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

Notes & Trends – May/June 2017

COMMERCIAL AND CONSUMER LAW
JUDICIAL LAW

• Characterization is important. Uniform Commercial Code (UCC) Article 9 has long recognized that it is difficult in many instances to determine whether a transaction is legally a sale, or legally a secured transaction. Rather it punts and leaves the issue to the courts, but, as appropriate, it also largely avoids this difficult problem of distinguishment by including both within its scope in UCC §9-109, with certain distinctions nonetheless in some applicable rules to recognize the difference when necessary. See, e.g. Official Comments 4 and 5 to UCC §9-109.

A fairly recent Minnesota case had to deal with this issue. In In Re ACRO Business Finance Corp., 357 B.R. 785, 61 UCC Rept. Serv. 2d 618 (Bankr. D. Minn. 2006), an asset-based lender that was in the business of making loans to small businesses went into Chapter 11 bankruptcy. To spread the risk, ACRO would sell part of the loans to other lenders (Minnesota Community Banks) under “participation agreements.” ACRO also had a $12.6 million revolving credit agreement with National City Bank secured by substantially all of ACRO’s assets, including arguably amounts due by borrowers on the small business loans. In an “accounting change,” their participations had been booked later as “secured borrowings.” National City Bank called its loan to ACRO, and that caused ACRO to file the Chapter 11 bankruptcy. That raised the issue of whether what had been denominated as “participations” originally instead were secured loans, and thus assets subject to National City Bank’s claim.

The Minnesota court determined there were four tests to determine whether a true participation was involved:

Was money advanced by the participants to a lead lender?

Did the participant’s right to repayment from the borrowers only arise when the lead lender was paid?

Was the lead lender the only party with recourse against the borrowers?

How do the relevant documents characterize the transaction?

The court held all four tests were satisfied and the change in the accounting rule did not alter the true characterization of the transaction. Moreover, the evidence was both parties intended to exclude the “participations” from the collateral pool, which was demonstrated in the financing statement that specifically so provided. Thus the collateral description in the National City Bank security interest did not include the loans (that is, “participations”). Also the court found no basis for the argued equitable subordination of National City Bank’s claim in bankruptcy due to its change in legal position as evidenced by the accounting standard change.

A more recent Iowa case, Central Bank, et al. v. Timothy C. Hogan, as Trustee of the Liberty Bank Liquidating Trust, et al., 2017 Iowa Sup. LEXIS 21 (Iowa 2017), explores another version of the same issue. Liberty Bank made a series of real estate and related personal property secured loans, and then sold participations to five other banks. The borrower on the loans later defaulted on the loans and voluntarily surrendered the collateral. Liberty then sold some of its assets under a purchase and assumption agreement, including the loans and their collateral, to Real Estate Owned (related to Central Bank), and transferred them by quit claim deed, and then liquidated. The buyer sought a declaratory judgment against the seller, its liquidating trustee, and the participating banks, that the collateral was free of the participating bank’s interests.

The trustee and the participating banks argued that under the purchase and assumption agreement, Liberty Bank owned only a 59% interest in the loans and collateral, that was all it could and did sell, and so the participating banks owned the balance. The buyer, however, argued the participations instead were loans, and no true sale occurred, so the interest of the participating banks was only a contractual right to payment. This was supported, it was argued, as a title search did not show the banks in the chain of title for the real estate.

The court held the participation agreements constituted sales of an undivided ownership interest in the entire loan including its collateral, citing (1) the language of the agreement calling the transaction a “sale,” (2) that Liberty Bank held the notes and loan documents in trust for the participating banks, (3) that the participants were stated to hold an undivided interest in the loan documents held in trust, and (4) the absence of disqualifying provisions such as a buy-back provision or differing interest rates. The court also found the buyer knew about the participating banks before the transfer was closed but took a quit claim deed, and thus the recording statutes afforded no protection. The court also declined to analyze the UCC Article 9 arguments related to the collateral.

There are few litigated published cases involving the loan or sale issue of participations, so the analysis of these courts is a welcome addition to the jurisprudence.

Fred Miller

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

 

CRIMINAL LAW
JUDICIAL LAW

• Assault: Misdemeanor domestic assault not lesser-included offense of second-degree assault. Appellant and J.O. dated for a number of years, and remained in contact with one another after their relationship ended and J.O. started dating someone else. Appellant was jealous of J.O.’s new relationship and, on one occasion, physically assaulted J.O. J.O. told police that appellant assaulted her by punching her and threatening her with a knife. Appellant was charged with second-degree assault and terroristic threats. After a court trial, the district court found that appellant had injured J.O., but concluded that reasonable doubt existed as to whether he threatened her with a knife and made a terroristic threat. The court then sua sponte considered the charge of misdemeanor domestic assault as a lesser-included offense of second-degree assault, and found appellant guilty of domestic assault.

Minn. Stat. 609.04, subd. 1, outlines what an “included offense” is: (1) a lesser degree of the same crime; (2) an attempt to commit the crime charged; (3) an attempt to commit a lesser degree of the same crime; (4) a crime necessarily proved if the crime charged were proved; or (5) a petty misdemeanor necessarily proved if the misdemeanor charge were proved.

Misdemeanor domestic assault is neither an attempt offense nor a petty misdemeanor. It is also not a “lesser degree” of second-degree assault. The Legislature created a multi-tiered statutory scheme that assigns assault to one of five degrees, but domestic assault was not included. Misdemeanor domestic assault is also not a crime “necessarily proved” when second-degree assault is proved. Misdemeanor domestic assault requires proof that the defendant intentionally inflicted or attempted to inflict bodily harm against a family or household member, but second-degree assault does not require proof that the victim is a family or household member. Thus, it is possible to commit second-degree assault without also committing domestic assault.

Held, misdemeanor domestic assault is not a lesser-included offense of second-degree assault. By sua sponte considering the charge of misdemeanor domestic assault after the close of evidence, the district court deprived appellant of the opportunity to defend against an element of that charge, specifically, the family or household element. Appellant’s conviction is reversed. State v. Cyrus Nyakundi Nyagwoka, Ct. App. 4/3/2017.

• Burglary: Motel room is “building.” Appellant was convicted of theft and first-degree burglary after entering Z.D.’s motel room and taking Z.D.’s cell phone and wallet. Appellant had also been staying at the motel. On appeal of his first-degree burglary conviction, appellant argues that he did not enter a building without consent, because he had consent to enter the motel and Z.D.’s separate motel room is not a “building.” The parties agree that each element of the crime of first-degree burglary is satisfied, except whether appellant entered a “building.” “Building” is statutorily defined as “a structure suitable for affording shelter for human beings, including any appurtenant or connected structure.”

As a matter of first impression, the court of appeals considers whether the current statutory definition of “building” for purposes of the crime of burglary encompasses subunits, such as a motel room. The court determines that the plain meaning of the word “structure” includes anything intentionally constructed from component parts, but notes that the statutory definition of “building” is narrower, as the structure must be “suitable for affording shelter for human beings.” The court finds that a motel room is intentionally constructed from component parts for the express purpose of affording shelter for guests. Thus, a motel room is a “building.” The district court is affirmed. State v. Lionel Lopez, Ct. App. 4/24/2017.

• Criminal sexual conduct: Prohibition against sexual communication with child does not violate 1st Amendment. Respondent was charged with felony communication with a child describing sexual conduct after sending sexually explicit images and messages to a 15-year-old boy. The charge was dismissed because the district court found that the statute violates the 1st Amendment by proscribing a substantial amount of protected speech. The court of appeals affirmed the dismissal.

Minn. Stat. §609.352, subd. 2a(2), prohibits a person 18 years of age or older from using the internet, computer, or other electronic device to engage in communication with a child relating to or describing sexual conduct, if the adult is acting with the intent to arouse the sexual desire of any person. The Minnesota Supreme Court first concludes that the statute is overbroad because it regulates some protected speech. However, it finds that the regulation of protected speech is not substantial and does not, therefore, violate the 1st Amendment on its face.

In determining whether the statute is unconstitutionally overbroad, the Supreme Court first interprets the statute to prohibit an adult from participating in the electronic transmission of information relating to or describing the sexual conduct of any person, if the communication was directed at a child, and the adult sending the communication acted with the specific intent to arouse the sexual desire of any person. Next, the court examines whether the statute prohibits speech that the 1st Amendment protects. The state argues that it does not violate the 1st Amendment, because the speech prohibited by the statute is integral to criminal conduct. The Supreme Court agrees that much of the speech that falls within the scope of the statute is integral to criminal conduct because it involves grooming aimed at soliciting a specific child but that the statute also covers some speech that may not be integral to criminal conduct. The state also argues that the statute regulates obscene speech, which the 1st Amendment does not protect. The Supreme Court finds that the speech proscribed by the statute will often be obscene, applying the Miller v. California test. However, because communications that the statute prohibits are not necessarily limited to those without literary, artistic, political, or scientific value, the statute does regulate some speech that is not obscene. Because the statute does regulate some speech protected by the 1st Amendment, the Court next examines whether the statute regulates a substantial amount of protected speech. The Supreme Court finds that the legitimate sweep of the statute is to protect children from sexual abuse and exploitation and from exposure to harmful sexual material. The statute does not target broad categories of speech, because of its specific intent requirement. Its intrusion upon constitutionally protected speech is limited. The small class of protected communication reached by the statute can be addressed through applied challenges. The court of appeals is reversed. State v. Krista Ann Muccio, Sup. Ct. 3/8/2017.

• Firearms: Carrying pistol in public includes transporting unloaded pistol in enclosed case. Appellant was charged with carrying a pistol while under the influence of alcohol after carrying a fully closed gun case containing an unloaded pistol on a public sidewalk and while under the influence of alcohol. Appellant moved to dismiss for lack of probable cause, but his motion was denied. After a trial on stipulated facts, the district court convicted appellant.

