December 2000

In this month's "Notes & Trends":

• Administrative Law
• Civil Litigation
• Criminal Law
• Elder Law
• Employment & Labor Law
• Environmental Law
• Family Law
• Federal Practice
• Juvenile Law
• Real Property
• Tax Law
• Torts & Insurance

Rules Reform Task Force. The members of the Legislative Rules Reform Task Force created by the 2000 Legislature have been appointed and an initial slate of meetings scheduled. Interested parties may call the Legislative Coordinating Committee staff, Chad Thuet, at (651) 296-9002 for more information.

New Contested Case Rules. The Office of Administrative Hearings has draft revisions of the contested case rules under serious consideration. Those interested should contact Catherine Anderson at (612) 341-7666 for a draft copy or watch the <I>State Register<P> for final notice.

--Hon. George A. Beck
Minnesota Office of
Administrative Hearings
--Michael J. Ahern
Dorsey & Whitney LLP

Accord and Satisfaction. The Minnesota Supreme Court recently clarified that the statutory provisions in Minn. Stat. ¤ 336.3-311 were intended to codify the common law elements of accord and satisfaction, one of which is the requirement of mutual agreement. The Court further explained that there is no requirement that the agreement be express. Rather, such agreement may be implied from conduct that clearly and unequivocally indicates that the parties intended to enter into a contract. Once the elements have been established, an accord and satisfaction will be presumed and the burden of rebuttal shifts to the party challenging the accord and satisfaction. Webb Business Promotions, Inc. v. American Elec. and Entertainment Corp., 617 N.W.2d 67 (Minn. 2000).

Statute of Limitations; uim Claims. The Minnesota Supreme Court recently clarified that UIM claims accrue and the statute of limitations begins to run when the claim becomes ripe by settlement or adjudication of the claim against the tortfeasor. The Court recognized that its holdings were in conflict. In Weeks v. American Family Mut. Ins. Co., 580 N.W.2d 24, 27 (Minn. 1998), and O'Neil v. Ill. Farmers Ins. Co., 381 N.W.2d 439 (Minn. 1986), the court had indicated that the claim accrues and the limitations period commences at the time of the accident that causes the injury. However, in Employers Mut. Cos. v. Nordstrom, 495 N.W.2d 855, 857 (Minn. 1993), the Court held that a UIM claim is not ripe until it has been determined that the tortfeasor is in fact underinsured by settlement or adjudication of the claim against the tortfeasor. The Court concluded in Nordstrom that a claimant must settle or adjudicate an action against the tortfeasor as a condition precedent to bringing the UIM claim, but that there is no guarantee that the condition precedent will occur before the six-year statute of limitations from the time of the accident has run. This situation is not fair to the UIM claimant. On the other hand, if the accrual date is the date of the breach of the insurance contract, or the date the claim is denied, the insured would be able to postpone the effect of the statute of limitations indefinitely and that would not be fair to insurers. Therefore, the Court states that the time for accrual of a UIM claim and the beginning of the statute of limitations is the date of settlement with or judgment against the tortfeasor. Oanes v. Allstate Ins. Co., 617 N.W.2d 401 (Minn. 2000).

Municipal Tort Liability. The plaintiff, a 16-year-old junior at Ellsworth High School, took a theater class that was taught by defendant Dulak, a Minnesota resident employed by a Wisconsin school district. The teacher rented a theater in Red Wing, Minnesota, for the class production of "The Wizard of Oz." Plaintiff fell through an open, unguarded trap door on the stage of the theater and was rendered a quadriplegic when she struck the cement floor below.

At the time of the accident, the Wisconsin school district and its teacher were insured by Employers Mutual under two liability policies, the first with $1 million in coverage and the second, a $5 million umbrella policy. In addition, the teacher was covered under a policy issued by Horace Mann through the Wisconsin Education Association in the amount of $1 million. By way of a Drake v. Ryan type of settlement, the parties released defendant Dulak from any claim up to $6 million and in excess of $7 million, focusing solely upon the additional $1 million in coverage available under the Horace Mann policy. The court held that Dulak's liability was limited to $200,000, the cap for municipal tort liability, and that Dulak's excess policy with Horace Mann was not "other valid and collectible insurance" that operated as a waiver of the municipal cap. City of Red Wing v. Ellsworth Community School Dist., 2000 WL 1468242 (Minn. App. 10/3/00).

--Andrew T. Shern
Murnane Conline White & Bradt PA

Assault. The appellant, a woman, assaulted the victim, a man, because he was allegedly having sexual relations with the appellant's 13-year-old daughter. At the time of her arrest, the appellant stated to the police, "That punk has been having relations with my daughter." At trial, the prosecution moved in limine to suppress the statement, alleging that it was inflammatory, irrelevant, and unrelated to any legally recognized defense. The trial court agreed. Then, in opening and closing statements, the prosecutor stated that the appellant "had no good reason at all in the presence of her two children to punch another individual."

Held, it was error for the district court to exclude this statement. The appellant had an absolute right to tell the jury why she acted with the aggression that she did. Even if it is "unrelated to any legally recognized defense," the test is not whether the evidence constitutes a defense, but whether it was a piece of evidence in the chain of events leading up to the crime. The trial court may not edit a conversation involving a defendant. The judge could have instructed the jury at the close the case that provocative statements may not justify an assault. The prosecution compounded the error by stating something she knew to be untrue in the opening and closing statements, and her conduct "bordered" on unethical. Reversed and remanded. State v. Thompson, 617 N.W.2d 609 (Minn. App. 10/03/00).

DWI/Implied Consent; Special Deputies. Two special deputies observed the respondent violating the quiet waters ordinance in Lake Minnetonka. Special deputies are not licensed peace officers as defined by Minn. Stat. ¤ 626.84, subd. 1(c), the Hennepin County ordinance notwithstanding.

After requesting the respondent to pull over his jet ski, the special deputies noticed that the respondent had an unopened can of beer between his legs, smelled of alcohol, and had bloodshot eyes and slurred speech.

The respondent was later asked to board the patrol boat, and he complied with the preliminary breath tests as well as three field sobriety tests.

