July 2000

In this month's "Notes & Trends":

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

Jurisdiction. Kells (BWSR) v. City of Rochester, 597 N.W. 2d 332 (Minn. App. 1999) involved a review of a decision of the Board of Water and Soil Resources (BWSR) that reversed the city of Rochester’s approval of a wetland replacement plan. The affected landowner argued that the board’s decision should be remanded because only five of 17 BWSR members heard oral argument or read the briefs. The Court of Appeals denied this request because the statute specifically requires that appeals on wetland replacement lands must be heard by the five-member dispute resolution committee of the board.

Agency Review. After recovering $469 million as part of the 1998 settlement of the Minnesota tobacco litigation, Blue Cross/Blue Shield submitted a plan for correction of its excess surplus condition to the commissioner of commerce. The commissioner elected to order a contested case hearing. The Department of Commerce participated as a party, supported the plan, and provided expert testimony. The administrative law judge recommended approval of the plan, which eliminated the surplus by creating programs designed to help its members stop smoking. The commissioner then issued a final decision disapproving the plan because it failed to include a rebate to past Blue Cross members. In Re Excess Surplus Status of Blue Cross and Blue Shield of Minnesota, C5-99-1383, 606 N.W.2d 697 (Minn. App. 2/29/2000). The Court of Appeals reversed the commissioner and ordered the plan approved. It placed the burden of proof on those objecting to the plan and decided that the commissioner’s decision was affected by error of law in that he lacked authority to rewrite the plan. The court also decided that the commissioner’s decision was arbitrary in that he failed to sufficiently articulate or support by substantial evidence his reasons for striking the ALJ’s findings and for contradicting the department’s experts.

Judicial Review of Variance. The Pollution Control Agency (PCA) granted a variance to its noise standard for the Minnesota Orchestra’s Brooklyn Park amphitheater. In In Re Application from the Minnesota Orchestral Association, C9-99-1855, 607 N.W.2d 478 (Minn. App. 2000), the Court of Appeals found that the variance was supported by substantial evidence and was not arbitrary and capricious. The court noted that an agency ruling was arbitrary and capricious if the agency (1) relied on factors that the Legislature had not intended it to consider, (2) entirely failed to consider an important aspect of the problem, (3) offered an explanation for the decision that runs counter to the evidence, or (4) if the decision is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. Neighbors of the amphitheater argued that the PCA failed to consider that the orchestra "planned" its violations, failed to consider the city noise ordinance, and did consider the fact that most of those whose properties were affected did not object to the variance. The Court of Appeals found this insufficient to constitute arbitrary and capricious action.

Chapter 355 ALJs/Code of Judicial Conduct. This act provides that judges of the Office of Administrative Hearings are subject to the Code of Judicial Conduct. It also gives the chief administrative law judge the flexibility to cross-assign ALJs and compensation judges, provided they are adequately trained.

Chapter 469 "Fairly Good Flavor." This act adds the House and Senate Governmental Operations committees as entities that may object to a rule for being beyond delegated authority. These committees are also given limited standing to comment on "need and reasonableness" review. A tripartisan task force is created to make recommendations to the 20001 Legislature on a list of tasks related to possible legislative review of rules. Last, but not least, this bill repeals a select set of rules that agencies have recommended for repeal. Included among the repealed rules are Department of Agriculture definitions of "sauerkraut" and "fairly good flavor" . . . can the Republic survive?

By--Hon. George Beck
Office of Administrative Hearings
-- Michael Ahern
Dorsey & Whitney

In this month's "Notes & Trends":

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

Satisfaction of Involuntary Judgment. Ordinarily, once a judgment is satisfied, a party may not move to vacate the judgment because the district court loses jurisdiction upon satisfaction of the judgment. In a recent case, however, the Minnesota Court of Appeals held that satisfaction of an involuntary judgment does not fit within this general rule, so that the district court retains jurisdiction to entertain a party’s motion to vacate the judgment. Lyon Financial Services, Inc. d/b/a/ The Manifest Group v. Waddill, 607 N.W.2d 453 (Minn. App. 2000).

Punitive Damages. The Minnesota Court of Appeals recently revisited the question of the availability of punitive damages and held that punitive damages are not available absent personal injury, even in non-products liability cases. In so holding, the appellate court followed Soucek v. Banham, 524 N.W.2d 478, 480 (Minn. App. 1995) and rejected Molenaar v. United Cattle Co., 553 N.W.2d 424, 428 (Minn. App. 1996). The appeals court concluded that Soucek most closely followed the Minnesota Supreme Court reasoning in Indep. School Dist. No. 622 v. Keene, 511 N.W.2d 728 (Minn. 1994). Jensen v. Walsh, 609 N.W.2d 251 (Minn. App. 2000).

Representation of Corporation. The Minnesota Court of Appeals reaffirmed the long-standing rule that a corporation must be represented by an attorney in district court, even when the corporation is merely filing a notice of removal from conciliation court. The court noted that a corporation may not commence an action in district court by filing a complaint and held that filing a notice of removal achieved the same result in substance, if not in form. Therefore, the same rule applies. World Championship Fighting Inc. v. Janos, 609 N.W.2d 263 (Minn. App. 2000).

Service of Process for Joint Venture. The Minnesota Court of Appeals recently held that service of process on one member of a joint venture was sufficient to serve and confer personal jurisdiction over the other member of the joint venture even though the other member was never properly served. In this mechanic’s lien case, the plaintiff served one member of the joint venture properly and attempted to serve the other member by serving its attorney. The only problem was that the client had not authorized the attorney to accept service on its behalf. Therefore, service on the second member of the joint venture was invalid. By the time the plaintiff realized the mistake, the statute of limitations had run. The second defendant moved to dismiss for lack of service and lack of personal jurisdiction. The appellate court held that because the two defendants were engaged in a joint venture and the first had been properly served, the district court could exercise personal jurisdiction over the second defendant and service was effective. In reaching its conclusion, the court also noted that the second defendant had received notice of the lawsuit, served discovery on other parties, attended depositions, attended and participated in mediation, and filed an affirmative motion to compel discovery. Hence, no prejudice would result. Ryan Contracting, Inc. v. JAG Investments, Inc., 609 N.W.2d 642 (Minn. App. 2000).

In this month's "Notes & Trends":

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

DWI/Implied Consent. Two deputies responded to a welfare check on a car parked in the lot of a liquor store with the engine running. The first deputy responded to the scene and administered a PBT that the respondent failed. The first deputy then told the respondent to stay in his car, walk home or call for a ride. A second deputy arrived and overheard the first deputy speaking with respondent about his options and indicating that he had failed the PBT. The two deputies then went a short distance away. Within minutes, the respondent came driving by the squad cars, at which time the second deputy stopped the respondent’s vehicle and arrested him for DWI.

At trial, only the second deputy testified. The Court of Appeals reversed the trial court, holding that there was no specific and articulable suspicion for the second deputy to pull over the respondent.

The Court of Appeals was reversed. The Supreme Court held that the second deputy had "many factors" to support his factual basis for the stop: he knew the respondent had been sleeping in the back of a car with his engine running at 6:30 in the parking lot; he overheard the first deputy tell the respondent that he had failed a PBT; and he was told by the first deputy that the respondent had been ordered not to drive.

Even if the administration of the original PBT was not supported by sufficient evidence at the hearing ("a dubious proposition"), the fruit-of-the-poisonous-tree doctrine does not taint the second deputy’s stop. There was no police misconduct, and there was clearly an intervening circumstance justifying the second deputy’s stop: the respondent had been ordered not to drive. Knapp v. Commissioner of Public Safety, CX-98-2163, 2000 WL 424106 (Minn. 4/20/00).

