ADMINISTRATIVE LAW
JUDICIAL LAW
• Minnesota Administrative Procedure Act; rule clarification. The Minnesota Supreme Court has held that a 2013 amendment to section 14.63 of the Minnesota Administrative Procedure Act (MAPA) eliminated the requirement that parties seeking certiorari review of contested case hearings serve the agency within 30 days—but maintained that requirement for service on parties.
The case involved a claim by Midway against the city of St. Paul for statutory relocation benefits after it was displaced by construction of the Allianz Field soccer stadium. The Office of Administrative Hearings (OAH) denied Midway’s claim after a contested case hearing. Midway’s petition for certiorari review of OAH’s decision in the court of appeals quickly became embroiled in a service dispute arising under two MAPA provisions.
MAPA section 14.63 currently provides that a petition for a writ of certiorari for review of a contested case proceeding “must be filed with the court of appeals and served on all parties to the contested case not more than 30 days after the party receives the final decision and order of the agency.” MAPA section 14.64 provides that review under section 14.63 is instituted by serving a petition for a writ of certiorari “upon the agency and by promptly filing the proof of service in the Office of the Clerk of the Appellate Courts[.]” A series of convoluted procedural turns in the court of appeals ultimately resulted in Midway serving the city—but not OAH—within the 30-day timeframe of section 14.63. The city moved to dismiss the appeal, arguing that failure to serve OAH within 30 days was a jurisdictional bar to review. The court of appeals disagreed, finding it had jurisdiction over the appeal under the plain language of these statutory provisions.
The Supreme Court granted review and affirmed the court of appeals. The Court noted that prior to 2013, section 14.63, which includes the 30-day service requirement, referred explicitly to service “on the agency.” But that year the Legislature amended the statute to replace “on the agency” with the current language, “on all parties to the contested case.” The Court concluded that the legislative intent of this amendment was that section 14.63 should no longer govern the timing of service on the agency. In a brief footnote, the Court acknowledged the city’s policy concerns with this interpretation but suggested that the city seek redress in the Legislature. In re Midway Pro Bowl Relocation Benefits Claim, 937 N.W.2d 423 (Minn. 2020).
Mehmet K. Konar-Steenberg
Mitchell Hamline School of Law
CRIMINAL LAW
JUDICIAL LAW
• Firearms: Expungement by inherent authority itself does not satisfy federal “expungement” requirement for reinstatement of right to carry firearms. In 2007, the district court granted respondent’s request to expunge his 1996 domestic assault conviction under the court’s inherent expungement authority. From 2008 until 2018, respondent was granted a permit to carry a firearm, but his application was denied due to his 1996 conviction. The district court denied respondent’s petition for a writ of mandamus, concluding the sealing of respondent’s 1996 conviction did not remove or eliminate the conviction as defined under federal law. The court of appeals reversed, finding the 2007 expungement order met the plain meaning of “expunged” in the federal law, 18 U.S.C. §921(a)(33)(B)(ii), and the sheriff appealed.
A sheriff may not issue a permit to carry a firearm to a person prohibited from possessing a firearm under Minn. Stat. §624.713 or “any federal law.” Minn. Stat. §624.713, subd. 1(10)(viii) specifically prohibits “a person who… is disqualified from possessing a firearm under [18 U.S.C. § 922(g)(9)]” from possessing a firearm. 18 U.S.C. §922(g)(9) prohibits any person convicted of a misdemeanor crime of domestic violence from possessing firearms. However, under 18 U.S.C. §921(a)(33)(B)(ii), a person is not considered convicted if the conviction was expunged or set aside. Because Minnesota law incorporates federal law, the federal meaning of expungement must be applied to determine whether a conviction of a misdemeanor crime of domestic violence was expunged so as to reinstate firearm rights in Minnesota.
The federal statute does not define “expungement,” but legal dictionaries define it as “[t]o remove from a record, list, or book; to erase or destroy.” The 2007 expungement order here was issued pursuant to the district court’s inherent expungement authority and sealed only the judicial records relating to respondent’s 1996 conviction. The conviction was not removed, erased, or destroyed form the executive branch records relevant to considering his application to possess a firearm, such as the records held in the National Instant Background Check System and the Minnesota Crime Information System. Thus, respondent’s right to carry a firearm in Minnesota cannot be reinstated.
The Supreme Court does note, however, that since respondent’s 2007 expungement, statutory expungement has been specifically provided for by the Legislature, including statutory expungement of misdemeanor crimes of violence. The Court declines to express an opinion as to whether statutory expungement satisfies 18 U.S.C. § 921(a)(33)(B)(ii)’s expungement requirement. Bergman v. Caulk, 938 N.W.2d 248 (Minn. 2/5/2020).
n Firearms: Amendment removing theft of motor vehicle from list of crimes of violence does not apply retroactively to lift appellant’s lifetime ban on possessing a firearm. Appellant was adjudicated delinquent for felony theft of a motor vehicle in 1998, when that offense was considered a crime of violence under Minn. Stat. §624.712, subd. 5, making appellant ineligible to possess a firearm for 10 years. In 2003, the Legislature created a lifetime ban on possessing a firearm once a person is deemed ineligible, which applied retroactively and applied to appellant. The definition of “crime of violence” was changed in 2014 to remove theft of a motor vehicle, but the amendment was not retroactive. Appellant was issued a permit to carry in March 2017, but the permit was voided in July 2018 after the sheriff’s office discovered appellant’s juvenile delinquency adjudication. The district court denied appellant’s petition for a writ of mandamus to order the sheriff to issue him a permit to carry, and appellant appealed, arguing the 2014 amendment rendered him eligible to possess a firearm.
The court of appeals finds the language of the 2014 amendment is clear and unambiguous in its application to only crimes committed on or after the amendment’s effective date (8/1/2014). Appellant’s theft of a motor vehicle offense occurred before this date, and is, therefore, still considered a crime of violence. Tapia v. Leslie, No. A19-0627, 2020 WL 770063 (Minn. Ct. App. 2/18/2020).
• Sentencing: District court erred by imposing a greater-than-double durational departure based on single, “non-severe” aggravating factor. Appellant was convicted of three counts of first-degree criminal sexual conduct and three counts of second-degree criminal sexual conduct for abusing his daughter when she was 10 to 12 years old. His daughter has a chromosomal defect that causes cognitive developmental delays. She reported the sexual and physical abuse, along with her parents’ failure to feed and clean her or the house regularly, to a school counselor. Appellant’s wife, the mother of their daughter, was also present during instances of sexual abuse. The district court sentenced appellant on two first-degree convictions, imposing greater-than-double durational departures on both, resulting in two 360-month consecutive sentences. The departures were based on the daughter’s vulnerability and the repeated and extended abuse of the daughter, which the court found demonstrated particular cruelty. The court of appeals affirmed the district court’s imposition of sentences on the two first-degree convictions, but found the 720-month cumulative sentence excessive. Specifically, it found that the sentence on one count was appropriate, and that a durational departure on the second count was allowed, but the more-than-double departure was not appropriate in appellant’s case.
The Supreme Court agrees with the court of appeals that the district court’s greater-than-double upward durational departure was proper as to count one, but not count two. Departures are warranted under the sentencing guidelines “only when substantial and compelling circumstances are present in the record,” Taylor v. State, 670 N.W.2d 584, 587 (Minn. 2003)—that is, when there is evidence demonstrating that “the defendant’s conduct in the offense of conviction was significantly more or less serious than that typically involved in the commission of the crime in question.” State v. Misquadace, 644 N.W.2d 65, 69 (Minn. 2009).
