Farmers State Bank of Trimont v. Rabbe

Farmers State Bank of Trimont, Appellant, v. Joel S. Rabbe, Respondent,Kristen C. Rabbe, Respondent,Jon E. Rabbe, Respondent,Debra A. Rabbe, Respondent,Joyce L. Rabbe, Individually and as Trustee ofthe Residual Trust Created Pursuant to Article VII ofthe Last Will and Testament ofJohn J. Rabbe of August 13, 2007, Respondent,andRabbe Farms, LLP, Defendant,Rabbe Ag Enterprises,LLC, f/k/a Rabbe Ag Enterprises, Defendant,John Doe, et al. Defendants.

A19-0707

STATE OF MINNESOTA IN COURT OF APPEALS

December 30, 2019

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2018).

Affirmed in part, reversed in part, and remanded

Cochran, Judge

Martin County District Court

File No. 46-CV-18-74

Dean M. Zimmerli, Dustan J. Cross, Gislason & Hunter LLP, New Ulm, Minnesota (for appellant)

Joel S. Rabbe, Trimont, Minnesota (pro se respondent)

Kristen C. Rabbe, Trimont, Minnesota (pro se respondent)

Jon E. Rabbe, Trimont, Minnesota (pro se respondent)

Debra A. Rabbe, Trimont, Minnesota (pro se respondent)

Joyce L. Rabbe, Trimont, Minnesota (pro se respondent)

Considered and decided by Bjorkman, Presiding Judge; Cochran, Judge; and Smith, John, Judge.^*

UNPUBLISHED OPINION

COCHRAN, Judge

Appellant-bank challenges the district court's grant of summary judgment in favor of respondents-debtors. Appellant argues that the district court erred by (1) determining that appellant's termination of farmland leases was ineffective; and (2) interpreting respondents' bankruptcy plan to deduct, from the amount owed to appellant, the totalamount of the debt owed to a senior creditor rather than only the appraised value of the creditor's relevant collateral. We affirm in part, reverse in part, and remand.

FACTS

The facts of this case are undisputed. Respondents are Joel Rabbe, Kristen Rabbe, Jon Rabbe, Debra Rabbe, and Joyce Rabbe (Rabbe Individuals), as well as Rabbe Farms, LLP (Rabbe Farms) and Rabbe Ag Enterprises, LLC (Rabbe Ag), two farming companies owned by certain members of the Rabbe family.¹ In 2013 and 2014, Rabbe Farms entered into two promissory notes in favor of appellant Farmers State Bank of Trimont (FSB) totaling approximately $17 million. And in 2015, Rabbe Ag entered into a promissory note with FSB with a principal amount of $500,000. These loans were secured by (1) a security interest "in essentially all items of personal property of Rabbe Ag, including all of Rabbe Ag's machinery and equipment"; (2) a mortgage in the amount of $2 million ($2 million mortgage), which granted FSB a mortgage lien in 503 acres of farmland owned by Rabbe Farms (Rabbe Farms Farmland); and (3) a mortgage in the amount of $15 million ($15 million mortgage), which granted FSB a mortgage lien in, among other things, 1,282 acres of farmland owned by the Rabbe Individuals (Rabbe Individual Farmland).

In June 2014, Rabbe defaulted on the loans. FSB then commenced a foreclosure action against the Rabbe Individuals, seeking to foreclose the $15 million mortgage against the Rabbe Individual Farmland. A judgment and decree of foreclosure was entered inMarch 2016, and FSB was the high bidder on the Rabbe Individual Farmland at a subsequent sheriff's sale. The district court later confirmed the foreclosure sale of the Rabbe Individual Farmland in July 2016, and FSB became the fee owner of this farmland after none of the Rabbe Individuals timely redeemed.

In the meantime, in September 2015, Rabbe Farms and Rabbe Ag filed for chapter 11 bankruptcy protection. Rabbe, FSB, and other creditors subsequently engaged in mediation, and on July 8, 2016, the parties reached a settlement. The settlement, which was approved by the Bankruptcy Court on October 31, 2016, was to be primarily implemented through two reorganization plans, one for Rabbe Ag (Rabbe Ag Plan) and one for Rabbe Farms (Rabbe Farms Plan).

The Rabbe Ag Plan was confirmed by the Bankruptcy Court in April 2017. This plan related to security interests in farm equipment held by Rabbe Ag's creditors, which included FSB. FSB's security interest in this equipment was senior to the security interests held by other creditors, except with respect to a John Deere 9530T Track Tractor and a Caterpillar 320DL excavator. John Deere Credit (John Deere) had a first priority security interest in the tractor, securing a claim in the amount of $211,054.59, and AgDirect had a first priority security interest in the excavator, securing a claim in the amount of $53,887.36. FSB had a second priority security interest in both the tractor and the excavator.

