CRIMINAL LAW
JUDICIAL LAW
• Traffic violations: Lawful basis for a violation of failure to make a complete stop before entering intersection exists when a driver drives past stop line or stop sign before coming to a complete stop. Appellant was pulled over for failing to come to a complete stop before a white stop line at a stop sign. Based on appellant’s lack of physical identification and his answers to the officer’s questions, the officer asked and was permitted to search appellant’s vehicle. The officer found blank checks, a printer, a computer, and several identification cards for various individuals. Appellant was charged with forgery and giving a false name to a peace officer. The district court found the stop unlawful and suppressed the evidence seized from the vehicle, but the court of appeals reversed.
Section 169.30(b) requires every driver of a vehicle to “stop at a stop sign or at a clearly marked stop line before entering the intersection…” The question is whether the statute required appellant to completely stop before the vehicle crossed the stop line or merely near the stop line.
The Legislature defines “stop” in section 169.011, subd. 79, which, when applied to section 169.30(b), means a vehicle must make a complete cessation from movement “at” a stop sign or stop line. “At,” however, is not defined. The court looks to the dictionary definition of “at,” “expressing location or arrival in a particular place or position,” as well as the common usage of “stop at” in the context of traffic control. Stop lines and stop signs are signals specifying a precise place or position at which a driver must stop to maintain traffic control and safety. Thus, under the plain meaning of the statute, the court holds that section 169.30(b) is violated when the driver of a vehicle drives past the stop sign or stop line before coming to a complete stop.
The parties do not dispute, and the record demonstrates, that appellant failed to bring his vehicle to a complete stop before driving his vehicle past the stop line and stop sign. Therefore, the officer’s traffic stop was lawful and the district court erred in suppressing evidence seized from appellant’s vehicle. State v. Gibson, 945 N.W.2d 855 (Minn. 7/8/2020).
• Juvenile: Delinquency adjudication or felony offenses listed in Minn. Stat. §624.712, subd. 5, are “felony convictions” for determining if an offense is “crime of violence.” As an adult, appellant was charged with possession of a firearm by an ineligible person, based on a prior fifth-degree controlled substance possession juvenile delinquency adjudication. He pleaded guilty to the firearm offense. His postconviction petition, which was denied by both the district court and court of appeals, argues that the fifth-degree controlled substance juvenile delinquency adjudication does not qualify as a crime of violence, because a delinquency adjudication cannot be deemed conviction of a crime under Minn. Stat. §260B.245.
Possession of a firearm by an ineligible person requires proof that the defendant “has been convicted of, or adjudicated delinquent… for committing… a crime of violence.” Minn. Stat. §624.713, subd. 1(2). The definition of “crime of violence” includes felony convictions of chapter 152 (drugs, controlled substances). Minn. Stat. §624.712, subd. 5. Section 260B.245, subd. 1(a), states that juvenile delinquency adjudications shall not “be deemed a conviction of crime.” However, section 260B.245, subd. 1(b), provides an exception, stating that persons adjudicated delinquent for crimes of violence, as defined in section 624.712, subd. 5, are not entitled to possess firearms. Reading these subsections together, the Minnesota Supreme Court concludes that a juvenile delinquency adjudication for felony-level offenses listed in section 624.712, subd. 5, may be deemed “felony convictions” and meet the statutory definition of crime of violence.
Appellant admitted he had been adjudicated delinquent for committing fifth-degree possession of a controlled substance, which is a felony-level offense listed in section 624.712, subd. 5. Thus, there was a sufficient factual basis for appellant’s guilty plea to possession of a firearm by an ineligible person. Roberts v. State, 945 N.W.2d 850 (Minn. 7/8/2020).
• Firearms: A motor vehicle on a public highway is in a “public place.” Police observed a vehicle swerving in and out of traffic on a public highway and pulled it over. The driver, respondent, admitted to consuming alcohol and failed field sobriety tests, and was arrested for DWI. Respondent asked the officer to retrieve his wallet and keys from the vehicle, describing the phone as in the center console, next to his gun. The officer found the keys, wallet, and gun. Respondent was charged with DWI and carrying a pistol while under the influence of alcohol.
Minn. Stat. §624.712, subd. 1, prohibits carrying a pistol on or about one’s clothes or person in a public place while under the influence of alcohol and/or controlled substances. The district court granted respondent’s motion to dismiss for lack of probable cause, finding the center console of respondent’s vehicle is not a “public place.”
The Minnesota Court of Appeals previously held that “public place” in section 624.712, subd. 1, is ambiguous, and defined “public place” as “generally an indoor or outdoor area, whether privately or publicly owned, to which the public have access by right or by invitation, expressed or implied, whether by payment of money or not.” State v. Grandishar, 765 N.W.2d 901, 903 (Minn. Ct. App. 2009).
The court finds that the proper focus of the analysis is not respondent’s vehicle, but the public highway on which respondent drove his vehicle, by looking to the “mischief to be remedied” by section 624.712, subd. 1, which is the danger to the public inherent in firearm possession while impaired. The court holds that, for purposes of section 624.712, subd. 1, a personal vehicle operated on a public highway is a mode of transportation and cannot be considered a private place. Thus, the district court erred in dismissing the charge against respondent of carrying a firearm in a public place while under the influence of alcohol. State v. Serbus, 947 N.W.2d 690 (Minn. Ct. App. 7/13/2020).
• Search and seizure: Warrant misidentifying person to be searched does not lack sufficient particularity if warrant and supporting documents provide sufficient correct identifying information, there is no reasonable probability the wrong person could be searched, and the correct person was searched. Appellant collided with another vehicle on a highway, causing the death of the other vehicle’s driver and injuries to appellant. Appellant denied drinking but admitted to smoking marijuana before the accident. Appellant was taken to a hospital while police obtained a warrant to search appellant’s blood or urine. The detective who drafted the warrant did not have appellant’s name and entered the name of the vehicle’s registered owner, appellant’s father, into the warrant. The warrant also stated the person to be searched was the only occupant and driver of the vehicle, the driver admitted to smoking marijuana, and referenced the “attached affidavit.” The affidavit was from the sergeant on the scene, who spoke with appellant and correctly identified appellant. A judge issued a warrant and it was taken to the hospital. The deputy at the hospital noticed the warrant incorrectly identified appellant and the detective left to retrieve a corrected warrant. While the detective was doing so, the deputy obtained a urine sample from hospital staff and, shortly thereafter, a warrant correctly identifying appellant was brought to the hospital. Testing of appellant’s urine sample revealed the presence of marijuana. The district court denied appellant’s motion to suppress the urine test results, finding the error in the warrant in effect at the time appellant’s urine was collected did not invalidate the warrant, because it created no reasonable possibility the police would search the wrong person. Appellant was found guilty after a stipulated facts bench trial.
Search warrants must particularly describe the place to be searched, but errors in the description of the place to be searched do not necessarily invalidate a warrant. The description of the place to be searched must be “sufficient so that the executing officer can locate and identify the premises with reasonable effort with no reasonable probability that other premises might be mistakenly searched.” The court may consider the warrant, warrant application, supporting affidavits if they are expressly incorporated into and attached to the warrant, and the circumstances of the case, including the executing officer’s personal knowledge of the place to be searched and whether the correct place was actually searched.
Here, the wrong person was identified in the warrant, but the warrant and its supporting documents contained correct information pointing to appellant. The officers at the hospital also knew who was to be searched and his location, and the correct person was, in fact, searched. Thus, “the warrant’s error presented no reasonable probability that the wrong person would be mistakenly searched.” The warrant identified the person to be searched with sufficient particularity, and the district court did not err in denying appellant’s motion to suppress. State v. Wilde, 947 N.W.2d 473 (Minn. Ct. App. 7/13/2020).
