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Sears v. Sears

United States Court of Appeals, Eighth Circuit

July 18, 2017

Rhett R. Sears; Rhett Sears Revocable Trust; Ronald H. Sears; Ron H. Sears Trust; Dane Sears, Appellees,
v.
Korley B. Sears, Appellant, U.S. Trustee, U.S. Trustee.

          Submitted: November 15, 2016

         Appeal from United States District Court for the District of Nebraska - Lincoln

          Before COLLOTON, BEAM, and GRUENDER, Circuit Judges.

          COLLOTON, CIRCUIT JUDGE.

         Korley Sears, a Chapter 11 debtor-in-possession, filed for bankruptcy in 2010. In 2012, several creditors initiated an adversary proceeding against Korley in bankruptcy court. The creditors argued that the court should not discharge Korley from his debts when confirming a plan of reorganization. Following a bench trial, the bankruptcy court[1] denied a discharge on the grounds that Korley concealed his property interest in a fishing boat and trailer, and made a false oath about the boat. The district court[2] affirmed the order. In this appeal, Korley raises several procedural arguments and also disputes the denial of a discharge on the merits. 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." The Searses sold their shares of AFY to the company and Korley Sears. In return, Korley signed promissory notes payable to the Searses.

         In February 2010, Korley filed for bankruptcy under Chapter 11 of the Bankruptcy Code. A principal issue in the bankruptcy case was whether claims filed by the Searses, which totaled over $5.2 million, should be allowed. The bankruptcy court allowed the claims in an order filed in August 2014, and we address Korley's appeal of that order in another decision filed today.

         This appeal concerns a separate order of the bankruptcy court, filed in September 2014, that denied Korley a discharge of his debts. Discharge is governed by 11 U.S.C. §§ 727, made applicable in this Chapter 11 bankruptcy case by 11 U.S.C. § 1141(d)(3)(C). The dispute over discharge arose from a transaction in May 2009 when Korley transferred title to a fishing boat and trailer to business associate April Good. The statement of financial affairs that Korley filed with his bankruptcy petition stated that he had transferred the boat to April Good and her husband Jason, in exchange for the cancellation of an $18, 000 debt. In truth, the Searses now contend, Korley had retained possession of the boat and trailer, but he did not reveal this information in the statement of financial affairs or on a bankruptcy schedule for personal property.

         In February 2012, the Official Committee of Unsecured Creditors in Korley's bankruptcy filed a complaint to avoid and recover certain transfers of property from Korley to the Goods. This adversary action sought to avoid the transfer of the boat on the grounds that the transfer was "preferential" under 11 U.S.C. § 547 and fraudulent under § 548. The Searses contend that after they filed the avoidance action, they learned that Korley had never physically transferred the boat and trailer to the Goods. Instead, they say, he had retained possession of the property and used it for his own enjoyment.

         Therefore, in May 2012, the Searses initiated the adversary proceeding at issue in this appeal, arguing that the court should not grant Korley a discharge of his debts along with confirmation of a plan of reorganization. The Searses asserted that Korley concealed property by failing to disclose a possessory and beneficial interest in the boat and trailer on his statement of financial affairs. See 11 U.S.C. § 727(a)(2). They claimed alternatively that Korley made a "false oath" relating to the property in his statement of financial affairs and a bankruptcy schedule. See 11 U.S.C. § 727(a)(4)(A).

         Following a bench trial in September 2014, the bankruptcy court denied Korley a discharge on both grounds asserted by the creditors. The court relied in part on the absence of testimony from Jason Good that Korley owed him or April Good $18, 000, and the court did not find credible Korley's testimony about the boat. The district court affirmed the denial of discharge, and Korley appeals. As a second court of review, we review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. In re Bowles Sub Parcel A, LLC, 792 F.3d 897, 901 (8th Cir. 2015).

         II.

         Korley raises several procedural objections to the bankruptcy court's judgment denying a discharge. Korley first argues that the bankruptcy court did not have jurisdiction to determine that the Searses were "creditors" who had statutory standing to object to his discharge. Korley's theory is that when he appealed (in the main bankruptcy case) the bankruptcy court's order allowing the claims asserted by the Searses, the bankruptcy court was divested of jurisdiction to decide in this adversary action whether the Searses were creditors. An appeal, however, only divests the bankruptcy court "of its control over those aspects of the case involved in the appeal." In re Fisette, 695 F.3d 803, 806 (8th Cir. 2012) (quotation omitted). Whether the Searses' claims should have been allowed is distinct from whether the Searses were creditors. A creditor is an entity ...


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