*1 SERVICE NORTH DAKOTA PUBLIC

COMMISSION, Petitioner

Appellee, FARMERS COOPERATIVE

WOODS Leonard, COMPANY,

ELEVATOR Dakota, Appel Respondent

lee, Company, Mutual Insurance Appellant.

Respondent and No. 910209.

Civ.

Supreme of North Dakota. 11, 1992.

June

ERICKSTAD, Justice. Chief Compa Farmland Mutual Insurance ny (Farmland), surety on a warehouse man’s Coopera bond for Woods Farmers Company (Woods), appealed tive Elevator judgment requiring a district court pay to to the North Dakota Public Service (PSC) $780,000 Commission sum for payment of claims accordance with report recommendation, the PSC’s and as amended court. district We affirm (argued), Atty. part W. Binek Asst. modify judgment.1 William and Gen., Com’n, Capitol, Public Service State Woods, grain warehouse, a licensed filed Bismarck, petitioner appellee for and petition liquidation for under Chapter Dakota Public Service Com’n. 13, of the Bankruptcy April on Code 1989. Office, respondent for Fargo, Kaler Law Wayne appointed Drewes was trustee of Drewes, appellee Bankrupt- as Wayne and the bankruptcy May 22, On estate. Co-op. cy Trustee for Woods Farmers Ele- the bankruptcy court lifted the automatic Co.; argued by Kip M. Kaler. vator stay of 11 permit U.S.C. 362 to the PSC McNair, Carlson, Ltd., Fargo, Larson & pursue against to claims Woods’ ware- respondent appellant for and Farmland 7, 1989, houseman’s bond. On June Co.; argued by Ins. Bruce H. Mut. Carlson. bankruptcy court authorized Drewes to sell Hauff. Appearance David J. in Woods’ facilities and to incur necessary expenses reasonable and in sell- Serkland, Erickson, Lundberg, Marcil & ing grain. Drewes sold the for McLean, Ltd., Fargo, amicus for curiae St. $1,603,459.94. The court au- Cooperatives; argued by Bank for Paul thorized Drewes to distribute monies in the Roger J. Minch. grain fund and to withhold fees and ex- Bottrell, Bailly, P. Anderson & Lowell penses totaling $118,781.86,which included Fargo, for amicus curiae Roesler Land & fees, fees, attorney a fee to Chaf- Cattle, Roger Lynnes McDonald & Carman ee-Lynchberg Elevator Farmers for assist- Lynnes Brian Farms & McDonald. d/b/a ing liquidation in the transporta- filed. Brief expense, storage tion fees. Jay Carlson, David T. DeMars and D. 13, 1989, Turman, On Fargo, & for amicus November the district court DeMars curi- appointed Nygard. statutory ae E. Brief filed. the PSC as James trustee un- amendment, report requires 1. The Farmland to “immedi- PSC’s and recommen- ately pay over to the North Dakota Public Ser- payable dation would show a total to claimants deposit $338,014.44. Commission for in the Trust Fund 22, 1990, vice the sum of August as of Instead $780,000, penal is the sum of $780,000 ordering pay the PSC $780,000 necessary will the bond.” Less than fund, deposit we direct pay report to recommendation, the claims on the bond. its judgment be to order modified Farmland to reported pay- the PSC “a total immediately deposit necessary pay ap- funds 22, 1990, August able $289,066.44.” claimants claims, court, proved as amended the trial reported The PSC also that inter- plus accrued since interest that has continuing request- to accrue. The PSC est presented report its and recommendation to the ed that trial court order Farmland "to imme- trial court. This will modification necessary diately deposit claims, pay approved funds necessary PSC with the funds claims interest, plus into the trust fund.” report, allowed in as amended its the trial report PSC’s al- The and recommendation court, interest, plus and will be in accord with $63,- Nygard’s James E. claim for lowed 938.83, durum request its that the trial court order Farmland $48,948.00. but reduced offset of an immediately deposit necessary "to funds report trial court The ordered the recom- claims, interest, approved plus into the trust Nygard’s amended to mendation allow fund.” $63,938.83, Adjusted without offset. belonging to a 60-04, N.D.C.C., against property der Ch. proceedings. Bankruptcy debtor proceeding the warehouseman’s distributing proceeds. Bankruptcy The “3. The United regarding and recommendation the claims issued PSC Court’s Orders Farmland, judicata.” claimant Nygard are res August on James E. *3 objected to Nygard, and Drewes James E. (1) that PSC’s ordered: the The trial court Af- report recommendation. the and PSC’s “is ordered recommendation and 1990, hearing the December ter a on for E. allow a claim James amended to fact, findings of conclu- issued trial court $63,- Nygard durum in the amount of for law, May order on and an sions of 938.83, interest on that together with grain that the on court found The trial $48,948.00 or for amount without setoff insolvency was suf- in the elevator at hand (2) reduction”; “deposit any that Farmland it; that pay claims the to ficient bond, $780,000.00, the total amount $118,781.86that Drewes deducted costs of for in inclusion with the [PSC] were reasonable proceeds from the (3) all account”; “pay and that Nygard necessary; James E. and that and Report and established also a debtor a claimant and was was Trustee as amend- Recommendation unpaid an check he had issued because of accordingly entered Judgment ed.” was $48,948.00. The court also for Woods appealed. and Farmland found: “liability on contends that Farmland Report The and Recommendation by

