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January 2021


Notes & Trends January 2021

CRIMINAL LAW

JUDICIAL LAW

• Check forgery: Forged signature on front of check is not a “false endorsement.” Appellant was found guilty of check forgery by false endorsement for writing 18 checks from S.H.’s account to a grocery store, forging S.H.’s signature on the signature line on the front of the check. Appellant argues he did not “endorse” the checks, because he did not sign the backs of the checks.

Appellant was convicted under Minn. Stat. §609.631, subd. 2(2), which makes it a crime for a person, with the intent to defraud, to “falsely endorse[] or alter[] a check so that it purports to have been endorsed by another.” “Endorse” is not defined, but the court determines that, with respect to checks, the term has an established, accepted special or technical meaning, which is reflected in dictionary and legal definitions of the word, as well as in Minnesota statutes and case law. This special or technical understanding is that an endorsement on a check is a signature other than that of the check’s maker. 

The court further concludes that this special, technical meaning of “endorse” applies to the check forgery statute. Because section 609.631, subd. 2(2), clearly uses ”endorse” only as it relates to checks, it is reasonable to conclude that the Legislature intended “endorse” to have its special, technical meaning. Moreover, section 609.631 criminalizes the act of the false making of a check in subd. 2(1) and the false endorsing of a check in subd. 2(2). Only the special, technical meaning of “endorse” recognizes that the act of making a check is separate from the act of endorsing a check. 

Finally, the court finds the evidence is insufficient to support appellant’s conviction, because there is no evidence he falsely endorsed or altered a check, only evidence that he falsely made checks. Appellant’s conviction is reversed. State v. Jonsgaard, 949 N.W.2d 161 (Minn. Ct. App. 8/10/2020). 

• Criminal sexual conduct: Phrase “force or coercion” in first-degree criminal sexual conduct statute establishes alternative means of committing element of offense. A jury found appellant guilty of first-degree criminal sexual conduct, noting in response to special verdict questions that they found he used force, coercion, and both force and coercion in the commission of the offense. The state told the jury in its closing argument that the offense required that appellant used force or coercion and stated that the jurors did not “need to agree that there was either force or coercion.” Appellant argues that the state’s comments violated his right to a unanimous verdict, as the jury was required to unanimously agree whether the intentional act of sexual penetration was committed by force, committed by coercion, or committed by both force and coercion. 

While a jury must unanimously agree that the state has proved each element of a charged offense, it need not always decide unanimously which of several possible means a defendant used to commit an offense. The court concludes that force and coercion are alternative means of completing one element of the first-degree criminal sexual conduct offense. One element required for a first-degree criminal sexual conduct conviction is “the use of force or coercion.” Minn. Stat. §609.342, subd. 1(e)(1). The court notes that the inclusion of “or” in this section indicates an alternative. This interpretation is consistent with similarly structured statues that the court has found to present alternative means of committing an offense, as well as United States Supreme Court precedent finding it constitutionally permissible for jurors to reach a guilty verdict without unanimously specifying which overt act was the means by which a crime was committed. Thus, the state did not misstate the law in its closing argument. State v. Epps, 949 N.W.2d 474 (Minn. Ct. App. 8/24/2020), review granted (11/25/2020). 

• Evidence: Confessions to multiple offenses require evidence corroborating either the commission of each offense or their attendant facts. Appellant was convicted of five criminal sexual conduct offenses. Among other arguments on appeal, he claims the evidence was insufficient to corroborate his confession to one of those offenses. Specifically, appellant told an investigator that he allowed C.D., a 10-year-old, to hold his penis while he peed when they were scouting for deer. 

A defendant’s confession is direct evidence of guilt, but it must be “sufficiently substantiated by independent evidence of attending facts or circumstances from which the jury may infer the trustworthiness of the confession.” In re Welfare of M.D.S., 345 N.W.2d 723, 735 (Minn. 1984). 

Here, the state relied on the following evidence to corroborate appellant’s deer scouting incident confession: C.D. testimony corroborated appellant’s confessions to two other incidents—C.D.’s testimony about an incident of abuse while duck hunting with appellant, and a Facebook message appellant sent to C.D. apologizing for his abuse. The court finds this evidence insufficient, as none of it specifically relates to the deer scouting incident. Therefore, the evidence was insufficient to allow the jury to infer the trustworthiness of appellant’s confession to the deer scouting incident and reach a guilty verdict, so his conviction for that offense is reversed. State v. Holl, 949 N.W.2d 461 (Minn. Ct. App. 8/24/2020), review granted in part, denied in part (11/17/2020).

•  MIERA: Defendant is not exonerated when a conviction is vacated based on a clarification of the law, if conduct violated existing law at the time of the offense. Police were called after witnesses saw appellant pushing A.R.H. into a vehicle and possessing a pistol. When police arrived, appellant ignored their commands and he was placed under arrest, after which police located a BB gun nearby. Appellant was charged with being a felon in possession of a firearm, domestic assault, and obstruction of legal process. In 2010, he pleaded guilty to the felon in possession charge, and execution of a 60-month sentence was stayed for 10 years. In 2011, appellant violated his probationary conditions and his sentence was executed. In 2016, the Minnesota Supreme Court ruled that an air-powered BB gun is not a “firearm” under the felon in possession of a firearm statute. In 2017, the district court granted the state’s motion to vacate appellant’s conviction and dismiss the charge against him. Appellant filed a petition for an order declaring him eligible for compensation under the Minnesota Imprisonment and Exoneration Remedies Act (MIERA). The district court denied his petition. 

For compensation under the MIERA, a petitioner must have been exonerated. “Exonerated” is specifically defined in Minn. Stat. §590.11, subd. 1(b), and requires that the petitioner’s judgment of conviction was vacated, reversed, or set aside, or a new trial ordered, “on grounds consistent with innocence.” “On grounds consistent with innocence” requires a showing of factual innocence. 

Appellant’s conviction in 2010 was based on established law at that time, which held that a BB gun was a firearm under multiple statutes. The Supreme Court later determined that a BB gun is not a firearm specifically under the felon in possession statute. However, the court of appeals focuses on the fact that appellant’s conduct was a crime under existing law at that time. The Supreme Court’s later clarification of the law does not change that fact. Appellant has provided no other evidence of his factual innocence. Thus, he does not qualify as “exonerated” under the MIERA. Kingbird v. State, 949 N.W.2d 744 (Minn. Ct. App. 8/31/2020), review granted (11/17/2020). 

•  Vehicle forfeiture: Driver participating in ignition interlock program must be enrolled with the vehicle subject to forfeiture proceedings in order to stay forfeiture. Appellant’s 1985 Ferrari was forfeited after he was convicted of DWI. He argues on appeal that the forfeiture should have been stayed due to his participation in the ignition interlock program. Two months after this DWI, appellant was arrested for another DWI offense, after which he enrolled again in the ignition interlock program with his Range Rover. Ignition interlock was not installed in his other vehicles, including his Ferrari. 

Under a 2019 addition to the DWI forfeiture scheme, an exception to forfeiture was enacted. Minn. Stat. §169A.63, subd. 13(a), specifically provides that “[i]f the driver who committed a designated offense or whose conduct resulted in a designated license revocation becomes a program participant in the ignition interlock program under section 171.306 at any time before the motor vehicle is forfeited, the forfeiture proceeding is stayed and the vehicle must be returned.” The question is whether this section requires appellant to participate in the program with the to-be-forfeited car, here, his Ferrari, as opposed to any car—that is, whether his participation in the program with his Range Rover qualified him for stay of the forfeiture of his Ferrari. 

The court points to section 169A.13, subd. 13(a)’s use of “the vehicle,” not just “vehicle,” which the court finds to mean that the section refers to not just any vehicle, but to a particular vehicle. Given the statute as a whole, which addresses vehicles subject to forfeiture, the court finds that the particular vehicle referred to is the vehicle that is to be forfeited. Thus, the driver must be participating in the program with the vehicle that is to be forfeited to qualify for a stay of the forfeiture under section 169A.63, subd. 13(a). 

Here, appellant did not enroll in the ignition interlock program with his Ferarri, the vehicle subject to forfeiture. Thus, he was not eligible for a stay of the forfeiture proceedings under section 169A.63, subd. 13. Jensen v. 1985 Ferrari, 949 N.W.2d 729 (Minn. Ct. App. 8/31/2020). 

