E. S., a minor, by her parents and natural guardians, S.S. and C. S., Appellant, vs. Independent School District No. 271, Respondent.

E. S., a minor, by her parents and natural guardians, S.S. and C. S., Appellant, vs. Independent School District No. 271, Respondent. A05-2298, Court of Appeals Unpublished, July 18, 2006.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A05-2298

 

 

E. S., a minor, by her parents and

natural guardians, S.S. and C. S.,

Appellant,

 

vs.

 

Independent School District No. 271,

Respondent.

 

 

Filed July 18, 2006

Reversed and remanded

Halbrooks, Judge

 

 

Hennepin County District Court

File No. MS-27-CV-05-13583

 

 

Michael Fargione, Hauer, Fargione, Love, Landy & McEllistrem, P.A., 5901 South Cedar Lake Road, Minneapolis, MN 55416 (for appellant)

 

Mark R. Azman, Johnson & Condon, P.A., 7401 Metro Boulevard, Suite 600, Minneapolis, MN 55439-3034 (for respondent)

 

 

 

            Considered and decided by Halbrooks, Presiding Judge; Peterson, Judge; and Minge, Judge.

U N P U B L I S H E D   O P I N I O N

HALBROOKS, Judge

            Appellant challenges the district court's findings in the Amended Order Approving Minor Settlement that the damages to be received in this case are not the result of a physical injury or sickness, and, therefore, the damages are not excludable from appellant's gross income under the Internal Revenue Code.  Appellant contends that because there was no contested issue before the district court, its findings constitute an advisory opinion.  Because we conclude that the district court lacked jurisdiction to decide issues for which there was no justiciable controversy, we reverse and remand.

FACTS

            Appellant E.S., a nine-year-old girl, was sexually abused by W.G., a janitor employed by respondent Independent School District No. 271.  As a result of the abuse, appellant, through her parents, mediated with respondent a potential civil suit for sexual assault and battery.  Because the parties settled the claim through pre-suit mediation, appellant never filed a complaint in district court.  The parties agreed to a settlement involving a Pierringer release of respondent in exchange for payment of $87,500.  After deduction of attorney fees, a structured annuity with the present value of $57,145.58 was purchased to be paid in five lump-sum payments to appellant at the ages of 19, 20, 21, 22, and 24.

A release of claims drafted by respondent and signed by appellant's parents included the following language:

All sums set forth herein constitute damages in a case involving physical injury or physical sickness, arising from the accident and are intended to fall within the meaning of Section 104(a)(2) of the Internal Revenue Code of 1986, as amended.  [Appellant] and her parents and natural guardians understand and acknowledge that the releasees have not made any representations as to the applicability of Section 104(a)(2) to the circumstances of this case.

 

Following mediation, appellant petitioned the district court to approve the minor settlement, as required by statute.  The petition, which was unopposed, incorporated the above-quoted language at the request of the annuity company.  Appellant also asked the district court to include in its findings that (1) the settlement resolved a claim that E.S. suffered bodily and physical harm as a result of a sexual assault and battery and (2) the settlement payments are intended by the parties to fall within the meaning of section 104(a)(2) of the Internal Revenue Code of 1986, as amended.

            The district court denied appellant's request to include the requested language in its order approving the minor settlement.  After the district court struck that language from the proposed order, appellant submitted additional information to the district court for its reconsideration.  The district court then filed an amended order, approving the minor settlement.  In the amended order, the district court again refused to include the requested language and then went further, making findings sua sponte that appellant's injuries do not constitute physical injury or sickness under I.R.C. § 104(a)(2).  The consequence of this finding is that the annuity payments would not be excludable from appellant's gross income.  This appeal follows.

D E C I S I O N

            Minn. Stat. § 540.08 (2004) outlines the procedure by which a minor's claim is handled:

A parent may maintain an action for the injury of a minor son or daughter. . . .  Before a parent receives property as a result of the action, the parent shall file a bond as the court prescribes and approves as security therefor.  In lieu of this bond, . . . the court may order that the property received be invested in . . . an annuity . . . subject to the order of the court. . . .  No settlement or compromise of the action is valid unless it is approved by a judge of the court in which the action is pending.

 

See also Minn. R. Gen. Pract. 145.01 (stating that "[n]o part of the proceeds of any action or claim for personal injuries on behalf of any minor . . . shall be paid to any person except under written petition to the court and written order of the court").  The district court has two responsibilities under the statuteto ensure that any settlement for a minor is reasonable and that any money recovered is either used for the minor's benefit or secured so that it is available for later distribution.  See Minn. R. Gen. Pract. 145.05.