“4. Law irre- is determined State the bond Mr. a claim Nygard allows spective of the Trustee of how was handled 11,689 for a total that Tri- Bankruptcy for bushels durum Court” and “[t]he However, $63,938.83. holding Bank- claim of that the ticket al Court erred claim ruptcy is a contract advance of determination claim reduced Court’s $48,948.00, Nygard judicata.” res leaving proposed a allowed of James E. $14,990.83, for a with interest claim ap- primary disputes in this One of the $17,088.10. proposed total distribution of regard Nygard’s durum peal is with Trustee, Bankruptcy Nygard Mr. and the $63,938.83, for claim Drewes, Wayne object any setoff of allowed, court but which Mr. Nygard owed liabilities trustee did not because there was Elevator. Woods insol- hand at the time of Woods’ durum on have Bankruptcy Court. Bankruptcy ly objected to Mr. volved Farmland has out full matic “6. claim of any ^[*] they stay The setoff. Neither obtained ^[*] participated PSC and Court. $63,938.83 perform appealed that ^[*] relief from Farmland Nygard’s claim in Farmland were in- Nevertheless, was allowed ^[*] setoff.” the PSC or Order, process ^[*] specifical- auto- with- ^[*] nor The ruptcy court’s orders Nygard however, of James E. vided that order an offset. The ruptcy Nygard had issued to Woods. The bank- vency, claim should be an offset of trial court allowed the would that the court concluded when the claim was with $49,948.00 Nygard paid regard are “regarding in full or $48,948.00 trial claim res to whether that an that judicata” unpaid reduced the claims the bank- paid, check.” did not found, check “pro- Mr. following Nygard’s court made the conclu- durum The trial ordered that $48,- $63,938.83 sions of law: “without setoff for 948.00 or reduction.” is liable on its bond for “1. Farmland claims, fees, including Trustee’s ex- all determine, Although we need not penses, and costs. did, as the trial court regarding Nygard's claim Bankruptcy court’s orders “2. The United judicata, that jurisdiction to and debt are res we believe has exclusive re- court’s orders determining deference to setoff and issues solve argues bankruptcy pro this warehouseman’s that it is entitled to a credit ceedings appropriate. proceeds As result of amount of not distributed to rulings, rights bankruptcy court other have claimants. The trial decision court’s $118,781.86 Cooper The makes intervened. St. Paul Bank Farmland liable for perfected security grain proceeds by atives has a interest in from withheld receivable, including Ny- bankruptcy Woods’ accounts costs and fees. gard’s $48,- 60-04-09, check unpaid argues to Woods for subject Nygard’s 948.00. durum to a authorizes the deduction government of expenses loan when he sold it Woods. trust fund assets incurred $48,948.00 PSC, Nygard gave “[tjhere require- Woods a check for but that is no purchase replace bonding spring wheat to the ment that the company be liable *4 spring then or durum. The wheat was sub other fees costs other than those ject by government argues to the loan and has been incurred the PSC.” Farmland Commodity Corpora the accepting forfeited to the Credit trial court erred in the recommendation, intervening equities suggest tion. Such PSC’s which desirability the of deference to the bank did not for offsets under 60-04- 09, suggest N.D.C.C., ruptcy Nygard decisions. Further than court’s other as to the ing appropriateness the of such deference claim. is essentially arguing comity among liability is a need for coordinate that its limited to what it would upon disputes PSC, courts called to resolve aris have been if the rather than the bank- ing upon insolvency ruptcy trustee, public liquidated the of a ware in grain had Litigation in in disagree. houseman. state court and Woods’ We facilities. possibility court raises the of 60-02-09, N.D.C.C., Section requires an rulings inconsistent on similar issues. We applicant public for a li- warehouseman’s give will ordinarily effect to cense to file a “for the benefit of all a comity decisions as matter of persons storing selling grain such in avoid the prospect “the state and federal warehouse ... conditioned faithful ... [on] results, reaching courts ... different ulti performance of the licensee’s duties as a mately resulting in unseemly unneces public specif- warehouseman” and “for the sary sought each properly conflict as ic of: enforce its determinations” Ban [NoDak “a. Protecting holders of outstand- corporation Clarkson, 140, v. 471 N.W.2d ing receipts. (N.D.1991) Thus, 144 pass we will ].2 on in anew decisions made Covering “b. the costs incurred bankruptcy proceedings by deciding the is in commission administration appeal though sues raised in this chapter in 60-04 of the event liquidated grain PSC had in Woods’ insolvency.” licensee’s facilities had and there been no 60-04-03.1, that, provides Section proceedings. warehouseman, upon insolvency of a of, grain consisting