Focusing on only the counts of conviction, and not other conduct relating to appellant’s other offenses, the court agrees that the record shows appellant acted with particular cruelty as to count one, based on appellant’s multiple forms of penetration during the incident underlying count one. However, the court disagrees with the district court that appellant acted with particular cruelty when committing the offense described in count two, as that incident involved only one form of sexual penetration or contact. Next, the court finds that appellant’s daughter’s cognitive delays were substantial at the time of appellant’s abuse and, as such, concludes that the district court did not abuse its discretion in finding that his daughter was particularly vulnerable as it relates to a departure on both counts one and two.
While aggravating factors exist to support a durational departure, the court finds that they do not justify the greater-than-double durational departures imposed by the district court. Generally, double the presumptive guideline sentence is the upper limit for upward durational departures, except in “rare cases in which the facts are so unusually compelling,” State v. Evans, 311 N.W.2d 481, 483 (Minn. 1981), involving “severe aggravating factors.” State v. Stanke, 764 N.W.2d 824, 828 (Minn. 2009). As to count one, the court finds that the presence of multiple aggravating factors—both the daughter’s particular vulnerability and appellant’s particular cruelty—when compared to prior similar cases, warrants a greater-than-double durational departure imposed by the district court on that count.
However, the court finds the district court abused its discretion by imposing the greater-than-double durational departure on count two. Although appellant’s daughter’s vulnerability is an aggravating factor, the court finds that it is not a severe aggravating factor. The court compares the facts underlying count two with other cases, finding that it is much different from those in which a greater-than-double durational departure was affirmed and similar to those in which such departures were reversed. The court reverses appellant’s sentence on count two, but recommends that, when resentencing, the district court impose a harsh sentence given appellant’s “horrific” conduct, and highlights that the district court has the discretion to impose a sentence on count two of up to double the upper limit of the presumptive range. State v. Barthman, 938 N.W.2d 257 (Minn. 2/5/2020).
• Traffic: Minn. Stat. §169.19, subd. 1(b), does not require driver turning left to turn into innermost lane. Appellant was observed turning from a southbound left-turn-only lane into the outermost, right lane of two eastbound lanes of travel. Police stopped appellant and he was ultimately arrested for DWI and his driver’s license revoked. The district court affirmed the revocation, concluding Minn. Stat. §169.19, subd. 1(b), required appellant to turn into the innermost lane, and that appellant also violated Minn. Stat. §169.18, subd. 7(a), by slightly crossing the lane line between the two eastbound lanes of travel as he turned into the outermost lane.
The court of appeals disagrees with the district court, ultimately concluding that appellant did not violate either traffic statute, leaving no reasonable articulable suspicion for the stop, and remanding to the district court to rescind appellant’s driver’s license revocation. First, the court holds that turning left into the outermost lane of traffic does not violate Minn. Stat. §169.19, subd. 1(b). The statute states that after entering the intersection to make a left turn, “the left turn shall be made so as to leave the intersection to the right of the centerline of the roadway being entered.” The court finds this portion of the statute unambiguous and silent as to which lane to the right of the roadway a driver must enter. As such, the court finds it not an objectively reasonable mistake of law for the officer here to stop appellant’s vehicle for turning into the outermost lane.
Next, the court also finds that the district court erred in finding a reasonable articulable suspicion that appellant violated Minn. Stat. §169.18, subd. 7(a), which states that “a vehicle shall be driven as nearly as practicable within a single lane and shall not be moved from the lane until the driver has first ascertained that such movement can be made with safety.” The record shows appellant drove directly into the outermost lane, meaning he never travelled in more than a single lane, and that no other vehicles were present, indicating any lane change was not done unsafely. Birkland v. Comm’r Pub. Safety, No. A19-0937, 2020 WL 770067 (Minn. Ct. App. 2/18/2020).
Samantha Foertsch Bruno Law PLLC
Stephen Foertsch Bruno Law PLLC
EMPLOYMENT & LABOR LAW
JUDICIAL LAW
• Whistleblower retaliations; railroad claim reversed. A ruling by the Department of Labor that a railroad violated the whistleblower retaliation provisions of the Federal Rail Safety Act (FRSA) by suspending a local motor engineer was reversed by the 8th Circuit of Appeals. The decision, written by Judge James Loken of Minnesota, held that the administrative review process was imbued with legal error because of refusal to follow the precedent that an employer must prove that “the contributing factor” for disciplinary action is “intentional” retaliation prompted by the employee engaging in protective activity. Dakota, Minnesota & Eastern Railroad Corp. v. U.S. Department of Labor Administrative Review Board, 948 F.3d 940 (8th Cir. 1/30/2020).
• Race discrimination; federal question jurisdiction upheld. A claim by a ground freight employee for race discrimination in violation of the Federal Labor and Management Relations Act (FLMA) properly invoked federal court jurisdiction. The 8th Circuit held that the LMRI claim furnished federal court jurisdiction in affirming a lower court ruling allowing the case to proceed. Johnson v. Humphreys, 949 F.3d 413 (8th Cir. 2/4/2020).
• Disability discrimination; Macalester faculty termination upheld. The termination of an assistant college professor at Macalester College due to a sexual relationship with a student constituted legitimate basis to terminate employment. The 8th Circuit upheld a ruling by U.S. District Court Judge Patrick Schiltz in Minnesota. The 8th Circuit rejected a claim of disability discrimination by the ousted academic, holding that she did not counter the college’s establishment of a “legitimate, non-discriminatory reason” for the discharge, but presented sufficient evidence of pretext. Naca v. Macalester College, 947 F.3d 500 (8th Cir. 1/16/2020).
• ERISA claims upheld; 8th Circuit rules for employees. The 8th Circuit ruled in favor of employees in recent cases brought under the Employee Retirement & Income Security Act (ERISA), which governs benefits for employees in the private sector.
An objection to challenging certification of approval of a settlement agreement in an ERISA class action was rejected and the settlement upheld. The 8th Circuit held that the plaintiffs had standing to bring a class action and it was properly certified because it was brought on behalf of the ERISA plan and requested plan-wide relief, which warranted affirming the lower court judgment and its awards to various employees, as well as their attorney’s fees. McDonald v. Edward D. Jones & Co. L.P., 2020 WL 504865 (8th Cir. 1/31/2020) (unpublished).
A service provider to an ERISA plan was subject to potential liability as a fiduciary in setting the composite crediting rate for employee contributions. Reversing a judgment of the lower court, the 8th Circuit held that the plaintiff, who invested in an ERISA plan, could pursue an action against the provider on grounds that it violated fiduciary duty. Rozo v. Principal Life Insurance Company, 949 F.3d 1071 (8th Cir. 1/3/2020).
• Deposition of counsel barred; work-product exclusion, too. The deposition of an adversary attorney in an employment retaliation case under the Railway Fair Labor Standards Act was barred. The 8th Circuit held that the claimant failed to satisfy the narrow grounds for conducting such a deposition and, further, that material used by an expert witness for the employer was off-limits under the work-product doctrine. Smith-Bunge v. Wisconsin-Central, Ltd., 948 F.3d 420 (8th Cir. 12/27/2019).
• Hostile work environment; claim rejected. An employee’s claim that she was subjected to a hostile work environment was rejected. The 8th Circuit ruled that the behavior in the workplace was not substantially severe or pervasive and the retaliation claim lacked a causal connection to the employee’s complaints. Paskert v. ASA Auto Plaza, Inc., 2020 WL 727740 (8th Cir. 2/13/2020) (unpublished).
• Unemployment compensation; baseless claim bars benefits. An employee’s baseless claim for unpaid wages, accompanied by a refusal to work unless she was paid for time she did not work, constituted disqualifying misconduct. The court of appeals affirmed a decision denying benefits. Bild v. Agape Healthcare Services, Inc., 2020 WL 413349 (Minn. Ct. App. 1/27/2020) (unpublished).
