CRIMINAL LAW
JUDICIAL LAW
• Controlled substances: Chemical test of marijuana not required to establish probable cause. After police found nearly 60 grams of suspected marijuana in appellant’s vehicle, he was charged with fifth-degree possession. He moved to dismiss the charge for lack of probable cause, arguing the field test performed on the suspected marijuana merely detected the presence of THC, but did not test the THC concentration to determine if the substance was illegal marijuana or legal hemp. The district court granted appellant’s motion, finding that, as a matter of law, chemical testing to establish that the THC concentration in plant material exceeds the legal limit is required to establish probable cause. The state appealed.
The court of appeals reverses, rejecting a bright-line rule that a chemical test of a suspected controlled substance is required to establish the substance’s identity. Certainly, proof of the actual identity of the substance is required, but circumstantial evidence and officer testimony may be used to prove the identity of the substance at trial and to show probable cause exists to believe the substance is what the state claims it to be. The record here showed police stopped appellant for a traffic violation, smelled marijuana in his vehicle, discovered appellant’s multiple prior controlled substance convictions, recovered substances they suspected to be marijuana after field testing, and obtained a post-Miranda admission from appellant that he possessed marijuana in the vehicle. If proven at trial, a jury could reasonably infer from these facts that the plant material in appellant’s vehicle was marijuana. As such, these facts are sufficient to support a finding of probable cause. State v. Dixon, A21-0205, 2021 WL 2908645 (Minn. Ct. App. 7/12/2021).
• 6th Amendment: Failure to have jury determine dates of sex offenses was a Blakely violation, but harmless error. A jury found appellant guilty of two counts of criminal sexual conduct against two of his girlfriend’s minor daughters, between January 2004 and March 2018, and between January 2006 and June 2018. The jury was not asked to determine the dates or date ranges for the offenses. The district court sentenced appellant in accordance with the sentencing guidelines in effect after 8/1/2006, finding no evidence that the offenses occurred in 2006 or earlier. The court of appeals agreed with appellant that the district court violated Blakely v. Washington, 542 U.S. 296 (2004), by finding the earliest offense occurred after 8/1/2006, but found the error harmless.
Blakely protects a criminal defendant’s 6th Amendment right to be sentenced solely upon factual findings made by a jury. A Blakely violation “occurs when a court determines any disputed fact essential to increase the ceiling of a potential sentence, including factual findings related to offense dates, without the defendant waiving the right to a jury’s determination of that issue.” The parties here agree that the district court’s determination that the offenses occurred after 8/1/2006 violated Blakely. Because a Blakely violation does not rise to the level of a structural error, it is subject to the harmless error standard.
Despite the date ranges alleged in the complaint, no evidence was presented at trial of any criminal sexual conduct acts against either victim before 2009. Appellant also did not argue that he would present evidence relating to the timing of the offenses. Thus, there is no reasonable doubt that the result would have been different if the Blakely violation had not occurred, and the error was harmless. State v. Reimer, A19-1801, 962 N.W.2d 196 (Minn. 2021).
• Right to a public trial applies to Schwartz hearings. After a jury trial, appellant was found guilty of second-degree intentional murder for shooting a man at a gas station. After trial, the district court received evaluation forms from the jurors, on which one juror reported sharing with other jurors during deliberations information on what is taught during conceal and carry permit classes, information that was not presented as evidence at trial. The district court granted appellant’s motion for a Schwartz hearing to determine if the juror’s conduct in presenting extraneous information during deliberations affected appellant’s right to a fair trial. After a prehearing conference, a newspaper published the reason for the upcoming Schwartz hearing. The district court bifurcated the Schwartz hearing to allow two jurors who had travel plans to attend early. To prevent the newspaper from “contaminating” the second hearing, the district court closed the first hearing to the public. After both sessions of the hearing, the court concluded the extraneous information did not affect the jury’s verdict.
Among other arguments, appellant argued on appeal that the closure of the courtroom during the first Schwartz hearing session violated his 6th Amendment right to a public trial. The public trial right applies to all phases of trial, including pretrial suppression hearings and voir dire, but not including the court’s tending to administrative matters. A Schwartz hearing is not merely administrative, as it involves questioning jurors under oath to obtain information to determine whether a party was denied a fair trial. Such a hearing could result in a legal determination that undermines the result of an entire trial and, the court of appeals concludes, is a substantive phase of the criminal trial, implicating the right to a public trial.
In this case, the closure of the first Schwartz hearing to the public was improper, as the district court did not consider alternatives to closure or narrowly tailor the closure to address its concern over media “contamination.” An improper closure is a structural error, but a new trial is not automatically required. Here, a limited remand is deemed the appropriate remedy, given that the improper closure was of only a small segment of the post-trial Schwartz hearing. The matter is remanded for the district court to conduct a new, public Schwartz hearing involving the first two jurors. State v. Jackson, A20-0779, 2021 WL 3027204 (Minn. Ct. App. 7/19/2021).
