Landmarks in the law

◘ 6th Amendment: Covid limitations did not violate right to a public trial. Appellant faced a jury trial for murder and arson. His trial was delayed due to covid-19. Per the Minnesota Supreme Court’s executive orders, the district court created a covid safety plan that allowed the district court to recommence jury trials. The plan took notice of the resources and capacity of the court facilities, required social distancing, and allowed the public and media to observe proceedings via ITV from other rooms within the courthouse. Given the setup of the courtroom in question, public viewing within the actual courtroom itself was not possible. Appellant did not object to any of the covid-related trial restrictions, and his counsel acknowledged the need for social distancing. After the trial, the jury found appellant guilty on all counts. On appeal, appellant argues the covid restrictions violated his 6th Amendment right to a public trial.

First, the Supreme Court finds the closure did not “seriously affect[] the fairness, integrity, or public reputation of judicial proceedings.” The Court looks to State v. Benton, 858 N.W.2d 535 (Minn. 2015), in which the defendant argued that a courtroom closure he requested violated his right to a public trial. In that case, the court recognized that a violation of the right to a public trial is a form of structural error, but noted that reversal is not automatic when such a violation occurs. Instead, the court may exercise its discretion to reverse a conviction, if the closure seriously affected the fairness, integrity, or public reputation of judicial proceedings. Thus, the Court holds that, whether the error is affirmatively invited or simply unobjected to, the Court will not exercise its discretion to grant relief to correct the unpreserved public trial right structural error unless the error seriously affects the fairness, integrity, or public reputation of judicial proceedings.

Here, the covid protocols were carefully considered and allowed the trial to proceed without further extended delays. The Court sees no reason why a failure to correct the alleged error would cause the public to seriously question of fairness and integrity of the judicial system. Thus, the Court finds it is not permitted to exercise its discretion to grant appellant’s requested relief. Appellant’s conviction is affirmed. Pulczinski v. State, 977 N.W.2d 347 (Minn. 4/6/2022).

◘ Shoplifting: Material manufactured for lawful purpose but modified to assist a shoplifter was “designed” for an unlawful purpose. Appellant was caught by police with unpaid merchandise from two stores in her bag, with aluminum foil wrapped around the antitheft sensors. After a jury trial, appellant was convicted of possessing a shoplifting device. The district court denied her petition for postconviction relief. Minn. Stat. §609.521(b) prohibits possessing “any device, gear, or instrument designed to assist in shoplifting or defeating an electronic surveillance system with intent to use the same to shoplift and thereby commit theft.” Appellant argues her conviction should be reversed because the state failed to prove that aluminum foil was designed by the original manufacturer for shoplifting.

The Minnesota Court of Appeals rejects appellant’s interpretation of the statute, which would require that the original design of the item in question be to assist in shoplifting. Any raw material, such as aluminum foil, can be designed for one purpose by the manufacturer but thereafter altered by a user for an altogether different purpose. It is the altered design that is relevant. The district court is affirmed. Douglas v. State, 973 N.W.2d 925 (Minn. 4/18/2022).

◘ Interference with privacy: Recording a woman in the same room does not amount to using a recording device “through the window or any other aperture” of a dwelling. Appellant spent the night with a woman at her home. During an investigation into the woman’s claims that appellant sent naked pictures from her phone to his own phone, without her consent, appellant told police he also took a nude video of the woman while in bed with her. He pleaded guilty to interference with privacy. Prior to sentencing, appellant moved to withdraw the plea, but his motion was denied and the court of appeals affirmed.

The Supreme Court emphasizes that, while voyeurism has evolved given rapid advances in technology, it is not the Court’s role to determine what types of voyeurism should be criminalized, only what types are criminalized under existing law. As is relevant here, Minn. Stat. §609.746, subd. 1(b), makes it a crime to (1) enter another’s property; (2) “surreptitiously… use[] any device for… recording… sounds or events through the window or any other aperture of a house or place of dwelling of another”; and (3) do so with intent to intrude upon or interfere with the privacy of a member of the household. The parties disagree as to the meaning of “aperture.” The state argues that a camera can satisfy this requirement, but the Supreme Court disagrees. The statute requires that the aperture be “of a house or place of dwelling of another,” meaning that the aperture belongs to or is connected to the house or dwelling. 

Reluctantly, the court concludes that appellant’s guilty plea is not accurate, because the plain language of section 609.746, subd. 1(b), does not apply to his conduct, recording a naked woman without her consent while in the same room as the woman. State v. McReynolds, 973 N.W.2d 314 (Minn. 4/27/2022).

◘ Exoneration compensation: Vacation of conviction due to change in law is not “exoneration.” Appellant was convicted in 2010 of being a felon in possession of a firearm after holding a woman against her will with an air-compressed BB gun. His conviction was vacated after State v. Haywood, 886 N.W.2d 485 (Minn. 2016), held that an air-compressed BB gun is not a “firearm” under the felon-in-possession statute. Appellant petitioned for an order determining he was eligible for compensation based on exoneration, but his petition was denied by the district court and court of appeals.

The Supreme Court finds appellant’s conviction was not vacated “on grounds consistent with innocence,” as required by Minn. Stat. §590.11. To be “exonerated” under section 590.11, as is relevant here, a person’s conviction must be vacated by a court on grounds consistent with innocence, that is, exonerated based on factual innocence or exonerated because a conviction was vacated or reversed and there is evidence of factual innocence.

A vacated conviction alone is insufficient under section 590.11—there must also be a showing of “factual innocence.” The court notes “the Legislature used a very specific form of ‘innocence’ to ascribe meaning to ‘grounds consistent with innocence’: ‘any evidence of factual innocence.’” The Court notes that the plain and ordinary meaning of “factual innocence” is “the state of being not guilty of a crime (innocence) but only when the reason is restricted to or based on facts (factual).”

