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.
• Filing proof of claim on time-barred debt not per se violation of FDCPA. Debtor Nelson defaulted on a consumer debt in November 2006. Debtor filed a Chapter 13 petition in February 2015. Defendant Midland Credit Management filed a proof of claim for the amount of the debt, as agent for the creditor. Nelson objected to the claim as time-barred, and the bankruptcy court disallowed the claim under the Missouri statute of limitations. Nelson proceeded to sue Midland, asserting that Midland violated the federal Fair Debt Collections Practices Act (FDCPA) by filing a proof of claim on a time-barred debt. The 8th Circuit affirmed the district court’s dismissal of the FDCPA case. The 8th Circuit explicitly declined to follow Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), stating that Crawford “ignored the differences between a bankruptcy claim and actual or threatened litigation[.]” The court observed that while filing or threatening to file a lawsuit to collect a time-barred debt would violate the FDCPA (citing Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767, 771 (8th Cir. 2001)), the filing of a proof of claim is less burdensome, and the protections provided by the Bankruptcy Code satisfy the concerns of the FDCPA, and already protects debtors from harassment and deception. Nelson v. Midland Credit Management, No. 15-2984 (8th Cir. 7/11/2016).
• Non-discharge decision affirmed, based on collateral estoppel effect of state court verdict. Debtor Roussel and LuAnn Deere formed Clear Sky, an Exit Realty franchised real estate agency, which held rights to operate in one half of Conway, Missouri. Members of the entity had the right to veto a proposed sale of another member’s interest in Clear Sky. Roussel tried to sell his 50% interest, which Deere refused. He later sought to sell two-thirds of his 50% interest, which Deere agreed to allow. Shortly after, Roussel and two other agents from Clear Sky formed a new entity and purchased an Exit Realty franchise to operate in the other half of Conway. Deere and Clear Sky successfully sued Roussel in state court, obtaining a significant jury verdict against him. Roussel filed a Chapter 7 bankruptcy. Deere and Clear Sky commenced an adversary proceeding, asking that the entire state court judgment be found non-dischargeable. Roussel argued that collateral estoppel did not apply, asserting that 11 U.S.C. Sec. 523(a)(4) and (a)(6) issues had not been actually litigated. The bankruptcy court found generally in favor of Roussel. The district court reversed the bankruptcy court, a decision affirmed by the 8th Circuit after resolution of an attorneys’ fee issue on remand. Roussel first argued that collateral estoppel did not apply to show he acted maliciously as required by Section 523(a)(6). The 8th Circuit relied on the punitive damages jury instruction in the state court action to affirm that the malice requirement was met. The instruction asked the jury to find that Roussel “knew or should have known” that his conduct would “naturally and probably result in damages” and proceeded to act “in reckless disregard of the consequences from which malice may be inferred.” Second, Roussel challenged the finding that he had acted willfully. The 8th Circuit noted that willfulness is an objective standard, requiring a showing that a defendant “desired to bring about the injury or was, in fact, substantially certain that his conduct would result in the injury that occurred.” In affirming the district court, the 8th Circuit noted that Roussel testified that he knew Clear Sky intended to expand into the rest of Conway to prevent the opening of a competing franchise and that Roussel secretly discussed opening another agency with two other Clear Sky agents after Deere rejected Roussel’s first offer to sell his interest. This decision reiterates the importance to a plaintiff’s counsel of careful planning and litigation strategy to seek language in a verdict or factual findings that a defendant’s conduct met the requirements of Section 523, and conversely that a defendant’s attorney should consider and advise a client on the consequences of such findings in a later bankruptcy case. Roussel v. Clear Sky Properties, LLC, et al., No. 15-3048 (8th Cir. 7/25/2016).
DeWitt Mackall Crounse & Moore S.C.
• Criminal procedure: State may reopen case after failure to prove prima facie element. At appellant’s trial for second-degree DWI, the state rested before offering certified copies of appellant’s two prior DWI convictions. Appellant moved for judgment of acquittal, arguing that the state failed to prove the aggravating factors needed for second-degree DWI. The state then moved to reopen its case. The district court denied appellant’s motion and permitted the state to reopen its case. The state offered the certified conviction record into evidence, and again rested. Appellant was convicted.
In this case of first impression, the court of appeals considers whether a district court has discretion to allow the state to reopen its case after failing to offer evidence of an essential element of its case. The court of appeals acknowledges the district court’s discretion in allowing a party to reopen its case after resting, as set forth in Minn. R. Crim. P. 26.03, subd. 12(g). Case law has established a number of factors to consider in deciding a motion to reopen, but no case has considered the district court’s discretion to permit the state to reopen its case where the state has rested after failing to prove a prima facie element.
Held, the district court did not abuse its discretion by allowing the state to reopen its case. The court points out that the language of Rule 26.03, subd. 12(g), is very broad, and interprets the rule “to provide that a district court has discretion to grant or deny a motion to reopen, even when made by the state after the defense has pointed out deficiencies in the state’s prima facie case in a motion for acquittal.” Here, the district court properly analyzed the factors established by case law. The state’s request was made immediately after it rested, the evidence was material, not cumulative, and concerned a controlling issue, and appellant does not allege any improper purpose for failing to produce the evidence earlier. State v. Quintin Lynn Thomas, Ct. App. 7/5/2016.
• Criminal procedure: Rule 8.02 does not require presentation of case to grand jury within 14 days of arraignment. Appellant was charged by complaint with second-degree intentional murder and arraigned on that charge. 150 days later, a grand jury indicted appellant for first-degree premeditated murder. The district court denied appellant’s motion to dismiss the indictment as untimely under Minn. R. Crim. P. 8.02, subd. 2. Appellant was convicted after a bench trial.
Rule 8.02, subd. 6, requires that a case be presented to the grand jury within 14 days of a Rule 8 hearing under certain circumstances. The 14-day requirement is contingent on either (1) a homicide charge plus prosecutorial notification or (2) an offense punishable by life imprisonment. State v. Parker, 585 N.W.2d 398 (Minn. 1998). Here, at the time of appellant’s Rule 8 hearing, the charged offense, second-degree intentional murder, was not punishable by life imprisonment, and the prosecutor never notified the court that the matter would be presented to a grand jury. Thus, the 14-day time period did not begin to run after the hearing. The trial court did not err in denying appellant’s motion to dismiss the indictment. State v. Aloeng Kelly Vang, Sup. Ct. 7/6/2016.
• Ballot destruction: ballot destruction a general intent crime. Appellant was elected as township supervisor for Wanamingo, Minnesota at a township meeting. Following the meeting, appellant took the ballots home and stored them in his garage for a short period of time, until he burned them. Appellant was charged with ballot destruction and misconduct of a public officer. At the close of testimony, the district court declined appellant’s requests to instruct the jury regarding the defenses of mistake of law and governmental estoppel as to the ballot destruction offense, which the court found to be a general intent crime, but permitted the instructions as to the misconduct of a public officer charge. The jury found appellant guilty of ballot destruction and not guilty of misconduct of a public officer.
In this case of first impression, the court of appeals determines that ballot destruction, Minn. Stat. §204C.06, subd. 4, is a general intent crime. Minn. Stat. §204C.06, subd. 4(b), provides that “[n]o individual shall intentionally… damage, deface, or mutilate any ballot, election file, or election register or any item of information contained on it…” As a general rule, when a statute simply prohibits a person from intentionally engaging in certain conduct, the crime is a general intent crime. “The organization and use of ‘intentionally’ indicates this is a general-intent crime.”
The district court also did not err in refusing to provide the mistake of law and governmental estoppel jury instructions requested by appellant. Mistake of law is generally not a defense to general intent crimes. The district court incorrectly concluded that the governmental estoppel defense applies only to specific intent crimes, but did not err in refusing to give the instruction to the jury, because appellant failed to present a prima facie case that he relied on an official government source that advised him it was legal to burn the ballots, so he was not entitled to the instruction. State v. Thomas Joseph Shane, Ct. App. 7/5/2016.
