## United States Bankrup tcy Appellate P anel

FOR THE EI GHT H CIRCUI T

No. 1 1- 60 42

In re: *

*

In re: AFY, Inc., al so kn own as *
Ain swo rth Feed Yard s C om pa ny, Inc., *

*
Deb to r. *

*

Ro be rt A. Sea rs ; Ko rle y

B. Sear s, * App eal fro m th e

* Uni te d S ta te s In te res te d p art ie s - Ap pe ll an ts

, * Ban kr up tc y Co ur t fo r th e

* Dis tri ct of Ne br as ka

v. *

*

*

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

Trus t; Dane Sear s, *

*
Cl ai m an ts - App el le es

. *

Su bm it te d: Nov em

be r 30 , 20 11
Fi le d: Jan ua ry

23 , 20 12

Befo re KRESSEL, Ch ie f Ju dg e, SCHERM ER an d VENTERS, Ban kr up tc y Ju dg es

SCHERM ER, Ban kr up tc y Ju dg eRo be rt A. Sear s (“ Ro be rt” ) an d Kor le y B. Sear s (“ Kor le y ”) ap pe al fro m t he

Ju ne 8, 20 11 or de r of th e ba nk ru pt cy co ur t: (1 ) ov erru li ng th ei r ob jecti on s to Cl ai m 1

No s

. 8

, 9 a n d 10

, whi ch cl ai m s were fil ed by Rh et t R. Sear s, Rh et t R. Sear s

Rev oc ab le Trus t, Ro n H. Sear s Trus t, Ro na ld H. S e a r s , an d Dan e R. Sear s (co ll ect iv el y , th e “ Sear s Fam il y Mem be rs ”) in th e ba nk ru pt cy cas e of AFY, In c., al so

kn own as Ain swo rth Feed Yard s Co m pa ny, In c. (th e “ Deb to r”); an d (2 ) di sa ll owi ng

Cl ai m No. 26 of Kor le y

. W e ha ve juri sd ic ti on ov er th is ap pe al fro m th e fin al or de r 2

of th e ba nk ru pt cy co ur t. Se e 28 U.S.C. § 15 8( b)

. Fo r th e reas on s se t fo rth be lo w, we

affi rm

.

IS SUES
The is su es be fo re th is Co ur t are whe th er th e ba nk ru pt cy co ur t erre d whe n it :(1 )

di sa ll owe d Cl ai m No. 26 fil ed by Kor le y B. Sear s; (2 ) ov erru le d th e ob jecti on to th e
cl ai m of th e Sear s Fam il y Mem be rs ; an d (3 ) de ni ed th e req ue st s by Kor le y an d Ro be rt

to ha ve th e he ari ng po st po ne d to al lo w ti me f o r d i s c ov ery an d fo r a he ari ng wit h

te st im on y an d c ro ss -ex am in at io n of wit ne ss es , rat he r th an ha vi ng th e m at te rs

su bm it te d on affi da vi t ev id en ce. In ad di ti on , th e Sear s Fam il y Mem be rs arg ue d th at

if we affi rm th e ba nk ru pt cy co ur t’s de ni al of K o r l e y’s Cl ai m No. 26

, Ro be rt an d

The Hon or ab le Tho m as L. Salad in o, Ch ie f Uni te d S ta te s B an kr up tc y 1

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

.

In th ei r Not ic e o f App eal , Rob ert an d Ko rle y als o i nd ic at e th at th ey 2

ap pe al fro m

a Ju ne 10 , 20 11 ord er o f th e b an kr up tc y co ur t t ha t d en ie d t he Ch ap te r 7 t ru st ee’s o bjec ti on to Korl ey ’s Cla im No. 2 6 a s m oo t b ecau se th e b an kr up tc y

co ur t h ad alr ead y

di sa ll owe d C la im

No. 2 6 b y

it s J un e 8 , 20 11 ord er. The re i s n o refe ren ce t o t he tru st ee’s o bjec ti on to Cla im No. 2 6 o r th e Ju ne 10 , 20 11 ord er i n Ro be rt’s a nd Korl ey ’s Desi gn at io n o f Rec or d a nd Sta te m en t o f Is su es , and th e
tru st ee’s o bjec ti on to Cla im No. 2 6 a nd th e Ju ne 10 , 20 11 ord er were no t d is cu ss ed
in th e b rie fs or a t o ral arg um en t. In ad di ti on , if Ro be rt a nd Korl ey so ug ht to

ap pe al fro m

th e Ju ne 10 , 20 11 ord er, t he y were re qu ire d t o fi le a se pa rat e n ot ic e o f

ap pe al , acco m

pa ni ed by the ap pl ic ab le fil in g fe e. Acco rd in gl y , we do no t co ns id er th e Ju ne 10 , 20 11 ord er as pa rt o f th is ap pe al

.