Held, special deputies do not have the authority, either as peace officers or as private citizens, to administer a preliminary breath test or investigate for DWI beyond their direct observations of an offense. The Legislature has mandated that PBTs be administered by peace officers. See Minn. Stat. ¤ 169.121, subd. 6(a). Although field sobriety tests are not directly addressed by the statute, there is no evidence that the Legislature intended that people other than law enforcement personnel conduct such tests for intoxication. Hence, the trial court suppression of the PBT and the FST is affirmed.

The special deputies properly effected a citizen's arrest, however, and there was sufficient probable cause to arrest for boating while under the influence, given the bloodshot eyes, odor of alcohol, slurred speech, and presence of alcohol on the jet ski. Lake Minnetonka Conservation Dist. v. Horner, 617 N.W.2d 789 (Minn. 10/12/00).

Expungement; Diversion Program. The respondents were charged with felony drug possession but successfully completed a drug diversion program. They did not plead guilty and satisfied all requirements. Three years from the offense date, they moved to expunge all records. The City of Maple Grove opposed the expungement on the basis that Minn. Stat. ¤ 299C.11(b) does not consider a diversion program to be an outcome in favor of the arrested person.

Held, the respondents are entitled to an expungement. For purposes of expungement under Minn. Stat. ¤ 609A.02, subd. 3, the proceedings were resolved in favor of the respondents. However, under Minn. Stat. ¤ 299C.11(b), which concerns only the actual return of arrestee's records, a completion of a drug diversion program is not a favorable outcome. This petition, however, is under ¤ 609A.02 and is not a proceeding under ¤ 299C.11(b). Therefore, ¤ 299C definition is irrelevant. State v. Horner, (Minn. App. 10/10/00).

Juvenile Certification; Waiver. A child was charged with third degree assault for severe beatings to individuals. The state moved to certify the child as an adult, and a hearing on the certification motion was requested. Both the probation officer and the court-appointed psychologist who examined the child recommended that he be certified as an adult. On the date of the certification hearing, the child appeared with his attorney and waived the certification hearing. The county attorney stated that if the child waived certification and agreed to certain conditions, the complaint would not be amended to add charges of kidnapping and attempted murder.

Held, there is no such procedure as a "motion to withdraw consent to certification." Because it is not expressly authorized in the Minnesota Rules of Juvenile Procedure, the Court of Appeals lacked authority to create such a rule. A certification order may be appealed within 30 days but that was not done in this case. Under these circumstances, the Court of Appeals finds that the waiver was knowing, voluntarily and intelligently made. The child discussed this case several times with his attorney, his mother, father, and grandfather. It was not unreasonable for the county attorney to threaten more serious charges failing a waiver of certification. In re S.J.D., Child, 617 N.W.2d 614 (Minn. App. 10/10/00).

Joinder; Antagonistic Defenses. At trial, the appellant and his codefendant were joined, over objection of the defense, in second-degree murder charges. The codefendant claimed that he shot the gun because the appellant instructed him to do so. The appellant, on the other hand, claimed that he did not instruct the codefendant or hand him the gun and was merely a bystander in the shooting. Other witnesses testified that appellant handed a gun to the codefendant.

Held, the appellant did not suffer any substantial prejudice as a result of being joined for trial. Prior to 1987, separate trials were presumptive. Since that time, Rule 17.03, subd. 2(1), eliminates the preference for separate trials. Severance is required under the new rule if a defendant can show that a jury cannot reasonably be expected to compartmentalize the evidence as it relates to separate defendants.

The trial court concluded that neither defendant can show prejudice by a joint trial or can specifically identify inconsistent defenses. The trial court also took into consideration the interest of the victims and their families and that some of the witnesses were frightened and reluctant to testify even at one trial. Finally, the court gave limiting instructions, suggested by Zafiro, 506 U.S. 534 (1993). Note: This is a case of first impression, since the rule has never been construed in cases involving mutually antagonistic defenses. Santiago v. State, 617 N.W.2d 632 (Minn. App. 10/17/00).

--Frederic Bruno
Frederic Bruno & Associates

Waiver Requests Denied. In 1996, the Minnesota Legislature enacted a number of changes to the asset transfer rules. These revisions would have dramatically changed the Medical Assistance program. However, the changes could not be enacted until the state received a federal waiver. Waiver requests were submitted in March of 1997 to the Health Care Financing Administration (HCFA). In a letter dated August 22, 2000, HCFA finally denied the requests, specifically including the following requested changes that would have had the most significant impact on Medical Assistance:

Implementing a 72-month look-back period for transfer of assets;
Prohibiting the transfer of excluded assets;
Modification of the penalty divisor;
Modification of the beginning of the penalty period.

--Tonya Zdon Gabbard
Garvey, Mathison & Boggio PA

Noncompete Contracts. An employer is vicariously liable for the violation of a nonsolicitation provision in a contract between one of its current employees and his former employer when the current employer knew about the prior agreement and failed to properly supervise the client's compliance with it. In Hagen v. The Am. Agency, Inc., 2000 WL 1577094 (Minn. App. 2000), the Court of Appeals held that an insurance agent's current employer was liable for the agent's violation of a nonsolicitation agreement contained in a contract with his former employer because the current employer was aware of the restrictions and failed to take action to assure that the employee did not refrain from engaging in improper solicitations.

Unfair Labor Practice. Reversing a ruling of the National Labor Relations Board, the 8th Circuit Court of Appeals held that a college did not commit unfair labor practice when it refused to extend the contract of an adjunct instructor who had made disparaging remarks about his department and its permanent faculty members to the college dean. The Board determined that the college committed an unfair labor practice because its actions were based on anti-union animus since the instructor had previously unsuccessfully tried to organize a union among faculty members. But the appellate court reversed in Carleton College v. NLRB, 2000 WL 1577105 (8th Cir. 2000), holding that the college had an interest in fostering or maintaining collegiality and loyalty, which overrode any anti-union animus. Therefore, the college acted properly in refusing to continue the employment of the adjunct because of his "negative attitude."

Reemployment Compensation. An arrangement in which a construction company is managed by a single individual, while construction workers are deemed to be one percent partners with the nonownership interest in the entity, comprises an employment relationship that requires the entity to make contributions to the reemployment compensation fund for wages paid for employment to the individuals. In Jensen v. Department of Economic Sec., 2000 WL 1528683 (Minn. App. 2000), the Court of Appeals held that even though a partnership arrangement existed, contributions to the reemployment compensation fund must be determined on a traditional master-servant basis. Based upon the substantial control exercised by the single individual, the arrangement constituted "an employment relationship," which required reemployment compensation contributions to be paid on behalf of each of the individual one percent participants.