Here, appellant’s claim of innocence is not based on the facts. His case turns on a legal consideration, the statutory meaning of “firearm.” The facts of his case did not change and his conviction was vacated based on a decision that the state did not have a legal basis to charge an individual with unlawful possession of a firearm based on an air-powered BB gun. Thus, because appellant did not demonstrate he was exonerated on grounds consistent with innocence, he was not “exonerated” under section 590.11. Kingbird v. State, 973 N.W.2d 633 (Minn. 5/4/2022).

◘ Restitution: Court must consider the value of economic benefits conferred on a victim in calculating victim’s economic loss. Appellant was disqualified from participating as a medical assistance provider due to a 2010 conviction for medical assistance fraud. From 2012 to 2015, however, she formed, owned, and operated eight agencies and businesses that billed the Department of Human Services (DHS) for nursing services. She pleaded guilty to racketeering in 2016, admitting her agencies billed DHS for services provided to clients eligible for medical assistance programs, that she billed DHS for more services than were provided, and that her agencies gave clients kickbacks and other incentives. The district court ordered appellant to pay DHS $2.64 million in restitution. In her postconviction petition, Appellant argues that $1.1 million of the $2.64 million her agencies received from DHS was used to pay for nursing services provided to Medicaid beneficiaries, so that amount should not be included in the restitution award. The district court denied her petition and the court of appeals affirmed.

The Supreme Court holds that the district court must consider the value of economic benefits a defendant confers on a victim when calculating the amount of economic loss the victim sustained. The restitution statute includes a list of factors to consider when determining the proper amount of restitution, which includes the amount of economic loss sustained by the victim as a result of the offense. Minn. Stat. § 611A.045, subd. 1(a)(1). “The amount of economic loss” is not defined in the statute. Looking to dictionary definitions and prior case law interpreting the term “result,” the Court finds that “the amount of economic loss sustained by the victim as a result of the offense” “is the total or aggregate diminution or deprivation of money, goods, or services that a victim suffers as a direct result or natural consequence of the defendant’s crime.” Implicit in this definition is a requirement that the court consider what benefits, if any, a victim received from the defendant, as such benefits would offset a loss.

Here, appellant’s agencies were ineligible for any medical assistance payments from DHS, even though some services may have been provided to otherwise eligible recipients. Finding support in federal case law, the Court concludes that, because appellant was disqualified from receiving any medical assistance payments, there was no benefit to DHS in disbursing funds to providers who were not entitled to receive them. The Court holds the district court did not abuse its discretion in calculating DHS’s economic loss was the full $2.64 million it paid to appellant’s agencies. State v. Currin, No. A20-0603, 2022 WL 1654376 (Minn. May 25, 2022).

◘ Juvenile law: Juvenile is “found to have committed a misdemeanor” in a prior case if the court accepted the juvenile’s guilty plea and found the allegations were proved beyond a reasonable doubt. In 2017 appellant, a juvenile, pleaded guilty to fifth-degree assault. The district court accepted her plea and continued the case without adjudication for six months, after which the case was dismissed. In 2021, the state filed a delinquency petition against appellant alleging misdemeanor disorderly conduct. When committed by a juvenile, disorderly conduct is generally treated as a petty offense, unless, among other exceptions, the juvenile was “found to have committed a misdemeanor” in a prior matter. Minn. Stat. §260B.007, subd. 16(c)(3). The district court accepted appellant’s guilty plea to misdemeanor disorderly conduct and adjudicated her delinquent.

The Minnesota Court of Appeals is asked to determine the meaning of “found” in section 260B.007, subd. 16(c)(3), which is not defined in the juvenile delinquency statutes and is subject to more than one reasonable interpretation given its various uses throughout the statutes. The court notes that the statute specifically requires that the juvenile was “found to have committed” a prior misdemeanor, not that the juvenile was adjudicated delinquent for a prior misdemeanor. In addition, the juvenile delinquency procedural rules also distinguish between a court’s finding that a juvenile committed an offense and adjudicating a juvenile delinquent. 

Here, because appellant pleaded guilty to fifth-degree assault and the district court found the charge was proved beyond a reasonable doubt, the district court properly concluded she was “found to have committed a misdemeanor” in a previous matter and did not err by adjudicating appellant delinquent for a misdemeanor in this case. Matter of Welfare of A.J.S., No. A21-1046, 2022 WL 1751410 (Minn. Ct. App. 5/31/2022).

◘ Overtime wages; offer of judgment accepted. A claimant who timely accepted an offer of judgment was not entitled to proceed with a lawsuit against his employer, and his claim for overtime wages under the Fair Labor Standards Act was barred. Affirming a lower court ruling, the 8th Circuit Court of Appeals held that timely acceptance of the offer of judgment precluded the claim, and the trial court did not abuse its discretion in denying a recusal motion. Skender v. Eten Isles Corp., 33 F.4th 515 (8th Cir. 05/04/2022). 

◘ Workers’ compensation; company exempt from liability. A locomotive engineer who brought a negligence claim against a company that had contracted with his employer was not entitled to proceed with his action. The 8th Circuit held that because the claimant had received a workers’ compensation settlement from his employer, the other contracting entity was exempt from liability on grounds that the injured party was covered by his immediate employer. Blanton v. The Kansas City Southern Railway Company, 33 F.4th 979 (8th Cir. 05/10/2022). 

◘ Unemployment benefits; employee denied benefits after quitting. An employee whose job included driving for his employer was denied unemployment compensation benefits after he quit his job because he had lost his commercial driver’s license. A decision of a ULJ, in the appellate court, held that the employee did not have “good reason attributable to the employer” solely because he feared losing his job at some time in the future. Feist v. City of Plymouth, 2022 WL 1210267 (Minn. Ct. App. 04/25/2022) (unpublished).

◘ Unemployment benefits; pair of decisions reversed. A pair of decisions by a ULJ with DEED were reversed and remanded.

