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The Minnesota No-Fault Act became law on January 1, 1975. Prior to its enactment, compensation for medical, chiropractic, and wage loss benefits were regulated by a much different set of rules — based strictly upon fault.
Before January 1, 1975, an injured person in an automobile accident could obtain compensation only for their health care treatment from the other car insurer if they could show that another individual caused the accident. In other words, if you were at fault, you would have had to pay out of your pocket for your treatment. In addition, cases could take years to settle and the medical providers and your wage loss would not be paid until the end. It was burdensome and risky.
Therefore, nearly all payments to the treating doctors were paid, at least initially, through health insurance and/or cash payment from the patient. The insured individual was forced into our litigation system because it was only after proving the other driver was at fault would the insurance company compensate the individual for these benefits.
Over time, there have been law changes, but the heart of the No Fault Act is intact.
With an attorney’s help, most no-fault claims proceed swiftly and without difficulty. If you need help with a no fault issue, then please contact an experienced attorney with Terry, Slane & Ruohonen for a free consultation or call 612-TSR-TIME.
What no fault policy will cover you?
The Minnesota No-Fault Act provides that all vehicle owners are required to purchase no-fault insurance. If an individual unlawfully chooses not to insure their vehicle, they personally, and all other adult family members in their household, will potentially be barred from receiving no-fault benefits. A determination of which no-fault insurer is responsible for an individual’s health care provider treatment is very complicated.
A general rule is a person’s own vehicle, whether or not involved in the crash, will provide no-fault coverage. If you do not own a car, but live with a blood or marriage relative, their policy will cover you. If neither of these are an option, the car you are in will provide coverage. The last option is the Assigned Claims Plan which is free coverage for a person who does not own a non-insured vehicle, does not live with a relative who owns a non-insured vehicle, and who was in a vehicle without insurance.
If you are a pedestrian hit by a vehicle, your no-fault coverage will be either your own policy (on your parked car), a resident relative, the car that hit you, or assigned claims.
The injury must arise out of maintenance or use of a motor vehicle.
There must be a casual connection between the injury and the use of the vehicle for transportation purposes, i.e., the vehicle must be more than just the site of the injury.
The injury must be a natural and reasonable consequence of the use of the vehicle.
If the cause of the injuries is more properly included under general liability coverage, homeowner’s insurance coverage, or workers’ compensation, a claim should be made under those policies rather than under the No-Fault Act policy.
Our attorneys will properly investigate the existence of a no-fault policy and analyze the law to see what you qualify for and which policy will provide the best benefits.
In Midwest Family Mut. Ins. Co. v. Krupe, 430 N.W.2d 856 (Minn. Ct. App. 1988), the Court determined that the injuries did arise out of the maintenance or use of a motor vehicle when a tool broke while a person was repairing a tire.
In Strand v. Illinois Farmers Ins. Co., 429 N.W.2d 266 (Minn. Ct. App. 1988), the Court determined the injuries arose out of the maintenance or use of a motor vehicle when gasoline leaked from the automobile and ignited.
In Kolkin v. American Family Ins. Co., 347 N.W.2d 538 (Minn. Ct. App. 1984), the Court determined the injuries did not arise out of the maintenance or use of a motor vehicle when an intoxicated person froze to death after being left in the car over night.
In Nadeau v. Austin Mut. Ins. Co., 350 N.W.2d 368 (Minn. 1984), the Court determined a pedestrian injured while jumping out of the way of an oncoming vehicle, even though the vehicle did not touch the person, is entitled to no-fault benefits.
In Petrick v. Transport Ins. Co., 343 N.W.2d 876 (Minn. Ct. App. 1984), the Court determined no-fault coverage existed for a truck driver who slipped on oil while in the truck’s trailer during unloading.
In Jorgenson v. Auto-Owners Ins. Co., 360 N.W.2d 397 (Minn. Ct. App. 1985), the Court determined no-fault coverage existed when a person was unloading a can filled with gasoline and faulty wiring in the trunk ignited the gasoline.
In Brehm v. Illinois Farmers Ins. Co., 390 N.W.2d 475 (Minn. Ct. App. 1986), the Court determined no-fault coverage extended to an individual injured when he slipped on some oil while washing the windows of his car.
In Barry v. Illinois Farmers Ins. Co., 386 N.W. 2d 299 (Minn. Ct. App. 1986), the Court determined no-fault coverage extended to a woman who slipped on some ice when she was returning to her running vehicle after closing her garage door.
In Marklund v. Farm Bureau Mutual Co., 400 N.W.2d 337 (Minn. 1987), the Court determined no-fault coverage is not extended to a person who slipped on ice after refueling his vehicle but before he had paid for the gasoline. The reason given by the Court for denial of no-fault coverage was the fact that the premise liability policy of the gas station should apply instead of the no-fault policy.
In Nation Family Ins. Co. v. Boyer, 269 N.W.2d10 (Minn. 1978), the Court determined no-fault coverage does not extend to persons injured as a result of an accidental firearm discharge in a vehicle.
In Progressive Ins. Co. v. Hoekman, 359 N.W.2d 685 (Minn. Ct. App. 1984), the Court determined no-fault coverage does extend to a person injured when a garage door collapsed on him minutes after a vehicle had struck the garage door.
In Hedlund v. Milwaukee Mut. Ins. Co., 373 N.W.2d 823 (Minn. Ct. App. 1985), the Court determined no-fault coverage extends to a party injured while attempting to jump start a tractor when using cables connected to a truck.
In Holm v. Mutual Service Casualty Ins. Co., 261 N.W.2d 598 (Minn. 1977), the Court determined no-fault coverage does not extend to a person assaulted by a police officer following a high-speed chase.
Types of no fault benefits.
Medical Expense — This benefit is very broad, including all medical care, chiropractic, x-ray, optical, dental, and rehabilitation services, as well as artificial limbs, prescription drugs, ambulance and all other reasonable transportation incurred in traveling to receive covered medical benefits including hospital, extended care, and nursing services.
Disability and Income Loss Benefits — These provide payment of 85 % of the injured person’s loss of gross income, up to a $250.00 maximum per week. This includes the costs incurred by a self-employed person to hire substitute employees.
Funeral and Burial Expenses — Reasonable funeral and burial expenses are covered up to $2,000.00.
Replacement Services and Loss — This provides replacement of services that the injured person would have performed not for income but for the personal benefit of the person or the person’s household. For example, if an injured person cannot mow the lawn or shovel snow due to their injuries, the no-fault carrier must pay the cost of hiring someone to perform this task. If the injured person had full time responsibility for providing care and maintenance of a home with or without children, the benefit is the reasonable value of such care, whether actual amounts have to be spent for those services or not. This benefit is limited to $200.00 per week and has a 7 days delay after the day of the crash.
Survivor’s Economic Loss Benefits — The survivor of someone killed in a car accident may collect benefits for the monetary support provided by the decedent.
Survivor’s Replacement Services Loss — This provides reimbursement for expenses incurred by surviving dependents in obtaining services the deceased would have provided, subject to a maximum of $200.00 per week.
Limits — Basic insurance limits for no-fault coverage in Minnesota are $20,000.00 for medical expenses and $20,000.00 for income loss, replacement services loss, funeral expense loss, survivors economic loss, and survivor’s replacement loss. These are separate limits, meaning a claimant is entitled to up to $20,000.00 in medical expenses and, up to $20,000.00 of economic loss. However, the coverages cannot be combined. Thus, a person incurring more than $20,000.00 of medical expenses cannot utilize some of the wage loss benefit to cover additional medical expenses, and the reverse is also true.
Stacking — When you purchase insurance, you may elect to “stack” your policies for a nominal additional fee. Instead of $20,000 in medical, you would have $40,000. You must have multiple vehicles with the same insurance company to stack the policies.
Any vehicle crash involving injuries should be immediately reported to the insurance companies for the involved vehicles. It is very important to identify the drivers of all vehicles involved in a collision, as well as their insurance companies. Minnesota law now requires all vehicle operators to carry insurance information in the vehicle. Thus, under most circumstances, it should be simple to determine the insurer for the vehicle. In the event that proper insurance identification information is not available, the police should be notified before the parties leave the scene of the collision.
The insurance company responsible for no fault benefits will request an application for benefits, signed authorizations for medical and wage information, and a list of current and past medical providers. An attorney should be consulted before forms are signed to ensure fairness in the information requested.
In most cases, your insurance company may ask for an independent medical examination or they may simply cut off benefits.
An Independent Medical Exam (Adverse Exam or IME) is a medical evaluation scheduled by the no fault insurance company. They are real doctors but they are chosen because of certain opinions that tend to always be the same. The end result of these exams is the insurance company concluding you are not hurt or your injuries were caused by something other than a car accident or work injury.
IME doctors are professional who often are called to testify at trial and they make great witnesses. Your law firm needs to be familiar with these types of doctors so a cross examination can be effective. The attorneys at Terry, Slane & Ruohonen keep extensive histories of these doctors and have prior reports to show bias. We also keep track of their income to help juries understand the financial windfall some of these professional doctors are receiving.