-2-Kor le y do no t ha ve st an di ng to ap pe al th e ba nk ru pt cy co ur t’s ord er ov erru li ng th ei r

ob jecti on s to th e cl ai m s of th e Sear s F a mi l y Mem be rs

. Bec au se we affi rm th e
ba nk ru pt cy co ur t’s de ci si on to di sa ll ow Kor le y ’s Cl ai m No. 26

, we al so c o n s i d e r
whe th e r R o b e r t an d Kor le y ha ve st an di ng to br in g th is ap pe al

. Nev ert he le ss , we

ag ree wi th th e b an kr up tc y co ur t o n a ll is su es an d, t he refo re, we aff irm.

BACKGRO UND
On Ju ne 22

, 20 07

, th e Sear s Fam il y Membe rs ex ecu te d a St oc k Sal e

A gr eem en t whe reb y th ey so ld th ei r in te res ts in th e Deb to r to th e Deb to r an d to

Kor le y

. Th e Deb to r ex ecu te d th e St oc k Sal e Agr eem en t th ro ug h it s Pres id en t,

Ro be rt, an d it s Vice Pres id en t, Kor le y

. Kor le y al so si gn ed th e St oc k Sal e Agr eem en t

in hi s i nd iv id ua l ca pa ci ty.

Para gr ap h 2 of th e St oc k Sal e Agr eem en t li st s “ Bu y ers ” as “ AFY, In c., a
Neb ras ka co rp or at io n form erl y kn own as Ain swo rth Feed y ard s Com pa ny, In c., an d

Kor le y B. Sear s.” Para gr ap h 4 refe rs to “[t ]h e p u r c h as e pr ic e to be pa id by Bu y ers

to Sel le rs

. . . . ” Para gr ap h 7 of th e St oc k Sal e Agr eem en t pr ov id es th at wit hi n a

cert ai n pe rio d of ti m e, “ th e Bu y er(s ) sh al l ex ecu te

, fo r each Sel le r, a Pro m is so ry Not e,

an d a Ple dg e an d S ecu rit y Agr eem en t.” Onl y Kor le y ex ecu te d pr om is so ry no te s in

fav or of t he Sear s Fa m il y Mem be rs

.

The “ Mi nu te s [o f th e] 20 08 Ann ua l Mee ti ng of Sh areh ol de rs [o f th e Deb to r]”

reci te wit h res pe ct to th e st oc k pu rch as ed in th e St oc k Sal e Agr eem en t th at “ th e st oc k

sh ou ld be red eem ed by [t he Deb to r] an d he ld as tre as ur y st oc k an d sh ou ld no t pa ss

to Kor le y B. Sear s whe n pa id fo r.” A res ol ut io n (th e “ 20 08 Res ol ut io n” ) was ad op te d

pr ov id in g th at “ th e [Deb to r] sh al l red eem an d m ak e al l pa y m en ts req ui red to be m ad e,

to acq ui re al l sh ares of [th e Deb to r], st oc k an d al l ot he r sh ares pr ov id ed to be so ld by
[ t h e S e ars Fam il y Mem be rs ] un de r th e te rm s of th e Ju ne 20 07 St oc k [S a l e ]

A g reem en t.” The Deb to r m ad e a do wn pa y m en t an d th e fir st in st al lm en t p a ym e n t

un de r th e St oc k S al e Agr eem en t, b ut m ad e n o a dd it io na l p ay m en ts

.

-3-In Feb ru ary 20 10

, Ro be rt an d Kor le y each fil ed a pe ti ti on fo r rel ie f un de r

Ch ap te r 11 of Tit le 11 of th e Uni te d St at es Co de (th e “ Ban kr up tc y Co de ”). In Mar ch

20 10

, th e Deb to r fil ed it s ba nk ru pt cy pe ti ti on

. Ro be rt an d Kor le y su bm it te d th at th ey

are th e on ly sha reh ol de rs of t he Deb to r. The Sear s Fam il y Mem be rs su bm it te d th at

th ey ha ve a se cu rit y in te res t i n Ko rle y ’s sh ares in th e Deb to r an d t ha t t he y ha ve th e rig ht to vo te th os e sh ares

. W he n di sp ut es aro se be twee n Ro be rt a n d K o r le y on th e

on e ha nd

, an d th e Sear s Fam il y Mem be rs on th e ot he r ha nd

, reg ard in g own ers hi p an d

co nt ro l of th e Deb to r an d is su es rel at ed to th e ba nk ru pt cy cas e, th e Deb to r’s co un se l

wit hd rew hi s rep res en ta ti on an d, up on a m ot io n m ad e by th e Sear s Fam il y Mem be rs ,

a Ch ap te r 11 tru st ee (th e “ Trus te e”) was ap po in te d. The cas e was th en co nv ert ed to

a Ch ap te r 7 cas e an d th e Trus te e was ap po in te d as tru st ee in th e C h a p t er 7 cas e.

Dur in g t he co ur se of th e cas e, th e Tru st ee as su m ed cert ai n p re-p et it io n c on tra ct s o f

th e Deb to r, in cl ud in g p re-p et it io n c on tra ct s t o s el l re al est at e.

