Current developments in Judicial Law, Legislation, and Executive Action together with a foretaste of Emergent Trends in law and the legal profession for the complete Minnesota lawyer.
• SONAR: Limits on prevailing wage protections. The Minnesota Supreme Court relied upon a rulemaking statement of need and reasonableness (SONAR) to determine that statutory prevailing wage protections for public works projects did not extend to truckers transporting asphalt cement from a MnDOT-certified oil refinery to a MnDOT contractor’s asphalt facility to produce asphalt for use in the contractor’s public works projects. The Court held that the statute and Department of Labor and Industry rule implementing the statute were ambiguous, but the rule’s drafting history made it clear that only truckers hauling to and from the actual work site were eligible for the act’s wage protections.
Section 177.44 of the Minnesota Prevailing Wage Act provides that contractors hiring laborers “to do all or part of the work under a contract… to which the state is a party, for the construction or maintenance of a highway” must pay at least the prevailing wage for that trade. The phrase “under a contract” is defined in Minnesota Rule part 5200.1106 to include “all construction activities associated with the public works project, including any required hauling activities on the site of or to or from a public works project and work conducted pursuant to a contract[.]” MnDOT had successfully argued before the district court and court of appeals that under the plain meaning of the statute and rule, the truckers’ activities were subject to prevailing wage protections because they were engaged in hauling activities under contracts relating to state highway projects.
The Supreme Court reversed. With Justice Hudson and Justice Chutich not participating, a three-member majority determined that the statute and rule were ambiguous. In particular, the majority noted that five of the rule’s six illustrative examples involved hauling to or from the actual work site. MnDOT argued that the remaining example—“the delivery of materials or products by trucks hired by a contractor, subcontractor, or agent thereof, from a commercial establishment”—covered hauling of asphalt cement from commercial refineries. However, the majority held that this example was also ambiguous because “delivery” might be read as delivery “to a project work site.”
Having found the rule ambiguous, the majority turned to the rule’s statement of need and reasonableness (SONAR). There, the court found support for an interpretation limiting the reach of prevailing wage protections to “only those truck drivers who are hauling materials ‘on the site of or to or from a public works project.’” J.D. Donovan, Inc. v. Minnesota Department of Transportation Slip Op. A14-0863, A14-1021 4/20/2016.
– Mehmet Konar-Steenberg
Mitchell Hamline School of Law
• Joint tenancy is not terminated by commencement of bankruptcy case. Debtors Matthew and Marilynn Peet held title to real property and a motor vehicle in joint tenancy with Marilynn’s parents. The Peets filed a Chapter 13 bankruptcy, which was later converted to Chapter 7. Marilynn’s parents died after the conversion. The trustee moved to sell the real property and motor vehicle, asserting that the estate was the sole owner of the assets through the right of survivorship. Debtors argued that the joint tenancies became tenancies in common with no right of survivorship when they filed bankruptcy. The bankruptcy court agreed with the trustee and allowed the sale. The bankruptcy appellate court affirmed. The 8th Circuit noted that under state law, a joint tenancy required “four unities” of interest, title, time, and possession. That is, each joint tenant must have the same interest, conveyed by the same title, commenced at the same time, and each joint tenant must have the right to possess the property. Debtors argued that the filing of the case severed the unities of time and title, asserting that their assets were transferred to the bankruptcy estate when the case was commenced. The 8th Circuit affirmed the decisions of the lower courts. It noted that assets remain in the name of debtors until the trustee disposes of property, and thus the joint tenancy was not severed when the case was filed. Although this case involved the application of Missouri law, the holding on joint tenancies has application under Minnesota law. In re Peet, No. 15-2040 (8th Cir. 4/27/2016).
– Patrick C. Summers
DeWitt Mackall Crounse & Moore S.C.
• Grand jury: Spark of life evidence admissible in grand jury proceedings. Appellant was charged by indictment with two counts of first-degree premeditated murder. At the grand jury proceedings, the two victims’ mothers testified about the victims’ lives, and various photographs of the victims were admitted as exhibits. On appeal from his conviction for first-degree premeditated murder, appellant argues this spark-of-life evidence was irrelevant and tainted the grand jury proceedings.
In this case of first impression, the Supreme Court considers whether spark-of-life evidence is admissible in grand jury proceedings. Such evidence is admissible at trial so long as it is not an attempt by the state to invoke undue sympathy or inflame the passions of the jury. The court holds that “[a]lthough spark-of-life evidence is not highly probative and has the potential for prejudice, we decline to carve out an exception for grand-jury proceedings.” As grand juries can hear evidence that is inadmissible at trial, the court finds that “[i]t would be odd to hold that the grand jury, solely for spark-of-life evidence, cannot hear evidence that is admissible at trial, particularly when the grand jury must only determine probable cause for the charge—a lesser standard than guilt beyond a reasonable doubt.” The court does warn, however, that such evidence should be used with caution, as “[a] prosecutor who unreasonably relies on spark-of-life evidence to tip the grand jury’s decision risks dismissal of the indictment.” State v. Byron David Smith, Sup. Ct., 3/9/2016.
• 6th Amendment: No violation of right to public trial to close courtroom to discuss ruling on pretrial evidentiary issue. Prior to his trial on murder charges, various motions were filed challenging the admissibility of evidence at trial. The court held a pretrial hearing, which was open to the public. Days later, prior to opening statements, the court cleared the courtroom, except for the attorneys, the defendant, and court staff, in order to discuss the court’s ruling on motions in limine. The court explained that it would exclude certain prior bad act evidence relating to one of the victims, and prohibit disclosure of the names of the victim’s friends, who the defense wanted to testify about the prior bad acts. The court also explained that it closed the courtroom to prevent the publication of the court’s pretrial ruling by the press, which could reach the jury. Immediately after the closed proceeding, the court filed a written order on the motions in limine, which stated that the prior bad act evidence was inadmissible, but did not name the victim’s friends. Appellant argues that the closure of the proceedings violated his right to a public trial.
The right to a public trial guaranteed by the 6th Amendment applies to all phases of trial, which has been held to encompass evidentiary suppression hearings conducted prior to the presentation of evidence to the jury. To analyze whether a closure violates the 6th Amendment, first the court must determine whether a “6th Amendment closure” occurred, as not all courtroom restrictions implicate the right to a public trial. The courts have distinguished suppression hearings from other “administrative” proceedings, which do not implicate the 6th Amendment. “Administrative” proceedings are not limited to purely administrative procedures, such as scheduling. They encompass all non-public exchanges between counsel and the court on technical legal issues and routine administrative problems. No fact-finding function is implicated during such proceedings, and they pose no threat of judicial, prosecutorial, or public abuse that a public trial is designed to protect against.
Here, the closed proceeding was administrative in nature, so appellant’s 6th Amendment rights were not implicated. The court merely explained the parameters of its written decision, and the proceeding took only minutes, was transcribed, and consumed a very small amount of the trial transcript. The content of the proceeding was “similar to what would ordinarily and regularly be discussed in chambers or at a sidebar conference—on the record, but outside the hearing of the public.” Appellant was not denied a public trial. State v. Byron David Smith, Sup. Ct. 3/9/2016.
• Sentencing: Burglary of three businesses in one building on a single day not a single behavioral incident for purposes of calculating criminal history. Prior to appellant’s sentencing for first-degree aggravated robbery, the Minnesota Sentencing Guidelines Commission created a sentencing worksheet, which listed appellant’s criminal history score at four. He received one point for being on probation at the time of the robbery offense, and three points for three second-degree burglary convictions from 2011. Those convictions arose from burglaries that occurred at a single building housing multiple, separately owned businesses. Appellant broke into three of those businesses, stealing from each. Appellant challenges the district court’s determination of his criminal history score, arguing that the 2011 burglary convictions involved a single behavioral incident, so only two of the sentences could be counted in his criminal history score.
The sentencing guidelines provide that, when multiple sentences arise from a single course of conduct involving multiple victims, the court is to include in the offender’s criminal history only the weights from the two offenses at the highest severity levels. In determining whether multiple offenses constitute a single behavioral act, the court considers time, place, and whether the offenses were motivated by a single criminal objective. Appellant’s 2011 burglaries did not arise from a single behavioral incident, because all three businesses were separate and required separate acts of forcible entry. They also lack a unifying criminal goal, as different types of items were removed from each business. The Minnesota Supreme Court has previously held that a general objective of obtaining money and valuables is too broad to constitute a single criminal goal. The court of appeals finds that the district court did not miscalculate appellant’s criminal history score. State v. Daniel Drljic, Ct. App. 3/7/2016.
• Expungement: Felony later deemed misdemeanor is felony conviction for expungement purposes. Appellant was charged with second-degree burglary and felony theft, and entered a guilty plea to second-degree burglary pursuant to a stay of imposition. The district court stayed imposition for 10 years “or until earlier discharged by the court.” Approximately five years later, the court discharged appellant from probation and ordered that the conviction be deemed a misdemeanor pursuant to Minn. Stat. §609.13. Appellant’s petitions to expunge his record were denied in 2008 and 2011. The district court granted his third petition, in part, in 2015, expunging two unrelated non-felony convictions, but denying expungement of the felony burglary offense.
