July 2001

Dismissal Order; Rule 41. The Minnesota Court of Appeals recently upheld a dismissal order pursuant to Minn. R. Civ. P. 41. See Dixon v. Minneapolis Water Dept., 2001 WL 537043 (Minn. App. 5/22/01). Rule 41.02, which is sparingly used, provides, "The court may upon its own initiative, or upon motion of a party, and upon such notice as it may prescribe, dismiss an action or claim for failure to prosecute or to comply with these rules or any order of the court."

In Dixon, plaintiff disputed a water bill and commenced an action alleging (in part) conspiracy, abuse of power, racketeering, fraud, retaliation, and racial discrimination. Thereafter, plaintiff filed several motions with the court, including a "Petition Defendant for Complete Document[a]ry Meter Actual Reading on 5/4/99," a "Motion Requesting Documents and Records from Defendant," and a "Motion Requesting Extension of Time to File Inter[r]ogatory and to Submit Documents." Upon receipt of the motions, the district court issued an order forbidding the plaintiff from filing any additional motions until the court had reviewed the then-pending submissions. Thereafter, plaintiff delayed serving defendant with discovery requests and answering respondent's interrogatories.

In response to defendant's motion for summary judgment, plaintiff subpoenaed various witnesses to attend and testify at the summary judgment hearing, including Mayor Sharon Sayles Belton and Minnesota Representative Phil Carruthers. Shortly after serving the subpoenas, the district court dismissed plaintiff's case. The district court concluded that plaintiff had "repeatedly abused judicial process by filing frivolous motions, delay[ed] the discovery process, and … improperly subpoenaed witnesses for Summary Judgment."

The appellate court affirmed, holding that "because appellant violated the rules of civil procedure, we conclude the district court did not abuse its discretion in ordering dismissal of appellant's case against respondent."

Rule 59 Motion for New Trial. The Court of Appeals also recently rejected an appeal from denial of a motion for a new trial based on newly discovered evidence, holding the evidence could have been discovered earlier if plaintiff had used "reasonable diligence." Gonzalez v. Imperial Camper Sales, Inc., 2001 WL 537048 (Minn. App. 5/22/01).

In Gonzalez, plaintiff sued his former employer, claiming he had been hired under false pretenses. At least one claim was dismissed by the district court on defendant's motion for directed verdict, and the remaining claims were rejected by the trial court after a trial on the merits.

About a month after the trial, another employee of defendant consulted with plaintiff's counsel about an unrelated employment matter. In the course of the consultation, plaintiff's counsel learned that this employee knew about the circumstances surrounding the hiring of plaintiff, and could have provided evidence to rebut defendant's testimony.
Based on this newly discovered evidence, plaintiff's counsel made a motion pursuant to Minn. R. Civ. P. 59.01(d) for a new trial. The district court denied the motion for a new trial, ruling that reasonable diligence during the discovery phase could have produced the new evidence. The appellate court affirmed.

The major problem with plaintiff's motion was that the defendant had identified the individual in its answers to interrogatories as a "person with knowledge of plaintiff's performance and behavior" and also listed the person on its witness list (although the person was never a witness at trial). Plaintiff's counsel, despite seeing this name in interrogatory answers and on the defendant's witness list, never deposed or otherwise investigated the person's knowledge.

The appellate court further bolstered its holding by noting that even if plaintiff's counsel exercised reasonable diligence and learned of the knowledge of the potential witness before trial, "there has been no showing that Lee's testimony would have produced a different result at trial." The case nevertheless presents an important lesson to practitioners to remember to track down every possible lead because the one person you choose not to depose may actually help your case.

-- Cynthia Jokela Moyer
Fredrikson & Byron, PA

DWI/Implied Consent: Collateral Estoppel. Departing from the settled legal principle, and effectively overruling State v. Juarez, 345 NW2d 801 (Minn. App. 1984), the Court of Appeals holds that the prosecuting attorney in a criminal DWI case, after being given notice and opportunity to participate in an implied consent hearing, would be collaterally estopped from opposing the binding effect of such an implied consent order at a later DWI suppression hearing involving the same underlying facts and same question of law. At the pretrial conference in the instant case, the prosecutor was advised that the implied consent hearing was to be held five days later. This does not constitute proper notice, being a mere invitation to attend a hearing. Furthermore, the prosecutor was entitled to rely on settled case law. The court suggests that notice should be given either through the court administrator's office or directly by the driver when an implied consent hearing is scheduled.

The rationale for reversing legal precedent, and finding that the commissioner of public safety is in privity with of the state of Minnesota in a factually related DWI prosecution, is found in the now blurred distinction between the civil implied consent hearing and the criminal prosecution. Because implied consents have become means to enhance the charges and to impose mandatory/consecutive penalties, the relationship between the commissioner of public safety and the state of Minnesota has become symbiotic. Furthermore, "the potential for inconsistency, realized in this case, is among the most objectionable results of the present system." State v. Seth James Victorsen, 2001 WL 410380 (Minn. App. filed 4/17/01).

Serial Prosecution: Multiple Traffic Charges. Appellant was charged with operating a motor vehicle with an expired license and gross misdemeanor DWI. Appellant brought a pretrial motion to dismiss the DWI charge pursuant to Minn. Stat. ¤ 609.035, arguing that the DWI charge violated the state's prohibition against serial prosecution. It is unclear from the text of this opinion whether the appellant previously pleaded guilty to the expired driver's license charge. The district court denied the motion to dismiss the DWI charge, concluding that it did not arise out of a single behavioral incident.

Held, the prosecution of appellant for DWI does not violate Minn. Stat. ¤ 609.035's prohibition against serialized prosecution. Driving with an expired license constitutes a continuing offense, while DWI is an offense that is limited in time and place. This opinion contains several examples of traffic charges that are distinct and separate offenses for purposes of multiple prosecution or punishment: driving after cancellation/uncased firearm, driving after cancellation/aggravated DWI, unsafe equipment/damage to property, no driver's license/speeding, driving after revocation/criminal negligence. State v. Thane John Reimer, 625 NW2d 175 (Minn. App. filed 4/24/01).

Driver's License Violations: Alcohol: Proof of Willfulness. Appellant was charged with a violation of Minn. Stat. ¤ 171.09, Violation of a Driver's License Restriction -- specifically, no use of alcohol. At jury trial, the state introduced into evidence the appellant's driving record, but produced no evidence that the appellant ever saw his record. The Court of Appeals rejects the state's argument that the appellant was in any way aware of the restriction, and also rejects the state's proposition that the mere fact that a driver's record reflects such a restriction provides adequate notice of that restriction to the driver. The state presented no evidence that the appellant was issued a "B" card, or a driver's license showing a total abstinence restriction. Furthermore, Minn. Stat. ¤ 171.09 is modified by Minn. Stat. ¤ 171.241, which provides that it "is a misdemeanor for any person to willfully violate any of the provisions of this chapter unless the violation is declared by any law to be a felony or gross misdemeanor, or the violation is declared by a section of this chapter to be a misdemeanor." Minn. Stat. ¤ 171.09 is neither a felony nor gross misdemeanor, nor is it declared to be a misdemeanor by any other section of chapter 171. Conviction reversed. State v. Brian Henry Rhode, 2001 WL 436100 (Minn. App. filed 5/1/01).

Assault: Deadly Force: Fists. The respondent was incarcerated in a county jail, and attacked a correctional officer in an attempt to escape. The respondent is a 265-pound former carnival worker, powerfully built, and large enough so that leg restraints had to be used to bind his hands instead of handcuffs. In an unprovoked attack, he admitted hitting the guard hard enough that he thought he may have killed him. The correctional officer was struck several times while he was lying defenseless on the floor after the initial devastating punch.

