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

Notes & Trends – January 2018

ADMINISTRATIVE LAW
JUDICIAL LAW

• Minnesota Supreme Court upholds DHS disqualification “set aside” decision despite contrary ALJ recommendation. A divided Minnesota Supreme Court upheld a decision by DHS to maintain a daycare provider’s disqualification for financial misconduct, despite an ALJ’s recommendation that the disqualification be set aside because the provider did not pose a danger to children.

In 2014, Blue Earth County criminal investigators charged Yasmin Salim, proprietor of Kind Heart Daycare, Inc., with submitting fraudulent claims for state child care assistance. The criminal case was never tried and was continued for dismissal in 2016. DHS, however, acted on the allegations. The department is required by state law to “disqualify” persons from contact with those served by its licensed programs when a preponderance of evidence shows they have committed certain crimes, including defrauding the state child care assistance program. Based on the county’s charges and additional documentary evidence, DHS disqualified Salim and revoked Kind Heart’s license.

In response, Salim asked that her disqualification be “set aside” under Minnesota Statutes section 245C.22, subdivision 4(a), which provides that DHS may set aside a disqualification based on a showing that the disqualified person doesn’t pose a risk of harm. DHS denied Salim’s set-aside request, and Salim sought review before an ALJ. After a four-day hearing, the ALJ determined that although the department had shown that Salim was responsible for “incompetence in billing and dishonesty,” the children at the daycare “were safe and at no risk of harm from” her. Accordingly, the ALJ recommended that Salim be granted a set-aside and Kind Heart’s license reinstated.

The Commissioner of Human Services rejected the ALJ’s recommendations. The commissioner concluded that Salim’s willingness to engage in fraud indicated she “may provide erroneous information in other situations” that “could harm the children Kind Heart serves.” The commissioner also found that the ALJ focused too narrowly on potential harm to children and noted that many others were harmed by fraud, including the state’s child care assistance program, the county, the department, and state taxpayers. The commissioner concluded that because Salim had failed to show she did not pose a risk to these entities, her disqualification would not be set aside. The court of appeals affirmed.

At the Supreme Court, Salim argued that the department’s decisions were affected by a number of problems. As an initial matter, Salim argued that an internal DHS email showed that the department had been predisposed against her from the beginning. The email, sent from DHS management to the department’s staff attorneys, asked for a volunteer to “drop everything” and review the county’s criminal charges to determine “right away” if Salim should be disqualified. The email’s subject line read, “Be a part of history in the making…” Salim argued that the email showed that DHS was improperly predisposed toward disqualification even before its review began. But a majority of justices disagreed. Writing for the majority, Justice Lillehaug characterized the email’s subject line as an “inartful” but essentially innocent reference to a Mankato Free Press story attached to the email that described Salim’s case as the first prosecution of its kind in the state.

Salim also argued that DHS’s decision was marred by a staff attorney’s misunderstanding of the relationship between “preponderance of the evidence” and “probable cause.” The disqualification statute requires that DHS prove criminal conduct by the former, higher standard. But the staff attorney who recommended disqualification mistakenly believed the “preponderance” standard was lower than the “probable cause” standard used by the county to charge Salim. Again, the majority found harmless error, for two reasons. First, the staff attorney testified that she understood that the statute required the department to show that it was “more likely than not” that Salim had committed a disqualifying act, so that confusion about the relationship between the standards was not dispositive. Second, the majority found that the commissioner’s final decision was supported by sufficient evidence to meet the preponderance standard.

Salim had slightly more success with her claim that the department significantly overestimated the extent of the fraud. DHS had alleged that Salim submitted $9,766 in fraudulent claims. But the Court found that DHS misread the applicable payment statute. As a result, Salim was lawfully entitled to more than $7,000 of the disputed claims. The majority nevertheless affirmed DHS’s decision disqualification decision. The Court observed that that criminal statute is violated when “any amounts” are obtained fraudulently, and that therefore the amount misappropriated was “immaterial.”

The majority did not explicitly address whether this mistake might have affected the department’s subsequent decision to deny Salim a set-aside. This point led Justice Chutich to write a partial dissent. Justice Chutich noted that the commissioner’s order itself relied on the “severity and frequency of the erroneous billings” as grounds for denying the set-aside. Justice Chutich argued that these factors were both affected by the department’s mistake and therefore warranted a remand to the agency. On the email and standard of proof issues, Justice Chutich concurred with the majority’s harmless error conclusions, although she found it “deeply troubling to contemplate that the Department may have launched the machinery of the State against Salim based on an initial review that was little more than a rubber stamp of the criminal complaint against her, made in a spirit of excitement about being part of a ‘historically’ important proceeding.”

Justice Anderson joined Justice Chutich’s opinion and added his own, in which he questioned the commissioner’s “almost unfettered discretion—discretion to which we defer—to reject the administrative law judge’s recommendation.” Justice Anderson suggested the court should revisit the issue of agency deference “in the appropriate case.” In re Kind Heart Daycare, Inc., No. A15-1470 (Minn. 11/22/2017).

Mehmet Konar-Steenberg

Mitchell Hamline School of Law

 

BANKRUPTCY
JUDICIAL LAW

• Debtor failed to show undue hardship necessary to discharge student loan debts. Debtor filed a Chapter 7 case, primarily seeking to discharge her student loan debts through a showing of “undue hardship” under 11 U.S.C. §523(a)(8). A trial was held on the attempted discharge of approximately $79,000 in student loan debt. The bankruptcy court found that debtor failed to prove undue hardship. The 8th Circuit B.A.P. affirmed, applying the test set forth in In re Long, 322 F.3d 549, 554 (8th Cir. 2003), which analyzes “(1) the debtor’s past, present, and reasonably reliable future financial resources; (2) a calculation of the debtor’s and [any] dependent’s reasonable necessary living expenses; and (3) any other relevant facts and circumstances surrounding each particular bankruptcy case.” The bankruptcy court found that the debtor’s underemployment was self-imposed to a certain extent. Debtor was a single mother who did not work for a two-year period, and then worked part time. Debtor provided limited evidence of her living expenses, which included a variable amount claimed to be owed to her mother for rent. Prior to filing, debtor had contacted her lenders to request modifications, which the B.A.P. noted “indicate she believes she is able to pay some amount on her loans.” The B.A.P. observed that the DOE had offered a repayment plan with a monthly payment of $0.00 based on her current circumstances, and that the debtor had failed to provide evidence to support a claimed medical limitation on her ability to seek additional work. Amy N. Piccinino v. U.S. Department of Education, et al. (In re Piccinino), ___ F.3d ___ (8th Cir. BAP 12/7/2017).

