In this month's "Notes & Trends:
ADMINISTRATIVE LAW
JUDICIAL LAW
• General Savings Clause. The court of appeals addressed the issue of whether a statute, which expired through a sunset clause on August 1, 2006, allowed imposition of penalties in 2007 based on the general savings clause. In 2004, the Minnesota Department of Commerce initiated this complaint against AT&T for failure to file rates contained in switched-access service agreements. The case was referred to the Office of Administrative Hearings for a contested case proceeding in January 2006. The administrative law judge (ALJ) found that AT&T knowingly and intentionally violated statutes and rules requiring the filing of rates and prohibiting unreasonable discrimination. In November 2006, the ALJ held an evidentiary hearing on the sanction to be imposed against AT&T under Minn. Stat. §237.462. The ALJ recommended that AT&T be penalized $552,000 in June 2007. The Minnesota Public Utilities Commission (MPUC) adopted the ALJ’s findings and AT&T appealed.
The court of appeals reversed the MPUC’s decision as to the monetary penalty. The court disagreed with the MPUC’s contention that the plain language of the general savings statute, Minn. Stat. §645.35, dictates that a proceeding that is initiated before the repeal of a law proceeds under the law as it existed at the time the proceeding began. The court found that there is a meaningful difference between a law that has been repealed and one that has expired by its own terms. According to the court, the penalty provisions of Minn. Stat. §237.462 were not saved by the general savings statute and had expired on August 1, 2006. Therefore, the MPUC did not have the authority in 2007 to impose penalties under that statute. In the Matter of the Complaint of the Minnesota Department of Commerce for Commission Action Against AT&T Regarding Negotiated Contracts for Switched Access Services, A08-0382, ___ N.W.2d ___ (Minn. App. 01/13/09).
• Effective Service on Appeal. The supreme court addressed the issue of effective service under the Minnesota Administrative Procedure Act (MAPA). J.M.T. appealed his assignment by the End-of-Confinement Review Committee (ECRC) as a risk level II sex offender. An ALJ affirmed the ECRC’s determination in a decision dated January 23, 2008. J.M.T. received the decision the following day, January 24, 2008. According to the MAPA, appeal of an ALJ’s decision must be made within 30 days of the date the ALJ’s decision is received. The appellant must serve a petition for writ of certiorari by either personal service or certified mail. J.M.T.’s appeal period expired on February 25, the first business day after the 30th day. J.M.T. sent the petition by first-class mail on February 25, 2008. The attorney general received it the following day.
The court of appeals dismissed J.M.T.’s appeal, relying on its decision in Polk County Ambulance Service (548 N.W.2d 300 (Minn. App. 1996)), holding that it lacked jurisdiction because the petition was not served within the 30-day period (i.e., the petition was not received within the 30-day period). The Polk County case held that service of a petition by first-class mail is proper so long as the petition is actually received by the applicable agency within the required period.
The supreme court agreed with the court of appeals, but for different reasons. The court held that Polk County was wrongly decided, concluding instead that J.M.T.’s appeal was properly dismissed because he did not serve his petition in one of the two manners described in the MAPA (personal service or certified mail). In the Matter of the Risk Level Determination of J.M.T., A08-365, ___ N.W.2d ___ (Minn. 01/15/09). www.lawlibrary.state.mn.us/archive/supct/0901/OPA080365-0115.pdf
• Agency Not Estopped by Prior Approval. The Lower St. Croix Act requires local governmental units to adopt zoning ordinances complying with the act’s guidelines and standards. The Department of Natural Resources’ (DNR) rules require the DNR to certify the ordinances and any variances from the ordinances. David Haslund appealed the DNR’s refusal to certify a variance granted by the City of St. Mary’s Point to allow Haslund to construct a residence on his land on the St. Croix River. Based on incomplete information, the DNR allowed the variance request to proceed with a two-year time limit. Haslund did not act on the variance within two years and had to reapply with the city. On reapplication, the DNR became aware of new information regarding the property and refused to certify the variance.
The court of appeals held that the DNR’s certification of the city’s ordinance as being “in substantial compliance” with DNR rules was not a representation that the city’s ordinance was wholly in compliance with DNR’s rules. Haslund could not assume that any land-use decision made by the city under the ordinance would necessarily comply with the DNR’s rules. Because the city’s ordinance conflicted with DNR rules and the Lower St. Croix Act, the DNR was not estopped from refusing to certify the city’s decision to grant Haslund a variance. In the Matter of the Denial of Certification of the Variance Granted to David Haslund by the City of St. Mary’s Point., A08-0427, ___ N.W.2d ___ (Minn. App. 01/27/09). www.lawlibrary.state.mn.us/archive/ctappub/0901/opa080427-0127.pdf
—Maria Lindstrom
Office of Administrative Hearings
In this month's "Notes & Trends:
BANKRUPTCY
JUDICIAL LAW
• Mortgage Avoidance; Trustee’s Avoidance Powers; Constructive Notice Standards. The Minnesota Bankruptcy Court held that a mortgage is not avoidable under the trustee’s avoidance powers found in Section 544 of the Bankruptcy Code despite the fact its legal description omitted the section, township, and range, and therefore did not describe any parcel that a party could locate in the tract index. It is a favorable opinion for mortgagees not only due to its outcome, but also because language in the opinion suggests that the court has previously used an incorrect legal standard when avoiding a mortgage.
The mortgage would remain valid if the legal description as recorded would have provided the trustee, as a hypothetical bona fide purchaser, with constructive notice of the mortgagee’s interest. The court found that under Minnesota law constructive notice and a duty of inquiry arises when an error in a recorded documents is apparent based on the record. If there is an apparent error, the party must further inquire to confirm whether another party claims an interest.
The court held the absence of section, township and range information was a patent omission in the legal description, and any party reviewing the mortgage in the grantor–grantee index would need to inquire to learn which property the mortgage encumbered. In this case, a party could review the record title and find a warranty deed with the correct legal description. The court also suggested a party could ask the grantor which property it intended to mortgage.
In dicta, the court commented on a test applied in a Minnesota bankruptcy case to define an apparent defect, which the Bankruptcy Appellate Panel affirmed in In re Stradtmann, 391 B.R. 14, (B.A.P. (Minn.) 8th Cir. 2008). Under Stradtmann an apparent defect exists “if [the defect] renders the legal description impossible and it can be cured in only one way”. The court stated that the Stradtmann test is a “collection of words not found in any opinion of the Minnesota state appellate courts, and one not self-evident in its meaning,” and therefore refused to apply Stradtmann, despite the fact it would have likely led to the same outcome.
Because at least two judges on the local Bankruptcy Court appear to disagree on the proper standard for an apparent defect, practitioners should anticipate further development of constructive notice standards by the Minnesota Bankruptcy Court. Ries v. Ibach (In re Ibach), Bky 05-38616, Adv 06-3476 (Bankr. D. Minn., 12/12/08)
—Mychal Bruggeman
Mackall, Crounse & Moore
In this month's "Notes & Trends:
CIVIL LITIGATION
JUDICIAL LAW
• Motion to Vacate Judgment: Accrual Date for Limitations Period. In a matter of first impression, the 8th Circuit Court of Appeals considered whether the limitations period for a motion to vacate judgment accrues on the date of an initial or amended judgment under Fed. R. Civ. P. 60(b). Rule 60(b) provides, in relevant part:
(b) Grounds for Relief from a Final Judgment, Order, or Proceeding. On a motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b);
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or
(6) any other reason that justifies relief.
Rule 60(c) sets out the timing of such a motion: “A motion under Rule 60(b) must be made within a reasonable time—and for reasons (1), (2), and (3), no more than a year after the entry of the judgment or order or the date of the proceeding.” Fed. R. Civ. P. 60(c)(1). While the court noted that the 8th Circuit had not yet determined the circumstances under which the entry of an amended judgment might restart the one-year limitation period mandated for Rule 60(b)(2) motions, the court recognized that “[o]ther courts and commentators … ‘have recognized that a new, one-year period under Rule 60(b) might be triggered if [a] subsequent appellate ruling substantially alters the district court’s judgment in a manner that disturbs or revises the previous, plainly settled legal rights and obligations of the parties.’” (quoting The Tool Box, Inc. v. Ogden City Corp., 419 F.3d 1084, 1089 (10th Cir. 2005)). The court concluded that the plaintiff’s motion to vacate focused on issues of liability and that the amended judgment did not disturb any liability findings. As a result, the court held that “the one-year limitations period for bringing the motion began to run when the [initial] judgment was entered ….” Jones v. Swanson, 512 F.3d 1045 (8th Cir. 2008).
