October 2008

ADMINISTRATIVE LAW
JUDICIAL LAW

• Procedural Due Process.  Appellant challenged a district court order finding that the Department of Natural Resources (DNR) had probable cause to seize his commercial and recreational fish and game licenses.  Appellant also argued that his commercial fishing license was a protected property interest that could not be seized or revoked without due process of law and that the appeal procedure in Minn. Stat. § 97A.420 violated his right to procedural due process.

The Court of Appeals determined that a commercial fishing license is a protected property interest within the meaning of the Due Process Clause of the United States and Minnesota constitutions.  It then analyzed whether the prehearing seizure of appellant’s commercial fishing licenses and limited post-seizure review procedures violated appellant’s right to due process.

Appellant argued that the appeal procedure in Minn. Stat. § 97A.420 violated his rights because the statute  (1) allows revocation of commercial fishing licenses prior to a hearing; and (2) prohibits a challenge to the underlying charge that was the basis for the license seizure. 

The U.S. Supreme Court has held that due process is not a technical concept; it is flexible and requires different protections in different situations.  Mathews v. Eldridge, 424 U.S. 319, 334 (1976).  Mathews articulated three factors to consider in identifying the process that is due in a particular situation:  (1) the nature of the property interest; (2) the risk of an erroneous deprivation of that interest through the procedures used; and (3) the nature of the government’s interest.  Id. at 335. 

The Court of Appeals applied these factors and found that the nature of the property interest weighed in appellant’s favor because his livelihood depended upon the income he earned using his commercial fishing licenses.  Under Minn. Stat. § 97A.420, conservation officers are directed to immediately seize the license(s) of a person violating the statute.  The court found that the “immediate and mandatory nature of the license seizure contemplated by the statute heightens the risk of erroneous deprivation” while also stating that the risk of erroneous deprivation of the protected interest was “minimized by the full range of procedures provided for” in the statute.  The court noted that appellant’s licenses were seized only after an investigation and he was permitted to use the licenses while the investigation was conducted.  Nevertheless, the court determined that the review process in Minn. Stat. § 97A.420 was inadequate because it is “limited to determining probable cause and because the timeline [decision within 74 days of a request for review] is too long for review of the seizure of a constitutionally protected commercial license.” 

The court found that appellant had other more prompt avenues for relief that he did not pursue.  Appellant could have administratively challenged the DNR’s determination and received the Commissioner’s decision of whether there was sufficient cause for a license seizure within 15 days.  However, because the “sufficient cause” standard is similar to a “probable cause” standard, the administrative review option did not satisfy due process requirements.

If there is no harm to public welfare, Minnesota law also allows for the temporary release of commercial licenses so that commercial fishing enterprises may continue to operate pending the outcome of criminal proceedings.  The court also noted that a license holder can only be deprived of his license if he is convicted of the underlying criminal offense.

In analyzing the third factor, the nature of the government interest, the court found that the appellant’s property interest was constrained by the state’s interest in protecting and preserving its natural resources.

In light of the nature of the state’s interest, the Court of Appeals concluded that the range of procedural safeguards and review provisions in Minn. Stat. § 97A.420 provided adequate due process.  Mertins v. Commissioner of Natural Resources, 2008 WL 4006760 (Minn. Ct. App. 2008).

October 2008

CIVIL LITIGATION
JUDICIAL LAW

• Notice of Settlement.  Plaintiff and defendant were involved in a car versus pedestrian collision.  The parties submitted the matter to binding high/low arbitration and attempted to give the potential excess liability and underinsured motorist insurance carriers notice of the pending arbitration.  Over the objection of the insurance carriers, the arbitration was held and it was determined that plaintiff’s total damages exceeded the underlying liability policy limit, thereby creating a basis for claims against both the excess liability policy and the underinsured motorist policy.  When the underinsured motorist carrier declined to substitute its draft, the underlying carrier paid plaintiff its policy limit.  Plaintiff then brought an action against the excess and underinsured motorist carriers.

The parties brought cross motions for summary judgment, and the district court granted the motions of both the excess carrier and the underinsured motorist carrier.  The Court of Appeals reversed as to the underinsured motorist coverage and found that the parties’ agreement and arbitration was intended to be and was properly characterized as a settlement subject to the notice requirements of Schmidt v. Clothier. 

On appeal, the Supreme Court affirmed, finding that the arbitration was simply a means of establishing the value of plaintiff’s claim for purposes of plaintiff’s right to pursue an underinsured motorist claim.  Plaintiff’s notice to the underinsured motorist carrier satisfied the requirements of the Schmidt case.  George v. Evenson,754 N.W.2d 335 (Minn. 2008).

• Statute of Limitations; Date of Accrual.  Plaintiff commenced a medical malpractice action following the death of her husband from cancer.  The district court granted defendants’ motions to dismiss, and the decision was affirmed by the Court of Appeals.

The Supreme Court reversed and remanded on the ground that defendants had not met their burden to show that plaintiff had incurred compensable damage more than four years before she brought her action.

There are several dates with particular relevance to the Court’s analysis.  In January 2001, during a routine physical examination, the primary care physician performed a biopsy on a lesion on the decedent’s left leg, which was then sent to pathology for analysis.  The conclusion of that analysis was that it was a non-cancerous compound nevus.  In December 2002, decedent’s doctor performed a pre-operative examination.  The medical records contain no information suggesting that any abnormalities in the lymph nodes were discovered during that examination.  In September 2004, decedent was again examined by his physician for swelling in his left leg and groin.  On that date, a CT scan showed enlarged lymph nodes. After two surgical biopsy procedures, the decedent was diagnosed with metastatic malignant melanoma.  He died in August 2005.  In February 2006, plaintiff commenced an action for the wrongful death of her husband.

The district court noted the established principle that malpractice actions based on failure to diagnose accrue at the time of misdiagnosis because some damage generally occurs at that time.  The court also rejected the continuing course of treatment doctrine as inapplicable to the facts.

