Notes & Trends – May/June 2019

COMMERCIAL & CONSUMER LAW

JUDICIAL LAW

• Do not sit on your rights. Assume you have just received ordered goods, inspected them, and found the goods are seriously deficient. Extremely upset, you vow never to deal with the seller again and throw the goods out. That is exactly what not to do—you now can owe the purchase price! Why?

The applicable law, Article 2 of the Uniform Commercial Code, affords a remedy here even if the seller provided no express warranty; you can reject the goods for breach of the implied warranty of merchantability, or fitness for a particular purpose if applicable, and if neither are disclaimed. See UCC §§2-601 – 2-607 (unless there is a limitation of remedy—UCC §§2-718 and 2-719), and UCC §§2-314, 2-135, and 2-316. In SunOpta Grains and Foods Inc. v. JNK Tech Inc., 97 U.C.C. Rep. Serv. 2d 279, 2018 WL 6045261 (D. Minn. 2018), the buyer sought to avoid payment for a shipment of soybeans allegedly for having germination rates of less than 85% as required by contract, which assertedly substantially impaired their value. The buyer had received the soybeans in August, but the buyer did not raise the alleged too low germination rate until November. At that point the soybeans had been in the buyer’s possession for three months. That would be too late for rejection and instead constituted acceptance of the shipment, and therefore an obligation to pay for the shipment. See UCC §§2-606(b), 2-607(1).

Even so, a buyer may have another chance to avoid payment if the buyer has a right to revoke acceptance, and the buyer in the case asserted that right. See UCC §2-608. However, revocation of acceptance must occur before any substantial change in the condition of the goods not caused by their own defects. The court held the soybeans’ germination rates, which tested above 80% when in the seller’s control, if they declined as alleged, had experienced a substantial change in their condition during the delay before the attempted revocation, and that precluded revocation. See UCC §2-608(2).

Such a ruling, however, does not preclude a recovery of damages, only the remedy of revocation. See UCC §§2-714 and 2-607(3)(a). Unfortunately the buyer also lost here, since the soybeans had tested at a germination rate above 80% when in the seller’s control, and if the rate was lower after the buyer had been in control for three months and the goods had been in unknown storage and transport, any decrease could not be attributable to the seller.

Fred Miller
Ballard Spahr

CRIMINAL LAW

JUDICIAL LAW

•Robbery: Jury need not agree which alternative means was used to commit first-degree aggravated robbery. Appellant was convicted of first-degree aggravated robbery after a jury trial. The evidence at trial showed appellant hit the victim in the head with a baseball bat before taking a pocket knife from the victim. The district court instructed the jury they could find appellant guilty of first-degree aggravated robbery either because he was armed with a dangerous weapon or because he inflicted bodily harm upon the victim while committing a robbery. Appellant argues the jury should have unanimously decided whether he was armed with a dangerous weapon or inflicted bodily harm upon the victim.

Jury verdicts in criminal cases must be unanimous. However, “the jury need not always unanimously decide which of several possible means [a] defendant used to commit [an] offense in order to conclude that an element has been proved beyond a reasonable doubt.” State v. Ihle, 640 N.W.2d 910, 918 (Minn. 2002). Minn. Stat. §609.245, subd. 1, provides that “whoever, while committing a robbery, is armed with a dangerous weapon…, or inflicts bodily harm upon another, is guilty of aggravated robbery in the first degree…” The issue here is whether this statute, specifically the phrase “is armed with a dangerous weapon…, or inflicts bodily harm upon another,” defines separate elements of the offense and, therefore, separate crimes of first-degree aggravated robbery, or defines alternative means of committing first-degree aggravated robbery.

The court of appeals finds the plain language of the statute manifests a legislative intent to establish one crime that can be committed in alternative ways. The aggravated robbery statute clearly states what the offense is, and, before that, in one sentence, lists the acts or alternative circumstances that result in the commission of the crime. Thus, the court holds that the jury was not required to specifically or unanimously agree which of the alternative means of committing first-degree aggravated robbery was employed by appellant, and the district court’s instructions were proper. 

Next, the court considers whether the Legislature’s articulation of alternative means of committing first-degree aggravated robbery violates due process. The court finds that the alternative means are not distinct, dissimilar, or inherently separate. The court also notes that the breadth of possible conduct embodied in the first-degree aggravated robbery statute is narrow and includes behaviors that have similar degrees of seriousness. The court ultimately concludes that the alternatives in the first-degree aggravated robbery statute are consistent with fundamental fairness. Appellant’s conviction is affirmed. State v. Lagred, 923 N.W.2d 345 (Minn. Ct. App. 2/11/2019). 

• Robbery: “Carrying away” is act of moving personal property from location of “taking.” A wine shop employee observed appellant and another woman put bottles of liquor in their handbags. The employee and appellant struggled and one bottle fell out of her handbag, breaking on the floor. The struggle continued outside the store. The employee was able to remove the remaining bottles of wine from appellant’s handbag, after which appellant ran away. Appellant was found guilty of simple robbery and she challenges the sufficiency of the evidence to sustain her conviction.

Minn. Stat. §609.24 states: “Whoever… takes personal property from the person or in the presence of another and uses or threatens the imminent use of force against any person to overcome the person’s resistance or powers of resistance to, or to compel acquiescence in, the taking or carrying away of the property is guilty of robbery…” Appellant argues she did not overcome the employee’s resistance or compel his acquiescence in the carrying away, because the employee took the wine and appellant left emptyhanded.

The court of appeals notes that simple robbery requires only that use of force or threats precede or accompany either the taking or the carrying away, which means the “taking” and the “carrying away” are separate acts. “Carrying away” is not defined in Minn. Stat. §609.24, but the court deciphers its plain and ordinary meaning from dictionary definitions, concluding that “carrying away” is the act of moving personal property from the location of the taking. The record in this case shows appellant’s threats and attempt to bite the store employee during the struggle overcame his resistance, allowing appellant to carry some of the wine outside of the store, which was the location of the taking. Thus, the evidence was sufficient to sustain appellant’s conviction. State v. Townsend, 925 N.W.2d 280 (Minn. Ct. App. 3/11/2019).

• Manslaughter: Manslaughter predicated on fifth-degree assault does not require proof that death or great bodily harm be reasonably foreseeable. Appellant was convicted of first-degree manslaughter predicated on an underlying fifth-degree assault after he was involved in an altercation outside of a bar. Appellant was aggressive toward a friend of the victim, after which the victim came out of the bar and began poking, pushing, and yelling at appellant. Appellant then punched the victim once in the face, and the victim fell to the ground in an unresponsive state with agonal breathing. The victim died later at the hospital, due to a combination of blunt force head trauma and the victim’s elevated blood alcohol concentration. At trial, the district court denied appellant’s request that the court instruct the jury that first-degree manslaughter predicated on a fifth-degree assault requires that death or great bodily harm be reasonably foreseeable. 

Minn. Stat. §609.20(2) identifies two ways that first-degree manslaughter may be committed. The statute says a person commits first-degree manslaughter if that person “violates section 609.224 [fifth-degree assault] and causes the death of another or causes the death of another in committing or attempting to commit a misdemeanor or gross misdemeanor offense with such force and violence that death of or great bodily harm to any person was reasonably foreseeable…” The issue here is whether the “reasonably foreseeable” modifier (italicized above) applies to both the fifth-degree assault clause and the misdemeanor offense clause, or only the latter.

The court of appeals finds the last antecedent or nearest reasonable referent rules the best rules to apply to avoid rendering part of the statute superfluous. In applying those rules, the court holds the “reasonably foreseeable” qualifier applies only to the misdemeanor offense clause. As such, the district court properly instructed the jury in this case. State v. Stay, 923 N.W.2d 355 (Minn. Ct. App. 2/11/2019).

• Criminal procedure: No absolute right to withdraw valid guilty plea after “put formally before the court.” At his plea hearing, appellant pleaded guilty to violating an OFP. The district court deferred accepting his plea until sentencing. At the sentencing hearing, appellant sought to withdraw his guilty plea because, as his attorney informed the court, “[his attorney] threatened him to do so.” However, because appellant denied on the record at his plea hearing that anyone made any threats to him, his friends, or his family to coerce him into accepting the plea agreement, the district court denied appellant’s motion. Later in the sentencing hearing, appellant explained he did not feel threatened by his attorney and agreed with the district court’s characterization that “he felt coerced by the situation because [he was] facing some bad consequences.” The district court then formally accepted appellant’s guilty plea and sentenced appellant. 

Under the Minnesota Rules of Criminal Procedure, a district court may allow a defendant to withdraw a plea prior to sentencing if it would be fair and just to do so. Additionally, a defendant must be allowed to withdraw a plea at any time to correct a manifest injustice. Appellant argues neither plea withdrawal standard should apply, as his withdrawal request was made before the court accepted his plea. He argues that, when he made his request, he had an absolute right to withdraw his plea.

In State v. Tuttle, 504 N.W.2d 252 (Minn. Ct. App. 1993), the court of appeals stated that Rule 15.04, subd. 3(1) “gives the district court authority to reserve acceptance of a plea pending a PSI; it does not give a defendant an absolute right to withdraw a plea pending acceptance by the court.” Id. at 257. The question still remains, however, whether an absolute right to withdraw a guilty plea prior to its acceptance exists outside the rules of criminal procedure.

The court of appeals holds that such a right does not exist. The court rejects appellant’s argument that this absolute right can be inferred from a defendant’s trial rights, including the presumption of innocence, and the idea that those rights are not waived until a valid guilty plea is accepted. The Supreme Court has previously held that “[o]nce a guilty plea is entered, there is no absolute right to withdraw it.” Shorter v. State, 511 N.W.2d 743, 746 (Minn. 1994). The court of appeals holds that a guilty plea is entered once it has been “put formally before the court.” At that point, a defendant has no absolute right to withdraw it. In this case, appellant’s guilty plea was put formally before the district court at appellant’s plea hearing. Thus, he had no absolute right to withdraw it at his sentencing hearing prior to the district court’s acceptance of his plea.

