CRIMINAL LAW
JUDICIAL LAW
• Interference with privacy: Interference with privacy of a minor does not require knowledge of victim’s age. Appellant was convicted of interference with the privacy of a minor after using his cell phone camera to view a 15-year-old male in a bathroom stall. Minn. Stat. §609.746, subd. 1(d), makes it a crime to install or use “any device for observing, photographing, recording, amplifying, or broadcasting sounds or events… where a reasonable person would have an expectation of privacy and has exposed or is likely to expose their intimate parts… or the clothing covering the immediate area of the intimate parts,” if done “with intent to intrude upon or interfere with the privacy of the occupant.” The offense is a felony if done “against a minor under the age of 18, knowing or having reason to know that the minor is present.” Minn. Stat. §609.746, subd. 1(e)(2) (emphasis added). Appellant argues the italicized phrase requires proof of knowledge of the victim’s age.
The court of appeals focuses on the statutory definitions of “know” and “criminal intent.” “‘Know’ requires only that the actor believes that the specified fact exists,” Minn. Stat. §609.02, subd. 9(2), and “[c]riminal intent does not require proof of knowledge of the age of a minor even though age is a material element in the crime in question.” Id. at subd. 9(6). Because section 609.746, subd. 1(e)(2), does not explicitly require proof of knowledge of age, the only reasonable interpretation of that section is that “it establishes age as a material element but requires knowledge only of the victim’s presence, not knowledge of the victim’s age.” State v. Galvan-Contreras, A20-0366, 2021 WL 161982 (Minn. Ct. App. 1/19/2021).
Samantha Foertsch Bruno Law PLLC
stephen@brunolaw.com Bruno Law PLLC
EMPLOYMENT & LABOR LAW
JUDICIAL LAW
• Race discrimination, retaliation; no animus, reprisal shown. An employee who claimed he was denied a promotion due to race discrimination and retaliation and then wrongfully laid off as part of a reduction in force was denied relief by the 8th Circuit Court of Appeals. Affirming summary judgment, a panel of the 8th Circuit that included Judge James Loken of Minnesota held that a supervisor’s statement that the claimant was “big and intimidating” did not constitute direct evidence of racial animus and there was no showing of a prima facie case that the promotion was the result of race discrimination or retaliation. Gipson v. Dassault Falcon Jet Corp., Inc., 983 F.3d 377 (8th Cir. 12/22/2020).
• Denial of tenure; sex discrimination rejected. A claim by an associate professor that she was denied tenure by the university where she worked on grounds of sex discrimination failed. The 8th Circuit, affirming summary judgment, held that the claimant did not establish a reasonable inference of discriminatory animus, or that her sex contributed to the decision to deny her tenure. Maras v. Curators of the University of Missouri, 983 F.3d 1023 (8th Cir. 12/29/2020).
• Insurance coverage; school district denied coverage. A claim by a school district for coverage under its legal liability policy for a lawsuit brought by a teacher was rejected. The 8th Circuit held that the single claim provision in the policy unambiguously applied to the claim and, therefore, the insurer was not required to cover it, nor were the doctrines of waiver and estoppel applicable to compel coverage. Pine Bluff School District v. ACE American Insurance Company, 984 F.3d 583 (8th Cir. 12/28/2020).
• Attorney general investigation; compliance demand too broad. A demand by the attorney general to compel compliance with a civil investigation arising out of complaints of waste by an employer were overbroad. The Minnesota Court of Appeals held that the Ramsey County District Court abused its discretion in failing to narrow the scope of the discovery demands to the particular entities that the attorney general had reasonable grounds to suspect may have engaged in the improper behavior. Madison Equities, Inc., v. Office off Attorney General, 2021 WL 79337 (Minn. Ct. App. 1/11/2021) (unpublished).
• Unemployment compensation; policy violation bars claim. An employee who violated an unwritten policy of not giving out the names of contactors to do flooring work was denied benefits. Affirming a decision of an unemployment law judge (ULJ) from the Department of Employment and Economic Development (DEED), the appellate court held that the employee committed “disqualifying misconduct” when he recommended other contractors for certain customer needs, contrary to the company’s policy. Braegelmann v. Hansen Flooring Gallery, Inc.., 2021 WL 79528 (Minn. Ct. App. 1/11/2021) (unpublished).
• Unemployment compensation; quitting employee denied benefits. An employee who turned in his tools and told his boss “I’m done here” was denied unemployment compensation benefits. The appellate court, affirming a ULJ decision, held that the employee’s conduct and statements indicated that he had quit his job without good cause attributable to the employer and, therefore, was not entitled to unemployment benefits. Haluzka v. Prime Pork, 2020 WL 7688607 (8th Cir. 12/28/2020) (unpublished).
LOOKING AHEAD
• Pending workers comp decisions. The Minnesota Supreme Court began the year by hearing a pair of workers compensation cases. In Luis Aquilar Prado v. W. Zintl Construction, Inc., No. A20-0833, the Workers Compensation Court of Appeals (WCCA) upheld a determination by an arbitrator that the claimant’s injury arose out of the course of employment, but erred in not taking into account a surgeon’s report of the need for surgery on grounds that the surgeon was not on an approved list of physicians for the union and also overturned the arbitrator’s denial of an intervention claim by a medical provider. The Supreme Court is considering three issues: (1) whether the WCCA erred in determining that the employee sustained a compensable injury; (2) the propriety of the WCCA’s determinations regarding the arbitrator’s exclusion of the surgeon’s report; and (3) whether the denial of the intervention claim of the medical provider was proper. In Schalock v. Battle Lake Good Samaritan Center, No. A20-0917, denial by the carrier of a claim asserted by a nursing assistant at a health care facility was overturned by the workers compensation tribunal on grounds that the injury was “a substantial contributing factor” to ongoing symptoms and disabilities, which the employer is challenging before the Supreme Court on the basis that the decision was not supported by substantial evidence and sufficient reasoning.
