Notes & Trends – November 2019



• Criminal procedure: Petty misdemeanor convictions cannot be used to enhance subsequent offense. Appellant’s two prior petty misdemeanor convictions from 2014 and 2015 for no proof of insurance were used to enhance a 2017 charge of operating a vehicle without insurance to a gross misdemeanor. Appellant received citations for the 2014 and 2015 offenses and paid the fine amounts, which were within the petty misdemeanor limits. As a result, per Minn. R. Crim. P. 23.02, the misdemeanor offenses became petty misdemeanor convictions. 

Section 609.131, subd. 3, disallows enhancement of a subsequent offense to a gross misdemeanor by using “a conviction for a violation that was originally charged as a misdemeanor and was treated as a petty misdemeanor.” Despite the plain language of section 609.131, subd. 3, the state argues the enhancement here is permitted under either section 609.13, subd. 3 (convictions of felony or gross misdemeanors; when deemed misdemeanor or gross misdemeanor), or section 169.797, subd. 4(a) (penalties for failure to provide vehicle insurance). The court of appeals rejects the state’s argument, noting that section 609.13, subd. 3, involves an unrelated sentencing issue, and that section 609.131, subd. 3’s expansive language, “[n]otwithstanding any other law,” denotes that section 609.131, subd. 3’s prohibition of the use of petty misdemeanors to enhance a subsequent offense to a gross misdemeanor “eclipses any other purportedly contrary provision.”

Under section 609.131, subd. 3, appellant cannot be convicted of a gross misdemeanor. However, the court finds appellant can be convicted of a misdemeanor based on the stipulated facts found by the district court. Reversed and remanded to reduce appellant’s conviction to a misdemeanor. State v. Selseth, No. A18-1426, 2019 WL 4147596 (Minn. Ct. App. 9/3/2019).

• Implied consent: Prehearing revocation allowed only if driver was given refusal-is-a-crime warning before blood or urine test. Appellant’s driver’s license was revoked after a blood test, conducted pursuant to a search warrant, showed that appellant drove with an alcohol concentration over 0.08. Appellant was served with the search warrant but was never told test refusal is a crime. Minn. Stat. §171.177, subd. 1, requires that, “[a]t the time a blood or urine test is directed pursuant to a search warrant…, the person must be informed that refusal to submit to a blood or urine test is a crime.” Section 171.177, subd. 1, was created to replace the implied consent statutes for blood and urine tests after the Minnesota and United States Supreme Courts held that testing of blood or urine without a warrant is unconstitutional, and the procedures in section 171.177 largely mirror those in the implied consent statutes. Thus, the court of appeals applies case law interpreting the related implied consent statutes to section 171.177.

The court looks to Tyler v. Comm’r of Pub. Safety, 368 N.W.2d 275 (Minn. 1985), which held that complying with the warning requirement was necessary before a license could be revoked under the implied consent law. The court holds that an officer must have warned a driver as required under section 171.177, subd. 1, before the driver’s license may be revoked prior to a hearing under subd. 5. However, the court also suggests a number of other ways the commissioner could revoke appellant’s license. Reversed and remanded to rescind appellant’s prehearing revocation. Jensen v. Comm’r of Pub. Safety, 932 N.W.2d 844 (Minn. Ct. App. 9/3/2019).

• Public trial: Right to public trial applies throughout voir dire. A jury found appellant guilty of aiding and abetting second-degree criminal sexual conduct, aiding and abetting kidnapping, and aiding and abetting second-degree assault. During jury selection, the district court closed the courtroom while individual jurors were questioned, at the state’s request. The courtroom remained closed throughout the remainder of voir dire, and 28 of 46 prospective jurors were individually questioned on a variety of topics.

The Minnesota and United States Constitutions confer upon all criminal defendants the right to a public trial. This right applies during all phases of trial, including voir dire of prospective jurors. Closure of a courtroom during criminal proceedings may be justified if: (1) the party seeking closure advances an overriding interest that is likely to be prejudiced, (2) the closure is no broader than necessary to protect that interest, (3) the district court considers reasonable alternatives to closing the proceeding, and (4) the district court makes findings adequate to support the closure.

Here, the district court did not make findings concerning the reasons for closing the courtroom, the necessary breadth of the closure, or the existence or absence of reasonable alternatives. Thus, the court of appeals is unable to determine whether the closure was justified. The court finds the proper remedy is a remand for an evidentiary hearing and findings concerning whether the closure was justified. State v. Petersen, No. A18-1431, 2019 WL 4147598 (Minn. Ct. App. 9/3/2019).

• Jury instructions: No error to deny counsel’s request for no adverse inference jury instruction when defendant is absent and has not consented to or requested instruction. On the second day of appellant’s trial on charges of first- and second-degree criminal sexual conduct, he failed to appear. After excusing the jury and recessing to discuss jury instructions, the district court noted that appellant’s counsel preferred to include a no-adverse-inference jury instruction. It was not known whether appellant wanted the instruction, and the court ultimately did not give the instruction. The jury found appellant guilty. 

First, the court of appeals holds that appellant did not waive his challenge to the jury instructions through his voluntary absence at trial. Second, the court holds the district court did not err by denying appellant’s counsel’s request for the no-adverse-inference instruction. The instruction must be given when requested by a defendant who did not testify at trial, but it should ordinarily not be given unless requested or personally consented to by the defendant. Here, there was no record of appellant’s counsel conferring with him about the instruction or appellant’s agreement to such an instruction, and appellant was voluntarily absent when the instruction was requested. The court finds no error in the district court’s refusal to give a no-adverse-inference instruction. State v. Flah, No. A18-1758, 2019 WL 4251985 (Minn. Ct. App. 9/9/2019).

• Habeas corpus: Habeas relief is proper procedural remedy for challenge to continued incarceration during conditional release period. Appellant was convicted of third-degree criminal sexual conduct in 2008 and sentenced to three years’ imprisonment, stayed for 15 years, and a five-year conditional release term. The sentence was executed in 2013. He was placed on supervised release in January 2014, but supervised release was revoked in August 2014. Appellant’s supervised release term expired in February 2015 and he became eligible for conditional release. On his release date, appellant was instead transferred to Blue Earth County jail because he did not have approved housing in Blue Earth County. He unsuccessfully searched for housing and his release was revoked for 90 days, and appellant was returned to prison. This pattern continued, with appellant unable to find approved housing and his incarceration extended. 

Appellant petitioned for a writ of habeas corpus, arguing the Department of Corrections (DOC) unlawfully extended his incarceration after his conditional release term began. The court of appeals reversed, finding the DOC was required to provide assistance to appellant in finding approved housing, and remanded to permit the DOC to develop the record as to what other housing options were available, warning that, if no suitable options were available, the department was required to consider restructuring the conditions of release. 

Two days before the case was scheduled for a hearing before the district court, appellant was released to a residential sex offender treatment program in Hennepin County, Alpha House, and the DOC argued appellant’s release made appellant’s habeas petition moot. The hearing proceeded and the district court ultimately granted appellant’s petition, ordering the department to treat either Hennepin or Ramsey County as appellant’s presumptive release jurisdiction and, if either county declined to accept supervision, to provide supervision in that county or modify appellant’s release conditions. The court of appeals reversed, finding appellant’s habeas petition moot upon his release to Alpha House.