• Criminal sexual conduct: In attempted third-degree criminal sexual conduct, driving to child’s location and walking toward child’s house with supplies are acts beyond mere preparation. Appellant sent messages to a decoy profile of a 14-year-old boy created by police, including sexually explicit messages and photographs. Appellant and the decoy agreed to meet for sex. Appellant was arrested walking toward the decoy location, carrying a bag of “supplies” for the sexual encounter. He was convicted after a bench trial of attempted third-degree criminal sexual conduct, electronic solicitation of a child, and electronic distribution to a child of material, language, or communications relating to or describing sexual conduct.
The Supreme Court finds the evidence was sufficient to support appellant’s attempt conviction. The attempt statute provides that “[w]hoever, with intent to commit a crime, does an act which is a substantial step toward, and more than preparation for, the commission of the crime is guilty of an attempt to commit that crime.” Minn. Stat. §609.17, subd. 1. The parties disagree on the interpretation of “more than preparation for.” The Court notes that the common and approved usage of “prepare” is “[t]o make ready beforehand for a specific purpose, as for an event or occasion.” Thus, the only reasonable interpretation of “more than preparation for” is that it excludes substantial steps that occur beforehand to make ready for the intended offense. The Court rejects appellant’s argument that the phrase requires the state to prove a substantial step occurred at the time and place of the intended crime, as the attempt statute makes no mention of a location requirement.
Here, appellant intended to commit the offense, as his communications with the decoy showed. He took a substantial step toward the offense by arranging to meet the decoy and gathering supplies. He also moved beyond preparation by driving to the decoy’s location, arriving at the parking lot, and walking toward the decoy house carrying the bag of supplies he intended to use. Appellant’s conviction for attempted third-degree criminal sexual conduct is affirmed. State v. Degroot, 946 N.W.2d 354 (Minn. 7/15/2020).
• Criminal sexual conduct: In attempted third-degree criminal sexual conduct, walking up to child’s house and knocking on door are acts beyond mere preparation. Appellant sent messages and explicit photographs to a fictitious 14-year-old, “JT,” asked JT for explicit photographs, and made an agreement to meet to have sex with JT. Appellant drove to a house he believed was JT’s home, knocked on the door, and was arrested when police answered. He was charged with attempted third-degree criminal sexual conduct. After a bench trial, he was convicted, and the court of appeals affirmed his conviction. Appellant argues the state failed to prove he committed “a substantial step toward, and more than preparation for” the commission of third-degree criminal sexual conduct.
First, the Supreme Court rejects appellant’s argument that, “while a sexual act on the part of the defendant is not required,” an attempted sex offense “begins with the initial attack.” The Court notes that, for attempt cases, while the substantial step must be strongly corroborative of the actor’s criminal purpose, it need not objectively reveal the nature of the intended crime.
Next, the Court finds the state provided sufficient evidence to support appellant’s conviction. It is undisputed that appellant formed an intent to commit third-degree criminal sexual conduct. He took a substantial step toward the offense by arranging to meet JT, and he moved beyond preparation when he walked up to the house and knocked on the door. Appellant’s conviction is affirmed. State v. Wilkie, 946 N.W.2d 348 (Minn. 7/15/2020).
• Criminal sexual conduct: Victim may be “mentally incapacitated” when unable to give consent because they are voluntarily under the influence of alcohol or drugs. Appellant met the victim, J.S., outside a bar. J.S. consumed multiple alcoholic beverages and Vicodin earlier that night and was heavily intoxicated. Appellant brought J.S. to a residence, where they both eventually “passed out” together on a couch. J.S. later woke up to appellant sexually penetrating her. J.S. told appellant “no,” and then lost consciousness again. Appellant was charged with multiple counts of criminal sexual conduct, including two that involved sexual activity with a person when the actor knows or has reason to know the victim is mentally impaired, mentally incapacitated, or physically helpless. The district court instructed the jury J.S. could be “mentally incapacitated” even if she voluntarily consumed the alcohol and narcotics. The jury found appellant guilty of third-degree criminal sexual conduct involving a mentally incapacitated or physically helpless person.
A person is “mentally incapacitated” for purposes of the criminal sexual conduct statute when “under the influence of alcohol, a narcotic, anesthetic, or any other substance, administered to that person without the person’s agreement.” Minn. Stat. §609.341, subd. 7. The court of appeals finds the modifier “administered to that person without the person’s agreement” applies only to “any other substance.” The court rejects appellant’s argument that the modifier applies to alcohol, noting that alcohol is usually consumed through volitional acts of drinking and swallowing. The statute also focuses on the ability or inability of the victim to consent, not the manner in which the victim becomes unable to consent. It does not require that the defendant cause the victim’s mental incapacity or even have knowledge of how the incapacitation arose.
Whether voluntarily or involuntarily intoxicated, an incapacitated person lacks the judgment or ability to give a reasoned consent to sexual contact. It is the ability to give reasoned consent that is the focus of the criminal sexual conduct statutes. Thus, the court concludes that section 609.341, subd. 7, provides that a victim may become mentally incapacitated if they are under the influence of (1) alcohol, a narcotic, or anesthetic, however consumed, or alternatively (2) any other substance, administered to that person without the person’s agreement. The court ultimately affirms appellant’s conviction. State v. Khalil, 948 N.W.2d 156 (Minn. Ct. App. 7/27/2020), review granted (10/1/2020).
• 1st Amendment: Criminal coercion statute violates the 1st Amendment. After his girlfriend, J.C., ended their relationship, respondent made threatening calls to J.C.’s father, threatening to release a video of J.C. talking about smoking marijuana to J.C.’s employer, J.C.’s professional licensing board, and the Department of Human Services, unless respondent was paid $25,000. Respondent was charged with attempted coercion, but the district court granted respondent’s motion to dismiss, finding the coercion statute violates the 1st Amendment. The court of appeals affirmed.
The subdivision under which respondent was charged, Minn. Stat. §609.27, subd. 1(4), provides that anyone who “orally or in writing makes… a threat to expose a secret or deformity, publish a defamatory statement, or otherwise expose any person to disgrace or ridicule,” and who “thereby causes another against the other’s will to do any act or forebear doing a lawful act is guilty of coercion.”
The Supreme Court first examines what subdivision 1(4) covers, finding it a content-based regulation of speech, because whether a person may be prosecuted under the subdivision depends entirely on what the person says. Subdivision 1(4) has a broad sweep, as it covers “threats,” not only “true threats,” which are unprotected. It also criminalizes a wide range of communications on a variety of subject matters, and criminalizes communications containing threats that touch upon matters of public concern. Also, subdivision 1(4) criminalizes speech whether the recipient of the threat takes—or forebears from taking—any action in response. Section 609.27, subd. 1, requires that the threat cause someone to act or forebear from doing a lawful act. However, section 609.275 provides that any threat prohibited by section 609.27, subd. 1, that “fails to cause the intended act or forbearance” is punishable as an attempt to coerce. Finally, subdivision 1(4) does not require that the recipient of the threat suffer any tangible harm or injury, or that the maker of the threat intend any injury or loss to the recipient.
Second, the Court rejects the state’s argument that section 609.28, subd. 1(4), is limited to regulating unprotected “fighting words.” Subdivision 1(4) criminalizes much more, prohibiting threats that do not contain “personally abusive epithets” or are not “inherently likely to provoke violent reaction.” The Court also rejects the dissent’s argument that the definition of “threat” is so narrow that it includes only unprotected “speech integral to criminal conduct.”
Next, the Court determines that subdivision 1(4) plainly criminalizes a substantial amount of protected speech, giving numerous examples. Thus, subdivision 1(4) is unconstitutional on its face. Finally, the Court finds that subdivision 1(4), and the related attempt statute, cannot be saved with a narrowing construction. Therefore, the Court invalidates subdivision 1(4) as violating the 1st Amendment. State v. Jorgenson, 946 N.W.2d 596 (Minn. 7/22/2020).
