In re: Korley B. Sears, Debtor.
Rhett R. Sears; Rhett R. Sears Revocable Trust; Ronald H. Sears; Ron H. Sears Trust; Dane Sears, Appellees, Korley B. Sears, Appellant, U.S. Trustee, U.S. Trustee.
Submitted: November 15, 2016
from United States District Court for the District of
Nebraska - Lincoln
COLLOTON, BEAM, and GRUENDER, Circuit Judges.
COLLOTON, CIRCUIT JUDGE.
Sears, a Chapter 11 debtor-in-possession, appeals a decision
of the district court affirming the bankruptcy
court's grant of summary judgment for several
creditors. The judgment allowed proofs of claim totaling over
$5.2 million. We conclude that there is no merit to
Korley's several objections, so we affirm.
2007, a group of relatives and related entities owned a
significant portion of the shares of a company called AFY,
Inc. We refer to these parties-Rhett Sears, the Rhett R.
Sears Revocable Trust, Ronald Sears, the Ron H. Sears Trust,
and Dane Sears-collectively as "the Searses."
Pursuant to a stock sale agreement, the Searses sold their
shares of AFY to the company and Korley Sears. In return,
Korley signed promissory notes payable to the Searses, which
were to be paid in annual installments.
and Dane Sears were employees of AFY. The sale agreement
included a provision requiring them to continue as AFY
employees and to maintain loyalty toward AFY and its
management. AFY made the first annual installment payments to
the Searses pursuant to the sale agreement and promissory
notes, but Korley and AFY failed to make further required
2009, AFY's primary lender, Farm Credit Services,
withdrew financing. In 2010, AFY and Korley each filed for
bankruptcy under Chapter 11 of the Bankruptcy Code. The
Searses filed proofs of claim-that is, "a written
statement setting forth a creditor's claim, "
Fed.R.Bankr.P. 3001(a)-in Korley's bankruptcy. They
asserted claims for over $5.2 million based on the debt owed
under the sale agreement and promissory notes. Korley, as
debtor-in-possession, objected on numerous grounds, including
that the sale agreement was never a valid contract. He also
asserted that even if the agreement was valid, his liability
was discharged when the Searses allegedly breached their duty
of loyalty and their duty of good faith and fair dealing.
a hearing on Korley's objections, the Searses moved for
summary judgment to allow their claims. Fed.R.Bankr.P. 7056;
Fed.R.Civ.P. 56(a). The bankruptcy court granted the motion.
The court first concluded that Korley's objections were
barred by the doctrine of claim preclusion because they could
have been litigated in AFY's earlier bankruptcy
proceeding. Alternatively, the court rejected the objections
on the merits. The district court affirmed the rulings of the
bankruptcy court. As a second court of review, we review the
bankruptcy court's grant of summary judgment de
novo, applying the same standards as the district court.
Contemporary Indus. Corp. v. Frost, 564 F.3d 981,
984 (8th Cir. 2009). Summary judgment is appropriate if there
is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law. Fed.R.Bankr.P.
7056; Fed.R.Civ.P. 56(a).
disputes both rationales offered by the bankruptcy court.
Because we agree with the bankruptcy court that Korley's
objections to the proofs of claim lack merit, we will affirm
on that basis.
11 U.S.C. § 501 provides for the filing of claims in
bankruptcy, and § 502 governs the process for
determining whether claims are allowed. A "claim"
typically is a "right to payment" from the debtor,
and it includes rights that are disputed or contingent. 11
U.S.C. § 101(5)(A). A claim that is filed under §
501 is deemed "allowed" against the debtor unless a
party in interest objects and the claim implicates an
exception listed in 11 U.S.C. § 502(b). See 11
U.S.C. § 502(a); Travelers Cas. & Sur. Co. of
Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 449
(2007). If a proof of claim follows certain requirements
under Federal Rule of Bankruptcy Procedure 3001, then it is
prima facie evidence of the claim's validity.
first argues that the Searses do not have claims under the
sale agreement, if it is viewed as a single contract together
with the promissory notes, because it is an executory
contract that has not been rejected. See 11 U.S.C.
§ 365. An executory contract under the Bankruptcy Code
is a contract where the obligations of both parties "are
so far unperformed that the failure of either to complete
performance would constitute a material breach excusing
performance of the other." In re Interstate Bakeries
Corp., 751 F.3d 955, 962 (8th Cir. 2014) (en banc)
(quotation omitted). Korley contends that the sale agreement
is an executory contract because Ronald, Dane, and Rhett
Sears have ongoing duties of loyalty and good faith and fair
dealing to AFY ...