Samantha Foertsch
Bruno Law PLLC
samantha@brunolaw.com
Stephen Foertsch
Bruno Law PLLC
stephen@brunolaw.com
ENVIRONMENTAL LAW
JUDICIAL LAW
• MN Court of Appeals remands PolyMet air permit to MPCA. In July the Minnesota Court of Appeals remanded to the Minnesota Pollution Control Agency (MPCA) an air emissions permit MPCA issued to Poly Met Mining Inc. for its NorthMet mine. If built, NorthMet would be the first copper-nickel-platinum mine in Minnesota.
This dispute arose in December 2018, when several environmental groups and the Fond du Lac Band of Lake Superior Chippewa raised concerns that the production capacity of the existing facilities at the NorthMet mine site were higher than the rate stipulated in the company’s application for a minor air permit. When this issue first reached the court of appeals, the court concluded MPCA had failed to take a “hard look” into the evidence of the possible “sham” permitting. In re Issuance of Air Emissions Permit No. 13700345-101 for PolyMet Mining Inc., 943 N.W.2d 399, 409 (Minn. App. 2020). In February of this year, the Minnesota Supreme Court reversed, holding that while a permitting agency may investigate sham permitting at the synthetic minor source permit application stage, it is not required to do so. In re Issuance of Air Emissions Permit No. 13700345-101 for PolyMet Mining Inc., Nos. A19-0115 and A19-0134, 2021 WL 710490 (Minn. 2/24/2021). However, the Supreme Court remanded to the court of appeals two other arguments asserted by the environmental groups that the court of appeals had not addressed. These included assertions that the permit should have been denied because (a) evidence in the record did not support MPCA’s conclusion that PolyMet “will... comply with all conditions of the permit,” Minn. R. 7007.1000, subp. 1(G), and (b) PolyMet allegedly “failed to disclose fully all facts relevant” to the permit and “knowingly submitted false or misleading information to the agency.” Id., subp. 2(C).
Under the Clean Air Act, a source must seek permitting based on its tonnage per year of pollution. A facility that emits over 250 tons per year (tpy) of any regulated pollutant constitutes a major stationary source, triggering various requirements under the Clean Air Act, including the requirement to implement best available control technology measures. 40 C.F.R. §52.21(b)(12). The review process and permit requirements for major source permits are more rigorous than for minor source permits. MPCA concluded NorthMet would emit fewer than 250 tpy of any regulated pollutant and thus issued a minor air emissions permit. The permit challengers argued that MPCA’s conclusion was belied by, among other things, an investor report PolyMet’s Canadian parent company filed with Canadian regulatory authorities 10 days after the comment period closed on the proposed NorthMet air permit. The report provided a preliminary economic analysis of scenarios where NorthMet would increase its ore-processing rates to levels that would result in major-level air emissions. This, the challengers alleged, constituted evidence that NorthMet was likely to exceed the emissions threshold such that MPCA wrongly issued the permit as a minor permit.
Addressing these issues on remand, the court of appeals concluded MPCA had failed to meet its obligation to consider pertinent documents and make reflective findings on whether NorthMet was likely to comply with the minor permit or had knowingly submitted false or misleading information. MPCA’s limited efforts to address the Canadian report and related evidence, the court held, amounted to conclusory statements that inadequately explained the reasons for MPCA’s decisions on these issues. In remanding to MPCA for additional findings and a revised decision on the permit, the court emphasized that its holding was not that the record couldn’t support a reasoned decision by MPCA to issue a permit, but that the agency so far had failed to make such a reasoned decision. In re Issuance of Air Emissions Permit No. 13700345-101 for PolyMet Mining Inc., Nos. A19-0115 and A19-0134, 2021 WL 710490 (Minn. 7/19/2021).
ADMINISTRATIVE ACTION
• MPCA adopts Clean Cars Minnesota rule. In late July, the Minnesota Pollution Control Agency (MPCA) published notice of its final adoption of amended air rules to reduce the state’s vehicle greenhouse gas emission standards, known as “Clean Cars Minnesota.” The MPCA published its notice of intent to adopt the Clean Cars Minnesota rule in December 2020. 45 Minn. Reg. 663 (12/21/2020).
The Clean Air Act (CAA) authorizes the Environmental Protection Agency to set federal vehicle emission standards that states must follow. 42 U.S.C. §7521. However, Section 177 of the CAA grants states the power to adopt vehicle emission standards that are more stringent than the federal standard, so long as the standards are identical to California’s standards, and the emission standards are adopted at least two years before commencement of such vehicle model year. 42 U.S.C. §7507. Section 116.07, subdivision 2, of the Minnesota Statutes authorizes MPCA to adopt standards of air quality, including the maximum allowable standards of emission of air contaminants from motor vehicles; and subdivision 4 of the same section authorizes MPCA to adopt, amend, and rescind rules for the prevention, abatement, or control of air pollution. Minn. Stat. §116.07 subd. 2, 4 (2020).
The Clean Cars Minnesota standards implement two components of reduced vehicle emissions standards for light-duty and medium-duty vehicles. First, the low emission vehicle standard requires vehicle manufacturers to deliver for sale within Minnesota only vehicles that meet California’s more stringent tailpipe emission standards for greenhouse gases (GHGs) and other air pollutants. Second, the zero-emission vehicle standard requires auto manufacturers to provide for sale within Minnesota a certain percentage of vehicles with zero tailpipe emissions, such as battery electric vehicles, plug-in hybrid electric vehicles, and hydrogen-fueled vehicles.