• Remand of state court action affirmed. A law firm sued debtor in Minnesota state court seeking payment of amounts it claimed were owed. Debtor raised various defenses and counterclaims. The law firm filed for summary judgment. Prior to the hearing on the motion, debtor filed a Chapter 7 petition and removed the state court action. The bankruptcy court entered an order directing the parties to show cause why the adversary proceeding should not be remanded. Debtor opposed the remand, which the law firm supported. The B.A.P. observed that “[i]n determining whether to remand, a bankruptcy court should first consider the same criteria used in determining whether to abstain from hearing a matter under 28 U.S.C. §1334©(1).” The B.A.P. noted 16 separate criteria that a bankruptcy court is to consider, under In re Stabler, 418 B.R. 764 (8th Cir. BAP 2009) and In re Sears, 539 B.R. 368, 370 (D. Neb. 2015). It held that the bankruptcy court did not abuse its discretion in remanding the proceeding because it analyzed each listed criteria, and only those criteria, when making its decision. Practice pointer: Be sure to address each of these criteria when bringing (or defending) a motion to remand. In re Baker, ___ B.R. ____ (8th Cir. BAP 11/16/2017).

• Default must be entered before bringing a motion for a default judgment. Appellants Chowdhury and Booth Sweet, LLP obtained a judgment against debtor that attached as a lien on debtor’s condominium. Debtor filed bankruptcy and sold the condominium. The Chapter 7 trustee approved a payoff of the judgment from a portion of the sale proceeds. The judgment was later vacated. After the trustee’s demand for repayment was rebuffed, the trustee sued Chowdhury and Booth Sweet for recovery of the funds. The adversary summons and complaint were served, and there was limited settlement communication. However, counsel for defendants did not file an answer. The trustee filed a motion for default judgment. Neither the trustee nor the bankruptcy court sought entry of a default by the clerk under Fed. R. Civ. P. 55(a) prior to entry of a default judgment under Rule 55(b). The bankruptcy court granted the motion and entered judgment against defendants, and denied their subsequent motion to vacate. The district court reversed, holding that it was reversible error not to follow the two-stage process necessary to enter a default judgment: entry of a default under Rule 55(a), and then a motion for default judgment under Rule 55(b). The district court noted that the defendants were entitled to use the lower standard to vacate a clerk’s entry of default, which is “good cause” under Rule 55(c), as opposed to the higher standard to vacate a default judgment that was applied by the bankruptcy court, “mistake, inadvertence, surprise, or excusable neglect” under Rules 55(c) and 65(b). Practice pointer: Request entry of default under Fed. R. Civ. P. 55(a) prior to bringing a motion for a default judgment under Rule 55(b). Chowdhury et al. v. Seaver (In re Hansmeier), Civ. No. 17-723 (D. Minn. 11/8/2017).

Patrick C. Summers

DeWitt Mackall Crounse & Moore S.C.

 

COMMERCIAL AND CONSUMER LAW
JUDICIAL LAW

Priority. Article 9 of the Uniform Commercial Code is a tremendous advance in modernizing personal property security law, replacing all the diverse former transactions used to secure debt with personal property, such as chattel mortgages, conditional sales, and the like. But Article 9 basically only governs contractual secured transactions. UCC § 9-109(a)(1). That leaves other transactions that could create liens on personal property, such as statutory or common law liens, largely outside the UCC even though such liens obviously could conflict with a security interest covered by Article 9.

There are some exceptions to this lack of coverage for statutory and common law liens; for example, Article 9 did state a priority provision between a possessory lien arising by operation of law and a security interest (§ 9-333), and, in its 1998 revision, extended coverage to “agricultural liens.” UCC §§9-102(a)(5) and 9-109(a)(2). Thus, a lawyer representing a secured party must be alert and needs to ascertain whether prospective collateral may be subject to other lien claims.

This point is illustrated by Dusenbery v. Hawks, 92 U.C.C. Rep. Serv. 2d 427, 2017 WL 1316129 (Minn. Ct. App. 2017). A creditor of the owner of two generators took and perfected a security interest in them. It turned out that a bailee in possession of the generators had a statutory lien on them as well. The creditor had no notice of the statutory lien as it was not reflected in any filed documentation. The court applied the Minnesota version of UCC §9-333, which on these facts gave the bailee priority since the Legislature had not expressly provided otherwise in the statute.

This is a result that would occur in most states, which have similar statutes to those of Minnesota. Why is this fair? It is fair because the creditor should have checked possession as well as filings, and since a person in the bailee’s position would have provided value to the collateral, the secured party should not be able to acquire the benefit of that value without payment. On the other hand, under the Minnesota statute if there had been no possession in a third party to warn the creditor, then the creditor basically would prevail unless a filing had been made pursuant to the statute.

In the end, this is a reasonable balance. The creditor could and should have discovered the lien and then, perhaps, either paid for the value provided to its collateral or called a default and foreclosed, depending on the circumstances. Keep in mind, however, that not all statutes, or the laws establishing statutory or common law liens, are as well balanced as the Minnesota statute; the only constant is the risk these non-contractual liens impose.

• Recognizing the spirt of the law. Article 2 of the Uniform Commercial Code in §2-316(2) and (3) sets out pretty clear rules for a seller to follow if that seller wishes to disclaim (or modify) the implied warranty of merchantability or the implied warranty of fitness that arise under §§2-314 or 2-315 in sales of goods by a merchant, or a seller aware of the buyer’s special purpose for the goods.

Focusing on the warranty of merchantability, the language used must be particular and conspicuous under §2-316(2). Under §2-316(3)(a), while there is no required language, it would be wise to use the suggested language set out in the statute, and although not required in express words as in subsection (2), the disclaimer should also be conspicuous (“must call the buyer’s attention to the exclusion and make plain there is no implied warranty”).

In one recent case, Agropur, Inc. v. Scoular Company, the disclaimer in the contract was a section headed in capital letters “CONTAMINATION & GUARANTEE,” which basically stated the seller “disclaims warranties of merchantability and fitness for a particular purpose.” Even though the statutory words were used and arguably there was conspicuousness under the definition of that term in UCC §1-201(a)(10)(A), as its heading was in capitals (compare §1-201(a)(10)(B)), the court found it lacking as the “visual presentation” of it did not call attention to it. The court said (1) it was nested in the middle of a larger paragraph without separation; (2) it was in the same size font as the rest of that text and had no visual distinction; (3) it was located on the fourth of nine pages; and (4) the heading did not call out that the paragraph contained a disclaimer as opposed to some sort of “guarantee.”