Double Jeopardy. The appellant was charged with criminal vehicular homicide. Upon filing of the complaint, the commissioner of public safety suspended the appellant’s driver’s license pursuant to Minn. R. 7409.2000 (1998). At a pretrial hearing, the appellant moved to dismiss the criminal complaint on the grounds that he had already been "punished" for the same conduct by virtue of the license suspension.

Held, the administrative suspension of a driver’s license does not constitute punishment for Double Jeopardy purposes. The suspension is primarily remedial. State v. Nelson, C7-99-1305, 608 N.W.2d 913 (Minn. App. 4/18/00).

Statutory Maximum Sentence. The appellant began a police standoff that lasted approximately five hours. He had barricaded himself in a closet. A "victim" stated to police that the defendant had cut him with a knife and was brandishing a .22 caliber rifle. When police tried to talk to the defendant through a closed bedroom door, he stated he would shoot them and then himself. Police heard two shots from a small-caliber weapon and, at that point, called in the Critical Incident Response Team (CIRT). The CIRT is composed of numerous highly trained officers and a hostage negotiator.

After negotiations failed, the defendant continued to threaten police officers if they came after him. Nearby homes had to be evacuated. Eventually, the appellant was extricated, at which point he was wounded by gunfire in his head and elbow. What police officers had thought to be a gun barrel was, in reality, a golf club.

The trial court departed from the presumptive sentence of 24 months and sentenced the appellant to a 60-month statutory maximum sentence. Held, the sentence was justified. Severe aggravating circumstances were present. The issue was whether the facts indicated that the offense was more serious than a typical case of terroristic threats. This case was. It included a standoff involving dozens of police officers, lasting most of the day, and the evacuation of nearby residences, accompanied by a risk of serious physical injury to bystanders. State v. Morris, C5-99-864, 609 N.W.2d 242 (Minn. App. 4/18/00).

Stay of Adjudication; Sentencing Circle. The appellant was charged with wrongfully obtaining public assistance and felony theft by swindle of food stamps and AFDC totaling approximately $6,500. Appellant pleaded guilty. Pursuant to the parties’ agreement, the court referred the case to the Washington County Sentencing Circle process for sentencing recommendations. The circle recommended a stay of adjudication with restitution and other conditions. The county attorney stated that his office had not been notified of any of the circle meetings, nor had Washington County Community Services. The district court accepted the recommendation and stayed adjudication.

Held, a sentencing circle has no authority to assign a stay of adjudication as a sanction for felony theft. Furthermore, a district court is not bound to impose a sanction recommended by a sentencing circle or any restorative justice program. Hence, the use of a stay of adjudication must conform with the Krotzer requirement of "special circumstances" to avoid an injustice resulting from the prosecutor’s clear abuse of discretion in the exercise of the charging function. In this case, such circumstances are not present. Although the district court cited many reasons for the stay of adjudication, no reason has been held to be appropriate by case law subsequent to Krotzer. The district court did state that one reason for staying adjudication was that if the appellant had had the financial means to qualify for diversion, she would not have been charged with a felony. The record, however, does not establish what criteria existed in Washington County for the diversion of welfare fraud offenders. State v. Pearson, C9-99-2021, 609 N.W.2d 630 (Minn. App. 5/2/00).

Joinder; Prejudice. Over the objection of the appellant, several unrelated charges of criminal sexual conduct involving multiple victims were tried together to a jury. The state conceded that it was error for the trial court to do so. The Court of Appeals reversed the conviction and remanded for a new trial, using a harmless error analysis.

Held, the Court of Appeals improperly used the harmless error analysis. Instead, the analysis used in Spreigl evidence is the proper framework for evaluating the possible prejudicial effect of improperly joining offenses, as decided in State v. Profit, 591 N.W.2d 451 (Minn. 1999).

Next, the Supreme Court announces a new rule: in trials where all offenses are joined under Minn. R. Crim. P. 17.03, subd. 1, the jury must be instructed to consider each of the charges separately. The Supreme Court suggests, without requiring, the 8th Circuit Model Instructions or Judge Devitt’s instructions. This is a prospective rule applying to cases arising on or after April 27, 2000. State v. Kates, C3-98-1467, 2000 WL 489849 (Minn. 4/27/00).

Involuntary Pro Se: On the date of trial, the appellant appeared without counsel, stating he had recently fired his private attorney. The district court appointed a public defender. The appellant declined pubic defender representation. The public defender stated that it was inappropriate for the public defender’s office to represent the appellant because there was no finding of eligibility. The court noted that the appellant did not want to represent himself but since he had discharged private counsel and declined the public defender, the appellant would be required to represent himself. The court then appointed a public defender as involuntary standby counsel.

The next day, the appellant reappeared with a new attorney, who asked for a minimum 30-day continuance, stating that he had been paid a retainer and would be ready for trial within that period of time. The court denied the motion for a continuance, at which time private counsel declined to represent appellant because he was unprepared.

The court then allowed the appellant to be heard regarding the continuance. Appellant stated that he had been advised that delaying was better for his case. The court then stated that the administration of the court calendar and the right of the people of the state to a timely trial could not justify a continuance. Following a 15-minute recess, the appellant attempted to conduct voir dire with the assistance of the prosecutor. The jury was then impaneled and sworn.

During a recess, the court noted that it was forcing appellant to represent himself. The public defender objected to being appointed standby counsel, stating that he was "strictly incompetent" to represent appellant because he had had no time to prepare or review the file. The public defender’s motion to withdraw as standby counsel was denied. The court then adjourned to reconsider its decision to compel the appellant to proceed pro se and its denial of a continuance. Approximately one hour later, the court granted a 30-day continuance. Following a Lothenbach trial, the appellant was found guilty.

In a post-conviction appeal, the Court of Appeals held that Double Jeopardy barred the retrial of the appellant following the declaration of mistrial. By not objecting to the mistrial, the appellant did not waive the objection because he was never given an opportunity to be heard. As a layman, appellant could not have understood the importance of consenting to a mistrial vis-a-vis Double Jeopardy concerns.

Next, the court held that declaring a mistrial was not "manifestly necessary" and was an abuse of discretion by the district court. The court appears to reason that a mistrial was not manifestly necessary because the continuance could have been granted. Hence, the appellant cannot be tried twice, and the conviction is reversed. State v. Olson, C3-99-1558, 609 N.W.2d 293 (Minn. App. 5/2/00).

CRI; Felony Arrest. The police received a telephone call from a CRI who had worked with the police in the past. The particular police officer receiving the call had met the CRI in person. The CRI had provided information that had led to at least 12 convictions, was paid for his information, and had never given any false information.

The tip was essentially as follows: respondent was selling crack cocaine at the YMCA located at 34th and Blaisdell and kept the crack in the waistband of his pants; he was a black male in his mid-40s, 5’6", approximately 150 pounds, was wearing a red shirt, black pants and a baseball cap, and was driving a blue Lincoln with Minnesota plate number 134 PXH.

Within one hour, police went to the YMCA, saw the blue Lincoln with the same plate, and saw a man matching the CRI’s description leaving the YMCA. After the man got into his vehicle, police approached and placed him under arrest. During the search, police found 7.2 grams of crack in the waistband of the man’s pants and over $1,000 in cash.

