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

Notes & Trends – December 2018

COMMERCIAL & CONSUMER LAW
REGULATORY LAW

Unlawful practices: Federal consumer protection laws give regulators considerable authority to penalize creditors that violate the protections afforded. In a regulatory action, a Minnesota bank was charged with “redlining”—that is, intentionally avoiding providing services in Minneapolis-St. Paul to individuals living in predominantly minority neighborhoods, because of race or national origin and not because of any lack of creditworthiness—in violation of both the Fair Housing Act and the Equal Credit Opportunity Act. Among the remedies was the creation of $300,000 in a loan subsidiary fund to increase the amount of credit the bank extends to residents of predominantly minority neighborhoods plus another $300,000 in “outreach” and “credit repair.”

It seems to this author that this remedy admits the customers involved often were less than creditworthy, and perhaps raises a legitimate question of how should it be determined they were illegally discriminated against, as opposed to being discriminated against on the basis of creditworthiness? Recently the New York Department of Financial Services announced that it would apply the disparate impact test, also known as the effects test, under New York Executive Law §296-A, which prohibits “discrimination” in relation to credit similar to the Equal Credit Opportunity Act, and which New York law contains serious consequences for violations.

This disparate impact test means using information that has a disparate (and adverse) impact, relative to creditworthiness, on a protected class, when other information, equally relevant to creditworthiness, would have a lesser impact. 

This test for discrimination raises some of the legitimate questions that the redlining analysis does, such as how does one determine the protected class given in most cases no directly available information as to race or national origin, how much impact should be required, and how can other factors relevant to creditworthiness be screened out? 

Methods to ascertain discrimination beyond the case of intentional conduct necessarily will pose serious questions. In a non-regulatory context, these types of questions must be addressed. However, in a regulatory context, given the publicity for reputational damage and the penalties available, it may be questioned if this is the best context in which to settle such issues.

Fred Miller

Ballard Spahr

 

EMPLOYMENT & LABOR LAW
JUDICIAL LAW

• Age discrimination; retaliation claim rejected. A hotel housekeeping supervisor could not pursue her claim for age discrimination and retaliation after she was terminated following deposition testimony that was adverse to her employer. Affirming the ruling of U.S. District Court Judge Joan Ericksen in Minnesota, the 8th Circuit Court of Appeals held that there was no evidence of a specific link between her age and termination or that she was fired for retaliation for her deposition testimony or that her discharge was due to her taking a protected leave of absence. Naguib v. Trimark Hotel Corporation, 903 F.3d 806 (8th Cir. 9/11/18).

• Disability discrimination; “good faith” bars claim. An employer who made a “good faith” effort to accommodate an employee’s disability prevailed in a lawsuit claiming violation of his rights under the Americans with Disabilities Act and the parallel provision of the Minnesota Human Rights Act. Affirming a ruling of U.S. District Court Judge Richard Kyle in Minnesota, the 8th Circuit held that the employer made a “good faith” response to the request for accommodation made by the employee. Sharbono v. Northern States Power Company, 902 F.3d 891 (8th Cir. 9/6/2018).

• Disability claim; unable to do essential functions. A corrections officer who was unable to perform the essential duties of her job due to injuries she incurred during encounters with inmates lost her disability discrimination claim. The 8th Circuit held that her employer did not have a duty to assign her a position not involving inmate contact. Faulkner v. Douglas County, Nebraska, 2018 WL 4936390 (Minn. Ct. App. 10/12/2018) (unpublished).

• Unemployment compensation; causal relationship no bar. An employee was held to be entitled to unemployment benefits after the Department of Employment and Economic Development (DEED) denied his claim based upon a per se rule that an employee’s incarceration constituted disqualifying misconduct. The Minnesota Court of Appeals reversed the ruling on grounds that the personal ineligibility as a matter of law was incorrect. Muse v. New Flyer of America, Inc., 2018 WL 4057229 (Minn. Ct. App. 8/27/2018) (unpublished).

