United States Court of Appeals

For the Eighth Circuit

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No. 15-3352

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In re: Korley B. Sears,

lllllllllllllllllllllDebtor.

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Korley B. Sears,

lllllllllllllllllllllAppellant,

v.

Rhett R. Sears; Rhett R. Sears Revocable Trust; Ronald H. Sears; Ron H. Sears

Trust; Dane Sears,

lllllllllllllllllllllAppellees,

U.S. Trustee,

lllllllllllllllllllllU.S. Trustee.

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Appeal from United States District Court 

for the District of Nebraska - Lincoln

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 Submitted: November 15, 2016

 Filed: July 18, 2017

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Before COLLOTON, BEAM, and GRUENDER, Circuit Judges.

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COLLOTON, Circuit Judge.

Korley Sears, a Chapter 11 debtor-in-possession, appeals a decision of the

district court affirming the bankruptcy court’s grant of summary judgment for

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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.

I. 

In 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.

Ronald 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 payments.

The Honorable Richard G. Kopf, United States District Judge for the District 1

of Nebraska.

The Honorable Thomas L. Saladino, Chief United States Bankruptcy Judge

2

for the District of Nebraska.

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In 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.

Following 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 ofsummary judgment de novo, applying the same standards asthe 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). 

II. 

Korley 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. 

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Title 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. Fed. R.

Bankr. P. 3001(f).

Korley 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 contendsthat 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 and to him. He argues that Ronald and Dane have duties

under the sale agreement, and that Rhett was obligated under Nebraska law not to

participate knowingly in any breaches by Ronald and Dane.

Assuming for the sake of analysis that the sale agreement and promissory notes

should be considered one contract under Nebraska law, we are not convinced by

Korley’s contention. The primary purpose of the sale agreement wasto effect the sale

of the Searses’ stock to AFY and Korley. The Searses substantially performed their

obligations by surrendering their stock to Korley and AFY. Any subsequent failure

by them to maintain loyalty to AFY and Korley would not excuse Korley’s

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performance under the sale agreement. The Searses’ duties of loyalty and good faith

and fair dealing did not go to the “root or essence of the contract.” Id. at 963

(quotation omitted). The sale agreement is thus not executory.

Korley next objects to the Searses’ proofs of claim based on 11 U.S.C.

§ 502(b)(1). Section 502(b)(1) disallows claims that are “unenforceable against the

debtor.” See Travelers, 549 U.S. at 450. Korley asserts a variety of contractual

defenses to the Searses’ proofs of claim. We apply Nebraska law to resolve these

issues. See id. at 450-51. 

Korley argues that the Searses breached their duties of loyalty and good faith

and fair dealing under the sale agreement by helping to appoint a trustee and then

assisting the trustee to liquidate AFY’s assets. He also contends that his obligations

under the sale agreement and promissory notes were discharged, because performance

was impossible after AFY was liquidated, and because liquidation frustrated the

contract’s purpose. He next assertsthat there was a failure of consideration under the

contract, because the Searses helped to liquidate AFY. This latter claim is another

way of describing an alleged failure of performance. Restatement (Second) of

Contracts § 237 cmt. a. (1981).

None of these contractual defenses has merit, because all of the challenged

conduct occurred after Korley filed for bankruptcy. When a party in interest objects

to a creditor’s claim, the bankruptcy court “shall determine the amount of such claim

. . . as of the date of the filing of the petition.” 11 U.S.C. § 502(b) (emphasis added). 

Post-petition conduct thus cannot justify disallowing a proof of claim. See In re

Flanagan, 503 F.3d 171, 178-79 (2d Cir. 2007). Korley argues otherwise based on

11 U.S.C. § 558, a provision granting the bankruptcy estate the benefit of any defense

available to the debtor, but § 558 simply “preserves to the [d]ebtor the defenses it

would have had prepetition.” In re Papercraft Corp., 127 B.R. 346, 350 (Bankr.

W.D. Pa. 1991). 

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Korley also asserts contractual defenses of impossibility, frustration, and

failure of performance based on the fact that AFY’s primary lender, Farm Credit

Services, withdrew financing from AFY before Korley petitioned for bankruptcy. 

The impossibility and frustration defenses apply when there is an “occurrence of an

event the non-occurrence of which was a basic assumption on which the contract was

made.” Turbines Ltd. v. Transupport, Inc., 825 N.W.2d 767, 775-76 (Neb. 2013)

(quoting Restatement (Second) of Contracts §§ 261, 265 (1981)). These defenses fail

here, because Farm Credit Services had a legal right to withdraw its line of credit

under certain circumstances, and there is no evidence that the contracting parties

assumed that the lender was forbidden to exercise its right. The failure-ofperformance defense cannot prevail because Farm Credit’s withdrawal of credit had

nothing to do with the Searses’ performance of their obligations under the contract.