The Court of Appeals affirmed the district court, citing dicta from Molloy v. Meier, that a misdiagnosis of cancer caused “immediate injury in the form of a continuing growing cancer, which became more dangerous to the plaintiff each day it was left untreated.” 

The Supreme Court framed the question presented as, ‘When [did] the misdiagnosis cause [decedent] to suffer compensable damages?’  The Court began by acknowledging that, in prior decisions, it had concluded that “some damage” occurred at the time of a cancer misdiagnosis.  The Court, however, stated that a negligent act is not itself sufficient for a negligence cause of action to accrue.  Only when the alleged negligence can be coupled with the alleged resulting damage can a date for accrual of the action be established.  The Court described this approach as the “damage” rule of accrual. 

With the expert testimony proffered in this case, the Court determined that a jury could conclude that damages did not accrue at the time of the misdiagnosis, but instead at some time after the preoperative examination on December 9, 2002, when no evidence of abnormal lymph nodes was discovered.  Specifically, plaintiff’s expert opined that melanoma that originates in the leg will first become metastatic in the inguinal lymph node.  Because no abnormality was noted in these lymph nodes during decedent’s December 2002 preoperative examination, in the expert’s opinion, the cancer likely had not yet metastasized and he likely would have survived if his cancer had been discovered and treated at that time.  MacRae v. Group Health Plan Inc.,753 N.W.2d 711 (Minn. 2008).

October 2008

CRIMINAL LAW
JUDICIAL LAW

• Search and Seizure; Search Valid Against Co-Tenant.  Appellant’s wife summoned police because appellant was using illegal drugs in their house.  She consented to the entry of the house.  Because appellant was present and did not object, the entry was held valid.

After the initial entry, the police placed appellant in the squad car, then obtained wife’s permission to search a back room for more narcotics and weapons.  The court held that the search of the back room was valid, citing United States v. Matlock, 415 U.S. 164 (1974), which states that “[t]he consent of one who possesses common authority over the premises is valid as against the absent, non-consenting person with whom that authority is shared.”  State v. Por Hue Vue, 753 N.W.2d 767 (Minn. Ct. App. 2008).

• Search and Seizure; DNA Database Search Constitutional.  In 2003, appellant was convicted of a burglary that bore many similarities to a rape/murder occurring ten months earlier.  In the murder case, a DNA analyst had requested a DNA database search.  A match was made in 2006.  At the murder trial, using the product rule, the DNA technician testified that, among unrelated people in the world, the DNA recovered from the murder/rape crime scene would likely match only one person’s DNA—appellant’s.

The court determined that neither the federal nor state constitution was violated by requiring a DNA sample from felony offenders pursuant to Minn. Stat. § 609.117.  The search was reasonable under the totality of the circumstances test articulated in Samson v. California, 547 U.S. 843 (2006).  State v. Nicholas E. Bartylla, 2008 WL 3862871 (Minn. 2008).

• Sex Offender Conditional Release; Prior Conviction Strictly Construed.  Appellant committed acts of third-degree criminal sexual conduct on March 8, 1999, October 2, 1999, and January 5, 2000.  The Supreme Court reversed the Court of Appeals’ sentence and shortened the appellant’s period of conditional release following his executed prison term for a sex offense from 10 to five years.  Existing law at the time (Minn. Stat. § 609.109, subd. 7) required 10 years of conditional release if defendant had a prior conviction on the date of the new offense.  Following a probation violation, where he had another offense concerning theft of a motor vehicle, appellant was sentenced to prison for the prior criminal sexual conduct charges and was given three concurrent terms of 10-year conditional release for the sex offenses.  The Court, however, held that the shorter five-year conditional release term should have been imposed.  On January 6, 2000, when appellant was sentenced for the first offense, he technically did not have any prior convictions, because the court had not accepted his plea in October of 1999.  The term “conviction” is defined by Minn. Stat. § 609.02, subd. 5 and requires either (1) a plea of guilty or (2) a verdict of guilty by a jury or a finding of guilty by the court that is accepted and recorded by the court.  Because the court, in October 1999, reserved a decision as to the appropriateness of the plea agreement pending the results of the PSI, it neither rejected nor accepted the plea of guilty, and no conviction was possible under the definition of “conviction.”  Hence, because defendant’s guilty plea had not been accepted when he committed the two new offenses, he had not been convicted of third-degree criminal sexual conduct at the time new offenses occurred, requiring the shorter five-year period of conditional release.  State v. Chad Jeffrey Thompson, 754 N.W.2d 352 (Minn. 2008).

• Forfeiture; No Vehicular Forfeiture on Indian Reservation.  The Court of Appeals held that Minnesota lacks jurisdiction to apply the civil vehicle forfeiture law under Minn. § 169A.63 (for DWI conduct) when the conduct giving rise to forfeiture occurred on an Indian reservation and the vehicle’s owner is an enrolled member of the tribe of the same reservation.  The Court of Appeals concluded that Minn. Stat.   § 169A.63 is civil/regulatory and, therefore, the state lacks jurisdiction under Public Law 280 to enforce the statute against Indian owners.  In a footnote, the Court of Appeals stated “We limit this decision to the facts presented: enforcement of the law against an Indian-owned vehicle for conduct committed on the owner’s reservation.”  Fred Morgan Jr. v. 2000 Volkswagen, etc., 754 N.W.2d 587 (Minn. Ct. App. 2008).

• Forfeiture Not Authorized Against Joint Owner.  While driving a vehicle jointly owned with respondent, respondent’s wife was arrested for DWI.  She ultimately pled guilty to second degree DWI refusal to submit to chemical testing.  She had one prior impaired driving conviction.  The district court disallowed forfeiture under the innocent owner defense contained in Minn. Stat. § 169A.63, subd. 7(d), finding that respondent had met his burden to show by clear and convincing evidence that he did not know the vehicle would be used in an illegal manner.

