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

Notes & Trends – August 2017

Landmarks in the Law

Current developments in judicial law, legislation, and administrative action together with a foretaste of emergent trends in law and the legal profession for the complete Minnesota lawyer.


Debtor cannot exempt annuity payments simply because it was purchased as a result of spouse’s death. Debtor sought to exempt payments on a single premium annuity she had purchased after the death of her husband. The language of the Missouri exemption statute is nearly identical to the operative text of Minn. Stat. §550.37, subd. 24, which exempts certain annuities and other retirement accounts that include the right to receive payments “on account of illness, disability, death, age, or length of service.” Shortly after the death of her husband, debtor sold her residence and used some of the proceeds to purchase an annuity for $100,000. Debtor argued that payments on the annuity were exempt because she had purchased it to replace her husband’s wages and income after his death. The 8th Circuit BAP disagreed with this argument, holding that the right to receive payments must be based on one of the reasons under the statute, not the reason for acquiring such an annuity, citing Rousey v. Jacoway, 544 U.S. 320 (2005). The 8th Circuit BAP noted that the right to receive payments was two steps removed from her husband’s death, which was simply “part of the background.” In re Helming, 567 B.R. 357 (8th Cir. BAP 2017) (W.D. Mo.).

• Appellants cautioned to submit written transcript of hearing if material to the appeal. Pro se creditor Zeljko Situm appealed the confirmation of debtor’s Chapter 13 plan. The bankruptcy court had made verbal findings of fact and conclusions of law at the conclusion of the hearing. In his initial appeal, Coppess I, Situm failed to submit either a transcript or complete recording of the confirmation hearing. Situm submitted a blank audio disc with his appeal. The 8th Cir. BAP held that it could not review the bankruptcy court’s decision absent a transcript, and affirmed its decision. Situm filed a motion for rehearing in Coppess II, this time submitting a disc which contained a full recording of the hearing. Situm argued that the bankruptcy court erred in confirming the plan because the debtor had failed to provide several years’ worth of tax returns, and asserted that debtor’s real property was undervalued. The 8th Circuit BAP affirmed, noting that 11 U.S.C. §521(e)(2)(A)(i) only requires a debtor to provide a tax return for the most recent tax year, Debtor’s Statement of Financial Affairs included prior year income information, and Situm had failed to request the tax returns in discovery. The 8th Circuit BAP further noted that the debtor had provided credible testimony from an appraiser, while Situm submitted no evidence on valuation. The 8th Circuit BAP stated in a footnote that because Situm failed to submit a transcript “we listened to hours of proceedings,” and “[f]iling audio disks instead of written transcripts of proceedings is not a practice that we encourage and going forward we are not likely to allow an exception to the requirement for written transcripts.” In re Coppess, 567 B.R. 543 (8th Cir. BAP 2017) (D. Minn.) (“Coppess I”) and In re Coppess, ___ B.R. ____, No. 17–6010 (8th Cir. BAP 5/16/2017) (D. Minn.) (“Coppess II”).

• Secured lender’s lien superior to reclamation rights of seller paid with bad checks. This case involved a dispute over validity and priority of interests in cattle. Murphy sold certain cattle to debtor Leonard. Sweetwater Cattle Company had an existing secured line of credit with debtor, and advanced funds to debtor to purchase the cattle. However, several of the checks tendered by debtor to Murphy were later dishonored. Debtor filed a Chapter 11 case, the cattle were sold, and proceeds held. Murphy claimed the right to reclaim the cattle under Section 2-507 of the UCC. Sweetwater asserted a security interest superior to Murphy’s interest. Murphy argued that title had not vested in debtor due to defects in the transfer documents, and that Sweetwater did not act in good faith. Murphy executed a bill of sale, with a Colorado State Board of Inspection Certificate, which was delivered with the cattle. The bill of sale identified Murphy as the seller, and debtor as the buyer. Murphy argued that the transfer documents did not strictly comply with Colorado’s livestock bill of sale law. Looking to Colorado case law, the 8th Circuit noted that noncompliance did not automatically prevent transfer of title, and that application of Section 2-401 of the UCC regarding passing of title was proper. It held that Murphy’s surrender of possession of the cattle for shipment and signing a bill of sale without reservation of title or security interest was sufficient to pass title to debtor. The 8th Circuit affirmed the conclusion of the bankruptcy court that Sweetwater observed reasonable commercial standards in releasing funds to debtor, and that Sweetwater’s lien on the cattle was superior to Murphy’s reclamation rights. In re Leonard, 565 B.R. 137 (8th Cir. 2017) (D. Neb.).

Patrick C. Summers
DeWitt Mackall Crounse & Moore S.C.



It isn’t just the words. Uniform Commercial Code §2-316 as enacted in most states allows a seller to disclaim implied warranties of merchantability and fitness if done in an appropriate manner assumed by the statute to be protective of the buyer. Thus, for example, §2-316(3)(a) states that may be done by the use of expressions like “as is,” “with all faults,” or “other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty.” One could conclude the use of these words would be absolutely effective against a buyer.

According to author Jason Melvin in an article in the Journal of Texas Consumer Law entitled “The Texas Two Step,” that would have been the case under the section, then §41 of the Revised Uniform Sale Act, as it appeared in 1944. However, the New York Law Revision Commission criticized the absolute nature of this. The American Law Institute, one of the co-sponsors of the UCC, agreed and proposed prefacing the language with the words: “unless the circumstances indicate otherwise,” and that ended up as the form of §2-316(3)(a) in the UCC. The rationale: Otherwise sellers could dupe buyers by words that had legal consequences they might not understand. Whether that rationale makes sense given the need for “common understanding” of what those words mean for them to be effective, is perhaps a pertinent question, as is whether the resulting uncertainty they promote is worth it.

Another author, Friedman (“Text and Circumstance: Warranty Disclaimers In a World of Rolling Contracts,” 46 Ariz. L. Rev. 677 (2004)), attempts to answer the “meaning issue” by asserting that any circumstances that put the buyer off guard as to the existence or full effect of a warranty disclaimer renders the disclaimer ineffective. (That is, the disclaimer is effective only if the transaction and its content indicate the buyer reasonably understood that warranties were being disclaimed.) This view is quite a bit broader and less historically accurate than understanding “as is” or “with all faults,” and looks at the context in which those words are used. Nonetheless, case law would seem in accord. See Murray v. D. J. Motor Company, 958 P.2d 823 (Okla. Civ. App. 1998) (among circumstances to be considered are fraudulent representations or misrepresentations concerning condition, value, quality, characteristics or fitness of the goods; in the case the salesperson told buyer there was nothing wrong with the car or engine, and car was defective), and Knipp v. Weinbaum, 351 So.2d 1081 (Fla. Dist. Ct. App. 1977) (buyer thought disclaimer only applied to minor defects).