The Supreme Court reverses the court of appeals, finding appellant’s release to Alpha House did not render his petition moot, that a writ of habeas corpus provides the proper procedural relief under the circumstances of this case, and that the DOC failed to adhere to the law. Appellant’s petition is not moot because he could be returned to prison after his release from Alpha House, based on the likelihood that Hennepin County would not supervise appellant and that appellant would not be able to find approved housing.

Habeas relief is also the proper procedural remedy here. Minn. Stat. §589.01 allows any person imprisoned or otherwise restrained of liberty to petition for a writ, and appellant’s liberty was restrained by the department’s failure to abide by its own internal policies regarding supervised release and judicial precedent.

Finally, the DOC failed to follow the law, specifically State ex rel. Marlowe v. Fabian, 755 N.W.2d 792 (Minn. Ct. App. 2008). The court of appeals in Marlowe stated that the department “has an obligation to fashion conditions of release that are workable and not impossible to satisfy.” Id. at 793. The Supreme Court accepts the district court’s conclusion in this case that, contrary to Marlowe’s holding, the DOC “never modifies offenders’ conditions of release.” The court upholds the district court’s order for the department to “fully comply” with Marlowe. State ex rel. Ford v. Schnell, No. A17-1895, 2019 WL 4282040 (Minn. 9/11/2019).

Samantha FoertschBruno Law PLLC

Stephen FoertschBruno Law PLLC




• Municipal liability; claim rejected. A jury determination that a mayor was not liable for racial discrimination against a municipal employee barred any related claims against the city. The 8th Circuit Court of Appeals held that the absence of liability against the municipal official precluded those other claims. Ridgell v. City of Pine Bluff, 935 F.3d 633 (8th Cir. 8/29/2019) (unpublished).

• Employee discipline; split NLRB decision. The 8th Circuit upheld an administrative determination that an employer violated the National Labor Relations Act (NLRA) by prohibiting an employee from discussing her discipline with co-workers and then discharging her for doing so. But it overturned an administrative determination that the employer wrongfully gave the employee a “last chance” warning while she was appealing a prior unlawful discipline charge. Southern Bakeries, LLC v. NLRB, 2019 WL 4280367 (8th Cir. 9/11/2019) (unpublished).

• Race discrimination; none similarly situated. An African-American man who claimed he was fired due to race discrimination lost his claim because he was unable to show that the employer treated other similarly-situated Caucasian workers differently. Absent such evidence, the 8th Circuit Court of Appeals upheld a lower court ruling that the termination was not pretextual. Beasley v. Warren Unilube, Inc., 933 F.3d 932 (8th Cir. 8/9/2019) (unpublished).

• Social Security disability; receptionist not disabled. An office receptionist was deemed ineligible for social security disability (SSDI) benefits. Affirming an administrative law decision, the 8th Circuit held that the claimant was able to engage in substantial gainful activities despite her maladies. Sloan v. Saul, 933 F.3d 946 (8th Cir. 8/12/2019).

• Athletic coaches; state law claims dismissed. Claims of violation of the Minnesota Human Rights Act and whistleblower act by former coaches of women’s athletic teams at the Duluth campus of the University of Minnesota were dismissed by the Minnesota Court of Appeals, affirming a lower court ruling. It held that the doctrine of equitable tolling of the statute of limitations was inapplicable for claims previously brought and dismissed in federal court, while the exclusivity provision of the Human Rights Act, as res judicata, and collateral estoppel all barred the claims, as well. Miller v. Board of Regents, 2019 WL 4164898 (Minn. Ct. App. 9/3/2019) (unpublished).

• Unemployment compensation; safety issueA facilities technician at a semiconductor facility was denied unemployment benefits because he failed to timely respond to alarms at the work site. The appellate court held that the employee committed disqualifying misconduct. Goudiaby v. Skywaters Tech Foundry, Inc., 2019 WL 3540666 (Minn. Ct. App. 8/5/2019) (unpublished). 

• Unemployment compensation; PIP not basis to quit. An employee who quit after receiving a performance improvement plan (PIP) was not entitled to unemployment compensation. The appellate court ruled that the employer did not force him to resign. Stenger v. Minnesota Wire & Cable Co., 2019 WL 3543692 (Minn. Ct. App. 8/5/2019) (unpublished). 

Marshall H. TanickMeyer, Njus & Tanick




• Federal district court rejects challenges to PolyMet federal land exchange. The United States District Court for the District of Minnesota issued an opinion dismissing four actions against PolyMet Mining, Inc. concerning a land exchange between PolyMet and the U.S. Forest Service (USFS). The land exchange, which the USFS approved with a Final Record of Decision in January 2017, involved PolyMet’s proposed transfer to USFS of 6,690 acres of private land in exchange for the USFS’s transfer to PolyMet of property rights in 6,650 acres of federal land in the Superior National Forest. PolyMet plans to develop an open-pit copper-nickel mine on the federal land. The four actions were brought by numerous environmental groups asserting claims under federal statutes including the Administrative Procedures Act, the Federal Land Policy and Management Act, the National Environmental Policy Act, the Weeks Act, and the Endangered Species Act. Asserting that the plaintiffs lacked standing under Article III of the U.S. Constitution and that their claims were not ripe, Poly Met Mining moved to dismiss all four actions.

In granting PolyMet’s motion to dismiss, the court focused its analysis on whether the plaintiffs had standing under the standard articulated in Iowa League of Cities v. EPA, 711 F.3d 844, 869 (8th Cir. 2013): “An association has standing to bring suit on behalf of its members when its members would otherwise have standing to sue in their own right, the interests at stake are germane to the organization’s purpose, and neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.”  

For example, the court held that even though some of the plaintiffs’ members had visited the federal lands involved in the land exchange, they did not have individual standing because they had not articulated concrete plans to revisit the lands in the future (at least, not until the litigation was commenced), and had not explained how they would overcome the practical and legal hurdles involved in visiting the land once it was fully under PolyMet’s control and private property. The court also rejected standing based upon alleged diminution in value of certain of plaintiffs’ members, explaining that the alleged property value losses are not germane to the purpose of plaintiffs’ organizations. Similarly, the court held that the plaintiffs’ use of resources for litigation, investigation in anticipation of litigation, or advocacy related to the proposed land exchange is not sufficient to give rise to an Article III injury. 

The court also noted that to the extent plaintiffs asserted standing based on PolyMet’s intended future use of the federal property for the proposed non-ferrous mine, this did not present an injury that was sufficiently concrete, particularized, and imminent. In addition, unless and until PolyMet Mining secures the permits needed to build its mine (which had not yet happened at the time plaintiffs brought their actions), the court held, nothing in the record indicated PolyMet intended any changes to the federal land after the land exchange that would affect those not on the property. WaterLegacy v. USDA Forest Serv., 2019 U.S. Dist. LEXIS 169350 (9/30/2019).

