# U ni te d S ta te s Co ur t of A pp ea ls

For the Eig hth Circu it

__ __ __ __ __ __ __ __ __ __ __ __ __ _

No. 1 5- 33 52

__ __ __ __ __ __ __ __ __ __ __ __ __ _

In re: Korl ey

B. Sear s,

ll ll ll ll ll ll ll ll ll ll l Deb to r.

----- ----- ----- ----- ----- -----

Kor le y B. Sear s,

ll ll ll ll ll ll ll ll ll ll l

App el la nt

,

v.

Rh et t R. Se ars ; Rh et t R. Se ars Rev oc ab le Trus t; Ro na ld H. Sears ; Ro n H. Sea rs Trus t; Dane Sear s,

ll ll ll ll ll ll ll ll ll ll l

App el le es
,

U.S. Trus te e,

ll ll ll ll ll ll ll ll ll ll l U.S. Tr us te e

.

__ __ __ __ __ __
App eal fro m

Uni te d S ta te s Di st ric t Co ur t fo r th e Dis tri ct of Ne br as ka - Lin co ln

__ __ __ __ __ __

Su bm it te d: Nov em

be r 15 , 20 16
Fil ed : J ul y

18 , 20 17

__ __ __ __ __ __Befo re COLLOTON, BEAM, and GRUENDER, Circu it Ju dg es

.

__ __ __ __ __ __

COLLOTON, Ci rcu it Ju dg e.

Kor le y Sear s, a Ch ap te r 1 1 d e b to r-i n- po ss es si on , ap pe al s a de ci si on of th e
di st ric t co ur t affi rm in g th e ba nk ru pt cy co ur t’s gr an t of su m m ary jud gm en t fo r 1 2

se ve ral cred it or s. The jud gm en t al lo wed pr oo fs of cl ai m to ta li ng ov er $5 .2 m il li on

. W e co nc lu de th at th ere i s n o m eri t t o Ko rle y ’s sev eral ob jecti on s, s o we a ffi rm

.

I.

In 20 07

, a gr ou p of rel at iv es an d rel at ed en ti ti es own ed a si gn ifi can t po rti on of

th e sh ares of a co m

pa ny cal le d AFY, In c. W e refe r to th es e pa rti es —Rh et t Sear s, th e

Rh et t R. Sear s Rev oc ab le Trus t, Ro na ld Sear s, th e R o n H. Sear s Trus t, an d Dan e

Sear s— co ll ect iv el y as “ th e Sear se s.” Pu rs ua nt to a st oc k sa le ag reem en t, th e Sear se s

so ld th ei r sh ares of AFY to th e co m pa ny an d Kor le y Sear s. In ret ur n, Kor le y si gn ed

pr om is so ry no te s pa y ab le to th e Sear se s, whi c h were to be pa id in an nu al

in st al lm en ts

.

Ro na ld an d Dan e Sear s were em pl oyees of AFY. The sa le ag reem en t in cl ud ed

a pr ov is io n re q u i r in g th em to co nt in ue as AFY em pl oyees an d to m ai nt ai n lo y al ty

to ward AFY an d it s m an ag em en t. AFY m ad e th e fir st an nu al in st al lm en t pa y m en ts

to th e Sear se s pu rs ua nt to th e sa le ag reem en t an d p ro m is so ry no te s, b ut Korl ey

an d

AFY fai le d t o m ak e fu rth er re qu ire d p ay m en ts

.

The Hon or ab le Ri ch ard G. Kop f, Uni te d St at es Dis tri ct Ju dg e fo r th e Dis tri ct 1

of Nebr as ka

.

The Hon or ab le Tho m as L. S a l ad in o, Ch ie f Uni te d St at es Ban kr up tc y Ju dg e 2

fo r th e Dis tri ct of Ne br as ka

.

