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BHGDN, LLC v. State of Minnesota et al.: US District Court : GOVERNMENT | CONSTITUTION - Amendment XI state immunity; claims versus state officials fail, too

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 08-4474(DSD/FLN)
BHGDN, LLC,
Plaintiff,
v. ORDER
State of Minnesota and the
Honorable Gene Hugoson,
Commissioner of Agriculture,
and Steve Ernest, in their
Official and Individual Capacities,
Defendants.
Norman J. Baer, Esq., Mark D. Wisser, Esq., Steven M.
Pincus, Esq. and Anthony, Ostlund, Baer, Louwagie & Ross,
90 South Seventh Street, Suite 3600, Minneapolis, MN
55402, counsel for plaintiff.
Kimberly J. Middendorf, Assistant Attorney General,
Nathan J. Hartshorn, Assistant Attorney General, 445
Minnesota Street, St. Paul, MN 55101, counsel for
defendants.
This matter is before the court on defendants motion to
dismiss. Based upon a review of the file, record and proceedings
herein, and for the following reasons, the court grants defendants
motion.
BACKGROUND
This action challenges the constitutionality of a 2008
amendment to Minnesota Statutes 41A.09. The Minnesota
legislature enacted 41A.09 in 1986 to establish the Ethanol
1 Plaintiffs complaint states that this occurred on December
27, 2006. (Compl. 33.) The reference to 2006, however, appears
to be a typographical error.
2
Development Fund (Fund), which gave eligible ethanol producers a
fifteen-cent-per-gallon subsidy. The Fund was later reclassified
as an appropriation and the Minnesota Commissioner of Agriculture
(Commissioner) became responsible for making the subsidy
payments. The subsidy was increased to twenty cents per gallon in
1995.
Gopher State Ethanol (Gopher) became an ethanol producer in
2000 and began receiving the subsidy. In 2003, however, the state
legislature appropriated only enough funds for the Commissioner to
make subsidy payments of thirteen cents per gallon. As a result,
the Minnesota legislature amended 41A.09 to provide for later
payments to be made to subsidy-eligible ethanol producers as funds
became available to make up the seven-cent-per-gallon deficiency
(deficiency payments).
Gopher ceased ethanol production on May 11, 2004, and filed
for bankruptcy on August 11, 2004. As a result of the bankruptcy
proceedings, Gophers eligibility for deficiency payments was
ultimately transferred to plaintiff BHGDN, LLC (BHGDN) on
December 21, 2005. The Commissioner acknowledged BHGDNs right to
Gophers deficiency payments on December 27, 2005,1 and made
payments accordingly.
3
The Minnesota legislature amended 41A.09 in 2008 to prohibit
the Commissioner from making deficiency payments to an entity that
no longer produces ethanol on a commercial scale at the location
for which the entity qualified for producer payments, or to an
assignee of the entity (2008 amendment). Minn. Stat. 41A.09,
subdiv. 3a(h). BHGDN stopped receiving deficiency payments soon
thereafter.
On July 3, 2008, BHGDN brought this action against the State
of Minnesota, Gene Hugoson (Hugoson) - the Minnesota Commissioner
of Agriculture - and Steve Ernest (Ernest) - the Finance and
Budget Director for the Minnesota Department of Agriculture. BHGDN
asserts claims against the State, and Hugoson and Ernest in their
official capacities, seeking a declaration that the 2008 amendment
violates the United States and Minnesota Constitutions, and an
injunction requiring Hugoson and Ernest to make future deficiency
payments to BHGDN. BHGDN also asserts claims under 42 U.S.C.
1983 against Hugoson and Ernest in their individual capacities.
Defendants move to dismiss the complaint pursuant to Federal Rules
of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction
and 12(b)(6) for failure to state a claim.
4
DISCUSSION
I. Standard of Review
A court must dismiss an action over which it does not have
subject matter jurisdiction. See Thomas v. Basham, 931 F.2d 521,
522-23 (8th Cir. 1991). A court will also dismiss an action for
failure to state a claim if the allegations show on the face of the
complaint that there is some insuperable bar to relief. Benton v.