• Probation: Probation revocation due to termination from drug court; probationer entitled to new judge at revocation hearing. In 2014, appellant received a stayed sentence for second-degree drug sale and was placed on probation for 10 years, with a requirement that he enroll in and complete Southwest Community Drug Court. He was ultimately terminated from drug court. The decision to terminate appellant was made by the drug court judge, along with other members of the “drug court team.” Shortly thereafter, a probation violation report was filed. Appellant moved to have the drug court judge disqualified from presiding over the probation violation hearing, but the chief judge denied his motion. The drug court judge revoked appellant’s probation after a contested hearing, reduced his original sentence from 81 to 68 months, and executed the sentence. On appeal, appellant argues the district court violated his constitutional due process right to have a neutral and detached decision-maker preside over his probation violation hearing.
In drug court, where the judge learns the intimate details of the participant’s daily life, a reasonable observer could reasonably question the judge’s impartiality. The sole reason appellant’s probation was revoked was his termination from drug court, a decision with which the drug court judge was directly involved, and due process requires that the revocation determination be made by someone not directly involved in the case. In this case, the comments made by the drug court judge upon terminating appellant from drug court, which focused on appellant’s dishonesty, could lead an objective observer to conclude that the judge could not then maintain an open mind during the probation revocation hearing.
Held, “when a probationer seeks to disqualify a judge who participated in the decision to terminate him or her from drug court from presiding over a probation revocation hearing based on the probationer’s termination from drug court, the judge shall recuse.” Reversal is necessary under these facts to ensure the integrity and fairness of the judicial process. Remanded for new probation revocation hearing before a new judge. State v. Travis William Mylo Cleary, Ct. App. 7/5/2016.
• Criminal sexual conduct: 10-year conditional release not permitted for attempted third-degree criminal sexual conduct. Appellant violated the terms of his probation after a conviction for attempted third-degree criminal sexual conduct, and was sentenced to 18 months in prison with a 10-year conditional release term. The court of appeals affirmed the imposition of the conditional release term.
A mandatory 10-year conditional release term is applied under Minn. Stat. §609.3455, subd. 6, to violations of five enumerated sex crime statutes. The third-degree criminal sexual conduct statute is included in the list, but Minn. Stat. §609.17, which defines “attempt,” is not included, nor does “attempt” appear anywhere in Minn. Stat. §609.3455, subd. 6. Clarifying suggestions from earlier cases, the Supreme Court notes “that a defendant’s conviction solely for an attempt…is not a ‘violation’ of the statute defining the offense attempted.” Crimes of attempt are separate offenses, with distinct elements, from the offense attempted.
Appellant did not violate the third-degree criminal sexual conduct statute, because he did not commit a necessary element of the offense—namely, sexual penetration. Thus, appellant was not committed to the commissioner of corrections for a violation of any of the five offenses enumerated in Minn. Stat. §609.3455, subd. 6, and the district court’s imposition of a 10-year conditional release period was not authorized by law. State v. Forrest Grant Noggle, Sup. Ct. 7/6/2016.
• Minnesota Imprisonment And Exoneration Remedies Act: Violation of equal protection clause to define “exonerated” as requiring both vacation or reversal of conviction and dismissal of charges by prosecutor. Appellant’s conviction for second-degree manslaughter based on culpable negligence was reversed by the Supreme Court, after which appellant petitioned for an order under Minn. Stat. §590.11 declaring her eligible to file a claim for compensation under the Minnesota Imprisonment and Exoneration Remedies Act (MIERA). Her petition was denied, because the postconviction court found she does not meet the definition of “exonerated,” as the prosecutor did not dismiss the charges after her conviction was reversed.
Held, Minn. Stat. §590.11 violates appellant’s equal protection rights, and appellant is an “exonerated” person under that statute. Only petitioners who meet the eligibility requirements of subdivision 1 of Minn. Stat. §590.11 are entitled to proceed with their petition: A court of this state must have “vacated or reversed a judgment of conviction on grounds consistent with innocence and the prosecutor dismissed the charges” (subd. 1(1)(i)) or “ordered a new trial on grounds consistent with innocence and the prosecutor dismissed the charges or the petitioner was found not guilty at trial” (subd. 1(1)(ii)). The requirements of subdivision 1(1)(i) are at issue here.
The phrase “on grounds consistent with innocence” is ambiguous, but the court of appeals rejects the district court’s conclusion that a person is exonerated under subdivision 1(1)(i) only if the person is deemed to be innocent based on newly discovered evidence, as this scenario is covered by subdivision 1(1)(ii), is inconsistent with the legislative history of the MIERA, and would render the procedures and standards outlined in subdivisions 3 and 4 for determining “innocence” superfluous. The court declines to decide whether “on grounds consistent with innocence” means “agrees with innocence” or “does not contradict innocence,” finding that appellant’s conviction was reversed on grounds consistent with innocence under any reasonable interpretation of the phrase, because her conviction was reversed because she did not owe a duty to the victim as a matter of law.
The state argues that appellant’s petition still fails because the prosecutor did not dismiss the charges, as required in the second clause of subdivision 1(1)(i). Appellant argues that, because the Supreme Court reversed her conviction without remanding to the district court, there were no charges for the prosecutor to dismiss. She further argues that, because she is similarly situated to petitioners whose convictions were vacated or reversed on grounds consistent with innocence and whose charges were dismissed by the prosecutor, and because she was denied consideration of her petition on the arbitrary basis that a prosecutor has to dismiss a charge that was effectively dismissed by the Supreme Court, she is denied equal protection.
Minn. Stat. §590.11, subd. 1(1)(i) creates two classes of persons: (1) those whose convictions are vacated or reversed on grounds consistent with innocence and whose charges are dismissed by the prosecutor, and (2) those whose convictions are vacated or reversed on grounds consistent with innocence and whose charges are not dismissed by the prosecutor. The court concludes that appellant is similarly situated to petitioners whose convictions were reversed on grounds consistent with innocence and whose charges were dismissed by the prosecutor. The court then applies the rational basis test to appellant’s equal protection claim, finding (1) the purpose of the MIERA is legitimate, (2) the distinction between classes is not genuine and substantial, but manifestly arbitrary and fanciful, particularly in cases in which a conviction is reversed or vacated by the court and no new trial is ordered, putting an end to the proceedings and giving the prosecutor no further action to take, and (3) the classification is not genuine or relevant to the purpose of the law. The words “and the prosecutor dismissed the charges” are severed and excised from Minn. Sat. §509.11, subd. 1(1)(i). Reversed and remanded for further proceedings under Minn. Stat. 590.11. Danna Rochelle Back v. State, Ct. App. 7/18/2016.
• DHS Licensing: 10-year disqualification after discharge of sentence applies only to disqualifications for criminal convictions. Following a background study conducted by the Department of Human Services (DHS) after his wife applied for a child-care license, DHS disqualified Gustafson from having direct contact with or access to persons served by the child care program until 2020 because of his 2003 conviction for criminal vehicular operation. He pleaded guilty to that offense in 2003, and his sentence was discharged in April 2010. Gustafson requested reconsideration and the disqualification was upheld, but the DHS granted a variance to allow the license to issue so long as Gustafson abided by certain conditions. Gustafson appealed, arguing that the disqualification, which began on the date he was discharged from his sentence, should have begun on the date he pleaded guilty, in order to protect his equal protection and due process rights. Gustafson points to a particular sentence in Minn. Stat. §245C.15, subd. 3(e), which states: “When a disqualification is based on an Alford Plea, the disqualification period begins from the date the Alford Plea is entered in court.” Although he did not enter an Alford plea, Gustafson contends Minn. Stat. §245C.15, subd. 3 is unconstitutional to the extent that a person who is convicted of a crime after entering an Alford plea is allowed to complete the disqualification period sooner than a person who is convicted of a crime after entering a conventional plea.
