February 2006

ALTERNATIVE DISPUTE RESOLUTION
Judicial Law

• Arbitration Clause Encompasses Injunctive Relief Request. Clarus Medical entered into an exclusive agreement and license with Visionary Biomedical (VBI). When VBI went out of business, the license went to VBI’s successor-in-interest, Myelotec. As the business relationship between Clarus and Myelotec deteriorated, Myelotec sent notice to Clarus that the license was terminated, yet Myelotec continued to ship products to Clarus under the license. Clarus asserted that Myelotec could not offer products subject to the license held by Clarus. Clarus filed a complaint against Myelotec for breach of the exclusive license agreement, and asked for a preliminary injunction. Myelotec attempted to invoke the arbitration clause in the agreement between the parties. Clarus did not dispute the validity of the arbitration agreement, but argued that the dispute fell outside the scope of the arbitration provision. The U.S. District Court for the District of Minnesota disagreed, stating that the dispute clearly fell within the scope of the broad arbitration clause. The language used in the arbitration provision did not require disputes to be brought specifically before a court or an arbitrator, so Clarus could bring its demand for injunctive or equitable relief before an arbitrator. Clarus Medical LLC v. Myelotec, Inc., 2005 WL 3272139 (D. Minn. 11/30/05).

• Transportation Workers Exemption and the FAA. Yellow Transportation, Inc. is a transportation company engaged in carrying general commodities by truck. Employment disputes between Yellow Transportation and its employees are governed by a Dispute Resolution Agreement that requires the arbitration of all disputes. Yellow Transportation sought to enforce the arbitration provision in connection with the termination of one of its employees, Troy Lenz. When Lenz was fired, he filed suit in Iowa state court alleging that Yellow Transportation violated the Iowa Civil Rights Act. Yellow Transportation removed the case to the U.S. District Court for the Southern District of Iowa and filed a motion to compel arbitration. The district court ruled that the Federal Arbitration Act (FAA) exemption for transportation workers applied to Lenz and denied the motion to compel arbitration. Yellow Transportation appealed to the U.S. Court of Appeals for the 8th Circuit. Lenz, who was employed as a customer service representative, argued that §1 of the FAA excludes "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." The 8th Circuit reversed the denial of the motion to compel arbitration and held that Lenz’ duties as an employee were only tangentially related to the transportation of goods. While Lenz did work in the transportation industry, he did not directly work with goods that were in interstate commerce, nor did he directly supervise transportation workers. Lenz v. Yellow Transportation, Inc., 2005 WL 3440741 (8th Cir. 2005).

• Valid Arbitration Agreement Confers Jurisdiction. M.A. Mortenson Co. is in the commercial construction business in 47 states. Mt. Carmel Sand & Gravel Co. provides soil stabilization services for highway and construction projects. Mortenson was serving as the general contractor for a construction project at the Elmhurst Memorial Center for Health in Elmhurst, Illinois. Mortenson contacted Mt. Carmel about soil stabilization work on the Elmhurst site, which was extremely wet. Mt. Carmel forwarded a written price estimate and informed Mortenson that it could not begin work for two weeks. Rather than wait to have Mt. Carmel do the work, Mortenson purchased from Mt. Carmel lime-kiln dust to stabilize the soil, rented a rotary mixer and operator, and completed the job. The subcontract between Mortenson and Mt. Carmel reflected Mt. Carmel’s initial proposal to do the work, rather than the actual agreement in which Mt. Carmel provided the lime-kiln dust, rotary mixer, and operator. The subcontract also included an arbitration provision. Two years later, when the concrete slab that formed the first floor of the structure at the Elmhurst site began to heave, claims were brought against Mortenson by Elmhurst. Mortenson sought indemnification from Mt. Carmel based on a breach of the subcontract with Mortenson. The subcontract called for disputes to be arbitrated in Minneapolis, Minnesota, or such other place as designated by Mortenson. Mt. Carmel moved to dismiss Mortenson’s complaint for lack of personal jurisdiction, and also sought a declaratory judgment that the subcontract was invalid and unenforceable. The U.S. District Court for the District of Minnesota found that the subcontract was valid and required Mt. Carmel to submit to arbitration. Section 4 of the Federal Arbitration Act (FAA) states that the proper venue to compel arbitration is the district court located where the arbitration is to be held. Mortenson Co. v. Mt. Carmel Sand & Gravel Co., 2005 WL 3477548 (D. Minn. 12/20/05).

— Darin T. Allen
National Arbitration Forum

February 2006

CRIMINAL LAW
Judicial Law

• Spreigl; Exclusion of Evidence; Pretrial Appeal. Respondent, a pediatrician, was charged with sexual abuse against child A and child B. The district court severed the charges relating to child A from child B. The state then filed a notice that it intended to introduce evidence of the alleged sexual abuse against child B as Spreigl evidence. The district court denied the state’s Spreigl motion, in a pretrial decision, finding that there was not clear and convincing evidence that the respondent acted toward child B with sexual or aggressive intent. Although the allegations against the respondent by child A were clearly of a sexual nature, the Spreigl acts concerning child B were less definitively sexual.

Held, in a departure from precedent, the Supreme Court holds that the exclusion of Spreigl evidence can have a critical impact on a pending trial when the evidence significantly reduces the likelihood that the state would be able to demonstrate a possible pattern of conduct or design that is sexual in nature. Citing Wermerskirchen, 497 N.W.2d 235 (Minn. 1993), the Supreme Court notes that even a single previous act or attempt of sexual misconduct can by itself indicate a design (as opposed to a disposition) to rape. "In other words, a series of acts informs the facts finder of the actor’s intent in ways that a single act cannot." Supreme Court finds that being able to demonstrate a pattern or design is particularly important in child sexual abuse cases where there can be problems of secrecy, victim vulnerability, and absence of physical evidence. Hence, the Court concludes that the state met its burden of proving clearly and unequivocally that the exclusion of the child B Spreigl evidence will have a critical impact on its ability to prosecute the respondent.

Secondly, the Supreme Court finds that the trial court’s decision to exclude the evidence was erroneous by focusing essentially on the mixed evidence of any sexual or aggressive intent by the respondent during his medical examination of child B. Under Minn. Stat. §609.341 subd. 11, such a sexual or aggressive intent needs to be shown to comprise the crime of criminal sexual conduct. However, Rule 404(b), the Spreigl Rule, is not limited to crimes, and the state need only show whether there is clear and convincing evidence that there was a "wrong," or "act." Supreme Court holds that the record is sufficient to show clear and convincing evidence of a wrong or act under Rule 404(b). The case is remanded to the district court with instructions to complete the remainder of the Spreigl analysis (relevance, materiality, and probative versus prejudicial effect). The Court also notes that the trial court "may" defer its final Spreigl decision until the state has presented all of its non-Spreigl evidence at trial, according to State v. Dewld, 464 N.W.2d 500 (Minn. 1991). State v. James Douglas McLeod, A04-2404 (Minn. 11/17/05). www.lawlibrary.state.mn.us/archive/supct/0511/opa042404-1117.htm

• Blakely/Booker; No Upward Durational Departure Based on Firearm; Defendant’s Sworn Admissions At A Sentencing Hearing Not Sufficient: Respondent was charged with 5th degree possession of controlled substance. During the arrest, officers observed a handgun in plain view on the front passenger seat. The charge of 5th degree controlled substance carried with it a year and a day sentence under the guidelines. However, the firearm possession component subjected respondent to a mandatory minimum executed sentence of 36 months. Respondent had a criminal history of zero. Respondent’s request to the trial judge for a jury trial on the issue of the possession of the gun was denied. At the sentencing hearing, the respondent admitted that he had possession of a gun at the time; however, under Royster, 590 N.W.2d 82, 85 (Minn. 1999), where the firearm possession is merely constructive, there must be a finding that the possession of the gun increased the risk of violence of whatever crime he was then committing. Respondent did not make such an admission.

Held, Minn. Stat. §609.11 is unconstitutional to the extent that it authorizes the district court to make an upward durational departure upon finding as a sentencing factor the possession of the gun, without the aid of a jury or an admission by the defendant. Furthermore, any admission made by the respondent after the erroneous denial of this request for a jury trial on sentencing factors (in this case, at the sentencing hearing) was necessarily the product of that error and cannot be used to satisfy the Blakely admission exception.

Finally, the Court notes that the recent amendments to §244.10, which allow a district court to impanel a sentencing jury to determine the existence of aggravating factors, does not address the procedure for imposing a mandatory minimum sentence under §609.11. While noting that several other mandatory minimum statutes were amended to provide for sentencing juries (patterned and predatory sex offenders, repeat sex offenders), "noticeably absent from this list is §609.11." Hence, by the maxim that the inclusion of one thing indicates the exclusion of another, the Legislature did not intend to authorize sentencing juries for sentences made under §609.11. As in Shattuck, the Supreme Court declines to express any opinion about the validity of the amendments to §244.10. State v. Duane Nathanial Barker, A04-1453 (Minn. 11/17/05). www.lawlibrary.state.mn.us/archive/supct/0511/opa041453-1117.htm

• Blakely; Career Offender Statute; Pattern More Than Recidivism. Minn. Stat. §609.1095, the Career Offender Statute, allows a judge to give a greater-than-guideline sentence after a finding that the defendant has five or more prior felony convictions and that the present offense was committed as part of a pattern of criminal conduct. The Supreme Court rejects the state’s Almendarez-Torres challenge, finding that the determination that appellant’s prior convictions formed a pattern of criminal conduct as required for enhanced sentencing under the career offender statute involved more than a finding of recidivism. Held, the court’s determination of a pattern of criminal conduct under Minn. Stat. §609.1095 goes beyond solely the effect of a prior conviction and, therefore, the imposition of an enhanced sentence, greater than the guidelines’ base amount, violated the appellant’s 6th Amendment rights to a trial by jury. The Court also notes that the remedy is dictated by Shattuck II. State v. John C. Henderson, A03-1898 (Minn. 12/01/05). www.lawlibrary.state.mn.us/archive/supct/0512/opa031898-1201.htm

• Blakely/Booker; Upward Dispositional Departures; Custody Status Points. Appellant pled guilty to 1st degree DWI test refusal under a plea agreement which left the sentence up to the court. At the time, appellant was on probation. Even with the custody point for probation, the appellant’s presumptive sentence under the sentencing guidelines was 42 months stay of execution for the 1st degree DWI charge. However, the trial court judge noted the appellant’s numerous prior alcohol-related convictions and his history of absconding from probation, found that appellant was not amenable to probation, and sentenced him to an executed 42-month prison term and upward dispositional departure from the presumptive stayed sentence.

