Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

In re AFY, Inc.

United States Court of Appeals, Eighth Circuit

September 6, 2018

In re: AFY, Inc., also known as Ainsworth Feed Yards Company, Inc., Debtor.
v.
Rhett R. Sears; Rhett Sears Revocable Trust; Ronald H. Sears; Ron H. Sears Trust; Dane Sears, Appellees. Robert A. Sears, individually and as testamentary trustee under the will of Redmond Sears, deceased; Korley B. Sears, Appellants,

          Submitted: May 15, 2018

          Appeal from the United States Bankruptcy Appellate Panel for the Eighth Circuit

          Before SMITH, Chief Judge, BEAM and COLLOTON, Circuit Judges.

          COLLOTON, CIRCUIT JUDGE.

         Korley Sears and Robert Sears appeal a decision of the Bankruptcy Appellate Panel affirming a bankruptcy court's[1] dismissal of their claims in a protracted family dispute. We agree with the BAP that the claims are barred by the shareholder standing rule, and we therefore affirm.

         I.

         In 2007, a group of relatives owned shares in a Nebraska corporation called Ainsworth Feed Yards Company, Inc. ("AFY"). Several of these parties-Rhett Sears, Ronald Sears, and Dane Sears-sold their interest to AFY and Korley Sears through a stock sale agreement. The agreement conditioned the sale of the shares on delivery of promissory notes from Korley to Rhett, Ronald, and Dane. Under the agreement, Ronald and Dane remained employees of AFY but were not permitted to "be disloyal to AFY or its management in any way." After the agreement was executed, Korley and his father Robert Sears were the sole shareholders of AFY.

         In 2010, AFY filed for Chapter 11 bankruptcy. The bankruptcy court later converted the proceeding to a Chapter 7 bankruptcy. Rhett, Ronald, and Dane filed claims for the moneys owed to them under the stock sale agreement; Robert and Korley objected to the claims. See Fed. R. Bankr. P. 3001.

         The bankruptcy court ultimately concluded that AFY was liable for the purchase price of the stock sold by Rhett, Ronald, and Dane. The court also ruled that none of those family members had breached any duty under the agreement. In early 2014, the bankruptcy trustee made payments from AFY to Rhett, Ronald, and Dane of approximately $2.6 million. In 2015, the trustee certified that AFY's estate had been fully administered.

         In October 2014, Korley and Robert (both individually and as testamentary trustee for his late father) filed a lawsuit in Nebraska state court. They sued Rhett, Ronald, Dane, and also the Rhett R. Sears Revocable Trust and the Ron H. Sears Trust (collectively, the "Sears Defendants"). The plaintiffs alleged that: (1) the Sears Defendants breached the stock sale agreement; (2) Ronald and Dane breached their fiduciary duty to AFY; (3) the Sears Defendants were unjustly enriched by distributions from AFY's bankruptcy; (4) the Sears Defendants conspired and interfered with AFY's business expectancies during AFY's bankruptcy; and (5) the Sears Defendants abused the bankruptcy process.

         The Sears Defendants removed the complaint from state court to the federal bankruptcy court. The bankruptcy court ultimately dismissed the complaint on the ground that the shareholder standing rule and the doctrine of claim preclusion barred the plaintiffs' claims. The BAP affirmed. In an appeal from a decision of the BAP, we are a second reviewing court, and we review the bankruptcy court's decision de novo. In re Peoples, 764 F.3d 817, 820 (8th Cir. 2014).

         II.

         As a threshold matter, the plaintiffs argue that the bankruptcy court lacked jurisdiction over the case. A bankruptcy court, on referral from a district court, has jurisdiction in cases "arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b); see id. § 157(a); Neb. D. Ct. Gen. R. 1.5. A case is "related to" Title 11 when "the outcome of that proceeding could conceivably have any effect on the estate being administered in the bankruptcy." Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770, 774 (8th Cir. 1995) (quoting In re Dogpatch U.S.A., Inc., 810 F.2d 782, 786 (8th Cir. 1987)). There is such an effect if the outcome of the case "could alter the debtor's rights, liabilities, options, or freedom of action," and could "in any way impact[] upon the handling and administration of the bankruptcy estate." Id. (quoting Dogpatch, 810 F.2d at 786).

         This case, at a minimum, is "related to" a case under Title 11. In their complaint, the plaintiffs claimed that the Sears Defendants breached the stock sale agreement by obtaining the appointment of a trustee in AFY's bankruptcy case and by filing "bogus" claims in AFY's bankruptcy. They asserted that Ronald and Dane breached a fiduciary duty to AFY and its management, and that the Sears Defendants were unjustly enriched by receiving distributions from the AFY bankruptcy estate. They further alleged that the Sears Defendants tortiously interfered with the business expectancies of AFY by interfering with AFY's bankruptcy proceeding. Finally, they claimed that the Sears Defendants abused the bankruptcy process by representing themselves as creditors of AFY. The outcome sought by the plaintiffs, by requiring redistribution of AFY's bankruptcy estate, could alter AFY's ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.