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

Notes & Trends – September 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.

CRIMINAL LAW
JUDICIAL LAW

Confrontation clause: Medical report coincidental to criminal investigation not testimonial statement. During appellant’s trial for domestic and third-degree assault, the state introduced a radiologist’s report confirming that the victim’s nose was broken. On appeal, appellant argues that admission of the report violated his right to confront witnesses.

Held, the radiological report was not testimonial in nature, so appellant’s right to confront witnesses was not implicated by its admission. Under the confrontation clause, a district court may admit testimonial evidence only if the declarant is unavailable and if the defendant had a prior opportunity to cross-examine the declarant. The radiological report was not testimonial. The report was created at nearly the same time the criminal investigation began, and appellant had not yet been arrested or charged. The report was also standard practice for providing treatment and not created for the purpose of providing evidence in litigation. Appellant’s conviction is affirmed. State v. Travis Clay Andersen, Ct. App. 7/3/2017.

Jury instructions: Justifiable taking of life instruction not proper when defendant claims accidental death as result of self-defense. During its final instructions to the jury in appellant’s second-degree intentional murder and second-degree felony murder trial, the district court gave the jury CRIMJIG 7.06, an instruction on self-defense—justifiable taking of life. The jury found appellant guilty of the felony murder charge. Appellant argues that the district court erred by giving the jury the justifiable taking of life instruction, rather than the general self-defense instruction (CRIMJIG 7.05).

The Minnesota Supreme Court has repeatedly held that it is error to provide the justifiable taking of life instruction, instead of the general self-defense instruction, when the defendant asserts self-defense but claims that the death was not the intended result. Minn. Stat. §609.065, on which CRIMJIG 7.06 is based, applies only to the “intentional taking of the life of another.” As the state acknowledges, appellant never claimed that she intended to kill the victim, so CRIMJIG 7.06 was inappropriate and misstated the law on self-defense as it applies to the facts of this case. The Court cannot conclude that the erroneous instruction was harmless beyond a reasonable doubt, so the case is reversed and remanded for a new trial. State v. Natalie Jonelle Pollard, Ct. App. 7/10/2017.

• Jury instructions: Any error in “theft by false representation” instruction was harmless beyond a reasonable doubt. Appellant was convicted of two counts of theft by false representation for submitting timesheets and receiving payments for personal care services she did not perform. Consistent with the CRIMJIGs, the jury was instructed that the state had to prove that appellant “knew or believed that the representation was false.” Appellant argued the jury should have been required to find that appellant “knew or believed that the representation was false, done with intent to defraud.” The jury found appellant guilty on both counts.

Intent to defraud is an element of theft by false representation. However, the Supreme Court declines to decide whether the instructions in this case were erroneous, because, even assuming error, the Court finds that the error was harmless. Under the undisputed facts, appellant did knowingly make false representations with an intent to defraud. Appellant’s convictions are affirmed. State v. Tammy Jo Schoenrock, Sup. Ct. 7/27/2017.

• Restitution: Rules of evidence apply to restitution hearings. Both the district court and court of appeals previously ruled that the Rules of Evidence do not apply to restitution hearings. The court of appeals reasoned that restitution is part of sentencing, and sentencing is exempted from the Rules of Evidence by Rule 1101.

The Rules of Evidence apply to all proceedings except those discussed in Rule 1101(b). Under clause 3 of that paragraph, “sentencing” is listed as a “miscellaneous proceeding” to which the rules do not apply. The Supreme Court disagrees that restitution hearings fall within Rule 1101(b)(3)’s reference to sentencing. While restitution is part of a criminal sentence, a restitution hearing is separate from sentencing, as it “involves the presentation of evidence that is relevant to a factual dispute regarding the proper amount or type of restitution.” This does not fit within the definition of sentencing adopted by the Court in State v. Sanchez-Sanchez, 879 N.W.2d 324, 330 (Minn. 2016) (“the proceeding at which a judge listens to the parties’ sentencing arguments; considers all the relevant facts…; and then announces the sentence”).

Restitution hearings are not otherwise referenced in Rule 1101(b). Because Rule 1101(b) does not preclude their application to restitution hearings, the Rules of Evidence do apply to such hearings. State v. Berry Alan Willis, Sup. Ct. 7/12/2017.

• Search and seizure: Property manager may consent to search of leased premises only if manager has right of mutual use of property. Police were called to an apartment building by a maintenance technician after he and the property manager were invited into an apartment to investigate a water leak and observed drug paraphernalia. When the police arrived, the manager and maintenance technician re-entered the apartment, relying on a lease agreement clause allowing management to enter for maintenance purposes. The apartment was empty, and the manager told police they could enter. Police applied for a search warrant after also observing drug paraphernalia. While waiting for the warrant, appellant rang the security buzzer and an officer buzzed him into the building and then let him into the apartment. Appellant was arrested for obstructing legal process after yelling to someone else who knocked on the door, “They’re doing a search warrant in here.” During a search of his person, police found methamphetamine.

First, the court of appeals holds that the property manager did not have actual authority under the lease to consent to law enforcement’s entry into the apartment. A person with actual authority may give consent to a warrantless search, but actual authority exists only if a third party has rights of mutual use of the property, per State v. Licari, 659 N.W.2d 243 (Minn. 2003). The lease in this case merely gave the property manager a right to enter, but not a right of mutual use.

Second, the Court also holds that Minn. Stat. §540B.211 also did not give the property manager actual authority to consent to entry of the apartment. Under that section, a landlord may enter a unit for reasonable business purposes if proper notice is given. Notice is not required if immediate entry is necessary to prevent injury to persons or property, to determine a residential tenant’s safety, or to comply with local ordinances regarding unlawful activity. Section 540B.211, therefore, confers only rights to access the property for limited purposes, not the right of mutual use required under Licari.

Finally, the court rejects the state’s arguments that the warrantless search was supported by exigent circumstances and that the drugs are admissible under the inevitable discovery doctrine. Appellant’s conviction is reversed. State v. Blake Joseph Dotson, Ct. App. 7/17/2017.