Marshall H. Tanick Meyer, Njus & Tanick
ENVIRONMENTAL LAW
JUDICIAL LAW
• Minnesota Supreme Court holds MPCA’s Class 1 water standards apply to groundwater. The Minnesota Supreme Court issued a decision reversing a decision of the Minnesota Court of Appeals concerning a National Pollutant Discharge Elimination System (NPDES)/State Discharge System (SDS) permit that the Minnesota Pollution Control Agency (MPCA) reissued to U. S. Steel Corporation on 11/30/2018 for U. S. Steel’s Minntac taconite tailings basin facility in Mountain Iron, Minnesota.
At issue were two holdings by the court of appeals on water-law questions of first impression. The first involved the regulation of seepage discharges from the tailings basin to groundwater that is hydrologically connected to, and transports pollutants to, certain surrounding surface waters. Specifically at issue was whether these groundwater-to-surface-water discharges (GSWDs) constitute discharges to “waters of the United States” under the Clean Water Act (CWA) and are thus subject to NPDES permitting requirements such as the requirement to meet surface water quality standards—or, as MPCA and U. S. Steel contended, GSWDs are properly regulated under state law only—that is, MPCA’s SDS permitting program. The court of appeals sided with MPCA and U. S. Steel, holding that the relevant language in the CWA was ambiguous regarding GSWDs and that MPCA’s interpretation of that language as not bringing GSWDs within the scope of the CWA—“regardless of any hydrological connection to surface waters”—was reasonable. Subsequent to the court of appeals decision, however, on 4/23/2020, the U.S. Supreme Court issued an opinion in County of Maui v. Hawai’i Wildlife Fund, 140 S. Ct. 1462 (2020), holding that the GSWDs can be within the scope of the CWA where the GSWD is the “functional equivalent” of a direct discharge. This decision, the Minnesota Supreme Court held, required reversal of the court of appeals and remand to MPCA to determine whether seepage from the Minntac tailings basin to groundwater met the new “functional equivalent” test.
The second issue was whether groundwater is subject to MPCA’s Class 1 water quality standards in Minn. R. 7050.0221, which incorporate by reference EPA’s primary and secondary drinking water standards. Based on its position that groundwater is subject to the Class 1 standards, MPCA included numerous conditions in the permit requiring Minntac to comply with the Class 1 standards for sulfate and total suspended solids (TSS) in groundwater, both of which are based on the corresponding nonmandatory EPA secondary drinking water standards. The court of appeals held that chapters 7050 and 7060 unambiguously do not classify groundwater as Class 1 waters and that therefore MPCA erroneously imposed permit conditions requiring compliance with the Class 1 sulfate and TSS standards in groundwater.
The Supreme Court disagreed. Applying the analytic framework for reviewing an agency’s interpretation of its own rules set forth in In re Cities of Annandale & Maple Lake NPDES/SDS Permit Issuance, 731 N.W.2d 502 (Minn. 2007), the Court first determined that the relevant rules and statues were ambiguous as to whether groundwater was subject to the Class 1 standards; they could support an interpretation either way. On one hand, neither chapter 7050 nor 7060 expressly states that groundwater is classified Class 1, as the rules do for Class 1 surface waters, and the scope of the “potable” use for which groundwater is protected in chapter 7060 is distinct from and broader than the scope of the Class 1 standards. On the other hand, the Court held, there are various “textual clues” that could support a reading that groundwater is classified Class 1, including references to groundwater in part 7050.0221 (the rule describing the Class 1 category) and language indicating that the standards in chapter 7050 can apply to both surface and groundwater.
Because the Court thus found the regulatory language ambiguous, it then looked, pursuant to In re Annandale, to whether MPCA’s interpretation that groundwater is classified Class 1 is a reasonable one. The Court held that it is, determining that deference was particularly appropriate here because water pollution and classification is a technical issue. In addition, the Court noted that MPCA has made statements in various contexts since at least 1993 (the rules were adopted in 1973) that groundwater is subject to the Class 1 standards, indicating a longstanding interpretation. Finally, the Court emphasized that language in chapter 7060 indicating that parts of chapter 7050 apply to groundwater had been part of the groundwater rules since they were first adopted. Accordingly, the Court held that MPCA’s interpretation that the Class 1 standards apply to groundwater is a reasonable one and that the MPCA properly exercised its authority in applying the Class 1 standards to Minntac’s 2018 NPDES/SDS Permit. In reversing on this issue, the Supreme Court also instructed the court of appeals to address several appeal issues it had not addressed, including whether the MPCA properly denied U. S. Steel’s requests for a permit-related contested case hearing and a variance from certain groundwater standards, both of which the court of appeals concluded it need not address after it had held the Class 1 standards were inapplicable. Matter of NPDES/SDS, A18-2094, A18-2095, A18-2159, A18-2163, ___ N.W.2d ___ (Minn. 2/10/2021).
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
FAMILY LAW
JUDICIAL LAW
• Modifications of custody require proof of changed circumstances even where parties agree to apply the best-interest standard. As part of a 2015 stipulation, the parents agreed mother would have sole custody of their child, provided that father could seek modification of legal custody in 2020 based on a best interest standard. Father did so, and mother opposed the motion. The district court ultimately denied father’s request for joint legal custody because father failed to allege a sufficient change in circumstances to justify the change. Father appealed, arguing the parties’ agreement to employ the best interest standard obviated the need to prove changed circumstances.
The Minnesota Court of Appeals affirmed. Citing three nonprecedential opinions, the court observed that parents’ stipulation to employ a best interest standard does not void the statutes’ other requirements for modification, including changed circumstances, which are designed to preserve stability in a child’s environment. Because father failed to plead any such change in circumstances, the district court appropriately denied his motion without an evidentiary hearing. Father has since petitioned for review to the Minnesota Supreme Court. Woolsey v. Woolsey, No. A20-0749 (Minn. Ct. App. 12/28/2020).
• Third party given limited right to intervene in a divorce proceeding to enforce their interest in property. Miller and Spera divorced in 2004 and agreed to divide all of their retirement accounts equally. In 2018, Miller died, having never completed the required retirement division. At the time of his death, Miller’s four daughters, including his youngest from a later relationship, were listed as beneficiaries of his retirement accounts. To obtain her share of Miller’s accounts, Spera brought a motion in the divorce action to divide Miller’s retirement. The mother of Miller’s youngest daughter (Molloy) sought to intervene on her daughter’s behalf and objected to Miller’s request, arguing that both laches and the statute of limitations precluded enforcement of the divorce decree. The district court denied Molloy’s motion to intervene, and the court of appeals reversed, holding Molloy (on the child’s behalf) had a right to ensure an accurate valuation.