-2

-In 20 09

, AFY’s pr im ary le nd er, Farm Cred it Serv ic es , wit hd rew fin an ci ng

. In

20 10

, AFY an d Kor le y each fil ed fo r ba nk ru pt cy un de r Ch ap te r 11 of th e Ban kr up tc y

Co de

. The Sear se s fil ed pr oo fs of cl ai m —t ha t is , “ a wri tt en st at em en t s et ti ng for th

a c r e d it or ’s cl ai m ,” Fed

. R. Ban kr

. P. 30 01 (a)— in Kor le y ’s ba nk ru pt cy

. The y

as se rte d cl ai m s fo r ov er $5 .2 m il li on ba se d on th e de bt owe d un de r th e sa le ag reem en t

an d pr om is so ry no te s. Kor le y , as de b t o r

- i n- po ss es si on , ob jecte d on nu m ero us

gr ou nd s, in cl ud in g th at th e sa le ag reem en t wa s n ev er a va li d co nt ract

. He al so

as se rte d t ha t ev en if t he ag reem en t was va li d, h is li ab il it y was di sc ha rg ed when th e

Sear se s al le ge dl y br each ed th ei r du ty of lo y al ty an d th ei r du ty of go od fai th an d fai r
de al in g.

Fo ll owi ng a he ari ng on Korl ey ’s ob jecti on s, t he Sear se s m ov ed for su m m ary jud gm en t to al lo w th ei r cl ai m s. Fed . R. Ban kr . P. 70 56 ; Fe d. R. Ci v. P. 56 (a). The

ba nk ru pt cy co ur t gr an te d th e m ot io n. The co ur t fir st co nc lu de d th at K o r l ey ’s

ob jecti on s were ba rred by th e do ct rin e o f cl ai m pr ecl us io n bec au se th ey co ul d hav e
be en li ti ga te d in AFY’s earl ie r ba n k r u p t c y pr oc eed in g. Alt ern at iv el y , th e co ur t reje c te d th e ob

jecti on s on th e m eri ts

. The di st ric t co ur t affi rm ed th e ru li ng s of th e
ba nk ru pt cy co ur t. As a se co nd co ur t of rev ie w, we rev ie w t h e b a n kr up tc y co ur t’s

gr an t of su m

m ary jud gm en t de no vo , ap pl y in g th e sa m e st an da rd s as th e di st ric t co ur t.

Co nt emp or ar

y In du s. Co rp . v . Fr os t , 5 64 F.3 d 98 1, 98 4 (8 t h Ci r. 20 09 ). Su m m ary jud gm en t is ap pr op ria te if th ere is no ge nu in e di sp ut e as to an y m at eri al fact an d th e

m ov a n t i s e nt it le d to jud gm en t as a m at te r of la w. Fed

. R. Ban kr

. P. 70 56 ; Fed

. R.

Ci v. P. 5 6( a).

II.

Kor le y di sp ut es bo th rat io na le s of fere d by th e ba nk ru pt cy co ur t. Bec au se we

ag ree with th e ba nk ru pt cy co ur t th at Kor le y ’s ob jecti on s to th e pr oo fs of cl ai m la ck

m eri t, we wi ll affi rm

on th at ba si s.

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-Tit le 11 U.S.C. § 50 1 pr ov id es fo r t h e f i l i n g of cl ai m s in ba nk ru pt cy , an d
§ 50 2 go ve rn s th e pr oc es s fo r de te rm in in g whe th er cl ai m s are al lo wed

. A “ cl ai m ”
typic al ly is a “ri g ht to pa y m en t” fro m th e de bt or , an d it in cl ud es rig ht s th at are
di sp ut ed or c on ti ng en t. 11 U.S.C. § 10 1( 5) (A). A cl ai m th at is fil ed un de r § 5 01 is

de em ed “ al lo wed ” ag ai ns t th e de bt or un le ss a pa rty in in te res t ob jects an d th e cl ai m

im pl ic at es an ex cep ti on li st ed in 11 U.S.C. § 50 2( b)

. Se e 11 U.S.C. § 50 2( a);

Tr av el er s Ca s. & Su r. Co

. of

Am. v. Pac

. Gas & Elec

. Co

. , 54 9 U.S. 44 3, 44 9 (2 00 7)

. If a pr oo f of cl ai m fo ll ows cert ai n req ui rem en ts un de r Fed eral Ru le of Ban kr u p tc y

Pro ce d u r e 3 0 0 1

, th en it is pr ima fa ci e ev id en ce of th e cl ai m ’s va li di ty. Fed

. R.