Korley next argues that there was no mutual assent to the sale agreement

because he did not believe that AFY was also obligated to pay the Searses for their

stock. SeeRestatement (Second) of Contracts § 20 (1981). The agreement, however,

lists both AFY and Korley as the “Buyers” under the sale agreement who must pay

the purchase price to the Sellers. Consistent with this understanding, AFY, not

Korley, made the first annual installment payments to the Searses on the notes. We

see no merit to Korley’s argument that the sale agreement lacked mutual assent. 

Korley contends that the bankruptcy court retains power in equity to reject

proofs of claim based on post-petition inequitable conduct, and should have done so

here. He did not raise this argument in the bankruptcy court, so the point is forfeited,

and there is no plain error that might warrant relief. Korley cites the pre-Code

decision of Pepper v. Litton, 308 U.S. 295, 307-08 (1939), where the Court upheld

a bankruptcy court’s judgment disallowing a claim on equitable grounds. We

question whether the Pepper approach survives under the modern Bankruptcy Code,

because § 502(b) provides that claims will be allowed except as enumerated in that

section, and inequitable conduct is not an enumerated ground. See 4 Collier on

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Bankruptcy ¶ 502.03[11] (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2016). 

In Travelers, the absence of textual support was “fatal” to a judicially-created rule

that disallowed a claim for a reason not enumerated in § 502(b). 549 U.S. at 452. 

At a minimum, the bankruptcy court did not commit plain error when it declined to

disallow a claim based on a ground not enumerated in the statute.

III.

Korley also raises a procedural argument regarding the Searses’ proofs of

claim. Korley argues that the Searses’ proofs of claim did not include an “itemized”

statement of interest, as required by Federal Rule of Bankruptcy Procedure

3001(c)(2)(A) and Official Form 10. Rule 3001(f) providesthat a proof of claim that

is executed and filed in accordance with the rules is prima facie evidence of the

validity and amount of the claim. Korley contends that the Searses’ proofs of claim

did not comply with the rules, and that the bankruptcy court thus erred in treating the

them as prima facie evidence of validity and amount.

A claimant’s failure to comply with Rule 3001(c)(2)(A) or Official Form 10,

however, is not by itself a reason to disallow a claim. Section 502(b) enumerates the

grounds on which a proof of claimmay be disallowed, and non-compliance with Rule

3001 is not one of them. The bankruptcy court has authority to sanction a creditor

who failsto submitsupporting information as directed by the rules of procedure. Fed.

R. Bankr. P. 3001(c)(2)(D). But a failure to itemize interest in accordance with the

rules means only that the proof of claim is not prima facie evidence of the claim’s

validity and amount. Accord In re Dove-Nation, 318 B.R. 147, 152 (B.A.P. 8th Cir.

2004); In re Brunson, 486 B.R. 759, 769-70, 772-73 (Bankr. N.D. Tex. 2013); In re

MacFarland, 462 B.R. 857, 879-81 (Bankr. S.D. Fla. 2011). 

The bankruptcy court treated the proofs of claim as prima facie evidence of

validity, but even assuming for the sake of analysis that they were not entitled to that

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status, we may affirm the judgment on any ground supported by the record. Holt v.

Howard, 806 F.3d 1129, 1132 (8th Cir. 2015). Even a claim that lacks prima facie

evidence of validity under Rule 3001(f) can present at least some evidence of a

demand for payment from the bankruptcy estate. See Dove-Nation, 318 B.R. at 152. 

Here, the creditors supported their proofs of claim with attached exhibits that

documented Korley’s debt, although arguably not precisely in the manner

contemplated by the rules. In that situation, a debtor must “assert a substantive basis

for disallowance expressly stated in § 502 and come forward with some evidence to

disallow the claim for that reason.” Brunson, 486 B.R. at 769. For example, the

debtor might submit a signed affidavit averring that the claim was not owed or that

the debt had been satisfied. See In re Muller, 479 B.R. 508, 514 (Bankr. W.D. Ark.

2012). 

Korley did not mount that sort of defense, and his stated objections lacked

merit: he advanced no persuasive argument that the Searses’ claims should be

disallowed under any of the § 502(b) exceptions. Nor does he contend that the

amounts asserted in the proofs of claim are incorrect. The bankruptcy court thus did

not err in allowing the Searses’ claims despite a potential shortcoming in the

itemization of interest.

* * *

The judgment of the bankruptcy court is affirmed. 

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