The Minnesota Supreme Court affirmed the court of appeals holding with modifications. On the issue of intervention, the Court held Molloy’s motion met all four elements of Minn. R. Civ. P. 24.01 for intervention as a matter of right. Namely, the motion was timely, Molloy claimed an interest in property subject to the action, her interest could be impaired or impeded by the action, and her interests weren’t adequately represented by the existing parties. Thus, the Court concluded Molly was entitled to intervene. But the Court also made clear that Molloy’s rights only extended to the proper valuation of the child’s interest in the accounts. She did not have a right to challenge the enforceability of the underlying divorce decree or seek to alter its property division. The Court emphasized that children cannot seek an interest in their parent’s property in a divorce, and that parties “have the right to their own divorce action.” Thus, while recognizing a limited right to intervention in a post-decree enforcement action, the Court declined to throw the courtroom doors wide open by allowing any third party with an interest in marital property to intervene in an attempt to influence how that property is divided. Miller v. Miller, No. A19-0372, ___ N.W.2d ___ (Minn. 1/20/2021).
Michael Boulette Barnes & Thornburg LLP
FEDERAL PRACTICE
JUDICIAL LAW
• Summary judgment; new theory of liability not properly before the court. Awarding one defendant summary judgment on a claim arising out of that defendant’s alleged negligent inspection of a car tire, Judge Doty agreed with the defendant that the plaintiff’s attempt to recharacterize her claim in opposition to the summary judgment motion could be disregarded where that theory had not been alleged in the complaint. Sage ex rel. Sage v. Bridgestone Ams. Tires Ops., LLC, 2021 WL 195797 (D. Minn. 1/20/2021).
• Fed. R. Civ. P. 12(b)(6); pleading the factual basis and legal theory for a claim. Rejecting plaintiffs’ “startling” argument that the pleading of the “factual basis” for their claims was sufficient to withstand a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), Judge Schiltz found that a plaintiff must also identify the legal right that was allegedly violated, that a complaint can be dismissed when it is based on an “unavailing” legal theory. Viewpoint Neutrality Now! v. Regents of the Univ. of Minnesota, 2021 WL 354130 (D. Minn. 2/2/2021).
• Class certification; questions relating to standing. Noting a split among courts “across the United States, including courts within the District of Minnesota” regarding “whether and in what circumstances Article III standing issues may be postponed until after class certification” where class certification is “logically antecedent” to standing, Judge Wright deferred resolution of the question of whether the plaintiff had standing until the class-certification stage. Gisairo v. Lenovo (United States) Inc., 2021 WL 352437 (D. Minn. 2/2/2021).
• Fed. R. Civ. P. 12(b)(6) AND 9(b); putative class action dismissed for lack of specificity. Where the plaintiff brought a putative class action including claims for breach of warranty and fraud, but failed to allege, among other things: where he purchased the product; when he bought the product; how he had been misled; where he was misled; when he was misled; where he was damaged; and when he knew or had reason to know he was damaged, Judge Schiltz found that the plaintiff had not alleged a “single plausible claim” and dismissed the action without prejudice. Ehlis v. DAP Prods., Inc., 2021 WL 83269 (D. Minn. 1/11/2021).
• Remand following transfer; procedures. Where an action was filed in the Texas courts, removed to the Southern District of Texas on the basis of diversity jurisdiction, and then transferred to the District of Minnesota, where Judge Brasel rejected some defendants’ partial motion to dismiss for fraudulent joinder and determined that diversity was lacking, Judge Brasel rejected those defendants’ request that the action be “remanded” to the Minnesota courts, and found that the only appropriate court for remand was the Texas court where the case had been commenced. Monty v. Patterson Dental Supply, Inc., 2021 WL 323868 (D. Minn. 2/1/2021).
• 28 U.S.C. §1447(c); untimely removal; remand; award of attorney’s fees. Where the defendant removed an action more than 17 months after the action was commenced, Chief Judge Tunheim rejected the defendant’s argument that the removal was timely because the parties had been involved in related litigation in the Texas courts, found that the removal “lacked an objectively reasonable basis,” remanded the action, and awarded the plaintiff attorney’s fees in an amount to be determined. Uptime Systems, LLC v. Kennard Law, P.C., 2021 WL 424470 (D. Minn. 2/8/2021).
• Behavior by multiple attorneys criticized; motion for sanctions denied. Describing the case as a “mess,” and criticizing plaintiff’s counsel for a “kitchen sink approach in drafting their complaint,” Judge Schiltz criticized counsel for both sides for their conduct during discovery, including “bickering like children during depositions,” “one lawyer questioning the sanity of another,” and one lawyer asking if the other lawyer wanted to “step out of the room” and “have a fight.” Judge Schiltz admonished counsel for their behavior but denied the defendant’s motion for Rule 11 sanctions, finding that both sides had made frivolous arguments. ARP Wave, LLC v. Salpeter, 2021 WL 168501 (D. Minn. 1/19/2021).
• Motion for sanctions denied. Chief Judge Tunheim denied defendants’ motion for sanctions under Fed. R. Civ. P. 11, 28 U.S.C. §1927 and the court’s inherent powers, finding that sanctions were not warranted even though one of the plaintiff’s claims “lack[ed] a reasonable basis in law and fact,” and another claim was “meritless and lack[ed] a colorable basis,” finding that all of the plaintiff’s claims were within the bounds of Fed. R. Civ. P. 11(b). Protege Biomedical, LLC v. Duff & Phelps Secs., LLC, 2021 WL 168467 (D. Minn. 1/19/2021).
• Fed. R. Civ. P. 26(e) AND 37(c)(1); motion for sanctions denied. Where the plaintiff sought sanctions for one defendant’s alleged untimely ninth supplemental interrogatory answer, Magistrate Judge Schultz found no evidence that the defendant had violated its duty to supplement under Fed. R. Civ. P. 26(e), denied sanctions pursuant to Fed. R. Civ. P. 37(c)(1), and ordered that the deposition of one witnesses be reopened on a limited number of topics. Noting that this was “at least” the seventh request for sanctions by the plaintiff, Magistrate Judge Schultz also cautioned both parties that any further motions for sanctions were likely to result in an award of attorney’s fees to the prevailing party. Fair Isaac Corp. v. Fed. Ins. Co., ___ F.R.D. ___ (D. Minn. 2021).
