United States District Court, D. South Dakota, Northern Division
FIRST STATE BANK OF ROSCOE, and JOHN R. BEYERS, Appellants,
BRAD ALLEN STABLER, and BRENDA LEE STABLER, Appellees.
OPINION AND ORDER AFFIRMING BANKRUPTCY COURT
ROBERTO A. LANGE UNITED STATES DISTRICT JUDGE
State Bank of Roscoe (FSBR) and John Beyers (collectively
Appellants) appeal the bankruptcy judge's decision to
sanction them for violating the discharge injunction in Brad
and Brenda Stablers' bankruptcy case. Appellants contend
that the bankruptcy judge's decision was barred by
preclusion principles and incorrect on the merits. For the
reasons explained below, this Court affirms.
case has a long procedural history, including a jury trial, a
court trial, several opinions by a South Dakota circuit
judge, two orders from a bankruptcy judge, and opinions from
both the Supreme Court of South Dakota and the Bankruptcy
Appellate Panel (BAP) of the Eighth Circuit. This Court draws
the facts from these prior opinions and orders as well as
from the Appendix filed by Appellants. In 1999, Brad and
his wife Brenda started an agriculture business called
Edmunds County Ag Services, Inc. (ECAS). Stabler v. First
State Bank of Roscoe, 865 N.W.2d 466, 469 (S.D. 2015).
The Stablers funded ECAS by borrowing money from FSBR, whose
president at that time was Beyers. Id. at 469; App.
457. FSBR's loans to the Stablers were secured by liens
on the Stablers' property and a personal guarantee from
Brad. Stabler. 865 N.W.2d at 469; App. 457-58. FSBR
also held mortgages on certain property of Brad's
parents, Stan and Rose Stabler, as security for some of
ECAS's debt. Stabler. 865 N.W.2d at 469-70; App.
liquidated ECAS in 2002 after it proved unsuccessful.
Stabler. 865 N.W.2d at 470. Beyers then discussed
the idea of filing for bankruptcy with the Stablers and
suggested counsel for them to do so. App. 457. Brad and
Brenda filed a Chapter 7 bankruptcy petition in May 2003.
Stabler. 865 N.W.2d at 470; App. 154-79. Brad and
Brenda's bankruptcy schedules listed FSBR as a secured
creditor with a claim for $225, 816.36, although the debt
Brad and Brenda actually owed FSBR at that time approximated
$600, 000. App. 06, 166. FSBR received prompt notice of the
bankruptcy petition. App. 06. Brad and Brenda received a
bankruptcy discharge in August 2003, and FSBR received notice
of the discharge. App. 07. The discharge eliminated
Brad's personal guaranty of ECAS's debt but did not
eliminate FSBR's liens on Brad and Brenda's property.
Stabler. 865 N.W.2d at 470; see also Venture
Bank v. Lapides 800 F.3d 442, 445 (8th Cir. 2015).
March 2004, Beyers convinced all four Stablers to sign a
$650, 000 promissory note along with a collateral real estate
mortgage (CREM) covering nearly all of the Stablers' real
property. Stabler. 865 N.W.2d at 470, 472; App. 458.
The March 2004 note and CREM at least in part refinanced and
secured pre-bankruptcy loans that FSBR had previously made to
ECAS and all four Stablers. Stabler, 865 N.W.2d at
470, 472; App; 08-09, 14. According to the Supreme
Court of South Dakota, the 2004 note and CREM included
"the exact same amount" and "the same form of
debt as existed prior to Brad and Brenda's
bankruptcy." Id. at 470. The $650, 000 note was
divided three ways to others with whom' Beyers or FSBR
had relationships: a $416, 000 note assigned to a partnership
called Schurss, a $213, 000 note assigned to Roger Ernst, and
a $21, 000 note assigned to a company called H&K Acres.
Id. at 472 n.6; App. 08-14. Brad and Brenda paid the
$21, 000 note off, and the other two notes were eventually
assigned to Beyers. Stabler. 865 N.W.2d at 472 n.6;
2004, Beyers assisted Brad and Brenda in getting a $150, 000
loan from Ipswich State Bank. Stabler. 865 N.W.2d at
470; Stabler v. Beyers (In re Stabler). 418 B.R.