• DWI: Gross misdemeanor CVO resulting in bodily harm not a qualifying offense for DWI enhancement. Appellant has multiple arrests and convictions for impaired driving. He was charged again with DWI in 2010, specifically two counts of first-degree DWI, which required the state to prove the 2010 offense occurred within 10 years of the first of three or more qualified prior impaired driving incidents. The parties agreed on two of appellant’s prior convictions, but disagreed whether his 2005 conviction for criminal vehicular operation (CVO) resulting in bodily harm was a qualified prior impaired driving incident. The court of appeals held that, even though the version of CVO for which appellant was convicted in 2005 is omitted from the list of qualifying prior impaired driving incidents, the evidence was sufficient to convict appellant, because excluding his 2005 conviction from the list of qualifying offenses would lead to an absurd result.

Held, appellant’s 2005 CVO conviction is not included in the list of qualifying statutory offenses, and, thus, the evidence was insufficient to convict appellant of first-degree DWI. Minn. Stat. §169A.03, subd. 20, provides a detailed and exhaustive list of offenses that qualify as prior impaired driving convictions. Appellant’s 2005 CVO offense is not included in the list. For that reason, the evidence was not sufficient to convict appellant of first-degree DWI, because, without the 2005 conviction, he did not have three or more prior impaired driving incidents. State v. Ryan Leroy Smith, Sup. Ct. 7/19/2017.

• Drug Sentencing Reform Act: Resentencing under DSRA required for defendant whose conviction not yet final on act’s effective date. While appellant’s first-degree controlled substance conviction was on appeal, the Drug Sentencing Reform Act (DSRA) took effect, which reduced the presumptive guideline sentencing range for appellant’s offense.

Under the amelioration doctrine, an amended criminal statute applies to crimes committed before its effective date if: (1) there is no statement by the Legislature that clearly establishes the Legislature’s intent to abrogate the ameliorative doctrine; (2) the amendment mitigates punishment; and (3) final judgment has not been entered when the amendment takes effect.

Final judgment had not been entered in appellant’s case when the DSRA took effect. There was also no statement clearly showing the Legislature’s intent that the DSRA’s presumptive sentencing range changes not apply to crimes committed prior to the Act’s effective date. The section of the DSRA that reduced the presumptive sentencing ranges for first-degree controlled substance crimes became “effective the day following final enactment,” 5/22/2016. A similar statement regarding the effective date was interpreted in State v. Coolidge, 282 N.W.2d 511 (Minn. 1979), to not abrogate the common law ameliorative doctrine, and the Legislature has included clear statements of intent to abrogate the doctrine in other statutes and even other sections of the DSRA.

The DSRA also reduced the presumptive sentences from those in the sentencing grid under which appellant was sentenced, so the amendment to the presumptive guideline ranges clearly mitigates punishment, as does the DSRA as a whole. Appellant must be resentenced under the DSRA-amended sentencing grid. State v. Michael William Kirby, Sup. Ct. 7/26/2017.

• Drug Sentencing Reform Act: Reversal of drug conviction not warranted for offense for which DSRA increased weight threshold. While appellant’s first-degree controlled substance conviction was on appeal, the Drug Sentencing Reform Act (DSRA) took effect. The Supreme Court considers whether appellant’s conviction should be reversed because the DSRA increased the controlled substance weight threshold for the offense. Held, the plain language of the DSRA forbids application of the increased weight threshold to offenses committed prior to 8/1/2016. Appellant’s offense was committed prior to this date, so he is not entitled to a reversal of his conviction. However, for the reasons discussed in Kirby, appellant must be resentenced under the DSRA-amended sentencing grid. State v. Travis Richard Otto, Sup. Ct. 7/26/2017.

• Firearms: To carry pistol, under Minn. Stat. §624.7142, must be physical nexus between pistol and person or person’s clothes. Police conducted an inventory search of respondent’s vehicle following his arrest for DWI, during which they found a loaded handgun in the center console. Respondent was charged with carrying a pistol while under the influence of alcohol, but the district court granted respondent’s motion to dismiss for lack of probable cause, because the statute’s prohibition did not extend to the pistol in the center console.

Minn. Stat. §624.7142, subd. 1, subp. 4, prohibits carrying a pistol “on or about the person’s clothes or person in a public place” while under the influence of alcohol. Looking to the plain language of the statute, the court of appeals finds that it prohibits only carrying a pistol on or about the person’s clothes or person, unlike Minn. Stat. §624.714, which specifically prohibits carrying, holding, or possessing a pistol in a motor vehicle.

Held, the phrase “to carry a pistol on or about the person’s clothes or person” in Minn. Stat. § 624.7142, subd. 1, subp. 4, requires a physical nexus between the person or the person’s clothes and the pistol. There was no physical nexus between respondent and his pistol, so the district court properly dismissed the charge. State v. Christopher Michael Prigge, Ct. App. 7/27/2017.

Frederic Bruno 

Bruno Law

Samantha Foertsch

Bruno Law

EMPLOYMENT & LABOR LAW
JUDICIAL LAW

• Work injury; foreseeability warrants remand. A sharply divided decision of the Minnesota Supreme Court reversed and remanded summary judgment against an employee injured at work by an alleged defective product on grounds that the injury was deemed not foreseeable by the lower courts. Although usually decided by the court, because this was a “closed case,” that issue should be submitted to a jury. Montemayor v. Sebright Prods., 2017, Minn. LEXIS 415 (Minn. 7/12/2017).

• Labor law; disputes are arbitrable. Disagreements regarding a court’s duty to negotiate particular issues under collective bargaining with a union were subject to arbitration, not as an unfair labor practice under the Public Employment Labor Relations Act (PELRA), § 179A.01, et seq. The court of appeals upheld a ruling of the Itasca County District Court refusing to exercise jurisdiction over the arbitral disputes. Itasca County v. Teamsters Local 320, 2017 Minn. App. LEXIS 559 (Minn. App. 6/26/2017) (unpublished).

• Joint employers; officer dismissed; verdict upheld. The officer of two related companies was dismissed from a verdict for unpaid wages and attorney’s fees, but the two joint employers were deemed liable. The court of appeals upheld about $4,300 in back wages and statutory penalty and an award of attorney’s fees in excess of $50,000 against the joint employers. Kennedy v. Kwik Kargo, Inc., 2017 Minn. App. LEXIS 619 (Minn. App. 7/17/2017) (unpublished).