Whether an expungement is permitted under the expungement statute depends on the level of offense for which the petitioner was convicted or received a stayed sentence. The court of appeals emphasizes that the statute applies to convictions, and appellant’s burglary conviction was a felony at the time it was entered. The court then looks to the statute’s list of 50 specifically enumerated felony offenses for which an expungement may be sought, finding that felony second-degree burglary is not included in the list.
The court points to other cases in which restrictions imposed due to felony convictions, which were later deemed misdemeanors under Minn. Stat. §609.13, were upheld, because the defendants were originally convicted of felonies (State v. Moon, 463 N.W.2d 517 (Minn. 1990) (felony firearm restriction), Matter of Woollett, 540 N.W.2d 829 (Minn. 1995) (prohibition from obtaining peace officer license due to prior felony conviction)).
The court distinguishes State v. Franklin, 861 N.W.2d 67 (Minn. 2015), which held that a felony conviction later deemed a misdemeanor does not meet the requirements of the career offender statute, finding an important distinction between the language of the career offender and expungement statutes. The career offender statute refers to an offender who “has five or more prior felony convictions,” while the expungement statute refers to a petitioner who “was convicted of or received a stayed sentence for a felony violation.” The denial of appellant’s petition with respect to the expungement of his felony burglary offense is affirmed. State v. S.A.M., Ct. App. 3/21/2016.
• Expungement: Expungement petition cannot be denied on grounds that expunged crime would not be available for bail study if petitioner charged with future crime. Appellant was acquitted of criminal sexual conduct charges, and petitioned for the expungement of his record under Minn. Stat. §609A.03, or under the district court’s inherent authority. His petition was denied on both grounds, and he appealed the denial of his statutory expungement.
A petition under §609A.03 may be filed if the proceedings were resolved in the petitioner’s favor, and shall be granted by the court unless it is established “by clear and convincing evidence that that the interests of the public and public safety outweigh the disadvantages to the petitioner of not sealing the record.” An acquittal is sufficient to justify an expungement, unless the party opposing the expungement affirmatively meets its burden of persuasion. The court considers a number of factors to determine if this burden has been sustained, listed in Minn. Stat. §609.03, subd. 5(c).
Here, the state, in opposing appellant’s petition, failed to present evidence that sealing appellant’s record would present “a unique or particularized harm to the public.” The district court pointed primarily to the fact that appellant absconded during prosecution, and adopted the state’s argument that absconding is relevant in the event appellant should be charged with a future offense, as it would influence the setting of bail or other security, so this information should be available for the court to consider in the future. This hypothetical situation “is simply too speculative to constitute clear-and-convincing evidence.” Reversed and remanded with instructions to enter expungement order. State v. D.R.F., Ct. App. 4/25/2016.
• 4th Amendment: Police may enter residence with probable cause to believe subject of arrest warrant is a short-term social guest. Respondent stayed intermittently with D.R. for approximately one week, and the parties agreed she was a short-term social guest at D.R.’s residence. While staying with D.R., police entered D.R.’s residence with an arrest warrant for respondent after receiving a tip that respondent may be at D.R.’s residence. Respondent was later charged with drug crimes. After an omnibus hearing, the district court ruled that respondent’s arrest was illegal, because she was a guest with a reasonable expectation of privacy at D.R.’s residence, and dismissed the charges with prejudice.
The court discusses a number of cases raised by the parties that discuss similar situations, but finds that none directly address the question of whether police may, with the purpose of apprehending someone under a valid arrest warrant, enter a residence where they have probable cause to believe that person is a visitor. The court adopts the 8th Circuit’s reasoning in U.S. v. Clifford, 664 F.3d 1090 (8th Cir. 1991), in which the 8th Circuit held that whether or not a guest had a reasonable expectation of privacy in another’s home is not crucial. If she did not, her rights were not violated. If she did, Payton v. New York, 445 U.S. 573 (1980), permits entry on the basis of the valid arrest warrant for the guest and probable cause to believe that she was within the premises.
Held, when police have probable cause to believe that the subject of a valid arrest warrant is present as a visitor in the residence of another, police may enter the residence to effectuate the arrest under the warrant without violating the 4th Amendment rights of the person named therein. The court leaves for another day the question of whether such entry violates the 4th Amendment rights of any other person. The district court’s dismissal of the charges is reversed. State v. Leona Rose deLottinville, Ct. App. 3/21/2016.
• Jury instructions: Accomplice liability instructions must explain meaning of intentionally aiding another and require that aiding and abetting be intentional. At the conclusion of his murder trial arising out of the shooting death of appellant’s father’s neighbor, the trial court instructed the jury on second-degree intentional murder and second-degree felony murder. Both instructions described accomplice liability as follows: “The defendant is guilty of a crime committed by another person when the defendant has intentionally aided the other person in committing it, or has intentionally advised, hired, counseled or conspired with, or otherwise procured the other person to commit it.” The elements portion of the instructions contained 13 references to appellant’s father being “aided and abetted” by appellant, but omitted the word “intentionally” every time they referred to appellant aiding and abetting his father.
The Supreme Court recently held that the accomplice liability instructions must explain the “intentionally aiding” element of accomplice liability. Specifically, the state is required to prove that the defendant knew his alleged accomplice was going to commit a crime and that the defendant intended his presence or actions to further the commission of the crime.
Held, the accomplice liability instructions constituted plain error, because they failed to properly inform the jury that the state had to prove beyond a reasonable doubt that appellant intentionally aided or assisted another in committing a crime. The elements portion of the instructions omitted the requirement that appellant’s aiding of his father be “intentional,” and the more general instructions on accomplice liability compounded the error, as they failed to explain the meaning of “intentionally aiding.” This error affected appellant’s substantial rights, because there was evidence that appellant did not intentionally aid his father, the state’s evidence that appellant intentionally aided his father was not overwhelming, and the errors permitted the jury to improperly convict appellant if the jury simply believed that appellant’s actions or presence at the farm in some way aided his father in killing the victim. A new trial is required, given the seriousness of the errors. State v. Timothy John Huber, Sup. Ct. 4/6/2016.
• Conditional release: Conditional release may not be reduced by time served in custody during supervised release term. While serving a 60-month sentence for first-degree aggravate robbery, DNA evidence connected appellant to a 2006 sexual assault. On 2010, he was convicted of third-degree criminal sexual conduct and sentenced to 28 months, to be served concurrently with his aggravated robbery sentence, and a 10-year conditional release term. Appellant was awarded credit for the 28 months he served for aggravated robbery since he was sentenced in 2008. The DOC determined his 28-month sentence ended 8/17/2010, and that his conditional release term would run from 8/18/2010 to 8/17/2020. Appellant filed a petition for a writ of habeas corpus, arguing that the DOC denied him credit against his conditional release term for time served on “supervised release,” which he claims was the final one-third of his criminal sexual conduct sentence that he served in prison.
The court holds that time “served on supervised release” refers to a time during the offender’s executed sentence after the offender is actually released from prison. Appellant did not serve time on supervised release for his criminal sexual conduct offense, so the last one-third of that sentence may not be credited against his conditional release term. This decision overturns State v. Koperski, 611 N.W.2d 569 (Minn. Ct. App. 2000).
In Minnesota, an offender without any disciplinary offenses is generally permitted to serve the final one-third of his sentence on supervised release in the community. Conditional release terms follow executed sentences for certain sex offenses. Minn. Stat. §609.3455, subd. 6, requires a conditional release period of 10 years, “minus the time the offender served on supervised release.” The court first finds this phrase ambiguous as applied to appellant, as it does not address situations in which offenders are serving concurrent sentences and are, therefore, ineligible to serve any of the supervised release time in the community.
Next, the court looks to the intent of the Legislature, finding that the term “served on supervised release,” refers to a period after the offender has been released from prison. Supervised release is defined as “the release of an inmate pursuant to section 244.05.” The supervised release statutes make clear that the final one-third of a sentence is merely the maximum an offender may serve on supervised release, and, while offenders are usually released to serve this period in the community, they have no right to serve any specific, minimum length of time on supervised release. The supervised release statutes also refer to sanctions for violating supervised release, which include reimprisonment. This provision would have no meaning if an offender could be in prison while on supervised release. Furthermore, in 2013, after appellant’s offense was committed, the conditional release statute was amended to provide that “after the offender has been released from prison, the commissioner shall place the offender on conditional release for 10 years.” Additionally, the DOC’s administrative rules, authorized by the Legislature, define “supervised release” as “that portion of a determinate sentence served by an inmate in the community under supervision and subject to prescribed rules.”
