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

Notes & Trends – October 2017

BANKRUPTCY
JUDICIAL LAW

Stay preferred to dismissal in abstention cases. This appeal arises out of the collapse of Thomas Petters’s massive Ponzi scheme and subsequent bankruptcy cases. PCI filed bankruptcy in 2008 after the collapse of the scheme. Ritchie was a major investor. Petters Company, Inc. (PCI) had a banking relationship with M&I Bank (BMO Harris is the successor in interest to M&I). Ritchie filed proofs of claim totaling more than $200 million in the PCI bankruptcy, and commenced an adversary action against M&I alleging fraud and participation in PCI’s scheme. The trustee sought to disallow Ritchie’s claim. Ritchie sued BMO in 2014 for fraud and other claims. BMO moved for dismissal of the claims, or that the district court abstain from hearing Ritchie’s claims due to the pending adversary actions in the PCI bankruptcy. The district court granted BMO’s motion, concluding that although the claims and parties were not identical, they were based on similar facts related to M&I’s knowledge and actions and that abstention was thus proper. Further, the district court noted that Ritchie had failed to explain why a stay of the case was preferable to dismissal, and thus dismissed the case. Shortly afterwards, the trustee in the PCI bankruptcy and Ritchie settled on a stipulated claim amount. Ritchie appealed the dismissal of its federal case, based on abstention.

The 8th Circuit affirmed the district court’s decision to abstain from hearing Ritchie’s claims. Ritchie argued that abstention was proper only when one case would completely dispose of the other. The 8th Circuit held that this heightened standard only applied when analyzing abstention from a pending state court case, and not a federal case. The district court properly considered whether the issues in the federal case “substantially duplicate” the issues in the bankruptcy proceedings. The 8th Circuit stated that abstention would not prevent Ritchie from pursuing claims that were not ultimately addressed in the bankruptcy case.

But the 8th Circuit vacated the dismissal of the case, holding that the district court should have stayed the claims instead. The court noted “a preference for stays over dismissals to preserve any claims that might not be resolved by the parallel proceedings… even when plaintiffs did not clearly explain why further proceedings in the abstaining court were likely.” Ritchie Capital Management, L.L.C. v. BMO Harris Bank, N.A., ___ F.3d ____ (8th Cir. 8/17/2017).

Close only counts in horseshoes and hand grenades: Debtor misses settlement payment, discharge denied. Creditor Charles Gabus Motors, Inc. brought an adversary action against debtor challenging discharge of its debt and debtor’s discharge. The proceeding was settled, with debtor agreeing to make certain installment payments. The agreement provided that if debtor breached its terms, Gabus Motors could file an affidavit of default and request entry of order denying discharge. The settlement agreement was approved by the bankruptcy court on 12/20/2016. Debtor defaulted on the first payment, and the bankruptcy court directed entry of judgment denying his discharge. Debtor appealed, claiming that the bankruptcy should have excused him temporarily from tendering the first payment due to impracticability. Debtor submitted an affidavit stating that on 12/30/2016, he left the state to obtain money to make the 1/3/2017 payment. Debtor’s flight from Chicago on January 3 was cancelled due to weather, and he did not tender the payment until the next day. The bankruptcy court found that debtor had failed to explain why he waited until the last minute to obtain the funds, why debtor executed the agreement on 11/29/2016 if he lacked the funds to pay, and that debtor did not explain why he could not have expected poor weather for a January flight in the Midwest. The 8th Circuit BAP affirmed the bankruptcy court, concluding that its findings were not clearly erroneous. Debtor argued on appeal that the settlement agreement was subject to the Uniform Commercial Code and that the default provision was a liquidated damages clause void as a penalty under Iowa law. The 8th Circuit BAP held that the UCC did not apply as it did not involve “things … which were movable” or a contract for sale, and that the settlement agreement did not include a liquidated damages clause as it did not provide for the recovery of a specific sum of money. In re: Martin J. Tirrell, ___ B.R. ____ (8th Cir. BAP 9/6/2017).

Speak now or forever hold your peace: Creditor seeking an administrative claim is bound by confirmed Chapter 13 plans. Debtor leased a motor vehicle from creditor CAB West. Debtor filed a Chapter 13 petition, a plan, and then two modified plans. Both modified plans were confirmed. CAB did not object to any of the plans. CAB moved for allowance of an administrative expense priority claim under 11 U.S.C. §503(b)(1)(A) for “actual, necessary costs and expenses of preserving the estate.” The confirmed plans provided for payment only of priority claims held by her attorney and the IRS, and not for CAB West. The bankruptcy court denied CAB West’s motion for an administrative claim, noting that “the movant filed a motion seeking to sculpt its rights after the clay had already hardened—by way of plan confirmation.” Citing IMPAC Funding Corp. v. Simpson (In re Simpson), 240 B.R. 559 (8th Cir. BAP 1999), the bankruptcy court held that the confirmation of the plan was res judicata on CAB West’s subsequent request for an administrative claim. The bankruptcy court stated: “[b]ecause the confirmed plan binds parties, and because the plan did not treat CAB West as an administrative expense claimant, the Court will not either.” In re Reiser, 569 B.R. 499 (Bankr. D. Minn. 2017).

Patrick C. Summers

DeWitt Mackall Crounse & Moore S.C.

 

CRIMINAL LAW
JUDICIAL LAW

Restitution: Conservator not victim entitled to restitution. Following appellant’s conviction for financial exploitation of a vulnerable adult, he was ordered to pay restitution to the vulnerable adult’s conservator. Held, a conservator is not a “victim” as defined by Minn. Stat. §611A.01(b). Under that subsection, the vulnerable adult was a victim, as were his family members, guardian, or custodian. However, conservator is not listed as someone who may seek restitution as a victim. It is left to the Legislature to determine whether conservators should be added to the list of victims entitled to restitution. State v. David Arthur Christensen, Ct. App. 8/7/2017.

n Sentencing/criminal history computation: Proper for district court to determine whether to include juvenile’s out-of-state, adult-certified conviction in criminal history score. Appellant was charged with second-degree assault with a dangerous weapon for stabbing someone with a knife. After a jury found him guilty, he did not request a jury trial regarding his criminal history score, but moved the district court to exclude two prior Wisconsin felony armed robbery convictions. He was tried as an adult in both cases. The district court included the Wisconsin felony points in his criminal history score, concluding that appellant would have been certified for adult prosecution in Minnesota if the offenses were committed here.

To include an out-of-state conviction in a defendant’s criminal history score, the state must show that the defendant would have been prosecuted as an adult in Minnesota under the same circumstances. Under Blakely, facts that increase the penalty for a conviction must be submitted to a jury, except facts relating to the existence of prior convictions, as long as they do not require a qualitative assessment of behavior or a comparison and weighing of bad conduct.

