November 2000

In this month's "Notes & Trends":

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

Personal Jurisdiction; Email Messages The Minnesota Court of Appeals recently considered whether electronic defamation can provide a basis for personal jurisdiction and concluded that it cannot. Specifically, the appellate court held that a nonresident has not committed an act within Minnesota for personal jurisdiction purposes by sending allegedly defamatory email messages to Minnesota. The decision was issued in a case commenced by Northwest Airlines, which sued the defendant for defamation stemming from allegedly defamatory email messages she sent from Washington state to individuals in various states, including Minnesota. The email messages, in addition to accusing Northwest of various acts, also attached an electronic copy of a complaint filed by the defendant's spouse against Northwest, which related to his claims of wrongful discharge.

The analysis of the court centered on the Minnesota long-arm statute, which provides that when an act taken outside of Minnesota results in injury inside Minnesota, courts can exercise personal jurisdiction except when the cause of action lies in defamation. Minn. Stat. §543.19, subd. 1. Thus, the issue was whether sending emails to Minnesota should be considered an act in Minnesota or an act outside Minnesota. The court then analogized this case to a previous case, in which it held that making a telephone call from outside Minnesota to someone in Minnesota for purposes of communicating a defamatory message was not sufficient to confer personal jurisdiction. The court has also previously held that mailing an allegedly defamatory letter to Minnesota from outside Minnesota did not constitute an act within Minnesota. The court then held that sending an email is similar to making a phone call and mailing a letter and therefore the email, which originated outside Minnesota, could not provide a basis for personal jurisdiction even though the message was allegedly defamatory and directed to a Minnesota resident.

Northwest argued that the "phenomenon and power" of the Internet required a different result, but the court disagreed. The court saw no reason to make an exception to precedent just because the message at issue was sent electronically rather than by traditional mail. Northwest Airlines, Inc. v. Friday, ___ NW2d ___, 2000 WL 1376531
(Minn. App. 9/26/00).

In this month's "Notes & Trends":

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

Experts; Daubert. The Supreme Court reaffirms adherence in Minnesota to the Frye-Mack standard of admissibility of expert testimony and rejects Daubert. Hence, when scientific evidence is offered, the district court must determine two things: (1) whether it is generally accepted in the relevant scientific community; and (2) whether the particular scientific evidence in each case can be shown to have a foundation of reliability. Goeb v. Tharaldson, 615 NW2d 800
(Minn. 8/17/00).

Expert Witness Opinions; Hearsay. It was error for the district court judge to admit hearsay evidence when the medical examiner testified that two other nontestifying experts agreed with his opinion that the death was a homicide. The expert could testify that he believed that the decedent's death was a homicide, rather than a suicide. This was not an opinion regarding the defendant's intent, which is not admissible. However, the error was harmless because there was no reasonable possibility that this evidence could have affected the jury verdict. State. v. Bradford, 2000 WL 1201837 (Minn. 8/24/00).

Spreigl; Joinder; Acquittal. The trial court judge erroneously, over defendant objection, joined for trial three instances of criminal sexual conduct occurring in January, April and May of 1997. At trial, the defendant was acquitted of three of the five January charges, convicted of all the April offenses, and acquitted of all the May offenses.

The test for reversal of improperly joined offenses is whether the other misconduct would be admitted on a Spreigl analysis. State v. Kates, 610 NW2d 629 (Minn. 2000). Applying that test, the May misconduct cannot, by definition, meet the first part of the Spreigl test, namely, whether there is clear and convincing evidence that the defendant participated in the Spreigl offense, because the defendant was acquitted of the May charges. Furthermore, acquittals may, under no circumstances, be used in evidence on the Spreigl basis. See State v. Wakefield, 278 NW2d 307, 309 (Minn. 1979). Similarly, acquittal of the three January charges would bar Spreigl use, and, hence, use in this trial.

The district court refusal to grant the motion to sever was prejudicially erroneous because the evidence of all the joined, charged offenses could not have been introduced as Spreigl evidence in separate trials. State v. Kates, 616 NW2d 296 (Minn. App. 8/29/00).

Career Offender; Prior Conviction. The appellant was sentenced for felony theft. The felony record for property crimes includes six prior convictions. The district court judge sentenced the appellant under the Career Offender Statute and departed upward from the presumptive sentence.

Under §609.1095, subd. 1, prior conviction is defined as " . . . a conviction that occurred before the offender committed the next felony resulting in a conviction and before the offense for which the offender is being sentenced under the section." Because of the chronologically mixed sequence of the six prior convictions that the trial court judge used, those six prior convictions are not five prior sequential felony convictions under the strict terms of the definition. The definition requires a strict offense/conviction, offense/conviction order, which did exist in this case. State v. Huston, 616 NW2d 282 (Minn. App. 8/20/00).

Excessive Fines; Controlled Substance Violations. Defendant pleaded guilty to three counts of first-, second- and third-degree controlled substance violations, committed on three separate dates, concerning a total of approximately 34 grams of marijuana and 9.5 grams of psilocyn mushrooms. The plea negotiation was that the time would be served concurrently on the three separate offenses, and forfeiture would be waived. The trial judge sentenced the appellant to 48 months in prison, plus fines totaling $273,600 (the total of the minimum fines for fifth-, third- and second-degree controlled substance, respectively, $3,000, $75,000, and $150,000.)

Held, the Minnesota statutes establishing minimum fines contained in 609.101, subd. 3 (a), are not "mandatory minimums," because Minn. Stat. §609.101, subd. 5 (b), allows a judge to reduce the amount of the minimum fine to not less than $50 if the defendant qualifies for a public defender or if there is undue hardship. Hence, the statute concerning minimum fines does not, on its face, violate the excessive fines clauses of either the United States or Minnesota constitutions.

Applying the factors set forth in United States v. Bajakajian, 524 U.S. 321, 118 S.Ct. 2028 (1998), the Supreme Court holds that the application of the fines statutes in this case violated the excessive fines clauses of both the United States and Minnesota constitutions. At the current rate of repayment ($70 per month), it would take the appellant 300 years to repay this fine. Secondly, most "level two" offenses, other than fifth-degree controlled substance, carry maximum fines of $10,000. Similarly, most level six and level seven offenses, the ranking for third- and second-degree controlled substance charges, carry maximum fines of $20,000 to $35,000. In federal court, similar violations carry a fine in the range of $500 to $5,000. Finally, the court concludes that the fines and surcharges created an undue hardship for the appellant. State v. Rewitzer, 2000 WL 1310494 (Minn. 9/14/00).

Post-Conviction; Vienna Convention. Approximately ten years after his conviction, the appellant raised a post-conviction issue based on the Vienna Convention and the ineffective assistance of counsel. Appellant had been arrested for a first-degree controlled substance violation and allegedly had not been advised of his rights under the Vienna Convention to have consular assistance. The appellant did not raise the Vienna Convention issue in his direct appeal.

Held, the appellant waived his claim under the Vienna Convention by failing to raise it on direct appeal. Because the Vienna Convention existed for more than 20 years by the time the appellant was convicted, the claim was not so novel that it could not reasonably have been available. The novelty should lie in the reasonable basis in the law, not in the practice, and a reasonably diligent defense attorney could have raised the claim at the time of the appeal. Ademodi v. State, 2000 WL 1264608 (Minn. 9/7/00).

