Janice D. Loyd, U.S. Bankruptcy Judge.
Where a Chapter 7 creditor has failed to file a proof of claim within the bar date for claims, under the facts specific to this case, can a creditor's previously filed pleadings constitute a timely filed "informal proof of claim"? Before the Court for consideration are Creditors', Falcon Strategic Partners IV, LP, J & R Investment Group, LLC, K. Rick Turner Revocable Trust and Manuel F. Gonzalez (collectively "Falcon"), Motion for Amendment of Informal Proofs of Claim (the "Motion") [Doc. 230], the Trustee's Objection to Motion for Amendment of Informal Proofs of Claim (the "Objection") [Doc. 246], creditor B & T Rentals, Inc.'s Joinder in and Adoption of Trustee's Objection to Motion for Amendment of Informal Proofs of Claim ("B & T") [Doc. 247], Falcon's Reply to Objections of the Trustee and B & T Rentals, Inc. (the "Reply") [Doc. 251], Falcon's Post-Hearing Memorandum [Doc. 275], Trustee's Response to Falcon's Post-Hearing Memorandum [Doc. 276] and B & T Rentals, Inc.'s Joinder in and Adoption of Trustee's Response to Falcon's Post-Hearing Memorandum. [Doc. 278].
On December 4, 2019, the Court heard oral argument, testimony and documentary evidence from Falcon in support of its Motion and the Objection of the Trustee. Following the hearing and in accordance with the Order of the Court, Falcon, the Trustee and B & T submitted post-hearing memoranda on the issue of the effect of Falcon's withdrawal of its Motion to Lift Automatic Stay (the "Stay Motion") which it claims is one of the basis for this Court finding the existence of an informal proof of claim. The Court has reviewed the motions, briefs, exhibits, heard the arguments of counsel and examined the entire record in the case. Based on that review and the following Findings of Fact and Conclusions of Law pursuant to Fed.R.Bankr.P. 7052 and 9014,
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b) and 157(a) and the Order of Reference of the United States District Court for the Western District of Oklahoma as Local Rule LCvR 81.4(a). This is a "core proceeding" under 28 U.S.C. § 157(b)(2)(B) (allowance or disallowance of claims against the estate).
This case was originally filed as an involuntary proceeding on April 15, 2019, by creditors B & T, Stevens Trucking Co., and SMS Precision Tech. By consent of all the parties, an Order for Relief was entered under Chapter 7 of the United States Bankruptcy Code (11 U.S.C. § 101 et seq.)
On July 10, 2019, the Court Clerk issued its Notice to File Proof of Claim ("POC") setting October 8, 2019, as the bar date for filing proofs of claims. [Doc. 151]. Eighty-four (84) creditors timely filed a POC. Falcon did not. It filed its proofs of claim on October 10, 2019, two days late. [POC's 85-1, 86-1, 87-1, & 88-1]. Falcon's proofs of claim stated a total combined claim of
In the instant case, there is no dispute that Falcon filed its proofs of claim outside the time frame allocated by the Federal Rules of Bankruptcy Procedure. Nor does Falcon attempt to excuse the tardy filing of its proofs of claim. It acknowledges that it "began preparing proofs of claim for filing in this case in July 2019 with the intention of filing the proofs of claim prior to the bar date of October 8, 2019. The proofs of claims were finalized in August 2019 but not filed prior to the bar date." [Motion, Doc. 230, ¶ 10]. It further acknowledges that the late filing was due solely to "miscommunication within the law firm." [Doc. 251-1, ¶ 17].
Rule 3001(a) defines a proof of claim as "a written statement setting forth a creditor's claim [and] shall conform substantially to the appropriate Official Form."
Although Rule 3002 requires the proof of claim to be filed within a specified time period to participate on a parity with like claims, the court has discretion to permit an amendment to the proof of claim. See, In re AM International, Inc., 67 B.R. 79, 81 (N.D. Ill. 1986) ("Bankruptcy Rule 7015 expressly adopts Federal Rule of Civil Procedure 15 as the standard for deciding whether to permit an amendment to a proof of claim. Fed.R.Civ.P. 15(a) states that leave to amend `shall be freely given when justice so requires.' Nevertheless, the decision to grant or deny an amendment is within the bankruptcy judge's discretion.") (citations omitted). In order for an amendment to be permissible, whatever is filed must meet the minimum standards of Rule 3001 and § 501 of the Code. A technical defect in a proof of claim clearly may be cured by amendment. In re International Horizons, Inc., 751 F.2d 1213, 1216 (11th Cir. 1985). It is equally clear that an amendment to a claim may not advance a wholly new claim or a theory of liability based on different facts. Id.
