May/June 2000

In this month's "Notes & Trends":

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

Reverse Naig Settlement. Plaintiff was an employee of one of several subcontractors working at a Malt-O-Meal plant when she was injured by the fault of another subcontractor. At trial the jury found her damages to be $790,000.00, including future medical expenses of $75,000.00, future disability of $42,000.00, and future loss of earnings of $435,000.00. Prior to trial, the defendant tortfeasor and the workers’ compensation carrier entered into a reverse-Naig settlement, resolving all workers’ compensation claims, for the sum of $25,000.00.

By way of a post-trial hearing, defendant asked the court to reduce the verdict by the future damages which would be payable by the workers’ compensation carrier to the employee. During the hearing the parties submitted opposing expert legal testimony regarding the likelihood of recovery of benefits within the workers’ compensation system. The trial court denied the defendant any reduction in damages for any of the future damages awarded. The trial court concluded that the defendant had failed to sustain its burden that the employee would receive future workers’ compensation benefits, and that the possibility of recovering any benefits was speculative. The Court of Appeals affirmed the trial court.

This is the third in a line of cases in which the courts have been very protective of the rights of the plaintiff/employee and found little or no merit to the offset claims submitted by the tortfeasors. In the present case a lengthy dissent found it difficult to reconcile the court’s refusal to find future damages with the jury’s award of some $700,000.00 in future damages. Schlichte v. Kielan, 599 N.W.2d 185 (Minn. App. 1999).

By Steven J. Kirsch
and Andrew T. Shern
Murnane Conlin White & Brandt

In this month's "Notes & Trends":

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

Spreigl: Alibi: Identity: Instructions. The appellant had been charged with second degree criminal sexual conduct involving a child. Appellant denied the allegation and presented several alibi witnesses. The state introduced Spreigl evidence pursuant to Minn. R. Evid. 404(b) in the form of a stipulation that a similar occurrence dated from three years earlier, involving a similar child and a similar modus operandi. The judge gave a cautionary instruction before the evidence was introduced and also gave crimjig 3.16 at the close of the trial.

The appellant maintained that the Spreigl evidence should have been introduced solely for the purpose of establishing identity, pursuant to Billstrom, 146 N.W.2d 281, 285 (Minn. 1967), and language in Rule 404(b), which states that such evidence is not to be used to prove character or that the actor in this case acted in conformity with that character.

Rule 105(b) states that this limited-purpose use may be explained in a jury instruction upon request. In fact, the 8th Circuit has adopted patterned jury instructions adopting language that addresses the concerns in 404(b) and Billstrom. Hence, both the 8th Circuit and Rule 105(b) provide for the limiting instructions, but only upon request. In this case, the appellant did not make a specific request for the limited use instruction that the Spreigl evidence could only be used to prove identity. Where there is no such request, the trial court did not abuse its discretion in refusing to give a modified cautionary instruction with respect to the Spreigl evidence. State v. Broulik, C6-98-989 ___ N.W.2d ___ (Minn. 2/24/00).

Sentence: Plea Withdrawal; Conditional Release; Sex Offenders. The respondent moved the district court to withdraw his guilty plea approximately three years following his sentence on the basis that the mandatory conditional release that is required of sex offenders was not contemplated by the original plea agreement. In other words, an additional five to ten years of conditional release would follow the executed sentence, depending upon an individual's record of conviction. The judge held a hearing approximately three years later to correct the sentence to include a five-year mandatory conditional release term. Several months later, the appellant moved to withdraw his guilty plea, contending that the addition of the conditional release term violated the terms of his original plea agreement.

Held, the district court was correct in denying respondent's motion to vacate the plea. In accepting the plea negotiation, respondent was motivated primarily by the chance for probation rather than the conditional release issue that was inadvertantly unaddressed at the original district court level. State v. Brown, (Minn. 2/24/00).

Rape: Attempted Murder; Single Behavioral Incident; Departure. The appellant broke into the victim's home, threatened her with a knife as he asked for money, raped her anally, stabbed her, and attempted to kill her by tying a scarf around her neck. Police were able to rescue her before asphyxiation. After being convicted of attempted murder, first degree criminal sexual conduct, and first degree burglary, the appellant received sentences of 480 months, 240 months, and 96 months, respectfully and consecutively. The trial court cited 15 aggravating factors for the totality of the behavior without assigning each aggravating factor to a particular conviction. The trial court also held that consecutive sentences were appropriate because it was not a single behavioral incident.

The Supreme Court reversed the consecutive sentences on the basis that the state did not meet its burden of proving, by a preponderance of the evidence, that the appellant's course of conduct constituted separate behavioral incidents. The offenses against the victim occurred at the same time and place. There was no way to reach a rational conclusion other than that the stabbing occurred as part of the sexual assault or the attempted murder. State v. Williams, CX-98-820 ___ N.W.2d ___ (Minn. 3/2/00).

Sentence: Civil Commitment; Plea Bargain. The appellant had a long history of criminal sexual activity. In 1991, the appellant, his attorney, and the state reached an agreement by which he would plead guilty to fourth-degree criminal sexual assault in exchange for the county attorney dropping a second-degree criminal sexual assault charge that carried a mandatory 37-year sentence. A further condition, agreed to by all parties, was that at the time of sentencing, the court would not refer the matter for the possibility of judicial commitment under Minn. Stat. §609.1352, recodified as 609.108. The appellant also agreed to an executed ten-year prison term.

Toward the end of the sentence, the Department of Corrections (D.O.C.) petitioned for civil commitment under the sexual psychopathic personality law, Minn. Stat. §253B.185.

Appellant contended that the petition for commitment by the D.O.C. violated the terms of the plea negotiation. Held, by the plain meaning of the plea agreement, the filing of the psychopathic personality petition for commitment by the D.O.C. did not violate the plea agreement. It was the court and not the D.O.C. that agreed not to file the petition for judicial commitment. The D.O.C. was not a party to the plea agreement. In re Ashman, C8-98-2078 ___ N.W.2d ___ (Minn. 3/16/00).

Open Bottle: Knowledge; Intent; Driver/Owner. Minn. Stat. §169.122 makes it unlawful for a driver "to keep or allow to be kept in a motor vehicle . . . any [opened] bottle or receptacle containing [alcohol] ... ." Both the district court and the Court of Appeals held that this subdivision imposes an absolute liability on the driver/owner and that proof of knowledge that the open container was in the motor vehicle is not required. The Supreme Court affirmed these holdings: The driver has "an affirmative duty to insure that there were no open containers in the area of the motor vehicle normally occupied by the driver or passenger on a public highway." State v. Loge, C9-98-842 ___ N.W.2d ___ (Minn. 3/2/00).

Expert Witnesses: Ethnic Issues; Prejudice. The appellant was charged with criminal sexual conduct against his estranged wife. At trial, it was error to allow "expert testimony" from a Minneapolis Park Police officer to explain to the jury his observations of Hmong culture. In particular, his testimony asserted that, in essence, Hmong men tend to abuse their wives and that Hmong women tend to be victims. There was also testimony that going outside of the immediate family to complain about abuse is unusual and this could explain the delay in reporting. Among other statements, this "expert" testified that "I think there are patterns that can be identified over time and that that pattern is disturbing in the Hmong culture."

Held, this evidence was highly prejudicial and this witness' status as an "expert" is suspect. The testimony was based upon his anecdotal experience, and he has little or no academic training. The defense did not open doors to the testimony by attacking the complainant's credibility with its own expert. It is impermissible to link a defendant's ethnicity to the likelihood of his guilt, which is exactly what happened in this case. State v. Vue, C3-99-863 ___ N.W.2d ___ (Minn. App. 2/29/00).

Juvenile: Certification; Improper Weighing of Factors. The juvenile respondent is a 17-year-old who committed two armed robberies within a nine-day period. He was an admitted member of two violent gangs. His prior delinquency record included four gang-related misdemeanors, including two assaults, obstructing legal process, and criminal damage to property. Numerous experts testified, with two advising against certification and three recommending certification. The trial court denied certification.

The trial court decision was reversed. The Court of Appeals held that the trial court understated and failed to properly weigh the various factors used to determine whether certification was appropriate. Namely, the court failed to give "greater weight" to the seriousness of the alleged offense and the prior record of delinquency than to the other factors. In re St. Louis County v. S.D.S., C9-99-981 ___ N.W.2d ___ (Minn. App. 3/7/00).

EJJ: Other Bad Acts. The Supreme Court reversed the Court of Appeals and prior precedent, which required "non-offense-related evidence of dangerousness" before designating a child with EJJ status. In this case, the child had been charged with first-degree criminal sexual conduct at age 14, involving an eight-year-old child. There was no other history of misconduct by the child. However, the state psychologists determined that treatment beyond the juvenile's 19th birthday was necessary to fully complete treatment. Hence, the EJJ designation was upheld. In re D.M.D., Jr., C4-98-1185 ___ N.W.2d ___ (Minn. 3/16/00).

Double Jeopardy: Hung Jury; Split Verdict. The respondent had been charged with four counts of criminal sexual conduct. The jury acquitted on counts I through III but deadlocked on count IV. Both sides consented to a partial verdict.

The state then wished to reprosecute on the remaining count, which alleged multiple acts of sexual contact. However, there were only two alleged acts, one of which was included in the acquitted counts, leaving only a single act. The appellant subsequently moved for dismissal of the remaining count under Minn. Stat. §609.035. The judge granted the "motion to dismiss," finding that count IV could not be retried because it alleged multiple acts of criminal sexual conduct and only one act remained.

Held, the state is barred from appealing the trial court decision. Even though it was couched in terms of a motion to dismiss based upon 609.035, it amounted to a motion for judgment of acquittal under Rule 26.03, subd. 17(3). Whatever the label, the trial court action amounted to an acquittal on the merits. Hence, double jeopardy makes any appeal by the state impossible. State v. Large, C8-99-566 ___N.W.2d ___ (Minn. 3/16/00).

Prosecutorial Misconduct: Evidence; Cumulative. The appellant is entitled to a new trial based upon cumulative error, including prosecutorial misconduct, improper use of Spreigl, and an unauthorized instruction on defendant's right not to testify.

During closing argument, the prosecutor referred at length to the appellant's five prior criminal sexual conduct convictions. While such reference by itself is proper, the prosecution used such evidence as a means to attack the appellant's character and to establish his propensity to commit a crime. For example, the prosecutor argued, "When we get to Mr. Duncan, the theme is, did the zebra change its stripes?" This is considered serious misconduct.