Finally, the court concludes that its interpretation is consistent with the purposes of supervised and conditional release, which the courts have held to be “to provide continuous supervision of a sex offender after release from prison,” and “to maintain supervision of a sex offender for a minimum length of time.” This purpose is not served if the last one-third of an offender’s sentence is automatically deducted from the conditional release term regardless of whether the offender served time in the community on supervised release. State, ex rel., Branden Lee Pollard v. Comm’r of Corrections, Ct. App. 4/11/2016.
• Juvenile: Juvenile stay of adjudication not properly entered where court makes no finding that allegations were proved. At the first appearance on a juvenile delinquency petition, defense counsel told the court the parties had agreed to a “continuance for dismissal.” The court continued the proceeding, without finding that the allegations had been proved. Nine months later, the court terminated the continuance, and Appellant C.J.H. was adjudicated delinquent. On appeal, C.J.H. argues the proceedings constituted a “continuance without adjudication,” because he unconditionally admitted the charges, which means the juvenile court’s jurisdiction expired before he was adjudicated delinquent, under Minn. R. Juv. Delinq. P. 15.05. The court of appeals vacated the delinquency adjudication, based on its conclusion that C.J.H.’s admissions at the first appearance transformed the proceeding into a continuance of adjudication, under Rule 15.05.
Held, to continue a case without adjudication, the juvenile court must find the allegations in the charging document to have been proved. No such finding was made in this case, so the proceedings at C.J.H.’s first appearance did not constitute a continuance without adjudication. The language of the juvenile court’s order after the first appearance reflects the court’s effort to satisfy Rule 14.01, subd. 2, relating to continuances for dismissal, which requires a showing of substantial likelihood that the allegations could be proved, as opposed to Rule 15.05’s requirement that the court find the allegations proved. The juvenile court never stated that the allegations had been proved. The court of appeals erred when it vacated C.J.H.’s delinquency adjudication. In the Matter of Welfare of C.J.H., Sup. Ct. 4/27/2016.
• Minnesota federal district court upholds agency’s decision under NEPA. On 3/31/2016, the United States District Court for the District of Minnesota held that the U.S. Army Corps of Engineers’ decision-making process under the National Environmental Protection Act (NEPA) was not “arbitrary and capricious.” The case involved a challenge to a flood prevention project proposed to be placed in North Dakota. The plaintiff is a joint authority formed by a county in North Dakota and Wilkin County in Minnesota. The defendant board includes the City of Moorhead, Minnesota; Clay County, Minnesota; and the Buffalo-Red River Watershed District, Minnesota. The plaintiff opposed the project on the grounds that an alternative plan, which would have placed the project in Minnesota, would have been better for floodplain protection.
The court pointed out that its role under NEPA is not to determine which decision was better, but instead to conduct a review of whether the agency decision may be set aside “for substantial procedural reasons” such that the agency’s decision is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” The court found that the standard for overturning the decision was not met because the Corps of Engineers extensively studied alternatives to the North Dakota flood plain project. In particular, the Minnesota project at issue was “studied at length.” The court reached this decision even though the Corps initially proposed the Minnesota plan for implementation, and Corps policy requires that a plan so designated be implemented “unless there are overriding reasons for recommending another plan, based on other Federal, State, local and international concerns.”
A second NEPA claim asserted by the plaintiff was that the Corps did not adequately respond to comments by the state of Minnesota to the Environmental Impact Statement. The court found that the Corps had responded to many of the comments at issue, and that “it is up to the Corps to decide which comments of other agencies are of value to its projects, and we are hesitant to second guess its judgment.” (quoting Ark. Wildlife Fed’n v. U.S. Army Corps of Eng’rs, 431 F.3d 1096, 1101 (8th Cir. 2005)).
The NEPA claim against the Flood Diversion Board was dismissed because the Board consists of state government units. The court found that NEPA claims are available only against federal agencies. Despite this ruling, the case is ongoing, as the court recognized that the claims under the Minnesota Environmental Rights Act and the Minnesota Environmental Policy Act against the Flood Diversion Board remain at issue. Richland/Wilkin Joint Powers Auth. V. U.S. Army Corps of Engineers v. Fargo-Moorhead Flood Diversion Bd. Of Auth., No. 13-2262, 2016 WL 1305121 (D. Minn. 2016).
• Minneapolis-St. Paul on the list of EPA’s top cities. The United States Environmental Protection Agency (EPA) announced on 3/30/2016 its list of “top cities,” which are the 25 U.S. metropolitan areas with the most Energy Star-certified commercial buildings. Energy Star certification is earned by independent verification that the building will perform better in terms of greenhouse gas emissions than at least 75 percent of similar buildings based on nationwide analysis. Minneapolis-St. Paul ranked 13th, with 131 buildings. The top three cities were Washington, D.C. (686 buildings), Los Angeles (527 buildings), and San Francisco (355 buildings). It is estimated that since its inception in 1992, the Energy Star program has save $362 billion in utility bills and has reduced greenhouse gas emissions by 2.4 billion metric tons.
• EPA revises requirements for state regional haze plans. The EPA is proposing to revise the Regional Haze Rule, which requires states to submit regional haze state implementation plans (SIPs) and progress reports. The regional haze program is designed to ensure clear visibility in national parks, such as Voyageurs National Park in Minnesota, and wilderness areas, such as the Boundary Waters Canoe Area Wilderness Area. The first SIPs were due in 2007 and covered the first planning period of 2008-2018. The revision being proposed addresses requirements for a second planning period. One important change is that the SIP submittal deadline for the second planning period is being moved from 7/31/2018 to 7/31/2021. The proposed rule was published in the Federal Register on 5/4/2016. 81 Fed. Reg. 26942. Written comments on the proposed rule may be submitted until 7/5/2016.
• MPCA proposes to revise Minnesota Superfund list. The Minnesota Pollution Control Agency (MPCA) announced on 5/9/2016 that it is proposing to delete one site from the Minnesota Superfund Permanent List of Priorities and to add 10 contaminated sites. Sites on the list have known risks to human health and the environment or the potential to pose such risks. Nine of the newly proposed sites are in the Twin Cities metropolitan area.
• MPCA announces plan to create environmental justice advisory group. MPCA Commissioner John Linc Stine plans to form an environmental justice advisory group to provide recommendations and advice on integrating environmental justice into agency programs. The group will consist of up to 12 members who will serve two-year terms. The commissioner commented: “We must put our words into action, and this advisory group is one of many steps we’re taking to fully integrate environmental justice into our programs.”
– Vanessa Johnson
Parkway Law LLC
EMPLOYMENT& LABOR LAW
• Labor law; NLRB orders upheld against employers. The 8th Circuit Court of Appeals recently upheld a pair of rulings of the National Labor Relations Board (NLRB) against employers.
The firing by a fast food franchisee in Minnesota of six employees who protested the company’s sick leave policy violated the workers’ rights under the National Labor Relations Act (NLRA). The 8th Circuit upheld a determination by the NLRB that the employees be reinstated and given back pay. A partial dissent by Judge James Loken of Minnesota argued that because of their “misleading” allegations, the employees were not entitled to “protection” under the NLRA because of their reflected “disloyalty.” MikLin Enterprises, Inc. v. NLRB, 2016 Minn. App. LEXIS 5586 (Minn. App. 2016) (unpublished).
A ruling by the board that a security services company wrongfully disallowed a group of employees from seeking union representation on grounds that they were supervisors was upheld. The board’s order that the company unlawfully refused to bargain with the union as a certified representative of the workers after they voted for a union was based upon “substantial evidence” that the employees, who were functioning in the role of lieutenants, did not exercise “independent judgment” in their roles to make them supervisors who were not susceptible to labor union certification. Securitas Critical Infrastructure Services, Inc. v. NLRB, 2016 Minn. App. LEXIS 5489 (Minn. App. 2016) (unpublished).
• Gender discrimination; male bias claim dismissed. A gender bias claim by a discharged male employee of a blood plasma collection facility was rejected by the 8th Circuit, which upheld dismissal of the gender bias claim and related allegations on grounds that the employee’s discharge was properly based upon the claimant’s violation of company policies. Denn v. CSL Plasma, Inc., 2016 Minn. App. LEXIS 4788 (Minn. App. 2016) (unpublished).
• Prevailing wages; hauling not covered. The hauling of asphalt cement from a commercial oil refinery to a contractor’s facility is not covered by the Minnesota Prevailing Wage Act. The state Supreme Court, overruling the court of appeals, held that the hauling activities were not covered as “work under the contract” for purposes of applying the law, pursuant to Minn. Rule 5200 1106. J.D. Donovan, Inc. v. Department of Transportation, 2016 Minn. App. LEXIS 210 (Minn. App. 2016) (unpublished).
• Age Discrimination; limitations period tolled. The one-year statute of limitations for bringing an administrative charge or suing under the Minnesota Human Rights Act is suspended, or tolled, by making an internal complaint to the employer’s human resources office. The court of appeals held that doing so comports with the provision of the Act allowing tolling if the employee is going through a “dispute resolution process,” under Minn. Stat. §363A.28, subd. 3. The decision elongates the time for pursuing legal action in those circumstances. Peterson v. City of Minneapolis, 2016 Minn. App. LEXIS 30 (Minn. Ct. App. 2016).