The court of appeals also finds that district court did not err in denying appellant’s request to withdraw his plea under the fair and just standard. Appellant argued he should have been permitted to withdraw his plea under this standard because the OFP was not in effect when he was accused of violating it. An ex parte OFP was issued on 12/8/2016, and appellant was served on 12/9/2016. Appellant requested a hearing on 12/12/2016, and one was scheduled for 12/16/2016. The hearing was rescheduled by the court due to the victim’s pregnancy and health to 1/5/2017. Appellant was accused of violating the OFP on 12/21/2016. The court rejects appellant’s argument that the OFP expired the moment the district court continued the hearing and rescheduled it outside of the 10-day statutory time frame. The court concludes that the statutory language makes clear that an ex parte OFP expires once the time frame runs without a hearing. Here, appellant violated the OFP within 10 days of his request for a hearing. At that time, the OFP was undoubtedly still in effect. State v. Nicholas, 924 N.W.2d 286 (Minn. Ct. App. 2/11/2019).

• Criminal procedure: Guilty plea entered in consideration of unlawful sentence is coerced. Appellant was charged with a second-degree controlled substance offense and the state notified him of its intent to seek an aggravated sentence based on appellant’s status as a career offender and a dangerous offender. Appellant subsequently entered a guilty plea under a plea agreement that provided for a 100-month sentence. If the district court found appellant to be a career or dangerous offender, it could have sentenced appellant to the 25-year statutory maximum. However, appellant qualified as neither a dangerous nor career offender. The state’s threat to have appellant sentenced as such induced appellant’s guilty plea. The court of appeals concludes that the state’s threat of an aggravated sentence that was unauthorized by law coerced appellant’s plea. Because a coerced plea is involuntary, appellant’s plea was invalid. Johnson v. State, 925 N.W.2d 287 (Minn. Ct. App. 3/11/2019).

• Criminal procedure: Minn. Stat. §611.21 does not authorize payment for interpreter for public defender’s out-of-court communications with client. Appellant does not speak English and was represented by a public defender. He filed an ex parte application under Minn. Stat. §611.21 for $2,000 for interpreter services to facilitate attorney-client communication outside of court, because the public defender’s office had no funds available to provide the services. The district court denied the application, finding that Minn. Stat. §611.33, subd. 3, requires the state Board of Public Defense to pay for out-of-court interpreter services. 

Minn. Stat. §611.21(a) allows an indigent defendant’s appointed counsel to file “an ex parte application requesting investigative, expert, or other services necessary to an adequate defense in the case.” Interpreter services are necessary to assist a non-English speaking defendant during legal proceedings, and, under Minn. Stat. §611.33, subd. 3, the district court is responsible for paying fees and expenses for a qualified interpreter for court proceedings. However, section 611.33, subd. 3, also unambiguously imposes the burden of paying for interpreter services for out-of-court communications between a criminal defendant and the public defender on the Board of Public Defense. Based on the plain language of sections 611.21(a) and 611.33, subdivision 3, the court of appeals rejects appellant’s argument that an application may still be made under section 611.21(a) if the Board of Public Defense no longer has funds available to pay for these services. The district court is affirmed. State v. Cruz Montanez, No. A19-0179, 2019 WL 1510873 (Minn. Ct. App. 4/8/2019).

• Sentencing: Out-of-state probationary sentence reserving right to revoke probation and impose prison sentence is equivalent to stay of imposition. Appellant argues the district court erred in denying his motion to correct his sentence for aiding and abetting second-degree unintentional murder based on an incorrect criminal history score. The district court assigned one-half of a point for appellant’s prior Illinois conviction for possessing 1.7 grams of cocaine. The court of appeals holds that the district court did not abuse its discretion. Under the sentencing guidelines, a prior out-of-state felony conviction can be used in calculating a criminal history score, and an out-of-state conviction is considered a felony if the offense would be defined as a felony in Minnesota and the defendant received a felony-level sentence, including the equivalent of a stay of imposition.

Here, the Illinois offense would be a felony under Minnesota law and the court of appeals agrees with the district court’s conclusion that the sentence appellant received in Illinois, 24 months of probation, is functionally equivalent to a stay of imposition. The Illinois sentencing order states that “failure to follow the conditions of this sentence or probation could result in a new sentence up to the maximum penalty for the offense which is before this Court,” which is consistent with the court of appeals’ description of the characteristics of a stay of imposition in State v. C.P.H., 707 N.W.2d 699, 702 (Minn. Ct. App. 2006): “By staying the imposition of the sentence, the district court reserves the right, in the event the defendant does not meet certain conditions, to vacate the stay and impose a sentence.” The district court is affirmed. State v. Watson, No. A18-1187, 2019 WL 1233383 (Minn. Ct. App. 3/18/2019). 

• Forfeiture: Due process requires prompt hearing on innocent owner defense. The driver of a 1999 Lexus was arrested for first-degree DWI and the vehicle, owned solely by the driver’s mother, was seized. Both the driver and her mother challenged the forfeiture of the vehicle, arguing the DWI vehicle forfeiture statute was unconstitutional for violating their due process rights. The driver’s mother also asserted the innocent-owner defense. The district court agreed that the statute violated both the driver and the owner’s due process rights. The court of appeals found Minn. Stat. §169A.63, subd. 9(d), constitutional on its face but unconstitutional as applied to both the vehicle driver and owner. The Supreme Court ultimately agrees with the court of appeals that the statute is constitutional on its face, but finds it constitutional as applied to the driver and unconstitutional only as applied to the owner. 

In its analysis, the Supreme Court first affirms that the framework outlined in Mathews v. Eldridge, 424 U.S. 319 (1976), applies to determine whether the delay in this case, driven by the DWI forfeiture statute’s mandate that no judicial hearing on the demand for judicial determination occur until after the related criminal proceedings are concluded (“the central question in [the] case”), violated due process. 

The Supreme Court concludes that section 169A.53, subdivision 9(d), is facially constitutional, “[b]ecause we can conceive of a circumstance where the legitimacy of the forfeiture (and the demand for judicial determination) can be resolved in a constitutionally prompt manner following the swift resolution of the underlying criminal proceedings…” The Court then considers the driver’s and owner’s as-applied challenges to the DWI forfeiture statute, addressing each of the three factors laid out in Mathews. As to the driver, the Court finds the statute constitutional as applied. That is, the Court determines the driver’s right to due process was not violated by the 18-month delay before her demand for judicial determination was heard, because the driver does not own the vehicle and has a limited private interest in keeping the vehicle. The state, on the other hand, has a significant fiscal, functional, and administrative interest in protecting the public and not conducting pre-seizure hearings, and the pre-seizure process for determining whether forfeiture is authorized is reliable. 

However, the Court’s balancing of the Mathews factors as to the owner lead the court to hold that due process requires a prompt hearing for the vehicle owner. Even though she cannot drive the vehicle because her license was cancelled, she still has a significant financial interest in the vehicle. She also was not driving the vehicle and had an innocent owner claim, which received no pre-seizure consideration. The scope of a hearing would be limited to considering her innocent owner defense, and this would not pose a substantial burden on courts and prosecutors. Thus, the 18-month delay between the seizure of her property and the hearing on her demand for judicial determination violated her right to procedural due process. To remedy this violation, the Court orders that the defendant vehicle be returned to its owner. Olson v. One 1999 Lexus, 924 N.W.2d 594 (Minn. 3/13/2019).

• Physician-patient privilege: Blood sample drawn during medical emergency not “information” covered by physician-patient privilege. Law enforcement found appellant bleeding from his head, lying in the street following an ATV accident, and smelled alcohol on his breath before he was taken to the hospital. A deputy learned the hospital took a sample of appellant’s blood prior to giving a blood transfusion. The deputy obtained a search warrant to seize the blood sample for testing, which later revealed appellant’s blood alcohol concentration was 0.155. Prior to his trial for fourth-degree DWI, the district court granted appellant’s motion to suppress the blood sample as “information” subject to the physician-patient privilege. The court of appeals reversed, and the Supreme Court affirms, finding that a blood sample is not “information” within the scope of the physician-patient privilege.

The Supreme Court first clarifies that its statements regarding “information” as used in the physician-patient privilege statute in State v. Staat, 192 N.W.2d 192 (Minn. 1971), and State v. Heaney, 689 N.W.2d 168 (Minn. 2004), which appellant argues supports his position that a blood sample is “information,” were merely dicta. Thus, the court examines the question of whether a blood sample is “information” as an issue of first impression. Based on the plain and common meaning of the word “information,” and keeping in mind the court’s observation that “[t]here probably is no privilege… so abused as the physician[-]patient privilege” and the need to ensure it does not “become [a] vehicle[ ] for the suppression of evidence which is not privileged,” the Court concludes that a blood sample is not “information.” Quoting the dictionary definition of “information” published the same year the New York statute upon which Minnesota’s physician-patient privilege statute is based, the Court explains that “[a] blood sample [itself] is not ‘intelligence; notice, news, or advice communicated by word or writing.’” The statute covers information itself, not objects that contain or carry information. State v. Atwood, No. A17-1463, 2019 WL 1142420 (Minn. 3/13/2019). 

• Burglary: Victim must have been present for first-degree burglary based on defendant’s possession of article victim believed was dangerous weapon. While J.T. was away, appellant burglarized J.T.’s home. A neighbor observed the burglary and notified police. When police arrived, they approached appellant in an alley behind the house and saw appellant drop what they believed was a gun. After arresting appellant, police discovered the item was a BB gun. After a court trial, appellant was convicted of first-degree and second-degree burglary. Appellant appealed his first-degree burglary conviction under Minn. Stat. §609.582, subd. 1(b), which elevates burglary to a first-degree offense if “the burglar possesses, when entering or at any time while in the building,… any article used or fashioned in a manner to lead the victim to reasonably believe it to be a dangerous weapon.” Appellant argues the statute requires the victim be physically present and reasonably believe the item is a dangerous weapon. The court of appeals affirmed his conviction, concluding the statute’s plain language requires only “that the article’s appearance supports an objective belief that it is a dangerous weapon.”

