B&B_logo_red_sm

Notes & Trends – March 2020

CRIMINAL LAW

JUDICIAL LAW

• Tribal authority: Tribal officer has authority to detain and expel from reservation a non-Indian suspected of violating Minnesota law on reservation. Appellant drove to a hospital on the Red Lake reservation to pick up his brother. Red Lake officer Bendel was present and saw appellant arrive. Officer Bendel noted a number of indicia of intoxication and administered a PBT, which revealed a BAC of 0.121, and additional field sobriety tests, which appellant failed. Officer Bendel then placed appellant in handcuffs, Mirandized him, and placed him in the back of the squad car. Officer Bendel drove appellant to the reservation boundary, where appellant was transferred to Beltrami County Deputy Roberts. Deputy Roberts also observed indicia of intoxication upon taking custody of appellant, drove him to the jail, and read the implied consent advisory. Appellant consented to a breath test, which reported a BAC of 0.11. Appellant argued he was unlawfully arrested by Officer Bendel, because Officer Bendel was not a “peace officer” for purposes of the DWI statute. The district court denied appellant’s suppression motion and, after a stipulated facts trial, found appellant guilty of DWI. The Minnesota Court of Appeals affirmed, finding Officer Bendel’s actions lawful.

The Supreme Court also affirms. The court points to federally recognized Indian tribes’ power to exclude persons deemed undesirable from tribal lands, which includes the power to restrain and eject those who disturb the public order on the reservation. Also, under this authority, “[w]here jurisdiction to try and punish an offender rests outside the tribe, tribal officers may exercise their power to detain the offender and transport him to the proper authorities.” Duro v. Reina, 495 U.S. 676, 697 (1990). Officer Bendel detained, investigated, and ejected Thompson pursuant to this recognized tribal authority. Thus, appellant’s detention was lawful. State v. Thompson, 937 N.W.2d 418 (Minn. 1/15/2020).

Samantha Foertsch
Bruno Law PLLC

Stephen Foertsch
Bruno Law PLLC


EMPLOYMENT & LABOR LAW 

JUDICIAL LAW

• Labor arbitration; benefits partial remand on plant shutdown. A denial of a motion by a labor union to require arbitration following the company’s announcement of a closing manufacturing plant was allowed, in part, by the 8th Circuit. The lower court’s denial of a motion to compel arbitration was upheld with respect to early retirement benefits, which are exclusively subject to statutory claims under the Employees & Retirement Income Security Act (ERISA), but arbitration was allowed on the issue of the manner in which plant benefits would be affected by the plant closure. Therefore, the case was partially remanded to permit arbitration on the effects of the shutdown. The decision, written by Justice James Loken of Minnesota, permitted the case to proceed to arbitration with respect to the effects of the plant shutdown, but claims for retirement benefits must be pursued independently under ERISA. International Union, et al. v. Trane U.S., Inc., 936 F.3d 1031 (8th Cir. 1/10/2020). 

•  ERISA; disability benefits denied. An employee was denied contravention of disability benefits after exhausting medical illness benefits. The 8th Circuit Court of Appeals upheld the termination of benefits, following the end of mental illness benefits, because of a lack of disabling physical condition. Miller v. Hartford Life & Accident Ins. Co., 944 F.3d 1006 (8th Cir. 12/16/2019).

• USERRA; termination upheld. A retired U.S. Army serviceman lost his termination appeal under the federal Uniform Services Employment and Re-employment Act (USERRA), 38 U.S.C. §4301, et seq. The 8th Circuit affirmed a lower court ruling that the claimant’s mandatory status was not a “motivating factor” in the decision by his private sector employer to fire him. McConnell v. Anixter, Inc., 944 F.3d 985 (8th Cir. 12/13/2019).

•  Wage loss; pre-emption claim rejected. The Minnesota Supreme Court upheld the Minneapolis minimum wage law, which incrementally raises the level to $15 over a period of time. Affirming two lower court rulings from Hennepin County District Court and the Minnesota Court of Appeals, the Supreme Court unanimously rejected a claim that the measure, which is similar to the one going into effect in St. Paul, is preempted by the Minnesota mini-Fair Labor Standards Act (FLSA), Minn. Stat. §177.23. Graco, Inc. v. City of Minneapolis, 925N.W.2d 262 (Minn. Ct. 1/22/2020). 

• Teacher license; revocation upheld for unreasonable discipline of students. The Minnesota Professional Educator Licensing & Standards Board (formerly known as the Board of Teaching) properly revoked a teacher’s license on grounds that the teacher improperly and unreasonably disciplined students while working as a teacher at an elementary school. The court of appeals upheld a decision by an administrative law judge, rejecting two claims of procedural errors in preventing the teacher from introducing testimony from an investigator and allowing the hearing to exceed the scope of the notice. In re teaching license of Evans, 2020 WL 132172 (Minn. Ct. App. 1/13/2020) (unpublished).