The Sear s Fam il y M e m

be rs fil ed Cl ai m s Nos

. 8, 9 an d 10 in th e Deb to r’s

ba nk ru pt cy cas e, se ek in g su m s du e un de r th e St oc k Sal e Ag r e e ment

. Att ach ed to

e a c h pr oo f of cl ai m is

, am on g ot he r th in gs , a na rrat iv e ex pl an at io n of th e cl ai m ,

co pi es of th e St oc k Sal e Agr eem en t, a pr om is so ry no te fro m Kor le y an d th e Mi nu te s

fro m th e 20 08 Ann ua l Meet in g of Shar eh ol de rs

. Ro be rt a nd Korl ey ob jecte d to th e

Sear s Fam il y Mem

be rs ’ cl ai m s, m ai nt ai ni ng th at th e Deb to r be ars no li ab il it y fo r th e

su m s du e un de r th e St oc k Sal e Agr eem en t. Ro be rt an d Kor le y arg ue fu rth er t h at

,

ev en if th e Deb to r was li ab le to th e Sear s Fam il y Mem be rs un de r th e S t o c k Sal e Agr eem en t, it s li ab i l i t y sh ou ld be di sc ha rg ed ba se d on cert ai n de fen se s. As an

al te rn at iv e to th e Sear s Fam il y Mem be rs ’ cl ai m s fo r th e di rect li ab il it y of th e Deb to r

un de r th e St oc k Sal e Agr eem en t, th e Sear s Fam il y Mem be rs arg ue th at

, as th ird pa rty

be ne fic ia rie s o f a pr om is e m ad e by t he Deb to r to Kor le y , a s ev id en ced by t he 20 08

Res ol ut io n, t he y

ha ve a cl ai m

ag ai ns t t he Debt or ’s est at e.

-4-Kor le y fil ed hi s Cl ai m N o

. 2 6

, a s a co nt in ge nt cl ai m in th e am ou nt of

$5 ,32 5,2 91 .16

, th e a gg reg at e am ou nt cl ai m ed by th e Sear s Fam il y Mem be rs

. The

Sear s Fa m il y

Mem be rs an d t he Trus te e o bjec te d t o C la im No. 2 6.

Ro be rt an d Kor le y req ue st ed th at th e he ari ng on th e ob jecti on s to Cl ai m s Nos

. 8, 9, 1 0 a nd 26 be po st po ne d to al lo w th em ti m e to co nd uc t di sc ov ery. The y al so

req ue st ed a he ari ng wit h te st im on y an d cro ss -ex am in at io n of wit ne ss es , rat he r th an

ha vi ng th e m at te rs su bm it te d on affi da vi t ev id en ce. The ba nk ru pt cy co ur t de ni ed th e

req ue st s by Ro be rt an d Kor le y

. In a te xt or de r da te d Apr il 25

, 20 11

, th e ba nk ru pt cy

co ur t s ta te d:

The co ur t ge ne ral ly ag rees wit h [Co un se l to Ro be rt an d Kor le y ] th at an
op po rtu ni ty fo r di sc ov ery an d cro ss ex am in at io n are im po rta nt el em en ts in an y cl ai m ob

jecti on pr oc eed in g, bu t th e he ari ng on affi da vi t ev id en ce sh ou ld no t be el im in at ed

. [Co un se l to Ro be rt an d Kor le y ] st il l ha s ov er
t hr ee week s to co nd uc t in it ia l di sc ov ery (an d ob vi ou sl y ha s h a d man y

m on th s to ha ve do ne so ). Fu rth er, at su ch a he ari ng , t h e C o u r t can de te rm in e th e co m

pl ex it y of th e is su es , th e effo rts of th e pa rti es to da te

,
an d whe th er fu rth er pr oc eed in gs are ne ces sa ry or ap pr op ria te un de r th e ci rcu m st an ces

.

On May18

, 20 11

, th e ba nk r u p t c y c o u r t he ld a he ari ng on th e ob jecti on s to Cl ai m s

Nos . 8 , 9, 10 an d 26

. The ba nk ru pt cy co ur t to ok th e m at te rs un de r ad vi se m en t an d

en te red it s ru li ng in a w rit te n or de r da te d Ju ne 8, 20 11

. Refe rri ng to it s Apr il 25

, 20 11 tex t o rd er, t he ba nk ru pt cy co ur t ex pl ai ne d i n i ts Ju ne 8, 2 01 1 o rd er t ha t:

[Co un se l to Ro be rt an d Kor le y ] req ue st ed th e he ari ng s be po st po ne d to al lo w ti m e fo r di sc ov ery an d th at th ey be se t for liv e te st im on y

. W hi le
th e co ur t ge ne ral ly ag rees th at ti m e fo r di sc ov ery an d li ve te st im on y are
ge ne ral ly ap pr op ria te whe re th ere are di sp ut ed is su es of fact

, [co un se l’s]

m ot io ns were de ni ed an d th e he ari ng he ld to de te rm in e th e ex te nt of an y fact ua l d is pu te s an d t o d et erm in e is su es of l aw (Fi l. # 38 6)

.