— Haley Schaffer
Maslon Edelman Borman & Brand
In this month's "Notes & Trends:
CRIMINAL LAW
JUDICIAL LAW
• Search and Seizure: Order for Protection; Expectation of Privacy in Home. Appellant was the subject of an order for protection (“OFP”) which excluded him from his family home, where his wife still lived. Approximately two weeks after the OFP was issued, appellant failed to appear in court for a probation violation hearing, and an arrest warrant was issued. Several days later, a Carver County Sheriff’s deputy, in attempting to execute the arrest warrant, walked up to appellant’s home, looked in the window, and saw him sitting on the couch watching television. The deputy then sought and received consent to enter by appellant’s wife. Appellant was found hiding in the bathroom in the home.
The state concedes that the act of peering through the blinds constituted a warrantless search. Appellant contended that he had a reasonable expectation of privacy in the residence simply because he is the owner.
Held, appellant had no subjective expectation of privacy in his home because he knew he was subject to an OFP, and his conduct indicated no expectation by the fact that he was hiding in the bathroom. Second, the court of appeals holds, in this case of first impression, that any possible expectation of privacy that the appellant may have had was unreasonable. Following Vermont and Massachusetts, any expectation of privacy in the residence appellant may have had was not reasonable because he had no right to be at the residence. “We are not prepared to find that society would legitimize his unlawful presence in the residence by recognizing a privacy right.” State v. Cedric L. Stephenson, A07-2312 (Minn. App. 02/03/09). www.lawlibrary.state.mn.us/archive/ctappub/0902/opa072312-0203.pdf
• Search and Seizure: Alcohol Dissipation as Single Factor Exigency. Following State v. Schreiner, 751 N.W.2d 538 (Minn. 2008), the Minnesota Supreme Court holds that the rapid and natural dissipation of alcohol in the blood system creates a single factor exigent circumstance that will justify the police taking a warrantless nonconsensual blood draw from a defendant. In Schreiner, the circumstances were such that the holding also stated as follows: “… Provided that the police have probable cause to believe the defendant committed criminal vehicular homicide or operation.” In this case, the supreme court rejects the defense contention that exigent circumstances should be limited to probable cause for felony violation: “But exigency does not depend on the underlying crime; rather, the evanescent nature of the evidence creates the conditions that justify a warrantless search. It is the chemical reaction of alcohol in the person’s body that drives the conclusion on exigency, regardless of the criminal statute under which the person may be prosecuted.” State v. Netland, infra.
• DWI/Implied Consent: Hearing-Impaired Driver; “Disabled in Communication.” Following respondent’s arrest for DWI, the arresting officer quickly realized that the respondent could not hear him speak. Shortly thereafter, the officer communicated with gestures, but soon through handwritten notes, which the respondent could read and respond to in writing. Respondent was directed to read the implied consent advisory, which he did, and he initialed the relevant passages. The respondent wrote that he wished to contact an attorney, and a police officer assisted him in doing so through direct calls, text messages, and a voice mail message. When no response was received after 15 minutes, the respondent acknowledged that he would go ahead and take the test.
Held, Minn. Stat. §611.31 does not apply in this case. That statute states that a person “disabled in communication” must be provided with an interpreter in certain judicial proceedings. The court of appeals concludes that the district court incorrectly concluded that the respondent was disabled in communication, because he fully understood the arrest and post-arrest and implied consent procedure through reading and writing the English language. Because there was no indication that he misunderstood or responded improperly to questions and commands, an interpreter is not required for the respondent to effectively waive his Miranda rights. Nor was there any requirement for the implied consent advisory to be delivered through sign language, because of the respondent’s ability to comprehend, through writing and gestures, the procedure.
Finally, the court of appeals holds that the respondent’s implied consent limited right to counsel was vindicated. The relevant question seemed to be how a deaf person’s request for response from his lawyer would be any more meaningful if made through a sign language interpreter rather than through a police officer: “We see no difference.” The district court is reversed, and the case remanded for trial. State of Minnesota v. Kendall Lee Kail, A08-1081 (Minn. App. 02/03/09). www.lawlibrary.state.mn.us/archive/ctappub/0902/opa081081-0203.pdf
• DWI/Implied Consent: Assertion of Right to Additional Test. Following appellant’s arrest for DWI, appellant twice stated that he wanted a blood test. The arresting officer explained that he was only offering a urine test and that if appellant refused, he would offer him a breath test. Appellant then said that he wanted a blood test instead of a urine test, but said nothing about wishing an additional, different form of testing after he submitted to the urine test. The arresting officer did not advise appellant that he could obtain an additional test or ask appellant if he wanted to arrange an additional test. Appellant submitted to a urine test which showed an alcohol concentration of over .08 percent. At no time after submitting to the urine test did appellant renew his request for a blood test, or any additional form of testing.
Held, following similar precedent, the appellant’s right to additional testing was not violated because he did not assert his right to additional testing after submitting to the required test. The court of appeals rejects the appellant’s contention that a peace officer should interpret a driver’s request for any test as a request for a test in addition to that which is offered by the peace officer. Because there was no assertion of the right to an additional test, the arresting officer did not in any way prevent or hamper appellant’s right to an additional test. Travis Jonathan Schulz v. Commissioner of Public Safety, A08-0440, (Minn. App. 02/10/09). www.lawlibrary.state.mn.us/archive/ctappub/0902/opa080440-0210.pdf
• DWI/Implied Consent: Refusal Conviction Reinstated; Due Process. The respondent was arrested for DWI, and agreed to take the breath test. She made 14 attempts to give a sample, but the Intoxilyzer showed a deficient test. The officer did not allow the machine to complete its four-minute cycle. The respondent asked to take the test again, but this request was denied, because the police officer felt that the respondent was “starting and stopping.” The officer honored her request for an additional test from a private agency, which showed an alcohol concentration of .036 percent.
The supreme court rejects the respondent’s position that her due process rights were violated. The supreme court refuses to recognize the defendant’s position that a “meaningful opportunity to obey the law” is a due process standard. The supreme court holds that the circumstances of the breath test were not “unfair,” so as to constitute fundamental unfairness. First, the police officer was not acting in bad faith by denying her access to the breath-testing machine before the machine completed its four-minute cycle. The officer’s decision to terminate the test was not made in bad faith because he believed the respondent was attempting to manipulate the result of the first test. There was no indication that the respondent was having breathing difficulty. Because the officer’s early termination of the test and denial of a second breath test were not done in bad faith, there is insufficient evidence to support a due process violation. There was no behavior by the officer which would amount to “shocking the conscience” amounting to an additional type of due process violation. Finally, the supreme court does not conclude that the conviction for criminal test refusal is “fundamentally unfair” because her theory, which was fully put in front of the jury, presented a question of fact for the jury to decide. State of Minnesota v Jakklyn M. Netland, A06-1511 (Minn. 02/12/09). www.lawlibrary.state.mn.us/archive/supct/0902/OPA061511-0212.pdf
• DWI/Implied Consent: Source Code Discovery. Appellant made a discovery request within the implied consent proceeding for the source code of the Intoxilyzer 5000. The request was largely based on academic articles, and a Washington state case involving a different type of breath-testing instrument. Appellant did not submit any affidavit or offer of proof pertaining to the particular Intoxilyzer test in this case. In opposition, the state submitted an affidavit of a toxicologist rebutting the assertions made by appellant, and vouching for the scientific accuracy of the Intoxilyzer 5000. Additionally, the affidavit explained that the state never had access to the source code.
