CRIMINAL LAW
JUDICIAL LAW
• Privilege: Order for subpoena is necessary to obtain privileged records from rape crisis counseling center. Respondent was charged with criminal sexual conduct for allegedly engaging in nonconsensual sexual penetration and contact with two women while working as a massage therapist. The Program to Aid Victims of Sexual Assault (PAVSA) assisted the women in reporting the incidents to the police and respondent moved for an in camera review of all PAVSA’s records relating to the women, under Minn. R. Crim. P. 9.01, subd. 2(3). The court ordered PAVSA to produce the records for in camera review, and PAVSA petitioned for a writ of prohibition preventing enforcement of the order.
The court of appeals notes that Rule 9.01, subd. 2, requires the state to assist a defendant in obtaining access to discovery in the possession of governmental agencies not within the prosecutor’s control, upon the defendant’s motion and showing of good cause. However, PAVSA is not a governmental agency, so the state is under no obligation to produce PAVSA’s records.
Instead, to obtain PAVSA’s records, respondent was required to obtain a court order for a subpoena, as required by Minn. R. Crim. P. 22.01, subd. 2(c). Respondent did not comply with Rule 22.01, subd. 2(c), nor did the district court issue a subpoena. As such, the district court’s order requiring PAVSA to produce records was unauthorized by law. The court of appeals grants PAVSA’s writ of prohibition, but “express[es] no opinion… on whether the district court should grant a subpoena for the records, if presented with a proper motion, or on the possible outcome of any in camera review, if ordered.” In re Program to Aid Victims of Sexual Assault, 943 N.W.2d 673 (Minn. Ct. App. 4/13/2020).
• DWI: Proof that operator knew controlled substance was in his body is not required. Appellant was convicted of driving under the influence of a controlled substance after entering a guilty plea. However, on appeal, he argues his plea was inaccurate and invalid, because he did not admit he knew or had reason to know his body contained a schedule I or II controlled substance. When entering his plea, appellant admitted amphetamine was present in his body when he operated a motor vehicle, but said nothing about whether he was aware of its presence in his body at that time.
Minn. Stat. §169A.20, subd. 1(7), criminalizes driving, operating, or being in physical control of a motor vehicle with any amount of a schedule I or II controlled substance, including amphetamine, in the body. Section 169A.20, subd. 1(7), does not contain a mens rea element, requiring only a general intent to do the act described therein. Generally, strict liability crimes—those that dispense with mens rea—are generally disfavored, and courts interpret statutes silent on intent to contain a mens rea requirement. However, in section 169A.46, subd. 2, the Legislature provided an affirmative defense to drivers charged under section 169A.20, subd. 1(7), which the court of appeals takes to mean that the absence of a specified mens rea requirement in section 169A.20, subd. 1(7), was not an inadvertent omission.
Moreover, the court finds that a violation of section 169A.20, subd. 1(7), is a public welfare offense, an offense that is not subject to the presumption that the Legislature intended a mens rea requirement. The court concluded that the State is not required to prove that the operator of a motor vehicle knew or had reason to know that a controlled substance was in his body to prove a charge under section 169A.20, subd. 1(7). The court finds appellant’s guilty plea is supported by a sufficient factual basis, and his conviction is affirmed. State v. Schwartz, 943 N.W.2d 411 (Minn. Ct. App. 4/13/2020).
• DWI: License revocation may be used to enhance DWI charge once judicial review has occurred or right to review has been waived. Appellant was arrested for DWI on 10/2/2016, and 12/18/2016. A week after his October arrest, appellant was notified that his driver’s license was revoked, and the revocation was sustained in April 2017, after he waived judicial review. For his December DWI arrest, appellant was charged with, among other offenses, second-degree test refusal in August 2017. The charge was enhanced due to appellant’s October license revocation. Appellant moved to dismiss the second-degree charge, arguing the license revocation cannot be used as an aggravating factor unless judicial review has occurred or has been waived by the time of the subsequent offense. The district court denied appellant’s motion. After a stipulated facts trial, the court found appellant guilty on both counts. The Minnesota Court of Appeals affirmed, holding that “a prior license revocation is present as an aggravating factor to enhance a subsequent DWI offense after a driver receives notice of the revocation.”
A person is guilty of second-degree test refusal if they refuse to submit to a chemical test and one aggravating factor was present when the violation was committed. Minn. Stat. §§169A.20, subd. 2; 169A.25, subd. 1(b). A prior driver’s license revocation may qualify as an aggravating factor, under Minn. Stat. §169A.03. Various subdivisions of section 169A.03, when read together, provide that a driver’s license revocation under the implied consent law (sections 169A.50 to 169A.53) can be used as an aggravating factor for purposes of section 169A.25, subd. 1(b), if the revocation was “present when the violation was committed.”
Reviewed or not, a license revocation under the implied consent law comes into existence as of its effective date, which is when the commissioner notifies the person of the intent to revoke their license. Minn. Stat. §169A.52, subd. 6. Nothing in the implied consent law suggests that a revocation must be reviewed by the time a subsequent offense is committed to be used as an aggravating factor.
The Supreme Court previously held, in State v. Wiltgen, 737 N.W.2d 561 (Minn. 2007), that using license revocations that were unreviewed at the time of charging as aggravating factors violated due process. Thus, a license revocation under the implied consent law is “present” upon its effective date and may be used to enhance a DWI charge once the revocation has been judicially reviewed and sustained or the right to review has been waived.
In this case, appellant’s license revocation was present in October 2016, when he received notice of the revocation, which was before he committed the test refusal offense in December 2016. He waived review of the revocation in April 2017, at which point the state could use the revocation to enhance the charge relating to his December 2016 conduct. The Court concludes that the state properly used appellant’s license revocation as an aggravating factor. State v. Anderson, 941 N.W.2d 724 (Minn. 4/15/2020).
• Evidence: Post-arrest statement to police about purchase of drugs from defendant is admissible under residual exception to hearsay rule. After receiving a tip, police observed appellant selling methamphetamine to L.P. Appellant and L.P. were arrested, after which L.P. submitted to a recorded interview and made several statements regarding the drug transaction. At appellant’s trial, the district court admitted L.P.’s statements as substantive evidence under Minn. R. Evid. 807, the residual exception to the hearsay rule. At appellant’s trial, L.P. recanted her statements to police and testified she did not purchase methamphetamine from appellant. The jury found appellant guilty of first-degree sale of a controlled substance and second-degree possession of a controlled substance, and the court of appeals affirmed.
Rule 807 allows for the admission of hearsay not specifically covered in other hearsay exceptions “but having equivalent circumstantial guarantees of trustworthiness.” The totality of the circumstances surrounding a proffered statement must be examined to determine whether the statement is trustworthy. The district court here balanced the following relevant circumstances: Some of the investigator’s questions to L.P. were leading or suggestive, but the interview as a whole was not “entirely leading or suggestive;” although L.P. admitted to just having used drugs and the recording was difficult to hear clearly, she was not obviously impaired; L.P.’s statement was against her penal interest; and L.P. was available for cross-examination at trial. The Supreme Court agrees with the district court’s assessment of these factors.
Additionally, while a recantation may lessen the trustworthiness of a statement, the court must determine whether “other uncontroverted evidence discredits the recantation,” whether there is a motive to falsely recant, whether there is an inconsistency in the recanted version of the statement itself, and whether the prior hearsay statements are strongly corroborated. Some of L.P.’s original statements were corroborated by other evidence, her recantation came only after urging from a friend, and L.P. had a prior intimate relationship with appellant. These facts are not enough for the Supreme Court to conclude that the district court erred in determining that L.P.’s recantation did not render her prior statements untrustworthy.