Violation of written company attendance policies constitutes "misconduct" disqualifying an individual from eligibility for reemployment compensation benefits. In Ramos v. Minnesota Mut. Life, 2000 WL 1577110 (Minn. App. 2000) (unpublished), an employee was fired for failing to comply with the company policy requiring notification to superiors if the employee is absent from work for two consecutive days. The employee also repeatedly exceeded the allotted 40-minute lunch period. The failure to comply with these valid policies disqualified the employee from reemployment benefits.

The Department of Economic Security is entitled to recoup reemployment compensation benefits paid to an employee after initial adjudication that an employee is eligible for benefits, which later is reversed by a reemployment compensation judge. In Kelly v. Commissioner of Economic Sec., C5-00-466 (Minn. App. 2000)(unpublished), the court upheld the right of the department to garnish an employee's tax refund to recoup benefits paid to an employee, whose initial entitlement to benefits later was later reversed. Although the court deemed the result "harsh," it upheld the constitutionality of the Revenue Recapture Act, which allows recoupment in these circumstances.

Public Employees. A long-time municipal employee was entitled to ten years of front pay as damages for wrongful termination after she was fired for reporting improprieties to an alderman. In Belk v. City of Elton, 2000 WL 1456296 (8th Cir. 10/2/00), the 8th Circuit upheld a jury verdict that the discharge was retaliatory and violated the employee's First Amendment right of freedom of speech.

Employee Loan. An employee must repay a loan received from an employer if the employee refuses to relocate two years later. In ConAgra, Inc. v. Seeland, 2000 WL 1468200 (Minn. App. 2000), the Court of Appeals held that the relocation did not constitute an interference with the employee's ability to repay the loan, which was to be forgiven each year over a three-year span that the employee remained employed with the company.

Looking Ahead
A pair of important cases involving arbitration in the workplace are pending before the U.S. Supreme Court during its current term. The cases are likely to have significant impact upon employment relationships in Minnesota.

In Circuit City Stores, Inc. v. St. Clair Adams, No. 99-1379, 120 S.Ct. 2004, the Court will consider whether a compulsory arbitration agreement in employment is enforceable under the Federal Arbitration Act, 9 U.S.C. ¤ 1. The 9th Circuit, alone among the federal circuit courts, held that the arbitration law does not apply to employment agreements. The Minnesota Supreme Court has in the past held that compulsory arbitration agreements are enforceable, but earlier this year held that such agreements are not enforceable under the Minnesota Uniform Arbitration Act if there is a pending discrimination charge under the Minnesota Human Rights Act. Correll v. Distinctive Dental Services, 607 N.W.2d 440 (Minn. 2000). The court in the Correll case opined that such agreements would be binding under the Federal Arbitration Act, although that determination may be countermanded by the upcoming ruling in the Circuit City case.

In Eastern Assoc. Co. v. UMW Dist. 17, No. 99-1038, 120 S.Ct. 1416, the high court will decide whether an arbitration award reinstating an employee to work after he had been fired for drug use can be overturned by a court because it violates "public policy." The Minnesota courts have taken varying views of the "public policy" doctrine in arbitration agreements, never explicitly overturning an award on that basis but holding open the prospect that the doctrine may be invoked in corporate circumstances to challenge the arbitration rulings.

--Marshall H. Tanick
Mansfield, Tanick & Cohen PA

Site Investigation Costs. The 8th Circuit Court of Appeals recently held that landowners were entitled to recover soil investigation costs under CERCLA regardless of the test results, as long as the costs were reasonable, the investigation was scientifically valid, and the landowners reasonably believed that the defendant's release of hazardous substances would contaminate their property. That the landowners initiated testing after filing their CERCLA claim, and that no hazardous substances were detected above applicable standards, was irrelevant. Johnson v. James Langley Operating Co., 226 F.3d 957, 2000 U.S. App. LEXIS 23579 (9/21/00).

Plaintiff landowners were denied recovery of their investigation costs by the district court for the western district of Arkansas. Relying on the 5th Circuit Court of Appeals decision in Amoco Oil Co. v. Borden, Inc., 889 F.2d 664 (5th Cir. 1989), the district court held that the landowners could not recover their investigation costs under CERCLA because the levels of hazardous substances detected by the investigation did not pose a threat to human health or the environment. Noting that the landowners had conducted their testing a year and a half after filing their CERCLA claim, the district court also reasoned that the investigation had not been conducted in response to a perceived release or threatened release of hazardous substances, but rather to prove the elements of the landowners' claim.

The 8th Circuit rejected Amoco Oil and reversed the district court ruling. According to the 8th Circuit, the plain language of CERCLA does not incorporate any quantitative threshold into its definition of hazardous substances. As a result, CERCLA places liability for investigation costs on the responsible parties even when the testing shows that remediation is unnecessary. According to the court, CERCLA contains other safeguards to ensure that investigation costs are justified.

CERCLA expressly states that in order to be recoverable, investigation costs must be caused by an actual or threatened release of hazardous substances, they must be necessary, and they must be consistent with the National Contingency Plan. Citing one of its earlier decisions, the 8th Circuit noted that CERCLA is a strict liability statute and does not consider the motives of the party attempting to recover response costs. It is enough that there has been a release or threat of release of hazardous substances, and the timing of the party's investigation vis-à-vis the filing of its claim is irrelevant. Response costs are necessary, according to the 8th Circuit, when the investigating party reasonably believes that the release or threatened release would contaminate his or her property and the testing is not unduly costly or scientifically deficient.
Clean Water and Clean Air Acts. The U.S. Supreme Court is hearing arguments this term in three cases that may limit the authority of federal agencies to enforce the Clean Water Act and Clean Air Act. In Solid Waste Agency of N. Cook County v. United States Army Corps of Eng'rs, No. 99-1178, 120 S.Ct. 2711, the Supreme Court will consider whether congressional power under the Commerce Clause of the Constitution is broad enough to give the Army Corps of Engineers, through the Clean Water Act, jurisdiction over wholly intrastate bodies of water by virtue of the fact that migratory birds use those waters. The appellant is a consortium of counties and cities that purchased a large tract of land for use as a solid waste landfill. The site is a former strip mine that came to be used by numerous species of migratory birds. Upon learning of the birds, the Army Corps of Engineers asserted jurisdiction and refused to grant a permit for filling the waters on the site. The 7th Circuit Court of Appeals upheld the denial by the Corps of the permit.