Implicitly overruling State v. Hanf, 687 N.W.2d 659 (Minn. App. 2004), review granted (Minn. 12/14/04), the Supreme Court finds that there is no logical reason to distinguish unamenability to probation from any other factor which would require a defendant to serve more than the "maximum sentence authorized by law." The Court finds that so-called "offender-related factors" under Hanf do not insulate a departure from the constitutional rule of Blakely: "any fact" which is necessary to support a sentence exceeding the maximum must be submitted to a jury or judicially admitted.

Next, the Court finds that the use of a custody point, which increases the presumptive sentence, does not violate Blakely. It is akin to a prior conviction. State v. James A. Allen, A04-127 (Minn. 11/23/05). www.lawlibrary.state.mn.us/archive/supct/0511/opa040127-1123.htm

• Judicial Estoppel; Doctrine Rejected. Appellant’s codefendant, in a murder trial, entered an Alford plea to the lesser-included offense of 2nd degree assault. A second codefendant was acquitted of murder. At appellant’s trial, the state obtained new and significant direct evidence identifying appellant as the individual who actually fired the fatal shot. Appellant was convicted. The defendant maintains that the state should be prevented, by the doctrine of judicial estoppel, from asserting theories of guilt that are inconsistent with and contrary to theories of guilt asserted by the prosecuting attorney in the earlier prosecution of the codefendants.

Held, the Supreme Court notes that the doctrine of judicial estoppel has never been expressly recognized by either the Minnesota Supreme Court or the United States Supreme Court. The Court declines to do so in this case. However, assuming that such a doctrine were applicable, the court notes that the appellant would not be successful in meeting the three prongs of the doctrine: first, the party presenting the alleged inconsistent theories must have prevailed in the original position; second, there must be a clear inconsistency between the original and subsequent position; third, there must not be any distinct or different issues of fact in the proceedings. On all three grounds, the appellant could not prevail in this case. State v. Robin Todd Pendleton, Jr., A04-1128 (Minn. 12/08/05). www.lawlibrary.state.mn.us/archive/supct/0512/opa041128-1208.htm

• Search & Seizure; Vehicle; Suspicion of Open Container, Drug Possession; Search Incident to Probable Cause. At 1:30 in the morning, appellant’s vehicle, which had several weeks previously been identified to the arresting officer as suspected of carrying narcotics, was pulled over by the officer for going 55 mph in a 30 mph zone. The officer detected a strong odor of alcohol, and the passenger seated next to the driver volunteered that the smell came from him. Nonetheless, the officer ordered the appellant out of the vehicle and administered a number of tests for impairment, none of which demonstrated impairment. Perceiving that appellant was significantly more nervous and talkative than a normal person would be in a traffic stop, about 15 minutes into the stop, the officer requested and obtained appellant’s consent to search the vehicle, upon which he found narcotics.

The Supreme Court notes that Minnesota has departed from federal jurisprudence, rejecting Atwater, 532 U.S. 318 (2001), which holds that when an individual has committed even a very minor criminal offense in the presence of a police officer, the offender may be arrested and the vehicle searched. Minnesota strictly limits the scope and duration of a traffic stop investigation to the original justification for the stop, unless there is independent probable cause, or reasonableness to justify the additional intrusion.

Held, under these circumstances, an officer’s detection of the odor of alcohol coming from an adult passenger during a traffic stop does not, by itself, provide a reasonable, articulable suspicion of an open container violation sufficient to permit an officer to expand the traffic stop by requesting to search the vehicle. Secondly, under the Minnesota Constitution, when an officer’s suspicion of drug possession during a traffic is supported only by a driver’s nervousness, an unsubstantiated tip of unknown origin, and speeding, and when the driver does not exhibit other signs of impairment, the officer does not have a reasonable articulable suspicion of drug possession sufficient to permit the officer to expand the traffic stop by requesting to search the vehicle.

The Supreme Court also rejects, out of hand, the state’s argument that the search was justified as a search incident to probable cause to arrest for speeding and failure to provide proof of insurance. The Supreme Court notes that such minor violations, which call for citation only under Rule 6.01, may not be the basis for a search incident to probable cause to arrest, citing State v. Varnado, 582 N.W.2d 886 (Minn. 1998). State v. Peggy Louise Burbach, A04-1530 (Minn. 12/01/05). www.lawlibrary.state.mn.us/archive/supct/0512/opa041530-1201.htm

• Stay of Adjudication: Appealable Pretrial Order. In reversing the Court of Appeals, the Supreme Court finds that under the Rules of Criminal Procedure, an order for a stay of adjudication is a pretrial order appealable by the state, even though it includes the imposition of jail time. The Supreme Court disagrees with the Court of Appeals’ analysis in State v. Lee, 693 N.W.2d 216 (Minn. App. 2005), wherein the Court of Appeals found that Minn. R. Crim. P. 28.04 prevents appeals of misdemeanor sentences by the state. The Supreme Court agrees that a stay of adjudication is not "precisely a pretrial order, but rather, a unique judicial tool with the need for its own rules of procedure." The Court adopts policy reasons which are grounded in the separation of powers doctrine, and holds that an order for a stay of adjudication is appealable "as of right by the state." In this case, the petitioner’s loss of a driver’s license and, hence, his ability to pay child support, may be "special circumstances," but the Supreme Court states that the only concern in granting a stay of adjudication over the prosecutor’s objection is "clear abuse of the prosecutorial charging function" and that so-called "special circumstances" are not relevant. State v. Dennis Gordon Lee, A04-1402 (Minn. 12/08/05). www.lawlibrary.state.mn.us/archive/supct/0512/opa041402-1208.htm

• Sentence; Custody Point after Early Discharge from Probation. In 1996, appellant was sentenced for burglary and received a stay of imposition, and was placed on probation "for a period not to exceed the statutory maximum." At that time, the statutory maximum was ten years. In 1999, the district court discharged the appellant from probation. In 2003, appellant pleaded guilty to new felony charges. The PSI uncovered the 1996 conviction for burglary, and raised appellant’s criminal history score, including one custody status point. The prosecution relied on the language contained in the comment to Minnesota Sentencing Guideline II.B.201, which states that a custody status point should remain when an offender is discharged early but subsequently is convicted of a new felony within the period of the initial length of a stay.

Held, the judge did not impose a ten-year probationary period on the appellant. By imposing a probationary period "not to exceed" ten years, when the court discharged the appellant in 1999, that discharge effectively provided the definitive end of his probationary period and also of his "initial length of stay." Any ambiguity in the sentencing guidelines should be resolved against the state and in the defendant’s favor. State v. Daniel Leslie Maurstad, A04-1000 (Minn. App. 12/13/05). www.lawlibrary.state.mn.us/archive/ctappub/0512/opa041000-1213.htm

— Frederic Bruno
Frederic Bruno & Associates

February 2006

EMPLOYMENT & LABOR LAW
Judicial Law

• Discrimination. An 8th Circuit ruling indicates that an early retirement plan that does not cover employees over 65 years old violates the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §623. The 8th Circuit held that a school district’s plan to encourage early retirement by paying health insurance and a lump sum payment was discriminatory on its face because it excluded employees over 65 and was not subject to the "safe harbor" for bona fide retirement plans under §623(f)(2)(B)(ii). Jankovitz v. Des Moines Ind. Comm. Sch. Dist., 421 F.3d 649 (8^th Cir. 2005).

The 8th Circuit rejected a claim of gender discrimination brought by a female FBI agent in Minnesota. Her claim of a hostile environment was rejected because of the absence of evidence of specific instances of abusive workplace conduct. Her down-graded performance review was attributable to mistakes which were different from those made by male coworkers. But her retaliation claim was actionable because her poor performance evaluation, denial of salary increase, and transfer from North Dakota to Minnesota occurred shortly after she complained of sexual discrimination, which suggests that the adverse action may have been "motivated by [her] complaints." Turner v. Gonzales, 421 F. 3d 688 (8^th Cir. 2005).

An employee’s round of absenteeism warranted dismissal in a gender discrimination claim. Eight unscheduled absences in the preceding year constituted a legitimate business reason to deny a permanent position to a temporary mail carrier. Larry v. Potter, 424 F.3d 849 (8^th Cir. 2005).

A salesman who failed to meet sales goals was not allowed to pursue a race discrimination claim challenging his transfer and subsequent discharge. The Title VII claim was not actionable, even if he did satisfy his sales quotas, because there was no evidence that the "real reason" for his firing was race. But the court reversed dismissal of a claim that he was wrongfully transferred in violation of his rights under the Uniformed Services Employment and Reemployment Rights Act (USERRA) because there was evidence that his military status was a "motivating factor" in the decision to reassign his territory. Masfield v. Cintas Corp. No. 2, 2005 WL 2839762 (8^th Cir. 2005).

The 8th Circuit ruled the reassignment of a social worker due to engaging in protected 1st Amendment speech was not "adverse action" to sustain a retaliation claim. The court held that the claim was not actionable because the employee had the same salary and benefits, the new position requires similar educational background, and the employee performed similar duties before and after the reassignment. Meyers v. Starke, 420 F. 3d 738 (8^th Cir. 2005).