Tribal Jurisdiction; Driving after Cancellation. Held, district courts do not have tribal jurisdiction over charges of driving after cancellation as inimical to public safety in violation of Minn. Stat. §171.24, subd. 5. This case effectively overrules State v. Zornes, 584 NW2d 7 (Minn. App. 1998), which found that states do have jurisdiction to enforce DAC charges against a tribal member who violated that statute on a reservation. This overruling finds its basis in State v. Johnson, 598 NW2d 680 (Minn. 1999). In the Johnson case, the Supreme Court held that driving after revocation for failure to produce proof of insurance was civil/regulatory and could not be enforced against tribal members on their reservation. In dicta, however, the state noted that the reason for the revocation should not determine the criminality of the revocation: the prior offense carries its own sanction and should not measure the nature of the driving after revocation charge. State v. Busse, 2000 WL 1239815 (Minn. App. 9/5/00).

Jurisdiction; Speeding and Driver License Laws. Although Public Law 280 does not grant Minnesota jurisdiction over speeding and driver license offenses, Minnesota may nonetheless exercise its jurisdiction over these two offenses where the offenses were committed on an Indian reservation by an Indian who is not an enrolled member of the governing tribe on whose reservation property the offense occurred. This decision reverses the Court of Appeals. Prior reasoning from the case of Topash v. Comm'r, 291 NW2d, 679 (Minn. 1980), is no longer controlling. In this situation, the exercise of Minnesota jurisdiction does nothing to undermine the scope of tribal sovereignty, even though the offenses are "civil/regulatory." In this case, the road is a state-operated and maintained highway. State jurisdiction does not significantly affect the retained sovereignty over tribal territory when the state exercises jurisdiction over a person who is not an enrolled member of that tribe. State v. R.M.H., 2000 WL 1201847 (Minn. 8/24/00).

DWI/Implied Consent; Forfeiture; Out-of-State Conviction; Diversion. Under Minnesota forfeiture law, a vehicle is subject to forfeiture if the new charge/revocation is within 15 years of the first of three of more prior convictions or revocations. The revocations are defined under Minn. Stat. §169, whereas when looking to out-of-state events, the forfeiture must be based on prior "convictions." Minn. Stat. §169.1217, subd. 1(f), defines a prior "impaired driving conviction" as a conviction under Minnesota law or another state statute or ordinance "in conformity with Minnesota law."

In this case, the appellant had a Pennsylvania accelerated rehabilitative disposition (ARD) from 1988, a Pennsylvania DWI from 1994, and a 1999 Minnesota revocation as his prior history. A new DWI charge occurred in Minnesota in October 1999, resulting in a conviction.
Held, the prior ARD is a conviction under these circumstances for purposes of calculating the prior convictions under the DWI forfeiture statute. Although an ARD may not be a conviction standing on its own, Pennsylvania law states that it shall be considered a first conviction for purposes of computing whether a subsequent conviction of the DWI law is a second, third, fourth, or subsequent conviction. Hence, under Pennsylvania law, the ARD became a conviction after he received his second DWI offense in Pennsylvania in 1993. Accordingly, it may properly be used as a predicate offense for forfeiture. State v. One 1998 Pontiac Grand Prix, 2000 WL 1285409 (Minn. App. 9/12/00).

Special Plates; Garage Entry; Exigent Circumstances. At 7:10 p.m., arresting Officer Urquhart overheard a radio transmission concerning a white Chevrolet Corsica with "WX" plates, stating that the registered owner had warrants and his license was canceled as inimical to public safety. Approximately six hours later, Urquhart saw the same vehicle with the "WX" plates, at which time he followed it and entered the information into his squad computer. As he waited for the information, the vehicle drove into a townhouse driveway, and a garage door opened. Urquhart followed the vehicle into the driveway with his overhead lights on, at which time the appellant closed the garage door. Urquhart exited the squad car and ran under the door, asking the appellant for identification and subsequently arresting and charging him with six gross misdemeanor DWI violations.

Held, both the stop and the entry into the garage were constitutional. The basis for the stop was the prior information he had received regarding license cancellation and outstanding warrants. The vehicle description was identical, and the vehicle was observed only a mile from the reported earlier sighting. These elements constitute reasonable and articulable suspicion. Secondly, there was sufficient probable cause to justify entry into the garage based on the same facts supporting the stop and the fact that the appellant failed to stop and closed the garage door on Urquhart despite the activation of the squad car red lights. Taken together, the police officer had probable cause, at least, for the obstruction of legal process.

Third, exigent circumstances exist in the form of hot pursuit. A person may not defeat a warrantless arrest that has been set in motion in public by entering into his dwelling. (Because of the issues concerning the stop and the warrantless entry into the garage, it is unnecessary for the court to reach the constitutionality of Minn. Stat. §168.0422, which states that vehicles with special plates may be stopped without seeing an infraction. This law was passed to overrule legislatively the Court of Appeals decision in State v. Greyeagle, 541 NW2d 326 (Minn. App. 1995), wherein the court held that officers cannot lawfully stop vehicles based solely on the observance of special license plates.) State v. Baumann, 2000 WL 1281148 (Minn. App. 9/12/00).

Criminal Sexual Conduct; Conditional Release; Repealed Law. The appellant had a prior conviction for intrafamilial sexual abuse under a now-repealed statute. The law requiring a conditional release following a prison term does not specifically enumerate that statute. Held, the district court did not err by imposing the ten-year conditional release as part of the appellant's sentence. Although Minn. Stat. §609.109, subd. 7, does not include a specific reference to the old intrafamilial sex abuse law now repealed, Minn. Stat. §609.3642, the conduct underlying such a conviction is now proscribed by sections that are enumerated. State v. Cook, 2000 WL 1285399 (Minn. App. 9/12/00).

Plea Negotiation; Withdrawal; Specific Performance; Acceptance by Court. Appellant and counsel had negotiated pleas of guilty and a sentence of 107 months. The entry of plea was scheduled to take place but was canceled when the judge had to attend to a death in his family. After that date, the prosecutor informed defense counsel that he had changed his mind and withdrew the plea agreement, based upon facts he had not previously noticed in the police reports. Defense counsel's motion for specific performance of the plea agreement was denied. Defendant was convicted and sentenced to 207 months.

Held, the trial court did not err in refusing to enforce the plea agreement. The state may withdraw from a plea agreement at any time before a defendant enters a guilty plea and the trial court accepts the guilty plea, unless the defendant has detrimentally relied upon the agreement. There was no allegation by the defendant that he relied on the offer to his detriment, nor does he claim that he was prejudiced by the withdrawal of the offer by the state. State v. Johnson, 2000 WL 1341394
(Minn. App. 9/19/00).

In this month's "Notes & Trends":

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

Employee Handbooks. An employment handbook constitutes a binding contract under the Pine River doctrine, and discharging an employee without complying with the handbook procedures constitutes a breach of contract, according to a ruling of the Minnesota Court of Appeals in Kotera v. Naturogas, Inc., 2000 WL 1182819 (Minn. App. 2000)(unpublished). An employee who was fired for allegedly being rude to a customer contested the firing on grounds that it was contrary to the progressive disciplinary provisions in the handbook. The appellate court agreed, upholding a jury verdict for the fired employee on grounds that the language of the personnel handbook was sufficiently definite to constitute a contract under Pine River State Bank v. Metille, 333 NW2d 622 (Minn. 1983).

