Update (January 5, 2017): The Court (U.S. District Court Judge Susan R. Nelson (D. Minn.)) has postponed the hearing on summary judgment in the Rumble v. Fairview case described below in light of the recent development of an injunction issuing from a federal court in Texas (link below at bottom of original post). Linked here, the Court’s order explaining the circumstances (and the next steps required of the lawyers in the case).

Original post (January 4, 2017): Minnesota Litigator has not spent a lot of time digging into the lawsuit of Jakob Rumbler vs. Fairview Health Services, et al. (although the case was the subject of one earlier post on a skirmish about whether the plaintiff could have access to notes taken by an agent of the defendant (or whether they were “attorney work product” immune from discovery).

Minnesota Litigator has not spend more time on the Rumble case because a great many of the papers filed in the case have been filed under seal, unavailable for review or comment.

This confidentiality is understandable. The case involves highly personal and private details, medical information, and medical treatment. The case involves the treatment that Jakob Rumble, a transgender man, received when he went to the Fairview Hospital emergency room suffering from a high fever and extreme pain from a urinary tract infection.

On the other hand, the case has drawn the attention of a large number of “amici curiae:” the Minnesota Defense Lawyers Association, Lambda Legal Defense and Education Fund, World Professional Association for Transgender Health, Family Tree Clinic, Whitman-Walker Health, Transgender Legal Defense and Education Fund, Inc. — that is, so-called “friends of the court.” These amici are analogous to lobbyists for the legislature. That is, they are representatives of special interest groups that recognize a single case could have significant and broad implications to others (whether hospitals, doctors, nurses, transgender patients, or others).

Fortunately, for those interested in the cutting edge legal issues confronting U.S. District Court Judge Susan R. Nelson (D. Minn.) in the case, Jakob Rumble’s opposition brief to Defendants’ motions for summary judgment was recently filed publicly (not under seal). For anyone interested in this area of law, I recommend reading this extremely well-written brief by a large legal team, headed up by lawyers from Robins Kaplan LLP and Gender Justice.

Moreover, just yesterday, one party brought the court’s attention to a federal district court in Texas that might have an impact on the case in Minnesota (see here and here).

Wily Coyote Burnt HelpMinnesota lawyer, John F. Bonner, III, has had a very rough time in recent years. He has obviously been strapped for cash. This might have played a part in his bringing a lawsuit against longstanding clients of his now defunct law firm, Bonner & Borhart, Mark Lanterman and Computer Forensic Services, Inc. (“CFS”) for allegedly unpaid legal fees.

All Minnesota civil litigators should know by now that the Minnesota Rules of Civil Procedure were amended, effective July 1, 2013, to provide that if a case is not FILED (with a court) within one year of being COMMENCED (by service on the defendant), then the case is “deemed dismissed with prejudice against all parties unless the parties within that year sign a stipulation to extend the filing period.”

If you are a Minnesota civil litigator and you do not yet know this rule and the consequences for failing to follow it, please surrender your license on your way out and best of luck in your future (non-litigator) endeavors, whatever they may be.

Mr. Bonner waited 363 days between when he served his complaint and when he filed the complaint. That’s cutting it close! Worse still, he failed to pay the filing fee for the eleventh hour filing, so the court rejected the filing. That’s cutting it off!

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newborn-baby-990691_960_720It’s a New Year! The election of Donald J. Trump as the President of the United States might make the coming years some of the most perilous faced in our country’s history. With a fickle, impulsive, vindictive, insulated, and inexperienced President, we face great risk on both domestic and international fronts.

There remain, of course, many great and strong American (and world) leaders, institutions, and organizations. They need all of our help. Stay committed and engaged.

We have so much to protect and nurture.

Happy New Year and Best Wishes

dd78ca-20121017-eric-nilssonMinnesota Litigator spoke recently with Eric Nilsson, a Minnesota lawyer 35 years of experience in bank-related law. (For Eric’s contact information, click here.) Most recently, he’s taken on a highly specialized and extraordinarily complicated task, the reconciliation of U.S. commercial lending law and Sharia-compliant financial transactions for Muslim clients.

As he discusses, he has found the work complex, intellectually fascinating, and, also, important in our current cultural climate in which our country confronts powerful and insidious head-winds of anti-Muslim xenophobia.