• DWI: Postconviction challenge of a test refusal conviction is timely if filed within two years of Johnson v. State. Appellant was arrested for DWI after police suspected he drove while under the influence of cannabis. He was offered blood and urine tests, but he refused both. He ultimately pleaded guilty to third-degree test refusal. He was discharged from probation in 2014. In 2019, he petitioned for postconviction relief asking that his conviction be vacated based on the rule declared in Birchfield v. North Dakota, 136 S.Ct. 1260 (2016), a rule the Minnesota Supreme Court declared retroactive in Johnson v. State, 916 N.W.2d 674 (Minn. 2018). The state argued appellant’s petition was time-barred, because it was not filed within two years of the 2016 Birchfield decision. The postconviction court found appellant’s petition timely, but denied the petition. 

First, the court of appeals agrees that appellant’s petition was timely. Section 590.01, subd. 4(a), requires that a postconviction petition be filed within two years of a conviction, sentence, or appeal disposition, but the court can consider petitions filed outside of that time if any of five exceptions applies. Petitions invoking an exception must be filed within two years of the date the claim arises—that is, within two years of when the petitioner knew or should have known that the claim existed. Minn. Stat. §590.01, subd. 4(c). Appellant invokes the exception to the general two-year requirement contained in section 590.01, subd. 4(b)(3), which applies when “the petitioner asserts a new interpretation of federal or state constitutional or statutory law... and the petitioner establishes that this interpretation is retroactively applicable to the petitioner’s case.” The event that supports appellant’s right to postconviction relief is the new and retroactive interpretation of law, which occurred in two steps: (1) a new rule of law was announced in Birchfield, and (2) Johnson determined that the Birchfield rule applies retroactively. This second step did not occur until 2018. Thus, appellant’s 2019 petition was timely. 

Next, the court holds that the postconviction court erred in denying appellant’s petition based on the postconviction court’s conclusion that the McNeely rule does not apply retroactively to appellant’s case. The retroactive application of Missouri v. McNeely, 133 S.Ct. 1552 (2013), was decided by the court in Hagerman v. State, 945 N.W.2d 872 (Minn. Ct. App. 2020), review granted (Minn. 8/25/2020), in which the court held that “McNeely, as applied through the Birchfield rule, is substantive and retroactive.” Thus, the postconviction court’s decision is reversed. 

Finally, the court concludes the postconviction court erred in failing to follow the heightened pleading requirement and burden-shifting procedure set out in Fagin v State, 933 N.W.2d 774 (Minn. 2019), for postconviction challenges raising a Birchfield claim. The case is remanded for further proceedings. Edwards v. State, 950 N.W.2d 309 (Minn. Ct. App. 9/21/2020). 

• 4th Amendment: Scope of traffic stop may be expanded to investigate suspected pretrial release violation if expansion is reasonable under Terry v. Ohio and supported by reasonable suspicion. Appellant was on pretrial release with conditions in a DWI and controlled substance case when police pulled over a speeding vehicle in which he was a passenger. The officer recognized appellant and was aware he had a record. The officer had also investigated appellant’s involvement in an assault 10 days earlier, during which he learned that appellant was on pretrial release. The officer smelled alcohol coming from the vehicle and asked the driver and passengers if they had been drinking. Appellant responded affirmatively and admitted a condition of his release was abstaining from alcohol. Appellant then blew 0.03 on a PBT. He was arrested for violating his release conditions. During a search of his person, the officer found shotgun shells in his clothing. The district court denied appellant’s motion to suppress the shotgun shells, concluding the evidence was found during a valid search incident to arrest. Appellant was convicted for unlawful possession of ammunition after a stipulated facts bench trial. 

When a lawful investigatory traffic stop is expanded beyond the initial purpose of the stop, each incremental intrusion must be tied to the original legitimate purpose of the stop, be supported by independent probable cause, or be reasonable, as defined in Terry v. Ohio, 88 S.Ct. 1868 (1968). Here, the traffic stop was initially justified because the driver of the vehicle failed to signal a turn. 

The expansion of the stop to investigate whether appellant’s alcohol consumption violated any pretrial release conditions was also justified, because the court finds it was reasonable under Terry. Terry calls for a balancing of the government’s need to search and seize and the individual’s right to personal security free from arbitrary interference by the government. The court finds that expanding the investigation to include appellant’s pretrial release status did intrude upon his individual rights, but that the intrusion was minimal. This minimal intrusion was outweighed by the public safety interest underlying the imposition of pretrial release conditions. 

The officer also articulated an adequate basis to expand the stop to investigate appellant’s pretrial status. When the officer asked appellant if he was subject to a “no drinking” condition, he had smelled alcohol in the vehicle, appellant had admitted to consuming alcohol, and the officer was aware of appellant’s history with law enforcement and that appellant was on pretrial release 10 days earlier. Under these circumstances, the officer reasonably suspected a pretrial release violation and was justified in questioning appellant about his release conditions. Appellant’s subsequent admission that he had a “no drinking” condition provided a reasonable basis for the PBT. The PBT’s confirmation of appellant’s alcohol consumption provided a reasonable basis for the officer’s investigation into the status and conditions of appellant’s pretrial release. That investigation led to appellant’s lawful arrest for violating his pretrial release conditions and the discovery of shotgun shells during search incident to appellant’s arrest. Under these circumstances, the expansion of the traffic stop was justified, and the district court did not err in denying appellant’s motion to suppress evidence seized as a result of that expansion. State v. Sargent, A19-1554, 2020 WL 5755482 (Minn. Ct. App. 9/28/2020). 

• Obstruction: Partial name given with intent to obstruct is a “fictitious name.” When appellant Dakota James-Burcham Thompson was pulled over for speeding, he told the officer his name was Dakota James Burcham, gave his correct date of birth, and denied going by any other names. A records search of that name returned no results. The officer broadened his search and determined appellant’s real name was Dakota James-Burcham Thompson, who had an active arrest warrant. Appellant testified that his name prior to being adopted more than 10 years ago was Dakota James Burcham, and that he gave that name to the officer because he was “hesita[nt] with law enforcement due to [his] past.” Appellant was convicted of giving a fictitious name to a peace officer. The court of appeals affirmed. 

Minn. Stat. §609.506, subd. 1, makes it a crime to, “with intent to obstruct justice,” “give[] a fictitious name other than a nickname... to a peace officer... when that officer makes inquiries incident to a lawful investigatory stop or lawful arrest.” “Fictitious” is not defined in the statute, so the court looks to the dictionary definitions of the word, finding it to mean, as applied to names, “a false name and a name that is not a person’s true name, which would include a partial, or rearranged legal name.” Under this definition, the name appellant gave to the officer was fictitious, and the evidence was sufficient to support his conviction. State v. Thompson, 950 N.W.2d 65 (Minn. 10/21/2020). 

Samantha Foertsch  Bruno Law PLLC

Stephen Foertsch  Bruno Law PLLC

 


EMPLOYMENT & LABOR LAW

JUDICIAL LAW

• Race bias, retaliation claims rejected; employee not reappointed. An employee who was terminated from her position with the Federal Emergency Management Agency (FEMA) lost her claim for race discrimination and retaliation after she was not appointed when her term of employment ended. The 8th Circuit upheld a ruling of U.S. District Court Judge David Doty that dismissed the case on grounds that the claimant failed to establish a prima facie case of either race discrimination or retaliation. Moreland v. Wolf, 2020 WL 6498678 (8th Cir. 11/5/2020) (per curiam).

• Retaliation rejected; race, ADA claims denied. An employee in Minnesota who claimed racial discrimination and retaliation lost his claim. Dismissal of the pro se claimant’s discrimination action (including claims of race discrimination and violation of the Americans with Disabilities Act) by Judge Doty was affirmed by the 8th Circuit, although a partially concurring and dissenting opinion by Judge Jane Kelley would have allowed the retaliation claim to survive a motion to dismiss. Robinson v. VSI Construction, Inc., 2020 WL 6777998 (8th Cir.11/18/2020) (unpublished). 