-5-The b a nk ru pt cy co ur t ov erru le d th e ob jecti on s of Ro be rt an d Kor le y to th e

Sear s Fam il y Mem

be rs ’ cl ai m s an d al lo wed th os e cl ai m s. It su st ai ne d th e ob jecti on s

to Korl ey ’s Cla im

No. 2 6 a nd di sa ll owe d t ha t cl ai m

.

STANDARD OF REVIEW
W e rev ie w th e ba nk ru pt cy co ur t’s fin di ng s of fact fo r cl ear er r o r a n d i ts

co nc lu si on s of la w de no vo

. Fed

. R. Ban k. P. 80 13 ; Dov e-Na ti on v. eCa st Se tt le men t

Co rp

. (In re Dov e-Na ti o n )

, 3 1 8 B.R. 14 7, 15 0 (B.A.P. 8t h Ci r. 20 04 ) (ci ta ti on s

om it te d)

.

DISCUSS IO N
A cred it or of th e de b t o r may fil e a pr oo f of cl ai m

. Se e 11 U.S.C. §5 01 (a).

Ban kr up tc y Co de §5 02 (a) e xp la in s t ha t “ [a] c la im

. . , p ro of of whi ch is fil ed un de r § 5 0 1 o f [th e Ban kr up tc y Co de ], is de em ed al lo wed un le ss a pa rty in in te res t

. . . ob jects .” 11 U.S.C. § 50 2( a). W he n an ob jecti o n t o t he cl ai m ha s be en fil ed

, th e

co ur t is ch arg ed wit h de te rm in in g th e am ou nt of th e cl ai m as of th e pe ti ti on da te an d

it sh al l al lo w th e cl ai m in su ch am ou nt un le ss th e ex cep ti on s l i s t e d in Ban kr up tc y

Co de §§ 50 2( b) (1 ) th ro ug h (9 ) ap pl y

. Se e 11 U.S.C. §5 02 (b )(1 )-(9 ).

A pr oo f of cl ai m th at is fil ed in acco rd an ce wit h th e Fed eral Ru le s of

Ban kr up tc y Pro ced ur e is “ pr im a faci e ev id en ce of th e va li di ty an d th e am ou nt of th e
cl ai m .” Fed . R . B an kr . P . 3 00 1( f). To ov erco m e a cl ai m ’s p res um pt iv e va li di ty, an

o b je ct io n m us t be su pp or te d by su bs ta nt ia l ev id en ce. McDa ni el v. Rive rs id e Cn ty

. Dep ’t of Ch il d Su

pp or t Ser vs

. (In re McDa ni el )

, 26 4 B.R. 53 1, 53 3 (B.A.P. 8t h Cir.

20 01 ); Co ns ume rs Rea lt

y & Dev. Co

, In c. v. Goe tz e (In re Co ns ume r Real ty & Dev.

Co

., In c.)

, 23 8 B.R. 41 8, ( B.A.P. 8t h Ci r. 19 99 ) (p art y ob jecti ng to pr oo f of cl ai m

mu s t p r o du ce ev id en ce to ov erco m e pr im a faci e va li di ty). The cl ai m an t m us t

pr ov id e ad di ti on al ev id en ce of th e cl ai m ’s va li di ty if th e pa rty ob jecti ng to th e cl ai m
reb ut s it s pr es um

pt iv e va li di ty. Gra n v. I.R.S. (In re Gra n)

, 96 4 F.2 d 82 2, 82 7 (8 th

Ci r. 19 92 ).

-6-I. Dis al lo w an ce o f Ko rl ey ’s Cla im No. 26

The ba n k ru pt cy co ur t co rrec tl y di sa ll owe d Cl ai m No. 26 fil ed by Kor le y

. Alt ho ug h th e al le ge d ba si s fo r Kor le y ’s Cl ai m No. 26 is di ffi cu lt to de ci ph er, Ro be rt

an d Kor le y de sc rib e it as a co nt in ge nt cl ai m by whi ch “ if th ere was a co nt ract by th e

co rp or at e res ol ut io n to red eem th e st oc k of Kor le y , he ha s gr eat er rig ht s to pa y m en t by [th e Deb to r] on t he cla im s ag gr eg at in g $5 ,32 5,2 91 .16 th an do [th e Sea rs Fam il y

Mem be rs ]. ” Att ach ed to Kor le y ’s Cl ai m No. 26 i s a na rrat iv e ex pl an at io n of th e
cl ai m an d th e pr oo fs of Cl ai m s Nos

. 8, 9, an d 10 fil ed by th e Sear s Fam il y Mem be rs , wit ho ut m os t of th ei r ex hi bi ts

. W e ag ree wit h th e ba nk ru pt cy co ur t’s as se ss m en t th at

on it s face

, Kor le y ’s pr oo f of cl ai m pr ov id ed ab so lu te ly no le ga l ba si s fo r li ab il it y by

th e Deb to r.

