Official Publication
of the Minnesota State Bar Association
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Notes & Trends
CIVIL LITIGATION
Judicial Law
Post-Judgment, Post-Appeal Amendment to Complaint to Add Parties Prohibited. Plaintiff sued her former employer, a company that managed a bar in the Mall of America, for discrimination under Title vii and the Minnesota Human Rights Act. After the court found in her favor and entered judgment, the defendant-employer appealed. The bulk of the judgment was affirmed on appeal.
Meanwhile, the bar owner sold the bar to another company pursuant to an asset purchase agreement. The new bar owner entered into a service agreement with the plaintiff's former employer whereby the former employer would staff the bar until the new owner absorbed the employees. By the time plaintiff was able to start collecting the affirmed judgment, her former employer's assets had been largely liquidated. Therefore, plaintiff sought to add the new bar owner as a defendant, post-judgment and post-appeal under Minn. R. Civ. P. 15.01 and 15.02 in order to collect the judgment from the new bar owner. Held: The district court improperly allowed the amendment. The Minnesota Court of Appeals, on a question of first impression, adopted the reasoning of a majority of federal courts under Fed. R. Civ. P. 15, and refused to allow amendments to add parties post-judgment and post-appeal. The Court of Appeals stated that such amendments would be contrary to the philosophy favoring finality of judgments.
The Court of Appeals also noted that the garnishment statute, Minn. Stat. § 571.21 (2000), set forth procedures and standards for adding third parties, post-judgment, in order to collect from appropriate third parties. Johns v. Harborage I, Ltd., C1-01-2161, 645 N.W.2d 761 (Minn. App. 6/25/02) http://www.lawlibrary.state.mn.us/archive/ctappub/0206/c1012161.htm
-- Cynthia Jokela Moyer
-- Emily Duke
Fredrikson & Byron
CRIMINAL LAW
Judicial Law
Sentence: Judge Reassignment: Disparate Coconspirator Sentences. The appellant pleaded guilty to first-degree controlled substance in Pope County in front of Judge Stafsholt, as did two coconspirators. Both coconspirators received downward durational departures from the presumptive 86-month sentence. Appellant had a separate sentencing date. There was no agreement as to sentencing. Judge Stafsholt was on temporary medical leave for the appellant's sentencing date, and the case was reassigned to Judge Mennis. Chief Judge Sciebl denied the appellant's motion for a continuance, citing the disability of the judge and the age of the appellant's case. Appellant was sentenced to the presumptive 86-months executed.
Held, it was not an abuse of discretion for the chief judge to substitute another judge when the plea judge was on medical leave. It is mere speculation that the appellant was prejudiced by the denial of his motion to continue the sentencing until Judge Stafsholt returned. The record establishes no basis for a presumption that Judge Stafsholt would have departed under the guidelines. On the contrary, there is evidence that the appellant was the ring leader, and at least two of the other coconspirators had cooperated with the police. Disparate sentence of coconspirators is warranted when there is a rational basis for distinguishing one coconspirator's culpability from the other, citing State v. McClay, 310 N.W.2d 683, 685-86 (Minn. 1981). State v. John Allen Mix, C1-02-288, 646 N.W.2d 247 (Minn. App. 06/25/02). http://www.lawlibrary.state.mn.us/archive/ctappub/0206/c102288.htm
Sentence: Upward Departure: Pattern/Dangerous Offenders: Consecutive. The trial court found, and the appellant does not contest, that the appellant qualifies as a patterned sex offender and a dangerous offender. On a charge of second-degree criminal sexual conduct, the court imposed a five-fold departure on the single ground that he is a patterned sex offender, and this departure is upheld. On the kidnapping conviction, the trial court imposed a ten-fold departure, the statutory maximum of 40 years, citing his status as a dangerous offender under Minn. Stat. §609.1095, subd. 2. "Although a ten-fold durational departure is greater than reported in the case law, Hearn's dangerousness is well-documented, as is his recidivism."
With respect to the kidnapping sentence, it was imposed consecutively to the criminal sexual conduct sentence, which sentence is reversed. In order to employ a consecutive sentence for the kidnapping, the court may not rely on the appellant's status as a patterned sex offender or a dangerous repeat felon: additional aggravating circumstances are required. In this case, the Court of Appeals holds that the purported particular cruelty does not rise to the level of "severe aggravating circumstances" which are necessary to impose a consecutive sentence. State v. David Wayne Hearn, C3-01-1318, 647 N.W.2d 27 (Minn. App. 07/02/02). http://www.lawlibrary.state.mn.us/archive/ctappub/0207/c3011318.htm
Sentence: Pattern of Harassing Conduct: Criminal History Computation: Prior Conviction. In a conviction for a pattern of harassment, the trial court used the defendant's prior conviction for terroristic threats to compute his criminal history. Minnesota Sentencing Guideline II.B.6 prohibits using a prior conviction which makes the current offense a felony solely because of the prior conviction. The Court of Appeals notes that "[i]t is unclear whether this guideline applies to a conviction of a pattern of harassing conduct ... because guilt depends on prior 'acts,' not on prior 'convictions.'" In this case, however, the conviction for the pattern of harassing conduct could have been supported by the evidence of three other prior acts of harassing conduct, without evidence concerning the prior conviction for terroristic threats. Accordingly, the district court did not err by including the conviction in the calculation of the appellant's criminal history score. State v. Robin Lee Stillday, C3-01-1495, 646 N.W.2d 557 (Minn. App. 07/09/02). http://www.lawlibrary.state.mn.us/archive/ctappub/0207/c3011495.htm
Sentence: Judicial Basis: Upward Departure. The trial court committed judicial misconduct by continually calling the appellant "immoral," and defying directives from the Board of Judicial Standards not to use the word "immoral." The trial court also engaged in sustained personal attacks on the defendant's character, and imposed a triple upward durational departure of 171 months, without providing specific findings to support the departure.