• Noncompete contract; enforcement remanded. A refusal by the trial court to order any remedies against an employee found by a jury to have breached his obligation under a noncompete contact was erroneous. The appellate court reversed and remanded for the trial court to consider “appropriate injunctive relief” under the contract or “equitable relief in its own discretion.” St. Jude Med., Inc., v. Carter, 2017 Minn. App. LEXIS 88 (Minn. App. 7/10/2017) (unpublished). 

• Unemployment compensation; tardiness bars benefits. Repeated tardiness and taking days off without required advance notice precluded unemployment compensation benefits. The appellate court upheld an administrative determination of disqualifying “misconduct.” Cook v. Pelican Biothermal, LLC, 2107 Minn. App. LEXIS 557 (Minn. App. 6/26/2017) (unpublished).

• Unemployment compensation; racial comment. A derogatory racial comment by an employee to his supervisor cost him unemployment benefits. The court of appeals held that the inappropriate remark constituted disqualifying “misconduct.” Winter v. Manpower, Inc., 2017 Minn. App. LEXIS 608 (Minn. App. 7/17/2017) (unpublished).

• Unemployment compensation; false statements. A penalty was properly assessed against an applicant for making a false statement about her work availability. The appellate court held that making the false statement justified a penalty of 13-week denial of benefits. Jacobson v. Dep’t of Empl. & Econ. Dev., 2017 Minn. App. LEXIS 598 (Minn. App. 7/17/2017) (unpublished).

LEGISLATION

Several changes have been made by the Legislature and approved by Governor 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

ENVIRONMENTAL LAW
JUDICIAL LAW

• Minnesota Court of Appeals holds, as matter of first impression, that federal NPDES permit exemption for water transfers is inapplicable in Minnesota. In June, the Minnesota Court of Appeals reversed the Minnesota Department of Natural Resources’ (DNR) issuance to itself of a public waters work permit to lower the runout elevation of Hoffman Lake into West McDonald Lake, near Perham, Minnesota. The two lakes are adjacent to each other, separated by a narrow strip of land that acts as an outlet when the water level in Hoffman Lake exceeds the existing runout elevation. In October 2015, the Hoffman Lake Association (HLA) petitioned DNR to lower the elevation of Hoffman Lake by two feet. In March 2016, DNR applied to its ecological and water resources division for a public waters work permit to widen the existing outlet channel between the two lakes. In August 2016, after receiving comments from various parties including the Minnesota Pollution Control Agency (MPCA), HLA, and the West McDonald Lake Association (WMLA), DNR issued itself the permit. Shortly thereafter, WMLA petitioned the court of appeals for a writ of certiorari, and DNR agreed to a voluntary stay of the permit, pending conclusion of the appeal.

The court reversed DNR’s decision to grant the permit on two primary bases. First, the court held DNR had not satisfied the five required criteria in Minn. R. 6115.0220, subp. 5 for approving a public waters work permit to construct a water-level control structure. In particular, the court found DNR failed to demonstrate that the more polluted water of Hoffman Lake would not compromise the higher water quality of West McDonald Lake. The DNR’s argument that it relied on the opinion of the MPCA with regard to water quality impacts was unavailing. Although DNR may generally rely upon an official comment from another state agency without further review, the court held, in this instance, MPCA’s comment—based on a self-described “cursory” review with equivocal conclusions regarding water quality impacts—did not provide an adequate basis for the DNR’s determination.

The court’s second basis for reversing DNR’s decision to grant the permit was that the DNR violated state regulations by failing to obtain a National Pollutant Discharge Elimination System (NPDES) permit. Under the broadly framed relevant definitions, the court held that DNR’s proposed transfer of water from Hoffman Lake to West McDonald Lake constituted a “discharge” to state waters of one or more “pollutants” from a “point source” and thus was prohibited without an NPDES permit. Nor was the transfer exempt from NPDES permitting as a “water transfer,” as DNR argued. Ruling on a matter of first impression, the court held that the federal water-transfer rule, 40 C.F.R. §122.3(i), is not an exemption incorporated by reference in Minnesota’s NPDES program, pursuant to Minn. R. 7001.1030; therefore, the federal water-transfer rule does not apply in Minnesota. West McDonald Lake Ass’n v. Minn. Dep’t of Natural Res., 2017 WL 2625563 (N.W.2d 6/19/2017).

• Minnesota Court of Appeals affirms denial of EAW petition. The Minnesota Court of Appeals affirmed a decision of the Wabasha County Board of Commissioners to deny a petition for an environmental assessment worksheet (EAW) for a proposed agronomy center. The plaintiff, as representative for a citizen group, submitted a petition to the board contending that the project had the potential to cause significant environmental impacts, including potential release of hazardous chemicals, decreased air quality, increased traffic, noise, stormwater runoff, odors, possible theft of anhydrous ammonia, and negative impact on wildlife. The board denied the petition and the plaintiff appealed. Citing Watab Twp. Citizen All. v. Benton Cty. Bd. of Comm’rs, 728 N.W.2d 82, 89 (Minn. App. 2007), review denied (Minn. 5/15/2007), the court affirmed the board’s determination that the petition failed to provide “material evidence that the project may have the potential for significant environmental effects.” In particular, the court noted that the plaintiff’s petition focused on potential environmental effects if a spill or leak occurred during transit to or away from the facility, but presented no evidence suggesting such spills were likely. Moreover, the court agreed with the board that the potential environmental effects would be subject to “mitigation by ongoing public regulatory authority.” Minn. R. 4410.1700, subp. 7(C). Wescott v Wabasha County Board of Commissioners, No. A16–1358, 2017 WL 2729597 (Minn. Ct. App. Minn. Ct. App. 6/26/2017).