After obtaining an opinion from their doctor recommending no further treatment or limitation of treatment, the no fault insurer will send a letter to the insured indicating the limitation of treatment or that they refuse to pay for any future benefits.
Many people hire attorneys at this point because they disagree with the IME doctor. An effective attorney may be able to negotiate payment of more bills or can file for a no fault arbitration.
A no fault arbitration is an informal legal proceeding used to get past wage and medical bills paid and to reinstate no fault benefits. A neutral party is selected by your attorney and the insurance attorney to serve as a judge with the hearing done in a law office. Attorneys at Terry, Slane & Ruohonen PLLC have done hundreds of no fault arbitrations and have the expertise to get your bills paid.
This fact would be investigated by our firm. The driver may not have insurance, but the owner may. If no one has insurance coverage, you are eligible to receive compensation for your injures with an uninsured motorist claim under your own insurance. Uninsured coverage is something you already pay for with your premiums and is mandatory in Minnesota. Using the uninsured coverage will not raise your premiums.
If you did not obtain auto insurance on your own vehicle, our attorneys may be able to find other sources of coverage. You may be eligible for assigned claims, which is sponsored by the State of Minnesota. Assigned claims has specific eligibility requirements that our lawyers can best explain over the phone or in person.
If you own a car or live with a relative who owns a car without insurance, you are not eligible for assigned claims. Instead you will have to wait until your case is settled or won at trial to force the at fault party to pay. There was controversy in this area until the Munoz case, won by Steven Terry at the Court of Appeals, clarified that the at fault party is ultimately responsible for all unpaid bills and wage loss, even if the injured party broke the law by not having auto insurance. We will gladly provide a copy of the Munoz case to you if you email us.
In addition to working with the no fault insurance company, most cases will have a different insurance company on the bodily injury side.
3. The claim must be brought within the statute of limitations.
The four elements necessary to establish negligence are duty, breach of the duty, causation, and injury. Minnesota liability laws have established the basic duty of all drivers is the duty of ordinary or reasonable care. The essential question asked is “What would a reasonable driver do under similar circumstances?” The driver’s negligence must be the cause of the injuries sustained.
If one of these five conditions occurs, the tort threshold has been reached and a potential claim arises against the bodily injury insurer of the negligent driver.
With an attorney’s help, most no fault claims proceed swiftly and without difficulty. If you need help with a no fault issue, then please contact one of our experienced attorneys for a free consultation or call 612-TSR-TIME.

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Herbert L. Zuckerman, Newark, N. J., for appellant.
Melva M. Graney, Appellate Section, Tax Division, Department of Justice, Washington, D. C. (Mitchell Rogovin, Asst. Atty. Gen., Lee A. Jackson, Harry Baum, Donald A. Statland, Attys., Department of Justice, Washington, D. C., David M. Satz, Jr., U. S. Atty., on the brief), for appellee.
Before HASTIE, Chief Judge, and FREEDMAN and VAN DUSEN, Circuit Judges.
The problem necessarily calls for an evaluation of the facts, which we therefore detail.
Fin Hay Realty Co., the taxpayer, was organized on February 14, 1934,2 by Frank L. Finlaw and J. Louis Hay. Each of them contributed $10,000 for which he received one-half of the corporation's stock and at the same time each advanced an additional $15,000 for which the corporation issued to him its unsecured promissory note payable on demand and bearing interest at the rate of six per cent per annum. The corporation immediately purchased an apartment house in Newark, New Jersey, for $39,000 in cash. About a month later the two shareholders each advanced an additional $35,000 to the corporation in return for six per cent demand promissory notes and next day the corporation purchased two apartment buildings in East Orange, New Jersey, for which it paid $75,000 in cash and gave the seller a six per cent, five year purchase money mortgage for the balance of $100,000.
Three years later, in October, 1937, the corporation created a new mortgage on all three properties and from the proceeds paid off the old mortgage on the East Orange property, which had been partially amortized. The new mortgage was for a five year term in the amount of $82,000 with interest at four and one-half per cent. In the following three years each of the shareholders advanced an additional $3,000 to the corporation, bringing the total advanced by each shareholder to $53,000, in addition to their acknowledged stock subscriptions of $10,000 each.
Thereafter the corporation continued to pay and deduct interest on Finlaw's notes, now held by his two daughters. In 1962 the Internal Revenue Service for the first time declared the payments on the notes not allowable as interest deductions and disallowed them for the tax years 1959 and 1960. The corporation thereupon repaid a total of $6,000 on account of the outstanding notes and in the following year after refinancing the mortgage on its real estate repaid the balance of $47,000. A short time later the Internal Revenue Service disallowed the interest deductions for the years 1961 and 1962. When the corporation failed to obtain refunds it brought this refund action in the district court. After a nonjury trial the court denied the claims and entered judgment for the United States. 261 F. Supp. 823 (D.N. J.1967). From this judgment the corporation appeals.
This case arose in a factual setting where it is the corporation which is the party concerned that its obligations be deemed to represent a debt and not a stock interest. In the long run in cases of this kind it is also important to the shareholder that his advance be deemed a loan rather than a capital contribution, for in such a case his receipt of repayment may be treated as the retirement of a loan rather than a taxable dividend.6 There are other instances in which it is in the shareholder's interest that his advance to the corporation be considered a debt rather than an increase in his equity. A loss resulting from the worthlessness of stock is a capital loss under § 165(g), whereas a bad debt may be treated as an ordinary loss if it qualifies as a business bad debt under § 166. Similarly, it is only if a taxpayer receives debt obligations of a controlled corporation7 that he can avoid the provision for nonrecognition of gains or losses on transfers of property to such a corporation under § 351.8 These advantages in having the funds entrusted to a corporation treated as corporate obligations instead of contributions to capital have required the courts to look beyond the literal terms in which the parties have cast the transaction in order to determine its substantive nature.
While the Internal Revenue Code of 1954 was under consideration, and after its adoption, Congress sought to identify the criteria which would determine whether an investment represents a debt or equity, but these and similar efforts have not found acceptance.10 It still remains true that neither any single criterion nor any series of criteria can provide a conclusive answer in the kaleidoscopic circumstances which individual cases present. See John Kelley Co. v. Commissioner of Internal Revenue, 326 U.S. 521, 530, 66 S. Ct. 299, 90 L. Ed. 278 (1946).
The various factors which have been identified in the cases are only aids in answering the ultimate question whether the investment, analyzed in terms of its economic reality, constitutes risk capital entirely subject to the fortunes of the corporate venture or represents a strict debtor-creditor relationship.11 Since there is often an element of risk in a loan, just as there is an element of risk in an equity interest, the conflicting elements do not end at a clear line in all cases.
In a corporation which has numerous shareholders with varying interests, the arm's-length relationship between the corporation and a shareholder who supplies funds to it inevitably results in a transaction whose form mirrors its substance. Where the corporation is closely held, however, and the same persons occupy both sides of the bargaining table, form does not necessarily correspond to the intrinsic economic nature of the transaction, for the parties may mold it at their will with no countervailing pull. This is particularly so where a shareholder can have the funds he advances to a corporation treated as corporate obligations instead of contributions to capital without affecting his proportionate equity interest. Labels, which are perhaps the best expression of the subjective intention of parties to a transaction, thus lose their meaningfulness.
To seek economic reality in objective terms of course disregards the personal interest which a shareholder may have in the welfare of the corporation in which he is a dominant force. But an objective standard is one imposed by the very fact of his dominant position and is much fairer than one which would presumptively construe all such transactions against the shareholder's interest. Under an objective test of economic reality it is useful to compare the form which a similar transaction would have taken had it been between the corporation and an outside lender, and if the shareholder's advance is far more speculative than what an outsider would make, it is obviously a loan in name only.
The shareholders here, moreover, lacked one of the principal advantages of creditors. Although the corporation issued demand notes for the advances, nevertheless, as the court below found, it could not have repaid them for a number of years. The economic reality was that the corporation used the proceeds of the notes to purchase its original assets,13 and the advances represented a long term commitment dependent on the future value of the real estate and the ability of the corporation to sell or refinance it. Only because such an entwining of interest existed between the two shareholders and the corporation, so different from the arm's-length relationship between a corporation and an outside creditor, were they willing to invest in the notes and allow them to go unpaid for so many years while the corporation continued to enjoy the advantages of uninterrupted ownership of its real estate.
It is true that real estate values rose steadily with a consequent improvement in the mortgage market, so that looking back the investment now appears to have been a good one. As events unfolded, the corporation reached a point at which it could have repaid the notes through refinancing, but this does not obliterate the uncontradicted testimony that in 1934 it was impossible to obtain any outside mortgage financing for real estate of this kind except through the device of a purchase money mortgage taken back by the seller.