Ban kr . P. 30 01 (f).

Kor le y fir st arg ue s th at th e Sear se s do n o t h a v e cl ai m s un de r th e sa le

ag reem en t, if it is vi ewed as a si ng le co n t r a c t to ge th er wit h th e pr om is so ry no te s,
be cau se it is an ex ecu to ry co nt ract th at ha s n ot be en reject ed

. Se e 11 U.S.C. § 3 65

. An ex ecu to ry co nt ract un de r th e Ban kr up tc y Co de is a co nt ract whe re th e ob li ga ti on s

of bo th pa rti es “ are so far un pe rfo rm ed th at th e fai l u re of ei th er to co m pl et e

pe rfo rm an ce wou ld co ns ti tu te a m at eri al br each ex cu si ng pe rfo rm an ce of th e ot he r.”

In re In te rs ta te Bak

er ie s Co rp

. , 75 1 F

. 3 d 9 5 5

, 9 62 (8 th Ci r. 20 14 ) (en ba nc )
(q uo ta ti on om it te d)

. Kor le y co nt en ds th at th e sa le ag reem en t is an ex ecu to ry co nt ract

be cau se Ro na ld

, Dan e, an d Rh et t Sear s ha ve on go in g du ti es of lo y al ty an d go od fai th

a n d fai r de al in g to AFY an d to hi m

. He arg ue s th at Ro na ld an d Dan e h a v e d u t i e s

un de r th e sa le ag reemen t, an d th at Rh et t was ob li ga te d un de r Neb ras ka la w no t to

pa rti ci pa te kn owi ng ly in an y bre ach es by Ron al d a nd Dane

.

Ass um in g fo r th e sa ke of an al y si s th at th e sa le ag reem en t an d pr om is so ry no te s
sh ou ld be co ns id ered on e co nt ract un de r N e b r a s k a la w, we are no t co nv in ced by

Kor le y ’s co nt en ti on

. The pr im ary pu rp os e of th e sa le ag reem en t was to effe ct th e sa le

of th e Sear se s’ st oc k to AFY an d Kor le y

. The Sear se s su bs ta nt ia ll y pe rfo rm ed th ei r
ob li ga ti on s by su rren de rin g th ei r st oc k to Kor le y an d AFY. Any su bs eq ue nt fai lu re by th em to m ai nt ai n l oyalt y to AFY an d Kor le y wou ld no t ex cu se Kor le y ’s

-4

-pe rfo rm an ce un de r th e sa le ag reem en t. The Sear se s’ du ti es of lo y al ty an d go od fai th

an d fai r de al in g di d no t g o t o t h e “ ro ot or es se nc e of th e co nt ract .” Id

. at 96 3
(q uo ta ti on om it te d) . The s al e ag reem en t i s t hu s n ot ex ecu to ry

.

Kor le y ne xt ob

jects to th e Sear se s ’ pr oo fs of cl ai m ba se d on 11 U.S.C.
§ 50 2( b) (1 ). Sect io n 50 2( b) (1 ) di sa ll ows cl ai m s th at are “ un en fo rcea bl e ag ai ns t th e
de bt or .” Se e Tr av el er

s , 54 9 U.S. at 45 0

. Kor le y as se rts a va rie ty of co nt ract ua l

d e f e n s e s to th e Sear se s’ pr oo fs of cl ai m

. W e ap pl y Neb ras ka la w to res ol ve t h e s e
is su es

. Se e id

. at 4 50 -5 1.