The Supreme Court finds the district court properly balanced all of the relevant circumstances of the trustworthiness of L.P.’s statements to law enforcement and, therefore, properly admitted them into evidence under Rule 807. When admitting evidence under Rule 807, a district court should make findings regarding the enumerated requirements of Rule 807, including: (1) “the statement is offered as evidence of a material fact;” (2) “the statement is more probative on the point for which it is offered than any other evidence” procurable “through reasonable efforts” by the proponent; and (3) the general purpose behind the rules of evidence and the interests of justice are served by the admission of the statement. The district court here made findings as to requirements (1) and (2), but not (3). However, this failure does not automatically require reversal, as the appellate courts can independently evaluate the record. Here, the Supreme Court finds that admission of L.P.’s statements serves the purpose of Rule 807 and the interests of justice. State v. Vangrevenhof, 941 N.W.2d 730 (Minn. 4/15/2020).
• Evidence: The content of an excerpt of a writing or statement must be examined to determine if contemporaneous admission of additional material is necessary to clarify inaccuracies. Respondent went to trial on a charge of second-degree criminal sexual conduct arising from allegations that he sexually abused his child. Prior to being charged, respondent was interviewed by police and repeatedly denied the allegations, asserting his children’s mother fabricated the allegations. At trial, the state requested to play a limited portion of the hour-long interview, specifically, the portion during which the state alleged respondent lied about the living arrangements with his children, to “show[] consciousness of guilt.” Respondent asked that the entire recording be played. The district court allowed the state to play the short portion of the recorded interview. Respondent testified about his repeated denials of the allegations during his police interview, and he was cross-examined about the interview. The jury found respondent guilty. His post-conviction petition was denied, but the court of appeals reversed and remanded for a new trial, finding that the entire interview should have been played.
The Supreme Court, however, reverses the court of appeals. The Court addresses the analytical approach to be used when applying Minn. R. Evid. 106, which provides: “When a writing or recorded statement or part thereof is introduced by a party, an adverse party may require the introduction at that time of any other part or any other writing or recording which ought in fairness to be considered contemporaneously with it.” As to the fairness requirement, the Supreme Court concludes “that Rule 106 applies when the proposed additional material (1) relates to the facts offered in an excerpt of a recorded statement or writing and (2) is necessary to correct a misleading or distorted impression of facts created by the admitted excerpt or writing.” The district court must examine the content of the excerpt or writing admitted, rather than the purpose for which it was admitted. If the substance of the excerpt so inaccurately or unfairly distorts the evidentiary facts that it requires immediate correction of its content, fairness requires that additional material be contemporaneously admitted.
The Court determines that the district court’s consideration under Rule 106 was appropriate and that it did not abuse its discretion in admitting only the excerpt of respondent’s interview. The excerpt covered only limited information about sleeping arrangements, and the remainder of the interview was unrelated to that topic. Thus, admitting the entire interview was not necessary to give the jury a full understanding of what respondent said in the excerpt or to clarify a misimpression created by the excerpt. State v. Dolo, 942 N.W.2d 357 (Minn. 4/29/2020).
• MIERA: “Any evidence of factual innocence” does not include evidence about victim’s prior dishonesty that is unrelated to underlying crime. After a jury trial, appellant was convicted of criminal sexual conduct charges related to reports made by appellant’s daughter. His post-conviction petition was granted and his convictions were vacated due to ineffective assistance of counsel. The state did not retry the case and dismissed the charges. The district court denied appellant petition for an order declaring him eligible for compensation under the Minnesota Imprisonment and Exoneration Remedies Act (MIERA), and he appealed.
After being released from incarceration following a reversal or vacation of his conviction, a person may seek exoneration compensation by first petitioning the court for an order declaring them eligible for compensation based on exoneration. “Exonerated” means that “a court… ordered a new trial on grounds consistent with innocence and the prosecutor dismissed all felony charges against the petitioner arising from the same behavioral incident.” Minn. Stat. §590.11, subd. 1(b)(1)(ii). The issue here is whether appellant received a new trial “on grounds consistent with innocence.”
“On grounds consistent with innocence” is defined to mean either: “(1) exonerated through a pardon or sentence commutation, based on factual innocence; or (2) exonerated because the judgment of conviction was vacated or reversed or a new trial was ordered, and there is any evidence of factual innocence whether it was available at the time of investigation or trial or is newly discovered evidence.” Minn. Stat. §590.11, subd. 1(c) (emphasis added). The court of appeals holds that, by its plain terms, the phrase “any evidence of factual innocence” means any evidence that shows some fact establishing the absence of the petitioner’s guilt.
Here, appellant received a new trial for ineffective assistance of trial. Proving ineffective assistance of counsel did not require appellant to establish his factual innocence. However, in finding appellant’s trial counsel was ineffective, the district court noted that his trial counsel failed to procure testimony and documents that related to the victim’s character for untruthfulness. Appellant argues this evidence goes beyond mere impeachment evidence and makes it more likely that he did not commit the offenses. The court of appeals finds, however, that evidence showing the victim’s pattern of past dishonesty does nothing to show appellant’s lack of guilt, but, instead, goes only to her credibility as a witness.
The court of appeals notes that a petitioner may still be able to meet MIERA’s exoneration requirement through impeachment evidence. For example, if a witness explained the victim told them the victim had fabricated the entire claim, this is impeachment evidence but also represents “any evidence of factual innocence.” Here, however, the victim never recanted her accusations and the accusations were corroborated by other witness testimony. Thus, appellant does not meet MIERA’s threshold exoneration requirement, and the district court properly denied his petition. Freeman v. State, A19-1247, 2020 WL 1983227 (Minn. Ct. App. 4/27/2020).
• Homicide: Depraved-mind murder requires the defendant’s awareness that his conduct creates a substantial, unjustifiable risk to human life. While intoxicated, appellant collided with an eight-year-old child and his father while driving a snowmobile at a high rate of speed on a frozen lake. The child later died. Appellant was convicted of seven offenses but sentenced only on one count of third-degree murder and one count of gross misdemeanor criminal vehicular operation.
First, the court of appeals finds that the district court erred in its instructions to the jury as to the mens rea element of third-degree murder, but that the error was not plain. Third-degree murder requires the state to prove the defendant (1) caused the death of another, (2) committed an act that was eminently dangerous to others, and (3) evinced a depraved mind without regard for human life. The “depraved mind” element is the equivalent of a reckless standard, and the recklessness definition the court adopts here comports with the most common legal usage of “reckless.” The district court did not define “reckless” for the jury, a term for which the ordinary definition differs from the legal definition. Without the legal definition, the jury would have been allowed to find appellant guilty if he acted in a careless manner and knew only that his conduct may result in someone being killed, which is not enough to satisfy the elements of third-degree murder. However, the court of appeals finds that this error by the district court was not plain. The district court’s instruction was a verbatim rendering of the third-degree murder model instruction and it did not contravene existing case law. As the error was not plain, it does not require reversal of appellant’s third-degree murder conviction.
Next, the court determines that the district court did not abuse its discretion by admitting Spreigl evidence of appellant’s prior alcohol-related offense. The court also finds the evidence was sufficient to support appellant’s third-degree murder conviction, and that appellant failed to demonstrate that the cumulative effect of any alleged prosecutorial errors deprived him of his right to a fair trial.
Finally, the court holds the district court erred by entering two convictions, rather than one, for each of the following offenses: two counts of criminal vehicular operation and two counts of DWI. These four counts arose from the same behavioral incident. Thus, the case is remanded to the district court to vacate one of each of the DWI and criminal vehicular operation convictions. State v. Coleman, A19-0708, 2020 WL 1982274 (Minn. Ct. App. 4/27/2020).