The prosecutor also injected his personal opinion into the trial by stating that the appellant was lying. In addition, the prosecutor disparaged the defense and inflamed the passions of the jury by referring to the defendant as a "predator" and imploring the jury to, in essence, protect future victims of the county and "send a message" concerning the plight of children and the work of law enforcement.

The trial court also failed to redact, from a taped interview with a child, references to uncharged acts against another child. The tape should have been edited or a transcript read that omitted such references. The admission of prior convictions concerning criminal sexual conduct is highly prejudicial although, by itself, not an abuse of discretion. Finally, the trial court erred by admitting testimony regarding appellant's violation of his conditions of release from prison and by giving an instruction regarding appellant's failure to testify without appellant's consent, on the record, to such an instruction. State v. Duncan, CX-99-665 ___ N.W.2d ___ (Minn. App. 3/14/00).

Stay of Adjudication: Loss of Driver's License and Employment. The trial court should not have granted a stay of adjudication for the offense of driving after cancellation. The appellant feared loss of his license and thus loss of his job. The trial judge sentenced the appellant to four days in jail, 16 days on electronic home monitoring, and a $390 fine, and stayed adjudication over the objection of the prosecution.

Held, this was an abuse of discretion. Such stays of adjudication are to be used "sparingly and only for the purpose of avoiding an injustice resulting from the prosecutor's clear abuse of discretion in the exercise of the charging function." There is no evidence that the prosecutor abused his discretion in charging the respondent. Strongly worded dissent. State v. Scaife, C5-99-1769 ___ N.W.2d ___ (Minn. App. 3/14/00).

Miranda: Correctional Facility; Correctional Officer. Appellant was convicted of gross misdemeanor DWI. While on a work pass, the appellant returned to the facility, driving a three-wheeler, late, intoxicated, and disheveled. When a corrections officer on duty saw the appellant and asked where he had been, the appellant stated that he had become lost.

Held, the statements to the correctional officer in the correctional facility did not amount to "custodial interrogation." For purposes of Miranda, the appellant was not in custody because he was an inmate of a penal institution following conviction on an unrelated matter. There were no additional restraints with respect to the new charge of gross misdemeanor DWI. Furthermore, the "where have you been" question directed to the inmate who returned 15 minutes late did not amount to a custodial interrogation within the meaning of Miranda. State v. Underdahl, C0-99-1050 ___ N.W.2d ___ (Minn. App. 3/21/00).

Evidence: Rape Shield; Prostitution; Murder The appellant was convicted of first-degree murder, causing death while committing criminal sexual conduct in the first or second degree with force or violence. The victim was found with blunt trauma injuries on her nose and mouth and significant bruises on her face, arms, hands, shoulder, neck, and inside her lips. The bruises on her neck were consistent with manual strangulation. The medical examiner concluded that she died of lack of oxygen due to manual strangulation during the course of a sexual assault.

The victim's brother made a statement to police that the victim was a prostitute who sold sex to obtain drugs. The appellant, who did not testify, advanced a theory that the sexual intercourse was consensual and was in exchange for cocaine. The state had presented evidence that the victim disliked and feared the appellant and had no sexual interest in him. Hence, the defense contended this evidence was necessary to rebut state evidence and to eliminate the force or violence aspect of the first-degree murder charge.

The trial court declined to allow into evidence the witness' statement that the victim was a prostitute who sold sex to obtain drugs. There was no offer of proof with respect to the foundation for that opinion or what he would have said about the frequency of the alleged prostitution. Relying on State v. Friend, 493 N.W.2d 540 (Minn. 1992), the Supreme Court held that the trial court did not abuse its discretion in excluding the boyfriend's statement that the victim was a prostitute who sold sex for drugs. In Friend, the Supreme Court upheld the exclusion of evidence offered by the defendant concerning the victim's "similar pattern" sexual activity. In Friend, the victim had a broken nose and a wound under her eye and did not get up between the time of the intercourse and the murder. Similarly, the victim here had significant injuries and was killed "so close in time to the sexual intercourse" that the intercourse could even have been postmortem. State v. Morris, C1-98-1869 ___ N.W.2d ___ (Minn. 2/10/00).

Evidence: Reverse Spreigl: Constructive Possession. Police found marijuana in the appellant's home in various places, including areas over which both the appellant and her husband had dominion and control. Marijuana was also found in close proximity to the appellant's personal effects. Appellant attempted to introduce at trial evidence that her husband had been convicted in 1994 for marijuana possession and that four times in 1995 and 1996, while he was on probation, he failed drug-screening tests. The trial court found these facts to be clear and convincing but excluded them as irrelevant.

Held, it was error for the trial court to exclude the reverse Spreigl evidence as irrelevant. Under Minn. Rule Evid. 401, "relevant evidence" means evidence having "any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." Here, the court adopts the "any tendency" test of Rule 401 and states that the trial court should have admitted such evidence. "Curiously, our courts seem to have little trouble finding similar evidence relevant when offered as Spreigl evidence." See State v. Starnes, 396 N.W.2d 676, 680 (Minn. App. 1986). Here the appellant met the "any tendency" test of Rule 401.

However, this error was harmless, considering the totality of circumstances. The excluded evidence could not negate the strong inference that the appellant was at least a possessor of the substance. State. v. Denison, C0-99-1047 ___ N.W.2d ___ (Minn. App. 4/4/00).

Sentence: Unranked Offenses; Criteria to Assign Severity Level; j Accomplice after the Fact. The appellant was taking down Christmas decorations with her four-year-old son and her fiancé when a visitor for the fiancé arrived. The appellant's fiancé and the visitor began to argue, at which time the appellant took the children to a nearby grocery store to get them away from the argument. Upon returning 45 minutes later, there was blood on the apartment walls, at which time the appellant told her children that the blood was paint and brought them to a back bedroom, instructing them to watch cartoons. She was then informed of what occurred -- namely, her fiancé had killed the visitor. The fiancé asked for help in cleaning up the blood, which she did "out of concern for the children." After cleaning up the blood, the appellant twice helped her fiancé move the body by holding open doors.

The appellant was convicted of aiding an offender under Minn. Stat. §609.495, subdivision 1, and §609.495, subd. 3. Subdivision 1, which is the general aiding and abetting a felony after-the-fact prohibition, is assigned severity level I; however, subdivision 3, which applies to certain serious felonies, is unranked but provides that those convicted may be sentenced up to one-half of the statutory maximum of the principal offender.

The trial judge sentenced the appellant to a year and a day for the subdivision 1 conviction and 68 months executed prison term on the subdivision 3 conviction, having assigned a severity level of VII.

The Supreme Court reversed the sentence, concluding that the sentencing court, on the facts presented here, abused its discretion by assigning an offense severity level VII to the subdivision 3 conviction. The sentencing court did not indicate on the record what factors were considered under the assigned severity level, and it also appears that the trial court first determined the appropriate sentence -- suggested in the PSI -- and then worked backward to see which offense level would support the recommended sentence.

This case provides significant prospective guidance for determining the severity level of an unranked offense. The court should take into consideration the following factors: (1) the gravity of the specific conduct underlying the unranked offense; (2) the severity level assigned to any ranked offense whose elements are similar to those of the unranked offense; (3) the conduct of and the severity level assigned to other offenders for the same unranked offense; (4) the severity level assigned to other offenders who engaged in similar conduct. Information with respect to other offenders sentenced on the same or similar offenses is presumably available from the Sentencing Guidelines Commission. State v. Kenard, C1-98-1211 ___ N.W.2d ___ Minn. 2/10/00).

Forfeiture: DWI; State Constitution Double Jeopardy; Delay. The appellant was arrested for DWI. The following day, he was served with a notice of seizure and intent to forfeit the vehicle. The form was for a drug-related forfeiture under Minn. Stat. §609.5314 rather than the DWI-related forfeiture form.

Held, the brief delay in serving the notice of seizure and intent to forfeit is not a due process violation. Although the statute requires the notice to be served "when a vehicle is seized," there is no requirement that notice must be served immediately.

While the drug forfeiture notice mistakenly served on the appellant stated he had 60 days to file a demand for judicial determination, the DWI forfeiture statute gives only 30 days to file such a demand. Nonetheless, the appellant filed his demand within the 30-day deadline and therefore was not prejudiced by the inadvertent use of the wrong notice. There was no due process violation under these circumstances.

Second, the forfeiture of the vehicle does not constitute a double punishment violation of the Minnesota Constitution. The Court of Appeals declined to apply the prohibition against double jeopardy in the Minnesota Constitution more broadly than its federal counterpart. Johnson v. 1996 GMC Sierra, C4-99-1388 ___ N.W.2d ___ (Minn. App. 2/8/00).

Criminal Sexual Conduct: Conditional Release; Second Offense; Stay of Imposition. Minn. Stat. §609.109, subd. 7(a), requires a five-year term of conditional release for first offenders and a ten-year term of conditional release for people with a second or subsequent conviction. The appellant in this case had been convicted of fourth-degree criminal sexual conduct in 1981 but received a stay of imposition of sentence. He successfully completed probation and was discharged from court jurisdiction in 1996. The appellant contends that the prior conviction for criminal sexual conduct should not apply, because it was deemed to be a misdemeanor.

Held, there is no authority to suggest that the misdemeanor conviction makes the elements of the crime any different from what existed at the time of conviction. Hence, the stay of imposition notwithstanding, appellant is still considered to be a second or subsequent offender for purposes of the conditional release statute. State v. Furman, CX-99-892 ___ N.W.2d ___ (Minn. App. 4/4/00).

In this month's "Notes & Trends":

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

Conservatorship; Conservatee Right to Retain Attorney. A voluntary conservatorship of Lawrence Nelson’s person and estate was established in 1994. The order establishing the conservatorship required the conservator to "[a]pprove or withhold approval of any contract, except for necessities, which the conservatee may make or wish to make."

In 1997, an attorney purportedly retained by the conservatee filed a petition seeking a change in the conservatorship and attorney fees. The district court granted the conservator’s motion to dismiss the petition on the ground that the attorney lacked authority to represent the conservatee.

The conservatee argued that, without the right to retain private counsel, the statutory rights to petition for restoration of capacity, for modification of the conservatorship, and to prevent or initiate a change of abode would be illusory. Noting that the statutes provide protections for a conservatee whose interests are not protected by the conservator, the court declined to construe the statutes to allow a conservatee to retain an attorney without approval of the court or the conservator. In re Nelson, 587 N.W.2d. 649 (Minn. App. 1/12/99).

