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Minnesota Supreme Court/Twin Cities

Making its first appearance on the Judicial Hellholes list in 2018, the Twin Cities continue to move in a troubling direction. The Minnesota Supreme Court issued a series of liability expanding decisions that will impact a number of industries and lead to higher insurance costs for consumers. Additionally, much-needed reforms stalled in the legislature, making prospects of improvement grim.

LIABILITY EXPANDING DECISIONS BY COURTS

Minnesota courts, led by the state Supreme Court, have developed a propensity for issuing liability expanding decisions that have a broad impact on both consumers and businesses across the state.

MINNESOTA SUPREME COURT EXPANDS LIABILITY FOR HEALTH CARE PROVIDERS

The Minnesota Supreme Court issued a troublesome medical liability decision that will drastically increase liability for doctors practicing in the state. In Warren v. Dinter, the Supreme Court found that a doctor can face a medical liability suit even when no traditional physician-patient relationship exists. The suit arose when a doctor refused to admit a patient who was being treated by a third-party nurse. After examining the patient, the nurse contacted Fairview Range Medical Center to arrange for hospitalization. Fairview randomly assigned the call to the defendant and after speaking for a short time, the doctor did not admit the patient. The nurse then released the patient and he died a few days later from an untreated infection. The lower court rejected the plaintiff ’s lawsuit, but the high court reversed their decision and held that a physician can be held liable, even in the absence of a physician-patient relationship, if it is “reasonably foreseeable that the third party will rely on the physician’s acts and be harmed by a breach of the standard of care.”

The medical community worries about the unintended consequences of this decision. The Minnesota Medical Association fears that “this expansion of liability has the potential to curtail physician collaboration and informal consultation, and will ultimately result in harming patients.” This decision places the state outside the mainstream, with a majority of states requiring a patient-physician relationship. As a result, health care providers might refuse to collaborate with other healthcare providers, since they put themselves at risk for a lawsuit. The decision also is certain to drive up the price of medical malpractice insurance, which will ultimately be passed on to patients. Minneapolis already is the most expensive city in the country for a primary care visit.

COURT RULES “PROOF OF INDIVIDUAL RELIANCE” NOT REQUIRED UNDER STATE’S CONSUMER LAW

In November 2019, the Minnesota Supreme Court ruled that “proof of individual reliance” is not required to establish causation of harm under the Minnesota Consumer Fraud Act (MCFA). This more relaxed standard creates a rebuttable presumption that the harm suffered by a sizeable number of victims exists for hundreds or thousands of similarly situated consumers. In State of Minnesota v. Minnesota School of Business, students sued two for-profit schools that offered undergraduate and graduate programs in the field of criminal justice. The schools advertised that these degrees could be used to get jobs as police or probation officers. The degrees did not meet the standards for these jobs, so the schools were sued by the attorney general under the state’s consumer fraud statute. Testimony by 15 witnesses was used to establish harm to over 1,000 other students who attended the same schools, in order for those students to also recover monetary damages. The Court improperly assumed that all 1,000 plus students chose to attend the schools because of the deceptive advertisements, and ignored other possibilities such as location, favorable review from other attendees, or personal education or career goals.

COURT EXPANDS BUSINESS LIABILITY UNDER WORKERS’ COMP LAWS

The Minnesota Supreme Court overturned a 30-year-old precedent by allowing a person who experienced a work-related injury to bring a lawsuit under the state’s Human Rights Act in addition to seeking workers’ compensation. Under previous court rulings, an employee could generally only sue under the Workers’ Compensation Act or the Human Rights Act – not both. In Daniel v. City of Minneapolis, the Court ruled that the exclusivity provision of the Workers’ Compensation Act does not preclude some disabled employees from also filing claims under the Human Rights Act.

The Court based its reasoning on its perceived differences between the two statutes. It said that the Human Rights Act is not intended to compensate workers for injuries. Rather, it redresses discrimination in the workplace “as well as the loss of a fair employment opportunity because of the alleged failure to accommodate his physical disability.”

As pointed out by the dissent, however, this decision will allow some employees to receive double recovery for the same injury and may lead to a proliferation of failure-to-accommodate litigation over workplace injuries.