• Age discrimination; Richfield officers allowed to sue. Three police officers from Richfield were entitled to pursue age discrimination claims under the State Human Rights Act. The Minnesota Court of Appeals reversed a lower court ruling and allowed the officers to proceed with their claims that the department’s promotion system was improperly manipulated to favor younger personnel. Peterson v. City of Richfield, 2016 Minn. App. LEXIS 260 (Minn. App. 2016) (unpublished).
• Civil service; promotion register upheld. A related challenge by a pair of police officers to the creation of a detective-promotion eligibility register in violation of the city’s civil service rules was rejected. The appellate court held that the Civil Service Commission of the City of Richfield is not required to assign a numerical value to consideration of the records of the candidates, and there was no evidence that the Civil Service Commission did not consider the records of the candidates regarding efficiency, character, conduct, and seniority before it approved and ratified the eligibility roster. Peterson v. City of Richfield, 2016 Minn. App. LEXIS 296 (Minn. App. 2016) (unpublished).
• Employment agreement; restructuring upheld. The dismissal of an employee’s claim for breach of employment agreement when he was terminated for allegedly sharing information regarding his employment with potential buyers of the company was upheld. The Minnesota Court of Appeals held that the company made a “legitimate” decision to restructure its business, which warranted summary judgment in its favor. Mandel v. Multiband Corp., 2016 Minn. App. LEXIS 287 (Minn. App. 2016) (unpublished).
• Unemployment compensation; employment contractor loses. The court of appeals reversed the decision of an unemployment law judge that 43 installers of locking and shelving were covered for unemployment compensation benefits. The installers were not entitled to benefits because they were independent contractors, not employees, based upon the lack of control over the means and manner of their work and their employer’s lack of right to discharge them. Pemrick v. DEED, 2016 Minn. App. LEXIS 359 (Minn. App. 2016) (unpublished).
• Unemployment compensation; no misconduct for driving. An employee who was fired for poor driving was entitled to benefits. The appellate court rejected the employer’s claim that the discharge was due to sleeping on the job during training because the discharge did not occur at that time, but after the employee began the driving tasks. Thorstenson v.Waterford Oil Co., 2016 Minn. App. LEXIS 346 (Minn. App. 2016) (unpublished).
• Unemployment compensation; hearing was fair. Another challenge to the fairness of an unemployment compensation hearing was rejected by the appellate court. It ruled that the unemployment law judge allowed witnesses to testify and introduce exhibits, and permitted cross examination by both parties. Howard v. Family First Home Care, 2016 Minn. App. LEXIS 354 (Minn. App. 2016) (unpublished).
– Marshall H. Tanick
Hellmuth & Johnson, PLLC
• Valuation date and spousal maintenance reversal. A recent unpublished decision from the court of appeals stemming from a dissolution trial is interesting in its reversal of the district court on a number of issues.
The district court used the parties’ separation date in 2012 to value their assets instead of the pretrial conference on 2/21/2014. The court found that the parties had not directly agreed to use the separation date as the valuation date but that at a temporary hearing in July 2013, the parties agreed that each would be responsible for the credit card debt that each had accumulated since they separated. The district court did not make any other findings regarding its choice of the valuation date. Wife appealed and the court of appeals reversed because the parties had not agreed to use their separation date as the valuation date and the district court had not made the findings required by Minn. Stat. §518.58, subd. 1 to use a date other than the pretrial conference. The court of appeals also explained that the district court had clearly erred by using a 2013 value for wife’s home and a 2012 value for husband’s home.
Another issue in the case was wife’s request for spousal maintenance. The parties had been married for 22 years and had three children, ages 12, 16, and 21. Wife was a part-time massage therapist earning monthly gross income of $1,549. A vocational expert opined that wife could earn $4,080 per month by working 30 hours per week, which the court of appeals described as full-time employment. Husband worked for Edward Jones and had monthly gross income of $14,730. The district court found that wife’s monthly expenses were $5,033, husband’s monthly expenses were $8,498, and it ordered husband to pay maintenance of $1,000 per month for 10 years.
Wife challenged the imputation of income to her and the court of appeals rejected this because the district court had found the vocational evaluator to be more credible than wife on this point. However, the court of appeals agreed that the district court had abused its discretion by immediately imputing income to her because wife had historically worked under contract and it was not clear that wife would be able to quickly begin new employment.
Wife also challenged the district court’s calculation of the parties’ living expenses. Among other errors noted by the court of appeals, the district court had permitted husband to include monthly credit card payments in his budget but it had not included a corresponding amount in wife’s budget. Even though wife had not included credit card payments in her budget, the district court erred because wife had submitted evidence of her credit card debt and the district court was aware of its existence.
The court of appeals agreed with wife that the district court abused its discretion by awarding maintenance for only 10 years. The district court had found that wife would be self-supporting after 10 years “by allowing her time to find full-time employment or pursue schooling.” But this was inconsistent with the district court’s finding that wife still needed $1,000 per month in maintenance after imputing income to her from full-time employment. The court of appeals reversed and remanded so the district court could recalculate the parties’ monthly expenses, evaluate the duration of maintenance, and reconsider the immediacy of its imputation of income to wife.
Another issue on appeal was the district court’s denial of wife’s request that husband be ordered to maintain life insurance to secure her maintenance award. The district court had concluded that such a requirement was reserved for exceptional cases. The court of appeals reversed, citing its decision in Kampf v. Kampf, 732 N.W.2d 630 (Minn. Ct. App. 2007), which explained that the old “exceptional-case standard” had been eliminated by statutory changes in 1985. On remand, the district court was to consider the Kampf factors in deciding whether to impose a life insurance obligation. Reis v. Hallberg, A15-1032, 5/9/2016.
– Jaime Driggs
Henson & Efron PA
• FLSA class action; common questions of law or fact; use of representative sample. The Supreme Court approved of the use of representative samples to establish common questions or law or fact in an FLSA class action. Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016).
• TCPA; “ascertainability” of class members; commonality and predominance. The 8th Circuit held that where the membership of a proposed class of fax spam recipients was “clearly ascertainable,” and commonality and predominance requirements were also met, Judge Doty had abused his discretion in declining to certify a plaintiff class of fax recipients. Sandusky Wellness Center, LLC v. MedTox Scientific, Inc., ___ F.3d ___ (8th Cir. 2016).
• Diversity jurisdiction; interpleader. The 8th Circuit held that it had diversity jurisdiction over an interpleader action between the plaintiff insurer and two claimants, finding that while the insurer had deposited just over $40,000 with the district court, the total amount in dispute between the parties totaled more than $92,000. Federated Mut. Ins. Co. v. Moody Station & Grocery, ___ F.3d ___ (8th Cir. 2016).
• 28 U.S.C. §1782; discovery in aid of a foreign proceeding. Affirming an order by Judge Nelson, the 8th Circuit found that the likely availability of discovery in the underlying German action and the “sensitive nature” of the information sought outweighed the likely admissibility in Germany of the discovery sought in the district court, and that Judge Nelson had not abused her discretion in declining to order the production of the requested discovery under 28 U.S.C. §1782. Andover Healthcare, Inc. v. 3M Co., ___ F.3d ___ (8th Cir. 2016).
• Notice of appeal; Fed. R. App. P. 3(c)(1)(b); failure to identify order appealed from. Where Judge Nelson granted summary judgment to one defendant, the second defendant later settled and the plaintiff’s claims against the second defendant were dismissed with prejudice, meaning that the summary judgment against the first defendant automatically became a final judgment, and because the plaintiff’s notice of appeal identified one order but failed to identify the summary judgment order, the 8th Circuit held that it lacked jurisdiction to review the district court’s summary judgment order. Rosillo v. Holten, ___ F.3d ___ (8th Cir. 2016).
• Fed. R. Civ. P. 54(b); single-claim action; no appellate jurisdiction. Where a district court purported to certify the only claim in an action for immediate appeal under Fed. R. Civ. P. 54(b), the 8th Circuit found that Rule 54(b) does not apply to a “single-claim action,” and dismissed the appeal for lack of jurisdiction. Johnson v. Lombardi, 815 F.3d 451 (8th Cir. 2016).
• Unaccepted offer of judgment does not moot class claims. Earlier this year, this column noted the Supreme Court’s decision in Campbell-Ewald Co. v. Gomez, which held that an unaccepted offer of judgment does not moot putative class action claims, but also hinted that the outcome might be different “if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.”
In April 2016, this column noted Magistrate Judge Noel’s rejection of a defendant’s attempt to deposit funds with the court in an attempt to moot a putative class action. Since then, Judge Montgomery overruled the defendant’s objection to Magistrate Judge Noel’s order, finding “no clear error” in that order. Boris Yaakov of Spring Valley v. Varitronics, LLC, 2016 WL 806703 (D. Minn. Mar. 1, 2016), aff’d, 2016 WL 1735815 (D. Minn. 5/2/2016).