II

. All ow an ce o f cl ai m s o f Sea rs Family Mem bers

A. Li ab il ity under the St oc k Sa le Agre ement

W e ag ree wit h th e ba nk ru pt cy co ur t’s de te rm in at io n th at Ro be rt an d K o r l e y
fai le d to ov erco m e th e pr es um pt iv e va li di ty of th e pr oo fs of cl ai m fil ed by th e Sear s

Fam il y Mem

be rs

. The pl ai n la ng ua ge of th e St oc k Sal es Agr eem en t im po se s li ab il it y

on th e Deb to r fo r th e de ferr ed pu rch as e pr ic e an d th e Deb to r’s l i a b il it y was no t

di sc ha rg ed un de r an y

of t he de fen se s s ub m it te d b y Ro be rt a nd Korl ey

.

The pa rti es ag ree th at th e St oc k Sale Agr eem en t is th e co nt ro ll in g do cu m en t,

th at it is un am

bi gu ou s an d th at Neb ras ka la w go ve rn s. The pa rti es di sa gr ee, ho wev er,

reg ard in g whe th er th e Deb to r is li ab le un de r th e ag reem en t. Acco rd in g to Ro be rt an d

Kor le y , t he “ th e un am

bi g u o u s S t oc k [Sal e] Ag reem en t on whi ch [th e Sear s Fam il y

Mem be rs ] ba se th ei r cl ai m [s ] do es no t pr ov id e th at [th e Deb to r] ha s an y

. . . li ab il it y .”

The Sear s Fam il y Mem

be rs m ai nt ai n, ho wev er, th at th e St oc k Sal e Agr eem en t pl ai nl y

pr ov id es th at th e Deb to r is li ab le for th e d efer red pu rch as e p ric e.

W e rev ie w th e ba nk ru pt cy co ur t’s in te rp ret at io n of th e un am bi gu ou s co nt ract

de no vo an d we do no t con si de r ex tri ns ic ev id en ce of i nt en t. Se e ABC Elec ., Inc . v.

-7-Neb

. Beef

Lt d.

, 24 9 F.3 d 76 2, 76 6- 67 (8 th Ci r. 20 00 ); Dav en po rt Lt d. P’sh ip v. 75 th

& Dod ge I, L.P.

, 7 8 0 N.W .2d 41 6, 42 2 (2 01 0) (“ A co nt ract writ te n in cl ear an d

un am bi gu ou s la ng ua ge is no t su bjec t to in te rp ret at io n or co ns tru ct io n an d m us t be

en fo rced acco rd in g to it s te rm s.”)

. The fact th at each pa r t y c l a i m s th e St oc k Sal e Agr eem en t un am

bi gu o us ly su pp or ts it s po si ti on do es no t pr ecl ud e us fro m fin di ng

un am bi gu i t y

. Neb

. Pub

. Pow er Dis t. v. Mid Ameri ca n Ene rg

y Co

. , 23 4 F.3 d 10 32

, 10 41 (8 th Ci r. 20 00 ) (ci ta ti on om it te d) ; Dav en po r t

, 7 8 0 N .W .2d at 42 2 (“ A co ur t

in te rp ret in g a co nt ract m

us t fir st de te rm in e as a m at te r of la w whe th er th e co nt ract is

am bi gu ou s.”)

.

The ba nk ru pt cy co ur t ag reed wit h th e pa rti es th at th e St oc k S al e Agr eem en t

is un am bi gu ou s. It al so ag reed wit h th e Sear s Fam il y Mem be rs th at th e Deb to r was

li ab le as th e “ Bu y er” un de r th e ag reem en t. W e ag ree with th e ba nk ru pt cy co ur t. In

th e pl ai ne s t of la ng ua ge , Para gr ap h 2 de fin es th e Deb to r as on e of th e bu y ers

. In

Para gr ap h 4, it ex pl ai ns th at th e pu rch as e pr ic e is “ to be pa id by Bu y ers to Sel le rs

. . . .” Like wis e, th e Deb to r si gn ed th e St oc k S al e Agr eem en t as a bu y er.

Am on g ot he r arg um en ts

, Ro be rt an d Kor le y m ai nt ai n th at by u s i n g t he te rm

“ Bu y er(s ),” th e St oc k Sal e Agr eem en t di d no t req ui re bo th Kor le y an d th e Deb to r to

si gn pr om is so ry no te s an d i t o n ly im po se s li ab il it y fo r th e pu rch as e pr ic e on th e

pe rs on or en ti ty who do es si gn a pr om is so ry no te

. Para gr a p h 7 of th e St oc k Sal e 3

Agr eem en t ex pl ai ns th at “ Bu y er(s ) sh al l ex ecu te

, fo r each Sel le r, a Pro m is so ry Not e

an d a Pl ed ge an d Secu rit y Agr eem en t.” Acco rd in g to Ro be rt an d Kor le y , th e Deb to r
is no t lia bl e to th e Sear s Fam il y Mem be rs be cau se on ly K or le y , an d no t th e Deb to r,

ex ecu te d p ro m is so ry

no te s.