• Disability discrimination; unauthorized leave. An investigator with the Minnesota State Department of Labor & Industry lost his disability discrimination lawsuit. The court of appeals affirmed the summary judgment decision of the Ramsey County District Court that the claimant was on unauthorized leave and failed to submit appropriate documentation to support that leave, which constituted a legitimate, non-pretextual reason for his discharge. Gensmer v. Minnesota Department of Labor & Industry¸ 2019 WL 7142131 (Minn. Ct. App. 12/23/2019) (unpublished). 

• Unemployment compensation; off-duty behavior. A certified public accountant who was terminated from employment because she received an off-duty DUI lost her appeal of denial of unemployment compensation benefits. The appellate court upheld a determination by an unemployment law judge (ULJ) with the Department of Employment & Economic Development (DEED) that the employee’s behavior constituted disqualifying “misconduct” and that she did not satisfy the statutory chemical-dependency exception in Minn. Stat. §268.095, subd. 6 (b)(9). Connie J. Meier v. Steven E. Pierce, CPA, Ltd. and DEED, 2020 WL 132522 (Minn. Ct. App. 1/13/2020) (unpublished).  

Marshall H. Tanick
Meyer, Njus & Tanick

 

FAMILY LAW

JUDICIAL LAW

• Minor child name change. The Minnesota Supreme Court held that in matters involving a name change application for a minor child by an unmarried mother, notice to a biological father does not need to be completed. Merely having a known biological father does not trigger the notice requirement under the name change statute. To require proper notice, there must be a legally recognized father. The Supreme Court viewed comparable statutes, and directly addressed the court of appeals’ reasoning in deciding that the “holding-out” presumption of the Minnesota Parentage Act cannot apply at the time of birth. Moreover, the Supreme Court reasoned that the Legislature could not intend to give biological fathers more rights at the time of a future name change of a child than they enjoyed at the time of the birth of that child, absent the biological father taking some additional step to adjudicate their legal status as father. In the Matter of the Application of J.M.M. O/B/O Minors for a Change of Name, ___ N.W.2d ___ (Minn. 2020). 

Amy M. Krupinski
Collins, Buckley, Sauntry & Haugh, PLLP

 

FEDERAL PRACTICE

JUDICIAL LAW

• Personal jurisdiction; certiorari; Minnesota Supreme Court. The United States Supreme Court granted certiorari and will review two decisions (one from the Minnesota Supreme Court) finding Ford subject to specific personal jurisdiction. The two cases were consolidated. 

The Minnesota case arose out of an accident in Minnesota involving a car that was not purchased in Minnesota, and Ford contends that it should not be subject to personal jurisdiction because the plaintiff’s claims do not “arise out of or relate to” its activities in Minnesota. Bandemer v. Ford Motor Co., 931 N.W.2d 744 (Minn. 2019), cert granted, ___ S. Ct. ___ (2020); Ford Motor Co. v. Montana Eighth Judicial Dist. Ct., 443 P.3d 407 (Mont. 2019), cert granted, ___ S. Ct. ___ (2020).

• Improper removal; forum defendant rule. While it acknowledged that the weight of authority from other courts holds otherwise, the 8th Circuit relied on its prior decisions in holding that a violation of the forum-defendant rule is a jurisdictional defect and not a “mere procedural irregularity” subject to waiver. Holbein v. Baxter Chrysler Jeep, Inc., __ F.3d ___ (8th Cir. 2020). 

• 28 U.S.C. §1920; costs not taxable may be awarded as attorney’s fees. While it reversed a district court’s award of postage and delivery expenses and certain expert expenses as taxable costs under 28 U.S.C. §1920, the 8th Circuit noted that certain nontaxable costs can be properly treated as a component of attorney’s fees under fee-shifting statutes. Johnson v. Charps Welding & Fabricating, Inc., ___ F.3d ___ (8th Cir. 2020). 

• Fed. R. Civ. P. 12(c); consideration of documents outside the pleadings. Judge Brasel determined that an email exchange not attached to or incorporated in the complaint could be considered in support of a motion for judgment on the pleadings without converting that motion to a motion for summary judgment, citing decisions considering exhibits attached to the answer “under certain circumstances.” Cortec Corp. v. 572415 B.C. Ltd. d/b/a Innoplast Machinery, 2020 WL 206380 (D. Minn. 1/14/2020). 