What is less clear is whether an instrument denominated as something other than a proof of claim may serve as the basis of an amendable claim. This gives rise to the issue of the "informal proof of claim".
In In re McCutchen, 536 B.R. 930, 939 (Bankr. N.D. Okla. 2015), Judge Michael, citing Judge Karlin in In re Spresser, 2011 WL 2083964 at *2 (Bankr. D. Kan. 2011), defined an "informal proof of claim" as follows:
In effect, the doctrine permits a bankruptcy court to treat the pre-deadline filings as an informal proof of claim that can be amended after the deadline to be in conformity with the requirements of the Code.
In determining what constitutes an informal proof of claim, courts have applied various tests in reaching its conclusions as to what is or is not an informal proof of claim. In examining the reported case law involving informal proofs of claim as well as the historical development of the equitable doctrine, Judge Grant in In re Fink, 366 B.R. 870, 874-76 (Bankr. N.D. Ind. 2007), came to the conclusion that "the doctrine is sorely in need of pruning in order to bring some clarity to its proper application and usage." As Judge Grant pointed out "[t]he decisions are not consistent. For every decision which comes to the conclusion that something constitutes an informal proof of claim, one can easily find another saying that it does not. See e.g., In re Charter Co., 876 F.2d 861, 864-65 (11th Cir. 1989) (motion for relief from the automatic stay constitutes an informal proof of claim); In re Anchor Resources Corp., 139 B.R. 954 (D. Colo.1992) (motion for relief from stay does not constitute an informal proof of claim); In re Benedict, 65 B.R. 95 (Bankr. N.D. N.Y. 1986) (objection to confirmation is an informal proof of claim); In re Stewart, 46 B.R. 73 (Bankr. D. Or. 1985) (objection to confirmation is not an informal proof of claim); In re Scott, 67 B.R. 1011, 1013 (Bankr. M.D. Fla. 1986) (complaint objecting to discharge and objection to plan constitute an informal proof of claim); In re Holzer, 20 C.B.C. 227 (Bankr. S.D. N.Y. 1979) (dischargeability complaint may not be used as an informal claim)." Id., at pg. 874. "The doctrine has been applied in so many ways that just about any result can be justified by some
In the Tenth Circuit, the seminal case on the issue of what constitutes an "informal" proof of claim is In re Reliance Equities, Inc., 966 F.2d 1338, 1345 (10th Cir. 1992) ("Reliance)" which adopted a five-part test to determine the existence of an informal proof of claim:
See also, In re Boucek, 280 B.R. 533, 535-36 (Bankr. D. Kan. 2002); In re Allied Discount Corp., 2008 WL 746993 at *3 (Bankr. D. N.M. 2008); In re Commercial Capital, Inc., 2012 WL 4336150 at *2 (Bankr. D. Colo. 2012).
In support of its position, Falcon acknowledges the Reliance test but cites to a number of cases from other circuits which use differing tests or standards and urges the court to apply the more liberal approach of courts in those Circuits. This the Court declines to do. The Court will apply the test enumerated by the Tenth Circuit in Reliance to the facts in this case.
In oral argument at the hearing, Falcon asserted that there were five filings/writings
(1) Motion for Relief from Automatic Stay, Abandonment of Property and Waiver of Rule 4001 filed jointly by Falcon and the state court receiver, David R. Payne on April 29, 2019 (the "Stay Motion") [Doc. 20];
(2) Amendment to Motion for Relief from Automatic Stay, for Abandonment of Property and Waiver of Rule 4001 filed jointly by Falcon and the state court receiver, David R. Payne May 1, 2019 (the "Amendment") [Doc 29].
(3) Notice of Withdrawal of Motion for Relief from the Automatic Stay, for Abandonment of Property and Waiver of Rule 4001 filed jointly by Falcon and the state court receiver, David R. Payne on May 23, 2019 [Doc. 74].
(4) Reply of Falcon Strategic Partners IV, LP, J & R Investment Group, LLC, K. Rick Turner Revocable Trust, and Manuel F. Gonzalez to B & T Rentals, Inc.'s Response to Trustee's Motion to Sell filed July 12, 2019 [Doc. 156].