• Unemployment Compensation. Unemployment compensation judges lack authority to modify their rulings after expiration of the 30-day appellate period. The Minnesota Court of Appeals held that the judge did not have jurisdiction to correct an error after the appeal period expired. Rowe v. Dept. of Employment and Econ. Dev., 704 N.W.2d 191 (Minn. App. 2005),

The Minnesota Court of Appeals upheld unemployment compensation benefits for a commissioned sales person, holding that the provision of the unemployment compensation statute that bars benefits for an employee paid "solely" on commissions does not apply if the employee receives fringe benefits in addition to commissions. Minn. Stat. §268.035, subd. 20(26). The employee’s compensation was based solely on commission, but he also received a number of fringe benefits valued at approximately $8,400. Because of the fringe benefits, he was not compensated "solely" on commission and, therefore, was not disqualified from receiving unemployment benefits after his employment terminated. Samuelson v. Prudential Real Estate, 696 N.W.2d 830 (Minn. App. 2005),

• Warn Law. The continuation of a plant as a "going concern" did not activate the 60-day warning requirement under the Federal warn Act, 29 U.S.C. §2101, et seq. The 8th Circuit Court of Appeals upheld dismissal of a claim by employees when their facility was sold, but continued in operation with 44 of the same 68 employees. The decision conforms to a ruling earlier this year by the 9th Circuit, Chauffeurs, Sales Drivers, Warehousemen & Helpers Union Local Int’l. Bhd of Teamsters, AFL-CIO v. Weslock Corp., 66 F.3d 241, (9th Cir. 2005). Smullin v. Mity Enterprise, Inc., 420 F.3d 836 (8th Cir. 2005).

• Employment Contracts. Over-extension of a written employment contract was proved by a preponderance of evidence where there was sufficient evidence for the jury to find that the parties orally and by their conduct continued the arrangement after its term expired. Since the contract allowed termination of the employee only for "cause," his subsequent discharge without cause breached the agreement. Accordingly, a jury verdict of $1,368,000 was upheld by the Court of Appeals for breach of contract, plus attorney’s fees pursuant to a fee-shifting provision in the agreement. Bolander v. Bolander, A04-2003, 2005 WL 1869475 (Minn. App. 08/09/05).

• Public Employment. A jail dispatcher was entitled to work-related disability benefits for stress afflictions resulting from handling a 911 call. Because her illness arose out of her job duties, the appellate court deemed her entitled to benefits under Minn. Stat. §353E.06, Subd. 1, which provides disability and retirement benefits for public sector employees. The injuries need not be related to "uniquely hazardous" activities to be covered by the disability fund, which provides coverage for afflictions arising out of "any act of duty" by a public sector employee. In re Application of Hildebrandt, 701 N.W.2d 293 (Minn. App. 2005).

A peace officer is statutorily entitled to health insurance coverage for a condition that occurred before the statute went into effect as long as the officer’s retirement occurs after the effective dates of the law. The appellate court held that Minn. Stat. §299A.465 covered a retired officer who suffered post-traumatic stress disorder before the statute mandating one year of health insurance benefits went into effect. The statute applies since the officer did not retire until after the effective date of the law. Further, the determination of his eligibility by the Public Employee’s Retirement Association (PERA) is binding and cannot be collaterally attacked by the officer’s employer. Conaway v. St. Louis County, 702 N.W.2d 779 (Minn. App. 2005).

Administrative Matters

A quartet of federal workplace regulations newly went into effect.

The Department of Labor (DOL) issued new rules under the Uniformed Services Employment and Reemployment Rights Act, 38 U.S.C. §4301, requiring employers to inform employees of their rights under the Federal Military Leave Law. The information mandated by the DOL may be communicated by posting a notice entitled "Your Rights Under the USERRA) at the workplace, giving it to employees, or mailing it to them. The document is available at www.dol.gov.

The Occupational Safety & Health Administration (OSHA) has promulgated a new workplace poster, replacing any existing ones, to notify workers of their rights by "plain" language. Available at www.ohsa.gov, it must be conspicuously posted at the workplace.

The Equal Employment Opportunity Commission (EEOC) has updated its compliance manual regarding time limits for filing employment discrimination claims. Under the manual, used as a tool by the EEOC originators, a discrete act is actionable only if it took place within the prior 300 days. But all of the incidents that constitute a hostile workplace environment are actionable if any one of them occurred within the 30-day period. The revision conforms to the ruling of the Supreme Court in National Railroad Passenger Corp. v. Morgan, 536 U.S. 101 (2002).

The Federal Trade Commission (FTC) issued new rules regarding the background check information on employees. 16 C.F.R. pt. 682. The protocol does not specifically mandate when the information must be destroyed, but establishes proceedings for disposition if the employee chooses to destroy materials from checks done by outside entities. If the employee chooses to destroy materials, the rules are aimed at maximizing confidentiality of background data by taking "reasonable measures" in disbursing of such materials to prevent unauthorized access or misuse of the information.

— Marshall H. Tanick
Mansfield, Tanick & Cohen, PA

February 2006

ENVIRONMENTAL LAW
Judicial Law

• Wetland Exemptions: Minn. Stat. §15.99 Approval only to Statutory Limit. Richard Breza applied to the city of Minnetrista in December 2000 for an exemption to the limits on wetland fill under Minn. Stat. §§103G.221 - .2242. Mr. Breza applied for the exemption after he had already filled 5,737 square feet of wetlands on his property without the required permit and had received a cease-and-desist order from the Department of Natural Resources ("DNR"). The city eventually denied his application in January 2002. The city conceded in July 2002 that it had failed to respond to his application within 60 days, as required under Minn. Stat. §15.99, subd. 2. The city maintained, however, that Mr. Breza was eligible for only a de minimis exemption of 400 square feet under Minn. R. 8420.0122, subp. 9(A)(5), and that the decision limiting him to 400 square feet would be final unless he appealed to the Board of Water and Soil Resources ("BWSR") within the next 15 days. Breza instead filed a writ of mandamus to compel the city to approve his exemption for the entire 5,737 square feet, which the Hennepin County District Court eventually granted.

The Minnesota Court of Appeals upheld the district court’s determination that it had jurisdiction to decide the issue. It agreed that the approval of Mr. Breza’s application by operation of law under §15.99 divested the city of any right to further action on the application, including its insistence that its "decision" regarding the 400 square feet limitation be appealed to BWSR. It reversed the district court’s grant of Mr. Breza’s mandamus petition for approval of the entire 5,737 square feet of fill, however. The Court of Appeals found that even if the city had acted on the application on a timely basis, Minn. R. 8420.0122 limited the amount to which the City could allow Mr. Breza to fill his property to 400 square feet. Because an approval by operation of law under §15.99 is limited to the extent of the underlying approval authority, Mr. Breza’s application could only be approved up to 400 square feet of fill. Breza v. City of Minnetrista, 2005 WL 3159732 (Minn. App. 2005).

• NEPA: Cumulative Impacts Analysis Sufficient. The U.S. Army Corp of Engineers ("the Corps") drafted a plan, entitled the Grand Prairie Project ("the Project"), to preserve irrigation practices in portions of Mississippi and Arkansas while also preserving drinking water sources in those areas. The Arkansas Wildlife Federation ("AWF") and numerous other plaintiffs filed suit alleging that the Corps had failed to satisfy the requirements of the National Environmental Policy Act ("NEPA"). AWF alleged, among other things, that the Corps had failed to consider fully the direct and indirect effects of the project on the White River basin, had improperly "tiered" the "minimum flow requirements" of the Arkansas State Water Plan into the project’s Final Environmental Impact Statement ("FEIS") and had failed to order a Supplemental Environmental Impact Statement ("SEIS") to account for changes made to the design of the project between the release of the FEIS and that of the Final Environmental Assessment ("FEA").

The 8th Circuit Court of Appeals rejected each one of AWF’s challenges. It first found that, contrary to what AWF claimed, the Corps not only considered the cumulative impacts the project would have with a number of foreseeable projects, it even considered the effects that a number of reasonably unforeseeable projects would have in combination with the project. It also found that the FEA incorporated, through "tiering," the impacts considered in the FEIS in addition to a number of "new" environmental impacts, thereby more than satisfying the Corps’ obligation to consider the project’s "cumulative impacts." Finally, the Court of Appeals found that AWF "overstated" the overall impacts on the environment between the project as envisioned in the FEIS and that set forth in the FEA. As such, it rejected AWF’s claim that an SEIS was necessary and appropriate. Arkansas Wildlife Federation v. U.S. Army Corps of Engineers, 2005 WL 3466082 (8th Cir. 2005).

Regulation

• EPA Issues Final "All Appropriate Inquiries" Rule. The Environmental Protection Agency published the final version of its "All Appropriate Inquiries" rule on November 1, 2005. The Small Business Liability Relief and Brownfields Revitalization Act in 2002 clarified the provisions of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") under which certain landowners could avoid liability under CERCLA. The new rule sets forth the requirements that innocent landowners, bona fide prospective purchasers and contiguous property owners who wish to claim liability protections must follow in order to show that they have conducted "all appropriate inquiries" into a property’s prior ownership and usage. The new rule takes effect on November 1, 2006. A copy of the final rule can be found at 70 Fed. Reg. 66070 (November 1, 2005) (to be codified at 40 CFR pt. 312).

— Bill Hefner
Greene Espel

February 2006

FAMILY LAW
Judicial Law

• Custody: In In Re the Custody of J.J.S., the Court of Appeals upheld the constitutionality of Minnesota statutes governing the custody of children of unmarried parents.

Appellant Father and Respondent Mother lived together for about ten months until they separated in May 2003. In September 2003, Mother gave birth to a child who continued to live with her. In December 2003, a paternity test showed that appellant was the father; the parties filed a recognition of parentage form in January 2004. The county brought child support proceedings against father who brought an action for joint legal and physical custody. Father argued that Minn. Stat. §257.75 (2004) and Minn. Stat. §257.541 (2004) are unconstitutional and that joint custody should become the preferred custody option. The district court rejected both arguments and awarded mother sole physical custody. Father appealed the rejection of his arguments and the custody award.

The Court of Appeals reviewed the three primary levels of equal protection review and concluded that, in light of federal precedents, the appropriate standard of equal protection review for statutes that classify on the basis of gender is intermediate scrutiny, i.e., whether the challenged classification is substantially related to important government objectives. In response to father’s argument that it was an equal protection violation to give sole physical custody of children born outside of marriage to mothers, the court noted that the equal protection clauses of the U.S. and Minnesota constitutions direct that all persons similarly circumstanced shall be treated alike and rejected the proposition that statutes based on the biological distinction between fathers and mothers necessarily violate equal protection. The court also rejected father’s contention that the statutes discriminated on the basis of marital status because unmarried fathers are treated differently from married fathers. The court pointed out that both statutes provide that unmarried fathers may seek parenting time and custody under Chapter 518 governing custody upon marriage dissolution. Thus, whether a child’s parents are unmarried or married and dissolving their marriage, child custody is governed by Chapter 518 which does not discriminate on the basis of marital status. The court concluded that the challenged statutes are substantially related to the important governmental objective of ensuring that children born to unmarried parents are properly provided for and, therefore, do not violate equal protection.