Here, the district court merely compared Minnesota law to Wisconsin law regarding adult certification, and its ultimate determination as to whether appellant’s Wisconsin offenses would have been similarly certified in Minnesota required only an examination of the two states’ statutes; it involved only a legal analysis and did not require an examination of appellant’s underlying conduct. The district court did not err in computing appellant’s criminal history score without a jury. State v. Tommy James Edwards, Ct. App. 8/14/2017.

n Sentencing/criminal history computation: Sentence based on incorrect criminal history unlawful, even if sentence falls within corrected guideline range. After pleading guilty to second-degree burglary, appellant was sentenced to 48 months, a middle-of-the-box sentence based on a criminal history score of six. Appellant later successfully petitioned another county’s post-conviction court to vacate a firearms conviction, for which appellant had received 1.5 criminal history points. Appellant’s original guideline sentence range was 41-57 months. With his corrected criminal history score, the range was reduced to 37-51 months. Because the 48-month sentence fell within the corrected range, the district court found it did not have authority to modify the sentence.

Any sentence based on an incorrect criminal history score is an illegal sentence that may be corrected at any time, under State v. Maurstad, 733 N.W.2d 141 (Minn. 2007). That case did not create any exception for cases in which the sentence still falls within the presumptive range based on a corrected criminal history score. When a sentence is based on an incorrect criminal history score, the district court must resentence the defendant. Reversed and remanded. State v. Shawn Michael Provost, Ct. App. 8/14/2017.

Sentencing/criminal history computation: Downward durational departure based on minor or passive role in offense requires comparison of defendant’s conduct to conduct of other participants. After a jury trial, respondent was convicted of committing third- and fourth-degree criminal sexual conduct as an accomplice and furnishing alcohol to a minor, but acquitted of committing criminal sexual conduct as a principal. The state argues that there was insufficient evidence to support the district court’s determination that respondent played a minor or passive role in the offense, entitling him to a downward durational departure.

Held, under Supreme Court precedent and the common meaning of “minor” or “passive,” the district court did not abuse its discretion. Playing a minor or passive role in an offense can support a downward durational departure. State v. Carson, 320 N.W.2d 432 (Minn. 1982). To determine if a defendant played such a role, the district court must compare the defendant’s conduct to the conduct of the other participants in the crime.

Here, respondent’s conduct, when compared to that of the principal actor, supports the district court’s finding that respondent played a minor role. The court of appeals and the district court are affirmed. State v. Randall Samuel Stempfley, Sup. Ct. 8/16/2017.

Jury instructions: Instruction that accomplice liability requires knowledge that accomplices “were going to or were committing a crime” proper. After a jury trial, appellant was convicted of aiding and abetting both robbery and assault. The district court instructed the jury that a defendant’s presence constitutes aiding if “the defendant knew her alleged accomplices were going to or were committing a crime” and “intended her presence and actions aid the commission of the crime.” Appellant argues the district court’s accomplice liability instruction was erroneous.

The Supreme Court has held that an accomplice liability instruction must explain the “intentionally aiding” element, which requires both that the defendant knew his alleged accomplice was going to commit a crime and intended his presence or actions to further the commission of that crime. However, district courts are given broad discretion as to the specific language it uses to describe this element. Here, the district court’s instruction properly required the jury to consider whether appellant possessed knowledge of the crime before she intentionally aided in its commission. Appellant’s convictions are affirmed. State v. Daley Marie Smith, Ct. App. 8/21/2017.

Hit-and-run: Duty to notify owner of property damage after collision does not apply to damage to house. Appellant was convicted of DWI, failing to notify the owner of property damage to an unattended car, and failing to notify the owner of property damage to a fixture, after driving drunk and hitting the side of a house and an unattended vehicle. His conviction for failing to notify the owner of the house is vacated on appeal, because the court of appeals concludes that a house does not constitute a fixture under Minn. Stat. §169.09, subd. 5.

When a driver is involved in a collision resulting “in damage to fixtures legally upon or adjacent to a highway,” the driver must notify the owner of the fixture. The statute does not define “fixture,” but, based on Black’s Law and Webster’s definitions of the term, the court concludes that it refers to “personal property that is substantially and legally affixed on or very near a highway, subject to removal by the property owner.” A house does not fall within this definition. State v. Brandon Ray Larsen, Ct. App. 8/21/2017.

Predatory offender registration: Compliance with predatory offender registration statute does not implicate 5th Amendment. Appellant was required to register as a predatory offender as the result of a 2006 third-degree criminal sexual conduct conviction. He was convicted of failing to register in October 2015. Shortly thereafter, he was again charged with noncompliance for failing to notify law enforcement of an address change, based on statements appellant made on the county’s predatory offender registration paperwork. He was convicted of failure to register after a court trial and appeals, arguing that his statements relating to the predatory offender registration statute’s requirements are protected by his 5th Amendment privilege against self-incrimination, because the statute compels him to incriminate himself.

Held, the predatory offender registration statute is not penal in nature and, therefore, does not implicate the 5th Amendment. The court of appeals applies the framework articulated in Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168-69 (1963), for assessing whether a statute is penal or civil for purposes of determining whether the 5th Amendment applies to its violation. The court finds that the statute does not directly involve confinement, is not aimed at retribution, and, while its collateral consequences are serious, they do not rise to the level of concrete physical restraint. In addition, the mere possibility of incrimination is insufficient to defeat the strong policies in favor of the registration statute.

Even if the registration statute was penal in nature, appellant’s statements were not compelled, because they were made voluntarily and while appellant was not in custody. State v. Adam Allan LaFountain, Ct. App. 8/28/2017. 

Fair trial: No due process violation where defendant chooses to wear jail clothes during court trial. A jury trial was scheduled in appellant’s third-degree burglary case. The day before it was to begin, the district court told appellant he would have to be out of his jail clothes during the trial. The next day, he waived his right to a jury trial. At the court trial, he appeared in jail clothes, without addressing his attire on the record in any way. He was convicted and appealed, arguing that the district court committed reversible error by allowing him to wear jail clothes during the court trial.

The right to a fair trial prohibits a court from compelling a defendant to wear jail clothes at trial, as doing so could impair his presumption of innocence. Applying a plain error standard to the district court’s unobjected-to allowance of appellant’s choice wear his jail clothes, the court of appeals finds no error. Neither the district court nor the state engaged in any action that required or compelled appellant to wear jail clothes at trial, thus there was no due process violation.

Minn. R. Crim. P. 26.03, subd. 2(b), requires that an in-custody defendant must not appear in jail clothes during trial, without distinguishing between a court and jury trial. The right to wear street clothes may be waived if the defendant refuses to wear them. There is no evidence that appellant refused to wear street clothes. However, even if the district court violated Rule 26.03, subd. 2(b), it was not reversible error, because the court knew appellant was in custody and there has been no showing that, despite this knowledge, the rule violation influenced or impaired the court’s impartiality. State v. Glenn Kevin Hazley, Ct. App. 8/28/2017.

