Notes & Trends—September 2022

Criminal Law


• Right to a public trial: Proper remedy for public trial violation during Schwartz hearing is remand for new hearing. A jury found appellant guilty of second-degree intentional murder, rejecting appellant’s claim of self-defense. In an anonymous, post-trial questionnaire, one juror stated she informed others of the “obligation to retreat” she reported learning in permit-to-carry classes. Appellant moved for a Schwartz hearing for the district court to question the jurors about this extraneous information appellant argued could have prejudiced the jury. Due to the jurors’ schedules, the court divided the hearing into two parts, with two jurors being questioned at an earlier date. The court ordered the first hearing closed to the public, to prevent the first two jurors’ testimony from influencing those who would be questioned later. The court of appeals found appellant’s right to a public trial was violated by closing the first hearing to the public and remanded the case to conduct a new Schwartz hearing to question the first two jurors in an open hearing.

The Supreme Court notes that it has never addressed whether the right to a public trial applies to a Schwartz hearing but assumes without deciding here that it does. The purpose of a Schwartz hearing is to build a record of past facts relevant to limited and discrete issues (that is, whether misconduct occurred during jury deliberations). It is also a standalone proceeding that can easily be separated from the rest of the trial. A Schwartz hearing, therefore, is similar to a pretrial suppression hearing for purposes of determining the appropriate remedy for a public trial violation. A violation of the right to a public trial during a suppression hearing is remedied by remanding for a new hearing, rather than granting a new trial.

Here, the public trial right violation affected the testimony of only two jurors. Thus, on remand, only these two jurors need to be re-questioned, unless they testify in a manner that is materially different from how they testified in the original proceeding. In that case, the district court should conduct a new, public Schwartz hearing to re-question the remaining 10 jurors. State v. Jackson, 977 N.W.2d 169 (Minn. 7/6/2022). 

• Guilty plea: No manifest injustice requiring withdrawal of guilty plea when defendant is not questioned about uncontested previous convictions. Appellant pleaded guilty to a complaint charging appellant with felony violation of a domestic abuse no-contact order (DANCO), in which the state alleged appellant was previously convicted of two separate violations of a DANCO. While entering his plea, he was not asked by anyone about his previous convictions. His plea was accepted, but before sentencing appellant moved to withdraw his guilty plea. The district court denied his motion, but the court of appeals reversed, because the factual basis failed to adequately support appellant’s plea, since the plea colloquy made no reference to or acknowledgement of any prior DANCO violations.

In this case, the charge was enhanced from a gross misdemeanor to a felony because of appellant’s prior convictions. The prior convictions are alleged in the complaint, and appellant had the opportunity to review the complaint and discuss his plea with his lawyer. Appellant also does not contest the validity of the prior convictions. Under these circumstances, appellant’s failure to expressly acknowledge those convictions in the plea colloquy does not give rise to a manifest injustice. Therefore, withdrawal of his guilty plea was not required. This holding is narrow and the Supreme Court encourages district courts to ensure plea colloquies are thorough. State v. Epps, A20-1151, 2022 WL 2709436 (Minn. 7/13/2022). 

• Accomplice after the fact: The statutory maximum sentence for being an accomplice after the fact when the principal offender is subject to life imprisonment is more than 20 years.  Appellant pleaded guilty to aiding an offender to avoid arrest and being an accomplice after the fact for helping her husband and son hide evidence. Her husband and son were indicted for first-degree premeditated murder, so appellant acknowledged in her plea petition she could be sentenced to “imprisonment for one half of a life sentence.” The district court sentenced appellant to 48 months for her accomplice-after-the-fact conviction. The court of appeals affirmed. Appellant argues the district court did not have authority to sentence her, because the statutory maximum penalty for being an accomplice after the fact—one-half of the statutory maximum penalty for the principal offense—cannot be determined when the principal crime is first-degree murder, an offense punishable by an indeterminate period of time.

The accomplice-after-the-fact statute, Minn. Stat. §609.495, subd. 3, is clear that to determine the sentence for violating the statute, the court looks to the maximum sentence that the principal offender could receive and calculates one-half of that sentence. Here, the maximum sentence for the principal offense is life. While the length of a life sentence will vary among offenders, Minnesota’s homicide sentencing scheme is such that a life sentence must be more than 40 years, the maximum sentence for second-degree murder. Thus, one-half of a life sentence must be more than 20 years. Appellant’s sentence does not exceed this statutory maximum, so her sentence is authorized by law. State v. Miller, A21-0221, 977 N.W.2d 592 (Minn. 7/13/2022).

