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

Notes & Trends – November 2018

CIVIL PROCEDURE
JUDICIAL LAW

Minn. R. Civ. P. 12.02(e); affirming claim dismissal due to insufficient pleading of foreseeability. Doe 121 v. Diocese of Winona arose out of sexual misconduct by a priest in the early 1960s. A Catholic priest received a written reprimand from the bishop of the Diocese of Winona for “his poor financial habits and the taking of two teenagers with him on vacation.” Because of these indiscretions, the diocese reassigned the priest to St. Mary’s Catholic Church. The plaintiff, a young boy at the time of the priest’s reassignment, claimed to have been sexually abused by the priest on several occasions. Plaintiff eventually filed a complaint against the diocese and St. Mary’s in 2016, claiming general negligence, negligent supervision, and negligent retention against both defendants. The district court dismissed the general negligence claim for failure to state a claim under Minn. R. Civ. P. 12.02(e) because no special relationship existed between the plaintiff and defendants. The district court then dismissed both the negligent supervision and negligent retention claims at summary judgment because the record provided no evidence that the priest’s abuse was foreseeable or that the defendants knew or should have known of the priest’s prior sexually abusive conduct. Plaintiff appealed on all fronts. 

The court of appeals affirmed in part and reversed in part. First, for the general negligence claim, the court noted that though a person does not have a duty to prevent harm caused to another by a third party, a duty may still arise where there is a special relationship between a plaintiff and defendant, and the harm is foreseeable (citing Doe 169 v. Brandon, 845 N.W.2d 174, 177–178 (Minn. 2014)). The plaintiff’s claim failed, though, because “faith-based advice or instruction, without more, does not create a special relationship,” and the plaintiff’s pleadings failed to establish anything more (citing Meyer v. Lindala, 675 N.W.2d 635, 640 (Minn. Ct. App. 2004)). Instead, the pleadings revealed no facts that the diocese had any custody or control over the plaintiff, or that St. Mary’s could have foreseen the harm plaintiff allegedly suffered. The negligence claim was thus properly dismissed, and the court affirmed this holding.

The court then analyzed whether the district court properly granted summary judgment on the plaintiff’s remaining claims, focusing on the question of foreseeability and which parties had access to the priest’s letter of reprimand. Because the letter could have been interpreted to have “chastised [the priest] for taking teenagers with him because he had prior inappropriate conduct with teenagers or was suspected of having done so,” a jury could reasonably infer that the letter would provide enough foresight into the priest’s future abusive actions. Because the diocese had access to the letter through the priest’s personnel file, the court reversed the district court’s dismissal of the negligent retention and supervision claims as to the Diocese. But because St. Mary’s did not have access to the letter, the court affirmed the district court’s dismissal of the claims as to St. Mary’s. Doe 121 v. Diocese of Winona, No. A18-0480, 2018 WL 4558318 (Minn. Ct. App. 9/24/2018).

• Minn. R. Civ. P. 12.02(e); affirming claim dismissal due to insufficient pleading of damages. In a case that involved a dispute about fees payable for a timeshare home, the plaintiff’s mother bought a timeshare in the defendant’s timeshare community, then later signed a joint-ownership authorization form that added plaintiff to the deed as a joint owner. The deed was signed by defendant’s president and notarized. The plaintiff’s mother later passed away and nobody paid the timeshare’s accruing maintenance fees. Sometime later, the defendant contacted plaintiff to tell him he had two options: (1) surrender the property by a quitclaim deed, or (2) pay outstanding fees and keep the property. Plaintiff retained counsel and refused to pay the maintenance fees and asserted that the timeshare deed was invalid.

After receiving an unsatisfactory response from the defendant, plaintiff sued alleging violations of the Minnesota Consumer Fraud Act. The defendants answered and counterclaimed. Both parties then brought motions to dismiss the other party’s claims for failure to state a claim under Minn. R. Civ. P. 12.02(e), and the plaintiff also moved for attorney fees and expenses. The district court denied the attorney-fee motion and then dismissed each party’s claims under Minn. R. Civ. P. 12.02(e). The plaintiff appealed, arguing he had a valid claim under the MCFA. 

The Minnesota Court of Appeals disagreed with plaintiff. “To state a claim alleging a violation of the MCFA,” the court reasoned, “a plaintiff must plead that ‘the defendant engaged in conduct prohibited by the statute[ ] and that the plaintiff was damaged thereby.’” (Quoting Grp. Health Plan, Inc. v. Philip Morris Inc., 621 N.W.2d 2, 12 (Minn. 2001)). The problem with plaintiff’s claim, though, was that he did not suffer any damages by Minnesota’s traditional “out-of-pocket rule.” Put simply, because plaintiff had “not paid any value for the property and stipulated that he has no ownership interest in it, it is not possible to measure the difference between the price he paid for the timeshare interest and its actual value.” Furthermore, plaintiff’s subsequent hiring of an attorney to assist with the defendant’s demand letter was insufficient to qualify as damages. Concluding that plaintiff did not sufficiently plead any injury, the court affirmed. Engstrom v. Whitebirch, Inc., No. A18-0366, 2018 WL 4290056 (Minn. Ct. App. 9/10/2018).

• Minn. R. Civ. P. 56; affirming summary judgment of high schooler’s claims after suspension. A high school sophomore was suspended after the assistant principal at the Benilde-St. Margaret’s School heard that pictures on social media showed students drinking alcohol at a party at Gabrielle Huson’s home. The assistant principal started an investigation and quickly learned that two students admitted to drinking alcohol at the home. The assistant principal then met with Gabrielle, who admitted that alcohol was at the party and that she tried to stop students from drinking. The school then suspended her for violating the student handbook. 