The Supreme Court agrees with appellant’s argument that the plain language of Minn. Stat. § 609.582, subd. 1(b), requires the victim to be present, noting that the statute “requires the item be ‘fashioned in a manner to lead the victim,’ not a victim, to reasonably believe the item is a dangerous weapon.” By requiring a specific person, “the victim,” to have the reasonable belief, the statute requires that person to be present. Because the victim in this case was not physically present during the burglary, the evidence is insufficient to support appellant’s conviction for first-degree burglary. State v. Rogers, 925 N.W.2d 1 (Minn. 3/20/2019).

• Implied consent: Driver must show burping, belching, or vomiting during observation period actually affected test results. Appellant’s driver’s license was revoked based on a breath test, administered after his arrest for DWI, which reported an alcohol concentration of 0.09. At the implied consent hearing, appellant did not object to the admissibility of the breath test results, but later argued he impeached the credibility of the results by testifying that he burped during the pre-test observation period. The district court sustained the revocation, finding that appellant burped during the observation period, but that he failed to show that it affected the test results.

The only issue is whether appellant impeached the test results, because he did not object to their admissibility at the hearing. To impeach the test results, the court of appeals notes, case law makes clear that appellant was required to prove both that he burped during the observation period and that the burping actually affected the test results. Appellant failed to present any evidence as to the effect his burping had on the test results. The district court is affirmed. Junker v. Comm’r Pub. Safety, No. A18-0372, 2019 WL 1320566 (Minn. Ct. App. 3/25/2019).

• Implied consent: Deputy has no duty to notify driver that field sobriety and preliminary breath tests are optional. Appellant was arrested for DWI after failing field sobriety tests and a PBT revealed his blood alcohol concentration was 0.096. A subsequent breath test reported a blood alcohol concentration of 0.09, and appellant’s driver’s license was revoked. Appellant argues the deputy had an obligation to inform him he could refuse all field sobriety tests and that the deputy’s failure to do so violated his right to procedural due process. The district court and court of appeals disagree. No statutory provision or case requires law enforcement to inform a driver that they may refuse field sobriety testing or a preliminary breath test. Such tests are also not considered searches or custodial interrogations, so there are no constitutional obligations to support appellant’s argument. Appellant’s license revocation is affirmed. Otto v. Comm’r Pub. Safety, 924 N.W.2d 658 (Minn. Ct. App. 3/25/2019). 

• Entrapment defense: Defendant need only show inducement by state, not that state’s conduct actually induced him. An acquaintance introduced H.F. to appellant, and they ran into each other at a party a year later. Appellant saw H.F. with Walker, who H.F. described as her drug source. A couple of months later, H.F. contacted appellant through social media, asking him to help her obtain drugs from Walker, because her boyfriend would beat her out of jealousy if she contacted Walker herself. Appellant refused and H.F. offered him $500 to help. Appellant again refused. H.F. contacted appellant multiple times in the following weeks, but he did not answer her calls. Eventually, he answered one of the calls. H.F. asked if Walker would be at a party appellant planned to attend and asked Appellant to hand his phone to Walker so H.F. could buy drugs from Walker. Appellant agreed to let Walker use his phone at the party. At the party, Walker used appellant’s phone to arrange a drug exchange with H.F. Walker told appellant to go to the meeting location to look for H.F. Appellant ended up walking a bag of methamphetamine from Walker’s car to H.F. in her car and walking cash from H.F. to Walker in his car. He did not use any of the drugs or take any of the money. H.F. had been working the entire time as an informant making controlled drug purchases. After being charged with first-degree sale of a controlled substance, appellant raised an entrapment defense. However, the district court rejected the defense, finding appellant failed to show that the government induced him to participate in the transaction. After a stipulated facts trial, the district court found appellant guilty.

To initiate the entrapment defense procedures, the defendant notifies the prosecutor of the facts supporting the defense and whether he chooses the jury or court to decide the issue of entrapment. If he elects to have the court decide the issue, a hearing is held and the court addresses (1) whether the defendant has first shown by a preponderance of the evidence that the government induced him to commit the crime, and (2) whether the state can then prove beyond a reasonable doubt that the defendant was predisposed to commit the crime.

The court of appeals concludes that the district court “conflated the two elemental steps of the entrapment analysis into one, loading Garcia with an expanded burden of proof.” The defendant has the burden of showing inducement, not that the inducement was his motivating force. The first step focuses on the state’s actions, while the second step focuses on the defendant’s predisposal to commit the offense. The court clarifies that the defendant’s burden is to prove not that the government’s conduct actually induced him but to make a showing from the evidence that the state’s conduct demonstrated inducement. 

The record shows appellant did meet his burden of production. However, the district court never reached the second step in the entrapment defense analysis, and the state must be afforded the opportunity to prove beyond a reasonable doubt that appellant was predisposed to commit the crime. Reversed and remanded. State v. Juan Neil Garcia, No. A18-0343, 2019 WL 1757995 (Minn. Ct. App. 4/22/2019).

• Conditional release: Phase II of Challenge Incarceration Program is “release from prison.” Appellant received a 51-month sentence and five-year conditional release term for first-degree test refusal in June 2007. In July 2008, he moved into phase II of the Challenge Incarceration Program, which allowed him to reside at home. He entered phase III in January 2009, but was returned to phase II in April 2009 for failing to remain sober. A few months later, he was returned to custody for again failing to remain sober. He was released in December 2010 and remained on supervised release until he was taken into custody again in March 2014 for failing to satisfy treatment requirements. He was released again in May 2014.

Appellant argues that entering phase II triggered the start of his conditional release term, which would have then expired in July 2013. Therefore, when the state revoked his conditional release in March 2014, his conditional release term had already expired, and his subsequent incarceration was unlawful. The court of appeals found that both appellant’s conditional and supervised release terms began at the same time, in December 2010.

The Supreme Court reverses the court of appeals, concluding that appellant’s conditional release term began when he entered phase II of the Challenge Incarceration Program. The Court notes that “[f]unctionally, conditional release is identical to supervised release.” However, while supervised release occurs with most felony sentences, an additional conditional release period is imposed for a certain classes of offenders. For first-degree DWIs, Minn. Stat. §169A.276, subd. 1(d), provides that after the offender “has been released from prison the commissioner [of corrections] shall place the person on conditional release for five years.” The plain meaning of “release” was recently defined by the court as “to set free from confinement or bondage.” State ex rel. Duncan v. Roy, 887 N.W.2d 271, 277 (Minn. 2016). For both supervised and conditional release, the “release” begins when the offender is “set free from confinement.” 

Under the Challenge Incarceration Program, confinement is required for phase I, but not phase II. In phase II, participants are subject to intense supervision and surveillance and house arrest conditions, but they live in the community and are not confined in a Minnesota Correctional Facility. Thus, the conditional release imposed under Minn. Stat. §169A.276, subd. 1(d), begins when a Challenge Incarceration Program participant enters phase II and begins living in the community. Heilman v. Courtney, No. A17-0863, 2019 WL 1781483 (Minn. 4/24/2019).

• Confrontation clause: Direct or circumstantial evidence may be used to prove defendant caused unavailability of witness. Appellant was convicted of violating a domestic abuse no contact order (DANCO). During trial, jail-recorded phone calls between appellant and the victim, the contact that violated the DANCO, were played for the jury. However, the victim did not appear pursuant to the state’s subpoena. The state had jail-recorded phone calls by appellant during which he was looking for someone to seek out the victim and make sure she did not appear in court. The district court allowed the detective to testify that, during an interview with the victim, the victim confirmed she was the female voice in the recorded calls played for the jury. Appellant testified that he was the male voice in the recordings, but that the female voice was not the victim. The jury found appellant guilty of four counts of violating the DANCO.

The court of appeals holds the district court did not err in applying the forfeiture by wrongdoing exception to permit the victim’s out-of-court statements to be admitted as substantive evidence, because appellant procured the victim’s unavailability. Appellant does not challenge that the victim was unavailable, that he engaged in wrongful conduct, or that he intended to procure the victim’s unavailability for trial, but argues he or his family members did not cause the victim to be unavailable, because the state did not present evidence as to why exactly the victim did not appear.

In concluding that appellant’s wrongful conduct actually caused the victim’s failure to appear, the district court relied on circumstantial evidence: The victim met with the detective on the first day of trial, she called appellant’s attorney to say she would testify the next day, and then she failed to appear after appellant sent his family to tell her not to come. In Minnesota, direct and circumstantial evidence carry the same weight. Thus, the court holds that a district court “may draw reasonable inferences from circumstantial evidence in determining whether a defendant’s wrongdoing procured the unavailability of a witness.” Here, the record supports the inferences drawn by the district court from the circumstantial evidence. The district court did not violate appellant’s constitutional rights in admitting the victim’s statements to the detective. State v. Shaka, No. A18-0778, 2019 WL 1890550 (Minn. Ct. App. 4/29/2019).

Samantha Foertsch 

Stephen Foertsch

Bruno Law PLLC

EMPLOYMENT & LABOR LAW

JUDICIAL LAW

• At-will employment; loss of security clearance. An employee who refused to participate in a debriefing in connection with his government security clearance was properly terminated from his job. The 8th Circuit Court of Appeals, affirming a lower court ruling, held that the claimant could not pursue an action for wrongful termination because he was an at-will employee, which is not overcome by his refusal to violate the law or any “public policy” in connection with the loss of a security classification necessary for his work. Dubuque v. Boeing Company, 917 F.3d 666 (8th Cir. 2/2/2019).

• Discrimination and retaliation; failure to exhaust bars claim. A lawsuit for constructive discharge based upon discrimination and retaliation failed because the claimant did not exhaust some of his claims before pursuing the litigation. The 8th Circuit, affirming a lower court ruling, held that the failure to include in a preceding charge before the Equal Employment Opportunity Commission (EEOC) the adverse acts that the claimant now asserts forced him to resign barred his claim, as well as his at-will employment status, depriving him of any due process claim. Voss v. Housing Authority of City of Magnolia, Arkansas 917 F.3d 618 (8th Cir. 2/25/2019).

