Notes & Trends February 2021

CRIMINAL LAW

JUDICIAL LAW

• Sentencing: Fifth degree possession is not a gross misdemeanor for criminal history calculations if the defendant previously pleaded guilty to a petty misdemeanor drug offense. When calculating appellant’s criminal history following his conviction for felony domestic assault, the district court assigned four and one-half felony points, which included one-half felony point for appellant’s 2007 conviction for fifth-degree possession of cocaine. Under Minn. Stat. §152.025, subd. 4, for some possession offenses, including appellant’s 2007 offense, “[a] person convicted [of a fifth-degree controlled substance crime], who has not been previously convicted of a violation of this chapter or a similar offense in another jurisdiction, is guilty of a gross misdemeanor.” 

Prior to 2007, appellant pleaded guilty to a petty misdemeanor violation of chapter 152 for possessing a small amount of marijuana. However, appellant argues this petty misdemeanor offense is not a “convict[ion] of a violation” of chapter 152, because petty misdemeanors are not considered “crimes” and a “conviction” requires a finding of guilt for a crime. Without this petty misdemeanor drug offense, appellant argues his 2007 conviction should qualify as a first-time fifth-degree possession offense and, therefore, a gross misdemeanor for his criminal history calculation.

The court of appeals rejects appellant’s argument, noting that section 152.025, subd. 4, refers to “convict[ions] of [ ] violation[s]” of chapter 152 and does not use the term “crime.” “Conviction” is defined in section 609.02, subd. 5, to include a guilty plea accepted and recorded by the district court. Thus, when appellant entered a guilty plea, and the court accepted and recorded appellant’s guilty plea, to a petty misdemeanor violation of chapter 152, he was “convicted of a violation” of chapter 152. As such, appellant’s 2007 cocaine possession offense was not a first-time possession offense and it does not qualify for classification as a gross misdemeanor. The district court properly counted the offense as a felony when calculating appellant’s criminal history score. State v. Morgan, ___ N.W.2d ___, 2020 WL 7484757 (Minn. Ct. App. 12/21/2020). 

•  Firearms: A distress flare is not a “firearm.” Appellant was previously adjudicated delinquent of a violent crime and prohibited from possessing firearms. Police found appellant at a store when responding to a call of a burglary in progress and discovered a distress flare launcher in his pocket. Appellant was charged with, among other offenses, possession of a firearm by an ineligible person. The district court granted appellant’s motion to dismiss that charge, finding a distress flare launcher is not a “firearm” under Minn. Stat. §624.713, subd. 1. The court of appeals concluded a “firearm” must be a “weapon,” but held that a distress flare launcher could be a “firearm” if appellant used or intended to use it as a weapon. 

The Supreme Court holds that a “firearm” under section 624.713, subd. 1, “is an instrument designed for attack or defense that expels a projectile by the action or force of gunpowder, combustion, or some other explosive force.” Under this definition, the Supreme Court concludes that a distress flare launcher is not a firearm.

Section 624.713, subd. 1, does not define “firearm,” so the Supreme Court looks to dictionary definitions, all of which define “firearm” as a “weapon.” The dictionary definitions of “weapon” further make clear that it is “an instrument designed for attack or defense.” This interpretation is consistent with the nature of section 624.713, subd. 1, which establishes a possession crime, not a crime based on a defendant’s use or intended use. The record here establishes that a distress flare launcher is not an instrument designed for attack or defense. As it is not a “weapon,” it cannot be a firearm under section 624.713, subd. 1. State v. Glover, __ N.W.2d __, 2020 WL 7636412 (Minn. 12/23/2020).

•  City code violations: A letter contesting a zoning violation notice is not a “request relating to zoning” if it is not on an agency application form or does not clearly identify a request for government approval. Respondents are co-owners of an undeveloped parcel of land fronting Lake Minnetonka, on which they installed a “seasonal dock” in April 2017. The city issued a notice of zoning violation on 5/11/2017 because the property lacked a “principal dwelling” and respondents did not occupy the property. Respondents answered by letter on 5/13/2017, arguing the city code prohibited only “permanent” or “floating,” but not seasonal docks on unoccupied property. The city did not respond to the letter. The city ultimately withdrew its notice violation, but, in July 2017 the city adopted an amended ordinance prohibiting the use of any type of dock on unoccupied property. Respondents again installed a dock in June 2018, and the city issued another notice violation. Respondents were charged with two misdemeanor violations of the city code. The district court dismissed the charges for lack of probable cause, and the court of appeals affirmed.

The Supreme Court considers whether respondents’ 5/13/2017 letter was a “request” that triggered Minn. Stat. §15.99, subd. 2(a)’s 60-day time period and automatic approval provisions. Under that section, “[a]n agency must approve or deny within 60 days a written request relating to zoning… for a permit, license, or other governmental approval of an action.” “Request” is defined in subd. 1(c) as “a written application related to zoning… for a permit, license, or other governmental approval of an action,” and must either be submitted to the agency on an agency application form or “clearly identify on the first page the specific permit, license, or other governmental approval being sought.” If the agency does not respond within 60 days, the request is automatically approved. 

Respondents’ letter was not made on an application form from the city, nor does the first page of the letter clearly identify the permit, license, or other governmental approval being sought. Therefore, for the 60-day time period to apply, the letter must clearly identify the specific “other governmental approval sought.” The Court notes that “governmental approval” is not defined in section 15.99 and is ambiguous, as the phrase is open to multiple reasonable interpretations. The Court concludes that “other governmental approval” refers “to the official permission that a person must seek and receive from an agency before undertaking the specific action that the person proposes to pursue,” that is, “a prospective request for agency permission, rather than retroactive approval by the government of a person’s unilateral action or view of the law.” 

Under this definition, respondents’ letter was not a “request” under section 15.99 and their dock was not automatically approved upon the city’s non-response to the letter. The matter is remanded to the district court to reinstate the criminal complaint against respondents. State v. Sanschagrin, __ N.W. 2d __, 2020 WL 7759466 (Minn. 12/30/2020).