• Predatory offender registration: Person charged prior to statutory amendments is required to register only if subject to registration requirement on or after amendments’ effective date. Appellant was charged in 2000 with aiding and abetting fourth-degree criminal sexual conduct and disorderly conduct. He pleaded guilty to disorderly conduct and the aiding and abetting charge was dismissed in 2001. At that time, Minn. Stat. §243.166 did not require appellant to register as a predatory offender. However, section 243.166 was amended in 2005 to require registration if a person is charged with aiding and abetting criminal sexual conduct and is “convicted of… that offense or another offense arising out of the same set of circumstances.” The amendment notes that it applies to persons subject to registration on or after the amendment’s enactment. In 2017, appellant was released from prison in an unrelated case and was told he needed to register as a predatory offender. He did so, but was later charged with failing to register after moving to North Dakota without updating his registration. He pleaded guilty but appealed his conviction.
The court of appeals agrees with appellant that his conviction must be reversed. Appellant was not subject to the registration requirement at the time of the 2005 amendment to section 243.166. Under the amendment’s plain language, his 2000 charge of aiding and abetting fourth-degree criminal sexual conduct did not require him to register as a predatory offender. The Legislature could have but chose not to set the effective date of the amendment to include someone in appellant’s position. As appellant pleaded guilty to an offense for which he could not properly be convicted of at trial, the case is reversed and remanded to allow appellant to withdraw his guilty plea. State v. Davenport, 948 N.W.2d 176 (Minn. Ct. App. 7/27/2020).
• Traffic offenses: Failure to yield to an emergency vehicle requires proof the emergency vehicle used its siren. Appellant was cited with petty misdemeanor failing to yield to an emergency vehicle after police observed appellant’s van fail to slow and pull over to let an ambulance with flashing emergency lights pass. The district court found appellant guilty of both offenses, and appellant appealed to challenge his failing to yield to an emergency vehicle conviction.
The failing to yield statute plainly defines when a driver must yield to an emergency vehicle: when the driver is approached by an authorized emergency vehicle, the emergency vehicle displays a visible red light, and the emergency vehicle emits a siren. Here, there is insufficient evidence to support the district court’s finding that the ambulance emitted an audible siren. Neither direct nor circumstantial evidence proved the ambulance’s siren was used. Thus, appellant’s conviction is reversed. State v. Li, 948 N.W.2d 151 (Minn. Ct. App. 7/27/2020).
• Malicious punishment: State must prove use of unreasonable force, but not that force occurred in the course of punishment. Appellant had four-year-old J.V.R. in her home for day care. Her property included a fenced-in yard with monkey bars and a picnic table. On one particular day, the table was placed on top of the monkey bars, so appellant could mow the lawn. J.V.R. tried to knock the table off the monkey bars twice and was “sassing” appellant when she told him to stop. When J.V.R. tried to go to the monkey bars a third time, appellant knelt in the grass, held onto J.V.R.’s arms with her hands and told him he could not use the monkey bars. Her grip left marks on J.V.R.’s arms. When his aunt picked him up later, appellant told her about the marks on J.V.R.’s arms. Appellant was charged with malicious punishment of a child—less than substantial bodily harm. A jury found her guilty and she appealed, arguing the state did not prove he used unreasonable force in the course of punishing J.V.R. The court of appeals affirmed appellant’s conviction.
The Supreme Court holds Minn. Stat. §609.377 does not require the state to prove that a defendant’s use of unreasonable force occurred in the course of punishment. Malicious punishment of a child occurs when “[a] parent, legal guardian, or caretaker who, by an intentional act or series of intentional acts with respect to a child, evidences unreasonable force or cruel discipline that is excessive under the circumstances…” Minn. Stat. §609.377, subd. 1. Subdivisions 2-6 address when the offense is a gross misdemeanor or a felony and refer to the level of “punishment.” Appellant argues, therefore, that the acts described in subdivision 1 must occur “in the course of punishment.”
However, the lengthy, detailed definition of “malicious punishment” in subdivision 1 plainly does not state that the defendant’s acts must be done in the course of punishment. The pattern jury instruction for section 609.377 states that “[u]nreasonable force is such force used in the course of punishment as would appear to a reasonable person to be excessive under the circumstances.” The court rejects this instruction, as it would lead to the court adding “in the course of punishment” into the plain language of section 609.377. State v. Altepeter, 946 N.W.2d 871 (Minn. 7/29/2020).
• Procedure: Upon a motion to quash a subpoena for victim’s cell phone, court must determine whether compliance with the subpoena would be unreasonable under the circumstances. Yildirim was charged with third-degree criminal sexual conduct for an alleged assault against B.H. When reporting the assault, B.H. told police she recalled sending a text message before the assault, used her phone to take pictures of the location of the assault, and communicated with Yildirim about the assault on Instagram. B.H. gave her phone to police, who extracted evidence and returned the phone to her. Yildirim moved to compel the state to produce B.H.’s cell phone for independent forensic inspection, but B.H. would not turn her phone over. Yildirim then moved the court for an order to subpoena B.H.’s cell phone under Minn. R. Crim. P. 22.01, subd. 2(c), which the court granted. B.H.’s subsequent motion to quash the subpoena was denied, as was her motion to stay the district court proceedings pending her appeal. B.H. then filed a petition for writ of prohibition with the court of appeals, but the court of appeals found the district court did not abuse its discretion by finding Yildirim’s right to review potentially exculpatory evidence outweighed B.H.’s privacy concerns, which could be protected by an in camera review of her phone.
The parties do not contest that two of three elements for a writ of prohibition are met here: An inferior court must be about to exercise judicial power and the exercise of such power will result in injury for which there is no adequate remedy. At issue is whether the district court’s exercise of power in denying B.H.’s motion to quash was unauthorized by law.
First, the Supreme Court determines that, when a district court is faced with a victim’s motion to quash or modify a subpoena sought under Minn. R. Crim. P. 22.01, subd. 2(c), the court must make a determination whether compliance is unreasonable given the totality of the circumstances. These circumstances include, but are not limited to: the relevance and materiality of the records sought; the specific need of the defendant for the records and whether they are otherwise procurable; the admissibility or usefulness of the records, including whether they can be used for impeachment of a material witness; whether the request is made in good faith and is not a fishing expedition; and the burden on the party producing the information, including the victim’s privacy interests.
Second, the Court finds the district court’s denial of B.H.’s motion to quash was unauthorized by law. The district court ordered B.H. to turn her phone over to a defense expert or counsel to review all information on her phone from the relevant time period and extract potentially relevant data to give to the court for in camera review. No law authorizes such access to a victim’s confidential information before the court conducts an in camera review. In addition, the district court did not adequately consider the reasonableness of requiring B.H. to comply with the subpoena.
The court grants B.H.’s petition for a writ of prohibition. In re B.H., 946 N.W.2d 860 (Minn. 7/29/2020).
Samantha Foertsch
Bruno Law PLLC
Stephen Foertsch
Bruno Law PLLC
EMPLOYMENT & LABOR LAW
JUDICIAL LAW
• Age discrimination and retaliation; claims dismissed. An employee who alleged age discrimination retaliation after she was fired by a Twin Cities bank lost her appeal. The 8th Circuit Court of Appeals affirmed a ruling by U.S. District Chief Judge John Tunheim dismissing the lawsuit on grounds that the bank articulated a legitimate, non-discriminatory reason for the termination and the retaliation claim failed to establish causation. McKey v U.S. Bank National Association, 2020 WL 6220010 (Minn. Ct. App. 10/23/2020) (unpublished).
