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Notes & Trends – October 2019

CRIMINAL LAW

JUDICIAL LAW

• Expungement: Request to waive filing fee is governed by expungement statute. Appellant petitioned to expunge records relating to a prior conviction and requested a waiver of court fees and costs. His request was denied, and the question on appeal is whether the expungement statute or the in forma pauperis statute governs the fee waiver request. The expungement statute, Minn. Stat. §609A.03, permits waiver of the expungement filing fee in cases of indigency and mandates waiver in cases in which proceedings were resolved in favor of the petitioner. Appellant, however, sought waiver under section 563.01, which governs authorization of in forma pauperis status in civil cases. 

The court of appeals holds that the fee waiver provisions in section 609A.03 apply to requests to waive the expungement filing fee. However, because section 609A.03 does not provide a standard for determining whether an individual is financially eligible for fee waiver as section 563.01 does, the court “assume[s] without deciding that an expungement action under chapter 609A is a ‘civil action’ within the meaning of section 563.01, and that the standards for determining financial eligibility for fee waiver under section 563.01 may be used to determine whether a petitioner is indigent within the meaning of section 609A.” While appellant qualifies for section 563.01’s fee waiver, a finding of indigency does not mandate a waiver under section 609A.03. In cases of indigency, under section 609A.03, a fee waiver is discretionary.

While these provisions both arguably apply yet seem to conflict, the court holds that section 609A.03 applies, as it is more specific than section 563.01’s general fee waiver provision. The court also holds that it is not error for the district court to rely on the financial standards in section 563.01 to determine whether an expungement petitioner is indigent, but the district court must base its ultimate waiver determination on the standards set forth in section 609A.03. State v. Scheffler, 932 N.W.2d 57 (Minn. Ct. App. 7/8/2019). 

DWI: Right to counsel prior to BAC test does not apply when asked to submit to a blood test pursuant to a warrant. Appellant was arrested for DWI and the police obtained a search warrant for a sample of appellant’s blood. Appellant was presented with the search warrant and read the implied consent advisory, which stated that “refusal to submit to a blood or urine test is a crime.” Appellant allowed her blood to be drawn, which later revealed a BAC over the legal limit. When she was charged with fourth-degree DWI, appellant moved to suppress the blood test results based on an alleged violation of her limited constitutional right to counsel before submitting to the test. The district court suppressed the test results. On the state’s appeal, the court of appeals reversed.

The Supreme Court addresses whether a driver arrested for DWI, read an implied consent advisory, and presented with a search warrant authorizing the search of her blood has the right to a reasonable opportunity to obtain legal advice before deciding whether to submit to chemical testing. The Court recognizes that limited right to counsel was established in Friedman v. Commissioner of Public Safety, 473 N.W.2d 828 (Minn. 1991), specifically, when the implied consent advisory is read and a suspected impaired driver is faced with deciding whether to submit to implied consent testing, the driver has a right to counsel to assist in making that decision. Friedman was decided when the implied consent law used the same procedure for blood, breath, and urine tests. Since then, the law has changed to require blood and urine tests be conducted only pursuant to a warrant or an exception to the warrant requirement. The implied consent advisory for blood and urine tests was also changed to inform drivers only that refusal to submit to a blood or urine test is a crime—unlike the breath tests advisory, which continues to require that drivers be informed of the limited right to counsel established in Friedman.

As in Friedman, appellant had the choice to refuse testing or submit to testing. However, the presence of a search warrant fundamentally changes the encounter here, as the decision whether to comply with a warrant is not a “unique decision”—every person who is the subject of a search warrant has the choice of either complying or being subjected to criminal penalties. The Court has never held that a right to counsel applies before a search warrant may be executed. The existence of a search warrant also protects against many of the concerns noted in Friedman—it protects unwarranted intrusions by the state and protects against unchecked legal power of the state by requiring the involvement of a neutral and detached magistrate. Finally, because the penalties for a DWI conviction and a test refusal conviction are “similar,” there is less need for counsel to explain “the alternative choices” and “legal ramifications.” The court of appeals is affirmed. State v. Rosenbush, 931 N.W.2d 91 (Minn. 7/10/2019).

•  Restitution: Restitution may be ordered only for losses directly caused by defendant’s crime. Appellant was charged with second-degree burglary and first-degree arson after a cabin was burglarized and destroyed in a fire. The cabin owner’s generator was found in appellant’s truck, which was pictured by a trail camera at the scene. A jury found appellant guilty of burglary. The district court found the arson was factually related to the burglary and ordered appellant to pay restitution for the destroyed cabin, and the court of appeals affirmed.

The district court considered whether the loss of the cabin shared a “factual relationship” to the burglary offense. Instead of considering whether the fire damage was “directly caused” by appellant’s burglary conduct, it considered whether the arson was “related to” the burglary.

Several statutes allow the district court to order restitution for losses that result from a crime (Minn. Stat. §§611A.01(b), .04, subd. 1(a), .045, subds. 1(a)(1), 3(a)). Cases interpreting these statutes established the general rule “that a district court may order restitution only for losses that are directly caused by, or follow naturally as a consequence of, the defendant’s crime.” Neither the district court nor the court of appeals applied that standard in this case. The case is remanded to the court of appeals for application of the proper standard—that is, the direct-causation standard. State v. Boettcher, 931 N.W.2d 376 (Minn. 7/17/2019).

• Homicide: Third-degree murder; state not required to prove defendant lacked an “intent to effect the death of any person.” Respondent was charged with third-degree murder, criminal vehicular homicide, and criminal vehicular operation after she crashed her vehicle into a city maintenance vehicle, killing one occupant and seriously injuring the other. After a stipulated facts trial, the district court found respondent guilty of all counts, finding respondent’s conduct was a suicide attempt, but that there was no evidence she intended to kill anyone else. On appeal, respondent argued the district court erred in finding she had not established a mental illness defense and that the state did not prove she acted “without intent to effect the death of any person.” The court of appeals reversed respondent’s conviction because the state failed to prove respondent acted “without intent to effect the death of any person,” which it determined to be an element of third-degree murder.

Minn. Stat. §609.195(a) (2018) provides that “[w]hoever, without intent to effect the death of any person, causes the death of another by perpetrating an act eminently dangerous to others and evincing a depraved mind, without regard for human life, is guilty of murder in the third degree…”

The Supreme Court first discusses two lines of precedent: the State v. Stokely, 16 Minn. 282 (1871) line of precedent, and the State v. Brechon, 352 N.W.2d 745 (Minn. 1984) line of precedent, both of which interpreted the precursor to the current third-degree murder statute. The Stokely line establishes that the “without” clause of the statute was not an element of the offense, while the Brechon line views the “without” clause as either an element or an affirmative defense. The Court clarifies that the Stokely line of precedent applies, and the state need not prove what follows the word “without,” when the existence of the fact referenced in the “without” clause constitutes a more serious offense. The Brechon line of precedent applies when the existence of the fact referenced in the “without” clause of the statute makes the conduct not criminal. 

The Court holds that the Stokely line of precedence applies to third-degree murder, as the existence of the fact referenced in the third-degree murder statute’s “without” clause (the defendant intended to effect the death of a person) makes the defendant’s conduct a more serious offense (second-degree intentional murder). Applying the Stokely line of precedent, the Court concludes that the third-degree murder statute does not require the state to prove beyond a reasonable doubt that the defendant lacked an “intent to effect the death of any person.” The court of appeals is reversed. State v. Hall, 931 N.W.2d 737 (Minn. 7/31/2019).

• Firearms: Person adjudicated delinquent for crime of violence may not possess firearms. As a minor, appellant was adjudicated delinquent of a fifth-degree drug offense. Three years later, as an adult, he pleaded guilty to possession of a firearm by an ineligible person. He argues his juvenile adjudication did not qualify as a “crime of violence,” and, therefore, that he was able to possess a firearm.