Gabrielle’s mother, Christina, met with school administrators the next day and sent an email saying that Gabrielle denied telling the assistant principal that she knew alcohol was at the party. The Husons then sought a temporary restraining order from the district court and filed a complaint alleging breach of contract, procedural and substantive due process violations of both the United States and Minnesota Constitutions, and defamation. The TRO was immediately dismissed. The school eventually moved for summary judgment and the Husons requested leave to amend their complaint. The district court granted the summary-judgment motion and denied the motion for leave to amend. The Husons then appealed, claiming summary judgment was improperly granted and that the district court lacked jurisdiction to deny the motion for leave to amend.

The district court’s decision was affirmed in full. As to the breach-of-contract claim, the court of appeals explained that “no Minnesota court has held that the handbooks of private schools generally constitute contracts between the school and the student.” The Husons ultimately “chronically failed to identify any handbook language that satisfies the requisite elements of a contract.” That, in turn, meant that no jury could rely on any language in the handbook to “reasonably conclude that the school made an enforceable promise.” 

But even if the handbook constituted a contract, the handbook included a provision that a student violates the alcohol policy when they “supply” alcohol at any time—including by “hosting a party in which alcohol… is present.” This meant that Gabrielle’s knowledge of alcohol at the party was irrelevant and no corresponding breach of contract could have happened as a result. The Husons’ procedural fairness and due process claims were, ironically, barred on procedural grounds because those arguments were not raised in their principal appellate brief—only their reply brief. 

The court next turn to the defamation claims. The court began by noting that “the Husons point to no specific allegedly defamatory statement at all. They… offer[ed] only generalizations and characteristics.” Doing so directly violated “the well-settled rule requiring specific pleading of defamatory language” and was fatal to the defamation claims. As such, the district court correctly dismissed the defamation claims. 

The court also concluded that the district court properly retained jurisdiction to deny the Husons’ motion to amend complaint. In short fashion, the court recognized that district courts retain jurisdiction until judgment is entered and becomes final. But the summary judgment order had not been entered—let alone become final—by the time the district court ruled on the Hustons’ motion to amend. The district court thus properly exercised its jurisdiction in denying the motion to amend. Huson v. Benilde-St. Margaret’s Sch., No. A18-0317, 2018 WL 4401726 (Minn. Ct. App. 9/17/2018).

• Minn. R. Civ. P. 12.03; finding motion which relied on documents beyond the pleadings did not need to be converted to summary-judgment motion. After seven years of managing a bar and apartments within the same Duluth building, appellant King suffered a stroke and could no longer do so. King sold the property to Temple Corp. Inc. through a contract for deed, and over the next four years, Temple made payments to King and paid real-estate taxes. After a fire forced the building to close, no one paid real estate taxes for four years, leading to the property’s foreclosure. Ultimately, St. Louis County sold the property to the Duluth Economic Development Authority (DEDA). King’s amended district court complaint challenged the county’s sale.

The appellees’ ensuing dispositive motions raised some procedural discord. The county framed its motion as a motion for judgment on the pleadings under Minn. R. Civ. P. 12.03. As the county claimed, King’s claims were 1) reviewable only by the court of appeals, rather than the district court; and were 2) barred by the statute of limitations. Significantly, the county supported its motion with several documents not included in the pleadings. Meanwhile, DEDA filed a motion to dismiss for lack of subject matter jurisdiction under Rule 12.02, rather than 12.03, but DEDA relied on the same arguments raised by the county. 

In his appeal, King argued the county’s motion under Rule 12.03 should have been converted to a motion for summary judgment because the county relied on documents beyond the pleadings. As the county saw it, because subject matter jurisdiction can be challenged with documents outside the pleadings, and because it was essentially challenging the district court’s subject matter jurisdiction, the district court appropriately considered such evidence. 

The Court of Appeals disagreed, reasoning that “[e]ven if rule 12.03 were to require conversion to a summary-judgment motion when a motion alleging lack of subject-matter jurisdiction relies on matters outside the pleadings, this case can be resolved based solely on the pleadings . . . .” Because conversion to a summary motion was unnecessary, the court of appeals then proceeded to review the substantive, rather than procedural, grounds for the district court’s decision. Following that review, the court of appeals affirmed in part, reversed in part, and remanded. King v. Cty. of St. Louis, No. A18-0041, 2018 WL 4397587 (Minn. Ct. App. 9/17/2018).

Ryan MaloneHKM, P.A.

 

EMPLOYMENT & LABOR LAW
JUDICIAL LAW

• Disability discrimination; collective bargaining controlling. A disability discrimination claim filed by an employee placed on administrative leave in order to undergo testing for alcoholism was dismissed. Affirming a ruling of U.S. District Court Judge Ann D. Montgomery of Minnesota, the 8th Circuit Court of Appeals held that the claim was not justiciable because it could not be resolved without interpreting the collective bargaining agreement, which necessitates pursuing the matter through a grievance arbitration process. Boldt v. Northern States Power Company, 904 F.3d 586 (8th Cir. 9/14/18).

• Race discrimination; disparate impact dismissed. A claim of race discrimination by a number of African American bank employees was dismissed due to failure to establish a prima facie case of disparate impact. The 8th Circuit upheld dismissal, along with denial of a motion to seek additional discovery, which the court deemed not to be an “abuse of discretion” by the trial court. Williams v. Wells Fargo Bank, 901 F.3d 1036 (8th Cir. 8/29/2018).

• Hostile workplace; remedial measures dictate dismissal. An employer in St. Louis County who was sued for failure to take remedial measures to address a claim of a hostile-environment workplace secured dismissal of the employee’s lawsuit. The Minnesota Court of Appeals, affirming the St. Louis County District Court, held that the employer took appropriate remedial measures in response to the claim of harassment, negating any liability and warranting summary judgment. Allan v. United Piping, Inc., 2018 WL 4558314 (8th Cir. 9/24/2018) (unpublished).

