November 2001

Service of Process. The county sheriff brought suit to appeal the budget authorized by the County Board of Commissioners for the sheriff's office. The sheriff served the complaint on the county auditor as required by statute. The district court dismissed the budget appeal for lack of personal jurisdiction. The Court of Appeals upheld the district court, holding that because the sheriff was a party, he could not serve the opposing party under Rule 4.02. The case was properly dismissed because there could be no personal jurisdiction where service of process was ineffective. Year 2001 Budget Appeal of Lyle Lundgren v. Pipestone County Board of Commissioners, CX-01-618, 786 N.W.2d 1188, 2001 WL 1117905 (Minn. App. 2001). www.lawlibrary.state.mn.us/archive/ctappub/0109/cx01618.htm

Spoliation of Evidence -- When Sanctionable. Plaintiff sued bean manufacturers for injuries allegedly caused by chemical burns suffered after she ate a spoonful of the beans. Plaintiff threw the contents of the can of beans down her disposal after ingesting the beans. The district court granted summary judgment on motion of the manufacturer. The Court of Appeals reversed, and held that to the extent the district court's order could be interpreted as granting summary judgment as a sanction for spoliation of evidence, it was erroneous. Sanctions are only needed when one party gains an evidentiary advantage over the other party after the spoliating party has had the opportunity to examine it. Here both parties were equally disadvantaged by inability to examine the discarded beans. Falde v. Bush Bros. & Co., C2-01-435, 2001 WL 1117801 (Minn. App. 2001) (unpublished opinion). www.lawlibrary.state.mn.us/archive/ctapun/0109/435.htm

-- Emily E. Duke
Fredrikson & Byron PA

Child Support: Nonpayment: Lawful Excuse: Burden of Proof. The appellant was charged with Felony Nonpayment of Child Support, under Minn. Stat. ¤ 609.375, subd. 1 (2000). The relevant period of time of nonpayment was 1995 through 1999. The state produced evidence, through a former employer, that the appellant had earned money during that period, and was a good worker. On the other hand, the appellant attempted to put on two psychologists to testify as to the appellant's ability to hold a job during the period in question. The trial court judge denied admittance of the psychological testimony because the psychologists could not correlate the appellant's "present mental incapacity" with his inability to hold a job during the relevant period of time. The court noted that if the appellant had proffered expert testimony from an individual that treated him during the period in question, such evidence may have been admissible.

The trial court instructed the jury that the appellant had the burden of proving his mental incapacity by the greater weight of the evidence.
Held, it was an error for the trial court judge to instruct the jury that the defendant had the burden to prove his mental incapacity (lawful excuse) by the weight of the evidence. Instead, the defendant was required to make only a prima facie showing of the lawful excuse. Once a showing is made, the burden then shifts to the prosecution to prove beyond a reasonable doubt the lack of a lawful excuse. This error in charging, however, was harmless, because of the weight of the evidence. Furthermore, it was not an abuse of discretion for the trial court judge to exclude the testimony of the expert psychologists because it would not have been helpful to the jurors, and there was no diagnosis or other clinical records predating the charges against him. State v. Douglas Gerard Burg, C6-00-1822, 633 N.W.2d 94 (Minn. App. 9/18/01). www.lawlibrary.state.mn.us/archive/ctappub/0109/c6001822.htm

Felony Murder: Predicate Felony: Instruction on All Elements: Intent. The appellant had been charged with second-degree intentional murder and felony murder. The underlying felony for the felony murder charge was second-degree assault: the appellant had stabbed the victim in self-defense. Here, the district court included in its jury instruction only the following definition of second-degree assault: "whoever assaults another with a dangerous weapon is guilty of assault in the second degree." This instruction omitted the element that the state prove beyond a reasonable doubt that the defendant intended to commit the assault.

Held, the instruction in this case was not sufficient. The missing element of intent violated the rule that the court must include in its instructions the appropriate definition of a predicate felony. This summation by the court was plain error, entitling the appellant to a new trial. State v. Rosemary Charles, C9-00-1636, ___ N.W.2d ___ (Minn. App. 9/25/01). www.lawlibrary.state.mn.us/archive/ctappub/0109/c9001636.htm

Self-Defense: Prior Bad Acts of Victim: Knowledge of Defendant. The appellant claimed, during trial, that she had evidence of seven prior acts of violence by the victim, i.e., that he had abused his exwife, a former girlfriend, and an acquaintance. The appellant attempted to admit these acts to show that she had a reasonable apprehension of serious bodily harm relevant to her claim of self-defense. The state countered the admission of these prior bad acts, stating that she would have mentioned these facts to the investigating officers during the interrogation.

Held, it was error for the court to omit the prior bad acts of the victim. The state presented no evidence to contradict the claim that she was aware of the victim's prior violent behavior at the time of the stabbing. The state's assertion that the appellant did not know about these prior bad acts, and had only learned upon reviewing the discovery, was speculation. It was reversible error for the court not to admit evidence of these prior bad acts where the state could not produce any evidence contrary to the appellant's claim that she was aware of these acts. State v. Rosemary Charles, supra.

Procedure: Court's Communication With Jury: Record: Presence of Defendant. It was reversible error for the court to communicate with the jury outside the presence of the defendant, without making a contemporaneous record. In this case, the jury made certain inquiries. While the defendant was not present, the court and the attorneys met, and responded to the jury with a written note from the judge. No contemporaneous record was made of all such meetings, nor was a record made of the defendant's waiver of presence. Minnesota Rule of Criminal Procedure 26.03 requires that the jury "shall be conducted to the courtroom" upon its request to review evidence or be informed on any point of law. Also, criminal defendants have the right to be present at every critical stage of the proceedings. State v. Rosemary Charles, supra.

Traffic: Handicap Spot, Yellow Striped Adjacent Zone. The appellant parked his vehicle in the zone adjacent to a handicap spot, which was demarked by yellow striping. Neither the Virginia City Ordinance nor the governing state's statute addresses the existence of such yellow striped zones.

Held, because no applicable law in this case prohibited parking in the yellow diagonal zone adjacent to handicapped parking, the evidence was insufficient to support the appellant's conviction for obstructing a designated parking space. State v. Tom Kortkamp, C1-01-250, ___ N.W.2d ___ (Minn. App. 9/25/01). www.lawlibrary.state.mn.us/archive/ctappub/0109/c101250.htm

Traffic: Airplane: Over-Wide Vehicle. Minn. Stat. ¤ 169.80, subd. 2 (1998), which makes it a misdemeanor for a person to drive a vehicle of a size or weight exceeding the statutory limitations, is broad enough to encompass an airplane. Here, the appellant made a non-emergency landing of this airplane on the highway and then immediately taxied off the road surface. The term "vehicle" is not limited to automobiles or trucks, but simply defines "vehicle" as: ". . . every device in, upon, or by which any person or property is or may be transported or drawn upon a highway, excepting devices used exclusively upon stationary rails or tracks." Minn. Stat. ¤ 169.01, subd. 2 (1998). State v. David William Sherbrooke, CX-01-120, ___ N.W.2d ___ (Minn. App. 9/25/01). www.lawlibrary.state.mn.us/archive/ctappub/0109/cx01120.htm

-- Frederic Bruno, Esq.
Frederic Bruno & Associates

Conservatorship. Appellant suffers from paranoid schizophrenia, but she refuses to accept that she is mentally ill and this makes treatment difficult. Her parents petitioned to be appointed co-conservators of her person and the court granted their petition. Appellant challenged the appointment. The Court of Appeals found that the district court's findings support why she needs a conservator, but they are not specific enough with respect to the selection of her parents as conservators. The trial court made only conclusory findings, so this issue was remanded for additional findings. In Re: The Conservatorship of Rebecca Sula Siegel, C8-01-312, (Minn. App. 8/28/01)(unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0108/312.htm

Conservatorship. Appellant is an adult suffering from multiple sclerosis and mental illness, and a conservator of her person was appointed in 1996. The conservator petitioned to place restrictions on spousal visitation at the residential care facility. The district court granted the petition, and appellant challenged. The Court of Appeals found that despite evidence that the spousal visits had adverse effects on the appellant, the district court erred because Minn. Stat. ¤ 144.651 subd. 28 requires privacy for visits between spouses "unless medically contraindicated and documented by their physicians in the medical records," and the record does not contain documentation of a physician. In Re: The Conservatorship of Lord, C3-01-542, (Minn. App. 8/28/01)(unpublished).
www.lawlibrary.state.mn.us/archive/ctapun/0108/542.htm