Finally, the Court of Appeals affirmed the district court’s award of sole physical custody to mother as being within the lower court’s discretion. Appellant’s argument that Minnesota courts should adopt a presumption in favor of joint physical custody could not succeed because the prevailing law is contrary and the task of extending existing law falls to the Supreme Court or the Legislature. Affirmed. In Re the Custody of J.J.S., 2006 WL 9356 (01/03/06).

— Stephen R. Arnott
Arnott Law Firm, PA

February 2006

FEDERAL PRACTICE
Judicial Law

• Improper Removal; Attorney’s Fees; 28 U.S.C. §1447(c). A recent Supreme Court decision has clarified the standards governing the award of attorney’s fees for improper removals under 28 U.S.C. §1447(c).

Plaintiffs commenced a class action in the New Mexico state courts, and defendants removed the case to federal court based on diversity of citizenship. Plaintiffs subsequently moved to remand the case to state court, but their motion was denied and the case subsequently was dismissed on the merits. On appeal, the 10th Circuit agreed with the plaintiffs that their action failed to satisfy the amount-in-controversy required for diversity jurisdiction and remanded the case to the district court with instructions to remand the case to the New Mexico courts. On remand, plaintiffs argued that they were entitled to an award of attorney’s fees pursuant to 28 U.S.C. §1447(c), but the district court denied their request on the basis that the defendants "had objectively reasonable grounds" for believing that their removal was proper. Plaintiffs again appealed, and the 10th Circuit affirmed the denial of plaintiffs’ request for fees.

Noting an existing conflict among the circuits, and rejecting the parties’ calls for presumptions either favoring or not favoring a fee award whenever a case is remanded, the Supreme Court held that except in "unusual circumstances, courts may award attorney’s fees under §1447(c) only where the removing party lacked an objectively reasonable basis for seeking removal." The Court offered "a plaintiff’s delay in seeking remand or failure to disclose the facts necessary to determine jurisdiction" as examples of the "unusual circumstances" that might impact the decision to award attorney’s fees.

This decision serves to resolve a split among the circuits and further establishes a clear objective standard that will govern future removals. Martin v. Franklin Capital Corp., 126 S.Ct. 704 (2005).

• Other Noteworthy Decisions. The Supreme Court reversed a curious 4th Circuit decision, holding that removing defendants in diversity cases need not negate the existence of other potential defendants whose presence would defeat diversity jurisdiction. Lincoln Property Co. v. Roche, 126 S. Ct. 606 (2005).

Declining to follow the decisions of several other circuits, the 8th Circuit cited its own prior decision in holding that a violation of the so-called "forum defendant rule," which prohibits removals based on diversity jurisdiction if any of the properly joined and served defendants is a citizen of the state in which the action was brought, is a jurisdictional defect rather than a waivable procedural defect. Horton v. Conklin, ___ F.3d ___ (8th Cir. 2005).

The 8th Circuit affirmed an order by Judge Doty which reduced a jury award of $75,000 in "nominal" damages to $1 in an excessive force case. Dissenting, Judge Bright argued that while the jury had failed to follow the trial court’s instructions in awarding substantial "nominal" damages, the proper remedy for this problem was a new trial. Corpus v. Bennett, 430 F.3d 912 (8th Cir. 2005).

Judge Magnuson remanded an action to the Minnesota courts which had been removed for a second time three years after it was commenced, rejecting defendants’ argument that an intervening Supreme Court decision constituted "other paper" sufficient to trigger an new 30-day removal window under 28 U.S.C. §1446(b). State v. Pharmacia Corp., 2005 WL 2739297 (D. Minn. 10/24/05).

Judge Montgomery denied a request for certification of an insurance-related question to the Minnesota Supreme Court pursuant to Minn. Stat. §480.065 on the basis that the motion was not heard until after the deadline for nondispositive motions and because it did not present an issue warranting certification. Scottsdale Ins. Co. v. Wohlsol, Inc., 2005 WL 2972997 (D. Minn. 11/07/05).

Relying on a recent D.C. Circuit decision, and noting that a motion for reconsideration "may be justified on the basis of an intervening change in the law," Judge Magnuson granted defendants’ motion for reconsideration of the denial of their motion to dismiss and dismissed the action. In Re Monosodium Glutamate Antitrust Lit., 2005 WL 2810682 (D. Minn. 10/26/05).

Judge Montgomery adopted a Report and Recommendation by Magistrate Judge Boylan in which he recommended the denial of a motion to consolidate. Hartford Fire Ins. Co. v. Clark, 2005 WL 2885720 (D. Minn. 10/28/05).

Despite the presence of a Minnesota plaintiff, Judge Magnuson granted the defendant’s motion to transfer Title VII claims to the Eastern District of Wisconsin under 28 U.S.C. §1404(a), because the alleged discriminatory acts took place in Wisconsin and the bulk of the witnesses and documents were located there. Foster v. Air Wisconsin Airlines Corp., 2005 WL 2977814 (D. Minn. 11/07/05).

Judge Ericksen granted defendants’ motion to transfer claims to the District of Colorado pursuant to 28 U.S.C. §1404(a) despite presence of a Minnesota plaintiff, finding that the usual deference accorded plaintiff’s residence as a §1404(a) factor has "reduced value" when "the operative facts giving rise to the claim occur outside the forum state." Northwest Territory L.P. v. Omni Properties, Inc., 2005 WL 3132350 (D. Minn. 2005).

Judge Davis denied a motion to transfer venue under 28 U.S.C. §1404(a) in a patent case, rejecting the defendant’s argument that venue was most proper where the "hub of infringing activity" was located. August Technology Corp. v. Camtek Ltd., 2005 WL 3274667 (D. Minn. 12/02/05).

Judge Kyle struck a purported expert affidavit submitted in opposition to summary judgment in an employment discrimination case, finding that it consisted of "legal conclusions rather than fact-based opinion" and therefore "would not be of material assistance to a jury." Lewis v. St. Cloud State University, 2005 WL 3134064 (D. Minn. 11/23/05).

— Josh Jacobson
Law Office of Josh Jacobson

INTELLECTUAL PROPERTY
Judicial Law

• Trademark; No Infringement. The 8th Circuit Court of Appeals let stand Judge Frank’s grant of summary judgment that Walt Disney did not infringe any trademark of Leslie Davis and his company Earth Protector, Inc. Davis sued Disney for trademark infringement over a Disney movie called Up, Up and Away. The movie featured a fictional company called Earth Protectors that used software to control the minds of kids in a nefarious plot to take over the world. Davis took umbrage over the negative use of a name so similar to his company’s name. However, the appellate court agreed with the trial court that there was no trademark infringement for several reasons: (1) Davis used Earth Protector in conjunction with products and services of an environmental-advocacy nature and Disney used the similar mark only as the name of a fictional company in a children’s movie, (2) there was no evidence that Disney intended to confuse the public, and (3) Disney never affixed the mark to any products such as copies of the movie or promotional material. Despite some evidence of actual confusion, the appellate court concluded that "[b]ecause the movie’s depiction of the company using the mark is resoundingly negative, it is unlikely that viewers will assume that the real Earth Protector, Inc. was a sponsor of the movie or that Earth Protector, Inc. and Disney are otherwise affiliated." Leslie A. Davis, et al. v. The Walt Disney Co. et al., No. 05-1999 ___ F.3d ___ (8th Cir. 12/05/05).

• Trade Secrets; Customer Lists and Numbers. Judge Kyle dismissed a misappropriation of trade secret complaint after a bench trial. Ad Associates sued Carol Brennan and her company for misappropriation of trade secrets and other related claims arising from Brennan’s competition with her former employer, Ad Associates. Ad Associates claimed that Brennan stole trade secrets, specifically customer lists and publication fax numbers. However, the court disagreed with Ad Associates that these customer lists and fax numbers were trade secrets. As to the publication fax numbers (fax numbers of publications that sell advertising), the court found that this information was publicly available and therefore not a trade secret. Similarly, the court found the customer lists created by Brennan from her memory were not trade secrets because she was never told by Ad Associates that customer names were confidential and "Ad Associates cannot credibly argue that Brennan should have erased her memory before going into business for herself." Ad Assocs. Inc. v. Coast to Coast Classifieds, Inc. and Carol Brennan, Civ. No. 04-3418 ___ F.Supp.2d ___ (D. Minn. 12/12/05).

• Patent Infringement; Reexamination; Suspension of Suit. Judge Davis granted a patent-infringement defendant’s motion to stay the lawsuit while the asserted patents undergo reexamination at the Patent and Trademark Office. CNS and Creative Integration & Design sued Silver Eagle Labs for infringement of two patents. The two patents concern disposable nasal dilators — marketed and sold as Breathe Right nasal strips by CNS. Silver Eagle asked the Patent Office to take a second look (reexamination) at the validity of the two CNS patents and the Patent Office agreed to do so. Silver Eagle then asked the court to suspend the lawsuit until the reexamination was complete. Citing its broad discretion on such issues, the court agreed to suspend the lawsuit because (1) the case is in the early stages of discovery, (2) the parties had not yet proposed claim constructions, and (3) the parties will benefit from the input of the Patent Office on several issues. CNS, Inc. and Creative Integration & Design, Inc. v. Silver Eagle Labs, Inc., Civ. No. 04-968 ___ F.Supp.2d ___ (D. Minn. 11/29/05)

— Tony Zeuli
Merchant & Gould

February 2006

JUVENILE LAW
Judicial Law

• Termination of Parental Rights; Showing of Abuse of Particular Child. The appellant father argued that because the evidence showed that he was a treatable sex offender, the district court erred in terminating his parental rights. The county had established that the father’s rights to five other children had been previously involuntarily terminated after he was convicted of 1st degree criminal sexual conduct involving his oldest daughter. The district court determined that he failed to rebut the presumption of palpable unfitness based on the prior termination of parental rights. The district court also determined that the county did not need show that anyone had abused the particular child who was the subject of this proceeding, but rather, the county merely needed to show that the father’s rights to the other children had been terminated because those children had experienced egregious harm attributable to both the father and the mother. The Court of Appeals found that there was ample basis for the district court to terminate parental rights, and affirmed the decision. In the Matter of the Welfare of the Child of N.A.W and V.G.W, Jr., Parents, J0-04-51449 (Minn. App. 11/22/05) (unpublished).