• University wrestling coach; jury trial, bias claims rejected. The termination of the University of Minnesota wrestling coach, J. Robinson, was upheld on grounds that he was not entitled to a jury trial when going through the University’s internal dispute resolution process and there was no showing of bias against him. On certiorari review, the court of appeals held that the grappling coach was not entitled to a jury trial to grieve his termination because he sought the equitable remedy of reinstatement, and he failed to show “actual bias” on the part of the University internal hearing panel appointed to conduct an evidentiary hearing on his grievance. Robinson v. University of Minnesota, 2018 WL 4395020 (Minn. Ct. App. 9/17/2018) (unpublished).

• Noncompete agreement; employer not prevailing party. The employer was not the prevailing party in a longstanding noncompete dispute and, therefore, was not entitled to an award of costs and disbursements. Affirming a ruling of the Hennepin County District Court, the court of appeals held that the determination by jury that the employee’s new employer did not interfere with the noncompete agreement—and that, even though the employee breached the agreement, there were no damages awarded—did not justify an award of costs to the former employer who brought the lawsuit. St. Jude Medical, Inc., v. Carter, 913 N.W.2d 678 (S.Ct. 6/27/2018).

• Whistleblower claim; failure to promote dismissed. A claim by a Minneapolis police officer that failure to promote him to the rank of lieutenant constituted reprisal for exercise of his rights under the Minnesota Whistleblower Act, Minn. Stat. §181.932, was dismissed. Affirming a ruling of the Hennepin County District Court, the appellate court held that the claimant’s contention that he was involved in protected activities over an eight-year period was insufficient to create an inference of any causal connection to the city’s failure to promote him. Osland v. City of Minneapolis, 2018 WL 4201218 (Minn. Ct. App. 9/4/2018) (unpublished).

• Unemployment compensation; denial of child care accommodation request. An employee who lost her job after requesting and being denied an accommodation because of her lost child care was entitled to unemployment compensation benefits. The Minnesota Supreme Court held that the employee who quit because of a loss of child care is entitled to unemployment compensation benefits because the employer granted a request for accommodation and then changed its mind and took the accommodation away from her, which satisfies the accommodation-request requirement under Minn. Stat. §268.095, subd. 1(A) and allows unemployment compensation benefits even though the employee quit her job. Gonzalez Diaz v. Three Rivers Community Action, Inc., 2018 WL _____ (Minn. Ct. App. 9/27/2018).

•  Unemployment compensation; physical limitation does not warrant quitting. A postal employee who refused to substitute for two additional routes because of an employee shortage was denied unemployment compensation benefits. The Minnesota Court of Appeals held that although the claimant may have had physical limitations that prevented him from doing the routes, the employer did not discriminate against him by merely asking him to perform the two other routes, which he refused to do and then quit. Bjerke v. U.S. Postal Services, 2018 WL 4398321 (Minn. Ct. App. 9/17/2018) (unpublished).

• Unemployment compensation; unauthorized products at work. An assistant to a chiropractor who brought a topical mediation to the office and offered it to the clinic’s clients without authorization by her employer was not entitled to unemployment compensation benefits. Affirming a ruling by the Department of Employment & Economic Development (DEED), the court of appeals held that the employee’s behavior constituted disqualifying “misconduct.” Olsen v. Lindberg Chiropractic, 2018 WL 4394968 (Minn. Ct. App. 9/17/2018) (unpublished).

Marshall H. TanickMeyer, Njus & Tanick

 

ENVIRONMENTAL LAW
JUDICIAL LAW

• Iowa joins list of states in which newly revived WOTUS Rule does not apply; rule does apply in Minnesota. In September the federal District Court for the District of North Dakota issued an order clarifying that the court’s 2015 stay of the U.S. Environmental Protection Agency (EPA) and U.S. Army Corps of Engineers rule defining “Waters of the United States” under the Clean Water Act (CWA) (WOTUS Rule) applies in Iowa. The decision in North Dakota v. United States EPA is the latest of many recent developments concerning the embattled WOTUS Rule. Shortly after EPA and the Corps promulgated the WOTUS Rule in June 2015, 13 states—not including Iowa (or Minnesota)—challenged the rule in the North Dakota federal district court. North Dakota v. EPA, 127 F. Supp. 3d 1047 (D.N.D. 2015). The court granted the states’ motion for a preliminary injunction, staying the rule in those 13 states. Two months later, in October 2015, the U.S. Court of Appeals for the 6th Circuit issued a nationwide stay of the WOTUS Rule pending the 6th Circuit’s review on the merits. In December 2015, the North Dakota federal district court granted Iowa’s motion to intervene in the challenge to the WOTUS Rule; however, the court did not clarify whether its previously issued stay also now applied in Iowa as well as in the 13 states that commenced the lawsuit. 

Approximately two years later, in January 2018, the U.S. Supreme Court held that federal district courts, not appellate courts, have jurisdiction to hear challenges to the rule. Nat’l Ass’n of Mfrs. v. DOD, 138 S. Ct. 617 (2018). As a result, the 6th Circuit dismissed the consolidated challenges before it and dissolved the nationwide stay. At around the same time, however, EPA and the Corps, in February 2018, published a final rule postponing the effective date of the WOTUS Rule to February 6, 2020 (Postponement Rule), ostensibly to allow the agencies to develop a replacement rule. 83 Fed. Reg. 5,200 (2/6/2018). Thus, even though the 6th Circuit dissolved the stay, the WOTUS Rule continued to not be in effect because of the Postponement Rule.