•  Impact of motion to dismiss on timing of responsive pleading; dispute over redactions. Magistrate Judge Menendez held that defendants’ filing of a motion to dismiss tolled their deadline to file a responsive pleading, including counterclaims, under Fed. R. Civ. P. 12(a)(4). 

In the same order, Magistrate Judge Menendez also criticized defendants’ redacting of portions of otherwise relevant text messages, and ordered them to produce the text messages in their entirety or, in the alternative, to produce any text message containing a search term as well as 10 text messages on either side of each responsive text message. Management Registry, Inc. v. A.W. Cos., 2020 WL 468846 (D. Minn. 1/29/2020). 

•  Request for expedited discovery denied following denial of motion for preliminary injunction. Having denied plaintiff’s request for a preliminary injunction in a purported trade secrets case, Judge Brasel also denied its request for expedited discovery, finding that it would not serve the purposes for which expedited discovery is usually granted. Cambria Co. v. Schumann, 2020 WL 373599 (D. Minn. 1/23/2020). 

•  CAFA; amount in controversy. Where plaintiffs commenced an action in the District of Minnesota alleging jurisdiction under CAFA, Judge Tostrud dismissed that complaint for failing to plausibly allege the required amount in controversy, plaintiffs amended their complaint in an attempt to address this issue, and defendant moved to dismiss the amended complaint, Judge Tostrud found that plaintiffs’ CAFA theory required counting the claims of purported class members who lacked standing or required speculation “not tethered to any plausible factual basis.” Plaintiffs’ amended complaint was dismissed without further leave to replead. Penrod v. K&N Eng’g, Inc., 2020 WL 264115 (D. Minn. 1/17/2020). 

• Forum selection clause; forum non conveniens; Fed. R. Civ. P. 14. While acknowledging the lack of judicial efficiency, Chief Judge Tunheim granted a third-party defendant’s motion to dismiss on the basis of forum non conveniens in accordance with a forum selection clause that permitted litigation only in Ramsey County District Court, finding that the forum selection clause had “priority” over third-party claims brought pursuant to Fed. R. Civ. P. 14. United Fire & Cas. Co. v. Weber, Inc., 2020 WL 335360 (D. Minn. 1/21/2020). 

•  Fed. R. Civ. P. 62(c); stay of injunction pending appeal denied. Rejecting plaintiffs’ argument that the settlement agreement underlying the motion was not an injunction subject to stay under Fed. R. Civ. P. 62(c), Judge Frank found that the orders that followed the settlement agreement were “plainly injunctive in nature,” but denied defendants’ motion for stay pending appeal, finding that three of the four relevant factors favored the plaintiffs and that the fourth factor was neutral. Jensen ex rel. Jensen v. Minn. Dept. of Human Rights, 2020 WL 550209 (D. Minn. 2/4/2020). 

•  Motions for attorney’s fees granted and denied. After making minor reductions to their request for fees and costs, and rejecting defendants’ challenge to fees charged by a consulting Title IX specialist who did not enter an appearance in the case, Chief Judge Tunheim awarded the prevailing plaintiffs more than $1.17 million in fees and costs under 42 U.S.C. §1988. Portz v. St. Cloud State Univ., 2020 WL 335272 (D. Minn. 1/21/2020). 

Chief Judge Tunheim denied the prevailing defendants’ request for attorney’s fees under the fee-shifting provision of the ADA, finding that plaintiff’s claim was not “frivolous, unreasonable or groundless.” Defendants’ request for sanctions under Rule 11 and 28 U.S.C. §1927 was denied for the same reason. Finally, Chief Judge Tunheim rejected defendants’ attempt to recover attorney’s fees as part of their “costs” under Fed. R. Civ. P. 68, finding that the rule did not apply where the defendants were the prevailing parties. Smith v. Golden China of Red Wing, Inc., 2020 WL 133290 (D. Minn. 1/13/2020). 

• Fed. R. Civ. P. 11; 28 U.S.C. §1927; motion for sanctions denied. After dismissing claims against all defendants under Younger v. Harris, Judge Tostrud denied one defendant’s motion for sanctions under Fed. R. Civ. P. 11, 28 U.S.C. §1927 and/or inherent powers, finding that the commencement of even a frivolous lawsuit does not “multiply” proceeding under 28 U.S.C. §1927. Judge Tostrud also declined to impose Rule 11 or inherent powers sanctions on the plaintiff or his counsel, excusing counsel’s failure to identify a relatively obscure 1881 Supreme Court decision. Berg v. Berg, 2020 WL 490965 (D. Minn. 1/30/2020). 