Vulnerable Adults. A report was filed against a personal care assistant alleging verbal abuse of an older adult. The county social worker determined that this was a case of "substantiated verbal abuse of a vulnerable adult." Under the Vulnerable Adult Act, Minn. Stat. ¤ 626.557 (2000), oral abuse is a form of maltreatment. As a result, the Department of Human Services (DHS) disqualified the assistant from holding certain direct care positions. The Court of Appeals found that the commissioner of health did not err in denying reconsideration because the assistant did not show that the information relied upon by the commissioner was inaccurate and the commissioner did not erroneously apply the law. Thompson v. Commissioner of Health (Dept. of Health), C1-00-948, (Minn. App. 9/11/01)(unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0109/948.htm

Income First Rule. The Centers for Medicare and Medicaid Services (CMS) (previously HCFA) has issued a new proposed rule in the Federal Register. The proposed rule would require states to elect and apply consistently either the income first or resource first methodology for increasing income for the community spouse. Comments on the rule are due no later than November 6, 2001. 66 Federal Register 46763-46768 (9/7/01).

-- Tonya Zdon Gabbard
Garvey & Boggio, PA

Corporate Employees. The Minnesota and 8th Circuit appellate courts recently decided several cases involving the rights of minority shareholders of corporations with respect to their employment and redemption of stock in those companies.

In Powell v. MVE Holdings, Inc., 626 N.W.2d 451 (Minn. App. 2001), the Court of Appeals ruled that a company must buy-back the minority shares owned by the former chief executive officer of the company, who was ousted after the company merged with another entity. The court affirmed the trial court's ruling that the new corporate president had "apparent authority" to enter into an agreement to buy-back the ex-officer's shares based upon the "reasonable expectation" that he had the capacity to enter into the arrangement. That expectation stemmed, in part, from the president's title, job duties, and prior agreements with other retired shareholders to buy-back their shares.

But the court rejected all of the claims of a former general manager of an automobile dealership for redemption of his shares in excess of the stipulated formula in a shareholder's agreement in Drewitz v. Walser, C3-00-1759, 2001 WL 436223 (Minn. App. 2001)(unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0105/1759.htm

The parties had an employment agreement that had expired, and the "plain language" of the agreement did not contemplate any continued employment after the agreement ended. Because termination of employment triggered a buy-out of shares, the shareholders' agreement applied. The terms of the shareholders' agreement, which call for a buy-out based upon the book value of the shares, were applicable, and the shareholder was not entitled to any upgraded price to reflect the actual value of the shares. A 35 percent discount for the shares of a minority stockholder, paid over a ten-year period, was affirmed by the appellate court in Advanced Communication Design, Inc. v. Follett, C3-00-2040, 2001 WL 569013 (Minn. App. 2001)(unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0105/2040.htm

The case involved a contentious battle between an ex-officer and his former company regarding claimed fiduciary breaches. The Supreme Court had remanded the case for determination of an appropriate, 35 percent to 55 percent discount for the officer's minority shares in the company. The appellate court upheld the trial court's selection of a 35 percent discount as consistent with the "average" discount for transactions of this type. But the 8th Circuit Court of Appeals, applying Missouri law, held that no minority discount, based upon either lack of control or absence of marketability, was justified in buying-out the minority shares of stockholders who dissented from a merger. In Swope v. Siegel-Rubert, Inc., 243 F.3d 486 (8th Cir. 2001), the court held that the dissenters had an absolute right to be paid the "fair value" of their shares, without regard to any minority discount because they were "unwilling" sellers in connection with the merger.

Defamation. Crude offensive statements deemed to be "pure vulgarity" about an employee made by coworkers are too imprecise and lacking in specificity to constitute actionable defamation. In Bebo v. Delander, C5-01-199, 632 N.W.2d 732, 2001 WL 881327 (Minn. App. 8/7/01), the Court of Appeals reiterated that epithets are actionable if they constitute opinions. The Court also rejected a claim of interference with contract because the claimant was an "at will" employee. www.lawlibrary.state.mn.us/archive/ctappub/0108/c501199.htm

'On Call' Employees. The 8th Circuit recently ruled upon a pair of cases involving "on-call" employment arrangements in the medical profession. In Reimer v. Champion Healthcare Corp., 258 F.3d 720, 2001 WL 793247 (8th Cir. 7/16/01), the court held that nurses and other personnel were not entitled to overtime compensation for the time spent "on call" because the restrictions imposed on them did not substantially limit their activities. The requirements included refraining from alcohol or mind-altering drugs and being available to come to work within a 30-minute period.

A dialysis technician at a hospital is entitled to proceed with a discrimination lawsuit based on race and gender due to her "on call" arrangement. In Greer v. St. Louis Regional Medical Center, 258 F.3d 843 (8th Cir. 2001), the employee, an African-American woman, asserted a cognizable claim by showing that white male colleagues had more preferential "on call" arrangements, including being paid for "on call" time, while the claimant was on a 24-hour, seven-days-per-week unpaid "on call" status.

Legislation to exclude monies recovered for emotional discrimination claims from taxable income has been introduced in the Senate. Damages for employment-related matters usually are taxable unless based on "physical injuries." The new bill would roll back many of the tax provisions to 1996, when employment-related damage awards were not taxable.

Under the bill, any award of settlement, including lump sum and periodic payments, will be tax-free. However, punitive damages and back-pay and front-pay awards would remain taxed, The bill would allow plaintiffs to spread out back and front-pay awards over the years they anticipate, which would avoid triggering the alternative minimum tax in many cases. The changes would become effective for awards received in taxable years beginning in 2001. The Bill is S.917, entitled "Civil Rights Tax Relief Act of 2001." See http://thomas.loc.gov/

A medical savings account, a type of health plan that is especially useful for small employers, may become available to all employers under a proposal that is being introduced in the House as part of a larger health care bill. Similar proposals have also been introduced in the Senate.
To take advantage of the medical savings account, an individual purchases a low-cost insurance policy with a high deductible. The employee then contributes pretax money into an account that may be used to pay medical bills up to the amount of the deductible. The plan allows for significant tax deductibles.

Under current law, the accounts are available only to employers with 50 or fewer employees. Minimal deductibles for such plans now are $1,500 for an individual and $3,000 for family coverage. The new proposal would allow any employee covered under a qualified high-deductible health plan to be eligible to participate. The minimum deductible would be reduced to $1,000 for an individual and $2,000 for a family. The bill also would provide incentives to preferred provider organizations to offer medical savings accounts and allow them to be offered under 'cafeteria" health plans. The changes will go into effect during the year 2001.

The House bill, H.R. 2315, is called the "Patient's Bill of Rights Act of 2001." The Senate bill, S. 1067, is known as the "Medical Savings Account Availability Act of 2001."

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

8th Circuit Affirms Cost Recovery Decision. On June 14, 2000, the 8th Circuit Court of Appeals affirmed a judgment against a property owner attempting to recover its contamination cleanup costs. Union Pacific Railroad Company v. Reilly Industries, Inc., 215 F.3d 830, 2000 WL 764780 (8th Cir. 2001). Union Pacific remediated its property of contamination allegedly caused by its former tenant, Reilly Industries, as part of Union Pacific's sale of its property. Once the cleanup was completed, Union Pacific sued Reilly Industries to recover these cleanup costs under CERCLA, MERLA and state common law.

In its decision, the 8th Circuit affirmed the district court's grant of partial summary judgment to the defendant, Reilly Industries, regarding Union Pacific's CERCLA claims. Under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), a private party cannot recover its reasonable and necessary response costs from a responsible party unless it complies with the National Contingency Plan (NCP). The district court found Union Pacific failed to "substantially comply" with the NCP when it gave the public less than the required 30 days to participate "meaningfully" in the selection of the response action. The court rejected Union Pacific's argument that extensive involvement by the Minnesota Pollution Control Agency (MPCA) in the remediation selection process satisfied this requirement. Furthermore, Union Pacific deviated from the NCP when it selected the remediation method before conducting a formal remedial investigation and feasibility study (RI/FS).