Held, under these facts, police lacked probable cause at the time to arrest the respondent. "Recitation of facts establishing a CRI’s reliability by his proven 'track record', however, does not by itself establish probable cause." The CRI must still show a direct or indirect basis for his knowledge. In this case, the CRI never claimed that he had bought drugs from the respondent or that he had seen the respondent selling drugs. There was no independent corroboration of controlled-substance activity. The only items that were independently corroborated were details such as clothing and vehicles that are readily obtainable by anyone. The link between the respondent and illegal activity was nonexistent. While police may have had reasonable suspicion to stop and question the respondent, they lacked probable cause to place him under arrest at that time. State v. Cook, C7-99-1790, 2000 WL 463003 (Minn. App. 4/25/00).

Student Interrogation. On the second day of school, the 12-year-old appellant forgot his backpack in the locker room. The backpack contained a BB gun. A custodian found the backpack and brought it to the assistant principal. The appellant maintained that he had forgotten all about the gun being in his backpack and that it was left there from about a week to ten days earlier when he had taken it to a friend’s house for recreational use.

The next day, the assistant principal called the school liaison officer, who arrived in uniform. The assistant principal asked the officer to accompany him to the appellant’s classroom. The appellant was taken out of class and was accompanied by the assistant principal and the officer back to the assistant principal’s office. The appellant was not told why he was called out of class.

In the assistant principal’s office, in the presence of the police officer, a school counselor, and a teacher, an interview began that lasted for approximately one hour. At no time was the appellant given a Miranda warning. At no time was he told he was free to leave or that he was not under arrest. The assistant principal, in fact, told the child that he had no choice but to answer their questions. The police officer stated that he would be tape-recording his responses.

During the interview, the police officer quoted from his statute book and told the appellant that bringing a BB gun to school is a crime against public safety. The child admitted that the gun was his and that he had inadvertently left it in his backpack but had no intention of bringing it to school. During part or all of the interview, the child was sobbing. The child had no juvenile history and no disciplinary problems at school.

Held, under these specific facts, from the perspective of the appellant, a reasonable person would believe that he was in custody. The Miranda warning should have been given; hence, the statements of the appellant are to be suppressed.

The court states that this conclusion is based on the specific facts and is "intended to have narrow application. This case is not about whether a student must be given a Miranda warning when summoned to the office of a school principal . . . But when a peace officer interrogates a student in custody in a manner likely to elicit criminally incriminating responses, the student must be afforded Fifth Amendment protection." In re G.S.P., C7-99-1028, 2000 WL 462221 (Minn. App. 4/25/00).

Automobile Stop. One "David Hanson" called 911 to report that a drunk was in front of him who was "swerving around on the road." Mr. Hanson described the vehicle as a two-toned tan and brown Ford pickup with a topper and license place CJZ-334. He described the vehicle as heading northbound on LorRay Drive. At the dispatcher’s request, the man identified himself, although the dispatcher did not ask for Mr. Hanson’s address or telephone number. Mr. Hanson further noted the cross street for the drivers and stated that he had seen a patrol car heading in that direction when he arrived home in his driveway.

Based on this tip, communicated from dispatch, the arresting officer spotted the vehicle and detained it, later arresting the petitioner for DWI. The state did not subsequently locate Mr. Hanson and made minimal efforts to do so.

Held, this citizen tip possessed sufficient indicia of reliability to support the stop. The court rejected the argument that because the state did not subsequently locate Mr. Hanson, the tip somehow became anonymous or unreliable. The test is whether the information about the citizen is sufficient so that he or she "may be located and held accountable for providing false information." The court also rejected a proposed rule requiring dispatchers to collect addresses and phone numbers from citizen informants. Jobe v. Commissioner of Public Safety, C4-99-1858, 609 N.W.2d 919 (Minn. App. 5/9/00).

Automobile Stop. At 1:30 a.m., a police officer observed the appellant’s vehicle driving at a very slow speed with two cars behind it. The police officer followed the car for approximately one quarter of a mile and followed it into a driveway. The police officer asked the appellant three times to stop and talk to him before he stopped. Showing signs of intoxication, the appellant was arrested for DWI.

Held, the police officer articulated sufficient reasons for the stop. The slow driving was sufficient to indicate criminal activity. Minn. Stat. ¤ 169.15 provides that no person shall drive a motor vehicle at such a slow speed as to impede or block the normal and reasonable flow of traffic, except when necessary for safety purposes, or when the weight of the vehicle and the grade of the highway combine to slow the vehicle. The police officer testified that this "very slow rate of speed" was in the neighborhood of 15-20 miles per hour in a 30 mile-per-hour speed limit; that traffic was backed up behind the vehicle by two cars; and that reduced speed was unnecessary. This stop was not based on mere whim, caprice, or idle curiosity. State v. Haataja, C1-99-1414, 2000 WL 622274 (Minn. App. 5/16/2000).

Juvenile Certification. Although the appellant had extensive contact with the juvenile system, including multiple offenses, parole violations, and running away, certification as an adult was not warranted. When she was 17, she was charged with eight felony counts, each over $500. Prior to that, she was charged with an aiding and abetting second-degree burglary. In addition, she had multiple misdemeanors -- disorderly conduct, criminal damage to property, and three fifth-degree assaults. The probation officer recommended that she be certified as an adult, primarily because she had "exhausted all available options in the juvenile system", and there was no program currently available to her.

The Court of Appeals reversed the certification because there was insufficient evidence that the juvenile presented a current threat to public safety. The court noted that few cases have been reported involving certification based on property offenses. In re H.S.H., C0-99-1291, 609 N.W.2d 259 (Minn. App. 4/25/00).

Out-of-Home Placement. A juvenile was before the court on charges of criminal damage to property and disorderly conduct, apparently at a misdemeanor level. The child was 14 and had a somewhat lengthy juvenile history, including two offenses of theft, truancy and disorderly conduct. In addition, the child had been previously placed in short-term placements.

The dispositional out-of-home placement order was reversed. The court failed to make the necessary written findings provided by Minn. R. Juv. P. 15.05 subd. 2(A). The required findings are: why public safety is served by the disposition; why the best interests of the child are served by the disposition; what alternative dispositions were proposed to the court and why such recommendations were not ordered; why the child’s present custody is unacceptable; and how the correctional placement meets the child’s needs.

Held, the findings were insufficient to support the out-of-home placement on three of the five grounds. In re J.S.S., CX-99-1590, 2000 WL 622379 (Minn. App. 5/16/00).

Obstructing Legal Process. The appellant, an off-duty police officer, was involved in a rather serious automobile crash involving two other vehicles driven by his friends, with injuries to a pedestrian and a dog. After the accident, the appellant told the drivers of the two other vehicles to leave and that he would take care of it. When police arrived, appellant misrepresented the color of one vehicle and led the officer to believe that there was no other vehicle involved. When asked if he had been drinking at a bar with anyone, he said that he was alone. Approximately 36 hours later, he voluntarily offered a second statement that accurately detailed the events and identified the drivers. By that time, however, all blood alcohol evidence was lost.

The Court of Appeals reversed the conviction by the jury. Obstructing legal process has historically been aimed solely at physical acts, and in particular those physical acts that obstruct or interfere with an officer. The only types of words to which the statute might apply are fighting words or other words that have the effect of physically obstructing or interfering with an officer in the performance of his duties. An example is shouting at a police officer attempting to use a telephone where the volume of the words physically interferes with the telephonic communication.

In this case, the appellant’s words, while directed at officers, did not physically obstruct the officers from investigating the case. There was no evidence that the lies and misrepresentations physically obstructed the investigation. Hence, the verdict was reversed. State v. Tomlin, C0-99-920, 609 N.W.2d 282 (Minn. App. 4/25/00).