Frederic Bruno

Bruno Law

Samantha Foertsch

Bruno Law

 

EMPLOYMENT & LABOR LAW
JUDICIAL LAW

Jail administration; no due process violation. A terminated jail administrator in Freeborn County received adequate due process and was not entitled to any additional rights under Minnesota State law governing peace officers. Minn. Stat. §626.89. The 8th Circuit Court of Appeals affirmed a ruling by U.S. District Court Judge David Doty in Minnesota dismissing the lawsuit. Pena v. Kindler, 863 F.3d 994 (8th Cir. 7/20/2017).

High school coach; non-renewal. The non-renewal of the contract of a Woodbury high school basketball coach was proper. Affirming a ruling of U.S. District Court Judge Richard Kyle in Minnesota, the 8th Circuit held that deciding not to renew the arrangement due to parental complaints did not violate the coach’s rights under the expanded teacher termination law, Minn. Stat. §122.A33. McGuire v. Ind. Sch. Dist. No. 833, 863 F.3d 1030 (8th Cir. 7/24/2017).

• Race discrimination retaliation; barred by sovereign immunity. Claims of racial discrimination and retaliation by an employee of a state university were barred by the state’s sovereign immunity. The 8th Circuit also held that there was insufficient evidence that the employee was treated differently because of his race. Bunch v. University of Arkansas Board of Trustees, 863 F.3d 1062 (8th Cir. 7/24/ 2017).

Employee’s death; not covered by insurance. The death of an employee in an accident while delivering his employer’s truck (but not on a business trip) while doing normal delivery activities was excluded from coverage under an accidental death provision in a life insurance policy issued by the employer. The 8th Circuit held that applying the exception for non-business duties did not constitute an abuse of discretion. Donaldson v. National Union Fire Insurance, 863 F.3d 0136 (8th Cir. 7/24/2017).

• Data Practices Act; disclosure required. Personal care assistants (PCAs) were entitled to disclosure of contact information for members of their bargaining unit. The Minnesota Court of Appeals upheld a ruling of the Ramsey County District Court requiring that the data be furnished to them by appropriate state agencies under the Governmental Data Practices Act and a separate law governing PCAs. Greene v. Minn. Bureau of Mediation Servs., 2017 Minn. App. LEXIS 633 (Minn. App. 7/24/2017) (unpublished).

Joint employers; verdict and fees upheld. A verdict in favor of a truck driver for unpaid wages against joint employers was upheld, along with a fee award nearly 20 times greater than the wages. The Minnesota Court of Appeals upheld damages of $2,519 and a fee award in excess of $50,000. Kennedy v. Kwik Kargo, Inc., 2017 Minn. App. LEXIS 619 (Minn. App. 7/17/2017) (unpublished).

Whistleblower loses; exposure not required. Resolving years of uncertainty, the Minnesota Supreme Court held that the provision of the state whistleblower law, Minn. Stat. §181.192, subd. 1(a), regarding complaints of illegality does not require that a claimant’s action be aimed at “exposing” illegal behavior. It unanimously ruled that statutory protection against discharge applies to a complaint to management even if management already was aware of the impropriety. Friedlander v. Edwards Lifesciences, LLC, 2017 Minn. LEXIS 488 (Minn. App. 8/9/2017).

LEGISLATION

Several changes to the unemployment compensation law made by the Legislature and approved by Governor Dayton went into effect this summer. They include classifying employees for religious-related elementary and secondary schools as ineligible for benefits under Minn. Stat. §268.35, subd. 20(6). With respect to failing to participate in a re-employment assistance program, the term “good cause” 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

Ramsey County court holds DNR violated MERA and public trust doctrine in permitting groundwater pumping near White Bear Lake. On 8/30/2017, the Ramsey County District Court issued an opinion holding that the Minnesota Department of Natural Resources (DNR) had violated both the Minnesota Environmental Rights Act (MERA) and the public trust doctrine in its handling of groundwater appropriations affecting water levels of White Bear Lake in the northeast area of the Greater Twin Cities. Plaintiffs initiated the lawsuit as lake levels in the relatively shallow White Bear Lake reached historic lows. Plaintiffs claimed DNR permitted an unsustainably and increasingly large volume of groundwater to be pumped in the northeast metro area, which relies almost exclusively on groundwater for municipal water supply. DNR’s conduct, plaintiffs argued, directly led to the drawdown of White Bear Lake. The court cited extensive evidence from the March 2017 bench trial in the case, explaining that because White Bear Lake is a “closed” lake (i.e., fed almost exclusively by groundwater), and because of some unique hydrologic features, its water level depends upon and directly correlates with groundwater levels in the underlying Prairie du Chien-Jordan Aquifer. The court also repeatedly cited prior studies, and statements by the DNR itself, acknowledging the correlation between ground and surface water levels and warning of the likely harm to the lake and the aquifer from the current levels of permitted pumping.

Regarding plaintiff’s MERA claim, the court held that both White Bear Lake and the Prairie du Chien-Jordan Aquifer are natural resources as defined in MERA and are subject to the Act’s protections. The court also held that the DNR’s conduct had led to the “pollution, impairment, or destruction” of these natural resources in two ways. First, the court applied the factor in Shaller v. County of Blue Earth and determined there had been a “material adverse effect” on the lake and the aquifer directly resulting from DNR’s over-permitting of groundwater pumping. Second, the court cited violations of numerous “environmental quality standards” in the form of statutes and rules that collectively require DNR to issue appropriation permits in a manner that is sustainable and protective of water resources.

Regarding the public trust claim, the court had held in an earlier decision in the case that the public trust doctrine affords a public cause of action to protect the public’s use rights to the waters and lake bed of White Bear Lake. For similar reasons cited in support of its holding on the MERA claim, the court determined that DNR had violated the public trust doctrine by: (a) causing a decline in lake and groundwater levels that diminish the lake and its lakebed and adversely impact public uses; and (b) failing to take remedial measures within the agency’s authority to protect these resources, when it knew its actions were adversely affecting the lake and aquifer. In ruling in favor of the plaintiffs on all counts, the court ordered DNR to take numerous specific steps, with specific timelines, including but not limited to refraining from granting new appropriation permits and reviewing all existing permits within a five-mile radius of the lake, analyzing cumulative impacts of appropriations, and imposing residential watering bans when lake levels fall to threshold levels. The order also imposed a $1,000 fine for every day the DNR is out of compliance with the court’s order. White Bear Lake Restoration Association v. Minn. Dept. Nat. Res., No. 62-CV-13-2414, Ramsey County District Court (8/30/2017).