•  1st Amendment: Nonconsensual dissemination of private sexual images statute is a constitutional restriction on speech. Minn. Stat. §617.261, subd. 1, makes it “a crime to intentionally disseminate an image of another person who is depicted in a sexual act or whose intimate parts are exposed… when: (1) the person is identifiable…; (2) the actor knows or reasonably should know that the person depicted in the image does not consent to the dissemination; and (3) the image was obtained or created under circumstances in which the actor knew or reasonably should have known the person depicted had a reasonable expectation of privacy.” Respondent was charged with a felony-level violation of section 617.261 after he accessed his ex-girlfriend’s online accounts, obtained a photograph and video of her engaged in sexual relations with another individual, threatened to disseminate the images, and sent the photograph and video to 44 individuals and posted them online. He moved to dismiss the charge, arguing it violated the 1st Amendment. The district court denied the motion and found him guilty after a stipulated facts trial. The Minnesota Court of Appeals reversed, finding section 617.261 overbroad in violation of the 1st Amendment.

As to respondent’s first argument, that section 617.261 is an impermissible content-based restriction on speech, the Supreme Court agrees with the court of appeals that section 617.261 criminalizes more than just obscenity, but finds that the statute is constitutional because it is narrowly tailored to serve a compelling state interest. The statute prohibits both protected and unprotected speech, as it covers more than only obscenity, speech integral to criminal conduct, and child pornography, as the state argues. Some sexual images may be indecent, but not obscene. Private sexual images are also generally not used to facilitate the commission of a crime, are not offers to engage in illegal transactions, and are not requests to obtain unlawful material. Furthermore, more private sexual images depict adults, not children. Thus, because not all of the speech proscribed by the statute is unprotected, section 617.261 is not exempted from the 1st Amendment.

Next, the Court declines to ascertain whether the statute is a content-based restriction, requiring strict scrutiny analysis, or content-neutral restriction, requiring an intermediate scrutiny analysis. The Court does so because it finds section 617.261 survives even “the more searching strict scrutiny analysis.” The state has a compelling interest in protecting its citizens from the “harrowing,” “profound” effects of the nonconsensual dissemination of private sexual images. Nonconsensual dissemination of private sexual images can cause victims deep psychological damage and permanently tarnish their reputations. The problem is also “widespread and continuously expanding.”

The Court determines that section 617.267 is narrowly tailored to solve this problem. The statute is the least restrictive means available to address the problem. The statute criminalizes only private speech that is intentionally disseminated without consent, falls within numerous specific statutory definitions, and is outside of seven broad statutory exemptions.

Respondent also argues section 617.267 is unconstitutionally overbroad because it burdens a substantial amount of protected speech. While the Court notes “that the relationship between the overbreadth doctrine and a strict scrutiny analysis is unclear,” the Court declares that “[w]hen a statute is challenged on both scrutiny and overbreadth grounds, a scrutiny analysis should be conducted first,” “because a statute that survives a scrutiny analysis will necessarily survive the overbreadth analysis.” Here, because section 617.267 survives strict scrutiny, the Court does not complete an overbreadth analysis, and the statute is upheld as constitutional. State v. Casillas, __ N.W.2d __, 2020 WL 7759952 (Minn. 12/30/2020).

Samantha Foertsch Bruno Law PLLC

Stephen Foertsch Bruno Law PLLC

JUDICIAL LAW

• Unpaid commissions; limited percentage of profits. An unpaid salesman for a Bloomington industrial equipment company was entitled to a percentage of profits, for one year. The 8th Circuit, in a decision written by Judge David Stras of Minnesota, upheld a decision by U.S. District Court Judge Wilhemina Wright of Minnesota in a case for jury trial on an “ambiguous” provision in an employment contract regarding commissions on rental purchase options. Auge v. Fairchild Equipment, Inc., 982 F.3d 1162 (8th Cir. 12/16/2020).

• Employee dishonesty; insurance coverage denied. A company sought coverage for losses sustained after one of its employees allegedly conspired to defraud investors. Upholding a lower court decision in a decision written by Judge James Loken of Minnesota, the 8th Circuit Court of Appeals held that the firm’s payments to settle third party liability claims based upon an employee’s dishonest acts did not constitute a “direct loss” covered under the applicable insurance policy and did not fall within a court-covered cause for any “dishonest” actions. Federal Insurance Company v. Axos, 2020 WL 7133355 (8th Cir. 12/7/2020).

• OSHA inapplicable to tribe; sovereign immunity applies. A penalty sought by the Occupational Safety & Health Review Commission (OSHA) upon a tribal fisher business due to a boating accident that killed employees was deemed not actionable by the 8th Circuit. The 8th Circuit refused to review the dismissal of the charges on grounds that OSHA was inapplicable to the tribe due to the principles of tribal sovereignty and self-government. The business was owned and operated solely by members of the tribe. Scalia v. Red Lake Nation Fisheries, Inc., 2020 WL 7083327 (8th Cir. 12/4/2020) (unpublished). 

• Age discrimination; RIF claim fails. An employee who was terminated as part of a companywide reduction in force failed in his age discrimination claim. Upholding a ruling of the Ramsey County District Court, the Minnesota Court of Appeals held that the statements made by non-decision-makers do not reflect a pretext for discrimination and the company had provided legitimate, non-discriminatory reasons for discharging the claimant, who failed to show the discharge was pretextual or partially motivated by his age. Mentonis v. Abbott Laboratories, Inc., 2020 WL 7134471 (Minn. Ct. App. 12/07/2020) (unpublished). 

•  Wrongful discharge; retaliation, discrimination, and defamation rejected. The city clerk-treasurer of Gilbert, an Iron Range town, lost her three-pronged wrongful termination case. The Minnesota Court of Appeals affirmed a St. Louis County District Court ruling dismissing a whistleblower claim, along with claims of age and gender discrimination and defamation on grounds of lack of prima facie case, absence of pretext, and immunity. Sakrison v. City of Gilbert, 2020 WL 7332556 (8th Cir. 12/14/2020) (unpublished). 

• Unemployment compensation denied; beauty salon employee quit. An employee who quit her job at a beauty salon was not entitled to unemployment compensation benefits. Affirming the ruling of an unemployment law judge (ULJ) with DEED, the appellate court held that the employee was not eligible for benefits because she voluntarily quit her job without “good cause” attributable to the employer. Tehranpour v. Beauty Basics, Inc., 2020 WL 7134847 (Minn. Ct. App. 12/07/2020) (unpublished). 

