Commercial and Consumer Law
• Precision is required. Uniform Commercial Code (UCC) §9-406, as a general rule, protects the account debtor on an account, chattel paper or a payment intangible (see UCC §3-602 for the negotiable instrument rule) by allowing the discharge of the payment obligation by paying the assignor in the event of an assignment until the account debtor receives a notification authenticated by the assignor or the assignee that the amount due or to become due has been assigned and that payment is to be made to the assignee.
What does this notice need to look like? Clearly, it needs to reasonably identify the rights assigned, UCC §9-406(b)(1), and, if requested by the account debtor, the assignee also must furnish reasonable proof of the assignment. UCC §9-406(c).
Official Comment 3 elaborates on this, and provides that a reasonable identification need not identify the right to payment with specificity, and if an account debtor has doubt as to the adequacy of a notification, it may not be safe in disregarding the notification and paying the assignor unless it notifies the assignee with reasonable promptness as to the respects in which the account debtor considers the notification defective.
Now comes a recent case from the Washington Court of Appeals, Northwest Business Finance, LLC v. Able Contractor, Inc., where an assignee of accounts sent the account debtor both a UCC financing statement and a notice of assignment. Both documents stated that “all” of the accounts “now owned or hereafter acquired” were assigned. The notice was attached to most of the invoices the assignor sent to the account debtor. The court found this insufficiently specific to obligate the account debtor to pay the assignee all amounts owed to the assignor. First, the financing statement merely provided notice that the accounts were collateral and did not itself assign the accounts. Second, as to the notice, the court held that to reasonably identify the assigned rights, or the amount due, it had to state that each identified account receivable had been assigned.
If Official Comment 3 to §9-406 is to be credited (official comments are prepared by the drafting committee after a UCC article is approved by its sponsors and are intended to discuss what the statutory language was intended to cover to assist in uniform interpretation of that language—see UCC §1-103(a)(3)), the court’s decision has put the burden of clarity on the persons due payment rather than on the account debtor. Accordingly, assignors and assignees would be wise to go the extra mile and provide a notice that describes each item of collateral assigned rather than follow Official Comment 3, unless (and perhaps not necessarily even then) the Permanent Editorial Board—set up by the sponsoring organizations, the Uniform Law Commission and the American Law Institute, to monitor and respond to subsequent developments that may work to lessen uniformity of the UCC—issues a commentary questioning the analysis of the Washington court. But in that regard it may be well to note that the court also pointed out that the security agreement between the assignee and the assignor established that only “acceptable accounts” were assigned to the assignee and allowed the assignee to select, so in that respect the notification was not adequate to advise the account debtor who to pay and thus to protect the account debtor who may not have known about this provision. Northwest Business Finance, LLC v. Able Contractor, Inc., 91 U.C.C. Rep Serv. 2d 1, 2016 WL 6459837 (2016).
Retired G.L. Cross Research Professor, University of Oklahoma
• Traffic stop: Vehicle lights must be displayed when raining, regardless of visibility. Respondent’s vehicle was stopped for not displaying lighted headlamps or tail lamps on a rainy afternoon. During the stop, respondent told police a handgun was in the middle console, and respondent was charged with possessing a pistol without a permit. The district court suppressed all evidence obtained from the stop of respondent’s vehicle after finding that it was not supported by a reasonable, articulable suspicion of criminal activity. The state appeals.
Minn. Stat. §169.48, subd. 1(a), requires drivers to display lighted headlamps and tail lamps (1) from sunset to sunrise, (2) when raining, snowing, sleeting, or hailing, and (3) when visibility is impaired. The district court incorrectly concluded that the statute requires lights when raining only if visibility is also impaired. The statute unambiguously indicates that its provisions are to be considered separately. Under the plain language of the statute, rain alone is sufficient to trigger the light requirement, so the police had reasonable suspicion to stop respondent’s vehicle. Reversed and remanded. State v. Catherine Nyree McCabe, Ct. App. 2/6/2017.
• Procedure: For-cause dismissal permitted when prospective juror is not forthcoming. Prior to appellant’s trial for first-degree burglary, kidnapping, and criminal sexual conduct, the district court required jurors to complete a questionnaire that stated jurors were under oath. Prospective juror K.H. stated on the questionnaire that he was convicted of CVO in 2006, but a records check revealed he had a number of additional past convictions, including theft and criminal sexual conduct convictions. When questioned by the judge and counsel, K.H. admitted he had more convictions than disclosed on his questionnaire, including an arrest for criminal sexual conduct and drug convictions, but denied being arrested for theft. The court sustained the state’s for-cause challenge of K.H. on the grounds that K.H. had not been forthcoming.
On appeal, appellant argues he is entitled to a new trial because not being forthcoming is not listed as a ground on which to challenge a juror for cause under Minn. R. Crim. P. 26.02, subd. 5(1)(1). However, the rule allows the court to excuse a juror if the court is satisfied that the juror cannot try the case impartially. The court of appeals concludes that when a district court is convinced that a juror is untruthful, evasive, or lacking in candor during voir dire, Rule 26.02, subd. 5(1)(1), allows the court to remove the juror for cause. Affirmed. State v. Jacob Michael McKinley, Ct. App. 2/13/2017.