The lesson here would seem to be that location and segregation also matter. Thus using the right words, making those words contrast by type, font, or color from the rest of the text of the agreement, and locating the disclaimer in close proximity to the buyer’s signature would seem to be a good approach to best ensure that a disclaimer will be legally effective. Agropur, Inc. v. Scoular Company, 93 U.C.C. Rep. Serv. 2d 402, 2017 WL 3411944 (D. Minn. 2017).

Fred Miller

Ballard Spahr

 

CRIMINAL LAW
JUDICIAL LAW

• Jury instructions: No-adverse-inference instruction appropriate where requested by counsel in defendant’s voluntary absence. After the district court found that appellant’s absence on the second and final day of his robbery and assault trial was voluntary, the trial continued in his absence. The district court included in its final jury instructions a no-adverse-inference instruction. Defense counsel did not object, and appellant was not present to give personal consent. The jury found appellant guilty of assault.

In this case of first impression, the court of appeals holds that the trial court did not err by providing a no-adverse-inference instruction without first obtaining appellant’s personal consent, because appellant was voluntarily absent and his attorney requested the instruction. Generally, a criminal defendant’s permission should be obtained prior to giving a no-adverse-inference instruction, or, at least, record should be made that a defendant and his attorney have conferred and agreed to the instruction. Here, there was neither. However, where a defendant is voluntarily absent from trial and his attorney requests the instruction, there is no error in giving the instruction, as any other holding would allow the defendant to obtain a mistrial by refusing to attend trial when instructions are being considered or appeal the trial court’s refusal to instruct the jury as his attorney requested. Moreover, this instruction was beneficial to appellant, as the trial was going to proceed in his absence.

Lastly, the court concludes that, even if the district court erred, the error was not plain, and, even if plain error, the instructions did not have a significant effect on the verdict. State v. Christopher Michael Sam, Ct. App. 11/13/2017.

n Mens rea: Ignorance of law is defense if violation of law must be “knowing.” Appellant pleaded guilty to knowingly violating the predatory offender registration statute. He told the court he “now” understood that the statute required him to register. On appeal, he argues that the factual basis for his plea was inadequate, because it did not establish a knowing violation of the registration statute. In the factual basis, he stated that he believed he had one week to register after entering a county, and that he did not remember the 24-hour reporting requirement. The court of appeals confirmed his conviction, holding that “ignorance of the law is no excuse.”

Held, when the charged offense prohibits a knowing violation of a statutory provision, ignorance of the law is a defense. Ignorance of the law generally does not excuse criminal liability, but the Court has previously held that mistake of law is a defense when knowledge of the law is an element of the offense, because it negates the existence of the required mental state.

The offense to which appellant pleaded guilty makes it a crime to “knowingly violate[]” the predatory offender registration statute. Minn. Stat. 243.166, subd. 5(a). The plain text of the statute requires a defendant must know he is violating the statute when the violation occurs. Appellant’s statements at the plea hearing established only that he had knowledge of the reporting requirement in the past, but not that he had knowledge at the time of the violation. His statements negated the mens rea element of the offense, so the factual basis failed to satisfy the accuracy requirements. Appellant’s conviction is reversed. State v. Juanel Anthony Mikulak, Sup. Ct. 11/15/2017.

• Sentencing: Resentencing under DSRA not required for conviction finalized prior to effective date. Appellant was sentenced in June 2015 to 74 months, a presumptive guideline sentence, after previously pleading guilty to a first-degree drug crime. The Drug Sentencing Reform Act (DSRA) was enacted in 2016, and appellant petitioned for post-conviction relief in November 2016, asking to be resentenced under the guidelines that were modified based on the DSRA. His petition was denied.

Held, appellant is not entitled to resentencing, because his conviction became final before the effective date of the provision of the DSRA requiring modification of the sentencing guidelines (section 18), 5/23/2016. The Supreme Court held in State v. Kirby, 899 N.W.2d 485 (Minn. 2017), that section 18 of the DSRA does apply to crimes committed before its effective date if the three requirements of the amelioration doctrine are satisfied: (1) there is no statement by the Legislature that clearly establishes the Legislature’s intent to abrogate the amelioration doctrine; (2) the amendment mitigates punishment; and (3) final judgment has not been entered as of the date the amendment takes effect.

The Supreme Court’s analysis in Kirby as to the first two requirements, and conclusion that they are satisfied with respect to section 18 of the DSRA, applies here. However, final judgment had been entered in appellant’s case prior to section 18’s effective date. For the amelioration doctrine, a criminal case is not final if the defendant has timely filed a notice of appeal and the direct appeal is pending. In some cases, the finality of a judgment may be suspended even without a direct appeal. However, none of those circumstances apply here. In this case, appellant’s conviction was entered, and his direct appeal period expired, prior to section 18’s effective date. Appellant is not entitled to resentencing. Juan Antonio Luna-Pliego vs. State of Minnesota, Ct. App. 11/20/2017.

• Criminal sexual conduct: Mistake of age defense does not violate due process or equal protection. Appellant, a 44-year-old man, was charged with third- and fourth-degree criminal sexual conduct after J.D., a 14-year-old, was found naked in bed with appellant by J.D.’s mother. The third- and fourth-degree criminal sexual conduct statutes permit a mistake-of-age affirmative defense, but only for defendants who are no more than 120 months older than the child. Appellant argued that this limitation on the defense is unconstitutional, but the district court disagreed. A jury found appellant guilty of both offenses.

First, appellant argues that not being able to raise the mistake of age defense prevented him from presenting a complete defense, which infringed his right to a fair trial. The court of appeals finds that appellant’s claimed right to present the mistake of age defense is not a fundamental right and applies the rational basis test to determine whether the mistake of age provisions in the third- and fourth-degree criminal sexual conduct statutes are constitutional. The court distinguishes between the right to present the mistake of age defense and the general right to a fair trial, finding that the fundamental right to a fair trial has not been held to require the Legislature to make a substantive defense available to a defendant, as opposed to protecting a defendant from being procedurally prohibited from making a substantive defense that is already available under the law. The court concludes that the limitation on the mistake of age defense reflects a reasonable means to a permissive object and, therefore, that it does not violate due process.

In so concluding, the court also distinguishes State v. Moser, 884 N.W.2d 890 (Minn. App. 2016), in which a substantive due process violation was found when a defendant was not allowed to raise a mistake of age affirmative defense in a child solicitation setting. In Moser, the interaction between the defendant and victim occurred online, which is substantially different from in-person encounters and limits the defendant’s ability to practically assess the age of the alleged victim.

