May/June2005

• Administrative Law
• Alternative Dispute Resolution
• Criminal Law
• Employment & Labor Law
• Environmental Law
• Federal Practice
• Juvenile Law
• Real Property
• Tax
• Torts & Insurance

• Service of Order. The Commissioner of Health rejected the recommended decision of a human services referee and issued an order finding that the appellant abused a vulnerable adult, which disqualified her from working as a nurse aide. The commissioner’s final order was served upon the appellant’s attorney, but not upon the appellant. The applicable human services statute allowed an appeal to district court if served "within 30 days after the Commissioner issued the order." The appellant mailed her appeal 33 days after the commissioner’s order was mailed. The Court of Appeals held that the commissioner’s order was not "issued" if it was not served on the appellant herself, even though it was served on her attorney. The court acknowledged that under district court rules, service on the attorney is sufficient. It noted, however, that some human services statutes required service on both the party and the attorney and concluded that it would be inconsistent to interpret the service required for the commissioner’s order differently. The court held that the commissioner’s order is not "issued" until it is mailed directly to the person involved, even when the person is represented by an attorney. In Re Findings of Abuse of D.F.C. v. Minn. Comm. of Health, A04-551, 693 N.W.2d 451 (Minn. App. 03/22/05). www.lawlibrary.state.mn.us/archive/ctappub/0503/opa040551-0322.htm

• Appeal of Administrative Decision. Sandy Tischer sued the Cambridge Housing and Redevelopment Authority (HRA) in district court for breach of an employment contract after it eliminated her executive director position and terminated her employment. The district court assumed jurisdiction based upon a statute that makes HRAs liable in contract like a private corporation. The Court of Appeals reversed on the grounds that the sole remedy for a claim of wrongful discharge of a public employee is appeal to the Court of Appeals by certiorari. The Supreme Court agreed and noted that de novo review in district court would not allow appropriate deference to the administrative decision and would therefore violate the separation-of-powers doctrine. The Court also stated that if an administrative record is too sparse for judicial review, the appellate court can order the public body to expand the record. Justices Paul Anderson and Alan Page dissented on the grounds that the majority decision effectively denied Tischer any judicial review and that since she did not seek reinstatement, she was not claiming a wrongful termination, but only damages for breach of contract. Tischer v. Housing and Redevelopment Authority of Cambridge, A03-845, 693 N.W.2d 426 (Minn. 03/24/05). www.lawlibrary.state.mn.us/archive/supct/0503/opa030845-0324.htm

• Jurisdiction. Dodge County decided that an environmental impact statement (EIS) was not required for the construction of a hog confinement facility. An EIS is not required for a proposed feedlot if it has a capacity of less than 1,000 animal units. The proposed feedlot had a physical capacity of over 1,000 animal units, but the applicant stated it would have only 995. The Court of Appeals held that physical capacity was the appropriate criterion and an EIS was required. The court also held that the county lacked jurisdiction to decide this matter because state rules require a county to forward to the Pollution Control Agency all applications for a permit for a feedlot capable of holding 1,000 or more animal units. Berne Area Alliance for Quality Living v. Dodge County Board of Commissioners, A04-1287, 694 N.W.2d 577 (Minn. App. 04/12/05). www.lawlibrary.state.mn.us/archive/ctappub/0504/opa041287-0412.htm

Legislation

• Miscellaneous OAH Amendments. OAH provisions; H.F. 1036; Rep. Siefert/Sen. Senjem, Chapter 16. Chapter 16 was a bill proposed by the Office of Administrative Hearings proposing a variety of miscellaneous changes:

The act is effective August 1, 2005.

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

May/June2005

• Administrative Law
• Alternative Dispute Resolution
• Criminal Law
• Employment & Labor Law
• Environmental Law
• Federal Practice
• Juvenile Law
• Real Property
• Tax
• Torts & Insurance

ALTERNATIVE DISPUTE RESOLUTION
Judicial Law

• "No Class Action" Clause; Credit Card Agreement. A credit card holder brought a putative class action in federal district court in California against the card issuer alleging that plaintiff and other card holders were wrongly charged excess finance charges and late fees as a result of the card issuer’s failure to credit payments on the dates that payments were received. The California court certified the question of whether "no class action" provisions are unconscionable to the Supreme Court of North Dakota because the credit card agreement elected North Dakota law. According to the North Dakota Supreme Court, a party alleging provisions are unconscionable must demonstrate they are unconscionable on procedural and substantive terms. While the method used to amend the credit card agreement to include a "no class action" arbitration term was procedurally unconscionable, the right of the plaintiff to bring a class action is purely procedural and does not affect any remedy available to the plaintiff. From a substantive perspective, although the "no class action" term makes recovery "less convenient for the purported class," the plaintiff "can still be made whole through individual arbitration." Strand v. U.S. Bank Nat. Ass’n ND, 693 N.W.2d 918 (N.D. 2005).

• Party Forfeits Arbitration Right by Filing Suit. Where a contract clause grants a party the right to refer a dispute to arbitration or to commence litigation, the party cannot compel arbitration after it files a civil complaint. In deciding a dispute between a paint products manufacturer, Triarch Industries, and Crabtree, a qualified applicator of the paint products manufactured by Triarch, the Supreme Court of Missouri determined that the contract between the parties gave Triarch the option to either arbitrate or litigate. By filing a civil complaint and then later moving to compel arbitration, Triarch selected a litigation forum and effectively extinguished the option to arbitrate. Triarch Industries, Inc. v. Crabtree, 2005 WL 757888 (Mo. 04/05/05).

— Darin T. Allen
National Arbitration Forum

May/June2005

• Administrative Law
• Alternative Dispute Resolution
• Criminal Law
• Employment & Labor Law
• Environmental Law
• Federal Practice
• Juvenile Law
• Real Property
• Tax
• Torts & Insurance

CRIMINAL LAW
Judicial Law

• Spreigl; Staleness; Similarity; Extraneous Prejudicial Facts. The trial court did not err by admitting evidence of a similar sexual assault that the appellant had committed 16 years earlier. In the instant prosecution, appellant was on trial for forced oral sex on an adolescent child in the guise of education, accompanied by threats and coercion. The Court declined to adopt a bright-line rule for determining when a prior bad act becomes too remote to be relevant. Examining other cases where older acts were admitted, the Court of Appeals stated that: "… a district court when confronted with an arguably stale Spreigl incident, should employ a balancing process as to time, place and modus operandi." The more distant a Spreigl act is in terms of time, the greater the similarities as to place and modus operandi must be to retain relevance. In this case, the Court notes that three factors combined to allow admissibility: the appellant was actually convicted of the prior acts, he spent over half of the prior 16-year period incarcerated, and the prior acts are "strikingly similar" to the charged acts. Also, the Court holds that it is not the trial court’s duty sua sponte to exclude arguably extraneous testimony which is highly prejudicial. In this case, the appellant did not object or move to strike at trial. State v. Lionel Lee Washington, A03-980 (Minn. 03/17/05). www.lawlibrary.state.mn.us/archive/supct/0503/opa030980-0317.htm

• Spreigl; Limiting Instructions; Wermerskirchen Distinguished; Jury Instructions. Over defense objection, the district court judge admitted two of four prior bad acts offered by the state in a prosecution for criminal sexual conduct. The prosecutor contended that the prior bad acts were admissible as Spreigl to show appellant’s intent, scheme, and plan, absence of mistake or accident, and alternatively, lack of fabrication under State v. Wermerskirchen, 497 N.W. 235 (Minn. 1993). The district court refused to grant appellant’s request for a limiting instruction that the prior bad acts were admitted solely for the purpose of proving intent. Although the request was untimely because it was made during jury deliberations, the opinion addresses appellant’s position as if the request for instruction were untimely.

Held, although a district court must give a limiting instruction delineating the specific purpose for which the Spreigl evidence is to be considered, it was not error to deny such a request in this case, because the state offered the evidence for multiple purposes, which were all relevant to the appellant’s state of mind. In addition, the state sought admission of such evidence under Wermerskirchen, which allows admission of such evidence in cases where a defendant’s theory is that the victim fabricated or misperceived the conduct giving rise to the charged offense. State v. Henry John Martinez, Jr., A04-546 (Minn. App. 04/05/05). www.lawlibrary.state.mn.us/archive/ctappub/0504/opa040546-0405.htm

• Blakely; Mandatory Minimum; Firearm. A defendant’s sentence may not be increased under Minn. Stat. §609.11, Subd. 5 (2002), based on a judicial finding alone that the defendant used or possessed a firearm during the commission of the instant felony offense of fifth-degree controlled substance. Because the statute creates a mandatory minimum sentence that replaces the ordinary presumptive sentence, Blakely requires that the finding be made by a jury if the mandatory minimum sentence exceeds the ordinary guidelines presumptive sentence. Here, appellant was lying on the front passenger seat of the vehicle where the appellant was found asleep or passed out. When he was frisked, he was found to possess cocaine. The presumptive sentence for fifth-degree controlled substance is a year and a day, stayed. However, §609.11 requires an executed sentence of 36-months. This is, in effect, an upward dispositional durational departure.

