Criminal Law
JUDICIAL LAW
• 4th Amendment: Under private search doctrine, party seeking suppression bears burden of proving private party was acting on behalf of the government. Appellant had an online Dropbox storage account, the terms for which state the company may disclose information relating to the account for various reasons and prohibit the storage or sharing of unlawful pornographic files. A Dropbox employee submitted a tip to the National Center for Missing and Exploited Children with 63 images they believed to be child pornography found in a Dropbox user account. The Center forwarded the tip and images to the Minnesota Bureau of Criminal Apprehension, who reviewed the images and linked the Dropbox account to appellant. The BCA executed search warrants for the remainder of appellant’s Dropbox account and appellant’s electronic devices. The BCA found additional child pornography videos stored in appellant’s Dropbox account. Appellant was charged with four counts of possession of child pornography. The district court denied appellant’s motion to suppress evidence from his Dropbox account, finding that appellant did not have a reasonable expectation of privacy in his Dropbox account, and, even if he did, the private search doctrine applies. After a stipulated facts trial, the court found appellant guilty. On appeal, the Minnesota Court of Appeals affirmed, agreeing appellant did not have a reasonable expectation of privacy in his Dropbox account.
The private search doctrine permits government agents to duplicate searches performed previously by private parties without violating the 4th Amendment. The state must prove (1) a private actor conducted the initial search; and (2) the scope of the initial search and the scope of the subsequent search were the same. The evidence may still be subject to suppression if the private party who conducted the initial search was acting as an agent of the government. The Supreme Court holds that the burden of proving the private party was acting on behalf of the government falls on the party seeking suppression of the evidence.
The Supreme Court also holds that the district court did not clearly err when it found the state met its burden to prove the private search doctrine applies. The evidence shows an employee of a private company, Dropbox, manually reviewed appellant’s files, and the BCA’s subsequent unwarranted search was no more intrusive.
As appellant sought suppression of the Dropbox evidence, he was required to prove Dropbox acted as a government agent in searching his files. This determination focuses on (1) whether the state knew of and acquiesced in the search; and (2) whether the search was conducted to assist law enforcement’s interests or the interest of the private party. Appellant did not make a sufficient showing on either of these points. As such, the Supreme Court finds the initial warrantless search of appellant’s Dropbox did not violate the 4th Amendment. State v. Pauli, A19-1886, 2022 WL 3640916 (Minn. 8/24/2022).
• False reporting of a crime: Venue is proper in county where false report is made and county where false report is received. Appellant appealed her convictions in Waseca County District Court for deprivation of parental custodial rights by concealment and false reporting of a crime, claiming the evidence was insufficient to support the convictions. Appellant kept her child outside of her court-ordered parenting time, claiming the child was ill and needed medical attention, and reporting that the child’s father abused the child to both medical staff and police.
First, the court of appeals finds the evidence is insufficient to prove appellant “concealed” the child from his father. Minn. Stat. § 609.26, subd. 1(1), states that “[w]hoever intentionally… conceals a minor child from the child’s parent where the action manifests an intent substantially to deprive that parent of parental rights” is guilty of a felony. A conviction under this section requires proof that appellant intended to hide the child from his father. However, the circumstantial evidence does not preclude any rational hypothesis inconsistent with guilt. While appellant kept the child from his father, kept him out of daycare, and did not answer calls from police, she told the child’s father of her plans to keep the child at her home because he was sick. She also brought the child to multiple medical providers, which supports an inference that she intended to keep the child to obtain medical treatment for him, not to hide him from his father.
Next, the court finds sufficient evidence of venue for appellant’s false report conviction. Appellant argues Minn. Stat. §609.505, subd. 1, allows for venue only in the county where the false report was made (Blue Earth County), not where the report was received (Waseca County). Venue is proper where any element of the offense was committed. Section 609.505, subd. 1, provides that “[w]hoever informs a law enforcement officer that a crime has been committed… knowing that the person is a peace officer…, [and] knowing that it is false and intending that the officer shall act in reliance upon it, is guilty of a misdemeanor.”
The court holds this section provides for venue in both the county where a false report is made and the county where law enforcement received the false report. “To inform” means “to impart information to,” which inherently requires affirmative communication to another and receipt of that information. Thus, the act of informing under section 609.505, subd. 1, includes two components—making a false report and the receipt of that false report. As such, venue is proper where the false report is made and also where it is received. The court finds sufficient evidence that appellant’s false report was received by law enforcement in Waseca County.
Appellant’s deprivation of parental custodial rights conviction is reversed, but her conviction for falsely reporting a crime is affirmed. State v. Johnson, A21-1360, 2022 WL 3711386 (Minn. Ct. App. 8/29/2022).
Samantha Foertsch
Bruno Law PLLC
samantha@brunolaw.com
Stephen Foertsch
Bruno Law PLLC
stephen@brunolaw.com
Employment & Labor Law
JUDICIAL LAW
• Doctor’s claim rejected; misconduct, not discrimination. An Egyptian Muslim physician lost his discrimination claim following his resignation from the Mayo Clinic in the wake of an investigation that led to a recommendation that he be fired. The 8th Circuit Court of Appeals, upholding a decision of U.S. District Court Judge Eric Tostrud, held that the physician committed misconduct including sexual harassment, which defeated his discrimination claim. Said v. Mayo Clinic, 2022 WL 3440394 (Minn. Ct. App. 08/17/2022) (unpublished).
