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November 1999


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Notes & Trends Headline
November 1999

"Notes & Trends" presents commentaries current
at the time of publication.
--Ed.

In this month's "Notes & Trends":

Civil Litigation
Judicial Law

Personal Jurisdiction. In a decision of interest to parent and subsidiary corporations, the Minnesota Court of Appeals has held that personal jurisdiction may be asserted over a nonresident parent corporation if its involvement with the subsidiary corporation meets a certain minimum threshold so that due process requirements are met. Davis v. Minnesota Mining and Manufacturing Co., 590 N. W. 2d 159 (Minn. App. 1999).

In Davis, the plaintiff was an employee of Chicago Bridge and Iron Company and later CBI, Na-Con, both of which are subsidiaries of CBI Industries. The plaintiff sued all three companies for injuries resulting from his work conditions. The parent corporation, CBI Industries, moved to dismiss for lack of personal jurisdiction because it was not a Minnesota corporation, had no presence in Minnesota, and did not transact business in Minnesota except through its subsidiaries. The district court denied the motion, and CBI Industries appealed.

Because personal jurisdiction is a question of law, the Court of Appeals reviewed the district court decision de novo. The appellate court began its analysis by citing the familiar tenets that (1) the plaintiff must make a prima facie showing that personal jurisdiction over the defendant "does not violate the traditional notions of fair play and substantial justice"; (2)the Minnesota long-arm statute, Minn. Stat. §543. 19, extends personal jurisdiction to the limits of due process; and (3) the nonresident defendant must "purposefully avail itself of the privilege of conducting activities within the forum state. "Id. at 161.

Turning to the facts at issue, the appellate court concluded that asserting personal jurisdiction over the parent corporation did not offend notions of fairness and justice because the parent corporation had designed a safety program that the subsidiaries were responsible for implementing, subject to oversight by the parent corporation. That safety program was at issue in the litigation, with the plaintiff contending that his injuries were caused by the failure of the parent corporation to ensure the program was properly implemented. The appellate court also noted that the parent corporation purchased the workers compensation insurance for the employees of the subsidiaries working in Minnesota. As a result, the appellate court concluded that the parent corporation "made important safety decisions affecting workers in Minnesota" such that the exercise of specific personal jurisdiction over the defendant would not offend the traditional notions of fair play and justice. Id. at 162.

The parent corporation argued that the court would have to engage in a piercing- the-corporate-veil analysis to subject the parent to personal jurisdiction. The appellate court rejected that argument, noting that the actions of the parent itself were sufficient to support an exercise of personal jurisdiction, without regard to whether the actions of the subsidiaries should be attributed to the parent.

This case serves as a reminder that parent corporations in other states may be subject to specific personal jurisdiction in Minnesota based on their involvement with their subsidiaries if the nature of the involvement and the activities assumed by the parent result in litigation.

By Cynthia Jokela
Fredrikson & Byron PA

In this month's "Notes & Trends":

Criminal Law
Judicial Law

Search and Seizure; Contact with Represented Defendant; Suppression. This case reverses the Court of Appeals with respect to a trial court suppression order. The Dakota County attorney was aware that the appellant was represented by counsel. This attorney-client relationship had existed for several years and was a fact apparently known by the prosecutors. Nonetheless, during an execution of a search warrant, a Dakota County attorney instructed law enforcement agents to lock out the attorney for the appellant while appellant was being interviewed by police.

Prior to the interview, the appellant asked if he could speak with his attorney and then faxed his attorney a copy of the search warrant. While the appellant was being interviewed, the attorney contacted a law enforcement agent, advised him that he represented the company and its employees, and asked that no statements be taken. The attorney also asked to speak with the appellant. Law enforcement refused to terminate the interview, refused to advise the appellant that his attorney had shown up, and would not allow the attorney inside the building site. Held, Minnesota Rule of Professional Conduct 4. 2 has applications in both the civil and criminal context, including statements taken in a voluntary, noncustodial interview. Although the rule does allow contact with unrepresented clients when "authorized by law to do so," a prosecutor is not authorized by law to direct the impediment of counsel to a client. Where conduct by a prosecutor is so egregious as to implicate issues relating to the fair administration of justice, the "authorized by law" exception to Rule 4. 2 does not apply. Further, the suppression order of the trial court was an appropriate exercise of discretion. Such an order, while harsh, encourages compliance with the rule, protects the public, and guards the administration of justice. Hence, the trial court order is reinstated. State v. Robert Dale Miller, 1999 WL 681685 (Minn. 9/2/99).

Traffic; Petty Misdemeanor; Conviction in Absentia. Appellant had been charged with petty misdemeanor speeding. His attorney had sought a continuance on three separate occasions. On the date of trial, attorney for the appellant called and stated he was having car trouble and would be unable to appear for trial. The attorney was told to move the court for a continuance, which he did not do.

The court entered a conviction for speeding, concluding that the attorney's basis for requesting a continuance was not "credible. "Although courts do have the authority to enter a petty misdemeanor conviction "for purposes of driver license administration" when a defendant fails to appear without proper excuse, there must be some constructive waiver of the right to be present, evidence presented, and a finding of guilt made. None of these factors was present here. The conviction was reversed. In order to "certify a conviction" to the Department of Public Safety, the preferred reason appears to be the failure to comply with a written notice to appear in court, rather than an absentia conviction. Minn. Stat. 171. 01, subd. 13 (1988). State v. Patrick Richard Haney,1999 WL 672676 (Minn. App. 8/31/99).

