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Finstad v. Beresford Bancorporation, Inc.

United States Court of Appeals, Eighth Circuit

August 5, 2016

John Finstad; Lorie Finstad, Plaintiffs - Appellants
Beresford Bancorporation, Inc.; Frank Farrar; James Gord; Wendy Gord, Defendants-Appellees.

          Submitted: February 11, 2016

         Appeal from United States District Court for the District of North Dakota - Fargo

          Before SMITH and COLLOTON, Circuit Judges, and GRITZNER, [1] District Judge.

          COLLOTON, Circuit Judge.

         John and Lorie Finstad brought this action alleging Beresford Bancorporation and its president, Frank Farrar, (collectively, "Beresford") breached the terms of an option contract by selling their former farm to James and Wendy Gord. The Finstads also claim that the Gords tortiously interfered with their contract with Beresford. The district court, [2] exercising jurisdiction under 28 U.S.C. § 1332, granted summary judgment in favor of Beresford and the Gords based on the preclusive effect of a prior state-court judgment. See Finstad v. Gord (Finstad I), 844 N.W.2d 913 (N.D. 2014). We affirm.


         The Finstads owned and operated a farm in Ransom County, North Dakota. Beresford held a secured interest in the farmland as the result of several loans it made to the Finstads between 2002 and 2004. In 2005, Beresford instituted foreclosure proceedings against the Finstads. In response, the Finstads filed for protection under Chapter 12 of the Bankruptcy Code. The foreclosure action was automatically stayed.

         In October 2005, the Finstads and Beresford entered into a settlement agreement to remove the farmland from the bankruptcy proceedings. As part of the agreement, the Finstads executed and delivered to Beresford a quitclaim deed, conveying the Finstads' "rights, title and interest in and to the real estate." The settlement permitted the Finstads to remain on the land as tenants and gave the Finstads an option to purchase the property back from Beresford. The option price was the balance of the loans owed to Beresford, plus 8% annual interest and less any lease payments made under the settlement agreement. The Finstads' option was annually renewable through March 15, 2010.

         After executing the settlement agreement, the Finstads made payments totaling $438, 955.57 to Beresford between December 2005 and April 2008. The majority of that sum was the result of a single, unscheduled payment on October 10, 2006, in the amount of $345, 000. That payment was financed by a $375, 000 loan from the Gords, in exchange for which the Finstads issued the Gords a second mortgage on the farmland.

         Beresford sent the Finstads notices of default in March 2007, March 2008, and June 2008. In July 2008, the bank notified the Finstads of its intent to sell the land. Beresford sold its interest in the farmland to the Gords in December 2008 for $64, 438.78, the amount that Beresford asserts was remaining on the Finstads' debt. In early 2012, the Gords commenced eviction proceedings, and the Finstads subsequently moved off the property.

         In January 2012, the Finstads sued the Gords, Beresford, and another bank holding company in North Dakota state court. In that action, the Finstads alleged that the Finstad-Beresford deed was intended to create an equitable mortgage, not to convey title to the land to Beresford. In support, the Finstads produced a letter from Beresford's president and a title opinion for the local grazing association, describing the Finstad-Beresford deed as a "financing vehicle" that was not intended to effect a change in ownership. Beresford's president also submitted an affidavit stating, "Beresford intended to hold only a mortgage interest in the Finstads' lands and the only interest transferred to the Gords by Beresford was itself a mortgage interest." The Finstads sought to quiet title in the land and asked for a declaration of their ownership of the land, subject to its equitable mortgage to Beresford and actual mortgage to the Gords.

         The North Dakota district court dispensed with the Finstads' claims in two separate orders. In October 2012, the court dismissed the claims against Beresford with prejudice, because the bank "has expressly and fully relinquished all claims of a right, title or interest in the subject property." One year later, the court granted summary judgment in favor of the Gords. In this order, the court first found that the Finstad-Beresford deed is "clear and unambiguous on its face, " and that parol evidence was therefore inadmissible to show that the Finstads retained an interest in the property as equitable mortgagors. The court then concluded that the Finstads lacked statutory standing to challenge the Beresford-Gord deed because they did not have an interest in the property and were not persons interested under a deed or writings relating to the property. App. 158 (citing N.D. Cent. Code §§ 32-17-01, 32-23-02). Accordingly, the court dismissed the Finstads' complaint "with prejudice and on the merits." The Finstads appealed only the order granting summary judgment for the Gords, and the North Dakota Supreme Court affirmed. Finstad I, 844 N.W.2d at 918-19.

         After losing their appeal, the Finstads filed this action in federal court against Beresford and the Gords. They alleged breach of contract and conversion against Beresford, intentional interference with a contract against the Gords, and the "tort of another damages" against all defendants. The claim for tort of another damages, which authorizes attorney's fees in certain tort actions, is dependent on the Finstads prevailing on the other tort claims alleged in the complaint. Hector v. Metro Ctrs., Inc., 498 N.W.2d 113, 122-23 (N.D. 1993); see Restatement (Second) of Torts § 914(2) (Am. Law Inst. 1979).

         Beresford and the Gords each moved for summary judgment, arguing that the preclusive effect of Finstad I barred the federal action. The district court granted both motions. The court first ruled that the doctrine of claim preclusion barred the claims against Beresford because they could have been brought in Finstad I. The court then reasoned that the claims against the Gords failed under the doctrine of issue preclusion ...

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