Second, appellant argues that the mistake of age defense limitation violates equal protection by arbitrarily allowing some defendants to raise the defense but not others. The two similarly situated classes of individuals here, defendants who are more than 120 months older than their alleged victims and those who are not, are not constitutionally suspect classes, and appellant has no fundamental right to raise the defense. Thus, the rational basis test also applies to appellant’s equal protection argument. The Legislature clearly intended to afford the most protection to the youngest children in the criminal sexual conduct statutes. With the mistake of age defense limitation, the younger the victim, the smaller the segment of the class of over 18 offenders who can avoid conviction using the defense, which affords greater protection to the youngest potential victims, consistent with the Legislature’s intent.

The court finds that the distinction the limitation makes is neither arbitrary nor fanciful, but rather is relevant and connected to the overall statutory scheme, and that the goal of providing greater protection to younger potential victims is a legitimate legislative objective that is actually furthered by the challenged classification. Appellant’s conviction is affirmed. State v. Christopher Lee Holloway, Ct. App. 11/20/2017.

Samantha Foertsch

Bruno Law

Stephen Foertsch

Bruno Law

 

EMPLOYMENT & LABOR LAW
JUDICIAL LAW

There were a number of major employment law cases decided by federal and state appellate courts in Minnesota during 2017. Here’s a look at a half dozen of them and a preview of a pair of significant ones pending before the U.S. Supreme Court, as well.

Age discrimination; ADR upheld. A pair of cases upheld the Alternative Dispute Resolution (ADR) process for age discrimination cases.

Laid-off employees seeking to challenge the waiver of legal rights contained in severance agreements with General Mills must go to arbitration under ADR clauses in the agreements. The 8th Circuit Court of Appeals, reversing a ruling of U.S. District Court Judge John Tunheim, held that an arbitrator, not a court, must decide if the waivers were “knowing and voluntary,” as required under the federal Age Discrimination in Employment Act (ADEA). McLeod v. General Mills, 856 F.3d 1160 (8th Cir. 2017).

An age discrimination claim by a demoted 54-year old Minneapolis police officer could be pursued after expiration of the one-year statute of limitations under the Minnesota Human Rights Act. The Minnesota Supreme Court held that participation in the city’s investigative process constituted an ADR mechanism to toll the limitations period under Minn. Stat. §363A.28, Subd. 3. Peterson v. City of Minneapolis, 892 N.W.2d 824 (Minn. 2017).

• Retaliation claims; different outcomes. A group of employees who were fired due to participation in a publicity campaign asserting unsafe and unsanitary practices at fast food facilities were not entitled to pursue a wrongful discharge claim for engaging in statutorily protected “concerted activities” under the National Labor Relations Act. The 8th Circuit Court of Appeals held that the “devastating effect” of the “disloyal” employee’s campaign deprived them of protection from discharge. MikLin Employees v. NLRB, 861 F.3d 812 (8th Cir. 2017).

A whistleblower was entitled to pursue his claim even though his company was previously aware of the matter he complained about before his discharge. The Supreme Court ruled that as long as the whistleblowing is done in “good faith” under Minn. Stat. §181.92, it may go forward even if it is not intended to “expose an illegality.” Friedlander v. Edwards Lifesciences, 900 N.W2d 162 (Minn. 2017).

An undocumented alien fired after filing a claim for workers compensation benefits may pursue a claim for retaliatory discharge under Minn. Stat. §176.828, Subd. 1. The Supreme Court ruled that the action was viable despite the claimant’s illegal status in this country. Sanchez v. Dahlke Trailer Services Inc., 897 N.W.2d 267 (Minn. 2017).

• Refusal to share tips; claim allowed. A St. Louis Park bartender fired for refusing to share tips may sue for violation of his rights under the state mini-Fair Labor Standards Act. The Supreme Court remanded the case, holding that the discharge may violate Minn. Stat. §177.24, Subd. 3. Burt v. Rackner, 882 N.W.2d 627 (Minn. 2017).

LOOKING AHEAD

The U.S. Supreme Court will re-hear two issues this year that have cropped up previously. In Encino Motorcars v. Navarro, No. 16-1362, the High Court will decide, following remand in 2016, whether repair service advisers at vehicle dealerships fall within the exemption from overtime under the Federal Fair Labor Standards Act, 29 U.S. C. §213(b)(10)(A) covering automotive “salesman.” The case turns on the standards in administrative law for changes in regulations by the Department of Labor.

In Janus v. AFSCME Council No. 31, No. 16-1644, the justices will reconsider whether public sector employees covered by mandatory labor union may decline on 1st Amendment grounds to pay all union dues. This hot-button issue, of profound importance to labor unions, agency shops, their members, and employers, yielded a 4-4 deadlock decision in 2016 in Friedrichs v. California Teachers Assn., 136 S.Ct. 2545 (2016). The challengers seek to overturn the ruling of the High Court in Abood v. Detroit Bd. of Education, 431 U.S. 209 (1977) allowing mandatory union dues, subject to deduction by objecting members of their “fair share” portion of those dues attributable to supporting political candidates or causes they oppose.

Marshall H. Tanick

Meyer, Njus & Tanick

 

ENVIRONMENTAL LAW
JUDICIAL LAW

• 9th Circuit upholds “significant nexus” test to determine waters of the United States, Clean Water Act jurisdiction. On 11/27/2017, the 9th Circuit Court of Appeals upheld the United States District Court for the District of Montana’s conviction of the defendant for violating the Clean Water Act (CWA). In the case United States v. Robertson, defendant excavated a series of ponds on federal and private land. During the construction process, he discharged the dredge and fill material into the surrounding wetlands and an adjacent tributary that ultimately flowed to the Jefferson River, a traditionally navigable water of the United States. All of this he did without a permit issued from the United States Army Corps of Engineers (Corps).

The CWA prohibits the discharge of dredge or fill material into “navigable waters” unless authorized by a permit from the Corps. 33 U.S.C §§1311(a), (d); 1344(a). “Navigable waters” is defined as “waters of the United States.” Id. §1362(7). The 2006 Supreme Court case Rapanos v. United States, 547 U.S. 715 (2006) tried to define which type of wetlands could or could not be considered waters of the United States (WOTUS), and thus be subject to the Corps’ jurisdiction under CWA. The four-justice plurality, authored by Justice Scalia, held that WOTUS includes only wetlands that are adjacent to and have “a continuous surface connection” with other traditional navigable water. Id. at 742. On the other hand, Justice Kennedy, agreeing in part with the plurality, rejected Justice Scalia’s test and held that CWA jurisdiction would extend to wetlands if only there was a “significant nexus” between the wetland and the other traditional navigable water. Id. at 780.

The 9th Circuit set its precedent in the 2007 case Northern California River Watch v. City of Healdsburg, holding that Justice Kennedy’s opinion was the controlling opinion from Rapanos. 496 F.3d 993, 995 (9th Cir. 2007). Other circuits, such as the 1st, 3rd, and 8th, have explicitly concluded that either test may be used to determine CWA jurisdiction over WOTUS, while other circuits have simply chosen not to decide.