Minn. Stat. §624.713, subd. 1(2)’s plain language indicates that juvenile adjudication for crimes of violence falls within the statute’s scope. The statute renders ineligible to possess ammunition or firearms “a person who has been convicted of, or adjudicated delinquent or convicted as an extended jurisdiction juvenile for committing, in this state or elsewhere, a crime of violence.” The definition of “crime of violence,” however, causes tension, as it includes “felony convictions” for listed offenses. But to adopt appellant’s argument that “conviction” in the crime of violence definition excludes juvenile adjudications contradicts the plain language of section 624.713, subd. 1(2). The only reasonable interpretation is that “convictions” refers to the elements of the underlying statutory offenses, rather than the ultimate disposition. Thus, the court of appeals holds that “crime of violence” in section 624.712, subd. 5, includes juvenile adjudications for the listed offenses. Section 624.713, subd. 1(2), prohibits persons who have been adjudicated delinquent of a “crime of violence” from possessing firearms. Roberts v. State, A19-0389, 2019 WL 3770841 (Minn. Ct. App. 8/12/2019). 

• Sentencing: “Offense definitions” refers to element-based definitions of offenses in Minnesota statutes. Respondent was convicted of fifth-degree possession of a controlled substance in 2012 and first-degree sale of a controlled substance in 2016. The district court assigned one-half felony point for his 2012 conviction in calculating the sentence for his 2016 conviction. The court of appeals agreed with respondent’s interpretations of the sentencing guidelines that section 2.B.7.a requires the court to apply the element-based offenses definitions in effect when respondent committed the 2016 offense in order to determine the prior offense’s point value. The 2016 Drug Sentencing Reform Act (DSRA) changed the classification of certain fifth-degree drug offenses from felonies to gross misdemeanors. The court of appeals concluded that the state failed to prove the 2012 offense should be classified as a felony for purposes of respondent’s criminal history score, because the state did not prove the weight of drugs involved in respondent’s 2012 offense, as required under the DSRA-revised elements of the offense.

Section 2.B.7.a provides that, when calculating a criminal history score, “[t]he classification of a prior offense as a petty misdemeanor, misdemeanor, gross misdemeanor, or felony is determined by the current Minnesota offense definitions… and sentencing policies.” The Supreme Court notes that “classification” and “offense definitions” are not defined in the guidelines and looks to the dictionary definitions, the uses of the terms in section 2.B.7.a, and their use in the context of section 2.B.7 as a whole. The Court concludes that only one interpretation of section 2.B.7.a is reasonable: The phrase “offense definitions” refers to the element-based definitions of crimes. The court of appeals is affirmed. State v. Strobel, 932 N.W.2d 303 (Minn. 8/14/2019).

• 4th Amendment: Coerced anoscopy is unreasonable. At the police station after his arrest following a controlled buy, appellant was observed attempting to insert something in his rectum and a strip search revealed plastic coming from appellant’s anus. Police obtained a search warrant authorizing hospital staff to use any medical/physical means necessary to retrieve the item from appellant’s anus. Appellant refused a liquid laxative and other less-invasive measures. Appellant was then strapped down and sedated, and an anoscopy was performed, with two officers present, during which a baggie containing crack cocaine was removed. The doctor who performed the anoscopy testified at trial that no medical emergency existed at the time and that they could have waited for the baggie to exit appellant’s body through natural processes. Appealing his fifth-degree drug conviction, appellant argues the procedure by which the cocaine was removed violated his right against unreasonable searches and seizures. The district court and the court of appeals agreed that the search was reasonable under the circumstances.

The Supreme Court determines that the proper test to analyze the reasonableness of a forced anoscopy is the balancing test set forth in Winston v. Lee, 470 U.S. 753 (1985): (1) “the extent to which the procedure may threaten the safety or health of the individual,” (2) “the extent of intrusion upon the individual’s dignitary interests in personal privacy and bodily integrity,” and (3) “the community’s interest in fairly and accurately determining guilt or innocence.”

The Court finds that the first factor weighs slightly in appellant’s favor. Although minimal, an anoscopy does pose health and safety risks to the patient. The Court notes that the focus of this factor is on the risks associated with the procedure itself, not the risks associated with the baggie breaking inside of appellant. The second factor weighs very heavily in appellant’s favor. The anal cavity is undoubtedly very private, and the search involved an intrusive and forced, uncomfortable medical procedure, which two police officers witnessed. The final factor favors a conclusion that the procedure was a reasonable search. Police had a clear indication that appellant had a baggie in his rectum that possibly contained controlled substances, and obtaining the drugs from the baggie was necessary to prove the possession charge.

In balancing the three factors, the Court finds that the second factor—“the significant and serious invasion of [appellant’s] individual dignitary interests in personal privacy and bodily integrity”—outweighs the state’s need to  retrieve evidence to support the charge against appellant. The Court specifically points to the invasiveness of the procedure and the availability of far less intrusive options to recover the evidence. The Court ultimately concludes that the coerced anoscopy of appellant was unreasonable and that evidence obtained from the search must be suppressed, and remands to the district court for a new trial. State v. Brown, 932 N.W.2d 283 (Minn. 8/14/2019).

•  4th Amendment: Compliance with substantive requirements of section 626a.42 for obtaining cell-site location information evidence is sufficient. Appellant was convicted of premeditated first-degree murder and attempted premeditated first-degree murder for shooting multiple times at O.J., who died from multiple gunshot wounds, and A.A., who survived a gunshot to the head. Police used cell-site location information evidence and Gladiator Autonomous Receiver (GAR) drive-test evidence to confirm that appellant was located near the shootings when O.J. and A.A. were shot.

Appellant argues the state obtained the CSLI evidence in violation of Minn. Stat. §626A.42 and the 4th Amendment, while the state argues it complied with the substantive requirements of section 626A.42 when it obtained the evidence under section 626A.28. Section 626A.28 addresses how the state may obtain some types of cellular data, while section 626A.42 governs how the state may obtain “location information” relating to an electronic device. Except under certain circumstances, inapplicable here, a tracking warrant must be used to obtain location information, and a tracking warrant may be issued only if the state shows probable cause to believe “the person who possesses an electronic device is committing, has committed, or is about to commit a crime.” Minn. Stat. §626A.42, subd. 2. Under section 626A.28, the cellular data may be obtained with a warrant or, if prior notice is made to the subscriber or customer, with a court order if the state has shown “reason to believe the contents of a wire or electronic communication, or the records or other information sought, are relevant to a legitimate law enforcement inquiry.” 

The state applied for and obtained appellant’s CSLI evidence under section 626A.28, and did not obtain a warrant for the information under section 626A.42. However, the state complied with the substantive requirements of 626A.42, and the district court concluded there was probable cause. The Supreme Court finds both the state’s application and the district court’s finding of probable cause were valid. Thus, the Court finds the state did not obtain the CSLI evidence in violation of section 626A.42.

In Carpenter v. United States, 138 S.Ct. 2206 , 2217, 2221 (2018), the United States Supreme Court held that “an individual maintains a legitimate expectation of privacy in the record of his physical movements as captured through CSLI,” that “location information obtained from [the defendant’s] wireless carriers was the product of a search,” and “that the Government must generally obtain a warrant supported by probable cause before acquiring such records.” In appellant’s case, however, the district court did make a probable cause determination. Thus, the Supreme Court holds that the police did not violate the 4th Amendment when they acquired appellant’s CSLI evidence.

Appellant also argues the CSLI and GAR drive-test evidence should not have been admitted under Minn. R. Evid. 702. Rule 702 allows for the admission of expert testimony to assist the factfinder in understanding scientific or technical evidence, if it has foundational reliability. The rule also states that “if the opinion or evidence involves novel scientific theory, the proponent must establish that the underlying scientific evidence is generally accepted in the relevant scientific community.” The threshold question is whether the scientific theory or technique is novel. The Court clarifies that whether a scientific technique is novel is “not determined merely by reference to what Minnesota appellate courts have addressed in the past,” but, “[r]ather,… whether the technique is ‘new’.” The Court confirms that CSLI is not novel. Because the threshold requirement is not met, the Court does not address whether the underlying scientific theory has been generally accepted in the relevant scientific community. Based on the investigating agent’s testimony at the Frye-Mack hearing, the Court concludes that the district court did not abuse its discretion in determining that the agent’s opinion based on the CSLI had foundational reliability.

As to the GAR drive-test evidence, the Court does not decide whether the evidence is novel or generally accepted in the relevant scientific community, finding the admission of the evidence harmless under the circumstances of this case. The investigating agent’s testimony based on the CSLI evidence, combined with other admissible evidence, overwhelmingly placed appellant in the vicinity of the shootings when they took place. So there is no reasonable possibility that it substantially affected the jury’s decision.