Browner v. American Trucking Ass'ns, No. 99-1257, 120 S.Ct. 2711, and American Trucking Assn's v. Browner, No. 99-1426, 120 S.Ct. 2193, stem from a challenge by business and industry groups to air quality standards recently enacted by the EPA. In the first case, the federal government seeks to overturn a ruling by the D.C. Circuit Court of Appeals that Section 109 of the Clean Air Act lacks an "intelligible principle" to guide the EPA in setting national ambient air quality standards. According to the D.C. Circuit, Congress has given the EPA too much discretion in setting these standards by failing to embody in the statute fundamental policy choices that will guide the EPA in exercising its discretion. In the second case, the business and industry groups seek to overturn the D.C. Circuit ruling that the EPA, in setting air quality standards, need not consider the cost of compliance. In the latter case, the D.C. Circuit rejected the appellant's argument that the EPA has too much discretion because Section 109 of the Clean Air Act does not require the EPA to balance costs and benefits when setting air quality standards.

--Robert F. Devolve
-- Nicholas W. Chase
Leonard Street and Deinard PA

Right to Intervene; Domestic Abuse. The child's father brought a domestic abuse proceeding against the mother's live-in boyfriend, and the district court found abuse. The father was awarded temporary custody of the child for one year and the mother moved to intervene one month later. The district court ruled her motion to intervene as of right under Rule 24.01 was untimely. The Court of Appeals found that she had a fundamental interest in her child that the custody change infringed. Further, neither the father nor boyfriend could adequately protect her parental interest. It said that courts favor intervention, and that timeliness is determined on a case-by-case basis on: 1) how far the suit has progressed, 2) the reason for delay in seeking intervention, and 3) any prejudice to existing parties. The appellate court found that her legal aid attorney had assured her that a custody change could not be made without her presence, and her subsequent private attorney misread the filing procedure for the intervenor rule. It concluded that these circumstances should not be fatal to her motion and that the existing parties would not be substantially prejudiced if the mother were allowed to intervene because the proceedings to date were not complicated, and the terms of the district court order were not intricate. The Court of Appeals also found no procedural impediment to the application of Rule 24.01 or emergency circumstances warranting denial of her due process right to participate. Reversed and remanded. Halverson v. Taflin, No. C1-00-514, 617 N.W.2d 448 (Minn. App. 10/3/00).

Unpublished Opinions. The Court of Appeals issued the following unpublished opinions that may not be cited except as provided by M.S. Chap. 480A.08, subd. 3 (1998).

Motion to Vacate Attorney's Lien. Former counsel received an attorney's lien against securities received by the client in a post-decree dissolution matter. The replacement attorney did not file a written response but presented oral arguments at the hearing. The former client's motion for relief under Rule 60.02 was denied because replacement counsel did not provide a defense on the merits and failed to file a written response. The Court of Appeals affirmed after finding that the attorney's alleged failures did not constitute attorney neglect that was excusable to the client. In re Brewster v. Fredrikson & Byron, No. C5-00-614, 2000 WL 1341472 (Minn. App. 9/19/00) (unpublished).

Guidelines Cap. In 1999, the district court found that the guidelines cap should be applied to stipulated child support ordered in a 1994 decree. However, the Court of Appeals reversed the application because the stipulated decree contained provisions that were contrary to a guidelines child support award. It concluded that the obligor effectively waived the application of the statutory guidelines cap. Cariolano v. Cariolano, No. C1-00-142, 2000 WL 1341389 (Minn. App. 9/19/00) (unpublished).

Adoption without Notice. The putative father failed to register in a timely manner with the Minnesota Putative Father's Adoption Registry and did not sign or file any document to preserve his parental rights. The child was adopted without notice to him and he moved to intervene. The district court ruled that he was not required to consent nor entitled to notice because he failed to register in a timely manner with the Adoption Registry. The Court of Appeals found that the father's motion was based on his claim that he substantially supported the child, but the trial court record was to the contrary. It supported the conclusion that he failed to make an adequate showing. He made claims of providing financial support but provided no documentary evidence and failed to show inability to contribute. It concluded that the district court findings of failure to provide substantial support was not clearly erroneous and concluded that neither notice of nor consent to the adoption was required.

Both the putative father and the mother moved to intervene as a matter of right under Rule 24.01 . The Court of Appeals held: 1) that the trial court correctly held that the father failed to establish any legal right in the proceedings, and 2) the mother had no interest because she did not timely withdraw her written consent to the adoption. Her request for permissive intervention also was denied for lack of a showing of fraud. Both parties were denied attorney fees and costs for failure to specify the statutory basis for the request. Petition for Adoption of J.G.E., Nos. C6-00-24 and C4-00-68, 2000 WL 1468181 (Minn. App. 10/3/00) (unpublished).

Retroactive Guideline Cap Order. The 1998 child support order directed the obligor to provide the obligee with proof of annual income, which he failed to provide to her. No motion to modify was made until 1999, at which time the court retroactively applied the guideline cap increases. In 1988, Scott County informed the obligor that it had taken over child support collection, and thereafter he sent income information to the county but no longer to the obligee. The Court of Appeals concluded, "There is no way that appellant can be faulted or that it can be inferred that he was withholding financial information when he received a directory letter from Scott County and immediately and fully complied with it." The court specifically rejected any inference of bad faith or unreasonableness on the part of the appellant-obligor. It held that the award of arrears predating service of obligor's motion to modify was error. Reversed. Vig v. Vig, No. C0-00-567, 2000 WL 1486580 (Minn. App. 10/10/00) (unpublished).

Domestic Abuse Torts Limitations. A new six-year statute of limitations for civil lawsuits by injured victims who are also victims of domestic abuse was effective on August 1, 2000. The new act amends M.S. Chap 541.01, subd. 1 (two years) for most of these types of abusive personal injury torts. The act is not based on gender and it received the unanimous vote of the Legislature.