This changed, however, on 8/16/2018, when the federal District Court for the District of South Carolina vacated the Postponement Rule. S.C. Coastal Conservation League v. Pruitt, 318 F. Supp. 3d 959 (D.S.C. 2018). The South Carolina court held that EPA and the Corps had not complied with the federal Administrative Procedures Act when they limited public comment on the Postponement Rule to whether the effective date should be extended and, if so, for how long. In so doing, the court held, the agencies had failed to engage in a substantive evaluation of the relative merits of the WOTUS Rule and the prior 1980s WOTUS definition, which would remain the law of the land as a result of the Postponement Rule. Citing prior decisions rejecting such “hastily enacted rules,” the court vacated the Postponement Rule. 

As a result of the South Carolina court’s decision, the WOTUS Rule was revived and became effective for the first time since October 2015. However, the rule only became effective in 23 states; the other 27 states—including the 13 states that challenged the WOTUS Rule in North Dakota federal court—were subject to federal district court preliminary injunctions that continued to stay the rule in those states. 

Which brings us back to Iowa. Recall that when Iowa, in December 2015, intervened in the North Dakota challenge to the WOTUS rule, the district court did not clarify whether the court’s stay—granted to the original 13 state plaintiffs before Iowa joined the lawsuit—applied to Iowa. The question was not critical at the time because the 6th Circuit had stayed the rule nationwide and, once that stay was lifted, the Postponement Rule kept the WOTUS Rule from taking effect in Iowa. However, once the South Carolina court vacated the Postponement Rule in August 2016, the question became suddenly important. As a result, Iowa Gov. Kim Reynolds asked the North Dakota district court to clarify the stay’s status in Iowa, and, on September 18, 2018, the court issued an order holding that the stay does apply (i.e., the WOTUS Rule does not apply) in Iowa. The decision brings to 28 the number of states in which the revived rule is not effective. Minnesota is among the 22 states in which the 2015 WOTUS Rule is in effect. At least for now—on 10/2/2018, Acting EPA Administrator Andrew Wheeler said during a roundtable discussion that the agency plans to unveil its proposal for a new “clean and straightforward” CWA jurisdiction standard within 30 days. North Dakota v. United States EPA, No. 3:15-cv-59, Order (D.N.D. 9/18/2018).

ADMINISTRATIVE ACTION

• EPA proposes amendments to roll back methane reduction rules. On 9/11/2018, the EPA announced a proposed rule of targeted amendments to the 2016 New Source Performance Standards (NSPS) for the oil and natural gas industry. 40 CFR §60 Subp. OOOOa. The 2016 rule, developed under the previous administration, sought to reduce emissions of volatile organic compounds (VOCs) and was the first rule to reduce methane emissions from the oil and natural gas sector. Methane is the main component of natural gas, and is a greenhouse gas that has 25 times more heat-trapping capacity than carbon dioxide.

The proposed rule amends a few aspects of the 2016 rule. For example, the 2016 NSPS fugitive emission provisions required operators to monitor for leaks at oil and natural gas wells within 60 days of startup production and every six months thereafter. The proposed rule amends the requirements for monitoring fugitive emissions to occur on an annual basis. Furthermore, the proposed rule would delineate low-production well sites, producing less than 15 barrels of oil per day, and only require biennial monitoring (once every other year) at those sites.

In addition, the 2016 NSPS required operators to repair leaks within 30 days of detection of a fugitive emission. The proposed rule amends the repair requirement to allow the operator to make a “first attempt at repair” within 30 days of detection, with complete repairs required within 60 days after fugitive emission detection.

Finally, as a way to reduce regulations and streamline requirements for oil and natural gas well operators, the proposed amendments would allow operators to meet certain state requirements for monitoring, repair, and recordkeeping requirements. The 2016 NSPS required operators to meet federal standards after being unable to conclude that state fugitive emission requirements would be “at least equivalent” to the requirements of the NSPS. Now the proposed rule allows operators to meet state fugitive emissions monitoring and repair standards, in lieu of NSPS requirements, in California, Colorado, Ohio, Pennsylvania, Texas, and Utah. The proposed rule requires operators to notify EPA 90 days in advance if they intend to use the state’s fugitive emission standards as an alternative standard.

The EPA analysis estimates the proposed rule would save the oil and natural gas industry $73 million a year from 2019 through 2025, for a total of $424 million. However, the EPA analysis also estimates that the proposed rule, over the same time period, would allow emissions of 380,000 short tons of methane; 100,000 tons of VOCs; and 3,800 tons of other hazardous air pollutants into the atmosphere, as compared to levels that would have resulted from the 2016 NSPS.

The EPA established a 60-day comment period and scheduled a public hearing in Denver, Colorado. EPA RIN 2060-AT54; Docket ID: EPA-HQ-OAR-2017-0483.

• EPA publishes proposed regulations replacing Clean Power Plan with Affordable Clean Energy Rule. On 8/21/2018, the (EPA) proposed the Affordable Clean Energy Rule (ACE) to replace the 2015 Clean Power Plan (CPP), which was stayed by the U.S. Supreme Court and never went into full effect. Pursuant to Section 111(d) of the Clean Air Act, 42 U.S.C. §7411(d), ACE establishes guidelines for states to develop plans to address greenhouse gas (GHG) emissions from existing coal-fired power plants by focusing on efficiency improvements “inside the fence” of the plant, without regulating actions “outside of the fence” of the plant, like transitioning to natural gas and renewable energy sources.

The proposed rule contains several components that distinguish it from the CPP. However, ACE proposes four key aspects worth noting. First, ACE revises the determination of the best system of emission reduction (BSER) for GHG emissions from coal-fired power plants. Rather than requiring power-producing sectors to switch from coal to renewable energy sources, the proposed rule adopts a narrow interpretation of BSER, requiring states to evaluate on-site heat rate improvement options at individual power plants, thereby boosting the plants’ efficiency and lowering GHG emission intensity.

