The court of appeals holds that the district court abused its discretion by denying the requested hearing without determining whether wife’s second HRO petition had merit. The HRO statute mandates that the district court hold a hearing on the merits of an HRO petition “[u]pon receipt of the petition and a request for a hearing by the petitioner.” Minn. Stat. §609.748, subd. 3(a). The statute does not require a hearing if the petition “has no merit.” Id. The district court denied wife’s requested hearing without determining whether her petition had merit. The matter is reversed and remanded for the district court to make this determination. Houck v. Houck, A22-0174, 2022 WL 4074765 (Minn. 9/6/2022).
Finally, the court finds that the confrontation clause violation was not harmless beyond a reasonable doubt, given that M.W. was the state’s sole eyewitness during the second trial, and there is a reasonable possibility her testimony contributed to appellant’s conviction. Reversed and remanded for a new trial. State v. Trifiletti, A21-1101, 2022 WL 4126380 (Minn. Ct. App. 9/12/2022).
stephen@brunolaw.com
Employment & Labor Law
JUDICIAL LAW
◘ Minimum wages; chemical dependency program participants ineligible. A group of participants in a court-ordered drug and alcohol recovery program that required performing work on behalf of employers were not entitled to be paid under a state minimum wage law. Reversing a lower court decision, the 8th Circuit Court of Appeals held that the participants were the “primary beneficiaries” of the program because they avoided criminal penalties by joining it and, therefore, they were not entitled to minimum wages. Accordingly, they are not considered “employees” for the purposes of minimum wages and a lawsuit seeking class action certification was properly dismissed. Fochtman v. Hendren Plastics, Inc., ___ F.4th ___ 2022 WL 3652684 (8th Cir. 08/25/2022) (unpublished).
◘ ERISA claims; fiduciary duty not breached. A class action brought by employees against an employer under an Employment Retirement & Income Security Act (ERISA) plan for breach of fiduciary duty by setting a low interest rate and engaging in prohibited transactions to make money for itself was rejected by the 8th Circuit. Following a prior ruling that the plan was a fiduciary, the trial court granted summary judgment on remand and the appellate court affirmed, holding that the interest rate was set for the purpose of ensuring that the plan could pay the expenses it had guaranteed, after deducting reasonable expenses. Rozo v. Principal Life Insurance Company, ___ F.4th ___ 2022 WL 4005339 (8th Cir. 09/02/2022) (unpublished).
◘ Disability reprisal claims; no causal link established. A claim by an employee for disability discrimination, along with reprisal, was properly dismissed on summary judgment, along with an effort to amend the complaint to include a defamation claim. Affirming a ruling of the Hennepin County District Court, the court of appeals ruled that the claimant failed to present specific evidence of disability and no evidence of a causal link between the disability and the employment termination, other than a short five-day time period, between the alleged discrimination and termination, which warranted dismissal of both claims. Kerber v. Recover Health of Minnesota, Inc., 2022 WL 4074806 (8th Cir. 09/06/2022) (unpublished).
◘ Breach of contract; employee unsuccessful. A claim by the former manager of an appliance and recycling replacement program was not entitled to pursue a breach of contract claim. Affirming a decision by the Hennepin County District Court, the Minnesota Court of Appeals held that the contract was terminated by the employee, rather than the employer, which was not subject to a 90-day termination provision. The law-of-the-case doctrine did not require finding in favor of the employee due to a previous appellate court ruling because the findings were amply supported by the trial testimony. JanOne, Inc. v. Skybridge Americas, Inc. 2022 WL 3711475 (8th Cir. 08/29/2022) (unpublished).
◘ Union leave and reimbursement policies; residents can sue school district and union. Anoka County residents may sue the school district and the union representing teachers in the district to challenge a union leave and reimbursement plan that allegedly violates constitutional statutory provisions. Reversing a lower court ruling by U.S. District Court Judge Nancy Brasel in Minnesota, the 8th Circuit held that a lawsuit objecting to the arrangement allowing teachers 100 days of paid leave per school year to work for the union could proceed as a taxpayer lawsuit under the Flask v. Cohen doctrine. The court held that the claimed violations of the freedom of speech clause of the First Amendment, as well as the parallel provisions of the Minnesota Constitution and the state Public Employee Labor Relations Act (PELRA), were maintainable under that principle that allows taxpayers to sue in certain circumstances. Huizenga v. Ind. Sch. Dist. #11, 44 F.4th 806 (8th Cir. 08/11/2022).
Marshall H. Tanick
Meyer, Njus & Tanick
mtanick@meyernjus.com
Family Law
JUDICIAL LAW
◘ The question of whether a proposed adjustment to parenting time constitutes a de facto change in physical custody is subject to an abuse-of-discretion review. Mother challenged the district court’s order construing her request to enforce the recommendation of a parenting evaluator and reduce father’s parenting time from 50% to 25% as a de facto modification of custody.
