July 2006

ALTERNATIVE DISPUTE RESOLUTION
JUDICIAL LAW

• One-Sided Mandatory Arbitration Clause Unconscionable. Wisconsin Auto Title Loans made an $800 loan to Kenneth Jones. When Jones failed to make the necessary payments, Wisconsin Auto Title Loans initiated a repossession action. Jones responded by filing a putative class action alleging violations of Wisconsin consumer-protection laws. Wisconsin Auto Title Loans filed a motion to compel arbitration. The motion was rejected on the grounds that the arbitration agreement was one-sided as it reserved the right for Wisconsin Auto Title Loans to commence a repossession action in court, but required all consumer claims to go to arbitration. The Wisconsin Supreme Court ruled that a one-sided agreement reserving the right of a company to take action in court while requiring consumers to arbitrate all claims cannot be enforced. The arbitration provision was unconscionable under state contract law because Jones was offered the contract on a take-it-or-leave it basis without a meaningful opportunity to negotiate. Wisconsin Auto Title Loans, Inc. v. Jones, 714 N.W.2d 155, 2006 WL 1419645 (Wis. 05/25/06).

• Employment Arbitration Clause in Handbook Not Enforced. An employee who was a minor when his supervisor allegedly sprayed him on the buttocks with an air hose brought hostile work environment, unsafe work environment, and sexual assault and discrimination claims against his employer. The employee, Adrian Douglass, was hired to be a parking lot technician by Pflueger Hawaii, and he signed a form verifying his receipt of an employee handbook that contained an arbitration provision. When Douglass filed his claims, the employer brought a motion to compel arbitration. After the order was granted by a Hawaii court, Douglass appealed. The Supreme Court of Hawaii held that Douglass could not void his employment contract under the doctrine of infancy, but that Douglass did not unambiguously assent to the arbitration provision contained in the employment handbook when he signed an acknowledgment form verifying receipt of the handbook. The acknowledgment form did not contain the arbitration provision or notify Douglass of the provision. Further, the arbitration provision was not boxed off or otherwise set apart from the other provisions in the handbook, and there was no evidence that Douglass was ever informed about the existence of the arbitration clause. Douglass v. Pflueger Hawaii, Inc., 2006 WL 1454746 (Haw. 05/30/06).

— Darin T. Allen
Chair-elect, MSBA ADR Section

July 2006

BANKRUPTCY
JUDICIAL LAW

• Motion to Reject Collective Bargaining Agreement. The Bankruptcy Court denied without prejudice debtor’s motion for authority to reject its collective bargaining agreements. Under §1113 of the Bankruptcy Code a debtor may move for rejection of a collective bargaining agreement. In order for such a motion to be granted, the debtor must meet nine requirements. See In re American Provision Co., 44 B.R. 907, 909 (Bankr.D.Minn. 1984).

Considering these requirements, the Bankruptcy Court addressed whether all relevant information had been provided to the unions. At issue was the Mercer Model, software created by Mercer Management to enable debtor to do a financial forecast of its post-bankruptcy operation under its revised fleet configuration. Despite numerous requests from the union representatives, debtor refused to turn over a copy of the Mercer Model. Finding this refusal unreasonable, the Bankruptcy Court concluded that debtor failed to meet the fifth requirement.

This conclusion resulted in the Bankruptcy Court finding in favor of the unions with respect to several additional factors and debtor’s motion was therefore denied. The court did not find this denial a conclusive resolution of the issues between the parties but stated that the parties could continue negotiations or debtor could simply cure the defects in its original proposal and renew its motion. In re Mesaba Aviation, Inc., dba Mesaba Airlines, No. 05-39258 (Bankr.D.Minn. 2006).

• Confirmed Chapter 13 Plan; Later Replevin Order. The Bankruptcy Court denied debtor’s motion for a preliminary injunction on the basis that a state court replevin order, entered after plan confirmation, trumped certain provisions in the Chapter 13 plan. Debtor had previously filed bankruptcy within one year of her pending bankruptcy filing, which was commenced after the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). The automatic stay of proceedings against her therefore terminated 30 days after the bankruptcy petition under 11 U.S.C. §362(c)(3) and her motion for an extension was denied. After obtaining an order effectively terminating the automatic stay, creditor Anderson Homes, Inc. ("Anderson"), continued its state court action for replevin. Before a replevin order was issued, debtor’s Chapter 13 plan was confirmed. That plan specifically provided for the treatment of Anderson’s claim. But the state court still issued an order for replevin based on the termination of the automatic stay and debtor’s failure to oppose the request for replevin.

Two issues were addressed by the Bankruptcy Court. First, whether the automatic termination of the automatic stay under could be trumped by a later confirmed Chapter 13 plan. The Bankruptcy Court found that confirmation of the Chapter 13 plan indeed bound Anderson to its terms, regardless of the prior termination of the automatic stay. The second issue was whether the Bankruptcy Court was bound by the state court replevin order. Interpreting the Full Faith and Credit Act, the Bankruptcy Court found that it was bound by the state court replevin order, regardless of the terms in the Chapter 13 plan. Debtor’s motion for a preliminary injunction was therefore denied. The practical advice to be taken from this opinion (set forth in footnote 11) is that if the automatic stay terminates and subsequent proceedings are initiated by a creditor in state court, arguments protecting the debtor’s interests are to be made in state court. In re Kurtzahn, No. 05-90815, Adv. 03-3316, (Bankr.D.Minn. 2006).

— Drew Moratzka
Mackall Crounse & Moore

July 2006

CIVIL LITIGATION
JUDICIAL LAW

• Tax Petitions; Defective Service on County Officials. The Minnesota Supreme Court affirmed the dismissal of tax petitions based on defective service where the county officials to be served did not make themselves available for service after business hours. Under the relevant statute, a taxpayer must serve its petition upon four county officials: the auditor, treasurer, assessor, and county attorney. The taxpayer must also file copies of the petitions with proof of service on or before April 30 of the year in which the tax becomes payable.

The facts were that on April 30, 2003, Metro Legal served three tax petitions on the Clay County Auditor at 4:10 p.m., and the auditor acknowledged service within five minutes. At 4:14, Metro arrived at the Clay County Treasurer’s Office with copies of the same three petitions. The treasurer spent 18 minutes reviewing two of the three petitions before acknowledging service. Then the treasurer told the server it was 4:33 p.m., which was too late to accept the third petition. Metro Legal then went to the Clay County Courthouse to serve the county assessor and county attorney, but the doors were locked. Metro called both the county assessor and the county attorney at home to arrange for personal service. The officials informed Metro Legal that their offices were closed, that 4:30 was the deadline for service during the business day, and that they could be served the next day. Metro attempted to serve the officials at home, their offices, and at a soccer field, but did not find them in person, so left copies of the petitions outside their homes. Metro also attempted service by facsimile on both officials.

The Minnesota Supreme Court held that the service attempts were not effective under Minn. R. Civ. P. 4.03(a). The act of leaving petitions at the officials’ homes was not service, nor was the process server within close physical proximity of any person who took extraordinary steps to avoid service, such that leaving the petitions unattended would constitute service. The Supreme Court held that "While county officials may choose to make themselves available for service after business hours, we find no basis on which to conclude that they are legally obligated to do so." The Court also rejected the taxpayer’s argument that each service made after service was achieved upon the county auditor at 4:10 was a "pleading subsequent to the original complaint" under Minn. R. Civ. P. 5.01 and 5.02, hence facsimile service was not allowed.

Justice Paul H. Anderson wrote a special concurrence noting the "inappropriate nature" of the Clay County Treasurer’s actions, and stated that a public official cannot attempt to thwart effective service by refusing to acknowledge a document she is holding in her hand until after the acceptable time of service has elapsed. Justice Anderson wrote that if service upon the treasurer had been the only impediment to avoiding dismissal, he would reverse. Kmart Corporation v. County of Clay, and American Crystal Sugar Company v. County of Clay, A05-590, A05-591 (Minn. 03/30/06).

• Evidence: Pleadings, Interrogatory Answers, and Expert Affidavits Not "Party Admissions." After his wife was killed as a passenger in a car accident, Kevin Kelly sued the three drivers involved. One driver asserted a third-party claim against the bar that had served alcohol to the other two drivers before the accident. Kelly then amended his complaint to assert his own dram shop claim against the bar.

In his amended complaint and interrogatory responses, Kelly took the position that the bar’s employees had continued to serve alcohol to a driver who was obviously intoxicated. In response to the bar’s motion for summary judgment, Kelly submitted the affidavit of an expert toxicologist who opined that, based on the driver’s blood alcohol level, he would have displayed recognizable signs of intoxication.