Samantha Foertsch Bruno Law PLLC
Stephen Foertsch Bruno Law PLLC
EMPLOYMENT & LABOR LAW
JUDICIAL LAW
• Untimely claims; doctor’s case dismissed. The dismissal of a race and national origin wrongful termination lawsuit by a doctor was upheld because his claims were untimely under federal and state laws. The 8th Circuit confirmed partial summary judgment on grounds that the physician’s claims under the federal equal pay act and the state discrimination law were not filed within the statutorily required deadlines. Mukherjee v. The Children’s Mercy Hospital, 2020 WL 1813769 (8th Cir. 4/9/2020) (unpublished).
• Discrimination and harassment; physician’s claims dismissed. A wrongful termination lawsuit by a physician for racial discrimination retaliation failed. The 8th Circuit affirmed dismissal on grounds that the doctor’s poor relationship with co-workers warranted his discharge by the clinic where he worked and was not pretextual, and that a state law claim for a mandatory buyout of his shares in the clinic also was not viable. Bharadwaj v. Mid Dakota Clinic, 954 F.3d 1130 (8th Cir. 4/3/2020).
• Whistleblower claim; retaliation rejected. A wrongful termination retaliation claim by a mortgage underwriter under the Federal False Claims Act was rejected. Affirming dismissal by the trial court, the 8th Circuit Court of Appeals held that there was sufficient evidence of poor job performance and inability to get along with co-workers that prompted the termination. Sherman v. Berkadia Commercial Mortgage, LLC, 956 F.3d 526 (8th Cir. 4/14/2020).
• Racial discrimination; retaliation dismissed. The manager of a bottling plant had his claim of retaliatory firing dismissed after he had been terminated following a complaint regarding racial discrimination. The 8th Circuit, in a ruling written by Judge David Stras of Minnesota, held that the claimant did not show that the discharge was pretextual and was thus barred from pursuing a claim of race discrimination or retaliation. Couch v. American Bottling Co., 955 F.3d 1106 (8th Cir. 4/16/2020).
• Race, gender claims; dismissal affirmed. Claims of racial and gender discrimination by a supervisor of government services for the needy was dismissed. The 8th Circuit affirmed per curiam summary judgment based on the trial court’s ruling that the claimant failed to exhaust administrative remedies by not filing a race bias claim with the Equal Employment Opportunity Commission (EEOC) and that there was insufficient evidence of a hostile workplace. Reddix v. Arkansas Dept. of Work Force Services, 2020 WL 1651629 (8th Cir. 4/3/2020) (unpublished).
• Pregnancy bias; combination claim rejected. A woman’s claims against Hennepin County under the state pregnancy and parental leave act and whistleblower law were rejected. The Minnesota Court Of Appeals, affirming a ruling of the Hennepin County District Court, held that she was not a covered “employee” under Minn. Stat. §181.94, subd. 2, at the time she requested a pregnancy accommodation and that both of her claims were preempted by the “exclusivity” provision of the Minnesota Human Rights Act. Hinrichs-Cady v. Hennepin County, 2020 WL 1909355 (8th Cir. 4/20/2020) (unpublished).
• Human Rights Act; jurisdiction over nonprofit. The Minnesota Human Rights Act extends to employment discrimination claims by a Native American against a nonprofit organized by a member of the White Earth Band of Ojibwe. The appellate court affirmed a determination by the Becker County District Court that a federal law known as Public Law 280 does not preclude state subject matter jurisdiction because the claimant was a Minnesota citizen and the former employer was a Minnesota nonprofit corporation. Campbell v. Honor The Earth, 2020 WL 1909717 (8th Cir. 4/20/2020) (unpublished).
• Unemployment compensation; delivery man’s refusal bars claim. A refusal by an employee to make deliveries as required by his employer precluded his claim for unemployment compensation benefits. The court of appeals upheld denial of benefits because his refusal to perform the work was based on a dispute with his employer over a bill he had submitted, and not, as he claimed, due to his health. Rahn v. Midway Farm Equipment, Inc., 2020 WL 1671693 (8th Cir. 4/6/2020) (unpublished).
• Untimely appeal; revenue recapture allowed. A six-year delay in appealing the determination of the Department of Employment & Economic Development (DEED) that an employee must pay back wrongfully received unemployment benefits was time-barred. The appellate court affirmed the determination that DEED could recapture the revenue, because the applicant failed to comply with the applicable 30-day deadline for appealing the determination. In re: Abdirahaman, 2020 WL 1673722 (8th Cir. 4/6/2020) (unpublished).
• LGBTQ firing; remand due to Bostock. The dismissal of a discrimination lawsuit by an employee who claimed he was discharged because he is gay was reversed. The 8th Circuit reversed and remanded based on the decision of the U. S. Supreme Court this June holding that LGBTQ status is protected under the Title VII of the Federal Civil Rights Act in Bostock v. Clayton County, 140 S. Ct. 1731 (2020); Horton v. Midwest Geriatric Management, 2020 WL 3636336 (8th Cir. July 6, 2020) (per curiam).
Marshall Tanick Meyer, Njus & Tanick
ENVIRONMENTAL LAW
JUDICIAL LAW
• 10th Circuit rejects EPA’s position limiting the scope of Title V reviews. A three-judge panel of the U.S. Court of Appeals for the 10th Circuit rejected the position recently adopted by the U.S. Environmental Protection Agency (EPA) that when reviewing Clean Air Act (CAA) Title V air emission permits, the agency is not required to reevaluate the substantive validity of underlying Title I preconstruction permits or states’ determinations regarding whether a source was properly classified as “major” or “minor.” The decision is in marked contrast to a recent decision by the 5th Circuit that deferred to EPA’s new policy, Environmental Integrity Project (EIP), et al. v. EPA, No. 18-60384 (5th Cir. 5/29/2020) (discussed in this column last month), setting up a circuit-court split that could stamp this issue’s ticket to the U.S. Supreme Court.
Title I of the CAA, passed in 1977, establishes the new source review (NSR) program, which requires operators to obtain a preconstruction permit before building a new facility or modifying an old one. States issue NSR permits through EPA-approved state implementation plans (SIPs). Title I establishes significantly more stringent NSR permit requirements for sources classified as “major” (having the potential to emit 100 tons per year or more of any air pollutant) compared to those that are “minor.” In 1990, Congress added Title V to the CAA; it was designed to provide each source a single operating permit that consolidates all the various requirements from the source’s other air permits, including NSR preconstruction permits as well as applicable state-only requirements. Generally, Title V permits do not add any new substantive requirements beyond those included in the source’s underlying permits.
It’s relevant to this case that the CAA requires Title V permits to include, among other things, emissions limits, monitoring requirements, and “such other conditions as are necessary to assure compliance with applicable requirements of this chapter, including the requirements of the applicable [SIP].” 42 U.S.C. §7661c(a) (emphasis added). EPA has defined the key term “applicable requirements” to mean, in relevant part, “all of the following as they apply to emissions units in a part 70 source...: (1) Any standard or other requirement provided for in the applicable implementation plan approved... by EPA…” 40 C.F.R. §70.2. In 2017, EPA, in denying a petition to object to a Title V permit for a Utah power plant, announced that it now construes §70.2 such that the requirements described by subsection (1) are merely those contained in the facility’s existing Title I permit; if the requirements from the underlying permit(s) are included in the facility’s Title V permit, EPA, as part of its review of a Title V permit, will not question the validity of the requirements. EIP v. EPA 7. As noted, the 5th Circuit in EIP v. EPA deferred to EPA’s interpretation.
The 10th Circuit did not. The case at hand, Sierra Club v. EPA, involved the renewal of a Title V permit for an industrial plant in Utah. Previously, the state had granted the plant a minor NSR permit to make certain modifications. Utah incorporated the provisions of the minor NSR permit in the proposed Title V permit. EPA did not object to the proposed permit. Sierra Club then filed a petition to compel the EPA to object, arguing in part that the earlier modifications should have triggered major NSR requirements. EPA argued that, consistent with the agency’s 2017 policy, it was inappropriate to reevaluate the state’s decision of whether major or minor NSR requirements applied.