A request for reconsideration was allowed based upon evidence submitted by the employee post-hearing, which contradicted testimony from the owner of the business in the initial hearing. The appellate court held that the ULJ’s declination of the requested reconsideration constituted an abuse of discretion because the new evidence presented by the employee for reconsideration showed a material difference from the employer’s testimony previously offered at the hearing. Viarden v. Eclipse Select, MN, LLC, 2022 WL 1210265 (Minn. Ct. App. 04/25/2022) (unpublished).

An employee who filed a late appeal was entitled to remand and a new hearing because a ULJ did not consider the Murack factors under In re Murack, 957 N.W.2d 1214 (Minn. App. 2021). The court of appeals reversed the ULJ decision and directed a new hearing on those factors. Addow v. Monarch Bus Services, Inc., 2022 WL 1210153 (Minn. Ct. App. 04/25/2022) (unpublished).

◘ EPA Proposes Section 401 water quality certification improvement rule. In June the U.S. Environmental Protection Agency (EPA) published its proposed rule to replace and update the procedural requirements for water quality certification under Section 401 of the Clean Water Act (CWA). 40 C.F.R. §121. EPA reviewed and reconsidered the 2020 CWA Section 401 Certification Rule (2020 Rule) in response to the 1/20/2021 Executive Order 13990, “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis.” The proposed rule will update the previous regulations to be more consistent with the original statutory text of the CWA.

Section 401 prohibits a federal agency from issuing a permit or license to conduct activity that may result in any discharge into waters of the United States unless the state or authorized tribe in which the proposed discharge would occur certifies that the discharge complies with applicable state water quality requirements. Furthermore, Section 401 allows states to input conditions upon the certification of the project if it determines the project will have a negative impact on the water quality within the state.

During the previous administration, EPA issued the 2020 Rule, which, among other things, narrowed the scope of Section 401 certification to be based on the potential for a project to result in actual point source discharge into waters of the United States, rather than the overall activity of which the discharge is a part, ultimately limiting the authority of states and tribes to certify projects and protect water resources within their jurisdiction.

The newly proposed “Section 401 Water Quality Certification Improvement Rule” does keep some principles of the 2020 Rule, but bolsters the role of states, territories, or authorized tribes in the water quality certification decision-making process. At the same time, the proposed rule issues many significant changes, including but not limited to: 1) requiring a pre-filing meeting request, in order to engage the project proponents, federal agencies, and certifying authorities early in the process; 2) establishing certain elements for a proper request for certification, to establish an efficient, predictable, and transparent certification process; and, 3) expanding the scope of review for a certifying state when reviewing a request for certification, which would allow the certifying authority to evaluate whether the proposed activity as a whole will comply with water quality requirements within the state.

Ultimately the components included in the proposed rule will empower the states, territories, and tribes in their authority to protect water quality and resources and reaffirm the cooperative federalism established in the CWA. The published proposed rule is open for public comments until 8/8/2022. Clean Water Act Section 401 Water Quality Certification Improvement Rule, 87 Fed. Reg. 35318 (6/9/2022).

◘ President Biden uses 1950 Defense Production Act to increase domestic clean energy manufacturing. In early June President Joe Biden issued a set of Memorandums on Presidential Determination, under which he authorized the Department of Energy to use the Defense Production Act (DPA) to increase domestic manufacturing of clean-energy technologies, specifically for: solar energy; heat pumps; building insulation; clean electricity-generated fuels; and critical power grid infrastructure components.

The DPA, which was passed by Congress in 1950 and can be invoked by the president of the United States, has the primary purpose of expediting and expanding the supply of materials and services needed to promote the national defense of the United States. One of the tools most utilized by the government under the DPA is making advance market commitments. These advance market commitments are essentially promises to buy a certain volume of a product in order to ensure its production. For each of the five areas addressed by President Biden, he authorized the Department of Energy to either make purchases, or make advance market commitments to purchase, the products needed to address each area from domestic producers. 

The rationale for investing in each of the areas addressed by President Biden’s memorandums is to boost the domestic production of such materials, which would likely result in an increase in the domestic supply chains. These increases in domestic supply chains would likely result in more affordable clean energy alternatives across the United States, while also lessening the country’s dependence on fossil fuels, both domestic and imported.

In his Memorandum on Presidential Determination addressing solar energy, President Biden directed the Department of Energy to assist in expanding the domestic production capability for solar photovoltaic (PV) modules and module components. Solar PV energy is one of the most affordable new electricity sources in many parts of the United States, but the current levels of domestic PV production does not meet demand. 

In his Memorandum on Presidential Determination addressing heat pumps, President Biden directed the Department of Energy to assist in expanding the domestic production capability for electric heat pumps to be used in heating homes and other buildings across the country. As opposed to gas furnaces typically found throughout the U.S., electric heat pumps can both heat and cool a building by utilizing heat from the air or ground and then dispersing it into or out of a room. Electric heat pumps are not widely used throughout the U.S., though demand is currently growing. 

In his Memorandum on Presidential Determination addressing building insulation, President Biden directed the Department of Energy to assist in expanding the domestic production capability for modern building insulation. The current level of production of building insulation in the US meets the demand for new buildings, but it’s insufficient to address the replacement of insulation used in older homes and buildings. Modern insulation is more efficient at maintaining temperatures in buildings, and updating the insulation used in older buildings will reduce the demand for energy to heat or cool buildings, which will ease the current demand for energy across the U.S. while also lowering energy costs nation-wide. This reduction in energy demand would help the U.S. move toward energy independence.

In his Memorandum on Presidential Determination addressing clean electricity-generated fuels, President Biden directed the Department of Energy to assist in expanding the domestic production capability for electrolyzers, fuel cells, and platinum group metal (PGM), which are all used in clean hydrogen. By increasing the use of clean hydrogen to address the nation’s energy needs, the U.S. would be able to move away from imported fossil fuels and further solidify its energy independence.

Finally, in his Memorandum on Presidential Determination addressing critical power grid infrastructure components, President Biden directed the Department of Energy to assist in expanding the domestic production capability for transformers and electric power grid components. An expansion of the domestic production of transformers and electric power grid components would not only enable the U.S. to have more reliable electric power systems across the country but would also allow for the U.S. to increase the current use of electric power systems, which in turn would enhance domestic energy security and decrease the vulnerability of U.S. infrastructure.