MINNESOTA SUPREME COURT ALLOWS JURISDICTION OVER OUT-OF-STATE COMPANY, DISREGARDING CLEAR GUIDANCE FROM SCOTUS

In July 2019, the Minnesota Supreme Court upheld a trial court’s decision to exercise jurisdiction over a business located in another state that had no connection to the plaintiff or product involved in the lawsuit.

In Bandemer v. Ford Motor Corp., a Minnesota resident injured in a car accident sued Ford Motor Company, alleging the vehicle’s airbag did not properly deploy.

The U.S. Supreme Court has instructed that in order for a state court to consider a lawsuit against an out-of-state business, the lawsuit must arise out of or relate to the business’s contacts with that state. “There must be an “affiliation between the forum and the underlying controversy, principally, [an] activity or an occurrence that takes place in the forum State,” the high court said.

Ford asked the court to dismiss the lawsuit because it lacked personal jurisdiction over the company, since the car involved in the accident was not designed, manufactured, or originally sold in Minnesota. Despite this lack of connection to the state, the Minnesota Supreme Court upheld the trial court’s finding that it could exercise jurisdiction because Ford had “target[ed] Minnesota for sales of passenger vehicles, including the type of vehicle at issue.” The Court held that due process requirements are met as long as a defendant can “relate to” a claim. As the dissent observed, however, all of Ford’s conduct alleged by the plaintiff – i.e. negligently designing and warning about the car and placing it into commerce – took place outside Minnesota.

This decision put Minnesota outside the mainstream as a majority of courts do not allow the exercise of specific personal jurisdiction when a defendant’s in-state contacts have no causal connection to a plaintiff ’s claim. The decision is on appeal to the U.S. Supreme Court.

EXPANSION OF BAD FAITH LAW

Following the liability-expanding path laid out by the Minnesota Supreme Court, the Court of Appeals expanded bad faith liability for insurers. As a result of Peterson v. Western National Mutual Insurance Company, insurers who lose first party coverage disputes will be found to be operating in bad faith.

In this case, the plaintiff, injured in a car accident, made a claim under her underinsured-motorist policy to cover costs not picked up by the driver at fault. The plaintiff had demanded the insurer pay the full policy limit, $250,000. Western National, however, questioned the need for a lifetime of Botox injections to treat headaches after a minor car collision, particularly given her previous car accidents and existing health problems. The company believed she was fully compensated by the $45,000 settlement she received from the driver and $20,000 paid by Western National in no-fault medical benefits. Western National made multiple settlement offers, which the plaintiff rejected. The parties went to trial and the plaintiff was awarded more than $1.4 million, including $900,000 for past and future medical expenses. She then brought and won a bad faith claim against the insurer.

At issue on appeal was the meaning of an “absence of a reasonable basis” for denying a claim, which is not defined by the statute and allows a bad faith action. The insurance company interpreted the statute to preclude bad faith liability if facts or evidence supported its decision to deny coverage. The court, however, adopted a more expansive, pro-plaintiff interpretation. It required an insurer to “conduct a reasonable investigation and fairly evaluate the results.” This opens the door to courts imposing bad faith liability in hindsight, based on what a jury ultimately finds in the underlying case, rather than whether the insurer had a legitimate basis for denying the claim.

Adoption of this pro-plaintiff standard signals that Minnesota courts are prepared to impose bad faith liability on insurers, even when there is a good faith reason for denying coverage. The Minnesota Supreme Court has accepted the appeal of this decision and oral arguments are expected to take place in the near future.

SUPREME COURT PROMOTES FORUM SHOPPING

In October 2019, the Minnesota Supreme Court held that Minnesota’s post judgment interest rate, not the federal post judgment interest rate, applied to Federal Employers’ Liability Act (FELA) suits. The Court had to determine “whether the state law is substantive or procedural in nature,” in order to determine which interest rate applied. The Court found that post judgment interest affects procedural rights, and therefore, state law applied. Minnesota has a statutory post judgment interest rate of 10 percent, much higher than the federal rate of .058 percent.