The court of appeals considers whether the definition of “carry” in Minn. Stat. 624.7142, subd. 1(4), includes transporting an unloaded, encased pistol. Minnesota law does not permit a person, in a public place, to carry a pistol on or about the person’s clothes or person if they are under the influence of alcohol. The term “carry” is not defined. However, by its plain meaning, “carry” prohibits transporting a pistol on one’s person while under the influence of alcohol in a public place. The court derives this definition of “carry” from the ordinary usage of the word, found in its dictionary definitions. Because the statute prohibits carrying “about” the person’s clothes or person, this includes situations in which the pistol is unloaded and in a case.

The court rejects appellant’s argument that section 624.7142 must be read in conjunction with section 624.7181, which prohibits carrying a BB gun, rifle, or shotgun in a public place, but expressly states that, for the purposes of that section, “carry” does not include carrying those firearms unloaded in a fully enclosed case. Section 624.7181 provides that its definition of “carry” applies specifically to that section only. Here, the state had probable cause to charge appellant with carrying a pistol on a public sidewalk while under the influence of alcohol, and the evidence was sufficient to convict him of that offense. State v. Bryan Lee Larson, Ct. App. 4/24/2017.

• DWI: No violation of right to additional test by providing urine specimen cup. Appellant’s driver’s license was revoked following his arrest for DWI. Following a breath test, appellant requested an additional test. Appellant’s ex-wife brought a Tupperware container to the jail for appellant to store a urine sample. Jail staff also provided a medical grade, sterile specimen cup for appellant to use to collect his sample. Appellant provided a sample in the specimen cup provided by the jail staff, and gave the cup with his urine sample to his ex-wife. In an Implied Consent proceeding, the district court sustained the revocation of appellant’s driver’s license, finding no evidence that the specimen cup provided by the jail prevented an independent testing agency from analyzing the appellant’s urine sample. Minn. Stat. §169A.51, subd. 7(b), provides that a person has a right to an additional independent test. Appellant argues that he was denied this right to an additional test because the jail staff did not allow him to use the container of his own choosing to collect his urine sample.

The court of appeals points out that the statute does not give a person the right to use a container of their own choosing. In addition, jail staff did not hinder appellant’s ability or right to obtain an additional test. In fact, jail staff assisted appellant in vindicating this right by providing him with a phone to make arrangements for the test and allowing appellant to give his urine sample to his ex-wife. The district court found no evidence that jail staff coerced appellant into using the specimen cup, and there is no evidence that there was anything wrong with the cup provided by the jail staff. The district court properly sustained the revocation of appellant’s driver’s license. David James Willits v. Commissioner of Public Safety, Ct. App. 3/6/2017.

• DWI: Prior CVO conviction may be used to enhance DWI to first-degree offense. Appellant was convicted in 1998 on one count of CVO resulting in substantial bodily harm, after causing an accident while driving with a BAC of 0.13 and no valid driver’s license. In 2015, appellant was arrested for DWI for driving with a BAC of 0.14. He was charged with two counts of first-degree DWI, after his 1998 conviction was used to enhance the current charges. The district court found sufficient probable cause for the enhancement, and appellant pleaded guilty to one count of first-degree DWI.

On appeal, appellant contends that his 1998 conviction did not provide a valid factual basis for his plea. The court of appeals confirmed his conviction. Minn. Stat. 169A.24, subd. 1(3), defines first-degree DWI as driving while impaired and with a previous conviction of a felony under certain enumerated statutes and previous versions of statutes. The plain language of the current first-degree DWI statute lists three different versions of the CVO statute. Subdivision 1(3)(i) lists the version of the CVO statute in effect in 2002, which was organized into two subdivisions, one that described the crime and one that described the penalty based on the level of harm to the victim. Subdivision 1(3)(ii) lists the version of the CVO statute in effect in 2006, which was organized into separate subdivisions by level of harm to the victim. Subdivision 1(3)(iii) does not provide a year, but lists the version of the CVO statute enacted in 2014, which was organized by level of harm to the victim.

The court looks to the Legislature’s statement of intent expressed in the 2012 session laws to aid in analyzing the entire statute’s plain meaning. In that statement of intent, the Legislature stated it was enacting the bill to clarify a cross-referencing change made in 2007 relating to the CVO crime, and that its intent has always been that CVO convictions under both the pre-2007 law and the post-2007 law be used for enhancing DWI penalties consistent with the provisions of the DWI laws. In light of the plain language of the first-degree DWI statute and the applicable session law, the court concludes that appellant’s 1998 conviction was properly relied on to enhance his 2015 DWI. The court rejects appellant’s and the dissent’s interpretations of the first-degree DWI statute, which would create a temporal gap of at least four years in the application of the first-degree DWI statute to prior CVO convictions because of legislative amendments to the CVO statute in 2007, which is unreasonable in light of the Legislature’s intent. State v. Ralph Joseph Boecker, Sup. Ct. 4/26/2017.

• Probation revocation: District court retains jurisdiction after execution of stayed sentence if revocation proceedings properly and timely initiated. In 2014, respondent received a stay of execution following her guilty plea to theft. One of the conditions of her sentence was to remain law-abiding. During the term of the stayed sentence, she was convicted of four additional theft offenses and a probation violation report was filed. The district court revoked respondent’s stayed sentence and ordered her to appear for a hearing. She did not appear for the hearing, and her stayed sentence expired. A few weeks later, respondent appeared in court and denied the violation. At a contested revocation hearing, respondent admitted the violation. However, the district court found it did not have jurisdiction to impose a sentence because respondent’s probation had expired. The court dismissed the revocation proceedings and discharged respondent from probation.

The court of appeals addresses the question of whether a district court has jurisdiction to conduct probation revocation proceedings after a defendant’s stayed sentence has expired. The state properly and timely initiated revocation proceedings. Under Minn. Stat. §609.14, subd. 1(c), the district court may conduct a probation revocation hearing after the expiration of a sentence. That section authorizes a district court to conduct a revocation hearing after the expiration of the stay or after the six-month period following expiration of the stay. Respondent’s contested hearing was held within six months after her stayed sentence expired, so the district court had jurisdiction to conduct the revocation hearing.

The court of appeals also considers whether the district court was authorized to dismiss the proceedings. Dismissal is permitted only if the court found no violation of the conditions of probation. However, at respondent’s revocation hearing, she admitted the violation, and section 609.14, subd. 1(c), specifically says that proceeding shall not be dismissed for the reason that a hearing is conducted after the term of the stay or after the six-month period. Thus, the district court erred in dismissing the revocation proceedings.

Last, the court of appeals agrees with respondent that a district court generally has discretion to grant a defendant early discharge from probation. But here, the district court discharged respondent based on an erroneous legal conclusion regarding its lack of jurisdiction. Thus, the district court abused its discretion in discharging respondent from probation. State v. Athena Mae SagatawCt. App. 3/6/2017.

• Forfeiture: “Right, title, and interest” does not include right to insurance proceeds. Appellant’s son crashed and totaled appellant’s GMC Terrain SUV in a drunk driving incident, and the vehicle was seized by police. Appellant planned to recover on his automobile insurance policy rather than recover the totaled vehicle. Without appellant’s knowledge, the police department told appellant’s insurance company to hold any insurance proceeds, implying that the police department had a right to them. Appellant did not learn of this conversation until after the 60-day statutory deadline for his right to file a challenge to the forfeiture. Appellant filed the Demand for Judicial Determination anyway, arguing that the vehicle was improperly seized and that the insurance proceeds were not forfeitable. The District Court rejected appellant’s filing as untimely and appellant appealed.

Held, the impaired driver forfeiture statute, Minn. Stat. §169A.63, authorizes only the forfeiture of a person’s possessory and ownership interest in a seized vehicle, not that person’s insurance contract rights. The court of appeals finds that the statute’s plain language is clear in that it does not specify that money, proceeds, or anything other than the right, title, and interest in the vehicle itself is forfeitable. Had the Legislature wanted the impaired driving forfeiture statute to be more broad, as the criminal forfeiture statutes are, it would have expressly included liberal and broadening language. Thus, the district court incorrectly concluded that the “right, title, and interest” to a forfeited vehicle includes the right to the owner’s contractual interest in the insurance proceeds. However, appellant filed his civil complaint after the 60-day deadline, and the district court properly found his complaint to be untimely. Russell Eldon Briles v. 2014 GMC Terrain, Ct. App. 3/13/2017.

• Expungement: Felony conviction deemed misdemeanor not eligible for expungement. Appellant pleaded guilty to second-degree burglary, a felony, and the district court stayed imposition of his sentence. Appellant was discharged from probation and his felony conviction was deemed a misdemeanor under Minn. Stat. §609.13, subd. 1(2). In January 2015, Appellant filed a petition for expungement, and a number of agencies objected to his petition, arguing the conviction could not be expunged, because Minn. Stat. §609A.02, subd. 3(a)(3), allows expungement of only misdemeanors and Minn. Stat. §609A.02, subd. 3(a)(5), does not include burglary in the list of enumerated felonies that are eligible for expungement. The district court denied appellant’s expungement petition, and the court of appeals affirmed.

The Supreme Court also affirms, concluding that felony convictions that are deemed misdemeanors by operation of law under Minn. Stat. §609.13, subd. 1(2), cannot be expunged under Minn. Stat. §609A.02, subd. 3(a)(3). Section 609A.02, subd. 3(a)(3), allows for an expungement petition when the person was convicted or received a stayed sentence for a petty misdemeanor or misdemeanor. By using the phrase “was convicted,” the statute instructs the court to analyze appellant’s conviction at the time he was convicted—that is, at the time of conviction. No other time is relevant under the statute. The structure of the expungement statute also supports this interpretation, as the Legislature arranged crimes by clauses in order from least serious to most serious, showing that the Legislature intentionally made it increasingly more difficult for an individual to receive an expungement for more serious crimes. Appellant’s suggested interpretation of this statute would upset the structure, and would create substantial overlap between subdivisions 3(a)(3) and 3(a)(5). State v. S.A.M., Sup. Ct. 3/15/2017.