• Search and seizure: No warrant required for entry into third party’s home to execute arrest warrant for guest.
After failing several random tests that were a condition of pretrial release in her drug case, police secured a warrant for appellant’s arrest. Police went to appellant’s boyfriend’s residence, where they saw appellant inside. An officer opened an unlocked door, went inside, and arrested her. Police observed drugs inside, and appellant was charged with additional drug offenses. Appellant challenges the admissibility of the evidence obtained as a result of her arrest, arguing the arrest warrant did not authorize police to enter her boyfriend’s apartment.
The United States Supreme Court has previously held that it is constitutionally reasonable for police to enter a person’s own home when police have an arrest warrant for that person. Appellant, as an overnight guest, had a legitimate expectation of privacy in her boyfriend’s home. The Minnesota Supreme Court concludes that a guest should not receive greater 4th Amendment protection when in someone else’s home than he or she would when in his or her own home. “[I]t is a person’s status as the subject of the arrest warrant, not whether the person is in her own home or the home of another, that is decisive…” Because the police here had a valid arrest warrant for appellant and entered the home knowing she was inside, their entry did not violate appellant’s 4th Amendment rights. The Supreme Court declines to afford greater protection under Article I, Section 10 of the Minnesota Constitution in this situation. State v. Leona Rose deLottinville, Sup. Ct. 2/15/2017.
• 6th Amendment: Only general warning about immigration consequences required where immigration law is unclear. Appellant was born in Mexico and came to the United States when he was a minor. When he was 19, he was charged with and pleaded guilty to third-degree criminal sexual conduct and furnishing alcohol to a minor. His signed plea petition included a statement that his attorney had informed him that he could be deported if he was not a U.S. citizen, and appellant confirmed at the plea hearing that he reviewed the plea agreement and that he could be deported. After sentencing, ICE officers took him into custody and removal proceedings were commenced. Appellant filed an emergency motion to withdraw his guilty plea, claiming his plea was not accurate, voluntary, or intelligent, because his trial counsel provided only vague and inconclusive advice about the immigration consequences of his guilty plea. The postconviction court concluded appellant’s trial counsel’s advice was constitutionally adequate, and the court of appeals affirmed.
The Supreme Court addresses whether appellant was constitutionally entitled to specific, definitive advice about the immigration consequences of pleading guilty. Under Padilla, counsel must inform a noncitizen defendant about the immigration consequences of pleading guilty, and in particular, the risk of removal. If the applicable immigration law is “succinct and straightforward,” counsel must affirmatively advise a defendant that the plea will subject them to automatic deportation. If the law is unclear, counsel must advise their client that the charges may carry a risk of adverse immigration consequences.
The Court declines to decide whether counsel must review only the relevant immigration statutes, or also all relevant court decisions and administrative interpretations of the statutes in determining if the law is clear or not, because the Court concludes that the immigration consequences of appellant’s conviction were not truly clear under either view. The immigration statutes render a noncitizen presumptively deportable for the commission of an “aggravated felony,” but are not clear about which offenses qualify as aggravated felonies. It is not clear whether third-degree criminal sexual conduct falls within the statute’s broad classification of “sexual abuse of a minor.” Looking to case law and administrative interpretations of the statute does not provide the necessary clarification. Therefore, appellant’s trial counsel was not required to do more than provide a general warning about the immigration consequences of entering a plea, which he did. Affirmed. Francisco Herrera Sanchez v. State, Sup. Ct. 2/22/2017.
EMPLOYMENT & LABOR LAW
• Due process; failure to exhaust remedies. The director of a wellness program at the University of Minnesota failed in his assertion of violation of procedural due process after he was investigated for a complaint of sexual harassment. The 8th Circuit Court of Appeals, upholding a decision by U.S. District Court Judge Donovan Frank in Minnesota, ruled that the claimant did not exhaust his administrative remedies to entitle him to injunctive relief. Raymond v. Bd. of Regents of the Univ. of Minn., 847 F.3d 585 (8th Cir. 2017).
• Reprisal claim; poor performance bars lawsuit. The general manager of a fast food store in Vadnais Heights lost his discharge case based upon alleged retaliation under the Minnesota Human Rights Act, because the record reflected that the employer’s dissatisfaction with his job performance preceded any protected activities by the manager. The 8th Circuit, affirming a decision by U.S. District Court Judge Joan Ericksen in Minnesota, also ruled that there was no genuine issue of material fact whether the termination was pretextual, which warranted granting summary judgment. Sieden v. Chipotle Mexican Grill, Inc. 846 F.3d 1013 (8th Cir. 2017).
• FMLA, retaliation claims; insufficient evidence of pretext. An employee who claimed discrimination in violation of the Minnesota Human Rights Act and retaliation under the Family & Medical Leave Act (FMLA) had the claims dismissed on grounds that there was insufficient evidence that his termination, due to poor performance, was pretextual. The Minnesota Court of Appeals, upholding a decision of the Ramsey County District Court, ruled that a supervisor statement provided some “weak” evidence of discriminatory motive, but there was insufficient evidence that the determination was pretextual in light of the poor work performance, and there was no evidence that other employees were treated more favorably in light of the two customer complaints against him. Clarke v. Northwest Respiratory Servs., LLC, 2017 U.S. App. LEXIS 93 (8th Cir. 01/30/2017) (unpublished).