On appeal, the Minnesota Court of Appeals devoted most of its attention to the appropriate standard of review. Mother argued that whether to treat a change in parenting time as a custody or parenting time modification is a legal issue reviewed de novo. Father argued that the appellate court should review only for an abuse of discretion. Selecting the more lenient standard, the court relied on Christensen v. Healy, 913 N.W.2d 437, which requires a totality-of-the-circumstance analysis to distinguish parenting time and custody modifications. Given the fact-sensitive nature of the test, and the Supreme Court’s own deferential review in Christensen, the court of appeals held that a district court’s designation of a parenting time change as a de facto modification of physical custody is reviewed only for an abuse of discretion. Concurring specifically, Judge Rodenberg expressed skepticism that Christensen itself dictated the standard of review, but agreed that an abuse-of-discretion standard was appropriate. Bayer v. Bayer, 979 N.W.2d 507, 512 (Minn. Ct. App. 2022).
◘ The district court has a statutory mandate to equitably divide assets omitted from the dissolution decree pursuant to Minn. Stat. §518.58. In 2014, husband and wife jointly petitioned to dissolve their marriage, using the pre-printed form available on the Minnesota Judicial Branch’s website. In completing the forms, however, the couple omitted husband’s retirement accounts, worth several hundred thousand dollars. In 2020, wife moved to enforce, clarify, or amend the dissolution decree, seeking an order awarding her half of husband’s retirement accounts. The district court denied her motion, finding the parties had reached an unwritten agreement that husband would receive his retirement assets as consideration for assuming all marital debts and expenses. The court of appeals affirmed, concluding that the district court found that the parties had intentionally omitted the retirement accounts from the joint petition, and wife had not satisfied the requirements of Minn. Stat. §518.145 to reopen the decree.
The Minnesota Supreme Court reversed and remanded, holding that irrespective of her right to relief under Minn. Stat. §518.145, wife had an independent right to seek division of husband’s retirement as an omitted asset. Citing district court’s statutory responsibility to divide marital assets equitably, the Supreme Court distinguished between dividing a previously omitted asset and seeking relief from a decree under Minn. Stat. §518.145. The Court likewise rejected the district court’s reliance on a purported “side agreement,” reasoning that allowing parties to rely on unwritten side agreements would enable parties to evade review of the district court, which, in turn, would circumvent the purpose of the state’s review of parties’ stipulations.
Three justices dissented, arguing that the Court’s decision ignores the jurisdictional time limits on reopening a judgment and decree under Minn. Stat. §518.145 by allowing the district court to grant relief after the one-year time limitation imposed by the statute. The dissent also argued that the Court improperly substituted its factual findings for the district court’s by finding that the division of the retirement accounts was not equitable. Pooley v. Pooley, ___N.W.2d ___, No. A20-1250, 2022 WL 4230398 (Minn. 9/14/2022).
Note: Author Boulette was counsel for respondent in Bayer and appellant in Pooley.
Michael Boulette
Taft Stettinius & Hollister LLP
mboulette@taftlaw.com
Laura Kvasnicka
Taft Stettinius & Hollister LLP
lkvasnicka@taftlaw.com
Federal Practice
JUDICIAL LAW
◘ Denial of motion to compel arbitration affirmed; dissent. Rejecting the defendant’s appeal from the denial of a motion to compel arbitration, the 8th Circuit relied heavily on decisions by the 5th and 11th Circuits in affirming a district court decision that claims arising from sexual assault by a co-worker did not fall within the scope of a broad employment-related arbitration clause.
Judge Grasz dissented, asserting that the arbitration clause was sufficiently broad to encompass the sexual assault claims. Anderson v. Hansen, 47 F.4th 711 (8th Cir. 2022).
◘ 28 U.S.C. §1927; sanctions; local counsel. Having concluded that sanctions of almost $58,000 should be imposed against plaintiff’s counsel personally, Judge Wright exempted plaintiff’s local counsel from those sanctions, finding that local counsel did not “actively participate in vexatious conduct that the Court had found to be sanctionable,” and that the “reputational consequences of... prior orders have provided adequate sanction” to local counsel. Niazi Licensing Corp. v. St. Jude Med. S.C., Inc., 2022 WL 3701555 (D. Minn. 8/26/2022).
◘ Fed. R. Civ. P. 37; motion to compel granted in part; sanctions imposed. Where government defendants produced redacted documents in violation of a previous court order, Magistrate Judge Leung ordered the production of unredacted documents and sanctioned government defendants $500 for their failure to comply with the previous order. Bakambia v. Schnell, 2022 WL 3054296 (D. Minn. 8/3/2022).
◘ Motion to compel arbitration; trial required. Reversing an order by Judge Nelson that denied a motion to compel arbitration, the 8th Circuit found that a trial was required to address issues of fact relating to whether the parties’ contracts incorporated an arbitration agreement. Ballou v. Asset Mktg. Servs., LLC, 46 F.4th 844 (8th Cir. 2022).
