Stabler v. First State Bank of Roscoe, Nos. 26917

• Court: Supreme Court of South Dakota
• Writing for the Court: SEVERSON, Justice.
• Citation: 865 N.W.2d 466
• Parties: Stanley E. STABLER, Rose Marie Stabler, Brad A. Stabler and Brenda L. Stabler, Plaintiffs and Appellants, v. FIRST STATE BANK OF ROSCOE, a South Dakota Corporation and John R. Beyers, Defendants and Appellees. Stanley E. Stabler, Rose Marie Stabler, Brad A. Stabler And Brenda L. Stabler, Plaintiffs and Appellees, v. First State Bank of Roscoe, a South Dakota Corporation and John R. Beyers, Defendants and Appellants.
• Decision Date: 10 June 2015
• Docket Number: 26993.,26965,Nos. 26917,26918

865 N.W.2d 466

Stanley E. STABLER, Rose Marie Stabler, Brad A. Stabler and Brenda L. Stabler, Plaintiffs and Appellants
v.
FIRST STATE BANK OF ROSCOE, a South Dakota Corporation and John R. Beyers, Defendants and Appellees.

Stanley E. Stabler, Rose Marie Stabler, Brad A. Stabler And Brenda L. Stabler, Plaintiffs and Appellees
v.
First State Bank of Roscoe, a South Dakota Corporation and John R. Beyers, Defendants and Appellants.

Nos. 26917
26918
26965
26993.

Supreme Court of South Dakota.

Argued on Briefs Nov. 17, 2014.
Decided June 10, 2015.

865 N.W.2d 469

Lee Schoenbeck, Watertown, South Dakota and Patrick T. Dougherty of Dougherty & Dougherty, LLP, Sioux Falls, South Dakota, Attorneys for plaintiffs and appellants in appeal # 26917 and for plaintiffs and appellees in appeal # 26965.

Roger W. Damgaard, Sander J. Morehead of Woods, Fuller, Shultz & Smith, PC, Sioux Falls, South Dakota, Attorneys for defendants and appellees in appeal # 26917 and for defendants and appellants in appeal # 26965.

Opinion

SEVERSON, Justice.

¶ 1.] In 2007, Stablers brought fraud actions against the First State Bank of Roscoe (FSB) and its president at the time, John Beyers. They alleged that FSB and Beyers conspired to induce Stablers to sign notes and mortgages to pay debt that had been discharged due to bankruptcy. The circuit court rescinded one note and mortgage as to Brad and Brenda Stabler and allowed another note with a third-party bank to be enforced against them. A jury found that FSB and Beyers fraudulently induced Brad's parents, Stan and Rose, to sign a promissory note and collateral real estate mortgage. Both sides are appealing the judgment of the circuit court with respect to multiple transactions that they engaged in over the years.

Background

[¶ 2.] This suit involves four members of the Stabler family. Stan and Rose Stabler are the parents of Brad, who is married to Brenda. The four Stablers will sometimes be collectively referred to as “Plaintiffs.” Brad and Brenda incorporated Edmunds County Ag Services, Inc., (ECAS) in 1999, a business that provided services to farmers. As part of the startup funding for the business, they borrowed money from FSB, whose president at the time was John Beyers. FSB and Beyers are sometimes referred to collectively throughout this opinion as “Defendants.” To secure the debt, FSB took liens on property along with a personal guarantee by Brad. In 2000, Stan and Rose also executed a mortgage in favor of FSB to secure ECAS debt. (The 2000 Mortgage.) See infra ¶ 5, Transaction 1. The mortgage secured a loan for an ECAS building that was being erected on Stan and Rose's

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property. The mortgage covered the quarter of land where the building was being built. Throughout the course of FSB and Stablers' business relationship, the parties entered into numerous other financial arrangements. Not all of these transactions concerned ECAS; some were for Stablers' personal and separate businesses. ECAS liquidated in May 2002 and paid FSB the proceeds from its property; however, it still owed FSB roughly $350,000. FSB had the option at that time to foreclose on the 2000 Mortgage or call on Brad's guaranty, but did not do so. In July 2002, Stan and Rose executed a collateral real estate mortgage (CREM) that provided security for some of the remaining debt, part of which is disputed. (The 2002 CREM.) See infra ¶ 5, Transaction 2.

¶ 3.] Brad and Brenda subsequently went through bankruptcy in 2003. The bankruptcy discharged Brad's personal guaranty of the ECAS loans, but the liens were not discharged by bankruptcy.¹ FSB still held liens and the option to foreclose to recover the debt secured by the 2000 Mortgage and the 2002 CREM. In November 2003, after the bankruptcy was completed, Brad signed a promissory note that refinanced previous obligations. See infra ¶ 5, Transaction 3. Stan also signed a promissory note in November 2003. See infra ¶ 5, Transaction 4. John Beyers then sought out all four Stablers to sign a $650,000 note and CREM in 2004 that repackaged debt of Brad, Brenda, ECAS, Stan, and Rose. (The 2004 Transaction.) See infra ¶ 5, Transaction 5. The bank represented that the debt in the 2004 Transaction included Brad and Stan's debt. The circuit court recited that this was an elaborate scheme to defraud Stablers. The 2004 Transaction was the exact same amount and in the same form of debt as existed prior to Brad and Brenda's bankruptcy.