Josh Jacobson
Law Office of Josh Jacobson 

 

IMMIGRATION LAW 

JUDICIAL LAW

Inadmissibility and public charge grounds: An update. 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

As noted in the November issue of Bench & Bar, litigation ensued across the nation that involved various states (i.e., New York, Washington, Virginia, Colorado, Delaware, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, Rhode Island, California, Maine, Oregon, Commonwealth of Pennsylvania, and the District of Columbia), organizations, and individual plaintiffs. 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. 

On 1/27/2020, the Supreme Court issued a stay of the 10/11/2019 nationwide injunction, thereby allowing the final rule to go into effect pending disposition of the appeal before the Court of Appeals for the 2nd Circuit Court. The sole exception was an injunction issued in the state of Illinois, which was allowed to remain in place. Department of Homeland Security, et al. v. New York, et al., 589 U.S. ____ (2020). https://www.supremecourt.gov/opinions/19pdf/19a785_j4ek.pdf

On 1/30/2020, USCIS announced that the final public charge rule will go into effect, with the exception of the state of Illinois, for those relevant applications or petitions postmarked or electronically filed on or after 2/24/2020. https://www.uscis.gov/news/news-releases/uscis-announces-public-charge-rule-implementation-following-supreme-court-stay-nationwide-injunctions 

• Reinstatement statute precludes attack on validity of removal order. On 12/27/2019, the 8th Circuit Court of Appeals denied the petition for review of the Department of Homeland Security’s reinstated prior order of removal, finding that it lacked jurisdiction to consider the petitioner’s arguments over the validity of his underlying removal order. “Section 1231(a)(5) creates a streamlined process for reinstating prior removal orders, and it authorizes the Attorney General to reinstate a prior removal order after finding that an individual has illegally reentered the United States following removal or voluntary departure pursuant to a removal order.” Lara-Nieto v. Barr, No. 18-2232, slip op. (8th Cir. 12/27/2019). https://ecf.ca8.uscourts.gov/opndir/19/12/182232P.pdf 

• Petitioner failed to raise a valid constitutional claim or question of law in relation to BIA’s cancellation denial. On 12/27/2019, the 8th Circuit Court of Appeals held that the Board of Immigration Appeals (BIA) did not err when finding the petitioner had failed to satisfy his burden to demonstrate that his children would suffer an “exceptional and extremely unusual hardship” should he be removed to Mexico and they accompany him. Ultimately, the petitioner failed to raise a valid constitutional claim or question of law, thus denying the court jurisdiction to review the BIA’s denial of his cancellation of removal application. Apolinar v. Barr, No. 18-2722, slip op. (8th Cir. 12/27/2019). https://ecf.ca8.uscourts.gov/opndir/19/12/182722P.pdf 

• No showing of past persecution on a protected ground. On 12/11/2019, the 8th Circuit Court of Appeals held that the Board of Immigration Appeals (BIA) did not abuse its discretion when it denied the Guatemalan petitioners’ request for humanitarian asylum, given that they failed to prove past persecution on a protected ground. Mejia-Lopez v. Barr, No. 18-3651, slip op. (8th Cir. 12/11/2019). https://ecf.ca8.uscourts.gov/opndir/19/12/183651P.pdf 

• Denial of application for withholding of removal based on particular social group—family membership. On 12/10/2019, the 8th Circuit Court of Appeals held that substantial evidence in the record supported the immigration judge and Board of Immigration Appeals’ (BIA) finding that the petitioner failed to establish a clear probability he would suffer persecution in Mexico on account of membership in his family; i.e., the particular social group, “members of the de la Rosa family.” De La Rosa Garcia v. Barr, No. 18-3378, slip op. (8th Cir. 12/10/2019). https://ecf.ca8.uscourts.gov/opndir/19/12/183378P.pdf

ADMINISTRATIVE ACTION

•  Liberian Refugee Immigration Fairness (LRIF). On 12/20/2019, the National Defense Authorization Act for Fiscal Year 2020 was signed into existence by the president. That legislation included a provision (Section 7611: Liberian Refugee Immigration Fairness) that allows Liberians who meet certain criteria to apply for permanent residence. Key requirements for applicant eligibility: 1) national of Liberia; 2) continuous physical presence in the United States during the period beginning on 11/20/2014 and ending on the date one properly files the application for permanent residence; 3) otherwise eligible for an immigrant visa; 4) admissible to the United States for lawful permanent residence or eligible for a waiver of inadmissibility or other form of relief. 

