Sears v. Sears (In Re AFY, Inc.), 902 F.3d 884

Background

In 2007 several Sears relatives sold their shares in Ainsworth Feed Yards Co., Inc. (AFY) to Korley Sears; Korley and his father Robert later were sole shareholders.
The stock-sale required Korley to deliver promissory notes; Ronald and Dane remained AFY employees and were contractually prohibited from being "disloyal" to AFY.
AFY filed Chapter 11 in 2010, converted to Chapter 7; Rhett, Ronald, and Dane filed claims and the trustee paid them about $2.6 million; the trustee later certified the estate fully administered.
In 2014 Korley and Robert sued Rhett, Ronald, Dane, and related trusts in Nebraska state court alleging breach of the stock-sale agreement, breach of fiduciary duty, unjust enrichment, tortious interference with AFY’s bankruptcy, and abuse of the bankruptcy process.
The defendants removed to bankruptcy court; the bankruptcy court dismissed the complaint as barred by the shareholder-standing rule and claim preclusion; the BAP affirmed; this appeal followed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Jurisdiction: Was removal to bankruptcy court proper under §1334(b) "related to" jurisdiction?	Plaintiffs contended removal was improper under the well-pleaded-complaint rule (Rivet) and that bankruptcy court lacked jurisdiction.	Defendants argued the claims were "related to" AFY’s bankruptcy because relief would affect administration of the estate.	Held: Removal was proper; claims were "related to" AFY’s bankruptcy and well-pleaded rule inapplicable to §1334 removal.
Authority to enter final order: Could the bankruptcy court enter final judgment or only the district court?	Plaintiffs argued only a district court could enter final orders absent express consent.	Defendants argued plaintiffs impliedly consented by failing to timely object and by electing appeal to the BAP.	Held: Plaintiffs impliedly consented to final adjudication by the bankruptcy court.
Article I adjudication of private rights (Stern): Was bankruptcy court constitutionally barred from deciding private-right claims?	Plaintiffs argued the claims implicated private rights that an Article I court cannot finally adjudicate without consent.	Defendants argued plaintiffs impliedly consented and never raised a Stern challenge timely.	Held: Plaintiffs impliedly consented; Stern challenge waived; bankruptcy court could adjudicate.
Merits: Were plaintiffs’ claims barred by the shareholder-standing rule?	Plaintiffs argued they suffered particularized injuries and that fiduciary duties were owed to them.	Defendants argued the asserted injuries were derivative of harm to AFY and no special duty to shareholders existed.	Held: Claims were derivative and barred by the shareholder-standing rule; no special-duty exception applied.

Key Cases Cited

Franchise Tax Bd. of Cal. v. Alcan Aluminium Ltd., 493 U.S. 331 (1990) (describes shareholder-standing rule and its equitable limitation)
Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770 (8th Cir. 1995) (defines "related to" bankruptcy jurisdiction standard)
In re Dogpatch U.S.A., Inc., 810 F.2d 782 (8th Cir. 1987) (scope of "related to" jurisdiction and effect on estate)
Rivet v. Regions Bank of Louisiana, 522 U.S. 470 (1998) (well-pleaded complaint rule applies to §1331 federal-question jurisdiction)
Am. Nat’l Red Cross v. S.G., 505 U.S. 247 (1992) (distinguishes removal bases and applicability of well-pleaded rule)
Stern v. Marshall, 564 U.S. 462 (2011) (limits Article I bankruptcy court final adjudication of certain private-right claims)
Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015) (parties may consent to Article I adjudication of Stern-type claims)
Abramowitz v. Palmer, 999 F.2d 1274 (8th Cir. 1993) (implied consent supports bankruptcy court final adjudication)
Potthoff v. Morin, 245 F.3d 710 (8th Cir. 2001) (distinguishes direct versus derivative shareholder injuries)
Taha v. Engstrand, 987 F.2d 505 (8th Cir. 1993) (special-duty and separate-injury exception to shareholder-standing rule)