author: HANSON, Justice.

text:
    LUTHERAN BROTHERHOOD RESEARCH CORPORATION, Relator, v. COMMISSIONER OF REVENUE, Respondent.
    No. CX-02-1097.
    Supreme Court of Minnesota.
    Feb. 6, 2003.

      Sue Ann Nelson, Gary Hansen, Robert Stuart, Oppenheimer Wolff & Donnelly LLP, Minneapolis, MN, for Lutheran Brotherhood Research Corporation.
    Mike Hatch, Attorney General, Barry R. Greller, Assistant Attorney General, St. Paul, MN, for Commissioner of Revenue.
   OPINION

HANSON, Justice.

Relator Lutheran Brotherhood Research Corporation (LBR) filed corporate franchise tax returns for the tax years 1992, 1993 and 1994 which attributed to Minnesota 100 percent of the fees collected by LBR and its wholly-owned subsidiary, Lutheran Brotherhood Securities (LBS), based on the location of the mutual funds that paid those fees. Subsequently, LBR filed amended returns claiming refunds by attributing to Minnesota only between 12 and 30 percent of the fees, based on the percentage of mutual fund investors who were located in Minnesota. LBR argued that this attribution was appropriate under the statutory provision that “[rjeeeipts from the performance of services must be attributed to the state in which the benefits of the services are consumed.” Minn.Stat. § 290.191, subd. 5(j) (1988). Respondent Commissioner of Revenue (Commissioner) denied the refunds, concluding that LBR/LBS’s services were consumed by the trustee of the mutual funds, not by the ultimate investors, and that the trustee was located in Minnesota. The tax court granted summary judgment for the Commissioner, finding that all of the fees collected by LBR/LBS were properly apportioned to Minnesota. Lutheran Brotherhood Research Corp. v. Com’r of Revenue, No. 7285, 2002 WL 1150102, at *5 (Minn. T.C. May 8, 2002) (LBR). By certiorari on the relation of LBR, we review the decision of the tax court and affirm.

Lutheran Brotherhood, the ultimate parent of all of the Lutheran Brotherhood entities involved in this ease, is a fraternal benefit society organized and existing under Minnesota law. During 1992,1993 and 1994, Lutheran Brotherhood operated a group of six mutual funds referred to as the Lutheran Brotherhood Family of Funds (LB Family).

Prior to July 15, 1993, each of the six funds in LB Family was separately incorporated under the laws of either Maryland or Minnesota. Each fund elected to be treated as a regulated investment company for federal and state income tax purposes. For 1992 and until November 1993, each of the six funds contracted directly with LBR and LBS for management services. Several of the service contracts for that period recited that the principal place of business of LBR, LBS and each of the six funds was in Minnesota.

On July 15, 1993, LB Family was reorganized as a Delaware business trust and, on October 28, 1993, the investors approved a further reorganization whereby the six funds became sub-trusts of the LB Family trust. LB Family was registered as an open-end management company under the federal Investment Company Act, 15 U.S.C. §§ 80b-1 to 80b-21 (1992) (the 1940 Act).

As a trust, LB Family had no employees but had a president and a board of seven trustees, the majority of whom were residents of Minnesota. LB Family’s assets were held by a custodian, the State Street Bank, in Massachusetts. Under the Master Trust Agreement, the principal office of the trust was in Minnesota; the purpose of the trust was to operate as an investment company, offering investment shares in the trust and each sub-trust; the trustees were given the power to manage the business of the trust, acting “as principals ⅝ * * free from the control of the shareholders”; and the trustees were authorized to enter into contracts for the “performance and assumption of some or all of the following services, duties and responsibilities to, for or on behalf of the trust,” including advisory, administration, distribution, custodial and transfer services. Effective November 1, 1993, LB Family entered into four contracts with LBR/LBS.

First, LB Family entered into an Investment Advisory Contract with LBR pursuant to which LBR provided investment research, evaluation and supervision of each fund’s investments. LB Family paid LBR a fee for those services. LB Family did not pass that fee directly to investors, but instead deducted it from the net asset value of each fund. The contract recited that LB Family and LBR each had its principal place of business in Minnesota.

Second, LB Family entered into three contracts with LBS: (1) a Distribution Contract for the sale of shares of the funds, (2) a Transfer Agent and Service Contract for transferring shares to and from the funds and disbursing dividends, and (3) an Administration Contract for the administration of the operations of LB Family. Each contract recited that LB Family and LBS each had its principal place of business in Minnesota. Fees for these services were paid to LBS in one of two ways: (1) some were paid directly by investors (e.g., commissions paid under the Distribution Contract were “front-end loaded” and were deducted from the investor’s initial investment; some transfer fees and some miscellaneous fees charged under the Administration Contract were charged directly to the investors who used specific services), and (2) some were paid monthly by LB Family to LBS and were then passed on to investors indirectly by a deduction from the net asset value of each fund. By a Stipulation of Settled Issues, the parties agreed that the revenue received by LBS from fees paid directly by investors should be sourced to the states where the investors were located, and these fees are not at issue here.

LBS filed timely combined Minnesota franchise tax returns for 1992, 1993 and 1994. The original returns attributed 100 percent of the disputed fees to Minnesota. LBR subsequently filed timely amended Minnesota franchise tax returns which attributed the disputed fees “based on the location or residency of the investors” in each fund, which ranged from 12 to 30 percent. LBR claimed refunds totaling $604,911.

The Commissioner denied LBR’s refund claims. On LBR’s appeal, the tax court granted summary judgment for the Commissioner, finding that LBR/LBS’s services were “consumed” by LB Family, not by its investors, and that LB Family was located in Minnesota. LBR, 2002 WL 1150102, at *5. The court also denied LBR’s request for an alternative method of apportionment under Minn.Stat. § 290.20 (1992). LBR, 2002 WL 1150102, at *6. The court then examined and rejected all three of LBR’s constitutional arguments. Id. at *6-9. The court’s holdings on each of these five issues were based on its conclusion that LB Family, “and not the individual investors, is the consumer of [LBRj’s services.” Id. at *6.

Because the parties do not dispute the relevant facts, these issues present questions of law which this court reviews de novo. State Farm Mut. Auto. Ins. Co. v. Great West Cas. Co., 623 N.W.2d 894, 896 (Minn.2001).

I.

At all relevant times, the attribution statute provided:

Receipts from the performance of services must be attributed to the state in which the benefits of the services are consumed. If the benefits are consumed in more than one state, the receipts from those benefits must be apportioned to this state pro rata according to the portion of the benefits consumed in this state. If the extent to which the benefits of services are consumed in this state is not readily determinable, the benefits of the services shall be deemed to be consumed at the location of the office of the customer from which the services were ordered in the regular course of the customer’s trade or business. If the ordering office cannot be determined, the benefits of the services shall be deemed to be consumed at the office of the customer to which the services are billed.

Minn.Stat. § 290.191, subd. 5(j) (1988) (emphasis added).

The Commissioner and the tax court determined that LBR/LBS’s services were consumed in Minnesota because they were consumed by LB Family and LB Family was located in Minnesota. As to the location of LB Family, there is no serious dispute. LB Family’s offices were in Minnesota, and it recited in contracts that its principal place of business was Minnesota.

The dispute concerns whether LB Family was the “consumer” of the benefits of LBR/LBS’s services. LBR argues that LB Family should not be considered the consumer because it was only a conduit of the benefits of those services to the fund investors, who are located across the nation. Focusing on the statutory term “benefits,” LBR argues that although LB Family contracted, was billed and paid for the disputed services, the services ultimately benefited the fund investors and they should be viewed as the “beneficial consumers” within the meaning of subdivision 5(j).

LBR supports this argument by first suggesting that the 1987 amendment that created the controlling version of subdivision 5(j) was intended to change the method of sourcing receipts from the sale of services from a “cost of performance” approach (where service fee income was sourced to the state in which the services were performed) to a “market state” approach (where service fee income is sourced to the state in which the benefits of these services are consumed). While this may have been the intent of the 1987 amendment, and the change makes it clear that the location of LBR/LBS (as performers of the services) is not relevant, we do not agree that this change provides a rationale for choosing between LB Family, as the immediate consumer, and the investors, as the ultimate beneficiaries.

LBR next relies on two decisions of this court that recognize the conduit nature of a mutual fund for purposes of determining an investor’s tax liabilities. Yurista v. Comm’r of Revenue concerned the taxability of an individual investor’s dividends from mutual funds that held tax-exempt United States treasury notes and bonds. 460 N.W.2d 24, 25 (Minn.1990). We recognized that the dividends reflected interest earned on these tax-exempt securities. Id. at 27. We held that the portion of the mutual fund dividends that was directly attributable to interest earned on the tax-exempt securities remained tax exempt when received by Yurista. Id. at 25-28. In Meunier v. Minnesota Dep’t of Revenue, we summarized Yurista as holding that “[i]n lay terms the regulated investment company becomes a conduit through which the federal interest exemption is passed to its shareholders.” Meunier, 503 N.W.2d at 129. But in Yurista and Meu-nier the narrow question was whether state taxation of these dividends would frustrate the principle of federal-tax exemption. Thus, we agree with the tax court that the Yurista and Meunier decisions were made in a different context, were narrow in scope, and have limited relevance to this case. LBR, 2002 WL 1150102, at *4.

Finally, LBR refers us to the tax laws of some other states that attribute mutual-fund service fees to the location of the fund investors. But none of these states do so on the basis of statutory language similar to Minn.Stat. § 290.191, subd. 5(j). In New York, for example, the attribution statute specifically establishes a methodology for attributing income from services rendered to mutual funds. See N.Y. Tax Law § 210, subds. 3(a)(2)(ii), 3(a)(6) (2000). The tax laws of these states offer little guidance on the proper interpretation of the broad terms of Minnesota’s attribution statute.