Key factors making one ineligible: 1) convicted of any aggravated felony; 2) convicted of two or more crimes involving moral turpitude (other than a purely political offense); 3) ordered, incited, assisted, or otherwise participated in the persecution of any person on account of race, religion, nationality, membership in a particular social group, or political opinion. Family members (i.e., the spouse, unmarried child under 21, or unmarried son or daughter 21 years old or older living in the United States) of a Liberian national who meets the requirements of the LRIF may also be eligible for the relief afforded by this piece of legislation. The application period runs to 12/20/2020. https://www.uscis.gov/news/alerts/uscis-begins-accepting-green-card-applications-under-liberian-refugee-immigration-fairness 

•  USCIS notice of H-1B registration process implementation. On 1/9/2020, the Department of Homeland Security published registration requirements for petitioners seeking to file H-1B petitions on behalf of cap-subject foreign nationals for fiscal year 2021. Key points taken from the notice are: 1) The initial H-1B petition registration period will begin 3/1/2020; 2) petitioners, including those eligible for the advanced degree exemption, will first be required to register with USCIS before being able to properly file an H-1B cap-subject petition; 3) USCIS intends to close the initial registration period on 3/20/2020 and will announce the actual end date on its website; 4) following the end of the initial registration period, USCIS will undertake the initial selection process, with those being selected then eligible to file an H-1B cap-subject petition during the associated filing period. 85 Fed. Reg. 1176-77 (1/9/2020). https://www.govinfo.gov/content/pkg/FR-2020-01-09/html/2020-00182.htm 

R. Mark Frey
Frey Law Office

 

INTELLECTUAL PROPERTY

JUDICIAL LAW

• Punitive damages and deceptive trade practices pleading standards. Judge Tunheim recently adopted the magistrate’s report and recommendation denying defendants’ motion to dismiss and motion to strike punitive damages claim. Management Registry, Inc. (MRI) alleged that A.W. Companies, Inc. and three individuals stole MRI’s customers, clients, employees, and databases following failed negotiations to acquire MRI’s staffing services companies. MRI sued defendants for, inter alia, breach of contract, fraud, deceptive trade practices, and tortious interference. Defendants moved to dismiss the Second Amended Complaint and to strike the punitive damages claim. Defendants argued that MRI’s attempt to add a punitive damages claim did not comply with Minnesota’s statutory procedure for adding punitive damages. Minnesota Statute §549.191 requires a plaintiff, subsequent to filing the civil action, to move a court for permission to amend the pleadings to add a punitive damages claim. The magistrate found that Minn. Stat. §549.191 was incompatible with the Federal Rules of Civil Procedure and applied Rule 15’s plausibility standards when reviewing the allegations. Because the magistrate adopted a reasonable interpretation of Minn. Stat. §549.191, no clear error occurred. The court further reviewed defendants’ challenge to MRI’s deceptive trades practices act claim. Defendants objected that claims under the Minnesota Deceptive Trade Practices Act (Minn. Stat. §325D.44) fall under the heightened pleading standards of Fed. R. Civ. P. 9(b), but the magistrate reviewed this claim under the pleading standards contained in Rule 8, rather than Rule 9(b). The court sustained the objection to proper pleading standard and reviewed the claim under Rule 9(b) standards. MRI adequately pleaded its deceptive trade practices claim, including alleging future harm. The findings of the report and recommendation were accordingly adopted. Mgmt. Registry, Inc. v. A.W. Cos., No. 17-5009, 2020 U.S. Dist. Lexis 15513 (D. Minn. 1/30/2020).

• Trade secrets: Denied injunction against former employee. Judge Brasel recently denied plaintiff Cambria Company LLC’s motion for preliminary injunction and request for expedited discovery. Cambria sought an injunction to bar its former employee, Adam Schumann, from working at his new employer, Dal-Tile Tennessee, LLC, a subsidiary of Mohawk Industries, Inc. Mr. Schumann worked for Cambria for 10 years, including in his final position as assistant plant superintendent. In October 2019, Mohawk hired Schumann to be its director of countertop operations. His first day was 12/23/2019—after his non-compete expired. Cambria sought assurances that Mr. Schumann would not disclose Cambria’s confidential information. Mohawk’s assurances were deemed inadequate. Cambria filed the lawsuit alleging Mr. Schumann would inevitably disclose confidential information and trade secrets he learned while employed at Cambria in violation of his confidentiality agreement and in violation of state and national trade secrets laws. The court considered Cambria’s likelihood of success on its trade secrets claims. To succeed on a trade secret claim, a plaintiff must prove the existence of trade secrets and (inevitable) disclosure of said trade secrets. For the present motion, the court accepted that Cambria had trade secrets but found that Cambria had failed to identify them with sufficient specificity. Cambria’s description of its trade secrets shifted between the briefing and oral argument, making Cambria’s trade secrets a “shifting target.” The court then considered the inevitable-disclosure doctrine. Minnesota courts and the 8th Circuit have neither accepted nor rejected the doctrine, though decisions in the District of Minnesota have applied it. To succeed at the preliminary injunction stage, Cambria must prove “a high degree of probability of inevitable disclosure.” Cambria did not meet this burden. Accordingly, the preliminary injunction was denied. The request for expedited discovery to build a record before the preliminary injunction hearing was denied, as the parties built a robust record without such discovery. Cambria Co., LLC v. Schumann, No. 19-cv-3145, 2020 U.S. Dist. Lexis 11373 (D. Minn. 1/23/2020).