Forfeiture; Innocent Owner; Administrative versus Judicial Proceedings. Police stopped a vehicle driven by Carlos Blanche that was owned by his father, James Blanche. After having the occupants exit the vehicle, police noticed a bag of crack cocaine that had not previously been on the sidewalk. A notice of forfeiture was sent to both Carlos and his father, the appellant.

Administrative forfeiture proceedings were commenced against the vehicle. Administrative forfeiture may be initiated to forfeit a conveyance device containing controlled substances with a retail value of $100 or more. Judicial forfeiture may also be initiated to forfeit a conveyance device if the value of the controlled substance is $25 or more, and the conveyance device is "associated with a felony level controlled substance crime. "In this case, no criminal charges were brought against any occupant. Following the initiation of the administrative forfeiture proceedings by the state, the appellant demanded a judicial determination and filed a compliant. The administrative proceeding statutes do not specifically allow an innocent owner defense, while the judicial proceedings do allow this defense. The state contended that the innocent owner defense cannot be asserted in a case that is converted to a judicial forfeiture procedure after the state files an administrative proceeding notice. Held, when a claimant demands a judicial determination following a forfeiture initiated administratively, the proceeding is then converted into a judicial forfeiture proceeding that incorporates the innocent owner defense. James Blanche v. 1995 Pontiac Grand Prix, 599 N. W. 2d 161 (Minn. 9/9/99).

Sentence; Dispositional Departure; Amenability to Probation; Treatment. The respondent was charged with criminal vehicular homicide and criminal vehicular operation after an accident resulted in the death of two occupants and serious injury of the third. The alcohol concentration was . 11 percent. The respondent pled guilty to all charges.

Following a presentence investigation, the probation officer recommended a downward durational departure as well as a dispositional departure. The families of the victims did not wish prison. The judge imposed three consecutive one-year terms in the workhouse, along with three ten-year probationary periods. The state appealed the sentence. Held, the court did not abuse its discretion by granting a dispositional departure. It is not necessary for there to be a dispositional departure where there are sufficient factors supported by the record. Here, the respondent was young, had no prior record, was remorseful, cooperative, his attitude in court was cooperative, and he had many friends and family members who wrote letters to the court in support. Lastly, it is not necessary that chemical dependency treatment be ordered before amenability to probation is allowed. State v. Chad Paul Donnay, 1999 WL 690202 (Minn. App. 9/7/99).

By Frederic Bruno
Frederic Bruno & Associates

In this month's "Notes & Trends":

Employment and Labor Law
Judicial Law

ADA Cases. A police officer whose depression was corrected with medication and counseling is not covered by the ADA in a decision of the 8th Circuit Court of Appeals, applying a pair of recent U. S. Supreme Court rulings in Sutton v. United Airlines, Inc., 119 S. Ct. 2139 (1999) and Murphy v. United Parcel Service, Inc. , 119 S. Ct. 2133 (1999). In Spades v. City of Walnut Ridge, 186 F. 3d 897 (8th Cir. 1999), the court found that the medicine and treatment allowed the officer "to function without limitation. "States are immune from ADA claims, according to a pair of rulings by The 8th Circuit. In DeBose v. United States, ____ F. 3d ___ (8th Cir. 1999), the court applied its ruling in Alsbrook v. City of Maumelle, 184 F. 3d 999 (8th Cir.

Absenteeism is not covered under the ADA, according to the 8th Circuit Court of Appeals in Greer v. Emerson Electric Co., 185 F. 3d 917 (8th Cir. 1999). Because an employee was absent from work for more than 60 days per year for two consecutive years and more than 100 days in the third year, she was not a "qualified individual" under the Act due to her absences.

Age Discrimination Cases. Use by an employer of preemptory challenges to remove jurors over the age of 50 in an age discrimination claim under the Federal Age Discrimination and Employment Act (ADEA) was not improper. In Weber v. Strippit, 186 F. 3d 907 (8th Cir. 1999), the court found that there were "age-neutral" reasons for the use of three preemptory challenges to remove the jurors and declined to extend the Batson rule to the age-based challenges. The court also rejected an ADA claim, reasoningthat the plaintiff's heart disease was not a per se disability under the ADA of the Minnesota Human Rights Act because the affliction did not "substantially" affect the employee's ability to work. The court also held that an employer does not have an obligation to provide any reasonable accommodation to a claimant who is perceived or "regarded as" disabled.

The firing of a 45-year-old sales manager with an excellent record and the assignment of her accounts to younger, less successful employees, while several older workers were replaced by younger workers, is a sufficient prima facie case under the ADEA to avert summary judgment. In Keathley v. Ameritech Corp., 187 F. 3d 915 (8th Cir. 1999), the 8th Circuit reversed a grant of summary judgment where the employee was criticized for failing to follow company policy that generally was not enforced and was fired two months later. There was sufficient evidence of age discrimination and factual disputes regarding the employer's motivation to warrant a trial on the ADA claim.

Romantic Relationships. The firing of a male supervisor for having an intimate relationship with a subordinate, contrary to company policy, does not constitute a violation of Title VII of the Federal Civil Rights Act. In Malone v. Eaton Corp., 187 F. 3d 960 (8th Cir. 1999), the existence of the relationship was coupled with "strong evidence" that the supervisor lied to management about the relationship. Under these circumstances, termination did not violate his civil rights under federal or state law.

Off-Duty Conduct. A forester with the State Department of Natural Resources is not entitled to reemployment compensation after he was fired for discharging a rifle while off duty in the direction of two individuals who were netting fish along the Minnesota-Canadian border. In Crumpton v. Minnesota Department of Natural Resources, 1999 WL 595373 (Minn. App. 1999), the off-duty incident constituted misconduct because the employee could "no longer effectively perform the duties" of the job.