•  Ineligibility due to misrepresentation; untimely appeal. An employee who challenged the determination of ineligibility for unemployment benefits because she received undisclosed earnings was unsuccessful because her appeal was untimely. The court of appeals affirmed the ruling of a ULJ that the appeal was not filed within the requisite 20-day time period, which it deemed “absolute.” Nelson v. TEMA, Inc., 2020 WL 7134847 (Minn. Ct. App. 12/07/2020) (unpublished).

• Unemployment compensation; refusal to commute. An employee who refused to commute 20 miles from home was denied unemployment benefits. Upholding a DEED determination, the appellate court held that the applicant was not “available for suitable employment.” Modeen v. Meribel Enterprises, 2020 WL 7332899 (Minn. Ct. App. 12/14/2020) (unpublished).

• Unemployment compensation; absences bars benefits. An employee’s repeated absences barred unemployment benefits. The court of appeals agreed with DEED that the absences constituted disqualifying “misconduct.” Peterson v. DJ’s Companies, 2020 WL 7332903 (Minn. Ct. App. 12/14/2020) (unpublished).

Marshall H. Tanick  Meyer, Njus & Tanick

JUDICIAL LAW

• On remand, Minnesota Court of Appeals rules on remaining issues in White Bear Lake case. The Minnesota Court of Appeals issued an opinion in December 2020 resolving a dispute that initially arose in 2013 between the White Bear Lake Restoration Association, the Minnesota Department of Natural Resources and its commissioner, the city of White Bear Lake, and the town of White Bear regarding alleged impairment of White Bear Lake and the Prairie du Chien-Jordan Aquifer caused by municipal groundwater pumping. 

In August 2017, the district court granted declaratory and injunctive relief pursuant to Minn. Stat. §116B.03 of the Minnesota Environmental Rights Act (MERA) and the public trust doctrine. White Bear Lake, White Bear, and the DNR appealed on nine issues, only two of which were decided by the Minnesota Court of Appeals in April 2019. White Bear Lake Restoration Ass’n ex rel. State v. Minn. Dep’t of Nat. Res., 928 N.W.2d 351 (Minn. App. 2019) (White Bear Lake I). Upon review of this court’s holding on two issues, the Minnesota Supreme Court remanded for further consideration of the remaining issues. White Bear Lake Restoration Ass’n ex rel. State v. Minn. Dep’t of Nat. Res., 946 N.W.2d 373, 387 (Minn. 2020) (White Bear Lake II).

Excluding the two issues reviewed by the Minnesota Supreme Court, at issue in this appeal was whether the district court erred by (3) finding that respondents failed to exhaust administrative remedies, (4) refusing to require joinder of affected permit holders, (5) interpreting MERA to require the DNR to reopen and amend permits, (6) failing to give appropriate deference to DNR permitting decisions, (7) violating separation-of-powers principles, (8) requiring amendments of existing permits without holding administrative hearings, and (9) making clearly erroneous factual findings. 

This court affirmed the judgment in favor of respondents White Bear Lake Homeowners’ Association, Inc. on the grounds that there were no reversible errors of law and the facts were adequately supported by evidence in the record, notwithstanding an amendment to the judgment to provide administrative hearings to permit holders prior to amending existing permits.

In addressing issue three, this court found that the district court correctly held that the DNR did not exhaust administrative remedies prior to litigation. In addressing issue four, this court found that the district court correctly refused to require joinder because it fairly determined that permit holders do not have legally protected interests and are not necessary parties under Minn. R. Civ. P. 19.01. However, in addressing issue eight, this court found that permit holders have a statutory right to seek a contested-case administrative hearing and the district court’s holding that the DNR must “immediately amend” all permits conflicts with that right. 

This court also found that the district court did not exceed its authority under MERA nor violate separation-of-powers principles. This point turns on the Supreme Court’s decision in White Bear II that MERA grants broad authority and discretion to the district court to apply a balancing test on a case-by-case basis in considering the gravity of the harm versus the utility of the conduct. The district court acted as it should, the court held, as a traditional court of equity under the statutory requirements and thus did not err. 

Finally, this court found that the district court did not make clearly erroneous findings of fact. Reversal would require that the findings of fact were clearly erroneous and the court is firmly convinced that a mistake has been made, which the court held was not the case here. Minn. R. Civ. Pr. 52.01; see also Rasmussen v. Two Harbors Fish Co., 832 N.W.2d 790, 797 (Minn. 2013). White Bear Lake Restoration Association, ex rel. State of Minnesota v. White Bear Lake Homeowners’ Association, Inc., No. A18-0750, 2020 WL 7690268 (Minn. Ct. App. 12/28/2020 (White Bear Lake III).

ADMINISTRATIVE ACTION

• EPA finalizes lead and copper rule revisions for drinking water. On 12/22/2020, the U.S. Environmental Protection Agency (EPA) pre-published a final rule to update the treatment technique regulation for lead, referred to as the Lead and Copper Rule (LCR), under the authority of the Safe Drinking Water Act. 42 U.S.C. §300f, et seq. Although the LCR was revised in 2000 and 2007, this is the first major update since the rule was promulgated in 1991.

Lead and copper enter drinking water primarily through plumbing materials as corrosive water is transported through the pipes, leaching lead and other metal ions into the water supply. Hot water, low pH, and low mineral content increase water corrosivity. EPA’s non-enforceable maximum contaminant health goal for lead exposure in drinking water is zero. 40 C.F.R. §141.51(b). This level is based on the best available science, which shows that there is no safe level of exposure to lead, which can cause learning disabilities, behavioral problems, and mental retardation, especially during the early stages of brain development.

The LCR requires community water treatment systems to monitor drinking water quality at consumer taps, and to control the corrosivity of the water. 40 C.F.R. §141 subp. I, et seq. Water treatment systems can control the corrosivity of drinking water by adjusting the pH and phosphate levels in the water, which reacts with ions in the water to create a protective coating on the interior of the lead pipes, thus preventing lead from leaching out of the pipes and into the drinking water. However, when corrosion control measures alone are not sufficient to control lead exposure, the LCR requires water systems to educate the public and to replace lead service lines.