In Sorchaga v. Ride Auto, LLC, 92 U.C.C. Rep. Serv. 2d 181, 2017 WL 1050585 (Minn. Ct. App. 2017), the purchase agreement for a truck provided it was sold AS IS, NO WARRANTY. The buyer’s guide which the buyer signed also so provided. When the buyer asked about the illumination of the check engine light, the seller fraudulently misrepresented that a faulty sensor was the cause but was aware the truck actually required substantial engine repairs beyond replacing a sensor. The court held the misrepresentation rendered the “as is” disclaimer ineffective, finding the buyer agreed to the disclaimer on the basis the only problem was the sensor and would not have purchased the truck and agreed to the disclaimer had the buyer known of the severe engine problems.

The opinion of the court on this point, even though consistent with the Murray and Knipp cases, seems questionable given the history of the “circumstances” language and its intended meaning, not to mention (1) seller’s oral statements should generally not be considered if they are inconsistent under the parol evidence rule (UCC §2-316(1)), (2) there would be a remedy in tort for the fraud, if established, and (3) “no warranty” would seem clear enough in any event. Nonetheless, the court also found a lack of good faith (UCC §1-304 and § 1-201(b)(20), Permanent Editorial Board Commentary No. 10, 2/10/1994), and that conclusion seems sound enough.

A second Minnesota case, Luckey v. Alside, Inc., 92 U.C.C. Rep. Serv. 2d 323, 2017 WL 1183974 (D. Minn. 2017), is more in line with what arguably is an appropriate consideration of “circumstances.” If a seller does not desire to eliminate any warranty obligation by a disclaimer but does desire to limit the consequences of a breach of warranty, UCC §2-719(1) on contractual limitation of remedy allows that. However, if a seller will make a warranty, the seller must accept the legal consequence that there be at least a fair quantum of remedy for breach of that warranty obligation. UCC §2-179 Official Comment 1. Accordingly, UCC §2-719(2) provides: “Where circumstances cause an exclusive or limited remedy to fail of its essential purpose (which includes providing a fair quantum of remedy), remedy may be had as provided in this Act.”

In the Luckey case, the remedy for the express limited warranties offered by a window manufacturer, and for implied warranties, was repair or replacement of any defective windows. There also was a clause excluding consequential and incidental damages. See §2-719(3). Normally, a limited remedy like the one here will fail if the seller is unwilling or unable to perform. While the seller in the case was willing to perform, the buyer’s evidence showed repair would not work due to a design defect, and neither would replacement since any replacement window would be similarly defective. Thus the limitation, given the circumstances, should fail.

As to the exclusion of consequential damages, the test for effectiveness is different?it is whether the exclusion is unconscionable. To be voided as unconscionable according to the court, the foreseeable incidental or consequential damages should greatly surpass the costs of the goods or available remedy. The buyer did not plead facts tending to show that. The court concluded the issues could not be resolved at the motion for judgment on the pleadings stage.

Observation: A smart seller will avoid the failure of purpose trap in most cases by alternatively providing the limited remedy of a return of the purchase price if the seller cannot repair or replace. See Kaplan v. RCA Corp., 783 F.2d 463 (4th Cir. 1986). Alternatively, damages could be liquidated under UCC §2-718, but that has its own pitfalls as well as also the need to look at the “circumstances of the case.” Official Comment 1 to UCC §2-718. Another risk if the limitation of remedy fails is whether the exclusion of consequential damages also is rendered ineffective. Court decisions are divided on this matter. The better view is that even if the limited remedy fails of its essential purpose, that itself does not also bring down the exclusion of consequentials. Kaplan case, supra, and see International Fin. Servs., Inc. v. Gerber Scientific Instrument Co., 534 N.W.2d 261 (Minn. Sup. Ct. 1995). The unconscionability issue is more complicated than can be discussed here. See e.q., Murtagh K, UCC Section 2-719: Limited Remedies and Consequential Damage Exclusions, 74 Cornell L. Rev. 859 (1989).

Fred Miller

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


• Plea agreement: District court may impose sentence different from plea agreement where defendant fails to comply with conditions. Appellant was charged in Washington County with fifth-degree drug sale and signed a plea petition providing for a stay of imposition and a 45-day cap. The petition also stated that the court could impose a different sentence if appellant failed to abide by a number of conditions, including not being charged with any additional offenses. Prior to sentencing, in January 2016, a search warrant of appellant’s home revealed additional drugs and a large amount of cash. In March, the Washington County court rejected the plea agreement and appellant was charged with fifth-degree possession in Scott County. At his sentencing hearing, the Washington County imposed a guideline sentencing of 180 days. Appellant seeks to withdraw his guilty plea.

Appellant did not receive an unqualified promise with respect to the sentence that would be imposed. Rather, the plea agreement included certain conditions upon which the proposed sentence was contingent. Appellant violated those conditions, permitting the court to impose a different sentence. The district court is affirmed. State v. Andrew Vincent Lafavor Montez, Ct. App. 6/5/2017.

Judicial notice: Court may take judicial notice of Commissioner of Public Safety’s approval of DataMaster. After being placed under arrest for DWI, appellant submitted to a DataMaster breath test, which revealed a BAC of 0.13. He was charged with DWI. At his court trial, the court took judicial notice of the Commissioner of Public Safety’s approval of the DataMaster breathalyzer and found appellant guilty. Appellant argues that judicial notice is not appropriate in a criminal case.

Judicial notice of adjudicative facts is inappropriate in criminal cases. However, judicial notice of legislative facts, such as statutes, case law, and regulations, is both common and proper in criminal cases. Minn. Stat. §169A.03, subd. 11, permits the commissioner to approve the use of breath-testing equipment, and the commissioner approved the DataMaster pursuant to this authority. Whether the commissioner has approved of a certain breath test is a legislative fact. Thus, the district court did not err in taking judicial notice that the DataMaster was approved by the commissioner. State v. Justin Kenneth Norgaard, Ct. App. 6/5/2017.