Noting that forfeiture laws are “punitive and disfavored,” the Court of Appeals stated that it strictly construes statutory language and is bound to resolve any doubt in favor of the party challenging the forfeiture.  “The doubt resulting from the omission of statutory language reconciling Minn. Stat.            § 169A.63, subd. 6, 7(a)(1)(2006) (requiring forfeiture of a vehicle whose driver is convicted of a designated offense) with Minn. Stat. § 169A.63, subd. 7(d) (disallowing forfeiture of a vehicle whose owner does not know it is being driven in a manner contrary to law) must therefore be resolved in favor of respondent, a joint owner of the vehicle and a party challenging forfeiture.”  David Lee Laase v. 2007 Chevrolet Tahoe, 2008 WL 3898388 (Minn. Ct. App.).

• Restitution; Abuse of Discretion to Modify Restitution.  Appellant pled guilty to and was convicted of theft by swindle of approximately $400,000 from her relatives.  As part of the plea negotiation, the appellant received a stay of execution, was placed on probation for 15 years, and required to pay $400,000 in restitution as a condition of probation.  Two years later, respondent had paid less than $200 in restitution to each victim.  The victims then filed a motion with the district court asking for forgiveness of the restitution because they were extremely sympathetic to appellant.  After a hearing, the judge modified the restitution obligation, stating that the Department of Corrections should file an order requesting judgment against the appellant or, in the alternative, that a satisfaction of the judgment could be filed by all the victims.  This latter condition effectively allowed the victims to waive restitution and to excuse the appellant from her probationary condition.  The state objected to this modification.

The Court of Appeals determined that, contrary to the state’s jurisdictional argument, the district court had authority to modify the restitution aspect of the sentence under Rule 27.03, subd. 9 (as opposed to under Minn. Stat. § 611A.04, which would not allow modification because not all conditions were met).  The district court, however, abused its discretion by modifying the restitution to allow the victims to cancel a probationary condition.  “Given the sheer magnitude of the alteration to respondent’s restitution obligation and the fact that restitution went to the very foundation of the entire plea agreement, the district court’s modification materially altered the bargained-for exchange under the parties’ assent to the agreement.”  State v. Dawn Marie Meredyk, 754 N.W.2d 596 (Minn. Ct. App. 2008).

• DNA; Statistical Evidence Admissible.  In a murder trial, a DNA technician testified that, among the entire world population, only one match could occur between the DNA collected at the crime scene and the DNA obtained from appellant.  No Frye-Mack hearing was necessary with respect to the admissibility of this statistical opinion because it did not involve issues of scientific technique.  “As long it is clear that the expert witness’ response at trial about the probability of the DNA match answers the question asked, there is no error.”  At trial, a defense expert opined that the product rule, in the question asked, should have been how often a match would be expected to occur in a database of the size used in appellant’s case.  The defense expert, however, did not answer any type of question concerning use of a product rule in a database analysis.  State v. Nicholas E. Bartylla, 2008 WL 3862871 (Minn. 2008).

• Blakely/Crawford; Right of Confrontation Applies in Sentencing Juries.  The Minnesota Supreme Court held that the Crawford right of confrontation applied in jury sentencing trials, pursuant to Blakely.  The court noted that Minnesota Rule of Criminal Procedure 15.01, subd. 2, requires a defendant, in entering a guilty plea, to waive the right to have witnesses testify and be cross-examined in support of an aggravated sentence.  In the absence of a right of confrontation in jury sentencing trials, there would be no reason for this provision in the rule.

The Court also held that the Minnesota Rules of Evidence apply in jury sentencing trials, and the district court erred in ruling to the contrary.  Minnesota Rule of Evidence 1101 exempts certain proceedings, but not “jury sentencing trials.” 

Finally, the Supreme Court held that the accomplice corroboration instruction requirement does not apply in jury sentencing trials because the instruction is an essential prerequisite to a conviction. In a jury sentencing trial, the defendant has already been convicted.  State v. Pedro Maldono Rodriguez, Jr., 754 N.W.2d 672 (Minn. 2008).

• Spreigl; Other “Bad Act” Evidence.  To demonstrate the nature of a relationship between a defendant and his victim, Minn. Stat. § 634.20 allows other “bad act” evidence to be admitted if the acts were committed by the accused against the victim or against the victim’s family or other household members.  In this case, the appellant was tried for multiple violations alleging harassment, including a count alleging a pattern of harassing conduct.  Two of the prior acts of misconduct were the facts underlying two counts of violating a harassment restraining order for which the appellant was acquitted.  The court cited State v. Wakefield, 278 N.W.2d 308 (Minn. 1979) as controlling precedent and barred admission of similar conduct of which the defendant has been acquitted.  “Such evidence is so unfairly prejudicial that it inherently violates the probative/prejudicial balancing test.”  The error, however, was harmless.  State v. Thomas E. O’Meara, 2008 WL 3896762 (Minn. Ct. App. 2008).

• Accomplice Testimony; Reversible Error Not to Give Accomplice Instruction.  At trial, defendant did not request an accomplice instruction to certain witness testimony, nor did he object to the admission of the testimony.  Held, it was plain error to fail to instruct the jury, sua sponte, on accomplice testimony.  According to case and statutory law, the issue of whether an accomplice’s testimony has been sufficiently corroborated is a question of fact to be determined by the jury.  Furthermore, because of the weakness of the evidence available to corroborate this witness’ testimony, the failure to instruct affected the appellant’s substantive rights and satisfied the plain error analysis.  State v. Larry Larue Clark, 2008 WL 3926859 (Minn. 2008).

• Grand Jury; Assistant County Attorneys May Conduct Grand Juries.  In a case of first impression, the Minnesota Supreme Court rejected the appellant’s challenge that a grand jury may be conducted only by the elected county attorney.  Minn. Stat. § 380.10 authorizes the appointment of assistant county attorneys to perform the county attorney’s duties, and those duties may include grand jury work.  State v. Larry Larue Clark, 2008 WL 3926859 (Minn. 2008).