Reemployment Compensation. An employee who fails to return to work or contact her employer on the expected return date after a maternity leave is ineligible for reemployment compensation benefits. The appellate court held that the employee's failure to call in or produce medical documentation warranting an extension of the leave constituted misconduct barring benefits.

A live-in care provider does not have to accept a job requiring a 65-mile commute to be eligible for reemployment benefits. In Grimsgard v. Compensate Home Care, Inc., 1999 WL 639266 (Minn. App. 1999), the appellate court stated that while there is no precise guideline for determining suitability of employment, an employee was not required to accept a new position in Minneapolis from her current employer that did not provide live-in facilities and required a 65-mile daily commute from home to work.

Labor Law. An employer must reinstate an earlier contract proposal that had been withdrawn after a majority of employees signed a petition to decertify a union. In NLRB v. Beverly Health and Rehabilitation Services, Inc., 1999 WL 562241 (8th Cir. 1999), the court upheld a determination of the National Labor Relations Board that the proposal was taken off the table in bad faith to prolong the negotiation process until the union could be eliminated. The proper remedy is to extend by six months the one-year statutory period that precludes decertification so that the existing union can continue to negotiate with the employer.

By Marshall H. Tanick
Mansfield Tanick & Cohen PA

In this month's "Notes & Trends":

Environmental Law
Judicial Law

EPA Cannot Overfile on RCRA Claim. State hazardous waste programs that are authorized by the EPA operate "in lieu of" the federal program and with the "same force and effect" as EPA action. Accordingly, the 8th Circuit found that the Resource Conservation and Recovery Act (RCRA) precludes the EPA from assessing its own penalty against suspected environmental violators when a state agency has already taken enforcement action. Harmon Indus. , Inc. v. Browner, 1999 WL 718443 (8th Cir. 9/16/99).

Harmon operates a circuit board assembly plant in Grain Valley, Missouri. In 1987, a company manager discovered that its maintenance workers routinely discarded volatile solvent residue behind the company plant. Soon after this discovery, the company reported the findings to the Missouri DNR. While Harmon was cooperating with the MDNR, the EPA initiated an administrative enforcement action against Harmon, seeking over $2 million in civil fines. The ALJ found that a civil penalty against Harmon was appropriate but reduced the civil fine to $586,716. Harmon challenged thedecision in federal district court. The district court found the EPA decision to impose civil penalties violated the RCRA and contravened state principles of res judicata. The 8th Circuit affirmed the district court decision.

Interpreting RCRA §6926(b), the appellate court found that the Missouri state hazardous waste program operates "in lieu of" the EPA hazardous waste program. This language means the state is authorized to administer the hazardous waste program, including enforcement of the program. In so concluding, the 8th Circuit stated that the plain language of §6926(b) reveals a congressional intent for an authorized state program to supplant the federal hazardous waste program in all respects, including enforcement. Should the EPA be dissatisfied with the operation and enforcement of the state agency hazardous waste program and rules, the EPA recourse is to withdraw its authorization, not to file its own enforcement action. Similarly interpreting RCRA§6926(d) that "any action taken by a State under a hazardous waste program authorized under this section shall have the same force and effect as action taken by the [EPA]," the 8th Circuit held that state action substitutes for federal action, even in the enforcement arena.

The appellate court also found that state law principles of res judicata precluded the EPA from filing its own federal enforcement action. The court held that Missouri law res judicata requirements were satisfied, and therefore, the EPA federal action seeking civil fines was barred under the principles of res judicata.

MPCA Order Compliance not a Defense to a MERA Action. Where an MPCA order permits one of many alternative means to comply, an action pursuant to the Minnesota Environmental Rights Act (MERA) may nonetheless be used to challenge an action taken pursuant to an MPCA consent decree. Williams Pipeline Co. v. Soo Line Railroad Co., 597 N. W. 2d 340 (Minn. App. 1999). In a condemnation proceeding, MT Properties, an owner of property where cleanup activities were underway, objected to the proposed rerouting of the Williams pipeline. The pipeline claimed that because the consent decree required it to reroute its pipeline, it was protected from a MERA suit pursuant to Minn. Stat §116B.03. This statute provides that no MERA claim is permitted where the conduct complained of is taken pursuant to an environmental quality standard, limitation, rule, order, license, stipulation agreement, or permit issued by the MPCA.

The court found §116B.03 inapplicable because the consent order merely required the pipeline to find an alternate route. MPCA left it up to the pipeline company to find a better route. Because the route through the MT property was not required by the consent order, §116B.03 was not a defense to the MERA claim.

By Susan K. Wiens
Greene Espel PLLP

In this month's "Notes & Trends":

Family Law
Judicial Law

Custody Statute Prevails over Stipulated Modification. The MTA granted joint legal custody and sole physical custody to the mother. The father was granted specific visitation. The parties stipulated that the modification statute, Chapter 518. 18, would not be applicable for a modification if either party moved morethan 50 miles away, but the best interest of the child would be thoroughly examined pursuant to the statute. The MTA provided that if either party moved, the move would "constitute a substantial change in circumstances and the visitation schedule [would] be re-done in a fair manner. "The mother moved 150 miles away, from Ortonville to Cambridge. The trial court applied the endangerment standard of Chapter 518. 18 and found no endangerment. The Court of Appeals remanded for application of the best interests standard as directed by the original decree, which had not been appealed. On remand, the trial court found that the best interests of the child required custody by the mother in Ortonville and, if not possible, custody with the father in Ortonville. In its second unpublished opinion, the Court of Appeals affirmed the district court.