Kor le y arg ue s th at th e Sear se s brea ch ed th ei r du ti es of lo y al ty an d go od fai th

an d fai r de al in g un de r th e sa le ag reem en t by he lp in g to ap po in t a tru st ee a n d t h e n

as si st in g th e tru st ee to li qu id at e AFY’s as se ts

. He al so co nt en ds th at hi s ob li ga ti on s

un de r the sa le ag re em en t an d pr om iss or y no te s were di sc ha rg ed

, be cau se pe rfo rm an ce

was im po ss ib le aft er AFY was li qu id at ed

, an d be cau se li qu id at io n fru st r a t e d t h e

co nt ract ’s pu rp os e. He ne xt as se rts th at th ere was a fai lu re of co ns id erat io n un de r th e

co nt ract , b eca u s e t h e S e ars es he lp ed to li qu id at e AFY. Thi s la tt er cl ai m is an ot he r

way of de sc rib in g an al le ge d fai lu re of pe rfo rm an ce. Res ta t em en t (Sec on d) of

Co nt ract s § 23 7 c m

t. a. (1 98 1)

.

Non e o f t h e s e co nt ract ua l de fen se s ha s m eri t, be cau se al l of th e ch al le ng ed

co nd uc t oc cu rred aft er Kor le y fil ed fo r ba nk ru pt cy

. W he n a pa rty in in te res t ob jects

to a cred it or ’s cl ai m , th e ba nk ru pt cy co ur t “ sh al l de te rm in e th e am ou nt of su ch cl ai m

. . . as of th e da te of th e fi li ng of th e pe ti ti on .” 11 U.S.C. § 50 2( b) (em ph as is ad de d)

. Po s t

- p et it io n co nd uc t th us can no t jus ti fy di sa ll owi ng a pr oo f of cl ai m

. Se e In re
Fla na ga n , 50 3 F .3d 17 1, 1 78 -7 9 (2 d C ir. 2 00 7)

. Kor le y arg ue s ot he rwis e ba se d on

11 U.S.C. § 55 8, a pr ov is io n gr an ti ng th e ba nk ru pt cy es ta te th e be ne fit of an y de fen se

av ai la bl e to th e de bt or , bu t § 55 8 si m pl y “ pr es e r v e s to th e [d ]ebt or th e de fen se s it

wou ld ha ve ha d p r e p e ti ti on .” In re Pap er cr af t Co rp

. , 12 7 B.R. 34 6, 35 0 (Ban kr

. W .D. Pa. 19 91 ).

-5

-Kor le y al so as se rts co nt ract ua l de f e n s e s of im

po ss ib il it y , fru st rat io n, an d

fai lu re of pe rfo rm an ce ba se d on th e fact th at AFY’s pr im ary l e n d er, Farm Cred it

Serv ic es , wit h d r ew fin an ci ng fro m AFY be fo re Kor le y pe ti ti on ed fo r ba nk ru pt cy

. The im po ss ib il it y an d fru st rat io n de fen se s ap pl y whe n th ere is an “ oc cu rren ce of an

ev en t th e no n- oc cu rren ce of whi ch was a ba si c as su m pt io n on whi ch th e co nt ract was

m ad e.” Tu rb in es Lt d. v. Tr an su pp or t, In c. , 82 5 N.W .2d 76 7, 7 7 5

- 7 6 ( Neb

. 20 13 )
(q uo ti ng Res ta te m en t (Sec on d) of Co nt ract s §§ 26 1, 26 5 (1 98 1) ). The se de fen se s fai l

he re, be cau se Far m C r e di t Serv ic es ha d a le ga l rig ht to wit hd raw it s li ne of cred it

un de r cert ai n ci rcu m st an ces , an d th ere is no ev id en ce t h a t th e co nt ract in g pa rti es

a s s um ed th at th e le nd er was fo rb id de n to ex erci se it s rig ht

. The fai lu re-o fpe rfo rm an ce de fen se can no t pr ev ai l be cau se Farm Cred it ’s wit hd rawal of cred it ha d

no th in g to do wit h th e Sear se s’ pe rfo rm an ce of the ir ob li ga ti on s un de r th e co nt ract

.