The Court also affirms the district court’s denial of appellant’s Batson challenge and rejects appellant’s pro se arguments, ultimately affirming appellant’s convictions. State v. Harvey, No. 18-0205, 2019 WL 4051638 (Minn. 8/28/2019).

• Evidence: Fairness analysis required to determine if entire recorded interview should be introduced. Appellant went to trial for a charge of second-degree criminal sexual conduct arising from his children’s mother’s allegation that he sexually abused their children. Prior to being charged, appellant was interviewed by police and appellant repeatedly denied the allegations, asserting his children’s mother was planting the allegations in the kids’ heads as a “retaliation thing.” At trial, the state requested to play a limited portion of the interview, specifically, the portion during which the state alleged appellant lied about the living arrangements with his children. Appellant objected and asked that the entire recording be played. The district court allowed the state to play the short portion of the recorded interview. Appellant testified about his repeated denials of the allegations during his police interview, and he was cross-examined about the interview. The jury found appellant guilty. His postconviction petition was denied, and he appealed, arguing the state should have been required to play the entire recording of his police interview.

Minn. R. Evid. 106 provides that “[w]hen a writing or recorded statement or part thereof is introduced by a party, an adverse party may require the introduction at that time of any other part or any other writing or recorded statement which ought in fairness to be considered contemporaneously with it.” Upon an adverse party’s demand that an entire recording be played pursuant to this rule, the district court must begin with the presumption that the adverse party has the right to demand that the entire statement be introduced and then conduct a fairness analysis to determine whether introducing the entire statement is appropriate. The court of appeals points to four fairness factors, delineated in federal case law, for a district court to consider: whether the entirety of the recording is necessary to “(1) explain the admitted portion, (2) place the admitted portion in context, (3) avoid misleading the trier of fact, or (4) insure a fair and impartial understanding.”

Here, the district court did not conduct any form of fairness analysis. Thus, it was an abuse of discretion for the court to deny appellant’s request under Rule 106. This error was not harmless beyond a reasonable doubt. A key question in this case involved witness credibility, and presenting the entire interview could have given credibility to the testimony appellant presented at trial. Of particular importance is the fact that the state asked appellant a number of questions about the portion of his interview not played for the jury, leaving the jury unable to evaluate the state’s questions and appellant’s answers within the context of the interview as a whole. Reversed and remanded for a new trial. Dolo v. State, No. A19-0063, 2019 WL 3884276 (Minn. Ct. App. 8/19/2019).

• Evidence: Defendant bears burden of proving reasonable possibility that improper opinion testimony significantly affected verdict. Appellant forcibly raped T.H. multiple times in the presence of his girlfriend and directed his girlfriend to rape T.H., after they all spent the night drinking together. T.H. went to the hospital for an examination following the assault and spoke with police. Police searched appellant’s home after obtaining a search warrant. Appellant and his girlfriend were arrested, and, while in custody, appellant was interviewed and denied any sexual contact or intercourse with T.H. Police also analyzed appellant’s phone, finding pornographic images showing violence towards women. At trial, appellant testified that he and T.H. had consensual intercourse. The detective testified at trial, among other things, about the photographs found on appellant’s phone—which, the detective suggested, showed appellant’s general propensity for violence toward women and which, the detective testified, corroborated T.H.’s story about what happened. The detective referenced a report he wrote analyzing the data retrieved from appellant’s phone, which the defense never received from the state, although the defense did receive the actual cell phone data itself. The defense moved for a mistrial, but the district court denied the motion. The jury was instructed to ignore the detective’s opinions about whether appellant’s possession of the pornographic images made him more likely to rape T.H. and the court instructed the state not to refer to the photographs or the detective’s opinion testimony. The jury convicted appellant of two counts of first-degree criminal sexual conduct and false imprisonment. The court of appeals affirmed.

Appellant argues before the Supreme Court that he was deprived of a fair trial because the detective improperly testified and offered opinions about the photographs on appellant’s phone. The parties do not dispute that the detective’s opinion testimony concerning the pornographic images should not have been admitted and prejudiced appellant. However, the question is whether there is a reasonable possibility the wrongfully admitted evidence significantly affected the verdict, and the burden of proof rests on appellant. The Supreme Court rejects appellant’s argument that the state bears the burden of proving the detective’s opinion testimony was not prejudicial. The Court distinguishes State v. Cox, 322 N.W.2d 255 (Minn. 1982), which held that “[s]tatements of a court official about the merits of a criminal case raise a rebuttable presumption of prejudice,” because Cox involved the jury’s exposure to potentially prejudicial material outside of the trial process. In appellant’s case, the detective’s opinion testimony was given while he was on the stand and subject to cross-examination.

The Court then examines the entire record and determines that appellant did not establish that there is a reasonable probability that the detective’s opinion testimony significantly affected the verdict. The Court notes that the prosecutor’s conduct in eliciting improper testimony from the detective and not disclosing the detective’s report to the defense is troubling. However, there is “strong evidence supporting T.H.’s testimony at trial and pointing to [appellant’s] guilt,” and the district court instructed the jury twice to disregard the detective’s improper testimony. Appellant’s conviction is affirmed. State v. Jaros, No. A18-0039, 2019 WL 3940200 (Minn. 8/21/2019).

• Predatory offender registration: “Leaves a primary address” means living arrangement at primary address has come to an end. Appellant was required to register as a predatory offender for a 2014 solicitation of a child conviction, and signed a form acknowledging his duty, if he did not have a primary address, to report to law enforcement where he will be staying within 24 hours of leaving his former primary address. He registered a motel room as his primary address, but after four months the credit card he used to rent the room was declined and he was locked out of the room on 4/3/2015. Three days later, on 4/6/2015, appellant was arrested during an unrelated traffic stop and the next morning, the jail updated his registered primary address to the county jail, as of 4/7/2015. Appellant did not contact his probation officer or the motel manager during April 3-6, but he did contact the motel manager sometime after April 6 to arrange to pick up his belongings from the motel. A jury found appellant guilty of failing to register. The court of appeals affirmed his conviction, finding sufficient evidence to support the conviction because appellant knew of the registration requirements and did not make arrangements to continue living at the motel when his credit card was declined.

The registration requirement at issue involves an offender leaving a primary address. When leaving a primary address without a new primary address, the offender is required to register with the law enforcement authority that has jurisdiction in the area where the offender is staying within 24 hours of the time the offender no longer has a primary address. A knowing violation of this requirement is a felony. To decide whether the evidence was sufficient to support appellant’s conviction, the Supreme Court determines what it means to “leave[] a primary address” under Minn. Stat. §234.166, subd. 3a(a). 

The Court finds that, based on other language in section 243.166, the Legislature intended “leaves” to mean more than a temporary departure. There must be a definitive change in an offender’s primary living arrangement. The Court defines “leaves a primary address” to mean “that an offender’s living arrangement at the primary address has come to an end.”

Finally, the Court concludes that the circumstances proved allow a reasonable inference that appellant did not know his living arrangement at the motel had been terminated during the 3-day period between April 3 and April 6, 2015. It is reasonable to infer appellant was unaware of the declined charge for the room after the card had been used successfully for four months: Appellant was not in his room when he was locked out by the manager; his belongings were in the room, suggesting he intended to stay; and the manager did not speak to appellant until after April 6. Thus, the state presented insufficient evidence to support appellant’s conviction for knowingly failing to register within 24 hours. State v. Alarcon, No. A17-1325, 2019 WL 3939858 (Minn. 8/21/2019).

Samantha Foertsch  Bruno Law PLLC

Stephen Foertsch  Bruno Law PLLC


EMPLOYMENT & LABOR LAW

JUDICIAL LAW

• Retaliation, discrimination cases falter. The 8th Circuit Court of Appeals recently affirmed dismissal of five retaliation and discrimination cases. An employee who was fired after engaging in a workplace outburst lost her claim of retaliation for terminating her following her exercise of rights under the Family & Medical Leave Act (FMLA). The long time between her return from FMLA leave and the termination “severed” any connection between exercising her FMLA rights and the claimed retaliation. Lovelace v. Washington University School of Medicine, 931 F.3d 698 (8th Cir. 7/25/2019).