Second, ACE provides a list of “candidate technologies” states can use when establishing standards of performance and developing their GHG plans. These candidate technologies include, inter alia, upgrading the plant’s computer system models, air heater and duct leakage control, and upgrading the steam turbine system.

Third, ACE would revise the New Source Review (NSR) permitting program. The rule proposes a new test to determine whether a physical modification or improvement would constitute a “major modification” and thus trigger an NSR. In order to avoid triggering NSR permitting requirements, the proposed revisions would allow states to adopt an hourly-emissions increase test for heat rate improvement projects, rather than the existing annual-emissions increase test. Only projects that increase a plant’s maximum hourly rate of pollutant emissions would trigger a full NSR analysis; if the plant’s hourly rate of pollution emissions would not increase, no NSR analysis would be triggered. This proposal is meant to allow coal-fired power plants to complete efficiency improvement projects and reduce GHG emissions without undue burden or disruption.

Fourth, the proposed rule revises “emission guidelines” for states when establishing standards of performance and developing their plans to submit to EPA. These revisions allow the states more time and flexibility to develop state plans. Currently, states are provided nine months to develop and submit state plans to EPA. The proposed rule would allow states three years. Existing regulations provide four months for EPA to review state plan submissions. The proposed rule would allow 12 months. Finally, EPA is currently provided six months to issue a federal plan upon disapproval of a state plan. The proposed rules would allow EPA two years.

The proposed ACE rule can be found on the EPA website. Emission Guidelines for Greenhouse Gas Emissions from Existing Electric Utility Generating Units, 83 Fed. Reg. 44746 (8/31/2018).

Jeremy P. Greenhouse, The Environmental Law Group, Ltd.

Jake Beckstrom,  Vermont Law School (2015)

Erik Ordahl, Flaherty & Hood, P.A. 

 

FAMILY LAW
JUDICIAL LAW

• No exceptions to writing and execution requirements for antenuptial agreements. Earlier this year, the Minnesota Supreme Court decided Kremer v. Kremer, clarifying the separate common law and statutory standards governing antenuptial agreements. 912 N.W.2d 617 (Minn. 2018). In part, Kremer held that even agreements which do not meet the statutory requirements of “full and fair disclosure” and “an opportunity to consult with counsel,” can still be procedurally fair if they satisfy a four-part test under common law. See Minn. Stat. §519.11, subd. 1.

But the common law cannot remedy every error. In a recent published decision, the Minnesota Court of Appeals rejected attempts to invoke the common law to validate an unwitnessed agreement between spouses-to-be. Despite arguments from the husband that statutory writing and execution requirements do not exist under common law, the court of appeals held that all antenuptial agreements must be written, signed, witnessed, and notarized. See Minn. Stat. §519.11, subd. 2. Failure to follow these procedures will render an agreement invalid. In so doing, the appellate court distinguished between notions of procedural fairness (addressed in Kremer) and basic formalization requirements contained in statute. See Siewert v. Siewert, 691 N.W.2d 504 (Minn. Ct. App. 2005). Muschik v. Conner-Muschik, No. A17-1332, __ N.W.2d __ (Minn. Ct. App. 10/1/2018).

Michael Boulette, Barnes & Thornburg LLP

 

FEDERAL PRACTICE
JUDICIAL LAW

• Non-mutual claim preclusion bars second action; dissent. Applying federal common law, the 8th Circuit affirmed an order dismissing a second federal action brought by the plaintiff. The 8th Circuit applied an expanded definition of “privity,” and broadened non-mutual preclusion to bar successive claims against a new group of defendants where there was “no good reason” that the plaintiff did not include those defendants in his first action. 

Judge Kelly dissented, arguing that the claims against the new defendants did not fall within the “discrete exceptions” permitting the application of non-mutual claim preclusion. Elbert v. Carter, ___ F.3d ___ (8th Cir. 2018). 

• Lack of standing on removed claim requires remand, not dismissal. For at least the third time in recent months, the 8th Circuit, relying on 28 U.S.C. §1447(c), reversed the dismissal of a removed action for lack of standing and held that where a district court determines that a plaintiff lacks standing on a claim removed from state court, the action must be remanded. Hillesheim v. Holiday StationStores, Inc., ___ F.3d ___ (8th Cir. 2018) (9/10/2018). 

• Mootness; claim not capable of repetition; failure to proceed expeditiously. Affirming a dismissal by Judge Magnuson, the 8th Circuit found that claims brought by a former 2016 Minnesota presidential elector were moot because the results of the Minnesota vote already had been submitted to the Senate, and rejected the argument that the claim for declaratory relief was not moot because it was “capable of repetition, yet evading review” where the plaintiff had failed to “proceed expeditiously” with his claim. Abdurrahman v. Dayton, ___ F.3d ___ (8th Cir. 2018). 

• Rule 11, 28 U.S.C. §1927 and inherent powers sanctions affirmed. The 8th Circuit affirmed sanctions imposed against counsel for a plaintiff who repeatedly sought to relitigate discovery issues previously decided by the district court, “disregarded or re-argued nearly all unfavorable court rulings,” and posed discovery questions “explicitly beyond the scope of discovery as ordered by the court.” The 8th Circuit also found that any procedural issue relating to the Section 1927 sanction was waived when it was raised for the first time in the reply brief. Vallejo v. Amgen, Inc., ___ F.3d ___ (8th Cir. 2018). 

• Fed. R. Civ. P. 15(c)(1)(C); suing the wrong defendant; relation back of amended claims. Denying the new defendant’s statute of limitations-based motion to dismiss, Judge Doty found that the plaintiff’s claims against the new defendant related back to the date of the original complaint where the plaintiff had made a “mistake concerning the proper party.” Osorio v. Minneapolis Hotel Acquis. Group, LLC, ___ F. Supp. 3d ___ (D. Minn. 2018). 