The 8th Circuit also upheld the district court's decisions on Union Pacific's other claims. Union Pacific argued the statute of limitations on its Minnesota Environmental Response and Liability Act (MERLA) claim began when it commenced the cleanup. The district court determined the claim instead began to run when Union Pacific first knew or reasonably should have known of the contamination. Because Union Pacific filed against Reilly Industries more than six years after becoming aware of the contamination, the Court dismissed the MERLA claim. Union Pacific's indemnity claim failed because the court found neither an express contractual relationship nor an implied legal duty between the parties. And the district court found no basis to grant Union Pacific's equitable claim of contribution, given its failure to invoke its MERLA rights in a timely fashion.

Environmental Review Process. At its July 20, 2000, meeting, the Minnesota Environmental Quality Board (EQB) approved the creation of a committee to advise the EQB on changes in the state's environmental review rules and statutes. EQB Chair Gene Hugoson will appoint an unspecified number of committee members from four groups: environmental organizations, businesses, local governments, and the public. Suggestions for appointees may be submitted to Jon Larsen at Minnesota Planning, 658 Cedar St., St. Paul, MN 55155 or by email to eqb@mnplan.state.mn.us.

Final TMDL Rules. On July 11, 2000, the United State Environmental Protection Agency (EPA) issued the final version of its revised Total Maximum Daily Load (TMDL) rules. 65 Fed. Reg. 43,585. Under ¤ 303(d) of the Clean Water Act, states are required to establish TMDLs for waters that do not meet applicable water quality standards. The state must then establish and enforce discharge controls from point and nonpoint pollutant sources as necessary to achieve these standards. States have nonetheless been slow to establish TMDLs, due largely to the difficulty in regulating nonpoint sources.

Under the new EPA rules, states must establish TMDLs for all impaired waters within ten years. The EPA may grant up to five years of additional time "where necessary." In addition to setting the limits themselves, states must also provide EPA with a plan as to how each TMDL will be implemented. Implementation plans may vary based on whether the waterbody is impaired only by point sources subject to National Pollutant Discharge Elimination System (NPDES) permits, only by "other sources" (including nonpoint sources) or by both. The new rules set a goal of five years for implementing management measures or control actions to achieve load allocations and ten years for attaining water quality standards.

-- William Hefner
Greene Espel PLLP

Joint Physical Custody -- Child Support Calculation. The parties' 1996 decree granted them joint legal and physical custody of their two minor children and reserved the issue of child support. Initially, the parties agreed on a 50/50 custody arrangement. In October 2000, the court entered an order permitting the mother to move to Wisconsin and, pursuant to a stipulation, the children's primary residence was moved to Wisconsin during the school year. The children resided with the father during the summer. Each parent also had alternating weekend parenting time and holidays were divided. The amended decree did not change the award of joint physical custody. In November 2000, the court determined the issue of child support and found that it was in the children's best interests that the father make full, guideline child support payments. However, the court did not use the Hortis/Valento formula to reduce the father's child support obligation based on the mother's income and the time the children resided with the father. The father appealed the court's failure to apply the Hortis/Valento formula. The Court of Appeals affirmed, concluding that when joint physical custody is granted, the failure to apply the Hortis/Valento formula is a deviation from the child-support guidelines and the district court must make written findings that address the statutory criteria for deviation. However, in this case, the Court of Appeals held that the court's findings, while sparse, were sufficient to justify a deviation from the guidelines. The Court of Appeals also noted that its conclusion was not modified by Rogers v. Rogers, 622 N.W. 2d 813, 821 (Minn. 2001) in which the Supreme Court held that the guidelines do not contemplate application of the Hortis/Valento child-support formula in a case of sole physical custody. (emphasis in original). Schlichting v. Paulus, C0-01-157, 632 N.W.2d 790 (Minn. App. 9/4/01). www.lawlibrary.state.mn.us/archive/ctappub/0109/c001157.htm

Domestic Abuse, Subject Matter Jurisdiction. On December 28, 1999, appellant filed a petition and supporting affidavit for an ex parte order for protection against her respondent husband. A limited ex parte order for protection, issued the same day, commanded respondent to appear before a referee on January 6, 2000, and stated, inter alia, that the order was effective until the scheduled hearing. Respondent filed an affidavit refuting the allegations and appeared with counsel before a referee. Because of a pending marriage dissolution action, several of appellant's requests for relief were deferred to that action and the only issue remaining before the referee was the petition based on respondent's alleged abuse of appellant. An evidentiary hearing could not be held that morning because appellant's counsel had a conflicting court appearance and the hearing could not be heard later in the day because the court had a full calendar. As a result, the referee continued the matter to the following afternoon, January 7. That hearing was continued because respondent's counsel was ill. On or about January 18, 2000, the referee and counsel conferred by telephone and appellants' counsel requested a continuance until February to accommodate counsel's vacation. However, respondent's counsel demanded that the hearing be heard that week and it was scheduled for January 21. Appellant again sought to continue the matter on January 21 but the referee denied the continuance and, after a hearing, issued an order for protection valid for one year from January 21, 2000. The district court affirmed the referee's order over respondent's argument that the referee lacked jurisdiction to hear and decide the case on January 21 because a full hearing on the petition was not held by the statutory deadline. The Court of Appeals concluded that the district court lacked subject matter jurisdiction and reversed. Burkstrand v. Burkstrand, C0-00-813, 2000 WL 1847671, at ¦ 2 (Minn. App. 12/13/00)(unpublished).

The Supreme Court reversed, holding that the statutory time frames for holding hearings on petitions for orders for protection set forth in the Domestic Abuse Act, Minn. Stat. ¤ 518B.01, subdivision 7(c) (2000) and subdivision 5(a) (2000), are not limitations on the district court's subject matter jurisdiction over domestic abuse matters, but rather operate to give such cases docket priority and to limit the force and effect of ex parte orders for protection. The Supreme Court concluded that if subject matter jurisdiction is divested every time a hearing on a petition for an order for protection is not held within the statutory time frames, victims of domestic abuse will be forced to begin the protection process anew. This has an impact on public safety and may also penalize a petitioner when delay is caused by the court, respondent, or by other events beyond petitioner's control. Nevertheless, although the district court did not lose subject matter jurisdiction, the Supreme Court also noted that its holding does not diminish the importance of conducting timely hearings after issuance of an ex parte order for protection.

In dissent, Justice Gilbert agreed with the majority's statement on public policy regarding the importance of petitions for orders for protection in cases of domestic abuse. However, he concluded that public policy reasoning should not be used to alter a purely statutory remedy. He would have held that the district court's failure to hold the hearing within the 14-day time frame required by Minn. Stat. ¤ 518B.01, subd. 5(a) (2000) caused the petition to expire and that the district court did not have jurisdiction to hold a hearing in the absence of a petition. Reversed. Burkstrand v. Burkstrand, C0-00-813, 632 N.W.2d 206 (Minn. 8/30/01).
www.lawlibrary.state.mn.us/archive/supct/0108/c000813.htm

-- Stephen R. Arnott, Chair
MSBA Family Law Section

Diversity Jurisdiction; Cross-Claims. Following a fatal traffic accident, plaintiffs, Oklahoma and Texas citizens, filed wrongful death and negligence claims against a trucking company and its truck driver in the Missouri courts. The trucking company removed the action to federal court on the basis of diversity jurisdiction, and asserted a counterclaim against the plaintiff-driver. In a first amended complaint, the driver was dropped as a plaintiff. In its answer to the first amended complaint, the trucking company again alleged that the driver was negligent. The remaining plaintiffs then sought leave to file a second amended complaint adding the driver as a defendant. The trucking company opposed the motion, arguing that since the driver had not sought leave to dismiss his claims, he remained a plaintiff in the action, and that the other plaintiffs' claims against him should be designated as cross-claims. The district court then granted the other plaintiffs leave to amend to assert cross-claims against the driver.

Plaintiffs then moved to remand the action to the Missouri courts, arguing that because cross-claim plaintiffs and the cross-claim defendant were both Oklahoma citizens, there was no diversity of citizenship. The trucking company argued that there was complete diversity between plaintiffs and defendants, and that the district court had supplemental jurisdiction over the cross-claim. After the motion to remand was denied, the trucking company prevailed on a dispositive motion. The plaintiffs then appealed, arguing that the district court had lost subject matter jurisdiction when it allowed the cross-claim to proceed.