But a handbook that contained disclaimers and specified that it applied only to hourly employees, not salaried employees, did not constitute a basis for a breach of contract claim by a discharged salaried employee in Ries v. SEI Electronic, 2000 WL 943860 (Minn. App. 2000)(unpublished). Because of the disclaimers and limited scope of the manual, the employee was an "at will" worker who could be discharged for any reason.

Teacher Termination. A teacher who complained against other teachers who testified against him in a prior disciplinary proceeding violated a prohibition against retaliation that warranted his discharge for insubordination and conduct unbecoming a teacher in In re Stroup v. Indep. School Dist. No. 152, 2000 WL 1182609 (Minn. App. 2000) (unpublished). The teacher had been expressly admonished not to engage in any retaliation for a two-year period as part of a disciplinary proceeding arising from a charge of improper behavior towards a colleague. When the teacher later filed ethics charges against four teachers who testified against him, the school district terminated him for violation of the reprisal prohibition. The appellate court affirmed the ruling, holding that his conduct constituted the type of retaliation that was proscribed and, therefore, warranted his dismissal.

Stock Options. While most stock option disputes arise when employees seek to exercise options, a company proposal to buy back stock from a departing executive was disputed in Papermaster v. Wolf & Assoc., 2000 WL 1182834 (Minn. App. 2000)(unpublished). The documentation reflecting the offer to purchase the employee's shares contained a purchase price that was significantly lower than the price called for in the buy-sell agreement. It did not rise to the level of a contract but was a counteroffer that was not accepted. Accordingly, the employee's breach-of-contract claim was properly dismissed, even by sua sponte summary judgment by the trial court.

Data Practices. The distribution of the Social Security number of a state employee to the employee's union violates the Governmental Data Practices Act unless the Department of Employee Relations first makes a determination that such divulgence is "necessary" for union-related purposes under §13.43 subd.6. Because no such determination was reflected in the record, the appellate court reversed and remanded dismissal of the employee's lawsuit in Manson v. Dep't of Employee Relations, 613 NW2d 778 (Minn. App. 2000).

Employer-Furnished Transportation. An auto accident that injured the driver and four coworkers on the way to work did not fall within the Workers Compensation Act and, therefore, the district court had jurisdiction over a suit brought by the injured occupants against the employer in Loyevski v. Yevzelman, 2000 WL 1182626 (Minn. App. 2000) (unpublished). The employer's efforts to dismiss the case on grounds that it fell within the provision of the Workers Compensation Act that covers employer-furnished transportation, Minn. Stat. §176.011, subd. 16, was unavailing. That provision, regarding work-related injuries that occur when an employer has "regularly furnished transportation to employees to and from the place of employment," was inapplicable where the evidence failed to establish an understanding that the employer would provide transportation to employees as a "condition of employment."

In this month's "Notes & Trends":

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

Cercla "Initial Action" Clarified. The resolution of a lawsuit over response and remediation costs need not contain a finding of liability to constitute an "initial action" under CERCLA, according to the 8th Circuit Court of Appeals in United States v. Findett Corp., 220 F.3d 842 (8th Cir. 2000). It is enough that the suit alleged a legal claim that was later resolved through a voluntary consent decree, even if the latter did not resolve the liability issue.

In this case, Findett Corporation (Findett) had recycled chemicals at its St. Charles, Missouri facility for over 25 years. During this time, the groundwater and soil became contaminated with polychlorinated byphenyls (PCBs) and volatile organic compounds (VOCs). In 1988, the EPA issued a Record of Decision (ROD) for this site, which included a remedial cleanup plan. The EPA sued Findett in 1990 to hold it responsible for the response and remediation costs under the ROD. The parties resolved the lawsuit later that year in a consent decree filed with the district court. Findett agreed to implement the ROD remediation plan but made it clear in the consent decree that it admitted no liability in doing so. The district court did not issue any judgment as to the liability of Findett at the time it entered the consent decree.

The EPA filed a "subsequent action" under 42 U.S.C. §9613(g)(2) against Findett in 1997. Under that action, the EPA sought to recover past and future response and enforcement costs related to remediation of the Findett site. In response, Findett argued that the 1990 lawsuit did not constitute an "initial action" under §9613(g)(2)(B), because there was no "declaratory judgment" by the court at that time as to Findett's liability. Instead, the EPA's 1997 lawsuit was the "initial action" and, therefore, was precluded by the six-year statute of limitations. Furthermore, because there was no "initial action," the 1997 lawsuit was not a proper "subsequent action" to recover additional response and enforcement costs.

The Court of Appeals first rejected Findett's argument that §9613(g)(2)(B) necessitated the entry of a declaratory judgment regarding liability for the 1990 lawsuit to constitute an "initial action." The court believed that interpretation would defeat the goal of Congress to expedite hazardous waste cleanup and avoid unnecessary litigation. It would also discourage settlement between opposing parties. Simply because the parties resolved the first EPA lawsuit short of litigation did not make it any less of an "initial action" for statute of limitations purposes. The court therefore found the 1997 lawsuit was a "subsequent action" for cost recovery purposes.

Even if the 1997 lawsuit was the "initial action," the Court of Appeals still found that it was filed within the appropriate statute of limitations period. The court rejected Findett's argument that pre-1990 on-site sampling, surveying and support pad-siting constituted the type of "initiation of physical on-site construction of the remedial action" that would begin the statute of limitations period under §9613(g)(2)(B). Together with the one-year statute of limitations tolling agreement between the two parties, the court found that the 1997 lawsuit was timely filed, regardless of whether it was an initial or a subsequent action.

Cercla "Threshold" Rejected. In Johnson v. James Langley Operating Co., ___ F.3d ___, 2000 WL 1358440 (8th Cir. 2000), the 8th Circuit Court of Appeals joined other federal courts of appeal in rejecting the notion of a quantitative minimum threshold for
CERCLA liability. This holding further isolates opinions issued by the 5th Circuit Court of Appeals, which have held that response costs to a release or threatened release are only recoverable upon a showing that the release threatened public health or the environment. See Amoco Oil Co. v. Borden, Inc., 889 F.2d 664, 670 (5th Cir. 1989); Licciardi v. Murphy Oil U.S.A., 111 F.3d 396, 399 (5th Cir. 1997).

In Johnson, two sets of plaintiffs alleged that the defendants' oil and gas production activities contaminated the properties at issue with radioactive scales, salt water, oil and grease, heavy metals and other hazardous substances. The plaintiffs sued defendants, seeking, among other things, CERCLA response costs. The district court dismissed the CERCLA claim after adopting the AMOCO standard from the 5th Circuit: a public health or environment threat must exist before a defendant may be found liable for a plaintiff's response costs.

The 8th Circuit joined the 1st, 3rd, and 9th Circuit Courts of Appeal in finding the 5th Circuit "threshold" requirement unsupported by the plain language of CERCLA. According to the court, CERCLA imposes the cost of ascertaining the danger posed by an actual or threatened release on the generator of the hazardous substance. This is true even if the testing indicates remedial action is not warranted.

