Notes & Trends – December 2019



The Minnesota Supreme Court has held that an agency is not required to go through rulemaking in order to take a position on a question of statutory or regulatory interpretation in an enforcement proceeding, but that such “litigation positions” are not entitled to the judicial deference normally accorded to rules.

The issue arose in the context of an enforcement action against a home health care provider for failure to pay overtime as required under Minnesota Statutes section 177.25 and related regulations. The commissioner of Labor and Industry took the position that the statute and regulations required overtime payments for all hours worked by an employee after the first 48 hours in a given workweek. The provider disagreed with this interpretation and argued that the agency’s interpretation should be disregarded because it was not the product of rulemaking under the Minnesota Administrative Procedure Act (MAPA). However, the Court held that an agency’s interpretation of a statute outside of MAPA rulemaking does not preclude the agency from asserting the interpretation as a litigation position. 

The Court stated, “Like any other party, the Department may argue that its regulations should be interpreted in a particular way; that the agency did not choose to proceed with further rule-making under the Minnesota Administrative Procedure Act means only that we interpret the regulation de novo, without deference to the agency’s interpretation.” In this case, the Court reviewed the statute and regulations de novo and agreed with the commissioner’s interpretations.

Justice Anderson, joined by Chief Justice Gildea and Justice Thissen, dissented. The dissenters argued that the majority’s approach encouraged rulemaking-by-adjudication and could deprive regulated parties of adequate notice of an agency’s views on enforcement. In re Minnesota Living Assistance, Inc., No. A17-1821 (9/18/2019).

Mehmet K. Konar-Steenberg
Mitchell Hamline School of Law



• DWI: When challenging a test refusal conviction in postconviction proceedings, petitioner must allege and prove there was no warrant and no exception applies. Respondent was arrested for driving while under the influence of narcotics. He was read the implied consent advisory and refused urine and blood tests. Respondent ultimately pleaded guilty to first-degree test refusal. In his second postconviction petition, he argued that State v. Trahan, 886 N.W.2d 216 (Minn. 2016), and State v. Thompson, 886 N.W.2d 224 (Minn. 2016) (establishing that the state may not criminalize refusal of a blood or urine test absent a search warrant or an applicable exception to the warrant requirement), rendered his conviction unconstitutional. His petition was denied. The court of appeals found that the district court erred in concluding it was respondent’s burden to prove the absence of exigent circumstances. 

The Supreme Court reverses the court of appeals, finding that the district court properly placed the burden of proof on respondent. The Court notes that in Johnson v. State, 916 N.W.2d 674 (Minn. 2018), the Court held that Birchfield v. North Dakota, 136 S.Ct. 2160 (2016) (holding that blood test refusals could be criminalized only if police had a warrant or some other exception to the warrant requirement applied) applied retroactively. However, the Court did not specify in Johnson who had the burden of proving or disproving the applicability of a warrant requirement exception. 

The postconviction statute and case law makes clear that the petitioner generally has the burden of proof in postconviction proceedings. The Court declines to “write a different rule here.” However, because this rule requires the petitioner to prove two negatives (no warrant and no exception), the Court adopts a heightened pleading requirement for Birchfield/Johnson postconviction proceedings, to ensure fairness. 

First, the petitioner must affirmatively allege that no warrant was issued and that no warrant exception was applicable. Then, if the state wishes to controvert the petitioner’s allegations, it must do so in its responsive answer or motion, or the argument will be waived. The state must admit or deny the existence of a warrant and, if no warrant was issued, either admit the lack of an exception or state the specific exception relied on and the grounds for the state’s reliance in sufficient detail to give petitioner adequate notice. The case is remanded to the district court to allow the parties to comply with this new pleading standard. Fagin v. State, 933 N.W.2d 774 (Minn. 10/2/2019).

• Sentencing: Upward departure based on victims’ particular vulnerability allowed when victims forced at gunpoint to disrobe. During the robbery of a home with an accomplice, appellant’s accomplice, who had a gun in hand, ordered the victims to take off their clothes and appellant placed a gun to the victims’ heads and ordered them to unlock a safe. Appellant pleaded guilty to, among other crimes, aiding and abetting first-degree aggravated robbery. A bench trial was held to determining whether a sentencing departure was appropriate. At issue here is the district court’s conclusion that an upward departure was justified based on the victims’ particular vulnerability—that is, their nudity.

In this case of first impression, the court of appeals holds that nudity may be considered an aggravating factor for an upward departure. The sentencing guidelines provide a list of grounds for finding that a victim is particularly vulnerable, but that list is nonexclusive and has been expanded by the courts. Appellant argues that the upward departure was not warranted because his victims’ nudity was not a substantial factor in the completion of the crime. However, neither the sentencing guidelines nor case law require that the victim’s particular vulnerability play a substantial part in the commission of the crime to warrant an upward departure on those grounds. Without deciding whether a substantial factor finding is required, the court determines that the facts of the case support such a finding. Thus, the court affirms the district court’s grant of an upward departure. 

The court finds, however, that the district court abused its discretion in imposing a greater than double upward departure, as there are not “circumstances so severe that this case is one of the extremely rare cases in which more than a double durational departure is justified.” The case is reversed and remanded for resentencing. State v. Rabold, A19-0278, 2019 WL 4924521 (Minn. Ct. App. 10/7/2019).

• 1st Amendment: Minn. Stat. §609.27, subd. 1(4), is facially unconstitutional. The district court dismissed the complaint against respondent, finding that the charging statute, Minn. Stat. §609.27, subd. 1(4), violated the 1st Amendment. Respondent was charged with attempted coercion after respondent allegedly threatened to release a video of his ex-girlfriend “talking about smoking marijuana” to the Department of Human Services and her employer. 

First, the court of appeals finds that the plain language of section 609.27, subd. 1(4), is not ambiguous and restricts protected speech. Section 609.27, subd. 1, provides that “[w]hoever orally or in writing makes any of the following threats and thereby causes another against the other’s will to do any act or forbear doing a lawful act is guilty of coercion… (4) a threat to expose a secret or deformity, publish a defamatory statement, or otherwise expose any person to disgrace or ridicule.” The following terms are not defined: threat, secret, disgrace, deformity, or ridicule. The court looks to the obvious or common meanings of the words, and concludes section 609.27, subd. 1(4), criminalizes threats to expose something hidden, malformed, or defamatory that otherwise exposes any person to shame or contempt, and thereby cause another against their will to do any act or forbear a lawful act. The statute broadly criminalizes any threat to expose a secret or deformity that causes another against the other’s will to do any act or forbear doing a lawful act. Thus, it reaches more than unprotected threats to extort or defame and also criminalizes a substantial amount of constitutionally protected speech. 