• Union election, NLRB ruling enforced. A ruling by the National Labor Relations Board (NLRB) that an employer improperly interfered with a union representation election was enforced. The 8th Circuit ruled that the employer’s’ actions, including witness intimidation, constituted an unfair labor practice. Dolgencorp, LLC. v. NLRB, 2020 WL 727943 (8th Cir. 2/13/2020) (unpublished).
• Gramm-Leach-Bliley Act; claim dismissed. An employee’s who sued for retaliation after he was demoted and had his pay reduced was unsuccessful in pursuing a retaliation claim under the Federal Gramm-Leach-Bliley financial reporting law. The 8th Circuit held that the employee’s report of his boss’s failure to comply with the act (by not informing customers that their data had been stolen) did not include a recognized “public policy.” Holbein v. Baxter Chrysler Group, Inc., 948 F.3d 931 (8th Cir. 1/29/2020).
• Workers compensation; no liability after injury is resolved. An employer is not required to pay for an injured employee’s rehabilitation after the workplace injury had been resolved. The Supreme Court reversed a ruling of the Workers’ Compensation Court of Appeals requiring continued payment until the employee files a rehabilitation request for assistance. Ewing v. Print Crafts, Inc., 936 N.W.2d 886 (Minn. 2/3/2020).
• Unemployment compensation; quitters lose again. The Minnesota Court of Appeals, following typical practice, upheld a denial of unemployment compensation benefits to a pair of workers who resigned their jobs.
An employee who claimed that a number of actions by his employer made his life a “living nightmare” was not entitled to unemployment compensation benefits on grounds that he quit due to a good reason caused by the employer. While agreeing with the claim that the employee’s working conditions were not good and he may have personally found it intolerable, the Minnesota Court of Appeals held that did not suffice in meeting the standard of “good reason caused by the employer” to warrant unemployment benefits for a resigning employee. Kimble v. Empire Beauty School, 2020 WL 522193 (8th Cir. 2/3/2020) (unpublished).
An employee who quit his job because he found out after beginning work that the wage was less than he believed was not entitled to unemployment compensation benefits. The appellate court held that the employee did not have “good reason” to quit the job caused by the employer, nor did he quit because the employment was unsuitable within 30 calendar days from the beginning of work. Larson v. Heymann Construction Company, 2020 WL 522185 (Minn. Ct. App. 2/3/2020) (unpublished).
Marshall H. Tanick Meyer, Njus & Tanick
ENVIRONMENTAL LAW
JUDICIAL LAW
• Minnesota Court of Appeals reverses PUC’s denial of MEPA review of Wisconsin power plant project. The Minnesota Court of Appeals reversed the Minnesota Public Utilities Commission’s (PUC) decisions to deny the request for an environmental assessment worksheet (EAW) and to approve the affiliated-interest agreements for a natural gas power plant in Superior, Wisconsin.
The Minnesota Environmental Policy Act (MEPA) requires governmental agencies to consider environmental consequences when deciding whether to approve a proposed project. Minn. Stat. §§116D.01-.11 (2018). In July 2017, the respondent, Minnesota Power, petitioned PUC for approval of its agreement with its Wisconsin affiliate to construct and operate a 525-megawatt natural gas power plant, known as the Nemadji Trail Energy Center (NTEC). The NTEC power plant was to be constructed in Wisconsin only 2.5 miles over the MN-WI state border and similarly close to Lake Superior. The appellant first submitted public comment requesting an environmental impact statement (EIS), then filed a petition to request an EAW. An EAW is a short preliminary report used to determine whether a proposed project requires the more rigorous review of an EIS. The PUC denied the EAW petition, and approved the agreement to allow NTEC to move forward. The appellant and other parties appealed the decision by writ of certiorari. The court of appeals disagreed with both of PUC’s decisions.
The PUC’s decision to deny the EAW was based on two parts: first, PUC reasoned that MEPA does not apply to affiliated-interest agreements because the approval of the agreement will not “cause” the construction and operation of NTEC; and second, that PUC lacks jurisdiction to order an EAW for a project outside of Minnesota. First, the court held that MEPA does apply to affiliated-interest agreements because MEPA only requires an indirect causal connection between the government approval and the actual project. The court recognized that oftentimes multiple approvals from many governmental agencies may be necessary for a project to actually occur, and that because construction and operation of NTEC would not be possible without PUC’s approval of the agreement, the approval of the agreement will indirectly cause the project to take place.
Second, the court of appeals reversed PUC’s decision that it lacks jurisdiction to order an EAW for a project outside of Minnesota by concluding that PUC’s jurisdiction is not defined in terms of geographical boundaries, but rather in terms of the entities that PUC regulates, i.e. Minnesota public utilities. Furthermore, the court disagreed with PUC’s decision that applying MEPA standards to projects outside of the state would violate the Commerce Clause of the United States Constitution by imposing Minnesota’s environmental regulations onto the state of Wisconsin. The court concluded that MEPA’s jurisdiction contains no geographical limitations; it simply requires an EAW if a project demonstrates a potential for significant environmental effects in the state of Minnesota. The court held that applying MEPA, and issuing an EAW, in this situation neither regulates commerce in Wisconsin nor dictates whether Minnesota Power constructs, operates, or purchases power from NTEC; MEPA merely provides a mechanism for informing PUC’s decision as to whether the agreement is reasonable and consistent with the public interest with regard to NTEC’s environmental impact on the state.
The court of appeals reversed and remanded, ordering PUC to determine whether NTEC may have the potential for significant environmental effects and, if so, to prepare an EAW before reassessing whether to approve the agreement. Petitions have been filed with the Minnesota Supreme Court requesting review of the court of appeals’ decision. In the Matter of Minnesota Power’s Petition for Approval of the EnergyForward Resource Package, 2019 WL 7042812 (938 N.W.2d 843, 12/23/2019).
• 8th Circuit clarifies categorical exclusions from NEPA. On 12/6/2019, the 8th Circuit Court of Appeals concluded that those right-of-way projects which fall entirely within an existing operational right-of-way are categorically excluded from the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C.S. §4321 et seq., reporting requirements.
The appellants, led by George Wise, brought the action against the appellees, the United States Department of Transportation (USDOT), the Federal Highway Administration (FHWA), and the Arkansas Department of Transportation (ArDOT), due to the appellees’ decision to widen a portion of Highway 630 from six lanes to eight lanes within the City of Little Rock without first preparing an environmental assessment (EA) or an environmental impact statement (EIS).
Under NEPA, federal agencies are required to prepare an EA or an EIS for “major Federal actions significantly affecting the quality of the human environment.” 42 U.S.C. §4332(2)(C). However, certain categories of actions “which do not individually or cumulatively have a significant effect on the human environment and which have been found to have no such effect” do not require an EA or EIS. 40 C.F.R §15089; see Friends of Richards-Gebaur Airport v. FAA, 251 F.3d 1178, 1185-87 (8th Cir. 2001). The FHWA’s regulations implementing NEPA include one such categorical exclusion for highway projects that take place “entirely within the existing operational right-of-way.” 23 C.F.R. §771.117(c)(22).
Prior to beginning construction on the project, the appellees determined the project qualified for this categorical exclusion because the proposed improvements of the project would not require any additional permanent right of way. At trial, an ArDOT representative explained that existing operational right-of-way at the project site comprised not just the traffic lanes themselves, but rather a 220 to 400-foot wide expanse that included clear zones, mitigation areas, drainage areas, interchange ramps, and other areas maintained or used for transportation purposes.