ADMINISTRATIVE ACTION

• EPA and Corps propose restoring pre-2015 definition of “waters of the United States.” In July the U.S. Army Corps of Engineers and the U.S. Environmental Protection Agency issued a proposed rule that would re-codify the definition of ‘‘waters of the United States.” In 2015, EPA and the Corps issued a long-awaited revised definition of “waters of the United States,” a term that establishes the jurisdictional reach of various programs under the Clean Water Act, including the NPDES and Section 404 permit programs. However, the U.S. Court of Appeals for the 6th Circuit stayed the new definition pending resolution of litigation challenging the rule. In the interim, the agencies have been applying the prior rule, as interpreted in a series of agency guidance documents and Supreme Court decisions including Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers, 531 U.S. 159 (2001) and Rapanos v. United States, 547 U.S. 715 (2006). The proposed rule would remove the 2015 definition from the federal regulations and reinstate the prior rule.

This rulemaking is responsive to an executive order President Trump issued on 2/28/2017, entitled “Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the ‘Waters of the United States’ Rule.” Section 1 of the order states, “It is in the national interest to ensure that the Nation’s navigable waters are kept free from pollution, while at the same time promoting economic growth, minimizing regulatory uncertainty, and showing due regard for the roles of the Congress and the States under the Constitution.” It directs the EPA and the Corps to review the 2015 rule for consistency with the policy outlined in section 1 and to issue a proposed rule rescinding or revising the 2015 rule as appropriate and consistent with law. The executive order also directs the agencies to consider interpreting the term “navigable waters” in a manner consistent with Justice Scalia’s plurality opinion in Rapanos, which would likely result in a narrower jurisdictional scope than that prescribed by the 2015 rule. The proposed rulemaking is the first step in a two-step response to the executive order. The second step (not yet proposed) would involve a substantive review of the appropriate scope of “waters of the United States.” 82 Fed. Reg. 34899 (7/27/2017). 

Jeremy P. Greenhouse & Jake Beckstrom 

The Environmental Law Group, Ltd.

 

FEDERAL PRACTICE
JUDICIAL LAW

• Class actions; statute of repose; tolling. The Supreme Court held that the class action statute of limitations tolling rule established in American Pipe & Construction Co. v. Utah (414 U.S. 538 (1974)) does not apply to a statute of repose, meaning that the plaintiff’s securities law claims were untimely when they were filed more than three years after the claims arose. Four dissenters argued that the plaintiff’s decision to opt out of the class should not have “cut off” its right to pursue its claims individually. Cal. Pub. Emp. Ret. Sys. v. ANZ Sec., 137 S. Ct. 2042 (2017).

• Arbitration; court determines the right to class arbitration. Deciding an issue of first impression in the circuit, the 8th Circuit held that the issue of whether an arbitration agreement authorizes class arbitration is a “substantive” question to be determined by a court absent “clear and unmistakable language to the contrary” in the arbitration agreement.

The 8th Circuit also rejected the defendants’ reliance on previous decisions in which the 8th Circuit had held that arbitration agreements that incorporated AAA rules offered the required “clear and unmistakable” evidence that the parties intended to have an arbitrator decide the threshold issue of class arbitrability, limiting the scope of those decisions to “bilateral” arbitration agreements. Catamaran Corp. v. Towncrest Pharm., ___ F.3d ___ (8th Cir. 2017).

• Class actions; “fair, reasonable and adequate” settlement; timing of fees motion. Despite expressing “some concern” over a district court’s “failure to follow the clearly expressed procedural law of the circuit” requiring the evaluation of four factors to determine whether a class action settlement is “fair, reasonable and adequate,” the 8th Circuit affirmed the district court’s approval of a class action settlement.

The 8th Circuit also found that while the district court had erred in setting the deadline for objections to the settlement prior to the filing of class counsel’s motion for fees, that error was harmless. Keil v. Lopez, 862 F.3d 685 (8th Cir. 2017).

• Injunctive relief; prevailing party; attorney’s fees. Despite finding that the defendant’s appeal from the merits of a permanent injunction was moot where the purpose for the injunctive relief had passed, the 8th Circuit held that the party that obtained the injunction was a prevailing party entitled to an award of attorney’s fees. Planned Parenthood Great Plains v. Williams, ___ F.3d ___ (8th Cir. 2017).

• Fed. R. Civ. P. 11, inherent power sanctions and reprimands; sanctions arising out of forum shopping reversed. The 8th Circuit reversed Rule 11 and inherent powers sanctions imposed against numerous counsel for the plaintiffs and the defendants following the stipulated dismissal of a federal action and the refiling of the action in a state court, finding that the parties did not engage in sanctionable conduct by seeking a more favorable forum. Adams v. USAA Cas. Ins. Co., ___ F.3d ___ (8th Cir. 2017).

• Lack of service of process; claims dismissed with prejudice. Where the individual defendants prevailed on their motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(5), meaning that they had not been properly served two and a half years after the action was commenced, Judge Davis dismissed those claims with prejudice, finding that the plaintiff had failed to argue good cause for its failure to complete service and had offered no evidence of excusable neglect. J&J Sports Prods., Inc. v. Tovar, 2017 WL 2984108 (D. Minn. 7/12/2017).

• Multiple procedural decisions in the NHL concussion litigation. Judge Nelson awarded a third party more than $96,000 in attorney’s fees and costs arising out of a motion to compel pursuant to Fed. R. Civ. P. 37(a)(5), finding that much of the NHL’s motion to compel was not substantially justified. In Re: NHL Players’ Concussion Injury Litig., 2017 WL 3276873 (D. Minn. 7/31/2017).

Judge Nelson also denied the NHL’s request for leave to bring a summary judgment motion prior to a ruling on plaintiffs’ motion for class certification, finding that the “most appropriate approach” is for “consolidated” summary judgment motions to be filed after the issue of class certification is resolved. In Re: NHL Players’ Concussion Injury Litig., 2017 WL 3141921 (D. Minn. 7/24/2017).

While acknowledging her “inherent authority and broad discretion to exclude cumulative expert testimony,” Judge Nelson denied the bulk of the plaintiffs’ “Motion to Exclude Declarations of Defendant’s Experts for Purposes of Plaintiffs’ Motion for Class Certification,” finding that any “overlap or duplication is insufficient to justify exclusion of all or portions of the expert declarations.” In Re: NHL Players’ Concussion Injury Litig., 2017 WL 3142399 (D. Minn. 7/25/2017).