Held, the district court's comments at sentencing constitute judicial misconduct to the degree that the appellant was denied an impartial sentencing tribunal. However, the upward durational departure is supported by the record, even absent the findings. The upward departure, however, is reduced to a double upward departure. State v. Randal David Simmons, C2-02-25, 646 N.W.2d 564 (Minn. App. 07/09/02). http://www.lawlibrary.state.mn.us/archive/ctappub/0207/c20225.htm
Sentence: Apprendi: Conditional Release. The trial court sentenced the appellant, under the patterned sex offender statute, to the 15-year statutory maximum sentence for third-degree criminal sexual conduct. In addition, the appellant was given the mandatory 10-year period of conditional release pursuant to Minn. Stat. §609.108. Held, Apprendi does not limit its application to actual incarceration; rather, it applies to any increase in a defendant's "penalty." "Conditional release is an obvious penalty that would allow the appellant to invoke Apprendi." In this case, because the 10-year conditional release, when added to the 15-year incarceration period, goes beyond the statutory maximum, there is an Apprendi violation. Hence, any fact that would increase the penalty over the statutory maximum must be determined by a jury. The court concludes, however, that the 10-year duration of conditional release is not mandatory, citing State v. Wukawitz, 644 N.W.2d 852, 856 (Minn. App. 2002). Therefore, in order to avoid an Apprendi violation, the district court may reduce the appellant's conditional release period, on remand, to a time less than 10 years so that the conditional release period plus the incarceration time do not exceed the statutory maximum of 15 years. State v. Jela DeShaun Jones, CX-01-1431, 647 N.W.2d 540 (Minn. App. 07/16/02. http://www.lawlibrary.state.mn.us/archive/ctappub/0207/cx011431.htm
Sentence: Probation Violation: Postponement Until Trial: Limited Use of Immunity. Although a district court made findings, during a probation violation hearing, which satisfied only one of the three requirements for such hearings, findings for the additional requirements may be inferred from a reading of the court record as a whole. Next, it is within the court's discretion to conduct a revocation hearing before trial on the new charges. Minn. R. Crim. P. 27.04, subd. 2(4) and State v. Phabsomphou, 530 N.W.2d 876, 878 (Minn. App. 1995), review denied (Minn. 6/29/95). The court notes that the holding in Phabsomphou was based in part on the district court's offer of limited use immunity to the defendant in that case, who chose to testify at the revocation hearing. In this case, however, the record did not reflect that the appellant ever requested limited use immunity. Phabsomphou does not obligate the district court to unilaterally offer limited use immunity to a defendant who chooses to testify at a revocation hearing. State v. Frederick Arden Hamilton, C2-02-381, 646 N.W.2d 915 (Minn. App. 07/16/02). http://www.lawlibrary.state.mn.us/archive/ctappub/0207/c202381.htm
Criminal Procedure: General Charge Versus More Specific Charge: Felony Murder Versus Third-Degree Murder. Appellant maintained a meth lab, which exploded, killing an occupant. Appellant was charged with second-degree felony murder and third-degree controlled substance murder, among other charges. Following the decision in State v. Craven, 628 N.W.2d 632 (Minn. App. 2001), review denied (Minn. 8/15/01), the district court dismissed the felony murder charge in favor of the more specific charge of controlled substance murder. Because second-degree felony murder and third-degree controlled substance murder, as charged in this case, both require proof of identical elements, that is, (1) death, (2) causation, and (3) the manufacture of methamphetamine, the two statutes conflict only in the respect that they prescribe different penalties. According to Craven, where two statutes require proof of identical elements, the specific statute controls the general statute, unless the Legislature manifestly intends otherwise. The state argued that because Minn. Stat. §609.195(b), third-degree controlled substance murder, does not include "manufacturing" in its definition, then that statute does not apply and should not have been charged. However, Minn. Stat. §152.01 defines "sell" to include manufacturing. The second-degree felony murder charge was thus properly dismissed. State v. Troy Alan Meyer, CX-02-1, 646 N.W.2d 900 (Minn App. 07/09/02). http://www.lawlibrary.state.mn.us/archive/ctappub/0207/cx021.htm
Criminal Procedure: Offer to Stipulate: Pattern of Harassment: Prior Conviction. The appellant was charged with engaging in a pattern of harassing conduct, under Minn. Stat. §609.749, subd. 5. One prior act involved a conviction for terroristic threats. The appellant offered to stipulate to the conviction for terroristic threats and preclude any testimony regarding the underlying events of the conviction as being prejudicial. The district court allowed the state to introduce evidence of the prior incident.
Held, it was not an abuse of discretion to allow the state to prove the underlying facts concerning a conviction for terroristic threats, in spite of the offer to stipulate. Defense stipulations of this type are allowed in only limited circumstances. Here, the relevance of the conviction was greater than the conviction itself, because, under §609.749, subd. 5, the state must also prove that under the circumstances the pattern of events caused the victim to feel terrorized and did cause that effect. State v. Robin Lee Stillday C3-01-1495, 646 N.W.2d 557 (Minn. App. 07/09/02). http://www.lawlibrary.state.mn.us/archive/ctappub/0207/c3011495.htm
Venue: Change of Venue: Higher Percentage of Minorities. The appellant moved the trial court for a change of venue to a county with a higher percentage of African-Americans. Appellant was charged with criminal sexual conduct in Le Sueur County. During voir dire, prospective jurors displaying prejudicial attitudes were removed for cause or by peremptory challenge. In a case of first impression, the Court of Appeals holds that a denial of a pretrial motion to change venue to a county with a greater percentage of minorities should be examined with an abuse of discretion standard, with a requirement that the moving party show actual prejudice. In this case, appellant has not shown that he suffered actual prejudice from the jurors' racial composition. State v. Jela DeShaun Jones, supra.
-- Frederic R. Bruno
Frederic R. Bruno & Associates
EMPLOYMENT & LABOR LAW
Judicial Law
Unemployment Compensation. The Minnesota Supreme Court reached different results in a pair of rarities, unemployment compensation cases before the High Court. In Schmidgall v. FilmTech Corp., 644 N.W.2d 801 (Minn. 2002), the Court held that an employee's failure, on three occasions, to comply with her company's "same shift" reporting rule for work-related injuries constituted a "misconduct" which disqualified her from receiving unemployment compensation benefits. However, in Houston v. International Data Transfer Corp., 645 N.W.2d 144 (Minn. 2002), the Court held that an employee who acted rudely to a customer did not satisfy the standard of having "intentionally ignored or paid no attention" to her duties and obligations, to disqualify her from receiving benefits. The Houston case seems to establish a new standard for determining "misconduct" under Minn. Stat. §268.095 subd.6(a), requiring that the employee have committed intentional conduct that purposely ignores or disregards work-related obligations.
Age Discrimination The Court of Appeals recently reversed a pair of dismissal of age discrimination cases under the Human Rights Act. In Orensteen v. St. Cloud University, 2002 WL 1018948 (Minn. App. 2002) (unpublished), the court overturned the dismissal of a lawsuit brought by a 71-year-old faculty member at St. Cloud State University, who was bypassed for a tenure-track position in favor of a younger woman. The court reinstated his lawsuit asserting his age and gender discrimination claims. His age discrimination charge was based in part upon remarks made by college officials which evinced age bias and could not be disregarded as mere "stray remarks" since they were made by people who played critical roles in the decision-making process. Additionally, there is evidence that the criteria used to select the younger female candidate may have been pretextual since another male candidate had "far superior" qualifications than the woman that was selected for the position.
A group of employees at a country club were allowed to pursue their age discrimination claim after they were laid-off and not called back to work following a renovation of the facility. In Strand v. Interlachen Country Club, 2002 WL 1365637 (Minn. App. 2002) (unpublished), the court held that the trial court erred in several evidentiary rulings in dismissing the lawsuit. The case was remanded because the trial court's evidentiary rulings improperly sustained objections by the employer without explaining the reasons for its rulings.
Medical Data. A police chief could not sue for invasion of his constitutional right of privacy when his psychological condition was discussed in public by city officials. In Cooksey v. Boyer, 289 F.3d 513 (8th Cir. 2002), the 8th Circuit Court of Appeals held that the city had a legitimate interest in discussing the police chief's medical condition following a stress-related leave of absence and that comments made about his medical status did not constitute a violation of his constitutional civil rights.
Arbitration Award A tenured elementary teacher music teacher was properly terminated for inappropriate physical conduct and discipline of students in Cianflone v. Ind. Sch. Dist. No. 112, 2002 WL 1364247 (Minn. App. 2002) (unpublished). The court upheld affirmance of an arbitral decision in favor of the dismissal, reasoning that the arbitration properly concluded that the teacher, who had been suspended five years earlier, was unlikely to modify his behavior because he failed to acknowledge that his conduct was inappropriate.