• Unemployment compensation; four misconduct rulings upheld. Four employees lost their bid for unemployment compensation benefits on grounds of misconduct, as determined by DEED and affirmed by the court of appeals. 

An employee who was terminated for hassling a co-worker in violation of the company’s code of conduct, harassment policy, and a last-chance agreement was not entitled to unemployment benefits. Sheffel v. Gavilon Grain, LLC, 2018 WL 4056976 (Minn. Ct. App. 8/27/2018) (unpublished).

Derogatory and disrespectful statements made by employee to employer in a series of text messages, coupled with defiant activity, warranted denial of benefits for another employee. Petersen v. Custom Search, Inc., 2018 WL 4056973 (Minn. Ct. App. 8/27/2018) (unpublished).

A nurse who provided health services to persons with chemical dependencies was denied unemployment compensation benefits because she was not accessible while on call. Johnson v. Dakota County Receiving Center, 2018 WL 4055818 (Minn. Ct. App. 8/27/2018) (unpublished).

A residential services overnight staffer was denied unemployment benefits for sleeping on the job, which constituted disqualifying “misconduct.” Appolon v. Mentor Management, Inc., 2018 WL 4855407 (Minn. Ct. App. 10/8/2018) (unpublished).

Marshall H. Tanick

Meyer, Njus & Tanick

FEDERAL PRACTICE
JUDICIAL LAW

• Sanctions for non-disclosure of experts opinions affirmed. While declining to decide whether Fed. R. Civ. P. 37(c)(1) requires the exclusion of evidence that is not disclosed in compliance with Fed. R. Civ. P. 26(a), the 8th Circuit found no abuse of discretion in a district court’s decision to exclude the expert opinions of the plaintiff’s treating physicians that were not disclosed in accordance with Fed. R. Civ. P. 26(a)(2), where the failure to disclose was neither “substantially justified” or “harmless.”

Dissenting, Judge Erickson agreed that the plaintiff had failed to comply with Rule 26(a)(2), but would have found that the failure was “harmless.” Vanderberg v. Petco Animal Supply Stores, Inc., ___ F.3d ___ (8th Cir. 2018). 

• Fed. R. Civ. P. 60(b)(4), service of process; default judgment vacated. While declining to decide which party had the burden of proof when the validity of service was disputed, the 8th Circuit reversed a district court’s denial of a motion to vacate under Fed. R. Civ. P. 60(b)(4), where the evidence showed that the plaintiffs had—at best—attempted service by mail on a deceased agent for a corporation. Bell v. Pulmosan Safety Equip. Corp., ___ F.3d ___ (8th Cir. 2018). 

• Motion to strike class allegations denied. Judge Nelson denied the defendant’s pre-discovery and pre-class certification motion to strike or dismiss class allegations premised on the limits on personal jurisdiction established by the Supreme Court in Bristol Myers Squibb Co. v. Superior Court (137 S. Ct. 1773 (2017)), relying on a number of recent decisions which have declined to resolve this issue “at the pleading stage,” while acknowledging the absence of 8th Circuit authority. Judge Nelson also found that “district courts have largely declined to extend [Bristol Myers Squibb] to the class action context,” and held that Bristol Myers Squibb “is inapplicable to unnamed parties in a federal class action suit.” Knotts v. Nissan N. Am., Inc., 2018 WL 4922360 (D. Minn. 10/10/2018). 

• Section 1983 action stayed pending conclusion of related criminal case. Magistrate Judge Leung granted the defendants’ motion to stay a Section 1983 wrongful death action pending the conclusion of a related criminal case, finding that one defendant’s intention to invoke his 5th Amendment rights if the civil case was not stayed would burden all of the defendants, and that a stay would conserve “scarce judicial resources.” Ruszczyk ex rel. Ruszczyk v. Noor, 2018 WL 4759838 (D. Minn. 10/2/2018). 