• Enbridge Line 3 updates. Minnesota Supreme Court rejects Line 3 challenges. On 9/17/2019, the Minnesota Supreme Court declined to take up challenges raised by tribal and environmental groups regarding the environmental review of Enbridge Energy’s proposal for replacing Line 3 in northern Minnesota. The challenges made by tribal and environmental groups argued that the state Public Utilities Commission’s (PUC) approval of the environmental review provided for the Line 3 project was inadequate in that it did not appropriately address the potential impact of a spill in the Lake Superior watershed. Those challenges were first heard by the Minnesota Court of Appeals, which in June 2019 reversed a portion of the PUC’s approval of the Line 3 environmental review—requiring the PUC to further address the possibility of a spill in the Lake Superior watershed.

The tribal and environmental groups then appealed those portions of the Line 3 environmental review which were not reversed to be heard by the Supreme Court. With the Supreme Court’s refusal to take up the challenges, Minnesota regulators, namely the PUC, will now be able to begin the process of fixing the deficiency in the Line 3 environmental review identified by the court of appeals. Enbridge cannot begin construction of the Line 3 project until it obtains several environmental permits from state and federal agencies. Those permits cannot be obtained until after the PUC gives final approval of the updated environmental review. Even then, approval of the updated environmental review will likely trigger new lawsuits from tribal and environmental groups.

MPCA denies Enbridge’s 401 Certification. On 9/27/2019, the Minnesota Pollution Control Agency (PCA) issued a denial of the application for Clean Water Act (CWA) Section 401 Water Quality Certification by Enbridge Energy for its Line 3 project in northern Minnesota. The PCA based its denial on the Minnesota Court of Appeals ruling that the environmental impact statement (EIS) provided for the Line 3 project was inadequate in that it did not adequately address the potential for a spill in the Lake Superior watershed.

The PCA stated that the appellate court’s ruling suggests that “additional information directly pertinent to water quality in Minnesota (and therefore, the 401 request) will likely be required to be prepared for the EIS.” The PCA went further and clarified that in addition to the information needed to address a potential spill in the Lake Superior watershed, Enbridge would also need to provide (1) a revised pre- and post-construction monitoring plan for aquatic resources, and (2) a revised proposal for compensatory wetland mitigation.

The PCA also found that although Enbridge provided a summary plan for post-construction monitoring, PCA would need additional, more specific information from Enbridge regarding the monitoring plan for aquatic resources. Likewise, the PCA found that although Enbridge had proposed a compensatory mitigation plan for proposed impacts to wetlands resulting from the Line 3 project, the proposal itself did not provide adequate justification for certain compensatory mitigation ratios proposed by Enbridge.

Accordingly, the PCA denied Enbridge’s 401 Certification without prejudice, requiring additional information supporting the request for 401 Certification in order to provide the PCA with reasonable assurance of the Line 3 Project’s ability to comply with Minnesota water quality standards.



• EPA withdraws California’s Clean Air Act fuel emissions waiver. On 9/19/2019, the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) and the U.S. Environmental Protection Agency (EPA) issued the final One National Program Rule to enable federal uniform emission standards on fuel economy and greenhouse gases for automobile and light duty trucks. In doing so, EPA proposed to withdraw a preemption waiver that gives California unique authority to enact stricter emission standards than federal regulations. Specifically, EPA is withdrawing the Clean Air Act preemption waiver it granted to California in January 2013 as it relates to California’s greenhouse gas (GHG) and zero emission vehicle (ZEV) programs.

The waiver revocation finalizes standards initially proposed in August 2018’s proposed “Safer, Affordable, Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026 Passenger Cars and Light Trucks.” The SAFE rule proposed to give EPA authority to reconsider and withdraw previous waivers already granted in order to standardize fuel economy standards. EPA grounded the revocation in congressional intent to implement uniform national standards and in furtherance of President Trump’s plan to scale back Obama-era vehicle emission standards. 

Prior to this rule, California was able to request a waiver to set its own vehicle emission standards if it could demonstrate that the proposed standards were at least as stringent as federal standards. Under Clean Air Act (CAA) Section 209(b), EPA must grant a waiver request unless it finds that (1) California’s determination that the standards are as stringent as federal standards is arbitrary and capricious, (2) California does not need additional standards to meet compelling and extraordinary conditions, or (3) California’s standards and enforcement procedures are not consistent with federal emission standards. Once a waiver was granted, other states could choose to opt into either the federal emission standards or California’s emission standards. As of September 2019, 13 other states, as well as Washington DC, followed the California standards.

EPA claims authority to revoke the waiver because, contrary to the requirements of Clean Air Act Section 209(b)(1)(B), California does not need the GHG and ZEV standards to address “compelling and extraordinary conditions.” It also claims that the waiver violates the Energy Policy & Conservation Act’s (EPCA) bar on states establishing their own fuel economy standards because California’s rules are “related to” fuel economy. California and 23 other states as well as the cities of Los Angeles and New York have filed a lawsuit against the EPA for this rule. At issue are whether EPA has legal authority to withdraw a waiver and under what circumstances it may exercise that authority. The One National Program Rule takes effect on November 18. 

Jeremy P. Greenhouse The Environmental Law Group, Ltd.
Jake Beckstrom Vermont Law School, 2015
Erik Ordahl Flaherty & Hood, P.A. 
Audrey Meyer  University of St. Thomas, School of Law, J.D. candidate 2020




• CAFA; amount in controversy; timeliness of removal; reversal of remand. Plaintiffs filed a putative class action in the Missouri courts seeking compensatory and statutory damages, punitive damages, and an award of attorney’s fees in unspecified amounts. The defendant eventually removed the action under CAFA. Plaintiffs moved to remand, arguing that the removal was untimely. However the district court, sua sponte, remanded the action, finding that defendants had not established that the amount in controversy exceeded $5 million. The defendant petitioned for leave to appeal. 

On appeal, the 8th Circuit granted the petition, and then found that the district court had erred in its amount-in-controversy analysis by focusing on the likelihood of the plaintiffs’ recovery rather than the possibility of that recovery. The 8th Circuit also found that the removal was timely where the defendant removed within 30 days of the completion of its investigation of the potential amount in controversy. Pirozzi v. Massage Envy Franchising, LLC, ___ F.3d ___ (8th Cir. 2019). 

• Notice of removal; validity; attorney not admitted in jurisdiction. Finding that “removal is a federal procedure governed by federal statute,” the 8th Circuit rejected a challenge to a removal from the Arkansas state courts where the attorney who filed the removal was licensed in federal court but was not licensed in the Arkansas courts. Brooks v. Liberty Life Assurance Co., 937 F.3d 1144 (8th Cir. 2019). 

• Fed. R. Civ. P. 15(c)(1); relation back of amendments. Magistrate Judge Wright granted the plaintiff’s motion to amend to correct misnomers, finding that Judge Wright had already determined that the claims related back for purposes of Fed. R. Civ. P. 15(c)(1), and that there was no evidence that the plaintiff “made a conscious choice” to sue the wrong parties. Cahoon v. L.B. White Co., 2019 WL 4786097 (D. Minn. 10/1/2019). 