• Sentencing: Court may impose conditional release when revoking probation and executing sentence. Appellant was charged with first-degree DWI and submitted a plea petition pleading guilty under a plea agreement with the state. The plea petition stated that appellant understood that a mandatory condition of conditional release would follow any executed prison sentence imposed for a felony DWI offense, and specified that, in this case, the period of conditional release was five years. The PSI recommended a stayed sentence and noted that a five-year conditional release applied to the offense. At appellant’s sentencing hearing, appellant’s attorney acknowledged receiving and reviewing the PSI. Appellant was sentenced to 42 months, and execution was stayed for seven years. The conditional release period was not discussed at the hearing, nor was it addressed in the sentencing order. Appellant’s probation was revoked 14 months later, and the district court ordered execution of the 42-month sentence, but did not impose the mandatory conditional release period. Later that day, the district court issued an amended Warrant of Commitment that included the conditional release period. One week later the court issued a probation revocation order, executing the 42-month sentence and stating that the sentence included a five-year conditional release period. Appellant filed the petition for postconviction relief, arguing that he was entitled to withdraw his guilty plea or have his sentence amended to remove the conditional release. The postconviction court denied appellant’s motion.

The five-year conditional release period for a first-degree DWI is statutorily mandated where a sentence was previously imposed but execution was stayed, and if the district court finds adequate grounds to revoke a defendant’s probation, the district court may continue the stay and place the defendant on probation or order intermediate sanctions, or order execution of the sentence previously imposed. Appellant argues the district court did not choose either of these options, and instead ordered execution of an increased sentence by adding the conditional release period.

However, Minn. Stat. §169A.276, subd. 1(d), provides that when the court commits a person convicted of felony DWI to the custody of the Commissioner of Corrections, it shall provide that, after the person has been released, the commissioner shall place the person on conditional release for five years. A person is committed to the custody of the commissioner when the person’s sentence is executed. Thus, the court was required to add the conditional release period here, and the postconviction court properly denied appellant’s petition. Peter Reat Thong v. State, Ct. App. 3/20/2017.

• Sentencing: Court looks to start date of continuing offense when determining decay for calculating criminal history score. Appellant was convicted of failing to register as a predatory offender. He was required to register due to a conviction in 1996 for third-degree criminal sexual conduct. That conviction decayed on 9/23/2014. Between 12/31/1999 and 9/23/2014, appellant was convicted of violating the predatory sex offender registration statute on four occasions. After repeatedly failing to report address changes to the BCA, appellant was charged with an additional count of failing to comply with registration requirements. Following a court trial, the district court concluded that appellant was required to register until the year 2043, and appellant knowingly violated the registration requirements from June 2013 to August 2015. At sentencing, the district court found appellant had a criminal history score of 5, which included 1.5 points for Appellant’s 1996 conviction. On appeal, appellant argues that the 1.5 points were inappropriate, because that conviction had decayed during the commission of the current continuing offense.

The court of appeals, as a matter of first impression, considers whether the date for determining prior conviction decay during the commission of a continuing offense is the start date or the end date of the continuing offense. The obligation to register as a predatory offender is an ongoing and fluid duty that requires the offender to provide the BCA with information for the entirety of the registration period. Similarly, violation of the registration statute is an offense that continues as long as a person required to register fails to do so. Appellant’s registration violation began in June 2013 and continued until August 2015, almost one year after the decay of his 1996 conviction. To avoid absurd results, the sentencing court must look to the start date of the continuing offense when determining whether a prior felony conviction has decayed when calculating an offender’s criminal history score. State v. W.C. Luther Washington, Ct. App. 3/27/2017.

• 6th Amendment: 21-month delay between charging and arrest not speedy trial violation. The state charged appellant with first-degree criminal sexual conduct in May 2013, and the complaint was mailed to appellant’s last known address in California. Appellant failed to appear for his first appearance and a warrant was issued for his arrest. Appellant was arrested in February 2015 by California police for an unrelated reason and he was extradited to Minnesota. Appellant moved to dismiss the charges, claiming the delay violated his right to a speedy trial. The district court granted appellant’s motion and the charges were dismissed. The court of appeals reversed.

The Supreme Court applies the four factor balancing test from Barker v. Wingo, 407 U.S. 514, considering: (1) the length of the delay; (2) the reason for the delay; (3) whether the defendant has asserted his or her right to a speedy trial; and (4) whether the delay prejudiced the defendant.

The court finds that the 21-month delay between charging and arrest in this case is presumptively prejudicial. The reason for the delay was the state’s failure to take any steps to execute the arrest warrant against appellant, even though the state was aware of appellant’s whereabouts. However, there is no evidence that the state’s failure to execute the warrant was a product of an intentional plan to delay appellant’s trial or hamper his defense. Thus, this factor weighs against the state, but less heavily than if the delay were intentional.

In the context of a post-charge delay, when a defendant knows that the charges against him long before his arrest but fails to assert his right to a speedy trial until after his arrest, the third factor weighs heavily against the defendant. It is more likely than not that appellant was aware of the charges against him shortly after the state served the summons and complaint on him via U.S. mail in May 2013. Appellant never denied receiving the summons and offered no evidence indicating that he was unaware of the charges against him. Appellant’s failure to assert his right to a speedy trial for a period of two years after he was charged weighs heavily against him in this case.

With respect to the fourth prong of the Barker test, the district court found that appellant suffered actual prejudice as a result of the delay because certain audio recordings were lost in the meantime, some of which contained partially exculpatory statements. However, the state submitted an affidavit indicating that the records were already unavailable at the time of charging. Appellant cannot establish actual prejudice because he cannot demonstrate that the recordings were lost due to the delay between the time that he was charged and the time of his arrest.

The Court does note that the United States Supreme Court has previously recognized that excessive delay presumptively compromises the reliability of the trial, which is a relevant factor whose importance increases with the length of the delay. This presumptive prejudice can be ameliorated by the defendant’s acquiesce to the delay. Appellant’s acquiescence to the delay in this case reduces the weight that the court affords his claim of generalized prejudice. Weighing all of the Barker factors, the court concludes that the state did not violate appellant’s right to a speedy trial. The case is remanded to the district court for further proceedings. State v. David Ernest Osorio, Sup. Ct. 3/22/2017.

• Criminal procedure: Court may not reserve ruling on motion for judgment of acquittal, but not required to rule on motion before ruling on state’s motion to reopen case. Appellant was charged with gross misdemeanor DWI, because appellant committed the current offense within 10 years of two qualifying prior impaired driving incidents. At trial, the state rested without offering the certified copies of appellant’s impaired driving incidents. Appellant then moved for a directed verdict, arguing that there was insufficient evidence to convict him of second-degree DWI without the certified copies. The state then asked to reopen its case-in-chief to offer the certified copies. The district court granted the state’s motion and then denied appellant’s motion for acquittal. The jury found appellant guilty, and appellant appealed his conviction, challenging the district court’s decisions to allow the state to reopen its case before considering appellant’s motion for judgment of acquittal. The court of appeals affirmed.

The Supreme Court first considers whether Minn. R. Crim. P. 26.03, subd. 18, requires the district court to immediately rule on a motion for judgment of acquittal before considering a motion from the state to reopen its case-in-chief. Under Rule 26.03, subd. 18(2), if the defendant makes a motion for acquittal at the close of the state’s case, the court must rule on the motion and may not reserve its ruling. The court may only reserve ruling on the motion if made at the close of the defendant’s case. However, the Supreme Court declines to read the word “immediately” into the rule, as urged by appellant. The rule says nothing about whether the district court must first decide whether to permit the state to reopen its case. The Supreme Court finds that the district court did not err when it ruled on the state’s motion to reopen its case-in-chief before it ruled on appellant’s motion for judgment of acquittal.

The Supreme Court next considers next whether the district court abused its discretion by allowing the state to reopen its case-in-chief and respond to appellant’s motion for judgment of acquittal. Minn. R. Crim. P. 26.03, subd. 12(g), permits the court to allow any party to reopen its case in the interests of justice. The Supreme Court previously listed a number of factors to guide a court’s discretion in ruling on a motion to reopen in State v. Cain, 746 N.W.2d 339 (Minn. 2008). The Supreme Court reaffirms the Cain factors here, and applies the factors to conclude that the district court did not abuse its discretion in this case. The court of appeals is affirmed. State v. Quinten Lynn Thomas, Sup. Ct. 3/22/2017.

• Criminal procedure: Court has same authority to decide post-verdict motion to acquit in court and jury trials.
Appellant was charged with first-degree aiding and abetting the sale of heroin, and first-degree aiding and abetting the possession of heroin. Following a court trial, the district court found appellant guilty of both charges. After his sentencing hearing, appellant filed a motion for judgment of acquittal, arguing that the state failed to prove beyond a reasonable doubt that he was in possession of ten or more grams of heroin. The district court found that it did not have the authority under Minn. R. Crim. P. 26.03 to decide a motion for judgment of acquittal following a court trial, as the rule only permitted the court to consider such a motion after a jury trial.

In this case of first impression, the court of appeals concludes that, read in the context of the rules of criminal procedure as a whole, section 3 of subdivision 18 of Rule 26.03 allows a district court to grant or deny a motion to acquit before deliberations or after a verdict is entered in both court and jury trials. When section 3 of subdivision 18 is read in isolation, the court agrees with the state that the plain language of the rule suggests that a district court’s authority to enter a post-verdict judgment of acquittal is limited to jury trials. However, the rules must be read as a whole, and Rule 1 provides that the rules govern the procedure in prosecutions for felonies, gross misdemeanors, misdemeanors, and petty misdemeanors, without distinguishing between the procedures in court trials and jury trials. The rules of criminal procedure are designed to establish procedures for all trials. State v. Carliek J. Carpenter, Ct. App. 3/27/2017.