• Sex and age discrimination; claims dismissed, sanctions reversed. A claim by a Minnesota Department of Commerce employee of sex and age discrimination due to her dismissal was properly dismissed, although sanctions imposed against her attorney were reversed. The appellate court upheld the determination by the Ramsey County District Court that there was insufficient evidence of pretext, but sanctioning her attorney constituted an abuse of discretion and was overturned. Kandt v. Minn. DOC, 2017 U.S. App. LEXIS 101 (8th Cir. 01/30/2017) (unpublished).
• Unemployment compensation; “medical necessity” inapplicable. An employee who quit her job due to a medical condition was denied unemployment compensation benefits on grounds that the “medical necessity” provision of the unemployment compensation law, Minn. Stat. §268.095, subd. 1(7), did not apply. The appellate court, upholding the decision of the Department of Employment & Economic Development (DEED), held that the medical section provision did not apply because the employee had not requested an accommodation for her medical condition and her request for time off was granted before she quit. Johnson v. Viking Magazine Serv., 2017 U.S. App. LEXIS 104 (8th Cir. 01/30/2017) (unpublished).
Hellmuth & Johnson, PLLC
• Trump orders change to the Clean Water Rule. President Donald Trump issued an executive order (EO) on 2/28/2017 directing the U.S. Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers to review and rescind or revise the Clean Water Rule: Definition of “Waters of the United States” (WOTUS). The Clean Water Rule at issue was promulgated under the Obama administration on 6/29/2015 and adopted the assertion of jurisdiction over waters of the United States based on mere hydrologic connection to navigable waters, which was a significant expansion of the definition of WOTUS under the Clean Water Act. The rule arguably eliminated any constraints that the term “navigable” placed on the EPA’s and the Corp’s jurisdiction previously. Critics said this meant that few, if any, waters would fall outside federal control.
The rule was challenged in court repeatedly in different jurisdictions and ultimately was suspended in 2016 by a nationwide stay imposed by the 6th Circuit. Opponents included business interests such as farmers, oil and gas producers, fertilizer and pesticide producers, and land developers.
Calling the Clean Water Rule “one of the worst examples of federal regulation, and it has truly run amok,” President Trump is requiring review of the rule to consider the ruling in Rapanos v. United States, 547 U.S. 715 (2006). Because five of the justices in that opinion arguably rejected the broad assertion of jurisdiction adopted by the Obama administration’s rule, Trump’s EO requires review in light of the plurality opinion in that case.
The process for reviewing the rule could take years. Legal experts also predict that a rescinded or revised rule resulting from this EO will be subjected to just as many legal challenges as the previous rule, so it may be many years before the issue is settled.
• EPA to reconsider greenhouse gas emission standards. One of the last moves of the Obama Administration’s EPA was to issue a determination in January 2017 to not change the greenhouse gas (GHG) emission standards for cars and light-duty trucks in model years 2022-2025. The standard was set to increase fuel economy to the equivalent of 54.5 mpg for cars and light-duty trucks by model year 2025.
Trump’s EPA countered this move by announcing on 3/15/2017 that it will work with the U.S. Department of Transportation to review this determination. EPA Administrator Scott Pruitt stated, “These standards are costly for automakers and the American people. We will work with our partners at DOT to take a fresh look to determine if this approach is realistic. This thorough review will help ensure that this national program is good for consumers and good for the environment.”
The deadline for the reconsideration is April 2018. If the EPA chooses to change the approach of the previous administration as a result of the reconsideration, a public comment period for the new proposal will be required.
• EPA and OSHA raise civil penalties maximums. In mid-January, the U.S. EPA raised the civil penalties for violations of environmental compliance programs for the second time in six months. The EPA used to adjust these penalties once every four years, but under a new federal program the adjustment is done annually. The new maximums are as follows:
- RCRA Hazardous waste storage, management, and disposal: $71,264 per day, per violation;
- Clean Air Act: $95,284 per day, per violation;
- Clean Water Act: $52,414 per day, per violation;
- Safe Drinking Water Act: $54,789 per day, per violation;
- TSCA Chemical Regulations: $38,114 per day, per violation;
- EPCRA and CERCLA Chemical Emergency Preparedness and Reporting: $54,789 per day, per violation;
- FIFRA Pesticide Regulations: $19,057 per day, per violation.
The Occupational Safety and Health Administration (OSHA) likewise increased its penalties as follows:
- Serious or Other-Than-Serious Conduct, Pasting Requirements, and Failure to Abate: $12,675 per violation;
- Willful or Repeated Conduct: $126,749 per violation.
Parkway Law LLC
• Standard for modifying parenting time. In a published decision, the Minnesota Court of Appeals held that parenting time may be modified based on the child’s best interests and without showing a change in circumstances if the modification does not amount to a restriction of parenting time.
The parties’ stipulated dissolution decree, entered in May 2013, granted them joint legal and joint physical custody of their children. Father worked as an airline pilot and the decree provided that he would have parenting time when he was not working and that the parties would have equal parenting time. In September 2015, mother brought a motion seeking an order granting her parenting time on two weekends per month. She alleged that father had bid his work schedule in a way that allowed him to work during the week, resulting in mother not having any weekend parenting time with the children. The district court granted mother’s motion and father appealed.