Held, it was error for the district court to dismiss the first-degree assault charge for lack of probable cause that deadly force was used. Hands and fists alone may constitute deadly force under Minn. Stat. ¤ 609.066. The evidence supports a finding that the respondent used force which was severe enough that he knew, or should have known, that he created a substantial risk of permanent or protracted loss of any bodily member, or other serious bodily harm. It is for the jury to decide whether these facts constitute the use of deadly force. State v. Juan Lopez Ortiz, 626 NW2d 445 (Minn. App. filed 5/8/01).

Criminal Procedure: Reopening Evidence After Jury Deliberations. Shortly after the jury began deliberations, the appellant requested a hearing as to whether a witness-made statement was exculpatory to the defendant. At the hearing, a deputy testified that she had heard the witness say to the appellant "no man, it wasn't you. I heard they are trying to give you 30 years." Subsequently, the witness was granted immunity as to the hearing on the appellant's motion for new trial. At this hearing, he made statements which equivocated with respect to his recantation.

No Minnesota criminal case discusses the issue of whether the district court may rule when to review additional evidence, once the jury has begun deliberations. The court holds, however, that a trial court judge has discretion to reopen a case, but suggests the United States Supreme Court's position is that this discretion is very limited, because providing such additional evidence would likely distort its importance. In this case, the trial court did not abuse its discretion by refusing to reopen the testimony, given the equivocal nature of the evidence and the prejudice to the state. State v. Tou L. Yang, 2001 WL 477265 (Minn. App. filed 5/8/01).

Search & Seizure: Traffic Stop: Illegal Detention. The respondent was stopped for a cracked windshield. While looking into the van, the trooper noted a key chain in the shape of a marijuana leaf, but saw no drug paraphernalia or other evidence of drug use. The trooper checked and found the respondent's license was valid. Respondent was issued a citation for a cracked windshield.

The respondent had been placed in a squad car, during which time the trooper stated she perceived indications of nervousness: shaking hands, and restlessness. The trooper then began a series of questions which were unrelated to the stop, and asked the respondent if he had been using alcohol or drugs, which the respondent denied. The trooper concluded that the respondent's behavior was "consistent with someone deceitful or under the influence." The respondent was never told that he was free to leave. The trooper asked for consent to search the van, but was twice denied. The trooper then announced that he would summon a narcotics canine to the scene, at which point the respondent admitted that he had psilocybin mushrooms in the van. Based on this admission, the trooper searched the van and found one gram of mushrooms.

Held, the district court properly suppressed drugs taken in the search. The detention of the vehicle for a cracked windshield was appropriate. Although the courts had not imposed a rigid time line on the allowable duration of the detention following a traffic stop, the general rule is that "an investigatory detention may not continue indefinitely but only as long as reasonably necessary to effectuate the purpose of the stop." State v. Bell, 557 NW2d 603, 606 (Minn. App. 1996), review denied, (Minn. May 18, 1997). Hence, the trooper's continued detention of the respondent was valid only as supported by a distinct set of particularized and objective facts supporting a reasonable suspicion of criminal activity. "While an officer's perception of a defendant's nervousness may contribute to an officer's reasonable suspicion, this indicator is not sufficient by itself and must be coupled with other particularized and objective facts." The district court found that the respondent's nervousness was itself the product of a continued detention. Neither the marijuana key chain nor the respondent's nervousness, nor a combination of both justified a continued detention and search of the respondent.

Furthermore, the court holds that the respondent's admission to possession of drugs occurred while he was being illegally detained and was the product of that detention. The admission, therefore will be suppressed just like any other product of an illegal arrest. State v. Brian Russell Tomaino, 2001 WL 477227 (Minn.. App. filed 5/8/01)

Search & Seizure: Automobile Stop: Evasive Action. A police officer noted the appellant drive properly through an intersection, then turn into a private driveway "so quickly" that the officer believed the appellant might be trying to avoid him. The officer then observed the appellant speak with the property owner. During this conversation, the officer ran a check and found out the car's registration belonged to a person in Glencoe, not a local Orono address. About three minutes after entering the driveway, the appellant pulled back on the road and continued to drive, at which time the officer made an investigatory stop. Following the stop, the officer learned that the appellants driver's license had been canceled.

Held, the trial court erred in not suppressing evidence derived from the stop. The above conduct does not rise to the level of furtive action or evasive conduct such as in Terry v. Ohio, 392 U.S. 1, 88 S.Ct. 1868 (1968), State v. Johnson, 444 NW2d 824 (Minn. 1989), or State v. Petrick, 527 NW2d 87 (Minn. 1995). There was no combination of several different possibly furtive actions, nor any extreme measures of avoidance. Hence, at the inception of the stop, the officer's suspicion was inchoate, and no facts had ripened into the category of such unusual behavior from which a reasonable inference of the possibility of criminal behavior might arise. State v. Joel William Schrupp, 625 NW2d 844 (Minn. App. filed 5/15/01).

Sentence: Criminal History: Out Of State Convictions. The trial court erred in disregarding two criminal history points based on an out-of-state murder conviction arising from an offense that occurred when the appellant was 16 years old, in 1978. The court stated that this 20-plus-year-old conviction would have been treated very differently in Minnesota in 1978 than it had in Texas, and then departed beneath the guidelines by sentencing the appellant as if he had only two criminal history points, rather than the presumptive four-plus criminal history points, given the Texas conviction.

Held, it was an abuse of discretion for the judge to disregard the two criminal history points for the 20-plus-year-old murder conviction. In determining the weight given to prior out-of-state convictions, the court must determine how the offender would have been sentenced had the offense occurred in Minnesota at the time of the current offense, not when the out-of-state offense actually was committed. The case is remanded for application of the sentencing guidelines consistent with the opinion. State v. Keith Bernard Reece, 625 NW2d 822 (Minn. filed 5/17/01).

Controlled Substance: Conspiracy: Buyer-Seller Agreement. The appellant was caught with two controlled buys of crack cocaine within a 90-day period. On each occasion, he received a telephone call to sell drugs to a police informant, and he later delivered and sold the substances. On one occasion, there was a third party present named "Laylow" who apparently had no role in the transactions. The appellant was convicted of both the sale of a controlled substance and conspiracy to commit a "controlled substance crime" in violation of Minn. Stat. ¤ 152.096 (1998).

Held, an agreement solely between a seller and buyer of controlled substances cannot constitute a conspiracy under Minn. Stat. ¤ 152.096. If this conduct were to constitute conspiracy, both the seller and the buyer would, as coconspirators, be subject to the same penalty, which is up to the maximum authorized for the substantive crime that the coconspirators conspire to commit. The Legislature, however, has never intended that a seller and buyer of controlled substances be subject to the same penalty, given the intent and history of the statutes which show that a person who sells a particular amount of cocaine should receive a greater punishment than a person who possess the same amount of the controlled substance. The buyer is then, in essence, merely a possessor. State v. Michael Warren Pinkerton, 2001 WL 506504 (Minn. App. filed 5/15/01).

Felony Murder: Fleeing Police Officer: Choice of Laws. The appellant, in the course of fleeing peace officers, ran into two innocent bystanders who were changing a flat tire. The appellant was severely intoxicated. Initially, appellant was charged with two counts of third-degree murder under Minn. Stat. ¤ 609.195(a) and two counts of fleeing a peace officer with death resulting under Minn. Stat. ¤ 609.487, subd. 4 (1998). More than a year later, the state amended the complaint, dismissing the two counts of fleeing causing death, and adding two counts of felony murder under Minn. Stat. ¤ 609.19, subd. 2(1), with fleeing a peace officer under Minn. Stat. ¤ 609.487, subd. b, being the predicate felony. The appellant moved to dismiss the felony murder counts, claiming denial of due process.

Held, the application of the felony murder statute is inappropriate because fleeing a police officer causing death is a more specific crime, and the Legislature has expressed no intent that felony murder should control. The felony murder charge is inappropriate in this situation, and serves no purpose other than to ratchet up the permissible sentence. Generally speaking, when two criminal statutes, one general and one specific, conflict because they have the same elements but different penalties, the more specific statute governs over the general statute. State v. Mantu Manier Craven, 2001 WL 536961 (Minn. App. filed 5/22/01).