Next, the court finds section 609.27, subd. 1(4), is not subject to a narrowing construction, nor can the unconstitutional language be severed, as both would require the court to rewrite the statute. Ultimately, the court finds section 609.27, subd. 1(4), is unconstitutional, as it is facially overbroad under the 1st Amendment. The district court is affirmed. State v. Jorgenson, 934 N.W.2d 362 (Minn. Ct. App. 10/7/2019).

• 4th Amendment: Seizure of evidence is proper if the item is described in the warrant, there is a strong relationship between the item and things described in the warrant, or the item clearly and definitely relates to criminal conduct that gave rise to the warrant. Respondent was charged with criminal sexual conduct offenses and moved to suppress evidence found during a search. Prior to appellant’s arrest, police obtained a warrant to search appellant’s property and seize a number of items, including a “white dish towel-like cloth used by suspect following the sexual assault which is believed to be located in the red shed,” based on the victim’s description of respondent taking her to a red shed, assaulting her, and using “a white cloth, similar to a dish rag” to wipe himself afterward. Police seized two white towels, one white towel with a floral design, and a blue and white striped towel. Testing later revealed semen on the blue and white striped towel that matched respondent’s DNA. The district court suppressed evidence relating to the blue and white striped towel, finding its seizure exceeded the scope of the warrant.

Without determining whether the blue and white striped towel is within the search warrant’s description of the things to be seized, the court of appeals concludes that the towel was properly seized even if not described by the search warrant. At the very least, there is a “strong relationship between the blue-and-white striped towel and the white dish towel-like cloth that was described in the warrant.” The seizing officer had also just interviewed the victim, and “it was reasonable for him to conclude that the blue and white striped towel clearly and definitely relate[d] to the behavior which prompted the issuance of the search warrant.” The district court erred by suppressing evidence of the blue and white striped towel. State v. Sexter, A19-0586, 2019 WL 5106662 (Minn. Ct. App. 10/14/2019). 

Samantha Foertsch
Stephen Foertsch
Bruno Law PLLC




• FLSA; expert report improperly allowed. A class action suit by truckers seeking compensation for unpaid wages that they earned during off-duty time while resting in their vehicles was vacated and remanded by the 8th Circuit. A jury award of nearly $800,000 in damages for the short rest break wages was improper because the trial court erroneously extended the deadline for disclosing expert reports that permitted plaintiffs to submit a new expert report to correct flaws in the original expert report discovered during discovery, which the court found to have been an abuse of discretion making remand necessary. A dissent would have allowed the award to stand on grounds that the extension of the time to submit an expert report constituted a “permissible exercise of discretion.” Petroni v. Werner Enterprises, Inc., 940 F.3d 425 (8th Cir. 10/10/2019).

• Disability discrimination; combination claim actionable. A sales associate who quit her job after a request for a leave of absence was denied is entitled to pursue a claim for failure to give a reasonable accommodation under the Americans With Disabilities Act (ADA), although a related retaliation claim does not survive. The 8th Circuit, partially reversing a ruling of the lower court, held that the “accommodation” claim should not have been dismissed by the trial court because the claimant repeatedly told her supervisor she wanted to take a leave of absence, even though she did not refer specifically to the ADA or use the word “accommodation.” Because the employer was aware of the disability and the claimant’s request for leave, the trial court erred in dismissing that claim. However, a claim of retaliation was not actionable, which warranted dismissal of that portion of the lawsuit, yielding a partial affirmance, coupled with a partial reversal and remand on the disability accommodation claim. Garrison v. Dolgencorp., LLC, 939 F.3d 937 (8th Cir. 10/3/2019).

•  Sexual harassment; doctoral student’s claim dismissed. A psychology doctoral student at the University of Minnesota failed in her attempt to overturn dismissal of a discrimination and negligence claim against the university where she was studying and the hospital where she was working. The Minnesota Court of Appeals upheld a decision of the Hennepin County District Court on grounds that the claimant did not allege any harassment during the one-year statute of limitation time period, which made her claims time-barred, along with the failure to plead actionable negligence claims. Abel v. Abbott Northwestern Hospital, 2019 WL 4745372 (8th Cir. 9/30/2019) (unpublished).

• Unemployment compensation; denial upheld, but not aggravated misconduct. Substantial evidence supported denial of a claim for unemployment benefits due to misconduct, which followed termination of an employee after he pled guilty to fifth-degree felony possession of marijuana. The court of appeals upheld denial of benefits, but overturned a ruling of the administrative law judge (ALJ) that the employee’s off-duty possession and use of marijuana constituted aggravated employment misconduct, which would have barred him from receiving unemployment compensation benefits for a long period of time. Vogel v. Order of St. Benedict, 2019 WL 5304186 (8th Cir. 10/21/2019) (unpublished).

• Unemployment compensation; untimely appeal. Reiterating the 20-day statutory deadline for appealing from an adverse unemployment benefits decision, the court of appeals upheld dismissal of an employee’s appeal of denial of benefits. The 20-day statutory period is “absolute and unambiguous,” and the court repeated a long series of case law warrants dismissal of the untimely claim. Toulouse v. Department of Employment & Economic Development, 2019 WL 5304511 (Minn. Ct. App. 10/21/2019) (unpublished).

• Unemployment compensation; Social Security offset. Social Security old age benefits received by an applicant for unemployment compensation were properly deducted from his benefits. The court of appeals upheld the set-off for those funds, affirming a ruling of a ULJ with DEED. In re Keefe, 2019 WL 5543060 (Minn. Ct. App. 10/28/19) (unpublished).


A high-profile case involving the standard for sex harassment claims due to hostile work environment under the Minnesota Human Rights Act was awaiting determination by the Minnesota Supreme Court. Last month, the Court heard the case of Kenneh v. Homeward Bound, Inc., No. 18-0174, in which both the Hennepin County District Court and the Minnesota Court of Appeals rejected a request to abandon the long-standing “severe or pervasive” standard for sex harassment claims based on hostile work environment. The high court is considering whether Minnesota should depart from the standard for harassment under the state statute or, in the alternative, whether the claimant experienced any “severe or pervasive sexual harassment;” whether the employer took sufficient remedial action; and whether the employer should be subject to a heightened standard of liability under the employer’s own internal policy concerning harassment and offensive behavior in the workplace.

While the Court could decide the case based on narrow evidentiary grounds, it could on the other hand re-evaluate the “severe and pervasive” standard or provide additional guidance regarding the behavior that falls within that classification.

Marshall H. Tanick
Meyer, Njus & Tanick



• DC Circuit rejects challenge to EPA’s revised determination on GHG emission standards. On 10/25/2019, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit rejected on procedural grounds a lawsuit by states and environmentalists challenging the Environmental Protection Agency’s (EPA) 2018 determination that greenhouse gas (GHG) emission standards the agency had previously adopted for model year (MY) 2022 to 2025 motor vehicles were no longer appropriate. Specifically, the court held that EPA’s determination was not final agency action and thus not reviewable by the court. However, the court emphasized that when and if EPA did take final action, it would need a substantial justification for its change of course from the original Obama-era determination.  