The court equates mandatory minimums with enhancements above the guideline level. The Court of Appeals also distinguishes the §609.11 situation from federal and Minnesota Supreme Court cases which reject the argument that Apprendi applies to mandatory minimums by noting that it is Guideline II.E of the Minnesota Guidelines which makes the three-year sentence of §609.11 the mandatory minimum. Before §609.11 may be applied, it must be found or admitted that defendant possessed a firearm and the "doing so increased the risk of violence from the commission of the crime". State v. Duane Nathaniel Barker, A04-1453 (Minn. App. 03/08/05). www.lawlibrary.state.mn.us/archive/ctappub/0503/opa041453-0308.htm

• Blakely; Retroactivity; Probation Revocation; Appeal. Appellant was sentenced on September 18, 2003, and her time to file a direct appeal expired on December 18, 2003. Appellant did not directly appeal from the judgment. However, she appealed from a March 8, 2004 revocation proceeding in her loss of probation. That appeal was filed on June 7, 2004. Blakely was decided on June 24, 2004, while that probation revocation appeal was pending.

Held, applying principles of retroactivity, appellant’s case was "final" when Blakely was decided. Hence, Blakely does not apply retroactively to the appellant’s pending probation revocation appeal. State v. Stephanie Dawn Losh, A04-1028 (Minn. App. 04/05/05). www.lawlibrary.state.mn.us/archive/ctappub/0504/opa041028-0405.htm

• Blakely; Inadequate Waiver. Appellant pled guilty to nine counts of theft over $35,000. The day before the sentencing hearing, Blakely was decided. On the day of sentencing, the court, rather than the appellant, raised the Blakely issue. Counsel indicated that he had discussed the possibility of a jury finding as to the departure factors, but appellant asked that the court, rather than a jury, determine the issue. The court inquired further as to reasonable doubt.

Held, this was an inadequate waiver. The question becomes whether the appellant knowingly, voluntarily or intelligently waived her right to a jury trial on the aggravating factors, and this is exactly the same as the minimum waivers which must be set forth when a jury trial is waived under Minnesota Rule of Criminal Procedure 26.01, which shall include an acknowledgment and waiver of the right to have prosecution witnesses testify in open court when the defendant is present, to question these prosecution witnesses, and to require any favorable witnesses to testify for the defense. These items were missing from the waiver, which was held to be inadequate. Hence, the matter is remanded for the proceedings. State v. Margaret Thompson, A04-1808 (Minn. App. 04/05/05). www.lawlibrary.state.mn.us/archive/ctappub/0504/opa041808-0405.htm

• Search and Seizure; Pedestrian Stop; Innocent Behavior; Collective Knowledge. Officer Johnson responded to an "officer needs help" call from a downtown Minneapolis building. This type of call is a term among police officers indicating an officer is injured or in danger and urgently needs help. Johnson was in the area, and saw three men running out the door who appeared panicked and displayed a look of avoidance. One was described as wearing a black jacket, and their races were noted. Johnson pursued the men who were now walking, and then split up into two groups. Officer Enriquez, off-duty at the time, monitored the call, responded, and saw two individuals, one of whom was the same race as described in the help call, and wearing a red jacket. As he approached the men, he grabbed the appellant, placed him up against the wall, performed a pat down, and retrieved a loaded pistol. Appellant was charged with possession of a pistol by an underage person.

Held, the stop of the appellant was valid. Using the collective knowledge theory, the Court of Appeals looks to the quantum of information that was available to Officer Johnson. The totality of the circumstances, including the appellant’s nervousness, evasive behavior, and the fact that he was running from the scene of an officer-needs-help call, together provided a reasonable justification for a Terry stop although such factors taken individually, as otherwise innocent behavior, might not have justified the stop. The serious nature of the call and the possibility that weapons were involved justified the pat search of the appellant. In Re M.D.R., A04-831 (Minn. App. 03/22/05). www.lawlibrary.state.mn.us/archive/ctappub/0503/opa040831-0322.htm

• Scalping Tickets; Statutory Interpretation; Lower Price No Violation; Transferability Violation. Appellant had purchased advance sale tickets which were available at $6 per ticket before August 20, 2003. Appellant was scalping these near the state fair grounds. On August 28, 2003, the ticket stated on its face that it cost $6 and was "Not for sale after August 20, 2003." On August 28, 2003, admission tickets to the state fair cost $8.

Held, Minn. Stat. §609.805, Subd. 2(2) prohibits a ticket seller from charging any price greater than "stated on tickets issued for the event." Using a plain meaning approach, the Court of Appeals concludes that ticket sellers are only prohibited from selling tickets at a price greater than the price stated on tickets issued at the place of admission to the state fair that same day. In its second holding, the Court of Appeals finds that the restriction on the tickets, prohibiting their sale after August 20, 2003, was violated by the respondent under Minn. Stat. §609.805, Subd. 2(4), because of the condition stated on the ticket restricting its transfer. State v. Jason Lonnie Gabbert, A04-1785 (Minn. App. 03/22/05). www.lawlibrary.state.mn.us/archive/ctappub/0503/opa041785-0322.htm

• Felony Murder; Child Endangerment or Neglect; Predicate Felonies. In answer to a certified question from district court, the Court of Appeals examines whether child neglect or endangerment may serve as predicates to a felony murder charge. This inquiry is a matter of first impression in Minnesota. The appellant had placed her seven-week-old child on a "fast" for approximately one week, after which time emergency responders found the child not breathing. The child subsequently died and was found by autopsy, to have died of malnourishment and neglect.

Held, child neglect does pose a special danger to human life in the abstract, and as committed by appellant, and may therefore properly serve as a predicate to felony murder. The Court of Appeals also concludes that child endangerment, whose elements specifically include the possibility of the endangered child’s death, may serve as a predicate to a felony murder charge. State v. Tasha Daphne Mitchell, A04-1487 (Minn. App. 03/29/05). www.lawlibrary.state.mn.us/archive/ctappub/0503/opa041487-0329.htm

• Appellate Procedure; Failure to Serve State Public Defender. The trial court granted the defense’s suppression motion in a methamphetamine case, and dismissed the complaint. The prosecuting attorney appealed the district court’s pretrial order, but failed to serve the notice of appeal upon the state public defender, as required by Rule 28.04, Subd. 2(2). Instead, the prosecutor served the notice of appeal by mail upon the defendant’s personal public defender at her office in Isanti County. Before the district court issued its order, the defendant’s public defender had moved from her Isanti County office to the Washington County Public Defender’s Office. The public defender did not receive the mailed notice of appeal, nor was she aware of the district court’s order. Unaware of the appeal, neither the defendant, nor his public defender, nor the state public defender filed an appellate brief and therefore forfeited the right to oral argument. In an unpublished decision, the Court of Appeals reversed the district court.

On appeal, the Minnesota Supreme Court holds that the Court of Appeals does not have jurisdiction over a pretrial prosecution appeal if the prosecuting attorney has failed to serve the notice of appeal upon the state public defender, as required by the rule. Pretrial prosecution appeals are historically limited, and "There are good reasons for our strictly construing the rule granting the prosecution the right to appeal a pretrial order." State v. Keith Ross Barrett, A04-29 (Minn. 04/21/05). www.lawlibrary.state.mn.us/archive/supct/0504/opa040029-0421.htm

• Prosecutorial Misconduct; Indirect References; "Defendant Knows." It is improper to state to the jury, in reference to missing evidence, the following: "Mr. DeRosier probably knows. In fact, Mr. DeRosier does know. The State doesn’t know … Did it all go to one place? Did it go to multiple places? It would be nice to know that. It would be nice to know exactly where it went, but we don’t. It was never found." These indirect references to defendant’s failure to testify are prohibited because they manifest the prosecutor’s intention to call attention to the defendant’s failure to testify, and reasonable juries may understand them as a comment on the defendant’s failure to testify. Nonetheless, the error is not reversible in light of the minimal cumulative effect of the comments, the substantial amount of properly admitted evidence of guilt, and the lack of an objection. State v. Joshua John DeRosier, A03-784 (Minn. 04/21/05. www.lawlibrary.state.mn.us/archive/supct/0504/opa030784-0421.htm.