Held, the district court properly denied the request for the source code. The court of appeals finds that, under Minn. Stat. §169A.53, “good cause” is not necessarily required for all nonmandated discovery. Rather, if discovery is relevant to a claim or defense, good cause need not be shown. Had appellant shown that the source code was nonetheless relevant to the subject matter generally, then there is a requirement to show good cause. In this case, the appellant offered nothing in addition to the general information provided, and the district court’s finding that the appellant did not establish good cause was not clearly erroneous. The court of appeals notes that the district court specifically faulted the appellant for not providing evidence in the form of expert testimony or an affidavit, and the court properly credited the respondent’s expert opinion. Amanda Nicole Abbott v. Commissioner of Public Safety, A08-0399 (Minn. App. 02/17/09). www.lawlibrary.state.mn.us/archive/ctappub/0902/opa080399-0217.pdf
• Speedy Trial: Eight-Month Delay; Reversible Prejudice. Appellant was arrested and charged with third-degree assault, fourth-degree assault upon a police officer, and obstruction of legal process. The incident occurred on September 14, 2006. In court, on October 4, 2006, appellant demanded a speedy trial. Appellant was not in custody. A jury trial was initially set for November 27, but for no stated reason, trial was rescheduled for December 4, 2006, 61 days after the speedy trial demand. On December 4, 2006, because of a crowded docket, the case was placed on “standby status.” This meant that the appellant must be available and ready for trial within two hours of the time her attorney was notified. Appellant was also warned that her failure to appear in court within those two hours would result in a warrant for her arrest.
Subsequent to the December 4, 2006 hearing, trial was rescheduled without an explanation 30 times between December 4, 2006 and June 5, 2007. Initially, appellant was a resident of Chicago, but she was restricted by standby status during the period December 4th through December 21st. On December 21st, appellant sought modification of her restricted release conditions, noting that the case was already three weeks past the 60-day speedy trial demand. The district court allowed appellant to return to Chicago for Christmas, but required her to return to Minnesota by December 27, 2006, or face arrest. Thereafter, no trial date was set until the case was reinstated to “standby status” on January 30, 2007. The jury trial was later rescheduled approximately 13 more times and various other delays occurred until trial actually occurred on January 5, 2007. “In sum, the district court restricted appellant by virtue of the standby status for at least 58 week days over the period of six months from December 4, 2006 to June 5, 2007. Held, this delay amounted to a violation of the appellant’s right to speedy trial, and requires reversal and vacation of her convictions. State v. Tameca Griffin, A07-2012 (Minn. App. 02/10/09). www.lawlibrary.state.mn.us/archive/ctappub/0902/opa072012-0210.pdf
• Crawford: No Retroactivity. On remand from the United States Supreme Court, the Minnesota Supreme Court holds that it will follow the standard for retroactivity established in Teague v. Lane, 484 U.S. 288 (1989). In applying Crawford, there will be no retroactive application in two cases which were final as of the date of its decision, with two exceptions: (1) when the rule places certain specific conduct beyond the power of the criminal law-making authorities to proscribe; or (2) when the rule is a watershed rule of criminal procedure, and is a rule without which the likelihood of an accurate conviction would be seriously diminished. Minnesota declines to follow Nevada, with a modified Teague rule, even in noting that there have been no “watershed rules” announced in the 19 years since Teague was decided. Stephen Danforth vs. State of Minnesota, A04-1993 (Minn. 02/26/09). www.lawlibrarystate.mn.us/archive/supct/0902/OPA041993-0226.pdf
— Frederic Bruno
Frederic Bruno & Associates
In this month's "Notes & Trends:
EMPLOYMENT & LABOR LAW
JUDICIAL LAW
• Retaliation: Lack of Promotion; 1st Amendment. The 8th Circuit held that a public safety officer at a state university was not wrongfully retaliated against when he was passed over for a promotion to the vacant position of chief of security after engaging in constitutionally protected 1st Amendment activities criticizing his former boss. The court held that the claim could not be pursued because the lack of promotion was not sufficiently “adverse” to activate retaliation rights, and his criticism of the former boss was not constitutionally protected 1st Amendment activity. Davenport v. University of Arkansas Board of Trustees, 2009 WL 223051 (8th Cir. 2009).
• Workers Compensation: Intentional Interference. The Minnesota Court of Appeals allowed an employee to pursue a claim of intentional interference with workers compensation benefits under Minn. Stat. §176.82. Dismissal of the case was reversed on grounds that the employee need not allege that he was actually eligible for benefits, but only that the employer interfered with his attempt to obtain benefits. Albert v. Dungarvin Minnesota, Inc., A07-2436, 2009 WL 511015 (Minn. App. 2009) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0903/opa072436-0303.pdf
• FMLA Leave: Request Clearly Denied. The 8th Circuit Court of Appeals denied a claim by an employee for violation of the Family & Medical Leave Act (FMLA) when two of the employer’s letters indicated that he was not eligible for provisional leave. The employee’s first request for an FMLA leave was denied, but he asserted a claim for provisional leave because he thought it was authorized in the second letter. Upholding summary judgment, the 8th Circuit held that the communications were sufficiently clear so that the employee could not reasonably believe that a personal leave of absence would be granted under the statute. Reed v. Lear Corp., 2009 WL 331031 (8th Cir. 2009).
• Marital Status Discrimination. Dismissal of a woman’s claim of marital status discrimination in violation of the Minnesota Human Rights Act, filed after she and her husband, who worked for the same company, were both laid off, was affirmed by the Minnesota Court of Appeals. The appellate court upheld dismissal of the claim on grounds that the only evidence of marital discrimination was that the woman was married to another employee who was also terminated. There was nothing on the record indicating that the business considered the claimant’s marital status when deciding to terminate her, which negated the marital status discrimination claim. Savoren v. LSI Corp. of America, Inc., A08-0674, 2009 WL 438069 (Minn. App. 2009) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0902/opa080674-0224.pdf
• Noncompete: Stock Option Forfeiture.A provision in a noncompete agreement calling for forfeiture of a stock option award was upheld by the Minnesota Court of Appeals. The clause, which was activated by working for a competitor within six months of termination of employment, was deemed reasonable by the appellate tribunal. Medtronic, Inc. v. Hedemark, A08-0987, 2009 WL 511760 (Minn. App. 2009) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0903/opa080987-0303.pdf
• Noncompete: Damages for Employee. In an unusual lawsuit, an employee was awarded damages by the 8th Circuit Court of Appeals against his former employer. Affirming a ruling of Judge Richard H. Kyle (D. Minn.), the appellate court held that the employer was liable for damages for the entire nine months that the former employee was not working because the employer breached an “unambiguous” clause in the noncompete agreement by failing to make required payments of regular salary to enforce the noncompete provision. Bannister v. Bemis Company, 2009 WL 454725 (8th Cir. 2009).
• Due Process: Termination of Public University Professor.The 8th Circuit Court of Appeals upheld termination of a discharged public university professor despite his Due Process claims. The professor was not entitled to pursue his claims because immunity barred state law breach-of-contract claims. The university had legitimate reasons to fire him and the professor did not follow prescribed procedures for challenging the discharge. Satcher v. University of Arkansas at Pine Bluff Board of Trustees, 2009 WL 511309 (8th Cir. 2009).