Conditional release: 10-year conditional release applies to aiding and abetting third-degree criminal sexual conduct. Petitioner was sentenced to prison and a 10-year conditional release term following his conviction for aiding and abetting third-degree criminal sexual conduct. He argues that the conditional release period was inappropriate, because the conditional release statute does not specifically enumerate aiding and abetting as a qualifying offense.

The conditional release statute, Minn. Stat. §609.3455, subd. 6, enumerates five offenses for which a 10-year conditional release period applies, including third-degree criminal sexual conduct. The conditional release statute applies to any offender imprisoned “for a violation of” the criminal sexual conduct statutes. The statute is not limited to offenders imprisoned for violating the listed criminal sexual conduct statutes, but more generally reaches offenders imprisoned for a violation of any of those statutes.

Petitioner’s aiding and abetting third-degree criminal sexual conduct conviction invokes both the aiding and abetting and third-degree criminal sexual conduct statutes. He was imprisoned for a violation of the third-degree criminal sexual conduct statute, and aiding and abetting is not a separate substantive offense. The district court’s imposition of the 10-year conditional release period was proper. Spidel Wayne Browder v. State, Ct. App. 6/12/2017.

 Sentencing: Remorse and social media context of terroristic threats do not justify downward durational departure. Respondent posted a series of threatening tweets directed at law enforcement and was charged with terroristic threats. He pleaded guilty, and the district court granted his motion for a downward durational departure.

Held, the reasons given by the district court for the downward durational departure were improper. Most of the district court’s grounds for the departure, including respondent’s age, remorse, lack of substantial capacity for judgment, and amenability to probation and treatment, were offender-related, which may not be used to support a durational departure. The single offense-related reason for the departure, respondent’s “mental state,” was also an improper basis for the departure, as respondent’s admissions in court that he posted the tweets recklessly showed that his conduct was not significantly less serious than the typical case, because this conduct fit squarely within the prohibition against making threats with a reckless disregard of the risk of causing terror.

The Supreme Court rejects respondent’s arguments that his remorse relating back to the offense and the social media context of his threats support the downward durational departure. Respondent confessed and expressed remorse, but only did so after he was already in custody and no longer a viable threat to law enforcement, so his remorse was not so “directly related to the criminal conduct at issue” as to make his conduct significantly less serious. Social media may allow users to make more exaggerated and extravagant statements than they would in other contexts, and allows such statements to be posted instantly and without much deliberation, but the court rejects a categorical rule that threats made on social media are somehow less serious than other threats. The totality of the circumstances must be examined. Here, respondent used social media, but tweeted five separate times, threatening multiple police officers, and in a manner that would increase the likelihood that his targets would see his threats. Reversed and remanded to the district court for resentencing. State v. Harrison William Rund, Sup. Ct. 6/7/2017.

Guilty plea: Plea invalid if based on misadvice on collateral consequences amounting to ineffective assistance. When entering his guilty plea to first-degree criminal sexual conduct, appellant acknowledged he would have to register as a sex offender for 10 years, rather than the lifetime period required by statute. At sentencing, he sought to withdraw his plea based on his attorney’s inaccurate advice with respect to the registration period. Appellant’s motion was denied. On appeal, appellant argues his trial counsel provided ineffective assistance by affirmatively misadvising him as to the collateral consequences of his guilty plea.

The court of appeals applies the Strickland v. Washington test to determine whether appellant’s trial counsel was ineffective, because appellant’s trial counsel did not merely fail to inform appellant of a collateral consequence, but affirmatively provided him with inaccurate advice as to the collateral consequences. Appellant’s trial counsel’s representation fell below an objective standard of reasonableness. The predatory offender registration statute is succinct, clear, and explicit. Despite this clarity, appellant’s counsel misadvised him with respect to the length of his required registration, which amounted to objectively unreasonable performance.

However, the court finds the record is insufficient to determine if appellant was prejudiced by his counsel’s error. The case is remanded for an evidentiary hearing to determine if appellant can show a reasonable probability that, but for his counsel’s error, he would not have pleaded guilty. State v. Joe Anthony Darnell Ellis-Strong, Ct. App. 6/19/2017.

DWI: No need to advise of right to counsel prior to chemical test if implied consent statute not invoked. In his second-degree DWI prosecution, respondent’s motion to suppress urine test results was granted after the district court concluded that compliance with the implied consent law, including the advisory regarding the limited right to counsel prior to consenting to chemical testing, is a prerequisite to the admissibility of chemical test results. Prior to respondent’s consent to a urine test, law enforcement did not read the implied consent advisory or tell respondent he could speak to an attorney before testing.

Held, the district court’s conclusion was erroneous, as respondent never faced a possibility of immediate sanction under the implied consent law when deciding whether to consent to the urine test. The deputy did not read the implied consent advisory to respondent or seek chemical testing under the implied consent law. Thus, respondent’s decision regarding testing never carried a possibility of immediate license revocation sanctions or criminal prosecution for test refusal, only traditional criminal penalties for DWI which would follow a trial at which respondent would have a right to counsel. Reversed and remanded. State v. Scott Ross Hunn, Ct. App. 6/19/2017.

Frederic Bruno
Bruno Law

Samantha Foertsch
Bruno Law



• Gender surgery; no discrimination claim, but ACA remanded. A challenge by a Minnesota mother to an employer and third party health administrator for denial of coverage for reduction and surgery for her son’s gender reassignment was rejected under federal and state discrimination statutes. The 8th Circuit Court of Appeals in a decision authored by Judge Diana Murphy of Minnesota upheld a ruling of U.S. District Court Judge Richard Kyle in Minnesota that the mother could not pursue discrimination claims on her son’s behalf under Title VII of the Federal Civil Rights Act or the Minnesota Human Rights Act, but remanded the case for determination of her claims under the Affordable Care Act (ACA). Tovar v. Essentia Health, 857 F.3d 771 (8th Cir. 5/24/2017).

n Retaliation; whistleblower claim rejected. A claim of retaliatory discharge under the Minnesota whistleblower law, Minn. Stat. §181.932, was rejected by the 8th Circuit. Affirming a ruling of U.S. District Court Judge Ann Montgomery of Minnesota, it held that the claimant failed to show a causal relationship between reporting illegal double billing and his subsequent discharge. Mervine v. Plant Eng’g. Servs, LLC, 859 F.3d 519 (8th Cir. 6/9/2017).