On review, the court applied “Auer deference,” stating that it would consider EPA’s interpretation of its own regulation, i.e., 40 C.F.R. §70.2, controlling unless it was plainly erroneous or inconsistent with the regulation. See Auer v. Robbins, 519 U.S. 452, (1997). But the court also noted that Auer deference is only appropriate when the regulation is genuinely ambiguous. Here, the court found that §70.2 “unmistakably requires that each Title V permit include all requirements in the state implementation plan, including Utah’s requirements for major NSR.” This was clear not only from the language of §70.2(1) (”any standard or other requirement provided for in the applicable implementation plan”) but also by §70.2(2), which includes as part of “applicable requirements” any “term or condition of any preconstruction permits issued pursuant to regulations approved or promulgated through rulemaking.”
This language, the court held, “clarifies that terms in the preconstruction permits supply additional requirements” (and not the only requirements, as EPA argued). The court also rejected EPA’s arguments that the introductory language “as they apply” in §70.2 limits the scope of “applicable requirements” to only those conditions contained in earlier NSR permits. Likewise, the court was unconvinced by EPA’s references to rulemaking history. EPA’s interpretation of “applicable requirements,” the court held, “conflicts with the unambiguous regulatory definition.” Accordingly, the court remanded to EPA for further consideration of Sierra Club’s petition. Sierra Club v. EPA, No. 18-9507 (10th Cir. 7/2/2020).
ADMINISTRATIVE ACTION
n EPA ending covid-19 enforcement discretion policy. In late June the U.S. Environmental Protection Agency (EPA) gave notice that it will be terminating its temporary policy allowing for discretionary enforcement of environmental legal obligations during the covid-19 pandemic.
On 3/26/2020, EPA had announced that it would exercise enforcement discretion for noncompliance that resulted from the pandemic. The temporary policy directed entities to make every effort to comply with their environmental compliance obligations. But under circumstances where compliance was not reasonably practicable, the temporary policy directed entities to identify and document the specific nature and dates of noncompliance and identify and document how covid-19 was the cause of the noncompliance. Furthermore, the temporary policy directed entities of noncompliance to document the decisions and actions taken in response to the noncompliance, including the best efforts to comply with their environmental obligations and the steps taken to come into compliance at the earliest opportunity.
Where EPA agreed that covid-19 was the cause of noncompliance, the agency would not seek penalties for violations of routine compliance activities such as monitoring, integrity testing, sampling, laboratory analysis, training, and reporting or certification. The temporary policy did not apply to any criminal violations or activities carried out under Superfund or RCRA Corrective Action enforcement instruments.
The termination of the temporary policy will take place at 11:59 PM EST, 8/31/2020. After 8/31, EPA will not base any exercise of enforcement discretion on the temporary policy for any noncompliance. In its 6/29 memo, EPA said that it may terminate the temporary policy prior to 8/31/2020, either nationally or at a more local level, depending on changing conditions across the country, the lifting of “stay at home” orders in a state, and the status of federal and/or state covid-19 public health emergency guidelines. If it does terminate the temporary policy early, the agency will provide to the public at least seven days advance notice before official termination of the policy. EPA Memorandum, COVID-19 Implications for EPA’s Enforcement and Compliance Assurance Program: Addendum on Termination (6/29/2020).
• Line 3 contested case hearing scheduled. On 6/3/2020, the Minnesota Pollution Control Agency (MPCA) announced it would be granting a contested case hearing on its draft 401 Water Quality Certification for Enbridge’s Line 3 replacement project. The MPCA’s announcement came in response to petitions for contested case hearings received by the MPCA from environmental organizations and Tribal Nations after the MPCA issued a public notice of its preliminary determination to issue the 401 Certification, along with a National Pollution Discharge Elimination System/State Disposal System permit, and a capped air emission permit.
In reviewing the petitions received, the MPCA concluded that the requirements to hold a contested case hearing under Minnesota Rule 7000.1800, subpart 2.A were met with regard to the petition presented jointly by Friends of the Headwaters, Sierra Club, and Honor the Earth, with the White Earth band of Ojibwe and the Red Lake Band of Chippewa Indians (collectively, the Friends of the Headwaters Petition). The MPCA determined that the Friends of the Headwaters petition presented five issues of fact that satisfied the criteria for granting a contested case. The five issues of fact are:
- Does Enbridge’s proposed use of trench methods for stream crossings have temporary or permanent impacts on water quality parameters of concern?
- Have Enbridge and the MPCA identified the least degrading crossing method that is prudent and feasible for each stream crossing?
- Have Enbridge and the MPCA undercounted the full acreage of the project’s wetland impacts due to flaws in wetland delineation and survey methodologies related to the seasonality of delineation activities?
- Have Enbridge and the MPCA undercounted the full acreage of wetlands that are physically altered by trenching?
- Have Enbridge and the MPCA incorrectly determined that the impacts to wetlands that are physically altered by trenching are temporary?
- Other than these five issues of fact, the MPCA determined that there were no other issues presented in the other petitions that satisfied the criteria required to grant a contested case.
The contested case hearing is set to take place August 24-28, 2020, with the administrative law judge report due by 10/16/2020, and the final decision regarding the 401 Certification due by 11/14/2020. In the Matter of the Contested Case Hearing Requests on the Draft 401 Certification for the Line 3 Replacement Project.
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
• Notice of appeal; specificity. Rejecting the appellee’s argument that the appellant’s notice of appeal failed to specifically identify the district court’s class certification orders, the 8th Circuit found that a notice of appeal that identified “all previous rulings and orders that led up to and served as a predicate for that final judgment” was sufficient for the appellant to appeal the class certification orders. Vogt v. State Farm Life Ins. Co., ___ F.3d ___ (8th Cir. 2020).
• Motion for summary judgment; sham affidavit doctrine. Rejecting the plaintiff’s argument that the defendant had relied on “sham” affidavits in support of its motion for summary judgment, the 8th Circuit found that the affidavits were not “shams,” and suggested in dicta that the sham affidavit doctrine applies only to affidavits submitted by the party opposing summary judgment. Button v. Dakota, Minn & E. R.R. Corp., ___ F.3d ___ (8th Cir. 2020).
• Temporary restraining order; personal jurisdiction. Where the plaintiff commenced an action and sought a temporary restraining order, and the defendants opposed the TRO motion and brought a motion to dismiss for lack of personal jurisdiction, Judge Nelson found that the plaintiff had made a prima facie case for personal jurisdiction and granted the TRO, but also indicated that she would take a longer look at the personal jurisdiction issue in conjunction with the defendant’s motion to dismiss and the plaintiff’s motion for a preliminary injunction, and ordered the parties to meet and confer to address the potential need for jurisdictional discovery. 3M Co. v. Starsiak, 2020 WL 3566718 (D. Minn. 6/26/2020).
• Standing; preliminary injunction. Where plaintiffs brought an action challenging Minnesota’s ballot order statute and sought a preliminary injunction, and an amicus challenged plaintiffs’ standing, Judge Nelson acknowledged a circuit split on the issue of what measure of proof applied to the issue of plaintiffs’ standing at an early stage in the litigation, held that plaintiffs were not required to prove standing at the preliminary injunction stage “with the same degree of proof” that would be required at the summary judgment stage, and that plaintiffs had provided “ample affidavit evidence” to support standing. Pavek v. Simon, 2020 WL 3183249 (D. Minn. 6/15/2020).
• Motion to disqualify counsel; standing; class action opt-outs. In separate opinions in the same MDL, Judge Davis first rejected an attempted mass opt-out of a class action settlement by thousands of class members where the opt-out documents were signed by counsel rather than each plaintiff as required by the settlement agreement.