Due in part to this testimony, the district court found that Wise had failed to establish that any portion of the project would fall outside the existing operational right-of-way; therefore, the project was reasonably found to be categorically excluded from NEPA’s requirements. In making this determination, the district court denied injunctive relief, in part because Wise had failed to show he was likely to succeed on the merits of his claims.
On appeal, Wise argued that ArDOT erroneously interpreted “existing operational right-of-way” to mean the entire right-of-way owned by ArDOT, rather than just lanes of travel, shoulders, and clear zones. The court of appeals found this limitation to be in conflict with the broad definition of “existing operational right-of-way” provided in regulation, which at the time, was, a “right-of-way that has been disturbed for an existing transportation facility or is maintained for a transportation purpose.” See C.F.R. §771.117(c)(22)(2016). (The regulation now states, “Existing operational right-of-way means all real property interests acquired for the construction, operation, or mitigation of a project.” Id. (effective 11/28/2018).) Wise also pointed to language in the preamble to the final rule creating the categorical exemption, which provided that “a project within the operational right-of-way that requires the creation of new clear zones or extension of clear zone areas beyond what already exists would not qualify” for categorical exclusion. 79 Fed. Reg. 210701, 2113 (1/13/2014). The court held, however, that in light of the plain language of the regulation, the explanatory text must be interpreted as not applying when the newly created clear zone or extended clear zone falls entirely within the existing operational right-of-way. Thus, the court found that the district court properly rejected Wise’s argument and appellees were not required to prepare an EA or EIS for the project. Wise v. DOT, 943 F.3d 1161 (8th Cir. 2019).
• 9th Circuit rejects Juliana climate case on standing grounds. Twenty-one youth plaintiffs in Juliana v. United States brought suit in Oregon federal district court, alleging violations of their 5th Amendment substantive due process right to a “climate system capable of sustaining human life” and of the public trust doctrine, among other claims. They asked the court to compel the federal government to implement a federal carbon emission plan to “phase out fossil fuel emissions and draw down excess atmospheric [carbon dioxide].” The district court held the plaintiffs not only had standing to sue but also that they had presented sufficient evidence to survive summary judgment. The district court certified the orders for interlocutory appeal, allowing the government defendants to appeal the orders to the 9th Circuit.
A divided 9th Circuit panel reversed the district court and remanded with instructions to dismiss the case for lack of Article III standing. Although the panel held the plaintiffs had satisfied two of the three standing elements—by claiming concrete and particularized injuries, and by raising a genuine factual dispute regarding whether federal policies were a substantial factor in causing the plaintiffs’ injuries—the plaintiffs could not demonstrate the third standing element, that their claimed injuries were redressable by an Article III court.
Specifically, the panel held that that the relief plaintiffs sought was both (1) not likely to redress their injuries; and (2) outside the district court’s power to award. First, a declaration that the government has violated plaintiffs’ constitutional rights would be unlikely on its own to redress their injuries without further court action. And even if the court could order Congress to curtail petroleum use, plaintiffs could not show that a full elimination of fossil fuel use would slow climate change enough to prevent further injury.
Second, the panel held that establishing the requested relief is not within the power of an Article III court. The relief would require court directives to create extensive changes to the national energy system, necessarily requiring a host of complex policy decisions within the purview of the executive and legislative branches rather than the judiciary. Appellants filed a petition on 3/2/2020 for rehearing en banc on the question of standing. Juliana v. United States, 947 F.3d 1159 (9th Cir. 2020).
• 10th Circuit constricts EPA ability to extend renewable fuel standard exemptions. On 1/24/2020, the 10th Circuit Court of Appeals vacated and remanded extensions of the small refinery exemption from the Clean Air Act (CAA) renewable fuel standard (RFS), which EPA had granted to three renewable fuel producers. The extensions were challenged by a group of renewable fuel producers who claimed to be harmed by increased competition and lower revenues.
The CAA establishes a renewable fuel program mandating that gasoline contain minimum thresholds of renewable fuel. 42 USCS §7545(o). Section 7545(o)(9) exempted small refineries (those with an average throughput of 75,000 barrels) from meeting the renewable fuel mandates through 2011 and provides that the exemption could be extended for not less than two years for any small refinery that would suffer “disproportionate economic impact” if it were to comply with the mandates.
At issue was whether the exemptions could be “extended” where none of the small refineries in this case was operating under an exemption in the year prior to EPA granting the extension. In vacating the extended exemptions, the court adopted the ordinary and common-sense definition of “extension” to conclude that the subject of the extension must be in existence before it can be extended. The court also found that EPA had exceeded its statutory authority by deciding that “disproportionate economic hardship” could be shown by conditions not directly related to compliance with the RFS, such as references to “[a] difficult year for the refining industry as a whole” and an “industry-wide downward trend” of lower net refining margins. 948 F.3d at 1253.
Although the 10th Circuit opinion only applies in 10th Circuit states, it will likely affect how EPA grants extensions within other jurisdictions, potentially affecting refiners in Minnesota. The small refinery rule remains valid, but EPA cannot now issue extensions in the 10th Circuit—and will be hesitant to issue them in other jurisdictions—when the refiner seeking an extension is not currently operating under an exemption. Renewable Fuels Ass’n et al. v. EPA, 948 F.3d 1206 (10th Cir. 2020).
ADMINISTRATIVE ACTION
• EPA and U.S. Corps finalize (again) new Clean Water Act jurisdictional rule. The U.S. Army Corps of Engineers and the Environmental Protection Agency (EPA) issued a final rule defining “waters of the United States” (WOTUS) for key Clean Water Act (CWA) permitting programs. By way of brief background, WOTUS (synonymous with “navigable waters” under the CWA) is a critical term under the CWA because it determines the regulatory reach of the CWA and which waters are subject to the NPDES, Section 404, or other permitting programs arising under the Act. There is little debate that traditional navigable waters (TNWs) such as the territorial seas, rivers, and lakes fall within the CWA’s reach; more contentious is whether the CWA covers marginal waters such as remote wetlands, ditches, and solely intrastate waters.
The agencies’ early, bare-bones definitions of WOTUS from the 1970s and ‘80s were challenged in extensive litigation that culminated in several dense and divided decisions from the U.S. Supreme Court, the most recent of which was Rapanos v. United States, 547 U.S. 715, 739 (2006). The EPA in June 2015 proposed a revised definition of WOTUS that keyed off Justice Kennedy’s concurring opinion in Rapanos, which proposed CWA jurisdiction over waters with a “significant nexus” to TNWs. Id. at 759. Many viewed the rule as an expansion of the CWA’s jurisdictional scope. But the new rule was immediately challenged and stayed in many jurisdictions. In October 2019, the agencies published a final rule repealing the 2015 rule and reinstating the definition that existed prior to the 2015 Rule. 84 Fed. Reg. 56626. Now, with the new definition of WOTUS, the agencies have attempted to limit the number of waters to which the CWA applies, in line with Justice Scalia’s plurality opinion in Rapanos, which set forth a more narrow jurisdictional scope than Justice Kennedy’s “significant nexus” test. See, e.g., Rapanos at 742 (CWA covers only wetlands with a “continuous surface connection” to “relatively permanent” waters connected to TNWs).
The new WOTUS definition prioritizes “categorical bright lines” to divide waterbodies subject to federal jurisdiction from those being left to the states. It includes: (a) a list of four types of waters that are jurisdictional, (b) a list of 12 types of waters that are not jurisdictional, and (c) numerous definitions. The four types of jurisdictional waters are: (1) the territorial seas, and waters which are currently used, or were used in the past, or may be susceptible to use in interstate or foreign commerce, including waters which are subject to the ebb and flow of the tide; (2) tributaries; (3) lakes and ponds, and impoundments of jurisdictional waters; and (4) adjacent wetlands. The list of non-jurisdictional waters includes, for example: groundwater; ditches that do not fall within category 1 or 2 of the jurisdictional waters; prior converted cropland; artificially irrigated areas; artificial lakes and ponds; certain water-filled depressions incidental to mining or construction activity; certain groundwater recharge, water reuse, and wastewater recycling structures, including detention, retention, and infiltration basins and ponds; and waste treatment systems.