As the dissent points out, one of the underlying purposes of FELA is to provide “uniformity between state and federal courts.” According to dissenting Justice Barry Anderson, “questions concerning the measure of damages in an FELA action are federal in character … even if the action is brought in state court.” The majority erred in finding interest rate laws to be governed by state law. By allowing plaintiffs to recover the higher post judgment interest rate specific to Minnesota, the court is opening the door to forum shopping. Plaintiffs will flock to Minnesota courts in order to recover higher damages not available in other courts.

HIGH COURT ALLOWS ‘PHANTOM DAMAGES’ AWARD UNDER COLLATERAL SOURCE RULE

In October 2019, the Minnesota Supreme Court ruled that a defendant is not permitted to reduce an award of past medical expenses based on the difference between the amount billed for medical services and the amount actually paid under the state’s Medicaid program. This allowance of “phantom damages” unfairly provides a windfall for the plaintiffs at the expense of the defendant.

A motorist was injured when she crashed her car into a bus which failed to yield at an intersection. She sued the bus driver and the bus company. The plaintiff ’s medical expenses were fully covered by two managed-care organizations that contracted with the state’s Medicaid program. The plaintiff incurred medical expenses of $224,998. The jury awarded the plaintiff $224,998 in damages, even though the two managed-care organizations negotiated the actual price paid down to $45,979. The trial judge allowed in evidence of these discounts under the state’s collateral source statute to reduce the award from $224,998 (medical expenses billed) to $45,979 (expenses actually paid after discounts).

APPELLATE COURT UPHOLDS UNWARRANTED SANCTIONS

Judge Amy Dawson of the Hennepin County District Court, the largest trial court in Minnesota and the court for Minneapolis, imposed sanctions on BNSF Railway in a case lacking basic fairness. The trial judge’s actions helped solidify the Twin Cities designation as a Judicial Hellhole in 2018. Unfortunately, a state appellate court upheld her problematic ruling in April 2019.

The facts are as follows – a railroad employee alleged that exposure to “hazardous chemicals” while working next to a specific railcar in BNSF’s yard in January 2014 led to permanent injuries. BNSF conducted an immediate and thorough investigation with the local fire department, company hazmat responders and two emergency-response contractors. They found no odors, signs of leakage, or abnormalities in the railcar identified by the plaintiff.

It was not until three years later, in the midst of litigation, that the plaintiff for the first time declared his injuries resulted from exposure to “hydrocarbons” leaking from one of eleven different railcars, not owned or leased by BNSF, located on a different track in the yard. The court ordered BNSF to make those eleven cars available for inspection during the discovery stage of the litigation. The railroad was unable to do so because three years had passed and they did not own or lease the cars in question.

Following BNSF’s inability to produce the cars, the plaintiff asked the court to sanction the railroad. The motion of sanctions was not limited to the missing cars but broadly claimed the railroad had discarded evidence and other misconduct, without supporting evidence.

In the sanctions motion, the plaintiff did not show the product transported in the specified cars on the day of his alleged injury were “hydrocarbons,” also known as “natural gas condensate.” He argued, however, that he “unearthed” documentation that BNSF reported to the federal government on six different occasions the unintentional release of “natural gas condensate” around the same time period of his alleged exposure. Plaintiff argued that this proved BNSF had additional documents concerning the exposure that it failed to produce and that the material in the cars must have been “natural gas condensate.”

BNSF repeatedly disputed the accuracy of this information and offered to provide testimony in support of its position. But the court refused to consider the evidence, and instead, wholly accepted and adopted the plaintiff’s claims.

Data in the documents relied upon by the plaintiff were later corrected by the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration because a technical glitch in the reporting system inaccurately reported “natural gas condensate” as the technical/trade name for BNSF’s submission of the materials involved in the incidents. Despite this fact, the judge relied on the inaccurate data and denied BNSF’s attempt to introduce refuting evidence.