• Motion for leave to conduct independent destructive testing denied. Finding that the “potential prejudice to the plaintiffs” from ex parte testing would outweigh the prejudice one defendant might face “by revealing test results that are potentially not in its favor,” Magistrate Judge Menendez denied that defendant’s request for leave to conduct destructive testing of “critical” evidence. In re: McNeilus Mfg. Explosion Coor. Litig., 2018 WL 4896020 (D. Minn. 10/9/2018). 

• Motion to amend to add a claim for punitive damages granted. Relying on a number of recent decisions in the District of Minnesota, Magistrate Judge Bowbeer held that the “proper standard” to apply on a motion to amend to add a claim for punitive damages is Fed. R. Civ. P. 15 rather than Minn. Stat. §549.191. Shank v. Carleton College, 2018 WL 4961472 (D. Minn. 10/15/2018). 

• Motion to dismiss diversity action based on probate exception denied. Judge Frank denied the defendants’ motion to dismiss a diversity action based on the so-called “probate exception,” finding that the exception should be construed “narrowly,” and that the plaintiff’s claims did “not involve the administration of an estate, the probate of a will, or any other purely probate matter.” McCampbell ex rel. Hidani v. McCampbell, 2018 WL 4955240 (D. Minn. 10/12/2018). 

• Local Rule 5.6; documents sealed and unsealed. Rejecting the plaintiff’s request in response to an order to show cause that a large portion of an order remain sealed, Chief Judge Tunheim found that much of the disputed information has been “unsealed or made public in redacted form,” and found that redactions should be “limited to information that remains both sealed and redacted in the record.” Lansdale v. UPS Supply Chain Solutions, Inc., 2018 WL 4932862 (10/10/2018). 

Magistrate Judge Menendez denied the plaintiff’s request to unseal several documents previously filed under seal by the defendant, finding that the documents at issue contained “confidential and competitively sensitive information,” and that because the documents were never considered by the court, the public interest in access to the documents was “very weak.” Willis Elec. Co. v. Polygroup Ltd., 2018 WL 5017921 (D. Minn. 10/16/2018). 

• Recent attorney’s fees awards. Judge Nelson awarded attorney’s fees at the requested rate of $400 per hour to an attorney with more than 20 years of experience, and extensive experience with FDCPA litigation, despite defendants’ argument that a lower hourly rate should apply. Price v. Midland Funding LLC, 2018 WL 5259291 (D. Minn. 10/22/2018). 

Applying a cumulative hourly rate of $225 per hour, Judge Magnuson awarded the defendants slightly less than $1 million in attorney’s fees in an ERISA action, far less than the almost $2.1 million they requested. Johnson v. Charps Welding & Fabricating, Inc., 2018 WL 4829185 (D. Minn. 10/4/2018). 

Josh Jacobson

Law Office of Josh Jacobson 

 

FAMILY LAW
JUDICIAL LAW

• All consideration received in exchange for marital property sold after valuation date remains marital, including contingent, contractual rights to future benefits. During the parties’ marriage, they purchased an ownership interest in Talenti Gelato, and husband served as the company’s CEO. During the marriage, husband and other Talenti owners began exploring sale. Ultimately, Talenti’s owners signed a letter of intent in July 2014 to sell Talenti to Unilever. The letter of intent provided for the purchase price of up to $350 million: $180 million to be paid in cash as well as additional, contingent earn-out payments not to exceed $170 million.

In August 2014, husband petitioned to dissolve the parties’ marriage, and the court set 9/5/2014 as the statutory date for valuing the marital estate. In December 2014, the sale of Talenti to Unilever closed. Consistent with the letter of intent, the owners were paid $180 million in cash, and received a right to contingent earn-out payments based on Talenti’s future performance. As part of the sale, husband also agreed to continue as Talenti’s CEO, for which he was paid an additional salary. 

At trial, the parties disputed whether the parties’ proportional share of future earn-out payments were marital or non-marital. Wife argued they should be marital as consideration for the purchase of a marital asset. Husband argued the earn-out payments were received after the date of valuation and compensated him for future, post-marital services and thus should be non-marital. The district court agreed with husband; wife appealed.