In the second opinion, Judge Davis denied the defendant’s motion to disqualify counsel for the opt-out plaintiffs, finding that the defendant lacked standing to bring the motion because it was not a current or former client of those attorneys, and it did not allege that those attorneys had obtained its confidential information, meaning that it was the opt-out plaintiffs, rather than the defendant, that had been harmed by their counsel’s alleged misconduct. In Re: CenturyLink Sales Practices & Sec. Litig., 2020 WL 3512807 (D. Minn. 6/29/2020); In Re: CenturyLink Sales Practices & Sec. Litig., 2020 WL 3513547 (D. Minn. 6/29/2020).
• Standing; receipt of text messages; injury; motion to compel arbitration. Chief Judge Tunheim denied the defendant’s motion to dismiss a putative spam text message class action pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6), finding that the “majority” of courts had found that the receipt of a single text message caused an “injury” sufficient to confer standing and that the plaintiffs had adequately alleged all of the elements of their claim, and also denied defendant’s motion to compel arbitration against one plaintiff, finding that the defendant had not met its burden to demonstrate the existence of a contract that required arbitration. Pederson v. Donald J. Trump for President, Inc., 2020 WL 3047779 (D. Minn. 6/8/2020).
• Motion to strike jury demand granted. Affirming an order by Magistrate Judge Schultz, Judge Wright agreed that plaintiff’s jury demand should be stricken where the plaintiff sought the equitable remedy of disgorgement under the Copyright Act. Judge Wright also declined to determine whether the motion to strike was dispositive or nondispositive, finding that because the order involved a “pure question of law,” it was subject to de novo review in any event. Fair Issac Corp. v. FDIC, 2020 WL 3446872 (D. Minn. 6/24/2020).
• Arbitration; litigation waiver; who decides? Rejecting the defendant’s argument that the issue of litigation waiver should be decided by an arbitrator, Judge Magnuson held that the issue was to be determined by the court, and that the defendant had waived any right to arbitrate by litigating motions to compel discovery, a motion to stay, appeals of Magistrate Judge’s decisions and a motion for partial summary judgment, and waiting until “after receiving unfavorable rulings” before attempting to invoke its right to arbitrate. Borup v. CJS Solutions Grp., LLC, 2020 WL 2769143 (D. Minn. 5/28/2020).
• Discovery; failure to respond; waiver of objections. Where the defendants failed to respond or object to the plaintiffs’ discovery requests within the deadlines set forth in the Federal Rules of Civil Procedure, Magistrate Judge Leung rejected defendants’ attempt to establish “good cause” for their failure to respond and found that their failure to serve timely objections resulted in the waiver of any objections, meaning that defendants were required to respond to the discovery requests “in full.” Laughlin v. Stuart, 2020 WL 3171326 (D. Minn. 6/15/2020).
• Denial of motion to compel arbitration; appeal; stay granted. Acknowledging “a well-documented circuit split,” a split within the District of Minnesota, and the absence of an 8th Circuit decision on point, Judge Tostrud stayed proceedings pending resolution of the defendant’s appeal of the denial of its motion to compel arbitration. Engen v. Grocery Delivery E-Services USA Inc., 2020 WL 3072316 (D. Minn. 6/10/2020).
• Motion for leave to conduct expedited third-party Doe discovery denied. Where the plaintiff sought expedited third-party discovery from Google relating to the identity of numerous John Doe defendants, Magistrate Judge Wright denied the motion without prejudice, finding that plaintiff had not produced the required prima facie evidence to support each of its claims, and that the requested discovery was overbroad to the extent that it sought information beyond the name, contact information, and ISP information for each defendant. NCS Pearson, Inc. v. John Does (1 through 21), 2020 WL 3249292 (D. Minn. 6/16/2020).
• Multiple requests for interlocutory appeal denied. Judge Wright denied plaintiffs’ request for entry of judgment pursuant to Fed. R. Civ. P. 54(b) or certification pursuant to 28 U.S.C. §1292(b), finding that the relevant factors weighed against the “extraordinary remedy” of Rule 54(b) relief, and that the plaintiffs had not met their burden on at least two of the three factors governing Section 1292(b) certification. In Re Polaris Mktg., Sales Practices and Prods. Liab. Litig., 2020 WL 3530624 (D. Minn. 6/30/2020).
Judge Frank denied the defendants’ motion to certify five questions for interlocutory appeal under 28 U.S.C. §1292(b), finding that none of the questions involved controlling issues of law, and that further delays in the case, which has been pending for 12 years, would fail to advance the interests of justice. United States ex rel. Johnson v. Golden Gate Nat’l Senior Care, L.L.C., 2020 WL 3072315 (D. Minn. 6/10/2020).
Josh Jacobson Law Office of Josh Jacobson
INDIAN LAW
JUDICIAL LAW
• For purposes of the Major Crimes Act, millions of acres in eastern Oklahoma reserved for the Muscogee (Creek) Nation remain Indian country. Following a failure to reach a decision last term in Carpenter v. Murphy due to Justice Gorsuch’s recusal, the Supreme Court held in a 5-4 decision that the Muscogee (Creek) Nation’s Reservation had never been disestablished. Following his criminal conviction in Oklahoma state court, the enrolled tribal member McGirt argued that because his conduct occurred within the Creek Reservation, the Major Crimes Act divested the state court of jurisdiction over his crimes, and he should have been tried in federal court. The Supreme Court rejected the state of Oklahoma’s arguments, and held that the United States established a reservation for the Creek Nation in the early 1800s through treaties, Congress did not diminish or disestablish that reservation through any legislative enactments during the allotment era, and historical practice and demographics are not enough, on their own, to constitute disestablishment of an Indian reservation. Justice Gorsuch issued a strongly worded opinion, refusing to elevate “the most brazen and longstanding injustices over the law” and requiring the United States keep its treaty promises. The Supreme Court made its decision under the definition of “Indian country” used in the Major Crimes Act, 18 U.S.C. §1151, but this definition is borrowed and referenced in many other criminal and civil statutes. McGirt v. Oklahoma, No. 18-9526, 2020 WL 3848063 (U.S. 7/9/2020).
• Non-federally recognized tribe must exhaust administrative remedies prior to lawsuit. The District Court for the District of Columbia granted the United States’ motion to dismiss a complaint filed by the Mdewakanton Band of Sioux in Minnesota seeking listing as a federally recognized Indian tribe in the Federal Register. The court rejected arguments by the band that the Department of the Interior’s administrative process for recognizing Indian tribes was inapplicable due to the band’s unique history, and required the band to avail itself of that process before filing suit. Mdewakanton Band of Sioux in Minnesota, No. 19-402 (TJK), 2020 WL 2800615 (D.D.C. 5/30/2020).
Leah K. Jurss Hogen Adams PLLC
INTELLECTUAL PROPERTY
JUDICIAL LAW
• Patent: Tort claims preempted by patent law. The Court of Appeals for the 8th Circuit recently affirmed the U.S. District Court for the District of Minnesota’s grant of summary judgment in favor of Graphic Packaging Int’l, LLC and against Inline Packaging, LLC. Graphic and Inline compete in the consumer-packaged-goods industry. In 2014, Nestlé held a one-day auction to select a supplier of susceptor sleeves for three product lines: Kahiki, Croissant Pockets, and Hot Pockets. Inline was awarded the business for all three products. Following Graphic’s cease-and-desist letter to Inline, Nestlé awarded Graphic a three-year contract. In June 2015, Graphic filed a patent infringement suit against Inline alleging infringement of a utility patent and design patents. Inline brought an inter partes review against Graphic’s utility patent, which resulted in the invalidation of the patent. In July 2015, while the patent infringement case was pending, Inline filed suit against Graphic alleging antitrust and tortious interference violations. The district court granted Graphic’s motion for summary judgment, dismissing all of Inline’s claims and denying Inline’s motion for partial summary judgment. Inline appealed. On appeal, after first dismissing Inline’s antitrust claim, the 8th Circuit affirmed the district court’s dismissal of Inline’s tortious interference claims. The 8th Circuit noted that federal law preempts state tort liability when a patent holder, in good faith, asserts a warning about pursuing potential patent infringement litigation. Only if the patent owner acts in bad faith does the state claim survive federal preemption. The 8th Circuit concluded that because Inline failed to show that Graphic acted in bad faith, the district court properly dismissed the claim based on preemption. Inline Packaging, LLC v. Graphic Packaging Int’l, LLC, No. 18-3167, 2020 U.S. App. LEXIS 19061 (8th Cir. 6/18/2020).