The court pointed out that although CERCLA contains no quantitative response minimums, it still contains "checks" on the reasonableness of response costs. The first is that response costs be caused by an actual or a threatened release; the second is that the costs be "necessary" and consistent with the National Contingency Plan (NCP). Furthermore, testing and sampling under the latter requirement are only justified if a plaintiff has an objectively reasonable belief that a defendant's release or threatened release of hazardous substances would contaminate the plaintiff's property.

Having found the plaintiffs' efforts in this case to meet the above criteria, the Court of Appeals reversed the district court dismissal of the plaintiffs' claim and remanded for further proceedings.

In this month's "Notes & Trends":

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

Promise to Marry: Tort Abolished. A pregnant woman and married man signed a settlement in which he would pay her $75,000, plus medical and legal expenses, upon completion of an abortion. It contained a clause releasing him from all claims related to the pregnancy and its termination. The legal abortion took place in Madison, Wisconsin, and per statute, she signed a consent form acknowledging that her decision was a product of her free will and that no one forced or coerced her into the decision to terminate her pregnancy. The married man paid all amounts required by the settlement. Subsequently, the woman sued him for intentional and negligent infliction of emotional distress, battery, fraud, and misrepresentation because he coerced her into having an unwanted abortion by promising that he would marry her and have a baby with her when his divorce was final. The district court granted his motion for summary judgment after concluding that the claims were statutorily barred, because they were predicated on an alleged promise to marry and she was barred from litigating her claims by a release and waiver.

The Court of Appeals found that the Legislature had abolished the civil actions for seduction and breach of promise to marry and that was the essence of each of her four tort claims, based on her paramour's promise to leave his wife to marry and have a baby with her in the future. It concluded that, although her claims were couched in terms of civil tort claims, the behavior on which they are based was, in the end, the man's alleged breach of a promise to marry and impregnate her after she had an unwanted abortion. The court said if no cause of action can exist in tort for a fraudulent promise to marry, then logically no cause of action can exist for a fraudulent promise by a married man to leave his wife and impregnate a woman who is not his wife. Affirmed. M.N v. D.S., C9-00-437, 616 NW2d 284 (Minn. App. 8/22/00).

Child Support Order UIFSA Registration in England. The county sought to enforce a Minnesota child support order against the father, who had moved to London, England, by UIFSA registration. The English court reduced child support and made a partial remission of arrearages. On discovering that the father had two retirement accounts in the United States, the county moved for judgment for support arrearages and sequestration of the funds in Minnesota court, which were granted. The father appealed, alleging lack of jurisdiction because the English court had modified the Minnesota order. The Court of Appeals found that the English act allowed its court to modify the support order, whereas the Minnesota act clearly prohibited such a modification. It concluded that the two acts were not substantially similar enough to cause addition and that the English order was never registered in Minnesota. It held that the district court did not err in entering judgment for the full amount of the arrearages. Grave v. Shubert, C5-00-399, 2000 WL 1221343 (Minn. App. 8/29/00) (unpublished).

Domestic Abuse Hearings; Investigation Reports. An ex parte OFP was entered against the father and a hearing was conducted seven days later. The district court continued the matter for approximately four weeks after concluding that a full hearing was necessary, and Child Protection began an investigation to determine whether child maltreatment had occurred. The Child Protection report was not complete, and the father requested a continuance of the full hearing so that he could introduce the forthcoming report into evidence. The district court denied the request, stating that it was not germane to the issues that the court needed to decide. The Court of Appeals found that the father had the statutory right to a full hearing, which includes the right to produce documents and to have the case decided on the merits. Based on the additional evidence that the district court could have had and the father's statutory right to a full hearing, the appellate court concluded that the district court denial was a clear abuse of discretion. It reversed and remanded for a new hearing. Eustathiades v. Bowman, C3-00-269, 2000 WL 1239763 (Minn. App. 9/5/00) (unpublished).

Title IV, Rules of Family Court. Minnesota Session Laws 2000, Chap. 458, Sec. 6, made procedural and substantive changes that require modification of Form 3, Appendix A, regarding enforcement mechanisms for the nonpayment of child support. The modification form is available from court administrators. Supreme Court Order, Nos. CX-89-1863 and CX-84-2134 (9/8/00).

In this month's "Notes & Trends":

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

Daubert, Daubert and even more Daubert. In Kemp v. Tyson Seafood Group, 2000 WL 1062105 (D. Minn. 2000), defendants sought to exclude the testimony of plaintiffs' damages expert, Jeno Paulucci. Paulucci's conclusions, embodied in a 1 ½ page expert report, were based solely on his "knowledge" and "experience" in the business of selling frozen foods but were not predicated on historical sales data and were "bereft of any generally accepted analytical model upon which future projections could be responsibly computed."

Noting that "an expert's mere belief in the legitimacy of his opinions is insufficient to allow the admissibility of the conclusions reached," Magistrate Judge Erickson granted defendants' motion, finding

Both Daubert, and Kumho, make clear that the day of the expert, who merely opines, and does so on the basis of vague notions of experience, is over. Experts are now held to a level of accountability, that requires factual predicates, in historical fact, or in competent evidence, which allows a factfinder to independently verify the accuracy of the expert's results. Absent such reliable verification, the expert's opinion is not admissible.

Kemp is the latest in a growing number of decisions that limit experts' ability to rely solely on their experience as the basis for their expert opinions.

Two recent 8th Circuit decisions applying Daubert are also worth noting. In Turner v. Iowa Fire Equipment Co., 2000 WL 1364198 (8th Cir. 2000), the court rejected plaintiffs-appellants' argument that Daubert does not apply to causation opinions offered by treating physicians and found that the district court had properly excluded the treating physician's opinion because it did not "rule out" other possible causes for one plaintiff's illness.

In United States v. Jolivet, ___ F.3d ___(8th Cir. 2000), the 8th Circuit found no abuse of discretion in the trial court decision to admit the testimony of a "well-qualified" handwriting expert.

Other Decisions of Note. In Kassuelke v. Alliant Techsystems, Inc., 2000 WL 1341525 (8th Cir. 2000), the 8th Circuit held that an order substituting the United States as a defendant pursuant to the Westfall Act is not immediately appealable under the collateral order doctrine.

In ACTOnet, Ltd. v. Allou Health & Beauty Care, 219 F.3d 836 (8th Cir. 2000), the 8th Circuit found no abuse of discretion in the district court decision to admit HTML code as evidence and held that because "HTML codes are similar enough to photographs" it would apply "the criteria for admission of photographs to the admission of HTML codes."

Lemonds v. St. Louis County, 222 F.3d 488 (8th Cir. 2000), includes a lengthy discussion of the rarely litigated and often misunderstood Rooker-Feldman doctrine and is recommended reading for attorneys litigating in this area.

In Tenkku v. Normandy Bank, 218 F.3d 926 (8th Cir. 2000), the 8th Circuit dismissed for lack of jurisdiction plaintiff's attempt to appeal from a series of discovery-related orders, rejecting the plaintiff's attempt to characterize the discovery orders as either injunctions, which would have made the orders immediately appealable under 28 U.S.C. §1291(a)(1), or as "collateral orders." Tennku's alternative request for a writ of mandamus was also denied.