Kor le y n e x t arg ue s th at th ere was no m ut ua l as se nt to th e sa le ag reem en t

be cau se he di d no t be li ev e th at AFY was al so ob li ga te d t o p ay th e Sea rs es fo r th ei r

st oc k. Se e Res ta te m en t (Sec on d) of Co nt ract s § 20 (1 98 1)

. The ag reem en t, ho wev er,

li st s bo th AFY an d Kor le y as th e “ Bu y ers ” un de r th e sa le ag reem en t wh o m us t pa y
th e pu rch as e pr ic e to th e Sel le rs

. Co ns is te nt wit h th is u nd ers ta nd in g, AFY, no t

Kor le y , m ad e th e fir st an nu al in st al lm en t pa y m en ts to th e Sear se s on th e no te s. W e

se e n o m eri t t o Ko rle y ’s arg um en t t ha t t he sal e ag reem en t l ack ed m ut ua l as se nt

.

Kor le y co nt en ds th at th e b a n k ru pt cy co ur t ret ai ns po wer in eq ui ty to reject

pr oo fs of cl ai m ba se d on po st -p et it io n in eq ui ta bl e co nd uc t, an d sh ou ld ha ve do ne so
he re. He di d no t rai se th is arg um en t in th e ba nk ru pt cy co ur t, so th e po in t is fo rfei te d,

an d th ere is no pl ai n erro r th at m ig ht warra nt rel ie f. Kor le y ci te s t h e p r e

- C o de

de ci si on of Pep

pe r v. Li tt on , 3 08 U.S. 2 95 , 3 07 -0 8 (1 93 9) , wh ere th e Co ur t up h el d

a ba nk ru pt cy co ur t’s jud gm en t di sa ll owi ng a cl ai m on eq u i t a b l e g r ou nd s. W e

qu es ti on whe th er th e Pep

pe r ap pr oa ch su rv iv es un de r th e m od ern Ban kr up tc y Co de

, be cau se § 50 2( b) pr ov id es th at cla im s wi ll be all owe d e xc ep t as en um erat ed in th at

se ct io n, an d in eq ui ta bl e co nd uc t is no t an en um erat ed gr ou nd

. Se e 4 Co ll ie r on

-6

-Ban kr up tc

y ¶ 50 2.0 3[ 11 ] (Ala n N. Res ni ck & Hen ry J. So m m er, ed s., 16 th ed

. 20 16 ).

In Tr av el er

s , th e ab se nc e of te xt ua l s u p p o r t was “ fat al ” to a jud ic ia ll y -cre at ed ru le

t h a t di sa ll owe d a cl ai m fo r a reas on no t en um erat ed in § 50 2( b)

. 54 9 U.S. a t 4 5 2

. At a m in im

um , th e b an kr up tc y

co ur t d id no t co m

m it pl ai n e rro r whe n i t d ecl in ed to

di sa ll ow a c la im

ba se d o n a gro un d n ot en um erat ed in th e st at ut e.

III.

Kor le y al so rai se s a pr oc ed ur al arg um en t reg ard in g t h e S ears es ’ pr oo fs of

cl ai m

. Kor le y arg ue s th at th e Sear se s’ pr oo fs of cl ai m di d no t in cl ud e an “ it em iz ed ”

st at em en t of in te res t, as req ui red by Fed eral Ru le of Ban kr u p t c y Pro ced ur e

30 01 (c)( 2) (A) an d Offi ci al Fo rm 10

. Ru le 30 01 (f) pr ov id es th at a pr oo f of cl ai m th at

is ex ecu te d an d fil ed in acco rd an ce wit h t h e r ul es is pr ima fa ci e ev id en ce of th e

va li di ty an d am ou nt of th e cl ai m

. Kor le y co nt en ds th at th e Sear se s’ pr oo fs of cl ai m
di d no t co m

pl y wit h th e ru le s, an d th at th e ba nk ru pt cy co ur t th us erre d in tre at in g th e

th em as pr ima fa ci e ev id en ce o f va li di ty and am ou nt

.