Prior to trial, Kelly settled with the bar under a Pierringer release. At trial against the remaining drivers, Kelly argued that alcohol had not been the cause of the accident, and that the driver had not been obviously intoxicated. One of the defendants sought to introduce as evidence the amended complaint, interrogatory answer, and expert affidavit, all of which contained assertions to the contrary. The trial court excluded the evidence, but the Court of Appeals reversed, holding that the evidence was admissible as admissions of a party opponent under Minn. R. Evid. 801(d)(2). The Supreme Court granted review.

The Supreme Court reversed the Court of Appeals. Noting the liberal notice pleading standard of Minn. R. Civ. P. 8.01, the Court held that the amended complaint could not be an admission because it alleged facts that were not within Kevin Kelly’s personal knowledge. The interrogatory answer was not admissible either, because Minn. R. Civ. P. 33.02 permits use of interrogatory answers only to the extent permitted by the Minnesota Rules of Evidence. The expert affidavit was also properly excluded, as Kelly did not unequivocally adopt the statements as his own, and only expert testimony — not the expert’s affidavit — would be proper evidence at trial. Kelly v. Ellefson et al., A04-615 (Minn. 04/27/06).

— Jim Mayer
Fredrikson & Byron

July 2006

CRIMINAL LAW
JUDICIAL LAW

• Disorderly Conduct: Manner of Delivering Profanity May Be Criminalized. Although the Minnesota Supreme Court has held that profanity cannot, by itself, be the basis of a charge of disorderly conduct, without violating the 1st Amendment, the manner in which profanity is delivered may constitute disorderly conduct. Hence, police in this case had probable cause to arrest for a violation of the disorderly conduct statute when an expelled student refused to leave school premises and shouted profanities at the police. After arrest for this disorderly conduct, the appellant was placed in a patrol car, and after a weapon search police found a seven-inch steak knife. The knife is not suppressed from evidence. In Re T.L.S., A05-861 (Minn. App. 05/09/06). www.lawlibrary.state.mn.us/archive/ctappub/0605/opa050861-0509.htm

• Sentence: Undocumented Prior Convictions; No Waiver of Appeal Right. At the entry of a plea, the appellant and the state both believed that the appellant’s criminal history score was zero, but the state and defense agreed that the appellant would "bear any risk as to his criminal history score." A probation officer conducted the investigation, resulting in the appearance of four felony-level California convictions. At the first sentencing hearing, appellant’s counsel requested a continuance to "look into a mistake on the presentence investigation." At the continued sentencing hearing, appellant’s counsel told the court that he had twice spoken with the probation officer to request authenticated support for the California convictions. At the final sentencing hearing, the probation officer obtained uncertified documents concerning one conviction, and no documentation concerning the others.

Held, the state failed to meet its burden of proof regarding the two challenged California convictions. The statement by defense counsel at hearing that the appellant would "bear the risk" of not having a criminal history score is essentially void because it was not an expressed waiver by the appellant; at any rate, a defendant’s right to appeal an illegal sentence cannot be waived. Because the state did not produce evidence of the prior convictions, in compliance with Minnesota Rule of Evidence 1005, the sentence is reversed and remanded. State v. Brian Lee Maley, A05-782, A05-883 (Minn. App. 05/09/06). www.lawlibrary.state.mn.us/archive/ctappub/0605/opa050782-0509.htm

• Search and Seizure: "Subleased" Cell Phone Records. In a prosecution for first-degree murder, police found that the last call to the victim’s phone was received from a Verizon Wireless cell phone number. Police contacted Verizon to request information, allegedly with an administrative subpoena (which they were unable to produce). However, Verizon provided the requested information and it indicated that the phone number was listed to an Eric Larkins. When police went to his address, they spoke to one Byron Davis, and he explained that he paid Larkins to use Larkins’ name and lease cell phones. Davis then verified to police that he had "sublet" the Verizon phone to the appellant.

Held, the appellant did not meet his burden of proving that he had a subjective expectation of privacy in the Verizon cell phone records. There was no evidence that he was trying to keep his use of the cell phone he "subleased" from Davis private. The Supreme Court specifically declines to reach the question of whether a more typical user of a cell phone, that is, the person who has a direct relationship with the provider, has an expectation of privacy in his or her cell phone records. State v. Reginald Lee Gail, A05-329 (Minn. 05/18/06).

• Criminal Sexual Conduct: Victim Cross Exam; Jury Instruction. Prior to allowing defense counsel to impeach the victim with prior inconsistent statements from her videotaped statement to police, the district court impermissibly allowed the victim to view the videotaped statement outside the presence of the jury. Under Minnesota Rule of Evidence 613(a), the victim may be examined without disclosing the contents of the prior statement. The district court committed prejudicial error when it granted the state’s request to add a jury instruction that in any prosecution for criminal sexual conduct, the testimony of the victim may not be corroborated. See State v. Johnson, 697 N.W.2d 378, 388 (Minn. App. 2004), rev. denied (Minn. Aug. 17, 2004). During closing statements, the prosecution stated, "Appellant is no longer presumed innocent." This comment goes against the fundamental tenets of the judicial system. It was also improper for the prosecutor to argue that "all the evidence is wrong," in order to find appellant not guilty. Juries need only reasonable doubt for such a finding. The combination of errors by the prosecution requires a new trial. In Re D.D.R., A05-658, A05-752 (Minn. App. 05/16/06). www.lawlibrary.state.mn.us/archive/ctappub/0605/opa050658-0516.htm

• Blakely: Impermissible Interrogatories; Sentencing Juries. Appellant was tried and convicted for first-degree burglary. The district court indicated that it would reconvene the jury to consider sentencing factors set forth in Minn. Stat. §609.1095, Subd. 2, that is, two or more prior convictions plus danger to the public. These findings would authorize an upward durational departure.

Held, it was reversible error for the judge to submit questions regarding enhancement factors to the jury for two reasons: Sentencing juries with bifurcated trials were rejected in Shattuck, and submitting interrogatories to the jury violates the plain meaning of the statute because the plain language requires a "judicial finding." State v. David S. Hobbs, A05-248 (Minn. App. 05/16/06). www.lawlibrary.state.mn.us/archive/ctappub/0605/opa050248-0516.htm

• Blakely: Submitting Career Offender Issue to Jury. In a post-Blakely, pre-Guidelines amendment case, the trial court conducted a bifurcated trial, first determining the issue of guilt and then, submitting to the same jury, the issue of whether the defendant was a "career criminal," i.e., whether the present offense was a felony that was committed as a part of a pattern of criminal conduct, under Minn. Stat. §609.1095, Subd. 4 (2002). The statute has since been amended for crimes effective August 1, 2005, allowing a "fact finder" to determine the pattern issue. In a holding directly contrary to State v. Hobbs (Minn. App. 05/16/06), the Court of Appeals finds that the court did not clearly err by conducting a bifurcated trial because it had the inherent authority to craft a sentencing procedure in conformance with Blakely. State v. William Peter Lushenko, A05-819 (Minn. App. 05/30/06). www.lawlibrary.state.mn.us/archive/ctappub/0605/opa050819-0530.htm

• Threats Against Witness: Third Party. The trial court did not err by admitting threats against a witness by a third party. In a prosecution for first-degree murder, several witnesses received threats, which could not be directly linked to the defendant. Defense counsel attempted to impeach the witnesses’ credibility by demonstrating that the witnesses had received some benefit in exchange for their testimony. The state then offered testimony regarding threats to bolster the credibility of the witnesses. Under these circumstances, the prejudicial effect of the threats is outweighed by the probative value in supporting the credibility of the witnesses against credibility attacks by the defense. State v. Philip Vance, A05-15 (Minn. 05/25/06). www.lawlibrary.state.mn.us/archive/supct/0605/opa050015-0525.htm

• Expungement: Multiple Charges Based on Separate Incidents; Plea Bargain. Respondent had been charged with four separate order for protection and harassment charges apparently by separate tab charges or complaints. Each charge occurred on a separate date, and involved a discrete incident. In March 2001, as part of the plea agreement, the respondent pleaded guilty to two counts of Violation of an Order for Protection from two separate incidents. In exchange, the state dismissed the remaining charges from two other incidents occurring on two separate dates. In response to a petition for expungement, the district court expunged the two dismissed counts pursuant to Minn. Stat. §609A, and expunged the two pleaded convictions pursuant to its inherent authority