One of t he ot he r arg um en ts m ad e b y Ro be rt a nd Korl ey

is th at th e 3
read in g o f th e St oc k S al e Agr eem en t re qu es te d b y th e Sea rs Fam il y

Mem be rs
req ui res th is Co ur t t o l oo k a t Pa rag rap hs 2 an d 4 in is ol at io n a nd wou ld ch an ge th e

m ean in g o f th e ag reem en t as a who le . W e d is ag ree. Pa rag rap hs 2 an d 4 , im po si ng li ab il it y on th e Deb to r, are c on si st en t wi th th e ag reem en t i n i ts en ti ret y

.

-8-W e di sa gr ee. The fo ur co rn ers of th e St oc k Sal e Agr e e men t u n a m bi gu ou sl y

pr ov id e th at th e Deb to r is li ab le th ereu nd er. Nowh ere do es th e ag reem en t st at e th at

a pa rty wil l be rel eas ed fro m li ab il it y if it fai ls to si gn a pr om is so ry no te

. The

arg um en ts by Ro be rt an d Kor le y am ou nt to an at te m pt to crea te an am

bi gu it y in a
do cu m en t t h a t th ey ha ve al read y ad m it te d to be un am bi gu ou s, whi ch we wil l no t

al lo w. Mo reo ve r, it is cu rio us th at Ro be rt an d Kor le y as ke d th e ba nk ru pt cy co ur t an d

th is Co ur t to refe r to ex tr i n s i c ev id en ce, th e pr om is so ry no te s, to in te rp ret an

un am bi gu ou s co nt ract

.

W e no te fu rth er th at Ro be rt an d Kor le y di d no t pr ov id e ev id en ce to di sp ut e th e
ba la nc e owe d to each of th e Sear s Fam il y Mem be rs

. The ba nk ru pt cy co ur t pr op erl y
al lo wed th e cl ai m s i n t he am ou nt for whi ch th ey were fi le d.

B. Defen se s a ll eg ed By Robe rt a nd Ko rl ey 4

i. Bre ac h o f duty of g oo d fa ith an d fa ir dea li ng /l oy al ty

R o b e r t an d Kor le y m ai nt ai n th at an y li ab il it y of th e Deb to r un de r th e S t o c k

S a l e A g r eem en t was di sc ha rg ed as a m at te r of la w ba se d on th e Sear s Fam il y

Mem be rs ’ al le ge d br each of th ei r im pl ie d d u t i e s o f g oo d fai th an d fai r de al in g an d

Ro n Sear s’s an d Rh et t Sear s’s al le ge d ex pr es s du ti es of lo y al ty to th e Deb to r se t fo rth

in th e St oc k Sal e Agr eem en t. As gr ou nd s fo r su ch br each es , Ro be rt an d Kor le y ci te

to po st -b an kr up tc y su pp or t by th e Sear s Fam il y Mem be rs of th e Trus te e’s effo rts in

In ad di ti on to th e two de fen se s al le ge d b y Ro be rt a nd Korl ey

th at we 4
di sc us s i n t hi s o pi ni on , Rob ert an d Ko rle y refe rred to ot he r al le ge d d efen se s i n th ei r St at em en t o f Is su es . Of th e ad di ti on al de fen se s, t he on ly defen se th at Ro be rt

an d Ko rle y

m en ti on ed be y on d t he ir S ta te m en t o f Is su es was t he all eg at io n t ha t an y

co nt ract ua l l ia bi li ty of th e Deb to r was di sc ha rg ed by new or su bs ti tu te d c on tra ct s

co ns is ti ng of t he pro m is so ry no te s. Th is arg um en t was di sc us se d o nl y bri efl y an d

on ly in t he rep ly brie f fi le d b y Ro be rt a nd Korl ey

an d we, t he refo re, co ns id er i t t o be ab an do ne d o r wai ve d.

-9-as su m in g ex ecu to ry co nt ract s an d cl osi ng purcha se ag reem en ts th at were co m m en ced

pr e-p et it io n. The y al so refe r to th e Sear s Fam il y Mem be rs ’ “ op po si ti on to th e
Ch ap te r 11 cas e of AFY,” th ei r sp on so rs hi p of th e De b t o r ’s l i qu id at io n an d th ei r

s u p p or t fo r ot he r effo rts of th e Trus te e. Ass um in g, fo r th e sa ke of arg um en t, t h a t

th es e du ti es ex is te d in th e fir st in st an ce, Ro be rt an d Kor le y ha ve fai le d to sh ow ho w
th ey were br each ed in a way th at wou ld m eri t di sa ll owa nc e of th e cl ai m s. The y ci te

to on ly po st -p et it io n act io ns of th e Sear s Fam il y Mem be rs as br each es of th ei r du ti es