The Minnesota Court of Appeals reversed, reasoning that because all Talenti’s former owners had a right to receive a share of future earn-out payments, those payments were consideration for the sale of marital property (and thus marital) rather than compensation to husband for post-marital efforts (i.e. non-marital). 

The Supreme Court accepted review and affirmed the court of appeals. Writing for the Court, Justice Chutich reasoned that Minnesota relies on an expansive definition of marital property that excludes only the property explicitly exempted as non-marital by statute. Employing these definitions, the Court characterized husband’s earn-out payments as marital because they were received as consideration for the sale of a marital asset. Though the earn-out payments would not be received until after the valuation date and might vary based on company performance (and husband’s services in furtherance of that performance), the Court analogized the transaction to a court-ordered sale in which all of the consideration received in exchange for the asset is subject to equitable division. 

Writing in dissent, Justice Anderson focused on the timing of the earn-out payments—which were contracted for and paid all after the date of valuation—as well as deference to the trial court’s findings regarding the nature and purpose of those payments. Gill v. Gill, No. A16-1421, ___ N.W.2d ___ (Minn. 10/24/2018).

Michael Boulette

Barnes & Thornburg LLP

 

IMMIGRATION LAW
JUDICIAL LAW

• Persecution unlikely since able to safely relocate to another part of Ecuador. The 8th Circuit Court of Appeals held in a case involving an asylum applicant from Ecuador that the harm he suffered in the past (an encounter in which he was pushed to the ground and kicked for five to ten minutes while being threatened to join the Alianza PAIS political party “if you know what’s best for you”) failed to rise to the level of past persecution since it was “insufficiently specific or imminent to constitute persecution,” nor did his minor physical injuries require immediate medical attention. Furthermore, according to the 8th Circuit, the petitioner could avoid potential future persecution through relocation to another part of Ecuador as he had successfully done so beforehand. Molina-Cabrera v. Sessions, No. 17-2227, 2018 WL 4844238 (8th Cir. 10/5/2018). http://media.ca8.uscourts.gov/opndir/18/10/172227P.pdf

• U.S. District Court blocks DHS from ending TPS for certain countries. On October 3, 2018, the U.S. District Court for the Northern District Court of California enjoined the Department of Homeland Security (DHS) from implementing its decision to terminate temporary protected status (TPS) for Sudan, Nicaragua, Haiti, and El Salvador and remove affected parties before a lawsuit challenging the decision to terminate TPS had been resolved. The court found the plaintiffs would “suffer irreparable harm and great hardship” if injunctive relief was not granted. Nor, according to the court, had the government established any real harm should the status quo (i.e., continued TPS protection) be maintained while litigation continued. “Indeed, if anything, Plaintiffs and amici have established without dispute that local and national economies will be hurt if hundreds of thousands of TPS beneficiaries are uprooted and removed.” At the same time, the evidence supporting the plaintiffs’ claim that DHS changed the criteria applied by previous administrations in reviewing TPS renewals without any explanation or justification, in violation of the Administrative Procedure Act, was compelling. Finally, serious questions were raised about DHS’s decision being “influenced by the White House and animus against non-white, non-European immigrants in violation of Equal Protection guaranteed by the Constitution.” TPS designation for those countries will, as a result, remain as long as the court’s injunction stays in effect. Ramos, et al. v. Nielsen, et al., No. 3:18-cv-01554-EMC, 2018 WL 4778285 (N.D. Cal. 10/3/2018).

https://www.uscis.gov/sites/default/files/USCIS/Laws/ramos-v-nielsen-order-granting-preliminary-injunction-case-18-cv-01554-emc.pdf

On 10/31/2018, the Department of Homeland Security published a Federal Register notice providing details about the agency’s efforts to comply with the injunction as well as the steps involved with maintaining status in the United States and validity of TPS-related documents. 83 Fed. Reg. 54764-69 (10/31/2018). https://www.gpo.gov/fdsys/pkg/FR-2018-10-31/pdf/2018-23892.pdf

