CRIMINAL LAW
JUDICIAL LAW
• Controlled substances: Presence of greater than 0.3 percent concentration of delta-9 tetrahydrocannabinol (THC) is an essential element of unlawful possession of marijuana. After obtaining a search warrant for a home where appellant was staying, police located the key for a locked plastic tote on appellant’s key ring, opened the tote, and found three pounds of leafy plant material. In the same bedroom, police also found 89 vaporizer cartridges filled with an amber-colored liquid, two guns, ammunition, and drug paraphernalia. A jury found appellant guilty of possession of marijuana, and possession of a mixture containing marijuana or tetrahydrocannabinols (THC). He argues on appeal that the state did not prove the substances he possessed are controlled substances.
First, the court of appeals finds that the 2019 amendments to the statutory definition of “marijuana” apply to appellant’s case, under the amelioration doctrine, holding that a statutory amendment “mitigates punishment” if it decriminalizes conduct that previously was deemed criminal.
Second, the court finds that the evidence was insufficient to prove that the leafy plant material was a controlled substance but was sufficient to prove the liquid in the vaporizer cartridges was a controlled substance. Marijuana is a Schedule I controlled substance under Minn. Stat. §152.02, subd. 2(h). “Marijuana” is defined to mean all parts of a Cannabis plant, except “industrial hemp,” Minn. Stat. §152.01, subd. 9, which is defined as any part of the “Cannabis sativa L.” plant “with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” Minn. Stat. §18K.02, subd. 3. Thus, the plant material found in the plastic tote in this case could be marijuana or hemp. Given the changes to the definition of marijuana, the court holds that “the presence of delta-9 tetrahydrocannabinol in a concentration greater than 0.3 percent is an essential element of the offense of unlawful possession of marijuana.” This element can be proved with scientific evidence, non-scientific circumstantial evidence, or both.
Here, the state presented testimony from a BCA scientist regarding various tests she performed on the leafy plant material, but none revealed the concentration of delta-9 tetrahydrocannabinol. There was also limited circumstantial evidence as to the identity of the plant material, only that it was found in a locked tote near drug paraphernalia and vaporizer cartridges, but not its origin or intended purpose. This evidence did not negate the rational hypothesis that the plant material had a concentration of less than the required 0.3 percent of delta-9 tetrahydrocannabinol.
However, the evidence was sufficient to prove the vaporizer cartridges contained a controlled substance. Appellant was charged with possessing one or more mixtures containing tetrahydrocannabinols, which is a Schedule I controlled substance. Unlike the definition for marijuana, however, there is no exception for hemp or a substance or mixture containing less than a 0.3 percent concentration of delta-9 tetrahydrocannabinol. The state presented testimony from a BCA scientist that THC was identified in two vaporizer cartridges. This evidence was sufficient.
Appellant’s conviction for possession of marijuana is reversed, but his conviction for possession of tetrahydrocannabinols is affirmed. State v. Loveless, A20-1254, 2021 WL 4143321 (Minn. Ct. App. 9/13/2021).
• Criminal sexual conduct: Modified plain error standard is not met where the state shows no substantial prejudice to the defendant. 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 did not object but argues on appeal 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. The Minnesota Court of Appeals found that the term “force or coercion” in Minn. Stat. 609.342, subd. 1(e)(i), sets forth alternative means for completing the sexual penetration element, so a unanimous verdict on that issue was not required.
A modified plain error analysis applies to unobjected-to claims of prosecutorial error or misconduct: The defendant must establish the existence of an error that was plain, then the state must show the plain error did not affect the defendant’s substantial rights. Here, the Supreme Court finds that the state established that appellant’s substantial rights were not affected. Appellant was not prejudiced because all jurors did, in fact, unanimously find that appellant used both force and coercion. The state also presented evidence at trial that strongly undermined appellant’s defense, and the allegedly erroneous statement made during closing argument was brief and not repeated. The court of appeals is affirmed. State v. Epps, A19-1626, 964 N.W.2d 419 (Minn. 9/15/2021).
• Homicide: Depraved mind murder does not include conduct directed with particularity at the victim. Appellant, a police officer, was convicted of third-degree depraved mind murder and second-degree manslaughter following the shooting of a woman outside the squad car in which appellant was the passenger. Appellant and his partner were responding to a call from the victim, who called 911 after hearing screaming in the alley behind her home. While they were driving their squad car through the alley, the victim “bang[ed]” into the driver side of the squad, and appellant fired one shot at her. Appellant appealed his conviction, arguing the evidence was insufficient to support his conviction for depraved-mind murder, because his conduct was specifically directed at the person killed. The court of appeals affirmed his conviction.
The Supreme Court first addresses what the third-degree depraved mind murder statute means when it requires that the defendant act with a “depraved mind, without regard for human life.” Case law makes clear that depraved mind murder is a crime of general malice. The Court reaffirms this precedent, declaring “that the mental state required for depraved-mind murder cannot exist when the defendant’s actions are directed with particularity at the person who is killed.” The circumstances proved in this case support a reasonable inference that appellant fired his gun with particularity at the person who startled him outside the squad car. The state failed to identify any circumstance proved that would support a reasonable inference that appellant’s conduct was indiscriminate. Therefore, the Court reverses appellant’s conviction for depraved-mind murder and remands for resentencing on appellant’s second-degree manslaughter conviction. State v. Noor, A19-1089, 964 N.W.2d 424 (Minn. 9/15/2021).