• Due Process: Termination of Fired Deputy Sheriff. A deputy sheriff whose employment was terminated failed to exhaust state law procedures and did not request a Due Process “name calling” hearing. These were sufficient grounds for the 8th Circuit to deny his Due Process challenge to his termination. Crooks v. Lynch, 2009 WL 499339 (8th Cir. 2009)
• Unemployment Compensation: Persistent Lateness.An employee who was late for work more than 25 times a year before her discharge, despite oral and written warnings, was properly denied unemployment compensation benefits due to “misconduct.” The Minnesota Court of Appeals held that the persistent lateness, along with a number of other inappropriate behavioral incidents, constituted grounds for denial of benefits under Minn. Stat. §268.095, subd. 4(1). Keegan v. Thrifty Drugstores, Inc., A08-0433, 2009 WL 367075 (Minn. App. 2009) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0902/opa080433-0217.pdf
• Unemployment Compensation: Frustration Fatal to Claim.An employee who quit because he was dissatisfied with his foreman and felt he should have the position was denied unemployment benefits. The employee’s “frustration” did not constitute good reason to quit attributable to the employer under Minn. Stat. §268.09, subd. 3(a). Ryter v. Tesser’s, Inc., A08-0541, 2009 WL 511402 (Minn. App. 2009) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0903/opa080541-0303.pdf
—Marshall H. Tanick
Mansfield, Tanick & Cohen, PA
In this month's "Notes & Trends:
ENVIRONMENTAL LAW
JUDICIAL LAW
• Disputed Forest Service Regulations; Standing to Sue. The United States Supreme Court, in a 5-4 decision, recently rejected a challenge to several U.S. Forest Service regulations because the environmental organizations bringing suit lacked standing. Plaintiffs challenged regulations that exempted timber salvage sales involving less than 250 acres from the notice, comment and appeal process the Service uses for more significant land management decisions. Plaintiffs sought an injunction to prohibit further application of the disputed regulations to the Burnt Ridge Project and other projects nationwide. After filing their lawsuit, plaintiffs settled with the Forest Service, which allowed the project to proceed. The District Court for the Eastern District of California nevertheless entered an injunction against the nationwide application of the regulations, which the 9th Circuit Court of Appeals upheld.
Justice Scalia, writing for Chief Justice Roberts and Justices Thomas and Alito, reversed the 9th Circuit’s affirmation of the nationwide injunction because the plaintiff organizations could not show “imminent and concrete harm to the interests of their members.” The Court said it was not enough to allege that a member may be affected by a future sale similar to the Burnt Ridge Project—the harm must be more specific and immediate. Justice Kennedy concurred with Justice Scalia’s opinion, providing it the necessary majority backing.
Justice Bryer filed the dissenting opinion, in which Justices Stevens, Souter and Ginsberg joined. The dissent argued that past Court precedent suggested a plaintiff could assert standing if there was as “realistic likelihood” that the “challenged future conduct will, in fact, recur and harm the plaintiff.” The plaintiffs therefore had standing because the Forest Service would continue to apply the disputed regulations to other projects across the country at Forest Service lands likely to be visited by the plaintiff organizations’ members, thereby harming their interests with future, similar projects. Priscilla Summers v. Earth Island Institute, 129 S.Ct. 1142 (2009).
• Permit Injunction Request Moot After Permit is Issued. The 8th Circuit, in an interlocutory appeal, dismissed as moot a preliminary injunction sought as part of a Clean Air Act citizens’ suit after the state agency issued the appropriate permit for the challenged activity. Plaintiff Hempstead County Hunting Club, Inc. (“HCHC”) filed a lawsuit against Southwestern Electric Power Company (“SWEPCO”) pursuant to 42 U.S.C. §7604(a)(3) alleging SWEPCO had begun actual construction of the proposed power plant without first obtaining a valid permit from the Arkansas Department of Environmental Quality (“ADEQ”). ADEQ later issued SWEDCO the permit; which action was challenged via state adjudicatory hearing. The administrative law judge granted SWEPCO relief, which allowed SWEPCO to proceed with construction. Because SWEPCO had lawfully begun construction, the U.S. District Court for the Western District of Arkansas dismissed HCHC’s preliminary injunction motion as moot.
On appeal the 8th Circuit upheld the denial of the preliminary injunction, ruling that as “constructing without a permit” was the action HCHC had originally sought to enjoin, the justification for relief to enjoin that action disappeared as soon as SWEPCO began constructing, first pursuant to the issued permit and then with the approval of the ALJ. Hempstead County Hunting Club, Inc. v. Southwestern Electric Power Company, ___ F.3d ____, 2009 WL 614768 (8th Cir. 2009).
• Title V Compliance Schedule Challenge. The 6th Circuit Court of Appeals recently joined the 11th Circuit in finding that the Environmental Protection Agency (“EPA”) need not include in a company’s Title V air permit a schedule for correcting Clean Air Act violations alleged in a Notice of Violation (“NOV”) issued by the EPA. The EPA issued the NOV to a power company that had violated its PSD obligations in the operation of its coal-powered steam generators. Before the company and the EPA resolved those allegations through a consent decree, the company applied to the state of Kentucky to have its Title V permit reissued for one of those generators. Sierra Club petitioned the EPA, among other things, to object to the reissuance because 42 U.S.C. §7661d(b)(1) requires EPA to object if it concludes the permit does not comply with federal requirements. The EPA rejected that part of Sierra Club’s petition because a NOV was merely an “initial step” in the enforcement process and did not represent a final resolution of the allegations alleged within. The EPA appealed this denial of its petition to the 6th Circuit.
The 6th Circuit held the EPA properly utilized its enforcement discretion in choosing not to object to a permit on the basis of an unresolved enforcement issue. To find otherwise, the court said, would be to lock EPA into a course of action that would prohibit it from revising allegations originally raised in an NOV on the basis of subsequent information or events. The 6th Circuit distinguished a contrary conclusion the 2nd Circuit reached in New York Public Interest Group, Inc. v. Johnson (“NYPIRG II”), 427 F.3d 172 (2nd Cir. 2005). Sierra Club v. Environmental Protection Agency, ___ F. 3d ___, 2009 WL 465539 (6th Cir. 2009).
ADMINISTRATIVE ACTIONS
In its first several months, the Obama administration has taken numerous actions in the environmental arena. Many of these have reversed regulatory actions or judicial positions taken by the outgoing Bush Administration, while others proceeded with initiatives begun by the prior administration or broke new ground. Among the steps take by President Obama, EPA Administrator Lisa Jackson or their staffs in the weeks after they assumed office were the following:
• Reversing Course:
January 20, 2009: Ordering that all Bush administration rules that had yet to be published in the Federal Register be withdrawn until they could be reviewed and approved by incoming agency heads;
January 21, 2009: Giving new agency heads the power to withdraw the defense of Bush administration rules subject to ongoing lawsuits;
February 6, 2009: Moving to withdraw the petition filed with the United States Supreme Court to review the D.C. Circuit’s vacatur of the Clean Air Mercury Rule (CAMR). That same day, MPCA announced it would begin a new rulemaking process under Clean Air Act section 112 to replace the vacated rule. The Supreme Court later in the month denied an industry petition to review the CAMR vacatur decision;
February 6, 2009: Publishing notice of a public hearing and a 60-day comment period to reconsider the Bush Administration’s denial of California’s greenhouse gas waiver request regarding vehicle emissions;
February 17, 2009: Granting a Sierra Club petition to reconsider former EPA Administrator Stephen Johnson’s December 18, 2008 memorandum stating that PSD permits do not need to include carbon dioxide limits because carbon dioxide is not a pollutant “subject to regulation.” In granting the petition, EPA Administrator Jackson did not agree to stay the effects of the Johnson memo, stating instead that the grant of the petition was to give her a chance to allow for comments on the issue;
February 23, 2009: Requesting a voluntary remand from the D.C. Circuit of a pending lawsuit brought by North Carolina. North Carolina had sued EPA over the prior administration’s denial of its petition to compel upwind states to reduce fine particulate matter emissions within their borders. The Bush Administration had originally denied the petition because it believed the (since-vacated) Clean Air Interstate Rule would address North Carolina’s concerns. With CAIR effectively gone, the current EPA believes its justification for denying North Carolina’s petition has also fallen away. The court granted EPA’s voluntary remand request on March 5;
March 3, 2009: Issuing a memorandum that requests the new secretaries of Interior and Commerce review a December 16, 2008 regulation promulgated by their agencies that further expands the circumstances in which federal agencies are relieved of their duty to consult with the Fish and Wildlife Service and the National Marine Fisheries Service prior to undertaking actions that may affect endangered species. The memo also encourages all agency heads to use their discretion to continue to consult with FWS and NMFS during this review period;
March 10, 2009: Filing an unopposed motion with the D.C. Circuit asking that the consolidated cases challenging the EPA’s most recent ozone National Ambient Air Quality Standard (“NAAQS”) rule be placed “in abeyance” for six months to allow the new administration time to review the rule. This move followed the D.C. Circuit Court of Appeals’s February 24, 2009 remand in American Farm Bureau Federation and National Pork Producers Council v. Environmental Protection Agency, __ F. 3d ___, 2009 WL 437050 (D.C.Cir. 2009) of the fine particulate matter air quality standard adopted by the EPA in October 2006.
