Forbes Equity Exch., Inc. v. Jensen, 20130199.

• Decision Date: 17 January 2014
• Docket Number: No. 20130199.,20130199.
• Citation: 2014 ND 11,841 N.W.2d 759
• Parties: FORBES EQUITY EXCHANGE, INC., Plaintiff and Appellee v. Keith JENSEN, Defendant and Appellant.
• Court: North Dakota Supreme Court

841 N.W.2d 759

2014 ND 11

FORBES EQUITY EXCHANGE, INC., Plaintiff and Appellee

v.Keith JENSEN, Defendant and Appellant.

No. 20130199.

Supreme Court of North Dakota.

Jan. 17, 2014.

Rudra Tamm, Bismarck, ND, for plaintiff and appellee.

Ryan C. McCamy (argued) and Benjamin J. Williams (appeared), Fargo, ND, for defendant and appellant.

VANDE WALLE, Chief Justice.

[¶ 1] Keith Jensen appealed from a judgment entered by the district court following a bench trial on a contract dispute. We affirm, concluding the district court did not err in denying Jensen's claim for an offset or in admitting evidence. We also conclude that the court did not err in finding in favor of Forbes Equity Exchange on its assigned claim against Jensen.

I

[¶ 2] From 1998 through 2009, Jensen owned a cattle feedlot in South Dakota. Jensen did not personally operate the feedlot but utilized it for his cattle-brokering business. Jensen leased the feedlot to Arden Sieh under a five-year written lease agreement. The lease payments were $115,000 per year. The written lease expired in 2003, but Sieh continued to operate the feedlot under an oral lease agreement with Jensen. Throughout the written and oral lease terms, Sieh provided feed and care for cattle corralled at the feedlot that were owned by Jensen and other cattle owners.

[¶ 3] Near the end of the written lease term, Sieh discontinued paying monthly rent payments to Jensen. Rather than making payments, Sieh deducted from his monthly rent payment the amount of money that Jensen owed Sieh for the feed and care services Sieh provided Jensen's cattle at the feedlot. This crediting arrangement continued after the expiration of the written lease. Sieh claimed that, over the course of the arrangement, Jensen's cattle consumed more feed than the amount of money Sieh owed Jensen for rental payments.In 2009, Sieh ceased operating the feedlot and vacated the property.

[¶ 4] While operating the feedlot, Sieh purchased cattle feed from Forbes Equity Exchange, Inc. (“FEE”), a North Dakota cooperative grain elevator. In 2010, FEE filed a complaint against Sieh and Jensen for $166,015.18 worth of corn purchased by Sieh on an open account that was allegedly never paid. FEE alleged Jensen's cattle consumed the feed.

[¶ 5] In March 2011, FEE withdrew its claim against Sieh for the unpaid feed. In exchange, Sieh assigned to FEE all potential claims he had against Jensen for cattle feed and care services that exceeded Sieh's rent payments. FEE amended its complaint, and raised Sieh's claims for cattle-care costs in addition to its original suit against Jensen for unpaid cattle feed.

[¶ 6] In May 2011, Jensen filed a third-party complaint against Sieh for the collection of past debts, including bounced checks, missed rent payments, unpaid loans and interest, missing cattle, damaged feedlot property, and other financial obligations arising from Sieh's operation of Jensen's feedlot. In December 2011, Sieh filed for Chapter 7 bankruptcy. Sieh included Jensen's third-party claim in his bankruptcy petition. In April 2012, Sieh was discharged of all bankruptcy debts, including Jensen's creditor claim of $3,561,398.09.

[¶ 7] At the November 2012 bench trial, the district court dismissed FEE's claim against Jensen for the unpaid feed, but determined Jensen owed FEE $803,501.48 on its assigned claim for the feed and care Sieh provided Jensen's cattle. The court found “Jensen introduced no credible evidence of any claims against Sieh for ‘money loaned’ or ‘insufficient funds on checks' after the year 2003, when the parties agreed they were ‘even.’ ” The court stated, “[t]he rent that Sieh owed to Jensen was paid by Sieh crediting Jensen for $115,000 per year ... there was no credible evidence that Sieh owed Jensen the Jensen bankruptcy claim of $3,561,398.09, that could be used to setoff against Sieh's claims against Jensen.” The court also determined, that even if there was credible evidence of the offsetting claim, the claim was discharged by bankruptcy.

II

[¶ 8] Our standard of review for an appeal from a bench trial is well-established:

In an appeal from a bench trial, the trial court's findings of fact are reviewed under the clearly erroneous standard of N.D.R.Civ.P. 52(a) and its conclusions of law are fully reviewable. A finding of fact is clearly erroneous if it is induced by an erroneous view of the law, if there is no evidence to support it, or if, after reviewing all the evidence, we are left with a definite and firm conviction a mistake has been made. “In a bench trial, the trial court is ‘the determiner of credibility issues and we do not second-guess the trial court on its credibility determinations.’ ”

Brash v. Gulleson, 2013 ND 156, ¶ 7, 835 N.W.2d 798 (internal citations omitted).