Jury Instructions. After consuming alcohol, the appellant and her husband engaged in an argument that resulted in the husband leaving the home. Later, when he returned, the door was locked so he began to pound on it. Eventually, he forced the door open, at which time he saw the appellant with a shotgun. The shotgun was old, rusted, did not have a safety, and, the husband testified, was pointed toward the floor. At some point, the gun went off. Both the husband-victim and the appellant testified that the discharge was an accident.

During closing argument, both defense counsel and the prosecutor referred to the defense of accident repeatedly. The court did not give an instruction on accident or self-defense, nor did the defense at trial request such an instruction.

Held, the court did not err in failing to give, sua sponte, an accident and a self-defense instruction. Each felony with which the appellant was charged, namely, intentional discharge of a firearm, first and second degree assault, requires specific intent, and the state and defense, in closing argument, discussed that element. Because the instruction adequately informed the jury that a finding of intent is a prerequisite to a finding of guilt, a further instruction on accident was not required, sua sponte, in these circumstances.

Next, because self-defense is an affirmative defense, it was not error for the trial court to fail to give a self-defense instruction. State v. Gustafson, CX-98-1465, 2000 WL 637016 (Minn. 5/18/00).

Hung Jury. After deliberating six hours, the jury sent the court this note: "if we (the jury) can agree unanimously on two counts, but cannot agree on one count [i.e., hung jury on one count, all 12 jurors agree on the other two counts] can this be a final outcome?" After conferring with the prosecution and defense and without objection from either attorney, the judge sent back this note: "No, please continue deliberating." Later, the jury returned verdicts of guilty on all counts. At sentencing, the trial court did not ask the defendant if he had anything to say, nor did the defendant or his attorney ask for such an opportunity.

Held, the trial court clearly informed the jury that a deadlock was not a permissible outcome. This was reversible error.

Next, under Minn. R. Crim.P. 27.03, subd. 3, the court must allow allocution from the defendant. In this case, the court did not address the defendant nor offer any opportunity to comment on sentencing issues. Even though the defendant and counsel had read the presentence investigation and stated that they were "prepared to proceed," the rule is clear. State v. Young, C5-99-1416, 2000 WL 622277 (Minn. App. 5/16/00).

In this month's "Notes & Trends":

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

Age Discrimination. The 8th Circuit Court of Appeals recently passed upon three age discrimination cases under the Federal Age Discrimination in Employment Act (ADEA), upholding summary judgment in a pair of cases and reversing it in another one.

In Kampouris v. St. Louis Symphony, 210 F.3d 845 (8th Cir. 2000), the court upheld summary judgment in an age discrimination case, coupled with a claim of violating the Americans with Disabilities Act (ADA), asserted by a symphony violinist who alleged that the nonrenewal of his contract was based upon his age and disability. The court held that he was not perceived to be disabled, did not prove that he could perform his job without accommodation, and failed to refute the legitimate nondiscriminatory reason of the employer for termination. A dissenting opinion lamented "a daily ritual of trial court grants and Appellate Court affirmances in summary judgment employment discrimination cases," which the dissenter deemed to be a "serious erosion" of fundamental jury trial rights of employees.

In Casey v. City of St. Louis, 2000 WL 554992 (8th Cir. 2000), the court upheld the dismissal of a lawsuit brought by a municipal government employee who had "outstanding" performance ratings, but at age 60, requested a transfer to a less hectic position, which was denied. Her supervisor then regularly noted work deficiencies, which led her to select early retirement. The court rejected claims of discrimination, including references to her as an "old lady," on grounds that there was ample evidence of poor job performance.

In Kells v. Sinclair Buick-GMC, 210 F.3d 827 (8th Cir. 2000), the court reversed summary judgment on ADEA and ADA claims by a car salesman employee who was demoted and then repeatedly denied requests for accommodations. The court noted that it was unclear whether the recommendation by an outside consulting service for the demotion occurred before or after the demotion, and there also were age bias remarks by the owner of the facility that warranted reversal of summary judgment in favor of the employer.

Federal Preemption. State tort law claims are not preempted by the Federal Labor Relations Management Act, 29 U.S.C. ¤ 185(a), if the state claims are independent of federal law and can be resolved without interpreting the terms of a collective bargaining agreement. In Walker v. Minnesota Mining & Mfg. Co., 2000 WL 520254 (Minn. App. 2000), the Court of Appeals ruled that the trial court erroneously dismissed state tort claims on grounds that they were preempted by federal law, as well as the state workers' compensation law, including claims of negligent supervision and retention, negligent intentional infliction of emotional distress, interference with contract, defamation, invasion of privacy, and fraud, among other claims. Although not preempted on the merits, the claims were not actual, which warranted upholding dismissal of the claims. The preemption doctrine, which often bars state claims from being asserted when they could be raised under a collective bargaining agreement, was not applicable because they could be adjudicated without needing to interpret the terms of the labor agreement.

Insufficient Findings. Dismissal of claims of sexual harassment, gender discrimination and reprisal under the Minnesota Human Rights Act was reversed by the appellate court because the trial court decision was based solely on the claimant's credibility, without any factual findings upon which the credibility determination was based. In Johnson v. Johnson-Reiland Construction, Inc., 2000 WL 519259 (Minn. App. 2000), the trial court dismissed an employee's lawsuit for failure to present a prima facie case, which the trial court based upon the claimant's lack of credibility and which was not supported by any factual findings. Accordingly, the case was remanded for further findings.

Reemployment Compensation. Reduction of an employee's hours and reassignment to a different position do not constitute "good reason" for an employee to quit a job and be eligible for reemployment compensation benefits. In Hein v. Precision Assoc., Inc., 2000 WL 558088 (Minn. App. 2000), the appellate court noted that the reassignment was due to poor work performance and poor attendance, which were legitimate reasons to reduce the employee's work responsibilities.

But an employee who quit because he believed the employer required him to violate company policy and federal law requirements was entitled to reemployment benefits in Bill v. Coloplast Corp., 2000 WL 558136 (Minn. App. 2000). The employee acted properly in notifying the employer about his objections before he quit due to the employer's continued insistence on engaging in dubious practices.

In this month's "Notes & Trends":

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

Feedlot Legislation. On April 24, 2000, Gov. Ventura signed into law H.F. 3692, the "feedlot bill" passed by the Legislature this session. Among other things, the new law imposes changes in the feedlot permitting and enforcement processes of the Minnesota Pollution Control Agency (MPCA) and curtails certain aspects of its efforts to change feedlot regulations. The highlights include:

• Permit Applicability Changes --The new law amends the National Pollutant Discharge Elimination System (NPDES) permit eligibility standards under Minn. Stat. ¤116.07, subd. 7c. Under the changes, the MPCA commissioner, in consultation with the Feedlot and Manure Management Advisory Committee (FEMAC), must develop individual and general permit eligibility criteria. The commissioner and FEMAC must also establish criteria for determining which feedlots must obtain NPDES permits and which must obtain State Disposal System (SDS) permits. Furthermore, feedlot owners and operators need not obtain NPDES permits unless their facilities house more than 1,000 animal units and the facilities meet the definition of "concentrated animal feeding operation" at 40 C.F.R. ¤ 122.23.
• Permit Processing Changes-- In addition to changing the eligibility standards for feedlot permits, the new law changes the process by which the MPCA issues feedlot permits. Perhaps the most important change is the application of the 60-day processing requirement under Minn. Stat. ¤ 15.99 to all feedlot applications submitted to the MPCA after October 1, 2001. Ownership changes alone are also no longer enough to trigger the need for a feedlot permit application. Finally, after the MPCA finalizes its current feedlot regulation revisions, it cannot impose additional conditions on an issued feedlot permit unless the additional requirements are mandated by law.
• Enforcement Restrictions-- As in previous years’ legislation, the new law further restricts the ability of the MPCA to take enforcement actions against feedlot owners. In certain circumstances, discharges from manure land application efforts or manure stockpiles are no longer considered "discharges" for permitting purposes, nor are they "discharges" subject to fines from the MPCA. The MPCA is also limited in the extent to which it can require facility upgrades in the absence of cost-sharing assistance available to the feedlot operator. The new law also requires the MPCA to forgive at least 75 percent of any administrative penalty order fine assessed against a feedlot if the abated fine will be used to address the alleged violations or for environmental improvements on the farm or if the MPCA commissioner determines the violation has been or is in the process of being corrected.
• Air Quality Exemptions -- The new law exempts feedlots from the requirement to meet state air quality ambient standards for seven days following manure removal from barns or manure storage facilities. Facilities with more than 300 animal units, however, may only invoke this exemption for a maximum of 21 days in a calendar year. Feedlot owners and operators may also obtain "air quality easements" from the owners of adjoining properties. If a facility obtains this type of easement, it need only attain state ambient standards at the border of this neighboring property. If not, the facility must attain ambient standards at its own borders. Finally, the MPCA may not require air emission modeling for livestock system types that have not had hydrogen sulfide emission violations.
• MPCA Rule Restrictions-- On December 20, 1999, the MPCA published draft revisions to its feedlot rules at Minn. R. Ch. 7020, 24 Minn. Reg. 848. In response, the new law imposes a number of changes to the proposed rules, such as the removal of certain manure management and pollution prevention plan requirements. The law also prevents the MPCA from implementing rules requiring, for example, manure pack and mounding removal, except as necessary for pollution prevention, and feedlot permit application information beyond that specifically required under the law. Finally, the MPCA must loosen restrictions on such things as feedlot construction notifications and manure stockpiling restrictions and tighten the requirements on itself and county permitting authorities to provide certain notices to permit applicants.

In addition to the above, the law also requires a task force of state agencies to study the need for financial assistance to feedlot owners and requires the Department of Agriculture to create manure applicator education and training programs. The effective date of the new law is April 25, 2000.

EPA and "Overfiling". The Environmental Protection Agency (EPA) announced that it would not ask the United States Supreme Court to review the 8th Circuit opinion that restricted the ability of the EPA to "overfile" a state Resource Conservation and Recovery Act (RCRA) enforcement action. In September 1999, a three-judge panel of the U. S. Court of Appeals for the 8th Circuit affirmed a Missouri district court ruling that the EPA could not undertake its own enforcement action in the wake of a state enforcement action for the same violations. Harmon Industries, Inc. v. Browner, 191 F.3d 894 (8th Cir. 1999). The EPA petitioned the 8th Circuit for a rehearing on that ruling and for a rehearing by the full 8th Circuit panel. The 8th Circuit denied both requests on January 24, 2000. According to a recent article in the Toxic Law Reporter (BNA), on April 24, 2000, the last day to appeal the above denials, the EPA "announced" through an unnamed Department of Justice attorney that it would not seek review of the 8th Circuit decisions. While choosing to leave Harmon Industries unchallenged, the EPA will likely pursue opportunities in other circuits to create a split of authority on this issue in order to make a stronger case for overturning Harmon Industries before the Supreme Court.

In this month's "Notes & Trends":

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

Expert Reports. In Rainforest Cafe, Inc. v. Amazon, Inc., 86 F. Supp. 2d 886 (D. Minn. 1999), Rainforest sought a declaratory judgment of invalidity of Amazon’s claimed trade dress rights, and Amazon asserted a host of counterclaims premised on Rainforest’s alleged trade dress and trademark infringement. Rainforest moved for summary judgment on all of the counterclaims asserted against it. In opposition to the motion, Amazon submitted an expert witness report that opined that Rainforest’s trade dress was confusingly similar to Amazon’s and that purported to calculate Amazon’s damages arising from Rainforest’s trade dress infringement. The report was signed by the expert but was unsworn and unverified, did not state that it was true and correct, and was not declared to be true under penalty of perjury. Rainforest moved to strike the expert report, arguing that it was inadmissible under Fed. R. Civ. P. 56(e).

While conceding that courts "routinely consider expert reports when deciding motions for summary judgment," Judge Davis cited two recent decisions in which federal district courts had refused to consider unsworn expert reports at the summary judgment stage and held that, because the unsworn report did not meet the requirements of Fed. R. Civ. P. 56(e), it would not be considered for purposes of the summary judgment motion, despite the fact that the report complied with the expert disclosure requirements of Fed. R. Civ. P. 26(a).

In light of Judge Davis’ opinion, it would appear imperative that counsel ensure that any expert report they intend to rely on at the summary judgment stage has been sworn to or verified by the expert.

Writ of Mandamus. The long-running saga of Baker v. General Motors Corp. has resulted in three published 8th Circuit opinions and one opinion by the United States Supreme Court. A dispute over attorney-client privilege has now resulted in a fourth 8th Circuit opinion. Baker v. General Motors Corp., 209 F.3d 1051 (8th Cir. 2000).

Following in camera review, the district court rejected GM’s attorney-client and work product privilege claims and ordered GM to produce six documents to the plaintiffs. GM then sought a writ of mandamus.

The 8th Circuit noted that when a claim of privilege is rejected by a district court, it will issue a writ of mandamus "when the party seeking the writ has no other adequate means to attain the desired relief and the ruling is clearly erroneous. This extraordinary remedy is appropriate because the judge’s order would otherwise destroy the confidentiality of the communications at issue." The 8th Circuit held that the district court had "clearly erred" in rejecting GM’s work product claims and also rejected the district court finding that GM had waived the attorney-client privilege by placing the documents "at issue" in the litigation.

In a dissenting opinion, Judge Heaney argued that GM had engaged in an "abuse of the evidentiary privilege" and that the ruling of the majority would give a party "free rein to make assertions contradicted by the litigant’s own documentary evidence without being branded as untruthful."

Other Decisions of Note. In In re Hartford Sales Practices Lit., 1999 WL 1390345 (D. Minn. 1999), Judge Kyle granted defendants’ motion to strike a plaintiffs’ attorney’s affidavit submitted in support of a motion for class certification, finding that the affidavit was not limited to the attorney’s "firsthand knowledge" and that certain of the attorney’s argumentative statements belonged "in a memorandum rather than an affidavit."

Cargo Protectors, Inc. v. American Lock Co., 92 F. Supp. 2d 926 (D. Minn. 2000), Judge Montgomery found that the plaintiff had established a likelihood of success on its claim for breach of a confidentiality agreement, but nevertheless denied the plaintiff’s request for a preliminary injunction, finding that because any damages were "quantifiable," the plaintiff could not establish irreparable harm.

In Kells v. Sinclair Buick-GMC Truck, Inc., 210 F.3d 827 (8th Cir. 2000), the 8th Circuit reversed an award of summary judgment, finding that the district court erred in relying on affidavits submitted in support of the summary judgment motion when those affidavits were contradicted in the witnesses’ deposition testimony.

