In this month's "Notes & Trends:
ADMINISTRATIVE LAW
JUDICIAL LAW
• Licensee Due Process. The behavior of some patrons of Gabby’s Saloon and Eatery in the neighborhood surrounding the establishment gave rise to complaints from neighbors. As a result, the Minneapolis City Council attempted to impose voluntary conditions on Gabby’s Class B liquor license. When Gabby’s refused to voluntarily agree to the city’s proposed conditions and fine, the city sought a recommendation from an administrative law judge (ALJ) as to whether grounds existed for the city to revoke or restrict Gabby’s liquor license. The city stipulated that Gabby’s had not violated any statute or law regarding its liquor license or committed any other illegal conduct. The ALJ determined that the city lacked authority under Minn. Stat. §340A.415 to revoke the license. But the ALJ did conclude that the city had demonstrated that “good cause” existed for the city to impose conditions on Gabby’s liquor license under the city ordinances. The city council adopted the ALJ’s report.
The court of appeals disagreed, finding that absent a valid ground to suspend or revoke Gabby’s liquor license, the city’s reliance on the “good cause” standard in the Minneapolis Code of Ordinances to support adverse action against Gabby’s liquor license violated Gabby’s due process rights. The court held that the standard failed to provide Gabby’s with adequate notice that the off-premises conduct of its patrons could result in adverse action. The court of appeals distinguished its 2001 decision in Hard Times Café, Inc. v. City of Minneapolis, 625 N.W.2d 165 (Minn. App. 2001). In the Matter of the On-Sale Liquor License, Class B, Held by T.J. Management of Minneapolis d/b/a Gabby’s Saloon and Eatery, A08-0681, ___ N.W.2d ___ (Minn. App. 03/31/09). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa080681-0331.pdf
• Deference to Agency Discretion. The Minnesota Pollution Control Agency (MPCA) reissued a National Pollutant Discharge Elimination System (NPDES) permit to Alexandria Lake Area Sanitary District (ALASD) that allowed ALASD to operate and expand its wastewater treatment facility. The treatment facility discharges treated effluent containing phosphorus into Lake Winona, an impaired body of water under the Clean Water Act. Based on Lake Winona’s impaired status, the MPCA commenced a total-maximum-daily-load (TMDL) study in early 2006. The study is scheduled to be completed in 2009. The reissued NPDES permit established limits for phosphorus that were among the most stringent imposed in Minnesota and required compliance with the results of the TMDL study upon completion. The Environmental Protection Agency (EPA) approved the draft permit.
The Minnesota Center for Environmental Advocacy (MCEA) challenged the MPCA’s decision to reissue the permit. The court of appeals reversed the MPCA’s decision to reissue the permit and remanded for further proceedings
On appeal to the supreme court, the resolution turned on the meaning of 40 C.F.R. §122.44(d)(1), which provides that if a proposed discharge to a waterbody will cause or has the reasonable potential to cause or contribute to the violation of water quality standards, the agency must establish an effluent limit for the pollutant that “will attain and maintain applicable narrative water quality criteria.” The supreme court found that the federal regulation unambiguously required the agency to establish effluent limits for phosphorus. But the court also concluded that the regulation is ambiguous when applied to an existing facility that discharges phosphorus into a lake that is already impaired. Under the Annandale (731 N.W.2d 502 (Minn. 2007)) framework, the court found that the MPCA’s interpretation of the regulation was reasonable and that deference to the MPCA’s expertise was warranted under the circumstances. Justice Paul H. Anderson dissented from the majority decision. In the Matter of the Alexandria Lake Area Sanitary District NPDES/SDS Permit No. MN0040738, Reissuance for the Expanded Discharge of Treated Wastewater, Douglas County, Alexandria, Minnesota, A06-1371, ___ N.W.2d ___ (Minn. 04/02/09). www.lawlibrary.state.mn.us/archive/supct/0904/OPA061371-0402.pdf
• Untimely Appeal: Jurisdiction v. Statute of Limitations. Glenn Smith challenged a final order by the commissioner of the Department of Human Services permanently disqualifying him from providing direct-contact services in facilities licensed by the department. Smith asserted that he was entitled to a hearing based on statute and as a matter of due process. The court of appeals found Smith was entitled to a hearing but had failed to request one in the manner set forth in the statute. Therefore, the court held that Smith was afforded due process and is barred from challenging the permanent disqualification.
The court disagreed with an administrative law judge’s (ALJ) determination that the department lacked jurisdiction over Smith’s appeal because his request was untimely. Instead, the court said that the question is not one of jurisdiction but of whether further proceedings are barred. The court acknowledged that there is interplay between the doctrines of jurisdiction and statutes of limitation, but ultimately concluded that Smith’s claim was barred because it was untimely. The court also confirmed that a permanent disqualification is conclusive under Minn. Stat. §245C.29, subd. 2(a)(2)(iii), if a party fails to make a timely appeal. Glenn Smith v. Minnesota Department of Human Services., A08-1243, ___ N.W.2d ___ (Minn. App 04/21/09). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa081243-0421.pdf
— Maria Lindstrom
Office of Administrative Hearings
In this month's "Notes & Trends:
CIVIL LITIGATION
JUDICIAL LAW
• Service of Process: Attorney–Client Relationship. The complaint alleged that appellant Seymour was involved in a motor vehicle accident in October 2004 because his actions caused respondent Wendell to swerve into another lane where Wendell’s vehicle collided with a vehicle driven by respondent Hornberger. Appellant Seymour reported the accident to his liability insurer, Progressive. Later, counsel for respondent Hornberger attempted to locate appellant, was not successful, and filed an affidavit with the court regarding her inability to locate appellant and that appellant was being served with a summons and complaint by publication.
Appellant Hornberger’s counsel also informed Progressive of the Hornberger claims and Progressive retained counsel to defend appellant. Appellant’s counsel served counsel for respondent Hornberger with an answer, and a crossclaim impleading respondent Wendell. Discovery was commenced and appellant Seymour failed to appear for his deposition. Taking the initiative, counsel for appellant Seymour moved for dismissal of the complaint based upon insufficiency of service of process and lack of jurisdiction. The district court held that appellant had been properly served by publication and that counsel for appellant did not have authority to act on behalf of appellant because 1) no attorney–client relationship had been created; and 2) counsel for appellant had not made contact with appellant to obtain appellant’s informed consent to represent Progressive as well as appellant. Further, the district court found that appellant had not met his discovery obligations and ordered that appellant must submit to a deposition or have his answer stricken. The court also ordered appellant’s counsel to pay attorneys fees and costs as a sanction for appellant’s counsel’s unauthorized representation of appellant. Appellant again failed to appear for his rescheduled deposition, so the court ordered appellant’s answer stricken, entitling respondent Hornberger to judgment by default.
The court of appeals reversed and remanded. First, with respect to whether service of process by publication was sufficient to confer jurisdiction, the court of appeals concluded that the district court had not enumerated all of the bases necessary for a determination that the affidavit of respondent Hornberger’s counsel was sufficient. Next, with respect to the issue of attorney–client relationship, the court of appeals held, as a matter of law, that appellant’s counsel represented appellant, even though appointed by appellant’s insurer. The court found the district court’s reliance upon the conflicts of interest discussion in Pine Island Farmers Coop vs. Erstad and Reimer, P.A., 649 NW 2d 444, 449 (Minn. 2002) misplaced. Because the court of appeals held that an attorney–client relationship existed between counsel and appellant, it also reversed the district court’s sanction of attorneys fees for what it had characterized as counsel’s unauthorized acts.
Finally, the court of appeals determined that the propriety of the district court’s denial of a motion to vacate the default judgment was not ripe for appellate review, since the district court must first determine on remand whether the action was effectively commenced. Hornberger v. Wendell, A08-0903, 2009 WL 982270 (Minn. App. 04/14/09). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa080903-0414.pdf
— Andrew Shern
Murnane Brandt
In this month's "Notes & Trends:
CRIMINAL LAW
JUDICIAL LAW
• Tribal Jurisdiction: State Enforcement of Felon-in-Possession Law on Reservation. In 2002, appellant was convicted of terroristic threats, a crime of violence which would disable him from carrying a gun under Minn. Stat. §609.165. At the time of this offense, appellant possessed a hunting license issued by the Leech Lake Band of Ojibwe for use within the boundaries of Leech Lake Reservation. In June 2006, he was charged with being a felon in possession of a firearm, in violation of Minn. Stat. §609.165.