Joe Dubis
Merchant & Gould

REAL PROPERTY LAW

JUDICIAL LAW

• Homeowners’ association claims untimely under statutes of limitation. After discovering problems with the HVAC systems in units throughout one building in 2014 and in the units in a second building in 2015, and providing notice and a demand for repair in 2015, the homeowners’ association sued the developer, the general contractor, and a mechanical subcontractor in 2015, asserting claims for negligence, breach of implied warranties, breach of contract, and breach of statutory warranties. A certificate of occupancy was issued in November 2003 for the first building and in October 2004 for the second building. Deeds for the earliest units were delivered, and occupancy began, before 2005, but some units were not sold or occupied until later. 

The defendants moved for summary judgment on all claims, arguing they were untimely. The district court granted the motion, and the court of appeals affirmed in part and reversed in part. The Supreme Court decided that each unit in a condominium building is not entitled to its own warranty date under Minn. Stat. §§327A.01-.08; rather, the entire building was subject to a single warranty date, held to be the date when the first unit owner occupied a unit or took title to a unit. Thus, because the first deeds for units in both buildings were granted before 2005, the statutory claims asserted in 2015 were untimely for all the units. Further, the Supreme Court held that the Minn. Stat. §541.051, subd. 1(a) statute of repose based on substantial completion of construction (with the certificate of occupancy serving as “powerful evidence” of the same) begins running for a building or project when it may be turned over to the person who hired the entities doing the construction for the purpose for which it was intended. Thus, the two buildings were separate improvements, with separate dates of substantial completion, and the common law claims for both buildings were untimely. Village Lofts at St. Anthony Falls Ass’n v. Housing Partners III-Lofts, LLC, No. A18-0256, 2020 WL 220074 (Minn. 1/15/20) (https://mn.gov/law-library-stat/archive/supct/2020/OPA180256-011520.pdf ).

• Variance denial affirmed. Property owner Calm Waters sought a variance to subdivide one plot into four parcels of differing sizes—two that would be less than 20 acres, and two that would not abut a public road. The township’s zoning ordinance prohibited lots of less than 20 acres and required lots to abut public roads. The town board denied the variance and the landowner sued, asserting that the township lacked authority to zone its land because it was shoreland, with regulation preempted by Minn. Stat. §§103F.201–.227, and that the denial was arbitrary and capricious. The district granted the township summary judgment. The Minnesota Court of Appeals held that townships have the authority to zone land that is also subject to the county’s shoreland management controls and a township’s deference to the county’s shoreland management controls does not preempt it from also imposing more restrictive regulations on shorelands. 

Further, the court of appeals decided that the record did not include evidence that the owner faced practical difficulties in complying with the lot size and frontage requirements, so the township’s decision to deny the variance was reasonable. The court also held that the district court properly decided that the comprehensive plan was presumptively valid, despite the fact that the only copy of the comprehensive plan was marked as a draft from the early 1980s, and the two local newspapers from the time did not publish public notice of adoption of the final plan. Finally, the court of appeals decided that the district court did not abuse its discretion in denying a motion to compel discovery. Calm Waters, LLC v. Town of Kroschel, No. A19-0614, 2019 WL 6837002 (Minn. App. 12/16/19) (unpublished) (https://mn.gov/law-library-stat/archive/ctapun/2019/OPa190614-121619.pdf ). 

• Only the petitioner in property tax valuation appeal can provide mandatory disclosures. Petitioner Avis leases space at the Minneapolis-Saint Paul International Airport, which is owned and operated by the Metropolitan Airports Commission (MAC). Lessees at the airport are subject to property tax as if they were the owners of the property. See Minn. Stat. §272.01, subd. 2(a). Avis filed a petition challenging Hennepin County’s valuation of the property it leased. Since it was income-producing property, Avis was required to provide specific mandatory disclosures under Minn. Stat. §278.05, subd. 6. Avis provided Hennepin County with certain rent calculations and information. The tax court held that Avis’s disclosures were insufficient, as they omitted information related to concession fees and minimum annual guarantees, and dismissed the petition. As part of annual informal disclosures from MAC, Hennepin County actually had this additional information in its possession. The Minnesota Supreme Court, in a 4/3 decision with a strong dissent, affirmed the dismissal. Citing its recent Wal-Mart Real Estate Bus. Tr. V. County of Anoka, 931 N.W.2d 382 (Minn. 2019) decision, the Court held that the concession fees and minimum annual guarantees were income attributable to the property, and that disclosure was thus mandatory. Further, in a case of first impression, the Supreme Court held that Minn. Stat. §278.05, subd. 6 required that the petitioner itself must provide all mandatory disclosures, and that production by a third party does not comply with the statute. Avis Budget Car Rental LLC v. County of Hennepin, No. A19-0886 ___ N.W.2d ____ (Minn. 1/15/2020).