In Beckmann v. CBS, Inc., 2000 WL 572641(D. Minn. 2000), Judge Frank certified a "hybrid" employment discrimination plaintiff class under Fed. R. Civ. P. 23(b)(2) and 23(b)(3). Judge Frank’s opinion includes a useful step-by-step analysis of the factors a court must consider when presented with a motion for class certification.

Worth Noting. The 8th Circuit recently moved its Web site from the Washington University School of Law to a new location at http://www.ca8.uscourts.gov. The Web site will now include the 8th Circuit Model Jury Instructions and digital versions of all oral arguments from March 2000 forward. The court is also promising free access to the full text of all attorney-filed briefs starting with year 2000 cases "in the very near future." However, docket sheets will not be available on the new Web site, as they had been on the Washington University site, and the only electronic access to docket sheets will be through the PACER system.

In this month's "Notes & Trends":

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

Conditional Use Permit. The property owner applied for a conditional use permit to allow outside storage on the property. The county commissioners denied the application. The Court of Appeals reversed and remanded the denial because there were no written findings, as required by statute. Sterling Ventures, Inc. v. Scott County, C8-99-1524, 2000 WL 228400 (Minn. App. 2/29/00) (unpublished).

Misrepresentation; Breach of Contract. The selling agent’s speculation about how the property could be used in the future was not a misrepresentation because the buyer could not prove: (1) the agent’s representations were of past or present fact; (2) the seller had knowledge of the applicable zoning ordinance; and (3) any damages. The representation in the purchase agreement that the seller had no knowledge of a zoning violation and the seller’s membership on the local planning commission are not sufficient evidence of knowledge of a zoning violation to constitute a breach of the purchase agreement. Saliterman v. Burdick, CX-99-1427, 2000 WL 272048 (Minn. App. 3/14/00).

Variance from Noise Rule. The Minnesota Pollution Control Agency granted the Minnesota Orchestral Association a variance from a noise rule. An environmental group opposed the variance. The court held the variance was supported by substantial evidence accumulated after years of investigation and was not arbitrary and capricious because the MPCA considered important aspects of the problem and did not rely on factors the Legislature did not intend to be considered. In re Application from the Minnesota Orchestral Ass'n, 607 N.W.2d 478 (Minn. App. 2000).

Statute of Limitations. A condominium owners’ association sued the developer, general contractor, and architect regarding extensive foundation cracking. The developer was also the property manager and was designated the owners’ association’s agent in the management contract. Because the developer knew of the foundation cracking and was the agent of the owners’ association, the general contractor and architect were entitled to summary judgment on the statute of limitations. Superior Shores Lake Home Ass'n v. Superior Shore Partnership,C2-99-1292 (Minn. App. 3/21/00) (unpublished).

Immunity. Several homeowners sued the city for water damage from a storm sewer. The city moved for summary judgment, asserting statutory immunity and vicarious official immunity. The court held that the installation of the sewer system by the city was immune planning-level conduct, rather than operational-level conduct that was not immune. In addition, the city engineer’s review and approval of the plans was discretionary rather than merely ministerial, so official immunity applied. Reinardy v. City of Red Wing, C0-99-1548, 2000 WL 290397 (Minn. App. 3/21/00) (unpublished).

Knowledge of Title Defect. A corporation purchased property from its president and majority shareholder who had personal knowledge of the dubious history of the title. The corporation made a claim on its title insurance policy. The court held the title insurance company not liable to the corporate owner because the principal of the corporation knew about the title problem and that knowledge was imputed to the corporation. Carefree Living of America (Minnetonka), Inc. v. Chicago Title Ins. Co., C4-99-651 (Minn. App. 3/21/00) (unpublished).

Discharge in Bankruptcy. After being discharged in bankruptcy, a homeowner argued it did not have to pay post-bankruptcy townhouse assessments. After reviewing the bankruptcy code, the court determined that post-petition townhouse assessments are covenants running with the land that are not discharged in bankruptcy. Westbrooke Patio Homes Ass'n, Inc. v. Goodrich, 607 N.W.2d 455 (Minn. App. 2000).

Breach of Lease Damages. The trial court held that the tenant breached the lease and was liable for damages, including attorneys fees. The Court of Appeals affirmed the finding of breach but held that evidence of damages was based on inadmissible hearsay evidence and the award of damages and attorneys fees was abusive of discretion. Office Systems, Inc. v. Vacationaire, Inc., C2-99-1566, 2000 WL 310396 (Minn. App. 3/28/00) (unpublished).

Rent Arbitration Award. NSP leased property for a utility easement. The easement agreement provided for arbitration if NSP and the property owner could not agree on the rent for use of the easement. The court affirmed the arbitrator’s award to the property owner as not arbitrary and capricious. Northern States Power Co. v. MT Properties, Inc., C0-00-1310, 2000 WL 343206 (Minn. App. 4/04/00) (unpublished).

Truth in Lending. The property owners refinanced the mortgages on their homestead. The husband alone wrote for a "hardship" waiver from the right of rescission under the Truth in Lending Act. The lender closed the loan without giving the right of rescission to the wife. The mortgage was assigned to another lender, and the original lender filed bankruptcy. The new lender sued for a rescission or a decree of foreclosure. When the property owners failed to produce the principal, interest, and late fees as required by the trial court for rescission, the trial court ordered foreclosure. The Court of Appeals held the new lender not liable for the acts of the original lender that did not give a rescission period. In addition, the trial court requirement that the property owners pay interest and late fees, in addition to principal, was equitable because they had lived in the property for five years without making a mortgage payment. Aames Capital Corp. v. Sather, C9-99-1435, 2000 WL 343218 (Minn. App. 4/04/00) (unpublished).

Cancellation Settlement Agreement. The vendor served the vendee with a notice of cancellation on a contract for deed. The pro se vendee entered into a settlement agreement with the vendor on the eve of trial. When the vendor attempted to enforce the settlement agreement, the vendee appealed. The court held that the settlement agreement was not an abuse of discretion and that there was no error of law in enforcing the agreement. Pietsch v. Darling, C0-99-1632, 2000 WL 369388 (Minn. App. 4/11/00) (unpublished).

Adverse Possession; Riparian Boundary. Neighbors disputed a riparian boundary after one neighbor cut down the other neighbor’s dock. The trial court ordered a survey and found that the dock owner did not have riparian rights where the dock had been located. The Court of Appeals reversed the trial court, finding that evidence of the dock owner’s adverse possession precluded summary judgment. Bruers v. Wherley, C1-99-912, 2000 WL 369504 (Minn. App. 4/11/00) (unpublished).

In this month's "Notes & Trends":

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

Appeal Denied. The Tennessee Supreme Court denied an application from the commissioner of revenue to appeal a decision by the court of appeals that the credit card business activities of an out-of-state bank were not sufficient to create nexus in the case of J.C. Penney Nat'l Bank v. Johnson, No. M1998-00497-COA-R3-CV, 1999 WL 12021 (Tenn. App. 12/17/99).

Jurisdiction; Innocent Spouse Relief. The tax court held that it has jurisdiction to review a request for innocent spouse relief under Section 6051(f) when the required election was made under Section 6015(b) or (c) and/or a timely petition was filed. Fernandez v. Commissioner, 114 T.C. No. 21, 2000 WL 565108 (5/10/00).

Debt Income; S Shareholders. The U.S. Supreme Court decided to resolve a split among the circuits that resulted when shareholders of insolvent subchapter S corporations used excluded cancellation of indebtedness income to adjust the basis in the stock of their corporations. The debate arises from the proper interrelation of some IRC sections governing S corporations and the bias against taxpayers receiving a possible "windfall" in the form of a double tax benefit. Gitlitz v. Commissioner, 99-1295, cert granted, 120 S.Ct 1830 (5/1/00).