A key feature of the final rule is a requirement to identify and remediate areas most affected by lead contamination. The rule requires all water systems to complete and maintain a lead service line inventory and to prioritize collecting and testing tap samples from homes if lead is present in the distribution system.

The previous rule established a lead action level, a measure of the effectiveness of the corrosion control treatment in water systems, at 15 parts per billion (ppb). If 10 percent or more of the tap water samples exceeded the lead action level of 15 ppb, then the water treatment systems were required to take additional actions, such as optimizing their corrosion control treatments, informing the public about lead in drinking water and steps they should take to protect their health, and replacing portions of lead service lines that connect distribution mains to customers.

The updated rule keeps the 15 ppb lead action level, but also establishes a new threshold of 10 ppb, called the trigger level. When the 10 ppb trigger level is exceeded, water systems that already have corrosion control must reassess their water treatment processes and add corrosion control measures, and water systems that do not have corrosion control must conduct a corrosion control study to identify the best treatment approach. The trigger level also requires systems to start lead service line replacement programs, which was not required in the previous rule. After the 15 ppb lead action level is exceeded, the new rule requires 3% of lead service lines to be fully replaced annually. The previous rule had provisions that allowed for partial replacement of lead service lines and test-outs. The final rule also mandates water systems to notify consumers within 24 hours of lead action level exceedances, and requires testing in 20% of elementary schools and childcare facilities within a service area every year.

The final rule will become effective 60 days after the publication in the Federal Register. Docket ID: EPA-HQ-OW-2017-0300.

• EPA finalizes TSCA evaluation of asbestos. On 12/30/2020 the Environmental Protection Agency (EPA) issued its risk evaluation for asbestos, specifically chrysotile asbestos, under the Toxic Substances Control Act (TSCA). As part of this risk evaluation, the EPA was charged with reviewing the conditions of use for chrysotile asbestos, which is the only form of asbestos known to be imported, processed, or distributed for use in the United States. The conditions of use reviewed included manufacturing, processing, distribution in commerce, occupational and consumer uses, and disposal. The goal of risk evaluation under TSCA is to determine which conditions of use present unreasonable risks to human health or the environment. 

In completing its risk evaluation, the EPA determined that chrysotile asbestos presents an unreasonable risk to human health in 16 of the 32 conditions of use, but further found that there were no unreasonable risks to the environment. Because the EPA found that unreasonable risks to human health were present, a one-year deadline to propose risk management rules to mitigate those risks was triggered under TSCA.

There has been some controversy in the final risk evaluation issued by the EPA given that the evaluations have remained the same as previously provided in the EPA’s April 2020 draft evaluation, notwithstanding a finding by EPA’s Science Advisory Committee on Chemicals (SACC) that the draft evaluations were inadequate and deficient. SACC had requested that the evaluation be broadened to consider additional uses of multiple types of asbestos before being finalized; however, the EPA did not follow through with the request before issuing its final risk evaluations.

The next step the EPA will undertake is to propose actions to address the unreasonable risks identified by the EPA, and to subsequently accept comments on those proposed actions. The key issue at hand at this point is that the EPA will be transitioning from the Trump administration to the Biden administration. This transition may result in reconsideration of the risk evaluation findings, or a complete re-evaluation. Risk Evaluation for Asbestos, Part I: Chrysotile Asbestos; EPA Document # EPA-740-R1-8012, December 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

JUDICIAL LAW

• Fed. R. App. P. 39(e); discretion to reduce taxable costs; grant of certiorari. The Supreme Court has granted certiorari to review a 5th Circuit decision holding that district courts have no discretion to deny costs under Fed. R. App. P. 39(e) to a successful appellee. Every other circuit to address the issue—including the 8th Circuit—has held that district courts have that discretion. City of San Antonio v. Hotels.com, L.P., 959 F.3d 159 (5th Cir. 2020), cert. granted, ___ S. Ct. ___ (2021). 

•  Forum defendant rule no longer jurisdictional; en banc decision. In March 2020, this column noted the 8th Circuit’s application of the forum defendant rule to vacate a lower court decision that had dismissed an improperly removed action on the merits. 

Subsequently, the defendant-appellee’s petition for rehearing en banc was granted, and the 8th Circuit unanimously overruled its prior decisions finding that the forum defendant rule was jurisdictional, and joined every other circuit that has addressed the issue in finding that the forum defendant rule is nonjurisdictional and therefore waivable. Holbein v. Baxter Chrysler Jeep, Inc., 948 F.3d 931 (8th Cir.), rev’d sub nom., Holbein v. TAW Enters., Inc., ___ F.3d ___ (8th Cir. 2020) (en banc). 

• Fed. R. Civ. P. 23(f); class certification affirmed. Rejecting the defendant’s argument that the district court had not adequately explained its class certification decision, the 8th Circuit affirmed the district court’s certification of a plaintiff class, finding that a class action was the “superior mechanism” to try a case involving numerous claims for “tens or hundreds of dollars,” because in the absence of a class action, “no plaintiff is likely to pursue their claim individually.” Custom Hair Designs by Sandy v. Central Payment Co., ___ F.3d ___ (8th Cir. 2020). 

•  No review of waived evidentiary objections; dissent. Where the district court denied plaintiffs’ motion in limine to preclude the defendant from introducing video simulations in a product liability action, the plaintiffs then introduced the simulations, the jury found for the defendant, the district court denied plaintiffs’ motion for a new trial and the plaintiffs appealed, the 8th Circuit found that by introducing the video simulations, the plaintiffs had waived any objection to the evidence, meaning that the district court’s evidentiary ruling was unreviewable. 

A lengthy and vigorous dissent by Judge Grasz argued that the plaintiffs had preserved their objections in accordance with Fed. R. Evid. 103(b), that waiver did not apply, and that the district court had erred by allowing introduction of the simulations. Reinard v. Crown Equip. Corp., ___ F.3d ___ (8th Cir. 2020). 

•  Forum selection clause; diversity; Erie doctrine. In a diversity action where the enforceability of a forum selection clause was challenged by the defendants, Judge Tostrud surveyed the “uncertainty as to whether a federal district court in a diversity case should apply state or federal law to decide whether a forum selection clause is enforceable,” but found that there was no need to perform a full Erie analysis where state and federal law led to the “same result.” 