764, 766-67 (B.A.P. 8th Cir. 2009). Beyers guaranteed this
loan, which was secured by a lien on Brad and Brenda's
property. In re Stabler. 418 B.R. at 767;
Stabler, 865 N.W.2d at 470. Brad and Brenda used the
Ipswich loan to pay FSBR, although it is not entirely clear
whether they were paying off valid liens and post-discharge
debt or debts that had been discharged in their
bankruptcy. In re Stabler. 428 B.R.
at 767; Stabler. 865 N.W.2d at 470. Brad and Brenda
eventually defaulted on the loan, and the Ipswich State Bank
assigned the debt and security to Beyers. In re
Stabler. 418 B.R. at 767; Stabler. 865 N.W.2d
2007, after FSBR attempted to collect on some of the
Stablers' debt, all four Stablers filed an action in
state court asking the judge to determine how much money they
actually owed FSBR, Ipswich State Bank, Ernst, and Schurrs.
App. 256, 262-65. The Stablers amended their complaint in
2008 to add Beyers as a defendant and assert claims for
fraud, breach of fiduciary duty, and conspiracy. App. 269-77.
The amended complaint alleged that Beyers and FSBR knew that
the debt refinanced in the $650, 000 note had been discharged
in bankruptcy yet misrepresented that Brad and Brenda still
owed this money. App. 273.
and Beyers answered the amended complaint and asserted
counterclaims against the Stablers. App. 491-530. Counts 1
and 2 of Beyers's counterclaim sought to recover on the
loan from Ipswich State Bank and to foreclose on the property
securing that loan. App. 503-06, 521. Counts 3 and 4 of
Beyers's counterclaim concerned the $650, 000 promissory
note. App. 506-08. Count 3 of the counterclaim sought
recovery on the $416, 000 portion Beyers obtained from
Schurrs while count 4 of the counterclaim sought recovery of
the $213, 000 portion Beyers obtained from Schurrs. App.
506-08, 521. Counts 3 and 4 of the counterclaim both stated
that Beyers was "requesting judgment against Brad and
Brenda Stabler only for those amounts determined not to be
discharged in their prior Chapter 7 bankruptcy." App.
507-08, 521. As an affirmative defense, Brad and Brenda
asserted that the debt Beyers sought to recover in counts 1,
3, and 4 of the counterclaim was discharged in bankruptcy.
App. 290, 292, 294.
moved for summary judgment on counts 1 and 2 of his
counterclaim in mid-January 2009. App. 306-07. Before the
state court could rule on Beyers's motion, Brad and
Brenda filed an adversary complaint against Beyers in
bankruptcy court. App. 584-89. Brad and Brenda styled their
filing as an adversary complaint, although in oral argument
to this Court all parties recognized that the filing could
have been by way of a motion. In the adversary complaint,
Brad and Brenda asked the bankruptcy judge to declare that
the debt Beyers sought to recover in his counterclaim was
discharged and to hold him in contempt for violating the
discharge injunction. App. 588.
2009, the state court granted Beyers summary judgment on
counts 1 and 2 of his counterclaim. App. 321-23. The state
court reasoned that a bankruptcy discharge does not eliminate
liens on the debtor's property, that Brad and Brenda had
obtained a loan from Ipswich State Bank after receiving their
discharge, and that they had used some of this loan to pay
secured debts to FSBR. App. 321-22. Because Brad and Brenda
were in default, the state court concluded that Beyers could
foreclose on the collateral securing the loan. App. 321-22.
then moved to dismiss the adversary complaint filed in
bankruptcy court. They argued that the adversary
complaint's allegations concerning the Ipswich State Bank
loan should be dismissed because the state court's
decision on that issue had preclusive effect in the
bankruptcy proceeding. App. 609-10. As to the adversary
complaint's allegations concerning the $650, 000
promissory note, Appellants argued that counts 3 and 4 of
Beyers's counterclaim made clear that he was only seeking
to recover debt that the state court determined was not
discharged in Brad and Brenda's bankruptcy. App. 614-15.