Minnesota Litigator (“ML”): Eric, for starters, why don’t you tell our readers how you got to where you are today.

Eric Nilsson: I joined Briggs and Morgan and I spent a year in litigation handling commercial disputes. My secondt year was in the  real estate department handling conveyancing and finance. At the end of that second year,  the chair of the banking group at Briggs and Morgan asked me if I’d like to serve as a “loaner lawyer” to First Bank to work in their real estate work-out division.

At that point I didn’t even know what a work-out was, but I thought it  sounded like an interesting opportunity. For the next year, I worked full-time  at the bank, though I remained an associate at the firm.  My job was to work out a portfolio of defaulted real estate loans and the sale of OREO, that is, property that was taken back through for closure or deeds in lieu of foreclosure. After a year at the bank, I returned to Briggs and Morgan, this time to  the commercial or banking department and worked on asset based loans and a variety of loan transactions, but also workouts,  on behalf of lenders.

A couple of years later, First Bank—by that time, First St. Paul and First Minneapolis had consolidated— hired me back to work again in the real estate work out division. A year and a half later, I was recruited  by the commercial department of Oppenheimer Wolff & Donnelly to  work on loan transactions and loan work-outs and  some litigation. After several years at Oppenheimer,  I had an opportunity to transfer to Norwest Bank  (later Wells Fargo) and manage the default group in their corporate trust department.

That entailed administering indenture trusteeships of defaulted bonds and involved both real estate and non-real estate matters   across the country. In  2000 I opened my own law practice, initially representing primarily Wells Fargo.  Bank clients would refer customers to me, and in time my practice expanded to representation of other community banks and a host of different business types, but all with a focus on finance, real estate, and litigation associated with those two areas, all of which brings me to the present where I’m still engaged in that practice.

Recently I was approached by an Islamic group. They needed what would be termed a conventional commercial construction loan for the construction of a mosque on some real estate that this entity, a non-profit, owned. The requirement was that the loan transaction be Sharia compliant, more specifically that the terms of this transaction comply with or observe Quranic directions and prohibitions. The leading one is the prohibition against paying interest.

The conventional lending part was very familiar to me. For the Sharia side, however, I had to roll up my sleeves and figure it out… Although I’d had some exposure to Sharia finance in the past, I had not had to acquire a deep understanding. With this latest assignment, I really had to learn  it. That necessity  launched me on a fascinating and hugely rewarding intellectual experience — trying to understand Islamic finance and its ramifications in the context of a conventional, commercial real estate.

My study started with reviewing accessible materials on the internet. I found a number of law review articles and white papers by experts in this area. I also delved into some textbooks on the subject that are quite dense, quite sophisticated, and the big problem I was encountering was how to address issues that are pretty central to any domestic context— by that I mean transactions in America and specifically Minnesota— absolute requirements that any regulated lender, i.e., a bank, is going to require  in connection with any construction loan, any real estate loan.

Specifically, in construction lending here in the United States and specifically Minnesota, the core issue, legal issue, and structural issue is how to ensure that the lender’s collateral position is going to be prime and enforceable against all other parties, particularly  potential mechanics lien claimants. That’s the central issue in a construction loan. Of course, there are legion of other issues associated with any loan, but that is the central issue. One has to solve for that problem. How does one ensure, from the lender’s perspective, that they’re going to wind up with a first lien position?

A mortgage. Start with a mortgage concept because that’s the vehicle, the legal vehicle, by which a lender can prevail over mechanics liens. Plenty  of sub-issues are associated with that. How do you prevent a mechanics lien from running around that mortgage somehow and gaining priority? How does the bank  ensure that it has  protection?  Ultimately, the bank is going to turn to a title insurer for protection.

The title insurer then examines and analyzes the situation and basically dictates from a host of perspectives what is going to be required before the title company can give the bank coverage over mechanics liens. That’s the analytical starting point, if you will — to achieve protection against mechanics liens by way of a mortgage.

The next question is, what obligation is the mortgage going to secure? That’s where it gets really interesting. Normally, it’s the fee interest that is mortgaged. That is what we all consider the ownership, the simple ownership of the property. It’s that interest that gets mortgaged to the bank.