October 2008

EMPLOYMENT & LABOR LAW
JUDICIAL LAW

• Promissory Estoppel.  A police officer who was guaranteed a minimum of 16 hours of work per week was properly terminated as an “at will” employee. Stiehm v. City of Dundas, 2008 WL 2574974 (Minn. Ct. App. 2008) (unpublished).  The Minnesota Court of Appeals held that there was no evidence to support a promissory estoppel claim because the officer was not promised permanent employment or that he would be terminated only for cause. Stiehm v. City of Dundas, 2008 WL 2574974 (Minn. Ct. App. 2008) (unpublished).

• Retirees’ Health Benefits.  Retired teachers are entitled to health insurance benefits provided for in the collective bargaining agreement at the time of their retirement. The retirees had vested rights to health care benefits contained in their union contract that was in effect at the time they retired, and the school district’s later attempt to reduce those benefits as part of cost retrenchment policy was invalid.  Adams v. Independent School District No. 316, 2008 WL 2573660 (Minn. Ct. App. 2008) (unpublished)

• Disability Discrimination.  An employee’s Clinical Isolated Syndrome (CIS) did not constitute a substantial limitation of a major life activity, nor did the employee show she was perceived as disabled by the employer. Accordingly, the employee, who worked at a manufacturing plant, lost her claim that her discharge violated the Americans with Disabilities Act (ADA). Tjernagel v. The Gates Corp., 533 F.3d 666 (8th Cir. 2008). 

• Disability Discrimination. An employee who was fired after falling asleep on the job filed a claim for disability discrimination under the Americans with Disabilities Act (ADA).  The Eighth Circuit Court of Appeals affirmed summary judgment on grounds that the employer established legitimate reasons for termination, which were not pretextual, even though the employee suffered from diabetes and Graves disease. McNary v. Schreiber Foods, Inc., 535 F.3d 765 (8th Cir. 2008).

• Disability Discrimination.  U.S. District Court Judge Michael Davis dismissed a lawsuit brought by a terminated commercial delivery driver, who lost his certification to operate a vehicle due to his diabetic condition.  The claimant’s testimony that he was not physically limited by his diabetes when he properly monitors his condition fell short of the requirement under the Americans with Disabilities Act (ADA) that a plaintiff be “substantially limited” from a “major life activity” because he was not substantially limited from performing a class of jobs or broad ranges of jobs.  The employee also failed to establish that the employer regard him as disabled under the perception-of-disability provision of the ADA.  Gilman v. Schwan’s Home Service, Inc., 2008 WL 2640291 (D. Minn. 2008).

• Unemployment Compensation.  An accountant who had no teaching experience and went to Mexico to look for a teaching job and remained there without receiving a job offer was disqualified from receiving unemployment compensation benefits because she was not “actively seeking suitable employment.” The employee was disqualified under Minn. Stat. § 268.085, subds. 15, 16(a) because she was not actively seeking accounting work (which was suitable work for her) and left Minnesota, her natural “labor market area,” as required under the statute.  Ryks v. Department of Employment & Economic Development, 2008 WL 2966673 (Minn. Ct. App. 2008) (unpublished). 

• Unemployment Compensation.  An employee who was late to work 17 times following a lunch break and took extended breaks during work was disqualified from receiving unemployment compensation benefits on grounds of “misconduct” under Minn. Stat. § 268.095, subd. 6(a).  The disqualification determination was upheld because the claimant’s testimony was inconsistent and the testimony of the company’s representative was more credible concerning the retaliatory conduct of the employee while on a six-month probation due to violating company policies. Chambers v. Family and Cosmetic Gentle Dentistry, Ltd., 2008 WL 2967016 (Minn. Ct. App. 2008) (unpublished). 

• Unemployment Compensation.  An employee responsible for security certification of his company’s management system quit because he felt he lacked sufficient software to support his efforts.  His unemployment claim was denied because management did not prevent him from performing his job objectives. Long v. Joyner’s Die Casting and Plating, Inc., 2008 WL 2727391 (Minn. Ct. App. 2008) (unpublished)

• Unemployment Compensation.  An employee who quit because she believed someone had been hired to replace her was denied unemployment benefits because the employer’s testimony was credible that the other employee was not hired as a replacement. Galligan v. Whalen Woods, 2008 WL 2727403 (Minn. Ct. App. 2008) (unpublished).

LEGISLATION

• Americans with Disabilities Act (ADA).  Recent amendments to the Americans with Disabilities Act will operate to override a series of restrictive rulings by the U.S. Supreme Court.  If, as expected, President Bush signs the bill into law and it becomes effective on January 1, 2009, the ADA Amendments Act of 2008 will (1) allow more people to be eligible for coverage; (2) extend the law to individuals whose afflictions can be controlled by medication or improved with prosthesis; (3) strengthen the perception-of-disability provision, and (4) direct that the law be construed broadly in favor of employee claimants. Note: At the time of publication of Bench & Bar, President Bush had not yet signed the bill.

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

October 2008

FEDERAL PRACTICE
JUDICIAL LAW

• Daubert; Exclusion of Expert Testimony.  Affirming U.S. District Court Judge Patrick J. Schiltz’s exclusion of plaintiff’s medical causation expert and the resulting summary judgment motion of the defendant, the Eighth Circuit found no abuse of discretion in excluding the expert’s “unproven and indeed untested premise” which had never been peer-reviewed, was not generally accepted in the scientific community, and did not have a known or potential rate of error.  Polski v. Quigley Corp., 538 F.3d 836 (8th Cir. 2008). 

• Daubert.  The Eighth Circuit reached a similar result in an appeal from a decision excluding a treating physician’s causation opinion relating to exercise-induced asthma under Daubert.  The court rejected the argument that the physician had conducted a proper differential diagnosis and concluded that the physician failed to exclude other possible causes of the asthma.  Bland v. Verizon Wireless, (VAW) L.L.C., 538 F.3d 893 (8th Cir. 2008). 

• Denial of Mid-Trial Motions for Judgment as a Matter of Law; Appealability.  Rejecting defendants’ attempt to appeal from the denial of their mid-trial motions for judgment as a matter of law, the Eighth Circuit held that the denial of such a motion is not appealable where the parties fail to articulate the basis for their motion by including relevant law and facts.  Alternate Fuels, Inc. v. Cabanas, 538 F.3d 969 (8th Cir. 2008). 