—Frederic Bruno
Frederic Bruno & Associates

May/June2005

• Administrative Law
• Alternative Dispute Resolution
• Criminal Law
• Employment & Labor Law
• Environmental Law
• Federal Practice
• Juvenile Law
• Real Property
• Tax
• Torts & Insurance

EMPLOYMENT & LABOR LAW
Judicial Law

• Age Discrimination. The 8th Circuit Court of Appeals recently affirmed dismissal of a pair of related age discrimination cases under the Federal Age Discrimination Employment Act (ADEA) on grounds of failure by the claimants to exhaust administrative remedies before the Equal Employment Opportunity Commission (EEOC). In both cases, the claimants, who were production coordinators at an aircraft manufacturing company, asserted age discrimination based on failure to rehire them after they were laid off. Both filed charges with the EEOC, which is a prerequisite to bringing an ADEA lawsuit in federal court, but in their EEOC charges, they did not mention any incidents of the company’s refusal to rehire after particular dates, which they then sought to raise in their respective lawsuits. Affirming dismissal of both cases, the 8th Circuit held that the failure to mention alleged failures to rehire in the administrative charges constituted failure to exhaust administrative remedies and, therefore, barred their lawsuits. In Shelton v. Boeing, the court rejected the claimant’s contention that the dates not mentioned in the EEOC charge were sufficiently related to those that were cited in the administrative filing to satisfy the exhaustion requirement. In Parici v. Boeing, the court denied the claimant’s "continuing violation" theory for compliance with the exhaustion requirement. Shelton v. The Boeing Company, 2005 WL 518276 (8th Cir. 2005); Parici v. The Boeing Company, 2005 WL 517013 (8th Cir. 2005),

• Labor Unions. The 8th Circuit determined that an employee asking a coworker to sign a union authorization card during a union election campaign constituted an improper solicitation in violation of the National Labor Relations Act. The court reversed the decision of the National Labor Relations Board as to the union card. But it affirmed the Board’s determination that wearing a pro-union t-shirt around the facility while off-duty and telling other employees about the schedule of a union organizing meeting did not constitute improper behavior. Wal-Mart Stores, Inc. v. NLRB, 2005 WL 578768 (8th Cir. 2005).

• Workers Compensation. The Minnesota Supreme Court ruled that child benefits paid as Social Security Disability Insurance (SSDI) are to be included in calculating the amount of a reduction in an employee’s workers compensation benefits. The SSDI benefits were properly considered an offset by the Workers Compensation Court of Appeals. Sundby v. City of St. Peter, 693 N.W.2d 206 (Minn. 2005).

A workers compensation insurer and employer were entitled to a complete credit until an overpayment of benefits was reimbursed. The Supreme Court rejected an attempt to deflect the overpayment for child support. Bradwell v. U.S. Roof Tech Corp., 693 N.W.2d 194 (Minn. 2005).

• Unemployment Compensation. Three employees lost unemployment claims recently on grounds of aggravated misconduct, misconduct, and voluntary quit. In the first of these cases, a bartender was denied benefits for aggravated misconduct for serving an obviously intoxicated off-duty employee. VanNess v. Minnehaha Lanes, 2005 WL 626419 (Minn. App. 03/15/05) (unpublished). In the second case, the failure of an employee to report to work for several days after calling the company’s attendance line to report sick for one day constituted disqualifying misconduct. Zupfer v. Sears Roebuck and Co., 2005 WL 625923 (Minn. App. 03/15/05) (unpublished). In the third case, an employee’s claim for benefits was rejected on grounds that he voluntarily quit when he failed to show up for work after his request for time off for vacation was denied by the employer. Wavescorx v. Boise Cascade Office Products, 2005 WL 625464 (Minn. App. 03/15/05) (unpublished).

Legislation

Recent federal legislation has expanded health insurance care and data. The Veterans Benefit Improvement Act of 2004, increased from 18 months to two years the maximum time period that employees are required to offer employer-sponsored health insurance coverage to employees and to notify employees of their rights, obligations, and benefits in connection with military service. The measure amends the Uniformed Services Employment and Reemployment Rights Act of 1994 in 38 U.S.C. §101.

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

May/June2005

• Administrative Law
• Alternative Dispute Resolution
• Criminal Law
• Employment & Labor Law
• Environmental Law
• Federal Practice
• Juvenile Law
• Real Property
• Tax
• Torts & Insurance

ENVIRONMENTAL LAW
Judicial Law

• Environmental Review; Feedlots. In an opinion issued on April 12, 2005, the Minnesota Court of Appeals held that feedlots that are legally permitted to house fewer than 1,000 animal units, but which have a physical capacity of 1,000 or more animal units, are not exempt from environmental review.

Mark Finstuen applied to Dodge County for permits to construct a feedlot that would have the physical capacity for more than 1,000 animal units, but which would be used for only 995 animal units. The county determined that an Environmental Impact Statement (EIS) was not required and issued the permit for 995 animal units. The Berne Area Alliance for Quality Living (baa), a citizens group, sued for a declaratory judgment that the county’s determination on the need for an EIS was arbitrary and capricious, that an EIS was required, and that the Minnesota Pollution Control Agency, not the county, was the responsible governmental unit for deciding the EIS and permitting issues. The district court held for the county and declined to issue the declaratory judgment.

After the county issued the permits and while the case was pending, the Minnesota Legislature enacted Minn. Stat. §116D.04, subd. 2a(d) (2004), which exempts from environmental review proposed feedlots having a capacity of fewer than 1,000 animal units. The county argued that the statute exempts Finstuen’s feedlot from environmental review because it was permitted for only 995 animal units. baa argued that the statute does not apply because it was enacted after the county’s decision and that, even if it does apply, Finstuen’s feedlot is not exempt because it would have a physical capacity of more than 1,000 animal units. The district court held that the exemption does not apply because the feedlot’s physical capacity would exceed 1,000 animal units.

The Court of Appeals affirmed the lower court ruling on the applicability of Minn. Stat. §116D.04, subd. 2a(d) (2004), holding that the exemption may be applied retroactively but that Fistuen’s feedlot was not exempt because its physical capacity would exceed 1,000 animal units. According to the court, its physical capacity for more than 1,000 animal units, not its "legal capacity" of 995 animal units, was the determining factor. The Court of Appeals reversed the lower court, however, on the other issues, holding that the county was obligated to forward Fistuen’s application to the Minnesota Pollution Control Agency (MPCA) pursuant to Minn. R. 7020.0405, and that the MPCA was therefore the responsible governmental unit for decisions on the EIS and permitting issues. According to the court, the proposed feedlot requires a permit from the MPCA either as a concentrated animal feeding operation under Minn. R. 7020.0405, subp. 1A, or as a feedlot capable of holding more than 1,000 animal units under Minn. R. 7020.0405, subp. 1B(1). The county therefore lacked authority to issue the permits. Berne Area Alliance for Quality Living v. Dodge County Board of Commissioners, 694 N.W.2d 577 (Minn. App. 2005).

• Environmental Review; "60-Day Rule." The Minnesota Court of Appeals held that the Minnesota Environmental Protection Act (MEPA) stays the requirement under Minn. Stat. §15.99 that governmental bodies take action on written requests within 60 days.

In connection with its proposed residential development in the city of Mendota Heights, Minnstar Builders applied to the city for rezoning in November of 2002. A group of citizens petitioned the Minnesota Environmental Quality Board to require environmental review under MEPA The city then prepared an environmental assessment worksheet and an environmental impact statement. In November 2003, Minnstar filed suit to compel the city to grant its application for rezoning. Minnstar argued that under Minn. Stat. §15.99, the city was required to either approve or deny its application within 60 days and, because the city failed to do so, the rezoning was approved by operation of the statute. The district court granted the city’s motion to dismiss.

The Court of Appeals affirmed, holding that the plain language of Minn. Stat. §15.99 and MEPA unambiguously stays the 60-day period during MEPA’s environmental review process. Minn.Stat. §15.99 expressly extends the 60-day period when a state statute requires a process to occur before the agency may act, and when that process cannot be completed during the 60-day period. In this case, the city needed to complete MEPA’s environmental review process prior to being able to approve or deny Minnstar’s application, and that process could not have been completed within 60 days. Allen v. City of Mendota Heights, 694 N.W.2d 799 (Minn. App. 2005).

• Clean Water Act; Citizen Suits. The U.S. Supreme Court has refused to review a decision by the U.S. Court of Appeals for the 7th Circuit that allows a Clean Water Act citizen suit against the Milwaukee Metropolitan Sewerage District to go forward. Under 33 U.S.C. §1365(b)(1), citizen suits may be not be brought against an alleged violator if the epa or a state has "commenced and is diligently prosecuting" a civil action to require compliance. Despite the fact that the state of Wisconsin had sued and reached settlement with the sewer district, the 7th Circuit held that the state failed to diligently prosecute a civil or administrative action against the district. The Friends of Milwaukee’s Rivers filed the citizen suit and argues that the settlement agreement is insufficient because it requires that the sewer district only reduce, rather than eliminate, sewer overflows. Friends of Milwaukee’s Rivers v. Milwaukee Metropolitan Sewerage District, 382 F.3d 743 (7th Cir. 2004), cert. denied 125 S.Ct. 1593 (03/07/05).