The Supreme Court found that the role of the courts in dissolution proceedings is "strictly limited to that provided for by statute. "The Legislature has established that modification of sole physical custody requires a showing of endangerment unless the parties agree to the modification or the child has been integrated into the other family, neither of which applies here. However, the Legislature has provided different standards for awards of joint physical custody, which allow the parents to bind the court to a stipulated standard. The Supreme Court stated that Chapter 518. 18 unambiguously provides that the endangerment standard applies to modification of sole physical custody, which is indicative of a legislative intent to impart a measure of stability to custody determinations. The Court concluded that the Court of Appeals erred as a matter of law in remanding the case to the district court for application of the best interests standard. It acknowledged the importance of stipulations but said that it cannot allow parties to contravene the plain and unambiguous intent of the Legislature. The Court of Appeals was reversed and the case was remanded to the district court for application of the endangerment standard in accordance with its original ruling. Three justices voiced their disapproval of the setting aside of a "five-year, court approved custody stipulation. "Frauenshuh v. Giese, 599 N. W. 2d 153 (Minn. 9/2/99).

Misrepresentation; Retroactive Support Modification. At a child support reduction hearing in 1991, the father produced his income tax returns for the past three years and represented to the court that he was on the verge of bankruptcy. An order reducing support was entered that directed him to provide the county with paystubs or other verification of his income on a monthly basis and income tax returns on an annual basis. He never provided the data and the county never took steps to obtain it. In 1994, the mother learned of his purchase of substantial assets and requested a review. The father ignored the request for financial data and the county used a state wage match formula to determine his earning level. At the hearing, he admitted significantly increased earnings since 1993. Dilatory tactics and a motion for custody change followed. Finally, the mother received tax returns for 1991-96 and information on the sale of a home built in 1994 on July 31, 1997, eight days before the hearing. The father's income had increased over the years, and the court ordered an increase in current and retroactive child support, resulting in an arrearage award of $23,335 from 1993 through 1996. It found that the material misrepresentations had precluded modification and the mother had timely moved for modification. The father appealed, and the Court of Appeals reversed both the retroactive modification and an award of $1,500 in attorneys fees. It found that the record did not show any basis for the awards. Gully v. Gully, 1998 WL 297509 (Minn App. 6/9/98) (unpublished).

The mother appealed to the Supreme Court, which found that the father had materially misrepresented his financial situation and willfullyfailed to comply with the court order to furnish financial data. The Court also found that the mother was precluded from bringing an earlier motion because of the material misrepresentation and that she promptly brought her motion for modification. It agreed that the district court made no separate finding of the father's ability to pay attorneys fees. However, it said that the language of the court reasonably implied that he had the ability to pay, and the court specifically concluded that the mother did not have the ability to pay fees because she had gone for so long without adequate child support. The fee award was upheld. The Court of Appeals was reversed on both issues. Three dissenting justices took the position that at no time was the mother precluded from serving a motion, and she chose not to raise her concerns regarding concealed income in a reasonably timely manner. Gully v. Gully, 599 N. W. 2d 814 (Minn. 9/2/99).

By the Hon. Eugene L. Kubes
Referee Judge, 2nd District, Retired

In this month's "Notes & Trends":

Federal Practice
Judicial Law

Failed Motion for New Trial; Second Trial a Nullity. Plaintiffs brought claims under 42 U. S. C. §1983 against the city of Fargo and several of its police officers arising out of plaintiffs' arrest for violating the Fargo residential picketing ordinance. In January 1995, a jury awarded each of the plaintiffs one dollar against one of the officers. In April 1995, the district court issued a notice of intent to grant a new trial, based on a possible error in its mitigation instruction and the prejudicial nature of defendants' closing argument. On May 10, 1995, the district court entered a final judgment on the jury verdict. Plaintiffs then formally moved for a new trial pursuant to Fed. R. Civ. P. 59(a) and 59(c). The district court denied plaintiffs' motion on August 14, 1995, but held a status conference a few weeks later to discuss possible new trial dates. A second jury trial was held in August 1997, and plaintiffs recovered $2150 against the city. Following an award of attorneys fees to the plaintiffs, the city appealed from both the attorneys fee award and the judgment entered following the second trial.

On appeal, the 8th Circuit rejected plaintiffs' arguments that the district court had "implicitly" granted their motion for a new trial, or that the failure to order a new trial could be treated as a "clerical mistake" under Fed. R. Civ. P. 60(a). Instead, the 8th Circuit held that that the failure to enter a formal order granting a new trial rendered the second trial a nullity. This decision reminds litigants of the importance of ensuring that they -- and their respective judges -- comply with all facets of Fed. R. Civ. P. 59. Copper v. City of Fargo, 184 F. 3d 994 (8th Cir. 1999).

Defense on the Merits; Standing. ' own breaches of the license agreement meant that it lacked standing to pursue its claims. The district court granted the motion to dismiss for lack of subject matter jurisdiction, and Novartis appealed.

On appeal, the 8th Circuit distinguished between Article III standing, which it described as the right to have the court decide the merits of a particular dispute, and Monsanto's breach argument, which, the 8th Circuit held, was merely a defense on the merits. Finding that Novartis unquestionably had "standing in the constitutional sense," the 8th Circuit reversed the dismissal for lack of subject matter jurisdiction and remanded the action to the district court. Novartis Seeds, Inc. v. Monsanto Co., 1999 WL 689472 (8th Cir. 1999).