• 9th Circuit affirms district court’s entry of a preliminary injunction on DACA. On 11/8/2018, the 9th Circuit Court of Appeals affirmed the U.S. District Court’s (Northern District of California) 1/9/2018 nationwide preliminary injunction ordering the U.S. Department of Homeland Security (DHS) to maintain the DACA program for those existing DACA recipients seeking renewal of that status. Regents of University of California, et al. v. U.S. Department of Homeland Security, et al., No. 18-15068, 2018 WL 5833232 (9th Cir. 11/8/2018). http://cdn.ca9.uscourts.gov/datastore/general/2018/11/08/18-15068%20Opinion.pdf

ADMINISTRATIVE ACTION

• Applying for asylum on the southern border: Presidential proclamation and new rule from DHS and DOJ. On 11/9/2018, President Trump issued a proclamation in tandem with a rule published in the Federal Register by the Departments of Homeland Security and Justice barring individuals from pursuing asylum if they enter the United States somewhere along the southern border other than a designated port of entry. This new policy will remain in effect for 90 days with the possibility for extension or until such time as a “safe third country agreement” is commenced with Mexico. Although asylum will be unavailable to those who enter other than a designated port of entry, other more limited safe haven forms of relief (withholding of removal with proof of a reasonable fear of persecution under the Immigration and Nationality Act or protection from removal under Article 3 of the Convention Against Torture (CAT)) will remain. “Presidential Proclamation Addressing Mass Migration Through the Southern Border of the United States.” https://www.whitehouse.gov/presidential-actions/presidential-proclamation-addressing-mass-migration-southern-border-united-states/

83 Fed. Reg. 55934-53 (11/9/2018). https://www.gpo.gov/fdsys/pkg/FR-2018-11-09/pdf/2018-24594.pdf

On 11/9/2018, plaintiffs filed suit in U.S. District Court (Northern District of California) seeking declaratory and injunctive relief that finds the interim final rule promulgated by the Departments of Homeland Security and Justice and the Presidential Proclamation in violation of the Immigration and Nationality Act and Administrative Procedures Act. More specifically, the complaint argues that the rule and proclamation together reflect a “direct violation of Congress’s clear command that manner of entry cannot constitute a categorical asylum bar.” [To wit, 8 U.S.C. §1158(a)(1):
“[a]ny alien who is physically present in the United States or who arrives in the United States (whether or not at a designated port of arrival and including an alien who is brought to the United States after having been interdicted in international or United States waters), irrespective of such alien’s status, may apply for asylum in accordance with this section or, where applicable, section 1225(b) of this title.”] At the same time, the complaint contends that both the Departments of Homeland Security and Justice issued the rule “without the required procedural steps and without good cause for immediately putting the rule into effect.” East Bay Sanctuary Covenant, et al. v. Trump, et al., No. 3:18-cv-06810 (N.D. Cal. 11/9/2018). https://ccrjustice.org/sites/default/files/attach/2018/11/asylum_ban_complaint.pdf

On 11/19/2018, the U.S. District Court granted the plaintiffs’ request for a temporary restraining order, imposing a nationwide injunction on the government to 12/19/2018 or further court order to allow continued review of the matter until final disposition. (“Congress has clearly commanded that immigrants be eligible for asylum regardless of where they enter”). Stay tuned. East Bay Sanctuary Covenant, et al. v. Trump, et al., No. 3:18-cv-06810 (N.D. Cal. 11/19/2018). https://ccrjustice.org/sites/default/files/attach/2018/11/Order%20Granting%20TRO.pdf