In this case, in light of a recent 9th Circuit case dealing with how to interpret Supreme Court split decisions, defendant argued that Justice Kennedy’s test from Rapanos should not be used as the controlling test to determine CWA jurisdiction, but rather Justice Scalia’s much more limiting test. However, the 9th Circuit was unconvinced and held with the Healdsburg precedent that Justice Kennedy’s “significant nexus” test shall be the controlling test for determining CWA jurisdiction.

In 2015, EPA and the Corps issued a long-awaited proposed rule revising the definition of WOTUS that largely relied upon Justice Kennedy’s “significant nexus” test. However, the 6th Circuit has since stayed that rule pending litigation, and on 7/27/2017, EPA and the Corps issued a proposed rule, pursuant to a 2/28/2017 executive order from President Trump, that would retract the 2015 proposed WOTUS rule and officially re-codify the pre-2015 WOTUS definition. 82 Fed. Reg. 34899 (7/27/2017). EPA has stated its intent to promulgate a new rule defining WOTUS in accordance with Justice Scalia’s “continuous connection” test. In the meantime, however, courts in the 9th Circuit will look to the pre-2015 rule and “significant nexus” test to determine CWA jurisdiction. United States v. Robertson, 2017 WL 5662532 (9th Cir. 2017).

ADMINISTRATIVE ACTION

• EPA abandons plans to issue financial assurance regulations for hard-rock mining. On 12/2/2017, the U.S. Environmental Protection Agency (EPA) issued a final rule declining to adopt proposed regulations, published on 1/11/2017, establishing financial responsibility requirements applicable to hard-rock mining facilities. Under section 108(b) of CERCLA, EPA was required, by December 1983, to identify classes of facilities needing financial assurance and then to pass financial assurance rules, beginning with those classes that present the highest risk of injury. After EPA delayed in identifying classes needing financial assurance, environmental groups sued and obtained a court-sanctioned legal agreement under which EPA agreed to take final action on hard-rock mining requirements by 12/1/2017.

EPA determined that the agency’s final action would be to not promulgate financial assurance regulations for hard-rock mining facilities. Among the reasons EPA cited for why the regulations are not necessary at this time were: (a) modern management practices and modern environmental regulations at hard-rock mines have reduced the risk of taxpayer-funded cleanups, and (b) the proposed requirements would potentially interfere with state and local mining regulations. Minnesota financial assurance requirements for hard-rock mining facilities are set forth in Minn. R. 6130.6000 (ferrous operations) and Minn. R. 6132.1200 (nonferrous operations). EPA RIN 2050-AG61.

Jeremy P. Greenhouse
The Environmental Law Group, Ltd.

Jake Beckstrom Vermont Law School, 2015

Erik Ordahl Mitchell-Hamline School of Law, 2017 

 

FEDERAL PRACTICE
JUDICIAL LAW

• Applicability of Minnesota’s punitive damages statute in federal court. More than fifteen years ago, the author of this column wrote an article for Bench & Bar arguing that Minnesota’s punitive damage pleading statute, Minn. Stat. §§549.191-549.20, should not apply in federal court under the Erie doctrine (Erie R. Co. v. Tompkins, 304 U.S. 64 (1938)).

Years after the article was published, a fractured Supreme Court held in Shady Grove Ortho. Assocs., P.A. v. Allstate Ins Co. (559 U.S. 393 (2010)) that Fed. R. Civ. P. 23 permitted the maintenance of a class action in federal court even though a New York statute would have precluded a similar class action in the New York courts.

The punitive damages issue recently came back to life as the result of an order by Magistrate Judge Noel. After the plaintiffs moved for leave to amend their complaint to add a claim for punitive damages, Magistrate Judge Noel ordered the parties to submit supplemental briefs addressing whether and to what extent Shady Grove impacted the analysis of plaintiffs’ punitive damages motion.

After receiving the parties’ briefs, Magistrate Judge Noel found that there was a conflict between Fed. R. Civ. P. 15 and the punitive damages statute, and that because Fed. R. Civ. P. 15 was valid under the Rules Enabling Act, it was Rule 15, and not the punitive damages statute, that applied to plaintiffs’ motion. But Magistrate Judge Noel then found that plaintiffs’ proposed amendment was futile under the law of a number of states, and denied plaintiffs’ motion to amend to the plaintiffs whose claims were governed under the law of those states. Magistrate Judge Noel then ordered the parties to propose a procedure under which he could determine whether Minnesota’s choice of law rules would dictate a different outcome for residents of other states.

Plaintiffs filed a timely objection to the Order on 8/10/2017. Based on a review of the docket, that objection appears to remain under advisement at press time.

If it stands, Magistrate Judge Noel’s Order will represent a significant change to the case law governing the applicability of the Minnesota punitive damages statute in federal court. In Re: Bair Hugger Forced Air Warming Devices Prods. Liab. Litig., 2017 WL 5187830 (D. Minn. 7/5/2017) (ordering briefing); In Re: Bair Hugger Forced Air Warming Devices Prods. Liab. Litig., 2017 WL 5187832 (D. Minn. 7/27/2017) (denying motion to amend), objection filed (D. Minn. 8/10/2017).

In light of Magistrate Judge Noel’s order, it should be noted that Judge Frank recently applied the Minnesota punitive damages statute in dismissing plaintiffs’ punitive damages claims. Rassier v. Sanner, 2017 WL 5956909 (D. Minn. 11/30/2017).

• Fed. R. Civ. P. 15(a)(2); amendment by consent; remittitur; 7th amendment. The 8th Circuit held that the plaintiff had consented to the defendant’s amendment of its breach of contract claim at trial when he did not object to the introduction of testimony to support the amended claim. The 8th Circuit also held that the district court had “no authority” to order a remittitur without obtaining the consent of the party benefiting from the judgment, and that it should have offered a choice between remittitur and a new trial on damages. Wright v. Byron Fin., LLC, ___ F.3d ___ (8th Cir. 2017).

• Attorney’s fees; prevailing party; mootness. The 8th Circuit affirmed a district court’s finding that the plaintiffs were prevailing parties entitled to an award of attorney’s fees under 42 U.S.C. §1988 despite the fact that the declaratory judgment they had obtained was mooted by the Arkansas Legislature’s amendment of the relevant statute while the case was on appeal. Libertarian Party v. Martin, ___ F.3d ___ (8th Cir. 2017).