Conservatorship; Indigency. Thomas Malecha transferred his homestead, subject to a retained life estate, to his nephew Lawrence and another person. Lawrence was subsequently appointed as conservator for his uncle. Because of the asset transfer, Thomas was found ineligible for medical assistance until after July 1, 1998. When Lawrence moved for conservators' and attorneys' fees pursuant to Minn. Stat. §525.703 based on his uncle’s indigency, the district court awarded fees for the period after July 1, 1998, but denied fees prior to that date because of the medical assistance ineligibility.

The Court of Appeals determined that the district court erred in incorporating the medical assistance asset-transfer rules into the determination of whether the conservatee was indigent under the conservatorship statute. The Court of Appeals remanded the case to the district court to determine indigency under the plain meaning of the word. "The court may consider factors from other need-based statutes, but those factors should not be applied exclusively or conclusively." The Court of Appeals noted that the common meaning of the word "indigent" "does not generally inquire into the circumstances under which a party became unable to afford items or services." In re Malecha, 607 N.W.2d 449 (Minn. App. 3/14/00).

Conservatorship; Determination of Place of Abode. Dorothy Brady’s children were divided over where she should live. Her conservator first recommended that she remain in Minnesota, then changed his mind and recommended that she live with her daughter in Pennsylvania. Upon his petition to determine her place of abode, the district court determined that it was in Brady’s best interest to remain in Minnesota.

The Court of Appeals affirmed the decision. The Supreme Court standard of review was to determine whether there was an abuse of discretion. Noting that the appellants failed to identify facts in the record that indicated that living with the daughter in Pennsylvania would be less restrictive of Brady’s civil rights and personal freedom than living in Minnesota, the Supreme Court could not conclude that there had been an abuse of discretion. The court also determined that the district court was not required to consider the conservatee’s expressed preference because the conservatee lacked sufficient capacity to express a preference. In re Brady, 607 N.W.2d 781 (Minn. 3/30/00).

In this month's "Notes & Trends":

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

Noncompete Agreements. A claim of discrimination pending before the Minnesota Department of Human Rights overrides a contractual arbitration clause in a noncompete agreement. In Correll v. Distinctive Dental Services, P.A., 607 N.W.2d 440 (Minn. 2000), the Supreme Court held that an employee was not required to participate in an arbitration regarding alleged violation of a noncompete clause when the employee was pursuing a pending claim of marital discrimination against the employer before the Minnesota Department of Human Rights. The court reasoned that the "exclusivity" provision of the Human Rights Act trumps the contractual arbitration provision. The expiration of an employment agreement precludes enforcement of a two-year noncompete agreement when the language of the agreement does not specifically state that the noncompete agreement endures beyond termination of the contract.

In Burke v. Fine, 2000 WL 385415 (Minn. App. 2000), the Court of Appeals held that a medical clinic could not enforce a noncompete agreement against a physician employee when the physician’s employment contract terminated, since the agreement did not indicate that the noncompete agreement continued in force after the expiration of the underlying contract.

Sexual Harassment. Minnesota probably does not recognize claims of "sexual orientation" harassment in connection with employment-related claims. In Thomas v. Coleman Enterprises, 2000 WL ____, (Minn. App. 2000) (unpublished), the Court of Appeals upheld summary judgment, dismissing a claim of sexual orientation discrimination and reprisal under the Minnesota Human Rights Act. The court noted that the provision of the act relating to "sexual orientation" does not expressly include a claim for sexual orientation harassment for employment-related purposes, although the court noted that the fact has been "interpreted to include harassment that creates a hostile working environment in a context other than discrimination based on sex." Nevertheless, the evidence failed to show that an antilesbian remark that was not directed at the claimant, along with two other antilesbian remarks, rose to the sufficient level of "actual sexual orientation harassment," even if such a cause of action did exist.

Independent Contractor. A freelance photographer taking pictures for a weekly newspaper is an independent contractor, and any tort committed by him the course of his work is not attributable to the newspaper. In Pastor v. Florey, 2000 WL 388062 (Minn. App. 2000), the Court of Appeals held that the evidence justified a determination that the photographer was an independent contractor and, therefore, did not create liability as a matter of law for the newspaper. The court also rejected claims of vicarious liability on the grounds of agency as well as equitable estoppel.

In this month's "Notes & Trends":

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

Boundaries of Scenic River Area Declared Unlawful. The boundaries of a scenic river area established by the National Park Service under the Wild and Scenic Rivers Act will not withstand a landowner’s challenge where the boundaries were established on the basis of "significant" and "important" values, rather than "outstandingly remarkable values" as required by the act.

The Wild and Scenic Rivers Act, 16 U.S.C. §§1271 -1287, protects certain rivers that, with their immediate environs, possess "outstandingly remarkable … values." In 1991, Congress amended the act to designate a portion of the Niobrara River in Nebraska as a protected scenic river. The amendment directed the secretary of the interior to establish boundaries for the protected land, which authority was subsequently delegated to the National Park Service. The Park Service established the boundaries through a process that lasted over four years and included the organization of an advisory commission made up of local residents, business persons, environmental groups, and government officials, and other means of obtaining public comment.

Initially, the Park Service openly analyzed the area in terms of "significant" and "important" values, based on its familiarity with this standard in other regulatory contexts and its belief that the term "outstandingly remarkable" was unclear and applied only to the initial designation by Congress of a river as a protected resource under the act. Park Service officials began using the term "outstandingly remarkable" after the plaintiff, an area landowner, complained that they were using the wrong standard. The final record of decision spoke only in terms of "outstandingly remarkable" values.

After the boundaries had been established, the plaintiff sued the Park Service, alleging that it violated the act by failing to apply the statutory standard of "outstandingly remarkable values." The Park Service defended the action on grounds that the "outstandingly remarkable values" standard did not apply because the Park Service had been delegated absolute discretion to establish the boundaries and that even if the standard was required the agency had in fact used it. The district court granted summary judgment in favor of the Park Service.

The 8th Circuit Court of Appeals reversed, holding that the Park Service failed to establish the scenic river area boundaries in accordance with the required standard. The court acknowledged that the act does not require that a protected area consist solely of land with outstandingly remarkable values and does not require that all outstandingly remarkable resources be included. The court held, however, that the act does require the agency to identify and seek to protect "outstandingly remarkable" resources and to establish boundaries that would protect and enhance those resources.

The Court of Appeals held that the terms "significant" and "important" are not synonymous with the term "outstandingly remarkable." According to the court, the latter connotes "unique, rare, or exemplary qualities," and is much narrower in scope than the terms "significant" and "important." The court noted that the Park Service had not chosen the terms "significant" and "important" because they were synonymous with "outstandingly remarkable," but instead chose these terms because they were standards used by the Park Service to evaluate potential park lands and were more familiar to the agency. Although the Park Service began using the term "outstandingly remarkable," there was also no evidence that the agency reanalyzed its prior work in light of the new standard. The court remanded the case for selection of new boundaries using the proper standard. Sokol v. Kennedy, 2000 WL 360065 (8th Cir. 2000).

Noise Variance Upheld. The decision of the Minnesota Pollution Control Agency (MPCA) to grant the request of the Minnesota Orchestral Association (MOA) for a noise variance for the operation of an amphitheater was supported by substantial evidence in the administrative record and was not arbitrary and capricious.

The amphitheater, which will be called the Brooklyn Park Performing Arts Center, will be used for rock and pop concerts and for Minnesota Orchestra performances. The City of Brooklyn Park (the city) rezoned the area and issued a conditional use permit to the MOA for the operation of the amphitheater. Nevertheless, the MOA was still required to apply for a noise variance with the MPCA because some of the expected events at the amphitheater will exceed the permitted noise levels. In all, 14 homes and one church are located within the area expected to be impacted by increased noise level. Minnesota Rules Section 7030.0080, which governs noise variations, provides that the MPCA may grant a noise variance when "strict conformity with any provisions of any noise rule would cause undue hardship, would be unreasonable, impractical, or not feasible under the circumstances ... ." MPCA granted the MOA request for a noise variance, reasoning that "[s]trict conformity with the noise standards would be unreasonable and impractical ... ."

Preserve Our Environment (POE), a nonprofit organization of persons living within and adjacent to the area expected to be affected by the increases in noise levels, challenged the noise variance. Specifically, POE argued that: (1) the noise variance is unsupported by substantial evidence in the administrative record; and (2) the noise variance is arbitrary and capricious.

In determining that substantial evidence supported the MPCA noise variance, the Minnesota Court of Appeals recognized that 12 of the 14 houses were either scheduled for conversion to commercial, industrial, or office use, expected to be taken to allow the construction of a new highway overpass, or were owned by persons who had consented to the amphitheater. The court also noted that the owners of the two remaining houses refused to negotiate with the MOA to discuss noise insulation or market-value purchases. With respect to the church located within the affected area, the court noted that church services are not conducted during the times when higher noise levels are expected.

The Court of Appeals then addressed the POE argument that the MPCA decision to grant the noise variance was arbitrary and capricious. First, the court rejected the POE contention that noise variations are proper for only "uncontrollable, infrequent, or unpredictable" noise violations, rather than the predictable noise violations that will occur at the amphitheater. The court reasoned that the MPCA procedures for noise variances are specifically designed to address expected environmental impacts before they occur. In response to the POE argument that the MPCA cannot grant a variance that conflicts with a municipal noise ordinance, the court stated that the MPCA noise variance allows only one entity -- the MOA -- to violate the noise level standards and that the city itself had agreed to these expected noise violations by allowing the MOA to proceed with the amphitheater. Finally, in response to the POE argument that the MPCA should not have considered certain homeowners’ consent to the amphitheater because their consent was "purchased," the court concluded that it was not improper for the MPCA to consider the consent because the willingness of the MOA to negotiate with the property owners did not negate the validity of their consent. In re Application from the Minnesota Orchestral Association, 607 N.W.2d 478 (Minn. App. 2000).

In this month's "Notes & Trends":

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

Child Support Calculations. The Court of Appeals confirmed the district court finding that the total visitation time, including holidays, is 45 percent, regardless of whether the mother exercises her additional overnight visit per month with each child. It ruled that the court properly applied the Tweeton formula of the Supreme Court (560 N.W.2d 746), which requires application of the Hortis/Valento calculation to child support when each parent provides a significant amount of child care, without regard to the label attached to the shared custody arrangement. The appellate court noted that the Supreme Court statement in Tweeton that Hortis/Valento should be used in all joint physical custody cases was not premised upon the legal designation of parents as joint custodians, but upon the pragmatic observation that the arrangements reviewed in those cases called for a provision of a significant amount of physical care by each parent. It added that the district court can deviate from Hortis/Valento/Tweeton only if it makes appropriate findings. The district court also found that the mother needed increased cash flow after maintenance terminated and awarded her a tax exemption to give her additional income. However, the Court of Appeals found that there was no basis for using dependency exemptions as income support in lieu of maintenance. It held that it is an abuse of discretion to award an exemption to the noncustodial parent, absent a basis or an express waiver by the custodial parent. There was one dissent on three aspects of the case. Rogers v. Rogers, No. C2-99-1325 ___ N.W.2d ___ (Minn. App. 3/7/00).