• Court affirms summary judgment due to failure to comply with property tax payment requirements of Minn. Stat. §541.02 against a claimant seeking title to 52% of a separately assessed parcel. Plaintiff Brian Domeier claimed title to portions of two separately assessed tax parcels (described as the west and east parcels) owned by defendant St. Paul Park Refining Co., LLC. Minn. Stat. §541.02 includes a requirement that under certain circumstances a party claiming title through adverse possession must have paid property taxes on the property at issue for a period of at least five years. It was undisputed that the plaintiff had not paid any property taxes on the disputed property. The court noted that case law has “generated some confusion” as to whether this requirement applies when a claimant seeks to adversely possess only a portion of a separately assessed parcel. It cited past cases which had held this requirement applies when a claimant seeks “all or substantially all of an assessed tract or parcel.” In this case, the plaintiff sought title to 52% of the area of west parcel, and 5.32% of the east parcel. The defendant argued that plaintiff’s statement in his prayer for relief that he owns “some or all” of the disputed parcels is an admission that is fatal to his claim. Plaintiff detailed the specific areas in the parcels which were at issue in his deposition and on survey. The court held that under notice pleading, and because pleadings are to be construed liberally, the language in plaintiff’s pleading was not an admission that he sought title to “all or substantially all” of the parcels. The court affirmed summary judgment on the claim to the west parcel, finding that 52% was sufficient to trigger the property tax payment requirement of Minn. Stat. §541.02. It reversed the district court as to the east parcel, finding that 5.32% was insufficient. St. Paul Park Refining Co. LLC v. Domeier, No. A19-0573, ___N.W.2d ____ (Minn. Ct. App. 02/03/2020).

Julie N. Nagorski
DeWitt LLP

Patrick C. Summers
DeWitt LLP

 

TAX LAW

JUDICIAL LAW

• Finder’s fees paid by institutional investors on behalf of acquisition targets may not qualify as ordinary and necessary business expenses under Section 162. A key take-away from a recent memorandum opinion: Investors should structure acquisition finder’s fee and service transaction agreements carefully to ensure that the ordinary and necessary business expense deductions under Section 162 are preserved. A mere transfer of the liability from the acquirer to the target and subsequent payment by the target of the fee was not enough to sustain the deduction in this case. As a practical measure, institutional and other investors interested in acquisitions may sign agreements in advance of target identification and transaction completion, as in Plano Holdings, LLC v. Commissioner. The Ontario Teacher’s Pension Plan (OTPP) signed a finder’s fee agreement with the company that suggested Plano to OTTP as an acquisition candidate, even though no service or benefit was conferred on Plano. Upon the acquisition of Plano, OTTP transferred the liability to Plano, which paid the finder’s fee and took the deduction. The IRS disallowed the deduction and assessed a penalty, which Plano contested. In its decision, the tax court noted, “A taxpayer generally may not deduct the payment of another person’s expenses.” In this case, OTTP admitted the company receiving the finder’s fee performed no service for Plano. Because Plano received no benefit, the fee was not an ordinary and necessary business expense for Plano and thus not deductible. The tax court also rejected the argument that whether the expense was deductible turned on the presence or absence of a legal obligation. If an acquirer intends the target to pay expenses that spring from liabilities incurred by the acquirer, the likelihood they may be deductible improves if the target receives a benefit from the services and becomes part of the agreements as the transaction evolves. Plano Holding LLC v. Comm’r, T.C. Memo. 2019-140, No. 9169-17.

• Property valuation tax court cases timely filed in the Small Claims Division can transfer to Regular Division under certain circumstances. Petitioners timely filed petitions in the tax court’s Small Claims Division alleging that the estimated market value of the property in their individual assessments was greater than the actual market values. The tax court had jurisdiction in these matters pursuant to Minnesota Statutes 271.01 subdivision 5 (2018). Post-filing, petitioners determined that the assessments were higher than the $300,000 jurisdictional limit for the Small Claims Division and requested the petitions be transferred to the Regular Division. Generally, once a property tax case is commenced in the Small Claims Division, the Small Claims Division has exclusive jurisdiction over the case if it meets the jurisdictional requirements of the division. In petitioner’s timely filed petitions, each had assessments over $500,000.