• Challenge to award of costs rejected. Chief Judge Tunheim rejected the losing plaintiff’s challenge to the clerk’s award of costs to the prevailing defendants where the plaintiff’s challenge was untimely under Local Rule 54.3(c)(3), and because the challenge failed to offer any of the required “supporting documents.” Thomas v. Bzoskie, 2017 WL 5633094 (D. Minn. 11/21/2017).

• Late motion to amend complaint rejected. Judge Schiltz rejected the plaintiff’s post-judgment motion for leave to amend its complaint where the plaintiff “sat on its hands for four months” after being put on notice that its claims were in danger, describing the plaintiff’s conduct as “exactly the type of unreasonable delay that provides sufficient grounds for denying a post-judgment motion for leave to amend.” Phoenix Entertainment Partners, LLC v. Starr Music, Inc., 2017 WL 5714021 (D. Minn. 11/28/2017).

Josh Jacobson

Law Office of Josh Jacobson 

 

INDIAN LAW
JUDICIAL LAW

• Parents’ failure to raise ICWA may waive applicability. Under the Indian Child Welfare Act (ICWA), “[a] district court has an affirmative obligation to inquire into whether ICWA applies to a custody determination when it has reason to believe that the child subject to the determination is an Indian child.” The district court determined that ICWA did not apply and terminated the mother’s parental rights. The mother argued for the first time on appeal that ICWA may apply, and submitted an affidavit in support of her argument. The Minnesota Court of Appeals refused to consider mother’s argument, reasoning that the district court had “no reason to believe” that the child was an Indian child, and relying on the mother’s failure to raise her argument before the district court. In the Matter of the Welfare of the Child of M.J.H, No. A17-0918, 2017 WL 5077571 (Minn. App. Ct. 11/6/2017).

• United States not subject to claims for violations of federal leasing regulations for tribal lands. The American Indian Agricultural Resources Management Act authorizes the Secretary of the Interior to participate in the management of tribal agricultural lands. Plaintiff farmers entered into federally approved and issued agricultural leases with the Oglala Sioux Indian Tribe. After falling behind on lease payments, the plaintiffs worked with BIA officials, who assured them that they could continue to farm the lands. Nevertheless, after continued non-performance, the BIA terminated the leases. The plaintiffs sued the BIA for breach of contract under the leases, breach of implied-in-fact contract based on the BIA’s assurances, and takings under the 5th Amendment.

The Court of Federal Claims dismissed the claims for lack of subject matter jurisdiction and failure to state a claim. With respect to the breach-of-contract claims, the court concluded that, although the United States was a party to the leases, it only acted as a fiduciary, and was not in privity with the plaintiffs. The court rejected the breach-of-implied-contract claims because it concluded that express contract blocked the formation of implied contacts. Finally, because it reasoned that takings claims must stem from lawful takings, the court rejected the plaintiff’s claims because they stemmed from alleged unlawful takings. Moody v. United States, ___ Fed. Cl. ___ (2017).

Jessica Intermill 

Hogen Adams PLLC

Peter J. Rademacher

Hogen Adams PLLC

 

INTELLECTUAL PROPERTY
JUDICIAL LAW

• Patents: Dismissing equitable defenses. Judge Tunheim recently granted summary judgment dismissing defendant Arctic Cat’s equitable defenses. Bombardier Recreational Products sued Arctic Cat alleging infringement of its patents directed to snowmobile designs. In response, Arctic Cat pled the affirmative defenses of equitable estoppel, laches, waiver, and unclean hands. In its final pre-trial order, the court required Arctic Cat to submit a proffer showing that it could present evidence at trial to support its equitable defenses. To prove equitable estoppel, Arctic Cat was required to show misleading conduct, reliance on that conduct, and material prejudice. As evidence, Arctic Cat pointed to a 2003 letter from Bombardier notifying Arctic Cat of its pending applications. Pre-issuance activity, however, cannot give rise to equitable estoppel. In dismissing the defense, the court found Arctic Cat could not present any evidence that it had changed its position in reliance on Bombardier’s delay. Dismissing the laches defense, the court relied on the recent Supreme Court decision in SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 137 S. Ct. 954 (2017), which held that laches was not a defense to damages for patent infringement because Congress had included a statute of limitations in the Patent Act. The court, however, would revisit the laches defense if Bombardier prevailed at trial and sought a permanent injunction. The court dismissed the waiver defense, noting Bombardier was barred from seeking damages for post-model-year 2013 snowmobiles. Finally, the court dismissed the unclean hands defense finding no circumstances that “shock the moral sensibilities of the judge” or are “offensive to the dictates of natural justice.” Bombardier Rec. Prods. v. Arctic Cat Inc., No. 12-2706 (JRT/LIB), 2017 U.S. Dist. LEXIS 191520 (D. Minn. 11/20/2017).

• Patents: Summary judgment of infringement. Judge Nelson recently granted plaintiff Solutran, Inc. summary judgment of infringement. Solutran owns U.S. Patent No. 8,311,945 directed toward a system and method for processing check transactions. Solutran sued U.S. Bancorp and its subsidiary Elavon, Inc. (collectively, U.S. Bank) claiming U.S. Bank’s Electronic Check Service infringed its patent. The court stayed the case for 16 months while U.S. Bank unsuccessfully challenged the validity of the patent in a Covered Business Method Review before the United States Patent Office. Upon lifting the stay, the parties commenced with discovery, and the court issued a claim construction order. Filing cross-motions for summary judgment, the parties disputed the interpretation and application of one claim element—“comparing by a computer said digital images with said data in the data file to find matches.” Because there was no dispute as to the operation of the accused system, the dispute was reduced to a question of claim interpretation, rendering it ripe for summary judgment. The court previously construed the term “said data” to include, at a minimum, the transaction amount on a check. U.S. Bank argued that the transaction amount needed to be independently considered in the comparing process, while Solutran argued the transaction amount only needed to be included within the compared data. The court determined: (1) the data captured at the merchant’s point of purchase must include the transaction amount; (2) the transaction amount must be one of the elements of the “said data” in the “data file,” the latter of which must then be compared with the digital images; and (3) the “match” being made as part of the comparison step can involve, but need not necessarily involve, the transaction amount. The court’s revised construction left no genuine issues of material fact as to infringement, entitling Solutran to summary judgment as a matter of law. Solutran, Inc. v. U.S. Bancorp, No. 13-cv-2637 (SRN/BRT), 2017 U.S. Dist. LEXIS 194336 (D. Minn. 11/27/2017).