That’s all well and good, except then you turn to what does the mortgage obligation secure and normally it secures an interest bearing note. There’s the rub, because a Sharia compliant borrower cannot be executing an interest bearing note. It cannot borrow on an interest bearing basis. Now you have to back up and ask, where is title going to reside then and where is this obligation going to reside, this interest bearing obligation, if it’s prohibited under Sharia law?

ML: I had imagined that one could solve this problem simply by using some kind of euphemism for “interest.”

Eric Nilsson: Some people  have taken that approach. But to be truly Sharia compliant, you need to do more that change  the name of “interest.” The underlying concept is that the Quran prohibits “making money on money.” In brief, you need to work with the concept of rent, coupled with buy-back provisions, as an alternative to interest, but this in turn requires devising an ownership structure that challenges basic methods of collateralizing a construction loan and addressing mechanic’s liens. You also have to worry about additional transactional costs, mainly in the form of conveyancing taxes.

There are other prohibitions that you have to take into account in structuring these transactions.  For example, to provide for rent, which, as I’ve described, is the alternative to interest, you have to create a lease under which rent is paid.  But under Sharia law, cost of maintenance must the responsibility of the lessor, not the lessee.

Back to your basic question of, “Can’t we just change the name?” I’ve actually had the good fortune of getting acquainted with one of the world’s leading legal experts in this area, Michael McMillan, who teaches at the University of Pennsylvania Law School. He’s spend a couple of decades developing the architecture  that dovetails conventional real estate finance with Sharia law.  His work provides valuable insights into how deals should and can be structured.

I’ve also reverse engineered  actual Islamic financings that I’ve been able to identify—here in Minnesota and in California. I examined title, obtained  copies of recorded documents and reviewed the structures that had been devised.  They took various forms and departed  significantly from the architecture devised by Professor McMillan.  The one challenge of adopting that architecture, however, is cost.  A large-size, for-profit  deal could support it. A modest loan transaction to a non-profit entity — that is, a mosque — cannot.

At one extreme, I found no apparent compliance with Sharia law. In other words, what I found of record was a “rip it off the tablet” conventional mortgage form securing an interest bearing note. At the other end of the spectrum, no apparent real estate collateral what-so-ever was in the mix. From that, I could only deduce that there had been no outside financing for that particular mosque. I expect the acquisition of the property and any improvements to it were funded completely by pledges — a cash deal in effect. No lending required. Those were the extremes.

In the middle, I found attempts to structure things that would be Sharia compliant. What I could not figure out about these deals, however, was how they could address that central issue of mechanics liens, particularly in a construction loan setting. Where this has left me is devising  a structure that is informed by Professor McMillan’s architecture but that is also tailored to accommodate the cost considerations that I have to observe.  Through my experience as a real estate finance lawyer, I know what I have to “solve for” on the bank and title company front.  Through my study of Sharia finance, I am learning what I have to “solve for” on the Islamic side. .

ML: Here your clients are investors or people who want to build a mosque. Is that right?

Eric Nilsson: That’s correct.

ML: Who decides when something is Sharia compliant?

Eric Nilsson: That’s a very interesting question. First of all, in Islam, unlike for example Catholicism, there is no head Imam. There is no Pope in whom resides the ultimate authority on anything. Authority is rather dispersed. What’s developed is the notion of  Sharia boards and there are many of them all over the place. It depends on your context, your jurisdiction. In Saudi Arabia, for example, there’s an official Sharia board. It’s considered like a Supreme Court. It’s not one individual. It’s a board. You have that interesting element. There’s not unified agreement as to how the Quran should be interpreted.

ML: Do your clients have a board they must get the construction transaction approved for Sharia compliance?

Eric Nilsson: They have a corporate board but not a Sharia board per se.  However, they do have  a resident scholar to whom they defer. This individual, with whom I’ve had a lot of fascinating exchanges, is the expert within this group. His opinions can vary from the opinions of other scholars and other boards within the local Islamic community and within the national and within the international communities. It’s not a black and white analysis. That’s one challenge.

Another concept is that, and again, there’s no unity with respect to the force of this concept. It’s been expressed to me, I think by a more liberal end of this spectrum, that this compliance with Sharia law is not an absolute necessity. I don’t want to overstate this, but  basically, if you as an entity or as individual, find yourself in circumstances in which there is no alternative to breaching certain prohibitions then you’re allowed to do so. That might explain why I found an Islamic entity that had entered directly into  what was by all appearances a conventional, interest-bearing  loan.