It is argued that the rate of interest at six per cent per annum was far more than the shareholders could have obtained from other investments. This argument, however, is self-defeating, for it implies that the shareholders would damage their own corporation by an overcharge for interest. There was, moreover, enough objective evidence to neutralize this contention. The outside mortgage obtained at the time the corporation purchased the East Orange property bore interest at the rate of six per cent even though the mortgagee was protected by an equity in excess of forty per cent of the value of the property.14 In any event, to compare the six per cent interest rate of the notes with other 1934 rates ignores the most salient feature of the notes — their risk. It is difficult to escape the inference that a prudent outside businessman would not have risked his capital in six per cent unsecured demand notes in Fin Hay Realty Co. in 1934. The evidence therefore amply justifies the conclusion of the district court that the form which the parties gave to their transaction did not match its economic reality.
It is argued that even if the advances may be deemed to have been contributions to capital when they were originally made in 1934, a decisive change occurred when the original shareholder, Finlaw, died and his heirs continued to hold the notes without demanding payment. This, it is said could be construed as a decision to reinvest, and if by 1941 the notes were sufficiently secure to be considered bona fide debt, they should now be so treated for tax purposes. Such a conclusion, however, does not inevitably follow. Indeed, the weight of the circumstances leads to the opposite conclusion.
First, there is nothing in the record to indicate that the corporation could have readily raised the cash with which to pay off Finlaw's notes on his death in 1941. When Hay, the other shareholder, died in 1949 and his executor two years later requested the retirement of his interest, the corporation in order to carry this out sold one of its properties and refinanced the others. Again, when in 1963 the corporation paid off the notes held by Finlaw's daughters after the Internal Revenue Service had disallowed the interest deductions for 1961 and 1962 it again refinanced its real estate. There is nothing in the record which would sustain a finding that the corporation could have readily undertaken a similar financing in 1941, when Finlaw died even if we assume that the corporation was able to undertake the appropriate refinancing ten years later to liquidate Hay's interest. Moreover, there was no objective evidence to indicate that in 1941 Finlaw's daughters viewed the notes as changed in character or in security, or indeed that they viewed the stock and notes as separate and distinct investments. To indulge in a theoretical conversion of equity contributions into a debt obligation in 1941 when Finlaw died would be to ignore what such a conversion might have entailed. For Finlaw's estate might then have been chargeable with the receipt of dividends at the time the equity was redeemed and converted into a debt. To recognize retrospectively such a change in the character of the obligation would be to assume a conclusion with consequences unfavorable to the parties, which they themselves never acknowledged.
The burden was on the taxpayer to prove that the determination by the Internal Revenue Service that the advances represented capital contributions was incorrect.15 The district court was justified in holding that the taxpayer had not met this burden.
VAN DUSEN, Circuit Judge (dissenting).
Whether or not the corporate taxpayer is entitled to an interest deduction turns in this case on the "real nature of the transaction in question" or on whether "the degree of risk may be said to be reasonably equivalent to that which equity capital would bear had an investor, under similar circumstances, made the advances * * *." Diamond Bros. Company v. C. I. R., 322 F.2d 725, 732 (3rd Cir. 1963); Tomlinson v. 1661 Corporation, supra, at 295.4 When this test is used, the entire history of the corporate taxpayer becomes relevant5 and a focus solely on the year of incorporation or investment of the debt is not sufficient.
"The usual capitalization is a thousand dollar investment in capital and then the rest of the monies are loaned either * * * by individuals or stockholders of the corporation to the corporation, which in turn the individuals lending the money expect a return for their loans.
" [Of the real estate corporations that] I have dealt with, at least ninety-five per cent and more have had a thousand capitalization and, of course, loans from the various lenders would depend upon the size of the transaction, monies that were required."
The loans were denied debt status because there was no intent to seek repayment within a "reasonable time," because the corporation had no retirement provision (or fund) for the principal and because the debt had no maturity date (Conclusions 3 and 4). To the contrary, demand notes have a maturity date at the discretion of the holder (or of his transferee when the notes are freely negotiable, as were the Fin Hay notes). And failure to transfer the notes or demand payment is irrelevant when, as here, the evidence shows that the 6% rate made the debt a good investment.16 In addition, when a corporation holds appreciating real estate and contemplates recourse to refinancing, the lack of a sinking fund assumes little, if any, significance.17 There was no evidence and no discussion of what constitutes a "reasonable time" for refraining from making a demand on such a promissory note.
The District Court also placed emphasis on the fact that at the end of 1935 the shareholders' salaries were accrued but unpaid in the amount of $2400 and that in 1938 through 1940 the shareholders advanced an additional $6000 as loans. The corporate tax returns and books, however, show that the salaries could have been paid at the end of 1935 from $4,340.21 in cash on deposit,20 and that during the period of the additional loans of $6000 the shareholders received $6800 in dividends from the corporation.21 These additional facts, unexplained by the District Court, negate the implication that Fin Hay Realty Company was in serious financial trouble at the outset of its existence, at least to any such degree that all the challenged loans were made "at a risk" similar to that of venture capital.22 It is noted, in addition, that by 1938, when the original purchase money mortgage was re-financed, $18,000 of principal had been paid.
Although appellate decisions on the debt-equity problem constantly reiterate the maxim that each instance of definition turns on the particular facts of each case, a reading of many of these cases, including all those cited above, indicates two rather distinct conclusions concerning the assessment of the severity of the "risk" attached to alleged debt transactions. First, when the problem of definition arises under 26 U.S.C. §§ 165, 166 (worthless stock, bad debt), the risk of failure has already been realized and the party seeking to minimize the degree of such risk must show more "factors" than otherwise clearly argue for a debt classification. Secondly, regardless of the end purpose for defining indebtedness, fewer factors need be present (such as subordination, no interest, etc.) to allow a conclusion of "equity" when, as a matter of common knowledge, the economic enterprise has a higher chance of commercial failure. Consequently, few cases (and particularly few where taxpayers holding formal debt lose) deny debt status or even raise the question where the enterprise risk, as in this case, involves the mere holding and operation of real estate. As the risks increase, involving in addition construction of the real estate, or non-real estate operations subject to more immediate risk-creating problems of marketing, labor, advertisement, supplies, etc., the frequency of cases challenging debt and of decisions finding equity increase. The uncontradicted testimony (without finding of lack of credibility) of the universal practice in the Newark area in conformity to the course followed by taxpayer (p. 696, supra) is entitled to consideration. Also, the subsequent successful history of this corporate taxpayer cannot be disregarded and militates strongly against denying an interest deduction on this record. The Fin Hay Realty Co. did not go bankrupt, was not unable to refinance or extend its purchase money mortgage due in 1939, and has never failed to meet a demanded purchase of the notes.
"We cannot, by manipulation of tax law, preclude the parties from exercising sound business judgment in obtaining needed investment funds at the most favorable rate possible, whether it be a commercial loan, or, more likely and as is the case here, a loan from private interested sources with sufficient faith in the success of the venture and their ultimate repayment to delete or minimize the `risk factor' in their rate of return."
"There is actually no evidence that this was not a loan, was not intended to be a loan, or that Biritz actually intended to make a capital investment rather than a loan.
"We think the Tax Court has painted with too broad a brush in limiting the permissible activities of an entrepreneur in personally financing his business. Financing embraces both equity and debt transactions and we do not think the courts should enunciate a rule of law that a sole stockholder may not loan money or transfer assets to a corporation in a loan transaction. If this is to be the law, Congress should so declare it. We feel the controlling principle should be that any transaction which is intrinsically clear upon its face should be accorded its legal due unless the transaction is a mere sham or subterfuge set up solely or principally for tax-avoidance purposes."
I would reverse and enter judgment for the corporate taxpayer.
Section 163(a) provides: "There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness."
A similar list of determinants was proposed in 1957 by an advisory group to a subcommittee of the House Committee on Ways and Means, but was not acted upon.
In 1954 the American Law Institute embodied such a test in § x500 of its draft income tax statute. See ALI Federal Tax Project, Income Tax Problems of Corporations and Shareholders 396 (1958).
"* * * it is well-settled that such findings are `in the nature of an ultimate finding of fact and since such finding is but a legal inference from other facts it is subject to review free of the restraining impact of the socalled "clearly erroneous" rule applicable to ordinary findings of fact by the trial court. * * *'"
Kaltreider v. Commissioner of Internal Revenue, 255 F.2d 833, 837 (3rd Cir. 1958). Although listed under legal conclusions by the District Court, this determination is similar to the "findings" referred to in Kaltreider. See, also, Soles v. Franzblau, 352 F.2d 47, 50 (3rd Cir. 1965). Moreover, regardless of the characterization of the District Court's findings, I am "left with the definite and firm conviction that a mistake has been committed" by the trial court on the record in this case. Diamond Bros. Company v. C. I. R., 322 F.2d 725, 731, n. 9 (3rd Cir. 1963), quoting from United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 92 L. Ed. 746 (1948).