• Motion for partial summary judgment denied; advisory opinion. Judge Magnuson denied the defendant’s motion for partial summary judgment, finding that the issue was not yet “ripe for decision,” and that the court was “being asked to render an advisory opinion on a hypothetical determination of crucial facts.” Borup v. The CJS Solutions Group, 2019 WL 4820732 (D. Minn. 10/1/2019). 

• Removal; Fed. R. Civ. P. 65; temporary injunction dissolved. Judge Schiltz dissolved a temporary injunction entered prior to removal, finding that the injunction had been entered without notice to the defendant, did not state the reasons why it was issued, and did not require the posting of a bond, all of which ran afoul of Fed. R. Civ. P. 65. Marco Technologies, Inc. v. Midkiff, 2019 WL 4298086 (D. Minn. 9/11/2019). 

• Discovery of settlement discussions; waiver of work-product privilege. Overruling objections to an order by Magistrate Judge Rau, Judge Ericksen declined to apply a heightened standard of relevance to discovery of settlement negotiations, and also found that any work-product privilege was waived when the disputed information was voluntarily disclosed to the government during the litigation. United States ex rel. Higgins v. Boston Scientific Corp., 2019 WL 4052327 (D. Minn. 8/28/2019). 

• Motion to deny motion for pro hac vice admission denied. Magistrate Judge Leung denied a motion by pro se plaintiffs to deny pro hac vice admission to a Pennsylvania attorney, finding that the plaintiffs’ potential inability to record their telephone conversations with him because Pennsylvania is a “two-party” state did not provide a basis to deny pro hac vice admission. Bailey v. Met. Council, 2019 WL 4387325 (D. Minn. 9/13/2019). 

• Request for sanctions pursuant to Fed. R. Civ. P. 26(g), inherent powers and 28 U.S.C. §1927 denied. Despite criticizing plaintiff’s counsel’s “gross oversight” in failing to conduct a thorough pre-suit investigation and his finding that counsel’s conduct “verge[d] on abuse of the judicial process,” Judge Frank denied one defendant’s request for sanctions under Fed. R. Civ. P. 26(g), inherent powers, and/or 28 U.S.C. §1927. Beaulieu v. Stockwell, 2019 WL 3947007 (D. Minn. 8/21/2019). 

•  Fed. R. Civ. P. 37(a)(5)(B); motions to compel; attorney’s fees awarded. Magistrate Judge Menendez awarded the defendants $1,803 in attorney’s fees for expenses incurred in responding to a motion to compel that was not “substantially justified.” Smith v. Bradley Pizza, Inc., 2019 WL 4387357 (D. Minn. 9/13/2019). 

Magistrate Judge Menendez awarded the defendant $4,000 in attorney’s fees incurred in responding to the plaintiff’s motion to compel, finding that the motion was not “substantially justified.” Darmer v. State Farm Fire & Cas. Co., 2019 WL 4387324 (D. Minn. 9/13/2019). 

• Motion for Rule 11 sanctions denied. Judge Tostrud denied the defendant’s early motion for Rule 11 sanctions in a patent case, finding that a “reasonable and competent attorney” could “believe the legal and factual bases” for the plaintiff’s claims. Red Rhino Leak Detection, Inc. v. Anderson Mfg. Co., 2019 WL 4410324 (D. Minn. 9/16/2019). 

• Motion to extend time to respond to motion to amend granted. While chastising defendants for failing to file their opposition to plaintiffs’ motion to amend in accordance with the deadline established in the Local Rules, Magistrate Judge Leung granted the defendants’ motion to extend time to respond to that motion. Bailey v. Met. Council, 2019 WL 4687040 (D. Minn. 9/26/2019). 

• Attorney’s fees granted. Chief Judge Tunheim awarded the prevailing plaintiff in an employment discrimination case more than $2.3 million in attorney’s fees, rejecting the defendants’ challenge to the rates of out-of-market attorneys and paralegals, which ranged from $550-$750 per hour, and $200 to $250 for paralegals. Miller v. Bd. of Regents of the University of Minnesota, ___ F. Supp. 3d ___ (D. Minn. 2019). 


• Transcripts; privacy procedures; interim order. Effective 10/14/2019, court reporters are required to file all transcripts under temporary seal to allow parties the opportunity to identify personal identifiers or confidential information that need to be redacted. If personal identifiers require redaction, a party must follow the procedures set forth in L.R. 5.5. If a party believes that confidential information needs redaction, a motion must be filed within seven days after the filing of the transcript. And if a party believes that no redactions are necessary, it must file a notice to that effect no later than seven days after the transcript is filed. In Re: Revised Transcript Procedures to Provide Increased Privacy Protections (Order dated 10/11/2019). 

Josh JacobsonLaw Office of Josh Jacobson 




• Applications for asylum by those who travel through a third county without first seeking relief there. Subsequent to the 7/24/2019 order issued by the U.S. District Court in the Northern District of California enjoining the government from implementing its rule (i.e., a mandatory bar to asylum eligibility for individuals entering or attempting to enter the United States through the southern border while traveling through a third country without first seeking relief in that country), the same district court and 9th Circuit Court of Appeals issued further rulings on the injunction. The matter then went before the U.S. Supreme Court, which issued an order on 9/11/2019 staying the district court’s injunction during the pendency of the court litigation on the mandatory bar to asylum eligibility. Barr, el al. v. East Bay Sanctuary Covenant, et al., 588 U.S. ____ (2019). https://www.supremecourt.gov/opinions/18pdf/19a230_k53l.pdf

• Inadmissibility and public charge grounds. On 8/14/2019, the Department of Homeland Security (DHS) published its final rule amending regulations addressing inadmissibility, on public charge grounds, of foreign nationals seeking admission or adjustment of status. The rule was scheduled to go into effect on 10/15/2019. 84 Fed. Reg., 41,292-508 (8/14/2019). https://www.govinfo.gov/content/pkg/FR-2019-08-14/pdf/2019-17142.pdf

On 8/20/2019, the State of New York, the City of New York, the State of Connecticut, and the State of Vermont (state plaintiffs) filed a complaint seeking declaratory and injunctive relief in the U.S. District Court for the Southern District of New York. State of New York, et al. v. DHS, et al., No. 1:19-cv-07777 (S.D.N.Y 8/20/2019). https://ag.ny.gov/sites/default/files/8.20.2019_complaint_as_filed.pdf

On 8/27/2019, Make the Road New York, African Services Committee, Asian American Federation, Catholic Charities Community Services, and Catholic Legal Immigration Network, Inc.) (organizational plaintiffs) filed a complaint in the U.S. District Court for the Southern District of New York. Make the Road New York, et al. v. Ken Cuccinelli, et al., No. 1:19-cv-07993 (S.D.N.Y. 8/27/2019). https://ccrjustice.org/sites/default/files/attach/2019/08/Public%20Charge%20Complaint.pdf