• ERISA; insufficient evidence of continuing disability. An employee’s challenge to a determination by his insurance carrier, terminating long-term disability benefits as part of his ERISA benefits, was dismissed on grounds of insufficient evidence. The 8th Circuit, upholding a decision of the trial court, held that even though the employee presented “some evidence” of disability from medical providers, the insurer did not abuse its discretion because it had evidence that the claimant was “deliberately” exaggerating his symptoms, which barred his claim for disability. Johnston v. Prudential Insurance Company, 916 F.3d 718 (8th Cir. 2/25/2019).

• Repudiation of union agreement; enforcement order granted. The National Labor Relations Board (NLRB) obtained an order adopting an administrative law judge’s decision that the company violated the National Labor Relations Act by repudiating its relationship with a contract and the local union. The 8th Circuit upheld a determination by the NLRB that the employer’s conduct was unlawful and directed it to cease and desist, rejecting the employer’s claim that the underlying charge was not filed within the required six months of the termination of the business relationship. NLRB v. Westrum, 2019 WL 856597 (8th Cir. 2/22/2019) (unpublished). 

• Workers’ compensation; exclusivity no bar to disability claim. The exclusivity provision of the Minnesota Workers’ Compensation Act, Minn. Stat. §176.031, does not bar claims for disability discrimination for failure to provide a reasonable accommodation to a disabled employee under the Minnesota Human Rights Act, Minn. Stat. §363A.01 et seq. Reversing a ruling of the court of appeals, the state Supreme Court held that the exclusivity provision does not prevent claimant, a firefighter with the city of Minneapolis, from proceeding with a discrimination claim for failure to accommodate his disability by allowing him to wear tennis shoes at work. Daniel v. City of Minneapolis, 932 N.W.2d 637 (S.Ct. 2/27/2019).

• Workers’ compensation offset; self-funded plan inapplicable. An employee’s claim for temporary total disability (TTD) benefits under the Workers’ Compensation Act cannot be offset by the benefits paid to the employee for the same time period of disability under the employer’s self-funded, self-administered, short term disability (STD) plan. Affirming a ruling of the Workers’ Compensation Court of Appeals, the state Supreme Court held that an employer may not offset the TTD benefits by amounts previously paid by it for STD benefits. Bruton v. Smithfield Foods, Inc. 923 N.W.2d 661 (S.Ct. 2/27/2019). 

• Unemployment compensation; quartet of losing claims. Four more unemployment compensation claimants lost bids for benefits for a variety of reasons. An untimely appeal from an initial determination of ineligibility, which was filed electronically one day after the statutory deadline, was dismissed. The court of appeals held that by filing one day later than the ascribed date, the applicant’s claim was time-barred. Thurmer v. Diff’s Trucking, LLC, 2019 WL 905816 (Minn. Ct. App. 2/25/2019) (unpublished).

An employee who was fired due to poor attendance, including arriving late, leaving early, and missing work entirely, was denied unemployment compensation benefits. The appellate court held that, even though the employee always provided a reason for his absences, he nevertheless was ineligible due to statutory “misconduct.” Scott v. Artistic Finishes, Inc., 2019 WL 907754 (Minn. Ct. App. 2/25/2019) (unpublished).

An employee who quit his job because his employer failed to reimburse his monthly expenses did not have “good reason” to quit in order to be eligible for unemployment compensation benefits. The court of appeals held that an “average, reasonable” employee would have simply completed another reimbursement form rather than quitting and, therefore, the employee was ineligible for benefits. Noel v. Lutheran Social Service of Minnesota, 2019 WL 664519 (Minn. Ct. App. 2/19/2019) (unpublished).

An employee who worked as a behavioral aide in a residential home for mentally disabled adults was not entitled to unemployment compensation benefits after she quit her job. The court of appeals noted that, because the employee had been offered additional training on how to respond to difficult residents, her quitting was unjustified and, therefore, barred her from benefits. Veer v. Autio Homes, Inc., 2019 WL 664508 (Minn. Ct. App. 2/19/2019) (unpublished).

ADMINISTRATIVE LAW

• BMS dismissal upheld. The dismissal by the Bureau of Mediation Services (BMS) of a petition seeking to de-certify a union purporting to represent certain personal care assistants was upheld by the Minnesota Court of Appeals in Certain Employees of State of Minnesota v. SEIU Health Care MN, 2019 WL 661660 (Minn. Ct. App. 2/19/2019) (unpublished). The court rejected the contention that legislation authorizing the collective bargaining agreement violated the Article 4, Section 17, “title and single subject provision” of the Minnesota Constitution. The court held that the legislation, which provided funding to the Department of Human Services to implement this collective bargaining agreement, which had been approved by Minnesota Management & Budget (MMB) and authorized by it, was “broadly related” to state government and the DHS budget and operation and, therefore, did not violate the constitutional requirement.

 Marshall H. Tanick

 Meyer Njus Tanick

ENVIRONMENTAL LAW

JUDICIAL LAW

• Court of appeals rejects claims that DNR violated MERA and public trust doctrine in permitting groundwater pumping near White Bear Lake. The Minnesota Court of Appeals issued an opinion overturning the Ramsey County District Court and rejecting claims that the Minnesota Department of Natural Resources (DNR) had violated both the Minnesota Environmental Rights Act (MERA) and the public trust doctrine in its handling of groundwater appropriations affecting water levels of White Bear Lake in the northeast area of the greater Twin Cities. 

Plaintiffs initiated the lawsuit in 2013 as lake levels in the relatively shallow and groundwater-fed White Bear Lake reached historic lows. Plaintiffs claimed DNR permitted an unsustainable and increasingly large volume of groundwater to be pumped in the northeast metro area, which relies almost exclusively on groundwater for municipal water supply. DNR’s conduct, plaintiffs argued, directly led to the drawdown of White Bear Lake and violated both MERA and the public trust doctrine. 

The appellate court’s MERA holding focused on the interplay between sections 116B.03 and 116B.10 of MERA. Section 116B.03, subd. 1 establishes a cause of action that any person residing in the state can bring against “any person” for the protection of natural resources; to a successful plaintiff, the court can grant direct equitable relief necessary to protect the natural resources. Minn. Stat. §116B.07.  Section 116B.10, on the other hand, establishes a cause of action against a state agency that has issued an environmental quality permit where the plaintiff claims the permit is inadequate to protect natural resources. However, under section 116B.10, subd. 3, the only available relief for a successful plaintiff (apart from emergency temporary injunctive relief) is for the court to remit the matter to the agency to for further administrative proceedings. 

In this case, plaintiffs asserted their MERA claim against DNR over the inadequacy of its water appropriation permits not under the agency-permit provisions of section 116B.10 but under the more general provisions of section 116B.03. The district court held that this was permissible and proceeded to grant direct relief, right down to dictating the times of year that residents in the northeast metro area could operate lawn sprinklers. On appeal, the court of appeals held that this interpretation of MERA effectively rendered section 116B.10 of no effect, contravening principles of statutory interpretation, and would authorize courts to “issue remedies outside of the ordinary administrative process established by the legislature.” Because plaintiffs had stated a claim under section 116B.10, however, the court reversed and remanded to the district court to “remit the parties to the DNR to institute appropriate administrative proceedings.”  

With regard to the public trust doctrine—which provides that the state, in its sovereign capacity, holds absolute title to all navigable waters and the soil under them for common use—the court of appeals followed its prior decision in Aronow v. State, 2012 Minn. Dist. LEXIS 171 (Minn. Ct. App. 2012), holding that the doctrine had only been applied in Minnesota to navigable water and that only the Minnesota Supreme Court could create a new common law cause of action by extending the doctrine to resources other than navigable water, e.g. groundwater. White Bear Lake Restoration Association v. Minn. Dept. Nat. Res., No. A18-0750, (Minn. Ct. App., 4/22/2019).  

• Minnesota Supreme Court finds drainage system reestablishment proceedings are subject to certiorari review. The Supreme Court of Minnesota issued an opinion that an order by a drainage authority reestablishing drainage-system records under Minnesota Statutes, Section 103E.101, subd. 4a is a quasi-judicial decision subject to certiorari review. 

The Chippewa/Swift Joint Board of Commissioners had received a request from landowners for repairs to be made to Chippewa and Swift Ditch No. 9. While considering the request, the board determined that the original records establishing the drainage system had been lost, destroyed, or were otherwise incomplete and that it was necessary to reestablish the records before proceeding with any repairs. As part of reestablishing the record, the board submitted a report to the Minnesota Department of Natural Resources (DNR) for their review. In a written response and at a public hearing, the DNR expressed concerns that the board’s reestablishment proposal would have the effect of lowering the water levels of nearby wetlands and recommended specific changes. Subsequently, the board issued its order reestablishing the drainage system’s records, without incorporating the changes recommended by the DNR. The DNR then petitioned the Minnesota Court of Appeals for a writ of certiorari. The board moved to dismiss the appeal for lack of jurisdiction. The court of appeals found that the board’s order was not a quasi-judicial decision and thus was not subject to review by certiorari and dismissed the appeal for lack of jurisdiction.