• Obstruction of legal process: Obstruction statute applies to obstructing or resisting one’s own arrest. Appellant violated his supervised release conditions and a warrant was issued for his arrest. When a police officer arrived at appellant’s house to arrest him, appellant walked and then ran away from them. The officer pursued appellant, and arrested appellant after a short but vigorous struggle. Appellant was charged with obstruction of legal process by force or violence and with fleeing a police officer. He was convicted of both offenses after a court trial.

On appeal, appellant argues that Minn. Stat. 609.50, subd. 1(2), does not prohibit obstructing one’s own arrest. The court of appeals finds that section 609.50, subd. 1(2), is unambiguous, and clearly prohibits the obstruction or resistance of an arrest whenever an officer is effectuating an arrest. This section does not distinguish between one’s own arrest and the arrest of another, and applies in both situations. The district court is affirmed. State v. Robert Arthur Litzau, Ct. App. 3/27/2017.

Frederic Bruno 

Bruno Law

Samantha Foertsch

Bruno Law

EMPLOYMENT & LABOR LAW
JUDICIAL LAW

• Unfair labor practice; employer’s challenge rejected. A determination by the National Labor Relations Board (NLRB) that a Minnesota-based employer committed an unfair labor practice by refusing to bargain with the relevant union was upheld. The 8th Circuit Court of Appeals denied the employer’s challenge because it did not show that the union violated its rules and regulations by refusing to dismiss a second petition seeking representational status, nor that the union improperly re-litigated issues or that the approved bargaining unit was inappropriate. Cargill, Inc., v. NLRB, 851 F.3d 841 (8th Cir. 3/24/2017).

• Labor law; union vote upheld. The NLRB properly certified a labor union after upholding a challenge to the potentially decisive vote by an individual because he was a supervisor. The 8th Circuit Court of Appeals affirmed the determination by the Board that the ballot cast against the union by the individual was invalid because there was substantial evidence that the individual had authority to recommend hiring and exercise independent judgment as well as other indicia that he had supervisorial authority. NLRB v. Mo. Red Quarries, Inc., 2017 U.S. App. LEXIS 5956 (U.S. App. 4/6/2017) (unpublished).

• Labor law; untimely challenge. An employer seeking to challenge a ruling of the NLRB failed on jurisdictional grounds. The 8th Circuit held that the employer did not raise the claimed error in the Board’s determination before the agency or contest an administrative law judge’s determination, which rendered the court without jurisdiction. NLRB v. Chipotle Services, LLC, 1849 F.3d 1161 (8th Cir. 3/6/2017).

• Labor law; challenge rejected. A challenge by a discharged railroad worker to a determination by the Department of Labor that he was the subject of improper retaliation was rejected. The 8th Circuit held that there was substantial evidence supporting the determination by the administrative law judge that the worker’s protected acts in reporting safety violations did not constitute a “contributing factor” to his termination. Mercier v. U.S. Dept. of Labor, 850 F.3d 382 (8th Cir. 5/2/2017).

• Employment termination; remand for individual liability of sheriff. A sheriff who was sued for wrongful termination of an employee because he supported the sheriff’s opponent in a recent election was partially affirmed and partially remanded. The 8th Circuit held that the dismissal of the lawsuit against the sheriff in his official capacity was proper because he was not an official “policy maker” in the termination decision, but the case was remanded to determine whether he had immunity in his individual capacity. Thompson v. Shock, 2017 U.S. App. LEXIS 5361 (U.S. App. 3/28/2017) (unpublished).

• Age discrimination; dispute resolution process extends limitations period. The participation by an employer in an internal dispute resolution process by the City of Minneapolis extends the one-year statute of limitations under the Minnesota Hunan Rights Act. Affirming a decision of the court of appeals, which reversed a lower court ruling, the Minnesota Supreme Court held that participation in the process suspended the limitation period for the employee’s age discrimination claim under the provision of the statute Minn. Stat. §363A.28, subd. 3, which tolled the statute of limitations when parties are “voluntarily engaged in the dispute resolution process” concerning a discrimination claim. Peterson v. City of Minneapolis, 2017 Minn. App. LEXIS 195 (App. 4/12/2017) (unpublished).

• Employee indemnification; no recoupment allowed. A public sector employer who was required to indemnify an employee for alleged negligence claims under Minn. Stat. §181.970 is not entitled to bring a claim against the employee for negligence to recoup payments made by the employer to a third party. The court held that the statute bars the employer from seeking to recover from the negligent employee any payments made due to the defective performance by the employee. First Class Valet Services, LLC v. Gleason, 2017 Minn. App. LEXIS 537 (App. 3/20/2017) (unpublished).

• Unemployment compensation; not “available” for employment. An employee who did not make herself available for suitable employment by being only willing to work at jobs within a 10 mile radius of her home was denied unemployment compensation benefits. The statutory requirement that the employee be “available” in seeking “suitable” work under Minn. Stat. §268.095, subd. 18 barred her claim. Flanagan v. Dept. of Empl. & Econ. Dev., 2017 Minn. App. LEXIS 213 (App. 3/6/2017) (unpublished).

• Unemployment compensation; employee-employer relationship established. A sales representative was entitled to unemployment benefits because he was employee, not an independent contractor, while working with an auto parts distribution company. Affirming a determination of an unemployment law judge (ULJ), the court of appeals held that most of the factors, except the furnishing of materials and tools, weighed against an independent contractor relationship and, thus, entitled to the employee to unemployment benefits. Stevens v. Smart Parts Auto, Inc., 2017 Minn. App. LEXIS 265 (App. 3/27/2017) (unpublished).

• Unemployment compensation; freelance work bars benefits. An employee, who did freelance work on company time and using company equipment, was denied unemployment compensation benefits. Affirming a ULJ decision, the appellate court held that the employee’s outside work on company time and with company facilities constituted disqualifying “misconduct.” Van Hecke v. Annandale Advocate, Inc. 2017 Minn. App. LEXIS 261 (App. 3/27/2017) (unpublished).

• Unemployment compensation; no benefits for quitting due to lack of time off. An employee who quit his job because he was not given 30 days time off as he initially requested from his employer was denied unemployment compensation benefits. The appellate court held that the ULJ properly determined that the employee accepted an offer of time off without referencing any requirement that the employer provide 30 days. Simon v. Launch Tech. Workforce Solutions, LLC, 2017 Minn. App. LEXIS 207 (App. 3/6/2017) (unpublished).

LEGISLATION

• Unemployment compensation changes. Several changes have been made by the Legislature and approved by Gov. Dayton to the unemployment compensation law. They include classifying employees for religious-related elementary and secondary schools as ineligible for benefits under Minn. Stat. §268.35, subd. 20(6); the term “good cause” for failing to participate in a re-employment assistance program is defined as a reason that “would have prevented a reasonable person acting with due diligence from participating.”

A similar “good cause” standard of “a reasonable person acting with due diligence” also has been added to the grounds for obtaining reconsideration of an administrative hearing ruling seeking to introduce new post-hearing evidence.

 Marshall H. Tanick

 Hellmuth & Johnson, PLLC

FEDERAL PRACTICE
JUDICIAL LAW

• EEOC subpoenas; standard of review on appeal. The Supreme Court unanimously held that a district court’s decision whether to enforce or quash an EEOC subpoena should be reviewed for abuse of discretion rather than de novo. McLane Co. v. EEOC, 137 S. Ct. 1159 (2017).

• Consent to removal; “hypertechnical” requirements. While declining to identify a deadline for an earlier-served defendant to consent to a later-served defendant’s removal of an action pursuant to 28 U.S.C. §1446(b)(2)(C), the 8th Circuit declined to apply the consent requirement in a “hypertechnical and unrealistic manner,” and held that the earlier-served defendant’s consent, filed 31 days after the filing of the notice of removal, was timely. Couzens v. Donohoe, 854 F.3d 508 (8th Cir. 2017).

• Recovery of computerized legal research costs. Remanding the issue of the recovery of computerized legal research costs to the district court, the 8th Circuit held that these costs are recoverable if the “prevailing practice in a given community” is to bill separately for these costs. Dindinger v. Allsteel, Inc., 853 F.3d 414 (8th Cir. 2017).

• Punitive damages; due process; 8:1 ratio. The 8th Circuit rejected a due process challenge to an award of $400,000 in punitive damages where the plaintiff was awarded $50,000 in compensatory damages, finding that the defendant’s conduct was “reprehensible,” and that the punitive award was “not unconstitutionally excessive.” May v. Nationstar Mortgage, LLC, 852 F.3d 806 (8th Cir. 2017).

• Diversity jurisdiction; dual citizenship. The 8th Circuit found that a district court properly exercised diversity jurisdiction over an action involving a plaintiff who was a dual citizen of the United States and Egypt, domiciled in Ohio, and an Egyptian corporate defendant. Aly v. Hanzada for Import & Export Co., ___ F.3d ___ (8th Cir. 2017).

• Class action attorney’s fees; value of total settlement fund. The 8th Circuit found no abuse of discretion in Chief Judge Tunheim’s award of $20 million in attorney’s fees to class counsel, rejecting the objectors’ argument that Chief Judge Tunheim had erred in including administrative costs as part of the settlement fund. Caligiuri v. Symantec Corp., ___ F.3d ___ (8th Cir. 2017).

• Appeal mooted by the filing of a satisfaction of judgment. Where the plaintiffs were awarded $6200 in attorney’s fees under 28 U.S.C. §1447(c), the defendant appealed, and the plaintiffs filed a Satisfaction of Judgment that disclaimed any interest in collecting the fee award, the 8th Circuit held that the filing of the Satisfaction mooted the appeal. Robinson v. Pfizer, Inc., ___ F.3d ___ (8th Cir. 2017).