The Clean Cars Minnesota standards do not apply to off-road vehicles or heavy-duty equipment like farm machinery. The standards do not require anyone to give up their current vehicle or to purchase an electric vehicle, and they do not apply to existing vehicles or used vehicles up for sale.
As required under the CAA, two full vehicle model years must occur before Clean Cars Minnesota may be enforced, so the earliest date the Clean Cars Minnesota rule could take effect is 1/1/2024, for vehicles built under the model year 2025. However, the rule also includes an incentive system to encourage manufacturers to bring electric vehicles to the state sooner, beginning with model year 2022.
Minnesota is the 15th state to adopt California’s more stringent vehicle omission standards, and the first state in the Midwest. Adopted Permanent Rules Relating to Clean Cars, 46 Minn. Reg. 66 (7/26/2021).
Jeremy P. Greenhouse
The Environmental Law Group, Ltd.
jgreenhouse@envirolawgroup.com
Jake Beckstrom
Vermont Law School, 2015
jbmnusa@gmail.com
Erik Ordahl
Barna, Guzy & Steffen
eordahl@bgs.com
FEDERAL PRACTICE
JUDICIAL LAW
• Fed. R. Civ. P. 54; preliminary injunction; attorney’s fees; timing of application. In a decision that is likely to have major implications when plaintiffs prevail on a request for a preliminary injunction and when attorney’s fees are available to prevailing parties, the 8th Circuit held that the entry of an order granting a preliminary injunction constitutes the “entry of judgment” that triggers a 14-day deadline to move for attorney’s fees under Fed. R. Civ. P. 54. The court recognized that the advisory committee notes indicated that the deadline for motions for attorney’s fees should be 14 days after entry of the final judgment, but found that it was bound by the plain language of the rule.
Acknowledging the absence of controlling authority directly on point, the 8th Circuit found no abuse of discretion in the district court’s alternative holding that the plaintiffs had established excusable neglect for their failure to seek attorney’s fees within Rule 54’s deadline. However, in light of this decision, future litigants who obtain preliminary injunctions may find courts far less understanding if they fail to seek attorney’s fees within 14 days of entry of a preliminary injunction. Spirit Lake Tribe v. Jaeger, ___ F.4th ___ (8th Cir. 2021).
• Subject matter jurisdiction on appeal; standing. After the defendant appealed the district court’s rulings on the parties’ motions for judgment as a matter of law and its partial award of attorney’s fees to the plaintiff, and briefing in the 8th Circuit had been completed, the defendant moved to dismiss the appeal for lack of subject matter jurisdiction, arguing that the district court’s determination that the plaintiff had failed to establish his right to damages or equitable relief meant that he lacked standing. The 8th Circuit rejected that argument and denied the motion to dismiss, finding that it was “not appropriate for the [defendant] to work backward in seeking to disrupt subject matter jurisdiction based on the district court’s post trial order on the merits of this case.” Quiles v. Union Pac. R.R. Co., ___ F.4th ___ (8th Cir. 2021).
• CAFA; local controversy exception; remand; appealable order. Reaffirming that a remand order relying on the local controversy exception to CAFA is a final order appealable under 28 U.S.C. §1291 even where the 8th Circuit had previously denied permission to appeal under 28 U.S.C. §1453(c), the 8th Circuit determined that the local controversy exception did not apply and reversed the district court’s remand order. Kitchin v. Bridgeton Landfill, LLC, 3 F.4th 1089 (8th Cir. 2021).
• Forum selection clause; removal; remand. Where a forum selection clause in a contract required litigation in a county where no federal court was located and that clause contained an anti-removal provision, the 8th Circuit affirmed the district court’s dismissal of a federal court action. Smart Commc’ns Collier Inc. v. Pope Cty. Sheriff’s Office, ___ F.4th ___ (8th Cir. 2021).
• Appeal from striking of expert witness under Daubert; waiver of argument. Affirming a district court’s striking of the plaintiff’s witness under Daubert, the 8th Circuit found that the plaintiff had waived one of his design defect arguments when he argued that his expert “cited other numerous alternative designs,” but did not “meaningfully advance his argument.” McMahon v. Robert Bosch Tool Corp., ___ F.4th ___ (8th Cir. 2021).
• Attorney’s fee award of over $1.1 million affirmed. Rejecting the defendants’ contention that the district court had abused its discretion by failing to specifically address each of their objections to the plaintiffs’ attorney’s fees application, the 8th Circuit found that the district court had “closely scrutinized Plaintiffs’ billing records” and affirmed an award of more than $1.1 million in attorney’s fees. League of Women Voters of Mo. v. Ashcroft, ___ F.4th ___ (8th Cir. 2021).
• Trial witness barred due to untimely disclosure. Where the plaintiff filed an amended witness list that attempted to add a witness more than two months after the deadline for disclosing trial witnesses, and the defendants requested that the witness be barred from testifying, Judge Nelson found that the plaintiff had not established the “good cause” required to support the amended witness list. Judge Nelson also found that the plaintiff’s offer to produce its new witness for a deposition on the eve of trial “would not cure the prejudice to Defendants” caused the by late addition. Asset Mktg. Servs., LLC v. JAM Prods., Inc., 2021 WL 3137497 (D. Minn. 7/23/2021).