-- Frederic Bruno
Frederic Bruno & Associates

New Figures. As of July 1, 2001, the following guidelines were in effect:

• Monthly Statewide Average Payment for a Skilled Nursing Facility (SAPSNF) for Medical Assistance: $3,572
• SAPSNF for General Assistance Medical Care: $2,918
• Minimum monthly maintenance needs allowance: $1,452
• Amount for determining excess shelter allowance: $436 (30% of $1,452)
• Special Income Standard -- Elderly Waiver (SIS-EW) maintenance needs allowance: $722
  

-- Tonya Zdon Gabbard
Garvey & Boggio, PA

Truthful Reason. The "truthful reason" law concerning termination of employment in Minnesota has been amended. The new version of this law, Minn. Stat. ¤ 181.933, requires employers to furnish the "truthful reason" for termination to an employee upon written request. The law formerly provided for a five-day period for the employee to make a request, coupled with a five-day response period. The amended law states that the employee has 15 days to make a written request, and the employer then has ten days to respond. The effect of the request and response remains the same: the reason given by the employer is binding, it cannot form the basis for any defamation claim.

Genetic Testing. Another law enacted during the past legislative session bars employers from engaging in genetic testing of employees. Violation of the measure, Minn. Stat. ch. 154, subjects an employer to treble damages, as well as punitive damages.

Workers Compensation, Unemployment Compensation. The Legislature also made changes in the workers compensation and unemployment compensation laws. The revisions include allowing independent contractors to qualify for workers compensation benefits without having an employer identification and enabling applicants to receive unemployment benefits if they quit their jobs due to specifically documented domestic abuse against them or their minor children.

Waiver of State's Immunity. Another measure expressly waives the state's immunity from suits by employees for violation of four federal laws for which the Supreme Court has declared states are immune unless they consent to be sued: the Age Discrimination in Employment Act (ADEA), Fair Labor Standards Act, (FLSA, the Family and Medical Leave Act (FMLA), and Americans with Disabilities Act (ADA).

Legislative Proposals. Two proposals are winding their way through Congress to modify the FLSA and FMLA. A measure in the House of Representatives seeks to allow private employers and employees to utilize compensatory time off in lieu of overtime pay. The bill would allow employees compensatory time off instead of overtime pay, while also allowing them to bank up to 240 hours of "comp" time in a 12-month period. Employees would also be able to withdraw from the comp time plan at any time. The measure is precursor for what might be a major overhaul of the FLSA, the federal statute that deals with minimum wage and time compensation, but any substantial revision is unlikely to occur for several years.

Democrats in Congress have introduced legislation to increase the federal minimum wage by $1.50 over a three-year period. The proposal, known as the Fair Minimum Wage Act, would increase the federal minimum wage level by 60 cents within a month, 50 cents one year later, and 40 cents after two years. The administration has indicated that it supports an increase in the minimum wage.

In the Senate, a bill has been proposed to amend the definition under the FMLA of a "serious health condition," which triggers coverage under the act to exclude any "short-term illness, injury, impairment or condition for which treatment and recovery are very brief." The thrust of the bill would limit FMLA leave to more long-lasting and serious heart and medical conditions -- such as heart attacks, strokes, other heart conditions requiring surgery or therapy, pneumonia, emphysema, severe nervous disorders, and child birth -- while excluding other severe maladies. Under the measure, S. 489, employers could require employees with a "serious health condition" to choose between unpaid leave under the act or paid leave under a collective bargaining agreement or internal employer policy. The bill also would grant employers who do not require an employee to substitute employer-provided leave for FMLA leave, the ability to deny FMLA leave if the employee does not request a leave within a timely manner.

Cases on Appeal. The U.S. Supreme Court will decide a pair of important cases under the Americans with Disabilities Act (ADA) during its upcoming Term. In U.S. Airways v. Barnett, No. 00-01250, 121 S.Ct. 1600, the Court will consider whether the "reasonable accommodation" provision of the ADA compels an employer to set aside seniority in order to accommodate a disabled worker. The 9th Circuit Court of Appeals agreed with the company that it did not have to accommodate an employee in a way that would conflict with its seniority system, but held that the seniority system alone does not insulate an employer from providing a reasonable accommodation.

Whether an impairment that precludes an individual from performing some, but not all the tasks associated with the job qualifies as a disability under the ADA will be addressed by the Court in Toyota Motor Manufacturing, Inc., Kentucky v. Williams, No. 00-1089, 121 S.Ct. 1600. The case involves an assembly line employee who has repetitive stress syndrome in the arms, wrists and neck that permit performing only light duties, although she could undertake some of her other job responsibilities. This 6th Court of Appeals held that she was wrongfully terminated under the ADA.

The Supreme Court has been relatively harsh on ADA claimants. These two new cases will be watched closely by observers because they may set the tone for other disability discrimination under federal and state laws.

The High Court also has agreed to hear an age discrimination case under the ADEA from Minnesota, Regents of the University of Minnesota v. Raygor, 620 NW2d 680 (Minn. 2000), which involves a claim by two former employees against the University of Minnesota and raises issues of tolling of the statute of limitations.

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

Omnibus Energy Bill Signed. On May 29, 2001, the governor signed an amended version of S.F. 722, the Omnibus Energy Bill. While the legislation touches many areas of energy regulation, from energy conservation to municipal-cooperative joint ventures, significant emphasis is on siting and permitting of power plants and transmission lines.

The legislation increases the jurisdiction of the Minnesota Environmental Quality Board ("EQB") by reducing from 200kV to 100kV the voltage of high voltage transmission lines ("HVTLs") that are subject to EQB routing permits. The legislation also imposes new and relatively short deadlines for various procedural steps in the permitting of new plants and HVTLs. The EQB still has one year, however, to approve or deny permits from the time of receiving a complete application.

A major change in the process of siting power plants and HVTLs is the addition of an alternative review process for certain projects. For smaller power plants, all natural-gas-fired plants and certain HVTLs, the applicant may apply either through the standard EQB review process or a streamlined alternative review process. The alternative review requires an environmental assessment instead of an environmental impact statement, does not require identification of an alternate site, and requires the EQB to make a final decision within six months of receiving a complete application. Most projects that qualify for the alternative EQB review also have the option of applying to the relevant local unit of government for a siting permit. No permit is required from the EQB if the local unit of government exercises jurisdiction and grants the permit.

Other provisions of the legislation include measures to increase energy conservation by state agencies, promote distributed generation, and promote development of renewable energy by providing for voluntary "green marketing" efforts and establishing a "good faith" goal for public utilities to provide at least ten percent of their retail energy from renewable fuel resources by 2015. The legislation also authorizes joint ventures between municipal utilities and other municipal utilities, cooperative associations, municipal power agencies, and investor-owned utilities in order to provide utility services.

-- Robert Devolve
Leonard, Street and Deinard

Attorney Fees. The decree noted the "intense conflict" between the parties and the district court found that the present visitation proceedings were acrimonious. It awarded $10,000 in attorney fees to the mother but did not identify the statutory basis for the award. The Court of Appeals found that a proper review requires that the district court identify the authority for its fee award because there are different requirements, depending upon the authority for the award. It said generally, attorney fees in dissolutions are governed by Chapter 518.14, subd. 1, which allows both need-based and conduct-based fee awards. The standards for the two types are different; therefore, such awards must indicate the extent to which the award was based on need or conduct or both. If based on both, there must be an allocation between the two bases.

The Court of Appeals found that the district court findings included 1) mother had gross income of less than $32,000, 2) her savings resulted from her father's generosity and some settlement assets from the divorce, 3) it is not appropriate for mother to pay all of her fees. It stated that such conclusory findings inconsistencies in the financial information she presented. The appellate court concluded that, on this record, the mother's ability to pay her fees was unclear. As to the father, the district court did not make findings concerning either his net income or his reasonable monthly expenses. Once again, the appellate court concluded that, on this record, the determination that the father could contribute to the mother's fees was unclear.