ADMINISTRATIVE ACTION

MPCA proposes rules to amend wild rice sulfate standard and to identify and designate wild rice waters in Minnesota. On August 21, the Minnesota Pollution Control Agency (MPCA) published a set of proposed rules that amends the long-standing statewide water quality limit of sulfate in wild rice lakes and rivers. In 1973, Minnesota instituted a special beneficial use under Minnesota’s Class 4A waters by designating “waters used for the production of wild rice” (Minn. R. 7050.0224 subp. 2). To protect the beneficial use of wild rice production, Minnesota adopted the water quality standard of 10 mg/L sulfate in waters producing wild rice. The 10 mg/L sulfate standard was based on research conducted during the 1940s, which found that no large wild rice stands occurred in waters with sulfate levels higher than 10 mg/L.

In 2011, the Minnesota Legislature provided MPCA $1.5 million to study the effects of sulfate and other substances on the growth of wild rice, and directed MPCA to undertake rulemaking to identify wild rice waters. The study found that sulfate is not the main pollutant of concern. Rather, when sulfate enters the sediment, bacteria convert it to sulfide, and the higher levels of sulfide are toxic to wild rice seedlings. However, data also shows that sulfide concentrations in the sediment are not proportional to the sulfate concentration in the surface water. Other variables in the sediment affect the production of sulfide. High levels of iron in the sediment result in lower levels of sulfide, whereas high levels of organic carbon in the sediment result in higher levels of sulfide.

The proposed rules make three major changes to the existing rules protecting wild rice. First, the proposed rules abolish the statewide 10 mg/L sulfate standard. In its place, MPCA establishes an equation to determine the appropriate protective sulfate standard in the surface water for each specific wild rice water based on the iron and carbon concentrations within the sediment of each wild rice water. Also, the proposed rules set a protective standard for sulfide concentrations of 120 µg/L (micrograms per liter) in sediment where wild rice grows. Second, the proposed rules clarify the beneficial use and which waters support the beneficial use by removing “waters used for the production of wild rice” from under Minnesota’s Class 4A waters. The proposed rules create a new rule part, Class 4D waters, which specifically identifies 1,300 water bodies as “wild rice waters” and establishes the sulfate standard calculation and sulfide sediment concentration standard (Minn. R. 7050.0224 subp. 5). Finally, the proposed rules establish requirements for implementing the new sulfate standards. The proposed rules define the flow rate MPCA will use to set sulfate limits for facilities discharging to wild rice waters as an annual average that can only be exceeded once every 10 years (Minn. R. 7053.0135, 0205, & 0406).

MPCA is now soliciting public comments on the proposed rules. The written public comment period is open until November 9, and oral comments may be presented at scheduled public hearings throughout the state between October 23 and November 2. For more information, visit: https://www.pca.state.mn.us/water/protecting-wild-rice-waters

EPA issues final TSCA framework rules. On 7/20/2017, the U.S. Environmental Protection Agency (EPA) published the final rules for two framework actions required under the Toxic Substances Control Act (TSCA), as amended by the Frank R. Lautenberg Chemical Safety for the 21st Century Act. The published final rules include both the Procedures for Prioritization of Chemicals for Risk Evaluation Under TSCA (Prioritization Process Rule) and the Procedures for Chemical Risk Evaluation Under the Amended TSCA (Risk Evaluation Process Rule). Both rules became effective on 9/18/2017.

EPA was required under section 6(b)(1) of TSCA to issue a final rule that would establish a process and criteria it would use to determine whether a chemical substance is a high-priority substance or a low-priority substance. 15 U.S.C. §2605(b)(1)(A). Chemical substances deemed to be high-priority substances require further risk evaluations, while chemical substances deemed low-priority substances do not warrant any further risk evaluations at that time.

EPA has defined a high-priority substance as “a chemical substance that EPA determines, without consideration of costs or other non-risk factors, may present an unreasonable risk of injury to health or the environment because of a potential hazard and a potential route of exposure under the conditions of use, including an unreasonable risk to potentially exposed or susceptible subpopulations identified as relevant by EPA.” EPA also defined low-priority substances as those that do not meet the definition of high-priority substances.

EPA was further required under section 6(b)(4) of TSCA to issue a final rule that would establish a process for conducting risk evaluations of chemical substances. 15 U.S.C. §2605(b)(4)(B). The risk evaluation process is used to determine if a given chemical substance “presents an unreasonable risk of injury to health or the environment, without consideration of costs or other non-risk factors, including an unreasonable risk to a potentially exposed or susceptible subpopulation.”

In establishing a process to evaluate the risks associated with chemical substances, EPA has determined the necessary components needed to conduct a risk evaluation. Those components include a scope-of-the-risk evaluation, a hazard assessment, an exposure assessment, a risk characterization, and a risk determination.

In addition to the prioritization process and risk evaluation process rules, EPA also issued the final rule for TSCA Inventory Notification (Active-Inactive) Requirements. EPA published the inventory active-inactive rule on 8/11/2017. The rule became effective on that date.

EPA was required by the 2016 amendments to TSCA to designated chemical substances in U.S. commerce as either “active” or “inactive.” 15 U.S.C. §2607(b)(4)(A). The inventory active-inactive rule established the guidelines for both retrospective and forward-looking reporting requirements to be used by manufacturers and processors when designating chemical substances as either “active” or “inactive.”

EPA will be releasing further guidance concerning the final rules issued. The guidance document aims to further address the science standards, data quality considerations, and the risk evaluation process in connection with these final rules. 82 Fed. Reg. 33753 (July 20, 2017) (Prioritization Process), 82 Fed. Reg. 33726 (July 20, 2017) (Risk Evaluation Process) and 82 Fed. Reg. 375200 (Aug. 11, 2017) (Inventory Active-Inactive). 

Jeremy P. Greenhouse
The Environmental Law Group, Ltd.

Jake Beckstrom 

J.D. Vermont Law School 2015

Erik Ordahl 

J.D. Mitchell Hamline School of Law 2017 

 

FAMILY LAW
JUDICIAL LAW

De facto modification of physical custody and primary residence. By stipulated order, the parties were granted joint legal custody and mother was granted sole physical custody. The parenting time schedule provided that during the school year, the child would reside primarily with mother and spend alternating weekends with father, and during the summer the parties would have equal parenting time.

Thereafter, father brought a motion seeking equal parenting time during the entire calendar year, or, in the alternative, increased parenting time. Father expressly stated that he was not seeking to modify the physical custody label or the child’s primary residence with mother, but the district court concluded that father was functionally seeking a modification of custody and primary residence. Applying the endangerment standard, the district court concluded that father had not made a prima facie showing and denied his motion for equal parenting time. The district court did not address father’s alternative motion.

Father appealed and the court of appeals reversed. Father’s request for equal parenting time, standing alone, did not amount to a request to modify the physical custody label. The court of appeals did not explain exactly why it reached this conclusion but noted that the statutory definition of “joint physical custody” does not reflect any particular allocation of parenting time and that case law indicated significant weight is given to the label of the arrangement itself rather than the allocation of parenting time. Therefore, the district court erred by construing father’s motion for equal parenting time as a de facto motion to modify physical custody.