The decision is nevertheless important because it identifies important Erie issues that will inevitably arise in future diversity actions. U.S. Bank N.A. v. Silicon Valley Fence Sales, Inc., 2021 WL 37686 (D. Minn. 1/5/2021). 

•  Fed. R. Civ. P. 26(a)(2)(B); expert opinion; “prepared and signed by the witness” requirement. A recent order by Magistrate Judge Brisbois includes a thorough summary of case law, analyzing the difference between cases where an expert report was prepared by counsel yet reflected the opinion of the expert, versus cases where experts simply signed reports that were prepared by counsel and reflected counsel’s opinions rather than the opinions of the expert. 

This decision should be required reading for anyone who regularly retains and interacts with experts. Casler v. MEnD Correctional Care, PLLC, 2020 WL 7249877 (D. Minn. 9/28/2020). 

•  General discovery objections rejected. While ultimately denying the plaintiff’s motion to compel in an FCRA and FDCPA action, Magistrate Judge Brisbois refused to consider the defendant’s “boilerplate” objections where those objections “failed to raise any specific argument in support of that objection.” Wiley v. Equifax Info. Servs. LLC, 2020 WL 7626599 (D. Minn. 10/23/2020). 

• Ongoing infringement; motion for expedited discovery granted. In litigation arising out of the defendants’ alleged sales of counterfeit N95 respirators, Judge Nelson granted the plaintiff’s motion for expedited discovery, finding that “good cause” was established where the plaintiff established the potential for ongoing infringement and the expedited discovery would assist the plaintiff in determining the identities of the defendants. 3M Co. v. Individuals, P’ships and Unincorporated Assocs. identified in Schedule “A”, 2020 WL 6817650 (D. Minn. 11/20/2020). 

• Covid-19; motion for enlargement of time to serve expert report granted. Where the defendants brought a malpractice claim but failed to serve the timely expert affidavit required by Minn. Stat. §145.682 Sub. 2(2) by the stipulated 11/12/2020 deadline, defendants moved to dismiss due to the failure to serve that affidavit, and plaintiffs then served the affidavit on 11/20/2020 and cross-moved for an extension of time, Judge Nelson found excusable neglect for plaintiffs’ failure to meet the Nov. 12 deadline where there had been an outbreak of covid-19 at plaintiffs’ counsel’s law firm leading to “a sudden breakdown in administration.” Mills v. Mayo Clinic, 2020 WL 7319137 (D. Minn. 12/11/2020). 

Josh Jacobson  Law Office of Josh Jacobson 

JUDICIAL LAW

• OSHA regulations do not apply to on-reservation, tribally owned fishery. The 8th Circuit denied to review a determination of the Occupational Safety and Health Review Commission dismissing two citations under the Occupational Safety and Health Act filed against Red Lake Nation Fisheries, Inc. The 8th Circuit noted that as a statute of general applicability, OSHA would not be applied to issues involving Indian self-government, in particular in this case, where the Red Lake Nation operates its fishery entirely on-reservation, employs only tribal members, and the fishery executes the nation’s treaty-preserved fishing rights. Scalia v. Red Lake Nation Fisheries, Inc., 982 F.3d 533 (8th Cir. 2020).

• Preliminary injunction granted to halt distribution of $12 million in undistributed CARES Act funding intended for tribal governments. The D.C. Circuit reversed and remanded the district court’s denial of the Shawnee Tribe’s motion for preliminary injunction, prohibiting the Secretary of the Treasury Department from distributing $12 million of funding originally set aside for tribal governments in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The district court must now determine on the merits whether the Treasury Department’s use of an Indian Housing Block Grant formula, rather than tribally submitted population data, was an arbitrary and capricious method of evaluating tribal population to distribute 60 percent of the $8 billion originally reserved for tribal governments in the CARES Act. Shawnee Tribe v. Mnuchin, No. 20-5286, __ F.3d __, 2021 WL 28207 (D.C. Cir. 1/5/2021).

Leah K. Jurss  Hogen Adams PLLC

JUDICIAL LAW

• Patents: Claims construed considering issue preclusion principles. Judge Tostrud recently construed claim terms in a patent infringement lawsuit while considering whether issue preclusion applies. Red Rhino Leak Detection sued Anderson Manufacturing Company for infringement of its patent related to leak detection in swimming pools. Red Rhino previously sued Anderson asserting a separate but related patent. The parties sought claim construction of terms in the patent-in-suit. Red Rhino argued that the terms should be construed as in the first litigation based on issue preclusion. Issue preclusion applies where (1) the party sought to be precluded in the second suit was a party, or in privity with a party, to the original lawsuit; (2) the issue sought to be precluded was the same as the issue involved in the prior action; (3) the issue sought to be precluded was actually litigated in the prior action; (4) the issue sought to be precluded was determined by a valid and final judgment; and (5) the determination in the prior action was essential to the prior judgment. 

With respect to the first construed term, the court found that the claim language was similar between the two patents, but material differences existed. The construed term in the first action disclosed three functions, but the construed term in the current action only disclosed two functions, effectively collapsing two functions under a single term. Such differences prevented the application of issue preclusion. With respect to the second construed term, the court found issue preclusion applied. Anderson argued that issue preclusion did not apply because the prosecution history of the patent-in-suit was not before the court in the first action. But the court found the prosecution history of the patent-in-suit was available at the time of the first claim construction order, rendering it necessarily encompassed within the decision of the first claim construction order. Red Rhino Leak Detection, Inc. v. Anderson Mfg. Co., No. 18-cv-3186, 2021 U.S. Dist. LEXIS 343 (D. Minn. 1/4/2021).

• Trademark: Denial of summary judgment on false advertising claim. Judge Tostrud recently denied defendant Tricam Industries, Inc.’s motion for summary judgment. Wing Enterprises, Inc. sued Tricam for violating the Lanham Act and the Minnesota Deceptive Trade Practices Act for allegedly making false statements that Tricam’s multi-position ladders complied with the voluntary industry standard for portable metal ladders. Summary judgment was previously granted in favor of Wing Enterprises on the basis that Tricam had failed to prove the statements were material to consumers’ purchasing decisions. 