◘ Sanctions imposed for late expert disclosures; no abuse of discretion. The 8th Circuit found no abuse of discretion in a district court’s exclusion of information included in an expert’s second report, which included information that should have been included in his first report. Zick v. PACCAR, Inc., 47 F.4th 672 (8th Cir. 2022).
◘ Appeal of state court rulings following removal; Rooker-Feldman not applicable. Determining that the Rooker-Feldman doctrine does not apply to removed cases, the 8th Circuit found that where a case was removed after the state court entered partial summary judgment, the state court’s order “merged” into the federal district court’s final judgment and was reviewable on appeal. Wills v. Encompass Ins. Co., ___ F.4th ___ (8th Cir. 2022).
◘ Denial of request to amend complaint affirmed; failure to comply with local rules. The 8th Circuit found no abuse of discretion in a district court’s denial of the plaintiff’s request to amend his complaint, where the plaintiff failed to file a motion that complied with the applicable local rules. Magdy v. I.C. Sys., Inc., ___ F.4th ___ (8th Cir. 2022).
◘ Minn. Stat. §549.191; punitive damages; intra-district split. For the past few years, this column has followed the evolving views on the application of Minn. Stat. §549.191 to claims pending in the District of Minnesota.
Affirming an order by Magistrate Judge Brisbois that denied a motion to amend to add a claim for punitive damages, and citing a number of cases decided in or before 2016, Judge Wright joined the “numerous Courts in this District that have required the pleading of punitive damages to conform to the requirements of Section 549.191.”
This decision goes against the current trend in the district, and underscores the existing intra-district split on this important issue. Johannessohn v. Polaris Indus., Inc., 2022 WL 3585152 (D. Minn. 8/22/2022).
◘ Motion to amend scheduling order denied; attorney carelessness. Magistrate Judge Foster denied the defendant’s motion to amend a Pretrial Scheduling Order to extend the deadline for a hearing on a dispositive motion by almost four months, finding that defendant’s counsel’s “carelessness” in failing to schedule a hearing date prior to the deadline in the order did not establish “good cause” for the “lengthy” delay. Davis v. Experian Info. Solutions, Inc., 2022 WL 4343233 (D. Minn. 9/19/2022).
◘ Class action; standing; theft of personal information. Denying most of the defendants’ motion to dismiss for lack of standing on claims arising out of the alleged theft of plaintiffs’ personal information, Judge Schiltz found that the plaintiffs had failed to establish standing for their claims seeking injunctive and declaratory relief, but that they had established sufficient “concrete injuries” to support standing on their claims for monetary relief. In Re Pawn Am. Consumer Data Breach Litig., 2022 WL 3159874 (D. Minn. 8/8/2022).
◘ Fed. R. Evid. 702; Daubert; expert’s opinion excluded. Judge Wright granted the defendant’s motion to exclude the testimony of the plaintiff’s expert, finding that his opinions were “unreliable” because they were based on “speculative calculations” or “incorrect factual premises” that were contradicted by the record. RG Golf Warehouse, Inc. v. The Golf Warehouse, 2022 WL 4017438 (D. Minn. 9/2/2022).
◘ Personal jurisdiction; fraud; Calder effects test. Relying primarily on the Calder effects test (Calder v. Jones, 465 U.S. 783 (1984)), Judge Brasel denied the defendants’ motion to dismiss for lack of personal jurisdiction, finding that defendants’ alleged torts were “felt primarily within Minnesota.” Allina Health Sys. v. Gentox Med. Servs., LLC, 2022 WL 3647822 (D. Minn. 8/24/2022).
◘ Fed. R. Civ. P. 12(b)(3); motion to transfer venue granted. Rejecting the plaintiff’s argument that 28 U.S.C. 1391(c)(2) applied to claims against the individual defendants, Judge Wright granted one defendant’s motion to transfer the action to the District of North Dakota, where he resides. Personal Wealth Partners, LLC v. Ryberg, 2022 WL 3700151 (D. Minn. 8/26/2022).
◘ Fed. R Civ. P. 37(a)(5)(A); failure to comply with subpoena; sanctions. Magistrate Judge Docherty ordered a third party to comply with the plaintiff-petitioner’s subpoenas and sanctioned his counsel $500 where counsel failed to meet with counsel for the plaintiff-petitioner and instead offered “empty assurances” that discovery disputes would be resolved. Beyond Blond Prods., LLC v. Hall, 2022 WL 3444039 (D. Minn. 8/17/2022).
◘ Expert reports; reliance on undisclosed documents; reply report stricken. Judge Wright rejected a challenge to an order by Magistrate Judge Leung that had ordered the defendant to pay certain costs incurred by the plaintiff following the untimely disclosure of documents relied on by the defendant’s expert, and had also stricken the reply report by another of defendant’s experts which did not contradict the report submitted by the plaintiff’s damages expert. Eng’g & Constr. Innovations, Inc. v. Bradshaw Constr. Corp., 2022 WL 3585153 (D. Minn. 8/22/2022).