[¶ 4.] Remaining at FSB was approximately $150,000 of Brad and Brenda's debt, which was paid off in early February 2005 with a loan to Brad and Brenda from the Ipswich State Bank (ISB note). See infra ¶ 5, Transaction 6. Beyers induced ISB to loan $150,000 to Brad and Brenda. The circuit court found that Beyers falsified financial records and personally guaranteed the loan to convince ISB to extend a loan to Brad and Brenda. The proceeds from this loan went to FSB, but it is still disputed whether the proceeds paid off valid liens or reaffirmed discharged debt. Brad and Brenda eventually defaulted on the note, so Beyers, as guarantor, paid ISB the remaining balance and took an assignment of the note. Brad and Brenda started a bankruptcy court action to stop Beyer's collection on the note, alleging that it was in violation of the post-discharge injunction.² See Stabler v. Beyers (In re

[865 N.W.2d 471

Stabler), Bankr. No. 03–10179, Adv. No. 09–1002, 2009 WL 1651441 (Bankr.D.S.D. June 11, 2009), aff'd, 418 B.R. 764 (8th Cir.BAP 2009). “The bankruptcy court dismissed the adversary proceeding based on the application of collateral estoppel to a prior state-court judgment and on a determination that permissive abstention was warranted under 28 U.S.C. § 1334(c)(1).” In re Stabler, 418 B.R. at 766. In state circuit court, Brad and Brenda elected to rescind in accordance with SDCL 53–11–2(1).³ The circuit court held that they had not met their burden under SDCL 53–11–2(1) to show that their consent was given by “mistake or obtained through duress, fraud, or undue influence exercised by or with the connivance of the party as to whom he rescinds, or of any other party to the contract jointly interested with such party[.]” The court noted that if ISB were trying to collect on the note, nothing would prevent it from doing so and, because Beyers, as assignee, has the rights of ISB, he is entitled to enforce the note against Brad and Brenda.

¶ 5.] Relevant to this lawsuit are the following Transactions:

(1) Signed in April 2000, a $200,000 promissory note by ECAS to FSB, secured by ECAS property, Brad's personal guaranty, and a real estate mortgage on Stan and Rose's property, loan # 45210. (The 2000 Mortgage)

(2) Signed in July 2002, a collateral real estate mortgage for $300,000 on Stan and Rose's property to provide additional security on ECAS debt. (2002 CREM)

a. This 2002 CREM secured six obligations⁴ :

i. $200,000.00 promissory note of ECAS due December 15, 2013, Loan # 45210.

ii. $122,221.50 ECAS's promissory note due August 1, 2002.

iii. $105,400.00 ECAS's promissory note due September 1, 2002, loan # 46575.

iv. $70,000.00 Brad's promissory note due April 14, 2000.

v. $195,328.17 Brad's promissory note due October 1, 2002, loan # 46576.

[865 N.W.2d 472

vi. $75,000.00 Stan's promissory note due July 15, 2003, loan # 46601.

(3) Loan # 47365, see infra (5)(a)(iv), signed November 17, 2003,⁵ a promissory note to FSB by Brad for $196,861.67, secured by the 2002 CREM.

(4) Loan # 47367, see infra (5)(a)(vi), signed November 18, 2003, a promissory note to FSB by Stan and Rose for $186,000 “Farm Operating Renewal.”

(5) Signed in March 2004, a promissory note for $650,000 by Brad, Brenda, Stan, and Rose, secured by a CREM on substantially all Stablers' real property and a lien on substantially all their personal property. (2004 Transaction)⁶

a. The note refinanced various obligations. After refinancing, the CREM secured the following⁷ :

i. $266,000 ECAS Loan # 47124.

ii. $110,900 ECAS Loan # 45210.

iii. $39,100 Stabler Farm Loan # 46952.⁸

iv. $132,990 Stabler Farm Loan # 47365.⁹

v. $1,010 Stabler Farm Loan # 47563.

vi. $100,000 Stan Stabler Farm Loan # 47367.¹⁰

(6) February 9, 2005, promissory note to Ipswich State Bank in the principal amount of $150,000. Beyers guaranteed this loan and subsequently took an assignment of it on July 3, 2007. (ISB note).

¶ 6.] The 2004 Transaction is the main subject of this litigation. See supra ¶ 5, Transaction 5. In circuit court, Brad and Brenda claimed it was an invalid reaffirmation of debt discharged in bankruptcy. Stan and Rose claimed Beyers knowingly misrepresented that Brad and Brenda owed amounts contained in the 2004 Transaction.

[¶ 7.] Under the Bankruptcy Code, a post-bankruptcy agreement to pay dischargeable debt between the holder of a claim and the debtor, known as a reaffirmation agreement, must meet specific requirements. 11 U.S.C. § 524(c) (2012).¹¹

[865 N.W.2d 473

Therefore, any...