Samantha Foertsch
Bruno Law PLLC
samantha@brunolaw.com
Stephen Foertsch
Bruno Law PLLC
stephen@brunolaw.com
EMPLOYMENT & LABOR LAW
JUDICIAL LAW
• Salary discrimination; tenured professor loses claim. A Nigerian-born African American tenured professor at St. Cloud State University lost his claim for race and national origin discrimination and retaliation related to his claimed salary deficiencies. The 8th Circuit Court of Appeals, upholding a decision of U.S. District Court Judge Michael J. Davis of Minnesota, held that the claims of racial discrimination under 42 U.S. §§1981 and 1983 were not actionable against state officials, and there was insufficient proof of causation to support a retaliation claim. Onyiah v. St. Cloud State University, 5 F.4th 926 (8th Cir. 07/22/2021).
• Lawsuit against army employer; remanded on retaliation claim. A woman suing her army employer for sexual harassment based on a hostile environment lost her case. The 8th Circuit held that the employee did not show that the three incidents she described so “permeated” or “poisoned” the environment to make it hostile. There was, however, sufficient evidence to raise a triable issue as to the stated reason for her termination, which warranted remand on the retaliation claim. Hairston v. Wormuth, 6 F.4th 8434 (8th Cir. 07/29/2021).
• Denial of scheduling change; disability, race claims rejected. An employee whose request for a modified schedule was denied lost her claims for disability and race-based discrimination. The 8th Circuit ruled that the employer’s refusal to accede to her scheduling request was not actionable because the claimant did not show that she was able to perform the essential functions of her job, with or without an accommodation, and failed to identify a similarly situated employee who received more favorable treatment in support of her racial discrimination claim. Lane v. Ball, 2021 WL 3136899 (8th Cir. 07/26/2021) (unpublished).
• Failure to accommodate; inability to perform job functions. Another employee failed in her claim of failure to accommodate a disability and a discriminatory discharge. The 8th Circuit affirmed a lower court ruling of U.S. District Court Judge Susan R. Nelson of Minnesota, holding that the employer had a legitimate, non-discriminatory reason for the termination and that the claimant did not show the reason was pretextual, and also rejected the failure-to-accommodate claim because the employee did not show that he was able to perform the essential functions of the job. Vinh v. Express Scripts Services Company, 7 F.4th 720 (8th Cir. 08/03/2021).
• Pension plan; interest, damages calculated correctly. The calculation of pre-judgment interest and liquidated damages, as well as an award of attorney’s fees, were properly calculated in a dispute between a union and trustees of a pension plan concerning unpaid contributions by an employer who was part of the plan. Upholding a lower court decision, the 8th Circuit held that the trial court properly determined pre-judgment interest at the rate set in the plan’s documents, and also properly calculated liquidated damages and a fee award to the prevailing party. Marshall v. Anderson Excavating & Wrecking Company, 2021 WL 3436326 (8th Cir. 08/06/2021) (unpublished).
• Fringe benefits; contributions required for non-union employees. Trustees of five multi-employer fringe benefit funds were entitled to contributions from an employer on behalf of non-union employees. The 8th Circuit affirmed a ruling of U.S. District Court Judge Eric Tostrud in Minnesota, holding that contributions were unambiguously required by the collective bargaining agreement, and the obligation was not relieved by direct payments for fringe benefits to the non-union employees by the employer. Nesse v. Green Nature-Cycle, LLC., 2021 WL 3918886 (Minn. Ct. App. 09/02/2021) (unpublished).
• Gender discrimination; paid differential claim rejected. A woman’s claim for sex discrimination on grounds that she was paid less than her male counterparts was rejected. The 8th Circuit, affirming summary judgment for the employer, held that the uncontroverted evidence showed that the pay differential was due to factors other than gender. Perry v. Zoetis, LLC, 2021 WL 3435535 (Minn. Ct. App. 08/06/2021) (unpublished).
• County sheriff salary; trial court decision upheld. A longstanding dispute between the Freeborn County sheriff and the county board regarding the sheriff’s salary was resolved in favor of the sheriff following two trial court decisions, a decision by the court of appeals, remand by the Supreme Court, and a follow-up decision by the appellate court, which ruled that the lower court properly based its decision granting a salary increase on appropriate grounds (under Minn. Stat. §387.20, sub. 7 and other factors) at a rate of $113,952, which did not constitute an abuse of discretion. In re 2019 salary of Freeborn County Sheriff, 2021 WL 3027656 (8th Cir. 07/19/2021) (unpublished).