• Removal and remand; multiple cases. Judge Doty granted the plaintiff’s motion to remand an action removed on the basis of diversity jurisdiction to the Minnesota courts where a forum selection clause designated Le Sueur County, Minnesota as the only venue for resolution of disputes. Cambria Co. v. Renaissance Marble & Tile, Inc., 2016 WL 1706101 (D. Minn. 4/28/2016).
Judge Tunheim denied the plaintiff’s motion to remand a removed action to the Minnesota courts, finding that the corporate defendant was not a “closely-related party,” bound by the Minnesota state court forum selection clause in the individual defendant’s employment agreement, and that the individual defendant’s inability to consent to the removal was irrelevant where the removal was completed before the individual defendant had been served. Medtronic, Inc. v. Ernst, 2016 WL 1651801 (D. Minn. 4/26/2016).
• Motion to dismiss or transfer denied; 28 U.S.C. §1391(b)(2); location of “events or omissions.” Judge Tunheim denied a motion to dismiss or transfer product liability and warranty claims on the basis of alleged improper venue, finding that to accept the corporate defendants’ argument that the “events or omissions” underlying the plaintiffs’ claims occurred exclusively at the defendants’ headquarters (meaning that plaintiffs could not pursue their claims anywhere else), was “plainly not the law.” Luckey v. Alside, Inc., 2016 WL 1559569 (D. Minn. 4/18/2016).
• Bill of costs; indigent plaintiff. Judge Nelson sustained the plaintiff’s objections to the defendant’s bill of costs, finding that it was “neither equitable nor appropriate to tax costs” where the plaintiff was “plainly indigent and likely to remain so into the foreseeable future.” Damgaard v. McKennan, 2016 WL 1718370 (D. Minn. 4/29/2016).
– Josh Jacobson
Law Office of Josh Jacobson
• Asylum denied for Mexican family fearing gang persecution. The 8th Circuit Court of Appeals held that petitioners, claiming persecution at the hands of the Matazetas gang if they returned to Mexico, failed to show the government of Mexico either condoned the gang’s conduct or was unable to protect its victims. Saldana v. Lynch, No. 15-1226, slip op. (8th Cir. 4/28/2016). http://media.ca8.uscourts.gov/opndir/16/04/151226P.pdf
• Submission of I-751 petition constituted an act furthering marriage fraud conspiracy. The 8th Circuit Court of Appeals held the petitioner’s submission of an I-751 petition (to remove conditions on permanent residence) constituted an overt act furthering a conspiracy to commit marriage fraud, thereby extending his crime to a date within five years of his admission to the United States. Ashraf v. Lynch, No. 14-3179, slip op. (8th Cir. 4/22/2016). http://media.ca8.uscourts.gov/opndir/16/04/143179P.pdf
• Petitioner’s domestic assault convictions are not categorically crimes involving moral turpitude (CIMT). The 8th Circuit Court of Appeals held that the Board of Immigration Appeals (BIA) committed error when it declined to review the petitioner’s record of convictions for domestic abuse assault under the modified categorical approach in order to determine whether he had been convicted under a subsection describing a CIMT. “[A]ll four of Perez’s convictions under Iowa Code Annotated §708.2A, including his third and fourth convictions under the §708.2A(4)’s recidivist provision, are dependent upon the definition of ‘assault’ in §708.1(2).” “Because [§708.1] is divisible into discrete subsections of turpitudinous acts and non-turpitudinous acts,” Perez’s domestic-abuse assault convictions do not categorically constitute CIMTs. See Cisneros-Guerrerro v. Holder, 774 F.3d 1056, 1061 (5th Cir. 2014). Perez Alonzo v. Lynch, No. 15-2024, slip op. (8th Cir. 4/22/2016). http://media.ca8.uscourts.gov/opndir/16/04/152024P.pdf
• Years-old past events failed to provide an objectively reasonable basis for present fear of persecution. The 8th Circuit Court of Appeals held that the petitioner failed to show how threats made by Guatemalan guerrillas in 1992, 1997, and 2006 provided an objectively reasonable basis for a present fear of particularized persecution on account of his political opinion. Nor, for that matter, did his claimed group membership, “Guatemalan repatriates who have lived and worked in the United States for many years and are perceived to be wealthy.” It does not qualify as a socially distinct, sufficiently particular social group. Finally, changes in Guatemala’s conditions increased the likelihood that the petitioner could safely relocate to another part of the country. Cinto-Velasquez v. Lynch, No. 15-1198, slip op. (8th Cir. 3/25/2016). http://media.ca8.uscourts.gov/opndir/16/03/151198P.pdf
• District court’s denial of naturalization petitions was appropriate when petitioner-husband worked without authorization. The 8th Circuit Court of Appeals held the district court did not err when it denied the naturalization petitions of the petitioners, an Iraqi religious worker and his wife, on the ground that the husband violated the terms of his visa by accepting employment and working before receiving authorization to do so. Al-Saadoon v. Lynch, No. 14-3807, slip op. (8th Cir. 3/14/2016). http://media.ca8.uscourts.gov/opndir/16/03/143807P.pdf
• Conviction for crime of moral turpitude still exists since petitioner failed to show it was vacated for non-immigration reasons. The 8th Circuit Court of Appeals upheld the Board of Immigration Appeal’s finding that the petitioner failed to prove his state court conviction for theft in the fourth degree, a crime involving moral turpitude, was vacated for a substantive or procedural reason rather than for immigration purposes. “This conviction still qualified as a crime involving moral turpitude because Andrade-Zamora had not met his burden to prove the conviction was vacated on the merits, rather than for immigration purposes.” Andrade-Zamora v. Lynch, No. 15-2004, slip op. (8th Cir. 2/26/2016). http://media.ca8.uscourts.gov/opndir/16/02/152004P.pdf
• Denial of withholding of removal to Salvadoran with a murdered cousin belonging to a gang was proper. The 8th Circuit Court of Appeals held that none of the proposed family-based social groups in which petitioner claimed membership was a recognizable social group. “[A]n alien’s membership in ‘a family that experienced gang violence’ lack[s] ‘the visibility and particularity required to constitute a social group’ under the statute.” Aguinada-Lopez v. Lynch, No. 15-1095, slip op. (8th Cir. 2/23/2016). http://media.ca8.uscourts.gov/opndir/16/02/151095P.pdf
• No CAT relief for petitioner who failed to show she would likely be tortured upon a return to Haiti. The 8th Circuit Court of Appeals upheld the Board of Immigration Appeals’ denial of the petitioner’s application for Convention Against Torture (CAT) relief, finding no error when it concluded the petitioner failed to show she would “more likely than not” be tortured if removed to Haiti. Mervil v. Lynch, No. 15-1324, slip op. (8th Cir. 2/19/2016). http://media.ca8.uscourts.gov/opndir/16/02/151324P.pdf
• USCIS designates Matter of H.V.P. as an adopted decision. On 3/9/2016, U.S. Citizenship and Immigration Services issued a policy memorandum adopting an Administrative Appeals Office (AAO) decision, Matter of H.V.P., providing guidance to USCIS employees reviewing and issuing decisions in cases similar to H.V.P. The case clarifies that medical specialists, in addition to primary care physicians, may be eligible for the physician national interest waiver under section 203(b)(2)(B)(ii) of the Immigration and Nationality Act if they agree to practice in an area designated by the Secretary of Health and Human Services as having a shortage of health care professionals. https://www.uscis.gov/sites/default/files/USCIS/Laws/Memoranda/2016/Matter_of_H-V-P-_Adopted_Decision_2016-01.pdf_-_Adobe_Acrobat.pdf
• CBP announces e-Passport requirement for visa waiver program. On 5/9/2016, CBP announced that under the Visa Waiver Program Improvement and Terrorist Travel Prevention Act of 2015, Visa Waiver Program (VWP) travelers traveling to the United States with an Electronic System for Travel Authorization (ESTA) must have an e-Passport as of 4/1/2016. The agency noted that travelers from VWP countries may still travel to the United States without an e-Passport provided they have a valid nonimmigrant visa issued by a U.S. Embassy or Consulate. https://www.cbp.gov/newsroom/national-media-release/2016-05-09-000000/clarifying-e-passport-requirement-visa-waiver
– R. Mark Frey
Frey Law Office
•Patent infringement: Summary judgment granted. Judge Montgomery recently granted defendant’s motion for summary judgment on claims of patent infringement, along with other claims. Plaintiff LTJ Enterprises (LTJ) developed and patented the LevAlert, a device to measure the amount of material in a bin from the outside. Defendant Custom Marketing Co. (CMC) was LTJ’s preferred seller of the LevAlert for almost a decade before the business relationship soured. CMC then developed a competing device called the Grain Gauge. LTJ sued CMC for patent infringement. The claims at issue were written in means-plus-function form. The scope of a means-plus-function claim includes all of the structures and materials found in the patent specification and their equivalents that perform the function stated in the patent claim. The claim recited “a gear drive” and “a generally linear teeth or rack on guide member.” The court found that the Grain Gauge lacked a “guide member” or any corresponding structure. Therefore, the Grain Gauge did not literally infringe LTJ’s patent. Furthermore, the court found that the Grain Gauge did not infringe the patent under the doctrine of equivalents, an infringement theory where a device differs from the literal meaning of the claim terms only by insubstantial differences. The court noted that while the means-plus-function equivalence test is similar to the doctrine of equivalence test, the two tests are not coextensive. The court found that because there was not a corresponding structure to prove literal infringement under means-plus-function, there also could not be a corresponding structure to prove infringement under the doctrine of equivalence. LTJ Enters. v. Custom Mktg. Co., LLC, No. 13-2224 ADM/LIB, 2016 U.S. Dist. LEXIS 31661 (D. Minn. 3/10/2016).