Workers Compensation. A temporary employee, who worked for an agency, is not entitled to pursue a negligence action against the company where she performed her work. In Ulstad v. Brenny, C9-01-2196, 2002 Minn. App. lexis 726 (Minn. App. 6/25/02) (unpublished), the appellate court ruled that the employee was a "loaned servant" and, therefore, barred from suing the "special employer" under the exclusivity provision of the Workers Compensation Act, Minn. Stat. §76.0B1.
Legislation
The Occupational Safety and Health Administration, (OSHA) recently issued a "comprehensive plan" for ergonomics in the workplace. The proposal is a four-pronged approach, including targeting industries with many musculoskeletal disorders in developing guidelines based on real-life solutions; developing an enforcement plan to prosecute employees who violate the provisions, creating an outreach and compliance assistance program for employers; and researching ergonomics problems and ways to solve them using scientific investigation of research projects. The plan generally has drawn approval from employers, including the National Association of Manufacturers, which has supported the "focus on education and training" in the program. In Congress, labor unions have criticized the program as being "totally inadequate" and recommended comprehensive regulations to mandate employer compliance.
Several measures currently pending in Congress would change the way employers compensate their employees. For instance, employees of the federal government and other public sector agencies currently have the choice of comp time -- time off from the job -- to compensate for overtime they have already worked.
A measure recently introduced in Congress, H.R. 1982, known as the "Working Families Flexibility Act," would require employers in the private sector to offer the same benefits to their employees, including the option of taking one hour of leave without utilizing accrued vacation for every hour of overtime that an employee has worked. The measure would require both employers and employees to complete a written agreement to use comp time and, if the employee is in a union, the agreement must be part of the collective bargaining agreement between the employer and the union. A measure in the Senate would seek to ban discrimination in employer-funded health insurance based on an individual's genetic information. The bill, known as Genetic Information Non-discrimination Act, S. 1995, offers a compromise to previously introduced bills by requiring employees to first file a discrimination claim with Equal Employment Opportunity Commission (EEOC), as well as providing compensatory and punitive damages.
A measure in the House, H.R. 8040, known as the Civil Rights Tax Relief Act of 2001, would amend the Internal Revenues Code to allow some exclusion for damages recovered as a result of a settlement or verdict for wrongful termination. Currently, most such compensation is taxable as a result of a change to §104(a)(2) of the Code, which taxes most employment-related damages except those attributable to "physical" injuries.
Requiring equal health insurance coverage for mental health benefits is the goal of the Mental Health Equitable Treatment Act, H.R. 4066, which is currently pending in the House. The bill would prohibit group health plans that provide mental health benefits from imposing limitations or financial requirements on mental health treatments that do not currently exist for physical health treatment.
A similar bill, S. 543, is pending in the Senate and is broader than the House version because it would, pertain to all mental disorders. Known as the "Mental Health Parity" legislation, two versions might ultimately result in a compromise, currently being debated in Congress, to limit the provisions to major psychiatric disorders.
-- Marshall H. Tanick
Mansfield Tanick & Cohen, PA
ENVIRONMENTAL LAW
Administrative Developments
Federal Environmental Penalty Levels to Rise. The maximum level for federal civil penalties for civil violations of environmental laws will increase by 14 percent beginning August 19, 2002, according to notice published by the Environmental Protection Agency (EPA) in the June 18 Federal Register. The increase is mandated by the 1996 Debt Collection Improvement Act, which requires federal agencies to adjust civil penalties every four years for inflation so as to maintain their deterrent effect.
The increase will affect penalties assessed under both EPA administrative actions and judicial enforcement actions filed by the Justice Department. The maximum level for judicial civil penalties will increase from $27,500/day to $31,500/day for each violation of most requirements under the Clean Water Act, Clean Air Act, Toxic Substances Control Act, Safe Drinking Water Act, and Resource Conservation and Recovery Act. The maximum level for administrative penalties assessed by the EPA will increase from $220,000 to $250,000. The list of increased penalty amounts published in the EPA's notice will replace those found at 40 cfr 19.4. 67 Fed. Reg. 41343.
Emergent Issues
MPCA Updates "Impaired Waters" List. The Minnesota Pollution Control Agency published its updated list of Minnesota's "impaired waters" in the July 8, 2002 State Register. Under the federal Clean Water Act, states are required every four years to list the rivers and lakes within their borders that do not meet federal water-quality standards. The states must then develop Total Maximum Daily Loads (TMDLs) for those water bodies. TMDLs set limits and reduction goals for each applicable pollutant in order to restore the water body to and maintain the water body at applicable water-quality standards.
The MPCA's 2002 list contains 1,780 lakes or streams considered "impaired." The new list includes 500 new additions from the last list, published in 1998. Interested parties have been invited to submit comments on the draft list. The MPCA will then finalize the list and submit it to the EPA for approval. 27 Minn. Reg. 2, p. 56.
-- William Hefner
Greene Espel, PLLP
FAMILY LAW
Judicial Law
Adoption; Paternity and Fathers' Adoption Registry. As reported in the March issue of Bench & Bar, the Court of Appeals affirmed the district court's dismissal of biological father's paternity action where father had not timely registered under the Fathers' Adoption Registry. On appeal, a divided Minnesota Supreme Court affirmed. Framing the issue in as whether father's paternity action must be dismissed due to his failure to register with the Minnesota Fathers' Adoption Registry before the child was more than 30 days old. the Court noted that father is barred under Minn. Stat. §259.52, subd. 8, from maintaining his paternity action unless (1) he was entitled to notice of the adoption under Minn. Stat. §259.49, subd. 1, (2) he timely registered with the Minnesota Fathers' Adoption Registry, or (3) his failure to timely register is excused under Minn. Stat. §259.52, subd. 8.
Father admitted he does not meet any of the criteria for notice of the adoption under Minn. Stat. §259.49, subd. 1(b) but argued that he should be "deemed" entitled to notice because he would have been named on the birth certificate but for "fraudulent collusion" by mother and the adoption agency and because he would have timely commenced a paternity action had mother revealed her location. However the majority held there is no basis in the language of Minn. Stat. §259.49, subd. 1(b), for expanding the categories of putative fathers entitled to notice beyond those specifically listed. Father also conceded that his registration, filed one day late, was untimely. However, he argued that his failure to timely register should be excused because it was "not possible" for him to timely register and that his failure to timely register was "through no fault of his own" under Minn. Stat. §259.52, subd. 8(i)-(iii), asserting that it was "not possible" for him to register in Minnesota because mother concealed her location and he did not know she was in Minnesota.
The majority found no merit in this argument, noting that the Legislature specifically provided that lack of knowledge of pregnancy or birth would not excuse a putative father's failure to timely register. Minn. Stat. §259.52, subd. 8. This statutory language shows that the Legislature intended not to excuse an untimely registration based on concealment of the fact of pregnancy or birth by the birth mother even if the concealment made it "not possible" for the putative father to timely register and his failure to timely register was "through no fault of his own." It follows that concealment by the birth mother of facts related to the pregnancy or birth, such as her location during pregnancy or at the time of birth, would also not excuse a putative father's failure to timely register even if he otherwise met the requirements of Minn. Stat. §259.52, subd. 8(i)-(iii). Therefore, the fact that mother concealed her location from father does not excuse his failure to timely register with the Minnesota Fathers' Adoption Registry.