Alternatively, Appellants asked the bankruptcy court to
abstain under 28 U.S.C. § 1334(c)(1) from deciding
whether the debt Beyers sought to recover was discharged in
bankruptcy. App. 615-18. Brad and Brenda responded with
several arguments, including that the Ipswich State Bank loan
and the $650, 000 promissory note were invalid reaffirmation
agreements. App. 636, 644. In bankruptcy parlance, "[a]
reaffirmation agreement is one in which the debtor agrees to
repay all or part of a dischargeable debt after a bankruptcy
petition has been filed." Venture Bank. 800
F.3d at 445 (quotation omitted). Section 524(c) of the
Bankruptcy Code provides that reaffirmation agreements are
unenforceable unless, among other requirements, they are made
before the; discharge and are filed with the bankruptcy
court. 11 U.S.C. § 524(c)(1), (3). Brad and Brenda
argued that the Ipswich State Bank loan and the $650, 000
note were unenforceable because these agreements were never
filed with the bankruptcy court.
July 2009 oral order, the bankruptcy judge dismissed Brad and
Brenda's adversary complaint based on the failure to
state a claim and a decision to abstain under §
1334(c)(1). App. 333-355, 699. The bankruptcy judge found
that the state court's May 2009 summary judgment order
was entitled to preclusive effect and thus barred Brad and
Brenda's claims concerning the Ipswich State Bank loan.
App. 347-48. As for the $650, 000 note, the bankruptcy judge
reasoned that the language of counts 3 and 4 of the
counterclaim undercut Brad and Brenda's assertion that
Beyers was violating the discharge injunction:
With respect to the debts described in counts three and four
of Beyers' state court counterclaim, the analysis is much
simpler. In both counts, Beyers states unambiguously,
"Beyers is requesting judgment against Brad and Brenda
Stabler only for those amounts determined not to be
discharged in their prior Chapter 7 bankruptcy."
Debtors have offered no reasonable interpretation of this
statement that would permit me to conclude Beyers is in any
way attempting to collect, recover, or offset a debt
discharged in debtors' bankruptcy.
If Beyers recovers everything he has requested in counts
three and four of the state court complaint, he will
necessarily recover only those amounts determined not to be
discharged in debtors' bankruptcy and Beyers' efforts
to collect only those amounts cannot and do not violate the
And as was the case with respect to the post-discharge note
described in count one of Beyers' state court
counterclaim, the post-discharge notes in counts three and
four of Beyers' state court counterclaim, which it bears
mentioning were executed in favor of the assurers, not
Beyers, cannot and do not constitute an unenforceable
re-affirmation agreement, because as I indicated earlier, a
re-affirmation agreement necessarily involves a pre-petition
debt that would otherwise be discharged.
Consequently, to the extent it relates to counts three and
four of Beyers' state court counterclaim, debtors'
adversary complaint fails to state a claim upon which relief
can be granted.
bankruptcy judge went on to explain, however, that while he
had "effectively dispose[d]" of the adversary
complaint, Appellants had also asked him to abstain from
hearing the matter under § 1334(c)(1). App. 349.
Analyzing the abstention factors listed in Williams v.
Citifinancial Mortgage Co. (In re Williams), 256 B.R.
885 (B.A.P. 8th Cir. 2001), the bankruptcy judge reasoned
that although the question of whether Beyers violated the
discharge injunction was "clearly a matter of federal
bankruptcy law, " the issue of whether the debt in the
counterclaim was discharged involved state law because Brad
and Brenda were claiming Beyers defrauded them into agreeing
to pay that debt. App. 351-52. Because the state court had
concurrent jurisdiction to decide whether the debt in counts
3 and 4 of the counterclaim had been discharged, the
bankruptcy judge concluded that the best approach was to
defer to the state court to decide the question and to allow
Brad and Brenda to return to bankruptcy court if necessary:
I believe it would be possible, even preferable, to sever
debtors' state court claims, allow the state court to
determine, as it already has with respect to count one of
Beyers' state court counterclaim, whether any of the
debts Beyers is seeking to collect have been discharged. And
if the state court determines, albeit contrary to the express
language of counts three and four of Beyers' state court
counterclaim, any of those debts have been discharged, allow
debtors to renew their complaint. That is not an ideal
solution, but it's better than having the parties
battling. And I use that word advisedly, simultaneously on
two fronts. And it's better than having two courts racing
to decide whether Beyers acted fraudulently.