• Sales representatives act; remanded for “good cause” determination. An employee in Minnesota who claimed that he was terminated in violation of the Minnesota Termination of Sales Representatives Act (MTSRA) achieved remand of the dismissal of his lawsuit by U.S. District Court Judge Doty in Minnesota. The 8th Circuit reversed the lower court’s finding that the act did not apply and remanded for determination whether the employer had “good cause” to terminate the employee. Engineered Sales Co. v. Endres + Hauser, Inc., 980 F.3d 597 (8th Cir. 11/17/2020). 

• Unemployment compensation; mistaken closure of account. An employee was ineligible to establish a new unemployment benefits account after he elected to reactivate and receive payments on a pre-existing account. The Minnesota Court of Appeals held that the unemployment statute made the applicant ineligible for benefits, despite his claim that he made a mistake in asking for his closure of his account. Vang v. Medtronic, Inc., 2020 WL 6391289 (Minn. Ct. App. 11/02/2020) (unpublished). 

Marshall H. Tanick  Meyer, Njus & Tanick

 


ENVIRONMENTAL LAW

JUDICIAL LAW

• 8th Circuit defers to state agency interpretation of federal air regulations. The United States Court of Appeals for the 8th Circuit issued an opinion upholding a state agency decision not to require a Clean Air Act (CAA) major source air permit for a North Dakota coal mine processing plant based in part on deference to the state agency’s interpretation of federal law. The case, Voigt v. Coyote Creek Mining Co., LLC, involved an action brought by owners of ranches adjacent to the processing plant, who alleged that the mining company failed to obtain the proper construction permit under the CAA and failed to implement a dust control plan required by a federal new source performance standard (NSPS)—and that as a result, excessive coal dust, or “fugitive emissions,” from the company’s open storage coal pile located near the plant blew onto their ranches. 

The CAA prevention of significant deterioration (PSD) air permitting program requires that a “major emitting facility” may not be constructed until a major source permit is obtained. 42 U.S.C. §7475(a). Relevant here, a facility is deemed “major” if it has the potential to emit (PTE) at least 250 tons per year (tpy) of any air pollutant, including “fugitive emissions.” Id. §7479(1). In this case, if the mining company’s open storage coal pile was deemed to be part of the mine processing plant, i.e., the “emitting facility,” it would exceed the 250 tpy threshold and require a major federal PSD permit. Conversely, if the coal pile was not deemed part of the plant, the fugitive coal emissions would be below the threshold and only a “minor” air permit under state law would be required. In addition, if the coal pile was deemed part of the processing plant, the company would be subject to the NSPS in subpart Y of 40 CFR pt. 60, which requires that open storage coal piles in a coal processing plant must implement a fugitive dust control plan. The North Dakota Department of Health (NDDOH) concluded that under the federal regulations at issue, the coal pile was not part of the processing plant; accordingly, NDDOH determined that the site was not a “major emitting facility,” was thus not required to obtain a major federal permit or subject to Subpart Y, and could be regulated under a minor state air permit. The district court agreed. 

In affirming the district court, the 8th Circuit first held that the relevant regulatory language was ambiguous on the question of whether the mining company’s open storage coal pile should be considered part of the “emitting facility” for determining applicability of the CAA’s major permit requirement and Subpart Y NSPS. The court then consulted EPA guidance to aid it in determining whether the coal plant is part of the processing facility; however, the court also found no conclusive answer in EPA’s guidance. Finally, the court agreed with the lower court that under these circumstances, “the best interpretative aid… is the NDDOH permitting decision, which concluded that the coal pile is not part of the coal processing plant.” This decision, the court held, “is entitled to deference.”

The court rebuffed arguments by the ranch owners that the NDDOH decision should not be entitled to deference because it was “no more than a state agency’s interpretation of federal law.” This argument ignored the CAA’s system of cooperative federalism, the court held, through which states directly implement the federal CAA permitting program through EPA-approved state implementation plans. Any concern that deferring to state agencies could lead to national inconsistency of CAA permitting programs was misplaced, the court asserted, because unreasonable or arbitrary state permitting decisions that could result in national inconsistency may be challenged in federal court.

In a lengthy dissent, Judge Stras argued that “it defies basic constitutional principles to defer to a state agency’s interpretation of federal law,” noting that “[m]ost Americans would be surprised to learn that state bureaucrats can play an even larger role than federal judges do in interpreting federal law.” Voigt v. Coyote Creek Mining Co., LLC, No. 18-2705, __ F.3d __ (8th Cir. 11/20/2020).

ADMINISTRATIVE ACTION

• EPA issues draft “functional equivalent” guidance concerning groundwater discharges under the CWA. The U.S. Environmental Protection Agency (EPA) issued draft guidance designed to implement the U.S. Supreme Court’s 4/23/2020 Clean Water Act (CWA) decision in County of Maui v. Hawai’i Wildlife Fund, 140 S. Ct. 1462 (2020). In County of Maui, the Court evaluated the circumstances when discharges of wastewater to groundwater may require a National Pollutant Discharge Elimination System (NPDES) permit under the CWA. The Court held that a permit is required when the groundwater discharge is the “functional equivalent” of a direct discharge and provided seven nonexclusive factors that “may prove relevant” depending upon the circumstances of a particular case: 

  1. transit time;
  2. distance traveled;
  3. the nature of the material through which the pollutant travels;
  4. the extent to which the pollutant is diluted or chemically changed as it travels;
  5. the amount of pollutant entering the navigable waters relative to the amount of the pollutant that leaves the point source; 
  6. the manner by or area in which the pollutant enters the navigable waters; 
  7. the degree to which the pollution (at that point) has maintained its specific identity. 

The Court emphasized, however, that the standard would have to be developed through court decisions in individual cases and through potential EPA guidance.

EPA’s draft guidance “places the functional equivalent analysis into context within the existing NDPES permitting framework.” The guidance first highlights certain “threshold conditions” that must exist in order to trigger the NPDES requirement, including: (1) there must be an “actual discharge of a pollutant to a water of the United States,” not just a discharge to hydrologically connected groundwater; and (2) the discharge must be from a “point source.” Next, EPA emphasizes in the draft guidance that “[o]nly a subset of discharges of pollutants to groundwater that ultimately reach a water of the United States should be deemed the ‘functional equivalent’ of a direct discharge,” in accordance with the court’s factors. (This is consistent with the Supreme Court’s rejection of the 9th Circuit’s broader “fairly traceable” test.”) For example, EPA indicates that “[i]f the pollutant composition or concentration that ultimately reaches the water of the United States is different from the composition or concentration of the pollutant as initially discharged, whether through chemical or biological interaction with soils, microbes, plants and their root zone, groundwater, or other pollutants, or simply through physical attenuation or dilution, it might not be the ‘functional equivalent’ of a direct discharge to a water of the United States.” 

Finally, the draft guidance proposes an additional factor to be considered in the “functional equivalent’ analysis— the design and performance of the system or facility from which the pollutant is released. This information is “routinely considered by permitting agencies” in administering the NPDES program, EPA noted, and can inform the scope of the “functional equivalent” analysis. The draft guidance will be available for public comment for 30 days following publication in the Federal Register. Draft Guidance Memorandum: Applying the Supreme Court’s County of Maui v. Hawaii Wildlife Fund Decision in the Clean Water Act Section 402 National Pollutant Discharge Elimination System Permit Program (David P. Ross, EPA assistant administrator, Office of Water) (12/8/2020). 

• MPCA issues new MS4 general permit. The Minnesota Pollution Control Agency issued a new final general NPDES/SDS permit authorizing permittees to operate small municipal separate storm sewer systems (MS4s) and to discharge from the small MS4s to receiving waters. The terms of the five-year permit include certain differences from MPCA’s prior MS4 general. For example, the permit includes (a) new application requirements for total maximum daily loads (TMDLs) to better substantiate that applicable waste load allocations (WLAs) are being met; (b) new requirements to address chloride from de-icing material; (c) new requirements to address bacteria from pet waste; (c) more protective post-construction stormwater management requirements for redevelopment projects; and (d) a more performance-based approach to addressing TMDLs for chloride, bacteria, and temperature. MPCA, Small Municipal Separate Storm Sewer Systems General Permit, No. MNR040000 (11/16/2020).