On 9/9/2019, the state plaintiffs filed a motion for preliminary injunction to enjoin the government from enforcing the final rule. https://ag.ny.gov/sites/default/files/35_plaintiffs_mol_iso_pi.pdf

On 9/9/2019, the organizational plaintiffs also filed a motion for preliminary injunction to enjoin the government from enforcing the final rule. https://www.courtlistener.com/recap/gov.uscourts.nysd.521773/gov.uscourts.nysd.521773.38.0.pdf

On 10/11/2019, the U.S. District Court in the Southern District of New York issued a nationwide order enjoining and restraining the government from “enforcing, applying or treating as effective, or allowing persons under their control to enforce, apply, or treat as effective, the Rule” until such time as the order is terminated and the rule goes into effect. State of New York, et al. v. DHS, et al., No. 1:19-cv-07777-GBD (S.D.N.Y 10/11/2019). http://www.nysd.uscourts.gov/cases/show.php?db=special&id=720 Make the Road New York, et al. v. Ken Cuccinelli, et al., No. 1:19-cv-07993-GBD (S.D.N.Y. 10/11/2019). http://www.nysd.uscourts.gov/cases/show.php?db=special&id=722

In its accompanying order and memorandum, the court pointedly noted, while discussing the arbitrary and capricious nature of the rule, that “Defendants do not articulate why they are changing the public charge definition, why this new definition is needed now, or why the definition set forth in the Rule—which has absolutely no support in the history of U.S. immigration law—is reasonable. The Rule is simply a new agency policy of exclusion in search of a justification. It is repugnant to the American Dream of the opportunity for prosperity and success through hard work and upward mobility.” State of New York, et al. v. DHS, et al., No. 1:19-cv-07777-GBD (S.D.N.Y 10/11/2019). https://ag.ny.gov/sites/default/files/doc_110_opinion.pdf

Related litigation in other regions of the United States includes the following:

On 8/14/2019, the states of Washington, Virginia, Colorado, Delaware, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, and Rhode Island filed a complaint for declaratory and injunctive relief against the Department of Homeland Security and U.S. Citizenship and Immigration Services in the U.S. District Court for the Eastern District of Washington at Richland. State of Washington, et al. v. DHS, et al., No. 4-19-cv-05210 (E.D. Wash. 8/14/2019). https://agportal-s3bucket.s3.amazonaws.com/uploadedfiles/Another/News/Press_Releases/001_Complaint_1.pdf

On 10/11/2019, the U.S. District Court found in favor of the plaintiff states, enjoining the government from implementing the rule until further order of the court. State of Washington, et al. v. DHS, et al., No. 4:19-cv-05210-RMP (E.D. Wash. 10/11/2019). https://www.waed.uscourts.gov/sites/default/files/19513691270.pdf

On 8/13/2019, the City and County of San Francisco and the County of Santa Clara filed suit in the U.S. District Court for the Northern District of California seeking declaratory and injunctive relief, challenging the final rule. City and County of San Francisco, et al. v. USCIS, et al., No. 3:19-cv-4717 (N.D. Cal. 8/13/2019). https://www.sfcityattorney.org/wp-content/uploads/2019/08/Filed-Complaint.pdf

On 8/16/2019, the states of California, Maine, Oregon, Commonwealth of Pennsylvania, and the District of Columbia filed a complaint for declaratory and injunctive relief against the Department of Homeland Security and U.S. Citizenship and Immigration Services in the U.S. District Court for the Northern District of California. State of California, et al. v. DHS, et al., No. 3-19-cv-04975 (N.D. Cal. 8/16/2019). https://oag.ca.gov/system/files/attachments/press-docs/Public%20Charge%20Complaint.pdf

On 10/11/2019, the U.S. District Court issued an order for the plaintiffs in both cases (City and County of San Francisco, the County of Santa Clara, and the States of California, Maine, Oregon, Commonwealth of Pennsylvania, and the District of Columbia), enjoining the government from applying the rule, in any manner, “to any person residing (now or at any time following the issuance of this order)” in those locales. The injunction remains in effect until the matter is resolved on the merits. City and County of San Francisco, et al. v. USCIS; State of California, et al. v. DHS; La Clinica de la Raza, et al. v. Donald Trump, et al., No. 4:19-cv-04717-PJH (N.D. Cal. 10/11/2019). https://www.uscis.gov/sites/default/files/USCIS/files/NDCA_Injunction.pdf  

These court decisions do not, however, enjoin the changes brought by the public charge rule as implemented by DHS’ sister agency, Department of State, in consular processing of visas abroad. They remain in place as outlined in its 10/11/2019 Interim Final Rule, scheduled to go into effect on 10/15/2019. The rule makes changes to the existing definitions of public charge, public benefit, foreign national’s household, and receipt of public benefit. At the same time, the consular officer assessing an applicant for admissibility is accorded greater discretion as (s)he reviews such factors as Age, Health, Family Status, Financial Status, Education and Skills, as well as such negative factors as Lack of Recent Employment or Prospect of Future Employment; Current or Certain Past Receipt of Public Benefits; Lack of Financial Means to Pay for Medical Costs; and Prior Public Charge Inadmissibility or Deportability Finding. 84 Fed. Reg., 54,996-015 (10/11/2019). https://www.govinfo.gov/content/pkg/FR-2019-10-11/pdf/2019-22399.pdf

Since publication of the Interim Final Rule in the Federal Register on 10/11/2019, the Department of State has announced that it will not implement the changes until such time as it obtains approval for use of a new form (Affidavit of Support) reflecting them. https://travel.state.gov/content/travel/en/traveladvisories/ea/Information-on-Public-Charge.html

R. Mark Frey




• Copyright: Statutory damages limited to number of infringed registrations. Judge Tostrud recently entered default judgment against Your Inspiration and awarded $300,000 in statutory copyright damages. Adventure Creative Group (ACG) entered into a marketing services contract with Your Inspiration in 2012. Your Inspiration stopped paying ACG its fee, but continued to use the advertising materials generated by ACG. ACG sued Your Inspiration for copyright infringement. After Your Inspiration failed to answer the complaint, default was entered. ACG sought an award of $16,350,000, which it calculated by multiplying the number of works it said Your Inspiration infringed (109) by the maximum statutory damage award available for willful infringement ($150,000). The court, however, found Adventure Creative Group’s calculation improper. ACG holds two registered copyrights that Your Inspiration infringed—a catalog and a video. Statutory damages may be awarded under 17 U.S.C. §504(c) entitling a copyright owner to recover up to $30,000 in statutory damages per infringed registration or a maximum of $150,000 per registration if the infringement was willful. ACG arrived at its 109 infringements by counting individual photographs and text removed from each registered work. The court, however, found that all of the parts of a compilation or derivative work constitute one work. Therefore, ACG was entitled to statutory damages on only the two registered works, not the 109 separate elements. The court awarded Adventure Creative Group the maximum $150,000 statutory award for willful infringement of each of ACG’s registered works. Adventure Creative Grp., Inc. v. CVSL, Inc., No. 16-cv-2532, 2019 U.S. Dist. LEXIS 155545 (D. Minn. 9/12/2019).