• Staying the Course: On February 6, 2009, the administration resubmitted to the White House Office of Management and Budget (“OMB”) the prior administration’s greenhouse gas lifecycle analysis for the EPA’s renewable fuels standard. The Obama Administration had previously withdrawn that analysis on January 26 so that it could review the analysis for itself. Three weeks later, the EPA sent proposed criteria for waste that could be burned for energy at industrial and commercial sites to the OMB for review prior to their publication in the Federal Register. EPA had already missed two statutory deadlines related to the requirement that EPA establish a registry of industrial sites that could use excess heat and gas for energy instead of releasing it into the environment. Note: as of the time of this writing, the proposed criteria had not yet been published in the Federal Register.
• Charting a New Course: The EPA, on March 10, issued a proposed rule that would require “fossil fuel suppliers and industrial gas suppliers [and] direct greenhouse gas emitters” to monitor and report greenhouse gas emissions. In a statement accompanying release of the proposed rule, EPA estimated the proposed registry of GHG emissions will impact approximately 13,000 facilities and will account for 85 to 90 percent of U.S. greenhouse gas emissions. The EPA also said that it needs to have the rule finalized by June 2009 in order to ensure industries have the necessary time to begin reporting in 2010. A 60-day public comment period will follow once the proposed rule is published in the Federal Register, as will two public meetings in early April. Note: as of the time of this writing, the proposed rule had not yet been published in the Federal Register.
—William P. Hefner
The Environmental Law Group, Ltd.
FEDERAL PRACTICE
JUDICIAL LAW
• Class Action Fairness Act; Amount in Controversy; Burden of Proof. Deciding an issue of first impression within the circuit, the 8th Circuit held that the Class Action Fairness Act did not alter well-established circuit law requiring that the party attempting to remove an action bear the burden of establishing subject matter jurisdiction by a preponderance of the evidence, explicitly rejecting 3rd and 9th Circuit decisions that require a party to establish federal jurisdiction to a legal certainty. Bell v. Hershey Co., ___ F.3d ___ (8th Cir. 2009).
• First-Filed Doctrine; Absence of Second-Filed Action; Red Flags. Denying a motion to dismiss or transfer under 28 U.S.C. §§1404(a) and 1406 that relied in large part on exceptions to the first-filed doctrine, Chief Judge Davis found that no “compelling circumstances” were present to justify ignoring the first-filed rule where no parallel litigation had been filed, and where none of the traditional “red flag” exceptions to the first-filed doctrine previously identified by the 8th Circuit were present. Clergy Financial, LLC v. Clergy Financial Services, Inc., ___ F. Supp. 2d ___ (D. Minn. 2009).
• Bill of Costs; Timing; Travel Expenses. Judge Kyle sustained in part and overruled in part plaintiff’s objection to the defendant’s bill of costs, determining that the bill of costs was not untimely when it was filed more than two months after the plaintiff’s time to appeal had expired, but that the defendant was not entitled to recover more than $1,100 in travel expenses for an out-of-town deposition. Veliz v. City of Minneapolis, 2009 WL 483854 (D. Minn. 02/25/09).
• Documents Admittedly Destroyed; Request for Adverse Inference Denied. Adopting a report and recommendation by Magistrate Judge Boylan, Judge Tunheim denied a motion for an adverse inference jury instruction based on the plaintiff’s destruction of evidence, finding that while documents had been destroyed, they were not destroyed “as a result of any ongoing or anticipated litigation,” nor were they destroyed “with intent to suppress the truth.” Insignia Systems, Inc. v. News America Marketing In-Store, Inc., 2009 WL 483850 (D. Minn. 02/25/09).
• Discovery of Work Product; “Substantial Need.” Judge Montgomery rejected defendants’ appeal of an order by Magistrate Judge Mayeron which had denied their motion to compel the production of work product from one plaintiff, finding that the defendants had failed to establish a “substantial need” for the work product. Fair Isaac Corp. v. Experian Information Solutions, Inc., 2009 WL 161247 (D. Minn. 01/22/09).
• Summary Judgment on Disability Discrimination; Attorney Fee Award against Plaintiff. Judge Rosenbaum granted the defendant’s motion for summary judgment in a disability discrimination case brought by a former employee, and took the comparatively rare step of awarding the defendant $5,000 in attorneys fees based on a determination that the plaintiff “had no reasonable basis to continue this action” when, prior to the filing of the summary judgment motion, the defendant had offered to allow her to withdraw her claim. Heaser v. AllianceOne Receivables Management, Inc., 2009 WL 205209 (D. Minn. 2009).
• Untimely Summary Judgment Motion Permitted. Adopting a report and recommendation by Chief Magistrate Judge Erickson, Judge Rosenbaum issued an order permitting the remaining defendants in a Section 1983 action to bring an untimely summary judgment motion based on Magistrate Judge Erickson’s finding that there would be “no benefit, to either party or the [c]ourt, in having this action proceed to [t]rial, should the [p]laintiff’s claims be somehow deficient as a matter of law.” McDermott v. Morgante, 2009 WL 102227 (D. Minn. 01/13/09).
• Personal Jurisdiction, Request for Jurisdictional Discovery Denied. Judge Montgomery granted one group of defendants’ motion to dismiss for lack of personal jurisdiction, and rejected the plaintiff’s request for jurisdictional discovery finding that the plaintiff’s “unsupported, conclusory allegations” regarding these defendants’ alleged contacts with Minnesota were insufficient to establish a right to jurisdictional discovery. Comfort Heat Systems, LLC v. Royall Manufacturing, Inc., 2009 WL 313443 (D. Minn. 02/06/09).
—Josh Jacobson
Law Office of Josh Jacobson
In this month's "Notes & Trends:
INTELLECTUAL PROPERTY
JUDICIAL LAW
• Trademark: Gray Market Parts; Material Difference. Quoting Mark Twain, Judge Frank reminded trademark lawyers that: “‘The public is the only critic whose opinion is worth anything at all.’” Kia Motors sued a number of defendants accusing them of selling gray market auto parts. Gray market refers to genuine trademarked goods, in this case Kia auto parts, purchased outside the U.S. and imported into and sold in the U.S. by someone other than Kia’s U.S. importer. However, if there are material differences between the gray market imports and the authorized imports,
then the gray market imports are not “‘genuine goods’” and can create confusion. Defendants moved for summary judgment arguing that there were no material differences between the Kia parts they import and sell and the authorized U.S. Kia parts because they were the same parts. Only the source of the parts differed. Defendants also argued that there were no material differences in the parts caused by the source. Kia Motors pointed out, however, that the warranty coverage was slightly different. “[A] single or small difference is sufficient to trigger a [material difference],” explained the court. The court also rejected defendants’ argument that the dealers who buy their parts are not confused about the source of the goods and differing warranties. The court pointed out that: “End-users or car owners, however, may very likely find the differences in the parties’ warranties to be relevant when they are purchasing replacement parts.” Kia Motors America, Inc. v. Autoworks Distributing, et al., Civ. No. 06-156 (D. Minn. 02/26/09).
• Copyright: Transfer of Ownership. Judge Frank also recently decided a copyright case, in which he granted defendant’s motion for summary judgment that plaintiff transferred ownership of the copyrighted works to the defendant. Allen Thomsen sued Famous Dave’s for copyright infringement concerning signs he had painted for Famous Dave’s restaurants. This was not the first litigation between the parties. The parties had entered into a settlement agreement in 2001 which included a release by Thomsen of: “‘all copyright, proprietary design and sign work to [Famous Dave’s] in all other restaurants that [Thomsen] has worked on with the exception of Sioux Falls, Burnsville, Crosslake, and Wisconsin Dells.’” There was no dispute that the copyrighted signs at issue in the current litigation were created before the date of the 2001 settlement agreement. Defendants argued that ownership of the copyrighted signs passed to Famous Dave’s by way of the settlement agreement. Thomsen argued that he had only released Famous Dave’s from past infringement. Looking to another portion of the settlement agreement, which expressly gave Thomsen permission to make the signs for Famous Dave’s, the court held that ownership had transferred because otherwise Thomsen would not need permission to make signs that he allegedly owned. “The clause does not mention ‘lawsuits’ or ‘infringement claims’ but instead explicitly releases ‘all copyright, proprietary design and sign work.” Allen R. Thomsen d/b/a AJ Sign Co. v. Famous Dave’s of America, Inc., et al., Civ. No. 07-1989 (D. Minn. 02/17/09).