The first, and perhaps the most heavily relied upon, pleading upon which Falcon claims constitutes an "informal proof of claim" is its (jointly with the state court receiver, David R. Payne) Stay Motion [Doc. 20]. Courts have held that in order for a motion for relief from the automatic stay to constitute an informal proof of claim the motion must make a demand on the estate and evidence an intent to hold the debtor liable on the claim. See e.g. In re Roberts, 367 B.R. 677, 682 (Bankr. D. Colo. 2007). In In re McCutchen, 536 B.R. 930 (Bankr. N.D. Okla. 2015) in rejecting the creditor's claim of an informal proof of claim having been filed via its motion to lift stay, Judge Michael stated:
Id., at 942. See also, In re Mitchell, 82 B.R. 583, 586 (Bankr. W.D. Okla. 1988) (motion to modify stay to permit foreclosure did not make demand on estate or manifest an intent to hold it liable; creditors could have moved for a determination under § 506(a) of the allowed amounts of secured and unsecured claims if the creditors actually meant to establish a claim against the estate); In re Anchor Resources Corp., 139 B.R. 954, 957-58 (D. Colo. 1992) (holding undersecured creditor's motion for relief from stay did not constitute an informal proof of claim to which subsequent, untimely proof of claim for deficiency could relate back; motion sought only permission to foreclose on collateral and did not state intention to hold debtor or estate liable for amount of any deficiency). In denying a motion to lift stay as an informal proof of claim, Judge Tallman in In re Roberts, 367 B.R. 677, 681-82 (Bankr. D. Colo. 2007) noted:
Also see, In re Glick, 136 B.R. 654, 657-58 (Bankr. W.D. Va. 1991) (extensively relied upon and quoted at length in McCutchen)
As described above, the second and third requirements of Reliance are that "the writing must contain a demand by the creditor on the debtor's estate and the writing must express an intent to hold the debtor liable for the debt." The Court notes that nowhere in Falcon's Stay Motion is there reasonable notice of its intent to seek a deficiency claim against the Debtor's estate, or even mention any unsecured portion of Falcon's claim. In fact, Falcon's Stay Motion asserts that it "holds claims exceeding $20,000,000 secured by virtually all of the Debtor's assets, including a subordinate security interest in the Debtor's Accounts Receivable;" that the Debtor has no equity in its assets greater than the secured claims; that the debtor's property is "burdensome and is of no consequential value to the Estate;" and that the debtor's property "be deemed abandoned from the Estate because there is no value in the property beyond the amounts needed to pay secured claims that fully encumber the property." [Doc. 20, ¶¶ 12 & 42]. Subsequently, Falcon jointly with the state court receiver amended the Stay Motion to allow for the abandonment of the property and the sale of same by the state court receiver. The Amendment did withdraw any request seeking abandonment of cash proceeds from any sale, but did not address any unsecured claims of Falcon.
This is not an untypical situation in which many undersecured creditor's seeking relief from the automatic stay are simply content to have their collateral returned without making any further demands on the bankruptcy estate if they believe there is no equity in the debtor's assets from which unsecured creditors might receive a dividend. See In re Spresser, 2011 WL 2083964, *5 (Bankr. D. Kan. 2011) ("A stay relief motion, by its very nature, would typically not make such claims. The purpose of the stay relief motion was to seek permission to pursue remedies outside the bankruptcy context in hopes of collecting some, or all, of (the creditor's) claim against Debtors.") This Court does not find that there is language in Falcon's Stay Motion or the Amendment evidencing an intent to seek to recover an unsecured deficiency claim against the Debtor estate in the event that its secured claim was disallowed or its collateral sold and applied against the debt.
At the evidentiary hearing, Falcon submitted to the court as a "judicial aid" a list of ten cases which had addressed the issue of whether a motion for relief from stay could constitute an informal proof of claim. There were four cases listed as finding a motion to lift stay an informal proof of claim, and six cases finding that the motion did not so qualify.
For example, the Fourth Circuit, in which one of the cases cited by Falcon in support of its position, has only two requirements for an informal proof of claim: (1) an affirmative act to put the Court and the parties on notice of the assertion of a specific claim and (2) possession of an intent to collect that claim. See, In re Elleco, 295 B.R. 797, 800 (Bankr. D. S.C. 2002) ("[T]he Fourth Circuit has adopted a liberal view toward finding an informal proof of claim where, if there is anything in the bankruptcy case's record that establishes a claim, the informal proof of claim may be amended when substantial justice will be done by allowing the amendment.").