Held, the court appropriately considered the two separate incidents which were dismissed as part of a plea bargain to be "resolved in favor of the defendant," thereby allowing an expungement under Minn. Stat. §609A. Such an expungement allows for sealing both the judicial and the executive branch records. The court concludes that the phrase "All pending actions or proceedings" refers to multiple charges based on the same incident and not to multiple charges based on separate incidents that were then pending. Secondly, the district court did not abuse its discretion in granting an expungement of the two pleaded convictions, in the exercise of its inherent authority. Such an expungement order seals the judicial files only, and not the executive branch files. The record supports the district court findings that respondent provided "evidence of professional and personal considerations that justify sealing the court records," including employment prospects, a clean record, and the fact that the sole victim of the prior incidents supported the expungement. State v. J.R.A., A05-967, A05-968 (Minn. App. 05/24/06). www.lawlibrary.state.mn.us/archive/ctappub/0605/opa050967-0524.htm

• Judiciary: "Retired Judge." A retired judge, who terminated his active service and qualified for retirement annuity as a district court judge after more than five years of service (in this case, approximately seven years), is a "retired judge" eligible for appointment by the Chief Justice of the Minnesota Supreme Court as "provided by law" under Minn. Stat. §2.724. There is no requirement that a retired judge actually be receiving retirement benefits at the time of his appointment. Roland C. Amundson v. State of Minnesota, A05-1245 (Minn. App. 05/23/06). www.lawlibrary.state.mn.us/archive/ctappub/0605/opa051245-0523.htm

—Frederic Bruno
Frederic Bruno & Associates

July 2006

EMPLOYMENT & LABOR LAW
JUDICIAL LAW

• Discrimination. Equitable relief and emotional distress damages were not recoverable under the Family Medical & Leave Act (FMLA) in a recent 8th Circuit case. The appellate court upheld denial of equitable relief for alleged interference with an FMLA leave because the employer granted a requested leave, and the statute does not permit damages for emotional distress. Rodgers v. City of Des Moines, 2006 WL 167899 (8th Cir. 2006).

• Workers Compensation. An employer’s right of subrogation against a third-party tortfeasor for workers compensation benefits paid to the spouse of a decedent employee was limited to the amount of damages recoverable by the employee’s heirs and next-of-kin. The Minnesota Supreme Court held that amendments to the workers compensation statute in 2000 did not enlarge the subrogation rights of an employer beyond the amount recoverable in torts wrongful death statute. Zurich American Ins. Co. v. Bjelland, 2006 WL 240646 (Minn. 2006).

• Unemployment Compensation; Officer Misconduct. The officer of a company who signed a promissory note for a $44,200 debt along with a security agreement to a company that he partly owned without asking approval of the board was denied unemployment compensation benefits. Because he "put his own business interests above those of" his employer he committed disqualifying "misconduct." Campbell v. Brake Tru, Inc. 2006 WL 163533 (Minn. App. 01/24/06) (unpublished).

• Unemployment Compensation; Unexcused Absence; Notice. An employee who missed ten days of work without approval after receiving a final, written warning against unexcused absences was disqualified from benefits. The employee’s failure to give proper notice when he left work one day and did not call in the next day constituted "misconduct," and was not justifiable under Minn. Stat. §268.095, subd. 6(a), which states that missing work because of illness or injury is not misconduct if accompanied by "proper notice to the employer." Minn. Stat. §268.095, subd. 6(a) (2005). Since employee did not inform the employer of his absences or obtain approval, he was not entitled to benefits. GAV v. American Express Financial Corp., 2006 WL 163571 (Minn. App., 2006) (unpublished).

• Unemployment Compensation; Risk to Personal Safety. An employee had "good reason" to resign attributable to the employer and, therefore, was entitled to unemployment compensation benefits after she legitimately felt unsafe at work. In a rare reversal, the appellate court overturned a determination by the unemployment compensation judge who denied compensation benefits. The court reasoned that the employee, who reported that a coworker was stealing at work in the workplace and then received a threatening phone call at home and a rock was thrown through her home window, which she reported to the employer, acted appropriately in quitting because the coworker was present at the workplace and made her feel unsafe. The unemployment compensation judge’s finding that the coworker had been suspended was baseless, which justified reversal. Sidney v. Regions Hospital, 2006 WL 1148132 (Minn. App. 2006) (unpublished).

• Unemployment Compensation; Reporting Hours. Where an employer adjusted an employee’s work hours to accommodate the employee’s health condition, but the employee misrepresented her work hours and failed to furnish a notice of schedule change, the employee was denied unemployment compensation benefits. The employee’s failure to comply with the directive of her boss that she report her work hours constituted a "disqualifying misconduct." Foster v. Blue Cross/Blue Shield of Minnesota, 2006 WL 1147798 (Minn. App. 2006) (unpublished).

• Unemployment Compensation; Insubordination. An employee who, on four separate occasions, failed to follow instructions and ignored his boss, was given a final written warning which he refused to sign and then threw at his boss. He was disqualified from receiving benefits on grounds of "misconduct." The employee’s insubordinate conduct constituted the type of "serious violation of a standard of behavior that an employer has a right to reasonably expect," which barred unemployment benefits. Nutassey v. Wells Fargo Bank, N.A., 2006 WL 1148119 (Minn. App. 2006) (unpublished).

• Arbitration; Teacher’s Reassignment. A union representing a teacher was not entitled to arbitrate a grievance relating to the reassignment of a teacher. Although the new position did not involve classroom teaching, it still required a teacher’s license, which rendered the decision to reassign the teacher a managerial prerogative, not subject to collective bargaining negotiations and not grievable. Education Minnesota - Aiken v. Independent School Dist. No. 1, 2006 WL 1073054 (Minn. App. 2006) (unpublished).

• Arbitration; Sex Discrimination, Harassment. An employment agreement that does not unequivocally exempt sex discrimination and harassment claims from arbitration allowed an employee to proceed with arbitration. Reversing a ruling of the U.S. District Court in Minnesota, the 8th Circuit held that, since the employment agreement provided for arbitration between the parties and specifically referenced arbitral procedural rules, the employee’s claim should be arbitrated, which is consistent with the "strong federal policy favoring arbitration." ING Financial v. Johansen, 2006 WL 1132352 (8th Cir. 2006).

• Drug Testing. A municipality properly fired its police chief who was involved in a minor car accident while on call when a breath test indicated a blood alcohol content of .024. The Court of Appeals held that the city’s policy of prohibiting on-call employees from consuming any alcohol applied to the police chief, who claimed that he consumed cough medicine containing alcohol. The city’s "zero tolerance" policy was applied appropriately because the police chief acknowledged that he normally consumed alcohol while on call, in violation of the city’s policy. The applicability of the Minnesota Drug & Alcohol Testing in the Workplace Act (DATWA), Minn. Stat. §181.951, was not addressed because the appeal challenged the termination only, rather than seeking damages under the statute. Hanson v. City of Hawley, 2006 WL 1148125 (Minn. App. 2006) (unpublished).

• Leave Law. A rare case under the Minnesota Sick or Injured Child Leave Act (Minn. Stat. §181.9413(a), resulted in reinstatement of a Minnesota employee’s lawsuit. The employee, who was terminated because of excessive absenteeism, sued for violation of the statute, which permits an employee to use personal sick leave benefits when absent due to an "illness of or an injury to the employee’s child" on the same basis an employee may use sick leave benefits for the "employee’s own illness or injury." Because factual issues regarding the employee’s remaining amount of sick leave when she took time off to care for her child remain unresolved, the court reversed summary judgment and remanded the matter for trial. Lenoir v. Wells Fargo Services Company, 2006 WL 1147847 (Minn. App. 2006) (unpublished).

— Marshall H. Tanick
Mansfield, Tanick & Cohen, P.A.

July 2006

ENVIRONMENTAL LAW
JUDICIAL LAW

• Clean Water Act: Dam "Discharge" Subject to Section 401 Permit Requirement. In 1999, S.D. Warren Company ("Warren") sought to renew licenses with the Federal Energy Regulatory Commission ("FERC") for five hydropower dams it operates on Maine’s Presumpscot River. Under §401 of the Clean Water Act, an applicant for a federal license or permit to conduct an activity that may result in a "discharge" to a navigable water must provide certification to the federal licensing or permitting agency from the state in which the discharge originates. The Maine Department of Environmental Protection ("MDEP") determined that Warren’s use of the river water constituted a "discharge." Warren disputed the suggestion that its use of the river’s water constituted a "discharge" in need of certification and filed its application to MDEP under protest. MDEP issued its certification with certain conditions on the operation of the dams, and FERC licensed the five dams subject to those conditions. Warren challenged its need to get MDEP’s certifications before the state Board of Environmental Protection and subsequently in the state courts, each of which affirmed MDEP’s right to certify Warren’s "discharge." Warren then appealed to the U.S. Supreme Court.