The tax court stated that transfers of cases from the Small Claims Division to the Regular Division are not barred under MN Section 271.21, subdivision 3 if the tax court in general had subject matter jurisdiction over the case at the time it was filed, but the Small Claims Division lacked subject matter jurisdiction due to the size of the assessment. 738 TDH LLC v. County of Ramsey, 2019 WL 7593130 (Minn. Tax Small Cl. Div. 12/23/19), 712 HLS LLC v. County of Ramsey, 2019 WL 7593146 (Minn. Tax Small Cl. Div. 12/23/19).

• Court grants transfer from Small Claims Division to Regular Division based on possible overestimation. Petitioner, 712 HLS LLC, filed a petition in the tax court’s Small Claims Division on 4/17/2018 for taxes payable in 2018 for real property located in Ramsey County. The petition included a property tax statement of an estimated market value of $1,395,200, and alleged the assessment is greater than the property’s actual market value. Petitioner requested transfer of this petition from the Small Claims Division to its Regular Division pursuant to Minn. Stat., §271.01, subd. 5 (2018), stating that jurisdiction in the tax court was proper, but the matter was not within the jurisdictional limits for the Small Claims Division specified in Minn. Stat. §271.21, subd. 2 (2018). 

Minn. Stat., §271.01, subd. 5, provides for exclusive jurisdiction in the tax court of the “determination of all questions of law and fact arising under the tax laws of the state,” including laws dealing with property valuation, assessment, and taxation for property tax purposes. Statutory time limits to appeal to the tax court are strictly construed and are jurisdictional. The Small Claims Division within the tax court has limited subject matter jurisdiction, in that it has jurisdiction only over cases involving property valuation, assessment, and taxation of property if the assessor’s estimated market value is less than $300,000. Because the petition alleged the estimated market value of the subject property was greater than the property’s actual market value, the tax court in general had subject matter jurisdiction over this case at the time it was filed. A petition to determine the validity of the tax must be filed no later than April 30 of the year in which tax becomes payable; this petition was timely filed on 4/23/2018. After hearing arguments and viewing the record, the court granted the transfer from Small Claims Division to the court’s Regular Division. 712 HLS LLC v. Ramsey Co., 2019 WL 7593151 (Minn. TC 12/13/19). 

• Pro se petitioner fails to respond to motion; court grants motion to dismiss. On 4/30/2019, Shoa Motamedi filed a petition in the tax court alleging that Chisago County’s estimated market value of the subject property exceeded its actual market value with respect to property located at 38624 14th Avenue, in North Branch. The Explanation of Proof of Service filed with the court admitted service of the petition on each of the county assessor, treasurer, auditor, and county attorney by Mr. Motamedi, via email. The admissions of service were completed by Mr. Motamedi. On 10/24/2019, the county moved to dismiss the petition for insufficiency of service. The county stated that Mr. Motamedi failed to properly serve the petition when he emailed it to the county officials. Mr. Motamedi also did not file an affidavit of personal service demonstrating he personally served the petition on those county officials. 

Minn. Stat. §278.01 (2018) authorizes the filing of a petition to determine the validity of an assessment in district court or tax court, “by serving one copy of a petition... upon the county auditor, one copy on the county attorney, one copy on the county treasurer, and three copies on the county assessor.” The method of service, however, is not specified in the statute. Minnesota Rule of Civil Procedure 4.03(a) defines effectuating personal service on individuals “by delivering a copy to the individual personally or by leaving a copy at the individual’s usual place of abode.” “Service of process in a manner not authorized by the rule is ineffective service.” Proof of service must be filed with the court along with the petition. Minn. Stat. §278.01, subd. 1(c) (2018).

“Minnesota law states that when service of process is challenged, the plaintiff must submit evidence of effective service.” DeCook v. Olmsted Med. Ctr., Inc., 875 N.W.2d 263, 271 (Minn. 2016). Mr. Motamedi bore the burden of submitting evidence of effective service. Because Mr. Motamedi did not respond to the motion, did not provide an affidavit indicating personal service, and did not appear for the telephonic hearing, the court granted the county’s motion to dismiss. Shoa Motamedi v. Chisago Co., 2020 WL 369812 (Minn. TC 1/15/20).

Morgan Holcomb
Mitchell Hamline School of Law

Sheena Denny
Mitchell Hamline School of Law 

Kimberly Glidden 
Mitchell Hamline School of Law