            A district court's decision to approve a minor settlement is reviewed under an abuse-of-discretion standard.  See Clark v. Gronland, 221 Minn. 505, 508, 23 N.W.2d 169, 171 (1946) (stating that district court did not abuse its discretion by vacating a prior order approving a minor settlement).  Appellant asserts that the district court abused its discretion by overstepping its role and treating this matter like a declaratory-judgment action, requiring independent findings with respect to appellant's claim.  Appellant seeks remand to the district court with instructions to add language that accurately reflects the terms of the parties' settlement agreement.  And appellant requests that the district court's memorandum be stricken as an advisory opinion that addresses issues that were never presented by either party for resolution. 

Appellant contends that the district court abused its discretion by finding that appellant did not suffer physical injury as a result of the sexual abuse.  Appellant argues that there was no justiciable controversy before the district court on this issue because the parties were in agreement regarding the settlement; as a result, the district court lacked subject-matter jurisdiction to decide whether appellant suffered a physical injury or sickness.  We agree.

            In order for a justiciable controversy to arise, there must be

definite and concrete assertions of right and the contest thereof touching the legal relations of parties having adverse interests in the matter with respect to which the declaration is sought, and must admit of specific relief by a decree or judgment of a specific character as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.

 

Thuma v. Kroschel, 506 N.W.2d 14, 20 (Minn. App. 1993) (citing Seiz v. Citizens Pure Ice Co., 207 Minn. 277, 281, 290 N.W.2d 802, 804 (1940)), review denied (Minn. Dec. 14, 1993).

Questions of subject-matter jurisdiction are reviewed de novo.  Johnson v. Murray, 648 N.W.2d 664, 670 (Minn. 2002); Burkstrand v. Burkstrand, 632 N.W.2d 206, 209 (Minn. 2001).  "The existence of a justiciable controversy is essential to a court's power to adjudicate."  Cincinnati Ins. Co. v. Franck, 621 N.W.2d 270, 273 (Minn. App. 2001).  When there is "no justiciable controversy, the court is without jurisdiction to declare rights."  Id.  Additionally, "the judicial function does not comprehend the giving of advisory opinions, [so] justiciability is necessary in all adjudications."  Id. at 274.

            In this case, the district court took no issue with the gross or net amount of the structured settlement or with the projected payment dates.  Instead, the district court's focus became what it perceived to be an inappropriate request from appellant to include language in its order that, in the district court's assessment, is not supported by the record, i.e., that appellant sustained a physical injury and that the damages are excludable from appellant's gross income under I.R.C. § 104(a)(2).  We disagree with the district court's assessment of the parties' request.

            The addendum to the parties' Pierringer release includes the following language in paragraph 1.0 Payments:

All sums set forth herein constitute damages in a case involving physical injury or physical sickness, arising from the accident and are intended to fall within the meaning of Section 104(a)(2) of the Internal Revenue Code of 1986, as amended.  [Appellant] and her parents and natural guardians understand and acknowledge that releasees have not made any representations as to the applicability of Section 104(a)(2) to the circumstances of this case.

 

            There is no dispute that appellant was sexually assaulted.  The perpetrator of the assault pleaded guilty to second-degree criminal sexual conduct.  Appellant's claim was asserted as a civil tort of battery, involving direct physical contact causing bodily harm.  The district court was asked to incorporate in its order approving the settlement, a finding that "[t]he sums set forth herein constitute damages in a case involving bodily injury, arising from an incident of assault and battery."  In response, the district court examined the limited amount of medical records submitted in support of the motion for settlement approval and reached the conclusion that appellant's damages do not qualify as a physical injury within the meaning of I.R.C. § 104(a)(2).  In doing so, the district court determined an issue that was not before it.  Because there was no justiciable controversy on the issues of whether or not appellant's damages arise out of a physical injury and what, if any, tax consequences flow from the settlement, we conclude that the district court lacked jurisdiction and abused its discretion in issuing what amounts to an advisory opinion on these issues.

On remand, appellant proffers the following language to be contained in the district court's order:

The sums set forth herein constitute damages paid in the settlement of the child's claim, which was asserted on the child's behalf as one for physical injury and bodily harm arising from an incident of sexual abuse and battery.

With regard to the amounts being paid pursuant to this Order, the Court acknowledges the intent of the settling parties that these sums constitute damages received on account of personal physical injury within the meaning of Section 104(a)(2) of the Internal Revenue Code of 1986, as amended.

 

A fair reading of appellant's suggested language is that the district court would be simply acknowledging the fact that the claim was brought as a claim of battery and the parties' mutual intent concerning future tax treatment of the damages received.  The settling parties concede that the Internal Revenue Service is the ultimate decisionmaker in matters of taxation.  The district court is not constrained on remand to use this specific language in its order.  But because the district court has determined that the settlement is fair and reasonable for appellant and because the district court is being asked only to acknowledge the parties' intent with respect to the ultimate tax treatment of the damages, we ask the district court on remand to use language that acknowledges the parties' intent.

            Reversed and remanded.