• Wrongful termination; safety issues not actionable, but cost award reversed. A plant worker at an automobile manufacturing plant lost his challenge to a wrongful termination claim after he reported safety issues with the plant’s manufacturing process. The 8th Circuit upheld summary judgment under the Federal Moving Ahead for Progress in the 21st Century Act, which governs safety matters “relating to motor vehicle defects,” on grounds that the complaint about the quality control process did not fall within the “defect” provision of the statute and, therefore, the employee did not engage in statutorily protected activity. However, the court did reverse the minor determination award for costs for posting and shipping for the employer. Barcomb v. General Motors, LLC, 2020 WL 6072606 (Minn. Ct. App. 10/15/2020) (unpublished).
• An appeal of a noncompete injunction; mootness doctrine defeats appeal. An employee who was enjoined for violating a noncompete clause was not entitled to challenge the injunction after it expired. The 8th Circuit ruled that the case was moot and, therefore, dismissed the appeal. Perficient, Inc. v. Munley, 973 F.3d 914 (8th Cir. 9/3/2020).
• One-time claim; estoppel inapplicable. A flight paramedic who sued for unpaid overtime wages under his company’s policy prohibiting overtime pay unless an employee works more than 82 hours over a two-week time period, pursuant to the Fair Labor Standards Act, was unsuccessful in challenging dismissal of his lawsuit. The 8th Circuit, in a decision written by Judge David Stras of Minnesota, affirmed the dismissal on grounds that the employer was not equitably estopped from arguing that a statutory exemption for “air carriers” applied and the employee was covered by that classification. Riegelsberger v. Air Evac EMS, Inc., 970 F.3d 1061 (8th Cir. 8/17/2020).
• Long-term disability benefits not covered by ERISA. A government employee who applied for long-term disability benefits under the Employee Retirement Income Security Act (ERISA) was unsuccessful because the arrangement under which he sought the benefits was a government plan that was not subject to the statute. The 8th Circuit affirmed dismissal on grounds that ERISA did not extend to government plans and, furthermore, a breach of contract claim was not actionable because the employer acted in accordance with a contract in denying the claim after the employee elected a refund of his plan contributions, which ended his participation in the benefits pool. Hampton v. Standard Insurance Company, 2020 WL 4557654 (Minn. Ct. App. 8/7/2020) (unpublished).
• Workers compensation intervention; collateral attack disallowed. The health care provider who does not intervene in a workers compensation proceeding after receiving notice of an employee’s pending proceeding cannot collaterally attack the award on stipulation. The Supreme Court, affirming a decision of the workers’ compensation court of appeals, held that when a health care provider who voluntarily declines to intervene in a pending proceeding after receiving timely and adequate notice, cannot initiate the collateral attack on the award under Minn. Stat. §§176.271,.291 or Minn.R. 1420.1850 , subp. 3B. Koehnen v. Flagship Marine Co., 947 N.W.2d 448 (Minn. Ct. App. 8/12/2020).
• Whistleblower claim dismissed; no causal connection established. A custodian failed in a challenge to dismissal of a whistleblowing claim against the school district for which he worked under the whistleblower statute, Minn. Stat. §181.932, and Minnesota Occupational Safety & Health Act (MOSHA). The Minnesota Court of Appeals affirmed dismissal on grounds that the employee failed to show a causal connection between reporting air and quality concerns and other safety hazards and his termination, further noting that the employee intentionally disobeyed directives from the school’s principal regarding when to lock the school’s fire doors. Slaughter v. Ind. Sch. Distr. #833, 2020 WL 4579014 (Minn. Ct. App. 8/10/2020) (unpublished).
• Denial of unemployment benefits upheld. An employee who was fired after he missed two days of work while in jail was denied unemployment compensation benefits. The court of appeals, upholding a decision by an unemployment law judge, held that the applicant was disqualified due to employment “misconduct,” but it reversed the determination that the employee engaged in aggravated misconduct on grounds that he was discharged for absenteeism. Leuze v. Minnesota Alfalfa Producers, 2020 WL 4743505 (Minn. Ct. App. 8/17/2020) (unpublished).
Marshall H. Tanick
Meyer, Njus & Tanick
ENVIRONMENTAL LAW
JUDICIAL LAW
• Court of Appeals upholds MPUC’s electric-vehicle charging pilot programs. The Minnesota Court of Appeals filed its decision regarding the Minnesota Public Utilities Commission’s (MPUC) approval of Xcel Energy’s (Xcel) Petition for Approval of Electric Vehicle Pilot Programs.
As required under Minnesota Statutes, Section 216B.1614, subdivision 2, public utility providers in Minnesota selling electricity at retail are required to file a tariff with the MPUC for the purpose of allowing customers to purchase electricity solely for recharging electric vehicles. Since Minn. Stat. §216B.1614 was enacted, the MPUC has determined that even though public utilities are required to allow customers to purchase electricity solely for charging electric vehicles, numerous significant impediments were hindering the efforts of advancing the electrification of transportation.
In response to these impediments, MPUC directed public utilities, such as Xcel, to take reasonable steps to help encourage the use of electric vehicles and electric vehicle charging stations. This directive led Xcel to petition MPUC for approval of three different electric vehicle pilot programs.
Of the three pilot programs submitted by Xcel, MPUC approved two: a fleet pilot and a public charging pilot. A group of large industrial customers of Xcel (XLI) petitioned for reconsideration of MPUC’s decision, but that petition was denied. In appealing MPUC’s denial of its petition, XLI argued (1) that MPUC acted in excess of its authority or jurisdiction, and (2) that MPUC’s approval of components of Xcel’s cost-recovery request was arbitrary or capricious.
The court first addressed whether MPUC exceeded its statutory authority by regulating public utility investments “behind the customer meter.” The court ultimately held that MPUC did not exceed its statutory authority because MPUC has been given express authority by the Legislature to regulate pilot programs such as the ones submitted by Xcel. In reading Minnesota law, the court determined that MPUC is vested with “the powers, rights, functions, and jurisdiction to regulate… every public utility.” (Citing Minn. Stat. §216B.08). Included in these powers to regulate public utilities is the ability for Xcel to “ascertain and fix just and reasonable standards, classifications, rules, or practices to be observed and followed by any or all public utilities with respect to the service to be furnished.” (Minn. Stat. §216B.09, subd. 1)
The court determined that by installing and maintaining the conduits, wiring, and chargers used in the pilot programs, Xcel was providing a “service” under §216B.08, and therefore, MPUC had the authority to regulate the standards, classifications, rules, or practices used by Xcel in providing those services. MPUC had thus acted well within its authority, the court held, in approving Xcel’s proposed pilots.
XLI’s second argument was that even if MPUC had authority to regulate the pilot programs, MPUC’s approval of components of Xcel’s cost-recovery request was arbitrary and capricious. XLI argued that MPUC deviated from past decisions in approving the cost-recovery request without providing an explanation by ignoring past-used standards, and therefore acted in an arbitrary and capricious manner.
The court disagreed with XLI and found that MPUC had provided compelling reasons for its departure from past standards, mainly that Xcel deviated from past-used standards in order to determine whether the approved pilots would help MPUC and other stakeholders in evaluating the extent to which electric vehicle charging investments would benefit the general public. In re Xcel Energy’s Petition, Nos. A19-1785, A20-0116, 2020 Minn. App. (unpublished). LEXIS 791 (9/21/2020).
• Minnetonka reaches novel settlement agreement concerning Rusty Patched Bumble Bees. On 9/22/2020, the city of Minnetonka and the Center for Biological Diversity reached an agreement to settle the center’s “notice of intent to sue” letter under the Endangered Species Act (ESA) citizen suit provision. 16 U.S.C. §1540(g)(1)(A). The agreement is notable because it is one of the first, if not the first, settlement of allegations that a party is “taking” the Rusty Patched Bumble Bee (RPBB) under Section 9 of the ESA; prior challenges involving the RPBB have occurred in the context of the Section 7 ESA review process for federally permitted projects.