Two other cases relied upon by Falcon are from the Ninth Circuit which only requires that the subject document: (1) state an explicit demand showing the nature and amount of the claim against the estate, and (2) evidence of an intent to hold the debtor liable. In re Holm, 931 F.2d 620, 622 (9th Cir. 1991) (acknowledging that the Court has "consistently applied the `so-called rule of liberality in amendments' to creditors' proofs of claim"). The Ninth Circuit does not require the document that purports to be an informal proof of claim to be filed in the court. Id., at 622.
Clearly, the cases cited by Falcon in support of its informal proofs of claim follow a much more liberal standard and they are neither factually or legally applicable to the present case. The standard followed by most, if not all the bankruptcy courts in this circuit adhere to the stricter Reliance test. Indeed, all four of the cases within the Tenth Circuit listed in Falcon's "aid to the Court" found that a motion to lift stay did not constitute an informal proof of claim. (Anchor, Mitchell, Roberts and Spresser, supra).
The Trustee points out that the Stay Motion was withdrawn and argues that the withdrawal renders the Stay Motion a legal nullity which cannot serve as the basis of an informal proof of claim. Falcon argues otherwise. There is no case authority in the Tenth Circuit addressing the issue. Falcon is essentially correct when it points out that "the cases unanimously recognized that the notice and writing requirements of informal proof of claim doctrine can be satisfied even though the filing party has elected not to pursue the relief sought by the withdrawn filing." (Emphasis this Court's) [Doc. 275, pg. 1].
Another pleading which Falcon asserts comprises the informal proof of claim are the Schedules filed by the Trustee which indicate that Falcon holds a secured claim in the amount of $56,227,297 supported by collateral estimated at $13 million. The Secured Claim is not scheduled as contingent, unliquidated or disputed. The argument that a debtor's bankruptcy Schedules can constitute an informal proof of claim has been rejected. In re Wynn, 285 B.R. 344 (Table), 2002 WL 1270176 at *5 (10th Cir. BAP 2002) ("[T]he fact that even if the statements in the Debtor's Schedules and proposed plan acknowledge a debt ..., they are not informal proofs of claim on behalf of the Creditors, because they were made by the Debtor, not the Creditor. Thus, the statements `do not contain a demand by the Creditor[s] on the debtor's estate' or express the Creditor's `intent to hold the debtor liable for the debt'" as required by Reliance) (Emphasis original); In re Casterline, 51 B.R. 219, 220 (Bankr. D. Colo. 1985) (mere inclusion of a claim in the debtor's schedules does not constitute an informal proof of claim). As stated in In re Barker, 2014 WL 1273765 (9th Cir. BAP 2014):
Falcon asserts that its Reply to B & T Rental's Response to Trustee's Motion to Sell is another pleading comprising its informal proof of claim. In its one-page, two-paragraph reply, Falcon expressly disputed the contention by another creditor that its liens were voidable, but to facilitate approval of the sale, Falcon waived any right to credit bid. This, Falcon claims, was an act "irrevocably demonstrating
Falcon claims that its one-page response to the Petitioning Creditors' Application for Allowance of Administrative Expenses evidences an informal proof of claim. Falcon argues that "the[se] written filings by Falcon made the amount and nature of its claim crystal clear and the intent to recover from the estate is indisputably evidenced." [Motion, Doc. 230, ¶ 23]. The Court disagrees. Falcon did not object to the Trustee's payment of administrative fees to the petitioning creditors, only that the payment of administrative expenses of the petitioning creditors was premature. Again, there is no mention in Falcon's response as to either the amount or the nature of the debt owed it. The Trustee properly argues that the "Response and the Reply-individually or collectively-does not expressly demand payment from the bankruptcy estate or the debtor." [Doc. 246, ¶ 20]. As argued by the Trustee, "to the contrary, the pleadings filed by Falcon `indisputably evidence' a desire to have its debt paid through enforcement of its security interest in Debtor's property, and not from the Debtor or the estate." [Doc. 246, ¶ 20].
The Court finds that none of Falcon's five filings/writings relied upon or the schedules as prepared and filed by the Trustee meet the first four requirements of the Reliance test.