On the issue of the conduct-based fee award, the Court of Appeals rejected the father's argument that he had not acted in bad faith because the statute does not require it. The mother's burden was to show an unreasonable contribution to the length or expense of the proceedings. However, the court did accept his suggestion that the conduct must occur during litigation. It found that the district court believed that the acrimony extended the length and expense of the proceeding but did not identify what conduct of the father justified the award or whether it occurred during litigation. Remanded for findings identifying the legal authority and specific findings to facilitate review of the award. Because the findings on remand would impact any award of appellate attorney fees, the parties' requests for fees on appeal were also remanded. Geske v. Marcolina, C8-00-1136, 624 NW2d 813 (Minn. App. filed 4/24/01).

Marriage Contract. The pro se husband moved to dismiss on the ground that the dissolution statute infringed on his federal and state constitutional rights to contract. The district court denied his motion, he withdrew, and the court entered judgment based on the wife's testimony and its finding that the marriage was irretrievably broken. On appeal, the husband also argues that the statute cannot be construed to allow divorce on demand, which would violate his constitutional rights. The Court of Appeals stated that the statute does not allow divorce on demand because, if the breakdown is contested, it requires the court to consider all relevant factors and find whether the marriage is irretrievably broken, which occurs when there is no reasonable prospect of reconciliation. Such a finding must be supported by specific evidence of a) prior separation for not less than 180 days or b) serious discord affecting adversely the attitude of one or both parties. The district court made the required finding. The appellate court also found that holding marriage to be a contract for determining its validity does not mean marriage is a contract in the usual sense of that term. In a footnote, the court noted that, even if marriage were to be construed as a contract, the husband failed to introduce any evidence of its terms. Therefore, its terms would be those provided by statute. Affirmed. Richter v. Richter, C4-00-1656, 625 NW2d 490 (Minn. App. filed 5/1/01).

Child Support. The decree awarded joint physical custody based on 60/40 shared custody and awarded child support based on Hortis Valento. On the mother's motion to increase, the magistrate judge found 60/40 shared custody, which was not to be clearly erroneous on appeal. The Court of Appeals upheld the exclusion of a one-time sale of logs from former marital property from the father's income because it was not periodic income. In addition, it upheld the exclusion of $20 to $25 per month received from hay stumpage as de minimus income not warranting remand. The Court of Appeals held that the magistrate judge did not abuse his discretion in the application of the Hortis Valento formula. Duffney v. Duffney, C7-00-1439, 625 NW2d 839 (Minn. App. filed 5/8/01).

Custody. On April 29, 2000, a daughter was born to unmarried, minor parents and the father (15) had previously informed the mother (16) that he would not agree to adoption. But after the birth, the mother had chosen respondents to be the child's adoptive parents. Respondents have had continuous physical care of the child since May 1, 2000. On June 19, 2000, the father petitioned for custody through his mother. On January 6, 2001, the district court allowed respondents to intervene after denying the father's motion for summary judgment. That court heard evidence, applied the statutory best interests factors, and awarded the respondents permanent legal and physical custody of the child.

The Court of Appeals upheld the intervention, citing Chapter 518.156 as providing that a custody proceeding may be commenced by a person other than a parent, where a dissolution or legal separation has been entered or where none is sought. The court found that the parents never married and no dissolution was entered or sought. It concluded that the respondents had standing under the statute to bring their own custody action and there was no abuse by permitting the intervention in the interests of judicial economy. Next, the father argued that respondents did not rebut the presumption of parental fitness. The court found that the general rule that a natural parent is presumed fit to have custody of his child emerged from cases involving proof of unfitness in terminating parental rights. It said that Minnesota statutes and case law, however, recognized custody is the best interests of the child, which includes disputes between a natural parent and a third party. The Court of Appeals examined the nine best interests findings of the district court (some factors were not applicable), found each had ample basis in the record, and concluded that the findings were not clearly erroneous. On the fitness issue, the father again argued that the findings, even if not clearly erroneous, fail to rebut the presumption of parental fitness. The court responded that, on the record, it can not say the district court abused its broad discretion by determining that respondents had overturned the presumption. In a footnote, it explained that this is not a termination case, nor is it an adoption proceeding. Custody is at issue, not the father's status as the child's adoptive parent. Affirmed. J.W. v. C. M. & Respondents, C6-001-1500, 2001 WL 536911 (Minn. App. filed 5/22/01).

The following bills were enacted by the Legislature and signed by the governor:

1. Child Support and Custody -- neutral terms. HF 1260. Chapt. 51
2. Family Support -- payment dates clarified. SF 2022. Chapt. 134
3. Crime of Nonsupport -- clarified & modified. SF 1944. Chapt. 158
4. Guardians/Conservators -- background study. SF 321. Chapt. 163

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

Recent Supreme Court Decisions. The United States Supreme Court has issued decisions in three cases previously noted in this column.

In Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 121 S.Ct. 1678 (2001), the issue before the Court was what standard intermediate appellate courts are to use in reviewing awards of punitive damages for excessiveness. The 9th Circuit had applied an abuse of discretion standard, and Leatherman argued that de novo review of the punitive damage award would violate the 7th Amendment. However, Justice Stevens found that "Because the jury's award of punitive damages does not constitute a finding of 'fact,' appellate review of the district court's determination that an award is consistent with due process does not implicate the 7th Amendment," and held that the 9th Circuit should apply a de novo standard of review on remand.
Justice Ginsburg dissented, arguing that the jury's punitive damages verdict is in fact a factual determination, and should be subject to a more deferential standard of review.

This decision affords defendants yet another opportunity to contest punitive damages awards they believe are constitutionally excessive.

In Buckhannon Board and Care Home, Inc. v. West Virginia Department of Health and Human Resources, 121 S.Ct. 1835 (2001), the issue before the Court was the viability of the "catalyst theory" to support an award of attorney's fees under fee-shifting statutes. Chief Justice Rehnquist, writing for a five-person majority, looked to Black's Law Dictionary for the definition of a "prevailing party," found that a "catalyst" was not a prevailing party entitled to an award of attorney's fees in the absence of a "judicially sanctioned change in the legal relationship of the parties," and that the dissenters were wrong to rely on legislative history that was "at best ambiguous."

Justice Ginsburg, writing for the four dissenters, argued that the majority's decision would "impede access to court for the less well-heeled, and shrink the incentive Congress created for the enforcement of federal law by private attorneys general," and that the majority's "narrow construction" of the phrase "prevailing party" was "unsupported by precedent and unaided by history or logic."
This decision alters the law in every circuit except the 4th Circuit, and may have a substantial impact on future litigation under the numerous statutes that provide for fee-shifting.

In Becker v. Montgomery, 121 S.Ct. 1801 (2001), the issue was whether the 6th Circuit had erred in sua sponte dismissing a timely pro se appeal based on the appellant's failure to sign the notice of appeal. While rejecting Becker's argument that his typewritten name satisfied the requirement of a "signature" for purpose of Fed. R. Civ. P. 11(a), a unanimous Court held that the failure to sign a notice of appeal should not result in the dismissal of an appeal, provided that the appellant (or his counsel) sign that notice of appeal once the omission is called to their attention.

Other Noteworthy Decisions. In Duckson, Carlson, Bassinger, LLC v. The Lake Bank, N.A., 139 F.Supp.2d 1117 (D. Minn. 2001), Judge Rosenbaum remanded the action to Hennepin County District Court sua sponte, finding that a removal by a plaintiff premised on federal questions appearing in the counterclaim and third-party complaint was improper.

This is not the first time that Judge Rosenbaum has remanded improperly removed claims even absent a motion to remand. See Al-Cast Mold & Pattern, Inc. v. Perception, Inc., 52 F.Supp.2d 1081 (D. Minn. 1999).

In Decade Industries v. Wood Technology, Inc., 2001 WL 523396 (D. Minn. 5/15/01), Judge Doty held the defendant in contempt and sanctioned it $1,000 after finding that it had violated a preliminary injunction.