The court of appeals concludes that Minn. Stat. §245C.15, subd. 3 is ambiguous to the extent that it applies to a person who entered an Alford plea, because one reasonable interpretation is that the disqualification period begins to run on the date of the discharge of the sentence imposed, and another reasonable interpretation is that it begins to run on the date the Alford plea is entered in court. To resolve the ambiguity, the court looks to the Act’s legislative history and the commissioner of Human Services’ interpretation of the statute. The court adopts the commissioner’s interpretation to avoid the constitutional infirmity asserted by Gustafson—holding that the provision of Minn. Stat. §245C.15, subd. 3(a), which provides that a person is disqualified for 10 years after “the discharge of the sentence imposed,” applies only to a person who is disqualified because of a criminal conviction, and subdivision 3(e), which provides that a person is disqualified for 10 years after “the date the Alford Plea is entered in court,” applies only to a person who is disqualified because of a judicial proceeding that does not result in a criminal conviction.
Next, the Court rejects Gustafson’s equal protection claim, as, under the court’s interpretation of Minn. Stat. §245C.15, he is not treated differently from others to whom he is similarly situated. Gustafson’s substantive due process argument is also rejected, because Gustafson cannot establish the statute is not a reasonable means to a permissive objective. The court concludes by finding that the commissioner did not err by denying Gustafson’s request for reconsideration of his disqualification. Jason Daniel Gustafson v. Commissioner of Human Services, Ct. App. 7/25/2016.
• Sentencing: Single mitigating factor may support downward durational departure. After appellant entered a Norgaard plea to third-degree criminal sexual conduct, the district court granted him a downward durational departure, in part because of his expression of remorse. The state appealed, and the court of appeals reversed the district court’s downward durational departure decision, finding that the reasons relied on by the district court, except for remorse, were relevant only to appellant’s request for a dispositional, not durational departure, which was denied by the district court, that appellant’s remorse did not support a durational departure, and that a downward durational departure based on one mitigating factor is not permitted.
Held, a single mitigating factor may support a downward durational departure, but only if the mitigating factor shows the defendant’s conduct in committing the offense is significantly less serious than that typically involved in the commission of the offense in question. Remorse is generally relevant only when considering a dispositional departure, but “could relate back and be considered evidence of remediation that makes the conduct significantly less serious than the typical conduct underlying the offense of conviction,” for purposes of a durational departure. However, appellant’s expression of remorse did not diminish the seriousness of his offense, so the court of appeals’ decision reversing the district court’s downward durational departure decision is affirmed. State v. Jacob Miles Solberg, Sup. Ct. 7/27/2016.
EMPLOYMENT & LABOR LAW
As the U.S. Supreme Court gets set to begin its 2016-17 term early in October, it’s not too late to look back on the employment and labor law decisions of the High Court during the 2015-16 term. There were nine of them, and many will have particular impact in Minnesota.
• Tyson Foods, Inc. v. Bouaphakeo, 136 S.Ct. 1036 (3/22/2016). Affirming a $2.9 million class action verdict from 8th Circuit Court of Appeals for unpaid overtime under Fair Labor Standards Act, 29 U.S.C. §201, et seq. High Court holds that damages can be based upon “representative evidence” of individuals applicable to the class as a whole.
• Encino Motorcars, LLC v. Novarro, 136 S.Ct. 2117 (6/20/2016). The Department of Labor regulations requiring overtime compensation for car repair service advisors are not controlling, and the case was remanded for further consideration of entitlement to overtime pay under FLSA. The case could affect service repair advisors for large vehicle facilities, among the 3,700 licensed dealers in Minnesota.
• CRST Van Expedited v. EEOC, 136 S.Ct. 1642 (5/19/2016). Reversing the 8th Circuit Court of Appeals, the High Court held that dismissal on the merits is not prerequisite for employer to recover attorney’s fees as the prevailing party in a Title VII discrimination or harassment case. If the case ends favorably for the employer by dismissal without addressing the merits, fees may be awarded.
• Green v. Brennan, 136 S.Ct. 1769 (5/23/2016). The 15-day time limit for pursuing discrimination claims by a federal government employee who quits and claims constructive discharge runs from date of notice of resignation, not the later date that resignation takes effect. The case could affect the time limits for other employee discharges or resignations under other federal laws as well as the Minnesota Human Rights Act.
• Heffernan v. City of Paterson, 136 S.Ct. 1412 (4/26/2016). A public sector employee, a police officer, may sue for 1st Amendment retaliation even if the employer is mistaken in believing that employee engaged in constitutionally protected activities.
• Gobeille v. Liberty Mutual Ins. Co., 136 S.Ct. 496 (2015). ERISA Law 29 U.S.C. §1001 et seq. preempts state regulation requiring employee health care insurance for financial data with state regulators.
• Amgen, Inc. v. Harris, 136 S.Ct. 758 (1/25/2016). A breach of fiduciary duty claim by employee stockholders in ESOP (Employee Stock Ownership Program) must allege that action by Trustees would not do “more harm than good.”
• Montanile v. Board of Trustees of the Nat’l. Elevator Indus. Health Ben. Plan, 136 S.Ct. 651 (1/20/2016). ERISA subrogation claim by health care insurers against insured employees extended the proceeds received by employee in third-party tort action and not against non-settlement assets of the employee.
• Friedrichs v. California Teachers Assn,. 2016 U.S. LEXIS 4286 (6/28/2016). An equally divided Court deadlocked on appeal of decision requiring public sector employees teachers in this case to pay union dues in “agency shop” state, resulting in affirmance. Minnesota is one of about two dozen jurisdictions with similar union dues laws.
Marshall H. Tanick
Hellmuth & Johnson, PLLC
• 9th Circuit rules on CERCLA arranger liability. In a case involving a smelter who emitted contaminants through a smokestack that contaminated land and/or water downwind, the 9th Circuit Court of Appeals found that the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) does not apply because the smelter’s action did not constitute arrangement for the disposal of hazardous substances. The court interpreted the definition of disposal under CERCLA as excluding emissions. This interpretation was based on the statute’s reference to RCRA’s definition of disposal, which did not include “emissions,” as well as the court’s determination that there is no regulatory or subregulatory guidance on the definition indicating an intent to include emissions.
The court found that it was bound by the finding in Carson Harbor Village. Ltd. v. Unocal Corp., 270 F.3d 863 (9th Cir. 2001). In that case, the 9th Circuit held that that the term “deposit” used in the definition of disposal means “putting down” or “placement” and that there was no indication that Congress intended to include the “gradual spread of contaminants without human intervention.”
The court noted that this decision could have a ripple effect through all of CERCLA as the term disposal is used throughout its many provisions. Pakootas v. Teck Cominco Metals, Ltd., No 15-35228 (9th Cir. 7/27/2016).
• 4th Circuit finds limited scope of review in environmental review case acceptable. The United States Army Corps of Engineers conducted environmental review in its decision-making process on whether to issue a permit under the Clean Water Act for dredge-and-fill activities associated with certain stream beds at a mine. The environmental review process resulted in an Environmental Assessment finding that issuing a permit would not have a significant impact on the quality of the human environment. This meant that the Army Corps did not prepare an environmental impact statement.
Environmental review by the United States Army Corps of Engineers was sufficient when it only considered impacts of the specific dredge-and-fill activities. Even though such review was limited and excluded review of the impacts of surface mining more generally, this was an acceptable use of the agency’s discretion. The court found that review of the larger issue would be impermissible in this case because a different agency has jurisdiction to authorize coal mining under a different statute entirely. Ohio Valley Envtl. Coal., Inc. v. United States Army Corps of Eng’rs, No.14-2129, 2016 WL 3648476 (4th Cir. 7/8/2016).
• 3M sued for water contamination in Alabama. In a suit under Section 7002(a)(1)(B) of the Resource Conservation and Recovery Act, 42 U.S.C. §6972(a)(1)(B), the plaintiff alleges that 3M has caused imminent and substantial endangerment by leaking chemicals used in Scotchguard, Stainmaster, and other nonstick products. 3M has made and/or used perfluorooctanoic acid and perfluorooctane sulfonate, or PFOA and PFOS, associated with these products for decades at its Decatur, Alabama facility. The plaintiff alleges that the chemicals were discharged into ground and surface water near the facility, where it allegedly contaminated drinking water and ended up in the Tennessee River.