• Motions to intervene denied due to untimeliness. Where proposed intervenors did not seek to intervene until after Judge Ericksen had entered summary judgment, and the parties opposed the motions to intervene, Judge Ericksen found that all four of the relevant factors weighed against intervention and denied the motions. United Food & Commercial Workers Union v. United State Dept. of Ag., 2021 WL 2010779 (D. Minn. 5/20/2021).
• Patent litigation; motions for summary judgment and sanctions denied as “premature.” Where the defendant moved for summary judgment and Fed. R. Civ. P. 11 sanctions prior to substantial discovery and claim construction, Chief Judge Tunheim denied both motions without prejudice as “premature.” Halverson Wood Prods., Inc. v. Classified Sys. LLC, 2021 WL 3036883 (D. Minn. 7/19/2021).
• Motion to strike deposition errata sheet granted in part. Where the plaintiff’s Fed. R. Civ. P. 30(b)(6) designee listed a number of substantive changes to her deposition testimony on her errata sheet and the defendant moved to strike the errata sheet, Magistrate Judge Thorson applied the prevailing “flexible” approach, found that a few of the proposed changes to the transcript were sufficiently justified, but struck the majority of the proposed changes, finding no “sufficient justification.” Willoughby II Homeowners Assoc. v. Hiscox Ins. Co., 2021 WL 3077070 (D. Minn. 7/21/2021).
• Fed. R. Civ. P. 41(a)(1); request for conditions on dismissal denied. Where the plaintiffs moved to dismiss their claims with prejudice, and the defendants opposed that motion unless the plaintiffs were also ordered to pay the defendants’ attorney’s fees, costs, and disbursements, Judge Frank denied the defendants’ request and granted the plaintiffs’ motion to dismiss “without condition.” Iglesias de Castro v. Castro, 2021 WL 1600482 (D. Minn. 4/23/2021).
• Fed. R. Civ. P. 15(d); supplemental complaint; applicable standard. Granting the plaintiffs’ motion pursuant to Fed. R. Civ. P. 15(d) to supplement their complaint, Magistrate Judge Leung applied the same “liberality” that applies to motions to amend under Fed. R. Civ. P. 15(a). Dekker v. Cenlar FSB, 2021 WL 2950143 (D. Minn. 7/14/2021).
• Request for expedited discovery granted in part and denied in part following grant of motion for preliminary injunction. Granting the plaintiff’s motion for a preliminary injunction, Judge Wright found that the plaintiff could not establish “good cause” for its “extremely broad” discovery requests, but did grant its motion for expedited discovery, limited to “communications that may self-destruct.” Powerlift Door Consultants, Inc. v. Shepard, 2021 WL 2911177 (D. Minn. 7/12/2021).
Josh Jacobson
Law Office of Josh Jacobson
joshjacobsonlaw@gmail.com
INDIAN LAW
JUDICIAL LAW
• Tribal police officer has authority to temporarily detain and search non-Indian individuals traveling on public right-of-way on Indian reservation for possible violations of state or federal law. An officer working for the Crow Tribal Police Department approached a vehicle parked on a public right-of-way within the boundaries of the Crow Reservation, and saw an individual who appeared to be non-Indian with indicia of drug use and firearms in the vehicle. Fearing violence, the tribal officer conducted a pat-down search and called for additional officers before seizing the contraband. The Supreme Court held that the tribal officer’s temporary detention and search of the non-Indian was allowable under the Crow Tribe’s inherent sovereign authority over the conduct of non-Indians on the reservation where that conduct threatens the health or welfare of the tribe. In doing so, it rejected the 9th Circuit’s restrictive standards that a tribal officer be required to attempt to ascertain the Indian status of the stopped individual, and if non-Indian, only be allowed to temporarily detain the individual if the violation of state or federal law was “apparent.” United States v. Cooley, 141 S.Ct. 1638 (2021).
• Tribal activities and lands exemption in Gov. Walz’s emergency executive order restricting on-premises consumption of food and beverages not an equal protection violation. The Minnesota Commissioner of Health filed a civil complaint, motion for temporary restraining order, and temporary injunction against Havens Garden restaurant for violation of Emergency Executive Order No. 20-99, which restricted on-premises consumption of food and drink from 11/20/2020 – 12/18/2020. In response, the restaurant argued that the executive order’s exemption for tribal restaurants violated the equal protection clauses of the Minnesota and United States Constitutions. The Minnesota Court of Appeals rejected this argument, finding that rational-basis security applied to this question of classification based on tribal membership in state laws that promote the congressional policy of tribal self-governance; and, the executive order met this standard by furthering the ability of sovereign tribal authorities to self-govern their members on public health issues. Minnesota v. Sw. Sch. of Dance, LLC., No. A20-1612, 2021 WL 2794654 (Minn. Ct. App. 7/6/2021).
• Tribal member per capita payments received from Indian tribe not subject to turnover in Chapter 7 bankruptcy. Following her Chapter 7 bankruptcy filing, debtor and enrolled member of the Pokagon Band of Potawatomi Indians continued to receive an apportioned monthly payment of the band’s net gaming revenues on a per capita basis. The bankruptcy court rejected the trustee’s motion to turn over those payments as property of the estate, holding that because the band’s revenue allocation plan complied with all federal law requirements, its language that no vested property rights or interest in payments are created by the plan controls. In re Musel, No. 20-42761, 2021 WL 2843847 (Bkr. Ct. D. Minn. 7/7/2021).