To apply the plain language of the statute, we must determine whether the benefits of mutual fund services were consumed by LB Family in Minnesota or by the investors in various states. We conclude that these services were consumed by LB Family and, thus, that the revenue received by LBR/LBS as fees for services rendered to LB Family was properly allocated entirely to Minnesota.

LB Family is a separate legal entity with more than a nominal existence. LB Family has a president, a board of directors, an office and legal title to substantial assets; it can enter (and has entered) into contracts; it can sue and be sued; and it assumed significant fiduciary duties that cannot be avoided by delegation. LB Family’s own Master Trust Agreement confers upon it the responsibility to manage the assets “as principals, * * ⅜ free from the control of the shareholders.” We would have difficulty, under these facts, disregarding the separate legal existence of LB Family.

Further, when we examine the structure and operation of mutual funds generally, as LBR invites us to do, we are persuaded that a mutual fund could not exist without some separate entity that is responsible to hold and manage the fund’s assets and to act as an intermediary between investors and the investment advisor.

First, mutual funds are designed to attract smaller investors by pooling their investments to provide economies of scale, professional management and diversification. See David E. Riggs and Charles C.S. Park, Mutual Funds: A Banker’s Primer, 112 Banking L.J. 757, 785 (September 1995). In order to pool these investments, there must be an entity that takes responsibility to hold and manage them.

Second, the numerous unrelated investors do not generally create the fund by searching each other out. Instead, the fund is typically sponsored by an investment advisor, who wants to create another market for its services. Id. at 763. The investment advisor does not take the responsibility to hold and manage the investments, but instead creates the mutual fund as a separate legal entity to do so. Id. at 766. And in order to assure investors that the investment advisor will not engage in self-dealing to their detriment, the 1940 Act requires that the mutual fund be separate, not only in legal form, but also in responsibilities. Riggs and Park, 112 Banking L.J. at 766. Thus, the fund must have its own board of directors or trustees, at least 40 percent of whom are to be “disinterested,” and those disinterested directors or trustees must “annually approve the funds’ contracts, including the compensation payable, with its investment adviser and distributor.” Id. (citing the 1940 Act, § 10(a)). The fund directors must “continuously monitor the performance of the funds’ service providers.” Riggs and Park, 112 Banking L.J. at 766. In fact, the disinterested directors are viewed by the SEC as the “watchdogs for fund shareholders.” Id.

Finally, the record shows that the trustees of LB Family set the investment objectives of each of the six funds. These investment objectives are described as “the heart of the bargain between the investor and the investment advisor.” Id. at 774.

Hence, it is inaccurate to describe LB Family as “solely” or “merely” a conduit, particularly as it relates to obtaining advisory, distribution, transfer and administrative services. LB Family has undertaken the legal obligation to provide those services to investors and LB Family serves its own needs when it contracts to have that obligation performed on its behalf by LBR and LBS. While investors benefit generally from the management of the mutual fund, the investors derive no particular benefit from the fact that LB Family contracts to have those management services performed by LBR/LBS instead of performing those services itself. Thus, we conclude that LB Family is the consumer of the benefits of the services of LBR/ LBS, and the fees received by LBR/LBS for those services are appropriately attributed to Minnesota as the location of LB Family.

II.

LBR raises four further arguments, one statutory and three constitutional.

A. Minn.Stat. § 290.20

Under Minn.Stat. § 290.20,

[t]he methods prescribed by section 290.191 shall be presumed to determine fairly and correctly the taxpayer’s taxable net income allocable to this state. If the methods prescribed by section 290.191 do not fairly reflect all or any part of taxable net income allocable to this state, the taxpayer may petition for or the commissioner may require the determination of net income by the use of another method, if that method fairly reflects net income.

Minn.Stat. § 290.20 (2002). The tax court held that because the services provided by LBR and its subsidiary were consumed within the state of Minnesota, the attribution of 100 percent of the fee income to Minnesota fairly reflects its income alloca-ble to this state. LBR, 2002 WL 1150102, at *6. LBR’s disagreement with this holding is based on the same argument as above — that it is “unfair” because a mutual fund is merely a conduit. But because LB Family is the beneficial consumer of LBR/ LBS’s services, we conclude that the attribution applied by the Commissioner “de-terminéis] fairly and correctly the taxpayer’s taxable net income allocable to this state.” Minn.Stat. § 290.20 (2002).

B. Commerce Clause

A state’s taxation system violates the Commerce Clause of the United States Constitution if the income attributed to the state is “out of all appropriate proportions to the business transacted in that State.” Container Corp. of America v. Franchise Tax Bd., 463 U.S. 159, 170, 103 S.Ct. 2933, 77 L.Ed.2d 545 (1983) (quoting Hans Rees’ Sons, Inc. v. North Carolina ex rel. Maxwell, 283 U.S. 123, 135, 51 S.Ct. 385, 75 L.Ed. 879 (1931)).

The proportionality test has two prongs, “internal consistency” and “external consistency.” See Container Corp., 463 U.S. at 169-70, 103 S.Ct. 2933. LBR questions only the external consistency of the Commissioner’s position. A tax system is externally consistent when “the factor or factors used in the apportionment formula * * * actually reflect a reasonable sense of how income is generated.” Id. at 169, 103 S.Ct. 2933; see also Westinghouse Elec. Corp. v. Comm’r of Revenue, 398 N.W.2d 530, 537 (Minn.1986) (quoting id.).

Because 100 percent of LBR/LBS’s services at issue are consumed by LB Family in Minnesota, all of the commerce at issue arises (and the “income is generated”) entirely in Minnesota. As such, we conclude that there is no Commerce Clause violation.

C. Due Process Clause

The Due Process Clause of the Fourteenth Amendment requires that the income attributed to a state for tax purposes be rationally related to “values connected with the taxing State.” Moorman Mfg. Co. v. Bair, 437 U.S. 267, 273, 98 S.Ct. 2340, 57 L.Ed.2d 197 (1978) (quoting Norfolk & Western Ry. Co. v. Missouri State Tax Comm’n, 390 U.S. 317, 325, 88 S.Ct. 995, 19 L.Ed.2d 1201 (1968)). This doctrine is difficult to distinguish from the Commerce Clause tests discussed above; in fact, several courts conflate the two clauses. See, e.g., Container Corp., 463 U.S. at 169-70, 103 S.Ct. 2933; Westinghouse Elec. Corp., 398 N.W.2d at 537. We conclude that there is no Due Process Clause violation.

D. Equal Protection and Uniformity Clauses

The scope of protection afforded under the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution and the Uniformity Clause, art. X, § 1 of the Minnesota Constitution is identical. Kuiters v. County of Freeborn, 430 N.W.2d 461, 463 (Minn.1988). Under both clauses, we have held

[t]he test to determine the constitutionality of statutory classifications includes three primary elements: (1) The distinctions which separate those included within the classification from those excluded must not be manifestly arbitrary or fanciful but must be genuine and substantial, thereby providing a natural and reasonable basis to justify legislation adapted to peculiar conditions and needs; (2) the classification must be genuine or relevant to the purpose of the law; that is, there must be an evident connection between the distinctive needs peculiar to the class and the prescribed remedy; (3) the purpose of the statute must be one that the state can legitimately attempt to achieve.

Miller Brewing Co. v. State, 284 N.W.2d 353, 356 (Minn.1979).

The parties agree that when a Minnesota broker provides investment advice directly to an out-of-state investor, the broker’s fees are properly attributed to the state in which the investor is located. LBR argues that differentiating between such broker services and similar services provided via a Minnesota mutual fund intermediary is irrational and thus unconstitutional differential treatment. The Commissioner replies that LB Family is itself a customer of LBR and that he is therefore treating Minnesota customers — whether they be individuals or mutual funds — alike.

Because LB Family is the consumer of the services at issue, its very existence demonstrates that LBR and direct service providers are not similarly situated. The Commissioner’s standard therefore treats all Minnesota vendors and consumers equally and there is no Equal Protection Clause violation.

Affirmed.

      . LBR relies upon this source as providing an authoritative description of mutual funds and the Commissioner makes no objection.

      . The reorganization of LB Family as a business trust instead of a corporation did not diminish these substantial responsibilities. Typically, funds are organized either as partnerships, corporations or business trusts, with the choice of legal form usually made by the investment advisor for its convenience. Riggs and Park, 112 Banking L.J. at 764-65. Because partnerships impose accounting and reporting burdens, and standard business corporations require annual meetings and shareholder approval of increases in authorized capital, there appears to have been a trend toward organizing mutual funds as business trusts for flexibility: regular shareholder meetings are not required; the directors can increase authorized capital as the fund grows, without a shareholder vote; and share certificates need not be issued. Id.


source: Caselaw Access Project

author: Paul H. Anderson Associate Justice

license: Public Domain

text:
    In re PETITION FOR REINSTATEMENT TO THE PRACTICE OF LAW OF Edward B. DICKSON.
    No. CX-93-653.
    Supreme Court of Minnesota.
    Feb. 7, 2003.
   ORDER

Edward B. Dickson through his attorney has advised the court that he desires to withdraw his petition for reinstatement to the practice of law, and the Director has advised the court that he has no objection to dismissal of the petition without prejudice.

Based upon all the files, records and proceedings herein,

IT IS HEREBY ORDERED that the petition of Edward B. Dickson for reinstatement in the above-entitled matter be, and the same is, dismissed without prejudice and without costs to either party.

BY THE COURT

Paul H. Anderson Associate Justice


text:
    In re PETITION FOR DISCIPLINARY ACTION AGAINST Michael H. DAUB, an Attorney at Law of the State of Minnesota.
    No. C2-01-578.
    Supreme Court of Minnesota.
    Feb. 10, 2003.
   ORDER

Petitioner was suspended from the practice of law on October 4, 2001, for a period of at least four months. In re Daub, 634 N.W.2d 174 (Minn.2001). On April 18, 2002, petitioner filed a petition for reinstatement. The matter was heard by a Panel of the Lawyers Professional Responsibility Board on October 29, 2002. The Panel filed its recommendation on November 13, 2002. The Panel recommended that petitioner not be reinstated at this time and remain suspended.