The panel which decided Tomlinson included Senior Circuit Judge Maris of this court. The corporate taxpayer seeking to deduct interest payments was engaged in the construction, owning and operation of a certain office building, an economic activity quite similar to that of the corporate taxpayer in this case except that construction of real estate arguably increases the "risk" involved in the enterprise. Tomlinson relied heavily on United States v. Snyder Brothers Company, 367 F.2d 980 (5th Cir. 1966), in which the Fifth Circuit adopted with approval the conceptual analysis of Kraft Foods Company v. Commissioner of Internal Revenue, 232 F.2d 118, 123 (2nd Cir. 1956). This carefully reasoned Second Circuit decision suggested that the relevant inquiry for courts seeking to define "indebtedness" under 26 U.S.C. § 163 should turn initially on whether the alleged debt is a "hybrid," partaking of certain characteristics of traditional corporate equity as well as characteristics of debt, or whether the alleged debt is in form entirely debt and intended to be such. See, also, Gloucester Ice & Cold Storage Co. v. C. I. R., 298 F.2d 183, 185 (1st Cir. 1962). It is noteworthy that the Third Circuit case relied on heavily by the District Court, Mullin Building Corporation v. C. I. R., 9 T.C. 350 (1947), aff'd 167 F.2d 1001 (3rd Cir. 1948), is a case of a "hybrid" investment which, although the corporate taxpayer was formed solely to hold real estate, was named "debenture preferred stock" and demanded corporate liquidation before the "debenture preferred stock" principal could be returned. Similarly, Messenger Publishing Co. v. C. I. R., P.H.Memo, T.C., ¶ 41.241, aff'd 168 F.2d 903 (3rd Cir. 1948), involved a hybrid named "preferred stock."
To the extent that the District Court proceeded under a misconception as to the relevant legal test, this court is not bound by the "clearly erroneous" rule of F.R.Civ.P. 52. See C. I. R. v. Danielson, 378 F.2d 771, 774 (3rd Cir. 1967). See, also, United States v. United Steelworkers of America, 271 F.2d 676, 685 (3rd Cir.), aff'd 361 U.S. 39, 80 S. Ct. 1, 4 L. Ed. 2d 12 (1959); and Kraft Foods Company v. Commissioner of Internal Revenue, supra, 232 F.2d at 122: "* * * where, as here, the evidence consisted of stipulated facts, this Court is entitled to draw its own inferences of ultimate fact from the record."
Charter Wire, Inc. v. United States, 309 F.2d 878, 880 (7th Cir. 1962), cited by the District Court as a source of the relevant criteria, also suggests that the test is whether "the totality of facts indicates a risk-capital investment." The corporate taxpayer in the Charter Wire case, however, was involved in manufacturing, not real estate; the debt, 100 times the size of equity, was subordinated to other unsecured debt of general creditors; and a new shareholder was forced to buy debt in proportion to his new stock at a time when no additional financing was needed.
See, e. g., Farley Realty Corporation v. C. I. R., 279 F.2d 701, 704 (2nd Cir. 1960); Wilshire & West Sandwiches v. Commissioner of Int. R., 175 F.2d 718, 720 (9th Cir. 1949). As noted in P. M. Finance Corporation v. C. I. R., supra, at 789, control of the corporation requires the courts to examine the shareholder-creditor relationship with great care but "the decisions [footnote omitted] in most instances have required some further indication that sole or pro-rata shareholder `debt' is in reality equity rather than indebtedness."
See, e. g., Tomlinson v. 1661 Corporation, supra, at 297. Uncontroverted testimony of one creditor-stockholder showed that he regarded the 6% return as a good investment (it is noted that interest was always paid on time) and nothing on the record or in any other cases showing interest rates in 1934 or later indicates that a 6% return on an unsecured demand note was unreasonably low when issued in 1934 or subsequently anything other than the good investment alleged. Many corporations are forced to continue with initial financing at higher rates (such as the 6% here) and an interest rate that fluctuated with the "going rate" would be an additional indication against the bona fides of this debt. See, e. g., Montclair Inc. v. C. I. R., supra, at 40. The Fin Hay notes were freely transferable, unlike the situation, for instance, in Mullin Building Corporation v. C. I. R., supra, and such transferability is additional argument for allowing debt status under § 163.
The 1952 return lists the $20,000 as invested in "S. & L. Assn." As can be seen, even though the sale proceeds were used to pay off the old mortgage, more than enough money was available from the refinancing to pay off the notes and the mortgage. Similarly, the 1963 re-mortgaging gave net mortgage proceeds of approximately $210,000 for paying $47,000 of the remaining $53,000 in notes ($6,000 was apparently paid for out of earnings).


I have a SCOTUSBlog preview of next Wednesday's arguments in McDonough v. Smith, considering when a § 1983 fabrication-of-evidence claim accrues for statute of limitations purposes. The basic dispute is whether the limitations period starts running on favorable termination of the underlying criminal proceedings.
It is an interesting arrangement, with the United States supporting the petitioner/plaintiff position that the lawsuit (filed within three years of his acquittal on criminal charges that were based on fabricated evidence) was timely, but arguing that the plaintiff's claims should be dismissed on prosecutorial immunity grounds on remand. There are amicus briefs from criminal-defenses lawyers and fed courts scholars supporting the petitioner, urging the Court to maintain a scheme in which a criminal defendant is not forced to pursue § 1983 litigation until the criminal proceedings have resolved.
My draft paper on Winston Churchill and the Constitution is now up on SSRN. Feedback please.
Continue reading "Thoughts on the Rothgerber Constitutional Law Conference-National Injunctions"
President Trump likes to refer to himself as "Your President," as in "This is outrageous harassment of Your President by the Democrats." Over the weekend, speaking to a group of Jewish Republicans, he referred to Benjamin Netanyahu as "Your Prime Minister."
Has any previous President used this framing? It sounds new to me. It also has a ring of monarchism or authoritarianism--"Your Majesty," "Your King," "Your Dear Leader."
Comments on the larger project are emphatically welcome [via email]. I note that the subject of the oath, and of the importance of duty and character in office-holding, has given rise to a growing literature that is well worth exploring.
Thus far, I have not heard a legal argument against the right of the House Ways and Means Committee to examine the President's tax returns. The statute, which was enacted after the Teapot Dome scandal, says that the Committee may examine the tax returns of "any person" as part of an investigation. Is the argument against compliance some sort of constitutional argument?
In contrast to some states that are considering the ratification of the ERA, North Dakota just considered rescinding its ratification from the 1970s. The rescission passed in the State House but failed in the State Senate by one vote! Thus, North Dakota's ratification stands. For now.
I doubt that there will be further news on ERA ratification efforts this year. Maybe in 2020 Virginia, which is electing a new Legislature this Fall, will take up the measure again.
A Jot on Jamal Greene's "Foreword: Rights as Trumps?"
At Jotwell, I have this "jot" about Jamal Greene's Rights as Trumps?, the most recent Foreword in the Harvard Law Review Supreme Court issue. As I note in the piece, the Foreword "project" is itself a fascinating one, superbly discussed in this article by Mark Tushnet and Timothy Lynch, which suggests among other things that for various reasons Foreword articles are often disappointing. There are good reasons to think the article needs an update in the present era, discussing whether and how the "project" of those Forewords, and of the Supreme Court issue, might or must change given developments in the technology and timing of scholarship. Regardless, as a confirmed and unrepentant old fogey, who still likes looking at new issues and tables of contents and thinking of journal issues as issues rather than accidental collections that are soon to be disembodied and float around Westlaw, I still look forward to the Foreword, even when it disappoints me.
Greene's article does not disappoint. It makes some valuable points--including one, about the "less momentous" nature of the "paradigmatic conflicts of a modern, pluralistic political order," that runs pleasingly contrary to the usual rhetoric of scholarship and extra-scholarly propaganda by legal academics, who have strong political, professional, and careerist incentives to treat every new dispute as an urgent, high-stakes one and scoff at the existence of serious competing claims on the other side of the position taken. As is usually the case with my jots, I try to remain loyal to Jotwell's mission of telling the reader why I like Greene's article "lots," while also raising questions about it. Enjoy. Or skip the jot and read Greene's article.
Continue reading "Call for authors: Feminist Judgments: Rewritten Property Opinions"
Last month I wrote about the controversy at UC-Davis, where people unearthed old tweets from an English professor calling for police officers to be killed, prompting introduction of a California House Resolution calling for the professor's firing. Last week, Davis rejected the call in a letter to Republican Assemblyman James Gallagher, citing the First Amendment and President Trump's executive order purporting to require universities receiving federal funds to promote free enquiry on campus consistent with the First Amendment. Gallagher today wrote a letter to President Trump, insisting that the professor's speech is what suppresses campus speech and asking the President whether: 1) the intent of the order was to protect speech such as this, 2) whether Gallagher's call to fire the prof is consistent with the order's intent to stop intimidation and violence, and 3) whether Davis would lose funding if it fires the professor.
The answers, in order: 1) Of course not; 2) Of course not; 3) Of course not. But the President's intent cannot overcome charges of viewpoint discrimination.
Like many others in my little world, I read with regret Larry Solum's post yesterday announcing that he had discontinued his tradition of April Fool's Day entries offering parodies of articles by well-known law professors. Of course it is his choice, and it is an easy one to understand and sympathize with. But we will miss it, and hope his suggestion that it might be "revived in happier times" won't follow the same timeline and result as volume 2 of the third edition of Tribe's treatise on American constitutional law.