• Patent: Construing design patent claims. Judge Tostrud also recently entered a claim construction order in a design patent infringement case that avoided a “no-scope” construction. Graphic Packaging International sued Inline Packaging for infringing its utility and design patents for microwave susceptor sleeves—sleeves used for heating and carrying food products, including “Hot Pockets.” After all claims of the utility patent were canceled in an inter partes review, the case proceeded with Graphic Packaging’s remaining three design patents. Each design patent contained a single claim claiming “the ornamental design for a carton blank, as shown and described.” Graphic Packaging sought constructions that construed the scope of the claims as the visual appearance of the susceptor sleeves as shown in the claim drawings. Inline Packaging argued that the design of the sleeves was primarily functional and sought constructions giving the patents no scope. The court found the law discourages no-scope constructions. Because the sleeves were amenable to alternative designs, the sleeves’ patented designs were not primarily functional. The court adopted Graphic Packaging’s constructions. Graphic Packaging Int’l, LLC v. Inline Packaging, LLC, No. 15-cv-03476, 2019 U.S. Dist. LEXIS 17066 (D. Minn. 10/1/2019).

Tony ZeuliMerchant & Gould

Joe Dubis. Merchant & Gould



Motions to confirm claim disallowance during appeal. Prior to decedent’s death, plaintiff filed a lawsuit against decedent in federal court. Following decedent’s death, plaintiff asserted a contingent claim against decedent’s estate, based on the pending lawsuit, by filing a statement of unsecured claim. The personal representative of the estate disallowed the claim. The district court granted a motion to dismiss plaintiff’s claims against the estate in federal court. While the appeal was pending in the 8th Circuit, the personal representative of the estate moved to confirm disallowance of the contingent claim. The district court denied the motion.

In a matter of first impression, the Minnesota Court of Appeals held that in cases involving contingent claims and possible delay to probate administration, district courts must balance the “prompt, orderly, and efficient administration of a decedent’s estate” against the “interest in protecting the claims of creditors against [an estate].” The court of appeals concluded that the district court had conducted the proper balancing and confirmed. In re the Supervised Estate of Brian Short, No. A18-1682 (Minn. Ct. App. 8/26/2019).

 Statute of limitations; “some damage” rule. Decedent Robert Hansen and his brother Bryan Hansen contracted to sell a piece of property to Community Facilities Partnership of Vadnais Heights (CFP) to be used for a community sports complex. Pursuant to the purchase agreement, CFP agreed to pay $2.5 million in cash and a $2 million tax-exempt subordinate nonrecourse 30-year note. Payments on the note were to be made using anticipated revenue from the sports complex. 

Following decedent’s death, U.S. Bank served as co-special administrator of the estate in order to supervise and oversee closing on the property. Following some changes to the purchase agreement, the sale closed on 4/27/2010. From 2010 through 2012, the sports complex suffered revenue shortfalls and the estate stopped receiving payments on the note in August 2012. In January 2017, the beneficiaries of the estate filed a breach of fiduciary duty claim against U.S. Bank alleging, among other things, that it failed to obtain any of the required financial forecasts or revenue assurances and failed to require CFP to master lease the property to the City of Vadnais Heights. 

U.S. Bank filed a motion to dismiss, arguing that the statute of limitations had run. The district court granted the motion, reasoning that the beneficiaries’ claims accrued in 2010, more than six years before the lawsuit was filed, because the beneficiaries suffered some damages at the time the sale closed. The district court did not identify any damages suffered by the beneficiaries upon closing. The court of appeals affirmed, reasoning that the beneficiaries had suffered damages because the lost opportunity to demand the required forecast, to negotiate the terms of the purchase agreement, or to cancel the purchase agreement, constituted the loss of a legal right.

The Supreme Court accepted review and held that the complaint did not allege facts that establish some damage in the form of a loss of a legal right. The Court started by laying out the general rule that some damage may be created by establishing either financial liability or the loss of a legal right. The Court held that no loss of legal right had been established because the operative legal right at issue was the ownership of property. The point of the transaction was precisely to exchange ownership of the property for money. In other words, “the parties may dispute whether U.S. Bank’s alleged breaches caused the Beneficiaries to part with their legal right to ownership of the property for too little money, but that type of harm falls in the financial liability category, rather than the loss of a legal right category.” The Court reversed and remanded. Hansen v. U.S. Bank, N.A., No. A17-1608 (Minn. Ct. App. 9/25/2019).

Casey D. Marshall. Bassford Remele




• States not permitted to single out railroads for extra taxation. Chapter 70 of the Wisconsin Code governs the taxation of manufacturing and commercial companies aside from railroad and utilities companies. Chapter 76 governs the taxation of railroad and certain other entities. Wisconsin law requires taxpayers to pay taxes on real and personal property unless that property is exempt. Exemptions includes a broad exemption for “all intangible personal property”; the exemption for intangible personal property includes an exemption for custom computer software. (Wis. Stat. §70.112(1)). Manufacturers and commercial taxpayers generally qualify for the intangible personal property exemption, but railroad and utility companies do not.

The Wisconsin Department of Revenue disallowed the Union Pacific Railroad Company from claiming a property tax exemption for the value of the railroad’s custom computer software. Union Pacific refused to pay the $2,631,104.77 tax bill and instead filed suit, arguing that the Wisconsin tax singles out railroads as part of an isolated and targeted group in violation of Section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976. 49 U.S.C. §11501 (b)(4). 

The federal district court and the 7th Circuit agreed with Union Pacific and held that Wisconsin’s intangible personal property tax impermissibly singles out railroads as part of a targeted and isolated group in violation of the federal statute that bars states from discriminating against railroads. The court noted that “[it] is now well established that a showing that the railroads have been targeted is enough to prove discrimination.” Since the Wisconsin Department of Revenue failed to provide a non-discriminatory justification for imposing a targeted tax on the intangible property of railroad and utilities companies, and the department did not contest the district court’s conclusion that the railroad and utilities companies defined in the Code are a targeted and isolated group, the district court’s grant of summary judgment to Union Pacific was upheld. Union Pac. R.R. Co. v. Wisconsin Dep’t of Revenue, No. 19-1741, 2019 WL 4926516 (7th Cir. 10/7/2019).

• “Tax home” cannot be foreign country if taxpayer maintains abode in United States. A taxpayer who worked in Afghanistan for a year was not eligible for foreign earned income exclusion because he maintained a home in Colorado. Although the taxpayer hired a tax preparer for assistance in filing his return, the tax court imposed an accuracy-related penalty. The court found that “[t]he evidence establishes negligence in that petitioner has failed to make a reasonable attempt to comply with the provisions of the Code.” The court admonished the taxpayer that “[m]erely hiring a professional to prepare an income tax return—without giving him necessary information or relying on his advice—does not absolve a taxpayer from liability for a penalty.” Cambria v. Comm’r, No. 13323-18S, 2019 WL 4784859 (T.C.S. 9/30/2019).