• Age discrimination; adverse action found. An employee successfully challenged summary judgment dismissing her age discrimination claim under the Minnesota Human Rights Act. The appellate court, overruling the district court, held that an employee can establish an adverse employment action by presenting evidence of circumstances that, when considered cumulatively, could lead a reasonable jury to conclude the employee experienced an unfavorable change in working conditions. Henry v. Independent School District #625, 2021 WL 3136521 (Minn. App. 7/26/212021) (unpublished).
• Unemployment compensation; relocation mover deemed employee. An individual owner and operator of a company that provided relocation support services for another company was deemed an employee rather than an independent contractor for eligibility for unemployment compensation benefits. The Minnesota Court of Appeals, affirming a decision of the Department of Employment & Economic Development (DEED), held that the relevant factors, considered in totality, reflected an employer-employee arrangement that entitled the mover to benefits. Loftus v. Manning, 2021 WL 3277227 (8th Cir. 08/02/2021) (unpublished).
• Unemployment benefits; misconduct rulings upheld. A pair of rulings by an unemployment law judge (ULJ) with DEED that employees committed disqualifying misconduct were upheld, denying the employees unemployment benefits. One employee continued to directly send text messages to her employer after being instructed not to do so, warranting a determination of “disqualifying misconduct.” Adamscheck v. Kelley Fuels, 2021 WL 3136734 (8th Cir. 07/26/2021) (unpublished).
A medical care attendant committed misconduct by failing to administer medication to a resident as prescribed by the facility, which made the employee ineligible for benefits. Abay v. Samaritan Bethany, Inc., 2021 WL 3478419 (8th Cir. 08/09/2021) (unpublished).
• Rent credit for caretaker; split ruling. A trio of claims by an onsite residential caretaker at an apartment building led to a split decision by the Minnesota Supreme Court on three issues: whether using rent credits to pay wages violates the Minnesota mini-Fair Labor Standards Act and the Minnesota overtime law; whether doing so violates the Minnesota overtime law, Minn. Stat. §181.79; and whether the employer failed to pay the employee for all of the hours she worked while on on-call shifts. Because rent credits qualify as wages under Minnesota law, as long as the employer is in compliance with the “lodging allowance” Rule 5200.0070 promulgated by the Minnesota Department of Labor and Industry, the employer was entitled to summary judgment on the first two claims. But because there was a fact dispute regarding whether the employee could effectively use her time while on call for her own purposes, summary judgment by the lower courts was inappropriate and that matter was reversed and remanded. Hagen v. Steven Scott Management, Inc., 2021 WL 3522236 (8th Cir. 08/11/2021) (unpublished).
Marshall H. Tanick
Meyer, Njus & Tanick
mtanick@meyernjus.com
FEDERAL PRACTICE
JUDICIAL LAW
• Arbitration; participation in litigation; waiver; multiple cases. Where the plaintiffs filed a putative class action and one defendant “fully participated” in the litigation for almost a year, including joining in a motion to dismiss or transfer, negotiating a proposed scheduling order, answering the complaint, and responding to written discovery before moving to compel arbitration, the 8th Circuit determined that it was for the court, and not the arbitrator, to determine whether the defendant had waived its right to arbitrate, and found that the defendant had waived its right to arbitrate by “actively litigating” the case in federal court for more than 10 months. Sitzer v. Nat’l Ass’n of Realtors, ___ F.4th ___ (8th Cir. 2021).
Similarly, where the defendants removed the case to federal court, filed multiple motions to dismiss, disputed personal jurisdiction, participated in jurisdictional discovery, negotiated a proposed scheduling order, and waited 15 months before moving to compel arbitration, the 8th Circuit affirmed the district court’s determination that that defendant had waived its right to arbitrate. McCoy v. Walmart, Inc., ___ F.4th ___ (8th Cir. 2021).
• Arbitration; “browsewrap;” adequate notice; assent; 9 U.S.C. §4. The 8th Circuit reversed a district court’s dismissal of the defendant’s motion to compel arbitration, determining that material issues of fact relating to the plaintiffs’ assent to a “browsewrap” agreement were in dispute, and that, pursuant to 9 U.S.C. §4, a trial was necessary to resolve those issues. Foster v. Walmart, Inc., ___ F.4th ___ (8th Cir. 2021).
• Sealing of documents; no abuse of discretion; unsealing also denied on appeal. Giving “deference” to the trial court instead of applying a “strong presumption favoring access,” the 8th Circuit found no abuse of discretion in Judge Ericksen’s decision to maintain certain documents under seal where those documents played a “negligible role” in her Daubert decision, and “countervailing reasons… trump[ed] the right of access.” The 8th Circuit also denied a related request to unseal the same documents on appeal. In Re: Bair Hugger Forced Air Warming Devices Prods. Liab. Litig., 9 F.4th 768 (8th Cir. 2021).
• Attorney’s fees; failure to challenge amount of award in district court; waiver. Where the losing copyright plaintiff disputed defendants’ right to recover attorney’s fees in the district court, but did not question any of the specific items in the fee request before the district court, the 8th Circuit found no abuse of discretion by the district court in its award of attorney’s fees, and found that the plaintiff could not object to portions of the request for the first time on appeal. Designworks Homes, Inc. v. Thomson Sailors Homes, L.L.C., 9 F.4th 961 (8th Cir. 2021).