--Josh Jacobson
The Law Office of Josh Jacobson PA

In this month's "Notes & Trends":

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

Foster Parents. Since the enactment of the Revised Rules of Juvenile Procedure, practitioners should be aware of the trend to deny intervention to foster parents in child protection matters. The courts are denying intervention pursuant to M.R.J.P. 58.01, which grants foster parents participant status -- reasoning that participant status is sufficient. However, the role of participants is severely limited and only allows the participant to receive notice of a hearing pursuant to M.R.J.P. 69, the right to attend the hearing pursuant to M.R.J.P. 63, and to offer information at the discretion of the court. M.R.J.P. 58.02, subd. 1. Participants are not allowed to conduct discovery, bring motions, participate in settlement agreements, subpoena witnesses, make arguments in support of the petition, present evidence, cross-examine witnesses, request review of a referee's findings and recommended order, bring post-trial motions, or appeal from orders of the court. Since foster parents usually have the most relevant and up-to-date information about the child, these limitations can severely affect the outcome of a matter.

However, the Rules of Juvenile Procedure also state that parties to a juvenile protection matter shall include the child's legal custodian. M.R.J.P. 57.01, subd. 1(b). The Court of Appeals has interpreted the term "custodian" to include any person who is under a legal obligation to provide the care and support for the minor child or who is in fact providing care and support for the minor child. Valentine v. Lutz, 512 NW2d 868, 871 (1994); In re C.J., 481 NW2d 861, 863 (Minn. App. 1992), petition for review denied. Arguably, foster parents who are in fact providing care and support for a child can be defined as a child's legal custodian and thus should be granted party status under the rules. Consequently, it appears that the issue of whether foster parents are parties or participants is not absolutely clear and ripe for review.

In this month's "Notes & Trends":

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

Standards for Guardianship. The ward was an incapacitated person whose parents were divorced while he was minor. His father was awarded custody in the dissolution proceeding. When the ward reached 18, the district court appointed his father guardian of his person and estate, but based its decision on the factors applicable to custody matters in the dissolution statutes. The Court of Appeals held that this use of the wrong standard was a clear abuse of discretion and reversed, directing the district court to proceed entirely under the guardianship statute on remand. The court also directed that the district court take evidence on the ward's capacity to express his preference concerning his guardian. In doing so, the "district court may find guidance in the statutory standards for competency to testify at trial." In re Anwiler, C2-00-389, 2000 WL 1240203 (Minn. App. 9/5/00)(unpublished).

Repurchase Options; Homestead Rights of Surviving Spouse. Mother sold her farm to her son under two contracts for deed, retaining in each case the right to repurchase the property for a fixed price. At the time she lived on the farm, and her son lived nearby. Later, she moved to St. Paul, and the son and his wife moved onto the farm. When the son died, his wife claimed that her homestead rights precluded the mother's exercise of the repurchase rights. The court held that contract rights that apply to property are not defeated by later use of the property as a homestead. Richter v. Estate of Sipple, C4-98-857, 2000 WL 1341450 (Minn. App. 9/19/00)(unpublished).

In this month's "Notes & Trends":

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

Zoning and Land Use. Appellants intended to build on their property an animal feedlot that was permissible under the county ordinance but in violation of the township ordinance. The Court of Appeals held that townships may enact zoning ordinances that are more restrictive than county ordinances on the same subject matter, provided the ordinances are not inconsistent. Altenburg v. Bd. of Supervisors, C9-99-2133, 615 NW2d 874 (Minn. App. 9/5/00).

Homeowners Association: Breach of Contract and Negligence. When the governing contractual documents, including the bylaws and the occupancy agreement, between the homeowners association and the homeowner clearly placed the responsibility of repairs on the homeowner, the Court of Appeals held the association did not breach its contract by not making plumbing repairs. Parties to an express contract are entitled to have their rights and obligations determined by the terms of the contract. Additionally, because appellant failed to support its negligence claim with specific evidence, the trial court properly granted summary judgment. Busby v. The Groves Homeowners Ass'n, C6-99-2204, 2000 WL 1239760 (Minn. App. 9/5/00)(unpublished).

Zoning and Land Use. The county board denied the applicants' request for a conditional-use permit for hog barns. The Court of Appeals held that the county board had a rational basis for denying the request even though the hog barns may have technically satisfied the county land-use plan, because the hog barns had the potential of adversely affecting the public health, safety or welfare. Carlson v. Blue Earth County Bd. of Comm'rs, C1-99-1980, 2000 WL 1239734 (Minn. App. 9/5/00)(unpublished).

Equitable Mortgage; Breach of Lease. In a transaction where appellants executed documents to sell their game farm to respondents and then lease it back, the Court of Appeals affirmed the trial court ruling that the transaction was a sale and not an equitable mortgage. A deed is presumed to be a conveyance unless at the time of the conveyance both parties intended a loan transaction, using the deed as security. Furthermore, the failure of lessee to name the landlord as an insured was held to be a material breach of the lease. Hess v. Ellwanger, C5-00-29, 2000 WL 1220816 (Minn. App. 9/29/00).

Municipal Law. The Court of Appeals reversed the trial court ruling that respondent satisfied the statutory dedication requirement of a disputed roadway under Minn. Stat. §160.05, subd. 1. Even though the disputed roadway was occasionally used by the public for access and hauling, the records of the township show that it maintained the roadway for only four years in the 1920s. Delhi Township v. Minn. Dep't of Natural Resources, C9-00387, 2000 WL 1221184 (Minn. App. 9/29/00).

Real Estate Sale; Fraudulent Misrepresentation. Sellers represented to buyers that the house was suitable for year-round occupancy. After the sale, buyers hired a real estate inspection company that reported that the house required repairs to make it suitable for winter occupancy. The Court of Appeals held that because the buyers did not address sellers' claim that they lived in the home for six winters, buyers failed to prove that sellers falsely represented that the house was a year-round house, knowing it to be false. Nemec v. Clerk, C0-00-245, 2000 WL 1182773 (Minn. App. 9/22/00).

In this month's "Notes & Trends":

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

Property Tax Appeal; Discovery Motion. The Minnesota Tax Court, in a motion to compel discovery, directed the county to provide the original discovery materials to taxpayer a second time for review and copying where the taxpayer did not copy all the materials the first time. The taxpayer's demand for materials used in the expert's appraisal was denied except for the materials required by Minn. R. Civ. P. 26.02(d). Space Center Enterprises v. County of Ramsey, C6-97-3361, 2000 WL 1006251 (Minn. T.C. 7/19/00).

Minnesota Income Tax; Federal Adjustments. The Minnesota Tax Court affirmed an assessment of state income tax against the taxpayers, whose federal personal income tax liability was increased after IRS audits but then reduced by a federal credit for the restoration of a historic structure. The federal income adjustments flowed through but there was no counterpart restoration credit under Minnesota law. Schlosser v. Comm'r, No. 7142, 2000 WL 1055229 (Minn. T.C. 7/27/00).