Merrill Lynch & Co., 524 F.3d 866, 870 (8th Cir. 2008) (citation
omitted). The factual allegations in the pleadings are accepted as
true and viewed in the light most favorable to the nonmoving party.
Hastings v. Wilson, 516 F.3d 1055, 1058 (8th Cir. 2008); see also
Osborn v. United States, 918 F.2d 724, 729 n.6 (8th Cir. 1990)
(The nonmoving party receives the same protections [for facial
attacks under Rule 12(b)(1)] as it would defending against a motion
brought under Rule 12(b)(6).).
II. State and Official Capacity Claims
A. State Sovereign Immunity
Defendants argue that the doctrine of state sovereign immunity
divests the court of subject matter jurisdiction over BHGDNs
claims against the state and its officers in their official
capacities. That doctrine derives from the Eleventh Amendment and
prohibits an individual from suing a state regardless of the relief
sought unless a state consents to suit or immunity is abrogated by
the United States Congress. See U.S. Const. amend. XI; Klingler v.
5
Dept of Revenue, 455 F.3d 888, 893 (8th Cir. 2006) (citing Hans v.
Louisiana, 134 U.S. 1, 15 (1890)); see also In re SDDS, Inc., 97
F.3d 1030, 1035 (8th Cir. 1996) (sovereign immunity extends to
suits against states for all forms of relief); Egerdahl v. Hibbing
Cmty. Coll., 72 F.3d 615, 619 (8th Cir. 1995) (consent and
congressional act exceptions). A federal court must dismiss an
action barred by the Eleventh Amendment for lack of subject matter
jurisdiction. See Seminole Tribe of Fla. v. Florida, 517 U.S. 44,
64-65 (1996); see also Fed. R. Civ. P. 12(h)(3). In this case, the
State has not consented to BHGDNs suit and no congressional act
abrogates the States sovereign immunity. Therefore, the court
lacks subject matter jurisdiction over BHGDNs claims against the
State.
An individual, however, may sue a state official to obtain
prospective relief provided such officer has some connection with
the enforcement of the act. See Reprod. Health Serv. of Planned
Parenthood of St. Louis Region, Inc. v. Nixon, 428 F.3d 1139, 1145
(8th Cir. 2005) (citing Ex Parte Young, 209 U.S. 123, 161 (1908));
Nix v. Norman, 879 F.2d 429, 432 (8th Cir. 1989) (state officials
may be sued for declaratory and injunctive relief). This exception
to a states sovereign immunity does not permit recovery of past
damages. See Heartland Acad. Cmty. Church v. Waddle, 427 F.3d 525,
530 (8th Cir. 2005) (citing Pennhurst State Sch. & Hosp. v.
Halderman, 465 U.S. 89, 102-03 (1984)). Nevertheless, an award of
6
prospective relief that has an ancillary effect on a states
treasury is not prohibited. See Am. Re-Ins. Co. v. Janklow, 676
F.2d 1177, 1181 (8th Cir. 1982) (citing Quern v. Jordan, 440 U.S.
332, 337 (1979) (internal quotations omitted)).
BHGDN does not request past damages from the state officials
for deficiency payments it has not received since the 2008
amendment. Rather, BHGDN seeks only a declaration that the 2008
amendment is unconstitutional and an injunction requiring that
future discretionary payments be made in accordance with 41A.09
before the amendment. Such relief is properly characterized as
prospective and the court has subject matter jurisdiction over
BHGDNs claims against Hugoson and Ernest in their official
capacities. Accordingly, the court grants the States motion to
dismiss for lack of subject matter jurisdiction but denies the state
officials motion to the extent that BHGDN seeks prospective relief.