• Standing; lack of injury. The 8th Circuit affirmed Judge Wright’s dismissal of certain claims arising out of plaintiffs’ ATVs’ alleged propensity to catch fire, agreeing with her that those plaintiffs whose ATVs had not caught fire “failed to allege an injury sufficient to confer standing.” In Re: Polaris Mktg. Sales Pracs. & Prods. Liab. Litig., 9 F.3d 793 (8th Cir. 2021).
• Denial of class certification affirmed. In another ATV fire-related decision decided four days later, the 8th Circuit affirmed Judge Brasel’s denial of class certification, agreeing that individual issues predominated for at least a portion of the proposed class, and that members of the proposed class whose ATVs had not caught fire lacked standing. Johannessohn v. Polaris Indus., Inc., 9 F.4th 981 (8th Cir. 2021).
• CAFA; amount in controversy; standing. In March 2020 this column noted Judge Tostrud’s dismissal of plaintiffs’ putative class action brought under CAFA, finding that many of the proposed plaintiffs lacked standing and that there was an insufficient amount in controversy.
The 8th Circuit recently affirmed that order, agreeing with Judge Tostrud that most of the proposed members of the class lacked standing because they “did not suffer any cognizable injury or damages,” meaning that the amount in controversy fell far short of the required $5 million CAFA threshold. Penrod v. K&N Eng’g, Inc., ___ F.4th ___ (8th Cir. 2021).
• Denial of motion to amend complaint affirmed; no abuse of discretion. The 8th Circuit found no abuse of discretion in the denial of plaintiff’s untimely motion for leave to amend his complaint by both Magistrate Judge Thorson and Judge Ericksen, where the motion was filed more than two months after the deadline for amendment established in the scheduling order, and the new facts cited in support of the motion would have been available prior to the deadline if the plaintiff had noticed party depositions for dates prior to that deadline. Leftwich ex rel. Leftwich v. County of Dakota, 9 F.4th 966 (8th Cir. 2021).
• Motion for preliminary injunction; irreparable harm; Dataphase factors. Denying an employer’s motion for a preliminary injunction against a former employee, Judge Schiltz found that the inference of irreparable harm arising out of the breach of a restrictive covenant is a Minnesota procedural doctrine that does not apply in federal court, and that a party seeking a preliminary injunction in the federal courts must “actually establish” irreparable harm. Moeschler v. Honkamp Krueger Fin. Servs., Inc., 2021 WL 4273481 (D. Minn. 9/21/2021).
• Appeal from grant of motion to amend; standard of review. Affirming an order by Magistrate Judge Wright that granted in part a motion for leave to file a second amended complaint, Judge Wright found that “when a defendant appeals that magistrate judge’s decision to grant leave [to amend] because the proposed amendment is not futile,” the standard of review is de novo. Wright v. Capella Univ., Inc., 2021 WL 4305236 (D. Minn. 9/22/2021).
• Fraudulent joinder/misjoinder; multiple cases. Finding that the plaintiff had failed to allege “colorable” claims against a non-diverse defendant, meaning that the defendant had been fraudulently joined, Judge Davis denied the plaintiff’s motion to remand an action that had been removed on the basis of fraudulent joinder. Longnecker v. Wells Fargo Bank, N.A., 2021 WL 4290878 (D. Minn. 9/21/2021).
Assuming, without deciding, that the doctrine of fraudulent misjoinder could apply, Judge Wright found that the plaintiffs’ claims against each of the defendants were “logically related,” arose out of the same “transaction or occurrence,” and involved “common questions of both fact and law,” and granted plaintiffs’ motion to remand. Health Care Serv. Corp. v. Albertsons Cos., 2021 WL 4273020 (D. Minn. 9/21/2021).
• Doe defendant; request for early discovery granted. In a CFAA action against a Doe defendant, Magistrate Judge Bowbeer granted the plaintiffs’ motion for leave to take discovery prior to the Fed. R. Civ. P. 26(f) conference, finding “good cause” for the plaintiffs to take “limited” discovery in an attempt to identify the defendant’s name and physical address. Morbitzer v. Doe, 2021 WL 4273019 (D. Minn. 9/21/2021).