The Court also declined to impose a fiduciary duty on an unmarried birth mother to disclose her location to the putative father even if she knows he wants to know her location or establish a relationship with his child., referring to numerous situations in which an unmarried birth mother would be justified in keeping information from a putative father, including situations where the woman has fled an abusive relationship, where the pregnancy was the result of nonconsensual intercourse, or where the putative father poses a danger to the child. Furthermore, there is no need to impose such a duty on the birth mother in the interest of protecting a putative father's interests because the Legislature has provided a means for the putative father to assert his interest in his child independent of the birth mother through registration with the Minnesota Fathers' Adoption Registry. Because the Court declined to impose a fiduciary duty on a birth mother to notify a putative father of her location at the time of birth, mother had no duty to disclose her location to father and father's claim of fraudulent nondisclosure fails as a matter of law. Finally, the Court found no merit in father's statute of limitations, estoppel, and constitutional arguments.
In dissent, Page, J., joined by Gilbert J., would have held that section 259.52, subd. 8 exists to protect any father who is not otherwise entitled to notice under section 259.49, subd. 1, and who did not register before the expiration of the 30-day period set forth in section 259.52, subd.7, if the father can demonstrate by clear and convincing evidence that it was not possible for him to register, that it was not his fault for having failed to register, and that he registered within ten days after it became possible to do so. Justice Page's dissent concluded that if subdivision 8, on the facts of this case, is read, as the Court does, to exclude this father from its protection, then the statutory scheme fails to protect a father's opportunity to form the parent-child relationship and, consequently, violates due process. Justice Paul Anderson joined in Page, J.'s dissent except to the extent that it accused the majority opinion as being "arrogant and hostile". Affirmed. Heidbreder v. Carton, C0-01-739, 645 N.W.2d 355 (Minn. 6/13/02). http://www.lawlibrary.state.mn.us/archive/supct/0206/c001739.htm
Jurisdiction: Uniform Child Custody Jurisdiction Act. Father commenced an action in Minnesota to determine the paternity and custody of his minor son. Before commencing the action, father obtained physical custody of the child from the child's maternal grandmother following her request that father take custody. At the time, the child was living with his grandmother in Michigan. The district court dismissed father's action on the grounds that the court lacked personal jurisdiction over the child's mother. On appeal, the Court of Appeals reversed and remanded the case to the district court for consideration of a number of issues, including whether the district court had subject matter jurisdiction over the custody dispute under Minnesota's codification of the Uniform Child Custody Jurisdiction Act (UCCJA). On remand, the district court dismissed father's paternity claim on the grounds that the child had not been joined as a party. On the custody claim, the court found that it did not have subject matter jurisdiction under the UCCJA because there was insufficient evidence to determine whether another state had jurisdiction and there was not a significant connection between the child's mother and Minnesota. The court stated that it also could have declined subject matter jurisdiction under the UCCJA's unclean hands provision due to father's wrongful conduct of taking physical custody of the child without the mother's consent. Father again appealed and the Court of Appeals reversed on the issue of paternity and affirmed on the issue of custody. Having prevailed on the issue of paternity, father appealed only the matter of subject matter jurisdiction. The MSBA Family Law Section participated as amicus curiae in support of father.
Following its de novo review of the subject matter jurisdiction issue, the Minnesota Supreme Court reversed. The Supreme Court noted that, under Minn. Stat. §518A.03 (1998), Minnesota's codification of the UCCJA, there are four bases for a Minnesota court to assert subject matter jurisdiction over a custody matter: home state jurisdiction, best interest of the child jurisdiction, emergency jurisdiction, and default or vacuum jurisdiction. Minnesota's UCCJA also grants the district court the discretion to decline jurisdiction on the basis of petitioner's conduct. This is the "reprehensible conduct" or "unclean hands" provision. The Supreme Court agreed that the district court lacked jurisdiction over the custody issue under the UCCJA's home state, best interest, and emergency jurisdiction provisions. However, the Supreme Court held that the district court erred in declining jurisdiction under the default provision. It was reasonable for the district court to have assumed that another state had not declined to exercise jurisdiction. However, the district court did not make a finding as to whether it appeared that no other state would have jurisdiction. The district court did speculate that California might be able to exercise home state subject matter jurisdiction over the custody dispute, but stated that it could not, "on the evidence before it, conclude that no other State would have jurisdiction." Moreover, the district court did not address whether it was in the child's' best interests for a Minnesota court to exercise jurisdiction as it was required to do by statute.
As a result, the Supreme Court concluded that the district court abused its discretion in failing to make mandatory findings regarding (1) the availability of another state forum and (2) the best interest of the child. The Supreme Court also concluded that it is in the child's best interest that some forum be available to adjudicate custody because, under the facts here, there is no other forum that can and will adjudicate custody. Therefore, the district court erred when it found that it did not have jurisdiction over the custody dispute under the UCCJA's default provision.
The district court found that even if it did have jurisdiction under the default provision, it could decline jurisdiction under the UCCJA's unclean hands provision. Once again, the Supreme Court reversed. The Supreme Court noted that, under the unclean hands doctrine, courts refuse to assume jurisdiction when the petitioner has abducted the child or has engaged in some other objectionable scheme to gain or retain physical custody of the child in violation of the decree. However, the Court emphasized that this rule is often not applied when adherence to it would lead to punishment of the parent at the expense of the well-being of the child. Thus, the language of the statute and the comments to the uniform law indicate that a district court, when applying the unclean hands provision, must not only consider whether a petitioner's conduct was wrong or reprehensible, but must also consider whether declining jurisdiction is proper under the circumstances and in the best interest of the child. Here, the district court found that father engaged in wrongful conduct in taking the child to Minnesota without mother's permission. But this was not a case where the petitioning parent abducted the child or where the parent sought a favorable forum to adjudicate custody. Father took custody of the child after the child's grandmother requested that he take the child to his home in Minnesota. There was no evidence that father took custody of the child and brought him to Minnesota to find a favorable forum. In fact, father had lived in Minnesota for nearly four years. Therefore, the Supreme Court concluded that the district court abused its discretion in finding that father wrongfully gained custody of the child. The district court also abused its discretion in speculating that it could exercise its discretion to decline jurisdiction under the unclean hands provision without considering whether exercising jurisdiction would be in the child's best interest. Section 518A.08 requires a court to consider whether declining jurisdiction is just and proper under the circumstances and the Supreme Court concluded that it was just and proper under the circumstances, i.e., in the child's best interest, that some forum, in this case Minnesota, adjudicate custody. Reversed and remanded. Johnson v. Murray, C7-01-480, 648 N.W.2d 664 (Minn. 7/18/02). http://www.lawlibrary.state.mn.us/archive/supct/0207/c701480.htm
-- Stephen R. Arnott
Past Chair, Family Law Section, MSBA
FEDERAL PRACTICE
Judicial Law
Recusal; Social Relationship Between Judge and Defendant. While deposing one of the defendants, plaintiff learned that this defendant had known the trial judge for more than 21 years, and that the defendant and the judge had visited each other in their homes on more than one occasion. The judge had never disclosed this relationship to the parties. Plaintiff then made a motion for recusal which the trial court denied without comment. After defendants were granted judgment as a matter of law, plaintiff appealed both the merits of his case and the denial of his recusal motion.