B. Constitutional Claims
BHGDN seeks a declaration pursuant to 28 U.S.C. 2201(a)
that the 2008 amendment violates the federal and state
constitutions. Specifically, BHGDN asserts that enforcement of the
2008 amendment violates its right to equal protection and
substantive due process. BHGDN further maintains that enforcement
of the amendment violates the United States Constitutions
prohibition on impairment of contracts and the Supremacy Clause, and
2 The Minnesota Constitutions equal protection provision
employs a stricter rational basis test than its federal
counterpart. See Ganley v. Minneapolis Park & Recreation Bd., 491
F.3d 743, 748 n.2 (8th Cir. 2007) (citing State v. Russell, 477
N.W.2d 886, 888-89 (Minn. 1991)). Under the Minnesota
Constitution, a rational basis cannot be hypothesized to justify a
classification. See Russell, 477 N.W.2d at 889. Rather, a
reasonable connection must exist between the actual effect of the
challenged classification and the statutory goals. Id. This
difference does not affect the outcome in this case.
7
the Minnesota Constitutions proscription of laws embrac[ing] more
than one subject.
1. Equal Protection
BHGDN first argues that the state officials enforcement of the
2008 amendment violates its equal protection rights because the
amendment, though stated in neutral terms, effectively applies only
to preclude BHGDNs receipt of deficiency payments. The Equal
Protection Clause of the Fourteenth Amendment provides that no state
shall deny to any person within its jurisdiction the equal
protection of the laws.2 U.S. Const. amend. XIV, 1. Where a
state action does not involve a suspect classification or a
fundamental right, a plaintiff must prove that it was treated
differently by the government than similarly situated entities and
that the different treatment was not rationally related to a
legitimate government objective. See Koscielski v. City of
Minneapolis, 435 F.3d 898, 901 (8th Cir. 2006) (citing City of
Cleburne v. Cleburne Living Ctr., 473 U.S. 432, 439-40 (1985)). To
demonstrate unequal treatment, a plaintiff must prove similarity to
8
other individuals or entities receiving favorable treatment. Id.
(citing Carter v. Arkansas, 392 F.3d 965, 968-69 (8th Cir. 2004)).
BHGDN alleges that the 2008 amendment singled it out for
treatment different from other companies that produced ethanol
during the time that subsidies were not paid in full. BHGDN,
however, is not similarly situated to such companies because the
other companies apparently all continue to produce ethanol. Rather,
BHGDN is similarly situated to companies that produced ethanol and
were at one time eligible for deficiency payments but have since
gone out of business. BHGDN does not allege that other such
entities exist or are being treated differently. Therefore, BHGDN
has not alleged treatment different from other similarly situated
entities.
Moreover, assuming BHGDN could demonstrate discriminatory
treatment, the 2008 amendment was rationally related to a legitimate
government objective. The stated goal of the Fund was to increase
the production of ethanol in Minnesota. See Minn. Stat. 41A.09
subdiv. 1a. Thus, the State had a legitimate interest in ensuring
that the deficiency payments supported ethanol production, and the
States decision not to make deficiency payments to businesses that
no longer produced ethanol was rationally related to that interest.
See Koscielski, 435 F.3d at 901 (law upheld if there is any
reasonably conceivable state of facts that could provide a rational
basis for the classification) (citing FCC v. Beach Commcns, Inc.,
3 The substantive due process inquiries under the United
States Constitution and Minnesota Constitution are identical. See
Ganley, 481 F.3d at 749 n.3 (citing McCollum v. State, 640 N.W.2d
610, 617-18 (Minn. 2002)).
9
508 U.S. 307, 313 (1993)); Russell, 477 N.W.2d at 889 (reasonable
connection required between classification and statutory goal).
Accordingly, BHGDN has not stated an equal protection claim under
the United States or Minnesota Constitutions.
2. Substantive Due Process
The Due Process Clause of the Fourteenth Amendment prohibits
a state from depriving any person of life, liberty, or property,
without due process of law.3 U.S. Const. amend. XIV, 1. The
touchstone of due process is protection of the individual against
arbitrary action of the government. Wolff v. McDonnell, 418 U.S.