• Punitive Damages; Due Process.  Where the plaintiff was awarded only nominal damages on a trespass claim, the Eighth Circuit reduced a related award of punitive damages from over $1,000,000 to $108,750 on due process grounds.  However, the court rejected a challenge to a $1,150,000 award of punitive damages on a related conversion claim where the plaintiff had been awarded $1,100,000 in compensatory damages.  JCB, Inc. v. Union Planters Bank, N.A., 2008 WL 3897384 (8th Cir. 2008). 

• Fed. R. Civ. P. 7(b); Particularity Requirement.  Addressing the rarely disputed “particularity” requirement of Fed. R. Civ. P. 7(b), the Eighth Circuit affirmed the district court’s holding that a defendant’s Fed. R. Civ. P. 50(b) motion complied with Rule 7(b)’s particularity requirement despite the failure to articulate the basis for the motion.  The motion necessarily incorporated the contents of the defendant’s prior motion for judgment as a matter of law under Fed. R. Civ. P. 50(a).  Hinz v. Neuroscience, Inc., 538 F.3d 979 (8th Cir. 2008). 

• Objection to Report and Recommendation; Supplemental Briefs Stricken.  Overruling defendants’ objections and adopting the magistrate’s Report and Recommendation, the district court ordered that defendants’ “supplemental” briefs submitted in support of their objections be stricken on the basis that the Local Rules do not allow for supplemental briefs.  Manalo v. Wyeth, 2008 WL 2705495 (D. Minn. July 9, 2008). 

• Failure to Comply with Discovery Orders; Default Judgment As Sanction.  Adopting the magistrate’s Report and Recommendation, the district court ordered that a defendant’s answer be stricken and that a default judgment be entered against him for his failure to comply with numerous discovery orders.  Parker v. Rowland Exp., Inc., 2008 WL 2986385 (D. Minn. July 30, 2008). 

• Pro Se Corporate Defendant; Attempt to Assign Interest Rejected.  Finding that a corporation could not appear pro se in the federal courts, the district court rejected a defendant corporation’s attempt to assign its claim in a quiet title action to an individual to avoid retaining counsel, and entered a default judgment in favor of the plaintiff.  GEVHC, LLC v. Redburn, 2008 WL 3896107 (D. Minn. Aug. 20, 2008). 

— JOSH JACOBSON
Law Office of Josh Jacobson

October 2008

JUVENILE LAW
JUDICIAL LAW

• Termination of parental rights.  In an unpublished decision, the Court of Appeals reviewed a mother’s challenge to the district court’s denial of her motion to vacate the default judgment terminating her parental rights.  The county filed a CHIPS petition as to the mother’s four children.  It detailed her long history of chemical dependency issues and involvement in drug court.  The mother was represented at the pre-trial conference but was not personally present.  Because there had been seven prior hearings regarding this matter, because the mother had signed a hearing notice advising her that she had to be present at the hearing, and because mother’s attendance was not likely given that there were outstanding warrants for her arrest, the county moved to proceed by default to obtain an adjudication that her children were in need of protection or services.  The guardian informed the court that the mother had done nothing on her case plan and that she had not appeared at a scheduled hearing in drug court where a no-bail warrant was issued.  The guardian supported the county’s motion.  The district court concluded that, given the mother’s lack of appearance and the warrant status situation, default was the appropriate way to proceed. 

Subsequently, the county moved forward on a permanency petition based on the mother’s failure to make any progress on her case plan.  The district court scheduled another pre-trial conference and the mother signed a written acknowledgement of that hearing.  The hearing notice informed her that, if she failed to appear, the department could proceed with a default judgment that might terminate her parental rights.  Despite this warning, she failed to appear and the department requested to proceed by default.  The district court granted the request and terminated the mother’s parental rights by default.  The Court of Appeals affirmed the district court, noting that the district court’s decision to terminate was not based on the mother’s failure to appear, but instead on her failure to correct the conditions that led to the removal of the children.  Accordingly, it did not constitute a violation of the mother’s right to due process.  In the Matter of the Welfare of the Children of M.R., Parent, 2008 WL 2796753 (Minn. Ct. App. July 2008).

• Termination of parental rights.  Parents challenged the district court’s termination of parental rights to their second child based on a finding that their first child suffered egregious harm while in their care, resulting in the child’s death.  The nine-month-old infant died after sustaining a skull fracture while in his parents’ care.  The Court of Appeals remanded the matter to district court for additional findings of fact where intervening case law required that the district court address each parent’s knowledge of, and responsibility for, the conduct that caused egregious harm to the child.  In the Matter of the Welfare of the Child of: B.T.N. and A.V.D., No. A07-2425 (Minn. Ct. App. August 19, 2008)(unpublished).

• Child in Need of Protection or Services.  Events surrounding the death of a four-month-old child could support a CHIPS adjudication as to her siblings, who were three and six years old at the time of the youngest child’s death.  The district court dismissed the county’s CHIPS petition following a trial, and the guardian ad litem challenged the dismissal.  The Court of Appeals took the extraordinary step of making its own finding that, where a four-month-old child was suffocated on a bed loaded with laundry when her mother rolled over on her, and the baby’s bottle had been spiked with alcohol, that the child died of “domestic child abuse” within the meaning of the applicable statute and that the district court’s contrary findings were not supported by substantial evidence.  Accordingly, the Court of Appeals held that it was error for the trial court to dismiss the CHIPS petition as to that deceased child’s siblings.  In the Matter of the Welfare of the Children of T.R.K. and D.A., No. A08-0211 (Minn. Ct. App. July 8, 2008)(unpublished).