Administrative Action

• Clean Air Act; Final Rules on So2, Nox and Mercury. The U.S. Environmental Protection Agency recently issued final rules to reduce emissions of sulfur dioxide, nitrogen oxide, and mercury. The "Clean Air Interstate Rule" and "Clean Air Mercury Rule" were issued on March 10 and March 15, respectively.

The Clean Air Interstate Rule permanently caps emissions of sulfur dioxide and nitrogen oxide and provides for tradable allowances in the District of Columbia and 28 states in the eastern half of the U.S., including Minnesota. The Clean Air Mercury Rule also uses a cap and trade system to reduce mercury emissions from coal-fired electric utilities. For more information on the Clean Air Interstate Rule, go to www.epa.gov/cair. For more information on the Clean Air Mercury Rule, go to www.epa.gov/air/mercuryrule/.

— Robert Devolve
Leonard, Street and Deinard

May/June2005

• Administrative Law
• Alternative Dispute Resolution
• Criminal Law
• Employment & Labor Law
• Environmental Law
• Federal Practice
• Juvenile Law
• Real Property
• Tax
• Torts & Insurance

FEDERAL PRACTICE
Judicial Law

• Certiorari Granted; Diversity Jurisdiction; Judgment as a Matter of Law. The Supreme Court recently granted certiorari in two cases that should be of interest to those who practice in the federal courts.

In the first case, tenants sued their landlord and its property manager in the Virginia courts, and the defendants removed the case on the basis of diversity jurisdiction. After the district court stated its intention to award summary judgment to the defendants, plaintiffs sought to have the case remanded, arguing for the first time that diversity was lacking. The district court denied the plaintiffs’ motion and judgment was entered. Plaintiffs then appealed to the 4th Circuit, arguing that the district court had erred in awarding summary judgment to the defendants. However, plaintiffs never raised any diversity-related questions in their brief. Despite the parties’ silence on the jurisdictional issue, the 4th Circuit sua sponte held that it lacked subject matter jurisdiction because the defendants had failed to establish that a real party in interest (an entity that had not been named as a defendant) was diverse from the plaintiffs. In arriving at this conclusion, the 4th Circuit also held that the citizenship of a limited partnership extends to those states with which the partnership has a "very close nexus," even if no partner is a citizen of that state. The Supreme Court has granted certiorari on two questions. The first asks whether the presence of an unnamed real party in interest can defeat diversity jurisdiction. The second asks whether the citizenship of a limited partnership extends to those states with which the partnership has a "very close nexus." Lincoln Property Co. v. Roche, 373 F.3d 610 (4th Cir. 2004), cert. granted, 125 S. Ct. 1398 (2005).

In the second case, the Federal Circuit, applying 10th Circuit procedural law, held that the defendant had not waived its right to challenge the sufficiency of the evidence on appeal despite its failure to renew its motion for judgment as a matter of law ("JAML") under Fed. R. Civ. P. 50(b). The 10th Circuit stands almost alone on this issue, as the Petition for a Writ of Certiorari identifies the 4th Circuit as the only other circuit following this rule, while listing 1st, 2nd, 3rd, 5th, 6th, 8th, 9th and Federal circuits as requiring parties to renew their JAML motions after the jury returns its verdict. The grant of certiorari is limited to the question of whether a court of appeals may review the sufficiency of the evidence where a party makes a JAML motion prior to the case going to the jury, but then fails to renew that motion under Fed. R. Civ. P. 50(b) or move for a new trial under Fed. R. Civ. P. 59 following the verdict. Unitherm Food Systems, Inc. v. Swift-Eckrich, Inc., 375 F.3d 1341 (Fed. Cir. 2004), cert. granted, 125 S. Ct. 1396 (2005).

• Other Noteworthy Decisions. The Supreme Court limited the scope of the so-called Rooker-Feldman doctrine to those cases in which a party that lost in the state courts seeks to have the state court judgment reviewed by the federal courts, and held that other issues of concurrent federal and state court jurisdiction are governed by the ordinary rules of claim and issue preclusion. Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 125 S. Ct. 1517 (2005).

Affirming a decision by Judge Doty, the 8th Circuit held that trial court determinations of "substantial similarity" under the Lanham Act are findings of fact, and are to be reviewed under a "clearly erroneous" standard. Taylor Corp. v. Four Seasons Greetings, LLC, 403 F.3d 958 (8th Cir. 2005).

The 8th Circuit affirmed a district court’s denial of class certification in a putative antitrust class action, finding that the plaintiffs could not demonstrate a class-wide injury with proof common to the class. Blades v. Monsanto Co., 400 F.3d 562 (8th Cir. 2005).

Judge Davis denied plaintiffs’ request for jurisdictional discovery prior to ruling on the defendant’s motion to dismiss for lack of personal jurisdiction, finding that the plaintiffs had failed to identify what sort of discovery they proposed to conduct that might lead to the discovery of relevant information. Bible & Gospel Trust v. Wyman, 354 F. Supp. 2d 1025 (D. Minn. 2005).

Judge Magnuson denied the defendant’s request for Rule 11 sanctions, finding that while some of the plaintiffs’ claims had "little merit" they were "not entirely baseless." Baer v. G & T Trucking Co., 2005 WL 563107 (D. Minn. 03/01/05).

Judge Montgomery adopted Magistrate Judge Erickson’s Report and Recommendation, granted defendants’ Motion to Enforce a Settlement Agreement, and rejected the plaintiffs’ argument that an evidentiary hearing is always required prior to ruling on such a motion. Luigino’s, Inc. v. Societes des Produits Nestle S.A., 2005 WL 735919 (D. Minn. 03/30/05).

Following removal and the denial of a remand motion, plaintiffs amended their Complaint to eliminate a reference to "United States law" and filed a second Motion to Remand. Judge Kyle granted that motion, but ordered the plaintiffs to pay $3,500 attorneys’ fees in addition to the $2,000 Magistrate Judge Boylan previously had ordered them to pay. Lundeen v. Canadian Pacific Ry. Co., 2005 WL 563111 (D. Minn. 03/09/05).

Judge Montgomery enforced a forum selection clause in an equipment lease and denied a Motion to Transfer under 28 U.S.C. §1404(a). Lyon Financial Services, Inc. v. William H. Hall & Son Builders, Inc., 2005 WL 503371 (D. Minn. 03/04/05).

— Josh Jacobson
Law Office of Josh Jacobson

May/June2005

• Administrative Law
• Alternative Dispute Resolution
• Criminal Law
• Employment & Labor Law
• Environmental Law
• Federal Practice
• Juvenile Law
• Real Property
• Tax
• Torts & Insurance

Juvenile Law
Judicial Law

• Termination of Parental Rights; Child’s Best Interests. The Minnesota Court of Appeals in an unpublished decision affirmed a district court’s denial of a mother and step-father’s petition to terminate the biological father’s parental rights in a combined proceeding for termination of parental rights and adoption. The district court found that the evidence did not clearly and convincingly establish any of the four statutory criteria for termination that were alleged by the mother and step-father and that maintaining the parent-child relationship between the child and her father was in the child’s best interest. Affirming the district court, the Court of Appeals stated that a child’s best interest, although paramount, is not independently sufficient to support termination of parental rights. In the Matter of the Petition of the Adoption of R.M.M., A04-888 (Minn. App. 02/22/05)(unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0502/opa040888-0222.htm

• Termination of Parental Rights; ICWA. In an extensive published decision, where the father and mother of one child were members of two different Indian tribes and the mother had two additional children by another father, the county had petitioned to terminate the parental rights of the mother and both fathers. Following termination of the mother’s parental rights and denial of his request for a new trial, the father of the youngest child appealed, asserting that he was deprived of his rights to participate and that his son had erroneously been treated as a member of the mother’s tribe, among other matters.

The Court of Appeals held that in a proceeding to terminate parental rights under ICWA, if an Indian child who has not been shown to be previously enrolled in an Indian tribe is enrolled during the course of the proceeding, the district court must treat the child as a member of the tribe into which the child becomes enrolled. In a termination of parental rights proceeding involving an Indian child, a witness who is a member of the child’s Indian tribe, who is recognized by that tribe as knowledgeable regarding the tribe’s child-rearing practices, and who is authorized by the tribe to speak for the tribe, qualifies as an expert witness for purposes of ICWA and may offer opinion evidence as contemplated by the Minnesota Rules of Evidence. However, a tribally designated expert witness may be cross-examined as provided by the Minnesota Rules of Evidence, and the weight to be given to the testimony of that witness is within the province of the trial judge as fact finder. The Court of Appeals went on to determine that an expert witness may form opinions based on facts not admissible in evidence, if such facts are of the type on which experts in the field reasonably rely.