Jeremy P. Greenhouse The Environmental Law Group, Ltd.
Jake Beckstrom Vermont Law School, 2015
Erik Ordahl Barna, Guzy & Steffen
Audrey Meyer  University of St. Thomas School of Law, J.D. candidate 2020

 


FAMILY LAW

JUDICIAL LAW

Post-decree motion to establish parenting time. Father moved for parenting time assistance, seeking to modify the parties’ prior stipulation regarding parenting time, and father asked the court to order mother to return the parties’ child to Minnesota, as she had recently moved out of state. Mother objected with a variety of concerns, mainly regarding father’s mental health. Father did not address or rebut the concerns. 

Father claimed that the district court erred by treating his motion as one to modify parenting time. Father believes that the court incorrectly assigned him a burden of proof, and that a modification of parenting time is in the child’s best interest. The court looks to Minn. Stat. §518.175, subd, 1(a) which “indicates that if a district court reserves a determination regarding the future establishment of parenting time and there is a subsequent motion to establish parenting time” then “the best interest standard set forth in subdivision 5, paragraph (a), shall be applied. Minn. Stat. §518.175, subd. 1(a). However, Minn. Stat. §518.175, subd. 5(a) does not refer to the child’s best interests. The court concluded that “when the legislature amended subdivision 5(a) in 2016, it neglected to change subdivision 1(a)’s reference to the best-interest standard in subdivision 5 from subdivision 5(a) to subdivision 5(b).” Therefore, subdivision 1(a)’s reference to the best-interest standard within 5(b) governs father’s motion and the district court properly assigned father a burden of proof. 

Father claimed the court erred by denying him parenting time based on evidence of conduct unrelated to the child regarding allegations of domestic abuse and father’s sexual activity that occurred prior to the child’s birth. While the “court shall not consider conduct of a party that does not affect the party’s relationship with the child” pursuant to Minn. Stat. §518.17, subd. 1(b)(4), the court found that the district court properly considered “any physical, mental, or chemical health issue of a parent that affects the child’s safety or developmental needs.” Therefore, even though the district court considered conduct that occurred prior to the child’s birth, the consideration was proper as the conduct suggested a concern for the child’s safety.

Finally, father claimed the court erred by refusing to order mother to return the child to Minnesota. The court agreed with the district court that there is no legal basis to order mother to return the child to Minnesota. Under Minn. Stat. §518.175, subd. 3(a) “the parent with whom the child resides shall not move the residence of the child to another state except upon order of the court or with the consent of the other parent, if the other parent has been given parenting time by the decree.” It was undisputed that father had no parenting time with the child and therefore, no reason to require mother to return the child to Minnesota. In re the Custody of: N.Y.B.: James Edward Bono vs. Megan Yvonne Hedberg, A20-0283 (Minn. Ct. App. 11/2/2020).

Amy M. Krupinski  Collins, Buckley, Sauntry & Haugh, PLLP

 


FEDERAL PRACTICE

JUDICIAL LAW

• Article III standing; “generalized grievance. Delaware law requires political balance for appointments to certain courts, and limits appointments to member of major political parties. Attorney Adams, a political independent, commenced an action challenging Delaware’s “bare majority” and “major party” requirements. The district court found that Adams had standing to challenge both of these requirements and found for Adams on the merits. The 3rd Circuit affirmed in part and reversed in part, finding that Adams had standing to challenge the major party requirement, but that he lacked standing to challenge the bare majority requirement. Delaware sought certiorari on the merits. The Supreme Court granted certiorari, but ordered that the parties first address the issue of Article III standing. 

The Supreme Court never reached the merits of the dispute, determining that the case “begins and ends” with standing. While acknowledging that the case was “fact-specific,” the Court unanimously found that Adams lacked standing to contest the major party requirement, because he failed to show that he was “able and ready” to apply for a judicial position and that his statements of a “general intent” to seek a judgeship were insufficient to establish “injury in fact.” Carney v. Adams, ___ S. Ct. ___ (2020). 

•  Exclusion of expert report. The 8th Circuit found no abuse of discretion in the district court’s exclusion of the plaintiffs’ expert’s report in a product liability action that failed to account for “obvious” alternatives regarding the source of an allegedly defective sling, finding that the expert’s opinion was based on “insufficient facts.” Hirchak v. W.W. Grainger, Inc., 980 F.3d 605 (8th Cir. 2020). 

• Fed. R. Civ. P. 26(a)(2)(B)(i); hypothetical questions to expert; no abuse of discretion. In an appeal by the plaintiff from an adverse jury verdict in a legal malpractice action, the 8th Circuit found no abuse of discretion in the district court’s overruling of objections to six hypothetical questions posed by defense counsel to defendants’ expert, finding that the answers to those questions did not “add factual bases… beyond what [the expert’s] supplemental expert opinion disclosed,” and that it also concurred with the district court’s “lengthy, point-by-point explanation” as to why any error in admitting the testimony was harmless. Estate of West v. Domina Law Group, PC LLO, ___ F.3d ___ (8th Cir. 2020). 

•  Knowlton; general jurisdiction; 28 U.S.C. §1292(b). While finding that the defendant, which was registered to do business in Minnesota, was subject to general jurisdiction pursuant to the 8th Circuit’s decision in Knowlton v. Allied Van Lines, Inc. (900 F.2d 1196 (8th Cir. 1990)), Judge Doty acknowledged that “serious questions” had been raised regarding Knowlton’s continued viability and invited either party to seek an interlocutory appeal pursuant to 28 U.S.C. §1292(b). Greenstate Credit Union v. Hy-Vee, Inc., 2020 WL 6586230 (D. Minn. 11/10/2020). 

•  Renewed motion for leave to conduct expedited third-party Doe discovery granted. In August 2020, this column noted Magistrate Judge Wright’s denial of a motion for expedited third-party Doe discovery without prejudice after finding that plaintiff had not produced the required prima facie evidence to support each of its claims, and that the requested discovery was overbroad. 

Recently, Magistrate Judge Wright granted the plaintiff’s renewed motion for expedited third-party Doe discovery, finding that the plaintiff had established a prima facie case, and that its revised document requests were “sufficiently tailored.” However, Magistrate Judge Wright denied the plaintiff’s request for leave to take “limited follow-up discovery” without prejudice. NCS Pearson, Inc. v. John Does (1-21), 2020 WL 6581122 (D. Minn. 11/10/2020). 

• Fed. R. Civ. P. 23(f); request for stay denied. Where Judge Davis certified a plaintiff class in a securities class action and the defendants filed a Fed. R. Civ. P. 23(f) petition with the 8th Circuit, Judge Davis denied defendants’ Motion for Stay Pending Rule 23(f) Petition and Appeal, finding that the defendants had not established a likelihood of success on the merits or the threat of irreparable harm. 

Judge Davis also denied defendants’ alternative request that the court stay dissemination of the class notice as premature, because plaintiffs had not yet submitted a proposed class notice, finding that he could consider the impact of the status of the case in the 8th Circuit if and when plaintiffs moved for approval of their class notice. Plymouth Cty. Retirement Sys. v. Patterson Cos., 2020 WL 6566467 (D. Minn. 11/9/2020). 

•  Forum non conveniens; forum selection clause. In an action arising out of injuries sustained by a Minnesota plaintiff while on a transatlantic cruise, Judge Wright granted defendants’ motion to dismiss under the doctrine of forum non conveniens, finding that the forum selection clause in the underlying contract (which designated a Swiss court as the only proper forum for the litigation) was enforceable, rejecting plaintiffs’ arguments that being forced to litigate in Switzerland would be so “difficult” as to effectively deprive them of their day in court, and also rejecting plaintiffs’ argument that the forum selection clause was included in an adhesion contract. Sheehan v. Viking River Cruises, Inc., 2020 WL 6586231 (D. Minn. 11/10/2020). 

• Grant of motion to strike deposition errata sheet affirmed. In October 2020, this column noted Magistrate Judge Menendez’s grant of defendants’ motion to strike plaintiff’s deposition errata sheet, in which the plaintiff attempted to—among other things—change “yes” answers to “no.” 