In his post, Larry wrote, among other things: "Some of the spoofed authors wrote me with great concern, because they believed that someone had posted a fake article under their name. Others reported that they had received concerned emails from friends about the odd content of their new article. The authors were real people, and some of them have been offended by the posts or annoyed by the fall out. And over the course of the last few years, the legal academy has become increasingly politicized, heightening the the offense that some may take to the spoofs." Again, one understands all this, and of course it's worth remembering that these are indeed real people. Even Cass Sunstein is a real person! (And not, on the evidence of his publication rate, either a syndicate or a set of clones.) It's quite understandable if Larry, for whom the spoofs were a gratuitous offering and one that no doubt took a good deal of work to do as well as he did, didn't want the tsuris of having to deal with offended or annoyed colleagues. Still, it's worth noting that the people whose work he parodied were, by design and almost without exception, well established and tenured at some of the most prestigious, reputation-conferring law schools in the country. As real people, they surely vary in the thickness or thinness of their skin and in their degree of amour propre. But if anyone in our field can stand being parodied--and to my mind that category should include, at a minimum, everyone with tenure--surely they can.
If Larry's decision seems cause for lament, it's mostly because I enjoyed the parodies. More particularly, my lament has very little to do with concerns about supposed politicization within the legal academy. That supposition may be accurate. But I'm reluctant to draw strong conclusions about it without more evidence, and I'm unlikely to have that evidence. I'm unlikely to be in the right rooms to hear the right conversations that would prove or refute the thesis, at least as it applies to more consequential matters. If law professors out there do absurd things like refusing to cite the "wrong" people or arguments even when those citations are relevant to their work, pushing prestige-conferring law reviews to publish certain people or views and not others, or finding publicly acceptable pretexts to support certain candidates and oppose others on illegitimate grounds, they are unlikely to write and tell me so. (Whether they should remain in the legal academy if they engage in misconduct like this, or whether their proper calling lies elsewhere, is a separate question. But I don't want to pronounce on that based on what I have made clear is something I can't even say exists.) Of course one can find examples of politics and of offense on Twitter. But I am trying to wean myself from that unhealthy place. Moreover, not everyone there engages in that sort of behavior, and those who do may be exceptional and inclined to do those sorts of things anywhere.
Beyond the loss of personal pleasure, a more serious reason to lament this is that the legal academy, like any institution with a set of norms and practices that often become ossified and sometimes become highly exaggerated, is such fertile ground for parody. That's not a criticism of the legal academy as such. Almost any fairly formalized activity is also a potentially funny one, and a great deal of legal scholarship and its practices--especially those around the "branding" and selling of law review articles and the writing of abstracts--are highly formalized. Parodying what we do is a way of puncturing the bubble of our own self-seriousness. More important, perhaps, is that it helps put in high relief the kinds of things we acknowledge to each other or (sometimes) to ourselves but talk about publicly less often: the tropes, tricks, games, moves, and tactics that we consciously or unconsciously engage in when we do what we do, and especially when we try to bring what we do to market. It's not just that we ought to be able to laugh at ourselves and our own little place in the human comedy. It's that doing so is a useful way of revealing ourselves to ourselves, calling some of our standard practices into question, and showing a little humility and a sense of irony. Leaving aside the elite law professors Larry wrote about, who are indeed real people but should be in a position to stand all this (and in some cases would no doubt benefit from it), if there are concerns about punching "up" or "down," we should at least be able to parody, laugh at, and as it were punch ourselves.
P.S.: Along those lines, let me offer three possible titles for a Horwitzian "forthcoming article": 1) "A Pluralist Approach to Pluralism"; 2) “The Sub-Basements of Institutional Architecture: Rethinking the First Amendment Rights of Newspaper HR Departments and Church Annual Picnic Committees”; and 3) “A Conflicted Plea for Sanctimony About Ethical Legal Scholarship.” The last one seems both lifelike and especially apt in the context of this post. But of course most of the fun with Larry's parodies came from the abstracts, given that, as I've suggested, the practice of abstract-writing has become so standardized and thus often hilarious. Although I don't write about private law, I'm waiting for the day when an abstract begins like this: "Although private agreements are a cornerstone of law, they are surprisingly neglected by legal scholars. This article is the first to take a closer look at this phenomenon, which I call the ‘contract.’ I advance the novel and counter-intuitive argument that these 'contracts' depend most centrally on mutual understanding and consent. This thesis has surprising and far-reaching implications across a range of cases and circumstances."
At Balkinization, a symposium is starting on a new book by Neal Devins and Lawrence Baum, The Company They Keep: How Partisan Divisions Came to the Supreme Court. The first entry is by Rick Hasen. If it is perhaps a little eager to make a place for the arguments he has made in his own recent book, that seems quite natural, and the post is enjoyable on its own terms. I look forward to the other symposium entries as well and am happy to commend the symposium to readers.
As Hasen writes, "Devins and Baum offer a psychological model positing that Justices, like others, are the product of the world around them, and Supreme Court Justices travelling in elite social circles seek affirmation and approval from these elites." Hasen argues that this kind of influence would have taken one form during an era of greater elite consensus, but that the growth of polarization has created a "politically polarized elite world," with dual elites and dual supporting institutions and social networks that can each provide affirmation or disapproval. The existence of these polarized elite worlds "both shapes and reflects how Justices view their jobs and decide how to vote, leading to a new polarization on the Supreme Court."
Usefully, Hasen emphasizes "the role of the 'Celebrity Justice,' a phenomenon which Devins and Baum acknowledge near the end of the book. Scalia, and later Ruth Bader Ginsburg, became rock star Justices, drawing adoring crowds who celebrate these lawyers as though they were teenagers meeting Beyoncé. If we are thinking about the psychological effects on Justices getting affirmation that they are on the right path, cult-like worship can only make the assured even surer in their convictions. This seems especially dangerous during polarized times."
I could not agree more on this point. The Notorious RBG phenomenon (or Scalia worship) and the cult of personality and celebrity it represents, however understandable (I'm speaking here not of politics, but of Justice Ginsburg and the value of having previously under-represented role models), is bad for our already oversized view of the courts, bad for our politics, bad for the justices themselves, who hardly need further encouragement in thinking well of themselves and taking confirmation of their views from the like-minded (and who risk an increasing willingness to profit from these cults, whether personally or, as the line of Ginsburg products seems to have become, in creating a family business), and for us. I feel the same about the black-tie dinner appearances and selfie opportunities at FedSoc conferences, which may seem harmless and trivial enough to those who attend and participate in this adulatory culture but is not. While the connection between the celebrity justice phenomenon and political polarization may be clear, its connection to the idea of elite culture is perhaps less so. At a minimum, though, I might suggest that I would feel less worried about elites if they considered a fundamental characteristic and requirement of their position to be a quality of independence and maturity of mind, skepticism toward bromides and hero worship, and resistance toward consumer culture and its colonization of politics and governance. The celebrity justice phenomenon hardly contributes to those qualities; and without them, there is good reason to doubt that our "elites" will act in a way fully worthy of the positions of trust and privilege they occupy.
The book (insofar as I have glanced at it) and the Hasen post emphasize polarization. I hope at least one or more contributor--perhaps Frank Pasquale? or perhaps an intervention by Mark Tushnet, who's not on the list of symposiasts?--will take a somewhat different approach to this question. From a centrist or center-left position and, most important, from a position within the elite, the polarization focus suggests that "liberal" and "conservative" legal elites occupy two radically different and separate worlds. That is certainly the usual theme of many comments on blogs like these or on more pernicious and shallow social media. From what I might call by way of shorthand a more American Affairs or Baffler perspective, however, that polarization may be less important than the common ties and assumptions that still connect many across any elite sector, including that of law and the courts (and the legal academy). Liberal and conservative elites are still elites, and share many common cultural backgrounds, assumptions, and manners and mores. Their list of what "just isn't done" may be longer than the list of whatever divides them. The norms they pick up from Yale or Harvard and appellate clerkships may make them more alike than they think, despite whatever purports to divide them. Whether the (these days, mostly hypothetical) paper on one's doorstep in the nicer sectors of Arlington, Chevy Chase, the Upper West Side, Austin, or Ann Arbor is the Wall Street Journal or the New York Times may seem a great difference to their readers and a trivial one to others residing outside these circles altogether.
Indeed, to those outside these circles the fierceness of these debates within a small and relatively closed community may suggest the degree to which these fights remain a form of luxury activity, or as much a matter of self-image as of a genuinely outward-looking perspective. Fierce debates over political representation in the legal academy usually focus on whether we are hiring too many elite center-left types and not enough elite center-right types. It would be nice if our palette were a little wider, a little less focused on whether, as it were, one's rep tie is blue or red: if it included more genuinely heterodox views and backgrounds, both left and right. I doubt this is possible for the judiciary or elite law firms; I would like to think, admittedly with what is almost certainly undue optimism, that it's still marginally possible for the legal academy, although just about everything associated with the hiring process these days, just as much (if differently) than in previous eras, seems designed to kill those hopes.