Other Decisions of Note. In In Re Green Tree Financial Corp. Stock Lit., 1999 WL 684173 (D. Minn. 1999), Judge Tunheim acknowledged "an ever-widening split in authority" as to whether the Private Securities Litigation Reform Act of 1995 imposed a more stringent pleading standard on plaintiffs in securities fraud actions than the pre-existing standard in the 2nd Circuit. However, Judge Tunheim declined to resolve this issue "definitively," finding that plaintiffs failed to state a viable claim under either standard. Judge Tunheim did note that two unpublished opinions in the district have held that the PSLRA does establish a more stringent pleading standard. See In Re Ceridian Corp. Sec. Lit., No. 97-2044 (MJD/AJB) (D. Minn. 3/29/99); In Re Rainforest Café, Inc. Sec. Lit., No. 98-74 (RHK/JMM) (D. Minn. 12/21/98).

In Peerless Corp. v. United States, ___ F. 3d ___ (8th Cir.

In National Bank of Commerce v. Associated Milk Producers, Inc., 1999 WL 701489 (8th Cir. 1999), the 8th Circuit held that the district court had not abused its discretion in striking plaintiff's expert in a case where the plaintiff claimed he had acquired laryngeal cancer as the result of exposure to certain chemicals while working at a cheese plant. Describing its ruling as both "not free from doubt" and a "difficult case," the 8th Circuit took great pains to emphasize its application of the abuse of discretion standard.

In Minnesota Humane Society v. Clark, 184 F. 3d 795 (8th Cir. 1999), the 8th Circuit affirmed Judge Rosenbaum's dismissal of the action on grounds of mootness and chastised plaintiffs for not having taken an expedited interlocutory appeal from the denial of their motion for a preliminary injunction.

By Josh Jacobson
The Law Offices of Josh Jacobson PA

In this month's "Notes & Trends":

Juvenile Law
Judicial Law

Stepfather Adoption Reversed; No Abandonment or Termination of Parental Rights Established. The Minnesota Court of Appeals reversed a trial court order allowing adoption of daughter by biological mother and stepfather. Four hearings were held, commencing in October 1997, when mother and biological father obtained joint custody, and father was ordered to pay child support. Later, in December 1997, a hearing was held pursuant to mother's motion seeking termination of father's parental rights due to alleged abandonment. At that hearing, no determination of abandonment was made by the court. Thereafter, on June 3, 1998, a follow-up hearing was held where mother and stepfather's adoption was granted. Biological father was not present and later argued that he had not been given proper notice since he had been transferred to another prison. On June 26, 1998, the district court held a fourth hearing, with biological father appearing via telephone. The court stated that it would, "continue this matter and proceed from there," but did not vacate the adoption.

The Minnesota Court of Appeals reversed the trial court order, holding that biological father did not receive adequate notice of the hearing where the adoption was granted and that the district court had failed to make a necessary determination that father had abandoned his child, pursuant to Minn. Stat. §259. 24, subd. 1 (1998). The appellate court further held that Minnesota statutory and case law requires consent of adoption unless paternity has been terminated. See Eggert v. Van De Weghe, 279 Minn. 31, 35-36, 155 N. W. 2d 454, 457-58 (1967). The court concluded that the consent of a natural parent may be dispensed with only in those cases where the issue of alleged unfitness underlying the parental rights is raised and adjudicated and paternal rights are extinguished. In the case at bar, father was entitled to notice of the adoption proceedings, did not consent to the adoption of his daughter by the stepfather and, prior to granting the adoption, the court was required to find that father had abandoned the child. Finally, the court directed that due process requires that a parent be allowed to prepare, appear and protect parental rights.

It should be noted that in dicta, the court suggested that the facts of this matter taken together may support a finding of good cause for termination of the father's rights, where the biological father had no contact with the child for approximately one year prior to his imprisonment and his only involvement in her upbringing was disruptive. In fact, the child did not know her father and would not recognize him, and the father had failed to pay child support as required by court order. The district court must first make a finding that father had abandoned the child, and thereafter it may proceed to terminate his rights and approve an adoption. Petition of Justin Lee Fossen and Amy Jo Fossen to adopt M. E. F., 1999 WL 562669.

Summary Judgment Affirmed; Biological Mother HIV-Positive; Death of Child during Prospective Parents' Care. The Minnesota Court of Appeals affirmed summary judgment dismissal of a lawsuit by prospective parents against Wellspring Adoption Agency and Hennepin County Medical Center. The prospective parents first argued that the adoption agency had breached the contract between the parties and that the agency "knew or should have known" of biological mother's health condition. At the time of placement, the adoption agency was without complete information as to biological mother's health, and in fact, the prospective parents completed a form indicating they would, "accept for adoption, a child whose complete medical and social history was unavailable. "In dismissing this claim, the court found that there was no evidence that Wellspring was aware of any medical problems when the prospective parents took the child home. The prospective parents next argued that Wellspring was negligent per se, pursuant to Minn. Stat. §559. 43, which provides that a birth parent or an agency, after reasonable inquiry, must provide a prospective adoptive parent with a detailed social and medical history of the birth families, if known. The court found that Wellspring had used forms provided by the commissioner of health in compliance with the statute, and there was no evidence that the birth mother knew that she was HIV-positive or that the agency knew anything more about the mother's social and medical history than was provided to the prospective parents and, as a result, the court dismissed the claim. The prospective parents further argued that Wellspring was liable for making negligent misrepresentations to them that the baby was healthy and the "birth mother had all of her testing done. "There was evidence wherein the prospective parents admitted that neither they nor Wellspring ever discussed HIV testing and that the representation about mother's "testing" pertained to prenatal testing the mother had undergone. The court determined that there was no evidence that Wellspring employees made any untruthful statements about the baby's health or gave the prospective parents incomplete or misleading information.