The appellate court further determined that:

1. a parent whose parental rights are at issue in a termination-of-parental-rights proceeding cannot complain that he was deprived of his right to participate in the proceeding by an order of the district court granting separate termination trials to that parent and to the child’s other parent, when the reason for the separate trials is that the complaining parent made himself unavailable to participate in the trial to terminate the other parent’s parental rights;
2. service by registered mail on an Indian tribe with notice of a proceeding to terminate parental rights to an Indian child satisfies 25 U.S.C. §1912(a);
3. challenges to evidentiary rulings do not merit reversal of a district court’s decision unless the party challenging the rulings shows both that the rulings were an abuse of the district court’s discretion and that the rulings prejudiced the complaining party;
4. in a proceeding to terminate parental rights, a district court does not abuse its discretion by denying motions for continuances where the continuances are sought because of an allegedly insufficient time to complete a case plan, but the party seeking the continuances refused to participate in the proceeding in a timely fashion and failed to take advantage of the services offered to assist him in satisfying his case plan.

The district court’s decision to terminate parental rights as to the father of the youngest child in this case was affirmed. In the Matter of the Welfare of Children of J.B and G.A.C, and T.F.H, Parents, A04-973 (Minn. App. 03/11/05). www.lawlibrary.state.mn.us/archive/ctappub/0503/opa040973-0311.htm

• Termination of Parental Rights; Inadequate Findings, Conclusions. Where the district court’s findings of fact and conclusions of law do not reference the child’s best interest or consider the evidence in light of the statutory bases for termination alleged by the county, where several findings appear contradictory or are not supported by the record, and the district court’s order contains misstatements of the law, the Court of Appeals concludes that effective appellate review of the order denying termination of parental rights was precluded, and hence, the decision was reversed and remanded for findings and conclusions consistent with applicable statutory standards. In the Matter of the Welfare of the Child of: K.R.F., A04-1676 (Minn. App. 03/15/05)(unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0503/opa041676-0315.htm

• Third Party Custody; Rights of Biological Parent. Where a biological father requested to change the physical custody of his children to himself from their paternal grandparents, who had been the children’s primary caregivers since 1995, and the district court denied the father’s motion, the Court of Appeals remanded for determination of what was currently in the best interests of the children.

The appellate court held that the district court erred in placing the burden on the father to justify a change in custody where the dissolution judgment awarded the father physical custody, and the district court did not afford the father the presumption in favor of a biological parent over a third party. While the grandparents had filed a motion for custody, the Court of Appeals indicated that the district court could consider that motion and construe it as a petition under Minn. Stat. §257C.01-.06, which seeks to address the appropriateness of awarding custody to the de facto custodians or interested third parties. Perez vs. Cottril, A04-771 (Minn. App. 03/29/05). www.lawlibrary.state.mn.us/archive/ctapun/0503/opa040771-0329.htm

• Termination of Parental Rights; Burden to Demonstrate Fitness. Where the district court initially denied the termination petition with respect to the mother’s four younger children and the mother’s rights to an older child were involuntarily transferred thereafter to a relative by a different district court, the county then filed a second termination petition with respect to the four younger children, which was granted. The Court of Appeals concluded that as a result of the involuntary transfer of custody of the older child, the burden then shifted to the mother to demonstrate that she was not unfit to be a parent. The Court of Appeals agreed with the trial court that the mother failed to meet her burden in this unusual procedural posture. The Court of Appeals also found no error in terminating the father’s parental rights and denying his untimely request for a continuance. In the Matter of the Children of L.V. and L.S., A04-1807, A04-1827 (Minn. App. 03/29/05)(unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0503/opa041807-0329.htm

• Juvenile Delinquency; Adequacy of Findings. The Court of Appeals reversed the juvenile court in an unpublished delinquency decision where they found that an order sending a juvenile to an out-of-home placement did not contain adequate written findings regarding the best interest of the juvenile, alternative dispositions, the acceptability of the juvenile’s present custody, and the suitability of the ordered placement. The court deemed the findings to be insufficient to support the order and the case was remanded for further findings. In the Matter of the Welfare of A.A.M, Child, A04-1296 (Minn. App. 04/05/05).

• Termination of Parental Rights; Compliance with CHIPS Case Plan; Substantial Evidence. Where the district court’s order terminating a father’s parental rights included no findings regarding the father’s actions or lack of action to undertake parental duties and the court’s finding that the father failed to comply with a chips case plan was tainted by the fact that the father neither received nor signed the case plan until some months after being ordered to comply with it, the Court of Appeals reversed the termination of the father’s parental rights and remanded.

The appellate court found that there was no effective case plan until the father signed that and used that date of signing to determine whether he had complied with the plan. Given the short period of time before the signing of the case plan and the hearing, the apparent errors in communication and management between the father and the county social workers were significant. As a result, the appellate court concluded that the district court’s findings of noncompliance were not supported by substantial evidence in the record.

The trial court was given discretion to reopen the record for consideration of relevant events occurring since the order terminating parental rights. The Court of Appeals stated that it did not intend to absolve the father of responsibility, but the termination needed to be supported by substantial evidence. In the Matter of the Children of L.I., aka L.W., and F.W., A04-1313 (Minn. App. 04/12/05). www.lawlibrary.state.mn.us/archive/ctapun/0504/opa041313-0412.htm

• Child Abuse Reporting Act; Negligence Cause of Action. The Minnesota Supreme Court issued a decision in a case that was previously reviewed in this column. The issue in the case was whether a negligence cause of action could be maintained for the intervention and investigation of reports of suspected child abuse and neglect as required under the Child Abuse Reporting Act, Minn. Stat. §626.556 (2004) (CARA). In this case, the appellant was a trustee for the next of kin of the deceased child. The trustee brought a wrongful death action against Freeborn County and two county child protection workers alleging that they negligently investigated reports of suspected abuse of the child. The district court granted the county and workers’ motion to dismiss for failure to state a claim upon which relief could be granted. The Court of Appeals affirmed, holding that the Legislature did not expressly or impliedly create a civil cause of action under CARA The Supreme Court, however, reversed and remanded the Court of Appeal’s decision, holding that a cause of action can be maintained for negligence in the investigation of child abuse and neglect reports and for inadequate intervention as required under CARARadke vs. County of Freeborn, A03-797 (Minn. 04/21/05). www.lawlibrary.state.mn.us/archive/supct/0504/opa030797-0421.htm

— Gary A. Debele
Walling, Berg & Debele PA

May/June2005

• Administrative Law
• Alternative Dispute Resolution
• Criminal Law
• Employment & Labor Law
• Environmental Law
• Federal Practice
• Juvenile Law
• Real Property
• Tax
• Torts & Insurance

REAL PROPERTY
Judicial Law

• Land Use Appeals. The Minnesota Supreme Court has recently addressed and perhaps further muddied the sometimes difficult question of the proper forum for challenging governmental zoning decisions. In this case, a developer sought a conditional use permit (cup) from Otter Tail County for a cluster development along a lake. The county granted the cup and an objecting party, the Dead Lake Association (DLA), appealed the decision by writ of certiorari to the Minnesota Court of Appeals. DLA argued that the county did not have authority to grant the cup because the county had not complied with state law by zoning the area as an appropriate district for such a use. The Court of Appeals held that the county had authority to grant the cup, but remanded the matter to the county for further findings. On further appeal, the Supreme Court addressed the singular issue of whether certiorari review was proper for this county decision. The Court observed that the pertinent question is whether the challenged action is legislative (which is not an action subject to certiorari review) or quasi-judicial (for which certiorari review is proper). As the dissent noted, decisions to grant or deny a cup are well-established to be quasi-judicial decisions worthy of certiorari review. Nevertheless, the Court held that because the issue underlying the cup challenge was whether the zoning for the district was proper, the case was truly a challenge to the county’s legislative act of zoning and, therefore, must be brought in a district court action for declaratory judgment. Vacated in part. Dead Lake Ass’n, Inc. v. Otter Tail County, A03-750 (Minn. 04/28/05). www.lawlibrary.state.mn.us/archive/supct/0504/opa030750-0428.htm

• Comprehensive Plan. Concept Properties purchased property in the city of Minnetrista that it intended to develop. In 1975, the city had assessed a prior owner of the property for the installation (but not the hookup) of sewer improvements. At the time, it was anticipated that the property would be hooked up to city utilities within 20 years. In the late 1990s, the city worked on updating its comprehensive plan. The city initially planned for inclusion of the property within the Metropolitan Urban Services Area (MUSA) in 2005, then decided for MUSA inclusion by 2010-2015, and ultimately adopted a comprehensive plan to include the property in the MUSA after 2020. In addition, the city rezoned the property, which precluded developing the property until after 2020. During this process, Concept Properties was engaged in purchasing the property and was told by the city that the property would be included in the MUSA by 2005. After acquiring the property and learning that it could not be developed, Concept Properties applied for a comprehensive plan amendment and rezoning. Following denial of the applications by the city, Concept Properties challenged the decision and the prior comprehensive plan amendment in district court. The district court granted summary judgment in favor of the city, and Concept Properties appealed.