In its decision, the U.S. Supreme Court first examined the plain meaning of the word "discharge," which is not defined under the Clean Water Act. It held that several dictionary definitions and the Court’s prior decision in PUD No. 1 of Jefferson Cty v. Washington Dept. of Ecology, 511 U.S. 700 (1994), supported a reading of "discharge" to mean "a flowing or issuing out" or "something that is emitted." It then turned to, and rejected, Warren’s three main arguments against its need for certification.

The Court concluded its decision by pointing out that Congress intended the Clean Water Act to address all types of water "pollution," which it defined under §502(19) as "the man-made or man-induced alteration of the chemical, physical, biological, and radiological integrity of water." By its own admission, Warren’s dams changed the movement, flow and circulation of the river, which caused the river to absorb less oxygen and to be less passable by boaters and fish. The Court concluded that these acts of "pollution" justified the imposition of state authority, through §401 certification, as a way to address and control pollution within the state. S.D. Warren Co. v. Maine Bd. of Environmental Protection, 126 S.Ct. 1843 (2006).

• Environmental Review: "Cumulative Potential Effects." The Kandiyohi County Board of Commissioners ("Kandiyohi County") determined on July 29, 2003 that an Environmental Impact Statement ("EIS") was not necessary for two gravel pit projects proposed by Duininck Brothers, Inc. ("Duininck Brothers"). Citizens Advocating Responsible Development ("CARD") brought a declaratory judgment in Kandiyohi County District Court to overturn the county’s negative EIS declaration. The district court later granted CARD’s motion for summary judgment and ordered Duininck Brothers to complete an EIS for the proposed pits. The county appealed and the Court of Appeals overturned the district court’s orders, finding that substantial evidence supported the county’s decisions. CARD appealed that decision to the Minnesota Supreme Court. In addition to challenging the suggestion that the county had sufficient evidence to support its decision, CARD also argued that the county’s obligation to review the proposed pits’ "cumulative potential effects" under Minn. R. 4410.1700 should be interpreted according to the definition of "cumulative impact" under Minn. R. 4410.0200.

The Supreme Court first addressed, and rejected, CARD’s argument that the county’s "cumulative potential effects" decision should have incorporated a consideration of "cumulative impacts." Minn. R. Ch. 4410, which provides the regulatory framework for environmental review in this state, defines "cumulative impact" but not "cumulative potential effects." The Supreme Court found several reasons to reject CARD’s argument that the undefined latter must incorporate the defined former. The first reason was the important distinctions in the ways and manners in which the two phrases are used under chapter 4410. A Responsible Government Unit ("RGU") that faces the question of whether to order a project-specific EIS must consider the "cumulative potential effects of related or anticipated future projects." Conversely, an RGU that must decide whether to order a generic EIS must consider "the potential for significant environmental effects as a result of the cumulative impacts of such projects." Project-specific and generic EISs have differing purposes and scopes. These differences, the Court found, undermined CARD’s suggestion that the two phrases were interchangeable. Thus, the Court rejected CARD’s argument that the definition of "cumulative impacts," which was intended for use within the context of a generic EIS review, should be used within the context of a project-specific EIS "cumulative potential effects" review.

Having determined what "cumulative potential effects" did not mean, the Court then sought to determine what it did mean. It found the intent of that criterion within a project-specific review was to determine whether a given project could have a significant environmental effect in combination with projects already in existence or planned for the future, even if the individual project itself did not have the potential for significant environmental effects. As for the scope of the inquiry related to "cumulative potential effects," the Court found an RGU need only consider projects in the surrounding area that might reasonably be expected to affect the same natural resources as the propose project.

Having provided some definition to "cumulative potential effects," the Court considered whether the county’s decision that the proposed pits did not have the potential for significant environmental effects was unsupported by substantial evidence, was arbitrary and capricious, or was based on an error of law. CARD first argued that the two proposed pits had the potential to cause significant environmental effects on groundwater, air pollution and soil erosion. The Court found that the county’s determination that no such threats existed was supported by sufficient evidence.

CARD next argued that the mitigation efforts offered by Duininck Brothers and accepted by the county, such as limiting the depth to which the company would excavate, were insufficient. The Court found CARD’s challenges in this regard to be misplaced. One of the criteria that an RGU must consider under Minn. R. 4410.1700, subp. 7, is "the extent to which the environmental effects are subject to mitigation by ongoing public regulatory authority." CARD charged that the county improperly relied on assurances by Duininck Brothers as to how it would "mitigate" the environment effects of its pit operations in deciding against an EIS. The Court found no such reliance. It further pointed out that the company was not a "regulatory authority"; thus, its statements of intent with regard to limiting the project’s effects were not statements of "mitigation" under the above criterion.

The Court did, however, side with CARD with regard to the county’s consideration of the "cumulative potential effects" of the proposed pits. Rather than engaging in a "reasoned consideration of the evidence" of such effects, the Court found that the county erroneously adopted Duininck Brothers’ belief that if a given project does not itself have the potential for causing significant negative environmental effects, there is no possibility of cumulative effects arising from the project. The Court held that this approach contradicted a key underlying premise of a cumulative potential effects review; namely, that an individual project may have a significant environmental effect when considered in conjunction with other projects. The Court also held that the "evidence" in the record in support of the county’s "cumulative potential effects" determination was nothing more than a series of unsupported conclusory statements that failed to take the requisite "hard look" at that criterion.

Because of this, the Court reversed the Court of Appeals’ decision and remanded the matter to the county to conduct a new EIS determination consistent with the standards in the Court’s opinion. In doing so, however, the Court made it clear that its remand was not meant to suggest that an EIS might ultimately be required. Citizens Advocating Responsible Development v. Kandiyohi County Board of Commissioners, 713 N.W.2d 817 (Minn. 2006).

— Bill Hefner
The Environmental Law Group, Ltd.

INTELLECTUAL PROPERTY
JUDICIAL LAW

• Patent Infringement; Injunctive Relief. The United States Supreme Court struck down a new Federal Circuit "general rule" that, absent exceptional circumstances, a permanent injunction should issue in cases where a defendant has infringed the patent of another. The Supreme Court reinstated the traditional four-factor test to determine whether permanent injunctive relief is appropriate in patent cases, as in other federal civil cases. MercExchange sued Ebay for infringing a business method patent for an electronic market. A jury found that the patent was infringed and that MercExchange was entitled to damages, however, the court denied MercExchange’s motion for permanent injunctive relief. The Court of Appeals for the Federal Circuit reversed the lower court’s decision and granted injunctive relief applying a new "general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances." The Supreme Court reversed, however, citing a long-recognized rule that "a major departure from equity practice should not be lightly implied." The Supreme Court also cited its recent decision that injunctive relief is not automatically available to a copyright owner whose copyright was infringed, despite the right of the copyright owner, like a patent owner, to exclude others from using his property. "Like the Patent Act, the Copyright Act provides that courts ‘may’ grant injunctive relief ‘on such terms as it may deem reasonable to prevent or restrain infringement of a copyright.’" Ebay, Inc. v. MercExchange, LLC, 126 S. Ct. 1837 (05/15/06),

• Trade Secrets; Specificity; Performance Characteristics. In the Minnesota District, Judge Kyle granted defendants’ motion for judgment as a matter of law in a misappropriation of trade secrets case. Montevideo sued Eaton but did not allege the trade secrets relating to its motors with specificity, as required by Minnesota case law. Montevideo argued that performance characteristics of a motor, such as weight and torque, specified their trade secrets. The court held that the performance characteristics themselves were not trade secrets, however, because Montevideo claimed the design of the motor as a whole and its component parts as trade secrets, not the performance characteristics. SL Montevideo Tech., Inc. v. Eaton Aerospace, LLC, 03-3302 (D. Minn. 05/26/06).

• Patent Construction; "Means." Also in the Minnesota District, Judge Montgomery construed the claims of Digital Angel’s patent and found that a presumption has been rebutted. Use of the word "means" in a patent claim creates a presumption that the claim term is limited to the structure disclosed in the patent’s specification; here the term was "integrated circuit means." A patentee can only rebut this presumption if the claim term conveys structure known to one of ordinary skill in the art. In this case, the court determined that the term "integrated circuit means" had a reasonably well understood structural meaning and that the presumption that the term was a means-plus-function element was rebutted. The court based its construction on precedent that held that the term "circuit means" often identifies structure known to one of ordinary skill in the art. Digital Angel Corp. v. Datamars, Inc., 04-4544 (D. Minn. 05/22/06).