Husband’s Statements in Visitation Notebook not Harassment. The district court relied on four statements that the husband wrote in his visitation notebook -- concerning joint custody, where he chose to go, not using the book as a threat, and the intent of his child support payments -- as the basis for extending a harassment restraining order for two years. The Court of Appeals reversed, saying it did not believe the statements in the notebook constituted harassment as defined by the statute. When read in context, it was apparent that the husband was either responding to written comments previously made by the wife or was addressing his concerns regarding visitation and the upbringing of his children. The court did not condone his immature conduct, and stated that his primary concern should be the welfare of his children rather than engaging in constant and long-term bickering with his estranged wife. Witchell v. Witchell, No. C3-99-1432 ___ N.W.2d ___ (Minn. App. 3/7/00).

Lesbian and Gay Parents; Custody; Costs. The mother and biological father, together with their respective lesbian and gay partners, agreed to the birth of a child by artificial insemination and custody and visitation of the child. When the mother and her partner severed the father’s visitation, he commenced a paternity proceeding. Following the termination of the lesbian relationship, custody and visitation issues were added to the proceedings. By prior written agreement, the biological father had no parental rights. A second agreement provided that the lesbian partners would have legal and physical custody and the gay partners would have a significant relationship with the child. The district court granted joint legal custody to the lesbian partners based on their agreement prior to trial and a finding of best interests. Sole physical custody was awarded to the biological mother on condition that she provide a permanent residence for the child in Minnesota.

The Court of Appeals found that the mother’s lesbian partner had standing to seek custody under Minn. Stat. §518.156 as a person other than a parent, where a decree of dissolution or legal separation is not sought, by filing a petition or motion seeking custody. It also ruled that a restriction of residence is constitutional when in the child’s best interests, having found that it provided the opportunity for the child to maintain a relationship with her mother, the former partner as the child’s emotional parent, and her father. The Court of Appeals found no abuse in the equal allocation of the costs of litigation among all parties where each received equal benefits. It found that Minn. Stat. §257.69 does not require consideration of financial circumstances of the parties. LaChapelle v. Mitten, 607 N.W.2d 151 (Minn. App. 3/14/00).

Imputing Income in Maintenance Awards. In 1990, the wife began part-time employment at a school district in order to spend nonschool hours with the children. When the parties separated in 1997, she continued working part-time for the district at 35 hours per week during the school year and 25 hours during the six weeks of summer school. The district court found her capable of full-time employment and imputed full-time earnings to her instead of the historical part-time earnings of 75 percent. The Court of Appeals cited its prior holding requiring a finding of voluntary underemployment in bad faith in order to impute income in setting maintenance. It held, as a matter of law, that bad faith underemployment cannot be found where a homemaker has continued to work under the same part-time circumstances without any evidence of intent to reduce income artificially. The appellate court concluded that the amount of the maintenance award was influenced by the error in imputing income and remanded for reconsideration. The property disposition and attorneys fees also were remanded because the trial court considered speculative tax consequences of the future withdrawal of the husband’s retirement assets. Maurer v. Maurer, 607 N.W.2d 176 (Minn. App. 3/14/00).

Custody. Temporary custody of the three children was granted to their father and a custody evaluation was ordered. The report stated that all of the children wanted to live with their father, and the report so recommended. A custody trial took place in February and March of 1999 when the children were 12, 11 and 6 years of age. When interviewed by the court, the two older children said they wanted to live with their father. The father was awarded custody of all three children. The mother moved for a new trial, alleging: a) that the findings were not supported by the evidence, b) that the children had been negatively influenced, c) that neutral best interest factors were disregarded, and d) misconduct by the father. Her motion was denied except for non-substantive alterations to the custody order.

The Court of Appeals found the allegations of downgrading were at most a misunderstanding, and there was no showing that the few incidents prejudiced the mother. As to allegations of rehearsal of the children’s testimony, the record showed that the father and his counsel discussed the proceedings but did not rehearse their testimony. It also found that no bribes were offered. The appellate court said that evidence must be viewed in the light most favorable to the trial court, and findings must be upheld unless clearly erroneous. That the record might support findings other than those made by the trial court does not show that the findings are defective. The record must show a definite and firm conviction that a mistake was made; only if the findings are clearly erroneous does it become relevant that the record might support findings other than those made. The Court of Appeals concluded that, because there was sufficient evidence in the record to support the findings and they were not clearly erroneous, it was unnecessary to further discuss the evidence. It then turned to an analysis of ultimate best interest determinations in light of Supreme Court opinions in Pikula and Maxfield. The analysis resulted in the following statements: a) under current Minnesota law on placing custody of children in dissolution, the Legislature requires that the decision be based on undifferentiated balancing of the child’s best interests; b) on the other hand, the Supreme Court has recognized that the analysis required by Chapter 518.17 lacks objective standards and makes the outcome of disputes unpredictable; c) in the present state of the law, there is no specific, restrictive legal standard for a trial court to use when placing custody; and d) there is no articulated, specific standard of law available to the appellate court when reviewing whether a best-interests determination, supported by defensible findings that address relevant factors, constitutes an abuse of discretion or misapplication of law. In summary, the court said that current law leaves scant if any room for an appellate court to question trial court balancing of best-interests considerations. It held that, because the record supports the custody-related findings and because those findings address the relevant best-interests factors, the ultimate determination on the placement of physical custody is affirmed. Vangsness v. Vangsness, 607 N.W.2d 468 (Minn. App. 3/17/00).

In this month's "Notes & Trends":

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

Supreme Court Update. In February 2000, this column noted the Supreme Court grant of certiorari in Free v. Abbott Laboratories, Inc., 51 F.3d 524 (5th Cir. 1995), cert. granted, 120 S. Ct. 525 (1999). In Free, the Supreme Court was expected to decide whether 28 U.S.C. §1367 effectively overruled Zahn v. Int’l Paper Co., 414 U.S. 291 (1973), thereby expanding federal subject matter jurisdiction in diversity class actions to include claims by class members that do not satisfy the amount-in-controversy requirement.

However, on April 3, 2000, an equally divided court affirmed the 5th Circuit decision on a 4-4 vote. Free v. Abbott Laboratories, Inc., 120 S. Ct. 1578 (2000). (Justice O’Connor did not participate in the decision.)

Because an affirmance by an equally divided court has no precedential effect and because the 8th Circuit has yet to face this issue, litigants in the District of Minnesota must remain cognizant of decisions on this issue by Judges Tunheim and Kyle. See Peterson v. BASF Corp., 12 F. Supp. 2d 964 (D. Minn. 1998) (Tunheim, J.); In re Potash Antitrust Litig., 866 F. Supp. 406 (D. Minn. 1994) (Kyle, J.).

In addition, in the May/June 1999 issue, this column noted the Supreme Court grant of certiorari in Rotella v. Wood, 147 F.3d 438 (5th Cir. 1998), cert. granted, 119 S. Ct. 1139 (1999), to address the long-simmering issue of when civil RICO claims accrue for purposes of the statute of limitations. In Rotella, the 5th Circuit had adopted the "injury discovery" rule and found that Rotella’s RICO claims were time-barred under that rule. Rotella urged the court to adopt the "injury and pattern discovery rule," which had been adopted in several other circuits (including the 8th Circuit).

On February 23, 2000, a unanimous court affirmed the 5th Circuit rejection of the injury and pattern discovery rule. See Rotella v. Wood, 120 S. Ct. 1075 (2000). The court held that an injury and pattern discovery rule, when combined with the fact that RICO requires multiple predicate acts within a ten-year period, had the potential to extend the RICO limitations period well beyond the 14-year period following the first predicate act that was already provided for under RICO.

In the past three years, the court has rejected two of the three prevailing tests governing accrual of RICO claims, leaving only the injury discovery rule, which already applied in at least five circuits. However, a footnote in Rotella noted that the court has "not . . . settle[d] on a final rule" and left open the possibility that something other than the injury discovery rule will eventually control the accrual of RICO claims.

Finally, in Cortez Byrd Chips, Inc. v. Bill Harbert Construction Co., 120 S. Ct. 1331 (2000), the court held that the venue provisions of the Federal Arbitration Act are permissive rather than mandatory and that the FAA permits motions to confirm, vacate or modify arbitration awards to be brought in the district where the award was made and in any other district where venue would be proper under 28 U.S.C. §1391.

Requirement to Preserve Damages Issues for Appeal. In Douglas County Bank & Trust Co. v. United Financial Inc., 207 F.3d 473 (8th Cir. 2000), the bank prevailed on a fraud claim against United but was awarded only $75,000 in damages, rather than the $1,547,000 it sought. The bank filed a post-trial Rule 50 motion, arguing that the damage award by the jury was contrary to law. Despite the failure by the bank to make a motion for judgment as a matter of law before the case was submitted to the jury, the district court considered a post-trial motion on the merits but then denied it, and the bank appealed.

Applying the plain language of Rule 50 and well-established 8th Circuit law, the 8th Circuit held that the bank had waived any right to a post-trial motion for judgment as a matter of law by failing to move for judgment as a matter of law prior to the case going to the jury. While it would seem somewhat anomalous for a plaintiff to move for judgment as a matter of law, the 8th Circuit noted that nothing would have prevented the bank from bringing a motion for judgment as a matter of law at the close of all the evidence and that such a motion might have alleged that there was no evidentiary basis for the jury to conclude that damages were any less than the $1.57 million the bank sought.

While plaintiffs rarely move for judgment as a matter of law, this decision emphasizes that the strict procedural requirements of Fed. R. Civ. P. 50 apply equally to all parties. Therefore, plaintiffs may want to consider seriously Rule 50 motions in order to preserve their options on appeal.

Other Decisions of Note. In Dennis v. Dillard Department Stores, Inc., 207 F.3d 523 (8th Cir. 2000), the 8th Circuit held that the trial court had abused its discretion in refusing to allow Dillard to amend its answer to assert a new affirmative defense three months before trial, finding that the plaintiff would not have been prejudiced by the amendment. Curiously, the opinion makes no mention of any court-imposed deadlines that may have been applicable to the Dillard motion for leave to amend its answer, nor does the opinion make any mention of Fed. R. Civ. P. 16(b), which would have required Dillard to demonstrate "good cause" to support an untimely request for leave to amend.