◘ Fed. R. Civ. P. 45(f); motion to transfer denied. Judge Wright denied a motion to transfer a motion to quash a subpoena pursuant to Fed. R. Civ. P. 45(f) to the District of Rhode Island, finding no “exceptional circumstances” and noting that the subpoena recipient would suffer a “burden” if the motion was granted, because it had retained Minnesota counsel who are not admitted in the District of Rhode Island. CVS Pharmacy, Inc. v. Prime Therapeutics LLC, 2022 WL 4354853 (D. Minn. 9/20/2022).
◘ Motion to compel; relevance of financial information. Where plaintiffs sought to compel discovery relating to the defendants’ net worth, gross revenue, and net revenue, and argued that this information was relevant to their claims for punitive damages, Magistrate Judge Leung conditionally granted their motion to compel, finding that the defendants would be required to produce that information only if plaintiffs’ claims were to survive summary judgment. Dekker v. Cenlar FSB, 2022 WL 4354855 (D. Minn. 9/20/2022).
◘ 8th Circuit adopts brief quality control program. The 8th Circuit now offers a Brief Quality Control Program, which allows filers to have their briefs electronically screened for potential errors prior to filing. The Clerk’s office will continue to review briefs manually and will continue to issue deficiency notices when necessary.
Josh Jacobson
Law Office of Josh Jacobson
joshjacobsonlaw@gmail.com
Intellectual Property
JUDICIAL LAW
◘ Trade secret: No right to jury trial on misappropriation disgorgement claim. Judge Frank recently granted defendant Corning Inc.’s motion to strike plaintiffs John R. Wilson and Wilson Wolf Manufacturing Corporation’s (collectively, Wilson Wolf) jury demand for its trade secret misappropriation claim. Wilson Wolf sued Corning alleging that Corning obtained Wilson Wolf’s cell-culture technology under a confidentiality agreement and then wrongfully used that technology to develop and commercialize its own cell-culturing products and to file for and obtain patents claiming Wilson Wolf’s technology as its own. Wilson Wolf sought disgorgement of unjustly enriched profits and compensatory damages. Corning moved to strike the jury demand arguing the remedy sought was equitable. Wilson Wolf argued the remedy was legal in nature or alternatively that the remedy is designed to punish a defendant. The court found both the unjust enrichment and compensatory damages sought are based on Corning’s actual and projected revenues and profits (compensatory damages calculated as 50% of Corning’s profits) and were thus equitable in nature. Finding that the weight of authority under federal law holds that the equitable remedy of disgorgement is not a remedy for which the Seventh Amendment guarantees a right to trial by jury, the court granted Corning’s motion and struck Wilson Wolf’s jury demand for its trade secret misappropriation claim. Wilson v. Corning, Inc., No. 13-210 (DWF/TNL), 2022 U.S. Dist. LEXIS 113669 (D. Minn. 6/28/2022).
◘ Copyright: Access requires dissemination sufficient to create a reasonable opportunity to access the copyrighted works. Judge Frank recently granted defendants Target Corporation’s and Target Enterprise’s motion for summary judgment dismissing plaintiff’s copyright infringement claim. Plaintiff Kristen Cooley is the mother of N.O.C., a 17-year-old artist living with autism who created a collection of original works of art, including his “sketch-style dot art.” Cooley alleged that Target copyrighted 12 pieces of N.O.C.’s artwork and used them in Target’s Cat & Jack apparel line. In July 2018, Target invited then 14-year-old N.O.C. to Target’s headquarters to participate in a social media promotional project called “CrushCon” where Target had N.O.C. paint a jacket from Target’s Wild Fable brand, directed at Gen Z purchasers.
A few months after CrushCon, Cooley discovered that Target was selling Cat & Jack products that were strikingly similar to N.O.C.’s artwork. A year and a half later, Cooley filed her action alleging that 17 Target products infringed on copyrights held by Cooley on N.O.C.’s behalf. Target argued that it created its designs independent of N.O.C.’s work and that its senior textile designer did not see N.O.C.’s work. Target moved for summary judgment, arguing that Cooley did not have valid copyrights in the copyrighted works and that Cooley failed to establish that Target infringed those works. To prove copyright infringement, Cooley needed to demonstrate that the copyrighted works were copied by Target where copying could be shown either by (1) direct evidence of copying, or (2) access to the copyrighted material and substantial similarity between the accused work and the copyrighted work. Because there was no direct evidence of copying, Cooley relied on evidence of access and substantial similarity. To establish access, Cooley needed to demonstrate that Target had an opportunity to view or to copy N.O.C.’s work. One way to prove access is by showing that the copyrighted works were widely disseminated to the public. Cooley argued that because a Target employee found N.O.C. through social media in 2018, there was no question that N.O.C.’s online presence was sufficient and widespread enough to provide Target a reasonable opportunity to access the copyrighted works. Considering Target’s alleged access to each of the copyrighted works individually, the court found Cooley had failed to present evidence sufficient to establish that Target had access to N.O.C.’s works before the infringement. The court granted summary judgment of noninfringement based on failure to prove copying. Because the court granted Target’s motion for summary judgment on other grounds, the court did not address the validity of the copyright issue. Cooley v. Target Corp., No. 20-2152 (DWF/DTS), 2022 U.S. Dist. LEXIS 175623 (D. Minn. 9/28/2022).