Individuals who are not decision makers could not be liable for retaliation against an employee who failed to establish any claimed sexual harassment and also did not show that her employer’s non-discriminatory reason for termination was pretextual. Mahler v. First Dakota Title Limited Partnership, 931 F.3d 799 (8th Cir. 7/31/2019).

Claims of age and sex discrimination were dismissed because the evidence showed that the actions of the employee’s supervisor were not motivated by age or gender, and they were treated similarly to other available employees. The employee’s claim of wrongful denial of promotion was not viable because the employer hired others who were more qualified for the position that the employee sought. Heisler v. Nationwide Mutual Insurance Company, 931 F.3d 786 (8th Cir. 7/30/2019).

A race discrimination claim based on a failure to hire the claimant for a temporary permanent position was dismissed because candidates with better mechanical experience were hired for a chemical equipment repair job. The employee’s claim, therefore, lacked merit because the other candidates who were hired for the position were “more qualified.” Farver v. McCarthy, 931 F.3d 808 (8th Cir. 7/31/2019).

An employee’s discrimination claim was dismissed after she was laid off, pursuant to her company’s restructuring. The reorganization was not pretextual, which vitiated the employee’s discrimination claim. Lacey v. Norac, Inc., 932 F.3d 657 (8th Cir. 7/30/2019).

• Workers compensation; statute of limitation bars claim. A former player for the Minnesota Vikings, now suffering from dementia, lost his worker’s compensation claim. Reversing the Worker’ Compensation Court of Appeals (WCCA), the Minnesota Supreme Court held that the ex-Viking did not know that the medical treatment provided to him by the team constituted an acceptance of responsibility for a later-diagnosed Gillett injury dating back to his last day with the team in 1992, 23 years before he brought his workers compensation claim. The employer’s medical treatment did not constitute a “proceeding” in order to satisfy the statute of limitations under Minn. Stat. §176.151. Noga v. Minnesota Vikings Football Club, 931 F.2d 801 (8th Cir. 7/31/2019).

• Whistleblower claim; adverse action established. Conducting an investigation and placing a police officer on leave for nine months, seven months beyond the completion of the investigation, followed by a five-day suspension, constituted adverse action for proceeding under the Minnesota Whistleblower Act, Minn. Stat. §181.932. Reversing the trial court, the court of appeals held that there was a genuine issue of material fact whether the city’s action improperly penalized the officer and whether the city’s reason for the lengthy leave was pretextual, thus remanding the case for trial. Moore v. City of New Brighton, 2019 WL 3406314 (8th Cir. 7/29/2019) (unpublished).

• Unemployment compensation; four employees lose. A quartet of employees lost claims before the Minnesota Court of Appeals for unemployment compensation benefits. A hospitality server was not entitled to unemployment benefits after she was discharged for inaccurate transactions. Entering the wrong amounts into the cash register in violation of the facility’s policy constituted disqualifying misconduct. Felien v. VFW Richfield Fred Babcock Post 5555, 2019 WL 3407179 (Minn. Ct. App. 7/29/2019) (unpublished).

Denial of benefits for a charter school employee who quit her job was upheld. The employee was not deprived of due process by the unemployment law judge (ULJ), nor entitled to an additional hearing on the merits. Carson v. PACT Charter School, 2019 WL 3407167 (Minn. Ct. App. 7/29/19) (unpublished). 

A truck driver whose negligence caused extensive damage to his company’s dump truck was denied benefits due to rejection of his claim that the incident was attributable to a mechanical defect. Butler v. Mahkakta Trucking, 2019 WL 3293795 (Minn. Ct. App. 7/22/2019) (unpublished).

The failure of an applicant to timely file an appeal through the online system barred the claim after the employee did not properly touch the portion of the screen to confirm the filing. Kraker v. CentraCare Health Systems, 2019 WL 3293799 (Minn. Ct. App. 7/22/2019) (unpublished).

Marshall H. Tanick  Meyer, Njus & Tanick

 

ENVIRONMENTAL LAW

ADMINISTRATIVE ACTION

• EPA issues proposed rule updating CWA 401 certification requirements. The U.S. Environmental Protection Agency (EPA) published a proposed rule updating and clarifying regulations in 40 C.F.R. §121 regarding substantive and procedural requirements for water quality certification under section 401 of the Clean Water Act (CWA). Section 401 prohibits a federal agency from issuing a permit or license to conduct activity that may result in any discharge into navigable waters unless the state (or authorized tribe) in which the proposed discharge would occur certifies that the discharge complies with applicable state water quality requirements. 

Most notably, EPA’s proposed regulations would narrow the scope of 401 certifications to focus on the actual “discharge” necessitating the federal permit rather than the overall activity of which the discharge is a part. This would represent a significant departure from the scope advanced in the U.S. Supreme Court’s 1994 opinion in Public Utility District No. 1 of Jefferson County v. Washington Department of Ecology, which held that the statute “is most reasonably read as authorizing additional conditions and limitations on the activity as a whole once the threshold condition, the existence of a discharge, is satisfied” (emphasis added). EPA justifies its proposed change in interpretation of the scope of section 401 certifications because the EPA regulations guiding the high court’s decision pre-dated the 1972 CWA. In addition, EPA argues that the court would apply Chevron deference to EPA’s new proposed interpretation of section 401’s scope. 

Other proposed changes from EPA’s current regulations include clarifying procedures regarding the time period in which a state or tribe must issue or waive certification. The agency has solicited public comments on the proposed rule, which must be submitted to EPA by 10/21/2019.  84 Fed. Reg. 44080 (8/22/2019).

•  Federal agencies publish key revisions of Endangered Species Act. On 8/12/2019, the U.S. Fish and Wildlife Service (FWS) and the National Marine Fisheries Service (NMFS) (the Services) published final rules amending three key aspects of the federal regulations that implement the Endangered Species Act (ESA). 16 U.S.C. §1531 et seq. The revisions consist of altering the process of the determination of listing species and designating critical habitat under Section 4, removing the blanket prohibition of “take” of threatened species under Section 4(d), and streamlining the consultation process for federal agencies under Section 7.

The final rules modify procedures under ESA Section 4 followed by the Services when listing and delisting species as well as designating critical habitat. First, the new rule removes the prohibition against referencing the economic impacts resulting from a listing decision. The revisions also clarify that the Services would list a species as “threatened” if it is determined to a probable extent that the species is likely to become endangered within the “foreseeable future.” Under this definition, the foreseeable future means “only so far into the future as the Services can reasonably determine that both the future threats and the species’ responses to those threats are likely.” Another proposed change emphasizes that the Services would ensure the standard for delisting potential species shall be the same as the standard for listing species. Finally, during determination of critical habitat, the regulations require the Services to first consider all areas of occupied habitat of the species, then to consider areas of unoccupied habitat only if the unoccupied habitat is necessary to ensure the conservation of the species. This represents a change from the current process, in which unoccupied areas are automatically considered for critical habitat designation.

The FWS issued a separate revision to ESA Section 4(d) that rescinds the “blanket 4(d) rule” of protection for threatened species that had previously given threatened species the same protection as endangered species automatically. The NMFS has never employed the blanket rule, so this new revision aligns the practices of the Services. The FWS will determine on a species-specific basis the protective regulations, including the take prohibition, for newly listed threatened species.

The modifications to ESA Section 7 adjust and streamline how other federal agencies consult with the Services to ensure agency actions do not jeopardize protected species or result in “destruction or adverse modification” of critical habitat. The revisions include: clarifying the definition of “destruction or adverse modification of critical habitat;” creating a “but for” standard to determine the “effects of an [agency] action;” and establishing a clear standard for “environmental baseline” to further improve the consultation process by providing clarity and consistency.

These rules become effective 30 days after publication in the Federal Register. Docket No. FWS–HQ–ES–2018–0006; Docket No. FWS–HQ–ES–2018–0007; Docket No. FWS–HQ–ES–2018–0009.