Termination of employees; disloyalty discharge upheld. The discharge of six fast food employees, along with disciplining three others, due to a public relations campaign they launched to draw attention to the company’s lack of paid sick leave was upheld by the 8th Circuit Court of Appeals. Reversing a determination under an administrative law judge and a divided panel of the National Labor Relations Board (NLRB), as well as a divided three-judge panel of the circuit, the en banc court ruled that the employees’ actions, which included vivid depictions of food prepared by a sick co-worker, compared to that of a healthy one, constituted such “detrimental disloyalty” that it justified their termination, notwithstanding the employees’ right to engage in “concerted activities” under Federal labor law. MikLin Enterprises, Inc. v. National Labor Relations Board, 2017 U.S. App. LEXIS 11792 (7/3/2017) (unpublished).

Minimum wage claims; release bars action. A claimant who volunteered as a concession worker was not entitled to sue for violation of minimum wage laws because he signed a release form providing for arbitration of any disputes. The 8th Circuit upheld the lower court ruling that the opportunity to volunteer and a contribution made to a university where the activities took place constituted sufficient consideration to uphold the release. Leonard v. Del. North Cos. Sport Serv., 2017 U.S. App. LEXIS 11391 (6/27/2017) (unpublished).

Unpaid overtime; process server’s claim rejected. A claim by a process server that he was not properly paid overtime under the Fair Labor Standards Act (FLSA) was dismissed on grounds that he was an independent contractor and, therefore, not covered by the law. The 8th Circuit upheld a lower court determination that dismissed the claim, along with the trial judge’s excluding evidence of how much the employer deducted each year in business expenses. Karlson v. Action Process Serv. & Private Investigation, 2017 U.S. App. LEXIS 11377 (6/26/2017) (unpublished).

Age discrimination; summary judgment upheld for employer. A claimant who was fired from a job as a lab technician was not entitled to pursue a claim for age discrimination. The 8th Circuit upheld a ruling by U.S. District Court Judge Richard Kyle in Minnesota for summary judgment for the employer because the employee did not establish a prima facie case of age discrimination, nor was sufficient evidence presented to show that the employer’s reason for termination was pretextual or for an underlying, unlawful motive. Nash v. Optomec, Inc., 2017 U.S. App. LEXIS 5932 (4/5/2017) (unpublished).

Race discrimination; claims dismissed, but retaliation claim permitted. The 8th Circuit upheld dismissal of a pair of race discrimination claims, but allowed a retaliation claim to proceed in one of them.

African-American men, working as sanitation workers, were not permitted to sue for discriminatory discharge after they were fired for violating the employer’s time card policy. The 8th Circuit upheld summary judgment because the claimant submitted insufficient evidence that the reason for firing was pretextual. The court also rejected an allegation that the employer’s investigation was inadequate. Edwards v. Hiland Roberts Dairy Co., 2017 U.S. App. LEXIS 11387 (6/22/2017) (unpublished).

An African-American program supervisor also had her race discrimination claim against a state agency dismissed on grounds that her termination did not reflect disparate treatment based on race. But the 8th Circuit remanded dismissal of a retaliation claim on grounds that the allegations made by the claimant allowed more than a mere possibility that retaliation occurred. A concurring and dissenting opinion by Judge James Locken of Minnesota agreed with dismissal of the race claim, but also would have ruled against allowing the retaliation claim to proceed because there was only a “mere possibility” of retaliation without setting forth sufficient factual detail to support that claim. Wilson v. Arkansas Dept. of Human Services, 850 F.3d 368 (8th Cir. 3/1/2017).

Retirement claim; contract rescission ruling reversed. A store manager was entitled to pursue a breach of contract claim following his termination, despite signing a termination document that the company unduly pressured him to sign, causing him to lose his eligibility for a retirement plan. The 8th Circuit, reversing a ruling of the lower court, held that the manager acted under duress in signing the document, which caused him to lose a retirement package, converting him to an at-will employee. Gilkerson v. Nebraska Colocation Centers, 859 F.3d 1115 (8th Cir. 6/21/2017).

USERRA; no immunity for state university. A claim by a military veteran that he was wrongfully denied re-employment by Bemidji State University after conducting military service was actionable. Reversing and remanding dismissal of the lawsuit by the Ramsey County District court, the Minnesota Court of Appeals held that the claim of sovereign immunity under the Federal Uniformed Services Employment and Reemployment Rights Act (USERRA) 38 U.S.C. §4301-4335, was inapplicable because a 2012 state law, Minn. Stat. §1.052, subd. 5, expressly permitted such claims against the state and its entities. Breaker v. Bemidji State University, 2017 Minn. App. LEXIS 75 (App. 6/12/2017) (unpublished).

Unemployment compensation; safety violation bars benefits. A machine operator was denied unemployment compensation benefits due to the violation of his company’s safety policies. The court of appeals held that the transgressions constituted disqualifying “misconduct.” Treptau v. Federal Cartridge, 2017 Minn. App. LEXIS 524 (App. 6/12/2017) (unpublished).

Marshall H. Tanick
Hellmuth & Johnson, PLLC



The Supreme Court’s personal jurisdiction revolution continues. In the aftermath of decisions limiting the scope of general personal jurisdiction, the Supreme Court recently limited the scope of specific personal jurisdiction, making it even more difficult for plaintiffs to pursue claims against even the largest corporations anywhere other than where those corporations are “at home.”

More than 650 plaintiffs from 34 states filed a “mass” action in the California courts against Bristol-Myers Squibb (BMS), a Delaware corporation with its principal place of business in New York, alleging that they were injured after taking Plavix. The California Supreme Court found that “BMS’s extensive contacts with California” permitted the exercise of specific jurisdiction because the claims of the nonresidents were similar to the claims of the California residents. BMS then petitioned for certiorari.