•  Cruel and unusual punishment: Mandatory life sentence without the possibility of parole is not unconstitutionally cruel for 21-year-old convicted of first-degree premeditated murder. Appellant, 21 years old, appealed his conviction for first-degree premeditated murder as well as his mandatory sentence of life without the possibility of parole. The Supreme Court first finds sufficient circumstantial evidence to support his conviction. The Court then holds that a mandatory life sentence without the possibility of parole for a 21-year-old convicted of premeditated murder is not unconstitutionally cruel. The Legislature dictated that offenders convicted of first-degree premeditated murder be imprisoned for life without the possibility of parole. Statutory punishments are presumed constitutional and appellant has not met the heavy burden of showing that “our culture and laws emphatically and well-nigh universally reject” this sentence. State v. Chambers, 589 N.W.2d 466, 479 (Minn. 1999). Appellant also has not shown his punishment is disproportionate to his offense. He was not a juvenile at the time of the offense, the offense involved premeditation, and the offense was calculated and put many people’s lives at risk. Thus, appellant’s sentence is not unconstitutionally cruel. State v. Hassan, A21-0453, 977 N.W.2d 633 (Minn. 7/13/2022). 

• Privilege: Sexual assault counselor privilege does not permit disclosure of privileged records in a criminal proceeding without victim’s consent. Respondent was charged with second-degree criminal sexual conduct. He moved for an in camera review of records relating to the 15-year-old victim held by the Hope Coalition, a nonprofit organization supporting survivors of sexual assault that had a counselor present at a police interview of the victim. The district court granted respondent’s motion. The coalition argued it had an absolute privilege under Minn. Stat. §595.02, subd. 1(k), to protect the victim’s counseling records from disclosure. The district court denied the coalition’s request for reconsideration. After the coalition failed to produce any records for in camera review, the district court granted respondent’s request for a subpoena for the records. The district court denied the coalition’s motion to quash the subpoena and the coalition filed a petition for writ of prohibition. The Minnesota Court of Appeals denied the coalition’s petition.

Minn. Stat. §595.02, subd. 1(k), provides that “[s]exual assault counselors may not be allowed to disclose any opinion or information from or about the victim without the consent of the victim.” The issue here centers on the meaning of “may not be allowed to disclose.” The Supreme Court holds that the plain meaning of “may not” in this statute is prohibitive—that is, it is synonymous with “shall not.” Thus, sexual abuse counselors are statutorily prohibited from disclosing privileged records in a criminal proceeding without the victim’s consent, and a district court may not order otherwise.

The Court further concludes that respondent’s rights to confront his accuser and to present a complete defense were not violated by nondisclosure of the privileged records. The state has a compelling interest in protecting the privacy of sexual assault victims, and the sexual assault counselor privilege is narrowly tailored to achieve that interest. The Court holds that respondent’s constitutional rights do not outweigh the interest in protecting victims’ privacy. Because the sexual assault counselor privilege cannot be pierced in criminal proceedings, the district court was unauthorized by law when it denied the coalition’s motion to quash the subpoena. The writ of prohibition requested by the coalition is issued. In re Hope Coalition, A21-0880, 977 N.W.2d 651 (Minn. 7/13/2022).

• Speedy trial: Trial delays caused by statewide covid-19 orders did not violate speedy trial rights. Appellant was charged with threats of violence and assault in January 2020. He demanded a speedy trial in February 2020. Covid-19 was declared a global pandemic in March 2020. As a result, the Supreme Court ordered that no new trials would begin. Per the Supreme Court’s orders, appellant’s trial was delayed twice, to June 2020. Prior to both delays, appellant reiterated his speedy trial demand. After a court trial, appellant was found guilty of both charges. He argues on appeal that his speedy trial right was violated.

To determine whether a defendant’s speedy trial right has been violated, the court considers the Barker factors: (1) the length of the delay; (2) the reason for the delay; (3) the defendant’s assertion of his right; and (4) the prejudice to the defendant. 

A trial held more than 60 days after a speedy trial demand is considered presumptively prejudicial. Here, appellant’s trial started 105 days after his first demand. As to the reason for the delay, the parties agree the delay was attributable to the state, but they disagree on the weight this factor should be assigned. The court holds that delays related to the judicial system’s response to the pandemic do not weigh against the state. The court distinguishes between internal factors (such as court congestion), which do weigh against the state, and external factors (such as covid), which do not. As to the third Barker factor, appellant repeatedly demanded a speedy trial and opposed delays. The court rejects the state’s suggestion that the reason why appellant demanded speedy trial is relevant to this factor. The frequency and force of appellant’s demands weigh in his favor. The final factor, however, weighs against appellant. The court finds he was not unfairly prejudiced by the 45-day delay. 