• Patent: Invalidation of patent does not impact breach of contract adjudication. Judge Frank recently denied Corning Inc.’s renewed motion for summary judgment to dismiss Wilson and Wilson Wolf Manufacturing Corp.’s claims of breach of contract, trade secret misappropriation, and correction of inventorship. Wilson is the founder and CEO of Wilson Wolf, a biotechnology company that develops and manufactures cell-culture devices. Corning is a multinational technology company that, Wilson alleges, developed products using Wilson Wolf’s technology after obtaining access under a confidentiality agreement. The technology in question was disclosed in three of Wilson Wolf’s patent applications and in a Small Business Innovation Research Grant application that Wilson Wolf filed with the National Institute of Health. On 3/29/2017, the court found that summary judgment was not proper with respect to the contract claim because issues of material fact existed regarding the misuse of confidential information. On 12/26/2017 the United Stated Patent Office’s Patent Trial and Appeals Board invalidated Wilson Wolf’s patent. Wilson Wolf’s request for rehearing and subsequent appeal to the federal circuit were both denied. Corning then renewed its motion for summary judgment. On Corning’s renewed motion, the court found that the PTAB’s decision had no effect on Wilson Wolf’s breach of contract claim. The court reasoned that a question of fact remained as to whether the information covered in the patent was considered confidential information (as protected by the confidentiality agreement) despite the patent being invalidated. Wilson v. Corning Inc., No. 13-210 (DWF/TNL), 2020 U.S. Dist. LEXIS 105942 (D. Minn. 6/17/2020).
Joe Dubis Merchant & Gould
Gabrielle Kiefer, Merchant & Gould
TAX LAW
JUDICIAL LAW
• “Tool plans” face continued scrutiny; Section 6700 penalties upheld. For several years, the Service has focused enforcement on so-called “tool plans.” Such plans purport to receive tax-favored treatment as “accountable plans” under Internal Revenue Code §62(c) and the accompanying regulations. An “accountable plan” permits employers to reimburse employees without the reimbursement being considered income. For a plan to be an “accountable plan” and receive this tax-neutral treatment, the expenses must be business-related and accounted for properly, and any amounts paid in excess of actual costs must be returned to the company within a specified timeframe.
While many accountable plans are nonabusive, the Service determined that some accountable plans are designed only to evade tax and are abusive. The Service created an enforcement team to ferret out such abusive plans. At issue in these cases are those plans that were designed and operated around a structure that recharacterized a portion of the employee’s existing pay as a “reimbursement” for the employee’s tools merely to generate tax savings for both the employer and the employee.
Two such cases recently made their way through the tax court. The cases were consolidated for trial but were reported separately. Allen Davison and Bruce LeMay had been friends since the early ‘90s. In late 1999, the two decided to work together to promote tool plans. Mr. LeMay had worked as an insurance executive and Mr. Davison was an attorney and CPA who at the time worked as a tax partner at Grant Thornton. (Mr. Davison’s relationship with GT ended in 2001.) The pair spent months devising the tool plans at issue in this dispute. Despite advice from several firms that the plans would not be respected by the Service (including advice from Grant Thornton, which eventually disavowed the tool plans at issue in this dispute) the pair marketed their tool plans through a company—Cash Management Systems (CMS)—created for that purpose.
CMS had success promoting its tool plans. But eventually clients’ returns were audited by the IRS in connection with their participation in the plans. In total 24 CMS client-employers had returns audited by the IRS, resulting in total tax due of $4.5 million.
Although they eventually stopped selling new plans, CMS, Mr. Davison, and Mr. LeMay continued to provide advice to existing clients even as Mr. Davison faced an action by the United States to enjoin him from promoting tax shelters. In addition to the injunction action, the IRS opened a section 6700 penalty examination against CMS, Mr. Davison, and Mr. LeMay regarding the tool program. Section 6700 authorizes the imposition of penalties on those who organize and sell abusive tax shelters.
Ultimately, Mr. Davison was assessed Section 6700 penalties of $36,000 and Mr. LeMay faced significantly higher total penalties (around $180,000). Both petitioned the tax court for review of their respective penalties. Neither succeeded in his challenge, and the tax court upheld the penalties. Both petitioners have filed appeals to the 10th Circuit. Davison v. Comm’r, TCM 2020-058 (T.C. 2020); LeMay v. Comm’r, T.C.M. 2020-059 (T.C. 2020).
• What’s in a name? Service disputes taxpayers’ characterizations of transfers as loans or gifts. In our introductory income tax classes, we learn that loans are not income. Gifts are not income either. These are easy rules to recite, but the dividing line between loans or gifts on one hand and income on the other is not always easy to divine, as three recent cases illustrates.
In the first case, a taxpaying couple argued that litigation support payments received by the taxpayer husband were not income, but loans. Mr. Novoselsky was a well-known Chicago-area class-action attorney. Under the agreements at issue, individuals not related to Mr. Novoselsky made an upfront payment to support the cost of litigation. If the litigation was successful, Mr. Novoselsky returned the initial payment plus a premium from Mr. Novoselsky’s award of attorney’s fees and costs. If the litigation was unsuccessful, Mr. Novoselsky had no obligation to repay. Mr. Novoselsky (and his spouse) did not report the payments thus received as gross receipts or income. After an audit, the Service disagreed with Mr. Novoselsky’s characterization. To be considered a loan for federal income tax purposes, the recipient must have an unconditional obligation to repay. Since repayment of the litigation support payments was conditioned on the outcome of the litigation, the litigation support payments were not loans for federal income tax purposes. The petitioners were liable for accuracy-related penalties of just over $100,000. Novoselsky v. Comm’r, T.C.M. (RIA) 2020-068 (T.C. 2020).
Just as bona fide loans are not income, gifts are not income. Similarly, though, just as calling something a “loan” does not make it so, labeling a transfer a “gift” does not make it so. In fact, even transfers that might be common law “gifts” might not be “gifts” in the statutory sense, because to be a gift in the statutory sense the donor must make the transfer with “detached and disinterested generosity.” In Kroner v. Commissioner, a taxpayer was unable to persuade the tax court that the $24 million he had received from an unrelated business associate was a gift for tax purposes. Mr. Kroner did not call the purported giftor to testify and did not provide persuasive documentary evidence that the multi-million dollar transfer was a gift. The failure of the purported giftor to testify is significant, since case law dictates that it is the donor’s intent that controls the question of whether a transfer proceeds from the requisite “detached and disinterested generosity” for the transfer to attain gift status. Mr. Kroner instead relied on his own testimony, which the court found “self-serving,” and the testimony of two other witnesses whom the court determined to be “simply not credible.” Kroner v. Comm’r, TCM (RIA) 2020-073 (T.C. 2020).
While Kroner explored the line between gift and income, a different case explored whether transfers made over many years from a mother to an adult child were properly considered loans or gifts. Mary Bolles advanced just over $1 million to her son, Peter, during her lifetime. To determine the proper characterization of the advances, the court applied a multifactor test, including whether: (1) there was a promissory note or other evidence of indebtedness, (2) interest was charged, (3) there was security or collateral, (4) there was a fixed maturity date, (5) a demand for repayment was made, (6) actual repayment was made, (7) the transferee had the ability to repay, (8) records maintained by the transferor and/or the transferee reflect the transaction as a loan, and (9) the manner in which the transaction was reported for federal tax purposes is consistent with a loan. Citing Miller v. Comm’r, T.C. Memo. 1996-3, aff’d, 113 F.3d 1241 (9th Cir. 1997).