In West Licensing Corp. v. Eastlaw, LLC, 2001 WL 501200 (D. Minn. 5/9/01), Judge Tunheim denied plaintiff's request for a preliminary injunction, finding that service of process on the defendants was improper.

In Alpine Engineered Products, Inc. v. Newby, 2001 WL 392027 (D. Minn. 3/16/01), Judge Montgomery denied the defendant's motion for a more definite statement pursuant to Fed. R. Civ. P. 12(e), noting that Rule 12(e) motions are "disfavored," and that the plaintiff had set forth a "short and plain" statement of its claims.

Effective July 1, 2001, Judge Rosenbaum becomes chief judge for the District of Minnesota.

-- Josh Jacobson
Law Office of Josh Jacobson PA

Patents; After-Arising Technology. In Itron, Inc. v Ralph Benghiat, Civ. No. 99-501, 2001 WL 391943 (3/31/01), Judge Tunheim held, among other things, that whether Itron's hand-held meter reading devices infringed Benghiat's means-plus-function patent limitations was for a jury to determine, citing the doctrine of after-arising technology. Benghiat's patent claims an improved meter reading device. Several claims included "means" terms including "operator input means," and "responsive means." Of particular interest, is the court's application of the doctrine of "after arising technology." When means-plus-function language is used in patent claiming, the breadth of the invention is limited by the structure disclosed in the patent. If the structure of the accused device incorporates technology developed after the patent issued, it is by definition not a structural equivalent and cannot literally infringe. However, "after-arising technology" might infringe under the doctrine of equivalents. The court found that Itron's devices were developed after Benghiat's patent issued, during a time when computer memory was less expensive. "A jury should also consider whether variations in the software and file formats due to such after-developed technology are so insubstantial as to be equivalent under the doctrine of equivalents."

Patents; Reasonable Apprehension of Suit. In Mann Design Ltd. v. Bounce, Inc., d/b/a The Kong Company, Civ. No. 00-1159, 138 F.Supp.2d 1174 (3/01), Judge Kyle "bounced" Mann's action out of court holding that no actual case or controversy remained. The action began in May 2000, when Mann, a Minnesota corporation, filed a declaratory judgment action in Minnesota after receiving a cease and desist letter concerning Bounce's U.S. Patent No. 5,947,061. Bounce is a Colorado corporation. In October 2000, Bounce received a second patent, U.S. Patent No. 6,129,053, a continuation of its '061 patent. Bounce filed suit against Mann in the District of Colorado claiming infringement of, among other things, the '053 patent. Bounce did not assert infringement of the '061 patent in the Colorado action. Bounce then filed a Statement of Non-Liability -- promising not to sue Mann "for any past or present or future infringement of any claims of" the '061 patent. Mann filed a second declaratory judgment action in Minnesota but it was too late. The court dismissed Mann's first action because Bounce's Statement of Non-Liability removed any reasonable apprehension of suit -- a prerequisite for subject matter jurisdiction over the first declaratory judgment action. Mann's second suit in Minnesota was also dismissed under the "first-filed" rule because it was filed later than the lawsuit Bounce commenced in Colorado.

Patents; Infringement; Criticism Disclaims Structure. In Honeywell Inc. v. Victor Company of Japan, Ltd. and U.S. JVC Corp., Civ. No. 99-1607, 2001 WL 391851 (3/29/01), Judge Frank found that Honeywell disclaimed in its patent the structure used by JVC and granted JVC's motion for partial summary judgment of non-infringement. Honeywell owns U.S. Patent No. 4,425,501, covering a masking invention used to block the intrusion of unwanted light in the operation of auto-focus cameras, video cameras, and camcorders. The Court held that Honeywell's criticism of a particular configuration of the invention's elements disclaimed the embodiment used by JVC. Honeywell's criticism resulted in dismissal of both its claims of literal infringement and infringement by equivalents.

-- Anthony R. Zeuli
Merchant & Gould

Removal of Attorney; Trust Beneficiary; Adverse Interests. Thomas Mellgren was the beneficiary of a trust established from his personal injury claim; he was severely incapacitated both mentally and physically by his injuries. After being cared for by family members for 17 years, he moved to a group home after his father died in 1996. A year later he moved to the house of Joanne, a caregiver at the group home, and later married her. She quit her job and provided care for Thomas receiving pay from the trust.

While represented by an attorney, Thomas brought several legal actions relating to the trust against successor trustees. In two of the actions Joanne was joined as a plaintiff and was represented by the same attorney. She sought to have herself named as trustee of the trust.
A guardian ad litem representing Thomas determined that Thomas was substantially impaired and requested that the attorney be removed from representing Thomas and that a new attorney be appointed who could determine whether the legal actions were in his best interest.
The Court of Appeals upheld the district court's removal of the attorney from representing both Thomas and Joanne because they had conflicting interests and Thomas did not have capacity to waive the conflict and consent to joint representation. In re Matter of Thomas J. Mellgren Trust Agreement, C5-00-2136, 2001 WL 41044 (Minn. App. 4/24/01)(unpublished).

Attorney's Fees; Separate Fees for Separate Roles. The attorney who drafted the decedent's will was appointed personal representative and also served as attorney for the estate. A devisee petitioned the district court to disallow attorney's fees and for the attorney's removal from both positions based on his dual role and the fact that the family "distrusted" him.

The court upheld the district court's refusal to grant the relief sought stating that serving in the dual roles is permitted by Minnesota law and separate fees for each were allowed. It did note, however, "the inherent pitfalls of the representative-attorney dual role and suggest that this arrangement may not always be advisable." Further, it upheld the reduction in the hourly rate for personal representative duties from $75 to $35 per hour. Also, mere distrust of the personal representative was not ground for removal absent an actual conflict of interest. In re: Estate of Otto F. Moravetz, C3-00-1888, 2001 WL 569118 (Minn. App. 5/29/01)(unpublished).

-- Curtis L. Stine
William Mitchell College of Law

Valuing Estate Assets; Impact of Post-Death Events. Events after the date of death are not generally taken into account when valuing the assets in a decedent's estate. However, two recent appellate cases differed on the application of the rule, Estate of McMorris, 87 AFTR 2d 2001-1310, 243 F.3d 1254 (10th Cir. March 20, 2001)(adopted "bright-line" rule that post-death events are not taken into account) and Morrissey, 87 AFTR 2001-1250 (9th Cir. 3/15/01) (post-death taken into account in valuing estate).

U.S. Tax Court Jurisdiction: Notices of Lien and Intent to Levy. The Tax Court ruled that it lacked jurisdiction to review a notice of filing of lien that was not mailed to a taxpayer's last known address or to review a notice of intent to levy with respect to which the taxpayer failed to make a timely request for an administrative hearing. The commissioner's decision to conduct a so-called equivalent hearing does not result in a waiver of the time restrictions for requesting an Appeals Office hearing. Kennedy v. Commissioner, 116 T.C. No. 19, 2001 WL 406385 (4/23/01).

Innocent Spouse Relief: Actual Knowledge of Item Giving Rise To Deficiency:Erroneous Deductions. Taxpayer granted innocent spouse relief from deficiency arising from IRC ¤ 183-based disallowed loss from exhusband's cattle raising activity. IRS didn't meet its burden of proving that taxpayer has actual knowledge of item giving rise to deficiency under IRC ¤ 6015 (c). Statutory knowledge requirement in erroneous deduction context was knowledge of circumstances making item "unallowable" as deduction. Mere proof that taxpayer knew of deduction.and unprofitability of activity didn't necessarily show she knew of husband's tax objective. Kathy A. King v. Commissioner, 116 T.C. No. 16, 2001 WL 356124 (4/10/01).