Finally, the prospective parents asserted that Hennepin County Medical Center owed a legal duty to inform them and the adoption agency of any health issues concerning the baby and the birth mother. Without reaching the issue of whether a duty was owed by HCMC to the prospective parents, the court determined that there was no evidence that such a duty was breached. The child was born on July 26, 1997, and discharged into the prospective parent's care on July 29. There was no evidence that the discharge nurse had any information available to her at that time other than that the birth mother was HIV-negative. A printed lab report obtained later on July 29 indicated that the mother was reactive for HIV and a follow-up report dated August 2 confirmed that that the mother was HIV-positive. There was evidence in the record that the hospital informed Wellspring of the mother's condition on August 22, 1997. The court concluded that the reporting of mother's HIV status was timely. The court dismissed the prospective parents' claim, stating that there was no evidence of misrepresentation or of a breach of duty to inform.

It should be noted that when the parties and the adoption agency learned of the child's potential health issues, the agency offered to find foster placement for the child and, after taking time to consider whether they wanted to keep the child, the prospective parents decided to keep her, notwithstanding her health problems. On September 11, 1997, the child was found dead. The autopsy report listed the cause of death as Sudden Infant Death Syndrome. The court found that there was no evidence that the death of the child was caused by any condition known by HCMC.

Termination of Parental Rights; Abuse, Neglect and Chemical Dependency. The Court of Appeals affirmed a trial court order terminating parental rights of mother and father to their three children. Beltrami County Social Services became involved with the family in May 1989, two months after V. P. was born. Beltrami and Roseau Counties worked with the family over several years to address persistent problems of neglect and physical abuse. Until termination of parental rights in 1998, the family had ten child protection assessments, two emergency foster care placements, four psychological evaluations for each parent, 65 months of homemaker services, intensive in-home counseling, and more than a year of foster care for each child. Notwithstanding county efforts, neglect and physical abuse persisted. In affirming termination of parental rights, the appellate court determined that the trial court findings were supported by substantial evidence and were not clearly erroneous. The court reviewed each statutory element and concluded that the trial court correctly found: continuous neglect with reasonable efforts having failed to correct the condition, the parents were palpably unfit, and an adjudication as Children In Need of Protection or Services, with reasonable efforts having failed to correct the condition. The appellate court concluded that there was substantial evidence that supported termination in that the county exercised due diligence and used appropriate and available services in an attempt to meet the needs of the children and the family.

The parents argued that the county failed to use reasonable efforts to reunite the family, as required by Minn. Stat. §260. 221, subd. 5 (1998). The record reflected substantial evidence of uninhabitable living conditions for the children and numerous instances of abuse. Individual counseling was made available to the parents, homemaker services as well as intensive home counseling services and 76 months of foster care for two of the children and 14 months of foster care for the other did not lead to positive changes by the parents. The court determined that the reunification efforts were extensive, reasonable, and administered in a timely manner. See Minn. Stat. §260. 012 (c), (1998).

The parents then argued that the district court failed to consider the family's "probable future condition. "To terminate parental rights, the conditions supporting termination must appear likely to continue for a prolonged, indefinite time, as set forth in A. D., 535 N. W. 2d at 647. The court of appeals determined that the record clearly reflected findings that chemical dependency and neglect "will continue for a long and indeterminate period of time. "Although both parents had quit smoking and joined a church, the appellate court agreed with the district court finding that the underlying conditions including physical abuse, unsanitary housing and inability to care for the children were very likely to persist. Expert testimony was presented at trial that the parents lacked the parenting skills needed to deal with the exceptional emotional and behavioral needs of their three children and that depression impaired their ability to parent. The court concluded that, considering the facts and the lack of success of past programs instituted by the county, in the foreseeable future, the conditions of neglect and abuse would continue indefinitely and termination was warranted. In the Matter of the Welfare of A.P., C.P., and V.P., C7-99-171.

By William A. Winter
Walling & Berg, P. A.

In this month's "Notes & Trends":

Tax Law
Legislation

IRS Funding Bill Approved by Congress. The House and Senate approved the fiscal-year 2000 Treasury and Postal Service appropriations bill, providing the full level of funding requested by President Clinton--$8. 25 billion.

Minnesota Leads States in Tax Cuts. The Wall Street Journal on August 20, 1999, reported that the National Conference of State Legislatures found that, of tax cuts to be implemented by 42 states over the next two years, Minnesota taxpayers will receive the highest total cuts and rebates--$2. 7 billion--and the highest per-capita relief--$575. Connecticut is the next highest at $216 in per-capita tax relief.

Judicial Law

Interest on Sole Propietorship Deficiency is Nondeductible. The 7th Circuit held that deficiency interest paid by an individual is personal and nondeductible even when the deficiency arises from the taxpayer's business, in this case a sole proprietorship, upholding Treas. Reg. §1. 163-9T(b)(2)(i)(A).

Contingent Liabilities Excluded in Determining Insolvency for DOI Exclusion. The 9th Circuit held that a contingent liability in the form of a shareholder guarantee must be disregarded in determining the shareholder's insolvency for purposes of the Section 108 exclusion for discharge of indebtedness income. A dissenting judge argued that all liabilities should be counted and discounted by the probability of their occurrence. Merkel v. Commissioner, 84 AFTR2d Par. 99-5300, 1999 WL 722713 (9th Cir. 1999).

No S Corporation Basis Increase for Personal Guarantees. The 11th Circuit explored the circumstances under which a personal guarantee of a Subchapter S corporation's bank debt by its shareholder might be recharacterized as a loan from the bank to the shareholder and a loan or contribution from the shareholder to the corporation and rejected a shareholder's claim of stock basis from a personal guarantee where the S corporation's bank loan, which was supported by valuable collateral and ample cash flow, had economic substance. Sleiman v. Commissioner, 84 AFTR2d Par. 99-5264, 1999 WL 703206 (11th Cir. 1999).