Property Tax Appeal; Income-Producing Property. The Minnesota Tax Court granted the request of the county to dismiss the petition for failure to turn over financial information on "income-producing property" within 60 days of filing the petition as required under Minn. Stat. §278.05, subd. 6(a). The taxpayer's claims of mitigation based on owner-occupied status, special purpose property, waiver of the statutory requirement by the county, and the failure of the county to request the information were rejected. Northwest Airlines, Inc. v. County of Hennepin, Nos. TC-25905, 26549, and 27651, 2000 WL 1238944 (Minn. T.C. 8/29/00).

Statute of Limitations; Refund Claims. The Minnesota Tax Court held that the taxpayer's claim for refund had not been filed within 3 1/2 years of filing the return, as required by Minn. Stat. §289A.40, subd. 1, and was barred. The argument was rejected that since no taxes were due on the return, the statute of limitations on filing claims for refund did not apply. The court does not have equitable jurisdiction to adjust the statute. Pipestone Performing Arts Center v. Comm'r, No. 7253, 2000 WL 1275320 (Minn. T.C. 9/7/00).

Gain from Stock Sale not Offset by Passive Losses. An underwriter for a foreign insurance company was not entitled to offset his passive activity losses incurred in connection with the underwriting activity against gain realized from the sale of pledged stock. The gain constituted portfolio income because it was attributable to the disposition of dividend-purchasing property that was not derived in the ordinary course of a trade or business. More v. Comm'r, 115 T.C. No. 9, 2000 WL 1146741 (2000).

Jurisdiction Declined; Late Filing Penalty Dispute. The IRS assessed the tax reported on the return of an estate and imposed a penalty for late filing. The parties agreed in the audit to a settlement that produced an estate tax lower than that reported on the estate tax return but the settlement did not include the penalty. When the estate brought an action in the United States Tax Court to dispute the late filing penalty that had been assessed before the issuance of the notice of deficiency, the court held that it did not have jurisdiction over the matter because the penalty was not attributable to a "deficiency," as defined in IRS §6211. Forgey Estate v. Comm'r, 115 T.C. No. 11, 2000 WL 1157147 (2000).

Innocent Spouse. The innocent spouse issue has received a great deal of attention from the United States Tax Court. In Corson v. Comm'r, 114 T.C. 354, 2000 WL 637480 (2000), the tax court determined that when a former spouse requests relief from a joint liability under Section 6015, the other spouse is entitled to receive notice and will be presented with an opportunity to challenge the other spouse's request for relief. In King v. Comm'r, 115 T.C. 8, 2000 WL 113914 (2000), the court held in a similar case that when one spouse petitions for innocent spouse relief, the nonpetitioning spouse may intervene. The court also issued Interim Rule 325, "Notice and Intervention," that directs the commissioner to serve notice of the filing of a petition on the other individual filing the joint return. If you are representing a client with an innocent spouse issue, you should familiarize yourself with these cases and Interim Rule 325.

Distribution to S Corporation Shareholders of C Corporation Stock. Distribution by an S corporation to its sole shareholders of all the outstanding stock of a C corporation, shortly after the C corporation redeemed the shares with funds borrowed from the S corporation, does not qualify as a "tax-free" spinoff. Since the distribution of the C shares occurred less than five years after acquiring control of the shares, the transaction failed Section 368. McLaulin v. Comm'r, 115 T.C. No. 18, 2000 WL 1349154 (2000).

Conversion of Partnership Items. The conversion of a deceased husband's partnership items into nonpartnership items as a result of a request for prompt assessment necessarily converts into nonpartnership items all the items taken into account on the joint return by reason of his interest. Therefore, the deficiency procedures apply to assessment of deficiencies attributable to those items against either the husband's estate or his wife. Callaway v. Comm'r, No. 99-4022, 2000 WL 1336313 (2d Cir. 9/15/00).

Forfeited Salary; Withholding Requirements. United Way of America is entitled to withhold federal and state income taxes from pension benefits ordered paid to its former president but not on the portion thereof equal to the amount of forfeited salary. Aramony v. United Way of Am., No. 96 Civ. 3962 (SAS), 2000 WL 1201049 (S.D.N.Y. 8/23/00).

Petition for Certiorari on "Economic Nexus". Tennessee requested the United States Supreme Court to rule on whether a state may, in accordance with the nexus requirements of the Commerce Clause, impose franchise and income-based taxes on corporations that derive significant economic benefits from regular and continuous activities conducted in that state through means of interstate commerce, even though those corporations lack the physical presence in the state for imposing a use-tax collection duty. Johnson v. J.C. Penney Nat'l Bank, 19 S.W.3d 381 (Tenn. App. 2000), petition for certiorari filed 8/4/00.

Resulting Trust Theory in Same-Sex Relationship Rejected. The survivor in a same-sex relationship failed to prove that a resulting trust for a 50 percent interest was created in her favor with respect to a home that the decedent purchased and titled in her name alone. Thus the entire value of the home, rather than just 50 percent, was includable in the decedent's gross estate and the entire mortgage balance was deductible. Scott v. Comm'r, No. 99-3216, 2000 WL 1277343 (7th Cir. 8/8/00).

Contingent Attorney Fees; Gross Income. The 5th Circuit held that a portion of a settlement payable to a couple's attorney under a contingent fee agreement is excludable from gross income. This case represents a split in the circuits, with the 6th and 5th Circuits permitting exclusion and the 3rd, 9th, and Federal Circuits requiring inclusion. Srivastava v. Comm'r, 220 F.3d 353 (5th Cir. 2000). See also, Geier, "Some Meandering Thoughts on Plaintiffs and Their Attorneys' Fees and Costs, Tax Notes, pp. 531-549 (7/24/00).

Refund Claim in Late-Filed Return Timely. A refund claim made by a taxpayer as part of his tax return is timely, even though the return itself is untimely. Two limitations periods are at issue. First, the three-year period from the time a return is filed within which a refund claim must be filed, and second, the three-year "look-back" period in which a tax payment must have been made in order to be refundable. On the first limitations period, the court follows the majority of courts that the return itself need not have been timely filed. On the second, the document, as a refund claim, was saved from being untimely by the so-called "mailbox rule;" although the same document, as a return, was untimely. Weisbart v. United States, 222 F.3d 93 (2d Cir. 2000).

Remainder Interest in Trust; Crat. Decedent's estate is not entitled to deduct the charitable remainder interest in a trust intended to be a charitable remainder annuity trust for failure to pay annual minimum distributions and for invasion of corpus to benefit a noncharitable secondary beneficiary. Estate of Atkinson v. Comm'r, 115 T.C. No. 3, 2000 WL 1030270 (2000).

Grat Interests Valued as Single-Life Annuity; Spousal Benefits Recoverable by Grantor. Retained interests in spouses' grantor-retained annuity trusts (GRAT) are to be valued for gift tax purposes as a single-life annuity, since spousal interests in each trust are not fixed and ascertainable and because retained interests may extend beyond the shorter of a term of years or the period ending at grantor's death. Cook v. Comm'r, 115 T.C. No. 2, 2000 WL 1016950 (2000).