-- Hon. Eugene L. Kubes
Referee Judge, 2nd District, Ret.

Grants of Certiorari; Procedural Issues. The opening of the new term of the Supreme Court coincided with three grants of certiorari on procedural issues of interest to federal court practitioners.

Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 1999 WL 1216844 (9th Cir. 1999), cert. granted, 121 S.Ct. 297 (2000), the Supreme Court will examine the issue of what standard of review federal courts of appeal should utilize in reviewing the constitutionality of a punitive damages award. In Cooper Industries, Inc., the 9th Circuit appears to have applied an abuse of discretion standard of review in affirming a punitive damages award. In contrast, a number of other circuits, including the 8th Circuit, favor de novo review of legal challenges to punitive damages awards. See, e.g., Henderson v. Simmons Foods, Inc., 217 F.3d 612 (8th Cir. 2000) ("We review a district court's legal conclusions regarding punitive damages de novo").

In Tri County Indus., Inc. v. District of Columbia, 200 F.3d 836 (D.C. Cir.), cert. granted, 121 S.Ct. 29 (2000), the issue is the standard of review on appeals from orders granting new trials. In Tri County Indus., Inc., the D.C. Circuit acknowledged that appeals from a district court decision on a motion for a new trial are normally reviewed for abuse of discretion, but then held that "a more searching inquiry is required" if the district court granted a defendant's request for a new trial, out of "concern that a judge's nullification of the jury's verdict may encroach on the jury's important fact-finding function."

In Buckhannon Bd. & Care Home, Inc. v. West Virginia Dep't of Health & Human Resources, 2000 WL 42250 (4th Cir.), cert. granted, 121 S.Ct. 28 (2000), petitioners are challenging long-established 4th Circuit law rejecting the "catalyst theory," which permits an award of attorney's fees to a plaintiff in the absence of a judgment or settlement, where the plaintiff is able to demonstrate that its lawsuit was the "catalyst" for a defendant's change in conduct. In contrast, the 8th Circuit has repeatedly endorsed the catalyst theory. See, e.g., Tyler v. Corner Constr. Co., 167 F.3d 1202 (8th Cir. 1999).

Default Judgment Motion. In Northland Ins. Cos. v. Blaylock, 2000 WL 1496624 (D. Minn. 2000), Northland commenced a trademark infringement action against Blaylock. Shortly thereafter, the parties entered into a stipulation in which they agreed that "the date by which Defendant must file and serve his Answer to Plaintiff's Complaint" was to be extended. However, rather than filing an answer by the agreed date, Blaylock filed a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Northland then moved for a default judgment, arguing that by filing a motion to dismiss rather than an answer, Blaylock had breached the stipulation.

While noting that Blaylock "did not strictly abide by the precise language of the stipulation," Judge Doty denied defendant's "highly technical" motion, finding that by filing the motion to dismiss, Blaylock had in fact answered "both in the broader sense of this word and under the requirements of the Federal Rules of Civil Procedure."

While Judge Doty's opinion appears to foreclose the possibility of a defendant being held in default under these circumstances, future litigants who find themselves in need of an extension of time and who wish to avoid unnecessary motion practice may be better served by a stipulation that extends their time to "answer or otherwise respond" to a complaint.

Other Decisions of Note. In Chelette v. Harris, 2000 WL 1496624 (8th Cir. 2000), the 8th Circuit held that where the parties have consented to have their case heard by a magistrate judge, the magistrate has the authority to certify interlocutory appeals under 28 U.S.C. ¤ 1292(b). In reaching this conclusion, the court rejected plaintiff's argument that because the statute specifically mentions a "district judge," the magistrate lacked authority to certify an interlocutory appeal.

Starnow v. Consol. Freightways Corp., ___ F.R.D. ___ (D. Minn. 2000), Magistrate Judge Erickson refused to apply the "self-critical analysis" privilege to shield documents from discovery. In doing so, Magistrate Judge Erickson specifically declined to determine whether this privilege is recognized under Minnesota law.

In Charland v. Little Six, Inc., 112 F. Supp. 2d 858 (D. Minn. 2000), Judge Doty adopted a report and recommendation by Magistrate Judge Mason imposing Rule 11 sanctions on plaintiff's counsel, but reduced the monetary sanction to $5,000 from the more than $19,000 recommended by the magistrate.

--Josh Jacobson
The Law Office of Josh Jacobson PA

Juvenile Protection. One of the stated purposes of the rules governing juvenile protection matters is to "ensure due process for all persons involved in the proceedings." Minn. R. Juv. P. 37.02(f). One of the statutory grounds for commencing a CHIPS proceeding, however, arguably violates the very constitutional right the rules seek to protect.

That statute is Minn. Stat. ¤ 260C.007, subd. 4(9), which states that a child is in need of protection or services "whose behavior, condition or environment is such as to be injurious or dangerous to the child or others." The problematic portion of the statute states that "[a]n injurious or dangerous environment may include, but is not limited to, the exposure of a child to criminal activity in the child's home. (Minn. Stat. ¤ 260C.007, subd. 4(9) (1998)) (emphasis added).

The criminal activity actually governed by the statute is anybody's guess. It is not defined in the statute and, within this context, has not been defined by the appellate courts. Moreover, it is not clear whether the statute applies to a mere allegation of criminal wrongdoing (e.g., a call to Child Protection by a neighbor, a visit to the home by the police, or an arrest), or if the criminal activity must actually be proven (e.g., the parent has pleaded guilty or been convicted of the criminal activity).

The irresolute language of this statute, which states that some undefined criminal activity may constitute grounds for a CHIPS petition, fails to define with sufficient definiteness the conduct that is prohibited. The statute encourages arbitrary and discriminatory enforcement and leaves significant doubt as to which persons fall within the scope of the law. Consequently, serious questions are raised as to whether the statute is impermissibly vague and whether it violates a parent's constitutional right to due process. (See Kolender v. Lawson, 461 U.S. 352, 357-58(1983); State v. Merrill, 450 N.W.2d 318, 322 (Minn. 1990); In re L.J.S. and J.T.K., 539 N.W.2d 408, 410 (Minn. App. 1995) (cert. denied, 1996); City of Mankato v. Fetchenhier, 363 N.W.2d 76, 78 (Minn. App. 1985)).