The RPBB—so-called because of a small rust-colored patch on its abdomen—was added to the federal list of endangered species by the US Fish & Wildlife Service (FWS) effective 2/10/2017. Widely distributed across the U.S and Canada as recently as the 1990s, the RPBB has declined precipitously and is now found in only 14 states, including Minnesota. At issue was the city’s approval and planned construction of a multi-use mountain-bike trail in Lone Lake Park. RPBBs have been observed in the park, and the city worked with the FWS to design and construct the trail to avoid impacts to the RPBB. The center nonetheless claimed that construction and operation of the trail would be reasonably certain to kill, harm, harass, and otherwise “take” the RPBB. The center demanded that the city obtain from the FWS an “incidental take permit” (ITP) under Section 10 of the ESA before commencing construction.
Under the settlement agreement, the city will not seek an ITP but agreed to various measures to further protect the RPBB, including having bee-spotters onsite during construction, conducting annual bee surveys, limiting the use of pesticides, creating a one-acre bee meadow at the park, and promoting bee habitat throughout Minnetonka through policies, education, and action. More information on the agreement can be found at the city’s website, www.minnetonkamn.gov.
ADMINISTRATIVE ACTION
• EPA finalizes Part B revisions to the coal combustion residuals closure regulations. On 10/16/2020, the U.S. Environmental Protection Agency (EPA) published its final rule regulating the disposal of coal combustion residuals (CCR). This rule follows EPA’s previous rule regulating the disposal of CCR from electric utilities, published 7/29/2020, titled “A Holistic Approach to Closure Part A: Deadline to Initiate Closure.” This rule is titled “Part B: Alternate Demonstration for Unlined Surface Impoundments.”
Coal combustion residuals, also referred to as coal ash, are the byproducts of burning coal in coal-fired power plants, and they contain arsenic, lead, mercury, and other hazardous chemicals. Power plants largely dispose of CCR by collecting it into huge surface impoundments or coal ash ponds.
Under the Obama administration in 2015, EPA issued the first CCR rules requiring that facilities producing coal ash must build composite-lined impoundments to prevent leakage into groundwater. The rules also required that leaking and unlined coal ash impoundments must cease receiving CCR and begin to close down.
In 2018, the Trump administration attempted to amend the 2015 CCR regulations, rolling back key features of the rules. However, in Utility Solid Waste Activities Group v. EPA (USWAG), the District of Columbia Circuit Court of Appeals overturned certain provisions of the 2015 regulations and remanded some provisions back to EPA, requiring it to set even higher standards of protection. 901 F.3d 414 (D.C. Cir. 2018). The D.C. circuit court held that the rule did not meet the minimum criteria required in the statute to prevent harm to either human health or the environment, because the rule allowed the continued operation of unlined impoundments, which could leak contaminants into groundwater.
On 7/29/2020, EPA finalized their revisions to the CCR rules called, “A Holistic Approach to Closure Part A.” 85 Fed. Reg. 53516 (8/28/2020). Part A, in accordance with USWAG, required utilities with unlined impoundments to retrofit or close by 4/11/2021. Additionally, the rule reclassified utilities with clay-lined impoundments as “unlined,” and required them to retrofit or close by the revised deadline. This rule specified that all unlined surface impoundments are required to retrofit or close, even if they have not detected leakages or groundwater contamination.
On 10/16/2020, EPA published Part B of the Holistic Approach to Closure. This part of the CCR rules establishes procedures for unlined impoundments to continue operating past the April 2021 closure deadline on a site-by-site basis. In order to do so, utilities with unlined surface impoundments must apply to EPA and present evidence to demonstrate that the continued operation of the surface impoundment will not result in groundwater contamination above levels that would adversely affect human health or the environment. The evidence must demonstrate that either the construction of the individual surface impoundment is sufficient to prevent leaks or the evidence demonstrates a low potential for infiltration into groundwater if there is a leak based on the local subsurface hydrogeologic site conditions. For example, a utility may demonstrate its surface impoundment is operating over a naturally occurring thick layer of impermeable clay.
Part B provides that all applications will be available for public comment on EPA’s docket for 20 days, and that EPA will notify the utility of its determination on the continued operation of the surface impoundment within 60 days of receiving a complete application. Docket ID: EPA-HQ-OLEM-2019-0173.
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
• Fed. R. Civ. P. 4(c)(2); service of process by pro se plaintiff. Fed. R. Civ. P. 4(c)(2) allows any adult who is not a party to serve process. Where a pro se plaintiff attempted to serve the Minnesota Attorney General by email at an email address specifically created for service of process during the covid-19 pandemic, and that email originated from the plaintiff’s personal email address, Judge Tostrud held that the attempted service was invalid because the party-service rule applies with equal force to attempts at service by mail and email. Jackson v. Minnesota Dept. of Human Servs., 2020 WL 6468132 (D. Minn. 11/3/2020).
• Fed. R. Civ. P. 26(e) and 33(d); production of data; “business record.” Where the parties had resolved the bulk of their dispute relating to the defendants’ production of data pursuant to Fed. R. Civ. P. 33(d), but the plaintiff sought to compel the supplemental production of any “future summary or analysis of that data” by the defendants in accordance with Fed. R. Civ. P. 26(e), Magistrate Judge Thorson found that attorney work product intended to summarize or compile the data was not a “business record” subject to production under Fed. R. Civ. P. 33(d). Sohmer v. UnitedHealth Group, Inc., 2020 WL 6375880 (D. Minn. 10/30/2020).
• Preliminary injunction; voluntary cessation; no mootness. Where the plaintiffs sought a preliminary injunction to prevent the defendants from placing armed agents at polling places in Minnesota, and one defendant entered into an “assurance of discontinuance” with the Minnesota Attorney General and then argued that the “assurance” was sufficient to moot the request for injunctive relief, Judge Brasel found that defendants’ failure to voluntarily cease their conduct prior to the attorney general’s involvement, as well as their failure to admit that their conduct would violate the law, were both indications that the case was not moot. Council on American-Islamic Relations – Minnesota v. Atlas Aegis, LLC, 2020 WL 6336707 (D. Minn. 10/29/2020).
• Sanctions granted and sanctions denied. Adopting reports and recommendations by Magistrate Judge Menendez, Chief Judge Tunheim awarded the plaintiff $86,018.93 in discovery-related sanctions, and additional $20,000 in attorney’s fees pursuant to 28 U.S.C. §1927, and also found that the defendants’ “egregious conduct” required that the jury be instructed that the defendants had failed to cooperate with discovery, and that it could infer that the defendants had attempted to conceal information that would not have been helpful to their position. Mgmt. Registry, Inc. v. A.W. Cos., 2020 WL 4915832 (D. Minn. 8/21/2020).
Two months later, Chief Judge Tunheim denied defendants’ motion to stay enforcement of more than $86,000 in sanctions, distinguishing the immediate enforceability of the sanctions judgment from the fact that it was not immediately appealable, and further determining that a stay pursuant to Fed. R. Civ. P. 62(h) was not warranted. Mgmt. Registry, Inc. v. A.W. Cos., 2020 WL 6264467 (D. Minn. 1023/2020).
Finding that certain of the defendants’ discovery objections were not “substantially justified,” Magistrate Judge Wright awarded attorney’s fees to the plaintiff pursuant to Fed. R. Civ. P. 37(a)(5)(A) in an amount to be determined. Wright v. Capella Educ. Co., 2020 WL 6285220 (D. Minn. 10/27/2020).