Withheld Documents. The IRS properly withheld documents in a Freedom of Information Act case relating to its decision to prosecute Rev. Sun Myung Moon for alleged violations of federal tax laws. Heggestad v. Justice Dep't, No. 98-0053 TFH, 2000 U.S. Dist. LEXIS (D.D.C. 6/30/00).

Accrual Method. Asphalt purchased by a paving company and delivered directly to its jobsites for immediate use is not "merchandise" and thus the company is not required to use the accrual method of accounting. Jim Turin & Sons, Inc. v. Comm'r, 219 F.3d 1103 (9th Cir. 2000).

Salaries Deductible; Costs Classified by Merger Decision Date. An acquired bank is entitled to deduct as ordinary business expenses the entire salaries of officers who participated in the consideration of the proposed merger, and that portion of legal and investigatory expenses incurred prior to a "final decision" on the transaction. Legal and investigatory expenses incurred thereafter are capitalized. Wells Fargo & Co. v. Comm'r, No. 99-3307, 2000 WL 1219430 (8th Cir. 8/29/00).

Innocent Spouse Relief. An individual lied to by her spouse about whether retirement proceeds were taxable but who knew about the proceeds is not entitled to innocent spouse relief under Section 6015(f). Knowledge of the "item giving rise to a deficiency" for purposes of Section 6015(c)(3)(C) does not mean knowledge of the tax consequences of the item or that the entry on the return is incorrect. Cheshire v. Comm'r, 115 T.C. No. 15, 2000 WL 1227132 (2000).

Reliance on Professional Advice; Negligence Penalty. The district court did not abuse its discretion in instructing the jury on "good faith" reliance on professional advice as a defense to a penalty. Thus the jury finding that taxpayers were not negligent supported the conclusion that the IRS abused its discretion in failing to waive a negligence penalty against the taxpayers that invested in a leaky tax shelter. Thompson v. United States, No. 98-5187, 2000 WL 1224531 (10th Cir. 8/29/00).

Due Process Hearing; Right to Subpoena. A taxpayer is entitled to receive an independent collection hearing before an appeals officer where a notice of federal tax liens is filed or after a notice of intent to levy is given. At a collection due process hearing under Section 6330, the taxpayer does not have the right to subpoena and examine witnesses. Davis v. Comm'r, 115 T.C. No. 4, 2000 WL 1048515 (2000). See also McCune v. Comm'r, 115 T.C. No. 7, 2000 WL 1101037 (2000) (the tax court dismissed a request by a taxpayer because the taxpayer did not seek review within 30 days of an adverse determination by the IRS after a collection due process hearing).

Awards of Back Wages; Allocation. Back wages, for the purposes of the FICA and FUTA taxes, are allocated to the year in which those wages were earned, rather than to the year the back wages were paid. Cleveland Indians Baseball Co. v. United States, 215 F.3d 1325 (6th Cir. 2000), No. 00-203, petition for certiorari filed 8/8/00.

IRS Announces New Web Site . The IRS announced the creation of a new Web site for taxpayers seeking information about their rights when dealing with it. Designed to be "an easy one-stop shop," the new site can be accessed directly at http://www.irs.gov/ind_info/txpyr_rights/index.html.

Transfers of Corporate Debt; Related Beneficiary. In a recent revenue procedure, the IRS explained that the acquisition of debt by a beneficiary of a decedent creditor's estate was not a direct acquisition of debt even though the beneficiary and the decedent creditor were related to the corporate debtor. Rev. Proc. 2000-33, 2000-36 I.R.B.

Reverse Like-Kind Exchanges under Section 1031. The IRS in the past had not approved tax-free treatment for "reverse-Starker" exchanges where the replacement property was acquired before the taxpayer relinquished the property being given up. The IRS will now treat such exchanges as tax-free under certain conditions. Rev. Proc. 2000-37, 2000-40 I.R.B.

Gift Tax. The IRS issued final regulations on the definition of a "qualified interest" under Section 2702. T.D. 8899, at p. 288.

Final Rules: No Trust Use of Notes to Satisfy Grantor's Retained Interest Yield. The IRS issued final regulations under Section 2702 that prohibit the use of notes by either a grantor-retained annuity trust (GRAT) or a grantor-retained unitrust (GRUT) to make a required payment to a grantor retaining an interest in the trust. T.D. 8899, Fed. Reg. (9/5/00).

Employer Choice; Old and New Per Diem Rates. The IRS announced that employers may choose between two sets of per diem rates for employee travel during the last quarter of calendar year 2000. Per diem rate changes will now be effective October 1 and were announced in Revenue Procedure 2000-39, 2000-41 I.R.B. and appear on the General Services Administration Web site at www.policyworks.gov/perdiem. Notice 2000-48, I.R. 2000-60 I.R.B.

Final Rules on Sale of Interests in Pass-Through Entities. The IRS issued final regulations on the taxation of capital gain income from sales or exchanges of interests in partnerships, S corporations, and trusts. The rules are needed because there are three tax rates for capital gain property. T.D. 8902, Fed. Reg. (9/21/00).

Toll-Free Telephone Number for Appeals. The IRS announced a new toll-free telephone number (1-877-457-5055) for taxpayers who have questions on the appeals process or who need help. Announcement 2000-80 and I.R. 2000-65.

Streamlined Sales Tax Project. The Streamlined Sales Tax Project (SSTP) is a multistate initiative that combines technology and simplified definitions to ease administration and collection for remote and brick-and-mortar sellers. The SSTP circulated for comment its major recommendations, which include:

• creation of a new, ZIP-code-based system for determining local tax rates on out-of-state sales;
• creation of a standard, common exemption form for use by all states and the elimination of a "good-faith" requirement for retailers; and
• establishment of a uniform sourcing rule based on location of sale and billing or shipping addresses to source transactions for sales and use tax purposes.

Model legislation is expected by December 2000. The recommendations can be obtained at http://www.geocities.com/streamlined2000/publichrgs.html.

Proposed Minnesota Rules: Innocent Spouse Relief, Liability of Divorced Spouses. The commissioner proposed a rule on the formula and procedure for allocating the joint liability of divorced spouses for unpaid individual income tax under Rule 8160.0500. The commissioner will adopt the rules without a public hearing unless 25 or more persons request a hearing. Minn. Reg. 25 S.R. 584 (8/28/00).

Proposed Rules: Minnesota Deed Tax. The commissioner proposed rules governing deed tax in Rule 8123. Specifically, the proposed rules define the phrases "engaged in the business of land sales or construction of buildings or other improvements", and "affiliated person," as those phrases are used in Minn. Stat. §287.20(2d). Minn. Reg. 24 S.R. 399 (9/20/00).

Section 453; Installment Method. Permission to use the alternative method of basis recovery in a sale transaction with an earnout provision was granted by the IRS. P.L.R. 200036014.

Final Rule: Information Returns, Interest on Installment Agreements. The IRS issued final regulations to extend to March 31 the annual filing deadline for taxpayers that file Form 1099 information returns online. They also implement rules that reduce the monthly penalty for taxpayers that fail to pay their income tax on time from 0.5 percent to 0.25 percent, provided the taxpayers enter into an installment agreement with the IRS. T.D. 8895, Fed. Reg. (8/18/00).