• Statute of limitations remains tolled on individual claims filed while class action is pending. Rejecting a 1983 decision by Judge Magnuson, Judge Frank cited Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), and held that that statute of limitations on an individual plaintiff’s claims is tolled during the pendency of a related class action even if the plaintiff files her action while the class action is pending. (See also Pulley v. Burlington N., Inc., 568 F. Supp. 1177 (D. Minn. 1983).) Christianson v. Ocwen Loan Serv., LLC, 2018 WL 4283577 (D. Minn. 9/7/2018). 

• Removal; diversity; what is the relevant date for determining citizenship? In the course of denying the plaintiff’s motion to remand an action that had been removed based on diversity of citizenship, Judge Magnuson found that diversity was to be determined based on the parties’ citizenship as of the date of removal, while noting that other courts have focused on the date the action was filed or the date of service. Chahla v. Jukko, Inc., 2018 WL 4492233 (D. Minn. 9/19/2018). 

• Motion to stay pending resolution of similar case denied. Judge Frank denied the defendant’s motion to stay an action pending resolution of an action in the Northern District of Texas involving similar issues, finding that a stay was not warranted where resolution of the other action “will not affect the resolution of this matter,” and that the case could be decided “solely on the plain, unambiguous language of the statute” at issue. Tovar v. Essentia Health, 2018 WL 4516949 (D. Minn. 9/20/2018). 

•  Denial of untimely motion to amend scheduling order affirmed. In August 2018, this column noted Magistrate Judge Rau’s denial of plaintiffs’ untimely motion to amend a scheduling order to allow them to file an amended complaint. Chief Judge Tunheim recently affirmed that order, finding that the order was neither clearly erroneous nor contrary to law, and distinguished his prior decision in Portz v. St. Cloud State Univ., 2017 WL 3332220 (D. Minn. 8/4/2017), in which he had reversed the denial of an untimely motion to amend.
MCI Communications Servs., Inc. v. Maverick Cutting and Breaking, LLC, 2018 WL 3000339 (D. Minn. 6/15/2018), aff’d, 2018 WL 4562471 (D. Minn. 9/24/2018).

• Motion to stay pending appeal denied. Judge Magnuson denied a motion to stay pending appeal despite questions raised by the respondent relating to subject matter jurisdiction, finding that the respondent was unable to establish any of factors required to support its request for a stay. Federated Mut. Ins. Co. v. Federated Nat’l Hold. Co., 2018 WL 4328882 (D. Minn. 9/11/2018). 

• ADA; reduced attorney’s fees awarded to prevailing plaintiffs. Despite noting “flaws” with the lodestar method, Judge Schiltz utilized that method when awarding fees to prevailing plaintiffs in an ADA action, reduced plaintiffs’ counsel’s requested hourly rate from $425 to $300 per hour in what was described as a “cookie-cutter ADA-compliance action,” and awarded a total $6,750 in attorney’s fees rather than the $11,220 originally sought. Midwest Disability Initiative v. Nelmatt, LLC, 2018 WL 4616455 (D. Minn. 9/26/2018). 

Josh JacobsonLaw Office of Josh Jacobson 

 

INDIAN LAW
JUDICIAL LAW

• Claim based on Winters doctrine requires allegation of insufficient water to fulfill the reservation’s purposes. An Indian tribe sued the United States for diverting water from a river that bordered the tribe’s reservation. The tribe argued that that the diversion was a 5th Amendment taking because, under the Winters doctrine, creation of an Indian reservation includes an implied right to sufficient water to accomplish the reservation’s purposes. But the tribe’s complaint did not allege that the remaining waters were insufficient. The Federal Circuit Court of Appeals affirmed dismissal of the suit for failure to state a claim. Because “[t]he scope of Winters reserved water rights, like their existence, turns on the reservation’s need for water[,]” and the tribe did not allege that the remaining available water was insufficient, it failed to allege any injury. Crow Creek Sioux Tribe v. United States, 900 F.3d 1350 (Fed. Cir. 2018).

• Federal challenge to tribal-court jurisdiction requires exhaustion of tribal court remedies. A Native woman filed for divorce against her non-Native husband in tribal court. Before allowing the tribal court to issue a final decision on its jurisdiction, the husband sued in federal court to enjoin the tribal-court divorce proceedings, arguing that the tribal court lacked jurisdiction. The District of Minnesota dismissed the husband’s suit. It followed the well-settled rule that “before such a claim may be entertained by a federal court,” “the examination of a tribal court’s jurisdiction must first be addressed by the tribal court.” Nguyen v. Gustafson, No. 18-cv-522 (SRN/KMM), 2018 WL 4623072 (D. Minn. 9/26/2018). 

Jessica Intermill , Hogen Adams PLLC

Peter J. RademacherHogen Adams PLLC

 

INTELLECTUAL PROPERTY
JUDICIAL LAW

• Trademark: No infringement if conduct permitted by agreement. Judge Wright recently granted dismissal of a trademark infringement claim but denied motions to dismiss claims of breach of contract and unfair competition. My Pillow owns the registered trademark “MYPILLOW” while LMP Worldwide (LMP) has a trademark registration for an “i love my pillow” design. The parties settled a previous trademark infringement suit through an agreement prohibiting LMP from using My Pillow’s mark in connection with pillows and from making any “ad word” purchases for the words “my” and “pillow.” My Pillow alleged that LMP subsequently violated the agreement and sued for trademark infringement, cancellation of LMP’s mark, breach of contract, and unfair competition. The court found that My Pillow’s complaint insufficiently pled infringement because the allegations included examples that appeared allowable in accordance with the agreement terms. The accompanying cancellation claim necessarily failed because it was premised upon the infringement claim’s viability. My Pillow alleged false advertising based only on an LMP employee’s statement to a wholesale customer in a private email. The claim failed because the statement was insufficiently alleged to be disseminated or directed to the purchasing public. Thus, it could not qualify as either “advertising” or “promotion,” as required for a false advertising claim. The court, however, determined that the breach of contract claim should remain because My Pillow had alleged facts sufficient to state a claim for LMP’s breach of the agreement through its purchase of ad words. Finally, My Pillow sufficiently pled its unfair competition claim when it alleged LMP used My Pillow’s mark in a manner intended to cause confusion, mistake, and/or to deceive as to the source of origin or affiliation of LMP’s goods and services. My Pillow, Inc. v. LMP Worldwide, Inc., No. 18-CV-0196 (WMW/SER), 2018 WL 4242447 (D. Minn. 9/6/2018).