That order was recently affirmed by Judge Frank, who also rejected the plaintiff’s new-found argument that the court reporter’s instructions regarding submission of an errata sheet somehow permitted the widespread modifications to his deposition testimony. Elsherif v. Mayo Clinic, 2020 WL 5015825 (D. Minn. 8/25/2020), aff’d, 2020 WL 6743482 (D. Minn. 11/17/2020). 

Josh Jacobson  Law Office of Josh Jacobson 

 


IMMIGRATION LAW

JUDICIAL LAW

• No CAT relief; Somali government did not “willfully” turn a blind eye. The 8th Circuit Court of Appeals held that the record failed to show the Somali government had “willfully” turned a blind eye to Al-Shabaab’s activities, notwithstanding the petitioner’s argument, in relation to his Convention Against Torture (CAT) claim, that it would acquiesce in his torture. The court found, to the contrary, that the government actively combats the organization and seeks to maintain order in the country. Moallin v. Barr, 19-2743, slip op. (8th Cir. 11/23/2020). https://ecf.ca8.uscourts.gov/opndir/20/11/192743P.pdf 

• TPS designation denotes “inspected and admitted” for adjustment of status purposes. Joining the 6th and 9th Circuits, the 8th Circuit Court of Appeals held that a noncitizen who entered the United States without inspection or admission but later received temporary protected status (TPS) is deemed “inspected and admitted” under 8 U.S.C. §1255(a) (INA § 245A) and thus may adjust to lawful permanent resident (LPR) status. “USCIS’s contrary interpretation conflicts with the plain meaning of the INA and is therefore unlawful. See 5 U.S.C. § 706(a)(A). We affirm the district court’s judgments.” Velasquez, et al. v. Barr, et al., 19-1148, slip op. (8th Cir. 10/27/2020). https://ecf.ca8.uscourts.gov/opndir/20/10/191148P.pdf 

• Dream on: DACA update. As noted in the September edition of Bench & Bar, the U.S. Supreme Court rejected, on 6/18/2020, the government’s effort to end the Deferred Action for Childhood Arrivals Program (DACA) and remanded the case for further consideration, not because the Department of Homeland Security (DHS) lacked the authority to do so, but because it failed to provide a reasoned explanation for this. In a 5 to 4 majority opinion authored by Chief Justice John G. Roberts, Jr., the Court ruled that it held jurisdiction to review DHS’s rescission of DACA under the Administrative Procedure Act (APA). DHS v. Regents of the University of California, 591 U.S. _____, No. 18-587, slip op. (2020). https://www.supremecourt.gov/opinions/19pdf/18-587_5ifl.pdf 

On 7/28/2020, DHS Acting Secretary Chad Wolf issued a memorandum (“Reconsideration of the June 15, 2012 Memorandum Entitled ‘Exercising Prosecutorial Discretion with Respect to Individuals Who Came to the United States as Children’”) suspending DACA (i.e., DHS would reject all first-time DACA requests; adjudicate all pending and future properly submitted DACA renewal requests [and associated applications for employment authorization] from current beneficiaries; limit the period of any deferred action granted to one year; and reject all pending and future applications for advance parole from beneficiaries of the DACA policy). https://www.dhs.gov/sites/default/files/publications/20_0728_s1_daca-reconsideration-memo.pdf 

On 11/14/2020, the U.S. District Court for the Eastern District of New York granted the plaintiffs’ motion for summary judgment, finding Chad Wolf was not lawfully serving as acting secretary of the Department of Homeland Security when he issued his memorandum. Battalla Vidal, et al. v. Wolf, et al. and State of New York, et al. v. Trump, et al., Nos. 16-CV-4756 (NGG) (VMS) and 17-CV-5228 (NGG) (VMS) (E.D.N.Y. 11/14/2020). https://www.dhs.gov/sites/default/files/publications/20_1114_ogc_batalla-vidal-partial-msj-class-cert-order_508.pdf

On 12/04/2020, the U.S. District Court for the Eastern District of New York ordered the Department of Homeland Security (DHS) to post a public notice, within three calendar days, that it would accept applications for DACA, both first-time and renewal, as well as advance parole requests while, at the same time ordering DHS to extend deferred action grants of DACA and employment authorization to two-year periods. Battalla Vidal, et al. v. Wolf, et al. and State of New York, et al. v. Trump, et al., Nos. 16-CV-4756 (NGG) (VMS) and 17-CV-5228 (NGG) (VMS) (E.D.N.Y. 12/04/2020). http://cdn.cnn.com/cnn/2020/images/12/04/batalla_vidal_et_al_v_nielsen_et_al__nyedce-16-04756__0354.0.pdf 

On 12/07/2020, the Department of Homeland Security (DHS) updated its website to comply with the court’s 12/04/2020 order. https://www.uscis.gov/news/alerts/deferred-action-for-childhood-arrivals-response-to-december-4-2020-order-in-batalla-vidal-et-al-v

https://www.uscis.gov/i-821d

• “Public charge” and inadmissibility. On 12/2/2020, the 9th Circuit Court of Appeals upheld the preliminary injunctions enjoining the implementation of the Department of Homeland Security’s redefinition of the term “public charge,” which describes a ground of inadmissibility under immigration law. That redefinition encompasses a change from one who “is or is likely to become primarily dependent on the government for subsistence” to one who is “likely to participate, even for a limited period of time, in non-cash federal government assistance programs.” As the court eloquently noted, “Up until the promulgation of this Rule, the concept has never encompassed persons likely to make short-term use of in-kind benefits that are neither intended nor sufficient to provide basic sustenance.” The two injunctions were issued by the U.S. District Courts for the Northern District of California and Eastern District of Washington and applied to the city and county of San Francisco, county of Santa Clara, and states of California, Maine, Pennsylvania, Oregon, District of Columbia, Washington, Virginia, Colorado, Delaware, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, Rhode Island, and Hawaii. The court did, however, vacate that portion of the injunction issued by the U.S. District Court for the Eastern District of Washington making it nationwide in nature. City and County of San Francisco, et al. v. U.S. Citizenship and Immigration Services, et al. and State of California v. U.S. Department of Homeland Security, et al. and State of Washington, et al. v. U.S. Department of Homeland Security, et al., Nos. 19-17213, 19-17214, 19-35914, slip op. (9th Cir. 12/02/2020). https://cdn.ca9.uscourts.gov/datastore/opinions/2020/12/02/19-17213.pdf 

• H-1B rule changes in the face of APA notice and comment requirements. Faced with the task of determining whether the Departments of Homeland Security (DHS) and Labor’s (DOL) efforts (“Strengthening the H-1B Nonimmigrant Visa Classification Program” and “Strengthening Wage Protections for the Temporary and Permanent Employment of Certain Aliens [sic] in the United States”) to significantly change the H-1B visa program while dispensing with “due deliberation” were justified in the face of the covid-19 pandemic and its impact on domestic unemployment, the U.S. District Court for the Northern District of California ruled that they were not. It first found the Department of Homeland Security’s Rule was issued “‘without observance of procedure required by law’ and thus must be set aside.” At the same time, the court found the Department of Labor had failed to meet its burden “that providing advance notice would have had consequences so dire that notice and comment would not have served the public interest.” Given the government’s failure to show good cause for dispensing “with the rational and thoughtful discourse that is provided by the APA’s notice and comment requirements,” the court found the plaintiffs were entitled to judgment in their favor. Chamber of Commerce, et al. v. U.S. Department of Homeland Security, et al., No. 20-cv-07331-JSW (N.D. Cal. 12/01/2020). https://www.chamberlitigation.com/sites/default/files/cases/files/20202020/Order%20Granting%20Summary%20Judgment%20--%20U.S.%20Chamber%20v.%20DHS%20%28N.D.%20Cal.%29.pdf