The 8th Circuit held that the district court did not err in allowing the plaintiffs to amend their complaint to assert cross-claims, and that the addition of the cross-claim did not defeat diversity jurisdiction. Noting that "it appears the plaintiffs' main reason for adding [the driver] as a defendant, rather than filing a cross-claim against him, was to destroy diversity jurisdiction," the Court held that the "proper means" for protecting the plaintiffs' interests was through the filing of a cross-claim under Fed. R. Civ. P. 13(g).

This decision presents a good example of how far some plaintiffs and their counsel will go to avoid the federal courts. Ryan v. Schneider National Carriers, Inc., 263 F.3d 816 (8th Cir. 2001).

Anti-Injunction Act; Parallel State Court Proceeding. Separate consolidated securities class actions were pending against BankAmerica Corp. in the Eastern District of Missouri and in the California courts. The federal plaintiffs eventually moved to enjoin the California actions, contending that the California proceedings undermined the lead-plaintiff provisions of the Private Securities Litigation Reform Act. The district court granted the motion, finding that because the injunction was authorized by the PSLRA, it was permissible under the Anti-Injunction Act. The California plaintiffs appealed from the issuance of the injunction.

Noting that the Anti-Injunction Act "serves to forestall the frictions that would result from turf wars between federal and state courts over control of a particular case," the 8th Circuit held that the lead-plaintiff provisions of the PSLRA "create significant federal rights," meaning that the district court's injunction fell within an exception to the Anti-Injunction Act that authorizes injunctions where a statute "creates a federal right or remedy." Judge Bye dissented, questioning whether the PSLRA created a "uniquely federal right or remedy," and opining that "any doubts" as to the propriety of the injunction should be resolved in favor of allowing the state court action to proceed.

The absence of a citation to any other decision discussing the interrelationship between the Anti-Injunction Act and the PSLRA strongly suggests that this is the first federal appellate decision to address this issue. If so, it is likely to be influential if other Circuits face this or similar issues. In Re BankAmerica Corp. Sec. Lit., 263 F.3d 795 (8th Cir. 2001).

Other Noteworthy Decisions. Judge Kyle sanctioned plaintiff's counsel $4,000 for violations of Fed. R. Civ. P. 11, finding that claims had been alleged without an adequate and reasonable investigation, and that the submission of a suspect affidavit by the attorney demonstrated "at best, carelessness by counsel in dealing with an unrepresented person and, at worst, conduct that is unethical." Boyer v. KRS Computer & Business School, ___ F.Supp.2d ___, 2001 WL 1090237 (D. Minn. 9/19/01).

Judge Tunheim denied defendant's motion for amended findings of fact under Fed. R. Civ. P. 52(b) following his grant of a summary judgment motion, holding that the Rule 52(b) motion was procedurally improper, because district courts do not engage in "fact finding" when ruling on summary judgment motions. Judge Tunheim noted in a footnote that the defendant could have brought its motion under Fed. R. Civ. P. 59(e), or under Local Rule 7.1(g). APT Minneapolis, Inc. v. Stillwater Township, ___ F.Supp.2d ___, 2001 WL 936193 (D. Minn. 8/15/01).

-- Josh Jacobson
Law Office of Josh Jacobson PA

Law of On-Sale Bar, Claim Interpretation and Corroboration. In Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041 (Fed. Cir. 2001), the Court of Appeals for the Federal Circuit, the court that decides all appeals concerning patent law, held that federal law, not state law, controls whether an offer to sell patented technology occurred. A patent is invalid if the patented subject matter was sold or offered for sale in the U.S. more than one year before the patent application was filed. Prior to the court's decision, the prevailing view was that the individual states' laws on contract applied to these disputes. However, citing a need for national uniformity in patent law, the court found that its law, that of the Federal Circuit, is controlling. Further, the court applied the Uniform Commercial Code's test to determine whether an offer had been made and suggested that the 2nd Restatement of Contracts was also an acceptable guide in determining whether an offer to sell occurred. Finally, the court distinguished an offer to sell the rights granted by a patent, which would not invalidate the underlying patent, from an offer to sell the subject matter of the patent, which does bar patentability if occurring in the U.S. more than one year before the U.S. patent application was filed.

In Medtronic v. Boston Scientific Corp., et al., Civ. No. 99-1035, ___ F.Supp.2d ___ (D. Minn. 8/31/01), Judge Kyle refused to use statements made during prosecution of Medtronic's patents to narrow the scope of the claims. Medtronic sued Boston Scientific alleging infringement of two Medtronic patents protecting shape memory alloys. Under current patent law, it is the court that construes the meaning and scope of the claims of a patent involved in litigation. During claim construction of Medtronic's patents, Boston Scientific argued that the term "stress-induced martensite" should be narrowly construed based on statements made by Medtronic during prosecution of the patents. However, the court found the statements to be "isolated" and not limiting of the claim term at issue. In rejecting Boston Scientific's proposed definition, the court refused to "read extraneous terms from the prosecution history or the claim specification into the claim under the guise of claim interpretation."

In Keystone Retaining Wall Systems, Inc. v. Rockwood Retaining Walls, Inc., et al., ___ F.Supp.2d ___, 2001 WL 951582 (D. Minn. 2001), Judge Kyle held that the uncorroborated testimony of an alleged coinventor did not create a genuine issue of material fact that Keystone's patent is invalid. Keystone sued Rockwood alleging infringement of a design patent protecting retaining wall blocks. Rockwood counterclaimed alleging, in part, that the patent is invalid because certain coinventors were omitted from the application. All inventors must be disclosed in a patent application or the patent may be invalid. Keystone moved for summary judgment on Rockwood's invalidity allegation. Rockwood's only evidence opposing the motion was the testimony of Woodford, the alleged omitted coinventor. Explaining Rockwood's heavy burden of proof, the court held that Woodford's testimony alone was not enough to prevent summary judgment. "'The temptation for even honest witnesses to reconstruct, in a manner favorable to their own position, what their state of mind may have been years earlier, is simply too great to permit a lower standard,'" quoted the court.

-- Tony Zeuli
-- William Schultz

Permanency Planning; Court Authority; Juvenile Court Act. Appellant social-services agency appealed decision of district court placing special-needs child, under the age of 12, into long-term foster care after the termination of parental rights was completed.

A.K., a child with severe developmental difficulties, was placed in foster care with D. Harwood. Ms. Harwood intended to adopt A.K., and Children's Home Society of Minnesota entered into an adoption agreement with A.K.'s mother. Ms. Harwood was unable to adopt A.K. due to financial reasons; under the current legislative scheme the county can provide foster parents with significantly more financial assistance than adoptive parents, even with regard to the adoption of children with significant special needs. A.K. was adjudicated as a child in need of protection or services, and A.K.'s mother's parental rights were subsequently terminated. The district court indicated the desire to place A.K. in long-term foster care with Ms. Harwood, rather than appellant social services agency continuing to seek an adoptive placement for A.K. Appellant social services agency argued that pursuant to Minn. Stat. ¤ 260C.201, subd. 11, the court could not place A.K. in long-term foster care since A.K. was under the age of 12 and did not have a sibling in long-term foster care. The district court ordered A.K. into long-term foster care with Ms. Harwood, ordered appellant social services agency to cease seeking an adoptive placement for A.K., and appellant social services agency appealed.

The Court of Appeals, in an opinion by Judge Randall, concluded that while Minn. Stat. ¤ 260C.201, subd. 11, contains the specific language referenced by appellant social services agency in prohibiting long-term foster care for a child under the age of 12, A.K.'s placement was not governed by section 260C.201. Rather, the Court of Appeals concluded, as Minn. Stat. ¤ 260C.201, subd. 11(b) (2000) states that "no hearing need be conducted under this subdivision" when a termination of parental rights petition is filed before the date required for the permanency planning determination, and there is a trial pursuant to section 260C.163 scheduled on that petition within 90 days of the filing of the petition, the district court was no longer required to determine a disposition pursuant to Minn. Stat. ¤ 260C.201. The Court of Appeals concluded the district court could correctly address the matter of A.K.'s placement pursuant to the termination provisions of the Juvenile Court Act.