In In re Old Kent Mortgage Co., 191 F.R.D. 155 (D. Minn. 2000), Judge Doty held that in consolidated multidistrict litigation, the law of the transferee court rather than the law of transferor court will be applied when deciding an issue of federal law. Plaintiffs had urged Judge Doty to apply the law of the northern district of Alabama, from which one of the consolidated cases had been transferred.

Local Rules Update. The Local Rules Committee for the District of Minnesota has proposed minor amendments to Local Rules 4.1 and 79.1, which should be in effect by press time.

In this month's "Notes & Trends":

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

Termination of Parental Rights. In April of 1998, the trial court issued an order staying findings of fact, conclusions of law, and an order for termination of parental rights pursuant to a stipulation of the parties. In June of 1999, the trial court issued an amended order lifting the stay and entering an order terminating the mother’s parental rights pursuant to a motion by the county because the mother violated a condition of the stay and the county was unable to find a foster home where P.R.L. and an older sibling could be placed together. The trial court revoked the stay and entered the order after amending only one finding of fact. The issue before the Court of Appeals was whether the trial court made the necessary findings of fact before revoking the stay and entering the order terminating the mother’s parental rights.

The Court of Appeals found that the record contained findings of fact existing at the time of the original hearing that resulted in the April 1998 stayed order but there were no findings on conditions in 1999, and stated that the requirement for contemporaneous findings must be applied to the hearing on the motion to lift the stay of the trial court termination order. See In re Chosa, 290 N.W.2d 766 (Minn. 1980). The court stated that "[t]he circumstances of a child’s life change more rapidly and are subject to a wider range of external factors than is true for most adults." In re Children, 348 N.W.2d 94, 99 (Minn. App. 1984) (quoting ABA Juvenile Justice Standards Relating to Appeals and Collateral Review commentary §6.1 (1980)). The court also emphasized that "in cases concerning children it is especially important that determinative facts be as current as possible. See Sefkow v. Sefkow, 427 N.W.2d 203, 211-212 (Minn. 1980).

The Court of Appeals also stated that neither the original stayed order nor the revocation order complied with the requirement that "appellate courts demand clear and specific trial court findings on the statutory grounds for termination." In re D.F.B., 412 N.W.2d 406, 410 (Minn. App. 1987), review denied (Minn. 11/18/87). As such, the trial court order was reversed and remanded for an evidentiary hearing to give the parties the opportunity to present evidence regarding any change in the circumstances of the case since April of 1998. In re P.R.L., 606 N.W.2d 72 (Minn. App. 2000).

In this month's "Notes & Trends":

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

Vacation of Streets. Appellants challenge the district court judgment denying their petition to vacate a city street. Appellants consider Iris Lane an eyesore that they do not use apart from the portion that leads to their driveway. On appeal, the court affirmed the trial court, concluding that the term "useless" should be broadly construed and that municipalities should be afforded discretion in determining whether a street remains useful for the purpose for which it was laid out. In re Verbick, 607 N.W.2d 148 (Minn. 3/7/00).

Zoning. BECA challenges by writ of certiorari the decision of Douglas County to prohibit all docks, rafts, buoys, or mooring facilities as a condition for granting conditional use permits for two parcels of land. BECA plans to build residential units on PUDs named Stone Gate. The projects meet all county zoning requirements. Each PUD plan includes one centralized mooring dock with a slip for each residence. Based on comments from the residents, the planning commission and county board approved the preliminary plats and CUPs for each project, but required as a condition that no docks, rafts, buoys, or watercraft mooring areas would be allowed on the lake because of concerns for the aquatic ecosystem -- fishing and wildlife -- and the shallow depth of the water. On appeal, the appellate court reversed and remanded, holding that the condition for issuance of a CUP was arbitrary and capricious, absent legally sufficient reasons supported by the record. The appellate court concluded that the county board reasons were vague, based solely on unscientific concerns rather than factual data, and were insufficient to support the board decisions. BECA of Alexandria v. County of Douglas, 607 N.W.2d 459 (Minn. 3/21/00).

Inverse Condemnation. A Minneapolis housing inspector condemned the subject building after the owner failed to abate housing code violations. After a hearing, a committee of the Minneapolis City Council determined that the property constituted a nuisance and recommended demolition. The city council and mayor agreed. The owner of the building filed a pro se answer and counterclaim with the district court, alleging that the building should not be razed, and sought review of the city council decision. The building was subsequently demolished. Next, the property owner filed an amended answer raising a variety of issues, including an inverse condemnation claim. The city moved to dismiss for lack of subject matter jurisdiction on the theory that the sole method for obtaining review of its quasijudicial decision was by writ of certiorari to the Court of Appeals. The district court agreed. On appeal, the appellate court affirmed, holding that the decision of the city was quasijudicial and that the takings claim in this case was not separate and distinct from the quasijudicial decision of the city to demolish the structure, because an inquiry into the facts surrounding the taking claim would involve an inquiry into the decision to demolish the building. In such a case, jurisdiction is by writ of certiorari alone. This is an important case because it places another burden on a property owner to assert a claim successfully for inverse condemnation. City of Minneapolis v. Meldahl, 607 N.W.2d 168 (Minn. 3/14/00)

Adverse Possession. LeGro owns and operates the Northstar Resort on Leech Lake. Yantes occupies a tract of land with two lake cabins on it directly east of the resort. Both Yantes’ deed and the county tax records place Yantes’ two cabins on Lot 2, Parcel #02. It turns out that Parcel #02 is part of LeGro's resort property and to the west of the parcel Yantes actually occupies. However, the assessment valuations over the years have presumed that the Yantes’ cabins are on a separate parcel east of the resort. LeBlanc purchased by quitclaim deed a tract of land immediately east of the tract Yantes occupies. Later, LeBlanc purchased the parcel to the west described as Lot 2, Parcel #08. Parcel #08 is the proper legal description of the parcel long occupied by Yantes. LeGro commenced quiet title action to Lot 2, Parcel #02, part of the land occupied by their resort. The other parties cross-claimed to quiet title to the Yantes’ parcel, now understood by all to be Lot 3, Parcel #08. The district court found in favor of LeGro as to Lot 2, Parcel #02 and, based on adverse possession, in favor of Yantes as to Lot 3, Parcel #08. LeBlanc appealed, relying on the quitclaim deed and on the claim that Yantes never paid taxes on that parcel. The appellate court affirmed, concluding that Yantes met the real estate tax requirement of Minn. Stat. §541.02 because Yantes paid the taxes assessed on the parcel she occupies, even though the legal description on the assessment records is inconsistent with her physical occupation. LeGro v. Saterdalen, 607 N.W.2d 168 (Minn. 3/14/00).

Adverse Possession. Appellants, waterfront owners of property located in Prior Lake, challenge a district court conclusion that they could not take title by adverse possession regarding the use and ownership of the waterfront area. The property in dispute is a subdivision consisting of 44 lots, ten of which are on the waterfront. Two walkways provide access from the back lots to the waterfront. In 1927, Simpkins subdivided the property and recorded a document that dedicated the roads, drives, walks, and waterfront for use of the owners. In 1996, a dispute arose regarding the use and ownership of the waterfront area when a back lot owner installed a dock off one of the walkway accesses. Eventually, it became a dispute between the waterfront owners and the back lot owners. On appeal, the appellate court concluded that a party claiming title by adverse possession is not, as a matter of right, entitled to a jury trial. The right to a jury trial is dependent on the nature of the action, be it for ejectment, to quiet title, or to determine an adverse claim to the property. An ejectment action in which the recovery of specific real property is sought is an action at law to which the right to a jury trial applies. On the other hand, where one is in possession of the property and brings an action to determine an adverse claim to the property, the case is equitable and triable by the court.

The appellate court reversed the decision of the trial court, which concluded that the waterfront area was quasipublic property and not subject to adverse possession under the statute. However, the conclusion was harmless error because the district court alternatively found that appellants failed to prove adverse possession. Next, the appellate court reversed the district court conclusion that the back lot owners had a fee interest in the waterfront that could not be abandoned, but concluded that there was ample evidence to support the conclusion that the back lot owners had not intentionally relinquished their rights to use the waterfront. This case clarifies real estate law regarding the right to a jury trial and is worth reading for that reason. Denman v.Gans, 607 N.W.2d 788 (Minn. 3/28/00).

Annexation by Ordinance. Rockford Township brought a declaratory judgment action against the City of Rockford, seeking a declaration that the city had improperly annexed 80 township acres. The district court dismissed the action for failure to apply for judicial review within the 30-day appeal period of Minn. Stat. §414.07 (1998), and the township appealed.

On March 30, 1999, the city passed two annexation ordinances, annexing 80 acres of land, and sent the ordinances to the Minnesota Municipal Board. The township objected on the basis that the annexed property did not meet the statutory standards for annexation by ordinance. The board approved the ordinances in April and forwarded letters of approval on May 10, 1999. In August 1999, the township brought this declaratory judgment action. On appeal, the appellate court concluded that the appeal provisions of Minn. Stat. §414.07 (1998) applied to annexations by ordinance under Minn. Stat. §414.033, subd. 2 (1998). The appellate court reviewed the arguments of Rockford Township that the appeal provisions of the statute did not apply and rejected each of them. Because the statute was amended in 1998, the import of this decision limits the holding of Town of Stillwater v. Minnesota Municipal Commission. The appellate court affirmed the dismissal. Rockford Township v. City of Rockford, 2000 WL 369398 (Minn. 4/1/00).

Real Estate Commission. Appellant, a real estate agent, brought an action claiming a real estate commission with respect to the sale of certain property sold by respondents. The trial court granted summary judgment to respondents and imposed sanctions against appellant. Pursuant to a listing agreement, appellant provided respondents with a buyer who signed a purchase agreement that was scheduled to close. Subsequently, appellant’s real estate license expired, and the listing agreement between the parties expired. The listing agreement was not renewed, and appellant did not provide respondents with a list of protected persons. Later, the buyer canceled the purchase agreement. Respondents entered into a new listing agreement and subsequently closed on a new purchase agreement with the new real estate agent. On appeal, the court concluded that respondents never closed under the first purchase agreement, never refused to close, and never refused to sell the property at the price and terms required under the original listing agreement. In addition, appellant failed to provide respondents with a list of protected persons within the statutory period and, therefore, could not recover under the override clause. Because appellant was not a licensed real estate agent on the date when the second purchase agreement was signed or when the property was closed, appellant had no standing to raise a claim. An award of sanctions was affirmed because appellant did not show that the district court abused its discretion. Douglas v. Schuette, 607 N.W.2d 142 (Minn. 2/9/00).