• Trademark infringement: Summary judgment granted. Judge Montgomery also recently granted CMC’s motion for summary judgment on LTJ’s claims of trademark infringement. After the business relationship deteriorated, CMC developed its own device known as the Grain Gauge. LTJ sued CMC for trademark infringement based on CMC’s use of the LevAlert mark at a trade show. Although the court found that LevAlert was a strong mark and there was a high degree of competition between LevAlert and Grain Gauge, the other factors favored a finding of non-infringement. The court found CMC’s use of LevAlert constituted “permissible comparative advertising.” The court further found there was little similarity between the marks in sight, sound, or meaning; there was no intent to trade on LevAlert’s goodwill; and the conditions of purchase required sophisticated buyers who would not be confused. Therefore, CMC did not infringe LTJ’s trademark. LTJ Enters. v. Custom Mktg. Co., LLC, No. 13-2224 ADM/LIB, 2016 U.S. Dist. LEXIS 31661 (D. Minn. 3/10/2016).
– Tony Zeuli & Joe Dubis
Merchant & Gould
PROBATE & TRUST LAW
• First Forms 8971 due 6/30. After two delayed due dates, the first statements reporting the basis of distributed estate property pursuant to section 6035 are due 6/30/2016. Section 6035 was created under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 and enacted 7/31/2015. The purpose of the law is to ensure consistent basis reporting between estates and beneficiaries who receive estate property. The basis reporting requirements apply to estates that are required to file a federal estate tax return after 7/31/2015. For these estates, the executor must file a Form 8971 and related Schedule(s) A with the IRS and provide each beneficiary listed on Form 8971 with a copy of that beneficiary’s Schedule A. The June 30 due date applies to all Forms 8971 required to be filed with the IRS and all Schedules A required to be provided to beneficiaries after 7/31/2015, and before 6/30/2016. Going forward, Form 8971 and related Schedule(s) A are due no later than the earlier of (a) 30 days after the date the estate tax return is required to be filed (including extensions); and (b) 30 days after the date the estate tax return is actually filed with the IRS. Instructions for Form 8971 and Schedule A can be found at: https://www.irs.gov/pub/irs-pdf/i8971.pdf
• IRS confirms automatic six-month filing extension applies to federal estate tax returns filed solely to elect portability. Some commentators had speculated that the six-month automatic extension of time to file a federal estate tax return may not apply to returns filed solely for the purpose of electing portability. The IRS ended any debate through the “Frequently Asked Questions on Estate Taxes” section of its website, which indicates that “[a]n automatic six month extension of time to file the return is available to all estates, including those filing solely to elect portability, by filing Form 4768 on or before the due date of the estate tax return.” https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Estate-Taxes
– Robin Tutt
Lindquist & Vennum LLP
• Railroad easement; National Trails Systems Act. A railroad easement was converted into an easement for recreational trail purposes pursuant to the National Trails Systems Act, 16 U.S.C. §1247(d). Ranchers brought suit to declare that the easement terminated when the railroad ceased railroad operations. The district court dismissed the suits under Federal Rule 12(b)(1) as lacking subject matter jurisdiction, stating that claims were within the exclusive jurisdiction of the Surface Transportation Board. The 8th Circuit reversed the decision on Rule 12(b)(1) grounds and held that the claims were not within the exclusive jurisdiction of the Surface Transportation Board, but affirmed the dismissal of the claims under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. The ranchers argued that the state steps into the shoes of the original easement holder and cannot impose new non-railroad restrictions on their rights as servient landowners. However, the 8th Circuit held that the purpose of the National Trails Systems Act was to convey to the trail user a property interest that includes the right to use the acquired right-of-way for recreational trail purposes. Even though the conveyance in this case took the form of a quit claim deed from the railroad company to the state, a new easement for a new use was granted as a matter of federal law. The 8th Circuit noted that while the result may seem harsh, the landowners had other remedies, including a potential takings claim. Trevarton v. South Dakota, 2016 WL 1169083, ___ F.3d ___ (8th Cir. 2016).
• Mortgage foreclosure; standing. Homeowners brought suit claiming that a lender did not have the right to foreclose the mortgage on their home because they allege an invalid assignment of mortgage and claim the lender failed to comply with a clause in the mortgage giving the homeowners the lender’s intent to accelerate the loan. The district court granted the lender’s motion to dismiss. The 8th Circuit Court of Appeals affirmed. On the first issue, the 8th Circuit held that the homeowners lacked standing to challenge the lender’s right to foreclose based on an alleged invalid assignment of mortgage. On the second issue, the homeowners argued the notice of acceleration violated the mortgage because it didn’t specify the action required to cure the default because it required payment of a sum certain plus unspecified additional future payments, did not tell them they had an unconditional right to reinstate, and did not give the requisite 30 days’ notice. The 8th Circuit affirmed the dismissal of this claim because the unspecified portion of the reinstatement amount for future conduct did not prevent the notice from specifying the action required to cure the default, the mortgage did not require the notice to specifically say the homeowner had an unconditional right to reinstate, and the notice was dated 30 days before the deadline to reinstate and the mortgage stated that any notice is deemed given upon mailing. Brown v. Green Tree Servicing, LLC, 2016 WL 1579022, ___ F.3d ___ (8th Cir. 2016).
• Torrens property; good faith purchaser; equitable mortgage. Burkhalter’s house was registered under Minnesota’s Torrens Act, and was foreclosed. Burkhalter applied for financing to fund a redemption. The lender refused to extend Burkhalter a loan, even with various family members included on the loan application. The lender suggested a loan only to the family members, which was approved. The lender administered the closing on the loan and prepared a quit claim deed from Burkhalter to the family members, and received a promissory note and mortgage on the property from the family members. Burkhalter and the family members anticipated that Burkhalter would stay in the house and make the monthly mortgage payments, plus all utilities, insurance, property taxes, and maintenance. A year later, Burkhalter stopped making the mortgage payments, the family members commenced an eviction proceeding, and Burkhalter commenced a declaratory judgment action that the transaction constituted an equitable mortgage and requested that the mortgage be declared void or be equitably reformed to include her as the sole mortgagor. The district court granted the lender’s summary judgment motion, holding that even if Burkhalter were to prevail in her equitable mortgage claim against her family members, the lender’s mortgage would remain intact because the lender was a good faith purchaser under Minnesota Torrens statute, section 508.25. Burkhalter appealed. The issue on appeal was whether the lender was disqualified from protection as a good faith purchaser of Torrens property when it extended to the family members the mortgage loan when it knew of circumstances that could support an eventual equitable mortgage claim by Burkhalter. The court of appeals affirmed. The court of appeals first held that an encumbrancer was a “purchaser” under the Torrens Act’s good faith purchaser statute. Next, the court of appeals reiterated the rule that, other than the seven statutorily defined exceptions (not applicable in this case), a purchaser of Torrens property can prevail as a good faith purchaser defeating any previous, unregistered interest about which the purchaser had no actual knowledge. Implied and constructive notice of an unrecorded interest does not defeat good faith purchaser status when involving Torrens property. The court of appeals further held that an equitable mortgage does not exist, in fact, unless the party who has the right to file a successful claim to ownership by equitable mortgage has done so. In applying this rule, the court of appeals ruled that that it was not possible for the lender to have actual notice of a property interest that didn’t exist at the time of the mortgage. Knowledge of a fact that might give rise to an equitable mortgage is only knowledge of suspicion that a competing interest exists, which is insufficient to constitute actual notice under the Torrens Act. Burkhalter v. Mays, 2016 WL 1396894, ___ N.W.2d ___ (Minn. Ct. App. 2016).
– Michael Kreun
Beisel & Dunlevy PA
• Tax dispute leads to state dispute. In a recent case, the United States Supreme Court held that Nevada may not give its own citizens special protection against the actions of another state, when it would not provide the same protections for them against its own actions. The dispute arose when a Nevada resident who had formerly lived in California sued the Franchise Tax Board of California (California’s department of revenue) alleging intentional torts and bad-faith conduct during audits. A jury awarded the man nearly $1 million in damages and the award was upheld by Nevada’s highest state court. The high court reduced the damages to about $50,000. States looking for a bright-line prohibition on being sued by former residents in the courts of their sister states, however, will have to try again. An equally divided court declined to overrule Nevada v. Hall, 440 U.S. 410 (1979), and therefore the Nevada courts’ exercise of jurisdiction over California’s state agency was permitted. Franchise Tax Bd. of California v. Hyatt, 136 S. Ct. 1277 (2016).