Since the loan from Mary to Peter was in a family setting, the court also applied the “longstanding principle that an actual expectation of repayment and an intent to enforce the debt are critical to sustaining the tax characterization of the transaction as a loan.” In this case, the court was not persuaded that Mary had an actual expectation of repayment. The transfers, therefore, were characterized as gifts, not loans. Estate of Mary P. Bolles v. Comm’r, T.C.M. (RIA) 2020-071 (T.C. 2020).
• Cleaning services workers independent contractors, not employees. Comparing the petitioner to a “dispatcher,” the tax court rejected the commissioner’s argument that the taxpayer had misclassified employees as independent contractors. Ms. Santos owned and operated a cleaning service that focused on “unit turnover cleaning,” which involved cleaning apartments when they were vacant between tenants. Ms. Santos had contracts with numerous apartment complexes and worked with other individuals to provide the necessary cleaning services. Ms. Santos considered the other cleaning providers to be independent contractors. The Service argued that the providers were in fact employees of Ms. Santos’s business. Applying well-established common law factors, the court agreed with Ms. Santos. The court found that Ms. Santos credibly testified that she lacked the requisite control over the providers for the providers to meet the “employee” criteria. Ms. Santos, therefore, was not liable for the federal employment taxes as determined by the IRS for the periods at issue. Santos v. Comm’r, TCM (RIA) 2020-088 (T.C. 2020).
• More conservation easement cases. Last month we reported on several conservation easement cases, including Oakbrook Land Holdings, LLC v. Comm’r, 154 T.C. 25 (TC 2020), in which a divided tax court upheld a regulation setting out rules for charitable donations or conservation easements. Citing Oakbrook Holdings, the tax court again upheld the denial of a claimed charitable deduction for a conservation easement. Lumpkin HC, LLC, Hurricane Creek Partners v. Comm’r, T.C.M. (RIA) 2020-095 (T.C. 2020) (finding that “[t]he deed granting the conservation easement reduces the donee’s share of the proceeds in the event of extinguishment by the value of improvements (if any) made by the donor” and therefore holding that the taxpayer “has not satisfied the perpetuity requirement of section 170(h)(5)(A)” and thus was not entitled to summary judgment). Several cases involving charitable contribution deductions for conservation easements were reported this month. See, e.g., Maple Landing, LLC, Effingham Mangers, LLC v. Comm’r, T.C.M. (RIA) 2020-104 (T.C. 2020) (granting commissioner’s motion for summary judgment in a similar conservation easement dispute); Plateau Holdings, LLC, Waterfall Development Manager, LLC v. Comm’r, T.C.M. (RIA) 2020-093 (T.C. 2020) (holding the IRS property disallowed a claimed $25.5 million deduction and noting that just days prior to the contribution, an investor had acquired, in an arm’s-length transaction, a 98.99% indirect ownership interest in Plateau for less than $6 million).
• Petitioner raises constitutional defense that evidence of a mailed notice is not sufficient due process, court is unpersuaded. Mr. Olson appealed a tax order dated 9/6/2017, which assessed him for sales and use taxes from December 2013 to December 2016. Mr. Olson runs a farming operation and a heavy construction business in Thief River Falls. Prior to the issuance of the tax order at issue, the commissioner sent Mr. Olson numerous letters concerning an audit for sales and use taxes. After Mr. Olson did not respond to the preliminary audit, the commissioner mailed the disputed tax order. On December 26, 2019, Mr. Olson filed his appeal of the tax order, in which he disputed all the amounts determined in the order. Mr. Olson asserts that he never received the commissioner’s tax order and only learned of the tax liability when his bank account was levied by the Department. The commissioner filed a motion to dismiss, stating that the appeal is untimely, and the tax court lacked subject matter jurisdiction over the appeal. The commissioner’s motion included an affidavit from an employee who attested to having reviewed the Department’s electronic and paper records, which showed the tax order under appeal was printed on 9/1/2017 at 11:04 p.m. and postmarked on 9/5/2017, at 11:10 a.m. Mr. Olson responded to the commissioner’s motion, stating that: 1) the tax order was not mailed, and 2) if the court determined that the tax order was mailed, mailing is not constitutionally sufficient due process. On 5/21/2020, Mr. Olson filed a motion for leave to supplement the factual record, and to allow supplemental briefing. In his supplements, Mr. Olson states that he is unable to pay the amount in the tax order without substantial personal and business hardship, and that the court should not grant the commissioner’s motion to dismiss because the parties had not argued the case law in detail. The commissioner opposed Mr. Olson’s motion for leave.
Minn. Stat. §271.06, subd. 2 (2018) states that a taxpayer has 60 days to appeal an order of the commissioner. Failure to timely file an appeal deprives the court of subject matter jurisdiction. See Langer v. Comm’r of Revenue, 773 N.W.2d 77, 80 (Minn. 2009). If the court lacks subject matter jurisdiction, Minnesota Rules of Civil Procedure 12.02(a) allows for a party to move for dismissal.
In the court’s analysis, the court stated that under Minn. Stat. §270C.33, subd. 8 (2018), the commissioner need only to establish that the order was mailed with postage prepaid to the taxpayer at the taxpayer’s last known address, not actually received. As to Mr. Olson’s constitutional defense, the court noted that the Minnesota Supreme Court held that within the tax assessment process, “the due process required is ‘notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’” See Turner v. Comm’r of Revenue, 840 N.W.2d 205 (Minn. 2013).
There was no dispute that all the commissioner’s correspondence, including the disputed tax order, used the correct mailing address. Ruling that the commissioner issued her tax order in this case on 9/5/2017, the court stated that the appeal would have been timely if filed no later than Wednesday, 11/8/2017. Mr. Olson’s appeal was filed more than two years after the deadline. Therefore, the court found the appeal to be untimely, and the court lacked subject matter jurisdiction. The commissioner’s motion to dismiss was granted. Olson v. Comm’r of Revenue, 2020 WL 3455828 (Minn. T.C. 6/15/2020).
• Walmart challenges valuation on several Anoka County properties, raises claims of discrimination. Walmart and Anoka County are engaged in a series of valuation disputes with respect to several properties. In one of the disputes, Walmart filed a petition with Anoka County on 4/26/2019 for taxes payable in 2019 (pay-2019 cases). The petition, captioned Chapter 278 Petition, alleged 2 counts: 1) the assessed value of the subject property is greater than the property’s market value, and 2) Walmart makes statutory and constitutional unequal assessment claims. Walmart alleges that Anoka County refused to accept “valid fee-simple sales of like properties” in violation of Minn. Stat. section 273.12 (2018), and that the county’s actions violate constitutional rights arising under the equal protection and the uniformity clauses of the U.S. Constitution.
Walmart filed a motion to transfer all the pay-2019 cases pending in Anoka County to the district court, stating Walmart is entitled to judicial relief concerning the market value of the subject property and injunctive relief requiring the county to reassess the subject property. The county moved to dismiss the petition, alleging that Walmart failed to comply with the mandatory disclosure rule of Minn. Stat. section 278.05, subd. 6 (2018) for income-producing property. Additionally, the county alleges that Walmart lacks standing to bring a chapter 278 petition because Walmart has not established its interest in the subject property. Walmart contends that it has complied with the mandatory disclosure rule.
Minn. Stat. section 278.01, subd. 1(a) provides that “‘[a]ny person having personal property, or any estate, right, title, or interest in or lien upon any parcel of land’ may file a petition with respect to the claims set forth in the statute. A lessee who is bound by the terms of a lease has a ‘vital interest’ to protect and accordingly has standing.”