The federal circuit reversed and remanded to determine whether summary judgment was proper on any other grounds. To prove false advertising, a plaintiff must establish (1) a false statement of fact in a commercial advertisement; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement. Tricam argued that it was not responsible for statements on a retailer’s website and that the challenged statements were not false. The court found that a reasonable jury could find Tricam caused the statements to be placed on the retailer’s website because Tricam made the statements to the retailer by filling out information in an Item Data Management system, which the retailer relies on in advertising products. The court further found that a reasonable jury could find Tricam’s statements were literally false, causing commercial injury to Wing Enterprises by allowing Tricam to enter and remain in the market. Wing Enters. v. Tricam Indus., No. 17-cv-1769, 2021 U.S. Dist. LEXIS 2872 (D. Minn. 1/7/2021).

Joe Dubis  Merchant & Gould

JUDICIAL LAW

• Spouse’s refusal to transfer marital property subsequent to a divorce decree not a “theft loss” for purposes of tax deduction. Ms. Bruno and Mr. Bruno’s 10-year marriage was dissolved by a divorce decree issued in 2008. The divorce was contentious, and the 2008 decree did not end the parties’ financial entanglement. Mr. Bruno refused to transfer marital property awarded in the decree and was held in contempt numerous times. In fact, the trial court “summarized Stephen Bruno’s persistent defiance of court orders and concluded: ‘This court has never found a party to be more in contempt of court orders than [Stephen Bruno] has been.’” Bruno v. Bruno, 146 Conn. App. 214, 76 A.3d 725 (2013). Mr. Bruno’s attempts to evade the effect of the divorce decree included filing for bankruptcy and claiming in the bankruptcy proceeding that the marital assets, which he had been ordered to transfer to petitioner, were gone. Ms. Bruno argued that Mr. Bruno’s egregious behavior amounted to a theft loss and that the theft generated a net operating loss (NOL) in 2015. Ms. Bruno sought to carry forward the NOL to 2016 and back to 2013 and 2014. 

The tax court, while sympathetic to Ms. Bruno’s situation, held for the commissioner. The court applied Connecticut law to ascertain whether Mr. Bruno’s persistent failure to pay his debt to Ms. Bruno qualified as embezzlement. The court concluded that Connecticut’s law did not support such a reading. Further, the court found that Ms. Bruno had bona fide claims for recoupment and had a reasonable prospect of recovery, and therefore was not entitled to a theft loss deduction. Bruno v. Comm’r, T.C.M. (RIA) 2020-156 (T.C. 2020).

•  In a conservation easement dispute, Judge Holmes asks: Is Sack or Wooster the wiser? In the opening paragraph in an “exceptionally unusual conclusion in a conservation easement” case, Judge Holmes observes that “Conservation easements are to the Commissioner what aunts are to Bertie Wooster: ‘It is no use telling me there are bad aunts and good aunts. At the core, they are all alike. Sooner or later, out pops the cloven hoof.’” Holmes is referring here to the fictional character in the comedic P.G. Wodehouse Jeeves stories. This imminently readable opinion tells the story of former NFL star Warren Sapp and Kumar Rajagopalan’s foray into an investment involving property in North Carolina. Rajagopalan and Sapp undertook this investment at a particularly volatile time in North Carolina’s real estate market, and their donation of a conservation easement forms the heart of their dispute with the service. 

Taxpayers are permitted deductions for charitable contributions of qualified conservation easements, but the contribution must be “(A) of a qualified real property interest, (B) to a qualified organization, (C) exclusively for conservation purposes.” IRC 170(h)(1). Unlike many recent conservation easement disputes, this case centers not on the “qualified interest” requirement or the “exclusively for conservation purposes” requirement. Instead, this case presents a valuation dispute. While the dispute is straightforward, the parties were remarkably far apart in their valuations. The commissioner valued the easement at $720,000 while the petitioner (and Mr. Sapp) valued the easement at $2,900,000.  

Wide disparities like these are not unusual in charitable contribution cases (or property tax cases, for that matter). What is unusual is that in this case, the court did not come up with a valuation between the parties’ proffered numbers. The court candidly “acknowledge[d] how unusual it is in a valuation case to not find a number somewhere between those of the experts who battled it out at trial.” Although unusual, the court “[found] it more likely than not that the conservation easement was worth at least what SS Mountain (and therefore Kumar and Sapp) claimed on their tax returns.”  Rajagopalan v. Comm’r, T.C.M. (RIA) 2020-159 (T.C. 2020).

• Petitioners allege sales and use tax violates Minnesota Constitution; court disagrees and dissects language of statute. With no facts in dispute, plaintiffs Jeffrey Sheridan and Kirk Lindberg, together with defendant Commissioner of Revenue, asked the tax court to determine whether Minnesota’s sales and use tax, chapter 297A of the Minnesota Statutes, violates Article X, Section 5 of the Minnesota Constitution.

Mr. Sheridan submitted an Aircraft Registration Application and Sales/Use Tax Return to the Minnesota Department of Public Safety concerning his 9/23/2016 purchase of his Bellanca N75MM aircraft (Aircraft 1). Mr. Sheridan made a total payment of $3,019.60; $2,921.25 was for use tax and $98.35 was for an annual “in lieu” tax. Subsequently, Mr. Sheridan filed with the Minnesota Department of Revenue a Sales and Use Tax Refund Request and requested a refund of $2,921.25. Mr. Sheridan claimed payment of the use tax violates Article X, Section 5 of the Minnesota Constitution and the tax should be returned. On 7/31/2018, the Department of Revenue (DOR) issued a tax order addressed to Mr. Sheridan denying the refund request. In the order, DOR stated, “[s]ales of aircraft are taxable unless an exemption applies. The information you furnished did not prove this sale was exempt, therefore, the item claimed is being denied.”

