Sears v. Sears (In re AFY, Inc.)
| Decision Date | 23 January 2012 |
| Docket Number | BAP No. 11–6042. |
| Citation | 463 B.R. 483,55 Bankr.Ct.Dec. 267,66 Collier Bankr.Cas.2d 1410 |
| Parties | In re AFY, INC., also known as Ainsworth Feed Yards Company, Inc., Debtor.Robert A. Sears; Korley B. Sears, Interested parties-Appellants, v. Ronald H. Sears; Ron H. Sears Trust; Rhett R. Sears; Rhett Sears Revocable Trust; Dane Sears, Claimants–Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
OPINION TEXT STARTS HERE
Jerry L. Strasheim, Omaha, NE, for Appellants.
Brian Joseph Koenig, Donald L. Swanson, Omaha, NE, on brief, for Appellees.
Before KRESSEL, Chief Judge, SCHERMER and VENTERS, Bankruptcy Judges.
Robert A. Sears (“Robert”) and Korley B. Sears (“Korley”) appeal from the June 8, 2011 order of the bankruptcy court: 1 (1) overruling their objections to Claim Nos. 8, 9 and 10, which claims were filed by Rhett R. Sears, Rhett R. Sears Revocable Trust, Ron H. Sears Trust, Ronald H. Sears, and Dane R. Sears (collectively, the “Sears Family Members”) in the bankruptcy case of AFY, Inc., also known as Ainsworth Feed Yards Company, Inc. (the “Debtor”); and (2) disallowing Claim No. 26 of Korley.2 We have jurisdiction over this appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth below, we affirm.
The issues before this Court are whether the bankruptcy court erred when it: (1) disallowed Claim No. 26 filed by Korley B. Sears; (2) overruled the objection to the claim of the Sears Family Members; and (3) denied the requests by Korley and Robert to have the hearing postponed to allow time for discovery and for a hearing with testimony and cross-examination of witnesses, rather than having the matters submitted on affidavit evidence. In addition, the Sears Family Members argued that if we affirm the bankruptcy court's denial of Korley's Claim No. 26, Robert and Korley do not have standing to appeal the bankruptcy court's order overruling their objections to the claims of the Sears Family Members. Because we affirm the bankruptcy court's decision to disallow Korley's Claim No. 26, we also consider whether Robert and Korley have standing to bring this appeal. Nevertheless, we agree with the bankruptcy court on all issues and, therefore, we affirm.
On June 22, 2007, the Sears Family Members executed a Stock Sale Agreement whereby they sold their interests in the Debtor to the Debtor and to Korley. The Debtor executed the Stock Sale Agreement through its President, Robert, and its Vice President, Korley. Korley also signed the Stock Sale Agreement in his individual capacity.
Paragraph 2 of the Stock Sale Agreement lists “Buyers” as “AFY, Inc., a Nebraska corporation formerly known as Ainsworth Feedyards Company, Inc., and Korley B. Sears.” Paragraph 4 refers to “[t]he purchase price to be paid by Buyers to Sellers....” Paragraph 7 of the Stock Sale Agreement provides that within a certain period of time, “the Buyer(s) shall execute, for each Seller, a Promissory Note, and a Pledge and Security Agreement.” Only Korley executed promissory notes in favor of the Sears Family Members.
The “Minutes [of the] 2008 Annual Meeting of Shareholders [of the Debtor]” recite with respect to the stock purchased in the Stock Sale Agreement that “the stock should be redeemed by [the Debtor] and held as treasury stock and should not pass to Korley B. Sears when paid for.” A resolution (the “2008 Resolution”) was adopted providing that “the [Debtor] shall redeem and make all payments required to be made, to acquire all shares of [the Debtor], stock and all other shares provided to be sold by [the Sears Family Members] under the terms of the June 2007 Stock [Sale] Agreement.” The Debtor made a down payment and the first installment payment under the Stock Sale Agreement, but made no additional payments.
In February 2010, Robert and Korley each filed a petition for relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). In March 2010, the Debtor filed its bankruptcy petition. Robert and Korley submitted that they are the only shareholders of the Debtor. The Sears Family Members submitted that they have a security interest in Korley's shares in the Debtor and that they have the right to vote those shares. When disputes arose between Robert and Korley on the one hand, and the Sears Family Members on the other hand, regarding ownership and control of the Debtor and issues related to the bankruptcy case, the Debtor's counsel withdrew his representation and, upon a motion made by the Sears Family Members, a Chapter 11 trustee (the “Trustee”) was appointed. The case was then converted to a Chapter 7 case and the Trustee was appointed as trustee in the Chapter 7 case. During the course of the case, the Trustee assumed certain pre-petition contracts of the Debtor, including pre-petition contracts to sell real estate.