• Puerto Rico’s debt crisis forces court to address tax questions. In a state of insolvency, Puerto Rico found itself arguing before the United States District Court for the constitutionality of one of its measures to curb its debts. Wal-Mart Puerto Rico, Inc. sued the Secretary of the Treasury of the Commonwealth of Puerto Rico, seeking an injunction of Puerto Rico’s minimum alternative corporate income tax (AMT) and a declaration that the AMT was unlawful under the dormant Commerce Clause, the Equal Protection Clause, the Bill of Attainder Clauses, as well as the Federal Relations Act.
Puerto Rico is a “sinking ship” (the district court’s term) and the commonwealth is projected to run out of cash this month (June 2016). In an effort to increase government funds, the secretary advised Puerto Rico to modify its AMT. Section 1022.03(b)(2) and (d) of Puerto Rico Internal Revenue Code raises the tangible property tax by 2%, increasing Wal-Mart’s tax bracket to 6.5%. The AMT acts more like a levy against multistate corporations for transfer-pricing than as an income tax, because it taxes the goods that a Puerto Rico corporation buys from its home office or related corporation in the US, which are then sold in stores in Puerto Rico. The AMT principally hits Wal-Mart—the only corporation in Puerto Rico in the highest tax bracket. In fact, some government officials call it the “Wal-Mart Tax.”
The impact of the AMT is impressive. In one year, Wal-Mart Puerto Rico was taxed at a rate of 114%, because it bought more from its affiliate in the mainland then it was able to sell in Puerto Rico. Just as other large multistate chains, such as RadioShack and GameStop, have left Puerto Rico, there was concern that Wal-Mart would soon be pushed off the island under this new tax.
In this litigation, Wal-Mart first had to overcome doubts of subject matter jurisdiction in federal court. The court found that this suit was one of the few that fit under the Butler Act, Puerto Rico’s analog of the Tax Injunction Act. This narrow exception is limited to parties seeking to enjoin a Puerto Rico tax in which the commonwealth does not offer a plain, speedy, and efficient remedy. Although Puerto Rico has a system in which a corporation can file for a refund within four years, the court reasoned that due to Puerto Rico’s slow court system, by the time the suit was appealed to the Supreme Court, a speedy remedy could not be provided as the corporations would be paying millions of dollars on the tax in subsequent years. Further, the court would be hard-pressed to execute the judgment because of Puerto Rico’s insolvency. Paying back a tax refund does not even make the list of Puerto Rico’s priorities in payment. Thus, the court was satisfied with its jurisdiction.
The court then addressed the merits. The court ruled that the AMT was unconstitutional as a violation of the dormant Commerce Clause, the Federal Relations Act, and the Equal Protection Clause. The AMT effectively taxes the largest corporation on the island in order to make up for the territory’s serious debts. It arbitrarily discriminates against large corporations in order to further an illegitimate government purpose of paying off loans. The court concluded with a call to Puerto Rico to adhere to the principles of competency, honesty, and transparency in government in order to salvage the sinking ship called Puerto Rico. Wal-Mart Puerto Rico, Inc. v. Zaragoza-Gomez, U.S. District Court for the District of Puerto Rico, Civil No. 3:15-CV-03018 (JAF), 3/28/2016.
• Widow not permitted to use late husband’s alternative minimum tax credit. Before their marriage, the taxpayer’s late husband exercised employer-granted incentive stock options that resulted in alternative minimum tax (AMT) liability. He properly reported that liability on a 1998 tax return filed jointly with his previous wife (who was not taxpayer). Payment of the AMT liability in 1998 generated an AMT credit carryforward. The late husband then divorced and married taxpayer, but died before using the AMT credit. Several years after her husband’s death, the taxpayer attempted to use the credit carryforward to offset her individual income tax liability. The court did not permit the taxpayer to use the AMT credit to offset her individual income tax liability for 2009. Although neither the statute nor the relevant regulations provided an answer as to whether the taxpayer was entitled to the AMT credit, the court reasoned by analogy to case law specific to net operating losses to reach its conclusion. Vichich v. Comm’r, No. 7509-12, 2016 WL 1627952 (Tax Ct. 4/21/2016).
• Economic benefit applies to split-dollar life insurance arrangement with trusts. In a recent case, the tax court interpreted relatively recent regulations addressing split-dollar life insurance. A split-dollar life insurance arrangement, according to the Regs, is an arrangement between an owner and a non-owner of a life insurance contract in which: (i) either party to the arrangement pays, directly or indirectly, all or a portion of the premiums on the life insurance contract; and (ii) the party paying for the premiums is entitled to recover all or any portion of those premiums, and such recovery is to be made from, or is secured by, the proceeds of the life insurance contract. The taxation of split-dollar life insurance arrangements proceeds under one of two mutually exclusive regimes: (1) the economic benefit regime and (2) the loan regime. Ownership (or deemed ownership) of the life insurance policy dictates which of the two taxing regimes applies.
The backdrop for this dispute involved a mother setting up a revocable trust and three distinct trusts (dynasty trusts) for the benefit of each of her three sons. The mother’s trust entered into two split-dollar life insurance arrangements with each dynasty trust, and then contributed a total of $29.9 million to the children’s trusts to fund the purchase of life insurance policies on each of the decedent’s three sons. The split-dollar life insurance arrangements provided that the trust would receive the greater of the cash surrender value of the respective policy or the aggregate premium payments on that policy upon termination of the split-dollar life insurance arrangement or the death of the insured.
The Service determined that the $29.9 million contribution was a gift for tax year 2006 and assessed a gift tax deficiency against the estate. The estate moved for partial summary judgment on the narrow issue of whether the split-dollar life insurance arrangements are governed by the economic benefit regime. The tax court held that because the only economic benefit conferred upon the trusts was current life insurance protection, the economic benefit regime applied. Estate of Morrissette v. Comm’r, No. 4415-14, 2016 WL 1535204 (Tax Ct. 4/13/2016).
• Tax and administrative law: No “tax exceptionalism” in the ordinary course of deficiency redetermination. The underlying dispute in a recent case involved the disallowance of claimed deductions for certain insurance expenses. The opinion is notable, however, because of the court’s discussion of the intersection of administrative law and tax. The court permitted the Service to raise what the Service termed “new arguments” in an amendment to his answer “to affirmatively allege facts in support of [two] new issues.” The taxpayers, a married couple, objected to the motion, arguing that administrative law bars the raising of both these new issues. The couple also argued that the raising of the new issues unfairly prejudiced them, and that one of the new issues was inadequately pleaded. The court spent the majority of its analysis on the administrative law argument, but also held that no prejudice resulted from permitting the additional argument, and the answer did not constitute a “new matter.”
The taxpayers cited Mayo Foundation for Med. & Educ. Research v. United States, 562 U.S. 44, 55 (2011) to support their argument that “the Administrative Procedure Act and Securities and Exchange Commission v. Chenery Corp., 318 U.S. 80 (1943) bar the Commissioner from raising new grounds to support his final agency action beyond those grounds originally stated in the notice of final agency action.” The court rejected the argument. Instead, the court interpreted Chenery as restricting a reviewing court from relying on reasons not considered by an agency in its determinations, but only as to matters that Congress has exclusively entrusted to the administrative agency. That argument failed in this case, because in deficiency cases, Congress expressly authorized the tax court to redetermine tax liabilities. The court held that the long-standing and pre-APA practice of permitting redetermination of tax liability in deficiency actions was not at odds with the uniform approach to judicial review of administrative action that is called for in Mayo Foundation. Ax v. Commissioner, No. 29078-14, 2016 WL 1446066 (T.C. 4/11/2016).
• Professional negligence: statute of limitations for non-qualified appraisal. In a dispute arising out of an appraisal gone awry, the Minnesota Court of Appeals affirmed the trial court’s determination that the statute of limitations had run, precluding a professional negligence cause of action. The dispute arose after the IRS rejected an appraisal that the taxpayer had provided in support of his charitable contribution of property. Since the value of the property exceeded applicable amounts, federal tax rules required a qualified appraisal. The appellant settled his dispute with the IRS and paid additional tax, penalties, and interest. The appellant then sued the appraisal group, asserting various claims that included common-law negligence and professional negligence. The district court dismissed the complaint, concluding that the lawsuit was untimely, and the court of appeals affirmed. The reviewing court reasoned that the professional-negligence action accrued not when the tax return was filed, but when the appraisal was completed because “some damage” occurred contemporaneously with the appraisal. Specifically, from the moment the appraisal was completed, it was not “qualified” and the appraisal substantially inflated the value of the property. Veit v. ProSource Techs., Inc., No. A15-1430, 2016 WL 2616032 (Minn. Ct. App. 5/9/2016).