• 6th Amendment fair representation claim fails where defendant did not establish underrepresentation of Native Americans in jury pool. Following his convictions for several firearms and drug distribution offenses, Native American defendant who was tried in the Central Division of South Dakota moved for a new trial due to the absence of Native Americans on his jury panel. The 8th Circuit Court of Appeals held that the use of voter registration rolls to compile the master jury pool withstands constitutional scrutiny, absent a showing of systematic exclusion of Native Americans from the jury selection process, and that the 6th Amendment’s fair cross-section requirement applies only to the composition of the jury pool, not the jury ultimately chosen. United States v. Erickson, 999 F.3d 622 (8th Cir. 2021).
Leah K. Jurss
Hogen Adams PLLC
ljurss@hogenadams.com
INTELLECTUAL PROPERTY
JUDICIAL LAW
• Copyright: No presumption of validity when registered more than five years after first publication. Judge Magnuson recently denied plaintiff MPAY Inc.’s motion for summary judgment of copyright infringement. MPAY sued defendants Erie Custom Computer Applications, Inc., Payroll World, Inc., PayDay USA, Inc., Proliant, Inc., Proliant Technologies, Inc., and Kevin Clayton over disputes involving software code for payroll systems. MPAY asserted that defendants’ providing of source code and allegedly improper sublicensing breached the parties’ contracts and constituted copyright infringement. To prove a claim of copyright infringement, a plaintiff must prove ownership of a valid copyright. Despite owning the source code at issue for more than 20 years, MPAY did not register any copyrights in the code until weeks or days before filing the lawsuit. The Copyright Act creates a presumption of validity where works are registered within five years of first publication. 17 U.S.C. §401(c). Because MPAY did not register the source code within five years of first publication, no presumption of validity attached. The court further found that at the summary judgment stage, MPAY had not established the validity of its copyrights. The court concluded that merely establishing that the parties acted as if the copyrights were valid is insufficient to establish the validity of copyrights. MPAY Inc. v. Erie Custom Comput. Applications, Inc., No. 19-704 (PAM/BRT), 2021 U.S. Dist. Lexis 116634 (D. Minn. 6/22/2021).
• Trademark: Likelihood of confusion when licensee continues use of trademark after termination of license. Judge Wright recently granted Powerlift Door Consultants, Inc.’s motion for preliminary injunction against defendants Lynn Shepard, Rearden Steel Manufacturing LLC, Rearden Steel Inc., and ABC Corporation. Powerlift sued defendants alleging breach of contract and trademark infringement related to the parties’ distribution agreement for Powerlift’s hydraulic lift doors. Powerlift moved for a temporary restraining order, preliminary injunctive relief, and expedited discovery seeking to enjoin defendants from using Powerlift’s trademarks and confidential information. To establish a claim for federal trademark infringement, Powerlift is required to show (1) it has a valid, protectable trademark and (2) the unauthorized use of that trademark creates a likelihood of confusion. Powerlift established a five-year period of continuous use of its registered trademarks rendering the marks incontestable and establishing a likelihood that Powerlift would prove valid and protectable trademarks. The court found that continued trademark use by one whose trademark license has been cancelled satisfies the likelihood of confusion test and constitutes trademark infringement. As defendants did not contest Powerlift’s assertions of continued use of Powerlift’s trademarks after termination of the distribution agreement, a likelihood of confusion exists. The court then found irreparable harm, that the balance of factors favored Powerlift, and that the public was not disserved by injunctive relief. Thus, the court enjoined defendants from using Powerlift’s registered trademarks. Powerlift Door Consultants, Inc. v. Shepard, No. 21-cv-1316, 2021 U.S. Dist. LEXIS 129189 (D. Minn. 7/12/2021).
Joe Dubis
Merchant & Gould
jdubis@merchantgould.com
REAL PROPERTY
JUDICIAL LAW
• Attorney fee recovery in watershed district actions and appealing on separate and distinct issues after accepting a remittitur. One issue before the Minnesota Supreme Court in a case spanning over 15 years was the interpretation of Minn. Stat. §103D.545, subd. 3, a provision governing watershed districts. The subdivision read: “In any civil action arising from or related to a rule, order, or stipulation agreement made or a permit issued or denied by the managers under this chapter, the court may award the prevailing party reasonable attorney fees and costs.” The Court determined that the statute was susceptible to two reasonable interpretations: (1) fees are authorized in any civil action with any connection, association, or logical relationship to a watershed rule; and (2) fees are authorized only in those types of civil enforcement actions outlined in the other subdivisions of Section 103D.545: criminal prosecution, injunction, action to compel performance, restoration, abatement, or other appropriate action.