On appeal, Concept Properties raised numerous arguments and issues, not all of which will be mentioned here. With respect to the city’s previous comprehensive plan amendment that delayed inclusion within the MUSA, Concept Properties argued that the amendment was invalid because the city had not established that its previous designation was a "mistake." For its argument, Concept Properties relied on Sun Oil Co. v. Village of New Hope, 300 Minn. 326, 220 N.W.2d 256 (1974), which indicated that a challenge to the city’s failure to rezone property could survive only upon a showing that the previous zoning was a mistake. The court rejected Concept Properties’ argument, holding that the "mistake" standard was only to be applied to a private party challenging a refusal to rezone, but that a city need not find a mistake to justify a rezoning. Rather, to survive a challenge, the city’s zoning decision need only a rational basis. This is perhaps the first time our appellate courts have directly addressed the potential conflict between the Sun Oil standard and the historical deference given to municipal zoning decisions.

Concept Properties also contended that the city’s actions were improper because the city had in 1975 assessed the property for sewer installation. The court rejected Concept Properties’ claims of equitable estoppel, vested rights, unconstitutional takings, and violation of substantive due process. Principally, the court noted that the sewer assessment was properly imposed for the value of the sewer being installed near the property, not as an assurance that the property would be hooked up to sewer. Additionally, the court could not find any reliance by Concept Properties on the sewer assessment, which had been imposed on a predecessor-in-interest, despite the fact that in purchasing the property Concept Properties had apparently relied on the city’s representation that the property would be in the MUSA by 2005. Affirmed. Concept Properties, LLP v. City of Minnetrista, A04-1414 (Minn. App. 04/19/05). www.lawlibrary.state.mn.us/archive/ctappub/0504/opa041414-0419.htm

• Pesticide Use On Property. A number of beekeepers maintained hives near property on which the Department of Natural Resources (DNR) and International Paper (IP) maintained groves of poplar trees. The beekeepers’ bees entered onto the DNR and IP property to forage. In response to an infestation problem, the DNR and IP repeatedly sprayed pesticide on the property, which allegedly resulted in the deaths of bees that had been foraging on the property. There was evidence to suggest that DNR and IP were aware that the bees were foraging on the property. The beekeepers commenced actions against DNR and IP alleging negligence, negligence per se, and nuisance. The district court dismissed all claims but one and, on appeal, the Court of Appeals dismissed the remaining claim. The Supreme Court affirmed in part and reversed in part. The most significant holding was the Court’s treatment of the negligence claim. As the Court noted, the difficulty is the fact that this was not a case where pesticide drifted off the property owner’s land and caused harm on another property. Liability has been imposed regularly for such cases. Rather, this case involved the harm to bees that entered onto the particular property where the spraying occurred. Nationally, on the theory that the bees are trespassing animals, liability has not been imposed in such cases unless activity causing the harm caused was wanton, malicious or intentional. In this case, the Court held that a property owner’s general duty to trespassing animals is to refrain from willful or wanton conduct. But if the property owner becomes aware of the trespassing animals, the owner must use reasonable care to avoid harming them by the use of pesticides. The Supreme Court found sufficient evidence to establish that the DNR and IP were aware of the presence of the bees and failed to use reasonable care to see that the bees were not harmed by the application of the pesticide. Affirmed in part, reversed in part, and remanded. Anderson v. State of Minnesota, Department of Natural Resources, A03-679 (Minn. 03/03/05). www.lawlibrary.state.mn.us/archive/supct/0503/opa030679-0303.htm

— C.J. Deike
Edina Realty Home Services

May/June2005

• Administrative Law
• Alternative Dispute Resolution
• Criminal Law
• Employment & Labor Law
• Environmental Law
• Federal Practice
• Juvenile Law
• Real Property
• Tax
• Torts & Insurance

TAX
Correction

The "Tax" section of the March 2005 Notes & Trends column included an error. In the item titled "Cost Recovery Denied in Successful Defense Against Assessment" (p. 51), the taxpayer was incorrectly noted as having been the prevailing party. In fact, although the Minnesota Supreme Court remanded the case back to the Minnesota Tax Court and a settlement was reached, the Tax Court found the taxpayer was not a successful party and therefore denied assessment of costs. We apologize for any confusion resulting from the error. Wilson v. Commissioner of Revenue, No.6918

Judicial Law

• IRAs Exempt from Bankruptcy Estate: The Supreme Court recently held that a couple’s ira accounts are excludable from their bankruptcy estate, finding that rights to an ira’s funds are on account of the holder’s age and an ira is similar to a stock bonus, pension, profit sharing, or annuity. In so finding, the Court noted that rights to an ira are highly restricted and individuals face significant penalties if they withdraw amounts before a specified age. Rousey et ux. v. Jacoway No. 03-1407, U.S. Sup. Ct. Docket 2005-6882 (04/04/05).

• Payments to Exwife Excludable from Exhusband’s Wages. The Tax Court recently held that payments made under a divorce decree that divided the community property of a couple and allocated to her a portion of his wages, which represented the portion of his pension that was her community property interest, were excludable from his wages. In so finding, the court noted that the exwife’s interest in the taxpayer’s pension was determined by state law and that because the taxpayer was ordered to pay his exwife an amount equal to her interest in the pension and because under community property law each spouse was taxed on one half of their own income and one half of their spouse’s income (thus entitling the exwife to one half of the taxpayer’s pension), the payments were not an assignment of income. Dunkin v. Commissioner, 124 T.C. No. 10.

• Special Trial Judge Reports Must Be Disclosed. The U.S. Supreme Court orders Tax Court to alter its rules for reviewing and disclosing special trial judge reports. The decision indicated that now-disclosure of the original special trial judge’s opinion is not sanctioned by the Tax Court’s rules and is an impediment to a fully informed appellate review. Investment Research Association, Ltd., v. Commissioner, 2005 TNT 44-1. (U.S. Supreme Court Document 2005-4675.)

• Losses Claimed By Sheep-Breeding Partnerships Disallowed. The 9^th Circuit affirmed Tax Court but remanded for limited discovery on the validity of the limitations period extensions and for findings as to penalty interest. River City Ranches, Ltd. v. Commissioner, No. 03-73853, 401 F.3d 1136 (9^th Circuit, March, 2005).

• Tribal Property Taxable By City. The U.S. Supreme Court held that property that had belonged to a recognized tribe 200 years ago that was repurchased by the tribe in the last ten years in an open market transaction was subject to tax by a local authority. City of Sherrill, New York v. Oneida Indian Nation of New York, No. 03-855, 125 SCT 1479 (March 2005).

• Collection Due Process; Suspension of Levy Lifted; Taxpayer Fined. The U.S. Tax Court found taxpayer used Collection Due Process procedures to delay collection activity, finding his claims to be frivolous and groundless. The court lifted the suspension of levy contained in §6330(e), even though the matter was still pending, and further imposed a $2,500 fine upon the taxpayer under §6673. Burke v. Commissioner, 124 T.C. No. 11 (04/12/05).

• Expansive Costs Awarded to Prevailing Pro Se Party. Tax Court awards filing fees, postage, mileage, and parking fees but not reimbursement for research time or lost wages to pro se prevailing party. Dunaway v. Commissioner, 124 T.C. No. 7 (03/14/05).

• Retail Motor Fuels Outlet "Floor-Space" Test Affirmed. The 8^th Circuit affirmed the district court’s decision that plaintiff failed to qualify for the 15-year depreciation schedule as a retail motor fuel outlet under the "floor-space" test. Iowa 80 Group, Inc. v. IRS, No. 04-2826, ___ F.3d ___ (8^th Circuit, 05/04/05).