But -- but you also have the state supreme court option, as -- as Justice Kennedy -- Kavanaugh pointed out. And we often overlook that possibility in -- in our -- in our federal system.
Fortunately, and unlike in American Legion, counsel here was ready with the right answer: "Other options don't relieve this Court of its duty to vindicate constitutional rights."
I've been concentrating on an article draft, but I did find time to read Justin Driver's terrific new book on the Supreme Court's cases involving public schools. I was surprised to learn, for instance, that some states still employ corporeal punishment and the Court upheld this practice in the 1970s. There are also many insightful points about familiar cases (Brown or Barnette) as well as ones you may not know. It is definitely worth your time.
Rethinking Patient "Skin in the Game"
As policymakers consider ways to address the high costs of health care, they would do well to refine the use of policies that give patients more “skin in the game.” Under a common view, health care costs are driven up by people who seek unnecessary care because insurance picks up the tab. By raising deductibles and co-payments, it is thought, people will think twice before going to the doctor’s office or the emergency department.
So deductibles and co-payments have risen considerably in recent years, and many more Americans have high-deductible plans with health savings accounts. But lay people aren’t so good at distinguishing between necessary and unnecessary care, and many will refrain from getting care when they need it. Some patients also will cut back on their medications. While simply raising patient cost-sharing hasn’t worked well, there are good ways to target financial incentives for patients.
Continue reading "Rethinking Patient "Skin in the Game""
On "Big Mountain Jesus" (again) . . . and also liberalism, the First Amendment, Dignitatis Humanae, etc.
I've posted a few times about the "Big Mountain Jesus" statue at Whitefish Ski Resort (click here for a picture). And, the Supreme Court's pending case involving a war-memorial Cross in Maryland has brought back to public attention -- it's been about 15 years since the Court's pair of Ten Commandments cases -- the question of the First Amendment's implications for religious symbols, etc., in "public."
Continue reading "Inclusive forests and racist-insult trees"
"A Grimace and a Shrug"
I have the pleasure today of attending a conference on "Academic Freedom and Free Speech on Campus" at Emory, whose Center for the Study of Law and Religion has been kind enough to host me as a visiting scholar this semester. The speakers include Nancy Leong, Jacob Levy, Sasha Volokh, Julie Seaman, David Bernstein, Sigal Pen-Porath, Deborah Lipstadt, Greg Lukianoff, and many more.
To advance the policy described in subsection 2(a) of this order [to "encourage institutions to foster environments that promote open, intellectually engaging, and diverse debate, including through compliance with the First Amendment for public institutions and compliance with stated institutional policies regarding freedom of speech for private institutions"], the heads of covered agencies shall, in coordination with the Director of the Office of Management and Budget, take appropriate steps, in a manner consistent with applicable law, including the First Amendment, to ensure institutions that receive Federal research or education grants promote free inquiry, including through compliance with all applicable Federal laws, regulations, and policies.
As Scott Greenfield nicely summarizes it at his Simple Justice blog, FIRE's statement responding to the order amounts to "a grimace and a shrug." On the one hand, it says, "To the extent that today’s executive order asks colleges and universities to meet their existing legal obligations, it should be uncontroversial." On the other, the order and its implementation bear watching for "unintended consequences that threaten free expression and academic freedom," and the order is unclear about "how or by what standard federal agencies will ensure compliance, the order’s most consequential component."
One could say a little more--one might grimace a little more heavily. That colleges and universities should meet their existing legal obligations, or abide by their own clearly stated standards in the case of private institutions, should indeed be uncontroversial. But whether the federal government should take a heavy role in ensuring that they do can be much more controversial. That can be true even for those of us who believe strongly in vigorous protection for both academic freedom and free speech on campus; think that universities should take a broad view of both; and worry that many administrations have shown very little willingness to do so, especially if it might mean getting bad publicity or upsetting (or disciplining, as it sometimes should) students, who to those universities are also "customers" in a national market for students and their tuition dollars.
There are also very good arguments that such laws are a bad idea regardless. Again, they may be a bad idea even if one strongly believes in the protection of free and open expression on campus and of academic freedom, and thinks universities have done a poor job of meeting their duties on this score. Those of us who have argued that the law, and citizens and institutional stakeholders, should be more attentive to the role and function of various institutions in facilitating free speech, among other First Amendment freedoms, might argue that: 1) a vital, and in the long run valuable, aspect of these institutions is self-governance; 2) government interference with that self-governance, even in the service of the crucial value of free speech, might be a cure worse than the disease; 3) there may be room, especially in a nation with more than hundreds of public and private colleges and universities, for varied visions of the university mission; and 4) a key element of self-governance is the responsibility of both stakeholders--like faculty--and citizens to argue about those visions and to hold these institutions to account. At least for folks like me, that means insisting that if they are to have autonomy in governing themselves, they meet their corresponding duty to do so consistently with the respect for free speech and academic freedom that are certainly part of my vision of. the university.
On these points, I recommend a pair of posts by Keith Whittington. And from my own older work, you might look at this 2007 article, arguing vehemently against academic bills of rights on institutional autonomy grounds while insisting that that autonomy carries grave responsibilities with it for universities and their stakeholders, or pages 128-30 of my book First Amendment Institutions. I cite to other scholars who have argued that "such bills might survive a constitutional challenge," while arguing that things like an Academic Bill of Rights (or the new executive order) are "a mistake." Such efforts misunderstand the truth for search, and neglect the value and potential of both institutional autonomy and institutional pluralism.
At the Civ Pro Listserv, Alan Trammell (Arkansas) questions whether there is personal jurisdiction in Virginia in Nunes v. Twitter (to say nothing of bovinal jurisdiction over Devin Nunes' Cow).
The jurisdictional allegations are a garble and, Alan notes, not consistent with recent P/J precedent. (of course, the entire complaint is poorly drafted nonsense, so no surprise the attorney would get this wrong, as well). But here is what we can glean. Twitter is a Delaware corporation with its principal place of business in California. Liz Mair is a Virginia citizen and the sole member of Mair Strategies LLC. Devin Nunes Mom and Devin Nunes Cow are unknown. Nunes is a California citizen and a representative of that state.
There is general jurisdiction over Mair and Mair Strategies, both of which are "at home" in Virginia under recent precedent because domiciled there. That is easy. In fact, I would guess that Nunes sued in Virginia because that was the surest way to get Mair.
As for Twitter, it is not domiciled in Virginia, so it is not obviously at home under the new analysis. The complaint alleges that Twitter is "at home" in Virginia, in between allegations of Twitter's ubiquity, being registered to do business in Virginia, targeting Virginians with advertising, and earning revenue from source customers; it later alleges that Twitter engages in "continuous and systematic business in Virginia." This sounds in the old "doing business" test for general jurisdiction, which the Court has rejected three times in the past decade. Giving counsel the benefit of the doubt about his understanding of current P/J doctrine, he might be setting up one of two arguments: 1) By mentioning registration, it jumps into an ongoing scholarly debate about whether registration constitutes consent to personal jurisdiction or 2) the Court has left open the possibility that a company can be at home beyond its state of incorporation and PPB in extraordinary circumstances, so maybe he is going to argue this is the extraordinary case and Twitter the extraordinary defendant. I doubt either works here, but each at least reflects a current understanding of jurisdiction.
However great the marketing, advertising, and revenue drawn from Virginia, it has nothing to do with this lawsuit, so it no longer provides the basis for general jurisdiction. But that advertising and revenue does not give rise or relate to the mean comments on which Nunes is suing, so it cannot form the basis for specific jurisdiction. Another option for specific jurisdiction is a Walden/Calder argument. But Nunes has no obvious connections to Virginia, other than that it is close to where he works in DC; his connections to Virginia are not greater than his connections to any other state besides California. The mean comments about Nunes do not discuss him or his conduct specifically in Virginia and were not "directed to" or "aimed at" Virginia. A Walden/Calder argument might work in California or DC, but my guess is he does not want to sue in either place, where he potentially is wildly unpopular.
Update: Some email exchanges raise the question of why he went to Virginia. Alan pointed out that Henrico County, Va. is not a conservative bastion. My theory: His lawyer thinks he can get Twitter anywhere on a doing business theory and Virginia is the only place he knew he could get Mair. And Virginia has rural areas, so that helps with reaching the cow.
Update: A commenter asks whether Nunes could establish specific jurisdiction over Twitter because the offending tweets came from Virginia. All Twitter has done is provided a nationwide platform for anyone, anywhere to use for their tweets, having no involvement in this particular tweet or that particular user. I think more purposeful direction of the conduct at the forum state is required; knowledge of where the tweet might (or did) come from is not enough.
I am proud to be part of a petition submitted today the FTC bringing together the Open Markets Institute, the AFL-CIO, Service Employees International Union (SEIU), and over 60 other signatories — including labor organizations, public interest groups, and dozens of legal scholars. The petition calls on the FTC to use its regulatory power to issue a federal rule to ban the practice nationwide (similar to the ban that already exists in California and in some other states for certain industries and parts of the workforce). If you are a reader of this blog, you probably know that I have argued in my research on noncompetes, including in my book Talent Wants to be Free that they harm not only workers but also innovation and economic growth. In my new article, Gentlemen Prefer Bonds: How Employers Fix the Talent Market, I argue that they further have a negative effect on certain identities, including women, minorities and older workers. As my research and others have argued, the FTC and the federal antitrust division should be involved in protecting competition and preventing anti-competitive practices in the labor market, just like in the product markets.