Father argued that the district court had erred in modifying parenting time without first finding that a change in circumstances had occurred. Mother argued that this was not the legal standard and that she did not need to show any change in circumstances, only that the modification she requested would serve the children’s best interests. Citing the language of Minn. Stat. §518.175, subd. 5, the court of appeals agreed with mother and held that no showing of changed circumstances is required and that parenting time may be modified based on a best interest determination so long as the modification does not constitute a restriction on parenting time. Father also argued that the parenting time provisions of the decree should have been accorded greater deference because they were the result of the parties’ agreement. The court of appeals rejected this argument, reasoning that once the stipulation was adopted by the district court it merged into the dissolution judgment and thus was treated as a judgment and not as a contract. Shearer v. Shearer, ___ N.W.2d ___ (Minn. Ct. App. 2017).
• Calculation of child support; PICS; health insurance plans; dependency exemption allocation. The court of appeals issued a published decision that provides guidance on three discrete aspects of calculating child support: the application of the guidelines where the parties’ monthly combined parental income for child support (PICS) exceeds $15,000; evaluating the cost of competing health insurance plans; and allocating dependency exemptions.
In adjudicating child support, the district court found that the parties’ monthly combined PICS was $16,868 and used that figure in applying the guidelines to determine basic support. This resulted in father owing mother basic support of $424 per month. Father challenged this on appeal, arguing that the district court erred by failing to limit the combined PICS amount to $15,000. The court of appeals affirmed because, while there is a statutory cap on the amount of basic support to be apportioned between parents—$1,883 per month—there is no limit on the combined PICS. Father’s argument was illogical because using the actual combined PICS amount was necessary to allow the district court to properly allocate between the parties their respective shares of the combined basic child support amount of $1,883 per month.
Father also challenged the district court’s decision that the child would be covered by mother’s insurance policy instead of father’s policy. The parties agreed that their policies provided comparable coverage and their dispute centered on which policy was more affordable. Father’s insurance premium was $64 per month while mother’s insurance premium was $127 per month. However, mother’s deductible was only $150 while father’s deductible was $3,000 (but it could be reduced to $1,450 through employer and employee contributions). The district court reasoned that each policy’s affordability would be driven by the child’s health needs and that mother’s policy would be less expensive if the child’s medical expenses were high. On appeal, father argued that the district court’s consideration of co-pays and deductibles was speculative. The court of appeals noted that under the statute, insurance coverage is affordable if it is reasonable in cost. Thus, the district court properly exercised its discretion in evaluating cost based on not only the monthly premiums, but also co-pays and deductibles.
The parties were granted joint legal and physical custody and equal parenting time. The district court initially granted each party the right to claim various tax benefits for the child in alternate years. But after motions for amended findings, the district court ordered that the dependency exemption would be claimed by whichever parent did not qualify to file as head of household. On appeal, father argued that the district court had exceeded its authority because father earned a higher income than mother and had equal parenting time.
The court of appeals disagreed with father for a variety of reasons and affirmed the district court. Under the Internal Revenue Code, the custodial parent is the parent who has custody of the child for a greater portion of the year. But the Code permits the custodial parent to waive the right to claim the dependency exemption in favor of the noncustodial parent. The court of appeals noted that Minn. Stat. §518A.38, subd. 7(a) reinforces this as well by permitting district courts to allocate the right to claim the dependency exemption between parents. The district court correctly determined that it was not possible to know which parent would qualify to file as head of household in a given year because the order for equal parenting time did not necessarily mean that each parent would actually have the child in their care for the same number of overnights. The district court considered the value to each party in claiming the dependency exemption and in filing head of household and concluded that, under the circumstances, it would be best to allow each parent to enjoy some tax benefit each year. The district court made findings to support its decision based on the four factors at Minn. Stat. §518A.38, subd. 7(b).
The court of appeals rejected father’s argument that the Code preempted Minnesota law. Minnesota law clearly permitted the district court to allocate dependency exemptions to the noncustodial parent. And the district court’s methodology requiring the parties to determine which one of them would be able to file head of household did not violate the Code or Minnesota law. Hansen v. Todnem, ___ N.W.2d ___ (Minn. Ct. App. 2017).
• Child care support; prospective child care expenses. The parties’ 2012 dissolution judgment reserved the issue of child care support for the parties’ two children. In 2015, mother brought a motion in district court to establish father’s child care support obligation and submitted a child care plan and rate sheets for various child care options. The district court heard arguments on mother’s motion and then referred the dispute to the CSM. Mother supplemented her motion by submitting to the CSM checks and receipts relating to the child care expenses she incurred since filing her initial motion. Regarding summer child care expenses, mother submitted (1) a spreadsheet of care options; (2) a rate sheet for a summer camp; (3) a signed statement from an in-home childcare provider stating the provider’s rate and two cash receipts showing past payments; (4) a copy of deposit checks for two summer camps; and (5) a copy of a check mother wrote to her own mother for watching the children for a week. Regarding school-year child care expenses, mother submitted a spreadsheet showing care options and a school-registration form showing the cost of the program.