ADMINISTRATIVE ACTION

• Automatic extension of TPS-related documentation for TPS beneficiaries. The U.S. Department of Homeland Security (DHS) announced its continued compliance with the preliminary injunction orders of the U.S. District Court for the Northern District of California in Ramos, et al. v. Nielsen, et. al., No. 18–cv–01554 (N.D. Cal. 10/03/2018); the U.S. District Court for the Eastern District of New York in Saget, et. al., v. Trump, et. al., No. 18–cv–1599 (E.D.N.Y. 04/11/2019); and the U.S. District Court for the Northern District of California to stay proceedings in Bhattarai v. Nielsen, No. 19–cv–00731 (N.D. Cal. 03/122019). While the 9th Circuit Court of Appeals vacated the injunction on 9/14/2020, it has not yet issued its order to the district court making its ruling effective. As a result, TPS beneficiaries from El Salvador, Honduras, Nepal, Nicaragua, and Sudan will retain their status while the preliminary injunctions in Ramos and Bhattarai remain in effect. TPS beneficiaries from Haiti will retain their status while the preliminary injunctions in either Ramos or Saget remain in effect. As such, DHS further announced the automatic extension of the validity of TPS-related employment authorization documents (EADs); notices of action (Forms I–797); and arrival/departure records (Forms I–94), (collectively known as ‘‘TPS-related documentation’’) for those TPS beneficiaries from the aforementioned countries. The extension of those documents will run through 10/04/2021. 85 Fed. Register, 79208-15 (12/9/2020). https://www.govinfo.gov/content/pkg/FR-2020-12-09/pdf/2020-27154.pdf 

R. Mark Frey  Frey Law Office

 


INTELLECTUAL PROPERTY

JUDICIAL LAW

• Trademark: Temporarily freezing assets and ordering expedited discovery. Judge Nelson recently granted 3M Company’s motion for a temporary restraining order and for limited discovery. 3M sued as-yet-unknown individuals or entities for trademark infringement for allegedly using e-commerce platforms to sell counterfeit N95 respirators using 3M’s registered trademarks without authorization. 3M moved (1) for a temporary restraining order to enjoin defendants’ infringing conduct, (2) to temporarily freeze defendants’ assets, and (3) for expedited discovery to determine defendants’ identities. 

The court first found a temporary restraining order was proper. 3M established that it would suffer irreparable harm to its reputation and goodwill; the balance of harms favored 3M; 3M was likely to succeed on its Lanham Act claims; and the public interest supported granting the injunction. The court then granted the motion to freeze defendants’ assets held by eBay, PayPal, and other payment processers connected to the sale of counterfeit products. Though temporarily freezing defendants’ accounts may impose some hardship, the temporary restraint was necessary to prevent defendants from receiving the proceeds of their allegedly infringing sales and thereafter dissipating such funds. Finally, the court granted the motion for expedited discovery. Federal Rule of Civil Procedure 26(d)(1) prevents a party from seeking discovery from any source before the parties have conferred in the Rule 26(f) conference, except where authorized by court order. The court found good cause existed to order the discovery because without the expedited discovery, 3M likely would not be able to identify the defendants, which would stifle the litigation. 3M Co. v. Individuals, P’ships, & Unincorporated Ass’ns identified in Schedule “A”, No. 20-cv-2348 (SRN/TNL), 2020 U.S. Dist. LEXIS 217813 (D. Minn. 11/20/2020).

• Patent: Exclusive license runs with patent. Judge Nelson recently granted defendant Cardio Flow, Inc.’s motion for summary judgment. In 2012, Cardiovascular Systems, Inc. (CSI) and the widow of the company’s founder settled patent litigation by granting CSI an exclusive license to the Nadirashvili Patent Portfolio. The widow later assigned her rights to the portfolio to Cardio Flow. CSI sued Cardio Flow for breach of contract to enforce its exclusive rights under the settlement agreement. CSI argued that by virtue of the assignment of patent rights to Cardio Flow, Cardio Flow was bound by the terms of the settlement agreement. Cardio Flow moved for summary judgment arguing that as a non-signatory of the settlement agreement, it was not bound by the agreement. 

The court found that because Cardio Flow was not a signatory of the settlement agreement, there was no legal basis on which to enforce the terms of the settlement agreement against Cardio Flow. Dismissal of CSI’s breach of contract claim was proper. Enforcement of CSI’s exclusive rights, however, could be accomplished through a patent infringement action. The court found that the settlement agreement made CSI the exclusive licensee of the Nadirashvili Patent Portfolio and that the license runs with the patents. If CSI finds that Cardio Flow infringes any of the patents of the Nadirashvili Patent Portfolio, CSI is free to seek a remedy for patent infringement in a separate lawsuit. Cardiovascular Sys. v. Cardio Flow, Inc., No. 18-cv-1253 (SRN/KMM), 2020 U.S. Dist. LEXIS 204120 (D. Minn. 11/2/2020).

Joe Dubis  Merchant & Gould

 


REAL PROPERTY

JUDICIAL LAW

• Zoning ordinance enactment. A plaintiff alleging that a city enacted a zoning ordinance in unlawful retaliation for engaging in a protected activity need not plead that the city lacked probable cause to enact the ordinance to survive a motion to dismiss for failure to state a claim upon which relief may be granted. In Sanimax, the plaintiff operated an animal rendering and used cooking oil processing facility in the City of South St. Paul. The city passed nuisance ordinances directed at it beginning in 2014. The plaintiff sued to prevent enforcement of the nuisance ordinance and the city amended it. Then, in 2017 and 2019, the city considered and then enacted zoning ordinances with an allegedly discriminatory animus against the plaintiff. Sanimax sued, asserting amongst other claims that the city enacted the zoning ordinance in retaliation for the earlier lawsuit to prevent enforcement of the nuisance ordinance in violation of the 1st and 14th Amendments. The city moved to dismiss, asserting amongst other arguments that the plaintiff had failed to plead that the city lacked probable cause to prove 1st Amendment retaliation. The district court held that although the 8th Circuit requires that a plaintiff alleging a retaliatory law enforcement action plead a lack of probable cause, such a heightened pleading standard does not exist for a retaliatory law-making claim. It, therefore, held that plaintiff’s retaliatory enactment claim was sufficiently pled and denied the city’s motion to dismiss it. Sanimax USA, LLC v. City of S. St. Paul, No. 20CV01210SRNECW, 2020 WL 6275972, at *5 (D. Minn. 10/26/2020). 

• Partition. When a party’s conduct with respect to jointly owned property is found to have constituted a bad faith effort to prevent and delay a sale and reduced the property’s value, the district court properly exercises its discretion to reduce the amount of proceeds to be paid to that party and increase the
distributions to the other co-owners.
In Humphreys, four siblings jointly owned lake property and only the respondent used it. In 2012, three siblings instituted a partition action that lasted six years. During the litigation, the respondent undertook a number of actions, including suing her brothers, the referee, and the brothers’ attorney, and also left the property in disarray. The district court in 2013 approved an initial asking price of $235,000. In 2018, the court approved a sale for $125,000. In 2019, the district court issued a decision allocating the sale proceeds and, in that order, deducted $9,000 from the respondent’s share of the proceeds and allocated that amount to be divided among the other three siblings because the respondent harmed the value of the property before the sale. The court of appeals held that the district court did not abuse its discretion by considering the bad faith conduct in deciding the amounts of distributions and therefore affirmed the district court. Humphreys v. Humphreys Krasner, No. A19-1775, 2020 WL 7018337, at *3 (Minn. App. 11/30/2020). 

Julie N. Nagorski  DeWitt LLP

Patrick C. Summers  DeWitt LLP

 


TAX LAW

JUDICIAL LAW

• SEP-IRA withdrawal income: “Conduit agency” argument rejected; penalties upheld. The petitioner in this dispute, Mr. Ball, participated in a Simplified Employee Pension Individual Retirement Arrangement (SEP-IRA). A SEP-IRA is a form of retirement account that permits business owners to provide retirement benefits for themselves and their employees. SEP-IRAs share many commonalities with traditional IRAs: contributions to SEP-IRAs are tax deductible (up to certain limits); and tax is deferred on any income until withdrawal. Like a traditional IRA, distributions before age 59.5 are taxed as income and subject to a 10% penalty. Taxpayers can avoid the 10% penalty if the distribution satisfies certain early withdrawal exceptions, and taxpayers are permitted to “roll over” (e.g., move to a different account) the funds in SEP-IRAs. A taxpayer might desire to roll over funds if, for example, the taxpayer changes jobs. There are different methods of rolling over funds; one method is referred to as a “60-day rollover.” In this method, SEP-IRA funds are distributed to the owner directly. The owner then has 60 days to deposit the funds into a new IRA account so that the taxpayer can avoid taxes and penalties.

