First Western Bank & Trust v. Rabadi (Grand Forks Commercial Loan Guaranty Suit)

Full write-up

A commercial lending dispute out of Grand Forks, North Dakota, moved from state court to federal bankruptcy court this month, after the guarantor named in a $7.86 million loan-default suit removed the case following his affiliated companies' Chapter 11 filings. The underlying lawsuit, First Western Bank & Trust v. Rabadi, illustrates a recurring risk for commercial lenders: a guaranty suit against an individual can be derailed, at least procedurally, once the borrower entities standing behind the debt seek bankruptcy protection.

First Western Bank & Trust's complaint alleges that the guarantor personally guaranteed commercial loans made to three affiliated borrowers: Kidney and Hypertension Center, PLC, KDJ Investment Group, LLC, and KDJ Properties, LLC, and also names a fourth company, Washington Properties, LLC, as a defendant. According to the bank's filing, the guaranties were unlimited and unconditional, meaning the guarantor agreed to stand behind the full amount of the borrowers' obligations without the dollar caps or carve-outs that limited guaranties typically include. The bank's complaint puts the total owed at approximately $7.86 million as of April 6, 2026, a figure that does not yet include late fees, additional interest, and unpaid property taxes that have continued to accrue.

The default narrative described in the filing follows a familiar pattern for distressed commercial borrowers: the companies began missing scheduled loan payments starting in July 2025, then failed to make a final balloon-style payment that came due on December 25, 2025 on at least one of the loans, and separately fell behind on property tax obligations tied to the real estate securing the debt. The bank's asserted collateral package includes clinic equipment and assets along with mortgages on property held by the affiliated borrower entities, meaning the dispute is anchored in real property pledged by the operating companies themselves rather than simply an unsecured personal-guaranty claim.

The guarantor did not default on the litigation itself. Court records show he filed an answer in May 2026 denying liability and asserting affirmative defenses including estoppel, waiver, and unclean hands. The bank has since moved for summary judgment, arguing that the answer does not actually dispute that the underlying debt exists or that he personally signed the guaranties at issue. The litigation's posture changed sharply on October 16, 2026, when seven affiliated entities tied to the borrower companies filed Chapter 11 petitions in the U.S. Bankruptcy Court for the District of North Dakota, listing Grand Forks as their principal place of business; the guarantor then filed a notice of removal on November 2, 2026, moving the bank's state-court suit into the bankruptcy forum, where a judge has given him until November 30, 2026 to respond to the bank's pending summary judgment motion.

An individual guarantor is not automatically protected by his companies' bankruptcy filing, since the automatic stay generally applies to the debtor entities rather than to a non-debtor guarantor sued in his individual capacity, but removal to the bankruptcy court can still change the practical dynamics of the case, including which judge decides the pending summary judgment motion and how that decision interacts with the broader restructuring of the borrower entities' secured debt. Lenders holding unlimited, unconditional personal guaranties on commercial real estate-secured loans should expect a borrower-side bankruptcy filing to complicate, even if it does not legally stay, collection efforts against the guarantor, and should track real estate collateral held by affiliated holding entities separately through any Chapter 11 case, since the bankruptcy court's treatment of that mortgaged property can diverge from how the personal guaranty claim is ultimately resolved.

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