III

[¶ 9] On appeal, Jensen argues that, because Sieh assigned his potential claims against Jensen to FEE before Sieh filed for bankruptcy protection, FEE is subject to all the claims and defenses available to Jensen, including his alleged offset claim. Jensen claims “Sieh's subsequent filing for bankruptcy protection has no bearing or impact upon the assignment, as Jensen's claims and defenses are measured at the time of the assignment.” (Emphasis removed). Jensen contends that, becausethe assignment was made before the bankruptcy filing, FEE “step[s] into the shoes of Sieh” and cannot claim bankruptcy protection because the filing was made after the assignment.

[¶ 10] As a rule, “an assignee of a chose in action takes subject to any defenses existing at the time of the assignment or before notice of the assignment.” Global Fin. Servs., Inc. v. Duttenhefner, 1998 ND 53, ¶ 20, 575 N.W.2d 667. “After an assignment, the assignee acquires no greater rights than held by the assignor, and the assignee merely stands in the shoes of the assignor.” Collection Ctr., Inc. v. Bydal, 2011 ND 63, ¶ 15, 795 N.W.2d 667. “The right of an assignee is subject to any defense or claim of the obligor which accrues before the obligor receives notification of the assignment, but not to defenses or claims which accrue thereafter....” Restatement (Second) of Contracts § 336 (1981). This Court has also stated:

[b]ecause an assignee acquires no greater rights than were possessed by the assignor, in an action on the claim assigned, the assignee of a chose in action is ordinarily subject to any setoff or counterclaim available to the obligor against the assignor, and to all other defenses and equities that could have been asserted against the assignor at the time of the assignment.

Bydal, 2011 ND 63, ¶ 15, 795 N.W.2d 667 (quoting 6 Am.Jur.2d Assignments § 116 (2008) (emphasis removed)). Thus, when the rights of the assignor are subject to a setoff at the time of the assignment, the rights of the assignee are also circumscribed by the obligor's right to apply the setoff. Id.

[¶ 11] An “offset” is defined as “[s]omething (such as an amount or claim) that balances or compensates for something else....” Black's Law Dictionary 1195 (9th ed.2009). “The final equitable concept of ‘offset’ recognizes that the debtor may satisfy a creditor's claim by acquiring a claim that serves to counterbalance or to compensate for the creditor's claim.” Id. “ ‘Offset’ is synonymous with ‘setoff.’ ” Dakota Partners, L.L.P. v. Glopak, Inc., 2001 ND 168, ¶ 21, 634 N.W.2d 520. A setoff or offset “allows parties that owe mutual debts to each other to assert amounts owed, subtract one from the other, and pay only the balance.” Id. A valid offset necessitates a mutuality of debt between the parties. See id.

[¶ 12] The Bankruptcy Code preserves the rights of creditors to offset mutual debts that arose before the bankruptcy petition was filed; the Code “does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case....” 11 U.S.C. § 553(a) (2012). To establish a right of setoff under 11 U.S.C. § 553(a), the creditor must establish the following three elements:

1. A debt exists from the creditor to the debtor and that debt arose prior to the commencement of the bankruptcy case.

2. The creditor has a claim against the debtor which arose prior to the commencement of the bankruptcy case.

3. The debt and the claim are mutual obligations.

In re Sauer, 223 B.R. 715, 724 (Bkrtcy.D.N.D.1998). It is necessary that the debt and the claim arose prepetition and are mutual. Id.

[¶ 13] Here, it is clear that Sieh assigned to FEE his potential cause of action against Jensen prior to filing his bankruptcy petition. In March 2011, Sieh assigned to FEE all potential claims Sieh had against Jensen for the costs of cattle-care and operation of the feedlot and pasturing of cattle at Jensen's property. In May 2011, FEE amended its complaint against Jensen to include the claims Sieh had assigned. In December 2011, Sieh filed for bankruptcy. Thus, at the time Sieh assigned FEE his potential contract causes of action, FEE, as the assignee, took the action subject to any defenses or setoffs Jensen could validly claim. See Duttenhefner, 1998 ND 53, ¶ 20, 575 N.W.2d 667.

[¶ 14] The district court relied on two rationales for why Jensen's offsetting claim was not proper. First, the court found, “Jensen introduced no credible evidence of claims against Sieh for years after 2003, except rent, for which Sieh credited Jensen.” Second, the court reasoned, “[e]ven if there were any claims, such were discharged in the Sieh bankruptcy and are not applicable to FEE.” FEE argues the issue of whether the bankruptcy discharge “of Jensen's claims against Sieh also eliminated any Jensen claims against Sieh from being offset against the judgment FEE obtained against Jensen, would become relevant only if there were any valid Jensen claims against Sieh that were not already included in the trial court's determination of...