By way of brief background, Section 202(a) of the federal Clean Air Act (CAA) requires EPA to “prescribe (and from time to time revise)” standards for “the emission of any air pollutant from... new motor vehicles or new motor vehicle engines,” which “cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.” 42 U.S.C. §7521(a). In December 2009, EPA determined that GHG emissions from motor vehicles met this “endangerment” standard, 74 Fed. Reg. 66,496 (Dec. 15, 2009). The finding led to the EPA, together with the National Highway Traffic Safety Administration (NHTSA), issuing a May 2010 final rule establishing GHG emission and corporate average fuel economy (CAFE) standards for new motor vehicles, which increased in stringency annually from model year (MY) 2012 to 2016. 75 Fed. Reg. 25,324 (5/7/010). 

In 2012, EPA and NHTSA published the next set of GHG emission fuel economy standards, covering 2017 to 2025 MY vehicles. 77 Fed. Reg. 62,624 (10/15/2012). However, because NHTSA was statutorily limited to promulgating standards for a maximum of five model years, it issued CAFE standards for MY 2017 to 2021, but only announced non-binding standards for MY 2022 to 2025 based on NHTSA’s judgment of what it would have set if it had statutory authority. NHTSA and EPA committed to undertake subsequent rulemaking to confirm the non-binding standards, and EPA adopted rules requiring the agency to make a final decision by 4/1/2018, on whether the model year 2022 to 2025 standards remained “appropriate” under Section 202(a). 40 C.F.R. §86.1818–12(h) (Section 12(h)). Following an extensive rulemaking effort—which included producing a 268-page Proposed Determination and accompanying 719-page Technical Support Document—EPA, on 1/12/2017, determined that the GHG standards established in 2012 for MY 2022 to 2025 remained “appropriate” and did not need to be revised.  

Shortly after President Trump was sworn into office a mere eight days later, EPA changed course. The agency published, on 4/13/2018, a “Revised Determination” withdrawing the January 12 determination and concluding that the 2022 to 2025 standards were “not appropriate.” 83 Fed. Reg. 16,077. Because it determined the current standards “may be too stringent,” EPA proposed to conduct rulemaking to revise the standards “as appropriate.” EPA emphasized that the “current standards remain in effect” and indicated that its “Revised Determination” was “not a final agency action.”

The plaintiffs’ lawsuit contended EPA failed to follow the procedural and substantive requirements imposed by Section 12(h) and that the Revised Determination was arbitrary and capricious. However, the court never addressed the merits of plaintiffs’ claims; rather it agreed with EPA that the case should be dismissed for lack of jurisdiction because the Revised Determination was not “final action.” The court held that EPA’s Revised Determination did not meet the standard set forth in Bennett v. Spear, 520 U.S. 154, (1997) that a final agency action “must be one by which rights or obligations have been determined, or from which legal consequences will flow.” Here, the court held, EPA left in place the existing emission standards and did not bind itself to a particular outcome in the pending rulemaking for MY 2022 to 2025 CAFE standards; accordingly, no “rights or obligations” had yet been determined. The court also noted that although EPA had withdrawn its original determination, it had not withdrawn the extensive underlying factual findings. For this reason, the court warned, “if EPA ultimately changes the 2012 standards, it will need to provide a reasoned explanation for why it is disregarding facts and circumstances that underlay or were engendered by the 2022-2025 model year standards when they were set in 2012 and the additional record developed during the original mid-term evaluation process.” (Quotations omitted.)  California By and Through Brown v. Environmental Protection Agency, ___ F.3d ___ (D.C. Cir. 2019).

• Asbestos abatement contractor receives 12 years in prison for violating Clean Air Act. The United States District Court for the Western District of Wisconsin issued a judgment sentencing former asbestos abatement contractor Lloyd Robl of New Richmond, Wisconsin to two consecutive 72-month prison sentences for violating the Clean Air Act and federal wire fraud statutes. According to the 10/10/2018 indictment and a 9/12/2019 announcement regarding the case from the District’s U.S. Attorney’s office, Mr. Robl’s offenses included, but were not limited to: 

• falsely advertising in Wisconsin and Minnesota that he was licensed, insured, and bonded to do asbestos abatements when he was not;

• falsifying documents provided to customers, including insurance policy documents, Minnesota asbestos abatement licenses, air sampling results, and asbestos waste manifests;

• conducting asbestos abatements—including the removal of asbestos-containing pipe insulation from an 18-unit apartment complex on Asbury Street in St. Paul—without current certification from the state of Minnesota;

• improperly disposing of asbestos-laden waste by burning the materials in burn piles or in 55-gallon drums at his Wisconsin home, thereby releasing asbestos into the ambient air, and spreading the ashes in the farm field behind his home; and

• hiring methamphetamine addicts to conduct asbestos removal jobs, paying them with methamphetamine, and failing to train them or provide respirators, suits, or cleaning materials.

At the sentencing hearing, according to the U.S. Attorney’s office announcement, Judge William M. Conley noted that Mr. Robl “has a lack of any moral compass,” and that “[h]is willful conduct caused harm to society and the environment, and countless others who will never be known.” U.S. v. Robl, No. 0758 3:18CR00136-001 (W.D. Wis. Filed 9/16/2019).

• MN Court of Appeals rejects feedlot environmental review for failure to consider greenhouse gas emissions. On appeal, the Minnesota Center for Environmental Advocacy (MCEA) challenged the decisions by the Minnesota Pollution Control Agency (MPCA) in which the MPCA denied MCEA’s request for a contested-case hearing on a national pollutant discharge elimination system (NPDES) feedlot permit and request for an environmental impact statement (EIS) regarding Daley Farms’ proposed expansion of its dairy farm concentrated-animal-feeding operation.

The MCEA relied on four arguments, specifically that (1) the decision to deny an EIS for Daley Farms’ expansion was based on an error of law, unsupported by substantial evidence, and arbitrary and capricious; (2) the decision to issue a modified NPDES permit was unsupported by substantial evidence; (3) the denial of a contested-case hearing was unsupported by substantial evidence; and (4) the decision to issue the NPDES permit prior to issuing a commissioner report was made upon unlawful procedure.

In its review, the court found that the MPCA failed to take a “hard look” at whether greenhouse-gas (GHG) emissions could have potential significant environmental effects in its determination that an EIS was unnecessary. The court was unpersuaded by the fact that the environmental assessment worksheet (EAW) form prepared by the Minnesota Environmental Quality Board for feedlot expansions did not request information on GHG emissions; MPCA’s obligations under the Minnesota Environmental Policy Act, the court held, are “not limited to the EAW form.” Therefore, its decision was arbitrary and capricious and was reversed and remanded to the MPCA for further proceedings. In making this finding, the court further found that because approval of a request to modify a NPDES permit requires a prior determination of whether an EIS is needed, the MPCA’s approval of Daley Farms’ request to modify its NPDES permit was reversed and remanded.