• FLSA; Expert testimony improperly excluded. The faulty exclusion of expert testimony in a Fair Labor Standards Act (FLSA) wage case warranted further proceedings. The 8th Circuit vacated the exclusionary rulings in a class action brought by commercial truck drivers claiming they were not properly paid for off-duty time while participating in a student training program. Petrone v. Werner Enterprises, Inc., 42 F.4th 962 (8th Cir. 08/03/2022).
• Unemployment compensation; not available for suitable employment. An employee with a 15-pound lifting restriction that prevented him from doing his plumbing work was not available for suitable employment and, thus, was denied unemployment benefits. The Minnesota Court of Appeals, affirming a ruling of an unemployment law judge (ULJ) with the Department of Employment & Economic Development (DEED), held that the six-week period of inability to work barred benefits for that period. In re Miezwa, 2022 WL 3348571 (Minn. Ct. App. 08/15/2022) (unpublished).
• Unemployment compensation; pandemic assistance denied. An employee was deemed ineligible for pandemic unemployment assistance (PUA). In re Chandler, 2022 WL 3348646 (Minn. Ct. App. 08/15/2022) (unpublished).
• Unemployment compensation; two misconduct rulings. The appellate court upheld a pair of ULJ denials of benefits due to misconduct. Failure to comply with the employer’s COVID policy barred benefits for another employee for failure to adhere to a “reasonable” policy. Costello v. Fond du Lac Reservation, 2022 WL 3348567 (Minn. Ct. App. 08/15/2022) (unpublished).
The actions of an employee who took air filters from his work without permission constituted disqualifying “misconduct.” Christenson v. RIHM Motor Co., 2022 WL 3149257 (Minn. Ct. App. 08/08/2022) (unpublished).
Marshall H. Tanick
Meyer, Njus & Tanick
mtanick@meyernjus.com
Environmental Law
JUDICIAL LAW
• MN Court Of Appeals affirms pickle maker must close and clean wastewater ponds. In April the Minnesota Court of Appeals, in an unpublished opinion, affirmed that the Minnesota Pollution Control Agency (MPCA) did not exceed its authority in ordering that Gedney Food Company must close wastewater treatment ponds and remove contaminated sediment. The appeals court further affirmed MPCA’s order denying Gedney’s request for a contested-case hearing.
Pickle maker Gedney Food Company has been located in the southwest Chanhassen area since 1893. In 1957, the pickle factory was authorized to discharge its briny wastewater into three on-site treatment surface impoundment ponds that lie in the floodplain of the Minnesota River. In 2019, Gedney closed its facility and the MPCA requested the wastewater closure plan required by the permit and gave a two-year timeline for closing the ponds and removing the waste pond solids. Over the next 23 months, the MPCA requested updates on Gedney’s discharge and cleanup plans and met with Gedney to discuss options for a closure plan. During that time, however, Gedney made no actual attempt to remove the waste solids.
In August 2021, the MPCA issued the two orders being challenged by Gedney on this appeal. Gedney argued that MPCA’s order for a final closure (1) exceeded the agency’s statutory authority because MPCA did not consider the impact of the closure plan order on the company’s financial condition; (2) was unsupported by substantial evidence of reasonableness and feasibility because of MPCA’s adherence to a strict timeline and its refusal to consider alternate cleanup methods; and (3) was arbitrary and capricious because MPCA had previously permitted Gedney’s operation of the wastewater ponds and because access to the ponds and removal of waste solids was unfeasible and logistically difficult during the winter months in which the final deadline was established.
In response to Gedney’s three arguments, the court first held that MPCA did not exceed its statutory authority when dismissing Gedney’s financial condition because “due consideration of a party’s economic circumstances… does not equate to permitting that party to use whatever method of disposing of materials it has decided is within its financial capability.”
Second, the court held that MPCA’s strict timeline was supported by substantial evidence of reasonableness and feasibility, especially considering that Gedney had received an estimate saying that the removal work would only take 10 to 12 weeks, and that it could be “done in the winter, which might be preferable.” Furthermore, the court agreed with MPCA that Gedney’s proposal of alternate cleanup methods were prohibited under Minnesota statutes, which forbid disposing of waste in a floodplain or wetland, because the three wastewater ponds are in a wetland adjacent to the Minnesota River.
Finally, the court held that MPCA’s order was not arbitrary and capricious and Gedney did not have previous reliance on MPCA’s past permitting when the agency determined that the closure of the ponds and removal of waste in the floodplains of the Minnesota River was for the good of the environment. The court further held that MPCA’s order for removal during the winter months was not arbitrary and capricious, even though there were logistical and feasibility difficulties in accessing the ponds during the winter. The court noted that MPCA first issued its order in June to allow for Gedney to “complete the work and take advantage of the warm summer months,” that MPCA extended its deadline for the work to be conducted over many months during the winter, and that Gedney’s own contractor stated definitively that “this work could be completed in the winter.” Accordingly, the court found that there was no basis to reverse MPCA’s closure order. In re Gedney Foods Co., No. A21-1156, 2022 Minn. App. Unpub. LEXIS 251 (4/25/2022).