On review, the Supreme Court reiterated and applied the three indicia for determining whether a decision is quasi-judicial, all of which must be present for certiorari review: (1) investigation into a disputed claim and weighing of evidentiary facts; (2) application of those facts to a prescribed standard; and (3) a binding decision regarding the disputed claim. Both the DNR and the board agreed that the first two indicia were satisfied; accordingly, the court focused on the third factor—whether the board’s order was a binding decision. The Court first found that the plain language of section 103E.101, subdivision 4a indicates that the record-reestablishment order at issue was a binding order regarding the disputed claim at hand, i.e., whether the drainage-system records were reestablished correctly. Next, the Court concluded that because many of the essential procedures for the establishment of a drainage system, which the court noted is “undisputedly a quasi-judicial proceeding,” are also found in the procedures for reestablishment of a drainage system’s records, record-reestablishment proceedings should similarly be deemed quasi-judicial. Finally, the Court found that the reestablishment of drainage-system records had a significant binding effect on the rights of the adjacent landowners and other interested parties. Accordingly, the Court held that an order by a drainage authority reestablishing drainage-system records is a quasi-judicial decision subject to quasi-judicial review.  The Court reversed and remanded to the court of appeals with instructions to reinstate the appeal. Minn. Dep’t of Nat Res. v. Chippewa/Swift Joint Bd. of Comm’rs, 2019 Minn. LEXIS 189 (Minn., 4/3/2019).

ADMINISTRATIVE ACTION

• EPA issues interpretive statement on CWA jurisdiction over groundwater discharges. On 4/23/2019, the U.S. Environmental Protection Agency (EPA) published an interpretive statement on application of the Clean Water Act (CWA) National Pollutant Discharge Elimination System (NPDES) program to releases of pollutants from a point source to groundwater. 84 Fed. Reg. 16810.  In a change of course from prior informal positions the agency had taken on the issue, EPA concluded that “the CWA is best read as excluding all releases of pollutants from a point source to groundwater from NPDES program coverage, regardless of a hydrologic connection between the groundwater and jurisdictional surface water.” In a press release, EPA emphasized that its interpretation recognizes “the state’s leadership role in protecting groundwater and provides certainty to states and others who implement and enforce EPA’s federal permitting programs.” The statement comes shortly after the U.S. Supreme Court agreed to hear an appeal of a 9th Circuit decision, Hawaii Wildlife Fund v. County of Maui, 886 F.3d 737 (9th Cir. 2018), which concluded discharges to groundwater are subject to NPDES permitting where the pollutants discharged to groundwater are “fairly traceable” from the point source to a navigable water. Pending the high court’s decision, EPA clarified that its interpretation only applies outside of the 9th Circuit and the 4th Circuit, which has taken a position similar to that of the 9th Circuit. See Upstate Forever v. Kinder Morgan Energy Partners, L.P., 887 F.3d 637, 652 (4th Cir. 2018). The 8th Circuit has yet to rule on the issue; accordingly, EPA’s interpretative statement applies in Minnesota. 

Jeremy P. Greenhouse

The Environmental Law Group, Ltd.

Jake Beckstrom 

Vermont Law School, 2015 

Erik Ordahl

Flaherty & Hood, P.A.  

FAMILY LAW

JUDICIAL LAW

• District Court must calculate spousal maintenance using net incomes, even if the parties don’t provide them. After 35 years of marriage, husband and wife divorced following a two-day bench trial on the issue of spousal maintenance. At the time of trial, the trial court imputed $2,860 in gross income to wife (then unemployed) and found her expenses to be $5,825 per month. By comparison, the trial court found husband earned gross income of $7,478.44 per month, with expenses of only $4,655. Comparing just gross income and expenses, Husband thus enjoyed a $2,800 monthly income surplus while wife suffered a deficit of $2,900 per month. Accordingly, the trial court awarded wife spousal maintenance of $2,700 per month. 

In post-trial motions, husband sought amendments to the court’s findings, observing that his income net of taxes was only $3,875 per month—resulting in a maintenance award which consumed 70% of his take-home pay. The court denied husband’s motion, observing that while findings regarding net income would normally be appropriate, neither party introduced such evidence (at least as to wife) and the court could not be expected to “divine new evidence” from the record. Husband appealed, arguing the trial court committed error by calculating spousal maintenance based on his gross income.

While acknowledging the inadequacy of the record presented to the lower court, the court of appeals still reversed and remanded. Stressing the importance of husband’s ability to pay, the appellate court observed that husband’s tax liability “could significantly affect the amount of income available to pay a spousal maintenance award,” and thus must be factored either into the calculation of husband’s income or as part of his expenses. Here, the lower court did neither. Accordingly, the court of appeals remanded the case, instructing the lower court to reopen the record to receive evidence as to both parties’ net incomes. Wood v. Wood, No. A18-0722, 2019 WL 1591767 (Minn. Ct. App. 4/15/2019).

Michael Boulette

Barnes & Thornburg LLP

FEDERAL PRACTICE

JUDICIAL LAW

• Classwide arbitration; ambiguous agreement. A divided Supreme Court held 5-4 held that an ambiguous arbitration agreement does not establish the contractual “consent” necessary to provide for class arbitration. 

Four separate dissenting opinions either questioned the Court’s subject matter jurisdiction and/or criticized the majority’s decision on the merits. Lamps Plus, Inc. v. Varela, ___ S. Ct. ___ (2019). 

• Cy pres settlement; standing; Spokeo. Where plaintiffs brought class action claims against Google alleging violations of the Stored Communications Act, a settlement agreement was reached which provided for payments to counsel and cy pres recipients but no payments to absent class members, a number of class members objected to the proposed settlement, the district court approved the settlement and the 9th Circuit affirmed, the Supreme Court, in a per curiam opinion, avoided the issue of the validity of the cy pres settlement, vacating and remanding the case for consideration of whether plaintiffs have standing following Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). 

Justice Thomas dissented, finding that the plaintiffs had standing, and determining that cy pres payments are not a form of relief to absent class members, and did not otherwise comply with Fed. R. Civ. P. 23. Frank v. Gaos, ___ S. Ct. ___ (2019). 

• Successive motions to intervene; timeliness of appeal. The 8th Circuit found an appeal by prospective intervenors to be untimely where the intervenors filed successive motions to intervene on virtually identical grounds, and the intervenors filed a motion to appeal only after the denial of the second of their motions. The 8th Circuit found that “[t]he denial of a second motion to intervene covering the same grounds as the first motion... does not reset the clock for purposes of an appeal [because] holding otherwise would defeat the statutory timeliness requirement.” Smith v. SEECO, Inc., ___ F.3d ___ (8th Cir. 2019). 

• Americans with Disabilities Act claims; mootness. Affirming Judge Doty’s grant of a motion to dismiss ADA claims, the 8th Circuit agreed with Judge Doty that he lacked subject matter jurisdiction over the claims once the defendant remedied the alleged ADA violations. Davis v. Morris-Walker, Ltd., ___ F.3d ___ (8th Cir. 2019). 

• Denial of motion to disqualify attorney treated as harmless error. While finding that a district court should have granted the defendant’s motion to disqualify a large Twin Cities law firm from representing the plaintiff, the 8th Circuit found that the failure to disqualify constituted “harmless error” absent any evidence that the law firm had improperly used the defendant’s confidential information and the defendant failed to establish any other harm arising from the conflict. Cedar Rapids Bank & Trust Co. v. Mako One Corp., 919 F.3d 529 (8th Cir. 2019). 

• Preliminary injunction; relevant standard; state action. Reversing Judge Magnuson’s denial of the plaintiffs’ motion for a preliminary injunction allowing them to compete in high school competitive dance, the 8th Circuit held that the “heightened standard” applicable to preliminary injunction motions aimed at “state statutes” and “other forms of government actions” did not apply to bylaws adopted by the Minnesota State High School League, because those bylaws were not based on “presumptively reasoned democratic processes.” D.M. ex rel. Xiong v. Minnesota State High School League, 917 F.3d 994 (8th Cir. 2019). 

• Punitive damages; due process. Where a jury awarded the plaintiff in an employment discrimination case $1 in compensatory damages and $250,000 in punitive damages, the 8th Circuit rejected a due process challenge to the punitive damage award, “declin[ing] to place undue weight on the mathematical ratio between compensatory and punitive damages.” Bryant v. Jeffrey Sand Co., 919 F.3d 520 (8th Cir. 2019). 

• Appeal from denial of motion to remand moot following entry of summary judgment. In an unpublished opinion, the 8th Circuit declined to rule on the plaintiff’s post-summary judgment appeal from the denial of his motion to remand premised on the defendant’s alleged untimely removal of the action, finding that once the case had proceeded to summary judgment, it would not address a non-jurisdictional procedural defect. Shelby v. Oak River Ins. Co., ___ F. App’x ___ (8th Cir. 2019). 

• 28 U.S.C. §1292(b); personal jurisdiction; corporate registration. In February 2019, this column noted Judge Nelson’s denial of a motion to dismiss for lack of personal jurisdiction where the defendant was registered to do business in Minnesota. 

Judge Nelson subsequently denied the defendant’s motion to certify her order for appeal pursuant to 28 U.S.C. §1292(b), finding that the Minnesota Supreme Court and the 8th Circuit has previously addressed the legal question at issue, meaning that the defendant could prevail on its interlocutory appeal only if its appeal was heard en banc or the question was certified to the Minnesota Supreme Court. Am. Dairy Queen Corp. v. W.B. Mason Co., 2019 WL 1767409 (D. Minn. 4/22/2019). 

• Fed. R. Civ. P. 7(a)(7); motion to require reply to answer granted. Where one group of defendants asserted a number of immunity defenses in their answer, Judge Tostrud granted their Fed. R. Civ. P. 7(a)(7) motion to require the plaintiff to provide a reply “setting forth specific, non-conclusory factual allegations” responsive to the immunity defenses. Charnesky v. Lourey, 2019 WL 1505995 (D. Minn. 4/5/2019). 

• Arbitration clause; absence of “qualifying language;” preliminary injunction denied. Judge Brasel denied the plaintiff’s motion for a preliminary injunction in a non-compete cases where the parties’ arbitration agreement lacked the required “qualifying contractual language,” meaning that the court “would have to reach the merits of the underlying dispute” in order to grant the request for injunctive relief. Andersen Windows, Inc. v. Barbaro, 2019 WL 1409360 (D. Minn. 3/28/2019). 

• 28 U.S.C. §1782; orders on motions for discovery for use in a foreign proceeding. Magistrate Judge Rau granted two recent requests under 28 U.S.C. §1782. 