Held, the state of Minnesota has not made the exercise of a treaty right (hunting on a reservation) illegal. Rather, it was the appellant’s own criminal conduct in committing a crime of violence which limited his ability to possess a firearm and only collaterally impacted his ability to enjoy his tribe’s treaty hunting rights. Nothing in Public Law 280 bars the state from enforcing Minn. Stat. §609.165 against him.
The court of appeals also holds that the state felon-in-possession law may be effectively enforced against the appellant because it is criminal/prohibitory and not civil/regulatory. State of Minnesota v. Joel Anthony Roy, A08-0116 (Minn. App. 03/03/09). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa080116-0303.pdf
• Criminal Sexual Conduct: Expert Testimony re: Interviewing Techniques. Appellant was convicted of first-degree criminal sexual conduct on grounds that he abused his preteen grandchildren. At trial, the state called to testify the social worker who took videotaped statements of the alleged victims . The social worker testified about her training for interviewing children, as well as the proper protocol for interviewing such children. The state also elicited significant background information about the credentials of the social worker. Toward the end of trial, appellant attempted to call an expert witness to testify about the interview techniques employed by the social worker. The appellant agreed to limit her testimony to the techniques themselves, and not to offer any expert opinion on the victim’s credibility. The district court disallowed any such expert testimony by the defense.
Held, it was reversible error to exclude the expert testimony of the appellant’s witness. The court of appeals finds that such expert testimony would have been helpful to the jury and that any “battle among experts” feared by the prosecution would have been limited to their respective opinions about interview protocol. The error was not harmless because the appellant was denied an opportunity to fully present a defense and to respond to what was, in effect, expert witness testimony by the social worker. State of Minnesota v. Paul Richard Hakala, A08-0215 (Minn. App. 03/31/09). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa080215-0331.pdf
• DWI/Implied Consent: Asleep Behind the Wheel; “In Physical Control.” This case affirms a jury’s conviction that appellant was in physical control of a motor vehicle while under the influence of alcohol. Appellant was found asleep behind the wheel of his vehicle, which was legally parked in his assigned space of the apartment building where he lived. The appellant’s alcohol concentration was .18, and he was obviously intoxicated. The keys to the vehicle were on the console between the driver and passenger seats, and there was no evidence that the appellant had recently driven. Three open beer cans were found under a blanket in the passenger seat.
Held, the facts support the conviction, and a trier of fact could easily conclude that the defendant committed the crime charged. Physical control is meant to cover situations where an inebriated person, found in a parked car, could, without too much difficulty, start the car and become a source of danger to the public. Construing the term “physical control,” “the term is given the broadest possible effect.”
This case is distinguishable from State v. Pazderski, 352 N.W.2D 85 (Minn. App. 1984), where Pazderski used the vehicle in his driveway as a shelter to avoid a confrontation with his girlfriend, and there was no evidence that the keys were anywhere in the vehicle. State v. Daryl Fleck, A08-72 (Minn. App. 03/24/09). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa080072-0324.pdf
• DWI/Implied Consent: Conditional Release; Attempt to Withdraw Guilty Plea. Appellant pled guilty to first degree DWI. The only condition accepted by the prosecution was that the companion charges would be dismissed. The parties specifically agreed that sentence would be up to the court. The signed plea petition stated that the appellant was aware of the mandatory condition of release in the event of prison time and the possible additional imposition of five more years of time. At the plea and probation violation hearings, however, there was no mention of the five-year conditional release. The Department of Corrections subsequently added a five-year conditional release term to the appellant’s sentence, which had been executed in the amount of 36 months at the probation violation hearing.
Held, the district court properly determined that the appellant was not entitled to withdraw her plea of guilty, or to have her sentence modified. The imposition of the conditional release term did not violate the plea agreement as appellant had notice of the conditional release term when she pleaded guilty. Paula Lynn Oldenburg v. State of Minnesota, A08-0601 (Minn. App. 04/07/09). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa080601-0407.pdf
• DWI/Implied Consent: Intoxilzyer Source Code. Where a defendant has submitted expert evidence that an analysis of the Intoxilyzer source code may reveal deficiencies that could challenge the reliability of the device and would relate to guilt or innocence, under Minn. R. Crim. Pro. 9.01, subd. 2(3), it was not an abuse of discretion for a district court to order discovery of the source code. Furthermore, it was not an abuse of discretion for the trial court to find that the source code was in the possession or control of the state of Minnesota, pursuant to Minn. R. Crim. Pro. 9.01, subd. 2(1). State v. Dale Lee Underdahl and Timothy Arlen Brunner, A07-2293, A07-2348 (Minn. 04/30/09). www.lawlibrary.state.mn.us/archive/supct/0904/OPA072293-0430.pdf
• Juvenile Jurisdiction: EJJ May Not Be Revoked Unless Proceeding “Commenced” Before Age 21. The juvenile court revoked appellant’s probation because he possessed a weapon in violation of the terms of his probation. However, the allegation concerning the weapon did not surface until after probation violation proceedings were initiated, and not until after the appellant turned 21.
Held, the juvenile court lost the power to use the weapon incident as a foundation for a probation hearing since the allegation was not made until three months past appellant’s 21st birthday. The key inquiry is whether the probation revocation was properly commenced under Rule 19.11 before the appellant turned 21. Under that rule, an EJJ violation is “commenced” with the filing of a written report which must describe the specific facts. In this case, possession of a weapon was not alleged as a basis of revocation until three months after the appellant’s 21st birthday; hence, it cannot serve as a proper ground for revocation. The case is remanded for consideration of whether revocation is appropriate based upon the remaining violations. State v. J.E.S., A08-0668 (Minn. App. 03/24/09). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa080668-0324.pdf
• Bail & Bond: Partial Forfeiture. Defendant failed to appear for sentencing on a drug charge, having posted a $10,000 bond with the appellant as surety. The court granted three extensions requested by the appellant, reciting its good faith efforts to locate the defendant. Ultimately, appellant stated that the defendant was living in Toronto but was not yet apprehended. The district court forfeited $9,500 of the bond, discharging only $500 of the original amount.
Held, the district court did not err when it denied the appellant’s petition for full reinstatement of a forfeited bond without a hearing. Although Minn. R. Gen. Pract. 702(f) indicates the need for a hearing, holding a hearing is discretionary with the district court. Furthermore, there is nothing in the record to establish a specific request for a hearing made by the appellant. Only affidavits were submitted, themselves suggesting that the appellant sought a decision based solely on its written submission. Reaching the merits of the forfeiture, the court of appeals applies the factors delineated in Shetsky v. Hennepin County, 60 N.W.2d 40 (1953), and finds each of the factors fulfilled in supporting the partial forfeiture. State v. John Vang, Integrity Bonding Co., Appellant, A08-0425 (Minn. App. 03/31/09). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa080425-0331.pdf
• Public Assistance Fraud: Encumbrance Against Vehicle; Determining Value. Appellant was convicted of economic assistance fraud. In her recertification application to Dakota County, she stated that she owned one vehicle. A subsequent check by Dakota County officials revealed that she had owned three motor vehicles at the time of her recertification. If all three motor vehicles had been listed in her application, her assets would have exceeded the eligibility limits for receiving economic assistance. Appellant argues that the trial court should have taken into consideration the encumbrances against each vehicle, which, she contends, would have caused her to not exceed the asset cap for eligibility.
Held, under Minn. Stat. §256J.20, subd. 3, the value of security interests against a motor vehicle need not be subtracted in determining the value of that asset for purposes of determining eligibility for public assistance. Later amendments to the statute, which would have increased the ceiling of motor vehicle “equity” and would have decriminalized the appellant’s behavior in this case, are not applied retroactively. State v. Farhia Salad Basal, A08-0005 (Minn. App. 03/31/09). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa080005-0331.pdf
• 911 Call Interference: Jury Instruction. Appellant was convicted by jury of interference with a 911 call, under Minn. Stat. §609.78, subd. 2, but acquitted of a count of fifth-degree domestic assault. The evidence was conflicted about the extent of the contact between the appellant and his victim, and about whether the victim actually feared the appellant. In the jury instructions, the trial court did not specifically include the objective existence of an emergency as an element of the offense.