— Tony Zeuli
— Elizabeth Harrington
Merchant & Gould

July 2006

JUVENILE LAW
JUDICIAL LAW

• Indian Child Welfare Act; Jurisdiction; Placement. An Indian child’s father and tribe challenged the district court’s subject matter and personal jurisdiction and its denial of their motion to transfer jurisdiction to the tribal court. The Court of Appeals indicated that the appellants’ assertions regarding subject matter jurisdiction mistakenly combined the issue of subject matter jurisdiction with a determination of the underlying elements of the action: the county need not have proved its prima facie case to establish subject matter jurisdiction, but simply had to set forth sufficient allegations that a child was in need of protection or services. The record in this case included the required allegations; hence, the juvenile court did have subject matter jurisdiction.

The Court of Appeals found that the issue of personal jurisdiction had been waived. Neither the father nor the tribe included the defense in a responsive pleading or raised it as a defense, but instead argued that the petition failed to set forth a prima facie case.

In analyzing the denial of the father’s and tribe’s motion to transfer jurisdiction to the tribal court, the Court of Appeals observed that in a proceeding such as this, upon the petition of either parent or the Indian child’s tribe, transfer of the proceeding to the jurisdiction of the tribe is presumptive unless the other parent objects, or good cause to the contrary exists. Since neither parent had objected, the Court of Appeals then went on to apply the good cause analysis provisions found in the Bureau of Indian Affairs (BIA) Guidelines. Absent published Minnesota cases specifying the applicable standard of review, the Court of Appeals held that the appropriate standard for reviewing such issues is an abuse of discretion standard, and that this standard is consistent with the BIA guidelines which indicate that transfer of jurisdiction is a discretionary decision.

Finding that neither reason cited by the district court supported a discretionary decision to deny transfer in this case, the Court of Appeals reversed denial of the petition to transfer. In the Matter of the Welfare of the Child of: T.T.B., and G.W., Parents, A05-1615 and A05-1631 (Minn. App. 03/21/06). www.lawlibrary.state.mn.us/archive/ctappub/0603/opa051615-0321.htm

• Child Protection. Where mother was offered reasonable services but failed to substantially comply with the case plan; where the mother missed many urinalysis tests, and samples that were submitted indicated trace elements of illegal drugs; where the three older children were exposed to domestic violence and controlled substance dealing and abuse while living with the mother; and where at the time of trial, the conditions that led to the out-of-home placement still existed, the Court of Appeals concluded in an unpublished decision that the district court did not err by transferring permanent legal and physical custody of one of the children to his father and custody of two of the children to their maternal grandparents. In the Matter of the Welfare of the Children of C.T., Parent, A05-1653 (Minn. App. 03/21/06) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0603/opa051653-0321.htm

• Testimony of Children. The Minnesota Supreme Court issued a decision in a matter where the appellant defendant was convicted of 1st degree criminal sexual conduct, malicious punishment of a child, and 3rd degree assault against his girlfriend’s 3?-year-old daughter. At trial, the court determined that the child victim was incompetent to testify and, as a result, the state was allowed to introduce into evidence statements that the victim made during medical assessments conducted by a pediatric nurse practitioner. The defendant appealed the conviction and the Court of Appeals affirmed. On appeal to the Minnesota Supreme Court, that court remanded the matter to the Court of Appeals for a determination of whether the statements the victim made to the pediatric nurse practitioner during the assessments were admissible under Crawford v Washington, 541 U.S. 36 (2004).

On remand, the Court of Appeals again affirmed the lower court’s decision, holding that the statements were not testimonial under Crawford because no reasonable three-year-old would anticipate the use of the statements in a future trial. The Supreme Court, upon review after the remand to the Court of Appeals, stated that because it concluded that the statements made by the victim to the pediatric nurse practitioner during the assessments were not testimonial for purposes of Crawford v Washington, it would affirm the conviction. Ultimately, the Minnesota Supreme Court held that statements made by the 3?-year-old child during the medical assessment by a nurse practitioner without law enforcement or other government involvement are not testimonial in nature, and therefore, the admission of the statements at trial did not violate the appellant defendant’s 6th Amendment right to confront the witnesses against him. State v Scacchetti, A03-301 (Minn. 03/30/06). www.lawlibrary.state.mn.us/archive/supct/0603/opa030301-0330.htm

• Third Party Custody. In a case involving a lesbian couple where one of the partners had adopted two children and the other sought access rights, the Court of Appeals issued an unpublished decision applying provisions of Minnesota’s third party custody statute found in Chapter 257C. In this case, the two women cohabited as partners, during which time one of the partners adopted two girls from China. The other partner, who was of Chinese heritage, coparented the children for more than two years. The record indicated evidence that there existed between the nonadoptive partner and the children emotional ties indicative of the creation of a parent-child relationship, and that the children would suffer emotional harm if they were not provided regular contact with the nonadoptive parent. The children viewed the other partner as their primary parent.

The Court of Appeals concluded that the district court did not abuse its discretion in awarding visitation privileges to the nonadoptive parent pursuant Minn. Stat. §257C.08 subd. 4 (2004). The Court of Appeals also concluded that this same statutory provision is constitutional because the statute provides protection for the parent by allowing only a limited class of persons to seek parental access and narrowly tailors the qualifications of a nonparent to those who by residence and emotional bonding reasonably should be accorded parental access. SooHoo v Johnson, A05-537 (Minn. App. 04/04/06). www.lawlibrary.state.mn.us/archive/ctapun/0604/opa050537-0404.htm

• Termination of Parental Rights. On review of a case that it had previously remanded to the district court because of lack of adequate findings of fact, the Court of Appeals noted that on remand, the district court declined to receive additional evidence. Nevertheless, the records supported the court’s findings on remand that the father had sexually abused a child, that the father could not have had a case plan months earlier, and that the father was aware of the bulk of what his case plan would have included had he chosen to engage in the process at an earlier date. Therefore, the termination of the father’s parental rights was affirmed. In the Matter of the Children of L.I., a/k/a L.W. and F.W., A05-2170 (Minn. App. 04/04/06). www.lawlibrary.state.mn.us/archive/ctapun/0604/opa052170-0404.htm

• Termination of Parental Rights. In an unpublished opinion, the Court of Appeals reviewed a situation where the children were placed in foster care because of the mother’s continued homelessness and her contact with the father of the children, who had failed to produce clean drug test results as he had been ordered to do. The mother also repeatedly declined offers to assist her in obtaining housing and then finally decided to live with the father, despite the concerns of the county social services office. The district court had found that the children’s emotional attachment to their parents was diminishing and that the children were in a safe foster care environment.

The Court of Appeals concluded that the district court’s determination that the mother had neglected her parental duties was supported by clear and convincing evidence and that the record supported the finding that termination was in the children’s best interests. The court also held that the trial court had properly determined that the father was not entitled to court appointed counsel, but expressed some concern about the trial court’s analysis of this issue. The Court of Appeals ultimately concluded that although the statutory right to court-appointed counsel is plainly important when termination of parental rights is at stake, it could not say that a district court must disregard a parent’s cavalier approach to his right to appointed counsel as the court balances the more critical factor, the interests of the children. In the Matter of the Welfare of the Children of M.W. and D.B., Parents, A05-2197 and A05-2216 (05/09/06). www.lawlibrary.state.mn.us/archive/ctapun/0605/opa052197-0509.htm

• Termination of Parental Rights. In another unpublished termination of parental rights case, the county sought involuntary termination of the parent’s rights, whereas the mother and father filed petitions for voluntary termination of their rights with a request that custody of the child, born in 2004, be transferred to the father’s adult daughter. The mother acknowledged in the petition and in testimony that she consented to termination of her rights even if the court denied the petition to transfer custody to the father’s adult daughter. Where there was evidence that the adult daughter was not prepared to accept a parental role in the child’s life, had not attempted to bond with the child, and would not prevent the child from exposure to her father’s drug use, the Court of Appeals concluded that the mother’s voluntary petition was not conditioned on transferring custody to the adult daughter of the father and that the court’s decision not to place the child with this adult daughter was supported by substantial evidence. In the Matter of the Welfare of the Child of D.E.B. and R.J.A., A05-1848 (Minn. App. 05/09/06). www.lawlibrary.state.mn.us/archive/ctapun/0605/opa051848-0509.htm

— Gary A. Debele
Waling, Berg & Debele

REAL PROPERTY
JUDICIAL LAW

• Eminent Domain. Tenant Rasmussen leased certain premises in the Apache Plaza shopping center from the Housing and Redevelopment Authority for the city of St. Anthony. In connection with the redevelopment of the shopping center, the HRA commenced a condemnation action to acquire certain property including the leased premises. Consequently, Rasmussen sued HRA for breaching the quiet enjoyment provision of the lease. The district court granted HRA’s petition for condemnation and HRA’s motion to dismiss the breach-of-contract action. The Court of Appeals held that the quiet enjoyment provision in the lease did not preclude the HRA from condemning Rasmussen’s interest in the premises even though the HRA was both the landlord and condemning authority. Moreover, the condemnation of Rasmussen’s leasehold estate together with fee title already held by HRA constituted a total taking thereby effectively terminating the lease leaving Rasmussen with no interest in the premises, and thus not entitled to recover any award. Rasmussen, et al. vs. The Housing and Redevelopment Authority for the City of St. Anthony, Minn. A05-1418, A05-1419 (Minn. App. 05/02/06). www.lawlibrary.state.mn.us/archive/ctappub/0605/opa051418-0502.htm