Pursuant to Minn. Stat. ¤ 260C.325, subd. 4(d) (2000), the Court of Appeals concluded that the district court had the discretion to consider placements, including whether the child, due to special needs or circumstances, should "be continued in foster care on a long-term basis." Accordingly, under section 260C.325, subd. 4(d) (2000), the district court had authority to order continued long-term foster care for A.K. The Court of Appeals specifically noted that, while this section of the statute was recently revised and this language was included in section 260C.317, subd. 3(c), see 2001 Minn. Laws ch. 178, art. 1, ¤ 38, the new statutory language specifically still allows a district court to order foster care on a long-term basis as part of a "placement living arrangement" or "permanency plan" after the termination of parental rights.

In this manner, the Court of Appeals specifically concluded that Minn. Stat. ¤ 260C.201, subd. 11(e) "only applies to pretermination-of-parental-rights cases." As this decision clarifies the ability of the district court to order long-term foster care for a child who does not necessarily meet the criteria specified in section 260C.201 subd. 11(e) for long-term foster care, this decision has a significant impact upon permanency planning after the termination of parental rights, particularly for those children who are in beneficial foster placements which, for whatever reason, may not be available as adoptive homes for the children. In The Matter of A.K., 633 N.W.2d 65, 2001 WL 1035077 (Minn. App. 9/11/01). www.lawlibrary.state.mn.us/archive/ctappub/0109/c5002217.htm

-- Jessica Maher
Walling & Berg, P.A.

Award of Attorney's Fees to Person Nominated as Personal Representative; Abatement Based on Intent. Decedent executed her will in 1995 naming her attorney as personal representative. She devised $50,000 to an individual and the residue of her estate to charities. Her cousin, who was nominated as personal representative and received a devise under a will executed in 1990, unsuccessfully contested the 1995 will on the grounds of incapacity and undue influence. The trial court refused to award the cousin attorney's fees under Minn. Stat. ¤ 524.3-720 on the ground that the 1990 will in which she was nominated personal representative had not been admitted to probate.

The Court of Appeals held that a person nominated as personal representative in a will is entitled to attorney's fees in a will contest whether or not the will is admitted to probate as long as the person is acting in good faith. It remanded the case for a determination of whether the cousin acted in good faith.

The Court of Appeals upheld the trial court's determination that the devise to the individual in the 1995 will should be subject to a pro rata share of the estate's administrative expenses along with the charitable gifts. Although the devise of a sum of money is a general devise and under the general rule of Minn. Stat. ¤ 524.3-902 abates after residuary devises, the general rules of abatement are subject to change if necessary to give effect to the intent of the testator. Estate of Lillian M. Sima, C2-01-368 (Minn. App. 8/28/01)(unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0108/368.htm

--Curt Stine
William Mitchell College of Law

Landlord/Tenant. Three intruders entered a tenant's apartment and killed him. The Supreme Court found that a special relationship did not exist between the tenant and landlord that would give rise to a duty to protect the tenant from a criminal attack by persons who entered the tenant's unlocked apartment door. Furthermore, the landlord did not assume a duty by installing and maintaining security procedures including locks on a building security door, an intercom system and security guard; therefore landlord could not liable for failing to adequately maintain those security procedures. Funchess, Trustee for the heirs of J.W. Haynes, decedents vs. Cecil Newman Corp et al., C8-00-90, 632 N.W.2d 666 (Minn. 8/23/01). www.lawlibrary.state.mn.us/archive/supct/0108/c80090.htm

Zoning. The city council orally granted a conditional-use permit to applicants to operate a coffee and ice cream business. Applicants later requested to obtain a liquor license under the CUP. The city council denied the request. The Court of Appeals reasoned that because Minn. Stat. ¤ 340A.404 permits cities to issue liquor licenses to restaurants and ¤ 340A.101 defines restaurant as a business that prepares and serves meals to the general public, applicants' coffee and ice cream shop did not fall within the definition of restaurant thus the city council did not err in denying applicants' request. Montella et al. vs. City of Ottertail, C9-01-593, 633 N.W.2d 86 (Minn. App. 9/18/01). www.lawlibrary.state.mn.us/archive/ctappub/0109/c901593.htm

Water Management. In an effort to provide more effective and efficient water management services, Washington County petitioned to enlarge watershed districts to included area already within joint powers water management organizations ("JP-WMO"). Minn. Stat. ¤ 103D.261 gives the Board of Water and Soil Resources authority to enlarge a watershed district if it finds that it would be for the public welfare and public interest. The Court of Appeals found that because both the JP-WMO and the watershed district adopt and implement water management plans, increasing the size of the watershed district to incorporate land already within a JP-WMO would create redundant and potentially conflicting management plans which would be unreasonable and not within legislative intent of ¤ 103D.261. In the Matter of the Enlargement and Increasing the Number of Managers of the Brown's Creek Watershed District in Washington County, C0-01-322, 633 N.W.2d 76 (Minn. App. 9/11/01). www.lawlibrary.state.mn.us/archive/ctappub/0109/c001322.htm

-- Melissa Baer
Moss & Barnett PA

Misapplication of Class Rate; Challenge Only Under Chapter 278. The Minnesota Supreme Court, with three judges dissenting, overruled the Minnesota Court of Appeals and held that the assessor's application of the wrong class rate was part of the assessment process and therefore, taxpayers' claims were time-barred under the provisions of Minn. Stat. ¤ 278.01, subd. 1. Further, taxpayers did not have an independent cause of action under Minn. Stat. ¤ 279.19, which allows a judge to reduce a judgment for delinquent taxes based on omissions for assessment and levy required by an officer that results in prejudice to the party objecting because the class rate error was covered by the exclusive remedy provided by Chapter 278. Lastly, the Court found that since the taxpayers failed to avail themselves of adequate statutory remedies, there was no constitutional defect based on Due Process or Equal Protection. Programmed Land, Inc., et al. v. Patrick O'Connor, CX-99-777 and C7-99-1210, 633 N.W.2d 517, 2001 WL 1097765 (Minn. 9/20/01). www.lawlibrary.state.mn.us/archive/supct/0109/cx99777.htm

IRS Bound By Its Contract. The U.S. Court of Federal Claims held that certain financial institutions that acquired the assets of failing savings and loan associations in 1988 pursuant to assistance agreements with the Federal Savings and Local Insurance Corporation and the Federal Home Loan Bank Board are entitled to contract damages when Congress enacted retroactive legislation in 1993 targeted to eliminate the tax benefits associated with such acquisitions. The decision held that Congress crossed the line of demarcation between its power to pass legislation for the general welfare and the vested rights of the government's contracting partners and injured their vested rights in a manner that gives rise to contractual relief. Centex Corp. v. United States, 96-494C, 49 Fed. Cl. 691 (7/6/01). The Court of Claims reached the same result in First Nationwide Bank v. United States, 96-590C, 49 Fed. Cl. 750 (7/6/01).

Settlement, Attorney's Contingent Fee as Gross Income; Deductions; Alternative Minimum Tax. Affirming a sharply divided Tax Court, the 7th Circuit held that an individual, who settled a claim against his former employer under the Age Discrimination in Employment Act, had to include the entire settlement in income even though a large part of it was paid directly to his attorney under their contingent fee arrangement. Having to include the entire award or settlement in gross income and deducting the fees as miscellaneous itemized deductions can result in some or even a large amount of tax being payable on the portion of the award or settlement that is paid to the attorneys. This is because of the 2 percent floor on miscellaneous itemized deductions under Code Section 67, the Code Section 68 overall limitation on itemized deductions, and Code Section 56(b)(1)(A)(i), which disallows miscellaneous itemized deductions for alternative minimum tax purposes.Kenseth v. Commissioner, 00-3705, 87 AFTR 2d ¦ 2001-5378 (7th Cir. 8/7/01).

Price Fixed By Buy-Sell Agreements; Valuation. The book value price specified in buy-sell agreements did not control the estate and gift tax values of various business interests transferred by a decedent and his wife because the agreements were substitutes for testamentary dispositions. Applying the test set forth in J. Lauder Est., TC Memo 1992-736 (1992), the U.S. Tax Court held that the agreements failed the "nontestamentary disposition" prong of the Lauder test, according to the court, because they (1) were not a result of arm's-length dealings and served the decedent's testamentary purposes and (2) included a formula price that was not comparable to a price that would be negotiated by adverse parties in an arm's-length transaction and would not, over time, bear a reasonable relationship to the unrestricted fair market value of the ownership interests. H.A. True, Jr. Est., TC Memo 2001-167 (7/6/01).