• Motion to dismiss for lack of personal jurisdiction denied; jurisdictional discovery permitted. Chief Judge Tunheim adopted a report and recommendation by Magistrate Judge Thorson that had recommended denying one defendant’s motion to dismiss for lack of personal jurisdiction without prejudice and permitting “very limited” jurisdictional discovery, while at the same time criticizing plaintiff’s counsel for “inexplicably” failing to conduct any jurisdictional discovery prior to the ruling on the motion. Witt v. TFS Surgical (US), Inc., 2017 WL 3267734 (D. Minn. 7/12/2017), report and recommendation adopted, 2017 WL 3267706 (D. Minn. 7/31/2017).

• Recent controversies about the amount in controversy. Chief Judge Tunheim denied a motion to dismiss a diversity action arising out of the alleged breach of a non-compete agreement for lack of subject matter jurisdiction, finding that it did “not stretch the imagination” that the alleged breach of the non-compete could lead to “hundreds of thousands of dollars” in damages, meaning that it was “not legally certain” that the plaintiff’s damages would not exceed $75,000, and also rejected the defendants’ argument that future attorney’s fees should not be considered when determining the amount in controversy. Mobile Mini, Inc. v. Vevea, 2017 WL 3172712 (D. Minn. 7/25/2017).

Two days later, Judge Magnuson remanded a case sua sponte, finding that he lacked subject matter jurisdiction where the plaintiff’s complaint sought “an amount in excess of Fifty Thousand Dollars ($50,000.00),” and the defendant’s notice of removal offered nothing to suggest that the amount in controversy exceeded $75,000. Carlson-Oesterich v. Am. Family Mut. Ins. Co., 2017 WL 3207707 (D. Minn. 7/27/2017).

That same week, Judge Doty denied a motion to remand in a mortgage foreclosure dispute, rejecting the plaintiffs’ argument that the amount in controversy should be measured by the market value of the home less the outstanding balance on the mortgage, and instead determining the both the fair market value of the property and the outstanding debt exceeded $75,000. Helvig v. Ocwen Loan Serv., LLC, 2017 WL 3130373 (D. Minn. 7/24/2017).

• 28 U.S.C. §1927; motion for sanctions denied. Adopting a report and recommendation by Magistrate Judge Leung, Judge Davis denied the defendant’s motion for sanctions under 28 U.S.C. §1927. Magistrate Judge Leung had determined that although “ultimately unsuccessful,” counsel had not acted “unreasonably or vexatiously.” Hillesheim v. Buzz Salons, LLC, 2017 WL 3172870 (D. Minn. 6/19/2017), report and recommendation adopted, 2017 WL 3172751 (D. Minn. 7/25/2017).

Josh Jacobson

Law Office of Josh Jacobson 

 

INDIAN LAW
JUDICIAL LAW

• Forum-selection clause precludes tribal-court exhaustion. An oil-and-gas producer assigned royalty interests in certain North Dakota oil and gas leases to a tribal member. In the assignment documents, the parties agreed to resolve all disputes in federal court. The producer later overpaid the member and demanded repayment. The member sued the producer in tribal court, alleging that the producer underpaid. The producer counter-sued in federal court, alleging that it overpaid and seeking to enjoin the tribal court suit for lack of jurisdiction.

The district court preliminarily enjoined the member from prosecuting his suit in tribal court. On appeal, the member argued that under the tribal-court-exhaustion rule, the tribal court should be given first opportunity to determine its own jurisdiction. Specifically, he argued that the district court erred by failing to consider the public interest in tribal sovereignty and by giving more weight to the forum selection clause. The 8th Circuit concluded that “tribal court exhaustion does not apply when the contracting parties have included a forum selection clause in their agreement.” Enerplus Resources (USA) Corporation, Wilkinson, ___ F.3d ___ (8th Cir. 2017).

• Claim under “bad men” clause required administrative exhaustion. A prisoner sued the United States under the 1868 Fort Laramie Sioux Treaty’s “bad men” clause, which was intended to protect Indians from unscrupulous white men. He claimed that corrections officers failed to complete certain paperwork necessary to continue his detainment and that his continued unlawful detainment was due to a “conspired and concerted effort” on the part of the corrections officials.

The district court dismissed the suit. On appeal, the federal circuit noted that the bad men clause required the prisoner to submit “proof made to the agent and forwarded to the Commissioner of Indian Affairs.” That provision, the federal circuit concluded, required the prisoner to at least give notice to the Secretary of the Interior of his claim or his intent to sue. Flying Horse v. United States, ___ Fed. App’x ___ (Fed. Cir. 2017).

• Doctrine of primary jurisdiction requires Secretary of the Interior to first determine an Indian tribe’s recognition status before tribe can bring federal claims predicated on recognition. Under an 1855 treaty, the United States agreed to hold burial grounds in trust for a historic tribe. Since then, the United States has held title to the burial grounds and collected monies for easements over the grounds. Under an 1867 treaty, the United States promised to pay money to settle its previous treaty obligations to the tribe. The United States claimed to have distributed that money in 1888, but has continued to hold title to the burial grounds and collected monies for easements over the grounds. In 2015, a modern-day Indian tribe sued, alleging that the United States owed money collected for easements on the burial grounds, as well as money under the 1867 treaty. That tribe is currently petitioning the Secretary of the Interior for federal recognition.

The district court dismissed the suit. On appeal, the federal circuit affirmed, but for different reasons. In particular, the court noted that the tribe’s claim for monies collected under easements over the burial grounds depended on federal recognition of the tribe. The court determined that the secretary has primary jurisdiction to determine an Indian tribe’s recognition status and ruled that the secretary must do so before a federal court could resolve claims dependent on a tribe’s recognition. The court concluded that the suit must be dismissed until the secretary makes a final decision on the tribe’s petition. Wyandot Nation of Kansas v. United States, 858 F.3d 1392 (Fed. Cir. 2017).