Balancing all four factors, the court concludes “the State brought [appellant] to trial quickly enough so as not to endanger the values that the right to a speedy trial protects.” State v. Paige, A20-1228, 2022 WL 2826253 (Minn. 7/20/2022).

•  Self-defense: Defendant may act in self-defense to resist a noninjurious offense. Appellant was charged with domestic assault after pulling his girlfriend from a doorway and causing her to fall in response to her attempt to prevent him from leaving. At his trial, the district court instructed the jury on self-defense, specifically instructing that appellant could use reasonable force to “resist an assault against the person.” The jury found him guilty. 

The Minnesota Court of Appeals holds that the district court’s self-defense instruction was erroneous, “because the law of self-defense justifies a person to use force more broadly to resist any offense against the person,” not only to resist an assault. The self-defense statute, Minn. Stat. §609.06, subd. 1(3), on its face does not limit self-defense to resisting only an assault or other offenses resulting in bodily harm. The Legislature included a bodily harm component in the use of deadly force statute that immediately follows and relates to the self-defense statute, evidencing that the Legislature’s omission of a bodily harm prerequisite from the self-defense statute was intentional. This interpretation of self-defense is also consistent with legislative history and common law.

However, the court affirms appellant’s conviction. Appellant failed to object to the instruction at trial, so the instruction is reviewed for plain error. The instruction was erroneous, but it was not plain, because this interpretation of the self-defense statute had not been clarified in case law at the time of the erroneous instruction. State v. Lampkin, A20-0361, 2022 WL 2912048 (Minn. Ct. App. 7/25/2022).

Samantha Foertsch
Bruno Law PLLC

Stephen Foertsch
Bruno Law PLLC

Employment & Labor Law


• Failure to bargain; unfair labor practices upheld. Charges of unfair labor practices by an employer for failing to bargain in good faith with his union and other improprieties in connection with an expiring collective bargaining agreement were upheld. The 8th Circuit Court of Appeals held that the National Labor Relations Board properly found the transgressions and imposed the proper remedies for them. NLRB v. Noah’s Ark Processors, LLC, 31 F.4th 1097 (8th Cir. 04/22/2022). 

• Injunction dismissed; no irreparable harm. A request for injunctive relief by a union representing court reporters regarding the Judicial Branch’s policy on preparation of in forma pauperis transcripts was rejected. The Minnesota Court of Appeals, affirming a Ramsey County District Court ruling, held that there was no “irreparable harm” to support injunctive relief and there was no impermissible judicial bias. Teamsters Local 320 v. Minnesota Judicial Branch, 2022 WL 1298127 (8th Cir. 05/02/2022) (unpublished).

• Disability discrimination; accommodations offered. A longtime University of Minnesota employee lost her disability discrimination claim under the Americans with Disabilities Act (ADA). Affirming a ruling of U.S. District Court Judge Patrick Schiltz, the 8th Circuit Court of Appeals held that the university provided ample accommodations for the employee, who refused to accept them. Ehlers v. University of Minnesota, 34 F.4th 655 (8th Cir. 052/02/2022). 

• Deputy sheriff; arbitration overcomes litigation. The claims of a deputy Ramsey County sheriff that the county improperly sent “matching” deferred compensation funds to her rather than directly to the deferred comp fund was barred by an arbitration clause in the deputy’s union collective bargaining agreement. Reversing a ruling of the Ramsey County District Court, the Minnesota Court of Appeals held that the court lacked subject-matter jurisdiction because the claims were subject to the arbitration clause in the labor contract with the county. Schaber v. Ramsey County, 2022 WL 1616625 (8th Cir. 05/23/2022) (unpublished).

• Unemployment compensation; intoxicated worker loses. An employee who was intoxicated at work was denied unemployment compensation benefits. The appellate court, upholding an administrative determination, held that the record supported a determination of disqualifying “misconduct.” Larsen v. First State Bank SW, 2022 WL 1615857 (8th Cir. 05/23/2022) (unpublished).

•  Loan refused; benefits denied. An employee who quit because he was denied a personal loan by his employer was not entitled to unemployment benefits. The appellate court ruled that the employer’s resignation was not for a “good reason” caused by the employer. Hubbard v. Preferred Concrete Const. Inc., 2022 WL 1613286 (8th Cir. 05/23/2022) (unpublished).

Marshall H. Tanick
Meyer, Njus & Tanick

Federal Practice


• Diversity jurisdiction; representations in brief; “objective” factors. Accepting representations in an appellate brief regarding the citizenship of the members of the plaintiff limited liability partnership, noting the “lack of contrary evidence,” and finding that the “objective” factors relating to the defendant’s domicile established the presence of diversity jurisdiction, the 8th Circuit affirmed the denial of the defendant’s motion to dismiss for lack of diversity jurisdiction. Wagstaff & Cartmell, LLP v. Lewis, ___ F.4th ___ (8th Cir. 2022). 