• CAFA; amount in controversy; denial of motion to remand affirmed. Affirming an order by Judge Davis, the 8th Circuit found that the plaintiffs’ motion to remand an action that had been removed under CAFA was properly denied where the plaintiffs failed to “establish to a legal certainty” that the amount in controversy was less than $5 million. Dammann v. Progressive Direct Ins. Co., ___ F.3d ___ (8th Cir. 2017).

• Fed R. App. P. 28(i) and 32(a)(7)(B)(i); adoption of arguments; word limits. Where one appellant filed a letter pursuant to Fed. R. App. P. 28(i) that “joined” portions of another appellant’s brief, the majority of an 8th Circuit panel found that the adoption of argument did not result in a violation of the word limit imposed by Fed. R. App. P. 32(a)(7)(B)(i), while Judge Shepherd, in dissent, argued that Rule 28(i) “should not be used to undertake end-runs around other procedural rules.” In Re Target Corp. Customer Data Sec. Breach Lit., ___ F.3d ___ (8th Cir. 2017).

• Motion to disqualify counsel denied. Distinguishing his earlier decision disqualifying counsel in related litigation, Chief Judge Tunheim denied the plaintiff’s motion to disqualify defendants’ counsel in two related cases. In re: RFC & ResCap Liquidating Trust Lit., 2017 WL 1134574 (D. Minn. 3/27/2017).

• Most of motion to compel third-party discovery denied; “tremendous burden.” In the latest discovery battle in the NHL concussion litigation, Judge Nelson, citing the “tremendous burden” it would impose, denied most of the NHL’s motion to compel the production of documents and information from a non-party, but ordered the non-party to produce a limited amount of information relating to former NHL players, as well as copies of prior public statements. In re: NHL Players’ Concussion Injury Lit., 2017 WL 1493671 (D. Minn. 4/26/2017).

• Award of attorney’s fees; intra-firm conferences. Overruling in part a Report and Recommendation by Magistrate Judge Brisbois, Chief Judge Tunheim awarded the plaintiff attorney’s fees for time devoted to intra-firm conferences, describing the “meetings, conferences, and strategy sessions” as “legitimate and reasonable aspects of litigation preparation.” Myers v. Aitkin Cty., 2017 WL 1134575 (D. Minn. 3/27/2017).

• Failure to allege basis for jurisdiction; motions to dismiss and for judgment on the pleadings granted. Where the plaintiff’s amended complaint included no jurisdictional statement and no affirmative allegations relating to the basis for the court’s jurisdiction, Judge Frank found that the plaintiff “had failed to meet her burden to allege that her causes of action are within the Court’s jurisdiction,” and granted separate defendants’ motion to dismiss and motion for judgment on the pleadings. Doe 1008 v. Kieser, 2017 WL 1411493 (D. Minn. 4/20/2017).

• Taxation of costs; financial disparity between the parties. Judge Montgomery rejected the losing plaintiff’s challenge to the clerk’s entry of a cost judgment, finding that while the plaintiff’s financial situation was “dire,” his claim of “indigence” was “undercut” by the financial support he received from his parents. Radmer v. OS Salesco, Inc., 2017 WL 1157095 (D. Minn. 3/27/2017).

Josh Jacobson

Law Office of Josh Jacobson 

 

IMMIGRATION LAW
JUDICIAL LAW

• Asylum applicant’s subjective fear was not objectively reasonable. The 8th Circuit Court of Appeals held the Guatemalan petitioner failed to demonstrate that his subjective fear of persecution was objectively reasonable, with substantial evidence supporting determinations by both the Immigration Judge and Board of Immigration Appeals (BIA) that he did not establish eligibility for asylum. “For an alien’s fear of persecution to be objectively reasonable, the fear must have basis in reality and must be neither irrational nor so speculative or general as to lack credibility. Perinpanathan v. INS, 310 F.3d 594, 598 (8th Cir. 2002).” Lemus-Arita v. Sessions, No. 16-1924, slip op. (8th Cir. 4/17/2017). http://media.ca8.uscourts.gov/opndir/17/04/161924P.pdf 

• No abuse of discretion in BIA’s refusal to reopen petitioner’s removal proceeding. The 8th Circuit Court of Appeals denied the petition for review, holding the petitioner failed to develop an argument explaining why his failure to appear was on account of ‘exceptional circumstances’ as outlined in INA §240(b)(5)(C) and (e)(1). ‘Exceptional circumstances’ refers to such events as “(battery or extreme cruelty to the alien [foreign national] or any child or parent of the alien [foreign national], serious illness of the alien [foreign national], or serious illness or death of the spouse, child, or parent of the alien [foreign national], but not including less compelling circumstances) beyond the control of the alien [foreign national].” Alvarado-Arenas v. Sessions, No. 15-2987, slip op. (8th Cir. 3/22/2017). http://media.ca8.uscourts.gov/opndir/17/03/152987P.pdf 

• Asylum denied to Honduran woman abused by her former domestic partner. The 8th Circuit Court of Appeals held the BIA did not err when concluding the petitioner had failed to establish she was a member of her proposed social group (Honduran women in ‘domestic relationships’ who are unable to leave their relationships) or the Honduran government would consent to or acquiesce in her mistreatment if she was removed to Honduras. The court observed that Fuentes “moved freely to different locations [in Honduras], had employment,” and “had no contact voluntarily or not with [Santos after] she left him in 2009.” Fuentes-Erazo v. Sessions, No. 15-3149, slip op. (8th Cir. 2/16/2017). http://media.ca8.uscourts.gov/opndir/17/02/153149P.pdf 

• Untimely motion to reopen denied given petitioner’s failure to show changed country conditions in Guatemala. The 8th Circuit Court of Appeals concluded the petitioner’s claim that there was increased violence in Guatemala was insufficient to establish a material change in country conditions in Guatemala warranting reopening of his removal proceedings. Referencing 8 U.S.C. §1229a(c)(7)(C)(ii), the court notes, “Villatoro-Ochoa’s motion to reopen was filed 11 months after the removal order and, thus, was untimely. The statute provides an exception to the 90-day filing deadline if an applicant seeks to apply for asylum or withholding of removal and he shows that his motion ‘is based on changed country conditions arising in the country of nationality or the country to which removal has been ordered if such evidence is material and was not available and would not have been discovered or presented at the previous proceeding.’” Villatoro-Ochoa v. Lynch, No. 15-3103, slip op. (8th Cir. 1/4/2017). http://media.ca8.uscourts.gov/opndir/17/01/153103P.pdf 

• Assisting in the persecution of another does not require a persecutory motive to make one subject to the persecutor bar. On 5/5/2017, the Board of Immigration Appeals held that the persecutor bar found in INA §241(b)(3)(B)(i) applied to the respondent because he assisted or otherwise participated in the persecution of an individual on account of that individual’s political opinion. “The proper focus is not on the motive of the alien [foreign national], but rather on the intent of the perpetrator of the underlying persecution. If the perpetrator is motivated by the victim’s race, religion, nationality, membership in a particular social group, or political opinion, then the alien’s [foreign national’s] assistance invokes the persecutor bar, without regard to the personal motivation of the alien [foreign national] who assisted or otherwise participated in the persecution… The fact that the respondent joined the military for financial, as opposed to political, reasons does not preclude the application of the persecutor bar.” Matter of Alvarado, 27 I&N Dec. 27 (BIA 2017). https://www.justice.gov/eoir/page/file/964491/download 

R. Mark Frey

Frey Law Office

INDIAN LAW
JUDICIAL LAW

• Red Lake Reservation not diminished by 1905 railroad-right-of-way act. The United States charged the defendant with committing a felony in Indian country, specifically within the Red Lake Reservation. During an evidentiary hearing, the defendant argued that Congress diminished the reservation—removing the land on which the defendant committed the crime from the statutory definition of Indian country—in a 1905 act that provided land in the reservation to a railroad company. On appeal, the 8th Circuit Court of Appeals applied the well-established diminishment test, which attempts to discern congressional intent by looking first to the language of the purported diminishment act, then to the legislative history of the act, and, finally, to the historical context and subsequent treatment of the land. The court found that the language of the 1905 act, coupled with its legislative history, “leaned heavily” in favor of the conclusion that the 1905 act only expanded the railroad’s right-of-way in the reservation, and did not diminish the reservation. Because the record regarding the historical context of the 1905 act and the subsequent history of the land was mixed, it could not overcome the statutory language, and the court concluded that that the 1905 act did not diminish the reservation. United States v. Jackson, ___ F. Supp. 3d ___, 2017 WL 1228564 (8th Cir. 2017).

• Enrollment irrelevant to Indian status under Major Crimes Act. The petitioner sought to have set aside his sentences for convictions in violation of the Major Crimes Act. He argued that new evidence cast doubt on whether he was an Indian—an essential element of crimes charged under that statute—because of certain documents suggesting that he may not be enrolled with the tribe that he claimed to be enrolled with. The court rejected this argument, noting that a defendant may be found to be an Indian “even if the defendant is not an enrolled member of a federally recognized tribe.” “[T]he generally accepted test for determining Indian status is whether (1) the defendant has some Indian blood; and (2) is recognized as an Indian by a tribe or the federal government or both.” Martin v. United States, Nos. 12-206(1) (DWF/LIB), 15-2210 (DWF), 2017 WL 976928 (8th Cir. 3/13/2017).

• Tribal agencies presumptively immune from suit. The plaintiff sued the White Earth Band for employment discrimination and violations of the U.S. Constitution and Indian Civil Rights Act. A magistrate judge recommended dismissal on immunity grounds, and the plaintiff objected, arguing, among other things, that “sovereign immunity should not apply because White Earth Tribal council ha[d] not come forward to invoke sovereign immunity.” The district court rebuffed, noting that sovereign immunity extends to tribal agencies and that “tribes or tribal officials need not explicitly invoke sovereign immunity; instead, courts assume that the tribe is immune unless Congress has expressly abrogated that protection or the tribe has expressly waived its immunity.” Harper v. White Earth Human Resource, No. 16-1797 (JRT/LIB), 2017 WL 701354 (D. Minn. 2/22/2017).