The court next found that the MCEA failed to establish a genuine issue of material fact in its request for a contested-case hearing. The court opined that MCEA’s argument that Daley Farms’ use of the applicable nitrogen-application-rate standards, as set by Minnesota Rule Part 7020.2225, subp. 3, was a challenge to the state regulation was a question of law, and therefore was not a genuine issue of material fact. 

Finally, the court determined that there was no procedural error in MPCA’s failure to issue a commissioner’s report pursuant to Minnesota Rule Part 7001.0125, subp. 2. The court reasoned that the rule MCEA relied upon was inapplicable because the rule’s history demonstrates that it was intended to provide a now-disbanded MPCA decisional body, the Citizens’ Board, with information related to decision-making. The court reasoned that even if the rule were applicable, the MCEA failed to provide evidence that it had been violated.

All other objections raised by the MCEA were rejected by the court. In re A Contested Case Hearing Request & Modification of a Notice of Coverage Under Individual Nat’l Pollution Discharge Elimination Sys. Feedlot Permit No. Mn0067652, Nos. A19-0207, A19-0209, 2019 Minn. App. Unpub. LEXIS 976 (Minn. Ct. App. 10/14/2019).


• EPA issues supplemental proposal for renewable fuel standard calculations to square small refinery exemptions. On 7/5/2019, the U.S. Environmental Protection Agency (EPA) announced its proposed volume requirements under the Renewable Fuel Standard (RFS) program to establish the cellulosic biofuel, advanced biofuel, and total renewable fuel volumes for 2020 and the biomass-based diesel volume for 2021. Pursuant to Section 211(o) of the Clean Air Act, 42 U.S.C. §7545(o), and further amended by the Energy Policy Act of 2005, 42 U.S.C. §15801 et seq., and the Energy Independence and Security Act of 2007, 42 U.S.C. §17001 et seq., RFS program is implemented by EPA in consultation with the U.S. Department of Agriculture and the Department of Energy (DOE).

The RFS is a national policy that requires certain volumes of renewable fuel to reduce or replace petroleum-based transportation fuel in increasing amounts each year, reaching to 36 billion gallons by 2022. The volumes must be finalized by November 30 of the year preceding the compliance. Obligated parties required to meet these renewable standards can either do so by selling required biofuel volumes or purchasing renewable identification numbers specifically assigned to each gallon of renewable fuel. In July 2019, EPA proposed for 2020, 0.54 billion gallons of cellulosic ethanol; 5.04 billion gallons of advanced biofuel; 15 billion gallons of total renewable fuel (the amount required by the statute); and 2.43 billion gallons for biomass-based diesel for 2021.

However, on 10/15/2019, EPA released a supplemental notice of proposed rulemaking for the RFS program. The RFS program allows small refineries to be exempt from their renewable fuel volume obligations if the small refiner submits a petition for exemption to EPA showing evidence that “disproportionate economic hardship” exists for the refinery that year. The EPA granted 31 of these small refinery exemptions (SREs) for 2018, 35 for 2017, and 19 for 2016.

The October 2019 supplemental notice does not change the proposed volumes of RFS for 2020 and 2021, but rather seeks comment on adjustments to the way annual renewable fuel percentages are calculated. Specifically, the supplemental notice is seeking comment on projecting the volume of gasoline and diesel that will be exempt in 2020 due to SREs issued in prior years. Instead of projecting the volume of gasoline and diesel that would be exempt in the upcoming year based on an average of exemptions granted in previous years, EPA intends to project that volume based on the previous three-year average of the SREs recommended by the DOE, which was a lower number of recommended SREs than EPA actually granted.

Due to the discrepancy between the number of SREs recommended by DOE and the actual number of SREs granted by EPA, billions of gallons of ethanol will be lost to the SREs. Many stakeholders in the agricultural and biofuel industry are not happy with this loss in product and revenue. The comment period on the supplemental notice of proposed rules ended 11/29/2019. EPA will promulgate a final rule in 2019. 84 Fed. Reg. 208, 57677 (10/28/2019); Docket ID: EPA–HQ–OAR–2019–0136.

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



• Domestic abuse presumption applies only to awards of joint custody and does not operate against an abusive party. The parties began a “toxic” and conflict-prone relationship in 2010 before mother gave birth to a daughter in 2014. Shortly after the child’s first birthday, father petitioned for custody and parenting time as well as an order for protection (OFP) against mother. After a hearing, the district court found mother had committed domestic abuse against father, and issued an OFP granting father temporary sole legal and physical custody of their daughter. However, the court declined to issue an OFP on behalf of the child. 

The parties tried the custody and parenting time case approximately a year and a half later. Father testified to suffering extensive physical abuse from mother, introduced 90 exhibits, and called eight additional witnesses. Mother’s case in chief consisted of her answering a handful of questions about her ability to communicate with father and a co-parenting class she had taken. Mother called no other witnesses and offered no exhibits. An appointed guardian ad litem recommended the parties share joint legal and joint physical custody, notwithstanding the history of abuse. Based on the evidence at trial, the district court concluded that, despite mother’s having committed acts of domestic abuse, father “has superior power and control over Mother,” and considered mother’s actions “in the context of how powerless she felt in the relationship.” Accordingly, the district court awarded the parties joint physical custody and granted mother sole legal custody. 

Father appealed, arguing the court misapplied the presumption against joint custody in cases involving domestic abuse by granting legal custody to the abusive party and awarding the parties joint physical custody. The court of appeals affirmed and the Supreme Court granted review.

Writing for a unanimous court, Justice Chutich rejected father’s arguments and affirmed the decisions below. First, the Supreme Court concluded the presumption against joint legal custody in Minn. Stat. §518.17 does not automatically favor the victim of abuse. Instead, the presumption prioritizes a custody arrangement (sole custody) rather than a particular custodian. The presumption is thus “intended to enable the district court to conduct a nuanced consideration of the child’s needs,” rather than being “mechanically applied against a parent who has committed domestic abuse.” Second, the Supreme Court affirmed the award of sole legal and joint physical custody, holding that the lower court appropriately weighed the nature, implications, and context of mother’s abusive behavior as part of its overall consideration of best interests. Thornton v. Bosquez, 933 N.W.2d 781 (Minn. 2019).

Michael Boulette
Barnes & Thornburg LLP



• Amendment of scheduling order; no good cause; abuse of discretion. Where a district court granted the plaintiffs’ motion to amend the scheduling order to allow modification of expert reports despite finding no good cause to support the proposed amendment, the 8th Circuit, applying a “clear and prejudicial abuse of discretion” standard of review, found that the district court had abused its discretion in modifying the scheduling order because it “bypass[ed] the mandatory good cause standard” of Fed. R. Civ. P. 16(b)(4). Judge Colloton dissented, arguing that the district court’s order was “a permissible exercise of discretion.” Petrone v. Werner Enterprises, Inc., 940 F.3d 425 (8th Cir. 2019). 