• Credit Card Insurance Payments Are Income. The Tax Court held that when a taxpayer became unemployed and satisfied his credit card payment obligations with payments made by a credit card insurance company, such payments are classified as relief from indebtedness income. The taxpayer’s total unreported income amounted to $15,844. Bunker v. Commissioner, T.C. Summ. Op. 2005-35

• Value of Transfered Real Property Includable in Gross Estate. The Tax Court held that real property transferred from a decedent’s trust to a family limited partnership was properly includable in the gross estate because the decedent and her children had an agreement that she would preserve economic right and benefits from the property and because the transfer was not properly classified as a bona fide sale. In so finding, the court noted that while there was no express agreement of continued economic rights and benefits, there was an implied agreement for decedent to enjoy the economic benefits of the property and to retain the right to the income from the property even after it was transferred to the partnership. Estate of Bigelow v. Commissioner, T.C. Memo. 2005-65

• Disability Benefits Includable in Income. The Tax Court held that a portion of Social Security disability benefits that were awarded to a highway patrol officer was includable in his gross income under Code Section 86. The benefits were awarded for injuries sustained on the job. In so finding, the court noted that there was insufficient evidence to support the taxpayer’s claim that certain amounts included in the benefit were reimbursement for attorney’s fees. Headen v. Commissioner, T.C. Summ. Op. 2005-33.

• Trust Was Sham; Income Taxable to Grantor. The Tax Court held that a trust created by an individual was a sham, that its income was taxable to the individual as self- employment income, and that the individual was liable for additions to tax for failure to file and failure to pay estimated tax. Ultimately, the court found that the taxpayer was the ultimate beneficiary of the trust, thus undermining his claims regarding the purpose of forming the trust. Harlan D. Edwards et al. T.C. Memo. 2005-52.

• Separation Agreement Doesn’t Control Dependency Exemption: The Tax Court recently held that a noncustodial parent was not allowed to claim an exemption for his children despite an allocation for dependency exemptions in the separation agreement. The court noted that despite the agreement, the taxpayer’s exwife had not signed a declaration stating that she would not claim the children as dependents. Werther v. Commissioner, T.C. Summ. Op. 2005-28

• Tax Protester Draws $25,000 Sanction: The Tax Court has dismissed a suit for failure to state a claim and imposed a $25,000 sanction on an individual whose claims consisted of tax protester arguments that have been universally rejected by the courts. Stearman v. Commissioner T.C. Memo. 2005-39.

• Family Support Payments Qualify as Alimony. The Tax Court has held that a taxpayer was entitled to an alimony deduction for monthly unallocated family support payments to his exwife because there was no continuing payment liability beyond her death, but denied his deductions for court-appointed psychologists. The central issue in this case was whether the taxpayer’s family support payments satisfied Code §71(b)(1)(D) which notes that a cash payment meeting the requirements of Code §71(b)(1)(A)-(C) qualifies as alimony only if there is no liability to make such a payment after the death of the payee and there is no liability to make any payment as a substitute for such payments after the death of the payee. In finding that the taxpayer fulfilled such requirements, the court held that he was entitled to an alimony deduction for the years in question. However, the taxpayer was not allowed to take an alimony deduction for expenses related to his court-appointed psychologist. Berry v. Commissioner, T.C. Memo. 2005-91

• Revenue Rule Not Violated in Smugglers’ Conviction. A group who were part of a liquor-smuggling operation failed to pay Canadian excise taxes when they transported liquor from the U.S. into Canada. The Supreme Court held that their action constituted wire fraud. As such, the Court concluded that the smugglers engaged in a "scheme or artifice to defraud" and that the excise taxes were properly the property of Canada. Furthermore, the Court held that the common law revenue rule was not a bar to their conviction. Pasquantino et al. v. United States No. 03-725, U.S. Sup. Ct. Docket 2005-8734 (04/20/05).

• Entitlement to Exemptions and Credits Unproven. The Tax Court upheld the IRS's disallowance of a taxpayer’s dependency exemption deductions, child tax credit, and earned income credit for his claimed support of his sisters because he didn’t present any evidence that he provided for their care. Somsukcharean v. Commissioner, T.C. Summ. Op. 2005-49.

• Equitable Innocent Spouse Relief Denied. The Tax Court recently held that the IRS did not abuse its discretion by denying a taxpayer equitable relief from paying his and his wife’s tax liability because he failed to meet the knowledge and economic hardship tests of Rev. Proc. 2000-15. In addition, the taxpayer failed to establish that he had no reason to know that the tax would not be paid. Taylor et ux. v. Commissioner, T.C. Summ. Op. 2005-48.

• Economic Hardship Unproven; Offer In Compromise Rejected. The Tax Court recently held that the IRS s rejection of an individual’s offer in compromise wasn’t an abuse of discretion because the denial was based on his disposable income and assets, and his home equity alone exceeded his full tax liability. Hawkins v. Commissioner, T.C. Memo. 2005-88.

• Lodging Not on Employer’s Business Premises Wasn’t Excludable. The Tax Court recently held that the value of lodging provided by an individual’s employer wasn’t excludable from income because it wasn’t on his employer’s business premises. In so finding, the court considered the more specific nuances of "on the employer’s business premises" by determining if the overseas base lodging constituted a "camp" within the meaning of Code Section 119(c). Ultimately, the court found that the lodging did not satisfy the particular requirements necessary to be defined as a camp. Finally, the court held that the petitioners weren’t liable for self-employment tax on the lodging or for an accuracy-related penalty. Abeyta et vir. v. Commissioner, T.C. Summ. Op. 2005-44.

• Infantryman’s Disability Pension Not Excludable; Disorder Not "Combat-Related Injury.". The Tax Court recently held that a retired infantryman may not exclude, under §104(b)(2)(C), disability pension income because he failed to show that his bipolar disorder was incurred as a result of combat-related activity. Though the court acknowledged that the taxpayer’s illness may have, in part, resulted from the stress of routine military duty, it nonetheless concluded that the taxpayer failed to establish that it was a combat related injury within the meaning of Code §104(b)(3). Hintz v. Commissioner, T.C. Summ. Op. 2005-43.

• Interest Abatement Disallowed; Expatriate Failed to Timely Buy Replacement Home.. The Tax Court recently held that it had no reason to abate the interest owed by a taxpayer on the sale of her home. The taxpayer sold her home at a gain and subsequently moved to Japan. Furthermore, she did not replace her home in the four year time period that would have allowed her to defer her gain. Goblirsch v. Commissioner, T.C. Memo. 2005-78.

• No Deductions for Losses from Children’s Music Business. The Tax Court recently held that a couple wasn’t entitled to deduct losses from a music business operated by their minor children because it was the children’s services, not the couple’s, that generated the income. The children offer a variety of different music lessons. As such, the court held that the trade or business was one conducted by the children and not by the taxpayers. However, the court did not impose an accuracy-related penalty. Malone et ux. v. Commissioner, T.C. Memo. 2005-69.

• Nonconforming Assessment Does not Trigger One-Year Filing Period: The Minnesota Supreme Court recently reversed a decision of the Minnesota Tax Court dismissing a corporate franchise tax refund action brought by MBNA Bank, which does substantial business within the state. In arguing for dismissal, the commissioner stated that the refund claims were filed three weeks after the expiration of the period allowed for refund claims under Minn. Stat §298A.40 subd 1. In so arguing, the commissioner took the position that the filing period expired one year from the date of assessment. The petitioner argued that the filing period began not at assessment but payment of the tax assessed and further, that the assessment violated the Taxpayer’s Bill of Rights by failing to set forth the refund claim period limitations and the method for obtaining the refund. Though the Court noted that the filing period begins upon assessment as asserted by the commissioner, the Court ultimately held that the assessment did not conform to Bill of Rights requirements and thus did not trigger the filing period. MBNA American Bank N.A. & Affiliates v. Commissioner of Revenue, A04-1826 (Minn. 04/07/05. www.lawlibrary.state.mn.us/archive/supct/0504/opa041826-0407.htm

• Operators of Senior Living Facility Denied Partial Tax Exemption. Operators of a senior assisted living center applied for a partial property tax exemption under Minn. Stat. §272.02, subd. 26(D) (repealed 2003). The operators’ request was denied and they appealed to the Tax Court. The Tax Court granted the operators’ request for summary judgment and granted the exemption. On appeal the Minnesota Supreme Court reversed. In order to qualify for the exemption a structure must have been in physical existence and not have had real property taxes assessed against it before the 1991 tax levy. Because the center did not fulfill this requirement, it was not eligible for the partial exemption and thus the Tax Court’s finding was in error. Finally, Minn. Stat. §272.02, subd. 26(D) satisfied the rational basis test and thus did not violate the Uniformity Clause of the Minnesota Constitution or the Equal Protection Clause of the 14th Amendment to the United States Constitution. ILHC of Eagan, LLC. v. County of Dakota, A03-1407 (Minn. 03/17/05). www.lawlibrary.state.mn.us/archive/supct/0503/opa031407-0317.htm

Administrative Action

• Home Mortgage Interest; Deductibility for AMT Purposes. The IRS has ruled that interest paid on a home mortgage that is refinanced more than once is deductible for amt purposes as long as the mortgage amount is not increased, unless the additional proceeds were used to acquire, construct or substantially improve the property. Rev.Rul. 2005-11, 2005-14 irb 1.