ADMINISTRATIVE ACTION
• EPA issues new PFAS advisories and rules. EPA recently unveiled long-anticipated action to address the chemical group known as per-and-polyfluoroalkyl substances (PFAS). Thousands of different PFAS have been used in industry and consumer products since the 1940s because of their useful properties. PFAS have received a lot of attention from the federal government and state environmental agencies in recent years due to concerns about their effects on the environment and human health. The problem is exacerbated by PFAS’ propensity to accumulate and persist in the environment and the human body. The most widely used historically were perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS) until they were voluntarily phased out for the most part by U.S. manufacturers. These two have been replaced in recent years with other PFAS like perfluorobutane sulfonic acid and its potassium salt (PFBS) and hexafluoropropylene oxide (HFPO) dimer acid and its ammonium salt (GenX chemicals).
PFAS have been found throughout the environment in substances to which most people in the U.S. are exposed, like drinking water, soil, and food (mainly fish and dairy products). Most study results show exposure levels to be low, but some are concerningly high. Exposures over certain levels can lead to health problems such as cancer, decreased fertility, developmental effects or delays in children, reduced immunity, cardiovascular effects, liver damage, and risk of obesity. Studies have found harmful effects to animals as well.
The first of EPA’s recent actions was the release of PFAS drinking water health advisories on 6/15/2022, consisting of interim advisories for PFOA and PFOS and final health advisories for PFBS and GenX chemicals. See 87 Fed. Reg. 36848 (6/21/2022). The advisories, which identify the concentration of chemicals in drinking water at or below which adverse health effects are not anticipated to occur, are: 0.004 parts per trillion (ppt) for PFOA, 0.02 ppt for PFOS, 10 ppt for GenX chemicals, and 2,000 ppt for PFBS.
The advisories are based on the latest scientific findings on the impacts of these PFAS and take into consideration lifetime exposure. EPA recommends that any detection of PFOA or PFOS in drinking water result in steps to reduce human exposure. For PFBS and GenX chemicals, the advisory levels are well above the level of detection. Detection above the advisory levels ideally would result in state agencies, tribes, drinking water utilities, and/or community leaders taking action to conduct additional monitoring, identify steps to reduce exposure, and inform the public.
Next, the EPA issued a final rule on 7/18/2022 updating the list of chemicals subject to toxic chemical release reporting under the Emergency Planning and Community-Right-to-Know Act (EPCRA) and the Pollution Prevention Act (PPA) to include five PFAS. See 87 Fed. Reg. 42651 (7/18/2022). This rule was issued without a public notice and comment period because EPA found good cause that that doing so would be unnecessary because the rulemaking was taken to comply with a mandate in the National Defense Authorization Act of 2020. This rule potentially affects companies that manufacture, process, or otherwise use any of the five PFAS on the list.
The third action by EPA was the 8/26/2022 release of a proposed rule to include PFOA and PFOS in the definition of “hazardous substance” under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Doing so would establish a requirement to report releases of PFOA and PFOS over the reporting threshold of one pound. See 87 Fed. Reg. 54415 (9/6/2022). It would also allow the agency to order cleanups and recover costs without having to make the “imminent and substantial danger” finding that is required currently, and private parties could pursue other potentially responsible parties to contribute to the costs to investigate and remediate PFOA and PFOS.
The rule also raises questions about whether property owners could become liable under CERCLA for PFAS on their property even if they were there accumulating years prior to ownership from an unknown source or sources. Finally, the rule could have significant impacts on Superfund site cleanups because the addition of PFOA and PFOS may require changes in plans and/or additional work. In theory, this could even affect sites that have been closed without investigation and remediation of PFOA and PFOS, requiring sites to be reopened.
The proposed rule is subject to a 60-day comment period ending on 11/7/2022. Heavy commenting by industry is expected given that the Office of Management & Budget found the rule to be “economically significant” and the U.S. Chamber of Commerce estimated the rule would cost businesses as much as $800 million annually.
Next on EPA’s list is the proposal for a National Primary Drinking Water Regulation with a maximum contaminant level for PFOA and PFOS, which EPA plans to release in the Fall of 2022. The final rule is expected by the end of 2023.
Jeremy P. Greenhouse
The Environmental Law Group
jgreenhouse@envirolawgroup.com
Jake Beckstrom
Vermont Law School, 2015
jbmnusa@gmail.com
Vanessa Johnson
Fredrikson & Byron P.A.
vjohnson@fredlaw.com
Erik Ordahl
Barna, Guzy & Steffen
eordahl@bgs.com
Federal Practice
JUDICIAL LAW
• Summary judgment; failure to specify damages; appeal dismissed for lack of jurisdiction. Where a plaintiff-employer prevailed on a motion for summary judgment, the district court awarded nominal damages and attorney’s fees to the employer but did not specify the amount of nominal damages, and one defendant filed a notice of appeal, the 8th Circuit granted the employer’s motion to dismiss the appeal for lack of jurisdiction, finding that the order was not a final judgment where the district court had yet to quantify damages. Perficient, Inc. v. Munley, 43 F.4th 887 (8th Cir. 2022).
• Failure to exercise discretion as abuse of discretion. On an appeal from the grant of the defendant’s motion for judgment on the mandate following a prior remand by the 8th Circuit, the 8th Circuit found that the trial court’s “failure to exercise discretion [was] an abuse of discretion,” and again remanded the action to the district court. Petrone v. Werner Enters., Inc., 42 F.4th 962 (8th Cir. 2022).