• Nationwide class certification reversed. The 8th Circuit reversed a district court’s certification of a nationwide class action on claims brought under a Missouri deceptive trade practices act, finding that the claims brought by the non-Missouri plaintiffs did not fall within the scope of the Missouri statute, and also found that the district court had not engaged in the necessary “individualized choice-of-law analysis” on plaintiffs’ other claims. Hale v. Emerson Elec. Co., ___ F.3d ___ (8th Cir. 2019). 

• Arbitration; substantive unconscionability cured on appeal. In an action brought again a Twin Cities law firm and others by the law firm’s former Arkansas client, where the district court denied the law firm’s motion to compel arbitration, the 8th Circuit held that any possible unconscionability in an arbitration agreement between the law firm and its former client which required that the arbitration take place in Washington, D.C., was cured when the law firm made a post-hoc offer to cover the plaintiff’s share of arbitration costs. Plummer v. McSweeney, ___ F.3d ___ (8th Cir. 2019). 

• Appeal from grant of motion to dismiss with right to amend complaint; jurisdiction. Where the district court granted the defendants’ motion to dismiss but granted the plaintiff leave to replead many of her claims, the plaintiff then appealed rather than seeking to amend her complaint, and the district court clerk had docketed the appeal as interlocutory, the 8th Circuit questioned whether it had jurisdiction over the appeal, and remanded the action to the district court “for the limited purpose of clarifying our appellate jurisdiction.” Jones v. Custer County, ___ F. App’x ___ (8th Cir. 2019). 

• Mandatory disclosures; sanctions; attorney’s fees and costs awarded. Analogizing defendant’s approach to discovery as “discovery a la Inspector Clouseau,” Magistrate Judge Rau rejected the defendant’s contention that it was not required to amend its Rule 26 disclosures to identify an additional witness where that witness was identified in multiple documents, found that the relator was harmed by the failure to disclose the witness, ordered the defendant to produce relevant documents from additional custodians within 14 days, permitted the relator to take depositions of certain witnesses within 60 days, and awarded the relator his attorney’s fees and costs related to the motion, while denying his request for an adverse inference sanction. United States Ex rel. Higgins v. Boston Scientific Corp., 2019 WL 5206221 (D. Minn. 10/16/2019). 

• Fed. R. Civ. P. 68; putative class action; motion to strike offer of judgment denied. Rejecting the prevailing view in the district, Magistrate Judge Schultz denied the plaintiff’s motion to strike or otherwise invalidate a Rule 68 Offer of Judgment, concluding that the plaintiff did not risk “a meaningfully greater shift in costs than he would had he brought this action solely on his own behalf.” Borup v. CJS Solutions Group, LLC, ___ F. R.D. ___ (D. Minn. 2019). 

• Intervention; violation of attorney’s eyes only protective order; sanctions. Considering a third-party witness’s motion to intervene for the limited purpose of seeking a contempt order against the defendants and their counsel for violating an attorney’s-eyes-only protective order, Magistrate Judge Menendez granted the motion to intervene and denied the request for a contempt order as “unnecessary,” but sanctioned defendants and their counsel for their multiple violations of the protective order by awarding attorney’s fees and expenses and requiring defendants’ local counsel to take an “active role” in the litigation. Management Registry Inc. v. A.W. Cos., 2019 WL 5388488 (D. Minn. 10/22/2019). 

Less than three weeks later, Magistrate Judge Menendez awarded the third-party witness more than $12,500 in attorney’s fees and expenses pursuant to Fed. R. Civ. P. 37(b)(2), rejecting the argument that the 32.8 hours the witness’s attorney spent working on the matter were excessive. Management Registry Inc. v. A.W. Cos., 2019 WL 5868225 (D. Minn. 11/11/2019).

• Discovery violations; sanctions; Fed. R. Civ. P. 37(b); inherent powers. Where the plaintiff intentionally withheld relevant documents from his document productions, Magistrate Judge Menendez sanctioned him under Fed. R. Civ. P. 37(b) and inherent powers by awarding attorney’s fees and costs associated with the motion to compel and the additional depositions resulting from the plaintiff’s incomplete disclosures, and also recommended that defendant be permitted to cross-examine the plaintiff at trial regarding his discovery failures. Darmer v. State Farm Fire & Cas. Co., 2019 WL 5541411 (D. Minn. 10/28/2019). 

• Diversity jurisdiction; change of domicile; motion to remand denied. Where the corporate defendant removed the action based on a diversity of citizenship and the plaintiff moved to remand, arguing that the defendant’s principal place of business was in Minnesota, Chief Judge Tunheim found that the defendant’s “nerve center” had moved to Delaware one month before the action was commenced, and therefore denied the motion to remand. Adouk v. FilmTec Corp., 2019 WL 4917127 (D. Minn. 10/4/2019). 

• Interrogatories; counting subparts. Sustaining the defendants’ objections to numerous interrogatories, Magistrate Judge Wright found that “interrogatory subparts are to be counted as part of one interrogatory... if they are logically or factually subsumed within and necessarily related to the primary question,” and found that an interrogatory asking the defendants to summarize the basis for each of the 50-plus factual denials in their answer counted as more than 50 separate interrogatories. Alexander v. 1328 Uptown, Inc., 2019 WL 4929931 (D. Minn. 10/7/2019). 

• Motion to strike jury demand treated as non-dispositive. Surveying the “little authority” on point, Magistrate Jude Schultz rejected the plaintiff’s contention that a motion to strike a jury demand was a dispositive matter to be heard by the district judge, and instead concluded that the motion was a non-dispositive pretrial matter. Fair Isaac Corp. v. Federal Ins. Co., 2019 WL 5057865 (D. Minn. 10/9/2019). 

• First-filed rule; parallel state and federal proceedings; Colorado River abstention. Finding that the first-filed doctrine was not applicable to parallel state and federal proceedings, Judge Nelson nevertheless relied on Colorado River abstention and stayed the second-filed federal action pending resolution of the earlier-filed New York proceeding. NDGS, LLC v. Radium2 Capital, Inc., 2019 WL 5065187 (D. Minn. 10/9/2019). 

Josh Jacobson
Law Office of Josh Jacobson 




•  Patent: Declaratory action of patent application agreements not same as declaratory action of patent ownership. Judge Magnuson recently denied defendants’ motion to dismiss. Maxim Defense Industries, LLC sued Jake Kunsky and Unconventional Equipment Solutions, LLC alleging misuse of data and unauthorized credit-card purchases following Mr. Kunsky’s termination of employment. Maxim brought an action for a declaratory judgment regarding three patent application agreements. Defendants moved to dismiss the action arguing that because no patents had yet issued, the dispute was not ripe for resolution. The court found that although defendants were right that any underlying patent ownership claim was not ripe, Maxim’s claim was not related to patent ownership. Maxim sought resolution of the validity of the agreements assigning patent application ownership, not patent ownership itself. Maxim Def. Indus., LLC v. Kunsky, No. 19-1225 (PAM/LIB), 2019 U.S. Dist. LEXIS 176289 (D. Minn. 10/10/2019).