In this month's "Notes & Trends":

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

Prevailing-Wage Law Stricken. The Minnesota Supreme Court ruled that a part of the 1997 Omnibus Tax Bill that contained a provision establishing new prevailing-wage requirements on school construction and projects violated the Single Subject and Title Clause of the Minnesota Constitution, Article IV, Section 17, since the prevailing-wage amendment was not remotely related to the subject of tax reform and relief in the tax bill. The Court also affirmed that severance of the unconstitutional provision was the appropriate remedy under Minn. Stat. §645.20. Associated Builders and Contractors v. Ventura, Nos. C8-98-1383, C1-98-1385, C4-98-1428, 2000 WL 339975 (Minn. 3/31/00).

Video Machine Purchases not for "Resale" under Minnesota Sales Tax. The Minnesota Supreme Court reversed the Tax Court and held that the purchase of amusement devices for use in a coin- or token-operated entertainment business was not a tax-exempt transaction because the devices were not purchased for resale within the meaning of Minn. Stat. §297A.01. For sales tax purposes, the taxable event is not the customers' use of the amusement devices but rather the customers' acquisition of the privilege of having access to the amusement devices. A & H Vending Co. v. Commissioner, No. C0-99-1596, 2000 WL 351737 (Minn. 4/6/00).

Constitutionality of Lower Rate for First Tier of Market Value of C&I Property Taxes. The Tax Court held that the preferential valuation provision on the first $100,000 of value of C&I properties under Minn. Stat. §273.13, subd. 24(a) was constitutional even though the owner could receive the lower or preferred valuation on only one parcel per county. The taxpayer's claims of violation of the Uniformity Clause and the Equal Protection Clause were rejected. Jorgenson v. County of Anoka, No. C4-99-2794, 2000 WL 306676 (Minn. T. C. 3/16/00).

Professional Responsibility: Failure to File Employer Withholding. The Minnesota Supreme Court suspended an attorney who, among other delinquencies, failed to file employer withholding tax returns for most of 1992 through 1994 and 1996 through 1997. In re Petition for Disciplinary Action against Ylitalo, No. C1-85-1550, 2000 WL 374906 (Minn. 3/29/00).

"Personal Liability" of Officer for Employment Taxes. The Minnesota Tax Court held that an officer was "personally" liable for the employment tax assessment made against his company under Minn. Stat. §270.101. The court rejected the taxpayer's argument that the personal assessment was limited to the commissioner's actual pecuniary loss or the amount that would have been collected if the officer had complied with the levy. That is, "pecuniary loss" is not a factor in determining personal liability. Wilson v. Commissioner, No. 6918, 2000 WL 306677 (Minn. T. C. 3/14/00).

Commissioner's Consent Needed for Change in Accounting Method. The federal district court ruled that Cargill, once having treated a transaction as a true lease, could not later recharacterize the transaction as a purchase or financing lease and claim depreciation and/or investment tax credit since Cargill had not procured the commissioner's consent prior to making the change in accounting for the item. Cargill, Inc. v. United States, No. 98-2036 JRT/FLN, 2000 WL 333677 (D. Minn. 3/29/00).

Failure to File Refund Claims Prevents Jurisdiction. The taxpayer's claim of damages for fraud, misrepresentation, and malicious prosecution for collecting withholding taxes was rejected since the taxpayer had failed to file a claim for refund within the statutory limitations period and therefore the court had no jurisdiction to hear the case. Tonn v. United States, No. 99-3443, 2000 WL 343812 (8th Cir. 4/4/00).

Criminal Penalties for Failure to Remit Sales Tax. The Minnesota Supreme Court held that the general criminal statute in Minn. Stat. §609.445 providing five years or a fine of not more than $10,000 or both did not apply to a taxpayer who intentionally failed to pay monies to the Minnesota Department of Revenue held as lease security deposit funds. Rather, the Legislature, in drafting Chapter 297A, included a criminal enforcement mechanism, intending nonremittance of sales tax to be covered by Minn. Stat. §289A.63 (one who "knowingly" fails to "pay or to collect and remit a tax" is guilty of a misdemeanor, and one who "willfully attempts to evade or defeat tax law" is guilty of a felony). State v. Larson, 605 N.W.2d. 706 (Minn. 2000).

Attorneys Fees and Costs and Disbursements. The Minnesota Supreme Court held that where defendants moved for attorneys fees pursuant to Minn. R. Civ. P. 11 and Minn. Stat. §549.21 after the completion of an appellate review, the district court retained jurisdiction to consider the motions. Further, the district court lacked jurisdiction to award costs and disbursements related to the appeal absent a remand and specific direction from an appellate court. Kellar v. Von Holtum, 605 N.W.2d 696 (Minn. 2000).

Date of "Assessment" of Minnesota Income Taxes and Priority under Bankruptcy Code. The United States Bankruptcy Appellate Panel for the 8th Circuit held that Minnesota income taxes are not "assessed" under Minn. Stat. §270.65 on the date the returns are filed for purposes of Section 507(a)(8)(A)(ii) of the Bankruptcy Code. The taxpayer has substantive rights vis-a-vis the Minnesota DOR after the date he or she files an income tax return even if the Minnesota Department of Revenue agrees with the amount of tax listed by the taxpayer on the return. Consequently, the amount of the debtor's Minnesota income tax liability cannot have been determined or assessed on the date the return was filed. O'Connell v. Minnesota Department of Revenue, 246 Bankr. 332 (Bktcy. App. Pan. 8th Cir. 3/21/00).

Exempt Property: Nonprofit. The Tax Court held that Volunteers of America, a nonprofit corporation formed to provide persons aged 55 or older with assisted living and other programs on a nonprofit basis, failed to satisfy the various factors in North Star Research Inst. v. County of Hennepin, 236 N.W.2d 754 (Minn. 1975). Therefore, it was not a purely public charity and was not exempt from property tax. Volunteers of America Assisted Living v. County of Hennepin, Nos. TC-24677, TC-25623 and TC-27104, 1999 WL 200684 (Minn. T. C. 3/23/99).

Individual Income Tax Domicile; Equity Power of Tax Court. The Minnesota Tax Court held that the taxpayers were nondomiciliary residents of Minnesota and possibly domiciled in Minnesota despite their contention of a Nevada presence and residence. The court used an analysis based on the standards set forth in Luther v. Commissioner, 588 N.W.2d (Minn.), cert. denied, __U.S. __, 120 S. Ct. 66 (1999) on the application of the "abode" test of 180 days in Minnesota and for the taxpayers' constitutional challenges. No equitable relief was available as the court is a "creature of statute" and was not granted general equity powers. Stelzner v. Commissioner, No. 7005, 2000 WL 37865 (Minn. T. C. 1/12/00).

Tax on Lottery Winnings. The Minnesota Court of Appeals held that winnings from lottery tickets purchased by a Native American from a store located on an Indian reservation was income earned off the reservation and therefore was subject to Minnesota state individual income tax. The lottery winnings were earned by agreement when the Native American presented the ticket and the claim form and completed the validation and verification procedures at the lottery headquarters located outside the Indian reservation. Littlewolf v. Girard, 607 N.W.2d 464 (Minn. App. 2000).

Reimbursement Plan Held not an Accountable Plan. A reimbursement arrangement between a courier service company and its drivers, under which the amount reimbursed was set at 40 percent of the "tag rate" less the drivers' hourly wage rate, did not constitute an accountable plan, and the company therefore is liable for employment taxes on the entire 40 percent paid. Shotgun Delivery Inc. v. United States, 85 F.Supp. 2d 962 (N.D. Cal. 2000).

In-State Office of Out-of-State Firm Renders "Sale Solicitation" Immunity of P.L. 86-272 Inapplicable. Maintenance of an in-state office by an out-of-state corporation takes the corporation out of the protection of the federal statute that confers immunity from state income tax on companies whose only business activities in the state consist of "solicitation of orders" for interstate sales. Tyson Foods, Inc. v. Department of Revenue, 726 N.E. 2d 12 (Ill. App. 2/8/00)

New Mexico Case Threatens to Settle Economic Presence Question. A hearing officer with the New Mexico Taxation and Revenue Department found Michigan based K-Mart Properties, Inc. subject to state taxes because it leased trademark rights to its parent, K-Mart Corp., which operated stores in the state. In the Matter of K-Mart Properties, Inc., No. 00-04 (CCH) ¦ 900-976 (2/8/00). See also Geoffrey, Inc. v. South Carolina Tax Commission, 437 S.E.2d 13 (S.C. 1993), cert denied, 510 U.S. 992 (1993), in which the South Carolina Supreme Court, ruling on facts almost identical to the case at issue, upheld the imposition of income tax against an out-of-state subsidiary that licensed trademarks to its parent company for use in stores owned by the parents.

Owner of Kansas City Royals Can't Deduct Stock Redemption Payment. A U.S. district court dismissed a refund suit brought by the owner of the Kansas City baseball team, who claimed a bad debt deduction or a business expense deduction for a loan from the team to a co-owner, concluding that the "loan" was actually a stock redemption. Rogers v. United States, 58 F. Supp. 2d 1235(D. Kan. 1999).

U.S. High Court Takes Illinois Bankruptcy/Use Tax Case. The U.S. Supreme Court agreed to hear the issue raised by the trustee on appeal as to whether tax claims in bankruptcy should be given the advantage of placing the burden of proof on an objecting trustee, in contrast to the rule applicable to the claims of other creditors. The bankrupt taxpayer was the president of a corporation that bought a plane through an intermediary and did not pay use tax to Illinois for the plane. In re Stoecker v. Illinois, 179 F.3d 546 (7th Cir. 1999), cert. granted, No. 99-387, 120 S. Ct. 784 (1/7/00).

Minnesota Sales Tax on Building Materials for Federal Building. Where subcontractors contracted with a general contractor to construct portions of the Federal Building and the contracts were each a fixed price, lump-sum contract for both labor and materials and required each subcontractor to pay sales and use taxes, the subcontractors are not entitled under Minn. Stat. §272.03, subd. 2(3) to a refund of Minnesota sales and use taxes paid on the building materials they purchased and incorporated into the building. Adolfson-Peterson, Inc. v. Commissioner, Nos. 7089-7098, 2000 WL 133737 (Minn. T. C. 1/31/00).

Failure to Correct Mismanagement of Company Held Willful. Responsible person's failure to correct another individual's mismanagement of corporation means responsible person's failures were willful. Larson v. United States, 76 F. Supp 2d 1092 (E.D. Wash. 2000).