Given that, all those forgoing considerations, I’ve had to construct something the best I can. I’ve had to solve for a number of issues much like one presented with a Rubix cube. Example, mechanics lien, which I just mentioned or mentioned previously, that’s central issue. How does one solve for mechanics liens in a construction loans setting? Number two, how does one address the state deed tax, because one element of the architecture that’s been devised to basically bifurcate the loan between conventional bank loan and Sharia compliance, and the other side, is to create a middle entity, an SPV, or special purpose vehicle.

ML: A middle man?

Eric Nilsson: Yeah, a middle man. That entails the transfer of title from the current fee owner which is the mosque, which a 501(c)(3) entity (a non-profit), a conveyance from that entity to the special purpose vehicle. Query: what does that suggest in the way of state deed tax and what’s the consideration going to be? Is it nominal, in which case there would be no deed tax? Eventually, once the construction is completed, title has to revert back in some fashion to the original grantor, to the mosque.

ML: Can’t the SPV be controlled by the mosque?

Eric Nilsson: That raises a question. In my opinion, this gets to shades of grey. In a perfect world, that SPV would be owned and managed by an entity or individuals completely separate from the Islamic organization. That’s the best model. But it can also be problematic, from the perspective of say the board of a mosque, which doesn’t want to accede control and authority.

The problem is to try to explain limitations on SPV authority and so forth to a group of, basically, volunteers associated with a non-profit. That’s a big task. These people are very intelligent, very well educated, but they’re not familiar with real estate law, finance law, so on, so forth, or LLC organizational law. I have had to explain  how this SPV would work.

I’m still in the crafting stage of , but I think what I’m going to wind up with is a hybrid structure that I think is an improvement on the structures that I’ve seen of record but is not entirely consistent with what I think is the perfect architecture.

ML: How long have you been working on this?

Eric Nilsson: I met my people for the first time shortly before the election, so going on six weeks.

ML: I know it’s probably difficult, maybe impossible to predict, but do you have a sense of when you think you will have a framework in place and allow this transaction to go forward?

Eric Nilsson: My goal is January.

ML: How close are you?

Eric Nilsson: I think we’re a week away probably, not given the holidays. A week to 10 days away from agreement among all the players on the basic global structure.

ML: When you say all the players, do you mean the bank on the one hand and what I’ll call the investors on the other hand?

Eric Nilsson: I’d say the bank, the title company, and the ultimate beneficiary of the project.

ML: Good luck.

Eric Nilsson: Thank you. I’ve invested huge amount of time in this effort. Only a fraction of which will be compensated. I consider it a huge gain for me personally in a couple of respects. One, it’s just gratifying intellectual curiosity. I think from a broader perspective, if I can develop expertise in this area, and be of value both to conventional lenders as well as to Islamic borrowers, then I think I will have served a larger purpose that Professor  McMillan has served. I’ll give you just a couple of anecdotes.

Mr. McMillan explained to me that he’s been accused on a couple occasions over the last number of years of helping finance Islamic terrorists, which is complete nonsense. He’s done nothing of the sort. He’s received death threats. He’s been maligned publicly by extreme anti-Muslim pundits. His reaction is, “I have a public duty actually to help this element of our community, our financial community, or economic community, and our social community, to accommodate them with respect to Islamic finance or complying with Sharia law.” I find that inspiring.

Additionally, one of my clients, one of the group, told me just anecdotally how his kids reacted to the election. It was abject fear. I feel a connection with these people. As I said, they’re very well educated, very intelligent. They’re major contributors to our community on a whole bunch of levels. They’re an asset to our community. I want to do my part in accommodating that asset, which I think is going to grow in the years ahead. If we as a society are halfway smart about it, we’ll allow that, we’ll accommodate that growth.

By learning this area of finance, and being of service in it, I think I can help counter some of the reaction, the adverse and negative reaction, to the growing Muslim segment within our community. That’s what really motivates me.