• Copyright: Claims remain from software licensing dispute. Judge Frank recently denied a defendant’s summary judgment motion because several questions of material fact remained regarding the scope of a software licensing agreement. Plaintiff Neil Haddley sued Next Chapter Technology (NCT) and various Minnesota counties alleging copyright infringement and violation of the Digital Millennium Copyright Act (DMCA). Haddley owns the copyright registration of a software program for scanning paper documents into electronic form. Next Chapter Technology (NCT) licensed Haddley’s software for use in an NCT product licensed to the counties. Haddley alleged NCT and the counties exceeded the scope of the software license when they accessed or facilitated access to Haddley’s software for counties that were not parties to the original agreement. NCT brought a summary judgment motion arguing the software license was unrestricted and that Haddley implicitly consented to use by those counties not included in the original license. Judge Frank denied dismissal of the infringement claim, concluding there were still several questions of material fact about whether Haddley granted an implied license to NCT for software installation by other parties. Haddley also asserted that defendants violated the DMCA when they bypassed the software license key system and enabled unauthorized distribution of the software. Defendants again argued that the license permitted software access and that Haddley had enabled access. The court concluded that there were fact questions regarding the DMCA violation claim and allowed it to remain. Haddley v. Next Chapter Tech., Inc., No. CV 16-1960 (DWF/LIB), 2018 WL 4623068 (D. Minn. 9/26/2018).

Tony ZeuliMerchant & Gould

Joe Dubis, Merchant & Gould

Ryan Borelo, Merchant & Gould

 

PROBATE & TRUST LAW
JUDICIAL LAW

• Authority to correct “title defects.” Appellant son challenged the inclusion of a farm in his father’s estate, arguing that the farm belonged to his sister at the time of his father’s death. At the time of the father’s death, title to the farm was held in joint tenancy between the father and the sister. The son argued that the farm therefore passed to his sister upon his father’s death and a subsequent quitclaim deed to the estate constituted a gift for tax purposes.

The district court held that inclusion of the farm in the father’s estate was proper because the joint tenancy between the father and sister was a title defect that was corrected by the quitclaim deed. In doing so, the court relied on testimony by the sister that her father had not intended to transfer the farm to joint tenancy and had done so solely “to divert funds from [his] second marriage” while he was going through a divorce. The sister further testified that she had executed the quitclaim deed at the personal representative’s request in order to correct her father’s mistake.

The court of appeals affirmed the district court, reasoning that by finding the quitclaim deed served to correct a title defect, the district court had implicitly found that the father owned the farm at the time of his death and that the personal representative had acted within his authority to correct titled defects. In re Estate of Harold Farnes, 2018 WL 4397449 (Minn. Ct. App. 9/17/2018).

Casey D. MarshallBassford Remele

 

TAX LAW
JUDICIAL LAW

• Tax protester convicted for not filing or paying. Minnesota charged appellant Rapatt with four counts of failure to file a tax return and four counts of failure to pay state income tax. After being found guilty of six of the eight charges, Rapatt appealed under Minn. Stat. §590.01, subd. 1(1) to the Minnesota Court of Appeals, claiming his rights were violated. Specifically Rapatt argued that the conviction violated his rights because (1) the state’s witnesses should have been required to testify regarding certain tax-code definitions; (2) his 1099 federal tax forms were not sufficient to establish his guilt; (3) he was exempt from paying state income tax based on his citizenship status; and (4) the district court did not obtain his not-guilty plea before trial. The court rejected all of these arguments and affirmed the district court’s ruling. Rapatt v. State, No. A17-2033 (Minn. Ct. App. 9/4/2018).

• Subject matter jurisdiction to review tax forfeiture procedure. Following health problems, a Minnesota taxpayer sold his property to a third party on a contract for deed. The purchaser paid taxes directly to the county. At some point after the purchase, a fire damaged the property and the purchaser stopped paying property tax. Eventually, the property was transferred via quit claim to the Duluth Economic Development Authority. The taxpayer challenged the transfer of the property, but the trial court dismissed the complaint for lack of subject matter jurisdiction. On appeal, the reviewing court summarized the taxpayers arguments as “(1) that decisions of respondent County of St. Louis (the county) to place King’s tax-forfeited property on the forfeited-lands list and ultimately sell it to respondent Duluth Economic Development Authority (DEDA)—described in claims one through four of appellants’ complaint—were quasi-judicial in nature and therefore subject only to certiorari review and (2) that it was constitutional to apply the statute of limitations for challenging tax forfeitures to dismiss appellants’ fifth claim.” The Minnesota Court of Appeals agreed with the taxpayer on claims 1 – 4, holding that these decisions were not legislative decisions and were quasi-judicial; thus the district court had subject matter jurisdiction to review the decisions regarding the tax forfeiture procedure. The court reversed the dismissal of claims, and remanded to the district court for further proceedings. In contrast, the appellate court affirmed on the statute of limitations issue. King v. St. Louis Co., No. A18-0041 (Minn. Ct. App. 9/17/2018).