• Zoning. Developer Hans Hagen Homes, Inc. ("Hagen") began developing approximately 220 acres of land in the city of Minnetrista. Hagen submitted an application requesting the city to rezone the property from agricultural to R-4-PUD and amend its comprehensive plan to adjust the metropolitan-urban-service area line to provide the project with public services. The city denied the application, however did not provide Hagen with a written statement explaining its reasons for denying the application prior to the expiration of the response deadline as required by Minn. Stat. §15.99, subd. 2(c). As a result, Hagen filed a petition for a writ of mandamus to compel the city to approve its application. The district court granted Hagen’s petition to enforce Minn. Stat. §15.99, subd. 2 and directed the city to approve the application. Upholding the district court’s decision, the Court of Appeals held that by failing to provide Hagen with a written statement that set forth the basis for the city’s denial within 60 days (or authorized extension) of receiving the developer’s application, the application was automatically approved under Minn. Stat. §15.99, subd. 2. Hans Hagen Homes, Inc. vs. City of Minnetrista, A05-1686 (Minn. App. 05/16/06). www.lawlibrary.state.mn.us/archive/ctappub/0605/opa051686-0516.htm

• Development. Strong Construction Co., Inc., Timothy Strong, David Harris, and Randi Erickson entered into a business plan to develop an eight-unit residential townhouse project in Andover, Minnesota. Strong Co. then executed an agreement to purchase certain land for the project. Strong, Harris and Erickson entered into the Atlantis Development partnership agreement in which Strong contributed his interest in the purchase agreement. According to the plan, Atlantis Developers would purchase the land from Strong Co. to develop the project, Strong Co. would buy back the lots to construct the townhomes, and Harris and Erickson would market and sell the completed units. Harris proceeded with certain development activities including making an application to the city to rezone the land; however, when the city passed a moratorium temporarily blocking any rezoning applications, the project was put on hold. After the city lifted the moratorium and approved the rezoning application, Harris and Erickson formed a new company, conveyed the land to the new company, and commenced construction on the project at the exclusion of Strong. Subsequently, Strong commenced this lawsuit. The district court ruled that Harris and Erickson tortiously interfered with the contract between Strong Co. and Atlantis Developers and awarded Strong damages of $130,826. On appeal, the appellants challenged the calculation of damages. In an unpublished decision, the Court of Appeals found that under Minnesota law the measure of damages for "tortious interference with contractual relations is the loss of the benefit of the contract or the prospective relationship and other losses directly caused by the interference." Lost profits may be recovered when they are shown to be the usual and probable consequences of the wrongful act and their amount is proven with a reasonable amount of certainty. The Court of Appeals held that in calculating lost profits it was reasonable for the district court to find that fixed costs should not be deducted from gross sales. Strong Construction Co., Inc., et al. vs. Atlantis Developers, et al. A05-1363 (Minn. App. 06/06/06) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0606/opa051363-0606.htm

— Melissa Baer
Lindquist & Vennum

July 2006

TAX
JUDICIAL LAW

• Procedure: Costs and Disbursements Denied. The Minnesota Supreme Court ruled that taxpayer was not entitled to costs and disbursements under Minn. Stat. §271.19. The Court will only overturn an award or denial of fees and costs by the Tax Court if that court has abused its discretion. See Benigni v. County of St. Louis, 585 N.W.2d 51, 54 (Minn. 1998). The Court agreed with the Tax Court that "[t]he settlement agreement is clear that the parties are simply walking away from a long and arduous case," and "neither party appears to have succeeded in the matter overall." James L. Wilson v. Commissioner of Revenue, A05-440, 207 N.W.2d 695 (Minn. 2006).

• Procedure: Order to Compel Discovery. The Minnesota Tax Court granted Ramsey County’s motion to compel discovery and answers. The issue for the motion was the county’s request to have Health East disclose and discuss its operations at different locations throughout the county. The court also denied attorneys’ fees and a request by the parties to bifurcate the trial. Health East and University of Minnesota Physicians, Intervener v. County of Ramsey, C4-03-4664, C3-04-4505, and C0-05-4553, 2006 WL 771939 (Minn. T. Ct. 03/17/06).

• Procedure: Tax-Dependency Exemption. The Minnesota Court of Appeals determined that the district court did not clearly err in interpreting a 1997 post-dissolution order to mean that the father would be allocated the exemption if he remained current in child-support payments. If that condition were satisfied, the allocation would be made by filing waiver forms with the IRS, and therefore, the lower court properly ordered execution of waiver forms for the years 1997-2004. Graff, n/k/a Sidwell v. Graff, A05-1024, 2006 WL 696334 (Minn. App. 03/21/06).

• Procedure: Motion to Disqualify for Conflict of Interest. The Minnesota Tax Court denied Anoka County’s motion to disqualify counsel on the basis of a conflict of interest by the law firm representing Kmart in its request for nonpublic or private information about third persons in other real property tax disputes. Because the law firm represented both the third party and Kmart, the court found a direct conflict of interest but in using a balancing test found in Minn. Stat. §13.03, Subd. 6, found that the law firm should not be disqualified because of the third party’s consent to the adverse and conflicting situation. Kmart Corporation v. County of Anoka, C1-00-2775 et al., 2006 WL 771932 (Minn. T. Ct. 03/20/06).

• Procedure: Failure to Serve Notice of Appeal for Property Tax Action. The Minnesota Supreme Court affirmed the Tax Court, finding that dismissal of the tax petition was proper where the taxpayer failed to effect service on county officials as required by Minn. Stat. §278.01, Subd. 1(a). The Court found that there were four designated county officials that a property tax claim was required to be served upon under Minn. Stat. §278.01, Subd. 1(a), but the act of service was not defined in the statute or in Minn. R. Civ. P. 4. Facsimile service is permitted only under Rule 5 and not Rule 4 and only for documents of service after an action has been initiated. Since the required service under Minn. Stat. §278.01 Subd. 1(a) was not done here, the case was dismissed. A concurrence expressed dismay at the county treasurer’s action in not accepting service when the taxpayers’ process server arrived before closing time but the required papers were not delivered until after the closing of business at 4:30 p.m. Accordingly, the concurring opinion would have upheld service upon the treasurer had that been the only impediment to the taxpayers’ avoiding dismissal of their petitions. Kmart Corporation v. County of Clay, A05-590; American Crystal Sugar Company v. County of Clay, A05-591, 711 N.W.2d 485 (Minn. 03/30/06). www.lawlibrary.state.mn.us/archive/supct/0603/opa050590-0330.htm (Minn. 2006).

• Procedure: Failure to Comply With 60-Day Rule. The Minnesota Tax Court granted St. Louis County’s motion for dismissal based on failure to provide sufficient information required under Minn. Stat. §278-05, Subd. 6(a). The subject property was a retail shopping center with 15 existing leases and the dispute related to the taxes payable for 2005. Within the "60-Day Rule," the taxpayer provided income statements for 2003, 2004, and year-to-date 2005 with rent rolls for January 31, 2004. The county then requested "all leases of space in the property for the period January 1, 2000 to the present." The taxpayer refused to turn over the tenant leases but offered to make the leases available for inspection at the office of the owner in Los Angeles. The court held that under existing case law, the absence of full disclosure of income and expense information including leases mandated dismissal. Irongate Enterprises, Inc. v. County of St. Louis, C7-05-600160, 2006 WL 1141191 (Minn. T. Ct. 04/28/06).

• Real Property: Failure to Comply With 60-Day Rule. The Minnesota Tax Court dismissed the taxpayer’s petition for real estate assessment of January 2, 2004 payable in 2005 because of a failure to comply with the 60-day rule. The taxpayer owned more than 35 residential properties in Minnesota but submitted no information within the 60-day rule or thereafter, although he had been notified twice of the statutory requirements by the county attorney. The taxpayer’s claim that he was exempt from the 60-day rule because the county did not need the information to determine the value of the properties under its preferred valuation methods was rejected by the court on the basis of the case of Northwest Airlines, Inc. v. County of Hennepin, 632 N.W.2d 216, 221-22 (Minn. 2001). Furthermore, the taxpayer failed to provide any post-accident financial information, and therefore, the case was dismissed. Steven Meldahl v. County of Hennepin, Docket No. 32732, 2006 WL 163006 (Minn. T. Ct. 01/20/06).