Petitioner has notified this Court that he does not challenge the Panel recommendation and that this Court may enter an order denying his reinstatement.

Based upon all the files, records and proceedings herein,

IT IS HEREBY ORDERED that the petition for reinstatement of Michael H. Daub be, and the same is, denied. If petitioner seeks reinstatement at some future date, he shall comply with the requirements of Rule 18, Rules on Lawyers Professional Responsibility.

BY THE COURT:

Paul H. Anderson Associate Justice


author: MEYER, Justice.

text:
    Sharon SCHWARDT, et al., Petitioners, Appellants, v. COUNTY OF WATONWAN, Brent Kueker, and Douglas Anderson, Respondents.
    No. C8-01-1136.
    Supreme Court of Minnesota.
    Feb. 13, 2003.

      Thomas G. Dunnwald, Dunnwald & Peterson, PA, Minneapolis, MN, for Appellants.

      Arvid Wendland, Wendland Timmer-man, Blue Earth, MN, (for County of Wa-tonwan), for Respondent.
   OPINION

MEYER, Justice.

Appellants Sharon and Bernhardt Schwardt challenge the court of appeals’ decision upholding the Watonwan County Board’s grant of a conditional use permit (CUP) for a confined hog-feeding operation. The Schwardts contend that the board’s grant of the CUP was unreasonable and arbitrary because the board failed to properly consider the potential adverse health effects of the proposed feedlot, overlooked a setback requirement in the governing ordinance, and failed to support the grant of the CUP with sufficient findings. We affirm the court of appeals’ decision to affirm the grant of the CUP, but reverse the court of appeals’ remand for further proceedings.

In March 2001, Brent Kueker applied to Watonwan County for a permit to build three hog confinement facilities on a parcel of land owned by his father-in-law, Douglas Anderson. Those three buildings would together house a maximum of 3,120 hogs, or 936 animal units. A local ordinance required Kueker to obtain a CUP because the proposed feedlot would contain more than 700 animal units. Watonwan County, Minn., Zoning Ordinance § 6, subd. C-12 (July 1999) (hereinafter Ordinance). The proposed CUP was heard first by the county’s seven-member planning and zoning commission. Neighbors of the proposed feedlot site were given the opportunity to submit written and oral testimony in support of, or in opposition to, the proposed CUP.

The Schwardts live on a farm located one-half mile southeast from the proposed site and opposed the grant of a permit for the feedlot. They raised concerns about their health, odors, water pollution, their property’s value, dust from increased traffic, the potential for introducing disease to their cattle, and that the facilities did not meet the half-mile setback requirement. Sharon Schwardt presented letters from various doctors opining that Sharon and her two adult children suffered from health conditions related to hog exposure. Nyles Schwardt and Nyla Johnson, the Schwardts’ two adult children, testified about their own allergies to hogs. In addition to the letters from doctors, the Schwardts produced notes from six other neighbors raising concerns about air and water pollution and traffic on the roads, and county property records for a number of parcels showing a fifteen percent reduction in value because of hog odor. The Schwardts submitted a letter from a Wa-tonwan Soil and Water employee concluding that “odors will increase at the Schwardt and Anderson building sites.” The Schwardts submitted newspaper articles and reports discussing how hog farms can negatively affect the health of people in the surrounding area.

Three major factors countered the Schwardts’ evidence. First, Kueker and his wife argued that the Schwardts did not establish a direct causal relationship between the site of the proposed facilities and the Schwardts’ health concerns. The Kuekers noted that there is already a hog barn close to the Schwardts, and that the Schwardts failed to provide specific evidence that the proposed feedlot would cause increased health problems. Second, an employee from the county environmental services office offered his conclusion that the environmental concerns were not serious. Third, the planning commission placed conditions on the permit in order to assuage some of the neighbors’ fears.

The planning commission discussed all the issues raised by the Schwardts. In the discussion about whether the proposal met the half-mile setback requirement, the Kuekers assured the commission that they would make any necessary adjustments to the location and the environmental services director of Watonwan County indicated that no building would be constructed unless it met the setback requirement. The planning commission added four conditions to address the neighbors’ other concerns. The conditions were that trees had to be planted in strategic locations, certain additives had to be mixed into the manure pits, the roads had to be treated for dust, and neighbors had to be notified twenty-four hours before any manure could be applied to the fields. Even with those conditions, the planning commission voted 4-3 to recommend that the board deny the permit. All four members voting against the permit explained that health concerns were influential in their decision.

The Watonwan County Board of Commissioners (the board) then took up the issue and considered the Kueker permit at four meetings over a two-month period. The board studied the same evidence the Schwardts submitted to the planning and zoning commission, as well as an additional letter from Sharon Schwardt’s doctor recommending “consideration of the patient’s health in deciding placement of any hog facility in the area.” The board also had before it a new letter from the environmental services director for Watonwan County opining that the Schwardts’ concerns about noise and pollution of ground and surface water were unfounded. The board visited the proposed site, heard oral testimony from all interested parties, and deliberated at length in their meetings, which were recorded. At the fourth meeting involving the Kueker CUP, the board members voted 4-1 to approve the CUP with the previously noted four conditions. The board’s written findings consist of a checklist that was marked to indicate that all standards in the ordinance were met.

The Schwardts appealed to the Minnesota Court of Appeals. Upon review of the record, the court of appeals concluded that Watonwan County did not act arbitrarily in granting the Kueker CUP. It held the board acted reasonably in addressing the Schwardts’ environmental and health concerns, and it remanded to the board with instructions for Kueker to verify he has met the setback requirement. The court also considered the Schwardts’ argument that the board did not make adequate findings of fact, and held that the findings were adequate.

Our standard of review is a deferential one, as counties have wide latitude in making decisions about special use permits. See Zylka v. City of Crystal, 283 Minn. 192, 195-96, 167 N.W.2d 45, 49 (1969). We review a county’s decision to approve a CUP independently to see whether there was a reasonable basis for the decision, or whether the county acted unreasonably, arbitrarily, or capriciously. See Swanson v. City of Bloomington, 421 N.W.2d 307, 311 (Minn.1988); Northwestern Coll. v. City of Arden Hills, 281 N.W.2d 865, 868 (Minn.1979).

By statute, counties may approve conditional uses if the applicant satisfies the standards set out in the county ordinance. See Minn.Stat. § 394.301, subd. 1 (2002). To show that the board acted unreasonably, the Schwardts must establish that the proposal did not meet one of the standards set out in the Ordinance and that the grant of the CUP was an abuse of discretion. See Corwine v. Crow Wing County, 309 Minn. 345, 352, 244 N.W.2d 482, 486 (1976) (ruling that individuals challenging CUPs have the burden “to establish the alleged failures [of the proposal to meet county standards] and show an abuse of discretion”). The Schwardts first contend that the board acted unreasonably in granting the CUP to Brent Kueker in light of the evidence from the Schwardts that their health would be affected. Health concerns are not explicitly addressed in the Watonwan County standards for issuing CUPs, but can be read into the broad language of the first and fifth requirements ensuring that the proposed use will not interfere with neighbors’ enjoyment of their property or create a nuisance.

The Schwardts’ evidence that the health of their family would suffer as a result of the Kuekers’ feedlot consisted of letters from three doctors and general reports about the health effects of continued exposure to hydrogen sulfide and odors from swine. The doctors’ letters do not address the question of whether a new feedlot, of the size of the Kueker proposal, approximately a half mile from the Schwardt farm, would aggravate the Schwardts’ symptoms. For example, Sharon Schwardt’s doctors say she has a rash “which she developed to hog dander following [years] of exposure,” and “[a] safe distance between the pig barn and her house should be considered.” Nyles Schwardt’s doctor wrote that his “asthma worsens when [he is] exposed to barns, hogs, pheasants, chickens, cats and dogs.” Nyla Johnson submitted clinical records indicating she has a rash that started after she began working in a hog barn. This evidence did not persuade the board to deny the permit.

This court has recognized that in quasi-judicial hearings the quality of evidence and testimony does not have to meet full judicial standards. See Kletschka v. Le Sueur County Bd. of Comm’rs, 277 N.W.2d 404, 405 (Minn.1979); Barton Contracting Co. v. City of Afton, 268 N.W.2d 712, 716 (Minn.1978). However, merely because county boards can accept evidence under a different standard than courts does not mean they have to accord great weight to that evidence. The county board may discount evidence that lacks relevance or credibility.

Unlike Earthbumers, where we remanded a CUP denial to the county in part because it had limited the testimony it would consider and did not consider all pertinent questions, here the board accepted all proffered testimony. See Earbhburners, Inc. v. County of Carlton, 513 N.W.2d 460, 461 (Minn.1994). The record is clear that a majority of the board members were not convinced that the Schwardts would suffer adverse health effects from Kueker’s proposed feedlot. And in our independent review of the record, we do not conclude that the county’s decision was unreasonable. None of the evidence so conclusively established that a new feedlot on neighboring property would further aggravate the Schwardts’ health conditions that the approval amounted to an abuse of discretion.

The Schwardts’ second argument is that the board acted arbitrarily in granting the CUP even after the Schwardts alleged the proposal did not meet the half-mile setback required by the Ordinance. The Schwardts are correct that a feedlot must be set at least one-half mile back from a neighboring residence. Ordinance at § 6, subd. K-3. They are incorrect that it is the board’s responsibility to ensure compliance with that requirement.