Coverage today of the petition in Bloomberg can be found here. The Open Markets press release is here. The full text of the petition can be found here.
Law professors spend a lot of time assessing the work of others and giving feedback on that work. We give feedback as part of scholarship workshops, as part of hiring and tenure reviews, and as part our interactions with students, just to name a few situations. Some law professors are really incredible at giving feedback. Others less so. Perhaps because of the wide variation in styles and effectiveness, I’ve had a number of conversations with other law professors on the most successful ways to give feedback on another’s work.
One model—a model that I prefer—is what a friend of mine calls “the compliment sandwich.” The basic idea is to situate your criticism between an opening compliment and a closing compliment. Sometimes the compliment is nothing more than a quick aside before and after lengthy criticisms—a compliment about having chosen an important topic to begin, for example, and a compliment about how you think the paper adds to the field to end. The “bread” in that compliment sandwich is very thin—“almost more like a cracker or a pita, than real bread,” my friend joked. Other times the criticism is negligible next to the compliment—kind of like a finger sandwich: mostly bread with just a tiny bit of filler. But you get the basic idea—like a sandwich, criticism is easier to consume and digest if it is wrapped up in something that is both neat and agreeable.
I have been thinking a lot about the compliment sandwich recently because I’ve heard a few people speak negatively about those who are too quick to compliment others. There are, for example, a handful of law schools and law professors who seem to eschew any positive comments at workshops as a point of pride. Instead, the feedback delivered is uniformly critical, and the tone of the criticism can be extremely negative. The decision to be only critical in feedback seems intentional—they seem to eschew compliments and focus only on the problems with a person’s work because that is what “serious” people do.
Continue reading "The Compliment Sandwich"
I do not have much to say about Nunes v. Twitter, which includes as a named defendant "Devin Nunes' Cow." The lawsuit is absurd, reflects no understanding of the First Amendment or defamation law, is poorly drafted, and should be sanctioned frivolous under Rule 11 (or the Virginia counterpart). Folks are having fun with it across the Interwebs.
But some are expressing concern that this lawsuit, while facially ridiculous, is part of a broader campaign by Trump supporters and allies to bring defamation lawsuits, even patently meritless (if not frivolous) ones, hoping that the costs of defending will bankrupt or silence critics. If so, it calls to mind the campaign among Alabama officials against civil rights activists and the northern press that led to New York Times v. Sullivan. But the attorney fee provisions in state SLAPP laws are designed to protect defendants against this strategy, making that the more important component of these laws (rather than the special motion to strike, which is really just a 12(b)(6)) and the component that unquestionably should apply in federal court.
Alexander Hamilton has been fashionable of late, but for a solution to our extreme political polarization, we should look to James Madison. As Madison recognized, people are not angels. We cannot rely on the virtue of government officers to do the right thing. Rather, we need to design our political system in a way that creates the proper incentives for public-spirited conduct by elected officials.
To be sure, Madison didn’t get it all right. While he was correct on theory and many of the practicalities, he came up short on implementation. The critical structural flaw in our political system lies in its “winner-take-all” nature. That feature does much to fuel our high levels of partisan conflict. My experience as a state legislator made this clear.
Like many first-time candidates, I pledged to judge ideas by whether they were good or bad, not by whether they were Democratic or Republican. And as a three-term legislator, I worked across party lines regularly. But I also found that try as one might to stay above the partisan fray, one inevitably gets sucked in. That’s because each side understands that if it gains control of the levers of government power, it can promote its agenda, while if the other side gains control of government power, there is little that can be done to achieve one's own goals or to stop the other side from achieving its goals. Recent Supreme Court appointments are illustrative.
Continue reading "Time to Channel Madison"
This story about calls by some UC-Davis students and California Republicans for the firing of a Davis professor who called (on Twitter, several years ago) for the killing of police officers reminds me of a comment I made last summer about calls by the Broward County Police Benevolent Association to boycott the Miami Dophins for not forcing players to stand. The political right, on and off campus, has as little patience for objectionable speech as the political left and is as ready to call for boycotts and firing of speakers who say mean things they do not like.
The Davis situation and the Dolphin situation share another similarity (as does the ongoing controversy at Sarah Lawrence College, which has gotten far greater attention but is still a call to sanction a professor for "expressing his views"). As one person put it on Twitter: "[T]erms that absolutely no one in the media has used so far to describe this episode include snowflakes, call-out culture, victimhood culture, outrage culture, cancelled, coddled, PC run amok, censorship, self-censorship, fragility, identity politics, or micro-aggressions."
And just to head-off a response: The prof's speech, while obnoxious, is constitutionally protected and comes nowhere close to incitement.
As a general matter, I support transparency in the criminal justice system. It is difficult to obtain reliable data about crime and criminal prosecutions --- especially data from state and local systems. Because we elect many state and local criminal justice officials, this lack of data and transparency is troubling. If the public is unable to discover what criminal justice actors are doing, then they will find it difficult to hold those actors accountable.
The Administrative Office of the Courts shall maintain records of all cases in which a judge makes a finding of just cause to grant a waiver of criminal court costs under G.S. 7A-304(a) and shall report on those waivers to the chairs of the House of Representatives and Senate Appropriations Committees on Justice and Public Safety and the chairs of the Joint Legislative Oversight Committee on Justice and Public Safety by February 1 of each year. The report shall aggregate the waivers by the district in which the waiver or waivers were granted and by the name of each judge granting a waiver or waivers.
The people who are complaining about this law argue that it creates pressure for North Carolina judges not to grant waivers to criminal defendants. To be clear, the legislature can’t prohibit judges from granting all waivers---if defendants are indigent, then the Constitution forbids the state from imposing these court fees.
Since I learned about this law, I’ve been wondering: Is there a way to square my desire for more readily available criminal justice data with the idea that these reports are a bad idea? After all, for those of us who wish to study the criminal justice system, more data is better than less data. And if voters need transparency in order to hold their official accountable, then shouldn’t they have this information about their judges? After all, judges are elected here in North Carolina.
After some reflection, I think that this sort of information could be very valuable. But it would depend on the nature of the information that was gathered and how much of that information was disseminated.
Continue reading "Transparency as a Sword"
Continue reading "Call for Papers: Tenth Annual Constitutional Law Colloquium"
I wanted to note the passing of former Indiana Senator Birch Bayh. He is the only American other than Madison who drafted more than one ratified constitutional amendment (the 25th and the 26th). He also was the author of Title IX. That is quite a record. My law school has a lecture in constitutional law named in Senator Bayh's honor. Sadly, he was never able to come in person to attend.
So says the Sixth Circuit (h/t: Volokh). At least for the moment--the court only affirmed denial of defendant's 12(c) motion.
As the college admissions scandal illustrates, wealthy parents always will look for ways to game the system in favor of their children. Fortunately, there’s an important way for elite universities to turn parental gaming strategies in a direction that will promote income equality rather than exacerbate income inequality—the top class rank admissions policy pioneered in Texas.
In Texas, if students graduate in the top ten percent of their high school class, they earn automatic admission to the University of Texas at Austin, Texas A&M, and other public universities. This promotes diversity in the colleges’ entering classes because students at poor, heavily minority high schools have the same odds of admission as students at wealthy, heavily white schools. Indeed, at UT-Austin, which admits students through both a modified top ten track and a standard track with an affirmative action component, the top class rank students are more racially and economically diverse.
Top class rank policies also may provide the most effective solution to the problem of economic inequality in the United States. Economic inequality creates highly uneven opportunities for success in life. Children in wealthier communities have much greater chances for upward mobility than do children in low-income communities.
Continue reading "Making Sure the Wealthy Do Well by Doing Good"
Howard makes some excellent points in his latest post about Judge Sutton. One concern, though, is that more than one federal judge has told me that they think what the Suprem Court said about qualified immunity dicta not being dicta is, in fact, dicta that they will not follow. More broadly, many judges are simply unwilling to comment on an issue or rely on that commentary when there is another more succinct way to resolve the case. The same instinct might hold if a state Supreme Court insisted that state law discussions must always take priority over federal law discussions. Judicial culture matters a lot in this situation.
There has been controversy this week surrounding Chicago's Geoff Stone using a racial epithet in his First Amendment class to illustrate fighting words (via an anecdote from a class years ago). Inside Higher Ed has a good summary of the controversy, which ends with Stone meeting with a group of students and agreeing not to use the word in class (although not sure what he will replace it with). The catalyst for the controversy was an op-ed in the Chicago Maroon by a white student, who argued that Stone's use of the word was "racist because he, as a white man, repeated a word used by white people to perpetuate the subjugation of black Americans for hundreds of years. He trivialized the word’s history and the lived experience of black students.