Held, under a plain error analysis (because there was no objection to the instruction), it was reversible error for the trial court to omit instructing the jury that they must find, beyond a reasonable doubt, that an emergency existed at the time of the interference with the 911 call. Absent such an instruction, the district court’s charges were inadequate to convey the requirement that an emergency had to exist at the time of the 911 call. State of Minnesota v. Abdiwali Hersi, A08-0038 (Minn. App. 03/31/09). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa080038-0331.pdf
• Jury Trial: Lothenbach Procedure; Right to Compel Favorable Witnesses. In a Lothenbach procedure, the appellant agreed to submit a case to the district court on stipulated facts for determination of guilt, preserving the right to appeal the denial of a suppression motion. On the record, however, the appellant was not advised of or asked to waive his right to compel favorable witnesses to testify for the defense. Held, the conviction must be reversed. The right to require favorable witnesses to testify for the defense is guaranteed in the state and federal constitutions and is a fundamental right that requires a personal waiver in writing or orally on the record. The court of appeals rejects the state’s argument that such a waiver of right may be presumed because of the representation by counsel. State of Minnesota v. Cynthia Jean Antrim, A08-0548 (Minn. App. 04/07/09). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa080548-0407.pdf
• Order for Restitution Following Expiration of Probation. In a juvenile matter, the court entered a dispositional order which did not reference restitution. However, the court orally stated that as long as the child was on probation, a claim for restitution “can be filed.” One day after the child’s probation period expired, the court entered an order extending probation for six months. Several weeks later, the juvenile court ordered the child to pay restitution.
Held, the court lacked statutory authority to order restitution after the probationary period ended. The supreme court rejects the state’s contention that restitution was “ordered” at the dispositional hearing; rather, it was the clear intent of the court that the issue of restitution was reserved. In such a case, the deferred restitution must take place within the probationary period, under Minn. Stat. §611A.04, subd. 1(b). Because the court attempted to extend the child’s probationary period 366 days after the original dispositional order, the order extending probation was null. Therefore, the restitution attempt fails. In re H.A.D., A07-1341 (Minn. 04/16/09). www.lawlibrary.state.mn.us/archive/supct/0904/OPA071341-0416.pdf
• Prosecutorial Misconduct: Reference to Possible Prosecution for Perjury. At a murder trial, the defendant presented two alibi witnesses. The first was an ex-girlfriend who had a restraining order against the defendant at the time, and had earlier been requested to lie for the defendant in an unrelated terroristic threats charge. The second witness was the mother of the girlfriend. The prosecution advised the court and defense counsel that there was an active investigation against both alibi witnesses, and then petitioned the court to appoint independent counsel. The state also stated that if the two statements proved to be false, both could be charged with aiding and abetting an offender, and the sentence would carry half of what the defendant was looking at: in this case, a murder sentence. After consulting with independent counsel, both witnesses decided to invoke their 5th Amendment rights.
Held, the conduct of the prosecution was not improper. Noting that “The allegation of state intimidation of defense witnesses is not be to be taken lightly,” the supreme court adopted a two-part test for determining whether the state has acted properly in seeking the appointment of independent counsel for the defense witnesses. First, the state must articulate facts to support a reasonable and substantial belief that the witness will offer false or self-incriminating testimony; and second, once such a basis is demonstrated, the warnings of self-incrimination must be given in an appropriate manner, so as not to preclude any witness’s free choice to testify. In this case, both prongs of the test were met. State of Minnesota v. Alonzo Jerome Graham, A07-1759 (Minn. 04/23/09). www.lawlibrary.state.mn.us/archive/supct/0904/OPA071759-0423.pdf
• Crawford: Firearm Trace Reports. Appellant was tried and convicted of attempted first-degree aggravated robbery, where a shotgun was brandished. Appellant was found near the scene of the crime with shotgun shells in his possession; the shotgun itself was apparently found nearby. At trial, without objection, the appellant introduced a firearms-trace report from the ATF. This document showed the original purchaser of the shotgun to be a person unrelated to the appellant, and the purchase was made in 1990. It also shows who “possessed” the firearm at the time of recovery, in this case, the appellant.
Held, the firearms-trace report is not testimonial in nature. It was not prepared for the purpose of litigation: it is maintained in the normal course of business at the ATF Bureau; the declarant did not expect that the report would be used in a prosecution; and the report was not initiated after the appellant’s charge or as part of the investigation. The court of appeals finds this type of report more akin to the Department of Public Safety driver’s license status report which was deemed nontestimonial in State v. Vondeharr, 733 N.W.2d 847 (Minn. App. 2007). Furthermore, the admission of this report did not affect appellant’s substantial rights, given the limited use of the report by the prosecution and the fact that other witnesses’ testimony linked appellant to the gun. State v. A.C. Jackson, A08-0001 (Minn. App. 04/28/09). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa080001-0428.pdf
• Crawford: Improper Prosecutorial Use of Witness. In a prosecution for robbery and murder, the prosecution called accomplice Vega-Lara to testify. Vega-Lara’s attorney had previously told the prosecution that his client would assert the 5th Amendment privilege, despite the grant of immunity, because the prosecution had not agreed that such a grant of immunity would preclude prosecution for perjury. When it came time for Vega-Lara’s testimony, his attorney was not present, but the prosecution was told, outside the presence of the jury, that he would refuse to answer any questions. The prosecutor argued, nonetheless, that she was entitled to call him to make him refuse to answer on the stand each question posed to him. Over objection, the court indicated that Vega-Lara had no privilege to refuse to answer, given the grant of immunity. To each question, Vega-Lara refused to answer. The prosecution then began to present Vega-Lara with a transcript from his prior testimony, developing a narrative of his trial testimony by means of these questions, all of which he refused to answer. References to the appellant were couched as the “other person,” pursuant to a redaction order by the trial court, but patently pointed to the involvement of the appellant in the robbery and murder. In closing, the prosecutor pointedly connected the “other person,” to the defendant.
Held, the prosecutor committed reversible error, and the verdict was not “surely unattributable” to this error. Without deciding the issue of bad faith, the Court of Appeals finds that the prosecutor’s quoting from Vega-Lara’s testimony at his own trial added “critical weight” to the state’s case and the defense could not cross-examine Vega-Lara about the inferences created by his refusal to answer the question. State v. Angel Morales, A07-2401 (Minn. App. 04/28/09). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa072401-0428.pdf
—Frederic Bruno
Frederic Bruno & Associates
In this month's "Notes & Trends:
EMPLOYMENT & LABOR LAW
JUDICIAL LAW
• Noncompete Agreements; Bonus Plan Invalid, Promotion Sufficient. A “stand-alone” noncompete agreement was not enforceable on the basis of the employee becoming eligible to participate in a bonus “retention plan.” The Minnesota Court of Appeals, construing Missouri law, held that the employee’s eligibility for a “retention” bonus plan did not constitute sufficient consideration for a separate noncompete agreement because the employer did not have an obligation to fund the plan. But, in the same case, the court upheld a noncompete agreement given to an employee in connection with a promotion. The offer and acceptance of the promotion constituted sufficient consideration to support the noncompete agreement. Softchoice, Inc. v. Schmidt, 763 N.W.2d 660 (Minn. App. 2009). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa080763-0407.pdf
• Whistleblower; Legitimate Reasons for Discipline. An emergency medical technician (EMT) was not entitled to pursue a whistleblower claim because the employer had legitimate business reasons for disciplining the employee. Complaints about the EMT’s work by other employees constituted legitimate reasons to undertake disciplinary action after the employee reported illegal behavior. Additional claims of defamation and other causes of action were barred by absolute immunity or qualified immunity because of the negative comments about the EMT that were reported by other employees in connection with their duties and without malice. Baybridge v. City of Ortonville, 2009 WL 910972 (Minn. App. 2009) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0904/opa080659-0407.pdf
• Tenure & Education; Human Resources Position. A claimant who held a secondary principal’s license as well as a teacher’s license while working as director of human resources for a school district was not entitled to tenure under Minn. Stat. §122A.40 after the human resources position was eliminated. Because the position traditionally is filled by a human resources director and not a licensed superintendent or principal, and the teacher performed primarily human resources duties in the position of assistant superintendent, the decision by the school board to eliminate her position did not invoke statutory tenure rights. Accordingly, the school district board was not required to offer her a contract after her position was eliminated. Morgan v. Independent School District No. 482, 2009 WL 910993 (Minn. App. 2009) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0904/opa080692-0407.pdf
• Consulting Contracts; Absence of Formal Agreement. The absence of a formal, written agreement between a company and a consultant did not negate a claim for compensation for work performed by the consultant. Overturning summary judgment, the court of appeals held that there were genuine issues of material fact that could support a claim for an enforceable contract, even though the agreement was oral and not memorialized in writing. Moga v. Shorewater Advisors, LLC, 2009 WL 982237 (Minn. App. 2009) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0904/opa080785-0414.pdf
• Workers Compensation; Lien for Benefits. A lien by a workers compensation carrier for benefits paid to an employee who was injured in a work-related automobile accident was upheld by the Minnesota Court of Appeals. The trial court had subject jurisdiction to decide whether the workers compensation insurer could enforce a statutory lien against the proceeds recovered in a third-party tort settlement, and a letter by the claimant’s lawyer to the compensation carrier constituted a binding agreement to honor the lien asserted by the insurer. Cannon Cochran Management Services, Inc. v. Duncan, 2009 WL 982262 (Minn. App. 2009) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0904/opa080807-0414.pdf
• Intentional Infliction; Insufficient Evidence. An employee’s claim that his two supervisors falsely accused him of sexual harassment was not actionable. The claimant’s assertion of intentional infliction of emotional distress was not viable because there was insufficient evidence to support his claim. Bailey v. Bayer CropScience L.P., 2009 WL 938914 (8th Cir. 2009).