Period for Filing Refund Claim; Filing of Form 1045. Taxpayer's filing of Form 1045 requesting tentative carryback adjustment due to net operating losses did not constitute an informal claim for refund that tolled the period of limitations for filing refund claims. Kirsh v. United States, 00-6240, 88 AFTR 2d ¦ 2001-5369 (2nd Cir. 8/6/01).

Attorney-Client Privilege; Documents Sought from Accountants. Attorney-client privilege does not shield from IRS third-party recordkeeper summons documents created by an accounting firm while working on estate tax and corporate merger issues with petitioners' attorney. Cavallaro v. United States, 99-CV-12625-PBS, 153 F.Supp. 2d 52 (D. Mass. 2001).

Research Credit; Costs of Integrating Computer System. Utility company is not entitled to tax credit for "qualified research" under Code Section 41 with respect to costs incurred in integrating its computer system with the help of a consulting firm . The gas company's research was more implementation than discovery-oriented, as the project wasn't undertaken to discover information that is technological in nature. Judge Posner found it telling that Andersen didn't take a copy of the source code with it when it completed the consulting project and concluded that the project involved adapting existing computer technology to the special needs of the gas company rather than inventing a new technology. WICOR Inc. v. United States, 00-4072, 88 AFTR 2d ¦ 2001-5474 (7th Cir. 8/14/01).

Land Purchaser's Basis in Water Rights. Purchaser that pays a premium for land based on a realistic expectation that water rights will attach to that land in the future may, upon sale of the later-acquired water rights, claim a cost basis equal to the premium paid. Gladden v. Commissioner, 00-70081, 88 AFTR 2d ¦ 2001-5208 (9th Cir. 8/20/01).

Executor; Fiduciary Duty to IRS; Estate Tax Claim. Executor of decedent's estate owes fiduciary duty to IRS in connection with the obligation to pay estate taxes, so that IRS may commence an adversary proceeding in executor's bankruptcy case seeking to except his indebtedness to IRS from discharge on ground of fraud in breach of such fiduciary duty. United States v. Tomlin (In re Tomlin), 3:00-CV-1161-D, Slip Op. (N.D. Tex. 9/6/01).

Deductions for Outside Investment Advice. The Federal Circuit held that deductions for outside investment advice are subject to the 2 percent floor for miscellaneous deductions and that the Section 67(3)(1) exception isn't available. Investment advisory fees and fees for accounting, tax, preparation and management services incurred by a bank do not meet the second prerequisite of Code Section 67(e)(1) in order to qualify for a full deduction. While the fees are "paid or occurred in connection with" a trust, and thus satisfy the statute's first requirement, the court said, such fees are commonly incurred outside of trusts, and so are only deductible to the extent they exceed the 2 percent floor of Section 67(a). Mellon Bank N.A. v. U.S., 01-5015, 88 AFTR 2d ¦ 2001-XXXX (Fed. Cir. 9/7/01).

Assessment of Taxpayer's Liability; Procedural Defect. The Tax Court held that Regulation ¤ 301.6203-1 doesn't require that one of IRS's assessment officers sign and date Form 4340, Certificate of Assessments and Payments, to have a valid assessment of a taxpayer's liability. IRS properly prepared Form 4340, and it could go forward with collection. Nicklaus, 117 TC No. 10 (2001).

Nonprofit HMOs; Denial of Tax Exemptions. Upholding the IRS, the U.S. Tax Court found that three HMOs are not entitled to federal tax exemptions. Essentially, the Tax Court concluded that IHC and its affiliates, which operate health maintenance organizations, did not provide a meaningful community benefit sufficient to qualify as tax-exempt organizations under Code Section 501(c)(3). In addition, the court found that the entities did not satisfy the "integral part test," as set out by the Tax Court. IHC Health Plans Inc. v. Commissioner, T.C. No. 14600-99X, T.C. Memo. 2001-246 (9/19/01); IHC Group Inc. v. Commissioner, T.C. No. 14599-99X, T.C. Memo 2001-247 (9/19/01); IHC Care Inc. v. Commissioner, T.C. No. 14601-99X, T.C. Memo. 2001-248 (9/19/01).

FICA Tax Liability; Lump Sum Severance Payment. Individual was liable for FICA wage taxes on a $4.5 million lump sum payment given to her by her employer as severance pay in consideration of her past services rendered,. Donnel v. United States, 99-1018T, 2001 WL 1095299, 88 AFTR 2d ¦ 2001-XXXX (Fed. Cl. 9/18/01).

Discount Gains in Estate Cases. Judgment of U.S. Tax Court was vacated and case was remanded with instructions to reconsider amount of capital gains discount to the main asset of the estate and to allow for the discount for built-in capital gains on second property. Estate of Jameson v. Commissioner, 00-60489, 2001 WL 1090638, 88 AFTR 2d ¦ 2001-XXXX (5th Cir. 9/18/01).

Deduction Treatment for Plan Contributions Based on Return Date. IRS committed abuse of discretion when it discriminated among similarly situated taxpayers in permitting deductions for contributions to retirement plans without any rational basis for such discrimination in Revenue Ruling 90-105, based solely on date that the tax return was filed. Computer Sciences Corp. v. United States, 92-334T, 88 AFTR 2d ¦ 2001-XXXX (Fed. Cl. 9/18/01).

Lottery Annuity; Discount for Lack of Marketability. Taxpayer won the California Lotto, elected annuity treatment, and received three payments before he died. California law prohibited the transfer or allocation of the 17-year remaining annuity stream of payments. The estate first paid the federal tax using Regulations Section 20.2031 - 7 percent value annuity tables, but subsequently filed amended returns and claimed that the annuity should be valued at zero. The district court reduced the value for lack of marketability. The 9th Circuit Court affirmed since use of the annuity tables produces a substantially unrealistic and unreasonable result. The California statute restricted sale and therefore there was a marketability discount. Shackleford, 88 AFTR 2d ¦ 2001-5250 (9th Cir. 2001).

Nonpayment of Payroll Taxes; Liability of Penalty Tax. Considering the totality of the facts, the court concluded that a taxpayer acted in "good faith" and did not "willfully" fail to pay over the trust fund taxes under Code Section 6672 100 percent penalty tax. There was no history of financial problems or tax delinquencies that could have alerted taxpayer to the tax delinquencies at issue. Since taxpayer had no actual knowledge of the unpaid payroll taxes until he was contacted by the IRS, he did not recklessly disregard a known or obvious risk that the taxes weren't being remitted. Once taxpayer learned of the deficiency, he did all that he could reasonably do to see that the taxes were paid. The court rejected the IRS's contention that once taxpayer learned of the outstanding payroll tax liability, he was under an obligation to cure the deficiency or "close the doors," and that his failure to do so constituted willfulness. In re Ronald D. Nutt, 88 AFTR 2d ¦ 2001-5235 (Bkty. Ct. Fl. 8/2/01).

Employment Taxes; "Back Wages" or "Damages"; Settlement Payments. Payment by Minnesota Twins to former players to settle breach of employment contract were outgrowth of employment relationship and thus fell within FICA/FUTA's broad definition of "wages." Fact that settlement and payment scheme weren't directly structured between taxpayer and its players/employees was irrelevant. Minnesota Twins Partnership v. U.S., 88 AFTR 2d ¦ 2001-5595 (D. Minn. 2001).

Tax Overpayment; "Equitable Recoupment." U.S. Tax Court properly applied doctrine of equitable recoupment by allowing a time-barred overpayment of income tax to be offset against an estate tax deficiency, both of which resulted from the court's revaluation of stock in the estate that was sold. Estate of Branson v. Commissioner, 00-70293, 88 AFTR 2d ¦ 2001-5272 (9th Cir. 9/5/01).

State Incentives; Constitutionality. Tax benefits granted to an automaker to induce it to remain in Ohio, including an Ohio corporation franchise (income) tax credit for certain qualifying investments and a personal property tax exemption, were not unconstitutional under the Equal Protection and Commerce Clauses. Cuno et al. v. DaimlerChrysler, Inc., et al., 3:00CV7247, 154 F.Supp. 2d 1196 (N.D. Ohio, 8/1/01).