While finding defendants in contempt for their failure to comply with his previous order, Judge Tostrud declined to impose monetary sanctions where evidence suggested that the defendants lacked “significant resources,” or to order confinement of the individual defendant where imprisonment would be disproportionate to the harm caused. Allied Med. Training, LLC v. Knowledge2SaveLives L.L.C., 2020 WL 6269196 (D. Minn. 10/26/2020).
Judge Frank denied plaintiffs’ motion for $500,000 in sanctions under the court’s inherent powers and 28 U.S.C. §1927, exercising his discretion and finding that any award of sanctions would be “inappropriate.” Jensen ex rel. Jensen v. Minnesota Dept. of Human Servs., 2020 WL 6205722 (D. Minn. 10/22/2020).
Judge Brasel denied the defendants’ request that the pro se plaintiff be declared a frivolous litigant as a Fed. R. Civ. P. 11 sanction and enjoined from filing further actions without leave of court, where the defendant failed to comply with the safe harbor requirements of Fed. R. Civ. P. 11(c)(2). Mehralian v. Parkland Estates Homeowner Ass’n, 2020 WL 6144665 (D. Minn. 8/24/2020).
Chief Judge Tunheim awarded the plaintiffs just over $32,000 in attorney’s fees and costs for expenses related to a successful contempt motion, while rejecting the plaintiffs’ original request for more than $49,400 in fees and costs. Portz v. St. Cloud State Univ., 2020 WL 6119960 (D. Minn. Oct. 16, 2020).
Chief Judge Tunheim denied the defendants’ motion for sanctions pursuant to 28 U.S.C. §1927 in a copyright action, finding that the plaintiffs had brought a “good-faith, colorable claim.” He also denied the defendants’ request for an award of attorney’s fees and costs under the fee-shifting provision of the Copyright Act. Aamot v. Peterson, 2020 WL 4926598 (D. Minn. 8/21/2020).
Josh Jacobson
Law Office of Josh Jacobson
REAL PROPERTY
JUDICIAL LAW
• Adverse possession and tax payments. A claim of adverse possession to any portion of a separately assessed parcel requires the adverse claimant to pay taxes for at least five consecutive years unless a statutory exemption under paragraph 3 of Minn. Stat. §541.02 applies. At issue before the Minnesota Supreme Court was whether defendant Dormeier’s adverse possession claim to part of a parcel under adverse possession necessitated that, before initiating the claim, he must have paid real estate taxes previously assessed on the land. At the district court, disseizor Dormeier admitted to not paying property taxes on a separate parcel of land to which he claimed to own 52% of by way of adverse possession. Dormeier argued that the 52% of the parcel that he sought to disseize was not “all or substantially all” of the separately assessed parcel to trigger the tax payment requirement of Minn. Stat. §541.02 as set forth in Grubb v. State, 433 N.W.2d 915, 920 (Minn. App. 1988). The district court granted the fee owner’s motion for summary judgment seeking trespass and ejectment and rejecting Dormeier’s adverse possession claim after concluding that the 52% of the parcel sought by the disseizor met the Grubb standard, and the court of appeals affirmed in St. Paul Park Refin. Co. LLC v. Domeier, 938 N.W.2d 288 (Minn. Ct. App. 2020). The Minnesota Supreme Court affirmed, but on different reasoning. The Court held that the plain, unambiguous meaning of Minn. Stat. §541.02 requires a disseizor of any portion of a separately assessed parcel to pay taxes for five consecutive years to satisfy an adverse possession claim unless an exception applies—specifically if the action is a boundary line dispute. The Court, thereby, abrogated the Grubb standard that the tax payment requirement applies only to adverse possession claims for “all or substantially all” of a separately assessed parcel. St. Paul Park Refining Co., LLC v. Brian Domeier, A19-0573, ___ N.W.2d ____, 2020 WL 6479104 (Minn. 2020).
• Landlord did not oust tenant in bad faith for failure to make first month’s rent payment. The Minnesota Court of Appeals affirmed the district court’s determination that landlord’s removal of ostensible tenants who signed a written lease and occupied the property, but had not paid the first month’s rent or first- and last-month’s rental deposits as required by such lease, did not violate Minnesota’s “lock-out” statute and was not liable in damages for bad-faith removal under Minnesota’s ouster statute. Reimringer v. Anderson, No. A19-2045, 2020 WL 5624132 (Minn. Ct. App. 9/21/2020) (unpublished).
Matt Drewes
DeWitt LLP
Zack Armstrong
DeWitt LLP
TAX LAW
JUDICIAL LAW
• Theft loss denied for now: Taxpayers must comply with Rev. Proc. to receive safe harbor benefit the Rev. Proc. offers. Brothers Michael and William Giambrone were in the mortgage business. Their federally chartered stock institution failed, in part due to a third party’s misappropriation and fraud relating to the institution’s deposits. The Giambrones discovered the loss in 2010 but did not claim the loss until a later tax year. The Giambrones sought to use a safe harbor in Rev. Proc. 2009-20 to claim the loss. The safe harbor, however, required that the theft loss be claimed in the year the loss is discovered. Since the Giambrones did not claim the loss until a later year, they were not entitled to the deduction. This is so despite the Giambrones’ contention that the Rev. Proc. is inconsistent with Sec. 165, the statutory provision granting the theft-loss deduction. The court opined that the brothers were “laboring under a fundamental misconception: Rev. Proc. 2009-20, supra, is not required to comport with the terms of section 165 (or the accompanying regulation). It is an exercise of administrative discretion on the part of the IRS, offering beneficial treatment for categories of theft losses meeting certain well-defined conditions. The Giambrones cannot gain the benefit of it without adhering to its conditions the IRS imposed.” Although the Service was entitled to summary judgment on its argument that the Giambrones were not entitled to the benefit of the safe harbor, the court left “all other questions, including whether the Giambrones qualify for the section 165 theft loss deductions, to be decided by further proceedings.” Giambrone v. Comm’r, T.C.M. (RIA) 2020-145 (T.C. 2020).
• Hot mess of issues. In an opinion that read like a law school exam, a California taxpayer lost on eight of eight issues relating to her residential real estate business, grocery store, and pizza shop. Although the taxpayer was married and operated most of the businesses with her husband, the couple elected to file taxes separately and only Ms. Wienke and the business returns were at issue. The court first found that California community property laws required Ms. Wienke to allocate rental property income between herself and her husband and her failure to do so resulted in underreported income from the rental properties. The court also held that Ms. Wienke must include in her gross income cancellation of indebtedness of just under $200,000 resulting from foreclosure, because she did not provide any evidence, other than her own testimony, that the debts were nonrecourse.
Had the debts been nonrecourse, the debt relief resulting from the foreclosure would properly be treated as a sale or other disposition of the property, and any resulting income would have constituted gain on the disposition of property rather than discharge of indebtedness income. The court went on to sustain the Service’s characterization of what Ms. Wienke called “income” as constructive dividends and rejected Ms. Wienke’s argument that she was entitled to depreciation deductions in excess of those the Service permitted. The commissioner did not abuse his discretion, the court held, in changing Ms. Wienke’s method of accounting and making a section 481(a) adjustment to include $243,405 in her gross income. The court sustained the inclusion of additional unreported income, and agreed with the commissioner that Ms. Wienke’s company was not entitled to deduct its business expenses since Ms. Wienke provided no evidence substantiating those deductions. Neither was Ms. Wienke permitted to offset the company’s gross receipts with cost of goods sold (COGS) in amounts greater than those respondent allowed for the years in issue—again, because she provided no evidence to substantiate that the company had COGS in excess of any amounts respondent already allowed for the years in issue. Finally, although noting the court was sympathetic to Ms. Wienke’s personal difficulties, the court held the taxpayer liable for additions to tax under section 6651(a)(1) for failure to file timely returns. Wienke v. Comm’r, T.C.M. (RIA) 2020-143 (T.C. 2020).
