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In re AFY

United States Court of Appeals, Eighth Circuit

October 23, 2013

In re: AFY, also known as Ainsworth Feed Yards Company, Inc., Debtor
v.
U.S. Trustee, U.S. Trustee Robert A. Sears; Sears Cattle Co.; Korley B. Sears, Appellants Joseph H. Badami, Trustee-Appellee Rolling Stone Land & Cattle, LLC, Interested party-Appellee.

Submitted: Feb. 13, 2013.

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Jerry L. Strasheim, argued, Omaha, NE, for Appellant.

Monica L Freeman, argued, Omaha, NE, (Krista L. Kester and James A. Overcash, on the brief, both of Lincoln, NE) for appellee Joseph H. Badami.

Russell Allan Westerhold, on the brief, Omaha, NE, for Rolling Stone Land & Cattle, LLC.

Before RILEY, Chief Judge, LOKEN and SHEPHERD, Circuit Judges.

RILEY, Chief Judge.

Robert A. Sears and Korley B. Sears (collectively, the Sears) claim to be the sole shareholders, officers, and directors of AFY, Inc. (AFY), a debtor in bankruptcy, and Sears Cattle Co. (Sears Cattle). On February 9, 2010, AFY and Sears Cattle contracted to sell jointly-owned property, including Tracts 1 and 4,[1] at auction. In March 2010, AFY voluntarily filed for bankruptcy under Chapter 11, 11 U.S.C. §§ 1101-1174, and Joseph H. Badami was appointed trustee in May of that year.

On May 14, 2010, the bankruptcy court [2] granted Badami's motions to assume the

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February 9 purchase agreements (sale order). The Sears and Sears Cattle objected to Badami's attempt to assume the Tract 1 purchase agreement. The bankruptcy court later granted Badami's motion to compel Sears Cattle and Robert to close the sales (enforcement order). On June 1, 2010, Robert and Sears Cattle appealed, among other orders, the sale order and the enforcement order to the district court [3] (Tract 1 appeal). On June 17, 2010, the bankruptcy court notified the district court that Badami reported closing all sales of AFY's real estate. On September 15, 2010, the district court dismissed the Tract 1 appeal on the ground that it was moot under 11 U.S.C. § 363(m).

The bankruptcy court also granted Badami's motions to pay all of the Tract 4 proceeds to Farm Credit Services of America (Farm Credit), a secured creditor of AFY, (order to pay funds) and to convert AFY's Chapter 11 reorganization to a Chapter 7 liquidation, 11 U.S.C. §§ 701-784 (conversion order). Robert and Korley, " individually and on behalf of Sears Cattle," appealed the order to pay funds and the conversion order to the district court, which on May 11, 2011, dismissed both appeals for lack of jurisdiction.

The Sears and Sears Cattle (collectively, appellants) appeal the district court's dismissal of all three appeals and the underlying bankruptcy court orders. Because the district court properly dismissed the appeals, we affirm.

I. BACKGROUND

Robert and Korley claim to be the sole shareholders, officers, and directors of AFY and Sears Cattle. Before bankruptcy, AFY owned and operated a cattle feed yard and raised crops. AFY also owned certain real estate, including Tracts 1 and 4, jointly with Sears Cattle. On May 29, 2008, AFY and Sears Cattle executed a deed of trust on Tract 4 in favor of Farm Credit. On February 9, 2010, AFY and Sears Cattle sold jointly-owned property, including Tract 1 and Tract 4,[4] at auction. Rolling Stone Land & Cattle, LLC (Rolling Stone) was the highest bidder for Tract 1 and entered into an agreement to purchase Tract 1 with AFY and Sears Cattle that day. ConsAg bought Tract 4. Though AFY arguably owned a 25% interest in Tract 4, only Sears Cattle executed a purchase agreement with ConsAg.

On March 25, 2010, AFY voluntarily filed for Chapter 11 bankruptcy.[5] Badami was appointed trustee for AFY's estate on May 6, 2010.

A. Tract 1 Orders

On May 7, 2010, Badami moved the bankruptcy court for the authority to assume the February 9 purchase agreements as executory contracts and sell the underlying property. See 11 U.S.C. § 365. The Sears and AFY objected to Badami's attempt to assume the Tract 1 purchase agreement. They did not object to Badami's assumption and sale of Tract 4. In the May 14, 2010 sale order, the bankruptcy court granted Badami's motion and declared that Rolling Stone was a purchaser in good faith protected by 11 U.S.C. § 363(m). The same day, the bankruptcy court denied AFY's motion to stay the sale order pending appeal.

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Badami moved to compel Sears Cattle and Robert " to execute and deliver all deeds and necessary documents to close the sale[s]," claiming Sears Cattle had " failed and refused" to sign the deeds to convey Tract 1 and Tract 4. The bankruptcy court granted Badami's motion in its enforcement order.

On June 1, 2010, Robert and Sears Cattle appealed the sale order and the enforcement order to the district court. The next day, they moved in the district court to stay the orders pending appeal. The district court denied the stay on June 3, 2010.

On June 17, 2010, the bankruptcy court informed the district court that Badami had reported closing all sales of AFY's real estate. On September 15, 2010, the district court dismissed the Tract 1 appeal on the ground that it was moot under 11 U.S.C. § 363(m) because Rolling Stone bought Tract 1 in good faith, and neither Badami's authorization nor the sale had been stayed pending appeal to the district court. Korley,[6] Robert, and Sears Cattle appeal the district court's dismissal of the Tract 1 appeal.

B. Order to Pay Funds and Conversion Order

Badami moved to pay the proceeds from selling Tract 4 to Farm Credit because AFY's debt to Farm Credit, secured by Tract 4, exceeded the amount of the proceeds from selling Tract 4. Robert and Korley,[7] " individually and on behalf of Sears Cattle," objected on the ground that Sears Cattle was entitled to 75% of the proceeds, commensurate with its 75% ownership interest in Tract 4 before the sale. On July 22, 2010, the bankruptcy court granted Badami's motion in the order to pay funds.

The notice of appeal to the district court stated " Robert A. Sears and Korley B. Sears, individually and on behalf of Sears Cattle Co., of which they are the sole directors, officers, and shareholders, and the Objectors in the proceedings below" appeal the order to pay funds. The notice then listed " [t]he names of all parties to the contested matter in which the order was entered that is appealed from and the names and addresses of their respective attorneys" as " Korley B. Sears and Robert A. Sears," Badami, the United States Trustee, and other individuals and trusts not involved in this appeal. The notice did not list Sears Cattle. The notice was signed by counsel for " Robert A. Sears and Korley B. Sears, Appellants." Nothing in the signature block indicated any affiliation with Sears Cattle.

On September 2, 2010, the bankruptcy court granted Badami's motion to convert AFY's Chapter 11 reorganization to a Chapter 7 liquidation, over Robert's and Korley's objection. Robert and Korley appealed this conversion order to the district court.

On February 14, 2011, the district court entered an order to show cause why the appeals from the order to pay funds and conversion order should not be dismissed for lack of jurisdiction. On May 11, 2011, the district court dismissed these appeals for lack of jurisdiction because (1) Sears Cattle did not object to the motion to pay funds; (2) if Sears Cattle had objected to the motion to pay funds, Sears Cattle did not appeal the order to pay funds; and (3) Robert and Korley did not have standing

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to pursue either appeal. The Sears and Sears Cattle appeal the district court's dismissal of ...


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