• ERISA Disability Plan: Amendment; When Benefits Vest. A letter by a plan administrator for an ERISA long-term disability plan informing claimants of the elimination of benefits was deemed to constitute a valid amendment of the plan. The 8th Circuit Court of Appeals held that the correspondence, coupled with an enclosed summary plan description to modify the plan, rendered the trial court’s reinstatement of benefits erroneous. However, the language of the plan was so ambiguous regarding the issue of vesting that the case was remanded for trial to determine whether disability benefits vested once a participant became disabled. Halbach v. Great-West Life & Annuity Ins. Co., 2009 WL 973347 (8th Cir. 2009).
• Unemployment Compensation; Absence without Advance Notice. Three consecutive absences by an employee, without calling the employer as required by company policy, was judged to constitute “statutory misconduct” warranting the denial of unemployment compensation benefits. The employee’s claim that he requested time-off under the Family & Medical Leave Act (FMLA) was rejected because he failed to provide his employer with advance notice. Failing to comply with the company’s “absence notification policy” constituted misconduct warranting denial of benefits under Minn. Stat. §268.095, subd. 6(a). Omar v. Transit Team Inc., 2009 WL 982130 (Minn. App. 2009) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0904/opa080414-0414.pdf
• Unemployment Compensation; Insufficient Warning. An employee who was given only one warning during 16 years of employment and then fired for her performance after being given new duties and higher standards was entitled to unemployment compensation. In a rare reversal, the court of appeals overturned the denial of benefits by an unemployment compensation judge with the Department of Employment and Economic Development (DEED). Although the employee was terminated after being disciplined and told to improve performance, the existence of only one warning in the first 16 years of employment reflected a lack of disqualifying “misconduct” under Minn. Stat. §268.095, subd. 6(a). Olssen v. Supermom’s LLC, 2009 WL 910951 (Minn. App. 2009) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0904/opa080564-0407.pdf
LEGISLATION
• Health Insurance for Unemployed. Proposed state legislation would allow workers who lost their jobs at small businesses since last September and did not continue their health insurance coverage under their employer’s plan to obtain such coverage, supplemented by federal assistance. Under the economic stimulus bill enacted in February by Congress, workers who were laid off between September 1, 2008 and December 31, 2009 are eligible for a 65 percent federal subsidy to cover COBRA premiums for up to nine months. Under COBRA—the Consolidated Omnibus Budget Reconstruction Act—employers are required to allow former employees to continue in a group health insurance plan for up to 18 months, provided the employees pay the costs.
COBRA extends only to employers with 20 or more employees. Minnesota is one of about 40 states that extend COBRA coverage to companies with fewer than 20 employees. Under the proposal, both groups of workers would qualify for the subsidy, while those who earlier declined coverage would have the option to reconsider their choice. COBRA payments average about $1,070 a month for family coverage in Minnesota, which constitutes about 70 percent of unemployment benefits. The monthly average payment for single coverage is $375, which is about 24 percent of jobless benefits. The new proposal would help alleviate the financial constraints put on the unemployed from small companies.
—Marshall H. Tanick
Mansfield Tanick & Cohen, PA
In this month's "Notes & Trends:
FEDERAL PRACTICE
JUDICIAL LAW
• Discretionary Remand Under 28 U.S.C. §1367(c); Appealability. Relying primarily on Thermotron Products, Inc. v. Hermansdorfer, 423 U.S. 336, 96 S. Ct. 584 (1976), a unanimous United States Supreme Court held that orders declining to exercise supplemental jurisdiction remanding cases under 28 U.S.C. §1367(c) are not dismissals for “lack of subject matter jurisdiction” for purposes of 28 U.S.C. §§1447(c) and (d), and therefore are reviewable on appeal. The decision may be most noteworthy for its three concurring opinions, in which a total of four justices suggested that Thermotron Products should be overruled. Carlsbad Tech., Inc. v. HIF Bio, Inc., ___ S. Ct. ___ (2009).
• Statutory Attorneys Fees; Enhancement for Quality of Lawyer’s Performance. The United States Supreme Court has granted certiorari and will review an 11th Circuit decision which held that enhancements to attorneys fee awards for the quality of representation and/or results achieved are permissible under fee-shifting statutes. A badly-divided 11th Circuit panel affirmed these fee enhancements in a Section 1983 case, but made clear that it was doing so only because it felt that it was bound by prior 11th Circuit precedent that had approved of the practice. Kenny A. ex rel. Winn v. Perdue, 532 F.3d 1209 (11th Cir. 2008), cert. granted, ___ S. Ct. ___ (2009).
• Time Limits on Trial Evidence; No Abuse of Discretion. The 8th Circuit held that a trial court did not abuse its discretion when it limited each party to offering eight hours of testimony during the second phase of a trial, particularly where the trial court had imposed those limits only “after gaining a clear picture of the attorneys’ methods and habits in the use of their time.” Cedar Hill Hardware and Constr. Supply, Inc. v. Ins. Corp. of Hannover, ___ F.3d ___ (8th Cir. 2009).
• Punitive Damages; Permissible Ratios; Due Process. The 8th Circuit reduced an award of punitive damages in an employment discrimination case from $500,000 to $120,000, exactly four times the $30,000 the jury had awarded in compensatory damages, finding that any greater amount would be constitutionally suspect. Wallace v. DTG Operations, Inc., ___ F.3d ___ (8th Cir. 2009).
• Dismissal of Nondiverse Defendants; No Abuse of Discretion. Where the plaintiff’s motion to amend to add two additional defendants was granted in a previously removed diversity action, but the plaintiff never informed the trial court that the joinder of these defendants would defeat diversity, the 8th Circuit held that the trial court had not abused its discretion in reconsidering its prior order and dismissing the nondiverse defendants. Bailey v. Bayer CropScience L.P., ___ F.3d ___ (8th Cir. 2009).
• Motion for Recusal Denied; Presence of Relative at Party’s Law Firm. Judge Kyle denied the plaintiffs’ motion for recusal in a consolidated action, finding that his son’s status as a partner in a law firm that represented the defendant in other matters did not mean that his son’s interest would be “substantially affected” by the outcome of the case. Judge Kyle also suggested that the timing of the plaintiffs’ motion was evidence that the plaintiffs were engaged in “judge shopping.” In Re Medtronic, Inc. Sprint Fidelis Leads Prod. Liab. Lit., 601 F. Supp. 2d 1120 (D. Minn. 2009).
• Counterclaims Deemed Abandoned. Judge Montgomery found that counterclaims had been abandoned where they were asserted by the defendant as part of its initial answer but then omitted from a subsequent amended answer and not raised for the next two years. Bremer Bank, N.A. v. John Hancock Life Ins. Co., 2009 WL 702009 (D. Minn. 03/13/09).
—Josh Jacobson
Law Office of Josh Jacobson
In this month's "Notes & Trends:
INTELLECTUAL PROPERTY
JUDICIAL LAW
• Patent Infringement; Personal Jurisdiction over Foreign Defendant; F.R.C.P. 4(k)(2). In a case of first impression, the Court of Appeals for the Federal Circuit, which hears all patent-related appeals, held that Federal Rule of Civil Procedure 4(k)(2) (the so-called federal long-arm statute) provided personal jurisdiction over a foreign defendant that was not subject to personal jurisdiction in any single state. Synthes sued G.M.Reis for patent infringement in the U.S. District Court for the Southern District of California. G.M.Reis, a Brazilian corporation, was served with the summons and complaint at a trade show in San Diego, at which G.M.Reis was displaying five samples of the accused products. G.M.Reis argued that the district court did not have personal jurisdiction. It was undisputed that G.M.Reis had no offices, employees or assets in California or elsewhere in the United States. It had made only one sale in the United States, but not in California and not of the accused product. The trial judge dismissed the case, but the court of appeals reversed that decision.