• 90-day response deadline for funding agreements under the ISDEAA subject to strict enforcement. The Navajo Nation hand-delivered a proposal for funding for its judiciary under the Indian Self-Determination and Education Assistance Act. Under the ISDEAA, if the Department does not respond within 90 days after it receives the proposal, it is deemed approved. Here, the Department rejected the proposal after the 90-day deadline, claiming that it did not technically receive the proposal because the Nation hand-delivered it during a temporary federal-government shutdown to an employee who was present at the department for emergency services only. The Navajo Nation sued. On appeal from dismissal of the case, the District of Columbia Circuit Court of Appeals determined that the 90-day deadline commenced when the Navajo Nation delivered the letter. It reasoned that a Department agent’s acceptance of the proposal fell within the plain meaning of the word “receipt.” The court rejected the Department’s estoppel defense, reasoning that estoppel was an inappropriate defense for the federal government to raise against a tribe to which it owed a solemn trust responsibility. Finally, the court rejected a claim of extraordinary circumstances, noting that government shutdowns are “hardly unforeseeable,” and that the Department should have instructed its agents not to receive proposals. Navajo Nation v. United States Department of the Interior, ___ F.3d ___, 2017 WL 1228578 (D.C. Cir. 2017).

• Tribe denied preliminary injunction against Army Corps of Engineers and DAPL. After the Army Corps of Engineers issued an easement for DAPL to drill under Lake Oahe, the Cheyenne River Sioux Tribe moved for a preliminary injunction. The tribe argued that the Corps’ actions violated the Religious Freedom Restoration Act by endangering its members’ rights to exercise their religion. Specifically, Cheyenne River explained that Lakota people have prophesied that a Black Snake will enter their homeland and bring destruction. Cheyenne River argued that the pipeline correlates with the Black Snake and that the mere presence of the pipeline under Lake Oahe will render the lake unsuitable for Lakota ceremonies.

The court denied Cheyenne River’s motion. First, the court held that Cheyenne River’s delay in articulating the specifics of its religious concerns barred it from seeking a preliminary injunction. The court measured this delay from October 2014, when the Corps first notified Cheyenne River about the pipeline’s proposed route. Second, the court held that a preliminary injunction would cause DAPL economic prejudice. And third, the court concluded that Cheyenne River failed to demonstrate a likelihood of success. While the court found it likely that Cheyenne River members hold sincere religious beliefs, it also found that Cheyenne River is not likely to be able to show that the Corps’ issuance of the permit imposes a substantial burden on the exercise of those beliefs. Standing Rock Sioux Tribe v. U.S. Army Corps of Engineers, ___
F. Supp. 3d ___, 2017 WL 908538 (D.D.C. 2017).

Jessica Intermill 

Hogen Adams PLLC

Peter J. Rademacher

Hogen Adams PLLC

INTELLECTUAL PROPERTY
JUDICIAL LAW

• Patent law: AIA On-sale bar interpreted for the first time. The United States Court of Appeals for the Federal Circuit recently addressed for the first time the “on-sale” bar to obtaining a patent under the American Invents Act (AIA). Passed in 2011, the AIA changed several provisions of the Patent Act, including section 102, which sets forth several prohibitions to getting a patent. One of those prohibitions (or bars) under the AIA exists when “the claimed invention was… on sale… before the effective filing date.” The pre-AIA version of section 102 also contained an “on sale” bar. One of the issues in this case was whether the AIA changed the “on sale” bar requirements compared to the pre-AIA law. Helsinn Healthcare owns four patents directed towards chemotherapy anti-nausea formulations. Helsinn sued Teva Pharmaceuticals for infringement of all four patents. One of Teva’s defenses was that all four patents were invalid because the invention was “on sale.” More than one year before all of the patents’ filing dates, Helsinn had executed and publicized a contract for the sale of the patented formulations; however, no sales would occur until FDA approval, which would not happen until after the critical date. In addition, although the contract was public, no details of the invention itself were publicized. Given the dates of the four patents, three were governed by the pre-AIA law, but the fourth was governed by the AIA’s section 102. With respect to the AIA patent, Teva argued the patent was invalid because Helsinn had sold the drug more than one year prior to filing the patent application. While Helsinn’s sale was made public more than a year before the patent application was filed, the specific details of the invention were not disclosed. In finding the patent not invalid, the district court interpreted the AIA on-sale bar to require that the sale would also disclose the invention to the public. In reversing, the Federal Circuit held that the AIA on-sale bar only requires a sale of the invention, consistent with the UCC, to be public. The Federal Circuit held that nothing in the AIA or Congressional record altered the pre-AIA holding that public disclosure of the invention was not necessary for an invention to be on sale. Helsinn Healthcare S.A. v. Teva Pharms. USA, Inc., Nos. 2016-1284, 2016-1787, 2017 U.S. App. LEXIS 7650 (Fed. Cir. 5/1/2017).

• Trademark law: Reverse confusion. Judge Schiltz recently denied a motion for a preliminary injunction in a trademark dispute, finding no likelihood of reverse confusion. In typical trademark infringement actions, the plaintiff (senior user) alleges that the defendant (junior user) is trying to take advantage of the goodwill built by the plaintiff’s use of the mark before the defendant entered the market. In reverse confusion cases, however, the plaintiff alleges the loss of corporate identity and goodwill when a large junior user saturates the market with a similar or identical mark to that of the smaller senior user—causing customers to believe, incorrectly, that the senior user is associated with the junior user. Eyebobs sued Snap for trademark infringement on a reverse confusion theory and moved for a preliminary injunction. Eyebobs, the senior user, has a federally registered mark that consists of an oval, upward-looking, black-and-white cartoon eyeball placed above the word “Eyebobs” that is typically displayed against a golden-yellow backdrop. Snap, the much larger junior user, and owner of the mobile application Snapchat, is in the process of launching a new product called “Spectacles” that would include sunglasses with a built-in camera in the frames that would wirelessly link to one’s smartphone. Snap markets Spectacles using “a round, forward-looking, black-and-white cartoon eyeball that is typically displayed against a vibrant-yellow background.” The court applied the 8th Circuit’s SquirtCo factors, adjusted for the reverse-confusion infringement theory, and found that (1) the Spectacles mark currently has little commercial strength and is not currently overwhelming Eyebobs’ mark, (2) the marks were not similar due to Eyebobs’ mark containing its textual name in the mark, (3) there is almost no overlap between the parties’ respective markets, (4) there is no evidence Snap intended confusion of Eyebobs’ mark or even knew of Eyebobs, (5) there is no evidence of actual confusion, and (6) there is little chance that someone looking for reading glasses would buy Snap’s Spectacles. Finding no likelihood of reverse confusion, the court denied the motion for preliminary injunction because Eyebobs had not shown it was likely to succeed on the merits, irreparable harm, that the balance of harms favored Eyebobs, or that the public interest would be served by entry of a preliminary injunction. Eyebobs, Inc. v. Snap, Inc., No. 16-CV-4276 (PJS/DTS), 2017 U.S. Dist. LEXIS 70165 (D. Minn. 5/8/2017).

Tony Zeuli & Joe Dubis

Merchant & Gould

 

REAL PROPERTY
JUDICIAL LAW

• Oil & gas pipeline easements; preemption. Attorneys advising landowners who have granted pipeline easements, and attorneys advising pipeline owners, should be aware that landowners may not be able to enforce contractual or common law duties to repair and maintain the pipelines. Landowners may be able to seek monetary damages, but may not be able to force the actual repair or maintenance of the pipelines.

The 8th Circuit, in Webb v. Exxon Mobil Corporation, faced claims brought by two Arkansas residents, who originally sought to obtain class certification to rescind pipeline easements from Texas to Illinois. The plaintiffs sought either rescission of the easements (and removal of the pipeline), or to force Exxon to replace the allegedly defective pipeline. The plaintiffs’ easements did not expressly include a duty to repair and maintain the pipelines. And it appears that in Arkansas, those duties are not implied. Finally, while the 8th Circuit acknowledged several pipeline spills, the plaintiffs failed to show that their own property was damaged, proving fatal to their claims on summary judgment.

In contrast to Arkansas, Minnesota implies a common law duty upon the easement holder to repair and maintain the easement and not to misuse the easement, and imputes a responsibility to the easement holder for any damages that occur from a failure to conduct maintenance. See, e.g., Matter v. Nelson, 478 N.W.2d 211, 214 n. 1 (Minn. Ct. App. 1991). Further, landowners may enforce easements through specific performance. See Pine Valley Meats, Inc. v. Canal Capital Corp., 566 N.W.2d 357, 364–65 (Minn. Ct. App. 1997). Yet the federal Pipeline Safety Act (49 U.S.C. §§ 60101, et seq.) (PSA) may preempt any claims arising from these duties. The district court in Webb concluded first that the PSA preempts state law claims, and alternatively granted summary judgment to Exxon for the plaintiffs’ failure to provide factual support. The 8th refused to discuss whether the PSA preempted the claims.

The 8th Circuit has previously stated that the PSA is “intend[ed] to preempt state safety regulation of interstate hazardous liquid pipelines.” Kinley Corp. v. Iowa Utils. Bd., 999 F.2d 354, 358 (8th Cir. 1993). The district court in Webb noted four United States Supreme Court decisions (though not concerning the PSA) in which preemption was extended to encompass common law claims as well as statutes. Though the PSA “does not restrict a right to relief that a person or class of persons may have under another law or at common law,” 49 U.S.C. §60121(d), the district court held that the plaintiffs were “impermissibly attempting to make Exxon comply with state common law safety standards.” The court’s holding is that rescission of a pipeline easement, on the basis of a failure to repair or maintain, is an imposition of a state law safety standard. The 8th Circuit did not disturb this holding.