•  Claim term not indefinite where person of ordinary skill would have no difficulty determining the bounds of the claim. Judge Schiltz recently granted Vascular Solutions LLC’s motion for summary judgment that the asserted claims were not indefinite. Vascular Solutions and QXMédical, LLC manufacture and sell guide extension catheters, which are used by a heart surgeon to deliver a balloon or stent into a blocked coronary artery. In April 2017, Vascular Solutions accused QXMédical of patent infringement. QXMédical filed a declaratory action that its boosting catheter did not infringe any of Vascular Solutions’ patents and that Vascular Solutions’ patents were invalid. Vascular Solutions counterclaimed for patent infringement. QXMédical alleged each of the claims was invalid because the claim term “substantially rigid” was indefinite. A claim is invalid for indefiniteness if its language, when read in light of the patent’s specification and the prosecution history, fails to inform, with reasonable certainty, those skilled in the art about the scope of the invention. In its Markman order, the court construed the term to mean “rigid enough to allow the device to be advanced within the guide catheter.” QXMédical argued the term was indefinite based on the court’s construction because a portion of a guide extension catheter could be both “substantially rigid” and “flexible.” The court rejected QXMédical’s challenge finding nothing in any of the patents said that a segment of the device could not be both “substantially rigid” and “flexible.” As the experts on both sides agreed that a person of ordinary skill would have no difficulty determining whether a substantially rigid pushrod is “more rigid” than a flexible tip portion, QXMédical’s argument failed, and summary judgment was proper. QXMédical, LLC v. Vascular Sols., LLC, No. 17-cv-1969 (PJS/TNL), 2019 U.S. Dist. LEXIS 171088 (D. Minn. 10/2/2019).

Joe Dubis
Merchant & Gould




Florida professor a Minnesota resident for state income tax purposes. In 2010, Dileep Rao agreed to a five-year contract appointment as a non-tenure-track clinical professor by Florida International University. The university offered to pay for Dr. Rao’s relocation expenses, but Dr. Rao declined and commuted between Minnesota and Miami. In January 2014, Dr. Rao rented an apartment in Miami, in hopes of being appointed director of entrepreneurship at the university. Between January 2014 and July 2015, Dr. Rao frequently returned to Minnesota, where his wife continued to live. While in Miami, Dr. Rao obtained a Florida driver’s license, frequented a local physician, and opened a bank account in Florida with a national bank. Dr. Rao’s passport continued to display his Minnesota address, the Raos’ cars remained in Minnesota, and they maintained a permanent residence in Minnesota. In April 2015, Dr. Rao’s contract was renewed with the university for three years. In June 2015, Dr. Rao decided to let the lease lapse on his rented apartment and continue commuting between Minnesota and Miami. Dr. Rao intended to make Florida his domicile contingent on appointment to director of entrepreneurship. The appointment did not happen and Dr. Rao’s domicile remained in Minnesota. On their 2014 and 2015 Minnesota income tax returns, the Raos declared Dr. Rao to be a Florida resident and, therefore, did not pay Minnesota income tax on his Florida earnings. The commissioner disagreed and assessed the Raos as though Dr. Rao was a Minnesota resident in both 2014 and 2015. The Raos appealed. 

Minnesota taxes its residents on all of the resident’s income, regardless of where it was earned. In this case, the court rejected the contention that Dr. Rao’s Florida income was not subject to Minnesota tax because he spent fewer than 183 days in Minnesota during each year. See Minn. Stat. §290.01, subd. 7(b) (2018). Any individual domiciled in Minnesota is considered a resident, however, regardless of the number of days spent in Minnesota. Minn. Stat. §290.01, subd. 7(a) (2018). Rao v. Comm’r, 2019 WL 4648566 (Minn. Tax Court 9/18/19).

 Third-party assessor’s data is nonpublic; petitioner permitted to access data used by appraiser. In this property tax dispute, taxpayer 1300 Nicollet served Hennepin County with written discovery requesting tenancy, income, and expense information that other downtown hotels had recently submitted to the assessor. The county opposed 1300 Nicollet’s motion on the ground that responding would place an undue burden on the county with the task of redacting all third-party assessor’s data. Intervenors also opposed the motion, stating that dissemination of their protected data to a competitor would cause them substantial harm.

The information 1300 Nicollet sought is denominated “assessor’s data” and is classified as private or nonpublic by the Minnesota Government Data Practices Act. The county possesses intervenors’ third-party assessor’s data as a result of Minn. Stat. §278.05, which requires any person contesting the valuation of income-producing property to provide the assessor with: 1) a year-end financial statement for the year prior to the assessment date; 2) a year-end financial statement for the year of the assessment date; 3) a rent roll on or near the assessment date listing the tenant name, lease start and end dates, base rent, square footage leased, and vacant space; 4) identification of all lease agreements not disclosed on a rent roll in the response to clause 3, listing the tenant name, lease start and end dates, base rent, and square footage leased; 5) net rentable square footage of the building or buildings; and 6) anticipated income and expenses in the form of a proposed budget for the year subsequent to the year of the assessment date. 

The court explained that the Legislature has protected from public disclosure some of the information required in Minn. Stat. §278.05. In particular, Section 13.51 of the MGDPA states that data collected from individuals or businesses are classified as private or nonpublic. The intervenors asserted that based on Minn. Stat. §13.51, subd. 2(a)-(f), the court should not compel the county to disclose their third-party assessor’s data.

In a lengthy opinion, and using the two-part statutory test in Minn. Stat. §13.03, subd. 6, the court denied 1300 Nicollet’s motion to compel discovery, but ordered the county to provide 1300 Nicollet with any information, including third-party assessor’s data, concerning downtown Minneapolis hotel properties which the county provided to its appraiser, and on which its appraiser relied in preparing his appraisal report for the county. 1300 Nicollet v. Hennepin Co., 2019 WL 4648556 (Minn. Tax Court 9/18/19).

 Reasonable costs and reimbursements awarded. In 2014, the court issued amended findings of fact, conclusions of law, and order for judgment determining that the assessed value of Guardian Energy’s ethanol plant in Waseca County understated its market value. The county was the prevailing party, and in 2015, the county filed a motion for costs and disbursements, seeking an award of statutory costs, expert witness fees, and reproduction of exhibits, totaling $21,705.15. Guardian Energy did not oppose an award of the county’s statutory costs, nor reimbursement for time spent by the county’s experts. Guardian Energy did oppose the county’s request for reimbursement for copies of trial transcripts and for the reproduction of exhibits.

Minn. Stat. §271.07 (2018) provides that the tax court shall provide for a verbatim stenographic report of all proceedings had before it upon appeals, as required by the laws relating to proceedings in district court. The cost of the stenographic record shall be paid by the party taking the appeal.