An en banc 8th Circuit found that it was "troubled" by the denial of the recusal motion, because a social relationship "of sufficient depth and duration as to warrant several reciprocal visits to one another's homes" would "cause the average person in the street to pause," and found "particularly worrisome" the district court's failure to disclose the conflict. However, after first reversing the judgment as a matter of law, rather than remanding the matter to a different judge, the 8th Circuit noted its "utmost faith in the district court's ability to rule impartially," and remanded the matter to the district court accompanied by a "suggestion that it revisit and more thoroughly consider and respond to [plaintiff's] recusal motion. Moran v. Clarke, 296 F.3d 638 (8th Cir. 2002) (en banc).
Abstention; Federal Question; Abuse of Discretion. After several communications regarding their respective rights in their similar trademarks, plaintiff filed a declaratory judgment action seeking a determination that its use of its mark did not infringe on the defendant's rights under the Lanham Act. Six weeks later, the defendant commenced a state court action involving no federal claims, and then moved to stay the federal action in favor of its later-filed state court action. Months later, the federal district court granted the motion to stay, and the plaintiff appealed.
While acknowledging that a district court's decision to stay a declaratory judgment action is to be reviewed under an abuse of discretion standard, the 8th Circuit found that the district court had abused its discretion by failing to consider one important factor -- the presence of a federal question not present in the state court action -- in its stay decision. The 8th Circuit also found it "relevant" -- though not "dispositive" -- that the federal action was filed first.
In a concurring opinion, Judge Bye expressed the view that a federal court should never stay an action when federal questions predominate over state law issues and called for the overruling of two 8th Circuit decisions which previously held otherwise. Verizon Communications, Inc. v. Inverizon Int'l, Inc., 295 F.3d 870 (8th Cir. 2002).
Other Noteworthy Decisions. Judge Magnuson relied on the doctrine of fraudulent joinder in refusing to remand an action to the Minnesota courts which had been removed on the basis of diversity jurisdiction, finding that the non-diverse defendants "were joined only to frustrate subject matter jurisdiction." Wesenberg .v Zimmerman, 2002 WL 1398539 (D. Minn. 6/24/02).
Judge Frank applied the Colorado River abstention doctrine and the so-called "declaratory judgment exception" to the "first-filed rule" to stay an earlier-filed action in favor of a later-filed Maryland state court action. Andersen Windows, Inc. v. Delmarva Sash & Door Co., 2002 WL 1424570 (D. Minn. 6/28/02).
Two days earlier, Judge Frank denied a motion to transfer venue based primarily on the "first-filed rule" where for "practical purposes the actions commenced only a day apart." Red Wing Shoe Co. v. B-Jays USA, Inc., 2002 WL 1398538 (D. Minn. 6/26/02).
Judge Magnuson denied a motion to remand an action that including a Lanham Act claim for unfair competition, rejecting plaintiff's argument that the federal jurisdiction was lacking because the unfair competition claim was not joined with a copyright or trademark claim as 28 U.S.C. §1338(b) requires. Geospan Corp. v. Facet Technology Corp., 2002 WL 1587219 (D. Minn. 7/10/02).
Judge Frank denied the defendant's motion to strike allegations from plaintiffs' complaint pursuant to Fed. R. Civ. P. 12(f), finding that while all of the conduct mentioned did not constitute "actionable behavior," the complaint did not include "impertinent or prejudicial characterizations of the law." Arnold v. Cargill, Inc., 2002 WL 1576141 (D. Minn. 7/15/02).
-- Josh Jacobson
Law Office of Josh Jacobson, PA
INTELLECTUAL PROPERTY LAW
Judicial Law
Patents; Jurisdiction; Well-Pleaded Complaint; Counterclaim. The U.S. Supreme Court has ruled that the Court of Appeals for the Federal Circuit does not have jurisdiction over a case in which the answer, not the complaint, included a patent-law claim (counterclaim). Ending at least a decade-long belief that the Federal Circuit must hear all appeals of patent-law claims, the Court refused to turn the well-pleaded-complaint rule into the "well-pleaded-complaint-or-counterclaim rule." The Court also stated, based on the same reasoning, that a counterclaim cannot be the basis for a federal district court's jurisdiction. "[W]hether a case arises under federal patent law 'cannot depend upon the answer.'" Holmes Group, Inc., v. Vornado Air Circulation Systems, Inc., 122 S.Ct. 1889 (U.S. 06/03/02),
Trademark; Cybersquatting; Confusion; Damage to Good Name. Judge Montgomery granted the plaintiffs' motion for a Temporary Restraining Order and Preliminary Injunction against alleged cybersquatter William Purdy. Defendants registered numerous domain names that incorporate plaintiffs' trademarks into Internet domain names at which anti-abortion information appeared.
Plaintiffs sued under the Anticybersquatting Consumer Protection Act, 15 U.S.C. §1125(d). The ACPA prohibits use with bad faith intent to profit from a domain name that is identical or confusingly similar to a mark that is distinctive or famous. The court found that defendants' websites display content that does not originate from, is not sponsored by, and is not affiliated with the plaintiffs and, therefore, are likely to confuse the public as to both the source and sponsorship of the defendants' websites, and are likely to divert users from their intended online destinations.
The domain names and website content are also likely to damage the plaintiff's' good names and good will. "Defendants have registered the domain names with a bad faith intent to profit from them by tarnishing and diluting plaintiffs' marks, and by relying on plaintiffs' good names and goodwill to achieve the personal gain of promoting their messages, generating publicity and raising money for supported causes," the court stated. The defendants were ordered to transfer ownership of the domain names to the appropriate plaintiffs. Coca-Cola Co., et al. v. Purdy, et al., 02-cv-01782 (D. Minn. 07/23/02),
Trademark; Unauthorized Alteration, Use; Personal Jurisdiction; Injunction. Judge Davis granted the plaintiff's motion for a preliminary injunction, enjoining the defendants from using the "ComputerUser" trademark. The court also denied the defendants' motion to dismiss for lack of personal jurisdiction.
Defendants entered into a license agreement to use the ComputerUser mark and the national editorial content, artwork and illustrations of ComputerUser.com, and to publish and distribute a ComputerUser magazine in Texas. Plaintiff learned that defendants deviated from the standards of their agreement by unauthorized alteration of the ComputerUser trademark, altering copyrighted editorial content and illustrations, and performing other digressions. ComputerUser.com terminated the defendants as licensees, but defendants continued to publish a ComputerUser magazine and display "ComputerUser" on their website. Defendants also used, despite express warnings to the contrary, plaintiff's mark in association with the Sexiest Geek Alive contest.
Granting the preliminary injunction, the court reasoned that defendants attempted to identify their goods as those of ComputerUser.com. Even though ComputerUser.com presented no evidence of actual confusion, because discovery had not begun, the court held that a likelihood of confusion existed based on visual inspection of the similarities of marks and arguments that defendants' website was deliberately confusing.
The court also held that defendants had enough contacts with Minnesota for personal jurisdiction. Those contacts included the license agreement that contains a Minnesota choice of law clause, that Richards initiated phone contact with ComputerUser.com in Minneapolis, and that he sent royalty checks to Minnesota each month. ComputerUser.com, Inc. v. Technology Publications, LLC, et al. 02-cv-00832 (D. Minn. 07/24/02).