Alabama water authorities warned customers not to drink or cook with tap water over concerns about this contamination. In addition, four other public water supplies downstream have detected PFOA in their water. The state has placed a nearby reservoir on the state’s impaired water list and has prohibited the consumption of fish from the reservoir. Tennessee Riverkeeper Inc. v. 3M Co., No 16-cv-1029, complaint filed (N.D. Ala. 6/23/2016).
• MPCA seeks feedback on revisions to draft proposal to protect wild rice. In response to comments on its Initial Draft Proposal for Protecting Wild Rice from Excess Sulfate dated March 2015, MPCA re-analyzed its wild rice study data. As a result, MPCA has made several proposed changes to the initial draft in a draft Technical Support Document (TSD). Included are changes to the definition of a “wild rice water,” revisions to the controlled concentration level of sulfide in the sediment that wild rice can tolerate, utilization of a new statistical approach for calculating sulfate levels, and proposal of a different approach for implementing the standard.
Information and the relevant documents can be found at https://www.pca.state.mn.us/water/protecting-wild-rice-waters. MPCA was seeking feedback by 9/6/2016. MPCA plans to engage in a formal rulemaking for this wild rice rule in 2017.
Parkway Law LLC
• Settlement agreements and Karon waivers. An unpublished decision from the court of appeals creates a major pitfall to avoid when a proposed settlement agreement involving spousal maintenance includes a Karon waiver.
The parties participated in the Financial Early Neutral Evaluation (FENE) process. At a session on 1/27/2014, the parties reached an agreement on the division of property and signed a document memorializing the agreement. At the end of the final FENE session on 4/10/2014, the parties signed another document that addressed other terms of settlement. The 4/10 document included a provision stating that the wife would receive $3,000 per month in spousal maintenance for a five-year period beginning 5/1/2014. The document included the following language regarding a Karon waiver: “Karon Waiver – no modification of sm for amount or duration during 5 yr period, except death or W[ife] remarriage[.]”
At some point after the FENE session, wife retained a new attorney who sought discovery relating to one aspect of the division of property. Litigation ensued and husband eventually filed a motion to enforce the agreements made in the FENE sessions. Wife made various allegations in response and an evidentiary hearing was held to address the issues. The district court then entered a partial decree granting husband’s motions to enforce the parties’ FENE agreements. Consistent with the Karon waiver agreed to in the FENE, the decree included a divestiture of jurisdiction to modify spousal maintenance.
Wife appealed, arguing that the district court erred by divesting itself of jurisdiction over spousal maintenance because the parties’ FENE agreement lacked (1) language divesting the court of jurisdiction, (2) an acknowledgement that assets had been fully disclosed, and (3) a description of the consideration for the divestiture of jurisdiction.
The court of appeals rejected wife’s arguments concerning the absence of language in the FENE agreement about the disclosure of assets and consideration because even though the statute requires findings on those topics, nothing requires the stipulation itself to include the findings. However, the court of appeals agreed with wife that the district court erred in divesting itself of jurisdiction because the FENE agreement lacked express language reflecting that the district court was divested of jurisdiction. Noting that this holding would potentially affect the other terms of the parties’ settlement, the court of appeals reversed the judgment and remanded for further proceedings.
This decision makes it clear that settlement agreements which purport to include Karon waivers will not be enforceable if they do not include express language divesting the court of jurisdiction to modify spousal maintenance in addition to the contractual waiver of the right to modify. But the rationale for this decision goes beyond written agreements reached in FENE or mediation. For example, a settlement agreement placed on the record at a hearing must include this language to be enforceable. Likewise, letters exchanged between attorneys to memorialize a settlement involving a Karon waiver would not be binding without the requisite language. Ferguson v. Ferguson, A15-1249, (Minn. Ct. App. 8/1/16).
Henson & Efron PA
• Removal; remand; consideration of affidavits. Reversing and remanding a district court’s remand of an action previously removed under CAFA, the 8th Circuit held that the district court had abused its discretion in refusing to consider two postremoval affidavits submitted by the defendants in an attempt to establish diversity. Pudlowski v. St. Louis Rams LLC, ___ F.3d ___ (8th Cir. 2016).
• Dismissal of pro se sexual harassment complaint affirmed; dissent. The 8th Circuit’s affirmance of Chief Judge Tunheim’s dismissal of a pro se sexual harassment and retaliation complaint resulted in a vigorous dissent from Judge Beam, who argued that the plaintiff had “plausibly” alleged hostile environment sexual harassment and retaliation, and that a Rule 12(b) dismissal was not appropriate. Blomker v. Jewell, ___ F.3d ___ (8th Cir. 2016).
• Article III; standing; election committee; dissent. The 8th Circuit’s reversal of the dismissal of an action challenging Missouri election regulations for lack of standing brought a vigorous dissent from Judge Arnold, who asserted that an election committee that had dissolved following the 2014 elections lacked standing to pursue its claims once that election had ended. Missourians for Fiscal Accountability v. Klahr, ___ F.3d ___ (8th Cir. 2016).
• Arbitration; exceeding authority. Reversing Judge Doty, the 8th Circuit held that an arbitrator had not exceeded his authority in upholding the NFL commissioner’s indefinite suspension of Adrian Peterson as well as the substantial fine imposed against him. NFLPA V. NFL Mgmt. Council, ___ F.3d ___ (8th Cir. 2016).
• Motions for preliminary injunctions granted and denied. In the first case, Chief Judge Tunheim granted a request for a preliminary injunction brought by student-athlete tennis players at St. Cloud State University, finding that the plaintiffs had established a “fair chance of prevailing” on the merits of their claims, and that the remaining Dataphase factors favored entry of an injunction. Portz v. St. Cloud State University, 2016 WL 4005665 (D. Minn. 7/25/2016).
In the second case, Judge Schiltz denied the plaintiffs’ request to enjoin implementation of new Department of Labor regulations, finding that while the plaintiffs had established a likelihood of success on at least one of their claims, any showing of irreparable harm was “both minimal and speculative,” and that neither the balance of harms nor the public interest favored the plaintiffs. Labnet, Inc. v. United States Dept. of Labor, ___ F. Supp. 3d ___ (D. Minn. 2016).
• Defendant again fails to moot putative class action. Over the past year, this column has noted several attempts by a defendant in a putative class action to moot a putative class action by making an offer of judgment to the name plaintiff, and by depositing funds with the Court under Fed. R. Civ. P. 67. Recently, Judge Montgomery rejected the defendant’s latest attempt to moot the action by mailing a certified check to the plaintiff, rejecting the defendant’s attempt to draw a distinction between an unaccepted offer of judgment and a rejected tender of payment. Bais Yaakov of Spring Valley v. Varitronics, LLC, 2016 WL 4068358 (D. Minn. 7/28/2016).
• Discovery; anonymized medical records. Judge Nelson held that the subjects of the independent medical examinations were not entitled to notice and an opportunity to object prior to the production of their IMEs where the medical records were to be anonymized prior to production, finding it “highly significant” that the medical records at issue resulted from IMEs rather than confidential physician-patient relationships. In Re National Hockey League Players’ Concussion Injury Lit., 2016 WL 3815132 (D. Minn. 7/13/2016).
• Fed. R. Civ. P. 15(c)(1)(C); relation back; John Doe defendants. Judge Schiltz joined Judge Montgomery in finding that claims asserted against new defendants previously identified as “John Does” do not relate back for purposes of Fed. R. Civ. P. 15(c)(1)(C), because the substitution of the name of a real person for a John Doe defendant does not arise from a “mistake” concerning the proper party’s identity. Potocnik v. Carlson, 2016 WL 3919950 (D. Minn. 7/15/2016).