R. Mark Frey

Frey Law Office

INTELLECTUAL PROPERTY
JUDICIAL LAW

• Trademark: Deficient allegations result in Lanham Act counterclaim denial. Magistrate Judge Menendez recently denied a motion to add a Lanham Act counterclaim because it was deficiently pled. NutriQuest sued AmeriAsia for tortious interference with agreements to supply a secret ingredient for an animal-feed formula. After AmeriAsia removed the case to federal court, NutriQuest added a patent infringement claim. AmeriAsia counterclaimed that NutriQuest interfered with AmeriAsia’s current and prospective business relationships and violated the Lanham Act’s unfair competition provision by communicating to third parties that AmeriAsia was violating NutriQuest’s patent. The court refused to add the unfair competition counterclaim because the allegations did not assert conduct that violated the statute. Important to this decision, the Lanham Act bars false advertising and false endorsement, among other consumer confusion. Though the facts pled by AmeriAsia appeared to support a false advertising claim, AmeriAsia had not pled such a claim, and had instead cited the Lanham Act’s false endorsement section. The Court denied the portion of AmeriAsia’s motion seeking to add a counterclaim under the Lanham Act. NutriQuest, LLC v. AmeriAsia Imports LLC, Case No. 18-cv-390-NEB-KMM, 2018 WL 5043748 (D. Minn. 10/17/2018).

• Trademark: Finding likelihood of success for trademark infringement may result in irreparable harm presumption. Judge Frank recently granted a preliminary injunction for trademark infringement. Magic Straws previously sued Webb Business Promotions (WBP) for trademark infringement in state court. The parties settled in 2016 when WBP agreed not to sell flavored straws or components of flavored straws affixed with Magic Straws’ MILK MAGIC and MAGIC STRAWS registered marks or any confusingly similar variant. WBP subsequently advertised straws with the terms “magic milk straws” and “magic straw” on its website and provided “magic sipper” beverage products for sale at a local grocery store. Magic Straws’ successor, Munster Real Estate, sued WBP for violating the agreement and moved for a preliminary injunction. The court first determined Munster’s claims were likely to succeed because WBP’s unauthorized use of the marks created a likelihood of confusion. Because the marks were registered, the marks were presumptively distinctive and strong. Likelihood of confusion was also shown by photographic and website evidence and by sales in the same market at the same low price. The court next determined that damage to the marks’ goodwill and to Munster’s ability to control consumer expectations in the marks was enough to show irreparable harm, further noting that a presumption of irreparable harm might exist where a plaintiff shows a likelihood of success for trademark infringement. Finally, public policy favored protecting consumers by enjoining the infringing products’ distribution and favored enforcement of the earlier settlement agreement. Munster Real Estate, LLC v. Webb Bus. Promotions, Inc., Case No. 18-cv-2120-DWF-ECW, 2018 WL 5314951 (D. Minn. 10/26/2018).

Tony Zeuli 

Merchant & Gould

Joe Dubis

Merchant & Gould

Ryan Borelo

Merchant & Gould

 

TAX LAW
JUDICIAL LAW

• Individual income tax: Specially marked pastoral donations are income, not gifts. Introductory income tax classes spend an hour or two on how to distinguish between a gift, which of course is nontaxable, and income, which of course is. Students learn that the touchstone to distinguish a gift from a taxable exchange is the intent of the donor. (Comm’r v. Duberstein, 363 U.S. 278 (1960).) Students are to turn to their “wellspring of human experience” to determine whether the purported gift proceeded from the requisite “detached and disinterested generosity.” Sometimes, though, that touchstone can prove elusive. In a recent case, the United States Tax Court held that “gifts” from congregants to a Minnesota pastor were in fact taxable income, since those donations were made to keep the minister at his post. The pastor also drew a salary and was provided with a parsonage, but the “donations” were part of a routine, structured program and the value of the gifts exceeded the pastor’s “salary.” It is likely that the congregants intended the donations—which replaced “shake-hand” money—to be gifts to the pastor. “Shake-hand” money is customary in some evangelical churches and refers to the practice of handing donations to the pastor on the way out of church. Congregants used special blue envelopes for these “shake-hand” donations, and congregants were directed to make checks directly to the pastor and informed that because the blue envelope/shake-hand donations were considered gifts, congregants could not take a tax deduction for those donations. 