[Previous Minnesota Litigator Profiles: Roshan Rajkumar, products liability defense, Liz Kramer, Arbitration Maven/Author of Arbitration NationBob Lear, Residential Real Estate Appraiser/Expert Witness, Tim Nolan, Lawyer/poet, Laurie Vasicheck, 25 year veteran of the Minneapolis office of the EEOC, Jake Holdreith, an IP litigator for “drug dealers” (better known as pharmaceutical companies), Pam VanderWiel, lawyer for Minnesota municipalities, Bill Dossett, Executive Director of Minnesota’s Nice Ride bike-sharing program, Christina Snow, lender/servicer real estate and foreclosure lawyer, Clayton Halunen, plaintiffs’ employment lawyer, consumer rights lawyer, Stephen L. Smith, straddling a civil and a criminal litigation practice (and later appointed to the Ramsey County District Court bench), Kevin Dunlevy, Minnesota real property authority, Vildan Teske, consumer rights class action litigation and service members class actions, Jim Behrenbrinker, civil rights/excessive force cases, Eric Cooperstein, “ethics maven“,  Mike Flom, Gray Plant’s General Counsel, Phil Gainsley, veteran solo civil litigator,  John Halpern, collections, Elliot Olsen, foodborne illness litigation, Dave Potter, railroad industry litigator, Katherine Mackinnon, ERISA plaintiff’s lawyer, Kristine Boylan, international IP/Complex Litigation lawyer,Karin Ciano, free-lance “federal sherpa,” Jerry Alcazar, products liability defense.]

Minnesota Litigator - Stacks_of_moneyFinancially, it has not been a great year for the law firm of LEVENTHAL pllc, notwithstanding significant wins for several clients — an arbitration with a 100% recovery (plus an award and recovery of 100% of the client’s attorneys’ fees), disputes resolved by a single carefully written letter, lawsuits stopped dead in their tracks on a motion to dismiss, a motion to transfer, etc.

Some of the “wins” we are most proud of are the “hard messages” — telling clients that they have no case, telling clients they need to walk away from weak claims or pony up and pay up when facing strong claims. These are not “wins” in the conventional sense, of course, but they are the invisible hallmark of integrity.

This is the irony of good lawyering — your clients (most of them, anyhow) love their relatively quick and decisive resolutions, all the more sweet when they paid so little for the good results.

Presumably, the optimal business model is that good lawyers build on their successes, develop reputations, and increase their hourly rates because they can complete in [insert NUMBER here] hours what other lawyers cannot do in [insert multiple of NUMBER] hour, if at all. (Or they take on more challenging contingent fee cases, shifting the risk of a bad outcome from the client to the lawyer.)

How this single practitioner will manage remains to be seen, but here’s to a higher hourly rate for 2017!

LEVENTHAL pllc. Committed. Ethical. Experienced. Successful. Call for a consultation: 612-234-7349.

[Rule 7.1 of the Minnesota Rules of Professional Conduct requires us to point out that statements of positive results for other clients are not guarantees or representations that the same results would necessarily be obtained for other client matters.]

 

arrows-221459_1280A company (that we’ll call “Borrower”) borrowed $7.5 million from a lender and offered a piece of commercial real property as collateral (commonly known as a mortgage). Borrower defaulted on its payments under the loan agreement.

At that point, Borrower and bank entered into a “written pre-negotiation agreement, in which [B]orrower agreed to, among other things, waive its statutory right to redeem the mortgaged property in the event of a foreclosure sale.”

Later, at the foreclosure sale, the bank bought the property for $4.25 million (effectively “buying the property from itself” — that is, as a result of the foreclosure sale, the bank took ownership of the property and, in the process, diminished the amount that Borrower owed the bank by $4.25 million, the foreclosure sale purchase price).

While we do not know the value of the property at issue, it seems like $4.25 million was a very good deal because, after the bank bid that amount and won the property at the foreclosure sale, Borrower asserted its statutory right to “redeem” the mortgaged property. That is, Borrower (whom you can also call “Mortgagor”) asserted a right to pay the bank, the foreclosure sale’s winning bidder, $4.25 million and thus re-take title to the property.

You might wonder how Borrower could agree to waive its right of redemption and then turn around and assert it?

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ContortionistIn this month’s Bench & Bar of Minnesota, Minnesota Supreme Court Justice David L. Lillehaug and his former clerk, Nathan J. Ebnet, published a thoughtful and well-researched article entitled, “A Fresh Look at the Problem of Unpublished Opinions.”