Annual Card Fees; Ratable Inclusion in Income. Commissioner did not abuse discretion in determining that annual fees collected by American Express Co. from holders of its charge cards and credit cards were payments for credit, rather than for contingent services, and that fees therefore were not eligible for ratable inclusion in gross income over 12 months. American Express Co. v. United States, 00-5111, 88 AFTR 2d ¦ 2001-5568 (Fed. Cir. 8/23/01).

Standing to Sue IRS for Overpayment; Home Refinancing. Title company that, because of typographical error on the settlement statement prepared for the closing on a home refinancing, overpaid the IRS and underpaid the mortgage payoff amount has standing to sue to recover the overpayment. St. Joe Title Services Inc. v. United States. 8:00-CV-682-T30-TGW, 88 AFTR 2d ¦ 2001-5610 (M.D. Fla. 7/23/01).

Private Delivery Services Effective September 1, 2001, IRS added two new private delivery services -- UPS Worldwide Express Plus and UPS Worldwide Express -- to the list of designated private delivery services that taxpayers may use as an alternative to the U.S. Postal Service for purpose of the "timely mailing as timely filing/paying" rule of Code Section 7502. IRS Notice 2001-62.

Offer in Compromise Program. IRS unveiled details of a new process in their Offer-in-Compromise (OIC) program. The new centralized Offer-in-Compromise program will streamline and improve the processing of offers. Centralizing these procedures will simplify the offer application process, improve the timeliness of the IRS response, and provide uniformity in application processing. The new procedures, which include a redesigned application with instructions, are found in a 24-page booklet and should be used for new offers. Taxpayers should now send OIC applications to the Brookhaven Internal Revenue Service Center or the Memphis Internal Revenue Service Center. IRS will continue to process offers already assigned to other locations. Obtain a Form 656 (Offer-in-Compromise) booklet, which contains the application, instructions, Form 433A (Collection Information Statement for Wage Earners and Self-employed Individuals), and Form 433B (Collection Information Statement for Business) by calling 1-800-829-FORM, by visiting the local IRS office, or through the IRS website at www.irs.gov.

Online Tax Payment System. IRS officials announced the launch of a web-based system allowing businesses and individuals to pay their taxes directly online. The Electronic Federal Tax Payment System (EFTPS), or EFTPS-OnLine website, www.eftps.gov, replaces a more complex procedure for paying taxes electronically.
See, http://dailynews.yahoo.com/h/nm/20010906/wr/tech_taxes_internet_dc_1.html. See also, IRS Publication 966, IRS Publication 3425, IRS Publication 3806, IRS Publication 3848A; and IR 2001-77.

Partnership Profits Interest. Revenue Procedure 2001-43 provides that the determination under Revenue Procedure 93-27 of whether a partnership interest granted to a service provider is a profits interest is, under certain circumstances, tested at the time the interest is granted, even if, at that time, the interest is substantially non-vested. Where a partnership grants a profits interest to a service provider meeting the requirements of both revenue procedures, IRS will not treat the grant of the interest or the event that causes the interest to become substantially vested as a taxable event for the partner or the partnership.

Exemption Application; LLC Subsidiaries of Nonprofit Entities. The tax treatment of a single-member LLC that is owned by charities exempt under Section 501(c)(3) was the subject of uncertainty. The IRS, in a private letter ruling, advised the taxpayer that a single-member LLC would not need to file a separate Exemption Application, Form 1023. Private Letter Ruling 200134025.

Gift Tax Exclusion. The gift tax exclusion is increased to $11,000 for gifts made in 2002. This is the first time the $10,000 annual gift tax exclusion amount has ever been increased for inflation.

Requests for Tax Exempt Status; Disaster Relief Organizations. IRS released new information for public-use charitable organizations and announced that it will speed processing of requests for tax exempt status from new charities formed to assist victims of the September 11 terrorist attacks. A pending publication, entitled "Disaster Relief: Providing Assistance Through Charitable Organizations," will explain how to make contributions through existing charitable organizations and how new organizations can apply for and receive tax-exempt status. An advanced text of the publication is now available at the IRS's website, www.irs.gov. IRS also established a special expedited review and approval process for new organizations seeking tax-exempt status to provide relief to the victims. New organizations should apply for tax-exempt status by filing IRS Form 1023, available at www.irs.gov, and write at the top of the form "Disaster Relief, Sept. 11, 2001." IR 2001-82.

Tax Shelters. IRS issued revised proposed and temporary regulations on the corporate tax shelter disclosure rules, and reportable transactions under Section 6011 and 6012. See: http://ftp.fedworld.gov/pub/irs-regs/10373500.pdf and http://ftp.fedworld.gov/pub/irs-regs/te 8961.pdf. T.D. 8896, REG-103735-00, REG-11031-98, REG-103736-00 (published 8/16/00) , and T.D. 8961, REG-103735-00, REG-110311-98, REG-103736-00 (published 8/7/01).

Terrorist Attacks; Special Tax Relief. The IRS and Minnesota are providing tax help for taxpayers directly affected by the September 11 terrorist attacks. These tax relief measures apply to all taxpayers in the disaster areas designated by the president (i.e., five New York counties and Arlington County, Virginia). They also apply to victims of the ground attacks, victims on the hijacked airliners, relief workers, those who work in the disaster areas, and those with records maintained in the disaster areas. Notice 2001-61 and Notice 2001-63 explain the extensions and other tax relief available to those affected by the terrorist attacks and are available at www.irs.gov. Proposed federal legislation on income and estate tax relief to the victims is contained in H.R. 2884. The JTC Report on H.R. 2884 is found in http://www.house.gov/jct/x-68-01.pdf. To check the status of H.R. 2284 just enter H.R. 2884 and hit search at http://thomas.loc.gov/. Minnesota's relief for the victims of the terrorist attack is found in Revenue Notice 01-02 and 01-03 at http://www.taxes.state.mn.us/.

Mobile Telecom Sourcing Act; Minnesota Sales and Use Taxes. For Minnesota sales and use tax purposes, effective for sales and purchases made after July 31, 2001, Minnesota adopted the provisions of the federal Mobile Telecommunications Sourcing Act (P.L. 106-252). Under the law, wireless telecommunications services are sourced to the customer's "primary place of use." This is the residential or primary business address of the customer, and must be located in the service provider's licensed service area. The jurisdiction in which the primary place of use is located is the only jurisdiction that may tax the communications services, regardless of the customer's location when an actual call is placed or received. Minnesota was required to conform its own laws to the federal telecommunications language by August, 2002 or have Congress preempt the area. Laws 2001 First Special Session, Ch. 5, Article 12, Section 8.

Internet Taxation -- Uncertain Future. The "Internet Tax Moratorium and Equity Act" (S. 512) cleared the House Judiciary Committee, extending the moratorium for five years on taxing Internet transactions See 2001 WTD 151-4; "Hill Watch," BNA Daily Tax Report, 8/10/01. With the initial moratorium scheduled to expire in October 2001, national groups of state-and-local tax administrators seek to find some basis for imposing national taxation, which will find its way to their coffers. As this issue was wrapping up, seven governors, who oppose lifting the temporary ban, had sent a letter to every member of the House of Representatives and the Senate urging the extension of the moratorium. Forty-four governors, including those of American Samoa and Guam, previously sent a letter to Congress asking that the moratorium not be extended without addressing concerns over the ability of states to streamline their tax systems. In the aftermath of the September terrorist attack, legislation is even more problematic and speculative than before. BNA Daily Tax Report, 8/21/01.

Release of Tax Information; Combatting Terrorism. The Administration sent Congress counterterrorism legislation that would allow for broader release of tax information to the government agencies and the intelligence community during terrorism investigations. The Anti-Terrorism Act of 2001 would permit disclosure of information maintained by the IRS to federal agencies investigating terrorism. The information also could be disclosed to state and local law enforcement agencies that are part of a joint investigative team with the federal agency. Currently, non-IRS agencies must get court approval to obtain tax information for use in criminal investigations under Section 6103(i)(1).

