In re: Tri-State Financial, LLC, doing business as North Country Ethanol, Thomas D. Stalnaker v. George Allison. Bankruptcy, appellate practice.
In 2003, a group of Omaha investors transferred two million dollars to Tri-State Financial, LLC., which later transferred almost $800,000 of that money to Tri-State Ethanol Company, LLC. The ethanol company was currently in chapter 11 bankruptcy in South Dakota. Tri-State Financial transferred most of the remaining funds, almost $1.2 million, to one of the ethanol company's vendors.
In 2004, the ethanol company's bankruptcy case was converted to Chapter 7. Tri-State Financial filed a request with the trustee seeking recovery of both of those payments. The Chapter 7 trustee paid the $800,000, and that money was distributed to the Omaha investors.
In 2008, Tri-State Financial also wound up in Chapter 11 Bankruptcy in Nebraska, and a Chapter 11 Trustee was appointed. The trustee from the South Dakota ethanol bankruptcy paid the $1.2 million to the Nebraska Tri-State Financial trustee.
About a year later, the Nebraska trustee filed an adversary proceeding to determine ownership of the $1.2 million. He took the position that the funds were property of the bankruptcy estate. Various investors took different positions. Centris agreed that the funds were part of the bankruptcy estate, but claimed that they were subject to a security interest. Other investors took the position that the funds were held in trust, and were not part of the bankruptcy estate.
In February, 2013, the Nebraska bankruptcy cout ruled that the funds were not part of the bankruptcy estate, but that the estate should be reimbursed for legal fees and expenses. Those expenses were later determined to be as follows: First, the trustee requested almost $36,000 for the fees and expenses in litigating and settling a dispute with the South Dakota trustee. Nobody objected to this amount, or to having it surcharged against the $1.2 million. However, the Nebraska trustee also requested almost $62,000 for the attorney fees and costs incurred in the adversary proceeding.
The Nebraska bankruptcy court once again heard the matter, and ruled that both the $36,000 and the $62,000 were properly surcharged against the $1.2 million.
Dissatisfied by this turn of events, two of the investors appealed to the United States Court of Appeal for the Eighth Circuit. Another party raised a cross-appeal. While the parties raised dozens of issues, the Eighth Circuit noted that they boiled down to two issues: Whether the Bankruptcy Court had properly designated the $1.2 million as not being part of the bankruptcy estate, and whether it had been proper to surcharge the fees and the costs against those funds.
The Court of Appeals, however, did not reach these issues, since it held that the appeal was premature. In particular, a number of investors had raised certain issues in post-trial briefs. Two of the parties argued that the doctrine of judicial estoppel prevented Tri-State Financial from relinquishing claim to the $1.2 million. Two of the parties argued that an earlier release by some parties was dispositive of the case. And two of the parties argued that the Omaha investors should be barred from asserting a claim under the doctrine of estoppel.
These issues had not been addressed by the Nebraska bankruptcy court in either of the orders being appealed. The Court of Appeals conceded that it could take this silence as an implicit rejection. However, it concluded that the better course would be to allow the bankruptcy court to consider those arguments and explain its rationale for accpeting or rejecting them.
For that reason, the Court of Appeals reversed the case and remanded it to the bankruptcy court for further consideration of those issues.
No. Nos. 13-6030 & 13-6036, ___ F.3d. ___ (8th Cir. Feb. 5, 2014).
Please see the original opinion for the court's exact language.
Richard P. Clem is an attorney and continuing legal education (CLE) provider in Minnesota. He has been in private practice in the Twin Cities for 25 years. He has a J.D., cum laude, from Hamline University School of Law in St. Paul and a B.A. in History from the University of Minnesota. His reported cases include: Asociacion Nacional de Pescadores a Pequena Escala o Artesanales de Colombia v. Dow Quimica de Colombia, 988 F.2d 559, rehearing denied, 5 F.3d 530 (5th Cir. 1993), cert. denied, 510 U.S. 1041 (1994); LaMott v. Apple Valley Health Care Center, 465 N.W.2d 585 (Minn. Ct. App. 1991); Abo el Ela v. State, 468 N.W.2d 580 (Minn. Ct. App. 1991).
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