Articles Posted in North Dakota Supreme Court

In 2007, Thomas and Mari Grabanski and John and Dawn Keeley formed Keeley Grabanski Land Partnership for the purpose of purchasing land in Texas. In 2008 the Grabanskis and Keeleys formed G & K Farms for the purpose of farming the Texas land. G & K was insured under the Supplemental Revenue Assistance Payments Program ("SURE"), which was administered by the Farm Service Agency of the United States Department of Agriculture. In 2007 and 2008 Choice Financial Group made a series of loans totaling more than $6.75 million to the Grabanskis and the Keeleys on behalf of G & K. Choice entered into a number of security agreements with G & K and its principals to secure the debt. In 2008 PHI Financial Services, Inc. loaned $6.6 million to G & K, the Grabanskis and their various other business entities. PHI entered into security agreements with the debtors which included a provision granting it a security interest in certain "General Intangibles." The Grabanskis and their business entities eventually defaulted on their loans. Johnston Law Office, P.C. represented the Grabanskis in personal bankruptcy proceedings initiated in 2010, and represented them and their business entities during the following two years in numerous lawsuits stemming from the bankruptcy. In March 2011, PHI obtained a judgment against the Grabanskis and G & K in the United States District Court for the District of North Dakota. G & K received a SURE payment from the federal government for 2009 crop losses. The Grabanskis did not deposit the disaster payment in G & K's North Dakota bank account with Choice because Johnston advised them that Choice would offset the funds against G & K's debt to Choice. Instead, G & K deposited the SURE payment in a new Texas bank account. The Grabanskis then transferred a portion of the SURE payment from the Texas bank account to Johnston's law office trust account through two transactions: one to pay Johnston's attorney fees, and the other for Tom Grabanski's father, Merlyn Grabanski, to indemnify him for monies paid on behalf of G & K the previous year. PHI brought this action against Johnston seeking to recover additional monies based on theories of conversion and fraudulent transfer. PHI later added Choice as a defendant to determine priority of the competing security interests. The district court granted summary judgment ruling PHI's security interest had priority over the security interest held by Choice. Following a bench trial the court ruled the money transferred to Tom Grabanski's father was a fraudulent transfer and PHI was entitled to recover that amount from Johnston. The court also found that a $150,000 payment was fraudulent, but found G & K received reasonably equivalent value for the transfer. The court allowed Johnston to retain $35,000 of the remaining funds, which the court found equaled the value of legal services provided to G & K, but voided the remaining $115,000. A judgment with interest totaling $167,203.24 was entered in favor of PHI. Johnston argued on appeal that the district court erred in holding it liable for any part of the $170,400 the law firm received from G & K's Texas bank account. Upon review, the Supreme Court reversed the award of prejudgment interest and remanded for recalculation. The Court affirmed in all other respects. View "PHI Financial Services, Inc. v. Johnston Law Office, P.C." on Justia Law