Josh Jacobson
Law Office of Josh Jacobson
joshjacobsonlaw@gmail.com
INTELLECTUAL PROPERTY
JUDICIAL LAW
• Trademark: Civil contempt of injunction order by non-party. Judge Wright recently granted plaintiff Powerlift Door Consultant, Inc.’s motion finding defendants in contempt of the court’s preliminary injunction order. Powerlift sued Lynn Shepard, an individual, Rearden Steel Manufacturing LLC (doing business as Powerlift Hydraulic Doors of Florida), and Rearden Steel Inc. for trademark infringement and moved for a preliminary injunction, which was granted on 7/12/2021. The injunction stated: “[A]ll other officers, directors, members, shareholders, agents, employees and persons acting in concert with them, who receive actual notice of this Order, are hereby ENJOINED from using Powerlift’s trademarks, including the trademarks registered as numbers 3994263 and 5612680 with the United States Patent and Trademark Office.” Powerlift moved for a finding of civil contempt against defendants and PowerTek Doors, LLC, a non-party to the lawsuit. A non-party may be sanctioned for civil contempt to remedy noncompliance with a court order if the non-party has notice of the court’s order and the responsibility to comply with it. The court found PowerTek was formed by defendants, that defendant Rearden was PowerTek’s registered agent and shared an address, and that defendant Shepard was PowerTek’s representative. Thus, PowerTek had notice of the injunction through the other defendants. The court further found that Powerlift proved by clear and convincing evidence that PowerTek used Powerlift’s trademarks after the injunction order. The court provided defendants 14 days to purge their contempt, and if defendants failed, the court ordered a daily fine of $1,000 payable to the court. Powerlift Door Consultants, Inc. v. Shepard, No. 21-cv-1316 (WMW/ECW), 2021 U.S. Dist. LEXIS 178608 (D. Minn. 9/20/2021).
• Patent: Stay not extended for IPR appeal. Judge Schiltz recently denied plaintiff QXMédical, LLC’s motion to continue a stay pending an inter partes review by the Patent Trial and Appeal Board (PTAB). In December 2019, the court instituted a stay of the proceedings pending petitions for inter partes review that had been filed by non-party Medtronic, Inc. When the PTAB instituted review on the petitions, the stay was extended. The PTAB recently issued decisions on most of the disputed claims and signaled how it was likely to rule on the remaining claims. A number of claims at issue in this case survived inter partes review, including claims that the court found QXMédical to be infringing. QXMédical moved to maintain the stay in light of Medtronic’s decision to appeal the PTAB’s adverse decision. In deciding whether to grant a stay, courts consider such factors as whether a stay would prejudice the nonmoving party, whether a stay will simplify the issues, and whether discovery is complete and a trial date is set. The court found the balance of the factors favored dissolving the stay. The court found the case had been trial-ready since before the stay was implemented and that QXMédical had already been found to infringe some of the claims. The court declined to maintain the stay while QXMédical remained enjoined from U.S. sales, finding that the patent owner was entitled to attempt to recover their damages. The court gave the patent owner’s preference substantial weight. Thus, QXMédical’s motion to extend the stay was denied and the stay and injunction previously entered by the court were dissolved. QXMédical, LLC v. Vascular Sols., LLC, No. 17-CV-1969 (PJS/TNL), 2021 U.S. Dist. LEXIS 191965 (D. Minn. 10/5/2021).
Joe Dubis
Merchant & Gould
jdubis@merchantgould.com
REAL PROPERTY
JUDICIAL LAW
• Commercial tenant may not defend against an eviction action due to impossibility or frustration of purpose or based upon landlord’s alleged breach. When a fitness center failed to pay rent under its commercial lease for four months and did not cure its default, its landlord filed for eviction. The tenant’s defense consisted of two arguments: First, the tenant argued its performance under the lease was excused by the common law doctrines of impossibility and/or frustration of purpose because it was forced to close for approximately three months as a result of executive orders issued in March 2020; and second, the tenant argued its landlord breached what it alleged was an obligation to permit tenant to operate a fitness center in the premises during the shutdown.
On the first issue, the Minnesota Court of Appeals held that “[t]he eviction statute expressly provides for only one affirmative defense in an eviction action based solely on non-payment of rent,” which requires a showing that the landlord increased rent or decreased services in retaliation against a tenant for a good faith attempt at enforcement of its rights. The court further held that the only common law defenses to eviction recognized by the Minnesota Supreme Court do not apply to commercial leases. On the second issue, the court held that the landlord did not breach the lease because the lease neither obligated the landlord to ensure the tenant could operate its business nor to bear responsibility for changes in law affecting such business. Even where a landlord has breached a lease, the tenant may sue for damages or termination but it is not excused from paying rent. The court emphasized that defenses in eviction actions are necessarily limited because the proceedings are to be summary in nature, but provided in a footnote that “nothing in this opinion would prevent [tenant] from asserting impossibility or frustration of purpose in another type of action, such as an action by [landlord] to recover damages for… unpaid rent, an action by [tenant] for reformation or rescission, or an action by [tenant] alleging ejectment,” none of which are barred by a judgment entered in an eviction action. SVAP III Riverdale Commons LLC v. Coon Rapids Gyms, LLC, No. ___ N.W.2d ___, 2021 WL 4398765 (Minn. Ct. App. 9/27/2021).
• MN Court of Appeals adopts a four-part test for a factfinder to distinguish fixtures from personal property; holds that a mechanic’s lien claimant must strictly perform all service requirements and that the “same ownership” exception to pre-lien notice is a fact question not appropriate for resolution by summary judgment. Multiple secured parties contested the nature of certain grain bins installed on real property used in connection with a family farming operation. Following a sale free and clear of the real property and equipment, certain parties claimed the bins were fixtures covered by their mortgages or mechanic’s liens while another party asserted the grain bins were personal property subject to its perfected security interest. The court of appeals compiled several Minnesota Supreme Court precedents to adopt a four-factor test to be applied on a case-by-case basis to reach the appropriate finding, reversing the district court’s order for summary judgment due to the existence of genuine issues of material fact as to:
(1) whether the [item] can be removed without leaving the real property in a substantially worse condition than before;
(2) whether the [item] can be removed without breaking it into pieces and damaging the [item] itself;
(3) whether the [item] has any independent value once removed from the real property; and
(4) the intent of the parties.