• Attorney does not have “basis in labor”; Section 6673 not unconstitutional. The taxpayer in this case, a practicing attorney, contended that he should be entitled to take into account his “basis in labor” and that the value or cost of his labor is its fair market value. As support for this position, the taxpayer pointed to Sections 83, 1001, and 1012 and various regulations under those sections. The court rejected the taxpayer’s argument, noting that “[i]t is well established that the income tax applies to income for personal services and that taxpayers have no basis in their labor for purposes of deciding their income tax liability for income from personal services.” The court characterized the taxpayer’s argument as relying on “selective and misguided readings of multiple statutes.” The court further rejected the taxpayer’s argument that Section 6673 is unconstitutional. Section 6673 authorizes the tax court to impose a penalty of up to $25,000 when it appears to the tax court that proceedings before the court have been instituted or maintained by the taxpayer primarily for delay; that the taxpayer’s position in such proceeding is frivolous or groundless; or that the taxpayer unreasonably failed to pursue available administrative remedies. The taxpayer in this case argued that since Section 6673 does not equally apply to the Service, it is unconstitutional. In particular, the taxpayer argued that Section 6673 “discourages his First Amendment right to make legitimate arguments because it does not apply equally to taxpayers and the Commissioner.” The tax court reminded the taxpayer that he does not have a “constitutional right to litigate frivolous claims without being sanctioned” and reserved the amount of sanctions for a separate opinion. Worsham v. Comm’r, T.C.M. (RIA) 2019-132 (T.C. 2019).

• Sales & use tax: Capital equipment sales tax exemption applies to entire production of equipment. The commissioner granted taxpayer Inthermo’s request for a capital equipment sales tax exemption for its burn-off oven, which Inthermo uses exclusively to clean accumulated powder coating from hooks, racks, and fixtures that its customers use to produce personal property sold at retail. See Minn. Stat. §297A.68, subd. 5 (2018). Inthermo then sought an exemption and a refund of sales tax paid for the natural gas and electricity it used to operate the oven. Id., subd. 2(a)(3) (2018). Inthermo argued that the gas and electricity were exempt from sales tax because Inthermo’s cleaning of its customers’ production equipment is a necessary component of the customers’ “industrial production.” Id., subd. 2(a)(c) (2018). The commissioner denied Inthermo’s refund claim based on Minn. Stat. §297A.68, subd. 2(c), stating in part: “Industrial production does not include painting, cleaning, repairing or similar processing of property except as part of the original manufacturing process.” Inthermo appealed the commissioner’s decision and the parties filed cross-motions for summary judgement.

Minnesota imposes a tax on gross receipts from retail sales, but there are a number of business-related exemptions created to exempt intermediate transactions and impose a tax on sales of finished products by the ultimate user. See Minn. Stat. §297A.62, subd. 1 (2018). See also, Weigel v. Comm’r of Revenue, 566 N.W.2d 79, 80 (Minn. 1997). One business exemption is for capital equipment. Minn. Stat. §297A.68, subd. 5(a) defines exempt capital equipment as machinery and equipment: (1) “purchased or leased, and used in this state by the purchaser or lessee primarily for manufacturing, fabricating, mining, or refining tangible personal property to be sold ultimately at retail”; and (2) “essential to the integrated production process of manufacturing, fabricating, mining, or refining.” The Legislature has defined equipment to mean, in relevant part, “independent devices or tools separate from machinery but essential to an integrated production process”. Id. subd. 5(d)(1). 

The court states that the post-production-processing exclusion in Minn. Stat. §297A.62, subd. 2, which deals with property rather than with machinery and equipment, is not applicable in this matter. Inthermo cleans production equipment that its customers use to produce tangible personal property to be sold at retail. After one or two uses, customers cannot reuse this equipment in the production process without first cleaning it. The commissioner offered no argument for denying Inthermo the industrial production exemption that is not ultimately based on Minn. Stat. §297A.62, subd. 2(c). Therefore the court grants Inthermo’s motion for summary judgment and denies the commissioner’s motion. Inthermo v Comm’r, 2019 WL 4418322 (Minn. TC 9/10/2019).

• Utility trailer dealers must have valid motor vehicle dealer license to be exempt from MVET. MVET is the motor vehicle excise tax. In this case, the tax court was called upon to determine under what circumstances a dealer may purchase motor vehicles (including trailers) without paying the MVET. Minn. Stat. §297B.035, subd. 1 (2018) provides: “[e]xcept as provided in this section, motor vehicles purchased solely for resale in the ordinary course of business by any [licensed] motor vehicle dealer... shall be exempt from the provisions of this chapter.” “To purchase motor vehicles without paying MVET, a person: (1) must be licensed dealer; (2) must purchase solely for resale; and (3) must purchase in the ordinary course of business.”

Mark Mimbach owned and operated MJ Mimbach Trailers. Until 2010, Mimbach held a valid motor vehicle dealer license, which required him to possess a valid surety bond. Minn. Stat. §168.27, subd.12a(a), 24 (2018). On 7/23/2010, CNA Surety notified the Minnesota Department of Public Safety’s Driver and Vehicle Services Dealer Unit (DVS) that it intended to cancel Mimbach’s surety bond effective 10/3/2010. DVS then sent correspondence to Mimbach stating they were notified that his surety bond would be cancelled on 10/3/2010, and a reinstatement notification must be received on or before that date, or his dealer license would expire. Mimbach allowed the surety bond to lapse, and subsequently, his dealer license expired. On 8/3/2011, Mimbach submitted evidence to DVS of a new surety bond. DVS responded that since his coverage ended and his license cancelled, he had to (1) submit evidence of a backdated surety bond on or before 10/3/2010, or (2) apply for a new license and subsequently owe MVET on any vehicles purchased during the lapse. On 12/6/2012, Mimbach filed a permit request form and was denied due to outstanding tax liability. In 2014, Benton County filed complaints alleging that Mimbach 1) failed to remit collected tax, and 2) falsely represented himself and his business as a licensed seller of motor vehicles. Mimbach pled guilty and was convicted of tax evasion.

Following his conviction, the Department of Revenue audited his MVET liability and assessed Mimbach $71,912.66 for the tax periods 6/1/2010 through 5/31/2012: $37,441.81 of unpaid MVET, $8,261.45 of interest, and $26,209.40 of penalty. Mimbach appealed the assessment. The commissioner sought summary judgment, which Mimbach opposed on the grounds that he sold only “utility trailers” and therefore was exempt from the dealer license requirement.

Minn. Stat. §168.002, subd. 35 (2018) defines trailer as “any vehicle designed for carrying property... on its own structure and for being drawn by a motor vehicle.” A utility trailer is “a motorless vehicle... equipped with one or two wheels... and used for carrying property on its own structure while being drawn by a motor vehicle.” Minn. Stat. §168.27, subd. 20(c) (2018). “Although trailers and utility trailers are both defined in terms of ‘being drawn by a motor vehicle,’ they are themselves taxable motor vehicles.” Chapter 297B (2018) imposes the MVET on the “purchase price of any motor vehicle... required to be registered under the laws of this state.” Minn. Stat. §297B.02, subd. 1. “Because trailers are motor vehicles required to be registered under state law, the MVET applies to the sale and purchase of trailers.” See Minn. Stat. § 168.09, subd. 1 (2018).