A cla im an t’s fa il ur e to co m pl y wit h Ru le 30 01 (c)( 2) (A) o r Offi ci al Fo rm 10

, ho wev er, is no t by it se lf a reas on to di sa ll ow a cl ai m

. Sect io n 50 2( b) en um erat es th e

gr ou nd s on whi ch a pr oo f of cl ai m m ay be di sa ll owe d, an d no n- co m pl ia nc e wit h Ru le

3 0 01 is no t on e of th em

. The ba nk ru pt cy co ur t ha s au th or it y to sa nc ti on a cred it o r
who fai ls to su bm it su pp or ti ng in fo rm at io n as di rect ed by th e ru le s of pr oc ed ur e. Fed

. R. Ban kr . P. 30 01 (c)( 2) (D). Bu t a f ai lu re t o i te m iz e in te res t i n a cco rd an ce wi th th e

ru le s m ean s on l y t h a t th e pr oo f of cl ai m is no t pr ima fa ci e ev id en ce of th e cl ai m ’s

va li di ty an d am ou nt

. Acco rd In re Dov e-Na ti on , 31 8 B.R. 14 7, 15 2 (B.A.P. 8t h Ci r.

20 04 ); In re Bru ns on , 48 6 B.R. 75 9, 76 9- 70

, 77 2- 73 (Ban kr

. N.D. Tex

. 20 13 ); In re

Mac Far la nd , 46 2 B .R. 85 7, 8 79 -8 1 (B an kr . S.D. Fla. 2 01 1)

.

The ba nk ru pt cy co ur t tr e a t e d th e pr oo fs of cl ai m as pr ima fa ci e ev id en ce of

va li di ty, bu t ev en as su m in g fo r th e sa ke of an al y si s th at th ey were no t en ti tl ed to th at

-7

-st at us , we m ay affi rm th e jud gm en t on an y gr ou nd su pp or te d by th e reco rd

. Hol t v.

How ar d , 8 06 F.3 d 1 12 9, 1 13 2 (8 th Cir . 20 15 ). Even a cl ai m th at la ck s pr ima fa ci e

ev id en ce of va li di ty un de r Ru le 30 01 (f) can pr es en t at le as t so m e ev id en c e o f a
de m an d fo r pa y m en t fro m th e ba nk ru pt cy es ta te

. Se e Dov e-Na ti on , 31 8 B.R. at 15 2.

Here, th e cred it or s s up po rte d th ei r pr oo fs of cl ai m wit h at ta ch ed ex hi bi ts th at

do cu m en te d Kor le y ’s de bt

, al th ou gh a rg ua bl y no t pr eci se ly in th e m an ne r

co nt em pl at ed by th e ru le s. In th at si tu at io n, a de bt or m us t “ as se rt a su bs ta nt iv e ba si s

fo r di sa ll owa nc e ex pr es sl y st at ed in § 50 2 an d co m e fo rward wit h so m e ev id en ce to

di sa l l o w t h e c l a i m fo r th at reas on .” Bru ns on , 48 6 B.R. at 76 9. Fo r ex am pl e, th e
de bt or m ig ht su bm it a si gn ed affi da vi t av erri ng th at th e cl ai m was no t owe d or th at

th e de bt ha d be en sa ti sf

ie d. Se e In re Mul le r , 47 9 B.R. 50 8, 51 4 (Ban kr

. W .D. Ark

. 20 12 ).

Kor le y d i d n ot m ou nt th at so rt of de fen se , an d hi s st at ed ob jecti on s la ck ed

m eri t: h e ad va nc ed no pe rs ua si ve arg um en t th at th e Sear se s’ cl ai m s sh ou ld be

di sa ll owe d un de r an y of th e § 50 2( b) ex cep ti on s. Nor do es he co nt en d th at th e

am ou nt s as se rte d in th e pr oo fs of cl ai m are in co rrec t. The ba nk ru pt cy co ur t th us di d

no t e r r i n al lo win g th e Sear se s’ cl ai m s de sp it e a po te nt ia l sh or tc om in g in th e

it em iz at io n o f in te res t.

* * *

The jud gm en t o f th e b an kr up tc y co ur t i s af

fir m ed

.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __

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-