Among the noteworthy changes to the agency’s 2015 rule is a rejection of the 2015 rule’s case-by-case analysis of a “significant nexus” between upstream and downstream waters. In its place, the new rule’s analytic framework focuses on whether a stream, wetland, or other non-TNW has a surface link to a TNW during a “typical year” (defined as when precipitation and other climatic variables are within the normal periodic range based on a rolling 30-year period). Another significant change is the new rule’s approach to jurisdiction over wetlands. Whereas the 2015 rule asserted jurisdiction over wetlands that were “hydrologically connected” to other waters, the new rule only covers waters with direct links to flowing waters in a typical year—a change likely to encompass fewer wetlands. The rule also eliminated language from the 2015 rule’s definition of “tributary” that focused on the presence of “bed and banks and an ordinary high water mark.” The definition of “tributary” in the new rule focuses more on whether there is a “channel that contributes surface water flow” to a TNW.
Note that EPA’s WOTUS rulemaking does not affect Minnesota’s own statutory authority to regulate just about every type of water body, including groundwater, under its state disposal system (SDS) permitting and other programs. However, dischargers to waters subject to CWA jurisdiction must meet certain unique and often onerous federal requirements, including mandatory industry-specific technology-based effluent limitations and ongoing EPA enforcement oversight. EPA’s new WOTUS definition becomes effective 60 days after the date of publication in the Federal Register (which had not yet occurred at time of writing). EPA, Corps, Final Rule, “The Navigable Waters Protection Rule: Definition of ‘Waters of the United States’” (EPA-HQ-OW-2018-0149) (1/23/2020).
Jeremy P. Greenhouse The Environmental Law Group, Ltd.
Jake Beckstrom Vermont Law School, 2015
Erik Ordahl Barna, Guzy & Steffen
Audrey Meyer University of St. Thomas School of Law, J.D. candidate 2020
FEDERAL PRACTICE
JUDICIAL LAW
• 28 U.S.C. §1446(d); effect of removal on state court action. Relying on the plain language of 28 U.S.C. §1446(d), the United States Supreme Court held that a Puerto Rico court lacked jurisdiction to take any further action following the filing of a notice of removal, meaning that its subsequent actions were “absolutely void,” and that the lack of jurisdiction was not cured by the federal district court’s nunc pro tunc remand order that purported to make the remand effective as of an earlier date, because “nunc pro tunc orders are not some Orwellian vehicle for revisionist history.” Roman Catholic Archdiocese of San Juan v. Acevedo Feliciano, 140 S. Ct. 696 (2020).
• Grant of motion to extend time to file appeal reversed; abuse of discretion. Where the putative appellants missed their deadline for filing a notice of appeal by more than two weeks, blaming a computer server malfunction for a portion of their error while failing to explain the remainder of the delay, and the district court granted the appellants’ motion to extend their time to file their appeal, the 8th Circuit found that the appellants’ failure to explain the reason for all of their delay meant that they could not establish the excusable neglect required. Accordingly, the district court’s order was reversed and the appeal was dismissed. Morgan v. Vogler Law Firm, P.C., 793 Fed. App’x 460 (8th Cir. 2020).
• Personal jurisdiction; multiple decisions. The 8th Circuit found that the guarantor of an Arkansas law firm’s client’s obligations was subject to personal jurisdiction in Arkansas, finding that the guarantor’s contacts with Arkansas were sufficient “in the aggregate” where the guarantor made three trips to Arkansas in connection with the underlying litigation, his contractual obligations were to be performed in Arkansas, and he made calls and sent “hundreds” of emails to Arkansas. Henry Law Firm v. Cuker Interactive, LLC, 950 F.3d 528 (8th Cir. 2020).
In an action brought by a Minnesota-based employer against a former non-Minnesota employee and his new employer arising out of the alleged breach of a noncompete agreement, where all defendants moved to dismiss for lack of personal jurisdiction, Chief Judge Tunheim denied the former employee’s motion, finding that his contacts sufficiently “implicated” Minnesota to make him subject to personal jurisdiction, but rejected the argument that the new employer was subject to personal jurisdiction under the Calder “effects test” (Calder v. Jones, 465 U.S. 783 (1984)). H2I Group, Inc. v. Miller, 2020 WL 618471 (D. Minn. 2/10/2020).
That same day, Chief Judge Tunheim found that the defendants were subject to specific personal jurisdiction in Minnesota where they “purposefully availed themselves of the privilege of conducting business in Minnesota by visiting Minnesota to promote their business and extending a loan to a Minnesota resident.” Ahlgren v. Muller, 2020 WL 618372 (D. Minn. 2/10/2020).
One week earlier, Chief Judge Tunheim granted a motion to dismiss for lack of personal jurisdiction brought by New Zealand defendants, rejecting the plaintiff’s argument that defendants’ presence at trade shows in Nevada, entering into a contract with a Minnesota resident, and their maintenance of a “passive” website were sufficient to confer jurisdiction. Ahlgren v. Bilkey, 2020 WL 529144 (D. Minn. 2/3/2020).
Judge Nelson denied a motion to dismiss for lack of personal jurisdiction in a contract dispute, finding dispositive the fact that the contract was to be performed primarily in Minnesota and the defendant’s employees traveled to Minnesota for sales training and strategic conversations, and sent “thousands” of emails to the plaintiff in Minnesota, while rejecting the defendant’s argument that Massachusetts choice-of-law provisions were sufficient to defeat personal jurisdiction in Minnesota. StoreWorks Techs., Ltd. v. Aurus, Inc., 2020 WL 336025 (D. Minn. 1/21/2020).
Applying federal circuit law, Judge Wright applied the doctrine of pendent personal jurisdiction to exercise jurisdiction over defendants who were already subject to personal jurisdiction in the District of Minnesota under the jurisdictional provisions of the Clayton Act. Willis Elec. Co. v. Polygroup Macau Ltd. (BVI), ___ F. Supp. 3d ___ (D. Minn. 2020).
• Motion to compel; deficient privilege log; attorney’s fees awarded. Where the defendants made at least three attempts over six months to generate a proper privilege log, and Magistrate Judge Thorson subsequently conducted an in camera review, found that dozens of documents appearing in the Second Amended Privilege Log were not privileged, and found that defendants had waived any privilege relating to email attachments that were not listed in the Second Amended Log, she ordered defendants’ counsel to “carefully review” the few remaining documents for which privilege claims remained, and awarded the plaintiff its reasonable attorney’s fees and costs relating to the privilege log dispute. MPay, Inc. v. Erie Custom Computer Applications, Inc., 2020 WL 748237 (D. Minn. 2/14/2020).
• Statute of limitations; commencement of action; choice of law. Where the timeliness of the action hinged on whether it was governed by New York or Minnesota law, Judge Davis found that the action was governed by New York law, including its rules providing for commencement by filing, meaning that the action was timely. ILKB of CNY, LLC v. Franchoice, Inc., 2020 WL 635266 (D. Minn. 2/11/2020).
• Motion to restrict or redact settlement offer denied. Where the plaintiff’s objection to a report and recommendation described a settlement offer she had received from the defendant and attached an email detailing the terms of that offer, and the defendant moved to restrict or redact that information, Judge Schiltz relied on the presumption of public access to judicial records in denying that motion, while also finding that Fed. R. Evid. 408 did not apply because it did not control access to court files. Truong v. UTC Aerospace Systems, ___ F. Supp. 3d ___ (D. Minn. 2020).