Presidential memorandums: Memorandum on Presidential Determination Pursuant to Section 303 of the Defense Production Act of 1950, as amended, on Solar Photovoltaic Modules and Module Components (June 6, 2022); Memorandum on Presidential Determination Pursuant to Section 303 of the Defense Production Act of 1950, as amended, on Electric Heat Pumps (6/6/2022); Memorandum on Presidential Determination Pursuant to Section 303 of the Defense Production Act of 1950, as amended, on Insulation (6/6/2022); Memorandum on Presidential Determination Pursuant to Section 303 of the Defense Production Act of 1950, as amended, on Electrolyzers, Fuel Cells, and Platinum Group Metals (6/6/2022); Memorandum on Presidential Determination Pursuant to Section 303 of the Defense Production Act of 1950, as amended, on Transformers and Electric Power Grid Components (6/6/2022).

The Supreme Court recently vacated and remanded that decision and resolved a circuit split, finding that “prejudice is not a condition of finding… that a party… waived its right… to compel arbitration.” Morgan v. Sundance, Inc., 992 F.3d 711 (8th Cir. 2021), reversed, ___ S. Ct. ___ (2022). 

◘ FCRA; standing; “injury in fact;” “concrete harm.” The 8th Circuit held that a plaintiff had not alleged an “injury in fact” or “concrete harm” sufficient to support her multiple FCRA claims. Schumacher v. SC Data Center, Inc., 33 F.4th 504 (8th Cir. 2022). 

◘ CAFA; remands; amount in controversy. The 8th Circuit affirmed a district court’s remand of a putative class action that had been removed pursuant to CAFA, where the parties agreed that there were $2.5 million in actual damages and $800,000 in attorney’s fees at stake, agreeing with the district court that the value of any prospective injunctive relief was “speculative,” meaning that the defendant had not met its burden to establish the required amount in controversy. Lizama v. Victoria’s Secret Stores, LLC, ___ F.th ___ (8th Cir. 2022). 

Judge Tostrud remanded a putative class action that had been removed pursuant to CAFA, finding that defendants’ notice of removal did not include a “plausible allegation” that the amount in controversy exceeded $5 million. Dahir v. Cresco Capital, Inc., 2022 WL 1751270 (D. Minn. 5/31/2022). 

◘ Fed. R. Civ. P. 702; treating therapist. Affirming judgment for an employee in an employment discrimination case, the 8th Circuit reiterated that non-retained experts, including treating healthcare providers, are not subject to the requirements of Fed. R. Civ. P. 702, as long as they do not “testify outside the realm of treatment such as causation of a condition.” Gruttemeyer v. Transit Authority, 31 F.4th 638 (8th Cir. 2022). 

◘ Preliminary injunction affirmed; “fair chance of prevailing” standard applied. Affirming the entry of a preliminary injunction by Judge Brasel, the 8th Circuit rejected the defendant’s argument that the plaintiff’s likelihood of success should be considered under a “more likely than not” standard, and instead held that the “fair chance of prevailing” standard controlled. Sleep Number Corp. v. Young, ___ F.4th ___ (8th Cir. 2022). 

◘ Argument waived when raised for the first time on appeal. The 8th Circuit found that the appellant had waived an argument that was “advanced for the first time on appeal.” Kelley v. Safe Harbor Managed Account 101, Ltd., 31 F.4th 1058 (8th Cir. 2022). 

◘ Motion for extension of time to apply for attorney’s fees denied. Finding no “good cause” or “excusable neglect,” Judge Wright denied defendants’ motion to extend their time to move for attorney’s fees, finding that defendants’ “mistake of law” “cannot constitute excusable neglect.” Core & Main, LP v. McCabe, 2022 WL 1598230 (D. Minn. 5/20/2022). 

◘ Motion to dismiss for lack of personal jurisdiction granted. Granting the defendant’s motion to dismiss for lack of personal jurisdiction, Judge Doty found that the defendant was not subject to personal jurisdiction in Minnesota despite a number of contacts with the state, where the alleged acts underlying the action occurred in Ohio. PolyTek Surface Coatings, LLC v. Ideal Concrete Coatings, Co., 2022 WL 1409891 (D. Minn. 5/4/2022). 

◘ Sanctions and more sanctions. Judge Wright found multiple counsel and their respective law firms jointly and severally liable for almost $17,000 in fees for a “frivolous attempt” to circumvent prior rulings that “wasted judicial resources.” Satanic Temple, Inc. v. City of Belle Plaine, 2022 WL 1639514 (D. Minn. 5/24/2022). 

Magistrate Judge Leung sanctioned the defendant $1,000 where it produced more than 35,000 documents under a “blanket” attorney’s-eyes-only designation, finding that the blanket designation violated the “implicit duty of good faith” under Fed. R. Civ. P. 26(c). CellTrust Corp. v. ionLake, LLC, 2022 WL 1553558 (D. Minn. 5/17/2022). 

Magistrate Judge Wright awarded defendants attorney’s fees pursuant to Fed. R. Civ. P. 37(a)(5)(B) in an amount to be determined for having opposed a motion to compel where the plaintiff “failed to meet and confer” and filed a motion for sanctions that was “moot.” Evans v. Krook, 2022 WL 1537994 (D. Minn. 5/16/2022). 

◘ Fed. R. Civ. P. 45(f); motion to quash subpoena transferred. Where a third party objected to a deposition subpoena and then moved to quash the subpoena, and the party that issued the subpoena opposed the motion to quash and also asked that the motion be transferred to the Southern District of Texas, Magistrate Judge Bowbeer granted the request for a Rule 45(f) transfer to the Southern District of Texas, finding that the underlying litigation was “complex,” the trial judge was familiar with the “complex issues in the case,” and that a motion to compel the production of documents from the third party was already pending in that court. In Re: Subpoena Served on NonParty Winfield United dated Mar. 7, 2022, 2022 WL 1515461 (D. Minn. 5/13/2022). 