• Personal jurisdiction; single sale of product. The 8th Circuit affirmed a Missouri district court’s dismissal of trademark and unfair competition claims for lack of personal jurisdiction where the defendant maintained an interactive website but had made only one alleged infringing sale in Missouri. Brothers & Sisters in Christ, LLC v. Zazzle, Inc., ___ F.4th ___ (8th Cir. 2022). 

•  Award of costs affirmed; litigation strategy and timing. Affirming an award of costs following the award of summary judgment to the defendants, the 8th Circuit rejected plaintiffs’ argument that defendants should not have been awarded costs related to discovery and class certification when they could have moved to dismiss the action under Fed. R. Civ. P. 12, finding that “[a] defendant may choose how best to defend a lawsuit.” Hoekman v. Education Minnesota, ___ F.4th ___ (8th Cir. 2022). 

•  Fed. R. Civ. P. 56(d); denial of continuance to conduct discovery affirmed. The 8th Circuit found no abuse of discretion in Judge Ericksen’s denial of the plaintiff’s request for a continuance to conduct additional discovery in conjunction with the defendants’ motion for summary judgment, finding that the information sought was of “marginal relevance,” “scattershot,” and a “fishing expedition.” Yassin v. Weyker, 39 F.4th 1086 (8th Cir. 2022). 

• Lack of standing; no injury in fact. The 8th Circuit affirmed a district court’s dismissal for lack of standing of an action brought by the State of Missouri, which challenged certain elements of the American Rescue Plan Act, finding that the state lacked standing to challenge a “potential interpretation” of the Act, meaning that it had not alleged an “injury in fact” sufficient to confer standing. Missouri v. Yellen, ___ F.4th ___ (8th Cir. 2022). 

• No implied privilege waiver; motion to compel election of defenses denied. While finding that he was empowered to require defendants to elect their defenses, Magistrate Judge Docherty denied plaintiffs’ motion, finding no express or implied waiver of attorney-client privilege or work product protection that might support the motion, and rejecting plaintiffs’ other arguments as well. In re: EpiPen Direct Purchaser Litig., 2022 WL 2438234 (D. Minn. 7/5/2022). 

• Fed. R. Civ. P. 37(d); failure to appear at depositions; dismissal with prejudice. Where the plaintiffs failed to attend their properly noticed oral depositions after their requests for “paper depositions” were rejected in a case with a history of “contentious” discovery, Judge Frank rejected their argument that the defendant should have filed a motion to compel, and instead granted the defendant’s motion to dismiss with prejudice pursuant to Fed. R. Civ. P. 37(d) and awarded the defendant its reasonable expenses relating to the two depositions and the motion. Bailey v. First Transit, Inc., 2022 WL 2670068 (D. Minn. 7/11/2022). 

• Motion for class certification denied; numerosity. Judge Tostrud denied the plaintiff’s motion for class certification on a WARN Act claim, finding that the potential class of 15 plaintiffs “was not so numerous that joinder of all members is impracticable.” Alternatively, Judge Tostrud found that the plaintiff’s separate age discrimination claim would have made her an inadequate class representative. Duffek v. iMedia Brands, Inc., 2022 WL 2384171 (D. Minn. 7/1/2022). 

•  Fed. R. Civ. P. 12(b)(6) issue preclusion; effect of grant of prior motion to dismiss. Judge Menendez denied a Fed. R. Civ. P. 12(b)(6) motion to dismiss, finding that issue preclusion barred the motion when a similar motion had been denied in a related case, rejecting the defendant’s argument that issue preclusion did not apply absent a “final judgment.” Samaha v. City of Minneapolis, 2022 WL 2392528 (D. Minn. 7/1/2022). 

• Motions to compel arbitration granted; dismissal versus stay. Granting the defendants’ motion to compel arbitration, Judge Wright exercised her discretion to dismiss—rather than stay—the action. Howard v. Life Time Fitness, Inc., 2022 WL 2374130 (D. Minn. 6/30/2022). 

Chief Judge Schiltz also granted a motion to compel arbitration. However, finding that “the issue of arbitrability is for the arbitrator” under the applicable AAA rules, he stayed the action instead of dismissing it. Winter v. UCB Inc., 2022 WL 2442497 (D. Minn. 7/5/2022). 

•  Motion for vacatur of order denied. Where an order for judgment on the pleadings was mooted by subsequent legislation before a judgment was entered, Chief Judge Tunheim denied a subsequent motion to vacate the order, distinguishing the relevant procedure in the district court from decisions that appear to require vacatur on appeal. Southern Glazer’s Wine & Spirits, LLC v. Harrington, 2022 WL 2346421 (D. Minn. 6/29/2022). 