Falcon asserts that the Informal Proof of Claim Doctrine is a judicially created principle based on equitable principles. [Motion, Doc. 230, ¶ 24]. That is true. Reliance, 966 F.2d at 1345; Houbigant, Inc., v. ACB Mercantile, Inc. (In re Houbigant, Inc.), 190 B.R. 185, 187 (Bankr. S.D. N.Y. 1995) ("The informal proof of claim is an equitable principle developed by courts to alleviate the harsh results of strict enforcement of the bar date".).
There is no specific statutory basis for invocation of the doctrine. However, the fact that the doctrine is equitable does not mean that equitable considerations standing alone can establish an informal proof of claim. "Equitable" considerations are but one of the five-part test of Reliance and its progeny. The five elements for an informal proof of claim established in Reliance are in the conjunctive, i.e. the use of the word "and" makes clear that each and every one of the five factors must be present. Only if the document(s) meet the first four requirements is the Court to determine whether, given the particular circumstances of the case, it would be equitable to treat the document(s) as a proof of claim. See e.g. Hefta v. Official Committee of Unsecured Creditors (In re American Classic Voyages Co.) 405 F.3d 127, 131-32 (3rd Cir. 2005). The Court has already found that the first four Reliance factors are not present.
The Court acknowledges that were this issue to be decided on the equities alone Falcon would perhaps have a
When analyzing the "equitable" requirement under Reliance courts consider (1) whether the claimant is sophisticated; (2) whether the claimant had actual notice of the bar date; and (3) whether the claimant was intimately involved in the debtor's case. In re Egan, 526 B.R. 111, 114 (Bankr. S.D. N.Y. 2015); In re Colley, 570 B.R. 346, 350 (Bankr. E.D. Okla. 2017). Furthermore, "Courts are less likely to employ the informal proof of claim doctrine where the creditor is represented by counsel, as `[a]ttorneys practicing in bankruptcy court are charged with a general knowledge of the Federal Rules of Bankruptcy Procedure.'" Egan, 526 B.R. at 114 (quoting In re Han-Hsien Tuan, 2013 WL 5719505, at *5 (D. N.J. 2013); Reliance, 966 F.2d at 1345 ("equities do not favor protecting a financial organization that had numerous opportunities to protect itself."); Colley, 570 B.R. at 350 ("Chase is a sophisticated creditor. Chase had notice of the claims bar date. Chase participated in the case.... Chase was represented by counsel who regularly practices in bankruptcy court.").)
In the present case, it does not appear to be disputed that Falcon is a sophisticated investor,
There is little doubt that the Trustee was aware that Falcon was asserting a secured claim in this bankruptcy. In fact, Falcon's taking a blanket security interest in the Debtor's property which could possibly be avoided as a preferential transfer under § 547 was the primary reason for the filing of the involuntary petition. The problem for Falcon, however, is that the Trustee's actual knowledge of its claim standing alone is insufficient for the filing of an informal proof of claim. Creating informal proofs of claim by imputing knowledge to the trustee would unduly burden the administration of the estate by relying on what the trustee knew and requiring the trustee to investigate all rumors of claims before closing the estate rather than upon objective reference to the claim filing system. Cf. In re Davis, 108 B.R. 95, 99 (Bankr. D. Md. 1989) (mere knowledge of the trustee is not enough to constitute an informal proof of claim); In re Nutri*Bevco, Inc., 117 B.R. 771, 789 (Bankr. S.D. N.Y. 1990) (informal proof of claim must set out in a writing with the requisite degree of specificity); In re International Horizons, Inc., 751 F.2d 1213,
There are few tasks a bankruptcy judge is asked to perform which is more disagreeable than barring a party's claim due to an error made by counsel. The task is doubly unpleasant where, as here, counsel and his firm are superlative practitioners, leaders in the bankruptcy bar and counsel for whom this Court has great respect. As the Court stated from the bench at the conclusion of the hearing in this matter, having been in private practice for almost 30 years before taking the bench, missing a deadline is one thing which keeps attorneys awake at night. But unpleasant as is the task of barring a claim under these circumstances, it is one from which a conscientious bankruptcy judge just cannot shrink or abstain from when the issue is one integral to the bankruptcy system and required by the Bankruptcy Code.
Falcon was given proper notice of the claims bar date but failed to file a proof of claim within that deadline even though represented by competent bankruptcy counsel.