The court of appeals also held that the district court erred by treating father’s motion as a request to change the child’s primary residence and squarely rejected the idea that primary residence is simply a determination of the home in which the child spends the majority of the time. Analyzing a child’s primary residence is a broad inquiry that involves consideration of various factors related to the child. The decision does not attempt to define the factors but suggested that they “could include where the child attends school, participates in extracurricular activities, socializes with peers, or worships.” The court of appeals recognized that where one parent has significantly more time than the other, primary residence often will go hand-in-hand with have the majority of the parenting time, but it described this determination as being more complex in cases where parenting time is equal or close to being equal.

The court of appeals also held that the district court had erred by failing to make findings of fact addressing father’s alternative motion for increased parenting time. The case was reversed and remanded for the district court to analyze father’s motion for equal parenting time consistent with the opinion, along with father’s alternative motion for increased parenting time. Christensen v. Healey, __ N.W.2d __ (Minn. Ct. App. 2017).

• Custody modification procedure. The parties’ stipulated dissolution decree, entered in 2012, granted them joint legal and physical custody of their children. In a number of temporary orders issued in 2013, father was granted temporary sole physical custody. None of the hearings on such motions were evidentiary hearings. In January 2015, mother moved to “reinstate” the original joint custody arrangement and requested an evidentiary hearing. The district court denied mother’s motion after concluding she had not established any basis for an evidentiary hearing and that the children were not endangered in father’s care. Mother appealed and the court of appeals affirmed because mother had not made a prima facie showing. The Supreme Court reversed and concluded that the district court had erred in three respects.

First, because the party seeking to modify custody bears the burden of persuasion, the district court erred by requiring mother, rather than father, to make a prima facie showing when she moved to reinstate the original custody arrangement. Second, the district court erred by modifying the original custody arrangement without ever holding an evidentiary hearing as required. Third, the district court had failed to make any of the factual findings required on the four factors under Minn. Stat. §518.18. The case was reversed and remanded for reinstatement of the original custody arrangement or an evidentiary hearing if a motion to modify custody was brought. Crowley v. Meyer, ___ N.W.2d ___ (Minn. 2017).

Special-immigrant-juvenile findings. In a case of first impression, the court of appeals held that a district court has discretion to make special-immigrant-juvenile (SIJ) findings in a marriage dissolution proceeding.

SIJ is a classification that “provides a means for abused, neglected, and abandoned immigrant youth to obtain lawful permanent residency and a path to United States citizenship under federal law.” After husband failed to participate in the dissolution proceeding, the district court allowed wife to proceed by default. She submitted a proposed dissolution decree that included a grant of sole legal and physical custody to her, along with various SIJ findings. The district court made some of the requested SIJ findings but declined to make the following finding requested by wife: that the children are “dependent upon the juvenile court or have been legally committed to, or placed under the custody of, an agency or department of a [s]tate, or an individual or entity appointed by a [s]tate or juvenile court.” The district court explained that the grant of custody to wife did not substantiate the finding and that the dissolution proceeding was not the proper proceeding to make the finding.

Interpreting federal law, the court of appeals held that a district court making a custody determination in a dissolution proceeding had the authority to make SIJ findings. Additionally, the district court had erred by not making the finding requested by the wife because its refusal to do so was inconsistent with the other SIJ findings that it had made. Thus, the case was reversed and remanded for the inclusion of additional SIJ findings consistent with the opinion. De Guardado v. Menjivar, ___ N.W.2d ___ (Minn. Ct. App. 2017).

Jaime Driggs

Henson & Efron PA 

 

FEDERAL PRACTICE
JUDICIAL LAW

Fed. R. Civ. P. 15(c)(1)(C); relation back; John Doe defendants. Affirming an order by Judge Montgomery and agreeing with a number of recent decisions in the District of Minnesota, the 8th Circuit held that claims against former John Doe defendants were time-barred where those defendants were not identified within the statute of limitations, because the naming of John Doe defendants did not qualify as a “mistake” for purposes of Fed. R. Civ. P. 15(c)(1)(C). Heglund v. Aitkin Cty., ___ F.3d ___ (8th Cir. 2017).

• Objection to sua sponte award of summary judgment waived. The 8th Circuit held that the plaintiff had waived any objections to the district court’s sua sponte grant of summary judgment on one issue where it failed to raise the issue in the district court at any point after summary judgment was granted. UnitedHealth Group Inc. v. Exec. Risk Spec. Ins. Co., ___ F.3d ___ (8th Cir. 2017).

Arbitration-related motion to dismiss; which rule(s) apply? Where the plaintiff brought a Fed. R. Civ. P. 12(b) motion based on the existence of an arbitration agreement but did not further explain the basis for its motion, the 8th Circuit held that a motion to dismiss based on the alleged existence of an arbitration agreement does not implicate Fed. R. Civ. P. 12(b)(1) or 12(b)(3), and should instead have been brought pursuant to Fed. R. Civ. P. 12(b)(6) or 56. City of Benkelman v. Baseline Eng’g Corp., ___ F.3d ___ (8th Cir. 2017).

Effect of abstention; stay or dismissal? While affirming her decision to abstain in favor of an ongoing bankruptcy action, the 8th Circuit held that Judge Montgomery should have stayed rather than dismissed the federal action. Ritchie Capital Mgmt., L.L.C. v. BMO Harris Bank, N.A., ___ F.3d ___ (8th Cir. 2017).

Offensive collateral estoppel; absence of final judgment not dispositive. Affirming Judge Magnuson in relevant part, the 8th Circuit held that the application of offensive collateral estoppel on the issue of alter ego liability was appropriate despite the absence of final judgment and no opportunity for the defendants to appeal in the prior action. Twin City Pipe Trades Serv. Ass’n, Inc. v. Wenner Quality Servs., Inc., ___ F.3d ___ (8th Cir. 2017).

Cyber attacks; theft of credit card data; standing. The 8th Circuit affirmed Judge Montgomery’s dismissal of all but one of the plaintiffs’ claims in a putative class action arising out of a data breach for lack of standing, finding that each plaintiff’s standing had to be assessed individually, and that only one plaintiff had sufficiently alleged that he suffered a fraudulent charge on his credit card that was traceable to the data breach. In Re: SuperValu, Inc. Customer Data Sec. Breach Litig., ___ F.3d ___ (8th Cir. 2017).

• Patent venue; intervening decision; no waiver. In similar decisions issued on the same day, Judge Nelson granted motions to dismiss for improper venue and transferred patent actions to the Western District of Pennsylvania. In both cases, Judge Nelson found that the Supreme Court’s decision in TC Heartland LLC constituted an intervening change in the law, meaning that the defendants had not waived their venue objections. Cutsforth, Inc. v. LEMM Liq. Co., 2017 WL 3381816 (D. Minn. 8/4/2017); Valspar Corp. v. PPG Indus., Inc., 2017 WL 3382063 (D. Minn. 8/4/2017); TC Heartland LLC v. Kraft Food Grp. Brands LLC, 137 S. Ct. 1514 (2017).