• Multiple decisions on motions to dismiss for lack of personal jurisdiction. Judge Wright granted a Canadian parent company’s motion to dismiss for lack of personal jurisdiction, finding that the plaintiff had not met its “minimal” burden to make a prima facie showing on the jurisdictional issue. Goodbye Vanilla, LLC v. Aimia Proprietary Loyalty U.S. Inc., 2016 WL 3774198 (D. Minn. 7/12/2016).
Judge Doty denied an Iowa corporate defendant’s motion to dismiss for lack of personal jurisdiction where the corporation wrote a check to a Minnesota resident and then reversed payment on that check. Nielsen v. Am. Midwest Trans., LLC, 2016 WL 3962860 (D. Minn. 7/20/2016).
Rejecting the plaintiff’s argument that it was not required to plead facts sufficient to support personal jurisdiction, Judge Montgomery granted a defendant’s motion to dismiss for lack of personal jurisdiction where the complaint included “no factual allegations” that it had any contact with Minnesota. Abbasi v. Leading Edge Aviation Servs., Inc., 2016 WL 4007571 (D. Minn. 7/26/2016).
• Post-dismissal motion to amend denied. Where the plaintiff filed a motion to amend his complaint thirty dates after that action was dismissed and judgment was entered, but failed to address Fed. R. Civ. P. 59(e) or 60(b) in his motion, Judge Doty denied the motion to amend, finding that the motion was untimely under Rule 59(e) and that the plaintiff had failed to establish the “exceptional circumstances” required for relief under Rule 60(b). Azimpour v. Select Comfort Corp., 2016 WL 4005669 (D. Minn. 7/26/2016).
• Some plaintiffs still unable to allege the elements of diversity jurisdiction. In the latest of a seemingly never-ending series of decisions addressing pleading deficiencies relating to diversity jurisdiction, Judge Ericksen noted that the plaintiff limited liability company had failed to properly allege its own citizenship, and gave the plaintiff seven days to cure its deficient pleading or face the dismissal of its action for lack of subject-matter jurisdiction. Anytime Fitness, LLC v. Davis, 2016 WL 3676186 (7/7/2016).
• Attorney’s fees; hourly rates. Awarding the plaintiff more than $34,400 in attorney’s fees, Judge Nelson approved hourly rates as high as $550 per hour. State Bank of Bellingham v. Bancinsure, Inc., 2016 WL 3951068 (D. Minn. 7/19/2016).
Law Office of Josh Jacobson
• Credibility is everything. The 8th Circuit Court of Appeals denied the petition for review, finding the immigration judge’s and Board of Immigration Appeals’ negative credibility findings with respect to the petitioner’s testimony were supported by specific, cogent reasons and that substantial evidence supported denial of her asylum and CAT (Convention Against Torture) claims. Arevalo-Cortez v. Lynch, 15-3084, slip op. (8th Cir. 7/22/2016). http://media.ca8.uscourts.gov/opndir/16/07/153084P.pdf
• Reinstatement of prior removal given lack of evidence of voluntary departure. The 8th Circuit Court of Appeals held that substantial evidence supported the Department of Homeland Security’s decision to reinstate the petitioner’s prior order of removal, given the fact that the petitioner failed to provide sufficient evidence establishing he had complied with his grant of voluntary departure. “We have held that the streamlined reinstatement procedures under 8 C.F.R. §241.8 are a valid interpretation of the Immigration and Nationality Act. Ochoa-Carrillo, 437 F.3d at 846. And we find persuasive the government’s argument that 8 U.S.C. §1252(g) forecloses our review of the decision to reinstate rather than issue notice to appear.” Perez-Garcia v. Lynch, No. 14-2842, 15-1314, slip op. (8th Cir. 7/19/2016). http://media.ca8.uscourts.gov/opndir/16/07/142842P.pdf
• Untimely motion to reopen without proof of changed country conditions. The 8th Circuit Court of Appeals held that the petitioner’s motion to reopen was untimely due to her inability to show a material change in country conditions in Nigeria, which would have excused her from the 90-day time limitation for filing the motion. The claimed change in country conditions, terroristic acts by Boko Haram, were reported and known prior to her 2010 hearing and had been considered by the Board of Immigration Appeals. Zeah v. Lynch, 15-2466, slip op. (8th Cir. 7/8/2016). http://media.ca8.uscourts.gov/opndir/16/07/152466P.pdf
• No cognizable particular social groups here. The 8th Circuit Court of Appeals upheld the denial of asylum, finding substantial evidence supported the immigration judge’s and Board of Immigration Appeals’ conclusions that the petitioner did not suffer persecution on account of his political opinion, religion, or membership in a particular social group (i.e., witnesses to Mungiki crimes and Kikuyus who resist recruitment by the Mungiki). Neither of those groups is a cognizable particular social group. Ngugi v. Lynch, 15-2376, slip op. (8th Cir. 6/27/2016). http://media.ca8.uscourts.gov/opndir/16/06/152376P.pdf
• Failure to establish past persecution or well-founded fear of persecution. The 8th Circuit Court of Appeals upheld the Board of Immigration Appeals’ denial of asylum, finding the petitioners, a Guatemalan mother and her minor sons, failed to establish past persecution or show a well-founded fear of future persecution on the basis of their family membership. “Milian repeatedly testified that the sole reason the gang had targeted her uncle was to extort money from him, not because he belonged to her family.” Furthermore, “it is unclear whether the gang members were attempting to threaten Milian’s nuclear family, her uncle’s family, or their entire extended family. Petitioners thus cannot show a well founded fear of ‘particularized persecution directed at [them] personally.’” Garcia-Milian v. Lynch, 15-2825, slip op. (8th Cir. 6/17/2016). http://media.ca8.uscourts.gov/opndir/16/06/152825P.pdf
• District court oversight of a juvenile traffic offense is not equivalent to being “dependent on a juvenile court” for special immigrant juvenile purposes. The Minnesota Court of Appeals affirmed the district court’s finding that a prospective Special Immigrant Juvenile-status petitioner does not meet the requirement of “being declared dependent on a juvenile court” or “committed to or placed under the custody of” a state agency, department, or individual or entity “appointed by a [s]tate or juvenile court” when a district court has jurisdiction over a juvenile traffic offense and places the juvenile on probation with certain conditions for 12 months. In the Matter of the Welfare: A.S., a Juvenile, A15-1904, slip op. (Minn. App. 2016). http://mn.gov/law-library-stat/archive/ctappub/2015/opa151904-070516.pdf
• Employment discrimination based on immigration status. On 8/9/2016, the Office of Special Counsel for Immigration-Related Unfair Employment Practices, Civil Rights Division, U.S. Department of Justice, entered into a settlement agreement with Hartz Mountain Industries, Inc. to resolve several claims that the real estate company had violated the Immigration and Nationality Act when it published a job posting requiring U.S. citizenship, without legal justification, from 1/11/2016 to 2/5/2016. The company agreed to pay a civil penalty and steer clear of discriminating on the basis of citizenship, immigration status, or national origin in violation of 8 U.S.C. §1324b, among others. https://www.justice.gov/opa/file/883036/download
• Temporary protected status for Syria. On 8/1/2016, the Department of Homeland Security (DHS) announced that it was extending the designation of the Syrian Arab Republic (Syria) for Temporary Protected Status (TPS) for 18 months from 10/1/2016 to 3/31/2018 and, at the same time, redesignating the nation for TPS for the same period of time. According to DHS Secretary Jeh Johnson, such action is warranted “because the ongoing armed conflict and other extraordinary and temporary conditions that prompted the 2015 TPS redesignation have not only persisted, but have deteriorated, and because the ongoing armed conflict in Syria and other extraordinary and temporary conditions would pose a serious threat to the personal safety of Syrian nationals if they were required to return to their country.” 81 Fed. Reg. 50533-41 (8/1/2016). https://www.gpo.gov/fdsys/pkg/FR-2016-08-01/pdf/2016-18112.pdf
R. Mark Frey
Frey Law Office
• Tribal-court jurisdiction; Montana consensual-relationship exception survives review. A non-Indian corporation leased a tribally owned building on trust land within an Indian reservation to operate a Dollar General store. In the lease, Dollar General expressly consented to the application of tribal law and to tribal-court jurisdiction. Dollar General store participated in a tribal job-training program that placed tribal youth in unpaid internships to gain job experience. The tribe assigned a then-13-year-old tribal member to work at the leased Dollar General. The youth alleges that Dollar General’s store non-Indian manager sexually molested him while he was part of the job-training program. Federal Indian law blocks the tribe from bringing charges against the manager or store, and federal prosecutors did not bring charges. Without criminal-jurisdiction recourse, the youth sued the manager and Dollar General for civil damages in tribal court.
