdictions. The multiple points of use law does not provide an exemption from sales and use tax; rather it only affords the business purchaser the option to apportion use tax to multiple taxing jurisdictions if all the requirements of the statute are met. Because the option to use multiple points is the only available at the time of purchase and is not an exemption from sales or use tax, a business purchaser cannot later—after the completion of the sale—apply for a purchaser refund claiming multiple points of use. Consequently, it is the commissioner’s position that purchaser refund claims asserting multiple points of use are not valid. Similarly, it is the commissioner’s position that amended use tax returns asserting multiple points of use are also not valid. See Minnesota Revenue Notice 15-03 (9/28/2015).

•   Income tax: Social Security wage base for 2016. The Social Security Administration announced that the wage base for computing the Social Security tax in 2016 will remain at $118,500. See Social Security News Release (10/15/2015).

•  Personal income tax: Tax forms and instructions. The commissioner announced that starting 1/1/2016, it will no longer provide state tax forms and instructions to libraries and counties. The commissioner is making this change in order to ensure that its customers are filing with the most up-to-date tax forms and instructions, which are available on the commissioner’s website. Taxpayers may go to www.revenue.state.mn.us and type “Income Tax Forms” in the Search box, or can call the Commissioner at (651) 296-3781 or 1-800-652-9094 (toll free). See Tax Forms and Instructions Notice, Minnesota Department of Revenue (10/6/2015).

•  Sales taxes: Local tax changes. Starting 1/1/2016, Freeborn County will impose a 0.5% transit sales and use tax. The commissioner will administer this tax. Also starting 1/1/2016, Otter Tail County will impose a 0.5% transit sales and use tax and a $20 vehicle excise tax. The commissioner will administer these taxes. Finally, effective 1/1/2016, the Rochester sales and use tax rate will increase to 0.75% from the current rate of 0.5%. See Minnesota Sales Tax Fact Sheet 164 (10/1/2015).

•   Personal income tax: Medicaid home and community-based services waiver program payments impact Minnesota returns. IRS Notice 2014-7 provides that certain payments received by parents and other individual home care providers from a state Medicaid Home & Community-Based Services Waiver (“Medicaid Waiver”) Program are excluded from federal tax as foster care payments under IRC Code §131. However, for Minnesota income tax returns, if a taxpayer claims the K-12 Education Credit (Form M1ED) or Child and Dependent Care Credit (Form M1CD), they must add the payments to their household income when calculating these credits. Taxpayers must add the payments to their household income on Form M1PR when filing for a Homestead Credit Refund or Renter’s Property Tax Refund. See Medicaid Home & Community-Based Services Waiver Program Payments, Minnesota Department of Revenue (10/21/2015).

Legislation

•  Congress amends Affordable Care Act (“ACA”) definition of small group market. The president signed into law the Protecting Affordable Coverage for Employees Act (“PACE Act”), PL 114-60. The PACE Act allows states to keep the current definition of a “small employers” as 50 or fewer employees rather than changing to 1-to-100 employees as in the original ACA. However, the new legislation also allows states to opt for the 1-to-100 employee definition of “small employer” if they choose. Therefore, the PACE Act gives states leeway to decide if they want to reshuffle a business between 51 and 100 employees back into the large group market or include them in the definition of a small employer for the small group health insurance market. The PACE Act is effective on enactment, 10/7/2015.

•   Bipartisan Budget Act of 2015: Partnership audit rules revised. Buried in the Bipartisan Budget Act of 2015 (H.R.1314) are provisions repealing the complex Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) partnership audit rules. Under current law, there are three different regimes for auditing partnerships. The new partnership rules are intended to streamline partnership audits into a single set of rules for auditing partnerships and their partners at the partnership level. Under the new rules, the IRS will examine the partnership’s items of income, credit, etc. for a particular year of the partnerships (the so-called “reviewed year”). In general, any adjustments would be taken into account by the partnership, not the individual partners, in the year that the audit or any judicial review is completed (the so-called “adjustment year”) and the tax adjustment would be collected from the partnership. Partnerships with 100 or fewer qualifying partners would be permitted to opt out of the new rules, electing to be subject to audits on the level of each individual partner. The opt-out is available provided that each partner is an individual, corporation, foreign entity that would be a corporation under U.S. law, an S corporation or the assets of a deceased partner. There is a delayed effective date with the Act applying to returns filed for partnership tax years beginning after 2017. This provides an opportunity for partners and their partnerships to amend their partnership agreements to take into account the new partnership rules. These new partnership tax audit rules likely foreshadow an increase in partnership audits by the IRS.