• Fed. R. Civ. P. 54(d)(1); costs; prevailing party; dismissal of federal claims. Where the plaintiff’s federal claims were dismissed on the merits, his supplemental claims were remanded, and the defendants filed a bill of costs, Judge Schiltz rejected the plaintiff’s argument that the defendants were not prevailing parties, finding that the dismissal of the federal claims was sufficient to make them prevailing parties, and that the fact that defendants removed the case from state court did not alter that analysis. Jacobs v. County of Hennepin, 2021 WL 509284 (D. Minn. 2/11/2021).
Josh Jacobson Law Office of Josh Jacobson
IMMIGRATION LAW
JUDICIAL LAW
• Denial of deferral of removal under CAT. The 8th Circuit Court of Appeals affirmed the Board of Immigration Appeals’ (BIA) decision denying the petitioner’s request for deferral of removal under the Convention Against Torture (CAT) to Somalia, finding substantial evidence supported the immigration judge’s and BIA’s conclusions that he was unlikely to be tortured by Al-Shabaab due to his minority-clan membership. Furthermore, “the record does not show that the Somali government has willfully turned a blind eye to Al-Shabaab’s activities. In fact, it shows the opposite. The Somali government is actively fighting to control Al-Shabaab, has considerably reduced Al-Shabaab’s military capacity, and has demonstrated a willingness to fight terrorism.” Hassan v. Rosen, 19-2918, slip op. (8th Cir. 1/15/2021). https://ecf.ca8.uscourts.gov/opndir/21/01/192918P.pdf
• DHS allowed to substitute one charge (CIMTs) for another (immigration fraud) in removal proceedings. The 8th Circuit Court of Appeals held that the Department of Homeland Security (DHS) may choose to rely on a charge involving the commission of crimes involving moral turpitude (CIMTs) rather than an alternative one encompassing immigration fraud. According to the court, “[t]he rules of procedure that govern removal proceedings in the immigration court allow the government to adjust the charges against an alien [sic] during the case. ‘At any time during deportation or removal proceedings, additional or substituted charges of deportability... may be lodged’ by the Department. 8 C.F.R. §1003.30; see also id. §1240.10(e).” Herrera Gonzalez v. Rosen, 19-2290, slip op. (8th Cir. 1/4/2021). https://ecf.ca8.uscourts.gov/opndir/21/01/192290P.pdf
• Motion to reopen removal proceedings on account of changed country conditions in Somalia is denied. The 8th Circuit Court of Appeals upheld the Board of Immigration Appeals’ (BIA) denial of the petitioner’s motion to reopen his in absentia order of removal based on changed country conditions in Somalia. Finding the BIA did consider Al-Shabaab’s increase in power and ISIS-Somalia’s emergence and growing violence, the court concluded, however, that “no reasonable adjudicator” would surmise there was any material change in conditions from 2011 to 2018. Mohamed v. Barr, 19-3356, slip op. (8th Cir. 12/23/2020). https://ecf.ca8.uscourts.gov/opndir/20/12/193356P.pdf
ADMINISTRATIVE LAW
• Filing period for LRIF-based permanent residence applications extended to 12/20/2021. On 1/12/2021, the Department of Homeland Security announced that the filing period for certain Liberian nationals and family members to apply for adjustment of status under the Liberian Refugee Immigration Fairness (LRIF) provision had been extended an additional year to 12/20/2021. https://content.govdelivery.com/accounts/USDHS/bulletins/2b5dc64?reqfrom=share
• Deferred enforced departure for Liberians extended to 6/30/2022. On 1/20/2021, President Biden issued a memorandum reinstating and extending deferred enforced departure (DED) for Liberian nationals, or persons without nationality who last habitually resided in Liberia, to 6/30/2022, provided they were present in the United States and under a grant of DED as of 1/10/2021. 86 Fed. Register, 7055-57 (1/25/2021). https://www.govinfo.gov/content/pkg/FR-2021-01-25/pdf/2021-01770.pdf
• Extension and re-designation of TPS for Syria. On 1/29/2021, Department of Homeland Security Acting Secretary Pekoske announced an 18-month extension and re-designation of Syria’s temporary protected status (TPS). Current beneficiaries under Syria’s TPS designation were deemed eligible to re-register for an extension of their status while those Syrians who entered the United States after 8/1/2016, and were otherwise eligible, would also be allowed to register for the first time. https://www.dhs.gov/news/2021/01/29/acting-dhs-secretary-pekoske-extends-temporary-protected-status-syria
• Deferred enforced departure for certain Venezuelans. On 1/19/2021, President Trump issued a memorandum directing the Departments of Homeland Security and State to defer, with certain exceptions, for 18 months the removal of any Venezuelan national, or noncitizen without nationality who last habitually resided in Venezuela, who is present in the United States as of 1/20/2021. 86 Fed. Register, 6845-46 (1/25/2021). https://www.govinfo.gov/content/pkg/FR-2021-01-25/pdf/2021-01718.pdf
• Reaffirmation: The United States is a nation of immigrants. On 2/2/2021, President Biden issued Executive Order 14012 (Restoring Faith in Our Legal Immigration Systems and Strengthening Integration and Inclusion Efforts for New Americans), reaffirming our nation’s character as one of opportunity and welcome. Noting that our nation is “enriched socially and economically by the presence of immigrants,” the order declared that the federal government should develop welcoming strategies promoting integration, inclusion, and citizenship, while embracing, at the same time, full participation of the newest Americans in our democracy. The order directed, among other things, that both the Departments of State and Homeland Security review existing regulations, orders, guidance documents, policies, and other similar agency actions that may conflict with those policy objectives. 86 Fed. Register, 8277-80 (2/5/2021). https://www.govinfo.gov/content/pkg/FR-2021-02-05/pdf/2021-02563.pdf
R. Mark Frey Frey Law Office
INTELLECTUAL PROPERTY
JUDICIAL LAW
• Copyright: Disputed ownership rights when works created by independent contractors. Judge Tunheim recently granted in part Peakspeed, Inc.’s motion for preliminary injunction. In 2019, Timothy Emerson formed EmersonAI to develop geospatial applications for Field Programmable Gate Arrays (FPGA), in particular the application TrueView. By the end of 2019, Emerson’s business advisor Dave Eaton wanted to create a new company to further develop TrueView. Peakspeed was formed. By mid-2020, Emerson felt he was being pushed out of Peakspeed. Emerson then allegedly modified the copyright notices of 230 files and locked Peakspeed from the AWS account and the servers, owned by Emerson. Peakspeed filed its complaint alleging it was the sole owner and exclusive user of the copyright to TrueView’s source code and that Emerson violated the Computer Fraud and Abuse Act and converted Peakspeed property.