Turning to the mechanic’s lien issues, the court held the district court erred by concluding that a “defect” in service of its mechanic’s lien statement was “not material” when the claimant did not serve its mechanic’s lien statement “personally or by certified mail” as required by statute. The court then held that a determination of whether the requirement for pre-lien notice is excused under the “same ownership” exception, where “the contractor is managed or controlled by substantially the same persons who manage or control the owner of the improved real estate,” is a question of fact and the district court therefore erred in resolving disputed facts regarding the extent of control exerted by the property owners over the work. Lighthouse Mgmt. Inc. v. Oberg Fam. Farms, ___ N.W.2d ___, 2021 WL 3852279 (Minn. Ct. App. 8/30/2021).
Matt Drewes
DeWitt LLP
mad@dewittllp.com
TAX LAW
JUDICIAL LAW
• Tax court permits “double-dipping” on health insurance-alimony payment. Prior to the Tax Cuts and Jobs Act of 2017, alimony was deductible to the payor and included in the income of the recipient. This regime applied not only to payments incident to divorce, but also to payments made to and from spouses under separation agreements. The taxpayer in this dispute was separated from his wife and paid for her health insurance through a “cafeteria plan” provided by his employer. The payments constituted alimony under then-federal law, and the taxypayer-husband deducted the payments. At the same time, the taxpayer-husband excluded from his gross income the total amount of health care premiums. In other words, the taxpayer-husband got a double-benefit—he did not include the health insurance premiums in his income and he also deducted that same value as alimony. In contrast, the taxpayer-wife, whose receipt of the health insurance would not have been included in income absent the separation agreement, was required to include the health insurance premiums as income in her return.
In an issue of first impression, Judge Greaves held that “neither the double deduction common law principle nor section 265 applies to prevent the deduction of alimony where a separated couple pending a final decree of divorce create an alimony pende lite agreement that includes continued health care coverage as provided by the payor spouse’s employer, premiums for which are property excluded from the payor’s gross income and included in the recipient spouse’s gross income.” This holding provides the payor-husband a windfall, ensures the government is even-steven, and requires the payee wife to include in her income amounts that she otherwise would not have to include. Leyh v. Comm’r, No. 20533-18, 2021 WL 4520671 (T.C. 10/4/2021).
• Allegations of sexual assault insufficient for settlement to be “on account of physical injury”; settlement must be included as income. Settlement proceeds constitute gross income and are taxable unless the amounts received fall within specific statutory exceptions. Section 104(a)(2) permits the exclusion of settlements to the extent funds received are “on account of personal physical injuries or physical sickness.” Similarly, damages received on account of emotional distress are gross income and taxable unless “those emotional distress damages are attributable to a physical injury or physical sickness.” 104(a)(2). The taxpayer in this dispute sued her employer and alleged she was subjected to workplace harassment, including a workplace sexual assault and a stalking incident that led to physical injury. She was diagnosed with PTSD as a result of the workplace sexual assault and physical manifestations of stress caused by the hostile work environment. The taxpayer settled with her employer for $82,500. The settlement agreement allocated $55,000 of that amount to “settlement of [the victim’s] claim for emotional distress damages related to her allegations” in the lawsuit. Relying on this language in the settlement agreement, and despite the allegations of sexual assault and the explicit allegation of physical injury following workplace harassment, the tax court rejected the victim’s argument that the settlement should be excluded under 104(a)(2) because the language in a particular section of the settlement agreement did not specify “physical injury.” Tressler v. Comm’r, No. 6987-19S, 2021 WL 4147105 (T.C. 9/13/2021).
• Pandemic statutory filing deadlines provide for different interpretations. Petitioner WMH filed a property tax petition for the 2019 assessment of its Minneapolis property, but petitioner inadvertently attached the property tax statement of its Bloomington property. Petitioner sent the county the correct statement, seeking its consent to amend the petition. After receiving no response, petitioner filed the amended petition. The county immediately responded to the petitioner, noting its concern that the amended filing was untimely, and “amounted to the filing of a new and untimely petition.”
At the start of the pandemic, the Legislature passed several laws extending statutory filing deadlines. The parties here “differ in their interpretations of whether those laws extended to the deadlines” for property tax petitions. When petitioner filed its motion for leave to amend in the tax court, approximately nine months after discovery of the error, the county did not oppose petitioner’s motion to amend the petition, indicating only that there may be jurisdictional concerns based on the untimely filing.
Chapter 278 of Minnesota statutes allows taxpayers to elect either the district court of the county in which the tax is levied or the tax court to determine the validity of their claim. See Minn. Stat. §278.01, subd. 1(a). However, chapter 278 has a strict time limit regarding petitions, requiring that they be filed on or before April 30 of the tax payable year. Minn. Stat. §278.01, subd. 1(c). Additionally, the chapter requires that the property in question be clearly identified. Minn. Stat. §278.02.