Relying on “settled principles regarding personal jurisdiction,” the Supreme Court determined that BMS was not subject to specific jurisdiction in California on the claims brought by the non-California plaintiffs because there was no “connection” between the California forum and those plaintiffs, and that where “there is no such connection, specific jurisdiction is lacking regardless of the extent of a defendant’s unconnected activities in the State.” The Supreme Court suggested that its decision would not result in a “parade of horribles” for the plaintiffs, because they were free to pursue their claims against BMS as a group in either New York or Delaware, and they could sue individually or in smaller groups in their home states.

The Court specifically declined to determine whether the 5th Amendment “imposes the same restrictions on the exercise of personal jurisdiction by a federal court.” This issue is likely to percolate through the federal courts in the next few years.

Justice Sotomayor dissented, as she has in all of the Court’s recent personal jurisdiction decisions. Bristol-Myers Squibb Co. v. Superior Court, ___ S. Ct. ___ (2017).

Class actions; voluntary dismissal with prejudice; 28 U.S.C. §1291; appealability. The Supreme Court held that plaintiffs cannot obtain appellate review of an order denying class certification by dismissing those claims “with prejudice” while reserving the right to revive their claims if the class certification order was to be reversed on appeal, finding that the voluntary dismissal does not qualify as a final decision under 28 U.S.C. §1291. Microsoft Corp. v. Baker, ___ S. Ct. ___ (2017).

n 8th Circuit en banc; Iqbal & Twombly; plausibility; Fed. R. Civ. P. 12(b)(6). A recent 8th Circuit en banc decision in an antitrust case illustrates the ongoing debate regarding the scope of Iqbal and Twombly on motions to dismiss under Fed. R. Civ. P. 12(b)(6).

While the majority cited Iqbal and Twombly in finding that the plaintiffs had alleged a continuing violation sufficient to make the plaintiffs’ antitrust claims timely, four dissenters concluded that the plaintiffs’ allegations were not sufficient. In Re: Pre-Filled Propane Tank Antitrust Lit., ___ F.3d ___ (8th Cir. 2017) (en banc).

Fed. R. Evid. 403; abuse of discretion; Fed. R. App. P. 28(a)(8)(A); waiver of argument. Where the appellants challenged the district court’s exclusion of evidence under Fed. R. Evid. 403 because it was cumulative, unfairly prejudicial, and had the potential to mislead the jury, but failed to argue why the district court had abused its discretion in excluding that evidence, the 8th Circuit, relying on Fed. R. App. P. 28(a)(8)(A), found that the appellants had not offered “any… reason… to disturb the district court’s evidentiary rulings.” Letterman v. Does, ___ F.3d ___ (8th Cir. 2017).

Diversity jurisdiction; domicile; change in citizenship. The 8th Circuit rejected an appeal premised on the lack of diversity jurisdiction brought by the Missouri defendant, finding that the plaintiff, formerly a citizen of Missouri, was domiciled in Florida when he commenced his action in spite of the fact that he owned real estate in Missouri. Eckerberg v. Inter-State Studio & Publishing, ___ F.3d ___ (8th Cir. 2017).

Discovery; documents not produced; affidavit required. Where defendants moved to compel discovery of relevant documents described by Judge Nelson as “relevant” but not “critical,” and plaintiffs had invested hundreds of hours attempting to locate the documents but ultimately failed to do so, Judge Nelson denied the defendants’ motion to compel production of those documents but ordered the plaintiffs to provide an affidavit detailing their efforts to obtain and produce those documents. In Re: RFC and RESCAP Liquidating Trust Actions, 2017 WL 2684106 (D. Minn. 6/21/2017).

Motion to strike alleged confidential settlement information and for sanctions denied. Adopting a Report and Recommendation by Magistrate Judge Bowbeer in its entirety, Judge Wright granted the plaintiff’s motion to enforce the parties’ settlement agreement, and denied the defendants’ cross-motion to strike evidence of the settlement from the record and to sanction plaintiff’s counsel for placing alleged confidential information on the public record. Larsen v. Capital One Bank, N.A., 2017 WL 2290072 (D. Minn. 4/12/2017), Report and Recommendation adopted, 2017 WL 2274470 (D. Minn. 5/23/2017).

Josh Jacobson
Law Office of Josh Jacobson 



• Supreme Court grants certiorari on President Trump’s travel ban. On June 26, 2017, the U.S. Supreme Court granted certiorari and consolidated two federal court cases coming out of the 4th and 9th Circuits concerning President Trump’s travel ban as outlined in his 3/6/2017 Executive Order No. 13780 (Protecting the Nation from Foreign Terrorist Entry Into the United States), a revised version of the earlier Executive Order issued on 1/27/2017. In brief, the 3/6/2017 Executive Order suspended the entry of foreign nationals from six predominantly Muslim countries—Iran, Libya, Somalia, Sudan, Syria, and Yemen—for 90 days from the effective date of the order, 3/16/2017. At the same time, the Executive Order suspended decisions on refugee applications and refugee travel to the United States for 120 days from the March 16 date. Over the course of several weeks, the lower courts issued preliminary injunctions staying enforcement of the provisions of the 3/6/2017 Executive Order. And, with the approach of the 90th day of the entry suspension, President Trump issued a memorandum on 6/14/2017 declaring the 90-day suspension would not go into effect until the date on which the injunctions were actually stayed or lifted.

The Court agreed to hear both cases during the first session of the October term. The Court also granted the government’s applications to stay the injunctions “to the extent the injunctions prevent enforcement of §2(c) [of the Executive Order] with respect to foreign nationals who lack any bona fide relationship with a person or entity in the United States. We leave the injunctions entered by the lower courts in place with respect to respondents and those similarly situated, as specified in this opinion.” (That is, foreign nationals having a bona fide “close familial relationship” with individuals in the United States. And foreign nationals having a bona fide formal, documented relationship with entities in the United States such as students “admitted” to attend school in the United States or “worker(s) who accepted an offer of employment” from a U.S. company or “lecturer(s) invited to a address an American audience.”)

In similar fashion, the Court found, in the refugee context, that §6(a) [of the Executive Order] may not be enforced against individuals seeking admission as refugees with a credible claim of “a bona fide relationship with a person or entity in the United States” nor, under §6(b), may such person be excluded, “even if the 50,000 person cap has been reached or exceeded.”