No Remedy for Employer Failure to Specify Pension Benefit Actuarial Assumptions. The 10th Circuit held that employees have no remedy under ERISA when an employer fails to specify actuarial assumptions as required under IRC §401(a)(25) because that requirement is not codified in ERISA. Stamper v. Total Petroleum Inc. Retirement Plan, 188 F. 3d 1233 (8th Cir. 8/27/99).

Railroad Properly Subject to Missouri Personal Property Tax. The 8th Circuit held that the Missouri personal property tax is a tax of general application and may therefore be imposed on railroad train cars and locomotives without running afoul of the Railroad Revitalization and Regulatory Reform Act of 1976. Burlington Northern and Santa Fe Railway Co. v. State Tax Commission, 188 F. 3d 1039 (8th Cir. 9/1/99).

Casualty Loss Denied for Drop in Value After Natural Disasters. A U. S. District Court rejected taxpayer's claim of a casualty loss based on a citrus grove's diminution in value from a series of freezes that made the property less attractive to buyers but did not cause a permanent loss of value. Philmon v. United States, 84 AFTR2d Par. 99-5280, No. 98-246-C. V. -T-24(A) (N. D. Fla. 1999).

AMT Limitation on Foreign Tax Credit Consistent with Treaties. The U. S. Tax Court held that a U. S. citizen residing in Germany and the United Kingdom was negligent in failing to report and pay alternative minimum tax liabilities arising from the foreign tax credit limitation of §59(a)(2)(A), rejecting the argument that the limitation is inconsistent with relevant treaties. Pekar v. Commissioner, 1999 WL 680361 (1999).

Equitable Recoupment Not a Partnership Item. The U. S. Tax Court rejected a tax matters partner's motion for leave to amend a petition to add the affirmative defense of equitable recoupment since equitable recoupment is not a partnership item listed in the regulations and the defense is to a claim for payment that would run against the partners. Crop Associates -- 1986 v. Commissioner, 1999 WL 713650 (1999).

Earned Income Credit is Property of Bankruptcy Estate. The 10th Circuit Bankruptcy Appellate Panel held that a debtor's federal earned income credit refund is the property of her estate and not exempt under state law as either "public assistance" or "earnings. "Trudeau v. Randy Royal (In re Trudeau), 237 BR 803 (Bankr. 10th Cir. 1999).

Rulemaking

Exempt Assets Included in Determining Insolvency for DOI Exclusion. The Service ruled in technical advice that assets exempt from creditors' claims under state law must be included in the Section 108 insolvency determination. Tech. Adv. Mem. 199935002 (5/3/99).

Service Fixes Start Date for Interest on Underpayment after Overpayment Claimed. The Service issued a revenue procedure fixing the date from which interest on an underpayment begins to run after a corporate or individual taxpayer initially claims an overpayment. Rev.

Ex Parte Communication Prohibition Explained. The Service issued a proposed revenue procedure providing guidance on the prohibition of some ex parte communications between IRS Appeals Officers and other IRS employees enacted in Section 1001(a)(4) of the IRS Restructuring and Reform Act of 1998. Notice 99-50, 1999-40 I. R. B. 1.

Welfare-to-Work Credit for Successor Employers Explained. The Service issued a notice explaining when successor employers may claim work opportunity credits or welfare-to-work credits for wages paid to former welfare recipients who worked for more than one employer in the transition from welfare to work. Notice 99-51, 1999-40 I.R.B.1.

Regulations Issued. The Service issued regulations in the following areas, among others: (1) taxpayer identification numbers for children in the process of being adopted (final; T.D. 8839; 64 F. R. 51241-51243 (9/22/99)); (2) inflation-adjusted debt instruments(final; T.D. 8838; 64 F. R. 48545-48547 (9/7/99)); (3) Tax Refund Offset Program revisions (final; T. D. 8837; 64 F. R. 48547-48548 (9/7/99)).

IRS "Updates" List of Private Delivery Services. The Service "updated," but made no changes to, the list of private delivery services that taxpayers may use and qualify for "timely mailed is timely filed" treatment. The Service announced it will not publish a new list until a company or service is added to or removed from the list. Notice 99-41, 1999-35 IRB 325.

IRS Web Site Address Changed. The IRS new Web site address is www. irs. gov. For the time being, the site is also available through a link provided at the old address.

By Denise Roy
William Mitchell College of Law

In this month's "Notes & Trends":

Torts & Insurance
Judicial Law

Medical Malpractice; Expert Review. Plaintiff underwent surgery for the removal of a "left chest lipomatous mass." The mass intended for removal was invisible to the naked eye on the plaintiff's left chest wall; the mass actually removed was a different subcutaneous mass on plaintiff's left breast.