The mandatory disclosure rule specifies that, in cases where the petitioner contests the valuation of income-producing property, certain information must be provided to the county assessor no later than August 1 of the taxes-payable year. Failure to submit the required documentation by the August 1 deadline results in automatic dismissal of the petition unless an exception applies. See Minn. Stat. 278.05, subd. 6.
Minn. Stat. section 273.11, subd. 1 (2018), provides that all property shall be valued at its market value. A statutory claim of unequal assessment first requires the taxpayer to establish the overvaluation of the subject property and obtain a reduction of its estimated market value to the actual market value determined by the tax court. See Chodek v. Cty. of Otter Tail, No. 56-CV-13-1038 et al., 2017 WL 6813397, at 5 (Minn. T.C. 12/4/2017) (citing Anacker v. Cty. of Cottonwood, 302 N.W.2d 342, 345 (Minn. 1981)). See, also, Weyerhaeuser Co. v. Cty. of Ramsey, 461 N.W.2d 922, 924 (Minn. 1990) (citing United Nat’l Corp. v. Cty. of Hennepin, 299 N.W.2d 73, 75-76 (Minn. 1980)). After this requirement is satisfied, the tax court may address the percentage applied by the assessor to the market value of the property involved as compared with the percentage applied to other property of the same class in the assessment district in arriving at the full and true value for tax purposes.
Relief for constitutional claims of unequal assessment is not available unless the petitioner can demonstrate statutory unequal assessment. See Anacker, 302 N.W.2d at 344-45. “To make out a case of discrimination in fact, plaintiffs must demonstrate unequal assessment and must demonstrate that inequality exists within the relevant taxing district.” Id. at 345 (citing Renneke, 255 Minn. at 248, 97 N.W.2d at 380).
In a lengthy analysis, the court holds that Walmart failed to disclose information required by the mandatory disclosure act, and therefore, Walmart’s claim of excessive valuation in the petition is dismissed. Because a determination of actual market value of the subject property is a prerequisite to a statutory unequal assessment claim, and because Walmart’s valuation claim is dismissed pursuant to the mandatory disclosure rule, the court does not address Walmart’s statutory unequal assessment claims. Beet Sugar Coop v. Cty. of Renville, 737 N.W.2d 545, 561 (Minn. 2007). Additionally, the court did not reach Walmart’s constitutional claims for unequal assessment. Relief for constitutional claims of unequal assessment is not available unless the petitioner also demonstrates statutory unequal assessment. Walmart’s statutory and constitutional claims of unequal assessment are dismissed.
The court also heard motions on Walmart’s motion to transfer and on the county’s motion to dismiss. In a separate order, the court denied Walmart’s motion to transfer, and granted the county’s motion to dismiss. Walmart v Anoka Cty, 2020 WL 3456323 (Minn. Tax Court 6/17/20); 2020 WL 3455834 (Minn. Tax Court 6/17/20); 2020 WL 3455831 (Minn. Tax Court 6/17/20); 2020 WL 3455836 (Minn. Tax Court 6/18/20); 2020 WL 3455827 (Minn. Tax Court 6/19/20).
• Onerous service requirements result in dismissal of petitioners’ claims. On 4/30/2018, petitioners filed a petition under Minn. Stat. §278.01, subd. 1 (2018), setting forth numerous claims relating to a parcel of real property located in Hennepin County for taxes payable in 2018. Three days earlier, on 4/27, petitioners deposited in a U.S. Mail box copies of their petition addressed to various Hennepin County officials. The envelopes addressed to the auditor and treasurer, respectively, were post-marked 4/28/2018, and were stamped “Received May 01, 2018” by county officials.
On 10/11/2018, Hennepin County filed a motion to dismiss for lack of jurisdiction, arguing that the petition was not timely served. Petitioners opposed the county’s motion. The Honorable Joanne H. Turner heard the county’s motion on 11/19/2018. But before Judge Turner could rule, she lost jurisdiction to do so, because the petition was dismissed by operation of law due to the petitioners’ failure to pay property tax on the parcel. The case was statutorily reinstated one year later, on 12/30/2019, through a notice of reinstatement and assigned to Judge Delapena.
On 1/17/2020, the county filed a motion to renew its motion to dismiss and requested a telephonic hearing on the motion. Petitioners opposed the request for telephonic hearing, but subsequently filed a request for hearing continuance that included various information unrelated to timeliness of service, requested discovery on matters unrelated to timeliness of service, and requested the hearing be continued for “re-briefing.” Petitioners failed to secure a hearing date from the tax court administrator. The court convened the telephonic hearing on the county’s motion to dismiss at 9:00 a.m. on 3/18/2020. Petitioners did not attend the hearing.
A property tax petition must be filed and served “on or before April 30 of the year in which the tax becomes payable.” Minn. Stat. §278.01, subd. 1(a), (c). To challenge a county’s property tax assessment, the petition must be served on the county’s auditor, treasurer, attorney, and assessor.
In April 2018, service by mail was governed by Minnesota Rule of Civil Procedure 4.05, which provided in part: “[A]ny action service may be made by mailing a copy of the summons and of the complaint (by first-class mail, postage prepaid) to the person to be served, together with two copies of a notice and acknowledgment conforming substantially to Form 22 and a return envelope, postage prepaid, addressed to the sender….”
A property tax petition must be served “on or before 4/30 of the year in which the tax becomes payable. In this case, the county auditor and treasurer did not receive petitioners’ petition until 5/1/2018, one day after the statutory service deadline. Therefore, service on the auditor and treasurer were untimely. Timely and effective service must be made to all required parties. See Minn. Stat. §278.01 (2018).
The court noted that it is unfortunate that the Legislature had chosen to make the service of a property tax petition so difficult by requiring service on four separate county officials. Here, petitioners mailed their petition to the specified officials on 4/27/2018 but only two of the four received the mailing by 4/30. Because petitioners did not timely serve the petition, the court lacked jurisdiction to hear the claim and granted the County’s motion to dismiss. Johnson v. Hennepin Cty, 2020 WL 3456316 (Minn. Tax Court 6/18/20).
Morgan Holcomb Mitchell Hamline School of Law
Sheena Denny Mitchell Hamline School of Law
TORTS & INSURANCE
JUDICIAL LAW
• Statute of limitations; some damage rule of accrual. In 2009, decedent’s pulmonologist informed him that he had calcium deposits on his lungs due to asbestos exposure. In December 2011, decedent was diagnosed with mesothelioma. In January 2012, decedent learned that asbestos exposure had caused his mesothelioma. Decedent died of mesothelioma on 3/1/2015. On 2/23/2018, decedent’s wife filed suit against defendant alleging that decedent contracted mesothelioma and died because he was exposed to asbestos-containing products sold by defendant’s predecessor. The district court granted summary judgment for defendant, concluding that the statute of limitations barred plaintiff’s claim. The court of appeals affirmed.
The Minnesota Supreme Court affirmed. Relying on precedent, the Court held that “because of the unique character of asbestos-related deaths, wrongful death actions brought in connection with those deaths accrue either upon the manifestation of the fatal disease in a way that is causally linked to asbestos, or upon the date of death—whichever is earlier.” As a result, plaintiff’s cause of action accrued in January 2012, the date decedent was informed that exposure to asbestos caused his mesothelioma. In so holding, the Court rejected plaintiff’s contention that plaintiff’s “wrongful death claim did not accrue—and therefore the period of limitations did not begin to run—until it was reasonably discoverable that [defendant’s] products were the proximate cause of [decedent’s] mesothelioma.” (Disclosure: The author’s law firm, Bassford Remele, successfully represented Respondent Honeywell International, Inc. in this case.) Palmer v. Walker Jamar Co., Nos. A18-2114; A19-0155 (Minn. 7/1/2020). https://mn.gov/law-library-stat/archive/supct/2020/OPA182114-070120.pdf
Jeff Mulder Bassford Remele