On June 28, 2017, one day before the Executive Order was to go into effect, the State Department, in its “Executive Order on Visas,” further clarified what constituted a bona fide “close familial relationship”: a parent (including parent-in-law), spouse, fiancé(e) (an about-face, after initially holding fiancé(e) was not a “close familial relationship”), child, adult son or daughter, son-in-law, daughter-in-law, sibling (half or whole), and step relationships. However, “close familial relationships” did not include grandparents, grandchildren, aunts, uncles, nieces, nephews, cousins, brothers-in-law, sisters-in-law, or other extended family members.

On July 7, 2017, plaintiffs State of Hawaii and Dr. Ismail Elshikh filed an emergency motion with the U.S. District Court (District of Hawaii) to enforce or, in the alternative, modify the preliminary injunction insofar as the Executive Order (1) is enforced against grandparents, grandchildren, aunts, uncles, nieces, nephews, cousins, brothers-in-law, and sisters-in-law of persons in the United States; (2) is enforced against refugees (i) with a formal assurance from a resettlement agency within the United States; (ii) with a bona fide client relationship with a U.S. legal services organization; or (iii) in the U.S. Refugee Admissions Program (USRAP) through the Iraqi Direct Access Program for “U.S.-affiliated Iraqis,” the Central American Minors Program, or the Lautenberg Program; (3) is used to suspend any part of the refugee admissions process, including the “Advanced Booking” process, for individuals with a bona fide relationship with any individual or entity; and (4) is used as a presumption that an applicant lacks “a bona fide relationship with a person or entity in the United States.”

On July 13, 2017, the U.S. District Court (District of Hawaii) issued its decision holding the plaintiffs had met their burden establishing that the requested injunctive relief was necessary to maintain the status quo pending appeal to the Court in the matter of the definition of “close familial relationship.” The court further found the plaintiffs had met their burden with respect to refugees holding a formal assurance as related to the government’s implementation of §6(a) and §6(b) [of the Executive Order], and participants in the Lautenberg Program.

On July 14, 2017, the government asked the Supreme Court to reverse the U.S. District Court’s ruling.

On July 15, 2017, the Supreme Court asked the State of Hawaii to file a response by noon on Tuesday, July 18.

More to follow. Trump, et al. v. International Refugee Assistance Project, et al. and Trump, et al. v. Hawaii, et al., 582 U.S. ___ (2017). 

Supreme Court finds acquisition of citizenship based on gender is unconstitutional. On 6/12/2017, the U.S. Supreme Court found the gender-based distinction in §309(c) of the Immigration and Nationality Act to be unconstitutional—with a shorter period of parental physical presence in the United States required for acquisition of citizenship through an unwed citizen mother as opposed to that through an unwed citizen father. The Court declined to extend the shorter period of required physical presence to children of unwed citizen fathers, stating that until Congress provides for a uniform prescription not based on gender, the requirements of INA §301(g) should apply prospectively to children of unwed citizen mothers as well. Sessions v. Morales-Santana, 582 U.S. ____ (2017). 

R. Mark Frey
Frey Law Office



Patent litigation; venue. The U.S. Supreme Court recently held that personal jurisdiction over a domestic corporation may not give rise to proper venue in an action for patent infringement. The Court of Appeals for the Federal Circuit, which hears all patent-related appeals, had long held the opposite based on the general venue statute: that venue was proper if personal jurisdiction existed. Kraft Foods sued TC Heartland in the District of Delaware alleging patent infringement. TC Heartland moved to transfer venue to Indiana based on the patent-specific venue statute, 28 U.S.C. §1400(b), which provides that venue is only proper in a judicial district where (1) the defendant resides or (2) the defendant has committed acts of infringement and has a regular and established place of business. TC Heartland is organized under the laws of and maintains its principal place of business in Indiana. Apart from shipping the allegedly infringing products to Delaware, TC Heartland had no presence there. The district court denied the motion to transfer relying on the broader general venue statute’s test based on personal jurisdiction. The federal circuit denied a petition for a writ of mandamus.

In reversing, the U.S. Supreme Court held that in an action for patent infringement against a domestic corporate defendant, the narrower patent-specific venue statute applies, not the broader general statute. The Court went on to hold that under the first prong of the patent venue statute (residence), venue is proper only in the defendant’s state of incorporation. The broader range of situations giving rise to venue under the general venue statute, such as personal jurisdiction in the forum state, will not establish proper venue in patent litigation. In other words, for TC Heartland, venue was only proper in Indiana. The Court’s decision is limited to domestic corporations. It also does not address “regular and established place of business” under the second prong of §1400(b). TC Heartland, LLC v. Kraft Foods Group Brands, LLC, 581 U.S. ____ (2017).

Patent; prior art. Judge Nelson recently held that a Disney engineer’s prototype of a flameless candle was not prior art. Liown sued Luminara for infringement of flameless candle patents. In arguing that the Liown’s patents were invalid, Luminara presented various potential prior art references including a flameless candle prototype designed in 2008 by Gary Schnuckle, an engineer for Disney. A prototype constitutes prior art under 35 U.S.C. §102(g)(2) if, prior to the date of invention, the prototype “was made in this country by another inventor who had not abandoned, suppressed, or concealed it.” The court analyzed whether the prototype was “made in this country,” meaning the prototype was reduced to practice in the U.S. Reduction to practice occurs when “[it is] embodied in tangible form in the United States, not simply reported.” Schnuckle’s testimony as to the physical construction (tangible form) of the prototype and two documents that described aspects of the design were the only pieces of evidence. Evidence beyond a witness’s uncorroborated testimony is necessary to satisfy the clear and convincing standard required to invalidate a patent. Thus, the ruling turned on whether the two documents corroborated Schuckle’s testimony that he had reduced his prototype candle to practice in the U.S. Although the documents described the design, they did not reference a prototype. The court found that they were insufficient to provide clear and convincing evidence that the prototype was reduced to practice, i.e., “made in this country” under §102(g)(2). Luminara Worldwide, LLC v. Liown Elecs. Co., No. 14-cv-03103 (SRN/FLN), 2017 U.S. Dist. LEXIS 71619 (D. Minn. 3/29/2017).