◘ Patents: “Fair chance” is the appropriate standard for likelihood of success for many preliminary injunctions. The United States Court of Appeals for the 8th Circuit recently held that a district court did not err by granting a motion for preliminary injunction enjoining further prosecution or amendment of patent applications in dispute. Sleep Number Corporation sued defendants Steven Young, Carl Hewitt, and UDP Labs, Inc. for ownership of the inventions claimed in UDP’s patent applications. Sleep Number alleged that defendants Young and Hewitt violated their consulting agreements with Sleep Number, which required the assignment of the rights to inventions formed or developed during the consulting period. During the consulting period, Young and Hewitt created UDP and filed a provisional patent application. After Young and Hewitt terminated their consulting agreements with Sleep Number, they filed another provisional application that included material from the first provisional application. They filed additional applications claiming priority to the two provisional applications. After Sleep Number filed suit, UDP filed requests with the USPTO to remove the priority claim to the first provisional application in its subsequent applications. Sleep Number sought a preliminary injunction to prevent DCI from further prosecuting or amending the patent applications at issue. The district court entered the preliminary injunction. 

On appeal, the 8th Circuit panel considered the Dataphase factors, noting that the most significant factor was the probability of the movant’s success. When evaluating Sleep Number’s likelihood of success, the 8th Circuit clarified that the appropriate standard was a “fair chance” of prevailing. Unlike an individual seeking a preliminary injunction against the enforcement of statutes and regulations, which is subject to the “more likely than not” standard, a “fair chance” movant does not need to show more than a 50 percent chance of succeeding. The 8th Circuit explained that this distinction between standards results from the high degree of deference that statues and regulations receive. The court continued by noting that the inability of Sleep Number to participate in the patent prosecution process, the requests for priority amendment by UDP, and the fact that Sleep Number would be subject to the USPTO’s discretion regarding the ability to make changes to the applications were sufficient to demonstrate a threat of irreparable harm absent a final Office Action issued in the applications. The 8th Circuit concluded by affirming that the remaining factors also weighed in Sleep Number’s favor. Sleep No. Corp. v. Young, 33 F.4th 1012 (8th Cir. 2022).

◘ Trademark: The doctrine of laches is triggered by actionable infringement claims. The United States Court of Appeals for the 8th Circuit recently held that a district court erred by failing to consider the six likelihood-of-confusion factors when it granted summary judgment based on the doctrine of laches. A.I.G. Agency, Inc. sued American International Group, Inc. for common-law trademark infringement and unfair competition related to the “AIG” trademark. Agency began using the AIG mark in Missouri in 1958 in relation to insurance broker services. The earliest possible date International first used the AIG mark was 1968. International obtained a federal trademark registration for the mark in 1981. International sent Agency letters twice, demanding that Agency cease using the AIG mark. Agency responded both times by asserting its right to use the mark in Missouri and Illinois due to its earlier first date of use in those locations. In a third letter, International stated that it would only take legal action if Agency used the mark outside of specific counties in Missouri. Starting around 2012, Agency alleged, International began a more aggressive advertising campaign that led to a notable increase in customers confusing Agency with International. Agency sued International in 2017. International asserted the doctrine of laches and moved for summary judgment. The district court found that both parties had been knowingly operating with the same mark in the same markets for decades and that Agency had knowledge of the risk of consumer confusion from the date of International’s first letter. 

On these findings and the basis of laches, the district court granted International’s motion for summary judgment. The 8th Circuit reviewed the laches finding and focused on the doctrine of progressive encroachment in relation to inexcusable delay in asserting a claim. Under the doctrine of progressive encroachment, the period of delay relevant for laches begins when the plaintiff has an “actionable and provable” trademark infringement claim. A trademark infringement claim is “actionable and provable” where a plaintiff can demonstrate a likelihood of confusion under a six-factor analysis. A defendant must demonstrate that the plaintiff could have shown a likelihood of confusion under the six-factor analysis at a time point sufficiently far in the past to constitute inexcusable delay. The 8th Circuit noted that the district court did not conduct the six-factor analysis to determine the likelihood of confusion for the issue of progressive encroachment. Genuine disputes of material fact existed that precluded summary judgment. The case was reversed and remanded for further proceedings. A.I.G. Agency, Inc. v. Am. Int’l Grp., Inc., 33 F.4th 1031 (8th Cir. 2022).

◘ Zoning ordinance did not prohibit dock installation. The Minnesota Court of Appeals reversed a district court’s grant of partial summary judgment and injunctive relief in favor of the city that was premised on the conclusion that a 2006 city ordinance prohibited a dock when it was first installed in 2017. In City of Shorewood, property owners installed a dock on a parcel of land without a dwelling that was designed to be removed from the lake before winter and then reinstalled in the spring. The city cited the property owners for a zoning violation based on the 2006 code, which forbids installing floating or permanent docks and based on a 2017 amendment to the 2006 code that forbids docks to be built on land without a dwelling on the lot. On appeal, the property owners argued that the district court erred in concluding that the 2006 code prohibited the installation of a dock on the property and further contended that, because their dock was a legal dock under the 2006 code and was first installed before the 2017 amendments, injunctive relief should not have been granted to the city based on the 2017 amendments. The court noted that when a nonconforming use lawfully exists before an adverse zoning change takes effect, constitutional and statutory protections permit the use to continue. The parties agreed that the property owner’s dock is not “floating,” but they disagreed concerning whether the property owner’s dock is “permanent.” The court noted the dock that the property owners installed in 2017 and propose to continue using is a seasonal dock. After reviewing the relevant language of the 2006 code, the court concluded that there exists more than one reasonable interpretation of Sec. 1201.03, subd. 14(b), rendering that portion of the 2006 code ambiguous. 