The setback requirement is not one of the standards that a CUP must meet to garner-the board’s approval. Instead, it is a requirement that the county’s zoning administrator enforces.. Ordinance § 6, subd. 1-6 (“feedlots that are required to meet setbacks will need to submit, when requested by the Zoning Administrator, proof showing the distance will be met”). A feedlot permit, which is required in addition to the CUP, is not issued until the zoning administrator is satisfied that all provisions in the county ordinance are met. Id. at § 20, subds. A, B. While commissioners of both the planning and county boards inquired about the setback, they were satisfied when the Kuekers promised both the commission and the board that they would comply with the required distance. The county’s environmental services director further reassured the board that the setback would be met before the Kuekers could build their feedlot. The board treated the setback issue accordingly — -as one it did not have to resolve' — and properly reserved the question for the zoning department. As it was not the board’s duty to ensure the setback was met, the board did not act arbitrarily in approving the Kueker CUP without attaching a setback requirement to the CUP. The court of appeals’ remand to the board is reversed.

Finally, the Schwardts portray the board’s grant of a CUP as arbitrary because it did not make explicit findings about why the proposal was approved. We have specified that an order granting a CUP shall demonstrate the board’s conclusion that the proposal has satisfied each of the zoning ordinance’s conditions for approval. See Earthburners, 513 N.W.2d at 463 (finding a CUP denial was premature, not arbitrary, because the board had not given sufficient consideration to the issues raised by opponents). In this case, the board did indicate on a checklist that the Kueker CUP, with conditions, met the standards in the Ordinance. The board’s use of a checklist is a sufficient expression of the board’s conclusion that the conditions for approval have been met. As we reasoned in Convine, the county “should not have to find negatively that alleged failures to meet requirements are without merit.” Corwine, 244 N.W.2d at 486. Although there may be instances where the evidence submitted in opposition to a CUP is so compelling that it would suggest an abuse of discretion if the board approved the permit absent an explanation, this is not one of those cases. The board’s use of a checklist and the grant of the CUP was not arbitrary because the board received and considered all proffered evidence, gave both sides an opportunity to be heard, and the evidence is not so significant and one-sided as to render the approval arbitrary.

In summary, the record portrays the board as giving serious consideration to the Schwardts’ allegations that the Kuek-ers’ proposed feedlot would have detrimental effects on their lives and deciding after deliberation to approve the CUP. The Schwardts have not established that the Kueker proposal (with conditions) failed to meet the standards in the Ordinance. Because of the deference given to local government bodies, and the presence of evidence supporting the decision of the board, we uphold the county’s determination.

We hold that the Watonwan County Board did not abuse its discretion in the grant of the CUP to Kueker and affirm the court of appeals on that issue. We further hold that the Watonwan County Board properly reserved the setback question for the zoning department, and we reverse the court of appeals’ remand to the board on the setback issue.

Affirmed in part, reversed in part.

      . The fact that the board acted against the recommendation of the planning commission does not make its decision arbitrary. Bd. of Supeivisors of Benton Township v. Carver County Bd. of Comm’rs, 302 Minn. 493, 500-01, 225 N.W.2d 815, 819-20 (1975) (ruling that the board’s failure to acknowledge due consideration of the planning commission recommendation did not constitute grounds for reversal).

      .The Watonwan County Zoning Ordinance sets out eleven standards regarding CUPs. It reads:
      No Conditional Use shall be recommended by the County Planning Commission unless said Commission shall find:
      1. that the Conditional Use will not be injurious to the use and enjoyment of other property in the immediate vicinity for the purposes already permitted.
      2. that the establishment of the Conditional Use will not impede the normal and orderly development and improvement of surrounding vacant property for predominant uses in the area.
      3. that adequate utilities, access roads, drainage and other necessary facilities have been or are being provided.
      4. that adequate measures have been or will be taken to provide sufficient off-street parking and loading space to serve the proposed use.
      5. that adequate measures have been or will be taken to prevent or control offensive odor, fumes, dust, noise and vibration, so that none of these will constitute a nuisance, and to control lighted signs and other lights in such a manner that no disturbance to neighboring properties will result.
      6. that soil[] conditions are adequate to accommodate the proposed use.
      7. that proper facilities are provided which would eliminate any traffic congestion or traffic hazard which may result from the proposed use.
      8. that the density of proposed residential development is not greater than the density of the surrounding neighborhood or not greater than the density indicated by the applicable Zoning District.
      9. that the intensity of proposed commercial or industrial development is not greater than the intensity of the surrounding uses or not greater than the intensity characteristic of the applicable Zoning District.
      10.relationship of proposed use to the County Land Use Plan.
      11.the demonstrated need for the proposed use.
      Ordinance at § 13(d).

      . The final vote is sufficient evidence that the board was not convinced by the Schwardts' evidence. But they also expressed that in their debates. For example, Commissioner Krenz worried that "everybody can say that they [have] health issues. You go to the doctor often enough and he is going to give you a letter that says that probably is your problem.” On June 5, 2001, Commissioner Sor-enson explained that he did not think another hog farm would cause more health problems.

      . We have traditionally held CUP approvals to a more deferential standard of review than CUP denials. See, e.g., Interstate Power Co. v. Nobles County Bd. of Comm’rs, 617 N.W.2d 566, 579 (Minn.2000); Corwine, 244 N.W.2d at 486. Neither party argued that this distinction is unwarranted.


author: ANDERSON, PAUL H., Justice.

text:
    Catherine MODROW, Respondent, v. JP FOODSERVICE, INC., Petitioner, Appellant.
    No. C3-01-900.
    Supreme Court of Minnesota.
    Feb. 13, 2003.

      John W. Polley, Angela M. Crandall, Faegre & Benson LLP, Minneapolis, MN, for Appellant.
    Eric J. Braaten, Gena A. Braaten, Nicklaus, Braaten <& Hollenhorst, PLLC, Chas-ka, MN, for Respondent.
   OPINION

ANDERSON, PAUL H., Justice.

Respondent Catherine Modrow commenced this action in June 1995 by serving her complaint for discrimination and sexual harassment on her former employer, appellant JP Foodservice, Inc. More than four years later, she filed the complaint with the Hennepin County District Court. Shortly thereafter, the court issued its scheduling order. After the deadline for discovery established in the order had passed, JP moved to dismiss Modrow’s action for failure to prosecute. The court granted JP’s motion and dismissed the action, finding that there had been inexcusable delay resulting in severe prejudice to JP. The Minnesota Court of Appeals reversed, holding that the action could not be dismissed for failure to prosecute because it had not been called for trial. We affirm the court of appeals’ holding that the district court erred when it dismissed Modrow’s action, but do so on other grounds.

In September 1992, Marvin Christen, Vice President of JP, a food service distributor, hired Modrow to work as a selector. As a selector, Modrow was responsible for selecting food packages out of freezer inventory and loading them onto pallets to be delivered to JP’s clients. Approximately three months after being hired as a selector, Modrow was transferred to a janitorial position at the same rate of pay. Modrow contends that while employed at JP she was subjected to continuous, management-sanctioned discrimination and sexual harassment. She claims that she complained a number of times to Christen, to someone in human resources, and eventually to JP’s President, but that nothing changed as a result of her complaints.

On June 23, 1993, Modrow apparently attempted suicide and was admitted to the Willmar Regional Treatment Center for depression. Modrow maintains that her depression was the result of her hostile work environment and that her doctors advised her not to return to work. JP asserts that Modrow has a history of depression and her hospitalization was simply a part of that history. Patient records indicate that Modrow’s illness continued up through the time she filed her action with the court. She has cited her illness during that period of time as a reason for her delay in actively pursuing her claim.

On August 10, 1993, Modrow filed a claim with the Equal Employment Opportunity Commission (EEOC). Almost two years later, on June 8, 1995, the EEOC terminated its investigation into Modrow’s claim and issued her a right to sue letter. The EEOC has since destroyed its files on this claim.

The parties agree that in June 1995, Modrow properly served JP with a summons and complaint, and then served an amended complaint the next month. The complaint included allegations of human rights violations, tortious battery, intentional and negligent infliction of emotional distress, wage discrimination, negligence, and negligent termination of insurance coverage. Over four years later, in November 1999, Modrow filed her summons and complaint with the Hennepin County District Court. The record is unclear as to what discovery Modrow conducted after commencing the action and before filing it with the court. She claims to have issued a request for production of documents, to which she never received a response. To contradict this claim, JP submitted an un-notarized statement in the form of an affidavit from JP’s counsel stating that Mo-drow had initiated no discovery since she began the lawsuit. The district court found that Modrow had conducted no discovery. On the other hand, it is undisputed that in February 1998, JP served Mo-drow with interrogatories and a request for production of documents. Eleven months later, in January 1999, JP received completed responses to these discovery requests.

On January 11, 2000, Modrow filed an informational statement. Though counsel for JP claimed during oral arguments that it too had filed an informational statement, there is no record of that having happened. On January 25, 2000, the district court issued a scheduling order, with different deadlines than those proposed by Modrow in her informational statement. In its order, the court required that the parties complete discovery and file dispositive motions by June 30, 2000. The court also set the trial date for the first week of October 2000.

After the final discovery date passed without any discovery requests from Mo-drow, JP filed a motion to dismiss for failure to prosecute. A hearing on the motion was held on August 29, 2000. The district court found that the seven-year delay, dating from the time Modrow filed her EEOC complaint, had “caused extreme prejudice” to JP because eight material witnesses had become unavailable, including Christen who was in the severe stages of Alzheimer’s Disease. Further, the court found that Modrow had engaged in no significant discovery during that seven-year period, that her depression predated her employment at JP, and that her assertion that she was advised by her doctors not to pursue her claim constituted inadmissible hearsay. On November 22, 2000, the court dismissed Modrow’s claim, finding that (1) JP was prejudiced by Mo-drow’s delay in pursuing her claim, and (2) the delay was unreasonable.

Modrow appealed the dismissal, and the court of appeals reversed and remanded stating, “the district court abused its discretion in dismissing appellant’s action for failure to prosecute without ordering the parties to proceed to trial.” Modrow v. JP Foodservice, Inc., No. C3-01-900, 2001 WL 1609118, at *2 (Minn.App. Dec.18, 2001) (emphasis added). We affirm the court of appeals, but do so on other grounds.