• Termination of Parental Rights; Burden of Proof; Adequacy of Findings. Where legal and physical custody of a child was transferred to a family member under the chips statute, the child was placed with a foster care provider related to the child through her father. The child and her mother were members of the Northern Cheyenne Indian Tribe, and hence the Indian Child Welfare Act (ICWA) applied to the case. The county petitioned for termination of parental rights, or alternatively, permanent transfer of legal and physical custody to the foster care provider

The Court of Appeals found that the district court did not err by determining that the appropriate burden of proof was "clear and convincing" and that the transfer of the minor child’s custody is distinct from a termination of parental rights. Because the father’s parental rights were not terminated, the district court properly applied the "clear and convincing" burden of proof rather than the "beyond a reasonable doubt" standard as is required under ICWA for termination cases. The Court of Appeals held, further, that because the transfer of custody did not terminate parental rights, the district court did not err by rejecting the father’s request to incorporate the standards for termination of parental rights. In the Matter of the Welfare of the Child of T.L.C., Parent, J1-04-058638 (Minn. App. 11/22/05) (unpublished).

• Termination of Parental Rights; Documentary Evidence. The father moved to strike a statement in the mother’s brief that she was cooperating with the prosecuting attorney’s office in a criminal case against the father and part of a case history summary that stated that the father was charged with a number of criminal offenses in February of 2005. While the incident occurred before the termination trial, the district court admitted into evidence the police report describing the incident; the charges were not issued until after the trial.

The Court of Appeals found that the mother’s statement in her brief did not come within the exception for conclusive and incontrovertible documentary evidence and granted the motion to strike. The court found, however, that the case history summary relied on the information in the police report and the subsequent formal charge, which was conclusive and incontrovertible documentary evidence. The court held that because this evidence supported the district court’s decision on the father’s inability to correct the conditions leading to the termination of parental rights, the court denied the motion to strike the reference to the case history summary.

The Court of Appeals went on to affirm the district court’s termination of both parents’ parental rights to the children and stated that a district court may terminate the rights to any child based on egregious harm to another child if a person had reasonable belief that being in the parent’s care was not in the child’s best interest. In the Matter of the Welfare of the Children of N.B. and M.P., Sr., Parents, J0-04-060459 (Minn. App. 11/29/05) (unpublished).

• Termination of Parental Rights; Constitutional Challenge. The appellant mother argued that the statute permitting severance of parental rights without future contact with the children violated her constitutional rights, and that the district court erred by finding that she was palpably unfit to be a parent. The Court of Appeals took the unusual step of considering this constitutional challenge even though the mother had not preserved this issue at trial. The Court of Appeals stated that while the Minnesota Supreme Court has long recognized the fundamental right of parents to enjoy the custody and companionship of their children, it has also held that parental rights are not absolute and should not be enforced to the detriment of the child’s welfare and happiness. The constitutional argument was flawed because it failed to acknowledge that the courts consider less severe alternatives to absolute severance of the parent-child relationship.

The Court of Appeals also rejected the mother’s argument that she should have been allowed contact with her children through an open adoption process. The court ruled that such an agreement is not legally enforceable unless the terms of the agreement are contained in a written court order sought before a decree of adoption is granted. They further noted that the district court did not err in failing to consider open adoption at the time of termination. The appellant could seek an open adoption agreement independent of termination proceedings prior to adoption. In the Matter of the Children of N.M., Parent, J0-04-50360 (Minn. App. 11/29/05) (unpublished).

• Termination of Parental Rights; Non-U.S. Citizen Parents. Where the appellants, Mexican citizens and parents of children born in the United States, challenged termination of their parental rights, the Court of Appeals affirmed the termination. The district court had found clear and convincing evidence that the father caused egregious harm to the child, and as to the mother, determined that the mother failed to seek medical care for the child after she knew or should have known that the child suffered egregious harm while in the father’s care. In response to the parents’ argument that the district court abused its discretion when it declined to continue the proceedings to allow the Mexican Consulate to intervene, the Court of Appeals observed that these parents failed to articulate what the Mexican Consulate would seek to accomplish if allowed to intervene, the legal authority for permitting such intervention, and what, if any, prejudice the denial of the continuance caused. The court also noted that the Juvenile Protection Rules caution against unnecessary continuances, further justifying the district court’s actions with regard to the Mexican Consulate. In the Matter of the Welfare of the Children of R.T. and J.T., Parents, J1-05-50019 (Minn. App. 12/06/05) (unpublished).

• Termination of Parental Rights; Withdrawal of Petition for Voluntary Termination. Where appellant mother argued that she had an unconditional right to withdraw her petition for voluntary termination during the period between the district court’s acceptance of the petition and issuance of an order terminating parental rights, she further claimed that the district court erred in denying her motion for a hearing because she established a prima facie case that her consent to the voluntary termination was the result of duress and undue influence. Citing In Re Welfare of A.M.P., 507 N.W.2d, 616, 618-619 (Minn. App. 1993), the Court of Appeals stated that it was not confident that A.M.P. created an absolute, unconditional right to withdraw a petition for voluntary termination until the district court issued an order regarding termination. While the statutes governing terminations of parental rights do not discuss the standards for withdrawal of a voluntary termination petition, they do not preclude withdrawal following acceptance of the petition. The court observed that the child’s best interests are the overriding concern in such proceedings. At some point, permanence for the child and adoptive parent becomes more important than the biological parent’s right to reconsider her decision. Further, the court found that the precedential value of A.M.P. was lessened by subsequent amendments to the requirements for voluntary terminations of parental rights.

The Court of Appeals concluded the record reflects that the district court ordered termination from the bench, effective immediately, accepted the mother’s petition, and then sought the county attorney’s assistance in reducing the order to writing. The termination was affirmed. In the Matter of the Welfare of the Child of T.A.M., and J.B., Parents, 2004-26566 (Minn. App. 11/20/05) (unpublished).

— Gary A. Debele
Walling, Berg & Debele PA

REAL PROPERTY
Judicial Law

• Statutory New-Home Warranties. The general contractor, a Minnesota corporation, constructed a house in Vadnais Heights, Minnesota during the fall of 1993. On April 29, 1997, The general contractor filed a notice of intent to dissolve the corporation with the Minnesota Secretary of State under Minn. Stat. §302A.723. On May 6, 1999, the general contractor filed its articles of dissolution in accordance with Minn. Stat. §302A.7291 and the secretary of state issued a certificate of dissolution. Owners purchased the house built by the general contractor in July 1999. In August 2003, owners had the house inspected in preparation for its sale. During the inspection, the inspector discovered that structural components of the house were rotting and deteriorating as a result of recurring water intrusion, which the inspector attributed to faulty workmanship. Owners sued the general contractor for negligent construction and breach of the statutory new-home warranties under Minn. Stat. §327A.02. The general contractor moved to dismiss the lawsuit arguing that the owners were time-barred from bringing any action against the now dissolved corporation. The district court denied the general contractor’s motion, but the Court of Appeals reversed that ruling. The Minnesota Supreme Court affirmed the decision of the Court of Appeals, finding that under Minn. Stat. §302A.7291 any person with a claim against a dissolving corporation must bring that claim within two years of the corporation filing of its notice of intent to dissolve. Minn. Stat. §302A.7291, subd. 3 acts as a statute of repose barring warranty claims brought under Minn. Stat. §327A.02, subd. 1 against a dissolved corporation regardless whether owners had a substantive cause of action against the general contractor under Minn. Stat. §327A.02 during that two-year time period. Camacho, et al. vs. Todd and Leiser Homes, 706 N.W.2d 49 (Minn. 11/23/05). www.lawlibrary.state.mn.us/archive/supct/0512/opa040599-1220.htm

• Special Assessments. In 1998 seller and buyer entered into a purchase agreement in which seller agreed to sell to buyer 16 acres of land for a future residential development. Under the purchase agreement, seller agreed to pay for the cost of the extension of the trunk water line to buyer’s development. Upon closing on the sale, buyer proceeded to develop the land. Before the city would issue any building permits, buyer had to pay a "connection fee" for each of the 164 units buyer intended to build. This fee was imposed by the city in connection with a newly installed trunk water main that was intended to serve the neighborhood that included most of buyer’s land. Seller settled the lawsuit brought against it by buyer and then commenced this action against the title company claiming that the connection fee was a special assessment entitled to coverage under seller’s mortgagee title policy issued by the title company in 1998. The district court dismissed seller’s claims against the title company. The Court of Appeals affirmed the district court’s judgment holding that the connection fee was not a special assessment, consequently seller was not entitled to coverage under the title policy. Under Minn. Stat. §444.075, municipalities may impose connection charges upon landowners to pay for an expansion of utility facilities provided the charges are just and equitable. On the other hand, municipalities may pay for an expansion of utilities by assessing the costs through property taxes levied on benefited properties pursuant to the procedures set forth in Minn. Stat. §§429.061 and 444.075. Seller failed to show the city adhered to the procedures to levy a special assessment and seller did not prove the city intended the connection fee to be an assessment. TSM Development, Inc. vs. Chicago Title Insurance Co., A05-212 (Minn. App. 11/22/05) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0511/opa050212-1122.htm

• Street Dedication. During the 1950s the public began driving across a portion of owners’ land to travel from State Highway 6, which borders the south side of owners’ lot, to First Street, which runs along the north side of owners’ lot. The dirt road that resulted from continued public use is approximately 25 feet wide located along the westerly boundary of owners’ land. The use of the road continued until 2002 when owners built a fence and building on their property that blocked the public’s use of the road. The town commenced this lawsuit seeking the removal of the fence and building from the road. The Court of Appeals upheld the district court decision that a strip of land measuring approximately 25 feet wide along the west side of owners’ lot was a dedicated public road. Under Minn. Stat. §160.05, a road is deemed dedicated to the public limited to the width of its actual use if the road has been used and maintained by a public authority continuously for no less than six years. The town proved that the road had been used by the public for six continuous years and that the road had been adequately maintained by the town in the same quality and character as other existing publicly dedicated town roads. Furthermore, the location and width of the road was visually evident from regular public use and the exact measurements ascertainable by the surveys entered into evidence at trial. Town of Crooked Lake vs. Pfaff, et al. A05-156 (Minn. App. 12/20/05) (unpublished). www.lawlibrary.state.mn.us/archive/ctapun/0512/opa050156-1220.htm