Late-filed motion to amend complaint granted. Reversing an order by Magistrate Judge Brisbois, Chief Judge Tunheim found that the plaintiffs’ diligence (or lack thereof) should not have been the determining factor in the denial of their motion, and that while diligence remains the “primary factor,” the court retains “broad discretion” to grant an untimely motion to amend even in the absence of diligence. Portz v. St. Cloud State Univ., 2017 WL 3332220 (D. Minn. 8/4/2017).

Forum selection clause; motion to dismiss or transfer denied. Judge Frank denied a defendant’s motion to dismiss or transfer premised on an alleged improper forum, finding that a contractual forum selection clause agreed to by the defendant resulted in a waiver of any right to contest the validity of that forum. BMO Harris Bank, N.A. v. McM, Inc., 2017 WL 3443238 (D. Minn. 8/8/2017).

Motion for new trial denied; newly discovered evidence. Chief Judge Tunheim denied the plaintiff’s motion for a new trial premised on alleged newly discovered evidence, finding that the plaintiff had not offered any new evidence, but that even if she had, that evidence would not have affected the result. Beckler v. Bank of America, 2017 WL 3425639 (D. Minn. 8/8/2017).

Fed. R. Civ. P. 12(f); motion to strike denied. Judge Frank denied the plaintiff’s motion to strike allegations in the counterclaims, finding that the disputed allegations were neither “immaterial,” “impertinent,” nor “scandalous.” Winthrop Resources Corp. v. Apollo Educ. Group, Inc., 2017 WL 3531516 (D. Minn. 8/16/2017).

Attorney’s fees; hourly rates; excessive billing. Presented with a request by the prevailing plaintiffs for more than $1,900,000 in attorneys’ fees based on hourly rates as high as $1380 for New York counsel, Judge Nelson reduced the lodestar by 15% to account for claims on which the plaintiffs did not prevail, reduced out-of-town counsel’s top hourly rates to $560 (the top hourly rate charged by the plaintiffs’ Twin Cities counsel), and reduced the remaining fees by an additional 5% due to overstaffing, resulting in an award of attorney’s fees of just over $859,000. Safelite Group, Inc. v. Rothman, 2017 WL 3447891 (D. Minn. 8/11/2017).

Where the prevailing plaintiff requested almost $182,000 in attorney’s fees after obtaining a default judgment, Judge Magnuson criticized certain hours billed plaintiff’s counsel as “absurd,” and awarded just 50% of the fees requested. Pinnacle Credit Servs., LLC v. APM Fin. Solutions, LLC, 2017 WL 3835189 (D. Minn. 8/31/2017).

Granting only a portion of the plaintiff’s motion for an award of attorney’s fees in an FDCPA action, Judge Ericksen reduced requested “above the market average” hourly attorney rates of $500 and $450 per hour to $350, and $125 hourly paralegal rate to $80, and awarded $7,900 in fees instead of the more than $30,000 in fees sought by the plaintiff. Kuntz v. Messerli & Kramer P.A., 2017 WL 3332222 (D. Minn. 8/4/2017).

Sanctions motions denied. While finding that the defendant’s “conduct during discovery was objectionable and failed to provide or put [the plaintiff] on notice about a critical piece of evidence,” Judge Montgomery overruled the plaintiff’s objection to Magistrate Judge Melendez’s report and recommendation, and declined to award sanctions under 28 U.S.C. §1927 or Fed. R. Civ. P. 37(c)(1). Ramirez-Cruz v. Chipotle Servs., LLC, 2017 WL 3433116 (D. Minn. 8/10/2017).

Chief Judge Tunheim denied defendants’ motion for sanctions due to the plaintiffs’ alleged failure to identify their lead counsel as an individual with discoverable knowledge, finding that counsel’s submission of an affidavit which summarized information produced by the defendants during discovery did not make her a person with discoverable knowledge. Schmidt v. DIRECTV, LLC, 2017 WL 3575849 (D. Minn. 8/17/2017).

Fed. R. Civ. P. 54(d); costs; deposition expenses allowed and denied. Presented with the plaintiff’s motion to review the clerk’s cost judgment relating to various deposition expenses, Chief Judge Tunheim found that the contested deposition transcripts were taxable because they “were reasonably necessary to the parties at the time the depositions were taken,” that costs associated with both printed transcripts and electronic recordings were not taxable where the defendant “did not provide any explanation for why both” were required, that costs associated with expedited and rough ASCII transcripts and the scanning of exhibits could be recovered where the defendant established that they were necessary, and that handling expenses and expenses related to condensed and digital transcripts could not be recovered. Sorin Group USA, Inc. v. St. Jude Med., S.C., 2017 WL 3503360 (D. Minn. 8/15/2017).

Josh Jacobson

Law Office of Josh Jacobson 

 

IMMIGRATION LAW
JUDICIAL LAW

• BIA error when petitioner is denied an opportunity to cross-examine ex-husband. The 8th Circuit Court of Appeals held that when an issue involving whether a petitioner’s marriage to an ex-spouse is a good faith one, the petitioner should be given the opportunity to cross-examine the ex-spouse when the immigration judge admits the ex’s affidavit and a USCIS report as part of the record. The Board of Immigration Appeals (BIA) committed error by affirming the immigration judge’s decision denying the petitioner’s subpoena request and denying her an opportunity to cross-examine him. “Nilesh’s affidavit and the USCIS report were the only evidence directly contradicting Patel’s testimony that the marriage was legitimate, and the IJ and the BIA both relied on these documents to support the conclusion that Patel failed to meet her burden of proving a good faith marriage. But Patel was provided no opportunity to probe the veracity of Nilesh’s affidavit or the statements that formed the basis for the USCIS report… This error was prejudicial and rendered Patel’s removal hearing fundamentally unfair.” Patel v. Sessions, No. 16-3619, slip op. (8th Cir. 8/22/2017). http://media.ca8.uscourts.gov/opndir/17/08/163619P.pdf

No “continuous presence” with voluntary departure under threat of deportation. The 8th Circuit Court of Appeals held the petitioner was ineligible for cancellation of removal under INA §240A(b) because he voluntarily departed the United States under threat of deportation, thus breaking his continuous presence in the country. “When an alien [sic] is legally permitted to depart voluntarily, he should ‘leave[ ] with the knowledge that he does so in lieu of being placed in proceedings’ and therefore has no legitimate expectation that he may reenter and resume continuous presence.” (quoting In re Romalez-Alcaide, 23 I&N Dec. 423, 429 (2002) (en banc)).” Rodriguez-Labato v. Sessions, No. 16-1623, slip op. (8th Circ. 8/21/2017). http://media.ca8.uscourts.gov/opndir/17/08/161623P.pdf

n Lack of credibility harmful to asylum application. The 8th Circuit Court of Appeals denied a petition for review, holding the immigration judge’s adverse credibility finding was properly based on a number of inconsistencies between the petitioner’s testimony and record, the implausibility of certain events, and a paucity of corroborating evidence. Given such a circumstance, it was appropriate to deny the petition. Kegeh v. Sessions, No. 16-2554, slip op. (8th Cir. 7/31/2017). http://media.ca8.uscourts.gov/opndir/17/07/162554P.pdf

• Minnesota district courts may make special immigrant juvenile findings. The Minnesota Court of Appeals recently held that Minnesota district courts have the authority to make special immigrant juvenile (SIJ) findings in dissolution proceedings involving a custody determination. The court of appeals further observed in this well-crafted exposition on SIJs that Congress broadened the availability of SIJ status to include immigrant youths placed in the custody of a court-approved individual while also removing the requirement that they must be found eligible for long-term foster care—replacing it with one that a juvenile court must find reunification with one or both parents inviable on account of abuse, neglect, abandonment, or a similar basis under state law.