2001 Minnesota Property Tax Reform. The recent 2001 property tax legislation made significant changes in the state's property tax and state aid systems. Certain homestead and agricultural credit aids from the state to cities were eliminated. The property classification system was substantially modified and class rates compressed. Levy limits were imposed for two years and the Local Government Aid formula modified. Two consequences of the momentous legislation need to be studied and watched. First, tax increment financing is severely restricted and limited by the new law. Local units of government will need to find replacement revenues for local development activities. Second, some 175 school districts are requesting "excess" operating levies to be approved by the voters this fall. These excess levies should be examined closely so as not to mitigate the effects of the 2001 property tax legislation on local accountability.

Impact of Terrorist Attacks on Tax Legislation. With the uncertain economy and the war on terrorism, it is unclear what direction Congress will take in considering other tax measures, if any, to ward off an economic downturn and to fund the war on terrorism. Minnesota likewise faces a similar situation with rising unemployment and a deteriorating economic climate. Two faculties that will be needed by both Congress and the Legislature are flexibility and an ability to focus a rapid response to the existing crisis.

-- Jerry Geis
Briggs & Morgan PA

Landowners -- Special Duty. Decedent was shot and killed in his apartment by three unidentified intruders. His estate filed suit, alleging the death resulted from the negligence of the apartment building's landlord and management company. The district court granted summary judgment, finding no duty to protect the decedent from criminal acts of third parties. The Court of Appeals reversed but the Supreme Court again reversed and reinstated summary judgment for the defendants.

After noting that a defendant owes no duty to protect a plaintiff from the criminal acts of a third party absent a "special relationship," the Supreme Court stated that whether a special relationship exists is essentially a policy question. The Supreme Court rejected the Court of Appeals' analysis that the landlord/tenant relationship resembles the guest/innkeeper relationship in which a special relationship does exist.

The Supreme Court also rejected the Court of Appeals' analysis that even without an original duty, the landlord and management company had "assumed the duty" to maintain security by installing a security door for the entire building. The Supreme Court expressed concern that such a holding would discourage landlords from improving security by potentially imposing liability for having improved security. While the security door was to keep unwanted persons from entering the building, the lock on the decedent's personal door, which was not alleged to be faulty, was to keep intruders from his apartment. Thus, the duty to maintain the general security door lock and buzzer intercom system did not impose a duty to prevent a criminal from entering the decedent's apartment. Funchess, Trustee for the Heirs of J. W. Haynes, decedent v. Cecil Newman Corp., C8-00-90, 632 N.W.2d 666 (Minn. 8/23/01). www.lawlibrary.state.mn.us/archive/supct/0108/c80090.htm

Costs and Disbursements -- Minn. Stat. ¤¤ 549.02 and 549.04. A plaintiff brought a personal injury action arising from an auto accident. The plaintiff rejected the defendant's $15,000 Rule 68 offer of judgment. Despite awarding nominal damages, the jury found that the plaintiff had not satisfied any tort threshold and the trial court entered judgment in the defendant's favor. However, the trial court also awarded plaintiff her costs and disbursements as the prevailing party under Minn. Stat. ¤¤ 549.02 and 549.04. Both parties claimed to be the prevailing party and sought to recover their costs for the trial.

The Court of Appeals held that because plaintiff had not recovered anything in excess of the Rule 68 offer, the trial court properly awarded costs and disbursements to the defendant. The court concluded that even though the jury awarded some damages, the defendant was the prevailing party because the plaintiff's failure to satisfy the tort threshold precluded any recovery. Luna v. Zeeb, C0-01-501, 633 N.W.2d 633 (Minn. App. 8/21/01). www.lawlibrary.state.mn.us/archive/ctappub/0108/c001501.htm

Insurance --Aggravation JIG. Plaintiffs brought an action against insurance company to recover underinsured motorist benefits after husband was injured in a car accident. A jury awarded husband more than $500,000 for past and future damages and the wife $125,000 for loss of consortium. The insurer contended on appeal that the district court erred in giving a prejudicial jury instruction regarding damages flowing from "aggravated pre-existing injuries." Pursuant to CIV JIG 91.40, the trial judge instructed the jury that if it could not "separate [preexisting] damages from those caused by the accident, defendant is liable for all of the damages."

The Court of Appeals reversed, holding that the instruction impermissibly "placed the burden of proof for the apportionment of aggravation on the at-fault defendant." According to the court, this application of the aggravation instruction to the damage apportionment between the preexisting condition and an at-fault defendant was contrary to Minnesota law. The court found that it was entirely possible, if not probable, that the jury had used the district court's erroneous instruction to conclude that the insurer was liable for all of the plaintiff's damages, notwithstanding that not all of those damages were due to the car accident. Since the erroneous instruction may have influenced the jury, the court held that a new trial was required. Morlock v. St. Paul Guardian Ins. Co., C2-01-340, 632 N.W.2d 268 (Minn. App. 8/28/01). www.lawlibrary.state.mn.us/archive/ctappub/0108/c201340.htm
[The author and his firm, Bassford, Lockhart, Truesdell & Briggs, PA, represented the appellant in this case.]

Insurance -- No-Fault Benefits. Plaintiff won a jury verdict in South Dakota against a negligent driver for losses, including past wages, stemming from a motor vehicle accident that occurred in South Dakota. She subsequently brought a lawsuit in Minnesota to recover no-fault benefits from her own insurer, claiming that she was entitled to wage-loss benefits that her insurer should have paid before the South Dakota verdict was rendered. The district court dismissed the claim.

The Court of Appeals affirmed, holding that plaintiff had already been compensated for her wage loss, and that receipt of no-fault wage-loss benefits would result in a duplicate recovery. The no-fault statute directs a Minnesota court to offset any tort award by the amount of basic economic benefits already paid or payable by the no-fault provider. Even though plaintiff obtained a tort award first and then challenged a denial of no-fault benefits, the statute still precluded any double recovery. The court further held that a foreign judgment does not alter the result under the Minnesota statutory scheme. Nelson v. American Family Ins. Group, C4-01-226, 632 N.W.2d 264 (Minn. App. 8/28/01). www.lawlibrary.state.mn.us/archive/ctappub/0108/c401226.htm

Liability; Negligent Counseling; 1st Amendment. Plaintiff and his then wife sought marital counseling from their minister who met with them as a couple and individually for approximately two years. Ultimately, plaintiff and his wife were divorced and plaintiff's exwife married the minister. Plaintiff contended that the minister, while acting as a trained counselor, repeatedly violated church doctrine and policy regarding limits on the counseling a minister may provide as was set out in the church's handbook for ministers. The district court dismissed counts of clergy malpractice, intentional infliction of emotional distress, breach of fiduciary duty or confidential relationship, but ruled that the claim of negligence was neither prohibited by the 1st Amendment nor barred by the Minnesota statute abolishing civil causes of action for alienation of affection.

The issue on appeal was whether or not the district court had subject matter jurisdiction over plaintiff's claim for negligent counseling. The Court of Appeals held that the district court, by interpreting and analyzing the language and intent of the minister's handbook, had done precisely what the 1st Amendment forbids, thereby resulting in the excessive entanglement of the district court in "religious doctrine, practice, or church polity." The court held that resolution of the negligent counseling claim would violate the 1st Amendment. One judge dissented, arguing that the simple negligent counseling claim was identical to a claim that could be brought in a secular context. Odenthal v. Minnesota Conference of Seventh-Day Adventists, C1-01-278, C4-01-291, 632 N.W.2d 783 (Minn. App. 8/28/01). www.lawlibrary.state.mn.us/archive/ctappub/0108/c101278.htm

Murder; Statute of Limitations. During his provisional discharge from a commitment for mental illness, and while under the intensive supervision of a social worker, a mental patient stopped taking his medication. The social worker failed to confirm whether this was authorized. The mental patient then murdered a woman. Her family brought suit against the social worker for wrongful death, but may have failed to serve her within three years after the woman's death.

The Court of Appeals held that the commencement of the wrongful death action was timely under the "murder exception" to the three-year statute of limitations. The exception applies to all persons whose wrongful act contributed to the cause of death, not just the murderer. In addition, the social worker was not protected by official immunity since her statutory duty to verify the status of the patient's prescription was ministerial, not discretionary. Huttner v. Minnesota, C9-01-416, C6-01-437, 2001 WL 1002811 (Minn. App. 9/4/01). www.lawlibrary.state.mn.us/archive/ctappub/0109/c901416.htm

-- Michael Klutho
Bassford, Lockhart, Truesdell & Briggs