The trial court found that on fund among other insolvency things, hand at grain pro- Woods elevator at in the warehouse or bond, grain sufficient to and the claims ceeds warehouseman’s “shall However, it. receipt Drewes did not distribute established for the benefit $200,000 grain approximately pro- holders the insolvent warehouseman and ceeds to grain claimants3 and Farmland incurred costs the [PSC] Clarkson, Although Bancorporation v. NoDak which the on allocates supra, claimants, preemption, dealt with rather than comi- hand is different from ty, both seek doctrines to avoid different results procedure liqui- the PSC it used when unnecessary conflict state between and fed- dates held an insolvent warehouseman. eral courts. $63,938.83 Nygard’s durum was not there because grain proceeds 3. Some the withheld not dis- durum on hand at the time of Woods’ tributed to claimants was due fees and insolvency. expenses and some was due manner

864 (N.D. 405, vator, Inc., 422 N.W.2d chapter.” Sec- of this the administration 1988), Public Serv. 60-04-06, N.D.C.C., quoting Dakota provides that tion Ass’n, Valley Bean of Comm’n v. Farmers bring the benefit may PSC suits (N.D.1985). purpose of mar- N.W.2d receipt “[T]he holders “for all and trust fund exists the benefit fund assets shaling of the trust all grain.” unpaid North Dakota among receipt sellers distributing the same provides the Public Serv. Comm’n Central That also section holders.” (N.D. Grain, Inc., 371 N.W.2d shall exercise re- the PSC order which 1985). (1) said Central fund As we further against the trust assets: course Grain, (3) at 779: supra, 371 N.W.2d (2) grain, the ware- States insurers of bond, (4) person honestly houseman’s requiring overriding purpose of “The converting grain, unless deems protect bonds is to all warehouseman’s pursue at the necessary all its remedies persons sell or deliver to a who 60-04-09, N.D.C.C., same time. Section surety’s liability A warehouseman.... part: provides on is conditioned on the faithful a bond “Upon receipt and evaluation public performance of a warehouseman’s it, filed shall with the commission under the law. We believe to be duties *5 report showing the the a file with beyond dispute that of a warehouse- one validity of each claim after amount is to for man’s duties under the law recognizing: (Cita- purchased.” that it grain has