The court of appeals further noted that US Citizenship and Immigration Services (USCIS), the agency empowered to review SIJ petitions, has indicated, approvingly, that custodial placement may be sufficient for purposes of an SIJ dependency/custody finding—even if the qualifying court-appointed custodial placement is with one of the parents, provided reunification with the other parent is found to be inviable due to that parent’s abuse, neglect, or abandonment of the SIJ petitioner.

“The SIJ statute’s legislative history and USCIS’s interpretation of the present SIJ statute indicate that the custodial placement in this case was a placement ‘under the custody of… an individual… appointed by a [s]tate or juvenile court.’ 8 U.S.C. §1101(a)(27)(J)(i).” Guardado v. Menjivar, No. A16-1973, slip op. (Minn. App. 9/11/2017). http://www.mncourts.gov/mncourtsgov/media/Appellate/Court%20of%20Appeals/Standard%20opinions/OPa161973-091117.pdf

R. Mark Frey

Frey Law Office

REAL PROPERTY
JUDICIAL LAW

Taking; nonconforming use. Appellant-landowner has occupied property in Isanti County since 1992, and stored various materials of personal property on one acre of the property. The county initiated an abatement action to remove certain items because they violate solid-waste and zoning ordinances enacted after 1992. The district court determined that storage of the items was not a permissible nonconforming use, because they arrived on the property after the ordinances were enacted. The appellant argued that all items were permissible because he never used more than one acre as storage and therefore there was never an expansion. The court of appeals affirmed the district court, holding that even when the property does not expand, addition of impermissible items of personal property constitutes an impermissible expansion. Cnty of Isanti v. Kiefer, No. A17-0326, 2017 WL 3469521 (Minn. Ct. App. 8/14/2017).

Mechanic’s lien attorney fees. The Minnesota Court of Appeals affirmed an award of $39,872 in attorney fees (on an original request of $83,584) upon a lien claimant’s recovery of $6,285 from a construction contract. The district court determined that at the start of the litigation, the homeowners owed $43,217.93 and 85% of the work was complete. After commencement of the foreclosure complaint, the homeowners paid all but $6,285. On this basis, and the fact that it was the homeowners primarily responsible for the dispute, the court of appeals affirmed the district court’s determination that the attorney fee award was proportional and reasonable. Sela Roofing and Remodeling, Inc. v. Moot, No. A16-1862, 2017 WL 3863122 (Minn. Ct. App. 9/5/2017).

Eminent domain. The court of appeals recently admonished South Harbor Township, near Lake Mille Lacs. The township granted a cartway petition over the petitioners’ neighbors’ property in 2006. A cartway petitioner is ultimately responsible for compensating the affected landowners, but township failed to collect compensation from the petitioner for the taking. While the court of appeals affirmed the district court’s decision that the neighbors’ demands for compensation are barred by statutes of limitations and res judicata, the court of appeals scolded the township for its negligence. The court advised that townships have at least a significant moral obligation to the affected landowners to ensure they are collecting damages or demanding bonds or other security from cartway petitioners. Ratfield v. Zuckerman, No. A17-0214, 2017 WL 3863855 (Minn. Ct. App. 9/5/2017).

Joseph P. Bottrell

Meagher & Geer, PLLP

 

TAX LAW

JUDICIAL LAW

Airline pilot flying for South Korean airline not “qualified individual” for purposes of FEIE. The foreign earned income exclusion (FEIE) permits qualified individuals to exclude from their gross income certain income earned from foreign sources. Sec. 911. To qualify for the exclusion, the taxpayer be a “qualified individual”—that is, the taxpayer must (1) have a “tax home” in a “foreign country” Sec. 911(d)(1) and (2) must be (a) a U.S. citizen who is “a bona fide resident of a foreign country… for… an entire taxable year,” sec. 911(d)(1)(A), or (b) a U.S. citizen or resident who is “present in a foreign country or countries during at least 330 full days” of a 12-month period, sec. 911(d)(1)(B). (The third requirement relates to the type of income the taxpayer receives, and was not at issue in this dispute.) The taxpayer was an airline pilot who took a job flying for a South Korean airline. He maintained his U.S. citizenship, voting registration, driver’s license, bank accounts, and church membership. He also spent only about a third of each year in South Korea and more than 40% of each year in the United States. He continued to own a home jointly with his wife in the United States, and his wife continued her job as a schoolteacher in the U.S. The taxpayer stayed in South Korea only when work required it, and stayed in the United States whenever he could. The taxpayer did not have a permanent abode in South Korea; rather, he always stayed in the same hotel, provided to him at no cost by the airline. Weighing these factors, the court held that the taxpayer was not a “qualified individual” for purposes of the foreign earned income exclusion because his “abode” was “within the United States” for purposes of Section 911(d)(3) and because he was not a “bona fide resident” of South Korea for statutory purposes. Acone v. Comm’r, T.C.M. (RIA) 2017-162 (T.C. 2017).

• Corporate tax: Plain meaning of statute prevails. Sinclair Broadcasting Group, Inc. disputed the extent to which it was permitted to use the losses of a separate corporation it had previously acquired. Minnesota imposes an annual franchise tax, based on the corporation’s taxable income, on the exercise of the corporate franchise to engage in contacts with this state that produce gross income attributable to sources within this state. Minn. Stat. §290.02 (2016). Minnesota taxable income for a corporation is Minnesota taxable net income less the net operating loss deduction under section 290.095. Minn. Stat. §290.01, subd. 29(2)(i) (2016). Minnesota law offers its own net operating loss deduction after adding back the federal net operating loss. Minn. Stat. §290.095, subd. l(a) (2016).