—Tony Zeuli
Merchant & Gould
PROBATE & TRUST LAW
JUDICIAL LAW
• Life Insurance; Insurable Interest; Estate of Deceased Spousal Maintenance Recipient. The Minnesota Court of Appeals affirmed a trial court’s interpretation of its prior divorce decree as preventing the estate of a deceased spouse from maintaining life insurance on the life of the surviving spouse, where the insurance was originally procured in order to secure spousal maintenance payable to the deceased spouse. Upon the divorce of Lucia Vaglienti and Francisco Puga, the court entered a judgment awarding spousal maintenance to Ms. Vaglienti, and requiring Mr. Puga to maintain life insurance of $1 million to secure the maintenance award. The divorce decree did not specify which party would be the owner of the insurance policy, but the policy that was acquired was apparently owned by Ms. Vaglienti. Ms. Vaglienti then died, and the policy became an asset of her estate. Mr. Puga ceased paying the policy premiums, but the estate began paying the premiums. Mr. Puga discovered the insurance was still in place and petitioned the court “for an order terminating the policy.”
The district court determined that because the policy was required to secure Mr. Puga’s maintenance obligation, and because that obligation terminated upon Ms. Vaglienti’s death, the policy should be terminated. The estate appealed, claiming that the insurance policy was property awarded to Ms. Vaglienti in the divorce. The court of appeals affirmed the trial court’s decision, noting that the divorce decree specified that the policy was meant to secure maintenance, and was therefore part of the maintenance award (and not part of the property award). The court of appeals also found it significant that the policy was a term policy, stating that as soon as the husband’s obligation to pay premiums ended the policy itself should end because “we see no meaningful basis to distinguish between the monthly premiums and the policy itself when the policy has no cash value.” Finally, the court of appeals noted that the estate of Mr. Puga’s deceased former spouse had no insurable interest in his life, and that allowing the estate to maintain the policy would therefore be “contrary to public policy embodied in common law” (citing Middelstadt v. Grand Lodge Sons of Hermann, 107 Minn. 228 (1909). Puga v. Vaglienti, A08-0781 (Minn. App. 01/13/09) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0901/opa080781-0113.pdf
• Will Execution; Modifications to Will; Copied Signatures. The Minnesota Court of Appeals has affirmed a trial court’s finding that a will was valid and enforceable despite several irregularities, including portions of the will being “whited out” and typed over, gaps in the text, and several pages having photocopied signatures. Shortly after the death of John Sauers two separate versions of his will were found in his home. Both versions were “textually identical,” but one had original signatures on three of seven pages and the other had original signatures on one or two pages. Both versions included several apparent erasures and interlineations. The testator’s companion testified that he asked her for a copy of her will, and that she believed he modified the copy for his own use. The beneficiaries under the will took the position that the will was valid, and certain heirs took the position that the will was invalid because it could not be proven whether the modifications were made before or after the testator signed. The trial court made a finding of fact that the testator signed after the modifications and the court of appeals affirmed because the finding was not clearly erroneous.
The heirs also took the position that the will was invalid because some of the pages did not bear original signatures. The trial court and court of appeals noted that only one original signature is required, and “a will need not be signed in a particular place to be valid.” Citing In re Estate of Cravens, 177 Minn. 437 (1929). The court of appeals also affirmed the trial court’s finding that the missing original pages did not give rise to a presumption of revocation, because (a) a lost will permits an inference of revocation but does not create a presumption and (b) the trial court found that the photocopied pages were part of the document bearing the testator’s original signature. Estate of Sauers, A08-0500 (Minn. App. 03/03/09) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0903/opa080500-0303.pdf
LOOKING AHEAD
• Minnesota Gift Tax Proposed. A bill has been introduced in the Minnesota House of Representatives that would impose a Minnesota gift tax of 10 percent. Minnesota taxable gifts would be subject to the same exclusions (e.g., the $13,000 annual exclusion) and deductions (e.g., the charitable and marital deductions) as the federal gift tax, and would also be subject to a similar $1 million lifetime exemption. Gifts of real property and tangible personal property having a situs outside of Minnesota would not be subject to the tax. The tax would apply to gifts made after June 30, 2009. H.F. 1258 (03/02/09).
https://www.revisor.leg.state.mn.us/bin/bldbill.php?bill=H1258.0.html&session=ls86.
— Cameron R. Seybolt
Fredrikson & Byron, P.A.
REAL PROPERTY
JUDICIAL LAW
• Practical Location of Boundaries by Express Agreement. This boundary dispute involved a 1969 agreement that relocated the boundary between two government lots. While the agreement was recorded, the deed to perfect the agreement was not recorded. The parcel that benefited from the 1969 agreement was then split into two parcels at a distance of 200 feet from the original government lot boundary, rather than the newer boundary as set forth in the 1969 agreement. The successive deeds all used the original government lot boundary as the basis to measure the lot-split boundary. Despite the description in the deeds, the owners of both parcels of the lot split treated the actual lot-split boundary as 200 feet from the 1969 agreement boundary and not 200 feet from the government lot boundary. While there appeared to be acquiescence, there was no stated agreement between the parties as to a different boundary than what was described in the deeds. A land developer purchased one of the parcels from the lot split, apparently believing the lot-split boundary line lay 200 feet from the 1969 agreement boundary rather than 200 feet from the original government lot boundary. Upon discovery of the actual boundary based on the legal description in the deeds, the land developer sought a deed for the disputed area, and the neighbor refused.