[*] ^[*] ^[*] ^[*] ^[*] ^[*] tions omitted.) prove modify bond posed order fund, from its trust.” mission sets, chapter, to are determined.... interest Dakota since the rate ing on the date of the cy- of advances or offsets accrued of based warehouse “Following hearing, “5. “The “3. Deductions therefrom ^[******] less proceeds, distribution directing or distribution ^[*] In the charged report warehouseman. expenses incurred at discharge of the commission upon claimants the administration of ^[*] receipts, the amount there- payment of the must case the market by weighted average prime of the ^[*] date of the insolven- of scale tickets or also contain a as their interests insolvency, with Bank trust ^[*] and issue price prevail- by reason necessary the trust the com- shall fund ^[*] in favor North pro- this ap- as- an ^[*] proceeds placed in cy uidated N.W.2d at 540. PSC after Central States Grain filed warehousemen with the ing the PSC the trustee of insolvent said N.D.C.C., as house 219 quantity of deeming warehouseman is liable to the In the case of stored “The Comm’n Valley Farmers Bean Code. possible.” relief under delivery N.W.2d receipts did in the North Dakota Central obvious receipt.” Section Dakota Public by bankruptcy not recover either the their warehouse for the v. R.F. is to The a of the grain for as close to their State ex rel. Public Serv. States proceeds Chapter aid Gunkelman & 859 kind, called for receipt (N.D.1974). fund, Grain, supra, 60-02-22, Ass’n, supra, grade, Serv. duty of the sale were receipts of the facility Chapter account. The but holders by the Comm’n v. grain quality, “[a] Sons, Inc., redeeming Bankrupt- proceeded owner a appointed full N.D.C.C. See also by petition 60-04, public ware- value mak- liq- re- against 60-04, provides “an the warehouseman’s bond. The Chapter company insolvency procedure ‘designed bonding National Insur- [Millers argued receipt Company] holders ance that “because there prompt method to recov ” inventory to claims.’ was sufficient sunflower cover er their North Dakota Public claims, not be Ele all valid Millers should liable Comm’n v. Jamestown Farmers Serv. any proceedings.” amount in these ance of trustee’s duties. Grain, supra, is, therefore, Central N.W.2d any liable for held, at 774. This court however: loss suffered CCC a result of dete- quality rioration in the of the “Where, case, while inas there is in effect it was in custody and control of the ‘grain in said warehouse’ 60-04- [§ bankruptcy trustee.” 02(1), at the time the is PSC N.D.C.C.] trustee, appointed may PSC seek to We held bonding company was not penal recover the sum of the warehouse- liable for losses caused deterioration in man’s bond for inclusion the trust the quality of the resulting from the fund. We conclude that under the cir- bankruptcy egregious trustee’s neglect of case, cumstances of this district court while it custody his had authority case, enter control. In this there has been no though Millers even any neglect the PSC assertion of part on the steps trustee, took no attempt to recover the and Jamestown Farm- proceeds Elevator, Inc., of the sale ers inapposite.

trustee of CSG’s sunflower inventory.” To limit coverage urged by manner Grain,

Under Central States Farmland “would effec tively exposure protection reduce the liability receipt holders available to producers for surety whose protection on a benefit and warehouseman’s bond is re designed.” statute was only duced receipt Valley to the extent that the Farm Ass’n, ers Bean supra, holders are 365 N.W.2d at able to recover from the bank Under our governing grain statutes ruptcy trustee. The ware warehouseman’s bond houses, grain receipt can holders are be reached for entitled to Only shortfall. *6 whole, be made possible, if through such when a a construction of ware the relevant houseman becomes may statutes insolvent. A ware settling “law’s required houseman is legitimate to furnish a producers demands of bond to those protection producers that who store or to sell with an who insolvent deliver storage. sale or warehouseman” The re be met. Central States ceipt Grain, holders in this case have not supra, 371 been N.W.2d at 779. is, made therefore, whole. Farmland liable Relying on North Dakota Public Serv. under its bond to the extent necessary to Elevator, Comm’n v. Jamestown Farmers receipt make the holders whole after de Inc., supra, Farmland contends that it ducting they what have received from the should not be liable on the warehouseman’s bankruptcy trustee. We conclude that the bond because precipitated “the acts which trial properly held Farmland so liable. the claims the bond were those place subsequent which took Bankruptcy to If Farmland believes it is entitled to and over which the warehouseman could a credit for the grain proceeds amount of placed not have control or influence.” not grain claimants, distributed to Farmland’s reliance on that case is mis- should not responsible be held paying placed. represents That case bankruptcy narrow ex- trustee’s costs and ex ception liability expressed to the rule of penses they because should not have been such cases as Sons, R.F. Gunkelman & grain proceeds, withheld from the or is Inc., Valley Ass’n, Farmers Bean offsets, and entitled to the deduction of its rem Central States Grain. In edy Jamestown is not receipt to leave unpaid holders Elevator, Inc., Farmers supra, 422 but to seek relief in bankruptcy pro N.W.2d at we held: ceedings. paid Once Farmland has holders, receipt claims of may it seek 60-04-02, “Under 60-02-09 relief §§ in the bankruptcy proceedings. required Farmland was See re to in- Woerner, (Bkrtcy.D.Kan. 19 B.R. only sure performance JFE’s faithful 1982): public its duties as a warehouseman. require The statutes did 509(a) not recognizes Farm- “Section arrange- this land’s perform- bond insure the grants faithful ment and party third heard, participate case not did to the creditor’s