Looking Ahead

•  Income tax: Federal tax extenders; will there be a December passage? Under current law, more than 50 popular, but temporary, tax incentives known as “extenders” expired for tax years after 2014. As in past years, Congress appears on course to pass a one or two-year extension of “extenders” in December 2015. A two-year extension (retroactive to the start of 2015 and through 2016) would take the extenders through the end of the current administration. Therefore, keep an eye out for possible legislation.

– Jerry Geis

Briggs and Morgan, P.A.


TORTS & INSURANCE
JUDICIAL LAW

•  Property insurance; right of mortgage holder. The insured property—a building that had stood vacant for more than 60 days—was vandalized. Plaintiff bank, designated in the policy as a mortgageholder, made a claim to defendant insurer for the damage. The insurer denied coverage under a “vacancy clause” clause in the policy. In the subsequent coverage action, the district court granted summary judgment for the insurer, finding that it “is only liable to the mortgageholder for covered losses,” and no coverage existed for vandalism to a vacant building, irrespective of the cause of the vacancy. The court of appeals reversed, holding that the bank could recover because the owner would necessarily be responsible for the building remaining vacant, and the bank’s right to recover could not be invalidated by the conduct of the mortgagor.

The Minnesota Supreme Court reversed and remanded. The Court declined to follow either analysis, preferring to harmonize the two apparently conflicting clauses. The factual record did not establish “how or why the property became vacant.” The Court agreed with the district court that the policy did not “require [ ] the owner to prevent the property from being vacant” but noted that the owner’s “acts” could have caused the vacancy. The case was therefore reversed and remanded to the district court for determination of “whether the owner’s acts caused the vacancy” and if so, “whether [plaintiff bank] was aware of the acts.” If the owner’s acts or neglect caused the vacancy and plaintiff bank was unaware of that conduct, then it could still recover from the insurer. Commerce Bank v. West Bend Mut. Ins. Co., No. A14-0247 (Minn. 10/28/2015).

•  Attorneys’ fees; claims of attorney following withdrawal. Plaintiff law firm represented a client on a contingent-fee basis in connection with a potential medical malpractice claim. A pre-suit mediation was unsuccessful, with the client demanding $1.4 million and the doctor offering only $100,000. After the mediation, the plaintiff law firm withdrew from its representation of the client, and the client retained defendant law firm. After that retention, the claim settled at a subsequent mediation for $200,000. Plaintiff law firm then petitioned the district court for recovery of costs advanced and for an equitable distribution of the contingent fees. The district court denied the petition and the court of appeals affirmed.

The Minnesota Supreme Court affirmed. The Court initially observed that it had not applied principles of quantum meruit in a situation where a law firm, as opposed to the client, terminated representation. The Court, relying on the Rules of Professional Conduct, held that “an attorney who withdraws for good cause from representation under a contingent-fee agreement may recover in quanum meruit the reasonable value of services rendered prior to withdrawal provided that the attorney’s recovery in the event of withdrawal for good cause is not otherwise addressed in the contract and the attorney satisfies the ethical obligations governing withdrawal from representation.” The Court held that “good cause” is “not easily defined” but “[g]enerally, good cause requires that the attorney establish the client has engaged in culpable conduct and the attorney has not, and that the attorney’s continued representation of the client would violate the attorney’s ethical obligations.” The Court held that plaintiff law firm’s withdrawal in this case did not meet the good cause standard.

Justice Stras, joined by Justice Lillehaug, filed a concurring opinion. The concurrence advocated for resolving such disputes on contract principles alone without applying the good cause standard. In re Petition for Distribution of Attorney’s Fees between Stowman Law Firm, P.A., and Lori Peterson Law Firm, No. A13-2225 (Minn. 10/28/2015).

– Jeff Mulder

Bassford Remele, A Professional Association

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