Election of Relief from Joint Liability; Withdrawal Without Prejudice. Taxpayer wife, who, after trial, elected relief from joint liability under a newly enacted law may not, after the court's initial opinion that reserved the issue of eligibility for relief, withdraw her election without prejudice. Res judicata and the proscription against preserving innocent spouse relief claims for the year for which taxpayers meaningfully participated in underlying deficiency proceeding precluded withdrawal. Also, judicial economy and fairness concerns supported nonwithdrawal and resolving issue in instant proceeding. Vetrano v. Commissioner, 116 T.C. No. 21, 2001 WL 423012 (April 25, 2001).

Separate Notices of Intent to Levy; Joint Returns. The Tax Court held that IRS may issue separate notices of intent to levy to spouses even though they filed joint returns. Because the husband didn't timely respond to the notice he received under IRC ¤ 6330, the court lacked jurisdiction to hear his case. Dudley and Dorothy Moorhous, 116 T.C. No. 20, 2001 WL 406389 ( 4/23/01).

Estates; Installment Payments; Challenging Taxes Due. Decedent's estate must either pay all disputed assessments or be up-to-date with its installment payments in order to challenge an IRS determination as to taxes due. Hansen v. United States, No. 00-2035, 87 AFTR 2d 2001-1947, 248 F.3d 761 (8th Cir. 4/26/01).

Jurisdiction: Joint Liability; Interest Abatement; Innocent Spouse Relief. U.S. Tax Court has jurisdiction to decide a claim by one of the petitioners for relief from joint liability in a pending petition for review of commissioner's determination not to abate interest. An IRC ¤ 6015 claim is an affirmative defense in a matter properly before the court. In such circumstances, the court requires no additional statutory jurisdiction to address and determine relief from joint liability on a joint return under IRC ¤ 6015. Estate of Wenner v. Commissioner, 116 T.C. No. 22, 2001 WL 505206 (5/14/01).

Noncompetition Payments; Amortization Period; Stock Redemption. Payments made pursuant to a noncompetition agreement that was entered into by a corporation in connection with its redemption of stock from the majority shareholder must be amortized over a period of 15 years pursuant to IRC ¤ 1975. Frontier Chevrolet Co. v. Commissioner, 116 T.C. No. 23, 2001 WL 505196 (5/14/01).

Judges' Salaries; Deduction of Social Security, Medicare Taxes. The U.S. Supreme Court ruled that the Compensation Clause of the Constitution prevented the government from collecting Social Security taxes, but not Medicare taxes, from federal judges, who held office before Congress extended those taxes to federal employees in 1983. The Compensation Clause does not forbid Congress to enact a law imposing a nondiscriminatory tax (including an increase in rates or a change in conditions) upon judges, whether those judges were appointed before or after the tax law in question was enacted or took effect. The Medicare tax is nondiscriminatory but several features in the Social Security Amendment of 1983 singled out federal judges. U.S. v. Hatter, No. 99-1978, 121 S.Ct. 1782 (U.S. 5/21/01).

Brother-Sister Stock Transaction; Redemption. The U.S. Tax Court held that the brother-sister stock redemption is subject to IRC ¤ 304 despite the lack of a shareholder motive to convert ordinary income to capital gains. Thus, a sole shareholder of two companies, who transferred the stock of one to the other in exchange for release of his debt to it, was charged with dividend income for most of the debt release. Only a small portion of the consideration qualified for the IRC ¤ 304 (b)(3)(B) exception for the release of debt used to purchase the transferred stock. Combrink, 116 T.C. No. 24, 2001 WL 520830 (5/15/01).

Spouse's Knowledge of Omitted Income; Burden of Proof. Commissioner bears burden of proof on whether spouse claiming relief from joint liability under IRC ¤ 6015 (b) and (c) had actual knowledge of item giving rise to deficiency, and burden is not met by mere proof of what reasonably prudent person would be expected to know. Culver v. Commissioner 116 T.C. No. 15, 2001 WL 314341 (4/2/01).

Information on Docketed Cases; U.S. Tax Court Website. The Tax Court will allow users to access information on all cases docketed with the court since May, 1986, with the exception of disclosure actions, sealed cases, and other "fenced" material. Users will be able to search by docket number or case names. The Website is:
http://www.ustaxcourt.gov.

Publication 561; Valuation of Property Contributed to Charity. The IRS has released an updated version of its Publication 561, "Determining the Value of Donated Property." Publication 561 is designed to assist in reporting the value of non-cash gifts. It also explains qualified appraisals and the tax penalties for overvaluation. IRS Publication No. 561 (revised February 2000, cat.no. 15109Q). IRS publications may be accessed at http:// www.irs.gov.

Reporting Duties; Companies Transferring Stock to Employees. A Chief Counsel Advice identifies the event that imposes reporting duties, under IRC ¤ 6039, on a corporate employer whose employees receive stock on exercise of an incentive stock option (ISO) under IRC ¤ 422 or an option granted under an employee stock purchase plan under IRC ¤ 423. Chief Counsel Advice 20011400. See also PLR 200118046 (explanation of tax consequences of transfer of S corporate stock to key employees over time in non-qualified context).

Tax Free Swap; Acquisition of Single-Member LLC; State Transfer Fees. A private letter ruling concluded that a taxpayer may complete a tax-free exchange under Code Sec. 1031 by acquiring the single- member LLC that acted as the intermediary in the exchange and owned the replacement property. The acquisition, made to sidestep state transfer fees, was a suitable replacement under the like-kind exchange rules because the LLC was not treated as an entity separate from its owner. PLR 200118023.

Holding of Principal Residence by Partnership; Qualification for ¤ 121 Exclusion. IRS revoked prior PLR 200004022 on whether a taxpayer was treated as owning a "principal residence" for the period of time that the residence was held in a partnership for the purpose of IRC ¤ 121. The revoked ruling said that the partnership's holding was disregarded because the partnership produced no income, conducted no enterprise, and served no business purpose for its partners. PLR 200119014.

ISP Appeals Settlement Guidelines. The IRS released a listing of Industry Specialization Program ("ISP") Appeals Settlement Guidelines as of March 31, 2001. The listing contained ISP appeals documents, approved by the IRS National Director of Appeals, for 26 industries such as aerospace, banking, employee benefits, insurance, intangibles, resource credit, transportation, and utilities. The underlying ISP appeals documents often contain text about recommended dollar amounts for settlement, and other information, which the IRS asserts is exempt from normal requests for disclosure. The above documents are unlike IRS Coordinated Issues Papers which are routinely released. BNA Daily Tax Executive at 6-2 (4/20/01)

Tax Legislation; 106th Congress. The Joint Committee on Taxation staff issued a "blue book" general explanation of tax legislation enacted in the 106th Congress. The blue book includes nine tax laws enacted in 1999 and 2000 including the Miscellaneous Trade and Technical Correction Act of 1999 (Pub. L. No. 106-36); the Community Renewal Tax Relief Act of 2000 (Pub.L.No. 106-554); and the Installment Tax Correction Act of 2000 (Pub.L. No. 106-573). Joint Committee on Taxation (JACCS-2-01).

Credit Card Fees Incurred to Pay Taxes; Deductability. The due date for filing income taxes in 2001 just passed and many filers may have paid their taxes by credit card. However, when they file their returns in 2002, according to a recently-released Service Center Advice (SAC), they won't be able to deduct as a tax-related expense under IRC Code 212(3) the fee charged for paying taxes by credit card. Rather, the SAC concluded that the fee was not deductible personal expense under IRC Code 262. Service Center Advice 200115032.

Mergers and Acquisitions; Form of Transaction. The IRS provided guidance for mergers and acquisitions in three Revenue Rulings that disregarded the form of the transaction and applied an integrated plan for a reorganization based on a substance over form premise.

• The IRS ruled that a controlling corporation's transfer of the acquiring corporation's stock to another subsidiary following a forward triangular merger and as part of a reorganization will not cause the transaction to fail to qualify as a reorganization. The legislative history of IRC ¤ 368 (a)2 (E) mergers suggest that forward and reverse triangular mergers should be similarly treated. Therefore, the parent is able to transfer the subsidiary stock to S1 following the forward triangular merger, without causing if to fail. Rev. Rul. 2001-24,2001-22 IRB.
  