The court looked to several well-established dictionary definitions and concluded that the property owners’ dock is not one that is “permanent.” All agree that the dock is not “floating.” Accordingly, the court held that the dock is not prohibited by the 2006 code which prohibits “[d]ocks and wharves, permanent or floating” on parcels such as this one. The court of appeals further held that when the property owners first placed their dock on the property in 2017, the dock was not prohibited by the 2006 code and when the code was amended in 2017, the dock was a pre-existing nonconforming use. The court continued that the city may not “zone out of existence the dock,” which was legally placed before the amendments. Thus, the court of appeals ordered that, on remand, the district court is to address any remaining legal or factual issues, including but not limited to whether the landowners’ legal nonconforming use has been discontinued, expanded, or materially changed since the initial lawful installation in 2017. City of Shorewood v. Sanschagrin, No. A21-0992, 2022 WL 764223 (Minn. Ct. App. 3/14/2022). 

◘ Whether a person qualifies as an “other regular occupant” is a question of fact considering a totality of the relevant circumstances. A person residing with a party to a residential lease can be an “other regular occupant,” and thus a “residential tenant” under Minn. Stat. §504B.001, subd. 12, eligible to petition to recover possession of the dwelling unit under Minn. Stat. § 504B.375. In Quinn, a tenant who was not listed on the lease remained living in the apartment after her roommate, who was listed on the lease, vacated the apartment and the written lease had expired. The landlord therefore deactivated the tenant’s key fob to the apartment. The tenant then petitioned for recovery of possession and the landlord asserted eviction as a counterclaim. A housing-court referee recommended that the district court conclude the tenant was an “other regular occupant” and thus a “residential tenant,” entitled to relief under Minn. Stat. §504B.375, ordering the landlord to reactivate the key fob and to pay reasonable attorney’s fees and a penalty. 

The district court affirmed the determination that the tenant was a “residential tenant” but reversed the award of attorney’s fees and penalty. On appeal, the landlord argued that the tenant was not an “other regular occupant” and as such, not entitled to relief as a “residential tenant.” First, the court of appeals noted that tenant status can attach to persons who live in a dwelling unit subject to a valid agreement, lease, or contract, in addition to the lessee or renter, and since the tenant’s roommate had a valid lease, tenant status could attach to the tenant. Second, the court held that whether a person qualifies as an “other regular occupant” is a question of fact in each case to be ascertained by consideration of a totality of the relevant circumstances and that no single factor is necessarily dispositive. Third, the court determined whether the district court erred in its determination that the tenant was an “other regular occupant” of the apartment under the facts of the case. 

The court looked at the duration, continuity, and nature of tenant’s occupancy. It determined that the tenant lived continuously in the apartment as her sole residence for more than two years, used the facilities, received mail and visitors there, used the apartment’s key fob daily, walked by the concierge daily, and used the common workspace in the building. In short, the tenant lived in the building continuously for a significant period as a residential tenant customarily would. Next, the court determined that the tenant’s not being listed on the lease, nor having sought or obtained the landlord’s written consent as required by the lease, weighed against a determination of an “other regular occupant” status. Finally, the court determined that the landlord knew, or reasonably should have known, of the tenant’s occupancy, which weighed in favor of an “other regular occupant” status. The court of appeals affirmed the district court’s determination that the tenant qualified as an “other regular occupant” and thus a “residential tenant” entitled to relief under Minn. Stat. §504B.375. Quinn v. LCM NE Minneapolis Holdings, LLC No. A21-1062, 972 N.W.2d.881 (Minn. Ct. App. Apr. 4, 2022). 

◘ 30-day filing deadline for tax court review of CDP determination isn’t jurisdictional. A North Dakota law firm was one day late filing its petition for review of an unfavorable collection due process (CDP) decision. The tax court dismissed the petition for lack of jurisdiction, reasoning that the 30-day limit was jurisdictional and that it did not have equitable tolling power; the 8th Circuit affirmed. In a unanimous decision, the Supreme Court reversed and held that the 30-day time limit to file a petition for review of a CDP determination is a nonjurisdictional deadline subject to equitable tolling. Taxpayers who are late in seeking U.S. Tax Court review in a CDP case can attempt to persuade the court that equity would be served by tolling. If the court is persuaded the high bar for tolling is met, the court has jurisdiction to toll the 30-day period. Boechler, P.C. v. Comm’r, 142 S. Ct. 1493 (2022). 

◘ Taxpayer subject to unauthorized disclosure not required to demonstrate actual damages to be awarded punitive damages. IRC Section 6103 requires the United States to keep tax returns and return information confidential. Congress authorized a private right of action against the United States for violations of this confidentiality requirement, and the statutory right of action spells out available damages. In the case of “willful… disclosure or [a]… disclosure which is the result of gross negligence,” those damages can include punitive damages and attorney’s fees. IRC 7431. 

In this dispute, a taxpayer involved in a collection due process (CDP) hearing fired her initial representative and hired another. The government was timely informed of the change but following the CDP hearing, the IRS erroneously sent the CDP determination to the fired representative. The IRS conceded their erroneous transmission was an unauthorized disclosure of the taxpayer’s return information, and the only issue was the taxpayer’s damages. In this 12(c) motion for judgment on the pleadings, the court held that even if taken as true, the facts pleaded by the taxpayer could not support a claim of actual damages resulting from the violation. The court went on to hold, however, that the inability to show actual damages did not preclude the taxpayer from recovering punitive damages. The court recognized a circuit split on this question, which involves the interpretation of Section 7431(c). Further, the court held that the taxpayer’s allegations were sufficient to suggest the type of recklessness necessary to satisfy the “gross negligence” standard, so the United States was not entitled to judgment on the pleadings on that issue. The court finally held that the question of attorney’s fees was premature. Castillo v. United States, 21cv00007 (DF), 3 (S.D.N.Y. 3/28/2022).