• Motion to compel production of social media granted in part. Where the defendant in an employment discrimination case sought to compel the production of more than six years of the plaintiff’s social media, arguing that it was relevant to the issue of the plaintiff’s alleged emotional distress, Magistrate Judge Docherty found that the request for all social media was “not proportional to the needs of the case,” but ordered plaintiff’s counsel to review plaintiff’s social media and to produce information relating to her mental health and employment. Krapf v. Novartis Pharms. Corp., 2022 WL 2452259 (D. Minn. 7/6/2022). 

•  Motion for default judgment denied; entry of default set aside. While describing the defendant’s “untimely response [as] no model for a defendant’s conduct,” Judge Menendez denied the plaintiff’s motion for default judgment and vacated the clerk’s entry of default where the plaintiff eventually filed an answer and counterclaim, and the plaintiff failed to establish any prejudice. Delve Health, LLC v. Graham, 2022 WL 2609060 (D. Minn. 7/8/2022). 

Josh Jacobson
Law Office of Josh Jacobson 

Indian Law


• Federal and state governments have concurrent jurisdiction to prosecute crimes committed by non-Indians against Indians in Indian country. Following Castro-Huerta’s conviction in Oklahoma state court for child neglect that occurred against his tribal-member stepdaughter, the Supreme Court decided McGirt v. Oklahoma. The Oklahoma Court of Criminal Appeals vacated Castro-Huerta’s conviction based on the McGirt decision’s holding that because the crime occurred in Indian country and involved an offense committed by a non-Indian against an Indian, the federal government had the exclusive jurisdiction to prosecute the crime. The Supreme Court reversed the decision, finding that federal law had not preempted the state’s jurisdiction in this case, and thus “the Federal Government and the State have concurrent jurisdiction to prosecute crimes committed by non-Indians against Indians in Indian country.” Oklahoma v. Castro-Huerta, 142 S. Ct. 2486 (2022).

• Federal prosecution following prosecution in a Court of Indian Offenses does not constitute double jeopardy. Tribal member defendant Denezpi pleaded guilty to an assault charge in the Court of Indian Offenses of the Ute Mountain Ute Agency and was sentenced to time served. Denezpi was later indicted on the same underlying events in the United States District Court for the District of Colorado, where he was convicted and sentenced to 360 months of imprisonment. Denezpi appealed, arguing the dual sovereignty doctrine prohibited his second conviction because the Court of Indian Offenses was a federal agency, the same as the District of Colorado. The United States Supreme Court affirmed the 10th Circuit, holding that the double jeopardy clause of the 5th Amendment to the United States Constitution was not violated because the two offenses were defined by separate sovereigns: by the Ute Mountain Ute Tribe in the Ute Mountain Ute Code, and by the United States in the United States Code. The Court held that the double jeopardy clause “prohibits separate prosecutions for the same offense; it does not bar successive prosecutions by the same sovereign,” meaning there was no violation of the clause in Denezpi’s case. Denezpi v. United States, 142 S. Ct. 1838 (2022).

Leah K. Jurss
Hogen Adams PLLC

Intellectual Property


• Trademark: Defendant’s website and single purchase insufficient to establish personal jurisdiction in forum. A panel of the United States Court of Appeals for the 8th Circuit recently affirmed a Missouri district court’s grant of a motion to dismiss for lack of personal jurisdiction in a trademark infringement matter. Brothers and Sisters in Christ, LLC (BASIC) is a limited liability company based in Missouri that owns the trademark “love happens.” BASIC alleged that Zazzle, Inc., a California corporation, sold a shirt with a “love happens” logo to at least one Missouri resident and shipped the shirt to Missouri. BASIC sued Zazzle for federal trademark infringement; federal unfair competition; unfair and deceptive trade practices; common law trademark infringement and unfair competition; and dilution and injury to business reputation in the Eastern District of Missouri. Zazzle moved to dismiss pursuant to Rule 12(b)(2) for lack of personal jurisdiction. The district court granted the motion. BASIC appealed. The 8th Circuit held that the applicable federal statute, the Lanham Act, did not authorize nationwide personal jurisdiction so the existence of personal jurisdiction depends on the long-arm statute of the forum state and the federal due process clause. To analyze claims of specific jurisdiction, a court considers the totality of the circumstances of five factors: (1) the nature and quality of defendant’s contacts with the forum state; (2) the quantity of such contacts; (3) the relation of the cause of action to the contacts; (4) the interest of the forum state in providing a forum for its residents; and (5) convenience of the parties. The court held Zazzle’s single act was insufficient to establish specific jurisdiction because Zazzle had not taken some action by which it purposefully availed itself of the privilege of conducting activities within the forum state. BASIC only alleged that a Missouri consumer accessed Zazzle’s nationally available website and purchased a shirt. Accordingly, the Court held BASIC failed to show that Zazzle deliberately reached out beyond its home and affirmed the district court. Bros. & Sisters in Christ, LLC v. Zazzle, Inc., No. 21-1917, 2022 U.S. App. LEXIS 21228 (8th Cir. 8/2/2022).