. B u t cl ai m s in ba nk ru pt cy , s uc h as th e cl ai m s of th e Sear s Fam il y Mem be rs th at a r e

at is su e he re, are de te rm in ed as of th e ba nk ru pt cy pe ti ti on da te

. Se e 11 U.S.C. §

50 2( b) (“ th e co ur t...s ha ll 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

... ”) (em ph as is ad de d)

. M o reo ve r, it wou ld de fy lo gi c to ho ld

th at a cl ai m an t wou ld act in ba d fai th si m pl y by tryin g to en fo rce hi s cl ai m an d as si st

a cas e tr us te e in pro cu rin g p ay m en t o f it

.

ii

. Supe rv eni ng frus tra tio n

Ro be rt an d Kor le y al so m ai nt ai n th at an y li ab il it y of th e Deb to r un de r th e St oc k

Sal e Agr eem en t was d i s c h a rg ed as a m at te r of la w be cau se “ th e pr in ci pa l pu rp os e

up o n w hi ch th e St oc k Sal e Agr eem en t was ba se d was fru st rat ed an d th e ba si c

as su m pt io n on whi ch th e S t o c k [ S a l e ] Agr eem en t was m ad e di d no t oc cu r.” The y
al le ge th at th e St oc k Sal e Agr eem en t is un en fo rcea bl e be cau se th e pa rti es en te red in to

it un de r th e as su m

pt io n th at th e Deb to r’s op erat io ns w o u l d co nt in ue as a go in g

co nc ern an d th at th e pa y m en t fo r th e st oc k wou ld co m e fro m th e Deb to r’s cas h flo w

an d e arn in gs . Due t o th e co un try’ s un fo res een rece ss io n a nd th e wit hd rawal by the

Deb to r’s le nd er of an op erat in g li ne of cred it

, th e Deb to r di d no t co nt in ue to op erat e

as a go in g c on cern

. 5

Ro be rt a nd Korl ey

pre se nt ed th ei r su pe rv en in g fr us tra ti on th eo ry

to 5
th e b an kr up tc y

co ur t. The ba nk ru pt cy

co ur t d id no t d is cu ss th e d efen se in it s writ te n o pi ni on , so we m us t as su m e it reject ed th at th eo ry . W e ag ree wi th th e ba nk ru pt cy

co ur t’s d eci si on

.

-10-Und er th e th eo ry of di sc ha rg e by “ su pe rv en in g fru st rat io n,” a pa rty no lo ng er

ha s t he du ty to pe rfo rm un de r a co nt ract “ un le ss th e la ng ua ge or th e ci rcu m st an ces

in di cat e to th e co nt rary” in ci rcu m st an ces “ [w]here, aft er a co nt ract is m ad e, a pa rty’ s

pr in ci pa l pu rp os e is su bs ta nt ia ll y fru st rat ed wit ho ut hi s fau lt by th e 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.” Res ta te m en t (Sec on d) of Co nt ract s §2 65 (1 98 1) (q uo te d in Cl ea sb y v. Leo A.

Dal y Co

. , 37 6 N.W.2d 3 12 , 31 8- 19 (19 85 )); see al so Ameri ca n Pr ai ri e Co ns tr . Co.

v. Hoi ch

, 59 4 F.3 d 10 15

, 10 26 (8 th Ci r. 20 1 0 ) ( c i t in g Res ta te m en t (Sec on d) of

Co nt ract s § 26 5)

.

Ro be rt an d Kor le y cl ai m th at th e pa rti es wou ld no t ha ve en te red in to th e St oc k

Sal e Agr eem en t if th e st oc k pu rch as e pr ic e was no t go in g to be pa id ou t of th e
Deb to r’s cas h flo w an d earn in gs , an d th ey ci te to a de cl arat io n of Ro be rt as su pp or t

fo r th ei r arg um en t. Not wit hs ta nd in g Ro be rt’s de cl arat io n, Ro be rt an d Kor le y fai le d

to sa ti sf act or il y p r o v e a s up erv en in g fru st rat io n de fen se

. App lying th e th eo ry of

co m m erci al fru st rat io n t o t h e s i t u at io n he re wou ld be ak in to al lo win g an y pa rty t o
be rel ie ve d of hi s co nt ract ua l du ti es si m pl y be cau se he is no lo ng er ab le to pa y th em ,

an d wou ld m ean a de bt or is free d fro m hi s ob li ga ti on s each ti m e he is un ab l e t o

reo rg an iz e. Tha t is si m

pl y no t th e la w. W e al so no te th at th e St oc k Sal e Agr eem en t

it se lf reco gn iz es th e po ss ib il it y of th e Deb t o r ’s ba nk ru pt cy whe n it req ui res in

Para gr ap h 7.1 th at th e pr om is so ry n o te s m us t pr ov id e fo r im m ed ia te pa y m en t up on

th e Deb to r’s ba nk ru pt cy

.