Jessica Intermill 

Hogen Adams PLLC

Peter J. Rademacher

Hogen Adams PLLC

 

INTELLECTUAL PROPERTY
JUDICIAL LAW

• Patents: Granting motion to dismiss based on first-filed action. Magistrate Judge Bowbeer recently dismissed a patent lawsuit based on the first-filed rule in favor of an earlier filed declaratory judgment action involving the same patents. QFO owns patents on hovercrafts. QFO sent a cease-and-desist letter to Parrot alleging that it was infringing QFO’s patents. Parrot filed a declaratory judgment action against QFO in Delaware. Two months later, QFO filed a patent infringement action against Parrot in Minnesota. Both complaints concerned the same QFO patents. Parrot moved to dismiss the Minnesota action based on its earlier declaratory judgment action in Delaware citing the first-filed rule. The “first-filed rule” favors hearing only the first-filed action when multiple lawsuits involving substantially similar claims are filed in different jurisdictions to avoid conflicting decisions and promote judicial efficiency. However, there are exceptions. QFO argued that Parrot’s declaratory judgment action in Delaware was anticipatory and, therefore, an exception to the first-filed rule. The court, however, found that Parrot’s declaratory judgment action was not anticipatory, finding: (1) QFO never specified a resolution deadline for Parrot to undermine; (2) multiple lawsuit threats are insufficient without a specified associated date; (3) two years of unbounded negotiations yields no filing immediacy; (4) nothing indicated a potential QFO lawsuit when Parrot filed; and (5) QFO’s suit was filed two months after Parrot’s lawsuit. QFO Labs, Inc. v. Parrot, Inc., No. 16-cv-3443(JRT/HB), 2017 U.S. Dist. LEXIS 94609 (D. Minn., 6/19/2017).

• Trade secrets: Misappropriation of trade secrets claim appropriately pled. Chief Judge Tunheim recently refused to dismiss trade secret misappropriation claims because facts were adequately pled under the Defend Trade Secrets Act and Ohio law. Deluxe Financial Services sued Brian Shaw and Harland Clarke Corp., accusing them of misappropriating trade secrets involving confidential sales information. Shaw was formerly employed by Deluxe for many years. He left Deluxe and eventually went to work for Harland Clarke, a direct competitor of Deluxe. Deluxe sued both Shaw and his new employer alleging that defendants used confidential sales information about a certain client to win the bid over Deluxe. Defendants brought a motion to dismiss the misappropriation of trade secret claims arguing that Deluxe failed to allege specific facts supporting the existence of a trade secret and misappropriation.

The court disagreed as to both. First, the court found that Deluxe adequately alleged facts to support the existence of a trade secret because it alleged that the confidential sales information was not publicly available, was significantly valuable to competitors, and was protected by Deluxe as a trade secret through employee training and various policies, such as an internal classification and guideline for confidential information. The court also found sufficient facts alleged to support the misappropriation allegation: Shaw had access to the confidential sales information, acquired it by improper means (through email and USB drives) and Shaw used that information at Harland Clarke to win the bid against Deluxe. Deluxe Fin. Serv., LLC v. Brian S. Shaw, No. 16-3065(JRT/HB), 2017 U.S. Dist. LEXIS 122795 (D. Minn., 8/3/2017).

Tony Zeuli & Rachel Hammond

Merchant & Gould

REAL PROPERTY
JUDICIAL LAW

• Rental property; substantive due process; unreasonable searches and seizures. Owner of historically unmanageable rental property brought suit against the city claiming the city’s targeted enforcement measures against his properties constituted a substantive due process violation under 42 U.S.C. §1983, and that police officer’s entry into his apartment complex’s common areas to find housing code violations constituted unreasonable searches and seizures under the 4th Amendment. The district court granted summary judgment in favor of the city and the 8th Circuit affirmed. The 8th Circuit noted that substantive due process violations are properly reserved for truly egregious and extraordinary cases, and that targeting a rental property owner with an extensive history of persistent, disproportionate housing and safety code problems did not rise to the level of egregious or extraordinary, nor does it shock the conscience of the court. The 8th Circuit also held that police officers entering common areas of apartment complexes to look for housing code violations did not violate the 4th Amendment because the property owner had no objective expectation of privacy in an area accessible and available to the building’s residents, residents’ guests, agents, and other passing through with an express or implied license. Azam v. City of Columbia Heights, ___ N.W.2d ___, 2017 WL 3221289 (8th Cir. 2017).

• Rental license application; due process. Property owner had his rental license revoked and was ineligible under city ordinance to obtain another rental license for a period of three years from the date his previous license was revoked. Property owner applied for another rental license approximately one year after his previous rental license was revoked and his application was denied based on the three-year ordinance. Property owner appealed and claimed his due process rights were violated because he did not have an opportunity to be heard at a hearing before an administrative hearing officer. The court of appeals affirmed and noted that the record revealed that the property owner appeared at the hearing, cross-examined witnesses, and made arguments. The fact that the hearing officer did not adopt his proposed findings and ruled against him is not evidence that the property owner’s due process rights were violated. Any argument that the revocation of the previous rental license was made in error was outside of the scope of the appeal because the revocation of the property owner’s rental license was not timely appealed, and therefore, not properly before the court. Matter of Property Located at 5420 44th Avenue S. Located in Minneapolis owned by Kapacs, ___ F.3d ___, 2017 WL 3221731 (Minn. Ct. App. 2017).

Michael Kreun

Beisel & Dunlevy PA

 

TAX
JUDICIAL LAW

• Payroll tax: 8th Circuit reverses in RRTA case. Rail carriers and their employees are subject to a payroll taxing regime similar to the FICA tax regime. The Railroad Retirement Tax Act (RRTA) requires railroad companies and railroad employees to remit certain taxes, and the monies collected are used to fund benefits under the Railroad Retirement Act (RRA). This longstanding act (which has gone through three iterations) was originally enacted to stabilize the railroad industry’s private pension plans during the Depression. Currently, as the circuit court described, “the RRA and RRTA resemble both a social welfare plan and a private pension program; one tier of benefits and taxes corresponds to what one would expect to receive from and to pay for Social Security and Medicare, while the other tier ties benefits to earnings and career service.” In this dispute, a railroad company sought refunds of nearly $75 million in taxes that it paid under the Railroad Retirement Tax Act. The railroad argued that it was not required to pay RRTA taxes when it compensated employees in stock or certain other non-cash payments.

