Bremer Bank, National Association v. Border Bank
- Susan Nelson
- 0:25-cv-01249
- U.S. District Court · District of Minnesota
- 9
In Bremer Bank v. Border Bank, Judge Nelson denied Border Bank's motion to stay the lawsuit pending a related bankruptcy proceeding.
Banks and other creditors involved in litigation against non-debtor third parties while a borrower is in bankruptcy proceedings, particularly where the contested assets have already passed out of the debtor's hands and into the defendant's possession.
What happened
In Bremer Bank, National Association v. Border Bank, No. 25-cv-1249, Bremer Bank sued Border Bank in federal court in Minnesota, alleging that farmers named Douglas and Jessica Clark (who owed money to Bremer Bank secured by their farm assets) paid crop sale proceeds to Border Bank instead of Bremer Bank. Bremer Bank claims Border Bank improperly kept those proceeds even though Bremer Bank held a superior lien on the collateral. Border Bank asked the court to pause the case, arguing that the Clarks' ongoing bankruptcy proceedings triggered an automatic legal freeze on all related litigation, or alternatively that the court should pause the case to avoid conflicting rulings with the bankruptcy court.
Border Bank argued that federal bankruptcy law automatically halts lawsuits involving a bankrupt person's property, and that the crop proceeds at issue here belong to the Clarks' bankruptcy estate. Bremer Bank countered that the proceeds are already in Border Bank's hands — not the Clarks' — so they are not part of the bankruptcy estate and the automatic freeze does not apply. Border Bank also argued that the case overlaps too much with a separate legal proceeding the Clarks filed in bankruptcy court, in which the Clarks claim Bremer Bank released its security interest in their assets years ago.
Judge Susan Richard Nelson denied Border Bank's motion to stay. The court found that the crop proceeds at issue are held by Border Bank, not by the Clarks or their bankruptcy estate, so the automatic bankruptcy freeze under Section 362(a) of the Bankruptcy Code does not apply to this lawsuit between two non-debtor banks. As to the concern about duplicative or conflicting litigation, the court acknowledged some overlapping issues but found the bankruptcy court's case and this one are not truly duplicative because they involve different claims and different parties. The court also noted that the judge handling this case and the bankruptcy judge are both in the same district and can communicate to minimize inconsistent rulings, and that a stay would prejudice Bremer Bank while causing no corresponding harm to Border Bank.
The detailed version
- Bremer Bank, National Association v. Border Bank · No. 0:25-cv-01249
- Susan Nelson
- Oct. 29, 2025
Background
Plaintiff Bremer Bank, National Association brought this lawsuit against Defendant Border Bank arising from loans Bremer Bank made to non-party farmers Douglas and Jessica Clark ("the Clarks"). The Clarks secured their debt to Bremer Bank by pledging their farming assets as collateral. Border Bank holds a junior lien (a lower-priority security interest) on the same collateral.
Bremer Bank alleges that, starting around 2021, the Clarks paid proceeds from the sale of their 2022 and 2023 crops to Border Bank rather than to Bremer Bank, reducing the Clarks' debt to Border Bank. Bremer Bank claims Border Bank retained these proceeds despite knowing that Bremer Bank held a superior (higher-priority) security interest.
Bremer Bank filed suit in Minnesota state court in March 2025 seeking: (1) a declaratory judgment (a court ruling establishing legal rights) that its lien is valid, perfected, and superior to Border Bank's interests; (2) conversion (unlawful taking of another's property); (3) civil theft; and (4) receipt of stolen property. Defendant Border Bank removed the case to federal court in April 2025.
Parallel Bankruptcy Proceedings
The Clarks filed for Chapter 12 bankruptcy (a form of bankruptcy available to family farmers) in June 2024. That first bankruptcy case was dismissed without prejudice in April 2025. The Clarks then filed a second Chapter 12 bankruptcy in May 2025.