To succeed on a copyright claim, a movant must demonstrate a right to own the copyright where ownership vests initially in the author or authors of the work. If there are joint authors, then they are co-owners of the copyright. The court found neither party was the sole author of TrueView. The parties agreed Emerson wrote 95% of the FGPA code, which constituted 10% of the total code. But TrueView required both the FGPA code and the host processing code, which was created by Oscar Kramer. Both parties argue that the other’s contributions were works for hire. Oscar and Emerson, however, were independent contractors, not employees, and neither had transferred their ownership interests by written conveyance. Accordingly, Peakspeed was likely to succeed on the merits of its claim that it has an undivided ownership interest in TrueView’s source code as a joint author. The court enjoined Emerson from interfering with or calling into question Peakspeed’s joint right to own and use TrueView’s source code. Peakspeed, Inc. v. Emerson, No. 20-1630 (JRT/BRT), 2020 U.S. Dist. LEXIS 248635 (D. Minn. 12/29/2020).
• Trade secrets: Identification of trade secrets requires specificity. Judge Schiltz recently granted in part defendants’ motion for summary judgment. ARPwave leased to defendant Garrett Salpeter electrostimulation devices and licensed Salpeter to operate an ARPwave clinic in Austin, Texas. After a few years, Salpeter stopped doing business as ARPwave and set up his own business using an electro-stimulation device he designed. ARPwave sued for patent infringement—previously dismissed for improper venue—breach of contract, misappropriation of trade secrets, unfair competition, conversion, and unjust enrichment. To prove misappropriation of a trade secret, plaintiff must show the defendant acquired the trade secret by improper means or disclosed the trade secret when under a duty to maintain its secrecy or limit its use. ARPwave accused defendants of misappropriating the following categories of trade secrets: (1) ARPwave’s devices; (2) its protocols; (3) its user manuals; (4) its contracts and similar business-related documentation; (5) unspecified confidential information that defendants obtained from in person and online seminars, webinars, and/or training sessions; and (6) its marketing terminology. ARPwave alleged that each component of every device was a trade secret. The court found that that could not possibly be true. The court found that ARPwave’s protocols were abstract and lacked the specificity necessary to be a trade secret. ARPwave’s briefing did not discuss the other categories of trade secrets. Because ARPwave failed to identify a protectable trade secret, ARPwave could not succeed on its misappropriation claim. The court granted defendants’ motion for summary judgment and dismissed the misappropriation of trade secrets claim with prejudice. ARPWave, LLC v. Salpeter, No. 18-cv-2046 (PJS/ECW), 2021 U.S. Dist. LEXIS 9552 (D. Minn. 1/19/2021).
Joe Dubis Merchant & Gould
REAL PROPERTY
JUDICIAL LAW
• Permitted exception: Purchase agreement. Red Star Group, LLC executed a purchase agreement on a parcel owned by 1933 Lyndale, LLC. 1933 Lyndale obtained and provided a title commitment to Red Star. The purchase agreement gave Red Star seven days to tender written objections. The title commitment excluded a $2.3 million mortgage. Red Star did not submit an objection. The day of the closing, Red Star informed 1933 Lyndale that it would not accept title subject to the mortgage. 1933 Lyndale provided a partial release and assurances that the mortgage would be satisfied and released at closing. Red Star refused to close, and commenced an action against 1933 Lyndale, asserting that it had breached of the purchase agreement by failing to provide marketable title. 1933 Lyndale moved for summary judgment, arguing that the mortgage was a permitted exception. The district court agreed, and granted summary judgment in favor of 1933 Lyndale. The court of appeals affirmed, holding that the mortgage was a permitted exception due to Red Star’s failure to timely object, and further that 1933 Lyndale’s obligation was to deliver marketable title at closing, which Red Star had failed to attend. Red Star Group, LLC, d/b/a Cheers v. 1933 Lyndale, LLC, 2021 WL 417010 (Minn. Ct. App. 2/8/2021) (unpublished).
Julie N. Nagorski DeWitt LLP
Patrick C. Summers DeWitt LLP
TAX LAW
JUDICIAL LAW
• Property tax: Mandatory disclosure rule strikes again! Petitioners timely filed property tax petitions contesting the 1/2/2019 assessment (for taxes payable in 2020) concerning three separate subject properties. The parties agree the properties are leased to third parties, thereby making them income-producing.
The county sought a motion to dismiss, alleging that petitioners failed to timely provide complete income and expense information for the subject properties. An affidavit by the county’s commercial appraiser stated that the county sent a courtesy letter to petitioner’s counsel noting their obligation to provide the necessary information by 8/1/2020. On 8/21/2020, the county received 2018 and 2019 profit and loss statements and tenant information. Petitioners oppose the county’s motion, arguing 1) that a portion of the information was not available on 8/1/2020, and 2) the covid-19 pandemic necessitates “‘extended and flexible deadlines,’ especially since there is little, if any, prejudice to the County.”
Under Minnesota’s mandatory disclosure rule, when the valuation of income-producing property is contested, the petitioner must provide the information listed in Minn. Stat. §278.05, subd. 6(a) to the county assessor by August 1 of the taxes payable year. Failure to disclose the required information by 8/1/2020 will result in a dismissal, even if the county is not prejudiced. See Kmart Corp. v. Cty. of Becker, 639 N.W.2d 856, 861 (Minn. 2002); see also BFW Co. v. Cty. of Ramsey, 566 N.W.2d 702, 703, 705 (Minn. 1997).