Plaintiff alleged medical malpractice but failed to comply with the statutory expert affidavit requirements. Accordingly, the trial court granted summary judgment for defendants, and the Court of Appeals affirmed. The court held that any failure to excise the correct mass was based on subtle technical errors rather than a substantial and obvious deviation from the intended procedure. Because plaintiff could not show a substantial and obvious deviation from the intended procedure, she needed to comply with the statute requiring plaintiffs to support their medical malpractice claims with affidavits of expert review. Because plaintiff failed to comply with the statute, the Court of Appeals concluded that the trial court did not abuse its discretion in granting summary judgment. Haile v. Sutherland, 598 N. W. 2d 424 (Minn. App. 8/17/99). [Note: The author's law firm successfully represented the University of Minnesota in this case. ]

No-Fault Insurance; Work Loss Benefits. Since many senior citizens are retired, the No-Fault Act imposes an obligation on insurers to ask them if they want to exclude wage-loss benefits on their no-fault insurance policies in exchange for a reduction in premiums. In this case, a retiree declined "work loss" benefits when he purchased the policy. Despite several renewals, the insurance company never again asked whether the work-loss exclusion remained appropriate. After an automobile accident, plaintiff's conservator sought work-loss benefits. The insurance company denied the claim, stating that plaintiff had waived work-loss benefits and therefore was not entitled to coverage.

The trial court reversed a decision by an arbitrator that plaintiff was entitled to income-loss benefits, holding that as long as the insurance company asked plaintiff whether he wanted work-loss benefits at one point, it did not have an ongoing responsibility to inquire whether work-loss protection was necessary.

The Court of Appeals reversed, holding that the insurance company had an ongoing duty at the time of each renewal to inquire whether a senior citizen wanted work-loss coverage. Since the insurance company did not ask plaintiff each time he renewed his policy whether work-loss benefits were appropriate, plaintiff was entitled to the benefits stemming from his automobile accident.

American Family Ins. Co. v. Schroedl, 598 N. W. 2d 704 (Minn. App. 8/24/99).

Insurance; Intentional, Willful and Malicious Conduct. An insurance company claimed that the actions of its insured in robbing the grave of a child and mutilating the corpse were excluded from coverage because that conduct was intentional, willful and malicious. The trial court denied the insurance company's motion, holding that there were questions of fact as to whether the insured intended to injure the child's family and whether his actions were willful and malicious. At trial, the insured testified that he had no intention of hurting or psychologically injuring the child's family. Following trial, the jury returned a verdict finding that the insured did not intend to cause harm and that his actions were not willful or malicious.

The Court of Appeals reversed and ordered summary judgment for the insurance company. The court found that it was irrelevant to the determination of intent or willfulness whether the insured subjectively considered the effects of his actions on the child's family. Intent to cause psychological and emotional harm can be inferred from the act of stealing and mutilating a child's corpse. The court further held that whether an act is willful or malicious does not hinge on a person's state of mind or whether that person directed their actions at the people who were injured. Consequently, in certain circumstances, willfulness and malice can be inferred from the egregious nature of the acts themselves. State Farm Fire and Casualty Co. v. Neises, 598 N. W. 2d 709 (Minn. App. 8/24/99).

Medical Malpractice; Expert Affidavit. Plaintiff brought suit alleging negligence in failing to instruct his pregnant wife to be seen by a physician immediately after she first reported severe pain and swelling. Plaintiff attached to the complaint the first of two affidavits required by Minn. Stat. §145. 682 but did not file the second until 178 days later - two days before the statutory time period expired. More than a year after commencement of the suit, plaintiff sought and was granted an extension of the discovery deadline for expert disclosure under the scheduling order but did not specifically request an extension of the 180-day statutory deadline.

The trial court granted summary judgment for the defendants. Following a reversal by the Court of Appeals, the Minnesota Supreme Court reinstated the summary judgment, holding that the expert affidavit filed by plaintiff two days prior to the running of the statutory deadline was legally insufficient because it contained nothing more than broad and conclusory statements as to the standard of care and causation. Rejecting plaintiff's contention that the affidavit was sufficient since defendants were able to retain experts to rebut its content, the Court stated that the statute requires far more than identification of an expert or general disclosures. Rather, it requires "specific details concerning their experts' testimony, including the applicable standard of care, the acts or omissions that plaintiffs allege violated the standard of care and an outline of the chain of causation. "The Court also held that plaintiff's request for an extension of the discovery deadline did not constitute a request for an extension of the deadline under Minn. Stat. §145. 682. Lindberg v. HealthPartners, Inc., 599 N. W. 2d 572 (Minn. 9/2/99).

Workers Compensation; Contribution. Interim Personnel and Corporate Express entered into a contract under which Interim was to supply workers and provide workers compensation insurance for those workers. When one of the workers was injured while operating a forklift, he sued, among others, the distributor of the forklift, Lift-Stak & Stor. feasor is entitled to contribution from an injured worker's employer in an amount proportional to the employer's percentage of negligence, but not more than its total workers compensation liability.

The trial court dismissed the claim against Corporate Express, holding that it was not liable for a Lambertson contribution because its contract with Interim relieved it of any responsibility to pay workers compensation benefits to the injured worker. The Court of Appeals reversed the decision, noting that while the parties had a right to contract between themselves for the obligation to pay workers compensation benefits, such a contract does not eliminate the possibility of negligence on the part of the employer. It simply shifts to another the employer's obligation to pay, if found liable.

Meiske v. Lift-Stak & Stor, Inc., 599 N. W. 2d 175 (Minn. App. 8/31/99).

Rulemaking

Frivolous Litigation; New Rule. Under the newly-adopted Rule 9 of the General Rules of Practice for the District Courts, if a court determines that a party is a frivolous litigant, it may enter an order (1) requiring that party to post a surety bond or cash in the amount of the opposing party's reasonable fees and costs; or (2) imposing preconditions on that party's right to file new claims. A "frivolous litigant" is defined as a person who repeatedly attempts to relitigate decided issues, files frivolous motions or conducts unnecessary discovery, or brings a claim without merit. An order requiring security or imposing sanctions under the rule may be entered only after notice and hearing and is considered a final, appealable order.

By Michael A. Klutho
Bassford Lockhart Truesdell & Briggs