-- Tony Zeuli
-- Catherine Prody
Merchant & Gould
TAX LAW
Judicial Law
Insurance Company Qualifies for Reduced Tax Rate. The Minnesota Supreme Court held that an insurance company that sells life insurance and also disability insurance and health and accident insurance qualifies as a "mutual property and casualty company" within in the meaning of Minn. Stat. §60A.15, Subd. 1(e), which sets forth one tax rate, 2 percent, on life insurance premiums and another rate, 1.26 percent, on all other premiums for mutual property and casualty companies with certain total asset volumes. The determination overruled the Minnesota Tax Court which held that to qualify as a mutual property and casualty company a company had to sell both property and casualty insurance and that its construction of the governing statutory provision did not violate the Equal Protection and Uniformity clauses of the federal and Minnesota constitutions. CUNA Mutual Insurance Society v. Commissioner, C4-01-1859, 647 N.W.2d 533 (Minn. 07/19/02) reversing CUNA Mutual Insurance Society v. Commissioner, 7219, 7220, 7277, 2001 WL 1009290 (Minn. T.C. 08/31/01).
Homestead Exemption Retained Due To Residence In Boarding Care Facility. The Minnesota Tax Court held that an elderly taxpayer, who left his principal residence and homestead unoccupied and was living in a boarding care facility registered under Chapter 144D, retained his homestead status. The court rejected the county's argument that the term "boarding care facility" implied a higher level of medical care services then the term "boarding care home used in Minn. Stat. §273.124, Subd. 1(f)(1)." Philip Frisch v. County of Brown, C9-01-917, 2002 WL 1453701 (Minn. T. Ct. 06/03/02).
Transfer of "Structured Settlement" Payments Requires Independent Professional Advice on Tax Consequences. The Minnesota Court of Appeals held that the transfer of structured-settlement payment rights is in the "best interest" of a payee under Minn. Stat. §549.31 (2000) when it considered factors that include case-specific items, the payee's reasonable preference, the purpose of the transfer, the potential for future income loss or future medical expenses related to the settlement, the relationship of the proposed discount rate to the market rate for similar transfers, and the payee's financial needs and obligations to dependents. Because the injured person did not show factual support of the receipt of "independent professional advice" on the legal, tax, and financial implications of the transfer of structured settlement as required by Minn. Stat. §549.31, Subd. 1(d) (2000) the lower court determination denying the transfer was affirmed. Settlement Capital Corporation v. Jody Lee Lundgren vs. State Farm Mutual Automobile Insurance Company et al., 646 N.W.2d 550 (Minn. App., 2002).
Taxpayer's Deficiency Should Not Reduce Accumulated Earnings Tax. The United States Tax Court held that no part of taxpayer's paid, but contested, income tax deficiency should reduce its taxable income in arriving at accumulated taxable income under I.R.C. §535(b)(1). Metro Leasing and Development Corp. v. Commissioner, 119 T.C. No. 2 (07/17/02).
Attorney Not Liable for Client's Suicide After Advice Allegedly Triggers Audit. Tax attorney is not liable in tort to estate of client who committed suicide allegedly as a result of erroneous advice in a tax dispute with IRS, since suicide was an independent intervening event that broke the chain of causation from attorneys' alleged malpractice to client's death. Cleveland v. Rotman, 01-2488, 2002 WL 1575027 (7th Cir. 07/17/02).
Tax Malpractice Case Dismissed for Lack of Personal Jurisdiction. The 8th Circuit, affirming a U.S. District Court, dismissed for lack of personal jurisdiction three trustees' malpractice suit against three attorneys and their law firm that was filed for failure to inform the trustees of a change in Connecticut tax law. H. Boone Porter, III et al. v. Frank S. Berall, et al., 293 F.3d 1073 (8th Cir., 2002).
Attorney's Mere Selection of Documents Does Not Confer Work Product Privilege. Mere selection of particular documents by individual's defense attorney from much larger group of documents does not automatically transmute selected documents into work product that are protected by work product doctrine. Hambarian v. Commissioner, 118 T.C. No. 35 (06/13/02).
No Netting Allowed for Attorney's Fees Associated with Taxable Wrongful Termination Settlement. In recent reviewed decision, the Tax Court held that attorney's fees paid by an employer to a former employee because of a wrongful termination action must be treated as a miscellaneous itemized deduction deductible only in excess of the two percent AGI floor (and not deductible at all for alternative minimum tax purposes). The wrongful settlement agreement failed to satisfy the business connection requirement of Section 62 and thus was not part of an accountable plan. Biehl v. Commr, 118 T.C. 29 (2002).
Information Reporting: Auction Firm Not Liable for Failure to File Currency Transaction Reports. Jury was provided with sufficient evidence to conclude that automobile auctioning company's failure to file Form 8300 currency transaction reports relating to transactions involving more than $10,000 was not intentional, and thus government's motion for judgment notwithstanding the verdict is denied. Kruse Inc. v. United States, No. 1: 99-cv-428, 2002 U.S. Dist. Lexis 11468 (N.D. Ind. 05/24/02).
Discussion of Tax Liability In "CDP" Hearing Not a Waiver of Statutory Bar. The Tax Court, granting the IRS's summary judgment motion, held that an individual was barred from challenging his tax liability before the court because he received a deficiency notice and didn't petition the court on that basis. The fact that the IRS appeals officer considered the merits of the claim loss at the collection due process "CDP" hearing wasn't a waiver of the statutory bar. The court also concluded that Reg. Section 301.6320-1(e)(3), q&a-e11, is reasonable and valid. Harold F. Behling v. Commissioner, 118 T.C. No. 36 (2002).
Estate Entitled to Deduct Excess Interest Paid to IRS for Section 6166 Deferral. Decedent's estate that previously elected to defer payment of estate tax over 15 years under IRC Section 6166 and paid interest on the deferred payments is entitled to deduct the interest following court's determination that IRS had overstated the value of the taxable estate. Succession of Helis v. United States, 97-190T, 2002 WL 1466214 (Fed. Cl. 06/25/02).
Bankruptcy Court's Marshalling Order to Tax Authorities Affirmed on Appeal. Bankruptcy Court can require federal and state taxing authorities, as holders of tax claims against the debtor secured by liens on certain real property presently owned by debtor's nondebtor spouse, to proceed first against such property to satisfy their claims prior to participating in any distribution from the bankruptcy estate. Ramette v. United States (In re Bame), 279 B.R. 833 (B.A.P. 8th Cir., 2002)
Taxpayers Not Entitled to Charitable Deduction Used for Life Insurance Under Split-Dollar Contract. No part of taxpayers' payments to nonprofit organization, which the organization used to pay premiums on split-dollar life insurance policy, are deductible as charitable contributions because taxpayers did not meet substantial requirements of code and regulations. Addis v. Commissioner, 118 T.C. No. 32 (2002).
Administrative Matters
Attorney General's Office: Notice of Change of Address. Effective July 15, 2002, the Tax Litigation Division of the Attorney General's Office is located at the following address:
Office of the Attorney General
Tax Litigation Division
1100 NCL Tower
445 Minnesota Street
St. Paul, Minnesota 55101-2128
DOR Clarifies Application of Sales Tax to Massage Services. The Minnesota Department of Revenue issued guidance to explain that sales and use tax applies to massage services unless the services are for the treatment of illness, injury, or disease on written referral by health care professionals. Minnesota Department of Revenue Notice 02-08.