In July 2025, the Clarks filed an adversary proceeding (a lawsuit brought within a bankruptcy case) against Old National Bank (Bremer Bank's successor) and Border Bank in bankruptcy court. In that adversary proceeding, the Clarks seek to have the bankruptcy court determine the validity of Bremer Bank's security interest, arguing that Bremer Bank released its security interest in 2020 or 2021. The Clarks also argue that the instant district court case violates the automatic stay (an automatic legal freeze on most collection actions) imposed by their bankruptcy filing.
Also pending in the bankruptcy court are: (1) Old National Bank's motion for relief from the automatic stay, and (2) Old National Bank's motion to dismiss the adversary proceeding. Both are scheduled for a November 12, 2025 hearing.
Border Bank also filed a separate Motion for Partial Dismissal under Federal Rule of Civil Procedure 12(b)(6) (failure to state a claim) in this district court case, seeking to dismiss counts 2, 3, and 4 of the Complaint. The court stated it will address that motion separately.
The Motion to Stay
Border Bank moved to stay (pause) the district court proceedings on two grounds:
1. Mandatory automatic stay under 11 U.S.C. § 362(a) of the Bankruptcy Code, arguing that the case involves the Clarks' property and thus is automatically frozen by their bankruptcy filing. 2. Discretionary stay to conserve judicial resources and avoid duplicative or inconsistent litigation with the bankruptcy court proceedings.
Court's Analysis
Automatic Stay Under 11 U.S.C. § 362(a)
Section 362(a)(1) of the Bankruptcy Code stays any judicial proceeding "against the debtor." Section 362(a)(3) stays any act to obtain possession of "property of the estate." The Bankruptcy Code defines property of the estate as all legal or equitable interests of the debtor in property as of the commencement of the bankruptcy case, along with certain proceeds.
The court found the automatic stay does not apply here for two reasons:
First, the lawsuit is not directed against the Clarks (the debtors) — it is between two non-debtor banks, Bremer Bank and Border Bank.
Second, and more importantly, the contested crop proceeds are not property of the bankruptcy estate. The court noted that the Clarks themselves acknowledge they no longer have possession of the proceeds — they were "signed over" to Border Bank in 2021. The court relied on two analogous precedents:
- Indigo Marketplace, LLC v. FarmOp Cap., LLC, No. 4:22-CV-00618-LPR, 2023 WL 3687173 (E.D. Ark. May 26, 2023), a factually similar case involving crop proceeds held by a middleman rather than the debtor-farmer. The court there found no automatic stay applied because the proceeds were out of the debtor's hands, the bankruptcy trustee had not asserted an interest, and the debtor was not a defendant.
- In re TXNB Internal Case, 483 F.3d 292 (5th Cir. 2007), where the Fifth Circuit held that an automatic stay did not apply to a conversion claim against a non-debtor that did not implicate the debtors' property.
The court concluded: "the Court knows of no binding authority that extends the application of the automatic stay to an action that is (1) against a non-debtor, and (2) regarding non-bankruptcy-estate property," and Border Bank pointed to no such authority.
Discretionary Stay to Avoid Duplicative Litigation
The court applied the standard that a discretionary stay based on a concurrent federal proceeding requires the two proceedings to be "duplicative" — meaning the same issue is being litigated at the same time in more than one federal court. See Ritchie Capital Mgmt., L.L.C. v. Jeffries, 849 F. Supp. 2d 881, 888 (D. Minn. 2012).
The court found the proceedings are not duplicative. The adversary proceeding in bankruptcy court concerns whether the Clarks were orally released from their loan obligations to Bremer Bank — in effect, whether Bremer Bank's security interest was extinguished. This district court case concerns whether Border Bank improperly retained crop proceeds to which Bremer Bank had a superior security interest. The Clarks are not even parties to this district court case.
While acknowledging "some interconnected issues" and the possibility of inconsistent results, the court found a discretionary stay was not warranted for two additional reasons: (1) communication between the district judge and Bankruptcy Judge William Fisher (both in the same district) can minimize inconsistent rulings; and (2) a stay would prejudice Bremer Bank, with no corresponding prejudice to Border Bank from proceeding.
Disposition
The Motion to Stay filed by Defendant Border Bank [Doc. No. 24] is DENIED.
Read the full 9-page opinion on CourtListener, the free public archive maintained by the Free Law Project.