Interestingly, the stories focus on Stone using the word in teaching fighting words and why, because of that word, the doctrine remains relevant. But I assume the class reads and discusses Brandenburg, in which the word appears and in which it is essential to figuring out how the Court decided that case.
Finally, if Stone remains correct that the word is appropriate as part of the material and the student/op-ed writer is correct that context matters, I wonder about the classic Chevy Chase-Richard Pryor skit "Job Interview" from first-season Saturday Night Live. It illustrates the point at which we cross into fighting words and the uniqueness of that word among all epithets directed at all groups. Even the 1975 studio audience recognized both points.
This seemed too long for a comment to Gerard's post, so I will lay it out separately.
The rights-violation prong in a qualified-immunity case is not treated as dicta. In Camreta v. Greene, the Court held that it would hear "winner's appeals" from officers in cases in which the lower court held that the right was violated but granted immunity because the right was not clearly established. In justifying the decision, the Court stated the "constitutional determinations that prevailing parties ask us to consider in these cases are not mere dicta or "statements in opinions. They are rulings that have a significant future effect on the conduct of public officials" The Court quoted a Scalia dissent from denial of cert in a similar case in which he argued that winner's appeals were proper because "[t]hat constitutional determination is not mere dictum in the ordinary sense, since the whole reason we require it to be set forth (despite the availability of qualified immunity) is to clarify the law and thus make unavailable repeated claims of qualified immunity in future cases."
So I wonder if the same could be said about the state constitutional decision in the cases Sutton has in mind. Both are grounded in concerns for clarifying the law. Both also have concerns and effects on appealability. Camreta ensures that unfavorable merits determinations are not rendered unappealable by the favorable judgment on the separate prong of the analysis. Sutton's proposal would better position state courts to immunize decisions from SCOTUS review under the independent-and-adequate doctrine.
One further, unrelated Sutton point: Justice Kavanaugh name-dropped Judge Sutton in argument in American Legion v. American Humanist Association, asking respondent whether the Court should avoid deciding the Establishment Clause issues here because the Maryland courts could handle this under the Maryland Constitution. Counsel missed the question, prompting Justice Sotomayor to jump in three pages later to bail her out. Kavanaugh seemed to use Sutton's book to bolster Justice Rehnquist's Chief Justice Burger's dissent in Wisconsin v. Constantineau, in which he argued that a federal court should abstain under Pullman when the state courts have not addressed the issue under the state constitution.
And since we are on the subject, I will highlight Jim Pfander's JOTWELL review of Sutton's book from January.
To follow on Rick's post, today I attended a lecture that Judge Sutton gave in Indianapolis about his book on state constitutional law. There were lots of interesting ideas discussed that I would like to post about over the next few days.
One of those ideas is that state courts should give state constitutional claims priority over federal constitutional claims. In other words, suppose someone brings a free speech claim under state and federal law. Instead of starting with the federal claim (as most state courts do) and only addressing the state claim if necessary, Judge Sutton suggests doing the opposite. This would allow for greater development of state doctrine, which would have a self-reinforcing effect in future cases.
Here's a thought about that. A problem would be the same one often presented in qualified immunity cases. If a state claim is discussed and rejected, then a federal claim is accepted, the state discussion is dicta. (Just as a statement that something is a right but is not "clearly established" leaves the right as dicta). How then can that develop the law? Perhaps state supreme courts could tacitly agree that their state law dicta is binding in their future cases, but lower state courts would face a dilemma.


In City of Phoenix v. Glenayre, Inc., et al. (Ariz. 2017) the Arizona Supreme Court recently held that Arizona’s statute of repose, A.R.S. § 12-552, applies to a governmental entity’s contract-based actions (including claims for indemnification) that fall within § 12-552(A), notwithstanding the “nullum tempus occurit regi” (time does not run against the king) common law doctrine codified at § 12-510. However, the Court held that the statute did not apply to the Developers in the case, whose only relationship with the City of Phoenix (“City”) was as permittees. Glenayre, at ¶ 1 (Ariz. 2017).
The case arose from the City’s Third-Party Complaint, filed well after the eight-year limitation prescribed by the statute, against eighty-two developers (“Developers”) and eight contractors (“Contractors”), alleging that they had agreed to defend and indemnify the City against negligence claims arising from infrastructure construction projects between 1960-2000 on which first-party plaintiff Carlos Tarazon worked and allegedly developed mesothelioma.
The City relied on A.R.S. § 12-510 which codified the nullum tempus doctrine. Enacted after § 12-510, the Court found that the statute of repose’s introductory phrase “[n]otwithstanding any other statute” makes clear “the statute of repose controls over other potentially conflicting state laws.” Id. at ¶ 16. The Court likewise found the legislative history amending § 12-552 to add subsection (G) persuasive to its conclusion. The amendment was enacted to permit the Central Arizona Water Conservation District (a governmental entity) to bring otherwise time-barred claims. Id. The legislature must have known the statute applied to governmental entities, if not, the amendment would be unnecessary. Id. at ¶¶ 20-21.
The crux of the issue was whether the City’s indemnity claims against the Developers are “based in contract” within the meaning of § 12-552(A) & (F).The City argued that its claims for indemnity arose from the indemnification provision of City Code § 31-40. The City’s indemnity claim, however, does not arise out of the Code directly. The Developers undertook the infrastructure projects in question after applying for and obtaining right-of-way and development permits from the City. Within these permits the permittee agreed to perform all work in accordance with certain agreed plans and specifications, and that the permit is conditioned on the permittee’s performance of every agreement and covenant made. These permits then incorporated the Developers’ project plans and specifications, which included the Maricopa Association of Governments Specifications (“MAGS”).
The MAGS obligated the Developers to “at all times observe and comply with all such laws, ordinances, regulations, codes, orders, and decrees.” Glenayre, at ¶ 6 (Ariz. 2017). Among those ordinances is the indemnification provision of Code § 31-40. The Court found that by incorporating the MAGS, the permits memorialized the Developers’ preexisting obligation to comply with the City’s laws, including Code § 31-40. Id. The City sued the Developers for indemnification based on the agreements incorporated into those permits, requiring Developers to provide certain services in accordance with the City’s specifications and standards — a claim for indemnification that arguably is “based in contract,” but which the Court found was not.
The Court found that the Code applies solely based on an indemnitor’s status as a permittee and does not constitute a written agreement for the services listed in § 12-552(A). The Court found that by issuing a permit the City did not create an agreement between the Developers for either party to perform any of the services listed in subsection (A), but instead granted the Developers a license to enter City property to undertake their construction projects. Thus the City did not offer or accept any of the services prescribed in subsection (A).
Section 12-552(F) defines the types of agreements “based in contract” that fall within the statute. It defines “an action based in contract [as] an action based on a written real estate contract, sales agreement, construction agreement, conveyance or written agreement for construction or for the services set forth in subsection A.” The Court found that a “written agreement . . . for the services set forth in subsection A” must be construed to refer to the same type of agreement as those enumerated in subsection (F). Glenayre, at ¶¶ 29-31 (Ariz. 2017). Although it recognized in Albano that § 12-552 was enacted to limit the “time period during which actions may be brought against those engaged in the development or construction of real property and activity related to the construction of real property” Id. at ¶ 30 (citing Albano v. Shea Homes Ltd. P’ship, 227 Ariz. 121, 126 ¶ 19, 254 P.3d 360, 365 (quoting Ariz. State Senate, Fact Sheet for S.B. 1305, 39th Leg., 1st Reg. Sess. (Mar. 20, 1989)), the Court refused to interpret the word “for” broadly because it would extend the limitations period beyond the claims the statute contemplates. The Court found the indemnification provision under which the City’s claim against the Developers arose was not based on any of the agreements listed in subsection (F). Id. at 29-32. The Court recognized, however, that the City’s Third-Party Complaint could be read as asserting a contractual-based indemnity claim against the Developers, but remanded the case to resolve further questions existing regarding the source of the City’s indemnity claims against the Developers. Based on the narrow reading of the “contract” definition under § 12-552, the types of actions barred have now been limited to “transactional agreements” enumerated in subsection (F). Id.
Although the case has been remanded to the trial court with the finding that any claims arising out of the statutory language of City Code § 31-40 are not based in contract, the Court expressed no view on the merits of the City’s remaining indemnity claims. The basis for the City’s indemnity claims are nebulous and were not clarified by the Court’s ruling, but will require further development on its merits.
The Court’s ruling appears to not fully comprehend the permitting process involved in the construction of the infrastructure projects underlying the Tarazon claim. The projects involved infrastructure the Developers were constructing for the benefit of the City. In order to develop their construction projects, the Developers must construct certain infrastructure associated with those projects for the benefit of the City. Therefore, the City did in fact accept services prescribed in subsection (A). The Court’s ruling therefore went too far. The ruling’s logic potentially renders the Developers as insurers for any similar infrastructure projects, in essence creating indeterminable liability; indeterminable liability, which the legislature sought to prohibit against contractors and developers by enacting the statute of repose § 12-552. This ruling has unknown ramifications for developers in the future.