In addition to evidence of Mimbach’s dealer license being cancelled on 10/3/2010, the commissioner also submitted invoices documenting Mimbach’s trailer purchases during the audit. The invoices indicated that Mimbach purchased some trailers that did not qualify as utility trailers and, therefore, Mimbach did not qualify for the exemption. Mimbach did not submit evidence that he (1) has a valid dealer license, or (2) that he sold only utility trailers. Therefore the court granted the commissioner’s motion for summary judgment for all vehicles Mimbach purchased between 10/3/2010 and 5/31/2012, and denied the commissioner’s motion for all vehicles Mimbach purchased between 6/1/2010 and 10/2/2010. Mimbach v Comm’r, 2019 WL 4451248 (Minn. TC 9/12/2019).

• Six-factor test to grant attorney’s fees in property tax dispute. Minnesota Rules of Civil Procedure require courts to award fees in certain circumstances. In particular, “if a court grants a motion to compel discovery responses, the court shall require the party... whose conduct necessitated the motion... to pay to the moving party the reasonable expenses incurred in making the motion, including attorney fees, unless the court finds... that the opposing party’s nondisclosure, response, or objection was substantially justified or that other circumstances make an award of expenses unjust.” Minn. R. Civ. Pro. 37.01. Taxpayer IRC Riverdale Commons (RC) and Anoka County litigated a property tax valuation. As part of that dispute, the county filed a motion to compel RC to produce a complete response to discovery, and requested an award of expenses, including attorney fees incurred in connection with its motion. The court granted the county’s motion and gave the county 30 days to submit a declaration of expenses. The county filed its declaration, requesting a total of $14,080. RC opposed in part the county’s request for expenses, raising two arguments: first, that the county failed to establish that $400 per hour is a reasonable rate for time spent preparing a motion to compel; and second, that the number of hours spent on the motion were excessive.

The tax court reviewed the relevant Minnesota Supreme Court jurisprudence, including Faricy Law Firm, P.A. v. API, Inc. Asbestos Settlement Tr., 912 N.W.2d 652 (Minn. 2018), in which the Court noted the longstanding six-factor test for determining the “reasonable value of legal services. ...” These six factors are used to evaluate the reasonableness of statutory attorney’s fees. In Faricy, the Court adopted an eight-factor test for calculating the value of an attorney’s services when a client terminates the contingent-fee agreement before the matter concludes. The Court considered the last two factors necessary specifically for evaluating attorney’s services after client termination.

Here, the tax court located no express authority approving any particular method for determining attorney fees, and therefore used the first six factors in Faricy for determining reasonable attorney’s fees, and then separately evaluated the county’s other claimed expenses. The court ultimately considered (1) time and labor, (2) nature and difficulty, (3) amount involved and results obtained, (4) fees charged for similar services, (5) experience and reputation, (6) fee arrangement between counsel and client, and (7) attorney fee amount. The court granted the county’s request for attorney’s fees in the amount of $9,460. IRC Riverdale Commons, LLC v. Anoka, 2019 WL 4607064 (Minn. TC 9/17/19).

• Tough bounce: Incarcerated former NBA player fails to file returns; loses out on itemized deductions; summary judgment to Service. Former professional basketball player Claude Tate George was convicted in 2013 in federal court of wire fraud resulting from running a real estate Ponzi scheme. He remains incarcerated. While incarcerated in 2013, petitioner received a National Basketball Association (NBA) pension distribution of $208,111. The bank that distributed the pension withheld $41,622 of income tax from the distribution. Mr. George did not file a tax return for tax year 2013 and the Service prepared a substituted return in which the Service determined a deficiency in petitioner’s 2013 federal income tax of $70,318 together with approximately $8,700 in additions to tax. In preparing the substituted return, the Service made certain assumptions, including a filing status of “single.” The revenue agent also assumed a Section 72(t) tax of $20,811, which the agent assumed Mr. George owed because he considered the pension distribution to be an early distribution from a qualified retirement plan. In a timely filed petition, Mr. George argued that due to his incarceration, he was unable to file a return. He further argued that had he filed a return, he might have demonstrated that he had itemized deductions in excess of the standard deduction. The court reasoned that although Section 63 allows an individual to itemize his deductions rather than take a standard deduction, no itemized deductions shall be allowed unless the individual makes an election. Section 63(e)(2) provides that such election shall be made on the individual’s return. Since Mr. George failed to file a return, he made no election to itemize his deductions and may not claim itemized deductions. Since there were no disputes of material fact, the commissioner was entitled to summary judgment. George v. Comm’r, T.C.M. (RIA) 2019-128 (T.C. 2019).

• Tax court gives a pass to first-time frivolous argument. The petitioner in this case filed federal income tax returns reporting taxable income of about $500,000 over three tax years. Although the petitioner calculated the tax due on these amounts, he did not pay any portion of the balance due. For each year the IRS assessed the tax shown as due, additions to tax under sections 6651 and 6654, and interest. Petitioner’s aggregate unpaid tax liabilities eventually exceeded $200,000. Throughout the collection proceedings, the petitioner argued that he did not owe any tax, because in separate litigation against the government, the petitioner was owed more money than he owed in taxes. As the petitioner put it, “It’s my position that the United States owes more than owed, therefore, [I] will not pay any debt to the United States until the debt owed is settle[d] through the courts or settlement.” At the time of the tax court’s opinion, the petition had not been successful in the separate litigation, and in fact the district court and court of appeals deemed petitioner’s litigation frivolous and imposed sanctions. 

The tax court acknowledged the petitioner’s argument, and the court also acknowledged that the courts has “no authority to second-guess the decisions of the courts that have ruled against” petitioner. Further, the court reasoned that “[e]ven if we had such jurisdiction, no legal authority exists for offsetting, against an assessed Federal tax liability, a claim against the Government in a totally unrelated matter.” The court deemed petitioner’s arguments frivolous and noted that the petitioner wasted considerable resources of respondent and the court. Although petitioner’s conduct was deserving of a penalty, the court determined that because this was petitioner’s first appearance in the tax court, and because the court had not previously advised petitioner of the risk he faced, no sanctions would be imposed. The court did, however, “warn [petitioner] that we will be less generous in the future.” Tartt v. Comm’r, T.C.M. (RIA) 2019-112 (T.C. 2019).



•  IRS issues guidance on cryptocurrency transactions. In a Revenue Ruling, the Service addressed the following issues: (1) Does a taxpayer have gross income under §61 of the Internal Revenue Code as a result of a hard fork of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency? (2) Does a taxpayer have gross income under §61 as a result of an airdrop of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency? The Ruling provides that a taxpayer does not have gross income in Issue 1, and that “[a] taxpayer has gross income, ordinary in character, under §61 as a result of an airdrop of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency.” Rev. Rul. 2019-24.

Morgan Holcomb & Sheena Denny. Mitchell Hamline School of Law