— Melissa A. Baer
Lindquist & Vennum PLLP

February 2006

TAX
Judicial Law

• Real Property: Valuation; Comparables from Out-Of-State. Reversing the Minnesota Tax Court, the Minnesota Supreme Court remanded a case involving valuation of industrial property for further consideration to take into account for the sales comparison approach all comparable sales outside Minnesota. In McNeilus Truck & Manufacturing, Inc. v. County of Dodge, 2004 WL 1843041 (Minn. T. Ct. 08/06/04), the Tax Court had held that property value should be increased based upon the appraisals of the county. The subject property was a manufacturing facility zoned for heavy industrial use by the taxpayer, who was a large manufacturer of ready-mix trucks and compactor trucks used for waste management. The facility was located in Dodge Center near Rochester. The Tax Court indicated that it did not accept comparables from outside Minnesota unless the circumstances warranted and unless differences in the market in tax rates are explained, which the taxpayer’s appraiser did not do. In reversing, the Supreme Court stated that in assessing evidence of real estate value based on the sales comparison approach, the Tax Court’s application of a de facto evidentiary rule barring consideration of all comparable sales outside Minnesota violated the Tax Court’s duty to assess property at market value and use its independent judgment under Minn. Stat. §273.11(1). McNeilus Truck & Manufacturing Inc. v. County of Dodge, 705 N.W.2d 410 (Minn., 2005).

• Excise Tax: "Health Impact Fee" on Cigarettes. The Ramsey District Court held that Minnesota’s 75-cents-a-pack "Health Impact Fee" ("HIF") violates a 1998 multibillion dollar settlement reached with the state of Minnesota and the tobacco companies. That is, the monetary payments made under the settlement agreement compensate the state fully for any health care costs associated with the cigarette products. Furthermore, the HIF, with respect to the settling defendants and their products, violates the Contracts Clauses of the United States and Minnesota constitutions. Lastly, the court held that the HIF was selectively enforced against distributors similarly situated, constituting a special law because the settling manufacturers and distributors are exempt from the fee and because the distinction between them and the other settling manufacturers and distributors constituted an arbitrary and capricious classification not relevant to the stated purposes of the HIF.

Three big tobacco companies — R.J. Reynolds, Philip Morris, and Lorillard — and nine cigarette wholesalers challenged the fee in court. They argued that the state reneged on the out-of-court deal it made with cigarette manufacturers in 1998. That deal called for the tobacco companies to pay the state, in perpetuity, for past and future health costs. Nevertheless, the 75-cent HIF was enacted as a vehicle to reimburse the state for smoking costs and to influence young people to quit smoking.

Much of the debate in the 2005 Legislature was about whether the new 75-cent HIF charge was a fee or a tax. The court’s ruling held that the 75-cent charge was a smoking-related fee. An appeal will be taken to the Minnesota Court of Appeals or directly to the Minnesota Supreme Court. In light of this case, the state’s options appear to be four: appeal the ruling; pass the law a second time to change the fee into a legally-permissible excise tax increase; try to keep the 75-cent HIF structured as a fee, but impose it at the retail rather than wholesale level; or accept the ruling and use part of a projected $701 million budget surplus or money from a related $317 million "tax relief" account to make up for the lost revenue. State of Minnesota and Blue Cross & Blue Shield of Minnesota v. Philip Morris USA, Inc., R.J. Reynolds Tobacco Company, et al., Ramsey County Docket No. C1-94-8565 (Ramsey County District Court, 11/20/05).

• Minnesota Income Tax: Interest on Refunds. The Minnesota Tax Court held that a refund provided for under a Stipulation for Dismissal and that required "statutory interest based on the overpayment rate" referred to simple interest in Minn. Stat. §270.76 (2004) (recodified as §270C.45 (2005)). The phrase "interest rate per annum" in the statute meant simple interest. In general, compound interest is not required unless the statute provides for compounding, including how often the interest is to be compounded, i.e., daily, monthly or annually. Under the plain meaning of the stipulation and the interest rate statute simple interest is only required. Although it did not change the refund amount, since the commissioner had misstated the computation per the stipulation rather than miscalculated, the court ordered a new refund statement restating the refund calculations as specified in the stipulation. James L. Noske and Joan M. Noske v. Commissioner of Revenue, Nos. 7646-R and 7745-R, 2006 WL 3543688 (Minn. T. Ct. 12/19/05).

• Real Property Tax: Nonprofit Assisted Living Unit; Exemption. The Minnesota Tax Court held that the assisted living unit owned by Croixdale, Inc. failed to qualify for the property tax exemption as an institution of purely public charity pursuant to Minn. Stat. §272.02 for taxes payable in the years 2004, 2005, and 2006. The court applied the six-factor test set forth in North Star Research Inst. v. County of Hennepin, 236 N.W.2d 754, 757 (Minn. 1975). The taxpayer failed factor three of the test since the recipients of the charity were required to pay for the assistance in whole or in part. The pricing system used was based upon the residents paying for the services they received. Although the record showed that the taxpayer had consistently sustained operating losses for the past 15 years; taking into account its nonoperating revenues, the taxpayer had a total gain during ten of the past 14 years. Furthermore, the 2006 budget estimated a positive cash flow as did the pro formas prepared for 2003 and, therefore, factor four was failed since the charges produced a profit. Lastly, the court held that the taxpayer failed to meet the fifth factor since it did not lessen the burdens of government as required. The taxpayer met the first factor since it was helpful to others without immediate expectation of material reward. The second and third factors were also met since the entity was supported by donations and gifts in or in part and upon dissolution its assets went to a nonprofit. Based upon the record as a whole and recognizing that property tax exemptions must be strictly construed, the taxpayer had not met its burden of proof and, therefore, did not qualify for an exemption from real property taxation. Croixdale, Inc. v. County of Washington, CX-05-3068, C5-05-3043, and C3-04-1720, 2006 Minn. Tax Lexis 58 (Minn. T. Ct. 12/22/05).

• Real Property: Lawn Bowling Facility; Open Space Classification; Valuation. The Minnesota Tax Court held that a lawn bowling facility including a putting green surface sitting on top of a parking ramp known as the Lafayette Building was entitled to open space classification pursuant to Minn. Stat. §273.112. The open space classification applied to structures as well as golf courses. The property was assessed on January 2, 2002 at $781,000. The taxpayer’s appraisal came in at $350,000 and the county’s expert appraisal was $2.6 million. The court placed no weight on the sales or income approach and relied on the cost method. Although there were substantial differences between the two experts, the assessor’s valuation was upheld. 1100 Nicollet Mall LLP v. County of Hennepin, No. 30342, 2006 WL 3579306 (Minn. T. Ct. 12/28/05).

• Contract for Deed; Alimony Payment. In a case of first impression, the Tax Court has held that a contract-for-deed transferred by a taxpayer to his exwife didn’t qualify as alimony because it represented a debt instrument between the taxpayer and a third-party and not cash or a cash equivalent. Lofstrom v. Commissioner, 125 T.C. 13 (2005).

• Estate Tax Value of Stock: Buy-Sell Agreement; Insurance Proceeds. The Tax Court correctly disregarded a buy-sell agreement in determining the estate tax value of the stock subject to it. However, the appellate court also held that the Tax Court should not have added insurance proceeds to the value of the corporation’s assets when calculating the stock’s estate tax value. Estate of Blount, 96 AFTR 2d ¶2005-6795 (11th Cir. 2005).

• No Discounts for IRA Assets. The Tax Court held that no discount was allowed for the publicly traded securities held in a decedent’s individual retirement account ("IRA"), either for lack of marketability or for the income taxes that would be paid on the withdrawal of the assets from the IRA. The court noted that the underlying securities were included in the gross estate and that they could be sold without incurring an income tax for distributions. Estate of Kahn v. Comm’r, 125 TC No. 11 (2005).

• Self-Employment Income; S Corporation; Social Security Benefits. An S corporation’s issuance of a Form 1099, and the recipient’s same-year recording of self-employment income in that amount, triggered the excess earnings reduction, regardless of the fact that the recipient did not actually receive payment from the S corporation in that year. Mason v. Barnhart, 95 AFTR 2d ¶2005-2235, 406 F3d 962 (5^th Cir. 2005).

• Innocent Spouse Relief; Commissioner Authority. The commissioner has statutory authority under IRC §6015(f) to grant a taxpayer innocent spouse relief from fraud penalties and interest, without granting relief from the underlying tax liability itself. The court found it inequitable to impose a fraud penalty on an innocent taxpayer when the penalty arises out of fraud by the taxpayer’s former spouse. Aranda v. Commissioner, 96 AFTR 2d ¶2005-7461 (10^th Cir. 2005).

• "RICO" Case Alleging Sales Tax Fraud. The Supreme Court agreed to review a case involving a competitor’s standing to bring claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO") based on alleged sales tax fraud. At issue is the competitor’s reliance — or lack thereof — on the defendant’s false sales tax returns. Anza v. Ideal Steel Supply Corp., No. 64-433, cert. granted (11/28/05).

• Aggregating Losses From Leasing Activities; Different Tax Years; At-Risk Rules. In a case of first impression, the Tax Court has held that a taxpayer could not aggregate equipment leasing activities that occurred in different tax years into a single activity for purposes of the IRC §465 at-risk rules. In a double defeat, the taxpayer also could not deduct certain uncollectible amounts as either bad debt or a loss of capital contribution. Hubert Enterprises, Inc., 125 T.C. No. 6 (2005).

• Deficiency and Penalty Allocable to Innocent Spouse. The U.S. Tax Court determined the portion of a deficiency and accuracy-related penalty from a joint return allocable under IRC §6015(d) to a spouse. That provision permits a spouse, who has filed jointly, to elect to have her share of any liability from the joint return to be determined separately. It is available only if the spouses are divorced, separated or no longer together because a spouse has died and other requirements are met. In this case, the parties agreed that IRC §6015(c) applied. Estate of Robert J. Capehart, 125 TC No. 10 (2005).