• EPA and Corps restore pre-2015 definition of “waters of the United States.” On 9/12/2019, the U.S. Corps of Engineers (Corps) and the EPA announced a final rule repealing the Obama-era 2015 rule that significantly revised the definition of “waters of the United States” (WOTUS) under the CWA. In addition, the rule recodifies the regulatory text that existed prior to the 2015 rule. WOTUS is a key term under the CWA because it establishes the jurisdictional reach of various CWA programs, including the NPDES and Section 404 permit programs. Following an early-2018 decision by the U.S. Supreme Court that held challenges to the 2015 rule must proceed in the federal district courts, not the circuit courts, the applicability of the rule has varied from state to state depending upon whether the state is subject to a district court stay of the rule. Minnesota is among the states where the 2015 rule is not subject to a stay and is thus currently in effect. That will change when the agencies’ September 12 final rule becomes effective 60 days after publication in the Federal Register. At that time, all states, including Minnesota, will be subject to the pre-2015 rule. Approved jurisdictional determinations (AJDs) made pursuant to the 2015 rule will remain effective through their five-year expiration date; however, possessors of an AJD may request a revised AJD pursuant to the reinstated pre-2015 rule.

EPA and the Corps’ rationale for withdrawing the 2015 rule, set forth in the agency’s preamble to the final rule, is, in part, that the 2015 rule was overly broad and beyond the agencies’ statutory authority and that repealing the 2015 rule avoids interpretations of the CWA that “push the envelope of their constitutional and statutory authority absent a clear statement from Congress authorizing the encroachment of federal jurisdiction over traditional State land-use planning authority.” On 2/14/2019, the agencies proposed a revised definition of WOTUS to replace the pre-2015 Rule and are in the process of reviewing voluminous public comments on that proposal. 

• EPA proposes methane regulation changes for oil and natural gas industry. The EPA announced proposed “reconsideration” amendments to the agency’s 2012 and 2016 New Source Performance Standards (NSPS) for the oil and natural gas industry. 40 C.F.R. pt. 60, subp. OOOO (2012 NSPS) and OOOOa (2016 NSPS). EPA is required to set NSPS for categories of industrial facilities that it deems a source of significant air pollution. The original 1979 source category for the oil and gas industry included only the production and processing segments of the industry. However, with the 2012 and 2016 NSPS, the Obama-era EPA interpreted the source category to also include the transmission and storage segment of the industry. With the proposed amendments, EPA plans to restore the agency’s original interpretation and remove sources in the transmission and storage segment from the scope of the NSPS, arguing that the EPA erred when it expanded the source category in 2012 and 2016. 

By removing transmission and storage sources from the scope of the 2012 and 2016 NSPS, EPA is also rescinding emissions limits that currently apply to those sources, including limits on methane and volatile organic compounds (VOCs) emissions, both of which are significant contributors to climate change. The proposed amendments also rescind methane-specific requirements in the production and processing segments; EPA’s rationale is that the controls needed to reduce VOC emissions also reduce methane at the same time, so separate methane limitations for these segments of the industry are redundant. Practically speaking, the amendments would eliminate federal requirements to investigate and address methane leaks from wells, pipelines, and storage facilities. 

As an alternative, EPA proposes to rescind all methane requirements from NSPS applicable to new and continuing oil and gas sources without removing any sources from the source category. This alternative would retain VOC standards for both the production and processing segment and the transmission and storage segment, again on the basis of EPA’s conclusion that methane regulation is redundant because VOC controls also reduce methane emissions. 

EPA will accept public comments for 60 days following publication in the Federal Register and will hold a public hearing in Texas. Details about the public hearing have not yet been released. Docket No. EPA-HQ-OAR-2017-0757 (8/28/2019).

Jeremy P. Greenhouse The Environmental Law Group, Ltd.

Jake Beckstrom Vermont Law School, 2015

Erik Ordahl Flaherty & Hood, P.A. 

Audrey Meyer  University of St. Thomas School of Law, J.D. candidate 2020

 

FAMILY LAW

JUDICIAL LAW

• Court of appeals questions ongoing viability of conduct-based claims for attorney’s fees. Family law practitioners have long taken for granted that Minn. Stat. §518.14 authorizes courts to award attorney’s fees on two bases—first, where one party has need and the other an ability to contribute (need-based); and second, where one party unreasonably contributes to the length and expense of litigation (conduct-based). But in several recent cases, the Minnesota Court of Appeals has raised doubts as to whether Minn. Stat. §518.14 independently authorizes an award of conduct-based fees. 

The issue first came to the fore in Anderson v. Anderson, in which the Supreme Court granted a litigant fees based on the court’s inherent authority after an appellant changed their legal theory at oral argument (No. A16-2006, order (Minn. 8/6/2018)). In its award of fees, the Supreme Court declined to base its award on Minn. Stat. §518.14, and Chief Justice Gildea in dissent expressly rejected arguments that the statute authorized a grant of conduct-based fees. In two subsequent cases the court of appeals cited Anderson but noted that because neither party had raised the issue, the court would assume without deciding that statute authorized an award. What is uncertain is whether such an assumption can withstand scrutiny. Tiedke v. Tiedke, No. A18-1492, 2019 WL 3545816 (Minn. Ct. App. 8/5/2019); Madden v. Madden, 923 N.W.2d 688 (Minn. App. 2019).

•  Court must grant notice and an opportunity to be heard before appointing a guardian under Minn. R. Civ. P. 17.02. Husband filed for divorce in October 2017, and after an unsuccessful attempt at mediation the parties began preparing for trial. Throughout the discovery process, wife sought several continuances, and later experienced a medical emergency during husband’s deposition. Husband moved to compel discovery, and wife cited “ongoing significant health issues” as the basis for her failure to fully respond. At the hearing on husband’s motion to compel, he requested a guardian be appointed for wife. The district court initially denied husband’s request, but appointed a guardian three months later after wife requested the trial be continued. Prior to issuing its order, the court held only an off-the-record telephone conference and did not provide wife notice or a hearing on the record. 

Wife appealed, and husband moved to dismiss the appeal as moot—offering to stipulate to the removal of the guardian. The court of appeals denied husband’s motion, holding that his stipulation was not, in itself, sufficient to ensure the guardian’s removal. The appellate court then proceeded to reverse the district court, reasoning that whenever an adverse party seeks appointment of a guardian, notice of a hearing is always required regardless of the familial relationship so long as the party is not a minor and has never been previously adjudicated incompetent. C.f. Minn. R. Civ. P. 17.02 (permitting a guardianship application by a spouse to be considered with or without notice). The court of appeals grounded its conclusions in the text, history, and purpose of the rule, as well as wife’s liberty interest in maintaining personal control over the dissolution proceeding. Wiel v. Wahlgren, No. A18-1865, ___ N.W.2d ___ (Minn. Ct. App. 9/3/2019).

• Intended, non-biological mother is not a “parent” under Minnesota’s Parentage Act. The parties are an unmarried, same-sex couple who conceived three children through artificial insemination. As a result, only one partner was biologically related to the children. When their relationship ended, the non-biological mother petitioned to establish a parent-child relationship under Minnesota’s Parentage Act (Minn. Stat. ch. 257), arguing she had received the children into her home and held them out as her own. See Minn. Stat. §257.55, subd. 1(d) (providing such a presumption for father-child relationships); Minn. Stat. §257.71 (applying the presumptions in Minn. Stat. §257.55 to mother-child relationships “insofar as practicable”). Alternatively, non-biological mother sought custody as an interested third-party (Minn. Stat. 257C). The district court denied both claims for relief, but awarded non-parent visitation under Minn. Stat. §257C.08. Non-biological mother appealed, supported by an amicus brief from the Minnesota Lavender Bar Association.