Access to Documents. The IRS does not have unfettered access to documents that were originally collected by a court-appointed trustee for the purposes of marshaling a defendant's assets after entry of judgment in an environmental enforcement case and later turned over to the court clerk, but the IRS and defendant are allowed to view an index of documents and defendant can then object to release of documents requested by IRS. United States v. Production Plated Plastics, Inc., 4:87-CV-138, ___ F.Supp. ___ (W.D. Mich. 3/31/00).

Limitation of Liability; Innocent Spouse Relief. A taxpayer does not qualify for innocent spouse relief with respect to a joint return he filed with his former spouse but qualifies for limitation of liability. Charlton v. Commissioner, 114 T.C. No. 22, 2000 WL 626760 (5/16/00).

Parsonage Exclusion. The amount of a minister's exclusion for parsonage allowance is limited to the amount used to provide a home, not the fair market rental value of the home. Warren v. Commissioner, 114 T.C. No. 23, 2000 WL 626758 (5/16/00).

Homesteads. The homestead exemption from judgments and foreclosures, Minn. Stat. ¤ 510.01 (1998), is unambiguous. It does not protect land that is noncontiguous -- meaning not joined at some point -- with the parcel on which the home is situated. The homestead classification for property tax purposes, Minn. Stat. ¤ 273.124, subd. 14, does not control the homestead exemption for levies. Michels v. Kozitza, C6-99-1411, 610 N.W.2d. 368 (Minn. App. 5/16/00).

Liability; Fraud; Value of Note. A taxpayer is liable as a successor transferee of an installment note fraudulently conveyed by a taxpayer corporation to its sole shareholder who was taxpayer's former spouse, but the lower court overvalued the note and thus miscalculated the amount of the taxpayer's transferee liability. Stanko v. Commissioner, 99-1297, 209 F.3d 1082 (8th Cir. 4/20/00).

Statute of Limitations. An individual did not make payments subject to the statute of limitations in I.R.C. Section 6511 as his payments were made after the IRS had already abated liability from civil penalty. Therefore, no taxes were imposed in the year at issue and the payments were not "taxes", nor were they an overpayment above "his true liability." Ottinger v. United States, 99-236T (Fed. Cl. 4/12/00).

Innocent Spouse Relief. A taxpayer is not entitled to innocent spouse relief with respect to her liability for an understatement on a joint return since she had reason to know of the understatement. Butler v. Commissioner, 114 T.C. No. 19, 2000 WL 502841 (4/28/00).

Fees, Costs for LBO. Various professional fees and costs incurred in connection with a leveraged buyout acquisition are not deductible as business expenses but must be capitalized by the corporation formed as the acquiring entity. Hillsborough Holdings Corp. v. United States , 91-313 (Bankr. M.D. Fla. 3/30/00).

FOIA; Audit Documents. Summary judgment is granted for the IRS in a Freedom of Information Act suit by a tax-exempt organization seeking documents related to an audit that it asserts was politically motivated. The court found that the IRS conducted searches that were reasonably calculated to uncover the requested documents. Western Center for Journalism v. IRS, 99-906 (CKK), 1999 WL 357932 (D.D.C. 3/31/00).

Pull-Tab Gaming. Pull-tab gaming operations conducted by a Native American tribe are exempt from federal wagering excise tax and related occupational tax. Little Six Inc. v. United States, 99-5083, 210 F.3d 1361 (Fed. Cir. 4/24/00).

Contingency Fee. The portion of a judgment paid directly to a taxpayer's attorney as a contingency fee is not taxable as income to the taxpayer. The precedent of Cotnam v. Commissioner, 263 F.2d 119 (5th Cir. 1959) was followed. Davis v. Commissioner, 98-7026, 210 F.3d 1346 (11th Cir. 4/27/00).

"Responsible Person" Penalty Tax; Jurisdiction. The tax court cannot review an IRS decision to proceed with the collection of a responsible person penalty tax under Section 6672 following a collection Due Process hearing. Since the court lacked jurisdiction over the penalty tax, it also lacked jurisdiction to review the administrative determination in dispute. Moore v. Commissioner, 114 T.C. No. 11, 2000 WL 283865 (3/17/00).

Challenge of Tax Liability. The IRS Restructuring and Reform Act of 1998 added Section 6320, dealing with liens, and Section 6330, dealing with levies, to provide Due Process protections for taxpayers in collection matters. In a recent case, a taxpayer sought to contest his tax liability in an Appeals Office hearing under Section 6330. The tax court held that he was precluded from contesting the underlying liability because he had received a statutory notice of deficiency and did not file a petition for review. In collection Due Process cases, the tax court will apply a de novo review of the commissioner's administrative determination where the underlying liability is properly at issue and an abuse of discretion standard when the underlying tax liability is not properly at issue. Goza v. Commissioner, 114 T.C. No. 12, 2000 WL 283864 (3/17/00).

Lottery Payoffs. A taxpayer's estate did not have to use IRS valuation tables to calculate the value of lottery annuity payments. Use of Section 7520 tables would result in unrealistic and unreasonable values because of restrictions on the assessment of payments under state law. Therefore, the court allowed the estate to apply an alternative valuation method for its return. United States v. Estate of Shackleford, 84 AFTR 2d 99-5902, 1999 WL 744121 (E.D. Calif. 1999).

FOIA; Agent's Report. An individual is not entitled under FOIA to receive a special agent's report that analyzed his business and financial activities, evidence of tax evasion, witness statements, names of confidential informants, and the agent's conclusions and recommendations on the prosecution of the individual. Youngblood v. Commissioner, 2:99-cv-9253R (RNBx) (C.D. Calif. 3/6/00).

Collection of Taxes. The 9th Circuit held that the power of the tax court to enjoin the premature collection of deficiencies under Section 6213(a) does not extend to the collection of taxes reported but not paid on a taxpayer's return when the tax court has jurisdiction over a deficiency proceeding involving an amount greater than that shown on the return. Fayeghi v. Commissioner, 2000 U.S. App. LEXIS 8645, 211 F.3d 504 (9th Cir. 5/3/00).

In this month's "Notes & Trends":

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

Options Transferred in Divorce. In Field Service Advice, the IRS concluded that employee stock options were exchanged for the release of marital rights or property. Therefore, the transfer was at arm's length and subject to Section 83, under which stock options are taxable when transferred. The exhusband had compensation income equal to the fair market value of the options on the date of transfer. When the exwife exercised the options, there were no tax consequences to either party. However, when she sells the stock, the exwife will be taxed on the difference between the selling price of the stock and her basis (the carryover basis from the exhusband plus her exercise price). Field Service Advice 200005006.

Estate Tax on IRD. The IRS concluded that an estate beneficiary could deduct estate tax on income in respect of a decedent even though the estate tax had not yet been paid. Field Service Advice 200011023.

Comments Requested: IRS Practice Rules. The IRS requests comments from practitioners addressing standards of practice relating to tax shelters in connection with plans to amend Circular No. 230, providing regulations governing practice before the agency. REG-111835-99 (Fed. Reg. 5/11/00).

Proposed Rules: Mergers. The IRS proposes rules describing whether certain transactions involving mergers with disregarded entities qualify as tax-free corporate reorganizations. The rules apply to mergers where one entity is a corporation and the other is disregarded as an entity separate from its owner. Specifically, the proposal deals with transactions involving the merger of a disregarded entity into an acquiring corporation, and the merger of a target corporation into a disregarded entity. REG-106186-98 (Fed. Reg. 5/16/00).