• IRS held that a transaction qualifies as a tax-free reverse triangular merger despite the fact that the surviving corporation sold half of its assets to an unrelated party immediately after the merger as part of the merger plan. On the facts of the ruling, target's post-merger sale of half of its operating assets for cash to X prevented it from holding substantially all of its historic business assets immediately after the merger. As in Rev. Rul. 88-48, however, target continued to hold the sales proceeds. Therefore, the sale did not cause the merger to violate the requirement of IRC ¤ 368 (a)(2)(E) that the surviving corporation hold substantially all of its properties after the transaction. Rev. Rul. 2001-25, 2001-22 IRB.
  
• Lastly, the IRS ruled that "two-step transactions" constituted a single integrated transaction that qualified as a reverse triangular merger under IRS ¤ 368 (a)(2)(E) and ¤ 368(a)(1)(A). The ruling addressed two scenarios illustrating the two-step transaction. The first step involved a tender offer for 51 percent of the outstanding stock of the target (T) in exchange for stock of the parent/acquiring (P) corporation. In the second step of the transaction, S, a newly formed subsidiary of P, merged into T in a statutory merger under state law. Because the tender offer was integrated with the statutory merger, the tender offer exchange was treated as part of the statutory merger for purposes of the reorganization provisions. Thus, in each factual situation, viewed as an integrated transaction, the target shareholders exchanged, for parent voting stock, 100 percent of the voting stock of target, which met the "control" test. Rev. Rul. 2001-26, 2001-23 IRB.

Charity Health Care; Community Benefit Standard. The IRS in a field service memorandum concluded that the evidence of "stated policies to provide health care services to the indigent" will not automatically enable a hospital or other health care organizations to meet the operational test of Reg. ¤ 1.501 (c)(3)-1(c). According to the RSA, organizations must prove their policies will "actually result in the delivery of significant health care services to the indigent"; otherwise, they lack the requisite charity-care activity needed to satisfy the community benefit standard of Rev. Rul. 69-545, 1969-2 C.B. 117. The issuance of the FSA has sparked a debate on whether the IRS is retreating to an older and more stringent test. FSA 200110030.

Shareholder Loans; New Audit Technique Guide. A comprehensive Market Segment Specialization Program (MSSP) Audit Technique Guide on Shareholder Loans (Training 3147-118, 3-01) was released by the IRS.

Federal Tax Cut. Congress passed a tax bill reducing taxes by $1.35 trillion over ten years. Highlights of the legislation are.

Refund. Under the legislation, everyone who filed an income tax return this year will receive a rebate check from the government by the end of September :$300 for individuals and $600 for couples.

Income Tax Brackets. Tax brackets except for the 15 percent bracket are to drop by one percentage point on July 1. The top tax rate, now 39.6 percent, will fall in stages to 35 percent in 2006. The other rates above the 15 percent rate will also fall by three percentage points in stages to 33 percent, 28 percent, and 25 percent. The rebate checks this year will result from lowering the tax rate to 10 percent from 15 percent on the first $6,000 of every individual's income and the first $12,000 of a couple's income. These figures will be raised to $7,000 and $14,000 in 2008.

Marriage Penalty. Married couples will get another tax cut starting next year because the size of the standard deduction will be made double that for single people, and more income for couples will be subject to the 15 percent rate instead of the 25 percent rate.

Child Credit. The tax credit for each child, now $500, is increased to $600 this year and, in stages, to $1,000 in 2010. A part of this credit is to be refunded to parents who earned at least $10,000 a year but have too little income to owe taxes.

Other. The maximum annual contributions to tax free retirement plans like IRC ¤ 401(k) plans and individual retirement accounts will be increased, and tax breaks will be offered to encourage employers to provide more favorable pension benefits. Current limits on itemized deductions and personal exemptions that upper-income taxpayers can claim will be repealed in stages beginning in 2006. The amount of income subject to the alternative minimum tax will be increased. The earned-income tax credit for low-income workers is expanded.

Estate Tax. The size of estates exempt from the estate tax is scheduled to be increased next year from $675,000 this year and expanded several more times over the next decade to a $3.5 million exemption, leading to the total repeal of the estate tax set for 2010.

With states rushing to pass a National Streamlined Sales Tax Law in order to promote simplification and uniformity, look for the states to also mount a similar effort to adopt an "economic nexus" test rather that the physical presence test of nexus under current law for sales.

-- Jerry Geis
Briggs & Morgan

FDCPA -- Enforcement of Divorce Decree. Judge David Doty dismissed an action brought in federal court against an attorney who had been retained to enforce the terms of a marital termination agreement on behalf of one of the exspouses. Liability was asserted pursuant to the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. ¤ 1692. Judge Doty granted the defense motion to dismiss for lack of subject matter jurisdiction.

The FDCPA requires, among other things, "a transaction between consumers." The court held that the plaintiff's property settlement obligations under the terms of the divorce decree did not arise out of a consensual consumer obligation or business dealing and therefore did not implicate a "transaction" within the meaning of the FDCPA. Accordingly, enforcement of the divorce decree provisions by an attorney against his or her client's exspouse is not subject to the FDCPA provisions. Hicken v. Arnold, Anderson & Dove, PLLP, No. 11-1027, 137 F. Supp. 2d 1141 (D. Minn. 2001) (filed 4/16/01). (The author and his firm represented the prevailing parties in this suit.)

Insurance Coverage - Duty to Defend. Youngquist entered into a subcontract with Comm-Tech Electrical Contractors. As required by the subcontract, Comm-Tech made Youngquist an additional insured under its general liability insurance policy by virtue of an endorsement that defined additional insured as "the person or organization shown [below] but only with respect to liability arising out of your ongoing operations performed for that insured." A provision in the subcontract between the parties stated that Comm-Tech would not indemnify Youngquist for damages determined by a court of competent jurisdiction to be due to the sole negligence or willful misconduct of Youngquist. Thereafter, an employee of Comm-Tech filed a lawsuit against Youngquist for personal injury sustained on the job. Youngquist tendered defense of the lawsuit to Comm-Tech's insurer, but the insurer rejected the tender.

Finding that the underlying claim arose out of Comm-Tech's ongoing operations performed for Youngquist, the trial court held that the insurer had breached its duty to defend Youngquist. The court also found that the indemnification provision in the subcontract between Youngquist and Comm-Tech was not applicable because Youngquist had settled the case with the Comm-Tech employee and thus no court had determined that Youngquist was solely negligent. However, the court limited Youngquist's damages to its out-of-pocket expenses incurred after tendering defense of the underlying claim. Andrew L. Youngquist, Inc. v. Cincinnati Ins. Co., C8-00-1773, 625 NW2d 178 (Minn. App. 2001) (filed 4/24/01).

Insurance Coverage -- Permissive User. A man was injured when his vehicle was hit by an individual driving a "loaner" vehicle owned by a car dealership. State Farm insured the at-fault driver and Universal Underwriters insured the dealership under a garage policy. The Universal policy provided $500,000 in liability coverage for named insureds, but had a "split-limit" provision limiting the liability coverage for permissive users to the statutory minimum ($30,000). State Farm filed a lawsuit seeking a declaration that the No-Fault Act prohibits this type of split-limit coverage.

Affirming the trial court, the Court of Appeals held that an insurer can contractually limit its liability coverage for permissive users to the minimum statutory limits while providing additional coverage to the vehicle owner. State Farm Mutual Automobile Ins. Co. v. Universal Underwriters Ins. Co., C2-00-1851, 625 NW2d 160 (Minn. App. 2001) (filed 4/24/01).

Vicarious Liability -- Permissive User. An individual rented a car from Alamo Rent-A-Car in Minneapolis. While traveling in Iowa, the individual crossed the center line and caused an accident which resulted in an injury to his passenger, a Minnesota resident. The passenger sued the driver for negligence and Alamo for vicarious liability. Alamo moved to limit its liability to $100,000 pursuant to Minn. Stat. ¤s 65B.49 and 170.54. Plaintiff claimed that Minnesota's vicarious liability statute, Minn. Stat. ¤ 170.54, did not apply to accidents outside the state of Minnesota and, therefore, there was no limit on vicarious liability. The trial court denied Alamo's motion to limit its liability, finding that Minn. Stat. ¤ 170.54 did not apply because the accident occurred in Iowa.