Practitioners in this area should consider this argument on behalf of their clients as well as watch for this issue to be addressed by the courts as it remains unsettled and ripe for review.

--Jody M. Alholinna
Walling & Berg PA

Zoning. Interstate applied for a CUP in order to upgrade its transmission line in Nobles County. The county approved the CUP with the special condition that Interstate be responsible for any necessary relocation of its utilities and all costs incurred. Because of the special condition, Interstate did not accept the CUP and appealed the decision by writ of certiorari to the Minnesota Court of Appeals. Because the approval of the CUP included the special condition that was known to be unacceptable to Interstate, the appellate court deemed the action by the county to be a de facto denial. It remanded the case to the county to make specific findings as required by county ordinance. On remand, the county amended its ordinance to require a new setback requirement to the proposed project and denied the CUP. On the second appeal, the Court of Appeals affirmed the denial of the CUP and dismissed for lack of jurisdiction, holding that the challenge by Interstate to the amendment of the zoning ordinance was not reviewable by certiorari.

On appeal, in an important 5-2 decision, the Supreme Court reversed, holding that certiorari was proper to determine whether the application of the setback amendment in the quasijudicial denial of this particular CUP was proper. Secondly, it held that in the particular circumstances of this case, the board should not be allowed to apply the setback amendment to the proposed project because to apply the amendment was so inequitable that it was arbitrary and capricious.

The dissent concurred that the case should be remanded to the county for issuance of the CUP. However, the dissent concluded that the court could not adjudicate the new setback amendment when no finding about whether it had a rational basis could be made in this writ of certiorari proceeding. Interstate Power Co. v. Nobles County Bd. of Comm'rs, No. C4-98-1607, 617 N.W.2d 566 (Minn. 10/12/00).

Construction. The owners of a newly constructed home observed leakage from the floors and windows during heavy rains. They complained to the builder, who made repeated assurances that the defect would be repaired and who tried unsuccessfully for several years to repair the problem. When the owners sued the builder, the district court allowed the builder, without prior notice to the owners, to amend the answer so as to assert a statute of limitations defense. The court then granted summary judgment, ruling that the statute of limitations had expired before the owners initiated their lawsuit and rejecting the owners' arguments that equitable estoppel applied. On appeal, the appellate court reversed, holding that the district court abused its discretion by allowing an amendment of an answer without requiring prior notice and an opportunity for the opposing party to prepare a response. Also, genuine issues of fact existed as to the applicability of equitable estoppel and the distinction between repairs and improvements. Yinsog Rheel v. Golden Home Builders, Inc., No. C4-00-376, 617 N.W.2d 618 (Minn. 10/10/00).

--Chris Dietzen
Larkin, Hoffman, Daly & Lindgren Ltd.

Lookback Period; Substitute for Return. The court rejected petitioner's position that the three-year look-back period in IRC ¤ 6511(b)(2)(A) applied. Respondent's substitute for return filed pursuant to ¤ 6020(b)(1) did not constitute a return filed by the taxpayer for purposes of ¤ 6511. Petitioner had not signed the substitute for return. Returns prepared by respondent pursuant to ¤ 6020(b)(1) did not constitute separate returns for purposes of ¤ 6013(b). The two-year look-back period in ¤ 6511(b)(2)(B) applied for purposes of ¤ 6512(b)(3)(B). Healer v. Commissioner, 115 T.C. No. 24 (2000).

Tax Permitted on Telecommunication Services to Consumers. The imposed tax found to be within the exception of A.R.S. ¤ 9-582(A)(1) to the general prohibition against municipal taxes "for the use of a public highway," is enunciated in the first clause of ¤ 9-582(A). The 1.5 percent tax is not an "impermissible double tax" and exists within the authority conferred by the city's charter. The tax does not violate the rights of US West under the Equal Protection Clause of the United States Constitution, Amendment XIV, Section 1, or the Privileges and Immunities Clause of the Arizona Constitution, Article 2, Section 13. US West Communications v. City of Tucson, 2000 WL 1576882, 1 CA-TX 99-0021, 2000 Ariz. App. LEXIS 153, 10/24/00. (Decision is subject to further appellate review. Motions for reconsideration or petitions for review to the Arizona Supreme Court may be pending.)

Excise Tax. A Commerce Clause challenge to the Florida excise tax on diesel fuel delivered to Georgia failed. The excise tax survived Commerce Clause scrutiny because title to the fuel passed in Florida, thus providing a substantial nexus to the taxing state. The tax passed both the internal and external consistency tests, thus it was fairly apportioned. The tax burden was the same for out-of-state purchasers as for in-state purchasers, thus, the tax did not discriminate against interstate commerce. Also, appellant's receipt of police and fire protection and its use of public roads and the other advantages of a civilized society satisfied the requirement that the tax be fairly related to benefits provided by Florida to appellant. Summary judgment affirmed. Ta Operating Corp. v. State, 2000 WL 1421423, No. 1D99-3480, 2000 Fla. App. LEXIS 12374, 9/28/00. (Not final until time expires to file motion for rehearing and disposition thereof if filed.)

Unitary Business Group. A parent Minnesota corporation, Hormel, disputed the determination that subsidiaries in Illinois were integrated through strong centralized management constituting a unitary business group pursuant to 35 Ill. Comp. Stat. 5/1501(a)(27), and were required to file combined income tax returns. Examination of the business operations as a whole showed a flow of knowledge between plaintiffs, a significant level of control by the parent company, and the centralization of a number of corporate services at the parent company. Plaintiffs were a unitary group and thus required to file combined tax returns. Hormel Food Corp. v. Zehnder, No. 1-99-1319, 2000 WL 1459733, 2000 Ill. App. LEXIS 798, 9/29/00. (Decision not final until expiration of the 21-day petition for rehearing period.)

Employer-Employee Relationship; Partnership Agreement. Because the partnership agreement gave the controlling partner the right to control the means and manner of the other workers' performance, the right to control the premises where the other workers worked, and the right to discharge workers, the other workers who signed the partnership agreement also had an employment relationship with relator. Jensen v. Department of Economic Sec., C4-00-40, 617 N.W.2d 627, 2000 Minn. App. LEXIS 1070, 10/17/00.