• Compulsive gambler’s luck may be turning; court holds taxpayer substantiated his position that his gambling losses exceeded his gambling winnings.
Taxpayer John Coleman is a retired licensed insurance agent who gambled his entire life and did so compulsively after his retirement. Eventually his gambling began adversely affecting his financial circumstances and his family life; he lost his home in a tax sale and at one point could not pay his cell phone bill. Like many compulsive gamblers, Mr. Coleman occasionally won big, but more often, he lost. Gambling winnings are taxable income, but winnings can be offset by losses for income tax purposes. In other words, gamblers are taxed only on their net (not gross) winnings.
Mr. Coleman failed to file a federal income tax return for 2014, and the IRS prepared a substitute for return and issued a notice of deficiency. Most of the issues settled, but the gambling loss issue remained. The Service argued that Mr. Coleman had not substantiated his gambling losses and that therefore those losses could not offset his gambling winnings. “In practice,” the court observed, “not all gamblers keep complete accounts of their gaming wins and losses.” Mr. Coleman was one such gambler, and he had few records of his winnings and losses. However, the court further noted that in some circumstances, the court “may estimate the amount allowable” as a deduction so long as the court has “some basis upon which an estimate can be made.” The court articulated the issue in the dispute as “one of substantiation,” with Mr. Coleman tasked with substantiating “his losses to a degree sufficient for [the court] to estimate, using [its] best judgment, that his gambling losses exceeded his gambling winnings.” With help from experienced attorneys, who represented Mr. Coleman pro bono, Mr. Coleman was able to demonstrate to the court that his losses were sufficiently substantiated. In addition to prevailing in this case, perhaps a greater turn of luck for Mr. Coleman is that, “[w]ith the help of the attorneys representing him in this case, [he] has been receiving treatment for his gambling disorder.” Attorneys John B. Magee and Eric J. Albers-Fiedler of Morgan Lewis represented Mr. Coleman. Coleman v. Comm’r, T.C.M. (RIA) 2020-146 (T.C. 2020).
• Continued conservation confusion. Over the past several months we have reported on a series of conservation easement cases in which taxpayers’ claimed deductions for charitable easements are denied for failure to comply with the requirement that the easement be “granted in perpetuity” as the court interprets that statutory requirement. See, e.g., Oakbrook Land Holdings, LLC v. Comm’r, 154 T.C. 25 (TC 2020) (divided tax court upholding regulation setting out rules for charitable donations for conservation easements and interpreting the perpetuity requirement in Sec. 170(h)(2)(C)). Citing Oakbrook Holdings, the tax court continues to uphold the denial of charitable deduction for a conservation easements. Glade Creek Partners, LLC, Sequatchie Holds, LLC v. Comm’r, T.C.M. (RIA) 2020-148 (T.C. 2020).
The 11th Circuit, however, recently weighed in on this question in an easement case out of Alabama and disagreed in part with the tax court’s interpretation of the perpetuity requirement. In the decision below, the tax court interpreted two at-issue clauses, and also made a valuation determination. Specifically, the court determined that the easements were not “granted in perpetuity” because the donor had reserved to itself limited development rights within the conservation areas. Second, the tax court concluded one of the claimed easements complied with the perpetuity requirement, even though the easement included a clause permitting the contracting parties to bilaterally amend the grant. Finally, the court valued the 2007 easement at $4,779,500—which, it turns out, is almost exactly midway between the parties’ disparate appraisals. (Note the tax court’s opinion in this case was summarized in the February 2019 Tax Notes & Trends.)
The 11th Circuit court affirmed in part and reversed in part, then sent the case back to the tax court. In particular, the reviewing court held “(1) that the 2005 and 2006 easements satisfy §170(h)(2)(C)’s granted-in-perpetuity requirement, (2) that the existence of an amendment clause in an easement does not violate §170(h)(5)(A)’s protected-in-perpetuity requirement, and (3) that the Tax Court applied the wrong method for valuing the 2007 easement.” Pine Moutain Pres., LLLP v. Comm’r, No. 19-11795, (11th Cir. 10/22/2020).
• Individual income tax & bankruptcy: Willful attempt to evade tax renders couple’s multimillion-dollar tax liability nondischargeable. In another decision from the 11th Circuit, a taxpaying couple was denied the benefit of the “fresh start rule” in bankruptcy because the couple was not an “honest but unfortunate debtor.” Congress has decreed that debtors who “willfully attempt[] in any manner to evade or defeat… tax” are sufficiently dishonest that they are not entitled to the benefit of the “honest but unfortunate debtor” rule. In this case, the couple accumulated a multimillion-dollar tax debt. Despite the tax debt, the couple continued their lavish lifestyle—including personal chefs, million-dollar vacations, and a hundred-thousand-dollar clothing bill. Ultimately, the couple’s lifestyle, bad investment luck, and health problems caught up to them, and the couple petitioned for bankruptcy seeking to discharge their tax debt. The bankruptcy court rejected the petition, holding that the couple’s choice to spend lavishly on personal luxuries rather than paying their taxes, combined with submitting multiple low-ball offers-in-compromise with documentation that did not reflect their true financial status, demonstrated willful and affirmative acts to avoid payment or collection of taxes. The bankruptcy decision was appealed to the district court, which affirmed. The 11th Circuit was similarly dismissive of the taxpayer’s arguments. Bankruptcy Judge Peek McEwen concluded, “as their immoderate spending choices show, they were far more focused on living in the lap of luxury. They would have been wise to heed the proverb which cautions that enough is better than too much. As it is, however, the Feshbachs’ misjudgment ultimately cost them complete relief.” In re Feshbach, 974 F.3d 1320 (11th Cir. 2020).
• Court denies motion to recuse entire tax court. Supervalu/Columbia II Rockridge Center filed petitions challenging the Pay 2018, Pay 2019, and Pay 2020 assessed value of the subject property, located at 4445 Nathan Lane North in Plymouth.
On 3/9/2020, Supervalu moved for an “Erie-Shuffle Order” to transfer the three cases to the Hennepin County District Court for “determination of issues which have arisen that are beyond the subject matter jurisdiction of this Court to consider.” Additionally, Supervalu asked the tax court to recuse itself entirely from further proceedings. A hearing on the Erie motion was held on 3/23/2020, and Supervalu confirmed on the record it was not moving the court for recusal, nor asserting actual bias or impropriety by any member of the court. Concluding that no motion for recusal was before the court, the court denied the Erie motion on its remaining grounds.
On 9/10/2020, Supervalu filed the instant motion, asking the court to transfer the three cases to the Hennepin County District Court and to recuse itself entirely from further proceedings. The motion states that, because of the former substantive participation of Judge Bowman as counsel of record for the county, the court as a whole should exercise discretion to recuse itself. Supervalu asserts, 1) Judge Bowman’s presence on the court creates an appearance of impropriety, and 2) the impartiality of the judges of the court may reasonably be questioned concerning these cases.
Minnesota Rule of Civil Procedure 63.03 specifies the removal procedure with respect to a judge who already has presided at a motion or other proceeding of which the party had notice. Specifically, a judge having already presided over a proceeding may not be removed except upon an affirmative showing that the judge is disqualified under the Code of Judicial Conduct. The standard for an affirmative showing of disqualification is an objective examination of whether the facts and circumstances would cause a reasonable examiner to question the judge’s impartiality. See State v. Burrell, 743 N.W.2d 596, 601 (Minn. 2008).