Amending pleadings in the tax court is governed by Minn. R. Civ. P. 15 and leave to amend pleadings is generally given freely. Marlow Timberland, LLC v. Cnty. of Lake, 800 N.W.2d 637, 639-40 (Minn. 2011). But the time limitation for filing a petition under chapter 278 has led the court to hold that it does not have jurisdiction to hear amended claims that seek to add new or different parcels when the amendments are made after the filing deadline. Jim Bern Co. v. Cnty. of Ramsey, No. 62-CV-17-2723, 2018 WL 911206, at *5 (Minn. T.C. 1/9/2018).
The covid-19 pandemic led the governor and Legislature to extend deadlines for both the district court and the tax court. Having enacted several laws extending filing deadlines, the Legislature finally declared that “deadlines imposed by statutes governing proceedings in the district and appellate courts, including any statutes of limitations or other time periods prescribed by statute, shall not expire from the beginning of the peacetime emergency declared on March 13, 2020, in governor’s Executive Order 20-01 through April 15, 2021.” See Act of Feb. 12, 2021, ch. 3, §1 (Session Law 3).
At issue here were the differing interpretations of whether petitioner filed its amended petition after the statutory deadline. To resolve the dispute, the court first sought to determine whether petitioner “filed the present case in district court or tax court and, second, the effect on the controlling statutory filing deadline of the previously noted legislative responses to the COVID-19 pandemic.”
In a lengthy analysis, the tax court concluded first that petitioner filed the case in the tax court. When filing a petition, the taxpayer must indicate which forum they have elected. Using Minnesota Tax Court Form 7 indicates a tax court election. See Johnson v. Cnty. of Hennepin, No. 27-CV-14-7031, 2015 WL 2329349, at *2 (Minn. T.C. 5/12/2015). This Form 7 was used by petitioner when filing its petition. Second, the tax court identified three interpretations of Session Law 74 that extended the deadline for chapter 278 proceedings in the district court. But the tax court found no need to discuss the second and third interpretations because petitioner previously and simultaneously filed “two separate documents intended to correct its misidentification of the subject property in its original petition: (1) a motion in [the tax] court to amend the original petition to pertain to the Minneapolis Property; and (2) an independent petition in district court pertaining to the Minneapolis Property.” The latter petition was transferred to the tax court, and, by filing the district court action, petitioner “successfully availed itself of Session Law 74’s deadline extension for district court proceedings.” Therefore, the tax court had jurisdiction over petitioner’s challenge to the 2019 tax assessment of the Minneapolis property. WMH Property Owner LLC v. Hennepin Co., 2021 WL 4312988 (MN Tax Court 9/9/21).
• Childcare center fails to prove essential elements for property tax exemption. Petitioner Under the Rainbow is licensed as a childcare center by the Minnesota Department of Human Services. In 2019, petitioner applied to the county assessor’s office for an exemption from property taxes on the ground that it is an educational institution. The county denied the application and petitioner filed a petition with the tax court seeking an exemption for property tax pursuant to Minn. Stat. §272.02, subd. 5 (2020).
In its cross motions for summary judgement, petitioner contended that “DHS-licensed childcare facilities that have attained a four-star rating under the state’s Parent Aware program are per se qualified as educational institutions and therefore exempt from property tax.” Further, petitioner asserts that it uses lessons plans for different age groups and performs evaluations of each student several times a year. In support of its motion, petitioner submitted an affidavit from Connie Welch, a coach at Families First Minnesota (FFM). FFM administers the Parent Aware program in southern Minnesota. To receive a star rating, early childcare educators “must meet specific qualifications to ‘document educational achievements and professional development activities.’” An applicant meeting a three- or four-star rating is also required to have a representative from the University of Minnesota Center for Early Education Development observe classes. Petitioner maintains that it has received a four-star rating since 2017.
The county did not stipulate to any of the facts outlined in petitioner’s motion. Instead, the county maintains that petitioner is not exempt from property tax because it is not a “seminary of learning.” Petitioner provided no evidence to the county of “its curriculum or any testimony from the Red Wing Public School District that suggests that [petitioner’s] educational program reduces the public burden.” The county acknowledges that petitioner responded to discovery requests but asserts that the information was not sufficient to grant an exception. When approving an exemption application, the county considers: “1) [t]hat the mission of the organization be fundamentally educational in nature, 2) [t]he facility is providing educational training that would otherwise have to be provided by a publicly supported institution, and 3) [t]he public school would give credit for educational programs at the facility.” To fully satisfy parts two and three, the local public school district would need to attest to the requirements.
“‘All academies, colleges, and universities, and all seminaries of learning are exempt’ from property taxation under chapter 272,” but an institution may teach a variety of instruction and yet not be equivalent to an above-named institution. Minn. Stat. §272.02, subd. 5 (2020); see State v. Nw. Preparatory Sch., 249 Minn. 552, 556, 83 N.W.2d 242, 245 (1957). “Instead, ‘[t]he basis of all tax exemption—and this includes seminaries of learning—is the accomplishment of public purposes.’” Id. at 557, 83 N.W.2d at 246.