Donations made in other envelopes were included in the pastor’s income, and congregants were provided documents for their tax returns. The case demonstrates the difficulty in determining a single motivating factor for gifts, and demonstrates the conceptual limits of the motivation-of-the-donor test. The tax court determined that in this instance, the donations were taxable payments and not nontaxable gifts because the donations were objectively provided in exchange for services; the donations were part of a routinized, highly structured program, and given by individual church members or the congregation as a whole; and the pastor’s separate salary from the church was much lower in comparison to the personal donations. The court determined that at least one factor counseled in favor of gift treatment: The pastor did not specifically request shake-hand gifts, and congregants had to specifically ask for the envelopes. This factor was outweighed, however, by the routinized, highly structured program and the size of the blue envelope donations. Felton v. Comm’r, TC Memo, 2018-168 (10/10/2018).

 

• Any government-imposed fee or charge considered a tax. Appellant Phone Recovery Services, LLC initiated a qui tam action under the Minnesota False Claims Act, Minn. Stat. §15C.02 (2016) (MFCA), alleging that Qwest and other respondents intentionally failed to pay fees and surcharges imposed by statute for 911 services due to Minnesota. However, the respondent claims that the MFCA does not allow qui tam actions because the action must be based on “claims, records, or statements made under portions of Minnesota Statutes relating to taxation.” Minn. Stat. §15C.03 (2016). Interpreting the statute by its plain meaning, the Minnesota Supreme Court held that “relating to taxation” means a statute that relates to, bears upon, or pertains to levying, assessing, or imposing a tax. Next, the Supreme Court held that the statutory fees and charges for 911 services are “taxes” under the definition provided by Minn. Stat. §645.44, subd. 19 (2016). The Court reasoned that the Legislature broadly defined “tax” to include fees or charges imposed by government, regardless of whether the Legislature named or described the charge as a tax. Therefore, the Minnesota Supreme Court dismissed the case for failure to state a claim as a matter of law. Phone Recovery Servs., LLC v. Qwest Corp., No. A17-0078 (Minn. 2018). 

• Property tax: Overvalued because in the West End. Appellant Podany appealed the value of his furniture showroom-warehouse property. When valuing property, the court looks at the property’s highest and best use. The highest and best use value is determined by looking at reasonably probable zoning changes. (Appraisal of Real Estate 338.) The Minnesota Tax Court held that the county appraiser assumed, rather than demonstrated, that there is a reasonable probability of rezoning the subject from industrial park to something else. The county appraiser defended this assumption by stating that the property is part of the prosperous West End neighborhood and discussing recent development and rezoning in other parts of the West End. However, the appraiser failed to consider the St. Louis Park Comprehensive Plan 2030 which shows that the city’s plan is to keep the subject property zoned as industrial property. Therefore, the Minnesota Tax Court held that the highest and best use of the property is as industrial park. Podany v. Cnty of Hennepin, No. 27-CV-16-05625 (Minn. T.C. Oct. 19, 2018).

• Property tax refund: No loss deduction for Roth distributions in determining household income. Calculation of household income under Minnesota’s property tax statutes include distributions from Roth IRAs. However, appellant Siegfried asserted that the wording of §290A.03 is ambiguous, leaving it unclear whether the statute allows the Roth IRA distribution to be reduced by a loss incurred. Specifically, Siegfried argued that there is a mistreatment when it comes to the basis of the Roth IRA. When taxpayers contribute money to a Roth IRA, they get a deduction from their household income, which is the opposite of income tax rules. Minn. Stat. §290A.03, subd. 3(b)(3). Furthermore, in 2013, the Minnesota Legislature amended the definition of household income in Minnesota’s property tax refund statute to specifically include income distributions from Roth retirement accounts to ensure there would not be a double exclusion. Thus, the taxpayer already received a deduction for the loss when he contributed that money to the Roth. Siegfried v. Comm’r, No. 9128-R (Minn. T.C. 10/25/2018).