Joe Dubis
Merchant & Gould
jdubis@merchantgould.com
Real Property
JUDICIAL LAW
◘ Date of acceptance of purchase agreement fatal to mechanic’s lien based on claimed equitable interest. Defendant Lefebvres owned farmland in Otsego. WH Diversified Investment Group executed a purchase agreement on 12/12/ 2018 to purchase the property for a mixed-use development. The Lefebvres executed the purchase agreement on 12/21/2018. WH Diversified hired Landform Professional Services, LLC to conduct survey and civil engineering work for the planned development. Landform did not provide a pre-lien notice to the Lefebvres. The sale transaction fell through. Landform recorded a lien in the amount of $356,524 and commenced a foreclosure action. Landform asserted that WH Diversified held an equitable interest in the property when it began work, and thus no pre-lien notice was required. But in its lien statement and various subsequent filings, Landform stated that its first day of work was 12/18/2018. The Minnesota Court of Appeals affirmed the district court’s exclusion of a subsequent sworn declaration asserting a December 21 first day and affirmed the grant of summary judgment in favor of the Lefebvres. Landform Professional Services, LLC, Appellant, v. Kevin Lefebvre, No. A22-0274, 2022 WL 3581658 (Minn. Ct. App. 8/22/2022).
◘ Minn. R. Civ. P. 4.02 controls service of drainage appeal. Heron Lake Watershed District, the relevant drainage authority, issued an order approving a petition to improve an existing ditch. Property owners Krugers hand-served appeals under Minn. Stat. §§103E.091 and .095, challenging the determination of benefits and damages and establishment order. The drainage authority moved to dismiss the appeals for insufficient service of process, and the motion was granted by the district court. The court of appeals held that the service requirements of Minn. R. Civ. P. 4.02 applied to the drainage appeal statutes. Rule 4.02 does not allow for service by a party to an action. The court of appeals affirmed the district court’s dismissal of the actions for lack of jurisdiction, agreeing that service of the appeals was not effective. Kruger v. Nordquist, No. A22-0348, 2022 WL 4075068 (Minn. Ct. App. 9/6/2022).
Patrick C. Summers
DeWitt LLP
JUDICIAL LAW
◘ Early childhood center “a seminary of learning” for tax exemption purposes. The Minnesota Constitution, art. X, §1, provides that “academies, colleges, universities, [and] all seminaries of learning... shall be exempt from taxation.” A daycare and early learning center in Goodhue County asserted that it was a “seminary of learning” and therefore should be exempt from property taxation. The county and the tax court disagreed. The Minnesota Supreme Court interpreted the undefined “seminary of learning” and held that “an institution is a tax-exempt seminary of learning when it (1) is educational in nature, and (2) teaches a general curriculum, (3) in a thorough and comprehensive manner.” Under the Rainbow Early Educ. Ctr. v. Cnty. of Goodhue, ___N.W.2d ___, 2022 WL 3641789 (Minn. 8/24/2022).
◘ Exclusion for foreign-earned income: An “abode” within the United States means your “tax home” is also within the U.S. Unless an exception applies, citizens of the United States are taxed on their income, regardless of where that income is earned. One such exception is provided in Section 911(a)(1), which permits taxpayers to elect to exclude foreign-earned income if two criteria are met. First, the taxpayer must have a “tax home” in a foreign country, and second, the taxpayer must either be a “bona fide resident” of one or more foreign countries or the taxpayer must be physically present in a country or countries during at least 330 days in a 12-month period. Although a person’s tax home is generally the location of their regular or principal place of business, section 911(d)(3) provides that “[a]n individual shall not be treated as having a tax home in a foreign country for any period for which his abode is within the United States.” As the Court summarized, “an individual whose ‘abode’ is within the United States cannot be treated having a ‘tax home’ in a foreign country.”
Ruben Domdom, Jr. worked in Iraq from 5/23/2014 until 8/21/2015. His wages were deposited to his U.S. bank account and were not subject to taxation in Iraq. Mr. Domdom’s timely filed 2014 and 2015 returns were prepared by a paid preparer and claimed the 911(a)(1) exemption for his Iraq-earned income. The parties disputed whether Mr. Domdom’s tax home was in Iraq or the United States.