• AMT: Deductibility of Share of Residential Co-Op Real Estate Tax. The 2nd Circuit held that, in computing an individual’s alternative minimum tax ("AMT"), a deduction allowed for regular tax purposes for taxpayer’s share of the real estate taxes paid by a cooperative housing corporation did not reduce alternative minimum taxable income ("AMTI"). Specifically, the Court agreed with IRS that IRC §56(b)(1)(A)(ii)’s phrase "taxes describe in" IRC §164(a)(1) applies to a tenant-stockholder’s deduction under IRC §216(a)(1) because the amount of that deduction is based on the amount of real estate taxes paid by the tenant-stockholder’s cooperative housing corporation. Also, the legislative history showed that years ago Congress made it clear that tenant-stockholders should not be placed at a disadvantage compared to homeowners. The court said that it would be just as inappropriate for tenant-stockholders to be given an AMT advantage over homeowners. Ostrow, 96 AFTR 2d ¶2005-5584 (2nd Cir. 2005).

• Communication Between IRS Appeals Officer and IRS Insolvency Unit Adviser. Memorandum between IRS appeals officer and IRS insolvency unit adviser constituted prohibited ex-parte communication. Revenue Procedure 2000-43 provides that appeals officer may not engage in ex-parte discussions of strengths and weaknesses of issues of a case that would appear to compromise appeals officer’s independence. Drake v. Commissioner, 125 T.C. No. 9 (2005).

• Employment Discrimination Suit Settlement; Wage Withholding. Taxpayer’s Title VII back pay/lost wage settlement from former employer was subject to wage withholding: back pay stemmed directly from taxpayer’s employee-employer relationship and as such clearly fit within broad wage definition under withholding rules. Facts that payment was also connected to underlying discrimination claims and was paid out after employment relationship ended didn’t affect wage character, or employer’s obligation to withhold taxes therefrom. Rivera v. Baker West, Inc., 96 AFTR 2d ¶2005-5654 (9th Cir. 2005).

• Penalty Against Tax Shelter; Basis Misstated. A 40 percent gross misstatement penalty imposed by the IRS against Long-Term Capital Holdings LP (Long-Term) was upheld by the 2nd Circuit Court of Appeals. The court took only a few days to decide that Long-Term did not qualify for the "reasonable cause" exception under IRC §6664(c)(1). Long Term Capital Holdings LP v. U.S., 96 AFTR 2d ¶2005-6344 (2nd Cir. 2005).

Administrative Developments

• Sales and Use Tax: Low Income Housing Exemption. In Minnesota Department of Revenue No. 05-09 (10/10/05), the commissioner explained his position on who was an owner for the sales tax exemption for purchases of construction materials and supplies to be used for qualified low-income housing projects.

• Franchise Tax: Revenue Notice on FOCs. In Minnesota Department of Revenue Notice 05-10 (10/17/05), the commissioner modified its previous Revenue Notice 1994-17 on the property and payroll thresholds for foreign operating corporations. The definition of a FOC in Minn. Stat. §290.01 (6)(b) was modified in the 2005 Special Session. The new statutory requirements are for an FOC to have $1 million of payroll and $2 million of property outside the United States. See 2005 Minnesota Laws, First Special Session, Chapter 3, Article 3, Section 5.

• Sales and Use Tax: Local Lodging and Restaurant and Liquor Taxes. In Minnesota Department of Revenue No. 05-11 (10/31/05), the commissioner set forth his position as to when lodging-related services are subject to local taxes that are administered by the commissioner and as to certain services that are subject to local restaurant and liquor taxes.

• Sales and Use Tax: Durable Medical Equipment Exemption. In Minnesota Department of Revenue No. 05-12 (11/14/05), the commissioner indicated that, effective for sales and purchases made after June 30, 2005, a new sales tax exemption was enacted by the Legislature for durable medical equipment for home use only. "Home Use" means the equipment is sold to an individual for use at home, regardless of where the individual resides. This may include residential facilities such as a nursing home, assisted care center, or school dormitory. No exemption certificate is required to purchase durable medical equipment exempt for home use. Durable medical equipment are items that are primarily and customarily used to serve a medical purpose, which means the equipment is used for the diagnosis, treatment or cure of disease, illness or injury.

• Income Tax: Relief for Hurricane Victims. In a press release (11/01/05), the commissioner announced that taxpayers who qualify for federal extensions and abatements from the IRS due to Hurricane Rita or Wilma are also provided relief from Minnesota filings. Therefore, the commissioner will cancel interest and late-filing and late-payment penalties upon application.

• Sales and Use Tax: Allocation of Delivery Charges for Sales Price. In Minnesota Department of Revenue No. 05-13 (11/21/05), the commissioner stated his position on the sales tax treatment of a lump-sum delivery charge when a delivery includes both exempt goods and taxable goods pursuant to Minn. Stat. §297A.61, Subd. 7 (defining "sale price") and Minn. Stat. §297.A.61, Subd. 7 (a)(4) (which defines "delivery charges"). If a delivery includes exempt property and taxable property, the seller should allocate the delivery charge by using: (1) a percentage based on the total sales price of the taxable property compared to the total sales prices of all property in the shipment; or (2) a percentage based on the total weight of the taxable property compared to the total weight of all property in the shipment. The seller must tax the percentage of delivery charge allocated to the taxable property, but does not have to tax the percentage allocated to the exempt property. However, any other method used by the taxpayer to allocate the delivery charge between exempt and taxable property should be consistent with using reasonable business practices.

• Miscellaneous Taxes: Sales Price for Cigarette Sales. In Minnesota Department of Revenue No. 05-14 (11/28/05), the commissioner took the position that the imposition of the cigarette sales tax on cigarette distributors on a "sale" of cigarettes includes a sale using pricing reductions, discounts, promotions or other marketing practices. Therefore, cigarette distributors should affix a stamp to all cigarette packages evidencing that the cigarette sales tax has been paid under Minn. Stat. §297F.

• Income Tax: Minnesota Tax Rate Brackets for 2006. In a press release (11/03/05), the commissioner announced the inflation-adjusted personal income tax brackets for tax year 2006. Taxpayers, including those who make quarterly payments of estimated tax, should use those adjusted rate bracket schedules to determine their payment amounts starting with payments due in April 2006. The inflation rate is measured by the change in the U.S. Urban Consumer Price Index for the average of the 12 consecutive months ending with August 1999 to the average of the 12 consecutive months ending with August 2005. Minnesota’s income tax brackets have expanded by almost 16 percent since 1999 and by about 3 percent since last year.

• 2006 Standard Mileage Rates. Beginning January 1, 2006, the standard mileage rates for vehicles (cars, vans, pickups) is 44.5¢ per mile for business miles. This is down from 48.5¢ per mile allowed for the last four months of 2005, but an increase from the 40.5¢ per mile for the first eight months of 2005. For medical or moving purposes the rate is 18¢ per mile. For charitable mileage, it is 14¢ per mile (if Hurricane Katrina related the mileage rate ranges from 32¢ - 44.5¢). Rev. Proc. 2005-78.

• Determining AMT Liability. A new online tool will help individual taxpayers determine whether they are potentially subject to the alternative minimum tax. The new "AMT Assistant" Web feature helps taxpayers determine whether they may be subject to the tax by automating an AMT worksheet from Form 1040 instructions, Worksheet to See if You Should Fill in Form 6251, Line 24. According to IRS, most taxpayers should be able to enter their information and get an answer in five to ten minutes using the new application. IR-2006-3.

• Social Security Wage Base. The Social Security Administration announced that the wage base for computing the Social Security tax (OASDI) in 2006 rises to $94,200 from $90,000 in 2005, an increase of about 4.67 percent. The $4,200 increase is due to an increase in average total wages. The FICA tax rate for employees and employers is 7.65 percent each — 6.2% for OASDI and 1.45 percent for Hospital Insurance ("hi"). For self-employed workers, the FICA tax is 15.3 percent - 12.4 percent for OASDI and 2.9 percent for hi. There is a maximum amount of compensation subject to the OASDI tax, but no maximum for hi. The Nanny tax threshold also rises to $1,500 for 2006.

• Inflation Adjustments. In Rev. Proc. 2005-70, 2005-47 IRB 979, the IRS issued inflation adjustments in several important tax figures for 2006. The adjustments of particular import to estate planners follow:

(1) The gift tax annual exclusion is increased to $12,000 per donee per year, for transfers made after December 31, 2005.

(2) The gift tax annual exclusion for gifts to a non-U.S. citizen spouse during 2005 will be $120,000, under Code Sec. 2523(i)(2).

(3) The estate of a decedent dying in 2006 can reduce the estate tax value of qualifying real property used in a farm or business and valued under Code Sec. 2032A by up to $900,000.

(4) The value of a closely held business interest, the deferred estate taxes on which bear interest at a 2 percent rate, is increased to $1.2 million, with respect to estates of decedents dying after December 31, 2005.

(5) The applicable estate tax credit is $2 million per person in 2006.

(6) The top estate tax credit is 46 percent in 2006.

• Automatic Extensions. Beginning January 1, 2006, most individuals and businesses are able to request a full six-month tax-filing extension, without a reason or even a signature. A tax-filing extension does not extend the tax-payment deadline. Further information is in the News Release available on irs.gov.

Legislation

• Eminent Domain Restrictions. On November 30, 2005, the president signed H.R. 3058, a bill that funds the Department of Transportation and Housing and Urban Development. A provision included in this measure prohibits the funds in the bill from being used to support federal, state, or local projects that seek to use the power of eminent domain, unless it is "employed only for a public use." The provision specifies that "public use" does not include "economic development that primarily benefits private entities." Under the bill, funds used for "mass transit, railroad, airport, seaport, or other highway projects" and for "utility projects which benefit or serve the general public" are considered public uses for eminent domain purposes. Removing an "immediate threat to public health and safety" and revitalizing brownfields also qualify as public uses under the bill. The bill does not impose any penalties on entities that violate this restriction, and it affects only the funds appropriated in H.R. 3058. The restriction in H.R. 3058 does not go as far as other proposals under consideration by Congress that would severely limit local governments’ use of eminent domain for economic development purposes. A far-reaching eminent domain proposal known as the Private Property Acts Protection Act, H.R. 4128, passed the House in early November, 2005. The Senate has not yet acted on this legislation.