After reviewing the legislative history, consequences of each interpretation, and interpreting the statute as a whole, it concluded that the second interpretation was more reasonable: The subdivision applies only to those types of civil actions seeking to enforce or challenge watershed district actions. Applying that interpretation and reviewing the pleadings, motions, and district court orders throughout the case’s 15-year history, the Court concluded that the plaintiffs did not seek to enforce the watershed rule at issue; instead, they sought only to enforce the relevant county ordinances. A “stray” assertion of a watershed district violation is not sufficient to fall within the scope of Minn. Stat. §103D.545, subd. 3. The Court, however, declined to establish a bright line rule as to whether a private party may recover fees under this statute. The other issue before the Court was whether the plaintiffs were barred from appealing from the final judgment after accepting a remittitur of a jury’s future damages award in lieu of a new trial. The Minnesota Supreme Court adopted the “separate and distinct rule” permitting a party who accepts a remittitur to appeal from the final judgment on issues unrelated to the remittitur. The Court did not define the scope of this rule, but clarified that legal determinations made by the district court that were never presented to or considered by the jury are issues separate and distinct from a remittitur, including awards of statutory interest and attorney fees. Roach v. County of Becker, No. A19-2083, ___ N.W.2d. ___, 2021 WL 3073286 (Minn. 7/21/2021).
• Conditional use permit for solar installation on agricultural land wrongfully denied by county. The McLeod County Board acted arbitrarily and capriciously when it denied a conditional use permit to build solar panels on leased agricultural property in the county. The board rejected the permit for two reasons: (1) “concern for the preservation and protection of land values,” and (2) the “property is considered prime agricultural soil.” In support of the underlying application, the relators submitted two reports—one from Chisago County and another from an expert appraiser—indicating that such an installation would not impact neighboring property values. Additionally, McLeod County’s director of environmental services testified that no public data suggested that installing a solar array decreases neighboring property values. The only evidence in the record supporting the conclusion that property values could be diminished was neighbor statements opposed to the solar installation, but those statements were not buttressed by expert opinion or other “concrete information.” On this record, the Minnesota Court of Appeals held that the record did not support the first reason for the county board’s denial. Moreover, after reviewing the county’s zoning ordinance, the court of appeals concluded that the second rationale for denying the permit application was not a valid rationale under the county’s zoning ordinances. The court further concluded that the second rationale was not supported by the record either, as the owner of the land to be leased testified that the parcel of property was off the main tillable area, near a gas regulator that created problems for farming, and was not prime farming land. The court of appeals reversed and remanded with instructions to approve the conditional use permit. Matter of United States Solar Corp., No. A20-1043, 2021 WL 2909044 (Minn. Ct. App. 7/12/2021).
Zack Armstrong
DeWitt LLP
zpa@dewittllp.com
TAX LAW
JUDICIAL LAW
• Holistic inquiry required to decide if commissioner’s position was substantially justified for purpose of awarding costs to prevailing party. Mr. Morreale operated hotels and restaurants in the Denver area. He was in a tax dispute with the Service, and simultaneously was involved in bankruptcy proceedings. One of the issues in the tax dispute was whether Mr. Morreale’s pass-through entity was a cash or accrual method taxpayer. Ultimately, Mr. Morreale prevailed on the cash versus accrual question and the commissioner conceded that Morreale was the prevailing party. Prevailing parties are entitled to costs in certain situations. IRC §7430. However, costs are not awarded if the commissioner’s position was “substantially justified.” See Section 7430.
A recent 10th Circuit opinion changed how the court approached the substantial justification question. The tax court has in the past applied an item-by-item analysis, whereby “[t]he justification for each of U.S.’s positions must be independently determined.” However, the 10th Circuit called this item-by-item analysis “erroneous” and instead held that the proper inquiry is a singular, holistic inquiry to determine the government’s position rather than multiple itemized contentions. United States v. Johnson, 920 F.3d 639 (10th Cir. 2019). The tax court discussed how it would apply the holistic Johnson standard. Construing the Johnson standard to permit an inquiry into whether the government acted reasonably in causing the litigation, the court found that the IRS’s position was not substantially justified.
Despite clearing both of these hurdles, Morreale recovered only a small fraction of the amount he requested, because the court limited the award to costs associated with the tax dispute, and not the bankruptcy proceeding. Morreale v. Comm’r, T.C.M. (RIA) 2021-090 (T.C. 2021).
• Joint challenge permissible in “passport case.” Taxpayers with seriously delinquent tax debt are at risk of having their passports revoked (or not issued). Section 7345 gives the commissioner the authority to certify to the Secretary of State that an individual has a “seriously delinquent tax debt,” which then prompts the Secretary of State to revoke the delinquent’s passport. That same section also gives taxpayers a right to petition the tax court if the taxpayer believes the certification was erroneous and/or when the commissioner has failed to reverse the certification.
In this case, the married taxpayers owed more than half a million dollars in unpaid tax liability. The taxpayers challenged the IRS’s certifications in a joint petition in which they claimed that the IRS failed to consider an offer-in-compromise (OIC) they had previously submitted. Acknowledging the outstanding OIC, the IRS subsequently reversed the taxpayers’ certification and notified the State Department that the taxpayers were certified in error.
The court first took up the issue of whether a joint challenge is permissible when taxpayers receive individual notices under Section 7345. Noting that this was a threshold question and one of first impression, the court reasoned by analogy to other instances in which joint filing is permitted and held it to be likewise appropriate here. In addition to the analogous reasoning, the court noted that a contrary decision would waste judicial resources and could create hardship for taxpayers.