The district court rejected the refund requests and granted summary judgment to the government. Focusing its analysis with the plain language of the statute, the 8th Circuit reversed. In particular, the Court reasoned, RRTA tax is based on an employee’s “compensation,” which is generally defined as “any form of money remuneration paid to an individual for services rendered as an employee to one or more employers.” 26 U.S.C. §3231(e)(1) (emphasis added). In contrast, FICA levies a tax on an employee’s “wages,” which are “all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash.” 26 U.S.C. §3121(a) (emphasis added). The court was convinced that the variation between “all remuneration” and “money remuneration” was a distinction with a difference—the language in the FICA statute swept broadly enough to encompass wages paid in the form of stocks; that of the RRTA did not. This difference in statutory language, coupled with the court’s analysis of legislative history and statutory context, led the court to determine that the railroad had the better argument and reversed the district court. The 8th Circuit’s decision creates a split in the circuits. Union Pac. R.R. Co. v. United States, No. 16-3574, 2017 WL 3254390 (8th Cir. 8/1/2017). (Compare with Wis. Cent. Ltd. v. United States, 856 F.3d 490, 492 (7th Cir. 2017).)

• Partnership tax: Charitable deduction reduced; penalties imposed. RERI Holdings I, LLC (RERI) claimed a charitable contribution deduction of $33,019,000 for the transfer of a noncash asset to the Regents of the University of Michigan (UM). RERI donated the asset to UM to be applied toward a $5 million pledge made by Miami Dolphins owner Stephen Ross; Mr. Ross is a principal investor in RERI. RERI had acquired the asset for $3 million; the gift agreement specified that UM was to hold the asset for two years, and then sell it. In anticipation of the sale from UM, the asset was appraised at approximately $6 million. UM, under pressure from Mr. Ross, sold the asset for $2 million. The Service reduced RERI’s claimed $33,019,000 charitable contribution deduction on the ground that the contributed property was worth only $3,900,000. RERI claimed this donation was appropriate under 26 U.S. §170(a)(1), which states there shall be allowed as a deduction any charitable contribution made within the taxable year and which is verified under regulations prescribed by the Secretary. The value of the asset was determined under the valuation tables provided in 26 U.S. §7520. To determine the asset’s value, the court analyzed three factors: 1) projected cash flow, 2) growth percentage, and 3) discount rate. Using these factors, the court determined that the fair market value of the asset was $3,462,886. Under section 6662(h)(2), a property value claimed on a return results in a gross valuation misstatement if that value is 400% or more of the property’s correct value. This penalty applies if the value is under- or overstated. The court concluded RERI did not have reasonable cause for, or act in good faith with respect to, its claim of a charitable contribution deduction that resulted in the gross valuation misstatement and imposed the penalty under section 6662(h)(2). RERI Holdings I v. Comm’r, No. 9324-08 (T.C. 7/3/2017).

• Corporate tax: Foreign entity properly included in unitary business income despite water’s edge rule. Minnesota’s “water’s edge rule” provides that foreign entities be excluded from the combined report of a unitary business subject to Minnesota taxation. Minn. Stat. 290.17, subd. 4(f). A federal regulation, however, permits entities—including foreign entities—to elect to be disregarded as an entity separate from its owner. T. Reg. 301.7701-3(a). A third law, another Minnesota state law, defines “net income” as “federal taxable income… including any elections made by the taxpayer.” Minn. Stat. 290.01, sub. 19. The interaction of these three laws was at issue in this case. In particular, a foreign entity that was wholly owned by a company subject to taxation in Minnesota properly elected to be disregarded under the federal regulation. The foreign entity in this case operated at a total net loss for the tax years at issue, and the effect of the election was to reduce the parent entity’s Minnesota tax liability.

The commissioner did not dispute the impact of the election for federal tax purposes, but argued that the election did not override Minnesota’s water’s edge rule. Under the water’s edge rule the commissioner disregarded the election and excluded the foreign entity’s losses (and its income and deductions) from the Minnesota taxpayer’s combined report. With the foreign entity disregarded, the taxpayer owed additional taxes to Minnesota. The Supreme Court agreed with the taxpayer and the Minnesota Tax Court’s analysis. Harmonizing the three laws, the Supreme Court reasoned, begins with an understanding that the election under Reg. 301.7701-3(a) resulted in a deemed distribution to the parent company; in other words, the election dissolves (fictionally and for tax purposes) the foreign entity. With that understanding, the water’s edge rule is not applicable since there is no foreign entity. This legal fiction permits the determination of net income in accord with Minnesota’s definition of net income and does not contravene the water’s edge rule. The Court’s decision contradicts Minn. Rev. Notice 98-08. Ashland Inc. v. Comm’r of Revenue, No. A16-1257, 2017 WL 3272091 (Minn. 8/2/2017).

• 911 fees are taxes, not eligible for Minnesota’s False Claims Act. Minnesota’s False Claims Act, as relevant, imposes civil liability on a person who wrongfully avoids an obligation to transmit money or property to the state or a political subdivision. The MFCA, however, has a “tax bar” that prohibits MFCA claims based on tax violations. Minn. Stat. §15C.03 (providing that the MFCA “does not apply to claims, records, or statements made under portions of the Minnesota Statutes relating to taxation”). In this case, the appellant claimed that various providers of telephone, cellular, and related services failed to collect and remit a variety of fees and that such failure was a violation of the MFCA. The Minnesota Court of Appeals, agreeing with the district court, concluded that the charges were taxes and relied on the MFCA tax bar in affirming the district court’s dismissal of appellant’s claims. Phone Recovery Servs., LLC, et al. v. Qwest Corp. et. al., No. A17-0078, 2017 WL 3378870 (Minn. Ct. App. 8/7/2017).