The appellate court agreed that California’s long-arm statute did not provide personal jurisdiction over G.M.Reis. However, the appellate court found that personal jurisdiction existed under the federal long-arm statute—Rule 4(k)(2). The appellate court held that all three requirements of that statute were met. First, plaintiff’s patent infringement claim was a federal claim. Second, defendant G.M.Reis was not subject to personal jurisdiction in California or any other state of the United States. Finally, the appellate court determined that exercising personal jurisdiction over G.M.Reis was consistent with the United States Constitution and law. As to the latter, the appellate court found that the following facts supported specific jurisdiction: defendant’s representatives brought five of the accused products into the U.S. to a trade show; the federal claim arose out of that U.S. activity; and it was reasonable and fair to subject G.M.Reis to litigation in the U.S. because although it will be burdensome, that burden is “outweighed by the interest of the United States in adjudicating the dispute and the interest of Synthes in obtaining effective and convenient relief.” Synthes (U.S.A.) v. G.M. dos Reis Jr. Ind. Com. De Equip. Medico, slip op. 2008-1279 (Fed. Cir. 04/17/09).
• Patent Priority Dates; Motion Premature. Judge Frank ruled that a third-party defendant’s motion regarding patent priority dates was premature. Philips countersued Imation, Moser Baer and others for patent infringement. Moser Baer asserted several defenses including patent invalidity. Moser Baer asked the district court for summary judgment that one of the asserted Philips patents was not entitled to a priority date based on an earlier foreign patent application. U.S. patents may be invalid if, for example, the invention was publicly disclosed more than one year before the date the application was filed. However, patent owners can get the benefit of the filing date of an earlier filed foreign patent application provided certain procedures are followed. Moser Baer argued that Philips did not follow those procedures and, therefore, was not entitled to the benefit of the earlier filing date of the foreign patent application. The district court did not reach the merits, however, because it found that Moser Baer had not met its burden of demonstrating the relevancy of the priority date. There was no motion pending on the validity of Philips’ patent. Moser Baer indicated that it would bring such a motion in the future, to which the court responded: “That would be an appropriate time to raise the issue of priority.” Imation Corp. v. Koninklijke Philips Electronics N.V. et al., slip op. Civ. No. 07-3668 (D. Minn. 03/11/09).
—Tony Zeuli
Merchant & Gould
In this month's "Notes & Trends:
Juvenile Law
Judicial Law
• CHIPS; Transfer of Custody. In an unpublished court of appeals decision, the child’s mother appealed a district court’s decision to transfer custody of her daughter to the child’s father and father’s romantic acquaintance. The mother was found to have excessively used prescription and nonprescription drugs and engaged in drug-seeking behavior. It was also found that some of the prescription drugs had sedative effects, caused mood-alterations, and left the mother unable to care for the child. The social services office had initially sought protection several years previously because they believed mother was chemically dependent and had a mood disorder that put this child and her other children at risk. The mother admitted that her chemical dependency prevented her from caring for her children, and as a result of that initial CHIPS petition filed by the county, the district court concluded that out-of-home care was necessary and in the child’s best interest.
The district court twice reviewed the case in subsequent years and found that continued concerns with the mother’s chemical use warranted the child’s placement in foster care. The county then sought to transfer custody to the child’s father and his romantic acquaintance. They had been caring for the child since she was placed with them in foster care in July 2007. The district court conducted hearings, where it received substantial testimony from more than 19 witnesses and reviewed almost 40 exhibits. The district court found that in light of the mother’s consistent instability, chaotic lifestyle, consistent health issues that require medications and clinic visits, severe migraines, and all of her prescriptions with their sedative effects, it would not be in the child’s best interests to remain in the mother’s custody. The trial court also found that she had consistently and significantly failed to comply with her case plan and that it was unlikely that those conditions would improve sufficiently to permit her to care for the child in the reasonably foreseeable future. Based on that, the trial court concluded that clear and convincing evidence established that transferring custody of the minor child to her father and his romantic acquaintance would be in her best interests. The court of appeals affirmed that determination stating that the evidence supported the decision to transfer custody. In the Matter of the Welfare of the Children of: S.M.P., A08-1626 (Minn. App. 04/07/09). www.lawlibrary.state.mn.us/archive/ctapun/0904/opa081626-0407.pdf
• Child Sexual Abuse; Expert Testimony. The Minnesota Court of Appeals held that the district court abused its discretion by excluding expert witness testimony offered for the limited purpose of challenging the validity of interview techniques and protocols utilized to interview the alleged child victims of sexual abuse. The case involved three young girls and their grandfather who was convicted of sexually abusing them. The granddaughters had been interviewed by a child protection social worker who testified at trial. The defendant grandfather offered expert testimony to challenge the validity of the interview techniques and protocols used to interview the girls. The district court excluded that evidence, saying that the probative value of the evidence was substantially outweighed by the danger of unfair prejudice.
The Minnesota Court of Appeals reversed, saying that a case involving child sex abuse represents an “unusual” case where expert testimony and witness credibility should be received. The appellate court noted that arrangements offered to limit the scope of the expert’s testimony made the case for admissibility particularly strong and would reduce any impact on the victim’s credibility. The court of appeals also considered that the expert testimony at issue would be helpful to the jury. Ultimately, the appellate court concluded that the error in excluding this expert testimony was not harmless.
The court expressed its concern that the parties were not playing on a level playing field because the state was permitted to introduce the testimony of the social worker who interviewed the victims and discussed the standard interviewing protocol. The absence of an opportunity to present contrary testimony from the defendant’s expert regarding the propriety of the interviewing technique denied the defendant a fair trial. Reversed and remanded. Minn. v. Hakala, A08-0215 (Minn. App. 03/31/09). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa080215-0331.pdf
• Criminal Sexual Conduct; Significant Relationship; Minn. Stat. §609.341, Subd. 15(2). In a published opinion, the court of appeals reviewed a prosecutor’s challenge to the district court’s determination that a “significant relationship” under Minnesota law does not include a “half-brother” in the term “brother” and that the district court’s resulting dismissal of a felony criminal complaint for lack of probable cause was erroneous. The court of appeals agreed and reversed the determination of the district court. The court of appeals held that the term “brother” in Minn. Stat. §609.341, Subd. 15(2) (2006) includes half-brothers and brothers of the half blood. Thus, where the complaint alleged that this defendant had sexually penetrated his 15-year-old half-sister, the court of appeals held that the district court erred by dismissing the complaint for lack of probable cause because a half-brother is included in the term “brother” for the purpose of a prosecution for first-degree sexual conduct under the above-cited statutory definition. Minn. v. Williams, A08-1658 (Minn. App. 03/17/09). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa081658-0317.pdf
—Gary A. Debele
Walling Berg & Debele PA
In this month's "Notes & Trends:
REAL PROPERTY
JUDICIAL LAW
• Tenant’s Rights to Condemnation Proceeds Upon Lease Termination. For the second time in recent history, the Minnesota Supreme Court has addressed the narrow issue of the respective rights of landlords and tenants to condemnation proceeds. Property owner (Noble) owned property that it leased to SuperAmerica for use as a gas station/convenience store. In 2004, the Metropolitan Airports Commission petitioned to condemn the property. The lease between Noble and SuperAmerica contained a condemnation clause, which provided that if the property was condemned, the lease would immediately terminate. It further stated that Noble was entitled to all proceeds of the condemnation except for any award made to SuperAmerica for stock and fixtures “provided a separate award is permitted by the taking authority directly to [SuperAmerica].” After granting the petition, the court referred the matter to condemnation commissioners to determine the value of the property. The commissioners valued the property at $2.76 million and expressly designated $2.4 million to the land and improvements and $360,000 to immovable fixtures. The commissioners did not award the $360,000 to either party, but instead sent the matter back to the district court to determine whether the compensation should be awarded to Noble or SuperAmerica. The district court determined that SuperAmerica was entitled to the value of the fixtures and ordered disbursement of that part of the award to it.