Under the Supreme Court’s Montana test, tribes generally lack jurisdiction over nonmembers, but can regulate nonmember conduct if: (1) the nonmember enters a consensual relationship with the tribe or its members through commercial or other dealings; or (2) the nonmember activity threatens or has some direct effect on the political integrity, the economic security, or the health or welfare of the tribe. Dollar General and the manager filed a federal case to enjoin the tribal-court action for lack of subject-matter jurisdiction over them as nonmembers. The district court allowed the case against Dollar General to proceed under Montana’s first exception. It found that Dollar General had multiple consensual relationships within the exception, including the tribe’s lease with the corporation and the store’s acceptance of the commercial benefit of the intern’s services during the job-training program.
The 5th Circuit affirmed. It rejected Dollar General’s arguments: (1) that the consensual relationship must be commercial to fit within the exception; and (2) to collapse the two exceptions into the single circumstance where a consensual relationship threatens tribal governance. The Supreme Court granted certiorari, but deadlocked in its review. The justices’ 4-4 vote affirmed the 5th Circuit decision without opinion, and the case will proceed against Dollar General in tribal court. In an official statement, the U.S. Commission on Civil Rights applauded the affirmance, recognizing that civil suits in tribal court bridge a criminal-jurisdiction gap in Indian country. Dollar General Corp. v. Mississippi Band of Choctaw Indians, ___ U.S. ___, 136 S. Ct. 2159 (2016).
• Criminal law; uncounseled tribal-court convictions are valid predicate offenses. Congress enacted 18 U.S.C. §117 in response to an epidemic of domestic violence against native women. The statute makes it a felony for a person to commit domestic assault in Indian country if that person has at least two prior final convictions for domestic violence in federal, state, or tribal court. But because tribes are pre-constitutional sovereigns, the 6th Amendment right to counsel does not apply in tribal courts. Instead, tribal courts apply tribal laws (which may or may not include a right to counsel) and apply the Indian Civil Rights Act, 25 U.S.C. ch. 15. That statute provides a right to counsel for tribal-court crimes carrying a year-or-more sentence.
The 8th and 10th Circuits rejected constitutional challenges to convictions based on uncounseled prior convictions. The 9th Circuit disagreed, reversing a federal conviction that relied on five separate prior tribal-court convictions. The Supreme Court granted certiorari and reversed the 9th Circuit, holding that so long as the convictions were valid when entered, they may be used as 18 U.S.C. §117 predicate offenses. The earlier proceedings complied with ICRA, which sufficiently ensured the reliability of the predicate convictions. The Court also reasoned that there was no 6th Amendment violation because repeat-offender laws punish only “the last offense committed by the defendant,” that is, the counseled federal offense. United States v. Bryant, ___ U.S. ___, 136 S. Ct. 1954 (2016).
The 8th Circuit has already applied Bryant, upholding an 18 U.S.C. §117 conviction based on uncounseled tribal-court predicate offenses. “[B]ecause the Sixth Amendment right to counsel does not apply in tribal-court proceedings, the ‘use of [validly obtained tribal-court] convictions as predicate offenses in a §117(a) prosecution does not violate the Constitution.’” United States v. Drapeau, ___ F.3d ___, 2016 WL 3568065 (8th Cir. 2016).
• Voter ID; North Dakota law disproportionately burdened Native Americans. Changes to North Dakota law make the state’s “arguably some of the most restrictive voter ID laws in the nation.” In addition to limiting which IDs may be used, the amendments also eliminated earlier “fail-safe” provisions that either allowed election-board members and poll clerks to vouch for voters without ID or allowed the voter to execute an affidavit swearing under oath that he or she was a qualified elector in the precinct. No other state has eliminated all fail-safe provisions.
Seven Native American voters sued to enjoin the amendments, arguing that they violate the Voting Rights Act and the United States and North Dakota Constitutions. A district court agreed, entering a preliminary injunction against enforcement of the amendments. The district court found that thousands of Native American voters in North Dakota cannot meet the ID requirements, and that “[t]he record is replete with concrete evidence of significant burdens imposed on Native American voters attempting to exercise their right to vote in North Dakota.” Although the state argued that the law was necessary to prevent voter fraud, the district court found that there “is a total lack of any evidence to show voter fraud has ever been a problem in North Dakota.” It concluded that it “is a minimal burden for the State to conduct this year’s election in the same manner it successfully administered elections for decades before the enactment of the new voter ID laws.” Brakebill v. Jaeger, No. 1:16-CV-008 (D.N.D. 8/1/2016).
• Cooperative agreements; Mille Lacs County cancels law enforcement agreement with Mille Lacs Band. Under federal Indian law, tribes have jurisdiction over Indians on their reservations but do not have criminal jurisdiction over non-Indian criminals except in limited domestic-violence circumstances. State criminal law applies throughout most Indian country in Minnesota, but federal criminal law may also apply. To address jurisdictional inconsistencies and most efficiently share resources, many local governments enter into cooperative law-enforcement and cross-deputization agreements with tribes.
About 25 years ago, Mille Lacs County entered into one such agreement with the Mille Lacs Band of Ojibwe, allowing tribally funded officers to supplement county law-enforcement efforts by enforcing state law. But after an “M opinion” by the U.S. Department of Interior found that the Band’s treaty reservation remains intact—a point the county disputes—the county withdrew from the law-enforcement agreement. The M opinion clarifies that the Band may self-refer cases to a federal prosecutor. The Band called the referrals an important tool to combat on-reservation gang activity because the federal prosecutions often carry stiffer sentences. The county countered that federal prosecutions were an improper effort to resolve the boundary dispute.
With the agreement revoked, the tribal officers will continue to exercise their authority under federal and tribal law, but they cannot address state-law crimes. That change may increase incident response times to non-Indian residents in the area. The county is planning to hire additional officers to address this issue.
• Cooperative agreements; Duluth and Fond du Lac Band settle revenue fight. In 1988, the Fond du Lac Band of Lake Superior Chippewa and the City of Duluth entered into a joint venture to operate a casino and memorialized that agreement in a federal consent decree. In 2011, the federal agency charged with Indian-gaming oversight held that the agreement violated federal law and ordered the tribe to stop making payments to the city. After protracted litigation, the United States District Court of Minnesota dissolved the consent decree and relieved the Band of its obligation to pay the city rent that it withheld in 2009, 2010, and 2011. Litigation continued, though, as the city sued the tribe to block various development efforts and sued the federal agency under the Administrative Procedures Act.
A June settlement ending the seven-year litigation spate was approved unanimously by both the Duluth City Council and the Band’s Reservation Business Committee. In exchange for the city’s agreement to halt litigation, the Band will pay the city $150,000 annually for 10 years as the value of the services that the city provides to the Band’s downtown Fond-du-Luth Casino. The Band has also agreed to follow the city’s planning and zoning codes at its downtown properties—results that the city may not have been able to secure through court action.