It would seem that the plaintiffs did not ask for monetary damages, because they later failed to prove any injury to their land. A damages claim might survive the preemption argument. But, at least to the extent that landowners seek to have easements rescinded or pipelines actually removed or replaced, courts in the 8th Circuit may not be receptive. In other words, while Minnesota law prohibits the misuse of easements, federal law may preempt non-monetary methods of remediating misuse. And Minnesota landowners therefore may not be able to rescind pipeline easements. Webb v. Exxon Mobil Corp., ___ F.3d ___, No. 15-2879, 2017 WL 1946958 (8th Cir. 5/11/2017).

Joseph P. Bottrell

Meagher & Geer, PLLP

 

TAX
JUDICIAL LAW

• Amazon.com. The behemoth online retailer Amazon prevailed in a federal tax dispute that could have cost the company over $1.5 billion. The issue related to Amazon’s European subsidiary in Luxembourg. The subsidiary was established in 2005 and entered into an agreement with the parent company to use the parent company’s intellectual property. The agreement provided that the subsidiary was to pay Amazon $226.5 million over seven years and the sub agreed to cost sharing with Amazon. The IRS claimed that Amazon underpaid its United States taxes because the company grossly undervalued its assets that were transferred to the subsidiary. The IRS argued that Amazon’s Luxembourg subsidiary should have paid $3.5 billion for the assets. The IRS used a discounted cash-flow methodology to the expected cash flows from the European business to determine its estimation of buy-in payment. In a lengthy opinion, the tax court reminded the IRS that its proposed methodology had previously been rejected by the Court in Veritas Software Corp. v. Commissioner, 133 T.C. 297 (2009). The court further held that Amazon’s comparable uncontrolled transaction method was appropriate to calculate the requisite buy-in payment. This is not the end of the story, however; the European Commission is investigating the agreement between the companies to determine if Amazon is receiving unfair tax advantages on the other side of the Atlantic. Amazon.com v. Comm’r, 148 T.C. No. 8 (3/23/2017).

• Income tax; taxpayer zero for three for failure to produce sufficient evidence/records of purported deductions. Individual taxpayer Gaines disputed the assessment of $22,417 in income deficiencies and $4,483 of penalties for the years of 2011 through 2013. The three issues decided were: (1) whether petitioner was entitled to vehicle expense deductions (he was not); 2) whether petitioner was entitled to noncash charitable donations deduction (he was not); and 3) whether petitioner was liable for section 6662(a) accuracy-related penalties (he was).

The taxpayer’s claimed vehicle expenses deductions were denied because he failed to meet the strict substantiation requirements, which dictate that the taxpayer maintain adequate records sufficient to establish the amount, date and time, and business purpose for each expenditure for travel away from home. Sec. 1.274-5T(b)(2), (6), (c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46014, 46016-46017 (11/6/1985). In this case, the taxpayer did not meet this heavy burden because he pointed only to weekly odometer readings to substantiate his claimed deduction. Petitioner argued he in fact maintained the proper records, but would not produce the evidence because it would violate confidentiality obligations. The court would not consider any evidence not produced; therefore, the court disallowed this deduction. The petitioner fared no better with a claimed $18,000 deduction for noncash charitable donations. Three rules apply for charitable donations of this amount. First, the taxpayer must substantiate the contribution with a contemporaneous written acknowledgment from the donee organization. 1.170A-13(f)(1), Income Tax Regs. Second, a taxpayer must maintain reliable written records with respect to each donated item. Sec. 170(f)(11)(A) and (B); sec. 1.170A-13(b)(2) and (3), Income Tax Regs. Last, a taxpayer must obtain a “qualified appraisal” of the donated item(s) and attach to his tax return a fully completed appraisal summary on Form 8283. Sec. 1.170A- 13(c)(2), Income Tax Regs. Petitioners did not present any written substantiation for the charitable contribution deduction, nor any details as to the number of specific items donated or the value of any specific item. Therefore, the court disallowed the deduction for charitable contributions. Finally, the court held petitioner liable for a section 6662(a) accuracy-related penalty for each year in issue because of the underpayment of tax required to be shown on their return for each year was a substantial understatement of income tax. Gaines v. Comm’r, T.C. Summ. Op. 2017-15 (3/16/2017).

• Court rejects invitation to adopt “naked assessment” limitation; taxpayer liable for Minnesota taxes. The taxpayer’s late husband was an investor in a real estate partnership for which the sole investment was the City Center building in Minneapolis. The City Center was encumbered by mortgages that eventually exceeded the value of the building. Ultimately, one of the mortgage loans was foreclosed, and because the debt exceeded the value of the property, taxable gain resulted. There is no dispute that such gain is taxable in Minnesota. The partnership issued a K-1 to Mrs. Harmon, and the Commissioner of Revenue requested that Mrs. Harmon file a Minnesota income tax return. Multiple requests by the commissioner to file a Minnesota return did not result in any response, and eventually the commissioner issued an order assessing Mrs. Harmon’s tax liability based on forms received from the partnership, including the K-1. Mrs. Harmon administratively appealed the assessment, and it was adjusted in her favor. Mrs. Harmon then appealed the adjusted assessment to the tax court. Mrs. Harmon raised two central issues in her judicial appeal, both of which were rejected by the tax court and the Minnesota Supreme Court. First, Mrs. Harmon argued that conflicting calculations in K-1s created a dispute that needed to be settled at the federal level before the commissioner could assess properly Mrs. Harmon’s Minnesota liability (K-1s were issued by the real estate partnership as well as a parent partnership). The courts rejected this argument, holding that no federal dispute existed because the IRS had not taken action on the conflicting schedules before the three-year time period had run. For her second argument, Mrs. Harmon raised a procedural issue addressing burden shifting. In Minnesota, the commissioner’s assessment enjoys a presumption of validity, and the taxpayer shoulders the burden of producing evidence to rebut the presumption of validity. Mrs. Harmon argued that in her case, the presumption of validity should not apply because the commissioner’s assessment was based only on the conflicting K-1s, one set of which was unsigned and undated. Mrs. Harmon urged the court to adopt a rule from federal tax disputes: in particular, she argued that income-tax assessments must be more than a mere “naked assessment” to enjoy a presumption of correctness.
The Minnesota courts declined the invitation in this case. Because Mrs. Harmon could not provide substantial evidence of an inaccuracy in the assessment and similarly could not establish an alternative calculation, the decision of the tax court upholding the assessment was affirmed. Harmon v. Comm’r, 2017 WL 1731001,___ N.W.2d ___  (Minn. 2017).

• Individual personally liable for corporation’s sales tax. Minnesota statute provides that individuals with requisite control over a corporation’s taxes can be liable in their personal capacity for certain unpaid taxes. Minn. Stat. 270C.56 (2016). The Minnesota Supreme Court determined that the plain language of this statute applied to the taxpayer in this dispute, and held the taxpayer personally liable for unpaid sales taxes. In so holding, the Court reversed the tax court, reasoning that the lower court had erred by first applying the Benoit factors rather than simply applying the plain language of the statute. The Benoit factors are applicable to determine whether a person has sufficient functional control over a corporation’s operations to be held personally liable for the unpaid sales tax. Benoit v. Comm’r, 453 N.W.2d 336 (Minn. 1990). The error was not the application of the factors to the facts in the instant case. Instead, the Supreme Court held that the error was applying the factors prior to relying on the plain language of the statute. In this case, the plain language of the statute dictated personal liability because the taxpayer was a 50% shareholder of the corporation and had general active management authority and significant financial authority over the business. Lo v. Comm’r, 2017 WL 1349521 ___ N.W.2d -___ (Minn. 2017).

• Taxable value of the (now closed) downtown Macy’s upheld. Noting that property valuation remains an “inexact science,” the Minnesota Supreme Court rejected Macy’s appeal of the valuation of its downtown property for three tax years (2008, 2009, 2010). Macy’s alleged three reversible errors: (1) that the tax court erred in determining highest and best use; (2) that the tax court abused its discretion when it did not strike portions of an expert report and related testimony; and (3) that the tax court erred by failing to include the sale of a potentially comparable property in its analysis. None of these alleged errors left the reviewing court “‘with a definite and firm conviction that a mistake had been committed,’” and the tax court’s decision was affirmed. Macy’s Retail Holdings, Inc. v. Hennepin, 2017 WL 1244277, ___ N.W.2d___ (Minn. 2017) (quoting Berry & Co. v. Hennepin Co., 806 N.W.2d 31, 33 (Minn. 2011)).

• Tax liability does not offset attorney’s fees awarded pursuant to Minn. R. Civ. P. 16.06. A taxpayer was awarded $6,125.50 in attorney’s fees following a litigated dispute with the commissioner. The fees were awarded because the commissioner’s attorney missed various deadlines and created delays. Although these delays were related to a serious medical emergency of the assigned attorney, the court held it would be unjust to put the financial burden on the petitioner for the Attorney General’s error of not assigning another attorney to the case. The court rejected the commissioner’s proposal that any fees awarded should offset the taxpayer’s outstanding tax liability. No relevant legal authority permits such an offset, the court held; therefore, the commissioner’s proposition was rejected, and the court awarded the fees and costs. JA-KE of Eagle Lake, Inc. v. Comm’r, T.C. 8744-R (Minn. T.C. 4/5/2017).