The court focused on the location of Domdom’s abode during each year in issue. “Its dictionary definition notwithstanding,” the court explained, “for purposes of federal income taxation a taxpayer’s ‘abode’ is generally in the country in which the taxpayer has the strongest economic, family, and personal ties.” Mr. Domdom’s ownership of real and personal property in the United States, his maintenance of a U.S. address, and his ownership of a home where his former spouse and children lived were factors in the court’s conclusion that Domdom’s “abode” was the United States. Further, Domdom’s claim of head of household status and dependency exemption deductions for his children residing in the United States signaled to the court that Domdom considered his abode to be the same as his children’s. The court was “unable to reconcile petitioner’s seemingly inconsistent choices in determining the location of his abode during either year in issue… common sense dictates that petitioner’s abode could not at the same time… have been within the United States with his children, as his returns suggest, or not ‘within the United States,’ as entitlement to the section 911(a) exclusions here in dispute requires.” Although Domdom was not entitled to the exclusion, the court did not hold him liable for accuracy-related penalties since he reasonably relied on the advice of his return preparer and acted in good faith with respect to the underpayment of tax. Domdom v. Comm’r, No. 18270-17S, 2022 WL 3755385 (T.C. 8/30/2022).
◘ Charitable remainder annuity trusts (CRATs) distributions to beneficiaries are ordinary income; taxpayers not entitled to charitable contribution deductions for in-kind agricultural crop transfers to the CRATs. Married taxpayers Donald and Rita Furrer were actively engaged in the farming business as growers and sellers of corn and soybeans. They saw an ad in a farming magazine that inspired them to form sequential charitable remainder annuity trusts (CRATs) to which they transferred corn and soybeans grown on their farm. The CRATs sold the crops and purchased annuity plans with the proceeds; annual annuity payments went to the couple. The couple’s son was the trustee and the couple were life beneficiaries, while three eligible section 501(c)(3) charities were remaindermen. The couple claimed a charitable deduction for the crop contributions and did not claim the annuity payments as income. The tax court disagreed with both of those positions. The court held that the taxpayers were not entitled to noncash charitable contribution tax deductions for the crop transfers and further that the distributions made by the annuities to the taxpayers were ordinary income to the taxpayers. Furrer v. Comm’r, T.C.M. (RIA) 2022-100 (T.C. 2022).
◘ A taxpayer may not deduct expenses paid on behalf of another taxpayer. A group of farmers received a very expensive reminder of this fundamental tax precept when individual members, who operated a family farm individually and through several related entities, deducted various expenses on their personal tax returns. The individual taxpayers claimed the expenses as ordinary and necessary expenses paid or incurred in carrying on trade or business. In tax court, the taxpayers argued that the payments should have been considered capital contributions to entity, which reduced income flowing from entity to taxpayer. The court rejected the argument. “A taxpayer cannot deduct expenses paid on behalf of another taxpayer,” the court stated. “This long-established principle extends to corporations as a corporation’s business is distinct from its shareholders.” Vorreyer v. Comm’r, T.C.M. (RIA) 2022-097 (T.C. 2022).
◘ Property tax: Challenging assessment of multiple parcels in northern Minnesota. In a consolidated property matter, Marvin Lumber and Cedar Co.—maker of the well-known Marvin windows and doors—contested the assessed value of several parcels of real property in Warroad. The properties included a manufacturing plant and separate visitor center, as well as four retail parcels. The respective appraisers offered “widely differing values” that, the court noted, “reflect the difficulty in valuing a Plant that is not only large and remote, but also relatively old.”
As the parties had done, the court addressed the valuation of the plant and visitor center separately, and then turned to the retail properties. With respect to the plant and visitor center, the parties disagreed on four issues: (1) whether the visitor center had a “highest and best use” separate from the plant and therefore should be valued separately; (2) the propriety of using the sales comparison approach to value the plant; (3) how to properly implement the cost approach; and (4) what weight to give to the sales comparison and cost approaches.
The court first determined that the highest and best use of the visitor center was to place it on a separate parcel and to separately market it for its current use as a museum and visitor center. The court could “see no reason why separately marketing the Visitor Center would prevent its purchase by an owner-user interested in purchasing the Plant.”
The court addressed the dispute surrounding the sales comparison approach for the plant. The court acknowledged that the plant is a limited market property—“one for which there is a limited number of potential purchasers”—and further recognized that no value approach would be ideal in this situation. Where no value approach is ideal, the court continued, it is preferable to rely on the judgment of professional appraisers rather than the opinions of the parties’ counsel. Relying on the appraisers’ “candid subjective judgments about elements of comparison concerning which empirical evidence was apparently unavailable,” the court adopted four comparable sales, which resulted in an indicated value of the plant. The court then turned to the cost approach for the plant, reliance on which was appropriate because comparable sales were of limited availability and quality, and the income capitalization approach was inapplicable. Ultimately, the court used both the sales comparison approach and the cost approach and gave each approach 50% weight to determine a final plant value. The court considered sales and cost approaches to the valuation of the visitor center and deemed the cost approach more reliable. The court followed a similar process for the retail properties, which included a mid-box home center (and associated storage buildings) and a strip mall.