The Minnesota Court of Appeals affirmed the district court, and rejected non-biological mother’s equal protection challenge to the Minnesota Parentage Act. As to the Parentage Act, the court of appeals stressed that it recognizes parent-child relationships only between “biological” or “adoptive” parents. Thus, the holding-out presumption in Minn. Stat. §257.55, subd. 1(d) applies only where a man holds a child out as his “biological child.” Here, the court reasoned, non-biological mother had stipulated she was not the children’s biological parent, thus rendering application of the paternity presumptions impracticable. In reaching its conclusion, the appellate court distinguished its prior holding in In re the Welfare of C.M.G., which seemed to discount the importance of biology in establishing parentage—emphasizing instead that the purpose of the parentage act is to “find the biological father.” 516 N.W.2d 555. The appellate court went on to reject non-biological mother’s equal protection challenge, arguing the Parentage Act served the important government interest of protecting children, and that its distinction between parents based on sex served that purpose by creating a system in which “those having a legal relationship with the child may be identified and declared the parent of the child.” Finally, the court of appeals rejected non-biological mother’s claims under Minnesota’s third-party custody statute, observing that non-biological mother’s intimate and longstanding relationship with the children did not rise to the level of “extraordinary circumstances,” which have traditionally required some degree of abuse, danger, or neglect of a child’s special needs. In re the Custody of N.S.V., L.J.V., and E.T.V., No. A18-0990 (Minn. Ct. App. 9/16/2019).

Michael Boulette  Barnes & Thornburg LLP

 

FEDERAL PRACTICE

JUDICIAL LAW

• 28 U.S.C. §1332(d)(4)(A)(i)(II)(aa)-(bb); CAFA; local controversy exception. Rejecting the plaintiff’s appeal from the district court’s denial of his motion to remand a putative class action that had been removed under CAFA, the 8th Circuit found no error in the district court’s consideration of extrinsic evidence in determining whether the claims against the local defendants provided a “significant basis” for the plaintiff’s claims, and rejected a 9th Circuit decision that held otherwise. Atwood v. Peterson, ___ F.3d ___ (8th Cir. 2019). 

•  Fed R. Evid. 702; Daubert; no error in admitting expert testimony absent testing. The 8th Circuit found no abuse of discretion in a district court’s decision to admit expert testimony on ladder design where the expert had not tested the damaged ladder or an exemplar ladder, distinguishing a number of previous decisions where the 8th Circuit had found that “speculative” expert testimony was properly excluded. Klingenberg v. Vulcan Ladder USA, LLC, ___ F.3d ___ (8th Cir. 2019). 

• Class action; attorney’s fees; lodestar multiplier. The 8th Circuit found no abuse of discretion in a district court’s award of attorney’s fees to class counsel equal to 28 percent of the common fund, even where the corresponding lodestar multiplier for the award was 5.3. Rawa v. Monsanto Co., ___ F.3d ___ (8th Cir. 2019). 

• Alleged failure to attend deposition; sanction reversed. In an unpublished opinion, the 8th Circuit reversed the dismissal of an action as a sanction for the pro se plaintiff’s alleged failure to appear at his deposition, where the plaintiff appeared for his deposition as noticed, but left one day at 5 p.m. to go to work, because the plaintiff did not “fail to appear,” and because the district court had failed to consider a lesser sanction. Akins v. Southern Glazer’s Wine and Spirits of Ark. LLC, ___ F. App’x ___ (8th Cir. 2019). 

• First-filed rule; “compelling circumstances;” first-filed action transferred. Judge Brasel found that several “red flags” were present which warranted application of the “compelling circumstances” exception to the first-filed rule, and that the plaintiffs in the second-filed action had given the defendants substantial notice of their intent to file an action if mediation did not resolve the parties’ dispute, while the plaintiffs in the first-filed action had won the race to the courthouse (by less than two hours) but had not provided similar notice of their intent to file if the mediation failed. Arctic Cat Inc. v. Speed RMG Partners, LLC, 2019 WL 3858649 (D. Minn. 8/16/2019). 

•  Motion to proceed under a pseudonym granted. Reversing a decision by Magistrate Judge Brisbois, Judge Wright granted the plaintiff’s motion for a protective order allowing her to proceed under a pseudonym where the plaintiff alleged that she was a juvenile victim of sexual assault, rejecting the argument that her identification in a Facebook post was “so widely known” that it overrode her “substantial interest” in her privacy. Doe v. North Homes, Inc., 2019 WL 3766380 (D. Minn. 8/9/2019). 

•  Motion to dismiss for lack of personal jurisdiction denied. Chief Judge Tunheim denied Wisconsin defendants’ motion to dismiss for lack of personal jurisdiction, finding the corporate defendant’s solicitation of business and online presence in Minnesota, and the individual defendant’s regular correspondence with and acceptance of over $312,000 from Minnesotans, made the defendants subject to jurisdiction. Ahlgren v. Link, 2019 WL 3574598 (D. Minn. 8/6/2019). 

•  Diversity jurisdiction; citizenship; pre-filing versus post-filing conduct. Where a Minnesota citizen brought a diversity action against a former Minnesota citizen who had established a domicile in Arizona prior to commencement of the action, Judge Schiltz rejected the defendant’s challenge to the court’s diversity jurisdiction and his post-filing attempts to characterize himself as a Minnesota domiciliary. Volk v. Wigen, III, 2019 WL 3284671 (D. Minn. 7/22/2019). 

•  Indigent plaintiff; motion for protective order regarding location of deposition denied. Where the deposition of plaintiff who had been previously granted IFP status was noticed for Minneapolis, and she sought a protective order claiming that she could not afford to travel from her home in Arizona for the deposition while offering only “conclusory statements” regarding her finances, Magistrate Judge Wright denied the plaintiff’s motion and ordered her to appear for her deposition in Minneapolis. Rodriguez v. PJ Hafiz Club Mgmt. Inc., 2019 WL 3001631 (D. Minn. 7/10/2019). 

•  Diversity jurisdiction; fraudulent joinder claim rejected; request for attorney’s fees denied. Resolving “all doubts about federal jurisdiction in favor of remand,” Judge Wright rejected defendants’ claims of fraudulent joinder and remanded the action to the Minnesota courts. However, Judge Wright denied plaintiffs’ request for an award of attorney’s fees pursuant to 28 U.S.C. §1447(c), finding that defendants’ position was not “objectively unreasonable.” Tenenbaum v. Bialick, 2019 WL 3822311 (D. Minn. 8/15/2019). 

• Motion to withdraw admissions granted; calendaring error. Where the defendants failed to timely respond to the plaintiff’s requests for admissions and plaintiff’s counsel denied their requests for a brief extension, Magistrate Judge Leung granted defendants’ motion to withdraw admissions, expressing his “surprise” that the parties were unable to resolve this issue “without intervention of the Court.” Metzger v. Seterus, Inc., 2019 WL 4166793 (D. Minn. 9/3/2019). 

Josh Jacobson  Law Office of Josh Jacobson 

 

INDIAN LAW

JUDICIAL LAW

• Preliminary injunction against tribal-court action against nonmember oil-and-gas companies. Nonmember companies entered leases with tribal members to mine oil and gas on allotted lands that the United States held in trust for the members. The members sued the companies in tribal court alleging breach of the leases. The companies moved the tribal court to dismiss the proceedings for lack of jurisdiction and appealed denial of that motion. The tribal appellate court held, inter alia, that the tribal court had jurisdiction over the companies under the “consensual relationship” exception to the general Montana v. United States rule that tribal courts lack jurisdiction over nonmembers. Following that decision, the companies sued the tribal court plaintiffs, chief judge, and court clerk in federal court for an injunction against further tribal-court proceedings. The district court granted the companies a preliminary injunction, concluding that they had a high likelihood of success on the merits.

The 8th Circuit affirmed, determining first that under Ex Parte Young, the chief judge and court clerk were not immune from an official-capacity suit for declaratory relief. It then determined that the companies had satisfied the general rule that parties must exhaust their remedies in tribal court before challenging tribal-court jurisdiction in federal court. On the question of tribal-court jurisdiction, it held that: (1) “tribal courts lack jurisdiction to adjudicate federal causes of action absent congressional authorization,” (2) the underlying claims were federal (and to the extent they were rooted in tribal law, that tribal law was preempted by comprehensive federal regulation of oil and gas leases on allotted Indian lands), and (3) the tribal-court exercise of jurisdiction did not meet either of the two exceptions to Montana’s general rule blocking tribal-court jurisdiction over nonmembers. In particular, the court held that to meet Montana’s first prong, “a consensual relationship alone is not enough,” but must be coupled with tribal regulation that “stems from the tribe’s inherent sovereign authority to set conditions on entry, preserve tribal self-government, or control internal relations.” Kodiak Oil & Gass (USA) Inc. v. Burr, 932 F.3d 1125 (8th Cir. 2019).