In the first case, a Czech court requested assistance in obtaining information from a bank headquartered in Minnesota, and its “narrowly tailored” request was granted. In Re: Request for Judicial Assistance from the Municipal Court in Brno, Czech Republic, 2019 WL 1513897 (D. Minn. 4/8/2019). 

One day later, a motion was granted allowing “narrowly tailored” discovery from the same bank in aid of litigation pending in Brazil and Singapore, as well as a Brazilian arbitration. In Re: Application of CA Investment (Brazil) S.A. for an Order to Take Discovery for Use in Foreign Proceedings Pursuant to 28 U.S.C. §1782, 2019 WL 1531268 (D. Minn. 4/9/2019). 

• Numerous motions to remand granted. Where the defendant had received a pre-litigation demand asserting that the plaintiff had suffered more than $3,000,000 in damages, the plaintiff’s state court complaint demanded more than $50,000 in damages, and the defendant removed the action only after the plaintiff served its initial disclosures, which also asserted that it incurred more than $3,000,000 in damages, Judge Doty granted the plaintiff’s motion to remand, finding that the pre-litigation demand constituted “other paper” sufficient to put the defendant on notice of the amount in controversy. Judge Doty did deny the plaintiff’s motion for an award of costs and expenses under 28 U.S.C. §1447(c), finding that the defendant’s position was not “objectively unreasonable.” Repco, Inc. v. Flexan, LLC, 2019 WL 1170667 (D. Minn. 3/13/2019). 

Judge Tostrud granted the plaintiff’s motion to remand an action that had been removed on the basis of federal question jurisdiction, finding that the plaintiff’s reference to federal regulations underlying her Minnesota whistleblower claims was “not substantial” enough to support federal question jurisdiction. Martinson v. Mahube-Otwa Community Action Partnership, Inc., 2019 WL 1118523 (D. Minn. 3/11/2019). 

Judge Brasel granted two motions to remand, finding in both cases that the complaints did not allege claims arising under federal law, and that no exception to the well-pleaded complaint rule applied. General Mills, Inc. v. Retrobrands USA, LLC, 2019 WL 1578689 (D. Minn. 4/12/2019). City of Cambridge v. On Love Housing, LLC, 2019 WL 1499724 (D. Minn. 4/5/2019). 

Josh Jacobson

Law Office of Josh Jacobson

INDIAN LAW

JUDICIAL LAW

• No jurisdiction under the Indian Tucker Act. The Indian Tucker Act allows Indian tribes to bring certain statutory claims for monetary damages against the United States. The plaintiff sued the United States for title to land based on the United States’ common-law trust responsibility. The Court of Claims dismissed for lack of jurisdiction. The Federal Circuit Court of Appeals affirmed, holding that the Indian Tucker Act does not provide jurisdiction for claims brought by individuals or for claims brought based on the United States’ common-law trust responsibility. Cloud v. United States, ___ Fed. App’x ___, 2019 WL 1579599 (Fed. Cir. 4/12/2019).

• Tribal-court exhaustion and immunity apply to §1983 claims. A pro se non-Indian plaintiff sued a tribe and tribal law-enforcement officers for allegedly violating his federal constitutional rights. The district court dismissed the claims against the tribe and official-capacity claims on immunity grounds, and the 8th Circuit Court of Appeals affirmed, confirming that 42 U.S.C. §1983 does not abrogate tribal immunity. The district court separately dismissed the individual-capacity claims against the officers without prejudice for failure to state a claim. The 8th Circuit affirmed, but on other grounds. It applied the tribal-court exhaustion doctrine and held that the tribal court should determine first whether the plaintiff can maintain implied federal claims against the officers. It also applied Pullman abstention—previously limited to cases involving state law and state courts—noting that the tribal court may grant adequate relief under the Indian Civil Rights Act and tribal law and moot the federal claims. Stanko v. Oglala Sioux Tribe, 916 F.3d 694 (8th Cir. 2019). 

Jessica Intermill 

Peter J. Rademacher

Hogen Adams PLLC

INTELLECTUAL PROPERTY

JUDICIAL LAW

• Copyright: Court holds copyright and DMCA claims may remain. Judge Tunheim recently denied a defendant’s motion to dismiss claims for copyright infringement and violation of the Digital Millennium Copyright Act (DMCA). FurnitureDealer.net (FDN) creates and manages websites and associated content for furniture retailers. Coaster entered into an agreement with FDN to create and maintain a website for selling Coaster’s furniture and to create search-engine-optimized (SEO) text to maximize the website’s search prominence. The SEO text was part of FDN’s database, registered as a copyrighted collection, and FDN also retained exclusive rights to the text under the agreement. FDN sued Amazon and Coaster for copyright and DMCA violations after finding the SEO text on several Amazon webpages featuring Coaster furniture. Coaster moved to dismiss the claims under Rule 12(b)(6). 

The court held the SEO text was copyrightable and denied Coaster’s motion. The court agreed with the view that registration of a collective work covers its component works where the registrant has rights to the component works, and found that this view aligned with “the spirit of the Copyright Act.” The court also held that FDN had plausibly stated its DMCA claim, which was based on Coaster intentionally removing or altering copyright management information from FDN’s protected works. FDN alleged that it placed a notice on each of its webpages informing the viewer of its rights in the content and prohibiting reproduction without permission. Although Coaster argued that the notice should not apply to the SEO text on the website, the court rejected Coaster’s arguments and followed case law holding that such designations extend to individual contributions from a collective work and to copies of an original work. FurnitureDealer.Net, Inc. v. Amazon.com, Inc., No. CV 18-232 (JRT/HB), 2019 WL 1207011 (D. Minn. 3/14/2019).

• Copyright: Prevailing party denied attorneys’ fees. Judge Wright recently denied a motion for attorneys’ fees and costs to a prevailing party. Live Face sued Renters Warehouse and its current CEO, Kevin Ortner, claiming the defendants’ website infringed Live Face’s copyrighted software. Defendants moved to dismiss the claims against Ortner, which the court granted with prejudice because early discovery showed that Ortner was not CEO during the alleged infringement period. Ortner then moved for attorneys’ fees and costs under Section 505 of the Copyright Act, asserting that he was a prevailing party and that Live Face’s infringement claim was meritless. The court analyzed the relevant factors and determined that Ortner should not receive attorneys’ fees and costs under Section 505. First, Live Face’s claim was objectively reasonable because a corporate executive may be held liable for vicarious infringement and public information indicated that Ortner held a supervisory role. Though it failed to research whether Ortner was CEO at the time of the infringement, the court determined that Live Face could have plausibly believed he held that position then. Next, the court found Live Face had no improper motive in bringing a claim against Ortner because it promptly moved to voluntarily dismiss the claim against him following his discovery response asserting he was not the CEO during the infringement period. Live Face on Web, LLC v. Renters Warehouse, LLC, No. 17-CV-2127 (WMW/KMM), 2019 WL 1097493 (D. Minn. 3/8/2019).

• Trademark: Goodwill belongs to licensor, not licensee. Judge Wright recently denied a motion for temporary restraining order and preliminary injunction in a franchisee-franchisor dispute. Izabella HMC-MF, LLC, owns and operates the Radisson Menominee Falls Hotel in Menominee Falls, Wisconsin. In January 2019, Radisson Hotels International, Inc., informed Izabella that it allegedly breached the parties’ licensing agreement due to unauthorized renovations of the hotel. Radisson informed Izabella that failure to cure the breach would result in termination of the agreement and loss of the Radisson mark for its hotel. Izabella sued to prevent termination of the license and moved for a temporary restraining order and preliminary injunction. In considering whether a temporary restraining order or preliminary injunction is warranted, courts consider four factors: (1) the probability that the movant will succeed on the merits, (2) the threat of irreparable harm to the movant, (3) the balance between this harm and the injury that the injunction will inflict on other parties, and (4) the public interest. The court focused exclusively on the irreparable harm factor. Izabella argued termination of the licensing agreement would result in a reduced number of bookings and substantial loss of revenue. These injuries, however, are compensable by monetary damages and do not represent irreparable harm. Izabella next argued termination of the licensing agreement would cause harm to Izabella’s reputation and goodwill if it lost its Radisson branding. While the loss of intangible assets such as reputation and goodwill can constitute irreparable injury, the goodwill arising from a licensed brand belongs to the licensor, not the licensee. As the licensing agreement states that Radisson owns the Radisson marks and goodwill associated with them, Izabella cannot demonstrate that its loss of the Radisson branding will irreparably harm any goodwill that belongs to Izabella. Izabella Hmc-Mf v. Radisson Hotels Int’l, Case No. 19-cv-1147 (WMW/ECW), 2019 U.S. Dist. LEXIS 79073 (D. Minn. 5/10/2019).

• Patent: Term in preamble is a claim limitation. Judge Brasel recently issued a claim construction order and found that a term in the patent claim’s preamble was also a claim limitation. Danfoss accused DeltaTech of infringing a patented joystick device used to control heavy machinery. The disputed term “main electronic controller” appeared in the patent claim preamble, which generally introduces the claimed invention, and in the patent claim body, which defines the claimed invention. The parties disputed whether the term in the preamble further defined the invention. Judge Brasel noted federal circuit precedent holds that a phrase found in both a patent claim’s preamble and body can limit the claim. The court found that the claim depended on the preamble phrase “a remotely located main electronic controller” because the phrase was required to understand the term “a main electronic controller” as used in the claim body. The court rejected Danfoss’s arguments that the claim was not limited by the phrase “main electronic controller” because the patent drawings did not show the controller. The patent statute only requires drawings “where necessary for the understanding of the subject matter sought to be patented.” The court determined that a drawing of an electronic controller would not have been required for prosecution of the patent application. Danfoss Power Sols. Inc. v. DeltaTech Controls, No. 16-CV-3111 (NEB/DTS), 2019 U.S. Dist. LEXIS 59915 (D. Minn. 4/8/2019).