Although the joint petition was permissible, no relief was appropriate because the case was moot since the IRS reversed its certification and informed the State Department. (Mr. Garcia died before the tax court heard the case. It was not Mr. Garcia’s death, but the IRS’s reversal, that rendered the case moot as to Mr. Garcia.) The tax court rejected the invitation to reach the merits of the Garcia’s offer-in-compromise because the court “lack[s] authority in a passport case such as this to afford the relief petitioners seek.” Garcia v. Comm’r, No. 7612-20P, 2021 WL 3029555 (T.C. 7/19/2021).
• Small clientele, big tax problems. A family-owned Oklahoma childcare center with several centers ran afoul of numerous tax provisions over a number of years. In separate opinions, the tax court addressed the various transgressions. In the first opinion, Blossom Day Care Centers, Inc. v. Comm’r, T.C.M. (RIA) 2021-086 (T.C. 2021), the court agreed with the commissioner’s determination that the daycare center had misclassified its corporate officers and agreed with the commissioner’s determination that the center was liable for employment taxes, penalties under section 6656 for failure to deposit tax, and accuracy-related penalties under section 6662(a) for negligence. In a second, and more extensive opinion, Blossom Day Care Centers, Inc. v. Comm’r, T.C.M. (RIA) 2021-087 (T.C. 2021), the court addressed 14 issues, including failure to report various items of income, mischaracterization, improper deductions for personal expenses, and others. The opinion provides a roadmap of what can go wrong when the taxpayer is, as the court characterized, “sloppy.” Despite the errors, the court did not allow penalties for fraud, concluding that “respondent has not met the burden to show that petitioner had the fraudulent intent necessary for the imposition of penalties under section 6663(a).” Accuracy-related penalties, however, were sustained.
• No theft-loss deduction for imprisoned Petters Ponzi scheme promoter. Tom Petters masterminded a large and complex Ponzi scheme. In 2009, Petters was convicted in federal court in St. Paul and sentenced to 50 years in prison. Frank Vennes Jr. “had a close relationship with Petters that spanned decades.” Mr. Vennes is currently incarcerated after he pled guilty to “aiding and abetting misrepresentations and omissions to investors regarding [Petters Co., Inc.] note transactions.” Mr. Vennes and his spouse claimed a theft loss deduction of approximately $57 million on their 2008 tax returns. The claimed losses were associated with investments involved in the Petters crimes. The tax court denied the losses. Although Section 165 permits deductions for theft losses, such losses must be substantiated, and there must be no reasonable prospect of recovery of the loss. Here, the tax court determined that the taxpayers failed to establish the fair market value of their investments in the scheme during the time in question. The court also concluded that the taxpayers “could not have known in 2008 whether [Petters Co., Inc.] had sufficient assets to allow them to recover their investments” since the prospect of recovery for investors in the Petters scheme was unknowable at the close of 2008. Because a theft loss is not permitted if there is a reasonable prospect of recovery, the tax court held that the taxpayers were not entitled to the claimed theft loss deduction. The court also upheld the section 6662(a) accuracy-related penalty. Vennes v. Comm’r, T.C.M. (RIA) 2021-093 (T.C. 2021).
• “Traditional rules” of summary judgment not appropriate in CDP nonliability cases. The tax court held that in a collection due process nonliability case, the court’s decision turns on whether the administrative record shows an abuse of discretion. As such, the traditional rules of summary judgment are not appropriate. “Instead, summary judgment serves as a mechanism for deciding, as a matter of law, whether Appeals’ determination is supported by the administrative record and is not arbitrary, capricious, or without sound basis in fact or law.” Belair v. Comm’r, No. 22133-19L, 2021 WL 3284908 (T.C. 8/2/2021).
• County attempts to mask case-in-chief evidence as rebuttal testimony. This matter involves Allina Health System’s property tax petition as of January 2017 on the basis that Allina is a public hospital and purely public charity. The tax court previously denied a consolidation and deadline extension motion from Washington County, stating that the county lacked good cause to extend the deadlines. See Allina Health Sys. v. Cnty of Washington, No. 82-CV-19-905, 2021 WL 1288267, at *2 (Minn. T.C. 4/2/2021). Nearly two months after the court’s denial and long past any pretrial deadlines, the county filed an amended witness list noting that it planned to call Gary Cavett as an expert witness. Allina filed a motion to exclude Cavett’s testimony, arguing that the notice was far beyond the deadline set forth in the court’s scheduling order. The county maintained that Cavett’s testimony would serve as rebuttal testimony, which was not subject to the deadlines of the scheduling order. The county further stated that Cavett’s testimony should not be excluded under the standard set in Dennie v. Metropolitan Medical Center, 387 N.W.2d 401 (Minn. 1986). Allina rebuts that allowing late-noticed expert testimony would be highly prejudicial and that the “exclusion is warranted under pertinent Dennie factors.”