The Sears Family Members filed Claims Nos. 8, 9 and 10 in the Debtor's bankruptcy case, seeking sums due under the Stock Sale Agreement. Attached to each proof of claim is, among other things, a narrative explanation of the claim, copies of the Stock Sale Agreement, a promissory note from Korley and the Minutes from the 2008 Annual Meeting of Shareholders. Robert and Korley objected to the Sears Family Members' claims, maintaining that the Debtor bears no liability for the sums due under the Stock Sale Agreement. Robert and Korley argue further that, even if the Debtor was liable to the Sears Family Members under the Stock Sale Agreement, its liability should be discharged based on certain defenses. As an alternative to the Sears Family Members' claims for the direct liability of the Debtor under the Stock Sale Agreement, the Sears Family Members argue that, as third party beneficiaries of a promise made by the Debtor to Korley, as evidenced by the 2008 Resolution, they have a claim against the Debtor's estate.
Korley filed his Claim No. 26, as a contingent claim in the amount of $5,325,291.16, the aggregate amount claimed by the Sears Family Members. The Sears Family Members and the Trustee objected to Claim No. 26.
Robert and Korley requested that the hearing on the objections to Claims Nos. 8, 9, 10 and 26 be postponed to allow them time to conduct discovery. They also requested a hearing with testimony and cross-examination of witnesses, rather than having the matters submitted on affidavit evidence. The bankruptcy court denied the requests by Robert and Korley. In a text order dated April 25, 2011, the bankruptcy court stated:
The court generally agrees with [Counsel to Robert and Korley] that an opportunity for discovery and cross examination are important elements in any claim objection proceeding, but the hearing on affidavit evidence should not be eliminated. [Counsel to Robert and Korley] still has over three weeks to conduct initial discovery (and obviously has had many months to have done so). Further, at such a hearing, the Court can determine the complexity of the issues, the efforts of the parties to date, and whether further proceedings are necessary or appropriate under the circumstances.
On May 18, 2011, the bankruptcy court held a hearing on the objections to Claims Nos. 8, 9, 10 and 26. The bankruptcy court took the matters under advisement and entered its ruling in a written order dated June 8, 2011. Referring to its April 25, 2011 text order, the bankruptcy court explained in its June 8, 2011 order that:
[Counsel to Robert and Korley] requested the hearings be postponed to allow time for discovery and that they be set for live testimony. While the court generally agrees that time for discovery and live testimony are generally appropriate where there are disputed issues of fact, [counsel's] motions were denied and the hearing held to determine the extent of any factual disputes and to determine issues of law (Fil. # 386).
The bankruptcy court overruled the objections of Robert and Korley to the Sears Family Members' claims and allowed those claims. It sustained the objections to Korley's Claim No. 26 and disallowed that claim.
We review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Fed. R. Bank. P. 8013; Dove–Nation v. eCast Settlement Corp. (In re Dove–Nation), 318 B.R. 147, 150 (8th Cir. BAP 2004) (citations omitted).
A creditor of the debtor may file a proof of claim. See 11 U.S.C. § 501(a). Bankruptcy Code § 502(a) explains that “[a] claim ... proof of which is filed under § 501 of [the Bankruptcy Code], is deemed allowed, unless a party in interest ... objects.” 11 U.S.C. § 502(a). When an objection to the claim has been filed, the court is charged with determining the amount of the claim as of the petition date and it shall allow the claim in such amount unless the exceptions listed in Bankruptcy Code § 502(b)(1) through (9) apply. See 11 U.S.C. § 502(b)(1)–(9).
A proof of claim that is filed in accordance with the Federal Rules of Bankruptcy Procedure is “prima facie evidence of the validity and the amount of the claim.” Fed. R. Bankr.P. 3001(f). To overcome a claim's presumptive validity, an objection must be supported by substantial evidence. McDaniel v. Riverside Cnty. Dep't of Child Support Servs. (In re McDaniel), 264 B.R. 531, 533 (8th Cir. BAP 2001); Consumers Realty & Dev. Co, Inc. v. Goetze (In re Consumer Realty & Dev. Co., Inc.), 238 B.R. 418, (8th Cir. BAP 1999) (). The claimant must provide additional evidence of the claim's validity if the party objecting to the claim rebuts its presumptive validity. Gran v. I.R.S. (In re Gran), 964 F.2d 822, 827 (8th Cir.1992).
The bankruptcy court correctly disallowed Claim No. 26 filed by Korley. Although the alleged basis for Korley's Claim No. 26 is difficult to decipher, Robert and...
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