There are two exceptions for failing to supply the required information: “1) the failure to provide it was due to the unavailability of the information at the time that the information was due, or 2) the petitioner was not aware of or informed of the requirement to provide the information.” Minn. Stat. §278.05, subd. 6(b). Petitioners argued that 2020 budget information was not available at the time the information was due, therefore, the case should not be dismissed.
The court noted that during the hearing, petitioners acknowledged that five of the six enumerated pieces of information were available as of 8/1/2020. The Supreme Court has previously addressed this situation, concluding “the statute clearly requires the petitioner to provide any of the required information within its possession on the date of the deadline. The unavailability of one type of evidence does not render unavailable other types of information within the possession of the petitioner.” BFW Co., 566 N.W.2d at 705 (emphasis in original). Additionally, the court recognized the pressure placed on businesses during the pandemic but explained that the court has no authority to extend deadlines found in Minn. Stat. §278.05, subd. 6. Finally, the court concluded that the Supreme Court has rejected the argument that failure to disclose information should be forgiven because the county was not prejudiced. The statute gives no explicit exception for prejudice. Because the petitioners failed to provide timely information pursuant to the mandatory-disclosure rule, the petitioners’ tax appeals are dismissed. Tinos LLC v. Olmsted Co., 2020 WL 7485179 (Minn. Tax Court 12/10/20).
• Parties disagree over statute interpretation; petitioner’s definition helps commissioner. This case concerns the market value of Minnegasco’s natural gas distribution pipeline. The tax court previously filed findings of fact, conclusions of law, and order finding that the commissioner’s estimated unit value of the subject property overstated its actual unit value as of the assessment date. See CenterPoint Energy Res. Corp. v. Comm’r of Revenue, No. 9125-R, 2020 WL 4045620, at *1-2.
Minnesota Rule 8100 (2019) governs the valuation of formula-assessed pipeline property. The rule states in relevant part: “After the Minnesota portion of the unit value... is determined, any property which is non-formula-assessed or which is exempt from ad valorem tax, is deducted from the Minnesota portion of the unit value.” Minn. R. 8100.0500, subp. 1. This deduction produces apportionable market value. That value is then distributed among the various Minnesota taxing districts where the pipeline property is located. In the previous case, the court only determined the Minnesota unit value and instructed the commissioner to calculate the value of the property that is non-formula-assessed or exempt from ad valorem tax to arrive at Minnegasco’s taxable value. The commissioner was to then serve the calculation no later than 8/21/2020. The court gave Minnegasco a chance to object to the calculation and gave the commissioner a chance to respond to the objection.
On 8/21/2020, the commissioner filed a detailed calculation. Minnegasco subsequently filed an objection. Minnegasco argued that the commissioner’s calculation deviated from one key requirement of Rule 8100, and that deviation “results in an apportionable value $24,882,459 higher than that authorized by Rule 8100.” The commissioner responded that Minnegasco’s proposed calculation was inconsistent with Minnegasco’s own interpretation of Rule 8100 and understated apportionable market value.
The commissioner assesses pipeline property as a whole, using the unit-rule method. See Comm’r of Revenue v. Enbridge Energy, LP (Enbridge I), 923 N.W.2d 17, 20 (Minn. 2019). Rule 8100 details a four-step valuation and allocation process. The parties’ dispute focuses on the third step of the process: the subtraction for exempt and non-formula-assessed property (excludable property). See Rule 8100.0500. Minn. R. 8100.0500, subp. 3 states, “The Minnesota portion of the unit value is reduced by the value included in the unit value of the company for land, rights-of-way, nonoperating property, and exempt property. This amount is calculated by determining the ratio of the unit value computed in part 8100.0300, subpart 5, to the cost less depreciation allowed in part 8100.0300, subpart 3. This ratio is multiplied by the cost less depreciation of the property to be deducted.” (Emphasis added.) The parties disagree over the applicable meaning of “depreciation.”
In a detailed analysis of Rule 8100 and the plain meaning of the provisions surrounding “depreciation,” the court agreed with Minnegasco’s interpretation, but concludes that the commissioner’s alternative calculation proposed in her response to Minnegasco’s objections reflect the meaning of the rule accurately defined by Minnegasco. CenterPoint Energy Resources Corp. v. Comm’r of Revenue, 2020 WL 7485163 (Minn. Tax Court 12/15/2020).
• Property tax: Lakefront property appreciates in value. Petitioner David A. Kent filed a petition in the tax court’s Small Claims Division 4/29/2019 for taxes payable in 2019, with respect to real property located at 12435 State Highway 29 South, Hudson Township, in Douglas County. The petition alleged the estimated market value of the subject property as of 1/2/2018 exceeded its actual market value. The property is approximately 5.22 acres of land on Maple Lake, with two structures—one of them petitioners’ residence, and the other a pole shed.
During trial, Mr. Kent testified that the subject property was part of a larger, 6.7 acre parcel he purchased in August 2015, for the amount of $500,000, which he promptly subdivided following purchase—selling the smaller of the two subdivided parcels to a third party for $150,000 in 2015. (The smaller parcel is not at issue here.) Mr. Kent offered no expert testimony, no written appraisal, nor did he offer any testimony of other fact witnesses concerning the property valuation. Mr. Kent argued that the property is unique and incomparable to other properties. Mr. Kent contended that the only valid basis to determine the property’s market value is through an actual sale of the subject property. Mr. Kent further opined that the characteristics of the home on the property, its modest appearance compared to surrounding homes, and his knowledge of real estate leads him to believe the property is worth much less than its valuation.
The county moved for dismissal pursuant to Minnesota Rule of Civil Procedure 41.02(b), stating that Mr. Kent failed to meet his burden to demonstrate the estimated market value of the subject property was excessive. A party shall have the opportunity to offer evidence and arguments concerning the assessed value of property, but the burden is on the party appealing the assessment to show it is excessive. S. Minn. Beet Sugar Coop v. Cty. of Renville, 737 N.W.2d 545, 557-58 (Minn. 2007). “The taxpayer has the burden of proof at trial ‘to show that [the assessment] does not reflect the true market value of the property.’” Id. at 558.