Tony Zeuli

Joe Dubis

Ryan Borelo

Merchant & Gould

PROBATE & TRUST LAW

JUDICIAL LAW

• Trustee and beneficiary attorneys’ fees. Following the settlement of disputes between the trustee and a beneficiary, the district court held that attorneys’ fees incurred by both the trustee and beneficiary were payable from the trust. The district court awarded the beneficiary attorneys’ fees based primarily on the fact that the trustee was awarded attorneys’ fees for the same dispute. 

The Minnesota Court of Appeals reversed and remanded on the basis that the district court failed to conduct the proper analysis with respect to whether trustee and beneficiary attorneys’ fees are payable from a trust. The court held that Minn. Stat. §501C.0709, as supplemented by the common law, controls awards of trustee attorneys’ fees and that “trustees are entitled to fees when ‘the fees are reasonable and incurred in good faith.’” (Emphasis in original.) On the other hand, the court held that Minn. Stat. §501C.1004, as supplemented by the common law, controls awards of beneficiary attorneys’ fees. Specifically, the court held that “beneficiary fees are subject to a justice-and-equity analysis” and that district courts are required to conduct the analysis outline in In re Atwood, 35 N.W.2d 736, 740 (Minn. 1949). Because the district court did not apply the proper standard, the court of appeals reversed and remanded. In re Schauer, No. A18-0969, 2019 WL 1510698 (Minn. Ct. App. 4/8/2019).

Casey D. Marshall

Bassford Remele

REAL PROPERTY

JUDICIAL LAW

• Partition; settlement; royalties. In a family partition action, the parties settled the matter in a stipulated judgment. Leland conveyed his interest in a gravel pit to Randy, and reserved an interest in royalties. Believing he was underpaid, years later Leland obtained post-judgment discovery and a contempt order against Randy. The Minnesota Supreme Court reversed the district court and the court of appeals, holding that the creation of an unaccrued royalty interest at the time of the stipulation and conveyance is a real property interest, and does not create a judgment debt. Leland was therefore not entitled to post-judgment discovery. The Supreme Court further held that the district court abused its discretion in issuing the contempt order because the court of appeals reversed a necessary finding of fact as unsupported by the record, and that contempt would be inappropriate in any event since a writ of execution was available. It is not obvious, however, why the Supreme Court would suggest such a course of action after previously holding that no judgment debt existed in the case. Sehlstrom v. Sehlstrom, ___ N.W.2d ___ (Minn. 2019).

• Drainage authorities. Since their establishment in the late 19th and early 20th centuries, some records of drainage authorities have been lost or destroyed, or are otherwise incomplete. Minn. Stat. §103E.101 allows a drainage authority to reestablish its records either as originally constructed or as subsequently improved. Reestablishment of records can have significant impacts on trespass and encumbrance proceedings. The Supreme Court held that a reestablishment order is a quasi-judicial order entitling the Minnesota Department of Natural Resources to appeal directly to the Minnesota Court of Appeals. Minnesota Dep’t of Nat’l Res. V. Chippewa/Swift Joint Bd. of Comm’rs, ___ N.W.2d ___ (Minn. 2019).

• Annexation. Nonparties to an orderly annexation agreement may annex real property within the designated area by ordinance. Midway Township and the City of Duluth entered into an orderly annexation agreement governing annexation of property by Duluth. The city of Proctor lies between Midway and Duluth. Owners of property within the designated area desired to have Proctor annex their property, which Proctor did by ordinance. Annexations by ordinance are governed by Minn. Stat. §414.033, orderly annexations by Minn. Stat. §414.0325. The Supreme Court held that Minn. Stat. §414.0325 does not preempt annexations by ordinance by non-parties to the orderly annexation. In re Annexation of Certain Real Property to City of Proctor from Midway Township, ___ N.W.2d ___ (Minn. 2019).

• Foreclosure. In a quiet title action, sheriff certificates of sale, assignments of the certificate, and underlying mortgages may be reformed by a district court to conform to the mortgaging parties’ intent and to protect subsequent purchasers. The borrowers owned two parcels of land. Their home was situated on only one parcel. In a refinancing, the borrowers stated that the property was their primary residence and their purpose for refinancing was home improvement. Only one legal description was included in the mortgage and the subsequent sheriff’s certificate—the parcel not including the home. Neither the district court nor the court of appeals were convinced that a failure to include the legal description of the house parcel in the foreclosure process caused the foreclosure to fail on a theory of strict compliance. The court of appeals held that because both parcels shared the same street address and because the underlying mortgage also lacked a legal description of the house parcel, the foreclosure substantially complied. Moore v. Mortgage Elec. Registration Sys. Inc., No. A18-1370, 2019 WL 1434232 (Minn. Ct. App. 4/1/2019).

• MCIOA. The Minnesota Court of Appeals recently affirmed a grant of summary judgment in a case concerning a dispute between a non-residential condominium unit owner and the association that touched on several MCIOA statutes. First, the court of appeals held that even when an association fails to approve a budget and levy assessments, resulting in the declarant becoming responsible for all common expenses under Minn. Stat. §515B.3-1151, the statute does not preclude the declarant from seeking reimbursement from unit owners, nor does payment by a unit owner to a declarant create a debt owing from the association to the unit owner. Second, even if a declarant-controlled board holds over in violation of Minn. Stat. §515B.3-103, if the unit owners do not call a meeting to vote in a new board under Minn. Stat. §515B.3-103(d)(3), the board and its actions remain valid. KGK, LLC v. 731 Bielenberg Ass’n, No. A18-1265, 2019 WL 1510846 (Minn. Ct. App. 4/8/2019).

Joseph P. Bottrell

Meagher & Geer PLLP

TAX LAW

JUDICIAL LAW

• State tax pre-empted by 1855 treaty between the United States and Yakama Nation. In a 5-4 decision, the Supreme Court upheld the treaty rights of the Yakama nation in a dispute with the state of Washington. The Court held that the state could not impose its fuel import tax on fuel importers who are members of the Yakama nation because an 1855 treaty between the United States and the Yakama Nation forbids such a tax. Justice Breyer announced the judgment and was joined in his opinion by Justices Sotomayor and Kagan. Justice Gorsuch concurred in the judgment and was joined in his opinion by Justice Ginsburg. The Chief Justice’s dissent was joined by Justices Thomas, Alito, and Kavanaugh. Justice Kavanaugh also filed a separate dissent, which was joined by Justice Thomas. Washington State Dep’t of Licensing v. Cougar Den, Inc., 139 S. Ct. 1000 (2019).

• RRTA: Railroad’s payment to an employee for working time lost due to an on-the job injury is taxable “compensation” under RRTA. Reversing the 8th Circuit, and settling a division of opinion, the Supreme Court (J. Ginsberg) held that a railroad’s payment to an employee for working time lost due to an on-the-job injury is taxable “compensation” under the Railroad Retirement Tax Act. 26 U.S.C. § 3231(e)(1). BNSF Ry. Co. v. Loos, 139 S. Ct. 893, 897, 203 L. Ed. 2d 160 (2019). 

• Outstanding post-order motion prevents necessary “finality” for certiorari purposes. In a long-running property tax dispute, the tax court issued findings and conclusions regarding the value of taxpayer Guardian Energy’s property. Before judgment was entered on that order, respondent Waseca County filed a motion requesting correction of computational errors in those findings. While the motion for correction remained outstanding, the taxpayer petitioned the Minnesota Supreme Court for a writ of certiorari. The Minnesota Supreme Court determined that the Court lacked jurisdiction because there was no “final” order to appeal. A final order is a final determination of an inferior tribunal which, if unreversed, would constitute a final adjudication of some legal rights. Schober v. Comm’r of Revenue, 853 N.W.2d 102, 108 (Minn. 2013). The Court explained that since there was an undecided motion on the order, there was no final order under Minn. Stat. §271.10, subd. 1 (2018). The Minnesota Supreme Court discharged the writ of certiorari and dismissed the appeal for lack of jurisdiction. Guardian Energy, LLC v. Waseca Co., No. A16-1850 (Minn. 4/10/2019).

• Attorney’s failure to file Minnesota tax returns results in indefinite suspension. An attorney who failed to file Minnesota individual income-tax returns for several years, failed to pay Minnesota tax obligations for two of those tax years, and failed to cooperate with the Director’s investigation was suspended indefinitely with no right to petition for reinstatement for 120 days. In re Disciplinary Action Against Converse, No. A18-2077, 2019 WL 2024863 (Minn. 5/6/2019).

• Minnesota still has taxing authority. A Minnesota resident filed 2014, 2015, and 2016 Minnesota tax returns reporting taxable income from wages and distributions. In 2017, after reading “various acts of Congress and court cases” the taxpayer “realized” that he is “not a taxpayer” and that the state (and federal government) lacked authority to tax him. He filed amended tax returns for all three years claiming no income. The Minnesota Department of Revenue disagreed with the individual’s reading of the relevant authority. Further, after reviewing the taxpayer’s returns for the years at issue, the department assessed additional taxes for the years at issue. Mr. Feliciano appealed this determination, stating he “was not given a reason as to where the Department of Revenue was granted authority to tax [his] wages even after presenting evidence of who is liable for taxes of compensation.” Mr. Feliciano claimed that only the occupations listed within Public Salary Tax Act of 1939 can be taxed. The Minnesota Department of Revenue sought a dismissal of Mr. Feliciano’s action for failure to state a claim. The tax court converted the motion to dismiss to a motion for summary judgement because the tax court considered additional documents Mr. Feliciano submitted to oppose the department’s motion. Mr. Feliciano’s arguments were without merit and the tax court granted the summary judgment motion. Pereira v. Comm’r, Nos. 9232-R & 9251-R (4/9/2019).