• Standing; multiple cases. The 8th Circuit affirmed Judge Magnuson’s denial of a motion by neighboring parties to intervene in a long-running environmental dispute to challenge an amended consent decree, finding that the proposed intervenors lacked standing because they could not show that their injuries were addressed in the original consent decree or that the amended consent decree “significantly changed” their circumstances. United States v. Reilly Tar & Chem. Corp., 43 F.4th 849 (8th Cir. 2022).
While agreeing with Judge Brasel that the plaintiffs lacked state taxpayer and county resident standing to challenge contractual arrangements between the Anoka-Hennepin School District and its teachers’ union, the 8th Circuit held that plaintiffs’ allegation that they were school district taxpayers was sufficient to confer municipal taxpayer standing. Huizenga v. Indep. Sch. Dist. No. 11, 44 F.4th ___ (8th Cir. 2022).
• FCRA; multiple dismissals affirmed. An 8th Circuit panel affirmed two FCRA-related decisions by Judge Doty on the same day.
In the first decision, the 8th Circuit agreed with Judge Doty that the plaintiff had not asserted a viable FCRA claim and that the plaintiff had “forfeited the ability to amend his pleadings” by failing to file a motion for leave to amend. Rydholm v. Equifax Info. Servs. LLC, 44 F.4th ___ (8th Cir. 2002).
In the second decision, the panel affirmed an award of summary judgment on a FCRA claim where the plaintiff’s claim of financial injury in a declaration were contradicted by her prior deposition testimony, and where her testimony regarding her alleged emotional distress was contradicted by her written admission that she had “not met with, or been examined by, any medical professional to treat or diagnose any condition caused by the events that form the basis of this litigation.” Peterson v. Experian Info. Solutions, ___ F.4th ___ (8th Cir. 2022).
• Attempt to raise new allegations in opposition to motion to dismiss rejected. Where the defendant moved to dismiss an FCRA claim described by Judge Schiltz as “frivolous,” the plaintiff amended his complaint raising a new FCRA theory, the defendant moved to dismiss the amended complaint, and the plaintiff responded to the motion by raising a third FCRA theory in opposition to the motion, Judge Schiltz found that that the amended complaint failed to state a claim, and that the plaintiff could not “keep throwing new theories up against the wall in the hope that one will stick.” Towle v. TD Bank USA, N.A., 2022 WL 3448095 (D. Minn. 8/17/2022).
• L.R. 5.6(d); sealing; settlement discussions. Granting defendants’ motion to seal an email thread relating to settlement discussions that had been publicly filed by the plaintiff, Magistrate Judge Wright found that “the interest in encouraging frank settlement communications outweighs the public’s interest in accessing the information at this stage of the case,” and ordered that the document be sealed. Sleep Number Corp. v. Young, 2022 WL 3045036 (D. Minn. 8/2/2022).
• 28 U.S.C. §1927; sanctions; local counsel. Having concluded that sanctions of almost $58,000 should be imposed against plaintiff’s counsel personally, Judge Wright exempted plaintiff’s local counsel from those sanctions, finding that local counsel did not “actively participate in vexatious conduct that the Court had found to be sanctionable,” and that the “reputational consequences of... prior orders have provided adequate sanction” to local counsel. Niazi Licensing Corp. v. St. Jude Med. S.C., Inc., 2022 WL 3701555 (D. Minn. 8/26/2022).
• Fed. R. Civ. P. 37; motion to compel granted in part; sanctions imposed. Where government defendants produced redacted documents in violation of a previous court order, Magistrate Judge Leung ordered the production of unredacted documents and sanctioned government defendants $500 for their failure to comply with the previous order. Bakambia v. Schnell, 2022 WL 3054296 (D. Minn. 8/3/2022).
• Motion for review of costs denied; deposition transcripts. Rejecting a challenge to the clerk’s award of costs for 13 deposition transcripts, Judge Wright focused on whether each deposition “appeared reasonably necessary to the parties at the time it was taken.” Nagel v. United Food & Comm. Workers Union, Local 653, 2022 WL 2801179 (D. Minn. 7/18/2022).
• Diversity jurisdiction; no requirement to allege addresses of parties. Denying the defendant’s motion to dismiss for lack of diversity jurisdiction, Judge Brasel rejected the defendant’s argument that the plaintiff was required to allege a specific address—rather than merely the citizenship—for each member of the defendant limited liability company. R.L. Mlazgar Assocs., Inc. v. Focal Point, LLC, 2022 WL 3685388 (D. Minn. 8/25/2022).
• Fed. R. Civ. P. 37; failure to attend multiple depositions; sanctions imposed. Where the corporate plaintiff’s Fed. R. Civ. P. 30(b)(6) representative and another witness failed to appear at the noticed location for their remote depositions on multiple occasions, even after they were warned that their failure to appear would result in the exclusion of evidence, Magistrate Judge Leung prohibited them from “offering any evidence by way of testimony or affidavit for any purpose” pursuant to Fed. R. Civ. P. 37, and awarded the defendants the costs associated with arranging the latter depositions. Great Gulf Corp. v. Graham, 2022 WL 2712880 (D. Minn. 7/13/2022).