Peter J. Rademacher
Hogen Adams PLLC
• Ventura damages award reversed. The 8th Circuit Court of Appeals reversed a damages award for Jesse Ventura because his lawyer mentioned insurance coverage. Jesse Ventura sued the estate of Chris Kyle for defamation and unjust enrichment relating to a barroom encounter described in Kyle’s book American Sniper. Ventura was awarded $500,000 for defamation and $1.35 million for the unjust-enrichment claim. The 8th Circuit vacated the awards and remanded the case. The appellate court held it was improper for Ventura to use evidence of insurance to impeach two of Kyle’s witnesses. During cross-examination and closing arguments, Ventura’s lawyer claimed the witnesses knew there was an insurance policy through the book’s publisher that would cover Kyle’s legal costs. This argument was improper and prejudicial because the record given to the jury had no evidence of such an insurance policy covering Kyle. Ventura’s lawyer also never established that Kyle’s witnesses knew about any insurance coverage. Thus, there was never any evidentiary foundation that the publisher either purchased the insurance or that the witnesses knew about it. The appellate court also held that the remarks regarding insurance were intentional and prejudicial. Since no jury instruction was given to rectify the error and because the trial was close, the court held that Kyle did not receive a fair trial. Ventura v. Kyle, No. 14-3876, 2016 WL 3228373 (8th Cir. 6/13/2016).
• Trademarks on colors. Judge Schiltz recently employed a court-appointed expert to assist in determining that trademark registrations on the color orange for clothing and advertising in the construction industry were too broad, and should be amended. Cedar Valley Exteriors sued Professional Exteriors for infringing two of Cedar Valley’s trademarks for the color orange as applied to clothing worn during performance of construction services and as to advertising materials used in the promotion of construction services. Testimony from court-appointed expert Scott Johnston assisted the court in making its decision that the registrations encompassed the functional use of the color orange and were invalid unless amended. The marks encompassed use of the color orange on “clothing” of any type and use of the color orange on “advertising materials” for a wide variety of construction and building services. Several other companies in construction services use the color orange for functional purposes (safety) and restricting such use would put these companies at a competitive disadvantage. Due to the functional nature of the marks, the court ordered that Cedar Valley’s registrations should be limited to the specific type of clothing shown (an all-orange short-sleeved polo shirt), the specific type of advertising (an all-orange yard sign), the specific shade of orange shown in the registrations, and the specific services actually provided by Cedar Valley (siding installation, roofing contracting, roofing installation, roofing repair, and roofing services). Cedar Valley Exteriors, Inc. v. Professional Exteriors, Inc., No. 13-CV-2537 (PJS/TNL), 2016 WL 3629078 (D. Minn. 6/29/2016).
Merchant & Gould
PROBATE & TRUST LAW
• Proposed regulations issued for IRC §2704. The U.S. Treasury issued proposed regulations, which, if adopted as drafted, will significantly restrict the discounts that have historically been used to value intra-family transfers of interests in family-controlled entities by expanding the scope of IRC §2704. REG-163113-02, 81 Fed. Reg. 51413-02 (8/4/2016). (That Code section treats the lapse of certain voting or liquidation rights in family entities as a taxable transfer and ignores for valuation purposes certain restrictions on liquidation of the interest or entity.) A public hearing is scheduled for December 1. Most of the regulations will not be effective until 30 days after Final Regulations are published. The proposed regulations seek to, among other things, treat transfers made within three years of the transferor’s death as a deemed lapse of liquidation right occurring at the time of death; modify the definition of “control” of an LLC or entity other than a corporation, partnership or limited partnership; prescribe a new class of “disregarded restrictions” on liquidation rights; clarify the types of entities covered by §2704, including corporations, partnerships, LLCs and any other entity or arrangement that is a business entity; and eliminate state and federal statutory exceptions for restrictions, except where state or federal law is mandatory and not merely a default rule. While existing planning techniques used in connection with family entities are not affected by the proposed regulations, following adoption of these rules, the opportunity to enjoy the supercharged tax savings produced by valuation discounts will be severely restricted. Clients whose interests may be affected by these rules should be advised to take action if they wish to take advantage of the valuation discount opportunities before the proposed rules become final. https://www.regulations.gov/document?D=IRS-2016-0022-0001
Lindquist & Vennum LLP
• TILA. A case that made its way from federal district court in Minnesota all the way up to the U.S. Supreme Court and back down again appears to be coming to a close. Previously, the Minnesota district court held, on a motion for judgment on the pleadings, that two home-loan borrowers had not timely brought a Truth in Lending Act (TILA) claim. The borrowers refinanced their home on 2/23/2007. The borrowers received a TILA disclosure and a Right to Cancel notice, but alleged they received insufficient numbers of copies of the notice and disclosure. A fact that would become wholly dispositive in the district court’s July 2016 decision is that the borrowers signed an acknowledgement that they received two copies of the notice and one copy of the TILA disclosure. Three years to the day after refinancing, the borrowers mailed a rescission letter on 2/23/2010. A year later the borrowers filed suit. The district court held that the TILA statute of repose, 15 U.S.C. §1635(f), requires borrowers to file suit within three years, meaning that a rescission letter is ineffective. The U.S. Supreme Court reversed, holding that under §1635(a) (stating that borrowers “shall have the right to rescind… by notifying the creditor….”), the borrowers’ 2/23/2010 letter was sufficient to preserve a TILA claim. The borrowers’ bank thereafter conducted discovery and filed a motion for summary judgment with the district court on the basis of the borrowers’ acknowledgment of receiving the notices and the disclosure. The borrowers argued that the acknowledgment is insufficient because they should have received four total copies of the Right to Cancel notice. The court, however, held that the acknowledgment created a rebuttable presumption that the proper number of documents was exchanged, which presumption was not rebutted.
The district court dismissed the borrowers’ claims on an alternative and independent ground that the borrowers have not demonstrated an ability to tender the refinancing proceeds back to the lender. The lender, in its original motion for judgment on the pleadings in October 2011, argued that the complaint should be dismissed because the borrowers did not include in their complaint an allegation that they were presently capable of tendering the loan proceeds. In deposition testimony, the borrowers confirmed they did not have the capability to do so. It is unclear whether the lender would have been successful on this argument without the deposition testimony. However, in its original motion for judgment on the pleadings, the lender cited several cases from Minnesota federal district court suggesting that it could succeed on this argument. That is to say, it appears that there may be a requirement, when drafting a TILA complaint, to allege that the borrowers have a present ability to pay the loan proceeds back to the lender. Jesinoski v. Countrywide Home Loans, Inc., No. 11-cv-474, ___ F.Supp.3d ___, 2016 WL 3962865 (D. Minn. 7/21/2016).
• Attorney liens. The Minnesota Supreme Court has recently clarified a statute that is of importance for attorneys in collection matters and bankruptcy practitioners. Minn. Stat. §481.13 provides a statutory framework for attorneys to claim liens upon clients’ causes of action, money, real estate, and other property to secure payment for their services. The Supreme Court clarified that when an attorney obtains a lien against a client’s cause of action, the lien attaches and is perfected regardless of whether the attorney files a UCC financing statement or provides notice to third parties. Notice is required only where the lien attaches to money any property besides the cause of action. Here, an attorney’s lien upon the client’s cause of action, by operation of law, held priority over a garnishment lien. City of Oronoco v. Fitzpatrick Real Estate, LLC, No. A15-0055, ___ N.W.2d ___, 2016 WL 4211990 (Minn. 2016).
Joseph P. Bottrell
Meagher & Geer, PLLP
• Rejection of sales comparables reversed and remanded. The Minnesota Tax Court rejected the county’s sales comparison approach in a valuation case involving two bulk-distribution warehouses, instead relying on a portion of the county’s income capitalization approach. The tax court’s approach resulted in valuations that were lower than the actual sales price of each property. The county appealed the decision and the Minnesota Supreme Court reversed in part. The reviewing court reversed the portion of the tax court’s decision that rejected the county’s sales comparison analysis, and vacated and remanded for further proceedings. The Supreme Court reviewed sales comparables rejected by the tax court, reasoning that the tax court did not provide adequate reasoning for rejecting those five sales comparables. The Supreme Court further held that the tax court did not err in its decision on the income capitalization issues. Archway Marketing Servs. v. Hennepin Co., No. A15-1605, 2016 WL 4051692 (Minn. TC 7/27/2016).