As a sanction, Judge Dawson struck all of BNSF’s liability and causation defenses, allowing the case to proceed to trial solely on the issue of damages, and ordered BNSF to pay the plaintiff ’s attorney’s fees and costs. Essentially, BNSF was forced to go to trial with both hands tied behind its back. BNSF was denied the opportunity to present evidence indicating that the plaintiff ’s condition actually resulted from an underlying pre-existing condition and natural causes, not the alleged exposure to chemicals. The judge unfairly stripped BNSF of its right to have a jury decide the question of liability, and it simply became a question of how much money the plaintiff should be awarded.

In a result that should surprise no one, the jury returned a $15 million verdict. In April 2018, Judge Dawson, again without a hearing or any responses by Plaintiff to BNSF’s post-trial motions, denied BNSF’s post-trial motions and entered final judgment against the company. Three months later, the court fined BNSF an additional $4.6 million, in addition to ordering the railroad to pay $1.1 million of the plaintiff ’s attorneys’ fees and $89,600 in expenses.

LEGISLATIVE REFORMS CONTINUE TO STALL

Once again, the Minnesota Legislature failed to move meaningful reforms in 2019. While the Senate Judiciary Committee passed a number of bills, they stalled once out of committee. The much-needed reforms included (1) a repeal of the state’s Seat Belt Gag Rule, which would allow evidence as to whether plaintiffs were wearing their seatbelts; (2) judgment interest rate reform bill that would lower the current excessive 10% rate to a more reasonable 4%, which is the current rate for all government entities in the state; and (3) a bill that would merely codify existing law that there is no duty of care owed to trespassers to guard against judicial adoption of an extreme proposal of the American Law Institute. Twenty-four other governors of both parties have signed such legislation since 2011. All three bills were previously passed by the legislature in 2017, but were vetoed by then-Governor Mark Dayton (D).

The plaintiffs’ bar pursued its own agenda in 2019, and while nothing passed, many bills are expected to return in 2020. One significant liability-expanding bill introduced in 2019 would declare that any private lawsuit alleging a violation of the state’s consumer protection law is “in the public interest.” This designation would allow courts to award plaintiffs’ lawyers their attorneys’ fees and encourage an onslaught of lawsuits.

Another bill would prohibit so-called “family exclusions” in property-casualty insurance policies, which insurers say are necessary to prevent moral hazard where two related parties both benefit from the proceeds of a liability insurance claim. Courts in Minnesota have long upheld the exclusions, noting the severe damage to insurance markets that lack protection from fraudulent and severely overinflated claims from spouses filing lawsuits against each other. Only three other states allow similar exclusions to be prohibited. In addition to also potentially clogging the courts, the bill could lead to higher insurance premiums.

Finally, plaintiffs’ lawyers pushed a bill that would eliminate the ability of businesses to offer a service that has inherent risks so long as consumers agree to waive liability for ordinary negligence. Current law prohibits waivers of liability for more serious conduct, such as reckless, grossly negligent, or intentional acts. By adding ordinary negligence, the bill would completely bar waivers as “void and unenforceable.” The plaintiffs’ bar has tried to eliminate such waivers since 2013. If enacted, the bill would have an extreme impact on Minnesota’s economy and recreational lifestyle.

END NOTES

  • Justice David Lillehaug announced he will not run for reelection next year due to health issues. Governor Tim Walz (D) will appoint a replacement in 2020.
  • Lori Sklar, a Minnesota class action lawyer, was disciplined for inappropriate behavior. She sought $24 million in attorneys’ fees for her work on a Toshiba case, stating that she worked up to 16.75 hours, seven days a week, even on holidays, for 22 months. Toshiba questioned whether this was accurate and asked to search through metadata on her computer to see if she legitimately had worked that long, but she refused to turn anything over. She was disciplined for ignoring various orders that stemmed from attempts to search her metadata.
  • Paul Hansmeier, a notorious former attorney who was convicted of fraud, perjury and money laundering, was sentenced in June 2019 to more than 14 years in federal prison. Hansmeier was convicted and ordered to pay $1.5 million in restitution in connection with his “porn trolling” scheme. The disgraced lawyer was also known as the mastermind behind another extortionate scheme – demanding that small businesses across Minnesota pay up or face a lawsuit because their property purportedly violates an Americans with Disabilities Act accessibility standards.

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