The court began its analysis by determining that Cavett’s anticipated testimony was characterized as part of the county’s case-in-chief. As such, it is not rebuttal evidence, and was subject to the deadlines outlined in the scheduling order. The court further analyzed whether the evidence should be excluded and noted that “expert testimony should be suppressed for failure to make a timely disclosure” of the expert’s identity only where “counsel’s dereliction is inexcusable and results in disadvantage to the opponent.” Id., at 405. The tax court noted that the Minnesota Supreme Court previously stated that some factors of the Dennie standard are context-specific and may warrant tailoring its use to the matter presented. See Macy’s Retail Holdings, Inc. v. Cnty of Hennepin, 899 N.W.2d 451, 459 (Minn. 2017).
After further examination of the Dennie factors, the tax court concluded that the county sought to introduce expert evidence after failing to secure an extension on the pretrial deadlines. Allowing the testimony of Cavett would either severely prejudice Allina or would warrant a continuance, causing a significant break in trial. As such, the court denied the inclusion of Cavett’s expert testimony. Allina Health Sys. v. Washington Co., 2021 WL 3040976 (Minn T.C. 7/13/2021).
• Highest and best use analysis not necessary under Rule 8100. Minnegasco is petitioning the market value of its natural gas distribution pipeline as of 1/2/2018 and 1/2/2019. The parties exchanged expert appraisal reports and were given the opportunity to object to the other’s report. Minnegasco filed a motion to exclude the appraisal report of Dr. J.B. Heaton, arguing that the report contains no analysis and determination of the pipeline’s highest and best use, and is therefore unreliable and inadmissible. The commissioner argues that Minn. R. 8100 does not require a highest and best use determination.
Minnesota Rules of Evidence applies to the tax court. Rule 702 provides that specialized knowledge in the form of an opinion must have foundational reliability and the proponent must establish that the “evidence is generally accepted in the relevant scientific community.” Minn. R. 8100 governs pipeline valuation in Minnesota and indeed does not require an analysis of the highest and best use determination of a pipeline. However, 8100’s silence does not conflict with any statute because “no such statute mandates a highest and best use determination.” The tax court is both bound by Rule 8100 and has discretion on how to apply the rule in numerous respects.
In its analysis, the court states that Minnegasco’s emphasis on the importance of a highest and best use analysis all pertain to the valuation of real property. Here, the assets being valued are tangible personal property. The Minnesota Supreme Court recently rejected “an argument that pipeline valuation must parallel real property” in Minn. Energy Res. Corp. v. Comm’r of Revenue (MERC I), 886 N.W.2d 786, 801 (Minn. 2016). In MERC I, the Minnesota Supreme Court stated that the “Commissioner’s [of Revenue] administrative regulations reflect the differences between valuing tangible personal property of utilities and other types of property.” The tax court stated here that Minnegasco has not demonstrated that the highest and best use analysis is critical to the pipeline valuation, only that its absence renders the entire report unreliable and inadmissible. The court did not find reason that justifies excluding the entire report, and therefore, denied Minnegasco’s motion in limine to exclude the report of Dr. Heaton. CenterPoint Energy Resources Corp., dba CenterPoint Energy Minnesota Gas, aka CenterPoint Energy Minnegasco, Appellant, v. Comm’r of Revenue, Appellee, 2021 WL 3477527 (MN Tax Court 8/4/21).
Morgan Holcomb
Mitchell Hamline School of Law
morgan.holcomb@mitchellhamline.edu
Sheena Denny
Mitchell Hamline School of Law
sheena.denny@mitchellhamline.edu
TORTS & INSURANCE
JUDICIAL LAW
• Exculpatory clauses signed by parents enforceable. Plaintiff attended a birthday party when he was seven years old at a business that provided inflatable equipment on which children were allowed to play. Before entering the party, plaintiff’s mother signed a form agreement that included an exculpatory clause that released the business “from and against any and all claims, injuries, liabilities or damages arising out of or related to our participation in... the use of the play area and/or inflatable equipment.” During the party, plaintiff fell off an inflatable obstacle course and hit his head on the floor, which caused a head injury. When plaintiff was 18 years old, he sued the business that hosted the birthday party alleging it had “negligently failed to cover the landing surface of the fall zone surrounding the inflatable.” The district court granted the defendant’s motion for summary judgment on the ground that the exculpatory clause signed by plaintiff’s mother is valid and enforceable.
The Minnesota Court of Appeals affirmed. On appeal, plaintiff argued that his parent lacked the authority to execute the exculpatory clause on his behalf. The court rejected this argument, holding that “in the absence of any law that either forbids parents from entering into contracts on behalf of their minor children or limits their ability to do so, it is clear that a parent generally has authority, on behalf of a minor child, to enter into an agreement that includes an exculpatory clause.” The court also rejected the argument that Minn. Stat. §184B.20, which provides that exculpatory clauses entered into on behalf of a minor for injuries arising from the use of inflatable devices, applied because that statute was enacted in 2010, three years after the exculpatory clause at issue was signed. Finally, the court rejected plaintiff’s argument that the exculpatory clause was overly broad, and, therefore, unenforceable. While the court agreed it was overly broad as it was not limited to claims for ordinary negligence, it was enforceable in this case because the claims at issue only involved ordinary negligence. Justice v. Marvel, LLC, A20-1318 (Minn. Ct. App. 7/19/2021). https://mn.gov/law-library-stat/archive/ctappub/2021/OPa201318-071921.pdf
Jeff Mulder
Bassford Remele
jmulder@bassford.com