• Real Property: Valuation of Residential Properties. Due to an inaccuracy in the appraisal reports, the Minnesota Tax Court affirmed the assessor’s estimated market values for each of several residential properties. The court did rule that the properties had been unequally assessed and granted relief as prescribed in Minn. Stat. §278.05. Steven Meldahl v. County of Hennepin, Docket No. 31899, 2006 WL 163008 (Minn. T. Ct. 01/17/06).

• Property Tax: 60-Day Rule Violated. The Supreme Court held that the 60-Day Rule contained in Minn. Stat. §278.05, Subd. 6(a) required a tenant to provide to the county sufficient information on tenant-paid real estate expenses within 60 days of filing a petition for review of the property tax assessment. Furthermore, the Court held that the Tax Court decisions incorrectly interpreting the 60-Day Rule did not create such a binding precedent as to require that the Supreme Court interpret its holding prospectively. The Court rejected Kmart’s argument that only landlord expenses and not tenant expenses were disclosable by holding that tenant-paid real estate expenses are relevant to the process of appraising the value of rental property under the income approach and the 60-Day Rule provides that such information will be provided to the county within 60 days of filing a Chapter 278 petition. The Court also rejected Kmart’s argument that the decision of the Supreme Court represented a new principle of law and thereby should have only prospective effect. The Court concluded that the decisions of the Tax Court did not qualify as precedent for purposes of retroactive analysis when overturned by the Supreme Court. Thus, where the Tax Court incorrectly interprets a statute in one case, that interpretation does not overrule the statute in future cases. Decisions of the Tax Court have no binding effect on the Supreme Court when it is called upon to interpret a statute. This is true since the Tax Court erroneously interpreted the plain meaning of the 60-Day Rule in previous cases. A dissent felt that the result in the Kmart case was unfair since it put Kmart and other like taxpayers in a "no-man’s-land of uncertainty — taxpayers may be penalized by the Tax Court for not following Tax Court precedent, or, if they follow those precedents, they may be punished by our Court for doing so." Kmart Corporation v. County of Stearns, A05-442, 710 N.W.2d 761 (Minn. 2006).

• Real Property: Valuation. The Minnesota Supreme Court affirmed the Tax Court’s property valuation as reasonable and supported by the evidence as a whole and not clearly erroneous. Kmart Corporation v. County of Becker, A05-1069, 709 N.W.2d 238 (Minn. 2006).

• Real Property: Valuation of K-Mart Corporation. The Minnesota Tax Court revised the assessment upward and decreased the valuation for an unequal assessment of a single-user retail store built in 1990 and upgraded in 1999. The county assessor valued the property in 1999 at $2,469,700, in 2000 at $2,576,100, in 2001 at $2,614,400, in 2002 at $2,722,700, and in 2003 at $2,683,500. The taxpayer valued the property in years 1999 through and including year 2003 at $2 million, while the county appraisal, at the time of trial, valued the property from year 1999 through and including year 2002 at $3.2 million and for year 2003 at $3,295,000. The court placed most of its weight on the sales and income approach rather than the cost method. Both appraisers used four comparable K-Mart sales and leases which the court used in arriving at its value of $2.8 million for years 1999 through and including year 2003. The court found an unequal assessment for the year 2000 assessment and reduced the estimated market value of $2.8 million by 6.4 percent to arrive at a value of $2,620,800. K-Mart Corporation v. County of Martin, C1-01-201, C1-02-211, C4-00-232, C5-03-318, and C8-04-162, 2006 WL 771935 (Minn. T. Ct. 03/13/06).

• Income Tax: Civil Procedure and Personal Jurisdiction. The Minnesota Court of Appeals affirmed the lower court in a case involving a dispute on personal jurisdiction over an out-of-state company. This case exemplifies the fact pattern for personal jurisdiction over a nonresident defendant if the plaintiff meets the requirements of Minnesota’s long-arm statute, Minn. Stat. §543.19, as well as the requirements of Due Process. What impact, if any, does a case like this have on the corporate income tax nexus litigation under the Commerce Clause? Advance Duplication Services, LLC, v Payne, A05-1132, 2006 WL 696478 (Minn. App. 03/21/06).

• Procedure: Compromise of Debts of Over $50,000. The Minnesota Court of Appeals affirmed the Hennepin County District Court in holding that a compromise of tax debts of over $50,000 required the attorney general’s approval under Minn. Stat. §8.30. Further, Minn. Stat. §8.30 trumped Minn. Stat. §270.67, Subd. 1 (providing for the commissioner to enter into a written agreements with taxpayers to reduce tax liabilities) and Minn. Stat. §16D.15 (which governs compromises of tax debts in cases where the debt is being reduced by an amount of $50,000 or less and does not require the attorney general’s approval). The taxpayer incurred tax debts of over $50,000 and the commissioner filed liens. The taxpayer sought refinancing to pay off the existing lien after it had been compromised with the commissioner. The court agreed that the taxpayer’s property was subject to the full amount of the lien because the attorney general had not signed. Home Town Mortgage, Inc. v. State of Minnesota, A05-1443, 2006 WL 1073385 (Minn. App. 04/25/06).

• Corporate Franchise Tax: Minnesota’s Treatment of IRC §338(h)(10). The Minnesota Tax Court held that a federal election under IRC §338(h)(10) should be respected for Minnesota purposes and that the deemed sale of assets by the S Corporation in 2001 should be treated as nonbusiness income and allocated to Florida. Lastly, the court held that the deemed liquidation of the installment sale note and cash by the S corporation to its shareholders should be treated as attributable to a sale of stock, and therefore, not subject to taxation in Minnesota. Myron J. and Alice B. Nadler v. Commissioner of Revenue, 7736-R, 2006 WL 1084260 (Minn. T. Ct. 04/21/06).

• Minnesota Cigarette Tax: Non-Settling Cigarette Manufacturers. The Minnesota Supreme Court affirmed the Court of Appeal’s decision and concluded that Minn. Stat. §297F.24 did not violate the nonsettling tobacco companies’ rights under the 1st Amendment, did not violate their right to Equal Protection under the United States Constitution or the Uniformity Clause under the Minnesota Constitution, and did not constitute a bill of attainder under either constitution. The Supreme Court opinion was on a 4-1 vote. The dissent said that the law’s fee was an attempt to equate payments that emanated from settlement of litigation involving and alleging illegal conduct with a fee that had no connection with wrongful conduct. The dissent considered that it therefore failed the rational basis test, and consequently violated the Uniformity Clause. Council of Independent Tobacco Manufacturers of America, et al. v. State of Minnesota, et al., A03-2020, 2006 WL 648137 (Minn. 03/16/06).

• Income Tax: Gambling Income and Losses; Alternative Minimum Tax. The Minnesota Supreme Court reversed the Tax Court and held that the taxpayer could claim her gambling losses for the AMT as a Schedule C business loss on her return since she was in a trade or business of gambling. The Court held that the Tax Court had erred when it held that a taxpayer’s expectation of profit from a gambling activity needed to be reasonable for the activity to qualify as a trade or business. The High Court found that under the circumstances of this case, the taxpayer’s slot machine gambling constituted a trade or business because the taxpayer considered playing slot machines to be her job, spent from 40 to 60 hours per week at a casino for over a two-year period, intended to make a profit via her gambling, conducted research into slot machine strategy, and attempted to apply skill to her gambling activity. Estelle Busch v. Commissioner of Revenue, A05-656, 713 N.W.2d 337 (Minn. 2006).

• Excise Tax: "Health Impact Fee" on Cigarettes. The Minnesota Supreme Court overturned the Ramsey County District Court and held that the Health Impact Fee (HIF) of 75-cents-a-pack was not covered by the settlement agreement reached with the state and the tobacco manufacturers in 1998. The HIF was not within the scope of the release agreed to by the state in the settlement agreement because under the "unmistakeability doctrine," the state had not explicitly surrendered the Legislature’s sovereign power to tax in the settlement agreement of 1998. Neither the label "tax" or "fee" nor the specification or lack thereof for spending the funds so generated is relevant under the "unmistakeability doctrine." Moreover, since the settlement agreement did not bar the imposition of the HIF, there was no impairment or violation of the Contract Clause, the Equal Protection Clause, nor any entitlement to refunds or credits for the HIF by the tobacco companies. State of Minnesota and Blue Cross & Blue Shield of Minnesota v. Phillip Morris U.S.A., Inc., et al., A05-2540, 713 N.W.2d 350 (Minn. 2006).