The CSM denied mother’s motion because it found that mother had provided rate sheets and estimates but no documentation showing the amount she had spent on actual childcare expenses. The district court denied mother’s motion for review and mother appealed.
Father argued on appeal that Minn. Stat. §518A.40, subd. 3(a) requires documentation of child care expenses already incurred and that the lower court correctly denied mother’s motion because she had only presented documentation reflecting the cost of prospective child care options. The court of appeals disagreed and reversed the district court. The statutory reference to “documentation of child care expenses” was not limited to past child care expenses and could also encompass prospective child care expenses. Additionally, requiring an obligee to incur and pay child care expenses before seeking reimbursement would not necessarily be feasible for some obligees and would be inconsistent with public policy and would be inefficient for the judiciary. The CSM’s determination that documentation of child care expenses is limited to past expenses was error, as was the CSM’s finding that mother had not provided documentation of amounts she had actually paid for child care. The court of appeals remanded the case for further proceedings based on its decision. The court of appeals also specifically instructed the CSM to address various arguments father had made relating to the weight and credibility of mother’s documentation. This was because the CSM had not expressly addressed father’s arguments and it was unclear to the court of appeals whether the CSM had considered and rejected father’s arguments or whether it had not addressed them because it determined mother’s motion was defective on other grounds. Beckendorf v. Fox, ___ N.W.2d ___ (Minn. Ct. App. 2017).
• Domestic abuse; application of hearsay rule. In a published decision, the Minnesota Court of Appeals reversed a district court’s issuance of an order for protection (OFP) that was based solely on hearsay.
Mother obtained an ex parte OFP on behalf of her two children, ages ten and eight, against their father based on her petition containing the following allegations: (1) the children began crying when mother told them they would be going to father’s home and one of the children hyperventilated; (2) mother brought the children to see a therapist who, after meeting with the children alone, advised mother than the children should not go to their father’s home because he did not understand the children’s issues and was having an impact on their mental health; (3) the ten-year-old told the therapist and mother that father slaps the eight-year-old across the face and tells the children that there will be “severe consequences” if the children report father’s behavior. Mother’s petition also alleged that she had reported father’s slapping the eight-year-old to child protection but that no action was taken because the slap did not leave a mark. Mother also alleged in her petition that father had spanked the ten-year-old when the ten-year-old was a baby and had initially lied about the incident.
A hearing was held in which father’s attorney argued that the case should be dismissed because the allegations were hearsay and did not constitute domestic abuse. Mother, appearing pro se, presented a letter from the children’s therapist. Father objected to the letter as hearsay and the district court sustained the objection. Mother’s testimony at the hearing was very limited. The district court invited her to talk about anything that was not already in her petition and she did not offer any testimony other than describing her efforts to work out the issue with father.
The district court issued the OFP and specifically found that father had struck at least one of the children on at least one occasion, that father threatened the children with severe consequences, that mother observed concerning behaviors in the children, and that the children had been emotionally abused by their father.
The court of appeals reversed and remanded for further proceedings. The court noted that the Minnesota Rules of Evidence apply in actions under the Minnesota Domestic Abuse Act. No evidence had been presented that would have allowed the district court to make its factual findings of abuse; such findings could only have been based on the hearsay allegations in the petition. No hearsay exceptions applied and it was error for the district court to rely on hearsay in making its finding that domestic abuse had occurred. Olson v. Olson, ___ N.W.2d ___ (Minn. Ct. App. 2017).
Henson & Efron PA
• Certiorari granted; 28 U.S.C. §1367(d); effect of statutory toll. The Supreme Court has granted certiorari in a case that raises the issue of whether the tolling provision in 28 U.S.C. §1367(d) suspends the limitations period for supplemental state law claims while the claims are pending in federal court and for 30 days thereafter, or whether the tolling provision only provides 30 days for the plaintiff to refile following dismissal. Artis v. District of Columbia, 135 A.3d 334 (D.C. 2016), cert. granted, ___ S. Ct. ___ (2017).
There is a stark divide among the courts that have decided this issue, with the Minnesota Supreme Court previously holding that 28 U.S.C. §1367(d) results in a suspension of the statute of limitations while the federal action is pending. Goodman v. Best Buy, Inc., 777 N.W.2d 755 (Minn. 2010).
• Certiorari granted; timeliness of appeal; Fed. R. App. P. 4(a)(5)(C); 28 U.S.C. §2107(c). The Supreme Court has granted certiorari in case which raises the issue of whether Fed. R. App. P. 4(a)(5)(C) can deprive a court of appeals of jurisdiction over appeals that are statutorily timely.
While the 8th Circuit has not addressed this issue, four circuits have held that Fed. R. App. P. 4(a)(5)(C) deprives courts of jurisdiction over appeals that are timely under 28 U.S.C. §2107(c), while two circuits have held that Rule 4(a)(5)(C) is a non-jurisdictional claim processing rule. Hamer v. Neighborhood Housing Servs., 835 F.3d 761 (7th Cir. 2016), cert. granted, ___ S. Ct. ___ (2017).
• Class action; attorney’s fees; fund administration costs. The 8th Circuit held that a district court did not abuse its discretion in basing an attorney’s fee award in a class action on the total value of a settlement fund which included more than $3 million in fund administration costs. Huyer v. Buckley, ___ F.3d ___ (8th Cir. 2017).