• Child in Need of Protection or Services.  The Court of Appeals reviewed a district court’s permanent transfer of a child’s legal custody to the child’s maternal grandmother.  The father challenged the transfer, arguing that the district court failed to consider the rebuttable presumption favoring a biological parent over a third party in a custody dispute and that the record failed to support findings that transferring legal custody of his child to the maternal grandmother was in the child’s best interest.  The Court of Appeals reversed the district court and remanded the matter because, even though the district court found that it was in the child’s best interest to transfer legal custody to the child’s maternal grandmother, there was no adjudication of paternity in the trial court record.  The Court noted that relevant statutes and case law show that, in a custody dispute with a non-parent, a parent is entitled to a custodial preference.  Due to lack of an explicit indication that the father was indeed the biological father of this child, the Court of Appeals remanded the matter to the district court to make an appropriate adjudication of paternity and to readdress the petition to transfer the child’s custody in light of that adjudication.  Not only was the district court directed to make a finding of paternity, but if paternity was established, and the custodial presumption therefore applied, this presumption was held to also apply in CHIPS cases as well as in transfer of custody cases, and the grandmother must meet a high threshold to rebut the presumption.  In the Matter of the Welfare of the Child of: H.S. and E.M., Parents, No. A08-0416 (Minn. Ct. App. August 26, 2008)(unpublished).

• Venue in Child Abuse Case.  The Court of Appeals reviewed appellant’s challenge of his convictions on two counts of first degree criminal sexual conduct and two counts of second degree criminal sexual conduct arising out of his relationship with two minor females.  The appellant contended that the jury was not adequately instructed as to the meaning of the applicable venue statute.  Generally, in a criminal trial, the accused has the right to be tried by an impartial jury of the county or district where the crime was committed.  However, a criminal action arising out of an incident alleging child abuse may be prosecuted either in the county where the alleged abuse occurred or in the county where the child is found.  The Court of Appeals observed that the phrase “where the child resides” is vague with respect to time, and no published authority defines when a child must reside in a county in order for abuse of the child to be prosecuted in the county.  The Court of Appeals held that, for the purposes of establishing venue in the limited area of child abuse, a child can be “found” in the county where the child resided either when the abuse occurred or when the abuse was discovered.  In this case, the Court of Appeals held that the jury was properly instructed as to the element of venue.  State v. Rucker, No. A07-0773 (Minn. Ct. App. July 15, 2008).

• Juvenile Delinquency.  A case issued by the Minnesota Supreme Court involved a 15-year-old who shot and killed his grandmother and was charged with second degree murder.  The state filed a motion to certify him for adult prosecution.  The statute requires the district court to consider six factors in determining whether to certify a juvenile, one of which is the child’s prior record of delinquency.  Although the juvenile had no prior delinquency petitions or adjudications, the district court considered evidence of his behavioral incidents at school as part of his “prior record of delinquency.”  The district court concluded that all six factors weighed in favor of certifying appellant for adult prosecution.  The Court of Appeals affirmed.  While the Minnesota Supreme Court affirmed the certification for adult prosecution, it reversed the Court of Appeals determination that school records can be part of the “prior record of delinquency.”  In the Matter of the Welfare of N.J.S., Child, No. A06-2277 (Minn. July 31, 2008).

• Juvenile Delinquency.  A juvenile appellant challenged his disposition, arguing that the district court abused its discretion by ordering out-of-home residential placement following his first adjudication as a juvenile delinquent.  He had pled guilty to reduced charges of misdemeanor disorderly conduct and misdemeanor domestic assault following an altercation with his mother.  The district court ordered the juvenile’s participation in a non-secure residential treatment program serving high-risk youth.  The Court of Appeals concluded that the district court’s disposition did not represent an abuse of discretion even though such out-of-home residential placement following a juvenile’s first adjudication as a delinquent is not typical.  The Court of Appeals approved the determination because, in detailed findings, it was clear that residential placement rather than a patchwork of community programming would provide a comprehensive plan to address the best interests of the 16-year-old juvenile, and that community-based services, which the juvenile had received in the past, had not rectified his chemical use and anger management problems.  In the Matter of the Welfare of: J.T.S., No. A07-1209 (Minn. Ct. App. August 12, 2008)(unpublished).

• Adoption. The Court of Appeals reviewed a situation where a mother and father’s parental rights to their children had been terminated because of violence resulting in broken bones and life-threatening injuries to their first child.  The children’s paternal grandmother petitioned to adopt the third child.  The father of the child continues to live at his mother’s (the petitioning grandmother’s) home, where violence between the mother and father of the children sometimes occurred.  There also was a finding that the grandmother had been harassing the mother and is herself a victim of abuse by her husband.  Grandmother denies that her son has been violent toward his children.  The county, on behalf of the Commissioner of Human Services, declined to consent to the grandmother’s adoption of the children, and the district court affirmed that decision and dismissed the petition as not in the children’s best interests.  The Court of Appeals affirmed.  In the Matter of the Petition of V.P. to Adopt H.A.P., No. A07-2110 (Minn. Ct. App. August 12, 2008)(unpublished).

TAX LAW
JUDICIAL LAW

• Real Property; Property Tax Exemption for Religious Entity.  The Minnesota Tax Court granted a taxpayer’s motion for summary judgment regarding two of five subject properties, including a church and parking lot.  The court nevertheless found that genuine issues of material fact existed regarding three non-contiguous parcels, because it could not determine whether the taxpayer met the ownership and “devoted and reasonably necessary” test used to determine a religious entity’s eligibility for tax exemptions.  The taxpayer argued that the five parcels were exempt under Minn. Stat. § 272.02, subd. 6, and Minn. Const. Article X, § 1, since they were owned, devoted to, and reasonably necessary to accomplish the church’s purpose.  The court disregarded the taxpayer’s affidavit that the three non-contiguous and unimproved parcels were used for vacation Bible school and nature walks, considering such statements to be self-serving and insufficient to overcome either the presumption that the land is taxable, or the taxpayer’s burden to prove that it was exempt.  Advent Evangelical Lutheran Church v. County of Ramsey, Docket No. 62-CV-07-5687, 2008 WL 3892374 (Minn. T. Ct. 2008).