Finally, the court rejected the county’s argument that Marvin’s evidence was insufficient to overcome the prima facie validity of the county’s assessments. Instead, the court held that the appraisal performed by Paul G. Bakken, Marvin’s expert, was substantial evidence sufficient to overcome the prima facie validity of the county’s plant and visitor center assessment. Marvin Lumber and Cedar Co., v. County of Roseau, 68-CV-18-308, 2022 WL 4295388 (Minn. T.C. 9/16/22).
Morgan Holcomb
Mitchell Hamline School of Law
morgan.holcomb@mitchellhamline.edu
Brandy Johnson
Mitchell Hamline School of Law
brandy.johnson2@mitchellhamline.edu
Torts & Insurance
JUDICIAL LAW
◘ Health care: Duty of care to patients and family members. Decedent sought medical care from defendants for mental health issues, including anxiety and depression. Decedent received out-patient care on several occasions and was prescribed medication for anxiety, depression, and sleep difficulties. During his visits, decedent disclosed several symptoms of depression and anxiety. But decedent made no violent threats, had no history of violent action, repeatedly denied suicidal ideation, was rational and planning for the future, and consistently referred to others only in a positive and supportive fashion. Tragically, between visits, decedent (who already owned a firearm) purchased a shotgun and killed his wife, his three children, and then himself. The trustee for the next of kin of the five family members brought suit against defendant for wrongful death, alleging negligent care. The district court granted defendants’ motion for summary judgment with regard to duty. The court concluded that defendants did not owe a duty to decedent or his family members because defendant had no duty to control or protect decedent absent a custodial “special relationship” that was not present given the outpatient nature of the treatments. The court of appeals reversed and remanded for trial, concluding defendants owed a duty to decedent as its patient with respect to his suicide. It also concluded that defendants may have owed a duty of care to decedent’s family members if harm to them was a foreseeable risk of the alleged departures from the standard of care.
The Minnesota Supreme Court affirmed in part, reversed in part, and remanded. The Court issued its ruling in a split opinion, with Justice Hudson authoring the opinion of the Court with respect to the duty owed in cases of patient suicide, and Justice Anderson authoring the opinion of the Court with respect to the duty owed to the patient’s family. With respect to the duty owed to the patient, the Court held that defendants owed a duty of care to decedent, which was not extinguished by his suicide occurring outside defendant’s facilities in the context of outpatient care. In so holding, the Court stated: “when the standard of care requires medical providers to take action to prevent a particular injury, a hospital can be liable for failing to exercise the requisite degree of skill and care even when that injury is caused by the intentional, criminal wrongdoing of a third party outside of the hospital’s control and hospital grounds.” The Court cautioned: “But we do not hold that [defendant] had a duty to control [decedent] or to prevent his suicide. We simply hold that [defendant] had a duty to provide treatment that met the standard of care. And a healthcare provider’s lack of control over a patient does not negate that duty.”
With respect to the second issue, the Court held that defendants did not owe a duty of care to decedent’s wife and children. The Court’s holding was based on the fact that plaintiff “presented no evidence that [decedent’s] wife and children were patients of [defendant], were in contact with [defendant], or were under the control of [defendant]” and decedent “never threatened violence against his family, had no prior history of violent acts, and showed no warning signs that would distinguish him from other patients suffering from depression and anxiety.” As a result, the Court held decedent’s “actions in killing his wife and children were unforeseeable as a matter of law.”
Justices Hudson and Anderson also issued dissenting opinions on the issues where their opinions were not the opinions of the court. With respect to the first issue, Justice Anderson argued that the duty of care should not extend to suicide absent a custodial relationship with the patient. On the second issue, Justice Hudson argued that plaintiff’s expert opinion raised a genuine issue of material fact with respect to the foreseeability of harm to the decedent’s family. Smits v. Park Nicollet Health Services, et al., A20-0711 (Minn. 9/7/2022).
◘ Exculpatory clauses; strict construction. A mother executed a liability waiver allowing her child to play in an inflatable play area owned by defendant, which purported to “release and hold harmless [defendant] from and against any and all claims, injuries, liabilities or damages arising out of or related to… the use of the play area and/or inflatable equipment.” Subsequently, plaintiff son sustained serious injuries after he fell out of the large inflatable and hit his head on carpet-covered concrete. Plaintiff filed suit against the inflatable company once he reached the age of 18, asserting a negligence claim. The district court held that the liability waiver was enforceable and granted summary judgment in favor of defendant. The court of appeals affirmed.