• Gulf Opportunity Zone Act of 2005. H.R. 4440, the Gulf Opportunity Zone Act of 2005 (referred to herein as the "2005 Gulf Opportunity Zone Act"), was signed into law on December 21, 2005 in PL 109-135. The act:

(1) Includes a number of tax incentives to encourage rebuilding of the areas ravaged by Hurricanes Katrina, Rita and Wilma;

(2) Expands various taxpayer relief measures included in the 2005 Katrina Relief Act to cover victims of Hurricanes Rita and Wilma;

(3) Extends several expiring provisions, such as the special rule giving military personnel the option of treating their tax-free combat pay as income when computing their eligibility for the earned income credit ("EIC"); and

(4) Makes a host of technical corrections (some substantive, some clerical) to a number of earlier laws, including the Energy Policy Act of 2005 found in PL 109-58, the American Jobs Creation Act of 2004 found in PL 108-357, and the Jobs and Growth Tax Relief Reconciliation Act of 2003 found in PL 108-27. These include a series of important corrections and clarifications to the IRC §199 domestic production activities deduction rules, the IRC §409A rules for nonqualified deferred compensation, the IRC §965 dividends repatriation rules, the S corporation rules relating to the election to treat family members as one shareholder, the tax shelter rules, rules related to expensing of certain film and television production costs, rules related to reforestation costs, rules related to the definition of nonqualified preferred stock, rules related to state and local sales tax itemized deduction and AMT, rules related to the sale of principal residence following IRC §1031 exchange, rules related to donee reporting of donations of motor vehicles, boats and airplanes, rules related to limit on employer deduction for certain entertainment expenses, and rules related to the uniform definition of a child in the Working Families Tax Relief Act of 2004.

Looking Ahead

• Minnesota Budget Forecast. The state closed the books on fiscal year 2005 and the 2004-2005 biennium. A positive revenue variance and slightly lower spending combined yield an ending balance of $337 million. Under current law, the balance at the end of the biennium is transferred to the tax relief account. This account is treated as a reserve. This money is available for the Legislature to allocate in 2006. The Forecast shows a $701 million budget surplus for the remainder of the fiscal year 2006-2007 biennium. Under current law, the forecast balance of $701 million is allocated as follows: $370.4 to complete the buy-back of the remaining portion of the School Aid Payment shift returning school aids to a 90-10 payment schedule and $330.7 for a partial buy-back of the property tax recognition shift, reducing the recognition percentage from 48.6 to 10.8 percent.

• Increased IRS Audits.

IRS, intensifying its crack-down on tax dodgers, plans to increase the number of tax audits it conducts in 2006. The IRS will focus on:

— Tax shelters or transactions with no clear purpose other than avoiding taxes.

—High-income taxpayers making $100,000 a year or more.

—Self-employed workers, who deal largely in cash, have no taxes withheld, and whose income isn’t reported separately to the IRS.

Daily Tax Report, Wednesday, 12/14/05.

— Jerry Geis
Briggs & Morgan

February 2006

TORTS & INSURANCE
Judicial Law

• Insurance Coverage: Loss of Business Income Endorsement. Plaintiff owned and operated a lakeside resort with 20 cabins and a lodge building. A severe storm rendered four of the cabins unrentable, but did not otherwise affect the operation of the resort. Defendant denied plaintiff’s claim for coverage under an endorsement requiring defendant to pay for the actual loss of business income sustained due to "necessary suspension of … operations." The district court found that the endorsement did not apply and granted defendant partial summary judgment.

The Court of Appeals affirmed, noting that whether a partial suspension of operations triggers business income coverage was a matter of first impression. The court held that the plain and ordinary meaning of "suspension" is a complete cessation of an operation and thus coverage is not triggered when only a partial suspension occurs. Because plaintiff’s entire rental operation was not suspended, plaintiff was not entitled to coverage under the business-income endorsement. Forestview The Beautiful, Inc. v. All Nation Insurance Co., C4-01-942, (Minn. App. 10/11/05). www.lawlibrary.state.mn.us/archive/ctappub/0510/opa050050-1011.htm

• Torts; Workers’ Compensation; Coemployee Liability. Plaintiff is the widow of Korey Stringer, the Minnesota Vikings football player who died of heat exhaustion while at training camp in August 2001. Although the injury to plaintiff was covered by the workers’ compensation system, plaintiff brought a gross negligence claim against the Vikings’ medical services coordinator and assistant athletic trainer. The district court granted summary judgment to defendants on the ground that they did not owe Stringer a "personal duty," which is a requirement for bringing a gross negligence claim against a coemployee. The Court of Appeals affirmed, and the Supreme Court granted review.

The Supreme Court stated that a two-prong test must be met before a coemployee has undertaken a personal duty to a coemployee: the coemployee must have (1) taken direct action toward or have directed another to have taken direct action toward the injured employee and (2) acted outside the course and scope of employment. The Court noted that there was no dispute as to the first prong, but as to the second prong, the Court held that defendants’ actions were within the course and scope of their employment. The Court concluded that defendants were employed by the Vikings in an effort to "provide a safe workplace for their players" and their actions with respect to Stringer conformed to their duties pursuant to that effort. Because the Court held that plaintiff did not satisfy the two-prong test, the Court did not reach the issue of whether defendants were grossly negligent.

In dissent, Justices Hanson and Meyer stated that they would hold that a plaintiff need not prove that the coemployee was acting outside the course and scope of his employment, but only that the coemployee’s acts were taken directly toward the injured employee and were not general actions taken in the performance of the employer’s nondelegable duty to provide a safe workplace. Kelci Stringer, et al. v. Minnesota Vikings Football Club, LLC, et al., A03-1635 & A04-205, (Minn. 11/17/05). www.lawlibrary.state.mn.us/archive/supct/0511/opa031635-1117.htm

• Arbitration Awards; Correction and Clarification; Time Limitations. Plaintiff and defendant signed a letter of intent for the sale of defendant’s business. Negotiations failed and a dispute arose resulting in plaintiff commencing an action against defendant. The parties agreed to submit their dispute to binding arbitration.

The arbitrator issued an award providing that defendant was to retain ownership of all vehicles owned by the business. The parties disagreed as to which assets were "vehicles" under the award. Plaintiff sought clarification from the arbitrator as to the meaning of the term "vehicle" in the award, but the arbitrator stated he lacked authority to modify or clarify the award because the 20-day limit provided in Minn. Stat. §572.16, subd. 3, had lapsed.

Plaintiff filed motions in district court to confirm the original award and to correct or modify the award for "evident mistake" under Minn. Stat. §572.20, subd. 1(1). The district court submitted the matter to the arbitrator for clarification and the arbitrator held another hearing which resulted in an amended award. The district court then granted plaintiff’s motion to confirm the amended award.

The Court of Appeals reversed, holding that the district court lacked authority to submit the matter to the arbitrator because the submission was not made within 20 days after the delivery of the award as required under Minn. Stat. §572.16, subd. 3. The court rejected plaintiff’s argument that there was an "evident mistake" in the award under Minn. Stat. §572.20, subd. 1, and held that an "evident mistake" is one that is obvious on the face of the award and the correction of which does not require the court to go outside of the four corners of the award. Asking the arbitrator to modify the award to further define a term required analysis outside the face of the award, and because plaintiff failed to seek clarification in a timely manner, the court held that the district court was statutorily required to confirm the original award. All Metro Supply, Inc. v. Keith Warner, Green Gardens Nursery and Landscape, Inc., A05-446, (Minn. App. 11/22/05). www.lawlibrary.state.mn.us/archive/ctappub/0511/opa050446-1122.htm

• Civil Procedure; Amendment of Complaint; Res Judicata. Plaintiff, a minority shareholder-employee of a closely held corporation, filed suit against defendant corporation following termination from employment. After resolution of the claims in the original action, plaintiff brought a second suit asserting, among other things, breach of contract for ongoing shareholder distributions, based on events that transpired after he filed his original complaint. The trial court dismissed plaintiff’s action based on the doctrine of res judicata.

The Court of Appeals reversed, rejecting the proposition that plaintiff was required to seek leave to amend his complaint or file a supplemental pleading to add the new claim to the first action on the grounds that (1) Rule 15 makes the filing of supplemental pleadings permissive rather than mandatory, and (2) substantial disruption could result from forced amendment after significant discovery is accomplished. John S. Drewitz v. Motorwerks, Inc., et al., A04-2338, (Minn. App. 12/13/05). www.lawlibrary.state.mn.us/archive/ctappub/0512/opa042338-1213.htm

• Tort; Emotional Distress; Zone of Danger. Plaintiff-mother was standing on the side of a rural road. Her four-year-old son was approximately 30 feet away. She observed an oncoming car lose control and veer toward her and her son. Plaintiff first believed the vehicle was going to hit her, but upon realizing it was heading toward her son instead, she screamed and turned away. Plaintiff’s son sustained serious injuries from the accident. Plaintiff sought medical treatment and was diagnosed with post-traumatic stress syndrome and depression.

Plaintiff filed suit against the driver of the vehicle for negligent infliction of emotional distress and ultimately settled with the driver for her policy limits. The district court concluded that plaintiff was not entitled to damages for emotional distress she suffered as a result of fearing for her son’s safety or witnessing her son’s injury. The Court of Appeals affirmed.

The Supreme Court reversed and adopted the "zone of danger test" which allows a plaintiff to recover damages for distress caused by fearing for another’s safety or witnessing serious injury to another when plaintiff (1) was in the zone of danger of physical impact; (2) had an objectively reasonable fear for her own safety; (3) suffered severe emotional distress with attendant physical manifestations; (4) stood in a close relationship to the third-party victim; and (5) established that defendant’s negligent conduct caused serious bodily injury to the third-party victim. The Court reasoned that a tortfeasor who threatens a plaintiff with bodily harm breaches an original duty to the plaintiff to exercise care for her protection making the tortfeasor liable for any harm suffered by the plaintiff due to the negligent conduct. Geralyn S. Engler v. Illinois Farmers Ins. Co., A04-1445, (Minn. 12/15/05). www.lawlibrary.state.mn.us/archive/supct/0512/opa041445-1215.htm

— Michael A. Klutho
— David A. Turner
Bassford, Remele, A Professional Association