• Second Quarter Interest Rates. Interest rates increased in the second quarter, beginning April 1, 2005, to 6 percent for overpayments and underpayments for individuals and 5 percent for overpayments, 6 percent for underpayments, 8 percent for large underpayments, and 3.5 percent for overpayments exceeding $10,000 for corporations. Rev. Rule 2005-15; 2005-11 IRB 1.

• Final Regs On Property Exempt From Levy. The regulations clarify that residential property is exempt from levy if the amount of the levy does not exceed $5,000. The regulations also clarify that judicial review is required before any levy of a principal residence. The final regulations outline the filing procedures and notice requirements for initialing a levy. Guidance on §6334 requirements and applicable exemption amounts are also contained. T.D. 9189

• New Procedure for Obtaining Consent to Change Accounting Methods. Rev. Proc. 2005-17, 2005-13 IRB

• Mechanics of Optional State Sales Tax Deduction. The guidance generally states that sales taxes imposed at a rate other than the general sales tax rate are not deductible. Exceptions to this rule are contained for food, clothing, medical supplies and motor vehicles. Notice 2005-31; 2005-14 IRB 1.

• Final Regs on Administrative Summonses. The IRS has issued final regulations modifying regulations under §7602(a) to include Office of Chief Counsel officers and employees as persons designated to receive summoned information or take testimony under oath.

• IRS to Release Redacted Analysis from Legal Memos. Pursuant to a FOIA request the IRS has processed 550 to 600 pages of Chief Counsel Advice memos to look for legal analysis improperly redacted from the case development sections. The first batch of reviewed material was released April 29, 2005. 2005 tnt 68-4.

• Guidance on Extended Limitations Period for Disclosure Violations. The IRS provided guidance on the extended statute of limitations period for failure to disclose a listed transaction under §6511. Rev. Proc. 2005-26; 2005-17 IRB 1.

• Guidance on Spousal Election Rights and CRTs. The Treasury Department and IRS issued guidance recently providing a safe harbor procedure to avoid the disqualification of a charitable remainder trust by reason of the existence of a spousal right of election under state law. The safe harbor provides a way of avoiding the adverse tax consequences resulting from surviving spouse’s right to elect to receive a statutory share of the estate of the grantor of a charitable remainder trust under state law. The safe harbor is necessary only if applicable state law gives the grantor’s spouse the right to receive a statutory share of the grantor’s estate that could be paid from the trust’s assets. js-2344

• Final Regs on Charitable Remainder Trust Distribution Ordering Rules. The IRS recently published final regulation on the ordering rules of Code §664(b) for characterizing distributions from charitable remainder trusts. The final regulations reflect legislative changes to income tax rates including those applicable to capital gains and some dividends. The final regulations are substantially similar to the proposed regulations with only minor changes. Specifically, the final regulations change the capital gains netting rules for crts and adopt clarifying amendments recommended by commentators. T.D. 9190

• Weight-Based Exclusions from Vehicle Excise Tax The IRS recently published guidance to assist in the determination of whether the body or chassis of a truck or trailer satisfies the weight-based exclusions from the §4051 excise tax on the first retail sale of truck chassis and bodies and truck trailer and semi-trailer chassis and bodies. Generally, truck chassis and bodies that can be used with a vehicle that has a gross vehicle weight of 33,000 pounds or less are provided with an exclusion from tax. For truck trailer and semi-trailer chassis and bodies, the gross vehicle weight must be 26,000 pounds or less to qualify for the exclusion. In the interest of minimizing disputes, the IRS has clarified the "suitable for use" standard. The term "suitable for use" is defined as practical and commercial fitness for such use. A chassis or body has practical fitness for use with a vehicle if it performs its intended function up to a generally acceptable standard of efficiency with the vehicle. Rev. Proc. 2005-19; 2005-14 IRB 1:

• Final Anti-Morris Trust Regs. The IRS recently published final regulations on the recognition of gain on some distributions of stock or securities of a controlled corporation in connection with an acquisition. The final regulations adopt several amendments to the proposed regulations and effectively remove the temporary regulations issued in 2002. The final regulations operate to clarify the definitions of several key items, including the definition of public offerings, predistribution acquisitions not involving public offerings, and acquisitions under publicly offered options. The final regulations also clarify the meaning of "agreement, understanding, or arrangement," and "substantial negotiations or discussions." Finally, the final regulations made changes to the elements of four of the seven safe harbor provisions. T.D. 9198

• Tax Qualification of Retirement Plans; Effect of Suspension-of-Benefit Provision. The IRS recently announced that it will not disqualify a retirement plan solely because of a plan amendment that adds or expands a suspension-of-benefit provision, as was prohibited under a recent U.S. Supreme Court opinion. In Central Laborer’s Pension Fund v. Heinz, 124 S.Ct. 2230 (2004), the Court held that ERISA precludes an amendment imposing additional conditions on the right to receive early retirement benefits for benefits accrued before the amendment. Retroactive application of this decision would jeopardize the tax-qualified status of some retirement plans. The new guidance was issued with the intent of providing relief from the risk of disqualification. Rev. Proc. 2005-23; 2005-18 IRB 1.

• Spousal Contributions to HSAs. The IRS has ruled that a married taxpayer is eligible to contribute to a health savings account under Code §223 even if the individual’s spouse has nonqualifying family coverage, unless the individual is also covered under the spouse’s plan. Under Code §223, an eligible individual is one who is covered under a high deductible health plan (HDHP) but not under any other non- HDHP that provides coverage for any benefit covered under the HDHP Finally, the maximum amount that an eligible person may contribute to an HSA is determined by whether the individual has self-only or family HDHP coverage. Rev. Rul. 2005-25; 2005-18 IRB 1.

• Exclusion of Medical Expense Reimbursements from Income. The IRS recently ruled that reimbursements made in cash or other benefits under an employer-sponsored medical reimbursement arrangement are included in the employee’s gross income under Code §105(b). Rev. Rul. 2005-24; 2005-16 IRB 1.

Looking Ahead

• Circular 230 Revisions Planned. Cono Namorato, director of IRS Office of Professional Responsibility, recently suggested that proposed revisions to Circular 230 would focus on law firms’ upper management. The Office of Professional Responsibility can already sanction firms, not just individuals, and will focus on lackadaisical or unscrupulous leadership in firms. 2005 tnt 82-3

• Proposed Regs on Treatment of Disability Payments for FICA Purposes. The IRS has published proposed regulations on the treatment of payments made for sickness or accident disability under a workers compensation law for Federal Insurance Contributions Act purposes. The proposed regulations would adjust the interpretation of what constitutes payments received under a workers compensation law for fica purposes such that it falls in line with what constitutes payment received for Code §104(a)(1) purposes. The proposed regulations also provide rules that clarify the proper treatment of payments made during the first six months under a workers’ compensation-like act to state and local government employees who are not eligible to receive payments under a workers’ compensation law. The proposed regulations address only the treatment of payments under a statute in the nature of a workers’ compensation act for fica purposes. No changes are proposed for regulations on the fica treatment of third-party sick pay. reg-160315-03:

• Proposed Regs on Limitations Period for Tax Collection After Assessment. The IRS has published proposed regulations that allow it to extend the limitations period for collection of tax by agreement with the taxpayer at the time an installment arrangement is executed or before the release of a levy if the release comes after the original limitations period expires. reg-148701-03.

• Temporary Regs on Mechanical Dye Injection Standards for Fuels. Code §4082(a) sets forth the requirements for finding certain removals, entries and sales of diesel fuel exempt from an excise tax. The requirements include guidelines for indelibly dying the fuel or kerosene. The IRS recently published temporary regulations that set the requirements for mechanical dye injection systems for diesel fuel and kerosene, standards for making the systems tamper resistant, and penalties related to system maintenance. Under the temporary regulations, the IRS will approve a mechanical injection system only if it contains adequate calibrated measurement devices, shutoff devices, and security equipment. Further, a system operator is required to maintain and keep the records related to the security standards. Changes made by the American Jobs Creation Act of 2004 are reflected in the regulations. T.D. 9199:

• Fast Track Settlement Now Available to Small Businesses. Delegation Order 4.25 gives SB/SE authority to participate in fast-track settlements. 2005 tnt 82-2

— Kathryn J. Sedo
— Talia Kolluri
University of Minnesota Law School

May/June2005

• Administrative Law
• Alternative Dispute Resolution
• Criminal Law
• Employment & Labor Law
• Environmental Law
• Federal Practice
• Juvenile Law
• Real Property
• Tax
• Torts & Insurance