◘ Tax court has jurisdiction to determine whether the Voluntary Classification Settlement Program (VCSP) enters into computation of taxes owed. Taxpayers and the IRS do not always see eye-to-eye on the distinction between employees and independent contractors. This disagreement can have significant tax consequences; employers who erroneously classify employees as independent contracts can face stiff tax liability. The VCSP is available for taxpayers who want to voluntarily change the prospective classification of their workers. The program applies to taxpayers who are currently treating their workers as independent contractors and want to prospectively treat the workers as employees. To be eligible for the VCSP, a taxpayer must: (1) have consistently treated the workers as nonemployees; (2) have filed all required Forms 1099, consistent with the nonemployee treatment, for the previous three years; and (3) not currently be under employment tax audit by the Internal Revenue Service (IRS). 

In this case, the tax court reasoned that it “has jurisdiction to determine whether the liability is correct in proceedings for determination of employment status.… Because the denial of a taxpayer’s eligibility for VCSP directly affects the amounts of tax, the procedures that Congress has established for judicial review of the Commissioner’s determinations logically contemplate review of such a denial as one element of the determination.” The court “conclude[d] that [the court has] jurisdiction to determine whether the VCSP enters into the computation of petitioner’s taxes owed.” Treece Fin. Servs. Grp. v. Comm’r, No. 20850-19, 2022 WL 1154154 (T.C. 4/19/2022).

n Matter of first impression: Office of Chief Counsel has authority to determine entitlement to innocent spouse relief. In an unusual impasse, the chief counsel rejected a conclusion from the IRS’s Cincinnati Centralized Innocent Spouse Operation (CCISO) that a taxpayer was entitled to innocent spouse relief. The chief counsel had referred the issue to the CCISO to make the determination; CCISO is the IRS unit that receives and processes most requests for innocent-spouse relief. The underlying dispute between the taxpayer’s ex-spouse and the commissioner was extensive and was mired in litigation for years. This taxpayer’s innocent spouse request was on the backburner as that litigation progressed. Finally, the underlying liability issues were settled, and the innocent spouse issue again took center stage. The tax court was forced to decide whether the chief counsel or the CCISO spoke for the IRS. In an extensive and wide-ranging opinion by Judge Holmes, the court determined that the chief counsel has the final authority to concede or settle an innocent spouse defense raised for the first time in a tax court deficiency proceeding. For readers interested in an overview of innocent spouse relief, this opinion provides a readable primer. DelPonte v. Comm’r, No. 1144-05, 2022 WL 1421068 (T.C. 5/5/2022).

◘ Preemptive protective order not available in property tax challenge. A property owner asked the tax court for a protective order limiting the manner in which the county may use allegedly proprietary information the property owner had not yet furnished the county, but that the property owner planned to furnish. The county had not requested the information, and in fact had not yet promulgated discovery. The property owner also sought an award of costs, including attorney fees. The court denied the request, reasoning that, on the current record, the property owner had not demonstrated good cause for the order. The court concluded that it “will not issue a protective order simply because one party believes its opponent will want certain information (especially where the opponent affirmatively states it currently does not).” G&I VIII 605 Waterford LLC v. Cnty. of Hennepin, No. 27-CV-21-12131, 2022 WL 1654748 (Minn. Tax 5/20/2022).

◘ Failure to appear results in affirmance of assessment. A property owner contested the assessed value of a property in Washington County. Petitioner did not appear for the remote trial and because Minnesota statute provides that “[i]n case no appellant shall appear the Tax Court shall enter its order affirming the order of the... appropriate unit of government from which the appeal was taken” (Minn. Stat. §271.06, subd. 6(a)), the tax court affirmed the county’s assessment. Costco Wholesale Corp. v. Cnty. of Washington, No. 82-CV-20-1921, 2022 WL 1744693 (Minn. Tax 5/24/2022).

n Sales and use tax: Credit card surcharge disclosed to customers as separate amount subject to sales and use tax. Kurt Martin owns real property that he rents through sites such as AirBnB and VRBO. Martin also occasionally rents property directly to customers. Those customers who rent directly from Martin and pay with a credit card are subject to a 4% surcharge. Mr. Martin asserted that the credit card surcharge should be exempt from taxation under Minn. Stat. §297A.61, subd. 7(b)(2). Subdivision 7(b)(2) provides an exception from “sales price” for “interest, financing, and carrying charges from credit extended on the sale of personal property or services” when certain requirements are met. The court articulated three requirements for exemption under 7(b)(2): First, the item in question must be interest, financing, or carrying charges. Second, the item in question must be “from credit extended on the sale of personal property or services.” Third, the item in question must be “separately stated.” Minn. Stat. §297A.61, subd. 7(b)(2). The credit card surcharges at issue here were separately stated, but because the surcharges were admittedly not from credit extended on the sale of personal property or services, the surcharges were not excluded from the sales price. The court granted the commissioner’s request for summary judgment. Martin v. Comm’r, No. 9499-S, 2022 WL 1262230 (Minn. Tax 4/25/2022).

◘ Property tax: Third-party operation of a cafeteria does not render campus “income-producing.” Like many corporate campuses, Medtronic offers employees on-site services like cafeterias and convenience stores. Medtronic contracts with third parties to provide these services. Medtronic challenged the assessment of its three-building office campus in Fridley, and the county moved to dismiss Medtronic’s challenge. As the basis for its motion, the county alleged that Medtronic did not timely provide occupancy, income, and expense information as required by Minn. Stat. §278.05, subd. 6(a). Such disclosure is required only for “income-producing property.” Medtronic argued first that its Fridley property is not an “income-producing” property within the statutory meaning and therefore no disclosure was required. In the alternative, Medtronic argued that the information provided to the county met the statutory requirements. 

In a thorough analysis, the tax court held that the subject property was not income-producing. The court parsed the agreements between Medtronic and the third-party providers and concluded the properties were not income-producing. “Proper analysis,” the court instructed, “begins by recognizing that real property has non-owner occupants, but then focuses on whether payments to the owner are for use of the property—by examining the substance of the parties’ relationship. If payments are not compensation for the use of real property, then they do not render the property income-producing. The mere existence of payments from an occupant to an owner is not sufficient to show that the property itself produces income.” Because payments between these parties were not compensation for the use of real property, the subject property was not income-producing and Medtronic was not obliged to disclose. The county’s motion to dismiss was denied. Medtronic, Inc. v. Cnty. of Anoka, No. 02-CV-20-1935, 2022 WL 1233667 (Minn. Tax 4/19/2022).