• Fed. R. Civ. P. 6; weekend deadline; motion deemed timely. Following the prevailing practice in the district regarding the “last day” rule, Magistrate Judge Wright declined to treat defendants’ motion to amend as untimely when it was filed on the Monday after the weekend deadline set forth in the scheduling order. ARP Wave, LLC v. Salpeter, 2020 WL 881980 (D. Minn. 2/24/2020).
• Motion for leave to amend denied. Magistrate Judge Menendez denied the plaintiff’s motion for leave to amend its complaint to add an additional claim against the defendant where that motion was brought six months after the deadline for amending pleadings in the scheduling order, finding that a “diligent attorney” would have chosen to pursue discovery prior to the deadline and would have had sufficient information prior to the deadline to seek leave to amend at that time. Cardiovascular Systems, Inc. v. Cardio Flow, Inc., 2020 WL 949117 (D. Minn. 2/27/2020).
• Local Rule 7.1(c); untimely declaration excluded. Where the plaintiff filed a declaration accompanied by 16 exhibits more than five weeks after oral argument on the defendants’ motion to dismiss and the plaintiff’s motion for a preliminary injunction, and the defendants objected to the filing of that declaration, Judge Nelson found that the filing of the declaration violated Local Rule 7.1(c) and refused to consider the declaration. Mainstream Fashions Franchising, Inc. v. All These Things, LLC, 2020 WL 968217 (D. Minn. 2/28/2020).
• Fed. R. Evid. 1006; trial exhibit or demonstrative aid; foundation inaccuracies. Where the defendant intended to offer a summary of data as a demonstrative aid or a trial exhibit and the plaintiff objected, Judge Nelson held that the summary contained inaccuracies, and that it was also inadmissible because it was prepared by the defendant’s counsel rather than the witness who was to testify regarding its contents. ResCap Liquidating Trust v. Primary Residential Mortgage, Inc., 2020 WL 635265 (D. Minn. 2/11/2020).
Josh Jacobson Law Office of Josh Jacobson
INDIAN LAW
JUDICIAL LAW
• Tribal officer may detain and deliver non-Indian suspected of on-reservation state-law offense to state authorities. After a spate of cases rejected defense arguments that questioned tribal officers’ authority to detain and remove non-Indians from within a reservation, the Minnesota Supreme Court considered whether a tribal police officer acted within his lawful authority when he detained a non-Indian on the reservation and transported him out of the reservation to Beltrami County law enforcement. The unanimous Court held that, irrespective of state powers, tribes possess the sovereign power to exclude unwanted persons from their lands. Because tribal officers may restrain and eject individuals who disturb public order on the reservation, the detention and transport was lawful, and the Court affirmed the defendants’ conviction. State v. Thompson, 937 N.W.2d 418 (Minn. 2020).
• Governing body of tribe immune absent an express waiver. The plaintiff, a pro se Fond du Lac tribal member, filed suit against the Fond du Lac Reservation Business Committee, arguing that the business committee had entered into easements crossing her land without her consent, and that a tribal police officer had improperly arrested her on a charge of trespass. The magistrate judge liberally construed her complaint as one under 42 U.S.C. §1983, but nevertheless recommended granting the tribe’s motion to dismiss because the plaintiff failed to establish a waiver or abrogation of the tribe’s sovereign immunity from suit. Upon review of the magistrate judge’s report and recommendation, the district court rejected the plaintiff’s objections and adopted the magistrate judge’s report, finding that the 8th Circuit has held that sovereign immunity extends to tribal entities, and the Fond du Lac Reservation Business Committee is the governing body on the Fond du Lac Reservation. Dobbs v. Fond du Lac Reservation Business Committee, No. 19-cv-1289 (SRN/LIB), 2020 WL 206347 (1/14/2020).
Jessica Intermill Hogen Adams PLLC
Leah K. Jurss Hogen Adams PLLC
REAL PROPERTY
JUDICIAL LAW
• Allocation of equity in partition action affirmed. An unmarried couple purchased a home together in May 2009. Plaintiff moved out in July 2010 and defendant remained in the home with the couple’s child and members of defendant’s family. Over the next eight years, defendant or her family contributed all mortgage payments, paid property taxes, and paid $28,500 for repairs and improvements. Prior to anyone moving into the home, plaintiff contributed $5,200 to the property and retained an $8,000 tax credit for himself. The parties agreed physical partition of the property was impractical. Following trial, the district court ordered an appraisal and equally allocated the equity, which it calculated as follows: “[c]urrent market value minus... current mortgage balance minus... amount of principal [mortgage] reduction [defendant] paid for minus... [defendant’s out-of-pocket repair costs] equals divisible equity.” Defendant appealed, arguing the district court should have allocated to her: (i) all mortgage interest and taxes she paid, not just the reduction of the principal balance; (ii) a greater portion of the equity because she was responsible for maintenance and loan payments after plaintiff moved out; and (iii) half the tax credit that plaintiff previously retained. The court of appeals observed the district court’s “broad discretion when fashioning an equitable remedy” in a partition action and noted that “divisions of equity need not be equal to be equitable,” and held the district court did not abuse its discretion in determining that: (i) defendant’s paying mortgage interest and taxes were effectively rent payments, so no further offset was appropriate; (ii) plaintiff’s moving out was not evidence of unclean hands when defendant remained in the home with their child; and (iii) the tax credit plaintiff retained was already offset by his receiving no credit in the allocation for his repair contribution. Henel v. Salas, (No. A19-0431), 2020 WL 610522 (Minn. Ct. App. 2/10/20) (unpublished). https://mn.gov/law-library-stat/archive/ctapun/2020/OPa190431-021020.pdf
Matthew Drewes DeWitt LLP
Zachary Armstrong DeWitt LLP
TAX LAW
JUDICIAL LAW
• Income tax: Condition subsequent “savings clauses” that operate to override regulatory protections requiring that conservation easement value be protected in perpetuity result in the disallowance of the charitable deduction. Charitable grantees of conservation easements must be entitled to a proportionate share of the proceeds in the event the property is sold following a judicial extinguishment of the easement.
Internal Revenue Code Section 170(h)(5)(A) allows for the deduction of a charitable contribution of a qualified real property interest to a qualified organization exclusively for conservation purposes. To be treated exclusively for conservation purposes, the conservation purpose itself must be protected in perpetuity. The intent of the requirement is to ensure that as the conservation easement changes in value over time, appreciation in value will not be disproportionately assigned back to the grantor if the easement is extinguished.
In a recent case determining whether a condition subsequent value allocation is a savings clause, the tax court applied Section 170(A)-14(g)(6)(ii), which provides “the donor must agree that the donation of the perpetual conservation restriction gives rise to a property right, immediately vested in the donee organization, with a fair market value that is at least equal to the proportionate value that the perpetual conservation restriction at the time of the gift bears to the property as a whole at that time.” The requirements of this regulation are strictly construed.
On the date of the gift, the fair market value of the conservation easement divided by the fair market value of the entire property is determined. The donee must be guaranteed to receive this percentage of any sales proceeds in any future extinguishment of judicial easement. For example, if a conservation agreement attempts to alter this percentage through use of a condition subsequent “savings clause” to enable the donor to retrieve value from subsequent improvements in full before an allocation of sales proceeds between the donor and donee, the courts have consistently declined to uphold the deduction even when no extinguishment has occurred.
The tax court cited several prior cases and stated that when a savings clause allows for future events to alter the tax consequences of a past conveyance, the impact of the savings clause is that of a condition subsequent that will not be enforced. Petitioner’s charitable deduction of $155,000,000 was denied in full and petitioner was subjected to accuracy-related penalties. Coal Property Holdings, LLC v. Comm’r, 153 T.C. No. 7 (2019).