I.

The first issue we must decide is whether the court of appeals applied the appropriate legal standard for evaluating a dismissal for failure to prosecute under Minn. R. Civ. P. 41.02(a). When the lower court’s decision to dismiss involves the interpretation of a procedural rule, the appropriate standard of review is de novo. Jostens, Inc. v. Fed. Mut. Ins. Co., 612 N.W.2d 878, 883 (Minn.2000). No deference is given to a lower court on questions of law. Frost-Benco Elec. Ass’n v. Minnesota Pub. Utils. Comm’n, 358 N.W.2d 639, 642 (Minn.1984). Therefore, determining whether the court of appeals applied the correct legal standard when deciding whether the district court properly dismissed Modrow’s action for failure to prosecute is a question of law which we review de novo.

Minnesota Rules of Civil Procedure 41.02(a) provides that a district court may “upon its own initiative, or upon motion of a party, and upon such notice as it may prescribe, dismiss an action or claim for failure to prosecute or to comply with these rules or any order of the court.” In determining whether to dismiss Modrow’s claim under this rule, the district court applied a two-prong test of prejudice and unreasonable and inexcusable delay. This test can be traced to our decision in Firoved v. General Motors Corp., in which we stated that the “primary factor to be considered” is prejudice, and “the factors of the amount of delay and the reasons therefor must be considered.” 277 Minn. 278, 288-84, 152 N.W.2d 364, 368-69 (1967). We later simplified the Firoved test into the two-prong version of the test most commonly cited today:

Before an action should be dismissed for failure to prosecute, it must be shown: (1) that the delay prejudiced the defendant, and (2) that the delay was unreasonable and inexcusable.

Scherer v. Hanson, 270 N.W.2d 23, 24 (Minn.1978). Finally, in Bonhiver, we made the two-prong test the exclusive method of evaluating dismissals for failure to prosecute, stating such dismissals are “appropriate only when ” the two Scherer elements are met. Bonhiver v. Fugelso, Porter, Simich and Whiteman, Inc., 855 N.W.2d 138, 144 (Minn.1984).

In reversing the district court’s dismissal for failure to prosecute, the court of appeals stated that such dismissals are appropriate only after the case has been called for trial. The called-for-trial requirement is derived from Nyberg v. Cambridge State Bank, in which we reversed a district court’s dismissal with prejudice. 245 Minn. 312, 315-16, 72 N.W.2d 345, 348 (1955). In Nyberg, we evaluated the propriety of the dismissal in light of the court’s discretion under Minn.Stat. § 546.07 (2002) , which describes the order in which issues on the calendar should be heard. Nyberg, 245 Minn. at 316, 72 N.W.2d at 347. We concluded that language in section 546.07 “presupposes that a case will be called for trial,” so the court has no discretion to dismiss the claim for failure to appear at the call of the calendar because the case has not yet been called for trial. 245 Minn. at 316, 72 N.W.2d at 347-48. We later turned this language into a “general rule” that “a case may not be dismissed for want of prosecution until it has been called for trial.” Breza v. Schmitz, 305 Minn. 537, 538, 233 N.W.2d 559, 560 (1975). We granted review of this case to determine whether this general rule is appropriate in light of the scheduling procedures enacted in 1991 as part of the General Rules of Practice.

Under the previous Minnesota Rule of Civil Procedure 38.03, a case could be filed with the district court but lay dormant until a party filed a note of issue, at which time the court could schedule the case for trial. Minn. R. Civ. P. 38.03 (1991). This procedure often created a backlog of filed but dormant cases. We attempted to solve this problem by repealing Minn. R. Civ. P. 38.03 and enacting Minnesota General Rule of Practice 111. Under Rule 111, the process of setting a trial date begins automatically upon the filing of an action because the trial date is set in the scheduling order, which must be issued within 60 to 90 days from filing. The implementation of this new scheduling procedure raises the question of whether our general rule that a case must first be called for trial is still by itself dispositive when a court considers a motion to dismiss for failure to prosecute.

Dismissing a case for failure to prosecute requires a balancing of two policy concerns that we have recognized in connection with Rule 41.02(a): (1) providing district courts with the discretion to manage their own dockets, and (2) disposing of claims on their merits. Lampert Lumber Co. v. Joyce, 405 N.W.2d 423, 425 (Minn.1987) (noting that Rule 41.02 is a trial management tool); Firoved, 277 Minn. at 283, 152 N.W.2d at 368 (referring to disposing of cases on the merits as a “primary objective”). The appropriate test for evaluating a Rule 41.02(a) dismissal must address both of these concerns and our two-prong test of prejudice and unreasonable and inexcusable delay does so. However, we conclude that making it a prerequisite that a case be called for trial does not adequately address these policy concerns. Therefore, we conclude that this single factor should no longer be dis-positive.

Whether a case has been called for trial is relevant to the inquiry of whether there has been sufficient prejudice and delay to warrant dismissal, but this factor should not be a mandatory prerequisite to dismissal for failure to prosecute. Rather, it should be one of multiple factors to be considered by the court when applying our two-prong test of prejudice and unreasonable and inexcusable delay. Therefore, to the extent that our prior cases established a general rule that calling a case for trial is a mandatory prerequisite to dismissal for failure to prosecute, those cases are overruled. Because the court of appeals’ decision is premised on the rule we now abandon, the result reached by that court is in error. Accordingly, we hold that the court of appeals erred when it required that Modrow’s case be called for trial before it could be dismissed for failure to prosecute.

II.

The district court applied the correct legal test for a Rule 41.02(a) dismissal when it evaluated JP’s motion in accordance with our two-prong test of prejudice and unreasonable and inexcusable delay. Consequently, the issue we must now decide is whether the district court properly applied this two-prong test. Therefore, we evaluate the district court’s use of Rule 41.02 to dismiss Modrow’s action under an abuse of discretion standard. Bonhiver, 355 N.W.2d at 144.

In evaluating the first prong of the test, prejudice, the district court made a number of findings: (1) the seven-year time lapse since Modrow’s cause of action accrued made it unlikely that material witnesses would be able to testify accurately; (2) Christen, a central witness who was mentioned numerous times in Modrow’s amended complaint, had developed Alzheimer’s Disease and would be unable to testify fully; (3) seven other material witnesses were unavailable; and (4) Modrow had conducted no discovery during those seven years to bolster the credibility of any of these potential witnesses. Given these findings, we conclude that the district court did not err when it concluded that JP was prejudiced by the delay between Modrow’s serving JP with her complaint in 1995 and Modrow’s filing her complaint with the court in 1999. However, a determination that JP was prejudiced does not necessarily end our inquiry. A Rule 41.02 dismissal may be improper, even when there has been prejudice, if the delay causing the prejudice was reasonable or excusable.

We have recognized that, under extraordinary circumstances, significant delay can be enough to justify dismissal without a showing of prejudice to the defendant. Firoved, 277 Minn. at 283, 152 N.W.2d at 368. In such a situation, the delay may be so substantial that prejudice can be inferred. The reasonableness of any delay, however, cannot be similarly inferred from the prejudice it may have caused the defendant because even a reasonable delay, which would not be a sufficient ground for a Rule 41.02 dismissal, may prejudice a defendant. Accordingly, to dismiss for failure to prosecute, the district court must make a finding, separate from its finding of prejudice to the defendant, that there was unreasonable and inexcusable delay. Therefore, we now turn to the issue of whether the district court properly concluded that the delay was unreasonable and inexcusable.

In finding there was sufficient delay to dismiss Modrow’s action, the district court focused on the time period between Modrow’s commencement of her action in 1995 and November 1999, when she filed her complaint with the court. The court found that during that period, Modrow did nothing to advance her claim: she made no document requests, served no interrogatories, and took no depositions. As a result of this finding, the court determined the delay was unreasonable and inexcusable. In reaching its conclusion, the court focused largely on delay that occurred before Modrow filed her complaint and exclusively on Modrow’s actions. The court did not focus on any actions of JP that may have contributed to that delay.

While it is appropriate for a district court to consider prefiling delay caused by the nonmoving party, the court should not consider such delay in isolation. Post-filing activity and any actions on the part of the moving party that may have contributed to the delay should also be considered. Here, the record indicates that once Modrow’s complaint was filed in November 1999, there was no unreasonable or inexcusable delay. JP answered the complaint in December 1999, Modrow filed an informational statement in January 2000, and the district court issued a scheduling order later that same month, well within the 60- to 90-day period required by Rule 111. Additionally, though the court found the prefiling delay to be unreasonable, it appears to have overlooked the attempts Modrow made to move the case forward during that prefil-ing period. Modrow submitted a detailed demand letter to JP in April 1997. Before submitting this demand, Modrow’s attorney notified JP in November 1995, January 1996, and May 1996 of Modrow’s medical condition and its effect on her ability to proceed with the case.

The court also overlooked that part of the prefiling delay was consented to by JP. The record indicates that JP made two requests to extend the time to answer the complaint. In July 1995, JP requested an indefinite suspension of the 20-day period to file an answer in the hope that the parties could reach an agreement. Modrow revoked the indefinite extension in December 1997. Then in January 1998, after JP hired outside counsel to represent it in this matter, it asked for another short extension. At that time, JP confirmed that Modrow had granted JP “an extension to and including February 15,1998” to respond to the complaint. JP could have filed its answer and started the process of getting a scheduling order at any time after June 1995 when it was served with Modrow’s complaint. Instead, JP appears to have made a tactical decision to wait to see if Modrow would abandon her claim. While a defendant is under no obligation to move the plaintiffs case forward even if delay would ultimately prejudice the defendant, the court should not ignore what role, if any, the defendant played in causing the delay.