The issues related to the division of condemnation proceeds were recently addressed in the supreme court’s decision of Hous. & Redev. Auth. of St. Paul v. Lambrecht, 663 N.W.2d 541 (Minn. 2003). In Lambrecht, the court held that when a lease contains a clause automatically terminating it upon condemnation, the tenant no longer has a property interest and, accordingly, has no right to compensation. Following that general rule, the court of appeals held that SuperAmerica could not obtain any part of the award. The supreme court affirmed, but on different grounds. The court reiterated its holding in Lambrecht stating that when a condemnation clause automatically terminates a lease, all of the tenant’s potential rights to just compensation are divested. But the Lambrecht court had also noted that the landlord and tenant could alter their rights with appropriate language in the clause. Although the tenant could not create a right to just compensation where one does not exist, i.e., where the lease and the tenant’s interest in the property terminates, the parties could contractually agree to the division of the award. The court recognized that the parties did so in this case. Unfortunately for SuperAmerica, the lease gave SuperAmerica rights to part of the award only if the “taking authority” made a “separate award” to it. Here, the taking authority was not the court, but rather the condemnation commissioners. Because the commissioners had not issued a separate award, choosing instead to allow the court to decide the issue, SuperAmerica was not entitled to part of the award under the lease. Affirmed. Metropolitan Airports Comm’n v. Noble, 763 N.W.2d 639 (Minn. 2009). www.lawlibrary.state.mn.us/archive/supct/0904/OPA062400-0409.pdf
• Order for Partition; Appeal; Time Limitation. A contract-for-deed vendee filed an action for partition related to two parcels of property in which it had an interest. The vendors opposed partition. On December 3, 2007, the district court granted the motion for partition and appointed referees to recommend how to divide the property. The referees issued a report concerning the partition of the property and, on April 17, 2008, the district court confirmed the report. The vendors subsequently appealed the district court’s decision to order partition as well as the allocation of the parties’ interests. The court of appeals affirmed. In affirming, the court of appeals held that the vendors’ challenge of the 2007 partition order was untimely. Minn. Stat. §558.04 authorizes courts to order the partition of property. Under Minn. Stat. §558.215, a party must appeal an order under section 558.04 within 30 days after the order. The vendors argued that the 2007 order was not an order for partition and that the partition was not ordered until the court’s confirmation of the referee’s report. The court of appeals disagreed noting that under the partition procedure, the court first orders partition and then appoints referees to determine how to implement the partition. Affirmed. Glenwood Investment Properties, L.L.C. v. Carol A. Britton Family Trust, A08-788 (Minn. App. 05/05/09). www.lawlibrary.state.mn.us/archive/ctappub/0905/opa080788-0505.pdf
• Contract for Deed; Statutory Cancellation; Bankruptcy. A contract-for-deed vendee failed to make payments for a year. In response, the vendor served the vendee with a notice of statutory cancellation. Under the law, a vendee faced with a statutory cancellation has 60 days to cure the default or obtain a court order enjoining the running of the 60-day period. Approximately one month after serving the notice of cancellation and before the vendee’s time to act had expired, the vendor filed for bankruptcy. Ultimately, the bankruptcy trustee abandoned the property. The vendee filed suit to stay the cancellation, but did not seek injunctive relief until well after the trustee issued its notice of abandonment. The vendee also failed to cure the default. The district court determined that the contract had been canceled by operation of law. The court of appeals affirmed. On appeal, the vendee argued that the vendor’s act of filing for bankruptcy voided the cancellation. The court of appeals disagreed, holding that the bankruptcy filing only stayed the cancellation period until the property had been abandoned by the trustee. Once the property had been abandoned, the time to cure the default or seek injunctive relief commenced again. Alternatively, the court held that the contract was judicially terminated. The court noted that judicial termination is available in addition to statutory cancellation unless the language of the contract for deed expressly provides that the contract can only be canceled by the statutory method. In the contract at hand, the language provided that the vendor had the option to cancel by statute, which did not preclude judicial termination. Judicial termination is available only if there has been a material breach of the contract by the vendee. The court observed that while failure to make a single payment is not sufficient to constitute a material breach, the vendee’s failure to make payments for over a year was a material breach. Affirmed. Sitek v. Striker, A08-941 (Minn. App. 04/28/09). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa080941-0428.pdf
• Septic System Disclosure; No Exception for Certificate of Compliance. In 2005, Patrick and Susan Bruno sold resort property to Jerry and Kate Gaslin. The property contained two septic systems. Under the purchase agreement, the Brunos warranted that the septic systems were in compliance with applicable regulations. The Brunos were directed to have an inspection of the systems prior to closing and, at the closing, implied that an inspection had occurred and found no problems. Contrary to the implication, the septic systems had not been inspected since 2002. The 2002 inspection reported that the septic systems were compliant and a certificate of compliance was issued, which was potentially valid at the time of the 2005 sale. Shortly after the closing, the Gaslins discovered that one septic system was emitting sewage onto the ground. Asked about this condition, the Brunos indicated that they had experienced a similar problem in the past. A subsequent inspection revealed that both septic systems were failing. The Gaslins sued the Brunos under a number of legal theories including asserting a claim for violation of Minn. Stat. §115.55. Section 115.55 requires sellers to disclose whether a septic system is in compliance with applicable laws. A seller who knows or has reason to know that the system is not in compliance and fails to disclose that fact is responsible for the costs of bringing the system into compliance. At trial, a jury found the Brunos liable and awarded the Gaslins damages in an amount equal to the Gaslins’ bid to replace the septic systems. The Brunos argued that the Gaslins’ claim under section 115.55 failed as a matter of law. The Brunos apparently argued that because there was a valid certificate of compliance they could not be held liable. The court of appeals held that the law does not contain an exception to the disclosure requirement for circumstances where a certificate of compliance exists. A seller is liable when the seller has reason to know the system is not in compliance. The court held that sufficient evidence supported the conclusion that the Brunos had reason to know the system was failing. The Brunos also argued that damages were excessive, but the court found sufficient evidence to support the damage award. Affirmed. JEM Acres, LLC v. Bruno, A08-0735, 764 N.W. 2d 77 (Minn. App. 2009). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa080735-0414.pdf
• Condemnation; Church Property; Consent. A church owned property abutting a highway in the city of Jordan. The city intended to alter the highway and install a new sidewalk and signal lights. The city petitioned to condemn property owned by the church for the purpose of placing the sidewalk and lights on that property. The church objected to the condemnation under Minn. Stat. §315.42. That statute prohibits laying “roads or streets” through the property of a religious corporation without the consent of the corporation’s governing board. The district court ruled that sidewalks and signal lights were not roads and streets and granted the petition for condemnation. The court of appeals reversed. The court noted that the interpretation of the statute, which was enacted in 1881, was a matter of first impression. The court looked to appellate decisions contemporaneous with the enactment of the statute and held that, at the time, a sidewalk was commonly understood to be a part of a street. As a result, the city could not condemn the property for sidewalk purposes absent church approval. As to the issue of a traffic signal, the court observed that by law, signals must be placed “upon” streets and roads. Accordingly, the city could likewise not condemn for traffic signal purposes. Reversed. City of Jordan v. Church of St. John the Baptist, A08-0999, 764 N.W.2d 71 (Minn. App. 2009). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa080999-0414.pdf
• Priority Between Mortgage and Federal Tax Lien; Defective Legal Description. A recent case by the United States District Court for the District of Minnesota illustrates the need for careful drafting. Property owner (Sheldon) gave a mortgage which was held by Mortgage Electronic Registration Systems (MERS). The mortgage contained a typographical error in the legal description. Instead of referring to “the Northeast 1/4 of Section 7”, the legal description in the mortgage read “the Northeast 14 of Section 7.” It was undisputed that the mortgage was recorded against Sheldon’s property and would appear on any title search of the property. Subsequent to the MERS mortgage, Sheldon gave additional mortgages to CitiBank and Wells Fargo. Later, the IRS recorded a federal tax lien against the property. MERS filed an action to reform the mortgage by correcting the legal description and for a court order determining that its mortgage held priority over the subsequently recorded mortgages and tax lien. Both MERS and the United States moved for summary judgment and both motions were denied by the court, which concluded there was a factual dispute preventing summary judgment.
The priority of liens relative to a federal tax lien is governed by federal law. A choate state lien will take priority over a federal tax lien if it has been perfected prior to the tax lien. The test for whether the lien is choate or has been perfected is whether the creditor has the right to summarily enforce the lien; there is nothing more that the creditor needs to do. This differs from state law under which priority is determined by principles of notice. The court noted that under those state law principles, the recorded notice was sufficient to provide constructive notice to any subsequent lienor. Nevertheless, the court was unable to grant judgment in favor of MERS. In denying summary judgment, the court concluded that the critical issue in determining whether the mortgage could be summarily enforced was whether the defect in the legal description could only be resolved in one way, i.e., by changing “14” into “1/4.” The court suggested obtaining expert testimony on the issue. The court also noted that if the United States were to prevail, it could create an unworkable result. Namely, the United States lien would be superior to MERS’ lien but junior to the CitiBank and Wells Fargo liens, which in turn were junior to the MERS lien. Motions denied. Mortgage Electronic Registration Systems, Inc. v. Sheldon, 2009 WL 803481 (D. Minn. 03/25/09).
