Forbes Equity Exchange, Inc. v. Jensen, 2014 ND 11

Background

Jensen owned a South Dakota cattle feedlot (1998–2009) and leased it to Sieh; written lease expired in 2003 but parties continued under oral arrangement. Sieh provided feed/care for Jensen’s cattle and credited rent against charges.
Sieh purchased feed from Forbes Equity Exchange, Inc. (FEE). FEE sued Sieh and Jensen in 2010 for unpaid corn; FEE later withdrew its claim against Sieh after Sieh assigned to FEE his claims against Jensen for feed/care charges.
Sieh assigned his potential claims against Jensen to FEE in March 2011; FEE amended its complaint to add those assigned claims. Sieh filed Chapter 7 bankruptcy in December 2011 and received a discharge.
At a November 2012 bench trial the district court dismissed FEE’s direct claim for unpaid feed but found Jensen owed FEE $803,501.48 on the assigned claim (i.e., amounts Sieh billed Jensen less rent/credits).
Jensen claimed a large offset (about $3.56M) for various alleged debts by Sieh to Jensen; the district court found Jensen produced no credible evidence of such claims after 2003 and admitted FEE’s summary Exhibit #5 (with underlying exhibits) as proof.
Jensen appealed, arguing (1) FEE as assignee took Sieh’s claims subject to defenses but not to Sieh’s later bankruptcy discharge, (2) Exhibit #5 was improperly admitted without all underlying Pro Mini invoices, and (3) the judgment on the assigned claim was erroneous.

Issues

Issue	Plaintiff's Argument (FEE)	Defendant's Argument (Jensen)	Held
Whether assignee (FEE) is subject to Jensen’s offset based on Sieh’s claims	FEE: took assignment subject to defenses existing at assignment; no valid mutual debt existed to offset FEE’s claim	Jensen: Assignment occurred before Sieh’s bankruptcy, so FEE stepped into Sieh’s shoes and cannot rely on Sieh’s later bankruptcy discharge to avoid offsets	Court: Affirmed district court — no credible evidence of a pre-assignment mutual debt exists, so no offset; therefore no need to resolve discharge issue
Whether Sieh’s bankruptcy discharge prevents use of offsets by obligor	FEE: even if relevant, district court found no mutual prepetition debt, so §553 setoff inapplicable	Jensen: Bankruptcy filing after assignment does not affect rights measured at assignment; FEE cannot claim discharge defense	Court: Declined to decide discharge issue because factual finding that no offsetable claim existed was not clearly erroneous
Admissibility of Exhibit #5 (summary of bills) under Rule 1006	FEE: summary supported by numerous underlying exhibits (Exhibits #6–#57); foundation laid and originals available at trial	Jensen: Underlying Pro Mini invoices (binders) were not produced; summary therefore unreliable and prejudicial	Court: No abuse of discretion — foundation established via underlying exhibits; Jensen had opportunity to examine supporting docs; Rule 1006 complied with
Sufficiency of evidence supporting judgment on assigned claim	FEE: introduced daily feed sheets, individual bills and summary showing amounts owed after credits/rent	Jensen: Disputed billing amounts and claimed various counterclaims/credits but produced no specific documentation to refute Exhibit #5	Court: Findings not clearly erroneous; ample evidence supports judgment for FEE on assigned claim

Key Cases Cited

Brash v. Gulleson, 835 N.W.2d 798 (N.D. 2013) (bench-trial factual findings reviewed for clear error)
Global Fin. Servs., Inc. v. Duttenhefner, 575 N.W.2d 667 (N.D. 1998) (assignee takes subject to defenses existing at time of assignment)
Collection Ctr., Inc. v. Bydal, 795 N.W.2d 667 (N.D. 2011) (assignee stands in assignor’s shoes; setoffs must be based on facts existing at assignment)
Dakota Partners, L.L.P. v. Glopak, Inc., 634 N.W.2d 520 (N.D. 2001) (setoff requires mutual debts)
In re Sauer, 223 B.R. 715 (Bkr. D.N.D. 1998) (elements for bankruptcy setoff under 11 U.S.C. § 553)
Schwab v. Zajac, 823 N.W.2d 737 (N.D. 2012) (trial court’s evidentiary rulings reviewed for abuse of discretion)