In deciding to dismiss Mo-drow’s claim, the district court also appears to have relied on her failure to conduct discovery. The court found that from July 22,1995, when she served her amended complaint, to November 1999, when she filed her complaint with the court, Modrow “did nothing to advance her claim”: she made no document requests, served no interrogatories, and took no depositions. A plaintiff has no obligation to conduct discovery. While failing to conduct discovery may result in a weak case and lead to a dismissal on the merits, there is no affirmative prefiling discovery duty that, when breached, is ground for dismissal for failure to prosecute. Moreover, it is not clear from the record that Modrow failed to conduct any discovery. She claims to have sent a request for production of documents to JP and reference to the request is made in correspondence between the parties’ attorneys. While no copy of the request has been provided in the record, the only proof submitted to refute the receipt of this discovery request is an unnotarized statement in the form of an affidavit from one of JP’s attorneys. We cannot consider such a statement as evidence.

We also note that one of the factors a district court may consider in evaluating the reasonableness of any delay is whether the delay is shorter than the time period the statute of limitations provides for asserting the plaintiffs cause of action. It is difficult to conclude that a delay is unreasonably long when it is less than the length of time the legislature provides for a plaintiff to commence her cause of action. Though this issue was not addressed by the district court or raised by either party, some of Modrow’s claims have a six-year statute of limitations, and may still have been viable in November 1999, when she filed her complaint. It appears inconsistent to dismiss an action because of prefil-ing delay when the action included claims that may not be time-barred, especially when the dismissal is with prejudice and not on the merits. Such a dismissal is certainly contrary to the “primary objective” of disposing of claims on their merits. Firoved, 277 Minn. at 283, 152 N.W.2d at 368.

We recognize the broad discretion of the district court in determining whether to dismiss under Rule 41.02; however, such discretion should be tempered by the well-settled tenet that a “[Rule 41.02] dismissal is a severe remedy because it ‘operates as an adjudication on the merits.’ ” Bonhiver, 355 N.W.2d at 144 (citation omitted). In recognition of the severity of a Rule 41.02 dismissal and of the policy that strongly favors addressing claims on their merits, we hold that the district court abused its discretion when it dismissed Modrow’s action for failure to prosecute. Therefore, we remand to the district court for further action consistent with this opinion.

Affirmed in part, reversed in part, and remanded.

      . Minnesota Statutes § 546.07 was amended in 1986 to remove gender specific language. The 1955 statute is otherwise identical to the 2002 version.

      . . One of Modrow's claims, negligence, has a six-year statute of limitations. Minn.Stat. § 541.05, subd. 1(5) (2002). Another of her claims, negligent termination of insurance coverage, also may have a six-year statute of limitations if it is contractual. Minn.Stat. § 541.05, subd. 1(1) (2002).

      . It is possible that the EEOC investigation tolled the six-year statute of limitations on Modrow's related state law claims of negligence and negligent termination of an insurance contract and that the statute of limitations would, therefore, not have been expired by November 1999. We have not addressed the issue of whether related state law claims are tolled by pending EEOC investigations and we decline to do so here, but we note that federal circuit courts are split on this issue. See, e.g., Horaist v. Doctor's Hosp. Of Opelousas, 255 F.3d 261, 268-69 (5th Cir.2001) (noting that Louisiana statutes do permit the tolling of state common law claims brought in conjunction with employment discrimination claims investigated by the EEOC); Juarez v. Ameritech Mobile Comm., Inc., 957 F.2d 317, 322-23 (7th Cir.1992) (holding the EEOC investigation did not toll the statute of limitations for plaintiff's state law invasion of privacy claim); Duran v. Jamaica Hosp., 216 F.Supp.2d 63, 67 (E.D.N.Y.2002) (noting that the Second Circuit is split on this issue). Thus, Modrow may have had a colorable argument that the statutes of limitations on her related state law claims had not yet expired.


author: PER CURIAM.

text:
    In re Petition for DISCIPLINARY ACTION AGAINST Michael E. KELLER, an Attorney at Law of the State of Minnesota.
    No. C0-01-1051.
    Supreme Court of Minnesota.
    Feb. 13, 2003.

      Martin A. Cole, Acting Director, Candice M. Hojan, Senior Assistant Director, St. Paul, MN, for Office of Lawyers Professional Responsibility.
    Michael E. Keller, Larimore, ND, for Michael E. Keller.
   OPINION

PER CURIAM.

In July 2001, this court suspended Michael E. Keller from the practice of law because a petition for disciplinary action had been filed against him and he could not be found in the state. In September 2002, the North Dakota Supreme Court disbarred Keller for misappropriation of client funds, unauthorized practice of law, failure to communicate adequately with his clients and other violations of the North Dakota Rules of Professional Conduct. On October 7, 2002, we issued an Order to Show Cause why Keller should not be disbarred. Because Keller did not respond to the Order to Show Cause and did not move to vacate the order of suspension or for leave to answer the disciplinary proceeding, and because we conclude that the procedures in North Dakota were consistent with fundamental fairness and due process and that the imposition of identical discipline is neither unjust nor substantially different from that which is warranted under Minnesota law, we order that Keller be disbarred from the practice of law in Minnesota.

Keller was admitted to practice law in North Dakota on October 10, 1984, and in Minnesota on February 14, 1986. He has been suspended from practice in Minnesota since April 1, 2001, for nonpayment of attorney registration fees. His last address on file with the Minnesota attorney registration office is P.O. Box 479, Larimore, North Dakota 58251.

In March 2001, Keller was suspended from the practice of law in North Dakota pending the outcome of disciplinary proceedings in that state. Disciplinary Bd. of Supreme Court of State v. Keller, 652 N.W.2d 308, 312 (N.D.2002). In May 2001, the Director of the Minnesota Office of Lawyers Professional Responsibility (Director) filed a petition in this court under Rule 12(d) of the Rules of Lawyers Professional Responsibility (RLPR), seeking reciprocal discipline in Minnesota.

The Director attempted to make service on Keller at his registered address but was unsuccessful. Accordingly, on July 3, 2001, this court issued an order under Rule 12(c)(1), RLPR, suspending Keller from the practice of law because he could not be found. The order gave him one year to move for vacation of the suspension and for leave to answer the disciplinary petition. He did not do so.

On September 16, 2002, the Director petitioned under Rule 12(c)(2), RLPR, for an order to show cause why Keller should not be disbarred from the practice of law. The petition alleged two grounds for disbarment: (1) Keller’s failure to move the court within one year for vacation of his suspension or for leave to answer the petition for disciplinary action and (2) Keller’s intervening disbarment by the North Dakota Supreme Court on September 9, 2002. Keller, 652 N.W.2d at 312. We issued the requested order on October 7, 2002, requiring Keller to appear on January 9, 2003, to “show cause * * ⅜ why the court should not take appropriate action against him under Rule 15, (RLPR).” Rule 15 lists the types of dispositions available in a disciplinary proceeding and includes disbarment. We ordered the Director to serve notice of this order on Keller pursuant to Rule 12(c)(2), RLPR, and permitted the parties to submit written proposals regarding appropriate discipline on or before December 6, 2002.

The Director served notice of the hearing upon Keller by publication, as authorized by Rule 12(c)(2), in newspapers in Fosston, Minnesota, and Grand Forks, North Dakota. The Director filed a brief proposing that Keller be disbarred as reciprocal discipline under Rule 12(d), RLPR. Keller filed no brief or other written proposal in response to the Order to Show Cause, and he failed to appear at the January 9 hearing.

I.

“ ‘The purpose for imposing identical disciplinary sanctions is to prevent a sanctioned attorney from avoiding the consequences of misconduct by simply moving his or her practice to another state.’ ” In re Meaden, 628 N.W.2d 129, 132 (Minn.2001) (quoting In re Heinemann, 606 N.W.2d 62, 64 (Minn.2000)). Rule 12(d) provides in pertinent part that

[u]pon learning from any source that a lawyer licensed to practice in Minnesota has been publicly disciplined or is subject to public disciplinary charges in another jurisdiction, the Director may commence an investigation and, without further proceedings, may file a petition for disciplinary action [in] this Court. * * * Without further proceedings this Court may thereafter impose the identical discipline unless it appears that discipline procedures in the other jurisdiction were unfair, or the imposition of the same discipline would be unjust or substantially different from discipline warranted in Minnesota. If this Court determines that imposition of the identical discipline is not appropriate, it may order such other discipline or such other proceedings as it deems appropriate. Unless the Court determines otherwise, a final adjudication in another jurisdiction that a lawyer had committed certain misconduct shall establish conclusively the misconduct for purposes of disciplinary proceedings in Minnesota.

Rule 12(d), RLPR. Pursuant to the above rule, we determine that the North Dakota Supreme Court’s decision has conclusively established Keller’s misconduct for purposes of this disciplinary proceeding in Minnesota.

Rule 12(d) authorizes us to impose reciprocal discipline upon Keller unless we determine that the North Dakota proceedings were unfair or that disbarment was substantially different from the discipline warranted in Minnesota. We therefore turn to these issues.

A. Procedural Fairness

In order to meet the rule’s requirement that a respondent receive fair proceedings in the other jurisdiction, the proceedings must be “ ‘consistent with fundamental fairness and due process.’ ” Meaden, 628 N.W.2d at 132-33 (quoting In re Schmidt, 586 N.W.2d 774, 775 (Minn.1998)). We therefore “review the record of the underlying proceedings to see if the lawyer being disciplined received notice of the allegations against him and whether he was provided an opportunity to respond to those allegations.” Schmidt, 586 N.W.2d at 775-76. We have consistently held that when an attorney is given notice of the proceedings and an opportunity to participate in the process by presenting evidence of good character and/or mitigation, this requirement is satisfied. See, e.g., Meaden, 628 N.W.2d at 133; In re Koss, 611 N.W.2d 14, 15-16 (Minn.2000); Heinemann, 606 N.W.2d at 64; In re Roff, 581 N.W.2d 32, 34 (Minn.1998).