• Income tax: Lack of subject matter jurisdiction merits dismissal. Individual taxpayer Barry Skog appealed the Minnesota Commissioner of Revenue’s attempts to collect an assessment of tax related to tax years 2002, 2003, and 2004. The commissioner argued that the tax court did not have jurisdiction to hear the dispute, and the court agreed. The dispute began after Mr. Skog was assessed nearly $8,000 in unpaid taxes for tax years 2002, 2003, and 2004. The initial dispute was set for trial in 2007, but during the trial the parties represented that they had reached a settlement. Strangely, although the parties informed the court that a settlement had been reached, no settlement paperwork was ever filed with the tax court. In 2014, seven years after the parties represented to the court that the dispute had been settled, the court ordered the parties to show cause why Mr. Skog’s original appeal should not be dismissed. Neither party responded, and the court dismissed the appeal with prejudice. The commissioner then commenced collection proceedings and Mr. Skog filed the instant case. Skog protested the seizure of his federal tax return, asserting the parties had previously agreed to settle the case for just over $5,000 to be paid at the rate of $200 per month until paid in full with no penalties or interest added. According to Mr. Skog, the commissioner told Mr. Skog to wait to start paying until he received the formal agreement. But, also according to Skog, he never received the formal agreement and had made no payments toward the settlement. Without addressing the alleged settlement, the court dismissed Skog’s appeal. The court determined that it did not have jurisdiction to hear an appeal from an attempted collection; further that the attempted appeal was not timely, and finally, the court reasoned that res judicata bars the claim. Skog v. Comm’r, 2017 WL 1377760, T.C. 8953 (Minn. T.C. 4/7/2017).

• Income tax; residency: Days spent in the state involuntarily count toward “Minnesota” days for purposes of determining residency. Mr. Wersal appealed an assessment of $18,807.82 in Minnesota income tax, penalty, and interest for 2011 and 2012. Wersal contends he is a nonresident of Minnesota because he was not voluntarily present for half the year. Wersal acknowledges he was physically present for over one-half of each tax year, but argues that the days spent in Minnesota due to incarceration or a court order to remain in the state should not count towards determining his residency under Minn. Stat. §290.01, subd. 7(b) (2016). Individuals must pay Minnesota income tax as a non-domiciled resident if they: (1) are domiciled outside the state; (2) maintain a place of abode in Minnesota; and (3) are physically present for more than one-half the tax year in Minnesota. Wersal is domiciled in Florida and owns an abode in Minnesota, so only the third prong was at issue. The court looked at the plain meaning of the statute to determine if the days spent in the state had to be voluntary. The court held that the plain meaning of the statute is an individual passing time in a physical place. This understanding does not consider an individual’s intent or state of mind, whether voluntary or involuntary. Therefore, the court denied Wersal’s appeal and upheld the assessment. Wersal v. Comm’r, T.C. No. 8957-R (Minn. T.C. 4/5/2017).

• LLC not taxable on interest income. In 2007, Associated Bank created two limited liability companies for holding real estate loans to limit tax liability in Minnesota. Associated Bank is a financial institution that is taxed on its interest income. The limited liability companies, in contrast, did not consider themselves financial institutions under Minn. Stat. §290.01, subd. 4a(a) and therefore excluded interest income in their reporting. The commissioner determined that the LLCs’ loan interest income and loan values resulted from Minnesota business and issued an assessment of $2,161,053 in additional tax, plus interest, for 2007; and $2,779,757 in additional tax, plus interest, for 2008. The commissioner argued that the power granted under Minn. Stat. §290.20, subd. 1 to determine net income by an alternative method should be used because the general apportionment method did not fairly capture the LLCs’ Minnesota taxable income. The court disagreed, and held that the commissioner cannot disregard the valid business structure Associated Bank put in place to recalculate net income. The court acknowledged that Associated Bank is taking advantage of a tax “loophole” (the court’s term) to minimize their Minnesota tax liability, but concluded that fixing such loopholes is a task for the Legislature, not the commissioner. Associated Bank, N.A. and Affiliates v. Comm’r, T.C. No. 8851-R (Minn. Tax 4/18/2017).

• Property tax: Decision on remand. Minnesota Energy Resource Corporation (MERC) owns a gas distribution system, portions of which are located in Minnesota and which are classified as personal property. As a pipeline distribution company, MERC’s real property is locally assessed at the county level; however, some of its personal property is centrally assessed by the commissioner. At issue in this property tax dispute remanded from the Supreme Court was MERC’s personal property that is taxable in Minnesota pursuant to Minn. Stat. §272.02, subd. 9(a) (2016). On remand, the tax court was required to explain the determination of the beta factor used in calculating the cost of equity and further to reassess whether MERC’s property suffered external obsolescence without reference to a standard referred to as the Eurofresh standard. (Eurofresh, Inc. v. Graham Co., 187 P.3d 530 (Ariz. Ct. App. 2007)). The tax court used the income approach to value MERC’s property, and the court determined a beta factor was necessary to calculate the capitalization rates used in the band-of-investment method to estimate market value by the direct capitalization method. The court adopted the methodology used by MERC’s appraiser to determine the beta, then used the beta in the capital asset pricing model formula. MERC failed to account for changes in the capital structure when calculating the beta for each year, which resulted in the tax court modifying the capitalization rate for each year. After recalculating the capital structure for each year, the court re-levered the beta to the subject property in calculating the cost of equity. Second, the tax court was tasked with measuring economic obsolescence without reference to the Eurofresh standard. The reviewing court had instructed the tax court to review the economic factors that MERC asserted warrant a downward value adjustment, without consideration of the heightened Eurofresh standard. External obsolescence is a loss in value caused by negative externalities such as economic or locational factors. MERC pointed to external obsolescence to support a lower property value than the reduction would have been had the nine guideline companies been utilized. MERC attributed higher external obsolescence to (1) the economic crisis of 2008; (2) milder weather; (3) government regulations and rate lag; and (4) the public’s increased use of energy efficient appliances. The tax court held that MERC’s factors are broad generalizations that are not specifically tied to the nine guideline companies, and any poor financial performance was a result of factors within MERC’s control. Thus, MERC failed to meet its burden of proof to establish that external obsolescence affected the value of its personal property during the years in question. Minnesota Energy Resources Corp. v Comm’r, No. 8482-R (Minn. T.C. 4/18/2017).

ADMINISTRATIVE ACTION

• Executive Order addresses IRS’s interaction with religious entities. Entities that are classified as 501(c)(3) non-profit organizations are prohibited from endorsing or opposing political candidates. The prohibition does not extend to political speech in general; it prohibits only endorsement or opposition of particular candidates. This prohibition–often referred to as the Johnson Amendment– is found in the text of the Internal Revenue Code. As a candidate, President Trump promised to make changes to the law. In May, the president signed an Executive Order titled Promoting Free Speech and Religious Liberty. The text of the order includes a directive that the Secretary of the Treasury “shall ensure, to the extent permitted by law, that the Department of the Treasury does not take any adverse action against any individual, house of worship, or other religious organization on the basis that such individual or organization speaks or has spoken about moral or political issues from a religious perspective, where speech of similar character has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign on behalf of (or in opposition to) a candidate for public office by the Department of the Treasury.” Commentators suggest that this portion of the order is not inconsistent with current Treasury practices, and simply restates the law and policy of Treasury. An executive order cannot repeal existing law.

Morgan Holcomb

Mitchell Hamline School of Law

Jessica Dahlberg

Grant Thornton

TORTS & INSURANCE
JUDICIAL LAW

• Legal malpractice; standing. Defendant law firm drafted a revocable trust for decedent that allegedly failed to provide all tax benefits to which the decedent was entitled. After decedent’s death, plaintiff, his personal representative and successor trustee, filed suit for legal malpractice. The trial court granted defendant’s motion for judgment on the pleadings, reasoning that plaintiff lacked standing to pursue the legal malpractice claim because no claim arose prior to the decedent’s death.

The Minnesota Court of Appeals reversed. The court initially noted that under Minnesota’s survivor statute, claims for legal malpractice may survive death, and, under the probate code, a personal representative has standing to pursue any malpractice claims belonging to the decedent that accrued prior to death. In this case, the court held that the decedent suffered “some damage” prior to his death because he “incurred liability for attorney fees paid for services that, it may be argued, lessened the value of his estate.” Therefore, his personal representative had standing to pursue the claim. Security Bank & Trust Co. v. Larkin, Hoffman, Daly & Lindgren, Ltd., A16-1810 (Minn. Ct. App. 5/15/2017). http://www.mncourts.gov/mncourtsgov/media/Appellate/Court%20of%20Appeals/Standard%20opinions/OPa161810-050817.pdf

• Underinsured motorist; bad faith damages. Plaintiff suffered injuries in a motor-vehicle accident. After receiving the limits available under the insurance policy issued to the at-fault driver, plaintiff sought underinsured motorist benefits from defendant insurer. After defendant refused to tender the limits of its policy, plaintiff filed suit for breach of contract. The jury awarded plaintiff damages in an amount in excess of defendant’s policy even after accounting for collateral-source payments. Plaintiff then amended his complaint to assert a bad-faith claim under Minn. Stat. §604.18. The district court interpreted the phrase “proceeds awarded” found in §604.18 to mean the difference between the insurer’s last settlement offer and the policy’s limits, rather than the difference between the last settlement offer and the jury’s award in excess of policy limits. The court of appeals affirmed.

The Minnesota Supreme Court affirmed. The court held that the phrase “proceeds awarded” unambiguously refers to an amount capped by the insurance policy limit. The Court reasoned that: (1) the term “proceeds” was used elsewhere in the statute to refer to insurance policies; (2) the statute contemplates a capped settlement offer, indicating that “proceeds awarded” are capped by the policy’s limit; and (3) the timing of the section 604.18 proceeding suggests that “proceeds awarded” are capped by the insurance policy limit. Wilbur v. State Farm Mut. Auto. Ins. Co., A15-1438 (Minn. 4/5/2017). https://mn.gov/law-library-stat/archive/supct/2017/OPA151438-040517.pdf

Jeff Mulder

Bassford Remele

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