Josh Jacobson
Law Office of Josh Jacobson
joshjacobsonlaw@gmail.com
Immigration Law
JUDICIAL LAW
• Ineligible for asylum and withholding of removal on account of “particularly serious crime” conviction. On 8/1/2022, the 8th Circuit Court of Appeals held the Board of Immigration Appeals and the immigration judge did not commit error when they concluded that the petitioner’s Illinois conviction—dismembering a human body after the victim was already deceased—was a “particularly serious crime” rendering him ineligible for asylum and withholding of removal. “We conclude that the IJ and the BIA applied the correct legal framework in determining that Gutierrez-Vargas’s conviction constituted a particularly serious crime.” The court also held the petitioner failed to show it was more likely than not that he would be subject to torture by members of the Zetas gang upon his return to Mexico, thus making him ineligible for Convention Against Torture (CAT) relief. Gutierrez-Vargas v. Garland, No. 21-3520, slip op. (8th Circuit, 8/1/2022). https://ecf.ca8.uscourts.gov/opndir/22/08/213520P.pdf
• Migrant protection protocols (MPP) (“Remain in Mexico”): An update. As last noted in the August 2022 edition of Bench & Bar of Minnesota, the U.S. Supreme Court ruled 5-4 in Biden, et al. v. Texas, et al., that the Biden administration’s recission of Remain in Mexico was a valid action. Consequently, the Biden administration filed an unopposed motion to vacate the U.S. District Court’s (Northern District of Texas) 8/13/2021 permanent injunction to reimplement the Migrant Protection Protocols (MPP). On 8/8/2022, U.S. District Court Judge Matthew J. Kacsmaryk granted the motion and accordingly vacated the permanent injunction. State of Texas, et al. v. Biden, et al., No. 2:21-CV-067-Z (N.D. Tex. 8/8/2022). https://litigationtracker.justiceactioncenter.org/cases/texas-v-biden-tx-rmx-district-court/order-vacating-injunction-pdf
• Public health and immigration: Update on Title 42 expulsions at the border. As last noted in the May/June 2022 edition of Bench & Bar of Minnesota, the Biden administration was sued by several states in the Western District of Louisiana seeking to halt its plan to terminate the covid-related restrictions on immigration enacted by the Centers for Disease Control pursuant to its authority under Title 42, Section 265 of the U.S. Code. On 5/20/2022, U.S. District Court Judge Robert Summerhays issued a nationwide preliminary injunction enjoining enforcement of Biden administration’s 4/1/2022 order anywhere within the United States. State of Louisiana, et al. v. Centers for Disease Control, et al., No. 6:22-cv-00885-RRS-CBW (W.D. La. 5/20/2022). https://www.courthousenews.com/wp-content/uploads/2022/05/order-granting-injunction-against-ending-use-of-title-42.pdf
On 5/23/2020, the Biden administration appealed Judge Summerhays’s decision.
ADMINISTRATIVE ACTION
• USCIS issues its final rule on public charge ground of inadmissibility. On 9/9/2022, U.S. Citizenship and Immigration Services (USCIS) issued its final rule providing guidance on assessing noncitizens’ admissibility to the United States based on their likelihood of becoming a public charge. The rule goes into effect on 12/23/2022. 87 Fed. Reg. 55472-639 (2022). https://www.govinfo.gov/content/pkg/FR-2022-09-09/pdf/2022-18867.pdf
• Extension of TPS for Venezuela. On 9/8/2022, the Department of Homeland Security (DHS) announced that Secretary Alejandro Mayorkas had extended the designation of Venezuela for temporary protected status (TPS) for 18 months from 9/10/2022 through 3/10/2024. The 60-day re-registration period for existing TPS beneficiaries will run from 9/8/2022 through 11/7/2022. 87 Fed. Reg. 55024-32 (2022). https://www.govinfo.gov/content/pkg/FR-2022-09-08/pdf/2022-19527.pdf
• More details about Liberian DED and the application process for employment authorization and travel authorization. On 6/27/2022, President Biden announced in his “Memorandum on Extending and Expanding Eligibility for Deferred Enforced Departure for Liberians” the extension of Deferred Enforced Departure (DED) through 6/30/2024 for those Liberians with DED (as of 6/30/2022) as well as expansion of DED for Liberians who have been continuously present in the United States since 5/20/2017. On 9/6/2022, USCIS published a notice with further information about DED and the application process for DED-based employment authorization and travel authorization. 87 Fed. Reg. 54515-20 (2022). https://www.govinfo.gov/content/pkg/FR-2022-09-06/pdf/2022-19207.pdf
• DHS issues its final rule on Deferred Action for Childhood Arrivals (DACA). On 8/30/2022, the Department of Homeland Security (DHS) published a final rule implementing its 9/28/2021 proposed rule (with some amendments) seeking to establish regulations to “preserve and fortify” the Deferred Action for Childhood Arrivals (DACA) program. The rule will go into effect on 10/31/2022. 87 Fed. Reg. 53152-300 (2022). https://www.govinfo.gov/content/pkg/FR-2022-08-30/pdf/2022-18401.pdf
• Extension and redesignation of Syria for TPS. On 8/1/2022, the Department of Homeland Security (DHS) announced that Secretary Alejandro Mayorkas had extended the designation of Syria for temporary protected status (TPS) for 18 months from 10/1/2022 through 3/31/2024. The 60-day re-registration period for existing TPS beneficiaries will run from 8/1/2022 through 9/30/2022. DHS also announced that the registration period for new applicants under TPS redesignation will run from 8/1/2022 through 3/31/2024. 87 Fed. Reg. 46982-91 (2022). https://www.govinfo.gov/content/pkg/FR-2022-08-01/pdf/2022-16508.pdf
R. Mark Frey
Frey Law Office
rmfrey@cs.com
Intellectual Property
JUDICIAL LAW
• Patent: Local counsel not subject to sanctions under §1927. Judge Wright recently granted in part Niazi Licensing Corporation’s motion to vacate the court’s prior order awarding attorneys’ fees and costs under 35 U.S.C. §285 and 28 U.S.C. §1927. Niazi sued St. Jude Medical S.C., Inc. in November 2017 for patent infringement. The court later granted summary judgment of noninfringement. The court then rejected a claim for sanctions under Federal Rule of Civil Procedure 11 but awarded sanctions under §285 of the Patent Act and §1927 based on the court’s inherent authority. On the record before it, the court found Niazi’s attorneys were jointly and severally liable to satisfy the sanctions award because Niazi’s local counsel’s names appeared in the signature bloc of all of Niazi’s submissions to the court, including the submissions that led the court to conclude that Niazi’s local counsel had either participated in the preparation and presentation of the sanctionable conduct or reflected an intentional or reckless disregard of local counsel’s duties to the court under Local Rule 83.5(d)(2)(A). The court then ordered St. Jude to file supplemental briefing as to the reasonable amount of attorneys’ fees and costs that should be awarded.