Definition of Fiduciary; Fiduciary Liability. The exception contained in 29 USCS Section 1001 et seq., 29 USCS Section 1104(c)(1), excluding from fiduciary liability a participant who exercises control of assets was not incorporated into the IRC Section 4975 definition of fiduciary. Flahertys Arden Bowl, Inc. v. Commissioner, No. 15223-98, 115 T.C. No. 19 (2000).

Dividends from Foreign, Domestic Subsidiaries. A diversified multinational corporation that owned several domestic and foreign subsidiaries and received both foreign and domestic dividends from these subsidiaries deducted from its income base 100 percent of the dividends derived from its domestic subsidiaries and from its foreign source dividends. The corporation successfully challenged the requirement that deductions for foreign source dividends be reduced by 15 percent, found in Ohio Rev. Code Ann. ¤ 5733.04(I)(2)(c). The Ohio Supreme Court held that the statute treated dividends from foreign subsidiaries less favorably than those from domestic subsidiaries and the discrimination violated the Foreign Commerce Clause. Emerson Elec. Co. v. Tracy, No. 99-1897, 90 Ohio St. 3d. 157; 735 N.E.2d 445 ( 2000).

Election of Qualified Subchapter S Subsidiary; New Form.
New Form 8869 is used by a parent S corporation when electing to treat one or more of its eligible subsidiaries as a qualified subchapter S subsidiary. Form 8869 replaces the temporary procedures for filing a QSub election under Notice 97-4, 1997-1 C.B. 351. Also, Form 966, "Corporate Dissolution or Liquidation", may no longer be used to make the QSub election.

Tax Shelter Hotline. The Office of Tax Shelter Analysis (OTSA) within the Large and Mid-Size Business Division is a centralized point for review of information relating to tax shelter transactions affecting all taxpayers, including those not in the Large and Mid-Size Business Division. It has been established to receive reports of improper or potentially improper tax shelter activities. For more information, see Announcement 2000-12, 2000-12 I.R.B. 835 and Announcement 2000-55, 2000-25 I.R.B. 1268.

New Reporting and Disclosure Requirements for Political Organizations. A recent revenue ruling clarifies and interprets an amendment to IRC ¤ 527 imposing reporting and disclosure requirements on political organizations. In question and answer format, the ruling explains filing requirements related to (1) initial notice of status, (2) periodic reports of contributions and expenditures, and (3) annual returns. Rev. Rul. 2000-49.

Ex Parte Communications. The IRS issued a revenue procedure clarifying the scope of permissible communications between appeals officers and other IRS employees, limiting communications between Appeals and the Office of Chief Counsel and addressing other concerns related to the ex parte communications between Appeals and other employees. Rev. Proc. 2000-43.

Qualified Defined Benefit Plans. Administrators of defined benefit plans governed by IRC ¤ 412 or ERISA ¤ 302 must follow a new procedure to obtain approval of the Secretary of the Treasury to change the funding method of the plan. Rev. Proc. 2000-41.

Application of IRC to Exempt Organizations Using the Internet. The IRS has requested comments regarding the need for guidance clarifying the application of IRC provisions to exempt organizations that use the Internet to communicate with the public. Announcement 2000-84 (10/16/00).

Interest. In a field service advisory, the IRS explains when interest begins to accrue on a tax deficiency for a year in which the taxpayer wrongly claimed an overpayment. In the same FSA, the Service explains that interest on actual overpayments ceases on the due date of the return for the year in which the overpayment is applied, not the actual date that a subsequent underpayment arises. I.R.S. F.S.A. 200042003.

Waiver of Penalties; Abusive Tax Shelters. Counsel for the Large and Mid-Size Business Division announced in an address to the Tax Executive Institute's annual meeting that the LMSB has waived penalties for some corporate taxpayers who voluntarily acknowledged participation in abusive tax shelters. The waivers are part of Service efforts to eliminate such shelters. BNA Daily Tax Report, No. 207 at G-1 (10/25/00).

Sale of Principal Residence. The IRS issued proposed regulations relating to the exclusion of gain from the sale or exchange of a principal residence. The proposed regulations reflect changes arising from the Taxpayer Relief Act of 1997. 65 Fed. Reg. 60,136-01 (10/10/00).

Nondiscrimination Requirements; New Comparability Retirement Plans. The IRS issued proposed regulations that would prescribe conditions that permit certain defined contribution retirement plans ("new comparability" plans) to demonstrate compliance with nondiscrimination requirements based on plan benefits rather than plan contributions. 65 Fed. Reg. 59,774-01 (10/6/00).

Nonqualified Preferred Stock. The IRS issued final regulations setting the effective date for the definition of nonqualified preferred stock in IRC ¤ 351(g). The new regulations also provide rules exempting from treatment as NQPS certain preferred stock received by shareholders in corporate reorganizations and distributions subject to sections 354, 355, and 356. 65 Fed. Reg. 58,650-01 (10/2/00) (to be codified as Treas. Reg. ¤ 1.356-7).

Innocent Spouse Notification Procedures. The IRS Office of Chief Counsel issued a notice updating the procedure by which a taxpayer claiming innocent spouse status in a deficiency action must notify the other spouse or former spouse who signed the tax return when that spouse is not a party to the action. Gen. Couns. Notice N(35)000-173 (10/17/00), <H>bna<P> Daily Tax Report, No. 205 at G-5 (10/23/00).

Interest Rate Increase. The Minnesota Department of Revenue announced that the interest rate on both underpayments and overpayments will increase to 9 percent in 2001. The rate applies to income, sales, and withholding taxes. MN D.O.R. Press Release (10/16/00); http://www.taxes.state.mn.us/news/01intrate.html.

Computation of Gross Income for Part-Year Residents, Nonresidents. The Minnesota Department of Revenue has changed the rules and regulations for computation of gross income for individuals who are part-year residents or nonresidents. Reference number: Minnesota 2155. Citation: MCAR (Uncodified) Computation of Gross Income For Individuals Who are Part-Year Residents or Nonresidents. Proposal Date: 10/9/00.

Health Care Provider Tax. House Speaker Steve Sviggum and other Republican leaders announced that they will push to eliminate the state health care provider tax in the 2001 legislative session. Currently, proceeds from the tax fund the MinnesotaCare health insurance program. The Republican plan proposes using the Minnesota share of the tobacco settlement to fund the program instead. <I>State Tax Today<P> (10/6/00).