The Rabbe Ag Plan allowed Rabbe to choose between one of two options to satisfy FSB's allowed secured claims. Rabbe Ag could either (1) auction the equipment in which FSB had a security interest and pay FSB a portion of auction proceeds less certain otheramounts (auction option), or (2) retain the equipment and pay FSB a portion of the appraised value of the equipment less certain other amounts (buyout option).

Rabbe Ag elected the buyout option. As part of the buyout process, Gehling Auction Co. inspected the Rabbe Ag equipment, and issued a written appraisal valuing the equipment at $914,750. The appraisal included the John Deere tractor, which was appraised at a value of $120,000. Following a supplemental appraisal, as well as the addition of several items of equipment, the total value of the appraised equipment increased to $922,750.

The parties could not agree on the amount of the payment required to complete the buyout option. The dispute involved the value of John Deere's "senior security interest" in the tractor under the terms of the buyout option of the Rabbe Ag Plan. FSB claimed that the value of John Deere's "senior security interest" in the tractor was $120,000, the appraised value of the tractor. Conversely, Rabbe claimed that the value of John Deere's "senior security interest" in the tractor was $211,054.59, the full amount of John Deere's allowed secured claim arising from the debt that Rabbe Ag owed John Deere.

In addition to the Rabbe Ag Plan, the Rabbe Farms Plan was also confirmed by the Bankruptcy Court in April 2017. Pursuant to the terms of the Rabbe Farms Plan, the Rabbe Farms Farmland was conveyed to FSB via quitclaim deeds, making FSB fee owner of both the Rabbe Farms Farmland and the Rabbe Individual Farmland. The Rabbe Farms Plan also required FSB to lease the Rabbe Individual Farmland and the Rabbe Farms Farmland to Rabbe Ag for the 2017 and 2018 crop years at $185 per tillable acre.

FSB entered into separate leases with Rabbe Ag for each farmland. The leases contained identical terms and required that rent be remitted in equal installments on or before November 1 of each year. The leases also provided that if Rabbe Ag failed to make the rent payments when due, FSB could "re-enter and take possession of the above rented premises, and hold and enjoy the same without forfeiting the rents to be paid by [Rabbe Ag] for the full term of [the] lease."

Rabbe Ag failed to make any payment on the leases by the November 1, 2017 deadline. FSB subsequently sought to terminate the leases by recording Notices of Lease Termination in the county recorder's office on November 13, 2017. Each notice stated that FSB "hereby provide[s] to Rabbe Ag . . . notice of termination" for failure to tender rent payment by November 1, 2017. Each notice also stated that "[p]ursuant to the terms of the Lease, [FSB] has elected to re-enter and take possession of the leased premises."

FSB never served the Notices of Lease Termination on Rabbe Ag, and Rabbe Ag was not otherwise notified of the termination of the leases. On November 14, 2017, Joel Rabbe went to FSB and paid the first rent installment for each of the leases. FSB's president personally accepted the payments on behalf of FSB. Neither FSB's president, nor anyone else from FSB, informed Joel Rabbe or any of the other Rabbe Individuals that FSB had recorded notices of termination the day before.

On December 29, 2017, FSB commenced this action against Rabbe seeking a declaratory judgment that the leases between FSB and Rabbe Ag were terminated due to Rabbe Ag's default. FSB also sought a judgment for breach of contract, breach of the covenant of good faith and fair dealing, and claim and delivery of the Rabbe Ag equipment,related to Rabbe's alleged breach of the Rabbe Ag Plan. Rabbe subsequently moved to dismiss the complaint. On March 29, 2018, the district court denied Rabbe's motion with respect to the counts related to the lease agreements, but granted the motion to dismiss the three claims related to the alleged breach of the Rabbe Ag Plan on the grounds that the claims were subject to mandatory farmer-lender mediation. The district court dismissed these claims without prejudice.

In August 2018, after the parties failed to reach an agreement in the mandatory farmer-lender mediation, FSB moved to amend the complaint to reassert the previously-dismissed claims related to the satisfaction of FSB's security interests. The district court permitted the amendment. FSB then moved for summary judgment, seeking (1) a judgment declaring that the leases between the parties terminated following Rabbe Ag's failure to tender the 2017 rent payments on November 1, 2017; and (2) either delivery of the Rabbe Ag equipment, or payment of $205,037.01 to FSB, which represented the amount FSB claimed Rabbe owed under the buyout option of the Rabbe Ag Plan. Rabbe filed a cross-motion for summary judgment, seeking a judgment declaring that the leases were not terminated. Rabbe also claimed that FSB was required to accept $102,193.78 for the equipment under the buyout option. The difference in the two proposed buyout amounts relates primarily to the different amounts that the parties assign to the deduction for John Deere's security interest in the tractor.

The district court determined that FSB failed to terminate the leases because (1) "Minnesota's landlord-tenant law indicates that notice to a...