Blogs

In Zaitz Trust, LLP v. Bremer Bank, No. 18-6031 (8^th Cir. BAP), the BAP remanded to the bankruptcy court with instructions to specify the basis upon which it granted  summary judgment, or in the alternative, to reconsider the issue of whether a partnership existed under Minnesota state law.

The parties to this appeal are creditors with competing claims to the Debtor’s crop insurance proceeds.  The Debtor’s Bank commenced an adversary proceeding (1) seeking a determination of the scope of a lien in crops granted to another creditor under a cash collateral order in the main case, and (2) challenging the validity of prepetition liens in favor of other parties, including a lien granted by an alleged partnership between the Debtor and his son. In its motion for summary judgment, the Bank argued that its lien must be superior to liens granted by the partnership because such entity did not legally exist. The bankruptcy court granted the Bank’s motion and a holder of a lien granted by the partnership appealed, arguing that the court erred in concluding that there was no genuine issue of material fact because there was substantive evidence supporting the existence of a farming partnership between the debtor and his son.

Pursuant to Bankruptcy Rule 7056 (which incorporates Federal Rule of Civil Procedure 56(c) into the Bankruptcy Code), summary judgment is appropriate if there is no genuine issue of material fact.  The existence of a partnership is a matter of state law and a question of fact.  Minn. Stat. § 323A, subd.0202.  Minnesota courts have consistently focused on the intent of the parties and held that a partnership may be created by an expressed or implied agreement of the parties, which must be ascertained through all the evidence of the case.  Appellants’ evidence that a partnership existed included invoices signed by both the Debtor and his son, contracts made in the name of the partnership, and with the co-mingling and co-ownership of equipment. The appellee argued that no partnership existed, emphasizing that the alleged partnership did not have a bank account or tax return, the parties did not have a profit-sharing agreement, there was no state recognition of the partnership, as well as testimony about separate farming operations.

The BAP found the record on appeal lacked sufficient detail of the evidence that was considered by the bankruptcy court, how that evidence was applied to the Minnesota statute, and why the evidence provided by the appellant was insufficient to create a genuine issue as to a material fact.  Noting that Federal Rule of Civil Procedure 56(a), as amended in 2010, requires courts to state on the record the reasons for their summary judgment rulings, the BAP reversed and remanded.