◘ Court concludes Allina Health System is interdependent with Abbott Northwestern and entitled to tax exemption. The parties disputed Allina’s subject tax status. Beginning with the 2017 assessment, Washington County changed petitioner’s tax status to commercial, “although it had previously treated the property as tax-exempt.” 

The current use of Allina’s Stillwater location, the subject property, “provides a variety of rehabilitation and physical therapy services.” A unique feature of the location includes a warm-water pool that provides treatments from a variety of patients with ailments; and provides swim lessons for children with disabilities. The location also “houses an accessible fitness center” to maintain physical fitness for patients in wheelchairs, or those suffering from Parkinson’s or Parkinson’s-like disorders.

To pay for services offered, Allina bills a patient’s insurance, bills Medicare and Medicaid, or—if a patient is unable to afford services—offers to link the patient with a variety of assistance programs. “Because Allina does not collect enough money from billing… to cover its expenses, Courage Kenny Foundation, a non-profit that donates to several facilities focusing on health care, funds services at the subject property.”

Allina asserted that the subject property is tax-exempt “as both a public hospital and an institution of purely public charity pursuant to both article X, section 1 of the Minnesota Constitution, and Minnesota Statute section 272.02.” At trial, Allina bore the burden to overcome the prima facie validity of the County’s commercial classification of the subject property, and to demonstrate that the subject property is exempt. 

Minn. Const. art. X, §1 states that “Taxes shall be uniform upon the same class of subjects and shall be levied and collected for public purposes, but... public hospitals... shall be exempt from taxation...” Similarly, Minn. Stat. §272.02, subd. 4 provides “[a]ll public hospitals are exempt.” Case law has determined that to be exempt, public hospitals should operate for the benefit of the public, rather than the benefit of private individuals. See State v. Browning, 192 Minn. 25, 29 (1934).

In this case, Allina did not contend that the subject property was a public hospital, but rather that it is an auxiliary property to a public hospital, Abbott Northwestern Hospital. For auxiliary properties such as the subject property, exemption applies “if the property is devoted to what the public hospital does and must be reasonably necessary for the accomplishment of the purposes of the institution seeking exemption.” State v. Fairview Hosp. Ass’n, 262 Minn. 184, 187, 114 N.W.2d 568, 571 (1962). An auxiliary property does not need to be essential or indispensable, nor does it need to be “close to the public hospital itself.” Chisago Health Servs. v. Comm’r of Revenue, 462 N.W.2d 386, 388-89 (Minn. 1990). The test essentially measures the degree in which the properties are functionally interdependent. Id. at 390.

Washington County asked the court to consider the subject property a “clinic” and argued that Allina’s Stillwater location competes with other neighboring therapy facilities and, therefore, fails to be defined as a public hospital auxiliary. The county cautioned that allowing Allina this tax-exempt status would “open the door to large healthcare conglomerates to reclassify their clinics in order to evade property tax, giving them a further competitive advantage over independent healthcare competitors.” Further, the county argued that the subject property is not “reasonably necessary to operate the hospital,” citing specifically to the location’s “warm water pool and the adaptive fitness center.”

In its analysis, the court explained that it will not rely on the competitiveness test. Instead, the court found that the subject property’s therapeutic and rehabilitative services supported the hospital’s purpose to provide patient care. To further prove its interdependence, the subject property is functionally interdependent with Abbott Northwestern in that its patients are billed similarly, the facilities share staff, and the two facilities share a human resources department, director, and policies and procedures. The court found no evidence showing that Abbott Northwestern was being funded by revenue at the subject property, and “the organizations running the hospital and the subject property—Allina and Courage Kenny—are both non-profit organizations, thereby lacking a profit-driven motivation.” Thus, the court determined that the subject property is an auxiliary facility and thereby entitled to the tax exemption. Allina Health System v. Washington Co., 2022 WL 1123239 (MN Tax Court 4/11/2022). 

◘ Defense and indemnification; State Tort Claims Act. Plaintiffs, a county attorney and county sheriff, were named as defendants in a lawsuit. Plaintiffs sought a defense and indemnification for the suit from defendant, the state of Minnesota, under the State Tort Claims Act, Minn. Stat. §3.736, subd. 9. That statute provides in relevant part: “[t]he state shall defend, save harmless, and indemnify any employee of the state” who is subject to a claim “arising out of an alleged act or omission occurring during the period of employment… if the employee was acting within the scope of employment.” Defendant denied the request, contending that plaintiffs were not “employee[s] of the state.” After plaintiffs filed suit, the district court granted defendant’s motion to dismiss. The court of appeal affirmed.

The Minnesota Supreme Court affirmed. The Court began by noting that the term “employee of the state” was defined by Minn. Stat. §3.732, subd. 1(2) to include “all present or former officers, members, directors, or employees of the state” and “persons acting on behalf of the state in an official capacity, temporarily or permanently, with or without compensation.” Because plaintiffs were not officers or employees of the state, the only question was whether they qualified as “persons acting on behalf of the state in an official capacity.” After finding the statutory definition to be ambiguous, the Court ultimately agreed with defendant’s interpretation. In so holding, the Court relied heavily on the fact that plaintiffs were covered under the municipal tort claims act and entitled to a defense and indemnification from the county, stating, “the existence of one statute covering municipal employee indemnification and another statute covering state employee indemnification strongly suggests that the Legislature did not consider a county attorney or a county sheriff performing their ordinary duties, without something more, to be a person acting on behalf of the State such that they are entitled to indemnification by the State.” Walsh v. State of Minnesota, A20-1083 (Minn. 6/8/2022). https://mn.gov/law-library-stat/archive/supct/2022/OPA200573-020222.pdf