• County’s motion in limine denied without prejudice. In a property tax dispute involving a strip shopping center in Hastings, Minnesota, the tax court denied without prejudice the county’s motion in limine to preclude the taxpayer from introducing a certain review appraisal. Taxpayer KCP Hastings filed a “Rebuttal Appraisal Review” signed by David S. Reach to evaluate and comment on the county’s discounted cash flow analysis. The taxpayer filed this report after the appropriate period provided in the court’s scheduling order. The county moved to exclude Mr. Reach’s rebuttal appraisal review, which the taxpayer opposed, arguing that the Reach report could not be excluded. Though the court rejected the taxpayer’s argument that the report could not be excluded, it also declined to exclude evidence as a sanction for violating its scheduling order as granted under rule 16.06 of the Minnesota Rules of Civil Procedure. The court concluded that the county may obtain its own review appraisal and may renew its objections to the Reach report when and if it is offered into evidence. KCP Hastings, LLC v. Dakota Co., No. 19HA-CV-11-2713, 2016 WL 4160778 (Minn. TC 7/27/2016).
• DOR’s seizure of computer files does not trigger exclusionary rule. The taxpayers owned and operated an “off-sale” liquor store in Mankato that underwent a sales and use tax audit. The taxpayers claimed that during the course of the audit, a Department of Revenue agent met with the business owner without the business’ accountant present and during that meeting, a Department of Revenue agent “suddenly walked over to the laptop, pulled out a portable drive, plugged it into the laptop port, downloaded [the] complete QuickBooks files, and left the store.” The taxpayer argued that this action—without its permission—was an unlawful search and seizure. The commissioner, for its part, argued that the tax court lacked jurisdiction to hear the matter under two separate grounds: (1) the matter did not arise under tax laws of the state and (2) the taxpayer had not yet paid the conceded amount of tax due. The court rejected both of these jurisdictional arguments, holding that the taxpayer was challenging the commissioner’s assessment of sales and use tax, which was predicated upon the allegedly wrongful method of obtaining taxpayer’s records. Moreover, taxpayer’s concessions were conditional—the concessions were based upon the assumption that the commissioner could use the books and records as a basis of her assessment. It was that assumption that the taxpayer was challenging.
The court rejected application of the exclusionary rule for four reasons. First, the court noted that no Minnesota case law applied the exclusionary rule in a civil context, let alone a tax court context. Next, the court reasoned that the fundamental purpose of the exclusionary rule was inapplicable here: The rule is meant to deter future police misconduct, but there was no police conduct in the case. As the third rationale for its holding, the court considered the strong societal interest in the fair and equal assessment of sales and use tax to businesses in the state. The court noted that the store owner’s lack of objection during the challenged “seizure” of the evidence weighed against applying the exclusionary rule. The court weighed the exclusion against the societal interest of fair and equal sales and use tax assessments, and found that the societal interest outweighs the value in excluding the records. Finally, the court noted that by operation of statute, the commissioner was entitled to the records the taxpayer was attempting to exclude and the suppression of the evidence “would likely only delay the inevitable.” JA-KE of Eagle Lake, Inc. v. Comm’r, No. 8744-R, 2016 WL 4160766 (Minn. TC 8/2/2016).
•Lifelong burden of development knowledge no justification for deduction of DirectTV expenses. Despite their argument that individuals holding terminal degrees bear a “lifelong burden” of “developing knowledge, finding knowledge, exploring, [and] essentially self-educating,” the tax court denied deductions for a taxpaying couple—one of whom was an adjunct professor (with a Ph.D. in communications) and the other a university librarian—who claimed that costs incurred in adding to their “general knowledge” should be deductible as unreimbursed employee business expenses. Expenses the couple claimed included a $741 deduction for home internet expenses, cell phone expense, computer equipment, books, CDs, DVDs, and DirecTV. The court found the taxpayers’ argument “unpersuasive.” Tanzi v. Comm’r, T.C. Memo. 2016-148 (8/9/2016).
In a similar vein, an artist who donated to charities some of her self-created artwork was not permitted to deduct the value of that contribution. Rules for deductions for charitable contributions are complex. Deductions are permitted for non-cash contributions, however, when the contributed property would produce ordinary income to the donor if sold at market value, then the amount allowed as a deduction is limited to the donor’s cost or basis in the contributed property. This particular taxpayer was unable to establish her basis in the art she contributed, so she was not permitted the deductions for her donated postcards. Kaplan v. Comm’r, T.C.M. 2016-149, 2016 WL 4198209 (T.C. 8/9/2016).
• “[T]hat’s how it’s done a lot of times in the South” insufficient to sustain deduction for consulting fees. The court denied a deduction for “consulting fees” paid by a corporation in a situation the court noted was “strange.” The corporation had no employees, no written contracts with any independent contractors, and did not issue any dividends to its shareholders despite its “enormous amounts of income during the tax year.” The court noted that the corporation was owned by, through, or on behalf of family members of Franklin Sanders, who has not filed a federal income tax return since 1991. At issue in the case was the deductibility of claimed payments totaling $896,493 to a “consultant.” Although the payments were purportedly made to a consultant, the checks were made payable to “cash” and were negotiated by various individuals, some of whom had no role that the court could discern with respect to the corporation. Applying a heightened level of scrutiny, the court sustained the commissioner’s disallowance of the consulting fee. The taxpayers were unable to provide documentary evidence or testimony regarding how the consulting fees were determined, and they provided no consulting fee schedule, hourly rate, or specific breakdown of the consultants’ tasks. Little Mountain Corp. v. Comm’r, No. 581-15, 2016 WL 4183242 (T.C. 8/8/2016).
• Wrongfully incarcerated individuals. With the enactment of IRC Section 139F, wrongfully incarcerated individuals may now exclude from their individual federal taxable income “any civil damages, restitution, or other monetary award” that they receive as compensation for their wrongful incarceration. According to recent FAQs, eligible individuals may also file amended returns for closed years, but must file those amended returns by 12/19/2016. The FAQs provide guidance as to who is included in the term “wrongfully incarcerated individual”: specifically, individuals convicted of a covered offense, who served all or part of a sentence of imprisonment relating to the covered offense, and who meet any one of three requirements, including that the individual was pardoned, granted clemency, or granted amnesty for that covered offense, because the individual was innocent of that covered offense; or the judgment of conviction for the individual for that covered offense was reversed or vacated and the indictment, information, or other accusatory instrument for that covered offense was dismissed; or the judgment of conviction for the individual for that covered offense was reversed or vacated and the individual was found not guilty at a new trial after the judgment of conviction for that covered offense was reversed or vacated.
Mitchell Hamline School of Law
TORTS & INSURANCE
• Motor vehicle; snow and ice immunity. Plaintiff was rear-ended by defendant, the operator of a Metro Transit bus. The accident occurred on a stretch of road that was icy on the day of the collision. Plaintiff filed suit against defendant and his employer, alleging that defendant’s “failure to keep a proper lookout, failure to keep proper distance, failure to stop, and failure to control his vehicle caused the accident and [plaintiff’s] injuries.” Defendants filed a motion seeking summary judgment based on the “snow-and-ice immunity” provided by Minn. Stat. §466.03, subd. 4. The district court denied defendants’ motion.
The Minnesota Court of Appeals affirmed. The Court held that “snow-and-ice immunity under Minn. Stat. §466.03 does not extend to bar claims based solely on allegations of negligent driving[.]” Expressly construing the statute narrowly, the court reasoned that both the statute’s language and prior case law restrict “snow-and-ice immunity to claims based on snow and ice conditions against a municipality that is responsible for the maintenance of a public road or sidewalk.” Because defendants were not responsible for maintenance, and because plaintiff’s claims were based on negligent driving, the immunity provision was inapplicable. Hoff v. Surman, et al., No. A16-0168 (Minn. Ct. App. 8/8/2016).