Niazi moved to vacate the sanctions award, arguing in part that its local counsel should not be held liable in light of the narrow scope of their responsibilities as local counsel in this case. Based on the supplemented record, the court now finds the record undisputedly demonstrates that Niazi’s local counsel did not actively participate in the vexatious conduct that the court has found to be sanctionable under Section 1927. The court further found the reputational consequences of the court’s prior orders provided adequate sanction and deterrence as to Niazi’s local counsel. Accordingly, Niazi’s local counsel is not liable for the sanction imposed by this order pursuant to 28 U.S.C. §1927. Niazi Licensing Corp. v. St. Jude Med. S.C., Inc., No. 17-cv-5096 (WMW/BRT), 2022 U.S. Dist. LEXIS 153734, (D. Minn. 8/26/2022).
• Trademark: Noninfringement of unregistered trade dress. Following a six-day bench trial, Judge Nelson recently found defendant U.S. Merchants Financial Group, Inc. did not infringe plaintiff National Presto Industries, Inc.’s unregistered trade dress. Presto sold a parabolic electric heater under the brand name “HeatDish” to Costco Wholesale Corporation. At Costco’s request, U.S. Merchants developed a parabolic electric heater under the brand name “The Heat Machine” and sold it at certain Costco locations in 2018-2019. Presto sued U.S. Merchants for various federal and state law claims, including infringement of an unregistered trade dress under the Lanham Act. To succeed on a claim for unregistered trade dress infringement under the Lanham Act, a plaintiff must demonstrate, by a preponderance of the evidence, that the claimed trade dress is distinctive or has secondary meaning and is nonfunctional, and that its imitation would likely cause confusion for consumers as to the source of the product. Based on the evidence presented, which did not include consumer surveys or customer testimony, the court found Presto had not proved its heater had established secondary meaning. Based on the evidence presented, the court found the HeatDish design was primarily functional. The court rejected the argument that the overall appearance was not functional because third-party heaters look different. The court’s analysis looked at whether the shape and design, although serving useful purposes, are primarily adopted to distinguish it from competitors. The court found no evidence was presented to show the shape and the design were developed to distinguish it from competitors. Finally, the court found Presto had not presented evidence to establish a likelihood of confusion. Accordingly, the court concluded that Presto’s trade dress infringement claim failed as a matter of law. Nat’l Presto Indus. v. U.S. Merchs. Fin. Grp., Inc., No. 18-cv-03321 (SRN/BRT), 2022 U.S. Dist. LEXIS 147797 (D. Minn. 8/18/2022).
Joe Dubis
Merchant & Gould
jdubis@merchantgould.com
Tax Law
JUDICIAL LAW
• Property tax: Matter of first impression. In a matter of first impression, the Supreme Court held that the tax-code provision of section 278.05, subdivision 3, governs and permits the county to use nonpublic data in “assessor’s records” at trial, including its expert appraisal report. This dispute arose in the context of a property owner’s challenge to the county’s valuation of the Oracle building. The property owner moved pretrial to exclude the county’s use of nonpublic data in its expert opinion assessing the value of comparable properties owned by third parties and the market value of the Oracle building. Applying de novo review to a “question [that] is an issue of statutory interpretation,” the Court explained that the “answer turns on how statutes under two separate statutory schemes interact: (1) the Data Practices Act, Minnesota Statutes sections 13.01–.90 (2020); and (2) the statutes in the tax code governing property tax litigation, particularly Minnesota Statutes section 278.05 (2020).”