• Trademark: Lack of rights in a particular mark does not bar infringement of other marks containing same or similar words. Judge Frank recently denied cross-motions for summary judgment related to a remanded trademark infringement action. In 2012, plaintiffs Select Comfort Corporation and Select Comfort SC Corporation (Select Comfort)—known for their Sleep Number Bed—sued defendants John Baxter; Dires, LLC; Craig Miller; and Scott Stenzel for trademark infringement, trademark dilution, false advertising, unfair competition, and related state-law claims. Defendants filed a counterclaim seeking a declaration that Select Comfort did not have trademark rights in the phrase NUMBER BED. In the Fall 2017 trial, the jury found Select Comfort did not have trademark rights in NUMBER BED. The case was appealed to the 8th Circuit, which affirmed the jury’s decision related to rights in NUMBER BED but vacated and remanded on almost all other aspects. On remand, defendants moved for summary judgment on plaintiffs’ trademark infringement claim to the extent that any portion of the claim relied on defendants’ use of the term NUMBER BED. Defendants argued that because the jury found Select Comfort lacked rights in NUMBER BED and the 8th Circuit affirmed, any claim based on the use of the phrase must fail. The court, however, disagreed. “The issue resolved with respect to Defendants’ counterclaim was whether Plaintiffs had trademark rights in NUMBER BED, not whether any use of the words NUMBER BED in advertising infringed other trademarks, namely the SLEEP NUMBER trademark.” Because use of NUMBER BED may be found to be confusingly similar to the SLEEP NUMBER trademark, factual issues remained for the jury, and defendants’ summary judgment motion was denied. Select Comfort Corp. v. Baxter, No. 12-2899 (DWF/TNL), 2022 U.S. Dist. LEXIS 132147 (D. Minn. 7/26/2022).

Joe Dubis
Merchant & Gould


Tax Law 


• Sale of real estate lots results in capital loss. Most introductory income tax classes teach students to distinguish ordinary assets from capital assets. Attentive students realize that the favorable treatment of capital gains combined with the relatively unfavorable treatment of capital losses often incentivizes taxpayers to label an asset “capital” if its disposition results in a gain, but “ordinary” if its disposition results in a loss. In Musselwhite v. Comm’r, T.C.M. (RIA) 2022-057 (T.C. 2022), a taxpaying couple claimed an ordinary loss of just over $1 million after the sale of undeveloped lots in a subdivision. The commissioner disagreed with the characterization and issued a notice of deficiency as well as an accuracy-related penalty. 

The court, applying the multifactor test set out by the 4th Circuit, agreed with the commissioner. Among the factors to be considered are (1) the purpose for which the property was acquired; (2) the purpose for which the property was held; (3) improvements, and their extent, made to the property by the taxpayer; (4) the frequency, number, and continuity of sales; (5) the extent and substantiality of the transaction; (6) the nature and extent of the taxpayer’s business; (7) the extent of advertising or lack thereof; and (8) the listing of the property for sale directly or through a broker. In this dispute, the court held that factors 1 through 6 weighed against the taxpayers and only factors 7 and 8 weighed in the taxpayer’s favor. Since the overwhelming weight of the factors was against the taxpayers, the court determined that the lots in the hands of the taxpayers were not stock in trade, inventory, or property primarily held for sale to customers in the ordinary course of business. The lots therefore were capital assets and the loss was not properly characterized as ordinary. Musselwhite v. Comm’r, T.C.M. (RIA) 2022-057 (T.C. 2022).

• Clear and unambiguous settlement agreement entitles county to summary judgment. Cutters Grove Building LLC entered into a settlement agreement with Anoka County. The agreement covered several tax years – including years 2016 (Pay 17) through 2019 (Pay 20). The agreement specified that “Pay 20 will be held at $1,400,000[.]” The parties adhered to the agreement for several years, but in 2020, Cutters Grove attempted to challenge the assessed value of the property as of 1/2/2019. The county, referencing the settlement agreement, invited Cutters Grove to voluntarily dismiss the petition. Cutters Grove refused. The county, relying on the settlement agreement, moved for summary judgment. The tax court held that the settlement language was clear and unambiguous and that Cutters Grove was contractually obligated to the agreement it negotiated with the county. The court also referenced the strong interest in enforcing settlement agreements. Since there was no issue of material fact, the court granted the county’s motion for summary judgment. Cutters Grove Bldg. LLC, v. Cnty. of Anoka, No. 02-CV-20-2360, 2022 WL 2351535 (Minn. Tax 6/27/2022).