In the tax year at issue, Mr. Ball, who was not 59.5, requested and received distributions from the SEP-IRA account of $170,000 and $39,600, respectively. The distributions took place after Mr. Ball executed a Traditional IRA Withdrawal Request form that requested that the custodian JP Morgan Chase Bank, NA, pay to Mr. Ball the designated amount. Mr. Ball checked a box on each withdrawal request form indicating that the withdrawal was an early distribution with no known exceptions to being taxable. He further instructed Chase to make the distribution into a Chase business checking account that he had opened in the name of a Nevada limited liability company, The Ball Investment Account, LLC. The Ball LLC account was not a retirement account. Immediately after the first distribution, in June 2012, Mr. Ball wired $170,000 from the account to a Nevada title company to fund a real estate loan to Petersen Development, LLC. The title company recorded the receipt as: “New Loan from the Ball Sep Account.” The loan was secured by a deed of trust that shows “The Ball SEP Account” as the beneficiary. The loan was repaid over a year later in April 2013 with a check payable to “The Ball SEP Account.” Mr. Ball immediately deposited the payoff check into the SEP-IRA account. His account statement shows the deposit as “rollover contribution.” The $39,600 withdrawal was treated similarly.

Mr. Ball argued that despite the distribution to an unqualified account, the withdrawal should not be taxable (and not subject to the early withdrawal penalty) because “the movement of funds from the SEP-IRA through the Ball LLC account to, and then back from, [lender accounts] described a ‘conduit agency arrangement.’ Under that theory, Ball LLC acted as a mere facilitator, transferring funds between the SEPIRA and the two other LLCs.” The court rejected the “conduit agency arrangement” because the court was not persuaded that Ball LLC was acting as an agent or conduit on behalf of Chase (as custodian of the SEP-IRA) when Ball LLC received and made use of the distributions. The court pointed to Chase’s ignorance of the disposition of the $209,600 that it deposited into the Ball LLC account and the taxpayer’s unfettered control over Ball LLC. “[N]othing in the record,” the court reasoned, “convinces us that [Mr. Ball] did not have unfettered control over the $209,600 Ball LLC received from Chase.” The court upheld the 10% early withdrawal penalty as well as the understatement penalty. Ball v. Comm’r, T.C.M. (RIA) 2020-152 (T.C. 2020).

• That’s a lot of zeros: IRS adjusts Coca-Cola’s income by more than $9 billion in transfer pricing dispute. Transfer pricing is not for the faint of heart; neither is this 90-page opinion in which the tax court upholds the Service’s reallocation of income to Coca-Cola from foreign manufacturing affiliates. The reallocation blow is softened somewhat by the court’s additional holding that Coca-Cola’s timely election to employ dividend offset treatment for certain dividends must offset some of the reallocated income.

The Coca-Cola Co. is the ultimate parent of a group of entities that do business in more than 200 countries throughout the world. Coca-Cola owns valuable and extensive intellectual property necessary to manufacture, distribute, and sell Coca-Cola’s beverages. Coca-Cola licenses foreign manufacturing affiliates, referred to as “supply points” in this opinion, to use the IP to produce concentrate which the supply points then sell to unrelated bottlers in the supply point’s region. The supply points have a right to use the IP, but no ownership interest in Coke. The supply points must compensate Coca-Cola for the IP. The gist of the Service’s position is that the supply points paid insufficient compensation to Coca-Cola for the rights to use this intangible property. The Coca-Cola Co. & Subsidiaries v. Comm’r, No. 31183-15, 2020 WL 6784134 (T.C. 11/18/2020). 

• Pilot with U.S. tax home not entitled to exclude foreign earned income. United States citizens are subject to federal income tax on their worldwide income. Section 911(a), however, allows qualified individuals to exclude “foreign earned income” from their income. To be a “qualified individual” the taxpayer must have a “tax home” in a foreign country; the taxpayer must be either “a bona fide resident of… [that country] for an uninterrupted period which includes… [the] entire taxable year,” or physically “present in a foreign country or countries” for a certain period. Id. subsec. (d)(1). The concept of “tax home” is challenging when applied to taxpayers whose jobs require frequent travel, and a developed body of case law addresses flight crews. 

In this dispute, United States citizen Douglas Cutting claimed the benefit of Section 911. Cutting claimed his tax home was in Thailand, where he lived with his wife and stepchild when he was not working. Section 911 refers to Section 162 to determine tax home. Typically, an individual’s tax home is that person’s regular or principal (if more than one regular) place of business or, if the individual has no regular or principal place of business because of the nature of the business, then at their regular place of abode. A body of developed case law instructs that the “tax home” for an airline pilot is the pilot’s duty base. In this case, Mr. Cutting selected San Jose, California as his duty base. Because his duty base was in California, Mr. Cutting’s tax home was California, despite his family’s residence in Thailand.

Because Mr. Cutting did not have a tax home abroad, the court did not need to address whether Mr. Cutting was a bona fide resident of Thailand. Sec 911(d)(1) (providing that a qualified individual is an “individual whose tax home is in a foreign country and who is” either “a bona fide resident of… [that country],” or physically “present in a foreign country or countries” for a certain period). Nonetheless, the court held that Mr. Cutting could not establish this second prong of the “qualified individual” test. Cutting v. Comm’r, T.C.M. (RIA) 2020-158 (T.C. 2020).

• Buffalo, New York’s boom & bust cycle sets the stage for easement dispute. The taxpayers in this dispute contributed facade easements on three commercial buildings to the National Architectural Trust. Because the buildings were in a historic preservation district that under local law already restricted what building owners could do with their property, the commissioner claimed that the easements did not reduce the fair market value of the property at all, and therefore no deduction was proper. As framed by Judge Holmes, “[t]his case thus poses a question of interest to donors of the subset of conservation easements that protect facades on old buildings: How does one gauge the marginal effect of the easement in light of local law?” 

Readers interested in historic architecture might enjoy reading the descriptive opinion. Judge Holmes’ recitation of the history of Buffalo is worth quoting: “Buffalo was America’s eighth largest city in 1900… during the last great immigration boom. Its population kept growing for the first half of the twentieth century and peaked at nearly 600,000 in the 1950 census. Then, with the opening of the St. Lawrence Seaway, the collapse of grain milling and steelmaking, and the cratering of much of its blue-collar industry, it shrank to only 260,000 people today. When Buffalo was growing into a great city, it attracted the attention of great architects and great designers—its largest park was designed by Frederick Olmsted, its first skyscraper by Louis Sullivan, and what was for a time the largest office building in the world by D.H. Burnham & Co. Such achievements are the happy legacy of a prosperous economy.” 

The taxpayer in this dispute claimed a deduction for the donation of conservation easements on three buildings built during Buffalo’s boom. Taxpayers are permitted deductions for “qualified conservation contribution[s],” which are “contribution[s] (A) of a qualified real property interest, (B) to a qualified organization, (C) exclusively for conservation purposes.” The contribution must be in perpetuity, but unlike the numerous conservation easement cases we have recently reported, this dispute does not involve the perpetuity requirement. Instead, this case presented what the court described as “one of the apparently rare instances in which the only dispute is about the proper value of an easement.” Like most valuation disputes, competing experts presented widely divergent valuations. The court carefully reviewed each expert’s findings, and the court concluded that while the taxpayer overstated the value of the contribution, the overstatement was modest and no penalties were in order. Kissling v. Comm’r, T.C.M. (RIA) 2020-153 (T.C. 2020).

• Court grants petitioners’ motions or protective orders to limit county’s use of proprietary information. These cases involved the market value of two downtown Minneapolis properties and one North Loop Minneapolis property for Pay-2019 taxes. Hennepin County served each petitioner (LPF North Loop Investors LLP; BAEV — LaSalle Minneapolis Hennepin Avenue LLC; and CWI Minneapolis Hotel LLC) separately with written discovery, including interrogatories and requests for production of documents. In response to the county’s request for document production and interrogatories, each petitioner answered stating that, “Petitioner will produce all non-privileged documents responsive to this Interrogatory after a mutually acceptable protective order addressing confidentiality is entered by the Court.” The county sent meet-and-confer letters to petitioners in an effort to agree on a protective order. Petitioners subsequently emailed a draft to the county stating, in relevant part, that certain sensitive information produced during discovery could only be used in the matter in which it was produced. The county proposed instead that the information would receive the same protection as “assessor’s data” under the Minnesota Government Data Practices Act (MGDPA), meaning that the information could be used in other matters. 