The Court of Appeals affirmed the trial court's decision, thereby rejecting Alamo's argument that the statute should apply to accidents that occur outside Minnesota so long as the vehicle was operated in the state at some time prior to the accident. The court relied on the plain language of the statute that it only applies to situations where the vehicle is being "operated within this state." The court, applying a choice of law analysis, held that Iowa law applied. Since Iowa law does not impose any limits on the vicarious liability of car owners, it best advances Minnesota's interest in ensuring recovery to victims of automobile accidents. Boatwright v. Alamo Rent-A-Car, Inc., C3-00-1843, 625 NW2d 483 (Minn. App. 2001) (filed 4/24/01).

Medical Malpractice -- Statute of Limitations. The four-year statute of limitations that governs medical malpractice actions commenced on or after August 1, 1999, does not revive claims that were time-barred prior to that date. Gomon v. Northland Family Physicians, C8-00-1465, 625 NW2d 496 (Minn. App. 2001) (filed 5/1/01).

Civil Damages (Dram Shop) Act -- Statute of Limitations. Plaintiffs were minors the day their mother was killed in a drunk driving accident in 1995. They were appointed a guardian ad litem in March of 1999, and commenced an action against respondent liquor establishment in April of 1999, asserting that respondent had illegally served their mother.

Respondent moved for summary judgment arguing the action was not commenced within the two-year limitation period set forth in Minn. Stat. ¤ 340A.801, subd. 1. Appellants argued that because each of the children was under the age of 18, the minority tolling statute, Minn. Stat. ¤ 541.15 (a)(1), suspended each cause of action until the respective plaintiffs reached the age of 18. The district court denied respondent's motion for summary judgment and certified the question as important and doubtful. The Court of Appeals reversed, granting respondent's summary judgment motion.

The Supreme Court affirmed the Court of Appeals, concluding that a statutorily created cause of action that contains its own statute of limitations period and does not refer to the minority tolling statute, is not tolled by the minority tolling statute. The Court noted that the Legislature has had many opportunities to clarify its intention if it did not approve of the courts' interpretation, and that silence on the issue should be construed to mean that there was no such intention. Whitener v. Ronald Dahl, d/b/a Flowing Well Supper Club, C7-99-2177, 625 NW2d 827 (Minn. 2001) (filed 5/17/01).

Insurance Coverage -- No-Fault -- Municipalities. Several people were injured when a city-owned police van went out of control injuring the appellants. They filed for no-fault benefits against the city. The district court determined that the city was the primary no-fault insurer. The district court granted the city's motion for summary judgment, holding that the municipal tort liability cap applied to no-fault benefits.

The Court of Appeals reversed, holding that the municipal tort liability cap does not apply to basic economic loss benefits, and duplicate recoveries may be offset as provided in Minn. Stat. ¤ 65B.51. The court noted that the city had elected to self-insure, and that the city does not dispute its role as appellant's primary no-fault insurer. The court also noted that while tort law is based on fault, and is based on the common law, the No-Fault Act is strictly based on statute, and compensates regardless of fault. The court also reasoned that municipal liability caps should be treated restrictively. Finally, the court refused to accept public policy arguments regarding increased premiums and taxes, noting that the city's choice to self-insure does not affect the obligations imposed under the No-Fault Act. Loven v. City of Minneapolis, C5-00-1925, 626 NW2d 198 (Minn. App. 2001) (filed 5/15/01).

Products Liability -- Negligent Misrepresentation -- Preemption. Flynn took a generic version of respondent's diet drug "fen-phen." Several months after she ceased her use of the drug, she was diagnosed with aortic insufficiency, or a "leaky heart valve." She sued respondents for negligence and fraud, claiming that respondents withheld information pertaining to serious health problems from the FDA. She alleged that as a result her doctor prescribed the drug without knowing the true risks, and that she would not have suffered an injury because she would not have taken the generic version of the drug had she known the risks.

The district court granted respondents' motion for summary judgment, finding that state common-law tort and consumer-fraud claims of manufacturer fraud on the FDA are not actionable in Minnesota.

The Court of Appeals affirmed, holding that state common-law tort and consumer-fraud claims of manufacturer fraud on the FDA are preempted by federal law and therefore are not actionable in Minnesota. The court went on to state that even if not preempted, summary judgment was appropriate on the nondisclosure-based fraudulent misrepresentation claim in the absence of a fiduciary relationship. The court also found that summary judgment was appropriate on the negligent misrepresentation claim because the Minnesota Supreme Court has expressly declined to recognize a tort of negligent misrepresentation involving the risk of physical harm. Finally, the court found that when Flynn failed to present evidence demonstrating reliance on the alleged misrepresentations to the FDA, she failed to present evidence sufficient to support the existence of a material fact concerning causation. Flynn v. American Home Products Corp., C8-00-1885, 2001 WL 506852 (Minn. App. 2001) (filed 5/15/01).

Insurance Coverage -- No-Fault (UIM). Plaintiff brought action to collect underinsured motorist (UIM) benefits under an automobile insurance policy issued to him by defendant. Plaintiff's wife had borrowed a van from her neighbor, and while driving lost control and collided with an oncoming vehicle. Plaintiff's son was a passenger in the van and was severely injured in the accident.

The district court granted summary judgment for the defendant insurance company, ruling that while the insurance policy did not exclude UIM benefits, plaintiff improperly sought to convert UIM benefits into liability benefits. The Court of Appeals reversed, holding that the terms of the policy permitted recovery of UIM, benefits and that no improper conversion of UIM benefits into liability benefits therefore occurred. The Supreme Court affirmed, but on different grounds.

The Supreme Court held that plaintiff sought benefits, which in effect converted the UIM coverage into liability coverage, and because the No-Fault Act does not explicitly or impliedly prohibit parties to an automobile insurance contract from agreeing to terms that allow coverage conversion, it is permissible to do so. Lynch v. American Family Mutual Ins. Co., C9-99-2102, 626 NW2d 182 (Minn. 2001) (filed 5/24/01).

Insurance Coverage -- No-Fault (UM). A clause in an automobile insurance contract that provides -- an insurer will not be bound by any judgment for damages resulting from a suit between an insured and an uninsured motorist -- violates the policy underlying Minnesota's No-Fault Act, and cannot be enforced to bar payment of uninsured motorist benefits when the insurer had notice of and an opportunity to participate in the suit resulting in a judgment against the uninsured motorist. Kwong v. Depositors Ins. Co., C5-00-242, 2001 WL 584991 (Minn. 2001) (filed 5/24/01).

Insurance Coverage - No--Fault (Priority for Payment). A bicyclist collided with a school bus owned by a school district. At the time of the accident, the self-insured school bus was transporting students. The bicyclist was insured as a resident relative under a personal auto policy. The auto insurer paid no-fault benefits to the bicyclist and then brought a declaratory judgment action seeking a declaration that the school district had first priority for payment of no-fault benefits to the bicyclist under Minn. Stat. ¤ 65B.47, subd. 3. The school district disputed its priority contending that school buses are exempt from the business-priority provisions under ¤ 65B.47, subd. 1a.

On cross-motions for summary judgment, the district court granted summary judgment against the school district. The Court of Appeals reversed, concluding that school buses are exempt from the priority level established for vehicles used in the business of transporting persons or property. The court noted that this result is consistent with the plain language of the statute, the legislative history, and general policies underlying no-fault coverage. Amoco Ins. Co. v. Independent School District #622, C3-00-2104, 2001 WL 537078 (Minn. App. 2001) (filed 5/22/01).

-- Michael A. Klutho
Bassford Lockhart Truesdell & Briggs