Final Rules: Subsidiary Use of Parent Stock. The IRS issued final regulations providing that no gain or loss is recognized in certain taxable transactions where one corporation immediately disposes of the stock of another pursuant to a plan to acquire money or property. The regulations are intended to prevent the application in such transactions of the "zero basis result," thereby avoiding inappropriate gain recognition under Section 1032. That IRC section provides for nonrecognition of gain or loss by a corporation receiving money or property in exchange for its stock. T.D. 8883 (Fed. Reg. 5/16/00).

Comments Requested: Partnership Options, Exchanges. The IRS seeks public comment on the federal income tax treatment of the exercise of an option to acquire a partnership interest, the exchange of convertible debt for a partnership interest, and the exchange of a preferred equity interest in a partnership for a common interest. Comments on the tax consequences for the recipient of the partnership interest and for the partnership itself are sought. I.R.S. Notice 2000-29 (5/30/00).

Public Charity Status. Should you have questions about the public charity and tax- exempt status of an organization, the IRS publishes annually, with quarterly supplements, Publication 78. This publication can be accessed on the Internet at http://www.irs.gov/charities/article/0,,id=96136,00.html to find if the IRS has granted the exemption. (It is also referred to as the Cumulative List or The Blue Book.)

Cash Method. Taxpayers with an average annual gross income of $1 million or less will be allowed to account for inventories and to use the cash method, and thus the installment method, of accounting. The guidance is part of a multi-project administration response to the 1999 disallowance of the installment method of accounting for accrual-basis taxpayers. Rev. Proc. 2000-20, 2000-20 I.R.B. (5/15/00).

Substantial Compliance Doctrine; Gift Tax Returns. The IRS applies the substantial compliance doctrine to find that improperly completed gift tax returns can make valid allocations of the Section 2631 generation-skipping transfer tax exemption. Although the taxpayers did not follow all the instructions for completing their gift tax returns, the IRS states that a failure to comply with procedural directions of a regulation does not cause an election to allocate to be invalid if the taxpayer complies with the essential requirements of the regulation. Priv. Ltr. Rul. 200017013.

In this month's "Notes & Trends":

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

Omnibus Tax Bill. The Legislature approved and the governor signed the Omnibus Tax Bill, Chapter 490 (H.F. 4127). Significant features of the tax package are:

• Rebate. An individual sales tax rebate of $658 million.
• All Income Tax Rates Cut. The individual income tax rate is reduced by 0.15 percent to 5.35 percent in the lowest level, the middle level reduced by 0.20 percent to 7.05 percent, and the upper tax rate reduced by 0.15 percent to 7.85 percent. In addition, the alternative minimum tax is set at 6.4 percent.
• Motor Vehicle Registration Tax. The vehicle registration tax would continue to be based on the market value of a vehicle in its first year. The bill would limit the motor vehicle registration tax in its second year to $189. From years three through ten, the registration tax for the vehicle would be $99 per year and after ten years, $35.
• Employer Credit for Transit Passes. The measure would grant employers a credit for offering their workers transit passes. Employers could receive a state income tax credit equal to 30 percent of the cost of the transportation passes provided to employees.
• Health Care Taxes. Health maintenance organizations, community integrated service networks, and nonprofit health service corporations would be exempted from the state insurance premium tax of one percent in both 2001 and 2002.

Minnesota Tax Reform. The Department of Revenue released its interim assessment report on tax reform as part of the governor's "Big Plan." The report documents the findings of the department of taxpayers' views on tax reform. The principal issues for taxpayers are fairness, complexity, making the system more predictable, and maintaining the state's prosperity. A copy of the report can be obtained from the department Web site.

In this month's "Notes & Trends":

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

Comparative Fault; Joint Venture. A patient in a drug treatment program died after he took twice the daily dose of methadone. The plaintiff brought this wrongful death action against the treatment center, the company that assisted in the operation and management of the center, and a doctor who was 100 percent shareholder and chief executive officer of both the treatment center and the management company. The jury allocated fault against the plaintiff that exceeded the individual fault of each defendant. The jury was not asked to determine whether defendants were engaged in a joint venture. In a post-trial motion, the trial court granted the plaintiff's request to aggregate the defendants' fault and awarded judgment to the plaintiff.

Under the Minnesota comparative fault statute, the plaintiff's recovery will not be barred by his own negligence if the plaintiff's fault does not exceed the fault of the party from whom he seeks to recover. Thus, upon a proper finding that the defendants engaged in a joint venture, the plaintiff may prevail as long as his fault does not exceed the aggregate fault of all defendants. In reversing the trial court, the Court of Appeals held that plaintiff waived the right to argue joint venture by not raising the issue before trial. Moreover, even though the entities shared the same employees and the physician was the sole shareholder of the two companies, there was still not sufficient evidence to establish a joint venture as a matter of law,

largely because there was no evidence of profit-sharing between the entities. Hansen v. St. Paul Metro Treatment Center, Inc., C1-99-1350, 211 F.3d 504 (Minn. App. 4/25/00).

[The author's law firm successfully represented the defendants in this matter.]
No-Fault Benefits. Three separate cases involving the same issue were consolidated and came before the Supreme Court for review. The issue presented to the Supreme Court was whether an arbitrator had the authority to award no-fault benefits after the claimant had refused to attend an independent medical examination (IME) because the insurer had refused to pay earlier benefits. In each case, the insurer ceased payments on benefits and scheduled an IME. Although the claimant refused the IME, the arbitrator awarded benefits.

The Supreme Court held that the claimant's refusal to attend the IME does not prevent the arbitrator from payment of benefits. Instead, the court held that the arbitrator must determine the reasonableness of the IME request and the plaintiff's response to the request. The court stated that the Legislature intended an arbitrator to have the authority to suspend or deny benefits in a particular case. This case is significant because it is the first time the Supreme Court has provided guidance on the question of whether no-fault benefits may be denied for the claimant's failure to attend an IME. However, the decision does not offer a bright-line rule. Instead, the court held that the decision to deny benefits must be determined by the arbitrator on a case-by-case basis. Weaver v. State Farm Ins. Cos., C9-98-1859, C3-98-2098, C1-98-2231, 609 N.W.2d 878 (Minn. 4/27/00).

Medical Malpractice. Plaintiff brought a medical malpractice action alleging negligence in the performance of carpal-tunnel surgery and the administration of post-operative care. Plaintiff asserted three liability theories, claiming that defendant departed from the generally accepted standard of care by failing: (1) to use a tourniquet to constrict the flow of blood; (2) to inspect the recurrent motor branch of the median nerve to determine if it had been cut during surgery; and, (3) to conduct opponens testing during post-operative care or to conduct it properly. The jury returned a special verdict in plaintiff's favor. The district court denied defendant's motion for judgment notwithstanding the verdict (jnov), stating that the court could grant or deny jnov on the entire cause of action but not on the liability theories individually. The Court of Appeals reversed, holding that the evidence was legally insufficient to support a verdict on the claims based on the tourniquet and opponens-testing theories of liability. When the trial court submits several liability theories to the jury and it cannot be determined whether the jury based its verdict on a theory properly submitted to it or one not properly submitted, defendant is entitled to judgment as a matter of law on theories improperly submitted to the jury. In addition, defendant is entitled to a new trial on the remaining theories unless the evidence conclusively establishes that plaintiff is entitled to the verdict on those theories. Kaiser-Bauer v. Mullan, C3-99-1396, 609 N.W.2d 905 (Minn. App. 5/2/00).