539, 558 (1974). To establish a substantive due process claim, a
plaintiff must show (1) a deprivation of a protected property
interest or the infringement of some other fundamental right, and
(2) that the deprivation or infringement was truly irrational. See
Snaza v. City of Saint Paul, 548 F.3d 1178, 1182 (8th Cir. 2008);
Executive Air Taxi Corp. v. City of Bismark, 518 F.3d 562, 570 (8th
Cir. 2008). Protected property interests are created by state law,
but federal constitutional law determines whether the interest
created by state law rises to the level of a protected property
interest. See Dover Elevator Co. v. Ark. State Univ., 64 F.3d 442,
446 (8th Cir. 1995) (quotations and citations omitted). A property
10
interest exists when a person has a legitimate claim of entitlement
to the property. See Bd. of Regents of State Colls. v. Roth, 408
U.S. 564, 577 (1972). An abstract or unilateral expectation of
receiving property does not create an interest in that property.
Id.
BHGDN argues that it had a protected interest in future
deficiency payments and that the 2008 amendment deprived it of that
interest. Absent an appropriation by the Minnesota legislature,
however, BHGDN maintained no legal entitlement to the deficiency
payments under Minnesota law. See U.S. Fire Ins. Co. v. Smith
Barney, Harris Upham & Co., Inc., 724 F.2d 650, 651 (8th Cir. 1983)
(Minnesota law prohibits state from incurring financial obligation
without appropriation) (citing U.S. Fire Ins. Co. v. Minn. State
Zoological Bd., 307 N.W.2d 490, 497 (Minn. 1981)); see also State
v. Preus, 179 N.W. 725, 726 (Minn. 1920) (The mere creation of the
liability on the part of the state, or promise of the state to pay
... is of no force in the absence of an appropriation of funds from
which the liability may be discharged.). Further, even if BHGDN
could show that the state officials deprived it of a protected
property interest by enforcing the 2008 amendment, as stated
earlier, a rational basis - the goal of subsidizing ethanol
production - justified such deprivation. Therefore, BHGDN has not
alleged a violation of its right to substantive due process.
11
3. Contract Impairment
The Contract Clause of the United States Constitution provides
that no state shall pass any Law impairing the Obligation of
Contracts. U.S. Const. art. I, 10, cl. 1. A three-part test is
applied to determine whether state action violates the Contract
Clause. See Am. Fedn of State, County & Mun. Employees v. City of
Benton, 513 F.3d 874, 879 (8th Cir. 2008). First, the court asks
whether the state law has, in fact, operated as a substantial
impairment on pre-existing contractual relationships. Id. (quoting
Equip. Mfrs. Inst. v. Janklow, 300 F.3d 842, 850 (8th Cir. 2002)).
If substantial impairment exists, the court determines whether there
is a significant and legitimate public purpose behind the
regulation. Id. (quoting Educ. Employees Credit Union v. Mut.
Guar. Corp., 50 F.3d 1432, 1438 (8th Cir. 1995)). If the state
identifies a public purpose, the court considers whether the
adjustment of the rights and responsibilities of contracting parties
is based upon reasonable conditions and is of a character
appropriate to the public purpose justifying the legislations
adoption. Id. (quoting Energy Reserves Group, Inc. v. Kan. Power
& Light Co., 459 U.S. 400, 412 (1983)).
BHGDN maintains that it contracted with Gophers creditors for
the right to receive deficiency payments appropriated by the
legislature through participation in the deficiency payment program.
BHGDN argues that the state officials enforcement of the 2008
12
amendment substantially impaired those contracts. As noted earlier,
however, the contracts only guaranteed payment upon appropriation
of funds by the state legislature. See Smith Barney, Harris Upham
& Co., Inc., 724 F.2d at 651 (citing Minn. State Zoological Bd., 307
N.W.2d at 497); see also Preus, 179 N.W. at 726. The Minnesota
legislatures failure to appropriate such funds does not impair the
contracts between BHGDN and Gophers creditors. Therefore,
enforcement of the 2008 amendment does not impair BHGDNs private
contracts in violation of the Contract Clause.
