Now Updating

Summarizing by Lars Fuller

In re John Finstad

Case Type:
Case Status:
20-1857 (8th Circuit, Jul 21,2021) Published
In this latest chapter of a long-running dispute over farmland (Property) once owned by John and Lorie Finstad (Finstads)—and their second federal appeal involving that parcel’s ownership—the U.S. Court of Appeals for the Eighth Circuit (Panel) affirmed the bankruptcy court’s decision on one ground: per state issue preclusion law, another panel’s 2016 conclusion that the Finstads lacked any interest in the Property, actually litigated at that time, barred their adversary suit. To the Panel, in a non-diversity case, state law defined this prior federal decision’s preclusive effect.
Procedural context:
In 2018, despite losses at the state and federal trial and appellate court levels, the Finstads moved to reopen their chapter 12 case (Case), years after it had been closed, before the U.S. Bankruptcy Court for the District of North Dakota (BC). They did so approximately two years after another circuit panel had affirmed the dismissal of their claims by the DC, which it did in the aftermath of the failure of their appeal of an adverse decision by a North Dakota state court before the Supreme Court of North Dakota (SCND). When the BC granted the Finstads’ request, the Finstads filed the underlying adversary action. Ultimately, the BC dismissed this complaint on multiple grounds, and the Circuit’s Bankruptcy Appellate Panel (BAP) affirmed on multiple grounds. The Finstads timely appealed. Applying the same standard of review to the BC’s decision as the BAP, as required by controlling law, the Panel focused exclusively on the application of issue preclusion, kin to today’s doctrine of claim preclusion and historically subsumed, along with this latter concept, into the historically accurate, yet both dated and widely used, term res judicata.
In 2005, Beresford Bancorporation, Inc. (Beresford), a secured creditor, initiated foreclosure proceedings against the Property. The Finstads, its then owners, responded by filing a chapter 12 petition, thereby automatically staying the foreclosure proceedings and initiating their Case. As part of an October 2005 settlement to remove the Property from the bankruptcy proceedings (Agreement), the Finstads delivered to Beresford a quitclaim deed conveying their “rights, title and interest in and to the real estate,” but permitting them to remain on the land as tenants with an option to purchase at a price equal to the balance of the loans owed to Beresford plus interest. Beresford recorded the deed in January 2006. Later, sometime in the spring of 2006, James and Wendy Gord (Gords) loaned the Finstads $525,000 in exchange for a second mortgage on the farm, allegedly without knowledge of the quitclaim deed to Beresford. Ultimately, the BC first approved the Agreement, then confirmed the Finstads’ plan, and later granted an unconditional discharge to the married Finstads. Within two years, whatever glee flowed from this result had entirely dissipated. In July 2008, after months of missing payments, Beresford sent the Finstads notices of default under the Agreement and a notice of intent to sell the farm. In December, Beresford sold its interest in the farm to the Gords, delivering them a quitclaim deed. The Gords thereupon initiated eviction proceedings against the Finstads as tenants under the Beresford deed. The Finstads now turned to North Dakota state court. Therein, they alleged that their quitclaim deed to Beresford was intended to create an equitable mortgage, not to convey title, and sought a declaration that they own the land subject to an equitable mortgage to Beresford and the second mortgage to the Gords. The trial court ruled against the Finstads, and the SCND later affirmed. Stymied, the Finstads now turned to the federal system. They began with the filing of a diversity action in U.S. District Court for the District of North Dakota (DC), which granted summary judgment against them and dismissed all claims. The Finstads appealed to the Circuit, only to be rebuffed on the basis that the SCND’s decision as to their lack of interest in the farmland was binding in all subsequent litigation between the Gords and Finstads. Two years later, the Finstads moved to reopen the Case.
James B. Loken; William D. Benton; and Jane L. Kelly

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