• Fed. R. Civ. P. 23.1; proper treatment of motion to terminate litigation. Affirming an order by Chief Judge Tunheim that had terminated a shareholder derivative action on the basis of a special litigation committee’s report, the 8th Circuit held that the “closest fit” for such motions is Fed. R. Civ. P. 23.1(c) rather than Fed. R. Civ. P. 12(b)(6) or 56, and that district court rulings on motions to terminate litigation are to be reviewed for abuse of discretion. Kokocinski ex rel. Medtronic, Inc. v. Collins, ___ F.3d ___ (8th Cir. 2017).
• Inadequate privilege log leads to waiver of attorney-client privilege. Overruling objections to an order by Magistrate Judge Brisbois, Judge Montgomery applied the five-part test governing claims of attorney-client privilege in a corporate setting, and found that the plaintiff had failed to meet its burden to establish that an allegedly privileged document had not been shared with those without a “need to know.” Judge Montgomery also rejected the plaintiff’s attempt to expand the record with an additional declaration that explained the role of each of the individuals it had failed to identify earlier. Peerless Indem. Ins. Co. v. Sushi Avenue, Inc., 2017 WL 631547 (D. Minn. 2/15/2017).
• Fed. R. Civ. P. 26(b)(4)(B); discovery of expert’s materials. Judge Nelson found that an annotated bibliography compiled by the plaintiffs’ expert that was referenced in the expert’s report was a draft not subject to discovery pursuant to Fed. R. Civ. P. 26(b)(4)(B). In re: NHL Players’ Concussion Injury Litig., 2017 WL 684444 (D. Minn. 2/21/2017).
• Motion to remand; amount in controversy; contractual attorney’s fees. Judge Frank denied the plaintiff’s motion to remand, finding that the amount in controversy including contractual attorney’s fees exceeded $75,000, and rejecting the plaintiff’s argument that only statutory attorney’s fees could count toward the amount in controversy threshold. Geronimo Energy, LLC v. Polz, 2017 WL 758924 (D. Minn. 2/27/2017).
• 28 U.S.C. §1404(b); motion for intra-district transfer denied. Overruling the bulk of the parties’ objections to an order by Magistrate Judge Brisbois, Chief Judge Tunheim affirmed the denial of the plaintiffs’ motion to transfer an action from the Sixth Division in Fergus Falls to the Fourth Division in Minneapolis, and also found that an argument not raised by the plaintiffs before the magistrate judge was “unconvincing.” Bombardier Recreational Prods., Inc. v. Arctic Cat Inc., 2017 WL 690186 (D. Minn. 2/21/2017).
• Opposition to summary judgment; failure to include citations to the record. Granting the defendants’ motion for summary judgment in an employment discrimination case, Judge Kyle criticized the plaintiff’s “repeated . . . factual assertions without citation to the record,” and considered “only those portions of the record cited by [the plaintiff.]” Mears v. Flint Hills Resources, LLP, 2017 WL 723895 (D. Minn. 2/23/2017).
Law Office of Josh Jacobson
• Licensing: Doctrine of merger does not apply. The United States Court of Appeals for the 8th Circuit recently held that the doctrine of merger did not apply to intellectual property licenses. ACI Worldwide filed a declaratory judgment action against Churchill Lane in the District of Nebraska arguing that it validly amended and terminated a licensing agreement. ACI licensed a suite of credit card fraud detection software from the predecessor of Churchill in 2001 in which ACI agreed to pay royalties on sublicenses granted by ACI even if the licensing agreement was later terminated. In 2014, ACI acquired the rights to the licensed software and the licensing agreement from a group that purchased the rights from a receivership after Churchill’s predecessor became insolvent. ACI then unilaterally terminated the licensing agreement and ceased paying royalties. ACI argued that Churchill was only entitled to the royalties due the licensor and that the licensor had been extinguished through merger. In this way, ACI attempted to apply the doctrine of merger from real property easements to licensing of intellectual property. No case authority, however, was found applying the doctrine of merger to licenses of patents or other intellectual property. The court further noted that the doctrine of merger does not apply when merger would impair the intervening rights of a third person, in this case Churchill. The court concluded that because merger does not apply, Churchill is still entitled to royalties for all sublicenses ACI granted before the termination date. ACI Worldwide Corp. v. Churchill Lane Assocs., LLC., No. 16-1736, 2017 U.S. App. LEXIS 1489 (8th Cir. 1/27/2017).