• Tribal officer may detain and deliver non-Indian suspected of on-reservation state-law offense to state authorities. A tribal officer suspected that a non-Indian driver was impaired, detained him, determined that the suspect’s license was revoked, and then transported the defendant to the reservation border. Once across the reservation border, a state sheriff’s deputy conducted a field sobriety test and arrested the suspect on state-law charges. On appeal from his resulting convictions, the defendant argued that the district court should have suppressed the evidence against him because it was obtained through an unlawful arrest by a tribal officer who was not a “peace officer” under state law. The Minnesota Court of Appeals disagreed, applying its recent State v. Thompson, 929 N.W.2d 21 (Minn. App. 2019) decision that tribal officers may detain and deliver on-reservation non-Indian suspects to authorities with jurisdiction over a suspected offense. State v. Ziegler, No. A18-1825, 2019 WL 4164893 (Minn. App. 9/3/2019).

• Minnesota Department of Human Services’ Indian Child Welfare Manual’s referral provisions lawful and constitutional. When Scott County officials received a welfare report concerning tribal-member siblings enrolled in two different tribes, they followed the Minnesota Department of Human Services’ Indian Child Welfare Manual and referred the complaint to the Family and Children’s Services Department of one of the tribes. The department commenced protective proceedings in that tribe’s court, and the tribal court resolved the proceedings over the non-member mother’s jurisdictional objection, including ordering guardianship over the child enrolled in that tribe, and transferring the proceedings concerning the sibling to the sibling’s tribe’s court.

The mother brought a federal suit against both tribal courts, the assigned judges, Scott County, and the Commissioner of the Minnesota DHS, arguing that the manual violated federal law and her constitutional right to due process because following the manual resulted in commencement of tribal-court proceedings without prior state-court proceedings. The 8th Circuit affirmed dismissal of the suit. It found no conflict between the manual and the Indian Child Welfare Act’s creation of “concurrent but presumptively tribal jurisdiction in the case of [Indian] children not domiciled on the reservation.” It further held that Public Law 280, a statute that affords Minnesota civil jurisdiction over most reservations within the state, does not require state-court adjudication where a tribal court has concurrent jurisdiction. Finally, the court found no due-process violation because the mother was heard in tribal court. The decision settles a string of district court cases that raised similar arguments against tribal-court jurisdiction.  Watso v. Lourey, 929 F.3d 1024 (8th Cir. 2019).

• The Indian Gaming Regulatory Act preempts some on-reservation state taxes. The Flandreau Santee Sioux Tribe operates a casino within its reservation, and is renovating and expanding the casino. In addition to gaming services, the casino offers amenities including live entertainment, food, and retail items. Sister cases considered whether South Dakota could impose two different casino-related taxes on nonmembers: (1) use tax on nonmember purchases of the casino-related amenities, and (2) excise tax on the nonmember contractor performing construction services on the casino. The tribe argued that the Indian Gaming Regulatory Act preempted both taxes. In decisions filed the same day by the same panel, the 8th Circuit upheld one tax and disallowed the other. 

The court held that IGRA preempted the use tax. Applying the Supreme Court’s interests-balancing test for state taxation of nonmembers on Indian lands, it concluded that the combined federal and tribal interests in protecting tribal independence in gaming under IGRA outweighed the state’s interest in raising revenue for statewide governmental services. Flandreau Santee Sioux Tribe v. Noem, ___ F.3d ___ (8th Cir. 2019).

In contrast, the court held that IGRA does not preempt the excise tax. Applying the same interest-balancing test, the court concluded that the state’s interests in applying its excise tax throughout the state and raising revenue for governmental services outweighed the federal and tribal interests in protecting tribal independence in gaming under IGRA because the impact of the tax on these interests was “too indirect and too insubstantial.” Flandreau Santee Sioux Tribe v. Haeder, ___ F.3d ___ (8th Cir. 2019).

Jessica Intermill  Hogen Adams PLLC

Peter J. Rademacher  Hogen Adams PLLC

 

TAX LAW

JUDICIAL LAW

• Admin; Rev. Proc. invalid; IRS failed to comply with APA. In a challenge brought by New Jersey and Montana, a federal district court held that Rev. Proc. 2018-38, which purported to eliminate a long-standing IRS requirement that exempt organizations report certain donor information, was invalid because the Service enacted the regulation without complying with the Administrative Procedure Act (APA) requirement to provide a notice to the public and allow public comment. The Service announced in the Rev Proc that it would no longer require most tax-exempt organizations to report the names and addresses of substantial donors (the change did not apply to purely public charities). New Jersey and Montana challenged the change. The states were harmed by the change, the states argued, because the states used the data disclosed to enforce the states’ respective charitable and tax policies and laws. 

After satisfying itself that it had jurisdiction, the court determined that the change was unlawful. The court rejected the Service’s argument that the change was an interpretative rule and thus was not subject to notice and comment. In the Service’s view, the Rev Proc addressed solely “IRS’s timing and process for collecting information that IRS may use to determine compliance with substantive criteria that remains the same.” Instead, the court understood that the Rev Proc “explicitly upends [a] fifty-year practice and effectively amends this existing rule. Revenue Procedure 2018-38 directs tax-exempt organizations to forego existing policy and informs these organizations that they are no longer required to report the names and addresses of their contributors as previously required.” Bullock v. Internal Revenue Serv., No. CV-18-103-GF-BMM, 2019 WL 3423485 (D. Mont. 7/30/2019) (internal quotations omitted).

• Tax procedure: Seven copies of one frivolous return = one (not seven) penalties. In 2014, Petitioner Gwendolyn L. Kestin received wages of $155,702 from which federal income tax was withheld. She timely filed in April 2015 an apparently unremarkable tax return for 2014, which reported a tax liability arising principally from those wages. The troubling return followed when, in September 2015, Mr. and Mrs. Kestin submitted to the IRS an amended return—a Form 1040X, in which Mrs. Kestin set forth the baseless argument that since she is a private sector citizen the wages she received were not subject to federal income tax. Shortly thereafter, the Service warned Mrs. Kestin that her position was frivolous and that it subjected her to monetary penalties; the Service wrote to Mrs. Kestin that unless she immediately corrected her return, “the Internal Revenue Service will assess a $5,000 penalty against you... for each frivolous tax return or purported tax return that you filed…. If you send us corrected returns, we will disregard the previous documents that you filed and not assess the frivolous return penalty.” Instead of correcting her return, Mrs. Kestin sent a letter reiterating her position that she was entitled to a refund. Along with the letter, she sent a copy of the 2015 Form 1040X. The copy was designated as “copy” on the form itself, and was referenced as a “copy” in the attached letter. Eventually, Mr. and Mrs. Kestin sent the original 1040X and six copies of the form to various IRS locations. 

When taxpayers file frivolous returns and refuse to correct those returns, the taxpayer is liable for a $5,000 penalty. IRC 6702 (also providing procedural requirements the Service must follow). The Service interpreted each of the letters as a frivolous return, and assessed a separate $5000 penalty for the initial 1040X as well as a penalty for each subsequent copy sent to the Service. 

In a division opinion, however, the tax court found that only one penalty was appropriate. The court explained that “each of the photocopies of that Form 1040X... was expressly stated to be a ‘copy’ of that original Form 1040X. Each was manifestly intended by her to be perceived as a photocopy of the Form 1040X, and the IRS did perceive each as a copy of an original. Mrs. Kestin sought only one refund of the income tax she had reported on her original (non-frivolous) Form 1040 return, not seven refunds of that amount. (The refund she requested on her Form 1040X (and all of its copies) was $27,624, but in some of her letters she stated a lesser amount—$25,986.).” The court therefore held that “Mrs. Kestin’s six plainly marked photocopies sent to the IRS with her letters did not purport to be tax returns and are not subject to the penalty under section 6702(a).” Kestin v. Comm’r, No. 18254-17L, 2019 WL 4072309 (T.C. 8/29/2019).

•  Property tax: Request to vacate judgment denied; parties fail to timely file executed stipulation. Wal-Mart Real Estate Business Trust contested its 2016 and 2017 real property tax assessment. In a previous order, the tax court dismissed Wal-Mart’s petition because Mille Lacs County established that Wal-Mart failed to timely disclose certain required information, including income and expense information. 