When determining market value, the court may consider three traditional approaches to valuation: cost, income, and sales comparison See Equitable Life Assur. Soc’y of the US. v. Cty. of Ramsey, 530 N.W.2d 544, 552 (Minn. 1995). The sales approach values property “based on the price paid in actual market transactions of comparable properties” Lowe’s Home Ctrs., LLC (Plymouth) v. Cty. of Hennepin, 938 N.W.2d 48, 54 (Minn. 2020). The cost approach “determines the current cost of constructing the existing improvements on the property, subtracts depreciation to determine the current value of the improvements, and then adds the value of the land to determine the market value.” Id. “The court is not required to give weight to all valuation approaches and may place greater emphasis on a particular approach.” Equitable Life, 530 N.W.2d at 554.
Generally, the tax court is governed by the Minnesota Rules of Civil Procedure and the Minnesota Rules of Evidence. Minn. Stat. §271.06, subd. 7 (2020). Minn. R. Civ. P. 41.02(b) provides that, “after the plaintiff has completed the presentation of evidence, the defendant, without waiving the right to offer evidence in the event the motion is not granted, may move for a dismissal on the ground that upon the facts and law, the plaintiff has shown no right to relief.”
In its analysis, the court noted that although Mr. Kent is not required to offer a written appraisal to rebut the county’s property assessment, he must present substantial evidence to rebut the prima facie validity of the assessment. Instead, Mr. Kent contended that the property is unique and must be treated as such for valuation purposes. Therefore, the court found that Mr. Kent did not present credible evidence showing that the estimated market value was incorrect and granted the county’s motion for dismissal. Kent v. Douglas Co., 2020 WL 7682261 (Minn. Tax Court 12/21/2020).
• County may substitute appraisers when the previous one ends employment. On 4/28/2018, JMIR Marquette Hotel LLC (JMIR) filed a property tax petition in the tax court as to property taxes due in 2018, for the subject property located at 710 and 730 Marquette Avenue in Minneapolis, Minnesota. On 4/1/2019, the court filed a scheduling order, which was subsequently amended on 4/2/2020. Pretrial submissions from the parties included witness and exhibit lists, both of which disclosed Alyssa Browne as a trial witness. The scheduling order specifies that each written appraisal or expert report will serve as the authoring expert’s direct testimony at trial.
On 11/10/2020, the county moved to amend the scheduling order again, seeking modification to substitute Brian Kieser, chief appraiser with the City of Minneapolis Assessor’s Office, for Ms. Browne as the county’s expert witness. The county stated that Ms. Browne has since left her employment with the city for the private sector, and she contends that her expert testimony would conflict with her new role. The county stated that Mr. Kieser intended to adopt Ms. Browne’s appraisal. The county contended that cause existed to amend the scheduling order pursuant to Minn. R. Civ. P. 16.02. JMIR objected to the amendment and disputed that Ms. Browne is unavailable, stating that the court has the power to subpoena Ms. Browne.
A scheduling order “shall not be modified except by leave of court upon a showing of good cause.” Minn. R. Civ. P. 16.02. Factors in determining whether a pretrial order should be modified or amended include: “1) The degree of prejudice to the party seeking modification; 2) the degree of prejudice to the party opposing modification; 3) the impact of modification at that stage of litigation; and 4) the degree of willfulness, bad faith, or inexcusable neglect on the part of the party seeking modification.”
JMIR objected to amending the scheduling order on the grounds the departure of Ms. Browne from city employment does not constitute good cause for amendment. The county asserted it has shown good cause because without the amendment, it would have no appraisal and, therefore, no expert testimony. The county did not request extension of any deadlines that would delay the trial date; thus the court granted the county’s motion. JMIR Marquette Hotel LLC v. Hennepin Co., 2020 WL 7688062 (Minn. Tax Court 12/22/20).
• Government not required to separately assess tax liabilities of taxpayer against owners in order to collect those liabilities from owners. The government brought action against taxpayer, a C corporation, as well as owners of Henco’s stock who had allegedly received fraudulent transfers from the corporation. The government sought to reduce Henco’s unpaid tax liabilities to judgment, and asserted fraudulent transfer claims against the owners. District court dismissed action for failure to state a claim. The 11th Circuit reversed. The circuit court held that government was not required to separately assess tax liabilities of a taxpayer against the owners in order to collect those liabilities from the owners. In reaching this conclusion, the court parsed Sections 6502, 6502, and 6901. The court reasoned that its interpretation of those sections was bounded by the Supreme Court’s interpretation as announced in Leighton v. United States, 289 U.S. 506 (1933). The 11th Circuit opinion is notable for its exhaustive discussion of Leighton and subsequent related cases. The reviewing court also rejected a statute of limitations argument the court deemed “without merit.” United States v. Henco Holding Corp., No. 19-12758, ___ F.3d ___ 2021 WL 164324 (11th Cir. 1/19/2021).
• “Bumper crop” of hobby losses not permitted. In a colorful opinion, the tax court affirmed the commissioner’s conclusion that the taxpayer’s farming activity was not one engaged in for profit. As such, the majority of the taxpayer’s $1.5 million in claimed losses was not permitted. The taxpayer was a successful banker who began to operate “Sheepdog Farms” while continuing his banking career. Had the farm been an “activity engaged in for profit” as defined by the Code and Regulations, the farm’s losses, which far outpaced gains, would have been deductible. The “hobby loss” regulation sets out a number of factors to determine whether an activity is engaged in for profit. In this case, Judge Holmes works through what he characterizes as the “goofy” factors but seems to prefer “Judge Posner’s ‘holistic’ approach.” The latter, Judge Holmes notes, “would get us [to the same result] much more quickly.” The court noted the taxpayer’s full-time banking career, including 70+ hour work weeks, and summarized that the taxpayer “found this property and bought it. This let him work outdoors—something that he did as a child and enjoyed. But the property was a cattle farm with no cattle during all but part of one year at issue. It had consistent and substantial losses which totaled over $1.5 million from 2004-14. Even if he later cut and sold the timber, he had no chance of turning a profit; but Sheepdog Farms’ expense, if allowed, would substantially offset his income from other sources. That deduction is just what section 183 prevents.” Whatley v. Comm’r, T.C.M. (RIA) 2021-011 (T.C. 2021).