The district court held that the land developer owned the disputed land by practical location of boundaries by express agreement. The court of appeals found the district court’s finding of an express agreement to be clearly erroneous and reversed. The record did not reveal any evidence of discussions between the parties regarding the location of the boundary line. The court of appeals also found that a mow line near the boundary line claimed by the developer did not follow the actual boundary line asserted by the developer, and there were no markers indicating where the agreed-upon boundary line was located. The court of appeals held that a finding of an express agreement for practical location-of-boundary purposes requires more than unilaterally assumed, unspoken and unwritten agreements corroborated by neither word nor act. The court of appeals reasoned that if a mere silent understanding and tacit acceptance could support a finding of an express agreement, an additional period of acquiescence after the agreement would be unnecessary. Moreover, the court of appeals found that even if there was a basis to treat the mow line as a marker evidencing an attempted boundary agreement, the mow line in this case was not an exact or precise line, as would be required. Slindee v. Fritch Investments, LLC, A08-303, 2009 WL 366623 (Minn. App. 2009). www.lawlibrary.state.mn.us/archive/ctappub/0902/opa080303-0217.pdf
• Conditional Use Permit. A lake resort owner applied for a conditional use permit (“CUP”) to increase the number of cabin units from 13 to 24 and to convert the resort into a commercial common-interest community. Under the proposed common-interest community, ownership of the cabins would be private, owners would receive time at the resort and rental income from the cabins in exchange for their investment, owners would be required to participate in a rental program, and infrastructure and open space would be maintained by the association. The application for the CUP and the staff report described the nature of the proposal as a commercial planned-unit development. The proposal did not violate density requirements for a commercial planned-unit development, but would have exceeded density requirements if the proposal was considered a residential planned-unit development. At the hearing before the planning commission, neighbors objected to the proposed CUP with general complaints about density, a remediated environmental problem, and questioned whether the resort owners were “actually going to run a resort or turn a quick profit on the sale of lakeshore lots.” There was no objection about whether the proposal should be analyzed as a commercial or residential planned-unit development or that the proposal did not meet the density requirements for a residential planned-unit development. The planning commission approved the CUP subject to 12 conditions, including a resort license requirement and a requirement that all owners participate in the association and the rental pool. A lake association objecting to the CUP appealed to the court of appeals arguing, among other things, that the CUP proposal should have been evaluated as a residential planned-unit development. The court of appeals ruled that the association had waived that argument by not raising it before the planning commission. The supreme court granted certiorari on the waiver issue and affirmed. The supreme court reviewed the record to determine whether the issue was “fairly raised for consideration” by the planning commission. The supreme court held that the issue did not need to be framed in precise legal terms, but there must be “a sufficient specificity to provide fair notice of the nature of the challenge so that the zoning authority has an opportunity to consider and address the issue.” The court concluded that questions about the motive of the resort owners and generalized complaints about density did not give the planning commission fair notice that the proposal should be considered as a residential planned-unit development rather than a commercial planned-unit development. Therefore, the court concluded that the issue was waived. Moreover, the court ruled that even if the issue were not waived, the planning commission’s approval of the CUP would have been upheld because there was a reasonable basis to conclude that the proposal was a commercial planned-unit development. The proposal contemplated continual use as a resort and the required rental arrangement promotes rental of the units like a resort. Big Lake Ass’n v. Saint Louis County Planning Com’n, A06-2305, 2009 WL 465784 (Minn. 2009). www.lawlibrary.state.mn.us/archive/supct/0902/OPA062305-0226.pdf
• Foreclosure by Action, Priority of Liens. Mortgagee foreclosed by action a mortgage on registered property. The foreclosure by action named three defendants that held easements recorded after the mortgage. There were two additional parties that held easements recorded after the mortgage that were not named as defendants. After the foreclosure decree, the sheriff sold the real property at auction, subject to a six-month right of redemption. There being no redemption made, the mortgagee petitioned the district court, through a proceeding subsequent to initial registration, for a new certificate of title free from all easements. The five parties holding easements responded to the order to show cause issued by the court in the proceedings. Three parties claimed that the mortgagee had subordinated the mortgage to their easements, while two of the parties claimed their easements were not extinguished because they were not named as defendants in the foreclosure by action. Based on the findings of the examiner of titles, the district court granted summary judgment in favor of all five parties claiming to hold easements on the property. The mortgagee appealed. The court of appeals held that a valid foreclosure of mortgage terminates all easement interests in the foreclosed real estate that are junior to the mortgage being foreclosed if those easement holders are properly joined or notified in the foreclosure action. The court of appeals also ruled that a mortgage may be subordinated to a subsequently recorded easement by declaration or agreement. In this case, the court of appeals found that the parties had entered into a settlement agreement at the onset of the trial in the foreclosure action that, while not artfully worded, unambiguously subordinated the mortgage being foreclosed to the easements held by three of the parties. The court of appeals also found that two easements recorded after the mortgage being foreclosed were not extinguished because the parties holding those easements were not included as defendants in the foreclosure by action. The mortgagee had argued that an easement holder does not have a statutory right of redemption, and is therefore not a necessary party to a foreclosure by action, but the court of appeals disagreed and held that the parties holding the junior easements had a right of redemption. The court of appeals did not rule on the status of a junior easement not joined in a foreclosure or whether it remained an easement on the property, but simply held that whatever the status, the easements were not extinguished by the foreclosure. In re Petition of Crablex, Inc., A08-0458, 2009 WL 305226 (Minn. App. 2009). www.lawlibrary.state.mn.us/archive/ctappub/0902/opa080458-0210.pdf
• Common-law Dedication to the Public, Prescriptive Easement, Collateral Estoppel. Property owners applied to register property that abutted against a lakefront beach. The property in question was platted in 1920, and included private lots, the beach, and a dedication of streets and alleys for public use. The beach was not dedicated to public use. In 1929, the beach was deeded by the developer to a private party. Over the years, the lot in question was bought and sold without describing the beach, but the owners of the lot maintained that they and their predecessors used the portion of the beach that abutted their property in an actual, open, notorious, continuous, hostile, and exclusive manner for more than 15 years. As part of the registration process, the township answered the registration and claimed that the beach was public property through common-law dedication; or in the alternative, constant public use gave rise to a prescriptive easement. In support of its defense, the township submitted two affidavits from landowners who stated that members of the public used the disputed portion of the beach. The examiner of titles issued an opinion that the developer dedicated the beach to the public and that the landowners were attempting to register more land than they received by deed. As to the 1929 deed from the developer to private parties, the examiner opined that the deed has no validity if contrary to his dedication to the public in 1920 and that, in any event, the landowner had no chain of title from this 1929 deed. The district court granted summary judgment in favor of the land owner concluding that the doctrine of collateral estoppel precluded the township’s claim to the beach at issue in this action because it did not raise any objection to previous registrations of other landowners adjacent to the same beach. The district court also concluded that the common-law dedication to the public did not apply to this case and that no prescriptive easement existed over the beach. The township appealed and the court of appeals reversed and remanded to the district court. First, the court of appeals held that non-mutual offensive collateral estoppel, as being applied by the landowners in this case, could not be used against the township because the land sought to be registered by the landowners was not litigated in, determined by, or essential to any of the previous actions where the township did not object to the registrations. The court of appeals also concluded that prohibition of the township from defending against the registration by collateral estoppel would be unfair to the public’s real and substantial interest in the outcome of the action. Next, the court of appeals found that a genuine issue of material fact existed as to the existence of a common-law dedication of the beach to the public. The township must show the developer’s intent, express or implied, to have the land appropriated and devoted to public use, and an acceptance of that use by the public, both of which can be inferred from longstanding acquiescence in the right of the public to use the land. Finally, given the affidavits of public use submitted by the township, the court of appeals found that genuine issues of material fact existed as to whether the public has a prescriptive easement over the disputed portion of the beach. In re Application of Barth, A08-0317, 2009 WL 437623 (Minn. App. 2009). www.lawlibrary.state.mn.us/archive/ctappub/0902/opa080317-0224.pdf