DOR Announces Relief for Roseau County. The Minnesota Department of Revenue announced that the department is granting tax relief to taxpayers in the presidentially declared disaster area of Roseau County and any other counties that are declared disaster areas because of flooding. News Release 06/20/02.
DOR Announces End of Property Tax Exclusion Program. Minnesota Department of Revenue issued a news release to announce that the property tax program, known as "This Old House," that allows homestead property owners to exclude improvements from their property's market value, expires January 2, 2003. News Release 06/26/02.
IRS Issues Final Innocent Spouse Relief Rules. IRS issued long-awaited final regulations under the IRC code provisions relieving a married individual from joint liability for taxes due when a married couple files a joint income tax return. The rules reflected IRC Section 6015 enacted in 1998 to expand the rules in Section 6013 for "innocent spouse" relief. IRS refused to change a controversial provision in Section 1.6015-3(c)(2) of the regulations that would deny relief to a spouse, who had actual knowledge of an item giving rise to the taxpayer's liability. T.D. 9003.
IRS Issues Final Offer-In-Compromise Rules Dealing With Hardship, Equity. IRS issued final regulation that provide guidance for IRS to consider equity and economic hardship when considering the adequacy of an offer in compromise. The final rules adopt with minor changes 1999 temporary regulations that were due to expire after three years. While the final regulations reflect IRS's practice of compromising tax liabilities where there is doubt as to the existence, amount, or collectibility of the liability, the rules also allow IRS to accept offers "to promote effective tax administration," based on equity, economic hardship, or public policy reasons. T.D. 9007.
Decision by IRS Not to Tax Monitoring Award in Class Settlement. The IRS, in a private letter ruling issued in connection with a diet drugs class action settlement, has indicated for the first time that medical monitoring benefits do not constitute taxable income. In the ruling, the IRS said that class members need not report as taxable income reimbursements or payments for medical monitoring by a settlement fund, and that a trust created to administer the settlement was not required to report such payments to the IRS under IRC Section 6041 or withhold from payments to nonresident aliens under IRC Section 1441. P.L.R. 200222001. See also, F.S.A. 200228005 (settlement proceeds received by a taxpayer should be treated as a nontaxable return of capital to the extent that they do not exceed the taxpayer's basis in the land taxpayer bought from a company and any proceeds over the basis in the land is capital gain.)
IRS Proposes New Split-Dollar Life Insurance Rules. IRS proposes long-awaited rules providing two mutually exclusive regimes -- based on either loans or economic benefits -- for taxing split-dollar life insurance arrangements. The rules generally follow the approach outlined in Notice 2002-8, issued in January, which determined the regime that would be applicable based on whether an employee or employer owned the life insurance contract. The proposed rules have a broader reach than the Notice, however, applying to split-dollar arrangements between a corporation and a shareholder and between a donor and a donee as well as those between an employer and an employee. The rules apply for purposes of federal income, employment, and gift taxes. reg 164754-01.
Employment Tax on Nonqualified Stock Options and Deferred Compensation Divorce Transfers. The IRS issued a guidance on Federal Insurance Contributions Act "FICA" tax burden on the employer and the nonemployee spouse in the case of transfers incident to divorce of nonqualified deferred compensation or nonstatutory stock options. When the nonemployee spouse exercised the nonqualified stock option, the nonemployee spouse was subject to income tax withholding. The nonemployee spouse received the credit under Section 31 for income tax that was withheld and bore the burden of FICA taxes due on exercise. Even though the nonemployee spouse paid the FICA tax on distribution, the FICA credit belonged to the employee spouse for purposes of Social Security benefits. Proposed Notice 2002-31.
IRS Extends Withholding Taxes on Statutory Stock Options. The IRS issued a notice to extend indefinitely the moratorium on FICA and Federal Unemployment Tax Act taxes for incentive stock options and options under employee stock purchase plans. Notice 2002-47.
IRS May Request Tax Accrual Workpapers in Audits of Prohibited Shelter Transactions. The IRS announced that it may request tax accrual workpapers when it audits returns dealing with certain tax avoidance transactions that IRS has identified as "abusive." Under the new policy, IRS said it may request these documents in the course of examining any return filed on or after July 1, 2002, that claims any tax benefit arising out of a transaction on the agency's list of prohibited shelter transactions. Announcement 2002-63.
Revised Temp Regulations Broaden Reach of Tax Shelter Reporting Rules. IRS issued final, temporary and proposed regs significantly widening the reach of the tax shelter reporting rules. "Listed transactions," which had been reportable only by corporations, are now also reportable by individuals, trusts, partnerships, and S corporations. Other definitional changes will result in the reporting and disclosure of more transactions by taxpayers and promoters. T.D. 9000.
IRS Announces Issues for the 2002 Industry Issue Resolution Program. As part of their 2002-2003 Priority Guidance Plan, the Treasury Department and IRS named the seven issues selected for the 2002 Industry Issue Resolution Program. The program offers guidance on "frequently disputed or burdensome tax issues." The program which began on a pilot basis in 2001, is not a permanent fixture at IRS. The issues selected, based on criteria contained in Notice 2002-02, are: depreciation of cable television systems under Code Sec. 168; tax treatment of pre-production costs of creative property; inventory valuation method for cars in the auto remanufacturing business; recovery period for depreciation of gasoline pump canopies; substantiation of the amount of expenses for meals furnished by child care providers; definition of highway tractors subject to the heavy truck tax under Code Sec. 4051; and deduction and capitalization of costs incurred by utilities for assets used for power generation. IRS said it is also considering one additional issue -- the timing of health maintenance organization (HMO) provider holdback payment recognition -- for inclusion in the program. More detailed information can be found in IRS News Release IR 2002-89, which is available at http://www.irs.gov.
Legislation
Major League Baseball Stadium. The 2002 Legislature passed a bill that provided for the financing for the construction of a major league baseball stadium through local taxes by exempting the stadium from property taxation, and exempting the construction materials from sales taxation. The bill also included money for a study of a shared stadium on the University Campus by the University of Minnesota and the Vikings. H.F. 22214, Chapter 397.
Limited Sales Tax Exemption For Vending Machine Sales. The Legislature and the governor signed into law as Chapter 400, legislation which exempts sales of food under vending machine contracts entered into by schools prior to May 30, 2002, until July 1, 2003, and limits the homestead value of property to its taxable market value.
Minnesota Unemployment Insurance Tax Rate. Minnesota passed a law that changes the unemployment insurance base tax rate for 2003 to 0.38 percent of taxable wages, modifies special assessments for interest on federal loans, and modifies the definition of "low-income area." S.F. 343, signed into law as Chapter 380.
Business Affiliates to Collect Sales Tax. More companies will find themselves responsible to collect and remit sales and use taxes under the 2002 Omnibus Tax Bill.
Looking Ahead
New Jersey Targets Out-of-State Lawyers for Collection of Income Taxes on State Work. In an effort to boost overdue tax collections during a tax amnesty period that ended in June, the New Jersey Taxation Division notified 11,000 out-of-state lawyers that they may owe New Jersey taxes on money they earned while working on cases in the state. The notices went to attorneys nationwide who have been admitted pro hac vice, which allows them to practice in New Jersey for a particular case only, within the past ten years.