The Minnesota Supreme Court reversed and remanded. The Court reasoned that exculpatory clauses, like indemnity clauses, were subject to strict construction. The Court went on to analyze the language at issue, noting that the inquiry was not whether the “any and all claims” language in the waiver may encompass a negligence claim. Rather, the inquiry is whether the waiver specifically released defendant from liability for its negligent acts. The Court concluded that exculpatory clauses, similar to indemnity clauses, need to “use specific, express language that clearly and unequivocally states the contracting parties’ intent.” Because the liability waiver did not clearly and unequivocally spell out the parties’ intent to exculpate defendant for its own negligent acts, the Court held that the release was unenforceable.
Justice Anderson filed a dissenting opinion, which was joined by Chief Justice Gildea. In the dissent’s view, there was no ambiguity in the exculpatory clause at issue and it encompassed a negligence claim: “I agree that ‘any and all’ means ‘any and all,’ and would hold that there is no ambiguity here.” As a result, the dissent would have affirmed summary judgment in favor of defendant. Justice v. Marvel, LLC, A20-1318 (Minn. 9/21/2022). https://mn.gov/law-library-stat/archive/supct/2022/OPA201318-092122.pdf
◘ Common-interest doctrine recognized in Minnesota. Plaintiff, a nonprofit advocacy organization, submitted document requests to the Office of the Attorney General under the Minnesota Data Practices Act, seeking documents related to the AG’s retention of special assistant attorneys general to litigate climate-change actions. The AG contended it did not need to release any data, as there was “no public data” responsive to the request, and as the common-interest doctrine allowed them to withhold the documents from production. Plaintiff filed suit alleging that the AG’s office erroneously relied on claims of privilege. The parties agreed that the AG would describe which documents were nonprivileged and responsive to the request and submit a privilege log detailing which documents it claimed to be protected from disclosure. After submitting its privilege log, the AG’s office moved for dismissal, and the district court granted its motion. The court of appeals reversed, concluding that the district court erred in applying the common-interest doctrine because the doctrine had not yet been recognized by Minnesota courts.
The Minnesota Supreme Court reversed the court of appeals’ decision, officially recognizing the common-interest doctrine under Minnesota law. The Court clarified that the common-interest doctrine applies when (1) two or more parties, (2) represented by separate lawyers, (3) have a common legal interest, (4) in a litigated or non-litigated matter, (5) the parties agree to exchange information concerning the matter, and (6) they make an otherwise privileged communication in furtherance of formulating a joint legal strategy. The Court concluded the “doctrine should [also] extend to encompass attorney work product.” In recognizing the common-interest doctrine, the Minnesota Supreme Court cautioned that the doctrine applies only to common legal interests, and not to “purely commercial, political, or policy” interests. Further, the doctrine is not limited to litigation; rather, it can apply in a litigated or non-litigated legal matter, permitting “parties with the same legal interests to share documents without losing the protection of the attorney-client privilege or work-product doctrine.” Energy Policy Advocates v. Ellison, No. A20-1344 (Minn. 9/28/2022). https://mn.gov/law-library-stat/archive/supct/2022/OPA201344-092822.pdf
◘ Standard fire insurance policy; prejudgment interest. After fires damaged his home, plaintiff sought coverage from defendant, his homeowner’s insurer. Defendant denied coverage, claiming plaintiff had intentionally set the fires. The insurance policy provided that the insurer will pay the amount of loss in excess of the insured’s deductible, “not to exceed the applicable limit of insurance.” The policy did not specifically address interest. Plaintiff sued and prevailed at trial. The district court awarded plaintiff prejudgment interest, but limited the amount, finding that plaintiff’s total recovery for his personal property loss could not exceed the policy coverage limit. The court of appeals affirmed.
The Minnesota Supreme Court reversed and remanded. The Court began by noting that because in the insurance policy at issue did not contain an interest provision, Minn. Stat. §65A.01, subd. 3 applied to the loss at issue. The interest provision of the standard fire policy provides that the insurer “will not in any case be liable for more than the sum insured, with interest thereon from the time when the loss shall become payable.” Id. (emphasis added). As a result, the Court held “that the plain language of the standard fire policy, by its express terms, entitles an insured to prejudgment interest in an amount that may cause the insured’s total recovery to exceed the coverage limit of the policy.” The Court went on to hold that prejudgment interest began to run “60 days after [defendant] received the proof of loss.”
Justice Thissen filed an opinion concurring part and dissenting in part, which was joined by Chief Justice Gildea and Justice Anderson. The dissent agreed with the majority that an insurer is liable for the full amount of prejudgment interest under Minn. Stat. §65A.01, subd. 3, even if it exceeds the limits of the insurance policy. However, the dissent agreed with when prejudgment interest should begin to run. The dissent would have held that prejudgment interest begins to run “60 days after two things occur: (1) the insured submits proof of loss and (2) the amount of loss is ascertained.” Else v. Auto-Owners Ins. Co., No. A20-0476 (Minn. 10/5/2022). https://mn.gov/law-library-stat/archive/supct/2022/OPA200476-100522.pdf
Jeff Mulder
Bassford Remele
jmulder@bassford.com