• Patent: Evidence of intent for induced infringement. Judge Nelson recently granted summary judgment of no induced patent infringement. Luminara Worldwide sued Canadian company Abbott for infringement of flameless candle patents. Luminara initially accused Abbott of inducing infringement (35 U.S.C. §271(b)). A claim of induced infringement requires a patent owner to prove an “accused inducer took an affirmative act to encourage infringement with the knowledge that the induced acts constitute patent infringement.” A cease-and-desist letter can be used to establish knowledge of infringement. Luminara had sent a cease-and-desist letter to Abbott in February 2012. As proof of inducing acts, Luminara claimed that it had purchased an infringing candle from one of Abbott’s third-party retailers. The purchase, however, occurred before the February 2012 cease-and-desist letter and, therefore, could not be evidence of inducement because the purchase was made prior to Abbott having the required knowledge of the patent and infringement. Luminara also argued that a January 2012 Facebook response to a customer’s inquiry as to when the infringing candles would be available in the United States that said “…look for a retailer in Canada that ships to the U.S.” constituted active inducement. The court found that the comment did not rise to the “sort of specific intent to cause direct infringement” as is required to prove inducement. The court also found that the Facebook post was not evidence of inducement because it too occurred prior to the February 2012 cease-and-desist letter. Therefore, Luminara had not established material facts that Abbott had the necessary intent to induce infringement. Luminara Worldwide, LLC v. Liown Elecs. Co., No. 14-cv-3103, 2017 U.S. Dist. LEXIS 17132 (D. Minn. 2/6/2017).
Tony Zeuli & Joe Dubis
Merchant & Gould
PROBATE & TRUST LAW
• IRS notice confirms transcripts may serve as alternative to estate closing letters. IRS Notice 2017-12 announces that an estate account transcript with a transaction code of “421” can serve as the functional equivalent to an estate closing letter. Transaction Code 421 on a transcript means the estate tax return (Form 706) has been accepted as filed or that the examination is complete. The description for Code 421—“Closed examination of tax return”—will be the same in all instances, regardless of whether the return was accepted as filed or closed upon completion of audit. Tax professionals may utilize the IRS online procedure to register to obtain estate account transcripts from the Transcript Delivery System (TDS). You must first register for IRS e-Services in order to enroll in TDS. Requests for transcripts will only be processed if a properly executed Form 2848, Power of Attorney, or Form 8821, Tax Information Authorization, is already on file with the IRS. Transcripts can also be requested by fax or mail using Form 4506-T, Request for Transcript of Return. The IRS will only issue a closing letter upon request of the taxpayer. Authorized representatives of the estate may call the IRS at (866) 699-4083 to request an estate tax closing letter four months or more after filing the estate tax return. Requests for transcript (whether through TDS or use of Form 4506-T) or closing letter should not be submitted until at least four months after filing the estate tax return. Additional information, including instructions on how to register for TDS and how to complete requests for transcripts using TDS or Form 4506-T, can be found at https://www.irs.gov/businesses/small-businesses-self-employed/transcripts-in-lieu-of-estate-tax-closing-letters.
Lindquist & Vennum LLP
• Charitable contributions: Tax court serious about substantiation requirements. The United States Tax Court denied a taxpayer’s claimed charitable deduction for his alleged gift to a charitable organization of a partial interest in a 40-year-old airplane. The taxpayer acquired the airplane in 2007, when he and an LLP each paid $21,000 for a 50% undivided interest. In 2010, he filed a return and did not claim any deduction. In 2016, however, the taxpayer filed an amended petition alleging that on December 31, 2010, he had donated his 50% interest in the airplane to an eligible organization (the court had given the taxpayer permission to amend). Taxpayer alleged that his 50% interest had been appraised at $338,080. The relevant section of the Code requires specific substantiation for charitable contributions of used vehicles, including airplanes, if the claimed value exceeds $500. IRC 170(f)(12). The substantiation requirement is a strict one, and the doctrine of substantial compliance does not apply to excuse the failure to meet the statutory requirements. In this case, the tax court determined that none of the taxpayer’s proffered documents satisfied the contemporaneous written acknowledgement requirement (CWA). First, the taxpayer did not attach a Copy B of Form 1098-C to his amended return because the donee organization did not complete or file a 1098-C in connection with the alleged gift. A thank you letter the taxpayer included did not meet the CWA standard because it was not addressed to the taxpayer and did not include required categories of information. Although the taxpayer included an “Aircraft Donation Agreement” akin to a deed of gift, the aircraft donation agreement did not qualify as a CWA in this instance, again, because it did not contain sufficient relevant information. A skeptical court declined to “read together” multiple documents offered several years after the alleged gifts; further, even if the court were willing to “read together” the documents, there was “no contemporaneous document” sufficient to satisfy the CWA requirement. Izen v. Comm’r, No. 28358-12, 2017 WL 809946 (T.C. 3/1/2017).
• Unresponsive petitioner. Appellant Axelson appealed the Minnesota Commissioner of Revenue’s determination on administrative appeal that assessed over $70,000 in additional Minnesota individual income tax, penalties, and interest for tax years 2009 through 2013. On appeal, Axelson asserted he had documents demonstrating expenses to reduce his net income and tax liability. However, appellant, a pro se litigant, failed to respond to commissioner’s discovery requests and subsequent letters for this documentation. In response, the commissioner filed for summary judgment. Prior to the hearing for the commissioner’s motion, appellant retained counsel. The summary judgment hearing was deferred to give appellant’s counsel
time to prepare. Later, appellant’s counsel withdrew without responding to the motion. Because Axelson failed to produce any evidence to rebut the commissioner’s assessment, he failed to overcome the prima facie validity of the commissioner’s order. Thus, the motion for summary judgement was granted. Axelson v. Comm ‘r of Revenue, No. 8839-R (Minn. T.C. 2/28/2017).
