Appellate panel upholds bankruptcy court ruling in favor of Susan Bala
Bala said on Monday, Jan. 10, that she can't help but feel there has been a personal aspect to the litigation between the state of North Dakota and her Racing Services Inc. over the years.
FARGO — An appellate court panel has upheld an April 2021 federal bankruptcy court decision that handed a defeat to North Dakota Attorney General Wayne Stenehjem in a long-running legal battle between the state and Susan Bala, the owner of Racing Services Inc. (RSI), a Fargo horse betting operation.
J udge Thad Collins' 2021 ruling said an agreement between a Las Vegas gambler and Stenehjem's office seemed to violate state law and Collins called the nearly two-decades-long case in North Dakota an example of "a runaway process that must stop."
Stenehjem appealed Collins' 2021 ruling, but on Jan. 7 a U.S. Bankruptcy Appellate Panel for the Eighth Circuit affirmed the decision, which was part of legal wrangling that harks back to 2004, when RSI, an off-track horse race wagering company in Fargo, filed for bankruptcy.
Since then, RSI and Bala, the company's founder, have been at the center of numerous legal proceedings, both civil and criminal.
A number of legal proceedings came to a head in 2014, when a federal judge ruled that the state of North Dakota wasn't authorized to collect taxes on account wagering, a form of gambling that utilized services like RSI.
As part of that case, the state of North Dakota agreed to pay about $15.8 million to RSI's bankruptcy estate and its sole owner, Bala.
The state wired the funds to the RSI estate trust account in early 2018. Since then, the balance has fallen by several million dollars due to disbursements to creditors and legal fees.
Final distribution to Bala of the remaining money has been delayed by continued legal fighting, some of which stems from early in RSI's bankruptcy case when a large creditor — PW Enterprises — amended its original $2.2 million claim, increasing what it sought from the estate by about $10.8 million.
In November 2018, the U.S. Bankruptcy Court denied PWE's amended claim, but approved PWE's initial $2.2 million claim. PWE appealed the decision, claiming it was entitled to money North Dakota paid to the bankruptcy estate. In the alternative, PWE said, money returned to RSI from North Dakota should go to charities.
The state of North Dakota, represented by Stenehjem's office, filed a brief in support of PWE's appeal, but later withdrew the brief. PWE's appeal was ultimately dismissed in June 2020.
In late December 2018 — about a year after the state of North Dakota and the RSI bankruptcy estate settled for about $15.8 million — the state filed a fresh claim against the estate on behalf of nonprofit groups. PWE filed a brief in support of the state's claim.
An evidentiary hearing was held on the state's new claim on May 30, 2019.
During that hearing — and only after direct and persistent questioning from Collins — the judge learned an agreement had existed between the state and PWE since about December 2018 that called for the state to split any proceeds it recovered for charity with PWE.
In January 2020, Collins issued a ruling denying the state's new claim against the RSI bankruptcy estate, a claim specifically made on behalf of just one nonprofit group — Team Makers, the fundraising arm for the North Dakota State University athletic department.
The state appealed that ruling to the Bankruptcy Appellate Panel (BAP), and PWE sought to join the state in that appeal.
In September 2020, the appellate panel issued a ruling that partly affirmed and partly reversed Collins' January 2020 ruling.
The appellate panel's decision sent the case back to Collins, who was tasked with again ruling on the state's new claim on behalf of Team Makers, though this time the bankruptcy judge was to decide the claim on its merits and not its timeliness.
The bankruptcy judge was also obliged to rule on an amended claim the state brought during the May 30, 2019, evidentiary hearing on the state's new claim, with the amended claim asserting a breach of contract claim against RSI on behalf of Team Makers.
In his April 2021 ruling, Collins ruled against both of the claims the state brought against the RSI bankruptcy estate on behalf of Team Makers.
Stenehjem's office appealed that ruling, but in its Jan. 7 decision the Bankruptcy Appellate Panel upheld Collins' ruling.
"The bankruptcy court insisted that this marathon litigation must end, and we agree. The time to reach a final adjudication on claims is long overdue," the appeals panel said.
Bala said on Monday, Jan. 10, that she can't help but feel there has been a personal aspect to the litigation between the state of North Dakota and RSI over the years, based on how the state conducted itself.
"The most important thing to me about what this (appellate) court said was that the state's arguments were incomprehensible and that this has to stop," Bala added.
A spokeswoman for Stenehjem's office said the appellate panel's decision is being reviewed.