ADMINISTRATIVE ACTION

• Property tax: Sustainable Forest Incentive Act. The Minnesota Department of Revenue published Revenue Notice 18-02 on 10/22/2018. The revenue notice replaces and revokes Revenue Notice 03-02 and provides guidance on what constitutes non-compliance with the timber harvesting and forest management guidelines. These guidelines must be followed by taxpayers conducting specific activities on land enrolled in the Sustainable Forest Incentive Act program. When non-compliance occurs, the Commissioner of Revenue may take the tax parcel where the violation occurred. The taxpayer may administratively appeal the intent to take the property or appeal to the Minnesota Tax Court. Lastly, the Revenue Notice provides mitigating circumstances for appeals. Minn. Rev. Notice #18-02.

Morgan Holcomb

Mitchell Hamline School of Law

 

Jessica Dahlberg

Grant Thornton

 

TORTS & INSURANCE
JUDICIAL LAW

• Insurance; subrogation actions against “its insured.” Defendant rented an RV from Karavan Trailers, Inc. The RV later spontaneously caught fire, resulting in extensive damage. The cause of the fire is unknown, but nothing indicated that the fire or resulting damage was caused by the intentional acts of defendant. Pursuant to the rental agreement between defendant and Karavan, defendant was responsible for all damages to the RV during the term of the agreement regardless of the cause of the damage. After the fire, Karavan submitted a claim to defendant’s insurer. In response, defendant’s insurer only paid $4,500, representing the $5,000 deductible in Karavan’s insurance policy with its insurer minus the $500 deposit defendant had paid to Karavan.

Karavan then submitted the balance of the claim to plaintiff, Karavan’s insurer. Plaintiff paid the remaining amount of damages and filed an action against defendant for breach of contract. The district court granted defendant’s summary judgment motion. The district court held that defendant qualified as an “insured” under plaintiff’s policy, which provided coverage for “anyone… using with [Karavan’s] permission a covered ‘auto.’” Therefore, Minn. Stat. §60A.41(a) barred plaintiff’s claim. The court of appeals affirmed.

The Minnesota Supreme Court affirmed. Minn. Stat. §60A.41(a) provides that “[a]n insurance company providing insurance coverage… may not proceed against its insured in a subrogation action where the loss was caused by the nonintentional acts of the insured.” Because the statute does not define the term “insured,” the Court found that it was susceptible of two reasonable interpretations: “it could mean any party covered by some part of the insurance policy, or it could mean any party who is covered by the specific section of the insurance policy that applies to the particular loss at issue.” In so holding, the Court rejected the insurer’s argument that the term “insured” referred only to the “named insured,” reasoning that the “Legislature could have used the phrase ‘named insured’ if it intended to do so.”

After finding the term “insured” ambiguous, the Court looked to a related statute, Minn. Stat. §60A.0811, subd. 1(2), which defined “insured” as “mean[ing] any named insured, additional insured, or insured under an insurance policy.” The Court also looked to public policy, reasoning that it generally “favors an interpretation that is broadly protective of the rights of insureds.” As a result of these considerations, the Court held that the statutory bar against subrogation actions against an insured under Minn. Stat. §60A.41(a) encompasses any party covered by some part of the insurance policy at issue. Because defendant was covered under some part of plaintiff’s insurance policy, summary judgment was affirmed.

Justice Lillehaug, joined by Chief Justice Gildea, filed a concurring opinion. While they agreed with the decision reached by the majority, they found the term “insured” Minn. Stat. §60A.41(a) to unambiguously bar claims against any party covered under any part of an insurance policy.

Justice Thissen filed a dissenting opinion. While he agreed that the term “insured” in Minn. Stat. §60A.41(a) was ambiguous, Justice Thissen argued that the bar should apply “only when the person seeking protection under the… rule is, in fact, covered for the loss or risk for which the insurance company is seeking to recover in its subrogation action.” Justice Thissen would have remanded the case to the district court to “determine whether [plaintiff’s]’s policy covers [defendant] for the loss for which [plaintiff] is seeking subrogation.” Depositors Ins. Co. v. Dollansky, No. A17-0631 (Minn. 11/14/2018). http://www.mncourts.gov/mncourtsgov/media/Appellate/Supreme%20Court/Standard%20Opinions/OPA170631-111418.pdf 

Jeff Mulder

Bassford Remele

 

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