• Real Property; Property Tax Exemption for Recreational Property Denied.  The Minnesota Tax Court denied the Sportman’s Club’s claim on summary judgment to be a purely public charity. The taxpayer contended that it met the test articulated in Christian Businessmen’s Committee of Minneapolis, Inc. v. State, 38 N.W.2d 803 (Minn. 1949), for a nonprofit that uses its property for both charitable and commercial purposes.  The court decided that it lacked sufficient facts on the use of the recreational property and how it generated revenue.  Also applying the six-factor test of State v. North Star Research and Development Institute, 200 N.W.2d 410 (Minn. 1972), the court found genuine issues of material fact on whether the Club was supported by donations and gifts in whole or in part; whether the Club required recipients of its services to pay for the assistance; whether the beneficiaries of the charity are restricted or unrestricted and, if restricted, whether the class of persons to whom the charity is made available is one having a reasonable relationship to the charitable objectives; and whether dividends, in form or substance, or assets upon dissolution, are available to private interests.  Sandstone Sportsmen’s Club v. County of Pine, Docket No. 58-CV-08-292, 2008 WL 2952480 (Minn. T. Ct. 2008).

• Conversion of Mutual Insurance Company to Stock Insurance Company Nontaxable.  The Court of Federal Claims applied a variation of the “open transaction” doctrine to a policyholder of a mutual insurance company that converted to a stock insurance company.  It found that the taxpayer had no gain to report when it chose a cash option in connection with a conversion or demutualization of the insurance company.  Under the conversion, shares awarded to the policy owner were immediately sold to the company and the proceeds were then paid to the policyholder.  The IRS contended that the policyholder was taxable on the full amount of the gain, and could not allocate any of his basis in the contract to offset the insurance proceeds.  The court allowed the policyholder to use his basis in the contract (which greatly exceeded the amount of the sale proceeds) to fully offset the proceeds and, thus, to report no gain.  Eugene A. Fisher, et al. v. United States, 102 A.F.T.R.2d 2008-5608 (Ct. Cl. August 6, 2008).

• Shareholder and Officer Held Liable for 100% Penalty for “Trust Fund Taxes.”  The U.S. District Court held that the officer and sole shareholder of the business was liable for delinquencies in payment of the corporation’s “trust fund” taxes.  The fact that employees had embezzled corporate funds was not a valid defense for nonpayment. Furthermore, the court rejected the taxpayer’s contention that the statute of limitations had expired, his request for an expedited hearing, and his motion to compel the deposition of an IRS agent.  Anuforo v. Commissioner, 100 A.F.T.R.2d 2007-6680 (D. Minn. 2008).

Administrative Development

• Sales Tax; Administrative Guidance on Surcharge Administration and Qualifying Service Station Credit Under Transportation Finance Bill of 2008.  In Revenue Notice 08-09:  “Petroleum Tax—Administration Issues—Surcharge Administration and Qualifying Service Station Credit” (July 28, 2008), the Commissioner addressed two issues surfacing from the recently passed Transportation Finance Bill of 2008 (Chapter 152).  First, the debt service surcharge is considered an addition to the fuel taxes set forth in Chapter 296A, and is to be paid at the same time as the fuel tax.  In addition, the audit, assessment, appeal, collection, enforcement, penalty, interest, refund, and administrative provisions that apply to Chapter 296A apply to the surcharge.  Second, the debt service surcharge is equivalent to a tax on gasoline and special fuel, and therefore must be used in calculating the qualifying service station credit or refund allowed by Minn. Stat. § 296A.16, Subd. 5.

• Sales and Use Tax; Rate Calculator Available.  The Commissioner has developed an online calculator that shows the state and local general sales and use tax rates applicable to sales made in Minnesota.  Taxpayers must enter a nine-digit ZIP code to calculate the sales tax charged in an area.  The rate calculator does not include special local rates administered by the Commissioner, such as the Minneapolis lodging, entertainment, and downtown liquor and restaurant taxes; the St. Cloud liquor and food taxes; or the Rochester and St. Paul lodging taxes.  If any special local taxes apply to a sale, they must be added to the general sales and use tax rate identified by the rate calculator.  News Release and Sales Tax Calculator, Minnesota Department of Revenue, August 7, 2008.

• Limited Partner Denied Business Deduction for Management Fees of Investment Partnership that Owns Business Partnerships.  An individual who is a limited partner of an upper-tier partnership (“UTP”) that holds lower tier partnerships (“LTPs”) for the production of income cannot deduct as an IRC Code   § 162 business expense the management fees paid by the UTP, even if the LTPs are engaged in a trade or business.  Instead, the management fees are deductible only as IRC Code 212 investment expenses, and thus subject to the substantial limitations on deductibility.  The ruling also concluded that the management fees of the LTPs are taken into account in computing each LTP’s taxable income or loss, and the UTP’s distributive share of income or loss.  Rev. Rul. 2008-39, 2008-31 IRB (August 4, 2008).

• Tax Guide for Churches and Religious Organizations.  The IRS has again defined the limits of allowable political activity by 501(c)(3) religious and charitable organizations.  The new detailed description of prohibited political campaign activity in revised IRS Publication 1828 is essentially a restatement of the principles and examples of previous revenue rulings.  See, Rev. Rul. 2007-41, 2007-25.  The revised publication adds expanded guidance on voter education, voter registration, and Get-Out-The-Vote drives, and an admonition for charities to heed the differences between election law and tax law rules.

• Tax Treatment of Series Limited Liability Company.  A series limited liability company (“SLLC”) is an entity that provides limited liability protection to the owners of each entity in the series.  Most states, including Minnesota, do not permit series SLLCs. The Federal tax status of an SLLC in each of its series has been uncertain.  However, a recent ruling gives some guidance about the federal tax treatment of an SLLC by holding that each series will be viewed as a separate entity, and based upon its characteristics and elections, will have its own tax status, independent of each other series.  Private Letter Ruling 200803004. 