Finding that the tax code provision at issue was ambiguous, the Court used relevant statutory factors to discern the Legislature’s intent. The Court reasoned that of “four persuasive indicia of legislative intent most support the County’s interpretation that section 278.05, subd. 3 permits the County to use nonpublic data in assessor’s records at trial.” In a concurring opinion joined by Justice Anderson, Justice Thissen identified the central issue as “figuring out the proper balance between... the conflict of interest created by a county’s dual roles as (1) the custodians of sensitive information of property owners necessitated by its duty to fairly assess taxes and (2) a party to litigation over the assessments and other decisions it makes in individual cases.” He warned that “[o]ur decision today does not settle the issue; if anything, it adds to the confusion.” And he admonished the Legislature to “step up” to settle this conflict that “has been percolating for over 3 decades.” G&I IX OIC LLC v. Cnty. of Hennepin, ___N.W.2d ___, 2022 WL 3640918 (Minn. 8/24/2022).
• Property tax: Failure to provide substantial evidence results in affirmance of assessment. Married taxpayers contested the assessed value of their Norman County property, alleging that the estimated market value exceeded the actual market value. While assessments are presumptively valid, a public hearing provides taxpayers with an opportunity to offer evidence and arguments to dispute the assessed value of the property. Minn. Stat. §271.06, subd. 6(a) (2020). The burden of proof falls to the taxpayer “to show that [the assessment] does not reflect the true market value of the property” to invalidate the assessment. S. Minn. Beet Sugar Coop (SMBSC) v. Cnty. Of Renville (737 N.W.2d 545, 557-58 (Minn. 2007)). While the court may consider either the sales or cost approach to valuation, a taxpayer must supply “substantial evidence” that an assessment is incorrect to overcome the presumptive validity of a real property assessment. Harmon v. Comm’r of Revenue, 894 N.W.2d 155, 159 (Minn. 2017) (citing Conga Corp. v. Comm’r of Revenue, 868 N.W.2d 41, 53 (Minn. 2015)).
In this dispute, Mr. Wagner offered no evidence, other than his own opinion testimony, that his property assessment “doesn’t make any sense to me” and admitted he had no knowledge of what his property was worth. The county assessor provided testimony regarding the fair market value and agreed with Mr. Wagner’s description of the property. The assessor further testified that her initial estimated market value, which was solely based on the exterior of the Wagner property, compared to the recent sale of a comparable property, was an incorrect valuation. An interior inspection was conducted on the Wagner property and the market value was reduced from $209,100 to $169,000. The Wagners did not cross-examine the county assessor nor provide rebuttal testimony. The county moved for involuntary dismissal on the basis that the Wagners had not established a prima facie case. The court denied the county’s motion but sustained the assessment on the grounds that the Wagners did not submit sufficient evidence to overcome the presumptive validity of the estimated market value of the subject property. Timothy Emil Wagner and Polly Wagner, Petitioners, v. County of Norman, Respt., 54-CV-20-99, 2022 WL 4015332 (Minn. T.C. 9/2/2022).
• Property tax: Valuation “as speculative as the assessment on which it is based.” A taxpayer contested the assessed value of eight diverse-size, adjacent parcels of vacant land in Forest Lake, Minnesota. Two assessment dates were at issue; the taxpayer’s appraisal valued the subject property at $515,000, while the county’s appraisal valued the subject property at $2.6 million.
The subject property was a combination of wetlands and developable uplands, oddly shaped, with varying portions zoned either commercial or residential. The value was assessed by both parties using the sales comparison approach, but the appraisals had no comparable sales in common. The parties disagreed about adjusting comparables for costs associated with installing water utilities and sewer, an access road, and for irregularly shaped developable upland. Appraiser conclusion differences mostly stemmed from differing assumptions regarding the amount a developer would be willing to pay for the property and the amount a developer would need to invest to prepare the property for sale. The appraisers agreed that, as of both assessment dates, the subject property was likely to be developed as a mixed commercial and residential development, but the appraisals disagreed as to the timing of that development. Further, neither appraiser prepared a subdivision development analysis.
The court found that the subject property’s highest and best use as of both assessment dates as for immediate development as a mixed commercial and residential development. The court then addressed the appraisers’ disagreement about how much of the subject property was developable upland as well as the appraisers’ “markedly different” adjustments to three factors in their sales comparables: utility availability, road access, and shape. The court adopted the taxpayer’s upland estimate and thoroughly discussed the treatment of utility, road access, and shape issues before turning to a sales comparison approach. The court determined an indicated value of $749, 641, which the court then distributed across the properties.
Although the court used the sales approach and resolved the dispute, the court cautioned that its use of the sales approach “does not indicate a belief either that the sales comparison approach is particularly strong in this case, or that the court’s valuation based on that approach is particularly reliable.” The court “would have preferred to rely—in part or in whole—on a subdivision development analysis” and “consider[s] [its] final valuation to be as speculative as the evidence on which it was based.” Smith v. Cnty of Washington, 82-CV-17-1819, 2022 WL 3694898 (Minn. T.C. 8/25/2022).
• Offer-in-compromise: No jurisdiction to direct IRS to process and consider offer. Plaintiffs Richard and Bonnie Dillon are nearing retirement and owe over $150,000 in income tax debt but have only about $180,000 in their combined retirement accounts. The Dillons do not challenge the liability of the tax debt. Given their economic situation, however, they submitted an offer-in-compromise. The couple acknowledged that collection in full could be achieved, but asserted that it would cause them economic hardship. The IRS rejected the Dillons’ offer-in-compromise, writing, “[w]e have determined that your offer was submitted solely to hinder or delay our collection actions which are expected to collect significantly more than the amount you have offered.”