To grant a tax exemption, the court must first determine whether the institution performs in the field of public education, and the purpose of the education program. Id. at 556. Second, the court must determine that the institution provides some part of educational training that would otherwise be offered by publicly supported schools, thereby lessening the tax burden imposed upon citizens as the result of our public educational system. Id. at 557-58, 83 N.W.2d at 246. Finally, the court must determine whether the petitioner’s “regular curriculum of instruction is a reasonable substitute for the usual program of courses pursued by a student enrolled at a comparative educational level in the public system.” Id. To be reasonable, the required curriculum must embrace a sufficient variety of academic subjects to provide the student with a general education, and the educational training must be taught in such a comprehensive manner that if a student were to transfer to the same level of instruction in the public system, the student would receive full credit for their work in that subject. Id. at 246-47. The problem here is, neither the Supreme Court nor the tax court has “articulated specific criteria in the preschool context” for determining whether the program lessens the educational burden on taxpayers, or whether the training would allow the student to sufficiently assimilate into the public school system.
Petitioner asserts that “[a] childcare facility that attains a four-star rating should be considered per se qualified as an educational institution” because “Parent Aware’s four-star rating is assurance to any potential parent and for DHS itself that the childcare center will prepare the children for integration into the public school system and life itself.” The county argues that petitioner is a childcare center and “the fact that a substantial part of this business is for daycare detracts from any claim of exemption as a school.”
In a lengthy analysis, the court discussed the necessary criteria to determine whether to grant a tax exemption to the petitioner. The court stated that petitioner’s tax exemption eligibility requires more than just a determination that it is an educational institution. The petitioner here “bears the ultimate burden of proof concerning entitlement” to the tax exemption and “must make a factual showing sufficient to establish” the essential elements. The tax court determined that petitioner did not meet the burden of showing that it either alleviated the public burden, or prepared students to assimilate into public school curriculum. Under the Rainbow Early Education Center v. Goodhue Co., 2021 WL 4313124, (MN Tax Court 9/15/2021).
• Court will allow petitioner to try case 10 years after the property assessment. Petitioner Tahir Hassan originally agreed to a voluntary dismissal of his petition in November 2013. In 2015, however, he contacted the county and indicated he no longer wanted to dismiss his case. The county contends that the long passage of time will prejudice the county and it would be impossible to reach an accurate determination of the value of property 10 years after the filing date. As such, the county moved the tax court to dismiss the petition for failure to prosecute. See Rule 41.02(a). In a hearing, Mr. Hassan asserted that he did not receive notices from the court or county and contends that he is able to demonstrate the value of the subject property. The tax court denied the county’s motion to dismiss and ordered the parties to stipulate to next steps in resolving the case. Hassan v. Hennepin Co., 2021 WL 4572056 (MN Tax Court 10/1/2021).
Morgan Holcomb
Mitchell Hamline School of Law
morgan.holcomb@mitchellhamline.edu
Sheena Denny
Mitchell Hamline School of Law
sheena.denny@mitchellhamline.edu
TORTS & INSURANCE
JUDICIAL LAW
• Preverdict interest; notice of claim. Decedent fell down concrete stairs, which were attached to the main building at defendant resort. After decedent died one week later due to injuries suffered in the fall, plaintiff filed a wrongful death lawsuit against defendant resort. The complaint alleged that defendant failed to maintain the stair in a safe condition, that decedent and her husband had complained about the stair, and it proximately caused decedent’s fall. While several witnesses were present at the time of the fall, none of them saw what caused decedent to fall down the stairs. As a result, the district court granted summary judgment to defendants for failure to establish causation. The court of appeals affirmed.
The Minnesota Supreme Court reversed and remanded. While there was no evidence in the record as to what occurred immediately prior the fall, the Court held, “A plaintiff need not introduce eyewitness evidence to prove her claim or to elevate her theory above mere speculation to the point where it preponderates over competing inconsistent theories.” Because there was evidence that the condition of the stairs was defective—the same stairs that decedent fell down—the Court reasoned that a jury could reasonably find that it was a substantial factor in causing decedent to fall that preponderates over other theories. As a result, the case was remanded for trial.
Justice Anderson filed a dissenting opinion, which was joined by Chief Justice Gildea. The dissent would have held that summary judgment was appropriate because plaintiff “has produced no evidence, eyewitness or otherwise, showing that the defects in the stair was the reason that [decedent] fell.” The dissent continued: “At most, [plaintiff] has shown that those defects were one of several possible causes. Consequently, any verdict in favor of [plaintiff] would be speculative, and summary judgment is appropriate.” Staub v. Myrtle Lake Resort, LLC, A20-0267 (Minn. 9/22/2021). https://mn.gov/law-library-stat/archive/supct/2021/OPA200267-091521.pdf
Jeff Mulder
Bassford Remele
jmulder@bassford.com