Joe Dubis

Merchant & Gould

 

REAL PROPERTY
JUDICIAL LAW

• Subject matter jurisdiction. Property owner brought suit against the state and county in federal court asserting that real property forfeited for failure to pay real estate taxes rightfully belonged to the owner free of any encumbrances. The property owner cited the federal Declaratory Judgment Act as its basis for jurisdiction. The court granted the state and county’s motion to dismiss for lack of subject matter jurisdiction. The court noted that the federal Declaratory Judgment Act does not provide an independent basis for federal jurisdiction, and the property owner in this case did not plead a federal question or diversity jurisdiction. The court also dismissed the complaint because the property owner was a religious entity and was purportedly being represented in court by a non-lawyer. Disciples Rd. v. Hiivala, Civil No. 17-4114 (D. Minn., 2017).

• Breach of mortgage; temporary restraining order. Owner of commercial property sued its mortgagee claiming that the mortgagee breached the mortgage agreement by wrongfully withholding its consent to a lease modification agreement between the owner and the owner’s tenant. The property owner commenced a lawsuit claiming that this refusal resulted in its inability to make a scheduled balloon payment, causing the mortgagee to foreclose the mortgage. During the foreclosure redemption period and after commencement of the lawsuit, the owner entered into a purchase agreement to sell the property. The closing on the sale was scheduled for three days prior to the expiration of the redemption period. The owner brought a motion for a temporary restraining order, asking the court to stay the redemption period until final adjudication of the lawsuit. The court denied the TRO request because it claimed the owner could not demonstrate irreparable damages. The court noted that the owner’s obligation to make the mortgage payments under the terms of the mortgage was absolute and unconditional, and independent of any other term in the mortgage. Therefore, even if the mortgagee breached the mortgage by refusing to consent to the lease modification, the owner’s sole remedy for the breach would be monetary damages. Forest Lake Facilities, LLC v. Wells Fargo Bank, N.A., Case No. 17-1766 (D. Minn., 2017).

• Zoning; plat application. Landowner of a 10-acre plat of land in Lake Elmo zoned “rural residential” (RR) applied to the city to develop the parcel into a cemetery. The landowner first submitted a sketch plan to the planning commission that called for a cemetery, a columbarium, and parking spaces. The landowner intended to re-purpose the existing single-family residence on the property for cemetery administrative and maintenance. He maintained that the structure would be used as a caretaker’s residence and that he would not provide funeral home services. The planning commission concluded that the property would not need to be re-zoned because cemeteries were a permitted use in RR zones. The planning commission noted that the ordinance did not contain specific development standards for cemeteries. The landowner subsequently submitted his preliminary and final plat applications. The plat application included an administration building and a proposed expansion of the structure to add room for public gatherings. Seven community members expressed concern about the project at the public meeting, but the planning commission voted unanimously to approve the plat application. The city council tabled the approval, and then ultimately voted to deny the permit application. At the city council meeting, 10 community members spoke in opposition to the project. The city council cited the commercial qualities of the plat, administration building, a gathering space that could be used for funeral home services, and the large parking lot as its basis for denial. The landowner sued. The district court ruled in favor of the city. The court of appeals reversed and found the reasons for denial by the city council to be arbitrary and capricious. The court of appeals ruled that the definition of cemetery in the ordinance does not prohibit or define structures associated with the cemetery, and does not prohibit the type of uses and activities proposed with the cemetery. The court of appeals noted that the record does not reflect that the cemetery would be engaged in funeral home services, but only reflects that if a person purchased a cemetery plot, an on-site service would be an option.

The city also argued that the proposed plat would violate the city’s comprehensive plan. The court of appeals also found this basis to be arbitrary and capricious. The proposal to host memorial services and build a parking lot does not clearly conflict with the zoning ordinance’s definition of cemetery, and a cemetery in the proposed location is permissible. Therefore, the proposal would not conflict with the city’s comprehensive plan. Next, the city argued that the size of the administration building and parking was not proportional to the size of the proposed cemetery. The court of appeals stated that this basis for denial would create land restrictions not found in the zoning ordinance and therefore is arbitrary. The zoning ordinance contains no requirements that regulate the size of cemetery-related buildings in the RR zoning district or cemetery care and maintenance. Finally, the city argued that the proposal violated zoning laws because it had two principal uses for the property—a residence and a cemetery—and because the site is only 10 acres, it is the minimum size for a residence and could not be separated from the cemetery component of the proposal. However, the court of appeals ruled that the city’s zoning ordinance does not unambiguously prohibit the existence of two “principal uses” on one property in the RR zoning district, and is therefore an arbitrary and capricious basis for denial of the application. Rossow v. City of Lake Elmo, A17-0077 (Minn. Ct. App. 2017).

Michael Kreun

Beisel & Dunlevy PA

 

TAX LAW
JUDICIAL LAW

• Issue of first impression: IRS not authorized to collect interest or additions to tax on amounts assessed under section 6201(a)(4). Section 6201(a)(4) applies following a conviction for failure to pay any tax authorized by title 26. In particular, the section authorizes the Secretary to “assess and collect the amount of restitution” ordered by the sentencing court “in the same manner as if such amount were such tax.” IRC Sec. 6201(a)(4). A taxpaying couple who had pled guilty to filing a false return presented the tax court with an opportunity to interpret Section 6201(a)(4). In what the tax court noted was an issue of first impression, the court addressed whether the IRS may assess and collect interest and additions to tax on amounts assessed under section 6201(a)(4)(A). In a lengthy opinion, the court answered that question in the negative. The court reasoned that the language “as if” in the section makes clear that restitutions are not actual tax losses but rather civil tax liabilities. Since restitution is not a tax loss, interest and additions to tax cannot apply. Klein v. Comm’r, 149 T.C. No. 15 (2017).

• Interest on tax deficiency is compensatory, not penal, and begins running when liability is due. In this collection due process proceeding, the tax court held that the proper computation of interest on a tax deficiency, where the IRS has retroactively revoked a corporation’s tax-exempt status under section 501(a) and (c)(3), starts running when the liability is due. The taxpayer’s tax-exempt status was revoked in 2012 and the revocation was retroactive to 1/1/2002. The taxpayer was ordered to file returns on Forms 1120 from 2002 to date. The taxpayer failed to timely comply, so the service prepared a substitute for return (SFR) and subsequently issued a notice of deficiency. After trial, the deficiency for 2002 was determined to be $216,547 and interest was to be assessed “as provided by law.” The IRS assessed interest of $142,185; the calculation reflected the interest starting to run on 3/17/2003, the date required by law for a Form 1120 for 2002 by a corporation in that tax year.