• Property tax: Failure to file application precludes classification as agricultural. Following trial, the Minnesota Tax Court determined that a taxpaying couple had not provided sufficient evidence that the county had misclassified their property. The taxpayers sought to classify the property as homestead property pursuant to Minn. Stat. 273.124, subd. 1(d). The taxpayers, however, failed to provide evidence that they had filed an application for such classification, and therefore the county’s denial of the classification was affirmed. The court also rejected the taxpayers’ unequal assessment argument; their valuation dispute; and the taxpayer wife’s argument that she had not properly been served. Johnson v. Hennepin Co., No. 27-CV-14-07031, 2016 WL 1399315 (Minn. Tax Ct. 4/4/2016).
• Sales and use tax: Motion in limine denied. The Minnesota Tax Court rejected the commissioner’s attempt to exclude expert reports and to bar the experts from testifying in a dispute surrounding proper sales tax on alcohol and food sold by a Minneapolis nightclub. The commissioner argued that the reports should be excluded because the report would not be helpful to the court, lacked foundational reliability, and included improper opinions on question of law. The tax court rejected the motion in all respects. Karma v. Comm’r, No. 8765-R, 2016 WL 1730741 (Minn. T. C. 4/22/2016).
• Gain on termination of partnership interest need not await IRS action. Declining the taxpayer’s invitations to “delay these proceedings until the dispute between Investors and the IRS is resolved” or to “issue a ruling placing the burden of persuasion on the commissioner,” the Minnesota Tax Court granted the commissioner’s motion for summary judgment in a dispute involving gains on the termination of a partnership interest. The taxpayer had held a minority interest in a partnership that owned a Minneapolis commercial property. The partnership terminated, and the Commissioner of Revenue assessed Minnesota income tax, penalties, and interest in the amount of $591,581.57. The taxpayer failed to persuade the tax court that a dispute between City Center Investors (in which the taxpayer was a partner) and City Center Associates (in which City Center Investors held a partnership interest) as to the amount of various gains realized by associates on the deemed sale of its sole asset should preempt the commissioner’s assessment. Harmon v. Comm’r, No. 8760-R, 2016 WL 1730731 (Minn. T.C. 4/21/2016).
• Property tax. In an extensive opinion, the Minnesota Tax Court assigned a market value of $7,557,000 to a suburban multiplex. The court examined the valuation using the income capitalization approach and the sales comparison approach. (The court considered and rejected giving any weight to the cost approach.) After discussion of each approach, the court gave “the income capitalization approach, with an indicated value of $7,557,000 ($472,313 per screen), one hundred percent weighting in our final reconciliation.” The sales approach served only as “check… because we believe that market participants would do the same.” Am. Multi-Cinema, Inc. v. Hennepin Co., No. 27-CV-12-8506, 2016 WL 1555490 (Minn. T. C. 4/13/2016).
• Will carried interest go the way of inversions? Through administrative action, the Obama administration tightened the rules on corporate inversions. Those new Treasury regulations are credited (or blamed) with halting the proposed merger of Pfizer and Allergan Plc. Next on the target list could be the long-lamented “carried interest tax loophole” that allows managers of private equity and hedge funds to pay a substantially lower federal tax rate on much of their income. Although Congressional action could impose an ordinary income rate on the private equity managers, short of Congress acting, Treasury could modify regulations so as to untie the carried interest loophole.
• Hobby losses predicted to generate IRS interest. Yoga classes, golfing outings, yacht racing—all of these are hobbies for some, but provide a livelihood for others. The line between “activities engaged in for profit” and “hobbies” has long vexed the Service. “Activities engaged in for profit” generate substantial deductions. Conversely, deductions for “hobbies” are strictly limited. A recent report from the Treasury Inspector General for Tax Administration (TIGTA) recommends that the IRS improve its methods for identifying high-income taxpayers who may be offsetting their income with “hobby losses” from unprofitable business activity. Specifically, the report identified 9,699 individual returns from Tax Year 2013 that claimed a Schedule C loss of at least $20,000, gross receipts of $20,000 or less, and reported wages of at least $100,000. These claimed losses would not a problem, except TIGTA’s review of a statistically valid sample of returns determined that 88 percent showed an indication that the Schedule C businesses were not engaged in for profit. TIGTA estimates that 7,511 returns in the total sample population of taxpayers may have inappropriately used hobby loss expenses to reduce taxes by as much as $70.9 million for Tax Year 2013.
– Morgan Holcomb
Mitchell Hamline School of Law
TORTS & INSURANCE
• Uninsured motorist; accrual date. Plaintiff was injured in a motor vehicle accident while a passenger in a vehicle she did not own. The other vehicle involved in the accident fled the scene. Plaintiff recovered primary UM benefits from the policy covering the vehicle in which she was a passenger, and then sought to recover excess UM benefits from her own policy of insurance with defendant insurer. Defendant denied the claim. More than six years after the accident occurred, plaintiff Hegseth filed suit seeking to recover excess UM benefits. The district court granted summary judgment to defendant based upon the statute of limitations. The court of appeals affirmed.
The Minnesota Supreme Court affirmed. The Court held that a claim for UM benefits generally accrues on the date of the accident, recognizing only a limited exception applicable when uninsured status is the result of an insurer’s subsequent insolvency. The court rejected plaintiff’s position—that a claim does not accrue until the insurer denies the claims—reasoning that such a rule would allow a plaintiff to extend the limitations period indefinitely by not making a demand. The court also rejected the position of amicus curiae Minnesota Association for Justice, who asked the Court to conclude that a claim for excess UM benefits does not accrue until the primary UM claim is resolved because such a claim was not a condition precedent to suit against the excess UM carrier. (Note: The author’s firm submitted an amicus brief in this matter on behalf of the Property Casualty Insurance Association of America.) Hegseth v. Am. Family Mut. Ins. Group, No. A14-1189 (Minn. 3/23/2016). http://mn.gov/law-library-stat/archive/supct/2016/OPA141189-032316.pdf
• Medical Minnesota Commitment and Treatment Act; immunity. Plaintiff’s son allegedly suffered from suicidal thoughts and ideation. After he allegedly made an attempt at suicide, plaintiff brought him to defendant clinic for voluntary treatment. After several hours, plaintiff’s son was discharged. He later committed suicide. Plaintiff brought suit alleging negligent failure to properly examine, evaluate, and provide services to the deceased. The trial court denied the defendant’s motion for summary judgment based upon the immunity provisions set forth in the Minnesota Commitment and Treatment Act (CTA), Minn. Stat. §253B.23, holding that it applied only to involuntary commitments, not voluntary admission decisions. The court of appeals reversed, holding that §253B.23 provides immunity to voluntary admission decisions.
The Minnesota Supreme Court affirmed in part, reversed in part, and remanded. The Court held that the plain language of the CTA provides immunity to medical service providers who, in good faith, decide to deny admission to a person seeking voluntary treatment. In analyzing the plain language of the statutory grant of immunity, the Court concluded that the Legislature enacted a broad immunity provision that applies to any action pursuant to the CTA that is taken in good faith. Specifically, immunity applies not only to the treatment of involuntary patients but also to the decision of whether to admit voluntary patients. The case was remanded for the trial court to decide whether there were any other allegations of negligence apart from the admission decision. (Note: The author’s firm successfully represented the respondents in this matter.) Binkley v. Allina Health Sys., No. A14-0794 (Minn. 4/6/2016). http://mn.gov/law-library-stat/archive/supct/2016/OPA140794-040516-modified.pdf
• Underinsured motorist; collateral sources. Plaintiff suffered injuries in a car accident, resulting in $178,083.44 in medical expenses. Plaintiff’s no-fault insurer paid $20,000 of those bills. The remaining bills were paid by her insurer, who negotiated the amounts due and resolved the total debt through a payment of $72,216.85. After plaintiff resolved her claim against the at-fault driver for his policy limits of $100,000 and purchased the lien for health benefits paid by her insurer, she brought suit against defendant seeking underinsured benefits. The district court granted summary judgment for the plaintiff.
The Minnesota Court of Appeals reversed. The court first determined that a claim for UIM benefits requires damages in excess of the tortfeasor’s liability limit. The court then held that to determine whether recoverable damages exceed that limit, they must be reduced by collateral-source benefits. Relying on Swanson v. Brewster, the court held that the discount negotiated by plaintiff’s insurer were collateral sources that must be deducted from her recoverable damages. Because plaintiff’s remaining damages did not exceed the limit of the tortfeasor’s insurance, the court granted summary judgment in favor of the insurer. Auers v. Progressive Direct Ins. Co., No. A15-1832 (Minn. Ct. App. 4/25/2016). http://mn.gov/law-library-stat/archive/ctappub/2016/opa151832-042516.pdf
– Jeff Mulder
Bassford Remele, A Professional Association