• Property tax: Petitioner overcomes prima facie validity of assessment of airplane hangar. After Ronald Enright’s tax bill jumped from under $1,000 to $3,736, he challenged Itasca County’s assessment of the value of his airplane hangar, which sits on land leased from the Itasca County Airport. The tax court held that Mr. Enright overcame the presumptive validity of the assessment by introducing a page of the county’s own appraisal, which includes a sale that was not considered by the county when setting the assessment. The tax court rejected the county’s mid-trial motion to dismiss under Rule 41.02 without deciding whether such a motion is proper. (“Whether Itasca County may bring a motion to dismiss under Rule 41.02(b) of the Minnesota Rules of Civil Procedure at the close of a property tax petitioner’s case is an open question.”) In its analysis, the court credited the testimony and appraisal of the Itasca County assessor’s trial appraisal. Testimony revealed that prior assessments had been artificially low, because prior assessments had incorrectly valued the hangar as pole-style construction, which is less valuable than the I-beam steel construction of Mr. Enright’s structure. The court adjusted the market value from the previously assessed value of $138,200 to the trial appraisal of $111,400. Enright v. Cnty. of Itasca, No. 31-CV-20-1076, 2022 WL 2911927 (Minn. T.C. 7/19/2022).

• Property tax: Attorney’s explication of opposing appraisal theory insufficient to exclude appraisal report and anticipated appraisal testimony. In a dispute surrounding the value of a shopping center in Washington County, the taxpayer moved in limine to exclude the county’s appraisal report and the anticipated appraisal testimony of its expert. The taxpayer asserted that the appraisal report was deficient in numerous ways, such as failing to account for certain incentives. Reasoning that the “‘principal function of a valuation trial is to test the foundation reliability of the parties’ competing appraisals,’” the court rejected the motion. The taxpayer relied solely on his lawyer’s explication of appraisal theory and the lawyer’s own critique of the county’s expert report. The court reminded the movant that “comments of counsel are not evidence” and as such the court had no evidence on which the court could grant the motion to exclude. Tamarack Vill. Shopping Ctr., LP v. Cnty. of Washington, No. 82-CV-20-2003, 2022 WL 2721405 (Minn. T.C. 7/13/2022) (citing 1300 Nicollet, L.L.C. v. Cnty of Hennepin, No. 27-CV-17-06284 et al., 2020 WL 7121467 (Minn. Tax 12/1/2020)). 

• Excise tax: Taxpayer’s “ring of estoppel” argument insufficient for summary judgment. In 2004, Clair R. Couturier accepted a buy-out from his company. The company agreed to exchange $26 million for Mr. Couturier’s ESOP stock and Couturier’s relinquishment of various interests (including a nonqualified deferred compensation plan, an Incentive Stock Option plan, and a Value Enhancement Incentive plan). The company paid the $26 million through a $12 million cash payment to Couturier’s IRA and a $14 million promissory note payable to the IRA. (The note was paid in full in 2005.) On his 2004 return, Couturier characterized the $26 million payment as a rollover contribution to his IRA. He did not indicate that any of the $26 million was an excess contribution. 

The IRS got wind of this contribution after the Department of Labor investigated Couturier for an alleged violation of his fiduciary duties under ERISA. The IRS opened an investigation, during which it determined that the value of the alleged rollover was significantly less than the $26 million claimed. The IRS calculated that only about $830,000 of the claimed rollover was eligible for that treatment. That meant that the additional $25 million was an “excess contribution.” Excess contributions to IRAs generate excise taxes, which are imposed for each taxable year until the original excess contribution is distributed to the taxpayer and included in income. The excise tax on taxpayer’s alleged excess contribution totaled just shy of $8.5 million.

Couturier argued that since the IRS had not challenged the excess contribution in 2004, the IRS was estopped from assessing the excise tax. The tax court disagreed. “[N]othing in [the Code], the Treasury regulations, or any other IRS authority” makes the assertion of an income tax deficiency a precondition for determining an excise tax deficiency. In fact, the court noted, there are many reasons the IRS might impose the excise tax and not assert an income tax deficiency. Further, not every excess contribution stems from an income tax deficiency. The excise tax is not conditioned on whether the taxpayer has an income tax liability, whether the taxpayer has filed (or the IRS has examined) an income tax return, or whether the IRS has issued the taxpayer a notice of deficiency in income tax. The court similarly rejected Couturier’s related argument that the IRS’s inaction with respect to his 2004 income tax return amounted to tacit approval of the position, such that the imposition of the excise tax resulted in the IRS taking an inconsistent position. Inaction, the court explained, does not amount to tacit approval. Couturier’s motion for summary judgment was denied. Couturier v. Comm’r, T.C.M. (RIA) 2022-069 (T.C. 2022). 