The county sought reimbursement for transcripts of a pretrial conference; a hearing on its motion to compel; the evidentiary hearing; the trial; and a hearing on its motion for amended findings. Guardian Energy contended that transcript disbursements do not reflect trial costs.

The court has previously allowed for reimbursement of trial transcripts. See American Multi-Cinema, Inc. v. Cty. of Hennepin, 2016 WL 5874439, at 1, 6 (Minn. T.C. 9/30/2016). Minn. Stat. §271.07 states that the transcript will be paid by the petitioner. However, in the instant case, the parties previously agreed to share the cost and the court granted the county’s motion for half of the cost of the original transcript.

Regarding the cost of the county’s copy of the transcript, because the court required the parties to prepare proposed findings of fact with references to the record, the court considered it reasonable and necessary for the county to have purchased a copy of the transcript and granted the county’s motion for transcripts and court reporter appearance fees.

The county also requested reimbursement in copying costs. Guardian Energy opposed the award, stating “some of the costs submitted exceed what is reasonably reimbursable in connection with trial proceedings.” In particular, Guardian Energy objected to reimbursing the County for $2,479.71 of copies made in December 2011, more than a year before trial. Guardian Energy further objected to paying $3,369.38 for six copies of the county’s appraisal report, stating that an award of the cost of three copies would be reasonable. 

The court agreed with Guardian Energy with respect to the county’s request for reimbursement of copies made a year prior to trial, and denied the county’s request. The court further agreed with Guardian Energy that an award of three copies is reasonable and granted the county’s request in the amount of $1,684.69. The court granted the county’s motion for award of costs and disbursements incurred in the amount of $18,140.75 and denied the remaining requests for costs and disbursement. Guardian Energy v Waseca Co., 2019 WL 4805038 (Minn. Tax Court 9/25/19).

 Taxpayer must have “qualifying person” to claim tax benefits. Working families are entitled to various credits and exemptions under Minnesota law. A taxpayer is allowed a dependency exemption for each “qualifying child” as defined in I.R.C. §152. See Minn. Stat. §290.01, subd. 19 (2018). A qualifying child, in relevant part, is defined as “a child of the taxpayer or a descendant of such a child,” I.R.C. §152(c)(1)(A), (c)(2)(A), and “who has the same principal place of abode as the taxpayer for more than one-half of such taxable year,” id. §152(c)(1)(B). If more than one parent can claim a child as a qualifying child, then only “the parent with whom the child resided for the longest period of time during the taxable year” is allowed to claim that child. Id. §152(c)(4)(B)(i).

To claim a child under the Minnesota Working Family Credit, the child must be a “qualifying child” under the federal Earned Income Tax Credit (EITC). Minn. Stat. §290.0671, subd. 1(a) (2018). Similarly, to claim Minnesota’s dependent care credit, or child care credit, the taxpayer must have a “qualifying individual” under the federal Dependent Care Credit. See Minn. Stat. §290.067, subd. 1(a) (2018). A qualifying individual includes a qualifying child under the age of 13. I.R.C. §21(b)(1)(A). Finally, head of household filing status has three requirements in Minnesota: (1) the claimant must be unmarried on the last day of the tax year; (2) the claimant must pay more than half the cost of maintaining the household during the tax year; and (3) a qualifying person must live with the claimant for more than half the year. I.R.C. §2(b)(1) (2012).

Shawn Cermak is the father of a six-year-old and a four-year-old. For tax years 2016 and 2017, Cermak was not entitled to a dependency exemption, a dependent care credit, or an increased working family credit for his now four-year-old child. For tax year 2017, Cermak was not entitled to a dependency exemption or an increased working family credit for his now six-year-old child. Additionally, in 2017, Mr. Cermak had no qualifying children and was not entitled to file as head of household. 

For 2016, the commissioner determined that Mr. Cermak could claim his six-year-old child as a qualifying child, but not his four-year-old child. For 2017, the commissioner determined that Cermak could claim neither child as a qualifying child. Accordingly, the commissioner recalculated Cermak’s state tax liability, which reduced his claimed refund for each tax year. Cermak timely appealed the commissioner’s orders and the issue went to trial. The court heard evidence at trial regarding whether the children had “the same principal place of abode” as Cermak for more than half of 2016 and 2017, and on whether any other person had a superior right to claim them as qualifying children.

The court concluded that in 2016, Cermak’s four-year-old child resided with her mother for the longest period of time during the year, and in 2017, spent every night with her mother. The court further concluded that in 2017, Cermak’s six-year-old child did not have the same principal place of abode as Cermak for more than half of the year. Because neither child of Mr. Cermak is a qualifying person, Mr. Cermak cannot claim head of household. The court affirmed the commissioner’s orders. Cermak v Comm’r, 2019 WL 5495873 (Minn. Tax Court 10/16/19).

 Petition to amend denied in multimillion-dollar dispute. In a dispute involving a married taxpaying couple, Mrs. and Mr. Whitesell, and a nearly $11 million judgment, the tax court denied the couple leave to amend their complaint.

During the relevant periods, Mr. Whitesell owned a 100% interest in three S corporations: WIC, Whitesell Corp., and NLW Holdings, LLC. In 2005, one of the corporations filed a lawsuit against William A. Whitaker and other defendants. The lawsuit alleged trade secret violations and was filed in state court in Michigan. Whitaker counterclaimed, asserting that the suit against him was filed for the purpose of preventing competition. In 2008, following a jury trial, the Michigan trial court entered judgment in Whitaker’s favor for $9,266,685. Over the next few tax years WIC deducted over $10 million for the judgment and interest. Simultaneously, WIC appealed the judgment. In 2011, the Michigan Court of Appeals reversed and remanded. WIC (and taxpayer couple) did not report income relating to this reversal on their 2011 or 2012 tax return. 

In 2012, the IRS mailed a deficiency notice, making a $10,982,856 adjustment ($9,266,685 plus interest) to WIC’s income for 2011. Whitesell filed an original and an amended petition in 2015 stating that the IRS did not properly assess the taxes. In neither of those petitions did the taxpayers disagree with the amount, or the year to which the income related. However, in 2018, Whitesell filed an amendment to the amended petition asserting that the income related to 2013, when the Michigan case settled, could not be taxed because it exceeded the three-year statute of limitations. 