The Minnesota Code of Judicial Conduct “establishes an independent responsibility for judges to disqualify themselves ‘from any proceeding in which the judge’s impartiality might reasonably be questioned.’” Minn. Code Jud. Conduct R. 2.11(A). Judicial Rule 2.11(A) sets forth five circumstances, which include: (1) personal bias or prejudice concerning a party or personal knowledge of disputed facts, (2) the participation in the proceeding of individuals with specified relationships to the presiding judge, (3) the existence of an economic interest in the case on the part of certain individuals with specified relationships to the presiding judge, (4) extrajudicial public statements by the presiding judge that appear to commit the judge to a particular outcome in the case, and (5) the existence, on the part of the presiding judge, of certain prior employment relationships.
The court interpreted Supervalu’s motion for “recusal” as a motion for disqualification pursuant to Rule 63.03. During the hearing on the Erie motion, Supervalu expressly stated that the request for recusal was not asserting any actual bias or impropriety on the part of any member of the court. Supervalu contends that in the Pay 2018 case, however, Judge Bowman, prior to her joining the court, filed a pretrial brief on behalf of the county, and now, her appointment to the court creates an appearance of bias for other judges on the court, citing “collegial relationship.”
The court states that Supervalu’s suggestion is based on conjecture, not evidence, and there is no true affirmation of bias. Furthermore, recusal of an entire court is only warranted in extraordinary circumstances, such as a direct threat of injury to all judges of the court. See In re Nettles, 394 F.3d 1001, 1002-03 (7th Cir. 2005). Because Supervalu offers no evidence in support of its motion for recusal of the entire court, the court denied the motion to transfer. Supervalu/Columbia II Rockridge Center v. Hennepin Co., 2020 WL 6166017 (Minn. Tax Court 10/19/2020).
• Property tax: Court dismisses untimely petition. On 7/15/2019, James C. and Robin B. Melville filed a petition in the tax court alleging that the estimated market value of the subject property for the 2018 assessment date, for taxes payable in 2019, exceeded its actual market value. The petition includes a property tax statement setting forth an estimated market value of $762,000 for taxes payable in 2019. The petition also includes a letter from the City of Minneapolis Assessor, dated 5/16/2019, setting forth a reduction in the estimated market value of the subject property as of the 2019 assessment date, for taxes payable in 2020, from $807,500 to $630,000.
On 7/29/2020, the county moved to dismiss the Melvilles’ petition for lack of subject matter jurisdiction. The county asserts the Melvilles failed to timely file and serve the petition pursuant to Minn. Stat. §278.01, subd. 1(c) (2018). The Melvilles did not respond to the motion, but Ms. Melville appeared for the telephonic hearing held on 8/28/2020.
During the phone hearing, Ms. Melville confirmed that the petition was filed on 7/15/2019. However, Ms. Melville contended that the July 15 filing was timely because, pursuant to Minn. Stat. §278.01, subd. 4 (2018), a petitioner may file a chapter 278 petition up to 60 days after receiving notice from the county assessor of a change to the assessment. Ms. Melville stated that the 2019 letter from the assessor, which reduced the 2019 assessment (Pay 2020) from $807,500 to $630,000, constituted such notice. Because the 2019 letter is dated 5/16/2019, Ms. Melville contended by filing the petition on 7/15/2019, the requirements were met.
Minnesota Statutes, section 278.01, subdivision 1 states that a petitioner must file a petition, with proof of service on the necessary individuals, on or before April 30 of the year in which the tax becomes payable. Statutory time limits to appeal to the tax court are strictly construed and are jurisdictional. See Kmart Corp. v. Cty. of Clay, 711 N.W.2d 485, 488-90 (Minn. 2006); see also Benigni v. Cty. of St. Louis, 585 N.W.2d 51, 54 & n.9 (Minn. 1998).
An exception to the April 30 deadline lies in Section 278.01, subdivision 4 (2018), stating that when a valuation is changed and the property owner is notified after February 28 of the year the tax is payable, a petitioner has 60 days from the date of mailing of the notice to initiate an appeal.
The court lacked subject matter jurisdiction over this petition because it was filed 76 days after the deadline. Additionally, the letter received by the Melvilles did not extend the time to file their petition because it concerned taxes payable in 2020. Therefore, the court granted the county’s motion to dismiss. Melville v. Hennepin Co., 2020 WL 6165968, (Minn. Tax Court 10/19/20).
• Court modifies scheduling order to allow petitioner to include previously unavailable evidence. This matter concerned consolidated 2017 and 2018 appeals of the market value of a Kohl’s store in Eagan, MN. An amended scheduling order set the 2017 appeal for trial on 4/22/2019. Accordingly, on 4/8/2019, the parties filed their respective witness and exhibit lists along with their proposed exhibits.
On 5/14/2019, the parties filed a joint motion to stay the 2018 appeal pending the court’s resolution of the 2017 appeal. Instead, the court filed an order consolidating the 2017 and 2018 appeals and ordered the consolidated matter to proceed with the original schedule governing the 2018 appeal, which set a trial date on 1/6/2020. On 12/16/2019, the parties filed updated witness and exhibit lists, along with their proposed exhibits. Appraisal reports for the 2018 appeal were prepared by the same experts as the 2017 appeal. William Toelke’s report for the county quoted an August 2019 white paper by the International Association of Assessing Officers (IAAO), which discussed the meaning of “fee simple estate.” Michael MaRous’s appraisals for Kohl’s neither quote nor mention the IAAO white paper.
A Minnesota Supreme Court decision was issued on 1/29/2020 that discussed whether the tax court erred in valuing a big box retail store. See Lowe’s Home Centers, LLC (Plymouth) v. County of Hennepin, 938 N.W.2d 48 (Minn. 2020). Mr. MaRous, Kohl’s appraiser, prepared the Lowe’s appraisal report in Lowe’s (Plymouth). Additionally, The Appraisal Institute’s Winter 2020 Appraisal Journal contained a peer reviewed article titled “Revisiting Market Value and Market Rent,” which, according to Kohl’s, “addressed many of the same issues and concepts discussed by the IAAO in its 2019 position paper” that was quoted by the county’s assessor, Mr. Toelke.
On 3/30/2020, the court struck from its calendar the 4/15/2020 trial date in these matters due to the covid-19 pandemic. Kohl’s now filed a motion requesting: (1) limited direct testimony of its appraiser, Mr. MaRous; and (2) leave to amend its witness list and/or its exhibit list to include additional anticipated necessary rebuttal testimony and evidence relating to the issues recently raised by the decision in Lowe’s.
The county opposed Kohl’s motion, arguing, among other things, that the Lowe’s decision provides no basis for allowing direct testimony from Mr. MaRous, and that Kohl’s has failed to explain “why it would need to amend its witness list or indicate who such witnesses might be.”
The court allowed Kohl’s to amend its exhibit list to include the documents pertaining to the 2019 IAAO paper that were not previously available, explaining that the documents that could possibly bear on the report from the county’s appraiser, Mr. Tolke, were not available until early 2020, rendering it impossible for Kohl’s to include the documents on its previously filed exhibit list. Furthermore, the court stated that it is not ruling how the exhibits may be used at trial, nor whether they would be admissible evidence.
Additionally, the court denied Kohl’s request for direct testimony of Mr. MaRous, stating that the scheduling order provides that the written appraisal will serve as the appraiser’s direct testimony, and the Supreme Court’s decision in Lowe’s does not warrant further comment from Kohl’s appraiser. The court also agreed with the county regarding an amended witness list, concluding that Kohl’s failed to identify a particular witness; therefore the motion to amend its witness list was denied. Kohl’s Illinois, Inc. v. Dakota Co., 2020 WL 6374971 (Minn. Tax Court 10/27/20).
Morgan Holcomb
Mitchell Hamline School of Law
Sheena Denny
Mitchell Hamline School of Law