• Personal income tax and child tax credit. In this Minnesota Court of Appeals case, two divorced parents were in dispute over the allocation of certain child tax benefits; this summary addresses only the tax benefit claims, although there were several issues on appeal. The district court ordered that the parent who did not qualify for the head of household status for a given year be entitled to claim the dependency exemption. The court of appeals held that the district court properly evaluated the relative resources of the parties and the potential benefits and affirmed the district court’s decision.
The parenting plan between Mr. Hansen and Ms. Todnem gave both parents joint legal and joint physical custody along with equal parenting time. Mr. Hansen had a higher income than Ms. Todnem. The district court ordered that the parent who did not qualify for the head of household status for a given year be entitled to claim the dependency exemption. Ordinarily, a parent receives head of household status and a dependency exemption if a qualifying child has his or her principal place of abode for more than one-half of the taxable year at that parent’s house. See I.R.C. §§2(b)(1) (2012), 151(a)-(c). In this case, the child spent exactly half the year with each parent. Federal law provides a tie-breaker in §152(c)(4)(B): The child is treated as the qualifying child of “(i) the parent with whom the child resided for the longest period of time during the taxable year, or (ii) if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.”
The district court did not apply the tie-breaker rule and instead chose to use an order and waiver process, pursuant to I.R.C. §152(e), to allocate the dependency exemption to the parent who was not able to claim head of household status. Section 152(e)(2) provides that the custodial parent is entitled to the dependency exemption unless the custodial parent signs a written declaration waiving the right to claim the child for the taxable year and the noncustodial parent attaches a copy of that waiver to his or her tax return.
The court of appeals determined that allocating the head of household and dependency exemption between the two parties was the most equitable result because each parent would receive some benefit. The court of appeals denied each of Mr. Hansen’s arguments: (1) that the Internal Revenue Code requires the party with a higher gross income to receive the benefits, (2) that the district court was preempted from deciding the issue, (3) that the district court failed to make appropriate findings to support its decision.
Under federal law, the implied conflict preemption doctrine provides that federal law preempts a state law if “it is impossible for a private party to comply with both the state and federal requirements” or if “the state law stands as an obstacle to the accomplishment and execution of the purpose and objective of Congress.” Gretsch v. Vantium Capital, Inc., 846 N.W.2d 424, 433 (Minn. 2014). The court of appeals determined that the district court’s order did not violate either test because federal law allows for allocation. Congress also intended reduced involvement by the IRS in dependency disputes between parents.
Finally, Hansen argued the district court failed to make appropriate findings to support its decision as required under Minnesota law. The court of appeals considered the four-factor test under Minnesota law: (1) the financial resources of each party; (2) a parent’s ability to provide for a child if not awarded the exemption; (3) whether one party or both parties would receive a tax benefit from the exemption; and (4) the impact of the exemption “on either party’s ability to claim a premium tax credit or a premium subsidy.” See Minn. Stat. §518A.38, subd. 7(b)(1)-(4) (2016). The court of appeals held that the district court properly evaluated the factors by considering the relative resources of the parties and the potential benefits that will result from the exemption. Hansen v. Todnem, 2017 Minn. App. LEXIS 28 (Minn. Ct. App. 2017).
• Changes to health care law potentially impact 2016 filing. The U.S. House Republican health care plan released in early March—the American Health Care Act— does away with the individual mandate and employer mandate. The proposed plan would make the repeal retroactive to January 2016. For the moment, though, current law requires coverage and neither the Service nor the Legislature has issued any guidance that would permit taxpayers subject to the mandate penalty to avoid penalties for noncompliance.
Mitchell Hamline School of Law
TORTS & INSURANCE
• No-fault; amount of claim for jurisdictional requirement. Plaintiff was injured in an automobile accident. At the time of the accident, plaintiff was insured under a policy issued by defendant providing for $20,000 in coverage for no-fault medical-expense benefits. After defendant had paid $14,548.26 in benefits, plaintiff commenced litigation seeking additional benefits as a result of $30,942.15 in unpaid medical bills. Defendant moved for summary judgment, alleging that the district court lacked jurisdiction because the amount in controversy did not exceed the $10,000 jurisdictional limit provided in Minn. Stat. §65B.525, subd. 1. The district court denied the summary judgment motion.
The Minnesota Court of Appeals reversed. The court noted that the Minnesota No-Fault Automobile Insurance Act provides for mandatory arbitration “of all cases at issue where the claim at the commencement of arbitration is in an amount of $10,000 or less against any insured’s reparation obligor for no-fault benefits.” The court rejected plaintiff’s contention that the amount of her “claim” was the total amount of unpaid medical expenses. While the statute does not define “claim,” the court reasoned that it could be no more than $5,451.74—the amount remaining under the insurance policy issued by defendant. In the words of the court: “While [plaintiff] may be ‘asking for’ more than $10,000 in medical expenses, she cannot ask for more than $5,451.74 from [defendant] because her policy provides $20,000 in coverage…. In other words, [plaintiff] has no ‘right enforceable by a court’ to recover any more than the $5,451.74 in no-fault medical-expense benefits remaining under her insurance policy.” Jansen v. State Farm Mut. Auto. Ins. Co., A16-0916 (Minn. Ct. App. 2/21/2017). http://mn.gov/law-library-stat/archive/ctappub/2017/OPa160916-022117.pdf