4. Supremacy Clause
BHGDN further contends that the state officials enforcement
of the 2008 amendment violates the Supremacy Clause by interfering
with the United States Bankruptcy Courts plan distributing Gophers
assets. The Supremacy Clause requires that a state law give way
when it conflicts with or frustrates federal law. See U.S. Const.
art. VI; Fletcher v. Burlington N. & Santa Fe Ry. Co., 474 F.3d
1121, 1125 (8th Cir. 2007) (citations omitted); see also In re
Consumers Realty & Dev. Co., Inc., 238 B.R. 418, 426 (B.A.P. 8th
Cir. 1999) (Minnesota statute preempted by Bankruptcy Court plan).
BHGDN, however, never possessed a right to guaranteed deficiency
payments. Rather, BHGDN possessed, and still possesses, the right
to receive Gophers deficiency payments if the Minnesota legislature
13
makes the necessary appropriation. Therefore, the state officials
enforcement of the 2008 amendment does not violate the Supremacy
Clause by conflicting with BHGDNs rights under federal law.
5. Single Subject Requirement
Finally, BHGDN argues that the state officials enforcement of
the 2008 amendment violates the Minnesota Constitutions single
subject requirement because the amendment was part of an act
containing multiple, dissimilar provisions. As required by the
Minnesota Constitution, [n]o law shall embrace more than one
subject, which shall be expressed in its title. See Minn. Const.
art. IV, 17. This requirement is interpreted liberally and is not
intended to prevent the legislature from embracing in one act all
matters properly connected with one general subject. Assoc.
Builders & Contractors v. Ventura, 610 N.W.2d 293, 299 (Minn. 2000)
(citation omitted). All that is necessary is that ... all matters
treated [in the act] should fall under one general idea, so
connected with or related to each other, either logically or in
popular understanding, as to be ... germane to, one general
subject. Id. at 300. The common thread connecting the matters in
an act need only be a mere filament and violations of the single
subject requirement are rarely found. See Masters v. Minn. Dept.
of Natural Res., 604 N.W.2d 134, 138 (Minn. Ct. App. 2000).
The 2008 amendment is found in Minnesota Laws 2008, chapter
297, which contains many parts related to the operation of state
14
government. See 2008 Minn. Sess. Law Serv. ch. 297 (West). Diverse
legislative matters relating to the broad subject of the operation
of state government satisfy the mere filament rule. See Blanch
v. Suburban Hennepin Regl Park Dist., 449 N.W.2d 150, 154-55 (Minn.
1989). Therefore, the 2008 amendment was germane to the bills
subject matter and did not violate the single subject requirement.
III. Individual Capacity Claims
BHGDN asserts claims against Hugoson and Ernest in their
individual capacities pursuant to 42 U.S.C. 1983, arguing that
their enforcement of the 2008 amendment violated its right to due
process, equal protection and freedom from impairment of contract.
Hugoson and Ernest maintain that they are entitled to qualified
immunity.
Qualified immunity protects government agents who perform
discretionary functions from civil liability, so long as the
challenged actions are objectively reasonable in light of clearly
established legal principles. See Anderson v. Creighton, 483 U.S.
635, 638 (1987). Government officials are entitled to qualified
immunity if the plaintiff has not alleged a violation of clearly
established federal law. See Pearson v. Callahan, 172 L. Ed. 2d
565, 573 (2009). As noted above, BHGDN has not shown that any
constitutional violations occurred. Therefore, Hugoson and Ernest
are entitled to qualified immunity on BHGDNs 1983 claims and the
court grants their motion to dismiss.
15
CONCLUSION
Accordingly, IT IS HEREBY ORDERED that the defendants motion
to dismiss [Doc. No. 5] is granted.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: February 24, 2009
s/David S. Doty
David S. Doty, Judge
United States District Court
 

 
 
 

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