right subrogation this decision. payments on behalf claim when subroga- made. The actually are debtor WALLE, Justice, concurring in VANDE 509(a) extend to both rights tion under dissenting part. part and (Citations omit- and sureties. co-debtors of the position me that the It seems to right surety ted.) Thus the with a un- creates an inherent bankruptcy trustee one place in the subrogation stands otherwise, fairness, intentional or whether paid.... has United whose claim he handling payment of the the trustee’s when Co., 332 U.S. Munsey Trust States v. proceeding re- of claims 1599, 1603, 234, 242, 91 L.Ed. 67 S.Ct. bonding company more quires the (1947).” required have been than would (Bkrtcy. Hall, B.R. 425 In re See also proceeding. no there had been 1989), Mu holding that Farmland N.D.Iowa trustee, particularly This is true when bonding compa Company, a tual Insurance position bonding company, is in a not the paid filed a farmer ny that had a claim sell and dis- take control of grain merchant unpaid who was when dispose proceeds without burse had filed a bank to whom he sold regard bonding company’s interest case, claim in the bank ruptcy could file a of certain other credi- and to the benefit noted: ruptcy case. The court Hall also tors. bonding compa obligation “It of the is the may Although the trustee’s actions cre- ny good loss to Cowan to make [the unfairness, ap- may that unfairness ate had unpaid farmer who sold But, in this many instances. propriate Id., at 428. Hall.]” instance, magnified by that unfairness as- are concerned with dissent’s We Nygard off- majority’s treatment of the “the position sertion that Bankrupt- I set. am not convinced an inherent unfairness” and trustee creates off- cy considered the matter judicata. to the doctrine of res reference in a which it intended would be set manner may The fact that judicata subsequently Nygard res when dispose of of how to have a different view estate upon liquidation grain claims on hand at the there was durum because *7 than held warehouseman by an insolvent insolvency any other funds time of the nor ought not be this court or either pay which to the claim. Thus Al- bankruptcy to the trustee. attributed bankruptcy that court trial court found though the trial court concluded paid, when the claim was “provided that Nygard orders on the $48,948.00 court Nygard Mr. would judicata, not made are res we have import I not understand the check.” do fact, In we have such a determination. that Bank- finding. that Does mean that, suggested if it believes it is entitled say that “al- ruptcy Court intended offsets, reme- claim, Farmland’s your deduction though going are not we dy relief in is “to seek Nygard, Mr. whenever and whomever proceedings.” paid, cannot It is the offset be allowed?” not to me that the court is clear stated, judgment is the reasons For intended its statement to bind the State affirmed as modified. application of the State law LEVINE, JJ., governing warehouse bonds. MESCHKE JAHNKE, Judge, E. District LAWRENCE I for deference out- understand need concur. majority opinion lined in and in the JAHNKE, Judge, proper intent of the E. District instance when the LAWRENCE unequivocal I is to fill the clear and sitting as a Court member I not resignation Jus- that deference. do by the would render vacancy created Johnson, appropriate case in agree not this is the tice Gierke III. Justice H.F. I am not convinced that at the time to defer because being a member of or the s majority trial court construc tion of the decision court’s

intended under these circumstances. proof clear that absence of the bank

ruptcy court intended its statement con

cerning the offset the normal restrict

application our State law instance which the claim

bankruptcy proceeding, I would not con

clude the judicata judi doctrines of res applicable

cial are or appropriate deference Nygard

proceeding under State law. State v. C.f. Liberty Co., Bank Nat. and Trust (N.D.1988)

N.W.2d 307 are reluc [Courts

tant preemption to infer it is burden claiming

party position prove it] denied,

cert. U.S. S.Ct.

102 L.Ed.2d 382. See also Lohnes

Cloud, (N.D.1977) 254 N.W.2d 430 [Princi

ple Comity not a rule of law and does

not exist matter right, but discre

tion of court].

I would affirm the decision of the trial Nygard

court except insofar as the offset matter, As concerned. to that I would

reverse trial court and applicable portion

reinstate the of the Pub- report.

lic Service Commission’s *8 ENNIS,

Edward Petitioner Appellant, SCHUETZLE,

Timothy Warden Penitentiary,

North Dakota State

Respondent Appellee. No. 920027.

Civ.

Supreme Court of North Dakota.

June 1992.

Rehearing July Denied