Keller was repeatedly served with notice of the North Dakota proceedings. Keller, 652 N.W.2d at 308, 309. He initially took part in those proceedings, but he later ceased cooperating with them despite his opportunity to present a defense. Id.; see also In re Keller, 624 N.W.2d 667, 667 (N.D.2001) (describing Keller’s participation early in the North Dakota proceedings).

We have had occasion to examine North Dakota’s disciplinary procedures before. In Schmidt, we examined a disbarment proceeding in North Dakota and found that process fair because Schmidt “had the opportunity to present a defense and offer mitigating circumstances, but chose not to participate.” 586 N.W.2d at 776.

We see no reason to conclude that the North Dakota proceedings were unfair in Keller’s case. Like Schmidt, Keller was afforded an opportunity to respond to the complaints against him, but he materially failed to do so. See Keller, 652 N.W.2d at 308, 309; Schmidt, 586 N.W.2d at 776. Under such circumstances, “[w]e can only conclude that the North Dakota disciplinary proceedings were fundamentally fair and consistent with due process.” Schmidt, 586 N.W.2d at 776.

B. Similar Discipline in Minnesota

Under Rule 12(d), RLPR, reciprocal discipline is inappropriate when “the imposition of the same discipline would be unjust or substantially different from discipline warranted in Minnesota.” Pursuant to the same rule, the North Dakota court’s holdings establish conclusively that Keller violated North Dakota Rules of Professional Conduct regarding the unauthorized practice of law, competence, diligence, communication with clients, reasonable fees, safekeeping client property, declining or terminating representation, and engaging in conduct involving misrepresentation. See Rule 12(d), RLPR; Keller, 652 N.W.2d at 308-11. Keller’s most serious violation was his misappropriation of more than $15,000 of his clients’ money. Keller, 652 N.W.2d at 309-311.

“Disbarment is the usual discipline for attorney misappropriation of client funds except in instances when the attorney presents clear and convincing evidence of substantial mitigating circumstances which show that the attorney did not intentionally convert the funds.” In re LaChapelle, 491 N.W.2d 17, 21 (Minn.1992); see also In re Randall, 562 N.W.2d 679, 680-84 (Minn.1997); In re Stroble, 487 N.W.2d 869, 871 (Minn.1992). In light of the seriousness and breadth of Keller’s ethical violations, we see no reason to depart from the usual discipline for his conduct. We conclude that disbarment is appropriate under Rules 12(d) and 15, RLPR.

II.

The Director’s petition also sought disbarment under Rule 12(c)(2), RLPR, based upon Keller’s failure to move the court, within one year of his suspension, for vacation of his suspension or for leave to answer the petition for disciplinary action. Rule 12(c)(2) provides that if an attorney fails to respond to the Order to Show Cause, the court may proceed under Rule 15, RLPR. Rule 15 authorizes the court to impose .various dispositions, including disbarment. We conclude that Keller’s disbarment is also appropriate under Rules 12(c)(2) and 15, RLPR.

Disbarred.

      . The North Dakota court also noted that there were three aggravating factors in Keller's case: he had a prior disciplinary record, he failed to comply with a disciplinary panel’s discovery order, and he had substantial experience in the practice of law. Keller, 652 N.W.2d at 311-12.


text:
    In re Petition for DISCIPLINARY ACTION AGAINST Joseph Anthony WENTZELL, an Attorney at Law of the State of Minnesota.
    No. C5-01-1871.
    Supreme Court of Minnesota.
    Feb. 13, 2003.

      Timothy Michael Burke, St. Paul, MN, for Petitioner.
    Richard J. Harden, Woodbury, MN, for Respondent.
   OPINION

PER CURIAM.

In this attorney discipline proceeding, we review the referee’s finding that respondent, Joseph A. Wentzell, intentionally misrepresented or omitted material facts to the bankruptcy court during his representation of three Chapter 11 debtors in federal bankruptcy proceedings. We hold that the referee did not err in concluding that Wentzell acted intentionally. We also review the referee’s recommendation of suspension for a minimum of six months; we conclude that a six-month suspension is appropriate.

Wentzell was admitted to the practice of law in Minnesota in 1985, and prior to his admission here he practiced in Texas for three years. Throughout his career he has represented numerous debtors in Chapter 7, 11, 12, and 13 bankruptcy proceedings and is knowledgeable about the requirements of bankruptcy laws.

On October 15, 2001, the director of the Offices of Lawyers Professional Responsibility (director) filed a petition against Wentzell charging him with failing to comply with applicable federal laws, rules, and regulations; representing a bankruptcy debtor when his firm was a creditor of the debtor and when he was claiming to hold real property of the debtor in trust; making false or misleading statements; and failing to disclose material facts, in violation of Rules 1.7(b) (conflict of interest), 1.8(a) (prohibited transactions), 3.3(a)(1) (candor towards the tribunal), 3.4(c) (fairness to opposing party and counsel), 4.1 (truthfulness in statements to others), and 8.4(a), (c), and (d) (prohibiting violations of the rules; engaging in fraud, dishonesty, deceit, or misrepresentation; and engaging in conduct prejudicial to the administration of justice) of the Minnesota Rules of Professional Conduct. In his answer, Wentzell denied that he violated the Rules of Professional Conduct. He argued that any mistakes or omissions made during the course of his representation were due to excusable neglect. In mitigation, he offered his lack of prior disciplinary history, and his participation in the bar and in his community.

The matter was assigned to a referee who conducted a two-day hearing. Upon hearing all the evidence, the referee found that Wentzell failed to comply with applicable federal statutes, rules, and regulations; improperly conducted business transactions with his client; gave misleading statements to the court and opposing counsel; and intentionally failed to disclose material facts during his representations to the bankruptcy court and the referee in violation of Rules 1.7(b), 1.8(a), 3.3(a)(1), 3.4(c), 4.1, and 8.4(c) and (d) of the Minnesota Rules of Professional Conduct. The referee rejected Wentzell’s claims of excusable neglect and found that Wentzell refused to accept responsibility for the wrongful nature of his conduct and instead blamed, in turn, his secretary, the Attorney-Advisor, sleep apnea, and a faulty computer program. Based on these findings, and in the absence of mitigating factors, the referee recommended that Went-zell be suspended from the practice of law for a minimum of six months. Wentzell sought review.

I.

Wentzell ordered a transcript of the referee’s hearing. Therefore, according to Rule 14(e), Rules on Lawyer’s Professional Responsibility (RLPR), the referee’s findings and conclusions of law are not binding on this court. See In re Westby, 639 N.W.2d 358, 367 (Minn.2002). Even so, we give great deference to a referee’s findings and will not reverse those findings unless they are clearly erroneous, especially in cases where the referee’s findings rest on disputed testimony or in part on respondent’s credibility, demeanor, or sincerity. In re Barta, 461 N.W.2d 382, 382 (Minn.1990). To find that a referee’s findings were “clearly erroneous,” this court must be “left with the definite and firm conviction that a mistake has been made.” In re Strid, 551 N.W.2d 212, 215 (Minn.1996) (quoting Gjovik v. Strope, 401 N.W.2d 664, 667 (Minn.1987)).

The referee’s findings detail the following story. Wentzell began representing a married couple and their adult son in 1996 and over the next two years provided legal assistance in resolving various issues with their creditors. His work on these matters resulted in a total of $47,981 in attorney fees, $17,600 of which was paid in November of 1997. When Wentzell filed his clients’ Chapter 11 bankruptcy petitions in February of 1998, his clients still owed his firm over $12,000 for services rendered in 1997, unrelated to the bankruptcy filing. Two days before the petition was filed, the husband and wife transferred to Wentzell their property interest in nine lots and a tract of real estate. Other than the deed and a certificate of real estate value, there was no retainer agreement or other documentation explaining whether Wentzell received these lots in consideration for legal services to be rendered in association with the pending bankruptcy or whether these lots were payment for the services already rendered.

Although required under bankruptcy law, Wentzell failed to disclose this transfer in either the debtors’ schedules, statement of financial affairs, or statement of compensation. The only reference to the transfer was provided in an affidavit attached to his employment application, which states “[t]hat the retainer received prior to the commencement of this action was real estate residential lots which are being held in Affiant’s name pending further order of this Court.” Wentzell’s affidavit did not fully explain how many lots were transferred, whether they were for pre-petition or post-petition services, or their value. Wentzell subsequently sold one of the lots and gave the proceeds to his debtor clients without the bankruptcy court’s knowledge or approval. Wentzell also failed to list his firm as a creditor in the schedules as required under bankruptcy law, even though his clients still owed Wentzell’s firm over $12,000 for services previously rendered.

Wentzell made numerous inconsistent statements about the nature of the real estate transfers and the pre-petition payment of attorney fees. In an affidavit and at a meeting of the creditors, Wentzell stated that the property was being held in trust for his retainer. It was not until Wentzell sought to be approved as counsel for the debtors that Wentzell told the bankruptcy court that he owned some of the lots, which he had received as compensation for services rendered pre-petition. Wentzell’s characterization of these lot transfers changed again during the disciplinary proceedings when he testified to never having owned the property; he claimed that his clients owned the land and the sale of one of the lots was in the “ordinary business” of selling lots, which justified selling the lots without notifying the court. Throughout both proceedings Wentzell’s testimony was constantly shifting; his claims regarding how many lots were transferred to him, their worth, and who was to obtain the proceeds from the one lot sale were inconsistent.

The bankruptcy court denied Wentzell’s application for retention. In doing so, the bankruptcy court stated:

The failure to disclose the transfer of title to those properties and the failure to list the properties themselves in any way in the schedules is evidence — compelling evidence to the Court that what was done pre-petition with respect to this property was intentional toward the result of concealment which is also indication of knowledge of the inappropriateness of the transactions themselves.
But it seems hardly necessary to look to the absence of disclosure in the schedules to find and conclude that this inappropriate dealing with respect to property of the debtors in connection with the case was knowingly improper. We have counsel here who is well grounded in the practice of Bankruptcy Law. It is well settled not only in this District but in this Circuit what are and what are not appropriate transfers, what are and what are not appropriate arrangements for compensation during the pendency of the case, and this is not even close. This is not even close. This does not even present the slightest gray area.