• Series of whistleblower cases highlight jurisdictional limits. Individuals who tip the Service off to third parties who are skirting their tax obligations may be eligible for whistleblower payments. In particular, Section 7623(a) authorizes the Secretary to pay discretionary awards while 7623(b) provides for nondiscretionary awards to whistleblowers in particular circumstances. A whistleblower award ultimately depends upon the initiation of an “administrative or judicial action” based on the whistleblower’s information and that some “proceeds [are] collected as a result of the action”; both are necessary prerequisites for an award. The tax court, a court of limited jurisdiction, has power to review the Secretary’s award determination. The court typically does not, however, have authority to direct the Secretary to proceed with an administrative or judicial action. In other words, the court has the power to address complaints about the size of a whistleblower’s award. The court does not, however, have the power to offer relief where the whistleblower alleges that the IRS allowed the target to pay less in tax than it should have. Apruzzese v. Comm’r, T.C. Memo. 2019-141 (2019). The first stop for whistleblower complaints is the IRS’s Whistleblower Office (WBO). In some cases, complaints do not make it past the WBO’s screening; claims are rejected unless the whistleblower can provide “specific and credible” information about the target. E.g., Alber v. Comm’r, T.C. Memo. 2020-20 (1/30/2020). The court previously clarified that it “review[s] for abuse of discretion the WBO’s summary rejection of a claim for failing to meet certain threshold requirements even where, because of that rejection, there has been no administrative or judicial action initiated by the IRS as a result of the information that is the basis of the whistleblower’s claim.” Id. (citing Lacey v. Comm’r).
In a procedurally problematic case, however, the tax court faced the question of whether it had “jurisdiction to review the WBO’s actions or inactions that forestalled further [administrative] proceedings.” Lacey v. Comm’r, No. 9761-16W, 2019 WL 6313190 (T.C. 11/25/2019). The whistleblower in this complicated case provided information to the WBO alleging that the multinational oil and gas company BP evaded millions of dollars in taxes after BP’s massive gulf oil spill. The whistleblower’s first submission provided few details, and the WBO determined that the initial submission did not meet the requirements for an award. The whistleblower retained counsel and submitted additional information. Although the WBO sent the whistleblower another letter reiterating its conclusion that the whistleblower did not meet award criteria, the tax court noted that the court “cannot tell the nature and extent of any consideration that WBO personnel gave to [the whistleblower’s] second submission.” Id. The whistleblower sought the tax court’s review of the WBO’s rejection. The Commissioner requested summary judgment, arguing that since there was no administrative or judicial action, the whistleblower could not be entitled to an award. The court rejected the Commissioner’s logic, holding that its “review of a WBO determination to ‘reject’ a claim is not preempted by the absence of ‘action’ and ‘proceeds’, which will always be absent in the instance of the WBO’s ‘rejection’ of a claim.” The tax court has authority to review the WBO’s decision to reject a claim for failure to meet threshold requirements. In the instant case, however, the administrative record was insufficient for the court to exercise its discretion, and the court ordered the parties to recommend a schedule for further proceedings.
• Operation of a legal medical marijuana dispensary under state law does not permit taxpayers to take deductions or credits resulting from trafficking in a federal controlled substance. States have enacted statutes that have contributed to the increasing number of medical marijuana dispensaries that operate legally under state law. Yet marijuana remains a Schedule I controlled substance within the meaning of the Controlled Substances Act.
Internal Revenue Code Section 280E was enacted by Congress as a tax on gross income directed at persons who operate a business in violation of federal or state law. Marijuana dispensaries may be legal under state law, but federal law does not recognize the legality of this income. Section 280E states, “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business... consists of trafficking in controlled substances (within the meaning of Schedule I and Schedule II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”
Here, petitioner contended that the disallowance of certain deductions was a penalty. The tax court stated that the fact deductions are authorized for other, legal enterprises does not compel the extension of those deductions to drug dealers. In the 37 years since its enactment, there has not been a federal court opinion that has held that Section 280E is a penalty. Thus, denials of deductions, even for cost of goods sold, are up to the discretion of Congress. The taxpayer’s 8th Amendment challenges on limits of deductions of gross income were a “nonstarter.”
Further, petitioner contended that if Section 280E limited deductions for Section 162, it did not limit them for Sections 164 (which allows deductions for certain taxes in the year paid or accrued) and 167 (depreciation). The first line of Section 280E controls this determination: “No deduction or credit shall be allowed.”
The tax court noted that “Congress has not carved out an exception in Section 280E for businesses that operate lawfully under State law. Until then, petitioner is not entitled to deduct expenses incurred in the operation of its drug-related businesses.” Petitioner was denied all deductions against gross receipts for the tax year and was subjected to accuracy-related penalties. N. Cal. Small Business Assistants, Inc. v. Comm’r, 153 T.C. No. 4, (2019).
• Individual income; exemption permitted. Vitaly Nikolaevich Baturni is a Russian citizen performing work as a research scientist in Virginia. In 2010 and 2011, Baturni received a Form W-2 documenting the income he received. Baturni claimed this income was exempt under Article 18, section 1 of the U.S.-Russia Treaty. The IRS issued a notice of deficiency for the tax years 2010 and 2011, claiming wages are ineligible for the Article 18 exemption. Section 1 of Article 18 provides “an individual who is a resident of a Contracting State… and who is temporarily present in that other State for the primary purpose of: studying or doing research as a recipient of a grant, allowance, or other similar payments from a… scientific organization, shall be exempt from tax by that other State.”
Baturni was temporarily present in the United States for the purpose of doing research, and the payments at issue came from a scientific organization. The issue remaining was whether the payments made were grants, allowances, or other similar payments. The words “grant” and “allowance” are not defined by the Code. Article 18 has no requirement for how the grant or allowance must be characterized. Article 18 exempts from taxation payments made in exchange for the services of “doing research,” whether the individual is paid as an independent contractor or an employee, so long as the payment is similar to a grant or allowance. A grant does not become a salary merely because an institution reports its payment on a Form W-2.
The court determined that Baturni was engaging in the kind of research that the U.S.-Russia Treaty signatories intended to include in the Article 18 exemption, and the funds to pay Baturni were specifically set aside for this research project. Baturni’s income earned in 2010 and 2011 was exempt under Article 18 of the U.S.-Russia Treaty. Baturin v. Comm’r, 153 T.C. No. 10 (2019).
• Court grants motion to seal physician compensation records to protect third party from competitors. Perham Hospital District owns and operates several parcels of real property as medical clinics and claims those parcels are exempt from property tax. The district and Otter Tail County expect to present evidence regarding physician compensation to determine whether the clinics are exempt. The district moved to seal certain documents and to seal anticipated briefing and trial testimony regarding physician compensation at district clinics. The county did not oppose the motion.
The documents at issue include: (1) a physician compensation memorandum, provided by Sanford Health, a nonprofit organization that leases physician services to the district, and (2) a deposition of a physician providing services to the district that answered questions regarding employee compensation.
Although tax court proceedings “are required to be open under state statute and rule,” the Minnesota Supreme Court “has recognized that... each case involves a weighing of the policies in favor of openness against the interests of the litigant in sealing the record.” In re Rahr Malting Co., 632 N.W.2d 572, 576 (Minn. 2001). A court may seal court records to protect confidential information submitted as evidence. Id. at 576. The particular standard to be applied when considering whether to limit public access depends upon the nature of the particular judicial record or proceeding. See Minneapolis Star & Tribune Co. v. Schumacher, 392 N.W.2d 197, 204 (Minn. 1986).