• Sales & use tax of machinery and equipment. Kroll Ontrack, LLC claimed that it was exempt from sales and use tax for machinery and equipment purchased for use in a taxpayer’s business. The Minnesota Tax Court rejected Kroll’s claims and granted the commissioner’s motion for summary judgment. First, Kroll claimed that the machinery and equipment purchased was “used primarily to electronically transmit results retrieved by a customer of an online computerized data retrieval system,” and was therefore exempt from Minnesota sales tax under Minn. Stat. §297A.68 (2016). The tax court denied this exemption because Kroll’s system was not equally available and accessible to all customers of the system as required by statute. Second, it claimed that the electricity purchased to power that equipment was “used or consumed in industrial production of personal property” and was therefore exempt under Minn. Stat. §297A.68, subd. 2(a)(3) (2012). The tax court denied this exemption because Kroll does not engage in the sale of personal property. Kroll Ontrack, LLC v. Comm’r, No. 8977-R (Minn. T.C. 9/14/2018).

• Individual income tax: Security equipment technician not eligible for section 911 foreign earned income exclusion. The taxpayer earned wages over two tax years while working in Germany under a personal services agreement (PSA) for the U.S. Department of State. The taxpayer argued that he should be eligible for the exclusion because he was not a U.S. government employee during the years at issue and in fact was excluded from certain perquisites that he says are normally afforded to U.S. government employees. As additional support for the exclusion, he argued that to apply for his position he was required to be a resident of Germany, have a German work permit, and have a local bank account to receive his salary, which was paid in local currency. Beginning its discussion with the reminder that “[e]xclusions from gross income are construed narrowly, and a taxpayer must clearly establish his entitlement to any such exclusion,” the court rejected the taxpayer’s arguments. The court granted the commissioner’s motion for summary judgment and held that under the relevant statute, 22 U.S.C. Sec. 2669(c) (2012), the taxpayer is considered an employee of the U.S. government for income tax purposes and therefore he is not entitled to the foreign earned income exclusion with respect to these wages. Sidney O’Kagu v. Comm’r, No. 3835-18, 2018 WL 4501217 (T.C. 9/19/2018).

• Individual income tax: Taxpayer not entitled to mortgage interest deduction where husband, and not taxpayer, was equitable owner. The petitioner’s husband purchased a home that was used by petitioner, their children, and him as a second home. Petitioner’s husband was named on the deed, and petitioner’s husband encumbered the property with a mortgage. Shortly after the purchase, petitioner and her husband entered into an agreement they titled “Spousal Marital Residence Agreement,” in which they agreed that the petitioner would be entitled to “claim any deduction on her personal income tax returns for those expenses that she actually paid” and that the petitioner’s husband “shall not claim any mortgage interest deduction on his individual income tax returns.” In the tax year at issue, the petitioner and her husband filed separate tax returns and petitioner claimed the home mortgage interest deduction. Following audit, the service denied the home mortgage interest deduction and petitioner challenged that denial. The court rejected petitioner’s contention that she was entitled to the deduction, and it rejected her argument that she was so entitled because she had assumed the benefits and burdens of ownership through the Spousal Marital Residence Agreement. The court noted that because petitioner’s husband was the sole mortgagor on the mortgage for the home, petitioner must establish that she was the equitable owner of the residence during the relevant tax year. 

The court listed several factors that it will consider in the determination of equitable ownership: The party claiming equitable ownership must (1) have the right to possess the property and to enjoy the use, rents, and profits thereof; (2) have the right to improve the property without the seller’s consent; (3) have the right to obtain legal title at any time by paying the balance of the purchase price; (4) bear the risk of loss of the property; (5) have the duty to maintain the property; (6) have responsibility for insuring the property; and (7) have the obligation to pay taxes, assessments, and charges against the property. The court found that the petitioner was unable to establish each of these factors, and that the Spousal Marital Residence Agreement addressed only some of the factors. Furthermore, petitioner’s argument that she held equitable title to the home because of her marriage did not render her the equitable owner for federal income tax purposes because this argument was not supported by New York law. Frankel v. Comm’r, No. 7208-16S, 2018 WL 4520467 (T.C. 9/19/2018).

ADMINISTRATIVE ACTION

• Revenue Notice # 18-01: Individual Income Tax. This notice addresses whether a taxpayer must follow the federal election to itemize on their Minnesota return. According to Minn. Stat. §290.01, subd. 19, Minnesota individual income tax starts at federal taxable income and requires taxpayers to have a consistent election between their federal and state income tax returns. However, according to the 1971 case Wallace v. Commissioner of Taxation, Minnesota’s Constitution prohibits the state Legislature from delegating its power to tax to any outside agency, including the United States Congress. 289 Minn. 220 (Minn. 1971). Thus, the Minnesota Department of Revenue concluded that taxpayers can have separate elections on their federal and Minnesota returns for itemizing because forcing taxpayers to make the same election when the amounts are different would violate the principle set forth in Wallace. The Minnesota Department of Revenue made sure to clarify that not following federal election only applies to whether the taxpayer is itemizing and not to any other federal elections.

LOOKING AHEAD

•  SCOTUS cases on intergovernmental questions. On December 3, the United States Supreme Court is set to hear argument in the case of Dawson v. Steager. The issue presented is whether the doctrine of intergovernmental tax immunity, as codified in 4 U.S.C. §111, prohibits the state of West Virginia from exempting the retirement benefits of certain former state law enforcement officers from state taxation without providing the same exemption for the retirement benefits of former employees of the United States Marshals Service. The argument date is still pending in Franchise Tax Board of California v. Hyatt, in which the Court will take up the issue of whether Nevada v. Hall, which permits a sovereign state to be haled into another state’s courts without its consent, should be overruled.

Morgan HolcombMitchell Hamline School of Law

Jessica DahlbergGrant Thornton

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