Ethanol Credit; Patrons of Cooperatives. Representative David Minge (D-MN) introduced H.R. 5279, which would make patrons of ethanol- producing cooperatives eligible for the small ethanol producers' credit. Patron eligibility would be apportioned to the value or quantity of business done for or with the patron for the taxable year. 2000 TNT 205-57, (10/23/00).

Minnesota Tax Reform. The Minnesota Department of Revenue held meetings in October to present ideas for state tax reform. Among the issues discussed were the upcoming change in the corporate income tax apportionment formula, possible repeal of the corporate alternative minimum tax, elimination of some current modifications to federal taxable income, creation of a business entity tax, and possible modifications to the existing sales tax. State Tax Today (10/18/00).

--Kathryn Sedo
--Andrew Beckord
--Christopher Leff
University of Minnesota Law School

Municipal Tort Liability. On November 11, 1997, Schuh's minor daughter fell through an open, unguarded trap door at the T.B. Sheldon Theater in Red Wing. She is now a quadriplegic. At the time of the fall, she was a Wisconsin high school junior, taking a theater class taught by Dulak, a Minnesota resident employed by a Wisconsin school district.

The school district and Dulak, its employee, were insured by Employers Mutual Casualty Company (EMC) under two liability policies: one for $1 million for bodily injury and the second, a $5 million umbrella. Dulak was also insured by Horace Mann with a $1 million policy for losses.

The parties settled with EMC for $5 million. The Loy settlement intended to release Dulak's exposure to the Horace Mann policy limits. The trial court concluded that the EMC $1 million policy was primary, the $5 million policy was secondary and the Horace Mann policy provided excess coverage over all policies. Horace Mann brought a motion to dismiss all tort claims against Dulak, asserting that under Minn. Stat. ¤ 466, the maximum exposure was $200,000. The district court concluded that the purchase of insurance by the Wisconsin district waived the liability cap and that the Horace Mann policy was "other collectible insurance" under Minn. Stat. ¤ 466.06. Horace Mann appealed.

Schuh argued that there was no precedent for cloaking a municipal employee of a sister state with Minnesota sovereignty. The district court reasoned that $6 million in insurance waived the liability limits for itself and Dulak, and that Dulak's excess Horace Mann policy became other "valid and collectible" insurance to the amount of the waiver of $6 million by the Wisconsin school district.

The Minnesota Court of Appeals analyzed exceptions to tort liability and the provisions of Minn. Stat. ¤ 466.06 and reversed. The Court of Appeals held that Minn. Stat. ¤ 466.06 and its waiver apply only to a purchase of insurance by a school district; any private insurance purchased by a school district employee cannot be used to calculate the total extent of the waiver. Because Dulak's liability was limited to $200,000 and because the parties settled well in excess of that limit, the Horace Mann policy was deemed not "valid and collectible" under Minn. Stat. ¤ 466.06. City of Red Wing v. Community School Dist., No. C9-00-549, 617 N.W.2d 602 (Minn. App. 10/3/00).

Future Damages; Dog Bite Case. On February 25, 1998, Kordahl was bitten by Koss's dog. He had medical bills of $528 and missed work, resulting in a wage loss of $1,920. Kordahl had no permanent injury from the dog bite. The jury awarded no damages for loss of consortium or future damages, but did award $5,000 for past pain and suffering, $1,920 in income loss, and $528 in past medical expenses. Kordahl appealed, claiming the jury erred by failing to award future damages or damages related to loss of consortium.

The Minnesota Court of Appeals affirmed. It found the jury verdict was not perverse where Kordahl admitted the scars "do not bother him", he will not seek future medical care, and his relationship with his wife had returned to the way it was prior to the accident. Kordahl v. Koss, No. C6-00-668, 2000 WL 1486591 (Minn. App. 10/10/00) (unpublished).

No-Fault Insurance. American Family Mutual Insurance Company insured a privately owned vehicle used to deliver the U.S. Mail. The vehicle collided with a snowmobile while carrying mail. On cross-motions for summary judgment, the district court found the mail delivery business insurer was responsible under Minn. Stat. ¤ 65B.47, subd. 2. The Minnesota Court of Appeals affirmed because the plain language of the no-fault statute focuses on whether the accident occurs while the vehicle is used in the business of transporting persons or property, pursuant to Minn. Stat. ¤ 65B.47, subd. 1.
Mid-Century Ins. Co. v. American Family Mut. Ins. Co., No. C4-00-832, 2000 <H>wl<P> 1468282 (Minn. App. 10/3/00) (unpublished).

Statute of Limitations; uim Claims. Reversing the Court of Appeals and prior cases to the contrary, the Minnesota Supreme Court ruled that the statute of limitations begins to run on an underinsured motorist (UIM) claim on the date of settlement with or judgment against the tortfeasor.

This case overrules the cases of O'Neill v. Illinois Farmers Ins. Co., 381 N.W.2d 439 (Minn. 1986) and Weeks v. American Family Mut. Ins. Co., 480 N.W.2d 24 (Minn. 1998), which held that a UIM claim accrues on the date of the accident that causes the injury.

This holding does not extend to uninsured motorists claims. Oanes v. Allstate Ins. Co.<P>, No. C5-99-704, 617 N.W.2d 401 (Minn. 9/25/00).

Bookmobile not in Business of Transporting Property. A bookmobile patron injured by falling from a stationary bookmobile brought an action against her insurer, Illinois Farmers Insurance Group (Farmers), for no-fault benefits. A district court found Farmers liable.

Farmers sought reimbursement from the insurer of the bookmobile, the League of Minnesota Cities Insurance Trust, under Minn. Stat. ¤ 65B.47, subd. 1 (1988), which allows such an action if the vehicle causing injury was being used in the business of transporting persons or property.

The Court of Appeals held that the bookmobile was not in the business of transporting persons or property, because the bookmobile derived no income from the use of the bookmobile and was not a commercial enterprise or activity. To allow reimbursement would not be in accord with the purpose of the statute, which is to require those in the transportation business to bear the risks. Illinois Farmers Ins. Co. v. League of Minn. Cities Ins. Trust, No. C9-00-499, 617 N.W.2d 428 (Minn. App. 9/25/00).

--Tom Baudler
-- Lee Bjorndal
Baudler Baudler Maus & Blahnik