• Matter of first impression: Commissioner held to concession in estate dispute. William DeMuth awarded a power of attorney to his son, Donald DeMuth, which authorized the younger DeMuth to give gifts to his brothers and other family members in amounts not exceeding the annual exclusion for the federal gift tax. Eventually, the senior DeMuth entered an end-stage medical condition, and Donald DeMuth caused several final checks to be written in accordance with the POA. Eleven checks were delivered, but 10 of those checks were not paid until after William DeMuth died. DeMuth’s executor did not include the value of those checks in his estate. The IRS issued a notice of deficiency, which determined that the value of the ten checks that were not paid was properly included in William DeMuth’s estate. Eventually, the parties submitted the case for decision without trial under Rule 122. The tax court first determined that under Pennsylvania law, the value of the ten checks was properly included in the gross estate. 

The tax court could not stop there, however, because the IRS had conceded in brief (based on a misunderstanding of the law) that the value of three of the checks ought not be included in the estate’s value. The court therefore faced the issue of “whether or not we are to hold respondent to a concession he made on brief in the context of a case that has been submitted for decision without trial under Rule 122 when the concession is inconsistent with the applicable law.” Analogizing to similar instances in which the court has disallowed the commissioner to withdraw concessions, the court held the commissioner to its concession and excluded the value of the three conceded checks. Est. of DeMuth v. Comm’r, T.C.M. (RIA) 2022-072 (T.C. 2022).

• Taxpayer-attorney deemed vexatious litigant not permitted to deduct expenses related to challenging disbarment. In 2008, the Los Angeles County Superior Court declared Charles Kinney to be a vexatious litigant for commencing, prosecuting, and maintaining numerous unmeritorious litigations. Four years later, Mr. Kinney was disbarred. Mr. Kinney attempted to deduct litigation costs relating to his professional disciplinary action, the earlier superior court declaration that he was a vexatious litigant, personal/individual suits he filed against neighbors regarding property disputes, and a suit he filed against judge and law clerk. Kinney asserted that the expenses were properly deducted as business expenses; he reasoned that he was trying to protect his Schedule C self-employment business from destruction, and/or that he was acting as whistleblower in respect to other litigation. The tax court rejected these arguments as meritless. The court similarly rejected his attempts to deduct other expenses. Kinney v. Comm’r, T.C.M. (RIA) 2022-081 (T.C. 2022).

Morgan Holcomb
Mitchell Hamline School of Law

Torts & Insurance


• Defamation; matters of public concern. Defendant took a dance class from plaintiff instructor in 2011. Later, the parties began a consensual romantic relationship. However, in 2015, an incident occurred that defendant contended was not consensual, and the parties’ relationship ended. In 2020, defendant posted a public message on her Facebook profile in which she accused plaintiff and others of sexually assaulting her. Plaintiff then filed suit for defamation. The district court granted defendant’s summary judgment motion, holding that the evidence indicated the statements were true, and because they involved a matter of public concern and plaintiff could not prove actual malice. 

The Minnesota Court of Appeals reversed and remanded. The court first held that a genuine issue of material fact as to the statements’ falsity precluded summary judgment. In so holding, the court noted that while there was undisputed evidence of sexual contact, there was evidence that it was consensual. Second, the court held that the statements at issue did not involve a matter of public concern. In reaching its conclusion, the court noted that “the determination of whether speech involves a matter of public or private concern is based on a totality of the circumstances, and courts should consider the content, form, and context of the speech, with no one factor being dispositive.” The court stated: “The United States Supreme Court’s focus on the ‘thrust and dominant theme’ of the communication, cited approvingly by the Minnesota Supreme Court, counsels us that [defendant’s] statement is personal in nature. To hold that this accusation is a matter of public interest—which would take the question of the truth or falsity of [defendant’s] statement from the jury—would stretch current Minnesota law, based on the nature of the #metoo movement. And that is not the role of an intermediate court.”

Judge Wheelock filed an opinion concurring in part and dissenting in part. Judge Wheelock agreed that plaintiff had presented sufficient evidence to withstand summary judgment on the issue of falsity. However, Judge Wheelock would have held that the statements involved a matter of public concern. Johnson v. Freborg, A21-1531 (Minn. Ct. App. 7/25/2022).

Jeff Mulder
Bassford Remele