Employer Can Deduct Full Cost of Flights for Employees on Company Aircraft. Employer's deduction for expenses incurred in providing nonbusiness flights to employees on company-owned aircraft is not limited to the value of the flights that is taxable to the employees as fringe benefit income. Sutherland Lumber-Southwest, Inc. v. Commissioner, T.C. No. 23936-97, 114 T.C. No. 14 (3/28/00).

Commissioner Abused Discretion in Requiring Accrual Method. Material provided by construction contractor in constructing concrete foundations, driveways, and walkways for real property developers is not "merchandise," and the commissioner abused his discretion in requiring the contractor to change from cash method to accrual method of accounting. RACMP Enterprises, Inc. v. Commissioner, T.C. No. 23954-97, 114 T.C. No. 16 (3/30/00).

Federal Earned Income Credit Excluded under Iowa Exemption Law. Federal earned income tax credit qualifies for exclusion from debtors' bankruptcy estate under Iowa statute exempting from execution "any public assistance benefit." In re Longstreet, 246 Bankr. 611 (Bankr. S.D. Iowa 2000).

Real Estate Taxes: Tax Increment Financing Agreement. The Minnesota Supreme Court overruled the Tax Court and held that Minn. Stat. §273.76, subd. 8 (1984), which requires an assessor to certify that a minimum market value is a reasonable estimate in the assessor's judgment, does not require the assessor to conduct a full market value appraisal of the property for the certification to be valid. Brookfield Trade Center, Inc. v. County of Ramsey, No. C4-99-1164, 2000 WL 424160, (Minn. 4/20/00).

New York City Commuter Tax Ruled Unconstitutional. A New York City commuter tax, as amended in 1999 to apply only to workers in New York who reside in other states but not to residents of other New York counties working in New York City, violates the Privileges and Immunities Clause and Commerce Clause of the U.S. Constitution. New York City v. New York State, 2000 WL 343886 (N.Y. 4/00).

Subsidiaries Lacked Nexus with Maryland. Out-of-state subsidiaries were not subject to Maryland corporate income tax because they lacked nexus with the state, despite the contacts of their parent corporations, the Circuit Court for Baltimore County, Maryland, ruled in three separate cases. Crown Cork & Seal (Delaware) Inc., No. 24-C-99-002388 (Cir Ct. for Balt. Co., Md. 3/17/00); MCI Interstate Telecommunications Corp., No. 24-C-99-002387 AA (Cir. Ct. for Balt. Co., Md. 3/17/00); and SYL, Inc., No. 24-C-99-002389AA (Cir. Ct. for Balt. Co., Md. 3/17/00).

Soil Conservation Payments Subject to Self-Employment Income Tax. Payments received by farmers under the Conservation Reserve Program for refraining from farming their property constitute income from the trade or business of farming, rather than rent from real estate, and are therefore subject to self-employment income tax under Section 1401 of the Internal Revenue Code. Wuebker v. Commissioner, 205 F.3d 897 (6th Cir. 2000).

Passive Deductions Offset Nonpassive Income Despite IRS Failure to Issue Complete Rules. IRS's decision not to or failure to issue regulations in a case is not a prohibition to an individual's ability to treat self-charged items as intended by Congress; thus, an individual is entitled to offset passive management deductions against nonpassive management income. Hillman v. Commissioner, T.C. No. 19893-97, 114 T.C. No. 6 (2/29/00).

"Responsible Person" Carries Burden of Proof in Penalty Case. In a "responsible person" penalty case, the court concluded that, even if the personal assessment in question was shown to be naked or lacking any foundation, the burden of proof as to claims stated in the complaint was on the "responsible person." Cook v. United States, No. 98-525T, 46 Fed. Cl. 100, 85 AFTR 2d Par. 00-1017 (Fed. Cl. 2000).

Sales and Use Tax; Parking Services. In Minnesota Department of Revenue Notice 00-02 (2/7/00), the commissioner interpreted the statutory wording of "parking services" for the service initially taxable enacted in 1987. The Revenue Notice states a change in administrative policy for employers who lease parking spaces to provide free parking for their employees or customers. This is now taxable unless purchased for resale by the employer and the employer charges the sales tax to its employees or customers. A transitional rule is applied so that payments will remain exempt until March 31, 2000, when they will be taxable.

Sales and Use Tax; Materials Used or Consumed in Providing Taxable Services. In Minnesota Department of Revenue Notice 00-03 (2/28/00), the commissioner stated its position on the 1997 law exempting from tax inputs for materials used or consumed in providing the taxable services such as dry-cleaning, pet grooming, building cleaning, motor vehicle working, detective services, etc. that were initially made taxable in 1987.

IRS Explains Suspension of Interest under New Tax Code Section 6404(G). The Internal Revenue Service Office of Chief Counsel released an internal notice explaining the suspension of interest period under the new Internal Revenue Code Section 6404(g). Notice N(35) 000-172.

IRS Develops New Strategy to Combat Abusive Corporate Tax Evasion Schemes. As part of the overall strategy to combat illegal shelters, Treasury and IRS published three sets of temporary and proposed regulations.

• T.D. 8876, REG-110311-98, requiring the registration of confidential corporate tax shelters;
• T.D. 8877, REG-103735-00, requiring taxpayers to report all tax avoidance transactions and potential shelter transactions; and
• T.D. 8875- REG-103736-00, requiring tax shelter promoters to maintain onsite lists of investors in potentially abusive shelters for IRS inspection.

The IRS also released additional pieces of guidance on shelter-related issues. The most significant, Revenue Ruling 2000-12, effectively shuts down an abusive transaction known as a "debt straddle." In this transaction, a taxpayer sets up two debt instruments in an arrangement designed to create an artificial tax loss. The second piece of guidance, Notice 2000-15, sets out ten specific tax shelters that would automatically raise a flag under all three sets of temporary and proposed rules.

Investment Interest Limitations: LLC Accounts Receivable and Cash Bank Accounts. A recent IRS Technical Advice Memorandum distinguished between a taxpayer's accounts receivable and its cash bank accounts in determining which would be subject to the Code's interest income limitations on deductions. The IRS found the accounts receivable outside the limitations because the taxpayer extended credit to its customers. The fact that the taxpayer was a limited liability company (LLC) made no difference in the holding; the LLC was treated as a partnership for tax purposes. T.A.M. 200010004.

IRS Releases Installment Method Guidance. IRS explains in a question-and-answer format the application of Section 453(a)(2) to certain installment sales transactions. However, the explanation will do little to help most businesses affected by the 1999 disallowance of the installment method of accounting for accrual basis taxpayers. Specifically, the guidance addresses transactions involving S corporations, C corporations, and partnerships and the treatment of sales not eligible for the installment method. Notice 2000-26, I.R.B. 2000-17 (4/24/00).

IRS Releases Priority Guidance Plan for 2000. The IRS released its 2000 Priority Guidance Plan, containing a list of regulations and other administrative guidance scheduled for release in 2000. Similar to the 1999 plan, the 2000 plan is more ambitious than previous plans, containing 243 guidance projects. The IRS cautioned that the plan should not be viewed as an exclusive list of the guidance that may be published during the year or matters to which the IRS will devote attention in 2000. Copies of the plan can be obtained on the IRS homepage on the Internet under the Tax Professional's Corner, www.irs.gov or by calling the Treasury Office of Public Affairs at (202) 622-2960.

Signature Requirement for Form SS-4 Temporarily Waived. The IRS announced that it will temporarily waive the signature requirement for Form SS-4, Application for Employer Identification Number. The waiver applies to Forms SS-4 filed on paper as well as those that may be filed electronically. Since the waiver is only temporary, the signature line will not be removed from the paper version of Form SS-4. Notice 2000-19.

IRS Provides Guidelines for Equitable Relief for Innocent Spouses. The IRS issued guidelines for divorced and separated spouses to obtain "equitable relief" if they did not know about any tax problems or if payments of the tax would cause undue hardship. Rev. Proc. 2000-15, 2000-5 I.R.B. 447 modifies and supersedes Notice 98-61 on interim IRS guidance for divorced and separated spouses seeking relief.

Sales Tax Recodification: Chapter 418 (S.F. 3091). The 1997 Omnibus Tax Bill directed the Revisor of Statutes, in conjunction with legislative staff, to prepare a bill clarifying and recodifying Chapter 297A -- Sales and Use Tax. This was in response to a recommendation by a 1996 Sales Tax Advisory Council. The recodification was passed in 2000 and there is a one-year delayed effective date. Some of the guidelines used in the drafting of the recodification are:

• Draft Chapter 297A so that the format is consistent with other statutes.
• Move exemptions to exemption section and move imposition of tax to the section imposing tax.
• Categorize exemptions so that they are easier to locate.
• Clean up archaic language wherever possible.
• Combine related provisions into one section where possible.
• Definitions that are used multiple times in the statute are placed in the definition section.
• Definitions relating only to specific exemptions are included in the exemption.

Clinton Signs Bill Repealing Social Security Earnings Limit. President Clinton signed into law legislation repealing the earnings limit for Social Security beneficiaries aged 65-69, effective January 1, 2000. The Senior Citizen's Freedom to Work Act of 2000 (H.R. 5) allows retirees aged 65-69 to keep full Social Security benefits regardless of earnings. It would not remove the earnings limit for early retirees, who can receive Social Security benefits starting at age 62. Before the repeal of the earnings limit, retirees' Social Security benefits were reduced $1 for every $3 earned over $17,000.

Federal Bill to Simplify State and Local Cellular Call Taxes. Legislation to streamline state and local taxation of cellular phone services received glowing reviews at a hearing of a House Commerce subcommittee. Lawmakers and witnesses stated that the bill (H.R. 3489) is needed to put an end to what one called an "accounting nightmare" caused by the mobile nature of cellular services and conflicting policies of state and localities. The Wireless Telecommunications Sourcing and Privacy Act would establish a national standard for taxing wireless calls at the "place of primary use," generally the customer's home or business address. It would also allow states to develop central databases to allow carriers to determine which taxes apply to which addresses.

Taxpayer Rights Bill Proposed. Legislation was introduced (H.R. 4163) that is designed to make significant tax disclosure, penalty, and interest changes in the IRC Code for taxpayers. The bill is on a fast track and its passage is likely in 2000. The most significant changes are:

• require the IRS to disclose internal guidance containing interpretations of tax law;
• convert the penalty for failure to pay estimated tax into an interest provision;
• prohibit the government from taxing interest payments paid by IRS, with language to help Treasury fight abuses;
• allow interest netting for individuals without regard to the 45-day period in which overpayments can be refunded without the payment of interest under Section 6611(e);
• allow interest on past-due taxes to be waived if IRS made a mistake or caused an unreasonable delay;
• provide for the waiver of interest if the taxpayer relied on written advice from IRS;
• modify and reduce the penalty for a taxpayer's failure to pay tax;
• allow four months for a taxpayer to enter an installment agreement without a late payment service charge;
• simplify the calculation of estimated tax by providing for one interest rate per underpayment period, eliminating a requirement that a taxpayer track each underpayment separately;
• require the IRS to expedite its decisions on tax-exempt organization applications; and
• allow taxpayers to protect themselves from cascading interest through the establishment of a new "reserve" account.