To determine whether an amendment should be allowed, the court examined the circumstances in the case. The court considered whether an excuse for the delay exists and whether the opposing party would suffer unfair surprise, disadvantage, or prejudice if the motion to amend were granted. Whitesell did not plead their theory regarding the income related to 2013 until their 2018 motion. The couple argued that their reason for doing so was that they were “overwhelmed by the Tax Court process, including procedural matters.” Because Whitesell sought legal advice throughout the suit, the court was not persuaded that the Whitesells’ pro se status excuses their delay in raising the argument. Furthermore, until 2018, the IRS was unaware of the Whitesells’ argument that the proper year for income inclusion is 2013. The IRS was unfairly surprised. Had WIC asserted 2013 as the correct tax year in their 2016 response, the IRS would not have missed the three-year period for assessing tax. The IRS has been unfairly prejudiced. The court concluded that justice does not require that the taxpayer be permitted to file their amendment to their amended petition and therefore the court denied the Whitesells’ motion. Whitesell v. Comm’r, T.C.M. (RIA) 2019-126 (T.C. 2019).

 Rejecting “tax-defier chestnuts,” court upholds deficiencies and penalties for “American Voice” radio founder. Petitioner Francis Steffan Hayes published a newspaper, the American Voice, and ran an internet-based radio station, the American Voice Radio Network, from 2005 through 2009. Mr. Hayes solely controlled these entities, which he characterized as “following in the footsteps of Thomas Jefferson by evincing skepticism towards Government and opposition to perceived Government criminality.” While Mr. Hayes was holding the government to account, he failed to file income tax returns and failed to pay income tax. The Service ultimately prepared substitutes for returns on his behalf and issued a notice of deficiency determining tax deficiencies and additions to tax totaling just over $50,000. The court characterized Mr. Hayes’s arguments as, “play[ing] variations on oft-rejected tax-defier themes” and wasted little time in rejected them, noting that “[t]he shopworn arguments he offers in support of his position are incomplete, misleading, and misguided, and have been rejected more times than we care to count.” The court concluded its sharp opinion with an express reference to section 6673 and the court’s power to impose penalties up to $25,000 where a taxpayer’s position is frivolous or groundless. Although no Section 6673 penalty was imposed in this case, the court noted that the taxpayer now has a history of making frivolous arguments and “accordingly warn[ed] him that the section 6673 penalty looms should he advance similar tax-defier arguments in the future.” Hayes v. Comm’r, T.C.M. 2019-147 (T.C. 2019).

Morgan Holcomb
Mitchell Hamline School of Law

Sheena Denny
Mitchell Hamline School of Law




• Statute of limitations; “some damage” rule of accrual. In 2009, decedent negotiated a purchase agreement to sell certain real property located in Vadnais Heights to Community Facilities Partnership of Vadnais Heights, LLC (CFP) for $2.5 million cash at closing and a nonrecourse 30-year note issued by the City of Vadnais Heights payable semi-annually. After decedent died, defendant bank was appointed as a co-special administrator of the estate to supervise and oversee the closing on the sale of the land to CFP. The agreement stated: (1) prior to closing, an independent CPA firm or financial professional shall forecast enough net operating income from the facility would be collected to pay off the note; (2) at closing the buyer was required to master lease the project to the city in an amount sufficient to pay off the note; and (3) CFP was required to provide a five-year compiled financial forecast prepared by an independent CPA firm showing sufficient net operating income. The transaction closed in 2010. But in August 2012, plaintiffs failed to receive payments due to the failure of the facility to obtain sufficient income. In 2017, plaintiffs filed suit against the bank alleging breach of fiduciary duty for failure to ensure compliance with the three closing conditions in 2010. The district court granted the bank’s motion to dismiss pursuant to the six-year statute of limitations. The court of appeals affirmed. 

The Minnesota Supreme Court reversed and remanded. The Court began by noting that “a motion to dismiss should be granted” under the statute of limitations “only when it is clear from the stated allegations in the complaint that the statute of limitations has run.” The Court noted that it “will not make inferential leaps in favor of the defendant to conclude that a lawsuit is time-barred.” Looking at the allegations in the complaint, the Court acknowledged that all of the alleged wrongful conduct occurred in 2010. However, the Court held that the suit was timely because the complaint did not allege “some damage” occurred until the first payment was missed in August 2012. The Court reasoned that “some damage” may occur “either by financial liability or the loss of a legal right.” In this case, the Court found that the complaint did not allege the “loss of a legal right,” stating: “The whole point of the transaction was precisely to exchange ownership of the property for money. Stated another way, the parties may dispute whether [defendant’s] alleged breaches caused [plaintiffs] to part with their legal right to ownership of the property for too little money, but that type of economic harm falls in the financial liability category.” The Court went on to hold that the complaint did not allege plaintiffs suffered financial harm until August 2012. As a result, any theoretical damages suffered prior to that time were speculative, and dismissal of the complaint was improper.

Justice Hudson filed a dissenting opinion, which was joined by Chief Justice Gildea. The dissent would have held that dismissal was proper because the “deal both financially harmed the [plaintiffs] and caused them to lose a legal right in 2010.” Hansen v. U.S. Bank Nat’l Ass’n, No. A17-1608 (Minn. 9/25/2019). https://mn.gov/law-library-stat/archive/supct/2019/OPA171608-092519.pdf

• Collateral source statute; discounts negotiated under Minnesota’s Prepaid Medical Assistance Plan. After plaintiff’s car struck a school bus that failed to yield at an intersection, plaintiff brought a suit against defendant bus driver and the owner of the bus. Plaintiff was a medical-assistance enrollee, and her medical expenses were covered by two managed-care organizations that contracted with Minnesota’s Prepaid Medical Assistance Plan under Minnesota’s Medicaid program. After trial, the jury awarded plaintiff damages, but the district court deducted from the award the amount of discounts negotiated by plaintiff’s managed-care organizations. The court of appeals reversed, holding that the discounts were excepted from offset because they were “payments made pursuant to the United States Social Security Act.” 

The Minnesota Supreme Court affirmed the decision of the court of appeals. The Court initially noted that the parties conceded that “negotiated discounts… are considered to be ‘payments’ under the collateral-source statute” and that Minnesota’s Medical Assistance program is a part of the Social Security Act. Instead, defendant argued that “pursuant to” “should be defined narrowly” and that “nothing in the Social Security Act or its regulations contemplates the discounts or specifically authorizes managed-care organizations to negotiate them.” The Court rejected this argument, noting that the phrase “pursuant to” in the statute “is followed by broad reference to a statute that is itself of exceedingly wide breadth: the United States Social Security Act.” The Court held that because “the reference is to an expansive Act, the proper analysis is not a restrictive one… but whether the… payments [were] made ‘under,’ ‘in accordance with,’ ‘in compliance with’ or in ‘carrying out’ the Social Security Act,” and the Court held that they were.

Chief Justice Gildea filed a dissenting opinion, which was joined by Justice Anderson. The dissent argued that the collateral source statute should have been interpreted only according to its plain meaning. Because the Court had previously held that “pursuant to” meant “required,” and the Social Security Act did not require the managed-care organizations to negotiate discounts, the dissent would have affirmed the decision of the district court. Getz v. Peace, No. A18-0121 (Minn. 10/16/2019). https://mn.gov/law-library-stat/archive/supct/2019/OPA180121-101619.pdf

Jeff Mulder
Bassford Remele