Tony Zeuli & Elizabeth Harwood

Merchant & Gould



Foreclosure. A guarantor sued to void a foreclosure sale under Minn. Stat. §580.08 for selling the property as one tract rather than separate tracts and under Minn. Stat. §580.04 for misstating the amount due on the mortgage. The property at issue is platted as three lots. For tax purposes, the lots are broken down into four tax parcels total, each with a distinct tax parcel identification number. There are no markers or physical separation between the tax parcels. A cabin straddles two tax parcels. The guarantor executed a mortgage stating that the lender is “free to sell all or any part of the Property together or separately, in one sale or by separate sales.” The mortgage stated that the original principal secured under the guaranteed line of credit was $1,200,000, and the guarantor agreed to guaranty additional amounts, including those later arising and a revolving line of credit. The notice of foreclosure sale stated an amount in excess of $1,200,000, stating instead the entire amount guaranteed. The district court dismissed both counts on a motion for summary judgment and the court of appeals affirmed. Minn. Stat. §580.08 states that “[i]f the mortgage premises consist of separate and distinct farms or tracts, they shall be sold separately….” The court of appeals, relying upon the maxim that interpretation of this statute must depend upon the unique facts and circumstances, held that the sale was lawful because the tracts were contiguous and sale as a single parcel would fetch the highest market price. The court appeared primarily animated by the fact that three of the four tax parcels are not large enough to be zoning-compliant buildable lots. The guarantor also argued that the notice of foreclosure was inaccurate because the mortgage amount was not limited to $1,200,000. The court affirmed the dismissal of the claim under Minn. Stat. §580.04 because, while there were provisions limiting the amount securing the line of credit, the mortgage contemplated that it would secure other amounts above $1,200,000. Leeco, Inc. v. Cornerstone Bank, ___ N.W.2d ___, No. A16-1875, 2017 WL 2836097 (Minn. Ct. App. 7/3/2017).

Fair Housing Act discrimination. For-profit low-income rental housing owners sued the City of Minneapolis on the grounds of disparate impact discrimination under the Fair Housing Act (FHA). The plaintiffs have been subject to numerous inspections and housing code violation citations. In addition, the plaintiffs appear to be under threat of revocation of their rental licenses. The plaintiffs alleged that the city’s ordinance changes since 2005 caused the license revocations to increase 500 percent, disproportionately hitting classes protected under the FHA. The plaintiffs further alleged that the city applies its standards more harshly against for-profit housing. The district court dismissed the claims on a motion for judgment on the pleadings and the court of appeals affirmed. First, the court upheld the dismissal because the FHA may not be used to force the city to apply the low standards applied to public housing instead to for-profit housing. And the plaintiffs failed to allege facts that plausibly demonstrate that the standards are arbitrary and capricious. Further, the court construed the plaintiff’s complaint as one alleging that the city has an unannounced policy to disregard written policy and discourage rental housing. However, the plaintiffs relied upon comments in a 2009 city report that encouraged the city to reduce rental licensing, but it also included contradictory comments encouraging the opposite. The court determined that this was not sufficient evidence to show that the city had picked sides unannounced. Finally, the court held that the history of citations given to the plaintiffs and vacation of some of those citations did not plausibly establish that the city had created an expansive policy of discouraging rental housing for protected classes. Ellis v. City of Minneapolis, ___ F.3d ___, No. 16-2019, 2017 WL 2735423 (8th Cir. 6/27/2017).

Joseph P. Bottrell

Meagher & Geer, PLLP



• No charitable deduction for unrecorded, unenforceable conservation easement. The IRS disallowed a partnership’s claimed charitable deduction for the donation of a facade easement because the easement was unenforceable under state law. A New York partnership owned a 10-story warehouse designed by renowned architect Cass Gilbert. In 2004, the partnership executed an easement deed granting a facade easement on the warehouse to National Architectural Trust, Inc. The trust, however, did not cause the deed to be recorded until 2006. Looking to state law to determine the enforceability of the easement, the tax court rejected the $11 million claimed deduction. Qualified conservation easements entitle taxpayers to deductions only if the donor retains no interest in the property; here, no deduction was permitted because under state law, if an instrument is intended to create a conservation easement, it has no effect until and unless it is recorded. Since it was not recorded until a later tax year, no deduction was permitted. Ten Twenty Six Inv’rs v. Comm’r, T.C.M. (RIA) 2017-115 (T.C. 2017).

Employee benefits: NHL’s Boston Bruins permitted to deduct 100% cost of employee’s meals. The owners of the Boston Bruins, a National Hockey League franchise based in Boston, Massachusetts, sought to deduct 100% of the not-inconsiderable cost of meals and snacks provided to the players while the Bruins were on the road. The Service argued that Section 274(n)(1) limited such deductions (meals while on the road) to 50% of the cost. After analyzing various employee fringe statutory sections, the court concluded that petitioners’ provision of pregame meals and snacks to the traveling hockey employees at away city hotels qualifies as a de minimis fringe pursuant to section 274(n)(2)(B). Because the 50% limitation does not apply to de minimus fringe, the team was permitted to deduct the full cost of the meals without regard to the 50% limitation imposed by section 274(n)(1). Jacobs v. Comm’r, No. 19009-15, 2017 WL 2733795 (T.C. 6/26/2017.)

Income tax: Unconstitutional to tax “resident trust” on worldwide income if that income has insufficient connection with Minnesota. In a lengthy opinion, the Minnesota Tax Court held that Minnesota had an insufficient basis to tax several trusts on trust income that was not otherwise connected to Minnesota, even though those trusts were defined as “resident trusts” under Minnesota law. A “resident trust” is one that is “an irrevocable trust, the grantor of which was domiciled in this state at the time it became irrevocable.” Minn. Stat. §290.01, subd. 7b(a)(2)(2016). The court reasoned that the “single circumstance that its grantor was ‘domiciled in this state at the time the trust became irrevocable’” was insufficient to pass due process constitutional muster under the Minnesota and United States constitutions. Fielding v. Comm’r, No. 8911-R, 2017 WL 2484593 (Minn. T.C. 5/31/2017).