Following the hearing on the original matter, but before the court’s decision was issued, the parties apparently reached a settlement. The parties, however, failed to provide the court with a copy of the executed stipulation before the court dismissed the action. The parties jointly petitioned the court requesting that the court vacate the dismissal.

The only procedural vehicle for vacating judgement is a motion under Minn. R. Civ. P. 60, authorizing the court, in relevant part, to correct clerical mistakes. The decision to dismiss the trust’s petition was not a clerical mistake. When a property tax petition has been filed with respect to income-producing property, Minn. Stat. §278.06, subd. 6(a) requires the petitioner to provide specific information to the county assessor by August 1 of the taxes-payable year. Failure to comply results in dismissal of the petition. Because Wal-Mart failed to provide the county with the required information, the court properly granted the county’s motion to dismiss and, therefore, denied the parties’ subsequent request to vacate judgment. Wal-Mart Real Estate Bus. Trust v Co. of Mille Lacs, 2019 WL 3281167 (Minn. TC 7/15/2019).

 

n Personal liability assessment; summary judgment for commissioner. Fady Qumseya owned and operated a number of mall kiosks operating under the name “Paris Handbag.” Others, including Mr. Qumseya’s family members, also worked for Paris Handbag, but Mr. Qumseya was the sole shareholder of the company, and described himself as the “managing person” and the “point person” for the LLC. In previous proceedings, the tax court affirmed an assessment against Paris Handbag for about $60,000 in sales taxes. In the instant dispute, the commissioner sought to hold Mr. Qumseya personally liable for Paris Handbag’s assessment. Mr. Qumseya objected, asserting that “[t]his tax liability is being charged to the corporation and Fady Qumseya and both parties cannot be on the hook for the same tax liability.” Under Minnesota law, however, both parties can be on the hook, so long as the commissioner seeks to recover the assessment from a “person” with sufficient “control” (both statutorily defined terms). Since the court determined that Mr. Qumseya was a “person” with “control,” the court granted summary judgment to the commissioner and explained that Mr. Qumseya is liable for the sales tax payments. The tax court also estopped Mr. Qumseya from relitigating the amount of unpaid tax for which he is personally liable. Qumseya v. Comm’r of Revenue, No. 9023-R, 2019 WL 3717594 (Minn. TC 8/1/2019).

• Court exercises discretion to re-open record. The tax court issued findings of facts, conclusions of law, and judgment in consolidated matters in which the court determined the market value of Shopko Stores Operating Co., LLC in North Branch as of 2015 through 2017. The court’s valuations relied on the cost approach to value, which incorporated a functional obsolescence estimate for the subject property. Chisago County moved to amend the court’s findings, positing that the court’s functional obsolescence estimate was not supported by record evidence. Shopko opposed the motion. 

The tax court’s procedural rules provide for additional hearing “if after holding any hearing in any matter, the tax court finds the rights of the parties will be better served by holding a further hearing in the matter.” Minn. R. 8610.0120, subp. 2 (2017). The county did not proffer a functional obsolescence estimate during trial because the county’s expert concluded that the subject property was not affected by functional obsolescence. Shopko demonstrated the existence of functional obsolescence and offered an estimate, but the court rejected the methodological grounds of Shopko’s proffer.

Because the court rejected both parties’ functional obsolescence estimates and based its estimates on other evidence in the record, the court exercised its continuing discretion to reopen the record and ordered further proceedings to allow the parties to present additional evidence quantifying functional obsolescence at the subject property, as of the three valuation dates. The court concluded that “the rights of the parties will be better served by the holding of a further hearing in the[se] matter[s].” Shopko Stores Operating Co., LLC v. Chisago Co., 2019 WL 3311207 (Minn. TC 7/18/2019) (quoting Minn. R. 8610.0120, subp. 2).

• County’s “highest and best use analysis” overstated. Hennepin County assessed Medline Industries, Inc.’s 300,000-sq.-ft. distribution warehouse at a market value of $15,912,000 as of January 2014 and January 2015. The court ruled that the assessed value of the property as of January 2014 and January 2015 overstated its market value.

A petitioner may overcome the presumption of validity by introducing evidence that the assessor’s estimated market value is excessive. Minn. Beet Sugar Coop v Renville Co., 737 N.W.2d 545, 558 (Minn. 2007). Market value is defined as “the usual selling price at the place where property to which the term is applied shall be at the time of assessment; being the price which could be obtained at a private sale or auction sale....” Minn. Stat. §272.03, subd. 8 (2018). The court concluded in this case that Medline Industries presented sufficient evidence, through the testimony of its expert appraiser, to overcome the prima facie validity of the January 2014 and January 2015 assessments.

Appraisers must perform a highest and best use analysis when appraising commercial real estate. A property’s highest and best use is “the reasonably probable use of property that results in the highest value.” Appraisal Institute, The Appraisal of Real Estate 332 (14th ed. 2013). Here, the parties agree that the subject property is for continued use as a distribution warehouse, but the parties disagree about whether the subject property is a single-tenant or multi-tenant property. The county argues that it is reasonable to consider the property as one that one to two tenants could occupy. Medline maintains that the property is best used as a single tenant distribution warehouse; Medline argues that to be considered for multi-tenant use, the property would need to, among other things, 1) have its own secure office space and storage facilities, and 2) house more tenant vehicle parking.

Relying primarily on a sales comparison approach, which assumes “the value of property tends to be set by the cost of acquiring a substitute or alternative property of similar utility and desirability within a reasonable period of time,” the court held that the subject property is properly valued at $13,480,245 as of January 2014 and 15,048,121 as of January 2015. Medline Indus. Inc., v. Hennepin Co., 2019 WL 3241566 (Minn. TC 7/12/2019) (quoting The Appraisal of Real Estate at 379).

• Court to hear arguments on whether funds to cover landlord’s expenses are subject to sales or use tax. Minnesota Made Ice Center is owned by Rink SPE, LLC (Rink). Rink leased the entire premises to Eighty Eights Rink, LLC (Eighty Eights). Eighty Eights leased the center to Minnesota Made Hockey, Inc. (MMHI). Eighty Eights’ lease with Rink is a triple net lease, but MMHI’s lease with Eighty Eights is a gross net lease, in which MMHI is not obligated to pay expenses to operate property. 

Eighty Eights’ and MMHI’s relationship took the form of a triple net lease when Eighty Eights became unable to pay expenses. MMHI assumed all responsibility for operation and maintenance of the center. To keep the center operating, MMHI transferred funds to Eighty Eights to cover bills, including real estate taxes. MMHI recorded the funds transfer as “lease expenses.”

The Commissioner of Revenue audited Eighty Eights and assessed use tax on all payments made by MMHI to Eighty Eights in 2012-2014, including lease payments and monies to cover expenses. MMHI appealed the assessment, and moved for summary judgment on the grounds that the payments the commissioner assessed were real estate lease payments and exempt from sales and use tax. The commissioner moved for summary judgment on the grounds that the center is an athletic facility and that payments made by MMHI to Eighty Eights were in return for a “taxable service.”

Minnesota imposes a sales tax of 6.5% on gross receipts from retail sales of tangible personal property and certain services. The purchaser of tangible personal property or taxable services is liable for use tax of 6.5% if the vendor does not charge sales tax on the retail sale. Minn. Stat. §297A.61, subd. 3(g)(1) (2018) states, in relevant part, that among the services subject to taxation are athletic facilities. 

In a lengthy analysis, the court finds the center to be an athletic facility, but also finds that the payments made by MMHI to Eighty Eights under the parties lease were not in return for a taxable service. The court reversed the commissioner’s assessment of use tax, but asserts that those payments account for less than half of the total amount on which the commissioner bases the assessment. MMHI accords that the remainder of the payments are transfers of funds to Eighty Eights to cover its expenses. Because there is a genuine issue of material fact as to whether those payments are subject to sales or use tax, the parties’ motions are granted in part and denied in part, and the remaining issue will proceed to trial. MN Made Hockey, Inc v. Comm’r of Revenue, 2019 WL 35499167 (Minn. TC 7/30/2019).

Morgan Holcomb  Mitchell Hamline School of Law

Sheena Denny  Mitchell Hamline School of Law