Eligible Deferred Comp Plans; Tax-Exempts/Local Governments. The IRS issued guidance on administrative issues for those involved in sponsoring and maintaining plans under IRC §457. The withholding of income and employment taxes from contributions and distributions is also covered. Notice 2000-38.

"Same Desk" Rule; Terminated but Rehired Employees. Terminated employees incurred a separation from service due to their discharge by Company A, despite the fact that they were rehired by Trust N to perform substantially the same job at the same location. Since there was no merger, transfer of assets or similar event associated with the discharge of the employees, the "same desk" rule of Rev. Rul. 79-336 and Rev. Rule. 80-129 did not apply. The IRS revoked a prior ruling that had concluded differently. P.L.R. 200030031.

Corporate Tax Shelter Reporting, Registration, List Maintenance Regulations. The IRS issued temporary proposed regulations on corporate tax shelters to clarify the scope and to address some practical compliance problems. T.D. 8896, Fed. Reg. (8/16/00).

Pilot Program to Resolve Large Business Cases out of Court. The IRS announced a pilot program under which large business taxpayers may request resolution of all open issues for all open years currently or previously under examination. I.R. 2000-43, 2000-35 I.R.B.

2001 CPE Instructions for Exempt Organizations. The IRS released its fiscal year 2001 continuing professional education text for tax-exempt organizations, which outlines topics and developments for tax-exempt field agents and IRS personnel. See, BNA Daily Tax Report, No. 175 at pp. G-7 - G-9 (9/8/00).

Dependency Exemption for Family of Kidnapped Child. Representative Jim Ramstad introduced legislation to reverse a recent IRS ruling that disallowed a dependency exemption to the family of a missing child in the years after the child's abduction. The bill responded to an IRS memorandum that barred the family of a kidnapped child from taking tax dependency exemptions in the years following the abduction, even if the family continued to maintain the child's room and spent money searching for the child. H.R. 5117.

2001 Legislative Plan. Governor Ventura proposed in September that Minnesota assume the full cost of basic education by taking over the costs now paid by local homeowners and businesses in local property taxes. To pick up the shortfall of $880 million a year, the state is proposing to broaden the state sales tax to cover many untaxed services, such as legal and accounting, and to tax clothing. The commissioner is holding town meetings for taxpayer feedback, will use the information to draft legislation, and expects to announce the "Big Plan" by late Fall.

Citizens League Report; Property Tax Reform. According to a report issued by the Citizens League, the perception of market value increases driving property-tax bills beyond an owner's ability to pay did not warrant either broad reform or a complete overhaul of the existing system. The report also expressed views on limited market value, uniformity of property assessments, and property tax appeals. Copies are available online at www.citizensleague.net or by calling the League at 612-338-0791.

Electric Deregulation. In September 2000, the Minnesota Commerce Department unveiled a policy report, called "Keeping the Lights On: Securing Minnesota's Energy Future," that rejected retail electric competition because the most pressing challenge in Minnesota was maintaining reliable electricity. Among other things, the report calls for repeal of the state personal property tax on all equipment in new electric generation plants and on replacement equipment.

The Minnesota Economy. Concerns were raised in March on whether Minnesota is keeping up with the trends on technology and computers, which are shaping tomorrow's economy for start-up businesses. A high-profile conference, called "The Summit on Minnesota's Economy," was held in September. As a consequence, a bill was drafted for the 2001 Legislature that is intended to accelerate high-technology activity in Minnesota. The bill provides for out-of-state tuition breaks to students, allows capital gain exemptions for investors in Minnesota firms, establishes refundable research and development tax credits for companies that conduct qualified research within Minnesota, and firms up research funding for the University of Minnesota.

In this month's "Notes & Trends":

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

Underinsured Motorist; Statute of Limitations. Plaintiffs were injured in a multivehicle chain-reaction collision on March 18, 1992, and sued the driver of the car that rear-ended them. That claim was settled on August 12, 1995. Before settling, plaintiffs notified their underinsured (UIM) motorist carrier of their intent to seek underinsured motorist benefits under their policy. Under the policy, UIM benefits were not recoverable until all tortfeasors' "limits of liability" had been exhausted by settlement or judgment. Accordingly, the plaintiffs' underinsured motorist carrier informed them that their claim was not ripe because they had not pursued a claim to settlement or judgment against all tortfeasors, including the driver of the car that hit the car that rear-ended plaintiffs. As a result, plaintiffs commenced an action against that driver's estate, which was settled on August 26, 1998. Plaintiffs then commenced an action against their underinsured motorist carrier on October 7, 1998, to recover UIM benefits.

The carrier moved for summary judgment, arguing that the six-year statute of limitations for UIM claims begins to run on the date of the accident causing injury and therefore the plaintiffs' action was time-barred. In response, plaintiffs argued that under the language of their policy, the statute of limitations did not begin to run until the limits of all tortfeasors' liability had been exhausted, which did not occur until the August 26, 1998, settlement. The district court rejected plaintiffs' argument and dismissed the action. The Court of Appeals affirmed the dismissal.

The Minnesota Supreme Court reversed and remanded. In doing so, the court created a new legal rule. Rejecting all prior opinions that arguably held that a UIM claim accrues on the date of the accident that causes the injury, the court held that the date of the settlement with or judgment against the tortfeasor is the proper accrual date for UIM claims. Accordingly, this new rule insures that the statute of limitations on a UIM claim will not run before it is known whether the tortfeasor is actually underinsured, and therefore, before a UIM claim could have been brought. This new rule applies to all UIM policies. Oanes v. Allstate Ins. Co., No. C5-99-704, 2000 WL 1310493 (Minn. 9/14/00).

No-Fault Benefits. A stationary bookmobile is not a vehicle being used in the business of transporting persons or property within the meaning of Minn. Stat. §65B.47, subd. 1. Illinois Farmers Ins. Co. v. The League of Minn. Cities Ins. Trust, No. C9-00-499, 2000 WL 1341460 (Minn. App. 9/19/00).

No-Fault Arbitration. Plaintiff filed for no-fault arbitration when her insurer declined to pay $2,582.01 in outstanding medical bills. A day before the arbitration hearing, plaintiff filed an arbitration brochure claiming additional medical expenses and wage-loss benefits of approximately $35,500 that had accrued after the filing of the petition. The arbitrator awarded plaintiff the entire amount she requested. The insurance company then moved to vacate the award, claiming that the arbitrator lacked jurisdiction to hear the case because the claim exceeded the $10,000 jurisdictional limit and the arbitrator exceeded his authority in interpreting the No-Fault Insurance Act. The district court agreed with the insurer and vacated the award.

The Court of Appeals, however, reversed the district court. The appellate court did not agree that Minn. Stat. §65B.525, subd. 1, is ambiguous or that the arbitrator engaged in impermissible legal interpretation. The court stated that the arbitrator knew from the plain language of the no-fault statute and case law what the term "claim" meant, what types of expenses and losses qualified for no-fault benefits, and what claims were required to be arbitrated. As such, there was nothing for the arbitrator to "interpret." Consequently, in ruling that he had jurisdiction over the increased claim, the arbitrator was applying the clear law to the facts and therefore did not exceed his authority. Karels v. State Farm Ins. Co., No. C5-00-371, 2000 WL 1341453 (Minn. App. 9/19/00).