App. 352-53. Thus, the bankruptcy judge decided to abstain
from hearing the proceeding "[a]s an alternative grounds
for dismissing debtors' complaint." App. 354. The
bankruptcy judge entered a text order stating:
"DISPOSITION: Based on the findings and conclusions
entered on the record, Debtors-Plaintiffs' Complaint
(doc. 1) is dismissed, and this adversary proceeding shall be
closed. The other pending motions are rendered moot."
and Brenda appealed the bankruptcy judge's dismissal of
their adversary complaint. The BAP affirmed the decision to
abstain without ruling on the dismissal for failure to state
a claim. In re Stabler. 418 B.R. at 766 n.2. 769-71.
and the Stablers continued to litigate in state court. In
2011, the state judge granted Brad and Brenda summary
judgment on counts 3 and 4 of Beyers's counterclaim. App.
13, 473. The state judge found that Brad and Brenda actually
owed FSBR $608, 124.55 when they filed for bankruptcy,
that the $650, 000 promissory note was a "reaffirmation
of personal liability for debt that was discharged in their
bankruptcy, " and that this reaffirmation was
unenforceable against Brad and Brenda because it had never
been filed with the bankruptcy court. App. 6, 13-15. The fact
that Beyers had received his interest in the $650, 000 note
from third parties did not change the state judge's
conclusions. App. 13-15. According to the state judge, Beyers
had "concocted a transaction" where third parties
(Schurrs and Ernst) would take promissory notes from Brad and
Brenda for the purpose of recreating personal liability for
Brad and Brenda on discharged debt. App. 13-15. The state
judge described conduct that demonstrated a lack of good
faith and an intent to evade the discharge injunction. App.
13-15. Thereafter, the state court reversed its earlier
decision to grant Beyers summary judgment on count 1 of his
counterclaim because it found that there was an issue of fact
concerning whether Beyers could enforce the Ipswich State
Bank loan against Brad and Brenda. App. 474.
was scheduled on several of the parties' remaining
state-court claims. At the pretrial hearing, Brad and Brenda
dropped their fraud claim and elected to pursue rescission of
the $650, 000 promissory note. App. 431-33, 475. This left for a
jury trial Stan and Rose's claim that Appellants had
fraudulently induced them to sign the $650, 000 promissory
note. App. 475. Part of Stan and Rose's theory of fraud
was that Beyers had misrepresented that Brad owed a large
portion of the debt underlying the $650, 000 note, when that
debt had actually been discharged in bankruptcy and not
properly reaffirmed. App. 475-76, 488; Stabler. 865
N.W.2d at 473. At trial, the state judge gave a jury
instruction explaining the requirements for a valid
reaffirmation agreement and stating that there was a split in
authority concerning when a reaffirmation agreement was
At the time the note and mortgage were signed, there were
courts that had ruled both ways on whether a reaffirmation
agreement to pay discharged debt was needed when the lender
agreed not to foreclose on the borrower, in exchange for the
borrower's promise to pay. At the time the note and
mortgage were signed, there were no binding court decisions
in South Dakota on the issue.
App. 488. The jury returned a special verdict finding that
$439, 100.00 of the $650, 000 promissory note was obtained by
fraud. App. 485.
the state judge held a court trial concerning Brad and
Brenda's rescission claim and whether Beyers could
recover on the Ipswich State Bank loan. App. 456-66; 477. In
a July 2013 opinion, the state judge summarized the facts of
the case as follows:
The opposing parties could not have viewed the case more
differently. According to the Stablers, John Beyers and FSBR
intentionally engaged in a course of conduct intended to
collect money that was no longer owed by Brad and Brenda
Stabler and to defraud Stan and Rose Marie Stabler into
securing that nonexistent debt with their own assets. Beyers
and FSBR attempted to paint an entirely different picture.
Their version of the case portrayed John Beyers as a
beneficent owner of a well-intentioned, small town bank who
was simply trying to help to prevent Brad and Brenda Stabler
from losing their farm. His actions, both personally and as a
representative of FSBR, were portrayed as altruistic.
The jury rejected the theory of the case presented by Beyers
and FSBR. After viewing the same evidence as the jury, I also
reject their depiction of the events and motivations. Based
on all of the evidence presented at the jury trial and the
court trial, these are the facts as I find them to have
Occurred in this case. Each time a fact is stated in this