• Insurance Fraud Restitution Payments by a Physician Are Deductible.  The IRS ruled that a physician could not, under IRC             § 165(c)(1),  deduct as a business loss restitution payments he made to health insurance companies he defrauded.  The physician was indicted for insurance fraud and pled guilty under a settlement agreement with the State.  He agreed to pay an undisclosed sum to the State as a criminal penalty and to provide a fixed amount as restitution to the insurance companies to which the fraudulent claims were submitted.  The physician requested the IRS to rule on whether a restitution payment to an insurance company as part of a criminal plea agreement was deductible under either          § 165(c)(1) or § 165(c)(2).  Long-established case law holds that repayment of fraudulently obtained funds is not deductible under IRC Code § 165(c)(1).  However, the IRS concluded that, under the holdings in Rev. Rul. 65-254, 1965-2 CB 50, and Rev. Rul. 82-74, 1982-2 CB 110, the restitution was deductible under IRC § 165(c)(2).  As a non-business      § 165(c)(2) deduction, the amount paid as restitution would be a miscellaneous itemized deduction subject to the two percent of AGI floor.

LEGISLATION

• Housing Assistance Tax Act of 2008 Comes With a Host of Tax Changes.  H.R. 3221, the “American Housing Rescue and Foreclosure Prevention Act of 2008,” was signed into law by the President in July 2008 (P.L. 110-289).  The sweeping measure is designed to shore up the ailing housing market as well as tighten lending practices and reform financial institutions associated with that market.  The new law includes a 96-page tax title—the “Housing Assistance Tax Act of 2008”—that includes tax breaks for homebuyers and homeowners, liberalized low-income housing tax credit rules, eased AMT rules, tax breaks for business, and revamped REIT rules.  It also contains other specialized provisions, such as allowing non-itemizers to use a standard deduction for property taxes of up to $1,000.  The $14 billion-plus price tag for the bill is fully offset by new rules requiring information reporting by credit card and third-party vendors to the IRS of the value of merchants’ sales exceeding either $20,000 or 200 transactions per year (effective for sales made after January 1, 2011); a delay in the application of worldwide allocation of interest for two years; and rejiggered 2012 and 2013 estimated tax rules for large corporations with assets of $1 billion or more.

—Jerry Geis
Briggs and Morgan, PA

October 2008

TORTS & INSURANCE
JUDICIAL LAW

• Automobile Insurance.  An injured driver gave notice of a settlement to her UIM carriers, who approved the settlement.  However, when the injured motorist then sought UIM benefits for herself, the UIM carriers refused to pay.  The UIM carriers claimed that the settlement agreement in the case, under which payments went only to the injured motorist’s family, deprived them of their ability to preserve subrogation rights by substituting their check for that of the at-fault driver’s insurer.  The UIM carriers also claimed that the insured failed to provide them with adequate notice of the settlement and failed to reach the “best settlement” with the at-fault driver. 

The Court of Appeals held that the “central act” in a Schmidt v. Clothier settlement is the objection to the settlement rather than the substitution of the check.  Because the UIM insurers in the case acquiesced to the injured motorist’s settlement and failed to object or do anything else to assert their subrogation rights, the insured did not forfeit any UIM coverage by settling with the at-fault driver.

Noting that the Supreme Court had rejected the establishment of a “best settlement rule,” the Court of Appeals also rejected the UIM carriers’ argument that no UIM coverage was available because the insured had not reached the best possible settlement with the at-fault driver. Van Kampen v. Waseca Mut. Ins. Co., 754 N.W.2d 578 (Minn. Ct. App. 2008). 

• Insurance Coverage—Household Exclusion.  A son drove his parents’ car and collided with a parked vehicle, killing his mother, who was a passenger in his vehicle.  The son was insured under two automobile liability insurance policies: a primary auto policy and an umbrella policy.  The primary insurer paid its policy limits of $500,000.  The umbrella insurer denied coverage based upon a “household exclusion,” which excluded coverage for injury to a person related by blood to, and who is a resident of the same household as, the insured.  The district court held the exclusion was invalid under Minnesota’s No-Fault Act.

The Court of Appeals reversed, holding that the umbrella policy’s “household exclusion” was not precluded by the No-Fault Act because, once the underlying policy’s coverage met the statutory minimum liability insurance limits, there was no violation of the Act.  The Court noted that the No-Fault Act does not distinguish between primary insurance and umbrella coverage; instead, to be valid, a “plan of reparation security” must provide the benefits required by the No-Fault Act.  In this case, the “household exclusion” in the umbrella policy did not deny or infringe any right to the statutorily mandated benefits but rather operated as additional insurance in which the parties contractually agreed to the exclusion.  The Court also rejected a public policy argument attacking the exclusion, holding that, as the injured party was already compensated beyond the required statutory amount from the primary policy, there was no “uncompensated victim.”  Bundul v. Travelers Indem. Co., 753 N.W.2d 761 (Minn. Ct. App. 2008).

• Recreational Use Immunity; Landowner’s Duty to Protect Against Obviously Dangerous Conditions.  A father and son were using a batting cage at a public school facility when the father was struck by a batted ball.  Although a screen was available to protect him during batting practice, the netting had visible holes, gaps, and needed repairs that allowed batted balls to get through.  The father sued the school district in negligence, and the district court granted summary judgment.

The Court of Appeals affirmed, determining that the recreational use immunity statute, Minn. Stat. § 466.03, subd. 6e, applied to protect the school district from liability.  The statute, which protects municipalities from claims based on the construction, operation, or maintenance of recreational property, extended to claims based on moveable safety equipment provided to facilitate the use of recreational property.

The Court also held that the trespasser-liability exception to the statute, which precluded immunity “for conduct that would entitle a trespasser to damages against a private person,” did not apply because the school district had no actual knowledge of any danger associated with the screen.  In addition, the Court held that the school district did not owe a duty to protect the father from harm because the condition of the screen and any associated risk was open and obvious.  Prokop v. Indep. Sch. District No. 625, 754 N.W.2d 709 (Minn. Ct. App. 2008). 

—David A. Turner
Bassford Remele, a Professional Association