Similarly, Mr. Lindberg also submitted to the Department of Public Safety an Aircraft Registration Application and Sales/Use Tax Return setting forth the use tax with respect to his 3/3/2017 purchase of a Beechcraft N993MD (Aircraft 2). Mr. Lindberg made a total payment of $11,934.37; $11,515.62 was for use tax and $418.75 was for an annual “in lieu” tax. Mr. Lindberg then filed with DOR a Sales and Use Tax Refund Request, seeking return of $11,515.62. Mr. Lindberg also claimed that payment of the use tax violates Article X, Section 5 of the Minnesota Constitution and the tax should be returned. On 7/31/2018, DOR issued a tax order to Mr. Lindberg denying the refund request. DOR’s reason for denying the refund request was the same as for Mr. Sheridan’s request; stating that Mr. Lindberg “did not prove this sale was exempt.”

Article X, Section 5 of the Minnesota Constitution provides that “[t]he legislature may tax aircraft using the air space overlying the state on a more onerous basis than other personal property. Any such tax on aircraft shall be in lieu of all other taxes.” Minnesota Statutes provide for both the “in lieu” tax, and a sales and use tax on aircraft. See Minn. Stat. §360.531, subd. 1 (2018); Minn. Stat. §297A.82, subd. 1 (2018).

In cross-motions for summary judgment, plaintiffs argued the constitutional provision prohibiting “all other taxes” renders the sales and use tax on aircraft unconstitutional. Plaintiffs asserted that by the plain language of the Minnesota Constitution, taxes paid under Minnesota Statute §360.531 (the “in lieu” tax) prevents other taxes from being collected relative to the same aircraft. Therefore, taxes collected under the sales and use tax were collected in violation of the Minnesota Constitution.

The commissioner argued the “in lieu of all other taxes” provision prevents a double personal property tax, but does not prevent transactional taxes, such as the sales and use tax. The commissioner contends that the sales and use tax is not duplicative of the “in lieu” tax on an aircraft. Chapter 297A, governs the taxation of sales and use of “tangible personal property” in Minnesota. See generally Minn. Stat. §§297A.61-.995 (2018). Section 297A.82 requires that a one-time sales or use tax be paid prior to aircraft being registered. Minn. Stat. §297A.82, subd. 1. «The language reads: ‹[a]n aircraft must not be registered or licensed in this state unless the applicant presents proof that the sales or use tax imposed by this chapter has been paid….›” See also Minn. Stat. §360.595, subd. 1 (2018). When purchasers buy an aircraft, “statute requires payment of a sales and use tax, and with proof of payment, purchasers must then register their aircraft, with payment of the attendant ‘in lieu’ tax.” 

Regarding the first sentence of Article X, Section 5, the court stated that it accomplishes two things: “first, it allows the taxation of aircraft, and second, the ability to tax pursuant to this provision is limited to a personal property tax on the aircraft itself.” The court further explained that “the plain meaning of this sentence governs the legislature’s ability to tax ‘aircraft,’ which does not include taxation of the sale or use of that aircraft.” Analyzing the second sentence, “[a]ny such tax on aircraft shall be in lieu of all other taxes,” the court explained that the «plain meaning ‹[a]ny such tax,’ refers to the prior sentence’s personal property tax on aircraft. The next words, ‘on aircraft,’ again limit the prohibition of double taxation on aircraft only.”

The court agreed with the commissioner that the plain meaning of the Minnesota Constitution’s prohibition of double taxation “on aircraft” does not prevent imposition of a sales or use tax and denied plaintiff’s motion for summary judgment and granted the defendant’s motion for summary judgment. Sheridan v. Comm’r of Revenue, 2020 WL 7250900 (Minn. Tax Court 12/2/20).

• Petitioner fails to provide timely and adequate information pursuant to the mandatory disclosure rule. Petitioner C&R Elton Hills, LLC, timely filed its property tax petition contesting the 1/2/2019 assessment of the subject property. The parties did not dispute that the subject property is leased to third parties, thereby making it income-producing as of 1/2/2019. The county alleged that petitioner failed to timely provide income and expense information for the subject property as required by the mandatory disclosure rule. See Minn. Stat. §278.05, subd. 6 (2018).

The county sent petitioner’s counsel a courtesy letter on 7/6/2020, noting the petitioner’s obligation to provide income and expense information for the subject property by the 8/1/2020 deadline. On 7/17/2020, counsel for petitioner sent a letter advising it of its statutory obligation to provide the county with income and expense information. According to a representative, however, the letter was inadvertently sent to an old address and C&R Elton Hills did not timely receive the 7/17/2020 letter. On 8/21/2020, the county received a 2019 profit and loss statement, an itemized rent roll dated 8/5/2020, a 2020 budget, and a 2020 cash flow statement from petitioner.

One contesting the valuation of an income-producing property must provide the county assessor with income and expense information about the subject property by August 1 of the year in which the tax is payable. Minn. Stat. §278.05, subd. 6(b). Failure to timely provide the enumerated information requires dismissal. Id. The mandatory disclosure rule ensures that a property-tax petitioner provides information that would be useful in determining the value in a contested assessment of property taxes, so that petitioners may receive an adequate and speedy remedy. See Wal-Mart Real Estate Bus. Tr. v. Cty. of Anoka, 931 N.W.2d 382, 386 (Minn. 2019). “Failure to disclose under the mandatory-disclosure rule requires dismissal, Kmart Corp. v. Cty. of Becker, 639 N.W.2d 856, 861 (Minn. 2002), even if that failure causes no prejudice to the county, BFW Co. v. Cty. of Ramsey, 566 N.W.2d 702, 706 n.6 (Minn. 1997).”

The rule provides for a safe harbor in two circumstances: Failure to provide the required information shall result in a dismissal of the petition, unless “(1) the failure to provide it was due to the unavailability of the information at the time that the information was due, or (2) the petitioner was not aware of or informed of the requirement to provide the information.”

The court agreed with the county that petitioner failed to timely comply with the mandatory disclosure rule. The court held that the county’s 7/6/2020 courtesy letter to petitioner’s counsel was sufficient notice of the rule’s requirement. Because petitioner had notice of the rule, the rule’s unaware safe harbor exception expired 30 days after petitioner’s counsel received the letter. Therefore, the court dismissed petitioner’s tax appeal. C&R Elton Hills, LLC v. Olmsted Co., 2020 WL 7485197 (Minn. Tax Court 12/10/20). 