Ro be rt an d Kor le y fai le d to pr ov id e ev id en c e s uf fic ie nt to reb ut th e

pr es um pt iv e va li di ty of th e Sear s Fam il y Mem be rs ’ cl ai m s an d th e ba nk ru pt cy co ur t,

th eref or e, pr op erl y

all owe d t he cla im s as fil ed

.

C. Sta ndi ng
The Sear s Fam il y Me m

be rs arg ue th at

, if we affi rm th e ba nk ru pt cy co ur t’s

di sa ll owa nc e of Kor le y ’s Cl ai m No. 26 (wh ic h we do ), Ro be rt and Kor le y wil l lack

-11-st an di ng to ap pe al th e ba nk ru pt cy co ur t’s al lo wan ce o f th e Sea rs Fam il y Mem be rs ’

cl ai m s be cau se Ro be rt an d Kor le y wil l no t b e d i r ect ly affe ct ed by th e ba nk ru pt cy

co ur t’s d eci si on

.

The is su e of st an d i n g i s n ot m at eri al to th e ou tc om e of th is m at te r be cau se ,

ev en if Ro be rt an d Kor le y ha ve st an di ng , we affi rm th e ba nk ru pt cy co ur t’s de ci si on

to al lo w th e Sea r s Fam il y Mem be rs ’ cl ai m s. Nev ert he le ss , Kor le y ha s st an di ng to

ch al le ng e th e al lo wan ce of th e Sear s Fam il y Mem be rs ’ cl ai m s. Unt il we co ns id ered

t he di sa ll owa nc e of Kor le y ’s Cl ai m No. 26 as a pa rt of th is ap pe al

, th e r e w a s a

po ss ib il it y

th at Korl ey

wou ld be a cl ai m an t o f th e Deb to r’s es ta te

. 6

II I. Deni al of r eque st for co nti nua nce o f hea ri ng an d

hea ri ng w ith tes timony of w itn es se s a nd cr os s- ex amina tio n

The re was no ne ed fo r th e ba nk ru pt cy co ur t to al lo w Ro be rt an d Kor le y m or e

ti m e to de ve lo p th e reco rd or a he ari ng wit h te st im on y an d cro s s- ex am in at io n of

wit ne ss es , be fo re it ru le d on th e cl ai m ob jecti on s. Ban kr up tc y Co de §5 02 (b ) pr ov id es

th at whe n an ob

jecti on to a cl ai m is m ad e, “ th e co ur t, aft er no ti ce an d a he ari ng , sh al l

de te rm in e th e am ou nt of su ch cl ai m

. . . .” Sect io n 10 2( 1) (A) de fin es th e ph ras e “ aft er

no ti ce an d a he ari ng ” as “ aft er su c h no ti ce as is ap pr op ria te in th e pa rt ic ul ar

ci rc ums ta nc es , an d su ch op po rtu ni ty fo r a he ari ng as is ap pr op ria te in th e pa rt ic ul ar

ci rc ums ta nc es .” 11 U.S.C. §1 02 (1 )(A) (em ph as is ad de d) ; se e al

so Y eh ud -Mo no ss on USA, In c. v. Fok

ken a (In re Y

eh ud -Mo no ss on USA, In c.), 45 8 B.R. 75 0, 75 6 (B.A.P.

8t h Ci r. 20 11 ) (aff

irming de ni al of req ue st fo r ev id en ti ary he ari ng pr io r to co nv ers io n

of cas e fro m

Ch ap te r 11 to Ch ap te r 7)

.

By th e da te of th e he ari ng , ov er a ye a r h a d al read y pa ss ed si nc e th e Sear s

Fam il y Mem

be rs fil ed th ei r cl ai m s an d si nc e th e Sear s Fam il y Mem be rs ha d ob

jecte d

W e d o n ot ne ed to co ns id er wh et he r Ro be rt h ad st an di ng be cau se 6

Kor le y als o p art ic ip at ed in th is ap pe al

.

-12-to Kor le y ’s Cl ai m No. 26

. The refo re, Ro be rt an d Kor le y were affo rd ed su ffi ci en t

ti m e to co nd uc t di sc ov ery. Mo reo ve r, Ro be rt an d Kor le y ha ve fai le d to id en ti fy an y
fact is su e th at wou ld ha ve be ne f it te d fro m th e te st im on y an d cro ss -ex am in at io n of

wit ne ss es

. The ba nk ru pt cy co ur t co nd uc te d a he ari ng du rin g whi ch it ne ces sa ril y

as se ss ed th e m at te rs , in cl ud in g th e co m pl ex it y of th e is su es an d whe th er f u r th er

pr oc eed in gs were ne ces sa ry , an d it pr op erl y ru le d on th em in it s Ju ne 8, 20 11 or de r.

CONCLUSI ON

Fo r th e fo reg oi ng reas on s, we AFFIR M th e de ci si on s of th e ba nk ru pt cy co ur t.

-13-