• Inverse Condemnation, Prescriptive Easement. Landowners purchased land in 1951 for use as a gravel pit. In the 1950s, the state of Minnesota contracted with the landowners to mine gravel from their property. While the property abutted a road on its west border, the state purchased easements from adjoining landowners and constructed a private road connecting the gravel pit over the servient parcels to U.S. Highway 10. The mining contract expired in 1980 and the landowners continued to sell gravel and use the private road over their neighbor’s property to connect to U.S. Highway 10. No road existed from their gravel pit to the road that abuts on the west side of their property. In 2005, the state closed the access from the private haul road to U.S. Highway 10, rendering the private haul road useless. The landowners still had access to the road on the west, but to use that road for access would require the construction of an expensive new road from the gravel pit to the western road. The landowners brought a mandamus action against the state to condemn their property interest in a prescriptive easement over their neighbor’s property that had previously allowed the landowners’ access to U.S. Highway 10. The landowners argued that the state’s closure of access to the private haul road constituted a denial of suitable access to their parcel for which compensation is required. The landowners alternatively argued that if they had a prescriptive right to access U.S. Highway 10 across the private haul road, they had a right to claim damages irrespective of having alternative access to U.S. Highway 10. The district court granted summary judgment in favor of the state. On appeal, the court of appeals held that, under the reasonable-access theory of takings, all that is required is a convenient and suitable point of access connecting the perimeter of the property to a public roadway. In this case, gravel trucks could enter and exit the property from the western road with no difficulty. Therefore, the state did not disturb the landowners’ property interest under a taking theory by closing the connection of the haul road to U.S. Highway 10. As to the landowners’ alternative argument, the court of appeals reversed and remanded to the district court. The landowners maintained that they had a property interest in a prescriptive easement and that the state destroyed that easement by closing access to U.S. Highway 10. The court of appeals noted that when the state destroys or impairs an easement, it takes the easement owner’s property right protected by the Minnesota Constitution and it must compensate the owner. The district court found that the alleged use of the haul road was not exclusive or hostile, but the court of appeals found that there were issues of fact as to whether the use of the road was exclusive and hostile. The state argued that the owners of the servient estate were not named in the action and were indispensable parties. However, the court of appeals ruled that the district court did not rule on this argument and it could be argued upon remand. Oliver v. State ex rel. Com’r of Transp., A08-646, 2009 WL 367211 (Minn. App. 2009). www.lawlibrary.state.mn.us/archive/ctappub/0902/opa080646-0217.pdf
• Lien Priority, Bona Fide Purchaser, Constructive Notice. Property owner mortgaged three parcels of land and gave a mortgage on all three parcels. The mortgage was recorded and properly indexed in the grantor-grantee index. However, due to an error at the Recorder’s Office, the mortgage was not indexed in the tract index for one of the parcels, which was subsequently sold to a third party. As part of the purchase, the abstractor searched only the tract index, did not search the grantor-grantee index, and therefore, did not discover the existence of the mortgage. The mortgaged parcel was then sold without satisfying the mortgage and the mortgagor subsequently stopped making payments on the mortgage. The mortgagee foreclosed its mortgage by action and declared priority over the subsequent purchaser and her lender. The district court held that because the mortgage was not properly indexed in the tract index, the purchaser was a bona fide purchaser for value without actual, constructive, or implied notice of the prior mortgage. The court of appeals reversed and held the county recorder’s error did not prevent the purchaser from being charged with constructive notice of the mortgage. A purchaser is charged with knowledge of the contents of the documents recorded in the grantor-grantee index as well as the tract index. Because the mortgage was recorded and properly indexed in the grantor-grantee index, the purchaser had constructive notice of it and could not be a bona fide purchaser. MidCountry Bank v. Krueger, et al., A08-0534 (Minn. App. 2009). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa080534-0310.pdf
—Michael E. Kreun
Beisel & Dunlevy PA
TAX
JUDICIAL LAW
• Sales Tax: Transfer of Wedding Photo Images on a DVD. The taxpayer operates a commercial wedding photography business, Camelot Weddings. Camelot initially distinguished itself by charging only for the professional services of the photographer, so unlike traditional wedding photographers, Camelot gave newlyweds the negatives and the photograph copyright so that the couple could have wedding pictures printed wherever and by whomever they desired. Camelot received advice from the Minnesota Department of Revenue that the transfer of the film negatives was not a taxable sale under Minnesota law. Eventually, advances in digital photography caused the taxpayer to switch from providing film negatives to providing the wedding images on a DVD. The taxpayer continued to refrain from collecting sales tax, and did not ask the Revenue Department for additional guidance. On audit, the Department of Revenue took the position that, unlike the provision of film negatives, the provision of DVDs to customers is an event for which the taxpayer must collect and remit sales tax. The tax court agreed, holding that the DVDs are tangible personal property, and therefore sales tax is properly imposed. Bakewell v. Commissioner, No. 7925R 2009 WL 427029 (Minn. Tax 02/19/09).
• Expert Witness: Minn. R. Evid. 702; Valuation Dispute. The Minnesota Tax Court rejected the proffered expert testimony of the taxpayer’s sole shareholder in a valuation dispute. Taxpayer RBF’s sole shareholder, Robert B. Fine, is a licensed attorney, a licensed real estate broker, and holds a license to sell title insurance. Despite these qualifications, the tax court held that Fine did not meet the requirements of Minnesota Rule of Evidence 702 to qualify as an expert witness. The court reasoned that Mr. Fine’s lack of appraisal education, lack of experience with the appraisal process, and lack of experience performing appraisals and writing reports combined to render him unqualified under Rule 702. The court also rejected the taxpayer’s unequal assessment argument. RBF Investments, Inc. v. County of Hennepin, No. 27-CV-07-07628 (Minn. Tax 02/25/09).
• FICA: Student Exception; Medical Residents. The 6th Circuit reversed the district court’s determination that, as a matter of law, medical residents are categorically ineligible to rely on the “student exception” to FICA tax (Sec. 3121(b)(10)). The circuit court remanded the case, with directions to develop a more detailed factual record regarding “what the residents in the program do and under what circumstances” so that a court could determine “whether the doctors in [the] residency program are students.” The court chided the government, commenting that, “throughout this case and in related cases in other jurisdictions, the government has taken the position that this kind of fact development [what the residents do] plays no role in the inquiry.” The court identified seven specific points about which additional evidence would be helpful.
This case is one of several in which hospitals have challenged the way the IRS classifies stipends paid to medical residents. The 2004 amendments to IRS regulations with regard to student status provided guidance that medical residents who work 40 hours or more per week do not qualify for the student exclusion from FICA taxation. These regulations have been challenged. United States of America v. Detroit Medical Center, No. 07-1602, 2009 WL 465543, (6th Cir. 02/26/09).
• Innocent Spouse Relief; Consideration Not Limited to Administrative Record. Taxpayer Ruth E. Neal sought protection under the innocent spouse provision after her husband, a self-employed anesthetist, “assiduously failed to include payment of taxes related to his income” for several years. The tax court granted Neal the requested relief, and in so doing, refused to limit its consideration to the administrative record. Instead, the tax court conducted a de novo trial on Neal’s claim. The 11th Circuit upheld the tax court’s determination, and held that it was not error to go beyond the administrative record. Commissioner v. Neal, No. 06-14357, 2009 WL 311294 (11th Cir. 02/10/09).
LEGISLATION
• American Recovery and Reinvestment Act of 2009. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5, the “Recovery Act”) contains many tax changes that impact individuals and families. For example, the following provisions are included in the Recovery Act: the “Making Work Pay” tax credit; an enhanced first-time homebuyer credit; tax breaks for new car buyers (via a deduction for state and local sales tax paid); and expanded college credits.
The Recovery Act also has numerous changes that impact businesses, including a provision that allows qualifying small business to choose a three- four- or five-year net operating loss (NOL) carryback period for certain losses instead of the usual two-year period. (Sec. 172(b)(1)(H), as amended by Act Sec. 1211(a)).
• Wisconsin Adopts Streamlined Sales and Use Tax Agreement. Wisconsin Gov. Jim Doyle (D) recently signed legislation (S.B. 62) adopting the Streamlined Sales and Use Tax Agreement (SSUTA). Per the Streamlined Sales Tax Governing Board, the purpose of the SSUTA is to simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance. Minnesota has been a member state since 2005.
LOOKING AHEAD
• Tax Shelter Litigation; Federal Arbitration Act; Nonparty Entitlement to Relief. The United States Supreme Court heard oral arguments on March 3 in Arthur Andersen LLP’s appeal of a 6th Circuit finding that the accounting firm could not stay litigation related to a tax shelter pending arbitration because, while it was a defendant in the tax shelter litigation, it was not a signatory to the arbitration agreement. As phrased by the petitioner, “[t]he principal question … is whether nonparties to an arbitration agreement that are otherwise entitled to enforce that agreement under [s]tate law are foreclosed as a matter of law from seeking relief under section 3 of the Federal Arbitration Act.” (Tr. at 3, available at http://www.supremecourtus.gov/oral_arguments/argument_transcripts/08-146.pdf)). Arthur Andersen LLP v. Carlisle, No. 08-146, (U.S. 03/03/09).
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• Facing Confirmation Hearings? Better Start with a Self-Audit. Tax discrepancies have tangled up yet another would-be appointee to President Barak Obama’s administration. Former Dallas Mayor Ron Kirk, Obama’s pick to be U.S. Trade Representative, has a number of discrepancies in his previous three-year’s tax returns, according to the Senate Finance Committee. Kirk reportedly has agreed to file amended returns. Kirk’s tax troubles were preceded by those of former Senator Tom Daschle (D-SD), whose bid to be Health and Human Services Secretary was derailed by improper tax treatment of a car and driver lent to Daschle. Tax quandaries also led to the withdrawal of Nancy Killefer, who had been tapped to serve both as the first chief performance officer in a White House and as a deputy director at the Office of Management and Budget. Treasury Secretary Tim Geithner was confirmed despite his failure to pay a portion of self-employment tax when Geithner worked at the International Monetary Fund. Geithner subsequently paid the taxes due (as did Daschle and Killefer). As evidence that tax mistakes know no party lines, Alaska Governor Sarah Palin’s receipt of per diems has raised a dust-up in her home state. According to the Anchorage Daily News, Alaska officials have determined the per diem amounts must be reported as income.
—Morgan L. Holcomb
Hamline University School of Law