—C.J. Deike
Edina Home Realty Services
In this month's "Notes & Trends:
TAX
JUDICIAL LAW
• Income Tax: “Frivolous” Amended Return Subject to Penalty. The Minnesota Tax Court affirmed the commissioner’s imposition of the $1,000 penalty for a frivolous return under Minn. Stat. §289A.60, Subd. 7. The taxpayer received Form 1099 income items and filed his return for 2004, paying a federal and state tax based on them. Subsequently, the taxpayer filed amended returns and took the position that he owed nothing. Although the taxpayer admitted he had received the income on the Form 1099s, he contended that it did not constitute “taxable income” because the entities paying him did not fit within the definition of a “trade or business” under 26 U.S.C. §7701(a)(26) and could not issue Form 1099s. The court held that the commissioner had met the burden of showing that the amended return on its face was “frivolous” since it was clear that §7701(a)(26) was intended to cover the “trade or business” of a person who was performing the functions of a public office to be able to deduct business expenses. James L. Klubertanz v. Commissioner of Revenue, No. 7998R (Minn. T. Ct. 12/24/08).
• Sales & Use Tax: Erroneously Collected; Not Remitted. The Minnesota Tax Court held that a contractor who paid tax on his purchases but also sought reimbursement from his customers and did not remit to the Department of Revenue was required to do so. The court relied on Minn. Stat. §297A.31, Subd. 7(e), which states that any amounts collected, even if erroneously or illegally collected from a purchaser under a representation that the taxes are imposed under the sales and use tax statutes, must be reported and transferred to the commissioner. The taxpayer’s claim of double taxation was rejected since he could put in a claim for refund. Moreover, merely crediting and reimbursing the customers for the collected tax did not absolve the taxpayer of his obligation to remit to the commissioner. Ronald L. Schober v. Commissioner of Revenue, No. 7935R (Minn. T. Ct. 02/03/09).
• Minnesota Property Tax; Exempt Indian Property; Claim for Refund. The United States District Court for the District of Minnesota held that an Indian tribe’s casino property was not subject to Minnesota property tax because the property was acquired pursuant to a federal land settlement statute and therefore held in trust by the United States. However, the tribe’s claims for taxes paid in former years were sent back to the Minnesota courts. The court held that the band’s money damage claim was a refund claim and barred by the 11th Amendment because the state had not expressly or implicitly waived immunity from tax refund suits. The court determined that the band was clearly seeking a refund of Minnesota property taxes (state, county, and school district) based on its contention that the taxes were levied against exempt property. The court stated that under the property tax refund claim procedures in Minn. Stat. §278.01, a refund claim is charged to the state and other taxing districts in proportion to the amount of their respective taxes included in the Minnesota levy. Therefore, the band’s money damages claim was a refund and would affect the Minnesota Treasury. The tribe’s refund remedy was under Minnesota law and in the Minnesota state courts. White Earth Band of Chippewa Indians, et al. v. County of Mahnomen, No. 07-3962, 2009 WL 803488 (D. Minn. 03/24/09).
• Real Property: Agricultural Classification; Land Held for Commercial and Industrial Development. The Minnesota Tax Court held that 36 acres of unimproved land in Brooklyn Park did not qualify for agricultural classification under Minn. Stat. §273.13, Subd. 23(c) for the assessment year January 2, 2005. The property consisted of 36 acres of unimproved land of which a portion of less than five acres in size was farmed pursuant to an oral agreement with a neighbor with no rentals. The court held that five acres was not enough to qualify for the statutory ten acres test and that the remaining 31 acres were unused, barren, uncultivated, and without an identifiable use. The excess land could not be combined with the remaining farm’s acreage since it was not pasture, timber, waste, unusable wild land, or land included in state or federal programs. Consequently, the land was not entitled to be classified as agricultural land. Northcross Partners II, LLC v. County of Hennepin, No. 27-CV-06-08832, 2009 Minn. Tax LEXIS 6 (Minn. T. Ct. 03/31/09).
• Procedure: Failure to File Income Tax Returns; Suspension from Law Practice. The Minnesota Supreme Court suspended from the practice of law for 60 days an attorney who failed to file individual income tax returns, failed to report income to taxing authorities, failed to maintain practice-related books and records, failed to use written retainer agreements in connection with nonrefundable fees, made misrepresentations to the director of the Office of Lawyers Professional Responsibility, and lastly who failed to cooperate with the director’s investigation. The court indicated that for more than 35 years it had warned lawyers that “disciplinary proceedings are mandatory in all cases of failure to file income tax returns” and that “for violations occurring hereafter, the discipline will consist of either suspension or disbarment.” Citing In re: Bunker, 294 Minn. 47, 55, 199 N.W.2d 628, 632 (1972). In re: Grigsby, No. A07-688, 2009 WL 1011093 (Minn. 04/16/09). www.lawlibrary.state.mn.us/archive/supct/0904/OPA070688-0416.pdf
• “Work Product” Privilege Ordered for Rehearing. In a reversal, the 1st Circuit vacated its decision that the “tax accrual work” papers of Textron were protected by the “work product” privilege. The court then ordered a rehearing by the full court, scheduled for June 2, 2009. United States v. Textron, Inc. and Subsidiaries, 103 AFTR ¶2009-382 (1st Cir. 01/21/09).
• Executive Compensation: Reasonable Compensation Deduction. The 7th Circuit reversed a decision of the United States Tax Court that treated as excessive and unreasonable for business deduction a large portion of a corporation’s multimillion dollar compensation/bonus payment to its CEO, founder, and controlling shareholder. The tax court’s unreasonableness findings and conclusion that a portion of the payment was nondeductible dividend was based on “flimsy” analysis of corporation’s bonus program and a wrong-headed comparison between the payment here and competitor corporations’ payments to their CEOs. Payments under the corporation’s bonus program did not “look” like a disguised dividend where there were valid reasons for same. The court’s reliance on allegedly comparable competitor CEO payments was flawed in that the comparison did not account for the differences in compensation packages as a whole or facts that the corporations and CEOs under comparison face different challenges and held different responsibilities than those faced and held by this corporation and its CEO. Menard Inc. v. Commissioner, 103 AFTR 2d 2009-1280 (7th Cir. 2009), revg. TC Memo 2004-2007 (2004), reconsideration ven. TC Memo 2005-3 (2005), supp. op. 130 T.C. 54 (2008).
• $65 Million Merger Termination Fee Deductible. The United States Tax Court concluded that a merger termination fee of $65 million paid to clear the way for a merger with another suitor was currently deductible under IRC §162 and IRC §165, and did not have to be capitalized under IRC §263. Sante Fe Pacific Gold Co. and Subsidiaries, 132 T.C. No. 12 (2009). Cf. IRS in Chief Counsel Advice 200917031 concluded that salaries, pensions and other related costs and employee benefit expenses of certain employees of a financial services company were indirect costs under IRC §263A and were properly allocated to property produced as a result of its construction and remodeling activities and therefore had to be capitalized.
• Equitable Innocent Spouse Relief; De Novo Standard of Review. A divided United States Tax Court has determined that a review de novo rather than under an abuse-of-discretion test is appropriately required in determining if a taxpayer–spouse is entitled to IRC §6015(f) equitable innocent spouse relief. Applying the de novo standard, the court held that the taxpayer was entitled to equitable relief. Porter, 132 T.C. No. 11 (2009).
• Income Tax: Equitable Innocent Spouse Claim; Statute of Limitations. The tax court held that the two-year limitations period for seeking innocent spouse relief under IRC §§6015(b) or (c) did not apply to a request for equitable innocent spouse relief made under IRC §6015(f). The court concluded that the extension of the two-year rule in the regulations was an invalid interpretation of the statute. Therefore, the United States Tax Court will now consider a requesting spouse’s petition for relief under IRC §6015(f), regardless of the time elapsed between the collection activity and the filing of the claim. Kathy Marie Lantz v. Commissioner, 132 T.C. No. 8 (04/07/09).