• Income Tax: Tax Protestor. The Minnesota Tax Court affirmed the commissioner’s order over a variety of tax protestor arguments based on constitutionality or statutes that purportedly held the taxpayer immune from any obligation to pay state income taxes. The court relied on case authority of the Supreme Court of the United States and Minnesota to reject all arguments made by the taxpayer. David A. Horak v Commissioner of Revenue, 7765R, 2006 WL 1329517 (Minn. T. Ct. 05/12/06).

• Pilot’s Per Diem, Lodging Expenses. A federal district court has held that a pilot was not entitled to a refund of FICA taxes withheld by his employer for lodging and per diem expenses it paid on his behalf because the expenses were not incurred while he was away from home. Marc Jordan v. United States, No. 04-3800, 97 AFTR 2d ¶2006-1665 (D. Minn. 03/23/06).

• Deficiency Assessment for Carryback Year Based on Audit of Loss Year. Intervening final judgment by the Tax Court for the year to which a taxpayer’s net operating losses are carried back does not bar IRS from assessing a deficiency discovered during its examination of the year in which the losses were incurred. Case law, legislative history, and statutory scheme for assessing deficiencies from erroneous tentative carryback adjustments showed that Congress intended that such assessments be excluded from rule of finality, and be allowed to go forward even after entry of final decision on carryback year. So, although IRS could have earlier raised calculation error issue and its intent to still examine same in connection with ongoing examination of loss- generating year, there was no requirement for res judicata purposes that it do so. Jefferson Smurfit Corporation v. U.S., No. 05, 2466, 97 AFTR 2d ¶2006-585 (8th Cir. 2006).

• Tax Refunds: Exempt Property Under Missouri Law. The 8th Circuit Bankruptcy Appellate Panel, reversing Bankruptcy District Court decisions, held that federal tax refunds are exempt property from debtors’ bankruptcy estates because tax refunds are not subject to attachment and execution under Missouri law. In re Charles Benn, Jr., et al. v. James S. Cole et al., Nos. 04-6053EM, 04-6054EM, 97 AFTR 2d ¶2006-1854 (8th Cir. 04/06/06).

• Bankruptcy; Post-Assessment Forms 1040 Deemed Returns. Debtor’s tax liabilities for tax years for which he filed returns more than two years prior to filing his bankruptcy petition are discharged, notwithstanding that the returns were filed after IRS had issued notices of deficiencies and assessed the taxes for those years. Colsen v. United States (In re Colsen), No. 05-2476, 97 AFTR 2d ¶2006-865 (8th Cir. 05/04/06).

• Jurisdiction; Denial of Refund to Innocent Spouse. U.S. Tax Court lacked jurisdiction over taxpayer’s petition for review of IRS’s denial of refund request based on her claimed innocent spouse status, in the absence of deficiency determination by IRS. The Tax Court correctly held that it had no jurisdiction over appellant’s petition for review of IRS’s denial of her tax year 1997 refund request because no deficiency had been assessed against appellant for tax year 1997. The court agrees with the 9th Circuit’s decision in Commissioner v. Ewing, 439 F.3d 1009 (9th Cir. 2006), that the Tax Court lacks jurisdiction under IRC §6015(e) to review IRS’s denial of a request for innocent spouse relief, where no deficiency was determined by IRS. Bartman v. Commissioner, No. 04-2771, 97 AFTR 2d ¶2006-845 (8th Cir. 05/02/06).

• Jurisdiction; Conviction for Failure to File Returns. The 8th Circuit, reversing and remanding, held that a Minnesota District Court lacked jurisdiction over an individual’s motion to expunge his misdemeanor criminal conviction for failing to file tax returns. The individual’s request was based solely on equitable grounds and was not made under any statutory authority. United States v. Michael Meyer, No. 05-1822, 97 AFTR 2d ¶2006-1200 (8th Cir. 03/07/06).

• Short-Term Investments; Apportionment Sales Factor. National retailer with an out-of-state treasury department that invests in short-term financial instruments as cash management tool may include in its apportionment sales factor only the interest earned by its investments, but not the return of principal from those investments. Toys "R" Us Inc. v. California Franchise Tax Board, No. C045386 (Cal. Ct. App. 04/05/06).

• Stock Option Margin Loans. The Court of Federal Claims held that a couple has taxable income from stock options exercised as collateral for margin loans when they pledged their stock, not when repaying their margin debt, because the stock was unconditionally transferred when husband’s employer received value. Jonathan Palahnuk et ux. v United States, No. 04-1513T, 97 AFTR 2d ¶2006-609 (Fed. Cl. 2006).

• D.C. Unincorporated Business Tax; Nonresidents’ Pass-through Income. The District of Columbia could not collect an unincorporated business franchise tax on the net profits of real estate partnerships conducting business in the District, to the extent that the profits belonged to nonresident individual partners. The constitutional and congressional limitations prohibiting the District from directly taxing the personal income of a nonresident individual also applied to any indirect tax on the income passed through to a nonresident individual possessing an ownership interest in an unincorporated business entity. Bender v District of Columbia, D.C. Superior Court, No. 8524-05 (03/08/06).

• Interest on S Corporation’s Refund. The U.S. Tax Court held that an S corporation was entitled to interest at the federal short-term rate plus two percentage points on its overpayment in excess of $10,000 under IRC §6621(c)(3), rather than the lower rate that applies to large corporate overpayments under IRC §6621(a)(1). The lower rate applies only to C corporations. However, the court concluded that the S corporation wasn’t entitled to the even higher overpayment rate paid to noncorporate taxpayers. Garwood Irrigation Company, No. 1459-03, 126 T.C. No. 12 (2006).

• Jurisdiction; Appeals Office Determinations on Trust Fund Penalties. Tax Court lacks subject matter jurisdiction over taxpayers’ appeal of IRS Appeals Office determination of trust fund recovery penalties because Tax Court has jurisdiction over appeals of Appeals Office determinations only where it would have had jurisdiction to consider the underlying tax liability. Gorospe v. Commissioner, No. 04-73277, 97 AFTR 2d ¶2006-XXXX (9th Cir. 05/03/06).

• AMT; No Capital Loss Carry Back. Capital loss limitations apply to the calculation of alternative minimum taxable income (AMTI). The taxpayer may not use capital losses realized in a later year to reduce his AMTI in an earlier year. Merlo v. Commissioner, No. 21538-03, 126 T.C. No. 10 (2006).

• Interest Suspension, Interest Netting. A plaintiff’s claim of interest suspension is barred by the doctrine of substantial variance. Also the principle of interest netting is not applicable to a case where the plaintiff claimed it was entitled to a greater amount of deficiency interest. Computer Corp. v. United States, No. 05-5014, 97 AFTR 2d ¶2006-772 (App. Fed. Cir. 04/20/06).

• Jurisdiction; IRS Denials of Interest Abatement. The Tax Court has exclusive subject matter jurisdiction to review IRS denials of interest abatement claims under a 1996 amendment to IRC §6404(h), and the Court of Federal Claims therefore does not have jurisdiction to review those claims. The taxpayer filed suit in the Claims Court after the denial of his refund and did not file in the Tax Court. Hinck v. U.S., No. 05-5099, 97 AFTR 2d ¶2006-866 (Fed. Cir. 05/04/06).

• Mines; Tax-Deferred Exchange. The U.S. Tax Court held that the like-kind exchange of a gold mine not subject to a supply contract for coal mines subject to supply contracts was a tax-deferred like-kind exchange under IRC §1031. The contract obligations and restrictions were a distinction in the grade and quality of the exchanged mining properties rather than in their kind or class. The court rejected the IRS’s view that the coal supply contracts were severable from the gold mine and were moot under IRC §1031. Per the holding in Koch, 71 T. Ct. 54 (1978), which sanctioned a like-kind exchange of a fee-simple land for other fee-simple land subject to 99-year condo leases, what mattered was whether the nature and character of the transferred rights in and to the respective properties were substantially alike. Peabody Natural Resources, 126 T. Ct. No. 14 (05/08/06).

• Abusive Donor-Advised Fund; Tax-Exempt Status. The Court of Federal Claims upheld an IRS decision denying tax-exempt status to a donor-advised fund because it failed to operate exclusively for exempt purposes. The court ruled that the donor retained control and had been motivated by an attempt to abuse the internal revenue laws. The court found the scheme was designed to "warehouse wealth" and retain control over the contributed assets for personal benefit. New Dynamics Foundation, No. 99-197T, 97 AFTR 2d ¶ 2006-788 (Ct. Fed. Cl. 04/24/06).

• Collection Determination; Qualification of Appeals Officer to Conduct Hearing. The U.S. Tax Court upheld IRS’s administrative determination to proceed with collection. It held that