The parties were not able to come to an agreement, and the county filed motions to compel discovery with the tax court. That same day, each petitioner filed a motion for a protective order, stating that certain information was confidential commercial or trade secret information. For purposes of resolving common legal issues, these matters were consolidated before the tax court. 

Minn. R. Civ. P. 33.01(a) provides that any party may serve written interrogatories upon any other party, and the responding party must serve separate written answers or objections to each interrogatory within 30 days after service. Minn. R. Civ. P. 33.01(b). Rule 34 allows any party to serve on any other party a request to produce documents and to permit the party making the request an opportunity to inspect and copy any designated documents. Minn. R. Civ. P. 34.01(a)(1)(A). Additionally, any party seeking discovery may move for an order compelling an answer or production. Minn. R. Civ. P. 37.01(b)(2).

To prevent public disclosure of matters produced in discovery, the party from whom discovery is sought may move for a protective order. See Minn. R. Civ. P. 26.03. Protective orders “permit discovery of relevant information while protecting a privilege by limiting access to the information.”  

Trial courts have broad discretion to regulate discovery and issue suitable protective orders. See In re Paul W. Abbott Co., 767 N.W.2d 14, 17-18 (Minn. 2009). Minnesota law provides, in relevant part, that a party from whom discovery is sought, and for good cause shown, may request that the court issue an order to protect a party from annoyance, embarrassment, oppression, or undue burden or expense, including that a trade secret or other confidential research, development, or commercial information not be disclosed or be disclosed only in a designated way. The tax court has “previously found good cause when the party seeking the protective order 1) considers information to be confidential commercial information; (2) pursues adequate measures to protect that information from public disclosure; and (3) might be harmed if the information were disseminated to its competitors.” See IRC Champlin Marketplace, L.L.C. v. Cty. of Hennepin, Nos. 27-CV-19-6858 & 27-CV-19-6585, 2020 WL 5097109, at *3 (Minn. T.C. 8/25/2020).

In a detailed opinion, the court granted the petitioners’ motions for protective orders, concluding that the proprietary information will be limited to each individual case. Furthermore, the court stated that although “assessors may have access to proprietary information in their capacity as expert appraisers for the City of Minneapolis or the County, they may not use that same information in their capacity as assessors.

Because the court granted protective orders for each case, the petitioners’ objections to the county’s motion to compel were resolved. The court granted the county’s motions to compel as to the requests for sale documents, leases, and financial documents. LPF North Loop Investors LLP v. Hennepin Co., 2020 WL 6604877 (Minn. T.C. 11/12/20). 

• Court denies motion for leave for additional direct testimony; expert reports should be complete. Petitioner Lowe’s Home Centers, LLC, filed property tax petitions with respect to property located at 11201 Fountains Drive North, in Maple Grove, for the 2016 and 2017 tax-payable years. Scheduling orders issued in both cases provide that the written report of any expert retained in these matters who is expected to testify at trial shall serve as the authoring expert’s direct testimony. The parties moved to consolidate the cases, and, the consolidation order required the parties to serve review appraisals no later than 3/4/2019.

The parties exchanged expert reports and subsequently filed pretrial submissions with the court in accordance with the consolidation order. “The submissions included: 1) two primary appraisals of the subject property by Lowes (one for each tax year), each by Michael MaRous; 2) two primary appraisals of the subject property by the County (one for each tax year), each by Timothy Mitchell; 3) two review appraisals by Lowes’ review appraiser of the County’s primary appraisals (for the respective tax years), each by Gary Battuello; and 4) a review appraisal by the County’s review appraiser of Lowe’s primary Pay-2017 appraisal, by Mark Kenney.” 

On 3/4/2019, Lowes moved for leave to conduct additional direct oral testimony of its review appraiser at trial. Lowes contends that “Mr. Battuello’s written review appraisal will not and cannot review and respond to all of’ the appraisal testimony of Mr. Mitchell.” Lowes argues that Mr. Battuello should be able to address Mr. Mitchell’s written appraisal in an expanded fashion, and expresses concern that, if the county does not cross-examine or if the county performs only a limited cross-examination of Mr. Battuello, he will never have the opportunity to fully respond to Mr. Mitchell’s written appraisal. The county states that Lowes may seek to offer Mr. Battuello’s rebuttal testimony in response to Mr. Mitchell’s oral testimony at trial but not to explain matters already addressed in his written testimony.

Minn. R. Civ. P. 26.05 provides that a party has a duty to amend a prior response to an interrogatory or request for production, if the party learns that the response is in some material respect incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing. This rule extends to any report of an expert witness. See Minn. R. Civ. P. 26.01(b)(5).

Furthermore, the court is authorized to reasonably control the mode and order of interrogating witnesses and presenting evidence so as to “1) make the interrogation and presentation effective for the ascertainment of the truth, 2) avoid needless consumption of time, and 3) protect witnesses from harassment or undue embarrassment.” Minn. R. Evid. 611(a). Consistent with Rule 611(a), the tax court regularly issues scheduling orders that require the direct testimony of expert witnesses to be reduced to writing, absent leave of court (citations omitted).

The court denied Lowes’ motion for leave for additional oral direct testimony of its review appraiser. The court stated that the scheduling order required that expert reports include complete statements and opinions of all witnesses and the basis and reasons for them. Accordingly, the court stated that Mr. Battuello’s written reports should have contained all the bases and reasons for his opinion and petitioners may not supplement Mr. Battuello’s written reports with additional direct testimony to overcome deficiencies. Lowe’s Home Ctrs., LLC v. Hennepin Co., 2020 WL 6688900 (Minn. T.C. 11/13/20). 

•  Property tax: Petitioner failed to comply with mandatory disclosure rule. On 6/28/2019, petitioner DTD Properties, LLC filed property tax petitions stating that the estimated market value of two subject properties for taxes payable in 2020 exceeded their actual market value. Both petitions describe the respective subject properties as income-producing. On 7/6/2020, the Olmsted County Attorney sent petitioner’s counsel a letter stating, in relevant part, “if your Tax Court petition contests the valuation of income producing property, you are required as the petitioner to provide certain financial information about the property by no later than August 1 of the taxes payable year.” Citing Minn. Stat. §278.05, subd. 6. On 9/28/2020, the county filed motions to dismiss both petitions. The county asserts that it did not receive the necessary information with respect to either property by 8/1/2020. Petitioner argues that the required information was unavailable at the time it was due but provides no additional substantive details.

The mandatory disclosure rule states that in cases where the petitioner contests the valuation of income-producing property, certain information must be provided to the county assessor no later than August 1 of the taxes-payable year. Minn. Stat. §278.05, subd. 6(b) (2018). Failure to submit the required documentation by the August 1 deadline results in automatic dismissal of the petition unless an exception applies. See Wal-Mart Real Estate Bus. Tr. v. Cty. of Anoka, 931 N.W.2d 382, 386 (Minn. 2019). The statute provides two exceptions to the August 1 deadline: “1) if the failure to provide the required information was due to its unavailability at the time the information was due; or 2) the petitioner ‘was not aware of or informed of the requirement to provide the information.’” Minn. Stat. §278.05, subd. 6(b)(1).

With respect to exception 2, petitioner did not contend or provide any facts supporting a contention that it lacked knowledge of the obligation to provide mandatory disclosures by the 8/1/2020 deadline. With respect to exception 1, petitioner did not provide any facts explaining why the required information was unavailable; nor did petitioner provide any specific circumstances that interfered with its access to information. The court stated that the mere assertion that the information was unavailable did not satisfy the requirements of the mandatory disclosure rule, and thus, granted the county’s motion to dismiss. DTD Properties, LLC v. Olmsted Co., 2020 WL 7086154 (Minn. T.C. 12/1/2020).

Morgan Holcomb Mitchell Hamline School of Law

Sheena Denny  Mitchell Hamline School of Law 

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