•  Notice by mail constitutionally sufficient; arguments in favor of certified mail are better suited for the Legislature. Thief River Falls resident Jeffrey Olson runs a farming operation and heavy construction business as a sole proprietorship. In 2017, the commissioner selected Mr. Olson for a sales and use tax audit. The commissioner sent several letters, via regular mail, to Mr. Olson. The commissioner also attempted to reach Mr. Olson by telephone. Mr. Olson claimed not to have received the letters, or if those letters were received, to have overlooked them. Mr. Olson learned of the audit when his bank account was levied in January 2018. After unsuccessfully appealing the audit within the Revenue Department, Mr. Olson sought relief in the tax court. The tax court, however, determined that because Mr. Olson’s appeal was untimely, the tax court—a court of limited jurisdiction—did not have subject matter jurisdiction. Mr. Olson argued that notice by regular mail (rather than for example, by certified mail) violated his due process rights. In this opinion, the Minnesota Supreme Court affirmed the tax court and rejected Mr. Olson’s due process argument. “On the facts before us,” the Supreme Court reasoned, “the Commissioner is nevertheless correct that notice by regular mail was constitutionally sufficient.” Olson v. Comm’r, No. A20-1048 (Minn. 12/30/2020).

 ADMINISTRATIVE ACTION

• Regs offer guidance on meals and entertainment deduction. The Tax Cuts & Jobs Act of 2017 made significant changes to the ability of taxpayers to deduct expenses for business meals and business entertainment. Deductions for business entertainment were eliminated, and the restrictions on deductions for meals was tightened. The TCJA left some confusion, though, about what to do when food and beverage expenses were incurred in the context of an entertainment venue. The IRS issued Regs. Secs. 1.274-11 and 1.274-12 (T.D. 9925) to supplement temporary guidance, and to address the changes made to the meals and entertainment deduction under the TCJA.

• Final regs on carried interest. The IRS issued final regulations under Code Sec. 1061, which re-characterizes certain net long-term capital gains of a partner that holds one or more applicable partnership interests, as short-term capital gains. These rules are often referred to as the carried interest rules. TD 9945; Reg §1.702-1, Reg §1.704-3, Reg §1.1061-1, Reg §1.1061-2, Reg §1.1061-3, Reg §1.1061-4, Reg §1.1061-5, Reg §1.1061-6, and Reg §1.1223-3.

• Paycheck Protection Program loans not taxable for federal purposes but must be included in Minnesota income. Minnesota employers received more than $10 billion through the CARES Act Paycheck Protection Program. Loans received through the program and used for specified purposes are forgivable and need not be included in federal income. (Most loan forgiveness is income.) As of this writing, the Minnesota Legislature has not conformed to the federal treatment of forgivable paycheck protection loans. In other words, loan forgiveness is non-taxable on the federal return but taxable on the Minnesota return. The Minnesota Legislature, which is in session, could change the tax treatment of PPP proceeds to conform to the federal treatment. Individual members of the Legislature are doubtless keenly aware of the issue—23 Minnesota lawmakers collectively received over $1 million of PPP loans, according to reports from the Minnesota Reformer and Star Tribune. The Department of the Treasury has a searchable database, organized by state, of loan recipients.

Morgan Holcomb  Mitchell Hamline School of Law

Sheena Denny  Mitchell Hamline School of Law 

JUDICIAL LAW

• Settlement agreements; fraud in the inducement. Plaintiff initially brought suit against defendant for breach of a promissory note. Defendant acknowledged that it owed plaintiff funds under the note, and the parties began settlement negotiations. Plaintiff asserts that, during these settlement negotiations, defendant made repeated misrepresentations regarding its financial condition. The parties ultimately executed a settlement agreement and judgment was entered. 

Later, plaintiff brought this action against defendant seeking money damages and alleging fraudulent misrepresentation and fraudulent omission in the inducement of the settlement agreement, and fraudulent transfer. Defendant, relying on the settlement agreement, moved to dismiss pursuant to failure to state a claim upon which relief can be granted. The district court dismissed the complaint in its entirety, determining that the action was precluded by the no-reliance and integration clauses in the settlement agreement. The district court also deemed the action an improper collateral attack on the judgment of dismissal.

The Minnesota Court of Appeals reversed and remanded for further proceedings. With respect to the settlement agreement, the court noted that the “Minnesota Supreme Court has long held that fraud cannot be waived by a contractual disclaimer.” The court continued: “This is not to say that fraud claims are never precluded by such clauses. A court may ‘find that reliance on an oral representation was unjustifiable as a matter of law only if the written contract provision explicitly stated a fact completely contradictory to the claimed misrepresentation.’” Because the settlement agreement did not directly contradict the alleged fraud, the court held that the question of reliance was for the factfinder, and the claims were not precluded as a matter of law. The court went on to hold that the suit was not an impermissible collateral attack on the prior judgment because it asserted “new claims and new issues” than the prior case. Great Plains Educational Foundation, Inc. v. Student Loan Finance Corp., A20-0326 (Minn. Ct. App. 12/28/2020). https://mn.gov/law-library-stat/archive/ctappub/2020/OPa200326-122820.pdf 

• Settlement agreements; fraud in the inducement. Plaintiff claimed that defendant, his alleged attorney, breached his fiduciary duties to by failing to disclose his participation in a lease agreement involving plaintiff’s home and place of business. The district court granted summary judgment to defendant due to plaintiff’s failure to satisfy the expert affidavit requirements found in Minn. Stat. §544.42.

The Minnesota Court of Appeals affirmed. After reviewing its precedent, federal case law and secondary sources, the court held: “while a breach-of-fiduciary-duty claim against an attorney may yield different remedies than a legal-malpractice claim, the elements to establish the claims are identical.” Given that the elements of a breach-of-fiduciary-duty claim against an attorney are the same as a claim for legal malpractice, the court held that the expert affidavit requirements are the same as well. Because plaintiff failed to submit either affidavit required by Minn. Stat. §544.42, the district court properly granted summary judgment. Mittelstaedt v. Henney, A20-0573 (Minn. Ct. App. 1/4/2021). https://mn.gov/law-library-stat/archive/ctappub/2021/OPa200573-010421.pdf 

Jeff Mulder  Bassford Remele