ACEC Approves Final Electronic Commerce Report to Congress. The Advisory Commission on Electronic Commerce issued its final report to Congress. The report recommends a sales tax exemption for digital products and their tangible counterparts, calls for a ban on taxation of Internet access charges, suggests a series of sales and business activity nexus "carve-outs," and mandates sales tax simplification and telecommunications tax reform. To review the report, see http://www.ecommercecommission.org/.

In this month's "Notes & Trends":

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

No Personal Injury, No Punitive Damages. The Court of Appeals took another step in clarifying the confusing issue of when punitive damages are allowed, holding that regardless of the cause of action, unless the plaintiff suffers a personal injury, there can be no punitive damages.

The issue of when a claim for punitive damages would be allowed, absent an expressed authorization by statute, has been unclear because of conflicting cases on the subject. The latest Supreme Court pronouncement, Indep. School Dist. 622 v. Keene Corp., 511 N.W.2d 728 (Minn. 1994), stated that punitive damages are not recoverable for property damage alone. There must be personal injury involved, because of the greater importance placed by the state upon protecting persons rather than property.

This conflicted with the subsequent Court of Appeals case of Molenaar v. United Cattle Co., 553 N.W.2d 424 (Minn. App. 1994), review denied, (Minn. 1/25/95), which allowed a claim of punitive damages to stand that did not contain a claim for personal injury.

In the present case, plaintiff sought to limit the applicability of Keene to products liability cases. The Court of Appeals, however, refused to so confine the holding of Keene. Regardless of the cause of action, absent personal injury, there can be no punitive damages. Jensen v. Walsh & Schacher, C4-99-1763, 2000 WL 387101 (Minn. App. 4/24/00).

Abatement of Punitive Damages Claim. Plaintiff in a personal injury action died of causes unrelated to the claim. Pursuant to Minn. Stat. §573.02, subd. 2, any claim for damages beyond special damages abated with plaintiff's death.

Deceased plaintiff's guardian appealed the trial court decision that the punitive damages claim abated, arguing that the policy to deter and punish wrongful conduct mandates that a punitive damage claim survive the death of a plaintiff, even if death is from causes unrelated to the plaintiff's claim.

The Court of Appeals was unwilling, however, to rewrite the plain language of the statutes at issue and rejected the argument. Deal v. Northwood Children's Home Society, Inc., C5-99-1691, 2000 WL 385538 (Minn. App. 4/24/00).

Insurance: Subrogation. Under general principles of insurance law, an insurer cannot subrogate against its own insured. This principle has been extended to cover the insured's tenant who negligently starts a fire. See United Fire & Casualty Co. v. Bruggeman, 505 N.W.2d 87 (Minn. App. 1993), review denied, (Minn. 1/19/93). The issue in this case was whether the principle also protects employees of a tenant. The Court of Appeals held it does.

Respondent Van Beek was an employee of Paragon, a company that leased office space in a mall. Appellant St. Paul Companies provided fire insurance to the owner of the mall. While picking up some tools one morning, respondent emptied the ashtray from her car into a wastebasket on the property, starting a fire. St. Paul paid the damages and started a subrogation lawsuit against Van Beek. The suit was dismissed on summary judgment and the Court of Appeals affirmed, expressly extending the principle of Bruggeman to employees of tenants. St. Paul Co. v. Holly Van Beek, C6-99-1764, 2000 WL 387102 (Minn. App. 4/24/00).

Incontestability Clause in Disability Insurance Policy. On October 18, 1985, Minnesota Mutual Life Insurance Company (Minnesota Mutual) issued a disability insurance policy to Martin John Kersten (Kersten). The policy provided that if Kersten became disabled as the result of an injury or sickness, he would be entitled to a monthly benefit of $1,600 during the period of disability. The policy defined "sickness" as "a disease or illness that first manifests itself while this policy is in force. A disease or illness first manifests itself when symptoms exist that would cause an ordinarily prudent person to seek diagnosis, care or treatment, or when a physician recommends or provides medical advice or treatment."

Kersten made all premium payments from October 1985 through September 1993 and made no claim for benefits during that period. In September 1993, Kersten was involved in a motor vehicle accident and unable to work due to injuries received. He submitted a claim for disability benefits under his policy, and Minnesota Mutual began to pay benefits to him effective from September 1993.

While receiving disability benefits, Kersten also received no-fault payments from his automobile insurance carrier. Following an independent medical exam, the automobile insurance carrier discontinued no-fault benefits. Following that decision, Kersten sought benefits under the uninsured motorist provisions of his automobile insurance policy, but in November of 1996 an arbitration panel concluded he was not entitled to benefits beyond the no-fault benefits already paid.

Minnesota Mutual discontinued disability benefits on September 22, 1995, claiming that Kersten's physical injuries no longer prevented him from returning to work. Kersten alleged that his disability was only partially due to the motor vehicle accident and that he suffered psychological injuries from the loss of his job and continuing pain. Minnesota Mutual argued that any psychological illness Kersten may have had was a preexisting condition because Kersten was treated for depression and anxiety in 1974, over ten years before the Minnesota Mutual policy was in effect.

Kersten brought a breach of contract action against Minnesota Mutual. The district court granted summary judgment for Minnesota Mutual, concluding that Kersten's claim for injuries from the motor vehicle accident was collaterally estopped and that the language in the policy defining sickness properly excluded his claims for psychological illness.

Kersten appealed. The Court of Appeals ruled there were material issues of fact relating to whether Kersten suffered a continuing disability and that these claims were not conclusively determined during arbitration. The court also held that the Minnesota Mutual definition of sickness was inconsistent with the plain language of the preexisting condition coverage requirements in Minn. Stat. §62A.04, subd. 2. Accordingly, the Court of Appeals reversed the grant of summary judgment. Minnesota Mutual appealed to the Minnesota Supreme Court.

The Minnesota Supreme Court concluded that the plain language of Minn. Stat. §62A.04, subd. 2(2)(b) indicated a legislative intent that preexisting conditions should be covered by the policy subject to specific exclusion by the insurer. The Supreme Court ruled that "two years after a policy is in force, an insurer may not deny or reduce coverage for pre-existing 'disease or physical condition' unless the insurer specifically excludes that condition 'by name or specific description.'" It held that after Kersten's disability insurance policy with Minnesota Mutual was in force for two years, clause (b) required coverage for any preexisting "disease or physical condition" not excluded from coverage "by name or specific description". The case was remanded to the district court for further proceedings.

Justice Stringer dissented. He asserted that he would reverse the ruling of the Court of Appeals because the incontestability provision "does not have its roots in creating coverage where it never existed." Kersten v. Minnesota Mutual Life Ins. Co., C6-98-2080, 2000 WL 375002 (Minn.4/13/00).

Christmas Tree Falls from Car: Which Insurance Carrier Is Responsible? On November 29, 1997, Cook purchased a Christmas tree from Evergreen, Inc. An Evergreen employee attached the tree to the roof of Cook's vehicle. As Cook drove home, the tree fell off the vehicle onto the highway, killing one person and injuring another when their vehicle rolled over and swerved to avoid hitting the tree.

Damages from the accident exceeded the limits of coverage on Cook's vehicle. The injured driver and heirs of the deceased passenger sued Evergreen. Evergreen had a general liability insurance policy with Florists Mutual Insurance Company and an automobile insurance policy with respondent, Auto-Owners Insurance Company.

Auto-Owners commenced a declaratory judgment action requesting a determination as to which of the companies owed Evergreen a duty to defend and indemnify in the underlying tort action.

Auto-Owners issued Evergreen an automobile insurance policy providing coverage on two specifically named vehicles owned by Evergreen. The policy granted Evergreen the following coverage: "for bodily injury . . . for which you become legally responsible and which involves your automobile." The court found that the vehicle involved in the accident at issue was owned by a customer of Evergreen and not by Evergreen, and thus Auto-Owners was entitled to summary judgment because it was not obligated to indemnify or defend Evergreen in a negligence and wrongful death claim filed against it. The trial court ruled in favor of Auto-Owners. The Minnesota Court of Appeals affirmed, finding the terms of the policy unambiguous. Auto-Owners Ins. Co. v. Evergreen, Inc., CX-99-1489 (Minn. App. 4/11/00).

Reasonable Expectations of Insured. In 1989, the Wingers purchased a home and surrounding plot of land consisting of about 11 acres. They purchased a homeowner's insurance policy in 1991 from Austin Mutual Insurance Company. The policy described the insured premises as the house, the grounds at that location, and "other premises shown on the declaration."

Several years later, the Wingers purchased the remaining portion of the 40-acre parcel and the 40 acres located to its east. On the east 40-acre tract, which the Wingers purchased with another party, the landowners developed a mobile home site. The other owners purchased commercial rental-mobile-home insurance from Foremost. That policy named J. Winger and the co-owner of the 40-acre area as insureds and listed the address of the mobile home as the principal location. The Wingers and the co-owner of the mobile home in the east 40-acre parcel rented a mobile home to various people. An injury occurred when a tenant fell from a bucket of a bobcat -- a motorized vehicle with an attached scoop device. The tenant sued the Wingers, claiming that his injuries were caused by their negligence.

Austin Mutual instituted a declaratory judgment action, and the trial court granted summary judgment to the insurer. It found that, because the Wingers owned only 11 acres when they bought the Austin Mutual policy, it "strains credibility and logic" to view the insurance policy coverage for any area beyond the original parcel of 11 acres. On appeal, the Wingers and Foremost contended that the policy was ambiguous and must be construed in favor of the reasonable expectations of the insureds.

The Minnesota Court of Appeals found that the court may take into consideration such things as the situation existing at the time the policy was issued and the risk intended to be covered. There was no evidence when the policy was issued that either party expected that the policy would cover risks beyond those that might occur on the original purchase of land. It was beyond anyone's reasonable expectations to require other property to be insured under that same policy, and thus the district court ruling was affirmed. Austin Mutual Ins. Co. v. Winger, C7-99-1546, 2000 WL310392 (Minn. App. 3/28/00)(unpublished).