• Capital gain; self-employment tax; NOL; substantial understatement penalty. Accomplished neurosurgeon and entrepreneur Dr. Aaron Filler (who also holds a JD from Concord Law School, Kaplan University) challenged a $611,367 federal income tax deficiency and $122,273 penalty. The tax court addressed four issues, including whether Dr. Filler properly reported $100,000 of income received as capital gain; whether he was liable for self-employment tax; his entitlement to deduct a net operating loss (NOL) carryover; and finally, whether he is liable for a penalty under section 6662(a). The court found for the commissioner on all issues. The capital gain issue arose after Dr. Filler received payment from a corporation in which he held 75% interest in connection with a patent rights transfer. The patent was related to Dr. Filler’s development of technology related to medical imaging. Because Dr. Filler was “related” to the corporation (as defined in Sec. 1235), he was not entitled to capital treatment under Sec. 1235. In addition, Secs. 1222 and 1231 were unavailable because Dr. Filler had not held the property for the requisite holding period and there was no sale or exchange. The court determined Dr. Filler was a “mere middleman” and he did not acquire sufficient ownership interest to make his ensuing transfer a sale or exchange for capital gain purposes. The court spent scant time on the self-employment tax issue because Dr. Filler did not brief the issue and the court deemed that he had conceded it. The NOL matter, in contrast, generated a lengthy discussion despite the court’s ultimate finding that Dr. Filler’s arguments were “illogical” and his position had “no merit.” Finally, the court upheld the Sec. 6662 negligence or substantial understatement penalties. Dr. Filler’s education and sophistication, including his law degree, led the court to find he had not satisfied his burden to prove reasonable cause and good faith for any portion of the underpayment. Filler v. Comm’r, T.C.M. (RIA) 2021-006 (T.C. 2021).
• Additional tax due on early distribution from qualified retirement plan is not a “penalty.” Certain tax penalties cannot be imposed unless the IRS personnel obtains their immediate supervisor’s written approval before the penalties are assessed. Section 6751(b)(1) imposes this written approval requirement, which generally applies to “deficiency procedure penalties” (Secs. 6651-6665). It is not clear whether the supervisory approval requirement applies to other categories of penalties. In this dispute, a taxpayer who had taken early distribution from her pension plan argued that she should not be liable for the 10% addition of tax because the Service did not follow the written supervisory approval process before assessing the additional tax. (The taxpayer’s early distribution was not qualified and therefore Section 72(t)’s 10% tax on early distributions was applied.) The court rejected the taxpayer’s argument that approval was required. Section 6751(b)(1) does not apply to the section 72(t) exaction on early distributions from qualified retirement plans. Grajales v. Comm’r, No. 21119-17, 2021 WL 242409 (T.C. 1/25/2021).
• “Significant questions” about settlement officer’s actions in CDP case result in remand. In a collection due proceeding (CDP), the taxpaying couple requested an installment agreement, offering to pay $1,000 each month toward their tax debt. The couple provided required documents, including a specified form and a pay stub from taxpayer husband. Following some additional back-and-forth, including supplemental requested information and documentation from the taxpayers, the settlement officer rejected the taxpayer’s proposal and determined the taxpayers had just over $4,000 a month to pay toward their tax debt. The taxpayers sought review. Review of such a determination is under the familiar abuse of discretion standard: The court will uphold the determination unless it is “arbitrary, capricious, or without sound basis in fact or law.” Despite this generous standard of review, the court’s “[m]ultiple unanswered questions cast doubt on the settlement officer’s analysis.” One of the multiple issues the court flagged was that the settlement officer rejected the taxpayers’ installment agreement outright rather than giving them the opportunity either to accept the amount she believed they were able to pay or to make a counteroffer. Such an outright rejection has been enough to constitute an abuse of discretion in similar cases. These and other questions left the court was “unwilling to weigh the propriety of the settlement officer’s determination” because the record was insufficient. The court remanded the case for a supplemental hearing. Boettcher v. Comm’r, T.C.M. (RIA) 2021-004 (T.C. 2021).
Morgan Holcomb Mitchell Hamline School of Law
Sheena Denny Mitchell Hamline School of Law
TORTS & INSURANCE
JUDICIAL LAW
• Pre-verdict interest; notice of claim. Plaintiff was involved in a motor vehicle accident with Anderson. The accident resulted in serious injuries to plaintiff and the death of Anderson. In January 2017, plaintiff’s counsel sent a letter to Anderson’s insurer, stating that the law firm had been retained to represent respondent in connection with the accident, and sought to “confirm the existence and amount of coverage.” The letter also sought the claim number and any information that the insurance claims office had in its possession regarding the accident. In August 2018, plaintiff filed suit against defendant, the personal representative of Anderson’s estate. After the jury returned a verdict finding plaintiff 25% at fault and Anderson 75% at fault, the district court granted plaintiff’s motion for additur in the amount of $15,000 for past pain and suffering and granted pre-verdict interest from the date of the January 2017 letter.
The Minnesota Court of Appeals affirmed. With respect to what constitutes a “notice of claim,” an issue of first impression, the court held: “a written notice of claim need not identify a specific amount of damages to trigger preverdict interest under Minn. Stat. §549.09, subd. 1(b).” “Instead, to constitute a ‘notice of claim’ under the statute, the written notice must be sufficient to allow the noticed party to determine ‘its potential liability from a generally recognized objective standard of measurement.’” While the January 2017 letter did not demand a specific amount of money, it was sufficient to constitute a notice of claim because it “sufficiently notified the insurer that respondent was making a claim for damages as a result of the accident and that the insurer, based upon the information in the letter and in its claim file, was sufficiently notified of its potential liability to respondent.” The court went on to affirm the district court’s decision to award pre-verdict interest on additur damages, holding that they did not fall within the exception for “other similar items added by the court” found in Minn. Stat. §549.09, subd. 1(b)(5). Blehr v. Anderson, A20-0691 (Minn. Ct. App. 1/11/2021). https://mn.gov/law-library-stat/archive/ctappub/2021/OPa200691-011121.pdf
Jeff Mulder Bassford Remele