• Filing untimely; appeals dismissed for lack of subject matter jurisdiction. Lake County Power Cooperative, Mille Lacs Energy Cooperative, and People’s Energy Cooperative (the cooperatives) each filed a tax court appeal challenging the estimated market value of certain electric operating property located in Minnesota. The commissioner moved to dismiss the appeals, asserting that they were not timely filed and that the tax court lacked subject matter jurisdiction. The Legislature adopted two distinct procedures for appealing the commissioner’s Rule 8100 utility assessments. See Minn. Stat. §273.372, subd. 1(b) (2016). First, under subdivision 2(b), the taxpayer may appeal “from an order of the commissioner.” Such an appeal is brought under chapter 271, which establishes that an appeal must be filed “within 60 days after notice of the making and filing of an order of the commissioner.” Minn. Stat. §271.06, subd. 2 (2016). In contrast, under subdivision 2(c), the taxpayer may appeal “from the tax that results from implementation of the commissioner’s order.” A property tax petition under subdivision 2(c) must be filed “on or before April 30 of the year in which the tax becomes payable.” Minn. Stat. §278.01, subd. 1(c) (2016).

The outcome of this case turned on whether the taxpayers were proceeding under subdivision 2(b) or 2(c). Although the tax court aims to construe notices of appeal in the light most favorable to the appellant, judicial construction cannot contravene a pleading’s plain meaning. The tax court determined that the cooperatives proceeded under subdivision 2(b) because the cooperatives stated they were appealing the commissioner’s order in their pleading. Thus, their appeals were governed by the 60-day filing deadline set forth in chapter 271. Because the cooperatives did not file their appeal until eleven months after the commissioner’s order, the tax court held that the cooperatives’ appeals were untimely and dismissed for lack of subject matter jurisdiction. Lake Cnty Power Coop. et al. v. Comm’r, No. 8729-R, 8730-R, 8728-R (Minn. T.C. 7/25/2017).

• Property tax; exemption from tax for institutions of purely public charity. All property is presumed taxable. However, the Minnesota Constitution exempts from taxation “institutions of purely public charity.” Minn. Const. art. X, §1. The Minnesota Constitution allows the Legislature to “define or limit the property exempt” from taxation under article X, section 1. Lakes Region EMS, Inc., which provides emergency medical services, claimed to be exempt from real property taxation under Minn. Stat. §272.02, subd. 7(a) (2016). Until 2009, however, the Legislature did not enact legislation defining “institution of purely public charity.” Rather, the meaning of “institutions of purely public charity” evolved through a series of decisions by the Minnesota Supreme Court. In 2009, in apparent response to the high court’s decision in Under the Rainbow Child Care Center, the Legislature clarified that institutions of purely public charity that are exempt from federal income taxation under section 501(c)(3) of the Internal Revenue Code are considered exempt from state property taxation if additional factors are met. Lakes Region EMS, Inc. is exempt from federal income taxation under IRC §501(c)(3), so the tax court had to determine whether an additional factor listed under Minn. Stat. §272.02, subd. 7(a) was met. Lakes Region EMS, Inc. contended that it is exempt from property taxes because its stated purpose is to be helpful to others without immediate expectation of material reward. Minn. Stat. §272.02, subd. 7(a)(1). The tax court concluded that Lakes Region EMS, Inc. was an “institution of purely public charity,” because it met all six factors. Therefore, the tax court held that Lakes Region EMS, Inc.’s real property was not subject to taxation. Lakes Region EMS v. Chisago Cnty, No. 13-CV-15-319 (Minn. T.C. 7/11/2017).

LOOKING AHEAD

• Tax reform. The Trump administration is reportedly considering a proposal that would reduce the cap on the home mortgage interest deduction from a maximum of $1 million acquisition debt to $500,000. The Tax Foundation analyzed 2015 return data and released a state-by-state map of showing the average deduction amount taken per tax return, or the total amount of home mortgage interest deducted in a state divided by the number of tax returns in a state. Per the Tax Foundation’s data, Minnesota ranks #13, with an average home mortgage interest deduction of $2,088. Maryland ranks first (average deduction of $3,175) while the last place spot goes to West Virginia (average deduction of $856). You can view the entire map at the Tax Foundation website, www.taxfoundation.org.

Morgan Holcomb

Mitchell Hamline School of Law

Jessica Dahlberg

Grant Thornton

TORTS & INSURANCE
JUDICIAL LAW

• Insurance; pre-award interest on appraisal awards. In October 2013, plaintiff’s home suffered fire damage. Plaintiff notified defendant insurer. Defendant issued its first loss payment within one week. On 12/2/2013, plaintiff demanded an appraisal, seeking additional amounts. Defendant agreed to the appraisal and also continued to pay out on the loss. By the time of the appraisal, defendant had paid $175,663. The appraisal panel awarded an additional $88,480, which defendant paid in full. Plaintiff then went to court to seek pre-award interest. The district court awarded him $14,635 in interest, calculated from the date of the appraisal demand until the date of the appraisal award. On appeal, the court of appeals reversed. Both parties sought review.

The Minnesota Supreme Court reversed the decision of the court of appeals. The Court first held that pre-award interest may be recovered even in the absence of a breach of contract or other wrongdoing by the insurer. The Court reasoned that statutory pre-award interest applies to “compensatory” damages, which are not limited to cases involving breach of contract or other wrongdoing. The Court next determined that, although pre-award interest may be precluded by policy language, the policy at issue did not preclude such interest. The policy did state that a loss was not payable until five days after an appraisal award, but the Court held that this language did not govern whether and when pre-award interest would begin to accrue.

Finally, the Court held that although the Minnesota fire insurance statute directly addresses interest on appraisal awards, the statute did not apply in this instance. Instead, it was superseded by policy language because that language was interpreted to be more favorable to the insured. The policy’s loss payment provision, the Court reasoned, governed over the statutory loss payment provision, including statutory language that would otherwise appear to preclude pre-award interest.

Justice Anderson filed a dissenting opinion, and Justice Stras joined in a portion of the dissent. Poehler v. Cincinnati Ins. Co., No. A15-0958 (Minn. 7/19/2017). https://mn.gov/law-library-stat/archive/supct/2017/OPA150958-071917.pdf

Jeff Mulder

Bassford Remele

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