• Procedure: Res Judicata Bars Second Action Based on Same Years and Assessment. The Minnesota Court of Appeals affirmed the dismissal of the taxpayer’s lawsuit against the commissioner on the basis of the doctrine of res judicata. Taxpayers had delinquencies and the commissioner sought to foreclose on real property belonging to them. The taxpayers commenced an action in district court to quiet title to the property and to obtain equitable relief. The district court subsequently issued an order denying the motion and the property was sold at a foreclosure sale. The district court then dismissed the action with prejudice and the taxpayers did not appeal. The taxpayers commenced a second action in the district court to challenge the commissioner’s assessment, lien, and foreclosure of the property. The court, in affirming, indicated that res judicata applied to a party here since the two actions arose out of the same set of factual circumstances even though the taxpayers pleaded different legal theories or prayed for different forms of relief. In addition, the commissioner and the taxpayers are the same parties; there was a judgment on the merits pursuant to Minn. R. Civ. P. 41.02(a); and there was a full and fair opportunity to litigate the matter. Janet Eileen Gunnink and Douglas John Gunnink vs. Commissioner, A08-0192, 2009 WL 11868 (Minn. App. 04/28/09). www.lawlibrary.state.mn.us/archive/ctapun/0904/opa080192-0428.pdf
ADMINISTRATIVE ACTION
• Ponzi Scheme Victims Tax Treatment. Following the guilty plea of Bernard Madoff in his notorious Ponzi-style investment fraud case, the IRS has provided taxpayer guidance to victims of such schemes. Rev. Rul. 2009-9, 2009-14 IRB describes the proper income tax treatment for losses resulting from Ponzi schemes.
• Offer of Settlement for Unreported Off Shore Income. The IRS announced a settlement offer for those that voluntarily and timely disclose unreported off-shore income. Those meeting the terms of the offer will have to pay back-taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years. They will also pay a penalty of 20 percent of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value. In other words, the penalty will equal 20 percent of the highest asset value of an account any time in the past six years. Those who come forward on a timely basis will not face criminal prosecution. See RIA Weekly Alert (04/02/09).
• Form 990 Explained. The IRS released Publications 4740, 4741, and 4752 to help tax-exempt organizations deal with the newly revised Form 990, Return of Organization Exempt from Income Tax. This is the annual return that most tax-exempt organizations must use to report information about their operations for their 2008 tax year (filed in 2009). Form 990 was revised, as the publications explain, to provide transparency and accountability and to keep pace with changes in the law and the increasing size, diversity, and complexity of the tax-exempt sector.
LEGISLATION
• Minnesota Change to Permit Use of Federal Stimulus Money: H.F. 886 – Solberg (DFL) and S.F. 824 – Cohen (DFL) (Taxes Codified as Chapter 5). This bill would authorize any positive balance at the end of this fiscal year (2009) to carry forward to the next fiscal year (2010), notwithstanding a statutory requirement that would cause it to be deposited in the state’s budget reserve. In addition, it would require a balanced budget for two biennia and not just one as current law mandates.
• Federal Conformity Bill: H.F. 392 – Lenczewski (DFL) and S.F. 251 – Bakk (DFL) (Taxes Codified as Chapter 12). Under this legislation, Chapter 12 would conform to most of the federal changes enacted from February 13, 2008 through December 2008 for state tax administration purposes and the filing of 2008 returns. The bill would also substantially amend the provisions of the “Green Acres” law enacted in 2008.
• Printers Out-of-State Corporate Tax Nexus: H.F. 1073 – Solberg (DFL) and S.F. 832 – Bakk (DFL) (Taxes Codified as Chapter 14). H.F. 1073 and S.F. 832 would create an exception to the corporate tax nexus rules for ownership of property on the premises of a printer in Minnesota. Printers have been embargoed by clients who, if they supply paper to the Minnesota printer, are deemed to have nexus for income tax. Thus, large print buyers are avoiding Minnesota printers. This bill now allows an out-of-state customer to supply paper to their Minnesota printer and not trigger out-of-state nexus for the customer.
LOOKING AHEAD
• Income Tax and Subsidies: Biodiesel Subsidy Program. The legislative auditor issued a report in April 2009 that concluded that traditional biofuels continue to serve a useful purpose, but the state needs to rethink its subsidy programs and increase its planning for advanced biofuels like cellulosic ethanol. A major recommendation in the report is: The legislature should consider ending the producer payment program for corn-based ethanol and redirecting the funds to programs designed to further reduce fossil fuel energy use and greenhouse gas emissions.
—Jerry Geis
Briggs & Morgan
In this month's "Notes & Trends:
TORTS & INSURANCE
JUDICIAL LAW
• Conflict of Laws; Statutes of Limitation; Personal Jurisdiction. The Minnesota Court of Appeals recently considered two issues arising from a motor vehicle accident that occurred on a bridge connecting Duluth, Minnesota and Superior, Wisconsin. The district court had granted the defendant driver’s motion for summary judgment on the grounds that: (1) Wisconsin’s three-year statute of limitations—not Minnesota’s six-year statute—applied to the injured party’s negligence claim; and (2) Minnesota lacked personal jurisdiction over the allegedly at-fault driver because the accident occurred in the Wisconsin bound lane of traffic and the allegedly at-fault driver had no contacts with Minnesota, other than a brief trip into the state just prior to the accident.
The court of appeals reversed the district court’s grant of summary judgment. The court first concluded that because the accident occurred on a bridge connecting Wisconsin with Minnesota, Minnesota had concurrent jurisdiction. The court then appeared to reaffirm the longstanding (though controversial) principle that statutes of limitation are generally procedural in nature, requiring the application of forum law. Because the action was venued in Minnesota, and because Minnesota had concurrent jurisdiction over the bridge, the court held that Minnesota’s six-year statute of limitations applied to the injured party’s negligence claim.
The court next concluded that Minnesota had personal jurisdiction over the allegedly at-fault foreign driver. The court noted that, under controlling precedent, even a single, isolated contact with the forum can confer personal jurisdiction where the cause of action arises directly out of that contact. Although the driver’s contacts with Minnesota were limited to a brief trip into the state just prior to the accident, the lawsuit arose directly out of that contact, as the driver was still enroute from Minnesota at the time of the accident. Further, the court reasoned that the allegedly at-fault driver purposefully availed herself of the benefits and protections of Minnesota law by driving into an area where Minnesota exercises concurrent jurisdiction—regardless of the specific lane of traffic. Christian v. Birch,A08-312 (Minn. App. 03/24/09). www.lawlibrary.state.mn.us/archive/ctappub/0903/opa080312-0324.pdf
• Insurer Duty to Defend; Attorney-Client Relationships. The Minnesota Court of Appeals has held an attorney-client relationship exists between an insured and legal counsel whom the liability insurer retains on the insured’s behalf, even when neither the insurer nor the defense counsel has had contact with the insured regarding the claim.
Progressive Northwestern Insurance Company retained a law firm to represent an insured in connection with a motor vehicle accident. The insured had reported the accident to Progressive but failed to have further contact with either the insurer or the law firm After another driver in the accident could not locate Progressive’s insured, the insured was served by publication and the retained counsel moved for dismissal based on insufficient service of process and lack of jurisdiction. The district court denied the motion in part on grounds that because the law firm had failed to obtain the insured’s informed consent for the representation, the law firm had no authority to act on the insured’s behalf.
In reversing the district court, the court of appeals characterized the liability insurer’s duty to defend an insured as contractual and held that the relationship is not nullified due to an insured’s failure to have contact with the insurer and counsel regarding defense of the claim. The appellate court also reversed a monetary sanction against the defense counsel. Hornberger v. Wendel, A08-0903 (Minn. App. 04/14/09). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa080903-0414.pdf
• Underinsured Motorist Insurance; Claim Accrual; Statute of Limitations. The Minnesota Court of Appeals has held an underinsured motorist claim accrues by reason of settlement on the date the insured receives notice that the UIM insurer will not substitute its check for that of the tortfeasor’s insurer.
In March 2001, plaintiff accepted an offer to settle his automobile injury case for payment of the other driver’s liability insurance policy limits. Plaintiff subsequently informed his underinsured motorist (UIM) carrier, Farmers, of its right under Schmidt v. Clothier to substitute for the other driver’s payment in order to preserve its subrogation rights. On March 30, 2001, Farmers notified plaintiff that it declined its option to substitute payment. Plaintiff signed a release in favor of the other driver on April 17, 2001.
On April 12, 2007, plaintiff sued Farmers for UIM benefits. Farmers moved for summary judgment on the ground that plaintiff’s claim was barred by the six-year statute of limitations which Farmers argued began to run on the date plaintiff received notice that Farmers was not going to substitute payment. The district court denied the motion and held that the statute of limitations did not begin to run until the date plaintiff signed the release. The court of appeals reversed, holding that under Schmidt, notice of nonsubstitution by the UIM insurer creates an enforceable settlement agreement and triggers accrual of the UIM claim, which begins the running of the statute of limitations. Stroop v. Farmers Insurance Exchange, A08-1320 (Minn. App. 04/21/09). www.lawlibrary.state.mn.us/archive/ctappub/0904/opa081320-0421.pdf
—David Turner
Bassford Remele, A Professional Association