• Property tax cases; prevailing party’s costs and disbursements within discretion of court. In a property tax appeal, prevailing party costs and disbursements are governed by specific statutory language, which provides that “Judgment shall be for the amount of the taxes for the year as the court shall determine the same, less the amount paid thereon, if any.... If the tax so determined is decreased from the amount originally levied, the court may, in its discretion, award disbursements to the petitioner, which shall be taxed and allowed and be deducted from the amount of the taxes as determined.” Minn. Stat. §271.06, subd. 1 (2018) (emphasis added). In the instant case, the court awarded $2,164.50 of the $6, 652 requested by the prevailing property taxpayer. Following established norms, the court did not award fees requested for the expert’s appraisal or for the time the expert spent preparing for court. Fees were awarded, however, for the two hours the expert spent testifying. Podany v. Hennepin Co., No. 27-CV-16-05625, 2019 WL 1560856 (Minn. Tax 4/5/2019).

• Property tax: Dismissal for failure to comply with disclosure requirements. Avis Budget Car Rental (Avis) leases space from the Metropolitan Airports Commission (MAC). Although the Minneapolis-St. Paul airport itself is exempt from taxation, when the MAC makes its property available for use in conjunction with a business associated for profit, that for-profit entity incurs property tax obligations. Avis petitioned the tax court challenging the county’s assessment of the value of Avis’s interests. Minnesota statute requires that challengers to property tax assessments provide certain information to the county assessor by August 1 of the taxes-payable year. The required information includes financial statements and other similar information. Minn. Stat. §278.05, subd. 6(a) (2018). Minnesota statute also provides that failure to provide the information “shall result in the dismissal of the petition.” Minn. Stat. §278.05, subd 6(b) (2018) (emphasis added). 

Minnesota case law establishes that the duty to disclose the required information is strictly enforced, even if there is no prejudice to the county by the omission. In this dispute, Avis provided extensive financial information to the county. In addition, the county received information from the MAC about the value of Avis’s property. However, the county claimed, and the tax court agreed, that a piece of required information was not timely disclosed. Although the county may have received sufficient information from other sources, and despite Avis’s strenuous argument that the county was not prejudiced by the purported failure to provide the information, the tax court determined that since the statutory disclosure provision in Minn. Stat. §278.05 is mandatory, failure to comply required the tax court to dismiss Avis’s petition. On this same rationale, the court reasoned that “The County cannot waive compliance with the statute, either explicitly or implicitly” and rejected Avis’s argument that the county waived compliance with the statute. Avis’s equity-based argument fared no better: The court rejected an equitable estoppel argument, finding insufficient evidence of wrongful conduct. Finally, the court rejected a laches argument, noting that the Minnesota Tax Court sits as a court of law, not equity, and that “Avis points to nothing that would allow us to perpetuate, on equitable grounds, a petition that the law requires be dismissed.” Avis Budget Car Rental LLC v. Hennepin Co., No. 27-CV-17-04683, 2019 WL 1768464 (Minn. Tax 4/12/2019). See also Enterprise Leasing Co. of Minnesota v. Hennepin Co., No. 27-CV-17-04682, 2019 WL 1768442 (Minn. Tax 4/12/2019) (dismissing nearly identical challenge on same grounds).

• WWII airplane, business or hobby? Students in introductory income tax classes learn that business expenses are (generally) deductible, while hobby expenses (generally) are not. The dividing line between whether an activity is one entered into for profit (as required for expenses attributable to the activity to be fully deductible from income tax) is a subjective one. The taxpayer must show that she undertook the challenged activity with an actual and honest objective of making a profit. The expectation of a profit does not have to be reasonable, but it must be genuine. In this dispute, the tax court was called upon to determine whether accomplished airline pilot Edward Kurdziel had the requisite profit motive when he purchased and then painstakingly (and expensively) restored a vintage, two-seater World War II airplane. The tax court, applying the 9-factor test for determining intent as set out in the regs, held that Mr. Kurdziel did not have an actual and honest objective of making a profit. He was not permitted to use his personal hobby expenses to offset the income he earned as a commercial airline pilot. 

The extensive and entertaining opinion authored by Judge Holmes begins by recognizing Mr. Kurdziel’s skill and experience as both a pilot and mechanical engineer. Mr. Kurdziel had a distinguished career flying for the military and continues to work as a commercial airline captain. He purchased the plane at issue—a vintage Fairey Firefly—for $200,000. When he purchased the plane, it was not airworthy. He spent years, and over $1 million, to get the plane ready to fly (the opinion does not report total restoration costs, but Kurdziel claimed a basis of $1.6 million in the restored plane). He achieved an airworthiness certificate and became licensed to fly the plane. He remains “the only man in America licensed to fly a Fairey Firefly.” 

Mr. Kurdziel claimed significant losses on his Firefly-related activities. In fact, his Schedule C losses offset more than half of his income from other sources. Kurdziel’s plan to take passengers up in the airplane turned out to be a nonstarter, so Kurdziel took the restored plane to air shows. The plane was a hit with plane enthusiasts, but Kurdziel did not make much money. Instead, he generated six-figure losses, which the commissioner denied—a denial the tax court upheld. Kurdziel’s motive in purchasing and restoring the plane, according to the Tax Court, was not to make a profit. Noting, however, that there is “no outright victor” in this dispute, the tax court disallowed the negligence penalty the commissioner imposed. The commissioner established that Kurdziel failed to make a reasonable attempt to comply with the provisions of the internal revenue laws by misrepresenting his not-for-profit activities as an “airplane leasing” business. This reporting position allowed Kurdziel to achieve large, income-offsetting deductions that were “too good to be true.” The commissioner, however, failed to produce evidence that the penalties at issue here were “personally approved (in writing) by the immediate supervisor of the individual making such determination.” Sec. 6751(b)(1). Thus, the commissioner did not meet his burden of production, and the accuracy-related penalties were not upheld. Kurdziel v. Comm’r, T.C. Memo 2019-20 (3/21/2019).

• Taxpayer’s Bill of Rights application. Taxpayer Moya challenged the validity of a notice of deficiency (NOD) claiming the IRS violated Taxpayer’s Bill of Rights. In particular, she argued that certain actions taken by the IRS employee violated (1) her right to be informed; (2) her right to challenge the IRS; and (3) her right to a fair and just tax system. She did not make any substantive challenges to the NOD. The court explained that the 10 “rights” were intended to be a restatement of existing rights, in other words, a re-framing of the various substantive rights existing elsewhere in the statutes. The court concluded that “in adopting its TBOR in 2014, the IRS did not create for taxpayers any rights or remedies that they did not theretofore enjoy.” Since the IRS did not deprive Moya of her right to challenge the NOD, the petitioner’s rights were not violated, and the court held in favor of the IRS. Moya v. Comm’r, 152 T.C. No. 11 (4/17/2019).

• Matter of first impression: Social Security income included in modified adjusted gross income for purposes of premium tax credit. As part of the Patient Protection and Affordable Care Act (ACA), Congress provided that certain taxpayers were eligible to receive a subsidy to reduce the cost of that taxpayer’s health insurance premiums. The subsidy is administered through the tax code, and is referred to as a premium tax credit (PTC). During the tax years at issue, the PTC was available to taxpayers whose household income was at least 100% but not more than 400% of the federal poverty line. Household income, in turn, was defined as the sum of the taxpayer’s modified adjusted gross income (MAGI) plus the MAGI of certain family members (the question of family members was not relevant to this taxpayer’s situation). 

The question of first impression faced by the tax court in this appeal was the treatment of Social Security benefits when received in a lump sum. The tax court held that MAGI includes all Social Security benefits a taxpayer receives in a particular tax year, including nontaxable portion of lump sum payment attributable to prior year for which he made Code Sec. 86(e) election. Relying on what the tax court read as unambiguous language, bolstered by its reading of legislative history, the court held that for the purposes of determining taxpayer eligibility for a §36B credit, MAGI includes all Social Security benefits received in year at issue, including the nontaxable portion of any lump sum payment attributable to prior year even if the taxpayer made a IRC §86(e) election. Johnson v. Comm’r, No. 1394-16, 2019 WL 1125865 (T.C. 3/11/2019).

--Morgan Holcomb

Mitchell Hamline School of Law

--Jessica Dahlberg

Grant Thornton

--Matthew Wildes

Mitchell Hamline School of Law

TORTS & INSURANCE

JUDICIAL LAW

• Insurance; ability of insurer to intervene in underlying action. Plaintiff, a four-year-old, sustained injuries from a dog bite while in the care of defendant’s in-home childcare center. The childcare center was insured under a childcare insurance policy issued by a non-party insurer, which provided a defense and tendered its policy limits. Defendant was insured under a homeowner’s policy issued by appellant insurer, which contained an exclusion for bodily injury arising out of business pursuits. Appellant denied coverage for the claim and refused to provide a defense for defendant. Between July 2013 and October 2014, plaintiff and defendant each notified appellant of their intent to enter into a Miller-Shugart settlement agreement. In July 2016, plaintiff informed appellant that they had finalized a Miller-Shugart agreement that called for a determination of damages through binding arbitration. Appellant appeared at the arbitration hearing but did not participate. The arbitrator valued damages at $510,000.

In November 2016, plaintiff and her family filed a motion in district court to approve and enter judgment on the settlement agreement. Appellant filed a motion to intervene and asked the district court to continue the settlement-approval hearing until after the intervention motion was resolved. The district court went forward with the settlement-approval hearing and declined to hear appellant’s argument on the merits. In its order approving the settlement and ordering entry of judgment against defendant, the district court found that the settlement was reasonable and prudent and “dismissed” appellant’s motion to intervene. 

The Minnesota Court of Appeals affirmed. The court held that appellant failed to satisfy the third requirement for intervention as a matter of right: “circumstances demonstrating that the disposition of the action may as a practical matter impair or impede the applicant’s ability to protect” an interest in the subject matter of the litigation. The court reasoned that because appellant “has the opportunity to challenge the characterization of the settlement and its reasonableness in an action to recover under the settlement in a separate action, the third factor for intervention as a matter of right in this matter is not satisfied.” Daberkow v. Remer, No. A18-0472 (Minn. Ct. App. 2/19/2019). http://www.mncourts.gov/mncourtsgov/media/Appellate/Court%20of%20Appeals/Holiday%20Opinions/OPa180472-021919.pdf 

--Jeff Mulder

Bassford Remele