The court categorized the documents in two ways: (1) those filed in support of a motion to seal; and (2) those filed to obtain a merits resolution. With respect to the first category, the Minnesota Supreme Court has emphasized that proceedings on a motion to seal should be held in camera to provide the moving party with the opportunity “to explain in sufficient detail the nature of the information it seeks to protect and the consequences of disclosure.” Rahr Malting, 632 N.W.2d at 577. With respect to the second category, the Minnesota Court of Appeals has indicated there is “a common-law presumption of access... to documents that have been filed with the court,” including documents “filed in connection with pretrial motions that require judicial resolution of the merits of the case.” Star Tribune v. Minn. Twins P’ship, 659 N.W.2d 287, 296 (Minn. App. 2003). To overcome this presumption of access, “a party must show strong countervailing reasons why access should be restricted.” Minneapolis Star & Tribune, 392 N.W.2d at 205-06.
The district argues that Sanford’s physician compensation information should be sealed from public access because it contains trade secret information. Alternatively, the district argues that the information merits protection because it is: (1) highly proprietary and confidential third-party information; (2) Sanford makes extensive efforts in maintaining the secrecy of the information; and (3) Sanford would be harmed if competitors had access to the information.
After reviewing evidence and testimony of the executive directive of legal for Sanford, the court granted the district’s motion to seal. Perham Hospital District v. Otter Tail Cty, 2020 WL 756967 (Minn. Tax Court 2/7/20).
• Landowners challenge ditch assessments; court lacks jurisdiction to decide drainage code issues. These matters stem from a 2016 redetermination of benefits proceeding for Sibley-McLeod Counties Joint Ditch 18 (JD 18). That proceeding concluded with a determination that Sibley-McLeod Counties Joint Ditch 17 (JD 17), which drains into JD 18, receives an “outlet benefit” from JD 18 and, thus, property owners along JD 17 should be assessed for the benefits their properties receive from JD 18. Ditch assessments are collected with a landowner’s property taxes.
Petitioners Roger A. Laabs and Adeline D. Laabs, along with seven other landowners on JD 17, each filed a property tax petition for taxes payable in 2019 challenging the legality of the JD 18 ditch assessments based on the JD 18 redetermination proceeding. Sibley and McLeod counties moved to dismiss each petition. For purposes of hearing the counties’ motion, the court consolidated the cases and grouped the nine petitioners into two groups: (1) four who owned property on both JD 18 and JD 17; and (2) five who owned property on JD 17 only. Petitioners fall into the second category.
Minnesota law provides that “[a]ny person having… any estate, right, title, or interest… in any parcel of land, who claims… that the tax levied against the same is illegal, in whole or in part… may have the validity of the claim… determined by the district court of the county in which the tax is levied or by the Tax Court[.]” Minn. Stat. §278.01, subd. 1(a) (2018). On 4/29/2019, petitioners filed a chapter 278 petition in the Minnesota Tax Court. Petitioners allege that as a result of the outlet benefits determined by the order, expenses related to the proceedings on the order have been levied as additional taxes against petitioners’ real property on JD 17. Petitioners challenged the validity of the underlying ditch proceeding and the resulting levy, alleging: (1) that the Drainage Authority did not establish jurisdiction over petitioners or their property; (2) that petitioners did not receive proper, legally sufficient notice of the redetermination proceedings; and (3) that petitioners never had any means of appeal to district court under Minnesota Statutes Chapter 103E. Petitioners claim the special assessment levied against the petitioners’ real property in the form of property taxes is invalid.
On 7/29/2019, Sibley County and McLeod County filed respective motions to dismiss their county petitioners’ chapter 278 petitions for lack of subject matter jurisdiction. The counties argued that the court does not have jurisdiction to hear cases pertaining to a Drainage Authority’s decision under Minnesota Statutes chapter 103E. Additionally, the counties argued that [t]he provisions governing appeal under [chapter 103E], Minn. Stat. §§103E.091 and 103E.095, both clearly state under subdivision one of each provision that such appeals must be brought in district court. The counties also assert that petitioners were improperly seeking to use tax court processes to undo drainage law processes.
Petitioners opposed the counties’ motions to dismiss. Petitioners agree that their appeals are based on a drainage assessment governed by Minnesota Statutes 103E, but contend that the tax court has jurisdiction to adjudicate their claims based on controlling precedent. The rule in the Minnesota Supreme Court case Saxhaug v. County of Jackson (215 Minn. 490, 10 N.W.2d 722 (1943)) is that a property owner can object to a ditch assessment via Chapter 278 where the property owner’s right to object has not been foreclosed by the drainage proceeding. Petitioners assert that they had no avenue of appeal under the drainage code and that Minnesota case law permits petitioners to appeal under Section 278.01. Because the court has jurisdiction over claims brought under Section 278.01, petitioners claim the court has jurisdiction over the matters.
In a lengthy analysis, the court noted that while it does have jurisdiction to determine the lawfulness of a property tax assessment, the court agrees with the counties that it lacks jurisdiction to adjudicate the several drainage code issues on which petitioners’ chapter 278 illegal assessment claim ultimately turns. The court denied the counties’ motions to dismiss, transferred the matters to its respective district courts for decision of any drainage code issues, and stayed further proceedings in the tax court until the matters are transferred back for final decision. Laabs v. McLeod Cty, 2020 WL 868141 (Minn. Tax Court 2/13/20); Laabs v. Sibley Cty, 2020 WL 869248 (Minn. Tax Court 2/13/20).
Morgan Holcomb Mitchell Hamline School of Law
Sheena Denny Mitchell Hamline School of Law
Kim Glidden Mitchell Hamline School of Law
Ashley Kiner Mitchell Hamline School of Law
TORTS & INSURANCE
JUDICIAL LAW
• Insurance; interest on appraisal awards. Plaintiffs suffered fire damage to their home. After plaintiffs and defendant insurer were unable to agree on the amount of the loss, plaintiffs requested an appraisal under the provisions of their fire insurance policy. In March 2016, the appraisal panel issued its award, which defendant paid. Plaintiffs had not sought, nor did the appraisal panel award, any pre-award interest as part of the appraisal award. Over a year later, plaintiffs sent a letter to defendant demanding $94,009.18 in pre-award interest, which defendant declined to pay. In October 2017, plaintiffs moved the district court to confirm the award under the Minnesota Uniform Arbitration Act. As a part of the confirmation, plaintiffs also sought pre-award interest on the appraisal award. The district court ruled that the motion for pre-award interest was untimely under Minn. Stat. §572B.24(a) because it concluded that the motion was one to modify an arbitration award and was thus outside the 90-day limitation period in the statute. The court of appeals reversed, holding that although appraisal awards are subject to the Minnesota Uniform Arbitration Act, the 90-day limitation period for motions to modify an arbitration award does not apply to motions for pre-award interest on appraisal awards.
The Minnesota Supreme Court affirmed the decision of the court of appeals, but on different grounds. The Court began by reviewing the scope of the Minnesota Uniform Arbitration Act, noting that it “govern[s] agreements to arbitrate.” Minn. Stat. §572B.03. The Court held that “that the appraisal process under the Minnesota Standard Fire Insurance Policy is not an ‘agreement to arbitrate’ under section 572B.03 of the Minnesota Uniform Arbitration Act. Therefore… the Act’s 90-day limitation to modify an award does not apply to an appraisal award.” The Court remanded the case to the district court “to determine whether [plaintiffs are] owed pre-award interest and if so the amount of interest that… is owed.” Oliver v. State Farm Fire & Cas. Ins. Co., No. A18-0367(Minn. 3/4/2020). https://mn.gov/law-library-stat/archive/supct/2020/OPA180367-030420.pdf
Jeff Mulder Bassford Remele