The authors point out that the number of so-called “unpublished opinions” by the Minnesota Court of Appeals has sky-rocketed over the past decade to the point in 2015 when 92% of the Court of Appeals’ decisions were designated “unpublished.”

Justice Lillehaug and Mr. Ebnet point out that “an overwhelming majority of practitioners favor continued publication of all opinions,” (based on a 1986 survey) but they conclude with four proposals that stop short of advocating for the abolition of “unpublished opinions.” Instead, they suggest that the Minnesota Court of Appeals should issue fewer of them.

In my opinion, the authors do not go far enough. The “overwhelming majority of practitioners” were right. The very words, “unpublished opinion,” reflect an embarrassing legal contortion, an oxymoron. The doublespeak is particularly galling because so-called “unpublished opinions” play a part in our justice system, of course. The use of clear and precise language is an absolutely essential part of any claim to justice or fairness.

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Update (12/21/2016): On the day of trial (Monday), the defendant raised the white flag and surrendered. Trial consisted of one witness, about ten minutes of testimony, and four exhibits. One witness had flown in from Rhode Island to testify. Notch another win for LEVENTHAL pllc although civil litigators know this is a battle victory. The war goes on (in the form of the post-judgment collection efforts).

Gen. Douglas MacArthur signs as Supreme Allied Commander during formal surrender ceremonies on the USS MISSOURI in Tokyo Bay. Behind Gen. MacArthur are Lt. Gen. Jonathan Wainwright and Lt. Gen. A. E. Percival, September 2, 1945

Formal surrender ceremonies on the USS MISSOURI in Tokyo Bay.

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pinkie_pie_bubble ponyUpdate (December 19, 2016): The Minnesota punitive damages statute  provides:

(a) Punitive damages shall be allowed in civil actions only upon clear and convincing evidence that the acts of the defendant show deliberate disregard for the rights or safety of others. (b) A defendant has acted with deliberate disregard for the rights or safety of others if the defendant has knowledge of facts or intentionally disregards facts that create a high probability of injury to the rights or safety of others and: (1) deliberately proceeds to act in conscious or intentional disregard of the high degree of probability of injury to the rights or safety of others; or(2) deliberately proceeds to act with indifference to the high probability of injury to the rights or safety of others.

The allegations in Bubble Pony (“BP”) vs. Facepunch (described in earlier posts below and in the linked memorandum of law) are that BP’s principal, Patrick Glynn, did the lion’s share of work on Rust, a successful computer game, and Facepunch maneuvered to avoid giving Glynn his rightful share of the millions of dollars of Rust profits, necessitating this lawsuit.

Assuming BP can prove these allegations, do they rise to the level of triggering punitive damages under Minnesota law?

Minnesota Litigator will go out on a limb here and predict that BP will lose the motion. “The mere fact that a party has committed a wrongful and unlawful act affecting the person or property of another does not justify the imposition of [punitive] damages in an action to redress the wrong. To justify such damages the tort must have been committed wantonly or maliciously, . . . as to establish malice in fact.” Vine v. Casmey, 90 N.W. 158, 158 (Minn. 1902). A dispute over how to divvy up a pot of money does not strike me as the kind of case that would normally justify punitive damages and we’ve noted in earlier posts that Minnesota courts are generally not fond of punitive damages. It sometimes seems that Minnesotans’ allegiance to cool and dispassionate civility most often outweighs any burning desire to inflict punishment.

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CatAndMouseChaseJeorenMoeszUpdate (December 16, 2016): Now it is looking like Mr. Hansmeier and Mr. Steele (discussed at length, below) might be headed to prison for their $6 million porno shakedown operation…The indictment, incidentally, includes a simple and understandable description of how BitTorrent is used to distribute copyrighted work illegally. It also reveals that these University of Minnesota Law School grads actually filmed some of the porn that they peddled themselves. They are undoubtedly the proverbial jerks-of-all-trades…

Update (September 30, 2016): “Coda” is a musical term, originating from the Italian word for “tail.” It is a musical passage that brings a piece (or a movement) to an end. Counsel for an adversary of Mr. Hansmeier passed on this linked letter to me, apparently sent by Mr. Paul Hansmeier, the subject of the string of posts below. 

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