Sinclair’s dispute is over the application of two provisions in Minn. Stat. §290.095 subd. 3. The commissioner contended that subdivisions 3(c) and 3(d) (the definitions of net income and taxable income and the apportionment provisions of section 290.191), when read together, render the second sentence of subdivision 3(d) ambiguous with respect to application of the section 382 limitation. The commissioner relied on Revenue Notice 99-07 to interpret the apparent ambiguity to mean that limitation is to be applied twice (i.e., first applied before apportionment to a taxpayer’s Minnesota net income and secondly the limitation is apportioned and then applied to a taxpayer’s Minnesota taxable income). Sinclair argued that the unapportioned section 382 limitation should be applied to the unapportioned net income. Sinclair further contended that the commissioner’s position, as set forth in Revenue Notice 99-07, does not follow the statutory directive and that the tax court had previously rejected the commissioner’s position in Express Scripts v. Comm ‘r, 2012 WL 3642291 (Minn. T.C. 8/20/2012).

The tax court determined that the provisions were not ambiguous and could be read for their plain meaning. It held that the commissioner’s reading of the provisions was unsupported by the text of the statutes and was an unreasonable reading of the provisions and granted Sinclair’s motion for summary judgement. Sinclair Broad. Grp. & Subsidiaries v. Comm’r, No. 8919-R (Minn. T.C. 8/11/2017).

• Tax-driven inversion leads to class action. In June 2014, Medtronic, Inc., a Minnesota corporation, announced its decision to acquire Covidien plc, a public Irish company, in what is commonly referred to as an inversion. Following the completed transaction, “former Medtronic shareholders collectively owned approximately 70 percent of new Medtronic and former Covidien shareholders collectively owned approximately 30 percent of new Medtronic.” In re Medtronic, Inc. S’holder Litig., No. A15-0858, 2017 WL 3496401, at *1 (Minn. 8/16/2017). Medtronic now operates as a wholly owned subsidiary of an Irish company and is subject to Ireland’s tax laws.

In a class action challenge, a shareholder alleged that Medtronic “reduced the interest of its shareholders to 70 percent of new Medtronic in order to secure and protect the tax benefits it sought in this transaction.” The shareholder further alleges Medtronic shareholders incurred a capital-gains tax on Medtronic shares held in taxable accounts but received no compensation from the company for this tax liability while at the same time, Medtronic officers and directors who incurred an excise-tax liability on their stock-based compensation as a result of the transaction were reimbursed by Medtronic for that expense. Id at *2. The district court dismissed the class action after concluding that the Counts I-X of the amended complaint were both direct and derivative claims and that the shareholders had failed to meet the demand and pleading requirements of Rule 23.09. Counts XI and XII were dismissed under Rule 12.02 for failure to state a claim upon which relief could be granted. The court of appeals affirmed that Count VII (reimbursement of the excise tax) was a derivative claim, but reversed on the remaining claims. The Minnesota Supreme Court reviewed to determine whether the remaining claims were direct or derivative claims. In so doing, the Supreme Court reiterated that the test to determine whether a claim is direct or derivative is to identify who suffered the injury and thus is entitled to recovery for that injury.

After clarifying the test used to distinguish direct and derivative claims, the court turned to determining the viability of the three categories of harm set out in the complaint: injury due to capital-gains tax liability on shareholders as a result of the transaction; injury due to excise-tax reimbursement made to Medtronic officers and directors; and injuries due to dilution of shareholders’ interests.

The Court first addressed the alleged harm due to the excise-tax reimbursement paid to Medtronic’s officers and directors. The Court held that the alleged wrongful conduct caused an injury to Medtronic as a corporation, not to the individual shareholders, because corporate reimbursement of an excise-tax liability resulting from the transaction is an alleged waste of corporate assets. Id. at 6 (citing Wessin v. Archives Corp., 592 N.W.2d 460, 465 (Minn. 1999)). The Court held that because the individuals were not harmed by the conduct, the claim was correctly categorized as derivative and the dismissal was rightfully granted.

Second, the Court addressed whether the shareholders’ alleged harm of the capital gains tax liability imposed on them solely in their status as shareholders was a derivative or direct claim. Medtronic itself did not incur capital-gains tax liability on the transaction; any recovery would go to the shareholders who incurred capital-gains tax liability. Id. at *7 (citing Nw. Racquet Swim & Health Clubs v. Deloitte & Touche, 535 N.W.2d 612, 619 (Minn. 1995)). Thus, the shareholders’ tax liability was a direct claim and not subject to the demand and pleading requirements of Rule 23.09. Therefore, the Supreme Court held that there was a genuine dispute of material facts for capital-gains tax liability and reversed the dismissal.

Third, the Court addressed the injury due to dilution of the shareholders’ interest in Medtronic. The Court viewed the allegations of the amended complaint as true for the purposes of this review and determined that the claims were direct because the nature of the injury harmed the shareholders, not the corporation. Thus the Court held that the lower court erred in dismissing claims that rested on allegations of injury due to dilution of interest in Medtronic. The case was remanded. In re Medtronic, Inc. S’holder Litig., No. A15-0858, 2017 WL 3496401 (Minn. 8/16/2017).

Personal income tax; protester arguments rejected. Meyer was subject to filing requirements, but failed to file Minnesota individual income tax returns from 2010 to 2014. Meyer represented himself in these proceedings. The commissioner assessed Meyer with $135,846.32 in income taxes, penalties, and interest. Meyer appealed this assessment but failed to submit any evidence; he claimed that he should not be required to bear the burden of production or the burden of persuasion because “[i]t is up to the party who asserts any claim to defend his assertion,” including “a tax agency when it proposes a tax on a taxpayer based on [a] claim of unreported income.”

The commissioner moved for summary judgment. Meyer contended that Minnesota law is unconstitutional as a violation of his right to due process under both United States Constitution and Minnesota Constitution. He further claimed that the commissioner has no basis to assess taxes on him because he has never filed any documentation to the government. However, the petitioner bears the burden of first providing substantial evidence of an inaccuracy to rebut the assessment’s prima facie validity. Harmon v. Comm ‘r, 894 N.W.2d 155, 160 (Minn. 2017).

Meyer contended that summary judgement cannot be granted because the evidence must “be made on personal knowledge.” Minn. R. Civ. P. 56.05. Meyer claimed that affidavits from other persons are not “personal knowledge” of the commissioner and thus insufficient evidence. The tax court explained that an affiant need not have authored a document to have the requisite “personal knowledge” of it. Meyer also attacked the commissioner’s submitted unanswered interrogatories as admissions. Meyer purported to invoke his rights under the 5th Amendment to the United States Constitution to not answer the interrogatories. But a party in a civil case, and particularly a party bearing the burden of proof, cannot avoid liability by invoking the 5th Amendment. See, e.g., Parker v. Hennepin Cty. District Ct., Fourth Judicial Dist., 285 N.W.2d 81, 83-84 (Minn. 1979). The tax court thus held that the disputed evidence was admissible and granted the commissioner’s motion for summary judgment. Meyer v. Comm’r, No. 8970-R (Minn. T.C. 8/11/2017).

Morgan Holcomb

Mitchell Hamline School of Law

Jessica Dahlberg

Grant Thornton

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