Minnesota Tax Collections Failed to Meet Projections. A preliminary estimate by the Minnesota Finance Department in July shows the state collected $212 million less than it projected in fiscal year 2002, mostly because individual income taxes were off. By law, the state must rebalance its book for every two-year budget cycle. The current cycle ends in July, 2003, meaning the next Legislature will have to resolve any shortfall. In the 2002 session, the Legislature made two rounds of cuts -- trimming about $2.4 billion from a two-year budget of roughly $28 million -- to combat expected shortfalls. Most of the money came from rainy day funds, which now are mostly depleted. Individual income taxes were off by 5.3 percent, probably caused by a 30 percent drop in capital gains taxes.
-- Jerry Geis
Briggs & Morgan
TORTS & INSURANCE
Judicial Law
Products Liability -- Negligence as a Seller, Negligence Per Se, Implied Warranty and Apparent Manufacturer. Restaurant patrons who became ill after eating contaminated parsley brought claims against the restaurant, which in turn brought contribution and indemnity claims against two distributors based on negligence, negligence per se, implied warranty, and strict liability. The trial court granted summary judgment for the first distributor based on Minn. Stat. §544.41, the so-called middleman statute. Although the distributor certified the Mexican grower of the parsley as the manufacturer, the court granted the distributor's motion based in part on the restaurant's assertion that the second distributor was the manufacturer. The jury found that the second distributor was not the manufacturer of the parsley, and the court entered judgment for the second distributor.
The Court of Appeals first reversed the summary judgment that had been granted to the first distributor. The court noted that the statute allows the certifying defendant to be dismissed only after a complaint is filed against the manufacturer. Because suit was never brought against the Mexican grower, and because the restaurant's claim that the second distributor was the manufacturer was rejected by the jury, the court held that summary judgment was not appropriate.
The Court of Appeals affirmed judgment of dismissal in favor of the second distributor, holding that the restaurant did not produce evidence of the standard of care applicable to purchasers and resellers of produce, and thus the negligence claim failed. The court also held that the restaurant's implied warranty of merchantability claim would merge into a strict liability claim. Finally, even though the court cited the Restatement (Third) of Torts provision regarding apparent manufacturer status, the court held that the jury had sufficient evidence to determine that the second distributor was not the manufacturer of the parsley. In re: Shigellosis Litigation, and Minnesota Horse and Hunt Club v. Sunridge Farms, Inc., C2-01-1696, 647 N.W.2d 1 (Minn. App. 06/18/02). http://www.lawlibrary.state.mn.us/archive/ctappub/0206/c2011696.htm
ADR; Consensual Special Magistrate Insurance Coverage; Notice to Insurer of Potential Claims. Plaintiffs sued their attorney for malpractice. The attorney's malpractice carrier denied coverage on the basis that the insured had not advised it of the plaintiffs' potential claim when he applied for a new policy. The plaintiff and the attorney entered into a Miller-Shugart agreement, and the plaintiffs filed a declaratory action against the insurer. This claim was heard before a retired Minnesota Supreme Court justice, sitting as a special master, who concluded that the plaintiffs' claim was not covered. This finding was adopted by the district court.
On appeal, the court first assessed whether the decision could even be appealed, because the parties referred to their ADR agreement as a "Voluntary Binding Arbitration." The court held that an appeal was proper because, despite the parties' use of improper terminology, the decision was made by a "consensual special magistrate," and therefore was not subject to the 20-day limitation for an appeal of an arbitration award. The court emphasized, however, the importance of utilizing the proper terminology in ADR proceedings. The court also affirmed the holding that the failure to advise the insurance carrier of the potential claim during the application process precluded coverage under the "claims made" insurance policy. Buller v. Minnesota Lawyers Mutual, C8-01-2237, (Minn. App. 06/18/02). http://www.lawlibrary.state.mn.us/archive/ctappub/0206/c8012237.htm
Successor Liability -- Post-Judgment Proceedings Plaintiff obtained a judgment against her employer, Harborage, Inc., which filed bankruptcy during the lawsuit. Thereafter, the assets of entities of Harborage, Inc. were purchased by Jillian's with the same mailing address, offices, and officers as Harborage. Plaintiff moved to amend her complaint to add Jillian's as a defendant, asserting that it was a successor to Harborage and, therefore, liable for the judgment. The trial court permitted plaintiff to amend her complaint and ultimately granted summary judgment finding that Jillian's was a successor corporation.
The Court of Appeals reversed. As a preliminary matter, the court held that Minn. R. Civ. P. 15 does not authorize post-judgment, post-appeal amendments to add a party to a complaint. Instead, the court held plaintiff was required to follow the procedures set out in the garnishment statute (Minn. Stat. §571.75, subd. 4). The court went on to hold as a matter of law that Jillian's was not a successor to Harborage because it was not a party to the asset purchase agreement by which Jillian's acquired affiliated entities. Johns v. Harborage I, Ltd., C1-01-2161, 645 N.W.2d 761 (Minn. App. 06/25/02). http://www.lawlibrary.state.mn.us/archive/ctappub/0206/c1012161.htm
Tort; Negligence. Plaintiffs brought negligence and negligence per se claims against defendant landlords in connection with an apartment building fire. Plaintiffs alleged that defendants had knowledge of building and fire code violations. The trial court granted defendants' motion for summary judgment on both negligence and negligence per se claims based on its finding that defendants did not have actual or constructive knowledge of the code violations. The Court of Appeals affirmed.
The Supreme Court reversed, finding that the lower courts had failed to recognize the separate liability standards for ordinary negligence and for negligence per se. While actual or constructive knowledge of code violations is a required element of a negligence per se claim based on building code violations, such knowledge of code violations is not a required element in an ordinary negligence claim. Gradjelick v. Leland Hance, C4-00-2161, 646 N.W.2d 225 (Minn. 06/27/02). http://www.lawlibrary.state.mn.us/archive/supct/0206/c4002161.htm
Intentional Acts; Collateral Estoppel. Plaintiffs' daycare provider was convicted of intentionally injuring their infant. When plaintiffs brought a civil claim, the provider's insurer sought a declaratory judgment that the coverage was precluded by the "intentional acts" exclusion of the homeowner's policy. The insurer moved for summary judgment on the grounds that the provider insured was collaterally estopped from denying that the act of injuring the infant was intentional. The district court denied the motion for summary judgment, but certified the question of whether Minnesota law permits criminal convictions to be used for collateral estoppel purposes in civil cases to the Court of Appeals.
The Court of Appeals determined that Minnesota law allows such estoppel. Minnesota has long allowed the use of criminal conviction as collateral estoppel in a subsequent civil suit when the defendant attempts to profit from the crime. Collateral estoppel is not limited to such cases, but may be asserted whenever the party had a full and fair opportunity to litigate the issue in the criminal trial. The Court of Appeals therefore reversed the trial court and granted summary judgment to the insurer. Illinois Farmers Ins. Co. v. Reed, C2-02-123, 647 N.W.2d 553 (Minn. App. 07/23/02). http://www.lawlibrary.state.mn.us/archive/ctappub/0207/c202123.htm
-- Michael Klutho
Bassford, Lockhart, Truesdell & Briggs