Transcript of Continued Hearings on Motion at 18-19, In re Hurrle, Docket Nos. 98-30206, 98-30207, (U.S.Bankr.Ct., D.Minn. Apr. 14, 1998). The bankruptcy court concluded that there were serious intentional omissions by Wentzell and emphasized that the integrity of the judicial process demands full and complete disclosure at every step. Consequently, Went-zell returned the property interests to his clients and did not receive any fees associated with the work he had completed on his clients’ bankruptcy matters.

Wentzell argued in his disciplinary hearing that the bankruptcy court’s findings regarding his conduct were unreliable because they were based on inaccurate testimony by the Attorney-Advisor to the United States Trustee. In addition, Wentzell testified and presented testimony from a number of witnesses to support his claim that a problematic computer program resulted in inaccuracies in the debtors’ schedules, statement of financial affairs, and statement of compensation. Finally, Wentzell claims he never intended to mislead the bankruptcy court as evidenced by his disclosure of the property transfer to his law partners and the fact that two of the creditors’ attorneys were not misled by his conduct. Wentzell questioned whether the property transfers were indeed improper under the bankruptcy laws. The referee rejected each of Wentzell’s claims, finding Wentzell’s actions and testimony to be deceitful, erroneous, and misleading.

We evaluate Wentzell’s conduct and the referee’s conclusions in the context of the lawyer’s obligations under the bankruptcy code. An attorney in bankruptcy court is required to provide complete and accurate information regarding compensation received from the debtor for services and any potential conflicts with the client, creditors, or any interested party in the matter so that the bankruptcy court can determine whether they are disinterested. See 11 U.S.C. §§ 327(a), 329; Fed. R.Bankr.P.2014(a). The primary underpinning of a bankruptcy proceeding is that the debtor and the debtor’s attorney are required to disclose everything regarding the debtor’s debts, liabilities, transactions, and assets, as well as any connections between the debtor and the attorney. See United States v. Ellis, 50 F.3d 419, 424 (7th Cir.1995) (noting that “honest and fair dealings are prerequisites to seeking the protection of the bankruptcy courts”); In re Smitty’s Truck Stop, Inc., 210 B.R. 844, 850 (10th Cir.1997) (stating that “the attorney has a duty to fully disclose any connections with the debtor or creditors that might create a possible conflict, and all fee arrangements with the debtor in possession”). It is not the responsibility of the bankruptcy court to comb through the transcripts, schedules, petitions, and affidavits to determine the truth of the attorney’s testimony. See In re Pierce, 809 F.2d 1356, 1363 n. 20 (8th Cir.1987). The penalty for failing to completely and honestly disclose information is severe. See Ellis, 50 F.3d at 423-24 (stating that debtors who fail to appropriately disclose may have their petition denied or find themselves subject to criminal penalties); Pierce, 809 F.2d at 1363 (holding that an attorney who failed to appropriately disclose a property interest in his client’s real estate could not be reimbursed for expenses or for services rendered in relation to the bankruptcy).

The record in this case is replete with evidence of Wentzell’s misleading statements and failure to disclose material facts to the bankruptcy court and the referee. Wentzell had numerous opportunities to provide complete, accurate, and honest documentation of the real estate transfer, but did not at any time fully disclose the amount of property transferred, its worth, or exactly which lots were for pre-petition versus post-petition services. It is unlikely that the bankruptcy court or trustee would have noticed the pre-petition transfer to Wentzell had his client not truthfully testified in the original creditors’ meeting. These facts show that Wentzell’s actions were intentional and not the result of carelessness or inadvertence.

Wentzell is an experienced bankruptcy attorney, knows what disclosures are to be made and to whom, and is familiar with the penalties associated with failure to properly disclose the required information. Wentzell was given the opportunity to clarify the nature of the real estate transfers and payment for attorney fees at the creditors’ meeting, in front of the bankruptcy court, and at his disciplinary hearing. At each turn his statements were inconsistent and served to further obscure or confuse the matter at hand. Wentzell engaged in a pattern of conduct characterized by obfuscation. The referee’s reliance on the bankruptcy judge’s statements and the referee’s finding that Wentzell’s pattern of conduct amounted to an intent to deceive the bankruptcy court and the creditors are not clearly erroneous because both are amply supported in the record.

II.

We turn now to the question of the appropriate discipline in this case. The purpose of discipline is not to punish the attorney, but rather “to protect the courts, the public, and the profession and to guard the administration of justice.” Westby, 639 N.W.2d 358, 370 (Minn.2002) (quoting In re Flanery, 431 N.W.2d 115, 118 (Minn.1988)). “[W]e examine the nature of the misconduct, the cumulative weight of the disciplinary rule violations, the potential harm to the public, and the harm to the legal profession.” Id. Although prior cases are helpful by way of analogy, appropriate sanctions are determined on a case-by-case basis by first examining the specific acts of misconduct and then looking for the presence of aggravating or mitigating circumstances. See In re Kaszynski, 620 N.W.2d 708, 713 (Minn.2001). While the referee’s recommendations are given great weight, the final responsibility for determining appropriate sanction rests solely with this court. In re Brehmer, 620 N.W.2d 554, 561 (Minn.2001).

The referee recommends an indefinite suspension from the practice of law for a minimum of six months. Suspension may be supported on a showing that the attorney is guilty of any deceit or willful professional misconduct, or for a willful violation of the attorney’s oath or of any duty imposed on an attorney by law. Minn.Stat. § 481.15, subd. 1 (2002); see In re Zotaley, 546 N.W.2d 16, 21 (Minn.1996) (finding a six-month suspension was warranted for an attorney who took a generic form from another file and held out the form as if it were a part of his client’s file); In re Jagiela, 517 N.W.2d 333, 336 (Minn.1994) (six-month suspension warranted for an attorney who backdated an agreement that he drafted, gave the agreement to opposing counsel and the bankruptcy court, and failed to correct the false date in deposition testimony concerning the document). “Honesty and integrity are chief among the virtues the public has a right to expect of lawyers.” In re Ruffenach, 486 N.W.2d 387, 391 (Minn.1992). Any breach of that trust is misconduct of the highest order and warrants severe discipline. Id.; see also In re Nilva, 266 Minn. 576, 583, 123 N.W.2d 803, 809 (Minn.1963) (finding that severe sanctions should be imposed on attorneys who have deliberately deceived the court because their actions not only violate the administration of justice, but also “subvert! ] that loyalty to the truth without which he cannot be a lawyer in the real sense of the word”).

Wentzell’s misconduct warrants severe discipline. His numerous inconsistent, false, and inaccurate statements under oath hindered the bankruptcy court’s adjudication and violated the rights of the creditors and debtors. Wentzell argues that severe discipline is not warranted because his clients and the creditors were unharmed. We reject this argument. Wentzell’s actions violated his duty of faithful allegiance to the truth, and his deliberate deceit interfered with the administration of justice. Furthermore, it was mere fortuity that the bankruptcy court prevented any harm to the debtors. It was only upon the denial of his employment application by the bankruptcy court that Wentzell returned the real estate interests to his clients. In sum, the record amply supports our determination that Wentzell’s actions frustrated the administration of justice.

An attorney’s discipline may be mitigated by evidence that he cooperated with the investigation, did not attempt to conceal the misconduct, has taken actions to ameliorate the problems, and shows that he appreciates the harm his actions caused. In re Thedens, 557 N.W.2d 344, 347-48 (Minn.1997); In re Singer, 541 N.W.2d 313, 316 (Minn.1996). Although evidence showing that an attorney has had no prior record of discipline, is involved in the community, and has cooperated fully with the director is important, we have found that such factors do not militate against imposing severe discipline where the misconduct involves serious ethical violations. In re Franke, 345 N.W.2d 224, 229 (Minn.1984). While Wentzell has cooperated with the director’s investigation, there is no evidence indicating that he appreciates the harm he has caused. Because Wentzell has committed so many disciplinary rule violations, his activities in the community, while laudable, do not militate against imposing a severe penalty for his failure to be truthful and honest during his representations of the debtors.

In summary, based on the record before us, we conclude that Joseph Anthony Wentzell has violated Rules 1.7(b), 1.8(a), 3.3(a)(1), 3.4(c), 4.1, and 8.4(c) and (d) of the Minnesota Rules of Professional Conduct. There are no factors to mitigate his conduct, and violations of this type warrant severe discipline.

Accordingly we order that:

1. Wentzell is suspended from the practice of law for a period of six (6) months, commencing fourteen days from the date of this order. The requirements of Rules 18(a) through (d) are waived and respondent may petition for reinstatement under Rule 18(f), RLPR.
2. Wentzell must comply with the requirements of Rule 26, RLPR, within 10 days of the court’s order.
3. Within one year of the suspension order, Wentzell must comply with the requirements of Rule 18(e)(3), RLPR.
4. Wentzell shall pay to the Director the sum of $900 in costs and disbursements pursuant to Rule 24, RLPR.

So ordered.

      . In order to receive compensation for work related to a bankruptcy petition, an attorney must file an employment application with the United States Trustee’s office. The United States Trustee’s office reviews such applications and makes a recommendation to the bankruptcy court as to whether that attorney should be approved as debtor’s counsel. Where the United States Trustee’s office intends to recommend that the application be denied, the attorney is notified and a hearing before the bankruptcy court is required before debtor’s counsel will be approved. In this case, there was a dispute at the time of the bankruptcy court hearing as to whether the United States Trustee’s office had received Wentzell's employment application. This dispute was resolved by the disciplinary proceedings and the referee concluded that although the Attorney-Advisor had incorrectly advised the bankruptcy judge regarding when Went-zell filed his employment application, the Attorney-Advisor’s statements had little impact on the bankruptcy judge's findings regarding whether Wentzell should serve as counsel.