The Dillons then brought suit in federal district court, “seeking ‘issuance of a writ or order’ directing the Internal Revenue Service to process and consider an offer-in-compromise....” The Dillons initially named three defendants, the commissioner of revenue and two individual IRS employees. The Dillons later assented to the dismissal of the individual defendants.
The IRS moved to dismiss the complaint for lack of subject-matter jurisdiction, asserting that the United States has not waived its sovereign immunity from suit in a way that would allow this case to proceed. The Dillons identified three statutes they assert confer federal subject-matter jurisdiction over the case: (1) the general federal-question statute, (2) the mandamus statute, and (3) the Administrative Procedure Act (APA). The court considered and rejected each claimed assertion of subject-matter jurisdiction. The court dismissed the case, without prejudice, for lack of subject-matter jurisdiction because, the court held, the United States has not waived its sovereign immunity with respect to the Dillons’ claims in this case. Dillon v. United States, No. 22CV00126ECTJFD, 2022 WL 3229854 (D. Minn. 8/10/2022).
• $75,000 deduction for home mortgage interest disallowed for failure to substantiate. Robert Pressman purchased a home in Southampton in 2012; that home was his primary residence until 2017. Subject to a few qualifications, taxpayers are permitted to deduct the interest they pay on their home mortgage debt. One of those qualifications is that the taxpayer must “substantiate” the payment. When Mr. Pressman attempted to deduct the home mortgage interest on his Southampton home, the commissioner challenged the deduction, asserting that Pressman had not adequately substantiated the interest payments.
The court agreed with the commissioner. Explaining that Pressman “provided limited documentation to show that he paid the claimed $75,000 of home mortgage interest,” the court held that Pressman was not entitled to the deduction. The evidence Pressman supplied, which included emails from Putnam Bridge (the mortgage holder) and a handwritten Form 1098, Mortgage Interest Statement, was insufficient. “While the emails from Putnam Bridge state that interest was ‘accrued’ and ‘charged,’ the emails do not reference actual payments.” The court also observed that “neither party could confirm that the handwritten Form 1098, Mortgage Interest Statement, was actually filed by the creditor, Putnam Bridge.” Because the court could not determine when payments were made, from what accounts payments were made, and what amounts were paid, the court did not have a reasonable basis to estimate the amount of expenses. The court upheld the accuracy-related penalties. Pressman v. Comm’r, No. 16084-19S, 2022 WL 3714615 (T.C. 8/29/2022).
• Settlement agreement taxable: Recitation in settlement agreement that compensation is for “personal injuries” insufficient to demonstrate payment was for “physical injuries” so as to exclude from income. Thomas Dern worked for over 20 years as a commissioned salesperson. In 2015, he suffered a heart attack unrelated to work. Although he returned to the job, he was ultimately terminated. Mr. Dern asserted the termination was because of his health condition and that the termination was illegal. He sued his former employer asserting 10 causes of action, including disability discrimination, intentional infliction of emotional distress, and breach of contract. The parties entered a settlement agreement in which the former employer agreed to pay $550,000 “to compensate [Mr. Dern] for alleged personal injuries, costs, penalties, and all other damages and claims.” The agreement provided that it was “for and on account of [Mr. Dern’s] claims alleging compensatory damages, emotional injuries, penalties, and punitive damages.” Mr. Dern received from his attorney about $325,000 of the settlement proceeds (attorney’s fees and costs were retained by the attorney). Despite Mr. Dern’s physical injury and the language in the settlement agreement, the court rejected Mr. Dern’s pro se argument that the settlement was “on account of physical injury” and thus not subject to income tax. Dern v. Comm’r, T.C.M. (RIA) 2022-090 (T.C. 2022).
• Tax court issues additional findings of fact and decision following remand in long running Medtronic transfer pricing dispute. The tax court issued a decision for the taxpayer in part and for the Service in part in this billion-dollar dispute. The 8th Circuit remanded after concluding that the tax court’s factual findings were insufficient to evaluate the tax court’s determination that a particular agreement was an appropriate comparable uncontrolled transaction (CUT) because the agreement involved similar intangible property and had similar circumstances regarding licensing. The tax court identified the “issues for [its] consideration… [as] (1) whether the CUT method is the best method for determining the arm’s-length rate, (2) what the proper royalty rates are for the devices and the leads, and (3) what the proper royalty rate is for devices sold pursuant to the Swiss supply agreement. In an extensive opinion, the tax court first held that the CUT method was not the best method for determining arm’s-length royalty rates for licenses. It further held that allocations of income and deductions among Medtronic and its subsidiaries and affiliates, as made in commissioner of internal revenue’s comparable profits method (CPM) analysis, were arbitrary, capricious, and unreasonable and, thus, CPM analysis was not best method for determining arm’s-length royalty rates for licenses. Finally, the court determined the proper royalty rate for the specific devices: With certain adjustments, Medtronic’s proposed unspecified method was the best method to determine arm’s-length royalty rate of 48.8 percent to apply in connection with determining appropriate allocations among the corporate taxpayer and its subsidiaries and affiliates. Medtronic, Inc. & Consol. Subsidiaries v. Comm’r, T.C.M. (RIA) 2022-084 (T.C. 2022).
Morgan Holcomb
Mitchell Hamline School of Law
morgan.holcomb@mitchellhamline.edu
Brandy Johnson
Mitchell Hamline School of Law
brandy.johnson2@mitchellhamline.edu