The taxpayer sought abatement, contending the earliest the interest could start running was 3/13/2013. Agreeing with the Service, and reasoning that interest payments are merely compensatory, not penal, the tax court upheld the interest payment. The court noted that Section 6601(a) starts the interest clock running on the last day a payment could be made. In this case, the date for the 2002 Form 1120 was 3/17/2003. Section 6601(a) provides petitioner must pay interest on unpaid tax “for the period from such last date to the date paid.” Underpayment interest is designed to compensate the government for the time the taxpayer was able to use the government’s money. The court sympathized with the taxpayer’s argument that the taxpayer “could not possibly have paid its 2002 tax liability timely because it did not know on March 17, 2003, that this liability existed.” However, because “the purpose of making a change retroactive is to suspend reality and invoke a counterfactual premise… the petitioner was not in fact tax exempt during 2002 but rather was a corporation subject to the regular corporate income tax. Because petitioner did not actually pay that tax on the date prescribed for payment, it is liable for interest beginning on that date.” CreditGuard of America, Inc., v. Comm’r, 149 T.C. No. 17 (2017).

• Unemployment compensation not exempt from federal income under treaty. Petitioner is a Canadian citizen and nonresident alien of the U.S., who worked as a post-doctoral fellow in Ohio until November 2011, when her employment contract ended. She returned to Canada the next month and applied for unemployment compensation from Ohio. She received bi-weekly unemployment compensation totaling $15,972 in 2012. She received a 1099-G, and timely filed her 1040NR-EZ. She claimed the Ohio unemployment income was exempt from federal tax under Article XV of the Convention With Respect to Taxes on Income and on Capital, Can.-U.S., 9/26/1980, T.I.A.S. No. 11087 (treaty), which covers “Dependent Personal Services.” She included the unemployment income on her Canadian taxes, but her Canadian tax liabilities were offset by deductions and credits.

The IRS selected her return for examination and determined she failed to report United States taxable income. The commissioner contended article XV was inapposite and that article XXII (Other Income) made her unemployment compensation taxable. Nonresident aliens are usually taxed on their U.S.-sourced income, and the sole question before the tax court was whether petitioner’s unemployment compensation was exempt from federal income under the treaty. The court held it was not. Article XV, cited by the taxpayer to exclude her unemployment compensation, governs “salaries, wages, and other similar remuneration.” Unemployment compensation does not properly fall within any of those definitions, all of which describe benefits paid by an employer to an employee. The income therefore would have to be regarded as compensation from her former employment, which was in the U.S., and Paragraph 1 of the treaty provides that such remuneration may be taxed in the U.S. Article XV does not govern unemployment compensation. Moreover, the court continued, even if article XV applied, its provisions permit the U.S. to tax the income since unemployment compensation is not “salaries, wages, and other similar remuneration” for the purposes of the Convention with Respect to Taxes on Income and on Capital, Can.-U.S., 9/26/1980, T.I.A.S. No. 11087 (treaty). Even if it is “other similar remuneration,” the treaty permits the U.S. to tax the income if the “employment is exercised in the Contracting State.” The unemployment compensation in this case is necessarily borne by the former U.S.-based employer that paid into the system. There are two exceptions to the general rule that such income may be taxed in the U.S.: (1) the remuneration is less than $10,000 USD or (2) petitioner was in the U.S. less than 183 days and the remuneration was “not borne by an employer who is a resident” of the U.S. The compensation was greater than $10,000 in this case and although she was in the U.S. only two days that year, the compensation was borne by the U.S. resident employer. Finally, the court rejected petitioner’s double taxation argument. The treaty expressly prohibited double taxation in certain circumstances. The section cited by petitioner, however, was inapposite because the cited section applies only to citizens or residents, of which she is neither. Pei Fang Guo v. Comm’r, 149 T.C. No. 14 (2017).

• Tax court affirmed: Property tax assessment sustained; Erie shuffle inapplicable. The Minnesota Supreme Court, in an opinion issued without oral argument, upheld the Minnesota Tax Court’s dismissal of a married taxpaying couple’s petition challenging property taxes. The couple raised constitutional challenges in addition to the property tax challenges for the 2007 to 2013 taxable years; they also filed a number of post-trial motions. The Minnesota Tax Court had dismissed the couple’s challenge to the 2007 to 2012 assessments for failure to comply with certain statutory requirements. The lower court also dismissed the 2013 property tax challenge for failure to overcome the county’s prima facie case. Finally, the tax court had dismissed the taxpayers’ constitutional claims because the tax court concluded that it had no jurisdiction over the claims and could not gain jurisdiction through an Erie shuffle. The “Erie shuffle” is a procedural mechanism by which the tax court can acquire the authority to adjudicate constitutional components of tax claims by referring the claims to the district court, and if the district court decides not to retain them, the district court transfers the claims back to the tax court for decision. See Wilson v. Comm’r of Revenue, 619 N.W.2d 194, 199–200 (Minn. 2000); Erie Mining Co. v. Comm’r of Revenue, 343 N.W.2d 261, 264 (Minn. 1984).

The Minnesota Supreme Court reviewed the tax court order and the taxpayers’ five unsuccessful post-trial motions. The Court reviews tax court decisions to determine whether the tax court lacked subject matter jurisdiction, whether the tax court’s decision is supported by evidence in the record, and whether the tax court made an error of law. Hohmann v. Comm’r, 781 N.W.2d 156, 157 (Minn. 2010). In this case, the Minnesota Supreme Court affirmed the tax court’s decision, holding that “[w]e have thoroughly reviewed the record…. [W]e conclude that the tax court had jurisdiction, and we discern no error of law. Our careful review also demonstrates that the evidence in the record adequately supports each of the tax court’s decisions at issue.” Johnson v. Hennepin Co., 903 N.W.2d 422 (Minn. 2017).

• Erie transfer granted in part and denied in part in removal motion. In a property tax dispute concerning the value of two multi-tenant office buildings in Edina, the petitioner, OCC, LLC, sought an Erie transfer in connection with its notice to remove the assigned tax court judge. The county filed and served a motion to quash the petitioner’s notice to remove. The petitioner cited Minn. R. Civ. P. 63.03 in its request, which provides in part that “Any party or attorney may make and serve on the opposing party and file with the administrator a notice to remove.” In its memorandum, the tax court set out the background of what has come to be known as the Erie shuffle. The court concluded that, regardless of its merits, OCC’s request to remove the assigned judge arises under a Minnesota statute that obligates the tax court to follow the Minnesota Rules of Civil Procedure. Because the Minnesota Rules of Civil Procedure are incorporated “where practicable” by Minnesota tax law, the removal notice arises under the tax laws of the state, and therefore the tax court held the Erie transfer appropriate and ordered the case transferred to the district court for transfer back to the tax court. OCC, LLC v. Hennepin Co., 27-CIV-15-07711, 27-CIV-16-05401, 27-CIV-17-05394, Order Granting Motion for Erie Transfer (Minn. Tax 12/6/2017).

Morgan Holcomb

Mitchell Hamline School of Law

Jessica Dahlberg

Grant Thornton

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