Robert Sears v. Ronald Sears , 733 F.3d 791 ( 2013 )

United States Court of Appeals
For the Eighth Circuit
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No. 12-1305
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In re: AFY, also known as Ainsworth Feed Yards Company, Inc.
lllllllllllllllllllllDebtor
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Robert A. Sears; Korley B. Sears
lllllllllllllllllllllAppellants
v.
Ronald H. Sears; Ron H. Sears Trust; Rhett R. Sears; Rhett Sears Revocable Trust;
Dane Sears
lllllllllllllllllllllAppellees
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Appeal from the United States Bankruptcy
Appellate Panel for the Eighth Circuit
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Submitted: February 13, 2013
Filed: October 23, 2013
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Before RILEY, Chief Judge, LOKEN and SHEPHERD, Circuit Judges.
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RILEY, Chief Judge.
Robert A. Sears and Korley B. Sears (collectively, appellants) claim to be the
only present shareholders of AFY, Inc. (AFY), a debtor in bankruptcy. Rhett R.
Sears, the Rhett R. Sears Revocable Trust, Ronald H. Sears, the Ron H. Sears Trust,
and Dane R. Sears (collectively, appellees) made claims on AFY’s bankruptcy estate
in connection with the sale of appellees’ former interests in AFY. The bankruptcy
court1 denied appellants’ objections to the claims on June 8, 2011. The United States
Bankruptcy Appellate Panel for the Eighth Circuit (BAP) affirmed on January 23,
2012, see In re AFY, Inc. (Sears v. Sears), 463 B.R. 483, 492 (8th Cir. B.A.P. 2012),
and appellants now appeal. Because appellants lack standing to appeal the
bankruptcy court’s order, we dismiss their appeal.
I. BACKGROUND
Appellees sold their ownership interests in AFY in June 2007 pursuant to a
Stock Sale Agreement (Agreement), which they claim jointly obligated Korley and
AFY to pay for appellees’ shares. Appellants maintain that “[a]lthough AFY was a
party to that [A]greement,” only Korley was liable for the price of the shares.
On March 25, 2010, AFY filed for bankruptcy under Chapter 11, 11 U.S.C.
§§ 1101-1174. In response to appellees’ motion to appoint a trustee, the bankruptcy
court appointed Joseph H. Badami as trustee in May 2010.
On April 27, 2010, appellees filed proofs of Claims 8, 9, and 10 in the
bankruptcy court, seeking payment from AFY’s estate for the purchase price of the
stock they sold in the Agreement. Appellants objected to these proofs of claim.
Badami did not object.
1
The Honorable Thomas L. Saladino, Chief Judge, United States Bankruptcy
Court for the District of Nebraska.
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After denying appellants’ motions to postpone the hearing on Claims 8, 9, and
10, and for a hearing with live testimony and cross-examination of witnesses, the
bankruptcy court held a hearing on May 18, 2011, with the affidavits concerning
these claims. On June 8, 2011, the bankruptcy court denied appellants’ objections to
Claims 8, 9, and 10, holding AFY clearly was a “buyer” under the Agreement and
rejecting the affirmative defenses raised by appellants.2 Appellants appealed to the
BAP, which affirmed the bankruptcy court on January 23, 2012. See Sears v. Sears,
463 B.R. at 492.
Appellants now appeal the bankruptcy court’s denials of (1) their objections
to Claims 8, 9, and 10, and (2) their motions for a continuance and a hearing with live
witnesses.
II. DISCUSSION
Appellees assert appellants lack standing to appeal the bankruptcy court’s
order. “‘Appellate standing in bankruptcy cases is more limited than Article III
standing or the prudential standing requirements associated therewith.’” In re AFY,
Inc. (Sears v. Badami), ___ F.3d ___, ___, No. 11-2282 slip op. at 13 (8th Cir. 2013)
(quoting In re Troutman Enters., Inc., 286 F.3d 359, 364 (6th Cir. 2002)). “[T]he
person aggrieved doctrine limits standing to persons with a financial stake in the
bankruptcy court’s order, meaning they were directly and adversely affected
pecuniarily by the order.” Id. at __, slip op. at 12 (quoting In re Marlar, 252 B.R.
743, 748 (8th Cir. B.A.P. 2000)) (internal marks omitted).
AFY, which is the only party directly and adversely affected by the bankruptcy
court’s order allowing Claims 8, 9, and 10, is not a party to this appeal. Any effect
2
In the same order, the bankruptcy court also granted appellees’ objections to
a proof of claim, Claim 26, filed by Korley. On appeal, appellants do not argue
against the bankruptcy court’s order with respect to Claim 26.
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on appellants is indirect, based on their status as shareholders of AFY. Shareholders
may not “‘appeal a bankruptcy court decision where they assert[] only a derivative
interest.’” Id. at ___, slip op. at 14 (quoting In re Troutman Enters., Inc., 286 F.3d
at 365). This “rule, which applies to even a sole shareholder, ‘recognizes that
corporations are entities separate from their shareholders in contradistinction with
partnerships or other unincorporated associations.’” Id. (quoting Smith Setzer &
Sons, Inc. v. S.C. Procurement Review Panel, 20 F.3d 1311, 1317 (4th Cir. 1994)).
Appellants contend they have standing because they will only receive
distributions from AFY’s estate if AFY’s estate is solvent, and Claims 8, 9, and 10
determine the solvency of AFY’s estate. We rejected this argument for standing in
Sears v. Badami, ___ F.3d at ___, slip op. at 18-21, because the issue derives from
appellants’ status as shareholders.
Alternatively, appellants claim they have standing under Singleton v. Wulff,
428 U.S. 106, 114-16 (1976), because they are the only parties who can assert the
rights of AFY, which “has been stripped of all its assets by the appointment of a
Trustee.” As we explained in Sears v. Badami, ___ F.3d at ___, slip op. at 15,
“Singleton only addresses general prudential standing requirements. . . . It does not
confer appellate standing in the bankruptcy context—which involves a stricter
standard.” Singleton therefore does not help appellants. See id.
Finally, to the extent appellants argue that they have standing because Badami
acted in bad faith, we are not persuaded by this argument. Cf. Franchise Tax Bd. of
Cal. v. Alcan Aluminum Ltd., 493 U.S. 331, 336 (1990) (acknowledging an exception
to the shareholder standing rule where a “corporation’s management has refused to
pursue the same action for reasons other than good-faith business judgment”).
Appellants appear to argue—although their reasoning is far from clear—that
Badami’s decision not to object to Claims 8, 9, and 10 was in bad faith because (1)
Badami’s “interests are allied with those of” appellees, who filed the motion to have
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a trustee appointed; and (2) appellants are involved in ongoing litigation with
Badami. Neither assertion is sufficiently supported to establish Badami refused to
object to Claims 8, 9, and 10 for any reason other than good faith business judgment.
The exception to the shareholder standing rule acknowledged in Franchise Tax Board
of California does not apply here. See id.
Because appellants lack standing to appeal the bankruptcy court’s order, we do
not reach the merits of their appeal.
III. CONCLUSION
We dismiss appellants’ appeal from the bankruptcy court’s order overruling
appellants’ objections to Claims 8, 9, and 10.
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