Sales and use tax: Summary judgment denied. Paris Handbag LLC sold sunglasses, handbags, and radio-controlled helicopters at kiosks in Rosedale and Burnsville malls. After a review, the commissioner determined that Paris Handbag’s total gross receipts exceeded the reported taxable sales based on bank records provided. Paris Handbag’s discovery responses were incomplete regarding sales information, but the taxpayer provided some evidence that some of its sales could have been sales of clothing and are therefore exempt from the sales tax. The commissioner sought summary judgment, citing the statutory presumption that all gross receipts are taxable, Minn. Stat. §297A.665(a)(l) (2016), and the absence of records indicating that any of Paris Handbag’s gross receipts arose from non-taxable sales. Paris Handbag countered that summary judgment would be improper because the store sold non-taxable goods and performed non-taxable services. The tax court denied the commissioner’s motion. The court reasoned that even though there was little evidence to support Paris Handbag’s contention that it sold clothing and made other nontaxable sales, the tax court must view the evidence in the light most favorable to the nonmoving party. Because the taxpayer provided at least some evidence that some of its sales were not properly taxable, and viewing the evidence in the light most favorable to the nonmoving party, as it is required to do, the court denied the commissioner’s motion. The tax court cautioned Paris Handbag, however, that without documentation it will be difficult to prove at trial that the store made sales of clothing. Paris Handbag v. Comm’r, No. 8934-R (Minn. T.C. 5/21/2017).

Individual income tax: Summary judgment proper. The taxpayer in this dispute owned and operated a retail store and Bradley Plumbing LLC. On an audit, the commissioner assessed additional Minnesota sales and use tax, penalties, and interest totaling $9,303.26. Taxpayer Bradley provided additional information to the commissioner, who then reduced the assessment to $3,872.15. Bradley appealed this lowered assessment, arguing that the assessment was miscalculated because the commissioner misunderstood certain relevant information. The commissioner filed a motion for summary judgment after Bradley failed to respond to discovery requests and other communications by the discovery deadline. Bradley attributed his failure to respond to personal difficulties including the death of a parent; the deployment of a child to Iraq; complications with his eyes; eviction from his business facility; theft from a storage trailer; and the economic downturn. The tax court noted its sympathy for Bradley, but the court is bound to apply the relevant legal standard and Mr. Bradley’s hardships did not raise any issue of material fact that could defeat summary judgment. The court concluded that “[w]ithout evidence indicating that the Commissioner’s Order is erroneous, we must affirm it,” and the court granted the commissioner’s summary judgment motion and affirmed the commissioner’s order as prima facie valid. Bradley v. Comm’r, No. 8952-R (T.C. 5/21/2017).

Individual income tax: Government estoppel rejected; reliance on typographical error objectively unreasonable. Taxpayer Nealy filed an amended 2013 individual income tax return seeking certain credits. On 11/7/2016, the commissioner denied the request. Nealy contacted the court to obtain a 30-day extension to file a Notice of Appeal allowed under Minn. R. 8610.0030 (2015). The court granted this extension, but in the caption of the extension the court mistakenly wrote that the Commissioner’s denial was on the 17th (rather than the 7th). In other places in the extension, the date was listed correctly. Mr. Nealy filed his Notice of Appeal 99 days after 11/7/2016, but only 89 days after 11/17/2016. In other words, Nealy’s appeal was untimely unless the court used 11/17/2016 as the date for determining timeliness. The court construed the taxpayer argument as suggesting that the court was equitably estopped from using 11/7/2016 as the operative date because Nealy reasonably relied on the date in the court’s extension order. The court recited the four elements required for a government estoppel claim (City of N. Oaks v. Sarpal, 797 N.W.2d 18, 25 (Minn. 2011) (listing elements of (1) “wrongful conduct” on the part of an authorized government agent; (2) the party seeking equitable relief must reasonably rely on the wrongful conduct; (3) the party must incur a unique expenditure in reliance on the wrongful conduct, and (4) the balance of the equities must weigh in favor of estoppel). The court focused on the second element, reasonable reliance, and found it lacking in this instance. The court rejected Nealy’s equitable estoppel argument because Mr. Nealy’s reliance on a typographical error on the extension order was objectively unreasonable. Nealy v. Comm’r, No. 9020-S (Minn. T.C. 6/21/2017).


IRS issues nonacquiescence in EITC decision. Disagreeing with the tax court’s decision in Yosef A. Tsehay v. Commissioner, T.C. Memo. 2016-200, the IRS notified taxpayers that taxpayers whose filing status is married filing separately are not entitled to an earned income tax credit (EITC) under I.R.C. §32. The Service reasoned that Section 32(d) provides that a married taxpayer who does not file a joint return is not entitled to an EITC. Because the tax court did not mention of § 32(d) in its opinion, the Service reasoned that the court overlooked the prohibition disallowing the EITC to married taxpayers filing separately. As such, the Service will not follow the court’s opinion in Tsehay in allowing an EITC to a married taxpayer filing separately.

Morgan Holcomb
Mitchell Hamline School of Law

Jessica Dahlberg
Grant Thornton



Non-compete agreements; contractual remedy provisions. Plaintiff filed suit against defendants, its former employee, and new employer, asserting claims for breach of a non-compete agreement and tortious interference with contract, respectively. Plaintiff initially sought injunctive relief, monetary damages, and attorneys’ fees against the former employee, as well as monetary damages and attorney fees against the new employer. At trial, however, plaintiff withdrew its claim for monetary damages against the former employee, and the parties stipulated that the attorneys’ fees claim would be resolved after the jury returned its verdict.

After trial, the jury returned a verdict finding: (1) the former employee did breach his non-compete agreement; but (2) the new employer did not intentionally cause the breach of contract. In response to post-trial motions, the district court refused to grant any injunctive relief or fees award despite an express contractual remedies provision in the agreement calling for injunctive relief upon a showing of breach and a fee award to the prevailing party, holding that plaintiff “failed to establish at trial that it had suffered irreparable harm.” The district court also rejected plaintiff’s claim for fees on the grounds that it had been waived.

The Minnesota Court of Appeals reversed. The court initially held that the district court erred by failing to impose injunctive relief. In so holding, the court emphasized the agreement’s contractual remedies provision, stating that “Employee recognizes that irreparable injury will result to [plaintiff] and that [plaintiff] shall be entitled to an injunction.” The court held the “district court’s failure to recognize the enforceability of the remedies provision in its analysis renders that provision meaningless and constitutes reversible error.” The court also reversed the district court’s decision with regard to attorneys’ fees and remanded for a determination of the terms of any injunctive relief and the amount of fees. (Disclosure: The author’s firm successfully represented the appellants in this matter.) St. Jude Medical, Inc. v. Carter, A16-2015 (Minn. Ct. App. 7/10/2017).

Jeff Mulder
Bassford Remele


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